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Inside Cover: Spokesman
D. L. Tseng
Vice President, Finance
Tel: 886-3-5770355
E-mail: VIS_PR@vis.com.tw
Acting Spokesperson
K. S. Chiang
Director, Finance Division
Tel: 886-3-5770355
E-mail: kschiang@vis.com.tw
Vanguard International Semiconductor Corporation
123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.
Website: http: //www.vis.com.tw
Tel: 886-3-5770355
Fax: 886-3-5788572
Fab1
123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.
Tel: 886-3-5770355
Fab2
9, Li-Shin Rd., Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.
Tel: 886-3-5632111
Fab3
168, Chang-Rong RD.,14 Neighborhood, ChangXing Vil., Luzhu Dist.,Taoyuan City,
Taiwan ,R.O.C..
Tel: 886-3-3116111
Common Stock Transfer Agent
China Trust Commercial Bank
Transfer Agency Department
Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei, Taiwan 100, R.O.C.
Website: http://www.ctbcbank.com
Tel: 886-2-6636-5566
Auditors
Yu-Feng Huang / Cheng-Chih Lin
Deloitte & Touche
12th Floor, 156 Min Sheng E. Road, Sec. 3, Taipei 105, Taiwan R.O.C.
Website: http: //www.deloitte.com.tw
Tel: 886-2-2545-9988
Name of any exchanges where the company's securities are traded offshore, and
method by which to access information on said offshore securities:
Not applicable
I. A Letter to Shareholders.............................................................................. 1II. A Brief Introduction of VIS......................................................................... 5
Company Profi le......................................................................................................................................... 5III. Corporate Governance Report..................................................................... 7
A. Company Organization....................................................................................................................... 7B. Information on the company’s directors, supervisors, general manager, assistant general
managers, deputy assistant general managers, and the chiefs of all the company’s divisions and branches................................................................................................................................................ 9
C. Remuneration to Directors, Supervisors & Managers...................................................................... 15D. Implementation of Corporate Governance........................................................................................ 19E. Information Regarding VIS’s Independent Auditors....................................................................... 47F. Information on Replacement of Certifi ed Public Accountant......................................................... 47G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying
Accounting Firm or Its Affi liate Business in the Past Year......................................................... 47H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors,
Supervisors, Management and Shareholders of 10% Shareholdings or More............................. 47I. Top 10 shareholders relation.............................................................................................................. 48J. VIS Long-Term Investment Ownership............................................................................................ 49
IV. Information On Implementation Of The Company Funds Utilization Plans.............................................................................................................. 50A. Capital and shares................................................................................................................................ 54B. Issuance of Corporate Bond .............................................................................................................. 54C. Issuance of Preferred Stock Issuance................................................................................................. 54D. Issuance of Depositary Shares Issuance............................................................................................. 54E. Status of Mergers and Acquisitions.................................................................................................... 54F. Fund Plan Implementation.................................................................................................................. 54
V. Operational Highlights................................................................................. 55A. A description of the business............................................................................................................... 55B. Industry survey and market analysis................................................................................................. 68C. Personnel Structure.............................................................................................................................. 73D. Environmental Protection Measures.................................................................................................. 73E. Employee / employer relations.............................................................................................................. 76F. Major Contracts................................................................................................................................... 84
VI. Financial Statements.................................................................................... 85A. Brief Balance Sheets and Brief Statements of Income..................................................................... 85B. Financial Analysis................................................................................................................................. 87C. Audit Committee’s Review Report..................................................................................................... 90D. Financial Statements and Independent Auditors’ Report................................................................ 91E. Consolidated Financial Statements and Independent Auditors’ Report......................................... 91
Contents
F. The fi nancial impact to the Company due to company or affi liate companies fi nancial diffi culties.............................................................................................................................................. 91
VII. Financial Position, Operating Results And Risk Management.................. 92A. Analysis of Consolidated Financial Position..................................................................................... 92B. Analysis of Consolidated Financial Performance............................................................................. 92C. Analysis of Consolidated Cash Flow................................................................................................... 93D. Major Capital Expenditure................................................................................................................. 93E. Long Term Investment......................................................................................................................... 94F. Risk Management................................................................................................................................ 94G. Other important matters..................................................................................................................... 99
VIII. Special Notes.................................................................................................. 100A. Affi liated Information.......................................................................................................................... 100B. Private placements Securities.............................................................................................................. 102C. VIS Common Shares acquired, disposed of and held by subsidiaries............................................ 102D. Other Necessary Supplement.............................................................................................................. 102E. Any Events in Y2016 that had Signifi cant Impacts on Shareholders’ Right or Security
Prices as started in Item 3 paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan................................................................................................................................................... 102
IX. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report ................................................................... 103Financial Statements and Independent Auditors' Report......................................................................... 103Consolidated Financial Statements and Independent Auditors' Report................................................. 170
I. A Letter to Shareholders Dear Shareholders,
Buoyed by relatively stable economic conditions in the global economy, the
semiconductor industry posted modest growth in 2016. In particular, the output value
of the foundry industry grew by 9%, and the 8-inch wafer fabrication market, which
comprises an important sector for VIS, also recorded slight growth of approximately
1%. In terms of the Company's overall operating performance in 2016, owing to the
continued support of our longstanding customers and persistent efforts of our
dedicated team of employees, VIS posted consolidated revenue of NT$25.83 billion
in Y2016, an increase of 10.8% over Y2015’s consolidated revenue of NT$23.32
billion. And gross profit margin of about 34.6%, after-tax net income of
approximately NT$5.54 billion, the earning per share of NT$3.35, and return on
equity about 19.7% in Y2016. In the future, we will more actively invest in research
and development to advance our process technologies and establish new customer
bases, so as to deliver better performances in times of economic recovery.
Capacity and Business
VIS’ capital expenditure amounted to approximately NT$ 1.3 billion with yearly
capacity around 2.25 million wafers and capacity utilization was around 89% in
Y2016. Annual wafer shipments reached 1.99 million units. In order to continually
upgrade process technologies and expand production capacity, we estimate capital
expenditure will be around NT$1.8 billion in Y2017.
Technology Development
In order to provide customers with more competitive technologies and services, the
company has continued to develop more specialized applications from core
technologies and enhance the value of services we provide. In the field of display
driver IC technology development, our 0.2um, 0.18um, 0.15um, and 0.11um high-
voltage processes, and 0.16um, 0.11um high-voltage process with embedded non-
volatile memory exclusively designed for touch panels, have entered into mass
production.
In BCD (Bipolar-CMOS-DMOS) processes for power management ICs, apart from
the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um processes that have already put into
mass production, the development of a next-generation 0.11um BCD process also will
be completed qualification by mid of this year. Furthermore, we have completed
development of second-generation 0.5um ultra low Rdson, simplified ultra-high-
voltage and 0.25um SOI processes, and ready to be used for customers’ product
design. Particularly, we have started mass production with unique Magnetic Sensor
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Vanguard InternationalSemiconductor Corporation
process technology which is mainly applied in mobile and automotive systems. In
addition, with the prevalence of fingerprint identification becoming a standard design
feature in many mobile devices, VIS's prescient commitment over the years to
developing ICs for fingerprint sensors is now resulting in noticeable gains, and it is
anticipated that this burgeoning technology will help contribute to further revenue
growth in 2017. Meanwhile, VIS is keenly aware of the increasingly important role
the internet of things (IoT) plays in the semiconductor industry. At present, the
Company is continuing to invest substantial resources and attention on the
development of embedded flash with the eventual goal of moving toward mass
production, thereby enabling us to provide our customers with an even wider array of
options.
In the future, VIS will continue to develop next generation platforms to accommodate
market demand, and collaborate with Taiwan Semiconductor Manufacturing Co.
(TSMC) on the transfer of various advanced process technologies to satisfy
customers’ need.
Visions and Outlook
In 2016, the global economy continued to improve in tandem with stable economic
growth in the US, and the eurozone also enjoyed widespread gains across leading
indicators, portending a stronger overall economic outlook. Closely connected to GDP
growth, the semiconductor industry registered a 1% increase in overall output value at
approximately US$340 billion. Due to there is certain level of market demand for
advanced process technologies, foundry industry grew by approximately 9%,
achieving an output of US$53 billion, of which roughly US$15.4 billion was
contributed by 8" foundry.
As integral parts of the company's business, among of end products including
displays, notebooks, tablets, mobile phones, and LCD TVs, only LCD TVs and
mobile phones unit shipments disclosed single digit percentage growth YoY.
Continuously cannibalized by tablets and smartphones, computer products indicated a
decreased of about 6% throughout the year. In addition, VIS benefited from a series of
transfer orders from the display panel supply chain, resulting in sales of display driver
ICs exceeding initial forecasts for 2016. Furthermore, tablets, originally enjoyed high
market demand, showed a dramatic decline of about 13% due to minimal changes in
product design and low willingness for replacement from consumers. And mobile
phone market demand was about flat to slightly increased, but their growth is no
longer comparable to that in the past. As to the LCD TVs, thanks to the price drop of
ultra-high resolution panel drove certain market demand, shipment increased by
approximately 1%. With the sustained demand for UHD 4K panels fueling further
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Vanguard InternationalSemiconductor Corporation
3
Vanguard InternationalSemiconductor Corporation
growth, the driver IC market yielded a substantial contribution to VIS's overall business performance in 2016. Moreover, VIS's commitment to expanding into the automobile electronics sector over the past decade is now steadily yielding tangible results, with many leading global customers showing keen interest in VIS's production of display driver ICs, power management ICs, and discrete components for use in automotive applications. In spite of the numerous challenges which persisted in the end-user market, VIS continued to incorporate various new production processes and techniques and transitioned into mass production at opportune times, resulting in an 11% growth in sales for wafer fabrication for the automotive IC market in 2016. Looking ahead to 2017, economic uncertainties concerning China and the European Union have dissipated considerably, and the latest projections by the International Monetary Fund (IMF) have even upwardly-adjusted China's GDP growth to 6.5% (an increase of 0.3%). Meanwhile, in the US, the unemployment rate steadily stabilized to around 4.6% and the average GDP growth rate surpassed 2%. According to the latest projections released by the IMF, the baseline global growth forecast for 2017 is estimated at about 3.4%, which is a marked improvement over 2016. The global semiconductor market is expected to reach US$364 billion, representing a growth of 7%. Driven by the demand of advanced technology process, the foundry industry is also expected to grow at an annual rate of roughly 7% to US$57 billion, of which roughly US$15.7 billion was contributed by 8" foundry to reach 2% growth YoY. With our display driver IC, power management and discrete power devices all exhibiting distinctive operational performances, and in order to diversify product and market centralization, reduce operating risks and extend its reaches in the high-margin market. In addition to our existing high-voltage analog, BCD, and ultra-high-voltage processes, the company will continue to accelerate the development projects relating to sensing devices, fingerprint sensor ICs, high current power management ICs, and embedded flash, to adapt to the energy saving and carbon reduction era and to satisfy market demand for automobile electronics and Internet of Things applications. We believe those efforts will be beneficial toward enhancing our business operations. Furthermore, the company will continue to engage more IDM companies and oversea customers to expand customer base and will strengthen ties and forge long-lasting partnerships with customers to secure our leading position among specialty IC foundry industries, and ultimately to become one of the world’s leading companies in HV, PMIC and discrete power in foundry industry. Finally, we would like to express our thankfulness to all shareholders, customers and employees for your continuing support and contributions to VIS. We wish you all the best of health and prosperity in the year ahead.
*Y2017 sales forecast: 2,163 thousands wafers
Chairman & President Leuh Fang
0 1000 2000
2017
2016
2015
Wafer shipments thousands of 8" wafers
*
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Vanguard InternationalSemiconductor Corporation
II. A Brief Introduction of VISCompany Profile
Vanguard International Semiconductor Corporation (VIS) is a leading specialty IC
foundry service provider. Since its founding in December 5th, 1994 in Hsinchu
Science Park, Taiwan, VIS has been achieving continuous success in its technology
development and production efficiency improvement. VIS has also been consistently
offering its customers cost-effective solutions and high value-added services. VIS has
three 8-inch fabs with a monthly capacity of approximately 187,000 wafers in Y2016.
VIS is a spin-off of the Sub-Micron Project, sponsored by the Industrial Technology
Research Institute (ITRI). Original investors include Taiwan Semiconductor
Manufacturing Corporation (TSMC) and 13 other institutional investors. VIS was
founded with the primary focuses on the production and development of DRAM and
other memory IC. In March 1998, VIS became a listed company on the Taiwan Over-
The-Counter Stock Exchange (OTC). Its main shareholders include Taiwan
Semiconductor Manufacturing Corporation (TSMC), National Development Fund and
other institutional investors.
In 1999, VIS started to work as a subcontractor for TSMC for the manufacturing of
logic and mixed signal products. In Y2000, VIS officially announced its plan to
transform from a DRAM manufacturer into a foundry service provider. After that,
VIS offers a various foundry process technologies, including High Voltage, and
0.18um flash and entered into mass production. In July 2004, VIS completely
terminated its DRAM production and became a pure-play foundry company. In
Y2007, VIS announced the procurement of 8” fabs from Winbond. With this
acquisition, VIS unleashed the growth momentum, accommodated customers’
demands in capacity and technology, and provided a more comprehensive solution
portfolio for our customers. In 2014, VIS acquired Nanya Technology's 8-inch fab
located in Taoyuan County and machineries and equipment from Sumpro Electronic.
This transaction not only granted VIS the opportunity to expand its production
capacity, but also enabled VIS to grow continually and earn profits steadily.
VIS has continued its investment in the product development and process technology
for the market needs. VIS offers a wide range of process technologies, including High
Voltage, Ultra High Voltage, Bipolar CMOS DMOS (BCD), Silicon on Insulator
(SOI), Discrete, Logic, Mixed-Signal, Analog, High Precision Analog, Magnetic
Sensor, and Embedded Memory to further help increase its foundry customers’ global
competitiveness.
In order to enhance its IP service capability, VIS has continued its IP development by
strengthening strategic relationship with its IP provision partners. Currently available
5
Vanguard InternationalSemiconductor Corporation
IPs are standard cell library, SRAM, one-time programmable, multiple-time
programmable, electrical fuse, power phantom cell, etc…Furthermore, we’re
accelerating the set-up of non-volatile flash IP. With the help from strategic IP
partners, VIS can also provide IPs that are required by specialty ICs.
VIS has about 5,000 employees. We are committed to adhere to our customer-
oriented business philosophy to provide our customers with continuously improved
and enhanced specialty IC foundry services. To better serve its worldwide customers,
VIS has established sales offices in Taiwan and sales representatives in worldwide
main IC clusters.
With our display driver IC, power management and discrete power devices all
exhibiting distinctive operational performances, and in order to diversify product and
market centralization, reduce operating risks and extend its reaches in the high-margin
market. In addition to our existing high-voltage analog, BCD, and ultra-high-voltage
processes, the company will continue to accelerate the development projects relating
to sensing devices, fingerprint sensor ICs, high current power management ICs, and
embedded flash, to adapt to the energy saving and carbon reduction era and to satisfy
market demand for automobile electronics and Internet of Things applications. We
believe those efforts will be beneficial toward enhancing our business operations.
Furthermore, the company will continue to engage more IDM companies and oversea
customers to expand customer base and will strengthen ties and forge long-lasting
partnerships with customers to secure our leading position among specialty IC
foundry industries, and ultimately to become one of the world’s leading companies in
HV, PMIC and discrete power in foundry industry.
6
Vanguard InternationalSemiconductor Corporation
Human Resources Div.
Legal Dept.
Quality ReliabilityAssurance Div.
Customer Engineering Div.
Sales Div.
Sales Planning Dept.
Field Technology Support Div.
Business Development Div.
Backend Operation Div.
Worldwide Sales & Planning
Accounting Div.
Finance Div.
Public Relations &Investor Relations Dept.
IT & E-commerce Div.
Material Management Div.
Corporate Planning Div.
Finance
FAB1
FAB2
FAB3
Special Project Dept.
Product Eng. Div.
Computer Int. Mfg. Div.
Module Development Program
Risk & Env. Safety Mgt. Dept.
Operation & Env.Safety
Technology Development 1
Technology Development 2
Technology Development 3
Technology Development 4
Design ServiceEngineering Div.
Device Engineering Div.
Project Management Dept.
Design SystemTechnology Dept.
Design Service Dept.
Research & Development
Chairman Office Internal Auditing
President Office
III. CORPORATE GOVERNANCE REPORTA. Company Organization
1. Company's structure:
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Vanguard InternationalSemiconductor Corporation
2. Tasks of its principal divisions:
President Management of company-wide operations. Establish VIS business strategy and target.
VP of Finance Corporate Accounting Div., Finance Div., PR & IR dept., IT & E-commerce Div., Material Management Div., and Corporate Planning Div. Responsible for the company finance, accounting operation and material management, as well as BOD, establishing the company's external communication channel, and maintaining the company's corporate image, investor relationship, investment analysis, and long-term investment planning.
VP of Worldwide Sales and Planning
Customer Engineering Div., Corporate Sales Div., Sales Planning dept., Field Technology Support Div., Business Development Div., and Backend Operation Div.. Planning of company products, including sales and marketing for these products. Responsible for product service, market analysis and development, and establishing and execution of sales plan.
VP of Research & Development
Lead specialty technology and IP development, as well as providing services for device engineering, IP resources, ESD, PDK, layout, photomask solution, and CAD tool management. Incl.: Technology Development Div., Device Engineering Div., Design Service Engineering Div., Design System Technology Dept., Project Management Dept., and Design Service Dept..
VP of Operation & Environment Safety
VP of Operation & Environment Safety Corporate Wafer Production, Risk & Env. Safety Management Dept., Computer Int. Mfg. Div., Product Engineering Div., Module Development Program and Special Project Dept.. Improve operation efficiency, and ensure timely delivery of high quality products to customers.
General Counsel of Legal
Corporate legal affairs, Intellectual property protection and Legal compliances.
Human Resources Div.
Recruiting the most qualified and suitable talents, providing employee training & development programs to meet company's growth, and establishing an effective & innovative personnel management system and work environment in order to attract and retain talents, and maintain good labor relations.
Quality Reliability Assurance Div.
Corporate Quality Assurance Dept., Reliability Assurance Dept., Quality System Management Dept., and in charge of product inspection, quality control, and promoting quality policy and strategy in VIS.
Internal Auditing Evaluate the design and operating effectiveness of internal control systems, and provide suggestions to achieve the objectives of internal control systems.
8
Vanguard InternationalSemiconductor Corporation
B.In
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9
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Title
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00
00
0 0
0 0
Cha
irman
, Ins
titut
e fo
r In
form
atio
n In
dust
ry
Pres
iden
t, In
dust
rial
Tech
nolo
gy R
esea
rch
Inst
itute
Dea
n, C
olle
ge o
f Tec
hnol
ogy
Man
agem
ent,
Nat
iona
l Tsi
ng
Hua
Uni
vers
ity
Ph.D
. Ele
ctric
Eng
inee
ring,
Pr
ince
ton
Uni
vers
ity, U
SA
Prof
esso
r, C
olle
ge o
f Tec
hnol
ogy
Man
agem
ent,
Nat
iona
l Tsi
ng H
ua
Uni
vers
ity
Inde
pend
ent D
irect
or, F
ocal
Tech
Sy
stem
s, Lt
d.
Inde
pend
ent D
irect
or, S
erco
mm
C
orp.
Non
e N
one
Non
e
Inde
pend
ent
Dire
ctor
R.O
.C.
Ben
son
W.C
. Liu
M
2015
.06.
08 3
20
12.0
6.12
0
00
00
0 0
0 C
hairm
an &
CEO
, Bris
tol-
Mye
rs S
quib
b (T
aiw
an) L
td
Mas
ter,
Inte
rnat
iona
l Bus
ines
s A
dmin
istra
tion,
Uni
vers
ity o
f N
orth
rop,
USA
Inde
pend
ent D
irect
or, G
loba
l U
nich
ip C
orp.
In
depe
nden
t Dire
ctor
, Pol
ylite
Ta
iwan
Co.
,Ltd
. V
ice
Cha
irman
, Chi
nese
Cor
pora
te
Gov
erna
nce
Ass
ocia
tion
D
irect
or, M
ayw
ufa
Com
pany
Ltd
.
Non
e N
one
Non
e
Inde
pend
ent
Dire
ctor
R.O
.C.
Ken
neth
Kin
M
2015
.06.
08 3
20
12.0
6.12
0
00
00
0 0
0 Se
nior
Vic
e Pr
esid
ent,
TSM
C
Vic
e Pr
esid
ent,
Wor
ldw
ide
Sale
s & S
ervi
ces,
IBM
M
icro
elec
troni
cs D
ivis
ion
Ph.D
. Nuc
lear
Eng
inee
ring
and
App
lied
Phys
ics,
Col
umbi
a U
nive
rsity
, USA
Prof
esso
r, D
epar
tmen
t of
Econ
omic
s, C
olle
ge o
f Tec
hnol
ogy
Man
agem
ent,
Nat
iona
l Tsi
ng H
ua
Uni
vers
ity
Inde
pend
ent D
irect
or, e
Mem
ory
Tech
nolo
gy In
c.
Inde
pend
ent D
irect
or, A
zure
Wav
e Te
chno
logi
es In
c.
Dire
ctor
, Med
iaTe
k In
c.
Non
e N
one
Non
e
10
Vanguard InternationalSemiconductor Corporation
Maj
or S
har
ehol
der
s of
th
e In
stit
uti
onal
Sh
areh
old
ers
As
of 7
/3/2
016
Inst
itutio
nal S
hare
hold
ers
Sha
reho
lder
s O
wne
rshi
p (%
)
Taiw
an S
emic
ondu
ctor
M
anuf
actu
ring
Co.
, Ltd
.
AD
R-T
aiw
an S
emic
ondu
ctor
Man
ufac
turi
ng C
ompa
ny, L
td.
20.6
8%
Nat
iona
l Dev
elop
men
t Fun
d, E
xecu
tive
Yua
n 6.
38%
G
over
nmen
t of
Sin
gapo
re
2.64
%
JPM
orga
n C
hase
Ban
k N
.A. T
aipe
i Bra
nch
in C
usto
dy f
or S
audi
Ara
bian
Mon
etar
y A
genc
y 1.
51%
JP
Mor
gan
Cha
se B
ank
N.A
. Tai
pei B
ranc
h in
Cus
tody
for
Eur
oPac
ific
Gro
wth
Fun
d 1.
37%
N
orge
s B
ank
1.
20%
JP
Mor
gan
Cha
se B
ank,
N.A
., Ta
ipei
Bra
nch
in C
usto
dy f
or S
ticht
ing
Dep
osita
ry A
PG E
mer
ging
Mar
kets
Equ
ity
Poo
l 0.
98%
Van
guar
d E
mer
ging
Mar
kets
Sto
ck I
ndex
Fun
d, a
Ser
ies
of V
angu
ard
Inte
rnat
iona
l Equ
ity I
ndex
Fun
ds
0.97
%
JPM
orga
n C
hase
Ban
k N
.A.,
Taip
ei B
ranc
h in
Cus
tody
for
Van
guar
d To
tal I
nter
natio
nal S
tock
Ind
ex F
und,
a S
erie
s of
Van
guar
d St
ar F
unds
0.
93%
JPM
orga
n C
hase
Ban
k N
.A. T
aipe
i Bra
nch
in C
usto
dy f
or A
BU
DH
AB
I In
vest
men
t Aut
hori
ty
0.92
%
Inst
itu
tion
al S
har
ehol
der
Rep
rese
nta
tive
s fo
r M
ajor
Sh
areh
old
ers
of t
he
Inst
itu
tion
al S
har
ehol
der
s As
of 1
2/31
/201
6
Inst
itutio
nal S
hare
hold
ers
Maj
or S
hare
hold
ers
of th
e In
stitu
tiona
l Sha
reho
lder
s
Non
, all
are
non
--co
mpa
ny o
rgan
izat
ion
11
Vanguard InternationalSemiconductor Corporation
Independence Analysis of Board Members under Taiwan SFC Criteria:
February 28, 2017
Name Over 5 years of working experience Criteria(Note) Number of other public companies that concurrently
serve as an independent
director
College Instructor or higher level in Business, Legal, Finance, Accounting or company business related area
Court Judge, Prosecutor, Lawyer, Accountant, or other Certified Professional expert related to company business
Business, Legal, Finance, Accounting or company business required working experience
1 2 3 4 5 6 7 8 9 10
Leuh Fang 0 F.C. Tseng 1
K. H. Hsiao 0 Benson W.C. Liu 2
Kenneth Kin 2 Chintay Shih 2
Edward Y. Way 4
Note :
1. Not an employee of affiliated companies of the company and company.
2. Not a director, supervisor of affiliated companies of the company.
3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company outstanding
shares, nor one of the Company top 10 natural person shareholders.
4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.
5. Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or
indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top five
share-holders of juridical person.
6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares of certain
companies or institutions that have financial or business relationship with the Company.
7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or
institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce, legal
consultation and services to the Company or affiliated companies within one year.
8. Not a spouse or first-or-second-degree relative to any other director.
9. Not a juridical person or its representative as defined in Article 30 of Company Law.
10. Not a juridical person or its representative as defined in Article 27 of Company Law.
Diversity of directors: Vanguard International Semiconductor Corporation Corporate Governance Practice Principles: The composition of the board of directors should be diversified, such as different professional backgrounds, fields of work or gender, and possesses the necessary knowledge, skills and literacy to perform his duties. To achieve the ideal corporate governance, the board of directors shall possess the following abilities: 1. Ability to make operational judgments.2. Ability to perform accounting and financial analysis.3. Ability to conduct management administration.4. Ability to conduct crisis management.5. Knowledge of the industry.6. An international market perspective.7. Ability to lead.8. Ability to make policy decisions.
12
Vanguard InternationalSemiconductor Corporation
Item
Name
operational judgments / management administration
accounting and financial
knowledge of the industry
crisis management
international market perspective
Lead and make policy decisions
Leuh Fang V V V V V
F.C. Tseng V V V V V
Benson W.C. Liu V V V V V
Kenneth Kin V V V V V
Chintay Shih V V V V V
K. H. Hsiao V V V V V
Edward Y. Way V V V V V
13
Vanguard InternationalSemiconductor Corporation
2.M
anag
ers:
Feb
ruar
y 28
, 201
7
Tit
le
Nam
e S
exD
ate
Ele
cted
C
urre
nt S
hare
hold
ing
Spo
use
& M
inor
S
hare
hold
ing
Sha
reho
ldin
g by
N
omin
ee
Arr
ange
men
t E
duca
tion
&S
elec
ted
Pas
t Pos
itio
ns
Sel
ecte
d C
urre
nt P
osit
ions
Man
ager
s A
re S
pous
e or
W
ithi
n S
econ
d-de
gree
R
elat
ive
of
Con
sang
uini
ty to
Eac
h O
ther
S
hare
s %
S
hare
s %
S
hare
s%
T
itle
N
ame
Rel
atio
n
Pre
side
nt
Leu
h F
ang
M20
09.2
.20
3,21
5,00
0 0.
20%
0 0
0 0
MS
, Mat
eria
ls S
cien
ce a
nd E
ngin
eeri
ng,
Uni
vers
ity
of W
ashi
ngto
n F
ab D
irec
tor,
Taiw
an S
emic
ondu
ctor
M
anuf
actu
ring
Com
pany
, Ltd
. V
ice
Pre
side
nt,
SS
MC
Dir
ecto
r an
d P
resi
dent
, VIS
Ass
ocia
tes
Inc.
D
irec
tor
and
Pre
side
nt, V
IS I
nves
tmen
t Hol
ding
, In
c.
Dir
ecto
r, V
IS M
icro
, Inc
. D
irec
tor,
J-M
EX
Inc
.
Non
e N
one
Non
e
Vic
e P
resi
dent
, F
inan
ce
D. L
. Tse
ng
M20
11.5
.1
52,7
27
0.00
%30
8,93
7 0.
02%
0 0
Bac
helo
r, N
atio
nal C
heng
chi U
nive
rsit
y D
ept.
Man
ager
, Phi
lips
Ele
ctro
nics
D
irec
tor
and
Vic
e P
resi
dent
, VIS
Ass
ocia
tes
Inc.
D
irec
tor
and
CF
O, V
IS I
nves
tmen
t Hol
ding
, Inc
. D
irec
tor
and
CF
O, V
IS M
icro
Inc
.
Non
e N
one
Non
e
Vic
e P
resi
dent
W
orld
wid
e S
ales
and
P
lann
ing
Tho
mas
Cha
ngM
2003
.8.2
2 30
0,00
0 0.
02%
0 0
0 0
MS
, E
lect
rica
l E
ngin
eeri
ng,
Uni
vers
ity
of
Cin
cinn
ati
Vic
e P
resi
dent
, M
osel
Vit
elic
Inc
.
Dir
ecto
r an
d P
resi
dent
, VIS
Mic
ro I
nc.
Non
e N
one
Non
e
Vic
e P
resi
dent
R
esea
rch
&
Dev
elop
men
t
Jun-
Wei
C
hen
M20
14.1
0.30
0
0.00
%0
0 0
0
Ph.
D.,
Ele
ctri
cal
Eng
inee
ring
, C
arne
gie-
Mel
lon
Uni
vers
ity
G
ener
al M
anag
er, V
IS M
icro
Inc
V
ice
Pre
side
nt o
f T
echn
olog
y, K
inet
ic
Tec
hnol
ogie
s, I
nc.
V
ice
Pre
side
nt o
f T
echn
olog
y, A
dvan
ced
Ana
logi
c T
echn
olog
ies,
Inc
.
Non
e N
one
Non
e N
one
Vic
e P
resi
dent
O
pera
tion
&
Env
iron
men
t S
afet
y
Cha
n-Je
n K
uoM
2007
.5.2
1 26
,913
0.
00%
0 0
0 0
MS
, E
lect
rica
l E
ngin
eeri
ng,
Nat
iona
l T
sing
H
ua U
nive
rsit
y N
one
Non
eN
one
Non
e
Ass
ocia
te V
ice
Pre
side
nt
Res
earc
h &
D
evel
opm
ent
Chr
ong-
Jung
L
in
M20
15.1
2.01
0
0.00
%0
0 0
0
Ph.
D,
Ele
ctri
cal
Eng
inee
ring
, N
atio
nal
Tsi
ng H
ua U
nive
rsit
y P
rofe
ssor
, E
lect
rica
l E
ngin
eeri
ng,
Nat
iona
l T
sing
Hua
Uni
vers
ity
R&
D P
roje
ct M
anag
er, T
SM
C
Non
eN
one
Non
eN
one
14
Vanguard InternationalSemiconductor Corporation
C.
Rem
un
erat
ion
to
Dir
ecto
rs, S
up
ervi
sors
& M
anag
ers
1.R
emu
ner
atio
n t
o D
irec
tors
:U
nit:
NT
$, in
thou
sand
s
Tit
le
Nam
e
Rem
uner
atio
n to
Dir
ecto
rs
A+
B+
C+
D a
s %
of
Net
Inc
ome
Rem
uner
atio
n to
Con
curr
ent E
mpl
oym
ent
A+
B+
C+
D+
E+
F+
G
as %
of
N
et I
ncom
e
Oth
er
rem
uner
atio
n fr
om in
vest
men
t bu
sine
ss e
xcep
t su
bsid
iary
Rem
uner
atio
n (A
) R
etir
emen
t pay
(B
) di
rect
ors'
co
mpe
nsat
ion
(C)
All
owan
ces(
D)
(Not
e)
Sal
ary,
Bon
uses
&
All
owan
ces
(E)
Ret
irem
ent p
ay
(F)
empl
oyee
s' c
ompe
nsat
ion
(G)
VIS
V
IS &
A
ffil
iate
s V
IS
VIS
&
Aff
ilia
tes
VIS
VIS
&
Aff
ilia
tes
VIS
V
IS &
A
ffil
iate
sV
IS
VIS
&
Aff
ilia
tes
VIS
V
IS &
A
ffil
iate
sV
ISV
IS &
A
ffil
iate
sV
IS
VIS
& A
ffil
iate
sV
IS
VIS
&
Aff
ilia
tes
Cas
hS
tock
Cas
hS
tock
Cha
irm
an
Leu
h F
ang
(Tai
wan
S
emic
ondu
ctor
M
anuf
actu
ring
C
o., L
td.
Rep
rese
ntat
ive)
Vic
e C
hair
man
F.C
. Tse
ng
(Tai
wan
S
emic
ondu
ctor
M
anuf
actu
ring
C
o., L
td.
Rep
rese
ntat
ive)
4,62
0 4,
620
0 0
14,1
0014
,100
905
905
0.35
%0.
35%
9,10
1 9,
101
00
29,1
990
29,1
990
1.05
%1.
05%
N
one
Dir
ecto
r
K. H
. Hsi
ao
(Nat
iona
l D
evel
opm
ent
Fun
d, E
xecu
tive
Y
uan
Rep
rese
ntat
ive)
Inde
pend
ent
Dir
ecto
r B
enso
n W
.C. L
iu
Inde
pend
ent
Dir
ecto
r K
enne
th K
in
Inde
pend
ent
Dir
ecto
r C
hint
ay S
hih
Dir
ecto
r E
dwar
d Y
. Way
E
xcep
t abo
ve-m
enti
oned
, pai
d to
dir
ecto
rs f
or p
rovi
ding
oth
er s
ervi
ce la
st y
ear:
375
Not
e:
tran
spor
tati
on
allo
wan
ces
prof
essi
onal
pra
ctic
e al
low
ance
s To
tal
All
owan
ces(
D)
720
185
905
15
Vanguard InternationalSemiconductor Corporation
Range of Remuneration to Directors (NT$)
Number of Director A+B+C+D A+B+C+D+E+F+G
VIS VIS & Affiliates VIS VIS & AffiliatesLess than 2,000,000 2,000,000~4,999,999 Leuh Fang (Taiwan
Semiconductor Manufacturing Co., Ltd. Representative) F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) K. H. Hsiao (National Development Fund, Executive Yuan Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Edward Y. Way
Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd.Representative) F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd.Representative) K. H. Hsiao (National Development Fund, Executive Yuan Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Edward Y. Way
F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) K. H. Hsiao (National Development Fund, Executive Yuan Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Edward Y. Way
F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) K. H. Hsiao (National Development Fund, Executive Yuan Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Edward Y. Way
5,000,000~9,999,99910,000,000~14,999,999 15,000,000~29,999,999 30,000,000~49,999,999 Leuh Fang (Taiwan
Semiconductor Manufacturing Co., Ltd. Representative)
Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd. Representative)
50,000,000~99,999,999 100,000,000~Total 7 7 7 7
2. Remuneration to Supervisors: None
16
Vanguard InternationalSemiconductor Corporation
3.R
emu
ner
atio
n t
o P
resi
den
t an
d V
ice
Pre
sid
ents
:U
nit:
NT
$, in
thou
sand
s
Tit
le
Nam
e
Sala
ry (
A)
Ret
irem
ent p
ay
(B)
Bon
us (
C)
Em
ploy
ee P
rofi
t Sha
ring
(D
) (
Not
e 1)
A
+B
+C
+D
as
%
of N
et I
ncom
e O
ther
Rem
uner
atio
n
VIS
V
IS &
A
ffil
iate
sV
ISV
IS &
A
ffil
iate
sV
ISV
IS &
A
ffil
iate
s V
IS
VIS
&
Aff
ilia
tes
VIS
VIS
&A
ffil
iate
sC
ash
Sto
ckC
ash
Sto
ckP
resi
dent
Leu
h F
ang
25,5
2029
,878
0 0
17,5
6317
,563
63,9
200
63,9
200
1.93
2.01
N
one
Vic
e Pr
esid
ent,
Fina
nce
D. L
. Tse
ng
Vic
e Pr
esid
ent
Wor
ldw
ide
Sal
es a
nd
Pla
nnin
g T
hom
as C
hang
Vic
e Pr
esid
ent
Res
earc
h &
Dev
elop
men
tJu
n-W
ei C
hen
Vic
e Pr
esid
ent O
pera
tion
&
Env
iron
men
t Saf
ety
Cha
n-Je
n K
uo
Ass
ocia
te V
ice
Pres
iden
t R
esea
rch
& D
evel
opm
ent
Chr
ong-
Jung
Lin
Not
e :
As
of t
he a
nnua
l re
port
pub
lica
tion
dat
e, p
rior
to
the
shar
ehol
ders
mee
ting
res
olut
ion
conc
erni
ng t
he Y
2016
dis
trib
utio
n of
ear
ning
s, t
he b
oard
of
dire
ctor
s ap
prov
ed a
pro
posa
l de
term
inin
g th
e am
ount
s of
the
bon
uses
gra
nted
to t
he p
resi
dent
and
vic
e pr
esid
ent;
the
fig
ure
abov
e is
a t
enta
tive
est
imat
e, a
nd t
he a
mou
nt w
ill
be im
plem
ente
d fo
llow
ing
a re
solu
tion
at th
e Y
2017
sha
reho
lder
s m
eeti
ng.
Ran
ge o
f R
emun
erat
ion
to
Pre
side
nt a
nd V
ice
Pre
side
nt (
NT
$)
Nam
e of
Pre
side
nt a
nd V
ice
Pre
side
nt
VIS
V
IS &
Aff
ilia
tes
<2,
000,
000
2,00
0,00
0~4,
999,
999
5,00
0,00
0~9,
999,
999
10,0
00,0
00~
14,9
99,9
99
D. L
. Tse
ng, T
hom
as C
hang
, Jun
-We
Che
n, C
han-
Jen
Kuo
D
. L. T
seng
, Tho
mas
Cha
ng, J
un-W
e C
hen,
Cha
n-Je
n K
uo
15,0
00,0
00~
29,9
99,9
99
Chr
ong-
Jung
Lin
C
hron
g-Ju
ng L
in
30,0
00,0
00~
49,9
99,9
99
Leu
h F
ang
Leu
h F
ang
Tot
al6
6
17
Vanguard InternationalSemiconductor Corporation
Em
plo
yee
Pro
fit
Sh
arin
g G
ran
ted
to
Man
agem
ent
Tea
m:
F
ebru
ary
28, 2
017
Titl
e N
ame
Stoc
k C
ash
Tota
l To
tal a
s %
of
Net
Inc
ome
Pre
side
ntL
euh
Fan
g
063
,920
63
,920
1.15
Vic
e P
resi
dent
, Fin
ance
D
. L. T
seng
V
ice
Pre
side
nt M
arke
ting
& S
ales
T
hom
as C
hang
V
ice
Pre
side
nt R
esea
rch
& D
evel
opm
ent
Jun-
Wei
Che
n V
ice
Pre
side
nt O
pera
tion
& E
nvir
onm
ent S
afet
y C
han-
Jen
Kuo
A
ssoc
iate
Vic
e P
resi
dent
Res
earc
h &
Dev
elop
men
t C
hron
g-Ju
ng L
in
Not
e :
As
of t
he a
nnua
l re
port
pub
lica
tion
dat
e, p
rior
to
the
shar
ehol
ders
mee
ting
res
olut
ion
conc
erni
ng t
he Y
2016
dis
trib
utio
n of
ear
ning
s, t
he b
oard
of
dire
ctor
s ap
prov
ed a
pr
opos
al d
eter
min
ing
the
amou
nts
of t
he b
onus
es g
rant
ed t
o th
e pr
esid
ent
and
vice
pre
side
nt;
the
figu
re a
bove
is
a te
ntat
ive
esti
mat
e, a
nd t
he a
mou
nt w
ill
be i
mpl
emen
ted
foll
owin
g a
reso
luti
on a
t the
Y20
17 s
hare
hold
ers
mee
ting
.
18
Vanguard InternationalSemiconductor Corporation
4. Comparison and Description of all Company Paid Remuneration to Net
Income Ratio Analysis and Company Remuneration Policy, Pattern,
Procedures and Ties to the Operational Result
(1) Analysis of Remuneration to Net Income Ratio in the last two
years for Company Directors, Supervisors and Executive Officers: Unit: NT$, in thousands
Title
VIS Paid Remuneration as % of Net Income
Y2015 Y2016
Remuneration Net Income Remuneration as % of
Net Income Remuneration Net Income
Remuneration as % of Net Income
Directors 44,065
4,157,583
1.06% 20,000
5,537,925
0.36%
Supervisors 0 0.00% 0 0.00%
President and Vice Presidents
95,255 2.29% 107,003 1.93%
Unit: NT$, in thousands
Title
VIS & Affiliates Paid Remuneration as % of Net Income
Y2015 Y2016
Remuneration Net Income Remuneration as % of
Net Income Remuneration Net Income
Remuneration as % of Net Income
Directors 44,065
4,157,583
1.06% 20,000
5,537,925
0.36%
Supervisors 0 0.00% 0 0.00%
President and Vice Presidents
99,611 2.40% 111,361 2.01%
(2) Company Remuneration Policy, Pattern, Procedures and Ties to
the Operational Result:
The compensation policy for board directors and supervisors is
regulated in the company policy. Based on the general pattern in the
industry, it is further adjusted by profit distribution approved by board
and shareholder meetings. It is heavily influenced by the company
operational result.
Executive compensation and bonus situation is set by adjustable
company rules, education and experience level, and comparison with
industry peers. It is further adjusted by profit distribution approved by
board and shareholder meetings. It is heavily influenced by company
operational result.
D. Implementation of Corporate Governance 1. Implementation of Board Meeting:
The Board convened 5 meetings in Y2016. Meeting attendance was as
follows:
19
Vanguard InternationalSemiconductor Corporation
Title Name No. of Meetings
Attended No. of Meetings
Substituted Attendance Rate Note
Chairman Leuh Fang 5 0 100%
Vice Chairman F.C. Tseng 5 0 100%
Independent Director Benson W.C. Liu 5 0 100% Independent Director Chintay Shih 5 0 100% Independent Director Kenneth Kin 5 0 100%
Director Edward Y. Way 5 0 100% Director K. H. Hsiao 5 0 100%
Supplement Notes: 1. There were no written or otherwise recorded resolutions on which an independent director had a dissenting opinion or
qualified opinion in 2016.
Opinions of Independent directors in respect of important proposals:
BOD Meeting Important Proposals List on Article14-3 of the Securities and Exchange Act
Independent Director Expresses an Objection or Reservation
The eighth sixth BOD meeting 2016.01.27
To amend the Internal Control System.
V
The eighth seventh BOD meeting 2016.05.03
To approve capital injection to VIS Associates Inc., a wholly-owned subsidiary.
V
The eighth eighth BOD meeting 2016.08.05
To approve capital injection to VIS Associates Inc., a wholly-owned subsidiary.
V
To approve the appointment of Internal Audit Officer.
V
The eighth ninth BOD meeting 2016.11.01
To approve the hiring of an attesting CPA and the compensation given thereto.
V
The eighth eleventh BOD meeting 2017.02.21
To amend the Procedures for Acquisition or Disposal of Assets.
V
To approve capital injection to VIS Associates Inc., a wholly-owned subsidiary.
V
To approve to establish VIS Shanghai Company Limited.
V
To approve the hiring of attesting CPA of VIS Shanghai Company Limited and the compensation given thereto.
V
To amend the Internal Control System.
V
Opinions of Independent directors in respect of the above proposals:None The responses to opinions of Independent directors : None Resolved: The above proposals were approved unanimously.
2. Recusals of directors due to conflicts of interests in 2016:Chairman and President: Leuh Fang recused himself from the discussion and voting of his performance andcompensation resolution.
3. Measures taken to strengthen the functionality of the Board:a. VIS Board has approved “Corporate Governance Practice Principles” and “VIS Corporate Social Responsibility
Principle” and continues to improve and strengthen the functionality of the Board.b. VIS Board continues to obtain a good performance on the Corporate Governance Ranking.c. VIS Board delegates various responsibilities and authority to two Board Committees, Audit Committee and
Compensation Committee. Both the two Committees consist solely of the three Independent Directors. EachCommittee’s chairperson regularly reports to the Board on the activities and actions of the relevant committee.
20
Vanguard InternationalSemiconductor Corporation
Dissenting opinions held by directors and supervisors in respect of important
resolutions passed by the board directors: None.
The State of Participation in Board Meetings by the Supervisors: NA
2. Implementation of Audit Committee Meeting:
The primary purpose of establishing the Audit Committee is to reinforce the
oversight capabilities of the Board of Directors. The Audit Committee is
tasked with overseeing adequate representation of the Company's financial
statements, appointment (or dismissal) of certified public accountants as
well as their competence, independence, and performance, effective
implementation of the Company's internal controls, the Company's
compliance with relevant laws and regulations, and control over existing or
potential risks to the Company. The main scope of authority of the Audit
Committee consists of the following:
a. The adoption of or amendments to the internal control system pursuant to
Article 14-1 of the Securities and Exchange Act.
b. Assessment of the effectiveness of the internal control system.
c. The adoption or amendment, pursuant to Article 36-1 of the Securities
and Exchange Act, of the procedures for handling financial or business
activities of a material nature, such as acquisition or disposal of assets,
derivatives trading, loaning of funds to others, and endorsements or
guarantees for others.
d. Matters in which a director is an interested party.
e. Asset transactions or derivatives trading of a material nature.
f. Loans of funds, endorsements, or provision of guarantees of a material
nature.
g. The offering, issuance, or private placement of equity-type securities.
h. The hiring or dismissal of a certified public accountant, or their
compensation.
i. The appointment or discharge of a financial, accounting, or internal audit
officer.
j. Annual, semi-annual, and quarterly financial reports.
k. Review of the annual business report, the surplus earning distribution, or
loss make-up proposal.
l. Review the changes of accounting policies or accounting estimate and
other material matters as may be required by this Corporation or by the
competent authority.
The qualifications of members of the Audit Committee are identical to those
of the Compensation Committee.
21
Vanguard InternationalSemiconductor Corporation
The Audit Committee convened 4 regular meetings in Y2016. Meeting
attendance was as follows:
Title Name No. of Meetings
Attended No. of Meetings
Substituted Attendance
Rate Note
Independent Director Benson W.C.
Liu 4 0 100%
Independent Director Chintay Shih 4 0 100% Independent Director Kenneth Kin 4 0 100%
Supplement Notes: 1. In the event that the Audit Committee encounters any of the following conditions
during the course of its operations, a description of the date, term, and content of theproposed motion of the Board of Directors along with the result of the AuditCommittee's resolution and the Company's handling of the Audit Committee's opinionshall be provided.
a. Conditions stipulated in Article 14-5 of the Securities and Exchange Act:
Board of Directors Proposed Motions
Resolution Adopted by the
Audit Committee
Action Taken by the Company in
Response to Opinion of the
Audit Committee
6th Meeting (8th Term) 2016/1/27
1. Individual and Consolidated FinancialStatements of the Company for CY2015
2. Revision to the Company's InternalControl System
All committee members present
Reviewed and approved
(2016/1/27)
All directors present
Unanimously resolved
7th Meeting (8th Term) 2016/5/3
Proposed capital increase of US$30 million for the Company's subsidiary VIS Associates, Inc.
All committee members present
Reviewed and approved (2016/5/3)
All directors present
Unanimously resolved
8th Meeting (8th Term) 2016/8/5
1. Proposed capital increase of US$45million for the Company's subsidiaryVIS Associates, Inc.
2. Appointment and dismissal of internalauditing supervisors
All committee members present
Reviewed and approved
(2016/7/26)
All directors present
Unanimously resolved
9th Meeting (8th Term) 2016/11/1
Appointment and independence, suitability for appointment, and performance evaluation of the Company's certified public accountants.
All committee members present
Reviewed and approved
(2016/11/1)
All directors present
Unanimously resolved
b. Other resolutions not approved by the Audit Committee but passed by more
than a two-thirds majority of all Board members:
There were no instances of the Company adopting a resolution which was not
approved by the Audit Committee but approved by more than a two-thirds
majority of all Board members.
2. No refusing case for Audit Committee in the latest fiscal year.
3.Conditions concerning communication between the Company's independent
22
Vanguard InternationalSemiconductor Corporation
directors, internal audit supervisors, and accountants (which shall include carrying out
various tasks related to communication matters, methods, and results concerning the
Company's financial affairs and sales performance):
a. There are direct channels of communication available between all of the
Company's independent directors and internal audit supervisors, resulting in a
satisfactory level of communication. An Audit Committee meeting is convened at
least once each quarter, consisting of a closed-door meeting with internal audit
supervisors. The meeting shall include discussing and verifying the annual audit
plan and current state of implementation of the Company's internal audit
procedures. Each month, internal audit supervisors are to submit a report in writing
to the independent directors and communicate important points of concern as
deemed necessary.
b. There is a satisfactory level of communication between the Company's
independent directors and accountants. Each quarter, a closed-door meeting is held
between the Audit Committee and the Company's accountants. The Company's
accountants are tasked with discussing and communicating various matters with
the independent directors, including submitting a report on the results of
audits/reviews of the financial statements of VIS and other companies in which
VIS is invested along with matters pertaining to material changes in accounting
estimates, accounting principles, and important issues discussed with the
supervisory authority, changes in securities and tax laws, and the statement of
independence issued by the Company's accountants.
To read a summary of the current state of communication between the Company's
independent directors, internal audit supervisors, and accountants, please visit the
official VIS website:
http://www.vis.com.tw/visCom/chinese/d_ir/d0402_committees.htm
23
Vanguard InternationalSemiconductor Corporation
3.V
IS Im
plem
enta
tion
as R
equi
red
by T
aiw
an F
inan
cial
Sup
ervi
sory
Com
mis
sion
:
Item
Im
plem
enta
tion
Stat
us
Non
-impl
emen
tatio
n an
d Its
Rea
son(
s)
Yes
No
Des
crip
tion
1. D
id th
e co
mpa
ny fo
rmul
ate
and
disc
lose
corp
orat
e go
vern
ance
pra
ctic
e pr
inci
ples
acco
rdin
g to
the
Cor
pora
te G
over
nanc
e B
est
Prac
tice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es?
VIS
for
mul
ated
our
Cor
pora
te G
over
nanc
e Pr
actic
e Pr
inci
ples
acc
ordi
ng t
o th
e C
orpo
rate
G
over
nanc
e B
est
Prac
tice
Prin
cipl
es f
or T
WSE
/GTS
M L
iste
d C
ompa
nies
. on
our
web
site
. It
upho
lds
prin
cipl
es r
egar
ding
pro
tect
ing
the
right
s an
d in
tere
sts
of s
hare
hold
ers,
stre
ngth
enin
g th
e po
wer
s of
the
boar
d of
dire
ctor
s, fu
lfilli
ng th
e fu
nctio
n of
Aud
it C
omm
ittee
, res
pect
ing
the
right
s and
inte
rest
s of s
take
hold
ers a
nd e
nhan
cing
info
rmat
ion
trans
pare
ncy.
Th
e C
orpo
rate
Gov
erna
nce
Prac
tice
Prin
cipl
es is
dis
clos
ed o
n ou
r web
site
.
Non
e
2.Sh
areh
oldi
ng S
truct
ure
& S
hare
hold
ers'
Rig
hts
(1)
Did
the
com
pany
est
ablis
h in
tern
al o
pera
ting
proc
edur
es to
pro
cess
shar
ehol
ders
' su
gges
tions
, dou
bts,
disp
utes
, and
litig
atio
n m
atte
rs, a
nd im
plem
ent t
he p
roce
dure
s ac
cord
ingl
y?
(2)
The
Com
pany
's po
sses
sion
of m
ajor
sh
areh
olde
r's li
st a
nd th
e lis
t of u
ltim
ate
owne
rs o
f the
se m
ajor
shar
ehol
ders
(3)
Has
the
Com
pany
bui
lt an
d ex
ecut
ed a
risk
m
anag
emen
t sys
tem
and
“fir
ewal
l” b
etw
een
the
Com
pany
and
its a
ffilia
tes?
(4)
Did
the
com
pany
dev
elop
inte
rnal
rule
s for
pr
ohib
iting
com
pany
insi
ders
from
trad
ing
secu
ritie
s usi
ng in
form
atio
n no
t dis
clos
ed to
th
e m
arke
t?
VIS
has
spe
cific
sta
ffs h
andl
e sh
areh
olde
rs’ s
ugge
stio
ns, d
oubt
s an
d di
sput
es.
Mea
nwhi
le, t
he
"Pro
cedu
res
for
Han
dlin
g Sh
areh
olde
r C
ompl
aint
s" w
ere
form
ulat
ed a
s an
add
ition
to
the
Com
pany
's in
tern
al c
ontro
l sys
tem
. Mat
ters
rela
ted
to sh
areh
olde
r com
plai
nts a
re so
lely
han
dled
by
the
Leg
al D
epar
tmen
t an
d ar
e im
plem
ente
d in
acc
orda
nce
with
the
afo
rem
entio
ned
proc
edur
es.
VIS
trac
ks th
e sh
areh
oldi
ngs
of d
irect
ors,
offic
ers,
and
shar
ehol
ders
hol
ding
mor
e th
an 1
0% o
f th
e ou
tsta
ndin
g sh
ares
of V
IS.
VIS
has
est
ablis
hed
prop
er o
rgan
izat
ion
cont
rol
stru
ctur
e to
mon
itor
the
maj
or f
inan
cial
and
bu
sine
ss o
pera
tions
in a
ny o
f the
sub
sidi
arie
s. V
IS a
lso
follo
ws
the
inte
rnal
con
trol r
egul
atio
ns
to r
evie
w r
elat
ed b
usin
esse
s of
the
sub
sidi
arie
s re
gula
rly s
o as
to
built
and
exe
cute
d a
risk
man
agem
ent s
yste
m a
nd “
firew
all”
bet
wee
n th
e C
ompa
ny a
nd it
s affi
liate
s.
VIS
has
for
mul
ated
an
"Ope
ratin
g Pr
oced
ure
for
Proc
essi
ng o
f M
ajor
Int
erna
l In
form
atio
n",
proh
ibiti
ng c
ompa
ny i
nsid
ers
from
tra
ding
sec
uriti
es u
sing
inf
orm
atio
n no
t di
sclo
sed
to t
he
mar
ket.
Non
e
24
Vanguard InternationalSemiconductor Corporation
Item
Im
plem
enta
tion
Stat
us
Non
-impl
emen
tatio
n an
d Its
Rea
son(
s)
Yes
No
Des
crip
tion
3.C
ompo
sitio
n an
d R
espo
nsib
ilitie
s of t
he B
oard
of D
irect
ors
(1)
Did
the
boar
d of
dire
ctor
s for
mul
ate
appr
opria
te p
olic
y on
div
ersi
ty b
ased
on
the
com
posi
tion
of it
s mem
bers
and
impl
emen
t su
ch p
olic
y ac
cord
ingl
y?
(2)
In a
dditi
on to
est
ablis
hing
a re
mun
erat
ion
com
mitt
ee a
nd a
udit
com
mitt
ee, d
id th
e co
mpa
ny v
olun
taril
y se
t up
othe
r fun
ctio
nal
com
mitt
ees?
(3)
Did
the
com
pany
form
ulat
e ru
les a
nd
met
hods
for b
oard
of d
irect
ors’
perf
orm
ance
as
sess
men
ts, a
nd p
erfo
rm p
erio
dic
perf
orm
ance
ass
essm
ents
eac
h ye
ar?
(4)
Did
the
com
pany
eva
luat
e th
e in
depe
nden
ce
of C
ertif
ied
Publ
ic A
ccou
ntan
ts (C
PA)
perio
dica
lly?
Prov
isio
n 5
of th
e co
mpa
ny's
Reg
ulat
ion
for B
oard
Ele
ctio
n sp
ecifi
cally
dis
clos
es th
e po
licy
on
dive
rsity
of
boar
d of
dire
ctor
mem
bers
; Com
pany
req
uire
men
ts a
nd th
e di
vers
ity o
f bo
ard
of
dire
ctor
s are
con
side
red
in th
e no
min
atio
ns fo
r re-
elec
ting
dire
ctor
s of t
he b
oard
.
In a
dditi
on to
est
ablis
hing
a re
mun
erat
ion
com
mitt
ee a
nd a
udit
com
mitt
ee, w
e di
d no
t set
up
othe
r fun
ctio
nal c
omm
ittee
s.
The
Com
pany
has
form
ulat
ed a
ser
ies
of ru
les
and
polic
es p
erta
inin
g to
eva
luat
ions
, inc
ludi
ng
"Pol
icie
s, Sy
stem
s, St
anda
rds,
and
Stru
ctur
e of
the
Perf
orm
ance
Ass
essm
ent a
nd R
emun
erat
ion
of D
irect
ors"
as
wel
l as
a "B
oard
of
Dire
ctor
s Pe
rfor
man
ce E
valu
atio
n Po
licy"
; The
sco
pe o
f ev
alua
tion
cove
rs in
divi
dual
Boa
rd m
embe
rs, t
he B
oard
as
a w
hole
, and
func
tiona
l com
mitt
ees.
The
met
hods
of
eval
uatio
n m
ay b
e ei
ther
int
erna
l ev
alua
tion,
ext
erna
l ev
alua
tion,
or
both
. In
tern
al e
valu
atio
n in
clud
es s
elf-
eval
uatio
n by
indi
vidu
al B
oard
mem
bers
, int
erna
l eva
luat
ion
by th
e B
oard
, int
erna
l eva
luat
ion
by fu
nctio
nal c
omm
ittee
s, re
-eva
luat
ion
by th
e C
ompe
nsat
ion
Com
mitt
ee, a
nd re
solu
tions
of m
eetin
gs o
f the
Boa
rd. E
xter
nal e
valu
atio
n in
clud
es e
valu
atio
ns
by a
ppoi
nted
ext
erna
l pro
fess
iona
l ins
titut
ions
, exp
erts
, or
othe
r ap
prop
riate
met
hods
. Int
erna
l ev
alua
tion
shal
l be
ado
pted
for
the
eva
luat
ion
of i
ndiv
idua
l B
oard
mem
bers
and
fun
ctio
nal
com
mitt
ees.
Bot
h in
tern
al a
nd e
xter
nal e
valu
atio
ns s
hall
be a
dopt
ed f
or th
e ev
alua
tion
of th
e B
oard
as a
who
le.
We
form
ulat
e pe
rfor
man
ce a
sses
smen
t ite
ms
at t
he b
egin
ning
of
each
yea
r, ev
alua
te t
he
perf
orm
ance
at t
he e
nd o
f ea
ch y
ear,
and
inco
rpor
ate
the
asse
ssm
ent r
esul
ts in
to c
onsi
dera
tion
for r
emun
erat
ion
of th
e B
oard
.
The
exte
rnal
per
form
ance
ass
essm
ent o
f 201
6 w
as c
ondu
cted
by
Taiw
an C
orpo
rate
Gov
erna
nce
Ass
ocia
tion,
whi
ch h
as n
o bu
sine
ss r
elat
ions
with
VIS
; it
is a
n in
depe
nden
t in
stitu
tion.
The
in
tern
al
and
exte
rnal
as
sess
men
t re
sults
ar
e di
sclo
sed
on
our
web
site
:
http
://w
ww
.vis
.com
.tw/v
isC
om/e
nglis
h/d_
ir/d0
402_
com
mitt
ees.h
tm
The A
udit
Com
mitt
ee a
nnua
lly e
valu
ates
the
inde
pend
ence
of C
ertif
ied
Publ
ic
Acc
ount
ants
(CPA
) mai
nly
incl
udin
g fin
anci
al in
tere
sts,
finan
cing
and
gua
rant
ees,
busi
ness
re
latio
nshi
ps, e
mpl
oym
ent,
non-
audi
ted
serv
ices
, sig
nific
ant v
alue
of g
ifts,
cont
inuo
us
enga
gem
ents
, etc
. and
ass
ess C
PA's
perf
orm
ance
and
com
pete
nce
and
repo
rts th
e as
sess
men
ts to
th
e bo
ard
of d
irect
ors.
Non
e
25
Vanguard InternationalSemiconductor Corporation
Item
Im
plem
enta
tion
Stat
us
Non
-impl
emen
tatio
n an
d Its
Rea
son(
s)
Yes
No
Des
crip
tion
4. A
s a T
WSE
/TPE
x-lis
ted
com
pany
, has
VIS
set
up a
full-
(or p
art-)
tim
e co
rpor
ate
gove
rnan
ceun
it or
per
sonn
el in
cha
rge
of c
orpo
rate
gove
rnan
ce a
ffairs
and
des
igna
ted
a se
nior
offic
er to
be
in c
harg
e of
supe
rvis
ion
(incl
udin
g bu
t not
lim
ited
to fu
rnis
hing
info
rmat
ion
requ
ired
by d
irect
ors a
ndsu
perv
isor
s to
cond
uct b
usin
ess,
hand
ling
mat
ters
rela
ting
to b
oard
mee
tings
and
shar
ehol
ders
' mee
tings
as r
equi
red
by la
w,ha
ndlin
g co
rpor
ate
regi
stra
tion
and
amen
dmen
t reg
istra
tion,
pro
duci
ng m
inut
es o
fbo
ard
mee
tings
and
shar
ehol
ders
' mee
tings
,et
c.)?
a.Th
e C
ompa
ny h
as s
et u
p a
dedi
cate
d co
rpor
ate
gove
rnan
ce u
nit,
i.e.,
the
Com
pany
'sFi
nanc
ial M
anag
emen
t Dep
artm
ent u
nder
the
Fina
nce
Div
isio
n, w
hich
is o
vers
een
by th
eV
ice
Pres
iden
t of
Fina
nce
and
task
ed w
ith f
orm
ulat
ing
and
exec
utin
g pl
ans
rela
ted
to th
eC
ompa
ny's
corp
orat
e go
vern
ance
, ha
ndlin
g co
rpor
ate
regi
stra
tion
and
amen
dmen
tre
gist
ratio
n,
and
othe
r m
atte
rs
to
effe
ctiv
ely
safe
guar
d th
e rig
hts
and
inte
rest
s of
shar
ehol
ders
, re
info
rce
the
role
of
the
Boa
rd o
f D
irect
ors
and
func
tion
of t
he A
udit
Com
mitt
ee, r
espe
ct st
akeh
olde
rs' r
ight
s, an
d im
prov
e in
form
atio
n tra
nspa
renc
y.b.
The
Com
pany
's re
leva
nt d
epar
tmen
ts a
nd u
nits
inc
ludi
ng t
he S
ecre
taria
t of
the
Boa
rd o
fD
irect
ors,
Inte
rnal
Aud
it D
epar
tmen
t, an
d D
epar
tmen
t of H
uman
Res
ourc
es a
re re
spon
sibl
efo
r fu
rnis
hing
info
rmat
ion
requ
ired
by d
irect
ors
and
supe
rvis
ors
to c
ondu
ct b
usin
ess,
and
the
Secr
etar
iat
of t
he B
oard
is
task
ed w
ith c
arry
ing
out
rele
vant
tas
ks r
elat
ing
to b
oard
mee
tings
and
sha
reho
lder
s' m
eetin
gs i
n ac
cord
ance
with
law
and
pro
duci
ng m
eetin
gm
inut
es fo
r boa
rd m
eetin
gs a
nd sh
areh
olde
rs' m
eetin
gs.
Non
e
5.D
id th
e co
mpa
ny m
aint
ain
chan
nels
of
com
mun
icat
ion
with
its s
take
hold
ers
(incl
udin
g bu
t not
lim
ited
to sh
areh
olde
rs,
empl
oyee
s, cl
ient
s and
supp
lies)
, des
igna
te a
stak
ehol
ders
sect
ion
on it
s web
site
, and
adeq
uate
ly re
spon
d to
stak
ehol
ders
' con
cern
sre
gard
ing
corp
orat
e so
cial
resp
onsi
bilit
y?
VIS
atta
ches
gre
at i
mpo
rtanc
e to
the
com
mun
icat
ion
betw
een
our
stak
ehol
ders
and
us.
The
stak
ehol
ders
inc
lude
but
not
lim
ited
to s
hare
hold
ers,
empl
oyee
s, cl
ient
s an
d su
pplie
s. W
e m
aint
ain
good
com
mun
icat
ion
with
our
sta
keho
lder
s th
roug
h re
leva
nt d
epar
tmen
ts d
epen
ding
on
situ
atio
n. F
urth
erm
ore,
we
have
pub
licly
dis
clos
ed th
e co
ntac
t inf
orm
atio
n of
our
cor
pora
te
spok
espe
rson
and
rel
evan
t dep
artm
ents
. Als
o, w
e ha
ve a
sta
keho
lder
sec
tion
on o
ur c
orpo
rate
w
ebsi
te to
add
ress
our
cor
pora
te so
cial
resp
onsi
bilit
ies a
nd a
ny o
ther
issu
es.
Non
e
6.D
id th
e co
mpa
ny e
ngag
e a
prof
essi
onal
shar
ehol
der s
ervi
ces a
gent
to h
andl
esh
areh
olde
rs m
eetin
g m
atte
rs?
We
have
des
igna
ted
Chi
natru
st C
omm
erci
al B
ank
as o
ur s
ervi
ce a
gent
to h
andl
e sh
areh
olde
rs
mee
ting
mat
ters
. N
one
7.In
form
atio
n D
iscl
osur
e(1
)Es
tabl
ishm
ent o
f cor
pora
te w
ebsi
te to
di
sclo
se in
form
atio
n re
gard
ing
the
Com
pany
's fin
anci
als,
busi
ness
and
co
rpor
ate
gove
rnan
ce st
atus
(2)
Oth
er in
form
atio
n di
sclo
sure
cha
nnel
s (e.
g.
Engl
ish
web
site
, app
oint
ing
resp
onsi
ble
peop
le to
han
dle
info
rmat
ion
colle
ctio
n an
d di
sclo
sure
, app
oint
ing
spok
espe
rson
, w
ebca
stin
g in
vest
or c
onfe
renc
e)
VIS
dis
clos
es o
ur f
inan
cial
s, bu
sine
ss a
nd c
orpo
rate
gov
erna
nce
stat
us o
n its
web
site
at
http
://w
ww
.vis
.com
.tw
VIS
has
lau
nche
d bi
lingu
al C
hine
se a
nd E
nglis
h w
ebsi
tes
and
has
assi
gned
the
rel
ated
de
partm
ents
to
colle
ct a
nd r
evea
l co
mpa
ny i
nfor
mat
ion,
whi
le t
he P
ublic
and
Cor
pora
te
Inve
stor
Rel
atio
n de
partm
ent
is i
n ch
arge
of
inte
grat
ed m
anag
emen
t. W
e ha
ve I
nves
tor
Rel
atio
ns s
egm
ent
on o
ur c
orpo
rate
web
site
, an
d it
cont
ains
his
toric
al I
nves
tor
Con
fere
nce
Rep
ort a
nd th
e vi
deo
of la
test
Inv
esto
r C
onfe
renc
e. I
n ad
ditio
n, V
IS h
as a
ssig
ned
spok
esm
an
and
actin
g sp
okes
man
as r
egul
ated
.
Non
e
26
Vanguard InternationalSemiconductor Corporation
Item
Im
plem
enta
tion
Stat
us
Non
-impl
emen
tatio
n an
d Its
Rea
son(
s)
Yes
No
Des
crip
tion
8.H
as th
e C
ompa
ny d
iscl
osed
oth
er in
form
atio
nto
faci
litat
e a
bette
r und
erst
andi
ng o
f its
corp
orat
e go
vern
ance
pra
ctic
es (e
.g. i
nclu
ding
but n
ot li
mite
d to
em
ploy
ee ri
ghts
, em
ploy
eew
elln
ess,
inve
stor
rela
tions
, sup
plie
r rel
atio
ns,
ri ght
s of s
take
hold
ers,
dire
ctor
s’ tra
inin
gre
cord
s, th
e im
plem
enta
tion
of ri
skm
anag
emen
t pol
icie
s and
risk
eva
luat
ion
mea
sure
s, th
e im
plem
enta
tion
of c
usto
mer
rela
tions
pol
icie
s, an
d pu
rcha
sing
insu
ranc
efo
r dire
ctor
s)?
a.Fo
r em
ploy
ee ri
ghts
and
em
ploy
ee w
elln
ess,
plea
se re
fer t
o“Em
ploy
ee /
empl
oyer
rela
tions
”on
pag
e xx
xx o
f his
Ann
ual R
epor
t.
b.In
vest
or re
latio
ns :
VIS
has
spec
ific
staf
fs h
andl
e sh
areh
olde
rs’ s
ugge
stio
ns, d
oubt
s and
dis
pute
s. In
add
ition
, we
h old
Inv
esto
r C
onfe
renc
e fo
r in
stitu
tiona
l in
vest
ors
ever
y qu
arte
r an
d w
e al
so d
iscl
ose
Chi
nese
and
Eng
lish
finan
cial
repo
rts o
n ou
r cor
pora
te w
ebsi
te.
c.Fo
r su
pplie
r re
latio
ns a
nd r
ight
s of
sta
keho
lder
s, p
leas
e re
fer
to
Impl
emen
tatio
n of
Cor
pora
te S
ocia
l Res
pons
ibili
ty M
easu
res
on p
age
xxxx
of t
his A
nnua
l Rep
ort.
d.D
irect
ors’
train
ing
reco
rds:
All
of o
ur se
ven
dire
cts a
ttend
100
hou
rs o
f tra
inin
g in
Y20
16.
e.Fo
r th
e im
plem
enta
tion
of r
isk
man
agem
ent
polic
ies
and
risk
eval
uatio
n m
easu
res,
plea
sere
fer
to
The
polic
y of
the
ris
k m
anag
emen
tan
dTh
e or
gani
zatio
n ch
art
of t
he r
isk
man
agem
ent
on p
age
xxx
of th
is A
nnua
l Rep
ort.
f.Im
plem
enta
tion
of c
usto
mer
rela
tions
pol
icie
s :Fr
om th
e m
omen
t we
star
t neg
otia
ting
with
our
cus
tom
ers
abou
t bus
ines
s op
portu
nitie
s, w
ere
quire
all
cust
omer
s to
sig
n a
Non
-Dis
clos
ure
Agr
eem
ent.
To p
rote
ct c
usto
mer
priv
acy
right
s, w
e de
term
ine
the
secu
rity
leve
l of
co
nfid
entia
l in
form
atio
n an
d es
tabl
ish
corr
espo
ndin
g co
ntro
l m
easu
res,
requ
iring
on
ly
thos
e w
ith
perm
issi
on
to
acce
ss
the
info
rmat
ion.
A
ll ot
her
pers
onne
l m
ust
not
atte
mpt
to
m
ake
inqu
iries
on
cu
stom
erin
form
atio
n, a
nd w
hen
cust
omer
s m
ake
requ
ests
or
appl
y fo
r do
cum
ents
thro
ugh
our
VIS
-on
line
syst
em, p
rope
r aut
horiz
atio
n m
ust b
e ob
tain
ed.
g.W
e m
aint
ains
D&
O In
sura
nce
for i
ts d
irect
ors a
nd o
ffice
rs.
Non
e
9.C
onsu
lted
the
expl
anat
ion
of im
prov
emen
ts to
the
corp
orat
e go
vern
ance
eva
luat
ion
resu
lts fo
r the
mos
t rec
ent y
ear p
ublis
hed
by th
e Ta
iwan
Sto
ck E
xcha
nge
Cor
pora
tion
(TW
SE)
Cor
pora
te G
over
nanc
e C
ente
r and
pro
pose
d fa
st-tr
acke
d im
plem
enta
tion
of im
prov
emen
ts a
nd re
late
d m
easu
res f
or a
reas
whi
ch h
ad y
et to
be
rect
ified
.Fo
r tw
o ye
ars i
n a
row
, the
Com
pany
has
bee
n ra
nked
in th
e to
p 5%
of t
he C
orpo
rate
Gov
erna
nce
Eval
uatio
n, a
nd in
201
6 th
e C
hairm
an o
f the
Boa
rd p
erso
nally
atte
nded
and
pre
side
dov
er t
he 2
016
Gen
eral
Sha
reho
lder
s' M
eetin
g. I
n te
rms
of o
ther
dev
elop
men
ts a
nd i
mpr
ovem
ents
, we
form
ulat
ed t
he V
IS C
orpo
rate
Soc
ial
Res
pons
ibili
ty P
rinci
ples
, Cor
pora
teG
over
nanc
e Pr
actic
e Pr
inci
ples
, VIS
Eth
ical
Cor
pora
te M
anag
emen
t Bes
t Pra
ctic
e Pr
inci
ples
, and
a B
oard
of D
irect
ors
Perf
orm
ance
Ass
essm
ent P
olic
y. A
ll of
thes
e ne
w p
olic
ies
are
publ
icly
dis
clos
ed o
n ou
r cor
pora
te w
ebsi
te in
bot
h C
hine
se a
nd E
nglis
h. T
he C
ompa
ny a
lso
subm
its a
repo
rt re
gard
ing
the
impr
oved
item
s to
the
Boa
rd o
f Dire
ctor
s an
d, a
fter t
a kin
gin
to c
onsi
dera
tion
the
spec
ific
aspe
cts
of e
ach
indu
stry
seg
men
t an
d ac
tual
ope
ratin
g re
quire
men
ts,
the
Boa
rd i
s ha
s co
ntin
ued
its e
ffor
ts t
o en
hanc
e th
e C
ompa
ny's
corp
orat
ego
vern
ance
, the
reby
boo
stin
g th
e co
re c
ompe
titiv
enes
s of V
IS.
27
Vanguard InternationalSemiconductor Corporation
2. Compensation Committee
VIS has established a Compensation Committee as required by the
competent authority for assisting the BOD in the study and design of the
compensation policy and structure in order to attract, motivate, reward, and
retain talent. The functions of this committee are: Map out the
compensation policy and structure, the method for the release of fees for
directors and supervisors, the salaries of the managers and release of the
salaries, the reward for the managers and incentives for motivating people,
Planning and implementation of performance evaluations for the Board of
directors (including the Chairman) and managers (including the President)
any other duties assigned by or authorized by BOD.
Members of the Compensation Committee
Title Name
Over 5 years of working experience Criteria(Note) Number of other
public companies that concurrently serve as an member of
Compensation Committee
Remark
College Instructor or
higher level in Business, Legal,
Finance, Accounting or
company business related
area
Court Judge, Prosecutor,
Lawyer, Accountant, or other Certified Professional
expert related to company business
Business, Legal,
Finance, Accounting or
company business required working
experience
1 2 3 4 5 6 7 8
Independent Director
Chintay Shih
V V V V V V V V V V 2
Independent Director
Kenneth Kin
V V V V V V V V V V 3
Independent Director
Benson W.C. Liu
V V V V V V V V V 2
Note :
1. Not an employee of affiliated companies of the company and company.
2. Not a director, supervisor of affiliated companies of the company and company.
3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company
outstanding shares, nor one of the Company top 10 natural person shareholders.
4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.
5. Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or
indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top
five share-holders of juridical person.
6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares of
certain companies or institutions that have financial or business relationship with the Company.
7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or
institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce,
legal consultation and services to the Company or affiliated companies within one year.
8. Not a juridical person or its representative as defined in Article 30 of Company Law.
28
Vanguard InternationalSemiconductor Corporation
Compensation Committee Operations Information
1. The company’s Compensation Committee is composed of three members
2. Term of office for the current members: June 8, 2015 to June 7, 2018. The
committee has met 5 times in the most recent year. Membership and attendance
information are provided below:
Title Name No. of Meetings
Attended No. of Meetings
Substituted Attendance
Rate Note
Convener Kenneth Kin 5 0 100%
Member Chintay Shih 4 1 80%
Member Benson W.C. Liu 5 0 100%
Other items of note: 1. If the Board of Directors does not adopt or amend the Compensation Committee’s
recommendations, the date, period, motion, decision of the board, and how the Company shallhandle the Committee’s recommendations must be clearly stated: None.
2. If members of the Compensation Committee oppose or reserve their opinions for any resolvedissues and have a record or written statement for it, the date, period, motion, and all opinions ofthe members and how these opinions were handled shall be clearly stated: None.
3. Matters concerning the Board of Directors Performance Evaluation Policy and methods andimplementation status of performance evaluations (in cases where an external institution orexperts are appointed to conduct evaluations of Board performance, the Company shall disclosethe name of the external institution in question and names of the experts and a description oftheir specialties, and indicate whether the external institution and experts have business dealingswith the Company and whether they are independent):The Company has formulated the Board of Directors Performance Evaluation Policy, which is aperformance evaluation policy which applies to Board members.The scope of the performance evaluation for the Company's Board of Directors includesevaluating individual directors, the Board as a whole, and functional committees. Internalevaluation shall be adopted for the evaluation of individual Board members and functionalcommittees. Both internal and external evaluations shall be adopted for the evaluation of theBoard as a whole.(1) Internal performance evaluation for individual Board members:
The evaluation items and evaluation forms compiled by the Compensation Committee during Q4 of each calendar year shall be used in the performance reviews carried out after the first quarter of the following calendar year (to be regularly implemented once annually), and the assessment results are incorporated into consideration for Board remuneration. Cumulative Evaluation Results for 2016: The performance of all directors was determined to have met expectations.
(2) Internal performance evaluations for the Board as a whole and functional committees: The evaluation items and evaluation forms compiled by the Compensation Committee during the fourth quarter of each calendar year shall be used in the performance reviews carried out after the first quarter of the following calendar year (to be regularly implemented once annually). Cumulative evaluation results for 2016: The overall performance of the Board as a whole and each functional committee was determined to have met expectations.
(3) External performance evaluation for the Board of Directors: At least once every three years, an outside professional institution is retained to carry out
29
Vanguard InternationalSemiconductor Corporation
an assessment. For CY2016, the Company engaged the Taiwan Corporate Governance Association to carry out an assessment. Cumulative Evaluation Results for 2016: The Company's Board of Directors and management team were found to have maintained open and direct lines of communication; the Board of Directors provided guidance on the Company's developmental strategies, established an incentive mechanism for managers, exercised effective oversight of the VIS management team's operating achievements, reduced the Company's operating risks, and regularly examined the effectiveness and implementation of various systems, and furthermore gradually consolidated the Company's corporate governance culture, thereby ensuring the Company possesses a strong foundation for future sustainability.
30
Vanguard InternationalSemiconductor Corporation
3.Im
plem
enta
tion
of C
orpo
rate
Soc
ial R
espo
nsib
ility
Mea
sure
s
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
1.Im
plem
enta
tion
of C
orpo
rate
Gov
erna
nce
(1)
Did
the
com
pany
form
ulat
e co
rpor
ate
soci
al
resp
onsi
bilit
y po
licie
s or s
yste
ms a
nd
revi
ew th
e ef
fect
iven
ess o
f its
im
plem
enta
tion?
(2)
Did
the
com
pany
per
iodi
cally
hol
d so
cial
re
spon
sibi
lity
train
ing?
(3)
Did
the
com
pany
est
ablis
h a
unit
excl
usiv
ely
for t
he p
rom
otio
n of
cor
pora
te
soci
al re
spon
sibi
lity,
and
did
the
boar
d of
di
rect
ors a
utho
rize
high
-leve
l man
agem
ents
to
man
age
this
uni
t and
repo
rt m
anag
emen
t pr
ogre
ss to
the
boar
d of
dire
ctor
s?
(4)
Did
the
com
pany
form
ulat
e re
ason
able
re
mun
erat
ion
polic
y, in
tegr
ate
empl
oyee
pe
rfor
man
ce a
sses
smen
ts w
ith th
e co
rpor
ate
soci
al re
spon
sibi
lity
polic
y, a
nd e
stab
lish
an
effe
ctiv
e re
war
ding
and
pun
ishm
ent s
yste
m?
V V V V
(1)
To i
mpl
emen
t co
rpor
ate
soci
al r
espo
nsib
ility
and
em
brac
e th
e ov
eral
l de
velo
pmen
t of
so
ciet
ies
in T
aiw
an, V
IS h
as e
stab
lishe
d th
e "C
orpo
rate
Soc
ial
Res
pons
ibili
ty P
olic
y"
and
"Cor
pora
te S
ocia
l Res
pons
ibili
ty R
epor
t". V
IS c
omm
its to
abi
de b
y et
hica
l nor
ms
in
busi
ness
man
agem
ent,
assu
me
envi
ronm
enta
l pr
otec
tion
resp
onsi
bilit
y, p
rovi
de a
saf
e w
orki
ng e
nviro
nmen
t, an
d pr
otec
t em
ploy
ee ri
ghts
, as t
he c
ruci
al c
riter
ia fo
r mai
ntai
ning
po
sitiv
e de
velo
pmen
ts in
our
soci
ety.
(2
)To
em
brac
e so
cial
res
pons
ibili
ty a
nd p
rom
ote
corp
orat
e go
vern
ance
, V
IS c
onst
antly
re
min
ds a
nd p
rom
otes
cor
pora
te g
over
nanc
e co
ncep
ts a
nd a
rran
ges
corp
orat
e so
cial
re
spon
sibi
lity
train
ing
to th
e bo
ard
of d
irect
ors,
inde
pend
ent d
irect
ors,
and
empl
oyee
s. Fo
r exa
mpl
e, fo
rmul
atin
g et
hica
l nor
ms
for b
usin
ess
prac
tice
repr
esen
ts th
e ad
voca
cy o
f in
tegr
ity a
nd e
thic
al b
usin
ess
beha
vior
; pr
omot
ing
the
impo
rtanc
e of
int
egrit
y an
d up
right
ness
hel
ps e
mpl
oyee
s un
ders
tand
the
conc
ept
and
prin
cipl
es o
f bu
sine
ss e
thic
s, th
ereb
y m
otiv
atin
g th
em to
com
ply
with
law
s an
d re
gula
tions
. Em
ploy
ees'
parti
cipa
tion
in r
elev
ant
train
ing
prog
ram
s is
rec
orde
d an
d re
gist
ered
. Th
e tra
inin
g ou
tcom
es a
re
prov
ided
to
th
eir
resp
ectiv
e su
perv
isor
s as
re
fere
nce
for
empl
oyee
pe
rfor
man
ce
asse
ssm
ents
. (3
)Th
e co
mpa
ny h
as s
et u
p th
e "C
orpo
rate
Soc
ial R
espo
nsib
ility
Pro
mot
ion
Com
mitt
ee"
to
take
cha
rge
of e
stab
lishi
ng th
e co
rpor
ate
soci
al r
espo
nsib
ility
pol
icy
and
prop
osin
g an
d im
plem
entin
g sy
stem
s w
hile
at t
he s
ame
time
cons
tant
ly r
efle
ctin
g th
e im
plem
enta
tion
effe
ctiv
enes
s an
d m
akin
g co
nsta
nt im
prov
emen
ts, e
nsur
ing
exec
utio
n of
the
com
pany
's co
rpor
ate
soci
al re
spon
sibi
lity
polic
y. T
he C
omm
ittee
per
iodi
cally
repo
rts to
the
boar
d of
di
rect
ors
rega
rdin
g pr
omot
ion
prog
ress
. Th
e st
ruct
ure
of c
ompa
ny’s
CSR
com
mitt
ee
plea
se re
fers
to o
ur w
ebsi
te v
ia
http
://w
ww
.vis
.com
.tw/v
isC
om/e
nglis
h/do
wnl
oad/
csr_
grou
p.jp
g (4
)V
IS p
rovi
des
its e
mpl
oyee
s w
ith c
ompe
nsat
ion
abov
e th
e st
anda
rd o
f th
at o
f th
e sa
me
indu
strie
s. A
dditi
onal
ly, t
he c
ompa
ny's
perf
orm
ance
ass
essm
ent
syst
em c
onsi
ders
bot
h co
mpa
ny s
trate
gies
and
per
sona
l per
form
ance
goa
ls t
o ke
ep e
mpl
oyee
s' re
mun
erat
ions
are
clos
ely
linke
d w
ith t
heir
perf
orm
ance
. Th
e pu
rpos
e is
to
enco
urag
e an
d re
war
d em
ploy
ees
for
thei
r ef
forts
du
ring
polic
y pr
omot
ions
, th
ereb
y st
reng
then
ing
the
sust
aina
bilit
y of
futu
re p
olic
y pr
omot
ions
.
No
varia
tion
31
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
2.D
evel
opm
ent o
f Sus
tain
able
Env
ironm
ent
(1)
Is th
e co
mpa
ny c
omm
itted
to e
nhan
cing
the
usag
e ef
ficie
ncy
of v
ario
us re
sour
ces a
nd
utili
zing
rene
wab
le m
ater
ials
that
exe
rt a
low
impa
ct o
n en
viro
nmen
tal l
oad?
(2)
Did
the
com
pany
est
ablis
h an
app
ropr
iate
en
viro
nmen
tal m
anag
emen
t sys
tem
ac
cord
ing
to it
s ind
ustry
cha
ract
eris
tics?
(3)
Did
the
com
pany
show
con
cern
s for
the
influ
ence
that
clim
ate
chan
ge h
as o
n its
bu
sine
ss a
ctiv
ities
, and
em
bark
on
inve
ntor
ying
gre
enho
use
gas e
mis
sion
s and
fo
rmul
atin
g st
rate
gies
to c
onse
rve
ener
gy,
redu
ce c
arbo
n em
issi
on, a
nd d
ecre
ase
gree
nhou
se g
as v
olum
e?
V V V
(1)
Min
imiz
ing
envi
ronm
enta
l im
pact
thro
ugh
gree
n pr
oduc
tion
is V
IS's
core
env
ironm
enta
l po
licy.
In Y
2016
, the
Com
pany
targ
eted
109
item
s in
an
ende
avor
to e
nhan
ce th
e us
age
effic
ienc
y of
var
ious
res
ourc
es,
was
te r
educ
tion
and
pollu
tion
min
imiz
atio
n. F
or
exam
ple,
VIS
has
mad
e ef
forts
to m
inim
ize
the
volu
me
of c
hem
ical
s an
d ga
ses
used
in a
pr
oduc
tion
proc
esse
s, to
ado
pt th
e us
e of
LED
tube
ligh
ting
at th
e C
ompa
ny's
prod
uctio
n fa
cilit
ies,
to c
ondu
ct a
n im
prov
emen
t pla
n fo
r dry
pum
p ex
haus
t kits
, red
uctio
n in
AC
T an
d N
MP
was
te,
and
othe
r m
easu
res
desi
gned
to
miti
gate
neg
ativ
e en
viro
nmen
tal
impa
cts.
(2
)In
add
ition
to u
phol
ding
the
spiri
t of
cont
inuo
us im
prov
emen
t em
bedd
ed in
the
PDC
A
(Pla
n-D
o-C
heck
-Act
ion)
met
hodo
logy
und
er I
SO 1
4001
, V
IS c
ondu
cts
a re
view
of
rele
vant
env
ironm
enta
l pro
tect
ion
law
s an
d re
gula
tions
on
a m
onth
ly b
asis
and
mak
es
corr
espo
ndin
g ad
just
men
ts a
s ne
eded
. W
e al
so c
ondu
ct d
iscu
ssio
n m
eetin
gs w
ith
envi
ronm
enta
l, sa
fety
, an
d he
alth
com
mitt
ees
of v
ario
us l
evel
s. Fo
r ex
ampl
e, f
abdi
rect
ors
hold
mon
thly
com
mitt
ee m
eetin
gs to
exa
min
e en
viro
nmen
tal s
afet
y an
d he
alth
is
sues
, an
d th
e va
rious
de
partm
ents
of
ea
ch
area
(f
ab
man
ufac
turin
g,
AD
M
adm
inis
tratio
n, a
nd I
S &
QR
A)
hold
qua
rterly
mee
tings
to
exam
ine
the
Com
pany
's ov
eral
l ope
ratio
ns r
elat
ing
to e
nviro
nmen
tal s
afet
y an
d he
alth
man
agem
ent s
yste
ms.
A
repo
rt is
the
n pr
esen
ted
at a
qua
rterly
com
pany
-wid
e en
viro
nmen
tal
safe
ty a
nd h
ealth
co
mm
ittee
mee
ting
host
ed b
y th
e Pr
esid
ent o
f VIS
. (3
)C
limat
e ch
ange
topi
cs h
ave
attra
cted
atte
ntio
n w
orld
wid
e, s
o as
to V
IS. I
n ad
ditio
n to
fo
llow
ing
rule
s an
d re
gula
tions
clo
sely
, VIS
con
duct
s co
rpor
atio
n-w
ide
GH
G e
mis
sion
in
vent
orie
s an
nual
ly a
s w
ell a
s ex
tern
al v
erifi
catio
ns. I
nven
tory
and
ver
ifica
tion
resu
lts
are
repo
rted
to th
e go
vern
men
t as
wel
l as
the
high
leve
l exe
cutiv
es in
the
Hea
lth, S
afet
y an
d En
viro
nmen
tal P
rote
ctio
n C
omm
ittee
.
No
varia
tion
3.Pr
otec
tion
of S
ocie
ty's
Publ
ic In
tere
st(1
)D
id th
e co
mpa
ny fo
rmul
ate
appl
icab
le
man
ager
ial p
olic
ies a
nd p
roce
dure
s in
acco
rdan
ce w
ith re
leva
nt re
gula
tions
and
in
tern
atio
nal h
uman
righ
ts c
onve
ntio
ns?
V(1
)V
IS is
ded
icat
ed to
the
esta
blis
hmen
t of
harm
onio
us a
tmos
pher
e in
labo
r-man
agem
ent
rela
tion
thro
ugh
mut
ual
trust
in
corp
orat
e m
anag
emen
t. V
IS h
as e
stab
lishe
d th
eem
ploy
ee h
andb
ook,
as
wel
l as
the
per
sonn
el r
egul
atio
ns m
anua
l fo
r em
ploy
ees
toim
plem
ent t
he ru
les.
No
varia
tion
32
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
(2)
Did
the
com
pany
est
ablis
h a
staf
f com
plai
nt
mec
hani
sm a
nd c
hann
els,
and
adeq
uate
ly
hand
le e
mpl
oyee
com
plai
ns?
(3)
Did
the
com
pany
pro
vide
em
ploy
ees a
safe
he
alth
y w
orki
ng e
nviro
nmen
t, an
d pe
riodi
cally
edu
cate
em
ploy
ees o
n sa
fety
an
d he
alth
issu
es?
(4)
Did
the
com
pany
dev
ise
a pe
riodi
c co
mm
unic
atio
n m
echa
nism
for i
ts
empl
oyee
s, an
d no
tify
empl
oyee
s in
a re
ason
able
man
ner o
f pot
entia
l maj
or
influ
ence
s to
the
com
pany
's op
erat
iona
l pr
oces
s?
(5)
Did
the
com
pany
est
ablis
h ef
fect
ive
care
er
deve
lopm
ent p
rogr
ams f
or it
s em
ploy
ees?
V V V V
(2)
VIS
is d
edic
ated
to th
e es
tabl
ishm
ent o
f ha
rmon
ious
atm
osph
ere
in la
bor-m
anag
emen
t re
latio
n th
roug
h m
utua
l tru
st i
n co
rpor
ate
man
agem
ent.
It em
brac
es a
n ac
tive,
ope
n m
anag
emen
t mod
el to
cre
ate
a w
ork
envi
ronm
ent t
hat i
s bo
th c
halle
ngin
g an
d fu
n. V
IS
prov
ides
a v
arie
ty o
f w
ay t
o im
prov
ing
empl
oyee
lab
or-m
anag
emen
t co
mm
unic
atio
n,
such
as
host
ing
orie
ntat
ion
of n
ew p
eopl
e, q
uarte
rly l
abor
-man
agem
ent
mee
tings
, and
ex
ecut
ive
mee
tings
. The
com
pany
als
o se
ts u
p a
mai
lbox
for e
mpl
oyee
com
mun
icat
ion.
In
add
ition
, VIS
con
duct
s su
rvey
on
empl
oyee
opi
nion
s re
gard
ing
thei
r sat
isfa
ctio
n w
ith
man
agem
ent a
nd th
e w
elfa
re sy
stem
regu
larly
. (3
)V
IS h
ighl
y va
lues
em
ploy
ees'
phys
ical
and
men
tal
heal
th,
impr
ovem
ents
in
wor
k en
viro
nmen
t, an
d pr
ovis
ion
of re
crea
tiona
l act
iviti
es a
nd fa
cilit
ies,
and
exer
ts it
s ut
mos
t ef
fort
in re
info
rcin
g he
alth
and
insu
ranc
e-re
late
d se
rvic
es. T
o ca
ter f
or e
mpl
oyee
s' da
ily
lives
, V
IS n
ot o
nly
offe
rs a
cle
an w
orki
ng e
nviro
nmen
t w
ith a
n ar
ray
of r
ecre
atio
nal
faci
litie
s, bu
t als
o a
who
le v
arie
ty o
f rec
reat
iona
l eve
nts
to a
llow
em
ploy
ees
a ch
ance
to
brin
g so
me
rela
xatio
n an
d fu
lfillm
ent t
o th
eir l
ife o
utsi
de o
f wor
k. In
ord
er to
saf
egua
rd
empl
oyee
he
alth
, V
IS
offe
rs
phys
ical
he
alth
ex
amin
atio
ns
to
refr
eshe
rs,
spec
ific
empl
oyee
s, an
d in
-ser
vice
em
ploy
ees.
In a
dditi
on, w
e re
gula
rly p
rom
ote
spec
ial h
ealth
ch
ecks
. VIS
pro
cure
s flu
vac
cine
, hiri
ng d
octo
rs to
adm
inis
ter i
t ons
ite fo
r its
em
ploy
ees.
VIS
has
inv
ited
med
ical
phy
sici
ans
to p
rovi
de m
edic
al c
are
serv
ices
at
our
faci
litie
s;
thes
e se
rvic
es i
nclu
ded
prov
idin
g he
alth
con
sulta
tions
, m
edic
al e
xam
inat
ions
, an
d as
sist
ing
inju
red
empl
oyee
s bac
k to
wor
k.
(4)
Mor
eove
r, th
e co
mpa
ny
prov
ided
di
ffere
nt
chan
nels
fo
r la
bor-m
anag
emen
t co
mm
unic
atio
ns a
nd a
gree
men
ts, s
uch
as h
ostin
g or
ient
atio
n of
new
peo
ple,
qua
rterly
la
bor-m
anag
emen
t m
eetin
gs,
and
exec
utiv
e m
eetin
gs.
The
com
pany
als
o se
ts u
p a
mai
lbox
for
em
ploy
ee c
omm
unic
atio
n. I
n ad
ditio
n, V
IS c
ondu
cts
surv
ey o
n em
ploy
eeop
inio
ns re
gard
ing
thei
r sat
isfa
ctio
n w
ith m
anag
emen
t and
the
wel
fare
syst
em re
gula
rly.
(5)
VIS
ha
s a
com
preh
ensi
ve
train
ing
syste
m
for
train
ing
prof
essi
onal
ta
lent
s an
d de
velo
ping
em
ploy
ees’
pote
ntia
l. Th
is c
ompr
ehen
sive
tra
inin
g sy
stem
inc
lude
s ne
w
com
ers’
orie
ntat
ion,
man
ager
ial
train
ing,
pro
fess
iona
l tra
inin
g, e
xter
nal
train
ing,
and
se
lf- d
evel
opm
ent.
To s
yste
mat
ize
all l
earn
ing
proc
ess,
we
have
est
ablis
hed
the
Trai
ning
M
anag
emen
t Sys
tem
, whi
ch p
rovi
des
pers
onal
lear
ning
pla
ns fo
r th
e ye
ar o
r en
dura
nce
culti
vatio
n pr
ogra
ms
for e
mpl
oyee
s to
bui
ld u
p pe
rson
al le
arni
ng ro
adm
ap a
nd c
ultiv
ate
self-
mot
ivat
ed le
arni
ng c
ultu
re.
33
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
(6)
Did
the
com
pany
form
ulat
e re
leva
nt p
olic
ies
for p
rote
ctio
n of
con
sum
er ri
ghts
and
in
tere
sts a
nd c
onsu
mer
com
plai
nts
proc
edur
e w
ith re
gard
s to
rese
arch
&
deve
lopm
ent (
R&
D),
proc
urem
ent,
prod
uctio
n, o
pera
ting,
and
serv
ice
proc
edur
es?
(7)
Did
the
com
pany
com
ply
with
app
licab
le
law
s, re
gula
tions
, and
inte
rnat
iona
l st
anda
rds w
hen
mar
ketin
g an
d la
belin
g its
pr
oduc
ts a
nd se
rvic
es?
(8
)B
efor
e co
oper
atin
g w
ith a
supp
lier,
did
the
com
pany
ass
ess w
heth
er th
e su
pplie
r had
re
cord
s of e
ngag
ing
in a
ctiv
ities
that
in
fluen
ced
the
envi
ronm
ent a
nd so
ciet
y?
(9)
In th
e co
ntra
ct si
gned
bet
wee
n V
IS a
nd it
s pr
imar
y su
pplie
rs, d
oes i
t inc
lude
pro
visi
ons
stat
ing
the
term
inat
ion
or re
scin
dmen
t of t
he
cont
ract
for i
nsta
nces
whe
n th
e su
pplie
r vi
olat
es th
e co
mpa
ny's
corp
orat
e so
cial
re
spon
sibi
lity
polic
y su
ch th
at it
s act
ions
si
gnifi
cant
ly in
fluen
ced
the
envi
ronm
ent
and
soci
ety?
V V V V
(6)
VIS
ha
s es
tabl
ishe
d a
Gui
delin
e fo
r H
andl
ing
Cus
tom
er
Com
plai
nts,
prov
idin
g cu
stom
ers
a tra
nspa
rent
, ef
fect
ive
chan
nel
to f
ile t
he c
ompl
aint
s th
ey h
ave
for
our
prod
ucts
and
ser
vice
s. In
add
ition
, the
com
pany
han
dles
cus
tom
er c
ompl
aint
s fa
irly
and
inst
antly
, an
d co
mpl
ies
with
rel
evan
t la
ws
and
regu
latio
ns i
n re
spec
ting
cust
omer
pr
ivac
y an
d pr
otec
tion
cust
omer
inf
orm
atio
n. V
IS a
lso
perio
dica
lly a
sses
ses
cust
omer
sa
tisfa
ctio
n w
ith
the
com
pany
, co
mm
issi
onin
g ex
tern
al
agen
cies
to
ha
ndle
su
ch
asse
ssm
ents
. Th
e co
mpa
ny v
iew
s cu
stom
ers
as i
ts c
ruci
al s
take
hold
ers,
atte
ndin
g to
cu
stom
er o
pini
ons
and
usin
g th
ese
opin
ions
as
the
basi
s to
impr
ove
serv
ice
and
prod
uct
deliv
ery
perf
orm
ance
.(7
)Th
e co
mpa
ny c
ompl
ies
with
app
licab
le l
aws,
regu
latio
ns,
and
inte
rnat
iona
l st
anda
rds
whe
n m
arke
ting
its p
rodu
cts a
nd se
rvic
es.
(8)
Bef
ore
coop
erat
ing
with
a n
ew s
uppl
ier,
VIS
's re
leva
nt u
nit w
ould
eva
luat
e th
e su
pplie
r to
ens
ure
the
supp
lier
is n
ot i
nvol
ved
in a
ctiv
ities
tha
t in
fluen
ce t
he e
nviro
nmen
t an
d so
ciet
y an
d fu
lfills
lega
l req
uire
men
ts.
(9)
The
com
pany
spe
cifie
s in
the
cont
ract
that
the
supp
lier m
ust a
dher
e to
rele
vant
law
s an
d re
gula
tions
(in
clud
ing
but
not
limite
d to
the
cor
pora
te s
ocia
l re
spon
sibi
lity
polic
y);
failu
re to
do
so sh
all r
esul
t in
term
inat
ion
of c
oope
ratio
n w
ith V
IS.
4.St
reng
then
ing
of In
form
atio
n D
iscl
osur
eM
easu
res
(1)
Did
the
com
pany
dis
clos
e an
y re
leva
nt a
nd
relia
ble
corp
orat
e so
cial
resp
onsi
bilit
y in
form
atio
n on
its w
ebsi
te a
nd o
n th
e M
arke
t Obs
erva
tion
Post
Sys
tem
of t
he
Taiw
an S
tock
Exc
hang
e w
ebsi
te?
VV
IS c
ompi
les
a co
rpor
ate
soci
al re
spon
sibi
lity
repo
rt ea
ch y
ear a
nd p
ublis
hes
such
repo
rt on
th
e co
mpa
ny w
ebsi
te a
nd o
n th
e M
arke
t Obs
erva
tion
Post
Sys
tem
, allo
win
g in
vest
ors
acce
ss
to re
leva
nt c
orpo
rate
soci
al re
spon
sibi
lity
info
rmat
ion.
N
o va
riatio
n
34
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
5.If
the
com
pany
did
for
mul
ate
prin
cipl
es f
or c
orpo
rate
soc
ial
resp
onsi
bilit
y pr
actic
es a
ccor
ding
to
the
Cor
pora
te S
ocia
l R
espo
nsib
ility
Bes
t Pr
actic
e Pr
inci
ples
for
TW
SE/G
TSM
Lis
ted
Com
pani
es, p
leas
e st
ate
the
varia
tions
in th
e op
erat
ions
and
rule
s of s
uch
prac
tice:
VIS
has
deve
lope
d a
VIS
Cor
pora
te S
ocia
l R
espo
nsib
ility
Man
ual a
s a
guid
e fo
r th
e co
mpa
ny t
o im
plem
ent
its s
ocia
l re
spon
sibi
litie
s; s
uch
impl
emen
tatio
n co
nfor
ms
to t
he s
pirit
of
the
Cor
pora
te S
ocia
l Res
pons
ibili
ty B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es.
6.O
ther
Info
rmat
ion
for B
ette
r Und
erst
andi
ng o
f the
com
pany
's co
rpor
ate
soci
al re
spon
sibi
lity
prac
tices
:Th
e C
ompa
ny a
ctiv
ely
take
s pa
rt in
com
mun
ity a
nd p
ublic
cha
rity
even
ts a
nd c
onsi
sten
tly d
emon
stra
tes
its c
once
rn f
or d
isad
vant
aged
per
sons
with
in o
ur c
omm
uniti
es b
y m
akin
g ta
ngib
leco
ntrib
utio
ns to
soci
ety.
In Ja
nuar
y 20
16, t
he C
ompa
ny e
stab
lishe
d a
prog
ram
for r
aisi
ng c
harit
able
don
atio
ns, a
nd in
resp
onse
to th
e W
orld
Pea
ce A
ssoc
iatio
n's
call
to ra
ise
fund
s to
cov
er th
eco
st o
f m
eals
for
und
erno
uris
hed
scho
olch
ildre
n du
ring
thei
r w
inte
r br
eak,
VIS
hel
ped
rais
e a
tota
l of
ove
r N
T$97
0,00
0 in
don
atio
ns, r
esul
ting
in a
sig
nific
ant
cont
ribut
ion
to t
he m
eal
assi
stan
ce p
rogr
am. I
n ad
ditio
n, V
IS a
lso
invi
ted
disa
dvan
tage
d sc
hool
child
ren
thro
ugh
a jo
int e
ffor
t with
the
Wor
ld P
eace
Ass
ocia
tion
to p
artic
ipat
e in
the
Com
pany
's O
ctob
er 1
st F
amily
Day
activ
ity h
eld
at L
ihpa
o La
nd, a
nd V
IS a
lso
dona
ted
NT$
200,
000
to h
elp
prov
ide
heal
thy
mea
ls fo
r the
se d
isad
vant
aged
scho
olch
ildre
n.To
car
e fo
r th
ose
with
phy
sica
l and
men
tal d
isab
ilitie
s, th
e C
ompa
ny d
onat
ed N
T$20
0,00
0 to
the
St. J
osep
h So
cial
Wel
fare
Fou
ndat
ion
and
Syin
lu S
ocia
l Wel
fare
Fou
ndat
ion
each
to f
und
lear
ning
and
reh
abili
tatio
n se
rvic
es f
or p
eopl
e w
ith p
hysi
cal a
nd m
enta
l dis
abili
ties.
Our
em
ploy
ees
also
for
med
a c
hoir
grou
p to
per
form
at t
he F
ound
atio
n's
char
ity e
vent
s an
d C
hris
tmas
even
ts to
brin
g jo
y an
d w
arm
th to
frie
nds
of th
e co
mm
unity
with
phy
sica
l and
men
tal d
isab
ilitie
s. Fu
rther
mor
e, th
e C
ompa
ny h
as c
ontin
ued
to m
ake
its a
nnua
l con
tribu
tion
of N
T$20
0,00
0 to
the
St. J
osep
h So
cial
Wel
fare
Fou
ndat
ion'
s cha
rity
prog
ram
s and
Chr
istm
as e
vent
s to
brin
g jo
y an
d w
arm
th to
our
frie
nds i
n th
e co
mm
unity
who
hav
e ph
ysic
al a
nd m
enta
l dis
abili
ties.
The
VIS
vol
unte
er g
roup
vis
ited
the
Hun
g H
ua O
rpha
nage
, loc
ated
in D
ayua
n D
istri
ct o
f Tao
yuan
City
, to
expr
ess
thei
r car
e, s
how
con
cern
, and
dis
tribu
te d
onat
ed fu
nds
to th
e or
phan
age
inpe
rson
. VIS
also
spo
nsor
ed N
atio
nal T
sing
Hua
Uni
vers
ity's
"Sun
rise
Prog
ram
" by
pro
vidi
ng a
n an
nual
sch
olar
ship
of
NT$
200,
000
to tw
o st
uden
ts w
ho e
ach
com
e fr
om a
dis
adva
ntag
edfa
mily
bac
kgro
und,
ena
blin
g th
ese
low
-inco
me
stud
ents
to
conc
entra
te o
n th
eir
scho
olin
g w
ithou
t ha
ving
to
wor
ry a
bout
fin
anci
al c
once
rns.
VIS
als
o sp
onso
red
"Hun
g C
hin
Dig
ital
Tech
nolo
gy" w
ith a
gra
nt o
f NT$
50,0
00 to
pub
lish
a bo
ok c
onsi
stin
g of
a c
olle
ctio
n of
shor
t sto
ries i
nten
ded
to h
elp
prep
are
youn
g pe
ople
for a
car
eer i
n th
e in
dust
ry a
nd su
cces
sful
ly d
eliv
ered
the
book
to st
uden
ts w
ho c
ome
from
fina
ncia
lly u
nder
priv
ilege
d ba
ckgr
ound
s.In
an
effo
rt to
hel
p gi
ve b
ack
to s
ocie
ty, V
IS a
lso
spon
sore
d th
e "T
SMC
Mus
ical
The
ater
Eve
nt f
or P
aren
ts a
nd C
hild
ren”
by
prov
idin
g N
T$10
0,00
0 in
a b
id to
pro
mot
e ar
t edu
catio
n fo
rch
ildre
n, a
nd a
lso
invi
ted
disa
dvan
tage
d m
inor
ity g
roup
s to
atte
nd th
e pe
rfor
man
ce. I
n ad
ditio
n, V
IS a
lso
spon
sore
d W
.Isla
nd's
"Tra
velin
g on
a M
issi
on"
prog
ram
by
purc
hasi
ng fi
ve ro
und-
trip
plan
e tic
kets
for f
amili
es to
trav
el to
the
Nat
iona
l Def
ense
Med
ical
Cen
ter,
at a
tota
l cos
t of N
T$25
0,00
0, th
ereb
y he
lpin
g to
enc
oura
ge y
oung
peo
ple
to re
mai
n co
mm
itted
to p
ursu
ing
thei
rdr
eam
s.Th
e C
ompa
ny's
team
of e
mpl
oyee
s ha
s al
so m
ade
grea
t effo
rts to
hel
p ci
tizen
s liv
ing
in ru
ral a
reas
. For
the
Sman
gus,
an in
dige
nous
trib
e re
sidi
ng in
the
Xue
shan
Ran
ge lo
cate
d in
Hsi
nchu
'sJi
ansh
i Tow
nshi
p, tr
ansp
orta
tion
is d
iffic
ult a
nd th
e lo
cal e
cono
my
rem
ains
rela
tivel
y un
deve
lope
d, s
o up
on le
arni
ng th
at th
e tri
be h
ad p
lans
to e
stab
lish
a lo
cally
-gov
erne
d ki
nder
garte
n, V
ISem
ploy
ees w
ere
eage
r to
help
out
by
rais
ing
fund
s. In
all,
our
col
leag
ues h
elpe
d ra
ise
NT$
1.22
mill
ion
whi
ch w
as fu
rther
mat
ched
by
a do
natio
n of
NT$
780,
000
from
the
Com
pany
for a
gra
ndto
tal o
f NT$
2 m
illio
n to
hel
p th
e Sm
angu
s con
stru
ct th
eir n
ew k
inde
rgar
ten
and
turn
thei
r dre
am in
to a
real
ity. I
n ad
ditio
n, a
t the
end
of D
ecem
ber,
VIS
invi
ted
the
Sman
gus
tribe
to a
ttend
the
Com
pany
's 20
16 a
nnua
l yea
r-end
par
ty to
cel
ebra
te to
geth
er w
ith V
IS e
mpl
oyee
s and
eve
n pr
ovid
ed th
e vi
sito
rs w
ith a
1-d
ay to
ur o
f the
Hsi
nchu
Sci
ence
and
Indu
stria
l Par
k.Fu
rther
mor
e, to
pro
mot
e so
cial
har
mon
y, th
e C
ompa
ny h
as m
ade
a sp
ecia
l spo
nsor
ship
of N
T$2
mill
ion
to IC
Bro
adca
stin
g C
o., L
td. i
n 20
15, t
o pr
oduc
e "T
he F
utur
e of
Tai
wan
& T
aiw
an in
the
Futu
re".
In
this
pro
gram
, cur
rent
glo
bal t
rend
s, ed
ucat
ion
in T
aiw
an, t
alen
ted
peop
le, s
ocia
l liv
elih
ood,
ene
rgy
reso
urce
s, an
d en
viro
nmen
tal p
rote
ctio
n et
c. to
pics
are
dis
cuss
ed. A
fter
broa
dcas
ting
the
prog
ram
, the
re w
as a
n as
toun
ding
resp
onse
, and
to in
crea
se th
e im
pact
of t
he e
vent
, and
an
addi
tiona
l NT$
2.15
mill
ion
was
don
ated
in a
join
t effo
rt w
ith B
ookz
one
to p
ublis
h"T
omor
row
i n T
aiw
an",
a li
mite
d-ed
ition
pub
licat
ion.
Afte
rwar
d, 1
,000
cop
ies
of th
e ne
wly
-prin
ted
book
s w
ere
dona
ted
to n
umer
ous
libra
ries
run
by th
e ce
ntra
l age
ncy,
loca
l cou
nty
and
city
gove
rnm
ents
, nat
iona
l-lev
el h
igh
scho
ols,
and
vario
us c
olle
ges,
and
univ
ersi
ties i
n Ta
iwan
.
35
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e C
orpo
rate
Soc
ial R
espo
nsib
ility
B
est P
ract
ice
Prin
cipl
es fo
rTW
SE/G
TSM
Lis
ted
Com
pani
es
and
Rea
son
for t
he V
aria
tion
Yes
No
Des
crip
tion
Apa
rt fr
om c
orpo
rate
spo
nsor
ship
s, ou
r em
ploy
ees
regu
larly
par
ticip
ate
in d
onat
ion
driv
es f
or b
ooks
and
goo
ds, a
nd d
eliv
er d
onat
ed it
ems
to n
ursi
ng h
omes
, chi
ldre
n’s
hom
es, a
nd s
choo
l ch
ildre
n liv
ing
in re
mot
e ar
eas.
Furth
erm
ore,
em
ploy
ees a
nd th
eir f
amili
es h
ave
form
ed a
vol
unte
er g
roup
who
se m
embe
rs se
rve
as v
olun
teer
gui
des o
n a
rota
ting
basi
s at t
he N
atio
nal M
useu
m
of N
atur
al S
cien
ce o
n w
eeke
nds
and
holid
ays
to e
xpla
in to
vis
itors
the
natu
re a
nd a
pplic
atio
ns o
f in
tegr
ated
circ
uits
sin
ce Y
2006
; in
Y20
16, v
olun
teer
gui
de s
ervi
ces
wer
e pr
ovid
ed a
t the
m
useu
m 1
38 ti
mes
. Our
col
leag
ues
also
per
form
com
mun
ity v
olun
teer
ser
vice
. Em
brac
ing
the
spiri
t of
hono
ring
old
peop
le a
s w
e do
our
ow
n ag
ed p
aren
ts, V
IS v
olun
teer
s al
so v
isit
the
Hsi
nchu
Hom
e fo
r El
derly
Vet
eran
s on
wee
kend
s an
d ho
liday
s w
here
they
hel
p se
nior
s en
joy
thei
r w
eeke
nds
as w
ell a
s th
e St
. Ter
esa
Chi
ldre
n's
Cen
ter,
whe
re th
ey s
pend
tim
e re
adin
g to
ch
ildre
n. O
ur v
olun
teer
col
leag
ues
have
bee
n ve
ry g
ener
ous
with
thei
r tim
e, a
nd p
erfo
rmed
com
mun
ity s
ervi
ce w
ork
a to
tal o
f 198
tim
es in
Y20
16. I
n ad
ditio
n, th
e V
IS v
olun
teer
gro
up a
lso
issu
ed a
cal
l to
all c
olle
ague
s to
par
ticip
ate
in a
gro
up w
alki
ng e
vent
for p
eopl
e w
ith d
isab
ilitie
s he
ld b
y Sy
in-lu
Soc
ial W
elfa
re F
ound
atio
n to
sho
w th
eir c
once
rn a
nd p
rovi
de e
ncou
rage
men
t. In
add
ition
, for
Arb
or D
ay, V
IS c
oope
rate
d w
ith th
e Ta
iwan
For
estry
Res
earc
h In
stitu
te b
y ca
lling
on
volu
ntee
rs to
mak
e an
effo
rt to
hel
p pr
otec
t Tai
wan
's en
viro
nmen
t. In
a b
id to
pla
nt n
ew
trees
to im
prov
e ou
r env
ironm
ent,
youn
g sa
plin
gs w
ere
dist
ribut
ed in
Tao
yuan
, Hsi
nchu
, and
Tai
chun
g St
atio
n.6.
If th
e co
mpa
ny's
corp
orat
e so
cial
resp
onsi
bilit
y re
port
pass
es th
e ve
rific
atio
n st
anda
rds o
f rel
evan
t ver
ifica
tion
inst
itutio
ns, d
escr
iptio
ns o
f it s
houl
d be
pro
vide
d:Y
2015
CSR
repo
rt ha
ve b
een
verif
ied
to c
ompl
y w
ith th
e ac
coun
tabi
lity
prin
cipl
es o
f inc
lusi
vity
, mat
eria
lity
and
resp
onsi
vene
ss b
y th
e B
ritis
h St
anda
rds I
nstit
utio
n (B
SI) T
aiw
an b
ranc
h of
fice,
acco
rdin
g to
the
AA
1000
AS:
200
8 A
ssur
ance
Sta
ndar
ds a
nd th
e re
quire
men
ts o
f GR
I G4.
And
the
repo
rt ad
here
s to
the
"Cor
e" o
ptio
n of
the
GRI
G4,
and
con
form
s to
the
AA
1000
Typ
e II
high
-leve
l acc
ount
abili
ty.
ISO
900
1 qu
ality
man
agem
ent s
yste
m c
ertif
icat
ion
ISO
/TS
1694
9 ve
hicl
e qu
ality
man
agem
ent s
yste
m c
ertif
icat
ion
ISO
140
01 e
nviro
nmen
tal m
anag
emen
t sys
tem
cer
tific
atio
nO
HSA
S 18
001
safe
ty a
nd h
ealth
man
agem
ent s
yste
m c
ertif
icat
ion
QC
080
000
Haz
ardo
us su
bsta
nce
man
agem
ent s
yste
m c
ertif
icat
ion
Taiw
an o
ccup
atio
nal s
afet
y an
d he
alth
man
agem
ent s
yste
m (T
OSH
MS)
ver
ifica
tion
Gre
enho
use
gas (
GH
G) a
ccou
ntin
g an
d ve
rific
atio
n in
acc
orda
nce
with
ISO
-140
64SO
NY
Gre
en P
artn
er c
ertif
icat
ion
Prod
uct c
arbo
n fo
otpr
int c
alcu
latio
n an
d ve
rific
atio
nIn
June
201
6, V
IS p
artic
ipat
ed in
the
MO
EA In
dust
rial D
evel
opm
ent B
urea
u's "
Kno
wle
dge
Man
agem
ent C
ompe
titio
n" a
nd w
in a
silv
er m
edal
and
two
hono
rabl
e m
entio
ns.
36
Vanguard InternationalSemiconductor Corporation
4.Im
plem
enta
tion
of In
tegr
ity M
anag
emen
t and
Mea
sure
sTh
e co
mpa
ny’s
phi
loso
phy
dict
ates
that
em
ploy
ees
of th
e C
ompa
ny, r
egar
dles
s of
thei
r phy
sica
l loc
atio
n, s
hall
adhe
re to
the
high
est s
tand
ards
of p
rofe
ssio
nal e
thic
san
d m
aint
ain
such
in th
eir p
erso
nal c
ondu
ct. W
hen
enga
ged
in d
ay-to
-day
wor
k, e
mpl
oyee
s sh
all o
bser
ve b
usin
ess
ethi
cs a
nd m
aint
ain
the
Com
pany
’s re
puta
tion
toga
in th
e re
spec
t and
trus
t of c
usto
mer
s, su
pplie
rs, a
nd a
ll ot
her p
rofe
ssio
nals
.
Impl
emen
tatio
n of
inte
grity
man
agem
ent
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es a
nd R
easo
n fo
r the
Va
riatio
n
Yes
No
Des
crip
tion
1.Fo
rmul
atio
n of
Inte
grity
Man
agem
ent P
olic
y an
dM
easu
res
(1)
Did
the
com
pany
exp
licitl
y st
ate
the
polic
y an
d pr
actic
es o
f int
egrit
y m
anag
emen
t in
its
regu
latio
ns a
nd e
xter
nal d
ocum
ents
, and
did
the
boar
d of
dire
ctor
s and
man
agem
ents
com
mit
to
impl
emen
ting
such
man
agem
ent p
olic
y?
(2)
Did
the
com
pany
form
ulat
e m
easu
res f
or
prev
entin
g di
shon
est b
ehav
ior,
spec
ify o
pera
ting
proc
edur
es, b
ehav
iora
l gui
delin
es, v
iola
tion
pena
lties
, and
syst
em o
f app
eal i
n su
ch m
easu
res,
and
impl
emen
t suc
h m
easu
res?
(3)
Did
the
com
pany
ado
pt p
reve
ntio
n m
easu
res
agai
nst b
usin
ess a
ctiv
ities
with
in it
s bus
ines
s sc
ope
at a
hig
her r
isk
of b
eing
invo
lved
in a
n un
ethi
cal c
ondu
ct o
r tho
se li
sted
in P
arag
raph
2 o
f A
rticl
e 7
of th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
V V V
(1)
In o
rder
to fo
ster
a c
orpo
rate
cul
ture
of e
thic
al m
anag
emen
t and
sou
nd d
evel
opm
ent,
and
offe
r a
refe
renc
e fr
amew
ork
for
esta
blis
hing
goo
d co
mm
erci
al p
ract
ices
, th
e co
mpa
ny h
as e
stab
lishe
d In
tegr
ity M
anag
emen
t Pol
icy
and
Mea
sure
s. A
nd a
rticl
e 1
of V
IS's
busi
ness
phi
loso
phy:
Hon
orin
g th
e pr
inci
ple
of g
ood
faith
, abi
ding
by
an
exac
ting
code
of
prof
essi
onal
eth
ics.
The
com
pany
cle
arly
reg
ulat
es th
e pr
actic
e of
th
is p
hilo
soph
y in
the
"Pr
ofes
sion
al C
ode
of E
thic
s," r
equi
ring
all
empl
oyee
s to
un
ders
tand
and
abi
de b
y th
e pr
ofes
sion
al c
ode
of e
thic
s an
d pe
rson
al i
nteg
rity.
In
addi
tion,
the
Prof
essi
onal
Cod
e of
Eth
ics
for D
irect
ors
expl
icitl
y st
ates
the
need
for
dire
ctor
s to
uph
old
the
prin
cipl
e of
goo
d fa
ith a
nd a
bide
by
a be
havi
or o
f pr
ofes
sion
al st
anda
rds.
(2
)Th
e ar
ticle
6,
21,
and
24 o
f V
IS E
thic
al C
orpo
rate
Man
agem
ent
Bes
t Pr
actic
e Pr
inci
ples
hav
e fo
rmul
ated
the
rel
ated
mea
sure
s, an
d th
e co
mpa
ny s
tate
s th
e op
erat
ing
proc
edur
es,
met
hods
, vi
olat
ion
pena
lties
, an
d sy
stem
of
appe
al i
n its
Pr
ofes
sion
al C
ode
of E
thic
s, an
d pr
ovid
es e
mpl
oyee
tra
inin
g w
hen
enco
unte
ring
conf
licts
of
inte
rest
eac
h ye
ar in
acc
orda
nce
with
the
prov
isio
ns in
the
Prof
essi
onal
C
ode
of E
thic
s.
(3)
The
com
pany
spec
ifies
the
reas
onab
le sc
ope
of g
ift p
rese
ntat
ion
and
hosp
italit
y in
its
Prof
essi
onal
Cod
e of
Eth
ics:
Em
ploy
ees
mus
t up
hold
the
hig
hest
sta
ndar
ds o
f pr
ofes
sion
al e
thic
s to
war
d th
e co
mpa
ny's
supp
liers
, con
tract
ors,
cust
omer
s, or
oth
er
stak
ehol
ders
(in
clud
ing
gove
rnm
enta
l of
ficia
ls)
and
are
abso
lute
ly f
orbi
dden
fro
m
brib
es o
f any
form
s. In
the
VIS
Cor
pora
te S
ocia
l Res
pons
ibili
ty P
olic
y, V
IS p
ledg
es
to u
phol
d in
tegr
ity in
em
ploy
ee a
nd e
xecu
tive
cond
uct i
n al
l bus
ines
s ac
tiviti
es a
nd
No
varia
tion
37
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es a
nd R
easo
n fo
r the
Va
riatio
n
Yes
No
Des
crip
tion
Com
pani
es?
inte
rnal
int
erac
tions
. B
usin
ess
book
s sh
all
be c
lear
and
acc
urat
e, t
rans
pare
nt,
and
com
plia
nt
with
ap
plic
able
re
gula
tions
an
d ac
cura
tely
re
flect
th
e fin
anci
al
perf
orm
ance
and
hea
lth o
f th
e C
ompa
ny. V
IS w
ill w
ork
agai
nst c
orru
ptio
n in
any
an
d al
l for
ms,
incl
udin
g ex
torti
on, b
riber
y, a
nd e
mbe
zzle
men
t.
2.Im
plem
enta
tion
of In
tegr
ity M
anag
emen
t(1
)D
id th
e co
mpa
ny a
sses
s the
inte
grity
of i
ts
trans
actio
n pa
rties
, and
spec
ify p
rovi
sion
s pe
rtain
ing
to b
ehav
iors
of i
nteg
rity
in th
e co
ntra
ct
sign
ed w
ith th
e tra
nsac
tion
party
?
(2)
Did
the
com
pany
est
ablis
h a
unit
affil
iate
d w
ith
the
boar
d of
dire
ctor
s exc
lusi
vely
for t
he
prom
otio
n of
cor
pora
te in
tegr
ity m
anag
emen
t and
pe
riodi
cally
repo
rt to
the
boar
d of
dire
ctor
s re
gard
ing
the
impl
emen
tatio
n pr
ogre
ss?
(3)
Did
the
com
pany
form
ulat
e po
licie
s for
pr
even
tion
agai
nst c
onfli
cts o
f int
eres
ts, p
rovi
de
appr
opria
te c
hann
els o
f com
mun
icat
ion,
and
im
plem
ent s
uch
polic
ies a
nd c
omm
unic
atio
n?
V V V
(1)
The
com
pany
man
date
s in
its
Pro
fess
iona
l C
ode
of E
thic
s th
at e
mpl
oyee
s m
ust
upho
ld th
e hi
ghes
t sta
ndar
ds o
f pro
fess
iona
l eth
ics
tow
ard
the
com
pany
's su
pplie
rs,
cont
ract
ors,
cust
omer
s, or
oth
er s
take
hold
ers
(incl
udin
g go
vern
men
tal o
ffici
als)
and
ar
e ab
solu
tely
for
bidd
en f
rom
brib
es o
f an
y fo
rm. I
n ad
ditio
n, th
e Et
hica
l Cod
e of
V
IS a
nd S
uppl
ier
stip
ulat
es th
at e
ither
par
ty m
ay n
ot g
ive
or r
ecei
ve b
ribes
of
any
form
or
act
in a
ny w
ay c
ontra
ry t
o th
e in
tere
sts
of e
ither
par
ty a
nd s
hall
avoi
d en
gagi
ng i
n fr
eque
nt o
r im
prop
er h
ospi
talit
y be
havi
ors
durin
g bu
sine
ss a
ctiv
ities
. Su
pplie
rs i
n vi
olat
ion
of t
he a
fore
men
tione
d re
gula
tion
shal
l pr
ompt
VIS
to
strin
gent
ly r
evie
w it
s bu
sine
ss c
oope
rativ
e re
latio
nshi
p w
ith th
e su
pplie
r an
d ad
opt
nece
ssar
y m
easu
res,
incl
udin
g ad
just
men
t to
the
am
ount
of
purc
hase
s fr
om t
he
supp
lier.
(2
)To
ach
ieve
sou
nd e
thic
al c
orpo
rate
man
agem
ent,
the
com
pany
ass
igne
d H
uman
R
esou
rce
Div
isio
n to
re
spon
sibl
e fo
r es
tabl
ishi
ng
and
supe
rvis
ing
the
impl
emen
tatio
n of
th
e et
hica
l co
rpor
ate
man
agem
ent
polic
ies
and
prev
entio
n pr
ogra
ms.
The
Hum
an R
esou
rce
Div
isio
n sh
all
be i
n ch
arge
of
the
follo
win
g m
atte
rs, a
nd s
hall
com
pile
the
repo
rt to
the
Aud
it C
omm
ittee
and
repo
rt to
the
boar
d of
dire
ctor
s on
a r
egul
ar b
asis
. B
esid
es,
the
com
pany
has
set
up
the
"Cor
pora
te
Soci
al R
espo
nsib
ility
Pro
mot
ion
Com
mitt
ee"
to t
ake
char
ge o
f es
tabl
ishi
ng t
he
"cor
pora
te s
ocia
l re
spon
sibi
lity
polic
y" a
nd p
ropo
sing
and
im
plem
entin
g sy
stem
s an
d as
sist
with
the
pro
mot
ion
of c
orpo
rate
int
egrit
y m
anag
emen
t. In
add
ition
, the
C
omm
ittee
per
iodi
cally
sub
mits
the
com
pany
's co
rpor
ate
soci
al re
spon
sibi
lity
repo
rt to
the
boa
rd o
f di
rect
ors,
and
the
boar
d w
ill s
uper
vise
the
im
plem
enta
tion
of
corp
orat
e in
tegr
ity m
anag
emen
t.
(3)
The
com
pany
has
for
mul
ated
the
Con
flict
s of
Int
eres
t Pr
even
tion
polic
y in
the
Pr
ofes
sion
al C
ode
of E
thic
s: C
onfli
cts o
f int
eres
ts sh
all b
e pe
riodi
cally
repo
rted
on a
ye
arly
bas
is a
nd a
n ap
prop
riate
cha
nnel
of
com
mun
icat
ion
shal
l be
pro
vide
d fo
r im
plem
enta
tion
of p
reve
ntiv
e m
easu
res.
No
varia
tion
38
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es a
nd R
easo
n fo
r the
Va
riatio
n
Yes
No
Des
crip
tion
(4)
Did
the
com
pany
set u
p an
effe
ctiv
e ac
coun
ting
syst
em a
nd in
tern
al c
ontro
l sys
tem
to im
plem
ent
inte
grity
man
agem
ent,
and
desi
gnat
e in
tern
al
audi
t uni
ts o
r ent
rust
acc
ount
ants
to p
erfo
rm
audi
ts o
f the
se sy
stem
s?
(5)
Did
the
com
pany
per
iodi
cally
hol
d in
tern
al a
nd
exte
rnal
trai
ning
on
inte
grity
man
agem
ent?
V V
(4)
VIS
has
for
mul
ated
acc
ount
ing
syst
ems
acco
rdin
g to
the
Int
erna
tiona
l Fi
nanc
ial
Rep
ortin
g St
anda
rds
(IFR
S),
man
datin
g th
e ne
ed t
o ad
opt
CPA
’s o
pini
ons
durin
g ac
coun
ting
proj
ect
asse
ssm
ents
bef
ore
pres
entin
g th
e m
ost
suita
ble
proj
ect
to t
he
exec
utiv
e-in
-cha
rge
for
revi
ew a
nd a
ppro
val;
Furth
erm
ore,
in
light
of
chan
ges
to
acco
untin
g po
licie
s an
d es
timat
ions
, the
com
pany
has
dev
elop
ed re
late
d pr
oced
ures
acco
rdin
g to
the
Reg
ulat
ions
Gov
erni
ng t
he P
repa
ratio
n of
Fin
anci
al R
epor
ts b
y Se
curit
ies
Issu
ers.
All
finan
cial
st
atem
ents
ar
e au
dite
d by
ce
rtifie
d pu
blic
ac
coun
tant
s to
ensu
re th
e fa
irnes
s of t
he fi
nanc
ial s
tate
men
ts a
nd a
re re
view
ed b
y th
e co
mpa
ny's
Aud
it C
omm
ittee
. V
IS h
as e
stab
lishe
d a
com
preh
ensi
ve i
nter
nal
cont
rol
syst
em,
to w
hich
con
trol
poin
ts f
or e
ach
oper
atio
n ha
ve b
een
inco
rpor
ated
. Th
e sy
stem
is
revi
ewed
and
m
odifi
ed o
n a
year
ly b
asis
and
ins
pect
ed b
y in
tern
al a
udit
units
for
fun
ctio
nalit
y.
Res
pect
ive
units
are
ask
ed to
per
form
spo
ntan
eous
insp
ectio
ns o
n a
daily
bas
is. I
n ad
ditio
n, t
he B
oard
of
Dire
ctor
s an
d th
e m
anag
emen
t w
ill d
iscu
ss r
esul
ts o
f th
e sp
onta
neou
s in
spec
tions
and
aud
it re
ports
from
the
audi
t dep
artm
ent p
erio
dica
lly to
en
sure
th
e re
liabi
lity,
tra
nspa
renc
y,
effe
ctiv
enes
s an
d ef
ficie
ncy,
ac
cura
cy
of
finan
cial
rep
orts
, an
d co
mpl
ianc
e w
ith t
he a
pplic
able
law
s an
d re
gula
tions
of
the
com
pany
ope
ratio
n.
(5)
The
Com
pany
per
iodi
cally
hos
ts in
tern
al tr
aini
ng o
n et
hica
l man
agem
ent e
ach
year
, in
clud
ing
onlin
e co
urse
s pe
rtain
ing
to c
orpo
rate
eth
ics
prin
cipl
es,
and
desi
gnat
es
rele
vant
repr
esen
tativ
es to
par
ticip
ate
in e
xter
nal t
rain
ing
prog
ram
s or f
orum
s (e.
g., a
co
rpor
ate
gove
rnan
ce fo
rum
hos
ted
by th
e A
genc
y A
gain
st C
orru
ptio
n). I
n ad
ditio
n,
expe
rts f
rom
the
Tai
wan
Cor
pora
te G
over
nanc
e A
ssoc
iatio
n w
ere
also
ret
aine
d to
vi
sit t
he C
ompa
ny a
nd c
arry
out
an
ethi
cs re
view
. 3.
Ope
ratio
n of
VIS
Whi
stle
-Blo
win
g Sy
stem
(1)
Did
the
com
pany
est
ablis
h co
ncre
te w
hist
le-
blow
ing
and
ince
ntiv
e sy
stem
s and
con
veni
ent
whi
stle
-blo
win
g ch
anne
ls, a
nd a
ppoi
nt a
suita
ble
pers
onne
l to
hand
le th
e re
porte
d ca
ses?
(2)
Did
the
com
pany
dev
ise
stan
dard
ope
ratin
g pr
oced
ures
for h
andi
ng th
e in
vest
igat
ion
of
V V
(1)
The
com
pany
has
for
mul
ated
con
cret
e w
hist
le-b
low
ing
syst
ems
and
conv
enie
nt
whi
stle
-blo
win
g ch
anne
ls i
n th
e Pr
ofes
sion
al C
ode
of E
thic
s. Em
ploy
ees
and
stak
ehol
ders
can
dire
ctly
mak
e re
ports
to
the
com
pany
's bo
ard
of d
irect
or A
udit
Com
mitt
ee b
y us
ing
the
whi
stle
-blo
win
g m
ailb
ox o
n th
e co
mpa
ny w
ebsi
te.
In
addi
tion,
ded
icat
ed u
nits
and
per
sonn
el a
re a
ppoi
nted
to h
andl
e re
porte
d ca
ses.
(2
)Th
e co
mpa
ny
has
spec
ified
st
anda
rd
oper
atin
g pr
oced
ures
fo
r ha
ndlin
g th
e in
vest
igat
ion
of r
epor
ted
case
s an
d re
leva
nt c
onfid
entia
lity
mec
hani
sms
in t
he
No
varia
tion
39
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es a
nd R
easo
n fo
r the
Va
riatio
n
Yes
No
Des
crip
tion
repo
rted
case
s and
rele
vant
con
fiden
tialit
y m
echa
nism
s?
(3)
Did
the
com
pany
ado
pt m
easu
res f
or p
rote
ctin
g w
hist
le-b
low
ers f
rom
inap
prop
riate
dis
cipl
inar
y ac
tions
due
to th
eir w
hist
le-b
low
ing?
V
Prof
essi
onal
Cod
e of
Eth
ics.
The
boar
d of
dire
ctor
Aud
it C
omm
ittee
shal
l app
oint
suita
ble
supe
rvis
ors t
o es
tabl
ish
an in
vest
igat
ory
grou
p co
mpr
isin
g pe
rson
nel w
ho sp
ecia
lize
in in
tern
al a
udits
, hu
man
reso
urce
s, an
d le
gal a
ffairs
. Suc
h in
vest
igat
ory
grou
p sh
all p
erfo
rm
inve
stig
atio
ns a
nd c
ompi
le re
ports
to th
e Aud
it C
omm
ittee
. If e
vide
nce
of v
iola
tion
is id
entif
ied,
the
subj
ect b
eing
repo
rted
shal
l be
give
n a
chan
ce fo
r app
eal,
and
the
subj
ect a
nd h
is/h
er re
spec
tive
supe
rvis
or sh
all b
e in
form
ed o
f the
pen
altie
s im
pose
d th
ereo
f.
(3)
The
com
pany
has
stip
ulat
ed m
easu
res f
or p
rote
ctin
g w
hist
le-b
low
ers f
rom
in
appr
opria
te d
isci
plin
ary
actio
ns d
ue to
thei
r whi
stle
-blo
win
g in
the
Prof
essi
onal
C
ode
of E
thic
s; V
IS h
olds
the
prin
cipl
e of
fairn
ess a
nd c
onfid
entia
lity
durin
g th
e in
vest
igat
ion
proc
ess.
The
com
pany
shal
l pro
tect
whi
stle
-blo
wer
s han
dlin
g th
e in
vest
igat
ion
from
subj
ectin
g to
unf
air r
even
ge o
r tre
atm
ent.
4.
Stre
ngth
enin
g of
Info
rmat
ion
Dis
clos
ure
Mea
sure
s(1
)D
id th
e co
mpa
ny d
iscl
ose
the
cont
ent a
nd
prom
otio
n ef
fect
iven
ess o
f its
inte
grity
m
anag
emen
t prin
cipl
es o
n its
web
site
and
on
the
Mar
ket O
bser
vatio
n Po
st S
yste
m o
f the
Tai
wan
St
ock
Exch
ange
web
site
?
VTh
e co
mpa
ny h
as e
stab
lishe
d a
web
site
for
per
iodi
cally
dis
clos
ing
rele
vant
cor
pora
te
inte
grity
man
agem
ent i
nfor
mat
ion
on a
yea
rly b
asis
to it
s sto
ckho
lder
s and
inve
stor
s. Th
e in
form
atio
n di
sclo
sed
on th
e co
mpa
ny w
ebsi
te is
uni
form
ly c
ompi
led
and
anno
unce
d by
pu
blic
rela
tion
depa
rtmen
t.
No
varia
tion
5.If
the
com
pany
did
form
ulat
e pr
inci
ples
for i
nteg
rity
man
agem
ent a
ccor
ding
to th
e Et
hica
l Cor
pora
te M
anag
emen
t Bes
t Pra
ctic
e Pr
inci
ples
for T
WSE
/GTS
M L
iste
d C
ompa
nies
, ple
ase
stat
eth
e va
riatio
ns in
the
oper
atio
ns a
nd ru
les o
f suc
h pr
actic
e:In
ord
er t
o fo
ster
a c
orpo
rate
cul
ture
of
ethi
cal
man
agem
ent
and
soun
d de
velo
pmen
t, an
d of
fer
a re
fere
nce
fram
ewor
k fo
r es
tabl
ishin
g go
od c
omm
erci
al p
ract
ices
, th
e co
mpa
ny h
asfo
rmul
ated
prin
cipl
es fo
r int
egrit
y m
anag
emen
t acc
ordi
ng to
the
Ethi
cal C
orpo
rate
Man
agem
ent B
est P
ract
ice
Prin
cipl
es fo
r TW
SE/G
TSM
Lis
ted
Com
pani
es. I
n ad
ditio
n, th
e co
mpa
ny h
assp
ecifi
ed o
pera
ting
proc
edur
es a
nd m
etho
ds in
its
Prof
essi
onal
Cod
e of
Eth
ics:
Em
ploy
ees
shal
l hon
or th
e pr
ofes
sion
al c
ode
of e
thic
s, av
oid
purs
uing
per
sona
l int
eres
ts, c
ompl
y w
ith th
epr
inci
ples
of
conf
iden
tialit
y, e
ngag
e in
fai
r tra
de, p
rote
ct a
nd p
rope
rly u
tiliz
e co
mpa
ny a
sset
s, ad
here
to
law
s an
d re
gula
tions
, pre
vent
con
flict
s of
int
eres
ts, o
ffer
or a
ccep
t br
ibes
and
hosp
italit
y, a
nd a
bide
by
oper
atin
g pr
oced
ures
for p
unis
hmen
t and
app
eals
.Th
e co
mpa
ny h
as s
peci
fied
regu
latio
ns a
nd g
uide
lines
in th
e Pr
ofes
sion
al C
ode
of E
thic
s fo
r D
irect
ors:
The
boa
rd o
f di
rect
ors
shal
l avo
id p
erso
nal c
onfli
cts
of in
tere
st, a
void
pur
suin
gpe
rson
al in
tere
sts,
keep
con
fiden
tial b
usin
ess
secr
ets,
enga
ge in
fai
r tra
de, p
reve
nt in
side
r tra
ding
, adh
ere
to la
ws
and
regu
latio
ns, a
nd p
rese
nt r
epor
ts o
f m
isco
nduc
t, al
lege
d di
shon
est o
rill
egal
act
ivity
. No
varia
tion
with
the
abov
e.6.
Oth
er In
form
atio
n fo
r Bet
ter U
nder
stan
ding
of t
he c
ompa
ny's
inte
grity
man
agem
ent p
ract
ices
:Th
e Et
hica
l Cod
e of
VIS
and
Sup
plie
r: W
e an
ticip
ate
that
all
our s
uppl
iers
, bus
ines
s pa
rtner
s, an
d ot
her c
oope
ratin
g gr
oups
und
erst
and
our s
tand
ards
of b
usin
ess
ethi
cs. A
ll su
pplie
rs s
hall
40
Vanguard InternationalSemiconductor Corporation
Ass
essm
ent I
tem
s
Cur
rent
Situ
atio
n
Varia
tion
com
pare
d w
ith th
e Et
hica
l Cor
pora
te M
anag
emen
t B
est P
ract
ice
Prin
cipl
es fo
rTW
SE/G
TSM
Lis
ted
Com
pani
es a
nd R
easo
n fo
r the
Va
riatio
n
Yes
No
Des
crip
tion
ackn
owle
dge
VIS
's et
hica
l con
duct
and
con
firm
thei
r com
plia
nce
with
the
regu
latio
ns s
tipul
ated
in th
is d
ocum
ent b
efor
e en
gagi
ng in
bus
ines
s ac
tiviti
es w
ith V
IS. I
n an
y ca
se, s
uppl
iers
in
viol
atio
n of
the
afor
emen
tione
d re
gula
tion
shal
l pro
mpt
VIS
to s
tring
ently
revi
ew it
s bu
sine
ss c
oope
rativ
e re
latio
nshi
p w
ith th
e su
pplie
r and
ado
pt n
eces
sary
mea
sure
s, in
clud
ing
adju
stm
ent
to th
e am
ount
of p
urch
ases
from
the
supp
lier.
Pr
ofes
sion
al C
ode
of E
thic
s: W
e ho
pe th
at o
ur c
usto
mer
s, su
pplie
rs, b
usin
ess
partn
ers,
and
othe
r st
akeh
olde
rs c
an u
nder
stan
d an
d su
ppor
t our
pro
fess
iona
l cod
e of
eth
ics.
Empl
oyee
s ar
e re
quire
d to
per
iodi
cally
repo
rt of
any
vio
latio
ns to
the
prin
cipl
e of
con
flict
s of
inte
rest
acc
ordi
ng to
regu
latio
ns o
n a
year
ly b
asis
. Eac
h ye
ar, V
IS a
lso
re-r
evie
ws
and
upda
tes
its P
rofe
ssio
nal
Cod
e of
Eth
ics a
ccor
ding
to re
cent
law
s and
regu
latio
ns a
nd p
ract
ices
of i
ts c
ompe
titor
s.
41
Vanguard InternationalSemiconductor Corporation
5. Disclosure of Company Governance Principles and Regulations
VIS announced Corporate Governance Practice Principles is as below:
http://www.vis.com.tw/visCom/download/d_ir/orporate_governance_rule_e
6. Other Important Information Disclosed for Better Understanding of
Corporate Governance
Three out of the seven directors are independent directors
All members of the Compensation Committee and the Audit
Committee are independent directors
VIS was granted the highest rating of “Outstanding” in Corporate
Governance Assessment by Taiwan Corporate Governance
Association.
VIS was ranked in the best Top 5% during the second Corporate
Governance Evaluation.
VIS conducts an internal Board Performance Assessment once a year
and the scope covers the assessment of individual directors, the Board
as a whole, and functional committees. The results will be disclosed on
the company website.
VIS’s Board Performance Assessment is conducted by an external
independent professional institution or a panel of external experts and
scholars once every three years.
VIS completed First External Evaluation of Board Performance by
Taiwan Corporate Governance Association
42
Vanguard InternationalSemiconductor Corporation
7. Internal Control:
Vanguard International Semiconductor Corporation
Internal Control Statement
Date: February 21, 2017
The Company states the following with regard to its internal control system in Y2016,
based on the findings of a self-evaluation:
1. The Company is fully aware that establishing, operating, and maintaining an
internal control system are the responsibility of its Board of Directors and
management. The Company has established such a system aimed at
providing reasonable assurance of the achievement of objectives in the
effectiveness and efficiency of operations (including profits, performance,
and safeguard of asset security), reliability of financial reporting,
transparency and efficiency, and compliance with applicable laws and
regulations.
2. An internal control system has inherent limitations. No matter how perfectly
designed, an effective internal control system can provide only reasonable
assurance of accomplishing the three goals mentioned above. Furthermore,
the effectiveness of an internal control system may change along with
changes in environment or circumstances. The internal control system of the
Company contains self-monitoring mechanisms, however, and the Company
takes corrective actions as soon as a deficiency is identified.
3. The Company judges the design and operating effectiveness of its internal
control system based on the criteria provided in the Regulations Governing
the Establishment of Internal Control Systems (herein below, the
regulations”). The internal control system judgment criteria adopted by the
Regulations divide internal control into five elements based on the process
of management control: 1. control environment, 2. risk estimation, 3. control
activities, 4. information and communications, 5. monitoring. Each element
further contains several items. Please refer to the Regulations for details.
4. The Company has evaluated the design and operating effectiveness of its
internal control system according to the aforesaid criteria.
5. Based on the findings of the evaluation mentioned in the preceding
paragraph, the Company believes that during the stated time period its
internal control system (including its supervision of subsidiaries),
encompassing internal controls for knowledge of the degree of achievement
of operational effectiveness and efficiency objectives, reliability of financial
reporting, and compliance with applicable laws and regulations, was
effectively designed and operating, and reasonably assured the achievement
43
Vanguard InternationalSemiconductor Corporation
of the above-stated objectives.
6. This Statement will become a major part of the content of the Company's
Annual Report and Prospectus, and will be made public. Any falsehood,
concealment, or other illegality in the content made public will entail legal
liability under Articles 20, 32, 171, and 174 of the Securities and Exchange
Law.
7. This statement has been approved by the Board of Directors Meeting held on
February 21, 2017. All of the 7 attending directors affirmed the content of
this Statement.
Vanguard International Semiconductor Corporation
Chairman & President Leuh Fang
44
Vanguard InternationalSemiconductor Corporation
Where a CPA has been hired to carry out a special audit of the internal control
system, furnish the CPA audit report: None
8. Legal Penalty:
VIS has not violated in any aspect the internal control requirement that
resulted in penalty.
9. Major Resolutions of Shareholders Meetings and Board Meetings:
Review of Shareholder Meetings
The Y2016 Regular Shareholders’ Meeting was held on June 7, 2016.
The major resolutions and implementation status were as below:
Date Subject Result Implementation status 2016.06.07 To amend the Articles of
Incorporation. After voting by poll, was approved as proposed.
Implement as approved and disclose on VIS's website.
To approve the Y2015 business report and financial statements
After voting by poll, was approved as proposed.
Implement as approved and disclose on VIS's website.
The proposal for Y2015 profit distribution
After voting by poll, was approved as proposed.
Set July 6, 2016 as recording date for dividend distribution. July 25, 2016 send out cash dividend.
Review of Board Meetings Major resolutions adopted are summarized as below: Y2016:
a. Agreed to convene the Y2016 regular shareholders meeting and related issues.
b. Approved Y2015 annual business and operation report.
c. Approved Y2015 annual financial report.
d. Approved Y2015 profit distribution plan.
e. Approved 2015 internal control system statement.
f. Approved Y2016 remuneration of managerial officers.
g. Approved Y2016 remuneration of chairman and directors.
h. Amended the Articles of Incorporation.
i. Approved Y2015 compensation of employees and directors.
j. Approved Specialty TechFarm Inc., the subsidiary of VIS, to apply for
liquidation.
k. Amended the Internal Control System.
l. Amend the performance index and the remuneration structure of the directors.
m. Approved capital injection to VIS Associates Inc., a wholly-owned subsidiary.
n. Approved Y2017 operation plan and capital expenditure budget plan.
o. Approved Y2016 capital expenditure budget raising plan.
p. Approved Y2017 Internal audit plan.
45
Vanguard InternationalSemiconductor Corporation
q. Agreed to Deloitte Touche Tohmatsu Limited to audit Y2017 financial
statements of Vanguard and the subsidiaries.
r. Approved the investment of preferred stocks of AnDAPT Inc.
s. Approved the investment of preferred stocks of Quora Technology, Inc.
t. Approved the disposal of common stocks of Image Technology Corp.
u. Amended the Operational Procedures for Application of Halt and Resumption
of Trading.
v. Amended the Audit Committee Charter.
w. Approved Ms. Hsiang-Hsuan Tseng to be appointed as Internal Audit Officer.
x. Approved VIS Corporate Governance Practice Principles, VIS Corporate Social
Responsibility Principles and VIS Ethical Corporate Management Best Practice
Principles.
y. Approved the Board of Directors Performance Assessment Policy.
z. Amended the Policy of Corporate Social Responsibility.
aa. Agreed a donation to Smangus for establishing kindergarten classrooms.
Y2017 (As of February 28, 2017):
a. Agreed to convene the Y2017 regular shareholders meeting and related issues.
b. Approved Y2016 annual business and operation report.
c. Approved Y2016 annual financial report.
d. Approved Y2016 profit distribution plan.
e. Approved 2016 internal control system statement.
f. Approved Y2017 remuneration of managerial officers.
g. Approved Y2017 remuneration of chairman and directors.
h. Amended the Internal Control System.
i. Approved Y2016 compensation of employees and directors.
j. Approved capital injection to VIS Associates Inc., a wholly-owned subsidiary.
k. Approved to establish VIS Shanghai Company Limited.
l. Amended the Procedures for Acquisition or Disposal of Assets.
10. Dissenting Opinions Held by Directors and Supervisors in Respect of
Important Resolutions Passed by the Board of Directors:
No dissenting opinions held by directors in respect of important
resolutions passed by the board of directors from Y2016 to publish of this
annual report.
11. Personnel Termination Summary Related to Annual Financial
Report:Title Name Date of Elected Date of Resigned Remark
Director of Internal Audit Division
Tzu-Kang Chen
1997/03/17 2016/09/30 Retirement
46
Vanguard InternationalSemiconductor Corporation
E. Information Regarding VIS's Independent Auditors Unit: NT$, in thousands
Accounting Firm
Name of CPA
Audit Fee
Non-audit Fee Whether the CPA's audit
period covers an entire fiscal year
System Design
Company Registration
Human Resource
Others (Note)
Subtotal Yes No Audit Period
Deloitte & Touche
Yu-Feng Huang
5,300 0 0 0 290 290 v 2016.01.01~ 2016.12.31 Cheng-Chih
Lin Note: Fees mainly related to taxation consulting service and review of valuation report.
The non-auditing fee amounted to NT$290 thousand is less than 25% of the audit fee.
Audit fee of Y2016 did not reduce more than 15% of previous year.
F. Information on Replacement of Certified Public Accountant There is no replacement of certified public accountant in Y2015, Y2016, and as of February 28, 2017.
G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying Accounting Firm or Its Affiliate Business in the Past Year: None
H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More:
Title Name
Y2016 01/01/2017 ~ 02/28/2017
Net Change in
Shareholding
Net Change in
Shares Pledged
Net Change in
Shareholding
Net Change in
Shares Pledged
Chairman Vice Chairman
Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Leuh Fang F.C. Tseng
0 0 0 0
Director National Development Fund, Executive YuanRepresentative: K. H. Hsiao
0 0 0 0
Director Edward Y. Way 0 0 0 0Independent Director
Chintay Shih 0 0 0 0
Independent Director
Benson W.C. Liu 0 0 0 0
47
Vanguard InternationalSemiconductor Corporation
Title Name
Y2016 01/01/2017 ~ 02/28/2017
Net Change in
Shareholding
Net Change in
Shares Pledged
Net Change in
Shareholding
Net Change in
Shares Pledged
Independent Director
Kenneth Kin 0 0 0 0
President Leuh Fang 0 0 0 0Vice President D. L. Tseng 0 0 0 0Vice President Thomas Chang 0 0 0 0Vice President Jun-Wei Chen 0 0 0 0Vice President Chan-Jen Kuo (234,000) 0 0 0Associate Vice President
Chrong-Jung Lin 0 0 0 0
Major shareholder
Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc)
0 0 0 0
Major shareholder
National Development Fund, Executive Yuan
0 0 0 0
Stock Trade with Related Party: None
Stock Pledge with Related Party: None
I. Top 10 shareholders relation
As of February 28, 2017
Name Shareholding
Spouse & Minor shareholding
Shareholding by nominee
arrangement
Top 10 shareholders with the relation of SFAS No.6
Note
Share % Share % Share % Name Relation Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Chairman:Leuh Fang Vice Chairman:F.C. Tseng
464,223,493 28.32% 0 0 0 0 National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao
Director of tsmc
National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao
274,029,592 16.72% 0 0 0 0 Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Director: Leuh Fang Director: F.C. Tseng
Investee of NDF
SmallCap World Fund Inc. 81,256,386 4.96% 0 0 0 0 NoneJPMorgan Chase Bank N.A. Taipei Branch in custody for Capital Income Builder
71,771,446 4.38% 0 0 0 0 None
JPMorgan Chase Bank N.A. Taipei Branch in custody for The Income Fund of America
67,990,000 4.15% 0 0 0 0 None
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for International Growth and Income Fund
50,975,000 3.11% 0 0 0 0 None
JPMorgan Chase Bank N.A. Taipei Branch in custody for JPMorgan Funds
18,867,000 1.15% 0 0 0 0 None
JPMorgan Chase Bank N.A. Taipei Branch in custody for Schroder International Selection Fund-Asian Absolute Return
17,989,000 1.10% 0 0 0 0 None
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Columbia Acorn Trust - Columbia Acorn International
17,868,352 1.09% 0 0 0 0 None
Seafarer Overseas Growth and Income Fund
17,593,000 1.07% 0 0 0 0 None
48
Vanguard InternationalSemiconductor Corporation
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49
Vanguard InternationalSemiconductor Corporation
IV. INFORMATION ON IMPLEMENTATION OF THE COMPANYFUNDS UTILIZATION PLANSA. Capital and shares
1. Source of capital
Unit: Shares As of February 28, 2017
Month/Year Price
Authorized Capital Paid-in Capital Remark
Shares Amount Shares Amount Sources of
Capital
Capital Increase by Assets other than
Cash
Date of Approval & Approval Document
No.
8/2014 NT$14.5 3,300,000,000 33,000,000,000 1,638,982,267 16,389,822,670 Exercise of employees
stock options
(92)Tai-Tsai-Zheng (I) No.0920144383
* There is no change of Capital in Y2015 & as of 2017/2/28.Unit: Shares As of February 28, 2017
Type of Stock Authorized Capital
Note Listed Shares Non-listed shares Total Shares
Common Stock 1,638,982,267 1,661,017,733 3,300,000,000
Shelf Registration: None
2. Shareholder StructureAs of February 28, 2017
Government Agencies
FinancialInstitutions
Other JuridicalPerson
Foreign Institutions & Natural Persons
Domestic Natural Persons
Treasury stock
Total
Number of Shareholders 1 8 103 659 33,832 0 34,603
Shareholding 274,029,592 16,592,078 502,101,040 757,457,066 88,802,491 0 1,638,982,267
Holding Percentage(%) 16.72% 1.01% 30.63% 46.22% 5.42% 0.00% 100.00%
3. Distribution Profile of Shareholder OwnershipAs of February 28, 2017
Shareholder Ownership (Share) Number of Shareholders Ownership (Share) Ownership (%)
1~ 999 18,677 5,128,920 0.31%1,000~ 5,000 12,195 23,874,091 1.46%5,001~ 10,000 1,869 12,880,068 0.79%
10,001~ 15,000 547 6,513,600 0.40%15,001~ 20,000 250 4,481,178 0.27%20,001~ 30,000 238 5,862,669 0.36%30,001~ 50,000 208 8,152,734 0.49%50,001~ 100,000 172 12,433,136 0.76%
100,001~ 200,000 138 19,978,680 1.22%200,001~ 400,000 109 30,533,936 1.86%400,001~ 600,000 45 22,650,184 1.38%600,001~ 800,000 23 16,304,842 0.99%800,001~1,000,000 13 12,090,363 0.74%
Over 1,000,001 119 1,458,097,866 88.97%Total 34,603 1,638,982,267 100.00%
Preferred Stock: Not Applicable
50
Vanguard InternationalSemiconductor Corporation
4. Major ShareholdersAs of February 28, 2017
Major Shareholders Total Shares Owned Ownership (%) Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) 464,223,493 28.32%National Development Fund, Executive Yuan 274,029,592 16.72%
5. Market Price, Net Worth, Earnings and Dividends Per Common Share
Unit: NT$; shares, in thousands
YearItem
Y2015 Y2016 01/01/2017~ 02/28/2017
Market Price Per Share
Highest Market Price 58.40 69.50 62.80Lowest Market Price 31.50 36.90 55.30Average Market Price 45.94 53.26 58.33
Net Worth Per Share
Before distribution 16.72 17.51 -After distribution 14.12 (Note 4) -
Diluted Earnings Per Share
Weighted Average Shares 1,662,258 1,654,896 -
Earnings Per Share 2.50 3.35 -
Dividends Per Share
Cash Dividends 2.60 (Note 4)3.00 -
Stock Dividends
Dividends from Retained Earnings - (Note 4) -Dividends from Capital Surplus - (Note 4) -
Accumulated Undistributed Dividends - - -
Return on Investment
Price/Earning Ratio (Note1) 18.38 15.90 -Price/Dividend Ratio (Note 2) 17.67 (Note 4) -Cash Dividend Yield Rate (Note 3) 5.66% (Note 4) -
Note 1:Price / Earnings Ratio = Average Market Price / Earnings per Share
Note 2:Price / Dividend Ratio = Average Market Price / Cash Dividends per Share
Note 3:Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price
Note 4:Pending shareholders' meeting resolution.
6. Dividend Policy
According to the Company’s Articles of Incorporations, when allocating the
earnings for each fiscal year, the Company shall first offset its losses in previous
years and set aside a legal capital reserve at 10% of total remaining profits; this
excludes circumstances in which accumulated legal capital reserve is equivalent
to the total capital of the Company. The Company shall set aside or reverse a
special capital reserve in accordance with relevant laws or regulations or as
requested by the authorities in charge. Any balance left over plus accumulated
undistributed earnings shall be allocated according to the following principles per
resolution of the shareholders' meeting:
(1) Except for when distribution of capital reserve is conducted in accordance
with Subparagraph 2 or Paragraph 1 of this article, the Company shall not
allocate dividends or bonuses when there is no surplus earning. VIS may fully
allocate its distributable earnings for the year based on factors such as
financial, business, operation, etc. Earning distributions may be paid out with
cash or stock dividends jointly or separately. Due to the steady growth
51
Vanguard InternationalSemiconductor Corporation
experienced by our Company to date, the amount of cash dividends distributed
shall be no less than 60% of the gross amount dividends.
(2) In the event the Company suffers no losses in a certain year but possesses no
distributable earnings, or the earnings of a certain year is significantly less
than the earnings distributed by the Company during the previous year, or in
consideration of the company's financial, business, or operational factors, the
Company may allocate all or a portion of its reserve for distribution in
accordance with relevant laws or regulations, or upon the provisions of
competent authorities. Where legal reserve is distributed by issuing new shares
or cash, only the portion of legal reserve which exceeds 25% of the paid-in
capital may be distributed.
VIS aims for a steady dividend policy. Looking forward to next year, the cash
dividend per share would be equal or more than the amount that to be distributed
in Y2017.
Y2016 Profit Distribution for Common Shareholders, Directors Compensation, and
Employee Compensation: Unit: NT$
Year Date of Board
Resolution Dividend to Common Shareholders
(Cash) Directors Compensation
Employee Compensation
(cash) 2016 2017/2/21 4,916,946,801
7. Stock Dividend Distribution: Not Applicable
a. The percentages or ranges with respect to employee, director, and supervisor
compensation, as set forth in the company's articles of incorporation
In compliance with the Company Act as amended in May 2015 and the
amendments to the Articles as resolved by the shareholders’ meeting on
June 2016, the Corporation should distribute no less than 10% of the current
year’s profit as employees’ compensation in the form of stock or in cash as
resolved by the board of directors. The employees include those of
subsidiaries meeting some conditions agreed by the board of directors. The
Corporation should also distribute no higher than 1% of the current year’s
profit as remuneration to directors. However, the Corporation’s
accumulated losses shall have been covered. If there is a change in the
proposed amounts after the annual consolidated financial statements are
authorized for issue, the differences are recorded as a change in accounting
estimate.
b. The basis for estimating the amount of employee, director, and supervisor
compensation, for calculating the number of shares to be distributed as
52
Vanguard InternationalSemiconductor Corporation
employee compensation, and the accounting treatment of the discrepancy, if
any, between the actual distributed amount and the estimated figure, for the
current period.
For the year ended December 31, 2016, the employees’ compensation and
the remuneration to directors were $831,803,372 and $14,100,000,
respectively. The above calculated were at a certain percentage of the base
income. Any discrepancy between amount resolved by the board of directors
and the above estimated figure will be recorded a change in accounting
estimate and adjusted to profit and loss of next year.
c. Information on any approval by the board of directors of distribution of
compensation.
(1) The amount of any employees’ compensation distributed in cash or stocks
and remuneration to directors and supervisors. If there is any discrepancy
between that amount and the estimated figure for the fiscal year these
expenses are recognized, the discrepancy, its cause, and the status of
treatment shall be disclosed.
The amounts of employees’ compensation and remuneration to directors
resolved by the board of directors on February 21, 2017 were as
follows :
The employees’ compensation amounted to NT$831,803,372. The
distribution will be paid in cash. There is no difference between the
amount resolved by the board of directors and the expense recognized in
Year 2016.
The remuneration to directors amounted to NT$14,100,000. The
distribution will be paid in cash. There is no difference between the
amount resolved by the board of directors and the expense recognized in
Year 2016.
(2) The amount of any employees’ compensation distributed in stocks, and
the size of that amount as a percentage of the sum of the after-tax net
income stated in the parent company only financial reports for the current
period and total employees’ compensation: Not Applicable.
d. The actual distribution of employee, director, and supervisor compensation
for the previous fiscal year (with an indication of the number of shares,
monetary amount, and stock price, of the shares distributed), and, if there is
any discrepancy between the actual distribution and the recognized
employee, director, or supervisor compensation, additionally the
discrepancy, cause, and how it is treated.
Distribution of employees’ compensation and remuneration to directors for the Year
2015 were as follows.
53
Vanguard InternationalSemiconductor Corporation
Board of Directors Resolution
(January 27, 2016)Actual Distribution
Amount (NT$) Amount (NT$) Underlying Number of Shares Dilution
Remuneration to Directors
13,384,109 13,384,109 NA NA
Employees’ compensation in
cash 623,637,511 623,637,511 NA NA
Total 637,021,620 637,021,620 NA NA
The above figures have been recognized in the Year 2015 financial report. The
remuneration to directors amounted to NT$13,384,109 which is NT$204,164 lower than
the estimated amount recognized in Year 2015 financial report. The difference was due
to the change in accounting estimate and adjusted to profit and loss in Year 2016.
8. Share Buy-back : None
B. Issuance of Corporate Bond : None C. Issuance of Preferred Stock Issuance
1. Preferred Stock : None
2. Preferred Stock with Warrants : None
D. Issuance of Depositary Shares Issuance: None
1. Status of Employee Stock Option Plan (ESOP): None2. New restricted employee shares: None
E. Status of Mergers and Acquisitions: None
F. Fund Plan Implementation: None
54
Vanguard InternationalSemiconductor Corporation
V. OPERATIONAL HIGHLIGHTS A. A description of the business
1. Scope of business
VIS’ scope of business is in wafer foundry manufacturing. Main focuses on
PMIC/LED/ LCD/ NVM/ Discrete processes to fulfill customers’ demand in
computing, consumer, communication and automotive applications. At the
same time, dedicate on the developing of BCD and high-voltage/ultra high-
voltage new technologies. VIS also supports specialty IC process
manufacturing, and committed to embedding zero defect mindset within
production, supply chain management, and service flow, and dedicated to
reach ultimate goal of zero defect by continuous improvement. Mean while,
VIS is co-operating with various IP service providers to expand VIS service in
manufacturing. Above are all for the purpose of establishing VIS as the
preferred partner in specialty IC foundry & service
Item AMT
(NT$ in thousands)
(1) Wafer Foundry 25,727,469
(2) Others 359,281
Less Sales returns and allowances 258,116
TTL Net Revenue 25,828,634
2. Overview of the industry
Current state of industry and trends
Macroeconomic aspects Figure 1 illustrates fluctuations in the unemployment rate of the US and major EU member states over the past year. At present, the US is maintaining a stable unemployment rate of less than 5%, and as of January 2017 the unemployment rate in the US was 4.7%. Although the average unemployment rate of the EU's 28 member states continued to hover around 8.4% over the past year, it still represented a clear and steady improvement as compared to the outset of the year (9%). In terms of the rate of unemployment of individual EU nations, Germany fared the best, with an unemployment rate reaching a low of just 3.3% in January, followed by the U.K. at 4.8%. Meanwhile, France — despite its stature as one of the largest economies in the EU — continued to struggle with higher than average unemployment even as it showed steady improvement within the same time period. As EU member states prepare to hold their respective national elections in 2017, notwithstanding some uncertainties related to the political climate, the global GDP growth rate is expected to continue to steadily increase, an estimate which is buttressed by the commitment of nations to effectively keep their rates of unemployment under control.
Statistics and projections released by the IMF concerning global GDP growth for
55
Vanguard InternationalSemiconductor Corporation
9.8%
8.4%
4.8%4.7%
3.3%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan. 16'
Feb. 16'
Mar. 16'
Apr. 16'
May 16'
June 16'
July 16'
Aug. 16'
Sept. 16'
Oct. 16'
Nov. 16'
Dec. 16'
Jan. 17'
Une
mpl
oym
ent r
ate
France
EU-28
UK
USA
Germany
the period 2015–2018 are shown in Table 1. In particular, the figures demonstrate that the US was one of the first major nations to undergo a successful economic recovery in the wake of the 2008 financial crisis, owing in part to its quantitative easing (QE) policy. Concerning China's 2015 gradually planned decrease in investments on major infrastructure projects, the net effect of implementing various controls and regulations at the macroscopic level resulted in a diminished GDP growth rate of approximately 6.7% in 2016. Broadly speaking, in terms of GDP growth trends for 2017 and 2018, the latest figures published the IMF suggest that the US will continue to play a leading role as the new Trump administration expands investments on infrastructure spending, which is expected to decrease America's unemployment rate even further. Currently, it is estimated that the US will continue to maintain stable economic growth during the next one to two years which is likely to have a positive reverberating effect on the economies of other nations as well. The present fiscal policy of the eurozone, on the other hand, is expected to result in relatively flat growth. The ECB has already moved to extend the deadline of its QE program until the tail-end of 2017, a decision which is expected to continue to provide a certain degree of support for sustaining and growing the EU economy as evidenced by the IMF's forecasted GDP growth rate in the eurozone, which has consistently remained between 1.6% to 1.7%. With regard to China's continued efforts to drive down real estate prices through its affordable housing policy, China's GDP growth rate has sustained a noticeable decline compared to its performance in previous years which was driven in part by substantial investments in real estate, and this decline has been further exacerbated by the continued depreciation of the Chinese yuan. Owing to these and other factors, it is estimated that China's GDP growth rate in 2017 and 2018 will continue the trend of being subjected to slight downward revisions. In terms of the world economy, however, the general outlook for 2017 and 2018 remains positive, and a modest increase is anticipated in the global GDP growth rate over the next two years.
Figure 1. Fluctuations in the unemployment rate of the US and EU member states in the past year. (January 2016 – January 2017’)
Source:Bureau of Labor Statistics of USA, Eurostat (Feb. 2017)
56
Vanguard InternationalSemiconductor Corporation
2015 2016 2017 e 2018 fWorldwide 3.1% 3.1% 3.4% 3.6%Advanced Economies 1.9% 1.6% 1.9% 2.0%Emerging and Developing Economies 4.0% 4.1% 4.5% 4.8%USA 2.4% 1.6% 2.3% 2.5%Euro Area 1.6% 1.7% 1.6% 1.6%Germany 1.5% 1.7% 1.5% 1.5%UK 2.2% 2.0% 1.5% 1.4%Japan 0.5% 0.9% 0.8% 0.5%Brazil -3.8% -3.5% 0.2% 1.5%Russia -3.7% -0.6% 1.1% 1.2%India 7.3% 6.6% 7.2% 7.7%China 6.9% 6.7% 6.5% 6.0%
Statistics and forecasting of global GDP growth (2015-2018)
Source:IMF (Jan. 2017)
Economic Output of Global Semiconductor and Foundry Industries
In 2016, there were few if any particularly game-changing products released in the end-user market. While the market for smartphones continued to maintain some degree of growth momentum, the performance of this sector paled in comparison to previous years, and the continued slump in the market for consumer PCs further canceled out the modest gains generated by demand for hand-held devices. With regard to how the semiconductor industry fared as a result of the these circumstances, only a slight growth of 1% — a scale of approximately US$340 billion — was recorded (see Figure 2). Meanwhile, owing to the demand for mobile hand-held devices, the production capacity of semiconductor foundries for microprocessors, display driver ICs, and ICs for fingerprint sensor applications continued to result in impressive gains. In all, the output value of the global wafer fabrication market in 2016 posted a growth of 9%, amounting to approximately US$53 billion.
Looking ahead to 2017, smartphones remain one of the primary focal points for the semiconductor industry, and there continues to be sustainable growth in the demand for foundries' production capacity, particularly for the production of key ICs utilized in smartphones such as microprocessors and memory and power management ICs which provide higher performance and greater energy-saving capabilities. In addition, a wave of new opportunities is being unleashed by wearable devices and IoT applications as well as the automotive industry's increasing focus in recent years on incorporating smart devices, greater connectivity, and energy-saving designs into their products. As a result, there is a consistent demand for a wide range of electronic components, presenting a promising area for new growth in the semiconductor industry. According to data published by Gartner, the semiconductor industry's total revenue for 2017 is poised to reach US$364 billion, a growth of about 7%. As for the foundry industry, it is estimated that the continued outsourcing of more orders by integrated device manufacturers (IDMs) will generate impressive results throughout the overall market, including projected growth of about 7% to reach a scale of US$57 billion.
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Vanguard InternationalSemiconductor Corporation
340364
53 57
1%
7%
9%
7%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
50
100
150
200
250
300
350
400
450
2016 2017 2018 2019 2020 2021
YoY
$B
Semiconductor, $B
Total Foundry, $B
Semiconductor (YoY)
Total Foundry (YoY)
Global Semiconductor and Foundry Production Value
Source:Gartner (Dec. 2016)
Revenue and ranking of global foundry providers
The following chart shows initial global foundry (including pure player
foundry and IDM) revenue and market share projections from Gartner. TSMC
remained the dominant player in 2016, and its 11% revenue growth was higher
than the 9% figure for the industry as a whole. In addition, TSMC's market
share rose from 54.3% in 2015 to 55.3% in 2016. GlobalFoundries returned to
the No. 2 position with 8.7% market share. UMC was ranked third with 8.6%
market share, followed by Samsung, while SMIC occupied fifth place with a
market share of 5.5% and revenue growth of 31% contributed by the increase
in market demand. TowerJazz attained its No. 6 position with an annual
revenue growth of 27%, which is attributed to the M&A. Powerchip, also a
memory foundry, ranked seventh with a market share of 1.9%. Here at VIS,
our 2016 revenue of US$0.8 billion enabled us to secure a No. 9 ranking,
occupying a market share of 1.5%. The top 10 firms enjoyed 11% revenue
growth in 2016 and accounted for 94% of the overall market, compared with
92% in 2015; the foundry industry is dominated to a large degree by these
major players.
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Vanguard InternationalSemiconductor Corporation
$M Share % $M Share % Rev. % Share %1 tsmc Pure-FDY 26,566 54.3% 29,466 55.3% 11% 0.9%2 GF Pure-FDY 4,673 9.6% 4,639 8.7% -1% -0.9%3 UMC Pure-FDY 4,561 9.3% 4,592 8.6% 1% -0.7%4 Samsung IDM 2,607 5.3% 3,700 6.9% 42% 1.6%5 SMIC Pure-FDY 2,229 4.6% 2,921 5.5% 31% 0.9%6 TowerJazz Pure-FDY 961 2.0% 1,220 2.3% 27% 0.3%7 Powerchip Pure-FDY 985 2.0% 987 1.9% 0% -0.2%8 Fujitsu Pure-FDY 845 1.7% 875 1.6% 4% -0.1%9 Vanguard Pure-FDY 736 1.5% 802 1.5% 9% 0.0%
10 Huahong Grace Pure-FDY 651 1.3% 713 1.3% 10% 0.0%Top-10 44,814 91.7% 49,915 93.6% 11% 2.0%Top-10 % 92% 94%Others 4,077 8.3% 3,385 6.4% -17% -2.0%Total 48,891 100.0% 53,300 100.0% 9%
2015 2016 YoY2016 Company Foundry Type
Global Pure Foundry Revenue and Market Share
Source:Gartner (Jan. 2017)
Taiwan Semiconductor Industrial
The following chart displays the statistics and forecasting of industry output
values for various secondary semiconductor industries in Taiwan. According to
the data presented by the Institute for Information Industry's MIC division,
overall industry output in 2016 grew 14%, which is equivalent to a scale of
NT$2591.6 billion. This performance is much better than the global
semiconductor industries and is attributed to the growth from IC
manufacturing, IC designs and packaging testing industries. It is expected that
in 2017 the overall semiconductor industry in Taiwan will be able to achieve a
6% growth in output under the influence of IC manufacturing and packaging
testing industries’ growth.
Output values of various secondary semiconductor industries in Taiwan
Source: Institute for Information Industry's MIC division (Mar. 2017)
The following demonstrates 2016 rankings for revenues earned by the Top-9
foundry manufacturers of Taiwan (Remark: Revenue of Innotera Memories
Inc. and Rexchip Electronics Corporation have been incorporated into Micron
Technology data, its revenues cannot be determined and are therefore
expressed as N/A). The top two providers in the foundry industry were TSMC
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Vanguard InternationalSemiconductor Corporation
and UMC, while VIS occupied 6th place. Currently, out of all foundry
manufacturers in Taiwan, Nanya Technology Corporation is the only one
DRAM manufacturer, whereas other firms, except for Winbond Electronics
Corporation, which is an IDM firm, have all adopted a foundry operating
model.
Regarding the revenue rankings for Taiwan's Top ranked foundry manufacturers
Source: Company data (Jan. 2017)
The relationships between up-, mid-, and downstream industry
segments are as shown in the following chart
Product development trends and state of competition
a. Product development trends
VIS provides the best quality IC foundry services and logic foundry process
technology. Apart from existing logic, mixed-signal and high-voltage
process, VIS also offers ultra high voltage, BCD (Bipolar-CMOS-DMOS),
SOI (Silicon on Insulator), and embedded non- volatile memory processes.
Our high voltage processes range from 10V to 800V, enabling us to satisfy
the needs of different product specifications and help customers expand
60
Vanguard InternationalSemiconductor Corporation
2016 2017 2018 2019 2020 2021
Desktop 104 98 96 95 93 91Notebook 155 155 156 157 157 157Tablet 170 164 165 169 171 171Desktop YoY -9% -5% -2% -1% -2% -2%Notebook YoY -5% 0% 1% 1% 0% 0%Tablet YoY -13% -4% 1% 2% 1% 0%
applications in different field. In response to the automobile industry's
demand for semiconductors, VIS has actively proposed solution plans and
applied for AEC-Q100 certifications to provide our customers with multiple
choices of technical platforms. In light of the increasing need for consumable
electronics, VIS has completed building the structure of an IC application
platform for magnetic and fingerprint sensor process technologies, thereby
providing customers with additional options other than driver ICs, power
management ICs, and discrete components. Our wafer foundry services are
closely linked with end markets, including computer, consumer electronics,
and communications and automotive markets. We chiefly supply products for
computers (including desktop, notebook, netbook, and tablet), LCD TVs, and
cell phones; the following are demand forecasts for various end markets from
the research firms:
Computer:
Soft demand continued to impact the shipment of PC products in 2016. The
shipment of desktop computers was 104 million units with a drop of 9%. The
declining trend is also observed in the notebook market, with a shipment of
155 million, which reflects a 5% drop. The shipment of tablet did not grow as
the increased shipment of large size smartphones. Although Apple launched
its 12.9" iPad Pro, hoping to motivate corporate clients in the use of tablet
computers, the market did not seem to have adopted this trend, generating an
overall shipment of 170 million, which reflects a 13% decrease. Looking
ahead into 2017, the PC market is expected to continue to exhibit distress,
including a declining trend in the growth of tablet computers. Projections and Annual Growth Rate of Global PC Shipments, including Tablets (in millions)
Source:IHS, Gartner, IDC (4Q16)
Consumer Electronic:
The following two tables depict the global shipment and resolution trend of
LCD TVs. In 2016, a 1% annual growth rate (approximately 228 million)
was observed, with FHD (1920x1080) accounting for 38%. The penetration
rate of UFHD (3840x2160, 4k2k) was about 24%. According to IHS,
Gartner, and IDC, the overall shipment of LCD TVs for the next few years is
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Vanguard InternationalSemiconductor Corporation
2016 2017 2018 2019 2020 2021
1366 x 768 38% 33% 32% 31% 29% 28%1920 x 1080 38% 32% 27% 25% 24% 23%3840x1080 (4kx2k) 24% 35% 41% 44% 46% 48%7680x4320 (8kx4k) 0% 0% 0% 1% 1% 1%
228232
1%2%
0%
1%
2%
3%
4%
5%
6%
215
220
225
230
235
240
245
250
255
2016 2017 2018 2019 2020 2021
YoY
Mu LCD TV
LCD TV YoY
projected to grow by 3 to 5% annually. Regarding UFHD resolution devices,
favorable growth is expected under the influence of price fluctuations,
occupying 48% of the overall LCD TV market by 2021. A positive growth in
the shipment of LCD TVs and enhanced panel resolution are market trends
that positively influence VIS business performance in driver IC operations. Global TV Shipment Volume (in millions of units) and Annual Growth Rate
Source:IHS, Gartner, IDC (4Q16)
LCD Shipment Ratio by Resolution
Source:IHS (4Q16)
Communication:
The following table depicts the global shipment and annual growth rate
forecasts for mobile phones. Smartphones maintained small growth in 2016,
but their growth is no longer comparable to that in the past. The annual
growth rate of mid-/low-end devices was higher than that of high-end
products, and this trend will continue into 2021. Regarding the average
compound growth rate for shipments from 2016 to 2021, functional mobile
phones register a decline of 13%, whereas mid-/low-end devices and
premium high-end devices project a 4% and 3% growth, respectively. VIS
supplies driver IC capacity for products with ramless in response to customer
demands for mid-/low-end devices.
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Vanguard InternationalSemiconductor Corporation
2016 2017 2018 2019 2020 202116'-21'CAGR
Feature phone 393 349 300 240 208 202 -13%Utility/Basic Smart phone 854 907 960 1,013 1,044 1,064 4%Premium Smart Phone 637 669 705 715 727 732 3%Feature phone YoY -10% -11% -14% -20% -31% -16%Utility/Basic Smart phone YoY 9% 6% 6% 5% 9% 5%Premium Smart Phone YoY -5% 5% 5% 1% 3% 2%
310
29
50
61
43
0
20
40
60
80
100
120
2016 2017 2018 2019 2020 2021
Mu
Conventional vehicle
HEV
PHEV
EV
Global Mobile Phone Shipments (in millions of units) and Growth Rate Forecast
Source:IHS, Gartner, IDC (4Q16)
Automotive Electronics
The global automotive shipment volume is shown in the following figure.
The shipment volume in 2016 was approximately 95 million vehicles, mostly
traditional fossil fuel vehicles. The growth rate of battery electric, plug-in and
hybrid electric vehicles will increase drastically as energy conservation and
carbon reduction topics ferment and the European Union gradually
implements laws and regulations for controlling automobile carbon dioxide
emissions. It is predicted that 100 million new vehicles will be shipped in
2021, with electric vehicles accounting for 60% of the projected number. Global Automotive Shipment Volume (in millions of units)
Source:IHS, Gartner (4Q16)
The global automotive electronic semiconductor output value is illustrated in
the following table. As can be seen, the '16-'20 annual compound growth rate
was 7%. In addition to the aforementioned energy conservation requirements
for battery electric vehicles, the automotive market will become highly
dependent on semiconductor elements such as MCU and sensor as product
designs that incorporate networking capabilities. Moreover, the industry
output as a whole has the opportunity to achieve a scale of US$40.5 billion in
2020. VIS is currently actively cultivating this market in response to the
growing demand for automotive electronics.
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Vanguard InternationalSemiconductor Corporation
Category Device 2016 2017 2018 2019 202016'-20'CAGR
31.2 33.3 35.5 38.0 40.5 7%ASIC 1.7 1.8 1.9 2.1 2.3 8%ASSP 8.0 8.3 8.6 8.9 9.4 4%Analog 2.5 2.6 2.7 2.8 2.9 4%Discrete 4.5 4.7 4.9 5.2 5.6 5%Logic 0.8 0.9 1.0 1.1 1.2 10%Memory 1.5 1.6 1.5 1.5 1.5 -1%MCU 5.3 5.6 6.1 6.7 7.6 9%Optoelectronics 3.2 3.8 4.5 5.0 5.3 13%Nonoptical Sensors 3.7 4.0 4.3 4.6 4.8 7%
Total
Application Specific
General purpose
Automobile semiconductor output value (US$ Billion)
Source:Gartner (1Q16)
b. Competitiveness
In IC foundry processes, in addition to the 0.5um, 0.35um, 0.25um, 0.18um,
0.16um, and 0.11um processes, we have developed multiple integrated
circuit technologies and successfully mass produced these products to
enhance the competitiveness of our customers' products. In contrast to digital
ICs, analog ICs, mixed-signal ICs, and high-voltage technologies are the key
to bridging communication between reality and digital systems. The design
of each product requires specific components and IP. VIS therefore cultivates
the development of specific components and IP to help clients quickly enter
the market. This business model of jointly developing novel technologies
with our customers helps VIS in forming a consolidated, longstanding
partnership with its customers.
3. Technology and R&D
R&D expenses in past 2 years and to the day this report was printed.
Year R&D spending (in NTD thousand)
2015 1,240,265
2016 1,555,504
2017/01/01–2017/02/28 261,309
In order to provide customers with more competitive technologies and
services, the Company is continuously developing more specialized
applications from its core technology as well as enhancing the value of the
services we provide. In terms of technological developments for display
driver IC, the 0.2um, 0.18um, and 0.15um high voltage production
processes and the additional embedded non-volatile memory 0.16um high
voltage production process, especially designed for touch panels, are now
all being utilized in mass production. Besides, 0.11um high voltage process
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Vanguard InternationalSemiconductor Corporation
technology was developed from Y2012 and Finger Print IC technology was
also co- worked with customer and developed since Y2014. For high growth
of Automotive Display market, the Company is active developing
Automotive Display Driver ICs and lists it to operational focus. The
advanced 0.11um automotive technology platforms also passed automotive
qualification and customers started verifying their products. With regards to
the BCD (Bipolar-CMOS-DMOS) process for power management ICs,
apart from the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um processes that
have already gone into mass production. The advanced 0.11um BCD and
120V extension technology platforms also passed automotive qualification
and customers started verifying their products. For sensor part, the 0.18um
AMR platform in magnet resistor process has been validated by customer's
eCompass product and been introduced into mass production. The advanced
0.11um AMR eCompass SOC platform has been adopted by customers and
will be certified by the end of next year. In addition, customers are using
0.18um AMR platform to develop automotive and industrial magnet resistor
products, plan to kick off mass production in next year. Moreover, the next
generation of 0.5um ultra-high-voltage processing with ultra-low on
resistance and cost effective version has been accomplished and is ready to
be used in customers’ product designs. The high quality 0.5um HV SOI
technology continues in mass production. The new generation, 0.25um and
0.15um HV SOI technologies, will be ramped up next year. In the future,
Vanguard International will continue to actively develop the high voltage
and power management technology components that the market demands
and continue to collaborate with TSMC to develop even more advanced
processes.
It is expected that VIS will increase its R&D spending in Y2017 to 6% of its
revenue.
Project Description
0.5um UHV Low Ron & High Side Technology
Based on customer demand, develop UHV Technology for Motor Driver IC & LED Driver IC.
Power Management IC Technology Platform
Develop 0.15um/0.11um with 120V extension power management IC technology platforms to supply products for computers (including desktop, notebook, netbook, and tablet), cell phones, and automotive application.
Display driver IC technology platform Based on customer demand, develop display driver IC technology platform for 4K2K TV, tablet, mobile phone, touch panel and automotive panel display.
65
Vanguard InternationalSemiconductor Corporation
Project Description
Finger Print IC Technology Platform Research and develop fingerprint IC technology platform that fulfills the requirement of customization and industry's latest development applications.
4. Long and short-term business development plans
Short-term development plan
We are constantly innovating and developing new technologies. We have
conducted R&D in the high-voltage process field for many years. In the short
term we will continue to apply our high-voltage process technology to driver
IC products, while developing BCD, UHV, SOI, NVM processes in an effort
to response to customers' increasing diverse needs and enhance customer
service quality.
a. Short-term business development plan: We will strengthen our on-time
delivery rate in order to boost customer satisfaction: We plan
production of most of our products after orders have been accepted.
Because our customers' exacting design and customization needs, we
commonly engage in face-to-face communication with customers, and
provide consulting-style services. Our superior process technology,
professional technical personnel, and rigorous certification measures
have helped us win our customers' trust.
b. We will continue to improve our large panel driver ICs performance.
We have developed e-book, tablet, and 3D TV applications, and hope
to capture over 40% market share of for gate driver ICs and over 25%
market share for source driver ICs.
c. We will strive to develop high-efficiency, energy-conserving, carbon-
reducing products. We look forward to the continued growth of our
power management ICs in the following years. Our current main
products include DC to AC power converters and AC to DC
converters, which are used in small-/medium-size computers,
smartphones, and LCD TVs.
d. We will endeavor to set up an embedded Flash, magnetic and
fingerprint sensor IC platform and expand other markets in addition to
the driver IC and power management IC markets, in order to provide
more devices solutions to customers.
e. We will integrate our global resource and actively expand our foreign
market.
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Vanguard InternationalSemiconductor Corporation
Long-term development plan
a. We will accelerate the process of acquiring AEC-Q100 verification for
our automotive application technology platform and actively explore the
automotive electronics market
b. We will strengthen our BCD, UHV, and Discrete R&D, enhance our
yield rates and technological maturity, improve our processes, and cut
costs.
c. We will continue to develop new process technologies, keep on going
processes for products with new specifications such as GaN, expand our
range of product applications, widen our customer base, strengthen
overseas market development.
d. We will seek partners to establish strategic alliance and attempt to
prolong the life cycle of our 8-inch FAB.
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Vanguard InternationalSemiconductor Corporation
B. Industry survey and market analysis 1. Market analysis
Major product sales areas
Unit: NT$, in thousands Y2015 Y2016
Net Revenue % Net Revenue %
Asia 21,899,205 94 23,656,799 92America 816,720 3 1,187,913 4Europe 602,560 3 978,862 4Oceania 1,236 0 5,060 0Total 23,319,721 100 25,828,634 100
Market share
VIS has cultivated the high-voltage process market for many years, and will
continue to develop BCD and SOI process technology, boosting operating
performance. VIS had revenue of approximately NT$25.8 billion in Y2016.
According to statistics from the research firm, Gartner, VIS had a market share
of roughly 1.5% in Y2016, making it the world's ninth largest pure foundry
player.
(Please see Industry Overview concerning future supply and demand and
growth)
Favorable and unfavorable factors affecting competitive niche and
development vision, and response measures
Favorable competitive factors
(1) As new information, communications, and consumer products emerge in
rapid succession, shipment volumes have set new records. In addition,
international IDM firms are constantly releasing foundry orders in order
to boost the competitiveness of their products. As a result, the foundry
market, which VIS is enjoying steady growth. Furthermore, future
development trends for relevant end products such as LCD flat panel
displays, PCs, handheld devices, and automotive electronics bode well
for VIS, which will provide technical blueprints for process services,
continuously monitor with market trends, and keep up with customers'
needs.
(2) VIS received ISO 9001 international quality certification in 1996, ISO
14001 international environmental certification in 1997, QS 9000
international quality management system certification in 2002, and
ISO/TS 16949: 2002 international quality management system in 2004.
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Vanguard InternationalSemiconductor Corporation
Our first-rate manufacturing service standards and excellent relationships
with large international manufacturers will greatly facilitate our future
efforts to increase our market share.
(3) VIS and TSMC maintain a close wafer foundry service relationship, and
VIS has been transferred TSMC's 0.5um/0.35um /0.25um /0.18um
/0.16um /0.11um process technologies, which have been successfully
employed in mass production. VIS has also successfully developed many
specialty IC technologies, which have been used in mass production.
(4) Our highly effective management team, in conjunction with our
professional process team and outstanding sales team, enable us to
achieve superb business performance.
(5) Our highly flexible customer support system helps us to form long-term
partnerships with customers.
Unfavorable factors to competition
(1) The current trend of component integration is such that, when the
accumulated degree of integration is higher, the Company’s 8-inch
process technology might not be able to meet the needs of advanced
processing customers.
(2) The merging and acquisition trend within semiconductor industries have
elevated market centralization, which is detrimental to the Company's
business operations.
(3) China's self-sufficiency policies have caused tectonic plate shifts in our
supply chain, and this shift is also detrimental to the Company's future
operations, particularly with regards to the aspect of driver IC
manufacture.
Response measures
(1) We will continue to improve our process technology, quality, and mass
production capability, reduce production costs for various products,
enhance our yield rate and service, boost production efficiency, and
consolidate our professional wafer foundry service capacity.
(2) We will accelerate process development, make opportune innovations in
the specialty IC foundry area, and consolidate our partnerships with
customers by maintaining differentiation, making us become the best
choice of specialty IC manufacturing service provider.
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Vanguard InternationalSemiconductor Corporation
(3) We will focus on and optimize high-voltage, ultra-high-voltage, and
discrete elements, as well as BCD technology, and concentrate our
resources in order to enhance our competitiveness.
(4) We will strengthen our partnerships with customers and adopt an IDM
Fab-lite strategy in order to better complement our customers.
(5) We will strengthen marketing and customer service performance,
continue to raise customer satisfaction, and achieve our goal of
sustainable operation.
2. Major Applications of Products
VIS provides world-class quality Logic IC manufacturing service. Those
products can be applied into Computers and its peripherals (including TFT
LCD monitor, CD-ROMs and Motherboard), Communications (including
Mobile handset, Wireless LAN and Switch), and Consumer electronics
(including High Resolution TV, e-book, DVD player, and Digital Still
Camera).
Production Flow
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Vanguard InternationalSemiconductor Corporation
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71
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4,31
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ntity
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ival
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mou
nt (
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thou
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s)
Maj
or
Pro
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Y
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Y
2016
C
apac
ity
Qua
ntity
A
mou
nt
Cap
acity
Q
uant
ity
Am
ount
F
ound
ry
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1,
742,
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l
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2015
Y
2016
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otal
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ntity
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1,99
225
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,634
72
Vanguard InternationalSemiconductor Corporation
73
Vanguard InternationalSemiconductor Corporation
C. Personnel Structure As of February 28, 2017
Year 2015 2016 2017/02/28Direct 2158 2254 2260
Indirect 2531 2720 2726 Personnel Total 4689 4974 4986
Average Age 36 37 37 Average Year of Service 6.63 6.85 6.86
PH. D 41 40 40 Master 1079 1247 1258 College 2113 2191 2186
High School 1449 1489 1495 Average Year of Service
Education Less than
High School 7 7 7
D. Environmental Protection Measures
Environmental Investment During 2016 and up to the date of publication of this report, there were no losses reported or penalties assessed as a result of environmental violations. VIS continuously improves our environmental management and upgrade pollution control equipments. In Y2016, in addition to the existing equipment maintenance, we continuously invested in purchasing pollution control equipments for special chemical substances, wastewater and exhaust, and local scrubbers. The total investment was around NT$218 million. VIS also made an investment around NT$22.13 million in green products procurement and will keep surveying and purchasing relative green products in order to fulfill our environmental protection responsibility.
Greenhouse Gases Emissions Management VIS firmly believes that global warming is a global concern, in which CO2 resulting in GHG (Greenhouse Gases) effect is one of the primary causes. Therefore, the Company has devoted great efforts in the reduction of GHG. In Y1994, VIS signed the “Memorandum of Cooperation for the Reduction of Perfluorinated Compounds (PFCs) Emissions” with TSIA. Specifically, VIS joined semiconductor industries from worldwide in addressing the reduction of PFCs emissions during manufacturing processes to mitigate the global greenhouse effect and achieve the goal of reducing PFC emissions. Since 2007, we have completed company-wide GHG inventory and verification for each year from 2000 to 2016 in compliance with ISO 14064. The GHG verification results not only enable us to better grasp the state of wafer production, but also help to map out the directions for our continued efforts in GHG reduction. Based on the verification results, the
major emissions source has been shifted to the purchased electricity from
PFCs. And the company’s GHG emissions in Y2014, Y2015, and Y2016 are
534 thousand tons CO2e, 627.6 thousand tons CO2e, and 721.1 thousand
tons CO2e, respectively. As for the GHG reduction, the company has
accomplished, from Y2014 to Y2016, 132.6 thousand tons CO2e, 189.3
thousand tons CO2e, 269.2 thousand tons CO2e, respectively.
Furthermore, the company announced its safety, health, and environment
policy to promote environmental protection and development of a
sustainable environment. For details, please visit VIS website as follows:
http://www.vis.com.tw/visCom/chinese/a_about/a04_environmental.htm
Energy Management
The Company continues to conserve energy within its public facilities. For
example, while maintaining high product quality, VIS has increased the
environmental temperature in non-photo areas of cleanroom, improved
energy consumption of fan filter units in the cleanroom, installed heat
pumps on external air-conditioning boxes in the cleanroom, purchased
energy-saving production equipment, and adopted variable frequency
control systems in the vacuum pumps of manufacturing equipment in order
to conserve energy. With respect to conserving natural gas, the external dew
point temperature has been used to set the optimal operational level of
boilers within each plant. Air pollution treatment equipment and the VOC
burner were upgraded to recycle and reuse high-temperature exhaust gas. In
2011, we began to deploy instantaneous high-temperature heat pump energy
conservation systems to reduce the Company's heating costs, drastically
reducing the consumption of natural gas. In 2016 we conserved 15,940
Kwh of electricity, reducing electricity costs by approximately NT$33.62
million.
Air Pollution Control
VIS currently has three wafer fabrication plants, all of which are equipped
with extensive waste gas and wastewater collection, monitoring and
treatment systems that surpass the regulatory requirements and operate
continuously 24 hours a day. To prevent abnormal discharge of waste gas
and wastewater during power outage, we have included our production
machinery and pollution control equipment into the emergency power
supply system to make sure that all waste gas and wastewater are
adequately treated before discharge. For waste gas treatment, our various
waste gas scrubbers are monitored 24 hours a day, allowing on-duty
personnel to quickly manage any system issues that may occur. The level of
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Vanguard InternationalSemiconductor Corporation
volatile organic compounds in the treated waste gas we discharge is far
below the legal standard.
Water resource management
To effectively utilize limited water resources, we keep detailed monthly
water use records and carry out comparative analyses of these records to
ensure the effective collection and reuse of process water. With regards to
non-process water conservation, we also constantly educate our employees
on the importance of water conservation by displaying promotional material
and posters, regulating the frequency of external wall cleaning, and the
water usage in landscape maintenance. We are also taking steps to establish
rainwater runoff collection systems in a further effort to reduce the use of
tap water.
Prevention and control of water pollution
For wastewater treatment, we have established a fully-functioning
wastewater treatment plant to ensure that wastewater quality is stable and
meets effluent standards. VIS's FAB1 and FAB2 have undergone continuous
implementation of pollutant discharge reduction projects, such as reducing
the content of ammonia nitrogen and TMAH (tetra-methyl ammonium
hydroxide) in effluents. By focusing our attention on waste reduction at the
source of the process, we have reduced usage of ammonia water and
TMAH by 30% and 5%, respectively. With the installation of a TMAH
wastewater treatment system in our FAB1, the quality of our wastewater
now fully fulfills water quality standards stipulated by the Science Park. In
light of the success at our FAB1 and FAB2, our FAB3 is currently
undergoing a wastewater improvement plan. Currently, its wastewater
quality now fulfills the regulatory standards for ammonia nitrogen
discharge stipulated by the Environmental Protection Administration.
Waste management and recycling
To ensure that waste generated at the Company is adequately managed, we
have documented management measures in compliance with the spirit of
ISO 14001, and require all employees to faithfully implement the tasks of
waste classification, collection, storage, and disposal. We currently engage a
qualified waste disposal and recycling organization to help us properly
dispose, process, or reuse waste. As a result of our efforts, fabs have
maintained a recycling rate of 90% over the past few years. Since July 2014
when Fab3 was acquired, the recycling rate of wastewater increased from
78.4% to 92.6%.
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Vanguard InternationalSemiconductor Corporation
With regard to VIS's promotion of environmental, safety, and health
management, please see the chapter of E. Employee / employer
relations, 5. Employee Working Environment and Personal Safety, or
the VIS 2016 Corporate Social Responsibility Report for more details.
E. Employee / employer relations 1. Employee Benefit and Implementation
VIS regards employee health in high priority and made great effort to
improve working environment, set up leisure activities and facilities, and
provide health and insurance services. VIS 2016 has been conferred a
number of awards, including “Workplace Equal Rights”, “The Outstanding
Company of Labor Safety and Health”, “The Pioneer of Influenza vaccine
vaccination”.
VIS cares for the overall quality of life of its employees. Not only do we
offer a clean and beautiful working environment with an array of
recreational facilities (basketball courts, gymnasium, recreation center,
aerobics room, karaoke rooms, and lounge), we put on a whole variety of
recreational events such as new year banquets, family days, Christmas
parties, and a variety of sports competitions. Through the thoughtful
planning of the benefits committee in putting on these events, we want to
allow employees a chance to bring some relaxation and fulfillment to their
life outside of work.
In order to safeguard employee health, VIS not only offers pre-employment
physical examinations and specific employee health exams, it also offers
periodic physical exams for employees. In the winter of over10 years, VIS
procures flu vaccine, hiring doctors to administer it onsite for its employees.
Conferred the Infection Prevention Award by Department of Health for two
consecutive years of 2009 and 2010 (the only winner in the park).
VIS not only offers a clean working environment with an array of
recreational facilities, but also a whole variety of recreational events to
allow employees a chance to bring some relaxation and fulfillment to their
life outside of work. In order to safeguard employee health, VIS offers
physical health examinations to refreshers, specific employees, and in-
service employees. In addition, we regularly promote special health checks
such as: abdominal ultrasound, 3-in-1 package for women (pap smear,
breast ultrasound, and gynecologic ultrasound), and taking mammograms.
Hiring doctors to administer it onsite for its employees. VIS has invited
medical physicians to provide medical care services at our facilities; these
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Vanguard InternationalSemiconductor Corporation
services included providing health consultations, medical examinations, and
assisting injured employees back to work.
Employee profit sharing plan:
The profit sharing plan with employees refers to financial goal of the
employees are in line with the business goal of the Company. All
employees work hard for creating profit in a concerted effort. This allows
the employees to share the joy of success of the Company. If there is a
surplus at the end of the fiscal year after account settlement, specific
percentage of the profit will be allocated as employee bonuses.
Group insurance
Labor insurance and national health insurance give basic protection for the
employees. VIS seeks to provide better protection of its people by taking a
group insurance policy to cover the inadequacy of the said insurance
programs. Under this group insurance policy, the spouse and the dependents
of the employees are also protected so that the families of VIS people can
enjoy the benefits as well. The limitation of insurance benefits claim under
the group policy is much lesser than the labor insurance and the benefit
amount is higher. The Company pays for the group insurance premium and
employees are entitled to take specific options on their own under the group
coverage at their own cost. (The scope of coverage: life insurance, accident
insurance, medical insurance on accidents, coverage for hospitalization and
treatment of cancer.)
2. Training
Education and Training programs:
To better facilitate the Company's vision and help meet strategic goals,
education and training programs are a critical area of focus for human
resources, and to this end VIS has continued its endeavors to construct a
comprehensive talent development system. To help employees develop and
hone their core competencies, VIS has created a range of learning
development programs tailored for individual employees covering subjects
such as engineering, quality assurance, industrial safety, language training,
management, and other types of courses. Furthermore, the Company also
encourages employees to participate in continuing education and external
training courses, reflecting our commitment to cultivating an educational
environment characterized by a diverse collection of advanced learning and
higher quality training programs. VIS offers more hours of training and
dedicates more resources to training than its industry competitors. The hope
is that each employee will use what he or she learns to raise the quality of
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Vanguard InternationalSemiconductor Corporation
his or her work. This in turn leads to higher profits for VIS, while at the
same time furthering the careers of our employees.
a. VIS has a comprehensive training system for training professional
talents and developing employees’ potential. This comprehensive
training system includes new comers’ orientation, professional /
technical training, external training, managerial training and self-
development.
b. In order to effectively track each stage of our employee's education,
VIS has created a robust e-training management program which serves
as a basis for arranging future training and talent development plans.
Each year, every employee designates personal learning and
development goals, and after discussing the goals together with their
supervisors, employees formulate personal development plans to
achieve continuous growth and facilitate life-long learning goals.
c. We provide an e-Learning web portal which offers over 750 courses,
and the Company's educational materials are constantly being updated.
At present, VIS's training covers a wide range of topics including
engineering technology, professional competencies, management, and
other courses on specialized skillsets. Our comprehensive learning
programs feature extensive and innovative content, allowing VIS
employees to expand their knowledge without limitations imposed by
time or location. By learning at their own pace, employees can increase
their competitiveness and foster a Company culture which values self-
motivated education. Total over 100 thousand times online class was
studied by company employees in Y2016.
d. The training statistics of Y2016 are summarized in the following table.
And employee average training hours in Y2016 was about 28.4 hours.Numbers of Personnel
Total Training Expense
Total Employees Trained
Total Training Hours
4,974 8,911,011 114,871 142,304
3. Retirement Plan:
The pension system under the “Pension Fund Statue” requires the allocation
of specific amount of contribution for retirement equivalent to 6% of
employees' monthly salaries allocated to their personal pension fund
accounts at the Labor Insurance Bureau. The pension system under the
“Labor Standards Act” requires guaranteed disbursement of pension funds
whereby the Company shall make contributions to the employee pension
fund on the basis of the total employee salaries. This fund shall be
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Vanguard InternationalSemiconductor Corporation
monitored by the Pension Reserve Monitoring Committee and deposited at
the special account of the Bank of Taiwan under the title of the committee.
4. Other important agreements and employment protection policies:
The Company treasures the establishment of harmonious atmosphere in
labor-management relation through mutual trust in corporate management,
and adopts the proactive openness model of management to create a
challenging and joyful work environment.
For example, VIS highly treasures the opinions of the employees and
thereby established an “Employee Health Section” for handling labor-
management relation and related matters. Different channels were cultivated
for labor-management communications in order to create an open
environment. Further to department meetings, which were held not on a
regular basis, and orientation of new people, quarterly labor-management
meetings, and executive meetings, VIS also set up a mailbox for employee
communication. In addition, VIS conducts survey on employee opinions on
their satisfaction with management and the welfare system regularly. VIS
not only made efforts in sustaining positive labor-management relation, but
also provided consultation services to employees, and organized related
speech presentations and symposiums with the employees at any time as
needed to strengthen the communications of idea and establish a consensus.
Labor-management relation at VIS is harmonious, and there is no loss or
damage deriving from labor-management disputes ever since its
establishment.
5. Employee Working Environment and Personal Safety
VIS's Environmental, Safety, and Health Policies
When it comes to the Company's environmental, safety, and health policies,
VIS places a strong emphasis on full participation by all employees to
ensure across-the-board safety. After being reviewed and signed by VIS
Chairperson and President Leuh Fang, the latest policies are posted on the
Company's official website and the announcement board of each production
site. To ensure that each employee clearly understands the Company's
policies and works to achieve their objectives, the policies are also printed
out onto cards which are then distributed to all employees, thereby
facilitating widespread compliance. In addition, VIS's contractors are
required to comply with the Company's policies pertaining to safety and
health management. To this end, VIS has incorporated various informational
directives concerning health, safety, and environmental policies into related
education training provided to contractors, ensuring that all contractors
79
Vanguard InternationalSemiconductor Corporation
which handle work for VIS clearly grasp the Company's health, safety, and
environmental policies
Environmental, Safety and Health Management Systems With regard to safety and health management as it relates to VIS's
improvement-oriented management methodology, our primary strategy for
boosting occupational safety is to prevent harm associated with equipment
use to the greatest extent possible. To this end, the Company continually
proposes and implements improvement plans where feasible in a bid to
clamp down on potential safety and health risks. In terms of environmental
protection, the top three approaches VIS has adopted to improve its impact
on the environment are waste reduction, re-use and recycling, and energy
conservation, all of which effectively serve to reduce the waste of resources.
In the course of promoting our environmental, safety, and health
management system, we create relevant forms in the system in order to
comply with PDCA (Plan-Do-Check-Action) tracking methodology and to
uphold our spirit of continuous improvement, including: Environmental
Safety & Health (ESH) management system, regulatory compliance
verification, corrective and preventive measures, and other systems for
managing non-compliance.
Promotion of Environmental, Safety, and Health in Each Department
Each department designates senior personnel to record and assess safety and
health risks and environmental aspects associated with the various types of
occupational activities, products, and services encountered on the job as
well as common occupational hazards, insurance company audits,
recommendations from outside experts, and records of previous accidents
and regulatory requirements of each department and partnering plants. In
addition, VIS departments are required to submit ESH improvement
proposals which address high-risk and significant environmental aspects.
Proposals currently being implemented include the following:
a. Formulating environmental, safety, and health management programs
b. Determining and verifying regulatory compliance
c. Measuring safety and health performance, and managing
environmental monitoring
d. Administering competitive KPI benchmarks for environmental, safety,
80
Vanguard InternationalSemiconductor Corporation
and health compliance
e. Carrying out internal and external audits
Promotion of Environmental Safety and Health Education
To enhance employee's comprehension of safety, health, and environmental
protection concepts both inside and outside the Company, and to sharpen
skills and awareness related to the safety of employees at their respective
work sites, VIS has arranged classes as required by law and also formulated
health, safety, and environmental training plans based on the actual needs of
our plants to reinforce employees' safety and health awareness and sense of
responsibility.
a. Training for New Employees: Prior to officially starting work, all new
employees must first complete a 6-hour set of comprehensive internal
training courses on health, safety, and environmental education in order
to ensure they fully understand VIS's environmental, safety, and health
regulations and relevant company policies.
b. On-the-Job Training Employees participate in various on-the-job
training programs in order to enhance specific skill sets related to
different job duties.
c. Promoting Education: VIS is dedicated to fulfilling its responsibilities
as a good corporate citizen, including participating in the "annual
industrial safety and environmental protection month" events hosted by
the Hsinchu Science Park Administration, ensuring that employees are
able to participate in both on-site and off-site CSR activities.
Company Achievements Relating to Environmental, Safety, and Health in
2016
a. FAB2 received EPA's bronze award at the 25th ROC Enterprises
Environmental Protection Award.
b. FAB2 received Excellence in 2016 Occupational Safety and Health
Promotion Performance Award from the Hsinchu Science Park
Administration.
c. FAB3 received the Taoyuan Department of Environmental Protection's
2016 Award for Reduction of Air-borne Pollutants in Public and
Private Spaces.
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Vanguard InternationalSemiconductor Corporation
Promotion of employee health
VIS takes on the responsibility for caring for and safeguarding the health of
its employees. Apart from providing protective gears and conducting
biannual measurement tests of the work environment, the in-house
infirmary arranges regular health check-ups for employees. Our in-house
infirmary arranges regular health check-ups or low-cost examination
programs from time to time for our supervisors and employees, offers free
flu shots, provides general physical health consultations, promotes breast
feeding, and ensures a friendly environment for breast feeding is provided.
We also hold special managerial/ departmental health classes and provide
employees with stress-relieving massage service aimed at boosting
employees' immunity and work efficiency. Our Health Promotion
Committee holds health leisure activities occasionally to encourage and
motivate employees and their spouses to cultivate the habit of exercising
regularly to maintain vitality and health both physically and mentally. In
addition, our infirmary holds various types of health workshops and health
promotion awareness activities so as to enhance employees' awareness of
personal health management.
Employee Behavior and Ethical Standards
VIS takes the following as its core managerial principles: rounded in
integrity, guided by professional ethics.” Furthermore, it has established a
code of professional conduct for its employees. Not only are employees
asked to adhere to this code, they are forbidden from giving or taking
bribes, from acting in any way contrary to the interests of the company, and
from any instance of conflict of interest. Each year, employees are asked to
fill out a conflict of interest disclosure form as well as a voluntary
disclosure form. VIS has established a Proprietary Information Protection
policy, which clearly lays out guidelines for confidential company
information as well as the receiving, sending, saving and utilization of
sensitive data.
To align with the corporate vision and value, VIS specifies four core
competencies as the behavior/ethical standards for management team and
employees.
Integrity
All VIS employees should emphasize business ethics, operation standards,
professionalism, and work of the highest quality and devote completely to
82
Vanguard InternationalSemiconductor Corporation
fulfilling the promise within the limits of the law once a promise is made.
Integrity is a fundamental value of the company.
Customer Orientation
VIS always places its customer needs first, and this principle drives its
corporate culture. This allows VIS to anticipate and understand customers’
problems and needs, creating an atmosphere of open, direct, and
constructive responsiveness and communication. In creating win-win
situations, VIS is able to work with all customers and foster a spirit of
teamwork.
Value Orientation
VIS is constantly coming up with innovative ways of thinking, and works
proactively to improve the way that it operates. Even in challenging times,
VIS forges ahead and persists in doing what is right, fully living up to its
roles, mission, and responsibilities.
Commitment
VIS pledges to execute the most effective and timely strategy even in the
most challenging and competitive of times. When taking on demanding new
tasks, VIS works with enthusiasm, taking each task as an opportunity to
learn and to make a real contribution. With focus and persistence in
fulfilling our role, we meet our goals and get results. Through strategic
thinking and overcoming challenges, VIS always gets the job done and with
the highest quality.
2. Losses due to labor disputes from previous year till current year
printing of annual report:
VIS sees its employees as its most precious asset, and strives to allow
employees to continue to develop. Thus, we have maintained harmonious
labor relations and have not suffered any losses due to labor disputes.
83
Vanguard InternationalSemiconductor Corporation
F.
Maj
or C
ontr
acts
M
ajor
Con
trac
t C
ontr
acti
ng P
arty
Te
rm o
f Agr
eem
ent
Maj
or C
onte
nts
of A
gree
men
t L
imit
atio
n
Man
ufac
turi
ng, L
icen
se,
and
Tech
nolo
gy
Tra
nsfe
r Agr
eem
ent
Taiw
an S
emic
ondu
ctor
Man
ufac
turi
ng C
o.,
Ltd
. (T
SM
C)
Apr
il 1
, 200
4 to
Mar
ch 3
1, 2
006
to
be r
enew
ed o
n an
annu
al b
asis
.
TS
MC
gra
nts
spec
ific
pro
cess
tech
nolo
gy li
cens
e to
VIS
for
man
ufac
turi
ng T
SM
C a
nd V
IS f
ound
ry
prod
ucts
. VIS
res
erve
s ce
rtai
n ca
paci
ty
for
TS
MC
.
Non
e
84
Vanguard InternationalSemiconductor Corporation
VI. FINANCIAL STATEMENTSA. Brief Balance Sheets and Brief Statements of Income
1. Brief Balance Sheets
Brief Consolidated Balance Sheets
Unit: NT$, in thousands
Year Item
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Current assets 15,976,612 21,556,195 25,114,426 24,800,749 25,662,921Property, plant and equipment 8,219,842 6,639,474 7,983,767 6,979,397 6,284,081Intangible assets 6,660 17,011 37,174 41,596 30,282Other assets 579,088 637,279 619,403 562,499 3,002,758Total Assets 24,782,202 28,849,959 33,754,770 32,384,241 34,980,042Current liabilities Before distribution 3,242,906 3,697,865 5,391,799 4,262,001 5,476,672
After distribution 4,795,229 6,571,190 9,651,152 8,523,355 Note 1Non-current liabilities 572,099 722,334 816,655 712,611 804,107Total Liabilities Before distribution 3,815,005 4,420,199 6,208,454 4,974,612 6,280,779
After distribution 5,367,328 7,293,524 10,467,807 9,235,966 Note 1Equity attributable to shareholders of parent company 20,967,197 24,429,760 27,546,316 27,409,629 28,699,263Capital stock 16,284,830 16,365,859 16,389,823 16,389,823 16,389,823Capital surplus 594,675 733,578 838,029 855,123 862,594Retained earnings Before distribution 5,074,462 7,871,013 10,398,845 10,280,494 11,484,802
After distribution 3,522,139 4,997,688 6,139,492 6,019,140 Note 1Other equity (68,993) (53,700) (70,506) (115,811) (37,956)Treasury stock (917,777) (486,990) (9,875) - -Non-controlling interests - - - - -Total Equity Before distribution 20,967,197 24,429,760 27,546,316 27,409,629 28,699,263
After distribution 19,414,874 21,556,435 23,286,963 23,148,275 Note 1Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
Brief Unconsolidated Balance Sheets
Unit: NT$, in thousands
YearItem
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Current assets 15,776,312 21,344,163 24,875,522 24,545,917 24,829,499Property, plant and equipment 8,219,778 6,639,170 7,983,500 6,979,148 6,282,629Intangible assets 6,660 17,011 37,174 41,596 30,282Other assets 778,604 845,519 856,692 813,426 3,828,955Total Assets 24,781,354 28,845,863 33,752,888 32,380,087 34,971,365Current liabilities Before distribution 3,242,058 3,693,769 5,389,917 4,257,847 5,467,995
After distribution 4,794,381 6,567,094 9,649,270 8,519,201 Note 1Non-current liabilities 572,099 722,334 816,655 712,611 804,107Total Liabilities Before distribution 3,814,157 4,416,103 6,206,572 4,970,458 6,272,102
After distribution 5,366,480 7,289,428 10,465,925 9,231,812 Note 1Capital stock 16,284,830 16,365,859 16,389,823 16,389,823 16,389,823Capital surplus 594,675 733,578 838,029 855,123 862,594Retained earnings Before distribution 5,074,462 7,871,013 10,398,845 10,280,494 11,484,802
After distribution 3,522,139 4,997,688 6,139,492 6,019,140 Note 1Other equity (68,993) (53,700) (70,506) (115,811) (37,956)Treasury stock (917,777) (486,990) (9,875) - -Total Equity Before distribution 20,967,197 24,429,760 27,546,316 27,409,629 28,699,263
After distribution 19,414,874 21,556,435 23,286,963 23,148,275 Note 1Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
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2. Brief Statements of Income
Brief Consolidated Statements of Comprehensive Income
Unit: NT$, in thousands
Year Item
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Net revenue 17,190,000 21,135,060 23,931,479 23,319,721 25,828,634Gross profit 3,978,189 6,862,933 8,613,673 6,897,266 8,924,152Operating income 2,268,874 4,837,208 6,206,459 4,611,982 6,100,905Non-operating income and expenses 272,879 225,123 289,607 326,529 159,189Income before income tax 2,541,753 5,062,331 6,496,066 4,938,511 6,260,094Income from operations of continued segments-after tax 2,329,692 4,370,988 5,440,081 4,157,583 5,537,925Income (loss) from operations of discontinued segments-after tax - - - - -Net Income 2,329,692 4,370,988 5,440,081 4,157,583 5,537,925Other comprehensive income (loss) 102 (6,821) (68,552) (61,886) 5,592Total comprehensive income 2,329,794 4,364,167 5,371,529 4,095,697 5,543,517Net income attributable to owner of the corporation 2,329,692 4,370,988 5,440,081 4,157,583 5,537,925Net income attributable to non-controlling interests - - - - -Total comprehensive income attributable to owner of the corporation 2,329,794 4,364,167 5,371,529 4,095,697 5,543,517Total comprehensive income attributable to non-controlling interests - - - - -Diluted earnings per share (Note 1) 1.48 2.71 3.30 2,50 3.35Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
Brief Unconsolidated Statements of Comprehensive Income
Unit: NT$, in thousands
Year Item
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Net revenue 17,190,000 21,135,060 23,931,479 23,319,721 25,828,634Gross profit 3,978,189 6,862,933 8,613,673 6,897,266 8,924,152Operating income 2,268,095 4,835,731 6,204,596 4,610,048 6,097,353Non-operating income and expense 273,475 225,271 289,373 328,012 166,174Income before income tax 2,541,570 5,061,002 6,493,969 4,938,060 6,263,527Income from operations of continued segments-after tax 2,329,692 4,370,988 5,440,081 4,157,583 5,537,925Income (loss) from operations of discontinued segments-after tax - - - - -Net Income 2,329,692 4,370,988 5,440,081 4,157,583 5,537,925Other comprehensive (loss) income 102 (6,821) (68,552) (61,886) 5,592Total comprehensive income 2,329,794 4,364,167 5,371,529 4,095,697 5,543,517Diluted earnings per share (Note 1) 1.48 2.71 3.30 2.50 3.35Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
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3. Auditors’ Opinion
VIS has retained Deloitte & Touche Certified Public Accountants as the external
auditors over the last 5 years.
Year CPA Audit Opinion 2012 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2013 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2014 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2015 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2016 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion
B. Financial Analysis Consolidated Financial Analysis
Year Item
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Capital Structure Analysis
Debt Ratio(%) 15.39 15.32 18.39 15.36 17.95Long Term Capital to Properties, Plant and Equipment (%) 262.04 378.83 355.25 402.93 469.49Current Ratio (%) 492.66 582.94 465.78 581.90 468.58
Liquidity Analysis Quick Ratio(%) 431.72 534.93 417.33 525.26 424.92
Times Interest Earned (Times) - - - - -
Operating Performance
Analysis
Avg. Collection Turnover (Times) 6.93 7.51 6.82 6.62 7.36Avg. Collection Days 53 49 54 55 50Avg. Inventory Turnover (Times) 8.57 8.10 7.34 6.91 7.59Avg. Payment Turnover (Times) 22.56 18.27 15.43 16.11 16.83Avg. Inventory Turnover Days 43 45 50 53 48Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 3.11 3.89Total Assets Turnover (Times) 0.72 0.79 0.76 0.70 0.76
Profitability Analysis
Return on Total Assets (%) 9.78 16.30 17.37 12.57 16.44Return on Total Equity (%) 11.31 19.26 20.93 15.13 19.74Pre-tax Income to Capital Stock (%) 15.61 30.93 39.63 30.13 38.19Net Margin (%) 13.55 20.68 22.73 17.82 21.44Basic Earnings per Share(NT$) (Note) 1.50 2.76 3.35 2.54 3.38Diluted Earnings per Share(NT$) (Note) 1.48 2.71 3.30 2.50 3.35Cash Flow Ratio (%) 179.89 203.71 123.63 168.52 145.58
Cash Flow Cash Flow Adequacy Ratio (%) 121.13 184.46 147.25 143.49 149.39Cash Flow Reinvestment Ratio (%) 6.09 6.97 4.16 3.14 3.84
Leverage Analysis
Operating Leverage 4.03 3.29 2.93 3.82 3.19Financial Leverage 1.00 1.00 1.00 1.00 1.00
Analysis of variation over 20% - Y2016 vs. Y2015: 1. The properties, plant and equipment turnover increased by 25% was mainly due to the increase in net sales.2. The return on total assets and return on total equity increased by 31% and 30%, respectively, were mainly due to the
increase in net income.3. The pre-tax income to capital stock increased by 27% was primarily due to the increase in net income.4. The net margin increased by 20% as a result of the increase in net income.5. The earnings per share increased by 34% as a result of the increase in net income.6. The cash flow reinvestment ratio increased by 22% was mainly due to the increase in net cash flow from operating
activities.Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
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Unconsolidated Financial Analysis
Year Item
Financial analysis from 2012 to 2016 2012 2013 2014 2015 2016
Capital Structure Analysis
Debt Ratio (%) 15.39 15.31 18.38 15.35 17.93Long Term Capital to Properties, Plant and Equipment (%) 262.04 378.84 355.26 402.94 469.60
Liquidity Analysis
Current Ratio (%) 486.61 577.84 461.51 576.48 454.08Quick Ratio (%) 425.66 529.80 413.05 519.80 410.37Times Interest Earned (Times) - - - - -
Operating Performance
Analysis
Avg. Collection Turnover (Times) 6.93 7.51 6.82 6.62 7.36Avg. Collection Days 53 49 54 55 50Avg. Inventory Turnover (Times) 8.57 8.10 7.34 6.91 7.59Avg. Payment Turnover (Times) 22.56 18.27 15.43 16.11 16.83Avg. Inventory Turnover Days 43 45 50 53 48Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 3.11 3.89Total Assets Turnover (Times) 0.72 0.79 0.76 0.70 0.76
Profitability Analysis
Return on Total Assets (%) 9.78 16.30 17.38 12.57 16.44Return on Total Equity (%) 11.31 19.26 20.93 15.13 19.74Pre-tax Income to Capital Stock (%) 15.61 30.92 39.62 30.12 38.21Net Margin(%) 13.55 20.68 22.73 17.82 21.44Basic Earnings per Share(NT$) (Note 1) 1.50 2.76 3.35 2.54 3.38Diluted Earnings per Share(NT$) (Note 1) 1.48 2.71 3.30 2.50 3.35Cash Flow Ratio (%) 179.85 203.77 123.41 168.53 145.55
Cash Flow Cash Flow Adequacy Ratio (%) 121.18 184.50 147.07 143.20 149.21Cash Flow Reinvestment Ratio (%) 6.08 6.96 4.14 3.13 3.83
Leverage Analysis
Operating Leverage 4.02 3.30 2.94 3.82 3.19Financial Leverage 1.00 1.00 1.00 1.00 1.00
Analysis of variation over 20% - Y2016 vs. Y2015: 1. The current ratio and quick ratio decreased by 21%, respectively, were mainly due to the increase in payable.2. The properties, plant and equipment turnover increased by 25% was mainly due to the increase in net revenue.3. The return on total assets and return on total equity increased by 31% and 30%, respectively, were mainly due to the
increase in net income.4. The pre-tax income to capital stock and net margin increased by 27% and 20%, respectively, were primarily due to a
increase in net income.5. The basic and diluted earnings per share increased by 33% and 34%, respectively, were result of an increase in net
income.6. The cash flow reinvestment ratio increased by 22% was mainly due to the increase in net cash flow from operating
activities.Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.
The calculation formula of financial analysis was listed as follows:
1. Capital Structure Analysis(1) Debt ratio = Total Liabilities / Total Assets(2) Long-term capital to properties, plant and equipment = (Equity + Non-current Liabilities) /
Net Properties, Plant and Equipment 2. Liquidity Analysis
(1) Current ratio = Current Assets / Current Liabilities(2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities(3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses
3. Operating Performance Analysis(1) Average collection turnover = Net Revenue / Average Trade Receivables(2) Average collection days = 365 / Average collection turnover(3) Average inventory turnover = Cost of Revenue / Average Inventory(4) Average payment turnover = Cost of Revenue / Average Trade Payables(5) Average inventory turnover days = 365 / Average Inventory Turnover(6) Properties, plant and equipment turnover = Net Revenue / Average Net Properties, Plant and
Equipment
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Vanguard InternationalSemiconductor Corporation
(7) Total assets turnover = Net Revenue / Average Total Assets 4. Profitability Analysis
(1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate)) / AverageTotal Assets
(2) Return on total equity = Net Income / Average Total Equity (3) Net margin = Net Income / Net Revenue (4) Earnings per share = (Net Income Attributable to Owner of the Corporation - Preferred Stock
Dividend) / Weighted Average Outstanding Shares 5. Cash Flow
(1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of
capital expenditures, inventory additions, and cash dividends (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /
(Gross Properties, Plant and Equipment + Investment + Other Non-current Assets + Working Capital)
6. Leverage Analysis(1) Operating leverage = (Net Revenue - Variable Cost and Expenses) / Income from Operations(2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)
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C. Audit Committee’s Review Report
The company’s 2016 financial statement (including individual and consolidated
financial reports), which was approved by our Audit Committee and authorized
through the Board of Directors resolution, has been audited and certified by Deloitte
& Touche, and for which an audit report has been issued.
The Board of Directors has also prepared and submitted the Y2016 business report
and earnings distribution plan, which have been audited and confirmed by our Audit
Committee as having being properly prepared in accordance with Article 14-4 of the
Securities and Exchange Law and Article 219 of the Company Act.
Please kindly review and approve the provided information.
The above is respectfully submitted at the
VIS 2017 General Shareholders' Meeting
Vanguard International Semiconductor Corporation
Convener of the Audit Committee: Benson W.C. Liu
February 28, 2017
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Vanguard InternationalSemiconductor Corporation
D. Financial Statements and Independent Auditors’ Report
Please refer to IX. Financial Statements, Consolidated Financial Statements and
Independent Auditors’ Report
E. Consolidated Financial Statements and Independent Auditors’ Report
Please refer to IX. Financial Statements, Consolidated Financial Statements and
Independent Auditors’ Report
F. The financial impact to the Company due to company or affiliate
companies financial difficulties: None
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VII. Financial Position, Operating Results and Risk ManagementA. Analysis of Consolidated Financial Position
Unit: NT$, in thousandsYear
Item 2016 2015 Difference
Amount % Current Assets 25,662,921 24,800,749 862,172 3 Property, Plant and Equipment 6,284,081 6,979,397 (695,316) (10)Other Non-Current Assets 3,033,040 604,095 2,428,945 402 Total Assets 34,980,042 32,384,241 2,595,801 8Current Liabilities 5,476,672 4,262,001 1,214,671 29 Non-Current Liabilities 804,107 712,611 91,496 13 Total Liabilities 6,280,779 4,974,612 1,306,167 26Capital Stock 16,389,823 16,389,823 0 0 Capital Surplus 862,594 855,123 7,471 1 Retained Earnings 11,484,802 10,280,494 1,204,308 12 Total Shareholders' Equity 28,699,263 27,409,629 1,289,634 5Analysis for variation over 20% : 1. The increase in other non-current assets was mainly due to the increase of investments.2. The increase in current liabilities was mainly due to the increase of payables.
B. Analysis of Consolidated Financial Performance Unit: NT$, in thousands
Year Item
2016 2015 Difference %
Net Revenue $ 25,828,634 $ 23,319,721 $ 2,508,913 11Cost of Revenue 16,904,482 16,422,455 482,027 3
Gross Profit 8,924,152 6,897,266 2,026,886 29Operating Expenses 2,823,247 2,285,284 537,963 24
Operating Income 6,100,905 4,611,982 1,488,923 32Non-operating Income and Expenses 159,189 326,529 (167,340) (51)
Income before Income Tax 6,260,094 4,938,511 1,321,583 27Income Tax Expenses 722,169 780,928 (58,759) (8)
Net Income 5,537,925 4,157,583 1,380,342 33
Other Comprehensive Income (Loss) 5,592 (61,886) 67,478 (109)
Total Comprehensive Income $ 5,543,517 $ 4,095,697 $ 1,447,820 35
1. Analysis for variation over 20% :1.1 The increase in gross profit was mainly due to higher sales volume and better capacity utilization.1.2 The increase in operating expenses was mainly due to the increase of research and development expenses.1.3 The increase in operating income, income before tax and net income were mainly due to the increase in gross profit.1.4 The decrease in non-operating income and expenses was mainly due to recognition of impairment loss on financial
assets. 1.5 The increase in other comprehensive income (loss) was due to unrealized loss on available-for-sale financial assetsturning to impairment loss.
2. Reasons for changing the Company's major business; explain the variance resulting from the adjustment of selling pricesor costs, the increase or decrease of quantity and the combination of production and selling, or the replacement of oldproducts. If the Company's operation strategy, market situation, economic environment of other internal or externalfactors has changed or expects to have any significant changes, explain the fact, influencing factors and the possibleimpact to the Company's future finance and responding proposal : Not Applicable
3. Planned selling quantities and its base for next year. Explain the major factors that keep the Company's forecast salesquantity to rise or decline : Please refer to the " Letter To The Shareholders"
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Vanguard InternationalSemiconductor Corporation
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Vanguard InternationalSemiconductor Corporation
E. Long-term Investment Policy and Results
VIS’s long-term investments were made for strategic purposes. In 2016, the
investment loss was mainly due to recognizing the impairment loss of AMPI.
Looking forward, VIS will continue to focus on strategic investment.
F. Risk Management 1. Interest Rates Fluctuation, Foreign Exchange Rate Volatility and
Inflation
Interest rate:
VIS’ exposure to interest rate fluctuation relates primarily to long-term
liabilities for capital expenditures. Due to small scale of liabilities, no
major impact is expected from interest rate fluctuation. VIS’ interest
income are most sensitive to fluctuations in R.O.C. and U.S. interest rates.
Changes in R.O.C. and U.S. interest rates affect the interest earned on the
Company’s cash, cash equivalent and marketable securities and the fair
value of those securities.
Foreign exchange:
VIS employs natural hedging and forward foreign exchange to avoid risks
from exchange rate fluctuations.
Most of VIS’ revenues are denominated in US dollar. VIS mainly utilizes
spot and forward foreign exchange trading to adjust its foreign exchange
position as per the foreign exchange market conditions for the purpose of
reducing the impact of exchange rate fluctuation on the company. In
addition, VIS’ materials and equipments payments are made in US Dollars,
Japanese Yens and Euros, among which a substantial portion is in US
Dollars. Henceforth, VIS enjoys a certain degree of natural hedge as a
result of set-off between account payables and account receivables. But if
the U.S. dollar appreciates significantly versus other major currencies, the
demand for the products and services of VIS’ customers and for its goods
and services will likely decrease, which will negatively affect our revenues.
Inflation:
Inflation in Taiwan was 1.4% in Y2016. This inflation rate did not impact
on our operation and profit significantly. And we believe the impact will
remain insignificant in the future if the inflation rate is similar to that of in
the past.
2. High risk, high leveraged investment, lending, endorsement and
guarantee for other parties and financial derivatives transactions
VIS focuses on its foundry manufacturing operations and IC wafer
production. Accordingly, the company does not engage in high risk/high
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Vanguard InternationalSemiconductor Corporation
leveraged investments. In order to control and monitor certain types of
transactions, VIS has established internal control policies and procedures
conforming to the relevant laws and regulations promulgated by the
authorities concerned. These policies and procedures include 「Policies and
Procedures for Financial Derivative Transactions 」 , 「 Procedures for
Lending Funds to Other Parties」 and 「Procedures for Endorsement and
Guarantee」. Until now, the company and affiliates have neither lent funds
to others, nor provided endorsement or guarantee for others. Financial
derivatives transactions that VIS enters into are strictly for hedging purpose
and not for trading and speculative purposes.
3. R&D Plan and Progress
In Y2016, VIS capital expenditure is about NT$1.3 billion, while in Y2017
capital expenditure is planned to be around NT$1.86 billion. Other than
equipment and facility maintaining expense, capital expenditure covers the
product and process R&D to provide complete IC manufacturing service for
customers and to enhance our competitiveness in global market. VIS will
continue to build on the existing foundation and strengthen the specialty
process technologies. R&D budget in Y2017, estimated around 6% of total
sales. (Please refer to「Technology and R&D Status」)
4. Changes in Domestic and International Policies and Regulations
Management team closely monitors political and regulatory developments
that could have a material impact on business and operations. Political and
regulatory developments did not have any material adverse effect on VIS
during Y2016.
5. Changes in Technology
VIS has continued its investment in the product development and process
technology for the market needs; on the other hand, we also adapt ourselves
to the changes and needs due to technology evolutions to reduce risks and
pursue long-term steady development in finance and business. (please refer
to Overview of the Industry”)
6. Changes in Company Image
The Company focuses on its primary business activities, upholds the
principle of good faith, abides by rigorous code of professional ethics,
endeavors to improve the Company's competitiveness and pursue corporate
sustainability, and strictly forbids conducts that violate the Company's
principle of good faith and core corporate values.
The Company conducts regular inspections on its external environment,
operating models, and management systems, simulates unexpected incidents
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Vanguard InternationalSemiconductor Corporation
that may influence corporate reputation, proposes response strategies, and
minimizes the potential impact of uncertain factors and disasters that the
Company may face in the future, in order to maintain the Company's normal
operations and protect the overall interest of our shareholders, customers,
and employees.
Furthermore, the Company also actively participates in community and
charity events in fulfillment of its corporate social responsibilities. From
Y2016 to the publication date of this annual report, the Company has been
and remains free of changes in corporate image or events that have
influenced its capacity for crisis management.
7. Risks from Merge, Acquisition and Plant Expansion
No merger and acquisition event occurred from Y2016 to the date of
publishing this annual report.
8. Risks from Plant Expansion
No plant expansion occurred from Y2016 to the publishing date of this
annual report.
9. Risks from Concentration of Stock and Sales
To avoid overly concentrated risk and to protect raw materials supply for the
manufacturing process at all time, VIS has maintained multiple suppliers for
the major materials to spread the risk. In Y2015 and Y2016, the top two
customers have made around 50% and 46% of company annual sales
respectively. The concentration of sales is the industry nature of our
business as focused specialty foundry. To minimize the risks, we’ll continue
to expand the product lines and customer base.
10. Transfer of Shareholdings of Directors, Supervisors or Large
Shareholders
The value of shareholders’ investment may be reduced by possible future
sales of VIS shares owned by the major shareholders. No other transfer of
shareholdings of directors, supervisors or large shareholders occurred from
Y2016 to the date of publishing this annual report.
11. Change of Management
No change of management occurred from Y2016 to the date of publishing
this annual report.
12. Litigation or non-litigation proceedings
No Litigation or non-litigation proceedings occurred from Y2016 to the
date of publishing this annual report.
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13. Other Material Risks
Measures responding to events that seriously impact on the company
operations
VIS regularly conducts drills and trainings for managing natural or man-
made damage, such as typhoon, earthquake, fire, gas and chemicals leak,
and establish broad and detailed prevention measures as well as contingent
plans. VIS is capable of maintaining the company operations and protecting
the interests of shareholders, customers and employees. No emergency
event occurred from Y2016 to the publishing date of this annual report.
The Policy of the risk management
Vanguard International Semiconductor Corporation adopts professional risk
assessment techniques and concepts from local and abroad to facilitate its
pro-active risk prevention and loss control. By adopting effective
engineering technologies and risk management policies, the Company is
able to ensure employees' full participation and ongoing improvements. The
Company has incorporated risk management measures into its daily
operations. Every department is required to perform regular self
assessments on risk control, while the board of directors and the executive
management supervise the effectiveness of existing risk management
measures and ensure that risks are kept within tolerable levels.
The organization chart of the risk management
Below is a description of the Company's risk management organization:
Board of directors (including the Audit Committee): determines the overall
risk management system and monitors to ensure that the system remains
effective.
The executive management (Chairman and President): executes the board's
risk management decisions and supervises regional heads and the Health,
Safety and Environmental Protection Committee. It is also responsible for
identifying risks and monitoring the effectiveness of various control
measures.
The management (vice president and the Health, Safety and Environmental
Protection Committee): consolidates information regarding the
effectiveness of risk management activities; assists and supervises
subordinates in identifying risks and implementing proper control.
Risk management and policy execution units: the Company has specialized
units responsible for identifying possible risks in daily operations and
establishing control measures to address such risks. Their efforts are
reviewed and reported to the management on a regular basis.
97
Vanguard InternationalSemiconductor Corporation
Responsibilities of risk management and policy execution units are:
Internal Auditing: The overall implementation of the risk management
system, risk management guidance for various departments within the
Company, progress review and control, ensuring the effectiveness and
robustness of current practices, and reporting back their findings to the
executive management and board of directors to help improve the risk
management system.
Legal: Responsible for managing the legal risks with accordance of laws
from government and authorities, handling contract and law suit dispute to
lower our legal risk;
Human Resources: Responsible for human resources structure and
utilization planning. Enhance man-power efficiency and improve industrial
harmony to lower risks in management.
Quality Reliability Assurance Div: In charge of product inspection,
quality control, and promoting quality policy and strategy in VIS to reduce
operating risk.
Finance Div: Responsible for establishing the financial operation and
planning systems. Evaluate and supervise the long-term investment
decisions and executions. Under the risk management monitoring
mechanism, conduct safety, liquidity and profitability analysis. Establish
hedge process in foreign exchanges to lower the risks in finance.
Operations and Environmental Safety: Corporate Wafer Production,
Production Control, Special Project, Risk & Env. Safety Management,
Operation Planning, Computer Int. Mfg., and Product Engineering. Improve
operation efficiency, cost control, ensure timely delivery of high quality
product to customers and reduce operating risk.
Worldwide Sales and Planning: Oversees customer service planning and
management for the purpose of reducing operational risks; explores local
and foreign opportunities and gains control of customers' information to
reduce market risks; learns the competition and market trends to develop
marketing strategies.
Research & Development: Leader to the IP Management, Design Service,
Information Tech and eCommerce, and Technology divisions. Responsible
for technology development and the provision of technical support to IP
resources, Mask, CAD, and layout teams to reduce R&D risk.
ACCT Div: Responsible for the establishment of the accounting system in
order to achieve the goal of reliability of financial reporting to lower the
risks in finance.
98
Vanguard InternationalSemiconductor Corporation
MM Div.: Responsible for materials management, VIS will continue to monitor
the inventory and the costs of the materials to reduce operating risk.
ITEC Div.: Responsible for network planning, operations and network quality
maintenance to lower information risk.
G. Other important matters: None
99
Vanguard InternationalSemiconductor Corporation
VIII. SPECIAL NOTESA. Affiliated Information
1. VIS Affiliated Companies Chart
2. Business Scope of the Affiliated Companies
Investee Company Major Business Items
VIS Associates Inc. Investment
VIS Investment Holding, Inc. Investment
VIS Micro, Inc. Marketing service
100
Vanguard InternationalSemiconductor Corporation
3.A
ffil
iate
s In
form
atio
nU
nit:
USD
, in
thou
sand
s
Nam
e of
Ent
erpr
ise
Dat
e of
E
stab
lish
men
tA
ddre
ss
Pai
d-in
Cap
ital
Maj
or B
usin
ess
/ P
rodu
ctio
n It
ems
VIS
Ass
ocia
tes
Inc.
19
96.9
.24
Tri
dent
Cha
mbe
rs, P
O B
ox 1
46, R
oad
Tow
n T
orto
la, B
riti
sh
Vir
gin
Isla
nds
US
D 8
1,00
0IC
bus
ines
s in
vest
men
t
VIS
Inv
estm
ent H
oldi
ng, I
nc.
1996
.11.
15
Cor
pora
tion
Tru
st C
ente
r 12
09 O
rang
e S
tree
t W
ilm
ingt
on, D
elaw
are
1980
1 U
SD
6,2
50IC
bus
ines
s in
vest
men
t
VIS
Mic
ro, I
nc.
1996
.11.
21
1475
S. B
asco
m A
ve, S
uite
109
C
ampb
ell,
CA
950
08
US
D 2
00C
ondu
ct s
ervi
ce a
nd m
arke
ting
activ
ities
Not
e: F
orei
gn e
xcha
nge
rate
s on
bal
ance
she
et d
ate
is $
1 U
SD
= $
32.1
99 N
TD
.
4.V
IS S
har
ehol
der
s R
epre
sen
tin
g B
oth
Hol
din
g C
omp
anie
s an
d S
ub
ord
inat
es:
Non
e
5.D
irec
tors
, Su
per
viso
rs &
Pre
sid
ents
of
Aff
ilia
tes
Nam
e of
Ent
erpr
ise
Titl
e N
ame
or R
epre
sent
ativ
e H
oldi
ng S
hare
s S
hare
s (K
) %
V
IS A
ssoc
iate
s In
c.
Dir
ecto
r F
ang,
Leu
h ; T
seng
, D. L
. 81
10
0%V
IS I
nves
tmen
t Hol
ding
, Inc
. D
irec
tor
Fan
g, L
euh
; Tse
ng, D
. L.
63
100%
VIS
Mic
ro, I
nc.
Dir
ecto
r F
ang,
Leu
h ; T
seng
, D. L
, Cha
ng ;
Tun
g-L
ung
200
100%
6.O
per
atin
g H
igh
ligh
ts o
f A
ffil
iate
sU
nit:
NT
$, in
thou
sand
s
Nam
e of
Ent
erpr
ise
Cap
ital
Tota
l Ass
ets
Tota
l Lia
bilit
ies
Net
Wor
th
Net
Rev
enue
O
pera
ting
Inco
me
Net
Inc
ome
(Los
s)E
PS
(N
T$)
(a
fter
tax)
V
IS A
ssoc
iate
s In
c.
$2,5
96,7
82
$2,7
22,7
79
$0
$2,7
22,7
79$0
($
234)
$12,
596
$309
.08
VIS
Inv
estm
ent H
oldi
ng, I
nc.
201,
244
70,9
9314
5 70
,848
0(5
38)
8,01
412
8.22
Spec
ialty
Tec
hFar
m, I
nc. (
Not
e 2)
0
00
00
(120
)(1
3,85
3)(1
.39)
VIS
Mic
ro, I
nc.
6,44
0 77
,671
20,2
17
57,4
54
92,5
554,
444
3,46
417
.32
Not
e 1:
For
eign
exc
hang
e ra
te f
or b
alan
ce s
heet
am
ount
s is
$1
US
D =
$32
.199
NT
D.
For
eign
exc
hang
e ra
te f
or in
com
e st
atem
ent a
mou
nts
is $
1 U
SD
= $
32.2
78 N
TD
. N
ote
2: C
ompl
eted
liqu
idat
ion
in A
pril
201
6.
101
Vanguard InternationalSemiconductor Corporation
B.
Pri
vate
pla
cem
ents
Sec
uri
ties
V
IS h
as n
o pr
ivat
e pl
acem
ents
sec
urit
ies
from
Y20
16 to
the
publ
ishi
ng d
ate
of th
is a
nnua
l rep
ort.
C. V
IS C
omm
on S
har
es a
cqu
ired
, dis
pos
ed o
f an
d h
eld
by
sub
sid
iari
es
VIS
Com
mon
Sha
res
was
not
acq
uire
d, d
ispo
sed
of a
nd h
eld
by s
ubsi
diar
ies
from
Y20
16 to
the
publ
ishi
ng d
ate
of th
is a
nnua
l rep
ort.
D.
Oth
er N
eces
sary
Su
pp
lem
ent:
Non
e
E.
An
y E
ven
ts i
n Y
2016
th
at h
ad S
ign
ific
ant
Imp
acts
on
Sh
areh
old
ers’
Rig
ht
or S
ecu
rity
Pri
ces
as s
tart
ed i
n I
tem
3 p
arag
rap
h 2
of
Art
icle
36
of S
ecu
riti
es a
nd
Exc
han
ge L
aw o
f T
aiw
an:
Non
e
102
Vanguard InternationalSemiconductor Corporation
INDEPENDENT AUDITOR’S REPORT
The Board of Directors and Shareholders Vanguard International Semiconductor Corporation
Opinion
We have audited the accompanying parent company only financial statements of Vanguard International Semiconductor Corporation (the Corporation), which comprise the parent company only balance sheets as of December 31, 2016 and 2015, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Corporation as of December 31, 2016 and 2015, and the parent company only financial performance and the parent company only cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.
Basis for Opinion
We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and 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 Parent Company Only 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 parent company only financial statements for the year ended December 31, 2016. These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matters of the parent company only financial statements of the Corporation for the year ended December 31, 2016, are described as follows:
Timing of revenue recognition
1. The sales revenue of the Corporation is material to the Corporation. Please refer to Note 23. The majortypes of transactions together with their timing of recognition are as follows:
1) Revenue generated from domestic shipment with the transaction term of ex-works accounted forapproximately 58% of total revenue and is recognized as sales revenue at point of ex-factory. Revenuegenerated from domestic shipment with the transaction term of delivered-at-place accounted for 27% oftotal revenue and is also recognized at point of ex-factory due to its nature of the goods delivering andreceiving are at the same day.
IX. Financial Statements, Consolidated Financial Statements andIndependent Auditors’ Report
103
Vanguard InternationalSemiconductor Corporation
2) Revenue generated from oversea shipment accounted for 15% of the total revenue depending on thetrade terms where the revenue is recognized when the risk of goods is transferred to customers.
2. Revenues generated from either domestic or foreign shipments whose trade terms denote that the revenuesare recognized at point of ex-factory consist of 98% of total revenue. The recognition process of revenuethereof is to have sales personnel verify the shipment on the computer system, and the system automaticallyrecognizes the sale revenue and issues invoice. When the customers or their designated forwarders cometo withdraw the goods, warehouse personnel will have them sign off on handheld devices and transmit theinformation to the shipping system. The system automatically checks the shipment on a daily basis. Forgoods that are not withdrawn, the system will notify sales personnel for confirmation and delete the shippinglist where the sales revenue will be reversed automatically and the invoice cancelled.
3. Since the above process consists of manual controls, risk exists that revenue before or after the end of thereporting period being unrecognized in the appropriate period due to human errors.
4. We reviewed the revenue recognition policy of the Corporation, assessed the reasonableness of the revenuerecognition, conducted on-site observation and recorded the details of the last shipment of the year ended2016. We also traced all of the shipping records at December 31, 2016, against relevant supportingdocuments and accounting records to verify the accuracy of the timing of sales revenue recognition as wellas the monetary amount, and evaluated whether the risk and rewards of goods are transferred.
Timing of capitalization of property, plant and equipment
1. The annual capital expenditure of the Corporation relating to property, plant and equipment is significant toits parent company only financial statements. Because of the significance of such expenditure, delaying incapitalization thereof may lead to the parent company only financial statements not fairly presented.Please refer to Note 15.
2. We reviewed the capital expenditure policy of the Corporation on property, plant and equipment, assessedthe reasonableness of the timing of capitalization, and conducted procedures as follows:
1) Selecting samples of newly acquired items from the lists of Advance Payments and Construction inProgress of the year to verify whether they are included in the un-capitalized list of the current month.
2) Selecting samples from those that are transferred from Advance Payments and Construction in Progressto Property, Plant and Equipment of the year to verify whether such items are not included in theun-capitalized list of the current month.
3) Selecting samples from the un-capitalized list at the year end and perform on-site count to observewhether such items were not ready for their intended use.
4) Selecting samples of items that were not capitalized over three months from the un-capitalized list toexamine whether the reasons of such items not capitalized explained by applicants or users wereapproved by supervisors.
Responsibilities of Management and Those Charged with Governance for the Parent Company Only Financial Statements
Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the parent company only financial statements, management is responsible for assessing the 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.
104
Vanguard InternationalSemiconductor Corporation
Those charged with governance, including the audit committee, are responsible for overseeing the Corporation’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements
Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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 parent company only 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 parent company only financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraudmay 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 areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCorporation’s internal control.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.
4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, basedon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that amaterial uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosuresin the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion.Our conclusions are based on the audit evidence obtained up to the date of our 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 parent company only financial statements,including the disclosures, and whether the parent company only financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.
6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Corporation to express an opinion on the parent company only financial statements.We are responsible for the direction, supervision and performance of the audit. We remain solelyresponsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
105
Vanguard InternationalSemiconductor Corporation
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements for the year ended December 31, 2016 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 Yu-Feng Huang and Cheng-Chih Lin.
Deloitte & Touche Taipei, Taiwan Republic of China
February 21, 2017
Notice to Readers
The accompanying parent company only financial statements are intended only to present the parent company only financial position, parent company only financial performance and parent company only 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 parent company only financial statements are those generally applied in the Republic of China.
For the convenience of readers, the independent auditors’ report and the accompanying parent company only 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 parent company only financial statements shall prevail.
106
Vanguard InternationalSemiconductor Corporation
VA
NG
UA
RD
INTE
RN
ATI
ON
AL
SEM
ICO
ND
UC
TO
R C
OR
POR
AT
ION
PAR
EN
T C
OM
PAN
Y O
NLY
BA
LA
NC
E SH
EET
S D
EC
EM
BER
31,
201
6 A
ND
201
5 (I
n T
hous
ands
of N
ew T
aiw
an D
olla
rs)
2016
2015
2016
2015
ASS
ET S
A
mou
nt
%A
mou
nt%
LIA
BILI
TIE
S A
ND
EQ
UIT
YA
mou
nt
%A
mou
nt
%
CU
RR
ENT
ASS
ETS
CU
RR
ENT
LIA
BIL
ITIE
S C
ash
and
cash
equ
ival
ents
(Not
es 4
and
6)
$ 1
6,74
7,62
3 48
$ 1
7,69
8,17
5 55
Fina
ncia
l lia
bilit
ies a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
curr
ent (
Not
es 4
, 7 a
nd 2
9)
$
43,0
29
- $
28
,474
-
(Not
es 4
, 7 a
nd 2
9)
1,42
8,08
6 4
1,09
7,89
5 3
Der
ivat
ive
finan
cial
liab
ilitie
s for
hed
ging
- cu
rren
t (N
otes
4, 1
0 A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
cur
rent
(Not
es 4
, 8 a
nd 2
9)
64,3
86
--
-an
d 29
) -
-7,
020
- H
eld-
to-m
atur
ity fi
nanc
ial a
sset
s - c
urre
nt (N
otes
4, 5
, 9 a
nd 2
9)
- -
139,
502
-N
otes
and
acc
ount
s pay
able
1,
130,
381
387
8,12
6 3
Not
es a
nd a
ccou
nts r
ecei
vabl
e, n
et (N
otes
4, 5
and
12)
3,
348,
347
102,
519,
513
8A
ccru
ed p
rofit
shar
ing
to e
mpl
oyee
s and
rem
uner
atio
n to
dire
ctor
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ecei
vabl
es fr
om re
late
d pa
rties
(Not
es 4
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nd 3
0)
613,
214
253
3,93
5 2
(Not
e 24
) 84
5,90
3 3
637,
226
2 O
ther
rece
ivab
les (
Not
e 4)
13
7,38
5 -
125,
952
-Pa
yabl
es to
con
tract
ors a
nd e
quip
men
t sup
plie
rs
264,
273
120
1,15
4 1
Oth
er re
ceiv
able
s fro
m re
late
d pa
rties
(Not
es 4
and
30)
82
4-
15,0
84
-O
ther
pay
able
s (N
ote
18)
2,13
3,50
1 6
1,71
8,05
7 5
Inve
ntor
ies (
Not
es 4
, 5 a
nd 1
3)
2,19
9,77
56
2,25
0,61
1 7
Oth
er p
ayab
les t
o re
late
d pa
rties
(Not
e 30
) 95
,230
-
72,6
40
- Pr
epai
d ex
pens
es
190,
538
116
2,65
3 1
Cur
rent
inco
me
tax
liabi
litie
s (N
otes
4 a
nd 2
5)
604,
591
249
7,12
92
Oth
er c
urre
nt a
sset
s (N
otes
4, 1
7 an
d 29
) 99
,321
-2,
597
-Pr
ovis
ions
- cu
rren
t (N
otes
4, 5
and
20)
23
6,33
6 1
136,
576
- O
ther
cur
rent
liab
ilitie
s (N
ote
19)
114,
751
-81
,445
-To
tal c
urre
nt a
sset
s 24
,829
,499
71
24
,545
,917
76
Tota
l cur
rent
liab
ilitie
s 5,
467,
995
16
4,25
7,84
7 13
NO
N-C
UR
REN
T A
SSET
S A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
non
-cur
rent
(Not
es 4
, 8 a
nd
NO
N-C
UR
REN
T LI
AB
ILIT
IES
29)
503,
681
288
,731
-
Def
erre
d in
com
e ta
x lia
bilit
ies (
Not
es 4
and
25)
82
,723
-
67,4
94
- Fi
nanc
ial a
sset
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ried
at c
ost -
non
-cur
rent
(Not
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and
11)
85
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-
62,7
17
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et d
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ed b
enef
it lia
bilit
ies -
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-cur
rent
(Not
es 4
, 5 a
nd 2
1)
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353
263
0,99
2 2
Inve
stm
ents
acc
ount
ed fo
r usi
ng e
quity
met
hod
(Not
es 4
and
14)
2,
931,
772
835
2,45
8 1
Oth
er n
on-c
urre
nt li
abili
ties (
Not
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107
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016 2015 Amount % Amount %
NET REVENUE (Notes 4, 5, 20, 23 and 30) $ 25,828,634 100 $ 23,319,721 100
COST OF REVENUE (Notes 4, 13, 24 and 30) 16,904,482 65 16,422,455 70
GROSS PROFIT 8,924,152 35 6,897,266 30
OPERATING EXPENSES (Notes 4, 24 and 30) Marketing 278,986 1 205,436 1General and administrative 992,309 4 841,517 4Research and development 1,555,504 6 1,240,265 5
Total operating expenses 2,826,799 11 2,287,218 10
OPERATING INCOME 6,097,353 24 4,610,048 20
NONOPERATING INCOME AND EXPENSES (Note 4)Interest income 151,673 1 190,695 1Dividend income 24,003 - 21,004 -Other income (Note 30) 83,448 - 71,830 -Gain on disposal of property, plant and equipment 2,634 - 28 -Gain on disposal of investment (Note 11) 14,925 - - -Gain (loss) on financial assets and liabilities at fair
value through profit or loss 195,683 1 (146,066) (1)Share of profit of subsidiaries, associates and joint
ventures (Note 14) 1,434 - 10,245 -Net foreign exchange (loss) gain (187,626) (1) 180,276 1Impairment loss on financial assets (Note 8) (120,000) (1) - -
Total nonoperating income and expenses 166,174 - 328,012 1
INCOME BEFORE INCOME TAX 6,263,527 24 4,938,060 21
INCOME TAX EXPENSE (Notes 4 and 25) (725,602) (3) (780,477) (3)
NET INCOME 5,537,925 21 4,157,583 18(Continued)
108
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016 2015 Amount % Amount %
OTHER COMPREHENSIVE INCOME (Notes 4 and 22)Items that will not be reclassified subsequently to
profit or loss: Remeasurement of defined benefit plans (Note 21) $ (72,263) - $ (16,581) -
Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign
operations 2,496 - 10,992 -Unrealized gain (loss) on available-for-sale
financial assets 74,911 - (54,307) -Cash flow hedges - - (70) -Share of other comprehensive income (loss) of
subsidiaries, associates and joint ventures (Note 14) 448 - (1,920) -
Total other comprehensive income (loss) 5,592 - (61,886) -
TOTAL COMPREHENSIVE INCOME $ 5,543,517 21 $ 4,095,697 18
EARNINGS PER SHARE (Note 26) Basic $ 3.38 $ 2.54Diluted $ 3.35 $ 2.50
The accompanying notes are an integral part of the parent company only financial statements. (Concluded)
109
Vanguard InternationalSemiconductor Corporation
VA
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110
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)
2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 6,263,527 $ 4,938,060Adjustments for:
Depreciation 2,031,909 2,303,867Amortization 21,061 15,347Net (gain) loss on financial assets and liabilities at fair value through
profit or loss (4,096) 1,118Interest income (151,673) (190,695)Dividend income (24,003) (21,004)Share-based payment - 26,278Share of gain of subsidiaries, associates and joint ventures (1,434) (10,245)Gain on disposal of property, plant and equipment (2,634) (28)Gain on disposal of investments (14,925) -Impairment loss on financial assets 120,000 -Net loss on foreign currency exchange 6,527 6,968Changes in operating assets and liabilities:
Financial assets held for trading 1,276 504,866Notes and accounts receivable (828,834) 741,931Receivables from related parties (79,279) 195,236Other receivables (8,981) 12,907Other receivables from related parties 14,260 3,431Inventories 50,836 247,789Prepaid expenses (27,885) (49,008)Other current assets (127) 198Financial liabilities held for trading 14,555 (62,110)Derivative financial liabilities for hedging (7,020) (8,186)Notes and accounts payable 252,255 (281,940)Other payables 415,444 5,880Other payables to related parties 22,590 (41,353)Provisions 99,760 25,670Other current liabilities 33,306 (6,275)Net defined benefit liabilities 5,098 1,305Accrued profit sharing to employees and remuneration to
directors 208,677 (213,257)Cash generated from operations 8,410,190 8,146,750Interest received 150,223 191,356Income tax paid (601,222) (1,162,012)
Net cash provided by operating activities 7,959,191 7,176,094(Continued)
111
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)
2016 2015
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of financial assets designated as fair value through profit
or loss $ (1,909,981) $ (1,342,920)Proceeds from disposal of financial assets designated as fair value
through profit or loss 1,582,610 549,963Acquisitions of available-for-sale financial assets (525,947) -Acquisitions of held-to-maturity financial assets - (141,305)Proceeds from disposal of held-to-maturity financial assets 141,212 -Acquisitions of financial assets measured at cost (32,610) -Proceeds from disposal of financial assets measured at cost 24,925 -Acquisitions of investment accounted for using equity method (2,567,465) -Acquisitions of property, plant and equipment (1,277,959) (1,501,065)Proceeds from disposal of property, plant and equipment 6,573 28(Increase) decrease in refundable deposits (193) 799Acquisitions of intangible assets (10,132) (26,731)(Increase) decrease in other financial assets (102,331) 383,748Dividends received 24,003 21,004
Net cash used in investing activities (4,647,295) (2,056,479)
CASH FLOWS FROM FINANCING ACTIVITIES Decrease in other non-current liabilities (1,094) (85,232)Cash dividends (4,261,354) (4,259,353)Treasury stock transferred to employees - 9,873
Net cash used in financing activities (4,262,448) (4,334,712)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (950,552) 784,903
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 17,698,175 16,913,272
CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 16,747,623 $ 17,698,175
The accompanying notes are an integral part of the parent company only financial statements. (Concluded)
112
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION
Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.
The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.
The parent company only financial statements are presented in the Corporation’s functional currency, NewTaiwan dollars.
2. APPROVAL OF FINANCIAL STATEMENTS
The parent company only financial statements were approved and authorized for issue by the Board ofDirectors on February 21, 2017.
3. APPLICATION OF NEW, AMENDED OR REVISED STANDARDS AND INTERPRETATIONS
a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuersand the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS),Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC for applicationstarting from 2017
Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1,2017, the Corporation should apply the amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)issued by the IASB and endorsed by the FSC for application starting from 2017.
New, Amended or Revised Standards and Interpretations (the “New IFRSs”)
Effective Date Announced by IASB (Note 1)
Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) Amendments to IFRS 10, IFRS 12 and IAS 28“'Investment Entities:
Applying the Consolidation Exception” January 1, 2016
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations”
January 1, 2016
IFRS 14 “Regulatory Deferral Accounts” January 1, 2016 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable
Methods of Depreciation and Amortization” January 1, 2016
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 (Continued)
113
Vanguard InternationalSemiconductor Corporation
New, Amended or Revised Standards and Interpretations (the “New IFRSs”)
Effective Date Announced by IASB (Note 1)
Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions”
July 1, 2014
Amendment to IAS 27 “Equity Method in Separate Financial Statements”
January 1, 2016
Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”
January 1, 2014
Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”
January 1, 2014
IFRIC 21 “Levies” January 1, 2014 (Concluded)
Note 1: Unless stated otherwise, the above new or amended IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.
Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.
The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Corporation’s accounting policies, except for the following:
1) Amendments to IFRS 13 “Fair Value Measurement”
The basis for conclusions of IFRS 13 was amended by the Annual Improvements to IFRSs:2010-2012 Cycle to clarify that when the amendment becomes effective in 2017, the short-termreceivables and payables with no stated interest rate will be measured at their invoice amountswithout discounting, if the effect of not discounting is immaterial. Otherwise, the material effectof discounting will be adjusted retrospectively. The application of the amendment in 2017 isexpected to have no impact.
2) Amendment to IAS 24 “Related Party Disclosures”
IAS 24 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to clarify that amanagement entity providing key management personnel services to the Corporation is a relatedparty of the Corporation. Consequently, the Corporation is required to disclose as related partytransactions the amounts incurred for the service paid or payable to the management entity for theprovision of key management personnel services. However, disclosure of the components of suchcompensation is not required. The application of the amendment in 2017 is expected to have noimpact.
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Vanguard InternationalSemiconductor Corporation
3) Amendment to IAS 36 “Impairment of Assets”
The amendment “Disclosures for Non-financial Assets” clarifies that the recoverable amount of anasset or a cash-generating unit is disclosed only when an impairment loss on the asset has beenrecognized or reversed during the period. Furthermore, if the recoverable amount of an item ofproperty, plant and equipment for which impairment loss has been recognized or reversed is fairvalue less costs of disposal, the Corporation is required to disclose the fair value hierarchy. If thefair value measurements are categorized within Level 2/Level 3, the valuation technique and keyassumptions used to measure the fair value are disclosed. The discount rate used is disclosed ifsuch fair value less costs of disposal is measured by using present value technique. Theamendment will be applied retrospectively.
4) Amendments to the Regulations Governing the Preparation of Financial Reports by SecuritiesIssuers
The amendments include additions of several accounting items and requirements for disclosures ofimpairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC forapplication starting from 2017. In addition, as a result of the post implementation review of IFRSsin Taiwan, the amendments also include emphasis on certain recognition and measurementconsiderations and add requirements for disclosures of related party transactions and goodwill.
The amendments stipulate that other companies or institutions of which the chairman of the boardof directors or president serves as the chairman of the board of directors or the president, or is thespouse or second immediate family of the chairman of the board of directors or president of theCorporation are deemed to have a substantive related party relationship, unless it can bedemonstrated that no control, joint control, or significant influence exists. Furthermore, theamendments require the disclosure of the names of the related parties and the relationship withwhom the Corporation has significant transaction. If the transaction or balance with a specificrelated party is 10% or more of the Corporation’s respective total transaction or balance, suchtransaction should be separately disclosed by the name of each related party.
The amendments also require additional disclosure if there is a significant difference between theactual operation after business combination and the expected benefit on acquisition date.
The disclosures of related party transactions will be enhanced when the above amendments areretrospectively applied in 2017.
Except for the above impacts, as of the date the parent company only financial statements were authorized for issue, the Corporation continues assessing other possible impacts that application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Corporation’s financial position and financial performance, and will disclose these other impacts when the assessment is completed.
b. New IFRSs in issue but not yet endorsed by the FSC
The Corporation has not applied the following IFRSs issued by the IASB but not yet endorsed by theFSC.
The FSC announced that amendments to IFRS 4 (only the overlay approach can be applied), IFRS 9and IFRS 15 will take effect starting January 1, 2018. As of the date the parent company onlyfinancial statements were authorized for issue, the FSC has not announced the effective dates of othernew IFRSs.
115
Vanguard InternationalSemiconductor Corporation
New IFRSs Effective Date
Announced by IASB (Note 1)
Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions” January 1, 2018
Amendment to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”
January 1, 2018
IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures” January 1, 2018
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 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IFRS 15 “Clarifications to IFRS 15 Revenue for
Contracts with Customers” January 1, 2018
IFRS 16 “Leases” January 1, 2019 Amendment to IAS 7 “Disclosure Initiative” January 1, 2017
“”
January 1, 2017
Amendments to IAS 40 “Transfers of investment property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”January 1, 2018
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 amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.
1) IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.
For the Corporation’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement areas follows:
a) For debt instruments, if they are held within a business model whose objective is to collect thecontractual cash flows, the financial assets are measured at amortized cost and are assessed forimpairment continuously with impairment loss recognized in profit or loss, if any. Interestrevenue is recognized in profit or loss by using the effective interest method;
b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financialassets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss by using the effectiveinterest method, and other gain or loss shall be recognized in other comprehensive income,except for impairment gains or losses and foreign exchange gains and losses. When the debt
116
Vanguard InternationalSemiconductor Corporation
instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.
Except for above, all other financial assets are measured at fair value through profit or loss. However, the Corporation may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.
Impairment of financial assets
IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.
For purchased or originated credit-impaired financial assets, the Corporation takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risks eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.
Transition
Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. The requirements for general hedge accounting shall be applied prospectively and the accounting for hedging options shall be applied retrospectively.
2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”
The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.
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Conversely, when an entity sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence or joint control in an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated.
3) IFRS 15 “Revenue from Contracts with Customers” and related amendment
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.
When applying IFRS 15, an entity shall recognize revenue by applying the following steps:
Identify the contract with the customer;Identify the performance obligations in the contract;Determine the transaction price;Allocate the transaction price to the performance obligations in the contract; andRecognize revenue when the entity satisfies a performance obligation.
In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Corporation regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each of those goods or services individually rather than to transfer combined items).
When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.
4) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.
Under IFRS 16, if the Corporation is a lessee, it shall recognize right-of-use assets and leaseliabilities for all leases on the parent company only balance sheets except for low-value andshort-term leases. The Corporation may elect to apply the accounting method similar to theaccounting for operating lease under IAS 17 to the low-value and short-term leases. On the parentcompany only financial statements of comprehensive income, the Corporation should present thedepreciation expense charged on the right-of-use asset separately from interest expense accrued onthe lease liability; interest is computed by using effective interest method. On the parent companyonly statements of cash flows, cash payments for the principal portion of the lease liability areclassified within financing activities; cash payments for interest portion are classified withinoperating activities.
The application of IFRS 16 is not expected to have a material impact on the accounting of theCorporation as lessor.
When IFRS 16 becomes effective, the Corporation may elect to apply this Standard eitherretrospectively to each prior reporting period presented or retrospectively with the cumulative effectof the initial application of this Standard recognized at the date of initial application.
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5) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”
The amendment clarifies that the difference between the carrying amount of the debt instrumentmeasured at fair value and its tax base gives rise to a temporary difference, even though there areunrealized losses on that asset, irrespective of whether the Corporation expects to recover thecarrying amount of the debt instrument by sale or by holding it and collecting contractual cashflows.
In addition, in determining whether to recognize a deferred tax asset, the Corporation should assessa deductible temporary difference in combination with all of its other deductible temporarydifferences, unless the tax law restricts the utilization of losses to deduction against income of aspecific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendment also stipulatesthat, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Corporation’s assets for more than their carrying amount ifthere is sufficient evidence that it is probable that the Corporation will achieve this, and that theestimate for future taxable profit should exclude tax deductions resulting from the reversal ofdeductible temporary differences.
6) IFRIC 22 Foreign Currency Transactions and Advance Consideration”
IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in thefunctional currency by applying to the foreign currency amount the spot exchange rate between thefunctional currency and the foreign currency at the date of the transaction. IFRIC 22 furtherexplains that the date of the transaction is the date on which an entity recognizes a non-monetaryasset or non-monetary liability from payment or receipt of advance consideration. If there aremultiple payments or receipts in advance, the entity shall determine the date of the transaction foreach payment or receipt of advance consideration.
The Corporation shall apply IFRIC 22 either retrospectively or prospectively to all assets, expensesand income in the scope of the Interpretation initially recognized on or after (a) the beginning of thereporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reportingperiod presented as comparative information in the financial statements of the reporting period inwhich the entity first applies IFRIC 22
Except for the above impact, as of the date the parent company only financial statements were authorized for issue, the Corporation is continuously assessing the possible impact that the application of other standards and interpretations will have on the Corporation’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
a. Statement of compliance
The parent company only financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers.
b. Basis of preparation
The parent company only financial statements have been prepared on the historical cost basis except forfinancial instruments which are measured at fair values.
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The fair value measurements, where 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 forthe 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 the asset or liability.
When preparing its parent company only financial statements, the Corporation used equity method to account for its investment in subsidiaries, associates and joint ventures. The amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements were the same as the amounts attributable to the owner of the Corporation in its 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 aliability 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 atleast 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 parent company only financial statements, transactions in currencies other than theCorporation’s functional currency (foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.
At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.
Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Exchange differences arisingfrom the retranslation of non-monetary items are included in profit or loss for the period except forexchange differences arising from the retranslation of non-monetary items in respect of which gains andlosses are recognized directly in other comprehensive income, in which case, the exchange differencesare also recognized directly in other comprehensive income.
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Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.
e. Inventories
Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and costs necessary to make the sale.Inventories are recorded at the weighted-average cost on the balance sheet date.
f. Investment in subsidiaries
The Corporation uses the equity method to account for its investments in subsidiaries.
Subsidiary is an entity that is controlled by the Corporation.
Under the equity method, investment in a subsidiary is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe subsidiary. The Corporation also recognizes the changes in the Corporation’s share of equity ofsubsidiaries.
Changes in the Corporation’s ownership interest in a subsidiary that do not result in the Corporationlosing control of the subsidiary are equity transactions. The Corporation recognizes directly in equityany difference between the carrying amount of the investment and the fair value of the considerationpaid or received.
The Corporation assesses its investment for any impairment by comparing the carrying amount with theestimated recoverable amount as assessed based on the entire financial statements of the investedcompany. Impairment loss is recognized when the carrying amount exceeds the recoverable amount.If the recoverable amount of the investment subsequently increases, the Corporation recognizes thereversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed thecarrying amount that would have been recognized (net of amortization or depreciation) had noimpairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot bereversed in a subsequent period.
Profits or losses resulting from downstream transactions are eliminated in full in the parent companyonly financial statements. Profits and losses resulting from upstream transactions and transactionsbetween subsidiaries are recognized in the parent company only financial statements only to the extentof interests in the subsidiaries that are not related to the Corporation.
g. Investment in associates
An associate is an entity over which the Corporation has significant influence and that is neither asubsidiary nor an interest in a joint venture.
The Corporation uses the equity method to account for its investments in associates.
Under the equity method, investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe associate. The Corporation also recognized the changes in the share of equity of associates.
When the Corporation subscribes for additional new shares of the associate at a percentage differentfrom its existing ownership percentage, the resulting carrying amount of the investment differs from theamount of the Corporation’s proportionate interest in the associate. The Corporation records such adifference as an adjustment to investments with the corresponding amount charged or credited to capital
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surplus - changes in the Corporation’s share of the equity of associates. If the Corporation’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had 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 by the equity method is insufficient, the shortage is debited to retained earnings.
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 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.
When the Corporation transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Corporation’s parent company only financial statements only to the extent that interests in the associate are not related to the Corporation.
h. Property, plant, and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and accumulatedimpairment loss.
Depreciation on property, plant and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each year, with the effect of any changes in estimates accounted foron a prospective basis.
On derecognition of an item of property, plant and equipment, the difference between the disposalproceeds and the carrying amount of the asset is recognized in profit or loss.
i. Intangible assets
1) Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each year, with the effect of any changes inestimates accounted for on a prospective basis.
2) Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:
a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;
b) The intention to complete the intangible asset and use or sell it;
c) The ability to use or sell the intangible asset;
d) How the intangible asset will generate probable future economic benefits;
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e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and
f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.
The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. 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 thecarrying amount of the asset is recognized in profit or loss.
j. Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss. When it is not possible to estimatethe recoverable amount of an individual asset, the Corporation estimates the recoverable amount of thecash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment 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 recoverableamount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carryingamount of the asset or cash-generating unit is reduced to its recoverable amount, with the resultingimpairment loss recognized in profit or loss.
When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generatingunit is increased to the revised estimate of its recoverable amount, but only to the extent of the carryingamount that would have been determined had no impairment loss been recognized for the asset orcash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
k. Financial instruments
Financial assets and financial liabilities are recognized when the Corporation becomes a party to thecontractual provisions of the instruments.
Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom 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 fairvalue through profit or loss are recognized immediately in profit or loss.
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Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
1) Measurement category
Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss, held-to-maturity financial assets, available-for-sale financial assets, and loans andreceivables.
a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.
A financial asset may be designated as at fair value through profit or loss upon initialrecognition if:
i Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or
ii The financial asset forms part of a Corporation of financial assets or financial liabilities or both, which is managed and evaluated performance on a fair value basis, in accordance with the Corporation’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
iii The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss 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 incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 29.
b) Held-to-maturity financial assets
The corporate bonds which the Corporation invests in and has positive intent and ability to holdto maturity are classified as held-to-maturity financial assets.
Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.
c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.
Available-for-sale financial assets are measured at fair value. Changes in the carrying amountsof available-for-sale monetary financial assets relating to changes in foreign currency exchangerates, interest income calculated using the effective interest method and dividends onavailable-for-sale equity investments are recognized in profit or loss. Other changes in thecarrying amount of available-for-sale financial assets are recognized in other comprehensiveincome and will be reclassified to profit or loss when the investment is disposed of or isdetermined to be impaired.
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Dividends on available-for-sale equity instruments are recognized in profit or loss when the Corporation’s right to receive the dividends is established.
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 carried 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.
d) Loans and receivables
Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured at amortized cost using the effectiveinterest method, less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.
Cash equivalent includes time deposits and repurchase bonds, which are highly liquid, readilyconvertible to a known amount of cash and be subject to an insignificant risk of changes invalue. These cash equivalents are held for the purpose of meeting short-term cashcommitments.
2) Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.
Objective evidence of impairment could include: Significant financial difficulty of the debtor; orit becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a defaultor delinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or disappearance of an active market for thatfinancial asset because of the issuer’s financial difficulties or other reasons.
Accounts receivable that are assessed as not impaired individually are further assessed forimpairment on a collective basis. Objective evidence of impairment for a portfolio of accountsreceivable could include the Corporation’s past experience in the collection of payments, anincrease in the number of delayed payments, as well as observable changes in national or localeconomic conditions that correlate with defaults on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the financial assets at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not beenrecognized.
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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:
a) Significant financial difficulty of the issuer or counterparty; or
b) Breach of contract, such as a default or delinquency in interest or principal payments; or
c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or
d) The disappearance of an active market for that financial asset 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 an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.
For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated 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.
3) Derecognition of financial assets
The Corporation derecognizes a financial asset only when the contractual rights to the cash flowsfrom the asset expire, or when it transfers the financial asset and substantially all the risks andrewards of ownership of the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the sum of the consideration received and receivable and the cumulative gain or lossthat had been recognized in other comprehensive income is recognized in profit or loss.
Equity instruments
Equity instruments issued by the Corporation are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.
Equity instruments issued by the Corporation are recognized at the proceeds received, net of direct issue costs.
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Financial liabilities
1) Subsequent measurement
Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method:
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as at fair value through profit or loss when the financial liability iseither held for trading or is designated as at fair value through profit or loss.
Financial liabilities held for trading are stated at fair value, with any gains or losses arising onremeasurement recognized in profit or loss. The net gain or loss recognized in profit or lossincorporates any interest or dividend paid for the financial liability. Fair value is determined in themanner described in Note 29.
2) Derecognition of financial liabilities
The difference between the carrying amount of the financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.
Derivative financial instruments
The Corporation enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.
l. Hedge accounting
The Corporation designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.
1) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.
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Hedge accounting is discontinued prospectively when the Corporation revokes the designated hedging relationship; or when the hedging instrument expires or is sold, terminated, or exercised; or when the hedging instrument no longer meets the criteria for hedge accounting.
2) Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gain or loss relating to theineffective portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the same period when the hedgeditem affects profit or loss. If a hedge of a forecast transaction subsequently results in therecognition of a non-financial asset or a non-financial liability, the associated gains and losses thatwere recognized in other comprehensive income are removed from equity and included in the initialcost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, orwhen the hedging instrument no longer meets the criteria for hedge accounting. The cumulativegain or loss on the hedging instrument that has been previously recognized in other comprehensiveincome from the period when the hedge was effective remains separately in equity until the forecasttransaction occurs. When a forecast transaction is no longer expected to occur, the gain or lossaccumulated in equity is recognized immediately in profit or loss.
m. Provisions
Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.
n. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Sales returns are recognized atthe time of sale according to the reliable estimate of future returns based on past experience and otherrelevant factors.
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 ofthe goods;
b) The Corporation retains neither continuing managerial involvement to the degree usuallyassociated 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 theCorporation; and
e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.
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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 paymenthas been established provided that it is probable that the economic benefits will flow to theCorporation and the amount of income can be measured reliably.
Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Corporation and the amount of income can be measured reliably. Interest incomeis accrued on a time basis by reference to the principal outstanding and at the applicable effectiveinterest rate.
o. Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.
1) The Corporation as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rents are recognized as income in the period in which they are incurred.
2) The Corporation as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.Contingent rents are recognized as an expense in the period in which they are incurred.
p. Employee benefits
1) Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related service.
2) Retirement benefits
Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under defined benefitretirement 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 are recognized asemployee benefits expense in the period they occur. Remeasurement, comprising actuarial gainsand losses and the return on plan assets (excluding interest), is recognized in other comprehensiveincome in the period in which they occur. Remeasurement recognized in other comprehensiveincome is reflected immediately in retained earnings and will not be reclassified to profit or loss.
Net defined benefit liability represents the actual deficit in the Corporation’s defined benefit plan.
3) Termination benefits
A liability for a termination benefit is recognized at the earlier of when the Corporation can nolonger withdraw the offer of the termination benefit and when the Corporation recognizes anyrelated restructuring costs.
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q. Share-based payment arrangements
Employee stock options granted to employee
The fair value at the grant date of the employee share options is expensed on a straight-line basis overthe vesting period, based on the Corporation’s best estimates of the number of shares or options that areexpected to ultimately vest, with a corresponding increase in capital surplus - employee stock options.It is recognized as an expense in full at the grate date if vesting immediately.
At the end of each reporting period, the Corporation revises its estimate of the number of employeeshare options expected to vest.
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, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve to retain the earnings.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s taxprovision.
2) Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences. Deferred tax assets aregenerally recognized for all deductible temporary differences probable that taxable profits will beavailable against which those deductible temporary differences can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, except where the Corporation is able to control the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in theforeseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent probable that there will besufficient taxable profits against which to utilize the benefits of the temporary differences and theyare expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreviewed at the end of each reporting period and recognized to the extent that it has becomeprobable 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 theperiod in which the liability is settled or the asset is realized, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Corporation expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.
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3) Current and deferred tax for the year
Current and deferred taxes are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred taxes are also recognized in other comprehensive income or directly in equity, respectively.
s. Treasury stocks
Repurchase of the Corporation’s own equity instruments (treasury stocks) is recognized and deducteddirectly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue orcancellation of the Corporation’s own equity instruments.
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
In the application of the Corporation’s accounting policies, management is required to make judgments,estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparentfrom other sources. The estimates and associated assumptions are based on historical experience andother 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 accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.
a. Revenue recognition
The Corporation recognizes revenue when the conditions described in Note 4 (n) are satisfied. TheCorporation also records a provision for estimated future returns and other allowances in the sameperiod the related revenue is recorded. Provision for estimated sales returns and other allowances isgenerally made and adjusted at a specific percentage based on historical experience and any knownfactors that would significantly affect the allowance, and our management periodically reviews theadequacy of the percentage used.
As of December 31, 2016 and 2015, the Corporation recognized provisions for estimated sales returnsand other allowances of $236,336 thousand and $136,576 thousand, respectively.
b. Held-to-maturity financial assets
Management has reviewed the Corporation’s held-to-maturity financial assets in light of its capitalmaintenance and liquidity requirements and has confirmed the Corporation’s positive intention andability to hold those assets to maturity.
c. Estimated impairment of accounts receivable
When there is objective evidence of impairment loss, the Corporation takes into consideration theestimation of future cash flows. The amount of the impairment loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the financial asset’s original effectiveinterest rate. Where the actual future cash flows are less than expected, a material impairment lossmay arise.
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d. Write-down of inventory
The net realizable value of inventory is the estimated selling price in the ordinary course of businessless the estimated costs of completion and disposal. The estimation of net realizable value was basedon 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 the net realizable value.
e. Recognition and measurement of defined benefit plans
The net defined benefit liabilities and the resulting defined benefit costs under the defined benefitpension plans are calculated using the projected unit credit method. Actuarial assumptions comprisethe discount rates, rates of employee turnover, future salary increases, etc. Changes in economiccircumstances and market conditions will affect these assumptions and may have a material impact onthe amount of expenses and liabilities.
6. CASH AND CASH EQUIVALENTSDecember 31
2016 2015
Deposits in bank $ 15,206,166 $ 16,511,530Cash equivalents
Bonds acquired under resale agreements 1,541,457 1,186,645
$ 16,747,623 $ 17,698,175
The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:
December 312016 2015
Bank deposits 0%-1.40% 0%-4.00% Bonds acquired under resale agreements 0.42%-1.50% 0.35%-5.10%
7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 312016 2015
Financial assets designated as at FVTPL
Credit linked notes (a) $ 715,491 $ 1,094,381 Interest rate linked notes (a) 612,427 -Exchange linked notes (a) 96,613 -
1,424,531 1,094,381
Financial assets held for trading
Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) 1,098 3,514 Currency-swap contracts (c) 2,457 -
3,555 3,514
Financial assets at FVTPL - current $ 1,428,086 $ 1,097,895 (Continued)
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December 312016 2015
Financial liabilities held for trading
Derivative financial liabilities (not designated as hedging instruments)Forward exchange contracts (b) $ 42,073 $ 15,720 Currency-swap contracts (c) 956 12,754
Financial liabilities at FVTPL - current $ 43,029 $ 28,474 (Concluded)
a. The Corporation entered into structured investment contracts with bank in 2016 and 2015. Thestructured investment contracts included embedded derivative instruments which were not closelyrelated to the host contracts. The Corporation designated the entire contract as financial asset atFVTPL on initial recognition.
b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2016
Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.05.11 US$ 158,000
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.04-2016.05.06 US$ 130,000
c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2016
Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.01.24 US$ 11,000 Buy forward exchange contracts US$ to NT$ 2017.03.27 US$ 10,000
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.07-2016.02.24 US$ 48,000
The Corporation entered into foreign exchange forward contracts and currency-swap contracts during the years ended December 31, 2016 and 2015 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.
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8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 312016 2015
Current
Foreign corporate bonds $ 64,386 $ -
Non-current
Listed stocks $ 43,648 $ 88,731 Domestic bonds 460,033 -
$ 503,681 $ 88,731
The Corporation recognized impairment loss of $120,000 thousand in 2016.
9. HELD-TO-MATURITY FINANCIAL ASSETS - CURRENT
December 312016 2015
Foreign investments Volkswagen Int’l Finance N.V. bonds $ - $ 49,655 China Construction Bank Asia Co bonds - 44,928 China Minmetals Corp bonds - 44,919
$ - $ 139,502
10. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 312016 2015
Fair Value Hedge
Fair Value Hedge
Derivative financial liabilities for hedging - current
Currency-swap contracts $ - $ 7,020
a. Fair value hedge
The Corporation used forward exchange contracts and currency-swap contracts to hedge risks onexchange rate fluctuations of foreign-currency denominated accounts receivable. The forwardexchange contracts and currency-swap contracts had the same term as the respective financial assets;the management believed the forward exchange contracts and currency-swap contracts were highlyeffective hedge instruments.
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The outstanding currency-swap contracts at the end of the reporting period were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.19-2016.02.19 US$ 20,000
11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT
December 312016 2015
Unlisted stocks $ 85,327 $ 62,716
Classification of financial assets Available-for-sale financial assets $ 85,327 $ 62,716
The management believed that the fair value of the aforementioned unlisted equity investments held by the Corporation cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of reporting period.
The Corporation sold its interest in Image Match Design Inc. with carrying amount of $10,000 thousand in August 2016 and recognized a gain of $14,925 thousand.
12. NOTES AND ACCOUNTS RECEIVABLE, NET
December 312016 2015
Notes and accounts receivable $ 3,350,334 $ 2,521,500 Allowance for doubtful accounts (1,987) (1,987)
Notes and accounts receivable, net $ 3,348,347 $ 2,519,513
The average credit period on sales of goods was 30 to 45 days after month closing. No interest was charged on notes and accounts receivables. In determining the recoverability of a trade receivable, the Corporation considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts was based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.
For the accounts receivable balance that were past due at the end of the reporting period, the Corporation had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.
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The aging analyses of notes and accounts receivable were as follows:
December 31Past Due Days 2016 2015
Not past due and not impaired 0 days $ 3,290,278 $ 2,470,291Past due but not impaired Less than 60 days 24,548 44,432
61-90 days 35,479 6,162More than 90 days 29 615
60,056 51,209
$ 3,350,334 $ 2,521,500
The above aging analyses were based on the past due dates.
Movements of the allowance for doubtful accounts were as follows:
Years Ended December 312016 2015
Balance, beginning of year $ 1,987 $ 1,987 Add: Provision - -
Balance, end of year $ 1,987 $ 1,987
The Corporation had no impairment loss recognized on the accounts receivable during the years ended December 31, 2016 and 2015.
13. INVENTORIES
December 312016 2015
Finished goods $ 202,723 $ 314,299 Work in process 1,212,579 1,181,419 Raw materials 431,448 377,668 Supplies and spare parts 353,025 377,225
$ 2,199,775 $ 2,250,611
The write-downs of inventories included in the cost of revenue were as below:
Years Ended December 312016 2015
Provision of inventory valuation and obsolescence losses $ 16,449 $ 69,547
For the years ended December 31, 2016 and 2015, cost of revenue included unallocated manufacturing overheads amounted to $130,382 thousand and $703,284 thousand, respectively.
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14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
December 312016 2015
Investments in subsidiaries $ 2,722,779 $ 301,019 Investments in associates 208,993 51,439
$ 2,931,772 $ 352,458
a. Investments in subsidiaries
December 312016 2015
Unlisted stocks VIS Associates Inc. $ 2,722,779 $ 301,019
Proportion of Ownership and Voting Rights December 31
2016 2015
VIS Associates Inc. 100% 100%
The investment in subsidiary 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, 2016 and 2015 were based on the subsidiariy’s financial statements audited by the auditors for the same years.
b. Investments in associates
December 312016 2015
Associates that are not individually material
CMSC, Inc. $ 61,440 $ 51,439 Quora Technology, Inc. 147,553 -
$ 208,993 $ 51,439
Refer to Table 5 “Information on Investees” for the nature of activities, principal place of business and country of incorporation of the associates.
Aggregate information of associates that are not individually material
Years Ended December 31 2016 2015
The Corporation’s share of (Loss) profit from continuing operations $ (11,162) $ 949Other comprehensive (loss) income (11) 3
Total comprehensive (loss) income for the year $ (11,173) $ 952
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In March 2016, the Corporation subscribed 5,000 thousand shares of preferred stocks of Quora Technology, Inc. in cash amounting to $166,175 thousand. The Corporation’s percentage of ownership in Quora Technology Inc. was 31.04% and exercised significant influence over Quora Technology, Inc. As of December 31, 2016, the Corporation’s percentage of ownership in Quora Technology Inc. was 32.76%.
The investments in associates accounted for using equity method and the share of profit or loss and other comprehensive (loss) income of those investments were calculated based on the unaudited financial statements. Management believes there is no material impact on its parent company only financial statement.
15. PROPERTY, PLANT AND EQUIPMENT
Advance Payments and
Machinery and Other ConstructionBuildings Equipment Equipment in Progress Total
Cost
Balance, January 1, 2015 $ 14,608,573 $ 54,611,302 $ 386,147 $ 1,084,408 $ 70,690,430Additions 397,617 1,761,332 8,295 (874,691 ) 1,292,553Disposal - (42,993 ) (3,060 ) - (46,053 )Reclassified - 6,302 660 - 6,962
Balance, December 31, 2015 $ 15,006,190 $ 56,335,943 $ 392,042 $ 209,717 $ 71,943,892
Accumulated depreciation
Balance, January 1, 2015 $ 11,477,893 $ 50,696,476 $ 349,040 $ - $ 62,523,409Depreciation 621,831 1,669,656 12,380 - 2,303,867Disposal - (42,993 ) (3,060 ) - (46,053 )
Balance, December 31, 2015 $ 12,099,724 $ 52,323,139 $ 358,360 $ - $ 64,781,223
Accumulated impairment
Balance, January 1, 2015 and December 31, 2015 $ - $ 183,521 $ - $ - $ 183,521
Carrying amounts, December 31, 2015 $ 2,906,466 $ 3,829,283 $ 33,682 $ 209,717 $ 6,979,148
Cost
Balance, January 1, 2016 $ 15,006,190 $ 56,335,943 $ 392,042 $ 209,717 $ 71,943,892Additions 79,335 984,319 1,653 273,637 1,338,944Disposal (5,028 ) (16,688 ) (328 ) - (22,044 )Reclassified - - 385 - 385
Balance, December 31, 2016 $ 15,080,497 $ 57,303,574 $ 393,752 $ 483,354 $ 73,261,177
Accumulated depreciation
Balance, January 1, 2016 $ 12,099,724 $ 52,323,139 $ 358,360 $ - $ 64,781,223Depreciation 606,511 1,414,817 10,581 - 2,031,909Disposal (1,089 ) (16,688 ) (328 ) - (18,105 )
Balance, December 31, 2016 $ 12,705,146 $ 53,721,268 $ 368,613 $ - $ 66,795,027
Accumulated impairment
Balance, January 1, 2016 and December 31, 2016 $ - $ 183,521 $ - $ - $ 183,521
Carrying amounts, December 31, 2016 $ 2,375,351 $ 3,398,785 $ 25,139 $ 483,354 $ 6,282,629
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The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:
BuildingsMain plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years
Machinery and equipment 3 to 5 yearsOther equipment 3 to 5 years
16. INTANGIBLE ASSETS
Years Ended December 31 2016 2015
Computer software
CostBalance, January 1 $ 779,436 $ 760,644 Additions 10,132 26,731 Disposal (200) (977) Reclassified to property, plant and equipment (385) (6,962)Balance, December 31 788,983 779,436
Accumulated amortization Balance, January 1 737,840 723,470 Amortization 21,061 15,347 Disposal (200) (977) Balance, December 31 758,701 737,840
Carrying amount, end of year $ 30,282 $ 41,596
Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:
Computer software 3 to 5 years
17. OTHER ASSETS
December 312016 2015
Pledged time deposit $ 303,704 $ 303,552 Other financial assets 96,597 -Others 2,724 2,597
$ 403,025 $ 306,149
Current $ 99,321 $ 2,597 Non-current 303,704 303,552
$ 403,025 $ 306,149
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18. OTHER PAYABLES
December 312016 2015
Bonus $ 727,872 $ 497,608 Maintenance 506,275 381,115 Utilities 124,321 145,776 Others 775,033 693,558
$ 2,133,501 $ 1,718,057
19. OTHER CURRENT LIABILITIES
December 312016 2015
Advance receipts $ 109,809 $ 81,073 Others 4,942 372
$ 114,751 $ 81,445
20. PROVISIONS - CURRENT
December 312016 2015
Sales returns and allowances $ 236,336 $ 136,576
The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.
21. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.
b. Defined benefit plans
The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the 6 months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required tofund the difference in one appropriation that should be made before the end of March of the next year.
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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 parent company only balance sheets in respect of the Corporation’s defined benefit plans were as follows:
December 312016 2015
Present value of defined benefit obligation $ 1,034,785 $ 970,547 Fair value of plan assets (326,432) (339,555)
Net defined benefit liability $ 708,353 $ 630,992
Movements in net defined benefit liability were as follows:
Present Value of Defined
BenefitObligation
Fair Value of Plan Assets
Net Defined Benefit
Liability
Balance at January 1, 2015 $ 953,437 $ (340,331) $ 613,106Service cost
Current service cost 24,247 - 24,247Interest expense (income) 21,306 (7,683) 13,623
Recognized in profit or loss 45,553 (7,683) 37,870Remeasurement
Return on plan assets (excluding amounts included in net interest) - (1,272) (1,272)
Actuarial loss - changes in financial assumptions 46,228 - 46,228
Actuarial gain - experience adjustments (28,375) - (28,375)Recognized in other comprehensive income 17,853 (1,272) 16,581Contributions from the employer - (14,485) (14,485)Benefits paid (46,296) 24,216 (22,080)Balance at December 31, 2015 970,547 (339,555) 630,992Service cost
Current service cost 7,419 - 7,419Interest expense (income) 18,364 (6,518) 11,846
Recognized in profit or loss 25,783 (6,518) 19,265Remeasurement
Return on plan assets (excluding amounts included in net interest) - 4,157 4,157
Actuarial loss - changes in financial assumptions 54,189 - 54,189
Actuarial loss - experience adjustments 13,917 - 13,917Recognized in other comprehensive income 68,106 4,157 72,263Contributions from the employer - (14,167) (14,167)Benefits paid (29,651) 29,651 -
Balance at December 31, 2016 $ 1,034,785 $ (326,432) $ 708,353
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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/foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets 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 thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease 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 2016 2015
Discount rates 1.50% 1.90%Expected rates of salary increase 3.50% 3.50%
If possible reasonable change 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 312016 2015
Discount rates 0.50% increase $ (67,148) $ (68,251)0.50% decrease $ 73,416 $ 67,741
Expected rates of salary increase 0.50% increase $ 71,595 $ 66,2600.50% decrease $ (66,229) $ (67,605)
The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
December 31 2016 2015
The expected contributions to the plan for the next year $ 14,663 $ 14,992
The average duration of the defined benefit obligation 13.7 years 14.9 years
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Maturity analyses of pension benefit were as follows:
December 31 2016 2015
Maturity analysis of undiscounted pension benefitNo later than 1 year $ 13,754 $ 8,044Later than 1 year and not later than 5 years 102,104 123,406Later than 5 years 1,174,944 1,189,049
$ 1,290,802 $ 1,320,499
22. EQUITY
a. Capital stock
Common stock
December 312016 2015
Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982Issued capital $ 16,389,823 $ 16,389,823
The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.
b. Capital Surplus
December 312016 2015
May be used to offset a deficit, distributed by cash, or transferred to capital
Arising from issuance of common stock $ 544,884 $ 544,884
May be used to offset a deficit only
Arising from employee stock options (transferred and inactive) 285,845 285,845 Arising from share of changes in equities of subsidiaries,
associates and joint ventures 31,865 24,394
$ 862,594 $ 855,123
The capital surplus from stocks issued in excess of par may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed in cash or transferred to capital, which are limited to a certain percentage of the Corporation’s paid-in capital.
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c. Retained earnings and dividend policy
In accordance with the amendments to the Company Act in May 2015, the recipients of dividends andbonuses are limited to shareholders and do not include employees. The shareholders held their regularmeeting on June 7, 2016 and, in that meeting, had resolved amendments to the Corporation’s Articles ofIncorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and theaddition of the policy on distribution of employees’ compensation and remuneration to directors.
Under the dividend policy as set forth in the amended Articles, where the Corporation made profit in afiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, settingaside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributedretained earnings shall be used by the Corporation’s board of directors as the basis for proposing adistribution plan, which should be resolved in the shareholders’ meeting for distribution of dividendsand bonus to shareholders. For the policies on distribution of employees’ compensation andremuneration to directors before and after amendment, please refer to b. Employee benefits expense inNote 24.
The Corporation’s Articles also stipulate that all profits may be distributed after taking intoconsideration to financial, business and operational factors. Dividends are in cash and/or in the formof stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (inany given year) should be at least 60% of the dividends of the current year’s appropriation. If there isno profit for distribution, or the profit is far less than the profit actually distributed by the Corporation inthe previous year or other reasons so require, all or part of the capital surplus may be distributed inaccordance with relevant laws or regulations of the authorities in charge.
Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’spaid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and thelegal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred tocapital or distributed in cash.
The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers forSpecial Reserves Appropriated Following Adoption of IFRSs”. Distributions can be made out of anysubsequent reversal of the debit to other equity items.
Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a taxcredit equal to their proportionate share of the income tax paid by the Corporation.
The appropriations of earnings for 2015 and 2014 having been approved in the shareholders’ meetingson June 7, 2016 and June 8, 2015, respectively, were as follows:
Appropriations of Earnings Dividends Per Share (NT$) 2015 2014 2015 2014
Provision of legal reserve $ 415,758 $ 543,789 $ - $ -Provision of special reserve 45,305 16,806 - -Cash dividends 4,261,354 4,259,353 2.60 2.60
$ 4,722,417 $ 4,819,948
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The appropriation of earnings for 2016 had been proposed by the Corporation’s board of directors on February 21, 2017. The appropriation and dividends per share were as follows:
Appropriationof Earnings
Dividend Per Share (NT$)
Provision of legal reserve $ 553,793 $ - Reversal of special reserve (77,854) -Cash dividend 4,916,947 3.00
The appropriation of earnings for 2016 are subject to the resolution of the shareholders’ meeting to be held on June 16, 2017.
d. Other equity
1) Exchange differences on translation of foreign operations
Years Ended December 312016 2015
Balance, beginning of year $ (41,010) $ (50,082) Exchange differences arising from translation of foreign
operations 2,496 10,992 Share of exchange differences of subsidiaries and associates
accounted for using equity method 448 (1,920)
Balance, end of year $ (38,066) $ (41,010)
2) Unrealized gain (loss) on available-for-sale financial assets
Years Ended December 312016 2015
Balance, beginning of year $ (74,801) $ (20,494) Unrealized gain (loss) arising from available-for-sale
financial assets 74,911 (54,307)
Balance, end of year $ 110 $ (74,801)
Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.
3) Cash flow hedges
Years Ended December 312016 2015
Balance, beginning of year $ - $ 70 Loss arising from changes in fair value of hedging
instrumentsCurrency-swap contracts - (70)
Balance, end of year $ - $ -
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The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.
e. Treasury stock(Shares in Thousands)
Purpose of Treasury Stock
Number of Shares,
Beginning of Year
AdditionDuring the
Year
ReductionDuring the
Year
Number of Shares, End of
Year
Year ended December 31, 2015
Transfer to employees 770 - (770) -
The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares.
The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares.
Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge treasury stocks nor exercise rights to receive dividends and to vote.
Treasury stocks were granted on March 1, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $12.70 Exercise price (NT$) 11.49Expected volatility 30.12%-31.53%Expected life 2 years Risk-free interest rate 0.8012%
Treasury stocks were granted on April 25, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $13.35 Exercise price (NT$) 12.83Expected volatility 29.46%-29.72%Expected life 2 years Risk-free interest rate 0.8442%
Treasury stocks were granted on August 2, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $31.00 Exercise price (NT$) 12.83Expected volatility 42.85%Expected life 1 year Risk-free interest rate 0.6952%
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Treasury stocks were granted on November 1, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $32.35 Exercise price (NT$) 12.83Expected volatility 43.26%Expected life 0.4822 Year Risk-free interest rate 0.641%
Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $46.50 Exercise price (NT$) 11.49-12.83 Expected volatility 45.90%Expected life 0.2027 year Risk-free interest rate 0.5329%
Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $47.30 Exercise price (NT$) 12.83Expected volatility 32.44%Expected life 0.0356 year Risk-free interest rate 0.4798%
Treasury stocks were granted on March 9, 2015 and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $53.60 Exercise price (NT$) 12.83Expected volatility 32.425%Expected life 0.0301 year Risk-free interest rate 0.5885%
Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of 2-year government bond was used as the risk-free interest rate.
Compensation cost recognized was $26,278 thousand for the year ended December 31, 2015.
23. REVENUE
Revenue of the Corporation for the years ended December 31, 2016 and 2015 were analyzed as follows:
Years Ended December 312016 2015
Wafer foundry $ 25,469,353 $ 23,010,405Other revenue 359,281 309,316
$ 25,828,634 $ 23,319,721
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The Corporation designated certain foreign sales as hedged items to hedge the risk of cash flow. Losses on the hedging instrument amounting to $10,692 thousand and $8,596 thousand that were determined to be an effective hedge were recognized as decrease of revenue for the years ended December 31, 2016 and 2015, respectively.
24. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME
a. Depreciation and amortization
Years Ended December 312016 2015
Property, plant and equipment $ 2,031,909 $ 2,303,867 Intangible assets 21,061 15,347
$ 2,052,970 $ 2,319,214
Classification of deprecation - by function Cost of revenue $ 1,980,762 $ 2,254,409 Operating expenses 51,147 49,458
$ 2,031,909 $ 2,303,867
Classification of amortization - by function Cost of revenue $ 10,643 $ 7,470 Operating expenses 10,418 7,877
$ 21,061 $ 15,347
b. Employee benefits expense
1) Employees’ compensation and remuneration to directors for 2016 and 2015
Years Ended December 31 2016 2015
Post-employment benefits (see Note 21) Defined contribution plans $ 196,218 $ 190,102 Defined benefit plans 19,265 37,870
215,483 227,972 Share-based payments (see Note 22)
Equity-settled - 26,278 Other employee benefits 6,278,225 5,589,510
Total employee benefits expense $ 6,493,708 $ 5,843,760
Employee benefits expense summarized by function Cost of revenue $ 5,141,284 $ 4,762,693 Operating expenses 1,352,424 1,081,067
$ 6,493,708 $ 5,843,760
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In compliance with the Company Act as amended in May 2015 and the amendments to the Articles as resolved by the shareholders’ meeting on June 2016, the Corporation should distribute no less than 10% of the current year’s profit as employees’ compensation in the form of stock or in cash as resolved by the board of directors. The employees include those of subsidiaries meeting some conditions agreed by the board of directors. The Corporation should also distribute no higher than 1% of the current year’s profit as remuneration to directors. However, the Corporation’s accumulated losses shall have been covered. For the years ended December 31, 2016 and 2015, the employees’ compensation were $831,803 thousand and $623,638 thousand, respectively. For the years ended December 31, 2016 and 2015, the remuneration to directors were $14,100 thousand and $13,588 thousand, respectively. The above calculated were at a certain percentage of the base income.
If there is a change in the proposed amounts after the annual parent company only financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.
The appropriations of employees’ compensation and remuneration to directors for 2016 and 2015 were resolved by the board of directors on February 21, 2017 and January 27, 2016, respectively. The amounts of the employees’ compensation and remuneration to directors are disclosed on the table below. After the amendments to the Articles resolving in the shareholder’s meeting on June 7, 2016, the appropriations of the employees’ compensation and remuneration to directors for 2015 were reported in the shareholders’ meeting.
Years Ended December 31 2016 2015
Cash Stock Cash
BonusStockBonus
Employees’ compensation $ 831,803 $ - $ 623,638 $ - Remuneration to directors 14,100 - 13,384 -
The differences between the amounts of the remuneration to directors resolved by the board of directors on January 27, 2016 and the amounts recognized in the parent company only financial statements for the year ended December 31, 2015 were adjusted to profit and loss in 2016.
Information on the employees’ compensation and remuneration to directors resolved by the Corporation’s board of directors in 2017 and 2016 is available at the Market Observation Post System website of the Taiwan Stock Exchange.
2) Bonus to employees and remuneration to directors for 2014
The bonus to employees and remuneration to directors for 2014 which have been approved in theshareholders’ meeting on June 8, 2015 were as follows:
Year Ended December 31, 2014Cash Stock
Bonus to employees $ 815,683 $ -Remuneration to directors 34,800 -
There was no difference between the amounts of the bonus to employees and the remuneration to directors approved in the shareholders’ meeting on June 8, 2015 and the amounts recognized in the parent company only financial statements for the year ended December 31, 2014.
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Information on the bonus to employees and remuneration to directors resolved by the shareholders in their meeting in 2015 is available at the Market Observation Post System website of the Taiwan Stock Exchange.
25. INCOME TAXES
a. Major components of tax expenses recognized in profit or loss:
Years Ended December 312016 2015
Current tax In respect of the current year $ 867,379 $ 820,624 Adjustments for prior years’ tax (158,696) (1,914)
708,683 818,710 Deferred income tax
In respect of the current year 16,919 (38,233)
Income tax expenses recognized in profit or loss $ 725,602 $ 780,477
A reconciliation of accounting profit and income tax expenses were as follow:
Years Ended December 31 2016 2015
Income before income tax $ 6,263,527 $ 4,938,060
Income tax expense calculated at the statutory rate (17%) $ 1,064,800 $ 839,470 Additional items in determining taxable income 4,996 2,037 Tax-exempt income (206,770) (130,535)Income tax on unappropriated earnings - 56,913 The origination and reversal of temporary differences 21,272 14,506 Adjustments for prior years’ tax (158,696) (1,914)
Income tax expense recognized in profit or loss $ 725,602 $ 780,477
The applicable tax rate used by the Corporation is 17%.
As the status of 2017 appropriations of earnings is uncertain, the potential income tax consequences of 2016 unappropriated earnings are not reliably determinable.
b. Current tax liabilities
December 31 2016 2015
Current tax liabilities Income tax payable $ 604,591 $ 497,129
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c. Deferred income tax assets and liabilities
The movements of deferred income tax assets and liabilities were as follows:
For the year ended December 31, 2016
Deferred Income Tax Assets
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 1,690 $ (1,690) $ -
Deferred Income Tax Liabilities
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 67,494 $ 15,229 $ 82,723
For the year ended December 31, 2015
Deferred Income Tax Assets
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 154 $ 1,536 $ 1,690
Deferred Income Tax Liabilities
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 104,192 $ (36,698) $ 67,494
d. Items for which no deferred income tax assets have been recognized
December 31 2016 2015
Deductible temporary differences $ 207,756 $ 205,460
e. Unrecognized deferred income tax liabilities associated with investments
As of December 31, 2016 and 2015, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.
f. Integrated income tax
December 31 2016 2015
Balance of the Imputation Credit Account- the Corporation $ 775,454 $ 930,217
The expected and actual creditable ratios for distributing the earnings of 2016 and 2015 were 14.42% and 16.10%, respectively.
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Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credit allocated to ROC resident shareholders of the Corporation is calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the Corporation is based on the balance of the Imputation Credit Account as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2016 earnings may differ from the actual creditable ratio to be used in allocating imputation credit to the shareholders.
The unappropriated retained earnings as of December 31, 2016 and 2015 did not contain the unappropriated earnings generated before January 1, 1998.
g. Income tax exemption with respect to the issuance of shares
The Corporation was granted a 5-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.
h. Income tax assessments
Income tax returns through 2014 had been examined and cleared by the tax authorities.
26. EARNINGS PER SHARE
Unit: NT$ Per Share
Years Ended December 312016 2015
Basic earnings per share $ 3.38 $ 2.54 Diluted earnings per share $ 3.35 $ 2.50
The earnings and weighted average number of common shares used in the computation of earnings per share were as follows:
Earnings
Years Ended December 312016 2015
Earnings used in computation of basic earnings per share $ 5,537,925 $ 4,157,583 Effect of dilutive potential common stocks:
Employees’ compensation - -
Earnings used in the computation of diluted earnings per share $ 5,537,925 $ 4,157,583
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Shares
Years Ended December 312016 2015
Weighted average number of common stocks used in the computation of basic earnings per share 1,638,982 1,638,792
Effect of dilutive potential common stocks: Employees’ compensation 15,914 23,466
Weighted average number of common stocks used in the computation of diluted earnings per share 1,654,896 1,662,258
Since the Corporation is allowed to settle the compensation paid to employees by cash or shares, the Corporation assumed that the entire amount of compensation will 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 shares had dilutive effect. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.
27. OPERATING LEASE ARRANGEMENTS
The Corporation as lessee
The Corporation leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from March 2019, December 2027, December 2029 and December 2034. Therental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to the leasecontract, and the lease is renewable upon expiration.
The future minimum lease payments of non-cancellable operating leases commitments are as follows:
December 312016 2015
Not later than 1 year $ 77,120 $ 77,091 Later than 1 year and not later than 5 years 313,513 306,685 Later than 5 years 595,023 658,714
$ 985,656 $ 1,042,490
The lease payments recognized as expenses were as follows:
Years Ended December 312016 2015
Minimum lease payment $ 77,426 $ 76,725
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28. CAPITAL MANAGEMENT
The Corporation manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Corporation’s overall strategy has no significant variations.
The capital structure of the Corporation consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital surplus, retained earnings and other equity).
The Corporation is not subject to any externally imposed capital requirements.
29. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments that are not measured at fair value
Financial assets and liabilities with material difference between carrying value and fair value
Except as detailed in the following table, the management considered that the carrying amounts offinancial assets and financial liabilities recognized in the parent company only financial statementsapproximate their fair values or their fair values could not be reliably measured.
December 312016 2015
Carrying Fair Value Carrying Fair Value Amount Level 1 Level 2 Amount Level 1 Level 2
Financial assets
Held-to-maturity financial assets $ - $ - $ - $ 139,502 $ 138,834 $ -Other current assets
Structured time deposit 96,597 - 96,509 - - -
b. Fair value of financial instruments that are measured at fair value on a recurring basis
1) Fair value hierarchy
The fair value hierarchies of financial assets and liabilities measured at fair value on a recurringbasic were as follows:
December 31, 2016Level 1 Level 2 Level 3 Total
Financial assets at FVTPL Derivative financial
instruments $ - $ 1,428,086 $ - $ 1,428,086
Available-for-sale financialassets Domestic listed stocks -
equity investment $ 13,648 $ 30,000 $ - $ 43,648 Bond investments 524,419 - - 524,419
$ 538,067 $ 30,000 $ - $ 568,067
Financial liabilities at FVTPLDerivative financial
instruments $ - $ 43,029 $ - $ 43,029
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December 31, 2015
Level 1 Level 2 Level 3 Total
Financial assets at FVTPL Derivative financial
instruments $ - $ 1,097,895 $ - $ 1,097,895
Available-for-sale financialassets Domestic listed stocks -
equity investment $ 16,731 $ 72,000 $ - $ 88,731
Financial liabilities at FVTPLDerivative financial
instruments $ - $ 35,494 $ - $ 35,494
There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2016 and 2015, respectively.
There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2016 and 2015, respectively.
2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy
The fair values of financial assets and financial liabilities are determined as follows:
a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.
Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.
b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.
The Corporation uses “Black-Scholes model” to determine the fair value.
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c. Categories of financial instruments
December 31 2016 2015
Financial assets
Fair value through profit or loss (FVTPL) Held for trading $ 3,555 $ 3,514Designated as at FVTPL 1,424,531 1,094,381
Held-to-maturity financial assets - 139,502Loans and receivables (Note 1) 21,247,694 21,196,211Available-for-sale financial assets (Note 2) 653,394 151,447
Financial liabilities
Fair value through profit or loss (FVTPL) Held for trading 43,029 28,474
Derivative instruments in designated hedge accounting - 7,020Measured at amortized cost (Note 3) 4,469,288 3,507,203
Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, other receivables, and other financial assets.
Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.
Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payable and other payables.
d. Objectives and policies of financial risk management
The Corporation’s major financial instruments include equity and bond investments, accountsreceivable and accounts payable. The Corporation’s corporate finance function provides services tothe business, coordinates access to domestic and international financial markets, monitors and managesthe financial risks relating to the operations of the Corporation through internal risk reports whichanalyze exposures by degree and magnitude of risks. These risks include market risk (includingforeign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.
The Corporation seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Corporation’s policiesapproved by the board of directors, which provided written principles on foreign exchange risk, interestrate risk, credit risk, the use of derivative and non-derivative financial instruments, and the investmentof excess liquidity. The compliance with policies and the control of exposure limits are continuouslyreviewed by the internal auditors on a continuous basis. The Corporation does not enter into or tradefinancial instruments, including derivative financial instruments, for speculative purposes.
The corporate finance function reports quarterly to the Corporation’s board of directors and auditcommittee for their independent monitorship to risks and policy implementation.
1) Market risk
The Corporation’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Corporation enters into a variety of derivative financial instruments includingforward exchange and currency-swap contracts to manage its exposure to foreign currency risk.
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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 Corporation’s operating activities are partially denominated in foreign currencies and applythe natural hedge. The purpose of the Corporation’s management of the foreign currency riskis to hedge the risk instead of making a profit.
The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Corporation selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheCorporation currently utilizes derivative financial instruments, primarily buy/sell forwardexchange contracts, to hedge its currency exposure.
The Corporation uses forward exchange contracts to eliminate currency exposure. It is theCorporation’s policy to negotiate the terms of the hedge derivatives to match the terms of thehedged item for maximizing the hedge effectiveness.
Investing in foreign operations is for strategic purposes; it is not hedged by the Corporation.
Sensitivity analysis
The Corporation is mainly exposed to the exchange rate fluctuation of USD and RMB.
The following table details the Corporation’s sensitivity to a 5% increase and decrease in theNew Taiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, financial assets, accounts receivable, other receivables,accounts payable, and other payables) and the hedge contracts, for which their translation atperiod end is adjusted for a 5% change in foreign currency rates. The following table indicatesthe influences which the New Taiwan dollars strengthen 5% against the relevant currency.
Impact on USD Items Years Ended December 31
2016 2015
(Loss) gain $ (73,706) $ 32,480
Impact on RMB Items Years Ended December 31
2016 2015
Loss $ - $ (20,857)
b) Interest rate risk
The Corporation’s financial assets are exposed to interest rate risk both at fixed and floatinginterest rates.
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The carrying amounts of the Corporation’s financial assets with exposure to interest rates at the end of the reporting period were as follows:
December 31 2016 2015
Fair value interest rate risk Financial assets $ 17,259,371 $ 16,195,737
Cash flow interest rate risk Financial assets 1,837,503 3,039,873
Sensitivity analysis
The sensitivity analyses below are determined based on the Corporation’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset at the end of the reporting date is outstanding during the reporting period.
If the market interest rate increases/decreases by 0.1% and all other variables remain constant, the pre-tax profit of the Corporation for the years ended on December 31, 2016 and 2015 will increase/decrease $1,838 thousand and $3,040 thousand, respectively, resulting from the exposure of the net assets with floating rates.
c) Other price risk
The Corporation is exposed to price risk arising from its investments in available-for-sale stocksand bonds. Investments are held for strategic rather than trading purposes. The Corporationdoes not actively trade these investments. The Corporation’s security price risk is mainlyconcentrated on equity and bond instruments operating in electronic industry quoted in theTaiwan Stock Exchange and GreTai Securities Market.
Sensitivity analysis
The sensitivity analyses below were determined based on the exposure to security price risks atthe end of the reporting period.
If available-for-sale stocks and bonds prices had been 5% higher/lower, the othercomprehensive income for the years ended December 31, 2016 and 2015 would haveincreased/decreased by $28,403 thousand and $4,437 thousand, respectively, as a result of thechanges in fair value of available-for-sale financial investments in stocks and bonds.
2) Credit risk
Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Corporation. As of the end of the reporting period, the Corporation may havea financial loss due to the default on obligation from counterparts, and the maximum exposure tocredit risk is the carrying amount of the respective recognized financial assets as stated in the parentcompany only balance sheets.
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In order to mitigate credit risk, the Corporation has made the policy of credit management to ensure that appropriate action is taken to recover overdue receivables. In addition, the Corporation reviews the recoverable amount of each receivable debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Corporation considers the credit risk is significantly reduced.
The credit risk on operating funds and derivatives is limited as the counterparts are creditworthy banks.
The Corporation’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customers’ financial conditions.
The Corporation’s credit concentration risk was related to the 5 largest customers. Besides the 5 largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivables at any time during the period. The 5 largest customers are creditworthy counterparts, therefore, the Corporation believes the concentration of credit risk is insignificant for the remaining accounts receivable.
3) Liquidity risk
The Corporation manages liquidity risk by monitoring and maintaining adequate reserves of cashand cash equivalents to fund the Corporation’s operations and mitigate the effects of fluctuations incash flows.
The following tables detail the Corporation’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Corporation canbe required to pay. The tables include both interest and principal cash flows.
December 31, 2016
Less Than 1 Year
More Than 1 Year
Non-derivative financial liabilities
Non-interest bearing $ 4,469,288 $ -
December 31, 2015
Less Than 1 Year
More Than 1 Year
Non-derivative financial liabilities
Non-interest bearing $ 3,507,203 $ -
The following tables detail the Corporation’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.
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December 31, 2016
Less Than 1 Year
More Than 1 Year
Gross settled
Forward exchange contracts Inflows $ 5,721,697 $ - Outflows (5,761,171) -
$ (39,474) $ -
December 31, 2015
Less Than 1 Year
More Than 1 Year
Gross settled
Forward exchange contracts Inflows $ 6,481,230 $ - Outflows (6,513,210) -
$ (31,980) $ -
30. TRANSACTIONS WITH RELATED PARTIES
a. Operating transactions
Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31
2016 2015 2016 2015
Investors that have significant influence over the Corporation $ 6,702,249 $ 7,100,082 $ 700 $ 259
Associates $ 23,844 $ 19,847 $ - $ -Key management personnel $ 37,666 $ 43,155 $ - $ -Substantial related parties $ 32,654 $ 32,208 $ - $ -
Manufacturing ExpensesResearch and Development
ExpensesYears Ended December 31 Years Ended December 31
2016 2015 2016 2015
Investors that have significant influence over the Corporation $ 418,307 $ 358,179 $ 931 $ 1,673
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Marketing Expenses Rental Revenue Years Ended December 31 Years Ended December 31
2016 2015 2016 2015
Subsidiaries $ 92,555 $ 62,280 $ - $ - Investors that have significant
influence over the Corporation 2,200 1,369 2,467 3,453
$ 94,755 $ 63,649 $ 2,467 $ 3,453
Nonoperating Income and GainsYears Ended December 31
2016 2015
Investors that have significant influence over the Corporation $ 15,600 $ 20,720 Key management personnel 630 940
$ 16,230 $ 21,660
The following balances were outstanding at the end of the reporting period:
Receivables from Related PartiesDecember 31
2016 2015
Investors that have significant influence over the Corporation $ 586,847 $ 519,735 Key management personnel 14,469 8,134 Associates 4,817 2,059 Substantial related parties 7,081 4,007
$ 613,214 $ 533,935
Other Receivables from Related Parties
December 31 2016 2015
Investors that have significant influence over the Corporation $ 560 $ 12,362 Key management personnel 264 2,722
$ 824 $ 15,084
Other Payables to Related PartiesDecember 31
2016 2015
Investors that have significant influence over the Corporation $ 85,535 $ 67,754 Subsidiaries 9,560 4,886 Substantial related parties 135 -
$ 95,230 $ 72,640
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Guarantee Deposits (Other Non-current Liabilities)
December 31 2016 2015
Investors that have significant influence over the Corporation $ - $ 1,362
The terms of sales and purchases transactions with related parties were not significantly different from those with third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.
The Corporation leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly.
Guarantee deposits of related parties were for lease.
b. Compensation of key management personnel
Years Ended December 31 2016 2015
Short-term employee benefits $ 137,890 $ 119,539 Post-employment benefits 2,420 18,276
$ 140,310 $ 137,815
The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.
31. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY
The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:
December 31 2016 2015
Pledged time deposits (presented under other non-current assets) $ 303,704 $ 303,552
32. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
The significant commitments of the Corporation as of December 31, 2016 were as follows:
The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according tothe net sales of certain products and reserve a portion of its production capacity.
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33. SIGNIFICANT ASSETS AND LABILITIES DENOMINATED IN FOREIGN CURRENCIES
The following information was aggregated by the foreign currencies other than functional currencies of theCorporation and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:
December 312016 2015
ForeignCurrencies Exchange Rate
ForeignCurrencies Exchange Rate
Financial assets
Monetary items USD $ 231,802 32.199 $ 197,748 32.895 EUR 226 34.30 137 36.14 JPY 82,646 0.2780 108,309 0.2745 RMB - - 83,513 4.995
Non-monetary items USD 90,144 32.199 9,151 32.895
Financial liabilities
Monetary items USD 27,020 32.199 19,495 32.895 EUR 907 34.30 852 36.14 JPY 205,024 0.2780 171,160 0.2745
The significant unrealized foreign exchange gains (losses) were as follows:
Years Ended December 31 2016 2015
ForeignCurrencies Exchange Rate
Net Foreign Exchange Gain
(Loss) Exchange Rate
Net Foreign Exchange Gain
(Loss)
USD 32.278 (USD:NTD) $ 40,939 31.675 (USD:NTD) $ (90,757) EUR 35.91 (EUR:NTD) 1,014 35.61 (EUR:NTD) (855) JPY 0.2986 (JPY:NTD) 495 0.2648 (JPY:NTD) (950) RMB 4.865 (RMB:NTD) 7,092 5.043 (RMB:NTD) (25,465)
$ 49,540 $ (118,027)
34. SEPARATELY DISCLOSED ITEMS
Information on significant transactions and information on investees:
a. Financing provided to others: None.
b. Endorsements/guarantees provided: None.
c. Marketable securities held (excluding investment in subsidiaries, associates and joint ventures): Table1 (attached)
163
Vanguard InternationalSemiconductor Corporation
d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)
e. Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital:None.
f. Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:None.
g. Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)
h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 4 (attached)
i. Trading in derivative instruments: Note 7.
j. Information on investees: Table 5 (attached)
k. Information on investment in Mainland China: None.
164
Vanguard InternationalSemiconductor Corporation
TA
BL
E 1
VA
NG
UA
RD
INT
ER
NA
TIO
NA
L S
EMIC
ON
DU
CT
OR
CO
RPO
RA
TIO
N
MA
RK
ET
AB
LE
SE
CU
RIT
IES
HE
LD
D
EC
EM
BE
R 3
1, 2
016
(In
Tho
usan
ds o
f New
Tai
wan
Dol
lars
, Unl
ess S
tate
d O
ther
wis
e)
Hol
ding
Com
pany
Nam
e M
arke
tabl
e Se
curi
ty T
ype
and
Nam
e (N
ote1
) R
elat
ions
hip
with
the
Secu
ritie
s Iss
uer
Fina
ncia
l Sta
tem
ent A
ccou
nt
Dec
embe
r 31
, 201
6
Not
e Sh
ares
Uni
ts
(Tho
usan
ds
Tho
usan
ds U
nits
) C
arry
ing
Val
ue
% o
f Ow
ners
hip
Mar
ket V
alue
or
Net
Ass
et V
alue
Stru
ctur
edin
vest
men
ts
Van
guar
d In
tern
atio
nal
TWM
cre
dit l
inke
d st
ruct
ured
inve
stm
ent n
otes
-
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
- $
10
0,06
9 -
$
100,
069
Not
e 4
Sem
icon
duct
or C
orpo
ratio
n SK
FH c
redi
t lin
ked
stru
ctur
ed in
vest
men
t not
es
-Fi
nanc
ial a
sset
s at f
air v
alue
thro
ugh
prof
it or
loss
- cu
rren
t-
110,
119
-11
0,11
9 N
ote
4 G
igas
olar
cre
dit l
inke
d st
ruct
ured
inve
stm
ent n
otes
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nanc
ial a
sset
s at f
air v
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rren
t-
10,0
19-
10
,019
N
ote
4W
PG c
redi
t lin
ked
stru
ctur
ed in
vest
men
t not
es
-Fi
nanc
ial a
sset
s at f
air v
alue
thro
ugh
prof
it or
loss
-cu
rren
t-
30,0
61-
30,0
61
Not
e 4
Tong
Hsi
ng c
redi
t lin
ked
stru
ctur
ed in
vest
men
t not
es
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nanc
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sset
s at f
air v
alue
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ugh
prof
it or
loss
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rren
t-
54,8
03-
54
,803
N
ote
4M
ega
cred
it lin
ked
stru
ctur
ed in
vest
men
t not
es-
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
-20
,019
-20
,019
N
ote
4 C
ompe
titio
n Te
am T
ech.
Ltd
. U.S
. dol
lar B
onds
-
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
-22
7,88
4-
22
7,88
4 N
ote
4TS
MC
U.S
. dol
lar B
onds
-
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
-16
2,51
7 -
162,
517
Not
e 4
Cat
hay
Uni
ted
Ban
k in
tere
st li
nked
stru
ctur
ed in
vest
men
t not
es
-Fi
nanc
ial a
sset
s at f
air v
alue
thro
ugh
prof
it or
loss
- cu
rren
t-
96,6
13
-96
,613
N
ote
4 Y
uant
a in
tere
st li
nked
prin
cipa
l gua
rant
ee n
otes
-
Fina
ncia
l ass
ets a
t fai
r val
ue th
roug
h pr
ofit
or lo
ss -
curr
ent
-45
1,29
3-
45
1,29
3 N
ote
4K
GI i
nter
est l
inke
d pr
inci
pal g
uara
ntee
not
es
-Fi
nanc
ial a
sset
s at f
air v
alue
thro
ugh
prof
it or
loss
-cu
rren
t-
161,
134
-16
1,13
4 N
ote
4 B
onds
AD
SEM
I Cor
pora
tion
Bon
ds
-A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
cur
rent
-
64,3
86
-64
,386
N
ote
2 Sh
angh
ai C
omm
erci
al &
Sav
ing
Ban
k 20
12 2
nd S
ubor
dina
ted
Fina
ncia
l D
eben
ture
s -
Ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s - n
oncu
rren
t -
101,
519
-10
1,51
9 N
ote
2
MEG
A B
ank
2014
1st S
ubor
dina
ted
Fina
ncia
l Deb
entu
res
-A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
non
curr
ent
-10
2,53
1 -
102,
531
Not
e 2
MEG
A B
ank
2014
2ndSu
bord
inat
ed F
inan
cial
Deb
entu
res
-A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
non
curr
ent
-15
3,56
5-
153,
565
Not
e 2
Taiw
an C
oope
rativ
e B
ank
2014
1st S
ubor
dina
ted
Fina
ncia
l Deb
entu
res
-A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
non
curr
ent
-10
2,41
8 -
102,
418
Not
e 2
Stoc
ksC
ham
pion
Mic
roel
ectro
nic
Cor
p.
Inve
stee
A
vaila
ble-
for-
sale
fina
ncia
l ass
ets -
non
curr
ent
375
13,6
48
113
,648
N
ote
2 A
dvan
ced
Mic
roel
ectro
nic
Prod
ucts
Inc.
In
vest
ee
Ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s - n
oncu
rren
t 30
,000
30
,000
10
30,0
00N
ote
4U
nite
d In
dust
rial G
ases
Co.
, Ltd
. In
vest
ee
Fina
ncia
l ass
ets c
arrie
d at
cos
t - n
oncu
rren
t 4,
246
38,7
17
238
,717
N
ote
3Im
age
Mat
ch D
esig
n In
c.
Inve
stee
Fina
ncia
l ass
ets c
arrie
d at
cos
t - n
oncu
rren
t1,
400
14,0
005
14,0
00
Not
e 3
AnD
APT
Inc.
Inve
stee
Fi
nanc
ial a
sset
s car
ried
at c
ost -
non
curr
ent
1,00
0 32
,610
7
32,6
10
Not
e 3
Not
e 1:
M
arke
tabl
e se
curit
ies m
entio
ned
in th
e ta
ble
incl
ude
stoc
ks, b
onds
, ben
efic
iary
cer
tific
ate
and
the
deriv
ativ
e se
curit
ies f
rom
afor
emen
tione
d ite
ms.
Not
e 2:
Th
e m
arke
t val
ue w
as b
ased
on
stoc
k cl
osin
g pr
ice
as o
f Dec
embe
r 31,
201
6.
Not
e 3:
Th
e m
arke
t val
ue w
as b
ased
on
the
book
val
ue a
s of D
ecem
ber 3
1, 2
016.
Not
e 4:
Th
e fa
ir va
lue
was
bas
ed o
n va
luat
ion
tech
niqu
es.
Not
e 5:
A
s of D
ecem
ber 3
1, 2
016,
all
the
secu
ritie
s wer
e no
t ple
dged
or r
estri
cted
.
Not
e 6:
W
ith re
spec
t to
the
info
rmat
ion
of su
bsid
iarie
s, as
soci
ates
and
join
t ven
ture
s, pl
ease
see
TAB
LE 5
.
165
Vanguard InternationalSemiconductor Corporation
TA
BLE
2
VA
NG
UA
RD
INTE
RN
ATI
ON
AL
SEM
ICO
ND
UC
TO
R C
OR
POR
AT
ION
MA
RK
ET
AB
LE S
EC
UR
ITIE
S A
CQ
UIR
ED
AN
D D
ISPO
SED
OF
AT
CO
STS
OR
PR
ICES
OF
AT
LEA
ST N
T$30
0 M
ILL
ION
OR
20%
OF
TH
E PA
ID-I
N C
API
TA
L FO
R T
HE
YEA
R E
ND
ED D
EC
EM
BER
31,
201
6 (I
n Th
ousa
nds o
f New
Tai
wan
Dol
lars
, Unl
ess S
tate
d O
ther
wise
)
Com
pany
Nam
e T
ype
and
Nam
e of
M
arke
tabl
e Se
curi
ties
Fina
ncia
l Sta
tem
ent
Acc
ount
C
ount
erpa
rty
Rel
atio
nshi
p Be
ginn
ing
Bala
nce
Acq
uisi
tion
Disp
osal
Endi
ngBa
lanc
eSh
ares
/Uni
ts
(Tho
usan
ds)
Am
ount
Shar
es/U
nits
(T
hous
ands
) A
mou
ntSh
ares
/Uni
ts
(Tho
usan
ds)
Am
ount
Cos
tG
ain
(Los
s) o
n D
ispos
al
Shar
es/U
nits
(T
hous
ands
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mou
nt
Van
guar
d In
tern
atio
nal
Stru
ctur
ed
inve
stm
ents
Se
mic
ondu
ctor
C
orpo
ratio
n Y
uant
a in
tere
st li
nked
pr
inci
pal g
uara
ntee
no
tes
Fina
ncia
l ass
ets a
t fai
r va
lue
thro
ugh
prof
it or
loss
- cu
rren
t
- -
- $
-
- $
44
4,84
5-
$
- $
-
$
--
$
451,
293
Soci
ete
Gen
eral
e B
ank
U.S
. dol
lar
Bon
ds
Fina
ncia
l ass
ets a
t fai
r va
lue
thro
ugh
prof
it or
loss
- cu
rren
t
--
--
- 31
5,46
0-
315,
460
315,
460
--
-
166
Vanguard InternationalSemiconductor Corporation
TA
BLE
3
VA
NG
UA
RD
INT
ERN
AT
ION
AL
SEM
ICO
ND
UC
TO
R C
OR
POR
AT
ION
TO
TA
L P
UR
CH
ASE
S FR
OM
OR
SA
LES
TO
REL
ATE
D P
AR
TIE
S A
MO
UN
TIN
G T
O A
T L
EA
ST N
T$10
0 M
ILLI
ON
OR
20%
OF
TH
E P
AID
-IN
CA
PIT
AL
FO
R T
HE
YE
AR
EN
DE
D D
EC
EM
BE
R 3
1, 2
016
(In
Tho
usan
ds o
f New
Tai
wan
Dol
lars
)
Com
pany
Nam
e R
elat
ed P
arty
N
atur
e of
Rel
atio
nshi
pT
rans
actio
n D
etai
l A
bnor
mal
Tra
nsac
tion
Not
es/A
ccou
nts P
ayab
le o
r R
ecei
vabl
eN
ote
Purc
hase
s/Sa
les
Am
ount
%
to T
otal
Pa
ymen
t Ter
mU
nit P
rice
Pa
ymen
t Ter
mE
ndin
g B
alan
ce%
to T
otal
Van
guar
d In
tern
atio
nal
Sem
icon
duct
or C
orpo
ratio
n Ta
iwan
Sem
icon
duct
or
Man
ufac
turin
g C
ompa
ny L
td.
Maj
or sh
areh
olde
r Sa
les
$ 6,
702,
249
26
30 d
ays a
fter
clos
ing
$
- -
$
586,
847
15
-
167
Vanguard InternationalSemiconductor Corporation
TA
BLE
4
VA
NG
UA
RD
INT
ERN
AT
ION
AL
SEM
ICO
ND
UC
TO
R C
OR
POR
AT
ION
RE
CE
IVA
BLE
S FR
OM
REL
AT
ED
PA
RTI
ES A
MO
UN
TIN
G T
O A
T L
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ST N
T$1
00 M
ILLI
ON
OR
20%
OF
TH
E PA
ID-I
N C
API
TA
L
DE
CE
MB
ER
31,
201
6 (I
n T
hous
ands
of N
ew T
aiw
an D
olla
rs)
Com
pany
Nam
e R
elat
ed P
arty
N
atur
e of
Rel
atio
nshi
pE
ndin
g B
alan
ce
Tur
nove
r R
ate
Ove
rdue
A
mou
nt R
ecei
ved
in
Subs
eque
nt P
erio
d A
llow
ance
for
Bad
Deb
ts
Am
ount
Act
ion
Take
n
Van
guar
d In
tern
atio
nal S
emic
ondu
ctor
Cor
pora
tion
Ta
iwan
Sem
icon
duct
or
Man
ufac
turin
g C
ompa
ny L
td.
Maj
or sh
areh
olde
r $
586,
847
12.1
1
$
- -
$
58
6,84
7
$
-
168
Vanguard InternationalSemiconductor Corporation
TA
BLE
5
VA
NG
UA
RD
INTE
RN
ATI
ON
AL
SEM
ICO
ND
UC
TO
R C
OR
POR
AT
ION
INFO
RM
ATI
ON
ON
INV
EST
EES
FOR
TH
E Y
EAR
EN
DED
DE
CE
MB
ER 3
1, 2
016
(In
Thou
sand
s of N
ew T
aiw
an D
olla
rs, U
nles
s Sta
ted
Oth
erw
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stor
Com
pany
In
vest
ee C
ompa
ny
Loca
tion
Mai
n Bu
sine
sses
and
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duct
s
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stm
ent A
mou
nt
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nce
as o
f Dec
embe
r 31
, 201
6 N
et G
ain
(Los
s) o
f the
In
vest
ee
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eign
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urre
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Thou
sand
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Inve
stm
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n (L
oss)
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ecog
nize
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orei
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ies i
n Th
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nds)
Not
e
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r 31
, 20
16(F
orei
gn
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renc
ies i
n Th
ousa
nds)
Dec
embe
r 31
, 20
15(F
orei
gn
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renc
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n Th
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nds)
Shar
es (I
n T
hous
ands
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rcen
tage
of
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ryin
g V
alue
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gn
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tern
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nal
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Ass
ocia
tes I
nc.
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ish
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in Is
land
s In
vest
men
ts
$ 2
,596
,782
$
195,
492
8110
0 $
2,7
22,7
79 $
12
,596
$
12,5
96
Subs
idia
ry
Sem
icon
duct
or C
orpo
ratio
n C
MSC
, Inc
. H
sinc
hu C
ity, T
aiw
an
Inte
grat
ed c
ircui
t des
ign
serv
ices
and
rela
ted
busi
ness
es
112,
650
112,
650
9,90
225
61,4
4040
,143
10,0
12
Inve
stm
ent a
ccou
nted
fo
r usi
ng e
quity
m
etho
d Q
uora
Tec
hnol
ogy,
Inc.
D
elaw
are,
USA
Se
mic
ondu
ctor
rese
arch
and
dev
elop
men
t rel
ated
bu
sine
sses
16
6,17
5( U
SD
5,00
0)-
5,00
033
147,
553
( USD
4,
583)
(65,
798)
( USD
(2,0
38))
(21,
174)
( U
SD
(656
)) In
vest
men
t acc
ount
ed
for u
sing
equ
ity
met
hod
169
Vanguard InternationalSemiconductor Corporation
DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES
The companies 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, 2016 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 Standard NO.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 do not
prepare a separate set of consolidated financial statements of affiliates.
Very truly yours,
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION
By
LEUH FANG Chairman
February 21, 2017
170
Vanguard InternationalSemiconductor Corporation
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Shareholders Vanguard International Semiconductor Corporation
Opinion
We have audited the accompanying consolidated financial statements of Vanguard International Semiconductor Corporation and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, 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, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission 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, 2016. These matters were addressed in the context of our audit of the consolidated 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 consolidated financial statements of the Group for the year ended December 31, 2016, are described as follows:
Timing of revenue recognition
1. The sales revenue of the Group is material to the Group. Please refer to Note 24. The major types oftransactions together with their timing of recognition are as follows:
1) Revenue generated from domestic shipment with the transaction term of ex-works accounted forapproximately 58% of total revenue and is recognized as sales revenue at point of ex-factory. Revenuegenerated from domestic shipment with the transaction term of delivered-at-place accounted for 27% of
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total revenue and is also recognized at point of ex-factory due to its nature of the goods delivering and receiving are at the same day.
2) Revenue generated from oversea shipment accounted for 15% of the total revenue depending on thetrade terms where the revenue is recognized when the risk of goods is transferred to customers.
2. Revenues generated from either domestic or foreign shipments whose trade terms denote that the revenuesare recognized at point of ex-factory consist of 98% of total revenue. The recognition process of revenuethereof is to have sales personnel verify the shipment on the computer system, and the system automaticallyrecognizes the sale revenue and issues invoice. When the customers or their designated forwarders cometo withdraw the goods, warehouse personnel will have them sign off on handheld devices and transmit theinformation to the shipping system. The system automatically checks the shipment on a daily basis. Forgoods that are not withdrawn, the system will notify sales personnel for confirmation and delete the shippinglist where the sales revenue will be reversed automatically and the invoice cancelled.
3. Since the above process consists of manual controls, risk exists that revenue before or after the end of thereporting period being unrecognized in the appropriate period due to human errors.
4. We reviewed the revenue recognition policy of the Group, assessed the reasonableness of the revenuerecognition, conducted on-site observation and recorded the details of the last shipment of the year ended2016. We also traced all of the shipping records at December 31, 2016 against relevant supportingdocuments and accounting records to verify the accuracy of the timing of sales revenue recognition as wellas the monetary amount, and evaluated whether the risk and rewards of goods are transferred.
Timing of capitalization of property, plant and equipment
1. The annual capital expenditure of the Group relating to property, plant and equipment is significant to itsconsolidated financial statements. Because of the significance of such expenditure, delaying incapitalization thereof may lead to the consolidated financial statements not fairly presented. Please refer toNote 16.
2. We reviewed the capital expenditure policy of the Group on property, plant and equipment, assessed thereasonableness of the timing of capitalization, and conducted procedures as follows:
1) Selecting samples of newly acquired items from the lists of Advance Payments and Construction inProgress of the year to verify whether they are included in the un-capitalized list of the current month.
2) Selecting samples from those that are transferred from Advance Payments and Construction in Progressto Property, Plant and Equipment of the year to verify whether such items are not included in theun-capitalized list of the current month.
3) Selecting samples from the un-capitalized list at the year end and perform on-site count to observewhether such items were not ready for their intended use.
4) Selecting samples of items that were not capitalized over three months from the un-capitalized list toexamine whether the reasons of such items not capitalized explained by applicants or users wereapproved by supervisors.
Other Matter
We have also audited the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the years ended December 31, 2016 and 2015 on which we have issued an unmodified opinion.
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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission 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 dueto fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidencethat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement 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 areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theGroup’s internal control.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.
4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, basedon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a materialuncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in theconsolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, futureevents 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, includingthe disclosures, and whether the consolidated financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.
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Vanguard InternationalSemiconductor Corporation
6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision, and performance of the group audit. We remain solely responsiblefor our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2016 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 Yu-Feng Huang and Cheng-Chih Lin.
Deloitte & Touche Taipei, Taiwan Republic of China
February 21, 2017
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.
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VA
NG
UA
RD
INTE
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es 4
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7 56
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Oth
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e 19
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2,19
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e 31
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175
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016 2015 Amount % Amount %
NET REVENUE (Notes 4, 5, 21, 24 and 31) $ 25,828,634 100 $ 23,319,721 100
COST OF REVENUE (Notes 4, 13, 25 and 31) 16,904,482 65 16,422,455 70
GROSS PROFIT 8,924,152 35 6,897,266 30
OPERATING EXPENSES (Notes 4, 25 and 31) Marketing 274,542 1 202,581 1General and administrative 993,201 4 842,438 4Research and development 1,555,504 6 1,240,265 5
Total operating expenses 2,823,247 11 2,285,284 10
OPERATING INCOME 6,100,905 24 4,611,982 20
NONOPERATING INCOME AND EXPENSES (Note 4)Interest income 170,492 1 197,218 1Dividend income 24,003 - 21,004 -Other income (Note 31) 83,450 - 71,834 -Gain on disposal of property, plant and equipment 2,634 - 28 -Gain (loss) on financial assets and liabilities at fair
value through profit or loss 195,683 1 (146,066) (1)(Loss) gain on disposal of investment (Notes 11 and
15) (76) - 22,354 -Net foreign exchange (loss) gain (188,002) (1) 171,002 1Impairment loss on financial assets (Notes 8 and 11) (120,000) (1) (7,900) -Share of losses of associates and joint ventures (Note
15) (8,995) - (2,945) -
Total nonoperating income and expenses 159,189 - 326,529 1
INCOME BEFORE INCOME TAX 6,260,094 24 4,938,511 21
INCOME TAX EXPENSE (Notes 4 and 26) (722,169) (3) (780,928) (3)
NET INCOME 5,537,925 21 4,157,583 18(Continued)
176
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)
2016 2015 Amount % Amount %
OTHER COMPREHENSIVE INCOME (Notes 4 and 23)Items that will not be reclassified subsequently to
profit or loss: Remeasurement of defined benefit plans (Note 22) $ (72,263) - $ (16,581) -
Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign
operations 2,496 - 9,567 -Unrealized gain (loss) on available-for-sale
financial assets 74,911 - (54,307) -Cash flow hedges - - (70) -Share of other comprehensive income (loss) of
associates and joint ventures (Note 15) 448 - (495) -
Total other comprehensive income (loss) 5,592 - (61,886) -
TOTAL COMPREHENSIVE INCOME $ 5,543,517 21 $ 4,095,697 18
NET INCOME ATTRIBUTABLE TO Owner of the Corporation $ 5,537,925 21 $ 4,157,583 18Non-controlling interests - - - -
$ 5,537,925 21 $ 4,157,583 18
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO Owner of the Corporation $ 5,543,517 21 $ 4,095,697 18Non-controlling interests - - - -
$ 5,543,517 21 $ 4,095,697 18
EARNINGS PER SHARE (Note 27) Basic $ 3.38 $ 2.54Diluted $ 3.35 $ 2.50
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
177
Vanguard InternationalSemiconductor Corporation
VA
NG
UA
RD
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RN
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178
Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)
2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 6,260,094 $ 4,938,511Adjustments for:
Depreciation 2,032,173 2,303,949Amortization 21,061 15,347Net (gain) loss on financial assets and liabilities at fair value through
profit or loss (4,096) 1,118Interest income (170,492) (197,218)Dividend income (24,003) (21,004)Share-based payment - 31,374Share of loss of associates and joint ventures 8,995 2,945Gain on disposal of property, plant and equipment (2,634) (28)Loss (gain) on disposal of investments 76 (22,354)Impairment loss on financial assets 120,000 7,900Net loss on foreign currency exchange 6,527 6,968Changes in operating assets and liabilities:
Financial assets held for trading 1,276 504,866Notes and accounts receivable (828,834) 741,931Receivable from related parties (79,279) 195,236Other receivables (15,209) 12,907Other receivables from related parties 14,260 3,431Inventories 50,836 247,789Prepaid expenses (27,833) (49,291)Other current assets (92) 99Financial liabilities held for trading 14,555 (62,110)Derivative financial liabilities for hedging (7,020) (8,186)Notes and accounts payable 252,255 (281,940)Other payables 424,385 7,580Other payables to related parties 17,916 (40,781)Provisions 99,760 25,670Other current liabilities 33,439 (6,275)Net defined benefit liabilities 5,098 1,305Accrued profit sharing to employees and remuneration to
directors 208,677 (213,257)Cash generated from operations 8,411,891 8,146,482Interest received 163,401 198,568Income tax paid (602,057) (1,162,614)
Net cash provided by operating activities 7,973,235 7,182,436(Continued)
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Vanguard InternationalSemiconductor Corporation
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars)
2016 2015
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of financial assets designated as fair value through profit
or loss $ (1,909,981) $ (1,342,920)Proceeds from disposal of financial assets designated as fair value
through profit or loss 1,582,610 549,963Acquisitions of available-for-sale financial assets (525,947) -Acquisitions of held-to-maturity financial assets (2,133,864) (141,305)Proceeds from disposal of held-to-maturity financial assets 399,090 -Acquisitions of financial assets measured at cost (32,610) -Proceeds from disposal of financial assets measured at cost 38,187 -Acquisitions of investment accounted for using equity method (166,175) -Proceeds from disposal of investment accounted for using equity
method 19,633 -Acquisitions of property, plant and equipment (1,279,436) (1,501,118)Proceeds from disposal of property, plant and equipment 6,573 28(Increase) decrease in refundable deposits (189) 793Acquisitions of intangible assets (10,132) (26,731)(Increase) decrease in other financial assets (102,331) 383,748Dividends received 24,003 21,004
Net cash used in investing activities (4,090,569) (2,056,538)
CASH FLOWS FROM FINANCING ACTIVITIES Decrease in other non-current liabilities (1,094) (85,232)Cash dividends (4,261,354) (4,259,353)Treasury stock transferred to employees - 9,873
Net cash used in financing activities (4,262,448) (4,334,712)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (6,162) 9,926
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (385,944) 801,112
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,950,847 17,149,735
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,564,903 $ 17,950,847
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
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VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION
Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.
The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.
The functional currency of the Corporation is New Taiwan dollars. The consolidated financial statementsare presented in New Taiwan dollars.
2. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements were approved and authorized for issue by the Board of Directors onFebruary 21, 2017.
3. APPLICATION OF NEW REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS
a. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuersand the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS),Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC for applicationstarting from 2017
Rule No. 1050050021 and Rule No. 1050026834 issued by the FSC stipulated that starting January 1,2017, the Group should apply the amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers and the IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)issued by the IASB and endorsed by the FSC for application starting from 2017.
New, Amended or Revised Standards and Interpretations (the “New IFRSs”)
Effective Date Announced by IASB (Note 1)
Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) Amendments to IFRS 10, IFRS 12 and IAS 28“'Investment Entities:
Applying the Consolidation Exception” January 1, 2016
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations”
January 1, 2016
IFRS 14 “Regulatory Deferral Accounts” January 1, 2016 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016
(Continued)
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New, Amended or Revised Standards and Interpretations (the “New IFRSs”)
Effective Date Announced by IASB (Note 1)
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization”
January 1, 2016
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 Amendment to IAS 19 “Defined Benefit Plans: Employee
Contributions” July 1, 2014
Amendment to IAS 27 “Equity Method in Separate Financial Statements”
January 1, 2016
Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”
January 1, 2014
Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”
January 1, 2014
IFRIC 21 “Levies” January 1, 2014 (Concluded)
Note 1: Unless stated otherwise, the above new or amended IFRSs are effective for annual periods beginning on or after their respective effective dates.
Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.
Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.
The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies, except for the following:
1) Amendment to IFRS 8 “Operating Segments”
IFRS 8 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to require disclosureof the judgments made by management in applying the aggregation criteria to operating segments,including a description of the operating segments aggregated and the economic indicators assessedin determining whether the operating segments have “similar economic characteristics”. Theamendment also clarifies that a reconciliation of the total of the reportable segments’ assets to theentity’s assets should only be provided if the segments’ assets are regularly provided to the chiefoperating decision-maker. The application of the amendment in 2017 is expected to have noimpact.
2) Amendments to IFRS 13 “Fair Value Measurement”
The basis for conclusions of IFRS 13 was amended by the Annual Improvements to IFRSs:2010-2012 Cycle to clarify that when the amendment becomes effective in 2017, the short-termreceivables and payables with no stated interest rate will be measured at their invoice amountswithout discounting, if the effect of not discounting is immaterial. Otherwise, the material effectof discounting will be adjusted retrospectively. The application of the amendment in 2017 isexpected to have no impact.
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3) Amendment to IAS 24 “Related Party Disclosures”
IAS 24 was amended by the Annual Improvements to IFRSs: 2010-2012 Cycle to clarify that amanagement entity providing key management personnel services to the Group is a related party ofthe Group. Consequently, the Group is required to disclose as related party transactions theamounts incurred for the service paid or payable to the management entity for the provision of keymanagement personnel services. However, disclosure of the components of such compensation isnot required. The application of the amendment in 2017 is expected to have no impact.
4) Amendment to IAS 36 “Impairment of Assets”
The amendment “Disclosures for Non-financial Assets” clarifies that the recoverable amount of anasset or a cash-generating unit is disclosed only when an impairment loss on the asset has beenrecognized or reversed during the period. Furthermore, if the recoverable amount of an item ofproperty, plant and equipment for which impairment loss has been recognized or reversed is fairvalue less costs of disposal, the Group is required to disclose the fair value hierarchy. If the fairvalue measurements are categorized within Level 2/Level 3, the valuation technique and keyassumptions used to measure the fair value are disclosed. The discount rate used is disclosed ifsuch fair value less costs of disposal is measured by using present value technique. Theamendment will be applied retrospectively.
5) Amendments to the Regulations Governing the Preparation of Financial Reports by SecuritiesIssuers
The amendments include additions of several accounting items and requirements for disclosures ofimpairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC forapplication starting from 2017. In addition, as a result of the post implementation review of IFRSsin Taiwan, the amendments also include emphasis on certain recognition and measurementconsiderations and add requirements for disclosures of related party transactions and goodwill.
The amendments stipulate that other companies or institutions of which the chairman of the boardof directors or president serves as the chairman of the board of directors or the president, or is thespouse or second immediate family of the chairman of the board of directors or president of theGroup are deemed to have a substantive related party relationship, unless it can be demonstratedthat no control, joint control, or significant influence exists. Furthermore, the amendments requirethe disclosure of the names of the related parties and the relationship with whom the Group hassignificant transaction. If the transaction or balance with a specific related party is 10% or more ofthe Group’s respective total transaction or balance, such transaction should be separately disclosedby the name of each related party.
The amendments also require additional disclosure if there is a significant difference between theactual operation after business combination and the expected benefit on acquisition date.
The disclosures of related party transactions will be enhanced when the above amendments areretrospectively applied in 2017.
Except for the above impacts, as of the date the consolidated financial statements were authorized for issue, the Group continues assessing other possible impacts that application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Group’s financial position and financial performance, and will disclose these other impacts when the assessment is completed.
b. New IFRSs in issue but not yet endorsed by the FSC
The Group has not applied the following IFRSs issued by the IASB but not yet endorsed by the FSC.
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Vanguard InternationalSemiconductor Corporation
The FSC announced that amendments to IFRS 4 (only the overlay approach can be applied), IFRS 9 and IFRS 15 will take effect starting January 1, 2018. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new IFRSs.
New IFRSs Effective Date
Announced by IASB (Note 1)
Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendment to IFRS 2 “Classification and Measurement of
Share-based Payment Transactions” January 1, 2018
Amendment to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”
January 1, 2018
IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures” January 1, 2018
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 15 “Revenue from Contracts with Customers” January 1, 2018 Amendments to IFRS 15 “Clarifications to IFRS15 Revenue from
Contracts with Customers” January 1, 2018
IFRS 16 “Leases” January 1, 2019 Amendment to IAS 7 “Disclosure Initiative” January 1, 2017
“”
January 1, 2017
Amendments to IAS 40 “Transfers of investment property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”January 1, 2018
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 amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendment to IAS 28 is retrospectively applied for annual periods beginning on or after January 1, 2018.
1) IFRS 9 “Financial Instruments”
Recognition and measurement of financial assets
With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.
For the Group’s debt instruments that have contractual cash flows that are solely payments ofprincipal and interest on the principal amount outstanding, their classification and measurement areas follows:
a) For debt instruments, if they are held within a business model whose objective is to collect thecontractual cash flows, the financial assets are measured at amortized cost and are assessed forimpairment continuously with impairment loss recognized in profit or loss, if any. Interestrevenue is recognized in profit or loss by using the effective interest method;
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Vanguard InternationalSemiconductor Corporation
b) For debt instruments, if they are held within a business model whose objective is achieved byboth the collecting of contractual cash flows and the selling of financial assets, the financialassets are measured at fair value through other comprehensive income (FVTOCI) and areassessed for impairment. Interest revenue is recognized in profit or loss by using the effectiveinterest method, and other gain or loss shall be recognized in other comprehensive income,except for impairment gains or losses and foreign exchange gains and losses. When the debtinstruments are derecognized or reclassified, the cumulative gain or loss previously recognizedin other comprehensive income is reclassified from equity to profit or loss.
Except for above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.
Impairment of financial assets
IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.
For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.
Hedge accounting
The main changes in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.
Transition
Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed to apply IFRS 9 when it becomes effective. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in the current period and restatement of prior periods is not required. The requirements for general hedge accounting shall be applied prospectively and the accounting for hedging options shall be applied retrospectively.
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Vanguard InternationalSemiconductor Corporation
2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”
The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.
Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control in an associate or a joint venture,the gain or loss resulting from the transaction is recognized only to the extent of the unrelatedinvestors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss iseliminated.
3) IFRS 15 “Revenue from Contracts with Customers” and related amendment
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.
When applying IFRS 15, an entity shall recognize revenue by applying the following steps:
Identify the contract with the customer;Identify the performance obligations in the contract;Determine the transaction price;Allocate the transaction price to the performance obligations in the contract; andRecognize revenue when the entity satisfies a performance obligation.
In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Group regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each of those goods or services individually rather than to transfer combined items).
When IFRS 15 and related amendment are effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.
4) IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.
Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities forall leases on the consolidated balance sheets except for low-value and short-term leases. TheGroup may elect to apply the accounting method similar to the accounting for operating lease underIAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensiveincome, the Group should present the depreciation expense charged on the right-of-use assetseparately from interest expense accrued on the lease liability; interest is computed by usingeffective interest method. On the consolidated statements of cash flows, cash payments for theprincipal portion of the lease liability are classified within financing activities; cash payments forinterest portion are classified within operating activities.
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Vanguard InternationalSemiconductor Corporation
The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor.
When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.
5) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”
The amendment clarifies that the difference between the carrying amount of the debt instrumentmeasured at fair value and its tax base gives rise to a temporary difference, even though there areunrealized losses on that asset, irrespective of whether the Group expects to recover the carryingamount of the debt instrument by sale or by holding it and collecting contractual cash flows.
In addition, in determining whether to recognize a deferred tax asset, the Group should assess adeductible temporary difference in combination with all of its other deductible temporarydifferences, unless the tax law restricts the utilization of losses to deduction against income of aspecific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendment also stipulatesthat, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Group’s assets for more than their carrying amount if there issufficient evidence that it is probable that the Group will achieve this, and that the estimate forfuture taxable profit should exclude tax deductions resulting from the reversal of deductibletemporary differences.
6) IFRIC 22 Foreign Currency Transactions and Advance Consideration”
IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in thefunctional currency by applying to the foreign currency amount the spot exchange rate between thefunctional currency and the foreign currency at the date of the transaction. IFRIC 22 furtherexplains that the date of the transaction is the date on which an entity recognizes a non-monetaryasset or non-monetary liability from payment or receipt of advance consideration. If there aremultiple payments or receipts in advance, the entity shall determine the date of the transaction foreach payment or receipt of advance consideration.
The Group shall apply IFRIC 22 either retrospectively or prospectively to all assets, expenses andincome in the scope of the Interpretation initially recognized on or after (a) the beginning of thereporting period in which the entity first applies IFRIC 22, or (b) the beginning of a prior reportingperiod presented as comparative information in the financial statements of the reporting period inwhich the entity first applies IFRIC 22
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.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
a. Statement of compliance
The consolidated financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers and IFRSs endorsed by the FSC.
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Vanguard InternationalSemiconductor Corporation
b. Basis of preparation
The consolidated financial statements have been prepared on the historical cost basis except forfinancial instruments which are measured at fair values.
The fair value measurements, where are grouped into Levels 1 to 3 based on the degree to which thefair value measurement inputs are observable and base on the significance of the inputs to the fair valuemeasurement 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 forthe 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 the asset or liability.
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 aliability 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 least12 months after the reporting period.
Assets and liabilities that are not classified as current are classified as non-current.
d. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Corporation and theentities controlled by the Corporation (its subsidiaries).
When necessary, adjustments are made to the financial statements of subsidiaries to bring theiraccounting policies in line with those used by the Corporation.
All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.
See Note 14 and Table 6 for the detail information of the subsidiaries.
e. Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies otherthan the entity’s functional currency (foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.
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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 except for exchange differences on transactions entered into in order to hedge certain foreign currency risks.
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 retranslated.
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 currency different from the currency of the Corporation) are translated into the presentation currency - New Taiwan dollars 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.
A disposal of the Group’s entire interest in a foreign operation all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit or loss.
f. Inventories
Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and cost necessary to make the sale.Inventories are recorded at the weighted-average cost on the balance sheet date.
g. Investment in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiarynor an interest in a joint venture.
The Corporation uses the equity method to account for its investments in associates.
Under the equity method, investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Group’s share of the profit or loss and other comprehensive income of theassociate. The Group also recognized the changes in the share of equity of associates.
When the Group subscribes for additional new shares of the associate at a percentage different from itsexisting ownership percentage, the resulting carrying amount of the investment differs from the amountof the Group’s proportionate interest in the associate. The Group records such a difference as anadjustment to investments with the corresponding amount charged or credited to capital surplus -changes in the Group’s share of the equity of associates. If the Group’s ownership interest is reduceddue to the additional subscription of the new shares of associate, the proportionate amount of the gainsor losses previously recognized in other comprehensive income in relation to that associate isreclassified to profit or loss on the same basis as would be required if the investee had directly disposedof the related assets or liabilities. When the adjustment should be debited to capital surplus, but thecapital surplus recognized from investments accounted for by the equity method is insufficient, theshortage is debited to retained earnings.
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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 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. 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 attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. 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 if that associate had directly disposed of the related assets or liabilities.
When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’ consolidated financial statements only to the extent that interests in the associate that are not related to the Group.
h. Property, plant, and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation and accumulatedimpairment loss.
Depreciation on property, plant, and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each year, with the effect of any changes in estimates accounted foron a prospective basis.
On derecognition of an item of property, plant and equipment, the difference between the disposalproceeds and the carrying amount of the asset is recognized in profit or loss.
i. Intangible assets
1) Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each year, with the effect of any changes inestimates accounted for on a prospective basis.
2) Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:
a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;
b) The intention to complete the intangible asset and use or sell it;
c) The ability to use or sell the intangible asset;
d) How the intangible asset will generate probable future economic benefits;
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e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and
f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.
The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. 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 thecarrying amount of the asset is recognized in profit or loss.
j. 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 andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss. When it is not possible to estimatethe recoverable amount of an individual asset, the Group estimates the recoverable amount of thecash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment 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 recoverableamount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carryingamount of the asset or cash-generating unit is reduced to its recoverable amount, with the resultingimpairment loss recognized in profit or loss.
When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generatingunit is increased to the revised estimate of its recoverable amount, but only to the extent of the carryingamount that would have been determined had no impairment loss been recognized for the asset orcash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.
k. Financial instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to thecontractual provisions of the instruments.
Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom 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 fairvalue through profit or loss are recognized immediately in profit or loss.
Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis.
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1) Measurement category
Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss, held-to-maturity financial assets, available-for-sale financial assets and loans andreceivables.
a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.
A financial asset may be designated as at fair value through profit or loss upon initialrecognition if:
i) Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or
ii) The financial asset forms part of a group of financial assets or financial liabilities or both,which is managed and evaluated performance on a fair value basis, in accordance with theGroup’s documented risk management or investment strategy, and information about thegrouping is provided internally on that basis; or
iii) The contract contains one or more embedded derivatives so that the entire hybrid(combined) contract can be designated as at fair value through profit or loss.
Financial assets at fair value through profit or loss 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 incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 30.
b) Held-to-maturity financial assets
The corporate bonds which the Group invests in and has positive intent and ability to hold tomaturity are classified as held-to-maturity financial assets.
Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.
c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.
Available-for-sale financial assets are measured at fair value. Changes in the carrying amountsof available-for-sale monetary financial assets relating to changes in foreign currency exchangerates, interest income calculated using the effective interest method and dividends onavailable-for-sale equity investments are recognized in profit or loss. Other changes in thecarrying amount of available-for-sale financial assets are recognized in other comprehensiveincome and will be reclassified to profit or loss when the investment is disposed of or isdetermined to be impaired.
Dividends on available-for-sale equity instruments are recognized in profit or loss when theGroup’s right to receive the dividends is established.
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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 are presented in a separate line item as financial assets carried 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.
d) Loans and receivables
Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured at amortized cost using the effectiveinterest method, less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.
Cash equivalent includes time deposits and repurchase bonds, which are highly liquid, readilyconvertible to a known amount of cash and be subject to an insignificant risk of changes invalue. These cash equivalents are held for the purpose of meeting short-term cashcommitments.
2) Impairment of financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.
Objective evidence of impairment could include: significant financial difficulty of the debtor; or itbecoming probable that the debtor will enter bankruptcy or financial reorganization.; or a default ordelinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or disappearance of an active market for thatfinancial asset because of the issuer’s financial difficulties or other reasons.
Accounts receivable that are assessed as not impaired individually are further assessed forimpairment on a collective basis. Objective evidence of impairment for a portfolio of accountsreceivable could include the Group’s past experience in the collection of payments, an increase inthe number of delayed payments, as well as observable changes in national or local economicconditions that correlate with defaults on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the financial assets at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not beenrecognized.
For available-for-sale equity investments, a significant or prolonged decline in the fair value of thesecurity below its cost is considered to be objective evidence of impairment.
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For all other financial assets, objective evidence of impairment could include:
a) Significant financial difficulty of the issuer or counterparty; or
b) Breach of contract, such as a default or delinquency in interest or principal payments; or
c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or
d) The disappearance of an active market for that financial asset 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 an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.
For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated 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.
3) Derecognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another entity.
On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the sum of the consideration received and receivable and the cumulative gain or lossthat had been recognized in other comprehensive income is recognized in profit or loss.
Equity instruments
Equity instruments issued by a group entity are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.
Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.
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Financial liabilities
1) Subsequent measurement
Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified as at fair value through profit or loss when the financial liability iseither held for trading or is designated as at fair value through profit or loss.
Financial liabilities held for trading are stated at fair value, with any gains or losses arising onremeasurement recognized in profit or loss. The net gain or loss recognized in profit or lossincorporates any interest or dividend paid for the financial liability. Fair value is determined in themanner described in Note 30.
2) Derecognition of financial liabilities
The difference between the carrying amount of the financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.
l. Hedge accounting
The Group designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.
1) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.
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Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when the hedging instrument no longer meets the criteria for hedge accounting.
2) Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gain or loss relating to theineffective portion is recognized immediately in profit or loss.
The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the same period when the hedgeditems affect profit or loss. If a hedge of a forecast transaction subsequently results in therecognition of a non-financial asset or a non-financial liability, the associated gains and losses thatwere recognized in other comprehensive income are removed from equity and included in the initialcost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued prospectively when the Group revokes the designated hedgingrelationship, or when the hedging instrument expires or is sold, terminated, or exercised, or whenthe hedging instrument no longer meets the criteria for hedge accounting. The cumulative gain orloss on the hedging instrument that has been previously recognized in other comprehensive incomefrom the period when the hedge was effective remains separately in equity until the forecasttransaction occurs. When a forecast transaction is no longer expected to occur, the gain or lossaccumulated in equity is recognized immediately in profit or loss.
m. Provisions
Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.
n. Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Sales returns are recognized atthe time of sale according to the reliable estimate of future returns based on past experience and otherrelevant factors.
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 thegoods;
b) The Group retains neither continuing managerial involvement to the degree usually associatedwith 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.
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The Group 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 paymenthas been established provided that it is probable that the economic benefits will flow to the Groupand the amount of income can be measured reliably.
Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Group and the amount of income can be measured reliably. Interest income isaccrued on a time basis by reference to the principal outstanding and at the applicable effectiveinterest rate.
o. Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.
1) The Group as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rents are recognized as income in the period in which they are incurred.
2) The Group as lessee
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.Contingent rents are recognized as an expense in the period in which they are incurred.
p. Employee benefits
1) Short-term employee benefits
Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related service.
2) Retirement benefits
Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.
Defined benefit costs (including service cost, net interest and remeasurement) under defined benefitretirement 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 are recognized asemployee benefits expense in the period they occur. Remeasurement, comprising actuarial gainsand losses and the return on plan assets (excluding interest), is recognized in other comprehensiveincome in the period in which they occur. Remeasurement recognized in other comprehensiveincome is reflected immediately in retained earnings and will not be reclassified to profit or loss.
Net defined benefit liability represents the actual deficit in the Group’s defined benefit plan.
3) Termination benefits
A liability for a termination benefit is recognized at the earlier of when the Group can no longerwithdraw the offer of the termination benefit and when the Group recognizes any relatedrestructuring costs.
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q. Share-based payment arrangements
Employee stock options granted to employee
The fair value at the grant date of the employee share options is expensed on a straight-line basis overthe vesting period, based on the Group’s best estimates of the number of shares or options that areexpected to ultimately vest, with a corresponding increase in capital surplus - employee stock options.It is recognized as an expense in full at the grate date if vesting immediately.
At the end of each reporting period, the Group revises its estimate of the number of employee shareoptions expected to vest.
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, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve to retain the earnings.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s taxprovision.
2) Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences and loss carryforwards.Deferred tax assets are generally recognized for all deductible temporary differences probable thattaxable profits will be available against which those deductible temporary differences and losscarryforwards can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in theforeseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that therewill be sufficient taxable profits against which to utilize the benefits of the temporary differencesand 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 andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreviewed at the end of each reporting period and recognized to the extent that it has becomeprobable 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 theperiod in which the liability is settled or the asset is realized, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Group expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.
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3) Current and deferred tax for the year
Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred taxes are also recognized in other comprehensive income or directly in equity, respectively.
s. Treasury stocks
Repurchase of the Group’s own equity instruments (treasury stocks) is recognized and deducted directlyfrom equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellationof the Group’s own equity instruments.
5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY
In the application of the Group’s accounting policies, management is required to make judgments, estimatesand assumptions about the carrying amounts of assets and liabilities that are not readily apparent from othersources. The estimates and associated assumptions are based on historical experience and other factorsthat are considered relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.
a. Revenue recognition
The Group recognizes revenue when the conditions described in Note 4 (n) are satisfied. The Groupalso records a provision for estimated future returns and other allowances in the same period the relatedrevenue is recorded. Provision for estimated sales returns and other allowances is generally made andadjusted at a specific percentage based on historical experience and any known factors that wouldsignificantly affect the allowance, and our management periodically reviews the adequacy of thepercentage used.
As of December 31, 2016 and 2015, the Group recognized provisions for estimated sales returns andother allowances of $236,336 thousand and $136,576 thousand, respectively.
b. Held-to-maturity financial assets
Management has reviewed the Group’s held-to-maturity financial assets in light of its capitalmaintenance and liquidity requirements and has confirmed the Group’s positive intention and ability tohold those assets to maturity.
c. Income taxes
As of December 31, 2016 and 2015, the carrying amount of the deferred tax assets in relation to unusedtax losses was $25,920 thousand and $28,515 thousand, respectively. As of December 31, 2016 and2015, no deferred tax asset has been recognized on the tax losses of $20,543 thousand and $26,046thousand, respectively, due to the unpredictability of future profit streams. The realizability of thedeferred tax asset mainly depends on whether sufficient future profits or taxable temporary differenceswill be available. In cases where the actual future profits generated are less than expected, a materialreversal of deferred tax assets may arise, which would be recognized in profit or loss for the period inwhich such reversal takes place.
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d. Estimated impairment of accounts receivable
When there is objective evidence of impairment loss, the Group takes into consideration the estimationof future cash flows. The amount of the impairment loss is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate.Where the actual future cash flows are less than expected, a material impairment loss may arise.
e. Write-down of inventory
The net realizable value of inventory is the estimated selling price in the ordinary course of businessless the estimated costs of completion and disposal. The estimation of net realizable value was basedon 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 the net realizable value.
f. Recognition and measurement of defined benefit plans
The net defined benefit liabilities and the resulting defined benefit costs under the defined benefitpension plans are calculated using the projected unit credit method. Actuarial assumptions comprisethe discount rate, rate of employee turnover, future salary increase, etc. Changes in economiccircumstances and market conditions will affect these assumptions and may have a material impact onthe amount of expenses and liabilities.
6. CASH AND CASH EQUIVALENTS
December 312016 2015
Deposits in bank $ 16,023,446 $ 16,764,202Cash equivalents
Bonds acquired under resale agreements 1,541,457 1,186,645
$ 17,564,903 $ 17,950,847
The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:
December 312016 2015
Bank deposits 0%-1.70% 0%-4.10% Bonds acquired under resale agreements 0.42%-1.50% 0.35%-5.10%
7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 312016 2015
Financial assets designated as at FVTPL
Credit linked notes (a) $ 715,491 $ 1,094,381 Interest rate linked notes (a) 612,427 -Exchange linked notes (a) 96,613 -
1,424,531 1,094,381 (Continued)
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December 312016 2015
Financial assets held for trading
Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) $ 1,098 $ 3,514 Currency-swap contracts (c) 2,457 -
3,555 3,514
Financial assets at FVTPL-current $ 1,428,086 $ 1,097,895
Financial liabilities held for trading
Derivative financial liabilities (not designated as hedging instruments)Forward exchange contracts (b) $ 42,073 $ 15,720 Currency-swap contracts (c) 956 12,754
Financial liabilities at FVTPL-current $ 43,029 $ 28,474 (Concluded)
a. The Group entered into structured investment contracts with a bank in 2016 and 2015. The structuredinvestment contracts included embedded derivative instruments which were not closely related to thehost contracts. The Group designated the entire contract as financial asset at FVTPL on initialrecognition.
b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2016
Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.05.11 US$ 158,000
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.04-2016.05.06 US$ 130,000
c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2016
Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.01.24 US$ 11,000 Buy forward exchange contracts US$ to NT$ 2017.03.27 US$ 10,000
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.07-2016.02.24 US$ 48,000
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The Group entered into foreign exchange forward contracts and currency-swap contracts during the years ended December 31, 2016 and 2015 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.
8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 312016 2015
Current
Foreign corporate bonds $ 64,386 $ -
Non-current
Listed stocks $ 43,648 $ 88,731 Domestic bonds 460,033 -
$ 503,681 $ 88,731
The Group recognized impairment loss of $120,000 thousand in 2016.
9. HELD-TO-MATURITY FINANCIAL ASSETS
December 312016 2015
Current
Foreign investments Volkswagen Int’l Finance N.V. bonds $ - $ 49,655 China Construction Bank Asia Co bonds - 44,928 China Minmetals Corp bonds - 44,919
$ - $ 139,502
Non-current
Foreign investments SUMIBK bonds $ 227,370 $ - QNB Finance Ltd. bonds 258,714 -Standard Chartered PLC bonds 280,144 -Bank of China Limited, Luxembourg Branch bonds 151,427 -Industrial and Commercial Bank of China Limited, Sydney
Branch bonds 67,769 -China Construction Bank (Asia) Co., Ltd. bonds 149,993 -TSMC Global Ltd. bonds 257,351 -Mizuho Bank Ltd. bonds 258,683 -Bank of China (Hong Kong) Limited bonds 173,056 -Horsepower Finance Ltd. bonds 63,860 -
$ 1,888,367 $ -
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10. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING
December 312016 2015
Fair Value Hedge
Fair Value Hedge
Derivative financial liabilities for hedging - current
Currency-swap contracts $ - $ 7,020
a. Fair value hedge
The Group used forward exchange contracts and currency-swap contracts to hedge risks on exchangerate fluctuations of foreign-currency denominated accounts receivable. The forward exchangecontracts and currency-swap contracts had the same term as the respective financial assets; themanagement believed the forward exchange contracts and currency-swap contracts were highlyeffective hedge instruments.
The outstanding currency-swap contracts at the end of the reporting period were as follows:
Currency Maturity Date
ContractAmount
(In Thousands)
December 31, 2015
Sell forward exchange contracts US$ to NT$ 2016.01.19-2016.02.19 US$ 20,000
11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT
December 312016 2015
Unlisted stocks $ 85,327 $ 82,497
Classification of financial assets Available-for-sale financial assets $ 85,327 $ 82,497
The management believed that the fair value of the aforementioned unlisted equity investments held by the Group cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of the reporting period.
The Group sold its interest in Image Match Design Inc. with carrying amount of $10,000 thousand in August 2016 and recognized a gain of $14,925 thousand. The Group recognized $7,900 thousand of impairment loss in 2015 due to investee’s capital reduction to offset a deficit.
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12. NOTES AND ACCOUNTS RECEIVABLE, NET
December 312016 2015
Notes and accounts receivable $ 3,350,334 $ 2,521,500 Allowance for doubtful accounts (1,987) (1,987)
Notes and accounts receivable, net $ 3,348,347 $ 2,519,513
The average credit period on sales of goods was 30 to 45 days after month closing. No interest was charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Group considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts was based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.
For the accounts receivable balance that were past due at the end of the reporting period, the Group had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.
The aging analyses of notes and accounts receivable were as follows:
December 31Past Due Days 2016 2015
Not past due and not impaired 0 days $ 3,290,278 $ 2,470,291Past due but not impaired Less than 60 days 24,548 44,432
61-90 days 35,479 6,162More than 90 days 29 615
60,056 51,209
$ 3,350,334 $ 2,521,500
The above aging analyses were based on the past due dates.
Movements of the allowance for doubtful accounts were as follows:
Years Ended December 312016 2015
Balance, beginning of year $ 1,987 $ 1,987 Add: Provision - -
Balance, end of year $ 1,987 $ 1,987
The Group had no impairment loss recognized on the accounts receivable during the years ended December 31, 2016 and 2015.
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13. INVENTORIES
December 312016 2015
Finished goods $ 202,723 $ 314,299 Work in process 1,212,579 1,181,419 Raw materials 431,448 377,668 Supplies and spare parts 353,025 377,225
$ 2,199,775 $ 2,250,611
The write-downs of inventories included in the cost of revenue were as below:
Years Ended December 31 2016 2015
Provision of inventory valuation and obsolescence losses $ 16,449 $ 69,547
For the years ended December 31, 2016 and 2015, cost of revenue included unallocated manufacturing overheads amounted of $130,382 thousand, and $703,284 thousand, respectively.
14. SUBSIDIARIES
Subsidiaries included in the consolidated financial statements
Proportion of Ownership December 31
Investor Investee Nature of Business 2016 2015
Vanguard International Semiconductor Corporation
VIS Associates Inc. Investments 100% 100%
VIS Associates Inc. Specialty TechFarm, Inc. Investments - 100% VIS Associates Inc. VIS Investment Holding, Inc. Investments 100% 100% VIS Investment Holding, Inc. VIS Micro, Inc. Marketing service 100% 100%
Specialty TechFarm, Inc. completed liquidation in April 2016.
15. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
Investments in associates
December 312016 2015
Associates individually immaterial
CMSC, Inc. $ 61,440 $ 51,439 Quora Technology, Inc. 147,553 -SkyTraq Technology, Inc. - 26,422
$ 208,993 $ 77,861
Refer to Table 6 “Information on Investees” for the nature of business, principal place of business and country of incorporation of the associates.
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Aggregate information of associates that are not individually material
Years Ended December 312016 2015
The Group’s share of: Loss from continuing operations $ (8,995) $ (2,945)Other comprehensive income (loss) 448 (495)
Total comprehensive loss for the year $ (8,547) $ (3,440)
The Group sold all of its interest in SkyTraq Technology Inc. in February 2016. This transaction resulted in the recognition of a loss of $9,326 thousand.
In March 2016, the Group subscribed 5,000 thousand shares of preferred stocks of Quora Technology, Inc. in cash amounting to $166,175 thousand. The Group’s percentage of ownership in Quora Technology Inc. was 31.04% and exercised significant influence over Quora Technology, Inc. As of December 31, 2016, the Group’s percentage of ownership in Quora Technology Inc. was 32.76%.
INNO-TECH Co., Ltd., which was originally accounted for using equity method, conducted the election of directors and supervisors in June 2015 with the result that the Group no longer exercises significant influence. The 13% interest held by the Group with a fair value of US$353 thousand was changed to be treated as a financial asset carried at cost. For the year ended December 31, 2015, due to the above transaction, the Group recognized $22,354 thousand of gain on disposal of investment which include write-off the exchange differences on translation of foreign operations and retained capital surplus and the difference of fair value.
The investments in associates accounted for using the equity method, the share of net profit or loss and the share of other comprehensive (loss) income from investments were calculated based on the unaudited financial statements. The Group’s management considered the use of unaudited financial statements of the investees did not have material impact on its consolidated financial statements.
16. PROPERTY, PLANT AND EQUIPMENT
Advance Payments and
BuildingsMachinery and
Equipment Other
Equipment Construction in Progress Total
Cost
Balance, January 1, 2015 $ 14,608,573 $ 54,611,302 $ 388,191 $ 1,084,408 $ 70,692,474Additions 397,617 1,761,332 8,349 (874,691) 1,292,607Disposal - (42,993) (3,366) - (46,359)Reclassified - 6,302 660 - 6,962Translation adjustments - - 73 - 73
Balance, December 31, 2015 $ 15,006,190 $ 56,335,943 $ 393,907 $ 209,717 $ 71,945,757
Accumulated depreciation
Balance, January 1, 2015 $ 11,477,893 $ 50,696,476 $ 350,817 $ - $ 62,525,186Depreciation 621,831 1,669,656 12,462 - 2,303,949Disposal - (42,993) (3,366) - (46,359)Translation adjustments - - 63 - 63
Balance, December 31, 2015 $ 12,099,724 $ 52,323,139 $ 359,976 $ - $ 64,782,839(Continued)
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Advance Payments and
BuildingsMachinery and
Equipment Other
Equipment Construction in Progress Total
Accumulated impairment
Balance, January 1, 2015 and December 31, 2015 $ - $ 183,521 $ - $ - $ 183,521
Carrying amounts on December 31, 2015 $ 2,906,466 $ 3,829,283 $ 33,931 $ 209,717 $ 6,979,397
Cost
Balance, January 1, 2016 $ 15,006,190 $ 56,335,943 $ 393,907 $ 209,717 $ 71,945,757Additions 79,335 984,319 3,129 273,637 1,340,420Disposal (5,028) (16,688) (390) - (22,106)Reclassified - - 385 - 385Translation adjustments - - (43) - (43)
Balance, December 31, 2016 $ 15,080,497 $ 57,303,574 $ 396,988 $ 483,354 $ 73,264,413
Accumulated depreciation
Balance, January 1, 2016 $ 12,099,724 $ 52,323,139 $ 359,976 $ - $ 64,782,839Depreciation 606,511 1,414,817 10,845 - 2,032,173Disposal (1,089) (16,688) (390) - (18,167)Translation adjustments - - (34) - (34)
Balance, December 31, 2016 $ 12,705,146 $ 53,721,268 $ 370,397 $ - $ 66,796,811
Accumulated impairment
Balance, January 1, 2016 and December 31, 2016 $ - $ 183,521 $ - $ - $ 183,521
Carrying amounts on December 31, 2016 $ 2,375,351 $ 3,398,785 $ 26,591 $ 483,354 $ 6,284,081
(Concluded)
The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:
BuildingsMain plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years
Machinery and equipment 3 to 5 yearsOther equipment 3 to 7 years
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17. INTANGIBLE ASSETS
Years Ended December 31 2016 2015
Computer software
CostBalance, January 1 $ 779,436 $ 760,644 Additions 10,132 26,731 Disposal (200) (977) Reclassified to property, plant and equipment (385) (6,962)Balance, December 31 788,983 779,436
Accumulated amortization Balance, January 1 737,840 723,470 Amortization 21,061 15,347 Disposal (200) (977) Balance, December 31 758,701 737,840
Carrying amount, end of year $ 30,282 $ 41,596
Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:
Computer software 3 to 5 years
18. OTHER ASSETS
December 312016 2015
Pledged time deposit $ 303,704 $ 303,552 Other financial assets 96,597 -Others 2,788 2,696
$ 403,089 $ 306,248
Current $ 99,385 $ 2,696 Non-current 303,704 303,552
$ 403,089 $ 306,248
19. OTHER PAYABLES
December 312016 2015
Bonus $ 742,580 $ 503,849 Maintenance 506,275 381,115 Utilities 124,321 145,776 Others 778,306 696,357
$ 2,151,482 $ 1,727,097
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20. OTHER CURRENT LIABILITIES
December 312016 2015
Advance receipts $ 109,809 $ 81,073 Others 5,075 372
$ 114,884 $ 81,445
21. PROVISIONS - CURRENT
December 312016 2015
Sales returns and allowances $ 236,336 $ 136,576
The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.
22. RETIREMENT BENEFIT PLANS
a. Defined contribution plans
The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.Besides, VIS Micro is required by local regulations to make monthly contributions at certain percentageof the basic salary of their employees.
b. Defined benefit plans
The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the 6 months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required tofund 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”); theCorporation has no right to influence the investment policy and strategy.
The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit planswere as follows:
December 312016 2015
Present value of defined benefit obligation $ 1,034,785 $ 970,547Fair value of plan assets (326,432) (339,555)
Net defined benefit liability $ 708,353 $ 630,992
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Movements in net defined benefit liability were as follows:
Present Value of Defined
BenefitObligation
Fair Value of Plan Assets
Net Defined Benefit
Liability
Balance at January 1, 2015 $ 953,437 $ (340,331) $ 613,106Service cost
Current service cost 24,247 - 24,247Interest expense (income) 21,306 (7,683) 13,623
Recognized in profit or loss 45,553 (7,683) 37,870Remeasurement
Return on plan assets (excluding amounts included in net interest) - (1,272) (1,272)
Actuarial loss - changes in financial assumptions 46,228 - 46,228
Actuarial gain - experience adjustments (28,375) - (28,375)Recognized in other comprehensive income 17,853 (1,272) 16,581Contributions from the employer - (14,485) (14,485)Benefits paid (46,296) 24,216 (22,080)Balance at December 31, 2015 970,547 (339,555) 630,992Service cost
Current service cost 7,419 - 7,419Interest expense (income) 18,364 (6,518) 11,846
Recognized in profit or loss 25,783 (6,518) 19,265Remeasurement
Return on plan assets (excluding amounts included in net interest) - 4,157 4,157
Actuarial loss - changes in financial assumptions 54,189 - 54,189
Actuarial loss - experience adjustments 13,917 - 13,917Recognized in other comprehensive income 68,106 4,157 72,263Contributions from the employer - (14,167) (14,167)Benefits paid (29,651) 29,651 -
Balance at December 31, 2016 $ 1,034,785 $ (326,432) $ 708,353
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/foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets 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 thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.
3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease the present value of the defined benefit obligation.
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The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:
December 312016 2015
Discount rates 1.50% 1.90%Expected rates of salary increase 3.50% 3.50%
If possible reasonable change 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 312016 2015
Discount rates 0.50% increase $ (67,148) $ (68,251)0.50% decrease $ 73,416 $ 67,741
Expected rates of salary increase 0.50% increase $ 71,595 $ 66,2600.50% decrease $ (66,229) $ (67,605)
The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
December 31 2016 2015
The expected contributions to the plan for the next year $ 14,663 $ 14,992
The average duration of the defined benefit obligation 13.7 years 14.9 years
Maturity analyses of pension benefit were as follows:
December 312016 2015
Maturity analysis of undiscounted pension benefitNo later than 1 year $ 13,754 $ 8,044Later than 1 year and not later than 5 years 102,104 123,406Later than 5 years 1,174,944 1,189,049
$ 1,290,802 $ 1,320,499
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23. EQUITY
a. Capital stock
Common stock
December 312016 2015
Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982
Issued capital $ 16,389,823 $ 16,389,823
The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.
b. Capital Surplus
December 312016 2015
May be used to offset a deficit, distributed by cash, or transferred to capital
Arising from issuance of common stock $ 544,884 $ 544,884
May be used to offset a deficit only
Arising from employee stock options (transferred and inactive) 285,845 285,845 Arising from share of changes in equities of subsidiaries,
associates and joint ventures 31,865 24,394
$ 862,594 $ 855,123
The capital surplus from stock issued in excess of par may be used to offset a deficit; in addition, when the Group has no deficit, such capital surplus may be distributed in cash or stock transferred to capital, which are limited to a certain percentage of the Group’s paid-in capital.
c. Retained earnings and dividend policy
In accordance with the amendments to the Company Act in May 2015, the recipients of dividends andbonuses are limited to shareholders and do not include employees. The shareholders held their regularmeeting on June 7, 2016 and, in that meeting, had resolved amendments to the Corporation’s Articles ofIncorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and theaddition of the policy on distribution of employees’ compensation and remuneration to directors.
Under the dividend policy as set forth in the amended Articles, where the Corporation made profit in afiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, settingaside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributedretained earnings shall be used by the Corporation’s board of directors as the basis for proposing adistribution plan, which should be resolved in the shareholders’ meeting for distribution of dividendsand bonus to shareholders. For the policies on distribution of employees’ compensation and
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remuneration to directors before and after amendment, please refer to b. Employee benefits expense in Note 25.
The Corporation’s Articles also stipulate that all profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 60% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be distributed in accordance with relevant laws or regulations of the authorities in charge.
Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. 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.
The Corporation appropriates or reverses a special reserve in accordance with 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”. Distributions can be made out of any subsequent reversal of the debit to other equity items.
Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation.
The appropriations of earnings for 2015 and 2014 have been approved in the shareholders’ meeting on June 7, 2016 and June 8, 2015, respectively, were as follows:
Appropriations of Earnings Dividends Per Share (NT$) 2015 2014 2015 2014
Provision of legal reserve $ 415,758 $ 543,789 $ - $ -Provision of special reserve 45,305 16,806 - -Cash dividends 4,261,354 4,259,353 2.60 2.60
$ 4,722,417 $ 4,819,948
The appropriation of earnings for 2016 had been proposed by the Corporation’s board of directors on February 21, 2017. The appropriation and dividends per share were as follows:
Appropriationof Earnings
Dividend Per Share (NT$)
Provision of legal reserve $ 553,793 $ - Reversal of special reserve (77,854) -Cash dividend 4,916,947 3.00
The appropriation of earnings for 2016 are subject to the resolution of the shareholders’ meeting to be held on June 16, 2017.
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d. Other equity
1) Exchange differences on translation of foreign operations
Years Ended December 312016 2015
Balance, beginning of year $ (41,010) $ (50,082) Exchange differences arising from translation of foreign
operations 2,496 11,078 Share of exchange differences of associates accounted for
using equity method (237) (495) Disposal of foreign associate 685 (1,511)
Balance, end of year $ (38,066) $ (41,010)
2) Unrealized gain (loss) on available-for-sale financial assets
Years Ended December 312016 2015
Balance, beginning of year $ (74,801) $ (20,494) Unrealized gain (loss) arising from available-for-sale
financial assets 74,911 (54,307)
Balance, end of year $ 110 $ (74,801)
Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.
3) Cash flow hedges
Years Ended December 312016 2015
Balance, beginning of year $ - $ 70 Loss arising from changes in fair value of hedging
instrumentsCurrency-swap contracts - (70)
Balance, end of year $ - $ -
The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.
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e. Treasury stock
(Shares in Thousands)
Purpose of Treasury Stock
Number of Shares,
Beginning of Year
AdditionDuring the
Year
ReductionDuring the
Year
Number of Shares, End of
Year
Year ended December 31, 2015
Transfer to employees 770 - (770) -
The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares.
The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares.
Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge its treasury stock nor exercise rights to receive dividends and vote.
Treasury stocks were granted on March 1, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 12.70 Exercise price (NT$) 11.49Expected volatility 30.12%-31.53%Expected life 2 years Risk-free interest rate 0.8012%
Treasury stocks were granted on April 25, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 13.35 Exercise price (NT$) 12.83Expected volatility 29.46%-29.72%Expected life 2 years Risk-free interest rate 0.8442%
Treasury stocks were granted on August 2, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 31 Exercise price (NT$) 12.83Expected volatility 42.85%Expected life 1 year Risk-free interest rate 0.6952%
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Treasury stocks were granted on November 1, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 32.35 Exercise price (NT$) 12.83Expected volatility 43.26%Expected life 0.4822 year Risk-free interest rate 0.641%
Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 46.5 Exercise price (NT$) 11.49-12.83 Expected volatility 45.9%Expected life 0.2027 year Risk-free interest rate 0.5329%
Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 47.3 Exercise price (NT$) 12.83Expected volatility 32.44%Expected life 0.0356 year Risk-free interest rate 0.4798%
Treasury stocks were granted on March 9, 2015 and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:
Stock price on grant date (NT$) $ 53.6 Exercise price (NT$) 12.83Expected volatility 32.425%Expected life 0.0301 year Risk-free interest rate 0.5885%
Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of 2-year government bond was used as the risk-free interest rate.
Compensation cost recognized was $31,374 thousand for the year ended December 31, 2015.
24. REVENUE
Revenue of the Group for the years ended December 31, 2016 and 2015 were analyzed as follow:
Years Ended December 312016 2015
Wafer foundry $ 25,469,353 $ 23,010,405Other revenue 359,281 309,316
$ 25,828,634 $ 23,319,721
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The Group designated certain foreign sales as hedged items to hedge the risk of cash flow. Losses on the hedging instrument amounting to $10,692 thousand and $8,596 thousand that were determined to be an effective hedge were recognized as decrease of revenue for the years ended December 31, 2016 and 2015, respectively.
25. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME
a. Depreciation and amortization
Years Ended December 312016 2015
Property, plant and equipment $ 2,032,173 $ 2,303,949 Intangible assets 21,061 15,347
$ 2,053,234 $ 2,319,296
Classification of deprecation - by function Cost of revenue $ 1,980,762 $ 2,254,409 Operating expenses 51,411 49,540
$ 2,032,173 $ 2,303,949
Classification of amortization - by function Cost of revenue $ 10,643 $ 7,470 Operating expenses 10,418 7,877
$ 21,061 $ 15,347
b. Employee benefits expense
1) Employees’ compensation and remuneration to directors for 2016 and 2015
Years Ended December 312016 2015
Post-employment benefits (see Note 22) Defined contribution plans $ 197,904 $ 191,106 Defined benefit plans 19,265 37,870
217,169 228,976 Share-based payments (see Note 23)
Equity-settled - 31,374 Other employee benefits 6,354,084 5,635,591
Total employee benefits expense $ 6,571,253 $ 5,895,941
Employee benefits expense summarized by function Cost of revenue $ 5,141,284 $ 4,762,693 Operating expenses 1,429,969 1,133,248
$ 6,571,253 $ 5,895,941
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In compliance with the Company Act as amended in May 2015 and the amendments to the Articles as resolved by the shareholders’ meeting on June 2016, the Corporation should distribute no less than 10% of the current year’s profit as employees’ compensation in the form of stock or in cash as resolved by the board of directors. The employees include those of subsidiaries meeting some conditions agreed by the board of directors. The Corporation should also distribute no higher than 1% of the current year’s profit as remuneration to directors. However, the Corporation’s accumulated losses shall have been covered. For the years ended December 31, 2016 and 2015, the employees’ compensation were $831,803 thousand and $623,638 thousand, respectively. For the years ended December 31, 2016 and 2015, the remuneration to directors were $14,100 thousand and $13,588 thousand, respectively. The above calculated were at a certain percentage of the base income.
If there is a change in the proposed amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.
The appropriations of employees’ compensation and remuneration to directors for 2016 and 2015 were resolved by the board of directors on February 21, 2017 and January 27, 2016, respectively. The amounts of the employees’ compensation and remuneration to directors are disclosed on the table below. After the amendments to the Articles resolving in the shareholder’s meeting on June 7, 2016, the appropriations of the employees’ compensation and remuneration to directors for 2015 were reported in the shareholders’ meeting.
Years Ended December 31 2016 2015
Cash Stock Cash Bonus Stock Bonus
Employee s’ compensation $ 831,803 $ - $ 623,638 $ - Remuneration to directors 14,100 - 13,384 -
The differences between the amounts of the remuneration to directors resolved by the board of directors on January 27, 2016 and the amounts recognized in consolidated financial statements for the year ended December 31, 2015 were adjusted to profit and loss in 2016.
Information on the employees’ compensation and remuneration to directors resolved by the Corporation’s board of directors in 2017 and 2016 is available at the Market Observation Post System website of the Taiwan Stock Exchange.
2) Bonus to employees and remuneration to directors for 2014
The bonus to employees and remuneration to directors for 2014 which have been approved in theshareholders’ meeting on June 8, 2015 were as follows:
Year Ended December 31, 2014Cash Stock
Bonus to employees $ 815,683 $ -Remuneration to directors 34,800 -
There was no difference between the amounts of the bonus to employees and the remuneration to directors approved in the shareholders’ meeting on June 8, 2015 and the amounts recognized in the consolidated financial statements for the year ended December 31, 2014.
Information on the bonus to employees and remuneration to directors resolved by the shareholders in their meeting in 2015 is available at the Market Observation Post System website of the Taiwan Stock Exchange.
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26. INCOME TAXES
a. Major components of tax expenses recognized in profit or loss:
Years Ended December 312016 2015
Current tax In respect of the current year $ 868,365 $ 821,251 Adjustments for prior years’ tax (158,696) (1,914) Other (90) 146
709,579 819,483 Deferred income tax
In respect of the current year 12,590 (38,555)
Income tax expenses recognized in profit or loss $ 722,169 $ 780,928
A reconciliation of accounting profit and income tax expenses were as follow:
Years Ended December 31 2016 2015
Income before income tax $ 6,260,094 $ 4,938,511
Income tax expense calculated at the statutory rate $ 1,065,124 $ 839,311 Additional items in determining taxable income 6,997 3,678 Tax-exempt income (206,770) (130,535)Income tax on unappropriated earnings - 56,913 The origination and reversal of temporary differences 18,571 13,329 Effect of tax on loss carryforward (2,967) -Adjustments for prior years’ tax (158,696) (1,914)Others (90) 146
Income tax expense recognized in profit or loss $ 722,169 $ 780,928
The Group applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the entities measures taxes by using the applicable tax rate for each individual jurisdiction.
As the status of 2017 appropriations of earnings is uncertain, the potential income tax consequences of 2016 unappropriated earnings are not reliably determinable.
b. Current tax liabilities
December 312016 2015
Current tax liabilities Income tax payable $ 604,714 $ 497,129
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c. Deferred income tax assets and liabilities
The movements of deferred income tax assets and liabilities were as follows:
For the year ended December 31, 2016
Deferred Income Tax Assets
Balance,Beginning of
Year MovementsBalance, End of
Year
Loss carryforwards $ 2,469 $ 2,908 $ 5,377 Temporary differences 2,942 (269) 2,673
$ 5,411 $ 2,639 $ 8,050
Deferred Income Tax Liabilities
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 67,494 $ 15,229 $ 82,723
For the year ended December 31, 2015
Deferred Income Tax Assets
Balance,Beginning of
Year MovementsBalance, End of
Year
Loss carryforwards $ 2,372 $ 97 $ 2,469 Temporary differences 1,182 1,760 2,942
$ 3,554 $ 1,857 $ 5,411
Deferred Income Tax Liabilities
Balance,Beginning of
Year MovementsBalance, End of
Year
Temporary differences $ 104,192 $ (36,698) $ 67,494
d. Items for which no deferred income tax assets have been recognized
December 312016 2015
Loss carryforwardsExpire in 2020 $ 18,298 $ 23,751 Expire in 2021 313 321 Expire in 2027 169 173 Expire in 2034 1,763 1,801
$ 20,543 $ 26,046
Deductible temporary differences $ 207,756 $ 205,460
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e. Unrecognized deferred income tax liabilities associated with investments
As of December 31, 2016 and 2015, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.
f. Integrated income tax
December 312016 2015
Balance of the Imputation Credit Account - the Corporation $ 775,454 $ 930,217
The expected and actual creditable ratios for distributing the earnings of 2016 and 2015 were 14.42% and 16.10%, respectively.
Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of the Corporation is calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the Corporation is based on the balance of the Imputation Credit Accounts as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2016 earnings may differ from the actual creditable ratio to be used in allocating imputation credit to the shareholders.
The unappropriated retained earnings as of December 31, 2016 and 2015 did not contain the unappropriated earnings generated before January 1, 1998.
g. Income tax exemption with respect to the issuance of shares
The Corporation was granted a five-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.
h. Income tax assessments
Income tax returns through 2014 had been examined and cleared by the tax authorities.
27. EARNINGS PER SHARE
Unit: NT$ Per Share
Years Ended December 312016 2015
Basic earnings per share $ 3.38 $ 2.54 Diluted earnings per share $ 3.35 $ 2.50
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The earnings and weighted average number of common shares used in the computation of earnings per share were as follows:
Earnings
Years Ended December 312016 2015
Earnings used in computation of basic earnings per share $ 5,537,925 $ 4,157,583 Effect of dilutive potential common stocks:
Employees’ compensation - -
Earnings used in the computation of diluted earnings per share $ 5,537,925 $ 4,157,583
Shares
Years Ended December 312016 2015
Weighted average number of common stocks used in the computation of basic earnings per share 1,638,982 1,638,792
Effect of dilutive potential common shares: Employees’ compensation 15,914 23,466
Weighted average number of common stocks used in the computation of diluted earnings per share 1,654,896 1,662,258
Since the Corporation is allowed to settle compensation paid to employees by cash or shares, the Corporation assumed that the entire amount of the compensation will 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 shares had dilutive effect. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.
28. OPERATING LEASE ARRANGEMENTS
The Group as lessee
The Group leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from March 2019, December 2027, December 2029 and December 2034. Therental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to the leasecontract, and the lease is renewable upon expiration.
The future minimum lease payments of non-cancellable operating lease commitments are as follows:
December 312016 2015
Not later than 1 year $ 77,120 $ 77,091 Later than 1 year and not later than 5 years 313,513 306,685 Later than 5 years 595,023 658,714
$ 985,656 $ 1,042,490
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The lease payments recognized as expenses were as follows:
Years Ended December 312016 2015
Minimum lease payment $ 77,426 $ 76,725
29. CAPITAL MANAGEMENT
The Group manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Group’s overall strategy has no significant variations.
The capital structure of the Group consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital reserves, retained earnings and other equity).
The Group is not subject to any externally imposed capital requirements.
30. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments that are not measured at fair value
Financial assets and liabilities with material difference between carrying value and fair value
Except as detailed in the following table, the management considered that the carrying amounts offinancial assets and financial liabilities recognized in the consolidated financial statements approximatetheir fair values or their fair could not be reliably measured.
December 312016 2015
Carrying Fair Value Carrying Fair Value Amount Level 1 Level 2 Amount Level 1 Level 2
Financial assets
Held-to-maturity financial assets $ 1,888,367 $ 1,874,119 $ - $ 139,502 $ 138,834 $ -Other current assets structured time
deposit 96,597 - 96,509 - - -
b. Fair value of financial instruments that are measured at fair value on a recurring basis
1) Fair value hierarchy
The fair value hierarchies of financial assets and liabilities measured at fair value on a recurringbasic were as follows:
December 31, 2016
Level 1 Level 2 Level 3 Total
Financial assets at FVTPL Derivative financial
instruments $ - $ 1,428,086 $ - $ 1,428,086 (Continued)
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Level 1 Level 2 Level 3 Total
Available-for-sale financial assets Domestic listed stocks -
equity investment $ 13,648 $ 30,000 $ - $ 43,648 Bond investments 524,419 - - 524,419
$ 538,067 $ 30,000 $ - $ 568,067
Financial liabilities at FVTPLDerivative financial
instruments $ - $ 43,029 $ - $ 43,029 (Concluded)
December 31, 2015
Level 1 Level 2 Level 3 Total
Financial assets at FVTPL Derivative financial
instruments $ - $ 1,097,895 $ - $ 1,097,895
Available-for-sale financialassets Domestic listed stocks -
equity investment $ 16,731 $ 72,000 $ - $ 88,731
Financial liabilities at FVTPLDerivative financial
instruments $ - $ 35,494 $ - $ 35,494
There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2016 and 2015, respectively.
There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2016 and 2015, respectively.
2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy
The fair values of financial assets and financial liabilities are determined as follows:
a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.
Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.
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b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.
The Group uses “Black-Scholes model” to determine the fair value.
c. Categories of financial instruments
December 31 2016 2015
Financial assets
Fair value through profit or loss (FVTPL) Held for trading $ 3,555 $ 3,514Designated as at FVTPL 1,424,531 1,094,381
Held-to-maturity financial assets 1,888,367 139,502Loans and receivables (Note 1) 22,080,243 21,450,056Available-for-sale financial assets (Note 2) 653,394 171,228
Financial liabilities
Fair value through profit or loss (FVTPL) Held for trading 43,029 28,474
Derivative instruments in designated hedge accounting - 7,020Measured at amortized cost (Note 3) 4,477,709 3,511,357
Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivables, other receivables, and other financial assets.
Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.
Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payables and other payables.
d. Objectives and policies of financial risk management
The Group’s major financial instruments include equity and bond investments, accounts receivable andaccounts payables. The Group’s corporate finance function provides services to the business,coordinates access to domestic and international financial markets, monitors and manages the financialrisks relating to the operations of the Group through internal risk reports which analyze exposures bydegree and magnitude of risks. These risks include market risk (including foreign currency risk,interest rate risk and other price risk), credit risk and liquidity risk.
The Group seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Group’s policies approvedby the board of directors, which provided written principles on foreign exchange risk, interest rate risk,credit risk, the use of derivatives and non-derivative financial instruments, and the investment of excessliquidity. The compliance with policies and the control of exposure limits are continuously reviewedby the internal auditors on a continuous basis. The Group does not enter into or trade financialinstruments, including derivative financial instruments, for speculative purposes.
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The corporate finance function reports quarterly to the Group’s board of directors and audit committee for their independent mentorship to risks and policy implementation.
1) Market risk
The Group’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Group enters into a variety of derivative financial instruments including forwardexchange and currency - swap contracts to manage its exposure to foreign currency risk.
There has been no change to the Group’s exposure to market risks or the manner in which theserisks are managed and measured.
a) Foreign currency risk
The Group’s operating activities are partially denominated in foreign currencies and applynatural hedge. The purpose of the Group’s management of the foreign currency risk is tohedge the risk instead of making a profit.
The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Group selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheGroup currently utilizes derivative financial instruments, primarily buy/sell forward exchangecontracts, to hedge its currency exposure.
The Group uses forward exchange contracts to eliminate currency exposure. It is the Group’spolicy to negotiate the terms of the hedge derivatives to match the terms of the hedged item formaximizing the hedge effectiveness.
Investing in foreign operations is for strategic purposes; it is not hedged by the Group.
Sensitivity analysis
The Group is mainly exposed to the exchange rate fluctuation of USD and RMB.
The following table details the Group’s sensitivity to a 5% increase and decrease in the NewTaiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, financial assets, accounts receivable, other receivables,accounts payable, and other payables) and the hedge contracts, for which their translation atperiod end is adjusted for a 5% change in foreign currency rates. The following table indicatesthe influences which the New Taiwan dollars strengthen 5% against the relevant currency.
Impact on USD Items Years Ended December 31
2016 2015
(Loss) gain $ (74,184) $ 32,236
Impact on RMB Items Years Ended December 31
2016 2015
Loss $ - $ (29,058)
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Vanguard InternationalSemiconductor Corporation
b) Interest rate risk
The Group’s financial assets are exposed to interest rate risk both at fixed and floating interestrates.
The carrying amounts of the Group’s financial assets with exposure to interest rates at the endof the reporting period were as follows.
December 31 2016 2015
Fair value interest rate risk Financial assets $ 19,699,152 $ 16,421,582
Cash flow interest rate risk Financial assets 2,103,369 3,066,700
Sensitivity analysis
The sensitivity analyses below are determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset at the end of the reporting date is outstanding during the reporting period.
If the market interest rate increases/decrease by 0.1% and all other variables remain constant, the pre-tax profit of the Group for the years ended on December 31, 2016 and 2015 will increase/decrease $2,103 thousand and $3,067 thousand, respectively, resulting from the exposure of the net assets with floating rates.
c) Other price risk
The Group is exposed to price risk arising from its investments in available-for-sale stocks andbonds. Investments are held for strategic rather than trading purposes. The Group does notactively trade these investments. The Group’s security price risk is mainly concentrated onequity and bond instruments operating in electronic industry quoted in the Taiwan StockExchange and GreTai Securities Market.
Sensitivity analysis
The sensitivity analyses below were determined based on the exposure to security price risks atthe end of the reporting period.
If available-for sale stocks and bonds prices had been 5% higher/lower, the other comprehensiveincome for the years ended December 31, 2016 and 2015 would have increased/decreased by$28,403 thousand and $4,437 thousand, respectively, as a result of the changes in fair value ofavailable-for-sale financial investments in stocks and bonds.
2) Credit risk
Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Group. As of the end of the reporting period, the Group may have a financialloss due to the default on obligation from counterparts, and the maximum exposure to credit risk isthe carrying amount of the respective recognized financial assets as stated in the consolidatedbalance sheets.
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In order to mitigate credit risk, the Group has made the policy of credit management to ensure that appropriate action is taken to recover overdue receivables. In addition, the Group reviews the recoverable amount of each receivable debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Group considers the credit risk is significantly reduced.
The credit risk on operating funds and derivatives is limited as the counterparts are creditworthy banks.
The Group’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customer’s financial conditions.
The Group’s credit concentration risk was related to the 5 largest customers. Besides the 5 largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivables at any time during the period. The 5 largest customers are creditworthy counterparts, therefore, the Group believes the concentration of credit risk is insignificant for the remaining accounts receivable.
3) Liquidity risk
The Group manages liquidity risk by monitoring and maintaining adequate reserves of cash andcash equivalents to fund the Group’s operations and mitigate the effects of fluctuations in cashflows.
The following tables detail the Group’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Group can berequired to pay. The tables include both interest and principal cash flows.
December 31, 2016
Less than 1 Year
More than 1 Year
Non-derivative financial liabilities
Non-interest bearing $ 4,477,709 $ -
December 31, 2015
Less than 1 Year
More than 1 Year
Non-derivative financial liabilities
Non-interest bearing $ 3,511,357 $ -
The following tables detail the Group’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.
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December 31, 2016
Less than 1 Year
More than 1 Year
Gross settled
Forward exchange contracts Inflows $ 5,721,697 $ -Outflows (5,761,171) -
$ (39,474) $ -
December 31, 2015
Less than 1 Year
More than 1 Year
Gross settled
Forward exchange contracts Inflows $ 6,481,230 $ -Outflows (6,513,210) -
$ (31,980) $ -
31. TRANSACTIONS WITH RELATED PARTIES
Intercompany balances and transactions between the Corporation and its subsidiaries, which are relatedparties of the Corporation, have been eliminated on consolidation and are not disclosed in this note.Details of transactions between the Group and other related parties were disclosed below.
a. Operating transactions
Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31
2016 2015 2016 2015
Investors that have significant influence over the Group $ 6,702,249 $ 7,100,082 $ 700 $ 259
Associates $ 23,844 $ 19,847 $ - $ - Key management personnel $ 37,666 $ 43,155 $ - $ - Substantial related parties $ 32,654 $ 32,208 $ - $ -
Manufacturing ExpensesResearch and Development
ExpensesYears Ended December 31 Years Ended December 31
2016 2015 2016 2015
Investors that have significant influence over the Group $ 418,307 $ 358,179 $ 931 $ 1,673
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Marketing ExpensesYears Ended December 31
2016 2015
Investors that have significant influence over the Group $ 2,200 $ 1,369
Rental RevenueNonoperating
Income and Gains Years Ended December 31 Years Ended December 31
2016 2015 2016 2015
Investors that have significant influence over the Group $ 2,467 $ 3,453 $ 15,600 $ 20,720
Key management personnel - - 630 940
$ 2,467 $ 3,453 $ 16,230 $ 21,660
The following balances were outstanding at the end of the reporting period:
Receivables from Related PartiesDecember 31
2016 2015
Investors that have significant influence over the Group $ 586,847 $ 519,735 Key management personnel 14,469 8,134 Associates 4,817 2,059 Substantial related parties 7,081 4,007
$ 613,214 $ 533,935
Other Receivables from Related Parties December 31
2016 2015
Investors that have significant influence over the Group $ 560 $ 12,362 Key management personnel 264 2,722
$ 824 $ 15,084
Other Payables to Related PartiesDecember 31
2016 2015
Investors that have significant influence over the Group $ 85,535 $ 67,754 Substantial related parties 135 -
$ 85,670 $ 67,754
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Vanguard InternationalSemiconductor Corporation
Guarantee Deposits (Other Non-current Liabilities)
December 31 2016 2015
Investors that have significant influence over the Group $ - $ 1,362
The terms of sales and purchases transactions with related parties were not significantly different from those with third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.
The Group leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly.
Guarantee deposits of related parties were for lease.
b. Compensation of key management personnel
Years Ended December 31 2016 2015
Short-term employee benefits $ 142,246 $ 123,895 Post-employment benefits 2,420 18,276
$ 144,666 $ 142,171
The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.
32. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY
The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:
December 31 2016 2015
Pledged time deposits (presented under other non-current assets) $ 303,704 $ 303,552
33. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS
The significant commitments of the Group as of December 31, 2016 were as follows:
The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according tothe net sales of certain products and reserve a portion of its production capacity.
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34. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
The following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:
December 312016 2015
ForeignCurrencies Exchange Rate
Foreign Currencies Exchange Rate
Financial assets
Monetary itemsUSD $ 316,305 32.199 $ 200,479 32.895 EUR 226 34.30 137 36.14 JPY 82,646 0.2780 108,309 0.2745 RMB - - 116,348 4.995
Non-monetary items USD 5,583 32.199 803 32.895
Financial liabilities
Monetary itemsUSD 26,229 32.199 19,622 32.895 EUR 907 34.30 852 36.14 JPY 205,024 0.2780 171,160 0.2745
The significant unrealized foreign exchange gains (losses) were as follows:
Years Ended December 31 2016 2015
ForeignCurrencies Exchange Rate
Net Foreign Exchange Gain
(Loss) Exchange Rate
Net Foreign Exchange Gain
(Loss)
USD 32.278 (USD:NTD) $ 40,939 31.675 (USD:NTD) $ (90,757) EUR 35.91 (EUR:NTD) 1,014 35.61 (EUR:NTD) (855) JPY 0.2986 (JPY:NTD) 495 0.2648 (JPY:NTD) (950) RMB 4.865 (RMB:NTD) 18,870 5.043 (RMB:NTD) (34,738)
$ 61,318 $ (127,300)
35. SEPARATELY DISCLOSED ITEMS
Information on significant transactions and information on investees:
a. Financing provided to others: None.
b. Endorsements/guarantees provided: None.
c. Marketable securities held (excluding investment in subsidiaries, associates and jointly ventures):Table 1 (attached)
d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)
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e. Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital:None.
f. Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:None.
g. Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)
h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 4 (attached)
i. Trading in derivative instruments: Note 7.
j. Intercompany relationships and significant intercompany transactions: Table 5 (attached)
k. Information on investees: Table 6 (attached)
l. Information on investment in Mainland China: None.
36. SEGMENT INFORMATION
a. For the purpose of resources allocation and performance assessment, the Group’s chief operatingdecision maker reviews operating results and financial information on a per plant basis. It focuses onthe operating result of each of the plants operated under Vanguard International SemiconductorCorporation and its subsidiaries. Accordingly, each of the plants constitutes an operating segment ofthe Group. As each plant shares similar economic characteristics, produces similar products by usingsimilar production process and all of products produced are distributed and sold to the same level ofcustomers through a central sales function, the Group’s segments are aggregated into a single reportablesegment.
The revenues, operating results and financial information on a plant by plant basis presented to the chiefoperating decision maker are consistent with the information in the consolidated financial statements.The segment revenues and operating results for the years ended December 31, 2016 and 2015 can bereferred to the consolidated statements of comprehensive income for the years ended December 31,2016 and 2015. The segment assets as of December 31, 2016 and 2015 can be referred to theconsolidated balance sheets as of December 31, 2016 and 2015.
b. Revenue from major products and services
The following is an analysis of the Group’s revenue from its major products and services:
Years Ended December 31 2016 2015
Wafer foundry $ 25,469,353 $ 23,010,405Others revenue 359,281 309,316
$ 25,828,634 $ 23,319,721
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c. Geographic information
Revenue Non-current AssetsYears Ended December 31 December 31
2016 2015 2016 2015
Asia $ 23,656,799 $ 21,899,205 $ 6,282,629 $ 6,979,148America 1,187,913 816,720 1,452 249Eurpoe 978,862 602,560 - -Oceania 5,060 1,236 - -
$ 25,828,634 $ 23,319,721 $ 6,284,081 $ 6,979,397
Non-current assets exclude the investments accounted for by the equity method, financial instruments, intangible assets, deferred income tax assets, refundable deposits and other assets.
d. Major customers
Sales to customers amounting to at least 10% of total gross revenue:
Years Ended December 31 Customer 2016 2015
A $ 6,702,249 $ 7,100,082 B 5,290,430 4,577,103
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sset
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e 4
Com
petit
ion
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td. U
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sset
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t fai
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e 4
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134
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e 4
Bon
dsA
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MI C
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n B
onds
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Ava
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e-fo
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nanc
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s - c
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Shan
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Com
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& S
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Deb
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MEG
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102,
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MEG
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102,
418
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e 2
VIS
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739
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2 C
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TSM
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2 St
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tern
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nanc
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sset
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e 4
Uni
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Imag
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3 A
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3
Not
e 1:
M
arke
tabl
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curit
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entio
ned
in th
e ta
ble
incl
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stoc
ks, b
onds
, ben
efic
iary
cer
tific
ate
and
the
deriv
ativ
e se
curit
ies f
rom
afor
emen
tione
d ite
ms.
Not
e 2:
Th
e m
arke
t val
ue w
as b
ased
on
stoc
k cl
osin
g pr
ice
as o
f Dec
embe
r 31,
201
6.
Not
e 3:
Th
e m
arke
t val
ue w
as b
ased
on
the
book
val
ue a
s of D
ecem
ber 3
1, 2
016.
Not
e 4:
Th
e fa
ir va
lue
was
bas
ed o
n va
luat
ion
tech
niqu
es.
Not
e 5:
A
s of D
ecem
ber 3
1, 2
016,
all
the
secu
ritie
s wer
e no
t ple
dged
or r
estri
cted
.
Not
e 6:
W
ith re
spec
t to
the
info
rmat
ion
of su
bsid
iarie
s, as
soci
ates
and
join
t ven
ture
s, pl
ease
see
TAB
LE 6
.
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6 (I
n Th
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f New
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lars
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tate
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mic
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tere
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293
Soci
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Gen
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-
236
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TA
BLE
3
VA
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RD
INT
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or sh
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Vanguard InternationalSemiconductor Corporation
TA
BLE
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NG
UA
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SEM
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Com
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1
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Vanguard InternationalSemiconductor Corporation
TA
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mou
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s (N
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239
Vanguard InternationalSemiconductor Corporation
TA
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100
57,4
54 (U
S$
1,78
4)3,
464
(US$
10
6)3,
464
(US$
10
6) Su
bsid
iary
Spec
ialty
Tec
hFar
m, I
nc.
SkyT
raq
Tech
nolo
gy, I
nc.
(Not
e 2)
B
ritis
h V
irgin
Isla
nds
Inte
grat
ed c
ircui
t des
ign
serv
ices
and
rela
ted
busi
ness
es
-49
,343
(US$
1,
500)
--
-8,
451
(US$
26
2)2,
167
(US$
67
) In
vest
men
t acc
ount
ed
for u
sing
equ
ity
met
hod
Not
e 1:
C
ompl
eted
liqu
idat
ion
in A
pril
2016
.
Not
e 2:
D
ispo
sed
in F
ebru
ary
2016
.
240
Vanguard InternationalSemiconductor Corporation
Leuh Fang , Chairman
Vanguard International Semiconductor Corporation
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