inside cover - vis · b. financial analysis ... semiconductor industry posted modest growth in...

Inside Cover: Spokesman

D. L. Tseng

Vice President, Finance

Tel: 886-3-5770355

E-mail: [email protected]

Acting Spokesperson

K. S. Chiang

Director, Finance Division

Tel: 886-3-5770355

E-mail: [email protected]

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

1

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

2


3


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

*

4


josh

經理人簽(en)

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


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


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




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:

7


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


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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


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


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.


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


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


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


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


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


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


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


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


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


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


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


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


The Audit Committee convened 4 regular meetings in Y2016. Meeting

attendance was as follows:



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


Proposed capital increase of US$30 million for the Company's subsidiary VIS Associates, Inc.


Reviewed and approved (2016/5/3)




1. Proposed capital increase of US$45million for the Company's subsidiaryVIS Associates, Inc.

2. Appointment and dismissal of internalauditing supervisors



(2016/7/26)




Appointment and independence, suitability for appointment, and performance evaluation of the Company's certified public accountants.



(2016/11/1)



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


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


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


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


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


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


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


Kenneth Kin

V V V V V V V V V V 3


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.


28


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:



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


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


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


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


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


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


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


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


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


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


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


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


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


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

.pdf

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


7. Internal Control:


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


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.


Chairman & President Leuh Fang

44


josh

經理人簽(en)

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


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


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


Benson W.C. Liu 0 0 0 0

47


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


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


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49


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


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


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


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


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


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


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


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.

57


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.

58


$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

59


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


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

61


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


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.

62


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

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61

43

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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


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.

63


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

64


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


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.

66


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.

67


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.

68


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.

69


(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

70


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al

1,43

718

,814

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29

94,

505,

052

1,73

6 23

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,721

1,

644

20,4

35,8

2934

85,

392,

805

1,99

225

,828

,634

72


73


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

74


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%.

75


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

76


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

77


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

78


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


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


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.

81


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


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


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84


VI. FINANCIAL STATEMENTSA. Brief Balance Sheets and Brief Statements of Income

1. Brief Balance Sheets

Brief Consolidated Balance Sheets


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


YearItem


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.

85


2. Brief Statements of Income

Brief Consolidated Statements of Comprehensive Income


Year Item


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


Year Item


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.

86


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


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.

87


Unconsolidated Financial Analysis

Year Item


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

88


(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)

89


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


Convener of the Audit Committee: Benson W.C. Liu

February 28, 2017

90


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

91


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"

92


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93


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

94


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

95


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.

96


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


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


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


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


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102


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


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


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


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


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107


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



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)


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


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110



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)

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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)

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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)

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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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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


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


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.

117


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.

118


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


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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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


c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


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


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


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


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


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:


ContractAmount

(In Thousands)

December 31, 2015


11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT


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


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


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:


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


Investments in subsidiaries $ 2,722,779 $ 301,019 Investments in associates 208,993 51,439

$ 2,931,772 $ 352,458

a. Investments in subsidiaries


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


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, 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 )




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


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


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


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


Advance receipts $ 109,809 $ 81,073 Others 4,942 372

$ 114,751 $ 81,445

20. PROVISIONS - CURRENT


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.

140


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:


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



Return on plan assets (excluding amounts included in net interest) - 4,157 4,157


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:


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


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


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


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


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


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%

146


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:


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


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


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.


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:


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:


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



Year

Temporary differences $ 67,494 $ 15,229 $ 82,723





Year

Temporary differences $ 154 $ 1,536 $ 1,690




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.

151


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


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


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

152


Shares


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:


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:


Minimum lease payment $ 77,426 $ 76,725

153


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.


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

154


December 31, 2015

Level 1 Level 2 Level 3 Total


instruments $ - $ 1,097,895 $ - $ 1,097,895


equity investment $ 16,731 $ 72,000 $ - $ 88,731


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.

155


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


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.

156


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.

157


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


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.


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.

158


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



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.

159


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

160


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

161


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


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.

162


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:


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


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:



Net Foreign Exchange Gain

(Loss) Exchange Rate


(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


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


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169


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,


By

LEUH FANG Chairman

February 21, 2017

170


josh

經理人簽(en)

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

171


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.

172


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.

173


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.

174


josh

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175


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)


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



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)


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


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178



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)

179



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)

180



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.



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)

181




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.

182


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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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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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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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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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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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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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.

198


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.

199


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


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:


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


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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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:


ContractAmount

(In Thousands)

December 31, 2016


December 31, 2015


c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


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


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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


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


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


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:


ContractAmount

(In Thousands)

December 31, 2015


11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT


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


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:


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


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:


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


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


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


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


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, 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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BuildingsMachinery and

Equipment Other

Equipment Construction in Progress Total



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, 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)




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


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


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


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


Advance receipts $ 109,809 $ 81,073 Others 5,075 372

$ 114,884 $ 81,445

21. PROVISIONS - CURRENT


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:


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



Return on plan assets (excluding amounts included in net interest) - (1,272) (1,272)


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



Return on plan assets (excluding amounts included in net interest) - 4,157 4,157


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.

210


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:


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:


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:


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


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


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


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


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


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:


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:


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:


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


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


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.


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:


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:


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


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:





Year

Loss carryforwards $ 2,469 $ 2,908 $ 5,377 Temporary differences 2,942 (269) 2,673

$ 5,411 $ 2,639 $ 8,050




Year

Temporary differences $ 67,494 $ 15,229 $ 82,723





Year

Loss carryforwards $ 2,372 $ 97 $ 2,469 Temporary differences 1,182 1,760 2,942

$ 3,554 $ 1,857 $ 5,411




Year

Temporary differences $ 104,192 $ (36,698) $ 67,494

d. Items for which no deferred income tax assets have been recognized


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


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


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


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


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:


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:


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.


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



instruments $ - $ 1,428,086 $ - $ 1,428,086 (Continued)

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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


instruments $ - $ 43,029 $ - $ 43,029 (Concluded)

December 31, 2015



instruments $ - $ 1,097,895 $ - $ 1,097,895


equity investment $ 16,731 $ 72,000 $ - $ 88,731


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


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.


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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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


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.


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



December 31, 2015

Less than 1 Year

More than 1 Year



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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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


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.

231


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:



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


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:




(Loss) Exchange Rate


(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)

232


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:


Wafer foundry $ 25,469,353 $ 23,010,405Others revenue 359,281 309,316

$ 25,828,634 $ 23,319,721

233


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

234


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2016

.

240


Leuh Fang , Chairman


josh

世界先進公司章

josh

董事長方略

inside cover - vis · b. financial analysis ... semiconductor industry posted modest growth in...

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