FST — Annual Report 2018

Dec 13, 2018

Formosa Sumco Technology Corporation

Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Formosa Sumco Technology Corporation

Opinion

We have audited the accompanying financial statements of Formosa Sumco Technology Corporation (the Company), which comprise the balance sheets as of December 31, 2018 and 2017, the statements of comprehensive income, changes in equity, and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company 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 Company’s financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The key audit matter from the audit of the Company’s financial statements is as below:

Revenue recognition

The Company mainly manufactures and sells silicon wafers. For some of the major clients, the Company recognizes sales revenue when the goods have been delivered to the client’s designated location and the client actually uses the goods in accordance with the agreement. As the above-mentioned sales revenue is significant for the year ended December 31, 2018, the appropriateness of revenue recognition for the aforementioned type of sales revenue has been deemed as a key audit matter for the year ended December 31, 2018.

To address this matter, we evaluated the Company’s revenue recognition policy and the relevant design and implementation of internal controls for this type of revenue. We selected samples of revenue for this type of sales and verified them against the clients’ transaction statements and related documents, to confirm that the transactions for this type of sales had been completed and recognized in the appropriate period.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The governing units of the Company, including those charged with governance, are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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3. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

4. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

5. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

6. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

7. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision, and performance of the Company audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partners on the audit resulting in this independent auditors’ report are Shui En Liu and Tza Li Gung.

Deloitte & Touche Taipei, Taiwan Republic of China

March 19, 2019

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

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FORMOSA SUMCO TECHNOLOGY CORPORATION

BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Par Value)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 3, 4 and 6) Trade receivables from unrelated parties (Notes 3, 4 and 8) Trade receivables from related parties (Notes 3, 4, 8 and 22) Other receivables from unrelated parties (Notes 3, 4 and 8) Other receivables from related parties (Notes 3, 4, 8 and 22) Inventories (Notes 4, 5 and 9) Prepayments (Notes 4 and 13) Total current assets NON-CURRENT ASSETS Financial assets at fair value through other comprehensive income - non-current (Notes 3, 4 and 7) Available-for-sale financial assets - non-current (Notes 3 and 4) Investments accounted for using the equity method (Notes 4 and 10) Property, plant and equipment (Notes 4, 11, 22 and 23) Intangible assets (Notes 4, 12 and 22) Deferred tax assets (Notes 4, 5 and 18) Prepayments for equipment (Note 4) Refundable deposits (Notes 3 and 4) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Trade payables to unrelated parties (Note 4) Trade payables to related parties (Notes 4 and 22) Other payables to unrelated parties (Notes 4, 14 and 17) Other payables to related parties (Notes 4, 14 and 22) Current tax liabilities (Notes 4 and 18) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 18) Net defined benefit liabilities - non-current (Notes 4, 5 and 15) Guarantee deposits (Note 4) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY (Notes 3, 4, 16 and 20) Share capital Ordinary shares Capital surplus Retained earnings Legal reserve Unappropriated earnings Total retained earnings Other equity Total equity TOTAL		2018 Amount % $ 7,341,754 30 2,382,393 9 475,766 2 17,688 - 1,200,011 5 2,654,389 11 133,390 - 14,205,391 57 354 - - - 335,413 1 9,949,584 40 - - 169,316 1 128,666 1 205 - 10,583,538 43 $ 24,788,929 100 $ 447,542 2 336,625 1 761,492 3 415,398 2 612,328 2 8,451 - 2,581,836 10 12,054 - 370,938 2 554 - 50,408 - 433,954 2 3,015,790 12 3,878,483 16 5,739,151 23 1,522,614 6 10,605,824 43 12,128,438 49 27,067 - 21,773,139 88 $ 24,788,929 100		2017
				Amount % $ 7,593,586 31 1,967,495 8 161,281 1 10,980 - 858,768 4 2,277,144 9 89,570 - 12,958,824 53 - - 375 - 292,559 1 10,813,960 45 219 - 124,937 1 64,227 - 213 - 11,296,490 47 $ 24,255,314 100 $ 341,859 2 287,549 1 949,002 4 322,750 1 251,863 1 19,907 - 2,172,930 9 5,621 - 362,584 2 748 - 41,423 - 410,376 2 2,583,306 11 7,756,966 32 5,739,082 24 1,298,337 5 6,866,184 28 8,164,521 33 11,439 - 21,672,008 89 $ 24,255,314 100

The accompanying notes are an integral part of the financial statements.

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FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 5 and 22) OPERATING COSTS (Notes 9, 12, 15, 17 and 22) GROSS PROFIT OPERATING EXPENSES (Notes 15, 17 and 22) Marketing Administrative Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES (Notes 4, 17 and 22) Other income Other gains and losses Finance costs Share of profit of subsidiaries Total non-operating income and expenses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4, 5 and 18) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) (Notes 4, 16 and 18) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans Unrealized gain on investments in equity instruments designated as at fair value through other comprehensive income Income tax relating to items that will not be reclassified subsequently to profit or loss		2018 Amount % $ 16,358,126 100 (9,462,293) (58) 6,895,833 42 (549,947) (3) (227,733) (2) (777,680) (5) 6,118,153 37 100,585 1 145,852 1 (469) - 27,205 - 273,173 2 6,391,326 39 (810,867) (5) 5,580,459 34 (6,927) - (21) - 3,835 -		2017
				Amount % $ 12,713,025 100 (9,385,071) (74) 3,327,954 26 (417,779) (3) (221,620) (2) (639,399) (5) 2,688,555 21 56,581 1 (174,863) (1) (355) - 28,125 - (90,512) - 2,598,043 21 (355,269) (3) 2,242,774 18 (45,976) (1) - - 7,816 - (Continued)

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FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized gain on available-for-sale financial assets Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD EARNINGS PER SHARE (Note 19) Basic earnings per share Diluted earnings per share		2018 Amount % $ 15,649 - - - 12,536 - $ 5,592,995 34 $ 9.41 $ 9.41		2017
				Amount % $ (14,143) - 11 - (52,292) (1) $ 2,190,482 17 $ 2.89 $ 2.89

The accompanying notes are an integral part of the financial statements.

(Concluded)

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FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

Share Capital Capital Surplus BALANCE AT JANUARY 1, 2017 $ 7,756,966 $ 5,739,080 Appropriations of 2016 earnings Legal reserve - - Cash dividends to shareholders - - - - Dividends expired and uncollected by shareholders - 2 Net income in 2017 - - Other comprehensive income (loss) in 2017, net of income tax - - Total comprehensive income (loss) in 2017 - - BALANCE AT DECEMBER 31, 2017 7,756,966 5,739,082 Effect of retrospective application and retrospective restatement - - BALANCE AT JANUARY 1, 2018 7,756,966 5,739,082 Appropriations of 2017 earnings Legal reserve - - Cash dividends to shareholders - - - - Dividends expired and uncollected by shareholders - 69 Net income in 2018 - - Other comprehensive income (loss) in 2018, net of income tax - - Total comprehensive income (loss) in 2018 - - Capital reduction by cash (3,878,483) - BALANCE AT DECEMBER 31, 2018 $ 3,878,483 $ 5,739,151	Retained Earnings	Total $ 6,479,624 - (519,717) (519,717) - 2,242,774 (38,160) 2,204,614 8,164,521 - 8,164,521 - (1,613,450) (1,613,450) - 5,580,459 (3,092) 5,577,367 - $ 12,128,438	Others Unrealized Gain Exchange Unrealized Gain (Loss) on Differences on (Loss) on Investments in Translating Available-for- Financial Assets Foreign sale Financial Designated as Operations Assets at FVTOCI $ 25,245 $ 326 $ - - - - - - - - - - - - - - - - (14,143) 11 - (14,143) 11 - 11,102 337 - - (337) 337 11,102 - 337 - - - - - - - - - - - - - - - 15,649 - (21) 15,649 - (21) - - - $ 26,751 $ - $ 316	Total $ 25,571 - - - - - (14,132) (14,132) 11,439 - 11,439 - - - - - 15,628 15,628 - $ 27,067	Total Equity $ 20,001,241 - (519,717) (519,717) 2 2,242,774 (52,292) 2,190,482 21,672,008 - 21,672,008 - (1,613,450) (1,613,450) 69 5,580,459 12,536 5,592,995 (3,878,483) $ 21,773,139
	Unappropriated Legal Reserve Earnings $ 1,225,298 $ 5,254,326 73,039 (73,039) - (519,717) 73,039 (592,756) - - - 2,242,774 - (38,160) - 2,204,614 1,298,337 6,866,184 - - 1,298,337 6,866,184 224,277 (224,277) - (1,613,450) 224,277 (1,837,727) - - - 5,580,459 - (3,092) - 5,577,367 - - $ 1,522,614 $ 10,605,824

The accompanying notes are an integral part of the financial statements.

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FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation expenses Amortization expenses Interest expense Interest income Dividend income Share of profit of subsidiaries Loss (gain) on disposal of property, plant and equipment Write-down (reversal of write-down) of inventories Loss on foreign exchange, net Changes in operating assets and liabilities Trade receivables Other receivables Inventories Prepayments Trade payables Other payables Other current liabilities Net defined benefit liabilities Cash generated from operations Interest received Dividends received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in other receivables - related parties Payments for property, plant and equipment Increase in prepayments for equipment Decrease (increase) in refundable deposits Payments for intangible assets Decrease in items of other investing activities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in guarantee deposits received Increase in other non-current liabilities Dividends paid to owners of the Company Capital reduction by cash Net cash used in financing activities	2018 $ 6,391,326 1,997,098 1,542 469 (83,554) (20) (27,205) 58,146 20,663 7,394 (741,412) (3,296) (397,908) (43,820) 153,842 183,180 (11,456) 1,427 7,506,416 72,490 20 (469) (484,513) 7,093,944 (319,190) (1,432,934) (100,444) 8 (1,323) - (1,853,883) (194) 8,985 (1,613,352) (3,878,483) (5,483,044)	2017 $ 2,598,043 1,977,462 9,519 355 (40,616) (19) (28,125) (151) 61,751 48,917 (542,110) (3,739) (314,359) (30,728) (68,711) 361,540 13,015 773 4,042,817 43,458 19 (355) (123,700) 3,962,239 122,280 (299,648) (31,123) (8) - 151 (208,348) 163 7,845 (519,717) - (511,709) (Continued)

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FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR The accompanying notes are an integral part of the financial statements.	2018 $ (8,849) (251,832) 7,593,586 $ 7,341,754	2017 $ (5,956) 3,236,226 4,357,360 $ 7,593,586 (Concluded)

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NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

FORMOSA SUMCO TECHNOLOGY CORPORATION

1. GENERAL INFORMATION

Formosa Sumco Technology Corporation (the “Company”, formerly Formosa Komatsu Silicon Corporation) was established by Formosa Plastics Corporation, Asia Pacific Investment Corporation and Komatsu Electronic Metals Co., Ltd. The Company was incorporated in the Republic of China (“ROC”) in and commenced business in November 1995. The Company mainly manufactures, sells, and trades silicon wafers.

On October 18, 2006, Sumco Corporation acquired 51% of the equity in Komatsu Electronic Metals Co., Ltd. As the result, the Company’s name was changed to Formosa Sumco Technology Corporation in accordance with the resolution passed at the general shareholders’ meeting on December 29, 2006, and this name change was registered with the Ministry of Economic Affairs, Republic of China. In addition, Komatsu Electronic Metals Co., Ltd. changed its name to Sumco Techxiv Corporation.

The Company became publicly listed on September 12, 2006, and its shares have been listed and started trading on the Emerging Stock Board (ESB) on November 23, 2006. The Company was subsequently listed and started trading on the Taiwan Stock Exchange since December 10, 2007.

The Company’s parent is Sumco Techxiv Corporation, which held 45.5% and 47% of the ordinary shares of the Company as of December 31, 2018 and 2017, respectively. The Company’s ultimate parent is Sumco Corporation.

The financial statements are presented in the Company’s functional currency, the New Taiwan dollar (NTD).

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 19, 2019.

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3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively the “IFRSs”) endorsed by the FSC

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Company’s accounting policies:

• 1) IFRS 9 “Financial Instruments” and related amendments

IFRS 9 “Financial Instruments” supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as at January 1, 2018, the Company has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amounts under IAS 39 and the new measurement categories and carrying amounts under IFRS 9 for each class of the Company’s financial assets as at January 1, 2018.

		Measurement Category	Measurement Category	Measurement Category	Measurement Category		**Carrying **	**Carrying **	Amount
Financial Assets		IAS 39			IFRS 9		IAS 39		IFRS 9
Cash and cash equivalents	Loans and	receivables		Amortized cost			$ 7,593,586		$ 7,593,586
Equity securities	Available‑for‑sale			Fair value through other			375			375
	financial assets			comprehensive income
				(i.e.	FVTOCI) - equity
				instruments
Trade receivables and	Loans and	receivables		Amortized cost			2,998,524		2,998,524
other receivables
Refundable deposits	Loans and	receivables		Amortized cost			213			213
		IAS 39 Carrying						IFRS 9 Carrying
		Amount as of						Amount as of
Financial Assets		January 1,	2018	Reclassifications Remeasurements				January 1,		2018
FVTOCI
Equity instruments
Add: Reclassification from
available-for-sale financial assets
(IAS 39) - equity instruments		$	-	$	375	$	-	$		375
			-		375		-			375
Amortized cost
Add: Reclassification from	loans and
receivables (IAS 39)			-		10,592,323		-		10,592,323
			-		10,592,323		-		10,592,323
		$	-	$	10,592,698	$	-	$	10,592,698

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• a) The Company elected to designate all its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are not held for trading. As a result, the related other equity - unrealized gain (loss) on available-for-sale financial assets of $337 thousand was reclassified to other equity - unrealized gain (loss) on financial assets at FVTOCI.

• b) Trade receivables and other receivables that were previously classified as loans and receivables under IAS 39 were classified as measured at amortized cost with an assessment of expected credit losses under IFRS 9. As a result of retrospective application, there was no difference in the loss allowance on January 1, 2018.

• 2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for the related accounting policies.

IFRS 15 require that a good or service is distinct if it is capable of being distinct. For the sales of products by the Company, there are no service provisions. There are no transactions where goods and services are integrated, and there are also no authorized trade and other transactions within the Company. Hence, IFRS 15 and its related amendments have no material impact on the Company.

• b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2019

New IFRSs Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 16 “Leases” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty over Income Tax Treatments”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 January 1, 2019 (Note 2) January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.

• Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

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Definition of a lease

Upon initial application of IFRS 16, the Company will elect to apply IFRS 16 only to contracts entered into (or changed) on or after January 1, 2019 in order to determine whether those contracts are, or contain, a lease. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Company as lessee

Upon initial application of IFRS 16, the Company will recognize right-of-use assets, and lease liabilities for all leases on the balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the statements of cash flows.

The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Anticipated impact on assets, liabilities and equity

Right-of-use assets Total effect on assets Lease liabilities Total effect on liabilities Retained earnings Total effect on equity	Carrying Amount as of December 31, 2018 $ - $ - $ - $ - $ 12,128,438 $ 12,128,438	Adjustments Arising from Initial Application Adjusted Carrying Amount as of January 1, 2019 $ 22,007 $ 22,007 $ 22,007 $ 22,007 $ 22,031 $ 22,031 $ 22,031 $ 22,031 $ (24) $ 12,128,414 $ (24) $ 12,128,414

Except for the above impact, as of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

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• c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

Effective Date New IFRSs Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

• 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 Company shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

• Note 3: The Company shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020.

As of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

• b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

• 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the 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.

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When preparing these financial statements, the Company used the equity method to account for its investments in subsidiaries, associates and joint ventures. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same as the amounts attributable to the owners of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the consolidated basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries, the share of other comprehensive income of subsidiaries, and the related equity items, as appropriate, in these financial statements.

• c. Classification of current and non-current assets and liabilities

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within 12 months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue; and

• 3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Assets and liabilities that are not classified as current are classified as non-current.

• d. Foreign currencies

In preparing the financial statements of the Company, transactions in currencies other than the Company’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

• 16 -

e. Inventories

Inventories consist of raw materials, supplies, finished goods and work-in-progress and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at the monthly weighted-average cost on the balance sheet date.

f. Investments in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries. A subsidiary is an entity that is controlled by the Company.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of subsidiaries attributable to the Company.

Changes in the Company’s ownership interest in a subsidiary that do not result in the Company losing control of the subsidiary are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the investee’s financial statements as a whole. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes a reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years.

Profits or losses resulting from downstream transactions are eliminated in full only in the parent company’s financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized only in the parent company’s financial statements only to the extent of interests in the subsidiaries that are not related to the Company.

g. Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are carried at cost, less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use.

Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

• 17 -

• h. Intangible assets

• 1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

• 2) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset are recognized in profit or loss.

• i. Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

• j. Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

• 18 -

• a) Measurement category

2018

Financial assets are classified into the following categories: Financial assets at amortized cost and investments in equity instruments at FVTOCI.

• i. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at amortized cost:

• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, trade receivables at amortized cost, other receivables and refundable deposits, are measured at amortized cost, which equals the gross carrying amount determined by the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for:

• Purchased or originated credit-impaired financial assets, for which interest income is calculated by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset; and

• Financial assets that are not credit-impaired on purchase or origination but have subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset.

Cash equivalents include time deposits, commercial papers and repurchase agreements collateralized by bonds with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• ii. Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments, instead, they will be transferred to retained earnings.

• 19 -

Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following categories: Available-for-sale financial assets and loans and receivables.

• i. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

• ii. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalents, and other receivables) are measured using the effective interest method at amortized cost, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalents include repurchase agreements collateralized by bonds, commercial papers and time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• b) Impairment of financial assets

2018

The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables).

The Company always recognizes lifetime Expected Credit Losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

• 20 -

Expected credit losses reflect the weighted average of credit losses with the respective risks of a default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For financial assets carried at amortized cost, such as trade receivables, such assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments and an increase in the number of delayed payments in the portfolio past the average credit period.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for 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 are 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.

• 21 -

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

• c) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss. From 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Equity instruments

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

3) Financial liabilities

• a) Subsequent measurement

All financial liabilities are measured at amortized cost using the effective interest method.

• b) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

• k. Revenue recognition

2018

The Company identifies the contracts with the customers, allocates the transaction price to the performance obligations, and recognizes revenue when performance obligations are satisfied.

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• 1) Revenue from the sale of goods

Revenue from the sale of goods comes from sales of silicon wafers. Sales of silicon wafers are recognized as revenue when the goods are delivered to the customer’s specific location or the goods are actually used because it is the time when the customer has full discretion over the manner of distribution and price to sell the goods, has the primary responsibility for sales to future customers, and bears the risks of obsolescence. Trade receivables are recognized concurrently.

• 2) Revenue from the rendering of services

Revenue from the rendering of services comes from consignment services. The Company is an agent and its performance obligation is the provision of consignment services. The Company recognizes revenue in the net amount of consideration received or receivable when the goods that are consigned are transferred to the customer and the Company has no further obligation to the customer.

2017

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

• 1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

• a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• b) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• c) The amount of revenue can be measured reliably;

• d) It is probable that the economic benefits associated with the transaction will flow to the Company; and

• e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

• 2) Rendering of services

Service income (including that from operating services provided under service concession arrangements) is recognized when services are provided.

• 3) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

• 23 -

l. Leasing

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Company as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

m. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than that stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

• n. Employee benefits

• 1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered services entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Current service cost and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur. Remeasurement, comprising actuarial gains and losses, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

• o. 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 provided for as income tax in the year the shareholders approve to retain earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• 24 -

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forwards, and unused tax credits for purchases of machinery and equipment to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• 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 are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

• 25 -

a. Valuation of inventories

Inventories are stated at the lower of cost or net realizable value, and therefore, the Company uses judgment and estimates to determine the net realizable value of inventory at the end of each reporting period.

Due to the rapid advancement in technology, the Company estimates the net realizable value of inventories for obsolete and unmarketable items at the end of the reporting period and then writes down the cost of inventories to their net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon, and hence may result in significant changes. The carrying amounts of inventories as of December 31, 2018 and 2017 are disclosed in Note 9.

b. Realization of deferred income tax assets

Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Company’s subjective judgment and estimates, including the future revenue growth and profitability, tax holidays, the amount of tax credits that can be utilized and feasible tax planning strategies. Any changes in the global economic environment, industry trends and the relevant laws and regulations could result in significant adjustments to the deferred tax assets. The carrying amounts of deferred income tax assets at December 31, 2018 and 2017 are disclosed in Note 18.

6. CASH AND CASH EQUIVALENTS

Checking accounts Demand deposits Foreign currency deposits Cash equivalents (investments with original maturities of less than 3 months) Commercial papers Repurchase agreements collateralized by bonds Time deposits		December 31	December 31
		2018 $ 844 586 847,208 620,940 1,493,045 4,379,131 $ 7,341,754	2017 $ 804 414 773,330 855,285 2,316,674 3,647,079 $ 7,593,586

The market rate intervals of cash in bank, commercial papers and repurchase agreements collateralized by bonds at the end of the reporting period were as follows:

Demand deposits Foreign currency deposits Commercial papers Repurchase agreements collateralized by bonds Time deposits	December 31
	2018 2017 0.08% 0.08% 0.01% 0.01% 0.51%-0.54% 0.38% 0.50%-0.54% 0.38%-0.42% 0.63%-3.20% 0.63%-1.82%

• 26 -

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

	December 31,	December 31,
		2018
Non-current
Investments in equity instruments at FVTOCI	$	354
Investments in equity instruments at FVTOCI
Non-current
Domestic investments
Listed shares
Ordinary shares - Formosa Petrochemical Corporation	$	354

The Company invested in the ordinary shares of Formosa Petrochemical Corporation for long-term strategy purposes, and expects to profit from the shares through long-term investment. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale financial assets under IAS 39. Refer to Note 3 and Table 2 of Note 25 for information relating to their reclassification and comparative information for 2017.

8. TRADE RECEIVABLES AND OTHER RECEIVABLES

Trade receivables Trade receivables from unrelated parties Trade receivables from related parties Less: Allowance for impairment loss Other receivables Tax refund receivables (sales tax) Others Other receivables-related parties Receivables from loans to related parties - fixed interest rate Receivables from loans to related parties - variable interest rate Receivables from interest from related parties Others		December 31	December 31
		2018 $ 2,382,393 475,766 - $ 2,858,159 $ 6,890 10,798 $ 17,688 $ 787,913 400,000 3,600 8,498 $ 1,200,011	2017 $ 1,967,495 161,281 - $ 2,128,776 $ 7,995 2,985 $ 10,980 $ 854,364 - 683 3,721 $ 858,768

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Trade Receivables

For the year ended December 31, 2018

In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Company’s credit risk was significantly reduced.

The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to the past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecasted direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s different customer base.

The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

The following table details the loss allowance of trade receivables based on the Company’s provision matrix.

December 31, 2018

Not Past Due Expected credit loss rate 0% Gross carrying amount $ 2,858,159 Loss allowance (Lifetime ECLs) - Amortized cost $ 2,858,159	Less than 60 Days 61 to 90 Days 0% 0% $ - $ - - - $ - $ -	91 to 120 Days 0% $ - - $ -	Over 120 Days 0% $ - - $ -	Total - $ 2,858,159 -
				$ 2,858,159

For the year ended December 31, 2017

The average credit period on sales of goods was 30-90 days. In determining the recoverability of a trade receivable, the Company considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. The Company recognized an allowance for impairment loss of 100% against all receivables overdue more than 180 days because historical experience had been that receivables that are past due beyond 180 days were not recoverable. Allowance for impairment loss was recognized against trade receivables between 1 day and 180 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position.

• 28 -

The aging of trade receivables was as follows:

	December 31,
	2017
0-30 days	$ 1,095,011
31-60 days	666,967
61-90 days	357,485
91-120 days	9,313
	$ 2,128,776

The above aging schedule was based on the past due days from the invoice date.

There were no receivables that were past due but not impaired as of December 31, 2018 and 2017.

9. INVENTORIES

Raw materials Supplies Work in progress Finished goods Merchandise inventories Less: Allowance for inventory write-downs		December 31	December 31
		2018 $ 777,555 998,214 397,525 558,137 22,858 (99,900) $ 2,654,389	2017 $ 513,258 822,566 432,032 571,987 16,538 (79,237) $ 2,277,144

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 was $9,462,293 thousand and $9,385,071 thousand, respectively.

The cost of goods sold for the year ended December 31, 2018 included reversal of inventory write-downs of $20,663 thousand and income from the sale of silicon waste of $74,212 thousand, respectively.

The cost of goods sold for the year ended December 31, 2017 included inventory write-downs of $61,751 thousand and income from the sale of silicon waste of $54,745 thousand, respectively.

10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in subsidiaries

Japan Formosa Sumco Technology Corporation Investee Japan Formosa Sumco Technology Corporation		**December 31 **
		2018 2017 $ 335,413 $ 292,559 % of Ownership and Voting Rights
		December 31
		2018 2017 100% 100%

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The share of net income or loss and other comprehensive income from subsidiaries accounted for using the equity method in the years 2018 and 2017 were based on the subsidiaries’ audited financial statements for the same reporting periods as the Company.

11. PROPERTY, PLANT AND EQUIPMENT

Freehold Land Cost Balance at January 1, 2017 $ 120,906 Additions - Reclassifications - Disposals - Balance at December 31, 2017$ 120,906 Accumulated depreciation and impairment Balance at January 1, 2017 $ - Disposals - Reclassifications - Depreciation expense - Balance at December 31, 2017 $ - Carrying amount at December 31, 2017 $ 120,906 Cost Balance at January 1, 2018 $ 120,906 Additions - Reclassifications - Disposals - Balance at December 31, 2018$ 120,906 Accumulated depreciation and impairment Balance at January 1, 2018 $ - Disposals - Reclassifications - Depreciation expense - Balance at December 31, 2018 $ - Carrying amount at December 31, 2018 $ 120,906	Buildings Machinery and Equipment $ 3,901,905 $ 29,027,238 - 125,541 - 87,404 - (46,902) $ 3,901,905 $ 29,193,281 $ 1,132,861 $ 19,997,963 - (46,902 ) - (376 ) 109,867 1,848,660 $ 1,242,728 $ 21,799,345 $ 2,659,177 $ 7,393,936 $ 3,901,905 $ 29,193,281 - 46,249 - 1,180,000 - (422,251) $ 3,901,905 $ 29,997,279 $ 1,242,728 $ 21,799,345 - (364,105 ) - - 109,867 1,865,019 $ 1,352,595 $ 23,300,259 $ 2,549,310 $ 6,697,020	Other Equipment Equipment Under Installation and Construction in Progress $ 719,980 $ 84,662 16,452 575,744 376 (87,780 ) (1,580) - $ 735,228 $ 572,626 $ 650,182 $ - (1,580 ) - 376 - 18,935 - $ 667,913 $ - $ 67,315 $ 572,626 $ 735,228 $ 572,626 20,265 1,124,354 6,084 (1,186,084 ) (6,396) - $ 755,181 $ 510,896 $ 667,913 $ - (6,396 ) - - - 22,212 - $ 683,729 $ - $ 71,452 $ 510,896	Total $ 33,854,691 717,737 - (48,482) $ 34,523,946 $ 21,781,006 (48,482 ) - 1,977,462 $ 23,709,986 $ 10,813,960 $ 34,523,946 1,190,868 - (428,647) $ 35,286,167 $ 23,709,986 (370,501 ) - 1,997,098 $ 25,336,583 $ 9,949,584

The above items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, as follows:

Buildings Real estate, dormitories, warehouses, and readiness rooms 23-35 years Wastewater treatment area and strain tanks 15-35 years Machinery and equipment 5-12 years Other equipment 3-12 years

The accumulated impairment losses due to unusable machinery were $0 thousand and $10,001 thousand on December 31, 2018 and 2017, respectively.

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12. INTANGIBLE ASSETS

Technical cooperation fees Cost Balance at January 1, 2017 and December 31, 2017 Balance at January 1, 2018 Additions Disposals Balance at December 31, 2018 Accumulated amortization Balance at January 1, 2017 Amortization expense Balance at December 31, 2017 Balance at January 1, 2018 Amortization expense Disposals Balance at December 31, 2018		**December **	**31 **
		2018 2017 $ - $ 219 Technical Cooperation Agreement $ 584 $ 584 1,323 (1,907) $ - $ 146 219 $ 365 $ 365 1,542 (1,907) $ -

The Company signed a technical cooperation arrangement with Sumco Corporation with a total fee of JPY7,000 thousand in May 2015 and September 2017. $1,323 thousand and $584 thousand has been paid in January 2018 and May 2016, respectively, and are amortized over a period of 32 months.

The amortization expense in the years 2018 and 2017 was $1,542 thousand and $219 thousand, respectively. The amortization expense is accounted for as technical corporation expense under operating costs.

13. OTHER ASSETS

Current Prepayments (including prepayments for purchases and prepaid expenses)		December 31	December 31
		2018 $ 133,390	2017 $ 89,570

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14. OTHER LIABILITIES

Other payables-current Payables for purchase of equipment Payables for salary and bonus Payables for insurance Payables for utilities Payables for dividends Others (Note) Other payables-related parties (current) Payables for purchase of equipment - related parties Payables for royalties - related parties		December 31	December 31
		2018 $ 86,007 482,966 28,038 48,866 132 115,483 $ 761,492 $ 3,700 411,698 $ 415,398	2017 $ 345,690 446,265 26,440 45,575 103 84,929 $ 949,002 $ 22,088 300,662 $ 322,750

Note: Others included under other payables - current are mainly payables for project fees, pension cost, employees’ compensation and taxation.

15. RETIREMENT BENEFIT PLANS

a. Defined contribution plan

The Company adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plan

The defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

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The amounts included in the balance sheets in respect of the Company’s defined benefit plan were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities Movements in net defined benefit liabilities were as follows: Present Value of the Defined Benefit Obligation Balance at January 1, 2017 $ 436,394 Service cost Current service cost 2,770 Net interest expense (income) 5,455 Recognized in profit or loss 8,225 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial (gain) loss - changes in financial assumptions 31,571 Actuarial (gain) loss - experience adjustments 14,157 Recognized in other comprehensive income 45,728 Contributions from the employer - Balance at December 31, 2017 490,347 Service cost Current service cost 2,998 Net interest expense (income) 6,129 Recognized in profit or loss 9,127 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial (gain) loss - experience adjustments 10,406 Recognized in other comprehensive income 10,406 Contributions from the employer - Balance at December 31, 2018 $ 509,880		December 31
	2018 2017 $ 509,880 $ 490,347 (138,942) (127,763) $ 370,938 $ 362,584 Fair Value of the Plan Assets Net Defined Benefit Liability $ (120,559) $ 315,835 - 2,770 (1,544) 3,911 (1,544) 6,681 248 248 - 31,571 - 14,157 248 45,976 (5,908) (5,908) (127,763) 362,584 - 2,998 (1,634) 4,495 (1,634) 7,493 (3,479) (3,479) - 10,406 (3,479) 6,927 (6,066) (6,066) $ (138,942) $ 370,938

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic (foreign) equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

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• 2) Interest risk: A decrease in the government bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rates Expected rates of salary increase	December 31
	2018 2017 1.25% 1.25% 2.85% 2.85%

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 0.25% increase 0.25% decrease Expected rates of salary increase 1% increase 1% decrease		December 31	December 31
		2018 $ (22,303) $ 23,495 $ 100,650 $ (83,399)	2017 $ (22,751) $ 24,026 $ 103,243 $ (84,705)

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.

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		**December **	**31 **
		2018 $ 6,320 19.8 years	2017 $ 5,912 21 years

16. EQUITY

• a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		**December 31 **	**December 31 **
		2018 775,697 $ 7,756,966 387,848 $ 3,878,483	2017 775,697 $ 7,756,966 775,697 $ 7,756,966

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Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right to dividends.

The Company resolved to reduce its capital in the meeting of the shareholders dated June 21, 2018, which was approved by the Financial Supervisory Commission (FSC) on July 12, 2018. The Company’s chairman decided July 13, 2018 as the record date for capital reduction, which was authorized by the board of directors. The capital reduced was estimated to be $3,878,483 thousand and 387,848 thousand shares were cancelled. The reduction in proportion of shares was approximately 50%, and the share capital after capital reduction was $3,878,483 thousand, comprising 387,848 thousand shares with par value of $10.

• b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital Issuance of ordinary shares (1) May be used to offset a deficit only Dividends expired and uncollected by shareholders (2)		**December 31 **	**December 31 **
		2018 $ 5,739,080 71 $ 5,739,151	2017 $ 5,739,080 2 $ 5,739,082

• 1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).

• 2) Accounted for as capital surplus - others, and may be used only to offset a deficit.

• c. Retained earnings and dividend policy

Under the dividend policy as set forth in the amended Articles, where the Company made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation and remuneration of directors and supervisors before and after the amendment, refer to f. employee benefits expense in Note 17.

The Company belongs to a high-tech capital intensive industry and it is in the growth phase. To support the Company’s growth, the Company has three different methods to distribute dividends, including cash dividends, capitalization of retained earnings, and capital surplus, and no more than 80% of distributable surplus should be distributed from the legal reserve and special reserve. In principle, cash dividends should be distributed first, and the aggregate of capitalized retained earnings and capital surplus shall not exceed 50% of total dividends.

An appropriation of earnings to a legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

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The appropriations of earnings for 2017 and 2016 approved in the shareholders’ meetings on June 21, 2018 and on June 21, 2017, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2017 2016 $ 224,277 $ 73,039 1,613,450 519,717	Dividends Per Share (NT$)
		For the Year Ended December 31
		2017 2016 $ 2.08 $ 0.67

The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 19, 2019. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	558,046
Cash dividends		3,490,635	$9.00

The appropriations of earnings for 2018 are subject to the resolution of the shareholders in the shareholders’ meeting to be held on June 13, 2019.

d. Other equity items

The exchange differences arising on translation of foreign operations’ net assets from their functional currencies to the Company’s presentation currency (NTD) are recognized directly in other comprehensive income and also accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the exchange differences on translating foreign operations are reclassified to profit or loss on the disposal of the foreign operation.

Unrealized gain (loss) on available-for-sale financial assets represents the cumulative gains or losses arising from the fair value measurement on available-for-sale financial assets that are recognized in other comprehensive income, excluding those available-for-sale financial assets that have been disposed of or are determined to be impaired subsequently, the related cumulative gains or losses in other comprehensive income are reclassified into profit or loss.

17. NET INCOME

a. Other income

Interest income Dividend income Others (including insurance claim income and commission income, etc.)	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2018 $ 83,554 20 17,011 $ 100,585	2017 $ 40,616 19 15,946 $ 56,581

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b. Other gains and losses

Net foreign exchange gains (losses) (Loss) gain on disposal of property, plant and equipment Others c. Finance costs Interest expense d. Depreciation and amortization Property, plant and equipment Intangible assets and other non-current assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses e. Employee benefits expense Post-employment benefits (see Note 15) Defined contribution plans Defined benefit plans Salary and bonus etc.	For the Year Ended	For the Year Ended	For the Year Ended	December 31
	2018 $ 204,389 (58,146) (391) $ 145,852 **For the Year Ended **			2017 $ (174,839) 151 (175) $ (174,863) **December 31 **
	2018 $ 469 **For the Year Ended **			2017 $ 355 **December 31 **
	2018 2017 $ 1,997,098 $ 1,977,462 1,542 9,519 $ 1,998,640 $ 1,986,981 $ 1,986,713 $ 1,967,111 10,385 10,351 $ 1,997,098 $ 1,977,462 $ 1,542 $ 9,519 - - $ 1,542 $ 9,519 **For the Year Ended December 31 **
		2018 $ 53,495 7,493 60,988 1,627,651 $ 1,688,639	2017 $ 50,475 6,681 57,156 1,549,726 $ 1,606,882 (Continued)

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An analysis of employee benefits expense by function Operating costs Operating expenses	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 1,509,033 179,606 $ 1,688,639	2017 $ 1,424,506 182,376 $ 1,606,882 (Concluded)

f. Employees’ compensation and remuneration of directors and supervisors

The Company accrued employees’ compensation at rates of no less than 0.05% and no higher than 0.5%, respectively, of net profit before income tax excluding employees’ compensation. The employees’ compensation and remuneration of directors and supervisors for the years ended December 31, 2018 and 2017 which have been approved by the Company’s board of directors on March 19, 2019 and March 22, 2018, respectively, were as follows:

Accrual rate

Employees’ compensation Remuneration of directors and supervisors Amount	For the Year Ended December 31
	2018 2017 0.400% 0.350% - -

Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2018 Cash $ 25,668 -	2017
		Cash $ 9,125 -

If there is a change in the amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

There was no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the financial statements for the years ended December 31, 2018 and 2017.

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2019 and 2018 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

g. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net gains (losses)	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2018 $ 341,955 (137,566) $ 204,389	2017 $ 257,461 (432,300) $ (174,839)

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18. INCOME TAX

a. Major components of tax expense recognized in profit or loss

Current tax In respect of the current year Income tax expense of unappropriated earnings Adjustments for prior years Deferred tax In respect of the current year Adjustments to deferred tax attributable to changes in tax rates and laws Income tax expense recognized in profit or loss	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2018 $ 807,771 36,689 581 (13,055) (21,056) $ 810,867	2017 $ 238,710 13,153 - 103,406 - $ 355,269

A reconciliation of accounting profit and income tax expenses is as follows:

Profit before income tax Income tax expense calculated at the statutory rate (20% for 2018 and 17% for 2017) Tax-exempt income Additional income tax under the Alternative Minimum Tax Act Others Income tax on unappropriated earnings Adjustments to deferred tax attributable to changes in tax rates and laws Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 6,391,326 $ 1,278,265 (483,549) - - 36,689 (21,056) 518 $ 810,867	2017 $ 2,598,043 $ 441,667 (143,769) 44,221 (3) 13,153 - - $ 355,269

In 2017, the applicable corporate income tax rate used by the Company was 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%.

As the status of 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable.

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• b. Income tax recognized in other comprehensive income

Deferred tax Adjustments to deferred tax attributable to changes in tax rates and laws In respect of the current year: Remeasurement on defined benefit plan Total income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ (2,450) (1,385) $ (3,835)	2017 $ - (7,816) $ (7,816)

c. Current tax liabilities

December 31 2018 2017 Income tax payable $ 612,328 $ 251,863 Deferred tax assets and liabilities The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2018 Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance Deferred tax assets Temporary differences Exchange differences on the difference in timing of translation of foreign currency assets and liabilities $ 9,136 $ (7,531) $ - $ 1,605 Allowance for inventory write-offs 13,470 6,510 - 19,980 Defined benefit obligation 58,787 8,210 3,835 70,832 Difference in depreciation method of machinery and equipment 41,844 21,426 - 63,270 Others 1,700 11,929 - 13,629 $ 124,937 $ 40,544 $ 3,835 $ 169,316 Deferred tax liabilities Temporary differences Others $ (5,621) $ (6,433) $ - $ (12,054)		December 31
Deferred tax assets Temporary differences Exchange differences on the difference in timing of translation of foreign currency assets and liabilities Allowance for inventory write-offs Defined benefit obligation Difference in depreciation method of machinery and equipment Others Deferred tax liabilities Temporary differences Others

d. Deferred tax assets and liabilities

• 40 -

For the year ended December 31, 2017

Deferred tax assets Temporary differences Exchange differences on the difference in timing of translation of foreign currency assets and liabilities Allowance for inventory write-off Defined benefit obligation Difference in depreciation method of machinery and equipment Others Tax losses Deferred tax liabilities Temporary differences Others	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 20,146 $ (11,010) $ - $ 9,136 2,972 10,498 - 13,470 50,839 132 7,816 58,787 33,175 8,669 - 41,844 1,700 - - 1,700 108,832 8,289 7,816 124,937 106,914 (106,914) - - $ 215,746 $ (98,625) $ 7,816 $ 124,937 $ (840) $ (4,781) $ - $ (5,621)

• e. Income tax assessments

The income tax returns of the Company through 2016 have been assessed by the tax authorities.

19. EARNINGS PER SHARE

The earnings and weighted average number of ordinary shares outstanding used in the computation of earnings per share were as follows:

Net income Weighted average number of ordinary shares used in the computation of basic earnings per share (in thousands) Effect of potentially dilutive ordinary shares Employees’ compensation Weighted average number of ordinary shares used for the computation of diluted earnings per share (in thousands)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 5,580,459 592,930 233 593,163	2017 $ 2,242,774 775,697 100 775,797

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If the Company offered to settle bonuses or compensation paid to employees in shares or cash, the Company assumed the entire amount of the bonus or compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, if the effect is dilutive. Such dilutive effect of the potential shares was 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.

20. CAPITAL MANAGEMENT

In consideration of the prevailing industry dynamics and the future development as well as the changes in the external economic environment, the Company manages its working capital and dividend payments in the future, to ensure that the Company will be able to continue as a going concern while maximizing the returns to shareholders as well as other related parties through the optimization of capital structure.

The Company could make adjustments to dividends or issue new shares in order to maintain or adjust the capital structure.

21. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments that are not measured at fair value

The Company’s management believes the carrying amounts of financial assets and financial liabilities recognized in the financial statements approximate their fair values.

• b. Fair value of financial instruments that are measured at fair value on a recurring basis

Fair value hierarchy
December 31, 2018
	Level 1		Level 2		Level 3			Total
Financial assets at FVTOCI
Securities listed in the ROC
Equity securities	$	354	$	-	$	-	$	354
December 31, 2017
	Level 1		Level 2		Level 3			Total
Available-for-sale financial assets
Securities listed in the ROC
Equity securities	$	375	$	-	$	-	$	375

There were no transfers between Levels 1 and 2 in the current and prior periods.

• 42 -

c. Categories of financial instruments

Financial assets Loans and receivables (1) Available-for-sale financial assets Financial assets at amortized cost (2) Financial assets at FVTOCI Equity instruments Financial liabilities Amortized cost (3)	December 31
	2018 2017 $ - $ 10,584,328 - 375 11,410,927 - 354 - 1,440,213 1,434,242

• 1) The balances include loans and receivables measured at amortized cost, which comprise cash and cash equivalents, trade and other receivables (excluding sales tax receivables), and refundable deposits.

• 2) The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, trade receivables, other receivables (excluding sales tax refund receivables), and refundable deposits.

• 3) The balances include financial liabilities measured at amortized cost, which comprise trade and other payables (excluding payables for salary and bonus, employees’ compensation, pension cost, and taxation), and guarantee deposits.

• d. Financial risk management objectives and policies

The Company’s major financial instruments include equity investments, trade receivables, trade payables, and bank borrowings. The Company’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

1) Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (1) below) and interest rates (see (2) below).

There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured.

a) Foreign currency risk

The Company had foreign currency sales and purchases, which exposed the Company to foreign currency risk.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) at the end of the reporting period are set out in Note 24.

• 43 -

Sensitivity analysis

The Company was mainly exposed to the U.S. dollar (USD) and Japanese Yen (JPY).

The following table details the Company’s sensitivity to a 10% increase and decrease in NTD (the functional currency) against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 10% change in foreign currency rates. A positive number below indicates an increase in pre-tax profit associated with the NTD weakening 10% against the relevant currency. For a 10% strengthening of the NTD against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

Profit or loss	USD Impact For the Year Ended December 31 2018 2017 $ 606,536 (i) $ 342,337 (i)	JPY Impact
		For the Year Ended December 31
		2018 2017 $ 55,412 (ii) $ 64,411 (ii)

• i. This was mainly attributable to the exposure outstanding on cash, receivables and payables in USD, which were not hedged at the end of the reporting period.

• ii. This was mainly attributable to the exposure to outstanding on cash, receivables and payables in JPY, which were not hedged, at the end of the reporting period.

The Company’s sensitivity to foreign currency increased during the current year mainly due to the increase of USD denominated bank deposits and trade receivables. The Company’s sensitivity to foreign currency decreased during the current period mainly due to the decrease of trade receivables in JPY.

• b) Interest rate risk

The carrying amounts of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Fair value interest rate risk Financial assets Cash flow interest rate risk Financial assets	**December 31 **
	2018 2017 $ 7,684,631 $ 7,673,402 847,794 773,744

Sensitivity analysis

The sensitivity analyses below were determined based on the Company’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liabilities outstanding at the end of the reporting period was outstanding for the whole year. A 1% increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

• 44 -

If interest rates had been 1% higher/lower and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2018 and 2017 would increase/decrease by $8,478 thousand and $7,737 thousand, respectively, which was mainly attributable to the Company’s exposure to interest rates on floating rate bank deposits.

The Company’s sensitivity to interest rates was not significantly different for the years ended December 31, 2018 and 2017.

2) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is exposed to credit risk from operating activities, primarily trade receivables.

In order to minimize credit risk, management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the Company’s credit risk was significantly reduced.

The Company did not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, except for the clients with trade receivables accounting for 10% of total monetary assets. The Company defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk to any other counterparty did not exceed 10% of total monetary assets at any time during the years ended December 31, 2018 and 2017.

3) Liquidity risk

The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents, highly liquid marketable securities, and sufficient bank borrowings deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows.

Liquidity and interest risk rate table

The following tables detail the Company’s remaining contractual maturities for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows.

To the extent that interest flows are floating rate, the undiscounted amount was derived from the interest rate curve at the end of the reporting period.

December 31, 2018 Non-derivative financial liabilities Non-interest bearing	1-6 Months $ 1,440,213	6 Months to 1 Year $ -	1-3 Years $ -	3+ Years $ -

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December 31, 2017

Non-derivative financial liabilities Non-interest bearing	1-6 Months $ 1,434,242	6 Months to 1 Year $ -	1-3 Years $ -	3+ Years $ -

The following tables detail the Company’s expected maturities for some of its non-derivative financial assets. The tables below had been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand the Company’s liquidity risk management as the liquidity is managed on a net asset and liability basis.

December 31, 2018

Non-derivative financial assets Non-interest bearing assets Variable interest rate assets Fixed interest rate assets December 31, 2017 Non-derivative financial assets Non-interest bearing assets Variable interest rate assets Fixed interest rate assets	1-6 Months $ 2,878,504 847,879 7,687,338 $ 11,413,721 1-6 Months $ 2,137,181 773,783 7,707,013 $ 10,617,977	6 Months to 1 Year $ - - - $ - 6 Months to 1 Year $ - - - $ -

The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities were subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

• 46 -

22. TRANSACTIONS WITH RELATED PARTIES

Details of transactions between the Company and its related parties are disclosed below.

Related parties and their relationships with the Company:

Related Party Sumco Corporation Sumco Techxiv Corporation Sumco Technology Corporation Japan Formosa Sumco Technology Corporation Formosa Plastic Corporation Formosa Technologies Corporation Formosa Daikin Advanced Chemicals Co., Ltd. Hwa Ya Power Corporation	Related Party Category and Relationship with the Company
	Ultimate parent company Parent of the Company Sister company (subsidiary of Sumco Corporation) Subsidiary of the Company Investor with significant influence over the Company (equity-method investor holding 29.06% of the equity of the Company) Other (a director is the chairman of the Company) Other (same chairman) Other (same chairman)

Operating Transactions

• a. Sales of goods

Line Item Related Party Category Sales Parent entity (Sumco Techxiv Corporation)	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 2,517,963	2017 $ 809,959

The transaction prices are based on mutual agreement. The credit term is 60 days from the day the related party confirms the sale.

• b. Purchases of goods

Related Party Category Ultimate parent company (Sumco Corporation) Parent company of the Company Subsidiary (Japan Formosa Sumco Technology Corporation) Investor with significant influence over the Company Others (same chairman or a director is the chairman of the Company)	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 759,258 27,980 752,726 31,046 17,322 $ 1,588,332	2017 $ 939,561 19,189 747,090 29,745 18,706 $ 1,754,291

The transaction prices are based on mutual agreement. Payments are due within the following number of days from the receipt of the Company’s goods: (a) 30 to 70 days - parent entity; (b) 60 to 120 days - ultimate parent entity; (c) 70 days - subsidiary entity; and (d) immediately upon delivery - all other related parties.

• 47 -

Receivables from related parties are as follows:

Line Item Related Party Category Trade receivable Parent entity (Sumco Techxiv Corporation) Payables to related parties are as below: Line Item Related Party Category Trade payable Ultimate parent entity (Sumco Corporation) Parent entity Subsidiary entity (Japan Formosa Sumco Technology Corporation) Investor with significant influence over the Company Others (same chairman or a director is the chairman of the Company)		December 31	December 31
		2018 2017 $ 475,766 $ 161,281 December 31
		2018 $ 149,640 5,239 178,790 2,427 529 $ 336,625	2017 $ 132,893 2,507 148,820 2,945 384 $ 287,549

The outstanding trade payables to related parties are unsecured and will be paid by cash. The outstanding trade receivables from related parties are unsecured. For the years ended December 31, 2018 and 2017, no impairment loss was recognized for trade receivables from related parties.

c. Commission income, income from sale of waste, other revenue and other receivables

Ultimate parent company (commission income, accounted for as other income, other revenue; accounted for as deduction of operating costs) Sister company (income from sale of waste, accounted for as deduction of operating costs) Ultimate parent company (other receivables) Sister company (other receivables)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 2017 $ 20,542 $ 23,016 23,920 - $ 44,462 $ 23,016 December 31
		2018 $ 6,471 2,027 $ 8,498	2017 $ 3,721 - $ 3,721

• 48 -

d. Loans to related parties

Other receivables-related parties Subsidiary entity (Japan Formosa Sumco Technology Corporation) Others related parties (Hwa Ya Power Corporation) Interest receivables (accounted for as other receivables - related parties) Subsidiary entity (Japan Formosa Sumco Technology Corporation) Others related parties (Hwa Ya Power Corporation) Interest income Investor with significant influence over the Company Subsidiary entity (Japan Formosa Sumco Technology Corporation) Receivables from interest from related parties (Hwa Ya Power Corporation)		December 31	December 31
	2018 2017 $ 787,913 $ 854,364 400,000 - $ 1,187,913 $ 854,364 $ 3,168 $ 683 432 - $ 3,600 $ 683 For the Year Ended December 31
		2018 $ 24 8,578 7,295 $ 15,897	2017 $ 27 9,786 - $ 9,813

The Company has issued loans to the others (Hwa Ya Power Corporation) which totaled $1,000,000 thousand. The receivable balance is $400,000 thousand as of December 31, 2018. The Company provided the others with loans at interest rate of 1.41%, which were unsecured. The interest income from loan to others (Hwa Ya Power Corporation) was $7,295 thousand. The unreceived amount of interest is $432 thousand as of December 31, 2018.

The Company has issued loans to the investor with significant influence (Formosa Plastic Corporation) which totaled $844,935 thousand on June 15, 2018. The Company provided the investor with significant influence with loans at interest rate of 1%, which were unsecured and has been recovered before June 30, 2018.

The Company has issued loans to the investor with significant influence (Formosa Plastic Corporation) which totaled $1,003,464 thousand on June 15, 2017. The Company provided the investor with significant influence with loans at interest rate of 1%, which were unsecured and has been recovered as of June 30, 2017.

The Company has issued loans to the subsidiaries and provided them with loans at interest rate of 1% in the current and prior periods.

• 49 -

e. Other transactions with related parties

• 1) The repairs and maintenance expenses of manufacturing expenses

The repairs and maintenance expenses the Company paid to the other related party (Formosa Technologies Corporation) were $21,698 thousand and $22,929 thousand for the years ended December 31, 2018 and 2017, respectively. The transaction amounts are based on mutual agreement, and settled within the year.

• 2) Acquisitions of equipment and payables for purchase of equipment - related parties

The Company acquired a warehouse management system from other related parties (Formosa Technologies Corporation) in the year ended December 31, 2018 at the contract price of $23,400 thousand. The balance payable of $3,700 thousand, as of December 31, 2018, accounted for as payable for equipment to related parties (other payables), and will be paid upon receipt.

The Company has purchased an ask client system during the year ended December 31, 2018. The total purchase agreement is worth $235 thousand. The balance has been processed and paid.

The Company has purchased heat processing facilities during the year ended December 31, 2017. The total purchase agreement was worth $4,069 thousand. The balance has been processed and paid.

The Company has purchased a crystal puller strengthening system from its other related party (Formosa Technologies Corporation), the purchase contract was worth $21,800 thousand. The payable amount as of the year ended December 31, 2017 was $21,800 thousand, accounted for as payable for purchase of equipment - related parties, and the balance will be paid upon processed.

The Company acquired a control system from an inventor with significant influence (Formosa Plastic Corporation) with a contract price of $288 thousand. The payable balance is $288 thousand as of December 31, 2017, accounted for as payable for equipment to related parties (other payables), and will be paid upon receipt.

3) Other transactions

In September 2017 and May 2015, the Company has signed technical compensation arrangement with its ultimate parent company and acquired the technical know-how of silicon wafer production worth JPY7,000 thousand. Payments of $1,323 thousand and $584 thousand has been processed on January 2018 and May 2016, and accounted for as intangible assets (refer to Note 12).

Under an existing agreement effective since 2003, the Company is liable of paying royalty to its parent company regularly. The royalty was recognized as selling expenses for the years ended December 31, 2018 and 2017. The unpaid amount as of December 31, 2018 and 2017 were recognized as royalties payable to related parties (accounted for as other payables) and will be paid in February of the subsequent year.

In August 2010, the Company signed a technical right and support contract with its ultimate parent company. Under this contract, the Company receives support from the ultimate parent company in technical know-how and assistance in manufacturing of silicon wafer semiconductors. The Company should pay royalty to the ultimate parent company regularly. The royalty was recognized as technical commission fees classified under selling expenses for the years ended December 31, 2018 and 2017. The unpaid amounts as of December 31, 2018 and 2017, were recognized as royalties payable to related parties (other payables) and will be paid in February of the subsequent year.

• 50 -

The above-mentioned selling expenses and accrued expenses (other payables) that resulted from transactions with related parties are summarized as follows:

Selling expenses (technical support expense) Parent entity Ultimate parent entity (Sumco Corporation) Payable for royalties (other payables) Parent entity Ultimate parent entity (Sumco Corporation) f. Compensation of key management personnel Short-term employee benefits Post-employment benefits Other long-term employee benefits	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 2017 $ 26,085 $ 20,938 385,613 279,724 $ 411,698 $ 300,662 **December 31 **
	2018 2017 $ 26,085 $ 20,938 385,613 279,724 $ 411,698 $ 300,662 For the Year Ended December 31
		2018 $ 19,485 123 15 $ 19,623	2017 $ 17,713 130 20 $ 17,863

The remuneration of directors and key executives was determined by the remuneration committee with regard to the performance of individuals and market trends.

23. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Company as of December 31, 2018 were as follows:

The newly purchased machinery and equipment are exempt from tariff. Under the “estimated useful lives of fixed assets” enacted by Executive Yuan, should there be any capital reduction or other transfer of the machinery, equipment or components mentioned above to a third party, except those transferred to permitted businesses, the Company should pay supplementary import duties for the fixed assets.

• 51 -

24. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the Company and the exchange rates between foreign currencies and respective functional currencies were disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

December 31, 2018

Foreign Currency Exchange Rate Financial assets Monetary items USD $ 210,087 30.733 (USD:NTD) JPY 2,961,736 0.2772 (JPY:NTD) Non-monetary items Investments accounted for using the equity method JPY 1,209,279 0.2772 (JPY:NTD) Financial liabilities Monetary items USD 12,731 30.733 (USD:NTD) JPY 962,729 0.2772 (JPY:NTD) December 31, 2017 Foreign Currency Exchange Rate Financial assets Monetary items USD $ 131,500 29.848 (USD:NTD) JPY 3,329,076 0.2641 (JPY:NTD) Non-monetary items Investments accounted for using the equity method JPY 1,110,596 0.2641 (JPY:NTD) Financial liabilities Monetary items USD 16,807 29.848 (USD:NTD) JPY 890,209 0.2641 (JPY:NTD)

Carrying Amount $ 6,456,613 820,993 $ 7,277,606 $ 335,413 $ 391,258 266,869 $ 658,127 Carrying Amount $ 3,925,022 879,209 $ 4,804,231 $ 292,559 $ 501,657 235,104 $ 736,761

• 52 -

The Company is mainly exposed to the USD and JPY. For the significant realized and unrealized foreign exchange gains (losses), refer to Note 17.

25. DISCLOSED ITEMS

• a. Information about significant transactions and b. investees:

• 1) Financing provided to others (Table 1)

• 2) Endorsements/guarantees provided (None)

• 3) Marketable securities held (excluding investment in subsidiaries, associates and jointly controlled entities) (Table 2)

• 4) Marketable securities acquired or disposed at costs or prices at least NT$300 million or 20% of the paid-in capital (None)

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital (None)

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital (None)

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 3)

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 4)

• 9) Trading in derivative instruments (None)

• 10) Intercompany relationships and significant intercompany transactions (Note 22)

• 11) Information on investees (Table 5)

• c. Information on investments in mainland China

None.

• 53 -

TABLE 1

FORMOSA SUMCO TECHNOLOGY CORPORATION

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. (Note 1)	Lender	Borrower	Financial Statement Account	Related Party	Maximum Balance for the Period (Note 3)	Ending Balance	Actual Borrowing Amount	Interest Rate	Nature of Financing (Note 2)	Business Transaction Amounts	Reason for Short-term Financing	Allowance for Bad Debt	Collateral	Collateral	Financing Limits for Each Borrower	Total Financing Amount Limits	Note
													Item	Value
0	Formosa Sumco Technology Corporation	Formosa Plastic Corporation Japan Formosa Sumco Technology Corporation Formosa Heavy Industries Corporation Huaya Motor. Co., Ltd.	Receivables from related parties Receivables from related parties Receivables from related entities Receivables from related parties	Yes Yes Yes Yes	$ 1,220,000 (Note 3) 1,220,000 (Note 3) 1,200,000 (Note 3) 1,000,000 (Note 3)	$ - (Note 3) 1,220,000 (Notes 3 and 4) - 1,000,000 (Notes 3 and 5)	$ - (Note 6) 787,913 - 400,000	1.00% 1.00% 1.41% 1.41%	2 2 2 2	$ - - - -	Operating capital Operating capital Operating capital Operating capital	$ - - - -	None None None None	$ - - - -	$ 5,443,285 (Note 7) 2,177,314 (Note 8) 5,443,285 (Note 7) 5,443,285 (Note 7)	$ 10,886,570 (Note 9) 10,886,570 (Note 9) 10,886,570 (Note 9) 10,886,570 (Note 9)

• Note 1: a. “0” - lender

• b. “1” and onwards - investee company

• Note 2: a. “1” - with business relationship

• b. “2” - with short-term financing needs.

• Note 3: The maximum balance for the period and ending balance represent the amounts approved by the board of directors.

• Note 4: Financing period is from June 12, 2018 to June 12, 2019.

• Note 5: Financing period is from April 26, 2018 to April 25, 2019.

• Note 6: The Company has recovered $844,935 thousand from the loan to Formosa Plastic Corporation.

• Note 7: For short-term financing requirements, the financing limits for each borrowing company should not exceed 25% of Formosa Sumco Technology Corp’s net worth.

• Note 8: For short-term financing requirements, the financing limits for each borrowing company should not exceed 10% of Formosa Sumco Technology Corp’s net worth.

Note 9: The maximum total financing provided should not exceed 50% of Formosa Sumco Technology Corp.’s net worth.

• 54 -

TABLE 2

FORMOSA SUMCO TECHNOLOGY CORPORATION

MARKETABLE SECURITIES HELD DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name	Type and Name of Marketable Securities (Note 1)	Relationship with the Company (Note 2)	Financial Statement Account		Ending	Balance		Note
				Shares	Carrying Value (Note 3)	Percentage of Ownership (%)	Fair Value
Formosa Sumco Technology Corporation	Stock Formosa Petrochemical Corporation	-	Financial assets at FVTOCI	3,247	$ 354		$ 354

Note 1: The marketable securities listed above includes stock, bonds, beneficiary certificates, and all forms of securities listed under IFRS 9: Financial Instruments.

Note 2: As the issuer of the securities is an unrelated party, the relationship column is intentionally left blank.

Note 3: The carrying value equals the original cost of $38 thousand plus the year-end valuation adjustment of $316 thousand.

Note 4: Refer to Table 5 for further information on the above investees.

• 55 -

TABLE 3

FORMOSA SUMCO TECHNOLOGY CORPORATION

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Buyer	Related Party	Relationship		Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% to Total
Formosa Sumco Technology Corporation Japan Formosa Sumco Technology Corporation	Sumco Corporation Sumco Techxiv Corporation Japan Formosa Sumco Technology Corporation Formosa Sumco Technology Corporation	Ultimate parent company of Formosa Sumco Technology Corp. Parent Company of Formosa Sumco Technology Corp. Subsidiary of Formosa Sumco Technology Corporation Parent company	Purchase Sale Purchase Sale	$ 759,258 2,517,963 752,726 742,952	14 15 14 100	60 to 120 days from the receipt of the Company’s goods Net 60 days from the end of the month of when invoice is issued 70 days receipts of the Company’s goods 70 days receipts of the Company’s goods	No significant difference No significant difference No significant difference No significant difference	No significant difference No significant difference No significant difference No significant difference	$ (149,640) 475,766 (178,790) 178,790	19 17 23 100

• 56 -

TABLE 4

FORMOSA SUMCO TECHNOLOGY CORPORATION

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Nature of Relationships	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Bad Debts
					Amount	Actions Taken
Formosa Sumco Technology Corporation Japan Formosa Sumco Technology Corporation	Sumco Techxiv Corporation Japan Formosa Sumco Technology Corporation Hwa Ya Power Corporation Formosa Sumco Technology Corporation	Parent company Subsidiary Others (same chairman) Parent company	$ 475,766 791,081 (Note 1) 400,432 (Note 2) 178,790	7.91 Not applicable Not applicable 4.54	$ - - - -	- - - -	$ 233,447 - - 64,453	$ - - - -

Note 1: Due to the Company’s issuance of loans to Japan Formosa Sumco Technology Corporation, which includes the principal amount of $787,913 thousand and interest of $3,168 thousand.

Note 2: Due to the Company’s issuance of loans to Hwa Ya Power Corporation, which includes the principal amount of $400,000 thousand and interest of $432 thousand.

• 57 -

TABLE 5

FORMOSA SUMCO TECHNOLOGY CORPORATION

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Original Investment Amount	Original Investment Amount	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Net Income (Loss) of the Investee	Share of Profit (Loss)	Note
				December 31, 2018	December 31, 2017	Shares	%	Carrying Amount
Formosa Sumco Technology Corporation	Japan Formosa Sumco Technology Corporation	Japan	Manufacture and sale of high quality ingot and other related business	JPY 998,000 (NT$ 248,390)	JPY 998,000 (NT$ 248,390)	9,980	100	JPY 1,209,279 (NT$ 335,413)	JPY 115,453 (NT$ 31,810)	JPY 98,683 (NT$ 27,205)	Notes 1 and 2

Note 1: Carrying amount and share of profit (loss) is calculated from the financial statements audited by the independent accountant and the percentage of ownership of the investor company.

Note 2: The share of profits (losses) of the investee includes the effect of unrealized gross profit on intercompany transactions.

• 58 -

FORMOSA SUMCO TECHNOLOGY CORPORATION

THE CONTENTS OF STATEMENTS OF MAJOR ACCOUNTING ITEMS

Item Major Accounting Items in Assets, Liabilities and Equity Statement of cash and cash equivalents Statement of accounts receivable Statement of other receivables Statement of inventories Statement of changes in investments accounted for using the equity method Statement of changes in property, plant and equipment Statement of changes in accumulated depreciation of property, plant and equipment Statement of changes in accumulated impairment of property, plant and equipment Statement of changes in intangible assets Statement of deferred income tax assets Statement of accounts payable Statement of others payable Major Accounting Items in Profit or Loss Statement of operating revenue Statement of operating costs Statement of marketing expenses Statement of administrative expenses Statement of other income, gains and losses Statement of finance costs Statement of labor, depreciation, depletion and amortization by function

**Statement Index **

1 2 Note 8 3 4 Note 11 Note 11 Note 11 Note 12 Note 18 5 Note 14 6 7 8 9 Note 17 Note 17 10

• 59 -

STATEMENT 1

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Item	Description	Description		Amount
Checking accounts			$	844
Demand deposits				586
Foreign currency deposits (Note)				847,208
Cash equivalents	Commercial papers - expiry date	on 2019.01.30, interest		620,940
	rates range from 0.51%-0.54%
	Repurchase agreements collateralized by bonds - expiry			1,493,045
	date on 2019.01.30, interest rates range from
	0.50%-0.54%
	Time deposits - within 33 to 90 days, interest rates at			4,379,131
	0.63%-3.20%
			$	7,341,754
Note:
			New Taiwan
			Dollar Amount
Foreign Currency Amount (In Thousands)		Exchange Rate	(In	Thousands)
USD26,593		30.733	$	817,285
JPY107,907		0.2772		29,923
			$	847,208

• 60 -

STATEMENT 2

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF ACCOUNTS RECEIVABLE DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Client Name Description Unrelated parties Client A Payments Client B Payments Client C Payments Client D Payments Client E Payments Client F Payments Client G Payments Client H Payments Others (Note) Payments Less: Allowance for impairment loss to unrelated parties Related parties SUMCO TECHXIV CORPORATION Payments Less: Allowance for impairment loss to related parties	Amount $ 442,371 376,424 322,068 305,949 252,136 218,650 210,257 132,767 121,771 - $ 2,382,393 $ 475,766 - $ 475,766

Note: The amount of each item does not exceed 5% of the account balance.

• 61 -

STATEMENT 3

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF INVENTORIES DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Description Raw materials (Note) Supplies Work in progress Finished goods Merchandise inventories Less: Allowance for inventory write-downs		Amount
		Cost Net Realizable Value $ 777,555 $ 848,904 998,214 923,052 397,525 655,056 558,137 912,170 22,858 22,858 (99,900) - $ 2,654,389 $ 3,362,040

Note: Except for raw materials that have been valued based on the most recent purchase price, the net realizable value has been valued based on the estimated price under normal situations minus costs required for completion and marketing expenses.

• 62 -

STATEMENT 4

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF CHANGES IN LONG TERM INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Investee Unlisted company Japan Formosa Sumco Technology Corporation	Balance, January 1, 2018 Shares Amount 9,980$ 292,559	Additions Shares Amount -$ -	Decrease Investment Gain or Loss Exchange Shares Amount (Note) Adjustment -$ - $ 27,205 $ 15,649	**Balance, December 31, **	2018 Guarantee Amount Equity, Net or Pledge $ 335,413 $ 359,034 N
	Shares 9,980	Shares -	Shares -	Shares % 9,980 100

Note: The investment gain or loss was calculated on the basis of the investee’s audited financial statements for the same reporting periods as the Company and the proportion of the Company’s ownership.

• 63 -

STATEMENT 5

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF ACCOUNTS PAYABLE DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Vendor Name Description Unrelated parties Vendor A Payments Vendor B Payments Others (Note) Payments Related parties SUMCO TECHXIV CORPORATION Payments SUMCO CORPORATION Payments Japan Formosa Sumco Technology Corporation Payments Others Payments	Amount $ 159,758 149,022 138,762 $ 447,542 $ 5,239 149,640 178,790 2,956 $ 336,625

Note: The amount of each item does not exceed 5% of the account balance.

• 64 -

STATEMENT 6

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF OPERATING REVENUE FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item

Silicon wafers

Number Amount 7,914,061 Pieces $ 16,358,126

$ 16,358,126

• 65 -

STATEMENT 7

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF OPERATING COSTS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Merchandise inventories, beginning of year Add: Transferred from other accounts Less: Merchandise inventories, end of year Others Cost of goods sold - imported products Raw materials, beginning of year Add: Raw materials purchased Transferred from other accounts Less: Raw materials, end of year Transferred to other accounts Raw materials consumed Supplies, beginning of year Add: Supplies purchased Transferred from other accounts Less: Supplies, end of year Transferred to expenses Others Supplies consumed Direct labor Manufacturing expenses Manufacturing costs Add: Work in progress, beginning of year Transferred from other accounts Less: Work in progress, end of year Transferred to other accounts Transferred to expenses Cost of finished goods Add: Finished goods, beginning of year Less: Finished goods, end of year Transferred to other accounts Transferred to expenses Cost of goods sold - finished goods Inventory write-downs Income from sale of silicon waste

Amount $ 16,538 441,032 (22,858) (6,566) 428,146 513,259 2,530,232 89,950,035 (777,555) (2,265,936) 89,950,035 822,566 2,887,248 5,574 (998,214) (2,717,049) (125) - 1,042,119 6,321,694 97,313,848 432,032 89,950,035 (397,525) (129,952,778) (51,258) 57,294,354 571,987 (558,137) (48,127,962) (92,546) 9,087,696 20,663 (74,212) $ 9,462,293

• 66 -

STATEMENT 8

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF MARKETING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Description Payroll expense Shipping expense Packing expense Technical support expense Others (Note)	Amount $ 34,515 40,382 37,320 411,698 26,032 $ 549,947

Note: The amount of each item does not exceed 5% of the account balance.

• 67 -

STATEMENT 9

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF ADMINISTRATIVE EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Item Description Payroll expense Others Allocation expenses of general management office Others (Note)	Amount $ 142,204 30,616 54,913 $ 227,733

Note: The amount of each item does not exceed 5% of the account balance.

• 68 -

STATEMENT 10

FORMOSA SUMCO TECHNOLOGY CORPORATION

STATEMENT OF LABOR, DEPRECIATION, DEPLETION AND AMORTIZATION BY FUNCTION FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

Employee benefits expense Salary and bonus Labor and health insurance Pension expense Remuneration of directors Other benefit expense Depreciation Amortization	2018 Classified as Operating Costs Classified as Operating Expenses Total $ 1,323,513 $ 146,101 $ 1,469,614 96,069 10,207 106,276 54,332 6,656 60,988 - 13,755 13,755 35,119 2,887 38,006 1,986,713 10,385 1,997,098 1,542 - 1,542	2017
		Classified as Operating Costs Classified as Operating Expenses Total $ 1,248,673 $ 151,643 $ 1,400,316 91,384 9,999 101,383 50,611 6,545 57,156 - 11,354 11,354 33,838 2,835 36,673 1,967,111 10,351 1,977,462 9,519 - 9,519

Note: As of December 31, 2018 and 2017, the Company had 1,339 and 1,335 employees, including 8 and 7 non-employee directors, respectively.

• 69 -