FST — Audit Report / Information 2017

Nov 14, 2017

Formosa Sumco Technology Corporation and Subsidiaries

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

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The entities that are required to be included in the combined financial statements of Formosa Sumco Technology Corporation as of and for the year ended December 31, 2017, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with the International Financial Reporting Standards No. 10, “Consolidated Financial Statements.” In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Formosa Sumco Technology Corporation and subsidiaries do not prepare a separate set of combined financial statements.

Very truly yours,

FORMOSA SUMCO TECHNOLOGY CORPORATION

By

March 22, 2018

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Formosa Sumco Technology Corporation

Opinion

We have audited the accompanying consolidated financial statements of Formosa Sumco Technology Corporation and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity, and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Group’s consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The key audit matter from the audit of the Group’s consolidated financial statement is as below:

Valuation of Inventory

The inventories of the Group can be slow-moving or outdated due to advancement in technologies. The inventory balance is material as of the year ended December 31, 2017. As the inventories are to be stated at the lower of cost and net realizable value, the valuations in net realizable value involves significant accounting estimates. The estimates and analysis of inventories are being disclosed in Note 5 of the financial report. The matter is significant to the financial statement audit for the year ended December 31, 2017.

To address this matter, we conducted our audits with understanding of the industry and its related products. We focus on the valuation of inventories with sample selection performed for calculation of inventory write-down (this including perform test of details to the sales invoices). The provisions for inventories write-down are being valued based on the detailed testing. The result has been compared with the inventories write-down recognized by the Group.

Other matters

We have also audited the parent company only financial statements of Formosa Sumco Technology Corporation as of and for the years ended December 31, 2017 and 2016 on which we have issued an unqualified opinion.

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

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those business units management of the Group, including those charged with governance, are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

We also provide those charged with governance with 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.

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From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audit resulting in this independent auditors’ report are Walter Liu and Jerry Gung.

Deloitte & Touche Taipei, Taiwan Republic of China March 22, 2018

Notice to Readers

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

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

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Trade receivable from unrelated parties (Notes 4 and 7) Trade receivables from related parties (Notes 4, 7 and 21) Other receivables (Notes 4, 7 and 21) Inventories (Notes 4, 5 and 8) Prepayments (Notes 4 and 12) Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 4) Property, plant and equipment (Notes 4, 5, 10, 21 and 22) Intangible assets (Notes 4, 5, 11 and 21) Deferred tax assets (Notes 4, 5 and 17) Prepayment for equipment (Note 4) Refundable deposits (Note 4) Other non-current assets (Notes 4 and 12) 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 21) Other payables to unrelated parties (Notes 4, 13, 16 and 21) Other payables to related parties (Notes 4, 13 and 21) Current tax liabilities (Notes 4 and 17) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Deferred tax liabilities (Notes 4 and 17) Net defined benefit liabilities - non-current (Notes 4, 5 and 14) Guarantee deposits (Note 4) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY (Notes 4, 15, 17 and 19) Share capital Ordinary shares Capital surplus Retained earnings Legal reserve Unappropriated earnings Total retained earnings Other equity Total equity TOTAL		2017 Amount % $ 7,609,722 31 1,967,495 8 161,281 1 16,125 - 2,344,785 10 127,422 - 12,226,830 50 375 - 11,812,997 49 219 - 124,937 1 64,227 - 213 - 5,169 - 12,008,137 50 $ 24,234,967 100 $ 396,403 2 146,217 1 950,077 4 370,644 1 268,540 1 20,702 - 2,152,583 9 5,621 - 362,584 2 748 - 41,423 - 410,376 2 2,562,959 11 7,756,966 32 5,739,082 23 1,298,337 6 6,866,184 28 8,164,521 34 11,439 - 21,672,008 89 $ 24,234,967 100		2016
				Amount % $ 4,400,895 20 1,465,586 7 136,760 1 9,567 - 2,065,542 10 87,097 - 8,165,447 38 364 - 13,225,806 61 438 - 215,746 1 101,423 - 205 - 16,265 - 13,560,247 62 $ 21,725,694 100 $ 364,783 2 258,355 1 521,706 2 86,334 - 135,505 1 6,932 - 1,373,615 6 840 - 315,835 2 585 - 33,578 - 350,838 2 1,724,453 8 7,756,966 36 5,739,080 26 1,225,298 6 5,254,326 24 6,479,624 30 25,571 - 20,001,241 92 $ 21,725,694 100

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

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 4, 21 and 25) OPERATING COST (Notes 8, 11, 14, 16 and 21) GROSS PROFIT OPERATING EXPENSES (Notes 14, 16 and 21) Marketing Administrative Total operating expenses INCOME FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES (Notes 4, 10, 16 and 21) Other income Other gains and losses Finance costs Total non-operating income and expenses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4, 5 and 17) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) (Notes 4, 14, 15 and 17) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans Income tax relating to items that will not be reclassified subsequently to profit or loss		2017 Amount % $ 12,713,025 100 (9,318,516) (73) 3,394,509 27 (419,603) (3) (225,096) (2) (644,699) (5) 2,749,810 22 47,425 - (181,661) (1) (382) - (134,618) (1) 2,615,192 21 (372,418) (3) 2,242,774 18 (45,976) (1) 7,816 -		2016
				Amount % $ 10,794,340 100 (9,429,790) (87) 1,364,550 13 (199,245) (2) (204,183) (2) (403,428) (4) 961,122 9 25,414 - (79,664) - (1,545) - (55,795) - 905,327 9 (174,937) (2) 730,390 7 (7,357) - 1,251 - (Continued)

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Items that may be reclassified subsequently to profit or loss: Exchange difference on translating foreign operations Unrealized gain on available-for-sale financial assets Other comprehensive income for the year, net of income tax TOTAL COMPREHENSIVE INCOME FOR THE PERIOD EARNINGS PER SHARE (Note 18) Basic earnings per share Diluted earnings per share		2017 Amount % $ (14,143) - 11 - (52,292) (1) $ 2,190,482 17 $ 2.89 $ 2.89		2016
				Amount % $ 706 - 108 - (5,292) - $ 725,098 7 $ 0.94 $ 0.94
				$

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

(Concluded)

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2016 Appropriations of 2015 earnings Legal reserve Cash dividends to shareholders Net income in 2016 Other comprehensive income in 2016, net of income tax Total comprehensive income in 2016 BALANCE AT DECEMBER 31, 2016 Appropriations of 2016 earnings Legal reserve Cash dividends to shareholders Dividends expired and uncollected by shareholders Net income in 2017 Other comprehensive income in 2017, net of income tax Total comprehensive income in 2017 BALANCE AT DECEMBER 31, 2017	Share Capital Capital Surplus $ 7,756,966 $ 5,739,080 - - - - - - - - - - - - 7,756,966 5,739,080 - - - - - - - 2 - - - - - - $ 7,756,966 $ 5,739,082		Retained Earnings	Total $ 6,608,606 - (853,266) (853,266) 730,390 (6,106) 724,284 6,479,624 - (519,717) (519,717) - 2,242,774 (38,160) 2,204,614 $ 8,164,521		Others	Total $ 24,757 - - - - 814 814 25,571 - - - - - (14,132) (14,132) $ 11,439	Total Equity $ 20,129,409 - (853,266) (853,266) 730,390 (5,292) 725,098 20,001,241 - (519,717) (519,717) 2 2,242,774 (52,292) 2,190,482 $ 21,672,008
						Exchange Unrealized Difference on Gain (Loss) on Translating Available-for- Foreign sale Financial Operations Assets $ 24,539 $ 218 - - - - - - - - 706 108 706 108 25,245 326 - - - - - - - - - - (14,143) 11 (14,143) 11 $ 11,102 $ 337
			Unappropriated Legal Reserve Earnings $ 1,097,493 $ 5,511,113 127,805 (127,805) - (853,266) 127,805 (981,071) - 730,390 - (6,106) - 724,284 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

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

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (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 Write-down (reversal of write-down) of inventories Impairment loss recognized on property, plant and equipment Loss (gain) on foreign exchange, net Other items 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 Dividend received Interest paid Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceed from sale of debt investments with no active market Payments for property, plant and equipment Increase in prepayments for equipment (Increase) decrease in refundable deposits Payments for intangible assets Decrease in other investing activities items Net cash used in investing activities	2017 $ 2,615,192 2,079,783 11,026 382 (30,830) (19) 61,751 - 8,070 (151) (549,301) (5,226) (344,274) (40,325) (69,688) 363,445 13,770 773 4,114,378 29,498 19 (914) (135,977) 4,007,004 - (299,648) (31,123) (8) - 151 (330,628)	2016 $ 905,327 2,092,538 42,130 1,545 (11,871) (13) (12,801) 14 (14,877) (2) (176,611) 13,042 230,999 87,241 (5,377) 11,210 229 2,241 3,164,964 11,871 13 (1,166) (192,141) 2,983,541 300,000 (772,566) (99,653) 12 (584) 2 (572,789) (Continued)

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM FINANCING ACTIVITIES Proceed from guarantee deposits received Increase in other non-current liabilities Dividend paid to owners of the Company Net cash used in financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET 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	2017 $ 163 7,845 (519,717) (511,709) 44,160 3,208,827 4,400,895 $ 7,609,722	2016 $ 51 7,944 (853,279) (845,284) 47,915 1,613,383 2,787,512 $ 4,400,895

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

(Concluded)

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FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

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% 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. Komatsu Electronic Metals Co., Ltd. has changed its name to Sumco Techiv Corporation.

The Company became public listed on September 12, 2006. The Company’s shares have been listed on the Emerging Stock Board (ESB) on November 23, 2006, and subsequently became listed on the Taiwan Stock Exchange on December 10, 2007.

The Company’s parent is Sumco Techxiv Corporation, which held 47% and 48.85% of ordinary shares of the Company as of December 31, 2017 and 2016, respectively. The Company’s ultimate parent is Sumco Corporation.

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

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 22, 2018.

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

• a. 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) endorsed by the FSC for application starting from 2017

The initial application in 2017 of the above IFRSs and related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies, except for the following:

1) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

The amendment clarifies that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount of an item of property, plant and equipment for which impairment loss has been recognized or reversed is fair value less costs of disposal, the

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Group is required to disclose the fair value hierarchy. If the fair value measurements are categorized within Level 2 and Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed. The discount rate used is disclosed if such fair value less costs of disposal is measured by using present value technique. The amendment will be applied retrospectively.

• 2) Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

The amendments include additions of several accounting items and requirements for disclosures of impairment of non-financial assets as a consequence of the IFRSs endorsed by the FSC for application starting from 2017. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendments also include emphasis on certain recognition and measurement considerations and add requirements for disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the board of directors or president serves as the chairman of the board of directors or the president, or is the spouse or second immediate family of the chairman of the board of directors or president of the Group are deemed to have a substantive related party relationship, unless it can be demonstrated that no control, joint control, or significant influence exists. Furthermore, the amendments require the disclosure of the names of the related parties and the relationship with whom the Group has significant transaction. If the transaction or balance with a specific related party is 10% or more of the Group’s respective total transaction or balance, such transaction should be separately disclosed by the name of each related party.

• b. 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 2018

New IFRSs Annual Improvements to IFRSs 2014-2016 Cycle Amendments to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” IFRS 15 “Revenue from Contracts with Customers” Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from Contracts with Customers” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

Effective Date Announced by IASB (Note 1)

Note 2 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018

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

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• Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after January 1, 2017; the amendments to IAS 28 are retrospectively applied for annual periods beginning on or after January 1, 2018.

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

Classification, measurement and impairment of financial assets

With regard to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows:

• a) For debt instruments, if they are held within a business model whose objective is to collect contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with any impairment loss recognized in profit or loss. Interest revenue is recognized in profit or loss by using the effective interest method;

• b) For debt instruments, if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gains or losses shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The Group analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of financial assets. There are no changes as a result of adopting IFRS 9.

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. A loss allowance is required for financial assets measured at amortized cost, investments in debt instruments measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full-lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

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For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

The Group has performed a preliminary assessment in which it will apply the simplified approach to recognize full-lifetime expected credit losses for trade receivables, contract assets and lease receivables. In relation to debt instrument investments and financial guarantee contracts, the Group will assess whether there has been a significant increase in credit risk to determine whether to recognize 12-month or full-lifetime expected credit losses. In general, the Group anticipates that the application of the expected credit losses model of IFRS 9 will result in an earlier recognition of credit losses for financial assets.

The Group elects not to restate prior reporting periods when applying the requirements for the classification, measurement and impairment of financial assets under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application and will provide the disclosures related to the classification and the adjustment information upon initial application of IFRS 9.

The anticipated impact on assets, liabilities and equity of retrospective application of the requirements for the classification, measurement and impairment of financial assets as of January 1, 2018 is set out below:

	Carrying	Carrying	Adjustments	Adjustments	Adjusted	Adjusted
	Amount as of		Arising from		Carrying
	December 31,			Initial	Amount as of
		2017	Application		January	1, 2018
Impact on assets
Financial assets at fair value through other
comprehensive income - current	$	-	$	375	$	375
Available-for-sale financial assets -
current		375		(375)		-
Total effect on assets	$	375	$	-	$	375

• 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 will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations.

When applying IFRS 15, the Group recognizes revenue by applying the following steps:

• Identify the contract with the customer;

• Identify the performance obligations in the contract;

• Determine the transaction price;

• Allocate the transaction price to the performance obligations in the contract; and

• Recognize revenue when the Group satisfies a performance obligation.

IFRS 15 require that a good or service is distinct if it is capable of being distinct, for the sales of products by the Group, there should be no service provision. There is no transactions with goods and services being integrated, while there are no authorised trade and other transactions within the Group. Hence, IFRS 15 and its related amendments have no material impact on the Group.

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

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

New IFRSs Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” IFRS 16 “Leases” IFRS 17 “Insurance Contracts” 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) To be determined by IASB January 1, 2019 (Note 3) January 1, 2021 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: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from 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.

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Group may elect to apply the accounting method similar to the accounting for operating leases under IAS 17 to low-value and short-term leases. On the consolidated statements of comprehensive income, the Group should present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed by using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities.

When IFRS 16 becomes effective, the Group may elect to apply this standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this standard recognized at the date of initial application.

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

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

• b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are valued by the present value of defined benefit minus fair value of 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.

• 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 consolidated financial statements are authorized for issue; and

• 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period. 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. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries).

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Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

See Note 9 and Table 6 for the detailed information of subsidiaries (including the percentage of ownership and main business).

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’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.

For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the Group entities (including subsidiaries in other countries which are using with currency different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollars, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income.

f. 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 monthly weighted-average cost on the balance sheet date.

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g. Property, plant and equipment

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

Properties, 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 intended use.

Depreciation on 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.

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 Group 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 Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent basis of allocation.

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

When an impairment loss is subsequently reversed, the carrying amount of the 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.

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j. Financial instruments

Financial assets and financial liabilities are recognized when a group entity 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 fair value through profit or loss) 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 fair value through profit or loss are recognized immediately in profit or loss.

1) Financial assets

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

a) Measurement category

Financial assets are classified into the following categories: Available-for-sale financial assets, 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 Group’s right to receive the dividends is established.

ii. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent, debt investments with no active market, 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.

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• b) Impairment of financial assets

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 Group’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.

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.

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• c) Derecognition of financial assets

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

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.

2) Equity instruments

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

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

Repurchase of the 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 the financial liabilities of the Group 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

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. Allowance for sales returns and liability for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors.

1) Sale of goods

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

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

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

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

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

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

• 2) Rendering of services

Service income (including that from operating service 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 Group 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 Group 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.

• 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 Group 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 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 service entitling them to the contributions.

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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 liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which 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 liability (asset) represents 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 the earnings.

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

• 2) Deferred tax

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

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all (deductible temporary differences, unused loss carry forward, 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 Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are 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 liability is settled or the asset 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 Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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• 3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that 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 Group’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.

a. Valuation of inventories

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

Due to the rapid advancement in technologies, the Group estimates the net realizable value of inventories for obsolescence and unmarketable items at the end of 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 amount of inventories as of December 31, 2017 and 2016 are disclosed in Note 8.

b. Impairment of tangible and intangible assets

In the process of evaluating the potential impairment of tangible and intangible assets, the Group is required to make subjective judgments in determining the independent cash flows related to the specific asset groups with the consideration of the nature of the industry. The Group shall provide the appropriate estimated future cash flow and discount rate for the calculation of value in use.

• c. 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 estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets. The carrying amount of deferred income tax assets at December 31, 2017 and 2016 are disclosed in Note 17.

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• d. Recognition and measurement of defined benefit plans

The net defined benefit liabilities (assets) and the resulting defined benefit costs under defined benefit pension plans are calculated using the projected unit credit method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and future salary increase, etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability. The carrying amount of defined benefit plans as of December 31, 2017 and 2016 are disclosed in Note 14.

6. CASH AND CASH EQUIVALENTS

Checking accounts Demand deposits Foreign currency deposits Cash equivalents (investments with original maturities less than 3 months) Commercial papers Repurchase agreements collateralized by bonds Time deposits		December 31	December 31
		2017 $ 804 414 789,466 855,285 2,316,674 3,647,079 $ 7,609,722	2016 $ 1,684 873 862,093 1,883,869 1,052,376 600,000 $ 4,400,895

The market rate intervals of cash in bank, commercial papers and repurchase agreement 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
	2017 2016 0.08% 0.08% 0.01% 0.01% 0.38% 0.45%-0.55% 0.38%-0.42% 0.43%-0.46% 0.63%-1.82% 0.40%-0.60%

7. TRADE RECEIVABLES AND OTHER RECEIVABLES

Trade receivables Trade receivables to unrelated parties Trade receivables to related parties Less: Allowance for impairment loss		December 31	December 31
		2017 $ 1,967,495 161,281 - $ 2,128,776	2016 $ 1,465,586 136,760 - $ 1,602,346 (Continued)

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Other receivables Tax refund receivable (sales tax) Others		**December 31 **	**December 31 **
		2017 $ 7,995 8,130 $ 16,125	2016 $ - 9,567 $ 9,567 (Concluded)

Trade Receivables

The average credit period on sales of goods was 30-90 days. In determining the recoverability of a trade receivable, the Group 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 Group recognized an allowance for impairment loss of 100% against all receivables overdue 180 days because historical experience had been that receivables that are past due beyond 180 days were not recoverable. Allowance for impairment loss were 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.

The aging of trade receivables was as follows:

0-30 days 31-60 days 61-90 days 91-120 days		**December 31 **	**December 31 **
		2017 $ 1,095,011 666,967 357,485 9,313 $ 2,128,776	2016 $ 954,450 504,555 140,721 2,620 $ 1,602,346

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

There are no receivables that were past due but not impaired as of December 31, 2017 and 2016.

8. INVENTORIES

Raw materials Supplies Work in progress Finished goods Merchandise inventories Less: Allowance for inventory write-downs		December 31	December 31
		2017 $ 567,581 822,566 447,613 569,724 16,538 (79,237) $ 2,344,785	2016 $ 365,482 762,959 386,761 554,875 12,951 (17,486) $ 2,065,542

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2017 and 2016 was $9,318,516 thousand and $9,429,790 thousand, respectively.

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The cost of goods sold for the year ended December 31, 2017 included reversal of inventory write-downs of $61,751 thousand and selling silicon waste income of $69,638 thousand, respectively.

The cost of goods sold for the year ended December 31, 2016 included reversal of inventory write-downs of $12,801 thousand (reversed as a result of increase in selling prices in respective markets), unamortized fixed manufacturing overhead of $9,391 thousand and selling silicon waste income of $42,780 thousand, respectively.

9. SUBSIDIARIES

Subsidiary included in the consolidated financial statements:

Investor Investee Nature of Activities The Company Japan Formosa Sumco Technology Corporation Manufacturing, selling and other related business of high quality ingot	Proportion of Ownership
	December 31
	2017 2016 100% 100%

The above subsidiary was incorporated in the consolidated financial statements on the basis of audited financial statements as of and for the same reporting periods as the Company.

10. PROPERTY, PLANT AND EQUIPMENT

Freehold Land Cost Balance at January 1, 2016 $ 120,906 Additions - Reclassified - Disposals - Effect of foreign currency exchange differences - Balance at December 31, 2016$ 120,906 Accumulated depreciation and impairment Balance at January 1, 2016 $ - Disposals - Reclassified - Impairment losses recognized in profit or loss - Depreciation expense - Effect of foreign currency exchange differences - Balance at December 31, 2016 $ - Carrying amounts at December 31, 2016 $ 120,906	Buildings Machinery and Equipment $ 3,896,948 $ 29,457,950 - 139,622 4,957 746,055 - (21,098 ) - (59,223) $ 3,901,905 $ 30,263,306 $ 1,023,022 $ 18,168,069 - (21,098 ) - (80 ) - - 109,839 1,961,462 - (8,655) $ 1,132,861 $ 20,099,698 $ 2,769,044 $ 10,163,608	Other Equipment Equipment Under Installation and Construction in Progress Total $ 713,825 $ 432,180 $ 34,621,809 18,453 374,434 532,509 10,604 (761,536 ) 80 (2,079 ) - (23,177 ) (805) 39,584 (20,444) $ 739,998 $ 84,662 $ 35,110,777 $ 633,342 $ - $ 19,824,433 (2,079 ) - (23,177 ) 80 - - 14 - 14 21,237 - 2,092,538 (182) - (8,837) $ 652,412 $ - $ 21,884,971 $ 87,586 $ 84,662 $ 13,225,806 (Continued)

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Freehold Land Cost Balance at January 1, 2017 $ 120,906 Additions - Reclassified - Disposals - Effect of foreign currency exchange differences - Balance at December 31, 2017$ 120,906 Accumulated depreciation and impairment Balance at January 1, 2017 $ - Disposals - Reclassified - Depreciation expense - Effect of foreign currency exchange differences - Balance at December 31, 2017 $ - Carrying amounts at December 31, 2017 $ 120,906	Buildings Machinery and Equipment $ 3,901,905 $ 30,263,306 - 125,541 - 87,404 - (46,902 ) - (56,713) $ 3,901,905 $ 30,372,636 $ 1,132,861 $ 20,099,698 - (46,902 ) - (376 ) 109,867 1,948,996 - (6,725) $ 1,242,728 $ 21,994,691 $ 2,659,177 $ 8,377,945	Other Equipment Equipment Under Installation and Construction in Progress Total $ 739,998 $ 84,662 $ 35,110,777 16,452 575,744 717,737 376 (87,780 ) - (1,580 ) - (48,482 ) (918) - (57,631) $ 754,328 $ 572,626 $ 35,722,401 $ 652,412 $ - $ 21,884,971 (1,580 ) - (48,482 ) 376 - - 20,920 - 2,079,783 (143) - (6,868) $ 671,985 $ - $ 23,909,404 $ 82,343 $ 572,626 $ 11,812,997 (Concluded)

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful life of the asset:

Building Real estate, dormitory, warehouse, and readiness room 23-35 years Wastewater treatment area and strain tank 15-35 years Machinery and equipment 5-12 years Other equipment 3-12 years

The accumulated impairment losses due to unusable machineries were both $10,001 thousand on December 31, 2017 and 2016. The impairment losses recognized were $0 thousand and $14 thousand for the years ended December 31, 2017 and 2016, respectively, and had been included in profit or loss in the statement of comprehensive income.

11. INTANGIBLE ASSETS

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December 31
2017 2016
Technical cooperation fee $ 219 $ 438
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	Technical	Technical
	Cooperation
	Agreement
Cost
Balance at January 1, 2016	$	-
Additions		584
Balance at December 31, 2016	$	584
Balance at January 1, 2017 and December 31, 2017	$	584
Accumulated amortization
Balance at January 1, 2016	$	-
Amortization expense		146
Balance at December 31, 2016	$	146
Balance at January 1, 2017	$	146
Amortization expense		219
Balance at December 31, 2017	$	365

The Company signed a technical cooperation arrangement with Sumco Corporation with total fee of JPY2,000 thousand dollars in September 2014 and in May 2015. A payment of $584 thousand dollars has been proceeded in May 2016, and being amortized over the period of 32 months.

The amortization expense in the years 2017 and 2016 were $219 thousand and $146 thousand, respectively. The amortization expense is accounted for as technical corporation expense under operating costs.

12. OTHER ASSETS

Prepayments (including current and non-current) Others (including testing fee and electricity subsidies) Current Non-current		December 31	December 31
		2017 $ 127,422 5,169 $ 132,591 $ 127,422 5,169 $ 132,591	2016 $ 87,097 16,265 $ 103,362 $ 87,097 16,265 $ 103,362

• 30 -

13. OTHER LIABILITIES

Other payables-current Payable for purchase of equipment Payable for salary and bonus Payable for insurance Payable for utilities Payable for dividends Others (Note) Other payable-related parties (current) Payable for purchase of equipment - related parties Payable for royalties - related parties Payable for accrued expenses - related parties		December 31	December 31
		2017 $ 345,690 446,265 26,440 45,575 103 86,004 $ 950,077 $ 22,088 300,662 47,894 $ 370,644	2016 $ 18,008 370,654 23,193 46,662 105 63,084 $ 521,706 $ - 39,500 46,834 $ 86,334

Note: The others of other payables - current are mainly payable for project fee, pension cost, employees’ compensation and taxation.

14. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

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 plans

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 contribute 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.

• 31 -

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

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability Movements in net defined benefit liability were as follows: Present Value of the Defined Benefit Obligation Balance at January 1, 2016 $ 420,354 Service cost Current service cost 2,976 Net interest expense (income) 6,305 Recognized in profit or loss 9,281 Remeasurement Return on plan assets (excluding amounts included in net interest) - Actuarial (gain) loss - changes in financial assumptions 21,179 Actuarial (gain) loss - experience adjustments (14,420) Recognized in other comprehensive income 6,759 Contributions from the employer - Balance at December 31, 2016 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		December 31
	2017 2016 $ 490,347 $ 436,394 (127,763) (120,559) $ 362,584 $ 315,835 Fair Value of the Plan Assets Net Defined Benefit Liability $ (114,117) $ 306,237 - 2,976 (1,753) 4,552 (1,753) 7,528 598 598 - 21,179 - (14,420) 598 7,357 (5,287) (5,287) (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

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.

• 32 -

• 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 **
	2017 2016 1.25% 1.25% 2.85% 2.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rates 0.25% increase 0.25% decrease Expected rates of salary increase 1% increase 1% decrease		**December 31 **	**December 31 **
		2017 $ (22,751) $ 24,026 $ 103,243 $ (84,705)	2016 $ (21,179) $ 22,414 $ 96,925 $ (78,799)

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 **
		2017 $ 5,912 21 years	2016 $ 5,893 22 years

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15. EQUITY

• a. Share capital

Ordinary shares

Numbers of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		**December 31 **	**December 31 **
		2017 775,697 $ 7,756,966 775,697 $ 7,756,966	2016 775,697 $ 7,756,966 775,697 $ 7,756,966

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

• b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Issuance of ordinary shares May be used to offset a deficit only Dividends expired and uncollected by shareholders (2)		December 31	December 31
		2017 $ 5,739,080 2 $ 5,739,082	2016 $ 5,739,080 - $ 5,739,080

• 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 once a year.

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

• c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on June 16, 2016 and, in that meeting, resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy on distribution of employees’ compensation.

Under the dividend policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing 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 distribution of dividends and bonus to shareholders. For the policies on distribution of employees’ compensation and remuneration of directors and supervisors before and after amendment, please refer to f. employee benefits expense in Note 16.

• 34 -

The Company belongs to a high-tech capital intensive industry and it is at the growing 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 distribute no more than 80% of distributable surplus in exclusive of legal reserve and special reserve. In principle, cash dividends are first to distribute, and the aggregate of capitalized of retained earnings and capital surplus shall not exceed 50% of total dividends.

An appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. 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.

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriations of earnings for 2016 and 2015 approved in the shareholders’ meetings on June 21, 2017 and on June 16, 2016, respectively, were as follows:

Legal reserve Cash dividends	Appropriation of Earnings For the Year Ended December 31 2016 2015 $ 73,039 $ 127,805 519,717 853,266	Dividends Per Share (NT$)
		For the Year Ended December 31
		2016 2015 $ 0.67 $ 1.10

The appropriations of earnings for 2017 had been proposed by the Company’s board of directors on March 22, 2018. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per
	of	Earnings	Share (NT$)
Legal reserve	$	224,277
Cash dividends		1,613,450	$2.08

The appropriations of earnings for 2017 are subject to the resolution of the shareholders’ meeting to be held on June 21, 2018.

d. Others equity items

The exchange differences arising on translation of foreign operation’s net assets from its functional currency to the Group’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 when those available-for-sale financial assets 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.

• 35 -

16. NET INCOME

a. Other income

Interest income Dividends income Others (including insurance claim income and commission income, etc.) b. Other gains and losses Net foreign exchange losses Impairment loss on equipment 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	**For the Year Ended **	**For the Year Ended **	**For the Year Ended **	**December 31 **
	2017 $ 30,830 19 16,576 $ 47,425 For the Year Ended			2016 $ 11,871 13 13,530 $ 25,414 December 31
	2017 $ (181,623) - 151 (189) $ (181,661) For the Year Ended			2016 $ (76,204) (14) 2 (3,448) $ (79,664) December 31
	2017 $ 382 For the Year Ended			2016 $ 1,545 December 31
		2017 $ 2,079,783 11,026 $ 2,090,809 $ 2,069,432 10,351 $ 2,079,783 $ 11,026 - $ 11,026	2016 $ 2,092,538 42,130 $ 2,134,668 $ 2,082,902 9,636 $ 2,092,538 $ 42,130 - $ 42,130

• 36 -

e. Employee benefits expense

Post-employment benefits (see Note 14) Defined contribution plans Defined benefit plans Salary and bonus etc. 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
		2017 $ 50,475 6,681 57,156 1,549,726 $ 1,606,882 $ 1,424,506 182,376 $ 1,606,882	2016 $ 47,415 7,528 54,943 1,369,316 $ 1,424,259 $ 1,264,450 159,809 $ 1,424,259

f. Employees’ compensation and remuneration of directors and supervisors

The Company accrued employees’ compensation at the rates no less than 0.05% and no higher than 0.5%, respectively of net profit before income tax exclusive of employees’ compensation. The employees’ compensation and remuneration of directors and supervisors for the years ended December 31, 2017 and 2016 which have been approved by the Company’s board of directors on March 22, 2018 and March 17, 2017, respectively, were as follows:

Accrual rate

Employees’ compensation Remuneration of directors and supervisors Amount Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31	For the Year Ended December 31
	2017 2016 0.350% 0.285% - - **For the Year Ended December 31 **
	2017 Cash $ 9,125 -	2016
		Cash $ 2,549 -

If there is a change in the amounts after the annual consolidated 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 consolidated financial statements for the years ended December 31, 2017 and 2016.

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Company’s board of directors in 2018 and 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

• 37 -

g. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses Net losses	For the Year Ended	For the Year Ended	December 31
		2017 $ 262,003 (443,626) $ (181,623)	2016 $ 265,018 (341,222) $ (76,204)

17. 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 Income tax expense recognized in profit or loss	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2017 $ 255,736 13,153 123 103,406 $ 372,418	2016 $ 110,742 26,316 895 36,984 $ 174,937

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

Profit before income tax Income tax expense calculated at the statutory rate (17%) Tax-exempt income Additional income tax under the Alternative Minimum Tax Act Others Income tax on unappropriated earnings Investment tax credits used Decrease in investment credits Effect of different tax rate of group entities operating in other jurisdictions 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
		2017 $ 2,615,192 $ 444,583 (143,769) 44,221 (3) 13,153 - - 14,110 123 $ 372,418	2016 $ 905,327 $ 153,906 - - (2) 26,316 (77,943) 60,678 11,087 895 $ 174,937

The applicable tax rate used above is the corporate tax rate of 17% payable by the Group in ROC. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to be adjusted and would increase by $22,048 thousand and $992 thousand, respectively, in 2018.

• 38 -

As the status of 2018 appropriations of earnings is uncertain, the potential income tax consequences of 2017 unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current year: Remeasurement on defined benefit plan Total income tax recognized in other comprehensive income Current tax liabilities Income tax payable	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2017 $ (7,816) $ (7,816) **December **	2016 $ (1,251) $ (1,251) **31 **
		2017 $ 268,540	2016 $ 135,505

c. Current tax liabilities

• d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2017

Deferred tax assets Temporary differences Exchange differences on timing of foreign currency assets and liabilities Allowance for inventory write-off Defined benefit obligation Difference of depreciation method of machinery and equipment Others Tax losses	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

(Continued)

• 39 -

					Recognized in	Recognized in	Recognized in
						Other
	Opening		Recognized in		Comprehensive
	Balance		Profit or Loss			Income		Closing Balance
Deferred tax liabilities
Temporary differences
Others	$	(840)	$	(4,781)	$		-	$	(5,621)
									(Concluded)
For the year ended December	31,	2016
					Recognized in
						Other
	Opening		Recognized in		Comprehensive
	Balance		Profit or Loss			Income		Closing Balance
Deferred tax assets
Temporary differences
Exchange differences
on timing of foreign
currency assets and
liabilities	$	-	$	20,146	$		-	$	20,146
Allowance for
inventory write-off		4,780		(1,808)			-		2,972
Defined benefit
obligation		49,208		380		1,251			50,839
Difference of
depreciation method
of machinery and
equipment		25,082		8,093			-		33,175
Others		3,585		(1,885)			-		1,700
		82,655		24,926		1,251			108,832
Tax losses		106,914		-			-		106,914
Investment credits		61,946		(61,946)			-		-
	$	251,515	$	(37,020)	$	1,251		$	215,746
Deferred tax liabilities
Temporary differences
Exchange differences
on timing of foreign
currency assets and
liabilities	$	(876)	$	876	$		-	$	-
Others		-		(840)			-		(840)
	$	(876)	$	36	$		-	$	(840)

• 40 -

e. Integrated income tax

Unappropriated earnings Generated before January 1, 1998 Generated on and after January 1, 1998 Shareholders-imputed credits accounts Creditable ratio for distribution of earning		December 31
	2017 2016 $ - $ - 6,866,184 5,254,326 $ 6,866,184 $ 5,254,326 $ 828,905 $ 651,000 **For the Year Ended December 31 **
	2017 (Expected) 2016 12.07% (Note) 12.39%

Note: Since the amended Income Tax Act announced in February 2018 abolished the imputation tax system, related information for 2017 is not applicable.

h. Income tax assessments

The tax authorities have examined income tax returns of the Company through 2015.

18. EARNINGS PER SHARE

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

Net income Weighted average number of ordinary shares in computation of basic earnings per share (in thousands) Effect of potentially dilutive ordinary shares Employee compensation Weighted average number of ordinary share used for the diluted earnings per share computation (in thousands)	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2017 $ 2,242,774 775,697 100 775,797	2016 $ 730,390 775,697 43 775,740

If the Group offered to settle bonuses or compensation paid to employees in shares or cash, the Group 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.

• 41 -

19. CAPITAL MANAGEMENT

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

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

20. FINANCIAL INSTRUMENTS

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

The Group’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

• 1) Fair value hierarchy

December 31, 2017

	Level 1	Level 1	Level 2		Level 3			Total
Available-for-sale financial
assets
Securities listed in ROC
Equity securities	$	375	$	-	$	-	$	375
December 31, 2016
	Level 1		Level 2		Level 3			Total
Available-for-sale financial
assets
Securities listed in ROC
Equity securities	$	364	$	-	$	-	$	364

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

• b. Categories of financial instruments

Financial assets Loans and receivables (1) Available-for-sale financial assets Financial liabilities Amortized cost (2)	December 31
	2017 2016 $ 9,746,841 $ 6,013,013 375 364 1,396,423 845,524

• 42 -

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

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

c. Financial risk management objectives and policies

The Group’s major financial instruments include equity investments, trade receivable, trade payables, and bank borrowings. The Group’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 Group 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 Group’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 Group’s exposure to market risks or the manner in which these risks were managed and measured.

• a) Foreign currency risk

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

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) at the end of the reporting period are set out in Note 23.

Sensitivity analysis

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

The following table details the Group’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 NTD weakening 10% against the relevant currency. For a 10% strengthening of NTD against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

• 43 -

Profit or loss	USD Impact For the Year Ended December 31 2017 2016 $ 336,882 (i.) $ 196,070 (i.)	JPY Impact
		For the Year Ended December 31
		2017 2016 $ (21,094) (ii.) $ (16,224) (ii.)

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

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

The Group’s sensitivity to foreign currency increased during the current year mainly due to the increase of USD bank deposits and trade receivables.

• b) Interest rate risk

The carrying amount of the Group’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
	2017 2016 $ 6,819,038 $ 3,536,245 789,880 862,967

Sensitivity analysis

The sensitivity analyses below were determined based on the Group’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 liability 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.

If interest rates had been 1% higher/lower and all other variables were held constant, the Group’s pre-tax profit for the years ended December 31, 2017 and 2016 would increase/decrease by $7,899 thousand and $8,629 thousand, respectively, which was mainly attributable to the Group’s exposure to interest rates on floating rate bank deposits.

The Group’s sensitivity to interest rates has no major difference for the years ended December 31, 2017 and 2016.

2) Credit risk

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

• 44 -

In order to minimize credit risk, management of the Group 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 Group 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 Group’s credit risk was significantly reduced.

The Group 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 Group 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, 2017 and 2016.

3) Liquidity risk

The Group 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 Group’s operations and mitigate the effects of fluctuations in cash flows.

Liquidity and interest risk rate table

The following table details the Group’s remaining contractual maturity 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 Group can be required to pay. The tables included 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, 2017

Non-derivative financial liabilities Non-interest bearing December 31, 2016 Non-derivative financial liabilities Non-interest bearing	1-6 Months $ 1,396,422 1-6 Months $ 1,231,178	6 Months to 1 Year $ - 6 Months to 1 Year $ -	1-3 Years $ - 1-3 Years $ -	3+ Years $ -
				3+ Years $ -

The following table details the Group’s expected maturity 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 Group’s liquidity risk management as the liquidity is managed on a net asset and liability basis.

• 45 -

December 31, 2017

Non-derivative financial assets Non-interest bearing Variable interest rate assets Fixed interest rate assets December 31, 2016 Non-derivative financial assets Non-interest bearing Variable interest rate assets Fixed interest rate assets	1-6 Months $ 2,145,705 790,189 6,840,518 $ 9,776,412 1-6 Months $ 1,613,597 862,966 3,536,245 $ 6,012,808	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 was subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

21. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and its related parties are disclosed below.

Related parties and their relationships with the Group:

Related Party Categories and Related Party Relationship with the Group Sumco Corporation Ultimate parent entity Sumco Techxiv Corporation Parent entity Sumco Technology Corporation Fellow subsidiary (the subsidiary of Sumco Corporation) Formosa Plastic Corporation Investor with significant influence over the Group (equity-method investor holds 29.06% of the Company) Formosa Technologies Corporation Other (a director is the chairman of the Company) Formosa Daikin Advanced Chemicals Co., Ltd. Other (same chairman)

• 46 -

Operating Transaction

a. Sale of good

Line Items Related Party Categories Sales Parent entity	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2017 $ 809,959	2016 $ 884,768

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 Categories Ultimate parent entity Parent entity Investor with significant influence over the Group 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
		2017 $ 990,601 19,189 29,745 18,706 $ 1,058,241	2016 $ 1,023,398 33,662 22,223 15,885 $ 1,095,168

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

Receivables from related parties are listed:

Line Items Related Party Categories Trade receivable Parent entity Payables to related parties are as below: Line Items Related Party Categories Trade payable Ultimate parent entity Parent entity Investor with significant influence over the Group Others (same chairman or a director is the chairman of the Company)		December 31	December 31
		2017 2016 $ 161,281 $ 136,760 December 31
		2017 $ 140,381 2,507 2,945 384 $ 146,217	2016 $ 252,401 1,797 2,563 1,594 $ 258,355

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, 2017 and 2016, no impairment loss was recognized for trade receivables from related parties.

• 47 -

• c. Commission income, selling waste income, other revenue and other receivables

Ultimate parent company (commission income, accounted for as other income, other revenue; accounted for as deduction of operating cost) Fellow subsidiary (selling waste income, accounted for as deduction of operating cost) Ultimate parent company (other receivables) Fellow subsidiary (other receivable)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 2016 $ 23,016 $ 24,013 14,893 - $ 37,909 $ 24,013 **December 31 **
		2017 $ 3,721 1,291 $ 5,012	2016 $ 8,084 - $ 8,084

d. Loans to related parties

The Company has issued loan of $1,003,464 thousand to the investor with significant influence over the Group (Formosa Plastic Corporation) at interest rate of 1% on June 15, 2017, the loan is unsecured, the Company has recovered the loan on June 30, 2017. The interest income received from investor with significant influence over the Group (Formosa Plastic Corporation) was $27 thousand.

The Company provided the investor with significant influence over the Group (Formosa Plastic Corporation) with short-term financing of loans, totaled to $1,160,320 thousand, at interest rate of 1%, which were unsecured on June 30, 2016. The loans was repaid in full on July 1, 2016.

The interest income received from investor with significant influence over the Group (Formosa Plastic Corporation) was $32 thousand.

• e. Loans from related parties

Japan Formosa Sumco Technology obtained loan from investor with significant influence (Formosa Plastic Corporation) totaled $1,003,464 thousand at interest rate of 1%. The loan is unsecured and has been repaid on June 30, 2017. The interest expense paid to investor with significant influence are the Group (Formosa Plastic Corporation) from January 1, 2017 to December 31, 2017, is $27 thousand.

Japan Formosa Sumco Technology obtained loans of $1,160,320 thousand, at rate of 1% from the investor with significant influence over the Group, which were unsecured on June 30, 2016. The loans was paid in full on July 1, 2016. The interest expense to investor over the Group with significant influence for the loan obtained was $26 thousand in the year ended 2016.

• f. Other transactions with related parties

• 1) Manufacturing expense and accrued expenses - related parties

The repairs and maintenance expenses the Group paid to other related party (Formosa Technologies Corporation) were $22,929 thousand and $24,411 thousand for the years ended December 31, 2017 and 2016, respectively. The transaction amounts are based on mutual agreement, and settled within the year.

• 48 -

The production cost paid by the Group to its ultimate parent entity were $330,197 thousand and $282,795 thousand for the years ended 2017 and 2016. The outstanding payable were $47,894 thousand and $46,834 thousand accounted for as accrued expenses for the year ended 2017 and 2016, respectively, and will be paid in February of the subsequent year.

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

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

The Group has purchase crystal puller strengthening system from its other related party (Formosa Technologies Corporation), the purchase contract 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 equipments - related parties, the balance will be paid upon processed.

The Group has purchased control system from its investor with significant influence over the Group (Formosa Plastic Corporation), the purchase contract worth $288 thousand, the unpaid balance as of the year ended December 31, 2016 is $288 thousand, accounted for as payable from purchase of equipment - related party, under other payable, will be settled after processed.

For the year ended December 31, 2016, the Group purchased Pulling Machine from its ultimate parent company with contract price of $339,912 thousand (before tax) and has been paid on August, 2016, after check and acceptance. The Group purchased internet facilities from its other related party (Formosa Technologies Corporation) with contract price of $3,087 thousand, the balance has been paid after check and acceptance.

3) Other transactions

In September 2014 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 JPY2,000 thousand. A payment of $584 thousand has been proceeded in May 2016. This is accounted for as intangible assets (refer to Note 11).

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, 2017 and 2016. The unpaid amount as of December 31, 2017, and December 31, 2016 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 fee classified under selling expenses for years ended December 30, 2017 and 2016. The unpaid amount as of December 31, 2017, and December 31, 2016, were recognized as royalties payable to related parties (other payables) and will be paid in February of the subsequent year.

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

Selling expenses (technical support expense) Parent entity Ultimate parent entity Payable for royalties (other payables) Parent entity Ultimate parent entity g. 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
		2017 2016 $ 20,938 $ 19,595 279,724 19,905 $ 300,662 $ 39,500 **December 31 **
	2017 2016 $ 20,938 $ 19,595 279,724 19,905 $ 300,662 $ 39,500 For the Year Ended December 31
		2017 $ 17,713 130 20 $ 17,863	2016 $ 16,976 137 18 $ 17,131

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

22. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Group as of December 31, 2017 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, if there’s any capital reduction or other transfer of the machinery, equipment or components mentioned above to third party, except those transfer to permitted business, the Company should make a supplementary import duties of the fixed assets.

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23. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of the group entities 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, 2017

Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 131,500 29.848 (USD:NTD) JPY 91,488 0.2641 (JPY:NTD) Financial liabilities Monetary items USD 16,807 29.848 (USD:NTD) USD 1,827 113.018 (USD:JPY) JPY 890,209 0.2641 (JPY:NTD) December 31, 2016 Foreign Currencies Exchange Rate Financial assets Monetary items USD $ 74,500 32.279 (USD:NTD) JPY 58,158 0.2768 (JPY:NTD) Financial liabilities Monetary items USD 11,850 32.279 (USD:NTD) USD 1,908 109.963 (USD:JPY) JPY 644,300 0.2768 (JPY:NTD)

Carrying Amount $ 3,925,022 24,162 $ 3,949,184 $ 501,657 54,554 235,104 $ 791,315 Carrying Amount $ 2,404,801 16,098 $ 2,420,899 $ 382,512 61,593 178,342 $ 622,447

The Group is mainly exposed to USD and JPY. The significant realized and unrealized foreign exchange gains (losses), please refer to Note 16.

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24. 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 joint controlled entities) (Table 2)

• 4) Marketable securities acquired and 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 21 and Table 5)

• 11) Information on investees (Table 6)

• c. Information on investments in Mainland China

None.

25. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on the types of goods. The Group’s only reportable segment in the years ended December 31, 2017 and 2016 is the silicon wafer segment as the Group’s main activities are manufacturing and selling the silicon wafer electronic products. The accounting policy of the reportable segment is the same as the Note 4 “summary of significant accounting policies”.

• 52 -

a. Segment revenues and results

The following was an analysis of the Group’s revenue and results from continuing operations by reportable segment.

Silicon wafer segment Miscellaneous income Miscellaneous expense Profit before tax		Segment Revenue	Segment Revenue		Segment Profit	Segment Profit
		For the Year Ended December 31			For the Year Ended December 31
		2017 $ 12,713,025	2016 $ 10,794,340		2017 $ 2,598,634 16,595 (37) $ 2,615,192	2016 $ 895,230 13,543 (3,446) $ 905,327

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales during the years ended December 31, 2017 and 2016.

Segment profit represents the profit earned by silicon wafer segment without allocation of miscellaneous income (included in non-operating income) and miscellaneous expense (included in other profit and loss) and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

b. Segment total assets and liabilities

The Group’s assets and liabilities information is not reported to chief management decision maker on a regular basis. Therefore, all the assets and liabilities are not allocated to the reportable segment.

c. Other segment information

Silicon wafer segment	Depreciation and Amortization	Depreciation and Amortization	Depreciation and Amortization
	**For the Year Ended December 31 **
		2017 $ 2,090,809	2016 $ 2,134,668

d. Revenue from major products

The following is an analysis of the Group’s revenue from its major products.

Silicon wafer	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2017 $ 12,713,025	2016 $ 10,794,340

e. Geographical information

The Group operates mainly in Taiwan. Its revenue information by location of operation as per described under the “Segment revenue and results”.

The Group sells and distributes its products mainly in two principal geographical locations - Taiwan and Japan.

• 53 -

The Group’s sales revenue from external customers by their location are detailed below.

Taiwan Japan	Revenue from External Customers	Revenue from External Customers	Revenue from External Customers
	For the Year Ended December 31
		2017 $ 11,903,066 809,959 $ 12,713,025	2016 $ 9,909,572 884,768 $ 10,794,340

• f. Information about major customers

Single customers contributed 10% or more to the Group’s revenue were as follows:

Custom A Custom B (Note 1) Custom C (Note 2)	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2017 $ 5,241,320 1,375,540 823,587 $ 7,440,447	2016 $ 4,244,997 942,790 1,277,687 $ 6,465,474

• Note 1: The sales revenue in the year ended December 31, 2016 has not exceeded 10% of the Group’s revenue.

• Note 2: The sales revenue in the year ended December 31, 2017 has not exceeded 10% of the Group’s revenue.

• 54 -

TABLE 1

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

FINANCING PROVIDED TO OTHERS FOR THE YEAR ENDED DECEMBER 31, 2017 (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 Yasuo Development Co., Ltd. Huaya Motor. Co., Ltd. Yasuo Heavy Industry Co., Ltd.	Receivables from related parties Receivables from related parties Receivables from related entities Receivables from related parties Receivables from related parties	Yes Yes No Yes Yes	$ 1,550,000 (Note 3) 1,550,000 (Note 3) 1,060,000 (Note 3) 1,200,000 (Note 3) 1,200,000 (Note 3)	$ - 1,550,000 (Notes 3 and 4) - - 1,200,000 (Note 3)	$ - (Note 5) 854,364 (Note 6) - - -	1.00% 1.00% 1.41% 1.41% 1.41%	2 2 2 2 2	$ - - - - -	Operating capital Operating capital Operating capital Operating capital Operating capital	$ - - - - -	None None None None None	$ - - - - -	$ 5,418,002 (Note 7) 2,167,201 (Note 8) 5,418,002 (Note 7) 5,418,002 (Note 7) 5,418,002 (Note 7)	$ 10,836,004 (Note 9) 10,836,004 (Note 9) 10,836,004 (Note 9) 10,836,004 (Note 9) 10,836,004 (Note 9)

Note 1: a. “0” financing provide.

• b. “1” and onward coded based on reduce of companies invested.

• Note 2: a. “1” with trade transaction.

• b. “2” the need for short-term financing.

Note 3: The maximum balance for the period and ending balance represent the amounts approved by the Board of Directors.

• Note 4: Financing period from June 16, 2017 to June 15, 2018.

• Note 5: The Company has recovered $1,003,464 thousand loan from Formosa Plastic Corporation.

• Note 6: The amount was eliminated upon consolidation.

• 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.

• 55 -

TABLE 2

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2017

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

Held Company Name	Marketable Securities Type and Name (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	-	Available-for-sale financial asset - non-current	3,247	$ 375		$ 375

Note 1: The marketable securities, listed above includes stocks, bonds, beneficiary certifiable, and all form of securities derived from the item listed above.

Note 2: The issuer of security is unrelated party. Hence, no descriptions of relationship.

Note 3: The carrying value equals the original cost of $38 thousand pluses year-end evaluation of $337 thousand.

Note 4: Please refer to Table 6 for further information above investee.

• 56 -

TABLE 3

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2017

(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	$ 939,561 809,959 747,090 747,090	15.57 6.37 12.38 100.00	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	$ (132,893) 161,281 (148,820) 148,820	21.11 7.58 23.64 100.00	Note 1 Note 1

Note 1: The amount was eliminated upon consolidation.

• 57 -

TABLE 4

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2017

(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 Formosa Sumco Technology Corporation	Parent company of Formosa Sumco Technology Corp. Subsidiary company of Formosa Sumco Technology Corporation Parent company	$ 161,281 855,047 (Notes 1 and 2) 148,820 (Note 2)	5.44 Not applicable 4.88	$ - - -	- - -	$ 161,281 60,925 87,170	$ - - -

Note 1: Including principal $854,364 thousand and interest $683 thousand.

Note 2: The amount was eliminated upon consolidation.

• 58 -

TABLE 5

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2017 (Amounts in Thousands of New Taiwan Dollars)

No. (Note 1)	Company Name	Counterparty	Relationship	Transactions Details	Transactions Details	Transactions Details
				Financial Statement Accounts	Amount (Note 3)	Payment Terms	% to Total Sales or Assets (Note 2)
0	The Company	Japan Formosa Sumco Technology Corporation 〃 〃 〃	Subsidiary 〃 〃 〃	Purchases of goods Interest income Trade payables Other receivables (include interest receivables)	$ 747,090 9,786 148,820 855,047	General terms General terms General terms General terms	5.88 0.08 0.61 3.53

Note 1: The intercompany relationships are coded as blow:

a. “0” parent company

b. “1” and above coded based on the type of intercompany relationship.

• Note 2: For assets and liabilities, amount is shown as a percentage to consolidated total assets as of December 31, 2017, while revenues, costs and expenses are shown as a percentage to consolidated total operating revenues for the year ended December 31, 2017.

Note 3: The amount was eliminated upon consolidation.

• 59 -

TABLE 6

FORMOSA SUMCO TECHNOLOGY CORPORATION AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2017 (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, 2017	As of December 31, 2017	As of December 31, 2017	Net Income (Loss) of the Investee	Share of Profits (Loss)	Note
				December 31, 2017	December 31, 2016	Shares	%	Carrying Amount
Formosa Sumco Technology Corporation	Japan Formosa Sumco Technology Corporation	Japan	Manufacture, selling and other related business of high quality ingot	JPY 998,000 (NT$ 248,390)	JPY 998,000 (NT$ 248,390)	9,980	100	JPY1,110,596 (NT$ 292,559)	JPY 117,139 (NT$ 31,584)	JPY 98,248 (NT$ 28,125)	Notes 1 and 2

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

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

Note 3: Intercompany balances and transactions between investor company and investee company have been eliminated upon consolidation.

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