HON HAI - Capital/Financing Update 2013

OFFERING CIRCULAR

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US$700,000,000

Hon Hai Precision Industry Co., Ltd.

(incorporated as a company limited by shares in the Republic of China)

Currency-Linked Zero Coupon Convertible Bonds due 2026

Hon Hai Precision Industry Co., Ltd. (“ Hon Hai ” or the “ Company ”) will issue the Currency-Linked Zero Coupon Convertible Bonds due 2026 (the “ Bonds ”). Unless the Bonds have been previously redeemed, repurchased and canceled or converted, Hon Hai will redeem the Bonds at the Settlement Equivalent (as defined herein) of 97.97% of the outstanding principal amount thereof at maturity. The Bonds may be redeemed in whole or in part by Hon Hai at any time on or after August 5, 2024, at the Settlement Equivalent of the Early Redemption Price of the outstanding principal amount thereof under the circumstances described in this Offering Circular.

The Bonds will be direct, unconditional, unsubordinated and unsecured obligations of Hon Hai and will rank pari passu without any preference or priority among themselves and with all of Hon Hai’s other present and future direct, unconditional, unsubordinated and unsecured obligations, except as otherwise provided herein. The Bonds will not bear interest. Holders of the Bonds may convert the Bonds into common shares of Hon Hai (the “ Common Shares ”) at any time (subject to certain restrictions) after November 8, 2021 and up to 30 days prior to maturity. The initial conversion price is NT$163.17 per Common Share, subject to adjustment in certain circumstances, with a fixed exchange rate applicable on conversion of Bonds of NT$27.978 = US$1.00. The Common Shares are listed on the Taiwan Stock Exchange Corporation (the “ TWSE ”) and application will be made to list the Common Shares issued on conversion of the Bonds on the TWSE. The closing sale price per Common Share on the TWSE on July 29, 2021 was NT$111.00. Unless the Bonds have been previously redeemed, repurchased and canceled or converted, holders of Bonds will also have the right to require Hon Hai to repurchase the Bonds at the Settlement Equivalent of the Early Redemption Price of the outstanding principal amount thereof (i) on August 5, 2024, (ii) at the occurrence of an Event of Delisting (as defined herein) or (iii) at the occurrence of a Change of Control (as defined herein). See “Description of the Bonds — Repurchase of the Bonds”.

See “Risk Factors” on page 15 for a discussion of certain factors to be considered in connection with an investment in the Bonds.

The Bonds and the Common Shares issuable upon conversion of the Bonds have not been and will not be registered under the United States Securities Act of 1933, as amended (the “ Securities Act ”) and may only be offered or sold outside the United States in reliance on Regulation S under the Securities Act and outside the Republic of China. For a further description of certain restrictions on the offering and sale of the Bonds, see “Description of the Bonds”, “Transfer Restrictions of the Bonds” and “Plan of Distribution”.

The Bonds will be evidenced by a global bond (the “ Global Bond ”), and will be fully issued in registered book-entry form without interest coupons and registered in the name of Citivic Nominees Limited as nominee for Citibank Europe plc as common depositary (the “ Common Depositary ”) for Euroclear Bank S.A./N.V. (“ Euroclear ”) and Clearstream Banking, société anonyme (“ Clearstream ”).

Approval in-principle has been received for the listing and quotation of the Bonds on the Singapore Exchange Securities Trading Limited (the “ SGX-ST ”). The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this Offering Circular. Approval in-principle for the listing and quotation of the Bonds on the SGX-ST is not to be taken as an indication of the merits of this offering (the “ Offering ”), Hon Hai or the Bonds. Prior to this Offering, there has been no market anywhere for the Bonds, or any market outside the ROC for the Common Shares.

Offering Price: 100%

Citigroup

Goldman Sachs

HSBC

(arranged in alphabetical order)

Offering Circular dated July 29, 2021

	Page
CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION . . . .	iv
FINANCIAL INFORMATION PRESENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	v
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . .	vi
ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC . . . . . . . . . . . . . . . . . . . . . .	vii
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
DIVIDENDS AND DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
CAPITALIZATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68
PRINCIPAL SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71
CHANGES IN ISSUED SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	72
DESCRIPTION OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	73
TRANSFER RESTRICTIONS OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	98
DESCRIPTION OF COMMON SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99
ROC TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	103
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	105
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	106
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	107
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	108
APPENDIX A — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN
THE ROC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A-1
APPENDIX B — THE SECURITIES MARKETS OF THE ROC . . . . . . . . . . . . . . . . . .	B-1
APPENDIX C — GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	C-1
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-1

NOTICE TO INVESTORS

You should rely only on the information contained in this Offering Circular. Neither the Company nor Citigroup Global Markets Limited, Goldman Sachs International and The Hongkong and Shanghai Banking Corporation Limited (the “ Initial Purchasers ”) have authorized anyone to provide you with information that is different than or make any representation other than as contained in this Offering Circular in connection with the offering of the Bonds. If anyone provides you with different or inconsistent information, you should not rely on it.

You should assume the information in this Offering Circular is accurate only as of the date of this Offering Circular. The business, financial condition, results of operations and prospects of the Group may have changed since that date. Neither the delivery of this Offering Circular nor any sale of the Bonds made in connection with this Offering Circular will, under any circumstances, constitute a representation or create any implication that the information in this Offering Circular is correct as of any date subsequent to the date of this Offering Circular or that there have been no changes in the affairs of the Company since the date of this Offering Circular. Statements contained in this Offering Circular as to the contents of any contract or other documents referred to in this Offering Circular may not set forth all of the terms and conditions of such contracts or other documents.

In making an investment decision, prospective investors must rely on their own examination of the Company and the terms of the Bonds, including the merits and risks involved. Neither the Company nor the Initial Purchasers are making any representation to any purchaser of the Bonds regarding the legality of an investment in the Bonds by such purchaser under any legal investment or similar laws or regulations. This Offering Circular should not be considered as a recommendation or constituting an invitation or offer by the Company that any recipient of this Offering Circular should purchase the Bonds. You should not construe the contents of this Offering Circular as legal, business, accounting or tax advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in the Bonds.

The Company has furnished the information contained in this Offering Circular. No representation, undertaking or warranty, express or implied, is made by the Initial Purchasers, the Trustee, the Agents or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers as to the accuracy or completeness of the information contained in this Offering Circular, and nothing contained in this Offering Circular is, or shall be relied upon as, a promise or representation by the Initial Purchasers, the Trustee, the Agents or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers. None of the Initial Purchasers, the Trustee, the Agents or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers assumes any responsibility for the accuracy or completeness of any of the information contained in this Offering Circular or any other information (financial, legal or otherwise) provided by the Company in connection with the issue of the Bonds or their distribution. Each person receiving this Offering Circular acknowledges that such person has not relied on the Initial Purchasers, the Trustee, the Agents or any of their respective affiliates, directors, officers, employees, agents, representatives or advisers in connection with such person’s investigation of the accuracy of such information or such person’s investment decisions.

This Offering Circular may only be used where it is legal to sell the Bonds. None of the Company or the Initial Purchasers is making an offer to sell the Bonds in any jurisdiction where the offer or sale is not permitted. This Offering Circular may not be used for, or in connection with, any offer to, or solicitation by, anyone in any jurisdiction in which it is unlawful to make such an offer or solicitation. The distribution of this Offering Circular and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular may come must inform themselves about and observe these relevant restrictions. No action is being taken in any jurisdiction to permit an offering to the general public of the Bonds or the distribution of this Offering Circular in any jurisdiction where action would be required for those purposes.

This Offering Circular is confidential. This Offering Circular has been prepared by the Company solely for use in connection with the proposed offering of the Bonds described in this Offering Circular. This Offering Circular is personal to each prospective investor and does not constitute an offer to any other person or to the public generally to subscribe for, or otherwise acquire, the Bonds. Distribution of this Offering Circular to any person other than the prospective investor and any person retained to advise such prospective investor with respect to its purchase is unauthorized and any disclosure of any of its contents,

without the prior written consent of the Company, is prohibited. Each prospective investor, by accepting delivery of this Offering Circular, agrees to the foregoing.

PROHIBITION OF SALES TO EEA RETAIL INVESTORS : The Bonds are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (“ EEA ”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “ MiFID II ”); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “ Insurance Distribution Directive ”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “ PRIIPs Regulation ”) for offering or selling the Bonds or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Bonds or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.

PROHIBITION OF SALES TO UK RETAIL INVESTORS: The Bonds are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the United Kingdom (“ UK ”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (the “ EUWA ”); or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (as amended, the “ FSMA ”) and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA (the “ UK MiFIR ”). Consequently, no key information document required by Regulation (EU) No 1286/2014 as it forms part of domestic law by virtue of the EUWA (the “ UK PRIIPs Regulation ”) for offering or selling the Bonds or otherwise making them available to retail investors in the UK has been prepared and, therefore, offering or selling the Bonds or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.

In addition, in the UK this Offering Circular is only being distributed and is only directed at persons who are (i) investment professionals, as such term is defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “ Financial Promotion Order ”), or (ii) persons falling within Article 49(2)(a) to (d) (“ high net worth companies, unincorporated associations, etc. ”) of the Financial Promotion Order, or (iii) outside the UK (all such persons together being referred to as “ relevant persons ”). This Offering Circular must not be acted on or relied on by persons who are not relevant persons. The Bonds are only available to relevant persons, and any investment or investment activity to which this Offering Circular relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this Offering Circular or any of its contents.

SECTION 309B(1) NOTIFICATION : The Company has determined, and hereby notifies all persons (including all relevant persons (as defined in Section 309A(1) of the Securities and Futures Act, Chapter 289 of Singapore, as modified or amended from time to time)), that the Bonds are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Offering Circular. You must not rely on any unauthorized information or representations. This Offering Circular is an offer to sell only the Bonds offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should not assume that the information contained in this Offering Circular is accurate as of any date other than the date of this Offering Circular. The Company’s business, financial condition, results of operations and prospects may have changed since that date.

The distribution of this Offering Circular and the offering and sale of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company and the Initial Purchasers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Bonds and distribution of this Offering Circular, see “Plan of Distribution” and “Transfer Restrictions of the Bonds”. This Offering

iii

Circular does not constitute an offer of, or an invitation by or on behalf of the Company or the Initial Purchasers to subscribe for or purchase any of the Bonds in any jurisdiction in which such offer or invitation would be unlawful. This Offering Circular may be used only for the purposes for which it has been published.

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

Except where the context otherwise requires, all references herein to “Hon Hai”, the “Issuer” or the “Company” are references to Hon Hai Precision Industry Co., Ltd. and all references herein to the “Hon Hai Group”, the “Group”, “we”, “us” and “our” are references to Hon Hai Precision Industry Co., Ltd. and its subsidiaries. All references herein to “Taiwan” or the “ROC” are to the island of Taiwan and other areas under the effective control of the Republic of China. All references herein to the “ROC Government” or the “ROC Company Act” are references to the government of the Republic of China and the Company Law of the Republic of China, respectively. All references herein to the “FSC” are to the Financial Supervisory Commission of the ROC. All references herein to “U.S. GAAP” are to accounting principles generally accepted in the United States. All references herein to the “PRC” and “China” are to the People’s Republic of China. All references herein to the “TWSE” are to the Taiwan Stock Exchange Corporation.

In this Offering Circular, the common shares, par value of NT$10 per share, of the Company are referred to as the “Common Shares”.

Hon Hai publishes its financial statements in New Taiwan Dollars, the lawful currency of the ROC. All references herein to “United States Dollars”, “U.S. Dollars” and “US$” are to United States dollars, references to “New Taiwan Dollars”, “NT Dollars” and “NT$” are to New Taiwan dollars and references to “RMB” and “Renminbi” are to the lawful currency of the People’s Republic of China. Unless otherwise specified, where information contained in this Offering Circular has been translated into U.S. Dollars, it has been so translated, for convenience only, at the rate of NT$28.48 = US$1.00 or at the rate of RMB6.55 = US$1.00, the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2021. All amounts translated into United States Dollars as described above are provided solely for the convenience of the reader, and no representation is made that the NT$ or US$ amounts referred to herein could have been or could be converted into US$ or NT$, as the case may be, at any particular rate, the above rates or at all. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. For a definition of certain terms used herein, see “Appendix C — Glossary”.

FINANCIAL INFORMATION PRESENTATION

Unless expressly stated otherwise, all financial information, description and other information regarding our financial condition and results of operations as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 (collectively, the “ Years Consolidated Financial Information ”) and as of and for the three-month periods ended March 31, 2020 and 2021 (collectively, the “ Three Months Consolidated Financial Information ”) included in this Offering Circular are presented on a consolidated basis. We prepared our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financing Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission (“ Taiwan IFRS ”), which differs from U.S. GAAP, IFRS or the generally accepted accounting principles of certain other countries. Our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 have been audited by our independent auditors. We prepared our unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021 in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34 “Interim Financial Reporting” endorsed by the FSC. Our unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021 have been reviewed by our independent auditors. The review report of PricewaterhouseCoopers, Taiwan dated May 14, 2021 relating to the unaudited consolidated interim financial statements was qualified with respect to the effect of adjustments, if any, as might have been determined to be necessary had the financial statements of certain subsidiaries and investee companies accounted for under the equity method, been reviewed by independent auditors. The results of operations for the three-month periods ended March 31, 2021 are not indicative of the results that may be expected for the year ending December 31, 2021.

All amounts in the Years Consolidated Financial Information and the Three Months Consolidated Financial Information expressed in U.S. Dollars are provided solely for the convenience of the reader and, with respect to the Years Consolidated Financial Information and the Three Months Consolidated Financial Information, do not form part of the audited consolidated financial statements or unaudited consolidated interim financial statements. In this Offering Circular, where information has been presented in thousands, millions or billions of units, amounts may have been rounded up or down. Accordingly, the total of columns or rows of numbers in tables may not be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due to rounding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in this Offering Circular, statements made in press releases and oral statements that may be made by the Company or its officers, directors or employees acting on behalf of the Company that are not statements of historical fact constitute “forward-looking statements”. You can identify some of these forward-looking statements by terms such as “expects”, “believes”, “plans”, “intends”, “estimates”, “anticipates”, “may”, “will”, “would” and “could” or similar words. However, you should note that these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company’s expected financial position, business strategy, plans and prospects are forward-looking statements. These forward-looking statements, including statements as to:

the Company’s financial condition;
expected growth in customer demand;
other expected industry trends;
anticipated dates for new projects; and
other matters discussed in this Offering Circular regarding matters that are not historical fact;

are only forecasts. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

These risks, uncertainties and other factors include, among others:

changes in the industry to which the Group is unable to adapt;
changes in competitive conditions and the Group’s ability to compete under these conditions;
changes in market prices for the Group’s products;
changes in customer preferences;
the rate of growth of the Group and its ability to meet the demands relating to its growth;
changes in the availability and prices of input components the Group needs to manufacture its products;
changes in currency exchange rates;
changes in political, social and economic conditions and the regulatory environment in the ROC, PRC and other jurisdictions in which the Group operates its business; and
other factors beyond the Company’s control.

Given the risks and uncertainties that may cause the Company’s actual future results, performance or achievements to be materially different than expected, expressed or implied by the forward-looking statements in this Offering Circular, the Company advises you not to place undue reliance on those statements. The Company is not representing or warranting to you that its actual future results, performance or achievements will be as discussed in those statements. Further, the Company disclaims any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances.

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

Hon Hai is a company limited by shares and incorporated under the ROC Company Act. Certain of the Company’s directors and executive officers named in this Offering Circular are residents of the ROC, and some of the Company’s assets and the assets of such persons are located in the ROC. As a result, it may be difficult for investors to enforce judgments obtained outside of the ROC against the Company or such persons in the ROC, including those predicated upon the civil liability provisions of the federal securities laws of the United States.

Any final judgment obtained against the Company in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds or Common Shares will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that:

the court rendering the judgment had jurisdiction over the subject matter according to the laws of the ROC;
the judgment and the court procedures resulting in the judgment are not contrary to the public order or good morals of the ROC;
if the judgment was rendered by default by the court rendering the judgment, (i) the Company was duly served within a reasonable period of time within the jurisdiction of such court in accordance with the laws and regulations of such jurisdiction, or (ii) process was served on the Company with judicial assistance of the ROC; and
judgments of the courts of the ROC are recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis.

A party seeking to enforce a foreign judgment in the ROC would, except under limited circumstances, be required to obtain foreign exchange approval from the Central Bank of the Republic of China (Taiwan) (the “ CBC ”) for the remittance out of the ROC of any amounts recovered in respect of such judgment denominated in a currency other than NT dollars.

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SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere herein. Except as otherwise indicated, all financial information set forth herein with respect to the Company has been presented in New Taiwan Dollars in conformity with Taiwan IFRS.

Hon Hai Precision Industry Co., Ltd. is a leading technological solution provider, which has leveraged its expertise in software and hardware to integrate its unique manufacturing systems with emerging technologies. Its products and services are categorized as follows: (i) Components including a broad range of connectors, cable assemblies, enclosures and electronic and other components; (ii) Modules comprising system boards and subassemblies; and (iii) Systems comprising full system assembly of electronic products.

The Company is committed to developing and leading upgrades in the industry in moving from a labor intensive business to an intelligence intensive business, with labor-less factories, automation and the Company’s “3+3” strategy categories, including the three industries of EV, digital health and robotics and three applications across AI, semiconductor and new generation communication. The Company also leverages its R&D capabilities and investments in new industries to achieve the restructuring and upgrade towards “Foxconn 3.0”. The Company has invested and plans to continue to invest in its key “3+3” strategy.

The Company provides its customers, which are primarily in the 3C industries, with value-added end-to-end product solutions from design and development in the early stage to the final manufacturing and after-sales services. The Company identifies and targets industry leaders in the 3C industries with whom the Company believes it can develop long-term relationships. The Company’s key customers include Apple, Cisco, Dell, HP and Huawei. The Company intends to concentrate its sales efforts on increasing penetration of its existing customers, as well as targeting new customers that are emerging industry leaders.

In transforming the business from a labor intensive industry to one that is intelligent intensive, the Company has formulated transformation and upgrade plans, with an advanced deployment of technologies and products in the future. The Company’s strategic objective is to provide industry leaders in the 3C industries with a total solution for design, development, engineering, procurement, manufacturing, logistics and after-sales service. The Company calls this strategy “e-enabled Components, Modules, Moves and Services”, or “eCMMS”.

In terms of EV, the Company has cultivated a global supply chain and is establishing in-house capabilities of key component manufacturing, structural R&D and system integration services. The Company plans to utilize this unique set of proficiencies to consolidate resources vertically from both upstream and downstream, which enables the Company to provide its customers with comprehensive “one-stop” solutions. As a leading technological solution provider for decades that is dedicated to technological innovation, the Company has founded a nonprofit organization to support the MIH EV Open Platform, whose core ethos is to share and propel the sustainable development of automotive ecosystem.

For the year ended December 31, 2020, the Company generated consolidated operating revenue of NT$5,358,023.1 million (US$188,132.8 million) and consolidated net income of NT$114,325.6 million (US$4,014.2 million), representing an increase of 0.28 per cent. and a decrease of 13.5 per cent., respectively, over the same period in the previous year. For the three months ended March 31, 2021, the Company generated consolidated operating revenue of NT$1,347,112.8 million (US$47,300.3 million) and consolidated net income of NT$30,979.3 million (US$1,087.8 million), representing an increase of 45.0 per cent. and 1,340.8 per cent., respectively, over the same period in the previous year.

merged with Premier Image Technology Corporation, a leading manufacturer of camera modules and optical components for digital cameras, projectors and other electronic products in the ROC. In 2016, the Company invested in Sharp Corporation, a Japanese multinational corporation that designs and manufactures electronic products. On July 13, 2017, FIT Hon Teng (incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited) (Stock Code: 6088), a consolidated subsidiary of the Company, was listed on The Stock Exchange of Hong Kong Limited and on June 8, 2018, Fii (Stock Code: 601138), another consolidated subsidiary of the Company, was listed on the Shanghai Stock Exchange. Fii is a world leading professional design and manufacturing service provider of communication network equipment, cloud service equipment, precision tools and industrial robots, providing customers with intelligent manufacturing services for new forms of electronic equipment products centered on the industrial internet platform.

Competitive Advantages

The Company believes that it enjoys several key competitive advantages in its principal activities:
End-to-end product solution provider and vertically integrated production, offering customized solutions and flexible cost structure
Strong and reliable integration capabilities for optomechatronics engineering and manufacturing
• Strong research and development capabilities
Focused strategic cooperation with key industry leaders

Strategy

The Company intends to execute its strategy by further integrating the following key aspects: • Concentrate on industry leaders and expand product and service portfolio
Further enhance core engineering skills and vertically integrated production processes to shorten delivery time, accelerate time-to-volume and reduce cost
Continue expanding global supply chain management capabilities to provide more comprehensive solutions
Further investment in research and development capabilities to drive innovation
Expand through potential acquisitions, joint ventures, partnerships and other strategic transactions

THE OFFERING

The following summary contains basic information about the Bonds and is not intended to be complete. It	The following summary contains basic information about the Bonds and is not intended to be complete. It	The following summary contains basic information about the Bonds and is not intended to be complete. It	The following summary contains basic information about the Bonds and is not intended to be complete. It
_does not contain all the information _		_that is important to you. For a more complete _	understanding of the
_Bonds, please refer _	_to the section _	entitled “Description of the Bonds” in this Offering Circular.
Capitalized terms used herein and not defined have the same meaning given to them in this Offering
Circular.
Issuer		Hon Hai Precision Industry Co., Ltd. (the “Issuer” or “Hon Hai”)
The Offering		US$700,000,000 aggregate principal amount of the Bonds. The
		Bonds are being offered outside the United	States in reliance on
		Regulation S under the Securities Act (“Regulation S”) and
		outside the Republic of China.
Offering Price		100%.
Issue Date		August 5, 2021.
Maturity Date and Final		Unless previously redeemed, repurchased and canceled, or
Redemption		converted, the Bonds will mature, and the Issuer will redeem the
		Bonds, on August 5, 2026 at the Settlement Equivalent (as defined
		herein) of 97.97% of the outstanding principal amount thereof.
Interest		The Bonds will not bear interest.
Ranking		The Bonds will be Hon Hai’s direct, unconditional,
		unsubordinated and unsecured obligations (but subject to a
		negative pledge, as described below), and	will rank pari passu
		without any preference or priority among themselves and with all
		of Hon Hai’s other present and future direct, unconditional,
		unsubordinated and unsecured obligations.
Conversion Rights		Subject to certain conditions, each holder of the Bonds (a
		“Holder”) will have the right during the Conversion Period (as
		defined herein) to convert its Bonds (or any portion thereof being
		US$200,000 in principal amount or any	integral multiple of
		US$100,000 in excess thereof) into Common Shares, provided,
		however, that the Conversion Right during any Closed Period (as
		defined herein) shall be suspended and the Conversion Period
		shall not include any such Closed Period.
		See “Description of the Bonds — Conversion” and “Risk Factors
		— Risks Relating to Ownership of the Bonds and the Common
		Shares — There are limitations on the ability of Holders of the
		Bonds to exercise conversion rights”.
		Subject to changes to ROC laws and regulations, Hon Hai shall as
		soon as practicable but in no event more than five Trading Days
		(as defined herein) from the Conversion Date (as defined herein)
		issue Common Shares to the converting Holders.
Conversion Price		The initial conversion price will be NT$163.17 per share with a
		fixed exchange rate applicable on conversion of Bonds of
		NT$27.978 = US$1.00.

Early Redemption Price	The Early Redemption Price for each US$200,000 in principal	The Early Redemption Price for each US$200,000 in principal
	amount of the Bonds is determined so that	it represents for the
	Holder a gross yield of -0.41% per annum on a semi-annual basis.
	See “Description of the Bonds”.
Settlement Equivalent	For the relevant Rate Calculation Date (as defined herein) in
	respect of any U.S. Dollar-denominated	amount payable in
	respect of the Bonds, means such U.S. Dollar amount converted
	into NT Dollar amount using the Fixed Exchange Rate (as defined
	herein), and then converted back to U.S. Dollar amount using the
	applicable Prevailing Rate (as defined herein) on such date.
Repurchase at the Option of	Unless the Bonds have been previously redeemed, repurchased
Holder	and canceled, or converted, each Holder shall have the right, at
	such Holder’s option, to require the Issuer to repurchase in U.S.
	Dollars all (or any portion of the principal amount thereof which
	is US$200,000 or any integral multiple of US$100,000 in excess
	thereof) of such Holder’s Bonds, on August 5, 2024 at a
	repurchase price equal to the Settlement Equivalent of the Early
	Redemption Price.
Repurchase at the Option of the	Unless the Bonds have been previously redeemed, repurchased
Holder upon a Change of	and canceled or converted, each Holder shall have the right, at
Control	such Holder’s option, to require the Issuer	to repurchase all of
	such Holder’s Bonds at the Settlement Equivalent of the Early
	Redemption Price upon the occurrence of a Change of Control (as
	defined herein). See “Description of the Bonds — Repurchase of
	the Bonds”.
Repurchase in the Event of	Unless the Bonds have been previously redeemed, repurchased
Delisting	and canceled or converted, in the event that the Common Shares
	cease to be listed or admitted to trading	on the TWSE, each
	Holder shall have the right, at such Holder’s	option, to require the
	Issuer to repurchase all of such Holder’s	Bonds on the 20th
	Business Day after the Paying Agent mails to each Holder a notice
	regarding such delisting at the Settlement Equivalent of the Early
	Redemption Price.
Redemption at the Option of the	The Bonds may be redeemed at the option of the Issuer, in whole
Issuer	or in part, at any time on or after August 5, 2024 at the Settlement
	Equivalent of the Early Redemption Price on the Redemption
	Date (as defined herein); provided that (a) the Closing Price (as
	defined herein) of the Common Shares on each Trading Day
	during a period of 20 consecutive Trading Days, the last of which
	occurs not more than five days prior to the date on which notice of
	such redemption is given, is at least 130% of the quotient of the
	Conversion Price multiplied by the Early Redemption Price and
	divided by US$200,000, and (b) the applicable Redemption Date
	does not fall within a Closed Period.
	Notwithstanding the foregoing, the Issuer may redeem the Bonds,
	in whole but not in part, at any time, on not less than 30 nor more
	than 60 days’ notice, if more than 90% in principal amount of the
	Bonds originally outstanding has been redeemed, repurchased
	and canceled or converted, at the Settlement Equivalent of Early
	Redemption Price on the Redemption Date; provided that the
	applicable Redemption Date does not fall within a Closed Period.

Additional Amounts	Payment of principal on the Bonds will be made without	Payment of principal on the Bonds will be made without
	withholding for or on account of certain taxes of the ROC or such
	other jurisdiction in which Hon Hai is then organized or resident
	for tax purposes to the extent set forth under “Description of the
	Bonds — Additional Amounts”.
Tax Redemption	If, as a result of certain changes relating to the tax laws in the
	ROC or such other jurisdiction in which Hon Hai is then
	organized or resident for tax purposes,	Hon Hai becomes
	obligated to pay Additional Amounts, the Bonds may be redeemed
	at the option of Hon Hai, in whole but	not in part, at the
	Settlement Equivalent of Early Redemption Price; provided that
	such right cannot be exercised earlier than	45 days prior to the
	first date on which Hon Hai would be obligated to make an
	Additional Amounts payment with respect to all or substantially
	all of the outstanding Bonds.
Negative Pledge	Subject to certain exceptions, Hon Hai will	not, and will procure
	that none of its Principal Subsidiaries (as	defined herein) will,
	create or permit to subsist any Lien (as defined herein) on any of
	its or, as the case may be, such Principal Subsidiary’s, property,
	assets or revenues, to secure for the benefit	of the holders of any
	International Investment Securities (as defined herein) any sum
	owing in respect thereof or any guarantee or indemnity thereof
	without making effective provision to secure the Bonds (a)
	equally and ratably with such International Investment Securities
	with a similar Lien or (b) with such other	security as shall be
	approved by a majority of the outstanding	registered holders of
	the Bonds. See “Description of the Bonds — Certain Covenants
	— Negative Pledge”.
Governing Law	The Indenture and the Bonds will be governed by and construed in
	accordance with the laws of the State of New York.
Trustee	Citicorp International Limited
Principal Paying Agent,	Citibank, N.A., London Branch
Conversion Agent, Transfer
Agent and Registrar
Form and Denomination	The Bonds will be issuable only in book-entry form and only in
	denominations of US$200,000 or any integral multiple of
	US$100,000 in excess thereof. The Bonds will be represented by
	the Global Bond. On the closing date of the Offering, Hon Hai
	will deliver the Global Bond to Citibank Europe plc as common
	depositary. If (i) at any time the Common Depositary advises the
	Issuer in writing that it is at any time unwilling or unable to
	continue as a depository for the Global Bond and a successor
	depository is not appointed by the Issuer	within 90 days, (ii)
	either Euroclear or Clearstream or any alternative clearing system
	on behalf of which the Bonds evidenced by the Global Bond may
	be held is closed for business for a continuous period of 14 days
	(other than by reason of holidays, statutory or otherwise) or
	announces an intention permanently to cease business or in fact
	does so, or (iii) an event of default has occurred and is continuing
	with respect to the Bonds and the Trustee notifies the Issuer in
	writing that any of the Bonds have become	immediately due and
	payable pursuant to the Indenture, the	Issuer shall issue
	individual certificated bonds in registered form in exchange for
	the Global Bond in any authorized denominations and in an
	aggregate principal amount equal to the principal amount of the
	Global Bond.

Listing		Approval in-principle has been received	for the listing and
		quotation of the Bonds on the SGX-ST. The	SGX-ST assumes no
		responsibility for the correctness of any of the statements made,
		opinions expressed or reports contained in this Offering Circular.
		Approval in-principle for the listing and quotation of the Bonds
		on the SGX-ST is not to be taken as an indication of the merits of
		the Offering, Hon Hai or the Bonds. Prior to this Offering, there
		has been no market anywhere for the Bonds, or any market
		outside the ROC for the Common Shares.
		For so long as the Bonds are listed on the SGX-ST and the rules of
		the SGX-ST so require, the Bonds will be traded on the SGX-ST
		in a minimum board lot size of US$200,000.
Lock-ups		Hon Hai has agreed with the Initial Purchasers that during a
		period beginning at the date and time the Purchase Agreement (as
		defined herein) was executed and delivered	to the parties thereto
		and ending 90 days from the date hereof, it will not directly or
		indirectly offer, sell, contract to sell, pledge, lend, grant any
		option to purchase, make any short sale or otherwise dispose of,
		any securities of Hon Hai that are substantially similar to the
		Bonds or any Common Shares, subject to certain exceptions,
		without the prior written consent of the Initial Purchasers (the
		“Company Lock-up Agreement”). The	exemptions to the
		Company Lock-up Agreement allow Hon Hai to (i) implement
		stock splits and employee stock option plans, (ii) issue the
		conversion shares upon the conversion of the currency linked zero
		coupon convertible bonds due 2022 issued by the Company in
		November 2017, (iii) issue common stock issuable upon the
		conversion of securities or the exercise of warrants outstanding at
		the execution time of the Purchase Agreement, and (iv) sell the
		Bonds to the Initial Purchasers pursuant to the Purchase
		Agreement and issue the Common Shares upon the conversion of
		the Bonds; and allow any disposition by Hon Hai or any of its
		Affiliates or any person in privity with Hon Hai or any of its
		Affiliates due to group reorganization.
Trading Market for	the	The only trading market for the Common Shares is the TWSE.
Common Shares		The Common Shares have been listed on the TWSE since 1991.
Use of Proceeds		The gross proceeds to Hon Hai from the Offering will be
		US$700.0 million before deducting the	Initial Purchaser’s
		discounts and estimated offering expenses payable by Hon Hai.
		Hon Hai intends to use the net proceeds from the Offering to
		purchase raw materials overseas.
Delivery of the Bonds		Delivery of the Bonds, against payment in same-day funds, is
		expected on or about August 5, 2021.

SUMMARY FINANCIAL DATA

The following tables present our summary financial information. The summary financial information as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 set forth below should be read in conjunction with, our audited consolidated financial statements included elsewhere in this Offering Circular. The summary financial information as of and for the three-month periods ended March 31, 2020 and 2021 are derived from our unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021. Our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 have been prepared and presented in accordance with the Taiwan IFRS. Our unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021 have been prepared and presented in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34 “Interim Financial Reporting” endorsed by FSC.

With effect from January 1, 2019, the Group has adopted Taiwan IFRS 16 where the Group is required to adjust certain amounts recognised in the consolidated financial statements. Please refer to Note 3(1) of the Group’s consolidated financial statements for the year ended December 31, 2019 for a discussion on the effects of the adoption of Taiwan IFRS 16. The Group has adopted Taiwan IFRS 16 from January 1, 2019 without requiring any restatement of the corresponding figures of the prior period before January 1, 2019. The Group’s consolidated financial information as at and for the year ended December 2018 may not be directly comparable against the Group’s consolidated financial information on or after January 1, 2019. Investors must therefore exercise caution when making comparisons of any financial figures on or after January 1, 2019 against the Group’s consolidated financial figures prior to January 1, 2019 and when evaluating the Group’s financial position and performance.

The Company has not quantified or identified the impact of the differences between Taiwan IFRS and U.S. GAAP, see “Risk Factors — Risks Relating to the ROC — Financial reporting requirements and accounting standards in the ROC differ from those of other countries”.

The Company maintains its accounting records and prepares its financial statements in New Taiwan (“ NT ”) dollars. The United States (“ US ”) dollar amounts disclosed in the financial statements are presented solely for the convenience of the reader and were translated to US dollars at the rate of NT$ 28.48: US$1.00, the noon buying rate in effect as of Federal Reserve Board on March 31, 2021, as uniformly applied for all the financial statements accounts. Such translation amounts are unaudited and should not be construed as a representation that the NT dollar amounts represent, have been, or could in the future be converted into US dollars at that or any other rate.

Audited Consolidated Statement of Comprehensive Income

Operating revenue . . . . . . . . . . . . Operating costs . . . . . . . . . . . . . . Net operating margin . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . Operating profit . . . . . . . . . . . . . . .		For the Year Ended December 31, 2019 2020 NT$ NT$ US$ (unaudited) (in thousands, except per share data) 5,342,810,995 5,358,023,065 188,132,832 (5,026,942,570) (5,055,104,342) (177,496,641) 315,868,425 302,918,723 10,636,191 (30,129,101) (27,243,581) (956,587) (79,294,289) (70,737,182) (2,483,749) (91,548,149) (94,110,512) (3,304,442) (200,971,539) (192,091,275) (6,744,778) 114,896,886 110,827,448 3,891,413
	2018 NT$ 5,293,803,022 (4,961,773,118) 332,029,904 (32,690,093) (78,762,853) (84,430,083) (195,883,029) 136,146,875

			For the Year Ended	December 31,	December 31,
		2018	2019			2020
		NT$	NT$	NT$			US$
							(unaudited)
			_(in thousands, except _	_per share _	data)
Non-operating income
and expenses
Interest income . . . . . . . . . . . . . . .		60,400,627	75,819,336	47,934,352			1,683,088
Other income . . . . . . . . . . . . . . . . .		14,014,872	14,560,918	11,887,533			417,399
Other gains and losses . . . . . . . . .		(997,809)	5,567,450	7,314,465			256,828
Finance costs . . . . . . . . . . . . . . . . .		(55,544,836)	(66,600,696)	(40,317,013)			(1,415,625)
Share of profit of associates and
joint ventures accounted for
under equity method . . . . . . . . .		16,231,713	19,634,053	7,825,449			274,770
Total non-operating income
and expenses . . . . . . . . . . . . . . .		34,104,567	48,981,061	34,644,786			1,216,460
Profit before income tax . . . . . . .		170,251,442	163,877,947	145,472,234			5,107,873
Income tax expense . . . . . . . . . . . .		(40,416,017)	(31,692,859)	(31,146,647)			(1,093,632)
Profit for the year . . . . . . . . . . . .		129,835,425	132,185,088	114,325,587			4,014,241
Other comprehensive income
Components of other
comprehensive income (loss)
that will not be reclassified to
profit or loss
Remeasurement of defined
benefit plans . . . . . . . . . . . . . . . .		217,476	(7,404)	(47,626)			(1,672)
Unrealized (loss) gain on
valuation of financial assets at
fair value through other
comprehensive income . . . . . . .		(4,687,419)	4,720,616	19,999,225			702,220
Share of other comprehensive
(loss) income of associates and
joint ventures accounted for
using equity method . . . . . . . . .		(12,700,347)	3,028,377	497,658			17,474
Income tax related to
components of other
comprehensive (loss) income
that will not be reclassified to
profit or loss . . . . . . . . . . . . . . . .		(43,495)	1,481		9,525		334
Other comprehensive (loss)
income that will not be
reclassified to profit or loss . .		(17,213,785)	7,743,070	20,458,782			718,356
Components of other
comprehensive (loss) income
that will be reclassified to
profit or loss
Financial statements	translation
differences of foreign
operations . . . . . . . . . . . . . . . . . .		(11,603,077)	(51,266,536)	(15,380,879)			(540,059)
Share of other comprehensive
(loss) income of associates and
joint ventures accounted for
under equity method . . . . . . . . .		(121,619)	(1,096,843)	2,094,637			73,548
Other comprehensive (loss)
income that will be
reclassified to profit or loss . .		(11,724,696)	(52,363,379)	(13,286,242)			(466,511)
Other comprehensive (loss)
income for the year . . . . . . . . .		(28,938,481)	(44,620,309)	7,172,540			251,845
Total comprehensive income for
the year . . . . . . . . . . . . . . . . . . .		100,896,944	87,564,779	121,498,127			4,266,086

			For the Year Ended	December 31,
		2018	2019	2020
		NT$	NT$	NT$	US$
					(unaudited)
			_(in thousands, except _	per share data)
Profit attributable to:
Owners of the parent	. . . . . . . . . . .	129,065,105	115,308,736	101,794,807	3,574,256
Non-controlling interest . . . . . . . .		770,320	16,876,352	12,530,780	439,985
		129,835,425	132,185,088	114,325,587	4,014,241
Comprehensive income
attributable to:
Owners of the parent	. . . . . . . . . . .	103,120,437	74,706,141	112,236,799	3,940,899
Non-controlling interest . . . . . . . .		(2,223,493)	12,858,638	9,261,328	325,187
		100,896,944	87,564,779	121,498,127	4,266,086
Earnings per share (in dollars)
Basic earnings per share . . . . . . . .		8.03	8.32	7.34	0.26
Diluted earnings per	share . . . . . .	7.95	8.24	7.28	0.26

Audited Consolidated Balance Sheet

	As of December 31,	As of December 31,	As of December 31,
2018 NT$ 788,662,325 5,016,365 78,944,139 1,009,364,152 48,172,268 73,996,367 57,705,076 625,025,794 19,596,260 2,706,482,746 74,887,490 66,634,395 16,240,740 160,316,664 277,860,012 — 2,523,963 30,357,025 16,229,304 29,823,088 674,872,681 3,381,355,427 532,315,377 19,283,228 651,426 905,682,505 42,340,749 228,985,231 36,400,157 5,562,147 — 38,550,736 1,809,861,556	2019 2020 NT$ NT$ US$ (unaudited) (in thousands) 857,864,362 1,232,794,015 43,286,307 2,952,049 6,285,594 220,702 52,954,877 38,783,566 1,361,782 987,278,438 903,070,230 31,708,926 44,754,604 39,414,164 1,383,924 67,854,299 58,237,719 2,044,864 24,366,543 5,285,774 185,596 515,772,177 582,113,735 20,439,387 19,895,574 18,664,505 655,355 2,573,692,923 2,884,649,302 101,286,843 82,660,725 83,681,186 2,938,244 68,807,217 87,074,089 3,057,377 12,528,569 18,786,030 659,622 168,631,642 175,199,441 6,151,666 287,523,253 287,091,978 10,080,477 46,760,340 46,268,685 1,624,603 4,419,912 11,083,273 389,160 41,380,353 44,760,083 1,571,632 18,701,465 19,946,852 700,381 15,835,299 15,734,671 552,481 747,248,775 789,626,288 27,725,643 3,320,941,698 3,674,275,590 129,012,486 380,866,050 446,422,100 15,674,933 30,528,296 39,101,893 1,372,960 1,881,685 2,291,221 80,450 870,678,994 1,037,912,518 36,443,558 35,509,127 27,680,046 971,912 217,732,729 220,177,215 7,730,942 18,531,289 24,004,318 842,848 2,725,293 4,136,517 145,243 7,131,038 9,058,272 318,057 91,876,860 105,473,211 3,703,413 1,657,461,361 1,916,257,311 67,284,316	2020
			US$ (unaudited) 43,286,307 220,702 1,361,782 31,708,926 1,383,924 2,044,864 185,596 20,439,387 655,355
			101,286,843
			2,938,244 3,057,377 659,622 6,151,666 10,080,477 1,624,603 389,160 1,571,632 700,381 552,481
			27,725,643
			129,012,486
			15,674,933 1,372,960 80,450 36,443,558 971,912 7,730,942 842,848 145,243 318,057 3,703,413
			67,284,316

Non-current liabilities Financial liabilities at fair value through profit or loss-non-current . . . . . . . . . . . . . Corporate bonds payable . . . . . . . Long-term loans . . . . . . . . . . . . . . Provisions for liabilities — non-current . . . . . . . . . . . . . . . . . Deferred income tax liabilities . . Non-current lease liabilities . . . . Other non-current liabilities . . . . Total non-current liabilities . . . Total liabilities . . . . . . . . . . . . . . . Equity Equity attributable to owners of parent Share capital Common stock . . . . . . . . . . . . . . . . Capital reserve Capital surplus . . . . . . . . . . . . . . . . Retained earnings Legal reserve . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . Unappropriated retained earnings Other equity interest Other equity interest . . . . . . . . . . . Treasury stocks . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . . . . . . . . . . . . Non-controlling interest . . . . . . . Total equity . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . .		As of December 31, 2019 2020 NT$ NT$ US$ (unaudited) (in thousands) — — — 175,505,344 201,691,563 7,081,866 41,576,252 31,593,197 1,109,312 369,953 407,915 14,323 18,261,509 18,805,119 660,292 20,875,343 20,390,740 715,967 7,266,519 10,983,336 385,651 263,854,920 283,871,870 9,967,411 1,921,316,281 2,200,129,181 77,251,727 138,629,906 138,629,906 4,867,623 199,383,371 202,645,942 7,115,477 149,512,874 161,043,748 5,654,626 60,309,927 102,451,720 3,597,322 794,615,182 779,836,380 27,381,895 (102,451,720) (87,315,126) (3,065,840) (15,194) (15,194) (533) 1,239,984,346 1,297,277,376 45,550,470 159,641,071 176,869,033 6,210,289 1,399,625,417 1,474,146,409 51,760,759 3,320,941,698 3,674,275,590 129,012,486
	2018 NT$ 22,835 178,794,577 36,483,791 — 14,649,508 — 9,109,272 239,059,983 2,048,921,539 138,629,906 190,018,456 136,606,364 27,539,310 779,409,554 (60,309,927) (15,194) 1,211,878,469 120,555,419 1,332,433,888 3,381,355,427

Unaudited Consolidated Statement of Comprehensive Income

For the Three Months Ended March 31,

Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating margin . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income and expenses
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other gains and losses . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020
2021
NT$
NT$
US$
(unaudited)
(in thousands, except per share data)
929,133,122
1,347,112,823
47,300,310
(887,319,417) (1,268,980,278)
(44,556,892)
41,813,705
78,132,545
2,743,418
(5,317,386)
(7,883,901)
(276,822)
(15,035,999)
(18,820,414)
(660,829)
(16,935,217)
(23,858,634)
(837,733)
(37,288,602)
(50,562,949)
(1,775,384)
4,525,103
27,569,596
968,034
13,650,041
8,403,342
295,061
928,139
7,183,226
252,220
441,377
482,401
16,938
(12,259,616)
(6,747,233)
(236,911)

	For the Three	Months Ended March 31,	Months Ended March 31,
	2020	2021
	NT$	NT$	US$
		(unaudited)
	(in thousands, except per share data)
Share of profit of associates and joint ventures
accounted for under equity method . . . . . . . . . . . .	(1,386,624)	2,297,741		80,679
Total non-operating income and expenses . . . . . .	1,373,317	11,619,477		407,987
Profit before income tax . . . . . . . . . . . . . . . . . . . . . .	5,898,420	39,189,073	1,376,021
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . .	(3,748,209)	(8,209,821)	(288,266)
Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . .	2,150,211	30,979,252	1,087,755
Other comprehensive income
Components of other comprehensive income
(loss) that will not be reclassified to
profit or loss
Unrealized (loss) gain on valuation of financial
assets at fair value through other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(13,982,967)	7,203,475		252,931
Share of other comprehensive (loss) income of
associates and joint ventures accounted for
using equity method . . . . . . . . . . . . . . . . . . . . . . . .	(4,025,455)	5,296,271		185,964
Other comprehensive (loss) income that will not
be reclassified to profit or loss . . . . . . . . . . . . . .	(18,008,422)	12,499,746		438,895
Components of other comprehensive income
(loss) that will be reclassified to profit or loss
Financial statements translation differences of
foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . .	(12,232,021)	(2,180,487)		(76,562)
Share of other comprehensive loss of associates
and joint ventures accounted for under equity
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(1,607,757)	(4,002,504)	(104,537)
Other comprehensive loss that will be
reclassified to profit or loss . . . . . . . . . . . . . . . . .	(13,839,778)	(6,182,991)	(217,099)
Other comprehensive (loss) income for the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(31,848,200)	6,316,755		221,796
Total comprehensive (loss) income for the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	(29,697,989)	37,296,007	1,309,551
Profit attributable to:
Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . .	2,083,851	28,161,775		988,827
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . .	66,360	2,817,477		98,928
	2,150,211	30,979,252	1,087,755
Comprehensive income (loss) attributable to:
Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . .	(28,240,413)	34,211,928	1,201,262
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . .	(1,457,576)	3,084,079		108,289
	(29,697,989)	37,296,007	1,309,551
Earnings per share (in dollars)
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . .	0.15	2.03		0.07
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . .	0.15	2.02		0.07

	Unaudited Consolidated Balance Sheet Current assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . Financial assets at fair value through profit or loss — current . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial assets at amortised cost, net-current . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable — related parties . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables — related parties . . . . . . . . . . . . . Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current assets Financial assets at fair value through profit or loss — non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial assets at fair value through other comprehensive income -non-current . . . . . . . . . . . Financial assets at amortised cost, net — non-current . . . . . . . . . . . . . . . . . . . . . . . . . . Investments accounted for using equity method . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment property — net . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . Total non-current assets . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Short-term notes and bills payable . . . . . . . . . . . . . . Financial liabilities at fair value through profit or loss — current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable — related parties . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Provisions for liabilities — current . . . . . . . . . . . . . . Current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . Non-current liabilities Financial liabilities at fair value through profit or loss-non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds payable . . . . . . . . . . . . . . . . . . . . . . Long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions for liabilities — non-current . . . . . . . . . . Deferred income tax liabilities . . . . . . . . . . . . . . . . . Non-current lease liabilities . . . . . . . . . . . . . . . . . . . . Other non-current liabilities . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
		2020 NT$ 931,434,201 4,473,572 85,679,240 622,757,155 28,434,024 54,272,273 15,581,029 532,240,638 22,061,968 2,296,934,100 85,621,808 55,656,421 12,961,571 161,601,359 277,457,385 46,660,405 6,609,334 41,431,581 21,670,233 16,072,142 725,742,239 3,022,676,339 374,192,060 29,963,286 3,293,360 642,432,165 24,190,374 186,863,873 16,138,489 2,547,523 7,760,497 91,542,791 1,378,924,418 97,237 181,738,717 41,417,060 372,575 21,482,440 21,929,457 6,592,199 273,629,685 1,652,554,103
			NT$ (in thousands) (unaudited) 1,112,174,828 4,252,850 46,576,058 745,890,062 29,730,781 52,187,919 8,250,774 634,982,642 20,348,193 2,654,394,107 91,901,881 95,167,908 17,780,954 171,861,057 289,515,599 45,650,542 10,689,636 46,375,679 21,133,944 11,880,286 801,957,486 3,456,351,593 464,506,666 43,945,617 2,010,356 780,891,457 22,892,268 248,018,907 24,641,380 3,706,271 8,963,534 119,595,089 1,719,171,545 — 200,396,220 30,256,144 408,165 21,910,058 19,649,996 10,490,038 283,110,621 2,002,282,166

	Equity Equity attributable to owners of parent Share capital Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital reserve Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unappropriated retained earnings . . . . . . . . . . . . . . . Other equity interest Other equity interest . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . . . . . . . . . . . . . . . . .
		2020 NT$ 138,629,906 199,880,666 149,512,874 60,309,927 796,693,801 (132,776,068) (15,194) 1,212,235,912 157,886,324 1,370,122,236 3,022,676,339
			NT$ (in thousands) (unaudited) 138,629,906 200,484,799 161,043,748 102,451,720 752,676,042 (81,263,647) (15,194) 1,274,007,374 180,062,053 1,454,069,427 3,456,351,593

RISK FACTORS

Prior to making any investment decision, prospective investors should consider carefully all of the information contained in this Offering Circular, including the risks and uncertainties described below. The businesses, financial condition or results of operations of the Company could be materially adversely affected by any of these risks. Any potential investor in, and purchaser of, the Bonds should also pay particular attention to the fact that the Company and to a large extent its activities are governed by the legal, regulatory and business environments in the ROC and the PRC, which in some respects may be different from those which prevail in other jurisdictions. The Company believes that the following factors may affect its ability to fulfil its obligations under the Bonds. Additional considerations and uncertainties not presently known to the Company, or which the Company currently deems immaterial, may also have an adverse effect on an investment in the Bonds. All of these factors are contingencies that may or may not occur, and the Company is not in a position to express a view on the likelihood of any such contingency occurring.

Factors which the Company believes may be material for the purpose of assessing the market risks associated with an investment in the Bonds are also described below. The Company believes that the factors described below represent the principal risks inherent in investing in the Bonds, but the inability of the Company to repay principal, pay interest or other amounts or fulfil other obligations on or in connection with the Bonds may occur for other reasons and the Company does not represent that the statements below regarding the risks of holding the Bonds are exhaustive.

Risks Relating to our Industry and Business

Volatile global economic conditions may put downward pressure on demand for our products and services.

The global credit markets have experienced significant volatility in recent years, including due to the global financial and economic crisis, trade tensions (such as between the United States and the PRC), the novel coronavirus 2019 (“ COVID-19 ”) pandemic, the UK’s official exit from the European Union, or Brexit, and volatility in the PRC stock market, which have led to less favorable financial and economic conditions.

In particular, there have been recent escalations in trade tensions between the United States and the PRC. Such tensions have continued to put pressure on manufacturers and supply chains in light of tariffs and potential tariffs imposed both by the United States and PRC. Since July 2018, the imposition of tariffs by the United States on products from the PRC from July 2018, and retaliation by the PRC have caused even greater volatility in the global markets. Although “phase one” of an economic and trade agreement between the United States and the PRC went into effect in February 2020 as an initial step towards resolving the trade disputes between the two countries, the effect of such an agreement and the amicable resolution of such a trade war remains elusive, and the lasting impacts any trade war may have on the global economy and the industries that the Group operates in remain uncertain. For example, the computer, communication, and consumer electronics (“ 3C ”) and technology industry continues to face strong headwinds from the intensifying trade war between the United States and the PRC.

Moreover, U.S. export control laws may cause disruptions to the global supply chain, including for non-U.S. companies. Under U.S. export control laws, companies (including non-U.S. companies) purchasing, exporting, re-exporting, and/or transferring among others, any item in the United States, any U.S.-origin item wherever located, any foreign-made commodity that incorporates certain U.S.-origin commodities or that is bundled or commingled with certain U.S.-origin software, must comply with provisions in such U.S. export laws. For example, import tariffs were imposed by the United States in August 2018 on certain equipment used in semiconductor manufacturing and other types of devices manufactured by the Group in the PRC. On August 17, 2020, the U.S. Department of Commerce Bureau of Industry and Security published a final rule that amended the Final Direct Product Rule released on May 15, 2020 which tightened its export control measures against Huawei Technology Co. Ltd. and its affiliates (collectively, “ Huawei ”), including an expanded license requirement for providing Huawei with items subject to the U.S. export control jurisdiction. Manufacturing companies, which are involved in Huawei’s supply chain, may need to re-evaluate their direct and indirect business relationships, such as possibly suspending or terminating supply arrangements with certain customers, including Huawei, in order for them to comply with such laws. In April 2021, the U.S. Department of Commerce Bureau of Industry and Security added seven PRC supercomputing entities to export ban list, citing national

security concerns. In November 2020, the U.S. administration issued U.S. Executive Order 13959, which was subsequently amended in January 2021 and replaced by U.S. Executive Order 14032 in June 2021, prohibiting investments by any U.S. persons in publicly traded securities of certain Chinese companies that are deemed operating in China’s defense or surveillance technology sectors. Furthermore, measures adopted by an affected country to counteract the impact of another country’s actions or regulations could lead to significant legal liability to multinational corporations, including our own. For example, in January 2021, the PRC adopted a blocking statute that, among other matters, entitles Chinese entities incurring damages from a multinational’s compliance with foreign laws to seek civil remedies. In June 2021, the PRC adopted the Anti-Foreign Sanctions Law to provide a legal basis for China to adopt countermeasures against certain foreign sanctions. These may in turn have an impact on the Group’s business, reputation and results of operations.

While we have kept a close eye on the developments of the U.S.-PRC trade war, there remains considerable uncertainty as to the timeline and outcome of the trade negotiations between the United States and PRC, including due to the new administration in the United States since January 2021. Failure of trade negotiations between the United States and PRC or between the Group and its customers may lead to considerable additional costs and unexpected consequences on the Group’s business, which could, in turn, harm its business and growth prospects. Whilst relocating production may be a solution to mitigate the impact of tariffs, the assembly of electronic products requires great direct labor input, which means that relocating production overseas could affect the profit margin of such products. Furthermore, these volatile market conditions may continue to adversely affect the demand for 3C products. The potential sustained decrease and slowdown in demand for such products may inflict significant downward pressure on prices. As a result, the companies producing these products may reduce their orders with us or the prices with which these orders are placed. The reduced orders and prices may lead to reduced revenues, lower profit margins and/or loss of market share, any of which would have a material adverse effect on our business, reputation, financial condition and results of operations.

The ongoing COVID-19 pandemic and its global spread, especially the recent surge of COVID-19 cases in India and the ROC, continues to add more uncertainty and volatility in global markets, as it remains unknown when the ongoing situation will improve and whether any effective containment of the spread of the COVID-19, whether through vaccinations or otherwise, can be achieved. The ongoing COVID-19 pandemic has also resulted in increased travel restrictions and extended delay or suspension of some business activities on a global level. Although we have worked closely with the public health authorities and the local governments of the countries or regions where we operate and taken certain preventive measures to protect the health and safety of our employees, the COVID-19 pandemic still impacted on some of our overseas operations in India, Malaysia, Mexico, Vietnam, etc. Please refer to “— We are vulnerable to any force majeure events or natural disasters and other disruptive events that could severely disrupt the normal operation of our business and adversely affect earnings”. If the economies of the PRC, Europe, the United States or the Group’s other core markets recover at a slow rate, or experience a double-dip recession, the prospects of the 3C industry may be adversely affected, which may in turn have a material adverse effect on the Group’s business, financial condition and results of operations, such as the Group’s operations in India, Malaysia, Mexico, Vietnam, etc. However, even if the global economy experiences a full recovery, it cannot be assured that the demand for the Group’s products and services will increase, or even be maintained.

The Group is dependent on its key customers for a substantial portion of its revenues.

The Group is dependent on its key customers, such as Apple, Cisco, Dell, HP and Huawei, for a substantial portion of its total sales. The loss of these customers, or a reduction or delay in their orders would have a material adverse effect on the business, financial condition and results of operations of the Group.

The Group’s ability to maintain close relationships with its key customers is essential to its strategy and to the ongoing growth of its business. The Group has entered into corporate purchase agreements with certain of its key customers, but such agreements do not obligate the customers to place an order with the Group. The precise terms for each shipment, such as pricing and quantities, are normally confirmed at the time each order is placed.

In addition, the Group generates significant accounts receivable in connection with providing manufacturing services to its key customers. If our customers were to become insolvent or otherwise were unable to pay for the manufacturing services provided by us, this could have a material adverse

effect on our business, financial condition, results of operations and future prospects and could cause the price of the Bonds and the Common Shares to decline.

Our business is dependent on the 3C industries.

Substantially all of our products and services, whether in the form of components, modules or full system assembly, have end-use applications in the 3C industries. Our products and services can be further categorized as smart consumer electronics, cloud and network products, computing products and components and others. Accordingly, our financial performance is dependent upon the continued growth of the 3C industries. These industries have historically been characterized by rapid technological changes and short product life cycles. In recent years, there have been significant shifts in demand for 3C products. Continuing adverse market conditions may lead our customers to implement cost-cutting strategies such as consolidating with other manufacturers, reducing production and increasing price pressure on suppliers.

As a result of the foregoing, any loss of certain key customers, decline in sales, or decline in operating margins could have a material adverse effect on the business, financial condition, results of operations and future prospects of the Group and could cause the price of the Bonds and the Common Shares to decline.

The Group operates in a highly competitive industry.

The markets for the Group’s products are highly competitive with intense pressure on prices and margins for its products. The Group competes against many manufacturers, certain of which may have better research and development capabilities, greater global logistics, financial, marketing and other resources than the Group. Furthermore, certain PRC manufacturers and suppliers have substantially expanded their manufacturing capacities and advanced their technologies and deepened their relations with clients, stiffening competition in the industry. Current and prospective customers of the Group also evaluate the Group’s capabilities against the merits of manufacturing products internally.

There can be no assurance that the Group will be able to compete successfully in these markets and failure to do so could have a material adverse effect on the business, financial condition, results of operations and future prospects of the Group and could cause the price of the Bonds and the Common Shares to fall. See “Business — Competition”.

Our overall margins may fluctuate as a result of the product mix manufactured by the Group.

Our overall margins may fluctuate due to the fact that our products are mixed manufactured. For example, if we generate a greater proportion of our revenues from the sales of systems, which typically generate higher revenues but lower margins compared to components or modules, our overall margins may decline accordingly. In addition, the gross margin of any given product of the Group could depend on the product’s end market, total volume manufactured, complexity of manufacturing processes, stage of lifecycle, maturity of technology, and other factors. As a result, a change in product mix may decrease the gross margins and operating margins of the Group, which could have a material adverse effect on the business, financial condition, results of operations and future prospects of the Group and could cause the price of the Bonds and the Common Shares to fall.

Risks associated with the political and economic situation in Hong Kong and the PRC.

On July 1, 1997, Hong Kong became a Special Administrative Region of the PRC. Although Hong Kong has thus far enjoyed a high degree of legislative, judicial and economic autonomy since the handover, there can be no assurance that there will not be a change in regulatory oversight as a consequence of the change of PRC policies over Hong Kong or, should such change occur, our business, financial condition and the results of its operations will not be adversely affected.

In 2019, the anti-extradition bill protests and disruption to businesses and transportation in various parts of Hong Kong caused a decrease in consumer spending and had affected inbound tourism to Hong Kong, which in turn had a negative impact on the Hong Kong economy. Civil unrest is outside the control of the Group and there can be no assurance that further large-scale protests will not occur in the future or as to the authorities’ reactions to any such protests if they recur and the effect on the stability of the political and economic conditions in the region.

On June 30, 2020, the Standing Committee of the National People’s Congress of the PRC passed the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (the “ Hong Kong National Security Law ”). The Hong Kong National Security Law took effect on June 30, 2020. The Government of the Hong Kong Special Administrative Region stated in a press release that the purposes of the Hong Kong National Security Law are to prevent, curb and punish specific crimes threatening national security, maintain prosperity and stability of Hong Kong and to protect the lawful rights and interests of residents of Hong Kong. On July 14, 2020, the U.S. President signed into law the Hong Kong Autonomy Act (the “ Autonomy Act ”), which authorizes the U.S. President to impose sanctions on non-U.S. persons, entities, and financial institutions relating to the situation in Hong Kong. The same day, the U.S. President issued Executive Order 13936, The President’s Executive Order on Hong Kong Normalization (“ EO 13936 ”), declaring a U.S. national emergency relating to the situation in Hong Kong, authorizing new Hong Kong related sanctions, and normalizing aspects of the U.S. relationship with Hong Kong. Under EO 13936, among other things, existing license exceptions and preferential status for Hong Kong under relevant U.S. export control laws and regulations are revoked. Any economic sanctions imposed under the Autonomy Act or EO 13936, trade-related restrictions under EO 13936, and other sanctions may have an impact on our operations, including technological innovation. The United States has imposed sanctions on and suspended collaborations with a number of Chinese companies and universities by including these entities in the Entity List and the Unverified List of the Bureau of Industry and Security of the U.S. Department of Commerce. If U.S.China relations continue to deteriorate, there is a possibility that sanctions could be imposed on our business partners in the future. Any sanctions, damages, costs, obligations or liabilities in respect of these matters could have a material adverse effect on our business, reputation and/or the results of our operations and financial condition.

Certain foreign governments and organizations have also taken actions in response to or expressed concern regarding the enactment of the Hong Kong National Security Law and related legislations (including those related to the Hong Kong electoral system), and there is a risk that actions that have been or may be taken will have a detrimental effect, either directly or indirectly, on Hong Kong. At this stage, it is difficult to predict whether any trade restrictions and sanctions will adversely affect our business, reputation, financial condition and results of operations.

FIH Mobile Limited (Stock Code: 2038) (“ FIH Mobile ”) and FIT Hon Teng Limited (Stock Code: 6088) (“ FIT Hon Teng ”) are both consolidated subsidiaries of the Company that are listed on The Stock Exchange of Hong Kong Limited. Foxconn Industrial Internet Co., Ltd (Stock Code: 601138) (“ Fii ”), another consolidated subsidiary of the Company, is listed on the Shanghai Stock Exchange. Accordingly, our operations and performance may be affected by the prevailing general political and economic circumstances in Hong Kong and the PRC. Future political or economic instability or volatility or a sustained slowdown in domestic economic activities, may affect the Hong Kong stock market and the general economy and consequently, the value of our investments in this segment and in turn, our business, performance, financial condition and results of operations may be adversely affected.

We may not be able to develop successfully new production processes and new products and enter into new industries.

We are continually evaluating new products and production processes and seeking potential opportunities to enter into new industries to diversify our business. We believe that our future success will depend in part upon our ability to develop new production processes and to develop and market new products which meet evolving customers’ needs, maintain technological leadership and successfully anticipate or respond to technological changes in production processes in a cost-effective manner and on a timely basis. Moreover, our ability to take the lead in and secure a key position in new emerging industries, such as electronic vehicles (“ EV ”), digital health, robotics artificial intelligence (“ AI ”), semiconductor and new generation communication, will have a significant impact on our long-term business growth. The Group has co-operated and intends to continue co-operating with 3C industry leaders and to continue engaging in and funding research and development activities to keep pace with market developments and remain competitive. There can be no assurance that we will be successful in developing new production processes and new products and entering into new industries. Furthermore, while we are committed to developing the three industries of EV, digital health and robotics and three applications across AI, semiconductor and new generation communication, there is no guarantee that our investments in these industries may succeed. Failure to do so could have a material adverse effect on our business, financial condition, results of operations, reputation and future prospects and could cause the price of the Bonds and the Common Shares to fall.

The markets in which our customers compete are characterized by rapidly changing technology, innovation, evolving industry standards and continuous improvements in products and services. These conditions frequently result in short product life cycles. Our success is highly dependent on the success achieved by our customers in developing and marketing their products. If technologies or standards supported by our customers become obsolete or fail to gain widespread commercial acceptance, this could have a material adverse effect on our business, financial condition, results of operations and future prospects.

The Group generally does not obtain long-term volume purchase commitments from customers, and therefore, cancelations, reductions in production quantities and delays in production by customers could adversely affect the Group’s operating results.

The Group generally does not obtain firm, long-term purchase commitments from customers. See “Business — Sales and Marketing”. Some of our customers have in the past experienced and may in the future experience significant decreases in demand for their products and services. The uncertain economic conditions in several of the markets in which our customers operate have prompted and may prompt some of the customers to cancel orders, delay the delivery of some of the products that the Group manufactures or place purchase orders for fewer products than the Group previously anticipated.

Cancelations, reductions or delay of orders by customers may:

adversely affect our operating results by reducing the volumes of products that the Group manufactures for its customers;
delay or eliminate recoupment of our expenditures for inventory purchased in preparation for customer orders; and
lower our asset utilization, which would affect our results of operations.

We are subject to risks arising from international operations.

We conduct our international operations in Asia, Europe and Americas, and we continue to consider additional opportunities to make foreign acquisitions and construct new foreign facilities. As a result of our international operations, we are affected by economic and political conditions in foreign countries, including the imposition of government controls, political and economic instability, trade restrictions, changes in tariffs, laws and policies affecting trade and investment, the lack of development of local infrastructure, labor unrest and difficulties in staffing, coordinating communications among and managing international operations, fluctuations in currency exchange rates, earnings expatriation restrictions, difficulties in obtaining export licenses, and misappropriation of intellectual property.

For example, the PRC is in the process of drafting its own export control laws. The Export Control Law of the PRC, has been adopted at the 22nd Session of the Standing Committee of the Thirteenth National People’s Congress of the People’s Republic of China on October 17, 2020, and has come into force on December 1, 2020. While the scope of such export control laws and regulations is still currently in discussion, we may have to reorganize our operations to comply with such laws and regulations nor is there any guarantee that we may be able to respond to such laws and regulations in a timely fashion. Additionally, to respond to customer requirements, we may further expand internationally. If we pursue expansion in these locations, we may incur additional capital expenditures and experience higher labor costs in these locations. We cannot assure investors that we will realize the anticipated strategic benefits of our international operations or that our international operations will contribute positively to, and not adversely affect, our business and operating results.

The Group may be exposed to risks as a result of strategic acquisitions, joint ventures, reorganization, investments or business cooperation arrangements.

The Group has made, and will continue to consider making strategic acquisitions, investments or entering into joint ventures or business cooperation arrangements to expand or enhance its business. We may also reorganize the Company or its operations. In November, 2020, the Company set up Foxtron Vehicle Technologies Co. Ltd., a 51% owned joint venture with Hua-Chuang Automobile Information Technical Center Co., Ltd. (“ Haitec ”) to develop an automobile related business. On September 28, 2020, the Company announced that it entered into a strategic alliance agreement with Yageo Group to co-develop

key electronic components and share research and development resources to serve the need of the Group’s global end customers. In addition, the Company has recently announced several investments in the semiconductor industry. For example, on May 5, 2021, the Company announced that it would form a joint venture named Xsemi with Yageo Group to facilitate the development of our semiconductor business. On June 10, 2021, the Company announced that its subsidiary Foxconn Singapore Pte Ltd had acquired the shares of Dagang NeXchange Berhad. On June 15, 2021, the Company’s wholly owned subsidiary Hyield Venture Capital Co., Ltd. participated in a private placement launched by Giga Solar Materials Corporation.

The Company has also recently announced several strategic business ventures in the automotive industry. For example, on January 13, 2021, the Company announced that its wholly owned subsidiary, FuTaiHua Industrial (ShenZhen) Limited, signed a strategic cooperation agreement with Zhejiang Geely Holding Group to set up a joint venture company to provide customized consulting services relating to vehicles, automotive parts, intelligent drive systems and automotive ecosystem platforms to global automotive enterprises and ridesharing companies. On February 24, 2021, the Company announced that it has entered into a memorandum of understanding with Fisker Inc. to develop EV and on May 13, 2021, the Company and Fisker Group Inc. entered into framework agreements supporting Project “PEAR” (or Personal Electric Automotive Revolution), a program to develop EV. On May 18, 2021, Stellantis NV, the Company and FIH Mobile announced the signing of a non-binding memorandum of understanding to form Mobile Drive, a 50/50 joint venture aimed at improving in-vehicle user experiences by utilizing advanced consumer electronics, human-machine interfaces and services. On May 31, 2021, the Company and PTT Public Company Limited announced the signing of a memorandum of understanding to set up an open platform for producing EV and key components to serve the EV sector in Thailand.

Strategic acquisitions, joint ventures, reorganization, investments or business cooperation arrangements in the EV and semiconductor industry may divert our management’s time and resources from our normal daily operations, disrupt our ongoing businesses and strain our liquidity and capital resources. In addition, our success in our expansion into the EV and semiconductor industry depends on our ability to succeed in the relevant legal, regulatory, economic, environmental, social and political conditions which we have little control over. If we fail to develop and implement policies and strategies that will be effective in EV and semiconductor industry, our business, financial condition and results of operations would be materially and adversely affected.

Additionally, on September 4, 2020, the Company announced that it will enter into a share swap for shares in Far EasTone Telecommunications Co. Ltd. (“ FET ”), such that for every one common share in Asia Pacific Telecom Co., Ltd. (“ APT ”, TWSE Stock Code: 3682) owned by the Company, it will be exchanged for 0.1551447 newly issued common shares by FET (the “ Share Swap ”). The total number of underlying APT common shares to be exchanged for in the Share Swap is 527,524,409 common shares, such that after the completion of the Share Swap, the Company will acquire 81,842,616 common shares in FET. The Share Swap is expected to be completed on June 30, 2022, subject to the satisfaction of all conditions precedent in the agreement for the Share Swap and obtaining the required regulatory approvals. There is no assurance that the Share Swap will close at the expected timeframe, or at all.

It cannot be assured that the Group will be able to (1) identify future strategic acquisitions, investments or business cooperation arrangements, (2) consummate or implement these potential acquisitions, investments and business cooperation arrangements on favorable terms, if at all, or (3) if consummated or implemented, successfully integrate the operations and management of future acquisitions, investments and business cooperation arrangements. Such acquisitions, investments, joint ventures, business cooperation arrangements and reorganization involve significant risks, which could have a material adverse effect on the Group, including:

Financial risks, such as (1) the payment of a purchase price that exceeds the future value that the Group may realize from the acquired operations and businesses; (2) an increase in the Group’s expenses and working capital requirements, which could reduce the Group’s return on invested capital; (3) potential known and unknown liabilities of the acquired businesses, particularly where the acquired business is loss-making; (4) costs associated with integrating acquired operations and businesses; (5) the dilutive effect of the issuance of additional equity securities; (6) the incurrence of additional debt; (7) the financial impact of valuing goodwill and other intangible assets involved in any acquisitions, potential future impairment write-downs of goodwill and indefinite life intangibles and the amortization of other intangible assets; (8) possible adverse tax and accounting effects; (9) special risks associated with joint ventures or problems with joint venture partners,

including, among other things, dissimilar business interests or one or more of the partners experiencing financial difficulties, and (10) the risk that the Group may spend substantial amounts on any such acquisition and as a result assume significant contractual and other obligations with no guaranteed levels of revenue or that the Group may have to exit at loss.

Operating risks, such as (1) the diversion of management’s attention to the assimilation of the businesses to be acquired; (2) the risk that the acquired businesses will fail to maintain the quality of services that the Group has historically provided; (3) the need to integrate or implement financial and other systems and add management resources; (4) the need to maintain customer, supplier or other favorable business relationships of acquired operations and restructure or terminate unfavorable relationships; (5) the potential for deficiencies in internal controls of the acquired operations; (6) the Group may not be able to attract and retain the employees necessary to support the acquired businesses; (7) unforeseen difficulties (including any unanticipated liabilities) in the acquired operations; and (8) the impact on the Group of any unionized work force it may acquire or any labor disruptions that might occur.

Any future strategic acquisitions, joint ventures, reorganization, investments or business cooperation arrangements may not be successful, may harm the Group’s reputation and business, may not benefit the Group’s business strategy, may not generate sufficient revenues to offset the associated acquisition costs and additional operating expenses or may not otherwise result in the intended benefits. See “— Negative publicity may have a material adverse effect on our business”.

We are vulnerable to any force majeure events or natural disasters and other disruptive events that could severely disrupt the normal operation of our business and adversely affect earnings.

Many places in the world have in the past experienced and/or are currently experiencing outbreaks or pandemic of contagious diseases, such as severe acute respiratory syndrome, avian flu or COVID-19, which may potentially result in travel restrictions, quarantine of infected employees and related persons and/or other measures, and if uncontrolled, may materially affect our operations at one or more of our facilities. We cannot predict the impact of any future outbreak or pandemic could have on our business and results of operations.

The ongoing COVID-19 pandemic has resulted in restrictions on travel and public transport and prolonged closures of workplaces. For example, in February 2020, we had shut certain major factories in China due to the outbreak of COVID-19 in China. In May 2021, we implemented certain employee contact control policies, including working in shifts, in different areas and from home and other social distancing policies in response to the surge of COVID-19 cases in the ROC. The severity, magnitude and duration of the COVID-19 pandemic, the public health responses and its economic consequences, as well as the availability of effective treatments and vaccines and impact of variants of the virus, remain uncertain, rapidly changing and difficult to predict. The pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategies and initiatives, also remains uncertain and difficult to predict.

In particular, the COVID-19 pandemic and related public health responses has adversely affected our business and results of operations in several ways, including but not limited to interruption of the operations of global supply chains and those of our suppliers, creating downward pressure on demand from our customers and production delays in our products due to mandatory closures of our production facilities. In addition, our production operations require adequate supplies of key components and raw materials, such as chips and copper, on a timely basis and at commercially reasonable prices. The COVID-19 pandemic affecting the countries or regions of origin or processing of such key components and raw materials may significantly disrupt the availability of such key components and raw materials or increase their prices. Our revenue and earnings could decline if we are unable to obtain adequate supplies of the necessary key components and raw materials in a timely manner or if there are significant increases in the costs of key components and raw materials.

Continuation or escalation of the COVID-19 pandemic may have a material adverse effect on the global economy and on the Group’s operations and business. For example, the number of reported COVID-19 cases in India has increased significantly since the end of March 2021 and the number of reported COVID-19 cases in Malaysia, Mexico, the ROC and Vietnam continued to grow since April 2021. If the COVID-19 cases in India, Malaysia, Mexico, the ROC, Vietnam and other countries or regions where we operate continue to grow, the manufacturing capacity of our factories in these areas could be materially

and adversely affected. In addition, we have worked closely with the public health authorities and the local governments of the countries or regions where we operate and taken certain preventive measures, including disinfection routines, self-quarantine, mandatory hygienic practices, safe distancing in the workplace and establishing an epidemic management team to protect the health and safety of our employees and to closely monitor and respond to the pandemic. As the pandemic is still ongoing and may worsen, there is significant uncertainty surrounding its developments and impact, including whether the current epidemic or continued spread of COVID-19 will cause an economic slowdown or a global recession. Further, the COVID-19 pandemic has caused us to modify our business practices, including but not limited to health management of employees, customers and suppliers, management of production inventory, and supply chain risk management. There can be no assurance that such preventive measures will be sufficient to mitigate the risks posed by COVID-19 or other epidemics in the future, and our ability to perform critical functions could be adversely affected, which could in turn materially and adversely affect our business, financial condition and results of operations. In addition, if any of our employees are affected by a severe communicable disease, it could adversely affect or disrupt production levels and operations at the relevant production facilities (including the closure of our production facilities to prevent the spread of the disease) and materially and adversely affect our business, financial condition and results of operations. The spread of any severe communicable disease in the PRC or elsewhere may also affect the operations of our customers and suppliers, which could materially and adversely affect us.

Any force majeure events, including the outbreak, or threatened outbreak, of any severe communicable disease (such as severe acute respiratory syndrome or avian influenza) in the PRC could also materially and adversely affect the overall business sentiment and environment in the PRC, particularly if such outbreak is inadequately controlled. This, in turn, could materially and adversely affect domestic consumption, labor supply and, possibly, the overall gross domestic product (“ GDP ”) growth of the PRC. A portion of our revenue is currently derived from our PRC operations, and any labor shortages on a contraction or slowdown in the growth of domestic consumption in the PRC could materially and adversely affect our business, financial condition and results of operations.

Additionally, certain areas in the ROC and the PRC are susceptible to droughts, earthquakes, typhoons and floods. Some earthquakes and floods in recent years caused damage to production facilities and adversely affected the operations of many companies. Although we did not experience significant structural damage to the facilities, there can be no assurance that future earthquakes and floods will not occur and result in major damage to the facilities, which could have a material adverse effect on our results of operations. Our major production facilities, as well as many of our suppliers and customers, are located in the ROC and the PRC. If the customers are affected by any droughts, earthquakes, typhoons, floods or other natural disasters, demand for our products could decline. If the suppliers are affected, our production schedule could be interrupted or delayed. For example, since early 2021, the ROC has experienced drought that has adversely impacted and may continuously adversely impact, directly or indirectly, our production capability and the supply of key components and/or raw materials in the ROC (and potentially elsewhere) because the Group’s and its suppliers’ manufacturing process requires water. Moreover, in July 2021, certain regions of the PRC (including those where the Group currently operates, such as Zhengzhou) were impacted by major flooding caused by heavy rainfall. Such natural disasters may result in a severe disruption of our operations and we may not be able to reallocate resources or relocate its operations in a timely manner in response to the disruption of operations. As a result, a major drought, earthquake, typhoon, flood, natural disaster, climate change or other disruptive events in the ROC, the PRC or elsewhere could severely disrupt the normal operations of our business and have a material adverse effect on the financial condition and results of operations. Similarly, acts of terrorism, wars, threats of war, social unrest and the corresponding heightened travel security measures instituted in response to such events, as well as geopolitical uncertainty and international conflict and tension, could affect economic development and the stability of the global economy, which in turn, could have a material adverse effect on the business, financial condition and results of operations of the Group. In addition, we may not be adequately prepared in terms of contingency planning or have recovery capabilities in place to deal with a major incident or crisis. As a result, operational continuity of the Group may be materially and adversely affected, and our reputation may be negatively impacted.

Our profitability and results of operations could be materially and adversely affected by increases in labor costs and changes in labor laws and regulations.

A large majority of our workforce is employed in the PRC. The average wages paid for manufacturing labor in the PRC have increased recently and may continue to increase as a result of the enactment of new

labor laws and social development. The enactment of labor laws and regulations may further impose liabilities on employers and stipulate stricter requirements in terms of signing labor contracts, paying remuneration and dissolving labor contracts. In addition, there has been a growing shortage of workers in the PRC who are willing to work in factories. These may put upward pressure on wages, increase our operating costs and expenses and lower the cost competitiveness of our operations in the PRC.

If we are unable to offset the increase in labor costs, or pass along these increased labor costs to our customers, our profitability and results of operations could be materially and adversely affected.

The Group’s success depends on its ability to retain and attract its key and qualified personnel.

We are highly dependent on principal members of our management staff. The loss of the services of some of these key management staff could have a material adverse effect on our business, results of operations and future prospects and could cause the price of the Bonds or the Common Shares to fall. For instance, on June 21, 2019, the Company’s founder, Mr. Gou Tai-Ming retired as Chairman of the Board of Directors and General Manager of the Company with effect from June 21, 2019. We do not maintain insurance with respect to the loss of any of our key personnel.

Our success also depends to a significant extent upon, among other factors, the continued service of our skilled technical, managerial and sales personnel and on our ability to continue to attract, retain and motivate such personnel. The loss of the services of any of these key personnel without adequate replacement or the inability to attract new qualified personnel could have a material adverse effect on our business, financial condition, results of operations and future prospects and could cause the price of the Bonds and the Common Shares to fall.

The Group may not be able to effectively manage its rapid expansion.

The Group has significantly expanded its production in recent years and, in conjunction with the execution of its strategy, expects to continue to expand its production in terms of geography, industry, customers and end-user products. To manage its growth, the Group must continue to improve its managerial, technical, operational and other resources, and to implement an effective management information system. In order to fund our ongoing operations, research and development and our future growth, the Group needs to have sufficient internal sources of liquidity or access to additional financing from external sources. For example, in October 2020, certain subsidiaries of the Group issued medium term notes, which were guaranteed by the Company. Further, the Group will be required to manage relationships with a greater number of customers, suppliers, equipment vendors and other third parties. There can be no assurance that the Group will not experience issues, such as shortages of raw materials and components, capacity constraints, construction delays, difficulties in ramping up production at new facilities or upgrading or expanding existing facilities and training an increasing number of personnel to manage and operate those facilities. In particular, failure of the Group to implement its expansion plans in a timely manner could adversely affect its ability to maintain, expand and diversify its customer base and to maintain the quality of its production. There can be no assurance that such expansion plans will not adversely affect our existing operations, which could have a material adverse effect on our business, financial condition, results of operations and future prospects and could cause the price of the Bonds and the Common Shares to fall.

We may incur high costs in our expansion into new businesses.

As we continually expand the supply of new products and services, we expect to incur higher costs, including research and development costs, as we scale the “learning curve” in these new products and services. These new products and services may require expertise that we are still building up, and higher costs may be incurred due to efforts to gather the required expertise and capabilities. These higher costs may result in lower profit margins for the Group, which in turn may adversely affect our business, financial condition, results of operations and prospects. In addition, there is no guarantee that we will be successful in expanding into these new businesses.

Raw materials and components shortages may adversely affect the Group.

The Group purchases certain of its key components and raw materials from certain suppliers which the Group believes currently satisfy the Group’s quality standards and can meet our volume requirements. However, the capacity of certain of these suppliers may not be equipped to cope with increases in orders

by the Group. COVID-19 pandemic occurring within the country or region of these suppliers may significantly disrupt the availability of such key components and raw materials or increase their prices. Our revenue and earnings could decline if we are unable to obtain adequate supplies of the key components and raw materials in a timely manner or if there are significant increases in the costs of key components and raw materials.

The Group is also required, in certain circumstances, to source certain key components from suppliers who have been qualified by its customers, and the Group may not be able to obtain satisfactory alternative sources of supply should such qualified suppliers be unable to supply the Group’s requirements in the future. There can be no assurance that shortages of supply will not occur in the future and that, if such shortages occur, the Group will be able to obtain an adequate alternative supply of components and raw materials to meet production demand.

Principal shareholder’s interests may differ from those of other shareholders.

As of April 25, 2021, Mr. Gou Tai-Ming directly or indirectly owned or controlled in aggregate 9.68 per cent. of the Company’s outstanding shares. Whilst Mr. Gou Tai-Ming has retired as Chairman of the Board of Directors and General Manager of the Company with effect from June 22, 2019, as a principal shareholder and member of the Board of Directors, he has significant influence on certain of our decisions and transactions. We cannot assure that Mr. Gou Tai-Ming, in his capacity as a principal shareholder and member of the Board of Directors, will not cause us to enter into transactions or take, or fail to take, other actions or make decisions that conflict with the interests of the holders of the Bonds.

We may be subject to increased taxes.

As our overseas operations continue to expand, we may become subject to further taxation as a result of our overseas business in the future. Taxation by these and other overseas tax authorities could increase our effective tax rate, and there can be no assurance that such taxation would not adversely affect the cash flow and results of our operations in the future. In addition, the tax rates applicable to us could be rescinded or changed. In order to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment, a lot of countries and jurisdictions have been working with OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“ BEPS ”). In June 2021, the finance ministers of the G7 nations gave further support to the OECD’s “Programme of Work” by announcing an agreement on the principles of the two pillar solution to tackle the challenges of taxing a digitalized economy. Pillar One focused on the allocation of group profits among taxing jurisdictions based on a market-based concept, rather than the historical “permanent establishment” concept. Pillar Two, among other things, introduced a global minimum tax rate of at least 15% (determined on a country by country basis). Following the G7 announcement, the OECD/G20 Inclusive Framework announced on July 1, 2021 broad agreement on the two pillars. However, the ultimate impact of the proposals remains subject to agreement on certain design elements of the two pillars which the OECD/G20 Inclusive Framework aims to complete by October 2021. The OECD/G20 Inclusive Framework will work towards an agreement and the release of an implementation plan, which will contemplate bringing Pillar Two into law in 2022 with an effective date in 2023. In addition, the Cayman Islands introduced an Economic Substance Law effective from January 1, 2019 that requires an increased level of substance to be maintained in the Cayman Islands for all companies that fall within the new regime. Similar new laws have been introduced in The Bahamas, the British Virgin Islands and other similar offshore jurisdictions. As we are a multinational corporation with many offshore entities incorporated in these jurisdictions, BEPS and the proposals would have a significant impact on our global tax strategies and we may need to restructure the business to be in compliance with these new laws, which in turn may result in an increase in our tax expenses. We may also be required to reorganize our operations should there be a change in tax policies in view of the increase in our tax expenses and operating cost. There is no assurance that we may be able to respond in a timely manner which could then have a material adverse impact on our financial condition and results of operation, nor is there any assurance that such reorganization may succeed.

We may be involved in intellectual property disputes, especially in the new industries that we recently entered into.

From time to time, we receive communications from third parties asserting patent rights to our products and we enter into discussions with such third parties as to their respective positions and the terms of any possible licenses in respect of such patent rights. For example, in March 2019, Microsoft Corporation and Microsoft Licensing, GP commenced proceedings in California against the Company over a dispute

regarding royalty payments under a patent licensing agreement. While this dispute had reached a settlement in September 2020, we may still from time to time encounter future litigation initiated by our customers or third parties based on claims that our technologies, processes or products infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others, especially in the new industries that we recently entered into. We may also initiate lawsuits to defend the ownership of our inventions and our trade secrets. It is difficult, if not impossible, to predict how such disputes would be resolved. Litigation relating to intellectual property rights is costly and diverts technical and management personnel from their normal responsibilities. Furthermore, we may not be able to prevail in any such litigation or proceeding. A determination in an intellectual property litigation or proceeding that results in a finding of non-infringement by others to our intellectual property or an invalidation of our patents may result in the use by competitors of our technologies or processes and sale by competitors of products that resemble our products.

Although we actively seek to protect the intellectual property rights for our products and our internal know-how, there can be no assurance that claims will not be brought by our customers or third parties against us, our customers or our suppliers from time to time. If a claim is asserted, we cannot assure that any resolution of the claim would permit us to continue to use the technologies or processes or produce the product in question on commercially reasonable terms. Any adverse outcome from such litigation, or the time and cost of the proceedings themselves, could materially and adversely affect our business, financial condition, results of operation and future prospects and could cause the price of the Bonds and the Common Shares to fall. In addition, there is a risk that some of our confidential information could be compromised by disclosure during intellectual property litigation. Furthermore, there could be public announcements throughout the course of intellectual property litigation or proceedings as to the results of hearings, motions or other interim proceedings or developments in the litigation, any of which could materially harm our reputation. See “Business — Intellectual Property” and “— Litigation”.

Our trade secrets, patents and other non-patented intellectual property are valuable assets, and if we are unable to protect them from infringement, our business prospects may be harmed.

Our success will depend in part on our ability to obtain and maintain trade secret and patent protection for our technologies, know-how, processes and products as well as to successfully enforce our intellectual properties and to defend our intellectual properties against third-party challenges. We will only be able to protect our technologies, processes and products from unauthorized use by third parties to the extent that valid and enforceable intellectual property protections cover them. In the event that our issued patents and our applications do not adequately describe, enable or otherwise provide coverage for our technologies, processes or products, we would not be able to exclude others from developing or commercializing these technologies, processes and products. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means may only provide limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage.

As some of our technologies and production methods or processes involve unpatented, proprietary technology, processes, know-how or data, we also rely on trade secret protection and agreements to safeguard our interests. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, including requiring our employees, contractors or scientific and other advisors to enter into confidentiality agreements with us, such persons may unintentionally or willfully disclose our information to competitors. In addition, confidentiality agreements may not be enforceable or provide an adequate remedy in the event of unauthorized use or disclosure. It may be difficult to prove or enforce a claim that a third party had illegally obtained and used our trade secrets. Our enforcement efforts would be expensive and time consuming and the outcome would be unpredictable. In addition, our competitors may independently develop technologies that are equivalent to our trade secrets, in which case, we would not be entitled to enforce our trade secrets and our business could be harmed.

We may experience losses on inventories.

We have purchased property damage and transportation insurance coverage from independent third party insurers to cover our inventories, including finished goods delivered to, and stored in, our hubs as part of our global logistics delivery network. Our insurance policies have a maximum coverage limit. Although we can raise the maximum coverage limit of our insurance policies by providing notice to our insurers, any delay in notification to the insurers of an increase in our inventory level or a new inventory storage location could result in us being under-insured.

In addition, price fluctuations in our raw materials, components and finalized goods could also result in a decline in the net realizable value of our inventory, which may require inventory write-downs. If there is a shortage of raw materials or components, the prices of such raw materials or components may increase, which could have an adverse effect on our profit margin to the extent it is not able to pass along these higher costs to our customers.

We are subject to operational risks.

The operation of manufacturing facilities involves many risks and hazards, including fire, the breakdown, failure or substandard performance of equipment, delays in delivery of equipment or improper installation or operation of equipment, difficulties in upgrading or expanding existing facilities in changing manufacturing line technologies, capacity constraints, labor disturbances, natural disasters such as earthquakes, floods, droughts or typhoons, environmental hazards and industrial accidents. We generally do not maintain any business interruption insurance. The occurrence of any such or other problems could materially and adversely affect our manufacturing plants and cause delivery delays and reduced output, which would have a material and adverse effect on our business, financial condition and results of operations.

Our production facilities are subject to risks of water and power shortages.

Our production facilities consume substantial amounts of water and power in manufacturing processes. Any water or power shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and as a result, could have a material adverse impact on our business, financial condition and results of operations. For example, many cities and provinces in the PRC have historically suffered serious power shortages. Many of the regional grids do not have sufficient power generating capacity to fully satisfy the increased demand for electricity which have been driven by continual economic growth and persistent hot weather. Local governments have required local factories to temporarily shut down their operations, reduce their daily operational hours or operate on different shifts in order to reduce local power consumption levels. Many factories have also experienced temporary power outages as a result of the persistent full load operations of the power grids. In addition, our production facilities in the ROC, Vietnam, India and Brazil may also suffer water, gas and power shortages. For example, in May 2021, the ROC government imposed power cuts following a spike in electricity demand amid a heatwave, a drought and failure at a power plant. To date, our operations in ROC, PRC, Vietnam, India and Brazil have not been affected by such administrative measures. However, there is no assurance that our operations in such countries will not be affected by water, gas and power shortages or such administrative measures in the future, thereby causing material production disruption and delay in delivery schedules. If such event occurs, our business, results of operations, financial condition and future prospects could be materially and adversely affected.

If we fail to comply with environmental regulations, we may be subject to adverse publicity and potentially monetary damages and fines.

Some of our manufacturing processes employ or create various hazardous substances, including waste water. We are subject to a variety of regulations in the relevant jurisdictions relating to the use, storage, discharge and disposal of chemicals and waste used in our manufacturing processes. It cannot be assured that we will never fail to comply with these environmental regulations. Any failure to comply with present and future regulations or obtain the necessary certificates and permits could subject the Group to future fines and liabilities or other government sanctions. In addition, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. Any failure to control the use of or to restrict adequately the discharge of hazardous substances could subject the Group to monetary fines and liabilities or other government sanctions. If we are held liable for damages in the event of contamination or injury, it could have a material and adverse effect on our business, financial condition and results of operations.

In accordance with the environmental regulations, we are required to obtain relevant licenses and permits. Our ability to obtain, maintain, or renew such licenses and permits on acceptable terms is subject to change, as, among other things, the regulations and policies of applicable governmental authorities may change. It cannot be assured that we will be successful and timely in obtaining the required approvals, licenses and permits. Failure to do so may subject the Group to monetary fines and liabilities or government sanctions.

We have adopted various environmental, social, governance (“ ESG ”) measures in response to the increase in ESG rules and regulations applicable to our business, and we expect this trend to continue. Given the pace of evolution of rules and regulations in these areas, we may not be able to timely comply with such rules and regulations fully or at all. We are also exposed to the risk that future ESG rules and regulations may adversely affect our ability to run our business, face increased compliance costs or take other steps which may have a material adverse effect on our business, financial condition and results of operations.

If our cybersecurity is breached, we may incur significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.

Our business involves the storage and transmission of confidential information relating to us as well as our customer and suppliers, and any breach in our cybersecurity system could expose us to a risk of loss, the improper use or disclosure of such information, ensuing potential liability or litigation, any of which could harm our reputation and adversely affect our business. Although there has been no material instance where an unauthorized party was able to obtain access to our data or our customers’ data and despite our efforts in advocating and announcing certain cybersecurity policies to our employees and utilizing anti-virus and firewall systems which are regularly updated, there can be no assurance that we will not be vulnerable to cyber-attacks in the future. If an actual or perceived breach of our cybersecurity occurs or if there is an adverse perception of our cybersecurity measures in the market, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence in our customers, which could have an adverse effect on our business, financial condition and results of operations.

The Group needs to observe certain financial and other covenants under the terms of its debt obligations, of which the failure to comply would put the Group in default under such debt obligations.

The Group is a party to a number of loans and other agreements relating to the incurrence of debt, many of which include financial covenants and broad default provisions. The financial covenants primarily include current ratios, leverage ratios, interest coverage ratios and other technical requirements, which, in general, govern our existing long-term debt and debt that we may incur in the future. Such financial covenants could limit our ability to plan for or react to market conditions or to meet our capital needs in a timely manner and we may have to curtail some of our operations and growth plans to maintain compliance with such financial covenants. In addition, any global or regional economic deterioration may cause the Group to incur significant net losses or force the Group to assume considerable liabilities, which would adversely impact our ability to comply with the financial covenants of our outstanding loans. If the relevant creditors decline to grant waivers for any non-compliance with the covenants, such non-compliance will constitute an event of default under the relevant loan agreements which may trigger a requirement for acceleration of the amounts due under the applicable loan agreements. Some of our loan agreements also contain cross-default clauses, which could enable creditors under our other debt instruments to declare an event of default when there is a default in other loan agreements. There is no assurance that we will be able to remain in compliance with our financial covenants. In the event that an event of default has occurred, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement governing our existing or future debts, if not cured by us or waived by our creditors, could have a material adverse effect on our liquidity, financial condition and results of operations and our financial condition may be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.

Foreign exchange fluctuations may adversely affect the Group’s results of operations and financial conditions.

The Group is known to be a professional manufacturer for Apple, Cisco, Dell, HP, Huawei and other major companies. In terms of operating activities, the majority of our accounts receivables are denominated in U.S. Dollar, while the minority of them are denominated in NT Dollar, Euro, Japanese Yen and RMB. Most of the Company’s accounts payables (including raw materials, labor cost, and expense) are U.S. Dollar denominated whilst a small portion of them are denominated in RMB, NT Dollar, Japanese Yen and Euro. Therefore, while most of our foreign exchange risk between U.S. Dollar and NT Dollar can be reduced, we are nonetheless exposed to foreign exchange risks in exchange rate fluctuations between U.S. Dollar and RMB, U.S. Dollar and NT Dollar, U.S. Dollar and Japanese Yen and U.S. Dollar and Euro, which would affect our operating revenue as well as our non-operating income. The depreciation of U.S. Dollar would moreover result in the loss of our operating margins.

In terms of investment activities, we have substantial investments in the PRC, and the devaluation of RMB and/or NT Dollar may result in the loss of our foreign exchange evaluation on those investments.

The impact of future exchange rate fluctuations among these currencies on our results of operations and financial condition cannot be accurately predicted, and there can be no assurance that our attempt to mitigate the adverse effects of exchange rate fluctuations will be successful or that such exchange rate fluctuations will not in the future have a material adverse effect on our financial performance.

Our insurance coverage may not adequately protect us against certain operating and other hazards which may have an adverse effect on our business.

We believe that the coverage from insurance policies for production facilities is in line with industry norms, adequate for present operations and includes adequate coverage for risks relating to fires and public liability. However, there can be no assurance that any claim under the insurance policies maintained will be timely honored in full or at all. To the extent that we suffer loss or damage that is not covered by insurance or exceeds insurance coverage, our business, results of operations and financial condition may be materially and adversely affected. There can also be no assurance that insurance will continue to be available to provide reasonable, or any, coverage on reasonable commercial terms.

The Group may be sued for product liability or experience problems with product quality or performance which could result in adverse publicity or subject the Group to unexpected expenses, including potentially significant monetary damages.

The Group typically provides a warranty to its customers for its products, and parts of the Group’s products are typically produced and sold to customers to meet their specifications. If the Group’s products fail to meet the specifications, the Group will usually replace the Group’s products. However, the Group is still subject to claims from the Group’s customers that end products sold by the Group’s customers had failed to perform or caused injury, death or damage due to problems with the Group’s products. While the Group had immaterial replacements for its products and has purchased product liability insurance coverage, the possibility of future product failures could cause the Group to incur substantial expense to replace defective products, provide refunds or resolve disputes with the Group’s customers through litigation, arbitration or other means.

If any product liability claims are successfully asserted against the Group, the Group could be required to pay significant monetary damages. Even if a product liability claim does not result in a judgment in favor of a claimant, the Group may still incur substantial legal expenses defending against such a claim. In addition, product failures and the assertion of product liability claims against the Group, even if unsuccessful, could also result in adverse publicity that may damage the Group’s reputation and customer relationships, which would have a material adverse effect on the Group’s business.

Negative publicity may have a material adverse effect on our business.

From time to time, there may be allegations and speculation, whether accurate or not, in the international media about us and our business practices, including allegations that we have not been in compliance with the relevant labor laws and regulations. For example, in 2021, there was unfounded speculation that the Group’s Zhengzhou facility used Uyghur forced labor from Xinjiang, which the Group has publicly refuted. We have been implementing and will continue to implement various measures to ensure compliance with the relevant labor standards and to improve employee morale, welfare and working environment. See “Business — Employees”. However, it cannot be assured these measures and statements are effective to address the issues mentioned in the allegations and speculation or to prevent future allegations and speculation from being made against us.

Allegations and speculation of such nature have led to negative publicity in the news, which could have a negative adverse effect on demand for the end products sold by brands that use our manufacturing services, and may in turn have a material adverse effect on our business if our customers are forced to decrease the amount of orders given to us. In addition, such negative publicity may inhibit our ability to secure new orders from customers, which would have a material adverse effect on our results of operations and business prospects and could cause the price of the Bonds and the Common Shares to fall.

In addition, in early 2021, due to market changes, restrictions on local supply chains, difficulties in recruiting sufficient manpower and other commercial reasons, we amended our 2017 tax credit incentive

agreement with the State of Wisconsin in the United States relating to the development of an industrial park located in Mount Pleasant, Wisconsin. In response to the amended agreement, there has been some negative media coverage regarding us and our scaled down investment in Wisconsin. We have taken alternative measures to continue our investment in Wisconsin and made public clarification statements, however, such negative media coverage could have a material adverse effect on our reputation and business development in the United States (and elsewhere), as well as adverse effects on our results of operations and business prospects and could cause the price of the Bonds and the Common Shares to fall.

Risks Relating to the ROC

Strained relations between the ROC and the PRC governments, and political developments in the ROC, could adversely affect the Group’s business.

Certain of the Company’s assets are located in the ROC and the Company’s shares are listed on the TWSE. Accordingly, the Company’s financial condition and results of operations may be affected by changes in the ROC governmental policies, taxation, inflation, interest rates, social instability and other political, economic, diplomatic or social developments in or affecting the ROC which are outside our control. The ROC has a unique international political status. Both the governments of the PRC and the ROC assert sovereignty over the ROC. The PRC government does not recognize the legitimacy of the government of the ROC. Although significant economic and cultural relations have been established in the past decade between the ROC and the PRC, the PRC has refused to renounce the possibility that it may use force to gain control over the ROC if the ROC declared independence or if a foreign power interfered in the ROC’s domestic affairs. In addition, on March 14, 2005, the National People’s Congress of the PRC passed what is widely referred to as the “anti-secession” law, a law authorizing the PRC military to respond to efforts by Taiwan to seek formal independence. Relations between the ROC and the PRC have at times been strained. There is no assurance that relations between the ROC and the PRC will not deteriorate, or that future military actions or economic sanctions or other disruptive activities will not be undertaken by either government.

In addition, the financial markets have viewed certain past developments in relations between the ROC and the PRC as occasions to depress general market prices of the securities of ROC companies. Also, the ROC government has not lifted some trade and investment restrictions imposed on ROC companies on the amount and types of certain investments that can be made in the PRC. Our plans, investment applications and/or any relevant regulatory approvals to establish or possibly expand operations in the PRC may be delayed, interrupted, suspended or cancelled due to unforeseeable social and political factors in the ROC or the PRC. Relations between the ROC and the PRC and other factors affecting military, political or economic conditions in the ROC could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.

The value of the Common Shares and the Bonds as well as the value of certain marketable securities held by us may be adversely affected by the volatility of the ROC securities market.

The ROC securities market is smaller and more volatile than the securities markets in the United States and in certain European countries. The TWSE has experienced substantial fluctuations in the prices of listed securities and has shown particular volatility following certain political events, market events and scandals and there are currently limits on the range of daily price movements on the TWSE. From time to time, the ROC regulatory agencies have intervened in the ROC stock market during periods of extreme volatility. In 2020, the Taiwan Stock Exchange Capitalization Weighted Stock Index (the “ TAIEX ”) peaked at 14,732.53 points on December 31, 2020, and reached a low of 8,681.34 points on March 19, 2020. On July 29, 2021, the TAIEX closed at 17,402.81 points. See “Appendix B — The Securities Markets of the ROC”. The TWSE has experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could adversely affect the market price and liquidity of the securities of ROC companies, including the Bonds and the Common Shares, in both domestic and international markets.

Financial reporting requirements and accounting standards in the ROC differ from those of other countries.

The Company is subject to financial reporting requirements in the ROC that differ in significant respects from those applicable to companies in certain other countries, including for example the countries in Europe. The Company has adopted Taiwan IFRS for presenting our consolidated financial statements as of and for the years ended December 31, 2019 and 2020 included in this Offering Circular. Taiwan IFRS differs from IFRS in certain significant respects, including to the extent that any new or amended standards or interpretations applicable under IFRS may not be timely endorsed by the FSC. Potential investors should consult their own professional advisers for an understanding of such differences and how they might affect the financial information contained herein.

Potential investors should not place undue reliance on the financial information that is not audited.

The Company publishes annual, semi-annual and/or quarterly consolidated financial information in the ROC to satisfy its continuing disclosure obligations relating to its shares listed on TWSE according to applicable ROC regulations and rules of the TWSE. Certain consolidated financial information may not be audited by the Company’s independent auditors and should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit. Such unaudited consolidated financial information are not necessarily indicative of the results that may be expected for the full financial year or any period thereafter. Consequently, potential investors should not take such financial information as an indication of our expected financial condition or results of operations for the relevant full financial year. Potential investors should exercise caution when using such data to evaluate our financial condition and results of operations.

Risks Relating to the PRC

Our results of operations and prospects are subject, to a significant extent, to legal, political and economic developments in the PRC.

A significant amount of our products are manufactured in the PRC; consequently, our results of operations and prospects are subject to legal, political and economic developments in the PRC. For instance, legislation has significantly enhanced the protections afforded to various forms of foreign investment in the PRC. The legal system in the PRC is continuing to evolve. Even where adequate laws exist in the PRC, the enforcement of existing laws or contracts based on existing laws may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. In addition, the PRC legal system is based on written statutes and their interpretation, where prior court decisions may be cited as reference but have limited weight as precedents. Furthermore, a large number of these written statutes and other regulations promulgated may be relatively new with a limited volume of published decisions and a lack of established practice available for reference. Accordingly, there exist uncertainties about their interpretation, implementation and enforcement, and such uncertainties may have a negative impact on our business. The administration of PRC laws and regulations may also be subject to a certain degree of discretion by the executive authorities. This has resulted in the outcome of dispute resolutions not being as consistent or predictable compared to more developed jurisdictions. Also, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of the PRC, but may have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations applicable to the Group.

Our facilities located in the PRC are subject to political, economic and social conditions, laws, regulations and policies of the PRC. The economy of the PRC differs from the economies of most developed countries in a number of respects, including:

its structure;
level of government involvement;
level of development;
level of capital reinvestment;

control of capital reinvestment;
control of foreign exchange; and
allocation of resources.

Under the PRC Enterprise Income Tax Law (the “EIT Law”), the Company (or any other overseas subsidiaries of the Company) may be treated as a PRC resident enterprise for PRC tax purposes, which will subject it to PRC enterprise income tax (“EIT”) on its worldwide income and PRC withholding taxes on interest it pays on the Bonds.

The Company’s PRC subsidiaries are subject to EIT on the taxable income as reported in the PRC statutory accounts adjusted in accordance with relevant PRC income tax laws and are subject to an income tax rate of 25 per cent. Under the EIT Law, which became effective on January 1, 2008, and was amended on December 29, 2018, enterprises organized under the laws of jurisdictions outside the PRC with their “de facto management bodies” located within the PRC are deemed to be “resident enterprises for PRC tax purposes”, meaning that they are treated in a manner similar to PRC enterprises for EIT purposes, and therefore subject to EIT at the rate of 25 per cent. on their worldwide income, although dividends paid from one resident to another may qualify as “tax-exempt income”. The implementing regulations of the EIT Law which became effective on January 1, 2008 and was amended on April 23, 2019, defines the term “de facto management body” as a management body that exercises substantial and overall control and management over the production and operations, personnel, accounting, properties and other aspects of an enterprise. The PRC State Administration of Taxation issued a circular, which became effective on September 1, 2011, and which provides that a foreign enterprise controlled by a PRC company or a PRC company group shall be deemed a “resident enterprise” by the final decision of the PRC State Administration of Taxation through the application of the foreign enterprise or the investigation of the relevant tax authorities.

As of the date of this Offering Circular, the Company has not been considered a PRC tax resident enterprise by the PRC tax authorities. There is however no assurance that the Company or other overseas entities in the Group will not be treated as “resident enterprises” under the EIT Law, any aforesaid circulars or any amended regulations in the future. If the Company is treated as a PRC resident enterprise for EIT purposes, among other things, it would be subject to EIT at the rate of 25 per cent. on its worldwide income. Furthermore, if the Company were treated as a PRC resident enterprise, payments of interest by the Company may be regarded as derived from sources within the PRC and therefore the Company may be obligated to withhold PRC income tax at 10 per cent. on payments of interest on the Bonds to non-PRC resident enterprise investors, unless any such non-PRC investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for preferential withholding tax treatment. In the case of non-PRC resident individual investors, the tax may be withheld at a rate of 20 per cent., unless a lower treaty rate is applicable. In addition, if the Company were treated as a PRC resident enterprise, any gain realized on the transfer of the Bonds by non-PRC resident investors may be regarded as derived from sources within the PRC and may be subject to a 10 per cent. PRC income tax in the case of non-PRC resident enterprises or 20 per cent. in the case of non-PRC resident individuals (or a lower applicable treaty rate, if any). According to an arrangement between Mainland China and Hong Kong for the avoidance of double taxation, Bondholders (as defined therein) who are Hong Kong residents, including both enterprise holders and individual holders, may be exempted from PRC income tax on capital gains derived from a sale or exchange of the Bonds. In addition, if the Company is deemed to be a PRC tax resident enterprise by the PRC tax authorities in the future, the Company may be required to withhold value-added tax (“ VAT ”) at a rate of 6 per cent. and certain surcharges on VAT for payments of interest and certain other amounts in respect of the Bonds to any non-PRC Noteholders, if such non-PRC Noteholders are deemed to be providing financing service to the Company within the territory of the PRC.

If the Company is required to withhold PRC tax from interest payments on the Bonds, the Company (as the case may be) may be required, subject to certain exceptions, to pay such additional amounts as will result in receipt by the holders of the Bonds of such amounts as would have been received had no such withholding been required. The requirement to pay additional amounts will increase the cost of servicing interest payments on the Bonds and could have an adverse effect on the Company’s financial condition.

We are subject to risks associated with the PRC legal system.

Since 1979, many laws and regulations dealing with general economic matters or particular economic activities have been promulgated in the PRC. However, enforcement of existing laws and regulations may be uncertain and sporadic and implementation and interpretation thereof may be inconsistent. The PRC judiciary is relatively inexperienced in enforcing the laws and regulations that currently exist, leading to a degree of uncertainty as to the outcome of any litigation. Further, it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The PRC’s legal system is based on written statutes and, therefore, decided legal cases do not have binding legal effect, although they are often followed by judges as guidance. The introduction of new PRC laws and regulations and the interpretation of existing laws and regulations may be subject to policy changes reflecting domestic political or social changes and thus may limit the legal protections available to us. As the PRC legal system develops, there can be no assurance that changes in such legislation or interpretation thereof will not have a materially adverse effect on our business, financial condition, results of operations and future prospects and could cause the price of the Bonds and the Common Shares to fall.

Our operations may be affected by rising inflation rates within the PRC.

Inflation rates within the PRC have been on a sharp upward trend in recent years. Increasing inflationary rates are due to many factors beyond our control, such as rising food prices, rising production and labor costs, high lending levels, PRC and foreign governmental policy and regulations, and movements in exchange rates and interest rates. It is impossible to accurately predict future inflationary trends. As a result, further inflationary pressures within the PRC may have a material adverse effect on our business and results of operations, as well as our liquidity and profitability.

The PRC’s regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent the Company from making loans or additional capital contributions to the Company’s PRC subsidiaries.

As an offshore holding company of its PRC subsidiaries, the Company may make loans to its PRC subsidiaries, or it may make additional capital contributions to its PRC subsidiaries. Any loans to the Company’s PRC subsidiaries are subject to the PRC regulations and approvals. For example, loans by the Company to its subsidiaries in China to finance their activities cannot exceed the statutory limits.

The Company may also decide to finance its PRC subsidiaries through capital contributions. These capital contributions may need to be approved by the relevant authorities, including the PRC Ministry of Commerce, (the “ MOFCOM ”), or its local counterparts. It cannot be assured that it will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to the future loans or capital contributions by it to its subsidiaries or any of their respective subsidiaries. If the Company fails to receive such registrations or approvals, its ability to capitalize its PRC operations may be negatively affected, which could adversely and materially affect its liquidity and its ability to fund and expand its business.

If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.

A substantial part of our operations are subject to PRC laws and regulations. However, the scopes of many PRC laws and regulations are uncertain, and their implementation could differ significantly in different localities. In certain instances, local rules and their implementation are not necessarily consistent with the regulations at the national level. Although we strive to comply with all applicable PRC laws and regulations, it cannot be assured that the relevant PRC government authorities will not determine that we have not been in compliance with certain laws or regulations.

Certain PRC regulations governing PRC companies are less developed than those applicable to companies incorporated in more developed countries.

A number of the companies within the Group are established in the PRC and are subject to PRC regulations governing PRC companies. These regulations contain certain provisions that are required to be included in the joint venture contracts, articles of association and other major operational agreements of these PRC companies and are intended to regulate the internal affairs of these companies. These regulations, and in particular, the provisions for protection of shareholders’ rights and access to information, may, to a certain extent, be less developed than those applicable to companies incorporated in the United States, the UK and other developed jurisdictions. In addition, any control which the Group has over any PRC entities within the Group and the exercise of its corresponding shareholder rights are subject to their respective articles of association and PRC laws applicable to foreign-invested enterprises in the PRC. Such laws and the application thereof may be different from the laws of other developed jurisdictions and the Group’s shareholder rights in these PRC entities may be afforded less protection compared to shareholder rights under the laws of other developed jurisdictions, which may in turn result in the Group not being able to maintain control over these PRC entities.

Our labor costs may increase for reasons such as the implementation of the PRC Labor Contract Law or inflation in the PRC.

In recent years, the PRC government has promulgated and amended labor laws to enhance protection of labor rights. Increasing awareness of labor protection as well as increasing minimum wages is likely to increase the labor costs afforded by PRC enterprises in general. For instance, the PRC Labor Contract Law《中華人民共和國勞動合同法》became effective on January 1, 2008 in the PRC and was amended on December 28, 2012. It imposes requirements on employers in relation to compensation payments for fixed-term contract employees and a minimum wage requirement.

In addition, under the PRC Labor Contract Law, when an employer terminates its PRC employees’ employment, the employer may be required to compensate them with such amount which is determined based on their length of service with the employer, and the employer may not be able to terminate efficiently open-ended employment contracts under the PRC Labor Contract Law without cause. In the event that we decide to change or decrease our workforce significantly, the PRC Labor Contract Law could adversely affect our ability to effect these changes in a cost-effective manner or in the manner that the Group desires, which could result in an adverse impact on our businesses, financial condition and results of operations.

Furthermore, if there is a shortage of labor or for any reason the labor cost in the PRC rises significantly, the costs of production of our products are likely to increase. This may in turn affect the selling prices of the products and services, which may then affect the demand for such products and services and thereby adversely affect our sales and financial condition. In addition, inflation in the PRC has increased in recent years. Inflation in the PRC increases the costs of labor and the costs of raw materials we must purchase for production. Rising labor costs may increase our operating costs and partially erode the cost advantage of our PRC-based operations and therefore negatively impact our profitability.

Risks Relating to Ownership of the Bonds and the Common Shares

The market for the Bonds and the Common Shares may not be liquid.

The Bonds have not been registered under the Securities Act, and are being offered and sold outside the United States to non-U.S. persons in accordance with Regulation S. The Bonds are subject to the restrictions on transfer described under “Transfer Restrictions of the Bonds”. The Bonds will constitute a new issue of securities with no established trading market. If a trading market does not develop or is not maintained, holders of the Bonds may experience difficulty in reselling the Bonds or may be unable to sell them at all. The Company cannot assure you that an active public market or other market for the Bonds will develop or be maintained. If a market for the Bonds develops, it may be discontinued at any time. Although the Initial Purchasers have advised the Company that they currently intend to make a market in the Bonds, they are not obligated to do so and may discontinue market-making activity at any time without notice. Any market-making activity by the Initial Purchasers will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended, and other applicable law. Approval in-principle has been received for the listing and quotation of the Bonds on the SGX-ST.

The liquidity of any market for the Bonds will depend upon the size and the number of holders of the Bonds, the Company’s operating performance, the interest of securities dealers in making a market in the Bonds and other factors. A liquid trading market may not develop for the Bonds. Furthermore, the market price for the Bonds may be subject to substantial fluctuations. Factors such as the following may have a significant effect on the market price of the Bonds:

the market price of the Common Shares;
actual or anticipated fluctuations in the operating results of the Company;
the perceived business prospects of the Company;
general economic conditions, including prevailing interest rates; and
the market for similar securities.

There has been no trading market for the Common Shares outside the ROC and the only trading market for the Common Shares will be the TWSE.

There are limitations on the ability of Holders of the Bonds to exercise conversion rights.

Investors in the Bonds will not be able to exercise their conversion right during Closed Period. Under current ROC law, regulations and policy, a PRC person is not permitted to convert the Bonds and to register as a shareholder of the Company unless it is a PRC qualified domestic institutional investor (a “ QDII ”) or otherwise obtains regulator’s approval. If a Holder converts the Bonds, such Holder will be required to register with the TWSE and appoint a tax guarantor, local agent and custodian in the ROC. See “Description of the Bonds — Conversion”.

Holders of the Bonds will bear the risk of fluctuations in the price of the Common Shares.

The market price of the Bonds at any time will be affected by fluctuations in the price of the Common Shares. It is impossible to predict how the price of the Common Shares of the Company will change. Trading prices of the Common Shares will be influenced by, among other things, the results of operations of the Company and political, economic, financial and other factors that affect capital markets generally. Any decline in the price of the Common Shares would adversely affect the secondary market price of the Bonds.

Fluctuations in the exchange rate between the NT Dollar and the U.S. Dollar may have a material adverse effect on the value of the Bonds in U.S. Dollar terms.

Although the principal amount of the Bonds is denominated in U.S. Dollars, the Common Shares of the Company are listed on the TWSE, which quotes and trades the Common Shares in NT Dollars. As a result, fluctuations in the exchange rate between the NT Dollar and the U.S. Dollar will affect, among other things, the secondary market price of the Bonds and the U.S. Dollar equivalent of the Common Shares received upon conversion of the Bonds.

Furthermore, the Bonds are currency-linked debt instruments. Bondholders are required to pay the subscription money for the Bonds in U.S. Dollars, while all amounts due from the Company under the Bonds, will be settled in U.S. Dollars, translated to NT Dollar at a rate of NT$27.978 to US$1.00 and then translate back to U.S. Dollars at the prevailing exchange rate between NT Dollar and the U.S. Dollar at the time of payment. Accordingly, the U.S. Dollar return on the Bonds, or yield to maturity, will depend on the principal amount converted into U.S. Dollars at the prevailing exchange rate. Any volatility of the exchange rate between NT Dollar and the U.S. Dollar during the term of the Bonds will affect the return on the Bonds, or yield to maturity, in U.S. Dollars. In particular, any devaluation of the NT Dollar against the U.S. Dollar during the term of the Bonds will decrease the U.S. Dollar return on the Bonds and will result in the yield to maturity of the Bonds in U.S. Dollars being less than the stated yield to maturity of the Bonds. In the event of a material devaluation of the NT Dollar against the U.S. Dollar, Bondholders may not receive the full U.S. Dollar subscription amount upon redemption of the Bonds.

Holders of the Bonds will have no rights as shareholders until they acquire the Common Shares upon conversion of the Bonds.

Unless and until the holders of the Bonds acquire the Common Shares upon conversion of the Bonds, the holders of the Bonds will have no rights as shareholders, including any voting rights or rights to receive any dividends or other distributions with respect to the Common Shares. Holders of the Bonds who acquire the Common Shares upon the exercise of their Conversion Rights will be entitled to exercise the rights of shareholders only as to actions for which the applicable record date occurs after the Conversion Date.

Holders of the Bonds or their designee requesting the conversion of the Bonds into the Common Shares may be required to provide certain information to the Company, and failure to provide such information may result in a delay of the conversion.

A Holder of the Bonds or its designee requesting the conversion of the Bonds into the Common Shares may be required to provide certain information to the Company or the Paying Agent, including the name and nationality of the person to be registered as the shareholder, the number of Common Shares to be acquired by such person and the number of Common Shares acquired by such person in the past through the Conversion Date. Under applicable ROC laws, the Company is required to report to the FSC if the person to be registered as a shareholder (1) is a “related party” of the Company as defined in the Regulations Governing the Preparation of Financial Report by Securities Issuers or (2) will hold, immediately following such conversion, more than 10% of the total number of Common Shares expected to be issued upon conversion of the Bonds based on the initial conversion price. Failure to provide such information may result in a delay of the conversion of the Bonds.

Future issues, offers or sales of Common Shares may hurt the value of the Bonds.

The market price of the Bonds and Common Shares could decline as a result of future issues, offers or sales of a large number of Common Shares or securities convertible into or exercisable for Common Shares or any securities or financial instruments whose economic value is determined, directly or indirectly, by reference to the market price of Common Shares, or the perception that such issues, offers or sales could occur. If a large number of Common Shares is sold, the market price for the Bonds or Common Shares could be depressed.

We may not have the ability to redeem the Bonds in cash if investors exercise the early redemption right upon the occurrence of a change of control, delisting or upon their option in certain circumstances.

We may be required by Bondholders to redeem for cash all or some of their Bonds upon a transaction or event constituting a change of control, delisting or upon their option in certain circumstances as described under “Description of the Bonds”. We may not have sufficient funds or other financial resources to make the required redemption in cash at such time or the ability to arrange necessary financing on acceptable terms. In addition, our ability to redeem the Bonds in cash may be limited by law, by the terms of other agreements relating to our senior debt and by indebtedness and agreements that we may enter into in the future which may replace, supplement or amend our existing or future indebtedness. If the exercise of the redemption right upon the occurrence of a change of control or delisting occurs at a time when we are prohibited from redeeming the Bonds, we could seek the consent of lenders to redeem the Bonds or could attempt to refinance the borrowings that contain this prohibition. If we are not able to obtain consent or refinance these borrowings, we could remain prohibited from redeeming the Bonds.

Our failure to redeem Bonds would constitute an event of default, which might constitute a default under the terms of our other indebtedness at that time.

We may call the Bonds prior to maturity if we have or will become obligated to pay additional amounts as a result of certain changes in applicable tax law.

We may call the Bonds prior to maturity if we have or will become obligated to pay additional amounts as a result of any change in, or amendment to, the laws or regulations of any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations. In such an event, each Bondholder will have the right to elect that his Bond(s) shall not be redeemed but, in that case, subject as provided in “Description of the Bonds — Redemption of the Bonds — Redemption for Taxation Reasons”, no additional amounts will be payable on the electing Bondholder’s Bonds after the relevant tax redemption date and payment of all amounts shall be made subject to the deduction of withholding of any taxation required to be withheld or deducted. See “Description of the Bonds — Redemption of the Bonds — Redemption for Taxation Reasons”.

Bondholders have limited anti-dilution protection.

The conversion price of the Bonds will be adjusted in the event that there is a free distribution, bonus issue, division, consolidation and reclassification, declaration of dividends, rights issue, warrants issue, capital distribution or other adjustment, but only in the circumstances and only to the extent provided in “Description of the Bonds — Conversion — Adjustments to the Conversion Price”. There is no requirement that there should be an adjustment for every corporate or other event that may affect the value of Common Shares. Events in respect of which no adjustment is made may adversely affect the value of Common Shares and, therefore, adversely affect the value of the Bonds.

The Trustee may request that the Bondholders provide indemnity, security and/or prefunding to its satisfaction.

In certain circumstances, the Trustee may (at its sole discretion) request the Bondholders to provide indemnity, security, and/or prefunding to its satisfaction before it takes steps and/or actions and/or institutes proceedings on behalf of Bondholders. The Trustee shall not be obligated to take any such steps and/or actions and/or institute such proceedings if not indemnified, secured, and/or prefunded to its satisfaction. Negotiating and agreeing to any indemnity, security, and/or prefunding can be a lengthy process and may impact when such steps and/or actions can be taken and/or such proceedings can be instituted. The Trustee may not be able to take such steps and/or actions and/or institute proceedings, notwithstanding the provision of indemnity, security or prefunding to it, in breach of the terms of the indenture governing the Bonds and in circumstances where there is uncertainty or dispute as to the applicable laws or regulations and, to the extent permitted by the agreements and the applicable law, it will be for the Bondholders to take such actions directly.

USE OF PROCEEDS

The gross proceeds to Hon Hai from the Offering will be US$700.0 million before deducting the Initial Purchaser’s discounts and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the Offering to purchase raw materials overseas.

DIVIDENDS AND DIVIDEND POLICY

The following table sets forth the aggregate number of outstanding Common Shares entitled to dividends, the cash dividends per Common Share, stock dividends per Common Share and total Common Shares issued as stock dividends in respect of each year indicated.

2012 . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . .	Aggregate Number of Common Shares(1) 11,835,866,527 13,128,706,840 14,793,406,863 15,638,288,228 17,328,738,262 17,328,738,262 13,862,990,609 13,862,990,609 13,862,990,609	Cash Dividends per Common Share (NT$) 1.5 1.8 3.8 4.0 4.5 2.0 4.0 4.2 4.0	Stock Dividends per Common Share(2) (NT$) 1.0 1.2 0.5 1.0 — — — — —	Total Common Shares Issued as Stock Dividends(3)
				1,183,586,653 1,575,444,821 739,670,344 1,563,828,823 — — — — —

(1) Aggregate number of Common Shares outstanding on the record date applicable to the dividend payment.
(2) The number of Common Shares received by the holders of Common Shares as a stock dividend is equal to the NT Dollar value of the declared dividend, multiplied by the number of Common Shares owned, divided by the par value of NT$10 per Common Share. Holders of Common Shares will receive cash in lieu of fractional Common Shares.
(3) The stock dividends per Common Share distributed were adjusted as a result of an increase in the aggregate number of Common Shares outstanding due to the conversion of convertible bonds into Common Shares.

The Company historically has paid dividends on its Common Shares with respect to the preceding year after approval by the Company’s shareholders at the ordinary meeting of shareholders. See “Description of Common Shares”. The Company’s dividend payments and distributions are generally governed by the ROC Company Act as well as its Articles of Incorporation. Except in limited circumstances, under the ROC Company Act, the Company is not permitted to distribute dividends or make other distributions to shareholders in respect of any year in which it did not have current or retained earnings (excluding reserves). The ROC Company Act also requires that 10% of annual net income be set aside as legal reserve until the accumulated legal reserve equals the Company’s paid-in capital. The Company’s Articles of Incorporation provide that its net profit after tax shall be distributed in the following manner

(i) making up accumulated losses;
(ii) setting aside a 10% legal reserve, unless the accumulated legal reserve equals the paid-in capital; and
(iii) setting aside the special reserve in accordance with ROC laws and regulations.

The remaining earnings along with the undistributed earnings at the beginning of the period are considered as accumulated distributable earnings. In accordance with dividend policy, the proposal of earnings appropriation is prepared by the Board of Directors and resolved by the shareholders. However, to the extent that the dividend is to be distributed in the form of cash, such dividend may be so distributed after being approved by the affirmative vote of the directors at a Board of Director’s meeting attended by two-thirds or more of the total number of the directors without the resolution by the shareholders.

The Company is at the growing stage. The Company’s dividend policy should consider the Company’s current and future investment environment, capital needs, local and foreign competition situation and capital budget, along with shareholders’ interest and the Company’s long-term financial plans. The shareholders’ dividends are appropriated based on accumulated distributable earnings, which should not be lower than 15% of the distributable earnings for the period and the cash dividends should not be less than 10% of the shareholders’ dividends distributed in that year.

Upon the final settlement of accounts, if there is any surplus profit (meaning the net profit before tax before deduction of employees’ remuneration), the Company shall set aside 5% to 7% of the surplus profit as employees’ remuneration which may be in the form of cash or shares, provided that, if the company has accumulated losses, it shall reserve an amount thereof for making up the losses. Employees (including those of subsidiaries of the Company) entitled to such remuneration shall meet certain requirements, where such requirements shall be determined by the Board of Directors.

CAPITALIZATION AND INDEBTEDNESS

As of March 31, 2021, the authorized share capital of the Company was NT$180,000,000,000 divided into 18,000,000,000 ordinary shares of NT$10.0 par value each and its issued share capital was NT$138,629,906,090 consisting of 13,862,990,609 ordinary shares of NT$10.0.

The following table sets forth the unaudited short-term borrowings and total capitalization of the Company as of March 31, 2021 on an actual basis and on an as adjusted basis.

The as adjusted basis gives effect to the issuance of the Bonds, before deducting the Initial Purchaser’s discounts and the estimated offering expenses payable by us, as if the Bonds had been issued on March 31, 2021. Since March 31, 2021, there has been no material change in our total capitalization or short-term borrowings.

Consolidated Capitalization
Short-term borrowings(1)
Short-term loans (including short-term
notes and bills payable) . . . . . . . . . . .
Current portion of long-term liabilities
Long-term borrowings(1)
Corporate bonds payable(2) . . . . . . . . . .
Long-term loans(3) . . . . . . . . . . . . . . . . . .
Total long-term borrowings . . . . . . . .
Equity
Share capital — common stock . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings
Legal reserve . . . . . . . . . . . . . . . . . . . . . .
Special reserve
. . . . . . . . . . . . . . . . . . . .
Undistributed earnings . . . . . . . . . . . . . .
Other equity interest . . . . . . . . . . . . . . . . . .
Treasury stocks . . . . . . . . . . . . . . . . . . . . . .
Equity attributable to owners of the
parent . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . .
Total capitalization(4) . . . . . . . . . . . . . . . .

As of March 31, 2021
Actual
As adjusted for the issue
of the Bonds(5)
NT$
US$
NT$
US$
(unaudited)
(in millions)
508,452
17,853
508,452
17,853
74,428
2,613
74,428
2,613
200,396
7,037
220,332
7,737
30,256
1,062
30,256
1,062
230,652
8,099
250,588
8,799
138,630
4,868
138,630
4,868
200,485
7,040
200,485
7,040
161,044
5,654
161,044
5,654
102,451
3,597
102,451
3,597
752,676
26,428
752,676
26,428
(81,264)
(2,853)
(81,264)
(2,853)
(15)
(1)
(15)
(1)
1,274,007
44,733
1,274,007
44,733
180,062
6,323
180,062
6,323
1,454,069
51,056
1,454,069
51,056
1,684,721
59,155
1,704,657
59,855

(1) The short-term borrowings of the Company are unsecured and such borrowings have not been guaranteed.

(2) As of March 31, 2021, the outstanding corporate bonds payable was NT$243,470 million, NT$43,074 million of which is included in the current portion of long-term liabilities.

(3) As of March 31, 2021, the outstanding long-term loans was NT$61,610 million, NT$31,354 million of which is included in the current portion of long-term liabilities.

(4) Total capitalization includes total long-term borrowings (excluding the current portion of long-term loans shown as current portion of long-term liabilities), and includes total stockholders’ equity.

(5) The bifurcation of derivative instruments from the Bonds payable upon initial recognition under Taiwan IFRS was not taken into consideration for the adjusted basis.

SELECTED FINANCIAL INFORMATION

The selected consolidated comprehensive income statement data for the years ended December 31, 2018 and 2019 and for the years ended December 31, 2019 and 2020 and the selected consolidated balance sheet data as of December 31, 2018 and 2019 and as of December 31, 2019 and 2020 all expressed in New Taiwan Dollars set forth below are derived from the audited consolidated financial statements as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 included elsewhere in this Offering Circular and should be read in conjunction with, and are qualified in their entirety by reference to, such financial statements, including the notes thereto. The audited consolidated financial statements as of and for the years ended December 31, 2019 and 2020 have been prepared and presented in accordance with Taiwan IFRS which differs from U.S. GAAP, IFRS or the generally accepted accounting principles of certain other countries. The selected consolidated comprehensive income statement data for the three-month periods ended March 31, 2020 and 2021 and the selected consolidated balance sheet data as of March 31, 2020 and 2021 all expressed in New Taiwan Dollars set forth below are derived from the unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021. The unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021 have been prepared and presented in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34 “Interim Financial Reporting” endorsed by FSC, which differ in certain material respects with U.S. GAAP. The review report of PricewaterhouseCoopers, Taiwan dated May 14, 2021 relating to the unaudited consolidated interim financial statements was qualified with respect to the effect of adjustments, if any, as might have been determined to be necessary had the financial statements of certain subsidiaries and investee companies accounted for under the equity method, been reviewed by independent auditors. Results for the three-month periods ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

All amounts in the Years Consolidated Financial Information and the Three Months Consolidated Financial Information expressed in U.S. Dollars are provided solely for the convenience of the reader and such amounts do not form part of the audited consolidated financial statements or unaudited consolidated interim financial statements.

Audited Consolidated Statement of Comprehensive Income

Operating revenue . . . . . . . . . . . . . . . . . Operating costs . . . . . . . . . . . . . . . . . . . Net operating margin . . . . . . . . . . . . . . . . Operating expenses Selling expenses . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . Research and development expenses . . . . Total operating expenses . . . . . . . . . . . . . Operating profit . . . . . . . . . . . . . . . . . . . Non-operating income and expenses Interest income . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . Other gains and losses . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . Share of profit of associates and joint ventures accounted for under equity method . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income and expenses . . . . . . . . . . . . . . . . . . . . . . . Profit before income tax . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . Profit for the year . . . . . . . . . . . . . . . . . Other comprehensive income Components of other comprehensive income (loss) that will not be reclassified to profit or loss Remeasurement of defined benefit plans . Unrealized (loss) gain on valuation of financial assets at fair value through other comprehensive income . . . . . . . . Share of other comprehensive (loss) income of associates and joint ventures accounted for using equity method . . . . Income tax related to components of other comprehensive (loss) income that will not be reclassified to profit or loss . . . . Other comprehensive (loss) income that will not be reclassified to profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . Components of other comprehensive (loss) income that will be reclassified to profit or loss Financial statements translation differences of foreign operations . . . . . Share of other comprehensive (loss) income of associates and joint ventures accounted for under equity method . . . . Other comprehensive (loss) income that will be reclassified to profit or loss . .		For the Year Ended December 31, 2019 2020 NT$ NT$ US$ (unaudited) (in thousands, except per share data) 5,342,810,995 5,358,023,065 188,132,832 (5,026,942,570) (5,055,104,342) (177,496,641) 315,868,425 302,918,723 10,636,191 (30,129,101) (27,243,581) (956,587) (79,294,289) (70,737,182) (2,483,749) (91,548,149) (94,110,512) (3,304,442) (200,971,539) (192,091,275) (6,744,778) 114,896,886 110,827,448 3,891,413 75,819,336 47,934,352 1,683,088 14,560,918 11,887,533 417,399 5,567,450 7,314,465 256,828 (66,600,696) (40,317,013) (1,415,625) 19,634,053 7,825,449 274,770 48,981,061 34,644,786 1,216,460 163,877,947 145,472,234 5,107,873 (31,692,859) (31,146,647) (1,093,632) 132,185,088 114,325,587 4,014,241 (7,404) (47,626) (1,672) 4,720,616 19,999,225 702,220 3,028,377 497,658 17,474 1,481 9,525 334 7,743,070 20,458,782 718,356 (51,266,536) (15,380,879) (540,059) (1,096,843) 2,094,637 73,548 (52,363,379) (13,286,242) (466,511)
	2018 NT$ 5,293,803,022 (4,961,773,118) 332,029,904 (32,690,093) (78,762,853) (84,430,083) (195,883,029) 136,146,875 60,400,627 14,014,872 (997,809) (55,544,836) 16,231,713 34,104,567 170,251,442 (40,416,017) 129,835,425 217,476 (4,687,419) (12,700,347) (43,495) (17,213,785) (11,603,077) (121,619) (11,724,696)

	For the Year Ended December 31,	For the Year Ended December 31,	For the Year Ended December 31,
2018 NT$ (28,938,481) 100,896,944 129,065,105 770,320 129,835,425 103,120,437 (2,223,493) 100,896,944 8.03 7.95	2019 2020 NT$ NT$ US$ (unaudited) (in thousands, except per share data) (44,620,309) 7,172,540 251.845 87,564,779 121,498,127 4,266,086 115,308,736 101,794,807 3,574,256 16,876,352 12,530,780 439,985 132,185,088 114,325,587 4,014,241 74,706,141 112,236,799 3,940,899 12,858,638 9,261,328 325,187 87,564,779 121,498,127 4,266,086 8.32 7.34 0.26 8.24 7.28 0.26	2020
			US$ (unaudited) 251.845
			4,266,086
			3,574,256 439,985
			4,014,241
			3,940,899 325,187
			4,266,086
			0.26
			0.26

Audited Consolidated Balance Sheet

	As of December 31,	As of December 31,	As of December 31,
2018 NT$ 788,662,325 5,016,365 78,944,139 1,009,364,152 48,172,268 73,996,367 57,705,076 625,025,794 19,596,260 2,706,482,746 74,887,490 66,634,395 16,240,740 160,316,664 277,860,012 — 2,523,963 30,357,025 16,229,304 29,823,088 674,872,681 3,381,355,427 532,315,377 19,283,228 651,426 905,682,505 42,340,749 228,985,231 36,400,157 5,562,147 — 38,550,736 1,809,861,556 22,835 178,794,577 36,483,791 — 14,649,508 — 9,109,272 239,059,983 2,048,921,539	2019 2020 NT$ NT$ US$ (unaudited) (in thousands) 857,864,362 1,232,794,015 43,286,307 2,952,049 6,285,594 220,702 52,954,877 38,783,566 1,361,782 987,278,438 903,070,230 31,708,926 44,754,604 39,414,164 1,383,924 67,854,299 58,237,719 2,044,864 24,366,543 5,285,774 185,596 515,772,177 582,113,735 20,439,387 19,895,574 18,664,505 655,355 2,573,692,923 2,884,649,302 101,286,843 82,660,725 83,681,186 2,938,244 68,807,217 87,074,089 3,057,377 12,528,569 18,786,030 659,622 168,631,642 175,199,441 6,151,666 287,523,253 287,091,978 10,080,477 46,760,340 46,268,685 1,624,603 4,419,912 11,083,273 389,160 41,380,353 44,760,083 1,571,632 18,701,465 19,946,852 700,381 15,835,299 15,734,671 552,481 747,248,775 789,626,288 27,725,643 3,320,941,698 3,674,275,590 129,012,486 380,866,050 446,422,100 15,674,933 30,528,296 39,101,893 1,372,960 1,881,685 2,291,221 80,450 870,678,994 1,037,912,518 36,443,558 35,509,127 27,680,046 971,912 217,732,729 220,177,215 7,730,942 18,531,289 24,004,318 842,848 2,725,293 4,136,517 145,243 7,131,038 9,058,272 318,057 91,876,860 105,473,211 3,703,413 1,657,461,361 1,916,257,311 67,284,316 — — — 175,505,344 201,691,563 7,081,866 41,576,252 31,593,197 1,109,312 369,953 407,915 14,323 18,261,509 18,805,119 660,292 20,875,343 20,390,740 715,967 7,266,519 10,983,336 385,651 263,854,920 283,871,870 9,967,411 1,921,316,281 2,200,129,181 77,251,727	2020
			US$ (unaudited) 43,286,307 220,702 1,361,782 31,708,926 1,383,924 2,044,864 185,596 20,439,387 655,355
			101,286,843
			2,938,244 3,057,377 659,622 6,151,666 10,080,477 1,624,603 389,160 1,571,632 700,381 552,481
			27,725,643
			129,012,486
			15,674,933 1,372,960 80,450 36,443,558 971,912 7,730,942 842,848 145,243 318,057 3,703,413
			67,284,316
			— 7,081,866 1,109,312 14,323 660,292 715,967 385,651
			9,967,411
			77,251,727

Equity Equity attributable to owners of parent Share capital Share capital — common stock . . . . . . . . Capital reserve Capital surplus . . . . . . . . . . . . . . . . . . . . Retained earnings Legal reserve . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . Unappropriated retained earnings . . . . . . Other equity interest Other equity interest . . . . . . . . . . . . . . . . Treasury stocks . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . Non-controlling interest . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . . . . . . . .		As of December 31, 2019 2020 NT$ NT$ US$ (unaudited) (in thousands) 138,629,906 138,629,906 4,867,623 199,383,371 202,645,942 7,115,377 149,512,874 161,043,748 5,654,626 60,309,927 102,451,720 3,597,322 794,615,182 779,836,380 27,381,895 (102,451,720) (87,315,126) (3,065,840) (15,194) (15,194) (533) 1,239,984,346 1,297,277,376 45,550,470 159,641,071 176,869,033 6,210,289 1,399,625,417 1,474,146,409 51,760,759 3,320,941,698 3,674,275,590 129,012,486
	2018 NT$ 138,629,906 190,018,456 136,606,364 27,539,310 779,409,554 (60,309,927) (15,194) 1,211,878,469 120,555,419 1,332,433,888 3,381,355,427

Unaudited Consolidated Statement of Comprehensive Income

Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating margin
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income and expenses
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of profit of associates and joint ventures accounted
for under equity method . . . . . . . . . . . . . . . . . . . . . . . .
Total non-operating income and expenses . . . . . . . . . . .
Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income
Components of other comprehensive income (loss) that
will not be reclassified to profit or loss
Unrealized (loss) gain on valuation of financial assets at
fair value through other comprehensive income . . . . . .
Share of other comprehensive (loss) income of associates
and joint ventures accounted for using equity method .
Other comprehensive (loss) income that will not be
reclassified to profit or loss . . . . . . . . . . . . . . . . . . . . .
Components of other comprehensive income (loss) that
will be reclassified to profit or loss
Financial statements translation differences of foreign
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of other comprehensive loss of associates and joint
ventures accounted for under equity method . . . . . . . . .
Other comprehensive loss that will be reclassified to
profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income for the period . . . .
Total comprehensive (loss) income for the period . . . . .
Profit attributable to:
Owners of the parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Three Months Ended March 31,
2020
2021
NT$
NT$
US$
(unaudited)
(in thousands, except per share data)
929,133,122
1,347,112,823
47,300,310
(887,319,417)
(1,268,980,278)
(44,556,892)
41,813,705
78,132,545
2,743,418
(5,317,386)
(7,883,901)
(276,822)
(15,035,999)
(18,820,414)
(660,829)
(16,935,217)
(23,858,634)
(837,733)
(37,288,602)
(50,562,949)
(1,775,384)
4,525,103
27,569,596
968,034
13,650,041
8,403,342
295,061
928,139
7,183,226
252,220
441,377
482,401
16,938
(12,259,616)
(6,747,233)
(236,911)
(1,386,624)
2,297,741
80,679
1,373,317
11,619,477
407,987
5,898,420
39,189,073
1,376,021
(3,748,209)
(8,209,821)
(288,266)
2,150,211
30,979,252
1,087,755
(13,982,967)
7,203,475
252,931
(4,025,455)
5,296,271
185,964
(18,008,422)
12,499,746
438,895
(12,232,021)
(2,180,487)
(76,562)
(1,607,757)
(4,002,504)
(140,537)
(13,839,778)
(6,182,991)
(217,099)
(31,848,200)
6,316,755
221,796
(29,697,989)
37,296,007
1,309,551
2,083,851
28,161,775
988,827
66,360
2,817,477
98,928
2,150,211
30,979,252
1,087,755

For the Three Months Ended March 31,	For the Three Months Ended March 31,	For the Three Months Ended March 31,
2020 2021 NT$ NT$ US$ (unaudited) (in thousands, except per share data) (28,240,413) 34,211,928 1,201,262 (1,457,576) 3,084,079 108,289 (29,697,989) 37,296,007 1,309,551 0.15 2.03 0.07 0.15 2.02 0.07	2021
		US$ data) 1,201,262 108,289
		1,309,551
		0.07
		0.07

Unaudited Consolidated Balance Sheet

	As of March 31,	As of March 31,
2020 NT$ 931,434,201 4,473,572 85,679,240 622,757,155 28,434,024 54,272,273 15,581,029 532,240,638 22,061,968 2,296,934,100 85,621,808 55,656,421 12,961,571 161,601,359 277,457,385 46,660,405 6,609,334 41,431,581 21,670,233 16,072,142 725,742,239 3,022,676,339 374,192,060 29,963,286 3,293,360 642,432,165 24,190,374 186,863,873 16,138,489 2,547,523 7,760,497 91,542,791 1,378,924,418	2021
	NT$ (unaudited) (in thousands) 1,112,174,828 4,252,850 46,576,058 745,890,062 29,730,781 52,187,919 8,250,774 634,982,642 20,348,193 2,654,394,107 91,901,881 95,167,908 17,780,954 171,861,057 289,515,599 45,650,542 10,689,636 46,375,679 21,133,944 11,880,286 801,957,486 3,456,351,593 464,506,666 43,945,617 2,010,356 780,891,457 22,892,268 248,018,907 24,641,380 3,706,271 8,963,534 119,595,089 1,719,171,545	US$ 39,051,082 149,328 1,635,395 26,189,960 1,043,918 1,832,441 289,704 22,295,739 714,473
		93,202,040
		3,226,892 3,341,570 624,331 6,034,447 10,165,576 1,602,898 375,338 1,628,360 742,063 417,145
		28,158,620
		121,360,660
		16,309,925 1,543,034 70,588 27,418,942 803,801 8,708,529 865,217 130,136 314,731 4,199,266
		60,364,169

Non-current liabilities Financial liabilities at fair value through profit or loss-non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions for liabilities — non-current . . . . . . . . . . . . . . Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . Non-current lease liabilities . . . . . . . . . . . . . . . . . . . . . . . Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Equity attributable to owners of parent Share capital Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital reserve Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unappropriated retained earnings . . . . . . . . . . . . . . . . . . . Other equity interest Other equity interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity attributable to owners of the parent . . . . . . . . . Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . .		As of March 31, 2021 NT$ US$ (unaudited) (in thousands) — — 200,396,220 7,036,384 30,256,144 1,062,364 408,165 14,332 21,910,058 769,314 19,649,996 689,958 10,490,038 368,330 283,110,621 9,940,682 2,002,282,166 70,304,851 138,629,906 4,867,623 200,484,799 7,039,494 161,043,748 5,654,626 102,451,720 3,597,322 752,676,042 26,428,232 (81,263,647) (2,853,359) (15,194) (533) 1,274,007,374 44,733,405 180,062,053 6,322,404 1,454,069,427 51,055,809 3,456,351,593 121,360,660
	2020 NT$ 97,237 181,738,717 41,417,060 372,575 21,482,440 21,929,457 6,592,199 273,629,685 1,652,554,103 138,629,906 199,880,666 149,512,874 60,309,927 796,693,801 (132,776,068) (15,194) 1,212,235,912 157,886,324 1,370,122,236 3,022,676,339
		NT$ (unaudited) (in thousands) — 200,396,220 30,256,144 408,165 21,910,058 19,649,996 10,490,038 283,110,621 2,002,282,166 138,629,906 200,484,799 161,043,748 102,451,720 752,676,042 (81,263,647) (15,194) 1,274,007,374 180,062,053 1,454,069,427 3,456,351,593

RECENT DEVELOPMENTS

Recent Monthly Result of Operations

Pursuant to the rules and regulations of the TWSE, the Company reports its consolidated net sales each month.

The Company announced on May 4, 2021 that its consolidated revenue for April 2021 amounted to NT$500.5 billion, representing a 31.39% increase from NT$380.9 billion for April 2020.
The Company announced on June 6, 2021 that its consolidated revenue for May 2021 amounted to NT$455.0 billion, representing a 17.59% increase from NT$387.0 billion for May 2020.
The Company announced on July 5, 2021 that its consolidated revenue for June 2021 amounted to NT$401.6 billion, representing an 11.40% increase from NT$360.5 billion for June 2020.

These monthly result has not been audited or reviewed by PricewaterhouseCoopers, Taiwan and may not be indicative of the Company’s net sales for the full year 2021.

2021 First Quarter Financials

For the three months ended March 31, 2021, our unaudited consolidated revenue amounted to NT$1,347,113 million, representing a 45.0% increase from NT$929,133 million for the corresponding period in 2020. The increase was primarily due to the strong market demand for smartphone devices. Our consolidated net profit increased by 1,340.8% to NT$30,979 million from NT$2,150 million for the corresponding period in 2020. The increase was primarily due to (i) the impact of COVID-19 on our business in the PRC has been mitigated and (ii) the market demand for smartphone devices has rebounded. In addition, for the three months ended March 31, 2021, our unaudited consolidated gross profit increased by 86.9% to NT$78,133 million from NT$41,814 million for the corresponding period in 2020, and our unaudited consolidated gross profit margin improved to 5.8% for the three months ended March 31, 2021 from 4.5% for the corresponding period in 2020. The increase was primarily due to our improved product mix strategy.

Joint Venture with Yageo Group

On May 5, 2021, the Company announced that it intends to form a joint venture named Xsemi with Yageo Group to facilitate the development of its semiconductor business. XSemi will be based in Hsinchu, the ROC, and focus on the development of semiconductor chips with more affordable prices.

Collaboration with Fisker Inc. on an Electric Vehicle Project

On May 13, 2021, the Company and Fisker Group Inc. entered into framework agreements supporting Project “PEAR” (Personal Electric Automotive Revolution), which is an electric vehicles development program.

Joint Venture with Stellantis NV

On May 18, 2021, Stellantis NV, the Company and FIH Mobile announced the signing of a non-binding memorandum of understanding to form Mobile Drive, a 50/50 joint venture aimed at improving in-vehicle user experiences by utilizing advanced consumer electronics, human-machine interfaces and services.

Joint Venture with PTT Public Company Limited

On May 31, 2021, the Company and PTT Public Company Limited announced the signing of a memorandum of understanding to set up an open platform for producing EV and key components to serve the EV sector in Thailand. The platform, comprising hardware and software services, will be available to all automobile players in Thailand looking to accelerate their production and sales of EVs in Thailand and elsewhere in the Southeast Asia.

Acquisition of Sound Solutions International (Zhenjiang) Co., Ltd.

On May 31, 2021, the Company announced that its subsidiary, Foxconn Interconnect Technology Limited, would issue new shares worth US$54,088,303.02 to purchase 100% shares of Sound Legend Limited and thereby indirectly acquire the business of Sound Solutions International (Zhenjiang) Co., Ltd. The acquisition will enable the Group to facilitate and promote the manufacturing, research and development of acoustic components.

Investment in shares of Guangxi Yuchai Logistics Co., Ltd.

On June 9, 2021, the Company announced its subsidiary Jusda Supply Chain Management acquired Guangxi Yuchai Logistics Co., Ltd. in an amount of RMB999,999,959.01.

Acquisition of the shares of Dagang NeXchange Berhad

On June 10, 2021, the Company announced that its subsidiary Foxconn Singapore Pte Ltd had acquired 120,000,000 shares of Dagang NeXchange Berhad in an amount of MYR108,000,000.

Participation in a Private Placement of Giga Solar Materials Corporation

On June 15, 2021, the Company’s wholly owned subsidiary Hyield Venture Capital Co., Ltd. participated in a private placement launched by Giga Solar Materials Corporation in an amount of NT$995,200,000.

Donation of COVID-19 vaccines

On July 11, 2021, the Company and YongLin Foundation jointly completed the purchase of five million (5,000,000) doses of BioNTech (BNT) 162b2 vaccine, and donated them to the Taiwan Centers for Disease Control (CDC) of Executive Yuan Ministry of Health and Welfare. The Company’s individual contribution will amount to a maximum of US$105,000,000, a demonstration of its commitment in fulfilling its social responsibilities in face of the unique challenges brought by COVID-19.

The impact of COVID-19 on our business operations.

The COVID-19 pandemic has caused substantial disruption in international economies and markets, including countries or regions where our businesses, assets and operations are located in. In response to the COVID-19 pandemic, many governments across the world have imposed a number of measures in an effort to contain the spread of the COVID-19 pandemic, including mandatory business closures, travel restrictions, quarantines, lockdowns, limitations on public gatherings and the suspension of major events. These containment measures have caused disruptions across the majority of the countries globally.

In response to the COVID-19 pandemic, we have taken preventive measures, such as disinfection routines, self-quarantine, mandatory hygienic practices, social distancing and establishing an epidemic management team to closely monitor and respond to the pandemic. As this stage, it is difficult to quantify the economic impact arising from the COVID-19 pandemic on our financial position and operating results. As the COVID-19 pandemic continues to evolve, we have prudently and flexibly adjusted our resources labor and supply chain to mitigate the impact on its operations. We will continue to closely monitor the progression the COVID-19 pandemic, evaluate and proactively assess and respond to its impact on the financial position and operating results of the Group. In May 2021, some of the Group’s production sites were shut down or decreased their production due to the COVID-19 pandemic, including those in India, Malaysia, Mexico, Vietnam, etc. Our revenue might fluctuate accordingly. Please refer to “Risk Factors — Risks Relating to our Industry and Business — We are vulnerable to any force majeure events or natural disasters and other disruptive events that could severely disrupt the normal operation of our business and adversely affect earnings”.

The impact of natural disasters and power shortage on our business operations.

In early 2021, the ROC has experienced drought and power shortage that has threatened and may continuously threaten our production capability because our manufacturing process requires water and electricity. Moreover, in July 2021, certain regions of the PRC (including those where the Group currently operates, such as Zhengzhou) were impacted by major flooding caused by heavy rainfall. Please refer to “Risk Factors — Risks Relating to our Industry and Business — We are vulnerable to any force majeure events or natural disasters and other disruptive events that could severely disrupt the normal operation of our business and adversely affect earnings.” and “— Our production facilities are subject to risks of water and power shortages”.

BUSINESS

Business Overview

(i) Components: the Company’s expertise in fast tooling, precision molding and quick turnaround to manufacture components in accordance with demanding technical specifications in a cost-effective manner;
(ii) Modules: the Company’s capabilities in assembling self-produced components as well as externally procured parts into modules, and turning modules into systems, pursuant to customer specifications;
(iii) Moves: the Company’s global supply chain management and logistics network to meet customers’ fast turn-around demand; and
(iv) Services: the Company’s timely and cost-effective end-to-end product solutions from design services in the early stage of a product to the final manufacturing and after-sales services tailored for each customer’s need.

eCMMS differs from the traditional concept of contract electronic manufacturing by not only incorporating the concepts normally associated with contract electronic manufacturing such as providing a one-stop manufacturing and supply chain management solution to OEM clients, but also emphasizing the Company’s capabilities in component manufacturing and assembly of modules in a cost-effective and timely manner. The Company believes that the eCMMS strategy will strengthen its manufacturing advantage in speed, quality, engineering services, flexibility and cost, and thereby solidify the Company’s position as a leading electronics manufacturing services provider. The Company is also dedicated to enhancing the concept of environment sustainability in the manufacturing process and serving as a best-practices model for global enterprises.

utilize this unique set of proficiencies to consolidate resources vertically from both upstream and downstream, which enables the Company to provide its customers with comprehensive “one-stop” solutions. As a leading technological solution provider for decades that is dedicated to technological innovation, the Company has founded a nonprofit organization to support the MIH EV Open Platform, whose core ethos is to share and propel the sustainable development of automotive ecosystem.

The Company was incorporated on February 20, 1974. The Company changed its name in 1982 to “Hon Hai Precision Industry Co., Ltd.” and registered as a company limited by shares. The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 04541302. The Company has been listed on the TWSE since 1991 under the registration number of 2317. In 2004, the Company merged with Ambit Microsystems Corporation, a manufacturer of communications modules and systems such as modules and adaptors for wireless local area network as well as cable modems. In 2005, the mobile phone and smart phone ODM business unit of the company, FIH Mobile (Stock Code: 2038) was listed on The Stock Exchange of Hong Kong Limited. In 2006, the Company merged with Premier Image Technology Corporation, a leading manufacturer of camera modules and optical components for digital cameras, projectors and other electronic products in the ROC. In 2016, the Company invested in Sharp Corporation, a Japanese multinational corporation that designs and manufactures electronic products. On July 13, 2017, FIT Hon Teng (incorporated in the Cayman Islands with limited liability under the name Foxconn Interconnect Technology Limited and carrying on business in Hong Kong as FIT Hon Teng Limited) (Stock Code: 6088), a consolidated subsidiary of the Company, was listed on The Stock Exchange of Hong Kong Limited and on June 8, 2018, Fii (Stock Code: 601138), another consolidated subsidiary of the Company, was listed on the Shanghai Stock Exchange. Fii is a world leading professional design and manufacturing service provider of communication network equipment, cloud service equipment, precision tools and industrial robots, providing customers with intelligent manufacturing services for new forms of electronic equipment products centered on the industrial internet platform.

Industry Overview

In view of the regulatory requirements and a shift in consumer behavior, throughout the years, the Company has actively addressed social and environmental responsibility issues, both on a company level and at an industry level with the electronic industry citizenship coalition, especially even more so with the COVID-19 pandemic. As a result of COVID-19 pandemic and the resultant social distancing policies, there has been a substantial increase in people working from home. This has driven an increase in demand for cloud communication, computers and cloud computing equipment.

The Company remains committed to dedicating resources to address issues as such as energy saving, carbon emissions, recycling and environmentally friendly initiatives. The Company intends to continue to leverage innovations in software and technologically services to expand environmental protection and energy industry, promote global energy savings, emission reduction, as seen in the Company’s focus on the development of the “3+3” industries, namely the three main areas of EV, digital health and robotics and three technological applications of AI, semiconductor and new generation communication. The principal factors that the Company had considered in choosing the abovementioned industries are as follows:

maximizing economies of scale;
rapid growth with two-digit compound annual growth rate; and
building synergy for the Company’s competitive advantage.

The industry in which the Company operates is composed of companies that provide a range of manufacturing and design services to customers that design, develop and sell electronic products.

Historically, the industry experienced significant changes and growth as an increasing number of companies outsourced and continue to outsource some or all of their design, manufacturing, and distribution tasks.

The intensely competitive nature of the electronics industry, the increasing complexity and sophistication of electronic products, the continued pressure on OEMs to reduce product costs and the shorter life cycles of electronic products encourage OEMs to utilize contract manufacturing service providers as part of their overall business and manufacturing strategies. Utilizing contract manufacturing services allow OEMs to take advantage of the global design, manufacturing and supply chain management expertise of contract manufacturing service providers and enables OEMs to concentrate on product research, development, marketing and sales. Over the longer term, factors driving companies to outsource include:

reduced product costs;
reduced design and development costs;
accelerated time-to-market, time-to-volume and time-to-profit production;
access to worldwide design, engineering, manufacturing and logistics capabilities;
improved inventory management and purchasing power;
reduced capital investment in manufacturing and fixed costs; and
ability to focus on core branding and research and development initiatives.

Competitive Advantages

The Company believes that it enjoys several key competitive advantages in its principal activities:

End-to-end product solution provider and vertically integrated production, offering customized solutions and flexible cost structure

The Company’s end-to-end solutions for entire products provide a one-stop shop solution for its customers, capitalizing on its global scale in procurement, manufacturing, supply chain management, system assembly and logistics network. Moreover, the Company’s global scale allows for a strong bargaining power vis-a-vis suppliers and vendors and enable it to lower production costs at several stages of the production process. The Company’s eCMMS strategy and high level of vertical integration of production provide its customers with customized solutions and flexible cost structure. These are only possible with the large scale of the Company which the Company believes has provided and will continue to provide a competitive advantage over its competitors.

Strong and reliable integration capabilities for optomechatronics engineering and manufacturing

The Company’s strong integration capabilities for optomechatronics engineering and manufacturing have enabled it to better optimize operational efficiency at several stages of the production process, starting from design for manufacturing and tool construction to mass production automation. Such integration capabilities provide a reliable platform for the Company to develop high quality products and satisfy the following customers’ requirements: (i) time-to-market; (ii) time-to-volume and; (iii) time-to-profit. In addition, the Company seeks to enhance its optomechatronics capabilities by continuing to invest in the technology for the manufacturing of related products. The Company believes that its substantial integration expertise in optomechatronics engineering provides it with a significant competitive advantage over competitors without such expertise, and that the capital investment and time needed to develop such expertise creates significant barriers to entry.

Strong research and development capabilities

The Company’s strong research and development capabilities in optical, mechanical and electronics engineering are critical to its success. The Company believes that close involvement of its research and development teams with its customers at each stage of the design and development process positions the Company as an industry leader in technological innovation. For example, the Company believes that its

focus on research and development and technological innovation has allowed it to establish a competitive position in 5G technologies, including patent applications, and the “3+3” strategy including in the three industries of EV, digital health and robotics and in three applications across AI, semiconductor and new generation communication. The Company plans to continue to invest in research and development, including in-house research and development activities, joint development with certain major customers, and joint research and development programs with external research institutes and universities. Such resources focus on developing new products, providing manufacturing solutions to customers, improving production efficiency and lowering unit manufacturing costs.

Focused strategic cooperation with key industry leaders

The Company has established strategic cooperation arrangements with some of the world’s leading manufacturers in the 3C industries and in the “3+3” strategy related industries, and the Company plans to continue to develop such strategic cooperation with other industry leaders. In addition to manufacturing, the Company engages in joint product development, testing and applications development with certain industry leaders who are customers of the Company and, in some cases, engages in co-investment in the development of new products. To strengthen strategic co-operations, the Company devotes significant resources to research and development in order to stay at the forefront of optomechatronics engineering and manufacturing processes. In light of the Company’s development in EV and semiconductor field, the Company has established joint ventures with industry leaders including Geely, Heitec and Yageo.

The Company believes that by (i) being involved in the early stages of product design and development with industry leaders, (ii) working with industry leaders to devise manufacturing solutions for their products, (iii) providing quick turn-around prototyping and manufacturing services and (iv) offering global supply chain management solutions for customers in order to provide one-stop manufacturing and global logistics solutions, the Company will further strengthen business relationships with its customers. The Company also believes that the diversity of its customers, products and services help mitigate the Company’s exposure to downturns in any one specific industry or geographic location.

Strategy

The Company’s strategic objectives are (i) to focus on maximizing existing business profitability and improving efficiency, (ii) to leverage digital transportation to enhance performance and lower expense further, (iii) to increase efficiency, downsize costs and optimize products and services by analyzing big data, (iv) to apply edge computing and Artificial Intelligence of Things (“ AIoT ”) develop a cutting edge Industrial Internet of Things (“ IIoT ”) industry, (v) to aim at being a leader of building up a comprehensive AIoT environment, and also (vi) to move from a labor intensive business to an intelligence intensive business, with labor-less factories, automation and the Company’s “3+3” strategy, including in the three industries of EV, digital health and robotics and in three applications across AI, semiconductor and new generation communication.

Concentrate on industry leaders and expand product and service portfolio

The Company intends to concentrate its sales efforts on increasing penetration of its existing customers, currently concentrated in the 3C industries, as well as targeting new customers that are industry leaders. The Company does not market or sell retail products under its own brand name, which allows the Company to position itself as a partner of such industry leaders in the development and manufacture of components, modules and complete systems rather than as a potential competitor to such industry leaders. The Company has established and will continue to develop strategic cooperation with industry leaders and plans to continue to develop such strategic cooperation with other industry leaders as part of its effort to attract new customers.

The Company focuses its eCMMS solutions around the demands of its customers pursuant to its strategy of becoming the strategic partner for its customers. The Company endeavors to deepen its relationship with each of its customers by expanding upstream and downstream to internally provide a greater portion of the components and manufacturing services for each end product. In addition, the Company intends to expand its product portfolio including EV industry in response to customers’ requests as they develop new products and to assist them with penetrating nascent markets with the Company’s global supply chain and logistics network.

Further enhance core engineering skills and vertically integrated production processes to shorten delivery time, accelerate time-to-volume and reduce cost

The Company intends to further develop its core manufacturing capabilities including its enhanced core engineering skills and vertically integrated production processes to provide eCMMS solutions for its customers. Its ability to customize and manufacture a substantial portion of the key components used in the full system assembly of products, as well as to vertically integrate the production process and globally synchronized manufacturing capabilities, has enabled the Company to shorten delivery time, accelerate time-to-volume and reduce cost.

The Company plans to continue to strategically expand production facilities and further refine its manufacturing process in each stage. It also plans to attract, develop and retain local talent in Asia, Europe and Americas. The Company’s global production facilities and capable local talent enable the Company to allocate mass production to local production facilities, while at the same time engaging in product development, prototyping and final configuration services at production facilities close to customers’ facilities or end-markets. The Company’s global network also enables the Company to obtain key components locally, and to synchronize its worldwide manufacturing and delivery network.

Continue expanding global supply chain management capabilities to provide more comprehensive solutions

The Company views global Supply Chain Management (“ SCM ”) capabilities as essential to satisfying the “moving” needs of its eCMMS customers. The Company’s global SCM involves not only its assembly capability, but also the ability to source components in each of Asia, Europe and Americas, its three major geographical regions. The Company’s MRP system, ERP system and EDI system complement the Company’s global SCM system and enable the Company to implement its policy of just-in-time delivery of key components required for production and assembly. The Company also provides its customers with an in-house developed web-based turnkey system, allowing customers online order input capability and enabling them to monitor inventory levels of raw materials and components, work-in-progress and finished products, and production and delivery schedules. The Company plans to continue to expand its existing global SCM capabilities to provide more comprehensive solutions.

Further investment in research and development capabilities to drive innovation

The Company attributes its past success to the development of strong research and development capabilities. It plans to continue the development and expansion of its core technologies by utilizing several regions and locations as bases for research and development. By further developing existing core technologies and adding new core technologies, the Company aims to further expand its offerings, particularly green manufacturing processes and green products, which the Company believes will be its next major growth area. The Company believes that its research and development capabilities provide a unique market differentiator that allows it to provide a full suite of design services and manufactured products to its customers.

Expand through potential acquisitions, joint ventures, partnerships and other strategic transactions

The Company seeks to undertake strategic transactions that give it the opportunity to access new customers, manufacturing and service capabilities, technologies and geographical markets, to lower its manufacturing costs and improve margins, and to further develop existing customer relationships.

Potential future transactions may include a variety of different business arrangements, including acquisitions, spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, relocation of facilities, business combinations and equity or debt investments. The Company intends to continue to evaluate and pursue strategic opportunities on a highly selective basis.

Products and Services

The Company’s products and services consist principally of (i) Components, including a broad range of connectors, cable assemblies, enclosures and electronic and other components; (ii) Modules comprising system boards and subassemblies; and (iii) Systems comprising full system assembly of electronic products. In addition, the Company launched its MIH EV Open Platform in October 2020 to accelerate the innovation and development of the EV industry in response to the emerging market needs.

Components

The Company designs, manufactures and sells a wide variety of electronic and other components, including connectors, wires and cables, casings, PCBs and enclosures. The Company also manufactures a broad range of enclosures with numerous materials including metal, plastics and die cast materials. Connectors and cable assemblies manufactured by the Company are also used internally in the manufacture of enclosures and system boards and full system assemblies.

Modules

Modules are integrated subsystems that use a combination of industry standard and/or custom components. Modules manufactured by the Company are used in the full system assembly of PCs, game consoles and mobile handsets, among others. The Company provides a broad range of services for the manufacture of modules including procurement and material management, assembly, test engineering, quality assurance and shipment to points of end-user distribution.

Systems

The Company provides final system assembly in which assemblies and modules are combined to form complete and finished products; the Company integrates printed circuit board assemblies that are self-manufactured with enclosures, cables and modules that it also produces. With the Company’s optical, mechanical, electronics, material science and SCM expertise, its experience in high quality mass production at a competitive cost, and its vertically integrated production process, the Company offers full system assembly of 3C products ranging from desktop and laptop PCs and servers to smartphones and game consoles.

The Company offers products in four main product categories, namely (i) Smart Consumer Electronics including smartphones, TVs, game consoles, etc.; (ii) Cloud and Networking Products comprising servers, communication network, etc.; (iii) Computing Products comprising computers, tablets, etc.; and (iv) Components and other products including connectors, mechanical parts, services, etc.

Smart Consumer Electronics:

The Company designs, manufactures and sells a wide variety of Smart Consumer Electronics including smartphone devices, feature phones, wearable devices and smart entertainment devices such as television sets, game consoles, set-top boxes, and audio systems.

Cloud and Networking Products:

Cloud and Networking Products designed and manufactured by the Company include network communication and cloud equipment and systems used by businesses and general consumers as well as the devices used by consumers such as routers, servers, edge computing, data centers and satellite communications.

Computing Products:

Computing Products designed, manufactured and assembled by the Company comprise electronic computing equipment for work and daily life, such as desktop computers, laptops, tablets, multi-function devices and printers.

Components and other products:

Components and other products including key components for the supply chain, such as connectors and optical components, electronic components, semiconductor products, automotive equipment and related services and integrated services of emerging industries covering logistics warehousing, software development, healthcare services and integrated services of industrial internet.

MIH EV Open Platform

The Company founded a nonprofit organization to support the MIH EV Open Platform and to boost the growth of the whole EV market. The MIH EV Open Platform provides all joining partners and developers with the essential hardware and software components to build upon and facilitates the formation of a complete EV industry ecosystem.

Production Process

As part of its overall eCMMS strategy, the Company manufactures a substantial portion of the components required for the manufacture of its final products. This high degree of vertical integration allows the Company to achieve cost savings and helps to ensure that the components meet the Company’s quality specifications. The in-house manufacture of components also provides the Company with greater flexibility in customizing components to match customers’ specifications.

The quality of most of the Company’s products depends, to a significant extent, on the quality and precision of the dies and molds used for the production of metal and plastic components. The Company’s manufacturing capability is also enhanced by the use of Computer Aided Design and Manufacturing (“ CAD/CAM ”) tools to customize and automate molding and tooling equipment and the production process and to design prototypes of new products. The Company utilizes an internal database to track the design and development process for new products. This database and tracking process has enabled the Company to maintain high quality standards, and reduce the time and cost required to design, develop and manufacture new products. Quality control tests are conducted on organic and metallic materials used in the production process. In addition, quality control procedures and tests are conducted at each manufacturing and assembly stage. The Company also arranges for certain of its customers to conduct periodic on-site quality inspections.

Components

The production process for connectors and cable assemblies manufactured by the Company is highly integrated and most of the components of connectors and the cable assemblies are produced in-house.

Connectors

The manufacture of connectors consists of the production of plastic and metal components and final assembly.

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Metal material Die casting
Plasti c resin Injection moulding
Automated for
manual assembly Connectors
or components
Brass/copper High precision
Electro plating
alloy stamping
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Round and flat cable assemblies

The production process for cable assemblies is similar to that for connectors, except that it involves the additional steps of cutting cables into specified lengths and soldering electronic components onto the cables.

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----- Start of picture text -----

Conn ectors
Round cable assembly: Stripping cable
and soldering
Cable assemblies
Flat cable assembly: Stripping cable,
inserting wires
and sealing
Raw cables
----- End of picture text -----

Enclosures

The diagram below sets out the production process for a typical PC enclosure. The production processes for other types of enclosures are broadly similar.

==> picture [440 x 176] intentionally omitted <==

----- Start of picture text -----

Plasti c resin Moulding Assembly of Front bezel
components
Assembly of
Assembly of
supplies, fat cables, switching power backplanes and optical disk drive and front bezel with Assembly of the chassis desktop PCBarebone
riser cards thermal product
Galvanised Stamping
steel sheets into specifed Painting Chassis
design
----- End of picture text -----

The production process for PC enclosures involves the production of chassis and final assembly. Components and peripherals are assembled into various types of enclosures according to customers’ specifications. The Company manufactures the chassis, connectors and cable assemblies, flat cables, thermal products, backplanes and riser cards used in the manufacture of enclosures and purchases the remaining components and peripherals from third party suppliers.

Modules — System Boards

The following diagram shows the principal steps in the manufacture of system boards:

Solderpasting of PCB	pasting			S	~~T~~		Heating/ Baking		IC T	~~i~~		Packaging and delivery
										~~estng~~

Systems — Full System Assembly

The Company provides board-level assembly utilizing surface mount technology (“ SMT ”) as well as system-level assembly. The following diagram shows the principal steps in the full system assembly process:

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----- Start of picture text -----

Produc t design Manufacturabilitconsultation y Board level assembly Comaided testputer- assemblySystem Test
Customise
components/ Component
Components management
procurement
----- End of picture text -----

End Markets

Substantially all of the Company’s products and services, whether in the form of components, modules or full system assembly, have end-use applications in the computer, communications or consumer electronics industries.

Computer

The Company manufactures (i) commodity-level PC connectors and higher value-added CPU connectors for desktop and laptop PCs; (ii) connectors for use in high-end PC workstations and servers; (iii) cable assemblies primarily for use in desktop and laptop PCs and servers; (iv) enclosures for desktop and laptop PCs and servers; and (v) full system assembly of desktop and laptop PCs and servers.

Communications

The Company manufactures connectors used in communications equipment, including mobile handsets, gigabit Ethernet channels for local area networks and public branch exchanges. It also manufactures cable assemblies for use in mobile handsets and wireless systems, such as radio frequency cables used to transfer data between servers and end-users or to enable access to the Internet without any external cables.

The Company manufactures on an OEM basis enclosures for communications products such as mobile handsets, smart phones, access point devices and Internet Protocol phones. In addition, the Company manufactures on both OEM and ODM bases enclosure for networking equipment such as switches and routers.

Beginning in 2002, the Company commenced offering full system assembly of mobile handsets. The Company also produces optical components and camera modules for mobile handsets.

Consumer Electronics

The Company manufactures input/output connectors and board-to-board connectors used in consumer electronic products such as game consoles, digital video players and LCD-TVs. For game consoles, the Company manufactures enclosures and provides full system assembly on an OEM basis. It also produces digital music players and digital cameras.

Raw Materials and Components

The Company has implemented various inventory and resource management systems to enable it to plan the global allocation of its resources, which helps to ensure an adequate and timely supply of principal raw materials and components. Each production division within the Company is responsible for procuring and ascertaining the quality of its raw materials and components.

The Company acquires materials and components through purchase agreements and purchase orders with its suppliers. The table below sets forth the principal raw materials and components used in the manufacture of the Company’s products:

Products Components and others Connectors and cable assemblies . . Electronic and other components . . Enclosures . . . . . . . . . . . . . . . . . . System boards . . . . . . . . . . . . . . . Systems Full system assembly Consumer products mobile handsets, game capsules . . . . . . . . . . . . . . . . . . Enterprise products server, data center . . . . . . . . . . . . . . . . . . . . Computing products . . . . . . . . . . .	Raw materials and components
	Potassium gold cyanide, phosphorus bronze, plastic resin, copper alloy and raw cables PCBs, connectors and passive components such as capacitors and resistors Galvanised steel sheets, plastic resin, optical disk drives, card readers, switching power supplies, connectors and riser cards PCBs, connectors, passive components such as resistors, capacitors and oscillators and active components such as ICs and chipsets Battery packs, baseband and radio frequency chipsets, solid state filters, LCDs, ICs, plastic parts, metal sheets, cable assemblies, connectors, adapters, system boards, riser cards and expansion cards Server enclosures, system boards, sub-system (add-on) cards, PSU, HDD, DIMM, CPU, rack cabinet, PDU, switch, cable kits, optics link, PCM mobile, IOM module, chassis enclosures, drives (HDD), sub-systems: PCBA, PSU, HDD, DIMM, fan module, cabling, CPU, rack cabinet, PDU, switch and optics link Housing assy, NAND, LCD, camera, Wifi module and HSG, tablets, desktop and laptop PCs enclosures, system boards, cathode ray tubes, riser cards and expansion cards,

Products
Components and others
Connectors and cable assemblies . .
Electronic and other components . .
Enclosures . . . . . . . . . . . . . . . . . .
System boards
. . . . . . . . . . . . . . .
Systems
Full system assembly Consumer
products mobile handsets, game
capsules . . . . . . . . . . . . . . . . . .
Enterprise products server, data
center . . . . . . . . . . . . . . . . . . . .
Computing products . . . . . . . . . . .

Raw materials and components

Potassium gold cyanide, phosphorus bronze, plastic resin, copper
alloy and raw cables
PCBs, connectors and passive components such as capacitors and
resistors
Galvanised steel sheets, plastic resin, optical disk drives, card
readers, switching power supplies, connectors and riser cards
PCBs, connectors, passive components such as resistors,
capacitors and oscillators and active components such as ICs and
chipsets
Battery packs, baseband and radio frequency chipsets, solid state
filters, LCDs, ICs, plastic parts, metal sheets, cable assemblies,
connectors, adapters, system boards, riser cards and expansion
cards
Server enclosures, system boards, sub-system (add-on) cards,
PSU, HDD, DIMM, CPU, rack cabinet, PDU, switch, cable kits,
optics link, PCM mobile, IOM module, chassis enclosures, drives
(HDD), sub-systems: PCBA, PSU, HDD, DIMM, fan module,
cabling, CPU, rack cabinet, PDU, switch and optics link
Housing assy, NAND, LCD, camera, Wifi module and HSG,
tablets, desktop and laptop PCs enclosures, system boards,
cathode ray tubes, riser cards and expansion cards,

Technology, Research and Development

The Company utilizes proprietary management methods for IIDM-SM (Integration, Innovation, Design, Manufacturing to Sales and Marketing) coupled with precision molding, material technologies, sustainable manufacturing technology, SMT manufacturing technology, heat transfer technology, plastic processing, metal processing, testing capacities, automation capacities, photoelectric consolidation technologies, motherboard design, E-commerce capabilities, server design, wireless communications and light display modules to achieve core competitive advantages.

The Company considers its research and development activities critical to the continued success of its business. The Company’s research and development efforts are focused on the following areas:

design and development of new products, including collaboration with industry leaders;
devising manufacturing solutions for the Company’s customers;

development of key technologies and expertise in material engineering optomechatronics, energy efficiency solutions and process automation to maintain its leadership position in these areas; and
design and development of new production processes to improve production efficiency and reduce overall manufacturing costs; and
establishment of Hon Hai Research Institute to strengthen the Company’s in-house technology capability and in-depth study of prospective technology applications.

The Company believes that close involvement of its research and development teams with its customers at each stage of the design and development process positions the Company as an industry leader in technological innovation.

Previous new products from the Company’s research and development efforts include flat panel displays, backlight modules, nano batteries, nano thermal solutions, aspheric lens for mobile phone camera, backplane connectors, high speed board to board connectors, high speed module jack connectors and burn-in/test sockets. The research and development department is currently focused on wireless networks, materials science and green manufacturing process in connection with application in 3C and other products, as well as chip design and manufacturing to be used in the Company’s development of IIoT. The Company’s global research and development center in Dingpu is fitted with precision machinery, precision molds and nanotechnology research facilities. The Company also intends to establish IIoT research labs, robotics research facilities and labs catered to IIoT and AI applications.

In June 2020, the Company launched Hon Hai Research Institute (the “ Institute ”) which is an important step in the Company’s “3+3” strategy to strengthen the Company’s in-house technology capability and enrich its innovative product pipeline. The Institute includes five research centers, namely the AI research center, semiconductor research center, next-generation communications research center, information security research center and quantum computing research center, each of which has an average of 40 R&D professionals. The Institute also obtains advices from an advisory committee which comprises renowned academics and entrepreneurs.

Sales and Marketing

The Company identifies and targets industry leaders in the 3C industries with whom the Company believes it can develop long-term relationships. The Company intends to concentrate its sales efforts on increasing penetration of its existing customers, as well as targeting new customers that are emerging industry leaders.

Export sales outside of the ROC, which were mostly denominated in U.S. dollars, accounted for virtually all of the Company’s consolidated operating revenue for the year ended December 31, 2020.

The Company has entered into corporate purchase agreements with certain of its key customers. However, such agreements do not obligate the customers to place an order with the Company. These agreements typically require the customers to provide rolling forecasts of the quantities of the products required. The Company’s MRP system utilizes these rolling forecasts to plan the inventory levels for the Company’s raw materials and components and the utilization of its production capacity. The precise terms for each shipment, such as pricing and quantities, are normally confirmed at the time each order is placed. Customers’ orders are subject to cancellations and modifications before scheduled delivery dates.

The Company’s principal customers generally are invoiced either at the time of shipment of the products or upon receipt of the products, with varying credit terms, depending, in part, on the customer’s location and the product type. The Company’s pricing policy takes account of a number of factors including customer relations, product specification, cost of production, mode of transportation and size of order.

The Company typically provides a warranty to its customers for its products. The Company believes that it has historically experienced a relatively low rejection rate for its products as a result of its quality control assurances system.

Supply Chain Management

The Company believes that an effective system of global SCM is critical to its eCMMS strategy.

The Company has installed the following systems to enhance its global SCM system:

The MRP system, which enables the Company to manage its suppliers by implementing more effectively the “just-in-time” concept and also provides a projection of the raw materials required in the Company’s production operations.
The ERP system, which provides inventory data to control the level of stocks and receivables, which enables the Company to more effectively plan and allocate its resources worldwide.
The EDI system, which enables the Company to exchange data (including details of purchase orders) relating to particular transactions with its suppliers, customers and services providers.
In addition, the Company has developed an in-house web-based turnkey system for certain of its customers. This customized system enables its customers to input their orders online and monitor the inventory level of raw materials, components, work-in-progress and finished goods, and the production and delivery schedules for such products.

The Company offers customers a flexible, just-in-time delivery service by coordinating delivery shipments with customers’ inventory requirements. Increasingly, consistent with the Company’s eCMMS strategy, the Company delivers products directly to its customers’ distribution channels or to end-users. The Company believes that this service provides its customers with a comprehensive logistics solution and enables such customers to be more responsive to market demands.

Competition

Components

The Company competes against a number of multi-national companies, including Luxshare in the global connector market. Certain contract electronic manufacturing services providers also produce enclosures as part of their vertical integration strategy and therefore effectively compete with the Company.

Modules and Systems

The contract electronic manufacturing industry, which engages in PCBAs and full system assembly, is comprised of a large number of companies. The Company’s competitors include Flextronics, Jabil Circuit, Luxshare, Pegatron and Quanta. The Company believes that the primary basis of competition in full system assembly for the 3C industries is the ability to provide a competitive overall manufacturing cost, mechanical engineering capabilities, a highly vertically integrated production process, flexibility, consistent quality of products and the ability to provide services in a timely manner. To remain competitive, the Company believes it must continue to provide competitive pricing, maintain stringent quality levels, and offer speedy, flexible and reliable delivery. See “Risk Factors — Risks Relating to our Industry and Business — The Group operates in a highly competitive industry”.

Principal Production Facilities

The Company’s production facilities are located in Asia, Europe and Americas and consist of a global network of industrial parks, regional manufacturing operations as well as design and engineering centers. The following table sets out the geographical region and location of the principal production facilities of the Company as of December 31, 2020:

Geographical Region ROC . . . . . . . . . . . . . . . . . . . . . . . PRC . . . . . . . . . . . . . . . . . . . . . . .	Location
	Taipei City, New Taipei City, Taoyuan City, Hsinchu County, Taichung City, Miaoli County, Tainan City, Kaohsiung City Guangdong, Zhejiang, Jiangsu, Hebei, Shanxi, Guangxi, Hubei, Shandong, Beijing, Henan, Tianjin, Sichuan, Shanghai, Hunan, Guizhou, Chongqing, Anhui

Geographical Region Asia (excluding ROC and PRC) . . . Europe . . . . . . . . . . . . . . . . . . . . . Americas . . . . . . . . . . . . . . . . . . . Australia . . . . . . . . . . . . . . . . . . .	Location
	Singapore, Vietnam, India, Japan, Korea, Thailand, Malaysia Czech Republic, Slovakia, Hungary, UK, Russia United States, Mexico, Brazil Australia

Employees

As of December 31, 2020, the Company’s global workforce totaled approximately 800,000 employees.

For its employees based in the ROC, the Company participates in defined benefit pension plan in accordance with the ROC Labor Standards Law, covering all regular employees for services provided prior to July 1, 2005 and employees who chose to remain in the benefit pension plan after the ROC Labor Pension Act became effective on July 1, 2005. The Company makes contributions based upon employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan as trustee under the name of an independent retirement fund committee. In accordance with the ROC Labor Pension Act, the Company has a defined contribution employee retirement plan covering all ROC employees. The Company contributes 6 per cent. of an employee’s monthly salary and wages to the personal pension account of such employee each month with the ROC Bureau of Labor Insurance. Employees may choose to receive pension on a monthly basis or to receive a lump sum payment upon retirement in the amount of the balance in the personal pension account plus accumulated investment gains. The Company’s employees in the ROC are not unionized and neither the Company nor any members of the Company has experienced any significant labor disputes in the past five years.

For its employees at the PRC facilities, the Company is required to participate in various pension programs and government-sponsored benefits. The Company has also implemented certain measures such as: reducing overtime hours for its employees, enhancing health and safety measures in all operations and revising a number of workplace policies and practices to ensure that it is providing its employees with a safe, satisfactory and healthy workplace.

For employees at the Company’s other facilities outside of the ROC and PRC, the Company participates in various pension and government-sponsored benefit programs as required by the regulations in the applicable jurisdiction.

FIH Mobile, a consolidated subsidiary of the Company, adopted a share option scheme and a share scheme in 2013. FIT Hon Teng, a consolidated subsidiary of the Company, adopted a share option scheme in 2017, a first restricted share award scheme in 2018 and a second restricted share award scheme in 2019. The board of directors of Fii, another consolidated subsidiary of the Company, adopted the stock option scheme in 2019. The Company itself does not have any share option schemes.

Intellectual Property

The Company has made substantial investments in the development of new products and product designs, which the Company believes is one of its competitive advantages. See “— Technology, Research and Development” above. As a result, the Company places emphasis on the protection of its intellectual property rights. As of December 31, 2020, the Company had registered approximately 4,821 patents in the ROC, approximately 2,408 patents in the PRC, approximately 5,209 patents in the United States and approximately 695 patents in Japan.

The Company also has registered trademarks for and in the ROC, the PRC, the United States and the European Union.

Environmental Issues

The Company has installed waste treatment facilities and implemented waste treatment procedures in each of its production facilities to treat waste discharged during the production process. The types of waste discharged include wastewater, polluted air emissions, metal trim waste products and non-hazardous wastes. Waste produced by the Company is treated before being discharged in compliance with applicable environmental standards in the jurisdiction where the facility is located. Furthermore, the Company has established its CSR committee which dedicates to amplify the Company’s corporate social responsibility and ensure that its operations will comply with its social and environmental code of conduct.

The Company believes that it is in compliance in all material respects with applicable environmental regulations currently in effect. Though the Company may face actions arising in the ordinary course of its business by the environmental regulatory authorities in some of the jurisdictions where it operates, the Company is not involved in any material legal proceedings relating to any breach of environmental laws and regulations which may have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

As per the requirements of its customers, the Company has received ISO 14001 and ISO 50001 certification for certain of its facilities which certifies that its production operations conform to the prescribed environmental management system standard.

Litigation

In 2006, three of the Company’s indirectly wholly-owned subsidiaries, Shenzhen Futaihong Precision Industrial Co., Ltd., Hongfujin Precision Industry (Shenzhen) Co. Ltd. and Foxconn Precision Component (Beijing) Co., Ltd., filed an appeal to the High Court of Hong Kong against, amongst others, BYD Company Limited for misappropriation of confidential information and trade secrets. The Company does not believe that the litigation will have a material adverse effect on its business, financial condition, results of operations and future prospects. See “Risk Factors — Risks Relating to our Industry and Business — We may be involved in intellectual property disputes, especially in the new industries that we recently entered into”.

In March 2019, Microsoft Corporation and Microsoft Licensing, GP commenced proceedings in California against the Company over a dispute regarding royalty payments under a patent licensing agreement. While this dispute had reached a settlement in September 2020, the Company may still from time to time encounter future litigation initiated by its customers or third parties based on claims that the Company’s technologies, processes or products infringe the intellectual property rights of others or that the Company has misappropriated the trade secrets of others. See “Risk Factors — Risks Relating to our Industry and Business — We may be involved in intellectual property disputes, especially in the new industries that we recently entered into”.

During the years ended December 31, 2019 and 2020, the Company was also subject to legal or other disputes arising in the ordinary course of its business. The Company does not believe that any of these proceedings will have a material adverse effect on its business, financial condition, results of operations and future prospects.

Except as described above, neither the Company nor any members of the Company is, or has been, involved in any legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have, or have had during the preceding 12 months, a material effect on the financial position of the Company as a whole.

Insurance

The Company maintains various insurance policies with independent third party insurers in respect of certain risks on the Company’s assets, including losses to its production facilities and inventory. The Company maintains a global transit insurance policy with independent third party insurers in connection with the transportation of its raw materials, products and equipment worldwide. The Company also maintains product liability insurance policies in respect of its products. The Company considers its insurance policies to be in line with industry standards.

Organization of the Company

The following diagram gives an overview of the Company and certain of its principal subsidiaries as of December 31, 2020, together with details of the Company’s direct and indirect equity interests:

==> picture [443 x 258] intentionally omitted <==

----- Start of picture text -----

Hon Hai Precision Industry Co., Ltd.
(Issuer)
100.00%
Foxconn (Far East) Limited
100.00%
85.00% Futaihua Industrial (Shenzhen) 84.21%
Co., Ltd. Directly and indirectly
owned through other
subsidiary
15.00% 15.79%
Honfujin Precision Electronics Honfujin Precision Electronics
(Zhengzhou) Co., Ltd. (Chengdu) Co., Ltd.
----- End of picture text -----

Certain Principal Subsidiaries

In the ROC, most of the business of the Company is conducted, and assets of the Company are held, directly by or through Hon Hai Precision Industry Co., Ltd., while its subsidiaries hold the Company’s production facilities in Asia, Europe and Americas and conduct the Company’s overseas sales, marketing and research and development operations. The information set out below reflects the Company’s direct and indirect equity interests in its certain principal subsidiaries as of December 31, 2020.

Company Principal Subsidiaries Futaihua Industrial (Shenzhen) Co., Ltd. . . . . Honfujin Precision Electronics (Zhengzhou) Co., Ltd. . . . . . . . . . . . . . Honfujin Precision Electronics (Chengdu) Co., Ltd. . . . . . . . . . . . . .	Main business Manufacturing and marketing of computer components and computers Manufacturing and marketing of cell phones and components Manufacturing and marketing of tablet PCs	Place of incorporation PRC PRC PRC	Total paid-in capital (in thousands) US$370,000 US$2,000,000 US$950,000	The Company’s direct and indirect equity interest
				100% 100% 100%

Note:

(1) There has been no material change in the Company’s direct and indirect equity interests in each of its certain principal subsidiaries and affiliates since December 31, 2020.

Futaihua Industrial (Shenzhen) Co., Ltd.

Futaihua Industrial (Shenzhen) Co., Ltd. (“ Futaihua Shenzhen ”) was established in the PRC in March 2007. Its registered office is at Buildings 4, 6, 7 and 13 (section I) of the B Block Workshop, Foxconn Guanlan Technology Park, Third Community, Guanlan Sub-District, Longhua New District, Shenzhen, PRC. Futaihua Shenzhen is engaged in the manufacture of Apple products, main logic boards, and finished products assembly, testing and maintenance.

As of and for the year ended December 31, 2020, Futaihua Shenzhen had total assets, revenue and net profit of RMB103,898 million (US$15,862 million), RMB98,514 million (US$15,040 million) and RMB5,183 million (US$791 million), respectively, and these are prepared in accordance with Taiwan IFRS.

Honfujin Precision Electronics (Zhengzhou) Co., Ltd.

Honfujin Precision Electronics (Zhengzhou) Co., Ltd. (“ Honfujin Zhengzhou ”) was established in the PRC in July 2010. Its registered office is at The Comprehensive Bonded Area, East-Side Of Changan Road, Zhengzhou Airport District, China. Honfujin Zhengzhou is engaged in the production and operation of the third generation and newer mobile communication system, mobile phone and base station, core network and testing equipment and its accessories, electronic devices components, digital audio, video decoding apparatus and its accessories; development, design and manufacture of automation equipment, metal and non-metallic products die mold, testing tools and its accessories, LED display panel, mobile phone components, electronic devices; repair and warehousing of the above products; wholesale, import and export, complementary measures, product exhibition of the above products; bonded area warehousing and logistics; development of mobile communication system; testing, system integration, application services and related technical services and consulting; sales for polishing slurry, cleanser, cutting fluid, hydraulic oil, lubricant, Radio Frequency IDentification (“ RFID ”) reader, RFID tag, industrial data collector, industrial computer, testing and gauging equipment; eco-technology services.

As of and for the year ended December 31, 2020, Honfujin Zhengzhou had total assets, revenue and net profit of RMB174,779 million (US$26,684 million), RMB306,157 million (US$46,742 million) and RMB1,418 million (US$216 million) respectively, and these are prepared in accordance with Taiwan IFRS.

Honfujin Precision Electronics (Chengdu) Co., Ltd.

Honfujin Precision Electronics (Chengdu) Co., Ltd. (“ Honfujin Chengdu ”) was established in the PRC in July 2010. Its registered office is at Chengdu High-tech District Export Processing Zone. The address is No. 888, He-Zuo Road, Hi-tech West Zone, Chengdu, China. Honfujin Chengdu is engaged in the manufacture of third and newer generation mobile communication system, mobile phone and subsequent base station, core network equipment and network testing equipment and spare parts, hardware plastic products, precision molds, large and medium-sized computer, portable computer, server, data communication multimedia system.

As of and for the year ended December 31, 2020, Honfujin Chengdu had total assets, revenue and net profit of RMB69,406 million (US$10,596 million), RMB163,825 million (US$25,011 million) and RMB471 million (US$72 million), respectively, and these are prepared in accordance with Taiwan IFRS.

MANAGEMENT

The Board of Directors has ultimate responsibility for the management of the business affairs of the Company. At present there are nine directors, three of which are Independent Directors, who are elected by the shareholders of the Company at the Company’s shareholders’ meeting. The term of office for directors is three years.

Under the Company’s Articles of Incorporation, the Board of Directors is required to elect a director to act as the Chairman. The Chairman is a legal representative of the Company under the ROC Company Law. The Company’s Articles of Incorporation also require the election of at least two independent directors and the number of independent directors shall not be less than one-fifth of the total number of directors. The Company’s Articles of Incorporation further provide that the power of the supervisor is replaced by the Audit Committee composed of all but not less than three independent directors of the Company. Under the ROC Securities and Exchange Act, the Audit Committee has the same power of a supervisor of a company, which is responsible for overseeing the activities of the Board of Directors and has the power to investigate the business and financial conditions of the Company, examine its books, records and documents and request the Board of Directors to submit reports. The Audit Committee may engage independent experts to carry out any such investigations or examinations at the cost of the Company. The Audit Committee may convene shareholders meetings when it deems necessary.

The present Board of Directors was elected by the shareholders of the Company on June 21, 2019 for a term of three years commencing on July 1, 2019. Tai Cheng-Wu had resigned from the Board of Directors effective from June 1, 2020. Gou Tai-Ming retired as Chairman of the Board of Directors and General Manager of the Company with effect from June 22, 2019.

Directors

Liu Young-Way

Liu Young-Way, aged 65, is the Chairman of the Board of Directors and General Manager of the Company. Mr. Liu also serves as the Chairman of Foxsemicon Integrated Technology Inc. He was also the president of the Company’s S subgroup and previously a director of Sharp Corporation.

Lee Jay

Lee Jay, aged 64, is the representative of Hon Jin International Investment Co. Ltd., the Corporate Director of the Company. Mr. Lee was also the Vice Chairman of Fii, having resigned on September 3, 2019. He also serves as an Ohio Eminent Scholar and L.W. Scott Alter Chair Professor at the University of Cincinnati.

Gou Tai-Ming

Gou Tai-Ming, aged 71, is a Director of the Company. Mr. Gou was the Chairman of the Company from February 20, 1974 to June 22, 2019.

Lu Fang-Ming

Lu Fang-Ming, aged 67, is a Director. He served as the acting Chairman of the Company from June 22, 2019 to June 30, 2019. Mr. Lu is also the Chairman of APT and the trustee manager of Asian Pay Television Trust. Mr. Lu was the corporate director of the Company, as a representative of Hon Jin International Investment Co. Ltd. from July 1, 2010 to June 30, 2019.

Lu Sung-Ching

Lu Sung-Ching, aged 63, is the representative of Hon Jin International Investment Co. Ltd., the Corporate Director of the Company. Mr. Lu is also the Chairman of FIT, Hon Teng.

Liu Christina Yee-Ru

Liu Christina Yee-Ru, aged 66, is the representative of Fulldream Information Co., Ltd. and a Director of the Company. Dr. Liu also serves as a Managing Director of Bellwether International Group, Hong Kong. Dr. Liu has been a Director of the Company since June 1, 2020.

Wang James

Wang James, aged 61, is an Independent Director of the Company. Mr. Wang also serves as an independent director of HannStar Board Corporation and Apex Medical Corp and a supervisor of GGA Corp. Mr. Wang has been an Independent Director of the Company since January 31, 2018.

Kuo Tei-Wei

Kuo Tei-Wei, aged 57, is an Independent Director of the Company. Mr. Kuo is also a Distinguished Professor at the Department of Information Engineering, National Taiwan University. Prior to this, Mr. Kuo has held various positions at the National Taiwan University, including Acting Principal and Professor and Dean of the Department of Information Engineering.

Kung Kuo-Chuan

Kung Kuo-Chuan, aged 53, is an Independent Director of the Company. Mr. Kung is also the Managing Partner of Nexus Point Advisors (HK) Limited.

As of April 25, 2021, the Directors, including any connected persons (which includes their spouses, children under the age of 20 years and nominees), held, directly or indirectly, 9.75 per cent. of the Company’s issued common shares. Their respective shareholdings are set out below:

Liu Young-Way . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gou Tai-Ming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lu Fang-Ming(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hon Jin International Investment Co., Ltd.(3) . . . . . . . . . . . . . . . . . . Lee Jay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lu Sung-Ching(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulldream Information Co., Ltd.(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . Liu Christina Yee-Ru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wang James . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kuo Tei-Wei . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kung Kuo-Chuan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total number of common shares held by the Directors, including any connected person(1) . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of common shares held as of April 25, 2021 656,219 1,342,198,518 7,928,592 1,483,078 0 5,923 10,560 50,000 0 0 0 1,352,332,890	Percentage of total common shares outstanding as of April 25, 2021
		— 9.68% 0.06% 0.01% — — — — — — —
		9.75%

Notes:

(1) Includes the shares held by the Director, his or her spouse, children under the age of 20 years and nominees but excludes the shares held in trust.
(2) 1,199,012 shares are currently held by connected persons of Mr. Lu Fang-Ming as of April 25, 2021.
(3) Mr. Lee Jay and Mr. Lu Sung-ching are the representatives of Hon Jin International Investment Co., Ltd.
(4) 3,523 shares are currently held by connected persons of Mr. Lu Sung-Ching as of April 25, 2021.
(5) Dr. Liu Christina Yee-Ru is the representative of Fulldream Information Co, Ltd.

None of the Directors has any options to subscribe for the common shares.

The aggregate remuneration and benefits in kind declared in favor of the Board of Directors of the Company for the year ended December 31, 2020 in their capacity as Directors was NT$22.7 million (US$0.8 million). The Company has no loans outstanding to any of its Directors and has no outstanding guarantees of any obligations of any of its Directors.

No loans or advances were made by the Company or any of its subsidiaries to, and no guarantees were given by the Company or any of its subsidiaries in relation to loans or advances received by, the Directors and none of the Directors has or has had interests in transactions which are or were unusual in their nature or conditions or significant in relation to the business of the Company or any of its subsidiaries and which

were affected by the Company during the current financial year or the financial year immediately preceding the date of this document, or were affected by the Company during earlier financial years and remain, in any respect, outstanding or unperformed.

PRINCIPAL SHAREHOLDER

The principal shareholder of the common shares of the Company as of April 25, 2021, as appears on the register of shareholders of the Company, was as follows:

Name of Shareholder Gou Tai-Ming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of common shares(1) 1,342,198,518	Percentage of share capital
		9.68

Note:

(1) Excludes the common shares held in trust.

As of April 25, 2021, Mr. Gou Tai-Ming, directly or indirectly, owned or controlled in aggregate 9.68 per cent. of the outstanding and issued common shares. Whilst Mr. Gou Tai-Ming has retired as Chairman of the Board of Directors and General Manager of the Company with effect from June 22, 2019, as a principal shareholder, Mr. Gou Tai-Ming is expected to continue to have significant influence in determining the outcome of any corporate transaction and also the power to prevent or cause a change in control. The interests of Mr. Gou may differ from the interests of other shareholders. See “Risk Factors — Risks Relating to our Industry and Business — Principal shareholder’s interests may differ from those of other shareholders”.

CHANGES IN ISSUED SHARE CAPITAL

The following table sets forth the changes in the Company’s issued share capital as at the dates indicated:

Date August 2000 . . . . . August 2001 . . . . . August 2002 . . . . . August 2003 . . . . . July 2004 . . . . . . . . October 2004 . . . . . May 2005 . . . . . . . . August 2005 . . . . . September 2005 . . November 2005 . . . April 2006 . . . . . . . September 2006 . . March 2007 . . . . . . September 2007 . . October 2008 . . . . . June 2009 . . . . . . . . September 2010 . . August 2011 . . . . . September 2012 . . October 2013 . . . . . October 2014 . . . . . June 2015 . . . . . . . . October 2015 . . . . . December 2015 . . . December 2016 . . . September 2018 . .	Type of issue Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase for the Merger with Ambit Microsystems Corporation Capital Increase by Earnings Recapitalization Conversion of Convertible Bonds Conversion of Convertible Bonds Conversion of Convertible Bonds Capital Increase by Earnings Recapitalization Conversion of Convertible Bonds Conversion of Convertible Bonds Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase for the Merger with Premier Image Technology Corp. Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Capital Increase by Earnings Recapitalization Issuance of Restricted Stocks to Employees Capital Increase by Earnings Recapitalization Cancelation of Restricted Stocks to Employees Capital Increase by Earnings Recapitalization Cash Capital Reduction	Number of Common Shares issued (in thousands) 352,900 315,880 296,117 454,277 238,024 473,801 23 7,696 45,806 718,647 35,151 61,630 889,991 178,195 1,122,628 1,123,857 1,164,308 1,082,316 1,027,849 1,146,770 1,292,840 1,664,700 355,000 844,881 (355,000) 1,690,450 (3,465,747)	Number of Common Shares Outstanding
			(in thousands) 1,452,900 1,768,780 2,064,897 2,519,174 2,757,198 — 3,231,023 3,238,718 3,284,525 4,003,171 4,038,323 4,099,953 4,989,944 5,168,139 6,290,767 7,414,623 8,578,932 9,661,248 10,689,097 11,835,867 13,128,707 14,793,407 15,148,407 15,993,288 15,638,288 17,328,738 13,862,991

DESCRIPTION OF THE BONDS

The Bonds are to be issued under an indenture, to be dated as of August 5, 2021 (the “ Indenture ”), between Hon Hai Precision Industry Co., Ltd. (the “ Issuer ” or the “ Company ”) and Citicorp International Limited, in its capacity as trustee (the “ Trustee ”). The following summary of certain provisions of the Bonds and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the provisions of the Bonds and Indenture, including the definitions of certain terms therein. Whenever particular Sections or defined terms of the Indenture not otherwise defined herein are referred to, such Sections or defined terms are incorporated herein by reference. Copies of the Indenture will be available (upon reasonable advance notice being given to the Trustee) for inspection by any Holder on or after the Closing Date (as defined below) during normal business hours at the corporate office of the Trustee at 20/F, Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.

General

Except in certain limited circumstances, Bonds will only be issued in book-entry form.

The Bonds will be issued on or about August 5, 2021 (the date on which the Bonds are issued under the Indenture being referred to herein as the “ Closing Date ”) as direct, unconditional, unsecured and unsubordinated payment obligations of the Issuer limited in aggregate principal amount to US$700,000,000 and will be redeemed on August 5, 2026 (the “ Maturity Date ”) unless earlier redeemed, repurchased and canceled or converted pursuant to the terms thereof and of the Indenture.

The Bonds will not bear interest.

Each Bond will be convertible, subject to compliance with certain conditions and procedures (see “— Conversion — Procedures; Conversion Notice; Taxes and Duties” below), at the Holder’s election on any Business Day during the period (the “ Conversion Period ”) commencing on November 8, 2021 (the next day immediately after the end of a three-month period following the Closing Date) and ending at the close of business in the location of the applicable Paying Agent (as defined below) on (i) the 30th day prior to the Maturity Date or (ii) the fifth (5th) Business Day prior to the applicable Purchase Date of such Bond or date fixed for redemption (other than the Maturity Date) of such Bond pursuant to a notice of redemption given by the Issuer in accordance with the provisions of the Indenture. The Conversion Period shall not include any Closed Period (as defined below).

The principal of and other amounts on the Bonds will be payable in U.S. Dollars by the Issuer pursuant to the Indenture, and the Bonds may be presented for registration of transfer, exchange or conversion, at the office or agency of the Issuer maintained for such purpose (the “ Paying Agent ”) located in London, England.

The Issuer reserves the right, subject to the provisions of the Indenture and the applicable Paying Agent and Registrar Appointment Letter, at any time to vary or terminate the appointment of any Paying Agent and to appoint further or other Paying Agents, provided that the Issuer will at all times maintain a Paying Agent having offices in London, England. Notice of any such termination or appointment and of any changes in the specified offices of the Paying Agents will be given promptly by the Issuer to the Holders (and other applicable parties) in accordance with the notice provisions of the Indenture as described below under “— Notices”.

The Bonds will be issued only in fully registered form, without interest coupons, in denominations of US$200,000 and any integral multiple of US$100,000 in excess thereof. See “— Book Entry; Delivery and Form” below. No service charge will be payable for any registration of transfer or exchange of the Bonds, for the conversion thereof or for the charges of the Paying Agents in connection therewith, but the Issuer may require payment by a Holder of a sum sufficient to cover any transfer or stamp tax or other similar governmental charge payable in connection therewith.

The Issuer and its Affiliates may at any time, subject to applicable law, purchase the Bonds in the open market, or otherwise, at any price. A Bond purchased by the Issuer shall be canceled and cannot be re-issued. A Bond does not cease to be outstanding because any of the Issuer’s Affiliates holds such Bond; provided, however, any Bonds owned by any Affiliate of the Issuer will be deemed not to be outstanding in determining whether the Holders of the requisite principal amount of Bonds have given or concurred in any request, demand, authorization, direction, notice, consent or waiver under the Indenture.

Book Entry; Delivery and Form

The Bonds will only be represented by a permanent global bond in fully registered book-entry form without interest coupons (the “ Global Bond ”) and will be deposited with a common depositary (the “ Common Depositary ”) for Euroclear Bank S.A./N.V. (“ Euroclear ”) and Clearstream Banking, société anonyme (“ Clearstream ”) and registered in the name of a nominee of the Common Depositary. If (i) at any time the Common Depositary advises the Company in writing that it is unwilling or unable to continue as a depository for the Global Bond and a successor depository is not appointed by the Company within 90 days, (ii) either Euroclear or Clearstream or any alternative clearing system on behalf of which the Bonds evidenced by the Global Bond may be held is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or in fact does so, or (iii) an Event of Default has occurred and is continuing with respect to the Bonds and the Trustee notifies the Company in writing that any of the Bonds have become immediately due and payable pursuant to the Indenture, the Company shall issue individual certificated bonds in registered form in exchange for the Global Bond in any authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Bond. The Bonds will have minimum denominations of US$200,000 and any integral multiple of US$100,000 in excess thereof.

The Bonds are not issuable in bearer form.

Transfers of interests in the Bonds evidenced by the Global Bond will be effected in accordance with the rules of the relevant clearing systems. In addition, transfers of the Bonds and Common Shares are subject to certain restrictions. See “Transfer Restrictions of the Bonds”.

Ranking

The Bonds will (i) be direct, unconditional, unsubordinated and unsecured payment obligations of the Issuer, (ii) rank pari passu without any preference or priority among themselves and with all other direct, unconditional, unsecured and unsubordinated Debt (as defined below) of the Issuer now or hereafter outstanding (except to the extent that such other Debt (x) ranks above such obligation solely by reason of Liens (as defined below) permitted under the Indenture) or (y) is preferred by mandatory provisions of law, and (iii) be senior in right of payment to all Debt of the Issuer that is expressed to be subordinated in right of payment to the Bonds.

The Bonds will be effectively subordinated to all secured obligations and other obligations similar to those of negative pledge as described in “— Certain Covenants — Negative Pledge” of the Issuer with respect to claims against the assets securing such obligations (“ Secured Debt ”). As of May 31, 2021, the Issuer had no outstanding Secured Debt.

Sinking Fund

The Bonds will not be entitled to the benefit of a sinking fund.

Transfer of Certificated Bonds and Delivery of New Certificated Bonds

In the event Certificated Bonds are issued, the following provisions will apply:

(i) Transfer of Certificated Bonds

A Certificated Bond may be transferred upon the surrender at the specified office of any Paying Agent of the Certificated Bonds to be transferred, together with the form of transfer endorsed thereon (the “ Form of Transfer ”) duly completed and executed and any other evidence that such Paying Agent may reasonably require. In the case of a transfer of only part of a holding of Certificated Bonds, a new Certificated Bond shall be issued to the transferee in respect of the part transferred and a further new Certificated Bond in respect of the balance of the holding not transferred shall be issued to the transferor. The Form of Transfer will be available at the specified office of the Paying Agent.

(ii) Delivery of New Certificated Bonds

Each new Certificated Bond shall be available for delivery upon receipt by the Paying Agent at its specified office of the relevant Certificated Bond and the Form of Transfer. Delivery of the new

Certificated Bonds shall be made at the specified office of such Paying Agent to whom the relevant Certificated Bond and the Form of Transfer shall have been surrendered or delivered or, at the option of the Holder making such delivery or surrender as aforesaid and as specified in the relevant Form of Transfer or otherwise in writing, be mailed by uninsured post at the risk of the Holder entitled to the new Certificated Bond to such address as may be so specified, unless such Holder requests otherwise and pays in advance to the relevant Paying Agent the costs of such other method of delivery and/or such insurance as it may specify.

(iii) Formalities Free from Charge

Transfers of the Certificated Bonds will be effected without charge by or on behalf of the Issuer or any Paying Agent, but only upon confirmation of payment (or the giving of such indemnity as such Paying Agent may require in respect) of any tax or other governmental charges which may be imposed in relation thereto.

(iv) Restricted Transfer Periods

No Bondholder may require the transfer of a Certificated Bond to be registered during the period of 15 days ending on (and including) a Redemption Date.

Payments

All amounts due under, and all claims arising out of or pursuant to, the Bonds and/or the Indenture or the Agency Agreement from or against the Company shall be payable and settled in U.S. Dollars only.

The definitions of certain terms used in this section and the Indenture are listed below.

“ Fixed Exchange Rate ” means the fixed rate of US$1.00=NT$27.978.

“ Independent Investment Bank ” means (i) an independent investment bank of international repute or (ii) leading independent securities company or bank in the ROC (in each case of (i) and (ii), acting as an expert) selected by the Company and notified in writing to the Trustee and the Paying Agent.

“ NT Dollars ” or “ NT$ ” means the lawful currency for the time being of the ROC.

“ Prevailing Rate ” for each Rate Calculation Date, means a rate determined by the Company in good faith as follows:

(a) the fixing rate at 11:00 a.m., expressed as the number of NT Dollars per one U.S. Dollar, quoted by Taipei Forex Inc.;
(b) if no such rate is available under sub-paragraph (a), the prevailing rate determined by the Company in good faith on the basis of quotations provided by the Reference Dealers of the specified exchange rate for the Rate Calculation Date as obtained in accordance with the provisions below; and
(c) if fewer than two quotations are provided under sub-paragraph (b), the exchange rate for the Rate Calculation Date as shall be determined by an Independent Investment Bank in good faith.

In determining the prevailing rate under sub-paragraph (b), the Company will request the Taipei office of each of the Reference Dealers to provide a quotation of what the specified screen rate would have been had it been published, reported or available for the Rate Calculation Date, based upon each Reference Dealer’s experience in the foreign exchange market for NT Dollars and general activity in such market on the Rate Calculation Date. The quotations used to determine the Prevailing Rate for a Rate Calculation Date will be determined in each case for such Rate Calculation Date, and will be requested at 3:30 p.m. (Taipei time) on such Rate Calculation Date or as soon as practicable after it is determined that the specified screen rate was not available.

If four quotations are provided, the rate for a Rate Calculation Date will be the arithmetic mean of the rates, without regard to the rates having the highest and lowest value. For this purpose, if more than one quotation has the same highest value or lowest value, then the rate of only one of such quotations shall be

disregarded. If two or three quotations are provided, the rate for a Rate Calculation Date will be the arithmetic mean of the rates provided.

As soon as practicable after the Prevailing Rate has been determined, the Company will notify the Paying Agent by email or facsimile of the Prevailing Rate and the applicable Settlement Equivalent on the Rate Calculation Date.

All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of determining the Prevailing Rate, whether by the Reference Dealers (or any of them), the Company or the Independent Investment Bank, will (in the absence of fraud, willful misconduct or gross negligence) be binding on the Issuer, the Trustee, the Agents and all Bondholders.

“ Rate Calculation Date ” means the day which is two Business Days before the due date of the relevant amount.

“ Reference Dealers ” means four leading dealers engaged in the foreign exchange market of the relevant currency selected by the Company.

“ Settlement Equivalent ” for the relevant Rate Calculation Date in respect of any U.S. Dollar-denominated amount payable in respect of the Bonds, means such U.S. Dollar amount converted into NT Dollar amount using the Fixed Exchange Rate, and then converted back to U.S. Dollar amount using the applicable Prevailing Rate on such date.

“ U.S. Dollars ” or “ US$ ” means the lawful currency for the time being of the United States of America.

Additional Amounts

All payments of the principal of and other amounts on the Bonds and all deliveries of Common Shares (as defined below) made on conversion of the Bonds are to be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or other governmental charges (“ Taxes ”) imposed, levied, collected, withheld or assessed by or within the ROC or any other jurisdiction in which the Issuer is organized or resident for tax purposes or from which any payment on the Bonds is made (or any political subdivision or Taxing Authority (as defined below) thereof or therein), unless such withholding or deduction is required by law or by regulation or governmental policy having the force of law. In the event that any such withholding or deduction is so required, the Issuer will pay such additional amounts on the Bonds (all such additional amounts being referred to herein as “ Additional Amounts ”) as will result in receipt by the Holder of each Bond of such amounts as would have been received by such Holder had no such withholding or deduction been required, except that no Additional Amounts shall be payable for or on account of:

(i) any Taxes that would not have been imposed but for:
(A) the existence of any present or former connection between the Holder of such Bond and the ROC or any other jurisdiction in which the Issuer is organized or resident for tax purposes, other than merely holding such Bond, including such Holder being or having been a national, domiciliary or resident of or treated as a resident thereof or being or having been present or engaged in a trade or business therein or having had a permanent establishment therein;
(B) the presentation of such Bond (if presentation is required) more than 30 days after the later of the date on which the payment of the principal of and other amounts on such Bond became due and payable pursuant to the terms thereof or the date that such payment was made or duly provided for, except to the extent that the Holder thereof would have been entitled to such Additional Amounts if it had presented such Bond for payment on any date within such 30-day period; or
(C) the presentation of such Bond for payment in the ROC, unless such Bond could not have been presented for payment elsewhere;
(ii) any estate, inheritance, gift, sale, transfer, stamp, personal property or similar tax, assessment or other governmental charge; or

(iii) any combination of Taxes referred to in the preceding clauses (i) and (ii).

The Issuer will not pay Additional Amounts if the registered Holder of the Bond is a fiduciary, partnership or person other than the sole beneficial owner of any payment to the extent that the beneficiary, partner or settler with respect to such fiduciary, partnership or person, or the beneficial owner of that payment, would not have been entitled to the Additional Amounts if it had been the registered Holder of the Bonds.

Whenever there is mentioned, in any context, (i) the payment of principal of and other amounts on any Bond, or (ii) the delivery of Common Shares or cash payments (if any) on conversion of any Bond, such mention shall be deemed to include the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable with respect thereto.

Redemption of the Bonds

Redemption for Taxation Reasons

The Bonds may be redeemed, in whole but not in part (subject to the provision of the paragraph below), at the option of the Issuer, at any time, upon giving not less than 30 nor more than 60 days’ notice to the Holders (which notice shall be irrevocable) and upon written notice one Business Day in advance of such notice to the Holders to the Trustee and the Paying Agent, at the Settlement Equivalent of the Early Redemption Price (as defined below) on the Redemption Date (as defined below), if the Issuer determines and certifies to the Trustee in an officer’s certificate immediately prior to the giving of such notice that, as a result of any change in, or amendment to the laws (including any regulations or rulings promulgated thereunder) of the ROC or such other jurisdiction in which the Issuer is then organized or resident for tax purposes (or any political subdivision or Taxing Authority thereof or therein), affecting taxation, or any change in official position regarding the application, interpretation or administration of such laws, regulations or rulings (including a holding, judgment or order by a court of competent jurisdiction), which change, amendment, application, interpretation or administration is proposed and becomes effective on or after the Closing Date (or, in the case of any jurisdiction other than the ROC, the date on which the Issuer first becomes organized or resident for tax purposes in such other jurisdiction) with respect to any payment due or to become due on the Bonds, the Issuer is required to pay Additional Amounts in connection therewith and such requirement to pay Additional Amounts cannot be avoided by the taking of reasonable measures by the Issuer; provided that such right cannot be exercised earlier than 45 days prior to the first date on which the Issuer would be obligated to make an Additional Amounts payment with respect to all or substantially all of the outstanding Bonds were a payment then due. Prior to the giving of any such notice of redemption, the Issuer is required to deliver to the Trustee (i) an officer’s certificate stating that such change or amendment has occurred, describing the facts related thereto and stating that such requirement cannot be avoided by the Issuer taking reasonable measures and (ii) an opinion of counsel or written advice of a qualified tax expert that the circumstances referred to in the preceding sentence exist as a result of such change, amendment, application, interpretation or administration.

Notwithstanding the foregoing, if the Issuer has given a redemption notice for taxation reasons in accordance with the paragraph above and if the outstanding principal amount of the Bonds at the time when such redemption notice is given is greater than 10% of the aggregate principal amount of the Bonds as of the Closing Date, each Holder of the Bonds will have the right to elect, and the redemption notice will state that each Holder will have the right to elect, that all or a portion of its Bonds should not be redeemed. Upon the exercise of such right by the Holder, the provisions set forth in “— Additional Amounts” will not apply to any payment in respect of such Bonds that is due after the relevant Redemption Date, and such payment will be made subject to the deduction of any ROC tax (or tax of such other jurisdiction in which the Issuer is then organized or resident for tax purposes) required to be withheld or deducted. To exercise such right the holder must give notice to the Issuer in the manner set out in the Indenture no later than 15 days prior to the relevant Redemption Date.

Redemption at the Option of the Issuer

At any time on or after August 5, 2024, the Bonds will be redeemable at the option of the Issuer, in whole or in part, on not less than 30 nor more than 60 days’ notice to the Holders (which notice shall be irrevocable) and upon written notice one Business Day in advance to the Trustee and the Paying Agent, at

the Settlement Equivalent of the Early Redemption Price on the Redemption Date; provided, however, that no such redemption may be made unless:

(1) the Closing Price of the Common Shares on each Trading Day during a period of 20 consecutive Trading Days (the “ Calculation Period ”), the last of which occurs not more than five days prior to the date on which notice of such redemption is given, is at least 130% of the quotient of the Conversion Price (as defined below) multiplied by the Early Redemption Price and divided by US$200,000; and
(2) the applicable Redemption Date does not fall within a Closed Period (as defined below).

If there shall occur an event giving rise to a change in the Conversion Price during any Calculation Period, appropriate adjustments for the relevant days, determined by an opinion of an Independent Investment Bank, shall be made for the purpose of calculating the Closing Price for such days. Notice of any such adjustments in the Conversion Price will be given promptly by the Issuer to the Trustee and the Paying Agent.

Notwithstanding the foregoing sentence, the Issuer may redeem the Bonds, in whole but not in part, at any time, on not less than 30 nor more than 60 days’ notice to the Holders (which notice shall be irrevocable) and upon written notice one Business Day in advance to the Trustee and the Paying Agent, at the Settlement Equivalent of the Early Redemption Price on the Redemption Date if more than 90% in principal amount of the Bonds originally issued has been redeemed, repurchased and canceled or converted; provided that the applicable Redemption Date does not fall within a Closed Period (as defined herein).

Notice of any such redemption will be given by the Issuer to the Holders (and other applicable parties) in accordance with the notice provisions of the Indenture as described below under “— Notices”.

Redemption at Maturity

Unless the Bonds have been previously redeemed, repurchased and canceled or converted, the Issuer will redeem the Bonds on the Maturity Date at the Settlement Equivalent of 97.97% of the outstanding principal amount thereof. The Bonds may be redeemed prior to the Maturity Date only as described above.

Redemption Procedures

Payment of the relevant redemption price for a Certificated Bond is conditioned upon delivery of such Bond (together with necessary endorsements) to any Paying Agent. Payment of the relevant redemption price for any Bond will be made on the Redemption Date or, if such Bond is a Certificated Bond and has not been so delivered on or prior to the Redemption Date, at the time of delivery of such Bond. If the Paying Agent holds, in accordance with the terms of the Indenture, cash sufficient to pay the relevant redemption price of such Bond on the Redemption Date, then, immediately after such Redemption Date, such Bond will cease to be outstanding, whether or not such Bond is delivered to a Paying Agent, and all other rights of the Holder shall terminate (other than the right to receive the relevant redemption price).

In the case of any redemption other than on the Maturity Date, notice of redemption to each Holder shall specify the outstanding principal amount of each Bond held by such holder to be redeemed, the Redemption Date, the price at which such Bonds will be redeemed and the place or places of payment and that payment will be made upon presentation and surrender of the Bonds to be redeemed. Such notice shall also specify the Conversion Price then in effect and the date on which the right to convert such Bonds will expire.

Repurchase of the Bonds

Repurchase of the Bonds at the Option of the Holder

Unless the Bonds have been previously redeemed, repurchased and canceled, or converted, each Holder shall have the right (the “ Holder’s Put Right ”), at such Holder’s option, to require the Issuer to repurchase in U.S. dollars all (or any portion of the principal amount thereof which is US$200,000 or any integral multiple of US$100,000 in excess thereof) of such Holder’s Bonds, on August 5, 2024 (the “ Holder’s Put Date ”) at a repurchase price equal to the Settlement Equivalent of the Early Redemption Price (the “ Holder’s Put Price ”).

Repurchase of Bonds in the Event of Delisting

In the event that the Common Shares cease to be listed or admitted to trading on the TWSE (an “ Event of Delisting ”), each Holder shall have the right (the “ Delisting Put Right ”), at such Holder’s option, to require the Issuer to repurchase all but not part of such Holder’s Bonds on the 20th Business Day after the Paying Agent mails to each Holder a notice regarding the Delisting referred to under “— Repurchase Procedures” below (the “ Delisting Put Date ”) at the Settlement Equivalent of the Early redemption Price on the Delisting Put Date (the “ Delisting Put Price ”).

Repurchase of Bonds in the Event of Change of Control

If a Change of Control (as defined below) occurs with respect to the Issuer, each Holder shall have the right (the “ Change of Control Put Right ”), at such Holder’s option, to require the Issuer to repurchase all but not part of such Holder’s Bonds on the date set by the Issuer for such repurchase (the “ Change of Control Put Date ”), which shall be not less than 30 nor more than 60 days following the date on which the Issuer notifies the Trustee and the Paying Agent in writing of the Change of Control, at the Settlement Equivalent of the Early Redemption Price on the Change of Control Put Date (the “ Change of Control Put Price ”).

Repurchase Procedures

Not less than 30 nor more than 60 days prior to the Holder’s Put Date and not less than 30 nor more than 60 days promptly after becoming aware of a Delisting or Change of Control, the Issuer will provide sufficient information to the Trustee and the Paying Agent in sufficient time to permit the Trustee and the Paying Agent to mail to each Holder a notice regarding such Holder’s Put Right, Delisting Put Right or Change of Control Put Right, as the case may be, which notice shall state, as appropriate:

(A) the Holder’s Put Date, the Delisting Put Date or the Change of Control Put Date, as the case may be (each, a “ Purchase Date ”);
(B) in the case of a Delisting, the date of such Delisting and, briefly, the events causing such Delisting;
(C) in the case of a Change of Control, the date of such Change of Control and, briefly, the events causing such Change of Control;
(D) the date by which the Holder Purchase Notice (as defined below) must be given;
(E) the Holder’s Put Price, the Delisting Put Price or the Change of Control Put Price, as the case may be, and the method by which such amount will be paid;
(F) the names and addresses of all Paying Agents;
(G) briefly, the Conversion Right (as defined below) of the Holders of the Bonds and the then current Conversion Price and the date on which the right to convert such Bond will expire;
(H) the procedures that Holders must follow and the requirements that Holders must satisfy in order to exercise their repurchase rights and/or Conversion Right; and
(I) that a Holder Purchase Notice, once validly given, may not be withdrawn.

To exercise its right to require the Issuer to purchase its Bonds, the Holder must deliver a written irrevocable notice of the exercise of such right (a “ Holder Purchase Notice ”) to any Paying Agent on any Business Day prior to the close of business at the location of such Paying Agent on such day and which day is not less than ten (10) Business Days prior to the Purchase Date.

Payment of the Holder’s Put Price upon exercise of the Holder’s Put Right, Delisting Put Price upon exercise of the Delisting Put Right or Change of Control Put Price upon exercise of the Change of Control Put Right for any Certificated Bond for which a Holder Purchase Notice has been delivered is conditioned upon delivery of such Certificated Bond (together with any necessary endorsements) to any Paying Agent on any Business Day together with the delivery of such Holder Purchase Notice and will be made promptly following the later of the Purchase Date and the time of delivery of such Certificated Bond. If

the Paying Agent holds on the Purchase Date money sufficient to pay the Holder’s Put Price, Delisting Put Price or the Change of Control Put Price, as the case may be, of Bonds for which Holder Purchase Notices have been delivered in accordance with the provisions of the Indenture upon exercise of such right, then, whether or not such Bond is delivered to the Paying Agent, on and after such Purchase Date, (i) such Bond will cease to be outstanding, (ii) such Bond will be deemed paid, and (iii) all other rights of the Holder shall terminate (other than the right to receive the Holder’s Put Price, the Delisting Put Price or the Change of Control Put Price, as the case may be).

Certain Definitions

Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided.

“ Affiliate ” means, with respect to any Person (the “ Specified Person ”), (i) any Person other than the Specified Person directly or indirectly controlling, controlled by or under direct or indirect common control with, the Specified Person or (ii) any Person who is a director or executive officer (A) of the Specified Person, (B) of any Subsidiary of such Specified Person or (C) of any Person described in clause (i) above. For purposes of this definition, the term “control” when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

“ Agent ” means any registrar, paying agent, conversion agent and transfer agent.

“ Business Day ” means any day except a Saturday, Sunday or other day on which commercial banks in Taipei, Hong Kong, Singapore, London, and the City of New York (or, if applicable, in the city where the relevant Paying Agent is located) are authorized by law to close or are otherwise not open for business.

“ Capital Stock ” means, with respect to any Person, any and all shares, ownership interests, participation or other equivalents (however designated), including all common stock and all preferred stock, of such Person.

“ Certificated Bonds ” means the individual certificated Bonds executed and delivered by the Issuer and authenticated by or to the order of the Trustee, which may be delivered in exchange for the Global Bond in certain circumstances.

“ Change of Control ” occurs when:

(1) any person or persons (as defined below) acting together acquires Control of the Issuer if such person or persons does not or do not have, and would not be deemed to have, control of the Issuer on the Closing Date;
(2) the Issuer consolidates with or merges into or sells or transfers all or substantially all of the Issuer’s assets to any other Person, unless the consolidation, merger, sale or transfer will not result in the other Person or Persons acquiring Control over the Issuer or the successor entity; or
(3) one or more other Persons acquire the legal or beneficial ownership of all or substantially all of the Issuer’s Capital Stock.

However, a Change of Control will not be deemed to have occurred (i) solely as a result of the issuance or transfer, with the Issuer’s cooperation, of any preferred shares in the Issuer’s capital or (ii) if the Closing Price per Common Share for any five Trading Days within the period of ten consecutive Trading Days ending immediately after the later of the Change of Control or the public announcement of the Change of Control equals or exceeds 110% of the Conversion Price in effect on each of those five Trading Days, provided that for the purpose of determining the Closing Price used in “Repurchase of Bonds in the Event of Change of Control” above for all Trading Days on or between the ex-rights or ex-dividends date and the record date for the determination of the shareholders entitled to receive such rights or dividends, the Closing Price shall be adjusted upwards to include the value of such rights or dividends.

“ Closing Price ” means for any Trading Day (a) with respect to the Common Shares, the closing sales price of the Common Shares on the TWSE on such day or, if no reported sales take place on such day, the

average of the reported closing bid and offered prices, in either case as reported by the TWSE for such day as furnished by an Independent Investment Bank, and (b) with respect to Capital Stock of the Issuer (other than Common Shares), the closing bid price for such Capital Stock (other than Common Shares) on the Selected Exchange (as defined under “ Trading Day ” below); provided that for the purpose of determining the Closing Price used in “Redemption at the Option of the Issuer” above for all Trading Days on or between the ex-rights or ex-dividends date and the record date for the determination of the shareholders entitled to receive such rights or dividends, the Closing Price shall be adjusted upwards to include the value of such rights or dividends.

“ Common Shares ” means shares of the common stock of the Issuer, par value NT$10.0 per share.

“ Control ” means the right to appoint and/or remove all or the majority of the members of the Issuer’s Board of Directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise.

“ Conversion Price ” means the initial conversion price of NT$163.17 per Common Share set forth on the cover of this Offering Circular, subject to adjustment in the manner provided in “— Conversion — Adjustments to the Conversion Price” below.

“ Debt ” means, with respect to any Person at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with the generally accepted accounting principles applicable to such Person, (v) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, (vi) all obligations of such Person to purchase securities or other property that arise out of or in connection with the sale of the same or substantially similar securities or property, (vii) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument and (viii) all Debt of others guaranteed by such Person.

“ Default ” means any condition or event which, with the giving of notice or lapse of time or both, would become an Event of Default (as defined in the Indenture).

“ Early Redemption Price ” means for each US$200,000 in principal amount of the Bonds, the amount which represents a gross yield of -0.41% per annum, calculated on a semi-annual basis up to the Redemption Date on the basis of a 360-day year consisting of 12 months of 30 days each, and in the case of an incomplete month, the actual number of days elapsed.

“ FSC ” means the Financial Supervisory Commission of the ROC.

“ Holder ” , “ holder ” and “ Bondholder ” in relation to a Bond means the person in whose name a Bond is registered in the Bond register.

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such property or asset, including, without limitation, the right of a vendor, lessor or similar party under any conditional sales agreement, capital lease or other title retention agreement relating to such property or asset, and any other right of or arrangement with any creditor to have its claims satisfied out of any property or assets, or the proceeds therefrom prior to any general creditor of the owner thereof.

“ Market Value ” means (i) in the case of Common Shares, the average of the Closing Prices of the Common Shares for the most recent 30 Trading Days, (ii) in the case of Capital Stock (other than Common Shares) which is listed on the Selected Exchange, the average of the Closing Prices of such Capital Stock (other than Common Shares) for the most recent 30 Trading Days and (iii) in the case the market value cannot be determined pursuant to the procedures above, the market value determined by an opinion of an Independent Investment Bank.

“ Person ” means any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organization, trust, state or agency of a state (in each ease whether or not being a separate legal entity) limited liability company, government or political subdivision or agency or instrumentality

thereof, or any other entity or organization; provided that in the context of a Change of Control, a Person does not include the Issuer’s Board of Directors or any other governing board and does not include the Issuer’s wholly-owned direct or indirect subsidiaries.

“ Principal Subsidiary ” means, with respect to any Person, any Subsidiary (1) whose net sales, as shown by the latest audited financial statements (consolidated in the case of a Subsidiary which itself has Subsidiaries) of such Subsidiary, constitute at least 10% of the consolidated net sales of such Person and its consolidated Subsidiaries as shown by the latest audited consolidated financial statements of such Person or (2) whose gross assets, as shown by the latest audited financial statements (consolidated in case of a Subsidiary which itself has Subsidiaries) of such Subsidiary constitute at least 10% of the gross assets of such Person and its consolidated Subsidiaries as shown by the latest audited consolidated financial statements of such Person.

“ Purchase Date ” has the meaning specified under the caption “— Repurchase Procedures” above, “ Redemption Date ” means, with respect to any Bond, (i) the date fixed for redemption of such Bond pursuant to a notice of redemption given by the Issuer in accordance with the provisions of the Indenture or (ii) the Maturity Date of such Bond if such Bond has not been redeemed, repurchased and canceled or converted in accordance with its terms prior to the Maturity Date.

“ Securities Act ” means the United States Securities Act of 1933, as amended.

“ Subsidiary ” means, with respect to any Person, any entity of which more than 50% of its Capital Stock is owned directly or indirectly by such Person.

“ Taxing Authority ” means any government or political subdivision or any authority or agency thereof, having the legal power and authority to levy a mandatorily payable charge, assessment or tax.

“ Trading Day ” means (a) with respect to the Common Shares, a day when the TWSE is open for business, provided, however, if no transaction price or closing bid and offered prices are reported by the TWSE in respect of the Common Shares for one or more Trading Days, such day or days will be disregarded in any relevant calculation and will be deemed not to have existed when ascertaining any period of consecutive Trading Days and (b) with respect to Capital Stock of the Issuer (other than Common Shares), a day on which any securities exchange or quotation system selected by the Issuer and notified to the Paying Agent for this purpose (the “ Selected Exchange ”) on which shares of such Capital Stock (other than Common Shares) are quoted or traded is open for trading or quotation; provided, however, if no bid price is reported by the Selected Exchange in respect of such Capital Stock (other than Common Shares) for one or more Trading Days, such day or days will be disregarded in any relevant calculation and will be deemed not to have existed when ascertaining any period of consecutive Trading Days.

“ TWSE ” means Taiwan Stock Exchange Corporation.

Certain Covenants

Negative Pledge

So long as any Bond remains outstanding, the Issuer shall not, and shall procure that none of its Principal Subsidiaries will, create or permit to subsist any Lien on any of its or, as the case may be, such Principal Subsidiary’s, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined below) (i) payment of any sum owing in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities, unless contemporaneously therewith effective provision is made to secure the Bonds (a) equally and ratably with such International Investment Securities with a similar Lien on the same property, assets or revenues securing such International Investment Securities for so long as such International Investment Securities are secured by such Lien or (b) with such other security as shall be approved by registered holders holding not less than 50% of the principal amount of the outstanding Bonds.

As used herein, “International Investment Securities” means bonds, debentures, notes or other similar investment securities of the Issuer or any other person evidencing indebtedness with a maturity of not less than one year from the issue date thereof, or any guarantees thereof, which (i) either (A) are by their terms

payable, or confer a right to receive payment, in any currency other than NT Dollars or (B) are denominated in NT Dollars and more than 50% of the aggregate principal amount thereof is initially distributed outside the ROC by or with the consent of the Issuer and (ii) are for the time being, or are intended to be, quoted, listed, ordinarily dealt in or traded, in each case primarily, on a stock exchange or over-the-counter or other securities market outside the ROC.

Consolidation, Amalgamation or Merger

The Issuer shall not consolidate with, merge or amalgamate into or transfer or convey all or substantially all of its properties and assets to, any Person (the consummation of any such event, a “ Merger ”), unless:

(i) the corporation formed by such Merger or the Person that acquired such properties and assets shall expressly assume, by an indenture supplemental to the Indenture, all obligations of the Issuer under the Indenture and the performance of every covenant and agreement applicable to it contained therein;
(ii) immediately after giving effect to any such Merger, no Default or Event of Default shall have occurred or be continuing or would result therefrom;
(iii) the Issuer at least 20 Business Days prior to the Merger has delivered to the Trustee an officer’s certificate stating that such Merger complies with the provisions of the Indenture relating to this matter and that all conditions precedent therein provided for or relating to such Merger have been complied with;
(iv) the corporation formed by such Merger, or the Person that acquired such properties and assets, shall expressly agree to (A) indemnify each holder of a Bond against any tax, assessment or governmental charge payable by withholding or deduction thereafter imposed on such holder solely as a consequence of such Merger with respect to the payment of principal of and other amounts on the Bonds and (B) if organized under the laws of a jurisdiction other than the ROC, to deliver a substitute undertaking to the Trustee to pay any additional amounts as may be necessary in order that the net amounts received by the holders of the Bonds, after any withholding or deduction of any such tax, assessment or other governmental charge shall equal the respective amounts of principal and Additional Amounts, which would have been receivable in respect of the Bonds in the absence of such Merger. No successor corporation or other Person shall have the right to redeem the Bonds unless the Issuer would have been entitled to redeem the Bonds pursuant to the Indenture in the absence of the Merger; and
(v) the Issuer shall as soon as practicable on or prior to the Merger, deliver to the Trustee an opinion satisfactory to the Trustee of counsel(s) of recognized standing as to the legality and validity of the Merger.

In the event of any such Merger, the provisions described under “— Additional Amounts” and “— Redemption for Taxation Reasons” above will be applicable to the corporation formed by such Merger or the Person acquiring such properties and assets as appropriate.

Conversion

Conversion Right

Each Holder will have the right (the “ Conversion Right ”) during the Conversion Period to convert its Bonds (being US$200,000 in principal amount or any integral multiple of US$100,000 in excess thereof), at the option of such converting Holder, upon delivery of an irrevocable notice (the “ Conversion Notice ”) at the office of any Paying Agent, on any Business Day prior to the close of business at the location of the Paying Agent to which such Conversion Notice is delivered, into Common Shares; provided, however, that the Conversion Right during any Closed Period (as defined below) shall be suspended and the Conversion Period shall not include any such Closed Period. “Closed Period” means (i) the 60-day period immediately prior to the date of any of the Company’s ordinary shareholders’ meetings; (ii) the 30-day period immediately prior to the date of any of the Company’s extraordinary shareholders’ meetings; (iii) the period from the fifteenth business day prior to the fifth day before the record date for the determination of the shareholders entitled to the receipt of dividends, subscription of new Common Shares due to capital increase or other benefits and bonuses to such record date; (iv) the period from the

record date of any capital reduction to the day immediately preceding the date on which the Common Shares resume trading after such capital reduction; (v) the period from the commencement of the suspension of the conversion (subscription) in respect of the change of par value of the Common Shares to the day immediately preceding the date on which the reissued Common Shares resume trading after such change of par value of the Common Shares; and (vi) such other periods during which the Company may be required to close its stock transfer books under ROC laws and regulations and the rules of the TWSE applicable from time to time. The Issuer shall procure that Holders (and other applicable parties) are given at least 7 days’ but not more than 60 days’ prior notice of any Closed Period in accordance with the provisions of the Indenture.

The number of Common Shares to be issued upon conversion will be determined by dividing the aggregate principal amount of all the Bonds to be converted by such Holder (translated into NT Dollars at the Fixed Exchange Rate) by the Conversion Price in effect on the Conversion Date (as defined below). Fractions of Common Shares will not be issued on conversion, and the Issuer will pay in NT Dollars for any fraction of a Common Share not issued as aforesaid, net of remittance fees, rounding to one NT Dollar with NT$0.50 being rounded upwards.

The Conversion Price shall at all times be subject to Anti-dilution Adjustment (as defined below).

Restrictions on Shareholdings by PRC Persons

Under current ROC laws, regulations and policy, a PRC person is not permitted to convert the Bonds and to register as a shareholder of the Issuer unless (i) it is a PRC qualified domestic institutional investor ( “ QDII ” ) who will hold less than 10% of the Issuer’s issued shares after conversion of the Bonds, or (ii) it otherwise obtains the approval of the Investment Commission of the Ministry of Economic Affairs if it will hold 10% or more (or other threshold required by the regulators) of the Issuer’s issued shares after conversion of the Bonds. In addition, there are restrictions on the amount remitted to Taiwan for investments by QDIIs, separately and jointly. Accordingly, the qualification criteria for a PRC person to make investment and the investment threshold imposed by the FSC and the TWSE might cause a Bondholder who is a PRC person to be unable to convert and hold the Common Shares issuable upon conversion of the Bonds. Under current ROC laws, “PRC person” means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong and Macau, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership or other entity organized under the laws of any such area, or in countries outside of the ROC or PRC that is directly or indirectly controlled by, or directly or indirectly having more than 30% of its capital owned by, or beneficially owned by, any such person, resident, agency, instrumentality, corporation, partnership or entity.

ROC Procedures for Foreign Persons Holding Common Shares

Under the existing ROC law, a non-ROC converting Holder, before exercising the Conversion Right, is required to register with the TWSE for making investments in the ROC securities market. Such non-ROC converting Holder is also required to appoint a local agent in Taiwan which meets the qualifications that are set from time to time by the FSC to open a securities trading account with a local brokerage firm and a bank account to remit funds, pay taxes, exercise shareholders’ rights and perform such other functions as may be designated by such Holder. In addition, such non-ROC converting Holder must also appoint a custodian in Taiwan to hold the securities and any cash proceeds for safekeeping, to make confirmation and settlement of trades and to report all relevant information. Furthermore, such non-ROC converting Holder is required to appoint an agent, referred to as a Tax Guarantor, in Taiwan which meets the qualifications that are set from time to time by the Ministry of Finance of the ROC for filing tax returns and making tax payments on their behalf. Without meeting such requirements, such non-ROC converting Holder would not be able to hold or sell or otherwise transfer Common Shares into which the Bonds may be converted on the TWSE or otherwise. For more details, see “Appendix A — Foreign Investment and Exchange Controls in the ROC” in this Offering Circular.

Delivery of Common Shares upon Conversion

Upon a converting Holder exercising its Conversion Right, the Issuer shall as promptly as practicable issue Common Shares upon conversion of Bonds in accordance with the ROC law.

The Issuer’s delivery to the Bondholder of the number of Common Shares into which the Bonds are convertible will be deemed to satisfy the Issuer’s obligation to pay the principal of and other amounts on such Bonds.

See “Risk Factors — Risks Relating to Ownership of the Bonds and the Common Shares — The market for the Bonds and the Common Shares may not be liquid”.

Procedures; Conversion Notice; Taxes and Duties

In order to effect a conversion, each Holder must complete, execute and deliver at such Holder’s expense during the Conversion Period to the office of any Paying Agent a Conversion Notice, in the form then obtainable from the office of any Paying Agent, together, in the case of Certificated Bonds, with the certificate representing the Bonds to be converted, and any certificates and other documents as may be required under applicable law and any expenses or other payments required to be paid by the Holder pursuant to the terms of the Indenture. The Conversion Notice shall contain, inter alia, an appointment of a local agent by such converting Holder and the name and address of such local agent.

A Conversion Notice once so delivered may not be withdrawn without the consent in writing of the Issuer. Holders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the first Business Day which is a Trading Day following the last day of that Closed Period which (if all other conditions to conversion have been fulfilled) will be the Conversion Date for such Bonds. Such Holders will not be registered as holders until the Conversion Date. The price at which such Bonds will be converted will be the Conversion Price in effect on the Conversion Date.

As conditions precedent to conversion, the Holder must confirm to the applicable Paying Agent that all stamp, issue, registration and similar taxes and duties (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue and delivery of Common Shares or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder have been paid to the relevant authority. Except as aforesaid, the Issuer will pay the expenses arising in the ROC on the issue of Common Shares on conversion of Bonds and all charges of the Paying Agents in connection therewith as provided in the Indenture. The date on which any Bond and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law, are deposited with a Paying Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the “Deposit Date”. The “Conversion Date” applicable to a Bond shall mean the next Business Day following the Deposit Date (or the first Business Day following the last day of a Closed Period if the related Conversion Notice was deposited during such Closed Period), which day must be a Trading Day and must fall within the Conversion Period. The Holder must therefore satisfy all such conditions on or before the Business Day prior to the end of the Conversion Period.

Conversion Notices shall be deposited at the office of any Paying Agent on any Business Day prior to the close of business at the location of the Paying Agent to which such Conversion Notice is delivered. Upon receipt of such Conversion Notices, the Paying Agent shall have not more than one full Business Day to process and transmit such Conversion Notices to the Issuer.

With effect from the opening of business in the ROC on the Conversion Date, the Issuer will deem the person designated in the Conversion Notice as the person in whose name the Common Shares to be issued upon such conversion are to be registered as the holder of record of the number of Common Shares (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective), and at such time the rights of such converting Holder as a Holder with respect to the Bonds deposited for conversion shall cease.

On the Conversion Date, the Issuer will register the converting Holder (or its designee) in the Issuer’s register of shareholders as the owner of the number of Common Shares to be issued upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days from the Conversion Date (subject to changes to ROC laws and regulations), there be delivered to the local agent appointed by the converting Holder through book-entry system of Taiwan Depository & Clearing Corporation (“ TDCC ”) or through physical delivery of a certificate or certificates for the relevant Common Shares, registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

Adjustments to the Conversion Price

Anti-dilution. The Conversion Price will be subject to adjustment (“ Anti-dilution Adjustment ”) in the circumstances described below:

(i) If the Issuer shall issue Common Shares as a dividend in Common Shares or make a distribution of Common Shares which is treated as a capitalization issue for accounting purposes (including but not limited to capitalization of retained earnings or capital reserves), then the Conversion Price in effect on the record date for the determination of the shareholders entitled to receive such dividend and/or distribution shall be adjusted in accordance with the following formula:

NCP = OCP x [N / (N + n)]

where:

NCP = the Conversion Price after such adjustment.

OCP = the Conversion Price before such adjustment.
N = the number of Common Shares outstanding at the time of issuance of such dividend and/or distribution (or at the close of business in Taipei on such record date, as the case may be).
n = the number of Common Shares to be distributed to the shareholders as a dividend and/or distribution.
(ii) If the Issuer shall (a) subdivide its outstanding Common Shares, (b) combine its outstanding Common Shares into a smaller number of Common Shares, or (c) re-classify any of its Common Shares into other securities of the Issuer, then the Conversion Price shall be appropriately adjusted so that the holder of any Bond, in respect of the Conversion Date which occurs after the coming into effect of the adjustment described in this subsection (ii), shall be entitled to receive the number of Common Shares and/or other securities of the Issuer which it would have held or have been entitled to receive after the happening of any of the events described above had such Bond been converted immediately prior to the happening of such event (or, if the Issuer has fixed a prior record date for the determination of the shareholders entitled to receive any such securities issued upon any such subdivision, combination or reclassification, immediately prior to such record date), but without prejudice to the effect of any other adjustment to the Conversion Price made with effect from the date of the happening of such event (or such record date) or any time thereafter.
(iii) If the Issuer shall grant, issue or offer to the holders of Common Shares rights entitling them to subscribe for or purchase Common Shares, which expression shall include those Common Shares which are required to be offered to employees and persons other than shareholders in connection with such grant, issue or offer, at a consideration per Common Share receivable by the Issuer which is fixed:
(a) on or prior to the record date mentioned below and is less than the Market Value per Common Share on such record date; or
(b) after the record date mentioned below and is less than the Market Value per Common Share on the date the Issuer fixes the said consideration,

then the Conversion Price in effect (in the case of (a) above) on the record date for the determination of the shareholders entitled to receive such rights or (in the case of (b) above) on the date the Issuer fixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N = the number of Common Shares outstanding at the close of business in the ROC (in the case of (a) above) on such record date or (in the case of (b) above) on the date the Issuer fixes the said consideration.
n = the number of Common Shares to be issued in connection with such rights issue at the said consideration.
v = the number of Common Shares which the aggregate consideration receivable by the Issuer would purchase at such Market Value specified in (a) or, as the case may be, (b) above.

Subject as provided below, such adjustment shall become effective immediately after the latest date for the submission of applications of such Common Shares by shareholders entitled to the same pursuant to such rights or (if later) immediately after the Company fixes the said consideration but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Common Shares of rights entitling them to subscribe for or purchase Common Shares, any Common Shares which are not subscribed for or purchased by the persons entitled thereto are purchased by other persons after the latest date for the submission of applications for such Common Shares, an adjustment shall be made to the Conversion Price in accordance with the above provisions which shall become effective immediately after the date the Company receives the consideration in full, from such other persons but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Common Shares of rights entitling them to subscribe for or purchase Common Shares, any such Common Shares which are not subscribed for or purchased by such other persons as referred to above or by the persons entitled thereto (or persons to whom shareholders have transferred such rights) who have submitted applications for such Common Shares as referred to above are offered to and/or subscribed by others, no further adjustment shall be made to the Conversion Price by reason of such offer and/or subscription.

(iv) If the Issuer shall grant, issue or offer to the holders of Common Shares warrants entitling them to subscribe for or purchase Common Shares at a consideration per Common Share receivable by the Issuer which is fixed:
(a) on or prior to the record date for the determination of the shareholders entitled to receive such warrants and is less than the Market Value per Common Share at such record date; or
(b) after the record date mentioned above and is less than the Market Value per Common Share on the date the Issuer fixes the said consideration,

then the Conversion Price in effect (in a case within (a) above) on the record date for the determination of the shareholders entitled to receive such warrants or (in a case within (b) above) on the date the Issuer fixes the said consideration shall be adjusted in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N = the number of Common Shares outstanding at the close of business in the ROC (in the case of (a) above) on such record date or (in the case of (b) above) on the date the Issuer fixes the said consideration.
n = the number of Common Shares initially to be issued upon exercise of such warrants at the said consideration where no applications by shareholders entitled to such warrants are required. Where applications by shareholders entitled to such warrants are required, n equals the number of such Common Shares that equals (A) the number of warrants which

underwriters have agreed to underwrite as referred to below or, as the case may be, and (B) the number of warrants for which applications are received from shareholders as referred to below except to the extent already adjusted for under (A).

v = the number of Common Shares which the aggregate consideration receivable by the Issuer would purchase at such Market Value per Common Share specified in (a) or, as the case may be, (b) above.

Subject as provided below, such adjustment shall become effective, where applications by shareholders entitled to the same are required as aforesaid, immediately after the latest date for the submission of such applications or (if later) immediately after the Company fixes the said consideration but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Common Shares warrants entitling them to subscribe for or purchase Common Shares, any warrants which are not subscribed for or purchased by the persons entitled thereto are purchased by other persons after the latest date for the submission of applications for such warrants, an adjustment shall be made to the Conversion Price in accordance with the above provisions which shall become effective immediately after the date the Company receives the consideration in full, from such other persons but retroactively to immediately after the record date mentioned above.

If, in connection with a grant, issue or offer to the holders of Common Shares warrants entitling them to subscribe for or purchase Common Shares, any such warrants which are not subscribed for or purchased by such other persons as referred to above or by the persons entitled thereto (or persons to whom shareholders have transferred such rights) who have submitted applications for such warrants as referred to above are offered to and/or subscribed by others, no further adjustment shall be made to the Conversion Price by reason of such offer and/or subscription.

(v) In case the Issuer or any Subsidiary of the Issuer shall distribute to all holders of Common Shares, any shares of Capital Stock of the Issuer other than Common Shares, evidences of indebtedness or other assets (other than cash distributions described below) of the Issuer, or rights or warrants to subscribe for or purchase any Capital Stock of the Issuer (other than Common Shares) at less than the Market Value of such indebtedness, assets or Capital Stock, determined as of the date on which the Board of Directors of the Issuer approves such distribution, then in each such case the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [(M - fmv) / M]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

M = the Market Value per Common Share on the record date for the determination of shareholders entitled to receive such distribution.
fmv = the fair market value (as determined by an independent financial institution selected by the Issuer, at the expense of the Issuer and promptly notified in writing to the Trustee) of the portion of Capital Stock other than Common Shares, evidences of indebtedness or other assets so distributed applicable to one Common Share less any consideration payable for the same by the relevant Shareholder.
(vi) In case the Issuer shall, by dividend or otherwise, distribute to all holders of Common Shares cash then, in such case, the Conversion Price shall be adjusted (with such adjustment to be effective on the record date for the determination of the shareholders entitled to receive such distribution) in accordance with the following formula;

NCP = OCP x [(M - C) / M]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

M = the Market Value per Common Share on such record date.
C = the amount of cash so distributed applicable to one Common Share.

If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been approved.

(vii) (a) If the Issuer shall reduce its share capital other than by means of canceling any Common Shares repurchased for the purpose of holding such Common Shares in treasury and does not distribute any cash in connection with such share capital reduction, then the Conversion Price in effect on the record date of such capital reduction shall be adjusted in accordance with the following formula:

NCP = OCP x (N/n)

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N = the number of Common Shares outstanding immediately prior to such capital reduction.
n = the number of Common Shares outstanding immediately after such capital reduction.

For the avoidance of doubt, no adjustment to the Conversion Price under this subsection will be required if the Company cancels any Common Shares repurchased for the purpose of holding such Common Shares in treasury.

(b) If the Company shall reduce its share capital other than by means of canceling any Common Shares repurchased for the purpose of holding such Common Shares in treasury and shall distribute cash in connection with such share capital reduction, the Conversion Price then in effect on the record date of such capital reduction shall be adjusted in accordance with the following formula:

NCP = (OCP - C) x (N/n)

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N and n have the meanings ascribed thereto in clause (a) of this subsection above.

C = the amount of cash distributed per Common Share.

(c) Effective date of adjustment: Such adjustment shall become effective immediately on the record date of such capital reduction.
(viii) In case a tender or exchange offer made by the Issuer or any Subsidiary of the Issuer for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Issuer or such Subsidiary of consideration per Common Share having a Fair Market Value (as determined by an independent financial institution selected by the Company, at the

expense of the Company and promptly notified in writing to the Trustee) at the last time (the “ Expiration Date ”) tenders or exchanges could have been made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Market Value per Common Share, as of the Expiration Date, the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x [(N x M) / (a + [(N - n) x M])]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N = the number of Common Shares outstanding (including any tendered or exchanged Common Shares) on the Expiration Date.
M = Market Value per Common Share as of the Expiration Date.
a = the Fair Market Value of the aggregate consideration payable to the holders of Common Shares based on the acceptance (up to a maximum specified in the terms of the tender or exchange offer) of all Common Shares validly tendered or exchanged and not withdrawn as of the Expiration Date (the Common Shares deemed so accepted up to any such maximum, being referred to as the “ Purchased Shares ”).
n = the number of Purchased Shares.

such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Date.

If the Issuer is obligated to purchase Common Shares pursuant to any such tender or exchange offer, but the Issuer is permanently prevented by applicable law from effecting any such purchase or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender or exchange offer had not been made.

(ix) In case the Issuer issues Common Shares (other than (A) Common Shares issued upon conversion or exchange of any convertible or exchangeable securities (including the Bonds) issued by the Company; (B) Common Shares issued upon exercise of any rights or warrants granted, offered or issued by the Company; (C) Common Shares issued as stock-based employee compensation; or (D) Common Shares issued in any of the circumstances described in subsections (i) and (ii)) or the Issuer or any Subsidiary of the Issuer shall issue any securities initially convertible into or exchangeable for Common Shares at a price per Common Share less than the Market Value per Common Share determined as of the date on which the Board of Directors or shareholders’ meeting of the Issuer or such Subsidiary, if applicable, approves such issuance, the Conversion Price in effect immediately prior to the date of issue of such Common Shares or convertible or exchangeable securities shall be adjusted and become effective in accordance with the following formula:

NCP = OCP x [(N + v) / (N + n)]

where:

NCP and OCP have the meanings ascribed thereto in subsection (i) above.

N = the number of Common Shares outstanding on the date of issuance of such Common Shares or initially convertible or exchangeable securities, immediately prior to such issuance.
n = the number of Common Shares issued or issuable upon conversion or exchange of such initially convertible or exchangeable securities.
v = the number of Common Shares which the aggregate consideration issue price of the total

amount of Common Shares would purchase at Market Value; in the case of convertible or exchangeable securities, the number of Common Shares which the conversion price or exchange price of the newly issued securities multiplied by “n” would purchase at Market Value; provided that if the new Common Shares are issued by the Issuer to exchange for the total outstanding shares of an entity to be consolidated with, merged or amalgamated into the Issuer, such “aggregate consideration issue price of the total amount of Common Shares” shall mean the aggregate amount of the fair value per common share of such entity multiplied by “n” and further multiplied by the applicable share swap ratio under such consolidation, merger or amalgamation. The fair value per common share of such entity shall be (x) in the case of a listed company, the closing price of its common share on the date on which the share swap ratio was approved by the shareholder’s meeting; or (y) in the case of a private company, the fair value falling into the fair value of such entity as determined by an independent expert in its fairness opinion, times the share swap ratio.

If the conversion or exchange right of any such convertible or exchangeable securities expires prior to exercise, the Conversion Price shall be readjusted to reflect the actual securities converted or exchanged.

(x) In case the Issuer reissues the Common Shares to change the par value of the Common Shares, then the Conversion Price shall be adjusted in accordance with the following formula:

NCP = OCP x (N / n)

where:

NCP and OCP have the meanings ascribed thereto in subsection (a) above.

N = the number of Common Shares outstanding immediately prior to such change of par value of Common Shares.
n = the number of Common Shares outstanding immediately after such change of par value of Common Shares.

Such adjustment shall become effective immediately on the record date for exchanging the Common Share with new par value for the Common Shares with original par value.

(xi) In any case in which the Indenture shall require that an adjustment be made immediately following a record date, the Issuer may elect to defer the effectiveness of such adjustment (but in no event until a date later than the effective date of the event giving rise to such adjustment), in which case the Issuer shall, with respect to any Bond converted after such record date and before such adjustment shall have become effective, (i) defer issuing to the holder of such Bond the number of Common Shares issuable upon such conversion in excess of the number of Common Shares issuable thereupon only on the basis of the Conversion Price prior to adjustment, and (ii) not later than 20 days after such adjustment shall have become effective, issue to such holder the additional Common Shares issuable on such conversion.
(xii) If the Issuer shall declare a dividend in, or make a free distribution or bonus issue of, Common Shares which dividend, issue or distribution is to be paid or made to shareholders as of a record date which is also:
A. the record date for the issue of any rights or warrants which requires an adjustment of the Conversion Price pursuant to subsections (iii) or (iv) above;
B. the day immediately before the date of issue of any securities convertible into or exchangeable for Common Shares which requires an adjustment of the Conversion Price pursuant to subsection (ix) above;
C. the day immediately before the date of a distribution which requires an adjustment of the Conversion Price pursuant to subsection (v) above;
D. the record date for distribution of cash which requires an adjustment of the Conversion Price pursuant to subsection (vi) above;

E. the record date of capital reduction which requires an adjustment of the Conversion Price pursuant to subsection (vii) above;
F. the record date for exchanging the Common Share with new par value for the Common Shares with original par value which requires an adjustment of the Conversion Price pursuant to subsection (x) above;
G. the Expiration Date with respect to any tender or exchange offer which requires an adjustment to the Conversion Price pursuant to subsection (viii) above; or
H. the relevant date for an analogous event or circumstance which requires an adjustment to the Conversion Price;

then (except where such dividend, bonus issue or free distribution gives rise to a retroactive adjustment of the Conversion Price under subsections (i) or (ii) above) no adjustment of the Conversion Price in respect of such dividend, bonus issue or free distribution shall be made under the relevant subsections, but in lieu thereof an adjustment shall be made (i) under subsections (iii), (iv), (ix) and (x) above, as applicable, by including in the denominator of the fraction described therein the aggregate number of Common Shares to be issued pursuant to such dividend, bonus issue or free distribution and (ii) under subsections (v), (vi), (vii) and (viii) above, as applicable, by multiplying the Conversion Price after the adjustment under such subsections by a fraction the numerator of which is the number of Common Shares outstanding on the record date and the denominator of which is the sum of such number of Common Shares outstanding and the aggregate number of Common Shares to be issued pursuant to such dividends, bonus issue or free distribution.

With the provisions in this subsection unaffected, where more than one event which gives rise to an adjustment to the Conversion Price occurs within such a short period of time that, in the opinion of the Company, a modification to the operation of the adjustment provisions is required in order to yield the intended result, such modification shall be made, with the assistance of an independent financial institution selected by the Issuer, at the expense of the Issuer and promptly notified in writing to the Trustee, as may, in the opinion of the Company, be appropriate to yield such intended result.

(xiii) In case of a Merger of the Issuer, each Bond then outstanding shall, without the consent of any Bondholders, become convertible only into the kind and amount of securities, cash and other property receivable upon such Merger by a holder of the number of Common Shares, into which such Bonds could have been converted immediately prior to such Merger. The corporation formed by such Merger or the Person that acquired such properties and assets shall enter into a supplemental indenture with the Trustee to provide for the continuation of the Conversion Rights to continue after such Merger and such supplemental indenture shall provide for adjustments to the Conversion Price which shall be as nearly equivalent as practicable to the adjustments provided in the Indenture provided that where there has been a Change of Control pursuant to such a Merger, a Holder may exercise its Change of Control Put Right as set forth in “— Repurchase of the Bonds — Repurchase of Bonds in the Event of Change of Control”.

If any event or circumstance analogous to the events and circumstances described in subsections (i) through (x) occur, the Conversion Price shall be adjusted as set forth in the analogous subsection in the Indenture.

Provisions Applicable to All Conversions and Adjustments of Conversion Price

No adjustment of the Conversion Price will be required to be made until cumulative adjustments, required to be made in the circumstances set forth above, amount to 1.0% or more of the Conversion Price as last adjusted. However, any adjustment, required to be made in the circumstances set forth above, which is not made because of failure to meet the 1.0% threshold, will be carried forward. Except as otherwise described below, the Conversion Price may at any time be reduced by the Issuer.

The Issuer will not take any action which would reduce the Conversion Price per Common Share below the par value of the Common Shares (currently NT$10 per share), unless, under applicable law then in effect, the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Common Shares.

All calculations relating to conversion, including adjustments of the Conversion Price, will be made to two decimal places with 0.005 being rounded upwards.

Whenever the Conversion Price is adjusted, the Issuer will promptly file with the Paying Agent an officer’s certificate setting forth the date on which such adjustment became effective, the Conversion Price after such adjustment and prior to such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after receipt of such certificate, the Paying Agent will prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price, the Conversion Price prior to such adjustment, a brief statement of the facts requiring such adjustment and the date on which such adjustment became effective and shall give such notice of such adjustment of the Conversion Price to each Holder of a Bond.

Events of Default; Notice and Waiver

The Indenture provides that, if an Event of Default as defined therein shall have occurred and be continuing, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Bonds then outstanding may, by written notice to the Issuer (and to the Trustee if such notice is given by the Holders), declare the principal of the Bonds to be immediately due and payable at the Settlement Equivalent thereof. In the case of certain events of bankruptcy or insolvency, the principal amount shall automatically become and be immediately due and payable. Under certain circumstances, the Holders of a majority in aggregate principal amount of the outstanding Bonds may rescind any such acceleration with respect to the Bonds and its consequences.

Under the Indenture, Events of Default include:

(i) default in payment of the principal of any Bond, as and when the same becomes due and payable, and continuance of such default for three Business Days;
(ii) default in the payment of Additional Amounts upon any Bond as and when the same becomes due and payable, and continuance of such default for five Business Days;
(iii) failure by the Issuer to deliver the Common Shares as and when such Common Shares are required to be delivered following conversion of a Bond, and continuance of such default for five Trading Days;
(iv) failure on the part of the Issuer duly to observe or perform any of the covenants or agreements provided in the Bonds or the Indenture (other than those referred to in clauses (i), (ii) or (iii) above) which failure cannot be remedied or, if such failure can be remedied, is not remedied within 30 days after the date on which written notice thereof requiring the Issuer to remedy the same shall have been given to the Issuer by the Trustee or the Holders of at least 25% in aggregate principal amount of the Bonds then outstanding;
(v) there shall have been entered against the Issuer or any of its Principal Subsidiaries a final judgment, decree or order by a court of competent jurisdiction for the payment of money in excess of US$75 million with respect to the Issuer or any of its Principal Subsidiaries (or its equivalent in any other currency or currencies) and 60 days shall have passed since the entry of the order without it being bonded, satisfied, discharged or stayed;
(vi) (A) the Issuer or any of its Principal Subsidiaries shall fail to make any payment with respect to present or future Debt (other than the Bonds) in an aggregate principal amount in excess of US$75 million with respect to the Issuer or any of its Principal Subsidiaries (or its equivalent in any other currency or currencies) when and as the same shall become due and payable, if such failure shall continue for more than the period of grace, if any, originally applicable thereto or (B) the Issuer or any of its Principal Subsidiaries shall fail to perform or observe any covenant or agreement to be performed or observed by the Issuer or any of its Principal Subsidiaries contained in any agreement or instrument evidencing Debt (other than the Bonds) in an aggregate principal amount in excess of

US$75 million with respect to the Issuer or any of its Principal Subsidiaries (or its equivalent in any other currency or currencies) and such failure results in the acceleration of the maturity of any amount owing thereunder;

(vii) a decree or order by a court having jurisdiction shall have been entered under any applicable bankruptcy, insolvency, reorganization or other similar law (A) adjudging the Issuer or any of its Principal Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of the Issuer or any of its Principal Subsidiaries or (B) appointing a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Issuer or any of its Principal Subsidiaries or of its property or (C) ordering the winding up or liquidation of the affairs of the Issuer or any of its Principal Subsidiaries and in any such case such decree or order shall have continued undischarged and unstayed for a period of 60 days; or
(viii) the Issuer or any of its Principal Subsidiaries shall voluntarily commence proceedings to be adjudicated a bankrupt or insolvent, or shall consent to the filing of a bankruptcy or insolvency proceeding against it, or shall file a petition or answer or consent seeking reorganization under any applicable bankruptcy, insolvency, reorganization or other similar law or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or its property, or shall make an assignment for the benefit of creditors.

The Trustee shall, within 30 days after the occurrence of any Default, mail to all Holders of the Bonds notice of all Defaults of which the Trustee shall have received written notice, unless such Defaults shall have been cured or waived and the Trustee shall have been notified so in writing before the giving of such notice.

The Holders of a majority in aggregate principal amount of the outstanding Bonds may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that such direction shall not be in conflict with any law or the Indenture and subject to certain other limitations. The Trustee may refuse to perform any duty, exercise any right or power, extend or risk its own funds or otherwise incur any financial liability, unless it receives prefunding and/or security and/or indemnity satisfactory to it from Holders against any loss, liability or expense. No Holder of a Bond will have the right to pursue any remedy with respect to the Indenture or the Bonds, unless:

(i) such Holder shall have previously given the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of the outstanding Bonds shall have made a written request to the Trustee to pursue such remedy;
(iii) such Holder or Holders shall have offered to the Trustee pre-funding and/or security and/or indemnity satisfactory to the Trustee against any loss, liability or expense satisfactory to it;
(iv) the Trustee shall have failed to comply with the request within (x) 60 days after receipt of the written notice pursuant to clause (ii) above or (y) 60 days after the receipt of pre-funding, security and/or indemnity offered pursuant to clause (iii) above, whichever occurs later; and
(v) the Holders of a majority in aggregate principal amount of the outstanding Bonds shall not have given the Trustee a direction inconsistent with such request within 60 days after receipt of such request.

The right of any Holder (i) to receive payment of the principal of the Bonds, Additional Amounts, the Holder’s Put Price upon exercise of the Holder’s Put Right, the Delisting Put Price upon exercise of the Delisting Put Right or the Change of Control Put Price upon exercise of the Change of Control Put Right, or to receive Common Shares on or after any Redemption Date, Purchase Date or Conversion Date, as the case may be, (ii) to convert its Bonds or (iii) to bring suit for the enforcement of any such right, shall not be materially impaired or materially adversely affected without such Holder’s consent.

The Holders of a majority in aggregate principal amount of Bonds at the time outstanding may waive any existing Default and its consequences, except (i) any default in any payment on the Bonds, (ii) any default with respect to the Conversion Rights of Holders of the Bonds or (iii) any default with respect to certain covenants or provisions in the Indenture which may not be modified without the consent of the Holder of each Bond as described in “— Meeting of Bondholders; Modification and Waiver” below. When a Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or impair any consequent right.

The Issuer will be required to furnish to the Trustee annually, and at any time at the request of the Trustee, a statement concerning the performance and observance of its obligations under the Bonds or the Indenture. In addition, the Issuer is required to file promptly with the Trustee written notice of the occurrence of any Default or Event of Default.

Prescription

Claims in respect of payment of principal of or other amounts on the Bonds will be prescribed unless made within a period of six years from the relevant due date of payment in respect thereof.

Under ROC laws, claims in respect of the payment of (a) principal and premium and (b) default interest would become unenforceable after 15 years and 5 years, respectively from the relevant due date of payment in respect thereof.

Meeting of Bondholders; Modification and Waiver

The Indenture contains provisions for convening meetings of the Holders to consider any matter affecting their interests, including the approval of certain amendments or modifications of the Bonds or the provisions of the Indenture upon either the written consent of the Holders of a majority in aggregate principal amount of the outstanding Bonds or the approval at a meeting of the Holders duly called by persons entitled to vote a majority in principal amount of the outstanding Bonds. The quorum at any such meeting shall be two or more persons entitled to vote a majority in principal amount of the outstanding Bonds.

Modifications and amendments of the Indenture or the Bonds may be made by the Issuer and the Trustee with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Bonds; provided that no such modification or amendment may, without the consent of each Holder of the Bonds affected thereby:

(i) change the Maturity Date of the principal of any Bond;
(ii) change the Holder’s Put Date;
(iii) reduce the principal of or other amounts on any Bond or Settlement Equivalent payable in respect of the Bonds, or change the method of calculation of the Settlement Equivalent;
(iv) increase the then current Conversion Price (except as required by the anti-dilution provisions of the Indenture);
(v) change the place or currency of payment of principal of or other amounts on any Bond or the method of calculating any such payment;
(vi) impair the right to institute suit for the enforcement of any payment on or after the Maturity Date (or, in the case of a redemption, on or after the Redemption Date) of any Bond;
(vii) alter the obligations of the Issuer under “— Certain Covenants — Negative Pledge”, “— Certain Covenants — Consolidation, Amalgamation or Merger” or “— Additional Amounts” above;
(viii) materially adversely affect the Conversion Right, the Holder’s Put Right, the Delisting Put Right or the Change of Control Put Right;
(ix) modify the obligations of the Issuer to maintain an office or agency in London, England;
(x) reduce the above-stated percentage of outstanding Bonds the consent of whose Holders is necessary to modify or amend the Indenture;

(xi) reduce the percentage or aggregate principal amount of outstanding Bonds the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain Events of Default;
(xii) modify any of the percentage voting and quorum provisions described under “—Meeting of Bondholders; Modification and Waiver”; or
(xiii) release the Issuer from any obligation under the Indenture other than in accordance with the provisions of the Indenture, or amend or modify any provision relating to such release in a manner that materially adversely affects the rights of the Holders.

Neither the Issuer nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise to any Holder of any Bonds for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Bonds, unless such consideration is offered to be paid or agreed to be paid to all Holders of the Bonds that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.

Without the consent of any Holder of the Bonds, the Issuer together with the Trustee may amend the Indenture to:

(i) cure any ambiguity, defect or inconsistency in the Indenture or the Bonds;
(ii) provide for the assumption of the Issuer’s obligations under the Bonds and the Indenture by the surviving Person in a Merger effected in accordance with the provisions of the Indenture described under “— Certain Covenants — Consolidation, Amalgamation or Merger” above;
(iii) make any other change that does not materially adversely affect the rights of any Holder of Bonds;
(iv) make any change necessary to comply with applicable ROC laws and regulations; or
(v) add to the covenants or obligations of the Issuer under the Indenture or decrease the Conversion Price at the discretion of the Issuer or surrender any right, power or option conferred by the Indenture on the Issuer.

Notices

Whenever the Indenture provides for notice to be given to Holders, such notice will be validly given (except as otherwise expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder entitled thereto, at such Holder’s address as it appears on the Bond register. Any such notice shall be deemed to have been given on the seventh day after being so mailed. Notwithstanding the foregoing, so long as the Bonds are represented by the Global Bond and the Global Bond is held on behalf of Euroclear and Clearstream, notice to Holders may be given by delivery of the relevant notice to Euroclear and Clearstream or their successor clearing systems for communication by them to entitled accountholders in substitution for notification as required by the foregoing sentence.

Concerning the Trustee

The Indenture provides that, prior to the occurrence of an Event of Default, the Trustee will not be liable except for the performance of such duties as are specifically set forth in such Indenture. If an Event of Default has occurred and is continuing, the Trustee will be obligated to use the same degree of care and skill as a prudent person would exercise under the circumstances in the conduct of such person’s own affairs.

Disclosure Obligations

The Indenture provides that the Issuer may have certain disclosure obligations and reporting obligations under ROC law:

(i) the person to be registered as a shareholder of the Company is a “related party” of the Company under Regulations Governing the Preparation of Financial Report by Securities Issuers of the ROC and such person beneficially owns Common Shares converted from the Bonds; or
(ii) the person to be registered as a shareholder owns Common Shares issued upon conversion of the Bonds and the Common Shares so issued on conversion exceed 10% of the total number of Common Shares expected to be issued upon conversion of the Bonds based on the conversion price at the time of issue of the Bonds.

Due to these obligations, if so instructed by the Issuer, the Paying Agent may ask the converting Holders to disclose the name of the person to be registered as the shareholder and to provide proof of identity and genuineness of any signature and other documents before it will convert the Bonds. The conversion of Bonds may be delayed until the Paying Agent receives the requested information and satisfactory evidence of the compliance with all laws and regulations by the Holders. The information the Holder is required to provide may include the name and nationality of the person to be registered as a shareholder of the Company and the total number of Common Shares such person is converting or has converted in the past.

Governing Law and Jurisdiction

The Indenture and the Bonds are governed by, and shall be construed in accordance with, the laws of the State of New York. In relation to any legal action or proceedings arising out of or in connection with the Indenture and the Bonds, the Company has in the Indenture irrevocably submitted to the non-exclusive jurisdiction of the New York State and United States Federal courts sitting in the Borough of Manhattan, The City of New York. The Company has appointed Law Debenture Corporate Service Inc., now at 801 2nd Avenue, Suite 403, New York, New York 10017, U.S.A., as its agent for service of process.

Bondholders should note that exercise of a Conversion Right is subject not only to the provisions of the Indenture but also to the applicable ROC law.

TRANSFER RESTRICTIONS OF THE BONDS

Transfer Restrictions

Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Bonds or the Common Shares issuable upon conversion of the Bonds.

The Bonds may not be offered or sold directly or indirectly in the ROC. The Bonds and the Common Shares issuable upon conversion of the Bonds have not been registered under the Securities Act and the Bonds may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Therefore, the Bonds are being offered and sold outside the United States in accordance with Regulation S under the Securities Act.

Except in certain limited circumstances, interests in the Bonds may only be held through interests in the Global Bond. Such interests in the Global Bond will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream and their respective direct and indirect participants.

Each purchaser of the Bonds, by accepting delivery of the Bonds, will be deemed to have acknowledged and represented to and agreed as follows (terms used herein that are defined in Regulation S are used as defined therein):

The Bonds and the Common Shares issuable upon conversion of the Bonds have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer.
It is purchasing the Bonds outside the United States in an offshore transaction meeting the requirements of Regulation S.
It agrees (or if it is a broker-dealer, its customer has confirmed to it that such customer agrees) that it (or such customer) will not offer, sell, pledge or otherwise transfer any Bonds or the Common Shares, except as permitted by the applicable legend set forth in paragraph (4) below.
The Bonds will bear legends to the following effect, unless the Company determines otherwise in compliance with applicable law, and that it will observe the restrictions contained therein:

THE BONDS (“BONDS”) EVIDENCED HEREBY AND THE COMMON SHARES OF HON HAI PRECISION INDUSTRY CO., LTD. (“HON HAI”) ISSUABLE UPON CONVERSION OF THE BONDS HAVE NOT BEEN AND ARE NOT EXPECTED TO BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE SECURITIES LAWS. EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE BONDS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS.

It understands that the Bonds will be represented initially by a Global Bond.
We, the Trustee, the Transfer Agent, the Initial Purchasers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.
Each purchaser of Bonds that may wish to resell any Bonds pursuant to Regulations S is advised that approval in-principle has been received for the listing and quotation of the Bonds on the SGX-ST. The SGX-ST is a “designated offshore securities market” (within the meaning of Regulation S) and accordingly, a resale transaction could be effected in, on or through the facilities of such exchange in reliance upon the safe harbor provided by Rule 904 of Regulation S, subject to compliance with the conditions of Rule 904.

DESCRIPTION OF COMMON SHARES

Set forth below is a summary of information relating to the Company’s share capital including brief summaries of the relevant provisions of the Company’s Articles of Incorporation, the ROC Securities and Exchange Act and the ROC Company Act.

General

As of December 31, 2020, the Company’s authorized share capital was NT$180,000,000,000, and the Company’s paid-in share capital was NT$138,629,906,090, divided into 13,862,990,609 shares. The paid-in share capital is issued and outstanding and is held by the public shareholders and other investors in the ROC and elsewhere in the world. Any change in the authorized share capital of a public company limited by shares, such as the Company, requires an amendment to the Company’s Articles of Incorporation (which requires approval at a shareholders’ meeting) and the approval of the FSC and the Ministry of Economic Affairs, R.O.C. (“ MOEA ”).

Authorized but unissued shares may also be issued at such times and, subject to the provisions of the applicable laws and the approval of, or registration with, the MOEA and the FSC.

Dividends and Distributions

Dividend payments and distributions are generally governed by the ROC Company Act as well as the Company’s Articles of Incorporation.

Except in limited circumstances, the Company is not permitted to distribute dividends or make other distributions to shareholders for any year in which it does not have current or retained earnings (excluding reserves). The ROC Company Act requires that 10% of the Company’s net income, less prior year’s losses and outstanding tax, if any, be set aside as legal reserve until the accumulated legal reserve equals the Company’s paid-in capital. In addition, the Company may set aside a special reserve in accordance with applicable laws and regulations.

In addition to permitting dividends to be paid out of net income, if the Company does not have losses, the ROC Company Act permits the Company to make distributions in cash or in the form of additional Common Shares to its shareholders from the legal reserve and capital surplus of premium from issuing shares and earnings from gifts received. However, the portion payable out of the Company’s legal reserve is limited to the extent the accumulated legal reserve exceeds 25% of the Company’s paid-in capital.

The Company’s Articles of Incorporation provide that the Company’s net profit after tax shall be distributed in the following manner:

(i) making up accumulated losses;
(ii) setting aside a 10% legal reserve, unless the accumulated legal reserve equals the paid-in capital; and
(iii) setting aside or reverse the special reserve in accordance with ROC laws and regulations.

profit (or a specific amount) as employees’ remuneration which may be in the form of cash or shares, provided that, if the company has accumulated losses, it shall reserve an amount thereof for making up the losses. Employees (including those of subsidiaries of the Company) entitled to such remuneration shall meet certain requirements, where such requirements shall be determined by the Board of Directors and acknowledged by the shareholders.

Preemptive Rights

According to the ROC Company Act, when a company issues new common shares for cash, 10% to 15% of the issue must be offered to its employees. In addition, the ROC Securities and Exchange Act and the relevant securities regulations require that, if a public company listed on the TWSE or whose shares are traded on the Taipei Exchange (the “ TPEx ”, formerly known as GreTai Securities Market) intends to offer new shares for cash, at least 10% of the issue must be offered to the public, except under certain circumstances or when exempted by the FSC. This percentage can be increased by a resolution passed at a shareholders’ meeting, thereby reducing the number of new shares subject to the preemptive rights of existing shareholder. Unless the percentage of shares to be offered to the public is increased by the shareholders, existing shareholders who are listed on the shareholders’ register as of the record date have a preemptive right to acquire the remaining 75% to 80% of the issue. The shares not subscribed for by the employees and shareholders at the expiration of the period for the exercise of their rights may be sold to the public or specified persons at the direction of the Company’s Board of Directors. The preemptive rights provisions will not apply to offering of new shares through a private placement approved at a shareholders’ meeting. These preemptive rights do not apply to this Offering.

Meetings of Shareholders

Meetings of the Company’s shareholders may be ordinary or extraordinary. Ordinary meetings of the Company’s shareholders will generally be held within six months following the end of each fiscal year.

In contrast, extraordinary shareholders’ meetings may be convened by resolution of the Board of Directors or, under certain circumstances, by the shareholders or independent directors.

Notice in writing of meetings of shareholders of a public company such as the Company, stating the place, time, date and agenda must be dispatched to each shareholder at least 30 days, in the case of ordinary meetings, and 15 days, in the case of extraordinary meetings, before the date set for each meeting.

Voting Rights

The Company’s Articles of Incorporation provide that holders of Common Shares have one vote for each share. Except as otherwise provided by applicable laws, a resolution can be adopted by holders of a majority of the Common Shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding Common Shares are present. The election of directors (including independent directors) is by means of cumulative voting. Ballots for the election of directors are cast separately from those for the election of independent directors. The Company’s Articles of Incorporation provide that the directors (including independent directors) shall be nominated by adopting the candidate nomination system specified in the ROC Company Act. In an election of directors, the holders of Common Shares shall elect directors from the list of nominated candidates.

In order for the Company to approve certain major corporate actions, including any amendment to the Company’s Articles of Incorporation, entering into, modification or termination of any contracts regarding leasing of all business, outsourcing of operations or joint operations, the dissolution or amalgamation or spin-off of the Company, the transfer of the whole or substantial part of the Company’s business or the Company’s property, the taking over of a whole of the business or property of any other entity which would have a significant impact on the Company’s operations, or the distribution of any stock dividend, a meeting of the shareholders must be convened with a quorum of holders of at least two-thirds of all issued and outstanding Common Shares at which the holders of at least a majority of the shares represented at the meeting vote in favor of the resolution.

Alternatively, in the case of a public company, such as the Company, such a resolution may be adopted by the shareholders’ meeting convened with a quorum of holders of at least a majority of all issued and outstanding Common Shares at which the holder of at least two-thirds of the shares represented at the meeting vote in favor of the resolution.

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A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy form is delivered to the Company five days before such meeting.

Register of Shareholders Record Dates and Publication of Information

The Company’s share registrar, Grand Fortune Securities Co., Ltd., maintains the register of the Company’s shareholders at its offices located at 6/F, No. 6, Section 1, Chung Shiao West Road, Taipei, Taiwan, and enters transfers of shares in such register upon presentation of, among other documents, certificates representing the shares transferred.

The Company’s shall, by giving advance public notice, set a record date and close the register of shareholders for a specified period (60 days, 30 days and 5 days immediately before each ordinary meeting of the shareholders, extraordinary meeting of shareholders and relevant record date, respectively) in order for it to determine the shareholders and pledgees that are entitled to rights pertaining to the shares.

Annual Financial Statements

At least ten days before an annual shareholders’ meeting, the Company’s annual financial statements will be made available at the Company’s principal office in Taipei, Taiwan and at the Company’s share registrar for inspection by the shareholders. According to the regulations of the FSC, the Company is required to publish its annual and quarterly financial statements on a consolidated basis.

Transfer of Shares

The transfer of shares in registered form is effected by endorsement and delivery of the related share certificates; however, in order to assert shareholder’s rights against the Company, the transferee must have their name and address registered on the Company’s register of shareholders. Shareholders are required to file their respective specimen seals, also known as chops, with the Company.

Repurchase of Shares by the Company

With minor exceptions, the Company cannot acquire its own shares under the ROC Company Act.

Under the ROC Securities and Exchange Act, the Company may, by resolution adopted by a majority of its Board of Directors at a meeting where two-thirds or more of the directors are present, repurchase its shares on the TWSE or by a tender offer in accordance with the procedures prescribed by the FSC for the following purposes:

for delivery upon conversion of bonds with warrants, preferred shares with warrants, convertible bonds and convertible preferred shares or certificates of warrants issued by the Company into capital stock;
to transfer to the Company’s employees, or
if necessary, to maintain the Company’s credit and shareholders’ equity, provided that the shares so repurchased shall be canceled thereafter.

The total shares repurchased by the Company may not exceed 10% of its total issued and outstanding shares. In addition, the total cost of the purchased shares may not exceed the aggregate amount of the Company’s retained earnings, any premium from share issuance and the realized portion of its capital reserve. Shares repurchased in the first two instances mentioned above are to be transferred to the intended transferees within five years from the repurchase failing which they will be canceled and the Company is required to complete an amended registration for the cancelation. In the third instance mentioned above, the shares repurchased by the Company must be canceled, and the Company shall complete an amended registration for such cancelation within six months after the repurchase. The shares repurchased by the Company may not be pledged or hypothecated. In addition, the Company may not exercise any of the shareholder’s rights attached to these shares. The Company’s affiliates, as defined in Article 369-1 of the ROC Company Act, directors, managers and their respective spouses and minor children and nominees, are prohibited from selling the Company’s shares until the Company’s repurchase period has lapsed.

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Liquidation Rights

In the event of the Company’s liquidation, the Company’s remaining assets after payment of all debts, liquidation expenses and taxes will be distributed pro rata to the holders of Common Shares in accordance with the relevant provisions of applicable laws and the Company’s Articles of Incorporation.

Substantial Shareholders and Transfer Restrictions

The Company’s directors, managers and shareholders holding more than 10% of the Company’s shares are required to report to the Company, on a monthly basis, any changes in their shareholding in the Company. The number of shares that they may sell or transfer on the TWSE on any given day is limited by ROC laws. In addition, they may only sell or transfer such shares on the TWSE at least three days after they have filed a notification with the FSC in connection with such sale or transfer, provided that such notification is not required if the number of shares to be sold or transferred does not exceed 10,000.

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ROC TAXATION

The following is a summary addresses the principal ROC tax consequences of the ownership and disposition of the Bonds or Common Shares to a Non-ROC Resident Individual or Non-ROC Resident Entity (each a “ Non-ROC Holder ”). As used in the preceding sentence, a “Non-ROC Resident Individual” is a foreign national individual who owns Bonds or Common Shares and does not reside in the ROC for 183 days or more during any calendar year, and a “Non-ROC Resident Entity” is a corporation or a non-corporate body that owns Bonds or Common Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or business agent in the ROC.

You should consult your tax advisors concerning the ROC tax consequences of owning Bonds or Common Shares and the laws of any relevant taxing jurisdiction to which you are subject.

Bonds

Possible Interest Payments

Payments of interest or premium (if any ever becomes payable on the Bonds) to a Non-ROC Holder constitute interest income derived from the ROC and, therefore, are subject to ROC withholding tax at a rate of 15% at the time of payment unless a lower withholding rate is provided under a tax treaty between the ROC and the jurisdiction where the Non-ROC Holder is a resident. The Company has agreed to pay Additional Amounts in respect of such withholding tax on the payments of interest or premium. See “Description of the Bonds — Additional Amounts”.

Sale

The sale of convertible bonds which were issued and offered by ROC companies outside of the ROC is not subject to ROC securities transaction tax according to a tax directive issued by the ROC Ministry of Finance dated March 23, 2010. Accordingly, the sale of the Bonds will not be subject to the securities transaction tax.

Gains from the sale of property in the ROC are generally subject to ROC income tax. However, under current ROC law, capital gains in transactions of corporate bonds issued by ROC companies are exempt from income tax. This exemption applies to capital gains derived from the sale of the Bonds.

Conversion into Common Shares

The conversion of the Bonds into Common Shares is not subject to ROC tax. However, securities transaction tax, gift tax and/or income tax may be imposed in relation to the converting holder’s designation of other person to be the holder of Common Shares upon conversion of the Bonds.

Common Shares

Dividends on the Common Shares

Dividends (whether in cash or Common Shares) distributed by the Company out of retained earnings and paid out to Non-ROC Holders of Common Shares are normally subject to ROC income tax collected by way of withholding at the time of distribution. The current rate of withholding for Non-ROC Holders of Common Shares is 21% of the amount of the distribution, unless a lower withholding rate is provided under a tax treaty between the ROC and the jurisdiction where the Non-ROC Holder is a resident.

Distributions of stock dividends declared by the Company out of capital reserves are not subject to withholding tax, except under limited circumstances.

In accordance with the ROC Income Tax Act, a 5% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce the retained earnings available for future distribution.

Preemptive Rights

Distributions of statutory subscription rights for the Common Shares in compliance with the ROC Company Act are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights

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evidenced by securities are subject to securities transactions tax, currently at the rate of 0.3% of the gross amount received. Non-ROC Holders are exempt from income tax on any capital gains from such sales. However, proceeds derived from sales of statutory subscription rights which are not evidenced by securities are subject to income tax at the rate of 20% of the gains realized. Subject to compliance with ROC law, the Company has the sole discretion to determine whether statutory subscription rights shall be evidenced by the issuances of securities.

Sale

Under current ROC law, Non-ROC Holders are exempt from income tax on any capital gains generated from the sale of Common Shares.

The ROC Government imposes a securities transaction tax that will apply to sales of the Common Shares. The transaction tax, which is payable by the seller, is levied on sales of Common Shares at the rate of 0.3% of the gross amount received.

Estate Tax and Gift Tax

ROC estate tax is payable on any property within the ROC of a deceased Non-ROC Resident Individual, and ROC gift tax is payable on any property within the ROC donated by a Non-ROC Resident Individual. Estate tax and gift tax are currently imposed at progressive rates of 10%, 15% and 20%. Under ROC estate and gift tax laws, the Bonds and Common Shares are deemed located in the ROC without regard to the location of the owner.

Tax Treaty

At present, the ROC has double tax treaties with Indonesia, Singapore, New Zealand, Australia, South Africa, Gambia, Senegal, Sweden, Eswatini, Malaysia, North Macedonia, the Netherlands, Belgium, Denmark, the UK, Vietnam, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Austria, Italy, Japan, Canada, Poland and Czech Republic. These tax treaties may provide a reduced withholding tax rate on interests and dividends paid with respect to bonds or shares in ROC companies.

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LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Lee and Li, Attorneys-at-Law, Taipei, Taiwan, ROC, and for the Initial Purchasers by Sullivan & Cromwell (Hong Kong) LLP. Sullivan & Cromwell (Hong Kong) LLP will rely upon Lee and Li, Attorneys-at-Law with respect to certain matters of ROC law. Lee and Li, Attorneys-at-Law will rely upon Sullivan & Cromwell (Hong Kong) LLP with respect to certain matters of United States law.

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INDEPENDENT AUDITORS

Our audited consolidated financial statements as of and for the years ended December 31, 2018 and 2019 and as of and for the years ended December 31, 2019 and 2020 as prepared and presented under Taiwan IFRS included in this Offering Circular have been audited by PricewaterhouseCoopers, Taiwan, as stated in their report appearing herein. PricewaterhouseCoopers, Taiwan are located at 27th Floor, No. 333, Section 1, Keelung Road, Xinyi District, Taipei City, Taiwan. PricewaterhouseCoopers, Taiwan are a member of the Taiwan CPA Association.

The audit report of PricewaterhouseCoopers, Taiwan dated March 30, 2020 in relation to the audited consolidated financial statements of the Company as of and for the years ended December 2018 and 2019 states that certain subsidiaries were audited by other auditors and their opinion, insofar as it relates to the amounts of those subsidiaries is based solely on the reports of those other auditors.

The audit report of PricewaterhouseCoopers, Taiwan dated March 30, 2021 in relation to the audited consolidated financial statements of the Company as of and for the years ended December 31, 2019 and 2020 states that certain subsidiaries were audited by other auditors and their opinion, insofar as it relates to the amounts of those subsidiaries is based solely on the reports of those other auditors.

With respect to our unaudited consolidated interim financial statements as of and for the three-month periods ended March 31, 2020 and 2021, not included in this Offering Circular, PricewaterhouseCoopers, Taiwan, our independent auditors, have reported that they have applied limited procedures in accordance with the Statement of Auditing Standards No. 65, “Review of Financial Information Performed by the Independent Auditor of the Entity” in the Republic of China of such financial statements prepared in accordance with “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34 “Interim Financial Reporting” endorsed by the FSC. However, their separate report dated May 14, 2021, not included in this Offering Circular states that they did not audit and they do not express an opinion on those unaudited consolidated interim financial statements. Accordingly, the degree of reliance on their report on such financial statements should be restricted in light of the limited nature of the review procedures applied.

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GENERAL INFORMATION

The Company was incorporated on February 20, 1974 and is registered with the MOEA under a uniform registration number of 04541302. The Company’s registered office is located at No. 66, Chung Shan Road, Tu-cheng, New Taipei City, 236, Taiwan, ROC. Article 2 of the Company’s Articles of Incorporation provides that the business scope of the Company includes the development, design, manufacture and sale of connectors, cable assemblies, enclosures and base supports for PC systems and computer peripherals and related components and products.

The Company accepts responsibility for the information contained in this Offering Circular. To the best of the knowledge and belief of the Company (whom has taken all reasonable care to ensure that such is the case), the information contained in this Offering Circular is in accordance with the facts and does not omit anything likely to affect the import of such information.

The Offering and the issue of the Bonds were authorized and approved by the Board of Directors of the Company on March 30, 2021 and by the FSC on May 26, 2021.

Except as disclosed herein, there has been neither significant change in the financial or trading position since December 31, 2020 nor any material adverse change in the financial position or prospects since December 31, 2020 of the Company and its subsidiaries, the date of the latest financial statements contained herein.

The Indenture and the Purchase Agreement are governed by the laws of the State of New York.

The Bonds have been accepted for clearance through the facilities of Euroclear and Clearstream. Certain information about the Bonds is set forth below:

Bonds . . . . . . . . . . . . . . . . . . . . . . .	ISIN number XS2363250759	Common Code number
		236325075

Approval in-principle has been received for the listing and quotation of the Bonds on the SGX-ST. The SGX-ST assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained in this Offering Circular. Approval in-principle for the listing and quotation of the Bonds on the SGX-ST is not to be taken as an indication of the merits of the Offering, Hon Hai or the Bonds. For so long as the Bonds are listed on the SGX-ST and the rules of the SGX-ST so require, the Company will appoint and maintain a paying agent in Singapore, where the Bonds may be presented or surrendered for payment or redemption, in the event that the Global Bond is exchanged for certificates in definitive form. In addition, in the event that the Global Bond is exchanged for certificates in definitive form, an announcement of such exchange will be made by or on behalf of the Company through the SGX-ST and such announcement will include all material information with respect to the delivery of the certificates in definitive form, including details of the paying agent in Singapore.

Except as disclosed in this Offering Circular, neither the Company nor any members of the Company is, or has been involved in any legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have, or have had during the preceding 12 months a significant effect on the financial position of the Company. See “Business — Litigation”.

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PLAN OF DISTRIBUTION

The Company and the Initial Purchasers named below have entered into a purchase agreement dated July 29, 2021 with respect to the Bonds (the “ Purchase Agreement ”). Subject to certain conditions set forth in the Purchase Agreement, the Initial Purchasers have agreed to purchase the number of Bonds indicated in the following table.

Initial Purchasers

Initial Purchasers Citigroup Global Markets Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goldman Sachs International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Hongkong and Shanghai Banking Corporation Limited . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Aggregate Principal Amount of the Bonds
	US$233,400,000 233,200,000 233,400,000
	US$700,000,000

Initial Purchasers
Citigroup Global Markets Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goldman Sachs International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Hongkong and Shanghai Banking Corporation Limited
. . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aggregate Principal Amount
of the Bonds

US$233,400,000
233,200,000
233,400,000

US$700,000,000

The Purchase Agreement provides that the obligations of the Initial Purchasers are subject to certain conditions precedent, and entitles the Initial Purchasers to terminate it in certain circumstances prior to payment being made to the Company.

The purchase price at which the Company agrees to sell to the Initial Purchasers, and the Initial Purchasers agree to purchase from the Company, the Bonds, will be the aggregate principal amount of the Bonds to be issued. The Initial Purchasers propose to offer the Bonds at the Offering Price. After the Bonds are released for sale, the Initial Purchasers may change the Offering Price and the other selling terms.

The Initial Purchasers or its affiliates may purchase the Bonds for their own account and enter into transactions, including (i) credit derivatives including asset swaps, repackaging and credit default swaps relating to the Bonds and/or our securities or (ii) equity derivatives and stock loan transactions relating to the Common Shares at the same time as the offer and sale of the Bonds or in secondary market transactions. Such transactions would be carried out as bilateral trades with selected counter-parties and separately from any existing sale or resale of the Bonds to which this Offering Circular relates (notwithstanding that such selected counterparties may also be purchasers of the Bonds). Certain of the Initial Purchasers or its affiliates may purchase Bonds and be allocated Bonds for asset management and/or proprietary purposes and not with a view to distribution. No disclosure will be made of any such positions, except as required by any legal or regulatory obligation to do so. These transactions may involve a substantial portion of the Bonds.

The Bonds and the Common Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except in accordance with Regulation S under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act. None of the Initial Purchasers, its affiliates, or any persons acting on its or their behalf have engaged or will engage in any “directed selling efforts” (as defined in Regulation S) with respect to the Bonds or the Common Shares.

Approval in-principle has been received for the listing and quotation of the Bonds on the SGX-ST. However, we cannot assure you that the prices at which the Bonds will sell in the market after this offering will not be lower than the initial offering price or that an active trading market for the Bonds will develop and continue after this offering.

Each of the Initial Purchasers has acknowledged and agreed that no action has been or will be taken in any jurisdiction by it that would permit a public offering, or any other offering under circumstances not permitted by applicable law, of the Securities, or possession or distribution of this Offering Circular, in connection with the proposed resale of the Bonds or any other offering or publicity material relating to the Bonds, in any country or jurisdiction where action for that purpose is required, except such actions as may be required under State securities or Blue Sky laws of the United States in connection with the purchase and distribution of the Bonds by or for the account of such Initial Purchaser. Each of the Initial Purchasers will not offer, sell or deliver any Bonds in any jurisdiction outside of the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of such Bonds in such jurisdictions.

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The Bonds are being sold outside of the United States to non-U.S. persons in reliance on Regulation S.

United Kingdom

Each Initial Purchaser has represented and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or the sale of the Bonds in circumstances in which section 21(1) of the FSMA does not apply to the Company; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Bonds in, from or otherwise involving the UK.

Each Initial Purchaser has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Bonds to any retail investor in the UK. For the purposes of this provision:

(a) the expression “retail investor” means a person who is one (or more) of the following:
(i). a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the EUWA; or
(ii). a customer within the meaning of the provisions of the FSMA and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of UK MiFIR; and
(b) the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Bonds to be offered so as to enable an investor to decide to purchase or subscribe for the Bonds.

Hong Kong

Each Initial Purchaser has represented and agreed that:

a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “ SFO ”) and any rules made under the SFO; or
b) (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “ C(WUMP)O ”) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Bonds, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.

Singapore

Each Initial Purchaser has acknowledged that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Initial Purchaser has represented, warranted and agreed that this Offering Circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Bonds, may not be

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circulated or distributed, nor may the Bonds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than:

(i). to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA;
(ii). to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018; or
(iii). otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Offering Circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Bonds, may not be circulated or distributed, nor may the Bonds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than:

(i). to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA;
(ii). to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018; or
(iii). otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Bonds pursuant to an offer made under Section 275 of the SFA except:

a) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
b) where no consideration is or will be given for the transfer;
c) where the transfer is by operation of law;
d) as specified in Section 276(7) of the SFA; or
e) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018.

Any reference to the SFA is a reference to the Securities and Futures Act, Chapter 289 of Singapore and a reference to any term as defined in the SFA or any provision in the SFA is a reference to that term or provision as modified or amended from time to time including by such of its subsidiary legislation as may be applicable at the relevant time.

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Section 309B Notification — The Issuer has determined, and hereby notifies all persons (including all relevant persons (as defined in Section 309A(1) of the SFA)) that the Bonds are “prescribed capital markets products” (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

Japan

The Bonds have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the “ Financial Instruments and Exchange Act ”). Accordingly, each Initial Purchaser has represented, warranted and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act, and in compliance with the other relevant laws and regulations of Japan.

European Economic Area

(a) the expression “retail investor” means a person who is one (or more) of the following:
(i). a retail client as defined in point (11) of Article 4(1) of MiFID II; or
(ii). a customer within the meaning of the Insurance Distribution Directive, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; and
(b) the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Bonds to be offered so as to enable an investor to decide to purchase or subscribe for the Bonds.

People’s Republic of China

This Offering Circular is not intended to constitute a public offer of the Bonds, whether by way of sale or subscription, in the PRC. The Bonds are not being offered and may not be offered or sold, directly or indirectly, in the PRC to or for the benefit of, legal or natural persons of the PRC other than to QDIIs in the PRC. Pursuant to the Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors, with the exception of QDIIs in the PRC, the Bonds may, subject to the laws and regulations of the relevant jurisdictions, only be offered or sold to non-PRC natural or legal persons in any country other than the PRC.

Republic of China

Each of the Initial Purchasers has not offered or sold, and agrees not to offer or sell, any Bonds, directly or indirectly in the ROC.

The Company has agreed with the Initial Purchasers during a period beginning at the date and time the Purchase Agreement was executed and delivered to the parties thereto and ending 90 days from the date hereof, not to lend, offer, sell or contract to sell, grant any option to purchase, pledge, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to (1) swap or other agreements that transfer to another, in whole or in part, any of the economic consequences of ownership of Common Shares of the Company or (2) cash settlement or otherwise) by the Company or any of its affiliates or any person in privity with the Company or any of its affiliates) directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the U.S.

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Securities and Exchange Commission promulgated thereunder with respect to, or announce the offering of, any other shares of the Company’s common stock or any securities convertible into, or exchangeable for, shares of the Company’s common stock, without the prior written consent of the Initial Purchasers; provided, however, that, (aa) the Company may (i) implement stock splits and employee stock option plans, (ii) issue the conversion shares upon the conversion of the currency linked zero coupon convertible bonds due 2022 issued by the Company in November 2017, (iii) issue common stock issuable upon the conversion of securities or the exercise of warrants outstanding at the execution time of the Purchase Agreement, and (iv) sell the Bonds to the Initial Purchasers pursuant to the Purchase Agreement and issue the Common Shares upon the conversion of the Bonds; and (bb) any disposition by the Company or any of its Affiliates or any person in privity with the Company or any of its Affiliates due to group reorganization is also permitted.

Buyers of Bonds sold by the Initial Purchasers may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the offering price of the Bonds.

In connection with this Offering, the Initial Purchasers may engage in stabilizing transactions, which involves making bids for, purchasing and selling the Bonds in the open market for the purpose of preventing or retarding a decline in the market price of the Bonds while this offering is in progress. These stabilizing transactions may include making short sales of the Bonds, which involves the sale by the Initial Purchasers of a greater number of the Bonds than they are required to purchase in the Offering, and purchasing the Bonds on the open market to cover positions created by short sales. The Initial Purchasers may close out any short position by purchasing the Bonds in the open market.

These activities may have the effect of raising or maintaining the market price of the Bonds or preventing or retarding a decline in the market price of the Bonds, and, as a result, the price of the Bonds may be higher than the price that otherwise might exist in the open market. If the Initial Purchasers commence these activities, they may discontinue them at any time. The Initial Purchasers may carry out these transactions in the over-the-counter market or otherwise.

It is expected that delivery of the Bonds will be made against payment therefor on or about August 5, 2021, which will be the fifth business day following the date of pricing the Bonds. Pursuant to Rule 15c6-1 under the Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Bonds on the date of pricing or the next succeeding business day will be required, by virtue of the fact that the Bonds initially will settle on the fifth business day following the pricing date (T+5), to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Initial Purchasers who wish to trade the Bonds on the date of pricing or the next succeeding five business days should consult their own advisor.

The Company has agreed to indemnify the Initial Purchasers and certain other persons against certain liabilities, including liabilities under the Securities Act.

Citigroup Global Markets Limited, Goldman Sachs International and The Hongkong and Shanghai Banking Corporation Limited are acting as the joint global coordinator, joint lead managers and joint bookrunners for the Offering.

Each Initial Purchaser and/or its respective affiliates, including Citigroup Global Markets Limited, Goldman Sachs International and The Hongkong and Shanghai Banking Corporation Limited, have provided and may in the future provide banking, advisory and other financial services to the Company and some of its affiliates in the ordinary course. The Initial Purchasers have received customary fees and commissions in connection with these transactions.

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Appendix A

FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

Foreign Investment

Historically, foreign investment in the ROC securities markets has been restricted. Since 1983, the ROC government has periodically enacted legislation and adopted regulations to permit foreign investment in the ROC securities market.

Regulations Governing Investment in Securities By Overseas Chinese and Foreign Nationals (the “ Foreign Regulations ”), which was approved by the Executive Yuan on May 26, 1983 and has been amended from time to time, and the Regulations Governing Mainland Chinese Investors’ Securities Investments and Futures Trading in Taiwan (the “ PRC Regulations ”), which was announced by the FSC on April 30, 2009, are two of the major regulations governing foreign investment in companies listed on TWSE or TPEx in the ROC.

Under the Foreign Regulations, foreign investors are classified as either “onshore foreign investors” or “offshore foreign investors” according to their respective geographical location. Unless otherwise specified in the laws and regulations, both onshore and offshore foreign investors are allowed to invest in ROC securities after they register with the TWSE. The Foreign Regulations further classify foreign investors into foreign institutional investors and foreign individual investors. “Foreign institutional investors” refer to those investors incorporated and registered in accordance with foreign laws outside of the ROC (i.e., offshore foreign institutional investors) or their branches set up within the ROC (i.e., onshore foreign institutional investors). Offshore overseas Chinese and foreign individual investors may be subject to a maximum investment ceiling that will be separately determined by the FSC after consultation with the CBC. Currently, there is no maximum investment ceiling for offshore overseas Chinese and foreign individual investors. On the other hand, foreign institutional investors are not subject to any ceiling for investment in the ROC securities market.

In the past, PRC persons were prohibited from investing, whether directly or indirectly, in the ROC. The PRC Regulations promulgated by the FSC on April 30, 2009 loosen these restrictions. Under the PRC Regulations, PRC qualified domestic institutional investors (“ QDII ”) are allowed to invest in ROC securities (including less than 10% (or less in certain industries) shareholding of an ROC company listed on TWSE or TPEx). Nevertheless, the total investment amount of QDIIs cannot exceed US$500 million. For each QDII, the custodians of such QDIIs must apply with the TWSE for the remittance amount for each QDII, which cannot exceed US$100 million, and QDII can only invest in the ROC securities market with the amount approved by the TWSE. In addition, QDIIs are currently prohibited from investing in certain industries, and their investment of certain other industries in a given company is restricted to a certain percentage pursuant to a list promulgated by the FSC and amended from time to time. The Company currently does not engage in prohibited or restricted industries.

Depositary Receipts

In April 1992, the FSC enacted regulations permitting ROC companies with securities listed on the TWSE, with the prior approval of the FSC, to sponsor the issue and sale to foreign investors of depositary receipts. Depositary receipts represent deposited shares of ROC companies. In December 1994, the FSC allowed companies whose shares are traded on the TPEx or listed on the TWSE, upon approval of the FSC, to sponsor the issue and sale of depositary receipts.

A holder of depositary receipts may, after the issuance of the depositary receipts representing new shares and upon the listing of the underlying shares and (in practice, typically four to seven business days thereafter), request the depositary to either cause the underlying shares to be sold in the ROC and to distribute the sale proceeds to the holder or to withdraw from the depositary receipt facility the shares represented by the depositary receipts and deliver the shares to the holder. For depositary shares that represent previously issued and existing shares, a holder of the depositary receipts could, immediately

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after the issuance of the depositary receipts, request the depositary to conduct the foregoing. Currently, a holder of depositary shares who is a PRC person may not withdraw and hold shares unless (i) it is a QDII who will hold less than 10% (or less in certain industries) of the issuer’s issued shares or (ii) if all the businesses of the issuer are in the positive list promulgated by the Executive Yuan, the holder withdraws shares which (together with its existing shareholding in the issuer) accounts for 10% or more (or other threshold required by the regulators) of the issuer’s issued shares and it otherwise obtains the approval of the Investment Commission of the MOEA. However, QDIIs are currently prohibited from investing in certain industries, and their investment of certain other industries in a given company is restricted to a certain percentage pursuant to a list promulgated by the FSC and amended from time to time. In addition, there are restrictions on the amount remitted to the ROC for investments by QDIIs, separately and jointly. Accordingly, the qualification criteria for a PRC person to make investment, the restrictions on investment in certain industries and the investment threshold imposed by the FSC might accordingly cause a holder of depositary shares who is a PRC person to be unable to withdraw and hold the underlying shares.

Under existing laws and regulations relating to foreign exchange control, a depositary or a holder of depositary receipts may, without obtaining further approvals from the CBC or any other governmental authority or agency of the ROC, convert NT dollars into other currencies, including U.S. Dollars, in respect of the following: (1) proceeds of the sale of shares represented by depositary receipts, (2) proceeds of the sale of shares received as stock dividends and deposited into the depositary receipt facility and (3) any cash dividends or cash distributions received. In addition, a depositary, also without any of these approvals, may convert inward remittances of payments into NT dollars for purchases of underlying shares for deposit into the depositary receipt facility against the creation of additional depositary receipts. A depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT dollars into foreign currencies relating to the sale of subscription rights for new shares if the proceeds are in excess of US$100,000 per remittance. Proceeds from the sale of the underlying shares withdrawn from the depositary receipt facility may be used for reinvestment in the TWSE or the TPEx securities, subject to relevant regulations.

Under current ROC laws, a non-ROC holder of depositary receipts, when withdrawing the shares underlying the depositary receipts, will be required to register with the TWSE and appoint a local agent to open a securities trading account with a local brokerage firm and an NT dollar bank account, pay taxes, remit funds, exercise rights relating to the securities and perform such other matters as may be designated by such holder of depositary receipts on behalf of and as an agent for such holder of depositary receipts. Any such holder of depositary receipts is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades and to report all relevant information. In addition, such holder of depositary receipts is required to appoint a tax guarantor for filing tax returns and making tax payments. Without meeting the foregoing requirements, the withdrawing holder of depositary receipts would be unable to hold and subsequently sell or otherwise transfer the underlying shares withdrawn from the depositary receipt facility on the TWSE or otherwise.

Overseas Corporate Bonds

Since 1989, the FSC has approved a series of overseas bonds issued by ROC companies listed on the TWSE in offerings outside the ROC. Under current ROC law, such overseas corporate bonds (i) can be converted by bondholders into shares of ROC companies or (ii) subject to FSC approval, may be converted into depositary receipts issued by the same ROC company or by the issuing company of the exchange shares, in the case of exchangeable bonds. A PRC holder of convertible bonds may not convert bonds unless (i) it is a QDII who will hold less than 10% (or less in certain industries) of the issuer’s issued shares or (ii) if all the businesses of the issuer are in the positive list promulgated by the Executive Yuan, the shares converted from overseas convertible bonds which (together with its existing shareholding in the issuer) accounts for 10% or more (or other threshold required by the regulators) of the issuer’s issued shares and it otherwise obtains the approval of the Investment Commission of the MOEA. However, QDIIs are currently prohibited from investing in certain industries, and their investment of certain other industries in a given company is restricted to a certain percentage pursuant to a list promulgated by the FSC and amended from time to time. In addition, there are restrictions on the amount remitted to the ROC for investments by QDIIs, separately and jointly. Accordingly, the qualification criteria for a PRC person to make investment, the restrictions on investment in certain industries and the investment threshold imposed by the FSC might accordingly cause a holder of the corporate bonds who is a PRC person to be unable to convert or exchange the bonds and hold the shares. The relevant regulations also permit public issuing companies to issue corporate debt in offerings outside the ROC. Proceeds from

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the sale of the shares converted from overseas convertible bonds may be used for reinvestment in securities listed on the TWSE or traded on the TPEx, subject to relevant regulations.

Under current ROC law, a non-ROC converting bondholder, when exercising his conversion right to convert bonds into common shares, is required to register with the TWSE and appoint a local agent to open a securities trading account with a local brokerage firm and an NT dollar bank account, pay taxes, remit funds, exercise rights relating to the securities and perform such other matters as may be designated by such converting bondholder on behalf of and as agent for such converting bondholder. Also, any such converting bondholder is also required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades and to report all relevant information. In addition, such converting bondholder is required to appoint a tax guarantor for filing tax returns and making tax payments. Without meeting these requirements, the converting holder would not be able to receive, hold, or subsequently sell or otherwise transfer the shares into which the overseas bonds may have been converted on the TWSE or otherwise.

Unless otherwise limited by the CBC, an ROC company may, without obtaining further approvals from the CBC or any other government authority of the ROC, convert NT dollars to other non-ROC currencies, including U.S. Dollars, for making payments in respect of redemption of the bonds or repayment of principal of and interest on the bonds. A non-ROC converting bondholder may, through its local agent and without obtaining prior approval from the CBC, convert into foreign currencies net proceeds realized from the sale of converted common shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such common shares and, after becoming a shareholder, inward remittances of subscription payments in connection with a rights offering. However, a converting bondholder must obtain prior approval from the CBC on a payment-by-payment basis for conversion from NT dollars into other currencies in respect of the proceeds from the sale of subscription rights for newly issued shares if the proceeds are in excess of US$100,000 per remittance.

Other Foreign Investment

In addition to investments permitted under the Foreign Regulations and PRC Regulations, foreign investors (other than PRC persons) who wish to make (i) direct investments in the shares of ROC private companies or (ii) investment in 10% or more of the equity interest of an ROC company listed on the TWSE or the TPEx in any single transaction and PRC investors who wish to make (i) direct investment in the shares of ROC private companies or (ii) investments, individually or aggregately, in 10% or more (or other threshold required by the regulators) of the equity interest of an ROC company listed on the TWSE or the TPEx are required to submit an Investment Approval application to the Investment Commission of the MOEA or other government authority. The Investment Commission or such other government authority reviews Investment Approval application and approves or disapproves each application after consultation with other governmental agencies (such as the CBC and the FSC). PRC investors other than QDII are prohibited from making investments in an ROC company listed on the TWSE or the TPEx if the investment is less than 10% (or less in certain industries) of the equity interest of such ROC company.

Under current law, any non-ROC person possessing an Investment Approval may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends attributable to such investment. Dividends attributable to such investment may be repatriated upon submitting certain required documents to the remitting bank, and investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other authorities have been obtained.

In addition to the general restriction against direct investment by foreign investors in securities of ROC companies, foreign investors (except in certain limited cases) are currently prohibited from investing in certain industries in the ROC pursuant to a Negative List, as amended by the Executive Yuan. The prohibition on foreign investment in the prohibited industries specified in the Negative List is absolute in the absence of specific exemption from the application of the Negative List. Pursuant to the Negative List, certain other industries are restricted so that foreign investors (except in certain limited cases) may invest in such industries only up to a specified level and with the specific approval of the relevant competent authority which is responsible for enforcing the relevant legislation which the Negative List is intended to implement.

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On the other hand, in addition to the general restriction against direct investment by PRC investment by PRC investors in securities of ROC companies, PRC investors may only invest in certain industries in the Positive List, as promulgated by the Executive Yuan. In addition, PRC investor who wishes to be elected as an ROC company’s director or supervisor shall also submit an Investment Approval application to the Investment Commission of the MOEA or other government authority for approval.

Exchange Controls

The ROC Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated by the FSC and the CBC to handle foreign exchange transactions. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

Aside from trade-related foreign exchange transactions, ROC companies and individual residents of the ROC may, without foreign exchange approval, remit to and from the ROC in each calendar year foreign currencies of up to US$50 million (or its equivalent) and US$5 million (or its equivalent), respectively, or such other amount as determined by the CBC from time to time at its discretion in consideration of the ROC’s economic and financial conditions or the needs to maintain the order of foreign exchange market in the ROC. These limits apply to remittances involving a conversion between NT dollars and U.S. Dollars or other foreign currencies. In addition, all private enterprises are required to register all mediumand long-term foreign debt with the CBC.

In addition, a foreign person may, subject to certain requirements but without foreign exchange approval, remit to and from the ROC foreign currencies of up to US$100,000 (or its equivalent) per remittance if the required documentation is provided to the ROC authorities. This limit applies to remittances involving a conversion between NT dollars and U.S. Dollars or other foreign currencies.

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Appendix B

THE SECURITIES MARKETS OF THE ROC

The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by the Company, the Initial Purchasers, the Trustee, the Paying Agent, the Register or any of the Company’s respective affiliates or advisors in connection with the Offering. References to the FSC in this section include both ROC Securities and Futures Commission and the ROC Securities and Exchange Commission, the predecessors of the Securities and Futures Bureau of the FSC.

In September 1960, the ROC government established the ROC Securities and Exchange Commission to supervise and control all aspects of the existing domestic securities market and the TWSE began to take shape soon thereafter. In the 1970s and the early 1980s, the ROC government implemented a number of steps designed to upgrade the quality and importance of the ROC securities markets, such as encouraging listing on the TWSE and establishing an over-the-counter securities exchange. In the mid-1980s, the ROC government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalization of the ROC securities markets. In 1997, the ROC Securities and Exchange Commission was renamed the ROC Securities and Futures Commission. Effective July 1, 2004, the ROC Securities and Futures Commission has been renamed the ROC Securities and Futures Bureau, which is under the FSC.

The TWSE

In 1961, the FSC established the TWSE to provide a marketplace for securities trading. The TWSE is a corporation owned by government-controlled and private banks and enterprises. The TWSE is independent of the entities transacting business through it, each of which pays to the TWSE a user’s fee. Subject to limited exceptions, all transactions in listed securities by brokers, traders and integrated securities firms must be made through the TWSE.

The TWSE commenced operations in 1962. During the early 1980s, the FSC actively encouraged new listings on the TWSE and the number of listed companies has grown from 119 in 1983 to 948 as of December 31, 2020. As of December 31, 2020, the market capitalization of companies listed on the TWSE was approximately NT$44.9 trillion.

Historically, ROC companies have listed only shares and bonds on the TWSE. However, the FSC has encouraged companies to list other types of securities. In 1988, the Ministry of Finance permitted the issuance of ROC’s first exchangeable bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and bonds issued by supra-national financial institutions are also listed on the TWSE or traded on the TPEx (which is discussed below). The FSC also has promulgated regulations which permit foreign issuers to list certain securities on the TWSE.

The TWSE considers the following factors when evaluating a company for listing:

the number of shareholders and the distribution of shareholdings among such shareholders;
the length of time in business;
the amount of paid-in capital; and
profitability.

However, special listing criteria apply to certain industries, such as technology companies and key businesses engaging in national economic development.

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The following table sets forth, for the periods indicated, information relating to the TAIEX.

Period Ended December 31 1996 . . . . . . . . . . . . 1997 . . . . . . . . . . . . 1998 . . . . . . . . . . . . 1999 . . . . . . . . . . . . 2000 . . . . . . . . . . . . 2001 . . . . . . . . . . . . 2002 . . . . . . . . . . . . 2003 . . . . . . . . . . . . 2004 . . . . . . . . . . . . 2005 . . . . . . . . . . . . 2006 . . . . . . . . . . . . 2007 . . . . . . . . . . . . 2008 . . . . . . . . . . . . 2009 . . . . . . . . . . . . 2010 . . . . . . . . . . . . 2011 . . . . . . . . . . . . 2012 . . . . . . . . . . . . 2013 . . . . . . . . . . . . 2014 . . . . . . . . . . . . 2015 . . . . . . . . . . . . 2016 . . . . . . . . . . . . 2017 . . . . . . . . . . . . 2018 . . . . . . . . . . . . 2019 . . . . . . . . . . . . 2020 . . . . . . . . . . . . 2021 (through May 31, 2021) . . . . . .	Number of Listed Companies at The Period End 382 404 437 462 531 584 638 669 697 691 688 698 718 741 758 790 809 838 854 874 892 907 928 942 948 953	Stock Trading Values (NT$ in billions) 12,907.6 37,241.1 29,619.0 29,291.5 30,526.6 18,354.9 21,874.0 20,333.2 23,875.4 18,818.9 23,900.4 33,043.8 26,115.4 29,680.5 28,218.7 26,197.4 20,238.2 18,940.9 21,898.5 20,191.5 16,771.1 23,972.2 29,608.9 26,464.6 45,654.3 37,021.4	Index High 6,982.81 10,116.84 9,277.09 8,608.91 10,202.20 6,104.24 6,462.30 6,142.32 7,034.10 6,575.53 7,823.72 9,809.88 9,295.20 8,188.11 8,972.50 9,145.35 8,144.04 8,623.43 9,569.17 9,973.12 9,392.68 10,854.57 11,253.11 12,122.45 14,732.53 17,595.90	Index Low 4,690.22 6,820.35 6,251.38 5,474.79 4,614.63 3,446.26 3,850.04 4,139.50 5,316.87 5,632.97 6,257.80 7,344.56 4,089.93 4,242.61 7,071.67 6,633.33 6,894.66 7,616.64 8,264.48 7,410.34 7,664.01 9,272.88 9,478.99 9,382.51 8,681.34 14,902.03	Index at Period End
					6,933.94 8,187.27 6,418.43 8,448.84 4,739.09 5,551.24 4,452.45 5,890.69 6,139.69 6,548.34 7,823.72 8,506.28 4,591.22 8,188.11 8,972.50 7,072.08 7,699.50 8,611.51 9,307.26 8,338.06 9,253.50 10,642.86 9,727.41 11,997.14 14,732.53 17,068.43

Source: TWSE Note: * Up to May 31, 2021

The Taipei Exchange (TPEx)

To complement the TWSE, the GreTai Securities Market was established in September 1982 on the initiative of the FSC to encourage the trading of securities of companies who do not qualify for listing on the TWSE, and later renamed as TPEx. As of December 31, 2020, 782 companies had listed equity securities on the TPEx and the total market capitalization of those companies was approximately NT$4.4 trillion.

The TPEx has established specific requirements for trading securities on the TPEx based on the history of a company, the number and distribution of a company’s shareholders, amount of capital, profitability and capital structure.

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Price Limits, Commissions, Transaction Tax and Other Matters

The TWSE has placed limits on block trading and on the range of daily price movements. According to the TWSE’s block trading guidelines, an order for sale or purchase of 500 or more trading lots of one class of securities, or securities of five or more different classes and trading amounts exceeding NT$15 million, must be registered and executed in accordance with the guidelines. Fluctuations in the price of stock traded on the TWSE are currently subject to a restriction of 10% above and below the previous day closing price (or reference price set by the TWSE if the previous day closing price is not available because of lack of trading activity). However, these restrictions have been modified from time to time by the FSC based on market conditions. Brokerage commission can be set at any rate of the transaction price provided that any rate exceeding 0.1425% shall be reported to the TWSE and notify the client in advance. A securities transaction tax, currently levied at 0.3% of the transaction price, is payable by the seller of equity securities. Such securities transaction taxes are withheld at the time of the transaction giving rise to such tax. Sales of shares of companies listed on the TWSE are currently sold in round lots of 1,000 shares. Investors who desire to sell less than 1,000 shares of a listed company occasionally experience delays in effecting such sales.

Starting from January 15, 2016, upon the occurrence of any matter which may have a material impact on the shareholders’ equity or the price of securities of a TWSE-listed company (e.g., merger), such company should apply to the TWSE, or the TWSE should request, for suspension of trading of its shares for one to three trading days (or a longer period if necessary).

Regulation and Supervision

The FSC has extensive regulatory authority over public companies. Public companies are generally required to obtain the deemed approval from the FSC for all securities offerings. The FSC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public companies. In addition, the FSC establishes standards for financial reporting and carries out licensing and supervision of participants in the ROC securities market.

The FSC has responsibility for implementing ROC Securities and Exchange Law and for overall administration of governmental policies in the ROC securities market. It has extensive regulatory authority over the offering, issuance and trading of securities. In addition, ROC Securities and Exchange Law specifically empowers the FSC to promulgate necessary rules. ROC Securities and Exchange Law prohibits market manipulation. For example, it permits an issuer to recover short-swing trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors, as well as the spouses, minor children and nominees of these parties, and shareholders (together with their spouses, minor children and nominees) who hold more than 10% of the shares of the issuer. ROC Securities and Exchange Law prohibits trading by “insiders” based on nonpublic information that materially affects share price movement prior to publication of such information and within 18 hours after publication of such information. “Insiders” include:

directors, supervisors, managers, as well as the spouses, minor children and nominees of these parties, and shareholders (together with their spouses, minor children and nominees) who hold more than 10% of the issuing company’s shares and any individual designated by a governmental or corporate director or supervisor to act on its behalf;
any person who has learned material nonpublic information due to an occupational or controlling relationship with the issuing company;
any person who has discharged from the status or position in the first and second bullet points for not more than six months; and
any person who has learned material non-public information from any of the above.

Sanctions include imprisonment. In addition, damages may be awarded to persons injured by the transaction. ROC Securities and Exchange Law also imposes criminal liability on certified public accountants and lawyers who make false certifications in their examination and audit of an issuer’s contracts, reports and other documents related to securities transactions. The FSC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

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In addition, ROC Securities and Exchange Law provides for civil liability for material misstatements or omissions made by issuers and regulation of tender offers. The FSC does not have criminal or civil enforcement powers under ROC Securities and Exchange Law. Criminal actions may be pursued only by government prosecutors. Civil actions may only be brought by plaintiffs who assert that they have suffered damages. The FSC is empowered to curb abuses and violations of laws and regulations only through administrative measures including:

issuance of warnings;
temporary suspension of operation;
imposition of administrative fines; and
revocation of licenses.

In addition to providing a market for securities trading, the TWSE reviews applications by ROC and foreign issuers to list securities on the TWSE. If issuers of listed securities violate laws and regulations or encounter significant difficulties, the TWSE may, with the approval of the FSC, delist the securities of these issuers.

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Appendix C

GLOSSARY

Backplane connector . . . . . . A connector which is mounted on a PCB to receive and interconnect PCBs and other electronic components.

Barebone . . . . . . . . . . . . . .	Barebone . . . . . . . . . . . . . .	The basic mechanical unit of the PC and communication equipment,
		normally comprising the chassis, connectors, cable assemblies, cooling
		fan, power supply, flat cables and PCBA; it does not include the
		motherboard, CPU, memory, chipsets and hard disk drive. BGA Ball
		Grid Array, a popular surface mount chip package that uses a grid of
		solder balls as its connectors. BGA chips are easier to align to PCB.
Bus .	. . . . . . . . . . . . . . . . . .	A conductor or an assembly of conductors for collecting electric
		currents and distributing them to outgoing feeders.
Card reader . . . . . . . . . . . . .		An input device that reads flash memory cards, which can be in the form
		of a stand-alone device or an integrated part of electronic products such
		as computers, printers or scanners.
Connector . . . . . . . . . . . . . .		A plug or socket used for transferring electronic signals or powers.
CPU	. . . . . . . . . . . . . . . . . .	Central Processing Unit, the location of a computer, usually either the
		printed circuit or microprocessor, where most calculations occur.
Die .	. . . . . . . . . . . . . . . . . .	Block of metal with a design used for stamping and shaping.
EDI	. . . . . . . . . . . . . . . . . .	Electronic Data Interchange, a system that enables the user to exchange
		data (including details of purchase orders) relating to particular
		transactions with its suppliers, customers and services providers.
ERP	. . . . . . . . . . . . . . . . . .	Enterprise Resource Planning, a system that provides inventory data to
		control the level of stocks and receivables, which enables the user to
		more effectively plan and allocate its resources worldwide.
Gigabit Ethernet channel . . .		It supports data transfer rates of one gigabit per second or higher.
IC . .	. . . . . . . . . . . . . . . . . .	Integrated Circuit, another term for a chip, which is a small electronic
		device made out of semiconductor material used in a variety of
		electronic devices.
LCD	. . . . . . . . . . . . . . . . . .	Liquid Crystal Display, a visual display device consisting of a liquid
		crystal solution hermetically sealed between two sheets of glass or other
		polarizing material.
Motherboard . . . . . . . . . . . .		The main circuit boards containing the primary components for a
		computer system. This board contains the processor, main memory,
		support circuitry, bus controller and connector.
MRP	. . . . . . . . . . . . . . . . . .	Material Requirements Planning, a system that enables the user to
		manage its suppliers by implementing more effectively the
		“just-in-time” concept and also provides a projection of the raw
		materials required in the user’s production operations.
ODM	. . . . . . . . . . . . . . . . .	Original Design Manufacturer, a company that both designs and
		manufactures a product for their customers.
OEM	. . . . . . . . . . . . . . . . .	Original Equipment Manufacturer, a company that manufactures
		products to be sold to other companies to rebrand and resell.

C-1

Optomechatronics . . . . . . . .	The combination of optical engineering, mechanical engineering and
	electronic engineering for design, development and manufacturing of
	products.
PC . . . . . . . . . . . . . . . . . . .	Personal Computer, any personal computer based on an Intel
	microprocessor, or an Intel-compatible microprocessor.
PCB . . . . . . . . . . . . . . . . . .	Printed Circuit Board, single- or multi-layer boards of circuitry in
	laminate which provide electrical interconnections and a surface for
	mounting chips and other electronic components. It is the basic platform
	used to connect the microprocessors, capacitors, resistor networks and
	other components that are essential to the functioning of electronic
	products.
PCBA . . . . . . . . . . . . . . . . .	Printed Circuit Board Assembly, being PCB with electronic components
	and expansion cards assembled onto it.

C-2

INDEX TO FINANCIAL STATEMENTS

Page

Consolidated Financial Statements as of and for the Years Ended December 31, 2020 and 2019	Consolidated Financial Statements as of and for the Years Ended December 31, 2020 and 2019
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . .	F-13
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-15
Consolidated Statements of Changes in Equity for the years ended December 31, 2020
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-17
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 . . . .	F-18
Notes to the Consolidated Financial Statements for the years ended December 31, 2020
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-20
Consolidated Financial Statements as of and for the Years Ended December 31, 2019 and 2018
Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-124
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . .	F-135
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019
and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-137
Consolidated Statements of Changes in Equity for the years ended December 31, 2019
and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-139
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 . . . .	F-140
Notes to the Consolidated Financial Statements for the years ended December 31, 2019
and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-142

F-1

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

INDEPENDENT AUDITORS’ REPORT

DECEMBER 31, 2020 AND 2019

For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

~1~

– F-2 –

INDEPENDENT AUDITORS’ REPORT TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of Hon Hai Precision Industry Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of Hon Hai Precision Industry Co., Ltd. and its subsidiaries (the “Group”) as at December 31, 2020 and 2019, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent auditors, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2020 and 2019, 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 the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audit of the consolidated financial statements as at and for the year ended December 31, 2020 in accordance with Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards in the Republic of China; and in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants, Rule No. Financial-Supervisory-Securities-Auditing1090360805 issued by the Financial Supervisory Commission on February 25, 2020 and generally accepted auditing standards in the Republic of China for our audit of the consolidated financial statements as at and for the year ended December 31, 2019. 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 Accountants in the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Based on our audits and the reports of other independent auditors, we believe that the audit evidence we have obtained is sufficient

~2~

– F-3 –

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 2020 consolidated financial statements. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s 2020 consolidated financial statements are stated as follows:

Cut-off of hub sales revenue

Description

Refer to Note 4(34) for accounting policies on revenue recognition.

The Group recognizes revenue upon acceptance of the goods by the customers (when control of the products is transferred) if picked up from hub. For pick-ups from hub, the Group recognizes sales revenue based on movements of inventories contained in the statements or other information provided by the hub custodians. As the hubs are located around the world with numerous custodians, the frequency and contents of statements provided by custodians vary, and the process of revenue recognition involves numerous manual procedures, these factors may potentially result in inaccurate timing of sales revenue recognition and discrepancy between the physical inventory quantities in the hubs and quantities as reflected in the accounting records.

As there are numerous daily sales revenue transactions from hubs and the transaction amounts prior to and after the balance sheet date are significant to the financial statements, we identified the cut-off of hub sales revenue as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Assessed and tested the appropriateness of internal controls over cut-off of hub sales revenue for a specific period prior to and after the balance sheet date, including agreeing to respective supporting documents provided by hub custodians, and validated the proper timing of recognizing movements of inventories and respective transfer of cost of goods sold.
B. Confirmed or conducted physical count of inventory quantities held at hubs and agreed to accounting records.

~3~

– F-4 –

Allowance for inventory valuation losses

Description

Refer to Note 4(14) for accounting policies on inventory valuation, Note 5(2)3 for uncertainty of accounting estimates and assumptions in relation to inventory valuation losses, and Note 6(7) for details of inventories. As at December 31, 2020, the Group’s inventories and allowance for inventory valuation losses amounted to NT$608,332,105 thousand and NT$26,218,370 thousand, respectively.

The Group is primarily engaged in manufacturing and sales of 3C electronic products. Due to rapid technological innovations, short lifespan of electronic products and fluctuations in market prices, there is a higher risk of inventory losses arising from market value decline or obsolescence. The Group recognizes inventories at the lower of cost and net realisable value, and the net realisable value is estimated based on historical experience. An allowance for inventory valuation losses is provided for those inventories aged over a certain time period and those individually identified as obsolete or damaged.

As the amounts of inventories are material, the types of inventories vary, and the estimation of net realisable value for individually obsolete or damaged inventories is subject to management’s judgment, we considered the allowance for inventory valuation losses a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in relation to the provision for inventory valuation losses for individually obsolete or damaged inventories:

A. Ensured consistent application of accounting policies in relation to allowance for inventory valuation losses and assessed the reasonableness of these policies.
B. Validated the appropriateness of system logic of inventory aging report utilised by management to ensure proper classification of inventories aged over a certain period of time.
C. Evaluated the reasonableness of inventories individually identified as obsolete or damaged by checking the related supporting documents and comparing with the information obtained from physical inventory.
D. Discussed with management the net realisable value of inventories aged over a certain period of time and individually identified as obsolete or damaged, validated respective supporting documents and reperformed the calculation.

~4~

– F-5 –

Financial assets and financial liabilities offsetting agreement with financial institutions

Description

Refer to Note 4(27) for accounting policies on offsetting of financial instruments, Note 5(1)2 for significant judgement on applying accounting policies on offsetting of financial instruments, and Note 6(16) for details of offsetting of financial instruments. As of December 31, 2020, the financial instruments that were offset amounted to NT$1,259,254,404 thousand.

The Group has entered into financial assets and financial liabilities offsetting agreements, which are in compliance with IAS 32, ‘Financial instruments: Presentation’, whereby financial assets and liabilities are offset and reported in the net amount since the Group has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

As the determination of whether the Group meets the criteria for offsetting prescribed in IAS 32, ‘Financial instruments: Presentation’ is subject to management’s judgment, and the Group has entered into various individually significant financial assets and financial liabilities offsetting agreements, which would have material effect on the financial statements should the financial assets and financial liabilities be presented separately, we considered offsetting of financial assets and liabilities a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:
A. Assessed and tested internal controls over financial assets and financial liabilities offsetting agreements with financial institutions, including control processes in determining whether such agreements meet the criteria under IAS 32, ‘Financial instruments: Presentation’, and ascertained whether the offsetting made in the financial statements was properly approved and accounted for in compliance with the guidance in IAS 32.
B. Obtained and reviewed the terms of the above agreements and confirmed whether the criteria under IAS 32, ‘Financial instruments: Presentation’ were met and the accounting treatment was prescribed in the guidance.
C. Confirmed the existence and the rights and obligations of financial assets and financial liabilities offsetting agreements with respective financial institutions.

~5~

– F-6 –

Impairment assessment on goodwill arising from acquisition of Belkin International Inc. (“Belkin”).

Description

Refer to the Note 4(20) for accounting policy on impairment assessment of goodwill, Note 5(2)2 for the accounting policy on impairment of non-financial assets, critical accounting estimates and assumptions of impairment assessment and Note 6(13) for the details of impairment loss.

As of December 31, 2020, the Group had goodwill arising from acquisition of 100% equity interest in Belkin for NT$13,563,157 thousand.

Impairment assessment was performed based on the value in use calculation using the discounted cash flow model to determine the recoverable amounts of the cash-generating unit (“CGU”). Significant judgment and estimates about the key assumptions including revenue growth rate, long-term growth rate and discount rate applied to future cash flow forecast are required and will influence the collectible amount and the impairment of goodwill significantly due to the significant judgments and inherent uncertainty. Therefore, we considered the impairment assessment on goodwill arising from acquisition of Belkin International Inc. and its subsidiaries a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Tested the underlying calculations used in the valuation mode.
B. Involved valuation specialists to assess the reasonableness of the key assumptions, including expected growth rate and discount rate used as follows:
(a) Evaluated the assumptions used, mainly revenue growth rate and long-term growth rate within the impairment assessment by comparing them to historical results, economic and industry forecast;
(b) Benchmarked the discount rate range which is used in determining the recoverable amount against certain market data and industry research; and
(c) Performed sensitivity analysis over key assumptions in the model in order to assess the potential impact of a range of possible outcomes.

Impairment assessment of operating assets of Asia Pacific Telecom Co., Ltd. and its subsidiaries Description

Refer to Notes 4(16) and (19) for accounting policies applied to property, plant and equipment and intangible assets. Note 4(20) for accounting policies on impairment assessment of non-financial

~6~

– F-7 –

assets. Note 5(2)1 for critical accounting estimate and key sources of assumption uncertainty applied to property, plant and equipment, intangible assets and other operating assets, Notes 6(9), (13) and (14) for details of account items.

The subsidiaries’ operating assets represent a significant percentage of the Group’s total assets, and the valuation of these assets is affected by the overall industry development and the Group’s operations. The Group used the value in use to estimate the recoverable amount which involves management’s judgements, such as the estimation of future cash flow and determination of discount rate, etc. Management’s judgment mentioned above involve future years’ forecast which are highly uncertain and have a material impact to the estimation of value in use. Therefore, we identified the impairment assessment of operating assets as a key audit matter.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

A. We assessed the expected future cash flows prepared by management and its decision process, compared and assessed the consistency of the expected future cash flows with operation plans.
B. We also obtained and assessed the information provided by the Group and the valuation report prepared by external professional valuers engaged by the Group.
(a) Compared the parameters used in predicting future cash flows with historical experience, economic and industrial forecasts.
(b) Compared the parameters used in determining discount rate with the assumptions on capital cost of cash generating units, and with returns rate on similar assets.
(c) Verified the valuation model calculation.
(d) Assessed the future cash flow sensitivity analysis prepared by management based on the alternative hypothesis using different discount rates, and confirmed whether management has appropriately considered the possible impact on the estimation uncertainty of impairment assessment.

Other matter – Reference to audits of other independent auditors

~7~

– F-8 –

consolidated total assets as of December 31, 2020 and 2019, respectively, and total operating revenues amounted to NT$232,746,063 thousand and NT$458,130,373 thousand, constituting 4.34% and 8.57% of the consolidated total operating revenues for the years then ended, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of Hon Hai Precision Industry Co., Ltd. as at and for the years ended December 31, 2020 and 2019.

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 the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance, including the Audit Committee, are responsible for overseeing the Group’s financial reporting process.

Auditors’ responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a 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 generally accepted auditing standards 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

~8~

– F-9 –

reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

A. 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 controls.
B. 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 controls.
C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
D. 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 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 report. However, future events or conditions may cause the Group to cease to continue as a going concern.
E. 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.
F. Obtain sufficient appropriate audit evidence regarding the financial information of the 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

~9~

– F-10 –

planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our 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.

Hsu, Yung-Chien Hsu, Sheng-Chung for and on behalf of PricewaterhouseCoopers, Taiwan March 30, 2021

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the

~10~

– F-11 –

translation.

~11~

– F-12 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Assets	December31,2020 December31,2019 AMOUNT % AMOUNT % � �� �� �� �� �� � �� � �� � �� � �� �� �� �� �� � �� � �� � �� � �� � �� � �� �� �� �� �� � �� � �� �� �� �� �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� �� �� �� � �� �� �� ��	December31,2019
	AMOUNT � �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� � ��	%
Current assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1136 Financial assets at amortised cost, net-current 1170 Accounts receivable, net 1180 Accounts receivable - related parties 1200 Other receivables 1210 Other receivables - related parties 130X Inventory 1410 Prepayments 11XX Total current assets Non-current assets 1510 Financial assets at fair value through profit or loss - non-current 1517 Financial assets at fair value through other comprehensive income - non-current 1535 Financial assets at amortised cost, net - non-current 1550 Investments accounted for using equity method 1600 Property, plant and equipment 1755 Right-of-use assets 1760 Investment property - net 1780 Intangible assets 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets		�� � � �� � � � �� �
		��
		� � � � � � � � � �
		��
		��

(Continued)

~12~

– F-13 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

				December31,2020			December31,2019
	Liabilities and Equity	Notes		AMOUNT	%		AMOUNT	%
Current liabilities 2100 Short-term loans 6(16) � �� �� �� ��
2110	Short-term notes and bills payable	6(15)	��			� �� �
2120	Financial liabilities at fair value	6(2)
	through profit or loss - current		��			� �� �
2170	Accounts payable		��		�� �� ��
2180	Accounts payable - related parties	7	��			� �� �
2200	Other payables	6(17) and 7	��			� �� �
2230	Current tax liabilities	6(37)	��			� �� �
2250	Provisions for liabilities - current	6(24)	��			� �� �
2280	Current lease liabilities	7	��			� �� �
2300	Other current liabilities	6(18)	��			� �� �
21XX	Total current liabilities		��		�� �� ��
Non-current liabilities 2530 Corporate bonds payable 6(19) �� � �� �
2540	Long-term loans	6(20)	��			� �� �
2550	Provisions for liabilities - non-current	6(24)	��			� �� �
2570	Deferred income tax liabilities	6(37)	��			� �� �
2580	Non-current lease liabilities	7	��			� �� �
2600	Other non-current liabilities	6(23)	��			� �� �
25XX	Total non-current liabilities		��			� �� �
2XXX	Total liabilities		��		�� �� ��
	Equity Equity attributable to owners of
parent Share capital 6(25) 3110 Common stock �� � �� �
Capital reserve 6(26) 3200 Capital surplus �� � �� �
Retained earnings 6(27) 3310 Legal reserve �� � �� �
3320	Special reserve		��			� �� �
3350	Unappropriated retained earnings		��		�� �� ��
Other equity interest 6(28) 3400 Other equity interest � �� �� �� �
3500	Treasury stocks	6(25)	� ��			�� ��		�
31XX	Equity attributable to owners of
	the parent		��		�� �� ��
36XX	Non-controlling interest	6(29)	��			� �� �
3XXX	Total equity		��		�� �� ��
Commitments and Contingent Liabilities 9 Subsequent Events 11 3X2X Total liabilities and equity � �� �� ��

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

~13~

– F-14 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)

Items	YearendedDecember31 2020 2019 Notes AMOUNT % AMOUNT % 6(30) and 7 �� �� �� �� 6(7)(34)(35) and 7 � �� �� �� �� �� � �� � 6(34)(35) � �� �� �� � � �� �� �� � � �� �� �� � � �� �� �� � �� � �� � 6(31) �� � �� � 6(32) �� � �� � 6(33) �� � �� � 6(36) � �� �� �� � 6(8) �� � �� � �� � �� � �� � �� � 6(37) � �� �� �� � �� � �� �
4000 Operating revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7100 Interest income 7010 Other income 7020 Other gains and losses 7050 Finance costs 7060 Share of profit of associates and joint ventures accounted for under equity method 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year

Items

YearendedDecember31
2020
2019
Notes
AMOUNT
%
AMOUNT
%
6(30) and 7

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4000
Operating revenue
5000
Operating costs
5900
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative
expenses
6300
Research and development
expenses
6000
Total operating expenses
6900
Operating profit
Non-operating income and
expenses
7100
Interest income
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of profit of associates and
joint ventures accounted for
under equity method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year

(Continued)

~14~

– F-15 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)

					YearendedDecember31	YearendedDecember31	YearendedDecember31
				2020			2019
	Items	Notes		AMOUNT	%		AMOUNT	%
	Other comprehensive income Components of other
	comprehensive income that will
not reclassified to profit or loss 8311 Remeasurement of defined 6(21)
	benefit plans		�	��		��	��	�
8316	Unrealised gain on valuation of	6(3)(28)(29)
	financial assets at fair value
	through other comprehensive
	income		�� � �� �
8320	Share of other comprehensive	6(28)
	income of associates and joint
	ventures accounted for using
	equity method		�� � �� �
8349	Income tax related to components	6(37)
	of other comprehensive income
	that will not be reclassified to
	profit or loss		�� � �� �
8310	Other comprehensive income
	that will not be reclassified to
	profit or loss		�� � �� �
	Components of other
	comprehensive income that will
be reclassified to profit or loss 8361 Financial statements translation 6(28)(29)
	differences of foreign operations		�	��		��	��	�
8370	Share of other comprehensive	6(28)
	income (loss) of associates and
	joint ventures accounted for
	using equity method		�� ��				��	�
8360	Other comprehensive loss that
	will be reclassified to profit or
	loss		�	��		��	��	�
8300	Other comprehensive income
	(loss) for the year			�� ��			��	�
8500	Total comprehensive income for
	the year			�� �			�� �
Profit attributable to: 8610 Owners of the parent �� � �� �
8620	Non-controlling interest		�� � �� �
				�� �			�� �
	Comprehensive income attributable
to: 8710 Owners of the parent �� � �� �
8720	Non-controlling interest		�� � �� �
				�� �			�� �
Earnings per share (in dollars) 6(38) 9750 Basic earnings per share �� ��
9850	Diluted earnings per share				��			��

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

~15~

– F-16 –

												Total equity		��	��		��		��		�	�	��			��			��	��		��			�	��		��	��		��		��		�	�	��			��			��		��			�	��
														�			�						�			�										�		�									�												�
											Non-controlling	interest		� ��	��		� ��		��		�	�	�			�			�			��			�	� ��		� ��	��		� ��		��		�	�	�			�			�		��			�	� ��
												Total		��	��		��		��		�	�	��			��			��			�			�	��		��	��		��		��		�	�	��			��			��		�			�	��
														�			�						�			�										�		�									�												�
												Treasury stocks		�� ��	�		�		�		�	�	�			�			�			�			�	�� ��		�� ��	�		�		�		�	�	�			�			�		�			�	�� ��
HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY	FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019	(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)	Equity attributable to owners of the parent	Retained Earnings Other Equity Interest	Unrealised gains	(losses) from	financial assets	Financial statements measured at fair	translation value through other	Unappropriated differences of foreign comprehensive	Special reserve retained earnings operations income		� �� �� �� �� � ��	� �� � �		� � �� � �� ��		� �� � �� ��		� � �� � �	�� � �� � �	� � �� � �			� � �� � �			� � � �			� � � �			� �� � � ��	� �� �� �� � ��		� �� �� �� � ��	� �� � �		� � �� � �� ��		� �� � �� ��		� � �� � �	�� � �� � �	� � �� � �			� �� � �			� � �� � �		� � � �			� � �� � ��	�� �� �� � ��
												Legal reserve		��	�		�		�		��	�	�			�			�			�			�	��		��	�		�		�		��	�	�			�			�		�			�	��
												Capital reserve		� ��	�		�		�		�	�	�			� ��			��			�			�	� ��		� ��	�		�		�		�	�	�			��			��		�			�	� ��
											Share capital -	common stock		��	�		�		�		�	�	�			�			�			�			�	��		��	�		�		�		�	�	�			�			�		�			�	��
														�																						�		�																					�
												Notes	2019	Balance at January 1, 2019	Profit	Other comprehensive income 6(28)	(loss)	Total comprehensive income	(loss)	Appropriations of 2018 earnings: 6(27)	Legal reserve	Special reserve	Cash dividends	Changes in equity of associates 6(26)	and joint ventures accounted for	using the equity method	Adjustments arising from 6(26)	changes in percentage of	ownership in subsidiaries		Increase in non-controlling 6(29)	interests	Disposal of equity instruments at 6(3)	fair value through other	comprehensive income	Balance at December 31, 2019	2020	Balance at January 1, 2020	Profit	Other comprehensive income 6(28)	(loss)	Total comprehensive income	(loss)	Appropriations of 2019 earnings: 6(27)	Legal reserve	Special reserve	Cash dividends	Changes in equity of associates 6(26)	and joint ventures accounted for	using the equity method	Adjustments arising from 6(26)	changes in percentage of	ownership in subsidiaries	Increase in non-controlling 6(29)	interests	Disposal of equity instruments at 6(3)	fair value through other	comprehensive income	Balance at December 31, 2020
																														– F-17					–

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation
Amortization
Cost of share-based payments
Provision for doubtful accounts and sales discount
Impairment loss
Loss on disposal of property, plant and equipment, net
Gain on financial assets or liabilities at fair value through
profit or loss, net
Share of profit of associates and joint ventures accounted for
using equity method
Loss on disposal of investments
Interest expense
Interest income
Dividend income
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss,
mandatorily measured at fair value
Notes receivable
Accounts receivable
Accounts receivable due from related parties
Other receivables
Inventories
Prepayments
Changes in operating liabilities
Accounts payable
Accounts payable to related parties
Other payables
Provisions for liabilities
Other current liabilities
Contract liabilities
Accrued pension liabilities
Cash inflow generated from operations
Income taxes paid
Net cash flows from operating activities

Year ended December 31
Notes
2020
2019
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6(34)
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6(34)
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6(35)
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12(2)
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6(33)
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6(33)
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6(33)
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6(8)
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6(33)
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6(32)
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(Continued)

~17~ – F-18 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of financial assets at fair value through profit or loss
Net cash flow from acquisition of subsidiaries
Proceeds from disposal of financial assets at fair value through
profit or loss
Acquisition of financial assets at fair value through other
comprehensive income
Proceeds from disposal of financial assets at fair value through
other comprehensive income
Proceeds from repayments of financial assets at amortised
cost-non-current
Acquisition of financial assets at amortised cost-non-current
Proceeds from repayments of financial assets at amortised
cost-current
Other receivables due from related parties
Acquisition of investments accounted for using equity method
Interest received
Dividends received
Acquisition of right-of-use assets
Acquisition of intangible assets
Proceeds from disposal of right-of-use asset
Proceeds from disposal of investments accounted for using equity
method
(Increase) decrease in other non-current assets
Other investing activities
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans
Increase in short-term notes and bills payable
Proceeds from issuing bonds
Repayments of bonds
Proceeds from long-term debt
Repayments of long-term debt
Increase (decrease) in other non-current liabilities
Payment of lease liabilities
Changes in non-controlling interests
Cash dividends paid to non-controlling interest
Interest paid
Cash dividends paid
Net cash flows used in financing activities
Net effect of changes in foreign currency exchange rates
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Year ended December 31
Notes
2020
2019
6(40)
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6(40)
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The accompanying notes are an integral part of these consolidated financial statements.

~18~

– F-19 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

Hon Hai Precision Industry Co., Ltd. (the “Company”) was incorporated as a company limited by shares under the provisions of the Company Act of the Republic of China (R.O.C.). The Company and its subsidiaries (collectively referred herein as the “Group”) are primarily engaged in the manufacture, sales and service of connectors, case, thermal module, wired/wireless communication products, optical products, power supply modules, and assemblies for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries.

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March 30, 2021.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by the FSC effective from 2020 are as follows:

follows:
New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
Amendments to IAS 1 and IAS 8, ‘Disclosure initiative-definition of Amendments to IFRS 3, ‘Definition of a business’ Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmark reform’ Amendment to IFRS 16, ‘Covid-19-related rent concessions’	January 1, 2020 January 1, 2020 January 1, 2020 June 1, 2020 (Note)

Note: Earlier application from January 1, 2020 is allowed by the FSC.

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2021 are as follows:

~19~

– F-20 –

New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
Amendments to IFRS 4, ‘Extension of the temporary exemption from applying IFRS 9’ Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, ‘Interest Rate Benchmark Reform— Phase 2’	January 1, 2021 January 1, 2021

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

as endorsed by the FSC are as follows:

New Standards,InterpretationsandAmendments

Effective date by
International Accounting
StandardsBoard

Amendments to IFRS 3, ‘Reference to the conceptual framework’
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets
between an investor and its associate or joint venture’
IFRS 17, ‘Insurance contracts’
Amendments to IFRS 17, 'Insurance contracts'
Amendments to IAS 1, ‘Classification of liabilities as current
or non-current’
Amendments to IAS 1, ‘Disclosure of accounting policies’
Amendments to IAS 8, ‘Definition of accounting estimates’
Amendments to IAS 16, ‘Property, plant and equipment: proceeds
before intended use’
Amendments to IAS 37, ‘Onerous contracts—cost of fulfilling a
Annual improvements to IFRS Standards 2018–2020

January 1, 2022
To be determined by
International Accounting
Standards Board
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2022
January 1, 2022
January 1, 2022

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unless otherwise stated, the principal accounting policies applied in the preparation of these consolidated financial statements set out below have been consistently applied to all the periods presented.

(1) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

~20~

– F-21 –

(2) Basis of preparation

A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
(b) Financial assets at fair value through other comprehensive income.
(c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligation.
B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:
(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
(b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. 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.
(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the

~21~

– F-22 –

subsidiary should be reclassified from equity to profit or loss. B. Subsidiaries included in the consolidated financial statements:

Investor	Subsidiary	December 31, December 31, Main BusinessActivities 2020 2019 Investment holdings in 100 100 companies in Mainland China, Hong Kong, Europe and America primarily engaged in manufacturing, sale, research and development of computer cases, connectors and computer components Investment holdings in 100 100 hi-tech companies in Asia-Pacific and America Venture capital investments 100 100 in companies primarily engaged in manufacturing of automobile wires/ electronic devices and electronic components, and services of planning, advisory and business management Domestic investments in 100 100 companies primarily engaged in manufacturing and sale of machinery and equipment Domestic investments in 100 100 companies primarily engaged in manufacturing and sale of machinery and equipment Ownership (%)	Note
Hon Hai Precision Industry Co., Ltd. " " " "	Foxconn (Far East) Limited and subsidiaries Foxconn Holding Ltd. and subsidiaries Hyield Venture Capital Co., Ltd. and subsidiaries Bao Shin International Investment Co., Ltd. and subsidiaries Hon Yuan International Investment Co., Ltd. and subsidiaries		(a) (b) (c)

~22~

– F-23 –

Investor	Subsidiary	December 31, December 31, Main BusinessActivities 2020 2019 Ownership (%) Domestic investments in 100 100 companies primarily engaged in software and electronic information application services, and manufacturing and sale of machinery and equipment Domestic investments in 100 100 companies primarily engaged in manufacturing electronic components Logistics services in 100 100 America Logistics services in 100 100 America Investment holdings in 100 100 companies in Mainland China primarily engaged in manufacturing and sale of power supply modules, application modules and network cables assemblies Asia-Pacific sales company 100 100 and development of educational technology Patent applications in 100 100 America Leasing services 100 100	Note
Hon Hai Precision Industry Co., Ltd. " " " " " " "	Hon Chi International Investment Co., Ltd. and subsidiaries Lin Yih International Investment Co., Ltd. and subsidiaries Hon Hai/ Foxconn Logistics California LLC. Hon Hai/ Foxconn Logistics Texas LLC. Ambit International Ltd. and subsidiaries Foxconn Singapore (Pte) Ltd. and subsidiaries Foxconn International Inc. Altus Technology Inc.

~23~

– F-24 –

Investor	Subsidiary	December 31, December 31, Main BusinessActivities 2020 2019 Ownership (%) Investment holdings in 99.96 99.96 companies in Mainland China, primarily engaged in manufacturing and trading of portable cameras Investment holdings in 100 100 Russian domestic sales companies Investment holdings in 100 100 Vietnam export processing and construction services companies and Brazil domestic sales companies Investment holdings and 100 100 reinvestment in businesses relating to robots, automatic equipment, moulds, parts, accessories and corresponding services Investment holdings in 100 100 companies in Europe Retail of office machinery 74.80 74.80 and equipment and electronic appliances, and information/software services Sale, software 100 100 development, repair services, after-sale services and rental services of robots Manufacturing and sales of 100 100 computers and data processing equipment	Note
Hon Hai Precision Industry Co., Ltd. " " " " " " "	Premier Image Technology -Hong Kong Limited and subsidiaries Foxconn SA B.V. and subsidiaries Margini Holdings Limited and subsidiaries Jin Ji City Trading Co., Ltd. -Hong Kong Foxconn Holdings B.V. - Netherlands and subsidiaries Syntrend Creative Park Co., Ltd. Perobot Co., Ltd. ECMMS Precision Singapore Pte. Ltd.

~24~

– F-25 –

Investor	Subsidiary	December 31, December 31, Main BusinessActivities 2020 2019 Ownership (%) Manufacturing WIFI cards 100 100 and modules CFTV, DVR, bluetooth 100 100 module, set-top box and optical network terminal Concession of telecom 40.74 40.74 industry, storage of data and manufacturing of wire or wireless communication, installation of computer and satellite TV channels and telecom-related business, and providing 3rd-Generation of mobile phone services Complete electric 51 - vehicles design, and development, including technical authorisation and transfer. Also offering complete solutions for autonomous driving systems, new energy power and IoV systems.	Note
Hon Hai Precision Industry Co., Ltd. " " "	Fenix Brazilfenix Industria De Electronicos Ltda. Foxconn MOEBG Industria De Eletronicos Ltda.-Brazil Asia Pacific Telecom Co., Ltd. Foxtron Vehicle Technologies Co., Ltd.		(e) (d)

(a) The Group acquired 100% equity interest in Mingyang Realty Development (Kunshan) Co., Ltd. and Tuozhan Property Development Co., Ltd. on April 12, 2019 and May 9, 2019, respectively and were included in the consolidated financial statements since the acquisition date.
(b) The Group acquired 100% equity interest in Shandong Chengshang Energy Co., Ltd. in the second quarter 2020 and was included in the consolidated financial statements since the acquisition date.

~25~

– F-26 –

(c) The Company’s subsidiary, HongFuJin Precision Electronics (ZhengZhou) Co., Ltd., merged with a 100% subsidiary, Zhengzhou Fulianwang Electronic Technology Co., Ltd., due to reorganization in the second quarter of 2020. HongFuJin Precision Electronics (ZhengZhou) Co., Ltd. was the surviving company.
(d) The Group established Foxtron Vehicle Technologies Co., Ltd. with Hua-Chuang Automobile Information Technical Center Co., Ltd. (the ”Hua-Chuang”) on November 6, 2020. Hua-Chuang contributed assets with value of $7,542,000 as capital, while the Group contributed cash of $7,850,321 as capital and owned 51% equity interest. It was included in the consolidated financial statements since the setup date.
(e) The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) in the amount of $10,000,000 on November 21, 2019. After the acquisition, the Group owned 40.74% equity interest in Asia Pacific which represented the largest portion of the voting right of its shareholders and is able to direct its relevant activities. Accordingly, the Group has control over Asia Pacific and included it as a subsidiary in the consolidated financial statements since the acquisition date.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Significant restrictions: None.
F. Subsidiaries that have non-controlling interests that are material to the Group:
The information on non-controlling interest and respective subsidiaries are as follows:

Name of subsidiary FIH Mobile Limited Foxconn Ventures Pte. Ltd. Foxconn Interconnect Technology Limited Foxconn Industrial Internet Co., Ltd. Asia Pacific Telecom Co., Ltd.	Principal place of business Cayman Singapore Cayman China Taiwan	Ownership Amount % $ 22,199,143 38% 23,229,225 46% 15,483,980 25% 72,472,774 16% 18,972,448 59% $152,357,570 Non-controllinginterest December 31,2020	Ownership Amount % $ 23,939,629 38% 20,563,572 46% 15,271,092 23% 61,422,746 16% 22,642,298 59% $143,839,337 Non-controllinginterest December 31,2019	Description

~26~

– F-27 –

Summarised financial information of the subsidiary: Balance sheets

Balance sheets
			FIH MobileLimited
		December31,2020			December31,2019
Current assets		$	135,380,945		$	171,075,653
Non-current assets			37,075,808			38,859,935
Current liabilities	(		111,999,810)	(		145,825,230)
Non-current liabilities	(		1,159,695)	(		1,134,435)
Total net assets		$	59,297,248		$	62,975,923
			Foxconn Interconnect		TechnologyLimited
		December31,2020			December31,2019
Current assets		$	81,114,425		$	82,202,432
Non-current assets			51,002,668			49,920,298
Current liabilities	(		50,978,118)	(		49,832,096)
Non-current liabilities	(		18,756,900)	(		20,011,770)
Total net assets		$	62,382,075		$	62,278,864
			FoxconnVenturesPte.Ltd.
		December31,2020			December31,2019
Current assets		$	26,545,134		$	15,515,189
Non-current assets			24,903,894			30,975,076
Current liabilities	(		4,025)	(		1,295,604)
Total net assets		$	51,445,003		$	45,194,661
			Foxconn Industrial InternetCo.,Ltd.
		December31,2020			December31,2019
Current assets		$	932,125,404		$	845,699,832
Non-current assets			62,506,190			54,267,529
Current liabilities	(		528,560,676)	(		503,806,489)
Non-current liabilities	(		10,377,869)	(		9,099,406)
Total net assets		$	455,693,049		$	387,061,466
			Asia PacificTelecomCo.,Ltd.
		December31,2020			December31,2019
Current assets		$	8,171,700		$	10,939,105
Non-current assets			31,504,947			34,811,852
Current liabilities	(		6,974,568)	(		7,319,667)
Non-current liabilities	(		2,962,107)	(		2,675,397)
Total net assets		$	29,739,972		$	35,755,893

~27~

– F-28 –

Statements of comprehensive income

Revenue and other operating revenue Loss for the year from continuing operations Other comprehensive income (loss), net of tax Total comprehensive loss for the year Comprehensive loss attributable to non-controlling interest Dividends paid to non-controlling interest

Revenue and other operating revenue Income for the year from continuing operations Other comprehensive income (loss), net of tax Total comprehensive income for the year Comprehensive income attributable to non-controlling interest Dividends paid to non-controlling interest

Revenue and other operating revenue Income for the year from continuing operations Other comprehensive loss, net of tax Total comprehensive income for the year Comprehensive income attributable to non-controlling interest Dividends paid to non-controlling interest

		FIH MobileLimited	FIH MobileLimited	FIH MobileLimited	FIH MobileLimited
		Years ended	December			31,
		2020			2019
	$	274,842,128		$	461,221,823
(		5,136,859)	(			376,436)
		4,883,944	(			1,097,822)
($		252,915)	($			1,474,258)
($		195,740)	($			538,832)
	$	-		$		-
	Foxconn Interconnect			TechnologyLimited
		Years ended	December			31,
		2020			2019
	$	126,032,636		$	135,150,328
		1,257,219				7,211,148
		2,082,995	(			1,050,538)
	$	3,340,214		$		6,160,610
	$	900,428		$		1,505,152
	$	-		$		743,712
		FoxconnVenturesPte.Ltd.
		Years ended	December			31,
		2020			2019
	$	-		$		-
		10,632,011				5,877,261
(		2,303,007)	(			404,102)
	$	8,329,004		$		5,473,159
	$	3,789,697		$		2,490,287
	$	-		$		-

~28~

– F-29 –

Foxconn Industrial Internet Co., Ltd.

			Years ended	December31,	December31,	December31,
			2020			2019
Revenue and other operating revenue		$	1,846,851,234		$	1,827,674,405
Income for the year from continuing
operations			74,980,558			81,619,395
Other comprehensive (loss) income, net of tax	(		37,959)			6,490
Total comprehensive income for the year		$	74,942,599		$	81,625,885
Comprehensive income attributable to
non-controlling interest		$	11,792,663		$	12,910,527
Dividends paid to non-controlling interest		$	2,685,915		$	1,749,477
			Asia PacificTelecom			Co.,Ltd.
			Years ended	December31,
			2020			2019
Revenue and other operating revenue		$	13,587,443		$	14,246,066
Loss for the year from continuing operations	(		5,819,980)	(		5,161,873)
Other comprehensive income, net of tax			858			3,847
Total comprehensive loss for the year	($		5,819,122)	($		5,158,026)
Comprehensive loss attributable to
non-controlling interest	($		3,669,850)	($		334,301)
Dividends paid to non-controlling interest		$	-		$	-

Statements of cash flows

Statements of cash flows
		FIH MobileLimited
		Years ended	December		31,
		2020		2019
Net cash used in operating
activities	($	17,603,061)	($		14,065,132)
Net cash provided by investing
activities		14,737,118			44,638,058
Net cash provided by (used in) financing
activities		7,932,819	(		26,919,766)
Effect of exchange rates on cash and cash
equivalents		1,599,237			263,137
Increase in cash and cash equivalents		6,666,113			3,916,297
Cash and cash equivalents, beginning of
year		46,079,951			43,847,968
Cash and cash equivalents, end of year	$	52,746,064		$	47,764,265

~29~

– F-30 –

Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities

Effect of exchange rates on cash and cash equivalents Decrease in cash and cash equivalents Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Net cash provided by operating activities Net cash provided by investing activities Net cash provided by financing activities Increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Effect of exchange rates on cash and cash equivalents

Increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

		Foxconn Interconnect	Foxconn Interconnect	TechnologyLimited	TechnologyLimited
		Years ended	December31,
		2020			2019
	$	3,400,496		$	9,676,066
(		10,507,921)	(		12,899,454)
		2,105,467	(		1,992,366)
		1,413,507	(		122,805)
(		3,588,451)	(		5,338,559)
		25,407,321			32,913,710
	$	21,818,870		$	27,575,151
		FoxconnVenturesPte.Ltd.
		Years ended	December31,
		2020			2019
	$	82,297		$	182,644
		12,167,737			13,350,706
		-			-
		12,250,034			13,533,350
		15,425,649			2,456,128
	$	27,675,683		$	15,989,478
		Foxconn Industrial InternetCo.,Ltd.
		Years ended	December31,
		2020			2019
	$	32,943,047		$	28,820,961
(		27,659,807)	(		12,611,175)
		34,921,791			12,173,675
(		2,860,756)			433,356
		37,344,275			28,816,817
		283,994,561			269,144,472
	$	321,338,836		$	297,961,289

~30~

– F-31 –

Asia Pacific Telecom Co., Ltd.

			Years ended	December31,	December31,
			2020		2019
Net cash provided by operating activities		$	1,107,170	$	1,486,927
Net cash used in investing activities	(		1,094,815)	(	3,954,550)
Net cash (used in) provided by financing
activities	(		2,344,696)		9,669,716
Effect of exchange rates on cash and cash
equivalents			30	(	49)
(Decrease) increase in cash and cash
equivalents	(		2,332,311)		7,202,044
Cash and cash equivalents, beginning of
year			8,204,093		1,002,049
Cash and cash equivalents, end of year		$	5,871,782	$	8,204,093

(4) Foreign currency translation

A. The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency.
B. Foreign currency transactions and balances
(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.
(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.
(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
(d) All foreign exchange gains and losses are presented in the statement of comprehensive income within “other gains and losses”.
C. Translation of foreign operations
(a) The operating results and financial position of all the group entities and associates that have

~31~

– F-32 –

a functional currency different from the presentation currency are translated into the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
iii.All resulting exchange differences are recognized in other comprehensive income.
(b) When the foreign operation of an associate is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group still retains partial interest in the former foreign associate after losing significant influence over the former foreign associate, such transactions should be accounted for as disposal of all interest in these foreign operations.
(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even when the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.
(d) Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rates at the balance sheet date.

(5) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
(b) Assets held mainly for trading purposes;
(c) Assets that are expected to be realized within twelve months from the balance sheet date;
(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
(a) Liabilities that are expected to be settled within the normal operating cycle;
(b) Liabilities arising mainly from trading activities;
(c) Liabilities that are to be settled within twelve months from the balance sheet date;
(d) Liabilities for which the repayment date cannot be extended unconditionally to more than

~32~

– F-33 –

twelve months after the balance sheet date. 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.

(6) Cash equivalents

Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

(7) Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortised cost or fair value through other comprehensive income.
B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value and recognizes the transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognizes the gain or loss in profit or loss.
D. The Group recognizes the dividend income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

(8) Financial assets at fair value through other comprehensive income

A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Group has made an irrevocable election at initial recognition to recognize changes in fair value in other comprehensive income and debt instruments which meet all of the following criteria:
(a) The objective of the Group’s business model is achieved both by collecting contractual cash flows and selling financial assets; and
(b) The assets’ contractual cash flows represent solely payments of principal and interest.
B. On a regular way purchase or sale basis, financial assets at fair value through other comprehensive income are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. The Group subsequently measures the financial assets at fair value:
(a) The changes in fair value of equity investments that were recognized in other comprehensive income are reclassified to retained earnings and are not reclassified to profit or loss following the derecognition of the investment. Dividends are recognized as dividend income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.
(b) Except for the recognition of impairment loss, interest income and gain or loss on foreign exchange which are recognized in profit or loss, the changes in fair value of debt instruments

~33~

– F-34 –

are taken through other comprehensive income. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

(9) Financial assets at amortised cost

A. Financial assets at amortised cost are those that meet all of the following criteria:
(a) The objective of the Group’s business model is achieved by collecting contractual cash flows.
(b) The assets’ contractual cash flows represent solely payments of principal and interest.
B. On a regular way purchase or sale basis, financial assets at amortised cost are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognized in profit or loss when the asset is derecognized or impaired.
D. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.

(10) Accounts and notes receivable

A. Accounts and notes receivable entitle the Group a legal right to receive consideration in exchange for transferred goods or rendered services.
B. The short-term accounts and notes receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
C. The Group’s operating pattern of accounts receivable that are expected to be factored is for the purpose of receiving contract cash flow and selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognized in other comprehensive income.

(11) Impairment of financial assets

For debt instruments measured at fair value through other comprehensive income and financial assets at amortised cost including accounts receivable that have a significant financing component, at each reporting date, the Group recognizes the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognizes the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Group recognizes the impairment provision for lifetime ECLs.

(12) Derecognition of financial assets

The Group derecognizes a financial asset when one of the following conditions is met:

A. The contractual rights to receive the cash flows from the financial asset expire.

~34~

– F-35 –

B. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.
C. The contractual rights to receive cash flows of the financial asset have been transferred; and the Group has not retained control of the financial asset.
(13) Leasing arrangement (lessor) Lease receivable / Operating lease
A. Based on the terms of a lease contract, a lease is classified as a finance lease if the lessee assumes substantially all the risks and rewards incidental to ownership of the leased asset.
- (a) At commencement of the lease term, the lessor should record a finance lease in the balance sheet as ‘lease receivables’ at an amount equal to the net investment in the lease (including initial direct costs). The difference between gross lease receivable and the present value of the receivable is recognized as ‘unearned finance income of finance lease’.
- (b) The lessor should allocate finance income over the lease term based on a systematic and rational basis reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease.
- (c) Lease payments (excluding costs for services) during the lease term are applied against the gross investment in the lease to reduce both the principal and the unearned finance income.
B. Lease income from an operating lease (net of any incentives given to the lessee) is recognized in profit or loss on a straight-line basis over the lease term.
(14) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expense.

(15) Investments accounted for under the equity method / associates
A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.
B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive

~35~

– F-36 –

income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognizes change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.

D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ‘investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.
F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss.
G. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.
H. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss proportionately.

(16) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount

~36~

– F-37 –

of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

C. While land is not depreciated, other property, plant and equipment that apply cost model are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each component of property, plant and equipment that is significant in relation to the total cost of the item is depreciated separately.
D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change.

The estimated useful lives of property, plant and equipment are as follows:

Buildings 5 ~ 51 years (Auxiliary buildings 6 ~ 11 years) � Machinery and equipment 3 9 years � Computer and communication equipment 3 25 years Other equipment 1 � 25

years

(17) Leasing arrangements (lessee) � right-of-use assets/ lease liabilities

A. Leases are recognized as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. For short-term leases or leases of low-value assets, lease payments are recognized as an expense on a straight-line basis over the lease term.
B. Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of the following:
(a) Fixed payments, less any lease incentives receivable;
(b) Variable lease payments that depend on an index or a rate;
(c) Amounts expected to be payable by the lessee under residual value guarantees;
(d) The exercise price of a purchase option, if the lessee is reasonably certain to exercise that option; and
(e) Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The Group subsequently measures the lease liability at amortised cost using the interest method and recognizes interest expense over the lease term. The lease liability is remeasured and the amount of remeasurement is recognized as an adjustment to the right-of-use asset when there are changes in the lease term or lease payments and such changes do not arise from contract

~37~

– F-38 –

modifications.

C. At the commencement date, the right-of-use asset is stated at cost comprising the following: (a) The amount of the initial measurement of lease liability;
(b) Any lease payments made at or before the commencement date;
(c) Any initial direct costs incurred by the lessee; and
(d) An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
The right-of-use asset is measured subsequently using the cost model and is depreciated from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. When the lease liability is remeasured, the amount of remeasurement is recognized as an adjustment to the right-of-use asset.
D. For lease modifications that decrease the scope of the lease, the lessee shall decrease the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease, and recognize the difference between remeasured lease liability in profit or loss.

(18) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Investment property is depreciated on a straight-line basis over its estimated useful life of 6 to 51 years.

(19) Intangible assets
A. Certain trademarks are stated at cost and regarded as having an indefinite useful life as they were expected to generate continuous net cash inflow in the foreseeable future. For the trademarks with indefinite useful life are not amortised, but are tested annually for impairment.
B. Goodwill is generated by adopting the acquisition method when merger and acquisition occurs.
C. Patent is amortised on a straight-line basis over its estimated useful life of 2 to 20 years.
D. Customer relationship and developed technologies are amortised on a straight-line basis over its estimated life of 12 years and 2 to 7 years, respectively.
E. Concession obtained individually is stated initially at its costs and is amortised on a straight-line basis over its useful life as follows:
- (a) The concession of the mobile broadband spectrum (4G) 700MHz frequency group started form December 2014 and is amortised until 2030. The useful life of the concession is 16 years.
- (b) The concession of the mobile broadband spectrum (4G) 2600MHz frequency group started form October 2017 and is amortised until 2033. The useful life of the concession is 16 years.
- (c) The Group obtained the concession of the mobile broadband spectrum (4G) 700MHz frequency group in December 2015 and is amortised until 2030. The useful life of the concession is 15 years.

~38~

– F-39 –

(d) The Group obtained the concession of the mobile broadband spectrum (4G) 900MHz frequency group in December 2015 and is amortised until 2030. The useful life of the concession is 15 years.
F. Internally generated intangible assets—research and development expenditures
(a) Research expenditures are recognized as an expense as incurred.
(b) Development expenditures that do not meet the following criteria are recognized as expenses as incurred, but are recognized as intangible assets when the following criteria are met:
i. It is technically feasible to complete the intangible asset so that it will be available for use or sale;
ii. An entity intends to complete the intangible asset and use or sell it;
iii. An entity has the ability to use or sell the intangible asset;
iv. It can be demonstrated how the intangible asset will generate probable future economic benefits;
v. Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and
vi. The expenditure attributable to the intangible asset during its development can be reliably measured.

(20) Impairment of non-financial assets

A. The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior periods no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognized.
B. The recoverable amount of goodwill shall be evaluated annually. An impairment is recognized when recoverable amount is lower than carrying amount. Impairment loss should not be reversed in the future.
C. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that is/are expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

(21) Borrowings

Borrowings comprise long-term and short-term bank borrowings. Borrowings are recognized

~39~

– F-40 –

initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

(22) Notes and accounts payable
A. Accounts payable are liabilities for purchases of raw materials, goods or services and notes payable are those resulting from operating and non-operating activities.
B. The short-term notes and accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(23) Financial liabilities at fair value through profit or loss

A. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorised as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss at initial recognition:
(a) Hybrid (combined) contracts; or
(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or
(c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.
B. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognized in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognized in profit or loss.
C. If the credit risk results in fair value changes in financial liabilities designated as at fair value through profit or loss, they are recognized in other comprehensive income in the circumstances other than avoiding accounting mismatch or recognizing in profit or loss for loan commitments or financial guarantee contracts.

(24) Bonds payable

Ordinary corporate bonds issued by the Group are initially recognized at fair value less transaction costs. Any difference between the proceeds (net of transaction costs) and the redemption value is presented as an addition to or deduction from bonds payable, which is amortised to profit or loss over the period of bond circulation using the effective interest method as an adjustment to ‘finance costs’.

(25) Convertible bonds payable

Convertible bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group’s common shares by exchanging a fixed amount of cash for a fixed number of common shares), call options and put options. The Group classifies the bonds payable upon issuance as a financial asset, a financial liability or an equity instrument in accordance with the contract terms. They are accounted for as follows:

~40~

– F-41 –

(a) The embedded call options and put options are recognized initially at net fair value as ‘financial assets or financial liabilities at fair value through profit or loss’. They are subsequently remeasured and stated at fair value on each balance sheet date; the gain or loss is recognized as ‘gain or loss on valuation of financial assets or financial liabilities at fair value through profit or loss’.
(b) The host contracts of bonds or are initially recognized at fair value. Any difference between the initial recognition and the redemption value is accounted for as the premium or discount on bonds payable and subsequently is amortised in profit or loss as an adjustment to ‘finance costs’ over the period of circulation using the effective interest method.
(c) The embedded conversion options which meet the definition of an equity instrument are initially recognized in ‘capital surplus—share options’ at the residual amount of total issue price less the amount of financial assets or financial liabilities at fair value through profit or loss and bonds payable as stated above. Conversion options are not subsequently remeasured.
(d) Any transaction costs directly attributable to the issuance are allocated to each liability or equity component in proportion to the initial carrying amount of each abovementioned item.
(e) When bondholders exercise conversion options, the liability component of the bonds shall be remeasured on the conversion date. The issuance cost of converted common shares is the total book value of the abovementioned liability component and ‘capital surplus—share options’.

(26) Derecognition of financial liabilities

A financial liability is derecognized when the obligation specified in the contract is either discharged or cancelled or expires.

(27) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(28) Non-hedging and embedded derivatives

A. Non-hedging derivatives are initially recognized at fair value on the date a derivative contract is entered into and recorded as financial assets or financial liabilities at fair value through profit or loss. They are subsequently remeasured at fair value and the gains or losses are recognized in profit or loss.
B. Under the financial assets, the hybrid contracts embedded with derivatives are initially recognized as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and financial assets at amortised cost based on the contract terms.
C. Under the non-financial assets, whether the hybrid contracts embedded with derivatives are accounted for separately at initial recognition is based on whether the economic characteristics and risks of an embedded derivative are closely related in the host contract. When they are closely related, the entire hybrid instrument is accounted for by its nature in accordance with

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– F-42 –

the applicable standard. When they are not closely related, the derivative is accounted for differently from the host contract as derivative while the host contract is accounted for by its nature in accordance with the applicable standard. Alternatively, the entire hybrid instrument is designated as financial liabilities at fair value through profit or loss upon initial recognition.

(29) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

(30) Employee benefits
A. Short-term employee benefits

Short - term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expense in that period when the employees render service.

B. Pensions
(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expense when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans
i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.
ii. Remeasurements arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as retained earnings.

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iii. Past service costs are recognized immediately in profit or loss.

C. Employees’ compensation and directors’ and supervisors’ remuneration
- Employees’ compensation and directors’ and supervisors’ remuneration are recognized as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is paid by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.
(31) Employee share based payment
A. For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.
B. Restricted stocks:
- (a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period.
- (b) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Group recognizes the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at the date of dividends declared.
- (c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund their payments on the stocks, the Group recognizes the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognizes the payments from the employees who are expected to be eventually vested with the stocks in ’capital surplus – others’.
(32) Income tax
A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.

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B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.
E. Current income tax assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.
F. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilized.

(33) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares

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on the effective date of new shares issuance.

(34) Revenue recognition
A. The Group manufactures and sells consumer electronics products. Sales are recognized when control of the products has transferred, being when the products are delivered to or picked by the customers, the customers has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customers, and either the customers has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.
B. The Group renders telecommunication service. Service revenue is measured by the fair value of the consideration received or receivable taking into account business tax and rebates for the sale of goods to external customers in the ordinary course of the Group’s activities. The main methods of revenue recognition are as follows:
- (a) The communication charges of fixed network and mobile services, as well as the connection charges among telecom operators, are recognized on the basis of the contract terms, which are calculated by predetermined rates and the actual usage volume.
- (b) Fixed monthly service fees are recognized monthly.
- (c) Prepaid card revenue is recognized on the basis of the actual usage volume by the customers.
C. The Group recognizes an asset (shown as ‘other non-current assets’) the incremental costs (mainly comprised of sales commissions) of obtaining a telecommunication contract if the Group expects to recover those costs. The recognized asset is amortised and consistent with the transfers to the customer of the goods or services to which the asset relates. The Group recognizes an impairment loss to the extent that the carrying amount of the asset exceeds the remaining amount of consideration that the Group expects to receive less the costs that have not been recognized as expenses.
D. Sales revenue is recognized based on the price specified in the contract, net of the estimated sales discounts and allowances. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. The contract cost does not include a significant financing component as the sales are made with credit term consistent with market practice.
E. A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
F. The Group’s obligation to provide a refund for faulty products under the standard warranty terms is recognized as a provision.
G. The customer pays at the time specified in the payment schedule. If the products sold exceed

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the payment, a contract asset is recognized. If the payments exceed the products sold, a contract liability is recognized.

(35) Government grants
Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes expenses for the related costs for which the grants are intended to compensate. Government grants related to property, plant and equipment are recognized as non-current liabilities and are amortised to profit or loss over the estimated useful lives of the related assets using the straight-line method.

(36) Business combinations

A. The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.
B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognized and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognized directly in profit or loss on the acquisition date.

(37) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS ON

UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgments in applying the Group’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. The above

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information is addressed below:

(1) Critical judgments in applying the Group’s accounting policies

A. Revenue recognition

The Group determines whether the nature of its performance obligation is to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for the other party to provide those goods or services (i.e. the Group is an agent) based on the transaction model and its economic substance. The Group is a principal if it controls a promised good or service before it transfers the good or service to a customer. The Group recognizes revenue at gross amount of consideration to which it expects to be entitled in exchange for those goods or services transferred. The Group is an agent if its performance obligation is to arrange for the provision of goods or services by another party. The Group recognizes revenue at the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the other party to provide its goods or services.

Indicators that the Group controls the good or service before it is provided to a customer include the following:

(a) The Group is primarily responsible for the provision of goods or services;
(b) The Group assumes the inventory risk before transferring the specified goods or services to the customer or after transferring control of the goods or services to the customer.
(c) The Group has discretion in establishing prices for the goods or services.
B. Offsetting financial instruments

The Company’s financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(2) Critical accounting estimates and assumptions

The Group makes estimates and assumptions based on the expectation of future events that are believed to be reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be different from the actual results. The estimates and assumptions that may significantly adjust the carrying amounts of assets and liabilities within the next financial year are addressed below:

A. Impairment assessment of tangible and intangible assets (excluding goodwill)
The Group assesses impairment based on its subjective judgement and determines the separate cash flows of a specific group of assets, useful lives of assets and the future possible income and expenses arising from the assets depending on how assets are utilized and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Group strategy might cause adjustments on impairment of assets.
B. Impairment assessment of goodwill
The Group assesses impairment of goodwill based on subjective judgment which includes

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identifying and allocating assets, liabilities and goodwill to related cash-generating unit to determine recoverable amount of this unit. Details of impairment assessment of goodwill is provided in Note 6(13).

As of December 31, 2020, the Group recognized goodwill after impairment assessment of $14,916,895.

C. Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date based on judgments and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be significant changes to the evaluation.

As of December 31, 2020, the carrying amount of inventories was $582,113,735.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

TAILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand and revolving funds Checking accounts and demand deposits Cash equivalents - Time deposits Cash equivalents - Repo bonds	December31,2020 146,814 $ 1,008,741,819 215,392,563 8,512,819 1,232,794,015 $	December31,2019
		216,905 $ 649,335,476 208,182,131 129,850
		857,864,362 $

A. The Group transacts with a variety of financial institutions with high credit quality for the purpose of dispersing credit risk, so it expects that the probability of counterparty default is low.
B. The Group’s time deposits pledged to others as collateral and with maturity of over three months had been transferred to “Financial assets at amortised cost”. Please refer to Note 6(4) for details.

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– F-49 –

(2) Financial assets and liabilities at fair value through profit or loss

December 31, 2020 December 31, 2019

Assets Current items: Beneficiary certificates Derivatives Non-current items: Equity instruments Beneficiary certificates Derivatives Liabilities Current items: Derivatives (	535,164 $ 639,679 $ 5,750,430 2,312,370 6,285,594 $ 2,952,049 $ 3,187,930 $ 12,744,243 $ 79,443,386 63,546,321 1,049,870 6,370,161 83,681,186 $ 82,660,725 $ December31,2020 December31,2019 2,291,221) $ 1,881,685) ($

A. The descriptions of financial assets and liabilities at fair value through profit or loss are as follows:
(a) Equity instruments: Including listed, unlisted and emerging stocks.
(b) Beneficiary certificates: Including investment in open-end funds and private equity fund.
(c) Derivatives: Including cross currency swap contracts, forward exchange contracts and convertible bonds payable.
B. Amounts recognized in profit or loss in relation to financial assets at fair value through profit or loss are listed below:

Equity instruments Beneficiary certificates Derivatives	2020 2019 1,975,357 9,373,702 $ 9,686,785 4,720,893) ( 2,065,425 6,343,300 13,727,567 $ 10,996,109 $ Years endedDecember31,

C. The non-hedging derivative instruments transaction and contract information are as follows:

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– F-50 –

Derivative Financial Assets Current items: Cross currency swap contracts Foreign exchange forward contracts Convertible contract Non-current items: Cross currency swap contracts Derivative Financial Liabilities Current items: Cross currency swap contracts Foreign exchange forward contracts (	December31,2020	December31,2020
	USD (BUY) 1,600,000 JPY (BUY) 38,000,000 TWD (SELL) 38,582,000 JPY (SELL) 61,555,000 RMB (BUY) 59,779,402 CZK (BUY) 1,070,550 BRL (BUY) 262,540 JPY (BUY) 14,216,752 USD (BUY) 50,000 RMB (SELL) 325,505 USD (SELL) 9,208,233 USD 30,000 USD (BUY) 400,000 JPY (SELL) 41,064,000 USD (BUY) 3,050,000 TWD (SELL) 88,925,000 USD (BUY) 420,128 BRL (BUY) 260,490 MXN (BUY) 3,619,834 RMB (BUY) 4,070,580 USD (SELL) 852,000 RMB (SELL) 2,616,495 MXN (SELL) 452,693 Contract amount Notional Principal in thousands)	Contractperiod
		2016.09.13~2021.09.24 2020.12.11~2021.06.28 2020.12.11~2021.06.28 2016.09.13~2021.09.24 2020.10.26~2021.06.23 2020.12.28~2021.02.26 2020.12.28~2021.01.29 2020.11.04~2021.02.08 2020.12.31~2021.01.06 2020.12.31~2021.01.06 2020.10.26~2021.06.23 2016.12.19~2021.12.15 2016.09.13~2026.09.24 2016.09.13~2026.09.24 2020.03.03~2021.07.14 2020.03.03~2021.07.14 2020.06.08~2021.04.30 2020.12.28~2021.01.29 2020.12.09~2021.02.26 2020.12.17~2021.05.31 2020.12.09~2021.05.31 2020.12.04~2021.02.09 2020.06.08~2021.04.30

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– F-51 –

December 31, 2019

Derivative Financial Assets Current items: Cross currency swap contracts Foreign exchange forward contracts Capital guarantee financial product Non-current items: Convertible contract Cross currency swap contracts Derivative Financial Liabilities Current items: Cross currency swap contracts Foreign exchange forward contracts (	JPY (BUY) 27,500,000 TWD (SELL) 7,584,500 EUR (BUY) 128,000 CZK (BUY) 5,766,370 MXN (BUY) 3,803,496 RMB (BUY) 43,373,233 TWD (BUY) 47,466,350 USD (SELL) 8,323,670 USD 56,000 USD 30,000 USD (BUY) 1,000,000 JPY (SELL) 102,619,000 USD (BUY) 1,700,000 JPY (BUY) 141,250,000 TWD (SELL) 92,004,305 USD (BUY) 90,473 RMB (BUY) 1,316,383 MXN (SELL) 467,519 USD (SELL) 188,000 HKD (SELL) 475,569 AUD (SELL) 9,000 Notional Principal in thousands) Contract amount	Contractperiod
		2019.12.23~2020.03.26 2019.12.23~2020.03.26 2019.12.11~2020.03.18 2019.11.05~2020.02.18 2019.10.22~2020.02.27 2019.10.23~2020.05.28 2019.11.11~2020.04.01 2019.10.22~2020.05.28 2019.11.29~2020.12.10 2016.12.19~2021.12.15 2016.09.13~2026.09.18 2016.09.13~2026.09.18 2019.09.09~2020.05.29 2019.11.19~2020.06.30 2019.09.09~2020.06.30 2019.05.24~2020.03.30 2019.12.18~2020.04.10 2019.05.24~2020.03.30 2019.12.18~2020.04.10 2019.12.11~2020.03.02 2019.12.11~2020.01.13

(a) Cross currency swap contracts

The cross currency swap contracts signed by the Company are to fulfill capital movement. For exchange rate, principals denominated in two currencies are exchanged at the same exchange rate at the initial and final exchanges. Thus, there is no foreign exchange risk. For interest rate, the fixed rate between two currencies is used to exchange. Thus, there is no interest rate risk.

(b) Forward foreign exchange contracts

The Group enters into foreign exchange forward transactions to reduce the following risk of exchange rate:

A. Operating activities: Import of raw materials and export sales

B. Investing activities: Import of machinery and equipment

C. Financing activities: Long-term and short-term foreign currency assets and liabilities

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(c) Financial products

  - All of the structured products the Group entered into an agreement with financial institutions pertain to hybrid financial products which are principal guaranteed products in combination with embedded derivative financial products.

(d) Convertible bonds payable
- The Company’s indirect subsidiary, PCE Paragon Solutions Kft., acquired convertible bonds issued by Nanthealth, Inc. in the amount of US$30 million. The convertible bonds are embedded derivatives. Based on the contract, PCE Paragon Solutions Kft. has the right to require conversion after issue date and until maturity date if the written consent is submitted in advance. If there are remaining convertible bonds at maturity, such convertible bonds will be redeemed in the form of cash.
D. Details of the Group’s investment in equity instruments and beneficiary certificates are provided in Table 3.
E. The Group has no financial assets at fair value through profit or loss pledged to others.
F. Information relating to credit risk of financial assets and liabilities at fair value through profit or loss is provided in Note 12(2).

(3) Financial assets at fair value through other comprehensive income

Items Equity instruments at cost Fair value adjustments	December31,2020 55,486,110 $ 31,587,979 87,074,089 $	December31,2019
		59,365,998 $ 9,441,219
		68,807,217 $

A. The Group has elected to classify equity investments that are considered to be strategic investments as financial assets at fair value through other comprehensive income.
B. Amounts recognized in profit or loss and other comprehensive income in relation to the financial assets at fair value through other comprehensive income are listed below:

Equity instruments at fair value through other comprehensive income Fair value change recognized in other comprehensive income Cumulative gains (loss) reclassified to retained earnings due to derecognition (	Years endedDecember31,	Years endedDecember31,
	2020 19,999,225 $ 4,656,501) $	2019
		4,720,616 $
		1,545,121 $

C. The Group has no financial assets at fair value through other comprehensive income pledged to others.
D. Details of the Group’s investment in equity instruments is provided in Table 3.

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(4) Financial assets at amortised cost

Financial assets at amortised cost
Items Current items: Capital guarantee financial products Time deposits with maturity over three months Refundable deposits Restricted bank deposits Pledged time deposits Non-current items: Financial bonds-trust fund Time deposits with maturity over twelve months Restricted bank deposits Pledged time deposits	December31,2020 - $ 36,252,968 1,815,433 468,414 246,751 38,783,566 $ 11,321,960 $ 6,010,077 1,400,641 53,352 18,786,030 $	December31,2019
		18,341,333 $ 33,401,517 758,872 133,411 319,744
		52,954,877 $
		12,484,790 $ - - 43,779
		12,528,569 $

A. Amounts recognized in profit or loss in relation to financial assets at amortised cost are listed below:

below:
Interest income	2020 2019 3,867,799 $ 2,337,822 $ Years endedDecember31,
		2019
		2,337,822 $

B. The Group invested in the trust fund named Guangdong Finance Trust - Peng Yun Tian Hua Collection Fund Trust in December 2017 which was mainly created for the investment in Guangzhou Guangyin Nanyue Intelligent Technology Industrial Investment Partnership. As of December 31, 2020, the Group has invested a total of RMB 3.5 billion and has redeemed RMB 900 million. Under the agreement, the Group will take over the share in the trust of the preferred beneficiary, Bank of Guangzhou, in case it initiates a redemption.
C. The counterparties of the Group’s investments have good credit quality.
D. Information relating to financial asset at amortised cost pledged as collateral is provided in Note

(5) Notes and accounts receivable

Notes receivable Accounts receivable Less: Allowance for sales returns and allowances	December31,2020 249,501 $ 909,750,714 6,929,985) ( 903,070,230 $	December31,2019 440,306 $ 992,631,562 5,793,430) ( 987,278,438 $

A. As of December 31, 2020 and 2019, accounts receivable and notes receivable were all from

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contracts with customers. As of January 1, 2019, the balance of receivables from contracts with customers amounted to $1,062,285,356.

B. On December 31, 2020 and 2019, the Group had accounts receivable are expected to be factored were classified as financial assets at fair value through other comprehensive income in the amounts of $109,052,508 and $108,993,188, respectively.
C. The Group entered into a factoring agreement with the following banks to sell its accounts receivable. Under the agreement, the Group is not obligated to bear the default risk of the transferred accounts receivable, but is liable for the losses incurred on any business dispute. The Group does not have any continuing involvement in the transferred accounts receivable. Thus, the Group derecognized the transferred accounts receivable.
As of December 31, 2020 and 2019, the relevant information of accounts receivable factored but unsettled were as follows:

		December	31,2020
Accounts receivable	Amount	of accounts			Amount of consideration
factoringnotdue yet	receivable	derecognized	Amount advanced		retained
37,739,204 $	$	37,739,204	$	37,739,204	$	-
		December	31,2019
Accounts receivable	Amount	of accounts			Amount of consideration
factoringnotdue yet	receivable	derecognized	Amount advanced		retained
15,957,505 $	$	15,957,505	$	15,957,505	$	-

As of December 31, 2020 and 2019, the Group has no retention for the factoring of accounts receivable.

D. As of December 31, 2020 and 2019, the Group has not signed promissory notes as guarantee for accounts receivable in commercial dispute.
E. For the years ended December 31, 2020 and 2019, the financing charges (expenses) incurred from accounts receivable factoring information is provided in Note 6(36).
F. The Group does not hold any collateral as security.
G. Information relating to credit risk is provided in Note 12(2).

(6) Other receivables

G. Information relating to credit risk is provided in Other receivables	Note 12(2).
Tax refund receivable Interest receivable Loans to others Others	December31,2020 $ 30,296,437 13,230,731 2,181,655 12,528,896 58,237,719 $	December31,2019
		27,552,147 $ 28,008,152 2,280,745 10,013,255
		67,854,299 $

The Group’s other receivables are due from entities and government agencies with good credit quality. There is no significant credit risk as default is unlikely to occur.

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(7) Inventories

Raw materials Work in process Finished goods Inventory in transit Less: Allowance for inventory obsolescence and market price decline	December31,2020 184,832,767 $ 124,724,802 268,629,479 30,145,057 608,332,105 26,218,370) ( 582,113,735 $	December31,2019 148,887,252 $ 105,747,965 261,457,747 23,526,271 539,619,235 23,847,058) ( 515,772,177 $

Expenses and losses incurred on inventories for the years ended December 31, 2020 and 2019 were as follows:

as follows:
			Years ended	December31,
			2020		2019
Cost of inventories sold		$	5,057,980,656	$	5,032,378,954
Loss on inventory obsolescence and market
price decline (Gain from price recovery)			2,441,825	(	303,359)
Revenue from sale of scraps	(		5,711,177)	(	5,431,538)
Others			393,038		298,513
		$	5,055,104,342	$	5,026,942,570

As the Group sold some inventory with net realizable value lower than its cost, the allowance for inventory obsolescence and market price decline was reversed for the year ended December 31, 2019.

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(8) Investments accounted for using equity method

nvestments accounted for using equity method
			2020		2019
At January 1		$	168,631,642	$	160,316,664
Addition of investments accounted for using
equity method			3,131,377		1,243,716
Disposal of investments accounted for using
equity method	(		23,705)	(	4,493,137)
Earnings distribution of investments accounted
for using equity method	(		5,262,181)	(	4,805,210)
Share of profit or loss of investments accounted
for using equity method			7,825,449		19,634,053
Changes in retained earnings			22,673	(	513,217)
Changes in capital surplus			10,032	(	950,756)
Changes in other equity items			2,592,295		1,931,534
Impairment loss			-	(	157,082)
Others	(		1,728,141)	(	3,574,923)
At December 31		$	175,199,441	$	168,631,642

A. The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) in 2019. After the acquisition, the Company owned 40.74% equity interest in Asia Pacific which represented majority of the voting rights of its shareholders and the Company has control over the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since the control date. Meanwhile, the Company lost significant influence over Asia Pacific and remeasured the fair value of the remaining investment. The Company recognized the difference between the fair value and book value of $1,691,090 (shown as “other gains and losses”). Details of business combination about Asia Pacific is provided in Note 6(39).
B. The Group has assessed impairment of certain investees for the years ended December 31, 2020 and 2019, and has accrued impairment loss of $0 and $157,082, respectively (shown as “other gains and losses”).

C. Associates

(a) The basic information of the associates that are material to the Group is as follows:

Company name Sharp Corporation Foxconn Technology Co., Ltd. Zhen Ding Technology Holding Limited	Principal place of business Japan Taiwan Cayman	December 31, December 31, 2020 2019 42% 42% 29% 29% 32% 34% Shareholdingratio	Nature of relationship Strategic Investment Supplier Supplier	Method of measurement
		December 31, 2020 42% 29% 32%
				Equity method Equity method Equity method

(b) The summarized financial information of the associates that are material to the Group is as follows:

~56~

– F-57 –

Balance sheet

Balance sheet
			Sharp Corporation
		December31,2020		December31,2019
Current assets		$	328,978,941	$	318,630,526
Non-current assets			206,441,054		214,183,459
Current liabilities	(		258,063,115)	(	254,314,425)
Non-current liabilities	(		191,282,832)	(	185,840,064)
Total net assets			86,074,048		92,659,496
Effect of accounting principles	(		5,682,633)	(	11,943,340)
The fair value adjustment of trademarks,
other intangible net assets and tangible
net assets			110,989,019		112,859,837
Total net assets after adjustment		$	191,380,434	$	193,575,993
Share in associate's net assets (Note)		$	73,338,398	$	73,410,848
Goodwill			12,197,171		12,450,964
Others	(		670,048)	(	975,970)
Carrying amount of the associate		$	84,865,521	$	84,885,842

Note: Share in associate’s net assets is determined based on the equity of ordinary shares, excluding Class C shares of Sharp Corporation.

			Foxconn Technology	Foxconn Technology	Co.,Ltd.
		December31,2020		December31,2019
Current assets		$	113,612,184	$	108,072,195
Non-current assets			55,497,536		56,503,622
Current liabilities	(		58,012,616)	(	54,840,529)
Non-current liabilities	(		828,349)	(	1,129,678)
Total net assets		$	110,268,755	$	108,605,610
Share in associate's net assets		$	32,501,783	$	32,011,570
Goodwill			338,190		338,190
Others	(		592,437)		3,930
Carrying amount of the associate		$	32,247,536	$	32,353,690

~57~

– F-58 –

Zhen Ding Technology Holding Limited

		De	cember31,2020		December31,2019	December31,2019
Current assets		$	99,312,005		$	83,203,716
Non-current assets			81,808,482			56,677,619
Current liabilities	(		63,423,798)	(		39,032,879)
Non-current liabilities	(		13,658,813)	(		10,504,355)
Total net assets		$	104,037,876		$	90,344,101
Share in associate's net assets		$	25,297,197		$	22,741,808
Others			122,937	(		28,971)
Carrying amount of the associate		$	25,420,134		$	22,712,837
Statement of comprehensive income
			Sharp Corporation
			Years ended	December		31,
			2020		2019
Revenue		$	645,878,758		$	676,371,949
Profit for the year from continuing
operations			2,500,510			18,648,819
Other comprehensive income, net of tax			865,144			7,421,513
Total comprehensive income			3,365,654			26,070,332
Effect of accounting principles			5,383,833			10,277,033
Total comprehensive income after
adjustment		$	8,749,487		$	36,347,365
Dividends received from associates		$	1,105,471		$	1,277,406
			Foxconn Technology Co.,Ltd.
			Years ended	December		31,
			2020		2019
Revenue	$		104,789,599	$		99,802,129
Profit for the year from continuing
operations			4,686,123			7,037,114
Other comprehensive income, net of tax			513,048			6,824,527
Total comprehensive income	$		5,199,171	$		13,861,641
Dividends received from associates	$		1,042,301	$		1,334,145

Statement of comprehensive income

~58~

– F-59 –

Revenue Profit for the year from continuing operations Other comprehensive income (loss), net of tax Total comprehensive income Dividends received from associates	Zhen DingTechnologyHoldingLimited	Zhen DingTechnologyHoldingLimited
	Years endedDecember31,
	2020 131,278,537 $ 11,508,290 1,194,101 ( 12,702,391 $ 1,374,359 $	2019
		120,067,508 $
		12,401,617 3,312,504
		9,089,113 $
		1,336,457 $

(c) The carrying amount of the Group’s interests in all individually immaterial associates and the Group’s share of the operating results are summarized below:

As of December 31, 2020 and 2019, the carrying amount of the Group’s individually immaterial associates amounted to $32,666,250 and $28,679,273, respectively.

Profit for the year from continuing operations Other comprehensive income (loss), net of tax Total comprehensive income	2020 2019 7,256,748 $ 3,351,246 $ 1,371,830 779,886) ( 8,628,578 $ 2,571,360 $ Years endedDecember31,

(d) The fair value of the Group’s material associates which have quoted market price was as follows:

ollows:
Sharp Corporation Foxconn Technology Co., Ltd. Zhen Ding Technology Holding Limited	December31,2020 95,941,221 $ 22,263,548 34,828,781 153,033,550 $	December31,2019
		103,325,835 $ 27,600,129 38,968,380
		169,894,344 $

(e) The Group is the single largest shareholder of the following companies, and has no control, but only has a significant influence on the company as described below.
i. The Group is the single largest shareholder of Sharp Corporation with a 42% equity interest. Given that the director candidates of Sharp Corporation are decided by the nomination committee chaired by an outside director, and then resolved by Board of Directors, the shareholders will adopt a majority decision. Natural persons are elected as directors, legal shareholders cannot dominate, and the main managerial officers of Sharp Corporation is not appointed by the Group, which indicate that the Group has no current ability to direct the relevant activities of Sharp Corporation. Thus, the Group has no control,

~59~

– F-60 –

but only has significant influence, over the investee.

ii. The Group is the single largest shareholder of Foxconn Technology Co., Ltd. with a 29% equity interest. Given that the Group does not hold the voting rights of more than half of its shareholders attendance rate, which indicates that the Group has no current ability to direct the relevant activities of Foxconn Technology Co., Ltd., the Group has no control, but only has significant influence, over the investee.
iii. The Group is the single largest shareholder of Zhen Ding Technology Holding Limited with a 32% equity interest. Given that the Group does not hold the voting rights of more than half of its shareholders attendance rate, which indicates that the Group has no current ability to direct the relevant activities of Zhen Ding Technology Holding Limited, the Group has no control, but only has significant influence, over the investee.

~60~

– F-61 –

				Total	727,209,337		439,686,084)	287,523,253			287,523,253	65,897,393	6,195,528)		2,582,306	6,927,611)	51,531,379)	959,481)	3,296,975)		287,091,978		757,525,350		470,433,372)	287,091,978
	Equipment	under installation	and construction	in progress	28,415,269 $ $		- (	28,415,269 $ $			28,415,269 $ $	23,985,927	16,962,187) ( (		1,195,685	330,269) ( (	- (	- (	418,717) ( (		35,885,708 $ $		35,885,708 $ $		- (	35,885,708 $ $
				Others	160,547,139		113,202,578)	47,344,561			47,344,561	16,620,782	3,732,238		1,384,078	1,838,861)	15,487,260)	-	1,470,554)		50,284,984		174,306,451		124,021,467)	50,284,984
					$		(	$			$					(	(		(		$		$		(	$
2020		Computer and	communication	equipment	39,326,807 $		29,795,877) (	9,530,930 $			9,530,930 $	1,352,450	1,137,498		-	208,172) (	3,162,970) (	-	51,421) (		8,598,315 $		41,002,101 $		32,403,786) (	8,598,315 $
			Machinery and	equipment	275,816,855 $		208,403,723) (	67,413,132 $			67,413,132 $	20,683,563	3,424,276		147	3,891,260) (	22,493,118) (	959,481) (	255,356		64,432,615 $		279,733,859 $		215,301,244) (	64,432,615 $
				Buildings	208,869,510		88,283,906)	120,585,604			120,585,604	3,069,325	2,471,466		2,396	600,188)	10,388,031)	-	419,248		115,559,820		214,266,695		98,706,875)	115,559,820
					$		(	$			$					(	(				$		$		(	$
				Land	14,233,757		-	14,233,757			14,233,757	185,346	1,181		-	58,861)	-	-	2,030,887)		12,330,536		12,330,536		-	12,330,536
				At January 1, 2020	Cost $	Accumulated depreciation	and impairment	$	2020	Opening net book amount	as at January1 $	Additions	Transfer	Acquired through business	combinations	Disposals (	Depreciation charge	Impairments	Net exchange differences (	Closing net book amount	as at December 31 $	At December 31, 2020	Cost $	Accumulated depreciation	and impairment	$

– F-62 –

under installation	and construction	in progress Total	24,418,437 $ 638,098,549 $		- 360,238,537) (	24,418,437 $ 277,860,012 $			24,418,437 $ 277,860,012 $	19,100,838 69,474,703	13,898,334) ( 961,524) (		1,604,762 12,047,948	1,566,386) ( 5,251,681) (	- 56,748,458) (	- 95,971) (	1,244,048) ( 8,801,776) (		28,415,269 $ 287,523,253 $		28,415,269 $ 727,209,337 $		- 439,686,084) ($	28,415,269 $ 287,523,253 $
		Others	151,844,877		102,686,964)	49,157,913			49,157,913	12,788,063	580,476		156,039	1,176,296)	16,204,358)	-	2,042,724		47,344,561		160,547,139		113,202,578)	47,344,561
			$		(	$			$					(	(				$		$		(	$
Computer and	Machinery and communication	At January 1, 2019 Land Buildings equipment equipment	Cost 4,187,609 $ 199,046,485 $ 249,832,617 $ 8,768,524 $	Accumulated depreciation	and impairment - 81,242,477) ( 169,196,450) ( 7,112,646) (	4,187,609 $ 117,804,008 $ 80,636,167 $ 1,655,878 $	2019	Opening net book amount	as at January1 4,187,609 $ 117,804,008 $ 80,636,167 $ 1,655,878 $	Additions 7,505,720 15,068,196 14,351,055 660,831	Transfer - 6,479,118 5,799,056 78,160	Acquired through business	combinations 1,319,286 459,236 7,054 8,501,571	Disposals - 159,250) ( 2,299,953) ( 49,796) (	Depreciation charge - 12,770,961) ( 27,207,430) ( 565,709) (	Impairments - - 95,971) ( -	Net exchange differences 1,221,142 6,294,743) ( 3,776,846) ( 750,005) (	Closing net book amount	as at December 31 14,233,757 $ 120,585,604 $ 67,413,132 $ 9,530,930 $	At December 31, 2019	Cost 14,233,757 $ 208,869,510 $ 275,816,855 $ 39,326,807 $	Accumulated depreciation	and impairment - 88,283,906) ( 208,403,723) ( 29,795,877) (	14,233,757 $ 120,585,604 $ 67,413,132 $ 9,530,930 $	Details of property, plant and equipment pledged as collateral are provided in Note 8.

– F-63 –

� (10) Leasing arrangements lessee

A. The Group leases various assets including land, land use right, buildings, transportation equipment and other equipment. Except for contracts of land use right which cover periods of 50 years, other rental contracts are typically made for periods of 1 to 20 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose covenants, but leased assets may not be used as security for borrowing purposes.
B. Short-term leases with a lease term of 12 months, including dormitories, business vehicles and office.
C. The carrying amount of right-of-use assets and the depreciation charge are as follows:

Land and land use right Buildings Other equipment Land and land use right Buildings Other equipment		December31,2020 December31,2019 Carryingamount Carryingamount $ 18,525,528 $ 21,248,308 25,881,653 23,633,305 1,861,504 1,878,727 46,268,685 $ 46,760,340 $ Years ended December 31,	December31,2019
			Carryingamount
			$ 21,248,308 23,633,305 1,878,727
			46,760,340 $
		2020 Depreciationcharge $ 821,887 8,194,638 404,361 9,420,886 $	2019
			Depreciationcharge
			$ 2,372,018 5,731,167 292,403
			8,395,588 $

D. For the years ended December 31, 2020 and 2019, the additions to right-of-use assets were $16,428,979 and $11,422,804, respectively.
E. The information on income and expense accounts relating to lease contracts is as follows:

Items affecting profit or loss Interest expense on lease liabilities Expense on short-term lease contracts	Years endedDecember31,	Years endedDecember31,
	2020 $1,193,246 $4,084,492	2019
		$1,174,008
		$ 3,385,617

F. For the years ended December 31, 2020 and 2019, the Group’s total cash outflow for leases were $14,077,260 and $9,741,334, respectively.
(11) Leasing arrangements lessor
A. The Group mainly leases machinery and equipment. Rental contracts are typically made for 5 years.

~63~

– F-64 –

B. The maturity analysis of the undiscounted lease payments in the finance lease is as follows:

No later than one year Later than one year but not later than five years	December31,2020 $ 469,917 1,517,607 1,987,524 $	December31,2019
		$ 496,589 1,941,955
		2,438,544 $

C. Reconciliation of the undiscounted lease payments and the net investment in the finance lease is provided as follows:

provided as follows:
Undiscounted lease payments Unearned finance income ( Net investment in lease Undiscounted lease payments Unearned finance income ( Net investment in lease	December	31,2020
	Current $ 467,917 8,636) ( 459,281 $ December	Non-current
		$ 1,517,607 58,441
		1,459,166 $
		31,2019
	Current Non-current $ 496,589 $ 1,941,955 27,548) 69,638 ( 469,041 $ 1,872,317 $	Non-current

The net investment in the financial lease is shown as “other receivable” and “other non-current asset”, respectively.

(12) Investment property

asset”, respectively. Investment property
		Landand	buildings
		2020		2019
At January 1
Cost	$	8,015,199	$	4,129,588
Accumulated depreciation and impairment	(	3,595,287)	(	1,605,625)
	$	4,419,912	$	2,523,963
Year ended December 31
Opening net book amount as at January 1	$	4,419,912	$	2,523,963
Transfer		7,411,747		418,901
Acquired through business combinations		-		2,047,982
Depreciation charge	(	737,696)	(	272,910)
Net exchange differences	(	10,690)	(	298,024)
Closing net book amount as at December 31	$	11,083,273	$	4,419,912
At December 31
Cost	$	15,528,707	$	8,015,199
Accumulated depreciation and impairment	(	4,445,434)	(	3,595,287)
	$	11,083,273	$	4,419,912

A. Rental income from the lease of the investment property and direct operating expenses arising

~64~

– F-65 –

from the investment property are shown below:

Rental income from the lease of the investment property Direct operating expenses arising from the investment property that generated rental income for the year	Years endedDecember31,	Years endedDecember31,
	2020 894,888 $ 737,696 $	2019
		548,677 $
		272,910 $

B. The Group assesses the recoverable amounts of those assets where there is an indication that they are impaired. There was no impairment loss during the years ended December 31, 2020 and 2019.
C. The fair value of the investment property held by the Group as at December 31, 2020 and 2019 was $28,531,066 and $5,045,896, respectively, which was revalued by independent appraisers. The valuation is based on latest market price of similar investment property in the same area and condition which is categorized within Level 3 in the fair value hierarchy.

~65~

– F-66 –

		Total	52,560,487		11,180,134)	41,380,353		41,380,353	6,502,697	6,502,697	541,250	2,302,573)	187,712	1,549,356)		44,760,083		57,663,976		12,903,893)	44,760,083
			$			$		$								$		$			$
					(							(		(						(
	Customer	relationships	1,744,836 $		210,553) (	1,534,283 $		1,534,283 $		-	-	162,968) (	-	70,865) (		1,300,450 $		1,657,536 $		357,086) (	1,300,450 $
	Technology	in progress	-		-	-		-		6,360,000	-	-	-	-		6,360,000		6,360,000		-	6,360,000
			$			$		$								$		$			$
2020	Developed	Trademarks ��	9,721,511 4,239,016 $		305,822) 1,468,219) (	9,415,689 2,770,797 $		9,415,689 2,770,797 $		- -	102,763 -	236,257) 641,298) (	- -	353,268) 115,411) (		8,928,927 2,014,088 $		9,447,950 4,026,924 $		519,023) 2,012,836) (	8,928,927 2,014,088 $	2019
			$		(	$		$				(		(		$		$		(	$
		Patents	4,805,694		2,911,823)	1,893,871		1,893,871		142,697	26,487	352,563)	-	332,454)		1,378,038		4,323,547		2,945,509)	1,378,038
			$		(	$		$				(		(		$		$		(	$
		Concession	14,169,255		3,810,083)	10,359,172		10,359,172		-	412,000	909,487)	-	-		9,861,685		14,581,255		4,719,570)	9,861,685
			$		(	$		$				(				$		$		(	$
		Goodwill	17,880,175		2,473,634)	15,406,541		15,406,541		-	-	-	187,712	677,358)		14,916,895		17,266,764		2,349,869)	14,916,895
			$		(	$		$						(		$		$		(	$
		At January 1	Cost	Accumulated amortization	and impairment		Opening net book amount	as at January 1	Acquired through	business combinations	Additions	Amortization charge	Purchase price allocation	Net exchange differences	Closing net book amount	as at December 31	At December 31	Cost	Accumulated amortization	and impairment

– F-67 –

A. Impairment assessment for goodwill of Belkin International Inc.
The Group acquired Belkin International Inc. (referred herein as “Belkin”) which generated goodwill of $13,563,157. Impairment assessment of goodwill is allocated to the Belkin’s CGU. The recoverable amount of the CGU relating to the goodwill arising from acquisition of Belkin was determined based on value-in-use calculation. The calculation uses projected cash flows based on financial budgets for the next five-year period.
Management determined budgeted gross margin based on past performance and their expectations of market development. The weighted average growth rates used are consistent with the projection included in industry reports. Cash flows beyond the five-year period are extrapolated using the estimated growth rates. As of December 31, 2020, pre tax discount rate is 16.5%.
Based on the above assessment, there is no impairment loss on goodwill as of December 31, 2020.
B. The details of amortization are as follows:

	2020. B. The details of amortization are as follows:
(14)	Other non-current assets Operating costs Utility duct access Computer software cost Refundable deposits Assets recognized for incremental costs of obtaining contract with customers Prepayments for equipment Others	Years endedDecember31,
		2020 2,302,573 $ December31,2020 913,198 $ 2,369,522 2,483,407 2,146,582 1,748,399 6,073,563 15,734,671 $	2019
			1,672,408 $
			December31,2019
			1,095,837 $ 2,713,429 2,737,880 2,081,358 704,407 6,502,388
			15,835,299 $

A. Refundable deposits mainly pertain to deposits for the lease of office buildings and data centers as well as bid bond for 1800MHz, 3.5GHz and 28GHz spectrum. The Company participated in the National Communications Commission’s mobile broadband auction of 2019 for the bidding of 1800MHz, 3.5GHz and 28GHz spectrum, and paid the bid bond amounting to $1,000,000 in September 2019 which was refunded later in March 2020.
B. Utility duct access

A subsidiary of the Company, Asia Pacific Telecom Co., Ltd. (“Asia Pacific”), entered into a use of assets contract with Taiwan Railways Administration (“TRA”) in January 2001. According to the contract, TRA provides the right to use 50% of the capacity of optical fiber duct (30 cm width), which was along the same path on both of the rails for 25 years since the Ministry of Transportation and Communication issued the 3G license. Under the contract, Asia Pacific should pay $8,425,569 as compensation for the 25-year use right to TRA, and

~67~

– F-68 –

both parties agreed that TRA can use the compensation of $8,000,000 as capital to invest in Asia Pacific. Under the contract, Asia Pacific should pay $100,000 per year to TRA for 25 years as compensation of the use right, and TRA will no longer allow other telecom companies to use the optical fiber ducts; if any, Asia Pacific can deduct the payment based on the percentage that the other telecom companies used.

C. Incremental costs of obtaining a contract

A subsidiary of the Company, Asia Pacific Telecom Co., Ltd., recognizes the incremental costs (mainly comprised of sales commissions) of obtaining a contract with a customer as an asset if the Group expects to recover those costs. The recognized asset is amortised on a systematic basis that is consistent with the transfers to the customer of the goods or services to which the asset relates. The Group recognized amortised costs of $1,858,896 and $192,403 in profit or loss for the years ended December 31, 2020 and 2019.

D. Details of other non-current assets pledged as collateral are provided in Note 8.

(15) Short-term notes and bills payable

Short-term loans Commercial paper Less: Unamortized discount Interest rates per annum Type of loans Bank loans Credit loans Type of loans Bank loans Credit loans	December31,2020 December31,2019 39,139,779 $ 30,590,067 $ 37,886) ( 61,771) ( 39,101,893 $ 30,528,296 $ 0.498%~1.238% 0.718%~1.438% December31,2020 Interest raterange Collateral 446,422,100 $ 0.08%~8% None December31,2019 Interest raterange Collateral 380,866,050 $ 0.34%~8.45% None

(16) Short-term loans

The Group has signed an agreement to offset financial assets and liabilities with financial institutions. The agreement meets the offsetting criteria of IAS 32, whereby the financial assets and liabilities are offset and reported in the net amount in the balance sheet. Details of the offset as of December 31, 2020 and 2019 are as follows:

December 31, 2020

December31,2020
Gross amount of Gross amount of recognized recognized financial financial assets assets and liabilities offset andliabilities in the balance sheet 1,259,254,404 $ 1,259,254,404 $	Net amount of financial assets and liabilities presented in the balance sheet
	- $

~68~

– F-69 –

December31,2019	December31,2019	December31,2019
			Net amount of financial assets and liabilities presented in the balance sheet
1,424,606,382 $			- $
	December31,2020 54,865,333 $ 11,989,073 20,510,641 22,979,363 12,695,792 6,186,346 6,074,678 3,436,024 81,439,965 220,177,215 $
		50,765,551 $ 28,568,433 17,584,644 22,418,721 10,509,888 7,206,087 6,152,745 4,052,806 70,473,854
		217,732,729 $

A subsidiary of the Company, Foxconn Industrial Internet Co., Ltd., issued employees’ restricted shares in 2019. Employees have to pay to acquire those stocks, and if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund payments made on the stocks. The Group recognizes the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date.

(18) Other current liabilities

Other current liabilities
Receipts in advance of payments for equipment on behalf of others Contract liabilities - advance payment Contract liabilities - deferred income Bonds payable maturing within one year Long-term loans maturing within one year Others	December31,2020 17,510,796 $ 17,761,388 7,451,145 42,231,956 14,718,255 5,799,671 105,473,211 $	December31,2019
		8,218,433 $ 18,231,021 6,922,868 38,546,364 14,553,911 5,404,263
		91,876,860 $

~69~

– F-70 –

(19) Bonds payable

Convertible bonds payable Add: Premium on bonds payable Less: Discount on bonds payable ( Corporate bonds payable Foreign unsecured corporate bonds Less: Current portion (shown as “other current liabilities”) (	December31,2020 14,778,442 $ 7,500 442,599) ( 14,343,343 130,400,000 99,180,176 243,923,519 42,231,956) ( 201,691,563 $	December31,2019 16,596,000 $ 7,500 752,592) 15,850,908 124,450,000 73,750,800 214,051,708 38,546,364) 175,505,344 $

A. First overseas convertible bond issue of 2017
(a) The Company issued the first overseas unsecured convertible bonds totaling USD 500 million with the approval of the competent authority on August 22, 2017. The bonds carry zero coupon rate over five years. The circulation period is from November 6, 2017 to November 6, 2022.
(b) The conversion price is adjusted in line with the model specified in the conversion rules. As of December 31, 2020, there has not been any converted common stock at the conversion price of NT$157.135 (using the exchange rate of 1 USD: 30.192 TWD) which was adjusted by the Company on July 31, 2020 based on the conversion rules of the first overseas convertible bond issue of 2017.
(c) In accordance with the conversion rules, if the convertible bond is purchased (including purchased from the secondary market), early redeemed, or repaid at maturity by the Company, or if the convertible bond is converted into common stocks or redeemed by the bondholder, the bond is to be retired and will not be reissued.
(d) In accordance with the conversion rules, the rights and obligations of common stocks converted are the same as the outstanding ones previously subscribed.
(e) The conversion options for the first overseas convertible bond issue of 2017 are separated from the liabilities and recorded as ‘capital surplus – share options’ amounting to $1,099,253.
(f) In accordance with the conversion rules, bondholders have the right to request the Company to redeem any bonds at the price of the bonds’ par value upon three years from the issue date. On November 6, 2020, bondholders requested to redeem bonds totaling $1,817,558 (USD 60,200 thousand).
B. First unsecured convertible bond issue of 2018
(a) ShunSin Technology Holdings Limited, a subsidiary of the Company, issued the first unsecured convertible bonds totaling $1,500 million with the approval of the competent

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authority on January 10, 2018. The bonds carry zero coupon rate over five years. The circulation period is from February 12, 2018 to February 12, 2023.

(b) The conversion price is NT$171.3 after adjusting in line with the model specified in the conversion rules.
(c) As the bondholders have the right to request the Company to redeem the bond at the price of the bond’s par value after three years from the bonds’ issue date (February 12, 2021 is the selling base day of the bondholders), the subsidiary, ShunSin Technology Holdings Limited, needs to redeem the bonds at par value, therefore the corporate bonds payable and the financial assets and liabilities at fair value through profit or loss-non-current were reclassified into other current liabilities. Nevertheless, the bonds payable is not required to be fully paid off within one year.
(d) In accordance with the conversion rules, bondholders have the right to request the Company to redeem the bonds at the price of the bonds’ par value after three years from the bonds’ issue date. On February 12, 2021, no bondholder has requested to redeem the bonds.
(e) The conversion options of the bonds were separated from liabilities and recognized respectively as equity and liabilities at its issuance as follows:

Convertible bonds’ present value at compound interest	Convertible bonds’ present value at compound interest		$		1,357,350
Embedded derivatives (i.e. put options and redemption rights)					13,650
Components of equity at issuance					129,000
			$		1,500,000
The details of financial asset (liabilities) at fair value through profit			or	loss are as follows.
	December31,2020			December31,2019
Embedded derivatives (i.e. put options	$	2,250	($		22,800)
and redemption rights)
Valuation gain		300			25,050
	$	2,550	$		2,250

(f) The details of financial asset (liabilities) at fair value through profit or loss are as follows.
C. For details of principal, interest rate, maturity and other information of corporate bonds payable and foreign unsecured corporate bonds, please refer to Table 10.

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(20) Long-term loans

Long-term loans
		Interest
Institution	Loanperiod	rate	Collateral		December31,2020
Long-term loans
Mizuho Corporate Bank	2019/03/19~	0.9952%~
Ltd., etc. syndicated loan	2022/02/26	1.0452%	None		$	16,376,000
Mizuho Corporate Bank	2020/11/21~
Ltd., etc. syndicated loan	2025/11/25	0.4800%	None			4,552,600
	2011/11/30~
First Commercial Bank	2030/11/30	1.2791%	Yes			2,022,857
	2013/09/06~
First Commercial Bank	2033/09/06	1.4905%	Yes			1,147,355
	2015/04/09~
First Commercial Bank	2022/03/10	1.5433%	None			1,929
The Shanghai Commercial	2013/6/17~
& Savings Bank, Ltd.	2028/04/15	1.6700%	Yes			11,400
	2019/01/29~
Jincheng Bank Company Limited	2022/01/25	9.1000%	Yes			322,240
Jih Sun International	2019/11/25~
Bank Ltd.	2022/11/25	1.0300%	None			1,000,000
Agricultural Bank of	2017/5/23~	4.4100%~
China Limited	2027/12/26	4.900%	None			6,549,138
	2019/12/16~
Taiwan Cooperative Bank	2024/12/16	1.5000%	None			8,737
SG Equipment Finance	2017/11/09~
Czech Republic s.r.o.	2022/08/15	3.4700%	Yes			2,404
ChinaTrust Commercial Bank	2020/10/29~
Ltd., etc. syndicated loan	2022/12/26	1.8499%	None			840,000
Other loan
China Bills Finance
Corporation etc.	2018/8/22~	1.038%~	None
syndicated loan	2021/08/21	1.046%				13,500,000
						46,334,660
Less: Current portion				(		14,718,255)
Administration fee of syndicated loans				(		12,555)
Unamortized discount				(		10,653)
					$	31,593,197

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		Interest
Institution	Loanperiod	rate	Collateral		December31,2019
Long-term loans
Mizuho Corporate Bank	2019/03/19~	2.7048%~
Ltd., etc. syndicated loan	2022/02/26	2.7600%	None		$	17,238,500
Mizuho Corporate Bank	2015/11/30~
Ltd., etc. syndicated loan	2020/11/30	0.4800%	None			5,038,500
	2017/05/17~
Citi Bank	2020/05/17	0.5500%	None			2,760,000
ING Bank, N.V. etc.	2013/01/07~
syndicated loan	2020/07/29	1.7900%	None			142,035
First Commercial Bank	2011/11/30~
	2030/11/30	1.5433%	Yes			2,142,857
First Commercial Bank	2013/09/06~
	2033/09/06	1.7548%	Yes			1,235,613
First Commercial Bank	2015/04/09~
	2022/04/09	1.8076%	None			3,472
The Shanghai Commercial	2013/6/17~	1.9900%~
& Savings Bank, Ltd.	2028/04/15	2.2000%	Yes			14,782
	2019/01/29~
Jincheng Bank Company Limited	2022/01/25	9.1000%	Yes			361,628
Jih Sun International	2019/11/25~
Bank Ltd.	2022/11/25	1.0300%	None			1,000,000
Agricultural Bank of	2017/5/23~	4.4100%~
China Limited	2027/12/26	4.900%	None			6,332,503
	2019/12/16~
Taiwan Cooperative Bank	2024/12/16	1.6500%	None			1,000
Other loan
China Bills Finance Corporation	2017/12/25~	1.038%~	None
etc. syndicated loan	2020/4/25	1.046%				19,900,000
Others			None			6,081
						56,176,971
Less: Current portion				(		14,553,911)
Administration fee of syndicated loans				(		24,709)
Unamortized discount				(		22,099)
					$	41,576,252

A. Throughout the term of Mizuho Corporate Bank Ltd., JihSun International Commercial Bank Co., Ltd., ING Bank, N.V., First Commercial Bank, Citibank Ltd. and ChinaTrust Commercial Bank Ltd., etc. syndicated long-term loan agreement, the Group shall maintain certain financial ratios including current ratio, net debt to tangible assets and interest coverage ratio, to be tested semi-annually and annually on consolidated basis.

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B. Details of long-term loans pledged as collateral are provided in Note 8.

(21) Pensions

A. Defined benefit plans

(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law of Taiwan, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.
(b) The amounts recognized in the balance sheet are as follows (shown as “other non-current liabilities”):

Present value of defined benefit obligations Fair value of plan assets ( Net defined benefit liability	December31,2020 1,944,761 $ 543,215) ( 1,401,546 $	December31,2019 1,954,134 $ 566,295) 1,387,839 $

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(c) Movements in net defined benefit liabilities are as follows:

At January 1 Current service cost Interest income Interest expense Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments ( Pension fund contribution Paid pension ( At December 31		2020
	Present value of defined benefit obligations 1,954,134 $ 8,223 - 15,633 1,977,990 - 94,390 25,227) 69,163 - 102,392) ( 1,944,761 $

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At January 1 Current service cost Interest income Interest expense Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension At December 31			2019
	( (	Present value of defined benefit Fair value of Net defined obligations plan assets benefit liability 2,085,143 $ 651,298 $ 1,433,845 $ 10,865 - 10,865 - 7,165 7,165) ( 22,937 - 22,937 2,118,945 658,463 1,460,482 - 23,659 23,659) ( 73,724 - 73,724 42,661) - 42,661) ( 31,063 23,659 7,404 - 17,929 17,929) ( 195,874) 133,756) ( 62,118) ( 1,954,134 $ 566,295 $ 1,387,839 $

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2020 and 2019 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows:

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Discount rate Future salary increases	2020 0.4% 3.5%	2019
		0.80%
		3.50%

Assumptions regarding future mortality rate are set based on actuarial advice in accordance with published statistics and experience in each territory.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

December 31, 2020 Effect on present value of defined benefit obligation ( December 31, 2019 Effect on present value of defined benefit obligation (	Increase Decrease 0.25% 0.25% 59,721) $ 62,244 $ 61,696) $ 64,388 $ Discount rate	Increase Decrease 0.25% 0.25% 55,505 $ 53,680) ($ 57,843 $ 55,861) ($ Future salaryincreases
	Increase 0.25% 59,721) $ 61,696) $

The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period

(g) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2021 amount to $15,845.
(h) As of December 31, 2020, the weighted average duration of the retirement plan is 13 years
B. Defined contribution plans
(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.
(b) The subsidiaries in mainland China have defined contribution pension plans and contribute an amount monthly based on 8%~9% of employees’ monthly salaries and wages to an independent fund administered by a government agency. The plan is administered by the government of mainland China. Other than the monthly contributions, the Group does not have further pension liabilities.

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(c) The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2020 and 2019 were $10,737,739 and $15,145,169, respectively. As a result of the coronavirus pandemic in China in early 2020, the local government reduced by half the pension insurance for a period of six months from February 2020.
(22) Share-based payment

As of December 31, 2020 and 2019, the share-based payment transactions of Foxconn Interconnect Limited and Foxconn Industrial Internet Co., Ltd., subsidiaries of the Company, are set forth below:

set forth below:
		Quantity	Vesting
Type of arrangement	Grantdate	granted	conditions
Senior management share grant plan	January 1, 2015	349,440,000	Note (1)
Employee restricted shares plans	January 1, 2016	65,624,000	Note (2)
Restricted share plan	December 6, 2017	259,240,433	Note (3)
�	April 30, 2019	149,183,352	Note (3)
�	September 11, 2019	10,348,325	Note (3)
�	December 31, 2019	18,881,226	Note (3)
Employee stock options	April 30, 2019	25,947,021	Note (4)
�	September 11, 2019	473,000	Note (4)
�	December 31, 2019	6,013,755	Note (4)
Share award scheme	June, 2018	2,874,000	Note (5)
�	August, 2019	2,983,000	Note (5)
�	November and December, 2020	6,483,000	Note (5)
Employee stock options	December 28, 2018	41,763,000	Note (6)

Note 1: Grantees do not need to pay to acquire those shares. Issuance of shares is based on grantees’ service periods. Shares will be vested from March 31, 2017 in accordance with the number of the grantees’ shares at 9% in each quarter of 2017, 3% in each quarter of 2018 and 3.25% in each quarter from 2019 to 2022. Such vesting schedule was subsequently revised by the Company in May 2017, under which the shares will be vested from March 31, 2018 in accordance with the number of the grantees’ shares at 12% in each quarter of 2018 and 3.25% in each quarter from 2019 to 2022.
Note 2: Grantees do not need to pay to acquire those shares. Issuance of shares is based on grantees’ service periods and certain performance indicators. Shares will be vested from December 31, 2016 in accordance with the number of the grantees’ shares on every December 31 at 25% over the 4-year period, subject to performance related adjustment.
Note 3: The employees can only exercise the rights after fulfilling the stipulated term of service under the limited partnership agreement. The difference between the fair value of the equity instrument and the consideration paid by the employee to acquire the instrument is amortised over a service period of 3 to 5 years starting from the grant date.
Note 4: From the date of grant that exercises issue annually in five years, each issue exercises 20% equally.
Note 5: Vested immediately.

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Note 6: Vesting period is over 1 to 4 years starting from grant date which was December 28, 2018.
A. Senior management share grant plan-Foxconn Interconnect Technology Limited The weighted average fair value of shares granted under this plan determined using the H-model was USD 0.25 per share. The significant inputs into the model were weighted average cost of capital of 13.4%, perpetuity growth rate of 3%, discount for lack of marketability of 20% and control premium of 20%. The volatility is measured at the standard deviation of continuously compounded share returns based on statistical analysis of daily share prices of comparable companies in the market. For the years ended December 31, 2020 and 2019, expenses incurred on senior management share grant plan were $129,724 (USD4,390 thousand) and $205,459 (USD6,647 thousand), respectively.
B. Employees’ share restricted share plan-Foxconn Interconnect Technology Limited The weighted average fair value of shares granted determined using the market approach was USD0.375 per share. The significant input applied in this approach was price/earnings ratio of 13.5. For the years ended December 31, 2020 and 2019, expenses incurred on employees’ restricted share plan were $0 (USD0) and a reversal of $11,591 (USD375 thousand), respectively.
C. Restricted share plan-Foxconn Industrial Internet Co., Ltd
The fair value of shares granted was RMB3,873,301 thousand. For the years ended December 31, 2020 and 2019, expenses incurred on restricted share plan were $3,894,434 (RMB909,532 thousand) and $3,191,075 (RMB712,962 thousand), respectively.
D. Employee stock options-Foxconn Industrial Internet Co., Ltd
The increment of fair value related to the Options determined using the Black-Scholes model was RMB217,098 thousand. For the years ended December 31, 2020 and 2019, expenses incurred on employee stock options were $274,570 (RMB64,125 thousand) and $185,236 (RMB41,386 thousand), respectively.
E. Share award scheme-Foxconn Interconnect Technology Limited
Existing shares of the Company will be purchased by an independent trustee of the share award scheme from the market out of cash contributed by the Group and be held in trust until such shares are awarded and vested in accordance with the provisions of the share award scheme from 2018. For the years ended December 31, 2020 and 2019, expenses incurred on share award scheme were $63,096 (USD2,135 thousand) and $123,578 (USD4,182 thousand), respectively.
F. Employee stock options-Foxconn Interconnect Technology Limited On December 28, 2018, the Company granted certain eligible employees an aggregated 41,763,000 share options at an exercise price of HKD3.422 per share and will be vested over
1-year to 4-year period. The share options granted are subject to performance related adjustment. The fair value of the options determined using the Black-Scholes model was $185,091 (USD6,139 thousand), and the share-based payment expenses incurred under this

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transaction for the years ended December 31, 2020 and 2019 were $41,991 (USD1,421 thousand) and $115,665 (USD3,742 thousand), respectively.

(23) Other non-current liabilities

					December	December	December	31,	2020	December31,2019	December31,2019	December31,2019
Deferred government grants					$			4,598,516		$		3,040,714
Reserve for retirement pension								1,460,160				1,443,836
Contract liabilities-non-current								1,693,008				-
Others								3,231,652				2,781,969
					$	10,983,336				$		7,266,519
Provisions
				Decommissioning
		Warranty			liabilities				Others			Total
At January 1, 2020	$	2,707,812		$	369,953			$	17,481		$	3,095,246
Provisions during the year		3,252,760			37,962				1,138			3,291,860
Used during the year	(		642,717)			-	(		9,334)		(	652,051)
Unused amounts
reversed	(	1,045,457)				-	(		1,248)		(	1,046,705)
Exchange differences	(		143,918)			-				-	(	143,918)
At December 31, 2020 $		4,128,480		$	407,915			$	8,037		$	4,544,432

(24) Provisions

Analysis of total provisions:

Current

Non-current

December31,2020 $4,136,517 $407,915	December31,2019
	2,725,293 $
	369,953 $

A. The Group provides warranties on 3C products sold. Provision for warranty is estimated based on historical warranty data of 3C products.
B. In accordance with the applicable agreements or the law/regulation requirements, the Group bears dismantling, removing the asset and restoring the site obligations for certain base stations. Provision was recognized at the present value of costs which was estimated to be incurred for dismantling, removing the asset and restoring the site. The decommissioning activities are ongoing.
(25) Share capital – common stock
A. As of December 31, 2020, the Company’s authorised capital was $180,000,000, consisting of 18 billion shares of ordinary stock, and the paid-in capital was $138,629,906, consisting of 13,862,991 thousand shares with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
B. Pursuant to the resolution adopted at the stockholders' meeting held on June 1, 1999, and after obtaining approval from the SFC, the Company issued 25 million units of global

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depository receipts (GDRs) in Europe, Asia and the USA. The issuance amounted to USD 347,250 thousand, and the main terms and conditions of the GDRs are as follows:

(a) Voting
- Holders of GDRs have no right to directly exercise voting rights or attend the Company’s stockholders' meeting, except when a motion is on the election of directors or supervisors. A holder or holders together holding at least 51% of the GDRs outstanding at the relevant record date of the stockholders' meeting can instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting.
(b) Sale and withdrawal of GDRs
- Under the current R.O.C. law, shares represented by the GDRs may be withdrawn by holders of GDRs commencing three months after the initial issue of GDRs. A holder of a GDR may, provided that the Company has delivered to the custodian physical share certificates in respect of the Deposited Shares, request the Depositary to sell or cause to be sold on behalf of such holder the shares represented by such GDRs.
(c) Dividends
- GDR holders are entitled to receive dividends to the same extent as the holders of common stock.
(d) As of December 31, 2020, 94,433 thousand units of GDRs were outstanding, which represents 188,867 thousand shares of common stock.
C. Treasury stocks

The Company's subsidiary, Hon Jin International Investment Co., Ltd., acquired ordinary shares issued by the Company in 1998. As of December 31, 2020 and 2019, the subsidiary all owned a total of 1,483,078 shares. The original cost of treasury stocks was $18,901, and the cost after capital reduction was $15,194.

(26) Capital surplus

Pursuant to the R.O.C. Company Act, capital reserve arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Act requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient.

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2020

			2020
At January 1, 2020 Adjustments arising from changes in percentage of ownership in subsidiaries Changes in equity of associates and joint ventures accounted for under the equity method At December 31, 2020 At January 1, 2019 Adjustments arising from changes in percentage of ownership in subsidiaries Changes in equity of associates and joint ventures accounted for under the equity method At December 31, 2019	Share premium 88,501,031 $ - - 88,501,031 $	Changes in ownership interests in subsidiaries 99,189,558 $ 3,252,539 - 102,442,097 $	Net change in equity of associates 10,593,529 $ - 10,032 10,603,561 $ 2019	Share option 1,099,253 $ - - 1,099,253 $	Total 199,383,371 $ 3,252,539 10,032 202,645,942 $ Total 190,018,456 $ 10,315,671 950,756) ( 199,383,371 $
	Share premium 88,501,031 $ - - 88,501,031 $	Changes in ownership interests in subsidiaries 88,873,887 $ 10,315,671 - 99,189,558 $	Net change in equity of associates 11,544,285 $ - 950,756) ( 10,593,529 $	Share option 1,099,253 $ - - 1,099,253 $

(27) Retained earnings

A. The annual net income of the Company shall be appropriated in accordance with the priorities listed as follows:
(a) Recovering of losses;
(b) Appropriation of 10% for legal reserve.
(c) Appropriation or reversal of special reserve pursuant to applicable law or regulation.

As to the earnings available for appropriation to shareholders including accumulated unappropriated earnings and earnings available for appropriation this year, the board of directors is authorised to draft an appropriation plan in accordance with the dividend policy in Section D of the Articles of Incorporation.

The board of directors is authorised to distribute dividends and bonuses in whole or in part, which may be paid in cash after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors.

The Company is currently at a developing stage. The Company’s dividend distribution policy is subject to the Company’s current and future investment environment, fund requirements, competition from local and abroad, and capital budgets, as well as taking into consideration the interests of shareholders and the long-term financial planning. Shareholder dividends are

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set aside on accumulated unappropriated earnings, which shall not be less than 15% of earnings available for appropriation for the year and cash dividends shall not be less 10% of total dividends.

B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company’s paid-in capital.
C. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.
D. The appropriations of 2020 earnings was proposed during the board meeting on March 30, 2021. The appropriation of 2019 earnings had been resolved at the shareholders’ meeting on June 23, 2020. Details are summarized as follows:

June 23, 2020. Details are summarized as follows:
Dividends per Amount share (indollars) Legal reserve 9,711,843 $ - $ Special reserve 15,136,594) ( - Cash dividends 55,451,962 4.0 50,027,211 $ 4.0 $ 2020	Dividends per Amount share (indollars) 11,530,874 $ - $ 42,141,793 - 58,224,561 4.2 111,897,228 $ 4.2 $ 2019
	Amount 11,530,874 $ 42,141,793 58,224,561 111,897,228 $

The information on distribution of earnings will be posted on the “Market Observation Post System” of the TSEC.

(28) Other equity items

At January 1, 2020 - Group - Associates At December 31, 2020	Financial assets at fair value through Currency other comprehensive translation income adjustments Total 11,437,746 $ 113,889,466) ($ 102,451,720) ($ 25,301,449 12,757,150) ( 12,544,299 497,658 2,094,637 2,592,295 37,236,853 $ 124,551,979) ($ 87,315,126) ($

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At January 1, 2019 - Group - Associates At December 31, 2019	Financial assets at fair value through Currency other comprehensive translation income adjustments Total 5,089,256 $ 65,399,183) ($ 60,309,927) ($ 3,320,113 47,393,440) ( 44,073,327) ( 3,028,377 1,096,843) ( 1,931,534 11,437,746 $ 113,889,466) ($ 102,451,720) ($

(29) Non-controlling interests

Non-controlling interests
			Years ended	December31,
			2020		2019
At January 1		$	159,641,071	$	120,555,419
Share attributable to non-controlling interests:
Gain for the year			12,530,780		16,876,352
Currency translation difference	(		2,623,729)	(	3,873,096)
Unrealised losses on investments in
equity instruments measured at fair value
through other comprehensive income	(		645,723)	(	144,618)
Changes in non-controlling interest			7,966,634		26,227,014
At December 31		$	176,869,033	$	159,641,071

A. Certain subsidiaries of the Group have issued employee share-based payment and new shares during 2020 and 2019. The Group has not purchased additional shares in proportion to its ownership and thus, the non-controlling interest of the Group increased by $424,634 and $3,091,260 and equity attributable to owners of the parent increased by $3,252,539 and $10,315,671 for the years ended December 31, 2020 and 2019, respectively.
B. The main reason of the change in 2020 is because the Group established Foxtron Vehicle Technologies Co., Ltd. (“Foxtron Vehicle”) together with Hua-Chuang Automobile Information Technical Center Co., Ltd., where the Group owned 51% equity interest in Foxtron Vehicle. The non-controlling intertest of the Group increased by $7,542,000 due to this transaction.
C. The main reason of the change in 2019 is because the Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (shown as “Asia Pacific”) on November 21, 2019. After acquisition, the Group owned 40.74% equity interest in Asia Pacific. The non-controlling intertest of the Group increased by $23,135,754 due to this transaction. Details are provided in Note 6(39).

(30) Operating revenue

A. Disaggregation of revenue from contracts with customers

The Group derives revenue from the transfer of goods and services over time and at a point in

~84~

– F-85 –

time. Details of major product lines and geographical regions are provided in Note 14(5). B. Contract assets and liabilities

The Group has recognized the following revenue-related contract liabilities:

December 31, 2020 December 31, 2019 January 1, 2019 Contract liabilities (shown as “other current liabilities”and “other non-current liabilities”) $ 26,905,541 $ 25,153,889 $ 14,843,660

Revenue of $19,321,686 and $9,253,850 were recognized in 2020 and 2019, respectively which were included in the contract liability balance at the beginning of the year.

C. Assets recognized from costs to obtaining a contract

Under IFRS 15, the incremental costs related to obtaining a telecommunication contract was recognized as an asset as the Group expects to recover these costs. For the details on incremental costs recognized during the year ended December 31, 2020, please refer to Note 6(14).

(31) Interest income

6(14). Interest income
Other income Interest income from bank deposits Interest income from current financial assets at amortised cost Rental income Dividend income Government grants Other non-operating income	Years endedDecember31,
	2020 2019 $ 44,066,553 $ 73,481,514 3,867,799 2,337,822 47,934,352 $ 75,819,336 $ Years endedDecember31,	2019
		$ 73,481,514 2,337,822
		75,819,336 $
	2020 2,937,565 4,891,042 1,241,388 2,817,538 11,887,533 $	2019
		2,878,314 6,423,484 2,679,066 2,580,054
		14,560,918 $

(32) Other income

~85~

– F-86 –

(33) Other gains and losses

Other gains and losses
			Years ended	December31,
			2020		2019
Net gain on financial assets and liabilities
at fair value through profit or loss		$	13,727,567	$	10,996,109
Loss on disposal of property, plant and
equipment	(		873,283)	(	837,950)
Gain on disposal of investment			633,645		1,869,967
Net currency exchange loss	(		1,671,581)	(	4,509,384)
Impairment loss	(		959,481)	(	391,323)
Other losses	(		3,542,402)	(	1,559,969)
		$	7,314,465	$	5,567,450

(34) Expenses by nature

Additional disclosures related to cost of sales and operating expenses are as follows:

Product warranty costs Employee benefit expense Depreciation Amortisation	Years endedDecember31,	Years endedDecember31,
	2020 36,411,836 $ 316,031,261 60,952,265 4,161,469 417,556,831 $	2019
		49,931,158 $ 305,622,749 65,144,046 1,864,811
		422,562,764 $

(35) Employee benefit expense

Employee benefit expense
Wages and salaries Share-based payment Labor and health insurance fees Pension costs Other personnel expenses	Years endedDecember31,
	2020 276,615,237 $ 4,403,815 8,187,657 10,757,065 16,067,487 316,031,261 $	2019
		261,371,295 $ 3,831,801 10,392,808 15,180,806 14,846,039
		305,622,749 $

A. In accordance with the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees' compensation. The ratio shall be between 5% and 7% for employees’ compensation and 0% for directors’ and supervisors’ remuneration.
B. For the years ended December 31, 2020 and 2019, employees’ compensation was accrued at $6,001,329 and $6,350,593, respectively. The aforementioned amounts were recognized in salary expenses. The expenses recognized for 2020 and 2019 were both estimated and accrued based on 5% of profit of current year distributable.

~86~

– F-87 –

For 2020, the employees’ compensation resolved by the Board of Directors amounted to $6,001,329 on March 30, 2021. The amount was the same as the amount recognized in the financial statements for the year ended December 31, 2020, and will be distributed in the form of cash.

Information about the appropriation of employees’ compensation (bonus) and directors’ and supervisors’ remuneration by the Company as proposed by the Board of Directors and resolved by the stockholders will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(36) Financial costs

website of the Taiwan Stock Exchange. Financial costs
Interest expense: Bank borrowings Corporate bonds Interest expense from lease liability Financing expense from accounts receivable factoring	Years endedDecember31,
	2020 36,124,258 $ 2,831,396 1,193,246 168,113 40,317,013 $	2019
		62,179,187 $ 2,755,509 1,174,008 491,992
		66,600,696 $

(37) Income tax

A. Income tax expense

(a) Components of income tax expense:

Current tax: Current tax on profits for the year Tax on undistributed surplus earnings Adjustments in respect of prior years Total current tax Deferred tax: Origination and reversal of temporary differences Impact of change in tax rate ( Total deferred tax ( Income tax expense	2020 2019 30,671,601 $ 29,083,236 $ 422,473 1,876,967 744,825 408,665) ( 31,838,899 30,551,538 188,548 2,043,859 880,800) 902,538) ( 692,252) 1,141,321 31,146,647 $ 31,692,859 $ Years endedDecember31,
	2020 30,671,601 $ 422,473 744,825 ( 31,838,899 188,548 880,800) ( 692,252) 31,146,647 $

(b) The income taxes (charge)/credit relating to components of other comprehensive income are as follows:

~87~

– F-88 –

		Years ended December 31,	Years ended December 31,	Years ended December 31,
		2020		2019
Remeasurement of defined benefit obligations		$ 9,525		$1,481
B. Reconciliations between income tax expense	and	accounting profit.
		Years ended	December31,
		2020		2019
Tax calculated based on profit before	$	44,820,354	$	53,789,473
tax and statutory tax rate
Tax exempt income by tax regulation	(	13,979,463)	(	22,743,457)
Prior year income tax underestimation
(overestimation)		744,825	(	408,665)
Tax on undistributed earnings		422,473		1,876,967
Others	(	861,542)	(	821,459)
Income tax expense		31,146,647		31,692,859
Change in deferred income tax	(	188,548)	(	2,043,859)
Impact of change in the tax rate		880,800		902,538
Prior year income tax (underestimation)
overestimation	(	744,825)		2,231,922
Prepaid income tax	(	5,916,004)	(	8,424,540)
Income tax payable (receivable) for prior
years		638,116	(	2,909,750)
Others	(	1,811,868)	(	2,917,881)
Current income tax liability	$	24,004,318	$	18,531,289

~88~

– F-89 –

C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

					Years endedDecember 31,2020	Years endedDecember 31,2020	Years endedDecember 31,2020	Years endedDecember 31,2020
								Recognized
								in other
					Recognized in		comprehensive
			January1		profitor loss			income		December 31
Temporary differences:
�Deferred tax assets:
Reserve for inventory obsolescence		$	1,392,595		$	661,334	$	-		$	2,053,929
and market price decline
Deferred revenue			1,366,424			8,461		-			1,374,885
Unrealised loss on financial instruments			177,600			81,285		-			258,885
Accrued expenses			1,727,478	(		17,293)		-			1,710,185
Difference between accounting and
tax bases due to depreciation			1,841,610			78,080		-			1,919,690
Reserve for pension cost			278,064			3,004		9,525			290,593
Unused compensated absences			775,714	(		238,383)		-			537,331
Others			11,141,980			659,374		-			11,801,354
			18,701,465			1,235,862		9,525			19,946,852
�Deferred tax liabilities:
Foreign investment income using
equity method	(		4,378,792)	(		437,189)		-	(		4,815,981)
Unrealised exchange gain	(		459,505)	(		267,074)		-	(		726,579)
Interest income	(		3,711,661)			1,134,757		-	(		2,576,904)
Others	(		9,711,551)	(		974,104)		-	(		10,685,655)
	(		18,261,509)	(		543,610)		-	(		18,805,119)
	$		439,956	$		692,252	$	9,525	$		1,141,733

~89~

– F-90 –

					Years endedDecember 31,2019	Years endedDecember 31,2019	Years endedDecember 31,2019	Years endedDecember 31,2019
								Recognized
								in other
					Recognized in		comprehensive
			January1		profitor loss			income		December 31
Temporary differences:
�Deferred tax assets:
Reserve for inventory obsolescence
and market price decline		$	2,593,980	($		1,201,385)	$	-		$	1,392,595
Deferred revenue			1,452,329	(		85,905)		-			1,366,424
Unrealised loss on financial instruments			905,098	(		727,498)		-			177,600
Accrued expenses			1,903,523	(		176,045)		-			1,727,478
Difference between accounting and
tax bases due to depreciation			4,028,238	(		2,186,628)		-			1,841,610
Reserve for pension cost			286,833	(		10,250)		1,481			278,064
Unused compensated absences			238,191			537,523		-			775,714
Others			4,821,112			6,320,868		-			11,141,980
			16,229,304			2,470,680		1,481			18,701,465
�Deferred tax liabilities:
Foreign investment income using
equity method	(		5,545,097)			1,166,305		-	(		4,378,792)
Unrealised exchange gain	(		258,631)	(		200,874)		-	(		459,505)
Interest income	(		2,896,500)	(		815,161)		-	(		3,711,661)
Unrealised gain on financial instruments	(		272,430)			272,430		-			-
Others	(		5,676,850)	(		4,034,701)		-	(		9,711,551)
	(		14,649,508)	(		3,612,001)		-	(		18,261,509)
		$	1,579,796	($		1,141,321)	$	1,481	$		439,956

D. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2020 and 2019, the temporary differences unrecognized as deferred tax liabilities were $1,120,928,606 and $1,059,304,231, respectively.
E. The Company’s income tax returns through 2018 have been assessed and approved by the Tax Authority.
F. The Company applied for and has been approved to repatriate funds overseas (including Mainland China) within the time limit in accordance with the "The Management, Utilization, and Taxation of Repatriated Offshore Funds Act" issued by R.O.C government. The tax rate for the fund repatriation is 8% for the first year and 10% for the second year. For exemption from taxation under the general income tax system, within 1 year after the repatriation of funds, the Company can apply with the Ministry of Economic Affairs to engage in substantive investment, and those who complete it within the time limit can enjoy a 50% tax refund.

~90~

– F-91 –

(38) Earnings per share

Earnings per share
Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employees’ compensation Convertible bonds-overseas Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares Basic earnings per share Profit attributable to ordinary shareholders of the parent Diluted earnings per share Profit attributable to ordinary shareholders of the parent Assumed conversion of all dilutive potential ordinary shares Employees’ bonus Convertible bonds-overseas Profit attributable to ordinary shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares	Years endedDecember31,2020
	Weighted average number of ordinary Earnings Amount shares outstanding per share after tax (sharesin thousands) (indollars) 101,794,807 $ 13,861,508 7.34 $ 101,794,807 $ 13,861,508 - 65,232 227,880 96,070 102,022,687 $ 14,022,810 7.28 $ Years endedDecember31,2019		Earnings per share (indollars)
			7.34 $
			7.28 $
	Amount after tax 115,308,736 $ 115,308,736 $ - 224,339 115,533,075 $	Weighted average number of ordinary shares outstanding (sharesin thousands) 13,861,508 13,861,508 69,940 91,240 14,022,688	Earnings per share (indollars)
			8.32 $
			8.24 $

~91~

– F-92 –

(39) Business combinations

A. The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (“Asia Pacific”) for $10,000,000 on November 21, 2019. After acquisition, the Group owned 40.74% interest in Asia Pacific, which represented majority of the voting rights of its shareholders, and has control over the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since control date. Communications is the main business of Asia Pacific. With the acquisition, the Group expects to develop 5-generation (5G) communication.
B. The Group established Foxtron Vehicle Technologies Co., Ltd. (“Foxtron Vehicle”) together with Hua-Chuang Co., Ltd. on November 6, 2020. Hua-Chuang Co., Ltd. contributed asset with a value of $7,542,000 as capital, and the Group contributed cash amounting to $7,850,321 as capital. From the business combination, the Group mainly obtained the technology in progress and construction in progress-mould equipment amounting to $6,360,000 and $1,128,000, respectively. With the acquisition, the Group looks forward to develop the business of electric vehicle.
C. The fair value of identifiable assets acquired and liabilities assumed are summarized as follows:

~92~

– F-93 –

Purchase consideration
Cash paid
Fair value of equity interest
Fair value of the non-controlling interest
Recognized amount of identifiable
assets acquired and liabilities assumed
Cash and cash equivalents
Notes receivable and accounts receivable
Other receivables
Inventories
Property, plant and equipment
Right-of-use assets
Intangible assets
Deferred income tax assets
Other non-current assets
Short-term loans and notes and bills
payable
Accounts payable
Other payables
Deferred income tax liabilities
Lease liabilities
Other liabilities
Total identifiable net assets
Goodwill

2020
2019
Foxtron Vehicle
Asia Pacific
Technologies
Telecom
Co.,Ltd.
Co.,Ltd.
7,850,321
$ 10,000,000
$ -
6,393,680
7,542,000
22,862,687
15,392,321
39,256,367
7,850,321
9,297,209
-
1,965,828
-
117,277
-
495,850
1,182,000
11,608,612
-
3,207,059
6,360,000
12,680,996
-
4,309,033
-
6,549,306
-
3,285,344)
(
-
1,281,558)
(
-
2,686,196)
(
-
608,502)
(
-
3,207,059)
(
-
694,512)
(
15,392,321
38,467,999
-
$ 788,368
$

D. The fair value of the acquired identifiable tangible and intangible assets of $7,542,000 (including electric vehicle platform, automobile power system and related developing technology, and mould equipment) is provisional pending the final purchase price allocation. For details, please refer to Notes 6(9) and 6(13).
E. Fuxiang Precision Industrial (Kunshan) Co., Ltd., a subsidiary of the Company, acquired 100% equity interest in Mingyang Realty Development (Kunshan) Co., Ltd. and Tuozhan Property Development Co., Ltd. on April 12, 2019 and May 9, 2019, respectively, for a consideration of RMB217,730 thousand and RMB574,945 thousand, respectively. The combinations mainly acquired investment property of $2,047,982 and goodwill of $261,037.
F. FuYang Soleros Technology (Nanyang) Co., Ltd., a subsidiary of the Company, acquired 100% equity interest in Shandong Chengshang Energy Co., Ltd. in the second quarter of 2020 for a consideration of RMB275,260 thousand. The combination mainly acquired property,

~93~

– F-94 –

plant and equipment of $1,400,306.

G. Foxconn Precision International Limited, a subsidiary of the Company, acquired 100% equity interest in Leapsy International Ltd. in the second quarter of 2020 for a consideration of RMB31,068 thousand. The combination mainly acquired patent of $142,697.

(40) Supplemental cash flow information

A. Investing activities with partial cash payments

pplemental cash flow information Investing activities with partial cash payments
			Years endedDecember		31,
			2020		2019
Purchase of property, plant and equipment		$	65,897,393	$	69,474,703
Add: Opening balance of payable on equipment			22,418,721		31,245,417
Less: Ending balance of payable on equipment	(		22,979,363)	(	22,418,721)
Net exchange differences			163,290	(	779,948)
Cash paid during the year		$	65,500,041	$	77,521,451
Disposal of property, plant and equipment		$	6,054,328	$	4,413,731
Add: Opening balance of receivable on
equipment			220,019		2,383,723
Less: Ending balance of receivable on
equipment	(		170,110)	(	220,019)
Net exchange differences			362	(	7,483)
Cash received during the year		$	6,104,599	$	6,569,952

B. Changes in liabilities from financing activities

For the years ended December 31, 2020 and 2019, liabilities from financing activities included short-term loans, short-term notes and bills payable, corporate bonds payable and long-term loans, the related changes resulting from cash flows from financing activities, discount amortisation and changes in exchange rate. Summarised amount is as follows, and relevant information is shown in the statements of cash flows:

At January 1 Changes in cash flow from financing activities Changes in other non-cash items Impact of changes in foreign exchange rate At December 31		2020	2019
	(	681,576,217 $ 96,662,052 357,478 2,836,783) 775,758,964 $	778,219,243 $ 97,615,713) ( 3,492,753 2,520,066) ( 681,576,217 $

~94~

– F-95 –

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

ATED PARTY TRANSACTIONS
Names of related parties and relationship

Names of related parties

Relationship with the Group

Sharp Corporation and subsidiaries
Foxconn Technology Co., Ltd. and subsidiaries
Pan International Industrial Corporation and subsidiaries
Eson Precision Ind. Co., Ltd. and subsidiaries
General Interface Solution Holding Limited and subsidiaries
Zhen Ding Technology Holding Limited and subsidiaries
Ennoconn Corporation and subsidiaries
CyberTAN Technology, Inc. and subsidiaries
Foxsemicon Integrated Technology Inc. and subsidiaries
G-TECH Optoelectronics Corporation
Advanced Optoelectronic Technology Inc.
Ampower Technology Co., Ltd.
Asia Pacific Telecom Co., Ltd.
Fitipower Integrated Technology Inc.
Zeitec Semiconductor Co., Ltd.
Foxstar Technology Co., Ltd.
CJ Electric Systems Co., Ltd.
Ampower (BeiHai) Ltd.
SafeDX S.R.O.
Beijing HengYu New Energy Auto Rental Co., Ltd.
Shanghai Topone Logistics Co., Ltd.
Hangzhou GengDe Electronics Co., Ltd.
Shenzhen Lluvia Technology Co., Ltd.
Trans-Iot Technology Co., Ltd.
Hongkang Zhihui Corporation Limited
HaiWei Technology (Shenzhen) Co., Ltd.
Morgen Precision Industry Co., Ltd. and subsidiaries
He Cheng Da Technology (Shenzhen) Co., Ltd.
Sichuang Cheng Gong Fu Chuang Technology Co., Ltd.

Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate
Associate

~95~

– F-96 –

Names of related parties

Relationship with the Group

Maxnerva Technology Services Ltd and subsidiaries Associate FuDongQun Automation Technology (Shenzhen) Co., Ltd. Associate Cheng Uei Precision Industry Co., Ltd. and subsidiaries Other related party Innolux Corporation and subsidiaries Other related party SIO International Holdings Limited and subsidiaries Other related party ES Platform Limited Other related party

(2) Significant transactions and balances with related parties

A. Sales

ales
Sales of goods: Associates Other related parties	Years endedDecember31,
	2020 150,243,473 $ 10,635,966 160,879,439 $	2019
		175,044,681 $ 11,510,848
		186,555,529 $

The amounts above include administration and service revenue. Except for the circumstances in which there are no similar transactions for reference and accordingly the prices and credit periods are negotiated by both parties, the rest of the aforementioned related parties transactions are offered with prices very close to those offered to other customers and given a payment period of 45 to 90 days. For the transactions involving the sale of raw materials to the aforementioned related parties and subsequent repurchase of finished goods made from the same raw materials from the same party, the initial sale of raw materials is eliminated due to economic substance. The sales amount of materials and repurchase price of finished goods were offset against each other and shown at net amount in the financial statements. B. Purchases

Purchases
Purchase of goods: Associates Other related parties	Years endedDecember31,
	2020 86,802,568 $ 11,999,940 98,802,508 $	2019
		79,158,346 $ 15,378,481
		94,536,827 $

Except for the circumstances in which there are no similar transactions for reference and accordingly the prices and payment terms are negotiated by both parties, the Group purchases from the supplier and aforementioned related parties at the prevailing market price. The payment terms dealt with other vendors and related parties are 45 to 90 days and 30 to 90 days, respectively.

~96~

– F-97 –

C. Receivables from related parties

Receivables from related parties	Receivables from related parties	Receivables from related parties	Receivables from related parties
December31,2020					December31,2019
Accounts receivable:
Associates		$	37,132,298		$	44,003,230
Other related parties			2,296,652			2,214,499
Less: Reclassified as other receivables			-	(		1,449,260)
Less: Allowance for doubtful accounts	(		14,786)	(		13,865)
			39,414,164			44,754,604
Other receivables - sale of property,
plant and equipment:
Associates			126,389			38,441
Other receivables - purchase of materials on
behalf of related parties:
Associates			1,075,843			1,467,582
Other related parties			50,738			121,893
Other receivables - disposal of investment:
ES Platform Limited			5,172,696			21,859,451
Other receivables:
Associates			-			1,449,260
Less: Allowance for doubtful accounts	(		1,293,174)	(		762,872)
			5,132,492			24,173,755
		$	44,546,656		$	68,928,359

(a) The amount is due 45 to 90 days after the transaction date.
(b) The Company disposed the preferred C stock shares without voting rights of Sharp Corporation on December 29, 2017. The consideration for the disposal of 1,136,363 shares was $93,128,046 (¥352,490,712 thousand), which is due in each quarter beginning from the settlement date. Both of the transaction parties have agreed the last settlement date to be on March 31, 2022. As of December 31, 2020 and 2019, the allowance for doubtful accounts amounted to $1,293,174 and $762,872, respectively.
(c) The receivables are unsecured and non-interest bearing.
(d) Information relating to credit risk is provided in Note 12(2).

~97~

– F-98 –

D. Payables to related parties

Payables to related parties
December31,2020 Accounts payable: Associates 24,842,288 $ Other related parties 2,837,758 Subtotal 27,680,046 Other payables - acquisition of property, plant and equipment: Associates 456,315 Other payables - procurement of raw materials on behalf of others: Associates 2,019,678 Subtotal 2,475,993 Total 30,156,039 $	December31,2019
	30,846,862 $ 4,662,265
	35,509,127
	311,969 2,005,923
	2,317,892
	37,827,019 $

The amount is due 30 to 90 days after the transaction date. The payables are non-interest bearing.

� E. Lease transactions lessee

(a) The Group leases buildings from associates. Rental contracts are typically made for periods of 1 to 3 years. Rents are paid at the end of each month.
(b) For the years ended December 31, 2020 and 2019, the Group acquired right-of-use assets of
$803 and $9,985, respectively, from related parties.
(c) Lease liabilities

Associates	December31,2020 $156,507	December31,2019 297,003 $

For the years ended December 31, 2020 and 2019, the interest expense incurred on lease liabilities were $13,682 and $14,364, respectively

F. Prepayments:

Associates	December31,2020 1,686 $	December31,2019
		3,888 $

G. Property transactions:

(a)Acquisition of property, plant and equipment:

Acquisition of property, plant and equipment: Associates	Years endedDecember31,	Years endedDecember31,
	2020 746,176 $	2019
		1,429,367 $

~98~

– F-99 –

(b) Proceeds from sale of property, plant and equipment and gain (loss) on disposal:

	Years endedDecember31,	Years endedDecember31,
2020	Proceeds from sale of property, plant Gain and equipment 19,310 $ 105,123 $ 16,171 - 35,481 $ 105,123 $ 2019	2019
			Gain
			45,508 $ -
			45,508 $

(c) Acquisition of financial assets:

Acquisition of financial assets:
Accounts Asia Pacific Telecom Co., Ltd. Note Shanghai Topone Logistics Co., Ltd. Investment accounted for using equity method Ennoconn Corporation Investment accounted for using equity method Sharp Corporation Financial assets at fair value though other comprehensive income	No. ofshares 1 billion - 1,892 thousand 4,500 thousand	Objects Common Shares Common Shares Common Shares Preferred shares of Kantatsu Co., Ltd.	YearendedDecember31,2019
			Consideration
			10,000,000 $ 645,765 416,186 1,654,226
			12,716,177 $

Note: The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) for $10,000,000 on November 21, 2019. After acquisition, the Group owned 40.74% equity interest in Asia Pacific which represented the majority of the voting right of its shareholders and control the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since control date. Deatails are provided in Note 6(39)

~99~

– F-100 –

(d) Disposal of financial assets:

Disposal of	financial assets:
Associates	Item recognised	Shares traded	Transaction target	Year ended December 31,2020
				Proceeds fromdisposal	Gainonsale
	Investment accounted using the equity method	-	Efeihu (Taiwan) Limited	10,199 $	44 $

H. Loans to related parties

(a) Receivables from related parties

Associates	December31,2020 153,282 $	December31,2019
		192,788 $

For the information on the impairment loss on loans to related parties and related allowance for uncollectible accounts, please refer to Note 12(2). For collaterals, please refer to Table 1. (b) Interest income

Interest income
Associates	Years endedDecember31,
	2020 8,374 $	2019
		28,331 $

For the years ended December 31, 2020 and 2019, the interest were both recognized at the rates of 1.8%~12%.

(3) Key management compensation

rates of 1.8%~12%. Key management compensation	rates of 1.8%~12%. Key management compensation
Salaries and other short-term employee benefits Post-employment benefits Share-based payments
	2020 596,514 $ 2,330 409,417 1,008,261 $

~100~

– F-101 –

8. PLEDGED ASSETS

As of December 31, 2020 and 2019, the book values of the Group’s pledged assets are as follows:

Assets	Nature Customs deposits and short-term loans Guarantee for prepaid card, performance bond, reserve accounts for short-term loans and security for litigation Security deposit for provisional attachment, bond deposit as security for court proceedings, security deposit for employment of foreign employees and customs deposits Switch center lease guarantee, performance bond and the deposits restricted by the court Long-term loans	December31,2020 246,751 $ 468,414 53,352 1,400,641 4,789,314 6,958,472 $	December31,2019
Time deposits and cash (shown as “current financial assets at amortised cost”) Restricted deposits (shown as “current financial assets at amortised cost”) Time deposits and cash (shown as “non-current financial assets at amortised cost”) Restricted deposits (shown as “non-current financial assets at amortised cost”) Property, plant and equipment and right-of-use asset			319,744 $ 133,411 43,779 - 5,155,879
			5,652,813 $

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

Except for Note 6(4), contingencies and commitments are as follows:

- (1) Contingencies Significant legal matter

On March 8, 2019, Microsoft Corporation and Microsoft Licensing, GP sued the Group over the dispute regarding the royalty payment under the patent licensing agreement. The two parties in the case has reached a settlement in August 2020. Accordingly, the Group has properly accrued the settlement value in the financial statements..

(2) Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

Property, plant and equipment	December31,2020 6,191,810 $	December31,2019
		3,850,503 $

~101~

– F-102 –

B. As of December 31, 2020 and 2019, a subsidiary of the Company, Asia Pacific Telecom Co., Ltd., had outstanding contracts for equipment procurements and base transceiver stations construction totaling $4,248,875 and $1,503,888, respectively, which will be paid in the future or paid by issuing promissory notes and commercial papers.
C. On September 4, 2020, the Company passed the resolution of the Board of Directors to exchange 527,524,409 ordinary shares of Asia Pacific Telecom Co., Ltd. held by the Company in exchange for approximately 81,842,616 ordinary shares issued by Far EasTone Telecommunications Co., Ltd. After the approval by the authority, the share exchange is expected to be completed on June 30, 2022.
D. The Group entered into a business cooperation agreement with FET. The period of the agreement is from September 4, 2020 to December 31, 2040. It is expected that after obtaining approval from the regulatory authority, the Group will cooperate with FET to provide service on 3.5GHz frequency band through Multi-Operator Core Networks (MOCN). The Group will share two-ninths of the network deployment cost of FET’s 3.5GHz frequency band of which the cost of spectrum sharing amounted to $9,473,000 in order to obtain two-ninths of use right capacity of the 3.5GHz frequency band. This cooperation agreement was approved with conditions by the National Communications Commission (NCC) Committee, the regulatory authority, on March 3, 2021. The aforementioned cooperation agreement will also need the approval of the Fair Trade Commission before it can be implemented.
E. In order to enhance spectrum efficiency and increase competitiveness with FET, as resolved by the Board of Directors on November 5, 2020, the Group entered into (a) a service on 700MHz through MOCN agreement effective from November 5, 2020 to December 31, 2030 which the Group and FET agreed to share the costs and expenses arising from or related to the agreement in the proportions of two-ninths and seven-ninths, respectively; and (b) a frequency exchange agreement wherein the Group exchanges its 723MHz~728MHz (uplink) and 778MHz~783MHz (downlink) frequency bands with FET’s 2595MHz~2615MHz frequency bands and the exchange value is based on mutual agreement. The two aforementioned agreements must be approved by the regulatory authority before they can be implemented. However, if the service on 700MHz through MOCN agreement is approved earlier than the frequency exchange exercise date, the frequency exchange agreement is automatically terminated.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

A. The appropriation of 2020 earnings was approved by the Board of Directors on March 30, 2021. Please refer to Note 6(27).
B. The Company will issue the first overseas convertible unsecured corporate bonds of 2021, as approved by the Board of Directors on March 31, 2021. The total issue amount will not be more

~102~

– F-103 –

than USD700,000 thousand and the circulation period will not be more than five years.

C. The cooperation agreement between the Group and FET for the 3.5GHz frequency band through MOCN was approved with conditions by the NCC Committee, the regulatory authority, on March 3, 2021. For related details, please refer to Note 9(2) Commitments.

12. OTHERS

(1) Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to operate with the goal to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated balance sheet less the total intangible assets.

During 2020, the Group’s strategy, which was unchanged from 2019, was to maintain the gearing ratio at 70% or below.

(2) Financial instruments

A. Financial instruments by category

Please refer to the consolidated balance sheets and Note 6 for the amounts and details of the financial assets (financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, financial assets at amortised cost, accounts receivable (including related parties) and other receivables) and financial liabilities (financial liabilities at fair value through profit or loss, accounts payable (including related parties), other payables, short-term loans, long-term loans and corporate bonds payable).

B. Financial risk management policies
(a) Risk categories:

The Group employs a comprehensive risk management and control system to clearly identify, measure, and control the various kinds of financial risk it faces, including market risk (including foreign exchange risk, interest rate risk and price risk), credit risk, and liquidity risk.

(b) Management objectives:

i. Except for market risk, which is controlled by outside factors, the remainder of the foregoing types of risks can be controlled internally or removed from business processes. Therefore, the goal in managing each of these risks is to reduce them to zero.
ii. As for market risk, the goal is to optimize its overall position through strict analysis, suggestion, execution and audit processes, and proper consideration of a) long-term

~103~

– F-104 –

trends in the external economic/financial environment, b) internal operating conditions, and c) the actual effects of market fluctuations.

  - iii. The Group's overall risk management policy focuses on the unpredictable item of financial markets and seeks to reduce the risk that potentially pose adverse effects on the Group's financial position and financial performance.

  - iv. For the information on the derivative financial instruments that the Group enters into, please refer to Note 6(2).

(c) Management system:
- i. Risk management is executed by the Group’s finance department by following policies approved by the Board. Through cooperation with the Group's operating units, finance department is responsible for identifying, evaluating and hedging financial risks.
- ii. The Board has a written policy covering overall risk management. It also has written policies covering specific issues, such as exchange rate risk, interest rate risk, credit risk, derivative and non-derivative financial instruments used, and the investment of excess working capital.
C. Significant financial risks and degrees of financial risks
(a) Market risk

i. Foreign exchange risk

(i) Nature:

The Group is a multinational group in the Electronics manufacturing services industry. Most of the exchange rate risk from operating activities come from:

a. Foreign exchange risk arises from different exchange rates to functional currency as the invoice dates of accounts receivable and payable denominated in non-functional foreign currency are different. Due to the characteristics of the subcontracting industry, the Company’s revenue and expenditures are mostly denominated in foreign currency. Thus, the remaining net foreign exchange risk is not material after offsetting assets and liabilities. Furthermore, although the variations in currencies of the Company’s certain foreign investments in emerging countries (i.e. Brazil, Mexico, etc.) are considered huge, the percentage of the investments is not significant and thus the Company’s foreign exchange risk can be maintained in the controllable range. (Note: The Group has several sites in various countries and thus is exposed to various foreign exchange risks. The main risk arises from USD and RMB.)
b. Except for the above transactions (operating activities) recognized in the income statement, assets and liabilities recognized in the balance sheet and the net investment in foreign operations also result in the exchange rate risk.

(ii) Management:

~104~

– F-105 –

a. For such risks, the Group has set up policies requiring companies in the Group to manage its exchange rate risks.
b. As to the exchange rate risk arising from the difference between various functional currencies and the reporting currency in the consolidated financial statements, it is managed by the Group’s finance department.
(iii) The source:
a. U.S. dollar and NT dollar:
- Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are converted into New Taiwan dollars.
b. U.S. dollar and RMB:
- Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are converted into RMB.
c. JPY and U.S. dollar:
- Foreign exchange risk arises primarily from yen-denominated loans, accounts payable and other payables, which results in exchange loss or gain when they are converted into U.S. dollar.
d. JPY and NT dollar:
- Foreign exchange risk arises primarily from yen-denominated loans, accounts payable and other payables, which results in exchange loss or gain when they are converted into New Taiwan dollars
(iv) Extent

The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

~105~

– F-106 –

(Foreign currency: Functional currency) Financial assets Monetary items USD : NTD USD : RMB JPY : USD JPY : NTD Net effect in consolidated entities with foreign currency USD : NTD Financial liabilities Monetary items USD : NTD USD : RMB JPY : USD JPY : NTD (Foreign currency: Functional currency) Financial assets Monetary items USD : NTD USD : RMB JPY : USD RMB : NTD Net effect in consolidated entities with foreign currency USD : NTD Financial liabilities Monetary items USD : NTD USD : RMB JPY : USD JPY : NTD	December31,2020
	Foreign currency amount Exchange Book value (in thousands) rate (NTD) 24,831,785 $ 28.48 707,209,237 $ 21,170,183 6.5402 602,926,812 40,787,990 0.0097 11,269,722 19,401,596 0.2763 5,360,661 48,918,393 $ 28.48 1,393,195,833 $ 20,957,158 $ 28.48 596,859,860 $ 12,329,569 6.5402 351,146,125 8,459,700 0.0097 2,337,415 1,329,434 0.2763 367,323 December31,2019
	Foreign currency amount Exchange (in thousands) rate 15,262,225 $ 29.98 29,249,562 6.9638 91,298,663 0.0092 86,240,866 0.2760 44,243,649 $ 29.98 11,994,176 $ 29.98 16,165,597 6.9638 59,940,153 0.0092 602,063 0.2760

~106~

– F-107 –

(v) Total exchange gain (loss), including realised and unrealised arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2020 and 2019 amounted to ($1,671,581) and ($4,509,384), respectively.
ii. Equity securities
(i) Nature

The Group primarily invests in domestic and foreign publicly traded equity instruments, which are accounted for as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. The price of those equity instruments will be affected by the uncertainty of the future value of the investment.

(ii) Extent

If such equity instruments’ price rise or fall by 1%, with all other factors held constant, the impact on equity due to investments in equity instruments measured at fair value through other comprehensive income, and investments in equity at fair value through profit or loss are $902,620 and $815,515 for the years ended December 31, 2020 and 2019, respectively.

iii. Futures
(i) Nature

The Group is exposed to commodity price risk because of future commodity price fluctuations.

(ii) Extent

The Group sets stop-loss amount to reduce its futures market risk whenever futures contracts are entered into. As a result, there is no significant futures market risk.

iv. Cash flow and fair value interest rate risk

The Group's interest rate risk arises from long-term loans or corporate bonds with floating rates. The Company's long-term corporate bonds with fixed interest rates do not have interest rate risk or fair value interest rate risk.

Long-term loans or corporate bonds with floating rates expose the Group to cash flow interest rate risk, but most of the risks are offset by cash and cash equivalents with variable interest rates.

(b) Credit risk

i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments.

According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. The Group assesses the credit quality of the customers by taking into account their financial position, past experience

~107~

– F-108 –

and other factors to conduct its internal risk management.

Individual risk limits are set based on internal or external ratings in accordance with limits set by the board of directors. The utilisation of credit limits is regularly monitored. Major credit risk arises from cash and cash equivalents, derivative financial instruments and other financial instruments. The counterparties are banks with good credit quality and financial institutions with investment grade or above and government agencies, so there is no significant compliance concerns and credit risk.

ii. The Group assumes that if the contract payments were past due over 90 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition; if past due over 360 days, a default has occurred.
iii. The following indicators are used to determine whether the credit impairment of debt instruments has occurred:
(i) It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;
(ii) Default or delinquency in interest or principal repayments;
(iii) Adverse changes in national or regional economic conditions that are expected to cause a default.
iv. The aging analysis of notes receivable and accounts receivable (including related parties) is as follows:

parties) is as follows:
Not past due Up to 90 days 91 to 180 days 181 to 270 days 271 to 360 days Over 361 days	December31,2020 932,168,658 $ 10,579,283 652,993 476,187 232,608 5,319,436 949,429,165 $	December31,2019
		1,001,387,391 $ 24,455,224 4,753,352 2,567,063 1,172,202 3,505,105
		1,037,840,337 $

The above aging analysis is based on days overdue.

v. The Group applies the following approaches to assess the expected credit losses (ECLs) of accounts receivable:
(i) Assess the ECLs on an individual basis if a significant default has occurred to certain customers.
(ii) Classify the other customers’ accounts receivable based on the Group’s credit rating standards and estimates the ECLs using loss rate methodology or provision matrix.
(iii) Adjust the loss rates constructed from historical and recent information by taking into account the business cycle indicators of the National Development Council and forecasts of the Basel Committee on Banking Supervision.

~108~

– F-109 –

(iv) As of December 31, 2020 and 2019, the individual provision for impairment of accounts receivable using loss rate methodology or provision matrix is as follows:

~109~

– F-110 –

Total			949,429,165	6,944,771	Total			1,037,840,337	5,807,295
			$	$				$	$
Group 4		0.06%~41.63%	12,527,597	697,939	Group 4		0.02%~69.30%	38,743,102	741,347
			$	$				$	$
Group 3		0.09%~37.55%	32,850,225	464,359	Group 3		0.01%~7.05%	23,888,891	384,193
			$	$				$	$
Group 2		0.0875%	213,283,588	186,623	Group 2		0.07%	216,730,417	145,002
			$	$				$	$
Group 1		0.0375%	685,428,941	257,036	Group 1		0.03%	754,159,158	217,984
			$	$				$	$
Individual		100%	5,338,814	5,338,814	Individual		100%	4,318,769	4,318,769
			$	$				$	$
	December 31, 2020	Expected loss rate	Total book value	Loss allowance		December 31, 2019	Expected loss rate	Total book value	Loss allowance

– F-111 –

Group 1: Standard Poor’s, Fitch’s, or Moody’s rating of A-level, or rated as A-level in accordance with the Group’s credit policies for those that have no external credit ratings.
Group 2: Standard Poor’s or Fitch’s rating of BBB, Moody’s rating of Baa, or rated as B or C in accordance with the Group’s credit policies for those that have no external credit ratings.
Group 3: Standard Poor’s or Fitch’s rating of BB + and below, or Moody’s rating of Ba1 and below.
Group 4: Rated as other than A, B, or C in accordance with the Group’s credit policies for those that have no external credit ratings.
vi. As of December 31, 2020 and 2019, the Group assessed the impairment loss arising from other receivable - related parties and recognized allowance for uncollectible accounts at $1,293,174 and $762,872, respectively.
vii. Movements in relation to the Group’s loss allowance for accounts receivable (including related parties) is as follows:

At January 1 Impairment loss Effect of foreign exchange ( At December 31	2020 6,570,167 $ 1,705,559 37,781) ( 8,237,945 $	2019 4,748,936 $ 1,876,660 55,429) 6,570,167 $

(c) Liquidity risk
i. Cash flow forecasting is performed by each operating entity of the Group and aggregated by Group treasury. The Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal requirements, for example, currency restrictions.
ii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

~111~

– F-112 –

Beside those mentioned above, other non-derivative financial liabilities are to be settled within one year. Derivative financial liabilities : December 31, 2020 Less than 1 year Between 1 to 2 years Between 2 to 5 years Over 5 years Total Bonds payable 42,288,000 $ 36,785,978 $ 92,510,640 $ 72,774,000 $ 244,358,618 $ Long-term loans 14,728,908 19,678,483 8,330,826 3,596,443 46,334,660 Lease liabilities 9,058,272 7,792,086 9,880,171 5,607,047 32,337,576 66,075,180 $ 64,256,547 $ 110,721,637 $ 81,977,490 $ 323,030,854 $ December 31, 2019 Less than 1 year Between 1 to 2 years Between 2 to 5 years Over 5 years Total Bonds payable 38,546,364 $ 41,688,000 $ 96,026,436 $ 38,536,000 $ 214,796,800 $ Long-term loans 14,553,911 13,713,380 19,357,935 8,551,745 56,176,971 Lease liabilities 7,131,038 6,112,704 8,416,686 6,451,935 28,112,363 60,231,313 $ 61,514,084 $ 123,801,057 $ 53,539,680 $ 299,086,134 $ December 31, 2020 Less than 1 year Between 1 to 2 years Between 2 to 5 years Over 5 years Total Forward exchange contracts 170,003 $ - $ - $ - $ 170,003 $ Cross currency swap contracts 2,121,218 - - - 2,121,218 2,291,221 $ - $ - $ - $ 2,291,221 $ December 31, 2019 Less than 1 year Between 1 to 2 years Between 2 to 5 years Over 5 years Total Forward exchange contracts 43,180 $ - $ - $ - $ 43,180 $ Cross currency swap contracts 1,838,505 - - - 1,838,505 1,881,685 $ - $ - $ - $ 1,881,685 $	170,003 $ 2,121,218	2,291,221 $	Total	43,180 $ 1,838,505	1,881,685 $

– F-113 –

(3) Fair value information

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks is included in Level 1.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group’s investment in derivative instruments is included in Level 2.
Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s equity investment without active market is included in Level 3.
B. Fair value information of investment property at cost is provided in Note 6(12).
C. Financial instruments not measured at fair value:
(a) Except for those listed in the table below, the carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, notes and accounts receivable, other receivables, financial assets at amortised cost (excluding bank debentures), short-term loans, notes and accounts payable, other payables and long-term loans approximate to their fair values.

December 31, 2020

		December	31,2020
Financial liabilities: Bonds payable Financial liabilities: Bonds payable	BookValue 244,358,618 $		FairValue
		Level 1 - $ December	Level 2 241,667,699 $ 31,2019	Level3
				- $

	BookValue 214,796,800 $		FairValue
		Level 1 - $	Level 2 210,235,461 $	Level3
				- $

(b) The methods and assumptions of fair value measurement are as follows:
- Bonds payable: Regarding the bonds issued by the Group, the coupon rate approximates to the current market rate. Therefore, the fair value is estimated using the present value of the expected cash flows and market interest rate.
D. The related information on financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2020 and 2019 is as follows:
(a) The related information on nature of the assets and liabilities is as follows:

~113~

– F-114 –

December31,2020 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Equity instruments Beneficiary certificates Derivatives Financial assets at fair value through other comprehensive income Equity instruments Accounts receivable expected factoring Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Derivatives December31,2019 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Equity instruments Beneficiary certificates Derivatives Financial assets at fair value through other comprehensive income Equity instruments Accounts receivable expected factoring Total Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Derivatives	Level 1 1,754,913 $ 535,149 - 65,599,401 - 67,889,463 $ - $ ( Level 1 12,744,243 $ 639,411 - 45,226,243 - 58,609,897 $ - $ (	Level 2 - $ 15 6,800,300 - 109,052,508 115,852,823 $ 2,291,221) $ Level 2 - $ 268 8,682,531 - 108,993,188 117,675,987 $ 1,881,685) $	Level3 Total 1,433,017 $ 3,187,930 $ 79,443,386 79,978,550 - 6,800,300 21,474,688 87,074,089 - 109,052,508 102,351,091 $ 286,093,377 $ - $ 2,291,221) ($ Level3 Total - $ 12,744,243 $ 63,546,321 64,186,000 - 8,682,531 23,580,974 68,807,217 - 108,993,188 87,127,295 $ 263,413,179 $ - $ 1,881,685) ($

~114~

– F-115 –

(b)The methods and assumptions the Group used to measure fair value are as follows:
i. The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Open-end fund Market quoted price Closing price Net asset value

ii. Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques method can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
iii. When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.
iv. The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.
v. The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
vi. The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.
E. For the years ended December 31, 2020 and 2019, there was no transfer between Level 1 and Level 2.
F. The following chart is the movement of Level 3 for the years ended December 31, 2020 and 2019:

~115~

– F-116 –

			2020			2019
At January 1		$	87,127,295		$	76,982,820
Gains and losses recognised in profit or loss			8,074,864	(		6,247,376)
Gains and losses recognised in other
comprehensive income	(		353,766)	(		5,302,440)
Acquired in the period			17,915,754			22,679,505
Sold in the period	(		8,629,617)	(		87,708)
Transfer in to Level 3			1,861,689			40,196
Effect of exchange rate changes	(		3,645,128)	(		937,702)
At December 31		$	102,351,091		$	87,127,295

G. Investment segment is in charge of valuation procedures for fair value measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value. Investment segment sets up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensures compliance with the related requirements in IFRS.
H. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

value measurement:	easurement:
Fair value at December 31,2020 Valuation technique Non-derivative equity instrument: Unlisted 874,328 $ Market shares comparable companies	Fair value at December 31,2020	Valuation technique	Significant unobservableinput	Range (weighted average) 0.24~20.86 (12.88) 18.07 1.43~1.88 (1.88) 20.00%~ 35.00% (26.09%) 1.89~14.32 (14.32)	Relationship of inputs to fairvalue
			Revenue multiple Profit after tax multiple Net value multiple Discount for lack of marketability Value to EBIT multiple		The higher the revenue multiple, profit after tax, net value multiple amd value to EBIT multiple, the higher the fair value; the higher the discount for lack of marketability, the lower the fair value.

~116~

– F-117 –

Fair value at December 31,2020 Valuation technique Non-derivative equity instrument: Unlisted 8,021,999 $ Stock value shares in complex capital structure 6,047,203 $ Net assets value 7,964,175 $ Recent non-active market price 26,107,499 $ Net assets value 47,528,449 $ 5,807,438 $ Recent non-active market price Stock value in complex capital structure Venture capital shares and private equity fund investment	Fair value at December 31,2020	Valuation technique	Significant unobservableinput	Range (weighted average) Relationship of inputs to fairvalue 14.18%~ 27.28% (18.06%) 2% 25.04%~65.96% (33.76%) 10.00%~20.00% (15.10%) 10.00%~15.00% (10.39%) 39.11%~115.07% (51.76%) 0.24~31.81 (4.00) 7.08 9.46%~25% (9.52%) 5.00%~15.00% (9.26%) Not applicable Not applicable 9.46%~14.74% (11.79%) 6.57%~19.95% (9.26%) 5% 21.88% Not applicable Not applicable The higher the long-term revenue growth rate, long- term pre-tax operating margin, value to EBIT multiple and revenue multiple, expected equity value volatility, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and weighted average cost of capital, the lower the fair value. The higher the discount for lack of marketability and discount for lack of control, the lower the fair value. The higher the discount for lack of marketability, discount for lack of control, the lower the fair value. The higher the expected equity value volatility, the higher the fair value; the higher the discount for lack of marketability, the lower the fair value.
			Weighted average cost of capital Long-term revenue growth rate Long-term pre-tax operating margin Discount for lack of marketability Discount for lack of control Expected equity value volatility Revenue multiple Value to EBIT multiple Discount for lack of marketability Discount for lack of control Not applicable Discount for lack of marketability Discount for lack of control Discount for lack of marketability Expected equity value volatility Not applicable

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Fair value at December 31, 2019 Valuation technique Non-derivative equity instrument: Unlisted 408,733 $ Market shares comparable companies 15,026,251 $ Stock value in complex capital structure 6,302,878 $ Recent non-active market price 65,389,433 $ Net assets value Venture capital shares and private equity fund investment	Fair value at December 31, 2019	Valuation technique	Significant unobservableinput	Range (weighted average)	Relationship of inputs to fairvalue
			Revenue multiple Profit after tax multiple Net value multiple Discount for lack of marketability Weighted average cost of capital Long-term revenue growth rate Long-term pre-tax operating margin Discount for lack of marketability Discount for lack of control Expected equity value volatility Revenue multiple Value to EBIT multiple Not applicable Discount for lack of marketability Discount for lack of control	0.53~9.28 (2.05) 12.53~19.42 (15.73) 1.8 15%~35% (23.58%) 14.61%~15.52% (14.79%) 2% 23.53%~29.72% (28.52%) 5%~35% (18.12%) 10%~15% (14.6%) 23.68%~110.82% (42.11%) 0.28~12.75 (2.46) 6.7 Not applicable 4.49%~10% (4.85%) 3.97%~15% (4.62%)	Not applicable The higher the revenue multiple,value to EBIT multiple and net value multiple, the higher the fair value; the higher the discount for lack of marketability, the lower the fair value. The higher the long-term revenue growth rate, long-term pre-tax operating margin, revenue multiple and value to EBIT multiple, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and weighted average cost of capital, the lower the fair value. The higher the discount for lack of marketability and lack of control, the lower the fair value.

I. The Group has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect on profit or loss or on other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

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December 31, 2020

Recognised in Recognised in other profit or loss comprehensive income Favourable Unfavourable Favourable Unfavourable Input Change change change change change Financial assets Equity Discount for ±1% instruments lack of and control and beneficiary marketability cereificates $ 811,840 ($ 811,869) $ 168,231 ($ 164,527) December 31, 2019 Recognised in Recognised in other profit or loss comprehensive income Favourable Unfavourable Favourable Unfavourable Input Change change change change change Financial assets Equity Discount for ±1% instruments lack of and control and beneficiary marketability cereificates $ 688,468 ($ 688,468) $ 148,223 ($ 148,057)

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.
B. Provision of endorsements and guarantees to others: Please refer to table 2.
C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.
D. Acquisition or sale of the same security with the accumulated cost reaching NT$300 million or 20% of paid-in capital or more: Please refer to table 4.
E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.
F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 5.
H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 6.
I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Note 6(2).

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J. Significant inter-company transactions during the reporting periods: Please refer to table 7.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 8.

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 9.
B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: The Company appointed Foxconn (Far East) Limited’s Mainland investee to render processing services and to trade. The transactions were eliminated in the consolidated financial statements. For significant transactions of processing services, trading, receivables and payables, endorsements and guarantees or collaterals provided, and financing, please refer to Note 13(1) A, B, G and H.

(4) Major shareholders

For the names, number and ratio of shares held by shareholders holding over 5% of the Company’s shares: Please refer to Table 11.

14. SEGMENT INFORMATION

(1) General information

The Group has adopted eCMMS (E-enabled Components, Modules, Moves & Services) strategy, and provided a one-stop shop to its customers, which are primarily in the 3C industries, with a total solution for design, development, engineering, procurement, manufacturing, logistics and after-sales service. The Group segregates operating segments from both a customer service and product perspective.

In accordance with IFRS No. 8, “Operating Segments”, the Group has determined the operating segments and reportable operating segments. Operating segments which have met certain quantitative threshold are disclosed individually or aggregately as reportable operating segments; other segments which have not met the quantitative threshold are included in the ‘all other segments’. The Group has identified the electronic manufacturing integrated services department, which provides global 3C production-related one-stop services, as a reportable operating segment.

(2) Measurement of segment information

The chief operating decision maker assesses performance and allocates resources of the operating segments based on each operating segment’s revenue and operating income after adjusting the internal costs and allocated expenses. Except for the recognition of internal costs which shall be in accordance with the Group’s related internal calculation basis, the operating segments’ accounting policies are the same as disclosed in Note 4.

(3) Segment information

The financial information of reportable segments provided to chief operating decision maker is as

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follows:

follows:
Net external revenue Revenue from internal customers Segment revenue Segment profit	Years endedDecember31,
	2020 Electronic Manufacturing IntegrationService 5,519,321,881 $ 321,786,196 5,841,108,077 $ 139,694,514 $	2019
		Electronic Manufacturing IntegrationService
		5,114,320,217 $ 307,961,623
		5,422,281,840 $
		151,924,612 $

(4) Reconciliation for segment income (loss)

Sales between segments are carried out at arm’s length. The revenue from external parties reported to the chief operating decision-maker is measured in a manner consistent with that in the income statement.

A reconciliation of reportable segment profit or loss to the profit before tax and discontinued operations for the years ended December 31, 2020 and 2019 is provided as follows:

Operatingrevenue Total reported segment revenue Other operating segment revenue Elimination of intersegment revenue ( Total corporate revenue Profit andloss Profit of reported segment Profit of other operating segments Elimination of intersegment transactions and internal costs and allocated expenses adjustments ( Profit before income tax	2020 2019 5,841,108,077 $ 5,422,281,840 $ 140,062,007 73,929,968 623,147,019) 153,400,813) ( 5,358,023,065 $ 5,342,810,995 $ Years endedDecember31, 2020 2019 139,694,514 $ 151,924,612 $ 10,002,197 7,120,189 4,224,477) 4,833,146 145,472,234 $ 163,877,947 $ Years endedDecember31,
	2020 139,694,514 $ 10,002,197 4,224,477) 145,472,234 $

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– F-122 –

(5) Geographical information

Year ended December 31, 2020 Year ended December 31, 2019

U.S.A Ireland China Singapore Japan Taiwan Others	Revenue 1,731,206,941 $ 1,689,433,499 509,164,254 370,084,875 223,293,804 137,320,445 697,519,247 5,358,023,065 $		Non-current assets 23,037,241 $ 1,612 264,875,861 43,967 403,507 52,808,106 63,768,396 404,938,690 $	Revenue 1,743,726,612 $ 1,423,594,027 560,194,840 501,088,752 196,914,882 110,917,511 806,374,371 5,342,810,995 $		Non-current assets
						17,469,867 $ 1,201 271,073,387 7,780 399,603 49,882,132 57,085,187 395,919,157 $

(6) Major customer information

Major customer information
Client E	Years endedDecember31,
	2020 Revenue (in million) 2,891,396 $	2019
		Revenue (in million)
		2,680,870 $

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– F-123 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

INDEPENDENT AUDITORS’ REPORT

DECEMBER 31, 2019 AND 2018

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INDEPENDENT AUDITORS’ REPORT TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of Hon Hai Precision Industry Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of Hon Hai Precision Industry Co., Ltd. and its subsidiaries (the “Group”) as at December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, 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 the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audit of the consolidated financial statements as of and for the year ended December 31, 2019 in accordance with “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants”, “Rule No. Financial-Supervisory-Securities-Auditing1090360805 issued by the Financial Supervisory Commission on February 25, 2020” and generally accepted auditing standards in the Republic of China (R.O.C GAAS); and in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (R.O.C GAAS) for our audit of the consolidated financial statements as of and for the year ended December 31, 2018. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group

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in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the reports of other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the year 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters on the consolidated financial statements for the year ended December 31, 2019 were as follows:

Cut-off of hub sales revenue

Description

Refer to Note 4(35) for accounting policies on revenue recognition.

The Group recognises revenue upon acceptance of the goods by the customers (when control of the products is transferred) if picked up from hub. For pick-ups from hub, the Group recognises sales revenue based on movements of inventories contained in the statements or other information provided by the hub custodians. As the hubs are located around the world with numerous custodians, the frequency and contents of statements provided by custodians vary, and the process of revenue recognition involves numerous manual procedures, these factors may potentially result in inaccurate timing of sales revenue recognition and discrepancy between the physical inventory the quantities in the hubs and quantities as reflected in accounting records.

As there are numerous daily sales revenue transactions from hubs and the transaction amounts prior to and after the balance sheet date are significant to the financial statements, cut-off of hub sales revenue was identified as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

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A. Assessed and tested the appropriateness of internal controls over cut-off of hub sales revenue for a specific period prior to and after the balance sheet date, including agreeing to respective supporting documents provided by hub custodians, and validated the proper timing of recognising movements of inventories and respective transfer of cost of goods sold.
B. Confirmed or conducted physical count of inventory quantities held at hubs and agreed to accounting records.

Allowance for inventory valuation losses

Description

Refer to Note 4(14) for accounting policies on inventory valuation, Note 5(2)3 for uncertainty of accounting estimates and assumptions in relation to inventory valuation losses, and Note 6(7) for details of inventories. As at December 31, 2019, the Group’s inventories and allowance for inventory valuation losses amounted to NT$539,619,235 thousand and NT$23,847,058 thousand, respectively.

The Group is primarily engaged in manufacturing and sales of 3C electronic products. Due to rapid technological innovations, short lifespan of electronic products and fluctuations in market prices, there is a higher risk of inventory losses arising from market value decline or obsolescence. The Group recognises inventories at the lower of cost and net realisable value, and the net realisable value is estimated based on historical experience. An allowance for inventory valuation losses is provided for those inventories aged over a certain time period and those individually identified as obsolete or damaged.

As the amounts of inventories are material, the types of inventories vary, and the estimation of net realisable value for individually obsolete or damaged inventories is subject to management’s judgment, we consider allowance for inventory valuation losses a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in relation to the provision for inventory valuation losses for individually obsolete or damaged inventories:

A. Ensured consistent application of accounting policies in relation to allowance for inventory valuation losses and assessed the reasonableness of these policies.

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B. Validated the appropriateness of system logic of inventory aging report utilised by management to ensure proper classification of inventories aged over a certain period of time.
C. Evaluated the reasonableness of inventories individually identified as obsolete or damaged by checking the related supporting documents and comparing with the information obtained from physical inventory.
D. Discussed with management the net realisable value of inventories aged over a certain period of time and individually identified as obsolete or damaged, validated respective supporting documents and reperformed the calculation.

Financial assets and financial liabilities offsetting agreement with financial institutions

Description

Refer to Note 4(28) for accounting policies on offsetting of financial instruments, Note 5(1)2 for significant judgement on applying accounting policies on offsetting of financial instruments, and Note 6(16) for details of offsetting of financial instruments. As of December 31, 2019, the financial instruments that were offset amounted to NT$1,424,606,382 thousand.

The Group has entered into financial assets and financial liabilities offsetting agreements, which are in compliance with IAS 32, ‘Financial instruments: Presentation’, whereby financial assets and liabilities are offset and reported in the net amount since the Group has a legally enforceable right to offset the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

As the determination of whether the Group meets the criteria for offsetting prescribed in IAS 32, ‘Financial instruments: Presentation’ is subject to management’s judgment, and the Group has entered into various individually significant financial assets and financial liabilities offsetting agreements, which would have material effect on the financial statements should the financial assets and financial liabilities be presented separately, we consider offsetting of financial assets and liabilities a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Assessed and tested internal controls over financial assets and financial liabilities offsetting

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agreements with financial institutions, including control processes in determining whether such agreements meet the criteria under IAS 32, ‘Financial instruments: Presentation’, and ascertained whether the offsetting made in the financial statements was properly approved and accounted for in compliance with the guidance in IAS 32.

B. Obtained and reviewed the terms of the above agreements and confirmed whether the criteria under IAS 32, ‘Financial instruments: Presentation’ were met and the accounting treatment was prescribed in the guidance.
C. Confirmed the existence and the rights and obligations of financial assets and financial liabilities offsetting agreements with respective financial institutions.

Impairment assessment on goodwill arising from acquisition of Belkin International Inc.

(“Belkin”).

Description

Refer to Note 4(21) for the accounting policy on impairment assessment of goodwill, Note 5(2)2 for the accounting policy on impairment of non-financial assets, critical accounting estimates and assumptions of impairment assessment and Note 6(13) for the details of impairment loss.

As of December 31, 2019, the Group had goodwill arising from acquisition of 100% equity interest in Belkin for NT$13,563,157 thousand.

Impairment assessment was performed based on the value in use calculation using the discounted cash flow model to determine the recoverable amounts of the cash-generating unit (“CGU”). Significant judgment and estimates about the key assumptions including revenue growth rate, long-term growth rate and discount rate applied to future cash flow forecast are required and will influence the collectible amount and the impairment of goodwill significantly due to the significant judgments and inherent uncertainty. Therefore, we consider the impairment assessment on goodwill arising from acquisition of Belkin International Inc. and its subsidiaries a key audit matter. How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

A. Tested the underlying calculations used in the valuation mode.
B. Involved valuation specialists to assess the reasonableness of the key assumptions, including

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expected growth rate and discount rate used as follows:

(a) Evaluated the assumptions used, mainly revenue growth rate and long-term growth rate within the impairment assessment by comparing them to historical results and economic and industry forecast;
(b) Benchmarked the discount rate range which is used in determining the recoverable amount against certain market data and industry research; and
(c) Performed sensitivity analysis over key assumptions in the model in order to assess the potential impact of a range of possible outcomes.

Impairment assessment of operating assets of Asia Pacific Telecom Co., and its subsidiaries

Description

Refer to Notes 4(16) and (20) for accounting policies applied to property, plant and equipment and intangible assets, Note 4(21) for accounting policies on impairment assessment of non-financial assets, Note 5(2)1 for critical accounting estimates and key sources of assumption uncertainty applied to property, plant and equipment, intangible assets and other operating assets, and Notes 6(9), (13) and (14) for details of account items.

The subsidiaries’ operating assets represent a significant percentage of the Group’s total assets, and the valuation of these assets is affected by the overall industry development and the Group’s operations. The Group used the value in use to estimate the recoverable amount which involves management’s judgements, such as the estimation of future cash flow and determination of discount rate, etc. Management’s judgment mentioned above involve future years’ forecast which are highly uncertain and have a material impact to the estimation of value in use. Therefore, the impairment assessment of operating assets was identified as a key audit matter.

How our audit addressed the matter

We performed the following key audit procedures in respect of the above key audit matter:

A. We assessed the expected future cash flows prepared by management and its decision process, compared and assessed the consistency of the expected future cash flows with operation plans.
B. We also obtained and assessed the information provided by the Group and the valuation report

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prepared by external professional valuers engaged by the Group.

(a) Compared the parameters used in predicting future cash flows with historical experience, economic and industrial forecasts.
(b) Compared the parameters used in determining discount rate with the assumptions on capital cost of cash generating units, and with returns rate on similar assets.
(c) Verified the valuation model calculation.
(d) Assessed the future cash flow sensitivity analysis prepared by management based on the alternative hypothesis using different discount rates, and confirmed whether management has appropriately considered the possible impact on the estimation uncertainty of impairment assessment.

Other matter – Reference to audits of other independent accountants

We did not audit the financial statements of certain consolidated subsidiaries. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the consolidated financial statements relative to these consolidated subsidiaries was based solely on the reports of other independent accountants. Total assets of those consolidated subsidiaries amounted to NT$208,374,823 thousand and NT$271,749,166 thousand, constituting 6.27% and 8.04% of the consolidated total assets as of December 31, 2019 and 2018, respectively, and total operating revenues amounted to NT$458,130,373 thousand and NT$458,975,381 thousand, constituting 8.57% and 8.67% of the consolidated total operating revenues for the years then ended, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of Hon Hai Precision Industry Co., Ltd. as at and for the years ended December 31, 2019 and 2018.

Responsibilities of management and those charged with governance for the consolidated financial statements

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Those charged with governance, including the Audit Committee, are responsible for overseeing the Group’s financial reporting process.

Independent accountant’s 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 a 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 ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

A. 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

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resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

B. 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 controls.
C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
D. 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 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 report. However, future events or conditions may cause the Group to cease to continue as a going concern.
E. 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.
F. Obtain sufficient appropriate audit evidence regarding the financial information of the 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.

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related safeguards.

Hsu, Yung-Chien Chou, Chien-Hung

for and on behalf of PricewaterhouseCoopers, Taiwan

March 30, 2020

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HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Assets	December31,2019 December31,2018 AMOUNT % AMOUNT % � �� �� �� �� �� � �� � �� � �� � �� �� �� �� �� � �� � �� � �� � �� � �� � �� �� �� �� �� � �� � �� �� �� �� �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � �� � � � �� � �� � �� � �� � �� � �� � �� � �� � �� �� �� �� � �� �� �� ��	December31,2018
	AMOUNT � �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� � ��	%
Current assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1136 Financial assets at amortised cost, net - current 1170 Accounts receivable, net 1180 Accounts receivable - related parties 1200 Other receivables 1210 Other receivables - related parties 130X Inventory 1410 Prepayments 11XX Total current assets Non-current assets 1510 Financial assets at fair value through profit or loss - non-current 1517 Financial assets at fair value through other comprehensive income - non-current 1535 Financial assets at amortised cost, net - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1755 Right-of-use assets 1760 Investment property - net 1780 Intangible assets 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets		�� � � �� � � � �� �
		��
		� � � � � � � � � �
		��
		��

(Continued)

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HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

				December31,2019			December31,2018
	Liabilities and Equity	Notes		AMOUNT	%		AMOUNT	%
Current liabilities 2100 Short-term loans 6(16) � �� �� �� ��
2110	Short-term notes and bills payable	6(15)	��			� �� �
2120	Financial liabilities at fair value	6(2)
	through profit or loss - current		��			� �� �
2170	Accounts payable		��		�� �� ��
2180	Accounts payable - related parties	7	��			� �� �
2200	Other payables	6(17) and 7	��			� �� �
2230	Current tax liabilities	6(36)	��			� �� �
2250	Provisions for liabilities - current	6(24)	��			� �� �
2280	Current lease liabilities	7	��			� � �
2300	Other current liabilities	6(18)	��			� �� �
21XX	Total current liabilities		��		�� �� ��
Non-current liabilities 2500 Financial liabilities at fair value 6(2)
	through profit or loss - non-current		�			� �� �
2530	Corporate bonds payable	6(19)	��			� �� �
2540	Long-term loans	6(20)	��			� �� �
2550	Provisions for liabilities - non-current	6(24)	��			� � �
2570	Deferred income tax liabilities	6(36)	��			� �� �
2580	Non-current lease liabilities	7	��			� � �
2600	Other non-current liabilities	6(23)	��			� �� �
25XX	Total non-current liabilities		��			� �� �
2XXX	Total liabilities		��		�� �� ��
	Equity Equity attributable to owners of
parent Share capital 6(25) 3110 Share capital - common stock �� � �� �
Capital reserve 6(26) 3200 Capital surplus �� � �� �
Retained earnings 6(27) 3310 Legal reserve �� � �� �
3320	Special reserve		��			� �� �
3350	Unappropriated retained earnings		��		�� �� ��
Other equity interest 6(28) 3400 Other equity interest � �� �� �� �
3500	Treasury stocks	6(25)	� ��			�� ��		�
31XX	Equity attributable to owners of
	the parent		��		�� �� ��
36XX	Non-controlling interest	6(29)	��			� �� �
3XXX	Total equity		��		�� �� ��
Commitments and Contingent Liabilities 9 Subsequent Events 11 3X2X Total liabilities and equity � �� �� ��

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

~13~

– F-136 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

Items

YearendedDecember31
2019
2018
Notes
AMOUNT
%
AMOUNT
%
6(30) and 7

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4000
Operating revenue
5000
Operating costs
5900
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative
expenses
6300
Research and development
expenses
6000
Total operating expenses
6900
Operating profit
Non-operating income and
expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of profit of associates and
joint ventures accounted for
under equity method
7000
Total non-operating inocme and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year

(Continued)

~14~

– F-137 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

					YearendedDecember31	YearendedDecember31	YearendedDecember31
				2019			2018
	Items	Notes		AMOUNT	%		AMOUNT	%
	Other comprehensive income Components of other
	comprehensive income that will
not reclassified to profit or loss 8311 Remeasurement of defined 6(21)
	benefit plans		�	��		�	�� �
8316	Unrealised gain (loss) on	6(3)(28)(29)
	valuation of financial assets at
	fair value through other
	comprehensive income		�� ��				��	�
8320	Share of other comprehensive	6(28)
	income (loss) of associates and
	joint ventures accounted for
	using equity method		�� ��				��	�
8349	Income tax related to components	6(36)
	of other comprehensive income
	that will not be reclassified to
	profit or loss		�� ��				��	�
8310	Other comprehensive income
	(loss) that will not be
	reclassified to profit or loss		�� ��				��	�
	Components of other
	comprehensive income that will
be reclassified to profit or loss 8361 Financial statements translation 6(28)(29)
	differences of foreign operations		�	��		��	��	�
8370	Share of other comprehensive	6(28)
	loss of associates and joint
	ventures accounted for under
	equity method		�	��		��	��	�
8360	Other comprehensive loss that
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	loss		�	��		��	��	�
8300	Other comprehensive loss for the
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8500	Total comprehensive income for
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Profit attributable to: 8610 Owners of the parent �� � �� �
8620	Non-controlling interest		�� � �� �
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	Comprehensive income (loss)
attributable to: 8710 Owners of the parent �� � �� �
8720	Non-controlling interest		�� ��				��	�
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Earnings per share (in dollars) 6(37) 9750 Basic earnings per share �� ��
9850	Diluted earnings per share				��			��

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

~15~

– F-138 –

													Amount		��		��	��	��	��	��		�	�	��	��		��		��	��		�	��		��	��	��	��		�	�	��		��		��	��		�	��
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										Unrealized gain or	loss on	available-for-sale	financial assets		��		� ��	�	�	�	�		�	�	�	�		�		�	�		�	� �		� �	�	�	�		�	�	�		�		�	�		�	� �
HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY	YEARS ENDED DECEMBER 31, 2019 AND 2018	(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)	Equity attributable to owners of the parent	Retained Earnings Other equity interest	Total Unrealised	gains (losses)	from financial	Financial assets measured at	statements fair value through	translation other	Unappropriated differences of comprehensive	Legal reserve Special reserve retained earnings foreign operations income		�� � � �� �� � �		� � �� � ��	�� � �� � �� ��	� � �� � �	� � �� � �� ��	� � �� � �� ��		�� � � �� � �	� �� � �� � �	� � � �� � �	� � � � �		� � � � �		� � � � �	� � � � �		� � �� � � ��	�� �� �� �� ��		�� �� �� �� ��	� � �� � �	� � � �� �� ��	� � �� � �� ��		�� � � �� � �	� �� � �� � �	� � � �� � �		� � � �� � �		� � � � �	� � � � �		� � �� � � ��	�� �� �� �� ��
											Total capital	reserve, additional	paid-in capital		� ��		�	��	�	�	�		�	�	�	�		��		��	�		�	��		��	�	�	�		�	�	�		� ��		��	�		�	��
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													Notes							6(28)		6(27)				6(25)	6(26)		6(26)		6(29)	6(3)						6(28)		6(27)				6(26)		6(26)		6(29)	6(3)
														Year ended December 31, 2018	Balance at January 1, 2018	Effects of retrospective application and retrospective	restatement	Balance at January 1 after adjustments	Consolidated net income	Other comprehensive income (loss)	Total comprehensive income (loss)	Appropriations of 2017 earnings:	Legal reserve	Special reserve	Cash dividends	Capital reduction by cash	Changes in equity of associates and joint ventures	accounted for under the equity method	Adjustments arising from changes in percentage of	ownership in subsidiaries	Increase in non-controlling interests	Disposal of equity instruments at fair value through other	comprehensive income	Balance at December 31, 2018	Year ended December 31, 2019	Balance at January 1, 2019	Consolidated net income	Other comprehensive income (loss)	Total comprehensive income (loss)	Appropriations of 2018 earnings:	Legal reserve	Special reserve	Cash dividends	Changes in equity of associates and joint ventures	accounted for under the equity method	Adjustments arising from changes in percentage of	ownership in subsidiaries	Increase in non-controlling interests	Disposal of equity instruments at fair value through other	comprehensive income	Balance at December 31, 2019
																												– F-139					–

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation
Amortisation
Cost of share-based payments
Expected credit losses
Impairment loss
Loss on disposal of property, plant and equipment, net
Gain on financial assets or liabilities at fair value through
profit or loss, net
Share of profit of associates and joint ventures accounted for
using equity method
Gain on disposal of investments
Interest expense
Interest income
Dividend income
Changes in operating assets and liabilities
Changes in operating assets
Financial assets mandatorily measured at fair value through
profit or loss
Notes receivable
Accounts receivable
Accounts receivable due from related parties
Other receivables
Inventories
Prepayments
Changes in operating liabilities
Accounts payable
Accounts payable to related parties
Other payables
Provisions for liabilities
Other current liabilities
Accrued pension liabilities
Cash inflow generated from operations
Income taxes paid
Net cash flows from (used in) operating activities

Year ended December 31
Notes
2019
2018
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(Continued)

~17~ – F-140 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of financial assets at fair value through profit or loss
Net cash flow from acquisition of subsidiaries
Proceeds from disposal of financial assets at fair value through
profit or loss
Acquisition of financial assets at fair value through other
comprehensive income
Proceeds from disposal of financial assets at fair value through
other comprehensive income
Proceeds from disposal of financial assets at amortised
cost-current
Acquisition of financial assets at amortised cost-non-current
Proceeds from repayments of financial assets at amortised cost
Other receivable due from related parties
Acquisition of investments accounted for using equity method
Increase in other prepayment
Interest received
Dividends received
Acquisition of right-of-use assets
Acquisition of intangible assets
Decrease (increase) in other non-current assets
Other investing activities
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term loans
Increase in short-term notes and bills payable
Proceeds from issuing bonds
Repayments of bonds
Proceeds from long-term debt
Repayments of long-term debt
(Decrease) increase in other non-current liabilities
Payment of lease liabilities
Changes in non-controlling interests
Interest paid
Cash received from investment of non-controlling interests
Cash dividends paid
Capital reduction payments to shareholders
Net cash flows (used in) from financing activities
Net effect of changes in foreign currency exchange rates
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Year ended December 31
Notes
2019
2018
6(39)
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The accompanying notes are an integral part of these consolidated financial statements.

~18~

– F-141 –

HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

2. THE DATE OF AUTHORISATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORISATION

These consolidated financial statements were authorized for issuance by the Board of Directors on March 30, 2020.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

follows:
New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
Amendments to IFRS 9, ‘Prepayment features with negative compensation’ IFRS 16, ‘Leases’ Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’ IFRIC 23, ‘Uncertainty over income tax treatments’ Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. A. IFRS 16, ‘Leases’

(a) IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a ‘right-of-use asset’ and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or

~19~

– F-142 –

operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

(b) The Group has elected to apply IFRS 16 by not restating the comparative information (referred herein as the ‘modified retrospective approach’) when applying “IFRSs” effective in 2019 as endorsed by the FSC. Accordingly, the Group increased ‘right-of-use asset’ by $22,746,167, and increased ‘lease liability’ by $22,746,167 as of January 1, 2019. For the land use right obtained in China, the ‘right-of-use asset’ increased by $21,316,883 and other non-current assets decreased by $21,316,883 as of January 1, 2019.
(c) The Group has used the following practical expedients permitted by the standard at the date of initial application of IFRS 16:
i. Reassessment as to whether a contract is, or contains, a lease is not required, instead, the application of IFRS 16 depends on whether or not the contracts were previously identified as leases applying IAS 17 and IFRIC 4.
ii. The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
iii. The accounting for operating leases whose period will end before December 31, 2019 as short-term leases and accordingly, rent expense of $733,461 was recognised for the year ended December 31, 2019.
(d) The Group calculated the present value of lease liabilities by using the weighted average incremental borrowing interest rate ranging from 0.6680% to 4.90%.
(e) The Group recognised lease liabilities which had previously been classified as ‘operating leases’ under the principles of IAS 17, ‘Leases’. The reconciliation between operating lease commitments under IAS 17 measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate and lease liabilities recognised as of January 1, 2019 is as follows:

Operating lease commitments disclosed by applying IAS 17 as at December 31, 2018 Less: Short-term leases ( Total lease contracts amount recognised as lease liabilities by applying IFRS 16 on January 1, 2019 Incremental borrowing interest rate at the date of initial application Lease liabilities recognised as at January 1, 2019 by applying IFRS 16	26,367,551 $ 2,319,203) 24,048,348 0.892%~5.41% 22,746,167 $

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2020 are as follows:

~20~

– F-143 –

New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
Amendments to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of Material’ Amendments to IFRS 3, ‘Definition of a business’ Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmark reform’	January 1, 2020 January 1, 2020 January 1, 2020

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

as endorsed by the FSC are as follows:
New Standards,InterpretationsandAmendments	Effective date by International Accounting StandardsBoard
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’ IFRS 17, ‘Insurance contracts’ Amendments to IAS 1, ‘Classification of liabilities as current or noncurrent’	To be determined by International Accounting Standards Board January 1, 2021 January 1, 2022

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Compliance statement

(2) Basis of preparation

A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

~21~

– F-144 –

(b) Financial assets at fair value through other comprehensive income.
(c) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation.
B. The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements:
(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
(b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity.
(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss.

~22~

– F-145 –

B. Subsidiaries included in the consolidated financial statements:

Investor	Subsidiary	Main BusinessActivities		December 31, December 31, 2019 2018 100 100 100 100 100 100 100 100 100 100 Ownership (%)	Note
				December 31, 2019 100 100 100 100 100
Hon Hai Precision Industry Co., Ltd. " " " "	Foxconn (Far East) Limited and subsidiaries Foxconn Holding Ltd. and subsidiaries Hyield Venture Capital Co., Ltd. and subsidiaries Bao Shin International Investment Co., Ltd. and subsidiaries Hon Yuan International Investment Co., Ltd. and subsidiaries	Investment holdings in companies in Mainland China, Hong Kong, Europe and America primarily engaged in manufacturing, sale, research and development of computer cases, connectors and computer components Investment holdings in hi-tech companies in Asia-Pacific and America Venture capital investments in companies primarily engaged in manufacturing of automobile wires/ electronic devices and electronic components, and services of planning, advisory and business management Domestic investments in companies primarily engaged in manufacturing and sale of machinery and equipment Domestic investments in companies primarily engaged in manufacturing and sale of machinery and equipment			(c) (d) (e)

~23~

– F-146 –

Investor	Subsidiary	Main BusinessActivities		December 31, December 31, 2019 2018 Ownership (%) 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	Note
				December 31, 2019 100 100 100 100 100 100 100 100
Hon Hai Precision Industry Co., Ltd. " " " " " " "	Hon Chi International Investment Co., Ltd. and subsidiaries Lin Yih International Investment Co., Ltd. and subsidiaries Hon Hai/ Foxconn Logistics California LLC. Hon Hai/ Foxconn Logistics Texas LLC. Ambit International Ltd. and subsidiaries Foxconn Singapore (Pte) Ltd. and subsidiaries Foxconn International Inc. Altus Technology Inc.	Domestic investments in companies primarily engaged in software and electronic information application services, and manufacturing and sale of machinery and equipment Domestic investments in companies primarily engaged in manufacturing electronic components Logistics services in America Logistics services in America Investment holdings in companies in Mainland China primarily engaged in manufacturing and sale of power supply modules, application modules and network cables assemblies Asia-Pacific sales company and development of educational technology Patent applications in America Leasing services

~24~

– F-147 –

Investor	Subsidiary	Main BusinessActivities		December 31, December 31, 2019 2018 Ownership (%) 99.96 99.96 100 100 100 100 100 100 100 100 74.80 74.80 100 100 100 100	Note
				December 31, 2019 99.96 100 100 100 100 74.80 100 100
Hon Hai Precision Industry Co., Ltd. " " " " " " "	Premier Image Technology -Hong Kong Limited and subsidiaries Foxconn SA B.V. and subsidiaries Margini Holdings Limited and subsidiaries Jin Ji City Trading Co., Ltd. -Hong Kong Foxconn Holdings - Netherlands and subsidiaries Syntrend Creative Park Co., Ltd. Perobot Co., Ltd. ECMMS Precision Singapore Pte. Ltd.	Investment holdings in companies in Mainland China, primarily engaged in manufacturing and trading of portable cameras Investment holdings in Russian domestic sales companies Investment holdings in Vietnam export processing and construction services companies and Brazil domestic sales companies Investment holdings and reinvestment in businesses relating to robots, automatic equipment, moulds, parts, accessories and corresponding services Investment holdings in companies in Europe Retail of office machinery and equipment and electronic appliances, and information/software services Sale, software development, repair services, after-sale services and rental services of robots Manufacturing and sales of computers and data processing equipment

~25~

– F-148 –

Investor	Subsidiary	Main BusinessActivities		December 31, December 31, 2019 2018 Ownership (%) 100 100 100 100 41 20	Note
				December 31, 2019 100 100 41
Hon Hai Precision Industry Co., Ltd. " "	Fenix Brazilfenix Industria De Electronicos Ltda. Foxconn MOEBG Industria De Eletronicos Ltda.-Brazil Asia Pacific Telecom Co., Ltd.	Manufacturing WIFI cards and modules CFTV, DVR, bluetooth module, set-top box and optical network terminal Concession of telecom industry, storage of data and manufacturing of wire or wireless communication, installation of computer and satellite TV channels and telecom-related business, and providing 3rd-Generation of mobile phone services.			(a) (b) (f)

(a) The Company acquired 99.47% equity interest in Fenix Brazilfenix Industria De Electronicos Ltda. from its subsidiary, Bright Ever Holdings Limited, due to reorganization on June 4, 2018.
(b) The Company acquired 99.99% equity interest in Foxconn MOEBG Industria De Eletronicos Ltda.-Brazil from its subsidiary, Fentonbury Corporation-B.V.I., due to reorganization on July 1, 2018.
(c) The Company acquired 100% equity interest in Belkin International, Inc. on September 20, 2018, and was included in the consolidated financial statements since the acquisition date.
(d) The Company disposed 100% shares of its subsidiary, Champ Tech Optical (Foshan) Corporation, to Fuzhun Precision Industry (Shenzhen) Co., Ltd. and FuYu Precision Components (Kunshan) Co., Ltd., subsidiaries of Foxconn Technology Co., Ltd. on December 1, 2018. Accordingly, it was excluded from the consolidated financial statements since the disposal date.
(e) The Company acquired 100% equity interest in Mingyang Realty Development (Kunshan) CO., Ltd. and Tuozhan Property Development Co., Ltd. on April 12, 2019 and May 9, 2019, respectively and were included in the consolidated financial statements since acquisition date.
(f) The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia

~26~

– F-149 –

Pacific”) with $10,000,000 on November 21, 2019. After acquisition, the Group owned 40.74% interest of Asia Pacific which represented the largest portion of the voting right of its shareholders and is able to direct its relevant activities. Accordingly, the Group has control over Asia Pacific and included it as a subsidiary in the consolidated financial statements since the acquisition date.

C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Significant restrictions: None.
F. Subsidiaries that have non-controlling interests that are material to the Group:

The information on non-controlling interest and respective subsidiaries are as follows:

Name of subsidiary FIH Mobile Limited Foxconn Ventures Pte. Ltd. Foxconn Interconnect Technology Limited Foxconn Industrial Internet Co., Ltd. Asia Pacific Telecom Co., Ltd.	Principal place of business Cayman Singapore Cayman China Taiwan	~~Ownershi~~ p Ownership Amount % Amount % Description $ 23,939,629 38% $ 29,371,063 38% 20,563,572 46% 18,557,834 46% 15,271,092 23% 13,893,410 23% 61,422,746 16% 49,781,157 15% 22,642,298 59% $111,603,464 $143,839,337 Non-controllinginterest December 31,2019 December 31,2018	~~Ownershi~~ p Ownership Amount % Amount % Description $ 23,939,629 38% $ 29,371,063 38% 20,563,572 46% 18,557,834 46% 15,271,092 23% 13,893,410 23% 61,422,746 16% 49,781,157 15% 22,642,298 59% $111,603,464 $143,839,337 Non-controllinginterest December 31,2019 December 31,2018	~~Ownershi~~ p Ownership Amount % Amount % Description $ 23,939,629 38% $ 29,371,063 38% 20,563,572 46% 18,557,834 46% 15,271,092 23% 13,893,410 23% 61,422,746 16% 49,781,157 15% 22,642,298 59% $111,603,464 $143,839,337 Non-controllinginterest December 31,2019 December 31,2018
		December 31,	~~Ownershi~~ p % 38% 46% 23% 16% 59% 2019
		Amount $ 23,939,629 20,563,572 15,271,092 61,422,746 22,642,298 $143,839,337		Amount $ 29,371,063 18,557,834 13,893,410 49,781,157 $111,603,464

Summarised financial information of the subsidiary:

Balance sheets

alance sheets
			FIH MobileLimited
			December31,2019			December31,2018
Current assets		$	171,075,653			234,003,607
Non-current assets			38,859,935			39,538,459
Current liabilities	(		145,825,230)	(		206,437,212)
Non-current liabilities	(		1,134,435)	(		1,048,205)
Total net assets		$	62,975,923		$	66,056,649
			Foxconn Interconnect		TechnologyLimited
			December31,2019			December31,2018
Current assets		$	82,202,432			84,566,323
Non-current assets			49,920,298			47,829,013
Current liabilities	(		49,832,096)	(		69,706,322)
Non-current liabilities	(		20,011,770)	(		2,867,098)
Total net assets		$	62,278,864		$	59,821,916

~27~

– F-150 –

			FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.
			December31,2019			December31,2018
Current assets		$	15,515,189		$	2,507,538
Non-current assets			30,975,076			38,310,019
Current liabilities	(		1,295,604)	(		31,109)
Total net assets		$	45,194,661		$	40,786,448
			Foxconn Industrial InternetCo.,Ltd.
			December31,2019			December31,2018
Current assets		$	845,699,832			852,941,696
Non-current assets			54,267,529			47,323,825
Current liabilities	(		503,806,489)	(		571,155,028)
Non-current liabilities	(		9,099,406)	(		1,370,788)
Total net assets		$	387,061,466		$	327,739,705

		Asia	PacificTelecomCo.,Ltd.
			December31,2019
Current assets		$	10,939,105
Non-current assets			34,811,852
Current liabilities	(		7,319,667)
Non-current liabilities	(		2,675,397)
Total net assets		$	35,755,893

Statements of comprehensive income

FIH Mobile Limited

			For the yearended	For the yearended	For the yearended	December31,
			2019			2018
Revenue and other operating revenue		$	461,221,823		$	463,933,028
Loss for the year from continuing operations	(		376,436)	(		25,842,015)
Other comprehensive loss, net of tax	(		1,097,822)	(		5,603,045)
Total comprehensive loss for the year	($		1,474,258)	($		31,445,060)
Comprehensive loss attributable to
non-controlling interest	($		538,832)	($		11,956,816)
Dividends paid to non-controlling interest		$	-		$	-

~28~

– F-151 –

Revenue and other operating revenue
Profit for the year from continuing
operations
Other comprehensive loss, net of tax
(
Total comprehensive income for the year
Comprehensive income attributable to
non-controlling interest
Dividends paid to non-controlling interest
Revenue and other operating revenue
Income (loss) for the year from continuing
operations
Other comprehensive (loss) income, net of tax
(
Total comprehensive income (loss) for the
year
Comprehensive income (loss) attributable to
non-controlling interest
Dividends paid to non-controlling interest
Revenue and other operating revenue
Profit for the year from continuing
operations
Other comprehensive income, net of tax
Total comprehensive income for the year
Comprehensive income attributable to
non-controlling interest
Dividends paid to non-controlling interest

2019
2018
135,150,328
$ 119,074,091
$ 7,211,148
7,015,115
1,050,538)

2,762,011)
(
6,160,610
$ 4,253,104
$ 1,505,152
$ 973,790
$ 743,712
$ 325,782
$ 2019
2018
-
$ -
$ 5,877,261
3,064,605)
(
404,102)

706,077
5,473,159
$ 2,358,528)
($ 2,490,287
$ 1,132,601)
($ -
$ -
$ 2019
2018
1,827,674,405
$ 1,891,718,437
$ 81,619,395
77,453,571
6,490
637,211
81,625,885
$ 78,090,782
$ 12,910,527
$ 12,672,618
$ 1,749,477
$ -
$ Foxconn Interconnect TechnologyLimited
For the yearendedDecember31,
FoxconnVenturesPte.Ltd.
For the yearendedDecember31,
Foxconn Industrial InternetCo.,Ltd.
For the yearendedDecember31,

2019
1,827,674,405
$ 81,619,395
6,490
81,625,885
$ 12,910,527
$ 1,749,477
$

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– F-152 –

Revenue and other operating revenue Loss for the year from continuing operations Other comprehensive income, net of tax Total comprehensive loss for the year Comprehensive loss attributable to non-controlling interest Dividends paid to non-controlling interest

		Asia PacificTelecomCo.,Ltd.
		For the yearendedDecember31,
		2019
	$	14,246,066
(		5,161,873)
		3,847
($		5,158,026)
($		334,301)
	$	-

Statements of cash flows

tatements of cash flows
			FIH MobileLimited
			For the yearended			December31,
			2019			2018
Net cash used in operating activities	($		14,065,132)	($		24,546,020)
Net cash provided by (used in) investing
activities			44,638,058	(		11,426,760)
Net cash (used in) provided by financing
activities	(		26,919,766)			21,209,530
Effect of exchange rates on cash and cash
equivalents			263,137	(		2,161,031)
Increase (decrease) in cash and cash
equivalents			3,916,297	(		16,924,281)
Cash and cash equivalents, beginning
of year			43,847,968			58,011,216
Cash and cash equivalents, end of year		$	47,764,265		$	41,086,935
			Foxconn Interconnect		TechnologyLimited
			For the yearended			December31,
			2019			2018
Net cash provided by operating activities		$	9,676,066		$	21,012,017
Net cash used in investing activities	(		12,899,454)	(		28,555,969)
Net cash (used in) provided by financing
activities	(		1,992,366)			17,327,718
Effect of exchange rates on cash and cash
equivalents	(		122,805)	(		821,076)
(Decrease) increase in cash and cash
equivalents	(		5,338,559)			8,962,690
Cash and cash equivalents, beginning
of year			32,913,710			23,078,686
Cash and cash equivalents, end of year		$	27,575,151		$	32,041,376

~30~

– F-153 –

		FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.	FoxconnVenturesPte.Ltd.
		For the yearendedDecember31,
		2019			2018
Net cash provided by (used in) operating
activities	$	182,644	($		6,342)
Net cash provided by (used in) investing
activities		13,350,706	(		7,097,509)
Net cash provided by financing activities		-			-
Increase (decrease) in cash and cash
equivalents		13,533,350	(		7,103,851)
Cash and cash equivalents, beginning
of year		2,456,128			9,559,979
Cash and cash equivalents, end of year	$	15,989,478		$	2,456,128
	Foxconn Industrial InternetCo.,Ltd.
		For the yearendedDecember31,
		2019			2018
Net cash provided by operating activities	$	28,820,961		$	100,316,869
Net cash used in investing activities	(	12,611,175)	(		6,237,364)
Net cash provided by financing activities		12,173,675			113,441,827
Effect of exchange rates on cash and cash
equivalents		433,356			1,941,857
Increase in cash and cash equivalents		28,816,817			209,463,189
Cash and cash equivalents, beginning
of year		269,144,472			64,666,331
Cash and cash equivalents, end of year	$	297,961,289		$	274,129,520
		Asia PacificTelecomCo.,Ltd.
		For the year	endedDecember31,
				2019
Net cash provided by operating activities		$			1,486,927
Net cash used in investing activities		(			3,954,550)
Net cash provided by financing activities					9,669,716
Effect of exchange rates on cash and cash equivalents		(			49)
Increase in cash and cash equivalents					7,202,044
Cash and cash equivalents, beginning of year					1,002,049
Cash and cash equivalents, end of year		$			8,204,093

(4) Foreign currency translation

A. The consolidated financial statements are presented in New Taiwan Dollars, which is the Company’s functional and the Group’s presentation currency.

B. Foreign currency transactions and balances

~31~

– F-154 –

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in profit or loss in the period in which they arise.
(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognised in profit or loss.
(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognised in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
(d) All foreign exchange gains and losses are presented in the statement of comprehensive income within “other gains and losses”.
C. Translation of foreign operations
(a) The operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
- ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
- iii.All resulting exchange differences are recognised in other comprehensive income.
(b) When the foreign operation of an associate is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group still retains partial interest in the former foreign associate after losing significant influence over the former foreign associate, such transactions should be accounted for as disposal of all interest in these foreign operations.
(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, even when the Group retains partial interest in the former foreign subsidiary after losing control of the

~32~

– F-155 –

former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(d) Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing exchange rates at the balance sheet date.

(5) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
- (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
- (b) Assets held mainly for trading purposes;
- (c) Assets that are expected to be realized within twelve months from the balance sheet date;
- (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
- (a) Liabilities that are expected to be settled within the normal operating cycle;
- (b) Liabilities arising mainly from trading activities;
- (c) Liabilities that are to be settle within twelve months from the balance sheet date;
- (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. 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.
(6) Cash equivalents
Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

(7) Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortised cost or fair value through other comprehensive income.
B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognised and derecognised using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value and recognises the transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognises the gain or loss in profit or loss.
D. The Group recognises the dividend income when the right to receive payment is established,

~33~

– F-156 –

future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

(8) Financial assets at fair value through other comprehensive income
A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Group has made an irrevocable election at initial recognition to recognise changes in fair value in other comprehensive income and debt instruments which meet all of the following criteria:
- (a) The objective of the Group’s business model is achieved both by collecting contractual cash flows and selling financial assets; and
- (b) The assets’ contractual cash flows represent solely payments of principal and interest.
B. On a regular way purchase or sale basis, financial assets at fair value through other comprehensive income are recognised and derecognised using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. The Group subsequently measures the financial assets at fair value:
- (a) The changes in fair value of equity investments that were recognised in other comprehensive income are reclassified to retained earnings and are not reclassified to profit or loss following the derecognition of the investment. Dividends are recognised as dividends income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.
- (b) Except for the recognition of impairment loss, interest income and gain or loss on foreign exchange which are recognised in profit or loss, the changes in fair value of debt instruments are taken through other comprehensive income. When the financial asset is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss.

(9) Financial assets at amortised cost

A. Financial assets at amortised cost are those that meet all of the following criteria:
(a) The objective of the Group’s business model is achieved by collecting contractual cash flows.
(b) The assets’ contractual cash flows represent solely payments of principal and interest.
B. On a regular way purchase or sale basis, financial assets at amortised cost are recognised and derecognised using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognised in profit or loss when the asset is derecognised or impaired.
D. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.

~34~

– F-157 –

(10) Accounts and notes receivable

A. Accounts and notes receivable entitle the Group a legal right to receive consideration in exchange for transferred goods or rendered services.
B. The short-term accounts and notes receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
C. The Group’s operating pattern of accounts receivable that are expected to be factored is for the purpose of receiving contract cash flow and receiving contract cash flow and selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognised in other comprehensive income.
(11) Impairment of financial assets
For debt instruments measured at fair value through other comprehensive income and financial assets at amortised cost including accounts receivable that have a significant financing component, at each reporting date, the Group recognises the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognises the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable or contract assets that do not contain a significant financing component, the Group recognises the impairment provision for lifetime ECLs.
(12) Derecognition of financial assets

The Group derecognises a financial asset when one of the following conditions is met:

A. The contractual rights to receive the cash flows from the financial asset expire.
B. The contractual rights to receive cash flows of the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.
C. The contractual rights to receive cash flows of the financial asset have been transferred, and the Group has not retained control of the financial asset.
(13) Leasing arrangement (lessor) Lease receivable / Operating lease
A. Based on the terms of a lease contract, a lease is classified as a finance lease if the lessee assumes substantially all the risks and rewards incidental to ownership of the leased asset.
- (a) At commencement of the lease term, the lessor should record a finance lease in the balance sheet as ‘lease receivables’ at an amount equal to the net investment in the lease (including initial direct costs). The difference between gross lease receivable and the present value of the receivable is recognised as ‘unearned finance income of finance lease’.
- (b) The lessor should allocate finance income over the lease term based on a systematic and rational basis reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease.
- (c) Lease payments (excluding costs for services) during the lease term are applied against the gross investment in the lease to reduce both the principal and the unearned finance income.

~35~

– F-158 –

B. Lease income from an operating lease (net of any incentives given to the lessee) is recognised in profit or loss on a straight-line basis over the lease term.
(14) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expense.

(15) Investments accounted for under the equity method / associates

A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognised at cost.
B. The Group’s share of its associates’ post-acquisition profits or losses is recognised in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognises change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.
D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains significant influence on the associate, then ‘capital surplus’ and ‘investments accounted for under the equity method’ shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the

~36~

– F-159 –

relevant assets or liabilities were disposed of.

F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognised in profit or loss.
G. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, the amounts previously recognised in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.
H. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, the amounts previously recognised as capital surplus in relation to the associate are transferred to profit or loss proportionately.
(16) Property, plant and equipment
A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
C. While land is not depreciated, other property, plant and equipment that apply cost model are depreciated using the straight-line method to allocate their cost over their estimated useful lives. Each component of property, plant and equipment that is significant in relation to the total cost of the item is depreciated separately.
D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change.

The estimated useful lives of property, plant and equipment are as follows:

Buildings 5 ~ 51 years (Auxiliary buildings 6 ~ 11 years) � Machinery and equipment 3 9 years

~37~

– F-160 –

� Computer and communication equipment 3 25 years Other equipment 1 � 25 years

(17) Leasing arrangements (lessee) � right-of-use assets/ lease liabilities

Effective 2019

A. Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. For short-term leases or leases of low-value assets, lease payments are recognised as an expense on a straight-line basis over the lease term.
B. Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of the following:
(a) Fixed payments, less any lease incentives receivable;
(b) Variable lease payments that depend on an index or a rate;
(c) Amounts expected to be payable by the lessee under residual value guarantees;
(d) The exercise price of a purchase option, if the lessee is reasonably certain to exercise that option; and
(e) Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The Group subsequently measures the lease liability at amortised cost using the interest method and recognises interest expense over the lease term. The lease liability is remeasured and the amount of remeasurement is recognised as an adjustment to the right-of-use asset when there are changes in the lease term or lease payments and such changes do not arise from contract modifications.

C. At the commencement date, the right-of-use asset is stated at cost comprising the following:
(a) The amount of the initial measurement of lease liability;
(b) Any lease payments made at or before the commencement date;
(c) Any initial direct costs incurred by the lessee; and
(d) An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

The right-of-use asset is measured subsequently using the cost model and is depreciated from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. When the lease liability is remeasured, the amount of remeasurement is recognised as an adjustment to the right-of-use asset.

(18) Leased assets/ operating leases (lessee)

Prior to 2019

A. Based on the terms of a lease contract, a lease is classified as a finance lease if the Group assumes substantially all the risks and rewards incidental to ownership of the leased asset.

~38~

– F-161 –

(a) A finance lease is recognised as an asset and a liability at the lease’s commencement at the lower of the fair value of the leased asset or the present value of the minimum lease payments.
(b) The minimum lease payments are apportioned between the finance charges and the reduction of the outstanding liability. The finance charges are allocated to each period over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(c) Property, plant and equipment held under finance leases are depreciated over their estimated useful lives. If there is no reasonable certainty that the Group will obtain ownership at the end of the lease, the asset shall be depreciated over the shorter of the lease term and its useful life.
B. Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.

(19) Investment property

(20) Intangible assets

A. Certain trademarks are stated at cost and regarded as having an indefinite useful life as they were expected to generate continuous net cash inflow in the foreseeable future. For the trademarks with indefinite useful life are not amortised, but are tested annually for impairment.
B. Goodwill is generated by adopting the acquisition method when merger and acquisition occurs.
C. Patent is amortised on a straight-line basis over its estimated useful life of 2 to 20 years.
D. Customer relationship and developed technologies are amortised on a straight-line basis over its estimated life of 12 years and 2 to 7 years, respectively.
E. Concession obtained individually is stated initially at its costs and is amortised on a straight-line basis over its useful life as follows:
(a) The concession of the mobile broadband spectrum (4G) 700MHz frequency group started form December 2014 and is amortised until 2030. The useful life of the concession is 16 years.
(b) The concession of the mobile broadband spectrum (4G) 2600MHz frequency group started form October 2017 and is amortised until 2033. The useful life of the concession is 16 years.
(c) The Group obtained the concession of the mobile broadband spectrum (4G) 700MHz frequency group in December 2015 and is amortised until 2030. The useful life of the concession is 15 years.
(d) The Group obtained the concession of the mobile broadband spectrum (4G) 900MHz frequency group in December 2015 and is amortised until 2030. The useful life of the

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– F-162 –

concession is 15 years.

(21) Impairment of non-financial assets

A. The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior periods no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.
B. The recoverable amount of goodwill shall be evaluated annually. An impairment is recognised when recoverable amount is lower than carrying amount. Impairment loss should not be reversed in the future.
C. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that is/are expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.
(22) Borrowings
Borrowings comprise long-term and short-term bank borrowings. Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

(23) Notes and accounts payable

A. Accounts payable are liabilities for purchases of raw materials, goods or services and notes payable are those resulting from operating and non-operating activities.
B. The short-term notes and accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(24) Financial liabilities at fair value through profit or loss

A. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorised as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss at initial recognition:
(a) Hybrid (combined) contracts; or
(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

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  - (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.

B. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognised in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognised in profit or loss.
C. If the credit risk results in fair value changes in financial liabilities designated as at fair value through profit or loss, they are recognised in other comprehensive income in the circumstances other than avoiding accounting mismatch or recognising in profit or loss for loan commitments or financial guarantee contracts.
(25) Bonds payable
Ordinary corporate bonds issued by the Group are initially recognised at fair value less transaction costs. Any difference between the proceeds (net of transaction costs) and the redemption value is presented as an addition to or deduction from bonds payable, which is amortised to profit or loss over the period of bond circulation using the effective interest method as an adjustment to ‘finance costs’.
(26) Convertible bonds payable

Convertible bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group’s common shares by exchanging a fixed amount of cash for a fixed number of common shares), call options and put options. The Group classifies the bonds payable upon issuance as a financial asset, a financial liability or an equity instrument in accordance with the contract terms. They are accounted for as follows:

(a) The embedded call options and put options are recognised initially at net fair value as ‘financial assets or financial liabilities at fair value through profit or loss’. They are subsequently remeasured and stated at fair value on each balance sheet date; the gain or loss is recognised as ‘gain or loss on valuation of financial assets or financial liabilities at fair value through profit or loss’.
(b) The host contracts of bonds or are initially recognised at fair value. Any difference between the initial recognition and the redemption value is accounted for as the premium or discount on bonds payable and subsequently is amortised in profit or loss as an adjustment to ‘finance costs’ over the period of circulation using the effective interest method.
(c) The embedded conversion options which meet the definition of an equity instrument are initially recognised in ‘capital surplus—share options’ at the residual amount of total issue price less the amount of financial assets or financial liabilities at fair value through profit or loss and bonds payable as stated above. Conversion options are not subsequently remeasured.
(d) Any transaction costs directly attributable to the issuance are allocated to each liability or equity component in proportion to the initial carrying amount of each abovementioned item.
(e) When bondholders exercise conversion options, the liability component of the bonds (including bonds payable and ‘financial assets or financial liabilities at fair value through profit or loss’)

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shall be remeasured on the conversion date. The issuance cost of converted common shares is the total book value of the abovementioned liability component and ‘capital surplus—share options’.

(27) Derecognition of financial liabilities

A financial liability is derecognised when the obligation specified in the contract is either discharged or cancelled or expires.

(28) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(29) Non-hedging and embedded derivatives

A. Non-hedging derivatives are initially recognised at fair value on the date a derivative contract is entered into and recorded as financial assets or financial liabilities at fair value through profit or loss. They are subsequently remeasured at fair value and the gains or losses are recognised in profit or loss.
B. Under the financial assets, the hybrid contracts embedded with derivatives are initially recognised as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and financial assets at amortised cost based on the contract terms.
C. Under the non-financial assets, whether the hybrid contracts embedded with derivatives are accounted for separately at initial recognition is based on whether the economic characteristics and risks of an embedded derivative are closely related in the host contract. When they are closely related, the entire hybrid instrument is accounted for by its nature in accordance with the applicable standard. When they are not closely related, the derivative is accounted for differently from the host contract as derivative while the host contract is accounted for by its nature in accordance with the applicable standard. Alternatively, the entire hybrid instrument is designated as financial liabilities at fair value through profit or loss upon initial recognition.
(30) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognised as interest expense. Provisions are not recognised for future operating losses.

(31) Employee benefits

A. Short-term employee benefits

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Short - term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognised as expense in that period when the employees render service.

B. Pensions
(a) Defined contribution plans

For defined contribution plans, the contributions are recognised as pension expense when they are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of a cash refund or a reduction in the future payments.

  - (b) Defined benefit plans

     - i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.

     - ii. Remeasurements arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.

     - iii. Past service costs are recognised immediately in profit to loss.

C. Employees’ compensation and directors’ and supervisors’ remuneration
- Employees’ compensation and directors’ and supervisors’ remuneration are recognised as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employee compensation is paid by shares, the Group calculates the number of shares based on the closing price at the previous day of the board meeting resolution.
(32) Employee share based payment
A. For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of

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the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognised is based on the number of equity instruments that eventually vest.

B. Restricted stocks:
- (a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period.
- (b) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Group recognises the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at the date of dividends declared.
- (c) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund their payments on the stocks, the Group recognises the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognises the payments from the employees who are expected to be eventually vested with the stocks in ’capital surplus – others’.
(33) Income tax
A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or items recognised directly in equity, in which cases the tax is recognised in other comprehensive income or equity.
B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
C. Deferred income tax is recognised, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary

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difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognised and recognised deferred income tax assets are reassessed.
E. Current income tax assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.
F. A deferred tax asset shall be recognised for the carryforward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilized.
G. If a change in tax rate is enacted or substantively enacted in an interim period, the Group recognises the effect of the change immediately in the interim period in which the change occurs. The effect of the change on items recognised outside profit or loss is recognised in other comprehensive income or equity while the effect of the change on items recognised in profit or loss is recognised in profit or loss.

(34) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(35) Revenue recognition

A. The Group manufactures and sells consumer electronics products. Sales are recognised when control of the products has transferred, being when the products are delivered to or picked by the customers, the customers has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customers, and either the customers has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.

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B. The Group renders telecommunication service. Service revenue is measured by the fair value of the consideration received or receivable taking into account business tax and rebates for the sale of goods to external customers in the ordinary course of the Group’s activities. The main methods of revenue recognition are as follows:
(a) The communication charges of fixed network and mobile services, as well as the connection charges among telecom operators, are recognised on the basis of the contract terms, which are calculated by predetermined rates and the actual usage volume.
(b) Fixed monthly service fees are recognised monthly.
(c) Prepaid card revenue is recognised on the basis of the actual usage volume by the customers.
C. The Group recognises an asset (shown as ‘other non-current assets’) the incremental costs (mainly comprised of sales commissions) of obtaining a telecommunication contract if the Group expects to recover those costs. The recognised asset is amortised and consistent with the transfers to the customer of the goods or services to which the asset relates. The Group recognises an impairment loss to the extent that the carrying amount of the asset exceeds the remaining amount of consideration that the Group expects to receive less the costs that have not been recognised as expenses.
D. Sales revenue is recognised based on the price specified in the contract, net of the estimated sales discounts and allowances. Revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. The contract cost does not include a significant financing component as the sales are made with credit term consistent with market practice.
E. A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
F. The Group’s obligation to provide a refund for faulty products under the standard warranty terms is recognised as a provision.
G. The customer pays at the time specified in the payment schedule. If the products sold exceed the payment, a contract asset is recognised. If the payments exceed the products sold, a contract liability is recognised

(36) Government grants

Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises expenses for the related costs for which the grants are intended to compensate. Government grants related to property, plant and equipment are recognised as non-current liabilities and are amortised to profit or loss over the estimated useful lives of the related assets using the straight-line method.

(37) Business combinations

A. The Group uses the acquisition method to account for business combinations. The

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consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.

B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognised and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognised directly in profit or loss on the acquisition date.

(38) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS ON

UNCERTAINTY

(1) Critical judgments in applying the Group’s accounting policies

A. Revenue recognition

The Group determines whether the nature of its performance obligation is to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for the other party to provide those goods or services (i.e. the Group is an agent) based on the transaction model and its economic substance. The Group is a principal if it controls a promised good or service before it transfers the good or service to a customer. The Group recognises revenue at gross amount of consideration to which it expects to be entitled in exchange for those goods or services transferred. The Group is an agent if its performance obligation is to arrange for the provision of

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goods or services by another party. The Group recognises revenue at the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the other party to provide its goods or services.

Indicators that the Group controls the good or service before it is provided to a customer include the following:

(a) The Group is primarily responsible for the provision of goods or services;
(b) The Group assumes the inventory risk before transferring the specified goods or services to the customer or after transferring control of the goods or services to the customer.
(c) The Group has discretion in establishing prices for the goods or services.
B. Offsetting financial instruments

The Company’s financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.

(2) Critical accounting estimates and assumptions

A. Impairment assessment of tangible and intangible assets (excluding goodwill)
The Group assesses impairment based on its subjective judgement and determines the separate cash flows of a specific group of assets, useful lives of assets and the future possible income and expenses arising from the assets depending on how assets are utilized and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Group strategy might cause adjustments on impairment of assets.
B. Impairment assessment of goodwill
The Group assesses impairment of goodwill based on subjective judgment which includes identifying and allocating assets, liabilities and goodwill to related cash-generating unit to determine recoverable amount of this unit. Details of impairment assessment of goodwill is provided in Note 6(13).
As of December 31, 2019, the Group recognised goodwill after impairment assessment of $15,406,541.
C. Evaluation of inventories
As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date based on judgments and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of

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inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be significant changes to the evaluation.

As of December 31, 2019, the carrying amount of inventories was $515,772,177.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

TAILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand and revolving funds Checking accounts and demand deposits Cash equivalents - Time deposits Cash equivalents - Repo bonds	December31,2019 216,905 $ 649,335,476 208,182,131 129,850 857,864,362 $	December31,2018
		185,571 $ 551,658,148 219,237,512 17,581,094
		788,662,325 $

A. The Group transacts with a variety of financial institutions with high credit quality for the purpose of dispersing credit risk, so it expects that the probability of counterparty default is low.
B. The Group’s time deposits pledged to others as collateral had been transferred to “Financial assets at amortised cost”. Please refer to Note 8 for details.

(2) Financial assets and liabilities at fair value through profit or loss

Assets Current items: Beneficiary certificates Derivatives Non-current items: Equity instruments Beneficiary certificates Derivatives Liabilities Current items: Derivatives Non-current items: Derivatives		December31,2019 639,679 $ 2,312,370 2,952,049 $ 12,744,243 $ 63,546,321 6,370,161 82,660,725 $ December31,2019		December31,2018 1,993,557 $ 3,022,808 5,016,365 $ 22,084,880 $ 50,865,667 1,936,943 74,887,490 $ December31,2018
	(	1,881,685) $ - $	651,426) ($ 22,835) ($

A. The descriptions of financial assets and liabilities at fair value through profit or loss are as follows:

(a) Equity instruments: Includes listed, unlisted and emerging stocks.

(b) Beneficiary certificates: Includes investment in open-end funds and private equity fund.

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bonds payable and put options.

B. Amounts recognised in profit or loss in relation to financial assets at fair value through profit or loss are listed below:

loss are listed below:
Equity instruments Beneficiary certificates Derivatives		For the yearendedDecember31
	2019 2018 9,373,702 8,747,144) ($ 4,720,893) ( 5,580,497 6,343,300 15,368,647 10,996,109 $ 12,202,000 $

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C. The non-hedging derivative instruments transaction and contract information are as follows:

Derivative Financial Assets Current items: Cross currency swap contracts Foreign exchange forward contracts Capital guarantee financial Non-current items: Convertible contracts Cross currency swap contracts Derivative Financial Liabilities Current items: Cross currency swap contracts Foreign exchange forward contracts (	December31,2019	December31,2019
	JPY (BUY) 27,500,000 TWD (SELL) 7,584,500 EUR (BUY) 128,000 CZK (BUY) 5,766,370 MXN (BUY) 3,803,496 RMB (BUY) 43,373,233 TWD (BUY) 47,466,350 USD (SELL) 8,323,670 USD 56,000 USD 30,000 USD (BUY) 1,000,000 JPY (SELL) 102,619,000 USD(BUY) 1,700,000 JPY(BUY) 141,250,000 TWD(SELL) 92,004,305 USD (BUY) 90,473 RMB (BUY) 1,316,383 MXN (SELL) 467,519 USD (SELL) 188,000 HKD (SELL) 475,569 AUD (SELL) 9,000 Contract amount Nominal Principal in thousands)	Contractperiod
		2019.12.23~2020.03.26 2019.12.23~2020.03.26 2019.12.11~2020.03.18 2019.11.05~2020.02.18 2019.10.22~2020.02.27 2019.10.23~2020.05.28 2019.11.11~2020.04.01 2019.10.22~2020.05.28 2019.11.29~2020.12.10 2016.12.19~2021.12.15 2016.09.13~2026.09.18 2016.09.13~2026.09.18 2019.09.09~2020.05.29 2019.11.19~2020.06.30 2019.09.09~2020.06.30 2019.05.24~2020.03.30 2019.12.18~2020.04.10 2019.05.24~2020.03.30 2019.12.18~2020.04.10 2019.12.11~2020.03.02 2019.12.11~2020.01.13

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Derivative Financial Assets Current items: Cross currency swap contracts Foreign exchange forward contracts Non-current items: Convertible contract Cross currency swap contracts Derivative Financial Liabilities Current items: Cross currency swap contracts Foreign exchange forward contracts (	December31,2018	December31,2018
	USD (BUY) 2,500,000 JPY (BUY) 144,950,000 TWD (SELL) 116,209,925 USD (BUY) 1,783,486 RMB (BUY) 1,106,856 CZK (BUY) 5,932,515 JPY (BUY) 193,462,105 MXN (BUY) 2,013,720 TWD (SELL) 47,769,213 USD (SELL) 2,237,343 INR (SELL) 10,505,980 BRL (SELL) 239,611 MXN (SELL) 136,976 USD 30,000 USD (BUY) 1,000,000 JPY (SELL) 102,619,000 USD (BUY) 3,592,297 RMB (SELL) 635,000 TWD (SELL) 108,180,700 USD (BUY) 2,157,948 MXN (BUY) 1,466,400 EUR (SELL) 20,000 BRL (SELL) 253,884 RMB (SELL) 6,220,060 INR (SELL) 29,662,100 TWD (SELL) 23,003,310 USD (SELL) 75,000 Nominal Principal in thousands) Contract amount	Contractperiod
		2018.07.25~2019.03.29 2018.11.05~2019.06.28 2018.07.25~2019.06.28 2018.08.17~2019.04.18 2018.12.20~2019.06.24 2018.11.13~2019.01.15 2018.12.05~2019.01.18 2018.11.14~2019.02.15 2018.10.15~2019.04.18 2018.11.13~2019.06.24 2018.12.20~2019.03.05 2018.12.21~2019.01.18 2018.08.17~2019.02.28 2016.12.19~2021.12.15 2016.09.13~2026.09.24 2016.09.13~2026.09.24 2018.10.03~2019.06.28 2018.12.06~2019.01.10 2018.10.03~2019.06.28 2018.10.15~2019.04.17 2018.10.22~2019.01.25 2018.12.28~2019.01.30 2018.12.06~2019.01.11 2018.11.08~2019.01.28 2018.12.20~2019.03.27 2018.10.15~2019.04.17 2018.10.22~2019.01.25

(a) Cross currency swap contracts

(b) Forward foreign exchange contracts

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The Group enters into foreign exchange forward transactions to reduce the following risk of exchange rate:

  - A. Operating activities: Import of raw materials and export sales

  - B. Investing activities: Import of machinery and equipment

  - C. Financing activities: Long-term and short-term foreign currency assets and liabilities

(c) Convertible bonds payable
- i. The Company’s indirect subsidiary, FIH Mobile Limited, acquired convertible bonds issued by Mango International in the amount of US$60 million. The convertible bonds are embedded derivatives. For the year ended December 31, 2018, FIH Mobile Limited recognised valuation loss of US$44,806 based on the estimated fair value of the convertible bonds due to significant doubt on Mango International’s ability to continue as a going concern. For the year ended December 31, 2019, the valuation gain and loss was $0.
- ii. The Company’s indirect subsidiary, PCE Paragon Solutions Kft., acquired convertible bonds issued by Nanthealth, Inc. in the amount of US$30 million. The convertible bonds are embedded derivatives. Based on the contract, PCE Paragon Solutions Kft. has the right to require conversion after issue date and until maturity date if the written consent is submitted in advance. If there are remaining convertible bonds at maturity, such convertible bonds will be redeemed in the form of cash.
(d) Put option
- The Company’s subsidiary, Foxconn (Far East) Limited, acquired Foxconn Ventures Pte. Ltd. in the amount of US$600,002 thousand and entered into an agreement with Foxconn Ventures Pte. Ltd.’s joint venture shareholder, Softbank Group Corporation. Based on the agreement, the Company’s subsidiary, Foxconn (Far East) Limited, has the right to require Foxconn Ventures Pte. Ltd.’s joint venture shareholder, Softbank Group Corporation, to repurchase Alibaba Group Holding Limited’s stocks at the original investment price at the date after 2 years from date of agreement. Foxconn Ventures Pte. Ltd. disposed the shares of Alibaba Group Holding Limited for a consideration of US$ 398,420 thousand on March 20, 2019.
D. Details of the Group’s investment in equity instruments and beneficiary certificates are provided in Table 3.
E. The Group has no financial assets at fair value through profit or loss pledged to others.
F. Information relating to credit risk of financial assets and liabilities at fair value through profit or loss is provided in Note 12(2).

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(3) Financial assets at fair value through other comprehensive income

Items Equity instruments at cost Fair value adjustments	December31,2019 59,365,998 $ 9,441,219 68,807,217 $	December31,2018
		63,383,262 $ 3,251,133
		66,634,395 $

A. The Group has elected to classify equity investments that are considered to be strategic investments as financial assets at fair value through other comprehensive income.
B. Amounts recognised in profit or loss and other comprehensive income in relation to the financial assets at fair value through other comprehensive income are listed below:

Equity instruments at fair value through other comprehensive Fair value change recognised in other comprehensive Cumulative gains reclassified to retained earnings due to derecognition	2019 2018 4,720,616 $ 4,687,419) ($ 1,545,121 $ 1,045,194 $ For the yearendedDecember31,

C. The Group has no financial assets at fair value through other comprehensive income pledged to others.
D. Details of the Group’s investment in equity instruments is provided in Table 3.

(4) Financial assets at amortised cost

Items Current items: Capital guarantee financial products Time deposits with maturity over three months Refundable deposits Restricted bank deposits Pledged time deposits Non-current items: Financial bonds-trust fund Refundable deposits Time deposits with maturity over twelve months Pledged time deposits	December31,2019 18,341,333 $ 33,401,517 758,872 133,411 319,744 52,954,877 $ 12,484,790 $ - - 43,779 12,528,569 $	December31,2018
		40,594,055 $ 26,325,076 565,214 - 11,459,794
		78,944,139 $
		14,312,960 $ 1,647,218 109,716 170,846
		16,240,740 $

A. Amounts recognised in profit or loss in relation to financial assets at amortised cost are listed below:

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Interest income	For the yearendedDecember31,	For the yearendedDecember31,
	2019 2,337,822 $	2018
		2,517,813 $

B. The Group invested in the trust fund named Guangdong Finance Trust - Peng Yun Tian Hua Collection Fund Trust in December 2017 which was mainly created for the investment in Guangzhou Guangyin Nanyue Intelligent Technology Industrial Investment Partnership. As of December 31, 2019, the Group has invested a total of RMB 3.5 billion and has redeemed RMB 600 million. Under the agreement, the Group will take over the share in the trust of the preferred beneficiary, Bank of Guangzhou, in case it initiates a redemption.
C. The counterparties of the Group’s investments have good credit quality.
D. Information relating to financial assets at amortised cost pledged as collateral is provided in Note 8.

(5) Notes and accounts receivable

Notes receivable Accounts receivable Less: Allowance for sales returns and allowances (	December31,2019 440,306 $ 992,631,562 5,793,430) ( 987,278,438 $	December31,2018 976,342 $ 1,013,122,289 4,734,479) 1,009,364,152 $

A. As of December 31, 2019 and 2018, accounts receivable and notes receivable were all from contracts with customers. As of January 1, 2018, the balance of receivables from contracts with customers amounted to $1,237,642,401.
B. On December 31, 2019 and 2018, the Group had accounts receivable classified as financial assets at fair value through other comprehensive income in the amounts of $108,993,188 and $102,651,635, respectively.
C. The Group entered into a factoring agreement with the following banks to sell its accounts receivable. Under the agreement, the Group is not obligated to bear the default risk of the transferred accounts receivable, but is liable for the losses incurred on any business dispute. The Group does not have any continuing involvement in the transferred accounts receivable. Thus, the Group derecognised the transferred accounts receivable.
As of December 31, 2019 and 2018, the relevant information of accounts receivable factored but unsettled were as follows:

~55~

– F-178 –

December 31, 2019

Accounts receivable factoringnotyetdue	Amount of accounts receivable derecognised	Amount of accounts receivable derecognised	Amount advanced	Amount of consideration retained
15,957,505 $ Accounts receivable factoringnotyetdue				- $ Amount of consideration retained
	Amount of accounts receivable derecognised		Amount advanced
36,863,855 $		36,863,855 $	36,863,855 $	- $

As of December 31, 2019 and 2018, the Group has no retention for the factoring of accounts receivable.

D. As of December 31, 2019 and 2018, the Group has not signed promissory notes as guarantee for accounts receivable in commercial dispute.
E. For the year ended December 31, 2019 and 2018, the financing charges (expenses) incurred from accounts receivable factoring information is provided in Note 6(35).
F. The Group does not hold any collateral as security.
G. Information relating to credit risk is provided in Note 12(2).

(6) Other receivables

Other receivables
Tax refund receivable Interest receivable Loans to others Others	December31,2019 27,552,147 $ 28,008,152 2,280,745 10,013,255 67,854,299 $	December31,2018
		42,199,170 $ 24,113,044 1,005,435 6,678,718
		73,996,367 $

The Group’s other receivables are due from entities and government agencies with good credit quality. There is no significant credit risk as default is unlikely to occur.

(7) Inventories

Inventories
Raw materials Work in process Finished goods Inventory in transit Less: Allowance for inventory obsolescence and market price decline (	December31,2019 148,887,252 $ 105,747,965 261,457,747 23,526,271 539,619,235 23,847,058) ( 515,772,177 $	December31,2018
		163,455,983 $ 126,733,927 326,482,232 32,509,726
		649,181,868 24,156,074)
		$ 625,025,794

Expenses and losses incurred on inventories for the years ended December 31, 2019 and 2018 were as follows:

~56~

– F-179 –

			For the yearended	For the yearended	December31,
			2019		2018
Cost of inventories sold		$	5,032,378,954	$	4,970,236,500
Gain from price recovery	(		303,359)	(	3,569,963)
Revenue from sale of scraps	(		5,431,538)	(	4,904,210)
Others			298,513		10,791
		$	5,026,942,570	$	4,961,773,118

As the Group sold some inventory with net realisable value lower than its cost, the allowance for inventory obsolescence and market price decline was reversed for the years ended December 31, 2019 and 2018.

(8) Investments accounted for under equity method

At January 1 Addition of investments accounted for using equity Disposal of investments accounted for using equity Earnings distribution of investments accounted for using equity method Share of profit or loss of investments accounted for Changes in retained earnings Changes in capital surplus Changes in other equity items Impairment loss Others At December 31	2019	2018
	160,316,664 $ 1,243,716 4,493,137) ( 4,805,210) ( 19,634,053 513,217) ( 950,756) ( 1,931,534 157,082) ( 3,574,923) ( 168,631,642 $	151,000,283 $ 3,937,967 - 2,746,888) ( 16,231,713 - 6,572,078 12,821,966) ( 2,535,426) ( 678,903 160,316,664 $

A. The Group has assessed impairment of certain investees for the years ended December 31, 2019 and 2018, and has accrued impairment loss of $157,082 and $2,535,426, respectively (shown as “other gains and losses”).
B. The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) in 2019. After acquisition, the Company owned 40.74% equity interest in Asia Pacific which represented majority of the voting rights of its shareholders and the Company has control over the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since control date. Meanwhile, the Company lost significant influence of Asia Pacific and remeasured the fair value of the remaining investment. The Company recognised the difference between fair value and book value of $1,691,000 (shown as “other gains and losses”). Details of business combination about Asia Pacific is provided in Note 6(38).
C. Associates

~57~

– F-180 –

(a) The basic information of the associates that are material to the Group is as follows:

Principal Company place of name business Sharp Corporation Japan Foxconn Technology Co., Ltd. Taiwan Zhen Ding Technology Holding Limited Cayman	December 31, December 31, Nature of Method of 2019 2018 relationship measurement 42% 42% Strategic Investment Equity method 29% 29% Supplier Equity method 34% 38% Supplier Equity method Shareholdingratio

(b) The summarized financial information of the associates that are material to the Group is as follows:

~58~

– F-181 –

Balance sheet

Balance sheet
			Sharp Corporation
			December31,2019		December31,2018
Current assets		$	318,630,526	$	339,409,827
Non-current assets			214,183,459		206,613,071
Current liabilities	(		254,314,425)	(	235,076,926)
Non-current liabilities	(		185,840,064)	(	187,237,717)
Total net assets			92,659,496		123,708,255
Effect of accounting principles	(		11,943,340)	(	73,735,233)
Fair value adjustment of
trademarks, other intangible
net assets and tangible
net assets			112,859,837		116,664,616
Total net assets after adjustment		$	193,575,993	$	166,637,638
Share in associate's net assets (Note)		$	73,410,848	$	62,281,587
Goodwill			12,450,964		12,576,169
Others	(		975,970)	(	387,590)
Carrying amount of the associate		$	84,885,842	$	74,470,166

Note : Share in associate’s net assets is counted with equity of ordinary shares, excluding Class C shares of Sharp Corporation.

			Foxconn Technology Co.,Ltd.	Foxconn Technology Co.,Ltd.	Foxconn Technology Co.,Ltd.
			December31,2019		December31,2018
Current assets		$	108,072,195	$	107,023,860
Non-current assets			56,503,622		49,306,705
Current liabilities	(		54,840,529)	(	56,020,510)
Non-current liabilities	(		1,129,678)	(	720,121)
Total net assets		$	108,605,610	$	99,589,934
Share in associate's net assets		$	32,011,570	$	29,354,194
Goodwill			338,190		338,190
Others			3,930	(	19,509)
Carrying amount of the associate		$	32,353,690	$	29,672,875

~59~

– F-182 –

Zhen Ding Technology Holding Limited

			December31,2019			December31,2018
Current assets		$	83,203,716		$	88,894,203
Non-current assets			56,677,619			51,212,950
Current liabilities	(		39,032,879)	(		51,835,059)
Non-current liabilities	(		10,504,355)	(		10,163,514)
Total net assets		$	90,344,101		$	78,108,580
Share in associate's net assets		$	22,741,808		$	21,278,557
Others	(		28,971)			-
Carrying amount of the associate		$	22,712,837		$	21,278,557
Statement of comprehensive income
			Sharp Corporation
			For the yearended			December31,
			2019			2018
Revenue		$	676,371,949		$	646,836,317
Profit for the year from continuing
operations			18,648,819			20,991,118
Other comprehensive income (loss),
net of tax			7,421,513	(		1,761,544)
Total comprehensive income			26,070,332			19,229,574
Effect of accounting principles			10,277,033	(		1,987,440)
Total comprehensive income after adjustment		$	36,347,365		$	17,242,134
Dividends received from associates		$	1,277,406		$	602,982
			Foxconn Technology Co.,Ltd.
			For the yearended			December31,
			2019			2018
Revenue		$	99,802,129		$	142,057,432
Profit for the year from continuing
operations			7,037,114			9,150,847
Other comprehensive income (loss),
net of tax			6,824,527	(		39,030,627)
Total comprehensive income (loss)		$	13,861,641	($		29,879,780)
Dividends received from associates		$	1,334,145		$	1,500,913

Statement of comprehensive income

~60~

– F-183 –

Revenue Profit for the year from continuing operations Other comprehensive loss, net of tax ( Total comprehensive income Dividends received from associates	2019 2018 120,067,508 $ 117,912,881 $ 12,401,617 11,536,495 3,312,504) 1,485,700) ( 9,089,113 $ 10,050,795 $ 1,336,457 $ 1,008,092 $ Zhen DingTechnologyHoldingLimited For the yearendedDecember31,
	2019 120,067,508 $ 12,401,617 3,312,504) 9,089,113 $ 1,336,457 $

(c) The carrying amount of the Group’s interests in all individually immaterial associates and the Group’s share of the operating results are summarized below:

As of December 31, 2019 and 2018, the carrying amount of the Group’s individually immaterial associates amounted to $28,679,273 and $34,895,066, respectively.

Income (loss) for the year from continuing operations Other comprehensive loss, net of tax ( Total comprehensive income (loss)	2019 2018 3,351,246 $ 338,300) ($ 779,886) 1,262,345) ( 2,571,360 $ 1,600,645) ($ For the yearendedDecember31,

(d) The fair value of the Group’s material associates which have quoted market price was as follows:

ollows:
Sharp Corporation Foxconn Technology Co., Ltd. Zhen Ding Technology Holding Limited	December31,2019 103,325,835 $ 27,600,129 38,968,380 169,894,344 $	December31,2018
		68,128,869 $ 25,223,683 24,499,695
		117,852,247 $

~61~

– F-184 –

				Total	638,098,549		360,238,537)	277,860,012		277,860,012	69,474,703	961,524)		12,047,948	5,251,681)	56,748,458)	95,971)	8,801,776)		287,523,253		727,209,337		439,686,084)	287,523,253
					$			$		$										$		$			$
							(					(			(	(	(	(						(
	Equipment under	installation and	construction	in progress	24,418,437 $		-	24,418,437 $		24,418,437 $	19,100,838	13,898,334) (		1,604,762	1,566,386) (	-	-	1,244,048) (		28,415,269 $		28,415,269 $		-	28,415,269 $
				Others	151,844,877		102,686,964)	49,157,913		49,157,913	12,788,063	580,476		156,039	1,176,296)	16,204,358)	-	2,042,724		47,344,561		160,547,139		113,202,578)	47,344,561
					$			$		$										$		$			$
							(								(	(								(
2019		Computer and	communication	equipment	8,768,524 $		7,112,646)	1,655,878 $		1,655,878 $	660,831	78,160		8,501,571	49,796)	565,709)	-	750,005)		9,530,930 $		39,326,807 $		29,795,877)	9,530,930 $
							(								(	(		(						(
			Machinery and	equipment	249,832,617 $		169,196,450) (	80,636,167 $		80,636,167 $	14,351,055	5,799,056		7,054	2,299,953) (	27,207,430) (	95,971) (	3,776,846) (		67,413,132 $		275,816,855 $		208,403,723) (	67,413,132 $
				Buildings	199,046,485		81,242,477)	117,804,008		117,804,008	15,068,196	6,479,118		459,236	159,250)	12,770,961)	-	6,294,743)		120,585,604		208,869,510		88,283,906)	120,585,604
					$			$		$										$		$			$
							(								(	(		(						(
				Land	4,187,609		-	4,187,609		4,187,609	7,505,720	-		1,319,286	-	-	-	1,221,142		14,233,757		14,233,757		-	14,233,757
				At January 1	Cost $	Accumulated depreciation	and impairment	$	Opening net book amount	as at January 1 $	Additions	Transfer	Acquired through business	combinations	Disposals	Depreciation charge	Impairment loss	Net exchange differences	Closing net book amount	as at December 31 $	At December 31	Cost $	Accumulated depreciation	and impairment	$

– F-185 –

2018	Equipment under	Machinery and installation and	At January 1 Land Buildings equipment Others construction in progress Total	Cost 3,890,073 $ 192,909,435 $ 247,127,693 $ 144,951,893 $ 26,207,515 $ 615,086,609 $	Accumulated depreciation and	impairment - 71,615,883) ( 159,088,232) ( 106,178,489) ( - 336,882,604) (	3,890,073 $ 121,293,552 $ 88,039,461 $ 38,773,404 $ 26,207,515 $ 278,204,005 $	Opening net book amount	as at January 1 3,890,073 $ 121,293,552 $ 88,039,461 $ 38,773,404 $ 26,207,515 $ 278,204,005 $	Additions 4,338 5,509,269 24,781,691 19,950,182 19,474,823 69,720,303	Transfer 202,248 3,511,102 6,510,630 8,552,825 20,294,185) ( 1,517,380) (	Disposals 3,504) ( 125,810) ( 2,275,623) ( 1,587,190) ( 277,207) ( 4,269,334) (	Acquired through business combinations - 4,168 58,820 482,794 44,779 590,561	Depreciation charge - 10,149,714) ( 32,824,433) ( 15,236,559) ( - 58,210,706) (	Impairment loss - - 194,561) ( - - 194,561) (	Net exchange differences 94,454 2,238,559) ( 3,459,818) ( 121,665) ( 737,288) ( 6,462,876) (	Closing net book amount	as at December 31 4,187,609 $ 117,804,008 $ 80,636,167 $ 50,813,791 $ 24,418,437 $ 277,860,012 $	At December 31	Cost 4,187,609 $ 199,046,485 $ 249,832,617 $ 160,613,401 $ 24,418,437 $ 638,098,549 $	Accumulated depreciation and	impairment - 81,242,477) ( 169,196,450) ( 109,799,610) ( - 360,238,537) (	4,187,609 $ 117,804,008 $ 80,636,167 $ 50,813,791 $ 24,418,437 $ 277,860,012 $	A. The Group recognised impairment loss of $95,971 and $194,561 (shown as “other gains and losses”) for the years ended December 31, 2019 and	2018, respectively.	B. Details of property, plant and equipment pledged as collateral are provided in Note 8.

– F-186 –

� (10) Leasing arrangements lessee

Effective 2019

A. The Group leases various assets including land, land use right, buildings, transportation equipment and other equipment. Except for contracts of land use right which cover a period of 50 years, other rental contracts are typically made for periods of 1 to 20 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose covenants, but leased assets may not be used as security for borrowing purposes.
B. Short-term leases with a lease term of 12 months include dormitories, business vehicles and office.
C. The carrying amount of right-of-use assets and the depreciation charge are as follows:

Land and land use right Buildings Other equipment Land and land use right Buildings Other equipment		December31,2019
		Carryingamount
		$ 21,248,308 23,633,305 1,878,727 46,760,340 $ For the year ended December31,2019
		Depreciationcharge
		$ 2,372,018 5,731,167 292,403 8,395,588 $

D. For the year ended December 31, 2019, the additions to right-of-use assets was $11,422,804.
E. The information on income and expense accounts relating to lease contracts is as follows:

Items affecting profit or loss Interest expense on lease liabilities Expense on short-term lease contracts		For the year ended December31,2019
		$1,174,008 3,385,617 $

F. For the year ended December 31, 2019, the Group’s total cash outflow for leases was $9,741,334.
(11) Leasing arrangements – lessor
A. The Group mainly leases machinery and equipment. Rental contracts are typically made for 5 years.
B. The maturity analysis of the undiscounted lease payments in the finance lease is as follows:

~64~

– F-187 –

No later than one year Later than one year but not later than five years		December31,2019
		$ 496,589 1,941,955 2,438,544 $

C. Reconciliation of the undiscounted lease payments and the net investment in the finance lease is provided as follows:

is provided as follows:
Undiscounted lease payments Unearned finance income Net investment in the lease		December		31,2019
		Current		Non-current
	(	$ 496,589 27,548) 469,041 $	(	$ 1,941,955 69,638) 1,872,317 $

The net investment in the financial lease is shown as “other receivable” and “other non-current asset”, respectively.

(12) Investment property

non-current asset”, respectively. Investment property
		Landand	buildings
		2019		2018
At January 1
Cost	$	4,129,588	$	4,235,377
Accumulated depreciation and impairment	(	1,605,625)	(	1,812,854)
	$	2,523,963	$	2,422,523
Opening net book amount as at January 1	$	2,523,963	$	2,422,523
Additions		418,901		544,953
Disposals		-	(	227,493)
Acquired through business combinations		2,047,982		-
Depreciation charge	(	272,910)	(	175,143)
Net exchange differences	(	298,024)	(	40,877)
Closing net book amount as at December 31	$	4,419,912	$	2,523,963
At December 31
Cost	$	8,015,199	$	4,129,588
Accumulated depreciation and impairment	(	3,595,287)	(	1,605,625)
	$	4,419,912	$	2,523,963

A. Rental income from the lease of the investment property and direct operating expenses arising from the investment property are shown below:

~65~

– F-188 –

Rental income from the lease of the investment property Direct operating expenses arising from the investment property that generated rental income for the year	For the yearendedDecember31,	For the yearendedDecember31,
	2019 548,677 $ 272,910 $	2018
		319,899 $
		175,143 $

B. The Group assesses the recoverable amounts of those assets where there is an indication that they are impaired. There was no impairment loss during the years ended December 31, 2019 and 2018.
C. The fair value of the investment property held by the Group as at December 31, 2019 and 2018 were $5,045,896 and $2,826,148, respectively, which was revalued by independent appraisers. The valuation is based on latest market price of similar investment property in the same area and condition which is categorized within Level 3 in the fair value hierarchy.

~66~

– F-189 –

		Total	36,209,954		5,852,929)	30,357,025		30,357,025		13,544,306	21,271	1,672,408)	138,270)	731,571)		41,380,353		48,851,994		7,471,641)	41,380,353
			$			$		$								$		$			$
					(							(	(	(						(
	Customer	relationships	1,787,904		16,390)	1,771,514		1,771,514		-	-	200,594)	-	36,637)		1,534,283		1,744,836		210,553)	1,534,283
			$			$		$								$		$			$
					(							(		(						(
	Developed	��	4,343,649 $		760,559)	3,583,090 $		3,583,090 $		-	-	705,269)	43,233)	63,791)		2,770,797 $		4,239,016 $		1,468,219)	2,770,797 $
					(							(	(	(						(
2019		Trademarks	7,683,529 $		72,280)	7,611,249 $		7,611,249 $		2,221,851	10	241,865)	-	175,556)		9,415,689 $		9,721,511 $		305,822)	9,415,689 $
					(							(		(						(
		Patents	4,903,625		2,563,462)	2,340,163		2,340,163		-	21,261	423,090)	-	44,463)		1,893,871		4,805,694		2,911,823)	1,893,871
			$			$		$								$		$			$
					(							(		(						(
		4G concession	- $		-	- $		- $		10,460,762	-	101,590) (	-	-		10,359,172 $		10,460,762 $		101,590) (	10,359,172 $
		Goodwill	17,491,247		2,440,238)	15,051,009		15,051,009		861,693	-	-	95,037)	411,124)		15,406,541		17,880,175		2,473,634)	15,406,541
			$			$		$								$		$			$
					(								(	(						(
		At January 1	Cost	Accumulated amortisation	and impairment		Opening net book amount	as at January 1	Acquired through business	combinations	Additions	Amortisation charge	Impairment loss	Net exchange differences	Closing net book amount	as at December 31	At December 31	Cost	Accumulated amortisation	and impairment

– F-190 –

Developed Customer At January 1 Goodwill Patents Trademarks �� relationships Total Cost 3,799,682 $ 4,277,821 $ 3,170,383 $ 647,456 $ - $ 11,895,342 $ Accumulated amortisation and impairment - 2,055,042) ( 5,136) ( 282,720) ( - 2,342,898) ( 3,799,682 $ 2,222,779 $ 3,165,247 $ 364,736 $ - $ 9,552,444 $ Opening net book amount as at January 1 3,799,682 $ 2,222,779 $ 3,165,247 $ 364,736 $ - $ 9,552,444 $ Acquired through business combinations 13,563,157 - 4,411,392 3,689,472 1,787,904 23,451,925 Additions - 482,110 - 5,856 - 487,966 Amortisation charge - 435,062) ( 65,929) ( 460,022) ( 16,085) ( 977,098) ( Impairment loss 2,394,961) ( - - - - 2,394,961) ( Net exchange differences 83,131 70,336 100,539 16,952) ( 305) ( 236,749 Closing net book amount as at December 31 15,051,009 $ 2,340,163 $ 7,611,249 $ 3,583,090 $ 1,771,514 $ 30,357,025 $ At December 31 Cost 17,491,247 $ 4,903,625 $ 7,683,529 $ 4,343,649 $ 1,787,904 $ 36,209,954 $ Accumulated amortisation and impairment 2,440,238) ( 2,563,462) ( 72,280) ( 760,559) ( 16,390) ( 5,852,929) ( 15,051,009 $ 2,340,163 $ 7,611,249 $ 3,583,090 $ 1,771,514 $ 30,357,025 $ 2018	11,895,342 $ 2,342,898)	9,552,444 $	9,552,444 $ 23,451,925 487,966 977,098) 2,394,961) 236,749	30,357,025 $	36,209,954 $ 5,852,929)	30,357,025 $

– F-191 –

A. Details of acquired through business combinations are provided in Note 6(38).
B. For the year ended December 31, 2018, the Company recognised $2,394,961 of goodwill which was generated from business combination and acquisition of Nokia-branded products. For the purposes of impairment testing, goodwill has been allocated to the cash-generating unit (the ‘CGU’) relating to the Nokia-related business. The recoverable amount of this unit has been determined based on value in use calculation. The calculation uses cash flow projections based on financial budgets approved by the directors covering a five-year period. The cash flows beyond the five-year period are extrapolated using a growth rate as follows. The key assumptions for the value in use calculations are as follows:

For the year ended December 31, 2018 Discount rate 18.81% Growth rate 3%

This growth rate is based on the relevant industry growth forecasts and does not exceed the average long-term growth rate for the relevant industry. Other key assumptions for the value in use calculations relate to the estimation of cash inflows and outflows, which include budget sales and gross margin. Such estimation is based on management’s experience from manufacturing of related feature phones and smart phones and management’s expectations for the market development. During the year, due to the unsatisfactory performance of the CGU and it takes longer than expected time to penetrate the market, the recoverable amount was less than its book value. Based on the valuation, an impairment loss of $2,394,961 was allocated to the goodwill.

C. Impairment assessment for goodwill of Belkin International Inc. The Group acquired Belkin International Inc. (shown as “Belkin”) which generated goodwill of $13,563,157 for the year ended December 31, 2019. Impairment assessment of goodwill is allocated to the Belkin’s CGU. The recoverable amount of the CGU relating to the goodwill arising from acquisition of Belkin was determined based on value-in-use calculation. The calculation uses projected cash flows based on financial budgets for a five-year period which reflects the medium-term plan of management in expanding the customer based and market share. Cash flows beyond the five-year period are extrapolated using the estimated growth rates. As of December 31, 2019, pre tax discount rate is 13.6%.

Based on the above assessment, there is no impairment loss on goodwill.

As a result of the impairment review, the recoverable amounts of the CGU in which goodwill has been allocated are higher than their carrying amount as at December 31, 2019.

D. The details of amortization are as follows:

Operating costs

For the yearendedDecember31,	For the yearendedDecember31,
2019 1,672,408 $	2018
	977,098 $

~69~

– F-192 –

(14) Other non-current assets

Other non-current assets
Long-term prepaid rent Utility duct access Computer software cost Refundable deposits Assets recognised for incremental costs of obtaining contract with customers Prepayments for equipment Others	December31,2019 - $ 1,095,837 2,713,429 2,737,880 2,081,358 704,407 6,502,388 15,835,299 $	December31,2018
		21,316,883 $ - 3,480,269 - - 918,419 4,107,517
		29,823,088 $

A. Long-term prepaid rent refers to the land use rights obtained in China. Upon signing of the lease, the amount is paid in full. The Group recognised rental expense of $738,053 for the year ended December 31, 2018. With the adoption of IFRS 16, the Group reclassified long-term prepaid rent from ‘Other non-current assets’ to ‘right-of-use asset’.
B. Refundable deposits mainly pertain to deposits for the lease of office buildings and data centers as well as bid bond for 1800MHz, 3.5GHz and 28GHz spectrum. The Company participated in the National Communications Commission’s mobile broadband auction of 2019 for bidding 1800MHz, 3.5GHz and 28GHz spectrum, and paid the bid bond amounting to $1,000,000 in September 2019.
C. Utility duct access
A subsidiary of the Company, Asia Pacific Telecom. Co., Ltd. (“Asia Pacific”), entered into a use of assets contract with Taiwan Railways Administration (“TRA”) in January 2001. According to the contract, TRA provides the right to use 50% of the capacity of optical fiber duct (30 cm width), which was along the same path on both of the rails for 25 years since the Ministry of Transportation and Communication issued the 3G license. Under the contract, Asia Pacific should pay $8,425,569 as compensation for the 25-year use right to TRA, and both parties agreed that TRA can use the compensation of $8,000,000 as capital to invest in Asia Pacific. Under the contract, Asia Pacific should pay $100,000 per year to TRA for 25 years as compensation of the use right, and TRA will no longer allow other telecom companies to use the optical fiber ducts; if any, Asia Pacific can deduct the payment based on the percentage that the other telecom companies used.
D. Incremental costs of obtaining a contract
A subsidiary of the Company, Asia Pacific Telecom. Co., Ltd., recognises the incremental costs (mainly comprised of sales commissions) of obtaining a contract with a customer as an asset if the Group expects to recover those costs. The recognised asset is amortised on a systematic basis that is consistent with the transfers to the customer of the goods or services to which the asset relates. The Group recognised amortised cost of $192,403 in profit or loss for

~70~

– F-193 –

the year ended December 31, 2019.

E. Details of other non-current assets pledged as collateral are provided in Note 8.

(15) Short-term notes and bills payable

Short-term notes and bills payable	Short-term notes and bills payable
Short-term loans December31,2019 Commercial paper 30,590,067 $ Less: Unamortized discount 61,771) ( ( 30,528,296 $ Interest rates per annum 0.718%~1.438% Type of loans December31,2019 Interest raterange Bank loans Credit loans 380,866,050 $ 0.34%-8.45% Type of loans December31,2018 Interest raterange Bank loans Credit loans 510,977,061 $ 0.81%-5.87% Secured loans 21,338,316 0.82%-4.99% 532,315,377 $			December31,2018 19,301,197 17,969) 19,283,228 0.748%~1.1% Collateral
		$
		$


	0.34%-8.45% Interest raterange		None Collateral
	0.81%-5.87% 0.82%-4.99%		None Time deposits

(16) Short-term loans

December 31, 2019

	December31,2019
Description Bank deposits and loans	Gross amount of Gross amount of recognised recognised financial financial assets assets and liabilities offset andliabilities in the balance sheet 1,424,606,382 $ 1,424,606,382 $ December31,2018	Net amount of financial assets and liabilities presented in the balance sheet
		- $

Description Bank deposits and loans	Gross amount of Gross amount of recognised recognised financial financial assets assets and liabilities offset andliabilities in the balance sheet 1,347,892,969 $ 1,347,892,969 $	Net amount of financial assets and liabilities presented in the balance sheet
		- $

~71~

– F-194 –

(17) Other payables

Other payables
Awards and salaries payable Payables for equipment Accrued interest payable Employees’ bonuses payable Consumption goods expense payable (including indirect materials) Royalty fees payable Tax payable Restricted stock repurchase obligation Others	December31,2019 50,765,551 $ 22,418,721 28,568,433 17,584,644 10,509,888 7,206,087 6,152,745 4,052,806 70,473,854 217,732,729 $	December31,2018
		49,992,571 $ 31,245,417 25,239,653 17,554,368 12,571,130 13,022,077 9,317,502 - 70,042,513
		228,985,231 $

A subsidiary of the company, Foxconn Industrial Internet Co., Ltd., issued employees’ share restricted share in 2019. Employees have to pay to acquire those stocks, and if employees resign during the vesting period, they must return the stocks to the Group and the Group must refund payments made on the stocks. The Group recognises the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date.

(18) Other current liabilities

Other current liabilities
Receipts in advance of payments for equipment on behalf of others Contract liabilities Deferred income Bonds payable maturing within one year Long-term loans maturing within one year Others	December31,2019 8,218,433 $ 18,231,021 6,922,868 38,546,364 14,553,911 5,404,263 91,876,860 $	December31,2018
		7,338,645 $ 8,831,047 6,012,613 11,000,000 317,391 5,051,040
		38,550,736 $

~72~

– F-195 –

(19) Bonds payable

Convertible bonds payable Add: Premium on bonds payable Less: Discount on bonds payable ( Corporate bonds payable Foreign unsecured corporate bonds Less: Current portion (shown as “other current liabilities”) (	December31,2019 16,596,000 $ 7,500 752,592) ( 15,850,908 124,450,000 73,750,800 214,051,708 38,546,364) ( 175,505,344 $	December31,2018 16,596,000 $ 7,500 1,006,523) 15,596,977 129,500,000 44,697,600 189,794,577 11,000,000) 178,794,577 $

A. First overseas convertible bond issue of 2017
(a) The Company issued the first overseas unsecured convertible bonds totaling USD 500 million with the approval of the competent authority on August 22, 2017. The bonds carry zero coupon rate over 5 years. The circulation period is from November 6, 2017 to November 6, 2022.
(b)The conversion price is adjusted in line with the model specified in the conversion rules. As of December 31, 2019, there has not been any converted common stock at the conversion price of NT$165.454 (using the exchange rate of 1 USD: 30.192 TWD).
(c) In accordance with the conversion rules, if the convertible bond is purchased (including purchased from the secondary market), early redeemed, or repaid at maturity by the Company, or if the convertible bond is converted into common stocks or redeemed by the bondholder, the bond is to be retired and will not be reissued.
(d) In accordance with the conversion rules, the rights and obligations of common stocks converted are the same as the outstanding ones previously subscribed.
(e) The conversion options for the first overseas convertible bond issue of 2017 are separated from the liabilities and recorded as ‘capital surplus – share options’ amounting to $1,099,253.
B. First unsecured convertible bond issue of 2018
(a) ShunSin Technology Holdings Limited, a subsidiary of the Company, issued the first unsecured convertible bonds totaling $1,500 million with the approval of the competent authority on January 10, 2018. The bonds carry zero coupon rate over 5 years. The circulation period is from February 12, 2018 to February 12, 2023.
(b) The conversion price was adjusted to NT$171.3 in line with the model specified in the conversion rules.
(c) The conversion options of the bonds are separated from liabilities and recognised as equity and liabilities as follows:

~73~

– F-196 –

Convertible bonds’ present value at compound interest Embedded derivatives (i.e. put options and redemption rights) Components of equity at issuance	1,357,350 $ 13,650 129,000
	1,500,000 $

(d) The details of non-current financial assets or liabilities at fair value through profit or loss are as follows.

are as follows.
Embedded derivatives (i.e. put options and redemption rights) Valuation gain (loss)	December31,2019	December31,2018
	22,800) ($ 25,050 2,250 $	13,650) ($ 9,150) ( 22,800) ($

C. For details of principal, interest rate, maturity and other information of corporate bonds payable and foreign unsecured corporate bonds, please refer to Table 11.

~74~

– F-197 –

(20) Long-term loans

		Interest
Institution	Loanperiod	rate	Collateral		December31,2019
Long-term loans
Mizuho Corporate Bank	2019/03/19~	2.7048%~
Ltd., etc. syndicated loan	2022/02/26	2.7600%	None		$	17,238,500
Mizuho Corporate Bank	2015/11/30~
Ltd., etc. syndicated loan	2020/11/30	0.4800%	�			5,038,500
	2017/05/17~
Citibank	2020/05/17	0.5500%	�			2,760,000
ING Bank, N.V. etc.	2013/01/07~
syndicated loan	2020/07/29	1.7900%	�			142,035
	2011/11/30~
First Commercial Bank	2030/11/30	1.5433%	Yes			2,142,857
	2013/09/06~
First Commercial Bank	2033/09/06	1.7548%	�			1,235,613
	2015/04/09~
First Commercial Bank	2022/04/09	1.8076%	None			3,472
The Shanghai Commercial	2013/6/17~	1.9900%~
& Savings Bank, Ltd.	2028/04/15	2.2000%	Yes			14,782
Jinshang Bank Company	2019/01/29~
Limited	2022/01/25	9.1000%	�			361,628
JihSun International	2019/11/25~
Commercial Bank Co., Ltd.	2022/11/25	1.0300%	None			1,000,000
Agricultural Bank of	2017/5/23~	4.4100%~
China Limited	2027/12/26	4.900%	�			6,332,503
	2019/12/16~
Taiwan Cooperative Bank	2024/12/26	1.6500%	�			1,000
Other loans
China Bills Finance
Corporation	2017/12/25~	1.038%~
etc. syndicated loan	2020/4/25	1.046%	None			19,900,000
Others			�			6,081
						56,176,971
Less: Current portion				(		14,553,911)
Administration fee of syndicated loans				(		24,709)
Unamortised discount				(		22,099)
					$	41,576,252

~75~

– F-198 –

		Interest
Institution	Loanperiod	rate	Collateral		December31,2018
Long-term loans
Mizuho Corporate Bank	2015/11/30~
Ltd., etc. syndicated loan	2020/11/30	0.4800%	None		$	5,280,000
	2017/05/17~
Citibank	2020/05/17	0.5500%	�			2,795,520
ING Bank, N.V. etc.	2013/01/07~
syndicated loan	2020/07/29	1.7900%	�			286,336
First Commercial Bank	2011/11/30~
	2030/11/30	1.5433%	Yes			2,142,857
First Commercial Bank	2013/09/06~
	2033/09/06	1.7548%	�			1,323,871
First Commercial Bank	2015/04/09~
	2022/04/09	1.8076%	None			268,394
The Shanghai Commercial	2013/6/17~	1.9900%~
& Savings Bank, Ltd.	2028/04/15	2.2000%	Yes			18,164
Agricultural Bank of	2017/5/23~	4.4100%~
China Limited	2027/12/26	4.900%	None			4,804,724
Other loans
China Bills Finance
Corporation	2017/12/25~	1.038%~
etc. syndicated loan	2020/4/25	1.046%	�			19,900,000
Others			�			6,195
						36,826,061
Less: Current portion				(		317,391)
Unamortised discount				(		24,879)
					$	36,483,791

A. Throughout the term of Mizuho Corporate Bank Ltd., ING Bank, N.V. and Citibank Ltd. etc. syndicated term loan agreement, the Group shall maintain certain financial ratios, to be tested semi-annually and annually on a consolidated basis.
B. Details of assets pledged as collateral for long-term loans are provided in Note 8.

(21) Pensions

A. Defined benefit plans

(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law of Taiwan, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly

~76~

– F-199 –

salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.

(b) The amounts recognised in the balance sheet are as follows (shown as “other non-current liabilities”):

Present value of defined benefit obligations Fair value of plan assets ( Net defined benefit liability	December31,2019 1,954,134 $ 566,295) ( 1,387,839 $	December31,2018 2,085,143 $ 651,298) 1,433,845 $

At January 1 Current service cost Interest income Interest expense Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension At December 31				2019
		Present value of defined benefit obligations		Fair value of plan assets	Net defined benefit liability
	( (	2,085,143 $ 10,865 - 22,937 2,118,945 - 73,724 42,661) 31,063 - 195,874) 1,954,134 $	651,298 $ - 7,165 - 658,463 23,659 - - 23,659 17,929 133,756) ( 566,295 $		1,433,845 $ 10,865 7,165) ( 22,937 1,460,482 23,659) ( 73,724 42,661) ( 7,404 17,929) ( 62,118) ( 1,387,839 $

~77~

– F-200 –

At January 1 Current service cost Interest income Interest expense Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension At December 31				2018
		Present value of defined benefit obligations		Fair value of plan assets	Net defined benefit liability
	( ( (	2,341,897 $ 14,272 - 28,103 2,384,272 - 26,560 224,581) 198,021) - 101,108) 2,085,143 $	(	662,556 $ - 7,950 - 670,506 19,455 - - 19,455 24,501 63,164) 651,298 $	1,679,341 $ 14,272 7,950) ( 28,103 1,713,766 19,455) ( 26,560 224,581) ( 217,476) ( 24,501) ( 37,944) ( 1,433,845 $

(e) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2019 and 2018 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

~78~

– F-201 –

(f) The principal actuarial assumptions used were as follows:

Discount rate Future salary increases	YearendedDecember31,	YearendedDecember31,
	2019 0.80% 3.50%	2018
		1.10%
		3.50%

Assumptions regarding future mortality rate are set based on actuarial advice in accordance with published statistics and experience in each territory.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

December 31, 2019 Effect on present value of defined benefit obligation December 31, 2018 Effect on present value of defined benefit obligation	Discount rate	Discount rate	Discount rate	Discount rate	Future salaryincreases	Future salaryincreases	Future salaryincreases
	Increase 0.25%		Decrease 0.25%		Increase 0.25%		Decrease 0.25%
	( (	61,696) $ 65,555) $		64,388 $ 68,439 $		57,843 $ 61,659 $	55,861) ($ 59,517) ($

The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period

(g) Expected contributions to the defined benefit pension plans of the Group for the year ending December 31, 2020 amount to $16,500.
(h) As of December 31, 2019, the weighted average duration of the retirement plan is 13 years.
B. Defined contribution plans
(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.
(b) The subsidiaries in mainland China have defined contribution pension plans and contribute an amount monthly based on 8%~9% of employees’ monthly salaries and wages to an independent fund administered by a government agency. The plan is administered by the

~79~

– F-202 –

government of mainland China. Other than the monthly contributions, the Group does not have further pension liabilities.

(c) The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2019 and 2018 were $15,154,169 and $20,913,004, respectively.
(22) Share-based payment

As of December 31, 2019 and 2018, the share-based payment transactions of FIH Mobile Limited, Foxconn Interconnect Limited and Foxconn Industrial Internet Co., Ltd, subsidiaries of the Company, are set forth below:

the Company, are set forth below:
Type of arrangement	Grantdate November 15, 2018 January 1, 2015 January 1, 2016 December 6, 2017 April 30, 2019 September 11, 2019 April 30, 2019 September 11, 2019 June, 2018 August, 2019 May 25, 2018 December 28, 2018	Quantity granted 146,963,583 21,840,000 4,101,500 259,240,433 149,183,352 10,348,325 25,947,021 473,000 2,874,000 2,983,000 24,440,600 41,763,000	Vesting conditions
Share -based payment plan Senior management share grant plan Employee restricted shares plans Restricted share plan � � Employee stock options � Share award scheme � Employee stock options �			Note (1)(6) Note (2) Note (3) Note (4) Note (4) Note (4) Note (5) Note (5) Note (6) Note (6) Note (7) Note (8)

Note 1: Of the shares granted, 3,251,902 shares cannot be sold within 1 year from the grant date.
Note 2: Grantees do not need to pay to acquire those shares. Issuance of shares is based on grantees’ service periods. Shares will be vested from March 31, 2017 in accordance with the number of the grantees’ shares on every March 31, June 30, September 30 and December 31 at 9 % in each quarter of 2017, 3% in each quarter of 2018 and 3.25% in each quarter from 2019 to 2022.
Note 3: Grantees do not need to pay to acquire those shares. Issuance of shares is based on grantees’ service periods and certain performance indicators. Shares will be vested from December 31, 2016 in accordance with the number of the grantees’ shares on every December 31 at 25% over the 4-year period, subject to performance related adjustment.
Note 4: Employees have to pay to acquire those shares. The employees can only exercise the rights after fulfilling the stipulated term of service under the limited partnership agreement. The difference between the fair value of the equity instrument and the consideration paid by the employee to acquire the instrument is amortised over a service period of 3 to 5 years starting from the grant date.
Note 5: From the date of grant, the exercise issue is five years, each issue shall be exercised 20% equally.
Note 6: Vested immediately.
Note 7: Vesting date was June 10, 2018. Three-year service starting from June 11, 2018.

~80~

– F-203 –

Note 8: Vesting period was over 1 to 4 years starting from grant date which was December 28, 2018.

A. Share-based payment plans-FIH Mobile Limited

These share-based payments were granted to employees without consideration received. For the year ended December 31, 2018, expense incurred on other share-based payments was $471,305 (US$15,632 thousand).
B. Senior management share grant plan-Foxconn Interconnect Technology Limited
The weighted average fair value of shares granted under this plan determined using the H-model was USD3.95 per share. The significant inputs into the model were weighted average cost of capital of 13.4%, perpetuity growth rate of 3%, discount for lack of marketability of 20% and control premium of 20%. The volatility is measured at the standard deviation of continuously compounded share returns based on statistical analysis of daily share prices of comparable companies in the market. For the years ended December 31, 2019 and 2018, expenses incurred on senior management share grant plan were $205,459 (US$6,647 thousand) and $281,420 (US$9,334 thousand), respectively.
C. Employees’ share restricted share plan-Foxconn Interconnect Technology Limited
The weighted average fair value of shares granted determined using the market approach was USD6 per share. The significant input applied in this approach was price/earnings ratio of 13.5.

For the years ended December 31, 2019 and 2018, expenses incurred on employees’ restricted share plan were a reversal of $11,591 (US$375 thousand) and expense of $74,501 (US$2,471 thousand), respectively.

D. Restricted share plan-Foxconn Industrial Internet Co., Ltd.

The fair value of shares granted determined was RMB4,640,306 thousand. For the years ended December 31, 2019 and 2018, expenses incurred on restricted share plan were $3,191,075 (RMB712,962 thousand) and $1,681,203 (RMB368,790 thousand), respectively.

E. Employee stock options-Foxconn Industrial Internet Co., Ltd.
The increment of fair value related to the options determined using the Black-Scholes model was RMB164,904 thousand.

For the year ended December 31, 2019, expenses incurred on employee stock options was $185,236 (RMB41,386 thousand).

F. Share award scheme-Foxconn Interconnect Technology Limited
Existing shares of the Company will be purchased by an independent trustee of the share award scheme from the market out of cash contributed by the Group and be held in trust until such shares are awarded and vested in accordance with the provisions of the share award scheme on December 31, 2018. For the years ended December 31, 2019 and 2018, expenses incurred on share award scheme were $145,957 (US$4,722 thousand) and $43,084 (US$1,429 thousand), respectively.
G. Employee stock options-Foxconn Interconnect Technology Limited

~81~

– F-204 –

On January 18, 2018, the Company granted certain eligible employees an aggregated 25,705,400 share options. On May 25, 2018, the Company reached a mutual agreement with the eligible employees to unconditionally cancel the options and offered to grant 24,440,600 new share options (the “New Options”). The exercise price was adjusted from HK$5.338 per share to HK$3.69 per share. The increment of fair value related to the modification under New Options determined using the Black-Scholes model was $45,225 (US$1,500 thousand).

For the stock options granted with the compensation cost accounted for using the fair value method, the fair value of the options determined using the Black-Scholes model was $116,379 (US$3,860 thousand).

The total share-based payment expenses incurred under this transaction for the year ended December 31, 2018 was $161,604 (US$5,360 thousand).

On December 28, 2018, the Company granted certain eligible employees an aggregated 41,763,000 share options at an exercise price of HK$3.422 per share and will be vested over 1-year to 4-year period. The share options granted are subject to performance related adjustment.

The fair value of the options determined using the Black-Scholes model was $185,091 (US$6,139 thousand), and the share-based payment expenses incurred under this transaction for the years ended December 31, 2019 and 2018 were $115,665 (US$3,742 thousand) and $1,266 (US$42 thousand), respectively.

(23) Other non-current liabilities

Other non-current liabilities
Deferred government grants Reserve for retirement pension Finance lease payable Others	December31,2019 3,040,714 $ 1,443,836 - 2,781,969 7,266,519 $	December31,2018
		3,331,661 $ 1,623,069 1,440,506 2,714,036
		9,109,272 $

(24) Provisions

Warranty At January 1, 2019 5,652,147 $ Acquired through business combinations - Additional provisions 1,483,762 Used during the year 2,971,778) ( Unused amounts reversed 1,321,607) ( Exchange differences 134,712) ( At December 31, 2019 2,707,812 $	Decommissioning liabilities Others Total - $ - $ 5,652,147 $ 354,698 17,237 371,935 15,255 11,764 1,510,781 - - 2,971,778) ( - 11,520) ( 1,333,127) ( - - 134,712) ( 369,953 $ 17,481 $ 3,095,246 $

Analysis of total provisions:

~82~

– F-205 –

Current Non-current	December31,2019 December31,2018 2,725,293 $ 5,652,147 $ 369,953 $ - $

A. The Group provides warranties on 3C products sold. Provision for warranty is estimated based on historical warranty data of 3C products.
B. In accordance with the applicable agreements or the law/regulation requirements, the Group bears dismantling, removing the asset and restoring the site obligations for certain base stations. Provision was recognised as the present value of costs which was estimated to be incurred for dismantling, removing the asset and restoring the site. The decommissioning activities are ongoing.

(25) Share capital–common stock

A. As of December 31, 2019, the Company’s authorised capital was $180,000,000, consisting of 18 billion shares of ordinary stock, and the paid-in capital was $138,629,906, consisting of 13,862,991 thousand shares with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
B. Movements in the number of the Company’s ordinary shares outstanding are as follows:

At January 1 Cash capital reduction At December 31	2019 (thousand shares) 13,862,991 - ( 13,862,991	2018 (thousand shares) 17,328,738 3,465,747) 13,862,991

C. Pursuant to the resolution adopted at the stockholders' meeting held on June 1, 1999, and after obtaining approval from the SFC, the Company issued 25 million units of global depository receipts (GDRs) in Europe, Asia and the USA. The issuance amounted to USD 347,250 thousand, and the main terms and conditions of the GDRs are as follows:

(a) Voting

Holders of GDRs have no right to directly exercise voting rights or attend the Company’s stockholders' meeting, except when a motion is on the election of directors or supervisors. A holder or holders together holding at least 51% of the GDRs outstanding at the relevant record date of the stockholders' meeting can instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting.
(b) Sale and withdrawal of GDRs
Under the current R.O.C. law, shares represented by the GDRs may be withdrawn by holders of GDRs commencing three months after the initial issue of GDRs. A holder of a GDR may, provided that the Company has delivered to the custodian physical share certificates in respect of the Deposited Shares, request the Depositary to sell or cause to be sold on behalf of such holder the shares represented by such GDRs.

(c) Dividends

~83~

– F-206 –

GDR holders are entitled to receive dividends to the same extent as the holders of common stock.

(d) As of December 31, 2019, 75,796 thousand units of GDRs were outstanding, which represents 151,591 thousand shares of common stock.
D. Cash capital reduction

In order to adjust the capital structure and increase the return on equity, the Board of Directors had been resolved to reduce capital and refund cash to shareholders on May 11, 2018 and was approved by the shareholders during their meeting on June 22, 2018. Amount of the capital reduction was $34,657,477, which cancelled 3,465,747 thousand common shares and reduced capital by 20%. The capital reduction was approved by the Securities and Futures Bureau of the Financial Supervisory Commission on August 8, 2018 and the record date of capital deduction was August 21, 2018.

E. Treasury stocks
The Company's subsidiary, Hon Jin International Investment Co., Ltd., acquired ordinary shares issued by the Company in 1998. As of December 31, 2019 and 2018, the subsidiary owned a total of 1,483,078 shares. The original cost of treasury stocks was $18,901, and the cost after capital reduction was $15,194.

(26) Capital surplus

2019

At January 1 Adjustments arising from changes in percentage of ownership in subsidiaries Changes in equity of associates and joint ventures accounted for under the equity method At December 31	Share premium 88,501,031 $ - - 88,501,031 $	Changes in ownership interests in subsidiaries 88,873,887 $ 10,315,671 - 99,189,558 $	Net change in equity of associates 11,544,285 $ - 950,756) ( 10,593,529 $	Share option 1,099,253 $ - - 1,099,253 $	Total 190,018,456 $ 10,315,671 950,756) ( 199,383,371 $

~84~

– F-207 –

2018

			2018
At January 1 Adjustments arising from changes in percentage of ownership in subsidiaries Changes in equity of associates and joint ventures accounted for under the equity method At December 31	Share premium 88,501,031 $ - - 88,501,031 $	Changes in ownership interests in subsidiaries 3,300,393 $ 85,573,494 - 88,873,887 $	Net change in equity of associates 4,972,207 $ - 6,572,078 11,544,285 $	Share option 1,099,253 $ - - 1,099,253 $	Total
					97,872,884 $ 85,573,494 6,572,078
					190,018,456 $

Foxconn Industrial Internet Co., Ltd., a subsidiary of the Company, issued new shares in June 2018. The capital surplus increased as the Group did not acquire new shares in proportion to its shareholding percentage. More information is provided in Note 6(29) C.

(27) Retained earnings

A. The annual net income of the Company shall be appropriated in accordance with the priorities listed as follows:
(a) Recovery of losses;
(b) Appropriation of 10% for legal reserve, where such legal reserve amounts to the total paid-in capital, this provision shall not apply.
(c) Appropriation or reversal of special reserve pursuant to applicable law or regulation. As to the earnings available for appropriation to shareholders including accumulated unappropriated earnings and earnings available for appropriation this year, the board of directors is authorised to draft an appropriation plan in accordance with the dividend policy in Section D of this Article.
- The board of directors is authorised the distribution of dividends and bonuses in whole or in part may be paid in cash after a resolution has been adopted by a majority vote at a meeting of theboard of directors attended by two-thirds of the total number of directors. The Company is currently at a developing stage. The Company’s dividend distribution policy is subject to the Company’s current and future investment environment, fund requirements, competition from local and abroad, and capital budgets, as well as taking into consideration of the interests of shareholders and the long-term financial planning. Shareholder dividends are set aside from accumulated unappropriated earnings, which shall not be less than 15% of earnings available for appropriation for the year and cash dividends shall not be less 10% of total dividends distributed.
B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of

~85~

– F-208 –

the Company’s paid-in capital.

C. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.
D. The appropriations of 2018 and 2017 earnings had been resolved at the stockholders’ meeting on June 21, 2019 and June 22, 2018, respectively. Details are summarized below:

Legal reserve Special reserve Cash dividends	Dividends per Amount share (indollars) 12,906,510 $ - $ 32,770,617 - 55,451,962 4.0 101,129,089 $ 4.0 $ 2018	Dividends per Amount share (indollars) 13,873,440 $ - $ 27,539,310 - 34,657,477 2.0 76,070,227 $ 2.0 $ 2017
	Amount 12,906,510 $ 32,770,617 55,451,962 101,129,089 $	Amount 13,873,440 $ 27,539,310 34,657,477 76,070,227 $

As of March 30, 2020, the distribution of 2019 earnings has not yet been proposed by the board of directors. The information on distribution of earnings will be posted on the “Market Observation Post System” of the TSEC.

E. For the information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(34).

(28) Other equity items

At January 1, 2019 - Group - Associates At December 31, 2019	Financial assets at fair value through Currency other comprehensive translation income adjustments Total 5,089,256 $ 65,399,183) ($ 60,309,927) ($ 3,320,113 47,393,440) ( 44,073,327) ( 3,028,377 1,096,843) ( 1,931,534 11,437,746 $ 113,889,466) ($ 102,451,720) ($

~86~

– F-209 –

				Financial assets at	Financial assets at
				fair	value through		Currency
		Available-for-sale		other	comprehensive		translation
			investment		income		adjustments		Total
At January 1, 2018		$	28,781,127	$	-	($	56,320,437)	($	27,539,310)
Effect of retrospective
application and
retrospective
restatement	(		28,781,127)		23,174,353		-	(	5,606,774)
- Group			-	(	5,384,750)	(	8,957,127)	(	14,341,877)
- Associates			-	(	12,700,347)	(	121,619)	(	12,821,966)
At December 31, 2018		$	-	$	5,089,256	($	65,399,183)	($	60,309,927)

(29) Non-controlling interests

Non-controlling interests At December 31, 2018 - $ $			5,089,256 65,3 ($	5,089,256 65,3 ($	99,183) 60,309 ($
			For the yearended		December31,
			2019		2018
At January 1		$	120,555,419	$	87,571,640
Effect of retrospective application and
retrospective restatement			-	(	297,228)
Balance after retrospective restatement			120,555,419		87,274,412
Share attributable to non-controlling interests:
Gain for the year			16,876,352		770,320
Currency translation difference	(		3,873,096)	(	2,645,950)
Unrealised gains and losses on investments in
equity instruments measured at fair value
through other comprehensive income	(		144,618)	(	347,863)
Changes in non-controlling interests			26,227,014		35,504,500
At December 31		$	159,641,071	$	120,555,419

A. Certain subsidiaries of the Group have issued employee share-based payment and new shares during 2019 and 2018. The Group has not purchased additional shares in proportion to its ownership and thus, the non-controlling interest of the Group increased by $3,091,260 and $35,504,500 and equity attributable to owners of the parent increased by $10,315,671 and $85,573,494, for the years ended December 31, 2019 and 2018, respectively.
B. The main reason of the change in 2019 is because the Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (shown as “Asia Pacific”) on November 21, 2019. After acquisition, the Group owned 40.74% interest of Asia Pacific. The non-controlling interest of the Group increased by $23,135,754 due to the transaction. Details are provided in Note 6(38).
C. The main reason of the change in 2018 is because the Company’s subsidiary, Foxconn Industrial Internet Co., Ltd., issued 1,969,530 thousand shares of A-share at RMB 13.77 per

~87~

– F-210 –

share. After deducting issuance cost, total funds raised amounted to RMB 26,716,439 thousand. Accordingly, the shareholding percentage of the Group decreased from 94.2% to 84.8%. The non-controlling interest of the Group increased by $35,252,892 and equity attributable to owners of the parent increased by $87,629,369 due to the transaction.

(30) Operating revenue

A. Disaggregation of revenue from contracts with customers

The Group derives revenue from the transfer of goods and services over time and at a point in time. Detail of major product lines and geographical regions are provided in Note 14(5).

B. Contract assets and liabilities

The Group has recognised the following receipts in advance as contract liabilities:

December 31, 2019 December 31, 2018 January 1, 2018 Contract liabilities (shown as “other current liabilities” ) $ 18,231,021 $ 8,831,047 $ 11,457,913

Revenue recognised were $8,831,047 and $11,457,913 in 2019 and 2018, respectively, which included the contract liability balance at the beginning of the year.

C. Assets recognised from costs to obtaining a contract

Under IFRS 15, the incremental costs related to obtaining a telecommunication contract was recognised as an asset as the Group expected to recover these costs. For the details on incremental costs recognised during the year ended December 31, 2019, please refer to Note 6(14).

(31) Other income

6(14). Other income
Interest income: Interest income from bank deposits Interest income from current financial assets at amortised cost Rental income Dividend income Government grants Other non-operating income	For the yearendedDecember31,
	2019 73,481,514 $ 2,337,822 75,819,336 2,878,314 6,423,484 2,679,066 2,580,054 90,380,254 $	2018
		57,882,814 $ 2,517,813
		60,400,627 2,888,479 3,543,981 4,263,545 3,318,867
		74,415,499 $

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– F-211 –

(32) Other gains and losses

Other gains and losses
			For the yearended			December31,
			2019			2018
Net gain on financial assets and liabilities
at fair value through profit or loss		$	10,996,109		$	12,202,000
Loss on disposal of property, plant
and equipment	(		837,950)	(		824,918)
Gain on disposal of investment			1,869,967			1,666,502
Net currency exchange loss	(		4,509,384)	(		8,223,722)
Impairment loss	(		391,323)	(		5,124,948)
Other losses	(		1,559,969)	(		692,723)
		$	5,567,450	($		997,809)

(33) Expenses by nature

Additional disclosures related to cost of sales and operating expenses are as follows:

Royalty expenses Product warranty costs Employee benefit expense Depreciation Amortisation	For the yearendedDecember31,	For the yearendedDecember31,
	2019 2,151,182 $ 49,931,158 305,622,749 65,144,046 1,864,811 424,713,946 $	2018
		2,825,733 $ 50,010,965 333,909,499 58,210,706 1,715,151
		446,672,054 $

(34) Employee benefit expense

Employee benefit expense
Wages and salaries Share-based payment Labor and health insurance fees Pension costs Other personnel expenses	For the yearendedDecember31,
	2019 261,371,295 $ 3,831,801 10,392,808 15,180,806 14,846,039 305,622,749 $	2018
		279,350,366 $ 2,759,608 10,987,778 20,947,429 19,864,318
		333,909,499 $

A. In accordance with the Articles of Incorporation of the Company, a ratio of distributable profit of the current year, after covering accumulated losses, shall be distributed as employees' compensation. The ratio shall be between 5% and 7% for employees’ compensation and 0% for directors’ and supervisors’ remuneration.
B. For the years ended December 31, 2019 and 2018, employees’ compensation was accrued at $6,350,593 and $7,662,781, respectively. The aforementioned amounts were recognised in salary expenses. The expenses recognised for 2019 and 2018 were estimated and accrued

~89~

– F-212 –

based on 5% of profit of current year distributable.

For 2018, the employees’ compensation resolved by the Board of Directors amounted to $7,662,781 on May 10, 2019. The amount was the same with the amount recognised in the financial statements for the year ended December 31, 2018, and will be distributed in the form of cash.

(35) Financial costs

website of the Taiwan Stock Exchange. Financial costs
Interest expense: Bank borrowings Corporate bonds Interest expense from lease liability Financing expense from accounts receivable factoring	For the yearendedDecember31,
	2019 62,179,187 $ 2,755,509 1,174,008 491,992 66,600,696 $	2018
		52,137,439 $ 2,841,432 - 565,965
		55,544,836 $

(36) Income tax

A. Income tax expense

(a) Components of income tax expense:

Current tax: Current tax on profits for the year Tax on undistributed surplus earnings Adjustments in respect of prior years ( Total current tax Deferred tax: Origination and reversal of temporary differences Impact of change in tax rate ( Total deferred tax Income tax expense	2019 2018 29,083,236 $ 33,716,924 $ 1,876,967 6,287,641 408,665) 472,086) ( 30,551,538 39,532,479 2,043,859 642,403 902,538) 241,135 1,141,321 883,538 31,692,859 $ 40,416,017 $ For the yearendedDecember31,
	2019 29,083,236 $ 1,876,967 408,665) ( 30,551,538 2,043,859 902,538) 1,141,321 31,692,859 $

(b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

~90~

– F-213 –

B. Reconciliation between income tax expense and accounting profit 2019 2018 Remeasurement of defined benefit obligations $1,481 ($43,495) For theyear ended December 31, 2019 2018 Tax calculated based on profit before tax and statutory tax rate 53,789,473 $ 52,125,423 $ Tax exempt income by tax regulation 22,743,457) ( 17,157,498) ( Prior year income tax overestimation 408,665) ( 472,086) ( Tax on undistributed earnings 1,876,967 6,287,641 Others 821,459) ( 367,463) ( Income tax expense 31,692,859 40,416,017 Change in deferred income tax 2,043,859) ( 642,403) ( Impact of change in the tax rate 902,538 241,135) ( Prior year income tax overestimation 2,231,922 472,086 Prepaid income tax 8,424,540) ( 10,928,135) ( Income tax payable for prior years 2,909,750) ( 9,279,165 Others 2,917,881) ( 1,955,438) ( Current income tax liability 18,531,289 $ 36,400,157 $ For theyear ended December 31,		For theyear ended December 31,	For theyear ended December 31,
		2019	2018

~91~

– F-214 –

C. Amounts of deferred tax assets or liabilities as a result of temporary differences, tax losses and investment tax credits are as follows:

Temporary differences: �Deferred tax assets: Reserve for inventory obsolescence and market price decline Deferred revenue Unrealised financial instruments Unrealised expenses Difference between accounting and Reserve for pension cost Unused compensated absences Others �Deferred tax liabilities: Foreign investment income using equity method Unrealised exchange gain Interest income Unrealised gain on financial instruments Others			For theyear ended December 31,2019	For theyear ended December 31,2019	For theyear ended December 31,2019
		January1	Recognised in profitor loss		Recognised in other comprehensive		December 31
	2,593,980 $ 1,452,329 905,098 1,903,523 4,028,238 286,833 238,191 4,821,112 16,229,304 5,545,097) ( 258,631) ( 2,896,500) ( 272,430) ( 5,676,850) ( 14,649,508) ( 1,579,796 $		1,201,385) ($ 85,905) ( 727,498) ( 176,045) ( 2,186,628) ( 10,250) ( 537,523 6,320,868 2,470,680 1,166,305 200,874) ( 815,161) ( 272,430 4,034,701) ( 3,612,001) ( 1,141,321) ($		- $ - - - - 1,481 - - 1,481 - - - - - - 1,481 $	1,392,595 $ 1,366,424 177,600 1,727,478 1,841,610 278,064 775,714 11,141,980 18,701,465 4,378,792) ( 459,505) ( 3,711,661) ( - 9,711,551) ( 18,261,509) ( 439,956 $

~92~

– F-215 –

Temporary differences: �Deferred tax assets: Allowance for sales allowances Reserve for inventory obsolescence and market price decline Deferred revenue Unrealised financial instruments Unrealised expenses Difference between accounting and Reserve for pension cost Unused compensated absences Others �Deferred tax liabilities: Foreign investment income using equity method Unrealised exchange gain Interest income Unrealised gain on financial instruments Others			For theyear ended December 31,2018	For theyear ended December 31,2018
		January1	Recognised in profitor loss	Recognised in other comprehensive		December 31
	406,558 $ 2,587,897 1,915,573 1,058,268 429,030 5,227,173 286,029 661,637 2,476,212 15,048,377 5,405,771) ( 1,792,492) ( 3,230,586) ( - 2,112,699) ( 12,541,548) ( 2,506,829 $		406,558) ($ 6,083 463,244) ( 153,170) ( 1,474,493 1,198,935) ( 44,299 423,446) ( 2,344,900 1,224,422 139,326) ( 1,533,861 334,086 272,430) ( 3,564,151) ( 2,107,960) ( 883,538) ($	- $ - - - - - 43,495) ( - - 43,495) ( - - - - - - 43,495) ($	- $ 2,593,980 1,452,329 905,098 1,903,523 4,028,238 286,833 238,191 4,821,112 16,229,304 5,545,097) ( 258,631) ( 2,896,500) ( 272,430) ( 5,676,850) ( 14,649,508) ( 1,579,796 $

D. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2019 and 2018, the temporary differences unrecognised as deferred tax liabilities were $1,059,304,231 and $992,628,708, respectively.
E. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority.
F. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China on February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% and the undistributed surplus earnings rate was marked down from 10% to 5%, effective from January 1, 2018. The Group has assessed the impact of the change in income tax rate.
G. The Company applied to “The Management, Utilization, and Taxation of Repatriated Offshore Funds Act” and was approved by the authority. Based on the Act, the Company repatriated offshore, included China, funds. For the first two years from the enforcement, tax rate is 8%

~93~

– F-216 –

and then 10%, instead of assessing income tax act. After submitting an investment plan for investing in industries to the MOEA for approval within one year from the date of depositing the funds, the Company will have a 50% refund of the tax paid.

(37) Earnings per share

For the yearendedDecember31,	For the yearendedDecember31,	2019
Weighted average number of ordinary Amount shares outstanding after tax (sharesin thousands) 115,308,736 $ 13,861,508 115,308,736 $ 13,861,508 - 69,940 224,339 91,240 115,533,075 $ 14,022,688 For the yearendedDecember31,		Earnings per share (indollars)
		8.32 $
		8.24 $
		2018
Amount after tax 129,065,105 $ 129,065,105 $ - 220,853 129,285,958 $	Weighted average number of ordinary shares outstanding (sharesin thousands) 16,073,651 16,073,651 108,231 86,582 16,268,464	Earnings per share (indollars)
		8.03 $
		7.95 $

~94~

– F-217 –

(38) Business combinations

A. Foxconn Interconnect Technology Limited, a subsidiary of the Company, subscribed and acquired 100% equity interest in Belkin International Inc. and its subsidiaries for a consideration of US$879,944 thousand. Belkin and its subsidiaries are specialized in the consumer electronics products such as mobile phone accessories, desktop connectivity, home automation solution and related products. With the acquisition, the Group expects to leverage from Belkin’s manufacturing expertise to produce more competitive products, and complement the existing interconnect solutions and other products offered to customers.
B. The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) for $10,000,000 on November 21, 2019. After acquisition, the Group owned 40.74% interest in Asia Pacific, which represented majority of the voting rights of its shareholders, and has control over the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since control date. Communications is the main business of Asia Pacific. With the acquisition, the Group expects to develop 5-generation (5G) communication.

~95~

– F-218 –

C. The fair value of identifiable assets acquired and liabilities assumed are summarised as follows:

follows:
Purchase consideration Cash paid Fair value of equity interest in Asia Pacific Telecom Co., Ltd. held before the business Fair value of the non-controlling interest Recognised amount of identifiable assets acquired and liabilities assumed Cash and cash equivalents Notes receivable and accounts receivable Other receivables Inventory Property, plant and equipment Right-of-use assets Intangible assets Deferred income tax assets Other non-current assets Short-term loans and notes and bills Accounts payable Other payables Deferred income tax liabilities Lease liabilities Other liabilities Total identifiable net assets Goodwill		Asia Pacific TelecomCo.,Ltd.		Belkin International Inc.
	10,000,000 $ 6,393,680 23,135,754 39,529,434 9,297,209 1,965,828 117,277 495,850 11,608,612 3,666,222 12,682,613 4,309,033 6,549,305 3,285,344) ( 1,281,558) ( 2,686,196) ( 608,502) ( 3,207,059) ( 694,512) ( 38,928,778 600,656 $		27,031,880 $ - - 27,031,880 919,880 2,623,457 1,181,768 5,332,501 590,561 - 9,888,768 1,883,658 70,533 - 6,525,481) ( - 2,496,922) ( - - 13,468,723 13,563,157 $

D. The fair value of the acquired identifiable intangible assets (including patents, trademarks, developed technology, customer relationships and 4G concession) of $12,682,613 and $9,888,768 for the years ended December 31, 2019 and 2018, respectively, is provisional pending receipt of the final valuations for those assets. For details, please refer to Note 6(13).

E. The operating revenue included in the consolidated statement of comprehensive income for the years ended December 31, 2019 and 2018 contributed by Asia Pacific Telecom Co., Ltd. and its subsidiaries and Belkin International Inc. and its subsidiaries were $1,560,865 and $7,361,726, respectively. Net income and loss before tax for the years ended December 31, 2019 and 2018 contributed by Asia Pacific Telecom Co., Ltd. and its subsidiaries and Belkin International Inc. and its subsidiaries were loss of $522,995 and income of $177,764, respectively. Had Asia Pacific Telecom Co., Ltd. and its subsidiaries and Belkin International

~96~

– F-219 –

Inc. and its subsidiaries been consolidated from January 1, 2019 and 2018, the consolidated statement of comprehensive income would show operating revenue of $5,355,496,196 and $5,333,357,925, respectively and income before tax of $159,255,960 and $169,373,888, respectively.

F. The acquisition of Asia Pacific Telecom Co., Ltd. and cooperative transaction is in the process of acquisition cost allocation. The Group has assigned experts to assist in identifying and assessing the fair value of assets as well as liabilities assumed. The acquisition cost allocation is expected to be completed within the period (one year within the acquisition date).
G. Fuxiang Precision Industrial (Kunshan) Co., Ltd., a subsidiary of the Company, acquired 100% equity interest of Mingyang Realty Development (Kunshan) Co., Ltd. and Tuozhan Property Development Co., Ltd. on April 12, 2019 and May 9, 2019 for a consideration of RMB217,730 thousand and RMB574,945 thousand, respectively. The combinations mainly acquired investment property of $2,047,982 and goodwill of $261,037. For details, please refer to Note 6(12) and 6(13).

(39) Supplemental cash flow information

A. Investing activities with partial cash payments

refer to Note 6(12) and 6(13). pplemental cash flow information Investing activities with partial cash payments
			For the yearendedDecember31,
			2019		2018
Purchase of property, plant and equipment		$	69,474,703	$	69,720,303
Add: Opening balance of payable on equipment			31,245,417		27,468,160
Less: Ending balance of payable on equipment	(		22,418,721)	(	31,245,417)
Net exchange differences	(		779,948)	(	410,234)
Cash paid during the year		$	77,521,451	$	65,532,812
Disposal of property, plant and equipment		$	4,413,731	$	3,444,416
Add: Opening balance of receivable on
equipment Less: Ending balance of receivable on equipment Net exchange differences	( (		2,383,723 220,019) 7,483)	( (	26,824,429 2,383,723) 1,694)
Cash received during the year		$	6,569,952	$	27,883,428

B. Changes in liabilities from financing activities

For the years ended December 31, 2019 and 2018, liabilities from financing activities included short-term loans, short-term notes and bills payable, corporate bonds payable and long-term loans, the related changes resulting from cash flows from financing activities, discount amortisation and changes in exchange rate. Summarised amount is as follows, and relevant information is shown in the statements of cash flows:

~97~

– F-220 –

At January 1 Changes in cash flow from financing activities Changes in other non-cash items Impact of changes in foreign exchange rate At December 31	2019		2018
	778,219,243 $ 97,615,713) ( 3,492,753 2,520,066) ( 681,576,217 $		663,124,371 $ 112,848,483 229,463 2,016,926 778,219,243 $

7. RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

ATED PARTY TRANSACTIONS
Names of related parties and relationship

Names of related parties

Relationship with the Group

Sharp Corporation and subsidiaries
Foxconn Technology Co., Ltd. and subsidiaries
Fuzhun Precision (Shenzhen) Industry Co., Ltd.
Fu Yu Precision Components (Kunshan) Co., Ltd.
Pan International Industrial Corporation and subsidiaries
Eson Precision Ind. Co., Ltd. and subsidiaries
General Interface Solution Holding Limited and subsidiaries
Zhen Ding Technology Holding Limited and subsidiaries
Ennoconn Corporation and subsidiaries
CyberTAN Technology, Inc. and subsidiaries
Foxsemicon Integrated Technology Inc. and subsidiaries
UER Technology Corporation
G-TECH Optoelectronics Corporation
Foxconn Global Network
Advanced Optoelectronic Technology Inc.
Ampower Technology Co., Ltd.
��
Zeitec semiconductor Co., Ltd.
Foxstar Technology Co., Ltd.
CJ Electric Systems Co., Ltd.
Ampower (BeiHai) Ltd.
SafeDX S.R.O.
Beijing HengYu New Energy Auto Rental Co., Ltd.
Shanghai Topone Logistics Co., Ltd.
Hangzhou GengDe Electronics Co., Ltd.
Shenzhen Lluvia Technology Co., Ltd.
Trans-Iot Technology Co., Ltd.
Hongkang Zhihui Corporation Limited
HaiWei Technology (Shenzhen) Co., Ltd.
Morgen Precision Industry Co., Ltd. and subsidiaries
He Cheng Da Technology (Shenzhen) Co., Ltd.
Sichuang Cheng Gong Fu Chuang Technology Co., Ltd.
Maxnerva Technology Services Ltd and subsidiaries
FuDongQun Automation Technology (Shenzhen) Co., Ltd.

Associate
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~98~

– F-221 –

Names of related parties	Relationship with the Group
Cheng Uei Precision Industry Co., Ltd. and subsidiaries Innolux Corporation and subsidiaries SIO International Holdings Limited and subsidiaries ES Platform Limited	Other related party " " "

(2) Significant transactions and balances with related parties

A. Sales

Sales of goods: Associates Other related party	For the yearendedDecember31,	For the yearendedDecember31,
	2019 175,044,681 $ 11,510,848 186,555,529 $	2018
		197,759,935 $ 12,371,719
		210,131,654 $

The above amounts include administration and service revenue. Goods are sold based on the price lists in force and terms that would be available to third parties. The Group sold materials to the above related parties for processing and repurchased the finished goods. The sales amount of materials and repurchase price of finished goods were offset against each other and shown at net amount in the financial statements.

B. Purchases

urchases
Purchase of goods: Associates Other related party	For the yearendedDecember31,
	2019 79,158,346 $ 15,378,481 94,536,827 $	2018
		130,834,386 $ 25,605,475
		156,439,861 $

Purchases from related enterprises are based on normal commercial terms and conditions.

~99~

– F-222 –

C. Receivables from related parties

Receivables from related parties	Receivables from related parties	Receivables from related parties	Receivables from related parties
December31,2019					December31,2018
Accounts receivable:
Associates		$	44,003,230		$	43,864,066
Other related party			2,214,499			4,322,659
Less: Reclassify as other receivables	(		1,449,260)			-
Less: Allowance for doubtful accounts	(		13,865)	(		14,457)
			44,754,604			48,172,268
Other receivables - sale of property,
plant and equipment:
Associates			38,441			90,904
Innolux Corporation and
subsidiaries			-			2,225,585
Other receivables - purchase of materials on
behalf of related parties:
Associates			1,467,582			1,676,151
Other related party			121,893			174,726
			1,627,916			4,167,366
Other receivables - disposal of investment
(shown as “other receivables” and
“other non-current assets”):
ES Platform Limited			21,859,451			49,031,458
Fuzhun Precision Industry (Shenzhen) Co., Ltd.			-			2,693,770
FuYu Precision Components
(Kunshan) Co., Ltd.			-			1,451,110
Other receivables
Associates			1,449,260			-
Less: Allowance for doubtful accounts	(		762,872)			-
			22,545,839			53,176,338
		$	68,928,359		$	105,515,972

(a) The amount is due 14 to 90 days after the transaction date.

(b) The Company disposed preferred C stock shares without voting rights of Sharp Corporation on December 29, 2017. The consideration for the disposal of 1,136,363 shares was $93,128,046 (¥352,490,712 thousand), which is due in each quarter beginning from the settlement date. The last settlement date is June 30, 2020.
(c) The Company disposed 100% shares of its subsidiary, Champ Tech Optical (Foshan) Corporation, to Fuzhun Precision Industry (Shenzhen) Co., Ltd. and FuYu Precision Components (Kunshan) Co., Ltd., subsidiaries of Foxconn Technology Co., Ltd. on December 1, 2018. The consideration was $4,397,458 (RMB $989,220 thousand).

~100~

– F-223 –

(d) The receivables are unsecured and non-interest bearing.
(e) Information relating to credit risk is provided in Note 12(2).

D. Payables to related parties

(d) The receivables are unsecured and non-interest bearing. (e) Information relating to credit risk is provided in Note 12(2). Payables to related parties
December31,2019 Accounts payable: Associates 30,846,862 $ Other related party 4,662,265 35,509,127 Other payables - acquisition of property, plant and equipment: Associates 311,969 Other payables - procurement of raw materials on behalf of others: Associates 2,005,923 2,317,892 37,827,019 $	December31,2018
	36,494,646 $ 5,846,103
	42,340,749
	793,082 361,401
	1,154,483
	43,495,232 $

Payables to related parties primarily arose from purchase transactions and procurement of raw materials by the related parties on behalf of the Company. The amount is due 30 to 90 days after the transaction date. The payables are non-interest bearing.

� E. Lease transactions lessee

(a) The Group leases buildings from associates. Rental contracts are typically made for periods of 1 to 3 years. Rents are paid at the end of month.
(b) Acquisition of right-of-use assets:

In adopting IFRS 16, right-of-use asset was increased by $356,825 on January 1, 2019. For the year ended December 31, 2019, the Group acquired right-of-use asset of $9,985.

December 31, 2019 Associates $ 297,003

For the year ended December 31, 2019, the interest expense incurred on lease liabilities was $14,364.

F. Prepayments:

December 31, 2019 December 31, 2018 Associates $ 3,888 $ 3,071

~101~

– F-224 –

F. Property transactions:

(a)Acquisition of property, plant and equipment:

erty transactions: cquisitionof property, plant and equipment:
Acquisition of property, plant and equipment: Associates	For the yearendedDecember31,
	2019 1,429,367 $	2018
		2,452,405 $

(b)Proceeds from sale of property, plant and equipment and gain (loss) on disposal:

	For the yearendedDecember31,	For the yearendedDecember31,	For the yearendedDecember31,	For the yearendedDecember31,
	2019			2018
	Proceeds from sale			Proceeds from sale
	of property, plant			of property, plant
	and equipment		Gain	and equipment		Gain
Sale of property,
plant and equipment:
Associates	105,123 $	$	45,508	96,862 $	$	37,491

Acquisition of financial assets:
Accounts Asia Pacific Telecom Co., Ltd. Note Shanghai Topone Logistics Co., Ltd. Investment accounted for under equity method Ennocoon Corporation " Sharp Corporation Financial Assets at fair value though other comprehensive income	No. ofshares 1,000,000 - 1,892 4,500	YearendedDecember 31,2019 Objects Consideration Share 10,000,000 $ " 645,765 " 416,186 Preferred shares of Kantatsu Co., Ltd. 1,654,226 12,716,177 $
		Objects Share " " Preferred shares of Kantatsu Co., Ltd.

Note:The Group acquired the new shares issued by Asia Pacific Telecom Co., Ltd. (the “Asia Pacific”) for $10,000,000 on November 21, 2019. After acquisition, the Group owned 40.74% interest in Asia Pacific, which represented majority of the voting rights of its shareholders, and has control over the main activities of Asia Pacific. Accordingly, it was included in the consolidated financial statements since control date. Deatails are provided in Note 6(38).

~102~

– F-225 –

(d) Disposal of financial assets:

Disposal of financial assets:
Accounts No. ofshares Objects Fuzhun Precision Industry (Shenzhen) Co., Ltd. Investment accounted for under equity method - Champ Tech Optical (Foshan) Corporation FuYu Precision Component (Kunshan) Co., Ltd. " - "		YearendedDecember 31,2018
		Proceeds 2,858,348 $ 1,539,110 4,397,458 $	Gain/(loss) 1,082,956 $ 583,130 1,666,086 $

G. Loans to related parties

(a) Receivables from related parties

Associates	December31,2019 December31,2018 192,788 $ 361,372 $

Interest income
Associates	For the yearendedDecember31,
	2019 28,331 $	2018
		8,728 $

For the years ended December 31, 2019 and 2018, the interest was recognised at the rates of 1.8%~12% and 1.70%~6%, respectively.

(3) Key management compensation

1.8%~12% and 1.70%~6%, respectively. Key management compensation
Salaries and other short-term employee benefits Post-employment benefits Share-based payments	For the yearendedDecember31,
	2019 720,622 $ 2,966 413,230 1,136,818 $	2018
		778,507 $ 439 514,144
		1,293,090 $

~103~

– F-226 –

8. PLEDGED ASSETS

As of December 31, 2019 and 2018, the book values of the Group’s pledged assets are as follows:

Assets	Nature Customs deposits and short-term loans Prepaid card and reserve accounts for short-term loans Security deposit for provisional attachment, bond deposit as security for court proceedings, security deposit for employment of foreign employees and customs deposits Long-term loans	December31,2019 319,744 $ 133,411 43,779 5,155,879 5,652,813 $	December31,2018
Time deposits and cash (shown as “current financial assets at amortised cost Restricted deposits (shown as “current financial assets at amortised cost”) Time deposits and cash (shown as “non-current financial assets at amortised cost”) Property, plant and equipment and other non-current assets			11,459,794 $ - 170,846 5,599,520
			17,230,160 $

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

Except for Note 6(4), contingencies and commitments are as follows:

- (1) Contingencies Significant legal matter

On March 8, 2019, Microsoft Corporation and Microsoft Licensing, GP sued the Group over the dispute regarding the royalty payment under the patent licensing agreement. The case is now in legal proceedings with the assistance of a lawyer and under the jurisdiction of the United States District Court for the Northern District of California.

(2) Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

Property, plant and equipment	December31,2019 December31,2018 3,850,503 $ 2,707,620 $

B. Operating lease commitments

Prior to 2019

The Company’s subsidiary leases factory dormitory under non-cancellable operating lease agreements. The lease terms are between 5 and 10 years, and the majority of lease agreements are renewable at the end of the lease period at market rate.

The future aggregate minimum lease payments under non-cancellable operating leases are as

~104~

– F-227 –

follows:

ollows:
Not later than one year Later than one year but not later than five years Later than five years	December31,2018
	8,149,450 $ 13,901,885 4,316,216
	26,367,551 $

C. As of December 31, 2019, a subsidiary of the Company, Asia Pacific Telecom Co., Ltd., had outstanding contracts of equipment procurements and base transceiver stations construction totaling $7,603,888, which will be paid in the future or paid by issuing promissory notes and commercial paper.

10. SIGNIFICANT DISASTER LOSS

None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

A. The Company issued $6,200,000 Second unsecured corporate bonds, as approved by the regulatory authority on December 30, 2019. The capital has been raised and bonds have been issued on OTC on January 9, 2020.
B. On February 7, 2020, the board of directors of the Group approved to set up a joint venture with a subsidiary of Yulon Group, Hua-Chuang Automobile Information Technical Center Co., Ltd., to develop automobile related business. The Group contributed $7,944,000 and held 51% equity of the joint venture.
C. Due to the impact of the spread of Covid-19, the Group postponed the plans to resume the production of its plants in China to March 30, 2020 in line with the local regulations. As the coronavirus epidemic continues to evolve, the Group has prudently and flexibly adjusted the Group’s resources, labour and supply chain to mitigate the impact on its operations. The extent to which the Group’s operating revenue is affected by the delay of production resumption depends on the subsequent control of coronavirus epidemic situation.

12. OTHERS

(1) Capital management

During 2019, the Group’s strategy, which was unchanged from 2018, was to maintain the gearing ratio at 70% or below.

~105~

– F-228 –

(2) Financial instruments

A. Financial instruments by category
Please refer to the consolidated balance sheets and Note 6 for the amounts and details of the financial assets (financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, financial assets at amortised cost, accounts receivable (including related parties) and other receivables) and financial liabilities (financial liabilities at fair value through profit or loss, accounts payable (including related parties), other payables, short-term loans, long-term loans and corporate bonds payable).
B. Financial risk management policies
(a) Risk categories:
- The Group employs a comprehensive risk management and control system to clearly identify, measure, and control the various kinds of financial risk it faces, including market risk (including foreign exchange risk, interest rate risk and price risk), credit risk, and liquidity risk.
(b) Management objectives:
- i. Except for market risk, which is controlled by outside factors, the remainder of the foregoing types of risks can be controlled internally or removed from business processes. Therefore, the goal in managing each of these risks is to reduce them to zero.
- ii. As for market risk, the goal is to optimize its overall position through strict analysis, suggestion, execution and audit processes, and proper consideration of a) long-term trends in the external economic/financial environment, b) internal operating conditions, and c) the actual effects of market fluctuations.
- iii. The Group's overall risk management policy focuses on the unpredictable item of financial markets and seeks to reduce the risk that potentially pose adverse effects on the Group's financial position and financial performance.
- iv. For the information on the derivative financial instruments that the Group enters into, please refer to Note 6(2).
(c) Management system:
- i. Risk management is executed by the Group’s finance department by following policies approved by the Board. Through cooperation with the Group's operating units, finance department is responsible for identifying, evaluating and hedging financial risks.
- ii. The Board has a written policy covering overall risk management. It also has written policies covering specific issues, such as exchange rate risk, interest rate risk, credit risk, derivative and non-derivative financial instruments used, and the investment of excess working capital.
C. Significant financial risks and degrees of financial risks

~106~

– F-229 –

(a) Market risk

i. Foreign exchange risk

(i) Nature:

The Group is a multinational group in the Electronics manufacturing services industry. Most of the exchange rate risk from operating activities come from:

a. Foreign exchange risk arises from different exchange rates to functional currency as the invoice dates of accounts receivable and payable denominated in non-functional foreign currency are different. Due to the characteristics of the subcontracting industry, the Company’s revenue and expenditures are mostly denominated in foreign currency. Thus, the remaining net foreign exchange risk is not material after offsetting assets and liabilities. Furthermore, although the variations in currencies of the Company’s certain foreign investments in emerging countries (i.e. Brazil, Mexico, etc.) are considered huge, the percentage of the investments is not significant and thus the Company’s foreign exchange risk can be maintained in the controllable range. (Note: The Group has several sites in various countries and thus is exposed to various foreign exchange risks. The main risk arises from USD and RMB.)
b. Except for the above transactions (operating activities) recognised in the income statement, assets and liabilities recognised in the balance sheet and the net investment in foreign operations also result in the exchange rate risk.

(ii) Management:

a. For such risks, the Group has set up policies requiring companies in the Group to manage its exchange rate risks.
b. As to the exchange rate risk arising from the difference between various functional currencies and the reporting currency in the consolidated financial statements, it is managed by the Group’s finance department.
(iii) The source:
a. U.S. dollar and NT dollar:
- Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are converted into New Taiwan dollars.
b. U.S. dollar and RMB:
- Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are converted into RMB.
c. JPY and U.S. dollar:

~107~

– F-230 –

Foreign exchange risk arises primarily from yen-denominated loans, accounts payable and other payables, which results in exchange loss or gain when they are converted into U.S. dollar.

d. JPY and NT dollar:

Foreign exchange risk arises primarily from yen-denominated loans, accounts payable and other payables, which results in exchange loss or gain when they are converted into New Taiwan dollars.

(iv) Extent

The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

December31,2019	December31,2019
Foreign currency amount Exchange (in thousands) rate 15,262,225 $ 29.98 29,249,562 6.9638 91,298,663 0.0092 86,240,866 0.2760 44,243,649 $ 29.98 11,994,176 $ 29.98 16,165,597 6.9638 59,940,153 0.0092 602,063 0.2760	Effect Book value Extent of on profit (NTD) variation or loss 457,561,506 $ 1% 4,575,615 $ 876,901,869 1% 8,769,019 25,198,431 1% 251,984 23,802,479 1% 238,025 1,326,424,597 $ 359,585,396 $ 1% 3,595,854 $ 484,644,598 1% 4,846,446 16,543,482 1% 165,435 166,169 1% 1,662 Sensitivityanalysis	Sensitivityanalysis
			Effect on profit or loss
			4,575,615 $ 8,769,019 251,984 238,025 3,595,854 $ 4,846,446 165,435 1,662

~108~

– F-231 –

December 31, 2018

(Foreign currency: Functional currency) Financial assets Monetary items USD : NTD USD : RMB JPY : USD JPY : NTD Net effect in consolidated entities with foreign currency USD : NTD Financial liabilities Monetary items USD : NTD USD : RMB JPY : USD JPY : NTD	Foreign currency amount Exchange (in thousands) rate 13,564,450 $ 30.72 23,842,540 6.8682 45,494,070 0.0091 177,078,134 0.2782 41,275,625 $ 30.72 12,594,781 $ 30.72 26,947,997 6.8682 56,944,665 0.0091 1,883,255 0.2782	Effect Book value Extent of on profit (NTD) variation or loss 416,699,904 $ 1% 4,166,999 $ 732,442,829 1% 7,324,428 12,656,450 1% 126,565 49,263,137 1% 492,631 1,267,987,200 $ 386,911,672 $ 1% 3,869,117 $ 827,842,468 1% 8,278,425 15,842,006 1% 158,420 523,922 1% 5,239 Sensitivityanalysis	Sensitivityanalysis	Sensitivityanalysis
				Effect on profit or loss
				4,166,999 $ 7,324,428 126,565 492,631 3,869,117 $ 8,278,425 158,420 5,239

(v) Total exchange loss, including realised and unrealised arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2019 and 2018 amounted to $4,509,384 and $8,223,722, respectively.

ii. Equity securities

(i) Nature

(ii) Extent

If such equity instruments’ price rise or fall by 1%, with all other factors held constant, the impact on equity due to investments in equity instruments measured at fair value through other comprehensive income, and investments in equity at fair value through profit or loss are $815,515 and $887,193 for the years ended December 31, 2019 and 2018, respectively.

~109~

– F-232 –

iii. Futures

(i) Nature

The Group is exposed to commodity price risk because of future commodity price fluctuations.

(ii) Extent

The Group sets stop-loss amount to reduce its futures market risk whenever futures contracts are entered into. As a result, there is no significant futures market risk.

iv. Cash flow and fair value interest rate risk

Long-term loans or corporate bonds with floating rates expose the Group to cash flow interest rate risk, but most of the risks are offset by cash and cash equivalents with variable interest rates.

(b) Credit risk
i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments.
- According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. The Group assesses the credit quality of the customers by taking into account their financial position, past experience and other factors to conduct its internal risk management.
- Individual risk limits are set based on internal or external ratings in accordance with limits set by the board of directors. The utilisation of credit limits is regularly monitored. Major credit risk arises from cash and cash equivalents, derivative financial instruments and other financial instruments. The counterparties are banks with good credit quality and financial institutions with investment grade or above and government agencies, so there is no significant compliance concerns and credit risk.
ii. The Group assumes that if the contract payments were past due over 90 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition; if past due over 360 days, a default has been occurred.
iii. The following indicators are used to determine whether the credit impairment of debt instruments has occurred:
- (i) It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;
- (ii) Default or delinquency in interest or principal repayments;
- (iii) Adverse changes in national or regional economic conditions that are expected to

~110~

– F-233 –

cause a default.

iv. The aging analysis of notes receivable and accounts receivable (including related parties) is as follows:

arties) is as follows:
Not past due Up to 90 days 91 to 180 days 181 to 270 days 271 to 360 days Over 361 days	December31,2019 1,001,387,391 $ 24,455,224 4,753,352 2,567,063 1,172,202 3,505,105 1,037,840,337 $	December31,2018
		1,015,332,780 $ 36,344,306 5,849,650 1,722,268 560,655 2,475,697
		1,062,285,356 $

The above aging analysis is based on days overdue.

v. The Group applies the following approaches to assess the expected credit losses (ECLs) of accounts receivable:
(i) Assess the ECLs on an individual basis if a significant default has occurred to certain customers.
(ii) Classify the other customers’ accounts receivable based on the Group’s credit rating standards and estimates the ECLs using loss rate methodology or provision matrix.
(iii) Adjust the loss rates constructed from historical and recent information by taking into account the business cycle indicators of the National Development Council and forecasts of the Basel Committee on Banking Supervision.
(iv) As of December 31, 2019 and 2018, the individual provision for impairment of accounts receivable using loss rate methodology or provision matrix is as follows:

~111~

– F-234 –

Total			1,037,840,337	5,807,295	Total			1,062,285,356	4,748,936
			$	$				$	$
Group 4		0.02%~69.03%	38,743,102	741,347	Group 4		1.45%~25.11%	61,267,872	1,079,540
			$	$				$	$
Group 3		0.01%~7.05%	23,888,891	384,193	Group 3		1.22%~9.33%	24,737,003	405,132
			$	$				$	$
Group 2		0.07%	216,730,417	145,002	Group 2		0.07%	283,134,676	198,158
			$	$				$	$
Group 1		0.03%	754,159,158	217,984	Group 1		0.03%	690,282,724	203,025
			$	$				$	$
Individual		100%	4,318,769	4,318,769	Individual		100%	2,863,081	2,863,081
			$	$				$	$
	December 31, 2019	Expected loss rate	Total book value	Loss allowance		December 31, 2018	Expected loss rate	Total book value	Loss allowance

– F-235 –

Group 1: Standard Poor’s, Fitch’s, or Moody’s rating of A-level, or rated as A-level in accordance with the Group’s credit policies for those that have no external credit ratings.
Group 2: Standard Poor’s or Fitch’s rating of BBB, Moody’s rating of Baa, or rated as B or C in accordance with the Group’s credit policies for those that have no external credit ratings.
Group 3: Standard Poor’s or Fitch’s rating of BB + and below, or Moody’s rating of Ba1 and below.
Group 4: Rated as other than A, B, or C in accordance with the Group’s credit policies for those that have no external credit ratings.
vi. As of December 31, 2019 and 2018, the Group assessed the impairment loss arising from loans to related parties and other receivables-related parties and recognised allowance for uncollectible accounts at $1,126,083 and $530,749, respectively.
vii.Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable (including related parties) is as follows:

At January 1 Impairment loss Effect of foreign exchange At December 31		2019		2018
	(	4,748,936 $ 1,281,326 222,967) 5,807,295 $	(	4,559,395 $ 195,147 5,606) 4,748,936 $

(c) Liquidity risk
i. Cash flow forecasting is performed by each operating entity of the Group and aggregated by Group treasury. The Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal requirements, for example, currency restrictions.
ii. The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

~113~

– F-236 –

Total	214,796,800	56,176,971	28,112,363	299,086,134	Total	190,793,600	36,826,061	1,577,921	229,197,582			Total	43,180	1,838,505	1,881,685	Total	236,633	414,793	22,835	674,261
	$			$		$			$				$		$		$			$
Over 5 years	38,536,000	8,551,745	6,451,935	53,539,680	Over 5 years	47,036,880	7,352,814	1,071,140	55,460,834			Over 5 years	-	-	-	Over 5 years	-	-	22,835	22,835
December 31, 2019 Less than 1 year Between 1 to 2 years Between 2 to 5 years	Bonds payable 38,546,364 $ 41,688,000 $ 96,026,436 $ $	Long-term loans 14,553,911 13,713,380 19,357,935	Lease liabilities 7,131,038 6,112,704 8,416,686	60,231,313 $ 61,514,084 $ 123,801,057 $ $	December 31, 2018 Less than 1 year Between 1 to 2 years Between 2 to 5 years	Bonds payable 11,000,000 $ 38,701,408 $ 94,055,312 $ $	Long-term loans 317,391 8,512,909 20,642,947	Finance lease payable 137,415 104,304 265,062	11,454,806 $ 47,318,621 $ 114,963,321 $ $	eside those mentioned above, other non-derivative financial liabilities are to be settled within one year.	Derivative financial liabilities:	December 31, 2019 Less than 1 year Between 1 to 2 years Between 2 to 5 years	Forward exchange contracts 43,180 $ - $ - $ $	Cross currency swap contracts 1,838,505 - -	1,881,685 $ - $ - $ $	December 31, 2018 Less than 1 year Between 1 to 2 years Between 2 to 5 years	Forward exchange contracts 236,633 $ - $ - $ $	Cross currency swap contracts 414,793 - -	Convertible bonds payable - - -	651,426 $ - $ - $ $

– F-237 –

(3) Fair value information

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks is included in Level 1.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group’s investment in derivative instruments is included in Level 2.
Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s equity investment without active market is included in Level 3.
B. Fair value information of investment property at cost is provided in Note 6(12).
C. Financial instruments not measured at fair value:
(a) Except for those listed in the table below, the carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, notes and accounts receivable, other receivables, financial assets at amortised cost (excluding bank debentures), short-term loans, notes and accounts payable, other payable and long-term loans approximate to their fair values

	December31,2019	December31,2019
BookValue		FairValue
	Level 1	Level 2	Level3
214,796,800 $			- $
BookValue		FairValue
	Level 1	Level 2	Level3
190,793,600 $	- $	185,311,327 $	- $

(b) The methods and assumptions of fair value measurement are as follows: Bonds payable: Regarding the bonds issued by the Group, the coupon rate approximates to the current market rate. Therefore, the fair value is estimated using the present value of the expected cash flows and market interest rate.
D. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at December 31, 2019 and 2018 is as follows:
(a) The related information of nature of the assets and liabilities is as follows:

~115~

– F-238 –

December31,2019 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Equity instruments Beneficiary certificates Derivatives Financial assets at fair value through other comprehensive income Equity instruments Accounts receivable expected factoring Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Derivatives December31,2018 Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Equity instruments Beneficiary certificates Derivatives Financial assets at fair value through other comprehensive income Equity instruments Accounts receivable expected factoring Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Derivatives	Level 1 12,744,243 $ 639,411 - 45,226,243 - 58,609,897 $ - $ Level 1 22,084,880 $ 454,358 - 40,019,663 - 62,558,901 $ - $	Level 2 - $ 268 8,682,531 - 108,993,188 117,675,987 $ 1,881,685) ($ Level 2 - $ 1,539,199 4,959,751 497,579 102,651,635 109,648,164 $ 674,261) ($	Level3 Total - $ 12,744,243 $ 63,546,321 64,186,000 - 8,682,531 23,580,974 68,807,217 - 108,993,188 87,127,295 $ 263,413,179 $ - $ 1,881,685) ($ Level3 Total - $ 22,084,880 $ 50,865,667 52,859,224 - 4,959,751 26,117,153 66,634,395 - 102,651,635 76,982,820 $ 249,189,885 $ - $ 674,261) ($

~116~

– F-239 –

(b)The methods and assumptions the Group used to measure fair value are as follows:
i. The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Open-end fund Market quoted price Closing price Net asset value

ii. Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques method can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
iii. When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.
iv. The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.
v. The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
vi. The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.
E. For the years ended December 31, 2019 and 2018, there was no transfer between Level 1 and Level 2.
F. The following chart is the movement of Level 3 for the years ended December 31, 2019 and 2018:

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At January 1 Adjustment for retrospective application and retrospective restatement Gains and losses recognised in profit or loss Gains and losses recognised in other comprehensive income Acquired in the year Sold in the year Transfer in to Level 3 Transfer out of Level 3 Effect of exchange rate changes At December 31	2019	2018
	76,982,820 $ - 6,247,376) ( 5,302,440) ( 22,679,505 87,708) ( 40,196 - 937,702) ( 87,127,295 $	- $ 49,320,165 3,993,763 1,888,898 26,788,467 1,887,255) ( 54,292 5,291,030) ( 2,115,520 76,982,820 $

G. Investment segment is in charge of valuation procedures for fair value measurements being categorised within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value. Investment segment sets up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensures compliance with the related requirements in IFRS.
H. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

value measurement:	ent:
Fair value at December 31, 2019 Non-derivative equity instrument: Unlisted shares 408,733 $	Fair value at December 31, 2019	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
		Market comparable companies	Revenue multiple Value to EBITA multiple Net value multiple Discount for lack of marketability	0.53~9.28 (2.05) 12.53~19.42 (15.73) 1.8 15%~35% (23.58%)	The higher the revenue multiple, the higher the fair value; the higher the discount for lack of marketability.

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Fair value at December 31, 2019 Non-derivative equity instrument: Unlisted shares 15,026,251 $ 6,302,878 $ Venture 65,389,433 $ capital shares and private equity fund investment	Fair value at December 31, 2019	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
		Stock value in complex capital structure Recent non-active market price Net assets value	Weighted average cost of capital Long-term revenue growth rate Long-term pre-tax operating margin Discount for lack of marketability Discount for lack of control Expected equity value volatility Value to operating income ratio multiple Value to EBITA multiple Not applicable Discount for lack of marketability Discount for lack of control	14.61%~15.52% (14.79%) 2% 25.53%~29.72% (28.52%) 5%~35% (18.12%) 10%~15% (14.6%) 23.68%~110.82 % (42.11%) 0.28~12.75 (2.46) 6.7 Not applicable 4.49%~10% (4.85%) 3.97%~15% (4.62%)	Not applicable Lack of marketability, discount for lack of control. The higher the long-term revenue growth rate and long-term pre-tax operating margin, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and weighted average cost of capital, the lower the fair value. The higher the revenue multiple, the higher the fair value.

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Fair value at December 31, 2018 Non-derivative equity instrument: Unlisted shares 41,806 $ Unlisted shares 4,714,838 $	Fair value at December 31, 2018	Valuation technique	Significant unobservable input	Range (weighted average) Relationship of inputs to fair value 18.27% 2% 4.31% 15% 15% 0% 0.40~6.14 (1.74) 20.01 7.06 1.43 20%~35% (29%) 29.91% The higher the long-term revenue growth rate and long-term pre-tax operating margin, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and weighted average cost of capital, the lower the fair value. The higher the revenue multiple, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and expected equity value volatility, the lower the fair value.
		Discounted cash flow Market comparable companies	Weighted average cost of capital Long-term revenue multiple growth rate Long-term pre-tax operating margin Discount for lack of marketability Discount for lack of control Expected equity value volatility Revenue multiple Value to EBITA multiple Value to operating income ratio multiple Net value multiple Discount for lack of marketability Expected equity value volatility

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Fair value at December 31, 2018 Non-derivative equity instrument: Unlisted shares 12,373,276 $ Unlisted shares 7,428,132 $ Venture capital 52,424,768 $ shares and private equity fund investment	Fair value at December 31, 2018	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
		Stock value in complex capital structure Recent non-active market price Net assets value	Weighted average cost of capital Long-term revenue growth rate Long-term pre-tax operating margin Discount for lack of marketability Discount for lack of control Expected equity value volatility Revenue multiple Not applicable Discount for lack of marketability Discount for lack of control	11.86%~15.97% (14.23) 2% 10%~21% (18.53%) 5%~20% (13.45%) 5%~15% (12.88%) 25.82%~62% (43.93%) 0.57~6.76 (1.99) Not applicable 5%~30% (5.75%) 4.52%~15% (5.10%)	Not applicable The higher the long-term revenue growth rate and long-term pre-tax operating margin, the higher the fair value; the higher the discount for lack of marketability, discount for lack of control and weighted average cost of capital, the lower the fair value. The higher the revenue multiple, the higher the fair value. Lack of marketability, discount for lack of control.

I. The Group has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

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Input	Change	December 31,2019	December 31,2019	December 31,2019	December 31,2019	December 31,2019
		Recognised in profit or loss			Recognised in other comprehensive income
		Favourable change	Unfavourabl e		Favourable change	Unfavourable change
$87,127,295 Input	±1% Change	$ 635,463	(			($235,810)
		Recognised in profit or loss			Recognised in other comprehensive income
		Favourable change	Unfavourabl e		Favourable change Unfavourable change $261,172 ($261,172)
$76,982,820	±1%	$ 508,657	(	$ 508,657)

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.
B. Provision of endorsements and guarantees to others: Please refer to table 2.
C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.
D. Acquisition or sale of the same security with the accumulated cost reaching NT$300 million or 20% of paid-in capital or more: Please refer to table 4.
E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: Please refer to table 5.
F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 6.
H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more: Please refer to table 7.
I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Note 6(2).

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J. Significant inter-company transactions during the reporting periods: Please refer to table 8.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China) � Please refer to table 9.

(3) Information on investments in Mainland China

A. Basic information: Please refer to table 10.
B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: The Company appointed Foxconn (Far East) Limited’s Mainland investee to render processing services and to trade. The transactions were eliminated in the consolidated financial statements. For significant transactions of processing services, trading, receivables and payables, endorsements and guarantees or collaterals provided, and financing, please refer to Note 13(1) A, B, G and H.

14. SEGMENT INFORMATION

(1) General information

(2) Measurement of segment information

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(3) Segment information

The financial information of reportable segments provided to chief operating decision maker is as follows:

follows:
Net external revenue Revenue from internal customers Segment revenue Segment profit	For the yearendedDecember31,
	2019 Electronic Manufacturing IntegrationService 5,114,320,217 $ 307,961,623 5,422,281,840 $ 151,924,612 $	2018
		Electronic Manufacturing IntegrationService
		5,273,895,415 $ 423,626,460
		5,697,521,875 $
		167,209,748 $

(4) Reconciliation for segment income (loss)

A reconciliation of reportable segment profit or loss to the profit before tax and discontinued operations for the years ended December 31, 2019 and 2018 is provided as follows:

Operatingrevenue	(	(	(
		2019 5,422,281,840 $ 73,929,968 153,400,813) ( 5,342,810,995 $ For the yearended
Total reported segment revenue Other operating segment revenue Elimination of intersegment revenue Total revenue Profit andloss Profit of reported segment Profit of other operating segments Elimination of intersegment transactions and internal costs and allocated expenses adjustments Profit before income tax

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(5) Geographical information

Geographical information for the years ended December 31, 2019 and 2018 is as follows:

U.S.A Ireland China Singapore Japan Taiwan Others	Revenue Non-current assets 1,743,726,612 $ 17,469,867 $ 1,423,594,027 1,201 560,194,840 271,073,387 501,088,752 7,780 196,914,882 399,603 110,917,511 49,882,132 806,374,371 57,085,187 5,342,810,995 $ 395,919,157 $ YearendedDecember31,2019	Revenue Non-current assets 1,743,726,612 $ 17,469,867 $ 1,423,594,027 1,201 560,194,840 271,073,387 501,088,752 7,780 196,914,882 399,603 110,917,511 49,882,132 806,374,371 57,085,187 5,342,810,995 $ 395,919,157 $ YearendedDecember31,2019	Revenue Non-current assets 1,692,766,016 $ 17,512,767 $ 1,410,761,933 272 536,235,918 253,572,680 494,639,862 2,692,925 149,205,490 17,740 212,859,102 12,208,072 797,334,701 54,559,632 5,293,803,022 $ 340,564,088 $ YearendedDecember31,2018	Revenue Non-current assets 1,692,766,016 $ 17,512,767 $ 1,410,761,933 272 536,235,918 253,572,680 494,639,862 2,692,925 149,205,490 17,740 212,859,102 12,208,072 797,334,701 54,559,632 5,293,803,022 $ 340,564,088 $ YearendedDecember31,2018	Revenue Non-current assets 1,692,766,016 $ 17,512,767 $ 1,410,761,933 272 536,235,918 253,572,680 494,639,862 2,692,925 149,205,490 17,740 212,859,102 12,208,072 797,334,701 54,559,632 5,293,803,022 $ 340,564,088 $ YearendedDecember31,2018
	Revenue 1,743,726,612 $ 1,423,594,027 560,194,840 501,088,752 196,914,882 110,917,511 806,374,371 5,342,810,995 $		Revenue 1,692,766,016 $ 1,410,761,933 536,235,918 494,639,862 149,205,490 212,859,102 797,334,701 5,293,803,022 $
					17,512,767 $ 272 253,572,680 2,692,925 17,740 12,208,072 54,559,632 340,564,088 $

(6) Major customer information

Major customer information of the Group for the years ended December 31, 2019 and 2018 is as follows:

Client E	For the yearendedDecember31,	For the yearendedDecember31,
	2019 Revenue (in million) 2,680,870 $	2018
		Revenue (in million)
		2,612,695 $

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REGISTERED AND HEAD OFFICE OF THE COMPANY

Hon Hai Precision Industry Co., Ltd.

66, Chung Shan Road Tu-cheng, New Taipei City 236, Taiwan ROC

TRUSTEE

REGISTRAR AND PRINCIPAL PAYING, CONVERSION AND TRANSFER AGENT

Citicorp International Limited 20/F Citi Tower One Bay East 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong

Citibank, N.A., London Branch c/o Citibank, N.A., Dublin Branch 1 North Wall Quay Dublin 1 Ireland

LEGAL ADVISORS TO THE COMPANY

as to ROC law

Lee and Li, Attorneys-at-Law

8th Floor 555 Sec. 4 Zhongxiao East Road Taipei, Taiwan ROC

LEGAL ADVISORS TO THE INITIAL PURCHASER

as to New York and United States Federal law

Sullivan & Cromwell (Hong Kong) LLP

20th Floor Alexandra House 18 Chater Road Central, Hong Kong

INDEPENDENT AUDITORS OF THE COMPANY

PricewaterhouseCoopers, Taiwan

27F, No. 333, Sec. 1, Keelung Rd., Xinyi Dist., Taipei, Taiwan

AI assistant

HON HAI — Capital/Financing Update 2013

10500_rns_2013-12-20_2ea7e73a-0919-45d6-b02c-993651f7222c.pdf

US$700,000,000

Hon Hai Precision Industry Co., Ltd.

Currency-Linked Zero Coupon Convertible Bonds due 2026

Offering Price: 100%

Citigroup

Goldman Sachs

TABLE OF CONTENTS

NOTICE TO INVESTORS

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

FINANCIAL INFORMATION PRESENTATION

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC

SUMMARY

Competitive Advantages

Strategy

THE OFFERING

SUMMARY FINANCIAL DATA

Audited Consolidated Statement of Comprehensive Income

Audited Consolidated Balance Sheet

Unaudited Consolidated Statement of Comprehensive Income

RISK FACTORS

Risks Relating to our Industry and Business

The Group is dependent on its key customers for a substantial portion of its revenues.

Our business is dependent on the 3C industries.

The Group operates in a highly competitive industry.

Our overall margins may fluctuate as a result of the product mix manufactured by the Group.

Risks associated with the political and economic situation in Hong Kong and the PRC.

We may not be able to develop successfully new production processes and new products and enter into new industries.

The Group generally does not obtain long-term volume purchase commitments from customers, and therefore, cancelations, reductions in production quantities and delays in production by customers could adversely affect the Group’s operating results.

We are subject to risks arising from international operations.

The Group may be exposed to risks as a result of strategic acquisitions, joint ventures, reorganization, investments or business cooperation arrangements.

We are vulnerable to any force majeure events or natural disasters and other disruptive events that could severely disrupt the normal operation of our business and adversely affect earnings.

The Group’s success depends on its ability to retain and attract its key and qualified personnel.

The Group may not be able to effectively manage its rapid expansion.

We may incur high costs in our expansion into new businesses.

Raw materials and components shortages may adversely affect the Group.

Principal shareholder’s interests may differ from those of other shareholders.

We may be subject to increased taxes.

Our trade secrets, patents and other non-patented intellectual property are valuable assets, and if we are unable to protect them from infringement, our business prospects may be harmed.

We may experience losses on inventories.

We are subject to operational risks.

Our production facilities are subject to risks of water and power shortages.

If we fail to comply with environmental regulations, we may be subject to adverse publicity and potentially monetary damages and fines.

If our cybersecurity is breached, we may incur significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers.

The Group needs to observe certain financial and other covenants under the terms of its debt obligations, of which the failure to comply would put the Group in default under such debt obligations.

Foreign exchange fluctuations may adversely affect the Group’s results of operations and financial conditions.

Our insurance coverage may not adequately protect us against certain operating and other hazards which may have an adverse effect on our business.

The Group may be sued for product liability or experience problems with product quality or performance which could result in adverse publicity or subject the Group to unexpected expenses, including potentially significant monetary damages.

Negative publicity may have a material adverse effect on our business.

Risks Relating to the ROC

Strained relations between the ROC and the PRC governments, and political developments in the ROC, could adversely affect the Group’s business.

The value of the Common Shares and the Bonds as well as the value of certain marketable securities held by us may be adversely affected by the volatility of the ROC securities market.

Financial reporting requirements and accounting standards in the ROC differ from those of other countries.

Potential investors should not place undue reliance on the financial information that is not audited.

Risks Relating to the PRC

Our results of operations and prospects are subject, to a significant extent, to legal, political and economic developments in the PRC.

We are subject to risks associated with the PRC legal system.

Our operations may be affected by rising inflation rates within the PRC.

The PRC’s regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent the Company from making loans or additional capital contributions to the Company’s PRC subsidiaries.

If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties.

Certain PRC regulations governing PRC companies are less developed than those applicable to companies incorporated in more developed countries.

Our labor costs may increase for reasons such as the implementation of the PRC Labor Contract Law or inflation in the PRC.

Risks Relating to Ownership of the Bonds and the Common Shares

The market for the Bonds and the Common Shares may not be liquid.

There are limitations on the ability of Holders of the Bonds to exercise conversion rights.

Holders of the Bonds will bear the risk of fluctuations in the price of the Common Shares.

Fluctuations in the exchange rate between the NT Dollar and the U.S. Dollar may have a material adverse effect on the value of the Bonds in U.S. Dollar terms.

Holders of the Bonds will have no rights as shareholders until they acquire the Common Shares upon conversion of the Bonds.

Holders of the Bonds or their designee requesting the conversion of the Bonds into the Common Shares may be required to provide certain information to the Company, and failure to provide such information may result in a delay of the conversion.

Future issues, offers or sales of Common Shares may hurt the value of the Bonds.

We may not have the ability to redeem the Bonds in cash if investors exercise the early redemption right upon the occurrence of a change of control, delisting or upon their option in certain circumstances.

We may call the Bonds prior to maturity if we have or will become obligated to pay additional amounts as a result of certain changes in applicable tax law.

Bondholders have limited anti-dilution protection.

The Trustee may request that the Bondholders provide indemnity, security and/or prefunding to its satisfaction.

USE OF PROCEEDS

DIVIDENDS AND DIVIDEND POLICY

CAPITALIZATION AND INDEBTEDNESS

HON HAI Capital/Financing Update 2013