INX - Annual Report 2016 | FinancialReports.eu

Stock Code: 3481

Innolux Corporation 2016 Annual Report

Notice to readers

This English-version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail.

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw Innolux Annual Report is available at: http://www.innolux.com Printed on April 30, 2017

A. Spokesperson & Deputy Spokesperson information.

Spokesperson Name: Chih-Hung Shiao Title: President&COO Tel: 886-37-586000 E-mail: [email protected]

Deputy Spokesperson Name: Chien-Lang Lo Title: General Director Tel: 886-37-586000 E-mail: [email protected]

B Headquarters, Branches and Plant.

Headquarters: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Branch: No.21 Zidong Road, Fenghuali, Xinshi District, Tainan City

Tel: 886-37- 586000 Tel: 886-6- 5889998

Plant

Fab T1: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T2: No.168, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T3: No. 12, Kejung Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586393 Fab A: No.1, Ciye Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051881 Fab B: No.2, Sect. 2, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051889 Fab C: No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Tel: 886-6-5051880 Fab D: No.3, Sect. 1, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051888 Fab F: No.11, Luke 10th Road, Kaohsiung City, Southern Taiwan Science Park Tel: 886-7-6278888 Fab L6: No.11, Luke 10th Road, Kaohsiung City, Southern Taiwan Science Park Tel: 886-7-6278888 STSP Touch Fab : No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880 Touch Module Fab : No. 12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880

C. Stock Transfer Agent

Grand Fortune Securities Co., Ltd.

Address: 6th Floor, No.6, Sec. 1 Zhongxiao W Rd., Zhongzheng Dist., Taipei City 10041, Taiwan Website: http://www.gfortune.com.tw

Tel: 886-2-23711658

D. Auditors

PricewaterhouseCoopers Auditors: Han-Chi Wu, Sheng-Chung Hsu Address: 27th Floor, 333 Keelung Rd, Sec. 1, Taipei, Taiwan Website: http://www.pwc.tw Tel.: 886-2-27296666

E. Overseas Securities Exchange

Luxembourg Stock Exchange Disclosed information can be found at http://www.bourse.lu

F. Corporate Website: http://www.innolux.com

	*Contents*	*Contents*
I.	Letter to Shareholders .............................................................................................................. 1
	1.1	2016 Operating Report ...................................................................................................... 1
	1.2	Business Plan for 2017 ...................................................................................................... 2
II.	Company Profile ....................................................................................................................... 3
	2.1	Date of Incorporation: January 14 2003 ............................................................................ 3
	2.2	Company History .............................................................................................................. 3
III.	Corporate Governance Report ................................................................................................ 9
	3.1	Organization ...................................................................................................................... 9
	3.2	Directors and Management Team ................................................................................... 11
	3.3	Remuneration of Directors, Supervisors, President, and Vice President ........................ 19
	3.4	Implementation of Corporate Governance ...................................................................... 26
	3.5	Information Regarding the Company’s Audit Fee and Independence ............................ 49
	3.6	Replacement of CPA: ...................................................................................................... 49
	3.7	The Company’s chairman, general manager, or any managerial officer in charge of
		finance or accounting matters has in the most recent year held a position at the
		accounting firm of its CPA or at an affiliated enterprise: ................................................ 49
	3.8	Changes in Shareholding of Directors, Managers and Major Shareholders ................... 50
	3.9	Relationship among the Top Ten Shareholders ............................................................... 51
	3.10	Ownership of Shares in Affiliated Enterprises ................................................................ 52
IV.	Capital Overview .................................................................................................................... 54
	4.1	Capital and Shares ........................................................................................................... 54
	4.2	Bonds............................................................................................................................... 61
	4.3	Preferred Shares:. ............................................................................................................ 61
	4.4	Global Depository Receipts ............................................................................................ 62
	4.5	Employee Stock Options ................................................................................................. 63
	4.6	Issuance of New Restricted Employee Shares ................................................................ 65
	4.7	Status of New Share Issuance in Connection with Mergers and Acquisitions:. ............. 67
	4.8	Financing Plans and Implementation:. ............................................................................ 67
V.	Operational Highlights ........................................................................................................... 68
	5.1	Business Activities .......................................................................................................... 68
	5.2	Market and Sales Overview ............................................................................................ 76
	5.3	Human Resources ............................................................................................................ 83
	5.4	Environmental Protection Expenditures ......................................................................... 83
	5.5	Labor Relations ............................................................................................................... 84
	5.6	Important Contracts ......................................................................................................... 88
VI.	Financial Information ............................................................................................................ 90
	6.1	Five-Year Financial Summary......................................................................................... 90
	6.2	Five-Year Financial Analysis .......................................................................................... 95
	6.3	Audit Committee Report in the Most Recent Year ......................................................... 99
	6.4	Consolidated Financial Statements for the Years Ended December 31, 2016 and
		2015, and Independent Auditors’ Report....................................................................... 100
	6.5	Financial Statements for the Years Ended December 31, 2016 and 2015, and
		Independent Auditors’ Report ....................................................................................... 100
	6.6	Disclosure of the Impact on Company’s Financial Status Due to Financial
		Difficulties:.................................................................................................................... 100

VII.	Review of Financial Conditions, Operating Results, and Risk Management ................. 101	Review of Financial Conditions, Operating Results, and Risk Management ................. 101
	7.1	Analysis of Financial Status .......................................................................................... 101
	7.2	Analysis of Financial Performance ............................................................................... 102
	7.3	Analysis of Cash Flow .................................................................................................. 103
	7.4	Major Capital Expenditure Items .................................................................................. 103
	7.5	Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement
		Plans and the Investment Plans for the Coming Year ................................................... 103
	7.6	Analysis of Risk Management ...................................................................................... 103
	7.7	Other Important Matters: ............................................................................................... 107
VIII.	Special Disclosure ................................................................................................................. 108
	8.1	Summary of Affiliated Companies ................................................................................ 108
	8.2	Private Placement Securities in the Most Recent Years: ............................................... 117
	8.3	Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent
		Years:. ............................................................................................................................ 117
	8.4	Special Notes:. ............................................................................................................... 117

IX. Materially might affect shareholders' equity or the price of the company's securities, has occurred during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, such situations shall be listed one by one: .......... 118

I. Letter to Shareholders

1.1 2016 Operating Report

The political and economic environment changed drastically worldwide in 2016, including the crisis in the Middle East triggering the influx of refugees that affected the Middle East and then extended to the European continent and the world, the United Kingdom's European Union membership referendum, and Mr. Donald Trump’s winning the US presidential election in November that had caused changes to the Trans-Pacific Strategic Economic Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The terminal consumer market experienced an economic downturn in 2016; however, the economic activity will be accelerated in 2017 and 2018, especially in emerging markets and developing economies. If the policy stimulus efforts of the United States or China can be greater than expected, the accelerated development of global economic activity will be enhanced. However, the global economy has faced a number of possible negative risk factors, including: turning to a closed economic policy and protectionism, worse deflation of the global financial environment than expected, the interaction of balance sheets arising from weak economies in the Euro zone and emerging markets, geopolitical tensions intensified, and significant decline of economic growth in China.

As for the product application market, LCD TV remains the mainstream TV specification on the market, and specifications and technology will be improved continuously; also, the large size of driver products, high-resolution (4K2K), and penetration rate improvement will help activate the momentum of sales. In terms of information products, this includes Notebook computers and computer display screens with the specifications upgraded continuously towards the trend of thin, high-resolution, wide viewing angle, and narrow frame, combined with the customer’s machine innovation, emphasizing the thin and light features of portable computers, as well as high-performance features to activate the demand for information product replacement. In terms of smart phone products, although facing the challenge from the AMOLED (organic light display) technology, the LCD technology has stable yield rate and constant product specifications refinement; therefore, both LTPS (low temperature polysilicon) and a-Si (amorphous silicon) technologies will continue to take up high market share with advanced and moderate specifications.

In this competitive industry, facing such difficulty of the macroeconomic environment and uncertainty of the market, we not only worked accurately and reacted quickly but also made maximum use of resources and created high adding value. Due to the earthquake Feb.2016 the achievement was not good as first half year of 2016, under the full effort of our management team, we reached to a good result. In 2016 our consolidated revenue was NT$ 287.1 billion, gross profit was NT$26.1 billion, net operating income was NT$6.4 billion, annual profit after tax was NT$1.87 billion, and the annual earnings per share is NT$0.19.

In view of the future, our operation team and all of our employees will continue to endeavor, to concentrate, and to innovate for the best interest of our shareholders.

(I) Result of Business Plan

In 2016 our consolidated revenue was NT$ 287,089,277 thousands, which decreased NT$77,043,707 thousands or 21% by compared with the 2015 yearly revenue of NT$ 364,132,984 thousands. In 2016 our annual profit after tax which belonged to mother company was NT$1,870,687 thousands, and the annual earnings per share is NT$0.19

(II) Budget Implementation

No financial forecast disclosed for 2016, therefore not applicable to disclose budget implementation.

(III) Financial Analysis from 2015 to 2016

	Item	2015	2016
Finacial Structure Analysis	Debt to Asset Ratio(%)	40.05	39.16
	Long-term Capital to property, plant and equipment(%)	138.84	126.79
Debt-paying ability	Current Ratio(%)	125.70	109.32
	Quick Ratio(%)	97.37	87.84
	Times Interest Earned(Times)	9.68	6.71
Profitability	Return on Assets(%)	2.81	0.68
	Return on Shareholders’ equity (%)	4.69	0.82
	Operating Income to Paid-in Capital Ratio (%)	22.54	6.44
	Pre-tax Income to Paid-in Capital Ratio(%)	14.93	5.02
	Net Margin(%)	2.97	0.65
	Basic after-tax EPS(NT$)	1.09	0.19

(IV) Research and development

Our R&D in display technology will continue to help our clients improve competitiveness, meet market demand, and be friendly to the environment. We believe the developing directions, including eco-friendly materials, low power consumption, high pixel, high saturation, ultra thin, narrow border, good dynamic performances, touch, wide viewing angle and service integration in all aspects, will achieve remarkable results.

To enhance our overall competitiveness, we proactively developed new technique and new products such as high flexible IGZO AMOLED panel, MicroLED, touch point integration technique; wide color gamut monitor, middle-and-large-sized touch panel and we’ve obtained substantial results. This helps us to stand out and keep our leading position in the keen competitive industry environment.

1.2 Business Plan for 2017

(I) Profitability increase

Vertical Integration and increase products Value-Added

(II) Efficiently,High qulity,Improvement of technique ：

Maintain yield before mass production, and continued improvement
Autonomation to SmartAuto
Continue to promote industry 4.0 via statistic analysis of data.

(III) G8.6/LTPS expansion results

Planning annual production and sales plans and reach the goal.

(IV) Lean Human Resource

Effective HR arrangement to Enhance competitiveness

(V) Taps new resources and control&reduce expenses

In year 2017, the entire staff will also to fully devote themselves to work. Please continue to give us your support and encouragement. Lastly, I wish everyone a good health and the best of luck. Thank you. Lastly, I wish everyone a good health and the best of luck. Thank you.

Chairman: Jyh-Chau Wang Manager: Jyh-Chau Wang Chief Accountant: Chin-Yuan Chang

II. Company Profile

II. Company Profile	II. Company Profile
2.1 Date of Incorporation: January 14 2003 2.2 Company History
January 2003	Inception and registration of the Company
March 2003	Invested in a subsidiary, Innolux Holding Ltd.
May 2003	Ground breaking ceremony for the TFT and Color Filter Plant In Jhunan
August 2003	The TFT and Color Filter Plant In Jhunan commenced construction
March 2004	Entered into a 7-year NT$20 billion syndicated loan contract with a syndicate including Bank of Communications
June 2004	Machinery installation started in the TFT factory and Color Filter Plant In Jhunan
September 2004	Birth of the first TFT-LCD panel
October 2004	Invested in Innocom Technology (Shenzhen) Ltd. in China
January 2005	Public issuance of the Company’s shares approved by the Financial Supervisory Commission
February 2005	Invested in Innolux Corporation Ltd. in the U.S.
March 2005	Obtained ISO 9001 certification Granted the “2005 Outstanding Award in Makingthe Science Park Green by Planting Trees” by the Science Park Administration
July 2005	Registered as an emerging stock on the GreTai Securities Market Obtained ISO 14001 and OHSAS 18001 certifications
August 2005	Ranked 51st nationwide in actual import/export performance in 2004 Granted the Excellent Award in Import/Export Performance by the Ministry of Economic Affairs and Bureau of Foreign Trade
November 2005	Recognized as an outstanding waste disposal model factory by the Environmental Protection Administration, Executive Yuan
December 2005	Recognized as an Occupational Safety and Health Administration Voluntary Protection Unit by the Council of Labor Affairs, Executive Yuan
October 2006	Shares became listed on the Taiwan Stock Exchange on 24 October
November 2006	The Board passed the resolution of merging with Jemitek Electronics Corp. on 21 November
March 2007	Completed merger with Jemitek Electronics Corp.
June 2007	Invested in InnoJoy Investment Corporation
August 2007	Invested in InnoFun Investment Corporation
November 2007	Global Deposit Receipts became listed on the London Stock Exchange on 7 November
June 2008	Topping out ceremony for the sixth generation factory of the Company
July 2008	Granted the “Outstanding Award in Making Green by Planting Trees” by the Science Park Administration Recognized as one of the TOP 10 Leading Companies among the “Taiwan Technology Top 100” Ranked sixth among Deloitte Technology FAST50 Taiwan in terms of profit growth
September 2008	Entered into a 5-year NT$24 billion and US$200 million syndicated loan contract with a syndicate of 20 banks including Mega International Commercial Bank Selected as one of the 12 units in the national industrial group by the Water Assessment Programme organized by the Ministry of Economic Affairs
October 2008	Received the Bronze Award of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs Granted the 2008 Excellence Award in Recycling and Reducing Waste Production by the Environmental Protection Administration, Executive Yuan

November 2008	Recognized as a nationwide friendly workplace in 2008 by the Council of Labor Affairs, Executive Yuan
December 2008	Granted the 2008 Outstanding Water Conservation Award by the Water Resources Agency, Ministry of Economic Affairs Honored with the "2008 Taiwan CSR Awards-Silver Award" by the Taiwan Institute for Sustainable Energy
February 2009	Innolux Display’s Fab T1 passed and obtained the Taiwan Occupational Safety and Health Management System (TOSHMS) certification
April 2009	Innolux Display’s Fab T1 was granted the excellent award in achieving zero work accident hours by the Council of Labor Affairs
May 2009	Innolux Display’s Fab T2 obtained ISO 9001/ISO 14001/OHSAS 18001/QC 080000 4-in-1 management system certification
June 2009	Granted the 2008 excellent personnel award by the National Labor Safety and Health Partnership of the Council of Labor Affairs
September 2009	Issued the 2008 Sustainability Report of Innolux Display Innolux Display’s Fab T0, T1, and T2 obtained the TS 16949 quality system certification
October 2009	Innolux Display announced a merger with TPO Displays Corp. Honored with the “Energy Conservation Outstanding Innovation Award” by the Bureau of Energy, Ministry of Economic Affairs
November 2009	Innolux Display announced a merger with Chi Mei Optoelectronics Corporation Entered into an NT$48 billion syndicated credit facility with a syndicate of 19 banks including Mega International Commercial Bank Received two Bronze Awards of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs Granted the excellent award in low carbon production and waste reduction by the Industrial Development Bureau, Ministry of Economic Affairs
December 2009	Innolux Display was honored with the "2009 Taiwan CSR Awards-Bronze Award" for its 2008 Sustainability Report by the Taiwan Institute for Sustainable Energy Received the outstanding award in the “2009 Outstanding Energy Saving Companies Selection” from the Science Park Administration Recognized as the Best Managed Company in Taiwan by Asiamoney Granted the excellence award in environmental protection by the Science Park Administration
January 2010	Obtained “Labeling of Energy Saving Action” from the Environmental Protection Administration
February 2010	Granted the excellent award for outstanding achievement on training and management for occupational health by the Council of Labor Affairs, Executive Yuan
March 2010	Completed the merger with Chi Mei Optoelectronics and TPO Displays Innolux Display renamed as Chimei Innolux Granted the outstanding performance award in occupational safety and health on the occasion of the 2009 Nationwide Occupational Safety and Health Week, held by the Council of Labor Affairs, Executive Yuan
May 2010	Winner of Taiwan's Environmental Protection Administration's 2009 Enterprise Green Procurement Performance Award Recognized as an outstanding unit in achieving zero work accident hours by the Council of Labor Affairs, Executive Yuan
June 2010	18.5-inch LCD panel is awarded 2009 FPD green quality certification 42-inch 120Hz+ MEMC is awarded the best integrated LCD panel at the Taiwan Gold Panel Awards 2010 with the 13 th Annual Outstanding Optoelectronics Product Awards
September 2010	Awarded the Outstanding Energy Conservation Award by the Department of Energy, Ministry of Economic Affairs
October 2010	Passed DNV third-party independent verification for its 18.5-inch LCD flat panel monitor

	(M185B1-L02), making CMI the first panel maker to receive a supply chain “water footprint” verification statement, Granted “the Excellent Environmental Protection Award” by the Science Park Administration
November 2010	Granted the 2010 excellence award in recycling and reducing waste production by the Environmental Protection Administration Completed the merger with Chi Mei Energy
December 2010	Granted “the 2010 Outstanding Energy Saving Award” by the Science Park Administration Granted “the Excellent Award in Low-Carbon Management” by the Science Park Administration Granted “the 2010 Outstanding Award in Making Green by Planting Trees” by the Science Park Administration
January 2011	Became the first manufacturer to obtain “water footprint” verification for its product supply-chain with regard to its desktop LCD monitors and LCD TVs
Feburary 2011	Honor Light Services Limited revoked
March 2011	2.65-inch and 5.3-inch Memory-In-Display (Midis) technology, which was a new energy-saving panel technology, obtained the Best Paper Award of the 17th IDW (International Display Workshops), Japan
April 2011	Honored with the 2011 Taiwan Excellence Gold Awards for its ultra-thin 13.3-inch HD notebook display module
May 2011	Kobe site was awarded the Best Safety & Hygiene Company by the Safety Management Committee of Kobe, Japan. Chi Mei Energy Netherlands revoked
June 2011	Won the Outstanding Photonics Product Award 2011 for its 21.5-inch PCT (Projected Capacitive Touch) display module by the Photonics Industry & Technology Development Association (PIDA). Honored with the “2011 Contribution to Job Creation” award by the Ministry of Economic Affairs and Council of Labor Affairs, Executive Yuan
August 2011	Ranked third among the “2010 Outstanding Export Growth Companies” by the Bureau of Foreign Trade, Ministry of Economic Affairs
September 2011	Granted the 2010 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan
October 2011	STSP Branch was honored with the “Jin-Jhan Award” by the Council of Labor Affairs, Executive Yuan. Honored with “National Industrial Safety and Health Award” by the Council of Labor Affairs, Executive Yuan
April 2012	Entered into the Joint Debt Restructuring Agreement with the syndicate
June 2012	Won the Outstanding Photonics Product Award 2012 for its 50-inch 3D Direct-Type LED panel by the PIDA.
August 2012	Honored with the “Taiwan Excellence Silver Award” for its 23.6-inch USB super energy-saving LCD screen
September 2012	Recognized as an outstanding unit for hiring disabled persons by surpassing the target Granted the 2011 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan and the only panel factory granted the award for four consecutive years and fulfilling its responsibility of a sustainable environmental protection enterprise Chi Mei Optoelectronics UK Limited revoked
December 2012	Changed its name to “群創光電股份有限公司” with the English name of “Innolux Corporation”
January 2013	Global depository receipts listed and traded on the Luxembourg Stock Exchange on 23 January Merger of the subsidiaries InnoJoy Investment Corporation and InnoFun Investment Corporation, in which InnoJoy Investment Corporation was the surviving company Eastern Vision Co., Ltd. liquidated

March 2013	Toptch Trading Limited liquidated Dragon Flame Industrial Ltd. liquidated
April 2013	Nanhai Plant took the lead in obtaining the first MFCA material flow cost accounting certification in the world The Company’s 65-inch 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award” The Company’s 4.3-inch active organic light emitting display (TRUEOLED) was awarded the 21st “Taiwan Excellence Silver Award” The Company's 50-inch ultra-high resolution (4K2K) thin narrow frame LCD TV module was awarded the 21st "Taiwan Excellence Award" The Company’s 30-inch six million pixel medical monitor was awarded the 21st "Taiwan Excellence Award" The Company’s 5-inch Full HD LCD panel module was awarded the 21st "Taiwan Excellence Award" The Company’s 3.4-inch active organic light emitting display was awarded the 21st "Taiwan Excellence Award"
June 2013	The Company's 65-inch ultra-high resolution thin narrow frame LCD TV module was recognized by the 16th “Annual Outstanding Optoelectronics Products Awards” Granted the first “National Environmental Education Award – Excellence Award for Private Enterprises Group” by the Environmental Protection Administration Innocom Technology (Jiashan) Co., Ltd. liquidated
September 2013	Ningbo Chi Mei Electronics Ltd. renamed as Ningbo Innolux Optoelectronics Ltd. Nanhai Chi Mei Optoelectronics Ltd. renamed as Ningbo Innolux Technology Ltd. Ningbo Chi Hsin Electrics Ltd. renamed as Ningbo Innolux Display Ltd. Ningbo Chi Mei Logistics Corp renamed as Ningbo Innolux Logistics Ltd.
October 2013	The Company’s “Intelligent Automation” team was granted the “Annual Innovative Pilot Award” of the Industry Innovation Award for theone-stop touch innovative operating model by the Ministry of Economic Affairs Foshan Chi Mei Logistics Co., Ltd. renamed as Foshan Innolux Logistics Co., Ltd. TPO Displays (Nanjing) Ltd. renamed as Nanjing Innolux Optoelectronics Ltd.
November 2013	Awarded the 2013 Green Building Gold Mark by the Ministry of Economic Affairs Awarded the “Premium” honor of the 2013 Taiwan CSR Awards Full Lucky Investment Limited liquidated
December 2013	Selected as an outstanding water saving unit for 2013 by the Water Resources Agency of the Ministry of Economic Affairs Dongguan Chi Hsin Electrics Ltd. liquidated TPO Displays (Shanghai) Ltd. renamed as Shanghai Innolux Optoelectronics Ltd. Global Deposit Receipts listed on the London Stock Exchange delisted
January 2014	Plant T1 and Plant B, D, TOC, F (Tainan) awarded Health Promotion Label of Healthy Workplace Certification Ningbo site awarded Safe Standard Level 2 Corporation Chi Mei Optoelecttonics (Singapore) Pte. Ltd. liquidated Sonic Trading Limited liquidated Innocom Technology (Xiamen) Co., Ltd. liquidated Merger of Nanhai Chi Mei Electronics Ltd. and Nanhai Chi Mei Optoelectronics Ltd., in which Nanhai Chi Mei Electronics Ltd. was the surviving company
February 2014	Foshan site awarded as an Advanced Corporation in Promotion of Environmental Protection in Si-shan town Ningbo site awarded as an Advanced Corporation in Safe Production and Workplace in Ningbo City 2013
March 2014	Honored with the Healthy Corporation Award for the 2014 Southern Science Park Ecological and

	Humanistic Marathon
April 2014	Nanhai Chi Mei Electronics Ltd. renamed as Foshan Innolux Optoelectronics Ltd. Honored with the Taiwan Excellence Sliver Award for its 65-inch ultra-high-analytic 3D TV panel Awarded a certificate of recognition for offering disability employment opportunities to realize corporate social responsibilities by the Southern Taiwan Science Park Administration, Ministry of Science and Technology Innolux’s 28-inch 4K2K and 23.6-inch touch panel won the“Taiwan Excellence Silver Award”
September 2014	Chi Mei Optoelectronics USA, Inc. renamed as Innolux Optoelectronics USA, Inc. TPO Displays USA Inc. renamed as Innolux Technology USA Inc.
October 2014	TPO Displays Japan K.K. renamed as Innolux Technology Japan Co.,Ltd.
November 2014	Chi Mei Optoelectronics Europe B.V. renamed as Innolux Optoelectronics Europe B.V. TPO Displays (Shinepal) Ltd. renamed as Nanjing Innolux Technology Ltd. Chi Mei Optoelectronics Japan Co., Ltd. renamed as Innolux Optoelectronics Japan Co.,Ltd. TPO Displays Hong Kong Ltd renamed as Innolux Hong Kong Ltd.
December 2014	Health Management Award and Nutrition Health Award by the Health Promotion Administration Granted 2014 Taiwan Sustainable Development Awards by National Council for Sustainable Development TPO Displays Hong Kong Holding Ltd. renamed as Innolux Optoelectronics Hong Kong Holding Ltd. TPO Hong Kong Holding Ltd. renamed as Innolux Hong Kong Holding Ltd. TPO Displays Europe B.V. renamed as Innolux Technology Europe B.V.
February 2015	Signed an agreement for a syndicated credit line of NT$68.5B with Bank of Taiwan and 15 other banks Innocom Technology (Chengdu) Co., Ltd. revoked
March 2015	The company terminated the debt restructuring negotiation and canceled the debt negotiations Honored with the Enterprise Innovation Award of Excellence
April 2015	The Company’s 100% high color saturation 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award” Awarded a certificate of recognition for social responsibilities by the Global Views
July 2015	Innolux as an outstanding import/export company honored The Best Contribution Award of the MOEA's Award for International Trade 2015
August 2015	Foshan Innolux Optoelectronics Ltd was awarded International Carbon-Value Award in China
September 2015	Innolux named to Dow Jones Sustainability World Index
October 2015	Awarded the Outstanding Energy Conservation Award 2015 by the Department of Energy, Ministry of Economic Affairs Completed the merger with Chi Mei EL corporation
November 2015	Inception and registration of Ningbo Innolux Electronics Ltd Innolux marked 100 in disclosure score and listed as CDLI (Carbon Disclosure Leadership Index) 2nd year in a row in CDP. Innolux honored 2015 Taiwan Corporate Sustainability Report Award-Gold Award. Gold union investments Limited liquidated Awarded the MOL TTQS Silver award
June 2016	Ningbo site was awarded an Outstanding Foreign Company Contribution Award by China Zhejiang Invesetment and Trade Symposium.
July 2016	Awarded Award for International Trade for consecutive 6 years and Target Market Contribution Award, the only multiple winner in 2016 Fab 8 awarded "Best Performance in Water-Saving Unit" by the Water Resources Agency, Ministry of Economic Affairs.

October 2016	Fab3 and T2 plant passed the Green Factory-Clean Production Certification of Industrial Development Bureau, Ministry of Economic Affairs.
November 2016	Awarded Taiwan Corporate Sustainability Awards-- Corporate Sustainability Report Golden Awards of ICT group. Awarded Taiwan Corporate Sustainability Awards--Sustainable Water Management Awards for its outstanding water management performance
December 2016	Innolux was granted the Innovative Product Awards by Hsinchu Science Park for its automotive display technologies: S Shape Display, 1-axis Curve Display, Curve with Touch Display Merger of the subsidiaries Ningbo Innolux Display Ltd. and Ningbo Innolux Technology Ltd., in which Ningbo Innolux Display Ltd. was the surviving company
Feburary 2017	Honored with Taiwan Excellence Achievement Award and Taiwan Excellence Gold Award Asiaward Investment Limited liquidated Ningbo Innolux Logistics Limited liquidated
March 2017	Main Dynasty Investment Limited liquidated Sun Dynasty Development Limited liquidated

III. Corporate Governance Report

3.1 Organization

3.1.1 Organization Chart

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3.1.2 Major Corporate Functions

Department	Functions
President’s Office	Manage the businesses of the Company according to the resolutions passed by the shareholders’ meetings and the Board of directors
Auditor's Office	Responsible for assessing the soundness of the internal control system and all the standards, checking whether the internal control system is operating effectively on a continual basis, measuring the operating results of the departments and providing improvement recommendations for efficient operation.
Mobile Device Center	Responsible for the sales, marketing, and product development of LCD wireless communication and audio-visual systems as well asproduction ofpanelproduction.
AII Product Center	Responsible for market development,customers service and development,test new technologis and newprocesses of AIIproducts.
TV Product Center	Responsible for market development,customers service and development,test new technologis and newprocesses of TVproducts.
TechnologyDevelopment Center	Develop,improve,verify,and test new technologies and newprocesses.
LCD Panel ManufacturingCenter	Responsible for theproduction of large-size LCDpanelproducts.
Module ManufacturingCenter	Responsible for theproduction of LCD moduleproducts.
Quality Management Center	Responsible for the quality management of the Company,providing the best and the most efficient quality management services (including quality control, product quality guarantee, quality system, and documentary management); and promoting the concept of totalqualitycontrol.
Business Management Center	Responsible for the operation and management, industrial engineering and information system of the Company,profits and losses of cost accounting, business strategy consultation, work-flow efficiency improvement, capacity expansion planning, production efficiency enhancement, hardware and software infrastructure, and information system construction.
Strategic Procurement Center	Responsible for the overall procurement strategy of the Company, strategic planning of important parts and components, material preparation for the introduction of products and standardized cost management.
Human Resources Management Center	Responsible for overall human resources policy, promotion of talent selection, education, deployment and retention, employee communications, general administration and corporate social responsibilities,etc.
Finance & Accounting Center	Coordinate the capital operating system of the Company, provide financial and accounting information, manage investment plans and risk aversion, and manage overall financial,investment,stock,accounting,and tax matters.
Environmental & Safety Division	Responsible for handling company-wide issues including environmental protection, occupational safety, damage prevention, and risk control of the factories, staff health management and workplace improvement, and greenhouse gas reduction; implementing and managing the environmental safety and health policies of the Company.
Legal Affair Division	Responsible for drafting and reviewing contracts; providing business-related legal consultation services; and coordinating local and international intellectual property matters of the Company.

3.2 Directors and Management Team

3.2.1 Directors

April 22, 2017;Shares

																	April 22,2017;Shares	April 22,2017;Shares	April 22,2017;Shares
Title	Nationality/ Place of Incorporation	Name (Note 1)	Gender	Date Elected (Note2)	Term (Y)	Date First Elected	Shareholding when Elected		Current Shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement		Experience (Education)	Other Position	Executives, Directors who are spouses or within two degrees of kinship
							Shares	％	Shares	％	Shares	％	Shares	％			Title	Name	Relation
Chairman	TW	Jialian Investment Co., Ltd.	－	2016/6/24	3	2012/6/29	10,672,661	0.11	10,672,661	0.11	－	－	－	－	－	－	－	－	－
	TW	Representative : Jyh-Chau Wang	M			2012/6/29	N.A.	－	912,067	0.01	607	－	－	－	M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories, Industrial TechnologyResearch Institute	Note 3	－	－	－
Institutional Director	TW	Hyield Venture Capital Co., Ltd	－	2016/6/24	3	2002/11/21	176,311,219	1.77	176,311,219	1.77	－	－	－	－	－	－	－	－	－
	TW	Representative : Te-Tsai Huang	M			2002/11/21 (Note 4)	N.A.	－	212,619	－	－	－	－	－	Graduated from National Chiao Tung University Manager, Philips Taiwan Ltd. CFO, Vanguard International Semiconductor Corporation CFO, Foxconn Precision Components Co., Ltd.	Note 4	－	－	－
Institutional Director	TW	I-Chen Investment Ltd.	－	2016/6/24	3	2004/5/19	27,535,972	0.28	27,535,972	0.28	－	－	－	－	－	－	－	－	－
	TW	Representative : Chuang-Yi Chiu	M			2016/6/24	N.A.	－	－	－	－	－	－	－	Electrical Engineering, N TU of Science and Technology General Manager of Chunghwa Picture Tubes, Ltd.	GM of Group E ETVG of Hon Hai Precision Industry Co., Ltd.	－	－	－

Title	Nationality/ Place of Incorporation	Name (Note 1)	Gender	Date Elected (Note2)	Term (Y)	Date First Elected	Shareholding when Elected	Shareholding when Elected	Current Shareholding	Current Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Other Position	Executives, Directors who are spouses or within two degrees of kinship	Executives, Directors who are spouses or within two degrees of kinship	Executives, Directors who are spouses or within two degrees of kinship
							Shares	％	Shares	％	Shares	％	Shares	％			Title	Name	Relation
Institutional Director	TW	Innolux Education Foundation	－	2016/6/24	3	2016/6/24	594,310	0.01	594,310	0.01	－	－	－	－	－	－	－	－	－
	TW	Representative : Chin-Lung Ting	M			2016/6/24	N.A.	－	1,087,063	0.01	－	－	－	－	M.S., Graduate Institute of Electronics Engineering, NTU Senior Consultant, Chi Lin Technology Co., Ltd Executive VP of Innolux Corp.	Note 5	－	－	－
Independent Director	TW	Chi-Chia Hsieh	M	2016/6/24	3	2013/6/19	－	－	－	－	－	－	－	－	Ph. D of Mechanical Engineering, Santa Clara University, USA	Note 6	－	－	－
Independent Director	TW	Bo-Bo Wang	M	2016/6/24	3	2012/6/29 (Note7)	－	－	－	－	－	－	－	－	Ph. D of Computer Science, UCLA	Chairman and CEO of Aetas Technology Incorporated	－	－	－
Independent Director	HK	Stanley Yuk Lun Yim	M	2016/6/24	3	2013/6/19	－	－	－	－	－	－	－	－	High school graduated	Note 8	－	－	－

Note 1:Existing Directors as of the date of the annual report.

Note 2:The 7 terms of BOD members reelected on 2016/6/24 and effective on 2016/7/1.

Note 3:CEO of Innolux Corporation

Concurrently as chairman of the board:Innolux Holding Ltd., Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd., Innolux Hong

Kong Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Yuan Chi Investment Co., Ltd.(Statutory representative)

Concurrently as director: InnoJoy Investment Corporation(Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)

Note 4:Elected as Innolux Corporation Supervisor on 2002/11/21 and 2010/6/29 and now as representative of Institutional Director

Concurrently as chairman of the board: Hyield Venture Capital Co., Ltd. (Statutory representative), Shenzhen R&R Information Technology Co., Ltd
Concurrently as director: Foxconn (Far East) Limited(HK)、Foxteq Holdings Inc.、Foxteq Integration,Inc.,HCM International Company, Beijing Tiger Tesco E-Commerce Co.,Ltd., Chengdu Jusda supply management Ltd.,Chengdu Tiger Tesco E-Commerce Co.,Ltd,Hangzhou Tiger Tesco E-Commerce Co., Ltd,Wuhan Tiger Tesco E-Commerce Co.,Ltd,Henan Chung Yuan finance management Limited,Fuxuntong Trading, ShenZhen, FuRuei International Investment,ShangHai ChiaMing Finance and Rental Limited,Zhengzhou Airport Economic Comprehensive Experimental Zone Chung Yuan Microfinance Limited.,Zhengzhou Airport Economy Zone occupational training school,HungChi International Investment (Statutory representative), HungChiau International Investment,; and Pao Shin International Investment Co., Ltd. (Statutory representative)
Concurrently as supervisor: HungJing International Investment (Statutory representative), LiYi International Investment (Statutory representative), HungYuan International Investment (Statutory representative), and Pan-International.
Note 5:Concurrently as chairman of the board: GIO Optoelectronics Corp. and Double star Inc.
Concurrently as director: Innolux Optoelectronics Japan
Note 6:Concurrently as chairman of the board: Microelectronics Technology Inc. IQE Taiwan Corporation, Jupiter Network Corp., Welltop Technology Co. Ltd, Jupiter Technology (Wuxi) Co., Ltd. Concurrently as independent director: AcBel Polytech Inc.

Concurrently as director: Asia Pacific Telecom(Statutory representative), China Synthetic Rubber Corp. (Statutory representative), E-ONE Moli Energy Corp. (Statutory representative), Advanced Wireless Semiconductor Company, Bright Led Electronics Corp., Kobrite Taiwan Corporation (Statutory representative), Advanced Crystal Application Technology, Inc. (Statutory representative), Sasson Capital (Statutory representative), Kopin Corporation, Inc.T’Cement(Statutory representative) The convener of the 11th supvervision meeting for the Allied Association for Science Park Industries

Note 7 :Elected as Innolux Corporation Independent Director on 2012/6/29 and relected again on 2016/6/24

Note 8 :A founder and Executive Director of S.A.S. Dragon Holding Limited, a member of Justices of Peace in the Government of the Hong Kong Special Administrative Region, the deputy chairman of Hong Kong Electronic Industry Association, a permanent Honorary President of Hong Kong Trade Services Council,the chairman of District Fight Crime Committee,Tsuen Wan District Office; a counselor for Coucil of Yan Chai Hospital,Chairman of Yan Chai Hospital SUS Kindergarten,a committee member of Political Consultative Conference Shanghai and Yunfu Committee; and a honoary member of Junior Police Call Committee, Tsuen Wan District.

Major shareholders of the institutional shareholders

Major shareholders of the institutional shareholders	Major shareholders of the institutional shareholders
April 22,2017
Name of Institutional shareholders	Major shareholders of the institutional shareholders
Jialian Investment Co.,Ltd.	Super Venture Investments Limited, Samoa（100%）
Hyield Venture Capital Co., Ltd.	Hon Hai Precision Components Co., Ltd. (97.95%), Pao Shin International Investment Co.,Ltd.(2.05%)
I-Chen Investment Ltd.	CompanyObjective Developments Limited,Samoa(100%)
Innolux Education Foundation	N.A.

Major shareholders of the Company’s major institutional shareholders

April 22, 2017

	April 22,2017
Name of Institutional Shareholders	Major shareholders
Super Venture Investments Limited, Samoa	Diamond Luck Enterprises Ltd（100%）
Hon Hai Precision Ind. Co., Ltd. (Note)	Terry Tai-Ming Gou (9.36%), CTBC Terry Tai-Ming Gou Trust account (2.89%), Citi Managed Government of Singapore Investment accounts (1.91%), JPMorgan hosting Saudi-Arabia Central Bank investment account (1.83%), Citigroup hosting Hon Hai Precision Ind. Co. Ltd. Depositary Receipts account (1.59%), Standard Chartered hosting Vatican Gardner emerging market equity index fund account (1.39%), Citi Bank hosted Norges Bank Investment account (1.33%), JPMorgan Managed Stichting Depositary APG investment account (1.07%), JPMorgan Managed Advanced Stars advanced aggregate International Equity Index(1.06%), Standard Chartered Hosting Fidelity light called Trust: FidelityLow of shares of the Fund(1.05%)
Pao Shin International Investment Co., Ltd.	Hon Hai Precision IndustryCo., Ltd.(100%)
Company Objective Developments Limited, Samoa	Perfect Impulse Investments Limited（100%）

Note: The information is derived from the close of registrar information of the company dated 24 April 2017.

Professional qualifications and independence analysis of directors

Professional qualifications	and independence analysis of directors	and independence analysis of directors	and independence analysis of directors
Criteria Name	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience			Independence Criteria (Note)										Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company	1	2	3	4	5	6	7	8	9	10
Jialian Investment Co., Ltd. Jyh-Chau Wang	－	－	V	－	－	V	V	V	V	V	V	V	－	－
Hyield Venture Capital Co., Ltd Te-Tsai Huang	－	－	V	V	V	V	V	V	V	V	V	V	－	－
I-Chen Investment Ltd. Chuang-Yi Chiu	－	－	V	V	V	V	V	V	V	V	V	V	－	－
Innolux Education Foundation Chin-LungTing	－	－	V	－	－	V	V	V	V	V	V	V	－	－
Chi-Chia Hsieh	－	－	V	V	V	V	V	V	V	V	V	V	V	1
Bo-Bo Wang	－	－	V	V	V	V	V	V	V	V	V	V	V	－
Stanley Yuk Lun Yim	－	－	V	V	V	V	V	V	V	V	V	V	V	－

Note：Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.

Not an employee of the Company or any of its affiliates.
Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.
Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else's name(s), in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.
Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.
Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the Company.
Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services, or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
Not been a person of any conditions defined in Article 30 of the Company Law.
Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Law

3.2.2 Management Team

3.2.2 Management Team	3.2.2 Management Team	3.2.2 Management Team	3.2.2 Management Team	3.2.2 Management Team
													April 22,2017 Managers who are Spouses or Within Two Degrees of Kinship Title Name Relation －－－－－－－－－－－－－－－－－－－－－－－－－－－－－－－－－
Title	National ity	Name Note 1	Gender	Date Effective	Shareholding		Spouse & Minor Shareholding		Shareholding by Nominee Arrangement		Experience (Education)	Other Position	Managers who are Spouses or Within Two Degrees of Kinship
					Shares	％	Shares	％	Shares	％			Title	Name	Relation
Chairman &CEO	TW	Jyh-Chau Wang	M	2010/3/18 (Note 2)	912,067	0.01	607	－	－	－	M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories,Industrial TechnologyResearch Institute	Note 2	－	－	－
President &COO	TW	Chih-Hung Hsiao	M	2003/1/14 (Note 3)	470,480	－	3,600,000	0.04	－	－	B.S., Industrial Engineering, Tunghai University Plant Director, AU Optronics Corp. Deputy Plant Director, Unipac Optoelectronics Corp. Supervisor, Center for Measurement Standards (CMS), Industrial TechnologyResearch Institute	Note 3	－	－	－
Executive Vice President	TW	Chin-Lung Ting	M	2010/3/18 (Note 4)	1,087,063	0.01	－	－	－	－	M.S., Graduate Institute of Electronics Engineering, National Taiwan University Manager,Unipac Optoelectronics Corp.	Note 4	－	－	－
Vice President	TW	Yao-Tong Chen	M	2010/3/18	1,689,644	0.02	16,422	－	－	－	Master of EMBA, Sun Yat-sen University Manager,Hitachi Electronics Co.,Ltd.	－	－	－	－
Vice President	TW	Hung-Wen Yang	M	2007/6/1 (Note 5)	320,769	－	59,002	－	－	－	M.S., Chemical Engineering, National Cheng Kung University Plant Director, Sintek Photronic Corp Deputy Plant Director, AU Optronics Corp. Manager,Unipac Optoelectronics Corp.	－	－	－	－
Vice President	TW	Chih-Ming Chen	M	2010/3/18 (Note 5)	312,193	－	863	－	－	－	Graduated from Metallurgy and Materials Science Research Institute of National Cheng Kung University Engineer, Shyen Sheng Fuat Steel & Iron Works Co., Ltd Senior Engineer,Unipac Optoelectronics Corp.	－	－	－	－
Vice President	TW	Chu-Hsiang Yang	M	2010/3/18 (Note 6)	925,585	0.01	7,953	－	－	－	M.S., Chemical Engineering, National Central University DeputySection Manager,Chunghwa Picture Tubes,Ltd.	Note 6	－	－	－
Assistant Vice President	TW	Ke-Yi Kao	M	2010/3/18	607,488	0.01	－	－	－	－	M.S., Chemical Engineering, University of Florida (U.S.A.) Assistant Manager,Unipac Optoelectronics Corp.	－	－	－	－
Assistant Vice President	TW	Tai-Chi Pan	M	2010/3/18	886,880	0.01	58,680	－	－	－	Graduated in Electrical Engineering of National Cheng Kung University Assistant Manager,Unipac Optoelectronics Corp.	－	－	－	－
Assistant Vice President	TW	Kuo-Hsiung Kuo	M	2010/3/18	714,100	0.01	295,540	－	－	－	B.S., Mechanical Engineering, Waseda University, Japan	Note 7	－	－	－
Assistant Vice President	TW	Chung-Kuang Wei	M	2010/3/18	654,395	0.01	－	－	－	－	Ph. D, Institute of Photonics, National CT University Electronics Research Laboratories, Industrial Technology Research Institute	－	－	－	－

Title	National ity	Name Note 1	Gender	Date Effective	Shareholding	Shareholding	Spouse & Minor Shareholding	Spouse & Minor Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Experience (Education)	Other Position	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship	Managers who are Spouses or Within Two Degrees of Kinship
					Shares	％	Shares	％	Shares	％			Title	Name	Relation
Assistant Vice President	TW	Jia-Pang Pang	M	2010/11/8	2,445,089	0.02	－	－	－	－	Ph. D, Electronics Engineering, University of Tokyo, Japan Deputy Director of TFT Manufacturing Plant, AU Optronics Corp.	－	－	－	－
Assistant Vice President	TW	Yu Shui Kuo	M	2014/12/1	160,000	－	－	－	－	－	Master of Mechanical Engineering, Yuan Ze University Associate President of Entire Technology Co. Ltd. Manager of AU Optronics Corp. Associate Manager of Prodisc Coordinator Of Ritek Corporation	－	－	－	－
Assistant Vice President	TW	Zheng-Xia Kuo	M	2013/9/23	549,802	0.01	30,000	－	－	－	Bachelor of Industrial Engineering and Management, National Chiao Tung University Person-in-charge of BU, GIO Optoelectronics Corp. Manager of Chi Mei LightingTechnologyCorporation	Director of Ampower Holding Ltd.	－	－	－
Assistant Vice President	TW	Tien-Jen Lin	M	2013/9/23	1,169,554	0.01	218,922	－	－	－	Master of Electrical Engineering, National Taiwan University Advisor to General Manager's Office, Unity Opto Technology Co., Ltd. Director of Head Office of Product Development, Chi Mei LightingTechnologyCorporation	Chairman of INX technology Europe B.V. and USA	－	－	－
Assistant Vice President	TW	Qing-Hui Lin	M	2015/12/25	300,039	－	－	－	－	－	Master of institute of science engineering, National Central University R&D Director,Chunghwa Picture Tubes,Ltd.	Note 8	－	－	－
Assistant Vice President	TW	Jun-Yi Yu	M	2015/12/25	109,537	－	－	－	－	－	Master of Industrial Engineering,Texas Tech University Production Manager of AU Optronics Corp.	Note 9	－	－	－
Assistant Vice President	TW	Mao-Sheng Hung	M	2015/12/25	453,600	－	－	－	－	－	Master of management, National Taiwan University Department representative of Gigabyte MarketingExecutive of BenQ	－	－	－	－
Finance Supervisor	TW	Chien-Lang Lo	M	2014/5/7	147,431	－	198	－	－	－	Master of Business Administration, Baruch College, College of the City of New York Assitant manager of Sumitomo Mitsui Banking Corporation. Deputy manager of HSBC Bank director of Tokyo-Mitsubishi UFJ.	Note 10	－	－	－
Account Supervisor	TW	Chin-Yuan Chang	M	2009/1/9	300,192	－	－	－	－	－	Master of Business Administration, National Chengchi University Vice President of Finance, Xiamen Overseas Chinese Electronic Co., Ltd. CFO,Information Product Business Group,BENQ	Note 11	－	－	－

Note 1:Existing Managers as of the printed date of the annual report.

Note 2: Promoted to Chairman and CEO on 2016/5/13

Concurrently as chairman of the board: Innolux Holding Ltd.,Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd.,

Innolux Hong Kong Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Yuan Chi Investment Co., Ltd. (Statutory representative)

Concurrently as director: InnoJoy Investment Corporation (Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)
Note 3: Promoted to President and COO on 2017/3/16
Concurrently as chairman of the board: Rockets Holding LTD., Stanford Developments Ltd., Suns Holding Ltd., Lakers Trading Ltd., Warriors Technology Investments Ltd., InnoJoy Investment Corporation (Statutory representative)
Concurrently as director: Yuan Chi Investment Co., Ltd. (Statutory representative)
Note 4: Promoted to Executive Vice President on 2016/6/24
Concurrently as chairman of the board: GIO Optoelectronics Corp., Double Star Inc.
Concurrently as director: Innolux Optoelectronics Japan Co., Ltd.
Note 5:Promoted to Vice President on 25 December 2015
Note 6: Promoted to Vice President on 19 March 2016
Concurrently as director: Innolux Technology Japan Co.,Ltd.,Innolux Optoelectronics Japan Co., Ltd.,Chi Lin Optoelectronics. (Statutory representative),FI Medical Device Manufacturing Co. (Statutory representative)
Note 7:Concurrently as chairman of the board: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd. Concurrently as director: Chi Mei Frozen Food Co., Ltd.
Note 8: Concurrently as chairman of the board: Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co.
Note 9:Concurrently as chairman of the board: Bright Information Holding Ltd.,Innolux Hong Kong Holding Limited, Innolux Optoelectronics Hong Kong Holding Ltd., Shanghai Innolux Optoelectronics Ltd., Foshan Innolux Optoelectronics Ltd, Kunpal Optoelectronics Ltd., Nanjing Innolux Optoelectronics Ltd., Innocom Technology (Shenzhen) Co., Ltd.
Note10:Concurrently as chairman of the board:Best China Investments Ltd., Mega Chance Investments Ltd., Magic Sun Ltd.,
Concurrently as director: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., InnoJoy Investment Corporation (Statutory representative), Yuan Chi Investment Co., Ltd. (Statutory representative)
Note 11:Concurrently as chairman: Innolux Optoelectronics Europe B.V., Innolux Optoelectronics Germany GmbH
Concurrently as director: Innocom Technology (Shenzhen) Co., Ltd., Nanjing Innolux Optoelectronics Ltd., Kunpal Optoelectronics Ltd., Nanjing Innolux Technology Ltd., VAP Optoelectronics (Nanjing) Corp., Shanghai Innolux Optoelectronics Ltd.
Concurrently as supervisor: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., Innolux Optoelectronics Japan Co., Ltd., Innolux Technology Japan Co., Ltd., Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd., InnoJoy Investment Corporation (Statutory representative)

3.3 Remuneration of Directors, Supervisors, President, and Vice President

3.3.1 Remuneration of Directors

												Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -	Unit: NT$;Shares: thousands Relevant Remuneration Received by Directors Who are Also Employees Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8) Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary Salary, Bonuses, and Allowances (E) (Note 5) Severance Pay (F) (Note 6) Employees Compensation (G) (Note 7) The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report The company All companies in the financial report Cash Stock Cash Stock 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -
Title	Name (Note 1)	Remuneration								Ratio of Total Remuneration (A+B+C+D) to Net Income (%)(Note8)		Relevant Remuneration Received by Directors Who are Also Employees								Ratio of Total Compensation (A+B+C+D+ E+F+G) to Net Income (%)(Note8)		Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary
		Base Compensation (A) (Note 2)		Severance Pay (B)		Directors Compensation (C) (Note 3)		Allowances (D) (Note 4)				Salary, Bonuses, and Allowances (E) (Note 5)		Severance Pay (F) (Note 6)		Employees Compensation (G) (Note 7)
		The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company		All companies in the financial report		The company	All companies in the financial report
																Cash	Stock	Cash	Stock
Chairman&CEO	Hsing-Chien Tuan(Note)	6,600	6,600	-	-	3,856	3,856	300	300	0.57	0.57	50,202	50,202	-	-	2,064	-	2,064	-	3.37	3.37	-
Chairman	Jialian Investment Co., Ltd.
	Jyh-Chau Wang(Note10)
Institutional director	Hyield Venture Capital Co., Ltd
	Jeng-Wu Tai(Note11)
	Te-Tsai Huang
Institutional director	I-Chen Investment Ltd.
	Chuang-Yi Chiu(Note12)
Institutional director	Innolux Education Foundation
	Chin-Lung Ting(Note12)
Independent Director	Chi-Chia Hsieh
Independent Director	Bo-Bo Wang(Note12)
Independent Director	Stanley Yuk Lun Yim

Note 1: Existing Directors as of the date 2016.

Note 2: Refers to directors’ remuneration paid in 2016.

Note 3: The proposal of 2016 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of directors in 2016.

Note 5: Refers to the salaries, bonuses and special disbursement, etc. received as employees by directors in 2016. Note 6: Refers to the amounts transferred to government authorities in 2016.

Note 7: The proposal of 2016 profit distribution has resolved by the board of director. Note 8: Ratio of total net income (Alone). Note 9:2016/5/12 Retired Note10:2016/5/13 onboard Note11:2016/5/5 resignation Note12:2016/7/1 onboard

Range of Remuneration table

	Range of Remuneration table	Range of Remuneration table	Range of Remuneration table	Range of Remuneration table
Range of Remuneration	Name of Directors
	Total of(A+B+C+D)		Total of(A+B+C+D+E+F+G)
	The company	All companies in the financial report	The company	All companies in the financial report
Under NT$ 2,000,000	Hsing-Chien Tuan, Jialian Investment Co., Ltd. Jyh-Chau Wang, Hyield Venture Capital Co., Ltd, Jeng-Wu Tai, Te-Tsai Huang, I-Chen Investment Ltd, Chuang-Yi Chiu, Innolux Education Foundation , Chin-Lung Ting, Chi-Chia Hsieh, Bo-Bo Wang, StanleyYuk Lun Yim	Hsing-Chien Tuan, Jialian Investment Co., Ltd. Jyh-Chau Wang, Hyield Venture Capital Co., Ltd, Jeng-Wu Tai, Te-Tsai Huang, I-Chen Investment Ltd, Chuang-Yi Chiu, Innolux Education Foundation , Chin-Lung Ting, Chi-Chia Hsieh, Bo-Bo Wang, StanleyYuk Lun Yim	Jialian Investment Co., Ltd. , Hyield Venture Capital Co., Ltd, Jeng-Wu Tai, Te-Tsai Huang, I-Chen Investment Ltd, Chuang-Yi Chiu, Innolux Education Foundation, Chi-Chia Hsieh, Bo-Bo Wang, Stanley Yuk Lun Yim	Jialian Investment Co., Ltd. , Hyield Venture Capital Co., Ltd, Jeng-Wu Tai, Te-Tsai Huang, I-Chen Investment Ltd, Chuang-Yi Chiu, Innolux Education Foundation, Chi-Chia Hsieh,Bo-Bo Wang, Stanley Yuk Lun Yim
NT$2,000,000 ~ NT$5,000,000
NT$5,000,000 ~ NT$10,000,000
NT$10,000,000 ~ NT$15,000,000
NT$15,000,000 ~ NT$30,000,000			Chin-LungTing	Chin-LungTing
NT$30,000,000 ~ NT$50,000,000			Jyh-Chau Wang, Hsing-Chien Tuan	Jyh-Chau Wang, Hsing-Chien Tuan
NT$50,000,000 ~ NT$100,000,000
Over NT$100,000,000
Total	13	13	13	13

3.3.2 Remuneration of Supervisors

Unit: NT$; Share: thousands

Title	Name(Note 1)			Remuneration	Remuneration			Ratio of Total Remuneration (A+B+C) to Net Income (%)(Note 5)	Ratio of Total Remuneration (A+B+C) to Net Income (%)(Note 5)	Compensation Paid to Supervisors from an Invested Company Other than the Company’s Subsidiary
		Base Compensation (A) (Note 2)		Bonus to Supervisors( B) (Note 3)		Allowances (C) (Note 4)
		The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report
Supervisor	Ren-Guang Lin	1,350	1,350	-	-	50	50	0.07	0.07	-
Supervisor	Yi-Fang Chen
Supervisor	I-Chen Investment Ltd. Te-Tsai Huang

Note 1: Existing Supervisors as of the date of 2016 Note 2: Refers to the remuneration paid to supervisors in 2016. Note 3: The proposal of 2016 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of supervisors in 2016.

Note 5: Ratio of total net income (Alone).

Range of Remuneration table

f total net income (Alone).	Range of Remuneration table	Range of Remuneration table
Range of Remuneration	Name of Supervisors
	Total of(A+B+C)
	The company	All companies in the financial report
Under NT$ 2,000,000	I-Chen Investment Ltd. Te-Tsai Huang, Ren-Guang Lin, Yi-FangChen	I-Chen Investment Ltd. Te-Tsai Huang, Ren-Guang Lin, Yi-FangChen
NT$2,000,000 ~ NT$5,000,000
NT$5,000,000 ~ NT$10,000,000
NT$10,000,000 ~ NT$15,000,000
NT$15,000,000 ~ NT$30,000,000
NT$30,000,000 ~ NT$50,000,000
NT$50,000,000 ~ NT$100,000,000
Over NT$100,000,000
Total	4	4

3.3.3 Remuneration of the President and Vice Presidents

Unit: NT$ thousands

														Unit: NT$ thousands
Title	Name (Note 1)	Salary (A) (Note 2)		Severance Pay(B) (Note 3)		Bonuses and Allowances (C) (Note 4)		EmployeeCompensation(D)(Note 5)				Ratio of Total Compensation (A+B+C+D) to Net Income (%)(Note 6)		Compensation Paid to the President and Vice Presidents from an Invested Company Other than the Company’s Subsidiary
		The company	All companies in the financial report	The company	All companies in the financial report	The company	All companies in the financial report	The company		All companies in the financial report		The company	All companies in the financial report
								Cash	Stock	Cash	Stock
Chairman &CEO	Hsing-Chien Tuan(Note7)	32,293	32,293	458	458	69,447	69,447	4,368	-	4,368	-	5.70	5.70	-
Chairman &CEO	Jyh-Chau Wang(Note8)
-President &COO	Chih-Hung Hsiao(Note9)
Excutive Vice President	Chin-Lung Ting(Note10)
Vice President	Wen-Jyh Sah(Note11)
Vice President	Yao-Tong Chen
Vice President	Hung-Wen Yang
Vice President	Chih-Ming Chen
Vice President	Chu-Hsiang Yang(Note 12)

Note 1: Existing Management as of the date of 2016. Note 2: Refers to remuneration paid in 2016. Note 3: Refers to amounts transferred to government authorities in 2016. Note 4: Refers to the bonuses, special disbursement and 266 tousand for a car and oil costs for CEO & President. Note 5: The proposal of 2016 profit distribution has resolved by the board of director. Note 6: Ratio of total net income (Alone). Note 7: Retired on 2016/5/12 Note 8: Promoted to Chairman&CEO on 2016/5/13 Note 9: Promoted to President&COO on 2017/3/16 Note10: Promoted to Excutive Vice President on 2016/6/24 Note11: Position adjusted on 2016/6/7 Note12: Promoted to Vice President on 2016/3/19

Range of Remuneration table

	Range of Remuneration table	Range of Remuneration table
Range of Remuneration	Name of President and Vice President
	The company	All companies in the financial report
Under NT$ 2,000,000
NT$2,000,000 ~ NT$5,000,000
NT$5,000,000 ~ NT$10,000,000	Wen-Jyh Sah, Yao-Tong Chen , Hung-Wen Yang, Chu-Hsiang Yang , Chih-MingChen	Wen-Jyh Sah, Yao-Tong Chen , Hung-Wen Yang, Chu-Hsiang Yang , Chih-MingChen
NT$10,000,000 ~ NT$15,000,000	Chih-Hung Hsiao, Chin-LungTing	Chih-Hung Hsiao, Chin-LungTing
NT$15,000,000 ~ NT$30,000,000	Hsing-Chien Tuan , Jyh-Chau Wang	Hsing-Chien Tuan , Jyh-Chau Wang
NT$30,000,000 ~ NT$50,000,000
NT$50,000,000 ~ NT$100,000,000
Over NT$100,000,000
Total	9	9

3.3.4 Names of managerial officers who received employees’ bonuses in the preceding year and the distribution

	and the distribution	and the distribution	and the distribution	and the distribution	and the distribution	and the distribution
	Unit: NT$thousands as of April 30,2017
	Title	Name (Note 1)	Employee Compensation - in Stock (Fair Market Value)	Employee Compensation - in Cash (Note 2)	Total	Ratio of Total Amount to Net Income(%) (Note 3)
Executive Officers	Chairman&CEO	Hsing-Chien T uan(Note4)	-	8,792	8,792	0.47
	Chairman&CEO	Jyh-Chau Wang(Note5)
	President&COO	Chih-HungHsiao(Note6)
	Excutive Vice President	Chin-Lung Ting(Note7)
	Vice President	Wen-Jyh Sah(Note8)
	Vice President	Yao-TongChen
	Vice President	Hung-Wen Yang
	Vice President	Chih-MingChen
	Vice President	Chu-HsiangYang(Note9)
	Associate Vice President	Ke-Yi Kao
	Associate Vice President	Tai-Chi Pan
	Associate Vice President	Kuo-Hsiung Kuo
	Associate Vice President	Chung-Kuang Wei
	Associate Vice President	Jia-Pang Pang
	Associate Vice President	Yu-Shui Kuo
	Associate Vice President	Zheng-Xia Kuo
	Associate Vice President	Tien-Jen Lin
	Associate Vice President	Qing-Hui Lin
	Associate Vice President	Jun-Yi Yu
	Associate Vice President	Mao-Sheng Hung
	Finance Supervisor	Chien-Lang Lo
	Accounting Supervisor	Chin-Yuan Chang

Note 1: Refers to current managerial officers as of the printing date of 2016. Note 2: The proposal of 2016 profit distribution has resolved by the Board of director. Note 3: Ratio of Total Amount to Net Income of alone. Note 4: Retired on 2016/5/12 Note 5: Promoted on 2016/5/13 Note 6: Promoted on 2017/3/16 Note 7: Promoted on 2016/6/24 Note 8: Position adjusted on 2016/6/7 Note 9: Promoted on 2016/3/19

3.3.5 Comparison of Remuneration for Directors, Supervisors, Presidents, and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents, and Vice Presidents

A. The ratio of total remuneration paid by the company and by all companies included in the consolidated financial statements for the most recent two fiscal years to directors, supervisors, presidents, and vice presidents of the Company to the net income.

Year Item	Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income	Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income	Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income	Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income
	2015		2016(Note 1)
	The company	Companies in the consolidated financial statements	The company	Companies in the consolidated financial statements
Directors	0.58	0.58	3.37	3.37
Supervisors	0.04	0.04	0.07	0.07
Presidents&Vice Presidents	1.00	1.00	5.70	5.70

Note 1: The proposal of 2016 profit distribution has resolved by the Board of director.

The remuneration payment policy of the Company is determined in accordance with the actual profit of the Company for the year and the ratio as required under the Articles of Association of the Company for distribution as remuneration to directors and supervisors and as bonuses to employees. For payments made to presidents and vice presidents, different levels of remuneration are set after considering their job positions, responsibilities undertaken, job achievements and contributions made to company operations, and with reference to industry standards, the remuneration payment policy is considered to be reasonable.

B. The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and the correlation with business performance.

Remunerations of directors and supervisors of the Company are determined in accordance with the Articles of Association of the Company, their participation and value of contributions made to the operation of the Company and with reference to industry standards.

Remuneration of presidents and vice presidents includes salaries, bonuses, special disbursements, employee bonus, employee stock options, and new shares with restrictive rights of employees, etc. which are determined after considering the nature of work, responsibilities, job positions, and duties undertaken and with reference to industry standards of similar job positions. The amount of employees’ bonuses, after the relevant resolution has been passed by shareholders, will be reviewed by the remuneration committee according to the bonus distribution mechanism for employees of the Company on individual basis, and a proposal will be made to the Board for a decision and will be implemented upon passing the Board resolution.

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

A total of 5 meetings of the Board of Directors were held in the previous(2016)period. Director attendance was as follows:

follows:
Title	Name	Attendance in Person	By Proxy	Attendance Rate(%)	Remarks
Chairman	Hsing-Chien Tuan	2	0	100%	2016/5/12Retired
Chairman	Jialian Investment Co., Ltd. Jyh-ChauWang	5	0	100%	2016/7/1Reappointed
Director	Hyield Venture Capital Co., Ltd Jeng-Wu Tai	1	0	100%	2016/5/5Resigned
Director	Hyield Venture Capital Co., Ltd Te-Tsai Huang	3	0	100%	2016/7/1Reappointed
Director	I-Chen Investment Ltd. Chuang-YiChiu	3	0	100%	2016/7/1Newappointed
Director	Innolux Education Foundation Chin-LungTing	3	0	100%	2016/7/1Newappointed
Independent Director	Chi-Chia Hsieh	5	0	100%	2016/7/1Reappointed
Independent Director	Bo-Bo Wang	3	0	100%	2016/7/1Newappointed
Independent Director	Stanley Yuk Lun Yim	5	0	100%	2016/7/1Reappointed
Other mentionable items: 1. If the circumstances referred to in Article 14-3 of the Securities and Exchange Act and resolutions of the directors’ meetings objected to by Independent Directors or subject to qualified opinion and recorded or declared in writing exist, the dates of meetings, sessions, contents of motions, all independent opinions, and the Company’s response to the independent directors’ opinions should be specified: None 2. If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and votingshould be specified: Date Name Contents of motions Causes for avoidance Voting 2016/2/2 Hsing-Chien Tuan Jyh-Chau Wang The Compensation Committee is proposing manager bonus for the year of 2015 and amendment the rule of Reward System of executives The board member and manager Hsing-Chien Tuan and Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors Did not for the disucssion 2016/5/12 Hsing-Chien Tuan Jyh-Chau Wang The Compensation Committee is proposing manager bonus for the year of 2015. The board member and manager Hsing-Chien Tuan and Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors Did not for the disucssion 2016/7/29 Jyh-Chau Wang The Compensation Committee is proposing manager salary structure adjustment The manager Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors Did not for the disucssion 2017/2/10 Jyh-Chau Wang Chin-Lung Ting The Compensation Committee is proposing manager bonus for the year of 2016 The board member and manager Jyh-Chau Wang and Chin-Lung Ting have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors Did not for the disucssion 3. Measures taken to strengthen the functionality of the Board: (1) The Board of Directors shall director the company’s strategy, adivise the management team, responsible to shareholders,and compliance with relevant laws and regulations and the management of the existingor

potential risks of the Company.

(2) The Compnay has set up a Audit Committee on June 24,2016 for assisting the Board in the effectiveness of the implementation of the internal control system, the fair presentation of the financial reports, independence, and performance of the certificated public accountants, the compliance with relevant laws and regulations and the management of the existing or potential risks of the Company. Please see page 27 for the detail of the Audit Committee’s operation.
(3) The Compnay has set up compenstation Committee on Augest 25,2011 and set up standard for the Directors and managers. The Compensation Committee is also in charged of making regular review of performance of the Director and managers, and the related remuneration policy, system, standard, and structure. Please see page 34 for the detail of the Compensation Committee’s operation
(4) The Company has re-elected its Board Director on 24 June, 2016. The new Board is made of 7 board members, including 3 independent directs fors strengthening the Board function and Corporate Governance.
(5) The Board members continuing education extending beyond the scope of the professional expertise of the directors, and to select courses encompassing corporate governance related topics such as finance, risk management, business, commerce, legal affairs, accounting, and corporate social responsibility, or courses relating to internal control systems or liability for financial reports. Please see page 43 for the detail of the status of Directors ' participation in corporate governance related courses and trainings.

3.4.2 Audit Committee

A total of 3 Audit Committee meeting were held in the previous(2016)period. The attendance of the independent directors was as follows:

Title	Name	Attendance in Person	By Proxy	Attendance Rate	Remarks
Independent Director	Chi-Chia Hsieh	3	0	100%	2016/7/1Newappointed
Independent Director	Bo-Bo Wang	3	0	100%	2016/7/1Newappointed
Independent Director	Stanley Yuk Lun Yim	3	0	100%	2016/7/1Newappointed
Other mentionable items: 1. If there are the circumstances referred to in Article 14-5 of the Securities and Exchange Act and resolutions which were not approved by the Audit Committee but were approved by two thirds or more of all directors, the dates of meetings, sessions, contents of motion, resolutions of the Audit Committee and the Company’s response to the Audit Committee’s opinion should be specified: 1:Circumstances referred to in Article 14-5 of the Securities and Exchange Act and resolutions, please refer page 47 Major Resolutions of and Board Meetings 2:N.A. 2. If there are independent directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified:N.A. 3. Communications between the independent directors, the Company's chief internal auditor and CPAs (e.g. the items, methods and results of audits of corporate finance or operations, etc.) (1) The company holds audit committee meeting periodily and also invite CPAS, Internal Auditor and other members in concern to attend the meeting (2) The Chief Internal Auditor present regular BOD and Audit committee meeting to report on the audit operations and major internal auditing matters, including execution, reporting, and monitoring of Independent Directors’ instructions. In addition, Independent Directors obtained audit reports on a regular basis, which were submitted by the Chief Internal Auditor. (3) The Companyh CPAs have presented the findings or the comments for the quarterly corporate financial reports, as well as those matters communication of which is required by law, in the regular quarterly meetings of the Audit Committee.

3.4.3 Attendance of Supervisors at Board Meetings

A total of 2 meetings of the Board of Directors were held in the previous(2016)period. The attendance of supervisors was as follows:

Title	Name	Attendance in Person	Attendance Rate	Remarks
Supervisor	Ren-GuangLin	2	100%	2016/6/30 Term expires
Supervisor	Yi-FangChen	2	100%
Supervisor	I-Chen Investment Ltd. Te-Tsai Huang	1	50%
Other mentionable items: 1. Composition and responsibilities of supervisors: (1) Communications between supervisors and the Company's employees and shareholders (e.g. the communication channels and methods, etc.): Our Supervisor could communicate with employees and shareholders in anytime if necessary. (2) Communications between supervisors and the Company's Chief Internal Auditor and CPA (e.g. the items, methods, and results of the audits of corporate finance or operations, etc.): Communications with the Chief Internal Auditor & CPA: The Company holds a Board Meeting each quarter and keeps the meeting minutes. The Directors, President, and the company's management are then notified of important discussions and resolutions. All Supervisors had attended on each occasion, and the CFO, Chief Internal Auditor, and CPAs were also present at the meetings to discuss the related subjects, Chief Internal Auditor was also present at the meetings to report on the audit operations and major internal auditing matters, including execution, reporting, and monitoring of Supervisors’ instructions. In addition, Supervisors obtained audit reports on a monthly basis, which were submitted by the Chief Internal Auditor. 2. If a supervisor expresses an opinion during a meeting of the Board of Directors, the dates of meetings, sessions, contents of motions, resolutions of the directors’ meetings, and the Company’s response to the supervisor’s opinion should be specified: None

“ - 3.4.4 Corporate Governance Implementation Status and Deviations from the Corporate Governance Best Practice Principles for

TWSE/ TPEx Listed Companies”

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
I. Does the company establish and disclose the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”?	Yes		The Company has enacted “Corporate Governance Best-Practice Principles”and disclosed on the official website and M.O.P.S. in addition to protect the rights and interests of shareholders, strengthen the powers of the board of directors, respect the rights and interests of stakeholders and enhance information transparency.The INX’s Corporatie Govermance Best-Practice Principles”please refer to INX official website.	No significant difference compared to corporate governance practice principles
II. Shareholding structure & shareholders’ rights (I) Does the company establish an internal operating procedure to deal with shareholders’ suggestions, doubts, disputes and litigations, and implement based on the procedure? (II) Does the company possess the list of its major shareholders as well as the ultimate owners of those shares? (III) Does the company establish and execute the risk management and firewall system within its conglomerate structure? (IV) Does the company establish internal rules against insiders trading with undisclosed information?	Yes Yes Yes Yes		(I) The Company has enacted “Operating Procedures for Management over Major Internal Information” and has, besides, set up spokesman and acting spokesman to take charge of proposals or disputes from shareholders. (II) The Company is in a position to dominate the name lists of the key shareholders and the terminal controllers of the key shareholders and has duly input such information to public into the Market Observation Post System (MOPS) promulgated (III) The Company has duly enacted the “Regulations Governing Transaction with Related Parties”, “Regulations Governing Supervision over Subsidiaries” and has, besides, set up relevant departments with sound mechanisms to evaluate and monitor potential risks with affiliated enterprises. (IV) The Company has duly ancted the “Operating Procedures for Management over Major Internal Information” and further in accordance with the Company’s internal control system, enacted “Operating Procedures to Prevent Inside Trading and for Management over Major Information” to ben inside personnel from buying, selling negotiable securities by taking advantage of the information which has notyet been madepublic in the market.	No significant difference compared to corporate governance practice principles
III. Composition and Responsibilities of the Board of Directors (I) Does the Board develop and implement a diversified policy for the composition of its members?	Yes		(I) Member diversification is considered by the Board members. Factors taken into account include, but are not limited to gender, age, cultures, educational background,race, professional experience,skills,knowledge and terms of	No significant difference compared to corporate governance practice principles

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
(II) Does the company voluntarily establish other functional committees in addition to the Remuneration Committee and the Audit Committee? (III) Does the company establish a standard to measure the performance of the Board, and implement it annually? (IV) Does the company regularly evaluate the independence of CPAs?	Yes	No No	service. The Board objectively chooses candidates to meet the goal of member diversification. (II) The Company has set up the Audit Committee and Remuneration Committee, the Company’s independent directors serve as the Committee members. For more details regarding the business performance of the Company’s Audit and Remuneration Committee, please refer to page 27&34 of this Annual Report. The Company, nevertheless, has not yet set up committee of other functions to date. (III) The Company has not yet conducted self-evaluation of the Company’s board of directors, functional committees and individual directors. (IV) The Company’s board of directors evaluates the CPA’s independence on a regular basis, say, on an annual basis, and retains creditworthy CPA(s) to certify financial statements. The CPA(s) so retained has (have) been free of any interested party involvement and has (have) independent as the strict requirements.
IV. Does the company set up a corporate governance unit or appoint personnel responsible for corporate governance matters (including but not limited to providing information for directors and supervisors to perform their functions, handling work related to meetings of the board of directors and the shareholders' meetings, filing company registration and changes to company registration, and producing minutes of board meetings and shareholders’ meetings)?	Yes		The Dept.SA of the company is in charge of company governance work including: taking care of meetings of the board of directors and the shareholders and relevant matters according to the law, preparing meeting minutes of the board of directors and the shareholders, reviewing and revising company governance, relevant guidelines and regulations, providing the directors with the operating required information, preparing regular improvement courses for the directors.	No significant difference compared to corporate governance practice principles
V. Does the company establish a communication channel and build a designated section on its website for stakeholders (including but not limited to shareholders, employees, customers, and suppliers), as well as handle all the issues they care for in terms of corporate social responsibilities?	Yes		Innolux offers a variety of features including investor services, supplier area, sales services, product inquiries, media communications, reporting and so forth in order to communicate and respond to shareholders‘ needs and expectations by strengthening communications with stakeholders and thereby meeting their expectations.	No significant difference compared to corporate governance practice principles
VI. Does the company appoint a professional	Yes		Innolux has appointed a professional agency to handle shareholder related services	No significant difference

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
shareholder service agency to deal with shareholder affairs?			for the company.	compared to corporate governancepracticeprinciples
VII. Information Disclosure (I) Does the company have a corporate website to disclose both financial standings and the status of corporate governance? (II) Does the company have other information disclosure channels (e.g. building an English website, appointing designated people to handle information collection and disclosure, creating a spokesman system, webcasting investor conferences)?	Yes Yes		(I) Through the company’s website (http://www.innolux.com ) with Chinese and English versions, we provide financial, business, and corporate governance information and keep updating. (II) The company’s English website announces information and our Public Relations department, Stock department and the related department responsible for collecting and disclosing the related information also set up positions for its spokesperson in accordance with the regulations and the company provides Investor Conference report on the official website.	No significant difference compared to corporate governance practice principles
VIII. Is there any other important information to facilitate a better understanding of the company’s corporate governance practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?	Yes		(I) Employee's Rights: Please refer to page 84 “5.5 Labor Relations” of the annual report (II) Employee Care The company values employees’ mental and physical balance and provides hardware which can release stresses, such as “Le Qun Guan” and “Huo Li Guan”. Innolux also holds different kinds of activities to provide physical and mental relaxation for our employees. We encourage our employees to join clubs 40 clubs in Taiwan to create an active and positive working environment by supporting those clubs with resources. Innolux cares for our employees from healthcare to daily lives. We care about the health of mothers in the workplace and provide a friendly working environment such as lactation room，mothers’ classroom, new parent lessons, and support for lactation during work, maternity leave, birth benefits, and parental subsidies. We also established mothers’ healthcare protection measures and rules. (III) Maintaining good relations and interactions with investors, suppliers, and interested parties. According to different interested groups, Innolux has established multiple and unobstructed communication channels, such as investors’ service on company’s webpage, suppliers zone, business service and product consulting, media communications, so that we can keep communicating and getting feedback from those interests groups’ needs and expectations. 1. Investors: the companytreats our shareholders with theprinciple of	No significant difference compared to corporate governance practice principles

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
			fairness and openness. We call the shareholders meetings according to the Company Act and other related laws every year, encourage stockholders to actively participate in the stockholders meeting with proposals and questions. 2. Customers: we have salespeople and customer service units to reply to customers’ demands effectively, establish a CRM system, monitor the progress of handling issues, field audits and questionnaire feedback, and customers’ satisfaction survey. 3. Employees: we set up a direct employee line, mobilization meeting, Innolux mailbox, interactive factory meeting (Labor-Management Meeting, the Employee Welfare Committee, management interview, Industrial Safety), employee questionnaires (group meals, activities, training), and opinion collection mail box. 4. Suppliers: setting up an interactive platform for supplier purchasing and procurement management, and a buyer and procurement management department to host ad quality meetings monthly / quoterly with other departments and suppliers. 5. Communities: Having departments or individuals to be responsible for the communications with community residents, visit the district officers and residents from time to time, caring, and being kind to the neighbors. 6. Governments: actively participate the regulation public hearing and seminar that host by the governing departments, maintain good interactions with the governments, and follow the government’s environmental protecting actions. 7. Non-governmental organizations: participating the professional seminars host by NGOs, listening to the suggestions from outsiders, keep tracking with the industrial changes, become the reference of CSR policy planning, organizing projects that supporting weakness and promoting environmental protection. (IV) Directors Profession Enhancement Status Innolux’s Directors have both professional background and practical experience. The company arranges further studies for Directors and every year. For the latest further study updates please refer to page 43 of this annual report. (V) Risk Management Innolux has established a risk management system to regularly monitor the related financial risks,regulation risks,climate change risks,water

Evaluation Item	Implementation Status	Implementation Status	Implementation Status
	Yes	No	Abstract Illustration
			resource risks, supplier chain risks, information safety risks, and the environment, safety, and health risks. In the wake of the Meinong earthquake incident on 2016.02.06, Innolux not only set up an emergency response team and executes process, operations and production recovery programs according to existing business continuation plans (BCP) but also reviewed its BCP guidelines flow, revised BCP principles to enhance its feasibility and coverage and make it the model of making and executing BCP by other divisions of this company. (VI) The implementation of customer policy 1. The customer satisfaction service The company practicing the quality policy and views customer service as the core value of this company. We continuously implement improvement plans for our internal process, such as the quality concepts of product design, manufacturing, information systems, and logistic cooperation, to provide the most competitive service in order to reach the highest customer satisfaction. 2. Customer satisfaction The company collect the KPI of services via VOC sysytem and we monitor, analyze, and improve the feedback from customers. We also keep interacting with customers pro-actively. (VII) The company implements and maintains D&O insurance for its Directors and key officers by the company Innolux maintains D&O insurance for its Directors and keyofficers
IX. Please explain the improvements which have been made in accordance with the results of the Corporate Governance Evaluation System released by the Corporate Governance Center, Taiwan Stock Exchange, and provide the priority enhancement measures. Company governance of the company was ranked among the top 6%~20% in the last two years. It has set up its "Company governance guidelines" according to the revised Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies by the Taiwan Stock Exchange Corporation (TWSE) on 2016.09.30. This company has been working hard on sustainable economy, environment, and society and fulfilling long-term and sustainable responsibility to individual stakeholders and the whole society based on business core value of honestyand integrity.

3.4.5 Composition, Responsibilities and Operations of the Remuneration Committee

A. Professional Qualifications and Independence Analysis of Remuneration Committee Members

Criteria Name (Note 1)	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience	Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Independence Criteria(Note 2)	Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member
	An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University	A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company	Has work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company	1	2	3	4	5	6	7	8
Independent Director Chi-Chia Hsieh	－	－	v	v	v	v	v	v	v	v	v	1
Independent Director Bo-Bo Wang	－	－	v	v	v	v	v	v	v	v	v	－
Independent Director Stanley Yuk Lun Yim	－	－	v	v	v	v	v	v	v	v	v	－

Note 1:Director; Independent Director or others.

Note 2:If Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate corresponding boxes:
Not an employee of the company or any of its affiliates;
Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares;
Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else’s name(s), in an aggregate amount of one percent or more of the total number of issued shares of the company or ranking as one of its top ten shareholders;
Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship of any of the above persons in the preceding three subparagraphs;
Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranking as one of its top five shareholders;
Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company;
Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services, or consultation to the company or to any affiliate of the company, or a spouse thereof;
Has not been a person under any conditions defined in Article 30 of the Company Law.

B. Attendance of Members at Remuneration Committee Meetings

Mr. Chi-Chia Hsieh, Chairman of the Compensation Committee, convened 4 regular meetings in 2016. The Committee members’ attendance status is as follows:

as follows:
Title	Name	Attendance in Person (B)	By Proxy	Attendance rate (%)	Remarks
Chair	Chi-Chia Hsieh	4	－	100	-
Member	Bo-Bo Wang	2	－	100	-
Member	StanleyYuk Lun Yim	2	－	100	-
Member	Chi-Lin Wei	2	－	100	2016/6/30Term expires
Member	Guan-Jun Wang	2	－	100	2016/6/30Term expires

Annotation:

There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2016.
There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualified opinion.

3.4.6 Corporate Social Responsibility

3.4.6 Corporate Social Responsibility
Evaluation Item	Implementation Status			Deviations from “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Explanation
I. Corporate Governance Implementation (I) Does the company declare its corporate social responsibility policy and examine the results of the implementation? (II) Does the company provide educational training on corporate social responsibility on a regular basis? (III) Does the company establish exclusively (or concurrently) dedicated first-line managers authorized by the board to be in charge of proposing the corporate social responsibility policies and reporting to the board? (IV) Does the company declare a reasonable salary remuneration policy, and integrate the employee performance appraisal system with its corporate social responsibility policy, as well as establish an effective reward and disciplinary system?	Yes Yes	No No	(I) Innolux has established relevant CSR policies though CSR policies has not yet to approve by Board of Director meeting directly, but still enacted relevant policies and guidelines have also been made available on the company’s website as a declaration of Innolux’s committment and obligation to fulfilling its corporate social responsibilities. (II) In the orientation training for new employees, Innolux Code of Conduct training has been incorporated as a component. In addition, the company has also incorporated concepts of CSR by emphasizing values such as labor rights in the trainings for assembly line foreman and supervisors. (III) Innolux has established a designated unit responsible for the promotion and planning of CSR in addition to the formulation of approaches and objectives for sustainable development. Innolux also convenes CSR committee meetings on a quarterly basis, though the company has not yet to report and CSR issue to Board of Director meeting directly but the president each site in Taiwan and mainland China attend the meeting and by senior supervisors from various business divisions forth to discuss the performance of CSR promotion and rate of object accomplishsment in an effort to fulfill the company’s corproate social responsibilities. (IV) Innolux takes the issue of employee benefit and welfare very seriously and has taken steps to ensure that factors such as gender would result in different wage/benefit for employees. By taking various factors into consideration, Innolux is able to offer competitive salaries. Through the companys’ “employee Code of Conduct“,”Employee Reward/Punishment Procedure“with CSR principle tally.	Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.
II. Sustainable Environment Development (I) Does the company endeavor to utilize all resources more efficiently and use renewable materials which have low impact on the environment? (II) Does the company establish proper environmental management systems based on the characteristics of their industries?	Yes Yes		(I) Innolux has not only reduced its discharge of contaminants from the source but also reduced the quantity of pollutants in its waste water discharge to increase its recycling rate by machine deisign and Technology promotion. (II) The company has been actively promoting relevant EHS management systems such as the ISO 14001, OHSAS18001 and so forth in order to facilitate a positive cycle of gradual improvement for green sustainability and safetyculture.	Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Explanation
(III) Does the company monitor the impact of climate change on its operations and conduct greenhouse gas inspections, as well as establish company strategies for energy conservation and carbon reduction?	Yes		(III) Innolux has completed its GHG inventory and 3rd party audit as prescribed by ISO 14064-1. Innolux has not only managed its GHG emission information through a GHG Information Platform but also actively participated in the international Carbon Disclosure Project (CDP). Innolux scored A- for disclosure in 2016 at leadership level .
III. Preserving Public Welfare (I) Does the company formulate appropriate management policies and procedures according to relevant regulations and the International Bill of Human Rights? (II) Has the company set up an employee hotline or grievance mechanism to handle complaints with appropriate solutions? (III) Does the company offer a safe and healthy working environment for its employees and conduct safety and health education for employees on a regular basis? (IV) Does the company setup a communication channel with employees on a regular basis, as well as reasonably inform employees of any significant changes in operations that may have an impact on them? (V) Does the company provide its employees with career development and training sessions? (VI) Does the company establish any consumer protection mechanisms and appealing procedures regardingresearch	Yes Yes Yes Yes Yes Yes		(I) Innolux makes an effort to adhere to pertinent regulations prescribed in the Labor Standards Act. In addition, specific regulations on labor rights have also been established in accordance with the Code,which states that employees shall be free from harrassments or discriminations for reasons including race. (II) Innolux has established a number of channels for employees filing complaints, including „Communication Hotline“, „Employee Communication Email“ and „Suggestion Box“ that have been setup at various facilities for employees to voice their opinions/thoughts with/without stating their names. (III) The company has also established its EHS Division to take charge of operations including loss and risk aversion,EHS management and employee education and obtained OHSAS18001 from 2005. (IV) By establishing comprehensive channels of communication and convening labor-management meetings and employee welfare commitee meetings on a quarterly basis, representatives of management (consisting of senior-ranking supervisors) and labor representatives (elected by employees) are able to engage in direct, bi-lateral communications. With regards to the notice of labor contract termination, relevant notification procedures are fully compliant with pertinent regulations. (V) Guided by the philosophy that „talents are the foundation of the company’s development“, Innolux has established the „Employee Career Development Roadmap“and the company also offers a list of qualifications that correspond to specific positions, legal certificates and other diplomas in order to boost employees‘ vocational tenacity, competence and competitiveness. (VI) Innolux has established operating principles that are customer-oriented and through means of telephone calls, email exchanges and face-to-face meetings,we are able to have solidgraspof customers‘needs so as to	Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Explanation
development, purchasing, producing, operating and service? (VII) Does the company advertise and label its goods and services according to relevant regulations and international standards? (VIII) Does the company evaluate the records of suppliers’ impact on the environment and society before taking on business partnerships? (IX) Do the contracts between the company and its major suppliers include termination clauses which come into force once the suppliers breach the corporate social responsibility policy and cause appreciable impact on the environment and society?	Yes Yes Yes		formulate improvement strategies to respond to customers in a timely manner. (VII) Product safety has always been the most important consideration for consumers. And as such, safe product design and a series of safety specification accreditations have been incorporated at the early stage of proeduct design to ensure the safety of consumers. Innolux has taken the initiative to apply for international standard accreditation labels for its LCD panels in order to help consumers identify safe products at a glance. (VIII) With regards to new suppliers, Innolux will refer to relevant guidelines on social/economic/environmental and supply chain assessment along with adequate risk evaluation to screen candidates before choosing official suppliers. Suppliers with actual/potential flaws in operation that have failed to show effective improvement despite notification and guidance from Innolux would be included in the list of forbidden/restricted suppliers. (IX) Innolux reserves the right to halt payment/immediately terminate or rescind any contract of transaction/order and revoke the undersigned vendor or its affiliated businesses‘ qualification as an authorized supplier. Innolux would also be entitled to file for compensation for any losses incurred on the company’s part.
IV. Enhancing Information Disclosure (I) Does the company disclose relevant and reliable information regarding its corporate social responsibility on its website and the Market Observation Post System(MOPS)?	Yes		Innolux has established a „Corporate Social Responsibilities“ section on its official website.	Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.
V. If the Company has established the corporate social responsibility principles based on “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the Principles and their implementation: The Company has enacted established „Innolux Corporate Code of Conduct and CSR Management Handbook“ as a working guideline that prescribes the philosophies and behaviors that are expected of all Innolux employees acoording to Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies and EICC code of conduct.The code of conduct serves as a reminder that in the face of different challenges from compeititons, no one shall engage in amoral or illegal business activities for the sake of company profit or growth and that everyone at Innolux must adopt higher standards of self-expectation in order to create greater values to contribute to the society. Using tools such as PC startup screen, posters and relevant promotional platforms, Innolux has disseminated the contents of the code of conduct and incorporated CSR and employee code of conduct courses in the new employee orientations,though the companyhas notyet to report and CSR issue to Board of Director meetingdirectly.
VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices: Innoluxpublishes its CSR Report annually. The report features relevant chapters and contents on Innolux’s CSR commitment,corproategovernance and development,

Evaluation Item	Implementation Status	Implementation Status	Implementation Status
	Yes	No	Abstract Explanation
initiatives such as „To Earth, with L.O.V.E“ and „To People, with S.M.I.L.E“ to offer comprehensive disclosure of relevant strategies, directions, measures and performance indicators for issues that were of concern to shareholders. As for Innolux’s CSR performance, in addition to the publication of the report, relevant information is also made available on the company’s website.
VII. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions： Innolux’s CSR Report for 2016 has been verified by 3rd party institute SGS Taiwan for full compliance with the AA1000AS (AccountAbility 1000 Assurance Standard) in CategoryII high assurance level and GRI G4’s requirement for comprehensive disclosure.

3.4.7 Ethical Corporate Management

3.4.7 Ethical Corporate Management
Evaluation Item	Implementation Status			Deviations from “the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
I. Establishment of ethical corporate management policies and programs (I) Does the company declare its ethical corporate management policies and procedures in its guidelines and external documents, as well as the commitment from its board to implement the policies? (II) Does the company establish policies to prevent unethical conduct with clear statements regarding relevant procedures, guidelines of conduct, punishment for violation, rules of appeal, and the commitment to implement the policies? (III) Does the company establish appropriate precautions against high-potential unethical conducts or listed activities stated in Article 2, Paragraph 7 of the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies?	Yes Yes	No	(I) Innolux has established Corporate Conduct and Ethics and has clearly laid out the management’s philosophy of honest management also in the „CSR Management Handbook“„Code of Ethics for Directors and Officers“„Code of Moral Conduct“and„Supplier Corporate Social Responsibility Code of Conduct Operating Standard“. These documentations strictly require all employees to adhere to the company’s policies on honesty. Additionally, Innolux’s honest management policy and implementations by the board and management are duly disclosed in both the annual report and CSR report. (II) Innoux has not enacted procedures for Ethical Management and Guideline for Conduct,but with regards to the prevention of dishonest behavior, Innolux has established clearly defined regulations for appropriate behaviors in the”Ethical Corporate Management Best Practice Principles”, ”Code of Ethics for Directors and Officers”,”Corporate Conduct and Ethics”,“Supplier Corporate Social Responsibility Code of Conduct Operating Standard”, which states that any act of violation shall be subjected to corresponding punitive actions in accordance with pertinent regulations and work regulations. In addition, Innolux has also established relevant systems for loding complaints as a means for offending employees to seek aid. (III) Innoux has specification should any Innolux employee be found to take part in any act of dishonesty, the offending employee shall receive corresponding disciplinary actions. Should said employee be found to be involved in incidents of corruption, receiving bribery/commission, theft, misappropriate/embezzle company property to result in loss of property/significant damage to the company’s reputation would face dismissal. Should any supplier be found to violate the commitment to honesty and integrity (including the offering/acceptance of bribery, offering illegal political contributions and so forth), Innolux would revoke the supplier’s status as a qualified supplier and cease all collaboration with said supplier.	Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies
II. Fulfill operations integrity policy (I) Does the company evaluate business partners’ ethical records and include ethics-related clauses in business contracts?	Yes		(I) The company request for global suppliers has a cooperation relationship to follow the Supplier CSR Code of Conduct Operating Standards and sign the Supplier's Undertaking About the Code of Conduct Integrity, the company request suppliers toguarantee that theywill refrain from bribes or offeringto	Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
(II) Does the company establish an exclusively (or concurrently) dedicated unit supervised by the Board to be in charge of corporate integrity? (III) Does the company establish policies to prevent conflicts of interest and provide appropriate communication channels, and implement it? (IV) Has the company established effective systems for both accounting and internal control to facilitate ethical corporate management, and are they audited by either internal auditors or CPAs on a regular basis? (V) Does the company regularly hold internal and external educational trainings on operational integrity?	Yes Yes Yes	No	bribe Innolux's employees. Suppliers shall also not offer bribes or benefits to political parties or candidates. (II) The company has not yet established a designated unit or personnel in charge of promoting corporate ethical management for the time being. In accordance with the philosophy of “Corporate Integrity Practice Principles of Innolux”, nevertheless, the Company has established an Integrity Committee, which is directly report to Chairman to investigation any contrary of integrity matters. (III) The company clearly makes rules about preventing conflicts of interest in the Code of Conduct. If there is any violation, the company also provides a proper way to report, including a Mailbox for Reporting ([email protected]) and staff complaint mailboxes. (IV) Based on the annual audit plan approved by the Board of Directors, perform the internal audit's fieldwork auditing or review depending on the risk. Report of the audit results on a regular basis to ensure that the board and managers are aware of the level of goal achievement in the fields of operational results and efficiency, financial reports are reliable, and the company complies with the relevant decrees. (V) We have made all of our various policies available through easy access on our intranet and require all employees to be trained on corporate social responsibility, also promoted via internal computer boot screens, newsletters, and posters to enhance the staff’s understanding of these policies. We also require our stakeholders, such as our suppliers and vendors, to accept and abide bythe integrity policy.
III. Operation of the integrity channel (I) Does the company establish both a reward/punishment system and an integrity hotline? Can the accused be reached by an appropriate person for follow-up? (II) Does the company establish standard operating procedures for confidential reportingon investigatingaccusation	Yes Yes		(I) Innolux has implemented a Mailbox for Reporting and staff complaint mailboxes to encourage employees and related people to report evidence. For anti-integrity and anti-corruption incidents, investigators will conduct confidential factual investigations. The investigation reports are submitted to the Integrity Commission for resolution and penalties are imposed internally or the incident is prosecuted. (II) Innolux Corporation ratified the “Operating Standards for the Investigation and Management of Corruption Cases” as the investigation standard for incidents and related confidentialitysystems.	Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies

Evaluation Item	Implementation Status	Implementation Status	Implementation Status	Deviations from “the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons
	Yes	No	Abstract Illustration
cases? (III) Does the company provide proper whistleblower protection?	Yes		(III) The company designed a confidentiality system to protect the informants and listed it in the Code of Conduct; the company will protect employees from anyrevenge due to reportingan incident.
IV. Strengthening information disclosure Does the company disclose its ethical corporate management policies and the results of its implementation on the company’s website and MOPS?	Yes		The company discloses the Code of Conduct on the Company’s official website and Taiwan Stock Exchange's Market Observation Post System. It also discloses related information about operational integrity and implements results in the official website and corporate social responsibility report.	Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies
V. If the company has established the ethical corporate management policies based on the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies, please describe any discrepancy between the policies and their implementation. The Company has enacted “Corporate Integrity Practice Principles of Innolux” approved by Board of director meeting and disclose on the official website and M.O.P.S. There is not conformitywith the integrityoperationpracticepriceiples for TWSE/GTSM-List companies.
VI. Other important information to facilitate a better understanding of the company’s ethical corporate management policies (e.g., review and amend its policies).: In order to ensure full compliance to the company’s policies for honest management, all newcomers are required to sign a „Honesty, Integrity & IP Protection Agreement“ and suppliers over the world that collaborate with Innolux to sign the „Vendor Commitment“ in the hopes of helping all employees and collaborating partners of Innolux to understand and respect the company’s moral standards. In addition, the company has also been disseminating relevant concepts via workstation startup screens along with routine publication of legal-affairs & IP newsletters containing relevant legal issues so that „Honesty and Integrity“ would become the core of Innolux’s fundamental corporate culture. In addition, Innolux conducts business ethics regulation risk assessment on a yearly basis to monitor the company’s management of business ethics through internal control whilst verifying and updating pertinent regulations on business ethics.

3.4.8 Corporate Governance Guidelines and Regulations

Please refer to the Company’s website at www. innolux.com,and the page 26-48 of annual report.

3.4.9 Other Important Information Regarding Corporate Governance

Standard operating procedures for the handling of vital internal information: Innolux has established its „Vital Internal Information Handling Procedure“ that clearly regulates the handling of important internal information. Relevant procedures have been submitted to the board for approval and internal announcements have been made in the company along with relevant trainings for all employees.
Status of Directors ' participation in corporate governance related courses and trainings as of the deadline of annual report publication

				April 30,2017	April 30,2017
Title	Name	Date	Sponsoring Organization	Course	Hours
Chairman	Jialian Investment Co., Ltd. Jyh-Chau Wang	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Director	Hyield venture Capital Co., Ltd. Te-Tsai Huang	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Director	I-Chen Investment Ltd. Chuang-Yi Chiu	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Director	Innolux Education Foundation Chin-LungTing	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Independent Director	Chi-Chia Hsieh	Aug 11, 2016	Taiwan Corporate Governance Association	How to prevent corruption	3
		Nov 10, 2016		Risk and opportunity	3
		Nov 22 2016		Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Independent Director	Bo-Bo Wang	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Independent Director	Stanley Yuk Lun Yim	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3

Status of managers‘ participation in corporate governance related courses and trainings as of the deadline of annual report publication

				April 30,2017	April 30,2017
Title	Name	Date	SponsoringOrganization	Course	Hours
Chairman &CEO	Jyh-Chau Wang	Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
President &COO	Chih-Hung Hsiao	Aug 22, 2016	Innolux Corporation	Trade secret act and policy of Anti- corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Excutive Vice President	Chin-Lung Ting	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Vice President	Yao-Tong Chen	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Vice President	Hung-Wen Yang	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Vice President	Chih-Ming Chen	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Vice President	Chu-Hsiang Yang	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Finance Supervisor	Chien-Lang Lo	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3
Accounting Supervisor	Chin-Yuan Chang	Sept 1, 2016	Innolux Corporation	Trade Secrets,Personal Information Protection Act &Anti-corruption	0.5
		Nov 22 2016	Taiwan Corporate Governance Association	Prevention of Fraud	3
				Trade Secrets & competition restrictions	3

Certification Details of Employees Whose Jobs are Related to the Release of the Company’s Financial Information

Information
Certification	Number of Employees
	Finance&Accounting	Internal Audit
Certified Internal Auditor(CIA)	-	2
Chartered Financial Analyst(CFA)	1	-
Financial Risk Manager(FRM)	1	-
Senior Securities Specialist	5	-
Securities Specialist	4	-
Internal controller test of SFI	1	-

3.4.10 Internal Control System

1. Statement of internal control system

Innolux Corporation Statement of Internal Controls

Date: Feb 10, 2017

According to the examination on internal control systems done by the Company itself in 2016, we hereby state as follows:

I. The Company’s board of directors and management team understand their responsibilities of developing, implementing and maintaining the Company’s internal control system, and such a system has been established. The purpose of establishing the internal control system is to reasonably assure the following objectives: The effectiveness and efficiency of business operation (including earnings, operation performance, and the safeguard of company assets); The reliability of the financial and related reports; and The compliance of the relevant laws/regulations and company policies;
II. Due to the innate limitations in designing a faultless internal control system, this system can only assure that the reasonableness of the above three objectives has been fairly achieved. In addition, the effectiveness of the internal control system may change over time due to the change of the business environment or situation. Since the Company’s internal control system has included a self-examination capability, the Company will make immediate corrections when errors are detected.
III. The evaluation of effectiveness of the internal control system design and implementation is made in accordance with the “Guidelines for the Establishment of Internal Control Systems by Public Companies” (the Guidelines). The Guidelines are made to examine the following five factors during the management and control process: (1) control environment, (2) risk assessment and response, (3) control activities, (4) information and communication, and (5) supervision. Each factor also includes several items. Details of each factor can be found in the Guidelines.
IV. The Company has examined the effectiveness of each respected area in the internal control system based on the Guidelines.
V. The examination results indicated that the Company’s internal control system (including subsidiary governance) dated December 31, 2016 had effectively assured that the following objectives had been reasonably achieved during the assessing period: The degree of effectiveness and efficiency of business operation; The reliability of the financial and related reports; The compliance of the relevant laws/regulations and company policies
VI. This Statement is a significant part of the Company’s annual report and prospectus available to the general public. If it contains false information or omits any material content, the Company is in violation of Article 20, Article 32, Article 171, and Article 174 set forth in the Taiwan’s Securities and Exchange Act.
VII. The Company hereby declares that this statement had been approved by the Board of Directors on Feb 10, 2017. Among the 7 attending Directors, no one raised any objection to the contents of this statement.

Innolux Corporation Chairman: Jyh-Chau Wang General Manager: Jyh-Chau Wang

Hire an accountant to audit the Company’s internal control system and disclose the audit report made by accountants: None.

3.4.11 Lawful punishment inflicted on the Company, and/or disciplinary action taken by the Company against its employees for violating internal regulations in the latest year and up to the printing date of this Annual Report); important errors committed; and correction and improvement procedures: None.

3.4.12 Major Resolutions of Shareholders’ Meeting and Board Meetings

Important resolutions and implementation made by the Shareholders’ Meeting by the end of 2016
(1) Resolution to revise Innolux’s charter carried.
- Status of execution: Resolution carried and implemented in accordance with the revised procedure Implementation Status: Fully implemented in accordance with the resolutions
(2) Adoption of the 2015 Business Report and Financial Statements Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(3) Adoption of the Proposal for Distribution of 2015 Profits Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(4) Carried the resolution to process domestic capital increase by cash to issue common shares, to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Status of execution: Resolution carried and the Board has been authorized to conduct fund raising but there is no any shares issued in the latest year and up to the printing date of this Annual Report.
(5) Carried the resolution to process capital increase in cash to conduct private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds.
- Status of execution: Resolution carried and the Board has been authorized to conduct fund raising but there is no any shares issued in the latest year and up to the printing date of this Annual Report.
(6) Resolution to revise Innolux’s Rules of Shareholders' Meeting.
- Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(7) Resolution to revise Innolux’s Election Rules of Directors and Supervisors of the company. Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(8) Resolution to revise Innolux’s Operating Procedure Governing the Acquisition and Disposal of Assets of the company.
- Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(9) Resolution to revise Innolux’s Procedures for Engaging in Derivatives Trading of the company. Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(10) Resolution to revise Innolux’s Operating Procedure Governing Loaning of Funds of the company.
- Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(11) Resolution to revise Innolux’s Operating Procedure Governing Endorsement and Guarantee of the company.
- Status of execution: Resolution carried
- Implementation Status: Fully implemented in accordance with the resolutions
(12) Proposal to overall re-election of directors

Status of execution:Please refer page 11 Board of Directors members information.

(13) proposed to dismiss the non-competition obligation of the newly elected directors and its representatives

Status of execution: Resolution carried

Implementation Status: Fully implemented in accordance with the resolutions.

2.Important resolutions bythe Board for 2016prior to the deadline of annual reportpublication	2.Important resolutions bythe Board for 2016prior to the deadline of annual reportpublication
Date	Major resolutions
February 2, 2016	Amendment to part of the provisions of the“Articles of Incorporation”. The Company’s individual financial statements and consolidated financial statements, 2015. Passed the Accountant assessment of the independence and appropriateness. The Company’s Business Plan 2016. Proposal for syndicated loans for the capital expenditures for the Company in 2016. Amendment to part of the provisions of the“Rules for Shareholders Meeting”&“Election Rules of Directors and Supervisors”. Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of Assets”&“Polices and Procedures for Financial Derivates Transactions” &“Procedures for Loaning of Funds to Others” &“Procedures for Endorsement & Guarantee”. Election the members of the Seventh Term Board of Directors. Proposal to convene the Company’s regular shareholders meeting 2016. Amendment of the Company’s “Full Incentive System along with Appendix for Managerial Officers” and submittal of the “Full Incentives for Managerial Officers 2015”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter IV, 2015. Declaration of the Company’s internal control system 2015. Proposal for execution of loan agreements with financial institutions.
May 12, 2016	The Compensation Committee is proposing employee, directrs and supervisors bonus for the year of 2015. Prepare and compile Innolux’s Account of Business for 2015. Draft of Innolux’s Dividend Remittance for 2014. Proposal to process domestic capital increase by cash to issue common shares,to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Proposals to conduct private placement of ordinary share/preferred share capital increase by cash or private placement of foreign or domestic convertible corporate bonds. Review Submission Period of the nomination of director candidates proposed by shareholders. Proposal to dismiss the non-competition obligation of the newly elected directors and its representatives. New proposals at the 2016 Annual Meeting of Shareholders. Enacted Audit Committee charter. Amendment Rules and Procedures for Meeting of the Board of Directors and cancel the Secretariat, Board of Directors. Amendment internal control system and internal audit implementation rules. Amendment to part of the provisions of the“Procedures for halt and resumption applications”&“Procedures for Handling Material Inside Information”&“Code of Ethics for Directors and Officers”&“Ethical Corporate Management Best Practice Principles” &”Compensation Committee charter” Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter I, 2016. Proposal for execution of short-term loan agreements with financial institutions. The Compensation Committee is proposing manager bonus for the year of 2015. The company Chairman, Director and CEO Hsing-Chien Tuan Retired. Elected Chairman & President. Dr. Tuan as Innolux’s Honor Chairman
June 24, 2016	Elected Chairman Resigned the third term Compensation Committee members

Date	Major resolutions
July 29, 2016	Report the derivatives transactions of Q2 2016(Note) The Company’s Q2 audit plan excution(Note) The Company’s consolidated financial statements,Q2 2016(Note) According to Procedures for Acquisition or Disposal of Assets the BOD empower Chairman decide the company and its subsidiary for acquisition or disposal of assets(Note) Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter II, 2016. Proposal to execute agreement with Bank of Taiwan, CTBCbank and other financial institution(s) for NT$3.5 billion syndicated loans. Proposal for execution of short-term loan agreements with financial institutions. The BOD,Audit and Compensation Committee salary adjustment. The manager monthlysalaryadjuetment.


	The Company’s consolidated financial statements,Q3 2016(Note) The Company’s Q3 audit plan excution(Note) Report the derivatives transactions of Q3 2016(Note) Passed the Audit plan of 2017.(Note) Enacted the company’sCorporate Governance Principles Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter III, 2016. Proposal for execution of short-term loan agreements with financial institutions.
Octber 28, 2016

Feburary 10, 2017	Report the derivatives transactions of Q4 2016(Note) The Company’s Q4 audit plan excution(Note) The Company’s Business Plan 2017. Proposal for the capital expenditures for the Company in 2017. The Company’s individual financial statements and consolidated financial statements, 2016.(Note) Passed the Accountant assessment of the independence and appropriateness.(Note) Amendment to part of the provisions of the“Articles of Incorporation”. Proposal to convene the Company’s regular shareholders meeting 2017. Declaration of the Company’s internal control system 2016.(Note) Amendment to part of the provisions of the “Procedures for halt and resumption applications”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter IV, 2016. Proposal for execution of short-term loan agreements with financial institutions. Submittal of the“Full Incentives for Managerial Officers 2016”.
March 15, 2017	The change of General Manager of INX.

Note: The Securities and Exchange Act 14-5

3.4.13 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors : None

3.4.14 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D

Title	Name	Date of Appointment	Date of Termination	Reasons for Resignation or Dismissal
Chairman	Hsing-Chien Tuan	2003/1/14	2016/5/12	Retired
R&D director	Wen-Jyh Sah	2010/3/18	2016/6/7	Position Adjustment
President	Jyh-Chau Wang	2010/3/18	2017/3/15	Resigned

3.5 Information Regarding the Company’s Audit Fee and Independence

Accounting Firm	Name of CPA	Name of CPA	Period Covered by CPA’s Audit	Remarks
Pricewaterhousecoopers	Wu,Han-Chi	Sheng-ChungHsu	Jan 1,2016 - Dec 31,2016	-

Unit: NT$ thousands

				Unit: NT$thousands
Fee Items Fee Range		Audit Fee	Non-Audit Fee	Total
1	Under NT$2,000,000
2	NT$2,000,001 ~ NT$4,000,000
3	NT$4,000,001 ~ NT$6,000,000
4	NT$6,000,001 ~ NT$8,000,000
5	NT$8,000,001 ~ NT$10,000,000
6	Over NT$100,000,000	V	V	V

3.5.1 Non-audit fee paid to auditors, the audit firm and its affiliates accounted for more than one-fourth of total audits Fees should disclosure the audit fee and non-audit fee amount and non-audit service content

							Audit Fee: NT$ Thousands	Audit Fee: NT$ Thousands	Audit Fee: NT$ Thousands
Accounting Firm	Name of CPA	Audit Fee	Non-Audit Fee					Period Covered by CPA’s Audit	Remar ks
			System Design	Company Registration	Human resource	Others	Subtotal
Pricewaterho usecoopers	Han-Chi Wu Sheng-Chung Hsu	22,683	-	160	-	16,917	17,077	Jan 1, 2016 to Dec 31,2016	-

3.5.2 Replaced the audit firm and the audit fee paid to the new audit firm was less than the payment of the previous year: No.

3.5.3 Audit fee reduced more than 15% year over year, required to disclose the reduced amount, proportion, and reason: No.

3.6 Replacement of CPA:N.A.

3.7 The Company’s chairman, general manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise: None

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders 3.8.1 Changes in Shareholding of Directors, Managers and Major Shareholders.

Unit: Per share

				Unit: Per share	Unit: Per share
Title	Name (Note 1)	2016		As of Apr. 30, 2017
		Holding Increase (Decrease)	Pledged Holding Increase (Decrease)	Holding Increase (Decrease)	Pledged Holding Increase (Decrease)
Chairman	Jialian investment Co., Ltd	-	-	-	-
	Jyh-Chau Wang	320,000	-	-	-
Institutional Director	Hyield Venture Capital Co., Ltd	-	-	-	-
	Te-Tsai Huang	-	-	-	-
Institutional Director	I-Chen investment Ltd.	-	-	-	-
	Chuang-Yi Chiu(Note2)	-	-	-	-
Institutional Director	Innolux Education Foundation(Note2)	-	-	-	-
	Chin-Lung Ting	160,000	-	-	-
Independent Director	Chi-Chia Hsieh	-	-	-	-
Independent Director	Bo-Bo Wang(Note2)	-	-	-	-
Independent Director	Stanley Yuk Lun Yim	-	-	-	-
President&COO	Chih-Hung Hsiao	200,000	-	-	-
Vice President	Yao-Tong Chen	80,000	-	-	-
Vice President	Hung-Wen Yang	160,000	-	-	-
Vice President	Chih-Ming Chen	151,000	-	-	-
Vice President	Chu-Hsiang Yang	140,000	-	-	-
Associate Vice President	Ke-Yi Kao	120,000	-	-	-
Associate Vice President	Tai-Chi Pan	120,000	-	-	-
Associate Vice President	Kuo-Hsiung Kuo	120,000	-	-	-
Associate Vice President	Chung-Kuang Wei	120,000	-	(81,000)	-
Associate Vice President	Jia-Pang Pang	120,000	-	-	-
Associate Vice President	Yu Shui Kuo	80,000	-	-	-
Associate Vice President	Zheng-Xia Kuo	160,000	-	-	-
Associate Vice President	Tien-Jen Lin	84,000	-	-	-
Associate Vice President	Qing-Hui Lin	300,000	-	-	-
Associate Vice President	Jun-Yi Yu	96,000	-	-	-
Associate Vice President	Mao-Sheng Hung	444,800	-	-	-
Finance Supervisor	Chien-Lang Lo	24,000	-	-	-
Accounting Supervisor	Chin-Yuan Chang	42,000	-	-	-

Note 1: Refers to current managerial officers as of the printing date of the annual report Note 2: Appointed to office on July 1, 2016 thus the change in equity in 2016 was not calculated. Note 3: The increase(decrease) of the shares held includes the inward or outward transfer of the trusted shareholding. 3.8.2 Shares Trading with Related Parties None

3.8.3 Shares Pledge with Related Parties

None

3.9 Relationship among the Top Ten Shareholders

Name	Current Shareholding	Current Shareholding	Spouse’s/mino r’s Shareholding	Spouse’s/mino r’s Shareholding	Shareholding by Nominee Arrangement	Shareholding by Nominee Arrangement	Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives Within Two Degrees	Name and Relationship Between the Company’s Top Ten Shareholders, or Spouses or Relatives Within Two Degrees
	Shares	%	Shares	%	Shares	%	Name	Relationship
Chimei Corporation	570,929,561	5.74%	－	－	－	－	N.A.	N.A.
Representative: Hsu Chun-hua	－	－	－	－	－	－	N.A.	N.A.
Terry Gou	243,964,977	2.45%	－	－	－	－	Hon Hai Precision Ind. Co.,Ltd.	Chairman
Hyield Venture Capital Co., Ltd	176,311,219	1.77%	－	－	－	－	Hon Hai Precision Ind. Co., Ltd.	Subsidiary of Hon Hai Precision Ind. Co., Ltd.
Representative: Te-Tsai Huang	212,619	－	－	－	－	－	N.A.	N.A.
HSBC (U.K.) entrusted with the custody account - IB(Asia)SBL	148,981,524	1.50%	－	－	－	－	N.A.	N.A.
Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account	148,059,054	1.49%	－	－	－	－	N.A.	N.A.
Hon Hai Precision Ind. Co., Ltd.	147,965,363	1.49%	－	－	－	－	Terry Gou	Chairman
							Hyield Venture Capital Co., Ltd	Subsidiary of Hon Hai Precision Ind. Co., Ltd.
Representative: TerryGou	243,964,977	2.45%	－	－	－	－	Hon Hai Precision Ind. Co.,Ltd.	Chairman
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets EquityPool	139,139,169	1.40%	－	－	－	－	N.A.	N.A.
Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custody of Newly Emerging Market Evaluation Fund	137,622,544	1.38%	－	－	－	－	N.A.	N.A.
Compal Electronics, Inc.	134,877,335	1.36%	－	－	－	－	N.A.	N.A.
Representative: Hsu,Sheng-Hsiung	2, 267,754	0.02%	－	－	－	－	N.A.	N.A.
Cathay Life Insurance Co.,Ltd.	130,775,218	1.31%	－	－	－	－	N.A.	N.A.
Representative: Tsai Hong-Tu	－	－	－	－	－	－	N.A.	N.A.

3.10 Ownership of Shares in Affiliated Enterprises

Unit:Shares :12/31/2016

Affiliated Enterprises	Ownership by the Company	Ownership by the Company	Direct or Indirect Ownership by Directors/Supervisors/ Managers	Direct or Indirect Ownership by Directors/Supervisors/ Managers	Total Ownership	Total Ownership
	Shares	%	Shares	%	Shares	%
Asiaward Investment Ltd.	-	-	77,830,001	100%	77,830,001	100%
Best China Investments Ltd.	-	-	10,000,001	100%	10,000,001	100%
Bright Information HoldingLtd.	4,910,000	100%	-	-	4,910,000	100%
Golden Achiever International Limited	40,250	100%	-	-	40,250	100%
InnoLux Corporation	-	-	2,000	100%	2,000	100%
Innolux HoldingLtd.	246,768,185	100%	-	-	246,768,185	100%
Innolux HongKongHoldingLimited	1,158,844,000	100%	-	-	1,158,844,000	100%
Innolux HongKongLimited	-	-	35,000,000	100%	35,000,000	100%
Innolux Optoelectronics Europe B.V.	180	100%	-	-	180	100%
Innolux Optoelectronics GermanyGmbH	-	-	250	100%	250	100%
Innolux Optoelectronics Hong Kong Holding Ltd.	-	-	162,897,802	100%	162,897,802	100%
Innolux Optoelectronics Japan Co., Ltd.	80	100%	-	-	80	100%
Innolux Optoelectronics USA, Inc.	-	-	1,000	100%	1,000	100%
Innolux TechnologyEurope B.V.	-	-	375,810	100%	375,810	100%
Innolux TechnologyGermanyGmbH	-	-	100,000	100%	100,000	100%
Innolux TechnologyJapan Co., Ltd.	-	-	201	100%	201	100%
Innolux TechnologyUSA Inc.	-	-	1,000	100%	1,000	100%
KeywayInvestment Management Limited	5,656,410	100%	-	-	5,656,410	100%
Lakers TradingLtd.	-	-	1	100%	1	100%
Landmark International Ltd.	709,450,000	100%	-	-	709,450,000	100%
Leadtek Global GroupLimited	50,000,000	100%	-	-	50,000,000	100%
Magic Sun Ltd.	-	-	38,000,001	100%	38,000,001	100%
Main DynastyInvestment Ltd.	-	-	139,623,801	100%	139,623,801	100%
Mega Chance Investments Ltd.	-	-	18,000,000	100%	18,000,000	100%
Nets TradingLtd.	-	-	900,001	100%	900,001	100%
Rockets HoldingLtd.	-	-	226,504,550	100%	226,504,550	100%
Stanford Developments Ltd.	-	-	164,000,000	100%	164,000,000	100%
Sun DynastyDevelopment Ltd.	-	-	295,969,001	100%	295,969,001	100%
Suns HoldingLtd.	-	-	18,177,052	100%	18,177,052	100%
ToppolyOptoelectronics(B.V.I.)Ltd.	146,847,000	100%	-	-	146,847,000	100%
ToppolyOptoelectronics(Cayman)Ltd.	-	-	146,817,000	100%	146,817,000	100%
Warriors TechnologyInvestments Ltd.	-	-	18,177,052	100%	18,177,052	100%
Shanghai Innolux Optoelectronics Ltd.	-	-	-	100%	-	100%
Yuan Chi investment co., Ltd	-	100%	-	-	-	100%
Foshan Innolux Flnet Electronics Ltd.	-	-	-	100%	-	100%
Foshan Innolux Optoelectronics Ltd.	-	-	-	100%	-	100%
Foshan Innolux Logistics Ltd.	-	-	-	100%	-	100%
VAP Optoelectromics(NanJing)Corp.	-	-	-	100%	-	100%
Kunpal Optoelectronics Ltd.	-	-	-	100%	-	100%
NanjingInnolux TechnologyLtd.	-	-	-	100%	-	100%
NanjingInnolux Optoelectronics Ltd.	-	-	-	100%	-	100%

Affiliated Enterprises	Ownership by the Company	Ownership by the Company	Direct or Indirect Ownership by Directors/Supervisors/ Managers	Direct or Indirect Ownership by Directors/Supervisors/ Managers	Total Ownership	Total Ownership
	Shares	%	Shares	%	Shares	%
InnoJoyInvestment Corp.	167,405,392	100%	-	-	167,405,392	100%
Innocom Technology (Shenzhen)Co., LTD	-	-	-	100%	-	100%
Ningbo Innolux Flnet Electronics Ltd.	-	-	-	100%	-	100%
Ningbo Innolux Electronics Ltd.	-	-	-	100%	-	100%
Ningbo Innolux Optoelectronics Co., LTD	-	-	-	100%	-	100%
Ningbo Innolux DisplayLTD	-	-	-	100%	-	100%
Ningbo Innolux Logistics LTD	-	-	-	100%	-	100%

IV. Capital Overview

4.1 Capital and Shares

4.1.1 Source of Capital

A. Type of Stock

Unit:Shares 4/22/2017

Share Type	Authorized Capital	Authorized Capital	Authorized Capital	Authorized Capital	Authorized Capital
	Outstanding			Un-issued Shares	Total
	Issued Shares	Unlisted	Total Shares
Common Shares	9,952,078,377	-	9,952,078,377	547,921,623	10,500,000,000

B. Issued Shares

Unit: Shares Thousand ; NT Thousand

						Unit: Shares Thousand;NT Thousand	Unit: Shares Thousand;NT Thousand	Unit: Shares Thousand;NT Thousand
Month/ Year	Par Value	Authorized Capital		Paid-in Capital		Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital Increased by Assets Other than Cash	Other
2003.01	-	120,000	1,200,000	35,000	350,000	Created at inception	None	2003.01.14 Yuan-Shang-Zih No. 0920001669
2003.05	10	120,000	1,200,000	100,000	1,000,000	65 million shares from cash capital increase	None	2003.05.30 Yuan-Shang-Zih No. 0920013164
2003.10	10	1,000,000	10,000,000	300,000	3,000,000	200 million shares from cash capital increase	None	2003.11.07 Yuan-Shang-Zih No. 0920030835
2004.04	10	1,000,000	10,000,000	900,000	9,000,000	600 million shares from cash capital increase	None	2004.05.24 Yuan-Shang-Zih No. 0930013914
2004.09	12	2,500,000	25,000,000	1,500,000	15,000,000	600 million shares from cash capital increase	None	2004.10.26 Yuan-Shang-Zih No. 9300030355
2005.06	14	2,500,000	25,000,000	2,100,000	21,000,000	600 million shares from cash capital increase	None	2005.07.22 Yuan-Shang-Zih No. 0940019992
2006.01	-	2,500,000	25,000,000	2,106,624	21,066,240	6.624 million new shares issued upon the exercise of employee stock options	None	2006.02.13 Yuan-Shang-Zih No. 0950002674
2006.04	-	2,500,000	25,000,000	2,111,856	21,118,560	5.232 million new shares issued upon the exercise of employee stock options	None	2006.05.09 Yuan-Shang-Zih No. 0950011150
2006.09	-	2,500,000	25,000,000	2,112,129	21,121,290	273 thousand new shares issued upon the exercise of employee stock options	None	2006.10.16 Yuan-Shang-Zih No. 0950026853
2006.10	41	3,300,000	33,000,000	2,312,129	23,121,290	200 million shares from cash capital increase	None	2006.12.04 Yuan-Shang-Zih No. 0950032417
2007.01	-	3,300,000	33,000,000	2,326,056	23,260,560	13.927 million new shares issued upon the exercise of employee stock options	None	2007.02.09 Yuan-Shang-Zih No. 0960003715
2007.03	-	3,300,000	33,000,000	2,331,706	23,317,062	5.650 million shares from capital increase in connection with merger	None	2007.05.30 Yuan-Shang-Zih No. 0960014540
2007.04	-	3,300,000	33,000,000	2,331,761	23,317,612	55 thousand new shares issued upon the exercise of employee stock options	None	2007.05.31 Yuan-Shang-Zih No. 0960014605
2007.08	-	3,300,000	33,000,000	2,340,765	23,407,652	9.004 million new shares issued upon the exercise of employee stock options	None	2007.08.30 Yuan-Shang-Zih No. 0960023196
2007.09	-	3,300,000	33,000,000	2,442,155	24,421,550	101.390 million shares from capital increase through capitalization of retained earnings	None	2007.09.19 Yuan-Shang-Zih No. 0960025459
2007.10	-	3,300,000	33,000,000	2,442,372	24,423,720	217 thousand new shares issued upon the exercise of employee stock options	None	2007.10.29 Yuan-Shang-Zih No. 0960029080
2007.11	146	3,300,000	33,000,000	2,742,372	27,423,720	300 million shares from cash capital increase to participate in the issuance of overseas depositary receipts	None	2007.12.10 Yuan-Shang-Zih No. 0960033616

Month/ Year	Par Value	Authorized Capital	Authorized Capital	Paid-in Capital	Paid-in Capital	Remark	Remark	Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital Increased by Assets Other than Cash	Other
2008.02	-	3,300,000	33,000,000	2,751,026	27,510,260	8.654 million new shares issued upon the exercise of employee stock options	None	2008.02.12 Yuan-Shang-Zih No. 0970003364
2008.05	-	3,300,000	33,000,000	2,757,583	27,575,830	6.557 million new shares issued upon the exercise of employee stock options	None	2008.05.14 Yuan-Shang-Zih No. 0970012623
2008.08	-	3,300,000	33,000,000	2,770,270	27,702,700	12.687 million new shares issued upon the exercise of employee stock options	None	2008.08.21 Yuan-Shang-Zih No. 0970023231
2008.09	-	4,500,000	45,000,000	3,112,297	31,122,970	342.027 million shares from capital increase through capitalization of retained earnings	None	2008.09.09 Yuan-Shang-Zih No. 0970025445
2008.11	-	4,500,000	45,000,000	3,113,147	31,131,470	850 thousand new shares issued upon the exercise of employee stock options	None	2008.11.18 Yuan-Shang-Zih No. 0970032346
2009.03	-	4,500,000	45,000,000	3,123,695	32,236,950	10.548 million new shares issued upon the exercise of employee stock options	None	2009.03.02 Yuan-Shang-Zih No. 0980005613
2009.05	-	4,500,000	45,000,000	3,128,546	31,285,460	4.851 million new shares issued upon the exercise of employee stock options	None	2009.05.18 Yuan-Shang-Zih No. 0980013470
2009.07	-	4,500,000	45,000,000	3,138,537	31,385,370	9.991 million new shares issued upon the exercise of employee stock options	None	2009.07.23 Yuan-Shang-Zih No. 0980020313
2009.09	-	4,500,000	45,000,000	3,243,122	32,431,222	104.585 million shares from capital increase through capitalization of retained earnings	None	2009.09.07 Yuan-Shang-Zih No. 0980024824
2009.11	-	4,500,000	45,000,000	3,244,596	32,445,960	1.474 million new shares issued upon the exercise of employee stock options	None	2009.11.19 Yuan-Shang-Zih No. 0980032198
2010.02	-	4,500,000	45,000,000	3,254,841	32,548,410	10.245 million new shares issued upon the exercise of employee stock options	None	2010.02.12 Yuan-Shang-Zih No. 0990004357
2010.03	-	10,500,000	105,000,000	8,032,930	80,329,300	4,778,089,000 common stocks from capital increase in connection with merger; private placement of 731.707 millionpreferred shares	None	2010.03.30 Yuan-Shang-Zih No. 0990008717
2010.04	-	10,500,000	105,000,000	8,040,837	80,408,370	7.907 million new shares issued upon the exercise of employee stock options	None	2010.04.29 Yuan-Shang-Zih No. 0990011506
2010.08	-	10,500,000	105,000,000	8,043,497	80,434,970	2.660 million new shares issued upon the exercise of employee stock options	None	2010.08.26 Yuan-Shang-Zih No. 0990025097
2010.11	-	10,500,000	105,000,000	7,311,789	73,117,890	Reduced capital by 731.707 million shares through private placement of preferred shares	None	2010.11.11 Yuan-Shang-Zih No. 0990033742
2011. 01	-	10,500,000	105,000,000	7,311,809	73,118,090	20 thousand new shares issued upon the exercise of employee stock options	None	2011.01.03 Yuan-Shang-Zih No. 1000000178
2011. 03	-	10,500,000	105,000,000	7,312,674	73,126,740	865 thousand new shares issued upon the exercise of employee stock options	None	2011.03.25 Yuan-Shang-Zih No. 1000007874
2011.05	-	10,500,000	105,000,000	7,312,804	73,128,040	130 thousand new shares issued upon the exercise of employee stock options	None	2011.05.04 Yuan-Shang-Zih No. 1000012352
2011.07	-	10,500,000	105,000,000	7,312,904	73,129,040	100 thousand new shares issued upon the exercise of employee stock options	None	2011.07.26 Yuan-Shang-Zih No. 1000021596
2011.11	-	10,500,000	105,000,000	7,312,970	73,129,708	66 thousand new shares issued upon the exercise of employee stock options	None	2011.11.28 Yuan-Shang-Zih No. 1000035175
2012.10	9	10,500,000	105,000,000	7,912,970	79,129,700	600 million shares from cash capital increase	None	2012.10.15 Yuan-Shang-Zih No. 1010031831
2013.02	12.98	10,500,000	105,000,000	9,037,970	90,379,700	1.125 billion shares from cash capital increase to participate in the issuance of overseas depositary receipts	None	2013.02.18 Yuan-Shang-Zih No. 1020005087
2013.02	5/-	10,500,000	105,000,000	9,100,272	91,002,720	Issuance of 31,151,000 new shares with restricted employee rights at positive consideration Issuance of 31,151,000 new shares with restricted employee rights at nil consideration	None	2013.02.21 Yuan-Shang-Zih No. 1020005099

Month/ Year	Par Value	Authorized Capital	Authorized Capital	Paid-in Capital	Paid-in Capital	Remark	Remark	Remark
		Shares	Amount	Shares	Amount	Sources of Capital	Capital Increased by Assets Other than Cash	Other
2013.04	5/-	10,500,000	105,000,000	9,101,960	91,019,600	Issuance of 844,000 new shares with restricted employee rights at positive consideration Issuance of 844,000 new shares with restricted employee rights at nil consideration	None	2013.04.16 Yuan-Shang-Zih No. 1020010954
2013.08		10,500,000	105,000,000	9,101,670	91,016,700	Capital reduced by 290,000 new shares with restricted employee rights	None	2013.08.23 Yuan-Shang-Zih No. 1020025484
2013.11	-	10,500,000	105,000,000	9,100,892	91,008,920	Capital reduced by 778,000 new shares with restricted employee rights	None	2013.11.27 Yuan-Shang-Zih No. 1020036156
2013.12	5/-	10,500,000	105,000,000	9,109,428	91,094,280	Issuance of 4,268,000 new shares with restricted employee rights at positive consideration Issuance of 4,268,000 new shares with restricted employee rights at nil consideration	None	2013.12.27 Yuan-Shang-Zih No. 1020040096
2014.04	-	10,500,000	105,000,000	9,106,457	91,064,570	Capital reduced by 2,970,000 new shares with restricted employee rights	None	2014.04.10 Zhu-Shang-Zih No.1030009955
2014.09	12.5	10,500,000	105,000,000	9,956,457	99,564,570	850 million shares from cash capital increase	None	2014.09.05 Zhu-Shang-Zih No.1030026932
2014.09	-	10,500,000	105,000,000	9,955,407	99,554,070	Capital reduced by 1,049,000 new shares with restricted employee rights	None	2014.09.05 Zhu-Shang-Zih No.1030026932
2014.11	-	10,500,000	105,000,000	9,954,536	99,545,360	Capital reduced by 871,000 new shares with restricted employee rights	None	2014.11.19 Zhu-Shang-Zih No.1030033761
2015.03	-	10,500,000	105,000,000	9,954,224	99,542,240	Capital reduced by 312,000 new shares with restricted employee rights	None	2015.03.17 Zhu-Shang-Zih No.1040007082
2015.05	-	10,500,000	105,000,000	9,953,797	99,537,970	Capital reduced by 417,000 new shares with restricted employee rights	None	2015.05.20 Zhu-Shang-Zih No.1040013755
2015.08	-	10,500,000	105,000,000	9,953,583	99,535,830	Capital reduced by 214,000 new shares with restricted employee rights	None	2015.08.19 Zhu-Shang-Zih No.1040023797
2015.11	-	10,500,000	105,000,000	9,953,237	99,532,370	Capital reduced by 345,000 new shares with restricted employee rights	None	2015.11.18 Zhu-Shang-Zih No.1040033254
2016.02	-	10,500,000	105,000,000	9,952,682	99,526,820	Capital reduced by 555,600 new shares with restricted employee rights	None	2016.02.26 Zhu-Shang-Zih No.1050004985
2016.05	-	10,500,000	105,000,000	9,952,351	99,523,510	Capital reduced by 330,000 new shares with restricted employee rights	None	2016.05.23 Zhu-Shang-Zih No.1050013777
2016.08	-	10,500,000	105,000,000	9,952,210	99,522,100	Capital reduced by 141,000 new shares with restricted employee rights	None	2016.08.16 Zhu-Shang-Zih No.1050022641
2016.11	-	10,500,000	105,000,000	9,952,149	99,521,490	Capital reduced by 62,000 new shares with restricted employee rights	None	2016.11.15 Zhu-Shang-Zih No.1050031553
2017.03	-	10,500,000	105,000,000	9,952,078	99,520,780	Capital reduced by 70,000 new shares with restricted employee rights	None	2017.03.03 Zhu-Shang-Zih No.1060005404

C. Information for Shelf Registration: None

4.1.2 Status of Shareholders

As of 04/22/2017

Item	Government Agencies	Financial Institutions	Other Juridical Person	Domestic Natural Persons	Foreign Institutions & Natural Persons	Total
Number of Shareholders	10	89	525	312,539	1,189	314,352
Shareholding (shares)	103,749,518	362,428,800	2,135,994,458	3,381,753,735	3,968,151,866	9,952,078,377
Percentage	1.04%	3.64%	21.46%	33.98%	39.87%	100.00%

4.1.3 Shareholding Distribution Status

A. Common Shares

A. Common Shares	A. Common Shares	A. Common Shares	A. Common Shares
As of 04/22/2017
Class of Shareholding (Unit: Share)	Number of Shareholders	Shareholding(Shares)	Percentage
1 ~ 999	91,333	28,480,329	0.29%
1,000 ~ 5,000	139,728	323,104,499	3.25%
5,001 ~ 10,000	36,868	282,057,487	2.83%
10,001 ~ 15,000	13,399	164,014,269	1.65%
15,001 ~ 20,000	8,585	157,504,055	1.58%
20,001 ~ 30,000	7,931	199,786,645	2.01%
30,001 ~ 50,000	6,603	264,271,475	2.66%
50,001 ~ 100,000	5,138	371,565,655	3.73%
100,001 ~ 200,000	2,314	328,405,174	3.30%
200,001 ~ 400,000	1,069	302,122,101	3.04%
400,001 ~ 600,000	394	194,268,648	1.95%
600,001 ~ 800,000	186	130,959,282	1.32%
800,001 ~ 1,000,000	130	119,093,335	1.19%
1,000,001 or over	674	7,086,445,423	71.20%
Total	314,352	9,952,078,377	100.00%

4.1.4 List of Major Shareholders

As of 04/22/2017

4.1.4 List of Major Shareholders	As of 04/22/2017	As of 04/22/2017
Shareholder's Name	Shareholding
	Shares	Percentage
Chimei Corporation	570,929,561	5.74%
TerryGuo	243,964,977	2.45%
Hyield Venture Capital Co.,Ltd	176,311,219	1.77%
HSBC (U.K.) entrusted with the custody account - I B(Asia) SBL	148,981,524	1.50%
Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets EquityIndex Fund account	148,059,054	1.49%
Hon Hai Precision Ind. Co.,Ltd.	147,965,363	1.49%
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for StichtingDepositaryAPG EmergingMarkets EquityPool	139,139,169	1.40%
Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custodyof NewlyEmergingMarket Evaluation Fund.	137,622,544	1.38%
Compal Electronics,Inc.	134,877,335	1.36%
CathayLife Insurance Co.,Ltd.	130,775,218	1.31%

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share

Unit: NT$ Thousand share

Item	Year	Year	2015	2016	As of 03/31/2017
Market Price per Share	Highest Market Price		19.35	12.35	14.20
	Lowest Market Price		9.10	8.80	11.65
	Average Market Price		13.48	10.58	12.72
Net Worth per Share	Before Distribution		23.34	22.71	23.67
	After Distribution		23.14	(Note)	－
Earnings per Share	Weighted Average Shares (thousand shares)		9,922,525	9,947,293	9,952,019
	Diluted Earnings Per Share	Adjusted Diluted Earnings Per Share	1.09	0.19	1.19
Dividends per Share	Cash Dividends		0.2	0.1	N.A.
	Stock Dividends	Dividends from Retained Earnings	－	－	－
		Dividends from Capital Surplus	－	－	－
	Accumulated Undistributed Dividends		None	None	None
Return on Investment	Price/Earnings Ratio		12.37	55.68	N.A.
	Price/Dividend Ratio		67.40	105.80	N.A.
	Cash Dividend Yield Rate		1.48%	0.95%	N.A.

Note:2016 Distribution of Dividends already gets approval from the Board of Directors, subject to shareholders’ approval in Annual General Shareholders’ Meeting.

4.1.6 Dividend Policy and Implementation Status

A. Dividend Policy

The annual net profits of final accounts of the Company shall make up for loss first, shall secondly appropriate 10% of profit as legal reserve (however, if legal reserve reaches the total capital amount shall not apply), to make an appropriation of another sum as special reserve or make an reversal of special reserve in accordance with laws and regulation, to distribute dividend for special/preferred shares, and to add into the profit not yet distributed before, the allocation proposal shall be prepared by the board of directors and be submitted to and resolved by the shareholders’ meeting.

The Company is an emerging company of growing rapidly, capital intensive business, and is at the stage of stable growth, in order to match up the long-term financial plan of the Company in the future, investment environment and business competition situation, the allocation of dividends shall consider the future capital expenditure budget and capital requirement of the Company, and allocation proposal shall be prepared by the board of director, and then shall be allocated after a resolution adopted by shareholders’ meeting. However, for the allocation of shareholders’ dividends, the stock dividends shall not exceed two-thirds of distributable dividends in that current year.

B. Proposed Distribution of Dividend

The Board adopted a proposal in May 10, 2017 for profit distribution as follows: Cash Dividends to Common Shareholders from retained earnings: NT$ 0.1 (Per share). The proposal is subject to shareholders’ approval at the 2017 Annual Shareholders’ Meeting.

C. Significant changes of Dividend policy: None.

4.1.7 Effect of 2017 Share Dividends to Operating Performance and EPS.

No financial forecast disclosed for 2017, therefore not applicable.

4.1.8 Compensation of Employees and Directors

A. Information Relating to EmployeeS’ and Directors’ and Remuneration in the Articles of Incorporation

The annual budgeted net income of the Company shall be distributed in the following order: To pay not less than 5% of the net income as employees’ bonuses and which less than 0.1% shall be paid as remuneration to directors after recover loss.

A company may, by a resolution adopted by a majority vote at a meeting of audit committee attended by one-two of the total number of independent directors and board of directors two-thirds of the total number of directors, have the profit distributable as employees’ compensation in the preceding two paragraphs distributed in the form of shares or in cash; and in addition thereto a report of such distribution shall be submitted to the shareholders’ meeting.

The scope of employee shall be entitled to dividend & bonus may include the qualified employees of affillated companies, the board of directors is authorized to determine the related rules.

B. Estimate Foundation of Employee and Directors’ Remuneration

The company has an amount equivalent to a certain percentage of the current net earnings (net income before tax before deducting the remuneration to employees and the remuneration to directors) minus the accumulated losses estimated and appropriated as remuneration to employees and remuneration to directors, which will be reported as operating cost or operating expense. The remuneration to employees paid with stock is with the number of shares calculated in accordance with the closing price of common stock in the day prior to the resolution reached by the board of directors. If there is any change in the estimated stock share to be distributed after the publication of the financial report in the following year, it is to be treated as changes in accounting estimates and with the effect of such change recognized in the profit and loss of the following year.

C. Profit Distribution of 2016 Approved in Board of Directors Meeting for Employee and Directors’ Remuneration
(1) For the remuneration to employees and remuneration to directors paid in cash or with stock shares: If such distribution amount is different from the estimated amount recognized, the amount of difference, root cause, and accounting treatment should be disclosed as follows: It was resolved in the company’s board meeting on May 10, 2017 to have the
remuneration to employees paid in cash for an amount of NT$231,338,386 and the remuneration to directors for an amount of NT$3,855,639.

The estimated remuneration to employees and the estimated remuneration to directors referred to above is different from the estimated expense in 2016 for an amount of NT$40,477,977 that will be treated as changes in accounting estimates and booked as profit and loss adjustments for 2017 after a resolution reached in the shareholders’ meeting.

(2) The amount of remuneration to employees paid with stock shares and its ratio to the net income and total employee remuneration in the current proprietary or individual financial report:

The company has not had stock shares distributed as remuneration to employees in the current year; therefore, it is not applicable.

D. Information of 2015 Earnings Set Aside to Employee Bonus and Directors’ Remuneration:

Distribution of 2015 Earnings(NT$Thousand)
Directors' Remuneration	$4,490
Employee Remuneration	$734,524

Employees’ bonus and directors’ and supervisors’ remuneration were accrued at $734,524 and $5,000, respectively, for the year ended December 31, 2015. The amount was accrued by considering the period’s net profit after tax, legal reserve amongst other factors and the Company’s Articles of Incorporation. As resolved by the stockholders in June 2016, employees’ bonus and directors’ and supervisors’ remuneration were $734,524 and $4,490, respectively, resulting to a difference of $510 from the amounts in 2015 financial statements. The difference was caused by different accrual ratio which has been processed as accounting estimates after being approved at the shareholders’ meeting and recorded as income in 2016.

4.1.9 Buyback of Common Stock: None

4.2 Bonds

4.2.1 Corporate Bonds: None.

4.2.2 Convertible Bonds: None.

4.2.3 Exchangeable Bonds: None.

4.2.4 Shelf Registration for Issuing Bonds: None. 4.2.5 Corporate Bond with Warrants: None.

4.2.6 Private placement of Corporate Bonds: None.

4.3 Preferred Shares: None.

4.4 Global Depository Receipts

4.4 Global Depository Receipts	4.4 Global Depository Receipts	4.4 Global Depository Receipts
Issuing Date Item			01/23/2013
Issuance & Listing			LuxembourgStock Exchange
Total Amount(US$)			453,701,250
Unit issuing price (US$)			4.481
Units Issued			101,250,000
Source of negotiable securities			Common Shares
Amount of negotiable securities			1,012,500,000
Rights & Obligations of GDS Holders			Same as those of Common Share Holders
Trustee			Not Applicable
DepositaryBank			Citibank,N.A. – New York
Custodian Bank			Citibank,N.A. – Taipei Branch
Outstandingbalance (units)			213,377
Treatment of expenses incurred at issuance and thereafter			Borne by INX
Important conventions about depository and escrow agreement			See Deposit Agreement and Custody Agreement for Details
Market price per unit (US$)	2016	Highest	3.86
		Lowest	2.71
		Average	3.28
	Jan 1, 2017 - Apr 30, 2017	Highest	4.87
		Lowest	3.74
		Average	4.20

4.5 Employee Stock Options

4.5.1 Issuance of Employee Stock Options

Unit: NT $: per share

4.5.1 Issuance of Employee Stock Options	Unit: NT$:per share
Type of Stock Option	2010
Approval date	June 9,2010
Issue date	May19,2011
Units issued	50,000,000
Shares of stock options to be issued as a percentage of outstandingshares	0.50%
Duration	5 Years
Conversion measures	New Common Share
Conditional conversionperiods andpercentages	2nd Year: 30%;3rd Year: 60% 4th Year: 100%
Converted shares	－
Exercised amount	－
Number of sharesyet to be converted	50,000,000
Adjusted exercise price for those who have yet to exercise their rights	21.87
Unexercised shares as a percentage of total issued shares	0.50%
Impact onpossible dilution of shareholdings	Dilution to Shareholders’ Equityis limited

Note:The aggregate total of issued and outstanding shares represents the aggregate total of issued and outstanding shares having been reported to and registered in the Ministry of Economic Affairs as of the Annual Report date.

4.5.2 List of Executives Receiving Employee Stock Options and the Top Ten Employees with Stock Options

Stock Options	Stock Options	Stock Options	Stock Options
				Apr 30,2017;Unit: Thousand
Title	Name	No. of Stock Options	Stock Options as a Percentage of Shares Issued	Exercised				Unexercised
				No. of Shares Converted	Strike Price (NT$)	Amount	Converted Shares as a Percentage of Shares lssued	No. of Shares Converted	Strike Price (NT$)	Amount	Converted Shares as a Percentage of Shares lssued
Chairman&CEO	Hsing-Chien Tuan(Note3)	3,755	0.04%	－	－	－	－	3,755	21.87	82,122	0.04%
Chairman&CEO	Jyh-Chau Wang(Note4)
President&COO	Chih-Hung Hsiao(Note5)
Excutive Vice President	Chin-Lung Ting(Note6)
Vice President	Wen-Jyh Sah(Note7)
Vice President	Yao-TongChen
Vice President	Hung-Wen Yang
Vice President	Chih-MingChen
Vice President	Chu-Hsiang Yang(Note8)
Associate Vice President	Ke-Yi Kao
Associate Vice President	Tai-Chi Pan
Associate Vice President	Kuo-Hsiung Kuo
Associate Vice President	Chung-Kuang Wei
Associate Vice President	Jia-Pang Pang
Associate Vice President	Yu Shui Kuo
Associate Vice President	Zheng-Xia Kuo
Associate Vice President	Tien-Jen Lin
Associate Vice President	Qing-Hui Lin
Associate Vice President	Jun-Yi Yu
Associate Vice President	Mao-Sheng Hung
Finance Supervisor	Chien-Lang Lo
Accounting Supervisor	Chin-Yuan Chang
Employees	Jian-TingLai1	1,100	0.01%	－	－	－	－	1,100	21.87	24,057	0.01%
Employees	Qiu-Lian Yang
Employees	Zheng-Xu Zhou
Employees	Kun-FengHuang
Employees	Zong-Ren Kuo
Employees	Hao-Kun Liu
Employees	Shu-Fu Hsu
Employees	Yang-FengLin
Employees	Fu-Shou Wu
Employees	Min-ZhengWang

Note 1:Refers to the current management officers and employees up to the date of the Annual Report Note 2:The total number of issued shares represents the number of issued shares registered with the Ministry of Economic Affairs as of the date of the printing of the Annual Report.

Note3:2016/5/12 Retired

Note4:2016/5/13 Promoted Note5:2017/3/16 Promoted Note6:2016/6/24 Promoted Note7:2016/6/7 Position adjustment Note8:2016/3/19 Promoted

4.6 Issuance of New Restricted Employee Shares 4.6.1 Issuance of New Restricted Employee Shares

30 April 2017,Unit: Dollars,Shares.

Type of New Restricted Employee Shares	First Tranche	Second Tranche	Third Tranche
Date of Effective Registration	Dec 13,2012
Issue date	Jan 30,2013	Mar 29,2013	Dec 12,2013
Number of New Restricted Employee Shares Issued	62,302,000（Note1）	1,688,000（Note 2）	8,536,000（Note 3）
Issue Price	0.00/5.00
New Restricted Employee Shares as a Percentage of Shares Issued(Note 4)	0.63%	0.02%	0.09%
Vesting Conditions of New Restricted Employee Shares	Employees shall be in active service during each of the following vesting periods since the capital increase base date with the attainment of the annual individual performance appraisal result of Grade B or G or above over the years. Besides, they shall have fully complied with the service code and have not violated the Company’s service agreement and integrity and intellectual property agreement, work rules, stipulations in contracts with the Company or the regulations of the Company. The percentages of shares in which the vesting conditions are fulfilled are set out below. Upon expiration of one year: 20% of the number of shares subscribed Upon expiration of two years: 40% of the number of shares subscribed Upon expiration of threeyears: 40% of the number of shares subscribed
Restricted Rights of New Restricted Employee Shares	(1) shall not be sold, pledged, transferred, given to others as gifts, attached or otherwise dealt with. (2) no voting rights at general meetings. (3) not entitled to participating in the placement (subscription) of shares, dividend distribution for the original shareholders. (4) From the book closure day for the placement of shares at nil onsideration, the book closure day for cash dividends, share subscription in connection with a cash capital increase, the book closure period for general meetings as stipulated in Paragraph 3 under Section 165 of the Company Law, or other statutory book closure periods based on the occurrence of facts to the entitlement distribution date, shares without restrictions of employees who fulfill the vesting conditions in this duration are still not entitled to any voting rights, surplus distribution rights, share placement (subscription) rights,and/or dividend distribution rights.
Custody Status of New Restricted Employee Shares	Custody of shares in trust
Measures to be Taken When Vesting Conditions are not Met	Being placed with new shares: Shares will be reacquired by the Company at nil consideration for cancellation. Subscribing for new shares: All shares will be repurchased by the Company at the closing price or the original subscription price, whichever is lower, on the expirydates of the respectiveperiods for cancellation.
Number of New Restricted Employee Shares that have been Redeemed or Bought Back	7,153,600	407,600	863,600
Number of Released New Restricted Employee Shares	55,147,600	1,280,400	7,644,400
Number of Unreleased New Restricted Shares	800	0	28,000
Ratio of Unreleased New Restricted Shares to Total Issued Shares(%)	－	－	－
Impact on possible dilution of shareholdings	The impact is limited as the dilution ratio is low

Note1:Allotment of 31,151,000 shares at nil consideration; subscription of 31,151,000 shares at a consideration. Note2:Allotment of 844,000 shares at nil consideration; subscription of 844,000 shares at a consideration. Note3:Allotment of 4,268,000 shares at nil consideration; subscription of 4,268,000 shares at a consideration. Note4:The total number of issued shares represents the number of issued shares registered with the Ministry of Economic Affairs as of the date of the printing of the Annual Report.

4.6.2 List of Executives Receiving New Restricted Employee Shares and the Top Ten Employees with New Restricted Employee Shares

				Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand	Apr 30,2017;Unit: Thousand
Title	Name(Note1)	No. of New Restricted Shares	New Restricted Shares as a Percentage of Shares Issued	Released				With restrictions
				No. of Shares	Issued Price (NT$)	Amount	Released Restricted Shares as a Percentage of Shares Issued	No. of Shares	Strike Price (NT $)	Amount	Unreleased Restricted Shares as a Percentage of Shares Issued
Chairman &CEO	Hsing-Chien Tuan(Note3)	8,022	0.08%	8,022	0/5	20,055	0.08%	-	-	-	-
Chairman &CEO	Jyh-Chau Wang(Note4)
President &COO	Chih-Hung Hsiao(Note5)
Excutive Vice President	Chin-Lung Ting(Note6)
Vice President	Wen-Jyh Sah (Note7)
Vice President	Yao-TongChen
Vice President	Hung-Wen Yang
Vice President	Chih-MingChen
Vice President	Chu-Hsiang Yang(Note8)
Associate Vice President	Ke-Yi Kao
Associate Vice President	Tai-Chi Pan
Associate Vice President	Kuo-Hsiung Kuo
Associate Vice President	Chung-Kuang Wei
Associate Vice President	Jia-Pang Pang
Associate Vice President	Yu Shui Kuo
Associate Vice President	Zheng-Xia Kuo
Associate Vice President	Tien-Jen Lin
Associate Vice President	Qing-Hui Lin
Associate Vice President	Jun-Yi Yu
Associate Vice President	Mao-Sheng Hung
Finace Supervisor	Chien-Lang Lo
Accounting Supervisor	Chin-Yuan Chang
Employees	Yong-Yu Cai	2,590	0.03%	2,590	0/5	6,475	0.03%	-	-	-	-
Employees	Chao-Jun Zhong
Employees	Nai-Jian Zheng(Note9)
Employees	GengRon Xu
Employees	Zheng-Xu Zhou
Employees	Dong-RongWang
Employees	Min-ZhengWang
Employees	Kun-FengHuang
Employees	Zhi-Xian Wang
Employees	Sheng-Neam Wei(Note10)
Employees	Shu-Fu Hsu
Employees	Yang-FengLin

Note 4:2016/5/13 Promoted Note 5:2017/3/16 Promoted Note 6:2016/6/24 Promoted Note 7:2016/6/7Position adjustment Note 8:2016/3/19 Promoted Note 9:2017/1/1Resigned Note 10:2016/7/11Resigned

4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None. 4.8 Financing Plans and Implementation: Not applicable.

V. Operational Highlights

5.1 Business Activities

5.1.1 Business Scope

1. Main areas of business operations

The combined operating revenue of the Company is derived from TFT-LCD Flat Panel Displays and its main commodities include large-sized and small-to-medium-sized TFT-LCD related products. Large-sized products are generally applied to Liquid Crystal Displays, Billboards, Desktop Monitors, and notebooks. Small-to-medium-sized products are used to manufacture tablet computers, portable audio players, GPS for automobiles, aviation, and mobile phones, while various types of touch-control panels could be selected. Besides, for the purpose of special usage, the Company also provides products used for medical, industrial, and educational purposes. Given that the business of the Company covers the entire world and the size mix of panels is complete, the Company is a comprehensive LCD provider.

2. Revenue distribution

venue distribution	venue distribution	venue distribution
Unit: NT$thousand
Major Divisions	Total Sales inYear2016	(%)of total sales
TFT-LCD	287,089,277	100%
Total	287,089,277	100%

3. Main products

The Company’s main products are TFT-LCD panels and touch-control modules. The products lines cover small, medium, and large sized panels mainly for a wide range of applications, such as LCD televisions, desktop monitors, notebook computers, mobile phones, portable audio players, automobile accessories, medical, industrial, aeronautic, and educational products.

4. New products development

The Company is planning to develop new commodities with its main focus on flat display-related products, while continuing to delve into key products such as Mobile Phone Panels, automobile display Panels, Notebook Computer Panels, Desktop Monitor Panels, and large-sized LCD Television Panels. Meanwhile, the Company will continue expanding the product scale and product application and development of capacitor-based touch-control panels. The Company will also keep investing into the field of non-consumption applications, and launch new products fit for industrial specification panels, medical, and public display panels.

5.1.2 Industry Overview

1. Current situation and development of industry

Owing to excellent product properties and improving costs and image quality, TFT-LCD has become the mainstream of various kinds of flat displays in recent years. The application coverage of TFT-LCD is extensive, of which, large-sized products are being applied to the manufacturing of LCD Televisions, Desktop Monitors and Notebook Computers while small-to-medium-sized products are being applied to Flat Panel Computers, portable audio players, and GPS for automobiles and mobile phones. Large-sized TFT-LCD products will move towards the goals of energy-saving, better images, and narrower frames, thereby offering an incentive to consumers to upgrade the existing product lines. As the applications of smart phones become more and more popular and the touch-control technology is gradually mature, small-to-medium sized products will become the fastest growing category with the most diverse products in recent years.

The Company adopts the forward–backward integration manufacturing model in response to the development of TFT-LCD Industry, and comprehensively arranges the early phrase glass of every product generation and the later phrase of all-sized modules and integrates IDM product lines,

including 3.5 generation, 4.5 generation, 5 generation, 5.5 generation, 6 generation, 7.5 generation, 8.5 generation and 8.6 generation TFT-LCD plants, 2.5 generation, 4.5 generation, and 5 generation touch-control sensor plants and production lines and later phrase module plants for IDM products such as later phrase product lines, Light Guide Plate/Backlight modules, PCB manufacture, assembly and pressing type paints, and upgraded automatic product line,The production capacity and scale of every production line are comprehensive and flexible, matching a-Si, p-Si, LTPS, Oxide, OLED processing and VA, AAS, TN Fringe field Switching and automatic product line, therefore all-sized products can be produced effectively.

2. Association of upstream, mid-stream, and downstream industries

The Company is an IDM product manufacturer which covers the upstream TFT-LCD Panel production and the downstream System Assembly, the association diagram of upstream, mid-stream and downstream industries which the Company belongs to are shown below:

==> picture [433 x 408] intentionally omitted <==

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

Glass Panel Reticle ITO Conduct
LCD
Polarized Driving IC PCB Backit Modules
Colour Filter
LCD Panel
LCM Modules
LCD Monitor LCD TVs NB Mobile, PDA Others
Consumers
Development trend of products
TFT-LCD has a low energy consumption rate, small size, low weight, and low radiation
features. Japan, Korea, and Taiwan have actively invested in the production technology for many
years, and the technology is getting mature. Now it is widely applied to flat panel displays;
especially for notebooks and desktop displays, most of them using TFT-LCD. In the home
appliance market, flat screen TVs are the mainstream. The future developing trend of these
products are listed below:
Up stream
stream Middle
INXs’ products
Downstream
----- End of picture text -----

3. Development trend of products

(i) Mobile Computers (Notebooks & Tablets)

Due to fair prices and computational efficiency increasing substantially, rapid growth in sales of mobile computers has already become the biggest sales scale under the personal computer category. As the market expands, manufacturers keep releasing differentiation product lines aiming to stimulate different user demands. The design direction focuses on mobility, word processing, and audio performance to meet the needs of every type of customer for market segmentation. LCD panels also have differences in size and resolution. The smallest size is the Tablet; the main market is customers who focus more on personalization and entertainment.

Emphasizing small size, light and easily carried features and more focus on entertainment needs. Therefore everything is moving toward a panel with a wide viewing angle.

Nearly years high end tablets not only have improved computational efficiency and completeness of software function, in the same time there has been more focus on the customer’s visual sensibility about high screen resolution. The demand of high end tablets has increased significantly due to large size and more high resolution products continuing to be released.

For many computer users, a keyboard is still the main input device, and notebooks coming with a physical keyboard still have a considerable market. Facing the rise of tablets, personal computer manufacturers have also started to import new design concepts in notebooks, such as transformer books that can switch between two different modes of tablet and notebook at any time, even table mode can connecting with keyboard directly become a notebook, functional transform notebook are gradually becoming the mainstream design of 10-inch to 13-inch notebooks. Ultra-thin, wide viewing angle, high colour,low consumption and touch function are also becoming important factors. As for those customers with high document requirements and lower mobile requirements, the bigger screen goes with FHD resolution to provide better webpage browsing and visual entertainment experience. 13-inch to 16-inch products are mainstream applications. As for those who emphasize video and audio effects or use the product to replace desktop products, they go with bigger than 15-inch, low energy consumption, and wide color gamut panels to present better color expression.

About the size of the panels, due to the development of next generation production lines and wide screens generally supported by operating systems,except 16:9 products are already become the mainstream of the market,3:2 functional transform notebook also become getting focus of the market. In addition, to fit the trend of thin, fashion design, light and narrow border, panels using thinner glass and thinner organization design are essential factors for products.

(ii) LCD Monitor

LCD monitors mainly go with desktops; two mainstream markets are office use and personal video and audio entertainment use. For office use LCD monitors, generally sales are for computers hosted by brand manufacturers and product structure is relatively simple and of moderate cost to fit the budget of enterprise and government organizations. For personal video and audio entertainment product, due to more focus on video and audio purposes, recently the proportion of the product equipped with wide viewing angle technology has gradually increased. We expecting the proportion is going to increase continually in 2016. Meanwhile due to customers increasing demand for high quality products, we are expecting QHD and UHD high resolution products to be released on the market, having a wide viewing angle and narrow frames will become the mainstream of the high end market gradually.

In addition, there is increasing customer demands for touch operation. When the software platforms of new versions of Windows gradually spread and become mature, we anticipate the product proportion of our touch function is going to gradually increase.

About size, due to an increase in the manufacturing efficiency and efficiency of product design structure, the price of TFT-LCD products is dropping and accelerating market demand for a transfer to the bigger size. For office use types, a gradual transfer from 18.5-inch and 19-inch to 20-inch and 21.5-inch etc.; the average size is bigger for personal video and audio entertainment products, 23.6-inch, 23.8-inch, 24-inch and 27-inch units will gradually increase their proportion soon.

Except for standard LCD monitors, All-In-One (AIO) which is an integrated design of the desktop host and monitor. Because of advantages in functionality saving space , the product is winning customers. As the Windows 10 operating system penetration rate increases, it accompanies the All-in-One product with touch function and accessories design adding greater

entertainment function. It also shows a new appearance for the market of LCD monitors.

Amid booming digital gaming marketing and changing public opinion about the electronic gaming sports, along with their races, communities and media coverage, that are fast growing into professional and official sports. Differing from the 6-year life cycle of computer products, gamers are getting new devices in only 2-3 years on average, let alone their high-end hardware specifications and much higher costs. Leading computer brands are rushing into this market with second brands or series of gaming exclusive desktop and notebook devices designed with gamer specific requirements and configurations in mind. Electronic gaming grade components, including advanced and high-reliability mainboard, memory, independent graphic cards and displays with high refresh rate, are powerful magnets to gamer consumer groups.

(iii) LCD TV

Since 2005, Taiwan, Japan and Korea, started to mass produce generation six (G6). The production of TFT-LCD panels above 32-inches increased significantly and LCD TVs have taken up living rooms rapidly. In recent years, LCD TVs fast popularization due to each manufacturer developing G7 and G8 capacity, goes with the improvement of each phase of production technology. It not only has become customers’ first choice when buying a new TV, but also has stimulated the traditional TV refresh cycle.

Meanwhile, when the market is warming up and products becomes popular. Innolux is the pioneer of providing differentiated large size models (especially 40-inch, 50-inch, 58-inch and 65-inch), dedicated to effectively improving the technology of each product to significantly increase the panel’s added value, gain customers’ brand recognition, and market segmentation, and increase the market share of large sizes.

Meanwhile, mobile display devices gradually move toward high resolution to satisfy customers' demand for high definition TV. We released 4K2K ultra high resolution products in succession since the second half of 2012 and became the pioneer manufacturer of the first of mass production and the highest market share. The company keeps developing high resolution 4K2K(3840x 2160) with Wide Color Gamut (NTSC 100％), including 85-inch, 75-inch, 65-inch, 58-inch and 50-inch panels and were granted the “Taiwan Excellence Gold Award”. The 100-inch 100% wide color Gamut and 4K2K LCD TV panel with HDR and local dimming were granted the 2016 Taiwan Flat Panel product technical award. With the standard of 4K high resolution transport protocol agreement completed, signal transmission standard, high-efficiency TV coding and multimedia transmission interface specification making, popularity of digital TV, we are expecting the 4K2K product will extend into 2016 and future development. Each manufacturer will release 4K2K photographic equipment and go with 4K2K film releases and programs, 4K2K became the necessary specifications of large TVs. In 2016, This company is leading the industry in developing 65" 8K4K (7680x 4320) TV sets in pursuing the ultimate visual experiences for consumers. This new ultra high resolution is set to bring still better image quality which leads to more realistic 3D and telepresence feelings.

On the design of panel appearance, the company provides ultra-narrow frames (<5mm) and ultra-thin design (thickness <9mm) using on products over 50-inch, integrate paint design on appearance to make client rapid input and mass production. End customers not only enjoy the real 4K image, also provide the real high quality of excellent vision and sensual experience. Innolux provide client and customer comprehensive and high competitive TV panel by innovation continually, and continue to lead the market trend and become lead firm of the industry.

(iv) Medium and small size panel

Before 2008, no matter technology or shipment, panel manufacturer of Japan always the leader of medium and small size panel industry; after 2009, Taiwan manufacturer shipment started to exceed Japan and Korea, became the leader of medium and small size panel industry instead.

As the competition is more and more intense, panel manufacturer of medium and small size started to produce by higher generation factory. From 2011, even some panel manufacturer started to mass produce mobile phone panel by higher than G6 factory. However, industry competition of medium and small panel not only at price competition, but also at market demands of higher resolution and higher definition panel. It drives medium and small panel manufacturer to be more enhancement in technical part. Since 2013, not only wide viewing angle technology is sharp competitive edge for manufacturers, each manufacturer release high resolution product continually. By a-si realize high cost-effective in over 5-inch screen of FHD resolution and by LTPS provide WQHD resolution in over 5.5-inch screen. In 2016,except keep improving resolution in 4-inch to 6-inch screen and also compete in lighter, thinner, narrow frames and lower energy consumption products.

The company is advancing product competitiveness with embedded and integrated touch control technology along with enhanced product design flexibility and Time-to-Market strength to provide customers with services integrating high performance and ultra-thin and touch control LCD modules. This is followed by R&D efforts in a series of next generation panel technologies including profile cutting, wearable devices, organic light emitting displays (OLED) and flexible panels aiming at products with high added value in addition to price competition. The goal is to distantiate itself from competitors with advanced technology and to staying sustainable in the industry.

4. Market competition situation

In competition of the industry, in order of countries input in TFT-LCD, countries are South Korea, Taiwan, China and Japan. Korea has large-scale investment in two big corporate groups Samsung and LG. Due to domestic support on their own brand, they lead in production volume and production value recent years. Taiwan’s manufacturers based on complete supply chain integration and high production efficiency, the market share is hot pursuit subsequently after Korea manufacturer. The main manufacturers are Innolux and AU Optronics, etc. Japan manufacturers’ market share decrease gradually due to production cost and decreased in new factory investment plan, transfer to high end mobile display and ultra-big TV market. When we look at China, due to huge domestic demand, it attracts government’s support and factory’s input. Recently BOE, ChinaStar and CLP group step into generation G8 and higher production and starting the competition.

5.1.3 Research and Development

1. Technical Level and Research Development

We keep helping clients to intensify product competitiveness, fit market demand, and be friendly to the environment as our main objective of display technique development. About the development, it mainly includes environment protection materials, electronic saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic displays, touch, wide viewing angle, curve and all-around system services integration. We already have obtained remarkable achievements. These results of technical development are applying to TV, desktop monitor, Notebook, Tablet, Cell Phone, Medical, Industrial Display and automobile. Moreover, the integrated development on the touch components and panels of more advanced techniques and portable and wearable product applications are the key points of our future product design and development.

2. Facts of research & development:

With incessant efforts, the Company has insistently invested significant human resources, resources and funds in research & development to continually upgrade the quality of products, technology & know-how of new manufacturing process and application for new products. The Company would like to depict performance in research & development through three aspects below:

(1) In the aspect of upgrade of product quality:
Including the technology & know-how for broad visual angle, high solution, low energy consumption, thin thickness, high hue, dyamic image, high dynamic range, narrow frames, new touch panel and soft display manufacture process

(2) New material technical process:
Including Oxide, In-Cell Touch Technique, Copper Manufacture Procedure, COA(Color Filter on Array), Photo-Alignment, Horizontal Electronic Field High Transparency and High Contract Positive Magnetic Susceptibility, Reducing Mask and Automotive wide temperature range display material technique, material development and production process for curved touch control display.
(3) In the aspect of new product application:
The up-to-date technology & know-how developed by the Company have been put into volume production one after another and applied onto a good number of products, including notably general cell phones, cameras, MPD, electronic paper, tablets, notebooks, desk monitors, AIO, television, medical treatment services, vehicular carriage, aerospace and touch panel and the like, in the dimensions ranging from 1.36” to 100” TFT-LCD products. In the days and years ahead, we shall continually invest in the research & development oriented human resources and fund to develop more and more TFT-LCD display and monitor products of added dimensions, application ranges, thinner, more environmental protection friendly and high efficiency to live up to the future trends in application and satisfy customers in varied ranges.

3. The consolidated research & development costs invested in the latest year as of the Annual Report date.

e consolidated research & development costs invested in the latest year as of the nual Report date.	e consolidated research & development costs invested in the latest year as of the nual Report date.	e consolidated research & development costs invested in the latest year as of the nual Report date.
Unit: NT$thousand
Item	2016	March31,2017
R & D expense	11,132,079	3,647,720
Net Revenue	287,089,277	86,025,771
Percentage of revenue	3.88%	4.24%

4. Successful development technical or product

The company’s develop technical and products for each direction are listed below.

(1) TV:
A. The first company of the world develop 23.6-inch/40-inch/50-inch/58-inch the best cutting efficiency size in G5.5/G6/G7.5/G8.5 generation factory, we creating market differentiation and improve add-value of product.
B. Introduce 4Kx2K ultra high definition and high resolution TV display, the product line is complete, product size from 40-inch to 100-inch, providing higher quality TV image and better product competitiveness, lead 4K TV industry going to fast development and trend.
C. Introduce new size 40-inch/50-inch/75-inch/85-inch/100-inch TV display, overall arrangement in big size application, creating more differentiation product than competitors.
D. Develop high chroma technique, increasing to over 130% sRGB colour range and without increase energy consumption, not only increase the performance of display, but also make customers feeling more about the value-added of big size TV product.
E. Develop new MEMC improvement technique, apparent improving dynamic quality and integrate IC, increase dynamic picture quality and integrated technique.
F. Develop and mass produce a series of over 50-inch thin TV model (<9mm), providing artistic and fashion appearance model to clients.
G. Develop 0.5mm thin glass and apply to TV display, reduce glass usage and cost. Whole series big size TV import and mass production successfully.
H. Develop Narrow border modul(<5MM) successfully.
I. Develop Inno Module model, combine narrow frames and front and back appearance, provide clients high competitive module and reduce assembled time and cost.
J. Cooperate with brand to develop big size (65-inch and 75-inch) Curve model, mass production successfully and assist client to introduce the product to the market for customers.
K. Exclusive mass producer of 65-inch large 8K4K (7680X4320) panels with the highest resolution in the world
(2) Monitors:
A. Release whole series wide viewing angle VA desktop monitor panel and with high brightness, high contrast, high saturation, not only increase product quality and value, but also provide client the best choice of high end monitor LCD panel.
B. Develop several model of globally new Inno-touch monitor and AIO personal computer, by integrate touch as multi-function use can reduce module thickness to become light, increase touch functional can close to end customers’ need.
C. Release 28-inch and 32-inch 4K2K monitor panel, panel monitor can have higher resolution visual enjoyment, not only increase product value, but also provide client the best choice of high end monitor LCD panel.
D. Developing 23.8" QHD (2560x 1440) panel of wide color domain, ultra-thin, bezzeless and super wide view angle based on proprietary technology of high penetration light resistance, high color saturation LED and AAS display. In addition to wide view angle and vivid color for improved visual experience, this product comes with daily life aesthetics design of being virtually bezzeless (4.8mm wide) and thin profile.
(3) Notebook:
A. Release whole series light-weight notebook panel, the thickness of whole series of notebook (11.6-inch/12.5-inch/13.3-inch/14-inch/15.6-inch) is only 2.0mm, show light feature and provide the solution of notebook carry.
B. Interface technical of Notebook panel is totally from LVDS to eDP. It can connect to high resolution trend, also can save space to help thinner design of the system and lower the energy consumption.
C. Release whole series FHD AAS wide viewing angle notebook panel and goes with Low Power-consumption & Wide Color Gamut to increase color range but not increase energy consumption to increase visual performance.
D. Develop TOD technical on notebook panel, through touch integration, notebook not only can be thinner but also can reduce produce process of the module and simplify the complexity of new product.

E. Develop the world’s first 17.3" fast and high frequency (120Hz refresh speed) panel for electronic gaming notebook. Made with new high speed LCD materials, this new product not only features more vivid color and smooth and realistic gaming screens but also good optical characteristics including wide view angle, low color bias, and ghostlessness.
(4) Small/Medium:
A. Develop a-Si high resolution smart phone panel, resolution can reach above 400ppi, in high yield and stable processes. The product successfully built advantage.
B. Develop LTPS QHD panel of frames narrow than 0.45mm and a-Si FHD 0.6mm, reduce the size of the panel module to fit the narrow frames demand from smart phone and tablet user, increase the design freedom of portable device display appearance.
C. Adopt less power hungry design to lower power consumption by the panel drive chip. Optimize panel production process and material with high color saturation, high transmittance color photo-resistor to ramp up panel efficiency and product competitiveness with balanced low power consumption and production costs.
D. Leading the industry by launching a series of Touch On Display (TOD) integrated touch control devices. Coupled with modular and compact design and good optical performance, this company is providing customers with comprehensive and full range touch control integration services with vertically integrated LCD panels and touch control production.
E. Apply the newly developed Touch In Display (TID) integrated touch control technology in a-Si HD and LTPS FHD panel for mobile phones and a-Si WXGA and WUXGA for tablets. This company is integrating touch control drives and display chips with Touch & Display Driver Integration (TDDI) structure to pioneer the compact and high performance niche product markets.
(5) Touch Panel:

The company already develops several touch technique solutions (including InnoTouch, TOD, TID, Hybrid, Total Solution):

A. New type Inno-touch technique is integrated touch panel and induction glass technology. The advantage is able to simplified production process and provides economic touch panel option. The technology can goes with multiple size panels; meets the new development trend of affordable electronic product toward to touch function.
B. Touch On Display (TOD): Through TOD technique can make portable device have light performance effectively, also with well optical performance and increase portable electronics competitiveness. Not only medium and small size smart phone and tablet apply and mass production, but also apply to bigger size notebook products.
C. Touch In Display (TID) & Hybrid : Not only have TOD technical advantage, the company develop TID Hybrid technical to make it even more lighter, and high touch sensibility technique apply to portable product can improve the users’ experience about portable electronic product.
D. Provide more completeness Touch Total Solution: Through highly vertical integration of streamlined production, we may provide client complete and all-round touch integration service. Not only shorten the process and time of production and delivery, but also help client to enter the market, make better arrangement and configuration at capacity and resource of panel and touch. Equip with integrated InnoTouch, TOD, TID Hybrid product and process technical to serve customers.
(6) Special Application

Release 21.3-inch to 30-inch (AAS; 5/6/10/14 MegaPixel) medical LCD display, with high resolution, high brightness, high contrast, adopt 10 bits drive new technology and high efficiency LED BL, to make the image more delicate and medical personnel can make more precise judgment. Big size public display 75-inch/ 85-inch present natural high color gamut and give consideration to both indoor and outdoor environment,85-inch UHD also support portrait. Also first release horizon LCD display (bar type) presents multiple sizes can fit for multiple environments.

5.1.4 Long- and Short-Term Business Development Plans

1. Short-Term

In the short-run, we shall devote ourselves profoundly toward televisions, notebooks, tablet computers, cell phones, monitors oriented to vehicles, medical treatment services and industries. Continually we shall help customers pep up competitive edge through our pround monitor technology & know-how, live up to the market and environment-friendly demands. About the development, it mainly includes environment protection materials, electronic saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic displays, touch, wide viewing angle, and all-around system services integration. We already have obtained remarkable achievements. Meanwhile, we shall spare no effort to profoundly team up with customers in strategic alliance to solidify our firm foundation in the panel supply chains and create the happy win-win aspects through the teamwork.

2. Long-Term

Long-term development: Other than the efforts to do research & development for up-to-date monitors, strengthen manufacturing process to optimize the productivity. For the emerging of new model monitor know-how, we shall invest appropriate resources, cultivate autonomous development capability, like the embedded touch know-how, super narrow frames, super thin design, super high solution, curved plate design, soft disply and niche oriented application products and the like. Through such efforts, we hope to set up the optimal strategic deployment in the brand new monitor application regions. Meanwhile, we shall further stress value chian integration and development of products high added values, to make our products more competitive in both pricing and specifications to provide customers with added solutions and services and to provide terminal end consumers with added excitements in visual enjoyment.

5.2 Market and Sales Overview

5.2.1 Market Analysis

1. Main products selling area

Unit；NT$thousand；%

			Unit；NT$thousand；%
	Area	Amount ofSales2016	%
	Domestic sales	95,497,599	33.26%
Foreign sales	China	59,778,250	20.82%
	HongKong	66,990,932	23.33%
	Europe	12,996,893	4.53%
	America	11,582,252	4.04%
	Other Area	40,243,351	14.02%
	Total amount of F/S	191,591,678	66.74%
	Total	287,089,277	100.00%

2. Market Share

According to the statistic of IHS research report, until Q4 2016, the market of the company’s big size panel shipment is 15%, due to the Q1 2016 earthquake effect, YOY decreased 2%, which is the third-largest supplier of the world LCD panel industry. Based on application product, global market share of LCD display panel is 16%, maintains world’s forth ranking performance; global market share of LCD TV panel is 14.7%, world’s third ranking performance; global market share of notebook (not including tablet) is 22.6% which is the world’s second ranking. Overall, under the tough economic environment, strong market competition and the earthquake effect, the company still maintains nice performance in the market of big size product application. The market share of medium and small panel is 6%.

3. The supply and demand situation and growth of the future market

Due to the outstanding product feature and the continuous improvement of cost and quality, TFT-LCD already become the mainstream of flat display and the sales will keep growth as the improvement of application level and penetration. According to the estimation of IHS, the global shipment of big size

(over 9-inch) TFT-LCD panel will b e 704 million chips. If analyzing market size of sev e ral main application level, about LCD TV part, a s new size development and new technical input and plus ne w capacity growth stable, global shipment of LC D TV will be 223 million in 2016 and average size in c rease an inch each year and might reacg 226 mil l ion in 2017. About LCD monitor, the shipment is 136 m illion and will slightly decline to 133 million in 2 017, but as the demand increased of big size and high resol u tion product, the penetration rate of high value product will increase gradually. About mobile PC (includ i ng notebook and tablet),due to the tablet is not p o pular after 2015, the shipment is 352 million in 2016 an d the forecast will decline to 342 million in 2017.

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Data Source: DisplaySearch According to the estimation fro m IHS, global shipment of medium and small size panel will be 276 million in 2016, decreased 1.9 % co m pared with 2015. The shipment will be 277 mil l ion in 2017 and annual and stay the same averge. Accordin g to the estimation from Gartner,Cell phone ship m ent reach 149 million in 2016 and the forecast will increa s e to 155 million in 2017 and annual growth rate i s 5%. As smart phone rapid growth in emerging countries m arket, it will keep driving the demand of cell p h one’s panel; the overall cell phone panel shipment is going t o grow continually until 2022 and will be the ma i n growth power of middle and small size panel.

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20.0 Unit:Billion 45%
42%
15.5 40%
14.9
16.0 14.2 35%
12.4
30%
29 %
12.0
9.7 25%
Smart Phone
20%
8.0
14% 15% GR YoY
4.0 10%
4% 5% 5%
0.0 0%
2013 2014 2015 2016(E) 2017(F)
Data Source: Gartner
----- End of picture text -----

Amidst the unpredictable macr o economy, competition amidst the industries, expansion and competition by newly joining competitors amidst products and technology & know-how that hav e been developed and changed in each and every passing d ay, the TFT-LCD products would be subject to high level circulation uncertainty. In the face of the moun t ing cutthroat competition, we shall launch overa l l upgrade of all substances to deal with all sorts of challenges.

We shall boost marketing b y means of improved operating efficiency, refin e d management, product development, customer se r vices, technical research & development and su c h efforts. In turn, we will be able to intensify gross profit in sales, cost control to further intensif y competitive edge.
Continued investment in r e search & development to suffice technical talen t s, improve product design and application of m aterials. We shall proceed with research & development of advanced and improved manufactur i ng process and new generation monitor technolo g y & know-how so as to create added lead in know - how of products and production costs.
With wholehearted efforts , we shall deploy integrated product lines for ne w products. The products manufactured by our Com p any cover televisions, computers, mobile devic e s, vehicles- and medical

treatment oriented products. We provide varied modes to sell panels, whole machines, touch integration and the like. Through such efforts, we virtually bring down the potential risks of fluctuation with single products.

We intensify integration of supply chains to stay in close teamwork with suppliers to deepen deployment of strategic customers, strengthen responsiveness toward supply and demand fluctuation and, meanwhile, boost approval-level from customers.

4. Niches in competition.

(1) Business model:

Since we launched the three-in-one merger, we have continually demonstrated the integrated concerted performance (synergy). Through the business policies with “leadership with know-how and quality, boosting of production efficiency and quality”, we have enhanced the operating efficiency by leaps and bounds and gradually open the new aspects amidst the cutthroat competition.

(2) Vertical and horizontal integration:

In an attempt to strengthen integration of our products, boost cost competitiveness, demonstrate maximum possible benefit in supply chain management, other than production of TFT-LCD panel modules, we dominate a significant ratio of design and manufacture of parts & components, including LED panels, color filter, light guide plate, Backlight Module, PCBA and such structure pieces which could be manufactured inside our home factory or overseas subsidiaries.Meanwhile delopement automatic product line to decrease the human resource and upgrade the product design. Thanks to such high leve vertical integration, we have taken advantage in lowering costs, prompt response to assure top level quality.

(3) Portfolios of our products:

The principal products of the Company include notably the TFT-LCD panel modules primarily including: Large size like LED TV, desktop monitor and laptop plate; mid-small size like mobile phone, tablet PC, automotive display. Various products with advanced wide viewing angle and high resolution manufacturing techology. We satisfied every level of your needs.

(4) Our advantages in costs:

Through the hands-on experiences accumulated by TFT-LCD manufacturers at home and abroad, we could conserve quite a few time which is normally indispensable to try & err. In procurement of machinery & equipment, the hands-on experiences accumulated by the suppliers in installation could help us conserve partially the costs. Further coupled with the aforementioned advantages in the unique operation mode and vertical integration, we well outperform horizontal trades in terms of costs required for production.

(5) Concerted performance (synergy) in marketing:

We are dominant of sound marketing channels to get connected with world class customers. Toward those world-class giant customers, we are capable of rendering prompt design, integrated products with global services through which our customers enjoy the excitements of one-stop shopping.

(6) Customize

Provide customize service for our customers.

In looking back over 2016, our production lines for all sorts of panels were complete and comprehensive and were in an excellent position to enable customers to enjoy the excitements of one-stop shopping. In extensive aspects notably the productivity scale, product design capability, quality rate, supply, managerial plans as well as financial stability, we have accomplished further upgrade.

Besides, the Company has continually without interruption teamed up with customers in the product designs and supply chain management profoundly to continually boost customer

approval-level and, in turn, expanded our shares in the panel markets. In 2016, we saw continued shipment stable growth, apparently that our efforts in performance have yielded fruit step-by-step. We anticipate that in the days and years ahead, we are in a position to further optimize product, upgrade quality and assure further upgraded approval-level from customers.

5. Advantage and disadvantage of long term development and reaction strategy

(1) Advantage:
A. Keep developing new product applications

With rapid development of wireless communication and cloud technologies, TV, PC, pad and cellphone are gradually integrated their contents. The development of “one cloud with multiple screens” is the major strategy of all companies. Because the service of cloud information is surrounding people’s life, the flat-panel monitor, as the intermediary of information, has become more important. The more delicate the information content is, the demand of size, resolution, visual angel, and light specification design of consumers rise. It also raises the unit price of TFT-LCD products, and brings new applications and demand increases. The main stream products of all major TV industry brands is ”smart TV”, which is also the sign of the rapid involvement of cloud applications in TV area. 4K2K ultra HD TV, which were put into market in the second half of 2012 and provided higher level of joy for watching TV, has grown very fast and become the major spec of middle or high end product from 2016.

Regarding to the LCD monitors, because the market is more matured, the major product requirement is energy saving and HD quality to encourage the customers to upgrade the current product lines. Regarding to notebooks, the new market drives come from the new operating system and calculating platform. Ultra Mobile products innovation, this is good for the production of middle size panels. Regarding to the medium and small size panels, the common use of smart phones and gradually matured touch panel technologies allows smart phones to become general consumer products. The delivery of production continue growing while 2016 deliver 1.5 billion and 2017 1.55 billion to be expected. Because the panel size of smart phone increases from the size of functional phones, panel’s unit price rises while the requirements of wide visual angle, high resolution, and color presentation upgrades. Thus, cellphone panels’ revenue continue rising.

B. Stable customer base

Our major customers are global consumer electronics companies, which have important stands in TV, PC and mobile communication industry globally. Moreover, because the trends on integration of consumer electronics and personal computers are obvious, the market will still be dominated by the international big companies, and develops with the direction of “the big ones get bigger”. Therefore, in the company’s perspective, we not only can grow our revenue rapidly, the market share of us is also expected to keep increasing with our major customer basis. Under the synthesized effects of the three factors: rise of production line completion, stronger customer base, keep developing new customers in newly developed market on the current customer basis, the company’s revenue is expected to grow stably, and the global market share will grows gradually as well.

C. Globalized strategy

Innolux has been recognized as the best LCD panel supplier in all aspects, and had been setting up global strategy aggressively. Now we have production base of post-production LCD panel module and monitor in Shenzhen，Ningbo, Foshan, Nanjing in China, and we also have delivery hubs in major cities in Asia, Europe, and America, so that we can achieve “deliver just in time” object and strengthen the long term cooperative relationship with customers.

D. Vertical integration in depth

Innolux has been working in TFT-LCD industry for a long time, and we have the professional knowledge and managing capability in LCD panel, module, mechanism, and optical components’ R&D, production, and selling. We are more cost-effective and have better

capability to service the customers timely than unitary TFT-LCD factory.

(2) Disadvantage and Reaction Strategy
A. The balance of supply and demand is hard to keep due to the intense competition in this industry.
- LCD panel industry’s economy cycle is more obvious than other industry and the balance of supply and demand is more difficult to maintain because the high capital intensity and long establishment time. Other competitors in Taiwan, Japan and Korea are planning to build up next generation panel factories and the rising production capability in China since 2012 also brought competition to the industry. Innolux has 3.5th generation, 4th generation, 4.5th generation, 5th generation, 6th generation, 7.5th generation, 8.5th generation and 8.6th generation production lines, which can produce all sizes of LCD panels and touch panels. The production capability is the 3rd largest panel manufacturer. We try to produce the best combination of products and adjust the production allocation according to market supply-demand condition, so that we can optimize the use our production capacity.
B. The complicated technology and patent portfolio The design and production of TFT-LCD requires highly professional technology. All companies that in this industry are aggressively making their portfolio in technology and patent applications. To avoid the violation of patent rights in the production process, Innolux has been developing our own patents and technology since the beginning of this company. We recruited domestic and international talents to join the research team, and evaluate the feasibility of getting the usage rights of some key technology from foreign companies at the same time. Regarding to intellectual poverty, we not only aggressively conduct R&D and the patent applications, we also keep strong legal support team to protect our intellectual poverty.
C. The global economy influences demand and supply Prospects across the main countries and regions remain uneven. the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for this and next year.The regional or global economy fluctuate will influence the demands of LCD monitor products. We provide products that are competitive for its cost and specifications by constantly optimizing our products and technology. We also help our supply chain partners to develop business to diminish the operation disadvantages of fluctuation of external demands.

5.2.2 Production Procedures of Main Products

1. Major Products and Their Main Uses

(1) TFT-LCD

TFT-LCD products are display application for digital information delivery, its wide application including information display equipment for business and industry, computer, telecom related and consumer electronics display equipment, etc. As the development of integrated digital age 3C market, the main area of TFT-LCD product are:

Information Technology, IT: such as Desktop monitor and Notebooks, etc.
� LCD TV
Communications and Consumer Electronics: Mobile phone, digital camera, digital video, digital photo frame, automotive display, portable DVD player, portable game console, tablet and other high mobility and portable electronic products application.
Special application: medical display, Avionics display, automotive display and other touch panel application.
(2) Touch Panel business
Small size (below 7 inch) products mainly apply to smart phone, multimedia player, GPS and digital camera, etc.
Medium size (7 inch to 19 inch) products mainly apply to tablet, eBook, Ultrabook, notebook, etc.
Large size (above 20 inch) products mainly apply to All-in-one computer (AIO), Public Information Display, etc.

2. Major Products and Their Production Processes

(1) Three Steps in the TFT-LCD Production Process:
In the Array or TFT Process mentioned in the preceding paragraph, injection and washing for glass baseplates→gate metallic layer sputtered coating→gatemetallic layer lithography→ Semiconductor layer continued filming→Semiconductor lithography→source/drain film-forming→source/ drain medal sputtered coating→source/drain lithography→Protection film manufacturing process→Protection film lithography→Transparent conducting layer sputtered coating transparent conducting layer lithography→thin film transistor electrical analysis→thin film transistor completion.
Cell or LCD Process: The Cell process fits the Array substrate to a color-filter substrate; liquid crystal is then inserted between the two substrate layers.
Module Assembly or LCM Process: taking the panel from the Cell process and bonding the assembling backlights, IC and frame and other components to make the Open cell, module and system and other types based on clients’ demand.
(2) Touch Panel business
Sensor Process: Use Semiconductor Litho process to put sensor on the glass.
Lamination & FPC Bonding Process:
Touch panel modules and LCD/LCM assembling process (TP & LCD/LCM Direct Bonding & Advanced Direct Bonding): A.TP & LCM: taking LCM as the baseplates to be attached to the touch panel modules for overall combination. B.TP & LCD: LCD(Open-Cell) as the baseplates to be attached to the touch panel modules for overall combination before being assembled with Back Light modules(BLM).

5.2.3 Supply Status of Main Materials

Major Raw Materials	Source of Supply	Supply Situation
Driver IC	Supplier U	Good
Glass	Supplier P,SupplierQ,Supplier S	Good
Polarizer	Supplier R,Supplier T,Supplier V,Supplier W	Good

5.2.4 Major Suppliers and Clients

A. Major Clients Information for the Last Two Calendar Years

Unit：NT Thousand$

					Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$
Item	2015				2016
	Company Name	Amount	Percent	Relation with Issuer	Company Name	Amount	Percent	Relation with Issuer
1	Customer A	39,802,830	10.93	None	Customer A	41,448,102	14.44	None
2	Others	324,330,154	89.07	None	Others	245,641,175	85.56	None
	Net Total Supplies	364,132,984	100.00	－	Net Total Supplies	287,089,277	100.00	－

B. Major Suppliers Information for the Last Two Calendar Years

Unit：NT Thousand$

Unit：NT Thousand$									Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$	Unit：NT Thousand$
Item 2015 2016 Company Name Amount Percent Relation with Issuer Company Name Amount Percent Relation with Issuer 1 Others 205,711,096 100.00 None Others 168,042,304 100.00 None Net Sales 205,711,096 100.00 － Net Sales 168,042,304 100.00 － 5.2.5 Production in the Last Two Years Unit: NT Thousand$	Item	2015							2016
		Company Name	Amount		Percent		Relation with Issuer		Company Name		Amount		Percent	Relation with Issuer
	1	Others	205,711,096		100.00		None		Others		168,042,304		100.00	None
		Net Sales	205,711,096		100.00		－		Net Sales		168,042,304		100.00	－
				Last Two Years Unit: NT Thousand$

Year Output Major Products				2015						2016
				Capacity		Quantity		Amount		Capacity		Quantity		Amount
TFT-LCD				368,000		349,515		317,400,000		318,000		288,819		259,000,000
Total				368,000		349,515		317,400,000		318,000		288,819		259,000,000

5.2.6 Shipments and Sales over the Last Two Years

Unit：NT Thousand$

Year Shipments & Sales Major Product	2015	2015	2015	2015	2016	2016	2016	2016
	Local		Export		Local		Export
	Quantity	Amount	Quantity	Amount	Quantity	Amount	Quantity	Amount
TFT-LCD	76,165	103,617,666	298,805	260,515,318	81,543	95,497,599	254,020	191,591,678
Total	76,165	103,617,666	298,805	260,515,318	81,543	95,497,599	254,020	191,591,678

5.3 Human Resources

	Year	2015	2016	As of 4/30/2017
Number of Employees	Manager	2,873	2,682	2,658
	IDL	15,810	13,582	13,050
	DL	61,962	49,267	50,399
	Total	80,645	65,531	66,107
	Average Age	28.75	30.29	30.39
Average Years of Service		3.37	4.35	4.35
Education	Ph. D.	0.12%	0.12%	0.11%
	Masters	7.28%	8.39%	8.12%
	Bachelor’s Degree	75.74%	71.43%	71.82%
	Senior High School	14.42%	15.76%	14.89%
	Below Senior High School	2.45%	4.30%	5.06%
	Total	100%	100%	100%

5.4 Environmental Protection Expenditures

Innolux has disclosed the reactions and the total lost (including compensations) and the possible expenses (including the costs of reactions haven’t been taken, estimated amounts of punishments and compensations. We also explain the reason if there is any cost we couldn’t estimate.) of environmental pollutions.

Regarding construction works of Innolux's L6 plant: The Yongqing contractor failed to suppress dirt with water spraying on its delivery route during concrete pouring operations. Innolux was imposed a fine of TWD 100K by the EPA of the Kaohsiung City Government according to Article 23 of the Air Pollution Control Act and was required to remedy this before a set date. Prevention: Yongqing is required to provide adequate dirt suppression equipment to protect the environment along the route of the concrete delivery. Further training programs have been exercised to enhance construction personnel's awareness about construction air pollution prevention measures.
Regarding construction works of Innolux's L6 plant,The construction site runoff waste water reduction program started before being green lighted by the EPA of the Kaohsiung City Government. Innolux was imposed a fine of TWD 42.5K by the EPA of the Kaohsiung City Government according to Article 18 of the Water Pollution Control Act and was required to remedy this before a set date. Prevention: The construction site runoff waste water reduction program of L6 plant has been green lighted by the EPA of the Kaohsiung City Government and has been in effect since then.
Innolux T2 plant's violation Article 31 and 36 of the Waste Disposal Act and Article 7 and 15 of the Methods and Facilities Standards for the Storage, Clearance and Disposal of Industrial Waste was due to its failure in filing for temporary storage quantity and record waste solution disposal date among other required disposal certificates; In March, 2015, violating Article 28 of the Waste Disposal Act was due to its contractor, the Safety and Environmental Protection Cleaning Engineering Co., Ltd., of waste water disposal facility maintenance doing sludge removal works without a license: it was imposed a fine of TWD 150K by the Miaoli County Government and required to remedy this before a set date. Prevention: Innolux has made sure of the conformity of waste solution status and labeling with the

Waste Disposal Act and Article and the Methods and Facilities Standards for the Storage, Clearance and Disposal of Industrial Waste. It also had each unit recognize and abide by the rule of getting wastes removal and transporting only by licensed service providers.

5.5 Labor Relations

5.5.1 List any employee benefit plans, continuing education, training, retirement systems, and - the status of their implementation, and the status of labor management agreements and measures for preserving employees' rights and interests.

Employee welfare and the situation of implementation
(1) Besides the basic monthly salary, we also provide Luna Festival, dragon boat festival and New Year bonus, and proper performance bonus according to the company operation revenue.
(2) Our Employees have the labor insurance, citizen health insurance, and group insurance from the very first day of employment.
(3) We have employee restaurants in all factories, and provide meal substitutes according to the company rules.
(4) With the concepts of energy, comfortable life, and happiness, we built the employee’s center, which provides leisure and exercise functions to release our employees’ mental and physical stress.
(5) We set up the employee welfare committee to be responsible for welfare planning and execution, including club activities, exercise periods, earth environmental day, family day, coherence activities, public lecture, special discounts and festival substitutes, wedding or other special events, and emergencies.
(6) We provide health promotion and a mental consulting plan to take care of employees’ mental and physical health.
(7) Strengthening the concepts of sustainable management: we hire mentally or physically ill employees and insist on environmental protection and being responsible for social welfare.
(8) We integrate and continuously improve the system, process and plan of talents development.
(9) We provide internal and external trainings, such as professional studies, headquarter training, oversea training to develop employees’ professional knowledge and skills.
(10) Comprehensive certification development framework, based on the professional positions and management functions certification to promote quality, green products, and regulatory courses vertically; also, to promote departmental training horizontally in order to achieve the company’s objectives and to provide the diversified education and training network needed by the organization.
Retirement structure and the situation of implement
(1) Retirement structure and the situation of implement.
(2) We hire actuary to evaluate our employees’ retirement preparation fund and issue the evaluation report according to the IAS19R financial principles.
(3) We transfer 2%~15% monthly salary to retirement preparation every month.
(4) We will conduct the new retirement structure according to the laws from Jul 1, 2005.

3. Labor and management settlement

The rights and obligations of our labor and management follow the rules of our company operation. The relations between labor and management are good without and dispute settlements.

In order to maintain mutual communications and interactions, we have communicating meetings such as labor-management meeting, the Employee welfare union meeting and

mobilization meetings etc., issuing INX digital news, establishing employee communication mailbox to listen and solve employees’ opinions and thoughts.

Working environment and individual safety protection
(1) Safety and Health organization and operation

The company has an environmental safety office to be in charge of all safety and health risks in company operation management, and to integrate the safety and health departments in all factories. The environmental safety office reports to the factory manager, related departments and the soviet in “factory fields’ safety and environmental protection committee” every season.In 2016, there are 777 participants at 38% attend the meeting in Taiwan and 252 participants at 37% in Mainland China.

Analysis and Statistics of Occupational Hazards

Through the incident management system the company analyzes the statistics and causes of incidents including traffic accidents and near miss. With reports and surveys generated, the system would announce improvements in hazard prevention, as well as accident reviews and improvements. It also ensures parallel deployment across plants to prevent re-occurrence of incidents. Over 2016 the Disabling Frequency Rate (FR) and Severity Rate (SR) both increased compared to 2015. But the Lost Work Case and Restrictive Workday Case both decreased compared to 2015.

The Company will continuing maintain and improvement the goal to decrease of Lost Workday Case and Restrictive Workday Case.

Business Continuity Management

Innolux has been providing ESH management and training to vendors. A structure is in place for hazard identification, risk assessment and emergency response for high-risk operations. Monthly meetings are conducted with contractors for two-way communication and coordination and doing PDCA if the accident happened.

ESH Training

Employees are the most valuable asset. Training is an investment that never depreciates. ESH training is the basis for the promotion and practical implementation of our ESH management. We make long-term investments in human and material resources according to the hazard profile of each plant.

We plan, design and deliver training to the staff regarding ESH knowledge and skills, such as handling chemicals, dangerous machinery and equipment, injury prevention, machinery safety, fire safety management, and plant safety management. We also monitor and control the training quality and effectiveness. In 2016, 3,063 ESH training sessions were held, for a total of 337,181 participants. On average, employees joined over 5 training sessions per person per year.

(2) Safety Culture and Risk Management

Early waring system

The system divided into 5 levels, base on plant equipment, facilities, inside & outside trend, irresistible natural disasters and man-made disasters to pre-defense and notify manager immediately.

Prevention of manmade disasters

Due to musculoskeletal disorders percentage increase this few years, prevention of company as below:

A. Identification and analysis of the risk of job-specific processes of a systematic, resource and continuous improvement mode execution.

B. Occupational Safety and Health Act will trigger repetitive operations, such as pre-musculoskeletal diseases Anti concept implanted "hazard identification and risk assessment norms" to implement career

In order to effectively prevent and control concepts, health management must be through hazard awareness, assessment and control improvement.

(3) Recruitment and Staffing

Innolux’s goal is to employ qualified personnel to create the best possible performance. Our company cares about diversity and equal opportunity. We do not allow employment discrimination based on race, color, age, gender, sexual orientation, ethnicity, disability, pregnancy, religion, political affiliation, union membership, and marital status or otherwise. In our day-to-day operations, this means that we monitor and manage our human resources consciously. We analyze and improve turnover patterns. We build a labor force with a balanced structure, which was also integrated into our recruiting policy.

(4) Zero Distance Communication

Innolux emphasizes harmonious labor relations. To this end, we convene quarterly meetings with the labor-capital committee and the Employee Welfare Committee. High-level managers from the capital side and grassroots level representatives from the labor side engage in two-way face-to-face communications, to exchange views in an open atmosphere. We also have built a full range of communication channels, which employees can use under their names or anonymously. The Employee Care Hotline, the Employee Care Mailbox, and the opinion box help employees to find quick solutions to their problems.

Workplace Free from Sexual Harassment

To protect employees from sexual harassment, Innolux adopted the 'Sexual Harassment Prevention, Complaint and Management Procedures for Taiwan site' to effectively prevent and deal with sexual harassment. Investigation of sexual harassment is conducted in a non-public fashion to protect the privacy of the parties involved. Everyday protection from sexual harassment is promoted through the start-up screens of computers to build a friendly workplace and eliminate sexual harassment.

EAPs Employee Assistance Programs

Employees are company's most important asset. Innolux understands how difficulties may affect an individual’s work and life. Therefore, Innolux takes a systematic and embedded approach to offer appropriate professional resources, such as employee communications, psychological counseling, and healthcare, in an effort to reduce the impact that problems may have on our employees' work and lives. We hope to enable our employees to work with a fit body and a healthy mind and improve productivity.

Integrated Employee Care Channels

Innolux takes employee feedback seriously. We offer various feedback channels to employees, to effectively prevent and solve employee issues. We put more focus on integrating our employee care channels. Thus, we unified the representative code of Employee care hotline and the Employee Care Mailbox at different sites. The same was advertised via internal announcements and the start-up screens on computers. We expect this integrated approach will pay off through more efficient handling of cases.

5.5.2 List any loss sustained as a result of labor disputes in the most recent fiscal year, and during the current fiscal year up to the date of printing of the annual report, disclose an estimate of losses incurred to date or likely to be incurred in the future, and indicate mitigation measures being or to be taken. If the loss cannot be reasonably estimated, make a statement to that effect. NT$690 Thousand.

5.6 Important Contracts

5.6 Important	Contracts
Agreement	Counterparty	Period	MajorContents	Restrictions
Lease Agreement of the Land	Science-based Industrial Park Administration	Feb 2001- Dec 2020	Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County(Plant No.I)	Pursuant to the terms and conditions set forth under the Agreement
Lease Agreement of the Land	Science-based Industrial Park Administration	May 28, 2003 - Dec 31, 2022	Leasehold of land	Pursuant to the terms and conditions set forth under the Agreement
Lease Agreement of the Land	Science-based Industrial Park Administration	Feb 2004 - Dec 2023	Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County (Plant No.II)	Pursuant to the terms and conditions set forth under the Agreement
Lease Agreement of the Land	Science-based Industrial Park Administration	Apr 6, 2004 – Dec 31, 2023	Leasehold of land	Pursuant to the terms and conditions set forth under the Agreement
Lease Agreement of the Land	Science-based Industrial Park Administration	Dec 1, 2007 – Dec 31, 2026	T2 Leasehold of land oriented for factory	Pursuant to the terms and conditions set forth under the Agreement
Lease Agreement of the Land	South Taiwan Science-based Industrial Park Administration	Mar 9, 2015 - Mar 8, 2035	Leasehold of land	Pursuant to the terms and conditions set forth under the Agreement
Engineering Project Agreement	Chung Lin Construction Co., Ltd.	Feb 2001 till expiry of warranty period	FAB I Project of Civil Engineering Construction	Pursuant to the terms and conditions set forth under the Agreement
Engineering Project Agreement	Hu Tzu Construction Co., Ltd.	Jul 2005 till expiry of warranty period	FAB II Newly constructed project	Pursuant to the terms and conditions set forth under the Agreement
Engineering Project Agreement	Cheng Teh Fireproof Industrial Co., Ltd.	Sep 2005 till expiry of warranty period	New construction of Plant No. II, award of the fire prevention project contract	Pursuant to the terms and conditions set forth under the Agreement
Syndicated Loans	Bank of Taiwan and bank groups	Mar 12, 2015 - Mar 12, 2018	1. To be used by the Loanee to reimburse, under the syndicated accord, the mid-term and long-term syndicated loans, for all fund required for the outstanding balance of principal as mentioned above. 2. In the amount of NT$68.5 billion	Pursuant to the terms and conditions set forth under the Agreement
Syndicated Loans	Bank of Taiwan,CTBC and bank groups	Sep 6,2016-Dec 6,2021	1.To be used to reimburse the mid-term loan 2. In the amount of NT$35 billion	Pursuant to the terms and conditions set forth under the Agreement
Patent authorization	Foreign Company A	Jun 17, 2013 – Jun 30, 2017	3D Relevant technology & know-how	Pursuant to the terms and conditions set forth under the Agreement
Patent authorization	Foreign Company B	Jan 1, 2015 – Dec 31, 2020	IPS Relevant patents	Pursuant to the terms and conditions set forth under the Agreement
Cross-licensing	Multinational Enterprise C.	June 28, 2010– Dec 31,2019	IPS Relevant technology & know-how	Pursuant to the terms and conditions set forth under

Agreement	Counterparty	Period	MajorContents	Restrictions
				the Agreement
Cross-licensing	Multinational Enterprise D	Jul 2, 2012 – Jul 2, 2022	Display of the relevant cross-patent licensing within the regions.	Pursuant to the terms and conditions set forth under the Agreement
Cross-licensing	Multinational Enterprise E	Jul 1, 2013 – Jul 1, 2023	LCD Relevant technology & know-how	Pursuant to the terms and conditions set forth under the Agreement
Patent authorization	Multinational Enterprise F	Jan 1, 2013 – Dec 31, 2019	LCD Relevant technology & know-how	Pursuant to the terms and conditions set forth under the Agreement
Patent authorization	Multinational Enterprise G	Sept 5, 2013 – Sept 5, 2018	LCD Relevant technology & know-how	Pursuant to the terms and conditions set forth under the Agreement
Patent authorization	Multinational Enterprise H	Oct 31, 2013 - Oct 31, 2017	LCD Relevant technology & know-how	Pursuant to the terms and conditions set forth under the Agreement

VI. Financial Information

6.1 Five-Year Financial Summary

6.1.1 Condensed Balance Sheet

1. Consolidated Condensed Balance Sheet

Unit: NT Thousand

Year Item	Year Item	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	As of the printing date of this annual report
		2012	2013	2014	2015	2016
Current assets		173,139,399	171,701,969	189,380,812	138,866,987	126,998,131	122,740,178
Property, Plant and Equipment		332,525,859	273,505,759	233,609,843	199,482,740	201,360,858	196,075,992
Intangible assets		22,909,059	21,214,994	20,219,137	19,342,856	18,446,321	18,326,577
Other assets		42,888,840	41,778,163	39,306,763	29,749,753	24,674,238	22,422,858
Total assets		571,463,157	508,200,885	482,516,555	387,442,336	371,479,548	359,565,605
Current liabilities	Before distribution	237,566,939	300,586,751	199,135,498	110,471,463	116,165,904	121,768,253
	After distribution	237,566,939	301,944,190	206,082,686	112,461,273	Note2	－
Non current liabilities		162,539,193	13,036,280	54,209,621	44,706,150	29,307,281	2,250,386
Total liabilities	Before distribution	400,106,132	313,623,031	253,345,119	155,177,613	145,473,185	124,018,639
	After distribution	400,106,132	314,980,470	260,292,307	157,167,423	Note2	－
Equity attributable to shareholders of theparent		169,823,860	193,043,229	227,690,063	232,264,723	226,006,363	235,546,966
Capital stock		79,129,708	91,094,288	99,545,364	99,532,372	99,521,488	99,520,784
Capital surplus		119,677,980	96,058,741	99,584,369	99,643,564	99,647,810	99,648,514
Retained earnings	Before distribution	(24,979,239)	7,421,697	26,632,674	30,338,450	30,255,869	42,113,988
	After distribution	(24,979,239)	7,331,202	19,685,486	28,348,640	Note2	－
Other equityinterest		(4,004,589)	(1,531,497)	1,927,656	2,750,337	(3,418,804)	(5,736,320)
Treasurystock		－	－	－	－	－	－
Non controllinginterest		1,533,165	1,534,625	1,481,373	－	－	－
Total equity	Before distribution	171,357,025	194,577,854	229,171,436	232,264,723	226,006,363	235,546,966
	After distribution	171,357,025	193,220,415	222,224,248	230,274,913	Note2	－

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

2. Consolidated Condensed Statement of Comprehensive Income

Unit: NT Thousand

Year Item	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	Financial Summaryfor The Last Five Years(Note1)	As of the printing date of this annual report
	2012	2013	2014	2015	2016(Note2)
Operatingrevenue	483,609,931	422,730,500	428,661,898	364,132,984	287,089,277	86,025,771
Grossprofit	4,499,935	37,759,115	50,385,001	46,640,105	26,088,491	20,345,021
Income from operations	(19,749,654)	15,349,268	28,173,396	22,430,709	6,413,249	14,632,036
Non-operating income and expenses	(11,064,521)	(9,705,915)	(5,639,056)	(7,571,522)	(1,421,129)	722,153
Income before tax	(30,814,175)	5,643,353	22,534,340	14,859,187	4,992,120	15,354,189
Net income(Loss)	(30,167,283)	5,095,019	21,676,908	10,814,141	1,870,687	11,858,119
Profit (loss) from discontinued operations	－	－	－	－	－	－
Net income(Loss)	(30,167,283)	5,095,019	21,676,908	10,814,141	1,870,687	11,858,119
Other comprehensive income(income after tax)	(1,975,663)	2,859,517	3,159,493	507,196	(6,152,001)	(2,317,516)
Total comprehensive income	(32,142,946)	7,954,536	24,836,401	11,321,337	(4,281,314)	9,540,603
Net income attributable to shareholders of theparent	(29,899,236)	5,102,568	21,676,759	10,815,594	1,870,687	11,858,119
Net income attributable to non-controllinginterest	(268,047)	(7,549)	149	(1,453)	－	－
Comprehensive income attributable to Shareholders of theparent	(31,688,130)	7,953,076	24,844,853	11,352,532	(4,281,314)	9,540,603
Comprehensive income, attributable to non-controllinginterests	(454,816)	1,460	(8,452)	(31,195)	－	－
Earningsper share	(4.00)	0.57	2.31	1.09	0.19	1.19

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

3. Alone Balance Sheet

Unit: NT Thousand

3. Alone Balance Sheet	3. Alone Balance Sheet	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand
Year Item		Financial Summaryfor The Last Five Years(Note1)
		2012	2013	2014	2015	2016
Current assets		147,154,273	138,274,531	162,875,147	111,926,408	103,003,830
Property,Plant and Equipment		287,051,335	233,557,614	192,599,182	163,921,697	170,150,592
Intangible assets		22,796,701	21,114,443	20,127,184	19,264,025	18,375,538
Other assets		100,240,714	100,611,858	106,252,898	102,927,491	97,564,329
Total assets		557,243,023	493,558,446	481,854,411	398,039,621	389,094,289
Current liabilities	Before distribution	238,165,426	287,413,773	205,189,126	121,257,442	133,926,912
	After distribution	238,165,426	288,771,212	212,136,314	123,247,252	Note2
Non current liabilities		149,253,737	13,101,444	48,975,222	44,517,456	29,161,014
Total liabilities	Before distribution	387,419,163	300,515,217	254,164,348	165,774,898	163,087,926
	After distribution	387,419,163	301,872,656	261,111,536	167,764,708	Note2
Equity attributable to shareholders of theparent		169,823,860	193,043,229	227,690,063	232,264,723	226,006,363
Capital stock		79,129,708	91,094,288	99,545,364	99,532,372	99,521,488
Capital surplus		119,677,980	96,058,741	99,584,369	99,643,564	99,647,810
Retained earnings	Before distribution	(24,979,239)	7,421,697	26,632,674	30,338,450	30,255,869
	After distribution	(24,979,239)	7,331,202	19,685,486	28,348,640	Note2
Other equityinterest		(4,004,589)	(1,531,497)	1,927,656	2,750,337	(3,418,804)
Treasurystock		－	－	－	－	－
Non controllinginterest		－	－	－	－	－
Total equity	Before distribution	169,823,860	193,043,229	227,690,063	232,264,723	226,006,363
	After distribution	169,823,860	191,685,790	220,742,875	230,274,913	Note2

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

4. Alone Statement of Comprehensive Income

Unit: NT Thousand

	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand	Unit: NT Thousand
Year Item	Financial Summaryfor The Last Five Years(Note1)
	2012	2013	2014	2015	2016(Note2)
Operatingrevenue	471,524,374	419,738,269	426,005,033	360,638,133	285,695,113
Grossprofit	(7,116,158)	27,531,818	36,395,248	33,712,246	14,853,964
Income from operations	(24,249,282)	11,300,119	20,439,440	15,826,909	513,079
Non-operatingincome and expenses	(7,431,680)	(6,864,968)	1,238,394	(2,017,968)	3,147,845
Income before tax	(31,680,962)	4,435,151	21,677,834	13,808,941	3,660,924
Net income(Loss)	(29,899,236)	5,102,568	21,676,759	10,815,594	1,870,687
Profit (loss) from discontinued operations	－	－	－	－	－
Net income(Loss)	(29,899,236)	5,102,568	21,676,759	10,815,594	1,870,687
Other comprehensive income (income after tax)	(1,788,894)	2,850,508	3,168,094	536,938	(6,152,001)
Total comprehensive income	(31,688,130)	7,953,076	24,844,853	11,352,532	(4,281,314)
Net income attributable to shareholders of theparent	(29,899,236)	5,102,568	21,676,759	10,815,594	1,870,687
Net income attributable to non-controllinginterest	－	－	－	－	－
Comprehensive income attributable to Shareholders of theparent	(31,688,130)	7,953,076	24,844,853	11,352,532	(4,281,314)
Comprehensive income attributable to non-controllinginterest	－	－	－	－	－
Earningsper share	(4.00)	0.57	2.31	1.09	0.19

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

6.1.2 Auditors’ Opinions from 2012 to 2016

Year	AccountingFirm	CPA	AuditingOpinion
2012	PricewaterhouseCoopers	Hsiao Chun-Yuan & Hsu Yung-Chien	Unqualified-modified wording
2013	PricewaterhouseCoopers	Hsiao Chun-Yuan & Wu Han-Chi	Unqualified-modified wording
2014	PricewaterhouseCoopers	Wu Han-Chi & Hsu Sheng-Chung-	Unqualified-modified wording
2015	PricewaterhouseCoopers	Wu Han-Chi & Hsu Sheng-Chung	Unqualified wording
2016	PricewaterhouseCoopers	Wu Han-Chi & Hsu Sheng-Chung	Unqualified wording

6.1.3 If there was change/replacement of the CPA within the most recent 5 fiscal years, explanation made by the company’s previous and current CPA over the causes for such change/replacement shall be set forth.

Year	Former CPA's Name	Current CPA's Name	Reason
2012	None
2013	Hsiao Chun-Yuan & Hsu Yung-Chien	Hsiao Chun-Yuan & Wu Han-Chi	Unqualified-modified wording
2014	Hsiao Chun-Yuan & Wu Han-Chi	Wu Han-Chi & Hsu Sheng-Chung	Unqualified-modified wording
2015	None
2016	None

6.2 Five-Year Financial Analysis

1. Consolidated Financial Analysis

Item	Year)	Financial Analysis for the Last Five Years(Note 1)	Financial Analysis for the Last Five Years(Note 1)	Financial Analysis for the Last Five Years(Note 1)	Financial Analysis for the Last Five Years(Note 1)	Financial Analysis for the Last Five Years(Note 1)	As of the printing date of this annual report
		2012	2013	2014	2015	2016
Financial structure (%)	Debt Ratio	70.01	61.71	52.50	40.05	39.16	34.49
	Ratio of long-term capital to property, plant and equipment	100.41	75.91	121.31	138.84	126.79	121.28
Solvency (%)	Current ratio	72.88	57.12	95.10	125.70	109.32	100.80
	Quick ratio	54.77	39.92	77.41	97.37	87.84	79.31
	Interest earned ratio(times)	－	2.12	7.28	9.68	6.71	135.59
Operating performance	Accounts receivable turnover(times)	6.11	5.56	5.88	5.68	4.97	5.58
	Average collectionperiod	60	66	62	64	73	65
	Inventoryturnover(times)	8.51	7.67	8.41	9.29	9.02	9.90
	Accounts payable turnover (times)	4.47	4.54	4.90	4.52	4.45	4.75
	Average days in sales	43	48	43	39	40	37
	Property, plant and equipment turnover(times)	1.31	1.40	1.69	1.68	1.43	1.73
	Total assets turnover (times)	0.77	0.78	0.87	0.84	0.76	0.94
Profitability	Return on total assets(%)	(3.77)	1.72	4.98	2.81	0.68	3.27
	Return on stockholders' equity (%)	(16.18)	2.79	10.23	4.69	0.82	5.14
	Pre-tax income to paid-in capital(%)	(38.94)	6.20	22.64	14.93	5.02	15.43
	Profit ratio(%)	(6.18)	1.21	5.06	2.97	0.65	13.78
	Earningsper share(NT$)	(4.00)	0.57	2.31	1.09	0.19	1.19
Cash flow	Cash flowratio(%)	21.16	25.25	52.33	73.38	28.75	22.31
	Cash flow adequacy ratio(%)	64.93	84.75	129.39	226.97	235.82	240.51
	Cash reinvestment ratio(%)	7.83	12.91	14.58	9.86	4.12	3.63
Leverage	Operatingleverage	－	4.77	3.02	3.35	7.78	1.81
	Financial leverage	－	1.49	1.15	1.08	1.16	1.01
Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not
required.)
1. Times interest earned ratio decrease mainly due to earthquake issue cause the profitability decrease in 2016.
2. Various ratios of profitability decrease mainly due to earthquake issue and primarily to economy is in a slump, th rfit rnd drd thn 2015’
e pos eae ecease a s. 3. Cash flow ratio decrease mainly due to earthquake issue cause and profitability decrease in 2016 and cash provided by operating activities decrease. 4. Various ratios of Cash flow adequacy ratio rose due primarily to the facts that eqrthquake in 2016, and cash provided by operating activities decrease cause Cash reinvestment ratio decreased. 5. Operatingleverage increase mainlydue to the earthquake effect in 2016 cause operating profit decrease.

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2:Financial Ratio Formula

Financial Structure analysis
(1) Debt ratio= Total Liabilities / Total Assets
(2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property, plant and equipment, net
Liquidity analysis
(1) Current ratio = Current assets / Current liability
(2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability

(3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense
Operating performance analysis
(1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) = Sales / Average trade receivables
(2) Days to collect accounts receivable = 365 / Average collection turnover
(3) Average inventory turnover = Cost of goods sold / Average inventories
(4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) = operating costs / Average trade payables
(5) Average days to sell inventory = 365 / Average inventory turnover
(6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net
(7) Total assets turnover = Sales / Average total assets
Return on investment analysis
(1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets
(2) Rate of return on equity = Profit / Average total Equity
(3) Profit to sales = Profit / Sales
(4) Earnings per share = (Equity attributable to owners of parent - Dividend-preferred stock ) / Weighted average outstanding shares
Cash flow
(1) Cash flow ratio = Net cash provided by operating activities / Current liability
(2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense + Increase in inventories + Cash dividend)
(3) Cash flow reinvestment ratio = (Net cash provided by operating activities - Cash dividend) - (Property, plant and equipment, net + Long-term investments + Other non-current assets + Operating Capital)
Leverage
(1) Operating Leverage= (Net sales – Variable cost) / Operating income
(2) Financial leverage = Operating income / (Operating income – Interest expenses)

2. Financial Analysis -Alone

Item	Year	Financial analysis in thepast fiveyears(Note 1)	Financial analysis in thepast fiveyears(Note 1)	Financial analysis in thepast fiveyears(Note 1)	Financial analysis in thepast fiveyears(Note 1)	Financial analysis in thepast fiveyears(Note 1)
		2012	2013	2014	2015	2016
Financial structure(%)	Debt Ratio	69.52	60.89	52.75	41.65	41.91
	Ratio of long-term capital to property, plant and equipment	111.16	88.26	143.65	168.85	149.97
Solvency(%)	Current ratio	61.79	48.11	79.38	92.30	76.91
	Quick ratio	46.82	34.07	65.50	71.48	62.14
	Interest earned ratio(times)	(5.27)	2.03	8.23	9.59	5.40
Operating performance	Accounts receivable turnover(times)	6.16	5.66	6.03	5.82	5.20
	Average collectionperiod	59	64	61	63	70
	Inventoryturnover(times)	9.99	9.62	10.78	11.61	11.47
	Accountspayable turnover(times)	3.13	3.11	3.39	3.40	3.55
	Average days in sales	37	38	34	31	32
	Property, plant and equipment turnover(times)	1.49	1.61	2.00	2.02	1.71
	Total assets turnover(times)	0.80	0.80	0.87	0.82	0.73
Profitability	Return on total assets(%)	(4.36)	1.65	4.95	2.76	0.65
	Return on stockholders' equity (%)	(16.35)	2.81	10.30	4.70	0.82
	Pre-tax income topaid-in capital(%)	(40.04)	4.87	21.78	13.87	3.68
	Profit ratio(%)	(6.34)	1.22	5.09	3.00	0.65
	Earningsper share(NT$)	(4.00)	0.57	2.31	1.09	0.19
Cash flow	Cash flowratio(%)	17.11	17.30	44.53	39.11	24.06
	Cash flow adequacyratio(%)	81.66	96.55	153.66	214.96	203.85
	Cash reinvestment ratio(%)	7.06	9.34	14.02	5.79	4.25
Leverage	Operatingleverage	－	5.81	3.63	4.12	79.9
	Financial leverage	－	1.62	1.17	1.11	－
Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) 1. Times interest earned ratio decrease mainly due to earthquake issue cause the profitability decrease in 2016. 2. Various ratios of profitability decrease due to the earthquake effect and primarily to economy is in a slump, the profits earned decreased than 2015’s. 3. Cash flow ratio decrease mainly due to the earthquake effect and profitability decrease in 2016 and cash provided by operating activities decrease. 4. Cash reinvestment ratio decrease due primarily to the facts that eqrthquake in 2016, and cash in provided by operating activities decrease cause Cash reinvestment ratio decreased. 5. Operating leverage increase mainly due to the earthquake effect in 2016 cause operating profit decrease. 6. Financial leverage decrease mainlydue to the earthquake effect in 2016 causeprofit lower than interest fee.

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2:Financial Ratio Formula

Financial Structure analysis
(1) Debt ratio= Total Liabilities / Total Assets
(2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property, plant and equipment, net
Liquidity analysis
(1) Current ratio = Current assets / Current liability
(2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability
(3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense
Operating performance analysis
(1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) = Sales / Average trade receivables
(2) Days to collect accounts receivable = 365 / Average collection turnover
(3) Average inventory turnover = Cost of goods sold / Average inventories
(4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) = operating costs / Average trade payables
(5) Average days to sell inventory = 365 / Average inventory turnover
(6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net
(7) Total assets turnover = Sales / Average total assets

Return on investment analysis
(1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets
(2) Rate of return on equity = Profit / Average total Equity
(3) Profit to sales = Profit / Sales
(4) Earnings per share = (Equity attributable to owners of parent - Dividend-preferred stock ) / Weighted average outstanding shares
Cash flow
(1) Cash flow ratio = Net cash provided by operating activities / Current liability
(2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense + Increase in inventories + Cash dividend)
(3) Cash flow reinvestment ratio = (Net cash provided by operating activities - Cash dividend) - (Property, plant and equipment, net + Long-term investments + Other non-current assets + Operating Capital)
Leverage
(1) Operating Leverage= (Net sales – Variable cost) / Operating income
(2) Financial leverage = Operating income / (Operating income – Interest expenses)

6.3 Audit Committee Report in the Most Recent Year

Audit Committee Report

The Board of Directors has duly submitted the 2016 operating report, financial statements, and table of profit distribution. The financial statements has been duly reviewed and approved by CPAs of PwC Taiwan with the issuance of Independent Auditor’s Report.

The Audit Committee have completed the audit and review, and had found nothing inconsistent with any of the above. Therefore, I issue this audit report for acknowledgment in accordance with Securities and Exchange Act and the Company Act. For your approval.

General Shareholders Meeting of the Company in 2017

Audit Committee Chair:Chi-Chia Hsieh

Date: May 10, 2017

6.4 Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report

Please refer to page 119 of the annual report.

6.5 Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report

Please refer to page 207 of the annual report.

6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial Difficulties: Not applicable.

100

VII. Review of Financial Conditions, Operating Results, and Risk Management

7.1 Analysis of Financial Status

Unit: NT Thousand

			Unit: NT Thousand	Unit: NT Thousand
Year Item	2015	2016	Difference
			Amount	%
Current Assets	138,866,987	126,998,131	(11,868,856)	(8.55)
Fixed Assets	199,482,740	201,360,858	1,878,118	0.94
Intangible assets	19,342,856	18,446,321	(896,535)	(4.63)
Other Assets	29,749,753	24,674,238	(5,075,515)	(17.06)
Total Assets	387,442,336	371,479,548	(15,962,788)	(4.12)
Current Liabilities	110,471,463	116,165,904	5,694,441	5.15
OtherLiabilities-non-current(1)	44,706,150	29,307,281	(15,398,869)	(34.44)
Total Liabilities	155,177,613	145,473,185	(9,704,428)	(6.25)
Capital stock	99,532,372	99,521,488	(10,884)	(0.01)
Capital surplus	99,643,564	99,647,810	4,246	－
Retained Earnings	30,338,450	30,255,869	(82,581)	(0.27)
Other equity(2)	2,750,337	(3,418,804)	(6,169,141)	(224.3)
Non controllingequity	－	－	－	－
Total Stockholders' Equity	232,264,723	226,006,363	(6,258,360)	(2.69)
Analysis of changes in financial ratios: 1. Mainly due to increase debt repayment. 2. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and decrease in Unrealized Gains(Losses)on Available-for-sale financial assets.

101

7.2 Analysis of Financial Performance

Unit: NT Thousand

			Unit: NT Thousand	Unit: NT Thousand
Year Item	2015	2016	Difference
			Amount	%
Gross Sales(1)	364,132,984	287,089,277	(77,043,707)	(21.16)
Cost of Sales	317,492,879	261,000,786	(56,492,093)	(17.79)
Gross Profit(1)	46,640,105	26,088,491	(20,551,614)	(44.06)
OperatingExpenses	24,209,396	19,675,242	(4,534,154)	(18.73)
OperatingIncome(2)	22,430,709	6,413,249	(16,017,460)	(71.41)
Non-operatingIncome and Expenses(3)	(7,571,522)	(1,421,129)	6,150,393	(81.23)
Income Before Tax(4)	14,859,187	4,992,120	(9,867,067)	(66.40)
Tax Benefit(Expense)(5)	4,045,046	3,121,433	(923,613)	(22.83)
Net income(6)	10,814,141	1,870,687	(8,943,454)	(82.70)
Other comprehensive income(7)	507,196	(6,152,001)	(6,659,197)	(1312.94)
Total comprehensive income(8)	11,321,337	(4,281,314)	(15,602,651)	(137.82)
Analysis of changes in financial ratios: 1. Manily due to the earthquake effect in 2016 and TFT-LCD industry is in slump, market demand and unit price decrease. 2. Mainly due to decrease in Gross Profit. 3. Mainly due to decrease in Annual court fees. 4. Mainly due to decrease in Operating Income. 5. Mainly due to decrease in Undistributed Surplus Earnings. 6. Mainly due to decrease in Income Before Tax. 7. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and decrease in Unrealized Gains (Losses) on Available-for-sale financial assets. 8. Mainlydue to decrease in Net income and Other comprehensive income.

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7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the Current Year

Unit: NT Thousand

7.3.1 Cash Flow Analysis for	the Current Year	Unit: NT Thousand
Year	2016	Ali
Items		nayss
Net cash provided by operatingactivities	33,399,247	Net cash provided mainly due to depreciation and reasonable control for operatingcycle.
Net cash used in investing activities	(40,866,329)	Mainly due to additions to property, plant and equipment.
Net cash used in financing activities	(6,776,598)	Mainly due to bank loan repayment and cash
		dividends

7.3.2 Cash Flow Analysis for the Coming Year

Unit: NT Thousand

Estimated Cash and Cash Equivalents, Beginning of Year (1)	Estimated Net Cash Flow from Operating Activities (2)	Estimated Cash Outflow (Inflow) (3)	Cash Surplus (Deficit) (1)+(2)+(3)	Leverage of Cash Surplus (Deficit)	Leverage of Cash Surplus (Deficit)
				Investment Plan	Financing Plan
36,053,000	83,633,000	53,107,000	66,579,000	－	－
2017 Analysis of changes in cash flow Operating Activities: Net Cash inflow due to expected the average selling price for panels will stay high level and lower production cost continually Investing Activities: Net cash outflow due to overcome difficulties continually and capital expenditure for new techniques Financing Activities: Net cash outflow mainly due to bank loan repayment. RemedyActions for Cash Shortfall: None

7.4 Major Capital Expenditure Items

Capital Expenditures in 2016 focus on high-precision, high aperture ratio, yield quality improvement,Generation 8.6, LTPS and Green environmental protection, Total amount approximately 44,152,843 thousand.

7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans

and the Investment Plans for the Coming Year

In terms of outward investment, the Company focused on the up- and down-streams of TFT-LCD industries to assure effective vertical itnegration as the final objectives. Given the worsening fluctuation of panel industry and the mature development of the industrial chains, the Company held a policy of being increasingly conservative. Other than the effortswe try to refrain from investing toward the businesses irrelevant to the Company’s principal business, the Company disposed non-core investment and investment insignificant in strategies.

In the consolidated financial report of the Company in 2016, the investment gain recognized in equity method came to NT$187,454 thousand, thanks primarily to the upturn of the overall economy where the business performance of the invested businesses turned better. Some outward investments appeared at a loss. Overall, the performance with the Company’s outward reinvestments have been well up to our expectation and have been continually integrated with our business development.

7.6 Analysis of Risk Management

7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on Corporate Finance, and Future Response Measures

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Interest rate

The domestic economic continuing growth but International Politics and Economics changes, the Trump government, the future policy of United State and Economics of China will influence the economic of goable.

The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan anticipated the economic growth rate (yoy) by 2017 would hit 1.87%, 1.35% outgrew the annual rate of 2015 at 0.52%. Given the factors of economic growth and commodity prices, the Central Bank would maintain an easy interest rate policy in 2017. To prevent an increase in the Company’s loan costs as a result of an adjustment of currency policy and rise in interest rate in the market, the Company would undertake interest swap transactions in due time over the current loans in floating interest rates so as to evade the risks of the change in cash flow possibly incurred by fluctuation of interest rate.

Foreign exchange rates
a. To prevent a potential disadvantage to the foreign currencies in input, ouput, investment and financing activities to the Company’s assets, liabilities values, operating results due to fluctuation in exchange rates, the Company, in due time, would undertake forward foreign exchange to evade potential risks in fluctuation in exchange rates.
b. The Company adopted Natural Hedge in principle to evade exchange rate risks by taking the revenues from sales in foreign currencies to pay off required foreign currencies. We, therefore, only undertook the hedge transaction aiming at the positions of net assets or liabilities in foreign currencies.
c. In the Company, over 90% of the operating revenues came from U. S. Dollars and other foreign currencies. For capital expenditures and manufacturing costs, the primary demand for foreign currencies came from U. S. Dollars and Japanese yen. Any unfavorable significant change in exchange rate would lead to a passive impact upon the financial profit and/or loss. In calculation with the Company’s output and marketing as well as cost structure in 2016, where the New Taiwan Dollars is appreciated by 1% over U. S. Dollars, the Company’s gross profit would drop 0.4%~0.55%.

3. Inflation

Due to the weather conditions and typhoons, foods prices rose high in 2016 and the international oil prices rebounded, oil charges increased, forecast 2016 rose at 1.31% and 2017 at 0.75%.

The high-speed inflation and deflation would interfere with the efficiency in the markets; discourage investment, consumption, savings and such behaviors. To prevent potential impact on the negative aspect from high speed inflation which would, in turn, dampen investment, consumption and savings, the communications has tried by all means of lower various costs to enhance competitive edge and would be closely watchful the change in the supply and demand in the market, to flexbly adjust product portfolio to closely live up to actual demand in the market.

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7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to - - High risk, High leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions

The Company had not engaged in highly risky and high financial leverage investment. Exactly as required by the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan and the laws and ordinances concerned, we have set up wholesome financial and operating grounds in the managerial regulations and operating procedures, including “Procedures to Engage in Transaction and Disposal of Derivatives”, “Procedures for Loaning of Funds to Others” and “Operating Procedures of Endorsements/Guarantees”.
In an attempt to control potential risks in finance, we hold a very wholesome and conservative principle in derivative financial instruments to primarily evade the potential risks of the exchange rates in the substantial positions incurred by input, output and financing activities. In the days and years ahead, we shall stick to such same principle to coordinate with the trends of exchange rates and interest rates as well as the Company’s business operation, we shall adjust the financial risk management in real time in accordance with laws and ordinances concerned, internal managerial rule and operating procedures.

7.6.3 Future Research & Development Projects and Corresponding Budget

In terms of the technical development in the future, the Company will continually aim at the development in the monitor application regions. Primarily, we would aim at broad vision TFT LCD monitor technology & know-how to upgrade the contrast and dues in TFT LCD; upgrade of the high penetrating TFT LCD know-how in the optical utilization rate; ultra dimension TFT LCD monitoring technology & know-how; high solution, high brightness, narrow frame TFT LCD moules; in high solution, high brightness, high temperature, low energy consumption. TFT LCD bare-eye monitor know-how upgrade into stereo display effect, rightness monitor technology & know-how, built-in touch panel technology & know-how (TOD, TID, Hybrid) , attachment process technology & know-how & automatic or self-assembly technology. In 2016, the Company invest research & development funds in amount 11,132,079 thousand, the amount will hit 14 billion in 2017, we shall continually invest in technical research & development and boost competitive edge.

7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales

As of the Annual Report’s publication date, there has been no adversely impact on financial or business due to any policy and law changed. All the Company’s teammates would be closely watchful of potential changes in major policies and laws and ordinances concerned at home and abroad and set up legal personnel to help such issues. Through such efforts, we shall be able to take right countermeasures in real-time to minimize the potential impact upon the Company’s financial standing which might be incurred by major policies at home and abroad and change in laws.

7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales

Technology Change

The TFT-LCD industry is challenged by the constantly upgraded know-how and new products while the mainstream products are being replaced by new generation at a quickening pace. Should we fail to deal with the impact incurred by the change in science and technology, that would be an impact upon the business and financial standing on the seamy sides. Since the Company first came into being, we have spared no effort to accumulate the technical capability of TFT-LCD displays to deal with the impact incurred by the change in science and technology. Other than investment in high level research & development toward high display quality, high solution, broad vision angles, high open

105

rates, quick response, thin and light designs, narrow frames, ultra energy conservaton,flexible display and such technology & know-how, we have, as wll, tried to develop low temperature LTPS,Oxide and organic lighting display OLED and such technology & know-how to assure firm competitive edge and effective growth in the Company’s business and financial standing.

Industry Change

TFT-LCD features high economic cycle and drastic fluctuation. Any sort of economic trend drop might lead to a shock to the Company’s business operation on the seamy side. Here at the Company, all our teammates would be closely watchful of fluctuation that might hit the Company ito passive aspect and work out sound countermeasures beforehand. In terms of financial operation, we adopt sound and stable financial operation to deal with potential fluctuation in the businesses.

7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures

Faithful law compliance, focus on shareholders’ equity represent the very bounden duties to the Company’s management. In case of a contingence, the Company’s ranking department head would serve as the emergency convener to immediately set up the Crisis Task Force ti defuse the crisis forthwith. As of the Annual Report’s publication date, there has been no event that adversely impact in Innolux’s corporate image and impact on corporate risk management.

7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans

At the moment, the Company has no plan to launch a merger with another enterprise. Toward potential strategic investment or vertical integration, and the cost benefit and the potential risk so arising, the Company’s management would conduct appropriate evaluation and evasion as appropriate.

7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans

We all have those related technical groups to perform the professional feasibility assessment for expansion and build out of new generation factory

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration

There is no risk associated with excessive customer concentration, due to the plenty production line and the main customers are international brand manufacturers. Innolux’s usually have two or more suppliers for main material. Therefore there is no risk associated with excessive concentration of purchasing. We will keep developing new products and new customers in the future and seeking for the better quality and the lower cost of purchase sources to reduce the risk of excessive customer concentration or excessive purchasing concentration.

7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%

As of the date of this Annual Report, there were no such risks for Innolux.

7.6.11 Effects of, Risks Relating to and Response to Changes in Management Rights

As of the date of this Annual Report, there were no such risks for Innolux.

- 7.6.12 Litigation or Non litigation Matters

The lawsuits, non-contentious cases, administrative litigation that are decided by the court or still in proceeding in recent years until this report was issued.
(1) Former Chi Mei Optoelectronics Corporation, CMO Japan Co. Ltd. CMO UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics U.S.A. Inc. were inquired by the U.S. Department of Justice in December 2006 regarding to their

106

being suspected of involving violating Antitrust Laws. The company had reached agreement with the U.S Department of Justice and had paid all fines. Brazil Government also conducted investigation which is still pending. Some U.S. state governments, retailers and end consumers individually or collectively brought civil lawsuits against certain panel manufacturers. The company has settled all these cases.

(2) Eidos Display, LLC and Eidos III, LLC (below as Eidos) had brought a suit to Eastern District Court of Texas in April 25, 2011, to accuse certain products of ，
Innolux and its US branch’s infringes its patent rights. The summary judgment which decided the invalidation of Eidos’ patent rights, of this case had been issued by the administrative judge in December 2013 and the judge of this case had confirmed the summary judgment in January 2014. Eidos had appealed to the United States courts of appeals in February 2014. The United States courts of appeals made decision to rejected and remanded to the district court in March 2015. The company has a form to United States courts of appeals and raise defences actively. The United States courts of appeals rejected INX’s request in June 2015. The company has a form to US Supreme Court and made petition for writ of certiorari on September 2015, but rejected by US Supreme Court on November 2015. The final judgment depends on the suit proceedings and can’t be certain; therefore, this case doesn’t influence Innolux’s business and finance in short order.
Board members, monitors, CEO, responsible person in fact, shareholders and their companies holding more than 10% shares that involved in lawsuits, non-contentious cases, administrative litigation that were decided by the court or still in proceeding in recent years until this report was issued and might cause major influence on Innolux stockholder's equity and securities price: None.

7.6.13 Other Major Risks:None.

7.7 Other Important Matters: None.

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VIII. Special Disclosure

8.1 Summary of Affiliated Companies

==> picture [708 x 418] intentionally omitted <==

108

8.1.2 Innolux Subsidiaries

December 31, 2016

				December 31,2016
Company	Date of Incorporation	Address	Capital Stock	Business Activities
Asiaward Investment Ltd.	Jan 9, 2008	Room 1701, 111 Leighton Road, CausewayBay,HongKong	USD 10,000,000	Controlling Company
Best China Investments Ltd.	Jan 3, 2007	Offshore Chambers, P.O. Box,217,Apia,Samoa	USD 10,000,000	Controlling Company
Bright Information Holding Ltd.	Nov 26, 2008	Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.	USD 4,910,000	Controlling Company
Golden Achiever International Limited	Sept 30, 2005	Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands	USD 40,250	Controlling Company
InnoLux Corporation	Nov 22, 2004	2525 Brockton Drive, Suite 300, Austin,TX 78758	USD 200,000	Sales company
Innolux Holding Ltd.	Feb 28, 2002	Offshore Chambers, P.O. Box,217,Apia,Samoa.	USD 246,768,185	Controlling Company
Innolux Hong Kong Holding Limited	Dec 14, 2005	Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong	HKD 1,158,844,000	Controlling Company
Innolux Hong Kong Limited	Feb 15, 2006	Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.	HKD 113,729,000	Entrepot trade company
Innolux Optoelectronics Europe B.V.	Nov 29, 2004	Jupiterstraat 106, 2132 HE Hoofddorp,The Netherlands	EUR 18,000	Operating electronics parts and LCD display import and export sale
Innolux Optoelectronics Germany GmbH	Mar 02, 2006	Hanns-Martin Schleyer Strasse 9b-9c,47877 Willich-Munchheide	EUR 25,000	Operating electronics parts and LCD display import and export sale and after service
Innolux Optoelectronics Hong Kong Holding Ltd.	Nov 16, 2001	Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.	HKD 162,897,802	Controlling Company
Innolux Optoelectronics Japan Co., Ltd.	Aug 20, 1991	8F, kowa kawasaki-nishiguchi Bldg., 66-2 horikawa-cho, Saiwai-ku, Kawasaki-City, Kanagawa 212-0013,Japan	JPY 314,258,270	Operating TFT-LCD development, manufacture and sales
Innolux Optoelectronics USA, INC.	May 9, 2002	101 Metro Drive Suite 510,San Jose,CA95110, U.S.A	US$6,000,000	Operating electronics parts and computer displaysale
Innolux Technology Europe B.V.	Mar 8, 2006	Stationstraat 39G, 6411NK, Heerlen, The Netherlands	EUR 37,581,000	Controlling Company of Researching, developing and Testing
Innolux Technology Germany GmbH	Feb 17, 2006	Kaiserswerther Strasse 115,D-40880 Ratingen, Germany	EUR 100,000	Testing & Maintenance Company
Innolux Technology Japan Co., Ltd.	Mar 1, 2005	1-1-1, Ibukidaihigashimachi, Nishi-ku, Kobe-city, 651-2242, Japan	JPY 146,570,164	Distributor
Innolux Technology USA Inc.	Apr 12, 2006	2300 North Barrington Road, Suite 400, Hoffman Estates, IL 60169,USA	USD 1,000	Sales company
Keyway Investment Management Limited	Mar 30, 2005	Portcullis TrustNet Chambers, P.O Box 1225,Apia,Samoa	USD 5,656,410	Controlling Company
Lakers Trading Ltd.	Jun 4, 2004	Offshore Chambers, P.O. Box,217,Apia,Samoa	USD 1	Entrepot trade company

109

Company	Date of Incorporation	Address	Capital Stock	Business Activities
Landmark International Ltd.	Apr 24, 2003	Offshore Chambers, P.O.Box 217,Apia,Samoa	USD 709,450,000	Controlling Company
Leadtek Global Group Limited	Mar 30, 2005	P.O. Box 3444,Road Town,Tortola,BVI	USD 50,000,000	Entrepot trade company
Magic Sun Ltd.	Nov 10, 2009	Offshore Chambers, P.O. Box,217,Apia,Samoa	US$38,000,000	Controlling Company
Main Dynasty Investment Ltd.	Dec 06, 2007	Room 1701, 111 Leighton Road, CausewayBay,HongKong	USD 18,000,000	Controlling Company
Mega Chance Investments Ltd.	Jan 3, 2007	Offshore Chambers, P.O. Box 217,Apia,Samoa	USD 18,000,000	Controlling Company
Nets Trading Ltd.	May 2, 2008	Offshore Chambers, P.O. Box 217,Apia,Samoa	USD900,001	General Investment Industry
Rockets Holding Ltd.	Dec 18, 2002	Offshore Chambers, P.O. Box,217,Apia,Samoa	USD 226,504,550	Controlling Company
Stanford Developments Ltd.	Aug 12, 1999	Offshore Chambers, P.O. Box,217,Apia,Samoa	USD 164,000,000	Controlling Company
Sun Dynasty Development Ltd.	Nov 6, 2009	Room 1701, 111 Leighton Road, CausewayBay,HongKong	USD 38,000,000	Controlling Company
Suns Holding Ltd.	Dec 18, 2006	Offshore Chambers, P.O. Box,217,Apia,Samoa	USD 18,177,052	Controlling Company
Toppoly Optoelectronics (B.V.I.) Ltd.	Jul 17, 2001	CITCO Building, P.O. Box 662, Road Town, Tortola , British Virgin Islands.	USD 146,847,000	Controlling Company
Toppoly Optoelectronics (Cayman) Ltd.	Jul 17, 2001	89 Nexus Way, Camana Bay, P. O. Box 31106, Georgetown Grand Cayman KY1-1205, Cayman Islands	USD 146,817,000	Controlling Company
Warriors Technology Investments Ltd.	Jan 3, 2007	Offshore Chambers, P.O. Box,217,Apia,Samoa	US$18,177,052	Investment activities
Shanghai Innolux Optoelectronics Ltd.	Jan 9, 2006	No. 272-2, Ba Sheng Road, New Customs, Wai Gao Qiao Free Trade Zone, 200131 Pudong, Shanghai, China	USD 21,000,000	Manufacturing & selling LCD back end module related technologies and products.
Yuan Chi investment co., Ltd	Jul 6, 2005	No.8, Zhongxin Rd., Xinshi Dist., Tainan City 74148, Taiwan (R.O.C.)	NTD 2,100,000,000	Investment activities
Foshan Innolux Flnet Electronics Ltd.	Oct 24, 2016	No. 18 dorm B Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, China	CNY 1000,000	Goods Sale
Foshan Innolux Optoelectronics Ltd.	Apr 21, 2006	Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, China	USD 383,000,000	Manufacturing & selling LCD back end module related technologies and products.
Foshan Innolux Logistics Ltd.	Jul 17, 2008	North Factory, Xingye Rd., Nanhai Economic Zone, Foshan, Guangdong,528325,China	USD 1,500,000	Storage services
VAP Optoelectromics (NanJing) Corp.	Mar 29, 2007	No. 8, Jiu Zu Road, Jiangning Economic and Technical Development Zone, Nanjing, China	USD 10,100,000	Manufacturing & selling LCD back end module related technologies and products.
Kunpal Optoelectronics Ltd.	Jan 9, 2009	No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing,China	USD 4,000,000	Thinner glass process service

110

Company	Date of Incorporation	Address	Capital Stock	Business Activities
Nanjing Innolux Technology Ltd.	Oct 24, 2007	No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing,China	USD 2,100,000	Business of display and related product.
Nanjing Innolux Optoelectronics Ltd.	May 23, 2001	No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, China	USD 142,000,000	Manufacturing & selling LCD back end module related technologies and products.
InnoJoy Investment Corp.	Jun 26, 2007	No.8, Zhongxin Rd., Xinshi Dist., Tainan City 74148, Taiwan (R.O.C.)	NTD1,674,053,920	Investment activities
Innocom Technology (Shenzhen) Co., LTD	Jun 24, 2004	1F, Zone 4, G2 Zone 2F A region, 3F, 4F and 5F Foxconn Technology Industrial Park E, Bao'an District, Shenzhen City, GuangdongProvince,China	USD 164,000,000	Manufacturing & selling LCD back end module related technologies and products.
Ningbo Innolux Flnet Electronics Ltd.	Oct 17, 2016	No.8, Cao E River Rd., Ningbo Bonded Zone Building2 1f	CNY 1,000,000	Goods Sales
Ningbo Innolux Electronics Ltd.	Nov 04,2015	No.8, Cao E River Rd., Ningbo Bonded Zone Building 2 2F	CNY 30,000,000	Selling LCD back end module related technologies and products.
Ningbo Innolux Optoelectronics Co., LTD	Dec 14, 2004	No.16, YangZi River North Rd., Ningbo Export Processing Zone, 315800, China	USD 310,000,000	Manufacturing & selling LCD back end module related technologies and products.
Ningbo Innolux Display LTD	Dec 05, 2006	No.8, Cao E River Rd., Ningbo Bonded Zone	USD 160,000,000	Manufacturing & selling LCD back end module related technologies and products.
Ningbo Innolux Logistics LTD	Dec 05, 2006	No.8, Alishan Road, Ningbo Export ProcessingZone,China	USD 4,000,000	Storage services

8.1.3 Shareholders in Common of INX and Its Subsidiaries with Deemed Control and Subordination: None.

8.1.4 Business Scope of INX and Its Subsidiaries:

The company and its subsidiary operating business include the development, manufacture, after service and sale of TFT-LCD.

By the layout of globalization, combine the distribution of Taiwan and China production base; provide downstream manufacturer or panel module manufacturer to have high flexibility supply capacity.

There are a small number of affiliated companies are setting investment business as operating scope, to strength vertical integration and strategy investment and coordinate the company’s future operation.

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8.1.5 Rosters of Directors, Supervisors, and Presidents of INX’s Subsidiaries:

As of 12/31/2016

			As of 12/31/2016	As of 12/31/2016
Company	Title	Name	Shareholding
			Shares	% (Investment Holding)(Note)
Asiaward Investment Ltd.	Chairman	Chien-LangLo	-	-
Best China Investments Ltd.	Chairman	Chien-LangLo	-	-
Bright Information Holding Ltd.	Chairman	Jyh Chau,Wang	-	-
	Director	Chao-Hsien Liu	-	-
	Director	Jun-Yi Yu	-	-
Golden Achiever International Limited	Chairman	Chao-Hsien Liu	-	-
InnoLux Corporation	Chairman	Nai-Hsun Kuo	-	-
Innolux HoldingLtd.	Chairman	Jyh Chau,Wang	-	-
Innolux Hong Kong Holding Limited	Chairman	Jyh Chau,Wang	-	-
	Director	Chao-Hsien Liu	-	-
	Director	Jun-Yi Yu	-	-
Innolux Hong Kong Limited	Chairman	Jyh Chau,Wang	-	-
	Director	Pei-Yu Lu	-	-
	Director	Nai-Hsun Kuo	-	-
Innolux Optoelectronics Europe B.V.	Chairman	Chin-Yuan Chang	-	-
Innolux Optoelectronics Germany GmbH	Chairman	Chin-Yuan Chang	-	-
Innolux Optoelectronics Hong Kong Holding Ltd.	Chairman	Jyh Chau,Wang	-	-
	Director	Shu-Mei He	-	-
	Director	Jun-Yi Yu	-	-
Innolux Optoelectronics Japan Co., Ltd.	Chairman	Makoto Kaneda	-	-
	Director	Chu-HsiangYang	-	-
	Director	Ching-LungTing	-	-
	Supervisor	Kida Masukichi	-	-
	Supervisor	Jun-Hao Peng	-	-
	Supervisor	Chin-Yuan Chang	-	-
Innolux Optoelectronics USA, INC.	Chairman	Junichi Ishi	-	-
	Director	Makoto Kaneda	-	-
	Director	Sato Takahiro	-	-
Innolux Technology Europe B.V.	Chairman	Tien-Jen Lin	-	-
	Director	van Riel, Lucien Franciscus Henricus	-	-
Innolux Technology Germany GmbH	Chairman	Jyh Chau,Wang	-	-
	Director	van Riel, Lucien Franciscus Henricus	-	-
	Director	Adrianus Gosuinus Marie Kersten	-	-
Innolux Technology Japan Co., Ltd.	Chairman	Taruda Kiyoshi	-	-
	Director	Jun-Hao Peng	-	-
	Director	Chu-HsiangYang	-	-
	Supervisor	Chin-Yuan Chang	-	-
Innolux Technology USA Inc.	Chairman	Tien-Jen Lin	-	-
	Director	Brant White	-	-
Keyway Investment Management Limited	Chairman	Jyh Chau, Wang	-	-
Lakers TradingLtd.	Chairman	Chih-HungHsiao	-	-
Landmark International Ltd.	Chairman	Jyh Chau,Wang	-	-
Leadtek Global GroupLimited	Chairman	Jyh Chau,Wang	-	-
Magic Sun Ltd.	Chairman	Chien-LangLo	-	-
Main DynastyInvestment Ltd.	Chairman	Chien-LangLo	-	-
Mega Chance Investments Ltd.	Chairman	Chien-LangLo	-	-

112

Company	Title	Name	Shareholding	Shareholding
			Shares	% (Investment Holding)(Note)
Nets TradingLtd.	Chairman	Xi-XiangHsu	-	-
Rockets HoldingLtd.	Chairman	Chih-HungHsiao	-	-
Stanford Developments Ltd.	Chairman	Chih-HungHsiao	-	-
Sun DynastyDevelopment Ltd.	Chairman	Chien-LangLo	-	-
Suns HoldingLtd.	Chairman	Chih-HungHsiao	-	-
Toppoly Optoelectronics (B.V.I.) Ltd.	Chairman	Jyh Chau, Wang	-	-
Toppoly Optoelectronics (Cayman)Ltd.	Chairman	Jyh Chau, Wang	-	-
Warriors Technology Investments Ltd.	Chairman	Chih-Hung Hsiao	-	-
Shanghai Innolux Optoelectronics Ltd	Chairman	Zhi-Yuan Tsai	-	-
	Director	Chin-Yuan Chang	-	-
	Director	Jun-Yi Yu	-	-
Yuan Chi investment co., Ltd	Chairman	Innolux Corporation Representative - Jyh-Chau Wang	-	100%
	Director	Innolux Corporation Representative – Chien-LangLo	-	100%
	Director	Innolux Corporation Representative - Chih-Hung Hsiao	-	100%
Foshan Innolux Flnet Electronics Ltd.	Chairman	Hai-Jun Lee	-	-
	Supervisor	Hua-Rui LIN	-	-
Foshan Innolux Optoelectronics Ltd.	Chairman	Qing-Hui Lin	-	-
	Director	Xiao-MinQuyang	-	-
	Director	Jun-Yi Yu	-	-
	Supervisor	Chin-Yuan Chang	-	-
Foshan Innolux Logistics Ltd.	Chairman	Qing-Hui Lin	-	-
	Director	QiongGu	-	-
	Director	Kuei Wang	-	-
	Supervisor	Chin-Yuan Chang	-	-
VAP Optoelectromics (NanJing) Corp.	Chairman	Shi-Xian Hsu	-	-
	Director	Chin-Yuan Chang	-	-
	Director	Nai-Hsun Kuo	-	-
	Supervisor	Kun Ma	-	-
Kunpal Optoelectronics Ltd.	Chairman	Shi-Xian Hsu	-	-
	Director	Jun-Yi Yu	-	-
	Director	Chin-Yuan Chang	-	-
	Supervisor	Kun Ma	-	-
Nanjing Innolux Technology Ltd.	Chairman	Shi-Xian Hsu	-	-
	Director	Chin-Yuan Chang	-	-
	Director	Chih-ChiangLu	-	-
	Supervisor	Kun Ma	-	-
Nanjing Innolux Optoelectronics Ltd.	Chairman	Shi-Xian Hsu	-	-
	Director	Chin-Yuan Chang	-	-
	Director	Jun-Yi Yu	-	-
	Supervisor	Kun Ma	-	-
InnoJoy Investment Corp	Chairman	INX Representative - Chih-Hung Hsiao	167,405,392	100%
	Director	INX Representative - Jyh Chau, Wang	167,405,392	100%
	Director	INX Representative - Chien-LangLo	167,405,392	100%
	Supervisor	INX Representative Chin-Yuan Chang-	167,405,392	100%

113

Company	Title	Name	Shareholding	Shareholding
			Shares	% (Investment Holding)(Note)
Innocom Technology (Shenzhen) Co., LTD	Chairman	Zhen-Da chiu	-	-
	Director	Jun-Yi Yu	-	-
	Director	Chin-Yuan Chang	-	-
Ningbo Innolux Flnet Electronics Ltd.	Chairman	Jia-Lin Chen	-	-
	Supervisor	Kun Ma	-	-
Ningbo Innolux Electronics Ltd.	Chairman	Cheng-ChungChiang	-	-
	Director	Chao-Hsien Liu	-	-
Ningbo Innolux Optoelectronics Co., LTD	Chairman	Kuo-HsiungKuo	-	-
	Director	Chien-LangLo	-	-
	Director	Cheng-ChungChiang	-	-
	Supervisor	Chin-Yuan Chang	-	-
Ningbo Innolux Display LTD	Chairman	Kuo-HsiungKuo	-	-
	Director	Chien-LangLo	-	-
	Director	Cheng-ChungChiang	-	-
	Supervisor	Chin-Yuan Chang	-	-
Ningbo Innolux Logistics LTD	Chairman	Kuo-HsiungKuo	-	-
	Director	Chien-LangLo	-	-
	Director	Cheng-ChungChiang	-	-
	Supervisor	Chin-Yuan Chang	-	-

Note:Innolux 100% own or investment.

114

8.1.6 Operational Highlights of INX Subsidiaries

Unit: NT$ thousands, 12/31/2016

Company	Capital Stock	Assets	Liabilities	Net Worth	Net Revenue	Income (Loss) from Operation	Net Income (Loss)	Basic Earnings (Loss) Per Share
Asiaward Investment Ltd.	323,617	261,686	-	261,686	-	-	238	-
Best China Investments Ltd.	322,500	523,372	261,686	261,686	-	-	238	0.02
Bright Information HoldingLtd.	158,348	103,788	416	103,372	-	(444)	(6,715)	(1.37)
Golden Archiever International Limited	1,298	61,422	-	61,422	-	-	149	3.70
InnoLux Corporation	6,450	61,986	154,612	(92,626)	-	(1,389)	(1,388)	(694.08)
Innolux HoldingLtd.	7,958,274	18,523,142	-	18,523,142	-	-	136,022	0.55
Innolux Hong Kong HoldingLimited	4,818,473	3,341,269	-	3,341,269	-	-	581,552	0.50
Innolux Hong Kong Limited	472,885	10,413,552	11,991,089	(1,577,537)	24,691,325	251,616	235,251	6.72
Innolux Optoelectronics Europe B.V.	610	144,762	19,231	125,531	131,726	2,782	221	1,226.56
Innolux Optoelectronics GermanyGmbH	848	13,593	802	12,791	-	-	(3,467)	(13,869.22)
Innolux Optoelectronics HongKongHoldingLtd.	677,329	1,253,619	-	1,253,619	-	-	295,151	1.81
Innolux Optoelectronics Japan Co.,Ltd.	86,610	1,899,841	351,168	1,548,673	2,387,770	24,601	34,739	434,238.49
Innolux Optoelectronics USA,Inc.	193,500	370,551	85,762	284,789	643,134	19,001	11,954	11,953.90
Innolux Technology Europe B.V.	1,273,996	2,305,930	116,177	2,189,753	649,885	39,021	36,358	96.75
Innolux Technology GermanyGmbH	3,390	83,457	27,113	56,344	32,742	1,398	554	5.54
Innolux Technology Japan Co.,Ltd.	40,395	1,781,848	63,269	1,718,579	347,121	22,066	1,203	5,982.88
Innolux Technology USA Inc.	32	480,830	107,585	373,245	964,865	29,088	16,126	16,126.00
Keyway Investment Management Limited	182,419	257,392	-	257,392	-	-	46,660	8.25
Lakers TradingLtd.	-	53,776,139	53,530,440	245,699	53,205,979	(165)	-	-
Landmark International Ltd.	22,879,763	45,930,198	-	45,930,198	-	-	3,833,333	5.40
Leadtek Global Group Limited	1,612,500	27,732,157	28,055,130	(322,973)	20,762,472	1,152,258	(94,225)	(1.88)
Magic Sun Ltd.	1,225,500	2,148,222	1,074,111	1,074,111	-	-	975	0.03
Main Dynasty Investment Ltd.	580,556	430,951	-	430,951	-	-	391	-
Mega Chance Investments Ltd.	580,500	861,902	430,950	430,952	-	-	391	0.02
Nets TradingLtd.	29,025	29,966	-	29,966	-	-	-	-
Rockets HoldingLtd.	7,304,772	13,988,464	-	13,988,464	-	-	16,326	0.07
Stanford Developments Ltd.	5,289,000	12,191,671	41	12,191,630	-	-	14,721	0.09
Sun Dynasty Development Ltd.	1,230,639	1,074,111	-	1,074,111	-	-	975	-
Suns HoldingLtd.	586,210	4,381,595	-	4,381,595	-	-	121,085	6.66
Toppoly Optoelectronics (B.V.I.)Ltd.	4,735,816	6,717,910	-	6,717,910	-	-	426,811	2.91

115

Company	Capital Stock	Assets	Liabilities	Net Worth	Net Revenue	Income (Loss) from Operation	Net Income (Loss)	Basic Earnings (Loss) Per Share
Toppoly Optoelectronics (Cayman)Ltd.	4,734,848	6,717,534	-	6,717,534	-	-	426,811	2.91
Warriors Technology Investments Ltd.	586,210	4,381,593	-	4,381,593	-	-	121,085	6.66
Shanghai Innolux Optoelectronics Ltd.	677,250	4,436,036	3,182,417	1,253,619	16,242,486	342,846	295,151	-
Yuan Chi investment co., Ltd	2,100,000	922,722	193	922,529	-	(305)	(167,476)	-
Foshan Innolux Flnet Electronics Ltd.	4,649	5,317	669	4,648	-	(2)	(1)	-
Foshan Innolux Optoelectronics Ltd.	12,351,750	52,929,761	32,738,936	20,190,825	73,014,604	2,082,854	2,031,410	-
Foshan Innolux Logistics Ltd.	48,375	77,255	6,524	70,731	63,953	8,819	8,289	-
VAP Optoelectromics (NanJing)Corp.	325,725	69,954	8,936	61,018	-	(131)	149	-
Kunpal Optoelectronics Ltd.	129,000	68,464	4,335	64,129	-	(4,648)	(1,546)	-
Nanjing Innolux TechnologyLtd.	67,725	889,167	340,207	548,960	886,628	2,350	(9,041)	-
Nanjing Innolux Optoelectronics Ltd.	4,579,500	12,549,759	6,445,338	6,104,421	14,276,033	347,490	437,398	-
InnoJoyInvestment Corp.	1,674,054	1,246,923	114	1,246,809	-	(227)	(76,420)	(0.46)
Innocom Technology (Shenzhen)Co.,LTD	5,289,000	12,636,049	444,432	12,191,617	824,298	(382,230)	14,721	-
Ningbo Innolux Flnet Electronics Ltd.	4,649	4,692	341	4,351	77	(312)	(311)	-
Ningbo Innolux Electronics Ltd.	139,470	313,126	68,249	244,877	280,535	144,303	110,209	-
Ningbo Innolux Optoelectronics Co.,LTD	9,997,500	36,323,851	14,514,499	21,809,352	45,389,195	960,861	1,348,182	-
Ningbo Innolux Display LTD	5,160,000	12,720,206	8,791,398	3,928,808	23,558,491	484,857	451,215	-
Ningbo Innolux Logistics LTD	129,000	186,558	4,807	181,751	-	(24,603)	38,371	-

116

8.2 Private Placement Securities in the Most Recent Years:

It has been approved by the Annual General Shareholders' Meeting held on 24 June, 2016 to authorize the Board of Directors, within the limit of 950,000,000 common shares, depending on the market conditions and the Company's capital needs, to choose appropriate timing and one or more fund raising instruments to issue new common shares for cash to sponsor issuance of new common shares/ Preferred Stock for cash in private placement and/or overseas or domestic convertible bonds in private placement in accordance with the applicable laws and regulations.In consideration of the capital market situation, the Company will not continue with the above private placement.

8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None.

8.4 Special Notes: None.

117

118

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of Innolux Corporation (the “Company”) and its subsidiaries as at December 31, 2016 and 2015, 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 financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits 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 (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and its subsidiaries 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. 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 financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Valuation and impairment of goodwill and property, plant and equipment

Description

For details of the impairment valuation of goodwill and property, plant and equipment, please refer to Note 6(11). As of December 31, 2016, goodwill and property, plant and equipment amounted to

119

NT$17,096,628 thousand and NT$201,360,858 thousand, respectively.

Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining whether goodwill and property, plant and equipment may be impaired, the recoverable amount of the cash generating unit is measured based on how assets are utilized, duration years of assets and projected income and expenses in the future. The estimate involves several assumptions such as determination of discount rates, expected growth rate and future financial projections. As these estimates are dependent upon significant management judgement, we consider management’s assessment of impairment of goodwill and property, plant and equipment a key audit matter.

How our audit addressed the matter

We assessed the key assumptions used by management in estimating expected future cash flows, including the reasonableness of expected operating revenue, gross profit, changes in expenses, and the basic assumptions applied in expected future cash flows. We also examined the parameters of discount rates, including the risk-free rate of return on equity capital, the risk factor of the industry and the rate of return on similar investments in the market.

Additions to property, plant and equipment

Description

The Company’s capital expenditures increased with its operational growth. In 2016, property, plant and equipment increased by NT$43,518,455 thousand, which was 12% of total assets of the Company. For details of property, plant and equipment, please refer to Notes 6(9) and (28). As the amount of property, plant and equipment is material, we identified the additions to property, plant and equipment a key audit matter.

How our audit addressed the matter

We assessed and tested the effectiveness of internal controls related to additions to property, plant and equipment, including sampling and checking purchase orders and invoices as to whether the transactions have been approved appropriately and the correctness of the recorded amounts. We also checked the related receipts or acceptance documents to ensure that additions are recognized in appropriate period. In addition, through sampling method, we conducted physical inspection of certain assets to confirm that the purchased items exist.

Estimation of significant disaster insurance claim

Description

120

are covered by insurance and evaluation of replacement cost. Given the significance of the claim, we consider the estimation of disaster insurance claim a key audit matter.

How our audit addressed the matter

Our procedures in relation to estimation of disaster insurance claim included:

A. Checking assets insurance contracts with the insurance company, and confirming whether the inventory, building and equipment damaged during the earthquake are covered by insurance;
B. Obtaining the claims list, damaged inventory, building and equipment lists, and verifying the damaged inventory and building list, selecting samples and cross comparing the data for completeness and accuracy and checking the accuracy of accounting records and amount of disaster loss;
C. Assessing the reasonableness of replacement cost of inventory, building and equipment which were estimated by management, selecting samples and verifying the estimates against original documents; and
D. Assessing the reasonableness of claim amount which was estimated by the management based on losses list and replacement cost.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of Innolux Co., Ltd. as at and for the years ended December 31, 2016 and 2015.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and International Financial Reporting Standards, 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.

121

Those charged with governance, including audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’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 an auditor’s 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:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
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 auditor’s 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 auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
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.

122

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.

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 auditor’s 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.

PricewaterhouseCoopers, Taiwan February 10, 2017

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.

123

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

Assets	December31,2016 Notes AMOUNT 6(1) $ 35,384,839 6(2) 64,241 6(5)(6) 52,855,632 7 11,599,359 7 2,034,427 6(7) 23,401,728 1,552,373 6(1) and 8 6,724 98,808 126,998,131 6(2) 250,101 6(3) 5,840,929 6(8) 1,517,418 6(9), 7 and 8 201,360,858 6(10) 573,425 6(11) and 8 18,446,321 6(26) 14,698,143 6(9) and 8 1,794,222 244,481,417 $ 371,479,548 (Continued)	December31,2015
		AMOUNT
Current Assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1170 Accounts receivable, net 1180 Accounts receivable, net - related parties 1200 Other receivables 130X Inventory 1410 Prepayments 1476 Other financial assets - current 1479 Other current assets 11XX Total current assets Non-current assets 1510 Financial assets at fair value through profit or loss - non-current 1523 Available-for-sale financial assets - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1760 Investment property, net 1780 Intangible assets 1840 Deferred income tax assets 1990 Other non-current assets 15XX Total non-current assets 1XXX Total assets		$ 52,522,790 120,036 48,189,791 2,632,853 2,024,204 30,198,432 1,107,869 1,979,467 91,545
		138,866,987
		281,922 7,123,034 1,610,586 199,482,740 680,503 19,342,856 15,888,467 4,165,241
		248,575,349
		$ 387,442,336

124

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2016 Notes AMOUNT 6(12) $ 11,583,750 6(2) 1,190,148 51,875,305 7 5,120,235 7 22,916,097 1,912,797 6(16) and 9 3,765,234 6(13) 16,381,686 1,420,652 116,165,904 6(13) 28,128,467 6(26) 672,971 6(14) 505,843 29,307,281 145,473,185 6(17) 99,521,488 6(18) 99,647,810 6(19) 3,758,507 26,497,362 6(20) ( 3,418,804) 226,006,363 226,006,363 $ 371,479,548	December31,2015
		AMOUNT
Current Liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2170 Accounts payable 2180 Accounts payable - related parties 2200 Other payables 2230 Current income tax liabilities 2250 Provisions - current 2320 Long-term liabilities, current portion 2399 Other current liabilities 21XX Total current liabilities Non-current liabilities 2540 Long-term borrowings 2570 Deferred income tax liabilities 2600 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity attributable to owners of the parent 3110 Share capital - common stock 3200 Capital surplus Retained earnings 3310 Legal reserve 3350 Unappropriated retained earnings 3400 Other equity interest 31XX Equity attributable to owners of the parent 3XXX Total equity 3X2X Total liabilities and equity		$ - 265,525 57,069,951 3,359,933 24,912,360 1,819,368 5,551,759 16,361,238 1,131,329
		110,471,463
		43,629,968 514,094 562,088
		44,706,150
		155,177,613
		99,532,372 99,643,564 2,676,947 27,661,503 2,750,337
		232,264,723
		232,264,723
		$ 387,442,336

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

125

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

Items

YearendedDecember31
2016
2015
Notes
AMOUNT
AMOUNT
7
$ 287,089,277
$ 364,132,984
6(7)(24) and 7
(
261,000,786) (
317,492,879)
26,088,491
46,640,105
6(24)
(
2,301,561) (
3,204,824)
(
6,241,602) (
6,600,082)
(
11,132,079) (
14,404,490)
(
19,675,242) (
24,209,396)
6,413,249
22,430,709
6(21)
2,388,895
2,313,182
6(22)
(
3,103,952) (
8,683,203)
6(23)
(
893,526) (
1,415,088)
6(8)
187,454
213,587
(
1,421,129) (
7,571,522)
4,992,120
14,859,187
6(26)
(
3,121,433) (
4,045,046)
$ 1,870,687
$ 10,814,141

(Continued)

126

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

Items

YearendedDecember31
2016
2015
Notes
AMOUNT
AMOUNT
6(14)
$ 44,027
($ 195,939)
6(26)
(
7,485)
33,309

36,542
(
162,630)
(
5,708,026) (
1,421,828)
(
339,384)
2,266,346
6(4)
-
(
297,675)
6(20)
(
27,676)
4,432
6(26)
(
113,457)
118,551
(
6,188,543)
669,826
($ 6,152,001)
$ 507,196
($ 4,281,314)
$ 11,321,337
$ 1,870,687
$ 10,815,594
-
(
1,453)
$ 1,870,687
$ 10,814,141
($ 4,281,314)
$ 11,352,532
-
(
31,195)
($ 4,281,314)
$ 11,321,337
6(27)
$ 0.19
$ 1.09
$ 0.19
$ 1.07

Other comprehensive (loss)
income (net)
Components of other
comprehensive income that will
not be reclassified to profit or loss
8311
Remeasurement of defined
benefit obligations
8349
Income tax relating to the
components of other
comprehensive income that will
not be reclassified
8310
Components of other
comprehensive income (loss)
that will not be reclassified to
profit or loss
Components of other
comprehensive (loss) income that
will be reclassified to profit or loss
8361
Financial statements translation
differences of foreign operations
8362
Unrealized (loss) gain on
valuation of available-for-sale
financial assets
8363
Cash flow hedges
8370
Share of other comprehensive
(loss) income of associates and
joint ventures accounted for
under equity method
8399
Income tax relating to the
components of other
comprehensive income that will
be reclassified
8360
Components of other
comprehensive income that
will be reclassified to profit
or loss
8300
Other comprehensive (loss)
income for the year, net of tax
8500
Total comprehensive (loss)
income for the year
Profit attributable to:
8610
Owners of the parent
8620
Non-controlling interest
Total
Other comprehensive (loss)
income attributable to:
8710
Owners of the parent
8720
Non-controlling interest
Total
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

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

127

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Notes	Equity attributabl	o owners ofthe parent	o owners ofthe parent									Non-controlli nginterest	Total
	Common stock	Capital surplus		R	etainedEarnings			Otherequityi	nterest		Total
			Legal reserve		Special reserve	Unappropriated earnings	Financial statements translation differences of foreign operations	Unrealized gain (loss) on available-for-sa le financial assets	Changes in gain (loss) on cash flow hedge	Employee unearned compensation
6(19) 6(15) 6(20) 6(19) 6(15) 6(20)	$ 99,545,364 - - - ( 12,992 ) - - - - - - $99,532,372 $ 99,532,372 - - ( 10,884 ) - - - - - $99,521,488	$ 99,584,369 - - - 12,992 ( 3,760 ) 22,740 27,185 38 - - $99,643,564 $ 99,643,564 - - 10,884 ( 4,068 ) - ( 2,570 ) - - $99,647,810	$ 509,272 2,167,675 - - - - - - - - - $2,676,947 $ 2,676,947 1,081,560 - - - - - - - $3,758,507		$ 1,144,229 - ( 1,144,229 ) - - - - - - - - $ - $ - - - - - - - - - $ -	$ 24,979,173 ( 2,167,675 ) 1,144,229 ( 6,947,188 ) - - - - - 10,815,594 ( 162,630 ) $27,661,503 $ 27,661,503 ( 1,081,560 ) ( 1,989,810 ) - - - - 1,870,687 36,542 $26,497,362	$ 3,082,948 - - - - - - - - - ( 1,387,654 ) $1,695,294 $ 1,695,294 - - - - - - - ( 5,735,702 ) ($4,040,408 )	($ 1,259,847 ) - - - - - - - - - 2,334,292 $ 1,074,445 $ 1,074,445 - - - - - - - ( 452,841 ) $ 621,604	$ 247,070 - - - - - - - - - ( 247,070 ) $ - $ - - - - - - - - - $ -	($ 142,515 ) - - - - 2,411 120,702 - - - - ($ 19,402 ) ($ 19,402 ) - - - 4,142 15,260 - - - $ -	$ 227,690,063 - - ( 6,947,188 ) - ( 1,349 ) 143,442 27,185 38 10,815,594 536,938 $232,264,723 $ 232,264,723 - ( 1,989,810 ) - 74 15,260 ( 2,570 ) 1,870,687 ( 6,152,001 ) $226,006,363	$ 1,481,373 - - - - - - - ( 1,450,178 ) ( 1,453 ) ( 29,742 ) $ - $ - - - - - - - - - $ -	$ 229,171,436 - - ( 6,947,188 ) - ( 1,349 ) 143,442 27,185 ( 1,450,140 ) 10,814,141 507,196 $232,264,723 $ 232,264,723 - ( 1,989,810 ) - 74 15,260 ( 2,570 ) 1,870,687 ( 6,152,001 ) $226,006,363

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

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INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax for the year
Adjustments
Adjustments to reconcile profit (loss)
Depreciation and amortization
Compensation related to share-based payment
Share of profit of associates and joint ventures
accounted for under equity method
Loss on disposal of investments
Loss on disposal of property, plant and equipment
Impairment loss
Interest expense
Interest income
Dividend income
Unrealized foreign exchange loss (gain)
Changes in operating assets and liabilities
Changes in operating assets
Financial assets /liabilities at fair value through profit
or loss
Accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Derivative financial liabilities for hedging
Accounts payable
Accounts payable - related parties
Other payables
Provisions - current
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Cash paid for income tax
Net cash flows from operating activities

Notes
2016
2015
$ 4,992,120
$ 14,859,187
6(24)
41,418,534
53,571,172
6(24)
15,260
143,442
6(8)
(
187,454 )
(
213,587 )
6(22)
23,258
47,583
6(22)
163,659
180,829
6(22)
502,857
589,911
6(23)
874,879
1,712,758
6(21)
(
291,240 )
(
484,873 )
6(21)
(
177,880 )
(
224,441 )
4,725
(
225,917 )
1,012,239
(
83,841 )
(
4,665,841 )
22,786,214
(
8,966,506 )
3,479,547
1,648,507
849,827
5,864,361
3,589,410
(
444,504 )
333,734
(
7,263 )
57,524
-
(
299,026 )
(
5,194,646 )
(
17,884,488 )
1,760,302
(
1,893,013 )
(
1,636,830 )
(
713,699 )
(
1,786,525 )
2,418,270
289,323
(
821,001 )
(
12,343 )
6,891
35,198,992
81,782,413
(
1,799,745 )
(
718,120 )
33,399,247
81,064,293

(Continued)

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INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposal of available-for-sale financial assets
Proceeds from capital reduction of available-for-sale
financial assets
Decrease in other financial assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of intangible assets
Decrease (increase) in other non-current assets
Interest received
Dividends received
Proceeds from capital reduction and return of investments
accounted for under equity method
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings
Increase in long-term borrowings
Payment of long-term borrowings
Repurchase from issuance of restricted stock to employees
Changes in non-controlling interests
Interest paid
Cash dividends paid
Net cash flows used in financing activities
Effect of changes in foreign currency exchange
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Notes
2016
2015

$ 222,372
$ 450,057
159,335
-
2,091,694
783,662
6(28)
(
44,152,843 )
(
24,511,490 )
42,268
1,798,359
(
22,251 )
(
16,392 )
-
856
38,230
(
4,453 )
326,610
449,038
404,576
247,612
23,680
-
(
40,866,329 )
(
20,802,751 )
11,579,025
(
22,449,868 )
822,702
68,100,131
(
16,440,000 )
(
116,527,861 )
(
1,372 )
(
3,676 )
-
(
50 )
(
747,143 )
(
1,628,841 )
6(19)
(
1,989,810 )
(
6,947,188 )
(
6,776,598 )
(
79,457,353 )
(
2,894,271 )
728,860
(
17,137,951 )
(
18,466,951 )
52,522,790
70,989,741
$ 35,384,839
$ 52,522,790

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

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INNOLUX CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

HISTORY AND ORGANIZATION

(1) Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock Exchange Corporation (the “TSEC”) in October 2006. The Company merged with TPO Displays Corporation and Chi Mei Optoelectronics Corporation on March 18, 2010, with the Company as the surviving entity.
(2) The Company and its subsidiaries (the “Group”) engage in the research, development, design, manufacture and sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on February 10, 2017.

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”) None.
(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 as endorsed by FSC effective from 2017 are as follows:

follows:

New Standards,Interpretations andAmendments

Effective Date by
International Accounting
StandardsBoard

Investment entities: applying the consolidation exception (amendments to
IFRS 10, IFRS 12 and IAS 28)
Accounting for acquisition of interests in joint operations (amendments to
IFRS 11)
IFRS 14, ‘Regulatory deferral accounts’
Disclosure initiative (amendments to IAS 1)
Clarification of acceptable methods of depreciation and amortisation
(amendments to IAS 16 and IAS 38)
Agriculture: bearer plants (amendments to IAS 16 and IAS 41)
Defined benefit plans: employee contributions (amendments to IAS 19R)
Equity method in separate financial statements (amendments to IAS 27)

January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016

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New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
Recoverable amount disclosures for non-financial assets (amendments to IAS 36) Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) IFRIC 21, ‘Levies’ Improvements to IFRSs 2010-2012 Improvements to IFRSs 2011-2013 Improvements to IFRSs 2012-2014	January 1, 2014 January 1, 2014 January 1, 2014 July 1, 2014 July 1, 2014 January 1, 2016

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment.

─ Annual improvements to IFRSs 2010-2012 cycle IFRS 8, ‘Operating segments’

The standard is amended to require disclosure of judgments made by management in aggregating operating segments. This amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets is required only when segment asset is provided to chief operating decision maker regularly.

(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 effective from 2017 are as follow:

segments’ assets to the entity’s assets is required only when segment
operating decision maker regularly.
IFRSs issued by IASB but not yet endorsed by the FSC
New standards, interpretations and amendments issued by IASB but not
as endorsed by the FSC effective from 2017 are as follow:

asset is provided to chief
yet included in the IFRSs

New Standards,Interpretations andAmendments

Effective Date by
International Accounting
StandardsBoard

Classification and measurement of share-based payment transactions
(amendments to IFRS 2)
Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurance
contracts’ (amendments to IFRS 4)
IFRS 9, ‘Financial instruments’
Sale or contribution of assets between an investor and its associate or
joint venture (amendments to IFRS 10 and IAS 28)
IFRS 15, ‘Revenue from contracts with customers’
Clarifications to IFRS 15, ‘Revenue from contracts with customers’
(amendments to IFRS 15)
IFRS 16, ‘Leases’
Disclosure initiative (amendments to IAS 7)
Recognition of deferred tax assets for unrealised losses (amendments to
IAS 12)
Transfers of investment property (amendments to IAS 40)

January 1, 2018
January 1 ,2018
January 1, 2018
To be determined by
International Accounting
Standards Board
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017
January 1, 2018

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Effective Date by International Accounting New Standards, Interpretations and Amendments Standards Board IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018 Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS January 1, 2018 1, ‘First-time adoption of international financial reporting standards’ Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS January 1, 2017 12, ‘Disclosure of interests in other entities’ Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS January 1, 2018 28, ‘Investments in associates and joint ventures’ Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and operating results based on the Group’s assessment. A. IFRS 9, ‘Financial instruments’

(a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to recognize the equity instrument not held for trading at fair value in other comprehensive income.
(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognize 12-month expected credit losses (‘ECL’) or lifetime ECL (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.
(c) The amended general hedge accounting makes the accounting practices consistent with an entity’s risk management strategy. The components and the grouping of non-financial items can be loosened as hedged items. The 80~125% threshold of highly efficient hedge is removed, and that the hedge items and the hedged percentages of the hedge instruments that can be rebalance under the unchanged business objectives of risk management is increased.
B. IFRS 15, ‘Revenue from contracts with customers’

IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction Contracts’, IAS 18, ‘Revenue’, and relevant interpretations and SICs. According to IFRS 15, revenue is recognized when a customer obtains control of goods or services. A customer obtains control of goods or services when a customer has the ability to direct the

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use of, and obtain substantially all of the remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

Step 2: Identify performance obligations in the contract(s)

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract(s) Step 5: Recognize revenue when the performance obligation is satisfied.

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from Contracts with Customers’

The amendments clarify how to identify a performance obligation (the promise to transfer goods or services to a customer) in a contract; determine whether a company is a principal (the provider of goods or services) or an agent (responsible for arranging for the goods or services to be provided); and determine whether the revenue from granting a license should be recognized at a point in time or a period of time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.

D. Amendments to IAS 7, ‘Disclosure initiative’

This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

E. IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognize a ‘right-of-use asset’ and a lease liability (except for those leases with terms of less than 12 months and leases of low-value assets). Lessor accounting still uses the dual classification approach: operating leases and finance leases, and only increases the related disclosures.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

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”,

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International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

Basis of preparation

A. Except for the following items, the 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) Available-for-sale financial assets measured at fair value.
(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 judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

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 unrealised 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

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retained in the former subsidiary at its fair value. 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 subsidiary are reclassified to profit or loss as disposal.

B. Subsidiaries included in the consolidated financial statements:

Name of Investor	Name ofSubsidiary	Main Business Activities	Ownership (%)	Ownership (%)	Description
			December31,
			2016	2015
Innolux Corporation Bright Information Holding Ltd. Golden Achiever International Ltd.	Bright Information Holding Ltd. Gold Union Investments Ltd. Golden Achiever International Ltd. Innolux Holding Ltd. Keyway Investment Management Limited Landmark International Ltd. Toppoly Optoelectronics (B.V.I.) Ltd. Innolux Hong Kong Holding Limited Leadtek Global Group Limited Yuan Chi Investment Co., Ltd. InnoJoy Investment Corporation Innolux Optoelectronics Europe B.V. Innolux Optoelectronics Japan Co., Ltd. Chi Mei El Corporation Kunpal Optoelectronics Ltd. VAP Optoelectronics (Nanjing) Corp.	Investment holdings Investment holdings Investment holdings Investment holdings Investment holdings Investment holdings Investment holdings Investment holdings Distribution company Investment company Investment company Investment and distribution company Investment and distribution company Manufacture and distribution company Processing company Processing company	100 - 100 100 100 100 100 100 100 100 100 100 100 - - 100	100 - 100 100 100 100 100 100 100 100 100 100 100 - 100 100	- (c) - - - - - - - - - - - (a) (d) -

136

Name of Investor	Name ofSubsidiary	Main Business Activities	Ownership (%)	Ownership (%)	Description
			December31,
			2016	2015
Innolux Holding Ltd. Keyway Investment Management Limited Landmark International Ltd. Toppoly Optoelectronics (B.V.I.) Ltd. Innolux Hong Kong Holding Limited Innolux Optoelectronics Europe B.V. Innolux Optoelectronics Japan Co., Ltd.	Rockets Holding Ltd. Suns Holding Ltd. Lakers Trading Ltd. Innolux Corporation Ningbo Innolux Logistics Ltd. Foshan Innolux Logistics Ltd. Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. Foshan Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. Toppoly Optoelectronics (Cayman) Ltd. Innolux Optoelectronics Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Innolux Technology Europe B.V. Innolux Technology Japan Co., Ltd. Innolux Technology USA Inc. Innolux Optoelectronics Germany GmbH Innolux Optoelectronics USA, Inc.	Investment holdings Investment holdings Distribution company Distribution company Warehousing company Warehousing company Processing company Processing company Processing company Processing company Investment holdings Investment holdings Distribution company Investment and R&D company R&D company Distribution company After sales service company Distribution company	100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	- - - - - - - (g) - - - - - - - - - -

137

Name of Investor	Name of Subsidiary	Main Business Activities	Ownership (%)	Ownership (%)	Description
			December31,
			2016	2015
Rockets Holding Ltd. Suns Holding Ltd. Toppoly Optoelectronics (Cayman) Ltd. Innolux Optoelectronics Hong Kong Holding Ltd. Innolux Technology Europe B.V. Best China Investments Ltd. Mega Chance Investments Ltd. Magic Sun Ltd. Stanford Developments Ltd. Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. Foshan Innolux Optoelectronics Ltd.	Best China Investments Ltd. Mega Chance Investments Ltd. Magic Sun Ltd. Stanford Developments Ltd. Nets Trading Ltd. Warriors Technology Investments Ltd. Nanjing Innolux Technology Ltd. Nanjing Innolux Optoelectronics Ltd. Kunpal Optoelectronics Ltd. Shanghai Innolux Optoelectronics Ltd. Innolux Technology Germany GmbH Asiaward Investment Ltd. Main Dynasty Investment Ltd. Sun Dynasty Development Ltd. Innocom Technology (Shenzhen) Co., Ltd. Ningbi Innolux Electronics Ltd. Ningbo Innolux Flnet Electronics Ltd. Foshan Innolux Flnet Electronics Ltd.	Investment holdings Investment holdings Investment holdings Investment holdings Investment company Investment company Distribution company Processing company Processing company Processing company Testing and maintenance company Investment holdings Investment holdings Investment holdings Processing company Distribution company Distribution company Distribution company	100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100	100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 - -	- - - - - - - - (d) - - - - - - (b) (e) (f)

(a) In 2015, the Board of Directors of the Group resolved to proceeds with 97% owned subsidiary, the effective date was set on September 1, 2015. After the merger, this

138

subsidiary was the dissolved company while the Company was the surviving company, and accounted under equity method.

(b) Ningbo Innolux Electronics Ltd. was established in November 2015 and was included in the consolidated financial statements since the date of establishment.
(c) Gold Union Investments Ltd. ceased operations and was liquidated in the fourth quarter of 2015.
(d) Kunpal Optoelectronics Ltd. was previously a wholly-owned subsidiary of Bright Information Holding Ltd. However, after reorganization in July 2016, Kunpal Optoelectronics Ltd. became a wholly-owned subsidiary of Toppoly Optoelectronics (Cayman) Ltd.
(e) Ningbo Innolux Flnet Electronics Ltd. was established in October 2016 and was included in the consolidated financial statements since the date of establishment.
(f) Foshan Innolux Flnet Electronics Ltd. was established in October 2016 and was included in the consolidated financial statements since the date of establishment.
(g) In October 2016, the Board of Directors of the Group resolved to merge Ningbo Innolux Technology Ltd., which was wholly owned by the Group, with Ningbo Innolux Display Ltd., and Ningbo Innolux Display Ltd. was the surviving company. The effective date was set on December 1, 2016, and was accounted as a reorganisation.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. The restrictions on fund remittance from subsidiaries to the parent company: None.
F. Subsidiaries that have non-controlling interests that are material to the Group: None.

Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in NTD, which is the company’s functional and the Group’s presentation currency.

A. 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, except when deferred in other comprehensive income as qualifying cash flow hedges.
(b) Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated 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

139

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’.
B. 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 spot 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 partially disposed of or sold is an associate, 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 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, if 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.

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 realised, 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 realised 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 pay off liabilities more than twelve months after the balance sheet date.

140

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 paid off within the normal operating cycle;
(b) Liabilities arising mainly from trading activities;
(c) Liabilities that are to be paid off 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.

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 and bonds sold under repurchase agreement that meet the definition above and are held for the purpose of meeting short-term cash commitments in operations are classified as cash equivalents.

Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on 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 or investment strategy.
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. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss.

Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are designated in this category. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.
B. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income.

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Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

Impairment of financial assets

A. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
B. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:
(a) Significant financial difficulty of the issuer or debtor;
(b) A breach of contract, such as a default or delinquency in interest or principal payments;
(c) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered;
(d) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
C. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:
(a) Financial assets measured at amortised cost
- The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.
(b) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less any principal repayment and amortization) and current fair value,

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less any impairment loss on that financial asset previously recognized in profit or loss, and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

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.
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.

Operating leases (lessor)

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.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average method. The cost of finished goods and work in progress 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 expenses.

Investments accounted for using 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 per cent 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, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

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C. When changes in an associate’s equity are not recognized in 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 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.
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.

Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalised.
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 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. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful

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lives. If each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be 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 and structures 2~51 years Machinery and equipment 5~11 years Other equipment 2~6 years

Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 25~50 years.

Intangible assets

A. Goodwill arises in a business combination accounted for by applying the acquisition method.
B. Intangible assets, patent, royalties and other intangible assets, are amortised on a straight-line basis over their estimated useful lives of 2~10 years.

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 years 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 amounts of goodwill, intangible assets with an indefinite useful life and intangible assets that have not yet been available for use are evaluated periodically. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment loss of goodwill previously recognized in profit or loss shall not be reversed in the following years.
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. Goodwill is monitored at the operating segment level.

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Financial liabilities at fair value through profit or loss

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading. 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 categorized as financial liabilities held for trading unless they are designated as hedges.
B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.
B. The Group designates certain derivatives as cash flow hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.
C. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.
E. Cash flow hedge
(a) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income within ‘other gains and losses’.
(b) Amounts accumulated in other comprehensive income are reclassified into profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the statement of comprehensive income within ‘finance costs’.
(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income. When a forecast transaction occurs or is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred to profit or loss in the periods when the hedged forecast cash flow affects profit or loss.

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Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid and should be recognized as expenses in that period when the employees render service.

B. Pensions
(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses 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. 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 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 government bond (at the balance sheet date).
- 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.
C. Employees’ compensation and directors’ and supervisors’ remuneration
Employees’ compensation and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated.

- 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-market 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 to employees:
(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 employees have to pay to acquire those stocks, if

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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’.

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.
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 10% 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. 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 utilised. At each balance sheet date, unrecognized and recognized deferred tax assets are reassessed.
E. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from 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 utilised.

Revenue recognition

The Group manufactures and sells TFT-LCE panels. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities.

Business combinations

A. The Group uses the acquisition method to account for business combinations. 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

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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 acquire 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.

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.

CRITICALACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgements 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 related information is addressed below:

Critical judgements in applying the Group’s accounting policies

Financial assets-impairment of equity investments

The Group follows the guidance of IAS 39 to determine whether a financial asset-equity investment is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

If the decline of the fair value of an individual equity investment below cost was considered significant or prolonged, the accumulated fair value adjustments recognized in other comprehensive income on the impaired “available-for-sale financial assets” is transferred to profit or loss.

Critical accounting estimates and assumptions

The Company 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 related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

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A. Impairment assessment of goodwill
The impairment assessment of goodwill relies on the Group’s subjective judgement, including identifying cash-generating units, allocating assets and liabilities as well as goodwill to related cash-generating units, and determining the recoverable amounts of related cash-generating units.

Please refer to Note 6(11) for the information of goodwill impairment.

B. 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 utilised and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Group strategy might cause material impairment on assets in the future.
C. Estimation of significant disaster insurance claim
The insurance claim revenue is recognized when it is virtually certain that the compensation will be received in the future. As the amount of claim is measured based on the amount which is permitted by insurance company, management shall assess and estimate the replacement cost of damaged assets.

DETAILS OF SIGNIFICANT ACCOUNTS

Cash and cash equivalents

replacement cost of damaged assets. AILS OF SIGNIFICANT ACCOUNTS sh and cash equivalents
Cash on hand, demand deposits and checking accounts Time deposits Cash equivalents - Repurchase bonds	December31,2016 8,392,955 $ 26,326,649 34,719,604 665,235 35,384,839 $	December31,2015
		28,528,513 $ 23,331,155
		51,859,668 663,122
		52,522,790 $

A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.
B. The above time deposits and bonds with repurchase agreement expire in 3 months and risks of changes in their values are remote. The remaining unpledged time deposits which did not meet the definition of cash equivalents were $4,998 and $1,973,263 at December 31, 2016 and 2015, respectively, and were classfied as ‘other financial assets - current’.

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Financial assets and liabilities at fair value through profit or loss

Assets Current items Financial assets held for trading Forward foreign exchange contracts Non-current items Financial assets held for trading Stock-Advanced Optoelectronic Technology Inc. Valuation adjustment Liabilities Current items Financial liabilities held for trading Forward foreign exchange contracts	December31,2016 64,241 $ 77,019 $ 173,082 250,101 $ 1,190,148 $	December31,2015
		120,036 $
		77,019 $ 204,903
		281,922 $
		265,525 $

A. The Group recognized net loss of $1,244,206 and $663,075 on the financial instruments for the years ended December 31, 2016 and 2015, respectively.
B. The non-hedging derivative financial assets and liabilities transaction information are as follows:

follows:
Derivative financial assets and liabilities Current items Forward foreign exchange contracts Forward foreign exchange contracts Forward foreign exchange contracts Forward foreign exchange contracts Forward foreign exchange contracts Forward foreign exchange contracts Forward foreign exchange contracts	December 31,2016	December 31,2015
	Contract Period USD (sell) 360,000 2016/10-2017/3 JPY (buy) 39,597,920 2016/10-2017/3 TWD (sell) 621,240 2016/9-2017/2 USD (buy) 20,000 2016/9-2017/2 EUR (sell) 19,000 2016/10-2017/1 USD (buy) 20,706 2016/10-2017/1 EUR (sell) 55,000 2016/9-2017/4 JPY (buy) 6,516,335 2016/9-2017/4 EUR(sell) 8,960 2016/12~2017/1 TWD(buy) 302,364 2016/12~2017/1 USD(sell) 715,000 2016/9~2017/2 RMB(buy) 4,948,754 2016/9~2017/2 HKD(sell) 330,712 2016/10-2017/1 EUR(buy) 39,000 2016/10-2017/1 (in thousands) Contract Amount (Notional Principal)	(in thousands) Contract Amount (Notional Principal)	Contract Period
		USD (sell) 150,000 $ TWD (buy) 4,896,705 USD (sell) 295,000 JPY (buy) 35,649,520 EUR (sell) 5,000 TWD (buy) 175,075 EUR (sell) 80,500 JPY (buy) 10,668,495 HKD (sell) 321,477 EUR (buy) 39,000 USD (sell) 240,000 RMB (buy) 1,541,675	2015/10-2016/2 2015/10-2016/2 2015/10-2016/3 2015/10-2016/3 2015/11-2016/1 2015/11-2016/1 2015/10-2016/3 2015/10-2016/3 2015/11-2016/1 2015/11-2016/1 2015/10-2016/2 2015/10-2016/2

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of import and export proceeds and foreign currency. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

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Available-for-sale financial assets

ailable-for-sale financial assets
Items Non-current items Listed stocks and bond investments Emerging and unlisted stocks	December31,2016 5,295,578 $ 545,351 5,840,929 $	December31,2015
		6,403,449 $ 719,585 7,123,034 $

A. The Group recognized net gain (loss) in other comprehensive income for fair value change and reclassified from equity to profit or loss for the years ended December 31, 2016 and 2015. Please refer to Note 6(20).
B. For the years ended December 31, 2016 and 2015, the Company and its subsidiary assessed that investment value of certain investee companies was impaired and recognized impairment loss of $500,000 and $108,000, respectively, and is listed as ‘other gains and losses’.
C. The counterparties of the Group’s debt instrument investments have good credit quality.

Hedging derivative financial liabilities

A. The Company was exposed to significant risk of future cash flow changes on principal payments associated with the Company’s floating interest rate bearing borrowings, both current and long-term portion. Therefore, the Company entered into interest rate swap contracts for exchanging floating interest rate for fixed interest rate (TWD90/180CP (Page51328) to hedge such exposures. The contract had matured and was settled in February 2015.
B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other comprehensive income:

and other comprehensive income:
Items Amount of gain or loss adjusted in other comprehensive income Amount of gain or loss transferred from other comprehensive income to profit or loss	Years endedDecember31,
	2016 - $ -	2015
		5 $ 297,670

Accounts receivable

ounts receivable Amount of gain or loss adjusted in other comprehensive income Amount of gain or loss transferred from other comprehensive income to profit or loss	- $ -	- $ -	5 $ 297,670	5 $ 297,670
	December31,2016		December31,2015
Accounts receivable	$	53,798,678	$	48,944,637
Less: Allowance for sales returns and discounts	(	833,545)	(	636,330)
Allowance for bad debts	(	109,501)	(	118,516)
	$	52,855,632	$	48,189,791

A. The Group’s accounts receivable that were neither past due nor impaired meet the credit ranking rule based on the counterparties’ industrial characteristics scale of business and profitability.
B. The aging analysis of accounts receivable and notes receivable that were past due but not impaired is as follows:

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Up to 60 days 61 to 180 days Over 181 days	December31,2016 391,369 $ 8,364 - 399,733 $	December31,2015
		644,656 $ 42,281 15,766 702,703 $

C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:
(a) As of December 31, 2016 and 2015, the Group’s accounts receivable that were impaired were $109,501 and $118,516, respectively.
(b) Movement on allowance for bad debts for impairment loss on individual provision is as follows:

follows:
			2016		2015
At January 1	$		118,516	$	139,867
Allowance for bad debts - write-offs	(		9,001)	(	21,447)
Net exchange difference	(		14)		36
Allowance for bad debts - reclassifications			-		60
At December 31		$	109,501	$	118,516

Transfer of financial assets

The Company entered into a factoring agreement with financial institutions to sell its accounts receivable. Under the agreement, the Company is not obligated to bear the default risk of the transferred accounts receivable and this is without right of recourse. However, the Company is liable for the losses incurred on any business dispute.

The Company does not provide collateral, and has no continuous involvement in the transferred accounts receivable. As a result, the Company derecognized the transferred accounts receivable. There were no related transactions during 2015. As of December 31, 2016, all the accounts receivable sold were collected and the Company entered into factoring agreements with CTBC bank and Taipei Fubon Commercial Bank in the amount of $19,995,000 and $6,450,000, respectively.

Inventories

$19,995,000 and $6,450,000, respectively. entories
Raw materials and supplies Work in process Finished goods	December31,2016 3,352,916 $ 12,345,964 7,702,848 23,401,728 $	December31,2015
		3,952,699 $ 13,906,846 12,338,887 30,198,432 $

Expenses and losses incurred on inventories are as follows:

Cost of inventories sold Loss on (gain on reversal of) decline in market value Disposal loss and others	Years ended December31,	Years ended December31,
	2016 2015 260,260,782 $ 317,186,303 $ 546,886 602,609) ( 193,118 909,185 261,000,786 $ 317,492,879 $	2015

A. The increase in net realisable value was caused by the inventories previously provided with allowance that were subsequently scrapped or sold for the year ended December 31, 2015.

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B. Due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016, certain inventories were destroyed, please refer to Note 10 for details.

Investments accounted for under the equity method

estments accounted for under the equity method
Ampower Holding Ltd. FI Medical Device Manufacturing Co., Ltd. TOA Optronics Corporation Others	December 31, 2016 870,941 $ 451,943 89,366 105,168 1,517,418 $	December 31, 2015
		881,351 $ 321,683 310,074 97,478
		1,610,586 $

The operating results of the Group’s share in all individually immaterial associates are summarized below:

summarized below:
perty, plant and equipment Profit for the year from continuing operations Other comprehensive (loss) income - net of tax ( Total comprehensive income At January1 Additions Cost: Land 3,852,792 $ - $ $ Buildings 185,696,326 67,493 ( Machinery and equipment 432,460,229 212,508 ( Other equipment 33,632,482 43,195 ( 655,641,829 323,196 ( Accumulated depreciation and impairment: Buildings 95,892,428) ( 11,362,947) ( Machinery and equipment 352,326,878) ( 24,600,403) ( Other equipment 26,880,493) ( 4,253,632) ( 475,099,799) ( 40,216,982) ( Unfinished construction and equipment under acceptance 18,940,710 43,195,259 ( 199,482,740 $	(	Years ended December31,
		2016 187,454 $ 27,676) 159,778 $ 2016		2015
			$	213,587 4,432
			$	218,019
		2016
		Disposals - 1,096,456) 4,382,487) 1,216,192) 6,695,135) 623,809 4,341,598 1,267,015 ( 6,232,422 219,936) (

Property, plant and equipment

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2015

						2015
							Transfer, net
								exchange
								differences
	At January1			Additions		Disposals		and others	At December 31
Cost:
Land	3,852,792 $		$	-	$	-	$	-	$	3,852,792
Buildings		185,352,098		77,904	(	285,434)		551,758		185,696,326
Machinery and equipment		432,578,807		745,188	(	11,488,751)		10,624,985		432,460,229
Other equipment		30,029,064		311,893	(	3,317,504)		6,609,029		33,632,482
		651,812,761		1,134,985	(	15,091,689)		17,785,772		655,641,829
Accumulated depreciation
and impairment:
Buildings	(	83,503,695)	(	13,130,422)		216,190		525,499	(	95,892,428)
Machinery and equipment	(	325,264,992)	(	35,070,724)		10,473,424	(	2,464,586)	(	352,326,878)
Other equipment	(	22,124,028)	(	4,123,746)		3,167,673	(	3,800,392)	(	26,880,493)
	(	430,892,715)	(	52,324,892)		13,857,287	(	5,739,479)	(	475,099,799)
Unfinished construction and
equipment under acceptance		12,689,797		24,661,681	(	796,613)	(	17,614,155)		18,940,710
	$	233,609,843							$	199,482,740

A. Amount of borrowing costs capitalised as part of property, plant and equipment and the range of the interest rates for such capitalisation are as follows:

ange of the interest rates for such capitalisation are as follows:
Capitalised amount Range of the interest rates for capitalisation	Year ended December31,2016
	323,503 $ 2.00%~2.26%

B. The Group evaluated the recoverable amount for assets with impairment indicators; the impairment loss for the years ended December 31, 2016 and 2015 was $2,857 and $481,911, respectively, shown under “other gains and losses”.
C. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.
D. As of December 31, 2016 and 2015, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $896,996 and $3,110,696, respectively.
E. Due to the earthquake in Kaohsiung, Taiwan on February 6, 2016, a portion of property, plant and equipment were damaged. Please refer to Note 10 for details.

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Investment property

						2016	2016	2016
		At January1				Additions			Transfers		At December 31
Cost:
Land	$	188,247			$	-		$	-	$	188,247
Buildings		564,109				-	(		124,881)		439,228
		752,356				-	(		124,881)		627,475
Accumulated
depreciation and
impairment:
Buildings	(	71,853)	(			11,132)			28,935	(	54,050)
	$	680,503	($			11,132)	($		95,946)	$	573,425
						2015
		At January1				Additions			Disposals		At December 31
Cost:
Land	$	188,247		$		-	$		-	$	188,247
Buildings		568,440				-	(		4,331)		564,109
		756,687				-	(		4,331)		752,356
Accumulated
depreciation and
impairment:
Buildings	(	63,010)	(			13,174)			4,331	(	71,853)
	$	693,677	($			13,174)	$		-	$	680,503

The fair value of the investment property held by the Group as at December 31, 2016 and 2015 was $1,109,891 and $1,077,466, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorised within Level 3 in the fair value hierarchy.

Intangible assets

A. Intangible assets are goodwill, payments for TFT-LCD related technology and royalty.

At January1 Additions Cost: Patents and royalty 8,152,685 $ - $ Goodwill 17,096,628 - Others 4,215,500 22,251 ( 29,464,813 22,251 ( Accumulated amortization and impairment: Patents and royalty 6,668,709) ( 859,363) ( Others 3,453,248) ( 331,057) ( 10,121,957) ( 1,190,420) ( 19,342,856 $ 1,168,169) ($			2016
			Disposals - $ - 70,918) 70,918) - 70,918 70,918 - $	Transfer, net exchange differences and others At December 31 2,000 $ 8,154,685 $ - 17,096,628 250,899 4,417,732 252,899 29,669,045 - 7,528,072) ( 18,735 3,694,652) ( 18,735 11,222,724) ( 271,634 $ 18,446,321 $	At December 31

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2015

At January1 Additions Cost: Patents and royalty 8,137,035 $ - $ Goodwill 17,096,628 - Others 3,993,161 16,392 ( 29,226,824 16,392 ( Accumulated amortization and impairment: Patents and royalty 5,735,685) ( 933,024) ( Others 3,272,002) ( 300,082) ( 9,007,687) ( 1,233,106) ( 20,219,137 $ 1,216,714) ($ (	Disposals - $ - 116,305) 116,305) - 115,449 115,449 856) $	Transfer, net exchange differences and others At December 31 15,650 $ 8,152,685 $ - 17,096,628 322,252 4,215,500 337,902 29,464,813 - 6,668,709) ( 3,387 3,453,248) ( 3,387 10,121,957) ( 341,289 $ 19,342,856 $

B. Details of amortization on intangible assets are as follows:

Operating costs Operating expenses	Years ended December31,	Years ended December31,
	2016 1,004,043 $ 186,377 1,190,420 $	2015
		1,005,129 $ 227,977
		1,233,106 $

C. The Company performed impairment analysis for recoverable amount of the goodwill at each reporting date and used the value in use as the basis for calculation of the recoverable amount. The value in use was calculated based on the estimated present value of future cash flows for five years, which was discounted at the discount rate of 5.86% and 5.72% for the years ended December 31, 2016 and 2015, respectively, to reflect the specific risks of the related cash generating units. The future cash flows were estimated based on the future revenue, gross profit, and other operating costs each year. Based on the evaluation above, the Company did not recognize impairment loss on goodwill for the years ended December 31, 2016 and 2015.

Short-term borrowings

December 31, 2016 and 2015. rt-term borrowings
Type ofborrowings Bank loans Credit loans Range of interest rates	December31,2016 11,583,750 $ 0.83%~1.59%	Collateral
		None

As of December 31, 2015, the Group has no short-term borrowings.

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- Long term borrowings

Type of loans Syndicated bank loans Less: Administrative expenses charged by syndicated banks Current portion (includes administrative expenses Range of interest rates	Period December31,2016 December31,2015 2015/3/12 ~2021/12/6 44,840,000 $ 60,280,000 $ 329,847) ( 288,794) ( 16,381,686) ( 16,361,238) ( 28,128,467 $ 43,629,968 $ 1.77%~2.06% 1.90%~2.19%

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.
B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, which were based on the Company’s annual consolidated financial statements audited by independent auditors. The Company’s financial ratios on the consolidated financial statements for the years ended December 31, 2016 and 2015 are in compliance with the covenants on the syndicated loan agreement.
C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the “Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’, and waive negotiation on the debt issue.
D. For repayment of borrowings from financial institutions and financing mid-term working capital fund, the Company entered into a contract for a syndicated loan with financial institutions in the amount of $35 billion.

Pensions

A. Defined benefit pension plan
(a) The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, 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 choose 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 six months prior to retirement. The Company and its domestic subsidiaries contribute

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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 and its domestic subsidiaries would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company and its domestic subsidiaries will make contribution for the deficit by next March.

(b) The amounts recognized in the balance sheet are as follows:

Present value of defined benefit obligation Fair value of plan assets ( Net defined benefit liability	December31,2016 1,827,687 $ 1,534,864) ( 292,823 $	December31,2015 1,852,905 $ 1,529,124) 323,781 $

		Present value of	Present value of
		defined benefit			Fair value			Net defined
			obligation		ofplan assets		benefit liability
Year ended December 31, 2016
Balance at January 1	$		1,852,905	$	1,529,124	$		323,781
Current service cost			7,565		-			7,565
Interest expense / income			31,499		25,995			5,504
			39,064		25,995			13,069
Remeasurements:
Experience adjustments	(		55,619)	(	11,592)	(		44,027)
Benefits paid	(		8,663)	(	8,663)			-
	(		64,282)	(	20,255)	(		44,027)
Balance at December 31	$		1,827,687	$	1,534,864	$		292,823
		Present value of
		defined benefit			Fair value			Net defined
			obligation		ofplan assets		benefit liability
Year ended December 31, 2015
Balance at January 1	$		1,605,920	$	1,488,938	$		116,982
Current service cost			8,228		-			8,228
Interest expense / income			36,133		33,501			2,632
			44,361		33,501			10,860
Remeasurements:
Change in financial assumptions			172,133		-			172,133
Experience adjustments			30,491		6,685			23,806
			202,624		6,685			195,939
Balance at December 31	$		1,852,905	$	1,529,124	$		323,781

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s and

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domestic subsidiaries’ 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, 2016 and 2015 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows:

Discount rate Future salary increases	Years ended December31,	Years ended December31,
	2016 1.70% 3.00%	2015
		1.70% 3.00%

Future mortality rate was estimated based on the 5[th] Taiwan Standard Ordinary Experience Mortality Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

December 31, 2016 Effect on present value of defined benefit obligation ( December 31, 2015 Effect on present value of defined benefit obligation (	Increase Decrease 0.25% 0.25% 75,371) $ 79,187 $ Increase Decrease 1% 1% 299,276) $ 367,992 $ Discountrate Discountrate	Increase Decrease 0.25% 0.25% 73,355 $ 70,354) ($ Increase Decrease 1% 1% 337,723 $ 283,242) ($ Future salaryincreases Future salaryincreases
	Increase 1% 299,276) $	Increase 1% 337,723 $ (

The sensitivity analysis above was arrived at 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 analyzing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park Administration in June 2013.

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(g) As of December 31, 2016, the weighted average duration of that retirement plan is 18 years.
B. Defined contribution pension plan
(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 contributes 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 plans. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and wages.
(c) The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2016 and 2015 were $2,021,115 and $2,283,605, respectively.

Share-based payment

A. As of December 31, 2016, the Company’s share-based payment transactions are set forth below:

below:
Type ofarrangement Employee stock options Employee stock options Restricted stocks to employees -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration	Grant date 2010.05.13 2011.05.19 2013.01.30 2013.01.30 2013.03.29 2013.03.29 2013.12.12 2013.12.12	Quantity granted Contract (in thousand period units) (inyears) 20,000 5 50,000 5 31,151 3 31,151 3 844 3 844 3 4,268 3 4,268 3	Vesting conditions
			Note (a), (b) Note (a), (b) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d)

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40% of total options granted on completion of the specified year(s) of service (one to four years) from the grant date.
(b) The employee stock options had already expired.

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(c) The employees may exercise the stock options by stage based on 20%, 40% and 40% of total options granted on completion of the specified year(s) of service (one to three years) from the grant date.
(d) The restricted stocks issued by the Company cannot be transferred. Voting right and dividend right are restricted on these stocks before vested.
(e) The fair value of stock options granted from 2010 to 2013 is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

Type ofarrangement	Grant date 2013.12.12 2013.12.12 2013.03.29 2013.03.29 2013.01.30 2013.01.30 2011.05.19 2010.05.13	Price (indollars) 10.65 $ 10.65 18.40 18.40 15.35 15.35 26.70 39.85	Exercise price (indollars) $ - 5.00 - 5.00 - 5.00 26.70 39.85	Expected volatility (%) - - - - - - 35.67 51.57	Expected duration (month) - - - - - - 48.60 48.60	Expected dividend yield (%) - - - - - - - -	Risk free interest rate (%) - - - - - - 1.00 0.80	Fair value per unit (indollars)
Restricted stocks to employees -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration Employee stock options Employee stock options								10.65 $ 5.65 18.40 13.40 15.35 10.35 7.31 ~8.32 15.12 ~16.98

B. The details of the employee stock option plan for the years ended December 31, 2016 and 2015 are as follows:

2015 are as follows:
Quantity (in thousand StockOptions units) Outstanding options at the beginning of the year 50,000 Options exercised - Options expired 50,000) ( Outstanding options at the end of the year - Exercisable options at the end of the year -	YearendedDecember31,2016
	Weighted average exercise price (indollars) 22.85 $ - 21.87 - -	Range of exercise price (indollars) - $	Weighted average remaining vesting period -	Weighted average stock price of stock options at exercise date (indollars)
				9.99 $

162

	Quantity (in thousand StockOptions units) Outstanding options at the beginning of the year 70,000 Options exercised - Options expired 20,000) ( Outstanding options at the end of the year 50,000 Exercisable options at the end of the year 50,000		YearendedDecember31,2015	YearendedDecember31,2015	YearendedDecember31,2015
			Weighted average exercise price (indollars) 25.63 $ - 32.59 22.85 22.85	Range of exercise price (indollars) 22.85 $	Weighted average remaining vesting period 0.39 years	Weighted average stock price of stock options at exercise date (indollars)
						13.61 $

C. For the years ended December 31, 2016 and 2015, the expenses incurred from share-based payment arrangements were $15,260 and $143,442, respectively.

Provisions-current

isions-current
At January 1, 2016 Additions during the year Used during the year At December 31, 2016	Warranty 808,136 $ 2,160,000 1,333,902) ( 1,634,234 $	Litigationand others 4,743,623 $ 1,618,915 4,231,538) ( 2,131,000 $	Total
			5,551,759 $ 3,778,915 5,565,440) ( 3,765,234 $

A. Warranty

The Group provides warranty on TFT-LCD panel products sold. Provision for warranty is estimated based on historical warranty data of TFT-LCD panel products.

B. Litigation and others

Litigation and other provisions for the Group are related to patents of TFT-LCD panel products and anti-trust litigations. For information on estimation of provisions, please refer to Note 9(1).

Share capital

As of December 31, 2016, the Company’s authorized and outstanding capital were $105,000,000 and $99,521,488, respectively, with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

Movements in the number of the Company’s ordinary shares outstanding are as follows:

At January 1 Cancellation of restricted stock to employees ( At December 31	2016 Number of ordinary shares(in thousands) 9,953,237 1,088) ( 9,952,149	2015 Number of ordinary shares(in thousands) 9,954,536 1,299) 9,953,237

A. On September 26, 2014, the Board of Directors of the Company resolved to increase

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capital for cash by issuing global depositary receipts (the “GDR”). The amount of $9,360,000 (approximately equivalent to US$312,625 thousand) is tentatively scheduled for release. As the Company has received the bank’s approval for extending capital increase, based on shareholder’s interest, the issuance of the GDR was cancelled in accordance with the Financial Supervisory Commission (FSC)’s approval on January 30, 2015.

B. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR and had been completed in January 2013. The Company issued 1,125,000 thousand shares of common stock for cash, with a unit of GDR representing 10 shares of common stock at the Luxembourg Stock Exchange which raised a total of $14,519,051, net of issuance cost. As of December 31, 2016, there were 213 thousand units outstanding, representing 2,134 thousand shares of common stocks.
C. The Company adopted a resolution in 2013 to issue restricted shares to employees, consisting of 36,263 thousand shares without consideration and 36,263 thousand shares with consideration (the price for subscription is $5 per share). Until the vesting conditions are met by employees, those shares are restricted with regard to transfer of voting rights, dividend and other rights. As of December 31, 2016 and 2015, the Company bought back 1,088 and 1,299 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.
D. The common stock issued by the Company in 2006 through private placement was 570,929 thousand shares. The rights and obligations of the private common shares were the same as other issued common shares, except for the transfer restriction under R.O.C. Securities and Exchange Act and the listing restriction that no public listing will be allowed within three years since the day of issuance and only if the Company completes the application to publicly issue the shares. The Board of Directors of the Company approved the public issuance of the above private common shares on April 28, 2015. As approved by the Financial Supervisory Committee on July 30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from August 7, 2015.

Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus 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 Law requires that the amount of capital surplus to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

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2016

At January 1 Cancellation of restricted stock to employees Vested restricted stock to employees Changes in restricted stock to employees Expiration of employee stock options Changes in net equity of long-term equity investments At December 31	Share of profit (loss) of associates accounted for Restricted under equity Employee stock to Sharepremium method stock options employees Total 99,101,649 $ 36,458 $ 393,500 $ 111,957 $ 99,643,564 $ - - - 10,884 10,884 119,367 - - 119,367) ( - - - - 4,068) ( 4,068) ( 393,500 - 393,500) ( - - - 2,570) ( - - 2,570) ( 99,614,516 $ 33,888 $ - $ 594) ($ 99,647,810 $	Total

At January 1 Cancellation of restricted stock to employees Vested restricted stock to employees Changes in restricted stock to employees Compensation related to share-based payment Expiration of employee stock options Changes in net equity of long-term equity investments Changes in non-controlling interests At December 31		2015
	Share of profit (loss) of associates accounted for Restricted under equity Employee stock to Sharepremium method stock options employees Total 97,972,912 $ 9,273 $ 1,373,859 $ 228,325 $ 99,584,369 $ - - - 12,992 12,992 125,600 - - 125,600) ( - - - - 3,760) ( 3,760) ( - - 22,740 - 22,740 1,003,099 - 1,003,099) ( - - - 27,185 - - 27,185 38 - - - 38 99,101,611 $ 36,458 $ 393,500 $ 111,957 $ 99,643,564 $			Total

Retained earnings

A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be offset against prior years’ operating losses, then set aside 10% of the remaining

165

amount as legal reserve (until the legal reserve equals the paid-in capital). Preferred dividend shall be distributed after setting aside or reversing a special reserve according to related regulations. The appropriation of the remaining amount along with the unappropriated earnings from previous years shall be proposed by the Board of Directors and resolved by the shareholders. The Company is in an emerging industry which is growing rapidly, and has a capital intensive business. The Company is at the stage of stable growth. In line with the Company’s long-term financial plan in the future, investment environment and business competition situation, the appropriation of dividends shall be proposed by the Board of Directors and resolved by the shareholders, taking into account the future capital expenditure budget and capital requirement of the Company. However, the stock dividends distributed to shareholders shall not exceed two-thirds of distributable dividends in current period.

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. The details of the appropriations of 2015 and 2014 net income which were approved at the stockholders’ meeting in June 2016 and 2015 are as follows:

Legal reserve Cash dividends	Dividends per Amount share (indollars) 1,081,560 $ 1,989,810 0.20 $ 3,071,370 $ 2015	2014	2014
	Amount 1,081,560 $ 1,989,810 3,071,370 $	Amount 2,167,675 $ 6,947,188 9,114,863 $	Dividends per share (indollars)
			0.70 $

The Company’s appropriations of earnings for 2016 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting in 2017.

D. For the information relating to employees’ compensation and directors’ and supervisors’ remuneration, please refer to Note 6(25).

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Other equity items

r equity items
													2016
										Available-						Employee
			Currency							for-sale						unearned
			translation							investments					compensation						Total
At January 1		$	1,695,294					$		1,074,445				($			19,402)		$		2,750,337
Revaluation of available-for-sale
investments - gross				-				(			839,384)						-	(			839,384)
Revaluation transfer of
available-for-sale investment - gross				-							500,000						-				500,000
Currency translation differences	(		5,708,026)										-				-	(			5,708,026)
Changes in restricted stocks to
employees				-									-				4,142				4,142
Compensation related to share-based
payment				-									-				15,260				15,260
Share of subsidiaries and other
comprehensive loss of associates	(		27,676)										-				-	(			27,676)
Effect of income tax				-				(			113,457)						-	(			113,457)
At December 31	($		4,040,408)					$			621,604				$		-	($			3,418,804)
													2015
						Available-										Employee
			Currency					for-sale				Hedging					unearned
		translation			investments								reserve			compensation					Total
At January 1		3,082,948 $		1,259,847) ($								$	247,070			($	142,515)				1,927,656 $
Fair value losses of cash flow hedges			-								-	(			5)			-		5) (
Reclassified as current income of cash
flow hedges			-								-	(	297,670)					-		(	297,670)
Revaluation of available-for-sale
investments - gross			-				2,304,633								-			-			2,304,633
Revaluation transfer of available-for-
sale investment - gross			-	(					38,287)						-			-		(	38,287)
Currency translation differences	(	1,392,086)									-				-			-		(	1,392,086)
Changes in restricted stocks to
employees			-								-				-		2,411				2,411
Compensation related to share-based
payment			-								-				-		120,702				120,702
Share of subsidiaries and other
comprehensive loss of associates			4,432								-				-			-			4,432
Effect of income tax			-						67,946				50,605					-			118,551
At December 31	1,695,294 $			$			1,074,445					$			-	($	19,402)			2,750,337 $

Other income Rental revenue Interest income Dividend income Other income	Years ended December31,	Years ended December31,
	2016 162,665 $ 291,240 177,880 1,757,110 2,388,895 $	2015
		182,349 $ 484,873 224,441 1,421,519
		2,313,182 $

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Other gains and losses

r gains and losses
		Years ended	December31,
		2016		2015
Net loss on financial assets and liabilities at	($	1,244,206)	($	663,075)
Net currency exchange gain		1,360,559		814,978
Loss on disposal of investments	(	23,258)	(	47,583)
Loss on disposal of property, plant and equipment	(	163,659)	(	180,829)
Impairment loss	(	502,857)	(	589,911)
Disaster loss	(	1,296,166)		-
Litigation loss and others	(	1,234,365)	(	8,016,783)
	($	3,103,952)	($	8,683,203)

Finance costs

Interest expense: Bank borrowings Others (Gain) loss on fair value change of financial Gain on cash flow hedges, reclassified from equity Factoring expense of accounts receivable	2016 2015 874,873 $ 1,707,993 $ 6 4,765 - 297,670) ( 18,647 - 893,526 $ 1,415,088 $ Years endedDecember31,

Expenses by nature

enses by nature
Employee benefit expense: Salaries and other short-term employee benefits Share-based payments Post-employment benefits Depreciation Amortization	Years endedDecember31,
	2016 38,738,413 $ 15,260 2,034,184 40,228,114 1,190,420 82,206,391 $	2015
		43,675,968 $ 143,442 2,294,465 52,338,066 1,233,106
		99,685,047 $

Employees’ compensation and directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation of the Company, a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration.
B. For the years ended December 31, 2016 and 2015, employees’ compensation was accrued at $192,788 and $734,524, respectively; which directors’ and supervisors’ remuneration were accrued at $1,928 and $5,000, respectively. The aforementioned amounts were recognized in expenses.

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The expenses recognized for 2016 were accrued based on the earnings of current year and are to be presented for approval by the Board of Directors and reported during the Company’s stockholders’ meeting.

Employees’ compensation and directors’ and supervisors’ remuneration for 2015 as resolved by the Board of Directors, were $734,524 and $4,490, respectively. The difference of $510 between employees’ compensation (directors’ and supervisors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2015 financial statements was caused by a different accrual ratio and had been recorded as expense in 2016.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

Income tax

A. Income tax expense
(a) Components of income tax expense:

ome tax expense Components of income tax expense:
Current tax: Current tax on profit 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 Income tax expense	Years ended December31,
	2016 1,313,262 $ 590,712 10,800) ( 1,893,174 1,228,259 3,121,433 $	2015
		1,010,940 $ 915,947 39,736
		1,966,623
		2,078,423
		4,045,046 $

(b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

Fair value gains/losses on available-for-sale financial assets Cash flow hedges Remeasurement of defined benefit obligation	2016 2015 113,457 $ 67,946) ($ - 50,605) ( 7,485 33,309) ( 120,942 $ 151,860) ($ Years endedDecember31,

B. Reconciliation between income tax expense and accounting profit:

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		Years ended	December31,	December31,
		2016		2015
Tax calculated based on profit before
tax and statutory tax rate	$	1,503,372	$	3,623,079
Effects from items disallowed by tax
regulation	(	372,858)	(	929,272)
Prior year income tax (over) underestimate	(	10,800)		39,736
Additional 10% tax on undistributed earnings		590,712		915,947
Effect from Alternative Minimum Tax		-		42
Change in assessment of realization of
deferred tax assets		1,411,007		395,514
Tax expenses	$	3,121,433	$	4,045,046

C. Amounts of deferred tax assets or liabilities as a result of temporary differences and loss carryforward are as follows:

carryforward are as follows:
Recognised in other Recognised in comprehensive January1 profit or loss income December31 Temporary differences: -Deferred tax assets: Sales returns and discount provisions 243,526 $ 26,957 $ - $ 270,483 $ Accrued royalties and warranty provisions 654,557 77,287 - 731,844 Unrealized loss (gain) on financial instruments 926,234 342,383) ( 113,457) ( 470,394 Prior year expense carry forward 10,870 7,098) ( - 3,772 Unrealized exchange loss (gain) 119,217 119,217) ( - - Loss carryforward 13,618,091 998,277) ( - 12,619,814 Others 315,972 293,349 7,485) ( 601,836 15,888,467 1,069,382) ( 120,942) ( 14,698,143 -Deferred tax liabilities: Unrealized exchange gain - 113,545) ( - 113,545) ( Amortisation charges on goodwill 477,056) ( 82,370) ( - 559,426) ( Others 37,038) ( 37,038 - - 514,094) ( 158,877) ( - 672,971) ( 15,374,373 $ 1,228,259) ($ 120,942) ($ 14,025,172 $ Year ended December31,2016	Year ended December31,2016
		December31
		270,483 $ 731,844 470,394 3,772 - 12,619,814 601,836
		14,698,143
		672,971)
		14,025,172 $

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Recognised in other Recognised in comprehensive January1 profit or loss income December31 Temporary differences: -Deferred tax assets: Sales returns and discount provisions 166,373 $ 77,153 $ - $ 243,526 $ Accrued royalties and warranty provisions 327,918 326,639 - 654,557 Unrealized (gain) loss on financial instruments 699,962 158,326 67,946 926,234 Prior year expense carry forward 40,794 29,924) ( - 10,870 Unrealized exchange loss 200,697 81,480) ( - 119,217 Loss carryforward 15,993,574 2,375,483) ( - 13,618,091 Others 349,198 66,535) ( 33,309 315,972 17,778,516 1,991,304) ( 101,255 15,888,467 -Deferred tax liabilities: Unrealized (gain) loss on cash flow hedges 50,605) ( - 50,605 - Amortisation charges on goodwill 394,687) ( 82,369) ( - 477,056) ( Others 32,288) ( 4,750) ( - 37,038) ( 477,580) ( 87,119) ( 50,605 514,094) ( 17,300,936 $ 2,078,423) ($ 151,860 $ 15,374,373 $ Years ended December31,2015		Years ended December31,2015	Years ended December31,2015
			Recognised in other comprehensive income December31 - $ 243,526 $ - 654,557 67,946 926,234 - 10,870 - 119,217 - 13,618,091 33,309 315,972 101,255 15,888,467 50,605 - - 477,056) ( - 37,038) ( 50,605 514,094) ( 151,860 $ 15,374,373 $	December31

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are as follows:

December 31, 2016

		December31,2016
Year incurred 2010 2011 2012 2016	Amount filed / assessed Assessed Assessed Assessed Filed	Unused amount 9,392,452 $ 63,808,943 42,563,912 3,047,240 118,812,547 $	Unrecognised deferred tax assets 3,575,589 $ 24,291,267 16,203,549 1,160,045 45,230,450 $	Usable untilyear
				2020 2021 2022 2026

December 31, 2015

		December31,2015
Year incurred 2011 2012	Amount filed / assessed Assessed Filed	Unused amount 66,433,000 $ 43,278,299 109,711,299 $	Unrecognised deferred tax assets 18,410,536 $ 11,950,753 30,361,289 $	Usable untilyear
				2021 2022

E. The amounts of deductible temporary differences that were not recognized as deferred tax assets are as follows:

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December 31, 2016 December 31, 2015 Deductible temporary differences $ 48,198,766 $ 33,185,717

F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognized as deferred tax liabilities were $28,052,581 and $29,289,598, respectively.
G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor - liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.
H. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.
I. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.
J. The details of imputation system are as follows:

after 1998. J. The details of imputation system are as follows:
Earnings per share (a) Balance of tax credit account (b) Estimated (actual) creditable tax rate Basic earnings per share Profit attributable to ordinary shareholders of the parent Weighted average number of ordinary shares outstanding (shares in thousands) Basic earnings per share (in dollars) Diluted earnings per share Profit attributable to ordinary shareholders of the parent Weighted average number of ordinary shares outstanding (shares in thousands) Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation -Restricted stocks Diluted earnings per share (in dollars)	December31,2016 December31,2015 1,420,948 $ 678,189 $ 2016 (Estimated) 2015 (Actual) 7.59% 5.71% Years endedDecember31,	December31,2015
		678,189 $
		2015 (Actual)
		5.71%

	2016 1,870,687 $ 9,947,293 0.19 $ 1,870,687 $ 9,947,293 54,316 4,052 10,005,661 0.19 $	2015
		10,815,594 $
		9,922,525
		1.09 $
		10,815,594 $
		9,922,525 116,513 27,519
		10,066,557
		1.07 $

As employee stock options had anti-dilutive effect for the year ended December 31, 2015,

they were not included in the calculation of diluted earnings per share.

Non-cash transaction

Investing activities with partial cash payments:

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Purchase of property, plant and equipment Add: Opening balance of payable on equipment Less: Ending balance of payable on equipment ( Cash paid during the year	Years ended December31,	Years ended December31,
	2016 43,518,455 $ 3,974,152 3,339,764) ( 44,152,843 $	2015
		25,796,666 $ 2,688,976 3,974,152) 24,511,490 $

RELATED PARTY TRANSACTIONS Significant related party transactions A. Operating revenue

D PARTY TRANSACTIONS cant related party transactions Operating revenue ash paid during the year	44,152,843 $ 24,511,490 $	44,152,843 $ 24,511,490 $
Sales of goods: Others Associates	Years ended December31,
	2016 16,537,094 $ 113,916 16,651,010 $	2015
		13,068,072 $ 233,299 13,301,371 $

The collection period was 30~120 days upon delivery or on a monthly-closing basis to related parties, and 30~90 days to non-related parties. The sales prices and the trading terms to related parties above were not significantly different from those of sales to third parties.

B. Purchases of goods

Purchases of goods
Purchases of goods: Others Associates	Years ended December31,
	2016 8,825,302 $ 1,383,704 10,209,006 $	2015
		8,949,014 $ 360,626 9,309,640 $

The payment term was 30~120 days to related parties after delivery, and 30~180 days to non-related parties after delivery or on a monthly-closing basis. The purchase prices and the payment terms from related parties above were not materially different from those of purchases from third parties.

C. Consigned processing

(a) Consigned processing

ment terms from related parties above were not hases from third parties. signed processing onsigned processing	materially different from those of	materially different from those of
Processing costs: Others	Years endedDecember31,
	2016 112,307 $	2015
		99,587 $

(b) Balance of consigned processing at the end of period (shown as “Other payables”)

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Payables to related parties: Others	December31,2016 46,171 $	December31,2015
		70,229 $

The Group subcontracted the processing of products of associates in Mainland China. The processing fees were mainly charged based on cost plus method.

D. Receivables from related parties:

Receivables from related parties:
Accounts receivable Others Associates	December31,2016 11,551,616 $ 47,743 11,599,359 $	December31,2015
		2,551,425 $ 81,428 2,632,853 $

The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120 days after the date of sale. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties.

E. Payables to related parties:

Payables to related parties:
Accounts payable Others Associates	December31,2016 4,890,426 $ 229,809 5,120,235 $	December31,2015
		3,284,529 $ 75,404
		3,359,933 $

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date of purchase. The payables bear no interest.

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

		Years endedDecember31,	Years endedDecember31,
		2016	2015
Others	$	93,923	41,366 $
Associates		-	220
	$	93,923	41,586 $
(b) Period-end	balances arising from purchases of property	(shown as“Other payables”):
	December31,2016		December31,2015
Others	$	27,031	7,365 $

Sale of property

(a) Proceeds from sale of property and gain on disposal:

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	Year ended December31,	Year ended December31,	2016			Year ended December31,	Year ended December31,	Year ended December31,	2015
Disposalproceeds		Gainondisposal		Disposalproceeds				Gainon	disposal
Others $	1,365	$	940		$	1,812		$	45
(b) Period-end balances arising from sale of property (shown as“Other receivables”):
			December31,2016				December31,2015
Others			$			1,570	$		794
Key management compensation
						Years ended December31,
						2016		2015
Salaries and other short-term employee benefits			$			138,669	$	136,698
Share-based payments						665			6,286
Post-employment benefit						458			220
			$			139,792	$	143,204

PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

Pledged asset Other financial assets- current Time deposits Time deposits Property, plant and equipment Intangible assets Other assets-non-current Time deposits	December31,2016 - $ 1,726 80,828,544 15,551 752 80,845,821 $ Book	December31,2015 Purpose 6,204 $ Tariff guarantee and land lease - Credit card guarantee 59,669,639 Long-term loans and performance guarantee for lease payable - Long-term loans and performance guarantee for lease payable 119,703 Tariff guarantee, land lease and guarantee for contract 59,675,843 $ value	Purpose

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

－ Contingencies Significant Litigations

A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the European Union, China, Brazil and Korea also started to investigate this case. For Brazil case, the Company is continuously cooperating with the investigation. In addition, certain downstream customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as defendants. Details of the investigations

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on significant cases related to the alleged violation of the anti-trust laws are as follows:

(a) The Company had reached a plea agreement with the U.S. Department of Justice in December 2009, agreeing to pay a fine of US$220 million through installment over five years. The fine had been fully paid as of February 2015.
- The Company had also reached out-of-court settlement agreements with the plaintiffs on separate civil lawsuits in the U.S. since 2012 and recognized related losses. Further, the Company had reached out-of-court settlement agreements with fourteen State Governments since November 2011, agreeing to pay civil statutory damages in order to settle these civil lawsuits. All civil lawsuits between the Company and the U.S state governments have been settled.
(b) In December 2010, the Company had been ordered by the European Commission to pay a fine of EUR 300 million. After the Company appealed the case, the General Court of the European Union rendered a judgment in February 2014 lowering the fine from EUR 300 million to EUR 288 million. The Company further filed an appeal against a part of the judgment and the Court of Justice of the European Union has adjudicated to maintain the aforementioned amount of fine in July 2015.
(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated, the Company has recognized actual or estimated losses or liabilities in “current provisions”.
B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District Court for the District of East Texas on April 25, 2011, alleging infringement of its patent. The administrative law judge has ruled a summary judgment for the lawsuit in December 2013 rendering Eidos’ patent as invalid, and the presiding judge has confirmed the summary judgment in January 2014. Eidos has filed a complaint in February 2014. The United States Court of Appeals for the Federal Circuit has rejected the judgement and sent back to the United States District Court in March 2015. The Company submitted an application to ask the United States Court of Appeals for the Federal Circuit to rehear en banc in April 2015. Though the United States Court of Appeals rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015 and petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of the Company in November 2015. The case remains at the ruling by the United States Court of Appeals for the Federal Circuit in March 2015. However, the results of the litigation are uncertain and are dependent on the future litigation progress. The Company does not expect that the lawsuit would have a material adverse effect on the Company’s financial position or results of operations in the short-term.

Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

follows:
B. Operating lease commitments Property, plant and equipment	December31,2016 17,531,784 $	December31,2015
		37,625,398 $

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The Group leases plant, land and warehouses under non-cancellable operating lease agreements. 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 follows:

operating leases are as follows:
Not later than one year Later than one year but not later than five years Later than five years	December31,2016 547,803 $ 1,962,352 888,807 3,398,962 $	December31,2015
		581,145 $ 2,150,162 1,219,709
		3,951,016 $

C. Outstanding letters of credit

The outstanding letters of credit for the purchase of property, plant and equipment are as follows:

ollows:
Outstanding letters of credit	December 31,2016 245,565 $	December 31,2015
		474,222 $

SIGNIFICANT DISASTER LOSS

The Company’s partial inventories and buildings were damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. The Company has conducted a preliminary disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. However, the Company has full earthquake insurance and business interruption insurance to cover the operating costs of inventories and building during the repair period. The Company is actively processing the insurance claims. According to the initial assessment, the Company may incur a probable loss after taking the insurance claims into account. Accordingly, the company recognized a loss of $1,296,166 for the year ended December 31, 2016, shown as “Other gains and losses”.

SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

Capital management

The Company’s objectives are to maintain an optimal capital structure, and constructively reduce the debt ratio and the cost of capital in order to maximize shareholders' equity.

Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Group’s financial instruments not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans, accounts payable, other payables and long-term loans) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies
(a) The Company’s and its subsidiaries’ activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s and its subsidiaries’ overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize

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potential adverse effects on the Company’s and its subsidiaries’ financial position and financial performance. The Company’s and its subsidiaries’ uses derivative financial instruments to hedge certain risk exposures (see Notes 6(2), (4)).

(b) Risk management is carried out by the treasury department under policies approved by the board of directors. The Company’s and its subsidiaries’ treasury identifies, evaluates and hedges financial risks in close cooperation with the Company’s and its subsidiaries’ operating units. The Board provides principles for overall risk management, as well as policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment by excess liquidity.
C. Significant financial risks and degrees of financial risks
(a) Market risk

Foreign exchange risk

a) The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.
b) Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure via the Company’s treasury departments. To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities in the Company use forward foreign exchange contracts. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.
c) The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $671,050 and $161,700 for the years ended December 31, 2016 and 2015, respectively. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

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December 31,2015	December 31,2015	December 31,2015
Foreign Currency Amount (In Thousands) 4,589,186 $ 9,363,752 75,963 2,342,530 $ 178,232 5,527,619 3,697 4,009,239 $ 29,629,471 3,440	Exchange Rate (Note) 32.83 0.27 35.88 32.83 4.24 0.27 35.88 32.83 0.27 35.88	Book Value (NTD)
		150,662,976 $ 2,528,213 2,725,552 76,905,260 $ 755,704 1,492,457 132,648 131,623,316 $ 7,999,957 123,427

Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.
d) Total exchange gain (loss), including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2016 and 2015 amounted to $1,360,559 and $814,978, respectively.

Price risk

a) The Group is exposed to equity securities price risk because of investments held by the Company that are classified as available-for-sale or at fair value through profit or loss in consolidated balance sheet. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio in accordance with the policy set by the Company.
b) The Group’s investments in equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 20% with all other variables held constant, post-tax profit for the years ended December 31, 2016 and 2015 would have increased/decreased by $50,020 and $56,384, respectively, as a result of gains/losses on equity securities classified as at fair value through profit or loss; other components of equity would have increased/decreased by $1,168,186 and $1,424,607, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

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a) The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During the years ended December 31, 2016 and 2015, the Group’s borrowings at variable rate were denominated in the NTD.
b) The Group analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.
c) Based on the simulations performed, the impact on post-tax profit of a 0.25% shift would be a maximum increase of $112,100 or decrease of $150,700 for the years ended December 31, 2016 and 2015, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.
d) Based on the various scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. The Group agrees with other parties to exchange interest rate, at specified intervals. The difference between fixed contract rates and floating-rate interest amounts are calculated by reference to the agreed notional amounts.
(b) Credit risk
a) Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Group’ credit policy, each local entity in the Group are responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Customer credit quality is assessed via internal risk control, considering customer financial position, past experience and other factors. Individual risk limits are set by the board of directors based on internal or external ratings. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. Because the Company's and its subsidiaries’ counterparties and executor are banks with good credit standing and financial institutions and government with investment grade or above, there is no significant default. Therefore, there is no significant credit risk.

180

b) No credit limits were exceeded during the reporting periods. Management does not expect any significant losses from non-performance by these counterparties.
c) The individual analysis of financial assets that had been impaired is provided in Note 6.
(c) Liquidity risk
a) Group treasury monitors rolling forecasts of the Company’s and its subsidiaries’ liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 6(13)) 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 Company’s and its subsidiaries’ debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and external regulatory or legal requirements.
b) Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group’s treasury. Group treasury invests surplus cash in interest bearing savings accounts, time deposits, money market deposits and marketable securities. The Group chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts. These are expected to readily generate cash inflows for managing liquidity risk.
c) The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings 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.

Non-derivative financial liabilities

December 31,2016 Short-term borrowings Accounts payable Other payables Long-term borrowings (including current portion) December31,2015 Accounts payable Other payables Long-term borrowings (including current portion)	Less than 1year 11,583,750 $ 56,995,540 22,916,097 16,440,000 Less than 1year 60,429,884 $ 24,912,360 16,440,000	Between 1 and 3years - $ - - 27,850,000 Between 1 and3 years - $ - 43,840,000	Between 3 and 5years - $ - - 550,000 Between 3 and5 years - $ - -	Total
				11,583,750 $ 56,995,540 22,916,097 44,840,000 Total
				60,429,884 $ 24,912,360 60,280,000

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Derivative financial liabilities

Derivative financial liabilities
December31,2016 Forward exchange contracts December 31,2015 Forward exchange contracts	Less than 1year 1,190,148 $ Less than 1year 265,525 $	Total
		1,190,148 $ Total
		265,525 $

d) The related information on the repayment of the medium and long-term syndicated loans from the ‘‘Agreed-upon Agreement’’ is described in Note 6(13).

Fair value estimation

A. Details of the fair value of the Group’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group’s investment property measured at cost are provided in Note 6(10).
B. 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 and on-the-run bonds 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 investment in equity investment without active market is included in Level 3.
C. 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, 2016 and 2015 is as follows:

December31,2016 Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Available-for-sale financial assets Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts	Level 1 250,101 $ - 5,598,578 5,848,679 $ - $	Level 2 - $ 64,241 - 64,241 $ 1,190,148 $	Level3 - $ - 242,351 242,351 $ - $	Total
				250,101 $ 64,241 5,840,929
				6,155,271 $
				1,190,148 $

182

December31,2015 Assets Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Available-for-sale financial assets Equity securities Liabilities Financial liabilities at fair value through profit or loss Forward exchange contracts Recurring fair value measurements Recurring fair value measurements	Level 1 281,922 $ - 6,403,449 6,685,371 $ - $	Level 2 - $ 120,036 - 120,036 $ 265,525 $	Level3 - $ - 719,585 719,585 $ - $	Total
				281,922 $ 120,036 7,123,034
				7,524,992 $
				265,525 $

D. The methods and assumptions the Group used to measure fair value are as follows:
(a)The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

Listed shares Emerging stocks Corporate bond Market quoted price Closing price Last transaction price Weighted average quoted price

(b)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 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.
(c)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.
(d)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.
(e)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

183

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.

(f)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, 2016 and 2015, there was no transfer between Level 1 and Level 2.
F. The following table presents the changes in level 3 instruments as at December 31, 2016 and 2015:

and 2015:
		Equity securities
		2016		2015
At January 1	$	719,585	$	1,841,097
Transfers out from level 3	(	349,400)	(	903,073)
Gains and losses recognized in other comprehensive
income		31,501	(	218,439)
Proceeds from capital reduction	(	159,335)		-
At December 31	$	242,351	$	719,585

G.The Group holds private equity shares issued by Fitipower Integrated Technology Inc. The required procedures for becoming publicly traded were completed and its shares started to be traded as emerging stock in the Taipei Exchange from October 2016. The Group has transferred the fair value from Level 3 into Level 1 at the end of month when the event occurred.
H.As the shares of General Interface Solution (GIS) Holding Limited had been listed in June 2015, the Group transferred the fair value from Level 3 into Level 1 at the end of month when the event occurred.
I. Investment management segment is in charge of valuation procedures for fair value measurements being categorized 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 management segment set up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensure compliance with the related

184

requirements in IFRS.

J. 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:

Non-derivative equity instrument: Unlisted shares Venture capital shares Private equity fund investment Non-derivative equity instrument: Unlisted shares Venture capital shares Private equity fund investment Private placement shares (emerging companies)	Fair value at December 31, 2016	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
	214,665 $ 27,686 Fair value at December 31,2015	Market comparable companies Net asset value Valuation technique	Price to earnings ratio multiple, price to book ratio multiple, control premium Discount for lack of marketability Not applicable Significant unobservable input	0.68~1.55 (0.88) 30%~70% (31%) 308 (308) Range (weighted average)	The higher the multiple and control premium, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable Relationship of inputs to fair value
	388,799 $ 28,596 302,190	Market comparable companies Net asset value Market price method	Price to earnings ratio multiple, price to book ratio multiple, control premium Discount for lack of marketability Not applicable Discount for lack of marketability	0.56~1.41 (0.70) 20%~70% (22%) 318 (318) 30% (30%)	The higher the multiple and control premium, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable The higher the discount for lack of marketability, the lower the fair value

K.The Group has carefully assessed the valuation models and assumptions used to measure fair value; therefore, the fair value measurement is reasonable. 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:

185

Financial assets	Period	Input	Change ± 1% ± 1%	Recognised in other comprehensiveincome	Recognised in other comprehensiveincome
				Favourable Unfavourable change change $ 2,424 ($ 2,424) 7,196 ( 7,196)	Unfavourable change
Equity instrument Equity instrument	2016/12/31 2015/12/31	$ 242,351 719,585

SUPPLEMENTARY DISCLOSURES

Significant transactions information

A. Loans to others: Please refer to table 1.
B. Provision of endorsements and guarantees to others: None.
C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 2.
D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.
E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.
F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 3.
H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.
I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2) and 6(4).
J. Significant inter-company transactions during the reporting periods: Please refer to table 5.

Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

Information on investments in Mainland China

A. Basic information: Please refer to table 7.
B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 1, 3, 4 and 5.

SEGMENT INFORMATION

General information

The Group is primarily engaged in research, development, manufacture and sale of TFT LCD.

The chief operating decision-maker considered the business from a perspective of product size of TFT LCD. TFT LCD products are currently classified into big size and small-medium size. Because the Company met the criteria for combining the segment information of big-size and small-medium-size TFT LCD departments, the Company disclosed only one reportable operating segment for all TFT LCD products.

The Company’s operating segment information was prepared in accordance with the Company’s accounting policies. The chief operating decision-maker allocated resources and assesses performance of the operating segments primarily based on the operating revenue and profit (loss) before tax and discontinued operations of individual operating segment.

186

Segment information

The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

egments is as follows:
Segment revenue Segment income Depreciation and amortization Capital expenditure-property, plant and equipment Segment assets	Years ended December31,
	2016 TFT LCD 287,089,277 $ 4,992,120 $ 41,418,534 $ 44,152,843 $ 371,479,548 $	2015
		TFT LCD
		364,132,984 $ 14,862,088 $ 53,557,244 $ 24,511,490 $ 387,442,336 $

Reconciliation for segment income

A reconciliation of reported segment income and income from continuing operations before tax is provided as follows:

A. Reconciliation of segment revenue with operating revenue:

Segment revenue Other revenue Operating revenue	Years endedDecember31,	Years endedDecember31,
	2016 287,089,277 $ - 287,089,277 $	2015
		364,132,984 $ - 364,132,984 $

B. Reconciliation of segment income with income from continuing operations before income tax:

tax:
Reconciliation of segment assets with total assets: Reportable segments income Others Income before tax from continuing operations Segment assets Others	Years ended December31,
	2016 4,992,120 $ - 4,992,120 $ December31,2016 371,479,548 $ - 371,479,548 $	2015
		14,862,088 $ 2,901 ( 14,859,187 $ December31,2015
		387,442,336 $ - 387,442,336 $

C. Reconciliation of segment assets with total assets:
D. Other significant reconciliation:

187

Depreciation and amortization Others Capital expenditure - property, plant and equipment Others	Years endedDecember31,	Years endedDecember31,
	2016 41,418,534 $ - 41,418,534 $ 44,152,843 $ - 44,152,843 $	2015
		53,557,244 $ 13,928 53,571,172 $ 24,511,490 $ - 24,511,490 $

Information on product

Revenue from external customers is mainly from TFT-LCD product. Details of revenue are as follows:

as follows:
Sale of TFT LCD products Other revenue	Years ended December31,
	2016 287,089,277 $ - 287,089,277 $	2015
		364,132,984 $ - 364,132,984 $

Geographical information

Geographical information for the years ended December 31, 2016 and 2015 is as follows:

Years endedDecember31,	Years endedDecember31,	Years endedDecember31,
Revenue Non-current assets 95,497,599 $ 190,035,166 $ 59,778,250 31,982,735 66,990,932 118 12,996,893 23,838 11,582,252 713 40,243,351 131,504 287,089,277 $ 222,174,074 $ 2016	2015
	Revenue Non-current assets 103,617,666 $ 187,010,460 $ 92,893,492 36,492,781 73,942,347 181 24,000,586 25,094 16,352,055 450 53,326,838 22,671 364,132,984 $ 223,551,637 $
		223,551,637 $

Major customer information

The individual sales to the Group’s customers that exceed 10% of the sales in the statements of comprehensive income for the years ended December 31, 2016 and 2015 are set forth below:

below:
Customer A	Sales Percentage of sales Sales Percentage of sales 41,448,102 $ 14% 39,802,830 $ 11% Years endedDecember31, 2016 2015
	Sales Percentage of sales 41,448,102 $ 14% 2016
	Sales 41,448,102 $	Sales 39,802,830 $

188

Innolux Corporation and Subsidiaries

Loans to others

For the year ended December 31, 2016

Is a related	Maximum outstanding balance during the	Reason for	Expressed in thousands of NTD (Except as otherwise indicated) Limit on loans granted to a single party Ceiling on total loans granted Footnote $ 226,006,363 $ 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A 226,006,363 226,006,363 A
		short-term financing Operating support Operating support Operating support Operating support Operating support Operating support Operating support Operating support	A A A A A A A A
party Related parties Related parties Related parties Related parties Related parties Related parties Related parties Related parties
	year ended December 31, 2016 $5,084,600 2,092,050 650,860 1,720,130 3,579,730 371,920 193,500 1,314,502

189

Is a related	Maximum outstanding balance during the	Reason for	Footnote
		short-term financing Operating support Operating support Operating support Operating support Operating support Operating support Operating support Operating support Operating support	A A A A A A A A A
party Related parties Related parties Related parties Related parties Related parties Related parties Related parties Related parties Related parties
	year ended December 31, 2016 1,433,120 $ 689,000 261,686 261,686 430,951 430,951 1,074,111 1,074,111 354,750

1.For loans obtained for short-term financing, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the company. 2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity.

3.The policy for loans granted to direct or indirect wholly-owned overseas subsidiaries is as follows: for short-term capital needs, financial limit shall not be below the 40% requirement, but should not exceed 100% of the company’s net equity.

190

Innolux Corporation and Subsidiaries

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)

December 31, 2016

December 31, 2016
Table 2 Relationship with the securities issuer Securities held by Marketable securities General ledger account Common stock Innolux Corporation AvanStrate Inc. None Available-for-sale financial assets - non-current Innolux Corporation TPV Technology Ltd. None Available-for-sale financial assets - non-current Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financial assets - non-current Innolux Corporation Epistar Corporation None Available-for-sale financial assets - non-current Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financial assets - non-current Innolux Corporation Allied Material Technology Corp. None Available-for-sale financial assets - non-current Yuan Chi Investment Co., Ltd. Trillion Science Inc. None Available-for-sale financial assets - non-current Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. None Available-for-sale financial assets - non-current InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial assets at fair value through profit or loss InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financial assets - non-current InnoJoy Investment Corporation G-TECH Optoelectronics Corporation None Available-for-sale financial assets - non-current Warriors Technology Investments Ltd. OED Holding Ltd. None Available-for-sale financial assets - non-current Warriors Technology Investments Ltd. General Interface Solution (GIS) Holding Limited None Available-for-sale financial assets - non-current Nets trading Ltd. PilotTech Global Fund None Available-for-sale financial assets - non-current	As of December 31, 2016 Number of shares Book value 900,000 $ 53,574 50,500,000 826,028 32,350,095 155,600 89,072 2,062 44,741,305 610,719 1,209 - 1,439,180 796 9,282,000 69,151 11,165,222 250,101 10,000,000 303,000 3,993,565 81,868 16,000,000 4,695 40,500,000 3,705,750 90 27,686	Expressed in thousands of NTD (Except as otherwise indicated) Ownership (%) Fair value 1 $ 53,574 6 826,028 19 155,600 - 2,062 9 610,719 - - 3 796 2 69,151 8 250,101 7 303,000 2 81,868 6 4,695 13 3,705,750 - 27,686	Footnote

191

Innolux Corporation and Subsidiaries

Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more For the year ended December 31, 2016

Table 3 Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Innolux Corporation Competition Team Technology (India) Private Limited An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Optoelectronics USA, Inc. An indirect wholly-owned subsidiary Innolux Corporation eCMMS Precision Singapore Pte. Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Chi Lin Optoelectronics Co., Ltd. The company is a corporate director of Chi Lin Optoelectronics Innolux Corporation Hongfujin Precision Electronics (Zhenzhou) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.	Purchases (sales) Sales $ Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales	Transaction Amount Percentage of total purchases (sales) Credit term 8,777,756 3 60-90 days 6,392,974 2 60 days 2,017,948 1 45 days 1,835,243 1 45-90 days 1,341,129 - 60 days 953,423 - 90 days 949,933 - 60 days 836,014 - 60-90 days 621,286 - 90 days 541,547 - 45 days 522,717 - 90 days 434,659 - 45 days 372,736 - 60 days	Expressed in thousands of NTD (Except as otherwise indicated) Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 7,605,574 Similar with general sales No material difference - Single sales target, no basis for comparison No material difference 151,853 Similar with general sales No material difference 563,698 Similar with general sales No material difference - Similar with general sales No material difference 317,648 Similar with general sales No material difference - Similar with general sales No material difference 367,210 Similar with general sales No material difference 445,861 Similar with general sales No material difference 66,671 Similar with general sales No material difference 118,971 Similar with general sales No material difference 65,137 Similar with general sales No material difference -	Expressed in thousands of NTD (Except as otherwise indicated) Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 7,605,574 Similar with general sales No material difference - Single sales target, no basis for comparison No material difference 151,853 Similar with general sales No material difference 563,698 Similar with general sales No material difference - Similar with general sales No material difference 317,648 Similar with general sales No material difference - Similar with general sales No material difference 367,210 Similar with general sales No material difference 445,861 Similar with general sales No material difference 66,671 Similar with general sales No material difference 118,971 Similar with general sales No material difference 65,137 Similar with general sales No material difference -	receivable (payable) Percentage of total notes/accounts receivable (payable) 12 - - 1 - 1 - 1 1 - - - -	Footnote
				Balance $ 7,605,574 - 151,853 563,698 - 317,648 - 367,210 445,861 66,671 118,971 65,137 -

192

Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Shenzhen) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation FI Medical Device Manufacturing Co., Ltd. The company's investments accounted for under the equity method Innolux Corporation Innolux Optoelectronics Europe B.V. A subsidiary of the Company Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation FI Medical Device Manufacturing Co., Ltd. The company's investments accounted for under the equity method Innolux Corporation Chi Lin Optoelectronics Co., Ltd. The company is a corporate director of Chi Lin Optoelectronics Innolux Corporation GIO Optoelectronics Corp. The company's investments accounted for under the equity method Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company	Purchases (sales) Sales $ Sales Sales Sales Sales Sales Purchases Purchases Purchases Purchases Processing expense Processing expense	Transaction Amount Percentage of total purchases (sales) Credit term 242,518 - 90 days 207,343 - 90 days 141,437 - 90 days 125,330 - 60 days 113,916 - 90 days 110,182 - 30 days 2,695,546 1 60~90 days after acceptance 1,123,036 - 30 days after acceptance 302,134 - 120 days after acceptance 240,031 - 60 days after acceptance 53,116,567 20 60-90 days 19,102,050 7 60-90 days	Differences in transaction terms compared to third party transactions Unit price Credit term Similar with general sales No material difference Similar with general sales No material difference Similar with general sales No material difference Similar with general sales No material difference Similar with general sales No material difference Similar with general sales No material difference Single purchases target, no basis for comparison No material difference Single purchases target, no basis for comparison No material difference Single purchases target, no basis for comparison No material difference Single purchases target, no basis for comparison No material difference Cost plus No material difference Cost plus No material difference	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) - - - - - - 2 - - - 27 24	Footnote
				Balance $ 1,703 99,027 73,386 7,516 47,743 15,023 ( 1,577,291) ( 171,128) ( 145,018) ( 52,456) (21,652,362) (19,136,288)

193

Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. An indirect wholly-owned subsidiary	Purchases (sales) Processing expense $ Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales	Transaction Amount Percentage of total purchases (sales) Credit term 17,621,556 7 60-90 days 1,259,092 2 90 days 427,330 1 90 days 208,657 - 90 days 4,965,960 11 60 days 520,147 3 60 days 714,999 3 60 days 132,817 33 60 days 379,223 46 60 days 103,908 13 60 days 303,347 37 60 days 844,345 3 60 days 131,339 - 60 days	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Cost plus No material difference ($ 7,545,137) Similar with general transactions No material difference 1,214,351 Similar with general transactions No material difference 478,034 Similar with general transactions No material difference 233,414 Similar with general transactions No material difference 1,406,162 Similar with general transactions No material difference - Similar with general transactions No material difference 233,397 Similar with general transactions No material difference - Similar with general transactions No material difference 330 Similar with general transactions No material difference 330 Similar with general transactions No material difference 245,026 Similar with general transactions No material difference 337,685 Similar with general transactions No material difference 52,556	Notes/accounts	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 9 4 2 1 6 - 5 - - - 27 3 -	Footnote
					Balance 7,545,137) 1,214,351 478,034 233,414 1,406,162 - 233,397 - 330 330 245,026 337,685 52,556

194

Purchaser/seller Counterparty Relationship with the counterparty Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Technology Ltd. Leadtek Global Group Limited A subsidiary of the Company Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Innolux Technology Europe B.V. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Foshan Innolux Optoelectronics Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Ningbo Innolux Optoelectronics Ltd. Ningbo Lin Moug Optronics Co., Ltd. An indirect wholly-owned subsidiary of Chi Lin Optoelectronics Co., Ltd.	Purchases (sales) Processing revenue $ Processing revenue Processing revenue Processing revenue Processing revenue Processing revenue Processing revenue Service revenue Service revenue Purchases Purchases Purchases	Transaction Amount Percentage of total purchases (sales) Credit term 28,261,854 79 60 days 17,344,095 78 60 days 17,174,029 94 60 days 12,061,738 95 60 days 4,550,697 31 60 days 7,349,948 53 60 days 267,762 66 60 days 318,599 92 60 days 649,856 99 60 days 993,225 4 90 days after goods are shipped 2,512,243 4 90 days after goods are shipped 634,425 1 120 days after goods are shipped	Differences in transaction terms compared to third party transactions Unit price Credit term Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference Similar with general transactions No material difference	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 83 92 94 100 100 - - 97 64 6 8 2	Footnote
				Balance $ 13,598,180 15,769,351 3,392,000 5,421,971 1,756,905 - - 72,628 56,365 (368,533) (2,052,444) (216,554)

195

Purchaser/seller Counterparty Relationship with the counterparty Ningbo Innolux Display Ltd. Ningbo Lin Moug Optronics Co., Ltd. An indirect wholly-owned subsidiary of Chi Lin Optoelectronics Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Ningbo Innolux Optoelectronics Ltd. Hongfujin Precision Industry (Shenzhen) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.	Purchases (sales) Purchases $ Purchases Purchases	Transaction Amount Percentage of total purchases (sales) Credit term 547,478 2 120 days after goods are shipped 533,865 1 90 days after goods are shipped 452,727 1 90 days after goods are shipped	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general transactions No material difference ($ 195,252) Similar with general transactions No material difference (146,925) Similar with general transactions No material difference (156,541)	Notes/accounts	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 3 1 1	Footnote
					Balance 195,252) (146,925) (156,541)

196

Innolux Corporation and Subsidiaries

Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2016

Table 4

	December 31, 2016
Table 4 Creditor Counterparty Relationship with the counterparty Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Competition Team Technology (India) Private Limited An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company Innolux Corporation eCMMS Precision Singapore Pte.Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary	Balance as at December 31, 2016 $ 7,605,574 563,698 445,861 367,210 317,648 218,893 151,853 118,971 15,769,351 1,406,162 3,392,000 233,397 5,421,971 1,756,905 13,598,180	Turnover rate 2.03 $ 3.79 2.69 3.95 4.13 0.09 13.89 8.79 1.04 1.61 1.67 3.06 1.82 5.18 2.61	Overdue receivables Amount Action taken 409,768 Subsequent collection 168,958 Subsequent collection 93,043 Subsequent collection - - - - - - - - 17,450 Subsequent collection 9,358,075 Subsequent collection 380,541 Subsequent collection - - - - 3,474,006 Subsequent collection - - 213,896 Subsequent collection	Expressed in thousands of NTD (Except as otherwise indicated) Amount collected subsequent to the balance sheet date Allowance for doubtful accounts $ 716,810 $ - 92,347 - 175,940 - 117,991 - 54,829 - - - - - - - 2,902,573 - 946,047 - 2,380,978 - 191,610 - 1,064,446 - 1,238,852 - 5,482,509 -
	$
					$ - - - - - - - - - - - - - - -

197

Creditor Counterparty Relationship with the counterparty Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary	Balance as at December 31, 2016 $ 1,214,351 478,034 233,414 245,026 674,949 337,685	Turnover rate 0.31 $ 0.89 0.89 1.24 - 2.31	Overdue receivables Amount Action taken - - - - - - - - 594,521 Subsequent collection - -	Amount collected subsequent to the balance sheet date $ 95,700 1,396 - 245,026 - 182,183	Allowance for doubtful accounts
	$
					$ - - - - - -

198

Innolux Corporation and Subsidiaries

Table 5

Expressed in thousands of NTD

Significant inter-company transactions during the reporting period For the year ended December 31, 2016

(Except as otherwise indicated)

Number Company name Counterparty 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Optoelectronics Europe B.V. 0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 0 Innolux Corporation Innolux Optoelectronics USA, Inc. 0 Innolux Corporation Innolux Technology USA Inc. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Leadtek Global Group Limited 0 Innolux Corporation Leadtek Global Group Limited 0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd.	Relationship (Note A) General ledger account 1 Sales $ 1 Processing expense 1 Accrued expenses 1 Sales 1 Sales 1 Accounts receivable 1 Sales 1 Sales 1 Sales 1 Processing expense 1 Accrued expenses 1 Processing expense 1 Accrued expenses 1 Accounts receivable 1 Sales 1 Sales 3 Processing revenue 3 Sales 3 Processing revenue 3 Accounts receivable 3 Processing revenue 3 Accounts receivable 3 Processing revenue 3 Accounts receivable	Transaction Amount 1,341,129 17,621,556 (7,545,137) 110,182 2,017,948 151,853 541,547 949,933 6,392,974 53,116,567 ( 21,652,362) 19,102,050 (19,136,288) 218,893 141,437 242,518 7,349,948 520,147 4,550,697 1,756,905 28,261,854 13,598,180 12,061,738 5,421,971	Transaction	(Note C) Transaction terms (Note B) - - - - - - - - - - - - - - - - - - - - - - - -	Percentage of consolidated total operating revenues or total assets - 6 2 - 1 - - - 2 19 6 7 5 - - - 3 - 2 - 10 4 4 1

199

Number Company name Counterparty 4 Innocom Technology (Shenzhen) Co., Ltd. Ningbo Innolux Display Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Nanjing Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 5 Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. 6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 9 Innolux Technology Europe B.V. Innolux Hong Kong Ltd. 10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 11 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.	Relationship (Note A) General ledger account 3 Sales $ 3 Sales 3 Sales 3 Accounts receivable 3 Accounts receivable 3 Processing revenue 3 Sales 3 Processing revenue 3 Accounts receivable 3 Sales 3 Accounts receivable 3 Processing revenue 3 Accounts receivable 3 Sales 3 Accounts receivable 3 Service revenue 3 Service revenue 3 Sales 3 Accounts receivable 3 Sales	Transaction Amount 379,223 103,908 303,347 245,026 674,949 267,762 132,817 17,344,095 15,769,351 4,965,960 1,406,162 17,174,029 3,392,000 714,999 233,397 318,599 649,856 844,345 337,685 131,339	Transaction	(Note C) Transaction terms (Note B) - - - - - - - - - - - - - - - - - - - -	Percentage of consolidated total operating revenues or total assets - - - - - - - 6 4 2 - 6 1 - - - - - - -

Note A: 1. The parent company to the subsidiary.

3. The subsidiary to the subsidiary.

Note B: Except for no comparable transactions from related parties, sales prices were similar to non-related parties transactions and the collection period was 30~120 days; the purchases from related parties were at market prices and payment term was 30~120 days upon receipt of goods.

Note C: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100 million or 20% of capital.

200

Innolux Corporation and Subsidiaries

Information on investees

Table 6

For the year ended December 31, 2016

Expressed in thousands of NTD

Table 6						Expressed in thousands of NTD	Expressed in thousands of NTD
Investor Investee Location Main business activities Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings Innolux Corporation Golden Achiever International Ltd. BVI Investment holdings Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings Innolux Corporation Keyway Investment Management Limited Samoa Investment holdings Innolux Corporation Landmark International Ltd. Samoa Investment holdings Innolux Corporation Toppoly Optoelectronics (B.V.I.) Ltd. BVI Investment holdings Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings Innolux Corporation Leadtek Global Group Limited BVI Distributor company Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company Innolux Corporation Innolux Optoelectronics Europe B.V. Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. Japan Researching, manufacturing and selling of the film transistor liquid crystal display Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings Innolux Corporation Jetronics International Corp. Samoa Investment holdings Innolux Corporation FI Medical Device Manufacturing Co., Ltd. Taiwan Production and selling of the absorption for medical element Innolux Corporation iZ3D, Inc. USA Research and development and sale of 3D flat monitor Innolux Corporation Chi Mei Lighting Technology Corporation Taiwan Manufacturing of electronic equipment and lighting equipment	Initial investment amount Balance as at December 31, 2016 Balance as at December 31, 2015 $ 119,724 $ 119,724 119,106 119,106 7,858,300 7,858,300 197,554 197,554 33,438,542 33,438,542 3,674,115 3,596,307 2,107,291 2,107,291 - - 1,217,235 1,217,235 1,674,054 1,674,054 121,941 121,941 1,335,486 1,335,486 1,717,714 1,717,714 - 86,149 73,500 73,500 - - 819,312 819,312	Shares held a Number of shares	Shares held a	s at December	31, 2016 Book value $ 103,372 61,422 18,523,142 257,392 45,894,168 6,717,191 3,341,269 322,973) 922,529 1,246,809 125,531 1,548,673 870,941 - 451,943 - -	(Except as otherwise indicated) Net profit (loss) of the investee for the year ended December 31, 2016 Investment income (loss) recognised by the Company for the year ended December 31, 2016 ($ 6,715) ($ 6,715) 149 766 136,022 156,597 46,660 46,660 3,833,333 3,856,508 426,811 426,093 581,552 586,288 ( 94,225) ( 94,225) ( 167,476) ( 167,476) ( 76,420) ( 76,420) 221 221 34,739 34,739 24,266 12,133 - 66,624 750,982 319,420 - - - -		Footnote
				Ownership (%) 100 100 100 100 100 100 100 100 ( 100 100 100 100 50 - 49 35 33		of the investee
						for the year ended December 31, 2016 ($ 6,715) 149 136,022 46,660 3,833,333 426,811 581,552 ( 94,225) ( 167,476) ( 76,420) 221 34,739 24,266 - 750,982 - -
							Company for the
							year ended December 31, 2016 ($ 6,715) 766 156,597 46,660 3,856,508 426,093 586,288 ( 94,225) ( 167,476) ( 76,420) 221 34,739 12,133 66,624 319,420 - -
	$	4,910,000 40,250 246,768,185 5,656,410 709,450,000 146,847,000 1,158,844,000 50,000,000 - 167,405,392 180 80 14,062,500 - 7,350,000 4,333 78,195,856

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Investor Investee Location Main business activities Innolux Corporation GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings Innolux Holding Ltd. Lakers Trading Ltd. Samoa Distributor company Innolux Holding Ltd. Innolux Corporation USA Distributor company Toppoly Optoelectronics (B.V.I.) Ltd. Toppoly Optoelectronics (Cayman) Ltd. Cayman Investment holdings Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong Kong Holding Ltd. Hong Kong Investment holdings Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Distributor company Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company and R&D testing company Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd. Japan R&D testing company Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company Innolux Optoelectronics Europe B.V. Innolux Optoelectronics Germany GmbH Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors Innolux Optoelectronics Japan Co., Ltd. Innolux Optoelectronics USA, Inc. USA Selling of electronic equipment and computer monitors Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company Suns Holding Ltd. Warriors Technology Investments Ltd. Samoa Investment company Innolux Technology Europe B.V. Innolux Technology Germany GmbH Germany Testing and maintenance company Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings Magic Sun Ltd. Sun Dynasty Development Ltd. Hong Kong Investment holdings Yuan Chi Investment Co., Ltd. Chi Mei Lighting Technology Corporation Taiwan Trading business, manufacturing of electronic equipment and lighting equipment	Initial investment amount Balance as at December 31, 2016 Balance as at December 31, 2015 $ 800,892 $ 800,892 7,296,530 7,296,530 555,422 555,422 - - 6,348 6,348 3,650,192 3,572,384 - - - - 3,073,072 3,073,072 1,815,603 1,815,603 263,685 263,685 10,324 10,324 2,400 2,400 314,740 314,740 573,940 573,940 1,146,370 1,146,370 5,391,125 5,391,125 27,477 27,477 555,422 555,422 33,735 33,735 314,740 314,740 573,940 573,940 1,146,370 1,146,370 263,812 263,812	Shares held a Number of shares	Shares held a	s at December
	$	14,812,705 226,504,550 18,177,052 1 2,000 146,817,000 162,897,802 35,000,000 375,810 201 1,000 250 1,000 10,000,001 18,000,000 38,000,001 164,000,000 900,001 18,177,052 100,000 77,830,001 139,623,801 295,969,001 19,673,402

202

Investor Investee Yuan Chi Investment Co., Ltd. GIO Optoelectronics Corp. Yuan Chi Investment Co., Ltd. TOA Optronics Corporation	Location Main business activities Taiwan Manufacturing and selling of components of TFT-LCD Taiwan Selling electronic materials, trading business, manufacturing of electronic equipments and lighting equipments	Initial investment amount Balance as at December 31, 2016 $ 6,881 423,606	Shares held as at December 31, 2016 Balance as at December 31, 2015 $ 6,881 423,606	Net profit (loss) of the investee for the year ended December 31, 2016 f Number of shares 109,021 58,007,000	Investment income (loss) recognised by the Company or the year ended December 31, 2016 Ownership (%) - 40	Footnote Book value $ 790 $ 89,366 (	Investor 42,915 $ 202,512) (	Investee 77 221,005)	Location

		$	$

203

Innolux Corporation and Subsidiaries

Information on investments in Mainland China For the year ended December 31, 2016

Table 7 Investee in Mainland China Main business activities Innocom Technology (Shenzhen) Co., Ltd. Manufacturing and selling of LCD backend module and related components OED Company Manufacturing and selling of electronic paper Ningbo Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Technology Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Display Ltd. Manufacturing and selling of LCD backend module and related components Nanjng Innolux Technology Ltd. Purchases and sales of monitor-related components company Kunpal Optoelectronics Ltd. Glass thinning processing service VAP Optoelectronics (Nanjing) Corp. Manufacturing and selling of LCD backend module and related components Nanjing Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Logistics Ltd. Warehousing services	Paid-in capital (Note A) $ 5,289,000 298,972 9,997,500 4,192,500 12,351,750 967,500 67,725 129,000 325,725 4,579,500 129,000	Investment method (Note C) 2 2 2 2 2 2 2 2 2 2 2	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016 $ 4,092,903 64,500 237,523 4,192,500 12,351,750 967,500 67,725 121,965 122,550 4,579,500 129,000	Amount remitted from Taiwan to Mainland China/Amount remitted back to Taiwan for the year ended December 31, 2016 Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016 Remitted to Mainland China Remitted back to Taiwan $ - $ - $ 4,092,903 - - 64,500 - - 237,523 - - 4,192,500 - - 12,351,750 - - 967,500 - - 67,725 - - 121,965 - - 122,550 - - 4,579,500 - - 129,000	Net income of investee for the year ended December 31, 2016 $ 14,721 ( 117,377) 1,348,182 - 2,031,410 451,215 ( 9,041) ( 1,546) 149 437,398 38,371	Ownership held by the Company (direct or indirect) 100 4 100 100 100 100 100 100 100 100 100	Investment income (loss) recognised by the Company for the year ended December 31, 2016 (Note B) $ 14,721 - 1,348,182 ( 51,415) 2,033,936 502,631 ( 9,041) ( 1,546) 149 437,398 38,371	Expressed in thousands of NTD (Except as otherwise indicated) Book value of investments in Mainland China as of December 31, 2016 Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 $ 12,191,617 $ 1,196,097 11,488 - 21,809,352 5,567,477 - - 20,190,825 - 3,928,808 - 548,960 - 64,129 - 61,018 - 6,104,421 - 181,751 -	Footnote
	$								2.1 2.1 2.2 2.2 2.8 2.2 2.2 2.8 2.3 2.3 2.4 2.3 2.6

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Investee in Mainland China Main business activities Shanghai Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Logistics Ltd. Warehousing services Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments Interface Optoelectronics (Shenzhen) Co., Ltd. Development of new type of flat panel display, monitor and peripherals, production and management, and offer of after-sales service Ningbo Innolux Electronics Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Flnet Electronics Ltd. Commodity agency Ningbo Innolux Flnet Electronics Ltd. Commodity agency Ceiling on investments in Mainland China:	Paid-in capital (Note A) $ 677,250 48,375 258,000 3,102,450 139,470 4,649 4,649	Investment method (Note C) 2 2 2 2 3 3 3	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016 $ - 48,375 322,500 435,375 - - -	Amount remitted from Taiwan to Mainland China/Amount remitted back to Taiwan for the year ended December 31, 2016 Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016 Remitted to Mainland China Remitted back to Taiwan $ - $ - $ - - - 48,375 - - 322,500 - - 435,375 - - - - - - - - -	Net income of investee for the year ended December 31, 2016 $ 295,151 8,289 22,597 38,027 110,209 ( 1) ( 311)	Ownership held by the Company (direct or indirect) 100 100 50 13 100 100 100	Investment income (loss) recognised by the Company for the year ended December 31, 2016 (Note B) $ 295,151 8,289 11,299 - 110,209 ( 1) ( 311)	Book value of investments in Mainland China as of December 31, 2016 $ 1,253,619 70,731 199,222 3,705,750 244,877 4,648 4,351	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 $ - - - - - - -	Footnote
	$									$ 3 2.6 2.7 2.1 3.1 3.2 3.2

Company name Innolux Corporation	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016 $ 29,238,867		Investment amount approved by the Investment Commission of the Ministry of Economic Affairs (MOEA) $ 38,733,112	Investment amount approved by the Investment Commission of the Ministry of Economic Affairs (MOEA) $ 38,733,112	Investment amount approved by the Investment Commission of the Ministry of Economic Affairs (MOEA) $ 38,733,112	Investment amount approved by the Investment Commission of the Ministry of Economic Affairs (MOEA) $ 38,733,112

	$		$

Note A: The relevant figures were listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate. Note B: Profit or loss recognised for the year ended December 31, 2016 was audited by independent accountants. Note C: The investment methods are as follows:

Directly investing in Mainland China.
Through investing in companies in the third area, which then invested in the investee in Mainland China.
2.1. Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

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2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.
2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.
2.5. Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.
2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.8. Ningbo Innolux Display Ltd. acquired Ningbo Innolux Technology Ltd. by merger, and approved by the Investment Commission of the Ministry of Economic Affairs in November 2016.
Others.
3.1. The company invested in the company via investee company in Mainland China, Ningbo Innolux Display Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs
3.2 The company invested via Foshan Innolux Optoelectronics Ltd. and Ningbo Innolux Optoelectronics Ltd. which are the company investment entities in Mainland China to invest in Foshan Innolux Flnet Electronics Ltd. and Ningbo Innolux Flnet Electronics Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of Innolux Corporation (the “Company”) as at December 31, 2016 and 2015, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2016 and 2015, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Parent Company Only Financial Statements section of our report. We are independent of the Company 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Valuation and impairment of goodwill and property, plant and equipment

Description

For details of the impairment valuation of goodwill and property, plant and equipment, please refer to Note 6(11). As of December 31, 2016, goodwill and property, plant and equipment amounted to NT$17,096,628 thousand and NT$170,150,592 thousand, respectively.

Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining whether goodwill and property, plant and equipment may be impaired, the recoverable amount of the

207

cash generating unit is measured based on how assets are utilized, duration years of assets and projected income and expenses in the future. The estimate involves several assumptions such as determination of discount rates, expected growth rate and future financial projections. As these estimates are dependent upon significant management judgement, we consider management’s assessment of impairment of goodwill and property, plant and equipment a key audit matter.

How our audit addressed the matter

Additions to property, plant and equipment

Description

The Company’s capital expenditures increased with its operational growth. In 2016, property, plant and equipment increased by NT$41,145,085 thousand, which was 11% of total assets of the Company. For details of property, plant and equipment, please refer to Notes 6(9) and (28). As the amount of property, plant and equipment is material, we identified the additions to property, plant and equipment a key audit matter.

How our audit addressed the matter

Estimation of significant disaster insurance claim

Description

As described in Note 10, some of the Company’s inventory, building and equipment were damaged during the earthquake in Kaohsiung, Taiwan on February 6, 2016. The Company is in the process of claiming insurance for the damages. The determination of the claim amount involves critical accounting judgements and estimates by the management, including the list of losses incurred which are covered by insurance and evaluation of replacement cost. Given the significance of the claim, we consider the estimation of disaster insurance claim a key audit matter.

How our audit addressed the matter

Our procedures in relation to estimation of disaster insurance claim included:

E. Checking assets insurance contracts with the insurance company, and confirming whether the inventory, building and equipment damaged during the earthquake were covered by insurance;
F. Obtaining the claims list and damaged inventory, building and equipment list, and verifying the damaged inventory and building list, selecting samples and cross comparing the data for completeness and accuracy and checking the accuracy of accounting records and amount of disaster

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loss;

G. Assessing the reasonableness of replacement cost of inventory, building and equipment which were estimated by management, selecting samples and verifying the estimates against original documents; and
H. Assessing the reasonableness of claim amount which was estimated by the management based on losses list and replacement cost.

Responsibilities of management and those charged with governance for the parent company only financial statements

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

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

Those charged with governance, including audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the parent company only financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s 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 parent company only 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 parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
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 Company’s internal control.

209

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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
E. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent 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 Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the company audit. We remain solely responsible for our audit opinion.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s 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.

PricewaterhouseCoopers, Taiwan February 10, 2017

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying 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 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.

210

INNOLUX CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

Assets	December31,2016 Notes AMOUNT 6(1) $ 20,927,609 6(2) 64,241 6(5)(6) 50,693,511 7 10,199,014 1,184,141 7 123,091 6(7) 18,897,916 878,510 6(1) and 8 - 35,797 103,003,830 6(3) 1,647,983 6(8) 79,845,787 6(9), 7 and 8 170,150,592 6(10) 573,425 6(11) and 8 18,375,538 6(26) 14,561,523 6(9) and 8 935,611 286,090,459 $ 389,094,289 (Continued)	December31,2015
		AMOUNT
Current assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1170 Accounts receivable, net 1180 Accounts receivable - related parties 1200 Other receivables 1210 Other receivables - related parties 130X Inventory 1410 Prepayments 1476 Other financial assets - current 1479 Other current assets 11XX Total current assets Non-current assets 1523 Available-for-sale financial assets - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1760 Investment property, net 1780 Intangible assets 1840 Deferred income tax assets 1990 Other non-current assets 15XX Total non-current assets 1XXX Total assets		$ 35,279,610 81,858 45,755,129 2,904,753 872,255 377,364 24,546,126 705,456 1,400,856 3,001
		111,926,408
		1,944,917 81,315,320 163,921,697 680,503 19,264,025 15,722,814 3,263,937
		286,113,213
		$ 398,039,621

211

INNOLUX CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2016 Notes AMOUNT 6(12) $ 11,583,750 6(2) 734,915 29,250,025 7 50,320,414 7 20,188,656 6(26) 577,254 6(16) and 9 3,765,234 6(13) 16,381,686 1,124,978 133,926,912 6(13) 28,128,467 6(26) 672,971 6(14) 359,576 29,161,014 163,087,926 6(17) 99,521,488 6(18) 99,647,810 6(19) 3,758,507 26,497,362 6(20) ( 3,418,804) 226,006,363 $ 389,094,289	December31,2015
		AMOUNT
Current liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2170 Accounts payable 2180 Accounts payable - related parties 2200 Other payables 2230 Current income tax liabilities 2250 Provisions - current 2320 Long-term liabilities, current portion 2399 Other current liabilities 21XX Total current liabilities Non-current liabilities 2540 Long-term borrowings 2570 Deferred income tax liabilities 2670 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity 3110 Share capital - common stock 3200 Capital surplus Retained earnings 3310 Legal reserve 3350 Unappropriated retained earnings 3400 Other equity interest 3XXX Total equity 3X2X Total liabilities and equity		$ - 53,921 27,731,035 45,433,862 24,387,687 902,134 5,551,759 16,361,238 835,806
		121,257,442
		43,629,968 514,094 373,394
		44,517,456
		165,774,898
		99,532,372 99,643,564 2,676,947 27,661,503 2,750,337
		232,264,723
		$ 398,039,621

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

212

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except for earning per share amonuts)

Items

YearendedDecember31
2016
2015
Notes
AMOUNT
AMOUNT
7
$ 285,695,113
$ 360,638,133
6(7)(24) and 7
(
270,841,149) (
326,925,887)
14,853,964
33,712,246
6(24)
(
943,819) (
1,167,637)
(
3,052,097) (
3,183,374)
(
10,344,969) (
13,534,326)
(
14,340,885) (
17,885,337)
513,079
15,826,909
6(21)
1,905,334
1,301,865
6(22)
(
3,078,900) (
7,842,919)
6(23)
(
850,007) (
1,310,112)
5,171,418
5,833,198
3,147,845
(
2,017,968)
3,660,924
13,808,941
6(26)
(
1,790,237) (
2,993,347)
$ 1,870,687
$ 10,815,594
6(14)
$ 44,027
($ 195,939)
6(26)
(
7,485)
33,309
36,542
(
162,630)
(
5,708,026) (
1,392,086)
355,619
(
1,149,260)
6(4)
-
(
297,675)
6(20)
(
722,679)
3,420,038
6(26)
(
113,457)
118,551
(
6,188,543)
699,568
($ 6,152,001)
$ 536,938
($ 4,281,314)
$ 11,352,532
6(27)
$ 0.19
$ 1.09
$ 0.19
$ 1.07

4000
Sales 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
7070
Share of profit of subsidiaries,
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
Other comprehensive (loss) income
(net)
Components of other comprehensive
income (loss) that will not be
reclassified to profit or loss
8311
Remeasurement of defined benefit
obligations
8349
Income tax relating to the
components of other comprehensive
income that will not be reclassified to
profit or loss
8310
Components of other
comprehensive income (loss) that
will not be reclassified to profit
or loss
Components of other comprehensive
(loss) income that will be reclassified
to profit or loss
8361
Financial statements translation
differences of foreign operations
8362
Unrealized gain (loss) on valuation of
available-for-sale financial assets
8363
Cash flow hedges
8380
Share of other comprehensive (loss)
income of subsidiaries, associates
and joint ventures accounted for
under equity method
8399
Income tax relating to the
components of other comprehensive
income that will be reclassified
8360
Components of other
comprehensive (loss) income that
will be reclassified to profit or
loss
8300
Other comprehensive (loss) income
for the year, net of tax
8500
Total comprehensive (loss) income for
the year
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

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

213

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

2015 Balance at January 1, 2015 Appropriations of 2014 earnings (Note 1): Legal reserve Special reserve Cash dividends Cancellation of restricted stock to employees Changes in restricted stock to employees Compensation related to share-based payment Changes in net equity of long-term equity investments Changes in non-controlling interests Profit for the year Other comprehensive income for the year Balance at December 31, 2015 2016 Balance at January 1, 2016 Appropriations of 2015 earnings (Note 2): Legal reserve Cash dividends Cancellation of restricted stock to employees Changes in restricted stock to employees Compensation related to share-based payment Changes in net equity of long-term equity investments Profit for the year Other comprehensive loss for the year Balance at December 31, 2016	Notes	Common stock	Capital surplus			RetainedEarnings	RetainedEarnings		Otherequityinterest	Otherequityinterest		Total
					Legal reserve	Special reserve	Unappropriated earnings	Financial statements translation differences of foreign operations	Unrealized gain (loss) on available-for-sa le financial assets	Changes in gain (loss) on cash flow hedges	Employee unearned compensation
	6(19) 6(15) 6(20) 6(19) 6(15) 6(20)	$ 99,545,364 - - - ( 12,992 ) - - - - - - $ 99,532,372 $ 99,532,372 - - ( 10,884 ) - - - - - $ 99,521,488	$ 99,584,369 - - - 12,992 ( 3,760 ) 22,740 27,185 38 - - $ 99,643,564 $ 99,643,564 - - 10,884 ( 4,068 ) - ( 2,570 ) - - $ 99,647,810		$ 509,272 2,167,675 - - - - - - - - - $2,676,947 $ 2,676,947 1,081,560 - - - - - - - $ 3,758,507	$ 1,144,229 - ( 1,144,229 ) - - - - - - - - $ - $ - - - - - - - - - $ -	$ 24,979,173 ( 2,167,675 ) 1,144,229 ( 6,947,188 ) - - - - - 10,815,594 ( 162,630 ) $27,661,503 $ 27,661,503 ( 1,081,560 ) ( 1,989,810 ) - - - - 1,870,687 36,542 $26,497,362	$ 3,082,948 - - - - - - - - - ( 1,387,654 ) $1,695,294 $ 1,695,294 - - - - - - - ( 5,735,702 ) ($4,040,408 )	($ 1,259,847 ) - - - - - - - - - 2,334,292 $1,074,445 $ 1,074,445 - - - - - - - ( 452,841 ) $ 621,604	$ 247,070 - - - - - - - - - ( 247,070 ) $ - $ - - - - - - - - - $ -	($ 142,515 ) - - - - 2,411 120,702 - - - - ($ 19,402 ) ($ 19,402 ) - - - 4,142 15,260 - - - $ -	$ 227,690,063 - - ( 6,947,188 ) - ( 1,349 ) 143,442 27,185 38 10,815,594 536,938 $232,264,723 $ 232,264,723 - ( 1,989,810 ) - 74 15,260 ( 2,570 ) 1,870,687 ( 6,152,001 ) $226,006,363

Note 1: Employees' bonus accrued at $1,436,187 had been deducted from the statement of comprehensive income for the year ended December 31, 2014.

Note 2: Employee's compensation and directors' and supervisors' remuneration accrued at $734,524 and $5,000 had been deducted from the statement of comprehensive income for the year ended December 31, 2015, respectively.

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

214

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax for the year
Adjustments
Adjustments to reconcile profit (loss)
Depreciation and amortization
Compensation related to share-based payment
Share of profit of subsidiaries and associates accounted
for under equity method
Loss on disposal of investments
Loss on disposal of property, plant and equipment
Impairment loss
Interest income
Dividend income
Interest expense
Unrealized foreign exchange loss (gain)
Changes in operating assets and liabilities
Changes in operating assets
Financial assets/liabilities at fair value through profit
or loss
Accounts receivable
Accounts receivable - related parties
Other receivables
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Derivative financial liabilities for hedging
Accounts payable
Accounts payable - related parties
Other payables
Provisions - current
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Cash paid for income tax
Net cash flows from operating activities

Notes
2016
2015
$ 3,660,924
$ 13,808,941
6(24)
37,605,732
49,383,090
6(24)
15,260
143,442
(
5,171,418 ) (
5,833,198 )
6(22)
-
112,058
6(22)
35,222
100,841
6(22)
500,000
-
6(21)
(
131,151 ) (
144,282 )
6(21)
(
28,593 ) (
117,882 )
6(23)
831,360
1,607,782
4,725
(
148,786 )
698,611
(
580,500 )
(
4,938,382 )
23,103,020
(
7,294,261 )
3,162,905
1,378,266
(
178,584 )
4,715,867
3,392,039
(
173,054 ) (
143,809 )
(
32,796 )
9,541
-
(
299,026 )
1,518,990
(
6,000,745 )
4,886,552
(
39,736,875 )
(
3,435,134 )
4,001,150
(
1,786,525 )
2,418,270
289,172
(
577,572 )
(
5,678) (
17,734)
33,143,689
47,464,086
(
915,890) (
38,833)
32,227,799
47,425,253

(Continued)

215

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in other receivables - related parties
Proceeds from disposal of available-for-sale financial assets
Proceeds from capital reduction of available-for sale
financal assets
Acquisition of investment accounted for under equity
method
Proceeds from capital reduction of investments accounted
for under equity method
Acquisition of property, plant and equipment
Decrease in other financial assets
Proceeds from disposal of property, plant and equipment
Decrease in other non-current assets
Interest received
Dividends received
Cash inflow from incorporation of subsidiary
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings
Increase in long-term borrowings
Payment of long-term borrowings
Cash dividends paid
Repurchase from issuance of restricted stock to employees
Acquisition of subsidiary stock
Interest paid
Net cash flows used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Notes
2016
2015
$ 254,273
$ 225,689

-
231,275
159,335
-
(
77,808 ) (
623,249 )
23,680
531,696
6(28)
(
42,155,612 ) (
21,096,240 )
1,519,807
810,198
7,778
42,240
31,437
329
135,099
138,837
255,289
141,053
-
11,874
(
39,846,722 ) (
19,586,298 )
11,579,025
(
1,300,000 )
822,702
68,100,131
(
16,440,000 ) (
106,427,892 )
6(19)
(
1,989,810 ) (
6,947,188 )
(
1,372 ) (
3,676 )
-
(
50 )
(
703,623 ) (
1,523,865 )
(
6,733,078 ) (
48,102,540 )
(
14,352,001 ) (
20,263,585 )
35,279,610
55,543,195
$ 20,927,609
$ 35,279,610

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

216

INNOLUX CORPORATION

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

HISTORY AND ORGANIZATION

(1) Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock Exchange Corporation (the “TSEC”) in October 2006. The Company merged with TPO Displays Corporation and Chi Mei Optoelectronics Corporation on March 18, 2010, with the Company as the surviving entity.
(2) The Company engages in the research, development, design, manufacture and sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE PARENT COMPANY ONLY FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These parent company only financial statements were authorized for issuance by the Board of Directors on February 10, 2017.

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”) None.
(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company

New standards, interpretations and amendments as endorsed by FSC effective from 2017 are as follows:

follows:

New Standards,Interpretations andAmendments

Effective Date by
International Accounting
StandardsBoard

Investment entities: applying the consolidation exception
(amendments to IFRS 10, IFRS 12 and IAS 28)
Accounting for acquisition of interests in joint operations
(amendments to IFRS 11)
IFRS 14,‘Regulatory deferral accounts’
Disclosure initiative (amendments to IAS 1)
Clarification of acceptable methods of depreciation and amortization
(amendments to IAS 16 and IAS 38)
Agriculture: bearer plants (amendments to IAS 16 and IAS 41)
Defined benefit plans: employee contributions (amendments to IAS 19R)

January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014

217

New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board January 1, 2016 January 1, 2014 January 1, 2014 January 1, 2014 July 1, 2014 July 1, 2014 January 1, 2016
Equity method in separate financial statements (amendments to IAS 27) Recoverable amount disclosures for non-financial assets (amendments to IAS 36) Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) IFRIC 21, ‘Levies’ Annual improvements to IFRSs 2010-2012 Annual improvements to IFRSs 2011-2013 Annual improvements to IFRSs 2012-2014

Except for the following, the above standards and interpretations have no significant impact to the Company financial condition and operating results based on the Company assessment.

─ Annual improvements to IFRSs 2010-2012 cycle IFRS 8, ‘Operating segments’

(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 effective from 2017 are as follows:

chief operating decision maker regularly.
IFRSs issued by IASB but not yet endorsed by the FSC
New standards, interpretations and amendments issued by IASB but not
as endorsed by the FSC effective from 2017 are as follows:

yet included in the IFRS

New Standards,Interpretations andAmendments

Effective Date by
International Accounting
StandardsBoard

January 1, 2018
January 1, 2018
January 1, 2018
To be determined by
International Accounting
Standards Board
January 1, 2018
January 1, 2018
January 1, 2019
January 1, 2017
January 1, 2017

218

New Standards,Interpretations andAmendments

no significant impact to the
assessment.
Effective Date by
International Accounting
StandardsBoard
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2018

Except for the following, the above standards and interpretations have
Company financial condition and operating results based on the Company
A. IFRS 9, ‘Financial instruments’
Transfers of investment property (amendments to IAS 40)
IFRIC 22, ‘Foreign currency transactions and advance consideration’
Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS
1, ‘First-time adoption of International Financial Reporting Standards’
Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS
12, ‘Disclosure of interests in other entities’
Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS
28, ‘Investments in associates and joint ventures’

(a) Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortized cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.
(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’ approach. An entity assesses at each balance sheet date whether there has been a significant increase in credit risk on that instrument since initial recognition to recognize 12-month expected credit losses (‘ECL’) or lifetime ECL (interest revenue would be calculated on the gross carrying amount of the asset before impairment losses occurred); or if the instrument that has objective evidence of impairment, interest revenue after the impairment would be calculated on the book value of net carrying amount (i.e. net of credit allowance). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.
(c) The amended general hedge accounting requirements align hedge accounting more closely with an entity’s risk management strategy. Risk components of non-financial items and a group of items can be designated as hedged items. The standard relaxes the requirements for hedge effectiveness, removing the 80-125% bright line, and introduces the concept of ‘rebalancing’; while its risk management objective remains unchanged, an entity shall rebalance the hedged item or the hedging instrument for the purpose of maintaining the hedge ratio.
B. IFRS 15, ‘Revenue from contracts with customers’
IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction Contracts’, IAS 18, ‘Revenue’, and relevant interpretations and SICs. According to IFRS 15, revenue is recognized when a customer obtains control of goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognizes revenue in accordance with that core principle by applying the following steps:
Step 1: Identify contracts with customer Step 2: Identify performance obligations in the contract(s)
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligation in the contract(s)

219

Step 5: Recognize revenue when the performance obligation is satisfied.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15, Revenue from Contracts with Customers’ The amendments clarify how to identify a performance obligation (the promise to transfer goods or services to a customer) in a contract; determine whether a company is a principal (the provider of goods or services) or an agent (responsible for arranging for the goods or services to be provided); and determine whether the revenue from granting a license should be recognized at a point in time or a period of time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.
D. Amendments to IAS 7, ‘Disclosure initiative’

E. IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognize a 'right-of-use asset' and a lease liability (except for those leases with terms of less than 12 months and leases of low-value assets). Lessor accounting still uses the dual classification approach: operating leases and finance leases, and only increases the related disclosures.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these parent company only financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

These parent company only financial statements are prepared by the Company in accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers.

(2) Basis of preparation
A. Except for the following items, these parent company only 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) Available-for-sale financial assets measured at fair value.
- (c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligations.
B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the parent company only financial statements are disclosed in Note 5.
(3) Foreign currency translation

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The parent company only financial statements are presented in NTD, which is the Company’s functional and presentation currency.

A. 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

220

profit or loss in the period in which they arise, except when deferred in other comprehensive income as qualifying cash flow hedges.

  - (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 under “other gains and losses”.

B. 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 exchange rate prevailing at the dates of that balance sheet;
  - ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period;
  - iii. All resulting exchange differences are recognized in other comprehensive income.
- (b) When a foreign operation partially disposed of or sold is an associate, 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 Company 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, if the Company 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.
(4) 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 pay off 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 paid off within the normal operating cycle;
- (b) Liabilities arising mainly from trading activities;
- (c) Liabilities that are to be paid off 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.

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(5) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits and bonds sold under repurchase agreements that meet the above criteria and held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

(6) Financial assets at fair value through profit or loss

A. Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of sale in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on 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 or investment strategy.
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. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss.

(7) Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are designated in this category. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.
B. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income.

(8) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable which are non-interest bearing are subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(9) Impairment of financial assets

A. The Company assesses at each balance sheet date whether there is objective evidence that an individual financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of an individual financial asset or group of financial assets that can be reliably estimated.
B. The objective evidence that the Company uses to determine whether there is an impairment loss is as follows:
(a) Significant financial difficulty of the issuer or debtor;
(b) A breach of contract, such as a default or delinquency in interest or principal payments;
(c) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or
(d) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
C. When the Company assesses that there has been objective evidence of impairment and an

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impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

(a) Financial assets measured at amortized cost
- The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.
(b) Available-for-sale financial assets
- The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, and is reclassified from “other comprehensive income” to “profit or loss”. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.
(10) Derecognition of financial assets

The Company 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.
B. The contractual rights to receive cash flows of the financial asset have been transferred and the Company 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 Company has not retained control of the financial asset.
(11) Operating leases (lessor)

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.

(12) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labor, 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 realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(13) Investments accounted for under the equity method / subsidiaries / associates

A. Subsidiaries are all entities (including structured entities) controlled by the Company. The Company controls an entity when the Company 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.
B. Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Company are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Company.
C. The Company's share of its subsidiaries' 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 Company’s share of losses in a subsidiary equals or

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exceeds its interest in the subsidiary, the Company continues to recognize losses proportionate to its ownership.

D. If changes in the Company’s shares in subsidiaries do not result in loss in control (transactions with non-controlling interest), transactions shall be considered as equity transactions, which are transactions between owners. Difference of adjustment of non-controlling interest and fair value of consideration paid or received is recognized in equity.
E. When the Company loses control of a subsidiary, the Company 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. The Company should reclassify all amounts previously recognized as other comprehensive income and amounts relating to the prior subsidiary to profit or loss.
F. Associates are all entities over which the Company 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.
G. The Company’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 Company’s share of losses in an associate equals or exceeds its interest in the associate, the Company does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
H. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Company’s ownership percentage of the associate, the Company recognizes all the change in equity in “capital surplus” in proportion to its ownership.
I. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Unrealized 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 Company.
J. In the case that an associate issues new shares and the Company does not subscribe or acquire new shares proportionately, which results in a change in the Company’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 Company’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.
K. Upon loss of significant influence over an associate, the Company 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.
L. When the Company disposes its investment in an associate and loses significant influence over the 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.
M. When the Company 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.
N. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities

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Issuers,” profit (loss) of the current period and other comprehensive income in the parent company only financial statements shall equal to the amount attributable to owners of the parent in the financial statements prepared with basis for consolidation. Owners’ equity in the parent company only financial statements shall equal to equity attributable to owners of the parent in the financial statements prepared with basis for consolidation.

(14) 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 Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss when incurred.
C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant, it is depreciated separately.
D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. 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 3~51years

Machinery and equipment 5~9 years

Other equipment 2~6 years

(15) Investment property

(16) Intangible assets

A. Goodwill arises in a business combination accounted for by applying the acquisition method.
B. Intangible assets, mainly patents, royalties and other intangible assets, are amortized on a ～
straight-line basis over their estimated useful lives of 2 10 years.

(17) Impairment of non-financial assets

A. The Company 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 years no longer exist, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. Such recovery of impairment loss shall not result to the asset’s carrying amount greater than its amortized cost where no impairment loss was recognized.
B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and intangible assets that have not yet been available for use shall be evaluated periodically. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its

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recoverable amount. Impairment loss of goodwill previously recognized in profit or loss shall not be reversed in the following years.

C. For impairment testing purpose, goodwill is allocated to cash generating units. This allocation is based on operating segments. Goodwill is allocated to a cash generating unit or a group of cash generating units that expects to benefit from business combination that will produce goodwill.

(18) Financial liabilities at fair value through profit or loss

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading. 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 categorized as financial liabilities held for trading unless they are designated as hedges.
B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

(19) Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.
B. The Company designates certain derivatives as cash flow hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.
C. The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.
E. Cash flow hedge
(a) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income within “other gains and losses”.
(b) Amounts accumulated in other comprehensive income are reclassified into profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the statement of comprehensive income within “finance costs”.
(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income. When a forecast transaction occurs or is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred to profit or loss in the periods when the hedged forecast cash flow affects profit or loss.

(20) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid and should be recognized as expenses in that period when the employees render

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service.

B. Pensions
(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses 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. 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 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 government bond (at the balance sheet date).

     - 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.

C. Employees’, directors’ and supervisors’ remuneration
- Employees’ remuneration and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated.
(21) 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-market 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 to employees:
- (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 employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the Company and the Company must refund their payments on the stocks. The Company 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”.

(22) 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.
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 10% 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.

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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 parent company only balance sheet. 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 realized 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. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from research and development expenditures that future taxable profit will be available against which the unused tax credits can be utilized.

(23) Revenue recognition

The Company manufactures and sells TFT-LCD panels. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Company’s activities.
(24) Business combinations
A. The Company uses the acquisition method to account for business combinations. For each business combination, the Company 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.

CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these parent company only financial statements requires management to make critical judgments in applying the Company’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 information is addressed below:

(1) Critical judgments in applying the Company’s accounting policies

Financial assets - impairment of equity investments

The Company follows the guidance of IAS 39 to determine whether a financial asset-equity investment

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is impaired. This determination requires significant judgment. In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

(2) Critical accounting estimates and assumptions

A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Company’s subjective judgment, including identifying cash-generating units, allocating assets and liabilities as well as goodwill to related cash-generating units, and determining the recoverable amounts of related cash-generating units. Please refer to Note 6(11) for the information on goodwill impairment.

B. Impairment assessment of tangible and intangible assets (excluding goodwill)
The Company 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 utilised and industrial characteristics. Any changes of economic circumstances or estimates due to the change of Company strategy might cause material impairment on assets in the future.
C. Estimation of significant disaster insurance claim

The insurance claim revenue is recognized when it is virtually certain that the compensation will be received in the future. As the amount of claim is measured based on the amount which is permitted by insurance company, management shall assess and estimate the replacement cost of damaged assets.

DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

damaged assets. AILS OF SIGNIFICANT ACCOUNTS Cash and cash equivalents
Cash on hand, demand deposits and checking account Time deposits	December31,2016 6,245,543 $ 14,682,066 20,927,609 $	December31,2015
		22,427,663 $ 12,851,947
		35,279,610 $

A. The Company associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.
B. The above time deposits expire in 3 months and risks of changes in their values are remote. The remaining time deposits which did not meet the definition of cash equivalents were $1,400,000 at December 31, 2015, and were classfied as ‘other financial assets-current’.

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(2) Financial assets and liabilities at fair value through profit or loss

Assets Current items Financial assets held for trading Forward foreign exchange contracts Liabilities Current items Financial liabilities held for trading Forward foreign exchange contracts	December31,2016 64,241 $ December31,2016 734,915 $	December31,2015
		81,858 $ December31,2015
		53,921 $

A. The Company recognized net gain and loss of $87,140 and $133,873 on financial assets held for trading for the years ended December 31, 2016 and 2015, respectively.
B. The non-hedging derivative financial assets and liabilities transaction information are as follows:

		December 31,	December 31,	2016		December 31,	2015
	Contract Amount				Contract Amount
Derivative financial	(Notional Principal)				(Notional	Principal)
assets and liabilities	(in thousands)			Contract Period	(in thousands)		Contract Period
Current items
Forward foreign	USD (sell)	$	360,000	2016/10~2017/3	USD (sell)	295,000 $	2015/10~2016/3
exchange contracts	JPY (buy)	39,597,920		2016/10~2017/3	JPY (buy)	35,649,520	2015/10~2016/3
Forward foreign	TWD (sell)		621,240	2016/9~2017/2	USD (sell)	150,000	2015/10~2016/2
exchange contracts	USD (buy)		20,000	2016/9~2017/2	TWD (buy)	4,896,705	2015/10~2016/2
Forward foreign	EUR (sell)		19,000	2016/10~2017/1	EUR (sell)	5,000	2015/11~2016/1
exchange contracts	USD (buy)		20,706	2016/10~2017/1	TWD (buy)	175,075	2015/11~2016/1
Forward foreign	EUR (sell)		55,000	2016/9~2017/4	EUR (sell)	80,500	2015/10~2016/3
exchange contracts	JPY (buy)		6,516,335	2016/9~2017/4	JPY (buy)	10,668,495	2015/10~2016/3
Forward foreign	EUR(sell)		8,960	2016/12~2017/1
exchange contracts	TWD(buy)		302,364	2016/12~2017/1

The Company entered into forward foreign exchange contracts to hedge exchange rate risk of import and export proceeds and foreign currency. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

(3) Available-for-sale financial assets

not accounted for under hedge accounting. Available-for-sale financial assets
Items Non-current items Listed stocks and bond investments Emerging and unlisted stocks	December31,2016 1,438,809 $ 209,174 1,647,983 $	December31,2015
		1,562,871 $ 382,046 1,944,917 $

A. The Company recognized net gain (loss) in other comprehensive income for fair value change and reclassified from equity to profit or loss for the years ended December 31, 2016 and 2015. Please refer to Note 6(20).
B. The Company has assessed the impairment of certain investment items and recognized loss of $500,000 which has been reclassified from equity to current period profit or loss (shown as ‘other gains and losses’) for the year ended December 31, 2016.

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(4) Hedging derivative financial liabilities

A. The Company was exposed to significant risk of future cash flow changes on principal payments associated with the Company’s floating interest rate bearing borrowings, both current and long-term portion. Therefore, the Company entered into interest rate swap contracts for exchanging floating interest rate for fixed interest rate (TWD90/180CP (Page51328) to hedge such exposures. The contract had matured and was settled in February, 2015.
B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other comprehensive income:

	comprehensive income:
(5)	Accounts receivable Items Amount of gain or loss adjusted in other comprehensive income Amount of gain or loss transferred from other comprehensive income to profit or loss Accounts receivable Less: Allowance for sales returns and discounts Allowance for bad debts	2016 2015 - $ 5 $ - 297,670 Years endedDecember31, December31,2016 December31,2015 51,636,429 $ 46,508,958 $ 833,545) ( 636,330) ( 109,373) ( 117,499) ( 50,693,511 $ 45,755,129 $
		2016 - $ - December31,2016 51,636,429 $ 833,545) ( ( 109,373) ( ( 50,693,511 $
			46,508,958 $ 636,330) 117,499) 45,755,129 $

A. The Company’s accounts receivable that were neither past due nor impaired meet the credit ranking rule based on the counterparties’ industrial characteristics scale of business and profitability.
B. The aging analysis of accounts receivable that were past due but not impaired is as follows:

Up to 60 days 61 to 180 days Over 180 days	December31,2016 237,149 $ 8,553 - 245,702 $	December31,2015
		482,335 $ 14,480 14,481 511,296 $

The above ageing analysis was based on past due date.

C. Movement analysis of accounts receivable that were impaired is as follows:
(a) As of December 31, 2016 and 2015, the Company’s accounts receivable that were impaired were $109,373 and $117,499, respectively.
(b) Movement on allowance for bad debts for impairment loss based on individual provision is as follows:

At January 1 Allowance for bad debts - reclassified Allowance for bad debts - write-offs ( At December 31	2016 117,499 $ - 8,126) ( 109,373 $	2015 138,272 $ 674 21,447) 117,499 $

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(6) Transfer of financial assets

The Company does not provide collateral, and has no continuous involvement in the transferred accounts receivable. As a result, the Company derecognized the accounts receivable from the financial statements. There were no related transactions during 2015. As of December 31, 2016, all the accounts receivable sold were collected and the Company entered into factoring agreements with CTBC bank and Taipei Fubon Commercial Bank in the amount of $19,995,000 and $6,450,000, respectively.

(7) Inventories

Inventories
Raw materials and supplies Work in process Finished goods	December31,2016 2,164,341 $ 9,608,843 7,124,732 18,897,916 $	December31,2015
		1,954,960 $ 11,769,129 10,822,037
		24,546,126 $

Expenses and losses incurred on inventories are as follows:

Cost of inventories sold Loss on (gain on reversal of) decline in market value Disposal loss and others	2016 2015 270,033,125 $ 326,638,579 $ 550,000 602,500) ( 258,024 889,808 270,841,149 $ 326,925,887 $ Years endedDecember31,

A. The Company had disposed its expired and slow-moving inventories for the year ended December 31, 2015. Thus, the risk of reduction in the inventory’s market price had decreased and the net realizable value of inventories had been recovered.
B. Due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016, certain inventories were destroyed. Please refer to Note 10 for details.

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(8) Investments accounted for under the equity method

Investments accounted for under the equity method
Subsidiaries: Landmark International Ltd. Innolux Holding Ltd. Toppoly Optoelectronics (B.V.I.) Ltd. Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Japan Co., Ltd. InnoJoy Investment Corporation Yuan Chi Investment Co., Ltd. Others Associates: Ampower Holding Ltd. FI Medical Device Manufacturing Co., Ltd. Others	December31,2016 45,894,168 $ 18,523,142 6,717,191 3,341,269 1,548,673 1,246,809 922,529 224,744 870,941 451,943 104,378 79,845,787 $	December31,2015
		45,888,559 $ 20,242,553 6,787,268 2,907,677 1,507,382 1,242,760 1,137,982 301,375 881,351 321,683 96,730
		81,315,320 $

A. The Company’s subsidiaries

(a)Details of the Company’s subsidiaries are provided in Note 4(3) of the Company’s consolidated financial statements as of and for the year ended December 31, 2016.
(b)The Board of Directors of the Company in July, 2015 resolved to conduct a simple merger with Chi Mei El Corporation (Chi Mei El), a 97%-owned subsidiary of the Company effective September 1, 2015. The Company was the surviving company while Chi Mei El was dissolved after the merger. Said merger was accounted for an as equity transaction.

B. The Company’s associates

The operating results of the Company’s share in all individually immaterial associates are summarized below:

The Company’s associates The operating results of the Company’s share summarized below:	in all individually immaterial associates	in all individually immaterial associates
Profit or loss for the year from continuing operations Other comprehensive income - net of tax ( Total comprehensive income	Years endedDecember31,
	2016 408,382 $ 27,958) 380,424 $	2015
		268,381 $ 4,437
		272,818 $

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(9) Property, plant and equipment

								2016
		At January1				Additions		Disposals		Transfer	At December 31
Cost:
Land	$		3,852,792	$		-	$	-	$	-	$	3,852,792
Buildings			157,662,050			25,463	(	1,048,411)		10,744,159		167,383,261
Machinery and equipment			380,337,787			17,229	(	3,302,869)		12,318,411		389,370,558
Other equipment			26,624,640			-	(	880,686)		4,471,500		30,215,454
			568,477,269			42,692	(	5,231,966)		27,534,070		590,822,065
Accumulated depreciation
and impairment:
Buildings	(		84,570,136)	(	10,122,036)			576,527	(	61,153)	(	94,176,798)
Machinery and equipment	(		315,914,090)	(	22,724,600)			3,255,968	(	1,654,171)	(	337,036,893)
Other equipment	(		22,131,167)	(		3,582,386)		879,748	(	409,676)	(	25,243,481)
	(		422,615,393)	(	36,429,022)			4,712,243	(	2,125,000)	(	456,457,172)
Unfinished construction
and equipment under
acceptance			18,059,821		41,102,393			-	(	23,376,515)		35,785,699
	$		163,921,697								$	170,150,592
								2015
		At January1				Additions		Disposals		Transfer	At December 31
Cost:
Land	$		3,852,792	$		-	$	-	$	-	$	3,852,792
Buildings			156,858,729			40,626	(	19,452)		782,147		157,662,050
Machinery and equipment			375,070,309			62,167	(	6,453,017)		11,658,328		380,337,787
Other equipment			22,584,306			-	(	2,164,598)		6,204,932		26,624,640
			558,366,136			102,793	(	8,637,067)		18,645,407		568,477,269
Accumulated depreciation
and impairment:
Buildings	(		72,766,956)	(	11,798,206)			19,172	(	24,146)	(	84,570,136)
Machinery and equipment	(		284,203,012)	(	32,843,077)			6,259,044	(	5,127,045)	(	315,914,090)
Other equipment	( (		17,590,360) 374,560,328)	( (	3,522,586) 48,163,869)			2,163,943 8,442,159	( (	3,182,164) 8,333,355)	( (	22,131,167) 422,615,393)
Unfinished construction
and equipment under
acceptance			8,793,374		22,380,334			-	(	13,113,887)		18,059,821
	$		192,599,182								$	163,921,697

A. Amount of borrowing costs for property, plant and equipment capitalised and interest rate range:

Capitalised amount Range of the interest rates for capitalisation	Year EndedDecember31,2016
	323,503 $ 2.00%~2.26%

B. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.
C. As of December 31, 2016 and 2015, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $896,996 and $3,110,696, respectively.
D. Due to the earthquake in Kaohsiung, Taiwan on February 6, 2016, a portion of property, plant and equipment were damaged. Please refer to Note 10 for details.

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(10) Investment property

Investment property
At January1 Cost: Land 188,247 $ Buildings 564,109 752,356 Accumulated depreciation and impairment: Buildings 71,853) ( 680,503 $	At At Additions Transfer December 31 January1 - $ - $ 188,247 $ 188,247 $ - 124,881) ( 439,228 568,440 - 124,881) ( 627,475 756,687 11,132) ( 28,935 54,050) ( 63,010) ( 573,425 $ 693,677 $ 2016	At Additions Disposals December 31 - $ - $ 188,247 $ - 4,331) ( 564,109 - 4,331) ( 752,356 13,174) ( 4,331 71,853) ( 680,503 $ 2015
	Additions	Additions
	- $ - - 11,132) (	- $ - - 13,174) (

The fair value of the investment property held by the Company as at December 31, 2016 and 2015 was $1,109,891 and $1,077,466, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information and are classified as Level 3.

(11) Intangible assets

A. Intangible assets are goodwill, payments for TFT-LCD related technology and royalty.

Cost: Patents and royalty Goodwill Others Accumulated amortisation and impairment: Patents and royalty Others Cost: Patents and royalty Goodwill Others Accumulated amortisation and impairment: Patents and royalty Others	At January1 Additions 8,152,685 $ - $ 17,096,628 - 3,900,053 - ( 29,149,366 - ( 6,668,707) ( 859,363) ( 3,216,634) ( 306,215) ( 9,885,341) ( 1,165,578) ( 19,264,025 $ At January1 Additions 8,137,035 $ - $ 17,096,628 - 3,686,545 - ( 28,920,208 - ( 5,735,683) ( 933,024) ( 3,057,341) ( 273,023) ( 8,793,024) ( 1,206,047) ( 20,127,184 $			2016
				Disposals - $ - 70,918) 70,918) - 70,918 70,918 2015	Transfer At December 31 2,000 $ 8,154,685 $ - 17,096,628 275,091 4,104,226 277,091 29,355,539 - 7,528,070) ( - 3,451,931) ( - 10,980,001) ( 18,375,538 $
				Disposals - $ - 113,730) 113,730) - 113,730 113,730	Transfer At December 31 15,650 $ 8,152,685 $ - 17,096,628 327,238 3,900,053 342,888 29,149,366 - 6,668,707) ( - 3,216,634) ( - 9,885,341) ( 19,264,025 $

B. Details of amortization on intangible assets are as follows:

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Operating costs Operating expenses	Years endedDecember31,	Years endedDecember31,
	2016 997,181 $ 168,397 1,165,578 $	2015
		998,974 $ 207,073
		1,206,047 $

(12) Short-term borrowings

(13)

As of December 31, 2015, the Company has no short-term borrowings.
Long-term borrowings
Type of borrowings
December31,2016
Collateral
Bank loans
Credit loans
11,583,750
$ None
Range of interest rates
0.83%~1.59%
Type of loans
Period
December31,2016
December31,2015
Syndicated bank loans
2015/3/12
~2021/12/6
44,840,000
$ 60,280,000
$ Less:
Administrative expenses charged
by syndicated banks
329,847)
(
288,794)
(
Current portion
16,381,686)
(
16,361,238)
(
28,128,467
$ 43,629,968
$ Range of interest rates
1.77%~2.06%
1.90%~2.19%

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.
B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, which were based on the Company’s annual parent company only financial statements audited by independent auditors. The Company’s financial ratios on the parent company only financial statements for the years ended December 31, 2016 and 2015 are in compliance with the covenants on the syndicated loan agreement.
C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the “Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’, and waive negotiation on the debt issue.

236

D. In order to repay the unpaid balance of the medium and long-term syndicated loans, the Board of Directors during its meeting on July 29, 2016, resolved for the Company to apply for new syndicated credit line of $35 billion with certain financial institutions.

(14) Pensions

A. Defined benefit pension plan
(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, 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 choose 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 six 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 not enough 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 contribution for the deficit by next March.
(b) The amounts recognized in the balance sheet are as follows:

			December31,2016 December31,2015	December31,2016 December31,2015	December31,2016 December31,2015	December31,2016 December31,2015	December31,2016 December31,2015	December31,2016 December31,2015	December31,2016 December31,2015
Present value of defined benefit obligation			1,827,687 $ $						1,852,905
Fair value of plan assets		1,534,864) ( (							1,529,124)
Net defined benefit liability			292,823 $ $						323,781
Movements in net defined benefit	liabilities are as follows:
	Present value of
		defined benefit			Fair value of			Net defined
			obligation			plan assets	benefit liability
Year ended December 31, 2016
Balance at January 1	$		1,852,905	$		1,529,124		$	323,781
Current service cost			7,565			-			7,565
Interest expense/income			31,499			25,995			5,504
			39,064			25,995			13,069
Remeasurements:
Experience adjustments	(		55,619)	(		11,592)	(		44,027)
Benefits paid	(		8,663)	(		8,663)			-
	(		64,282)	(		20,255)	(		44,027)
Balance at December 31	$		1,827,687	$		1,534,864		$	292,823

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Year ended December 31, 2015 Balance at January 1 Current service cost Interest expense/income Remeasurements: Change in financial assumptions Experience adjustments Balance at December 31	Present value of defined benefit obligation 1,605,920 $ 8,228 36,133 44,361 172,133 30,491 202,624 1,852,905 $	Fair value of planassets 1,488,938 $ - 33,501 33,501 - 6,685 6,685 1,529,124 $	Net defined benefitliability
			116,982 $ 8,228 2,632 10,860 172,133 23,806 195,939 323,781 $

(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, 2016 and 2015 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

(e) The principal actuarial assumptions used were as follows:

Discount rate Future salary increases	Years endedDecember31,	Years endedDecember31,
	2016 1.70% 3.00%	2015
		1.70%
		3.00%

Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience Mortality Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

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Discount rate

Future salary increases

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%

December 31, 2016 Effect on present value of defined benefit obligation ($ 75,371) $ 79,187 $ 73,355 ($ 70,354) Discount rate Future salary increases Increase 1% Decrease 1% Increase 1% Decrease 1%

December 31, 2015 Effect on present value of defined benefit obligation ($ 299,276) $ 367,992 $ 337,723 ($ 283,242) The sensitivity analysis above was arrived at 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.

  - (f) The Company suspended its contributions to the pension reserve as agreed by the Science Park Administration in June 2013.

(g) As of December 31, 2016, the weighted average duration of that retirement plan is 18 years.
B. Defined contribution pension plan
- (a) Effective July 1, 2005, the Company has 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 contributes 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 pension costs under the defined contribution pension plans of the Company for the years ended December 31, 2016 and 2015 were $978,325 and $1,003,836, respectively.
(15) Share-based payment
A. As of December 31, 2016, the Company’s share-based payment transactions are set forth below:

Type of arrangement Employee stock options Employee stock options Restricted stocks to employees -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration -shares without consideration -shares subscribed with consideration	Quantity granted Contract period Grant date (in thousand units) (inyears) 2010.05.13 20,000 5 2011.05.19 50,000 5 2013.01.30 31,151 3 2013.01.30 31,151 3 2013.03.29 844 3 2013.03.29 844 3 2013.12.12 4,268 3 2013.12.12 4,268 3	Vestingconditions
		Note (a), (b) Note (a), (b) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d) Note (c), (d)

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40% of total

239

options granted on completion of the specified year(s) of service (one to four years) from the grant date.

(b) The employee stock options had already expired.
(c) The employees may exercise the stock options by stage based on 20%, 40% and 40% of total options granted on completion of the specified year(s) of service (one to three years) from the grant date.
(d) The restricted stocks issued by the Company cannot be transferred. Voting right and dividend right are restricted on these stocks before vested.
(e) The fair value of stock options granted from 2010 to 2013 is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

Exercise Type of Price price arrangement Grant date (in dollars) (in dollars) Restricted stocks to employees -shares without consideration 2013.12.12 10.65 $ $ - - shares subscribed with consideration 2013.12.12 10.65 5.00 -shares without consideration 2013.03.29 18.40 - - shares subscribed with consideration 2013.03.29 18.40 5.00 -shares without consideration 2013.01.30 15.35 - - shares subscribed with consideration 2013.01.30 15.35 5.00 Employee stock options 2011.05.19 26.70 26.70 Employee stock options 2010.05.13 39.85 39.85	Expected volatility (%) - - - - - - 35.67 51.57	Expected duration (month) - - - - - - 48.60 48.60	Risk Expected free Fair value dividend interest per unit yield(%) rate(%) (in dollars) - - 10.65 $ - - 5.65 - - 18.40 - - 13.40 - - 15.35 - - 10.35 0.00 1.00 7.31 ~8.32 0.00 0.80 15.12 ~16.98

B. The details of the employee stock option plan for the years ended December 31, 2016 and 2015 are as follows:

240

Year ended December 31, 2016

YearendedDecember31,2016

Quantity
(in thousand
StockOptions
units)

Outstanding options at the
beginning of the year
50,000

Options exercised
-

Options expired
50,000)
(

Outstanding options at the
end of the year
-

Exercisable options at the
end of the year
-

Quantity
(in thousand
StockOptions
units)

Outstanding options at the
beginning of the year
70,000

Options exercised
-

Options expired
( 20,000)

Outstanding options at the
end of the year
50,000

Exercisable options at the
end of the year
50,000

Weighted
Weighted
Weighted
average
average
Range of
average
stock price of
exercise
exercise
remaining
stock options
price
price
vesting
at exercise
(indollars)
(indollars)
period
date (indollars)
$ 22.85
-
$ 9.99
21.87
-
$ -
-
-
Weighted
Weighted
average
average
Range of
stock price of
exercise
exercise
stock options
price
price
at exercise
(indollars)
(indollars)
date (indollars)
$ 25.63
-
$ 13.61
32.59
22.85
$ 22.85
0.39 years
22.85
period
YearendedDecember31,2015
Weighted
average
remaining
vesting

Weighted
average
Range of
exercise
exercise
price
price
(indollars)
(indollars)
$ 25.63
-
32.59
22.85
$ 22.85
0.39 years
22.85
period
Weighted
average
remaining
vesting

For the years ended December 31, 2016 and 2015, the expenses incurred from share-based payment arrangements were $15,260 and $143,442, respectively.

(16) Provisions-current

At January 1, 2016 Additions during the year Used during the year ( At December 31, 2016	Warranty 808,136 $ 2,160,000 1,333,902) ( 1,634,234 $	Litigationand others 4,743,623 $ 1,618,915 4,231,538) ( 2,131,000 $	Total 5,551,759 $ 3,778,915 5,565,440) 3,765,234 $

A. Warranty

The Company provides warranty on TFT-LCD panel products sold. Provision for warranty is estimated based on historical warranty data of TFT-LCD panel products.

B. Litigation and others

Litigation and other provision for the Company are related to patents of TFT-LCD panel products and anti-trust litigations. For information on estimation of provisions, please refer to Note 9(1).

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(17) Share capital

Movements in the number of the Company’s ordinary shares outstanding are as follows:

At January 1 Cancellation of restricted stock to employees ( At December 31	2016 Number of ordinary shares(in thousands) 9,953,237 1,088) ( 9,952,149	2015 Number of ordinary shares(in thousands) 9,954,536 1,299) 9,953,237

A. On September 26, 2014, the Board of Directors of the Company resolved to increase capital for cash by issuing global depositary receipts (the “GDR”). The amount of $9,360,000 (approximately equivalent to US$312,625 thousand) is tentatively scheduled for release. As the Company has received the bank’s approval for extending capital increase, based on shareholder’s interest, the issuance of the GDR was cancelled in accordance with the Financial Supervisory Commission (FSC)’s approval on January 30, 2015.
B. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR and had been completed in January 2013. The Company issued 1,125,000 thousand shares of common stock for cash, with a unit of GDR representing 10 shares of common stock at the Luxembourg Stock Exchange which raised a total of $14,519,051, net of issuance cost. As of December 31, 2016, there were 213 thousand units outstanding, representing 2,134 thousand shares of common stocks.
C. The Company adopted a resolution in 2013 to issue restricted shares to employees, consisting of 36,263 thousand shares without consideration and 36,263 thousand shares with consideration (the price for subscription is $5 per share). Until the vesting conditions are met by employees, those shares are restricted with regard to transfer of voting rights, dividend and other rights. As of December 31, 2016 and 2015, the Company bought back 1,088 and 1,299 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.
D. The common stock issued by the Company in 2006 through private placement was 570,929 thousand shares. The rights and obligations of the private common shares were the same as other issued common shares, except for the transfer restriction under R.O.C. Securities and Exchange Act and the listing restriction that no public listing will be allowed within three years since the day of issuance and only if the Company completes the application to publicly issue the shares. The Board of Directors of the Company approved the public issuance of the above private common shares on April 28, 2015. As approved by the Financial Supervisory Committee on July 30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from August 7, 2015.

(18) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par

242

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 Law requires that the amount of capital surplus to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

At January 1 Cancellation of restricted stock to employees Vested restricted stock to employees Changes in restricted stock to employees Expiration of employee stock options Changes in net equity of long-term equity investments At December 31 At January 1 Cancellation of restricted stock to employees Vested restricted stock to employees Changes in restricted stock to employees Compensation related to share-based payment Expiration of employee stock options Changes in net equity of long-term equity investments Changes in non-controlling interests At December 31		2016
	Share of profit (loss) of associates accounted for Restricted under equity Employee stock to Sharepremium method stock option employees Total 99,101,649 $ 36,458 $ 393,500 $ 111,957 $ 99,643,564 $ - - - 10,884 10,884 119,367 - - 119,367) ( - - - - 4,068) ( 4,068) ( 393,500 - 393,500) ( - - - 2,570) ( - - 2,570) ( 99,614,516 $ 33,888 $ - $ 594) ($ 99,647,810 $ 2015			Total
	Share of profit (loss) of associates accounted for Restricted under equity Employee stock to Sharepremium method stock option employees Total 97,972,912 $ 9,273 $ 1,373,859 $ 228,325 $ 99,584,369 $ - - - 12,992 12,992 125,600 - - 125,600) ( - - - - 3,760) ( 3,760) ( - - 22,740 - 22,740 1,003,099 - 1,003,099) ( - - - 27,185 - - 27,185 38 - - - 38 99,101,649 $ 36,458 $ 393,500 $ 111,957 $ 99,643,564 $			Total

(19) Retained earnings

A. In accordance with the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be offset against prior years’ operating losses, then set aside 10% of the remaining amount as legal reserve (until the legal reserve equals the paid-in capital). Preferred dividend shall be distributed after setting aside or reversing a special reserve according to related regulations. The appropriation of the remaining amount along with the unappropriated earnings from previous years

243

shall be proposed by the Board of Directors and resolved by the shareholders. The Company is in an emerging industry which is growing rapidly, and has a capital intensive business. The Company is at the stage of stable growth. In line with the Company’s long-term financial plan in the future, investment environment and business competition situation, the appropriation of dividends shall be proposed by the Board of Directors and resolved by the shareholders, taking into account the future capital expenditure budget and capital requirement of the Company. However, the stock dividends distributed to shareholders shall not exceed two-thirds of distributable dividends in current period.

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. The details of the appropriation of 2015 net income and the appropriation of 2014 net income which was approved at the stockholders’ meeting in June 2016 and 2015 are as follows: Years ended December 31,

Legal reserve Cash dividends	Dividends per Amount share(in dollars) 1,081,560 $ 1,989,810 0.20 $ 3,071,370 $ 2015	2014	2014
	Amount 1,081,560 $ 1,989,810 3,071,370 $	Amount 2,167,675 $ 6,947,188 9,114,863 $	Dividends per share(in dollars)
			0.70 $

The Company’s appropriations of earnings for 2016 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting for 2017.

D. For the information relating to employees’ remuneration and directors’ and supervisors’ remuneration, please refer to Note 6(25).

(20) Other equity items

remuneration, please refer to Note 6(25). Other equity items	e 6(25).
Available- Employee Currency for-sale unearned translation investments compensation Total At January 1 1,695,294 $ 1,074,445 $ 19,402) ($ 2,750,337 $ Revaluation of available-for-sale investments - gross - 144,381) ( - 144,381) ( Revaluation transfer of available-for-sale investment - gross - 500,000 - 500,000 Currency translation differences 5,708,026) ( - - 5,708,026) ( Changes in restricted stocks to employees - - 4,142 4,142 Compensation related to share-based payment - - 15,260 15,260 Share of subsidiaries and other comprehensive loss of associates 27,676) ( 695,003) ( - 722,679) ( Effect of income tax - 113,457) ( - 113,457) ( At December 31 4,040,408) ($ 621,604 $ - $ 3,418,804) ($ 2016		2016
			Total

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									2015
					Available-					Employee
			Currency		for-sale			Hedging		unearned
			translation		investments				reserve compensation					Total
	At January 1	3,082,948 $		1,259,847) ($			$		247,070 ($		142,515)		1,927,656 $
	Fair value losses of cash flow hedges		-			-	(		5)		-		(	5)
	Reclassified as current income of cash
	flow hedges		-			-	(		297,670)		-		(	297,670)
	Revaluation of available-for-sale
	investments - gross		-	(	1,145,267)				-		-		(	1,145,267)
	Revaluation transfer of
	available-for-sale investment - gross		-	(	3,993)				-		-		(	3,993)
	Currency translation differences	(	1,392,086)			-			-		-		(	1,392,086)
	Changes in restricted stocks to
	employees		-			-			-		2,411			2,411
	Compensation related to share-based
	payment		-			-			-		120,702			120,702
	Share of subsidiaries and other
	comprehensive income of associates		4,432		3,415,606				-		-			3,420,038
	Effect of income tax		-		67,946				50,605		-			118,551
	At December 31	1,695,294 $		1,074,445 $			$		- ($		19,402)		2,750,337 $
(21)	Other income
								Years ended		December			31,
							2016					2015
	Rental revenue				$				139,315	$				165,372
	Interest income								131,151					144,282
	Dividend income								28,593					117,882
	Service income								250,240					25,597
	Other income							1,356,035						848,732
					$			1,905,334		$			1,301,865
(22)	Other gains and losses
								Years ended		December			31,
							2016					2015
	Net gain (loss) on financial assets and liabilities
	at fair value through profit or loss				$				87,140	($				133,873)
	Net currency exchange loss				(				306,238)	(				66,797)
	Loss on disposal of investments								-	(				112,058)
	Loss on disposal of property, plant	and equipment			(				35,222)	(				100,841)
	Impairment loss				(				500,000)					-
	Disaster loss				(			1,296,166)						-
	Litigation loss and others				(			1,028,414)		(			7,429,350)
					($			3,078,900)		($			7,842,919)

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(23) Finance costs

Finance costs
Expenses by nature Interest expense: Bank borrowings Others Gain (loss) on fair value change of financial instruments: Gain on cash flow hedges, reclassified from equity Factoring expense of accounts receivable Employee benefit expense: Salaries and other short-term employee benefits Share-based payments Post-employment benefits Depreciation Amortization	2016 2015 831,360 $ 1,601,674 $ - 6,108 - 297,670) ( 18,647 - 850,007 $ 1,310,112 $ Years endedDecember31, Years ended December31,
	2016 26,461,969 $ 15,260 991,394 36,440,154 1,165,578 65,074,355 $	2015
		26,436,720 $ 143,442 1,014,696 48,177,043 1,206,047 76,977,948 $

(24) Expenses by nature

(25) Employees’ compensation and directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation, of the Company a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees' compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration.
B. For the years ended December 31, 2016 and 2015, employees’ compensation was accrued at $192,788 and $734,524, respectively; while directors’ and supervisors’ remuneration was accrued at $1,928 and $5,000, respectively. The aforementioned amounts were recognized in expenses.

Employees’ compensation and directors’ and supervisors’ remuneration for 2015 as resolved by the Board of Directors on May, 2016 were $734,524 and $4,490, respectively. The difference of $510 between employees’ compensation (directors’ and supervisors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2015 financial statements was caused by a different accrual ratio and had been recorded as expense in 2016.

(26) Income tax

A. Income tax expense
(a) Components of income tax expense:

246

Current tax: Current tax on profit 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 Income tax expense	Years endedDecember31,	Years endedDecember31,
	2016 - $ 590,712 299 591,011 1,199,226 1,790,237 $	2015
		42 $ 915,947 36,371 952,360 2,040,987 2,993,347 $

(b) The income tax (charge)/credit relating to components of other comprehensive income is as follows:

ollows:
Fair value gains/losses on available-for-sale financial assets Cash flow hedges Remeasurement of defined benefit obligation	Years ended December31,
	2016 2015 113,457 $ 67,946) ($ - 50,605) ( 7,485 33,309) ( 120,942 $ 151,860) ($	2015

B. Reconciliation between income tax expense and accounting profit:

		Years ended	December	December	31,
		2016		2015
Tax calculated based on profit before tax and
statutory tax rate	$	622,357	$		2,347,520
Effects from items disallowed by tax regulation	(	816,199)	(		975,322)
Prior year income tax underestimate		299			36,371
Additional 10% tax on undistributed earnings		590,712			915,947
Effect from Alternative Minimum Tax		-			42
Change in assessment of realization of deferred
tax assets		1,393,068			668,789
Tax expense	$	1,790,237	$		2,993,347

C. Amounts of deferred tax assets or liabilities as a result of temporary differences and loss carryforward are as follows:

247

Recognised in other Recognised in comprehensive January1 profit or loss income December31 Temporary differences: -Deferred tax assets: Sales returns and discount provisions 243,526 $ 26,957 $ - $ 270,483 $ Accrued royalties and warranty provisions 654,557 77,287 - 731,844 Unrealized exchange loss (gain) 119,217 119,217) ( - - Unrealized loss (gain) on financial instruments 926,234 342,383) ( 113,457) ( 470,394 Loss carryforward 13,463,164 976,913) ( - 12,486,251 Others 316,116 293,920 7,485) ( 602,551 15,722,814 1,040,349) ( 120,942) ( 14,561,523 -Deferred tax liabilities: Unrealized exchange gain - 113,545) ( - 113,545) ( Amortisation charges on goodwill 477,056) ( 82,370) ( - 559,426) ( Others 37,038) ( 37,038 - - 514,094) ( 158,877) ( - 672,971) ( 15,208,720 $ 1,199,226) ($ 120,942) ($ 13,888,552 $ Year ended December31,2016 Recognised in other Recognised in comprehensive January1 profit or loss income December31 Temporary differences: -Deferred tax assets: Sales returns and discount provisions 166,373 $ 77,153 $ - $ 243,526 $ Accrued royalties and warranty provisions 327,918 326,639 - 654,557 Unrealized exchange loss (gain) 200,697 81,480) ( - 119,217 Unrealized loss on financial instruments 699,962 158,326 67,946 926,234 Loss carryforward 15,848,188 2,385,024) ( - 13,463,164 Others 332,288 49,481) ( 33,309 316,116 17,575,426 1,953,867) ( 101,255 15,722,814 -Deferred tax liabilities: Unrealized (gain) loss on cash flow hedges 50,605) ( - 50,605 - Amortisation charges on goodwill 394,687) ( 82,369) ( - 477,056) ( Others 32,287) ( 4,751) ( - 37,038) ( 477,579) ( 87,120) ( 50,605 514,094) ( 17,097,847 $ 2,040,987) ($ 151,860 $ 15,208,720 $ Year ended December31,2015		Year ended December31,2016	Year ended December31,2016
				December31
				270,483 $ 731,844 - 470,394 12,486,251 602,551
				14,561,523
				13,888,552 $

			Recognised in other comprehensive income December31 - $ 243,526 $ - 654,557 - 119,217 67,946 926,234 - 13,463,164 33,309 316,116 101,255 15,722,814 50,605 - - 477,056) ( - 37,038) ( 50,605 514,094) ( 151,860 $ 15,208,720 $	December31
				243,526 $ 654,557 119,217 926,234 13,463,164 316,116
				15,722,814
				15,208,720 $

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are as follows:

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December 31, 2016

		December31,2016
Year incurred 2010 2011 2012 2016	Amount filed / assessed Assessed Assessed Assessed Filed	Unused amount 9,392,452 $ 63,808,943 42,430,348 3,047,240 118,678,983 $ December31,2015	Unrecognised deferred taxassets 3,579,613 $ 24,318,605 16,170,882 1,161,351 45,230,451 $	Usable untilyear
				2020 2021 2022 2026

2011 2012 2016	Assessed Assessed Filed	63,808,943 42,430,348 3,047,240 118,678,983 $ December31,2015	24,318,605 16,170,882 1,161,351 45,230,451 $	2021 2022 2026
Year incurred 2011 2012	Amount filed / assessed Assessed Filed	Unused amount 66,433,000 $ 43,123,372 109,556,372 $	Unrecognised deferred tax assets 18,410,536 $ 11,950,753 30,361,289 $	Usable untilyear
				2021 2022

E. The amounts of deductible temporary differences that were not recognized as deferred tax assets are as follows:

re as follows:
Deductible temporary differences	December31,2016 48,198,766 $	December31,2015
		33,185,717 $

F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognized as deferred tax liabilities were $28,052,581 and $29,289,598, respectively.
G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor - liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.
H. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.
I. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.
J. The details of imputation system are as follows:

The details of imputation system are as follows:
(a) Balance of tax credit account (b) Estimated (Actual) creditable tax rate	December31,2016 1,420,948 $ 2016 (Estimated) 7.59%	December31,2015
		678,189 $
		2015 (Actual)
		5.71%

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(27) Earnings per share

Earnings per share
Basic earnings per share Profit attributable to ordinary shareholders of the parent Weighted average number of ordinary shares outstanding (shares in thousands) Basic earnings per share (in dollar) Diluted earnings per share Profit attributable to ordinary shareholders of the parent Weighted average number of ordinary shares outstanding (shares in thousands) Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation -Restricted stocks Diluted earnings per share (in dollar)	Years endedDecember31,
	2016 1,870,687 $ 9,947,293 0.19 $ 1,870,687 $ 9,947,293 54,316 4,052 10,005,661 0.19 $	2015
		10,815,594 $ 9,922,525 1.09 $ 10,815,594 $ 9,922,525 116,513 27,519 10,066,557 1.07 $

As employee stock options had anti-dilutive effect for the years ended December 31, 2015, they were not included in the calculation of diluted earnings per share.

(28) Non-cash transaction

Investing activities with partial cash payments:

Non-cash transaction Investing activities with partial cash payments:
Purchase of property, plant and equipment Add: Opening balance of payable on equipment Less: Ending balance of payable on equipment Cash paid during the year	Years ended December31,
	2016 41,145,085 $ 4,119,425 3,108,898) ( ( 42,155,612 $	2015
		22,483,127 $ 2,732,538 4,119,425) 21,096,240 $

RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

A. Operating revenue

D PARTY TRANSACTIONS nificant related party transactions Operating revenue ash paid during the year	42,155,612 $ 21,096,240 $	42,155,612 $ 21,096,240 $
Sales of goods: Others Subsidiaries Associates	Years ended December31,
	2016 14,619,410 $ 11,788,496 113,916 26,521,822 $	2015
		13,019,281 $ 13,048,043 233,299
		26,300,623 $

250

Others Associates Subsidiaries Purchases of goods:	2016 2015 3,014,178 $ 2,960,453 $ 1,363,067 311,987 223,037 123,169 4,600,282 $ 3,395,609 $ Years endedDecember31,	2016 2015 3,014,178 $ 2,960,453 $ 1,363,067 311,987 223,037 123,169 4,600,282 $ 3,395,609 $ Years endedDecember31,
		2015 2,960,453 $ 311,987 123,169 3,395,609 $

The payment term was 30~120 days to related parties after delivery, and 30~180 days to non-related parties after delivery or on a monthly-closing basis. The purchase prices and the payment terms to related parties above were not materially different from those of purchases from third parties. C. Consigned processing

(a) Consigned processing

onsigned processing ) Consigned processing
			Years ended	December		31,
			2016			2015
Processing costs:
Subsidiaries	$		89,840,173	$	122,717,171
Others			40,737			31,116
	$		89,880,910	$	122,748,287
) Balance of consigned processing at the end of year			(shown as “Other payables”)
		December 31,2016			December 31,2015
Payables to related parties:
Subsidiaries	$		1,188,143	$		3,765,006

(b) Balance of consigned processing at the end of year (shown as “Other payables”)

The Company subcontracted the processing of products of associates in Mainland China. The processing fees were mainly charged based on cost plus method.

D. Service revenue (Shown as “other revenue”)

Service revenue: Subsidiaries Associates	December31,2016 207,244 $ 42,996 250,240 $	December31,2015 - $ 25,597 25,597 $

E. Receivables from related parties:

Receivables from related parties:
		December31,2016			December31,2015
Accounts receivable:
Others	$		9,618,406	$		2,659,151
Subsidiaries			655,047			519,539
Associates			47,743			81,427
			10,321,196			3,260,117
Less: Transfer to other receivables	(		105,539)	(		355,364)
Allowance for sales returns and discounts	(		16,643)			-
	$		10,199,014	$		2,904,753

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(a) The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120 days after the date of sale. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties.
(b) The above receivables from related parties that exceed normal granting periods were transferred to ‘other receivables – related parties’.

F. Other receivables from related parties

G.	Payables to related parties: Transfer from accounts receivable Other receivables Accounts payable: Subsidiaries Others Associates	December31,2016 105,539 $ 17,552 123,091 $ December31,2016 48,369,524 $ 1,727,306 223,584 50,320,414 $	December31,2015
			355,364 $ 22,000
			377,364 $
			December31,2015
			44,235,860 $ 1,130,282 67,720 45,433,862 $

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date of purchase. The payables bear no interest.

H. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

after the date of purchase. The payables bear no interest. H.Property transactions Purchase of property (a) Acquisition of property, plant and equipment:	erest.	erest.
(b) Period-end balances arising from purchases of property (shown as “Other payables”): Key management compensation 2016 2015 Subsidiaries 83,144 $ 148,450 $ Others 17,324 7,820 Associates - 220 100,468 $ 156,490 $ Years ended December31, December31,2016 December31,2015 Subsidiaries 6,528 $ 542,694 $ Others 16,917 6,273 23,445 $ 548,967 $ 2016 2015 Salaries and other short-term employee benefits 138,669 $ 136,698 $ Share-based payments 665 6,286 Post-employment benefits 458 220 139,792 $ 143,204 $ Years ended December31,	Years ended December31,
		2015
	2016 138,669 $ 665 458 139,792 $	2015
		136,698 $ 6,286 220 143,204 $

(2) Key management compensation

PLEDGED ASSETS

The Company’s assets pledged as collateral are as follows:

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Book value

Pledged asset Other financial assets-current Time deposits Property, plant and equipment Intagible assets Other non-current assets Time deposits	December31,2016 - $ 80,828,544 15,551 752 80,844,847 $	December31,2015 Purpose 856 $ Land lease 59,669,639 Long-term loans and performance guarantee for lease payable - Long-term loans and performance guarantee for lease payable 119,703 Tariff guarantee, land lease and guarantee for contract 59,790,198 $

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

－ (1) Contingencies Significant Litigations

A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the European Union, China, Brazil and Korea also started to investigate this case. For Brazil case, the Company is continuously cooperating with the investigation. In addition, certain downstream customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as defendants. Details of the investigations on significant cases related to the alleged violation of the anti-trust laws are as follows:
(a) The Company had reached a plea agreement with the U.S. Department of Justice in December 2009, agreeing to pay a fine of US$220 million through installment over five years. The fine had been fully paid as of February 2015.
- The Company had also reached out-of-court settlement agreements with the plaintiffs on separate civil lawsuits in the U.S. since 2012 and recognized related losses.
- Further, the Company had reached out-of-court settlement agreements with fourteen State Governments since November 2011, agreeing to pay civil statutory damages in order to settle these civil lawsuits. All civil lawsuits between the Company and the U.S state governments have been settled.
(b) In December 2010, the Company had been ordered by the European Commission to pay a fine of EUR 300 million. The Company appealed the case in February 2011, and the General Court of the European Union rendered a judgment in February 2014 lowering the fine from EUR 300 million to EUR 288 million. The Company further filed an appeal against a part of the judgment and the Court of Justice of the European Union has adjudicated to maintain the aforementioned amount of fine.
(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated, the Company has recognized actual or estimated losses or liabilities in “Current Provisions”.

253

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District Court for the District of East Texas on April 25, 2011, alleging infringement of its patent. The administrative law judge has ruled a summary judgment for the lawsuit in December 2013 rendering Eidos’ patent as invalid, and the presiding judge has confirmed the summary judgment in January 2014. Eidos has filed a complaint in February 2014. The United States Court of Appeals for the Federal Circuit has rejected the judgement and sent back to the United States District Court in March 2015. The Company submitted an application to ask the United States Court of Appeals for the Federal Circuit to rehear en banc in April 2015. Though the United States Court of Appeals rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015 and petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of the Company in November 2015. The case remains at the ruling by the United States Court of Appeals for the Federal Circuit in March 2015. However, the results of the litigation are uncertain and are dependent on the future litigation progress. The Company does not expect that the lawsuit would have a material adverse effect on the Company’s financial position or results of operations in the short-term.

(2) Commitments

A. Capital expenditures contracted for at the balance sheet date but not yet incurred are as follows:

Property, plant and equipment

December31,2016 17,663,033 $	December31,2015
	38,262,634 $

B. Operating lease commitments

The Company leases plant, land and warehouses under non-cancellable operating lease agreements. 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 follows:

Not later than one year Later than one year but not later than five years Later than five years	December31,2016 527,419 $ 1,861,776 880,359 3,269,554 $	December31,2015
		508,974 $ 1,873,940 1,207,891
		3,590,805 $

C. Outstanding letters of credit

The outstanding letters of credit for the purchase of property, plant and equipment are as follows:

Outstanding letters of credit	December31,2016 245,565 $	December31,2015
		474,222 $

SIGNIFICANT DISASTER LOSS

The Company’s partial inventories and buildings were damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. The Company has conducted a preliminary disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. However, the Company has full earthquake insurance and business interruption insurance to cover the operating costs of inventories and building during the repair period. The Company is actively processing the insurance claims. Based on the initial assessment, the Company may incur a probable loss after taking the insurance claims into account. Accordingly, the company recognized a loss of $1,296,166 for the year

254

ended December 31, 2016, shown as “Other gains and losses”.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

Capital management

The Company’s objectives are to maintain an optimal capital structure, and constructively reduce the debt ratio and the cost of capital in order to maximize shareholders' equity.

Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Company’s financial instruments not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans, accounts payable, other payables and long-term loans) are approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies
(a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial position and financial performance. The Company uses derivative financial instruments to hedge certain risk exposures (see Notes 6(2), (4)).
(b) Risk management is carried out by the treasury department under policies approved by the board of directors. Company treasury identifies, evaluates and hedges financial risks in close cooperation with the Company’s operating units. The Board provides principles for overall risk management, as well as policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment by excess liquidity.
C. Significant financial risks and degrees of financial risks
(a) Market risk

Foreign exchange risk

e) The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.
f) Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure via the Company’s treasury departments. To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities in the Company use forward foreign exchange contracts. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.
g) The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: NTD). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $35,439 and $29,120 for the years ended December 31, 2016 and 2015, respectively. The information on

255

assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

Foreign Currency Exchange Amount Rate Book Value (In Thousands) (Note) (NTD) Financial asstes Monetary items USD 2,348,586 $ 32.25 75,741,899 $ JPY 388,289 0.28 108,721 EUR 80,977 33.90 2,745,120 Non-monetary items USD 2,337,217 $ 32.25 75,375,248 $ HKD 223,521 4.16 929,847 JPY 5,619,277 0.28 1,573,398 EUR 3,703 33.90 125,532 Monetary items USD 2,088,145 $ 32.25 67,342,676 $ JPY 27,233,384 0.28 7,625,348 EUR 2,471 33.90 83,767 December 31,2016 Financial liabilities	December 31,2015	December 31,2015
	Foreign Currency Exchange Amount Rate (In Thousands) (Note) 2,229,374 $ 32.83 1,607,428 0.27 75,928 35.88 2,342,530 $ 32.83 178,232 4.24 5,527,619 0.27 3,697 35.88 1,990,752 $ 32.83 29,475,552 0.27 3,397 35.88	Book Value (NTD)
		73,190,348 $ 434,006 2,724,297 76,905,260 $ 755,704 1,492,457 132,648 65,356,388 $ 7,958,399 121,884

Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.
h) Total exchange loss including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Company for the years ended December 31, 2016 and 2015 amounted to $306,238 and $66,797, respectively.

Price risk

a) The Company is exposed to equity securities price risk because of investments held by the Company that are classified on the parent company only balance sheet either as available-for-sale or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio in accordance with the policy set by the Company.
b) The Company’s investments in equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 20% with all other variables held constant, other components of equity for the years ended December 31, 2016 and 2015 would have increased/decreased by $329,597 and $388,983, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

a) The Company’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. During the years ended December 31, 2016 and 2015, the Company’s borrowings at variable rate were denominated in the NTD.
b) The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate

256

shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

c) Based on the simulations performed, the impact on post-tax profit of a 0.25% shift would be a maximum increase of $112,100 or decrease of $150,700 for the years ended December 31, 2016 and 2015, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.
d) Based on the various scenarios, the Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Company raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Company borrowed at fixed rates directly. The Company agrees with other parties to exchange interest rate, at specified intervals. The difference between fixed contract rates and floating-rate interest amounts are calculated by reference to the agreed notional amounts.
(b) Credit risk
a) Credit risk refers to the risk of financial loss to the Company arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Customer credit quality is assessed via internal risk control, considering customer financial position, past experience and other factors. Individual risk limits are set by the board of directors based on internal or external ratings. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. Because the Company's counterparties and executor are banks with good credit standing and financial institutions and government with investment grade or above, there is no significant default. Therefore, there is no significant credit risk.
b) No credit limits were exceeded during the reporting periods. Management does not expect any significant losses from non-performance by these counterparties.
c) The individual analysis of financial assets that had been impaired is provided in Note 6.
(c) Liquidity risk
a) Company treasury monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 6(13)) at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and external regulatory or legal requirements.
b) Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Company treasury. Company treasury invests surplus cash in interest bearing savings accounts, time deposits, money market deposits and marketable securities. The Company chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts. These are expected to readily generate cash inflows for managing liquidity risk.

257

c) The table below analyses the Company’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings 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.

Non-derivative financial liabilities:

Non-derivative financial liabilities:
Less than December 31,2016 1year Short-term borrowings 11,583,750 $ Accounts payable 79,570,439 Other payables 20,188,656 Long-term borrowings (including current portion) 16,440,000 Less than December31,2015 1year Accounts payable 73,164,897 $ Other payables 24,387,687 Long-term borrowings (including current portion) 16,440,000 Derivative financial liabilities: December 31,2016 Forward exchange contracts December31,2015 Forward exchange contracts	Between 1 Between 3 and 3years and 5years - $ - $ - - - - 27,850,000 550,000 Between 1 Between 3 and3 years and5 years - $ - $ - - 43,840,000 - Less than 1year $ 734,915 $ Less than 1year $ 53,921 $		Total
			11,583,750 $ 79,570,439 20,188,656 44,840,000 Total
			73,164,897 $ 24,387,687 60,280,000 Total
		$	734,915 Total
		$	53,921

d) The related information on the repayment of the medium and long-term syndicated loans from the ‘‘Agreed-upon Agreement’’ is described in Note 6(13).

Fair value estimation

A. Details of the fair value of the Company’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Company’s investment property measured at cost are provided in Note 6(10).
B. 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 Company’s investment in listed stocks and on-the-run bonds 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 Company’s investment in derivative instruments is included in Level 2.
Level 3: Unobservable inputs for the asset or liability. The fair value of the Company’s investment in equity investment without active market is included in Level 3.
C. 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, 2016 and 2015 is as follows:

258

December31,2016		Level 1			Level 2		Level3			Total
Assets
Recurring fair value measurements
Financial assets at fair value
through profit or loss
Forward exchange contracts	$		-	$	64,241	$		-	$	64,241
Available-for-sale financial assets
Equity securities		1,438,809			-		209,174			1,647,983
	$	1,438,809		$	64,241	$	209,174		$	1,712,224
Liabilities
Recurring fair value measurements
Financial liabilities at fair value
through profit or loss
Forward exchange contracts	$		-	$	734,915	$		-	$	734,915
December31,2015		Level 1			Level 2		Level3			Total
Assets
Recurring fair value measurements
Financial assets at fair value
through profit or loss
Forward exchange contracts	$		-	$	81,858	$		-	$	81,858
Available-for-sale financial assets
Equity securities		1,562,871			-		382,046			1,944,917
	$	1,562,871		$	81,858	$	382,046		$	2,026,775
Liabilities
Recurring fair value measurements
Financial liabilities at fair value
through profit or loss
Forward exchange contracts	$		-	$	53,921	$		-	$	53,921
The methods and assumptions the Company used to measure fair						value are as		follows:
a) The instruments the Company used market			quoted		prices as their		fair values		(that is, Level
are listed below by characteristics:
	Listed shares			Emerging stocks			Corporate bond
Market quoted price	Closing price		Last transaction			price Weighted average quoted price

D. The methods and assumptions the Company used to measure fair value are as follows:
(a) The instruments the Company used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:
(b) 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 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 parent company only balance sheet date.
(c) 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 Company adopts valuation technique that is widely used by market participants.

259

The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

(d) 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.
(e) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Company’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 Company’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 parent company only balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
(f) The Company 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 Company’s credit quality.
E. For the years ended December 31, 2016 and 2015, there was no transfer between Level 1 and Level 2.
F. The following table presents the changes in level 3 instruments as at December 31, 2016 and 2015:

		Equitysecurities	Equitysecurities	Equitysecurities
		2016		2015
At January 1	$	382,046	$	563,496
Proceeds from capital reduction	(	159,335)		-
Gains and losses recognized in other comprehensive
income	(	13,537)	(	181,450)
At December 31	$	209,174	$	382,046

G. For the years ended December 31, 2016 and 2015, there was no transfer into or out from Level 3.
H.Investment management segment is in charge of valuation procedures for fair value measurements being categorized 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 management segment set up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensure compliance with the related requirements in IFRS.
I. 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:

260

Non-derivative equity instrument: Non-derivative equity instrument: Unlisted shares Unlisted shares	Fair value at December Valuation Significant 31,2016 technique unobservable input Fair value at December Valuation Significant 31,2015 technique unobservable input Discount for lack of marketability 382,046 $ Market comparable companies Price to earnings ratio multiple, price to book ratio multiple control premium Discount for lack of marketability 209,174 $ Market comparable companies Price to earnings ratio multiple, price to book ratio multiple control premium	Range (Weighted Relationship of average) inputs to fair value Range (Weighted Relationship of average) inputs to fair value The higher the multiple and control premium, the higher the fair value 20%~30% (22%) The higher the discount for lack of marketability, the lower the fair value 0.56~1.41 (0.70) 30% (29%) The higher the discount for lack of marketability, the lower the fair value 0.68~1.55 (0.88) The higher the multiple and control premium, the higher the fair value	Relationship of inputs to fair value

J. The Company has carefully assessed the valuation models and assumptions used to measure fair value; therefore, the fair value measurement is reasonable. 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:

Recognised in other

			Recognised in other
SUPPLEMENTARY DISCLOSURES Significant transactions information Financial assets Period Equity instrument 2016/12/31 Equity instrument 2015/12/31	Input 209,174 $ 382,046	Change ± 1% ± 1%	Favourable Unfavourable change change 2,092 $ 2,092) ($ 3,820 3,820) ( comprehensive income

A. Loans to others: Please refer to table 1.
B. Provision of endorsements and guarantees to others: None.
C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 2.
D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.
E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

261

F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 3.
H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.
I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2) and 6(4).
J. Significant inter-company transactions during the reporting periods: Please refer to table 5.

Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

Information on investments in Mainland China

A. Basic information: Please refer to table 7.
B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to Table 1, 3, 4 and 5.

SEGMENT INFORMATION

None.

262

Innolux Corporation

Loans to others

For the year ended December 31, 2016

Table 1

Expressed in thousands of NTD (Except as otherwise indicated)

No.	Creditor	Borrower	General	Is a	Maximum	Balance at	Actual	Interest	Nature of	Amount of		Reason for	Allowance	Collateral	Collateral	Collateral	Limit on loans	Ceiling on total	Footnote
			ledger	related	outstanding	December 31,	amount	rate	loan	transactions		short-term	for doubtful				granted to a	loans granted
			account	party	balance during the	2016	drawn down			with the		financing	accounts				single party
					year ended					borrower
					December 31,
					2016
														Item		Value
1	Innocom	Foshan Innolux	Other	Related	$ 5,084,600	$ 4,154,800	$ 4,127,390	1.1%~	Short-term	$	-	Operating	$ -	$	-	-	$ 226,006,363	$ 226,006,363	A
	Technology	Optoelectronics	receivables	parties				1.5%	financing			support
	(Shenzhen) Co.,	Ltd.
	Ltd.
1	Innocom	Ningbo Innolux	Other	Related	2,092,050	2,092,050	2,092,050	1.5%	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology	Optoelectronics	receivables	parties					financing			support
	(Shenzhen) Co.,	Ltd.
	Ltd.
1	Innocom	Ningbo Innolux	Other	Related	650,860	-	-	0%	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology	Technology Ltd.	receivables	parties					financing			support
	(Shenzhen) Co.,
	Ltd.
1	Innocom	Ningbo Innolux	Other	Related	1,720,130	1,720,130	1,720,130	1.5%	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology	Display Ltd.	receivables	parties					financing			support
	(Shenzhen) Co.,
	Ltd.
1	Innocom	Nanjing Innolux	Other	Related	3,579,730	2,835,890	2,835,890	1.5%	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology	Optoelectronics	receivables	parties					financing			support
	(Shenzhen) Co.,	Ltd.
	Ltd.
2	Nanjng Innolux	Nanjing Innolux	Other	Related	371,920	371,920	371,920	1.5%	Short-term		-	Operating	-		-	-	226,006,363		A
	Technology Ltd.	Optoelectronics	receivables	parties					financing			support						226,006,363
		Ltd.
3	Innolux	Innolux Hong	Other	Related	193,500	193,500	193,500	0.56%~	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology USA	Kong Ltd.	receivables	parties				0.81%	financing			support
	Inc.
4	Innolux	Innolux Hong	Other	Related	1,314,502	1,314,502	1,287,584	0.007%~	Short-term		-	Operating	-		-	-	226,006,363	226,006,363	A
	Technology	Kong Ltd.	receivables	parties				0.997%	financing			support
	Europe B.V.

263

5 Innolux Leadtek Global Other Related 1,433,120 1,433,120 1,433,120 0.5% Short-term - Operating - - - 226,006,363 226,006,363 A Technology Japan Group Limited receivables parties financing support Co., Ltd.

5 Innolux Technology Japan Co., Ltd. Leadtek Global Group Limited Other receivables	Related parties	1,433,120	1,433,120	1,433,120	1,433,120	0.5% Short-term financing	-	Operating support	-	- -	226,006,363 226,006,363	A
No. Creditor Borrower General ledger account 6 Innolux Optoelectronics Japan Co., Ltd. Leadtek Global Group Limited Other receivables 7 Asiaward Investment Ltd. Best China Investments Ltd. Other receivables 8 Best China Investments Ltd. Lakers Trading Ltd. Other receivables 9 Main Dynasty Investment Ltd. Mega Chance Investments Ltd. Other receivables 10 Mega Chance Investments Ltd. Lakers Trading Ltd. Other receivables 11 Sun Dynasty Development Limited Magic Sun Limited Other receivables 12 Magic Sun Limited Lakers Trading Ltd. Other receivables 13 Warriors Technology Investments Ltd. Lakers Trading Ltd. Other receivables	Is a related	Maximum outstanding balance during the		Balance at December 31, 2016 $ 689,000 261,686 261,686 430,951 430,951 1,074,111 1,074,111 354,750	Actual amount drawn down $ 689,000 261,686 261,686 430,951 430,951 1,074,111 1,074,111 354,750	Interest rate Nature of loan 0.5% Short-term financing 0% Short-term financing 0% Short-term financing 0% Short-term financing 0% Short-term financing 0% Short-term financing 0% Short-term financing 0% Short-term financing	Amount of transactions with the borrower $ - - - - - - - -	Reason for	Allowance for doubtful accounts $ - - - - - - - -	Collateral Item Value - $ - - - - - - - - - - - - - - -	Limit on loans granted to a single party Ceiling on total loans granted $ 226,006,363 $ 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363 226,006,363	Footnote
								short-term financing Operating support Operating support Operating support Operating support Operating support Operating support Operating support Operating support				A A A A A A A A
	party Related parties Related parties Related parties Related parties Related parties Related parties Related parties Related parties
			year ended December 31, 2016 $ 689,000 261,686 261,686 430,951 430,951 1,074,111 1,074,111 354,750

Note A: The Company - Innolux Corporation

2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity.

264

Innolux Corporation

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)

Table 2

Expressed in thousands of NTD (Except as otherwise indicated)

December 31, 2016

Securities held by Marketable securities Common stock Innolux Corporation AvanStrate Inc. Innolux Corporation TPV Technology Ltd. Innolux Corporation Chi Lin Optoelectronics Co., Ltd. Innolux Corporation Epistar Corporation Innolux Corporation Chimei Materials Technology Corp. Innolux Corporation Allied Material Technology Corp. Yuan Chi Investment Co., Ltd. Trillion Science Inc. Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. InnoJoy Investment Corporation Fitipower Integrated Technology Inc. InnoJoy Investment Corporation G-TECH Optoelectronics Corporation Warriors Technology Investments Ltd. OED Holding Ltd. Warriors Technology Investments Ltd. General Interface Solution (GIS) Holding Limited Nets trading Ltd. PilotTech Global Fund	Relationship with the securities issuer General ledger account None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Financial assets at fair value through profit or loss None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current None Available-for-sale financial assets - non-current	Number of shares 900,000 $ 150,500,000 32,350,095 89,072 44,741,305 1,209 1,439,180 9,282,000 11,165,222 10,000,000 3,993,565 16,000,000 40,500,000 90	As of December 31, 2016 Book value Ownership (%) 53,574 1 $ 826,028 6 155,600 19 2,062 - 610,719 9 - - 796 3 69,151 2 250,101 8 303,000 7 81,868 2 4,695 6 3,705,750 13 27,686 -	Fair value 53,574 826,028 155,600 2,062 610,719 - 796 69,151 250,101 303,000 81,868 4,695 3,705,750 27,686	Footnote

265

Innolux Corporation

Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more

For the year ended December 31, 2016

Table 3 Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Innolux Corporation Competition Team Technology (India) Private Limited An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Innolux Optoelectronics USA, Inc. An indirect wholly-owned subsidiary Innolux Corporation eCMMS Precision Singapore Pte. Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Chi Lin Optoelectronics Co., Ltd. The company is a corporate director of Chi Lin Optoelectronics Innolux Corporation Hongfujin Precision Electronics (Zhenzhou) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.	Purchases (sales) Sales $ Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales	Transaction Amount Percentage of total purchases (sales) Credit term 8,777,756 3 60-90 days 6,392,974 2 60 days 2,017,948 1 45 days 1,835,243 1 45-90 days 1,341,129 - 60 days 953,423 - 90 days 949,933 - 60 days 836,014 - 60-90 days 621,286 - 90 days 541,547 - 45 days 522,717 - 90 days 434,659 - 45 days 372,736 - 60 days	Expressed in thousands of NTD (Except as otherwise indicated) Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 7,605,574 Similar with general sales No material difference - Single sales target, no basis for comparison No material difference 151,853 Similar with general sales No material difference 563,698 Similar with general sales No material difference - Similar with general sales No material difference 317,648 Similar with general sales No material difference - Similar with general sales No material difference 367,210 Similar with general sales No material difference 445,861 Similar with general sales No material difference 66,671 Similar with general sales No material difference 118,971 Similar with general sales No material difference 65,137 Similar with general sales No material difference -	Expressed in thousands of NTD (Except as otherwise indicated) Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 7,605,574 Similar with general sales No material difference - Single sales target, no basis for comparison No material difference 151,853 Similar with general sales No material difference 563,698 Similar with general sales No material difference - Similar with general sales No material difference 317,648 Similar with general sales No material difference - Similar with general sales No material difference 367,210 Similar with general sales No material difference 445,861 Similar with general sales No material difference 66,671 Similar with general sales No material difference 118,971 Similar with general sales No material difference 65,137 Similar with general sales No material difference -	Expressed in thousands of NTD (Except as otherwise indicated) Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 7,605,574 Similar with general sales No material difference - Single sales target, no basis for comparison No material difference 151,853 Similar with general sales No material difference 563,698 Similar with general sales No material difference - Similar with general sales No material difference 317,648 Similar with general sales No material difference - Similar with general sales No material difference 367,210 Similar with general sales No material difference 445,861 Similar with general sales No material difference 66,671 Similar with general sales No material difference 118,971 Similar with general sales No material difference 65,137 Similar with general sales No material difference -	receivable (payable) Percentage of total notes/accounts receivable (payable) 12 - - 1 - 1 - 1 1 - - - -	Footnote
				$	Balance 7,605,574 - 151,853 563,698 - 317,648 - 367,210 445,861 66,671 118,971 65,137 -

266

Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Corporation Hongfujin Precision Industry (Shenzhen) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation FI Medical Device Manufacturing Co., Ltd. The company's investments accounted for under the equity method Innolux Corporation Innolux Optoelectronics Europe B.V. A subsidiary of the Company Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation FI Medical Device Manufacturing Co., Ltd. The company's investments accounted for under the equity method Innolux Corporation Chi Lin Optoelectronics Co., Ltd. The company is a corporate director of Chi Lin Optoelectronics Innolux Corporation GIO Optoelectronics Corp. The company's investments accounted for under the equity method Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company	Purchases (sales) Sales $ Sales Sales Sales Sales Sales Purchases Purchases Purchases Purchases Processing expense Processing expense	Transaction Amount Percentage of total purchases (sales) Credit term 242,518 - 90 days 207,343 - 90 days 141,437 - 90 days 125,330 - 60 days 113,916 - 90 days 110,182 - 30 days 2,695,546 1 60~90 days after acceptance 1,123,036 - 30 days after acceptance 302,134 - 120 days after acceptance 240,031 - 60 days after acceptance 53,116,567 20 60-90 days 19,102,050 7 60-90 days	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general sales No material difference $ 1,703 Similar with general sales No material difference 99,027 Similar with general sales No material difference 73,386 Similar with general sales No material difference 7,516 Similar with general sales No material difference 47,743 Similar with general sales No material difference 15,023 Single purchases target, no basis for comparison No material difference ( 1,577,291) Single purchases target, no basis for comparison No material difference ( 171,128) Single purchases target, no basis for comparison No material difference ( 145,018) Single purchases target, no basis for comparison No material difference ( 52,456) Cost plus No material difference ( 21,652,362) Cost plus No material difference ( 19,136,288)	Notes/accounts	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) - - - - - - 2 - - - 27 24	Footnote
					Balance 1,703 99,027 73,386 7,516 47,743 15,023 1,577,291) 171,128) 145,018) 52,456) 21,652,362) 19,136,288)

267

Purchaser/seller Counterparty Relationship with the counterparty Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. An indirect wholly-owned subsidiary	Purchases (sales) Processing expense $ Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales	Transaction Amount Percentage of total purchases (sales) Credit term 17,621,556 7 60-90 days 1,259,092 2 90 days 427,330 1 90 days 208,657 - 90 days 4,965,960 11 60 days 520,147 3 60 days 714,999 3 60 days 132,817 33 60 days 379,223 46 60 days 103,908 13 60 days 303,347 37 60 days 844,345 3 60 days 131,339 - 60 days	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Cost plus No material difference ($ 7,545,137) Similar with general transactions No material difference 1,214,351 Similar with general transactions No material difference 478,034 Similar with general transactions No material difference 233,414 Similar with general transactions No material difference 1,406,162 Similar with general transactions No material difference - Similar with general transactions No material difference 233,397 Similar with general transactions No material difference - Similar with general transactions No material difference 330 Similar with general transactions No material difference 330 Similar with general transactions No material difference 245,026 Similar with general transactions No material difference 337,685 Similar with general transactions No material difference 52,556	Notes/accounts	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 9 4 2 1 6 - 5 - - - 27 3 -	Footnote
					Balance 7,545,137) 1,214,351 478,034 233,414 1,406,162 - 233,397 - 330 330 245,026 337,685 52,556

268

Purchaser/seller Counterparty Relationship with the counterparty Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Technology Ltd. Leadtek Global Group Limited A subsidiary of the Company Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Innolux Technology Europe B.V. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Foshan Innolux Optoelectronics Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Ningbo Innolux Optoelectronics Ltd. Ningbo Lin Moug Optronics Co., Ltd. An indirect wholly-owned subsidiary of Chi Lin Optoelectronics Co., Ltd.	Purchases (sales) Processing revenue $ Processing revenue Processing revenue Processing revenue Processing revenue Processing revenue Processing revenue Service revenue Service revenue Purchases Purchases Purchases	Transaction Amount Percentage of total purchases (sales) Credit term 28,261,854 79 60 days 17,344,095 78 60 days 17,174,029 94 60 days 12,061,738 95 60 days 4,550,697 31 60 days 7,349,948 53 60 days 267,762 66 60 days 318,599 92 60 days 649,856 99 60 days 993,225 4 90 days after goods are shipped 2,512,243 4 90 days after goods are shipped 634,425 1 120 days after goods are shipped	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general transactions No material difference $ 13,598,180 Similar with general transactions No material difference 15,769,351 Similar with general transactions No material difference 3,392,000 Similar with general transactions No material difference 5,421,971 Similar with general transactions No material difference 1,756,905 Similar with general transactions No material difference - Similar with general transactions No material difference - Similar with general transactions No material difference 72,628 Similar with general transactions No material difference 56,365 Similar with general transactions No material difference ( 368,533) Similar with general transactions No material difference ( 2,052,444) Similar with general transactions No material difference ( 216,554)	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 83 92 94 100 100 - - 97 64 6 8 2	Footnote

269

Purchaser/seller Counterparty Relationship with the counterparty Ningbo Innolux Display Ltd. Ningbo Lin Moug Optronics Co., Ltd. An indirect wholly-owned subsidiary of Chi Lin Optoelectronics Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Hon Hai Precision Industry Co., Ltd. Same major stockholder Ningbo Innolux Optoelectronics Ltd. Hongfujin Precision Industry (Shenzhen) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.	Purchases (sales) Purchases $ Purchases Purchases	Transaction Amount Percentage of total purchases (sales) Credit term 547,478 2 120 days after goods are shipped 533,865 1 90 days after goods are shipped 452,727 1 90 days after goods are shipped	Differences in transaction terms compared to third party transactions Notes/accounts Unit price Credit term Balance Similar with general transactions No material difference ($ 195,252) Similar with general transactions No material difference ( 146,925) Similar with general transactions No material difference ( 156,541)	Notes/accounts	Notes/accounts	receivable (payable) Percentage of total notes/accounts receivable (payable) 3 1 1	Footnote
					Balance 195,252) 146,925) 156,541)

270

Innolux Corporation

Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2016

Expressed in thousands of NTD (Except as otherwise indicated)

Table 4

Creditor Counterparty Relationship with the counterparty Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Competition Team Technology (India) Private Limited An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company Innolux Corporation eCMMS Precision Singapore Pte.Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary	Balance as at December 31, 2016 $ 7,605,574 563,698 445,861 367,210 317,648 218,893 151,853 118,971 15,769,351 1,406,162 3,392,000 233,397 5,421,971 1,756,905 13,598,180	Turnover rate 2.03 $ 3.79 2.69 3.95 4.13 0.09 13.89 8.79 1.04 1.61 1.67 3.06 1.82 5.18 2.61	Overdue receivables Amount Action taken Amount collected subsequent to the balance sheet date 409,768 Subsequent collection $ 716,810 168,958 Subsequent collection 92,347 93,043 Subsequent collection 175,940 - - 117,991 - - 54,829 - - - - - - 17,450 Subsequent collection - 9,358,075 Subsequent collection 2,902,573 380,541 Subsequent collection 946,047 - - 2,380,978 - - 191,610 3,474,006 Subsequent collection 1,064,446 - - 1,238,852 213,896 Subsequent collection 5,482,509	Allowance for doubtful accounts $ - - - - - - - - - - - - - - -
	$

271

Overdue receivables

Creditor Counterparty Relationship with the counterparty Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd. Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary	Balance as at December 31, 2016 $ 1,214,351 478,034 233,414 245,026 674,949 337,685	Turnover rate 0.31 $ 0.89 0.89 1.24 - 2.31	Amount Action taken Amount collected subsequent to the balance sheet date - - $ 95,700 - - 1,396 - - - - - 245,026 594,521 Subsequent collection - - - 182,183	Allowance for doubtful accounts $ - - - - - -
	$

272

Innolux Corporation

Significant inter-company transactions during the reporting period For the year ended December 31, 2016

Table 5

Expressed in thousands of NTD

(Except as otherwise indicated)

Number Company name Counterparty 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Hong Kong Ltd. 0 Innolux Corporation Innolux Optoelectronics Europe B.V. 0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 0 Innolux Corporation Innolux Optoelectronics USA, Inc. 0 Innolux Corporation Innolux Technology USA Inc. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Lakers Trading Ltd. 0 Innolux Corporation Leadtek Global Group Limited 0 Innolux Corporation Leadtek Global Group Limited 0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd.	Relationship (Note A) General ledger account 1 Sales $ 1 Processing expense 1 Accrued expenses ( 1 Sales 1 Sales 1 Accounts receivable 1 Sales 1 Sales 1 Sales 1 Processing expense 1 Accrued expenses ( 1 Processing expense 1 Accrued expenses ( 1 Accounts receivable 1 Sales 1 Sales 3 Processing revenue 3 Sales 3 Processing revenue 3 Accounts receivable 3 Processing revenue 3 Accounts receivable 3 Processing revenue 3 Accounts receivable	Transaction Amount 1,341,129 17,621,556 7,545,137) 110,182 2,017,948 151,853 541,547 949,933 6,392,974 53,116,567 21,652,362) 19,102,050 19,136,288) 218,893 141,437 242,518 7,349,948 520,147 4,550,697 1,756,905 28,261,854 13,598,180 12,061,738 5,421,971	Transaction	(Note C) Transaction terms (Note B) - - - - - - - - - - - - - - - - - - - - - - - -	Percentage of consolidated total operating revenues or total assets - 6 2 - 1 - - - 2 19 6 7 5 - - - 3 - 2 - 10 4 4 1

273

Number Company name Counterparty 4 Innocom Technology (Shenzhen) Co., Ltd. Ningbo Innolux Display Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Nanjing Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Foshan Innolux Optoelectronics Ltd. 4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 5 Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. 6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 9 Innolux Technology Europe B.V. Innolux Hong Kong Ltd. 10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 11 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.	Relationship (Note A) General ledger account 3 Sales $ 3 Sales 3 Sales 3 Accounts receivable 3 Accounts receivable 3 Processing revenue 3 Sales 3 Processing revenue 3 Accounts receivable 3 Sales 3 Accounts receivable 3 Processing revenue 3 Accounts receivable ( 3 Sales 3 Accounts receivable 3 Service revenue 3 Service revenue 3 Sales 3 Accounts receivable 3 Sales	Transaction Amount 379,223 103,908 303,347 245,026 674,949 267,762 132,817 17,344,095 15,769,351 4,965,960 1,406,162 17,174,029 3,392,000) 714,999 233,397 318,599 649,856 844,345 337,685 131,339	Transaction	(Note C) Transaction terms (Note B) - - - - - - - - - - - - - - - - - - - -	Percentage of consolidated total operating revenues or total assets - - - - - - - 6 4 2 - 6 1 - - - - - - -

Note A: 1. The parent company to the subsidiary.

3. The subsidiary to the subsidiary.

Note C: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100 million or 20% of capital.

274

Innolux Corporation

Information on investees For the year ended December 31, 2016

Table 6

Expressed in thousands of NTD (Except as otherwise indicated)

Initial investment amount Investor Investee Location Main business activities Balance as at December 31, 2016 Balance as at December 31, 2015 Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings $ 119,724 $ 119,724 Innolux Corporation Golden Achiever International Ltd. BVI Investment holdings 119,106 119,106 Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings 7,858,300 7,858,300 Innolux Corporation Keyway Investment Management Limited Samoa Investment holdings 197,554 197,554 Innolux Corporation Landmark International Ltd. Samoa Investment holdings 33,438,542 33,438,542 Innolux Corporation Toppoly Optoelectronics (B.V.I.) Ltd. BVI Investment holdings 3,674,115 3,596,307 Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings 2,107,291 2,107,291 Innolux Corporation Leadtek Global Group Limited BVI Distributor company - - Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 Innolux Corporation Innolux Optoelectronics Europe B.V. Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors 121,941 121,941 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. Japan Researching, manufacturing and selling of the film transistor liquid crystal display 1,335,486 1,335,486 Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 Innolux Corporation Jetronics International Corp. Samoa Investment holdings - 86,149 Innolux Corporation FI Medical Device Manufacturing Co., Ltd. Taiwan Production and selling of the absorption for medical element 73,500 73,500 Innolux Corporation iZ3D, Inc. USA Research and development and sale of 3D flat monitor - - Innolux Corporation Chi Mei Lighting Technology Corporation Taiwan Manufacturing of electronic equipment and lighting equipment 819,312 819,312	Shares held a Number of shares	Shares held a	s at December
	4,910,000 40,250 246,768,185 5,656,410 709,450,000 146,847,000 1,158,844,000 50,000,000 - 167,405,392 180 80 14,062,500 - 7,350,000 4,333 78,195,856

275

Investor Investee Location Main business activities Innolux Corporation GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings Innolux Holding Ltd. Lakers Trading Ltd. Samoa Distributor company Innolux Holding Ltd. Innolux Corporation USA Distributor company Toppoly Optoelectronics (B.V.I.) Ltd. Toppoly Optoelectronics (Cayman) Ltd. Cayman Investment holdings Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong Kong Holding Ltd. Hong Kong Investment holdings Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Distributor company Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company and R&D testing company Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd. Japan R&D testing company Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company Innolux Optoelectronics Europe B.V. Innolux Optoelectronics Germany GmbH Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors Innolux Optoelectronics Japan Co., Ltd. Innolux Optoelectronics USA, Inc. USA Selling of electronic equipment and computer monitors Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company Suns Holding Ltd. Warriors Technology Investments Ltd. Samoa Investment company Innolux Technology Europe B.V. Innolux Technology Germany GmbH Germany Testing and maintenance company Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings Magic Sun Ltd. Sun Dynasty Development Ltd. Hong Kong Investment holdings	Balance as at December 31, 2016 $ 800,892 7,296,530 555,422 - 6,348 3,650,192 - - 3,073,072 1,815,603 263,685 10,324 2,400 314,740 573,940 1,146,370 5,391,125 27,477 555,422 33,735 314,740 573,940 1,146,370	Balance as at December 31, 2015 $ 800,892 7,296,530 555,422 - 6,348 3,572,384 - - 3,073,072 1,815,603 263,685 10,324 2,400 314,740 573,940 1,146,370 5,391,125 27,477 555,422 33,735 314,740 573,940 1,146,370	Shares held a Number of shares	Shares held a	s at December
	$	$	14,812,705 226,504,550 18,177,052 1 2,000 146,817,000 162,897,802 35,000,000 375,810 201 1,000 250 1,000 10,000,001 18,000,000 38,000,001 164,000,000 900,001 18,177,052 100,000 77,830,001 139,623,801 295,969,001

276

Shares held a Number of shares	s at December	Net profit (loss)	Investment income (loss) recognised by the	Investment income (loss) recognised by the
	Ownership (%) 8 - 40
$ 19,673,402 109,021 58,007,000		of the investee
		for the year ended December 31, 2016 - 42,915 ( 202,512)
			Company for the
			(	year ended December 31, 2016 - 77 221,005)

277

Innolux Corporation

			Innolux Corporation
Table 7 Investee in Mainland China Main business activities Innocom Technology (Shenzhen) Co., Ltd. Manufacturing and selling of LCD backend module and related components OED Company Manufacturing and selling of electronic paper Ningbo Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Technology Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Display Ltd. Manufacturing and selling of LCD backend module and related components Nanjng Innolux Technology Ltd. Purchases and sales of monitor-related components company Kunpal Optoelectronics Ltd. Glass thinning processing service VAP Optoelectronics (Nanjing) Corp. Manufacturing and selling of LCD backend module and related components Nanjing Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Ningbo Innolux Logistics Ltd. Warehousing services	Paid-in capital (Note A) $ 5,289,000 298,972 9,997,500 4,192,500 12,351,750 967,500 67,725 129,000 325,725 4,579,500 129,000	Investment method (Note C) 2 2 2 2 2 2 2 2 2 2 2	Information on investments in Mainland China For the year ended December 31, 2016 Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016 Amount remitted from Taiwan to Mainland China/Amount remitted back to Taiwan for the year ended December 31, 2016 Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016 Remitted to Mainland China Remitted back to Taiwan $ 4,092,903 $ - $ - $ 4,092,903 64,500 - - 64,500 237,523 - - 237,523 4,192,500 - - 4,192,500 12,351,750 - - 12,351,750 967,500 - - 967,500 67,725 - - 67,725 121,965 - - 121,965 122,550 - - 122,550 4,579,500 - - 4,579,500 129,000 - - 129,000	Net income of investee for the year ended December 31, 2016 $ 14,721 ( 117,377) 1,348,182 - 2,031,410 451,215 ( 9,041) ( 1,546) 149 437,398 38,371	Ownership held by the Company (direct or indirect) 100 4 100 100 100 100 100 100 100 100 100	Investment income (loss) recognised by the Company for the year ended December 31, 2016 (Note B) $ 14,721 - 1,348,182 ( 51,415) 2,033,936 502,631 ( 9,041) ( 1,546) 149 437,398 38,371	Expressed in thousands of NTD (Except as otherwise indicated) Book value of investments in Mainland China as of December 31, 2016 Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 $ 12,191,617 $ 1,196,097 11,488 - 21,809,352 5,567,477 - - 20,190,825 - 3,928,808 - 548,960 - 64,129 - 61,018 - 6,104,421 - 181,751 -	Footnote
	$							2.1 2.1 2.2 2.2 2.8 2.2 2.2 2.8 2.3 2.3 2.4 2.3 2.6

278

Investee in Mainland China Main business activities Shanghai Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Logistics Ltd. Warehousing services Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments Interface Optoelectronics (Shenzhen) Co., Ltd. Development of new type of flat panel display, monitor and peripherals, production and management, and offer of after-sales service Ningbo Innolux Electronics Ltd. Manufacturing and selling of LCD backend module and related components Foshan Innolux Flnet Electronics Ltd. Commodity agency Ningbo Innolux Flnet Electronics Ltd. Commodity agency	Paid-in capital (Note A) $ 677,250 48,375 258,000 3,102,450 139,470 4,649 4,649	Investment method (Note C) 2 2 2 2 3 3 3	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016 $ - 48,375 322,500 435,375 - - -	Amount remitted from Taiwan to Mainland China/Amount remitted back to Taiwan for the year ended December 31, 2016 Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016 Remitted to Mainland China Remitted back to Taiwan $ - $ - $ - - - 48,375 - - 322,500 - - 435,375 - - - - - - - - -	Accumulated amount of remittance from Taiwan to Mainland China	Net income of investee for the year ended December 31, 2016 $ 295,151 8,289 22,597 38,027 110,209 ( 1) ( 311)	Ownership held by the Company (direct or indirect) 100 100 50 13 100 100 100	Investment income (loss) recognised by the Company for the year ended December 31, 2016 (Note B) $ 295,151 8,289 11,299 - 110,209 ( 1) ( 311)	Book value of investments in Mainland China as of December 31, 2016 $ 1,253,619 70,731 199,222 3,705,750 244,877 4,648 4,351	Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 $ - - - - - - -	Footnote
	$										2.5 2.6 2.7 2.1 3.1 3.2 3.2

Ceiling on investments in Mainland China:

Company name	Accumulated amount of remittance from	Investment amount approved by the	Ceiling on investments in
	Taiwan to Mainland China as of December	Investment Commission of the Ministry	Mainland
	31, 2016	of Economic Affairs (MOEA)	China imposed by the
			Investment
			Commission of MOEA
Innolux Corporation	$ 29,238,867	$ 38,733,112	$ 135,603,818
Note A: The relevant figures were listed in NT$. Where foreign currencies were involved, the figures were converted			to NT$ using exchange rate.
Note B: Profit or loss recognised for the year ended December 31, 2016		was audited by independent accountants.
Note C: The investment methods are as follows:

Directly investing in Mainland China.
Through investing in companies in the third area, which then invested in the investee in Mainland China.

279

2.1. Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.
2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.
2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.
2.5. Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.
2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.
2.8. Ningbo Innolux Display Ltd. acquired Ningbo Innolux Technology Ltd. by merger, and approved by the Investment Commission of the Ministry of Economic Affairs in November 2016.
Others.
3.1. The company invested in the company via investee company in Mainland China, Ningbo Innolux Display Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs.
3.2 The company invested via Foshan Innolux Optoelectronics Ltd. and Ningbo Innolux Optoelectronics Ltd. which are the company investment entities in Mainland China to invest in Foshan Innolux Flnet Electronics Ltd. and Ningbo Innolux Flnet Electronics Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs.

280

Innolux Corporation Chairman: Jyh-Chau Wang

AI assistant

INX — Annual Report 2016

52330_rns_2017-07-05_1df35b16-3bbb-41d5-a431-73fd0879fa8f.pdf

Innolux Corporation 2016 Annual Report

Notice to readers

A. Spokesperson & Deputy Spokesperson information.

B Headquarters, Branches and Plant.

C. Stock Transfer Agent

D. Auditors

E. Overseas Securities Exchange

F. Corporate Website: http://www.innolux.com

Contents

I. Letter to Shareholders

1.1 2016 Operating Report

(I) Result of Business Plan

(II) Budget Implementation

(III) Financial Analysis from 2015 to 2016

(IV) Research and development

1.2 Business Plan for 2017

(I) Profitability increase

(II) Efficiently,High qulity,Improvement of technique ：

(III) G8.6/LTPS expansion results

(IV) Lean Human Resource

II. Company Profile

III. Corporate Governance Report

3.1 Organization

3.1.1 Organization Chart

3.1.2 Major Corporate Functions

3.2 Directors and Management Team

3.2.1 Directors

Major shareholders of the institutional shareholders

Major shareholders of the Company’s major institutional shareholders

Professional qualifications and independence analysis of directors

3.2.2 Management Team

3.3 Remuneration of Directors, Supervisors, President, and Vice President

3.3.1 Remuneration of Directors

3.3.2 Remuneration of Supervisors

3.3.3 Remuneration of the President and Vice Presidents

3.3.4 Names of managerial officers who received employees’ bonuses in the preceding year and the distribution

3.3.5 Comparison of Remuneration for Directors, Supervisors, Presidents, and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents, and Vice Presidents

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

3.4.2 Audit Committee

3.4.3 Attendance of Supervisors at Board Meetings

“ - 3.4.4 Corporate Governance Implementation Status and Deviations from the Corporate Governance Best Practice Principles for

TWSE/ TPEx Listed Companies”

3.4.5 Composition, Responsibilities and Operations of the Remuneration Committee

A. Professional Qualifications and Independence Analysis of Remuneration Committee Members

B. Attendance of Members at Remuneration Committee Meetings

3.4.6 Corporate Social Responsibility

3.4.7 Ethical Corporate Management

3.4.8 Corporate Governance Guidelines and Regulations

Please refer to the Company’s website at www. innolux.com,and the page 26-48 of annual report.

3.4.9 Other Important Information Regarding Corporate Governance

3.4.10 Internal Control System

1. Statement of internal control system

Innolux Corporation Statement of Internal Controls

3.4.12 Major Resolutions of Shareholders’ Meeting and Board Meetings

3.4.14 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D

3.5 Information Regarding the Company’s Audit Fee and Independence

3.6 Replacement of CPA:N.A.

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders 3.8.1 Changes in Shareholding of Directors, Managers and Major Shareholders.

3.8.3 Shares Pledge with Related Parties

3.9 Relationship among the Top Ten Shareholders

3.10 Ownership of Shares in Affiliated Enterprises

Unit:Shares :12/31/2016

IV. Capital Overview

4.1 Capital and Shares

4.1.1 Source of Capital

A. Type of Stock

B. Issued Shares

4.1.2 Status of Shareholders

4.1.3 Shareholding Distribution Status

A. Common Shares

4.1.4 List of Major Shareholders

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share

4.1.6 Dividend Policy and Implementation Status

A. Dividend Policy

B. Proposed Distribution of Dividend

4.1.7 Effect of 2017 Share Dividends to Operating Performance and EPS.

4.1.8 Compensation of Employees and Directors

INX Annual Report 2016