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INX Annual Report 2017

Jul 2, 2018

52330_rns_2018-07-02_53c3f466-c0cf-4efe-87f9-5a9ccd4c8b88.pdf

Annual Report

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Stock Code: 3481

Innolux Corporation 2017 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, 2018

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: 886-6-5051880 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: None

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

Contents

Contents Contents
I. Letter to Shareholders .............................................................................................................. 1
1.1 2017 Operating Report ...................................................................................................... 1
1.2 Business Plan for 2018 ...................................................................................................... 2
II. Company Profile ....................................................................................................................... 3
2.1 Date of Incorporation: ..................................................................................................... 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, President, and Vice President ............................................. 19
3.4 Implementation of Corporate Governance ...................................................................... 25
3.5 Information Regarding the Company’s Audit Fee and Independence ............................ 52
3.6 Replacement of CPA: ...................................................................................................... 53
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: ................................................ 53
3.8 Changes in Shareholding of Directors, Managers and Major Shareholders ................... 54
3.9 Relationship among the Top Ten Shareholders ............................................................... 55
3.10 Ownership of Shares in Affiliated Enterprises ................................................................ 56
IV. Capital Overview .................................................................................................................... 57
4.1 Capital and Shares ........................................................................................................... 57
4.2 Bonds............................................................................................................................... 64
4.3 Preferred Shares: . ........................................................................................................... 64
4.4 Global Depository Receipts: ........................................................................................... 64
4.5 Employee Stock Options: ................................................................................................ 64
4.6 Issuance of New Restricted Employee Shares: ............................................................... 64
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: . ............ 64
4.8 Financing Plans and Implementation:. ............................................................................ 64
V. Operational Highlights ........................................................................................................... 65
5.1 Business Activities .......................................................................................................... 65
5.2 Market and Sales Overview ............................................................................................ 73
5.3 Human Resources ............................................................................................................ 80
5.4 Environmental Protection Expenditures ......................................................................... 80
5.5 Labor Relations ............................................................................................................... 80
5.6 Important Contracts ......................................................................................................... 85
VI. Financial Information ............................................................................................................ 87
6.1 Five-Year Financial Summary......................................................................................... 87
6.2 Five-Year Financial Analysis .......................................................................................... 92
6.3 Audit Committee Report in the Most Recent Year ......................................................... 96
6.4 Consolidated Financial Statements for the Years Ended December 31, 2017 and
2016, and Independent Auditors’ Report......................................................................... 97
6.5 Financial Statements for the Years Ended December 31, 2017 and 2016, and
Independent Auditors’ Report ......................................................................................... 97
6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial
Difficulties: ..................................................................................................................... 97
VII. Review of Financial Conditions, Operating Results, and Risk Management ................... 98 Review of Financial Conditions, Operating Results, and Risk Management ................... 98
7.1 Analysis of Financial Status ............................................................................................ 98
7.2 Analysis of Financial Performance ................................................................................. 99
7.3 Analysis of Cash Flow .................................................................................................. 100
7.4 Major Capital Expenditure Items .................................................................................. 100
7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement
Plans and the Investment Plans for the Coming Year ................................................... 100
7.6 Analysis of Risk Management ...................................................................................... 101
7.7 Other Important Matters: ............................................................................................... 104
VIII. Special Disclosure ................................................................................................................. 105
8.1 Summary of Affiliated Companies ................................................................................ 105
8.2 Private Placement Securities in the Most Recent Years: ............................................... 112
8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent
Years: ............................................................................................................................. 112
8.4 Special Notes: ................................................................................................................ 112

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: .......... 112

I. Letter to Shareholders

1.1 2017 Operating Report

2017 was a year in which the panel industry underwent drastic changes. In the first half of the year, the production cuts by Korean manufacturers and panels in short supply led to prosperity in terms of panel supply exceeding demand and rising prices. In the second half of the year, with the information of new production capacities emerging in Mainland China, the market anticipated an increase in panel supply as well as market price drops, resulting in a reversal of the upward price trend in the second half of the year and pressure from customers’ price adjustments.

The company managed to achieve a fruitful operating performance in 2017 nonetheless, with annual consolidated sales revenue amounting to NT$329.2 billion, an annual increase of 15% and the after-tax net profit amounting to NT$37.029 billion, hitting a record high on company profits at NT$3.72 EPS.

With the new panel production capacity in China, the supply and demand of the panel market is expected to remain balanced in the short term, not likely causing significant impacts. However, impacts on the economic situation in the long run are inevitable. Therefore, the company has actively adjusted its business strategy towards new technology and new application fields, developing high-end technological products, expanding new markets, and finding a blue ocean through qualitative and quantitative technological improvements, which are in the best interest of the company and its shareholders.

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 2017 our consolidated revenue was NT$ 329,174,401 thousands, which increased NT$42,085,124 thousands or 15% by compared with the 2016 yearly revenue of NT$ 287,089,277 thousands. In 2017 our annual profit after tax which belonged to mother company was NT$37,028,609 thousands, and the annual earnings per share is NT$3.72.

(II) Budget Implementation No financial forecast disclosed for 2017, therefore not applicable to disclose budget implementation.

(III) Financial Analysis from 2016 to 2017

Item 2016 2017
Finacial
Structure Analysis		 Debt to Asset Ratio(%) 39.16 36.29
Long-term Capital to property, plant and
equipment(%)		 126.79 128.12
Debt-paying
ability		 Current Ratio(%) 109.32 120.19
Quick Ratio(%) 87.84 96.12
Times Interest Earned(Times) 4.90 53.16
Profitability Return on Assets(%) 0.68 9.57
Return on Shareholders’ equity (%) 0.82 15.10
OperatingIncome to Paid-in Capital Ratio(%) 6.44 47.25
Pre-tax Income to Paid-inCapital Ratio(%) 5.02 49.18
Net Margin(%) 0.65 11.25
Basic after-tax EPS(NT$) 0.19 3.72

(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,

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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, Mini LED, 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.

Among the large-size TFT-LCD products, LCD TVs continue to be oriented towards larger sizes, energy saving, high image quality (4K, 8K), and narrow borders. The main appeal of LCD monitors lies in flexibility, gaming, and narrow borders, while laptop products are oriented towards the development trends of low power consumption, IGZO, narrow borders, and ultra-thin technology, which are intended to urge consumers to upgrade their existing products. As for medium and small sizes, manufacturers have engaged in the research and development of AMOLED, flexible panels, and other next-generation technologies due to flourishing developments of smartphone applications and increasingly mature touch technology, making panels the product category with the greatest diversity of products and the fastest growing. Looking ahead to 2018, 18:9, flexible and special-shaped cutting will become the development trend of small and medium sized panels.

1.2 Business Plan for 2018

(I) Moving Forward Towards Complete Machines

In the year of the start of complete-machine shipping, mastering seaports is the key to success.

(II) Moving Outward with the World’s Seaports as the Focus

  1. Innolux Vision-Viewing the market from a global perspective.

  2. Extending the panel manufacturer’s mindset of selling two pieces of glass to the final product design and manufacture and expanding complete machines and vertical integration.

(III) Innolux 4.0 + Industrial Internet

With the accumulation of industrial core technologies and manufacturing experience as the core, we unswervingly melt the professional DNA linked to the Internet. Both are industry based while the Internet key elements are the auxiliary foundation, which are integrated for the common implementation of long-term down-rooting engineering.

In 2018, our company will continue to create-value intelligent manufacturing, achieve the competitiveness of 4.0 Industrial Internet, and enhance operational performance. We hope our shareholders will continue to give us support and encouragement. Lastly, I wish you all good health and all the best. Thank you.

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

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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

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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

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(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

5

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

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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.

7

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
August 2017 Innolux ranks the 19th of the Large Enterprise Group in "2017 Common Wealth Magazine's
Coporate Citizenship Award"competition
September 2017 Best China Investments Limited liquidated
Magic Sun Limited liquidated
Mega Chance Investments Limited liquidated
October 2017 Merger of the subsidiaries Nanjing Innolux Optoelectronics Ltd. and Kunpal Optoelectronics Ltd.,
in which Nanjing Innolux Optoelectronics Ltd. was the surviving company
December 2017 Merger of the subsidiaries Innolux Optoelectronics Japan Co., Ltd and Innolux Technology Japan
Co., Ltd in which Innolux Optoelectronics Japan Co., Ltd was the surviving company and change
the company name into Innolux Japan Co. Ltd
Merger of the subsidiaries Innolux Technology Europe B.V. and Innolux Optoelectronics Eurpoe
B.V. in which Innolux Technology Europe B.V. was the surviving company and change the company
name into Innolux Europe B.V.
February 2018 Merger of the subsidiaries Innolux Optoelectronics USA, Inc. and Innolux Technology USA, Inc.
and Innolux Corporation, in which Innolux Optoelectronics USA, Inc. was the surviving company
and change the company name into Innolux USA, Inc.

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III. Corporate Governance Report

3.1 Organization

3.1.1 Organization Chart

==> picture [483 x 345] intentionally omitted <==

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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 Responsible for drafting and reviewing contracts; providing business-related legal
consultation services.

10

3.2 Directors and Management Team

3.2.1 Directors

April 22, 2018;Shares

April 22,2018;Shares April 22,2018;Shares April 22,2018;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
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.		 － － －

11

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 － － － － － － － － Ph. D of Computer Science,
UCLA		 － － － －
Independent
Director		 HK Stanley Yuk Lun Yim M 2016/6/24 3 2013/6/19 － － － － － － － － A founder and Executive
Director of S.A.S.		 Note 7 － － －

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(Cayman), Foxconn (Far East) Limited(HK), Foxteq Holdings Inc., Foxteq Integration,Inc.,HCM International Company, Chengdu Tiger Tesco E-Commerce Co.,Ltd,Wuhan Tiger Tesco E-Commerce Co.,Ltd,Henan Chung Yuan finance management Limited, Henan Chung Yuan Rental Limited, Henan Chung Yuan Financing guarantees Limited, Jusda Supply Chain Management Co., Ltd., Shenzhen Jinchangzhi Technology Co., Ltd., Fuxuntong Trading, ShenZhen, Shenzhen Fu Rong Inclusive Finance Co., Ltd, 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., Double star Inc., Shenzhen Qunfenghong Technology Co., Ltd.

  • Concurrently as director: Innolux Japan Co., Ltd, Innolux Singapore Holding Pte. Ltd., Innolux Optoelectronics Philippines Corp., Innolux Optoelectronics Malaysia SDN. BHD., Innolux Optoelectronics India Private Ltd.

  • 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.

12

Concurrently as director: Asia Pacific Telecom(Statutory representative), E-ONE Moli Energy Corp. (Statutory representative), Advanced Wireless Semiconductor Company, Bright Led Electronics Corp., Kobrite Taiwan Corporation (Statutory representative), Sasson Capital (Statutory representative), Kopin Corporation Inc., T’Cement(Statutory representative), Bright Crystal Company Limited, KoBrite Corp.

Note 7 :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 ofHK members; and a honoary member of Junior Police Call Committee, Tsuen Wan District.Vice President of the Prime Ministers Association of Yan Chai Hospita、Chair of Tsuen Wan District Civic Education Committee, Honor consultant of Hong Kong Hung Hom Commerce & Industry Associations Ltd.、Director of Hong Kong Peninsula Lions Council

13

Major shareholders of the institutional shareholders

Major shareholders of the institutional shareholders Major shareholders of the institutional shareholders
April 22,2018
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

Major shareholders of the Company’s major institutional shareholders Major shareholders of the Company’s major institutional shareholders
April 22,2018
Name of Institutional Shareholders
Major 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 (1.75%), Citigroup hosting Hon Hai Precision Ind. Co. Ltd.
Depositary Receipts account (1.48%), Standard Chartered hosting
Vatican Gardner emerging market equity index fund account (1.41%),
Fubon Life Insurance Co., Ltd. (1.23%), JPMorgan Managed Advanced
Stars advanced aggregate International Equity Index(1.17%),
JPMorgan hosting Saudi-Arabia Central Bank investment account
(1.15%), Citi Bank hosted Norges Bank Investment account(1.11%),
Standard Chartered Hosting Fidelity light called Trust: Fidelity Low 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 2018.

14

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 have been any of the following during the two years prior to being elected or during the term of office.

  1. Not an employee of the Company or any of its affiliates.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.

  9. Not been a person of any conditions defined in Article 30 of the Company Law.

  10. Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Law

15

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, 2018
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 2010/3/18 912,067
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
(Note3)		 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 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 2007/6/1 320,769
－		 29,501
－		 － － 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 62,193
－		 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 2010/3/18 925,585 0.01 7,953
－		 － － M.S., Chemical Engineering, National Central University
DeputySection Manager,Chunghwa Picture Tubes,Ltd.		 Note 5 － － －
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 6 － － －
Assistant Vice
President		 TW Chung-Kuang
Wei		 M 2010/3/18 447,395
－		 － － － － Ph. D, Institute of Photonics, National CT University
Electronics Research Laboratories, Industrial Technology
Research Institute		 － － － －

16

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 2013/9/23 499,802 0.01 25,000
－		 － － 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		 Note 7 － － －
Assistant Vice
President		 TW Qing-Hui Lin M 2015/12/25 273,039
－		 － － － － 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 2015/12/25 156,600
－		 － － － － 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 2009/1/9 219,192
－		 － － － － 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: 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

17

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: Concurrently as chairman of the board: GIO Optoelectronics Corp., Double Star Inc., Shenzhen Qunfenghong Technology Co., Ltd.

  • Concurrently as director: Innolux Japan Co., Ltd., Innolux Singapore Holding Pte.Ltd., Innolux Optoelectronics Philippines Corp., Innolux Optoelectronics Malaysia SDN. BHD, Innolux Optoelectronics India Private Ltd.

  • Note 5: Concurrently as director: Innolux Japan Co.,Ltd., Chi Lin Optoelectronics. (Statutory representative),FI Medical Device Manufacturing Co. (Statutory representative)

  • Note 6: Concurrently as chairman of the board: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd.

  • Concurrently as director: Chi Mei Frozen Food Co., Ltd.

  • Note 7: Innolux Technology Germany GmbH, Innolux Europe B.V.

  • 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, Nanjing Innolux Optoelectronics Ltd., Innocom Technology (Shenzhen) Co., Ltd.

  • Note 10: 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 Germany GmbH

  • Concurrently as director: Innocom Technology (Shenzhen) Co., Ltd., Nanjing Innolux 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 Japan Co., Ltd., Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd., InnoJoy Investment Corporation (Statutory representative)

18

3.3 Remuneration of Directors, President, and Vice President

3.3.1 Remuneration of Directors

Unit: NT$; Shares: thousands
Relevant Remuneration Received by Directors Who are Also
Employees
Ratio of Total
Compensation
(A+B+C+D+
E+F+G) to
Net Income
(%)(Note8)
Compensation Paid to Directors
from an Invested Company Other
than the Company’s Subsidiary
Salary, Bonuses,
and Allowances
(E) (Note 5)
Severance Pay
(F) (Note 6)
Employees Compensation (G)
(Note 7)
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
Cash
Stock
Cash
Stock
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; Shares: thousands
Relevant Remuneration Received by Directors Who are Also
Employees
Ratio of Total
Compensation
(A+B+C+D+
E+F+G) to
Net Income
(%)(Note8)
Compensation Paid to Directors
from an Invested Company Other
than the Company’s Subsidiary
Salary, Bonuses,
and Allowances
(E) (Note 5)
Severance Pay
(F) (Note 6)
Employees Compensation (G)
(Note 7)
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
Cash
Stock
Cash
Stock
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; Shares: thousands
Relevant Remuneration Received by Directors Who are Also
Employees
Ratio of Total
Compensation
(A+B+C+D+
E+F+G) to
Net Income
(%)(Note8)
Compensation Paid to Directors
from an Invested Company Other
than the Company’s Subsidiary
Salary, Bonuses,
and Allowances
(E) (Note 5)
Severance Pay
(F) (Note 6)
Employees Compensation (G)
(Note 7)
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
Cash
Stock
Cash
Stock
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; Shares: thousands
Relevant Remuneration Received by Directors Who are Also
Employees
Ratio of Total
Compensation
(A+B+C+D+
E+F+G) to
Net Income
(%)(Note8)
Compensation Paid to Directors
from an Invested Company Other
than the Company’s Subsidiary
Salary, Bonuses,
and Allowances
(E) (Note 5)
Severance Pay
(F) (Note 6)
Employees Compensation (G)
(Note 7)
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
Cash
Stock
Cash
Stock
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; Shares: thousands
Relevant Remuneration Received by Directors Who are Also
Employees
Ratio of Total
Compensation
(A+B+C+D+
E+F+G) to
Net Income
(%)(Note8)
Compensation Paid to Directors
from an Invested Company Other
than the Company’s Subsidiary
Salary, Bonuses,
and Allowances
(E) (Note 5)
Severance Pay
(F) (Note 6)
Employees Compensation (G)
(Note 7)
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
The company
All companies
in the financial
report
Cash
Stock
Cash
Stock
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 Unit: NT$; 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-		 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
49,508 49,508
-
-
26,420
-
26,420
-
0.35
0.35
-
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
Jialian Investment Co., Ltd. 6,300 6,300 - - 48,261 48,261 370 370 0.15 0.15 49,508 49,508 - - 26,420 - 26,420 - 0.35 0.35 -
Chairman Jyh-Chau Wang
Institutional director Hyield Venture Capital Co.,Ltd
Te-Tsai Huang
Institutional director I-Chen Investment Ltd.
Chuang-Yi Chiu
Institutional director Innolux Education Foundation
Chin-Lung Ting
Independent Director
Chi-Chia Hsieh
Independent Director
Bo-Bo Wang
Independent Director
Stanley Yuk Lun Yim

Note 1: Existing Directors as of the date 2017.

Note 2: Refers to directors’ remuneration paid in 2017.

Note 3: The proposal of 2017 profit distribution has resolved by the board of director.

Note 4: Refers to the relevant service execution fees of directors in 2017.

Note 5: Refers to the salaries, bonuses and special disbursement, etc. received as employees by directors in 2017. Note 6: Refers to the amounts transferred to government authorities in 2017. Note 7: The proposal of 2017 profit distribution has resolved by the board of director. Note 8: Ratio of total net income (Alone).

19

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 Jyh-Chau Wang,
Te-Tsai Huang,
Chuang-Yi Chiu,
Chin-LungTing,		 Jyh-Chau Wang,
Te-Tsai Huang,
Chuang-Yi Chiu,
Chin-LungTing,		 Te-Tsai Huang,
Chuang-Yi Chiu,		 Te-Tsai Huang,
Chuang-Yi Chiu,
NT$2,000,000 ~ NT$5,000,000
NT$5,000,000 ~ NT$10,000,000 Jialian Investment Co., Ltd.
Hyield Venture Capital Co., Ltd
I-Chen Investment Ltd,
Innolux Education Foundation ,
Chi-Chia Hsieh,
Bo-Bo Wang,
StanleyYuk Lun Yim		 Jialian Investment Co., Ltd.
Hyield Venture Capital Co., Ltd
I-Chen Investment Ltd,
Innolux Education Foundation ,
Chi-Chia Hsieh,
Bo-Bo Wang,
StanleyYuk Lun Yim		 Jialian Investment Co., Ltd.
Hyield Venture Capital Co., Ltd
I-Chen Investment Ltd,
Innolux Education Foundation ,
Chi-Chia Hsieh,
Bo-Bo Wang,
StanleyYuk Lun Yim		 Jialian Investment Co., Ltd.
Hyield Venture Capital Co., Ltd
I-Chen Investment Ltd,
Innolux Education Foundation ,
Chi-Chia Hsieh,
Bo-Bo Wang,
StanleyYuk Lun Yim
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
NT$50,000,000 ~ NT$100,000,000 Jyh-Chau Wang, Jyh-Chau Wang,
Over NT$100,000,000
Total 7 7 7 7

20

3.3.2 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		 Jyh-Chau
Wang		 33,529 33,529 432 432 82,280 82,280 61,021 - 61,021 - 0.48 0.48 -
President
&COO		 Chih-Hung
Hsiao(Note7)
Excutive
Vice
President		 Chin-Lung
Ting
Vice
President		 Yao-Tong
Chen
Vice
President		 Hung-Wen
Yang
Vice
President		 Chih-Ming
Chen
Vice
President		 Chu-Hsiang
Yang

Note 1: Existing Management as of the date of 2017. Note 2: Refers to remuneration paid in 2017. Note 3: Refers to amounts transferred to government authorities in 2017. Note 4: Refers to the bonuses, special disbursement and 494 tousand for a car and oil costs for CEO & President. Note 5: The proposal of 2017 profit distribution has resolved by the board of director. Note 6: Ratio of total net income (Alone). Note 7: Promoted to President&COO on 2017/3/16

21

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 Yao-TongChen Yao-TongChen
NT$10,000,000 ~ NT$15,000,000
NT$15,000,000 ~ NT$30,000,000 Chin-Lung Ting
Hung-Wen Yang
Chu-Hsiang Yang
Chih-MingChen		 Chin-Lung Ting
Hung-Wen Yang
Chu-Hsiang Yang
Chih-MingChen
NT$30,000,000 ~ NT$50,000,000 Chih-HungHsiao Chih-HungHsiao
NT$50,000,000 ~ NT$100,000,000 Jyh-Chau Wang Jyh-Chau Wang
Over NT$100,000,000
Total 7 7

22

3.3.3 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 30,2018
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)
Chairman&CEO Jyh-Chau Wang - 119,800 119,800 0.32%
President&COO Chih-HungHsiao(Note4)
Excutive Vice
President		 Chin-Lung Ting
Vice President Yao-TongChen
Vice President Hung-Wen Yang
Vice President Chih-MingChen
Vice President Chu-HsiangYang
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 2017. Note 2: The proposal of 2017 profit distribution has resolved by the Board of director. Note 3: Ratio of Total Amount to Net Income of alone. Note 4: Promoted on 2017/3/16

23

3.3.4 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
2016 2017(Note 1)
The company Companies in the
consolidated financial
statements		 The company Companies in the
consolidated financial
statements
Directors 3.37 3.37 0.35 0.35
Supervisors 0.07 0.07 － －
Presidents&Vice
Presidents		 5.70 5.70 0.48 0.48

Note 1: The proposal of 2017 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.

All the bonus and performance approved by Compensation Committee and Board meeting. It also considers future risks and the company business operation and the rule “Full Incentives for Managerial Officers” followed and amendment from time to time.

24

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

A total of 6 meetings of the Board of Directors were held in the previous(2017)period. Director attendance was as follows:


follows:
Title Name Attendance
in Person		 By
Proxy		 Attendance
Rate(%)		 Remarks
Chairman Jialian Investment Co., Ltd.
Jyh-Chau Wang		 6 － 100% －
Director Hyield Venture Capital Co., Ltd
Te-Tsai Huang		 5 － 83.33% －
Director I-Chen Investment Ltd.
Chuang-Yi Chiu		 6 － 100% －
Director Innolux Education Foundation
Chin-LungTing		 5 － 83.33% －
Independent
Director		 Chi-Chia Hsieh 5 1 83.33% －
Independent
Director		 Bo-Bo Wang 5 － 83.33% －
Independent
Director		 Stanley Yuk Lun Yim 5 1 83.33% －
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: Total 7 meetings of the BOD were held in the period
from 2017 to the date of the annual report printed, all the resolutions pleaese refer the Page 50 to Page 51 and there
is no independent opinions remained of the meeting.
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
7-4 BOD
20170210
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
7-6 BOD
20170510
Independent
Directors:
Chi-Chia
Hsieh,Bo-Bo
Wang,Stanley
Yuk Lun Yim
The Compensation
Committee is proposing
the functional
committees bonus for the
2016
The board members Chi-Chia Hsieh, Bo-Bo Wang
and Stanley Yuk Lun Yim 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
Jyh-Chau
Wang
The Compensation
Committee is proposing
the manager bonus for
the 2016
The board member and 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 Meetingof the Board of Directors
Did not for the
disucssion
7-8 BOD
20171027
Jyh-Chau
Wang
The Compensation
Committee is proposing
manager salary structure
adjustment
The board member and manager Jyh-Chau Wang
have a vital interest in the items on the agenda,
therefore he avoided participating in the voting
process in accordance with the Rules and
Procedures for Meetingof the Board of Directors
Did not for the
disucssion
7-10 BOD
20180209
Chin-Lung
Ting
The Company plans to
increase the shares of the
Japanese subsidiary,
Innolux Japan Co., Ltd.,
by contribution in kind of
the equity of
The board member Chin-Lung Ting have a vital
interest in the items of agenda, therefore he 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

25

Innolux Technology USA
Inc. and Innolux
Corporation.
Jyh-Chau
The Compensation
The board member and manager Jyh-Chau Wang		 Did not for the
Wang
Committee is proposing
and Chin-Lung Ting have a vital interest in the		 disucssion
Chin-Lung
manager bonus for the
items on the agenda, therefore they avoided
Ting
year of 2017
participating in the voting process in accordance
with the Rules and Procedures for Meeting of the
Board of Directors
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 existing or
potential risks of the Company.
(2) The Compnay has set up a Audit Committee on July 1,2016 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 seepage 26-27for 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 36-37for 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 directors’ 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 page45for the detail of the
status of Directors ' participation in corporate governance related courses and trainings.
4.Attendance of Independent directors at Board Meetings
Board Meeting
Independent Director
Independent Director
Independent Director
Chi-Chia Hsieh
Bo-Bo Wang
StanleyYuk Lun Yim
7-4 Board Meeting20170210
Attend inperson
Attend inperson
Attend inperson
7-5 Board Meeting20170315
Attend inperson
Apologies		 Proxy
7-6 Board Meeting20170510
Attend inperson
Attend inperson
Attend inperson
7-7 Board Meeting20170726
Attend inperson
Attend inperson
Attend inperson
7-8 Board Meeting20171027
Attend inperson
Attend inperson
Attend inperson
7-9 Board Meeting20171114
Proxy
Attend inperson
Attend inperson

3.4.2 Audit Committee

A total of 5 Audit Committee meeting were held in the previous (2017) 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 4 1 80% －
Independent Director Bo-Bo Wang 5 － 100% －
Independent Director Stanley Yuk Lun
Yim		 5 － 100% －
Other mentionable items:
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:

26

Board
Meeting		 Contents of the case and follow-up
Resolution		 Audit Committee
opinions and follow up
7-4 BOD The company’s individual financial statements and
Approved by		 Approved by all
20170210 consolidated financial statements
Audit Committee		 Independent directors
Passed the Accountant assessment of the independence and
appropriateness
Declaration of the Company’s internal control system 2016.
7-6 BOD Prepare and compile Innolux’s Business Report for 2016
Approved by		 Approved by all
20170510 Draft of Innolux’s Dividend Remittance for 2016
Audit Committee		 Independent directors
Amendment to part of the provisions of the“Procedures for
Acquisition or Disposal of Assets”
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.
7-7 BOD The company’s consolidated financial statements
Approved by		 Approved by all
20170726 Audit Committee Independent directors
7-8 BOD Passed the Audit Plan of 2018
Approved by		 Approved by all
20171027 Audit Committee Independent directors
7-9 BOD Acquisition of assets from related party
Approved by		 Approved by all
20171114 Audit Committee Independent directors
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) Communication between independent directors and internal auditors: The head of Internal Audit send the audit
and follow-up reports monthly and presents the findings of all audit reports in the quarterly meetings of the
Audit Committee. If material unusual matters occur during the auditing process, the head of Internal Audit will
report to the members of the Audit Committee immediately.
(2)The major matters of the communications between independent directors and internal auditors
Date Descriptions of the major matters
2017/01/18 Audit Report Findings December 2016 review byIndependent Directors.
2017/02/10 1. The findings of the internal audit reports for the fourth quarter of 2016
2. Statement of Internal Control System for 2016
2017/02/23 Audit Report Findings January2017 review byIndependent Directors.
2017/03/24 Audit Report Findings February2017 review byIndependent Directors.
2017/04/21 Audit Report Findings March 2017 review byIndependent Directors.
2017/05/10 The findings of the internal audit reports for the firstquarter of 2017
2017/05/26 Audit Report Findings April 2017 review byIndependent Directors.
2017/06/23 Audit Report Findings May2017 review byIndependent Directors.
2017/07/14 Audit Report Findings June 2017 review byIndependent Directors.
2017/07/21 The findings of the internal audit reports for the secondquarter of 2017
2017/08/24 Audit Report Findings July2017 review byIndependent Directors.
2017/09/22 Audit Report Findings August 2017 review byIndependent Directors.
2017/10/20 Audit Report Findings September 2017 review byIndependent Directors.
2017/10/27 The findings of the internal audit reports for the thirdquarter of 2017
2017/11/24 Audit Report Findings October 2017 review byIndependent Directors.
2017/12/20 Audit Report Findings November 2017 review byIndependent Directors.
(3) Communication between independent directors and independent auditors: The Company 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.
(4)The major matters of the communications between independent directors and independent auditors
Date Descriptions of the major matters
2017/02/10 The findings of the audits on the Company’s financial results for 2016
2017/05/10 The findings of the review on the Company’s financial results for theQ1 ended March 31,2017
2017/07/21 The findings of the review on the Company’s financial results for theQ2 ended June 30,2017
2017/10/27 1. The findings of the review on the Company’s financial results for the Q3 ended September 30, 2017
2. The findings of the audits on the Company’s KeyAudit. Matters, KAM

27

“ - 3.4.3 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
diversifiedpolicyfor the composition of		 Yes (I) Member diversification is considered by the Board members and also
approved the Corporate Governance Principles byboard on Oct. 28,2016. In		 No significant difference
compared to corporate
governance practice principles

28

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
its members?
(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		 the principles chapter III, states the factors taken into account include, but are
not limited to gender, age, cultures, educational background, race, professional
experience, skills, knowledge and terms of service. The Board objectively
chooses candidates to meet the goal of member diversification. Diversified
policy for the composition of its Board of director members pleaserefer page
34of annual report.
(II) The Company has set up the Audit Committee and Remuneration Committee,
the Company’s independent director’s serve as the Committee members. For
more details regarding the business performance of the Company’s Audit and
Remuneration Committee, please refer to page26-27&36-37of 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.The evaluate the independence of CPAs please refer page34of
annual report.
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 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 chairman of the company lead the board of directors to promote and enhance
ability of board of directors and co-organized by Finance Division for the 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.
The detail of completed item in 2017 list as below:
1. The company held 6 Board meeting, 5 Audit committee meeting and 3
Remuneration Committee Meetings in 2017, the average attendance rate
up to 90.9%
2. All the members of Board of directors have participated in corporate
governance related courses for 6 hours.
3. Innolux maintains D&O insurance for its Directors and key officers and
report to the Board meeting.		 No significant difference
compared to corporate
governance practice principles

29

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
4. The company held a meeting irregular for Accountants, Independent
Direcotrs and Internal auditor to discuss and enhanced internal audit
control system.
5. The Agenda and meeting materials of Borad meeting mail/send to all
directors 7 days before of the board meeting and finished the meeting
minutes in 20 days after the meeting.
6. Booking the date of AGM, prepare meeting notice, hand book and minutes
of AGM all comply with the listed company rules in Taiwan.
7. Held conference call in quaturly basis for finance results in 2017 and
particate the investment forum irregular also set up the IR team to
communicate with investors.
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 employees, investor services,
customers and supplier area, sales services, product inquiries, media
communications and NGOs, reporting and so forth in order to communicate and
respond to stakeholders‘needs and expectations by strengthening communications
with stakeholders and thereby meeting their expectations.
The issues of stakeholders please referthe annual report page 35.		 No significant difference
compared to corporate
governance practice principles
VI. Does the company appoint a professional
shareholder service agency to deal with
shareholder affairs?		 Yes Innolux has appointed a professional agency to handle shareholder related services
for the company.		 No significant difference
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 corporategovernance		 Yes (I) Employee's Rights: Please refer to page 80 “5.5 Labor Relations” of the
annual report
(II) Employee Care		 No significant difference
compared to corporate
governancepracticeprinciples

30

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
practices (e.g., including but not limited
to employee rights, employee wellness,
investor relations, supplier relations,
rights of stakeholders, directors’ training
records, the implementation of risk
management policies and risk evaluation
measures, the implementation of
customer relations policies, and
purchasing insurance for directors)?		 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. 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.
2. Investors: the company treats our shareholders with the principle of
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.
3. 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.
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.

31

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
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. 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 topage 45of 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
resource risks, supplier chain risks, information safety risks, and the
environment, safety, and health risks.
Innolux followed IS022301 to set up Business Impact Analysis, BIA and
Risk Assessment, RA for an emergency response and executes process.
(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,andprovide thepriorityenhancement measures.

32

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
Company governance of the company was ranked among the top 6%~20% in the last three 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 honesty and integrity.
The areas that require immediate improvement are described below:
The company established the procedures for handling material inside information on Oct.28, 2009 accordance with NO.0970058719 letter from FSC on Oct.31, 2008 and yet
uploads to the official website.		 ranked among the top 6%~20% in the last three years. It has set up its "Company governance guidelines" according to the revised

33

Note1: Board Diversity Policy

The Company has enacted the Corporate Governance Principles; the composition of the board of directors shall be determined by taking diversity into consideration. It is advisable that directors concurrently serving as company officers not exceed one-third of the total number of the board members, and that an appropriate policy on diversity based on the company's business operations, operating dynamics, and development needs be formulated and include. The Board Diversity Policy as follow:

Item
Name
Gender		 Operational
Judgments
Management
Administration		 Accounting
& Financial
analysis		 Business &
Economics		 Crisis
Management		 Knowledge
of the
industry
International
market
perspective
 Ability to lead
and to make
policy decisions
Jyh-Chau Wang Male V V V V V V V V
Te-Tsai Huang Male V V V V V V V V
Chuang-Yi Chiu Male V V V V V V V V
Chin-LungTing Male V V V V V V V V
Chi-Chia Hsieh Male V V V V V V V V
Bo-Bo Wang Male V V V V V V V V
Yuk-Lun Yim Male V V V V V V V V

Note2: The independence of CPAs

Note2: The independence of CPAs Note2: The independence of CPAs
Item Results
1 No major financial interested relationshipwith the client V Yes No
2 Avoidinganyimproper relationshipwith the client V Yes No
3 The accountant should supervise their assistants to strictlycomplywith honesty, justice and independence V Yes No
4 The accountant is prohibited from auditing certification for the company’s financial report where he/she served in within
theprevious twoyears		 V Yes No
5 The accountant’s identification is forbidden to be infringed byanother individual V Yes No
6 The accountant does not hold anyshares in the companyor in its subsidiaries V Yes No
7 The accountant does not owe anydebt to the companyor its subsidiaries V Yes No
8 The accountant is not in any joint investment or benefit-sharingrelationshipwith the companyor its subsidiaries V Yes No
9 The accountant is not employed andpaid regularilybythe companyor its subsidiaries V Yes No
10 The accountant does not receive anycommission which is occupational-related V Yes No
11 The accountant is subject to disciplinaryactions does not over 7years or returningdoes not less than 2years V Yes No
12 The accountant audit experience obtain the Electronic industry V Yes No

34

Note3: The issues of stakeholders

Stakeholder Concerned issues Major Communication Channel
Employees Compensation and benefits
Financial performances
Recruitment and staffing
Training and development		 1. Communication hotline 67885, mailbox and disability care group.
2. Labor-management meeting, Meeting with the Executives.
3. DL interview, seminars for disability group and new employees.
4. Innolux Monthly.
5. Satisfaction survey.
Contact person: Ms. Liu/[email protected]/037-586000#64650
Contactperson: Ms. Cheng/[email protected]/06-5051888#47285
Customers Product quality and customer satisfaction
Sustainable supply chain management
Greenhouse gas emission and carbon
management
Green product management		 1. VOC (Voice of Customer) system.
2. INNOLUX Intelligent Portal for immediate interaction with the customers.
3. Top management meeting.
4. Customer satisfaction survey and ananlysis.
5. Customer audit or questionnaire.
6. Designated account service for immediate response.
Contactperson: Ms. Huang/[email protected]/06-5051888#44856
Shareholders/
investors		 Financial performances
Corporate governance
Recruitment and staffing
Sustainable supply chain management		 1. Annual report.
2. Shareholders’ meeting.
3. Investors’ hotline and mailbox.
4. Participation in seminars held by local and overseas investment agencies.
5. Interview with the analysts
Contact person:
IR:Ms. Chen/ [email protected] / 06-5053760#47154
Shareholders:Ms. Chen/ [email protected]//037-586000#63588
Suppliers Sustainable supply chain management
Green product management
Pollution control		 1. Procurement strategy meeting.
2. Supplier communication meeting.
3. Material quality meeting.
4. Annual suppliers’ meeting.
5. Suppliers’ notice.
SRM (Supplier Relationship Management)
An interactive platform for information
exchange between purchasing/material control units and suppliers -- Covers
purchasing operations, such as purchase orders, delivery dates, invoicing, payment
inquiries, etc. and includes an electronic signature system to ensure that the signing of
online documents is legallybindingfor bothparties.

35

Stakeholder Concerned issues Major Communication Channel
Media Financial performances Recruitment and
staffing Corporate governance
Water management		 1. Designated media mailbox and hotline.
2. Press release.
3. Press conference
Contactperson:Ms.Cheng/[email protected]/037-586000#62959
NGOs Community participation and social charity
Disability employment
Pollution control
Occupational health and safety		 1. Collaboration with NGOs to hold CSR projects.
2. NGOs funding.
3. Invite NGOs to take part in seminars.
Contactperson:Ms.Tseng/[email protected]/06-5051888#47042

3.4.4 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;

36

  1. 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;

  2. 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;

  3. 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;

  4. 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;

  5. 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;

  6. 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;

  7. 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 3 regular meetings in 2017. 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 3 － 100 -
Member Bo-Bo Wang 3 － 100 -
Member StanleyYuk Lun Yim 3 － 100 -

Annotation:

  1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2016.

  2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualified opinion.

37

3.4.5 Corporate Social Responsibility

3.4.5 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
Yes
Yes		 (I)
Innolux has established relevant CSR policies though CSR policies and
approved by Board of Director meeting, the compnay 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 report for CSR issue
to Board of Director meeting on Oct. 2017 and 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.

38

Evaluation Item 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 B for disclosure in 2017 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 unit to take charge of operations
including loss and risk aversion, EHS management, employee education and
obtained OHSAS18001.
(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.

39

Evaluation Item 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
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 and announced information materials on MOPS for reference.		 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.
VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices:

40

Evaluation Item Implementation Status Implementation Status Deviations from “the Corporate
Social Responsibility Best-Practice
Principles for TWSE/TPEx Listed
Companies” and Reasons
Yes No Abstract Explanation
Upholding the concept of co-prosperity in corporate social responsibility and management strategies, Innolux Corporation and Innolux Education Foundation jointly promote
community participation and social care, with philanthropic care and environmental education as the main axes, thereby achieving the synergistic effects of sustainable
management.
(1) Charity Care: Dream-come-true Christmas gift activities, Guardian of love-breakfast donation activities, support of disadvantaged groups in cooperation with the Taiwan
Fund for Children and Families.
(2) Environmental Education: Promoting rejuvenation of native ecological bases, native exploration and experience campus, and Advancing to Campus Project-Guide to the
Native Bases.
In reference to the LBG’s (London Benchmark Group) community investment assessment model, investments in social welfare have been quantified, totaling NT$6,619,000 in
2017. The analysis of the activity types show community investments in the amount of NT$2,869,000, accounting for 43%, donations in the amount of NT$2,050,000,
accounting for 31%, and business promotion in the amount of NT$1,700,000, accounting for 26%. In terms of the company’s performance in corporate social responsibility, in
addition to releasingreports,relevant information is also released through the companywebsite andpublic information observatory.
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 2017 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.

41

3.4.6 Ethical Corporate Management

3.4.6 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
Yes		 (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) 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 established relevant systems for loding complaints as a means for
offending employees to seek aid also states in the Innolux Management
Standards for Corruption Case Investigation
(III) Innoux has established clearly defined regulations and announced on the
official website and internal website for employees to studies and follow, if
there the company 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		 Yes (I) The company request for global suppliers has a cooperation relationship to
follow the Supplier CSR Code of Conduct OperatingStandards and sign the		 Conformity with the Integrity
Operation Practice Principles for
TWSE/GTSM-Listed Companies

42

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
ethics-related clauses in business
contracts?
(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 Supplier's Undertaking about the Code of Conduct Integrity, the company
request suppliers to guarantee that they will refrain from bribes or offering to
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 for employees immideted report the case and
also finished questionnaire for annual basis.
(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 for one hour on corporate
social responsibility, there are 13,589 employees been trained in 2017, 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 by the
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?		 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 isprosecuted.		 Conformity with the Integrity
Operation Practice Principles for
TWSE/GTSM-Listed Companies

43

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 standard
operating procedures for confidential
reporting on investigating accusation
cases?
(III) Does the company provide proper
whistleblower protection?		 Yes
Yes		 (II) Innolux Corporation ratified the Innolux Management Standards for
Corruption Case Investigation as the investigation standard for incidents and
related confidentiality systems.
(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 any
revenge 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.

44

3.4.7 Corporate Governance Guidelines and Regulations

Please refer to the Company’s website at www. innolux.com,and the page 25-51 of annual report.

3.4.8 Other Important Information Regarding Corporate Governance

  1. 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.

  2. Status of Directors ' participation in corporate governance related courses and trainings as of the deadline of annual report publication


of annual report publication
of annual report publication
of annual report publication
of annual report publication
April 30,2018
Title Name Date SponsoringOrganization Course Hours
Chairman Jialian Investment
Co., Ltd.
Jyh-Chau Wang		 Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3
Director Hyield venture
Capital Co., Ltd.
Te-Tsai Huang		 Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3
Director I-Chen Investment
Ltd.
Chuang-Yi Chiu		 Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3
Director Innolux Education
Foundation
Chin-LungTing		 Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3
Independent
Director		 Chi-Chia Hsieh Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Independent
Director		 Bo-Bo Wang Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3
Independent
Director		 Stanley Yuk Lun
Yim		 Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3

45

  1. Status of managers‘participation in corporate governance related courses and trainings as of the deadline of annual report publication
April 30,2018 April 30,2018
Title Name Date SponsoringOrganization Course Hours
Chairman
&CEO		 Jyh-Chau Wang Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
President
&COO		 Chih-Hung Hsiao Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Excutive
Vice
President		 Chin-Lung Ting May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Vice
President		 Yao-Tong Chen May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Vice
President		 Hung-Wen Yang May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Vice
President		 Chih-Ming Chen May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Vice
President		 Chu-Hsiang Yang May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Finance
Supervisor		 Chien-Lang Lo May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinkingof IP management 3
Accounting
Supervisor		 Chin-Yuan Chang May 23,
2017		 Innolux Corporation Trade Secrets,Personal Information
Protection Act &Anti-corruption		 0.5
Aug 15,
2017		 Innolux Corporation Antitrust Law 0.5
Nov 14
2017		 Taiwan Corporate
Governance Association		 M&A Practice and Case studies 3
Innovative thinking of IP management 3

46

  1. 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 Public Accountant (CPA) 1 -
Certified Internal Auditor (CIA) - 2
Chartered Financial Analyst (CFA) 1 -
Financial Risk Manager (FRM) 1 -
Senior Securities Specialist 6 -
Securities Specialist 6 -
Internal controller test of SFI 1 -

47

3.4.9 Internal Control System

1. Statement of internal control system

Innolux Corporation Statement of Internal Controls

Date: Feb 9, 2018

According to the examination on internal control systems done by the Company itself in 2017, 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, 2017 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 9, 2018. Among the 7 attending Directors, no one raised any objection to the contents of this statement.

Innolux Corporation Chairman&CEO: Jyh-Chau Wang General Manager&COO: Chih-Hung Shiao

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

48

3.4.10 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.

3.4.11 Major Resolutions of Shareholders’ Meeting and Board Meetings

  1. Important resolutions and implementation made by the Shareholders’ Meeting by the end of 2017

  2. (1) Adoption of the 2016 Business Report and Financial Statements Status of execution: Resolution carried

    • Implementation Status: Fully implemented in accordance with the resolutions

  3. (2) Adoption of the Proposal for Distribution of 2016 Profits Status of execution: Resolution carried

    • Implementation Status: Fully implemented in accordance with the resolutions

  4. (3) Resolution to revise Articles of Incorporation of Innolux Corporation. Status of execution: Resolution carried

    • Implementation Status: Fully implemented in accordance with the resolutions and approve by the SIPA also upload to official website.

  5. (4) 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 and upload to official website on 20170620.

  6. (5) 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.

  7. (6) 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.

49

2.Important resolutions bythe Board for 2017prior to the deadline of annual reportpublication 2.Important resolutions bythe Board for 2017prior to the deadline of annual reportpublication
Date Major resolutions
7-4 Board Meeting
Feburary 10, 2017		 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.
Passed the Accountant assessment of the independence and appropriateness.
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.
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”.
7-5 Board Meeting
March 15,2017		 The change of General Manager of INX.
7-6 Board Meeting
May 10, 2017		 The Compensation Committee is proposing employee and directrs bonus for the year of
2016
Prepare and compile Innolux’s Business Report of the company for 2016.
Draft of Innolux’s Dividend Remittance for 2016.
The Company will not continue process the private placement approved by AGM
of 2016
Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of
Assets”
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
New proposals at the 2016 Annual Meeting of Shareholders
Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’
right for new shares in Quarter I, 2017
Proposal for execution of short-term loan agreements with financial institutions
The Compensation Committee isproposingmanager bonus for theyear of 2016
7-7 Board Meeting
July 26, 2017		 The Company’s consolidated financial statements, Q2 2017.
The termination of Global Depositary Receipt (GDR) program
Proposal for execution of short-term loan agreements with financial institutions.
7-8 Board Meeting
October 27, 2017		 The Company’s audit plan of 2018.
Amendment to part of the provisions of the Rules and Procedures for Meeting of the
Board of Directors and Audit Committee Charter
Established Corporate Social Responsibility Best Practice Principles of Innolux
Proposal for execution of short-term loan agreements with financial institutions.
Adjustment the salaryof Management.
7-9 Board Meeting
November 14,2017		 Acquisition of assets from related party.
7-10 Board Meeting
February 9, 2018
The Compensation Committee is proposing employee and directrs bonus for the year of
2016
To reclassify the unrealized loss under other comprehensive income of available-for-sale
financial assets to the line item ”other gains and losses” amounting
The Company’s individual financial statements and consolidated financial statements,
2017.

50

Date Major resolutions
Passed the Accountant assessment of the independence and appropriateness
The Company’s Business Plan 2018.
Proposal for the capital expenditures for the Company in 2018.
Amendment to part of the provisions of the“Articles of Incorporation”
Proposal to convene the Company’s regular shareholders meeting 2018.
Declaration of the Company’s internal control system 2017.
Proposal for execution of short-term loan agreements with financial institutions.
M&A of subsidiary USA and capital increase subsidiary in Japan.
Submittal of the“Full Incentives for Managerial Officers 2017”.

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

3.4.13 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
President Jyh-Chau Wang 2010/3/18 2017/3/15 Resigned

51

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 1,2017 - Dec 31,2017 -

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		 Remarks
System
Design		 Company
Registration		 Human
resource		 Others Subtotal
Pricewaterho
usecoopers		 Han-Chi Wu
Sheng-Chung Hsu		 14,108 - 80 - 17,897 17,977 Jan 1, 2017
to
Dec 31,2017		 Note1

Note1: Investment in R&D and Tax Service for established oversea subsidiary.

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: Mainly due to the earthquake 2016 cause the audit fee increased.

52

3.6 Replacement of CPA:

3.6.1 About predecessor CPA

3.6
Replacement of CPA:
3.6.1 About predecessor CPA
Date of change February9,2018
Reason for Replacement Due to accounting firm’s job rotation in accordance to relevant
regulations, the CPA Wu Han-Chi & Hsu, Sheng-Chung replaced by
Wu,Han-Chi & Liang,Hua-LingsinceQ1 2018.
Descriptions whether the
Company terminated or the
CPA did not accept the
appointment		 Parties
Status		 CPA The company
Termination of appointment － －
No longer accepted
(continued)appointment		 － －
Other than unqualified issues
in the audit reports within last
twoyears		 None
Differences with the
Company		 Yes － Accounting principles or
practices
－ Disclosure of Financial
Statements
－ Audit scope or steps
－ Others
None V
Descriptions
Other Revealed Matters
(Required to be disclosed by
Accounting Standards Article
20 section 2 first paragraph
item 4)		 None

3.6.2 About the Successor CPA:

3.6.2 About the Successor CPA:
AccountingFirm Pricewaterhousecoopers
Name of CPA Wu,Han-Chi & Liang,Hua-Ling
Date of appointment February9,2018
Consulting results regarding accounting
methods or accounting principles to specific
transactions or opinions on the financial
statements before appointment		 None
Successor CPA written disagreements to
former CPA		 None

3.6.3 Reply of the Previous Accountant: 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

53

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) 2017 As of Apr. 30, 2018
Holding
Increase
(Decrease)		 Pledged Holding
Increase (Decrease)		 Holding
Increase
(Decrease)		 Pledged Holding
Increase (Decrease)
Chairman Jialian investment Co., Ltd - - - -
Jyh-Chau Wang - - - -
Institutional Director Hyield Venture Capital Co., Ltd - - - -
Te-Tsai Huang - - - -
Institutional Director I-Chen investment Ltd. - - - -
Chuang-Yi Chiu - - - -
Institutional Director Innolux Education oundation(Note2) - - - -
Chin-Lung Ting - - - -
Independent Director Chi-Chia Hsieh - - - -
Independent Director Bo-Bo Wang - - - -
Independent Director Stanley Yuk Lun Yim - - - -
President&COO Chih-Hung Hsiao - - - -
Vice President Yao-Tong Chen - - - -
Vice President Hung-Wen Yang - - - -
Vice President Chih-Ming Chen (212,000) - (38,000) -
Vice President Chu-Hsiang Yang - - - -
Associate Vice President Ke-Yi Kao - - - -
Associate Vice President Tai-Chi Pan - - - -
Associate Vice President Kuo-Hsiung Kuo - - - -
Associate Vice President Chung-Kuang Wei (270,000) - (54,000) -
Associate Vice President Jia-Pang Pang - - - -
Associate Vice President Yu Shui Kuo - - - -
Associate Vice President Zheng-Xia Kuo (50,000) - - -
Associate Vice President Tien-Jen Lin - - - -
Associate Vice President Qing-Hui Lin (9,000) - (18,000) -
Associate Vice President Jun-Yi Yu - - - -
Associate Vice President Mao-Sheng Hung (297,000) - - -
Finance Supervisor Chien-Lang Lo - - - -
Accounting Supervisor Chin-Yuan Chang (81,000) - - -

Note 1: Refers to current managerial officers as of the printing date of the annual report Note 2: 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

54

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		 Remarks
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.
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 hosting Sanskrit
Vanguard
Emerging
Markets
Equity
Index
Fund account


138,390,952		 1.39% － － － － N.A. N.A.
Compal Electronics, Inc. 134,877,335 1.36% － － － － N.A. N.A.
Representative:
Hsu,Sheng-Hsiung		 3,107,754 0.03% － － － － N.A. N.A.
Foxconn Technology Co.,
Ltd.
127,556,349		 1.28% － － － － Hyield Venture
Capital Co.,Ltd		 Chairman
Hon Hai Precision
Ind. Co.,Ltd.		 Investing Company
Hua Zhu Investment
Co.,Ltd
Parent Company
Representative:
Hung,Chih-Chien		 62,372 － － － － － N.A. N.A.
Hua Zhu Investment Co.,
Ltd
121,036,800		 1.22% － － － － Foxconn
Technology Co.,
Ltd.		 Subsidiary companies
Representative:
Lu,Hsu-Tung		 － － － － － － N.A. N.A.
JPMorgan
Managed
Advanced Stars advanced
aggregate
International
EquityIndex


117,428,024		 1.18% － － － － N.A. N.A.
JPMorgan Chase Bank,
N.A., Taipei Branch in
Custody
for
Stichting
Depositary APG Emerging
Markets EquityPool



101,363,169		 1.02% － － － － N.A. N.A.

55

3.10 Ownership of Shares in Affiliated Enterprises

Unit: Shares: 12/31/2017

Affiliated
Enterprises		 Ownership by the
Company		 Ownership by the
Company		 Direct or Indirect
Ownership by
Directors/Managers		 Direct or Indirect
Ownership by
Directors/Managers		 Total Ownership Total Ownership
Shares % Shares % Shares %
Bright Information HoldingLtd. 4,910,000 100% - - 4,910,000 100%
Golden Achiever International Limited 40,250 100% - - 40,250 100%
InnoLux Corporation 32,000 100% - - 32,000 100%
Innolux HoldingLtd. 180,568,185 100% - - 180,568,185 100%
Innolux HongKongHoldingLimited 1,158,844,000 100% - - 1,158,844,000 100%
Innolux HongKongLimited - - 35,000,000 100% 35,000,000 100%
Innolux Optoelectronics GermanyGmbH - - 250 100% 250 100%
Innolux Optoelectronics Hong Kong Holding
Ltd.
-		 - 162,897,802 100% 162,897,802 100%
Innolux Japan Co., Ltd. 80 49% 82 51%- 162 100%
Innolux Optoelectronics USA, Inc. - - 1,000 100% 1,000 100%
Innolux Europe B.V. - - 375,810 100% 375,810 100%
Innolux Singapore HoldingPte. Ltd. 1 100% - - 1 100%
Innolux TechnologyGermanyGmbH - - 100,000 100% 100,000 100%
Innolux TechnologyUSA Inc. 1,000 100% - - 1,000 100%
KeywayInvestment Management Limited 1,656,410 100% - - 1,656,410 100%
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%
Nets TradingLtd. - - 900,001 100% 900,001 100%
Rockets HoldingLtd. - - 160,504,550 100% 160,504,550 100%
Stanford Developments Ltd. - - 164,000,000 100% 164,000,000 100%
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%
NanjingInnolux TechnologyLtd. - - - 100% - 100%
NanjingInnolux Optoelectronics Ltd. - - - 100% - 100%
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 Display LTD - - - 100% - 100%

56

IV. Capital Overview

4.1 Capital and Shares

4.1.1 Source of Capital

A. Type of Stock

Unit:Shares 4/22/2018

Share Type Authorized Capital Authorized Capital Authorized Capital Authorized Capital Authorized Capital Remarks
Outstanding Un-issued
Shares		 Total
Issued Shares Unlisted Total Shares
Common Shares 9,952,071,977 - 9,952,071,977 547,928,023 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		 None 2007.12.10
Yuan-Shang-Zih No.
0960033616

57

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
receipts
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		 None 2013.02.21
Yuan-Shang-Zih
No. 1020005099

58

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
with restricted employee rights at
nil consideration
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
2017.05 - 10,500,000 105,000,000 9,952,072 99,520,720 Capital reduced by 6,000 new
shares with restricted employee
rights		 None 2017.05.26
Zhu-Shang-Zih
No.1060014186

C. Information for Shelf Registration: None

59

4.1.2 Status of Shareholders

As of 04/22/2018

Item Government
Agencies
Financial
Institutions		 Other
Juridical
Person		 Domestic
Natural
Persons		 Foreign
Institutions
& Natural
Persons		 Total
Number of Shareholders 9 42 571 355,770 1,209 357,601
Shareholding (shares) 96,353,171 72,578,327 2,046,606,675 4,735,019,675 3,001,514,129 9,952,071,977
Percentage 0.97% 0.72% 20.57% 47.58% 30.16% 100%

4.1.3 Shareholding Distribution Status

A. Common Shares

As of 04/22/2018

Class of Shareholding (Shares) Number of Shareholders Shareholding (Shares) Percentage
1 ~ 999 83,690 26,068,396 0.26%
1,000 ~ 5,000 159,447 383,820,050 3.86%
5,001 ~ 10,000 48,259 384,721,390 3.87%
10,001 ~ 15,000 16,765 210,423,084 2.11%
15,001 ~ 20,000 13,143 245,943,957 2.47%
20,001 ~ 30,000 11,404 294,877,286 2.96%
30,001 ~ 50,000 10,043 409,728,397 4.12%
50,001 ~ 100,000 7,893 579,956,205 5.83%
100,001 ~ 200,000 3,651 524,898,775 5.27%
200,001 ~ 400,000 1,675 476,936,409 4.79%
400,001 ~ 600,000 539 265,608,514 2.67%
600,001 ~ 800,000 243 170,270,281 1.71%
800,001 ~ 1,000,000 163 148,756,875 1.50%
1,000,001 or over 686 5,830,062,358 58.58%
Total 357,601 9,952,071,977 100.00%

4.1.4 List of Major Shareholders

As of 04/22/2018

4.1.4 List of Major Shareholders As of 04/22/2018 As of 04/22/2018
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%
Hon Hai Precision Ind. Co.,Ltd. 147,965,363 1.49%
JPMorgan hosting Sanskrit Vanguard Emerging Markets Equity
Index Fund account
138,390,952		 1.39%
Compal Electronics,Inc. 134,877,335 1.36%
Foxconn TechnologyCo.,Ltd. 127,556,349 1.28%
Hua Zhu Investment Co.,Ltd 121,036,800 1.22%
JPMorgan
Managed
Advanced
Stars
advanced
aggregate
International EquityIndex
117,428,024		 1.18%
JPMorgan Chase Bank, N.A., Taipei Branch in Custody for
StichtingDepositaryAPG EmergingMarkets EquityPool
101,363,169		 1.02%

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

Unit: NT$ Thousand share

Item Year Year 2016 2017 As of 03/31/2018
Market Price per
Share		 Highest Market Price 12.35 16.65 14.75
Lowest Market Price 8.80 11.65 12.35
Average Market Price 10.58 13.65 13.30
Net Worth per
Share		 Before Distribution 22.71 26.56 26.91
After Distribution 22.61 － －
Earnings per
Share		 Weighted Average Shares
(thousand shares)		 9,947,293 9,952,051 9,952,072
Diluted
Earnings Per
Share
Adjusted Diluted
Earnings Per Share		 0.19 3.72 0.30
Dividends per
Share		 Cash Dividends 0.1 0.8(Note) N.A.
Stock
Dividends		 Dividends from
Retained Earnings		 － － －
Dividends from
Capital Surplus		 － － －
Accumulated Undistributed
Dividends		 None None None
Return on
Investment		 Price/Earnings Ratio 55.68 3.67 N.A.
Price/Dividend Ratio 105.80 17.06 N.A.
Cash Dividend Yield Rate 0.95% 5.86% N.A.

Note: 2017 Distribution of Dividends already gets approval from the Board of Directors, subject to shareholders’ approval in Annual General Shareholders’ Meeting.

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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 7, 2018 for profit distribution as follows: Cash Dividends to Common Shareholders from retained earnings: NT$ 0.8 (Per share). The proposal is subject to shareholders’ approval at the 2018 Annual Shareholders’ Meeting.

  • C. Significant changes of Dividend policy: None.

4.1.7 Effect of 2018 Share Dividends to Operating Performance and EPS.

No financial forecast disclosed for 2018, 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.

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  • 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 2017 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 Feburary 9, 2017 to have the

  • remuneration to employees paid in cash for an amount of NT$3,136,952,398 and the remuneration to directors for an amount of NT$48,260,806.

The estimated remuneration to employees and the estimated remuneration to directors referred to above is no different from the estimated expense in 2017.

  • (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 2016 Earnings Set Aside to Employee Bonus and Directors’ Remuneration:
Distribution of 2016 Earnings(NT$Thousand)
Directors' Remuneration $3,856
Employee Remuneration $231,338

As resolved by the stockholders in May 2017, employees’ bonus and directors’ remuneration were $231,388 and $3,856, respectively, resulting to a difference of $40,478 from the amounts in 2016 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 2017.

4.1.9 Buyback of Common Stock: None

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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: None.

  • 4.5 Employee Stock Options: None.

  • 4.6 Issuance of New Restricted Employee Shares: None.

  • 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None. 4.8 Financing Plans and Implementation: None.

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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, smart home 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 inYear2017 (%)of total sales
TFT-LCD 329,174,401 100%
Total 329,174,401 100%

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,

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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 407] 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.

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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 with narrow border, stylus pen 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 2017. 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 to 23-inch and 23.8-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. With an aspect ratio of 21:9, the ultra-wide screen is designed to increase the productivity of the commercial market through double-screen multiprocessing, expand the visual horizons to enhance visual enjoyment, and promote the scale of high-end markets in 2017.

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

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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 50-inch, 58-inch and 65-inch, 75-inch, 85-inch, 100-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％), including100-inch, 85-inch, 75-inch, 65-inch, 58-inch and 50-inch panels,

Mega-Zone was proposed to achieve pixel-level regional dimming control with dual panels in 4K2K LCD TV module to improve dark-state display quality, and deep black performance to improve the screen visibility. 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 2017 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.

On the design of panel appearance, the company provides ultra-narrow frames (<5mm) and ultra-thin design (thickness <4mm) using on products over 40-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.

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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, higher definition panel, and full screen and customize surface design. 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 2017, 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

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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, smart home 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 2017 March31,2018
R&D expense 12,916,721 2,934,683
Net Revenue 329,174,401 66,763,486
Percentage of revenue 3.92% 4.40%

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/58-inch/65-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. It has successfully developed a high-efficiency BT.2020 90% technology without Cd / Pb and other heavy metal materials, which can reduce the image distortion, caused by the adjustment of color and faithfully present all real-world images.

  • 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. In 2017, 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.

  • J. Mass producer of 65-inch/75-inch large 8K4K (7680X4320) panels with the highest resolution

70

in the world

(2) Monitors:

  • A. Release whole series wide viewing angle VA/AAS 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, for the market of gaming, provide highly response time,not only increase product value, but also provide client the best choice of high end monitor LCD panel.

  • D. Launched a 21.5-inch adjustable anti-spy display panel, designed a one-button switch to change the viewing angle, and quickly switch between general mode and anti-peep mode, which is suitable for high confidentiality needs of business people, government agencies, etc. to improve information security protection.

(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. Launched a full range of narrow-bezel notebook panels to achieve a high-screen share of the overall design trend, meet the narrow-side in the standard product specifications of VESA, but also continue to publish the ultimate product design, micro-frame design to expand the horizon.

  • F. Developed a 15.6-inch high-speed responsive low-blue, colorless, biased, gaming panel, using Innolux's LED chip design patented to effectively reduce 70% of the blue light. The product was certified by TUV Low German Blu-Ray to relieve eye fatigue and allow long-term use of electricity. Improving players have more comfortable enjoyment.

(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 stay ahead in 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.

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  • F. Deep Sensing Technology using a special electrode design to simulate 3D multi-finger-touch tactile sensation, combined with dual advantages of capacitive touch and resistance, highly identification surpasses 2D touch.

  • G.Successfully developed a full-screen, borderless, 6-inch wide color touch mobile panel. Through miniaturization of the drive lines, precise control of the plastic frame and cutting accuracy and design appearance of the glass achieves visual effects without borders, and the module surface is actively miniaturized, ultra-thin and lightweight. Increased specification advantage is extremely high.

(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.

In 2017, a 100-inch UHD high-luminosity quantum dot public display module was introduced to replace the traditional four-panel 55-inch panel mosaic to present the visual effects of a large-scale video wall, which is widely used in large-size billboards.

5.1.4 Long- and Short-Term Business Development Plans

a) 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 also create the happy win-win aspects through the teamwork.

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b) 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；% Unit；NT$thousand；%
Area Amount ofSales 2017 %
Domestic sales 115,922,366 35.22%
Foreign
sales		 China 68,728,719 20.88%
HongKong 75,037,923 22.80%

Europe		 11,408,208 3.47%
America 8,022,386 2.44%
Other Area 50,054,799 15.19%
Total amount of F/S 213,252,035 64.78%
Total 329,174,401 100.00%

2. Market Share

According to the statistic of IHS research report, until 2017, the market of the company’s big size panel shipment is 15%, due to the productivity contribution G8.6, YOY increased 4%, 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 14.3%, world’s third ranking performance; global market share of notebook (not including tablet) is 23% which is the world’s second ranking, global market share of tablet is 12% which is the world’s forth ranking, global market share of car panel is 12% which is the world’s second ranking. The market share of smart phone is 6.4%.Overall, under the tough economic environment, strong market competition; the company still maintains nice performance in the market of big size product application.

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 be 687 million chips in 2018.

If analyzing market size of several main application level, about LCD TV part, as new size development and new technical input and plus new capacity growth stable, global shipment of LCD TV will be 215 million in 2017 and average size increase an inch each year and might reacg 224 million in 2018. About LCD monitor, the shipment is 133 million and will slightly decline in 2018, but as the demand increased of big size and high resolution product, the penetration rate of high value product will increase gradually. About mobile PC (including notebook and tablet), due to the tablet is not popular after 2015, the shipment is 342 million in 2017 and the forecast will decline to 333 million in 2018.

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Data Source: iHS
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According to the estimation from IHS, global shipment of medium and small size panel will be 284 million in 2017, increased 2.5% compared with 2016. The shipment will be 298 million in 2018 and annual increased 4.9%. According to the estimation from Gartner,Cell phone shipment reach 156 million in 2017 and the forecast will increase to 166 million in 2018 and annual growth rate is 6%. As well-developed of Internet and smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall cell phone panel and internet products shipment is going to grow continually and will be the main growth power of middle and small size panel.

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Data Source: Gartner

The goable economic anabiosised gradually from depression, competition amidst the industries, expansion and competition by newly joining competitors amidst products and technology & know-how that have been developed and changed in each and every passing day, the TFT-LCD products would be subject to high level circulation uncertainty. In the face of the mounting cutthroat competition, we shall launch overall upgrade of all substances to deal with all sorts of challenges.

  • We shall boost marketing by means of improved operating efficiency, refined management, product development, customer services, technical research & development and such efforts. In turn, we will be able to intensify gross profit in sales, cost control to further intensify competitive edge.

  • Continued investment in research & development to suffice technical talents, improve product design and application of materials. We shall proceed with research & development of advanced and improved manufacturing process and new generation monitor technology & 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 new products. The products manufactured by our Company cover televisions, computers, mobile devices, 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.

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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 2017, 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 2017, 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.

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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 4K2K become the major spec of middle or high end product from 2017.

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 2017 deliver 1.56 billion and 2018 1.66 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.

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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

  • International Monetary Fund estimates that the global economy is gradually recovering, and the recent growth of developed economies has increased. However, regional differences in emerging economies and developing economies, where the proportion of global economic development is increasing, are obvious, and the atmosphere of tension in the geopolitical situation has not improved. The fluctuation of the U.S. dollar exchange rate will affect consumer electronics products that are denominated in U.S. dollars and pose risks to market demand. 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.

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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 , smart home 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,Supplier Z,Supplier O Good
Glass Supplier P,Supplier S,Supplier X,SupplierQ Good
Polarizer Supplier W,Supplier T,Supplier R,Supplier V Good

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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 2016 2017
Company
Name		 Amount Percent Relation
with Issuer		 Company
Name		 Amount Percent Relation
with Issuer
1 Customer A 41,448,102 14.44 None Customer A 50,574,810 15.36 None
2 Others 245,641,175 85.56 None Others 278,599,591 84.64 None
Net Total
Supplies		 287,089,277 100.00 － Net Total
Supplies		 329,174,401 100.00 －

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$
Item 2016 2017
Company
Name		 Amount Percent Relation
with Issuer		 Company
Name		 Amount Percent Relation
with Issuer
1 Others 168,042,304 100.00 None Others 177,515,840 100.00 None
Net Sales 168,042,304 100.00 － Net Sales 177,515,840 100.00 －

5.2.5 Production in the Last Two Years

Unit: NT Thousand$

Year
Output
Major Products		 2016 2016 2016 2017 2017 2017
Capacity Quantity Amount Capacity Quantity Amount
TFT-LCD 318,000 288,819 259,000,000 370,000 344,026 256,000,000
Total 318,000 288,819 259,000,000 370,000 344,026 256,000,000

5.2.6 Shipments and Sales over the Last Two Years

Unit：NT Thousand$

Year
Shipments
& Sales
Major Product		 2016 2016 2016 2016 2017 2017 2017 2017
Local Export Local Export
Quantity Amount Quantity Amount Quantity Amount Quantity Amount
TFT-LCD 81,543 95,497,599 254,020 191,591,678 108,791 115,922,366 278,172 213,252,035
Total 81,543 95,497,599 254,020 191,591,678 108,791 115,922,366 278,172 213,252,035

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5.3 Human Resources

Year 2016 2017 As of 4/30/2018
Number of
Employees		 Manager 2,682 2,662 2,665
IDL 13,582 12,690 12,520
DL 49,267 45,047 43,008
Total 65,531 60,399 58,193
Average Age 30.29 31.34 31.66
Average Years of Service 4.35 5.04 5.24
Education Ph. D. 0.12% 0.13% 0.14%
Masters 8.39% 9.12% 9.37%
Bachelor’s Degree 71.43% 70.75% 70.32%
Senior High School 15.76% 15.40% 15.35%
Below Senior High School 4.30% 4.60% 4.82%
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.

  1. 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; The company 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.

  2. 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.

  1. Employee welfare and the situation of implementation

  2. (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.

  3. (2) Our Employees have the labor insurance, citizen health insurance, and group insurance from the very first day of employment.

  4. (3) We have employee restaurants in all factories, and provide meal substitutes according to the company rules.

  5. (4) With the concepts of energy, comfortable life, and happiness, we built the employee’s

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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.

Under the functional participate and communicate system of Innolux, it is expected that there should be no labor disputes in the future

  1. Working environment and individual safety protection

  2. (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 2017, there are 701 participants at 32% attend the meeting in Taiwan and 246 participants at 35% in Mainland China.

Analysis and Statistics of Occupational Hazards

The company enhances the efficiency of environmental safety and hygiene related information conveyed within the organization through its electronic system that manages the environmental safety and hygiene management system and database.

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Through the electronic system, Hazard Identification and Risk Assessment System, Operation Safety Observation System, and Work Safety Analysis are linked. In addition, the “Horizontal System” is simultaneously adopted to horizontally launch corrective measures for preventing exceptional events to overseas plants in order to prevent recurrences of anomalies. Starting in 2016, the action-based and intelligent environmental safety and hygiene management system underwent development, and management indicators for plant environmental safety and hygiene management and risk management were established in order to enhance the ability to manage environmental safety and hygiene management and risk management operation status, as well as grasping the trends of change.

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 2017 the Disabling Frequency Rate (FR) and Severity Rate (SR) both decreased 11% and 12%, respectively compared to 2016 .

Through the execution of management plans, equipment safety protection in the respective plants has been improved, while process automation is promoted in order to reduce operational hazards and human hazards incurred by staff and equipment interfaces. Additionally, engineering risk assessment, hazard prevention, and other improvement projects are promoted. At the same time, improvement proposal and horizontal launch items will be actively promoted to enhance the plant performance rating item weights to encourage employees to participate.

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. Irregular meetings are conducted with contractors for two-way communication and coordination and doing PDCA if the accident happened.

The Contractor accident rate pointed at 0.29 and (IR) at 0.06 slightly increase in 2017 compared with 0.23 and 0.05 in 2016, but work-related fatalities rate pointed at 0, (LDR) at 2 in 2017 which is lower than 0.02 and 139 in 2016.

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 2017, 3,319 ESH training sessions were held, for a total of 318,573 participants. On average, employees joined over 5 training sessions per person per year.

(2) Loss Prevention Management Projects

Overall risk checks in each plant were completed in 2014. The checking results were classified and continued to be listed for the annual KPI improvement execution. In order to strengthen the reliability of the security protection systems of importation production facilities and the plants in the Greater China (including plants in Taiwan

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and China) the Subject Matter Audit, SMA was launched during 2015~2016. In 2017, the China Plant Loss Prevention Risk and Security Management Audit and various disaster mitigation strengthening projects were executed to implement the risk management system and strengthen corporate risk constitution. 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.

Disease prevention and management of workload

Innolux aims to effectively prevent abnormal workloads from causing diseases and ensure the safety and health of employees as follow:

A. Ensure that employees’ working hours, rest, and vacation conditions are in line with local labor regulations.

B.The health management system was implemented, including annual regular health checkups, risk case identification and management, anomaly tracking management, mental health management, matching work, fitness adjustment, etc.

C.Active promotion of cardiovascular disease and stress management-related preventive education and dissemination on the rules of working hours, knowledge of preventing workplace fatigue related diseases, and health management strategies to employees through various ways.

Management of Female Health Protection

In order to ensure the well-being of female employees and protect their health, Innolux Corporation, taking into consideration the impact of gender differences and pregnancy on health risks, has implemented maternal health protection activities and management, including:

A. In conjunction with the local labor laws, parental leave allowance is implemented, miscarriage prevention leave and family care leave rights are reinforced, related health protection measures are established, internal standard operating procedures are set up. For pregnant female employees, health risk assessments are implemented, hazard control and risk communication are carried out, and work adjustments are made as needed.

B. Health guidance during pregnancy and breastfeeding is provided to pregnant employees. Rest areas and breastfeeding rooms are provided to create a friendly working environment for female employees, taking into account the principles of maternity protection and gender equality in employment.

(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

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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.

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$21 Thousand.

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5.6 Important Contracts

Agreement Counterparty Period Major Contents 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
Equipment
Purchase		 Hon Hai Precision Ind.
Co., Ltd.		 Nov 29, 2017
till expiry of
warranty
period		 Machinery equipment Pursuant to the terms and
conditions set forth under
the Agreement
Syndicated Loans Bank of Taiwan and
bank groups		 Mar 12, 2015 -
Mar 12, 2020		 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, 2018		 3D Relevant technology &
know-how		 Pursuant to the terms and
conditions set forth under
the Agreement
Patent Foreign CompanyB Jan 1,2015 – IPS Relevantpatents Pursuant to the terms and

85

Agreement Counterparty Period Major Contents Restrictions
authorization Dec 31, 2020 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
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
Cross-licensing Multinational Enterprise
H		 Oct. 1, 2017–
Sep.30, 2022		 LCD Relevant technology &
know-how		 Pursuant to the terms and
conditions set forth under
the Agreement

86

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
2013 2014 2015 2016 2017
Current assets 171,701,969 189,380,812 138,866,987 126,998,131 158,529,955 150,158,193
Property, Plant and
Equipment		 273,505,759 233,609,843 199,482,740 201,360,858 220,864,627 217,632,686
Intangible assets 21,214,994 20,219,137 19,342,856 18,446,321 17,910,908 17,809,318
Other assets 41,778,163 39,306,763 29,749,753 24,674,238 17,553,268 17,387,694
Total assets 508,200,885 482,516,555 387,442,336 371,479,548 414,858,758 402,987,891
Current
liabilities		 Before
distribution		 300,586,751 199,135,498 110,471,463 116,165,904 131,894,172 121,846,656
After
distribution		 301,944,190 206,082,686 112,461,273 117,161,108 Note2 －
Non current liabilities 13,036,280 54,209,621 44,706,150 29,307,281 18,639,538 13,332,475
Total
liabilities		 Before
distribution		 313,623,031 253,345,119 155,177,613 145,473,185 150,533,710 135,179,131
After
distribution		 314,980,470 260,292,307 157,167,423 146,468,389 Note2 －
Equity attributable to
shareholders of theparent		 193,043,229 227,690,063 232,264,723 226,006,363 264,325,048 267,808,760
Capital stock 91,094,288 99,545,364 99,532,372 99,521,488 99,520,720 99,520,720
Capital surplus 96,058,741 99,584,369 99,643,564 99,647,810 99,646,919 99,646,928
Retained
earnings		 Before
distribution		 7,421,697 26,632,674 30,338,450 30,255,869 66,248,130 69,187,902
After
distribution		 7,331,202 19,685,486 28,348,640 29,260,665 Note2 －
Other equityinterest (1,531,497) 1,927,656 2,750,337 (3,418,804) (1,090,721) (546,790)
Treasurystock － － － － － －
Non controllinginterest 1,534,625 1,481,373 － － － －
Total
equity		 Before
distribution		 194,577,854 229,171,436 232,264,723 226,006,363 264,325,048 267,808,760
After
distribution		 193,220,415 222,224,248 230,274,913 225,011,159 Note2 －

Note 1: Financial data by IFRS from 2013 numbers are audited.

Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

87

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
2013 2014 2015 2016 2017(Note2)
Operatingrevenue 422,730,500 428,661,898 364,132,984 287,089,277 329,174,401 66,763,486
Grossprofit 37,759,115
50,385,001
46,640,105
26,088,491		 68,738,677 9,050,726
Income from operations 15,349,268 28,173,396 22,430,709 6,413,249 47,022,209 3,828,895
Non-operating income and
expenses		 (9,705,915) (5,639,056) (7,571,522) (1,421,129) 1,918,980 90,801
Income before tax 5,643,353
22,534,340
14,859,187
4,992,120		 48,941,189 3,919,696
Net income(Loss) 5,095,019 21,676,908 10,814,141
1,870,687		 37,028,609 2,939,772
Profit (loss) from
discontinued operations		 － － － － － －
Net income(Loss) 5,095,019
21,676,908
10,814,141
1,870,687		 37,028,609 2,939,772
Other comprehensive
income(income after tax)		 2,859,517
3,159,493
507,196
(6,152,001)		 2,286,939 543,931
Total comprehensive
income		 7,954,536
24,836,401
11,321,337
(4,281,314)		 39,315,548 3,483,703
Net income attributable to
shareholders of theparent		 5,102,568
21,676,759
10,815,594
1,870,687		 37,028,609 2,939,772
Net income attributable to
non-controllinginterest		 (7,549) 149
(1,453)		 － － －
Comprehensive income
attributable to Shareholders
of theparent		 7,953,076
24,844,853
11,352,532
(4,281,314)		 39,315,548 3,483,703
Comprehensive income,
attributable to
non-controllinginterests		 1,460
(8,452)		 (31,195) － － －
Earningsper share 0.57 2.31 1.09 0.19 3.72 0.30

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

88

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)
2013 2014 2015 2016 2017
Current assets 138,274,531 162,875,147 111,926,408 103,003,830 129,298,905
Property,Plant and Equipment 233,557,614 192,599,182 163,921,697 170,150,592 191,778,224
Intangible assets 21,114,443 20,127,184 19,264,025 18,375,538 17,681,078
Other assets 100,611,858 106,252,898 102,927,491 97,564,329 91,173,093
Total assets 493,558,446 481,854,411 398,039,621 389,094,289 429,931,300
Current
liabilities		 Before distribution 287,413,773 205,189,126 121,257,442 133,926,912 147,100,829
After distribution 288,771,212 212,136,314 123,247,252 134,922,116 Note2
Non current liabilities 13,101,444 48,975,222 44,517,456 29,161,014 18,505,423
Total
liabilities		 Before distribution 300,515,217 254,164,348 165,774,898 163,087,926 165,606,252
After distribution 301,872,656 261,111,536 167,764,708 164,083,130 Note2
Equity attributable to
shareholders of theparent		 193,043,229 227,690,063 232,264,723 226,006,363 264,325,048
Capital stock 91,094,288 99,545,364 99,532,372 99,521,488 99,520,720
Capital surplus 96,058,741 99,584,369 99,643,564 99,647,810 99,646,919
Retained
earnings		 Before distribution 7,421,697 26,632,674 30,338,450 30,255,869 66,248,130
After distribution 7,331,202 19,685,486 28,348,640 29,260,665 Note2
Other equityinterest (1,531,497) 1,927,656 2,750,337 (3,418,804) (1,090,721)
Treasurystock － － － － －
Non controllinginterest － － － － －
Total
equity		 Before distribution 193,043,229 227,690,063 232,264,723 226,006,363 264,325,048
After distribution 191,685,790 220,742,875 230,274,913 225,011,159 Note2

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

89

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)
2013 2014 2015 2016 2017(Note2)
Operatingrevenue 419,738,269 426,005,033 360,638,133 285,695,113 323,687,952
Grossprofit 27,531,818 36,395,248 33,712,246 14,853,964 57,451,834
Income from operations 11,300,119 20,439,440 15,826,909 513,079 40,633,793
Non-operatingincome and expenses (6,864,968) 1,238,394 (2,017,968) 3,147,845 4,441,800
Income before tax 4,435,151 21,677,834 13,808,941 3,660,924 45,075,593
Net income(Loss) 5,102,568 21,676,759 10,815,594 1,870,687 37,028,609
Profit (loss) from discontinued
operations		 － － － － －
Net income(Loss) 5,102,568 21,676,759 10,815,594 1,870,687 37,028,609
Other comprehensive income
(income after tax)		 2,850,508 3,168,094 536,938 (6,152,001) 2,286,939
Total comprehensive income 7,953,076 24,844,853 11,352,532 (4,281,314) 39,315,548
Net income attributable to
shareholders of theparent		 5,102,568 21,676,759 10,815,594 1,870,687 37,028,609
Net income attributable to
non-controllinginterest		 － － － － －
Comprehensive income attributable
to Shareholders of theparent		 7,953,076 24,844,853 11,352,532 (4,281,314) 39,315,548
Comprehensive income attributable
to non-controllinginterest		 － － － － －
Earningsper share 0.57 2.31 1.09 0.19 3.72

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

90

6.1.2 Auditors’ Opinions from 2013 to 2017

Year AccountingFirm CPA AuditingOpinion
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
2017 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
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
2017 None

91

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
2013 2014 2015 2016 2017
Financial
structure(%)		 Debt Ratio 61.71 52.50 40.05 39.16 36.29 33.54
Ratio of long-term capital
to property, plant and
equipment		 75.91 121.31 138.84 126.79 128.12 129.18
Solvency(%) Current ratio 57.12 95.10 125.70 109.32 120.19 123.24
Quick ratio 39.92 77.41 97.37 87.84 96.12 94.09
Interest earned ratio(times) 2.12 7.28 9.68 4.90 53.16 27.45
Operating
performance		 Accounts receivable
turnover(times)		 5.56 5.88 5.68 4.97 5.32 5.02
Average collectionperiod 66 62 64 73 69 73
Inventoryturnover(times) 7.67 8.41 9.29 9.02 8.91 6.75
Accounts payable turnover
(times)		 4.54 4.90 4.52 4.45 4.72 4.52
Average days in sales 48 43 39 40 41 54
Property, plant and
equipment turnover(times)		 1.40 1.69 1.68 1.43 1.56 1.22
Total assets turnover
(times)		 0.78 0.87 0.84 0.76 0.84 0.65
Profitability Return on total assets(%) 1.72 4.98 2.81 0.68 9.57 0.75
Return on stockholders'
equity(%)		 2.79 10.23 4.69 0.82 15.10 1.10
Pre-tax income to paid-in
capital(%)		 6.20 22.64 14.93 5.02 49.18 3.94
Profit ratio(%) 1.21 5.06 2.97 0.65 11.25 4.4
Earningsper share(NT$) 0.57 2.31 1.09 0.19 3.72 0.30
Cash flow Cash flowratio(%) 25.25 52.33 73.38 28.75 62.66 13.44
Cash flow adequacy
ratio(%)		 84.75 129.39 226.97 235.82 236.36 206.19
Cash reinvestment ratio(%) 12.91 14.58 9.86 4.12 10.02 1.02
Leverage Operatingleverage 4.77 3.02 3.35 7.78 1.97 3.71
Financial leverage 1.49 1.15 1.08 1.16 1.02 1.04
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 increase mainly due to the profitability increase in 2017.
2. Various ratios of profitability increase mainly due to the profits earned increased than 2016’s.
3. Cash flow ratio and Cash reinvestment ratio increase mainly due to the profitability increase in 2017 and cash
provided by operating activities increase.
4. Operatingleverage decrease mainlydue to theprofit increase.

Note 1: Financial Ratio Formula

  1. Financial Structure analysis

  2. (1) Debt ratio= Total Liabilities / Total Assets

  3. (2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property, plant and equipment, net

  4. Liquidity analysis

  5. (1) Current ratio = Current assets / Current liability

  6. (2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability

  7. (3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense

  8. Operating performance analysis

  9. (1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) = Sales / Average trade receivables

  10. (2) Days to collect accounts receivable = 365 / Average collection turnover

92

  • (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)

93

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)
2013 2014 2015 2016 2017
Financial
structure(%)		 Debt Ratio 60.89 52.75 41.65 41.91 38.52
Ratio of long-term capital to
property, plant and equipment		 88.26 143.65 168.85 149.97 147.48
Solvency(%) Current ratio 48.11 79.38 92.30 76.91 87.90
Quick ratio 34.07 65.50 71.48 62.14 69.93
Interest earned ratio(times) 2.03 8.23 9.59 5.40 49.02
Operating
performance		 Accounts receivable turnover(times) 5.66 6.03 5.82 5.20 5.90
Average collectionperiod 64 61 63 70 62
Inventoryturnover(times) 9.62 10.78 11.61 11.47 11.00
Accountspayable turnover(times) 3.11 3.39 3.40 3.55 3.47
Average days in sales 38 34 31 32 33
Property, plant and equipment
turnover(times)		 1.61 2.00 2.02 1.71 1.79
Total assets turnover(times) 0.80 0.87 0.82 0.73 0.79
Profitability Return on total assets(%) 1.65 4.95 2.76 0.65 9.19
Return on stockholders' equity(%) 2.81 10.30 4.70 0.82 15.10
Pre-tax income topaid-in capital(%) 4.87 21.78 13.87 3.68 45.29
Profit ratio(%) 1.22 5.09 3.00 0.65 11.44
Earningsper share(NT$) 0.57 2.31 1.09 0.19 3.72
Cash flow Cash flowratio(%) 17.30 44.53 39.11 24.06 55.59
Cash flowadequacyratio(%) 96.55 153.66 214.96 203.85 215.66
Cash reinvestment ratio(%) 9.34 14.02 5.79 4.25 10.55
Leverage Operatingleverage 5.81 3.63 4.12 79.9 2.04
Financial leverage 1.62 1.17 1.11 － 1.02
Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not
required.)
a) Times interest earned ratio increase mainly due to the profitability increase in 2016’s.
b) Various ratios of profitability increase due to the profitability increase than 2016’s.
c) Cash flow ratio and Cash reinvestment ratio increase mainly due to the cash provided by operating activities
increase in 2017
d) Operating leverage decrease mainly due to the operating profit increase.
e) Financial leverage increase mainlydue to theprofit increase.

Note 1: Financial Ratio Formula

  1. Financial Structure analysis

  2. (1) Debt ratio= Total Liabilities / Total Assets

  3. (2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property, plant and equipment, net

  4. Liquidity analysis

  5. (1) Current ratio = Current assets / Current liability

  6. (2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability

  7. (3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense

  8. Operating performance analysis

  9. (1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) = Sales / Average trade receivables

  10. (2) Days to collect accounts receivable = 365 / Average collection turnover

  11. (3) Average inventory turnover = Cost of goods sold / Average inventories

  12. (4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) = operating costs / Average trade payables

  13. (5) Average days to sell inventory = 365 / Average inventory turnover

  14. (6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net

  15. (7) Total assets turnover = Sales / Average total assets

  16. Return on investment analysis

  17. (1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets

  18. (2) Rate of return on equity = Profit / Average total Equity

  19. (3) Profit to sales = Profit / Sales

94

  • (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)

95

6.3 Audit Committee Report in the Most Recent Year

Audit Committee Report

The Board of Directors has duly submitted the 2017 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.

To

General Shareholders Meeting of the Company in 2018

Audit Committee

Chair: Chi-Chia Hsieh

Date: May 7, 2018

96

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

Please refer to page 113 of the annual report.

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

Please refer to page 195 of the annual report.

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

97

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		 2016 2017 Difference
Amount %
Current Assets(1) 126,998,131 158,529,955 31,531,824 24.83
Fixed Assets 201,360,858 220,864,627 19,503,769 9.69
Intangible assets 18,446,321 17,910,908 (535,413) (2.9)
Other Assets(2) 24,674,238 17,553,268 (7,120,970) (28.86)
Total Assets 371,479,548 414,858,758 43,379,210 11.68
Current Liabilities 116,165,904 131,894,172 15,728,268 13.54
OtherLiabilities-non-current(3) 29,307,281 18,639,538 (10,667,743) (36.40)
Total Liabilities 145,473,185 150,533,710 5,060,525 3.48
Capital stock 99,521,488 99,520,720 (768) －
Capital surplus 99,647,810 99,646,919 (891) －
Retained Earnings(4) 30,255,869 66,248,130 35,992,261 118.96
Other equity(5) (3,418,804) (1,090,721) 2,328,083 (68.10)
Non controllingequity － － － －
Total Stockholders' Equity 226,006,363 264,325,048 38,318,685 16.95
Analysis of changes in financial ratios:
1. Mainly due to increase in cash equivalents and inventory, also decrease in account receivable.
2. Mainly due to decrease in deferred tax assets.
3. Mainly due to decrease in long-term loan.
4. Mainly due to increase in special reserve and undistributed surplus earnings.
5. Mainly due to decrease in exchange differences on translation of foreign financial statements and increase
in unrealizedgain or loss on available-for-sale financial assets.

98

7.2 Analysis of Financial Performance

Unit: NT Thousand

Unit: NT Thousand Unit: NT Thousand
Year
Item		 2016 2017 Difference
Amount %
Gross Sales 287,089,277 329,174,401 42,085,124 14.66
Cost of Sales 261,000,786 260,435,724 (565,062) (0.22)
Gross Profit(1) 26,088,491 68,738,677 42,650,186 163.48
OperatingExpenses 19,675,242 21,716,468 2,041,226 10.37
OperatingIncome(2) 6,413,249 47,022,209 40,608,960 633.20
Non-operatingIncome and Expenses(3) (1,421,129) 1,918,980 3,340,109 (235.03)
Income Before Tax(4) 4,992,120 48,941,189 43,949,069 880.37
Tax Benefit(Expense)(5) 3,121,433 11,912,580 8,791,147 281.64
Net income(6) 1,870,687 37,028,609 35,157,922 1879.41
Other comprehensive income(7) (6,152,001) 2,286,939 8,438,940 (137.17)
Total comprehensive income(8) (4,281,314) 39,315,548 43,596,862 (1018.31)
Analysis of changes in financial ratios:

1. Mainly due to the TFT-LCD industry fluctuation, stabllize in the unit price and the well-controlled cost
cause the Gross Profit increased.
2. Mainly due to increase in Gross Profit.
3. Mainly due to increase in Investment Profit..
4. Mainly due to increase in Operating Income.
5. Mainly due to the TFT-LCD industry market better than 2016. The profit increase casuse estimated
income tax expense increased.
6. Mainly due to increase in Income Before Tax.
7. Mainly due to increase in Exchange Differences on Translation of Foreign Financial Statements and
Unrealized Gains (Losses) on Available-for-sale financial assets.
8. Mainlydue to increase in Net income and Other comprehensive income.

99

7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the Current Year

Unit: NT Thousand

Unit: NT Thousand
Year 2017 Ali
Items nayss
Net cash provided by
operatingactivities		 82,642,659 Net cash provided mainly due to depreciation and
reasonable control for operatingcycle.
Net cash used in investing
activities		 (21,332,109) Mainly due to additions to property, plant and
equipment.
Net cash used in financing
activities		 (29,602,740) 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
66,051,000 28,796,000 55,207,000 39,640,000 － －
2018 Analysis of changes in cash flow
Operating Activities: Net Cash inflow due to expected the company continuously optimize cost strutruct..
Investing Activities: Net cash outflow due to overcome difficulties continuously and capital expenditure for
new techniques
Financing Activities: Net cash inflow mainly due to bank loan drawdown.
RemedyActions for Cash Shortfall: None

7.4 Major Capital Expenditure Items

Capital Expenditures in 2017 focus on high-precision, narrow border, high aperture ratio, yield quality improvement,Generation 8.6, LTPS, LTPS equipments purchases and Green environmental protection, Total amount approximately 25,016,706 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.

Base on the new southbound policy of government, the company is planning to invest and establish the manufacturing bases in South East Asia

In the consolidated financial report of the Company in 2017, the investment gain recognized in equity method came to NT$274,854 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.

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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

  1. Interest rate

The global economy has experienced synchronized growth and will move into next year with a similar outlook. Among major economies, the US economy is expected to post mild expansion, while the euro area and Japan might show some signs of moderation. Growth in China and the ASEAN economies could grow at a slightly slower pace. Recently, central banks in advanced economies such as the US and the UK have been on the path toward gradual normalization of monetary policy, whereas Japan and most emerging market economies have continued with an accommodative monetary policy stance. The divergent path of monetary policy in major economies, the developments and impact of the US economic and trade policies, rising trade protectionism, and geopolitical risks will all add to the uncertainties surrounding the global economic and financial outlook.

The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan anticipated the economic growth rate (yoy) by 2018 would hit 2.29%, 0.29% downgrew the annual rate of 2017 at 2.58%. In sum, uncertainties still cast a shadow over next year's global economic outlook. The domestic economic growth is likely to pick up moderately, while the output gap remains negative. Both current inflationary pressures and future inflation expectations are anchored. The financial conditions have experienced some strains, while Taiwan's real interest rate stands at an appropriate level among major economies. In light of the above developments that maintaining the policy rates and the M2 target range unchanged will help to foster a stable financial environment and achieve sustained economic growth.

  1. Foreign exchange rates

  2. 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.

  3. 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.

  4. 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 2017, where the New Taiwan Dollars is appreciated by 1% over U. S. Dollars, the Company’s gross profit would drop 0.4%~0.55%.

  5. Inflation

  6. Currently, a continued upturn in international oil prices has pushed up domestic import prices. However, NT dollar appreciation has helped ease the pressure on imported inflation and the CPI is rather stable. Looking ahead to 2018, private sector might raise wages in step with the hikes in minimum wage and public sector employee pay, which could provide a thrust to prices. However, in the context of mild increases in international oil prices, moderate domestic demand, and the output gap remaining negative, the CPI and core CPI to both rise at a pace of 1.12% next year, reflecting a mild inflation outlook.

101

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.

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

  1. 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”.

  2. 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 2017, the Company invests research & development funds in amount 12,916,721 thousand, the amount will hit 12.6 billion in 2018, 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.

102

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

  1. 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 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.

  1. 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 represents 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

In order to expand the layout of LTPS technology, the company purchased equipment from Luzhu LTPS Plant from Hon Hai with a total amount of approximately NT$31.4 billion. The expected benefits are:

  • A. Increase the revenue of small and medium-sized businesses revenue to balance the proportion of TV products and make each size of product line more balanced.

  • B. After the LTPS equipment purchased from Hon Hai, the global area occupancy rate is expected to increase from 2% to 8%.

  • C. LTPS is an important foundation for OLED, miniLED, and uLED technologies, and increasing LTPS production capacity will contribute to the development of high-end mobile phone technology.

The expansion and addition of the new generation of factory buildings are all subject to the

103

professional feasibility assessment of the relevant technical team.

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 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

  1. 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.

  2. (1) 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. In December 2009, the Company reached a plea agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil government initiated an investigation case against the Company. The investigation is still ongoing and the Company has been cooperative with the investigation. As for civil lawsuits filed by some state governments in the U.S., downstream panel makers, and customers, the Company had reached settlement agreement individually.

  3. (2) Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and American subsidiaries 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.

    • In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In June 2017, the jury determined that some products of the Company and American subsidiaries constituted direct infringement of patent and ordered an infringement compensation for Eidos. The Company continued the legal fight by filing a post-trial motion in July 2017. 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.

  4. 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.

104

VIII. Special Disclosure

8.1 Summary of Affiliated Companies

==> picture [433 x 317] intentionally omitted <==

105

8.1.2 Innolux Subsidiaries

December 31, 2017

December 31,2017
Company Date of
Incorporation		 Address Capital Stock Business Activities
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 3,200,000 Sales company
Innolux Holding Ltd. Feb 28, 2002 Offshore Chambers, P.O.
Box,217,Apia,Samoa		 USD 191,927,259 Controlling Company
Innolux Hong Kong
Holding Limited		 Dec 14, 2005 Unit 2003, 20/F., Millennium City
3, 370 Kwun Tong Road,
Kowloon,HongKong		 HKD 1,101,478,739 Controlling Company
Innolux Hong Kong
Limited		 Feb 15, 2006 Unit 2003, 20/F., Millennium City
3, 370 Kwun Tong Road,
Kowloon,HongKong		 HKD 113,729,000 Entrepot trade
company
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
KongHoldingLtd.		 Nov 16, 2001 Unit 2003, 20/F., Millennium City
3, 370 Kwun Tong Road,
Kowloon,HongKong.		 HKD 162,897,802 Controlling Company
Innolux 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		 USD 6,000,000 Operating electronics
parts and computer
displaysale
Innolux Europe B.V. Mar 8, 2006 Stationstraat 39G, 6411NK,
Heerlen, The Netherlands		 EUR 37,581,000 Controlling Company
of Researching,
developing and
Testing
Innolux Singapore
Holding Pte. Ltd.		 June 28,2017 6 TEMASEK BOULEVARD,
#09-05, SUNTEC TOWER
FOUR,SINGAPORE(038986)		 USD 0 Controlling Company
Innolux Technology
Germany GmbH		 Feb 17, 2006 Kaiserswerther Strasse
115,D-40880 Ratingen, Germany		 EUR 100,000 Testing &
Maintenance
Company
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 1,656,410		 Controlling Company
Lakers Trading Ltd. Jun 4, 2004 Offshore Chambers, P.O.
Box,217,Apia,Samoa		 USD 1 Entrepot trade
company
Landmark International
Ltd.		 Apr 24, 2003 Vistra Corporate Services Centre,
Ground Floor NPF Building,
Beach Road,Apia,Samoa		 USD 709,450,000 Controlling Company
Leadtek Global Group
Limited		 Mar 30, 2005 Portcullis Chambers, 4th Floor,
Ellen Skelton Building, 3076 Sir
Francis Drake's Highway, P.O.
Box 3444, Road Town, VG1110,
Tortola,British Virgin Islands
USD 50,000,000		 Entrepot trade
company

106

Company Date of
Incorporation		 Address Capital Stock Business Activities
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 171,669,290 Controlling Company
Stanford Developments
Ltd.		 Aug 12, 1999 Offshore Chambers, P.O.
Box,217,Apia,Samoa		 USD 164,000,000 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		 P.O. Box 957, Offshore
Incorporations Centre, Road
Town, Tortola , British Virgin
Islands		 USD 146,847,000 Controlling Company
Toppoly
Optoelectronics
(Cayman) Ltd.		 Jul 17, 2001 Grand Pavilion, Hibiscus Way,
802 West Bay Road, P. O. Box
31119, 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.
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 146,000,000 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

107

Company Date of
Incorporation		 Address Capital Stock Business 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.

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.

108

As of 12/31/2017

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

As of 12/31/2017 As of 12/31/2017
Company Title Name Shareholding
Shares % (Investment
Holding)(Note)
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 Rou-Li Cheng - -
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 Rou-Li Cheng - -
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 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 Europe B.V. Chairman Tien-Jen Lin - -
Director van Riel, Lucien Franciscus
Henricus		 - -
Innolux Singapore Holding Pte. Ltd. Director Ching-LungTing - -
Director Cheng-ChungChiang - -
Director Lim Wan Hoon - -
Innolux Technology Germany GmbH Chairman Tien-Jen Lin - -
Director van Riel, Lucien Franciscus
Henricus		 - -
Director Adrianus Gosuinus Marie Kersten - -
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 - -
Nets TradingLtd. Chairman Xi-XiangHsu - -
Rockets HoldingLtd. Chairman Chih-HungHsiao - -
Stanford Developments Ltd. Chairman Chih-HungHsiao - -
Suns HoldingLtd. Chairman Chih-HungHsiao - -
ToppolyOptoelectronics(B.V.I.)Ltd. Chairman Jyh Chau,Wang - -
Toppoly Optoelectronics (Cayman)
Ltd.		 Chairman Jyh Chau, Wang - -
Warriors Technology Investments
Ltd.		 Chairman Chih-Hung Hsiao - -

109

Company Title Name Shareholding Shareholding
Shares % (Investment
Holding)(Note)
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-HungHsiao		 - 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 - -
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-Lang
Lo		 167,405,392 100%
Supervisor INX Representative -
Chin-Yuan Chang		 167,405,392 100%
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 - -

Note: Innolux 100% own or investment.

110

8.1.6 Operational Highlights of INX Subsidiaries

Unit: NT$ thousands, 12/31/2017

Company Capital
Stock		 Assets Liabilities Net Worth Net
Revenue		 Income
(Loss)
from
Operation		 Net
Income
(Loss)		 Basic
Earnings
(Loss) Per
Share
Bright Information Holding
Ltd.		 146,122 95,810 107 95,703 - 53 1,084 0.22
Golden Archiever
International Limited		 1,198 18,669 - 18,669 - - (41,026) (1,019.27)
InnoLux Corporation 95,232 55,962 53,462 2,500 - (1,333) (1,333) (41.72)
Innolux HoldingLtd. 5,711,755 20,423,738 - 20,423,738 - - 2,635,650 14.60
Innolux Hong Kong Holding
Limited		 4,193,330 3,802,977 - 3,802,977 - - 596,156 0.51
Innolux HongKongLimited 432,966 11,816,643 12,905,900 (1,089,257) 36,818,376 217,220 374,757 10.71
Innolux Europe B.V. 1,336,756 2,646,149 162,246 2,483,903 909,841 49,833 52,775 140.43
Innolux Optoelectronics
GermanyGmbH		 889 14,079 2 14,077 - - 634 2,534.71
Innolux Optoelectronics
HongKongHoldingLtd.		 620,152 1,394,290 - 1,394,290 - - 165,169 1.01
Innolux Japan Co.,Ltd. 83,027 3,535,793 381,962 3,153,831 2,511,062 28,185 23,652 146,000.06
Innolux Optoelectronics
USA,Inc.		 178,560 335,340 63,529 271,811 528,860 16,049 9,214 9,214.08
Innolux Technology
GermanyGmbH		 3,557 93,372 31,291 62,081 33,888 3,859 2,864 28.64
Innolux Technology USA
Inc.		 30 467,468 117,538 349,930 377,583 12,142 8,543 8542.63
Keyway Investment
Management Limited		 49,295 78,709 - 78,709 - (1) 13,100 7.91
Lakers TradingLtd. - 10,978,336 10,751,607 226,729 33,712,071 (164,760) - -
Landmark International Ltd. 21,113,232 44,227,194 - 44,227,194 - - (741,423) (1.05)
Leadtek Global Group
Limited		 1,488,000 19,985,152 18,985,986 999,166 18,503,392 143,365 1,326,504 26.53
Nets TradingLtd. 26,784 28,889 - 28,889 - - 1 -
Rockets HoldingLtd. 5,108,878 11,932,235 - 11,932,235 - - (31,714) (0.20)
Stanford Developments Ltd. 4,880,640 11,903,213 - 11,903,213 - - (33,332) (0.20)
Suns HoldingLtd. 540,949 8,264,697 - 8,264,697 - - 2,668,427 146.80
Toppoly Optoelectronics
(B.V.I.)Ltd.		 4,370,167 6,476,914 - 6,476,914 - - (99,582) (0.68)
Toppoly Optoelectronics
(Cayman)Ltd.		 4,369,274 6,476,566 - 6,476,566 - - (99,582) (0.68)
Warriors Technology
Investments Ltd.		 540,949 8,264,696 - 8,264,696 - - 2,668,427 146.80
Shanghai Innolux
Optoelectronics Ltd.		 624,960 4,591,789 3,197,499 1,394,290 10,775,836 228,838 165,169 -
Yuan Chi investment co.,Ltd 2,100,000 843,512 201 843,311 - (309) (108,668) -
Foshan Innolux Flnet
Electronics Ltd.		 4,555 9,223 3,383 5,840 48,535 1,063 1,274 -
Foshan Innolux
Optoelectronics Ltd.		 11,398,080 55,883,251 35,067,855 20,815,396 83,676,546 2,518,943 934,684 -
Foshan Innolux Logistics
Ltd.		 44,640 80,139 6,101 74,038 50,119 4,837 4,737 -
VAP Optoelectromics
(NanJing)Corp.		 300,576 33,963 15,668 18,295 - (122) (41,027) -
Nanjing Innolux Technology
Ltd.		 62,496 912,492 355,176 557,316 1,762,396 1,446 19,625 -
Nanjing Innolux
Optoelectronics Ltd.		 4,344,960 14,542,671 8,623,442 5,919,229 16,884,396 236,710 (116,971) -

111

Company Capital
Stock		 Assets Liabilities Net Worth Net
Revenue		 Income
(Loss)
from
Operation		 Net
Income
(Loss)		 Basic
Earnings
(Loss) Per
Share
InnoJoyInvestment Corp. 1,674,054 1,382,297 917 1,381,380 - (226) 65,209 0.39
Innocom Technology
(Shenzhen)Co.,LTD		 4,880,640 12,357,952 454,789 11,903,163 258,405 7,717 (33,371) -
Ningbo Innolux Flnet
Electronics Ltd.		 4,555 22,694 15,137 7,556 78,850 4,031 3,261 -
Ningbo Innolux Electronics
Ltd.		 136,635 419,831 48,120 371,711 338,130 152,051 130,536 -
Ningbo Innolux
Optoelectronics Co.,LTD		 9,225,600 33,678,224 14,352,909 19,325,315 43,836,922 1,476,197 (1,993,452) -
Ningbo Innolux Display
LTD		 4,761,600 12,641,579 8,476,662 4,164,917 23,722,312 821,524 314,967 -

8.2 Private Placement Securities in the Most Recent Years:

It has been approved by the Annual General Shareholders' Meeting held on 20 June, 2017 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.

  • 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: None.

112

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Shareholders of INNOLUX CORPORATION AND SUBSIDIARIES

Opinion

We have audited the accompanying consolidated balance sheets of Innolux Corporation (the “Company”) and its subsidiaries as at December 31, 2017 and 2016, 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, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and International Financial Reporting Standards, 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 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.

113

The key audit matters in relation to the financial statements for the year ended December 31, 2017 are outlined as follows:

Inventory valuation

Description

The industry is characterized in its significant fluctuations closely in connection with the economic environment. As the technology evolves rapidly, the Group’s existing products may become obsolete when the customers demand for new products or the Group fails to compete with the evolutionary production approach. The abovementioned factors thus affect the sales amount ultimately. The Group has evaluated the inventory by taking into account of allowance, obsoleteness or trivial sales amount and the cost has been written down to the net realizable value. For details of inventory, please refer to Note 6(6). As the amounts of inventories are material, the types of inventories vary, and the estimation of net realizable value for individually obsolete or damaged inventories is dependent upon significant management judgement, we consider inventory valuation a key audit matter.

How our audit addressed the matter

We assessed whether the accounting policies on the provision for the loss on decline in value and obsoleteness of inventory are reasonable and in accordance with the accounting principles, as well as whether they are applied consistently. We examined inventory aging report and assessed the reasonableness of provision for the loss on slow-moving inventory. We also assessed the reasonableness of net realizable value and the appropriateness of valuation basis.

Additions to property, plant and equipment

Description

The Group’s capital expenditures increased with its operational growth. For details of property, plant and equipment, please refer to Notes 6(8) 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 observation of certain assets to confirm that the purchased items exist.

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(10).

Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining

114

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.

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, 2017 and 2016.

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.

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,

115

individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • A. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one 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 Group’s internal control.

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

  • D. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our 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.

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

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

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

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

116

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 9, 2018

------------------------------------------------------------------------------------------------------------------------------------------------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.

117

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

Assets Notes
December31,2017
6(1)
$ 65,988,955
6(2)
405,060
6(4)(5)
41,322,705
7
17,727,082
7
1,212,164
6(6)
30,259,021
1,487,832
6(1) and 8
127,136
158,529,955
6(2)
257,676
6(3)
6,555,189
6(7)
1,491,139
6(8), 7 and 8
220,864,627
6(9)
562,697
6(10) and 8
17,910,908
6(26)
6,348,761
6(8) and 8
2,337,806
256,328,803
$ 414,858,758
(Continued)		 December31,2016
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
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		 $ 35,384,839
64,241
52,855,632
11,599,359
2,034,427
23,401,728
1,552,373
105,532
126,998,131
250,101
5,840,929
1,517,418
201,360,858
573,425
18,446,321
14,698,143
1,794,222
244,481,417
$ 371,479,548

118

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

Liabilities andEquity Notes
December31,2017
December31,2016
6(11)
$ -
$ 11,583,750
6(2)
52,500
1,190,148
50,876,500
51,875,305
7
2,565,010
5,120,235
6(12) and 7
58,897,804
22,916,097
1,891,188
1,912,797
6(16) and 9
5,460,862
3,765,234
6(13)
10,951,114
16,381,686
1,199,194
1,420,652
131,894,172
116,165,904
6(13)
17,287,788
28,128,467
6(26)
734,423
672,971
6(14)
617,327
505,843
18,639,538
29,307,281
150,533,710
145,473,185
6(17)
99,520,720
99,521,488
6(18)
99,646,919
99,647,810
6(19)
3,945,576
3,758,507
3,418,804
-

58,883,750
26,497,362
6(20)
(
1,090,721) (
3,418,804)
264,325,048
226,006,363
$ 414,858,758
$ 371,479,548
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
3320
Special reserve
3350
Unappropriated retained earnings
3400
Other equity interest
3XXX
Total equity
3X2X
Total liabilities and equity

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

119

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

Items Notes
7
6(6)(24) and 7

6(24)




6(21)
6(22)

6(23)

6(7)
6(26)



6(20)


6(26)

6(27)		 2017
2016
$ 329,174,401
$ 287,089,277
(
260,435,724)
(
261,000,786)
68,738,677
26,088,491
(
1,942,594)
(
2,301,561)
(
6,857,153)
(
6,241,602)
(
12,916,721)
(
11,132,079)
(
21,716,468)
(
19,675,242)
47,022,209
6,413,249
2,528,814
2,388,895
(
154,188)
(
3,103,952)
(
730,500)
(
893,526)
274,854
187,454
1,918,980
(
1,421,129)
48,941,189
4,992,120
(
11,912,580)
(
3,121,433)
$ 37,028,609
$ 1,870,687
( $ 49,571)
$ 44,027
8,427
(
7,485)
(
41,144)
36,542
(
1,643,264)
(
5,708,026)
4,322,008
(
339,384)
(
33,551)
(
27,676)
(
317,110)
(
113,457)
2,328,083
(
6,188,543)
$ 2,286,939
( $ 6,152,001)
$ 39,315,548
( $ 4,281,314)
$ 37,028,609
$ 1,870,687
$ 39,315,548
( $ 4,281,314)
$ 3.72
$ 0.19
$ 3.63
$ 0.19
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
7060
Share of profit/(loss) of associates and
joint ventures accounted for under equity
method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the period
Other comprehensive (loss) income (net)
Components of other comprehensive (loss)
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
(loss) income that will not be
reclassified to profit or loss
Components of other comprehensive
income (loss) that will be reclassified to
profit or loss
8361
Financial statements translation
differences of foreign operations
8362
Unrealized gain (loss) on valuation of
available-for-sale financial assets
8370
Share of other comprehensive loss of
associates and joint ventures accounted for
under equity method
8399
Income tax relating to the components of
other comprehensive loss that will be
reclassified
8360
Components of other comprehensive
income (loss) that will be reclassified
to profit or loss
8300
Other comprehensive income (loss) for the
year, net of tax
8500
Total comprehensive income (loss) for the
year
Profit attributable to:
8610
Owners of the parent
Other comprehensive income (loss)
attributable to:
8710
Owners of the parent
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.

120

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

2016
Balance at January 1
Appropriations of 2015 earnings:

Legal reserve
Cash dividends
Cancellation of restricted stock to employees
Changes in restricted stock to employees
Compensation related to share-based payment

Recognition of change in equity of associates in proportion to the Group's ownership
Profit for the year
Other comprehensive loss for the year

Balance at December 31
2017
Balance at January 1
Appropriations of 2016 earnings:

Legal reserve
Special reserve
Cash dividends
Cancellation of restricted stock to employees
Recognition of change in equity of associates in proportion to the Group's ownership
Profit for the year
Other comprehensive income for the year

Balance at December 31		 Notes Equity attributable to ow Equity attributable to ow Equity attributable to ow Equity attributable to ow ners ofthe parent Total
Common stock Capital surplus RetainedEarnings Ot her EquityIntere st
Legal reserve Special reserve Unappropriated
earnings		 Financial
statements
translation
differences of
foreign
operations		 Unrealized
gain (loss) on
available-for-s
ale financial
assets		 Employee
unearned
compensation
6(19)
6(15)
6(18)
6(20)
6(19)
6(18)
6(20)		 $ 99,532,372
-
-
(
10,884 )
-
-
-
-
-
$99,521,488
$ 99,521,488
-
-
-
(
768 )
-
-
-
$99,520,720		 $ 99,643,564
-
-
10,884
(
4,068 )
-
(
2,570 )
-
-
$99,647,810
$ 99,647,810
-
-
-
768
(
1,659 )
-
-
$99,646,919		 $ 2,676,947
1,081,560
-
-
-
-
-
-
-
$3,758,507
$ 3,758,507
187,069
-
-
-
-
-
-
$3,945,576		 $ -
-
-
-
-
-
-
-
-
$ -
$ -
-
3,418,804
-
-
-
-
-
$ 3,418,804		 $ 27,661,503
(
1,081,560 )
(
1,989,810 )
-
-
-
-
1,870,687
36,542
$26,497,362
$ 26,497,362
(
187,069 )
(
3,418,804 )
(
995,204 )
-
-
37,028,609
(
41,144 )
$58,883,750		 $ 1,695,294
-
-
-
-
-
-
-
(
5,735,702 )
($4,040,408 )
($ 4,040,408 )
-
-
-
-
-
-
(
1,676,815 )
($5,717,223 )		 $ 1,074,445
-
-
-
-
-
-
-
(
452,841 )
$ 621,604
$ 621,604
-
-
-
-
-
-
4,004,898
$4,626,502		 ($ 19,402 )
-
-
-
4,142
15,260
-
-
-
$ -
$ -
-
-
-
-
-
-
-
$ -		 $ 232,264,723
-
(
1,989,810 )
-
74
15,260
(
2,570 )
1,870,687
(
6,152,001 )
$226,006,363
$ 226,006,363
-
-
(
995,204 )
-
(
1,659 )
37,028,609
2,286,939
$264,325,048

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

121

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 loss of associates and joint ventures accounted
for under equity method
(Gain) loss from disposal of investments
Loss on disposal of property, plant and equipment
Impairment loss
Interest expense
Interest income
Dividend income
Unrealized foreign exchange (gain) loss
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
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
2017
2016
$ 48,941,189
$ 4,992,120
6(24)
33,564,048
41,418,534
6(24)
-
15,260
6(7)
(
274,854 )
(
187,454 )
6(22)
(
2,483,645 )
23,258
6(22)
597,261
163,659
6(22)
3,120,824
502,857
6(23)
730,500
874,879
6(21)
(
472,331 )
(
291,240 )
6(21)
(
151,677 )
(
177,880 )
(
4,725 )
4,725
(
1,486,042 )
1,012,239
11,532,927
(
4,665,841 )
(
6,127,723 )
(
8,966,506 )
845,803
1,648,507
(
6,857,293 )
5,864,361
64,541
(
444,504 )
23,807
(
7,263 )
(
998,805 )
(
5,194,646 )
(
2,555,225 )
1,760,302
6,975,259
(
1,636,830 )
1,695,628
(
1,786,525 )
(
221,458 )
289,323
16,688
(
12,343 )
86,474,697
35,198,992
(
3,832,038 )
(
1,799,745 )
82,642,659
33,399,247

(Continued)

122

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Proceeds from capital reduction of available-for-sale
financial assets
Proceeds from capital reduction and return of investments
accounted for under equity method
(Increase) decrease in other financial assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(Increase) decrease in other non-current assets
Interest received
Dividends received
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in short-term borrowings
Increase in long-term borrowings
Payment of long-term borrowings
Repurchase from issuance of restricted stock to employees
Interest paid
Cash dividends paid
Net cash flows used in financing activities
Effect of changes in foreign currency exchange
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2017
2016
( $ 122,755 )
$ -

2,907,052
222,372
145,575
159,335
-
23,680
(
45,381 )
2,091,694
6(28)
(
25,016,706 )
(
44,152,843 )
263,357
42,268
(
327,760 )
(
22,251 )
(
2,404 )
38,230
448,903
326,610
418,010
404,576
(
21,332,109 )
(
40,866,329 )
(
11,579,025 )
11,579,025
-
822,702
(
16,440,000 )
(
16,440,000 )
-
(
1,372 )
(
588,511 )
(
747,143 )
6(19)
(
995,204 )
(
1,989,810 )
(
29,602,740 )
(
6,776,598 )
(
1,103,694 )
(
2,894,271 )
30,604,116
(
17,137,951 )
35,384,839
52,522,790
$ 65,988,955
$ 35,384,839

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

123

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 the 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 9, 2018.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

  • a) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

124

New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:
applying the consolidation exception’
Amendments to IFRS 11, ‘Accounting for acquisition of interests in
joint operations’
IFRS 14,‘Regulatory deferral accounts’
Amendments to IAS 1, ‘Disclosure initiative’
Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable
methods of depreciation and amortisation’
Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’
Amendments to IAS 19, ‘Defined benefit plans: employee
contributions’
Amendments to IAS 27, ‘Equity method in separate financial
statements’
Amendments to IAS 36, ‘Recoverable amount disclosures for non-
financial assets’		 January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014

125

New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IAS 39, ‘Novation of derivatives and continuation of
hedge accounting’
IFRIC 21, ‘Levies’
Annual improvements to IFRSs 2010-2012 cycle
Annual improvements to IFRSs 2011-2013 cycle
Annual improvements to IFRSs 2012-2014 cycle		 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 financial performance 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.

b) 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 the FSC effective from 2018 are as follows:

follows:
New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 2, ‘Classification and measurement of share-
based payment transactions’
Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with
IFRS 4 Insurance contracts’
IFRS 9, ‘Financial instruments’
IFRS 15, ‘Revenue from contracts with customers’
Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from
contracts with customers’
Amendments to IAS 7, ‘Disclosure initiative’
Amendments to IAS 12, ‘Recognition of deferred tax assets for
unrealised losses’
Amendments to IAS 40, ‘Transfers of investment property’
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’		 January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018
January 1, 2018

126

New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
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’		 January 1, 2017
January 1, 2018

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. A. IFRS 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 measured 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 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 recognise 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

127

of the remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised 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.

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 over 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.

The Group expects to provide additional disclosure to explain the changes in liabilities arising from financing activities.

When adopting the new standards endorsed by the FSC effective from 2018, the Group will apply the new rules under IFRS 9 and IFRS 15 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. The significant effects of applying the new standards as of January 1, 2018 are summarized below:

  • A. In accordance with IFRS 9, the Group expects to reclassify available-for-sale financial assets in the amount of $5,086,506, and make an irrevocable election at initial recognition on equity instruments not held for dealing or trading purpose, by increasing financial assets at fair value through other comprehensive income in the amount of $5,086,506. There will be no effect on retained earnings and other equity interest.

  • B. In accordance with IFRS 9, the Group expects to reclassify available-for-sale financial assets in the amounts of $1,468,683 by increasing financial assets at fair value through profit or loss in the

128

amount of $1,468,683. There will be no effect on retained earnings and other equity interest.

C. Presentation of contract assets and contract liabilities

In line with IFRS 15 requirements, the Group expects to change the presentation of certain accounts in the balance sheet as follows:

Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are

recognized as contract liabilities, but were previously presented as accounts receivable - allowance for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance would amount to $2,327,123.

c) 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 endorsed by the FSC effective are as follows:

endorsed by the FSC effective are as follows:
New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 9, ‘Prepayment features with negative
compensation’
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets
between an investor and its associate or joint venture’
IFRS 16, ‘Leases’
IFRS 17, ‘Insurance contracts’
Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’
Amendments to IAS 28, ‘Long-term interests in associates and joint
ventures’
IFRIC 23, ‘Uncertainty over income tax treatments’
Annual improvements to IFRSs 2015-2017 cycle		 January 1, 2019
To be determined by
International Accounting
Standards Board
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. The quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

129

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.

(a) Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

  • (b) Basis of preparation

  • A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:

    • (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

    • (b) 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 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.

(c) 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) Significant 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

130

non-controlling interests having a deficit balance.

  • (d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity.

  • (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. 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 would be reclassified to profit or loss when the related assets or liabilities are disposed of.

  • B. Subsidiaries included in the consolidated financial statements:

131

Main
Business
Name of Investor
Name of Subsidiary
Activities
Innolux Corporation
Bright Information Holding
Ltd.
Investment holdings
Golden Achiever
International Limited
Investment holdings
Innolux Holding Limited
Investment holdings
Keyway Investment
Management Limited
Investment holdings
Landmark International Ltd.
Investment holdings
Toppoly Optoelectronics
(B.V.I.) Ltd.
Investment holdings
Innolux Hong Kong Holding
Limited
Investment holdings
Leadtek Global Group
Limited
Distribution
company
Yuan Chi Investment Co.,
Ltd.
Investment
company
InnoJoy Investment
Corporation
Investment
company
Innolux Optoelectronics
Europe B.V.
Investment and
distribution
company
Innolux Japan Co., Ltd.
(Formerly named: Innolux
Optoelectronics Japan Co.,
Ltd.)
Investment, R&D,
manufacturing and
distribution
company
Innolux Corporation
Distribution
company
Innolux Technology USA
Inc.
Distribution
company
Innolux Singapore Holding
Pte. Ltd.
Investment holdings
Golden Achiever
International Limited
VAP Optoelectronics
(Nanjing) Corp.
Processing company
Innolux Holding
Limited
Rockets Holding Ltd.
Investment holdings
Suns Holding Ltd.
Investment holdings
Lakers Trading Ltd.
Distribution
company		 December 31, December 31,
2017
2016
Description
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
-
100
(e)
49
100
(d)
100
-
(f)
100
-
(f)
100
-
(g)
100
100
-
100
100
-
100
100
-
100
100
-
Ownership (%)

132

Main
Business
Name of Investor
Name of Subsidiary
Activities
Innolux Holding
Limited
Innolux Corporation
Distribution
company
Keyway Investment
Management Limited
Ningbo Innolux Logistics
Ltd.
Warehousing
company
Foshan Innolux Logistics
Ltd.
Warehousing
company
Landmark
International Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Processing company
Foshan Innolux
Optoelectronics Ltd.
Processing company
Ningbo Innolux Display Ltd. Processing company
Toppoly
Optoelectronics
(B.V.I.) Ltd.
Toppoly Optoelectronics
(Cayman) Ltd.
Investment holdings
Innolux Hong Kong
Holding Limited
Innolux Optoelectronics
Hong Kong Holding Limited
Investment holdings
Innolux Hong Kong Limited
Distribution
company
Innolux Europe B.V.
(Formerly named: Innolux
Technology Europe B.V.)
Investment,
distribution, and
R&D company
Innolux Technology Japan
Co., Ltd.
R&D company
Innolux Technology USA
Inc.
Distribution
company
Innolux Japan Co., Ltd.
(Formerly named: Innolux
Optoelectronics Japan Co.,
Ltd.)
Investment, R&D,
manufacturing and
distribution
company
Innolux
Optoelectronics
Europe B.V.
Innolux Optoelectronics
Germany GmbH
After sales service
company
Innolux Japan Co.,
Ltd. (Formerly named:
Innolux
Optoelectronics Japan
Co., Ltd.)
Innolux Optoelectronics
USA, Inc.
Distribution
company
Rockets Holding Ltd.
Best China Investments Ltd.
Investment holdings
Mega Chance Investments
Ltd.
Investment holdings
Magic Sun Ltd.
Investment holdings
Stanford Developments Ltd.
Investment holdings
Nets Trading Ltd.
Investment
company		 December 31, December 31,
2017
2016
Description
Ownership (%)
-
100
(f)
-
100
(a)
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
(e)
-
100
(d)
-
100
(f)
51
-
(d)
-
100
(e)
100
100
-
-
100
(b)
-
100
(b)
-
100
(b)
100
100
-
100
100
-

133

Main
Business
Name of Investor
Name of Subsidiary
Activities
Suns Holding Ltd.
Warriors Technology
Investments Ltd.
Investment
company
Toppoly
Optoelectronics
(Cayman) Ltd.
Nanjing Innolux Technology
Ltd.
Distribution
company
Nanjing Innolux
Optoelectronics Ltd.
Processing company
Kunpal Optoelectronics Ltd.
Processing company
Innolux
Optoelectronics Hong
Kong Holding Limited
Shanghai Innolux
Optoelectronics Ltd.
Processing company
Innolux Europe B.V.
(Formerly named:
Innolux Technology
Europe B.V.)
Innolux Technology
Germany GmbH
Testing and
maintenance
company
Innolux Optoelectronics
Germany GmbH
After sales service
company
Best China
Investments Ltd.
Asiaward Investment Ltd.
Investment holdings
Mega Chance
Investments Ltd.
Main Dynasty Investment
Ltd.
Investment holdings
Magic Sun Ltd.
Sun Dynasty Development
Ltd.
Investment holdings
Stanford
Developments Ltd.
Innocom Technology
(Shenzhen) Co., Ltd.
Processing company
Ningbo Innolux
Display Ltd.
Ningbo Innolux Electornics
Ltd.
Distribution
company
Ningbo Innolux
Optoelectronics ltd.
Ningbo Innolux Flent
Electornics ltd.
Distribution
company
Foshan Innolux
Optoelectronics ltd.
Foshan Innolux Flent
Electornics ltd.
Distribution
company		 December 31, December 31,
2017
2016
Description
Ownership (%)
100
100
-
100
100
-
100
100
(c)
-
100
(c)
100
100
-
100
100
-
100
-
(e)
-
100
(a)
-
100
(a)
-
100
(a)
100
100
-
100
100
-
100
100
-
100
100
-

  • (1) In the first quarter of 2017, the subsidiary had completed liquidation and dissolution.

  • (2) In the third quarter of 2017, the subsidiary had completed liquidation and dissolution.

  • (3) The Company conducted a merger of its subsidiaries, Nanjing Innolux Optoelectronics Ltd. and Kunpal Optoelectronics Ltd. which were wholly owned by the Company with the effective date of October 23, 2017. Nanjing Innolux Optoelectronics Ltd. was the surviving company while Kunpal Optoelectronics Ltd. was dissolved after the merger. Said transaction was accounted as reorganisation transaction.

  • (4) A subsidiary, Innolux Optoelectronics Japan Co., Ltd., which has 100% of shares directly owned by the Company, issued new shares to another subsidiary, Innolux Hong Kong Holding Limited, which also has 100% of shares directly owned by the Company, to obtain equity shares of and combined with Innolux Technology Japan Co., Ltd., which was reinvested by the Company. The surviving company was Innolux Optoelectronics Japan Co., Ltd. and the effective date was December 18, 2017. The transaction was accounted as reorganisation

134

transaction. And Innolux Optoelectronics Japan Co., Ltd. was renamed Innolux Japan Co., Ltd. on December 2017. 

  - (5) The Company's indirect 100% owned subsidiary, Innolux Technology Europe B.V., merged with a direct 100% owned subsidiary, Innolux Optoelectronics Europe B.V. The surviving company was Innolux Technology Europe B.V. which directly held a subsidiary that was reinvested by the Company, Innolux Optoelectronics Germany GmbH. The effective date was December 18, 2017, and the transaction was accounted as reorganisation transaction. And Innolux Technology Europe B.V. was renamed Innolux Europe B.V. on December 2017.

  - (6) The Company directly and wholly owned the 100% held reinvestment subsidiaries, Innolux Technology USA Inc. and Innolux Corporation, because of reorganisation in the fourth quarter of 2017. The transaction was accounted as reorganisation transaction.

  - (7) Innolux Singapore Holding Pte. Ltd. was incorporated during 2017. There was no capital injection as of December 31, 2017.

  • 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.

  • (d) 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 New Taiwan dollars, 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 statements as qualifying cash flow hedge.

  • (b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.

  • (c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

  • (d) All foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains and losses’.

  • B. Translation of foreign operations

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  • (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, even when 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, even when the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(e) Classification of current and non-current items

  • A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

  • A. Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

  • B. Assets held mainly for trading purposes;

  • C. Assets that are expected to be realized within twelve months from the balance sheet date;

  • D. Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.

  • B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

  • Liabilities that are expected to be settled within the normal operating cycle;

  • Liabilities arising mainly from trading activities;

  • Liabilities that are to be settled within twelve months from the balance sheet date;

  • 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.

(f) Cash equivalents

  • Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and 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.

(g) 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

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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.

(h) Available-for-sale financial assets

  • A. Available-for-sale financial assets are non-derivatives that are designated in this category.

  • B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.

  • C. 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.

  • (i) 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.

  • (j) 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 (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of one 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; or

    • (d) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

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  • 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 amortisation) 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, 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.

  • (k) 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; however, the Group has not retained control of the financial asset.

  • (l) 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.

  • (m) Inventories

Inventories are stated at the lower of cost and net realizable 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 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.

(n) Investments accounted for using equity method / associates

  1. 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

138 

  - 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.

  1. 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.

  2. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognizes change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.

  3. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’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 Group.

  4. (o) Property, plant and equipment

  5. ‧ Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

  6. ‧ 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.

  7. ‧ 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. 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.

  8. ‧ 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

(p) 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.

(q) Intangible assets

  • A. Goodwill arises in a business combination accounted for by applying the acquisition method.

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  • B. Patent, royalties and other intangible assets are amortized on a straight-line basis over their estimated useful lives of 2 ~ 10 years.

  • (r) 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 amortized 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. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

  • (s) Borrowings

  • A. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

  • B. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

  • (t) Notes and accounts payable

  • Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(u) 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.

140

  • 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.

  • (v) Provisions

Provisions (including warranties, litigation, etc.) are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

(w) Employee benefits

  • A. Short-term employee benefits

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

B. Pensions

  • (a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expense when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

  • (b) Defined benefit plans

  • i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

  • 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’ remuneration

  • Employees’ compensation and directors’ remuneration are recognized as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

- (x) 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

141

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:

    • (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 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’.

  • (y) Income taxes

  • 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 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 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 tax asset is realised or the deferred tax liability is settled.

  • D. Deferred 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 to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(z) Revenue recognition

The Group manufactures and sells TFT-LCD panel products. 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.

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(aa) 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 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.

(bb) 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.

CRITICAL ACCOUNTING 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. For the information of critical accounting judgements, estimates and key sources of assumption uncertainty 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, being the transfer of the accumulated fair value adjustments recognized in other comprehensive income on the impaired available-for-sale financial assets to profit.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions based on the expectation of future events that are believed to be reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be different from the 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:

143

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(10) 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. Evaluation of inventories

  • As inventories are stated at the lower of cost and net realizable value, the Group must determine the net realizable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

  • DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

there might be material changes to the evaluation.
AILS OF SIGNIFICANT ACCOUNTS
Cash and cash equivalents
Cash on hand, checking accounts and demand deposits
Time deposits
Cash equivalents - repurchase bonds		 December31,2017
37,758,696
$ 27,562,983
65,321,679
667,276
65,988,955
$		 December31,2016
8,392,955
$ 26,326,649
34,719,604
665,235
35,384,839
$

  • 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 $50,541 and $4,998 at December 31, 2017 and 2016, respectively, and were classfied as ‘other current assets’.

144

(2) Financial assets and liabilities at fair value through profit or loss

Financial assets and liabilities at fair value through profit or loss
Assets
Current items
Financial assets held for trading
Forward foreign exchange contracts
Forward exchange swap 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		 December31,2017
328,170
$ 76,890
405,060
$ 48,040
$ 209,636
257,676
$ December31,2017
52,500
$		 December31,2016
64,241
$ -
64,241
$ 77,019
$ 173,082
250,101
$ December31,2016
1,190,148
$

  • (a)The Group recognized net gain (loss) of $1,987,818 and ($1,244,206) on the financial instruments for the years ended December 31, 2017 and 2016, respectively.

  • (b)The non-hedging derivative financial assets and liabilities transaction information are as 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
swap contracts		 December 31,2017 December 31,2017 December 31,2016 December 31,2016
(in thousands)
Contract Amount
(Notional Principal)		 Contract Period (in thousands)
Contract Amount
(Notional Principal)		 Contract Period
USD (sell)
400,000
$ JPY (buy)
44,934,619
EUR (sell)
15,800
USD (buy)
18,841
EUR (sell)
34,200
JPY (buy)
4,554,765
HKD (sell)
371,732
EUR (buy)
40,000
USD (sell)
430,000
RMB (buy)
2,870,455
USD (sell)
410,000
TWD (buy)
12,289,569		 2017/10-2018/3
2017/10-2018/3
2017/10-2018/2
2017/10-2018/2
2017/10-2018/3
2017/10-2018/3
2017/12-2018/2
2017/12-2018/2
2017/7-2018/2
2017/7-2018/2
2017/12-2018/1
2017/12-2018/1		 USD (sell)
360,000
$ JPY (buy)
39,597,920
TWD (sell)
621,240
USD (buy)
20,000
EUR (sell)
19,000
USD (buy)
20,706
EUR (sell)
55,000
JPY (buy)
6,516,335
EUR (sell)
8,960
TWD (buy)
302,364
USD (sell)
715,000
RMB (buy)
4,948,754
HKD (sell)
330,712
EUR (buy)
39,000		 2016/10-2017/3
2016/10-2017/3
2016/9-2017/2
2016/9-2017/2
2016/10-2017/1
2016/10-2017/1
2016/9-2017/4
2016/9-2017/4
2016/12-2017/1
2016/12-2017/1
2016/9-2017/2
2016/9-2017/2
2016/10-2017/1
2016/10-2017/1

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of import and export proceeds in foreign currency. However, these forward foreign exchange contracts are primarily for the requirement of capital management and not accounted for using hedge accounting.

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(3) Available-for-sale financial assets

Available-for-sale financial assets
Items
Non-current items
Listed stocks
Emerging and unlisted stocks		 December31,2017
5,969,565
$ 585,624
6,555,189
$		 December31,2016
5,295,578
$ 545,351
5,840,929
$

  • 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, 2017 and 2016. Please refer to Note 6(20).

  • B. For the years ended December 31, 2017 and 2016, the Company and its subsidiary assessed that investment value of certain investee companies was impaired and recognized impairment loss of $3,120,824 and $500,000 which is listed as ‘other gains and losses’.

(4) Notes receivable and accounts receivable


Notes receivable and accounts receivable
December31,2017 December31,2016
Notes receivable $ 27,641
 $ -
Accounts receivable 43,731,467 53,798,678
43,759,108 53,798,678
Less: Allowance for sales returns and discounts ( 2,326,907)
 ( 833,545)
Allowance for bad debts ( 109,496)
 ( 109,501)
$ 41,322,705
 $ 52,855,632

  • 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:

is as follows:
Up to 60 days
61 to 180 days
Over 180 days		 December31,2017
3,321,622
$ 193,350
1,258
3,516,230
$		 December31,2016
391,369
$ 8,364
-
399,733
$

  • C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:

  • (a) As of December 31, 2017 and 2016, the Group’s accounts receivable that were impaired were $109,496 and $109,501, respectively.

  • (b) Movement on allowance for bad debts for impairment loss on individual provision is as follows:

At January 1
Allowance for bad debts - write-offs
Net exchange difference
(
At December 31		 2017
2016
109,501
$ 118,516
$ -
9,001)
(
5)

14)
(
109,496
$ 109,501
$		 2016
  • (5) 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

146

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.

As of December 31, 2017, all the accounts receivable sold were collected and as of December 31, 2017 and 2016, the Company entered into factoring agreements with CTBC Bank, Taipei Fubon Commercial Bank, and Bank of Taiwan in the amount of $18,451,200, $5,952,000, and $1,190,400; and $19,995,000, $6,450,000, and $0, respectively.

(6) Inventories

and $19,995,000, $6,450,000, and $0, respectively.
Inventories
Raw materials and supplies
Work in process
Finished goods		 December31,2017
3,921,134
$ 13,754,503
12,583,384
30,259,021
$		 December31,2016
3,352,916
$ 12,345,964
7,702,848
23,401,728
$

  • A. For the years ended December 31, 2017 and 2016, the Company and subsidiaries recognized cost of goods sold for inventories that have been sold at $260,371,976 and $260,067,090, and recognized net inventory loss at $63,748 and $933,696 due to write down (reversal) of cost of scrap inventories to net realizable value, respectively.

  • 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.

(7) Investments accounted for under the equity method


inventories were destroyed. Please refer to Note 10 for
Investments accounted for under the equity method
details.
Ampower Holding Ltd.
FI Medical Device Manufacturing Co., Ltd.
Others		 December31,2017
853,016
$ 525,926
112,197
1,491,139
$		 December31,2016
870,941
$ 451,943
194,534
1,517,418
$

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


below:
Profit for the year from continuing operations
Other comprehensive loss - net of tax
(
Total comprehensive income		 2017
2016
274,854
$ 187,454
$ 33,551)

27,676)
(
241,303
$ 159,778
$ Years endedDecember31,
2017
274,854
$ 33,551)

(
241,303
$

147

2017

(8) Property, plant and equipment

2017
Transfer, net
exchange
differences
At January1 Additions Disposals and others At December 31
Cost:
Land 3,852,792
$		 $ -
 $ -
 $ -
 $ 3,852,792
Buildings 193,290,765 561,168 ( 340,514)
 2,906,444 196,417,863
Machinery and equipment 438,234,703 29,244,575 ( 7,438,732)
 36,753,956 496,794,502
Other equipment 36,511,450 473,132 ( 1,199,395)
 3,976,274 39,761,461
671,889,710 30,278,875 ( 8,978,641)
 43,636,674 736,826,618
Accumulated depreciation
and impairment:
Buildings ( 105,693,860)
 ( 9,118,112)
 286,562 168,636 ( 114,356,774)
Machinery and equipment ( 371,358,748)
 ( 19,086,064)
 6,777,534 ( 611,738)
 ( 384,279,016)
Other equipment ( 29,890,362)
 ( 4,162,139)
 1,151,295 ( 303,797)
 ( 33,205,003)
( 506,942,970) ( 32,366,315) 8,215,391 ( 746,899)
 ( 531,840,793)
Unfinished construction and
equipment under acceptance 36,414,118 23,779,405 ( 105,943)
 ( 44,208,778) 15,878,802
$ 201,360,858 $ 220,864,627
2016
Transfer, net
exchange
differences
At January1 Additions Disposals and others At December 31
Cost:
Land 3,852,792
$		 $ -
 $ -
 $ -
 $ 3,852,792
Buildings 185,696,326 67,493 ( 1,096,456)
 8,623,402 193,290,765
Machinery and equipment 432,460,229 212,508 ( 4,382,487)
 9,944,453 438,234,703
Other equipment 33,632,482 43,195 ( 1,216,192)
 4,051,965 36,511,450
655,641,829 323,196 ( 6,695,135)
 22,619,820 671,889,710
Accumulated depreciation
and impairment:
Buildings ( 95,892,428)
 ( 11,362,947)
 623,809 937,706 ( 105,693,860)
Machinery and equipment ( 352,326,878)
 ( 24,600,403)
 4,341,598 1,226,935 ( 371,358,748)
Other equipment ( 26,880,493)
 ( 4,253,632)
 1,267,015 ( 23,252)
 ( 29,890,362)
( 475,099,799) ( 40,216,982) 6,232,422 2,141,389 ( 506,942,970)
Unfinished construction and
equipment under acceptance 18,940,710 43,195,259 ( 219,936)
 ( 25,501,915) 36,414,118
$ 199,482,740 $ 201,360,858
  • A. Amount of borrowing costs capitalized as part of property, plant and equipment and the range of the interest rates for such capitalization are as follows:

nterest rates for such capitalization are as follows:
Capitalized amount
Range of the interest rates for capitalization		 Years endedDecember31,
2017
203,902
$ 2.15%~2.41%		 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, 2017 and 2016 was $0 and $2,857, 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.

148

  • D. As of December 31, 2017 and 2016, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $1,423,391 and $896,996, 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.

(9) Investment property


nvestment property
2017
At January1 Additions Transfers At December31
Cost:
Land $ 188,247
 $ -
 $ -
 $ 188,247
Buildings 439,228 - - 439,228
627,475 - - 627,475
Accumulated
depreciation and
impairment:
Buildings ( 54,050)
 ( 10,728)
 - ( 64,778)
$ 573,425 ($ 10,728) $ - $ 562,697
2016
AtJanuary1 Additions Disposals At December31
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

The fair value of the investment property held by the Group as at December 31, 2017 and 2016 was $1,423,964 and $1,109,891, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorized within Level 3 in the fair value hierarchy.

(10) Intangible assets

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

149

2017

2017
At January1
Additions
Cost:
Patents and royalty
8,154,685
$ -
$ Goodwill
17,096,628
-
Others
4,417,732
327,760
(
29,669,045
327,760
(
Accumulated amortization
and impairment:
Patents and royalty
7,528,072)
(
615,010)
(
Others
3,694,652)
(
571,995)
(
11,222,724)
(
1,187,005)
(
18,446,321
$ 859,245)
($ 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)
($		 Disposals
-
$ -
55,492)

55,492)

-
55,492
55,492
-
$ 2016		 Transfer, net
exchange
differences
and others
At December 31
-
$ 8,154,685
$ -
17,096,628
315,156
5,005,156
315,156
30,256,469
-
8,143,082)
(
8,676
4,202,479)
(
8,676
12,345,561)
(
323,832
$ 17,910,908
$ 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
$
Disposals
-
$ -
70,918)

70,918)

-
70,918
70,918
-
$
  • B. Details of amortization on intangible assets are as follows:
Operating costs
Operating expenses		 Years endedDecember31, Years endedDecember31,
2017
1,051,664
$ 135,341
1,187,005
$		 2016
1,004,043
$ 186,377
1,190,420
$
  • 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 6.32% and 5.86% for the years ended December 31, 2017 and 2016, 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, 2017 and 2016.

150

(11) Short-term borrowings

(12)
(13)		 As of December 31, 2017, the Group has no short-term borrowings.
Other payables
Long-term borrowings
Type ofborrowings
December31,2016
Collateral
Bank loans
Credit loans
11,583,750
$ None
Range of interest rates
0.83%~1.59%
December31,2017
December31,2016
Payable on machinery and equipment
32,381,338
$ 3,339,764
$ Wages and salaries and bonus payable
13,116,498
6,566,523
Repairs and maintenance expense payable
2,568,063
1,974,059
Utilities expense payable
1,070,308
1,064,275
Other payables
9,761,597
9,971,476
58,897,804
$ 22,916,097
$ Type of loans
Period
December31,2017
December31,2016
Syndicated bank loans
2015/3/12
~2021/12/6
28,400,000
$ 44,840,000
$ Less:
Administrative expenses
charged by syndicated banks
161,098)
(
329,847)
(
Current portion (includes
administrative expenses)
10,951,114)
(
16,381,686)
(
17,287,788
$ 28,128,467
$ Range of interest rates
1.75%~2.06%
1.77%~2.06%

Range of interest rates

  • A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.

  • B. In the third quarter of 2017, the Company applied to extend the expiry date for 2 years pursuant to the NT$68.5 billion syndicated loan agreement. On August 2, 2017, the Company was informed of the banks’ unanimous consent.

  • C. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, 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 year ended December 31, 2017 and 2016 are in compliance with the covenants on the syndicated loan agreement.

  • (14) 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 6 months prior to retirement. The Company and its domestic subsidiaries contribute

151

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 insufficient 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 contributions for the deficit by next March.

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

Present value of defined benefit obligations
Fair value of plan assets
(
Net defined benefit liability		 December31,2017
1,902,852
$ 1,548,769)


354,083
$		 December31,2016
1,827,687
$ 1,534,864)
(
292,823
$

(c) Movements in net defined benefit liabilities are as follows:

Present value of Present value of
defined benefit Fair value of Net defined
obligations planassets benefitliability
Year ended December 31, 2017
Balance at January 1 $ 1,827,687
 $ 1,534,864
 $ 292,823
Current service cost 6,711 - 6,711
Interest expense / income 31,071 26,093 4,978
37,782 26,093 11,689
Remeasurements:
Experience adjustments 49,488 ( 83)
 49,571
Benefits paid ( 12,105)
 ( 12,105)
 -
37,383 ( 12,188)
 49,571
Balance at December 31 $ 1,902,852
 $ 1,548,769
 $ 354,083
Present value of
defined benefit Fair value of Net defined
obligations planassets benefitliability
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

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

152

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 and domestic subsidiaries have no right to participate in managing and operating that fund and hence the Company and domestic subsidiaries are 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, 2017 and 2016 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,
2017
1.50%
1.50%		 2016
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:


affected. The analysis was as follows:
December 31, 2017
Effect on present value of defined
benefit obligation
(
December 31, 2016
Effect on present value of defined
benefit obligation
(		 Increase
Decrease
0.25%
0.25%
74,882)
$ 78,699
$ Increase
Decrease
0.25%
0.25%
75,371)
$ 79,187
$ Discountrate
Discountrate		 Future salaryincreases
Increase
Decrease
0.25%
0.25%
78,501
$ 75,063)
($ Future salaryincreases		 Decrease
0.25%
Increase
0.25%
75,371)
$		 Increase
0.25%
73,355
$ (		 Decrease
0.25%
70,354)
$

The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park Administration in February 2017.

(g) As of December 31, 2017, the weighted average duration of the retirement plan is 16 years.

B. Defined contribution pension plan

153

  • (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, 2017 and 2016 were $1,921,461 and $2,021,115, respectively.

(15) Share-based payment

  • a) As of December 31, 2017, the Company’s share-based payment transactions are set forth below:
below:
Type of arrangement
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)
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 (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.

  • (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 2011 to 2013 is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

154

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		 Expected
volatility
(%)
-
-
-
-
-
-
35.67		 Expected
duration
(month)
-
-
-
-
-
-
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
  • b) The details of the employee stock option plan for the year ended December 31, 2016 are as follows:
follows:

Stock Options
Options outstanding at the
beginning of the year
Options exercised
Options expired
(
Options outstanding at the
end of the year
Options exercisable at the
end of the year		 Year ended December 31,2016
Quantity
(in thousand
units)

50,000

-

50,000)


-

-
 Weighted
average
exercise
price
(in dollars)

$ 22.85
-
21.87
-

-		 Range of
exercise
price
(in dollars)
$ -		 Weighted
average
remaining
vesting
period

-		 Weighted
average
stock price of
stock options
at exercise
date(in dollars)
$ 9.99

There was no employee stock option plan for the year ended December 31, 2017.

  • c) For the years ended December 31, 2017 and 2016, the expenses incurred from share-based payment arrangements were $0 and $15,260, respectively.

(16) Provisions-current

At January 1, 2017
Additions during the year
Used during the year
(
At December 31, 2017		 Warranty

1,634,234
$ 2,320,000
1,263,072)

2,691,162
$		 Litigation and others
2,131,000
$ 638,700
-
(
2,769,700
$		 Total
3,765,234
$ 2,958,700
1,263,072)

5,460,862
$

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

155

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).

(17) Share capital

As of December 31, 2017, the Company’s authorized and outstanding capital were $105,000,000 and $99,520,720, with a par value of $10 (in dollars) per share, respectively. 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		 2017
Number of ordinary
shares(in thousands)
9,952,149
77)

(
9,952,072		 2016
Number of ordinary
shares(in thousands)
9,953,237
1,088)

9,952,149

  • A. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR which 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. The Company has terminated the contracts in relation to the circulation of GDR and its account of the depositary bank in order to lower administrative costs in accordance with the resolution by the Board of Directors on July 26, 2017.

  • B. 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, 2017 and 2016, the Company has retired 77 thousand and 1,088 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

(18) 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 Act 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.

156

2017

2017
At January 1
Cancellation of restricted stock to
employees
Vested restricted stock to
employees
Recognition of change in equity of
associates in proportion to the
Group's ownership
At December 31
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
Recognition of change in equity of
associates in proportion to the
Group's ownership
At December 31		 Share of
profit (loss)
of associates
accounted for
Restricted
under equity
stock to
Sharepremium
method
employees
99,614,516
$ 33,888
$ 594)
($ $ -
-
768
174
-
174)
(
-
1,659)
(
-
(
99,614,690
$ 32,229
$ -
$ $ 2016
$
Sharepremium
99,101,649
$ -
119,367
-
393,500
-
(
99,614,516
$

(19) 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 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.

157

  • 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 2016 and 2015 net income which was approved at the stockholders’ meeting in June 2017 and 2016, respectively, are as follows:

Legal reserve
Special reserve
Cash dividends		 Years ended December 31, Years ended December 31, Years ended December 31,
Dividends per
Amount
share(in dollars)
187,069
$ 3,418,804
995,204
0.10
$ 4,601,077
$ 2016		 2015
Amount
187,069
$ 3,418,804
995,204
4,601,077
$		 Amount
1,081,560
$ -
1,989,810
3,071,370
$		 Dividends per
share(in dollars)
0.20
$

The Company’s appropriations of earnings for 2017 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting in 2018.

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

(20) Other equity items

Currency
translation
At January 1
4,040,408)
($ Revaluation of available-for-sale
investments - gross
-
Revaluation transfer of available-for
-sale investment - gross
-
Currency translation differences
1,643,264)
(
Share of other comprehensive loss
of associates
33,551)
(
Effect of income tax
-
(
At December 31
5,717,223)
($		 2017

158

2016

2016
(21)
(22)
(23)		 Other income
Other gains and losses
Finance costs
Currency
translation

At January 1
1,695,294
$ $ Revaluation of available-for-sale
investments - gross
-
(
Revaluation transfer of available-for-
sale investment - gross
-
Currency translation differences
5,708,026)
(
Changes in restricted stocks to
employees
-
Compensation related to share-based
payment
-
Share of other comprehensive loss
of associates
27,676)
(
Effect of income tax
-
(
At December 31
4,040,408)
($ $ Rental revenue
Interest income
Dividend income
Other income
Net gain (loss) on financial assets and liabilities at fair
value through profit or loss
Net currency exchange (loss) gain

Gain (loss) on disposal of investments
Loss on disposal of property, plant and equipment

Impairment loss

Net disaster gain (loss)
Others


Interest expense:
Bank borrowings
Others
Factoring expense of accounts receivable		 Available-
Employee
for-sale
unearned
investments
compensation
Total
1,074,445

19,402)
($ 2,750,337
$ 839,384)

-
839,384)
(
500,000
-
500,000
-
-
5,708,026)
(
-
4,142
4,142
-
15,260
15,260
-
-
27,676)
(
113,457)

-
113,457)
(
621,604

-
$ 3,418,804)
($ 2017
2016
137,037
$ 162,665
$ 472,331
291,240
151,677
177,880
1,767,769
1,757,110
2,528,814
$ 2,388,895
$ Years ended December31,
2017
2016
1,987,818
$ 1,244,206)
($ 2,134,155)
(
1,360,559
2,483,645
23,258)
(
597,261)
(
163,659)
(
3,120,824)
(
502,857)
(
2,051,579
1,296,166)
(
824,990)
(
1,234,365)
(
154,188)
($ 3,103,952)
($ Years endedDecember31,
2017
2016
730,468
$ 874,873
$ 32
6
-
18,647
730,500
$ 893,526
$ Years ended December31,
$




2017
730,468
$ 32
-
730,500
$

159

(24) Expenses by nature

Expenses by nature
Employee benefit expense:
Salaries and other short-term employee benefits
Share-based payments
Post-employment benefits
Depreciation
Amortization		 Years endedDecember31,
2017
45,506,559
$ -
1,933,150
32,377,043
1,187,005
81,003,757
$		 2016
38,738,413
$ 15,260
2,034,184
40,228,114
1,190,420
82,206,391
$

(25) Employees’ compensation and directors’ 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’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ remuneration.

  • B. For the years ended December 31, 2017 and 2016, employees’ compensation was accrued at $3,136,952 and $192,788, respectively; while directors’ remuneration was accrued at $48,261 and $1,928, respectively. The aforementioned amounts were recognized in expenses.

The expenses recognized for 2017 were accrued based on the earnings of current year. The employees’ compensation and directors’ remuneration were $3,136,952 and $48,261 in the form of cash, respectively, as resolved by the Board of Directors on February 9, 2018. The accrued amounts were in agreement with the amount of recorded expense for the year ended December 31, 2017. Employees’ compensation and directors’ remuneration were accrued at $192,788 and $1,928, respectively, based on the earnings of current year distributable for the year ended December 31, 2016 and the employees’ compensation will be distributed in the form of cash. Employees’ compensation and directors’ remuneration for 2016 as resolved by the Board of Directors were $231,338 and $3,856, respectively. The difference of $40,478 between employees’ compensation (directors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2016 financial statements was caused by a different accrual ratio and had been recorded as expense in 2017.

Information about employees’ compensation and directors’ 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.

(26) Income tax

  • A. Income tax expense

  • (a) Components of income tax expense:

160

Years ended December31, December31, December31,
2017 2016
Current tax:
Current tax on profit for the year $ 3,886,976
 $ 1,313,262
Tax on undistributed surplus earnings - 590,712
Prior year income tax overestimation ( 76,547)
 ( 10,800)
Total current tax 3,810,429 1,893,174
Deferred tax:
Origination and reversal of temporary
differences 8,102,151 1,228,259
Income tax expense $ 11,912,580
 $ 3,121,433
(b) The income tax (charge)/credit relating to components of other comprehensive income is as
follows:

follows:
Years endedDecember31,
2017 2016
Fair value gains/losses on available-for-sale $ 317,110
 $ 113,457
financial assets
Remeasurements of defined benefit obligations ( 8,427)
 7,485
$ 308,683
 $ 120,942
Reconciliation between income tax expense and accounting profit:
Years ended December31,
2017 2016
Tax calculated based on profit before tax and $ 11,532,189
 $ 1,503,372
statutory tax rate
Effects from items disallowed by tax regulation ( 477,430)
 ( 372,858)
Prior year income tax overestimation ( 76,547)
 ( 10,800)
Additional 10% tax on undistributed earnings - 590,712
Change in assessment of realization of deferred tax
assets 934,368 1,411,007
Tax expense $ 11,912,580 $ 3,121,433

B. Reconciliation between income tax expense and accounting profit:

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

161

2017

Recognised Recognised
in other
Recognised in comprehensive
January1 profit or loss income December 31
Temporary differences:
- Deferred tax assets:
Sales returns and discount provisions $ 270,483
 $ 158,857
 $ -
 $ 429,340
Accrued royalties and warranty provisions 731,844 363,165 - 1,095,009
Unrealized loss (gain) on financial
instruments 470,394 277,255 ( 317,110)
 430,539
Prior year expense carryforward 3,772 ( 292)
 - 3,480
Loss carryforward 12,619,814 ( 8,867,059)
 - 3,752,755
Others 601,836 27,375 8,427 637,638
$ 14,698,143 ($ 8,040,699)
 ($ 308,683)
 $ 6,348,761
- Deferred tax liabilities:
Unrealized exchange gain ($ 113,545)
 $ 71,832
 $ -
 ($ 41,713)
Amortisation charges on goodwill ( 559,426)
 ( 82,369)
 - ( 641,795)
Others - ( 50,915)
 - ( 50,915)
($ 672,971)
 ($ 61,452)
 $ -
 ($ 734,423)
$ 14,025,172 ($ 8,102,151)
 ($ 308,683)
 $ 5,614,338
2016
Recognised
in other
Recognised in comprehensive
January1 profit or loss income December 31
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 carryforward 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
  • D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are as follows:

162

December 31, 2017

December31,2017
Year incurred
2011
2012
2016		 Amount filed
/ assessed
Assessed
Assessed
Filed		 Unused amount
26,496,656
$ 42,898,003
1,282,669
70,677,328
$ December31,2016		 Unrecognised
deferred
taxassets
18,260,810
$ 29,564,194
883,982
48,708,986
$		 Usable
untilyear
2021
2022
2026
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
taxassets
3,575,589
$ 24,291,267
16,203,549
1,160,045
45,230,450
$		 Usable
untilyear
2020
2021
2022
2026
  • E. The amounts of deductible temporary differences that were not recognized as deferred tax assets are as follows:

re as follows:
Deductible temporary differences December31,2017
51,673,594
$		 December31,2016
48,198,766
$

  • F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2017 and 2016, the amounts of temporary differences unrecognized as deferred tax liabilities were $31,293,045 and $28,052,581, respectively.

  • G. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

  • H. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

  • I. The details of imputation system are as follows:

  • (a) Balance of tax credit account

(b) Estimated (Actual) creditable tax rate

December31,2017
2,043,097
$ 2017(Estimated)
3.47%		 December31,2016
1,420,948
$ 2016 (Actual)
7.47%

163

(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 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)		 Years endedDecember31,
2017
37,028,609
$ 9,952,051
3.72
$ 37,028,609
$ 9,952,051
259,625
22
10,211,698
3.63
$		 2016
1,870,687
$
9,947,293
0.19
$
1,870,687
$
9,947,293
54,316
4,052
10,005,661
0.19
$

Diluted earnings per share (in dollars)

(28) Supplemental cash flow information

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, December31,
2017 2016
$ 54,058,280
 $ 43,518,455
3,339,764 3,974,152
( 32,381,338)
 ( 3,339,764)
$ 25,016,706
 $ 44,152,843

RELATED PARTY TRANSACTIONS

Names and relationship of related parties Names of related parties

Hon Hai Precision Industry Co., Ltd. and its subsidiaries

Chi Lin Optoelectronics Co., Ltd. and its subsidiaries

FI Medical Device Manufacturing Co., Ltd.

GIO Optoelectronics Corp.

Relationship with the Group

The related party is owned by the same major shareholder of the Company

The related party’s director is the Company

Associate

Associate

Significant related party transactions

A. Operating revenue

164

Sales of goods:
Others
Associates		 Years endedDecember31, Years endedDecember31,
2017
48,858,191
$ 37,115
48,895,306
$		 2016
16,537,094
$ 113,916
16,651,010
$

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 endedDecember31,
2017
12,518,080
$ 1,341,203
13,859,283
$		 2016
8,825,302
$ 1,383,704
10,209,006
$

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. Receivables from related parties


Receivables from related parties
Accounts receivable:
Others
- Nanjing Hongfusharp Precision Electronics Co.,
Ltd.
- Hon Hai Precision Industry Co., Ltd.
- Others
Associates		 December31,2017
7,617,857
$ 3,764,389
6,319,373
25,463
17,727,082
$		 December31,2016
-
$ 7,605,574
3,946,042
47,743
11,599,359
$

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. D. Payables to related parties


Payables to related parties
Accounts payable:
Others
- Hon Hai Precision Industry Co., Ltd.
- Others
Associates		 December31,2017
2,079,913
$ 291,120
193,977
2,565,010
$		 December31,2016
4,152,828
$ 737,598
229,809
5,120,235
$

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.

E. Property transactions Purchase of property

(a) Acquisition of property, plant and equipment:

165

Years ended December 31,

2017 2016
Others
- Hon Hai Precision Industry Co., Ltd. $ 31,456,795
 $ -
- Others 42,459 93,923
$ 31,499,254
 $ 93,923
Period-end balances arising from purchases of property (shown as “Other payables”):
December31,2017 December31, 2016
Others
- Hon Hai Precision Industry Co., Ltd. $ 26,609,511
 $ -
- Others 1,974 27,031
$ 26,611,485
 $ 27,031

(b) Period-end balances arising from purchases of property (shown as “Other payables”):

Sale of property

  • (a) Proceeds from sale of property and gain on disposal:
e of property and gain on disposal: e of property and gain on disposal:
es arising from sale of property (shown as “Other receivables”):
Disposalproceeds
Gainondisposal
Disposalproceeds
Gainondisposal
716
$ 34
$ 1,365
$ 940
$ Year ended December 31,2016
Year ended December 31,2017
December31,2017
December31,2016
-
$ 1,570
$		 Year ended December 31,2016
es arising from sale
Disposalproceeds
716
$		 Gainondisposal
$ 940
$
of property

Others

(b) Period-end balances arising from sale of property (shown as “Other receivables”):

Others

Key management compensation

Years ended December 31,

Salaries and other short-term employee benefits
Share-based payments
Post-employment benefit		 2017
130,223
$ -
432
130,655
$		 2016
138,669
$ 665
458
139,792
$

PLEDGED ASSETS

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

Pledged asset
Other current assets
Time deposits
Property, plant and equipment
Intangible assets
Other non-current assets
Time deposits		 Book December31,2016
Purpose
1,726
$ Credit card guarantee
80,828,544
Long-term loans
15,551
Long-term loans
752
Guarantee for contract and
performance bond
80,846,573
$ value		 Purpose
December31,2017
1,594
$ 70,966,784
7,446
722
70,976,546
$

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

166

2006 for alleged violation of the anti-trust laws. In December 2009, the Company reached a plea agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil government initiated an investigation case against the Company. The investigation is still ongoing and the Company has been cooperative with the investigation. As for civil lawsuits filed by some state governments in the U.S., downstream panel makers, and customers, the Company had reached settlement agreement individually.

  • B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and American subsidiaries 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.

In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In June 2017, the jury determined that some products of the Company and American subsidiaries constituted direct infringement of patent and ordered an infringement compensation for Eidos. The Company continued the legal fight by filing a post-trial motion in July 2017. 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.

  • C. The Company had assessed and recognized related losses and liabilities as shown in ‘provisions-current’ for the aforementioned investigation relating to anti-trust laws and patent litigation.

Commitments

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

Property, plant and equipment B. Operating lease commitments

December 31,2017
18,794,836
$		 December 31,2016
17,531,784
$

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:

December31,2017 December31,2017 December31,2016 December31,2016
Not later than one year $ 579,498
 $ 547,803
Later than one year but not later than five years 1,943,547 1,962,352
Later than five years 541,101 888,807
$ 3,064,146
 $ 3,398,962
Outstanding letters of credit
The outstanding letters of credit for the purchase of property, plant and equipment are as follows:
December 31,2017 December 31,2016
Outstanding letters of redit $ 45,687
 $ 245,565

C. Outstanding letters of credit

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

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 disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. The insurance claim has been paid as of September 30, 2017. The Company accrued gain of $755,413 after offsetting the loss with

167

insurance claim.

SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

(1) 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.

(2) 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 Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial position and financial performance. The Group uses derivative financial instruments to hedge certain risk exposures (see Notes 6(2)).

  • (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

168

currency: RMB). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $278,159 and $672,856 for the years ended December 31, 2017 and 2016, 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:

exchange rate fluctuations is as follows:
Foreign
Currency
Exchange
Amount
Rate
Book Value
(In Thousands)
(Note)
(NTD)
Financial assets
Monetary items
USD
5,323,715
$ 29.76
158,433,758
$ JPY
8,017,851
0.26
2,084,641
EUR
53,720
35.57
1,910,820
Non-monetary items
USD
2,595,104
$ 29.76
77,230,295
$ HKD
184,669
3.81
703,589
JPY
5,662,973
0.26
1,472,373
EUR
-
35.57
-
USD
4,108,667
$ 29.76
122,273,930
$ JPY
41,168,652
0.26
10,703,850
EUR
45,980
35.57
1,635,509
December 31,2017
Financial liabilities
Monetary items		 December 31,2016
Foreign
Currency
Exchange
Amount
Rate
(In Thousands)
(Note)
7,224,538
$ 32.25
8,114,141
0.28
85,344
33.90
2,337,217
$ 32.25
223,521
4.16
5,619,277
0.28
3,703
33.90
4,947,745
$ 32.25
35,248,180
0.28
42,379
33.90		 Book Value
(NTD)
232,991,351
$ 2,271,959
2,893,162
75,375,248
$ 929,847
1,573,398
125,532
159,564,776
$ 9,869,490
1,436,648



  • Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.

  • d) Total exchange (loss) gain, including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2017 and 2016 amounted to ($2,134,155) and $1,360,559, 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, 2017 and 2016 would have increased/decreased by $51,535 and $50,020, 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 $1,311,038 and $1,168,186, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

  • Interest rate risk

  • a) The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at

169

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, 2017 and 2016, 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 Group 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 or decrease of $71,000 and $112,100 for the years ended December 31, 2017 and 2016, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

  • (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’s credit policy, each local entity in the Group 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 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.

  • 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

170

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 31,2017
Accounts payable
Other payables
Long-term borrowings
(including current
portion)
December 31,2016
Short-term borrowings
Accounts payable
Other payables
Long-term borrowings
(including current
portion)
Derivative financial liabilities		 Less than
1year
53,441,510
$ 58,897,804
10,960,000
Less than
1year
11,583,750
$ 56,995,540
22,916,097
16,440,000
2017		 Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
16,890,000
550,000
Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
-
-
27,550,000
850,000
Less than 1year

52,500
$ $ Less than 1year

1,190,148
$ $		 Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
16,890,000
550,000
Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
-
-
27,550,000
850,000
Less than 1year

52,500
$ $ Less than 1year

1,190,148
$ $		 Total
53,441,510
$ 58,897,804
28,400,000
Total
$ 11,583,750
$ 56,995,540
22,916,097
44,840,000
Total
December 31,
Forward exchange contracts
December 31,		 2016 $ 52,500

Total
Forward exchange contracts $ 1,190,148
  • d) The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(3) 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(9).

  • 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.

171

  • 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 as of December 31, 2017 and 2016 is as follows:


2017 and 2016 is as follows:
December31,2017
Assets
Financial assets at fair value
through profit or loss
Equity securities
Forward exchange contracts
Forward exchange swap contract
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
December31,2016
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
257,676
$ -
-
6,241,465
6,499,141
$ -
$ -
$ Level 1
250,101
$ -
5,598,578
5,848,679
$ -
$		 Level 2
-
$ 328,170
76,890
-
405,060
$ 52,500
$ 52,500
$ Level 2
-
$ 64,241
-
64,241
$ 1,190,148
$		 Level3
-
$ -
-
313,724
313,724
$ -
$ -
$ Level3
-
$ -
242,351
242,351
$ -
$		 Total
257,676
$ 328,170
76,890
6,555,189
7,217,925
$ 52,500
$ 52,500
$ Total
250,101
$ 64,241
5,840,929
6,155,271
$ 1,190,148
$

  • D. The methods and assumptions the Group used to measure fair value are as follows:

  • (1) 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

172

  • (2) 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.

  • (3) When assessing non-standard and low-complexity financial instruments, for example, foreign exchange swap contracts, 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.

  • (4) 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 and foreign exchange swap contracts are usually valued based on the current forward exchange rate.

  • (5) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.

  • (6) 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, 2017 and 2016, 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, 2017 and 2016:

Equity securities

2017 2016
At January 1 $ 242,351
 $ 719,585
Transfers out from level 3 - ( 349,400)
Gains and losses recognized in profit or loss ( 490,901)
 -
Gains and losses recognized in other
comprehensive income 585,094 31,501
Acquired in the period 122,755 -
Proceeds from capital reduction ( 145,575)
 ( 159,335)
At December 31 $ 313,724
 $ 242,351
  • G. The Group holds private equity shares issued by Fitipower Integrated Technology Inc. The

173

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. 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:

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		 Fair value at
December
31,2017		 Valuation
technique		 Significant
unobservable input		 Range
(weighted
average)		 Relationship of
inputs to fair value
286,940
$ 26,784
Fair value at
December
31,2016		 Market
comparable
companies
Net asset
value
Valuation
technique		 Price to earnings ratio
multiple, price to
sales ratio multiple,
price to book ratio
multiple
Discount for lack of
marketability
Not applicable
Significant
unobservable input		 1.26~61.93
(26.49)
30%~70%
(51%)
Not
applicable
Range
(weighted
average)		 The higher the
multiple, 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
214,665
$ 27,686		 Market
comparable
companies
Net asset
value		 Price to earnings ratio
multiple, price to
book ratio multiple,
control premium
Discount for lack of
marketability
Not applicable		 0.68~1.55
(0.88)
30%~70%
(31%)
308
(308)		 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
  • J. The Group has carefully assessed the valuation models and assumptions used to measure fair value. However, use of different valuation models or assumptions may result in different

174

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:


have changed:
Financial assets Period Input Change
± 1%

± 1%
 Recognised in other
comprehensive income
Favourable
Unfavourable
change
change
$ 3,137
($ 3,137)
2,424
( 2,424)		 Unfavourable
change
Equity instrument
Equity instrument		 2017/12/31
2016/12/31		 $ 313,724
242,351

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: Please refer to Table 3.

  • 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 4.

  • H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to Table 5.

  • I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Note 6(2).

  • J. Significant inter-company transactions during the reporting periods: Please refer to Table 6.

  • (4) Information on investees

  • Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

  • (5) Information on investments in Mainland China

  • A. Basic information: Please refer to table 8.

  • B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 1, 4, 5 and 6.

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 Group met the criteria for combining the segment information of big size and small-medium size TFT LCD departments, the Group disclosed only one reportable operating segment for all TFT LCD products.

The Group’s operating segment information was prepared in accordance with the Group’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

175

discontinued operations of individual operating segment.

(6) Segment information

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

is as follows:
Segment revenue
Segment income
Depreciation and amortization
Capital expenditure-property, plant and equipment
Segment assets		 Years ended December31,
2017
TFT LCD
329,174,401
$ 48,941,189
$ 33,564,048
$ 25,016,706
$ 414,858,758
$		 2016
TFT LCD
287,089,277
$ 4,992,120
$ 41,418,534
$ 44,152,843
$ 371,479,548
$

(7) Reconciliation for segment income

In current period, the revenue and income or loss before tax of reportable operating segment are consistent with those of continuing operations.

(8) Information on products

Revenue from external customers is mainly from sale of TFT-LCD products, the sales amount is in agreement with operating revenue.

(9) Geographical information

Geographical information for the years ended December 31, 2017 and 2016 is as follows: Years ended December 31,

Taiwan
Hong Kong
China
Europe
US
Others
Total		 Revenue
Non-current assets
115,922,366
$ 211,482,604
$ 75,037,923
108
68,728,719
29,891,298
11,408,208
24,951
8,022,386
612
50,054,799
275,743
329,174,401
$ 241,675,316
$ 2017		 2016 2016
Revenue
115,922,366
$ 75,037,923
68,728,719
11,408,208
8,022,386
50,054,799
329,174,401
$		 Revenue
95,497,599
$ 66,990,932
59,778,250
12,996,893
11,582,252
40,243,351
287,089,277
$		 Non-current assets
190,035,166
$ 118
31,982,735
23,838
713
131,504
222,174,074
$

(10) 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, 2017 and 2016 are set forth below:

Company A Years endedDecember31, Years endedDecember31, Years endedDecember31,
Sales amount
Percentage ofsales
50,574,810
$ 15%
2017		 2016
Sales amount

50,574,810
$		 Sales amount

41,448,102
$		 Percentage ofsales
14%

176

Innolux Corporation and Subsidiaries Loans to others For the year ended December 31, 2017

Table 1
No.
Creditor
Borrower
General
ledger
account
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Foshan Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Ningbo Innolux
Display Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Other
receivables
2 Nanjng Innolux
Technology Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Other
receivables
3 Innolux Technology
USA Inc.
Innolux Hong Kong
Limited
Other
receivables
3 Innolux Technology
USA Inc.
Lakers Trading Ltd. Other
receivables
4 Innolux Europe B.V. Innolux Hong Kong
Limited
Other
receivables
5 Innolux Europe B.V. Lakers Trading Ltd. Other
receivables
6 Innolux Japan Co.,
Ltd.
Leadtek Global
Group Limited
Other
receivables		 Is a
related
party
Maximum
outstanding
balance during
the year ended
December 31,
2017
Related
parties
$ 7,318,350
Related
parties
3,415,875
Related
parties
1,912,890
Related
parties
1,047,535
Related
parties
3,598,055
Related
parties
364,360
Related
parties
178,560
Related
parties
178,560
Related
parties
1,379,257
Related
parties
46,241
Related
parties
2,034,340		 Balance as at Actual amount
drawn down
Interest
rate
Nature of
loan

$ 2,976,000 2.00%
Short-term
financing
$ -
2,504,975 2.00%
Short-term
financing
-
1,776,255 2.00%
Short-term
financing
-
1,047,535 2.00%
Short-term
financing
-
2,823,790 2.00%
Short-term
financing
-
227,725 2.00%
Short-term
financing
-

-
0%
Short-term
financing
-

178,560 1.01%
~1.52%
Short-term
financing
-
1,351,013 0.626%
~0.633%
Short-term
financing
-

46,241 1.60%
Short-term
financing
-
2,034,340 1.00%
Short-term
financing
-		 Amount of
transactions
with the
borrower











 Reason for Allowance
for
doubtful
accounts
Collateral

Item
$ -
$ - $ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
December 31, short-term
loans granted
$ 264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
A

A

A

A

A

A

A

A

A

A

A

2017
$ 2,976,000
2,504,975
1,776,255
1,047,535
2,823,790
227,725
-
178,560
1,351,013
46,241
2,034,340		 financing
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support

177

Innolux Corporation and Subsidiaries Loans to others

For the year ended December 31, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

No.
Creditor
Borrower
General
ledger
account
Is a
related
party
Maximum
outstanding
balance during
the year ended
December 31,
2017
Balance as at
December 31,
2017
Actual amount
drawn down
Interest
rate
Nature of
loan
Amount of
transactions
with the
borrower
Reason for
short-term
financing
Allowance
for
doubtful
accounts
Collateral
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Item
Value
7 Asiaward Investment
Ltd.
Best China
Investments Ltd.
Other
receivables
Related
parties
$ 241,481 $ - $ -
0%
Short-term
financing
$ - Operating
support
$ - $ - $ - $ 264,325,048 $ 264,325,048
8 Best China
Investments Ltd.
Lakers Trading Ltd. Other
receivables
Related
parties
241,481 - -
0%
Short-term
financing
- Operating
support
- - -
264,325,048
264,325,048
9 Main Dynasty
Investment Ltd.
Mega Chance
Investments Ltd.
Other
receivables
Related
parties
397,677 - -
0%
Short-term
financing
- Operating
support
-
- - 264,325,048
264,325,048
10 Mega Chance
Investments Ltd.
Lakers Trading Ltd. Other
receivables
Related
parties
397,677 - -
0%
Short-term
financing
- Operating
support
- -
- 264,325,048 264,325,048
11 Sun Dynasty
Development
Limited
Magic Sun Limited Other
receivables
Related
parties
991,180 - -
0%
Short-term
financing
- Operating
support
- -
- 264,325,048 264,325,048
12 Magic Sun Limited Lakers Trading Ltd. Other
receivables
Related
parties
991,180 - -
0%
Short-term
financing
- Operating
support
- - - 264,325,048 264,325,048
13 Warriors
Technology
Investments Ltd.
Lakers Trading Ltd. Other
receivables
Related
parties
3,205,169
3,205,169 3,205,169
0%
Short-term
financing
- Operating
support
- - - 264,325,048 264,325,048
14 Innolux
Optoelectronics
USA, Inc.
Lakers Trading Ltd. Other
receivables
Related
parties
119,040
119,040
119,040 1.04%
Short-term
financing
- Operating
support
- - - 264,325,048 264,325,048
15 Bright Information
Holding Ltd.
Lakers Trading Ltd. Other
receivables
Related
parties
95,809
95,809
95,809
0%
Short-term
financing
- Operating
support
- - - 264,325,048 264,325,048
Note A: The Company - Innolux Corporation
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.		 Ceiling on total Footnote
A

A

A

A

A

A

A

A

A

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.

178

Innolux Corporation and Subsidiaries

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, 2017

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

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

Ningbo Innolux Optoelectronics Ltd.
上海辰岱投資中心(有限合夥)
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
 Number of shares
900,000 $ 150,500,000
17,792,552
89,072
44,741,305
1,209
1,439,180
6,964,222
10,000,000
-
16,000,000
24,194,000
90		 As of December 31, 2017
Book value
Ownership (%)
50,910
1
$ 607,330
6

102,338
19

4,022
-

543,607
7

-
-

148
2

257,676
5

271,900
7

127,492
-

6,052
6

4,814,606
7

26,784
-
 Fair value
50,910
607,330
102,338
4,022
543,607
-
148
257,676
271,900
127,492
6,052
4,814,606
26,784		 Footnote

179

Innolux Corporation and Subsidiaries

Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company's paid-in capital

For the year ended December 31, 2017

Table 3
Investor
Marketable
securities
(Note 1)
General
ledger
account
Warriors
Technology
Investments
Ltd.
General Interface
Solution (GIS)
Holding Limited
(Stock)
Available-for-sa
le financial
assets -
non-current		 Counterparty
(Note 2)
Not
applicable		 Relationship
with the
investor
(Note 2)
Not
applicable
 Balance as at January 1,
2017 (Note 4)
Number
of shares
Amount
40,500,000 $ 3,705,750		 Addition (Note 3)
Number
of shares
Amount
- $ -		 Disposal (Note 3)
Number
of shares
Selling
price
Book
value
16,306,000 $ 2,752,692 $ 165,409 $		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606

2017 (Note 4)
Number
of shares
Amount
24,194,000 $ 4,814,606

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities. Note 2: Fill in the columns the counterparty and relationship if securities are accounted for under the equity method; otherwise leaves the columns blank. Note 3: Aggregate purchases and sales amounts should be calculated separately at their market values to verify whether they individually reach NT$300 million or 20% of paid-in capital or more. Note 4: It includes unrealized gains (losses) on available-for-sale financial assets.

180

Innolux Corporation and Subsidiaries

Table 4

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

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
Guizhou Fuzhikang Electronic
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
Hongfutai Precision Electrons
(Yantai) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Innolux Japan Co., Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Hong Kong Limited
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
FIH (Hong Kong) Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Hongfujin Precision Industry
(Wuhan) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Fu Lian Net International
(Hong Kong) Limited
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
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
18,987,653
6
90 days
14,194,308
4
60 days
3,564,306
1
60 days
3,134,709
1
60-90 days
2,045,050
1
90 days
2,002,799
1
45 days
1,919,552
1
45-90 days
1,703,414
1
60 days
892,785
-
90 days
812,756
-
60 days
628,521
-
90 days
588,640
-
90 days		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general sales
No material
difference
$ 3,764,389
8
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
702,843
1
Similar with
general sales
No material
difference
658,025
1
Similar with
general sales
No material
difference
1,261,004
3
Similar with
general sales
No material
difference
442,533
1
Similar with
general sales
No material
difference
218,925
-
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
237,634
-
Similar with
general sales
No material
difference
70,209
-
Similar with
general sales
No material
difference
579,927
1		 Footnote

181

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, 2017

Table 4

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Innolux Corporation
Ningbo Innolux Display 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 Optoelectronics USA,
Inc.
An indirect wholly-owned
subsidiary
Innolux Corporation
COMPETITION TEAM
IRELAND LIMITED
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
Innolux Technology USA Inc. A subsidiary of the Company
Innolux Corporation
Foshan Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Optoelectronics
Europe B.V.
A subsidiary of the Company
Innolux Corporation
NANJING HONGFUSHARP
PRECISION ELECTRONICS
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
Ningbo Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
Innolux Corporation
FI Medical Device
Manufacturing Co., Ltd.
Investee accounted for under
the equity method
Innolux Corporation
GIO Optoelectronics Corp.
Investee accounted for under
the equity method
Innolux Corporation
Chi Lin Optoelectronics Co.,
Ltd.
The company is a corporate
director of Chi Lin
Optoelectronics		 Purchases
(sales)
Sales
$ Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Purchases

Purchases

Purchases

Purchases
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
579,412
-
90 days
454,858
-
90 days
432,561
-
45 days
416,110
-
45-90 days
386,335
-
45 days
298,945
-
60 days
225,318
-
90 days
221,279
-
30-60 days
164,896
-
90 days
164,262
-
90 days
109,310
-
90 days
6,302,886
2
60-90 days
after
acceptance
1,129,036
-
30 days after
acceptance
207,980
-
60 days after
acceptance
152,040
-
120 days after
acceptance		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general sales
No material
difference
$ 140,002
-
Similar with
general sales
No material
difference
109,636
-
Similar with
general sales
No material
difference
43,910
-
Similar with
general sales
No material
difference
212,617
-
Similar with
general sales
No material
difference
4
-
Similar with
general sales
No material
difference
23,717
-
Similar with
general sales
No material
difference
796,728
2
Similar with
general sales
No material
difference
46,259
-
Similar with
general sales
No material
difference
23,965
-
Similar with
general sales
No material
difference
55,401
-
Similar with
general sales
No material
difference
-
-
Single purchases
target, no basis
for comparison
No material
difference
( 1,331,325)
2
Single purchases
target, no basis
for comparison
No material
difference
( 160,373)
-
Single purchases
target, no basis
for comparison
No material
difference
( 32,821)
-
Single purchases
target, no basis
for comparison
No material
difference
( 1,863)
-		 Footnote

182

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Innolux Corporation
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innolux Corporation
Leadtek Global Group Limited A subsidiary of the Company
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 Limited
An indirect wholly-owned
subsidiary
Shanghai Innolux
Optoelectronics Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
NANJING HONGFUSHARP
PRECISION ELECTRONICS
CO.,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
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.
Premier Image Technology
(China) Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Hong Kong
Limited
Nanjing Innolux Technology
Ltd.
An indirect wholly-owned
subsidiary		 Purchases
(sales)
Processing
expense
$ Processing
expense

Processing
expense

Processing
revenue

Processing
revenue

Processing
revenue

Processing
revenue

Processing
revenue

Sales

Sales

Sales

Sales

Sales
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
33,657,805
13
60-90 days
22,426,873
8
60-90 days
18,527,796
7
60-90 days
15,471,977
44
60 days
18,372,503
80
60 days
17,786,185
99
60 days
12,749,197
100
60 days
8,536,865
100
60 days
6,720,061
8
90 days
4,706,550
11
60 days
3,784,185
5
90 days
1,866,254
2
90 days
1,698,493
5
60 days		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Cost plus
No material
difference
($ 13,089,589)
18
Cost plus
No material
difference
( 9,158,742)
12
Cost plus
No material
difference
( 21,080,569)
29
Similar with
general
transactions
No material
difference
2,767,180
21
Similar with
general
transactions
No material
difference
16,946,551
95
Similar with
general
transactions
No material
difference
3,423,930
98
Similar with
general
transactions
No material
difference
6,673,314
100
Similar with
general
transactions
No material
difference
2,106,625
100
Similar with
general
transactions
No material
difference
7,593,892
22
Similar with
general
transactions
No material
difference
846,815
4
Similar with
general
transactions
No material
difference
-
-
Similar with
general
transactions
No material
difference
720,839
2
Similar with
general
transactions
No material
difference
315,142
3		 Footnote

183

Foshan Innolux Optoelectronics Ltd.

Sales

90 days

Futaijing Precision Electronics (Beijing) Co., Ltd.

An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

1,082,429

1

Similar with No material 55,085 general difference transactions

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Foshan Innolux
Optoelectronics Ltd.
Panxian FuguiKang Precision
electronic Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innocom Technology
(Shenzhen) Co., Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
Chongqing Fuyusheng
Electronics Technology
Co.,Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux
Optoelectronics Ltd.
Beijing Fusharp Electronic
Commerce Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Lakers Trading Ltd.
Ningbo Innolux Electronics
Ltd.
An indirect wholly-owned
subsidiary
Ningbo Innolux Display
Ltd.
Ningbo Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Europe B.V.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innolux Technology Japan
Co., Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
Ningbo Innolux Display
Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
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.
Nanjing Innolux
Optoelectronics Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder		 Purchases
(sales)
Sales
$ Processing
revenue

Sales

Sales

Sales

Sales

Service
revenue

Service
revenue

Purchases

Purchases

Purchases

Purchases

Purchases		 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
513,953
1
90 days
258,405
100
60 days
236,753
-
90 days
226,610
-
90 days
171,488
1
60 days
162,765
1
60 days
659,699
100
60 days
270,068
93
60 days
3,385,353
4
90 days after
goods are
shipped
1,229,206
5
90 days after
goods are
shipped
606,150
1
90 days after
goods are
shipped
467,721
1
90 days after
goods are
shipped
138,628
1
90 days after
goods are
shipped		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general
transactions
No material
difference
$ 607,499
2
Similar with
general
transactions
No material
difference
890,068
100
Similar with
general
transactions
No material
difference
279,845
1
Similar with
general
transactions
No material
difference
267,856
1
Similar with
general
transactions
No material
difference
32,642
-
Similar with
general
transactions
No material
difference
70,839
2
Similar with
general
transactions
No material
difference
63,124
61
Similar with
general
transactions
No material
difference
46,676
92
Similar with
general
transactions
No material
difference
( 111,114)
-
Similar with
general
transactions
No material
difference
( 424,958)
8
Similar with
general
transactions
No material
difference
( 177,967)
2
Similar with
general
transactions
No material
difference
( 156,344)
2
Similar with
general
transactions
No material
difference
(
34,312)
1		 Footnote

184

Innolux Corporation and Subsidiaries Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017

Table 5



December 31, 2017
Table 5
Creditor
Counterparty
Relationship
with the counterparty
Innolux Corporation
Hon Hai Precision Industry Co., Ltd.
Same major stockholder
Innolux Corporation
Hongfutai Precision Electrons (Yantai)
Co., Ltd.
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
Guizhou Fuzhikang Electronic 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
Fu Lian Net International (Hong Kong)
Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
FIH (Hong Kong) Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Innolux Japan Co.,Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
COMPETITION TEAM IRELAND
LIMITED
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Ningbo Innolux Display 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.		 Balance as at December
31, 2017
$ 3,764,389
1,261,004
796,728
702,843
658,025
579,927
442,533
237,634
218,925
212,617
140,002
109,636		 Turnover
rate
3.34 $ 2.40
0.44
10.11
6.12
2.03
3.98
6.37
10.35
3.76
8.18
2.13		 Overdue receivables
Amount
Action taken
-
-

49
Subsequent collection

-
-

-
-

-
-

-
-

173,027 Subsequent collection

-
-

-
-

20,957 Subsequent collection

-
-

-
-
 Expressed
(Except as
Amount collected
subsequent to the
balance sheet date
$ 1,019,373
96,383
21,848
242,084
285,937
-
107,152
87,730
-
76,339
-
33,789		 in thousands of NTD
otherwise indicated)
Allowance for
doubtful accounts
$ -
-
-
-
-
-
-
-
-
-
-
-
$




















185

Innolux Corporation and Subsidiaries

Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017

Table 5

Expressed in thousands of NTD (Except as otherwise indicated)

Creditor
Counterparty
Relationship
with the counterparty
Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited
A subsidiary of the
Company
Foshan Innolux Optoelectronics Ltd.
NANJING HONGFUSHARP
PRECISION ELECTRONICS CO., LTD.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Shanghai Innolux Optoelectronics
Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innocom Technology (Shenzhen) Co.,
LTD
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Premier Image Technology (China) Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux Optoelectronics Ltd.
Panxian FuguiKang Precision electronic
Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Chongqing Fuyusheng Electronics
Technology Co.,Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux Optoelectronics Ltd.
Beijing Fusharp Electronic Commerce
Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.		 Balance as at December
31, 2017
$ 16,946,551
7,593,892
6,673,314
3,423,930
2,767,180
2,106,625
890,068
846,815
720,839
607,499
315,142
279,845
267,856		 Turnover
rate
1.12 $ 1.77
2.11
5.22
1.89
4.42
0.33
4.18
3.91
1.69
5.20
1.69
1.69		 Overdue receivables
Amount
Action taken
9,908,141
Subsequent collection

-
-

3,178,558
Subsequent collection

-
-

-
-

508,631 Subsequent collection

846,013 Subsequent collection

-
-

-
-

-
-

-
-

-
-

-
-
 Amount collected
subsequent to the
balance sheet date
$ 4,188,141
1,559,705
1,767,763
1,803,967
4,646,874
405,283
-
476,386
215,908
-
150,313
-
-		 Allowance for
doubtful accounts
$ -
-
-
-
-
-
-
-
-
-
-
-
-
$






















186

Innolux Corporation and Subsidiaries Significant inter-company transactions during the reporting period For the year ended December 31, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Table 6

Number
(Note 1)
Company name
Counterparty
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Innolux Japan Co.,Ltd.
0
Innolux Corporation
Innolux Japan Co.,Ltd.
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Ningbo Innolux Display Ltd.
0
Innolux Corporation
Ningbo Innolux Display Ltd.
0
Innolux Corporation
Innolux Optoelectronics USA, Inc.
0
Innolux Corporation
Innolux Technology USA Inc.
0
Innolux Corporation
Innolux Optoelectronics Europe B.V.
0
Innolux Corporation
Ningbo Innolux Optoelectronics Ltd.
0
Innolux Corporation
Nanjing Innolux Optoelectronics 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
Foshan Innolux Optoelectronics Ltd.
1
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
1
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
2
Ningbo Innolux Optoelectronics Ltd.
Leadtek Global Group Limited
2
Ningbo Innolux Optoelectronics Ltd.
Leadtek Global Group Limited
3
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
3
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
4
Nanjing Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
4
Nanjing Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited		 Relationship
(Note A)
General ledger account
1
Sales
$ 1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

1
Sales

1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

1
Sales

1
Sales

1
Sales

1
Sales

1
Sales

1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable
 Transaction
Amount
14,194,308
33,657,805
13,089,589)
1,919,552
218,925
1,703,414
22,426,873
9,158,742)
579,412
140,002
432,561
298,945
221,279
109,310
164,262
18,527,796
21,080,569)
225,318
796,728
15,471,977
2,767,180
18,372,503
16,946,551
17,786,185
3,423,930
12,749,197
6,673,314		 Transaction (Note C)
Transaction terms
(Note B)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 Percentage of consolidated Percentage of consolidated

total operating revenues or

total assets
4
10
3
1
-
1
7
2
-
-
-
-
-
-
-
6
5
-
-
5
1
6
4
5
1
4
2

187

Innolux Corporation and Subsidiaries

Expressed in thousands of NTD (Except as otherwise indicated)

Significant inter-company transactions during the reporting period

For the year ended December 31, 2017

Table 6

Number
(Note 1)
Company name
Counterparty
5
Shanghai Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
5
Shanghai Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
6
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
6
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
7
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
7
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
8
Innocom Technology (Shenzhen) Co., Ltd.
Lakers Trading Ltd.
8
Innocom Technology (Shenzhen) Co., Ltd.
Lakers Trading Ltd.
9
Innolux Europe B.V.
Innolux Hong Kong Limited
9
Innolux Technology Japan Co.,Ltd.
Innolux Hong Kong Limited
10
Lakers Trading Ltd.
Ningbo Innolux Electronics Ltd.
11
Ningbo Innolux Display Ltd.
Ningbo Innolux Optoelectronics Ltd.		 Relationship
(Note A)
General ledger account
3
Processing revenue
$ 3
Accounts receivable

3
Sales

3
Accounts receivable

3
Sales

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Service revenue

3
Service revenue

3
Sales

3
Sales
 Transaction
Amount
8,536,865
2,106,625
4,706,550
846,815
1,698,493
315,142
258,405
890,068
659,699
270,068
171,488
162,765		 Transaction (Note C)
Transaction terms
(Note B)
-
-
-
-
-
-
-
-
-
-
-
-		 Percentage of consolidated Percentage of consolidated

total operating revenues or

total assets
3
1
1
-
1
-
-
-
-
-
-
-

Note A: 1 refers to the parent company to the subsidiary. 3 refers to 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.

188

Innolux Corporation and Subsidiaries

Information on investees

Table 7

For the year ended December 31, 2017

Expressed in thousands of NTD

(Except as otherwise indicated)

Investor
Investee
Location
Main business
activities
Innolux Corporation
Bright Information Holding Ltd. Hong Kong Investment holdings

Innolux Corporation
Golden Achiever International
Limited
BVI
Investment holdings

Innolux Corporation
Innolux Holding Limited
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
Limited
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 Japan Co., Ltd.
Japan
Holdings, R&D,
manufacturing and
Distributor company

Innolux Corporation
Innolux Corporation
USA
Distributor company

Innolux Corporation
Innolux Technology USA Inc.
USA
Distributor company

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

Innolux Corporation
Ampower Holding Ltd.
Cayman
Investment holdings

Innolux Corporation
FI Medical Device
Manufacturing Co., Ltd.
Taiwan
Production and selling of the
absorption for medical
element
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 119,724 $ 119,724
119,106 119,106
6,192,679 7,858,300
62,197 187,457
33,438,542 33,438,542
3,674,115 3,674,115
1,889,115 2,107,291
- -
1,217,235 1,217,235
1,674,054 1,674,054
- 121,941
1,335,486 1,335,486
90,845 -
354,262 -
- -
819,312 819,312
1,717,714 1,717,714
73,500 73,500		 Shares held a
Number of shares

4,910,000
40,250
180,568,185
1,656,410
709,450,000
146,847,000
1,158,844,000
50,000,000
-
167,405,392
-
80
32,000
1,000
4,333
78,195,856
14,062,500
7,350,000		 Shares held a s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
100 $ 95,703 $ 1,084
100 18,669 ( 41,026)
100 20,423,738 2,635,650
100 78,709 13,100
100 44,160,820 ( 741,423)
100 6,476,884 ( 99,582)
100 3,797,279 596,156
100 999,166 1,326,504
100 843,311 ( 108,668)
100 1,381,380 65,209
- - 6,965
49 1,496,157 22,299
100 2,500 ( 1,335)
100 349,930 8,543
35 - -
33 - -
50 853,016 25,735
49 525,926 685,633		 Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
$ 1,084
( 41,026)
2,635,650
13,100
( 771,767)
( 98,893)
586,392
1,326,504
( 108,668)
65,209
5,944
22,299
( 203)
493
-
-
12,867
339,907		 Footnote

Ownership
(%)
100 $ 100
100
100
100
100
100
100
100
100
-
49
100
100
35
33
50
49

189

Innolux Corporation and Subsidiaries Information on investees For the year ended December 31, 2017

Table 7


Table 7
Investor
Investee
Location
Main business
activities
Innolux Corporation
GIO Optoelectronics Corp.
Taiwan
Sales and manufacture of
TFT-LCD parts and
components

Innolux Holding
Limited
Rockets Holding Ltd.
Samoa
Investment holdings

Innolux Holding
Limited
Suns Holding Ltd.
Samoa
Investment holdings

Innolux Holding
Limited
Lakers Trading Ltd.
Samoa
Distributor company

Innolux Holding
Limited
Innolux Corporation
USA
Distributor company

Toppoly
Optoelectronics (B.V.I.)
Ltd.
Toppoly Optoelectronics
(Cayman) Ltd.
Cayman
Investment holdings

Innolux Hong Kong
Holding Limited
Innolux Optoelectronics Hong
Kong Holding Limited
Hong Kong Investment holdings

Innolux Hong Kong
Holding Limited
Innolux Hong Kong Limited
Hong Kong Distributor company

Innolux Hong Kong
Holding Limited
Innolux Europe B.V.
Netherlands Holding company and
R&D testing company

Innolux Hong Kong
Holding Limited
Innolux Japan Co.,Ltd.
Japan
Holdings, R&D,
manufacturing and
Distributor company

Innolux Hong Kong
Holding Limited
Innolux Technology USA Inc.
USA
Distributor company

Innolux Europe B.V.
Innolux Optoelectronics
Germany GmbH
Germany
Importing, exporting, buying,
selling and logistics services
of electronic equipment and
TFT-LCD monitors

Innolux Japan Co.,Ltd.
Innolux Optoelectronics USA,
Inc.
USA
Selling of electronic
equipment and computer
monitors

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 Europe B.V.
Innolux Technology Germany
GmbH
Germany
Testing and maintenance
company

Yuan Chi Investment
Co., Ltd.
Chi Mei Lighting Technology
Corporation
Taiwan
Manufacturing of electronic
equipment and lighting
equipment
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 800,892 $ 800,892
5,222,180 7,296,530
555,422 555,422
- -
- 6,348
3,650,192 3,650,192
- -
- -
3,209,158 3,073,072
1,815,603 1,815,603
- 263,685
10,324 10,324
2,400 2,400
5,391,125 5,391,125
27,477 27,477
555,422 555,422
33,735 33,735
263,812 263,812		 Shares held a
Number of shares

10,494,001
160,504,550
18,177,052
1
-
146,817,000
162,897,802
35,000,000
375,810
82
-
250
1,000
164,000,000
900,001
18,177,052
100,000
19,673,402		 Shares held a s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
24 $ 111,354 $ 37,487
100 11,932,235 ( 31,714)
100 8,264,697 2,668,427
100 226,729 -
- - ( 1,335)
100 6,476,566 ( 99,582)
100 1,394,290 165,169
100 ( 1,089,257) 374,757
100 2,341,954 42,943
51 1,661,840 1,351
- - 8,543
100 14,077 634
100 271,811 9,214
100 11,903,213 ( 33,332)
100 28,889 1
100 8,264,696 2,668,427
100 62,081 2,864
8 - -		 Expressed in thousands of NTD
(Except as otherwise indicated)
Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
Footnote
$ 8,914
( 31,714)
2,668,427
-
( 1,132)
( 99,582)
165,169
374,757
42,943
1,351
8,050
634
9,214
( 33,332)
1
2,668,427
2,864
-

Ownership
(%)
24 $ 100
100
100
-
100
100
100 (
100
51
-
100
100
100
100
100
100
8

190

Innolux Corporation and Subsidiaries Information on investees For the year ended December 31, 2017

Table 7

Table 7
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 of electronic
materials, trading business,
manufacturing of electronic
equipment and lighting
equipments
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 6,881 $ 6,881
423,606 423,606		 Shares held a
Number of shares

77,235
58,007,000		 Shares held a Expressed
(Except a
s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
- $ 843 $ 37,487
40 - ( 272,602)		 in thousands of NTD
s otherwise indicated)
Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
$ 67
( 86,901)		 Footnote

Ownership
(%)
- $ 40

191

Information on investments in Mainland China For the year ended December 31, 2017

Innolux Corporation and Subsidiaries

Table 8
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

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

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

Shanghai Innolux
Optoelectronics Ltd.
Manufacturing and selling
of LCD backend module
and related components
 Paid-in capital
(Note A)
$ 4,880,640
292,896
9,225,600
11,398,080
4,761,600
62,496
300,576
4,344,960
624,960		 Investment
method
(Note C)
2
2
2
2
2
2
2
2
2		 Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of January 1,
2017


$ 3,776,893
59,520
219,184
11,398,080
4,761,600
62,496
113,088
4,286,499
-		 Amount remitted from
Taiwan to Mainland
China/Amount remitted
back to Taiwan for the
year ended December 31,
2017
Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of December
31, 2017
Remitted to
Mainland
China
Remitted back to Taiwan
$ - $ - $ 3,776,893
- - 59,520
- - 219,184
- - 11,398,080
- - 4,761,600
- - 62,496
- - 113,088
- - 4,286,499
- - -		 Net income of
investee for the
year ended
December 31,
2017
($ 33,371)
( 96,503)
( 1,993,452)
934,684
314,967
19,625
( 41,027)
( 116,971)
165,169		 Ownership
held by the
Company
(direct or
indirect)
100
4
100
100
100
100
100
100
100		 Expressed in thousands of NTD
(Except as otherwise indicated)
Investment
income (loss)
recognised by the
Company for the
year ended
December 31,
2017 (Note B)
Book value of
investments in
Mainland
China as of
December 31,
2017

($ 33,371) $ 11,903,163
- 6,752
( 1,993,452) 19,339,733
937,060 20,721,423
314,967 4,164,917
19,625 557,316
( 41,027) 18,295
( 116,971) 5,919,229
165,169 1,394,290		 Accumulated
amount of
investment
income
remitted back
to Taiwan as of
December 31,
2017
$ 1,103,747
-
5,137,616
-
-
-
-
-
-		 Footnote
$






2.1
2.1
2.2
2.2
2.2
2.3
2.4
2.3
2.8
2.5

192

Investee in Mainland
China
Main business activities
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)
$ 44,640
238,080
2,862,912
136,635
4,555
4,555		 Investment
method
(Note C)
2
2
2
3
3
3		 Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of January 1,
2017


$ 44,640
297,600
401,760
-
-
-		 Amount remitted from
Taiwan to Mainland
China/Amount remitted
back to Taiwan for the
year ended December 31,
2017
Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of December
31, 2017
Remitted to
Mainland
China
Remitted back to Taiwan
$ - $ - $ 44,640
- - 297,600
- - 401,760
- - -
- - -
- - -		 Net income of
investee for the
year ended
December 31,
2017
$ 4,737
-
1,821,286
130,536
1,274
3,261		 Ownership
held by the
Company
(direct or
indirect)
100
50
7
100
100
100		 Investment
income (loss)
recognised by the
Company for the
year ended
December 31,
2017 (Note B)
$ 4,737
-
-
130,536
1,274
3,261		 Book value of
investments in
Mainland
China as of
December 31,
2017

$ 74,038
192,427
4,814,606
371,711
5,840
7,556		 Accumulated
amount of
investment
income
remitted back
to Taiwan as of
December 31,
2017
$ -
-
-
-
-
-		 Footnote
$



2.6
2.7
2.1
3.1
3.2
3.2

Ceiling on investments in Mainland China:

Company name
Innolux Corporation		 Accumulated amount of remittance from
Taiwan to Mainland China as of December
31, 2017
$ 26,761,777
 Investment amount approved by the
Investment Commission of the Ministry
of Economic Affairs (MOEA)
$ _35,873,581		 $ Ceiling on investments in Mainland Ceiling on investments in Mainland


China imposed by the Investment
Commission of MOEA
158,595,029

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, 2017 was audited by independent accountants. Note C: The investment methods are as follows:

  1. Directly investing in Mainland China.

  2. Through investing in companies in the third area, which then invested in the investee in Mainland China.

  3. 2.1. Through investing in Innolux Holding Limited in the third area, which then invested in the investee in Mainland China.

  4. 2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

  5. 2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.

  6. 2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.

  7. 2.5. Through investing in Innolux Hong Kong Holding Ltd in the third area, which then invested in the investee in Mainland China.

  8. 2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.

  9. 2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.

193

  • 2.8. Nanjing Innoloux Optoelectornics Ltd. acquired Kunpal Optoelectronics Ltd. by merger, which was approved by the Investment Commission of the Ministry of Economic Affairs in November 2017.

  • 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.

194

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, 2017 and 2016, 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, 2017 and 2016, 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.

The key audit matters in relation to the financial statements for the year ended December 31, 2017 are outlined as follows:

Inventory valuation

Description

The industry is characterized in its significant fluctuations closely in connection with the economic environment. As the technology evolves rapidly, the Company’s existing products may become

195

obsolete when the customers demand for new products or the Company fails to compete with the evolutionary production approach. The abovementioned factors thus affect the sales amount ultimately. The Company has evaluated the inventory by taking into account of allowance, obsoleteness or trivial sales amount and the cost has been written down to the net realizable value. For details of inventory, please refer to Note 6(6). As the amounts of inventories are material, the types of inventories vary, and the estimation of net realizable value for individually obsolete or damaged inventories is dependent upon significant management judgement, we consider inventory valuation a key audit matter.

How our audit addressed the matter

We assessed whether the accounting policies on the provision for the loss on decline in value and obsoleteness of inventory are reasonable and in accordance with the accounting principles, as well as whether they are applied consistently. We examined inventory aging report and assessed the reasonableness of provision for the loss on slow-moving inventory. We also assessed the reasonableness of net realizable value and the appropriateness of valuation basis.

Additions to property, plant and equipment

Description

The company’s capital expenditures increased with its operational growth. For details of property, plant and equipment, please refer to Notes 6(8) 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 observation of certain assets to confirm that the purchased items exist.

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(10).

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

196

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.

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.

197

  • 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.

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 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 9, 2018

The accompanying parent company only 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 parent company only 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.

198

INNOLUX CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

Assets Notes
December31,2017
6(1)
$ 53,532,826
6(2)
106,634
6(4)(5)
39,078,322
7
9,483,133
636,591
7
28,791
6(6)
25,381,254
1,050,467
887
129,298,905
6(3)
1,308,207
6(7)
81,614,542
6(8), 7 and 8
191,778,224
6(9)
562,697
6(10) and 8
17,681,078
6(26)
6,227,042
6(8) and 8
1,460,605
300,632,395
$ 429,931,300
(Continued)		 December31,2016
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
1210
Other receivables - related parties
130X
Inventory
1410
Prepayments
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		 $ 20,927,609
64,241
50,693,511
10,199,014
1,184,141
123,091
18,897,916
878,510
35,797
103,003,830
1,647,983
79,845,787
170,150,592
573,425
18,375,538
14,561,523
935,611
286,090,459
$ 389,094,289

199

INNOLUX CORPORATION

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

Liabilities andEquity Notes
December31,2017
December31,2016
6(11)
$ -
$ 11,583,750
6(2)
52,500
734,915
29,023,773
29,250,025
7
44,859,800
50,320,414
6(12) and 7
55,797,132
20,188,656
6(26)
-
577,254
6(16) and 9
5,460,862
3,765,234
6(13)
10,951,114
16,381,686
955,648
1,124,978
147,100,829
133,926,912
6(13)
17,287,788
28,128,467
6(26)
734,423
672,971
6(14)
483,212
359,576
18,505,423
29,161,014
165,606,252
163,087,926
6(17)
99,520,720
99,521,488
6(18)
99,646,919
99,647,810
6(19)
3,945,576
3,758,507
3,418,804
-

58,883,750
26,497,362
6(20)
(
1,090,721) (
3,418,804)
264,325,048
226,006,363
$ 429,931,300
$ 389,094,289
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
3320
Special reserve
3350
Unappropriated retained earnings
3400
Other equity interest
3XXX
Total equity
3X2X
Total liabilities and equity

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

200

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars, except for earnings per share amount)

Items Notes
2017
2016
7
$ 323,687,952
$ 285,695,113
6(6)(24) and 7
(
266,236,118) (
270,841,149)
57,451,834
14,853,964
6(24)
(
980,494) (
943,819)
(
3,635,529) (
3,052,097)
(
12,202,018) (
10,344,969)
(
16,818,041) (
14,340,885)
40,633,793
513,079
6(21)
2,410,518
1,905,334
6(22)
(
1,236,027) (
3,078,900)
6(23)
(
730,497) (
850,007)
3,997,806
5,171,418
4,441,800
3,147,845
45,075,593
3,660,924
6(26)
(
8,046,984) (
1,790,237)
$ 37,028,609
$ 1,870,687
6(14)
($ 49,571)
$ 44,027
6(26)
8,427
(
7,485)

(
41,144)
36,542
6(20)
(
1,643,264) (
5,708,026)
2,855,347
355,619
1,433,110
(
722,679)
6(26)
(
317,110) (
113,457)

2,328,083
(
6,188,543)
$ 2,286,939
($ 6,152,001)
$ 39,315,548
($ 4,281,314)
6(27)
$ 3.72
$ 0.19
$ 3.63
$ 0.19
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
(loss) 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 (loss) that will not be
reclassified to profit or loss
8310
Components of other
comprehensive (loss) income that
will not be reclassified to profit
or loss
Components of other comprehensive
income (loss) that will be reclassified
to profit or loss
8361
Financial statements translation
differences of foreign operations
8362
Unrealized gain on valuation of
available-for-sale financial assets
8380
Share of other comprehensive
income (loss) of subsidiaries,
associates and joint ventures
accounted for under equity method
8399
Income tax relating to the
components of other comprehensive
loss that will be reclassified
8360
Components of other
comprehensive income (loss) that
will be reclassified to profit or
loss
8300
Other comprehensive income (loss)
for the year, net of tax
8500
Total comprehensive income (loss) 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 parent company only financial statements.

201

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

2016
Balance at January 1
Appropriations of 2015 earnings (Note 1):

Legal reserve
Cash dividends
Cancellation of restricted stock to employees
Changes in restricted stock to employees
Compensation related to share-based payment

Recognition of change in equity of associates in proportion
to the Company's ownership
Profit for the year
Other comprehensive loss for the year

Balance at December 31
2017
Balance at January 1
Appropriations of 2016 earnings (Note 2):

Legal reserve
Special reserve
Cash dividends
Cancellation of restricted stock to employees
Recognition of change in equity of associates in proportion
to the Company's ownership
Profit for the year
Other comprehensive income for the year

Balance at December 31		 Notes Common stock Capital surplus RetainedEarnings RetainedEarnings Other EquityInterest Total
Legal reserve Special
reserve		 Unappropriated
earnings		 Financial
statements
translation
differences of
foreign operations		 Unrealized gain on
available-for-sale
financial assets		 Employee unearned
compensation
6(19)
6(15)
6(20)
6(19)
6(20)		 $ 99,532,372
-
-
(
10,884 )
-
-
-
-
-
$ 99,521,488
$ 99,521,488
-
-
-
(
768 )
-
-
-
$ 99,520,720		 $ 99,643,564
-
-
10,884
(
4,068 )
-
(
2,570 )
-
-
$ 99,647,810
$ 99,647,810
-
-
-
768
(
1,659 )
-
-
$ 99,646,919		 $ 2,676,947
1,081,560
-
-
-
-
-
-
-
$ 3,758,507
$ 3,758,507
187,069
-
-
-
-
-
-
$ 3,945,576		 $ -
-
-
-
-
-
-
-
-
$ -
$ -
-
3,418,804
-
-
-
-
-
$ 3,418,804		 $ 27,661,503
(
1,081,560 )
(
1,989,810 )
-
-
-
-
1,870,687
36,542
$ 26,497,362
$ 26,497,362
(
187,069 )
(
3,418,804 )
(
995,204 )
-
-
37,028,609
(
41,144 )
$ 58,883,750		 $ 1,695,294
-
-
-
-
-
-
-
(
5,735,702 )
($ 4,040,408 )
($ 4,040,408 )
-
-
-
-
-
-
(
1,676,815 )
($ 5,717,223 )		 $ 1,074,445
-
-
-
-
-
-
-
(
452,841 )
$ 621,604
$ 621,604
-
-
-
-
-
-
4,004,898
$ 4,626,502		 ($ 19,402 )
-
-
-
4,142
15,260
-
-
-
$ -
$ -
-
-
-
-
-
-
-
$ -		 $ 232,264,723
-
(
1,989,810 )
-
74
15,260
(
2,570 )
1,870,687
(
6,152,001 )
$ 226,006,363
$ 226,006,363
-
-
(
995,204 )
-
(
1,659 )
37,028,609
2,286,939
$ 264,325,048

Note 1: 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. Note 2: Employee's compensation and directors' remuneration accrued at $192,788 and $1,928 had been deducted from the statement of comprehensive income for the year ended December 31, 2016, respectively.

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

202

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 property, plant and equipment
Impairment loss
Interest income
Dividend income
Interest expense
Unrealized foreign exchange (gain) loss
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
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
2017
2016
$ 45,075,593
$ 3,660,924
6(24)
29,669,396
37,605,732
6(24)
-
15,260
(
3,997,806 ) (
5,171,418 )
6(22)
32,859
35,222
6(22)
3,049,547
500,000
6(21)
(
301,764 ) (
131,151 )
6(21)
(
22,678 ) (
28,593 )
6(23)
730,497
831,360
(
4,725 )
4,725
(
724,808 )
698,611
11,615,189
(
4,938,382 )
715,881
(
7,294,261 )
554,181
1,378,266
(
6,483,338 )
4,715,867
(
171,957 ) (
173,054 )
34,910
(
32,796 )
(
226,252 )
1,518,990
(
5,460,614 )
4,886,552
6,665,654
(
3,435,134 )
1,695,628
(
1,786,525 )
(
169,330 )
289,172
28,840
(
5,678 )
82,304,903
33,143,689
(
536,988 ) (
915,890 )
81,767,915
32,227,799

(Continued)

203

INNOLUX CORPORATION

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in other receivables - related parties
Proceeds from capital reduction of available-for-sale
financial assets
Acquisition of investment accounted for under equity
method
Proceeds from capital reduction of investments accounted
for under equity method
Decrease in other financial assets
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(Increase) decrease in other non-current assets
Interest received
Dividends received
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase 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
Interest paid
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2017
2016
$ 3,625
$ 254,273
145,575
159,335
-
(
77,808 )
1,790,881
23,680
30
1,519,807
6(28)
(
22,321,235 ) (
42,155,612 )
293,308
7,778
(
106,781 )
-
(
319 )
31,437
295,245
135,099
339,710
255,289
(
19,559,961 ) (
39,846,722 )
(
11,579,025 )
11,579,025
-
822,702
(
16,440,000 ) (
16,440,000 )
6(19)
(
995,204 ) (
1,989,810 )
-
(
1,372 )
(
588,508 ) (
703,623 )
(
29,602,737 ) (
6,733,078 )
32,605,217
(
14,352,001 )
20,927,609
35,279,610
$ 53,532,826
$ 20,927,609

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

204

INNOLUX CORPORATION

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 the 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 9, 2018.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

  • (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

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New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:
applying the consolidation exception’
Amendments to IFRS 11, ‘Accounting for acquisition of interests in joint
operations’
IFRS 14,‘Regulatory deferral accounts’
Amendments to IAS 1, ‘Disclosure initiative’
Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable methods
of depreciation and amortisation’
Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’
Amendments to IAS 19, ‘Defined benefit plans: employee contributions’
Amendments to IAS 27, ‘Equity method in separate financial statements’
Amendments to IAS 36, ‘Recoverable amount disclosures for non-
financial assets’
Amendments to IAS 39, ‘Novation of derivatives and continuation of
hedge accounting’
IFRIC 21, ‘Levies’		 January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014

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New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Annual improvements to IFRSs 2010-2012 cycle
Annual improvements to IFRSs 2011-2013 cycle
Annual improvements to IFRSs 2012-2014 cycle		 July 1, 2014
July 1, 2014
January 1, 2016

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’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.

(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 2018 are as follows:


follows:
New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 2, ‘Classification and measurement of share-based
payment transactions’
Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments with
IFRS 4 Insurance contracts’
IFRS 9, ‘Financial instruments’
IFRS 15, ‘Revenue from contracts with customers’
Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from
contracts with customers’
Amendments to IAS 7, ‘Disclosure initiative’
Amendments to IAS 12, ‘Recognition of deferred tax assets for
unrealised losses’
Amendments to IAS 40, ‘Transfers of investment property’
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’		 January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2018
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2018

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’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 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 promised 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.

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.

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  • 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 over 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.

  • The Company expects to provide additional disclosure to explain the changes in liabilities arising from financing activities.

When adopting the new standards endorsed by the FSC effective from 2018, the Company will apply the new rules under IFRS 9 and IFRS15 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. The significant effects of applying the new standards as of January 1, 2018 are summarised below:

  • A. In accordance with IFRS 9, the Company expects to reclassify available-for-sale financial assets in the amount of $1,308,207 by increasing financial assets at fair value through profit or loss in the amount of $1,308,207. There will be no effect on retained earnings and other equity interest.

  • B. Presentation of contract assets and contract liabilities

  • In line with IFRS 15 requirements, the Company expects to change the presentation of certain accounts in the balance sheet as follows:

Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are recognized as contract liabilities, but were previously presented as accounts receivable - allowance for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance would amount to $2,330,484.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations, and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

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New Standards,Interpretations andAmendments Effective Date by
International Accounting
StandardsBoard
Amendments to IFRS 9, ‘Prepayment features with negative
compensation’
Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets
between an investor and its associate or joint venture’
IFRS 16, ‘Leases’
IFRS 17, ‘Insurance contracts’
Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’
Amendments to IAS 28, ‘Long-term interests in associates and joint
ventures’
IFRIC 23, ‘Uncertainty over income tax treatments’
Annual improvements to IFRSs 2015-2017 cycle		 January 1, 2019
To be determined by
International Accounting
Standards Board
January 1, 2019
January 1, 2021
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Group’s assessment. The quantitative impact will be disclosed when the assessment is complete. 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 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

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 judgement in the process of

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applying the Company’s accounting policies. The areas involving a higher degree of judgement 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 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 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, even with 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, even when the Company retains

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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 settle liabilities more than twelve months after the balance sheet date.

  • B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

  • (a) Liabilities that are expected to be settled within the normal operating cycle;

  • (b) Liabilities arising mainly from trading activities;

  • (c) Liabilities that are to be settled within twelve months from the balance sheet date;

  • (d) Liabilities for which the repayment date cannot be extended unconditionally to more than 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.

(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 that meet the definition above and are 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 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.

(7) Available-for-sale financial assets

  • A. Available-for-sale financial assets are non-derivatives that are designated in this category.

  • B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.

  • C. 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

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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 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 (a “loss event”) 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 Company 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; 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 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, 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.

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  • 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; however, 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 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

  • C. 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.

  • D. 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.

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

  • 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. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities 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.

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(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. 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 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 and structures 3~51years

Machinery and equipment 5~9 years Other equipment 2~6 years

(15) 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.

(16) Intangible assets

  • A. Goodwill arises in a business combination accounted for by applying the acquisition method.

  • B. Patent, 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

  • C. 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 or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortized historical cost would have been if the impairment had not been recognized.

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

  • E. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that is/are expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is

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monitored for internal management purposes. Goodwill is monitored at the operating segment level.

(18) Borrowings

  • A. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

  • B. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

(19) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(20) 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.

(21) Provisions

Provisions (including warranties, litigations, etc.) are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

(22) Employee benefits

  • K. Short-term employee benefits

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

  • L. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expense when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a

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cash refund or a reduction in the future payments. 

  - (b) Defined benefit plans

     - i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

     - 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.

  • M. Employees’ compensation and directors’ remuneration

    • Employees’ compensation and directors’ remuneration are recognized as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

  • (23) 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:

    • (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”.

(24) 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

217

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 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 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 tax asset is realized or the deferred tax liability is settled.

  • D. Deferred 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 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 to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

  • (25) 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.

(26) 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 JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION

UNCERTAINTY

The preparation of these parent company only financial statements requires management to make critical judgements 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. For the information of critical accounting judgements, estimates and key sources of assumption uncertainty is addressed below:

(1) Critical judgements 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

218

is impaired. This determination requires significant judgement. In making this judgement, 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.

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

  • (2) 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:

  • A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Company’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(10) 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. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Company must determine the net realizable value of inventories on balance sheet date using judgements and estimates. Due to the rapid technology innovation, the Company evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

future. Therefore, there might be material changes
AILS OF SIGNIFICANT ACCOUNTS
Cash and cash equivalents		 to the evaluation.
Cash on hand, demand deposits and checking
account
Time deposits		 December31,2017
35,676,826
$ 17,856,000
53,532,826
$		 December31,2016
6,245,543
$ 14,682,066
20,927,609
$

  • 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.

219

(2) Financial assets and liabilities at fair value through profit or loss

Assets
Current items
Financial assets held for trading
Forward foreign exchange contracts
Forward exchange swap contracts
Liabilities
Current items
Financial liabilities held for trading
Forward foreign exchange contracts		 December31,2017
29,744
$ 76,890
106,634
$ December31,2017
52,500
$		 December31,2016
64,241
$ -
64,241
$ December31,2016
734,915
$

  • A. The Company recognized net gain of $89,192 and $87,140 on financial assets held for trading for the years ended December 31, 2017 and 2016, respectively.

  • B. The non-hedging derivative financial assets and liabilities transaction information are as follows:

December 31, 2017 December 31, December 31, 2016
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) 400,000
$		 2017/10~2018/3 USD (sell) $ 360,000
 2016/10~2017/3
exchange contracts JPY (buy) 44,934,619 2017/10~2018/3 JPY (buy) 39,597,920 2016/10~2017/3
Forward foreign EUR (sell) 15,800 2017/10~2018/2 TWD (sell) 621,240 2016/9~2017/2
exchange contracts USD (buy) 18,841 2017/10~2018/2 USD (buy) 20,000 2016/9~2017/2
Forward foreign EUR (sell) 34,200 2017/10~2018/3 EUR (sell) 19,000 2016/10~2017/1
exchange contracts JPY (buy) 4,554,765 2017/10~2018/3 USD (buy) 20,706 2016/10~2017/1
Forward foreign USD (sell) 410,000 2017/12~2018/1 EUR (sell) 55,000 2016/9~2017/4
swap contracts TWD (buy) 12,289,569 2017/12~2018/1 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

The Company entered into forward foreign exchange contracts to hedge exchange rate risk of import and export proceeds in foreign currency. However, these forward foreign exchange contracts are primarily for the requirement of capital management and not accounted for using hedge accounting. (3) Available-for-sale financial assets


Available-for-sale financial assets
Items
Non-current items
Listed stocks

Emerging and unlisted stocks
 December31,2017
1,154,959
$ 153,248
1,308,207
$		 December31,2016
1,438,809
$ 209,174
1,647,983
$

  • 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, 2017 and 2016. Please refer to Note 6(20).

  • B. The Company has assessed the impairment of certain investment items and recognized loss of $3,049,547 and $500,000 which has been reclassified from equity to current period profit or loss (shown as ‘other gains and losses’) for the years ended December 31, 2017 and 2016, respectively.

220

(4) Accounts receivable

Accounts receivable
December31,2017 December31,2016
Accounts receivable $ 41,514,602
 $ 51,636,429
Less: Allowance for sales returns and discounts ( 2,326,907)
 ( 833,545)
Allowance for bad debts ( 109,373)
 ( 109,373)
$ 39,078,322
 $ 50,693,511

  • 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 181 days		 December31,2017
3,279,209
$ 178,662
1,248
3,459,119
$		 December31,2016
237,149
$ 8,553
-
245,702
$

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, 2017 and 2016, the Company’s accounts receivable that were impaired were both $109,373.

  • (b) Movement on allowance for bad debts for impairment loss based on individual provision is as follows:

follows:
At January 1
Allowance for bad debts - write-offs
At December 31		 2017
109,373
$ -
(
109,373
$		 2016
117,499
$ 8,126)

109,373
$

(5) 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 transferred accounts receivable.

As of December 31, 2017 and 2016, all the accounts receivable sold were collected and the Company entered into factoring agreements with CTBC bank, Taipei Fubon Commercial Bank and Bank of Taiwan in the amount of $18,451,200, $5,952,000, and $1,190,400; and $19,995,000, $6,450,000, and $0, respectively.

(6) Inventories

$0, respectively.
Inventories
Raw materials and supplies
Work in progress
Finished goods		 December31,2017
2,538,870
$ 11,006,624
11,835,760
25,381,254
$		 December31,2016
2,164,341
$ 9,608,843
7,124,732
18,897,916
$
  • A. For the years ended December 31, 2017 and 2016, the Company recognized cost of goods sold for inventories that have been sold at $266,366,821 and $269,927,841, and recognized net inventory

221

(gain) loss at ($130,703) and $913,308 due to write down (reversal) of cost of scrap inventories to net realizable value, respectively.

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.

(7) Investments accounted for under the equity method

Subsidiaries:
Landmark International Ltd.
Innolux Holding Limited
Toppoly Optoelectronics (B.V.I.) Ltd.
Innolux Hong Kong Holding Limited
Innolux Japan Co., Ltd.
InnoJoy Investment Corporation
Leadtek Global Group Limited
Yuan Chi Investment Co., Ltd.
Others
Associates:
Ampower Holding Ltd.
FI Medical Device Manufacturing Co., Ltd.
Others		 December31,2017
December31,2016
44,160,820
$ 45,894,168
$ 20,423,738
18,523,142
6,476,884
6,717,191
3,797,279
3,341,269
1,496,157
1,548,673
1,381,380
1,246,809
999,166
322,973)
(
843,311
922,529
545,511
547,717
853,016
870,941
525,926
451,943
111,354
104,378
81,614,542
$ 79,845,787
$

A. The Company’s subsidiaries

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, 2017.

B. The Company’s associates

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


summarized below:
Profit for the year from continuing operations
Other comprehensive income - net of tax

Total comprehensive income		 2017
2016
361,688
$ 408,382
$ 31,085)
(
27,958)
(
330,603
$ 380,424
$ Years ended December 31,
2017
361,688
$ 31,085)
(

330,603
$

222

(8) Property, plant and equipment

2017
At January1 Additions Disposals Transfer At December 31
Cost:
Land $ 3,852,792
 $ -
 $ -
 $ -
 $ 3,852,792
Buildings 167,383,261 558,932 ( 268,401)
 3,333,445 171,007,237
Machinery and equipment 389,370,558 29,241,530 ( 3,496,686)
 35,804,241 450,919,643
Other equipment 30,215,454 454,839 ( 745,518) 3,742,307 33,667,082
590,822,065 30,255,301 ( 4,510,605) 42,879,993 659,446,754
Accumulated depreciation
and impairment:
Buildings ( 94,176,798)
 ( 7,966,324)
 246,887 ( 56,068)
 ( 101,952,303)
Machinery and equipment ( 337,036,893)
 ( 17,269,387)
 3,183,935 ( 1,503,306)
 ( 352,625,651)
Other equipment ( 25,243,481) ( 3,497,636) 745,251 ( 407,044) ( 28,402,910)
( 456,457,172) ( 28,733,347) 4,176,073 ( 1,966,418) ( 482,980,864)
Unfinished construction
and equipment under
acceptance 35,785,699 21,043,881 - ( 41,517,246) 15,312,334
$ 170,150,592 $ 191,778,224
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
  • 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:

nterest rates for such capitalisation are as follows:

Capitalised amount
Range of the interest rates for capitalisation		 Years endedDecember31,
2017
203,902
$ 2.15%~2.41%		 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, 2017 and 2016, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $1,376,587 and $896,996, 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.

223

(9) Investment property

nvestment property rty
At
January1
Cost:
Land
188,247
$ Buildings
439,228
627,475
Accumulated
depreciation
and impairment:
Buildings
54,050)
(
573,425
$		 At
At
Additions
Transfer
December 31
January1
-
$ -
$ 188,247
$ 188,247
$ -
-
439,228
564,109
-
-
627,475
752,356
10,728)
(
-
64,778)
(
71,853)
(
562,697
$ 680,503
$ 2017		 At
Additions
Disposals
December 31
-
$ -
$ 188,247
$ -
124,881)
(
439,228
-
124,881)
(
627,475
11,132)
(
28,935
54,050)
(
573,425
$ 2016
Additions Additions
-
$ -
-
10,728)
(		 -
$ -
-
11,132)
(

The fair value of the investment property held by the Company as at December 31, 2017 and 2016 was $1,423,964 and $1,109,891, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorized within Level 3 in the fair value hierarchy.

(10) 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		 2017
At January1
Additions
8,154,685
$ -
$ 17,096,628
-
4,104,226
106,781
(
29,355,539
106,781
(
7,528,070)
(
615,010)
(
3,451,931)
(
310,311)
(
10,980,001)
(
925,321)
(
18,375,538
$		 Disposals
-
$ -
55,337)

55,337)

-
55,337
55,337
2016		 Transfer
At December 31
-
$ 8,154,685
$ -
17,096,628
124,080
4,279,750
124,080
29,531,063
-
8,143,080)
(
-
3,706,905)
(
-
11,849,985)
(
17,681,078
$
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
$		 Disposals
-
$ -
70,918)

70,918)

-
70,918
70,918		 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
$

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

Operating costs
Operating expenses		 Years endedDecember31, Years endedDecember31,
2017
807,530
$ 117,791
925,321
$		 2016
997,181
$ 168,397
1,165,578
$

224

  • 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 6.32% and 5.86% for the years ended December 31, 2017 and 2016, 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, 2017 and 2016.
(11) Short-term borrowings
Type of borrowings December31,2016 Collateral
Bank borrowings
Unsecured borrowings $ 11,583,750
 None
Range of interest rates 0.83%~1.59%
As of December 31, 2017, the Company has no short-term borrowings.
(12) Other payables
(11)
(12)		 Short-term borrowings
As of December 31, 2017, the Company has no short-term borrowings.
Other payables
Type of borrowings
December31,2016
Bank borrowings
Unsecured borrowings
11,583,750
$ Range of interest rates
0.83%~1.59%		 Collateral
None
Long-term borrowings
December31,2017
December31,2016
Payable on machinery and equipment
32,086,845
$ 3,108,898
$ Wages and salaries and bonus payable
11,217,517
5,034,291
Repairs and maintenance expense payable
2,274,668
1,761,707
Processing fee payable
1,498,772
1,202,227
Utilities expense payable
1,018,773
1,009,126
Other payables
7,700,557
8,072,407
55,797,132
$ 20,188,656
$ Type ofborrowings
Period
December31,2017
December31,2016
Syndicated bank loans
2015/3/12
~2021/12/6
28,400,000
$ 44,840,000
$ Less:
Administrative expenses charged
by syndicated banks
161,098)
(
329,847)
(
Current portion (includes
10,951,114)
(
16,381,686)
(
administrative expenses)
17,287,788
$ 28,128,467
$ Range of interest rates
1.75%~2.06%
1.77%~2.06%

- (13) Long term borrowings

  • A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.

  • B. In the third quarter of 2017, the Company applied to extend the expiry date for 2 years pursuant to the NT$68.5 billion syndicated loan agreement. On August 2, 2017, the Company was informed of the banks’ unanimous consent.

  • C. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, 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, 2017 and 2016 are in compliance with the covenants on the syndicated loan agreement.

225

(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 insufficient to pay the pension calculated by the aforementioned method to the employees expected to qualify for retirement in the following year, the Company will make contributions for the deficit by next March.

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

Present value of defined benefit obligation
Fair value of plan assets
(
Net defined benefit liability		 December31,2017
1,902,852
$ 1,548,769)

(
354,083
$		 December31,2016
1,827,687
$ 1,534,864)

292,823
$
  • (c) Movements in net defined benefit liabilities are as follows:

Year ended December 31, 2017
Balance at January 1
Current service cost
Interest expense/income
Remeasurements:
Experience adjustments
Benefits paid
(
Balance at December 31		 Present value of
defined benefit
Fair value of
obligation
planassets

1,827,687
$ 1,534,864
$ 6,711
-
31,071
26,093
37,782
26,093
49,488
83)
(
12,105)

12,105)
(
37,383
12,188)
(
1,902,852
$ 1,548,769
$		 Net defined
benefitliability
292,823
$ 6,711
4,978
11,689
49,571
-
49,571
354,083
$

226

Present value of Present value of Present value of
defined benefit Fair value of Net defined
obligation planassets benefitliability
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

  • (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, 2017 and 2016 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,
2017
1.50%
1.50%		 2016
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:

227

Future salary increases

Discount rate

Increase 0.25% Decrease 0.25% Increase 0.25% Decrease 0.25%

December 31, 2017 Effect on present value of defined benefit obligation ($ 74,882) $ 78,699 $ 78,501 ($ 75,063) 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) The sensitivity analysis above is based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

  • (f) The Company suspended its contributions to the pension reserve as agreed by the Science Park Administration in February 2017.

  • (g) As of December 31, 2017, the weighted average duration of that retirement plan is 16 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, 2017 and 2016 were $979,319 and $978,325, respectively.

  • (15) Share-based payment

  • A. As of December 31, 2017, the Company’s share-based payment transactions are set forth below:

Type of arrangement
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)
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 (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

228

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 2011 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		 Expected
volatility
(%)
-
-
-
-
-
-
35.67		 Expected
duration
(month)
-
-
-
-
-
-
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
  • B. The details of the employee stock option plan for the year ended December 31, 2016 are as follows:

Year ended December 31, 2016

Quantity
(in thousand
StockOptions
units)

Options outstanding at the
beginning of the year
50,000

Options exercised
-

Options expired
50,000)
(

Options outstanding at the
end of the year
-

Options exercisable at the
end of the year
-
 Weighted
average
exercise
price
(indollars)

$ 22.85
-
21.87
-

-		 Range of
exercise
price
(indollars)
$ -		 Weighted
Weighted
average
average
stock price of
remaining
stock options
vesting
at exercise
period
date (indollars)
$ 9.99
-

229

There was no employee stock option plan for the year ended December 31, 2017.

  • C. For the years ended December 31, 2017 and 2016, the expenses incurred from share-based payment arrangements were $0 and $15,260, respectively.

(16) Provisions-current

At January 1, 2017
Additions during the year
Used during the year
(
At December 31, 2017		 Warranty

1,634,234
$ 2,320,000
1,263,072)

2,691,162
$		 Litigationand others
2,131,000
$ 638,700
-
(
2,769,700
$		 Total
3,765,234
$ 2,958,700
1,263,072)

5,460,862
$

D. 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.

  • E. 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).

(17) Share capital

As of December 31, 2017, the Company’s authorized and outstanding capital were $105,000,000 and $99,520,720, with a par value of $10 (in dollars) per share, respectively. 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		 2017
Number of ordinary
shares(in thousands)
9,952,149
77)

(
9,952,072		 2016
Number of ordinary
shares(in thousands)
9,953,237
1,088)

9,952,149

  • G. 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. The Company has terminated the contracts in relation to the circulation of GDR and its account of the depositary bank in order to lower administrative costs in accordance with the resolution by the Board of Directors on July 26, 2017.

  • H. 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, 2017 and 2016, the Company has retired 77 thousand and 1,088 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

230

(18) 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 Act 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
Recognition of change in equity of
associates in proportion to the
Company's ownership
At December 31
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
Recognition of change in equity of
associates in proportion to the
Company's ownership
At December 31		 2017
Sharepremium
99,614,516
$ -
174
-
(
99,614,690
$		 Share of profit
(loss) of
associates
accounted for
Restricted
under equity
stock to
method
employees
33,888
$ 594)
($ -
768
-
174)
(
1,659)

-
(
32,229
$ -
$ 2016

(19) 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 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,

231

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 2016 and 2015 net income which was approved at the stockholders’ meeting in June 2017 and 2016, respectively, are as follows:

Years ended December 31,

Legal reserve
Special reserve
Cash dividends		 Dividends per
Amount
share(in dollars)
187,069
$ 3,418,804
995,204
0.10
$ 4,601,077
$ 2016		 2015 2015
Amount
187,069
$ 3,418,804
995,204
4,601,077
$		 Amount
1,081,560
$ -
1,989,810
3,071,370
$		 Dividends per
share(in dollars)
0.20
$

The Company’s appropriations of earnings for 2017 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting in 2018.

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

(20) Other equity items


to Note 6(25).
Other equity items
2017
Available-
Currency for-sale
translation investments Total
At January 1 ($ 4,040,408)
 $ 621,604
 ($ 3,418,804)
Revaluation of available-for-sale
investments - gross - ( 194,200)
 ( 194,200)
Revaluation transfer of
available-for-sale investment - gross - 3,049,547 3,049,547
Currency translation differences ( 1,643,264)
 - ( 1,643,264)
Share of other comprehensive loss
of subsidiaries and associates ( 33,551)
 1,466,661 1,433,110
Effect of income tax - ( 317,110)
 ( 317,110)
At December 31 ($ 5,717,223)
 $ 4,626,502
 ($ 1,090,721)

232

2016

(21)
(22)
(23)		 Other income
Other gains and losses
Finance costs
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 other comprehensive loss of
subsidiaries and associates
27,686)
(
695,003)
(
-
722,689)
(
Effect of income tax
-
113,457)
(
-
113,457)
(
At December 31
4,040,418)
($ 621,604
$ -
$ 3,418,814)
($ 2017
2016
Rental revenue
124,405
$ 139,315
$ Interest income
301,764
131,151
Dividend income
22,678
28,593
Service income
635,100
250,240
Other income
1,326,571
1,356,035
2,410,518
$ 1,905,334
$ Years endedDecember31,
2017
2016
Net gain on financial assets and liabilities at fair
value through profit or loss
86,192
$ 87,140
$ Net currency exchange loss
1,019,872)
(
306,238)
(
Loss on disposal of property, plant and equipment
32,859)
(
35,222)
(
Impairment loss
3,049,547)
(
500,000)
(
Net disaster gain (loss)
2,051,579
1,296,166)
(
Others
728,480
1,028,414)
(
1,236,027)
($ 3,078,900)
($ Years endedDecember31,
2017
2016
Interest expense:
Bank borrowings
730,468
$ 831,360
$ Others
29
-
Factoring expense of accounts receivable
-
18,647
730,497
$ 850,007
$ Years ended December31,

233

(24) Expenses by nature

Expenses by nature
Employee benefit expense:
Salaries and other short-term employee benefits
Share-based payments
Post-employment benefits
Depreciation
Amortization		 Years endedDecember31,
2017
33,307,647
$ -
991,008
28,744,075
925,321
63,968,051
$		 2016
26,461,969
$ 15,260
991,394
36,440,154
1,165,578
65,074,355
$

(25) Employees’ compensation and directors’ 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’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ remuneration.

  • B. For the years ended December 31, 2017 and 2016, employees’ compensation was accrued at $3,136,952 and $192,788, respectively; while directors’ remuneration was accrued at $48,261 and $1,928, respectively. The aforementioned amounts were recognized in expenses.

  • The expenses recognized for 2017 were accrued based on the earnings of current year. The employees’ compensation and directors’ remuneration were $3,136,952 and $48,261 in the form of cash, respectively, as resolved by the Board of Directors on February 9, 2018. The accrued amounts were in agreement with the amount of recorded expense for the year ended December 31, 2017. Employees’ compensation and directors’ remuneration were accrued at $192,788 and $1,928, respectively, based on the earnings of current year distributable for the year ended December 31, 2016 and the employees’ compensation will be distributed in the form of cash. Employees’ compensation and directors’ remuneration for 2016 as resolved by the Board of Directors were $231,338 and $3,856, respectively. The difference of $40,478 between employees’ compensation (directors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2016 financial statements was caused by a different accrual ratio and had been recorded as expense in 2017.

  • Information about employees’ compensation and directors’ 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.

(26) Income tax

  • A. Income tax expense

  • (a) Components of income tax expense:

234

Current tax:
Current tax on profit for the year
Tax on undistributed surplus earnings
Prior year income tax
(overestimation) underestimation

Total current tax

Deferred tax:
Origination and reversal of temporary
differences
Income tax expense		 Years ended December31, Years ended December31,
2017
-
$ -
40,266)
(
40,266)
(
8,087,250
8,046,984
$		 2016
-
$ 590,712
299
591,011
1,199,226
1,790,237
$
  • (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
Remeasurement of defined benefit obligation
(		 Years ended December31,
2017
317,110
$ 8,427)

308,683
$		 2016
113,457
$ 7,485
120,942
$

B. Reconciliation between income tax expense and accounting profit:

Years ended December31, December31,
2017 2016
Tax calculated based on profit before tax and
statutory tax rate $ 7,662,851
 $ 622,357
Effects from items disallowed by tax regulation ( 500,004)
 ( 816,199)
Prior year income tax (overestimation)
underestimation ( 40,266)
 299
Additional 10% tax on undistributed earnings - 590,712
Change in assessment of realization of deferred
tax assets 924,403 1,393,068
Tax expense $ 8,046,984
 $ 1,790,237

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

235

Recognised
in other
Recognised in
comprehensive
January1
profit or loss
income
December31
Temporary differences:
-Deferred tax assets:
Sales returns and discount
provisions
270,483
$ 158,857
$ -
$ 429,340
$ Accrued royalties and
warranty provisions
731,844
363,165
-
1,095,009
Unrealized loss (gain) on
financial instruments
470,394
277,255
317,110)
(
430,539
Loss carryforward
12,486,251
8,851,439)
(
-
3,634,812
Others
602,551
26,364
8,427
637,342
14,561,523
$ 8,025,798)
($ 308,683)
($ 6,227,042
$ -Deferred tax liabilities:
Unrealized exchange gain
113,545)
($ 71,832
$ -
$ 41,713)
($ Amortisation charges on
goodwill
559,426)
(
82,369)
(
-
641,795)
(
Others
-
50,915)
(
-
50,915)
(
672,971)
($ 61,452)
($ -
$ 734,423)
($ 13,888,552
$ 8,087,250)
($ 308,683)
($ 5,492,619
$ Year ended December31,2017
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		 Year ended December31,2017
December31
429,340
$ 1,095,009
430,539
3,634,812
637,342
6,227,042
$

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

236

December 31, 2017

December31,2017
Year incurred
2011
2012
2016		 Amount filed
/ assessed
Assessed
Assessed
Filed		 Unused amount
26,496,656
$ 42,430,348
1,282,669
70,209,673
$ December31,2016		 Unrecognised
deferred
taxassets
18,427,518
$ 29,508,856
892,052
48,828,426
$		 Usable
untilyear
2021
2022
2026
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
$		 Unrecognised
deferred
tax assets
3,579,613
$ 24,318,605
16,170,882
1,161,351
45,230,451
$		 Usable
untilyear
2020
2021
2022
2026
  • E. The amounts of deductible temporary differences that were not recognized as deferred tax assets are as follows:

re as follows:
Deductible temporary differences December31,2017
51,793,034
$		 December31,2016
48,198,766
$

  • F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2017 and 2016, the amounts of temporary differences unrecognized as deferred tax liabilities were $31,293,045 and $28,052,581, respectively.

  • G. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

  • H. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

  • I. The details of imputation system are as follows:

  • (a) Balance of tax credit account

  • (b) Estimated (Actual) creditable tax rate

December31,2017
2,043,097
$ 2017(Estimated)
3.47%		 December31,2016
1,420,948
$ 2016 (Actual)
7.47%

237

(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,
2017
37,028,609
$ 9,952,051
3.72
$ 37,028,609
$ 9,952,051
259,625
22
10,211,698
3.63
$		 2016
1,870,687
$ 9,947,293
0.19
$ 1,870,687
$ 9,947,293
54,316
4,052
10,005,661
0.19
$

Diluted earnings per share (in dollar)

(28) Supplemental cash flow information

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 endedDecember31, Years endedDecember31,
2017
51,299,182
$ 3,108,898
32,086,845)

(
22,321,235
$		 2016
41,145,085
$ 4,119,425
3,108,898)

42,155,612
$

RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship Names of related parties

Hon Hai Precision Industry Co., Ltd. and its subsidiaries

Chi Lin Optoelectronics Co., Ltd. and its subsidiaries

FI Medical Device Manufacturing Co., Ltd.

GIO Optoelectronics Corp.

Relationship with the Company

The related party is owned by the same major shareholder of the Company The related party’s director is the Company

Associate

Associate

Leadtek Global Group Limited The Company’s subsidiary Lakers Trading Ltd. Indirect investee of the Company Innolux Hong Kong Limited Indirect investee of the Company Foshan Innolux Optoelectronics Ltd. Indirect investee of the Company

For the more information about the Company and other subsidiaries, please refer to Note 4(3) of the consolidated financial report for the year ended December 31, 2017.

(2) Significant related party transactions

A. Operating revenue

238

Sales of goods:
Others
Subsidiaries
Associates		 Years ended December31, Years ended December31,
2017
34,304,366
$ 19,877,722
37,115
54,219,203
$		 2016
14,619,410
$ 11,788,496
113,916
26,521,822
$

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
Others
Associates
Subsidiaries
Purchases of goods:		 Years ended December31,
2017
6,465,106
$ 1,337,016
101,332
7,903,454
$		 2016
3,014,178
$ 1,363,067
223,037
4,600,282
$

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
onsigned processing
) Consigned processing
Years ended December31,
2017 2016
Processing expense:
Subsidiaries
- Lakers Trading Ltd. $ 33,657,805
 $ 53,116,567
- Others 40,954,669 36,723,606
Others - 40,737
$ 74,612,474
 $ 89,880,910
) Balance of consigned processing at the end of year (shown as “Other payables”)
December 31,2017 December 31,2016
Payables to related parties:
Subsidiaries $ 1,476,966
 $ 1,188,143
Others 8 -
$ 1,476,974
 $ 1,188,143

(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”)

239

Years ended December December 31,
2017 2016
Service revenue:
Subsidiaries
- Foshan Innolux Optoelectronics Ltd. $ 585,639
 $ 207,244
Associates 49,461 42,996
$ 635,100
 $ 250,240
Receivables from related parties:
December 31, 2017 December 31, 2016
Accounts receivable:
Others
- Hon Hai Precision Industry Co., Ltd. $ 3,764,389
 $ 7,605,574
- Others 4,363,885 2,012,832
Subsidiaries 1,343,412 655,047
Associates 25,552 47,743
9,497,238 10,321,196
Less: Transfer to other receivables ( 10,528)
 ( 105,539)
Allowance for sales returns and discounts ( 3,577)
 ( 16,643)
$ 9,483,133
 $ 10,199,014

E. Receivables from related parties:

  • (c) 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.

  • (d) 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
- Leadtek Global Group Limited
- Lakers Trading Ltd.
- Innolux Hong Kong Limited
- Others
Others
Associates		 December31,2017
10,528
$ 18,263
28,791
$ December31,2017
21,080,569
$ 13,089,589
9,158,742
3,439
1,334,266
193,195
44,859,800
$		 December31,2016
105,539
$ 17,552
123,091
$ December31,2016
19,136,288
$ 21,652,362
7,545,137
35,737
1,727,306
223,584
50,320,414
$

The payables to related parties arise mainly from purchase and consigned processing 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:

240

(b) Period-end balances arising from purchases of property (shown as “Other payables”):
Key management compensation
2017
2016
Subsidiaries
38,536
$ 83,144
$ Others
- Hon Hai Precision Industry Co., Ltd.
31,456,795
-
- Others
20,360
17,324
31,515,691
$ 100,468
$ Years ended December31,
December31,2017
December31,2016
Subsidiaries
28,246
$ 6,528
$ Others
- Hon Hai Precision Industry Co., Ltd.
26,609,511
-
- Others
113
16,917
26,637,870
$ 23,445
$ 2017
2016
Salaries and other short-term employee benefits
130,223
$ 138,669
$ Share-based payments
-
665
Post-employment benefits
432
458
130,655
$ 139,792
$ Years endedDecember31,		 Years ended December31, Years ended December31,
2016
83,144
$ -
17,324
100,468
$
2017
130,223
$ -
432
130,655
$		 2016
138,669
$ 665
458
139,792
$

(3) Key management compensation

PLEDGED ASSETS

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

Book value

Pledged asset

Property, plant and equipment
Intangible assets
Other non-current assets
Time deposits		 December 31,2017

70,966,784
$ 7,446
722
70,974,952
$		 December 31,2016
Purpose
80,828,544
$ Long-term loans
15,551
Long-term loans
752
Guarantee for contract and
performance bond
80,844,847
$		 Purpose

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. In December 2009, the Company reached a plea agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil government initiated an investigation case against the Company. The investigation is still ongoing and the Company has been cooperative with the investigation. As for civil lawsuits filed by some state governments in the U.S., downstream panel makers, and customers, the Company had reached settlement agreement individually.

  • B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and

241

American subsidiaries 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.

In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In June 2017, the jury determined that some products of the Company and American subsidiaries constituted direct infringement of patent and ordered an infringement compensation for Eidos. The Company continued the legal fight by filing a post-trial motion in July 2017. 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.

  • C. The Company had assessed and recognized related losses and liabilities as shown in ‘provisions-current’ for the aforementioned investigation relating to anti-trust laws and patent litigation.

(2) Commitments

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

Property, plant and equipment

December 31,2017
18,878,215
$		 December 31,2016
17,663,033
$

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		 December31,2017
549,625
$ 1,854,909
529,173
2,933,707
$		 December31,2016
527,419
$ 1,861,776
880,359
3,269,554
$

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 December 31,2017
45,687
$		 December 31,2016
245,565
$

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 disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. The insurance claim has been paid as of September 30, 2017. The Company accrued gain of $755,413 after offsetting the loss with insurance claim.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

242

OTHERS

(11) 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.

(12) 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)).

  • (b) Risk management is carried out by the treasury department under policies approved by the board of directors. The 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

  • d) 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.

  • e) 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.

  • f) The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: NTD). Based on the simulations performed, the impact on

243

post-tax profit of a 1% exchange rate fluctuation would be an increase of $130,606 and $35,439 for the years ended December 31, 2017 and 2016, 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:

Foreign
Currency
Exchange
Amount
Rate
Book Value
(In Thousands)
(Note)
(NTD)
Financial asstes
Monetary items
USD
2,652,560
$ 29.76
78,940,186
$ JPY
291,999
0.26
75,920
EUR
52,375
35.57
1,862,979
Non-monetary
items
USD
2,595,104
$ 29.76
77,230,295
$ HKD
184,669
3.81
703,589
JPY
5,662,973
0.26
1,472,373
EUR
-
35.57
-
Monetary items
USD
1,978,955
$ 29.76
58,893,701
$ JPY
33,272,514
0.26
8,650,854
EUR
4,889
35.57
173,902
December 31,2017
Financial liabilities		 December 31,2016 December 31,2016
Foreign
Currency
Exchange
Amount
Rate
(In Thousands)
(Note)
2,348,586
$ 32.25
388,289
0.28
80,977
33.90
2,337,217
$ 32.25
223,521
4.16
5,619,277
0.28
3,703
33.90
2,088,145
$ 32.25
27,233,384
0.28
2,471
33.90		 Book Value
(NTD)
75,741,899
$ 108,721
2,745,120
75,375,248
$ 929,847
1,573,398
125,532
67,342,676
$ 7,625,348
83,767



  • Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.

  • g) 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, 2017 and 2016 amounted to $1,019,872 and $306,238, respectively.

  • Price risk

  • d) 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.

  • e) 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, 2017 and 2016 would have increased/decreased by $261,641 and $329,597, 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, 2017 and 2016, 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

244

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 or decrease of $71,000 and $112,100 for the years ended December 31, 2017 and 2016, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

  • (b) Credit risk

  • f) 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.

  • g) No credit limits were exceeded during the reporting periods. Management does not expect any significant losses from non-performance by these counterparties.

  • h) 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 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.

  • 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.

245

Non-derivative financial liabilities:

Non-derivative financial liabilities:
Less than
December 31,2017
1year
Accounts payable
73,883,573
$ Other payables
55,797,132
Long-term borrowings
(including current portion)
10,960,000
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
Derivative financial liabilities:
December 31,2017
Forward exchange contracts
December31,2016
Forward exchange contracts		 Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
16,890,000
550,000
Between 1
Between 3
and 3years
and 5years
-
$ -
$ -
-
-
-
27,550,000
850,000
Less than 1year

$ 52,500
$ Less than 1year

$ 734,915
$		 Total
73,883,573
$ 55,797,132
28,400,000
Total
11,583,750
$ 79,570,439
20,188,656
44,840,000
Total
$ 52,500
Total
$ 734,915
  • d) The Company does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(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(9).

  • 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, 2017 and 2016 is as follows:

246

December 31,2017
Assets
Recurring fair value measurements
Financial assets at fair value
through profit or loss
Forward exchange contracts
Forward exchange swap 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
December 31,2016
Assets
Recurring fair value measurements
Financial assets at fair value
through profit or loss
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

-
$ -
1,154,959
1,154,959
$ -
$ Level 1
-
$ 1,438,809
1,438,809
$ -
$		 Level 2

29,744
$ 76,890
-
106,634
$ 52,500
$ Level 2
64,241
$ -
64,241
$ 734,915
$		 Level 3
-
$ -
153,248
153,248
$ -
$ Level 3
-
$ 209,174
209,174
$ -
$		 Total
29,744
$ 76,890
1,308,207
1,414,841
$
52,500
$
Total
64,241
$ 1,647,983
1,712,224
$
734,915
$

  • 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:

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 parent company only balance sheet date.

  • (c) When assessing non-standard and low-complexity financial instruments, for example, foreign exchange swap contracts, the Company 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 and foreign exchange swap contracts are usually valued based on the current

247

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, 2017 and 2016, 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, 2017 and 2016:

Equitysecurities Equitysecurities Equitysecurities
2017 2016
At January 1 $ 209,174
 $ 382,046
Gains and losses recognized in profit or loss ( 420,832)
 -
Gains and losses recognized in other comprehensive
income 510,481 ( 13,537)
Proceeds from capital reduction ( 145,575)
 ( 159,335)
At December 31 $ 153,248
 $ 209,174

  • G. For the years ended December 31, 2017 and 2016, 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:

248

Non-derivative
equity instrument:
Unlisted shares
Non-derivative
equity instrument:
Unlisted shares		 Fair value
at December
Valuation
Significant
31,2017
technique
unobservable input
153,248
$ Market
comparable
companies
Price to earnings
ratio multiple, price
to sales ratio
multiple, price to
book ratio multiple
Discount for lack of
marketability
Fair value
at December
Valuation
Significant
31,2016
technique
unobservable input
209,174
$ Market
comparable
companies
Price to earnings
ratio multiple, price
to book ratio
multiple, control
premium
Discount for lack of
marketability		 Range
(Weighted
Relationship of
average)
inputs to fair value
1.26~1.64
(0.78)
The higher the
multiple, the higher
the fair value
30%~50%
(24%)
The higher the
discount for lack of
marketability, the
lower the fair value
Range
(Weighted
Relationship of
average)
inputs to fair value
0.68~1.55
(0.88)
The higher the
multiple and control
premium, the higher
the fair value
30%
(29%)
The higher the
discount for lack of
marketability, the
lower 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:
SUPPLEMENTARY DISCLOSURES
Significant transactions information
Financial assets
Period
Equity instrument
2017/12/31
Equity instrument
2016/12/31		 Input
153,248
$ 209,174		 Change
± 1%
± 1%		 Favourable
Unfavourable
change
change
1,532
$ 1,532)
($ 2,092
2,092)
(
Recognised in other
comprehensiveincome

  • 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: Please refer to table 3.

  • 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

249

capital or more: Please refer to table 4.

  • H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 5.

  • I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2).

  • J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

  • Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

  • (14) Information on investments in Mainland China

  • A. Basic information: Please refer to table 8.

  • B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to Table 1, 4, 5 and 6.

SEGMENT INFORMATION

None.

250

Innolux Corporation Loans to others For the year ended December 31, 2017

Table 1
No.
Creditor
Borrower
General
ledger
account
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Foshan Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Ningbo Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Ningbo Innolux
Display Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Shanghai Innolux
Optoelectronics Ltd.
Other
receivables
1 Innocom
Technology
(Shenzhen) Co.,
Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Other
receivables
2 Nanjng Innolux
Technology Ltd.
Nanjing Innolux
Optoelectronics Ltd.
Other
receivables
3 Innolux Technology
USA Inc.
Innolux Hong Kong
Limited
Other
receivables
3 Innolux Technology
USA Inc.
Lakers Trading Ltd. Other
receivables
4 Innolux Europe B.V. Innolux Hong Kong
Limited
Other
receivables
5 Innolux Europe B.V. Lakers Trading Ltd. Other
receivables
6 Innolux Japan Co.,
Ltd.
Leadtek Global
Group Limited
Other
receivables		 Is a
related
party
Maximum
outstanding
balance during
the year ended
December 31,
2017
Related
parties
$ 7,318,350
Related
parties
3,415,875
Related
parties
1,912,890
Related
parties
1,047,535
Related
parties
3,598,055
Related
parties
364,360
Related
parties
178,560
Related
parties
178,560
Related
parties
1,379,257
Related
parties
46,241
Related
parties
2,034,340		 Balance as at Actual amount
drawn down
Interest
rate
Nature of
loan

$ 2,976,000 2.00%
Short-term
financing
$ -
2,504,975 2.00%
Short-term
financing
-
1,776,255 2.00%
Short-term
financing
-
1,047,535 2.00%
Short-term
financing
-
2,823,790 2.00%
Short-term
financing
-
227,725 2.00%
Short-term
financing
-

-
0%
Short-term
financing
-

178,560 1.01%
~1.52%
Short-term
financing
-
1,351,013 0.626%
~0.633%
Short-term
financing
-

46,241 1.60%
Short-term
financing
-
2,034,340 1.00%
Short-term
financing
-		 Amount of
transactions
with the
borrower











 Reason for Allowance
for
doubtful
accounts
Collateral

Item
$ -
$ - $ -
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A		 Expressed in thousands of NTD
(Except as otherwise indicated)
Limit on loans
granted to a
single party
Ceiling on total
loans granted
Footnote
Value
$ 264,325,048 $ 264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
264,325,048
264,325,048
A
December 31, short-term
loans granted
$ 264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
264,325,048
A

A

A

A

A

A

A

A

A

A

A

2017
$ 2,976,000
2,504,975
1,776,255
1,047,535
2,823,790
227,725
-
178,560
1,351,013
46,241
2,034,340		 financing
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support
Operating
support

Innolux Corporation Loans to others For the year ended December 31, 2017

Expressed in thousands of NTD Expressed in thousands of NTD Expressed in thousands of NTD
(Except as otherwise indicated)
No. Creditor Borrower General Is a Maximum Balance as at Actual amount Interest Nature of Amount of Reason for Allowance Collateral
Limit on loans Ceiling on total Footnote
ledger related outstanding December 31, drawn down rate loan transactions short-term for granted to a loans granted
account party balance during 2017 with the financing doubtful single party
the year ended borrower accounts
December 31,
2017 Item Value
7 Asiaward Investment
Best China		 Other Related
$ 241,481		 $ - $ - 0% Short-term
$		 - Operating $ - $ - $ - $ 264,325,048 $ 264,325,048 A
Ltd. Investments Ltd.
receivables		 parties financing support
8 Best China Lakers Trading Ltd. Other Related
241,481		 - - 0% Short-term
- Operating - - - 264,325,048
264,325,048
A
Investments Ltd. receivables parties financing support
9 Main Dynasty Mega Chance Other Related
397,677		 - - 0% Short-term
- Operating - - - 264,325,048
264,325,048
A
Investment Ltd. Investments Ltd.
receivables		 parties financing support
10 Mega Chance Lakers Trading Ltd. Other Related
397,677		 - - 0% Short-term
- Operating - -
 - 264,325,048 264,325,048
A
Investments Ltd. receivables parties financing support
11 Sun Dynasty Magic Sun Limited Other Related
991,180		 - - 0% Short-term
- Operating - -
 - 264,325,048 264,325,048
A
Development receivables parties financing support
Limited
12 Magic Sun Limited Lakers Trading Ltd. Other Related
991,180		 - - 0% Short-term
- Operating - - - 264,325,048 264,325,048
A
receivables parties financing support
13 Warriors Lakers Trading Ltd. Other Related
3,205,169
3,205,169		 3,205,169 0% Short-term
- Operating - - - 264,325,048 264,325,048
A
Technology receivables parties financing support
Investments Ltd.
14 Innolux Lakers Trading Ltd. Other Related
119,040
119,040
119,040		 1.04% Short-term
- Operating - - - 264,325,048 264,325,048
A
Optoelectronics receivables parties financing support
USA, Inc.
15 Bright Information Lakers Trading Ltd. Other Related
95,809
95,809
95,809		 0% Short-term
- Operating - - - 264,325,048 264,325,048
A
Holding Ltd. receivables parties financing support
Note A: The Company - Innolux Corporation
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.

252

Innolux Corporation

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

December 31, 2017

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

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

Ningbo Innolux Optoelectronics Ltd.
上海辰岱投資中心(有限合夥)
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
 Number of shares
900,000 $ 150,500,000
17,792,552
89,072
44,741,305
1,209
1,439,180
6,964,222
10,000,000
-
16,000,000
24,194,000
90		 Expressed in thousands of NTD
(Except as otherwise indicated)
As of December 31, 2017
Book value
Ownership (%)
Fair value
Footnote
50,910
1
$ 50,910
607,330
6
607,330
102,338
19
102,338
4,022
-
4,022
543,607
7
543,607
-
-
-
148
2
148
257,676
5
257,676
271,900
7
271,900
127,492
-
127,492
6,052
6
6,052
4,814,606
7
4,814,606
26,784
-
26,784

253

Innolux Corporation

Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company's paid-in capital For the year ended December 31, 2017

Table 3
Investor
Marketable
securities
(Note 1)
General
ledger
account
Warriors
Technology
Investments
Ltd.
General Interface
Solution (GIS)
Holding Limited
(Stock)
Available-for-sa
le financial
assets -
non-current		 Counterparty
(Note 2)
Not
applicable		 Relationship
with the
investor
(Note 2)
Not
applicable
 Balance as at January 1,
2017 (Note 4)
Number
of shares
Amount
40,500,000 $ 3,705,750		 Addition (Note 3)
Number
of shares
Amount
- $ -		 Disposal (Note 3)
Number
of shares
Selling
price
Book
value
16,306,000 $ 2,752,692 $ 165,409 $		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606		 Expressed in thousands of NTD
(Except as otherwise indicated)
Balance as at December 31,
2017 (Note 4)
Gain on
disposal
Number
of shares
Amount
2,587,283
24,194,000 $ 4,814,606

2017 (Note 4)
Number
of shares
Amount
24,194,000 $ 4,814,606

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities. Note 2: Fill in the columns the counterparty and relationship if securities are accounted for under the equity method; otherwise leaves the columns blank. Note 3: Aggregate purchases and sales amounts should be calculated separately at their market values to verify whether they individually reach NT$300 million or 20% of paid-in capital or more. Note 4: It includes unrealized gains (losses) on available-for-sale financial assets.

254

Innolux Corporation

Table 4

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

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
Guizhou Fuzhikang Electronic
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
Hongfutai Precision Electrons
(Yantai) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Innolux Japan Co., Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Hong Kong Limited
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
FIH (Hong Kong) Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Hongfujin Precision Industry
(Wuhan) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Fu Lian Net International
(Hong Kong) Limited
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
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
18,987,653
6
90 days
14,194,308
4
60 days
3,564,306
1
60 days
3,134,709
1
60-90 days
2,045,050
1
90 days
2,002,799
1
45 days
1,919,552
1
45-90 days
1,703,414
1
60 days
892,785
-
90 days
812,756
-
60 days
628,521
-
90 days
588,640
-
90 days		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general sales
No material
difference
$ 3,764,389
8
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
702,843
1
Similar with
general sales
No material
difference
658,025
1
Similar with
general sales
No material
difference
1,261,004
3
Similar with
general sales
No material
difference
442,533
1
Similar with
general sales
No material
difference
218,925
-
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
-
-
Similar with
general sales
No material
difference
237,634
-
Similar with
general sales
No material
difference
70,209
-
Similar with
general sales
No material
difference
579,927
1		 Footnote

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, 2017

Table 4

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Innolux Corporation
Ningbo Innolux Display 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 Optoelectronics USA,
Inc.
An indirect wholly-owned
subsidiary
Innolux Corporation
COMPETITION TEAM
IRELAND LIMITED
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
Innolux Technology USA Inc. A subsidiary of the Company
Innolux Corporation
Foshan Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Optoelectronics
Europe B.V.
A subsidiary of the Company
Innolux Corporation
NANJING HONGFUSHARP
PRECISION ELECTRONICS
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
Ningbo Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
Innolux Corporation
FI Medical Device
Manufacturing Co., Ltd.
Investee accounted for under
the equity method
Innolux Corporation
GIO Optoelectronics Corp.
Investee accounted for under
the equity method
Innolux Corporation
Chi Lin Optoelectronics Co.,
Ltd.
The company is a corporate
director of Chi Lin		 Purchases
(sales)
Sales
$ Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Sales

Purchases

Purchases

Purchases

Purchases
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
579,412
-
90 days
454,858
-
90 days
432,561
-
45 days
416,110
-
45-90 days
386,335
-
45 days
298,945
-
60 days
225,318
-
90 days
221,279
-
30-60 days
164,896
-
90 days
164,262
-
90 days
109,310
-
90 days
6,302,886
2
60-90 days
after
acceptance
1,129,036
-
30 days after
acceptance
207,980
-
60 days after
acceptance
152,040
-
120 days after
acceptance		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general sales
No material
difference
$ 140,002
-
Similar with
general sales
No material
difference
109,636
-
Similar with
general sales
No material
difference
43,910
-
Similar with
general sales
No material
difference
212,617
-
Similar with
general sales
No material
difference
4
-
Similar with
general sales
No material
difference
23,717
-
Similar with
general sales
No material
difference
796,728
2
Similar with
general sales
No material
difference
46,259
-
Similar with
general sales
No material
difference
23,965
-
Similar with
general sales
No material
difference
55,401
-
Similar with
general sales
No material
difference
-
-
Single purchases
target, no basis
for comparison
No material
difference
( 1,331,325)
2
Single purchases
target, no basis
for comparison
No material
difference
( 160,373)
-
Single purchases
target, no basis
for comparison
No material
difference
( 32,821)
-
Single purchases
target, no basis
No material
difference
( 1,863)
-		 Footnote

256

Optoelectronics

for comparison

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Innolux Corporation
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innolux Corporation
Leadtek Global Group Limited A subsidiary of the Company
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 Limited
An indirect wholly-owned
subsidiary
Shanghai Innolux
Optoelectronics Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
NANJING HONGFUSHARP
PRECISION ELECTRONICS
CO.,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
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.
Premier Image Technology
(China) Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Hong Kong
Limited
Nanjing Innolux Technology
Ltd.
An indirect wholly-owned
subsidiary		 Purchases
(sales)
Processing
expense
$ Processing
expense

Processing
expense

Processing
revenue

Processing
revenue

Processing
revenue

Processing
revenue

Processing
revenue

Sales

Sales

Sales

Sales

Sales
 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
33,657,805
13
60-90 days
22,426,873
8
60-90 days
18,527,796
7
60-90 days
15,471,977
44
60 days
18,372,503
80
60 days
17,786,185
99
60 days
12,749,197
100
60 days
8,536,865
100
60 days
6,720,061
8
90 days
4,706,550
11
60 days
3,784,185
5
90 days
1,866,254
2
90 days
1,698,493
5
60 days		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Cost plus
No material
difference
($ 13,089,589)
18
Cost plus
No material
difference
( 9,158,742)
12
Cost plus
No material
difference
( 21,080,569)
29
Similar with
general
transactions
No material
difference
2,767,180
21
Similar with
general
transactions
No material
difference
16,946,551
95
Similar with
general
transactions
No material
difference
3,423,930
98
Similar with
general
transactions
No material
difference
6,673,314
100
Similar with
general
transactions
No material
difference
2,106,625
100
Similar with
general
transactions
No material
difference
7,593,892
22
Similar with
general
transactions
No material
difference
846,815
4
Similar with
general
transactions
No material
difference
-
-
Similar with
general
transactions
No material
difference
720,839
2
Similar with
general
transactions
No material
difference
315,142
3		 Footnote

257

Foshan Innolux Optoelectronics Ltd.

Sales

90 days

Futaijing Precision Electronics (Beijing) Co., Ltd.

An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

1,082,429

1

Similar with No material 55,085 general difference transactions

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Purchaser/seller
Counterparty
Relationship with the
counterparty
Foshan Innolux
Optoelectronics Ltd.
Panxian FuguiKang Precision
electronic Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innocom Technology
(Shenzhen) Co., Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
Chongqing Fuyusheng
Electronics Technology
Co.,Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux
Optoelectronics Ltd.
Beijing Fusharp Electronic
Commerce Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Lakers Trading Ltd.
Ningbo Innolux Electronics
Ltd.
An indirect wholly-owned
subsidiary
Ningbo Innolux Display
Ltd.
Ningbo Innolux
Optoelectronics Ltd.
An indirect wholly-owned
subsidiary
Innolux Europe B.V.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innolux Technology Japan
Co., Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Foshan Innolux
Optoelectronics Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
Ningbo Innolux Display
Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder
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.
Nanjing Innolux
Optoelectronics Ltd.
Hon Hai Precision Industry
Co., Ltd.
Same major stockholder		 Purchases
(sales)
Sales
$ Processing
revenue

Sales

Sales

Sales

Sales

Service
revenue

Service
revenue

Purchases

Purchases

Purchases

Purchases

Purchases		 Transaction
Amount
Percentage of
total purchases
(sales)
Credit term
513,953
1
90 days
258,405
100
60 days
236,753
-
90 days
226,610
-
90 days
171,488
1
60 days
162,765
1
60 days
659,699
100
60 days
270,068
93
60 days
3,385,353
4
90 days after
goods are
shipped
1,229,206
5
90 days after
goods are
shipped
606,150
1
90 days after
goods are
shipped
467,721
1
90 days after
goods are
shipped
138,628
1
90 days after
goods are
shipped		 Differences in transaction terms
compared to third party
transactions
Notes/accounts receivable (payable)
Footnote
Unit price
Credit term
Balance
Percentage of total
notes/accounts receivable
(payable)
Similar with
general
transactions
No material
difference
$ 607,499
2
Similar with
general
transactions
No material
difference
890,068
100
Similar with
general
transactions
No material
difference
279,845
1
Similar with
general
transactions
No material
difference
267,856
1
Similar with
general
transactions
No material
difference
32,642
-
Similar with
general
transactions
No material
difference
70,839
2
Similar with
general
transactions
No material
difference
63,124
61
Similar with
general
transactions
No material
difference
46,676
92
Similar with
general
transactions
No material
difference
( 111,114)
-
Similar with
general
transactions
No material
difference
( 424,958)
8
Similar with
general
transactions
No material
difference
( 177,967)
2
Similar with
general
transactions
No material
difference
( 156,344)
2
Similar with
general
transactions
No material
difference
(
34,312)
1		 Footnote

258

Table 5

Innolux Corporation Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017
December 31, 2017
Table 5
Creditor
Counterparty
Relationship
with the counterparty
Innolux Corporation
Hon Hai Precision Industry Co., Ltd.
Same major stockholder
Innolux Corporation
Hongfutai Precision Electrons (Yantai)
Co., Ltd.
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
Guizhou Fuzhikang Electronic 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
Fu Lian Net International (Hong Kong)
Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Honfujin Precision Electronics
(Chongqing) Co., Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
FIH (Hong Kong) Limited
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Innolux Japan Co.,Ltd.
An indirect wholly-owned
subsidiary
Innolux Corporation
COMPETITION TEAM IRELAND
LIMITED
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Corporation
Ningbo Innolux Display 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.		 Balance as at December
31, 2017
$ 3,764,389
1,261,004
796,728
702,843
658,025
579,927
442,533
237,634
218,925
212,617
140,002
109,636		 Turnover
rate
3.34 $ 2.40
0.44
10.11
6.12
2.03
3.98
6.37
10.35
3.76
8.18
2.13		 Overdue receivables
Amount
Action taken
-
-

49
Subsequent collection

-
-

-
-

-
-

-
-

173,027 Subsequent collection

-
-

-
-

20,957 Subsequent collection

-
-

-
-
 Expressed
(Except as
Amount collected
subsequent to the
balance sheet date
$ 1,019,373
96,383
21,848
242,084
285,937
-
107,152
87,730
-
76,339
-
33,789		 in thousands of NTD
otherwise indicated)
Allowance for
doubtful accounts
$ -
-
-
-
-
-
-
-
-
-
-
-
$




















Expressed in thousands of NTD (Except as otherwise indicated)

Innolux Corporation Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017

Table 5

Creditor
Counterparty
Relationship
with the counterparty
Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited
A subsidiary of the
Company
Foshan Innolux Optoelectronics Ltd.
NANJING HONGFUSHARP
PRECISION ELECTRONICS CO., LTD.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Shanghai Innolux Optoelectronics
Ltd.
Innolux Hong Kong Limited
An indirect wholly-owned
subsidiary
Innocom Technology (Shenzhen) Co.,
LTD
Lakers Trading Ltd.
An indirect wholly-owned
subsidiary
Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Premier Image Technology (China) Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux Optoelectronics Ltd.
Panxian FuguiKang Precision electronic
Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
An indirect wholly-owned
subsidiary
Foshan Innolux Optoelectronics Ltd.
Chongqing Fuyusheng Electronics
Technology Co.,Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.
Foshan Innolux Optoelectronics Ltd.
Beijing Fusharp Electronic Commerce
Ltd.
An indirect wholly-owned
subsidiary of Hon Hai
Precision Industry Co., Ltd.		 Balance as at December
31, 2017
$ 16,946,551
7,593,892
6,673,314
3,423,930
2,767,180
2,106,625
890,068
846,815
720,839
607,499
315,142
279,845
267,856		 Turnover
rate
1.12 $ 1.77
2.11
5.22
1.89
4.42
0.33
4.18
3.91
1.69
5.20
1.69
1.69		 Overdue receivables
Amount
Action taken
9,908,141
Subsequent collection

-
-

3,178,558
Subsequent collection

-
-

-
-

508,631 Subsequent collection

846,013 Subsequent collection

-
-

-
-

-
-

-
-

-
-

-
-
 Amount collected
subsequent to the
balance sheet date
$ 4,188,141
1,559,705
1,767,763
1,803,967
4,646,874
405,283
-
476,386
215,908
-
150,313
-
-		 Allowance for
doubtful accounts
$ -
-
-
-
-
-
-
-
-
-
-
-
-
$






















260

Significant inter-company transactions during the reporting period For the year ended December 31, 2017

Expressed in thousands of NTD (Except as otherwise indicated)

Innolux Corporation

Table 6

Number
(Note 1)
Company name
Counterparty
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Lakers Trading Ltd.
0
Innolux Corporation
Innolux Japan Co.,Ltd.
0
Innolux Corporation
Innolux Japan Co.,Ltd.
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Innolux Hong Kong Limited
0
Innolux Corporation
Ningbo Innolux Display Ltd.
0
Innolux Corporation
Ningbo Innolux Display Ltd.
0
Innolux Corporation
Innolux Optoelectronics USA, Inc.
0
Innolux Corporation
Innolux Technology USA Inc.
0
Innolux Corporation
Innolux Optoelectronics Europe B.V.
0
Innolux Corporation
Ningbo Innolux Optoelectronics Ltd.
0
Innolux Corporation
Nanjing Innolux Optoelectronics 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
Foshan Innolux Optoelectronics Ltd.
1
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
1
Foshan Innolux Optoelectronics Ltd.
Lakers Trading Ltd.
2
Ningbo Innolux Optoelectronics Ltd.
Leadtek Global Group Limited
2
Ningbo Innolux Optoelectronics Ltd.
Leadtek Global Group Limited
3
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
3
Ningbo Innolux Display Ltd.
Lakers Trading Ltd.
4
Nanjing Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
4
Nanjing Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited		 Relationship
(Note A)
General ledger account
1
Sales
$ 1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

1
Sales

1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

1
Sales

1
Sales

1
Sales

1
Sales

1
Sales

1
Processing expense

1
Accrued expenses
(
1
Sales

1
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Processing revenue

3
Accounts receivable
 Transaction
Amount
14,194,308
33,657,805
13,089,589)
1,919,552
218,925
1,703,414
22,426,873
9,158,742)
579,412
140,002
432,561
298,945
221,279
109,310
164,262
18,527,796
21,080,569)
225,318
796,728
15,471,977
2,767,180
18,372,503
16,946,551
17,786,185
3,423,930
12,749,197
6,673,314		 Transaction (Note C)
Transaction terms
(Note B)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-		 Percentage of consolidated Percentage of consolidated

total operating revenues or

total assets
4
10
3
1
-
1
7
2
-
-
-
-
-
-
-
6
5
-
-
5
1
6
4
5
1
4
2

Expressed in thousands of NTD (Except as otherwise indicated)

Innolux Corporation

Significant inter-company transactions during the reporting period

For the year ended December 31, 2017

Table 6

Number
(Note 1)
Company name
Counterparty
5
Shanghai Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
5
Shanghai Innolux Optoelectronics Ltd.
Innolux Hong Kong Limited
6
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
6
Ningbo Innolux Optoelectronics Ltd.
Ningbo Innolux Display Ltd.
7
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
7
Innolux Hong Kong Limited
Nanjing Innolux Technology Ltd.
8
Innocom Technology (Shenzhen) Co., Ltd.
Lakers Trading Ltd.
8
Innocom Technology (Shenzhen) Co., Ltd.
Lakers Trading Ltd.
9
Innolux Europe B.V.
Innolux Hong Kong Limited
9
Innolux Technology Japan Co.,Ltd.
Innolux Hong Kong Limited
10
Lakers Trading Ltd.
Ningbo Innolux Electronics Ltd.
11
Ningbo Innolux Display Ltd.
Ningbo Innolux Optoelectronics Ltd.		 Relationship
(Note A)
General ledger account
3
Processing revenue
$ 3
Accounts receivable

3
Sales

3
Accounts receivable

3
Sales

3
Accounts receivable

3
Processing revenue

3
Accounts receivable

3
Service revenue

3
Service revenue

3
Sales

3
Sales
 Transaction
Amount
8,536,865
2,106,625
4,706,550
846,815
1,698,493
315,142
258,405
890,068
659,699
270,068
171,488
162,765		 Transaction (Note C)
Transaction terms
(Note B)
-
-
-
-
-
-
-
-
-
-
-
-		 Percentage of consolidated Percentage of consolidated

total operating revenues or

total assets
3
1
1
-
1
-
-
-
-
-
-
-

Note A: 1 refers to the parent company to the subsidiary. 3 refers to 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.

262

Innolux Corporation

Information on investees

Table 7

For the year ended December 31, 2017

Expressed in thousands of NTD

(Except as otherwise indicated)

Investor
Investee
Location
Main business
activities
Innolux Corporation
Bright Information Holding Ltd. Hong Kong Investment holdings

Innolux Corporation
Golden Achiever International
Limited
BVI
Investment holdings

Innolux Corporation
Innolux Holding Limited
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
Limited
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 Japan Co., Ltd.
Japan
Holdings, R&D,
manufacturing and
Distributor company

Innolux Corporation
Innolux Corporation
USA
Distributor company

Innolux Corporation
Innolux Technology USA Inc.
USA
Distributor company

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

Innolux Corporation
Ampower Holding Ltd.
Cayman
Investment holdings

Innolux Corporation
FI Medical Device
Manufacturing Co., Ltd.
Taiwan
Production and selling of the
absorption for medical
element
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 119,724 $ 119,724
119,106 119,106
6,192,679 7,858,300
62,197 187,457
33,438,542 33,438,542
3,674,115 3,674,115
1,889,115 2,107,291
- -
1,217,235 1,217,235
1,674,054 1,674,054
- 121,941
1,335,486 1,335,486
90,845 -
354,262 -
- -
819,312 819,312
1,717,714 1,717,714
73,500 73,500		 Shares held a
Number of shares

4,910,000
40,250
180,568,185
1,656,410
709,450,000
146,847,000
1,158,844,000
50,000,000
-
167,405,392
-
80
32,000
1,000
4,333
78,195,856
14,062,500
7,350,000		 Shares held a s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
100 $ 95,703 $ 1,084
100 18,669 ( 41,026)
100 20,423,738 2,635,650
100 78,709 13,100
100 44,160,820 ( 741,423)
100 6,476,884 ( 99,582)
100 3,797,279 596,156
100 999,166 1,326,504
100 843,311 ( 108,668)
100 1,381,380 65,209
- - 6,965
49 1,496,157 22,299
100 2,500 ( 1,335)
100 349,930 8,543
35 - -
33 - -
50 853,016 25,735
49 525,926 685,633		 Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
$ 1,084
( 41,026)
2,635,650
13,100
( 771,767)
( 98,893)
586,392
1,326,504
( 108,668)
65,209
5,944
22,299
( 203)
493
-
-
12,867
339,907		 Footnote

Ownership
(%)
100 $ 100
100
100
100
100
100
100
100
100
-
49
100
100
35
33
50
49

Innolux Corporation Information on investees

For the year ended December 31, 2017

Table 7
Investor
Investee
Location
Main business
activities
Innolux Corporation
GIO Optoelectronics Corp.
Taiwan
Sales and manufacture of
TFT-LCD parts and
components

Innolux Holding
Limited
Rockets Holding Ltd.
Samoa
Investment holdings

Innolux Holding
Limited
Suns Holding Ltd.
Samoa
Investment holdings

Innolux Holding
Limited
Lakers Trading Ltd.
Samoa
Distributor company

Innolux Holding
Limited
Innolux Corporation
USA
Distributor company

Toppoly
Optoelectronics (B.V.I.)
Ltd.
Toppoly Optoelectronics
(Cayman) Ltd.
Cayman
Investment holdings

Innolux Hong Kong
Holding Limited
Innolux Optoelectronics Hong
Kong Holding Limited
Hong Kong Investment holdings

Innolux Hong Kong
Holding Limited
Innolux Hong Kong Limited
Hong Kong Distributor company

Innolux Hong Kong
Holding Limited
Innolux Europe B.V.
Netherlands Holding company and
R&D testing company

Innolux Hong Kong
Holding Limited
Innolux Japan Co.,Ltd.
Japan
Holdings, R&D,
manufacturing and
Distributor company

Innolux Hong Kong
Holding Limited
Innolux Technology USA Inc.
USA
Distributor company

Innolux Europe B.V.
Innolux Optoelectronics
Germany GmbH
Germany
Importing, exporting, buying,
selling and logistics services
of electronic equipment and
TFT-LCD monitors

Innolux Japan Co.,Ltd.
Innolux Optoelectronics USA,
Inc.
USA
Selling of electronic
equipment and computer
monitors

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 Europe B.V.
Innolux Technology Germany
GmbH
Germany
Testing and maintenance
company

Yuan Chi Investment
Co., Ltd.
Chi Mei Lighting Technology
Corporation
Taiwan
Manufacturing of electronic
equipment and lighting
equipment
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 800,892 $ 800,892
5,222,180 7,296,530
555,422 555,422
- -
- 6,348
3,650,192 3,650,192
- -
- -
3,209,158 3,073,072
1,815,603 1,815,603
- 263,685
10,324 10,324
2,400 2,400
5,391,125 5,391,125
27,477 27,477
555,422 555,422
33,735 33,735
263,812 263,812		 Shares held a
Number of shares

10,494,001
160,504,550
18,177,052
1
-
146,817,000
162,897,802
35,000,000
375,810
82
-
250
1,000
164,000,000
900,001
18,177,052
100,000
19,673,402		 Shares held a s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
24 $ 111,354 $ 37,487
100 11,932,235 ( 31,714)
100 8,264,697 2,668,427
100 226,729 -
- - ( 1,335)
100 6,476,566 ( 99,582)
100 1,394,290 165,169
100 ( 1,089,257) 374,757
100 2,341,954 42,943
51 1,661,840 1,351
- - 8,543
100 14,077 634
100 271,811 9,214
100 11,903,213 ( 33,332)
100 28,889 1
100 8,264,696 2,668,427
100 62,081 2,864
8 - -		 Expressed in thousands of NTD
(Except as otherwise indicated)
Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
Footnote
$ 8,914
( 31,714)
2,668,427
-
( 1,132)
( 99,582)
165,169
374,757
42,943
1,351
8,050
634
9,214
( 33,332)
1
2,668,427
2,864
-

Ownership
(%)
24 $ 100
100
100
-
100
100
100 (
100
51
-
100
100
100
100
100
100
8

264

Innolux Corporation Information on investees For the year ended December 31, 2017

Table 7

Table 7
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 of electronic
materials, trading business,
manufacturing of electronic
equipment and lighting
equipments
 Initial investment amount
Balance as at
December 31,
2017
Balance as at
December 31,
2016
$ 6,881 $ 6,881
423,606 423,606		 Shares held a
Number of shares

77,235
58,007,000		 Shares held a Expressed
(Except a
s at December 31, 2017
Net profit (loss) of
the investee for the
year ended
December 31, 2017
Ownership
(%)
Book value
- $ 843 $ 37,487
40 - ( 272,602)		 in thousands of NTD
s otherwise indicated)
Investment income
(loss) recognised by
the Company for the
year ended
December 31, 2017
$ 67
( 86,901)		 Footnote

Ownership
(%)
- $ 40

265

Innolux Corporation

Information on investments in Mainland China

For the year ended December 31, 2017

Table 8
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

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

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

Shanghai Innolux
Optoelectronics Ltd.
Manufacturing and selling
of LCD backend module
and related components
 Paid-in capital
(Note A)
$ 4,880,640
292,896
9,225,600
11,398,080
4,761,600
62,496
300,576
4,344,960
624,960		 Investment
method
(Note C)
2
2
2
2
2
2
2
2
2		 Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of January 1,
2017


$ 3,776,893
59,520
219,184
11,398,080
4,761,600
62,496
113,088
4,286,499
-		 Amount remitted from
Taiwan to Mainland
China/Amount remitted
back to Taiwan for the
year ended December 31,
2017
Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of December
31, 2017
Remitted to
Mainland
China
Remitted back to Taiwan
$ - $ - $ 3,776,893
- - 59,520
- - 219,184
- - 11,398,080
- - 4,761,600
- - 62,496
- - 113,088
- - 4,286,499
- - -		 Net income of
investee for the
year ended
December 31,
2017
($ 33,371)
( 96,503)
( 1,993,452)
934,684
314,967
19,625
( 41,027)
( 116,971)
165,169		 Ownership
held by the
Company
(direct or
indirect)
100
4
100
100
100
100
100
100
100		 Expressed in thousands of NTD
(Except as otherwise indicated)
Investment
income (loss)
recognised by the
Company for the
year ended
December 31,
2017 (Note B)
Book value of
investments in
Mainland
China as of
December 31,
2017

($ 33,371) $ 11,903,163
- 6,752
( 1,993,452) 19,339,733
937,060 20,721,423
314,967 4,164,917
19,625 557,316
( 41,027) 18,295
( 116,971) 5,919,229
165,169 1,394,290		 Accumulated
amount of
investment
income
remitted back
to Taiwan as of
December 31,
2017
$ 1,103,747
-
5,137,616
-
-
-
-
-
-		 Footnote
$






2.1
2.1
2.2
2.2
2.2
2.3
2.4
2.3
2.8
2.5
Investee in Mainland
China
Main business activities
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)
$ 44,640
238,080
2,862,912
136,635
4,555
4,555		 Investment
method
(Note C)
2
2
2
3
3
3		 Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of January 1,
2017


$ 44,640
297,600
401,760
-
-
-		 Amount remitted from
Taiwan to Mainland
China/Amount remitted
back to Taiwan for the
year ended December 31,
2017
Accumulated
amount of
remittance from
Taiwan to
Mainland China
as of December
31, 2017
Remitted to
Mainland
China
Remitted back to Taiwan
$ - $ - $ 44,640
- - 297,600
- - 401,760
- - -
- - -
- - -		 Net income of
investee for the
year ended
December 31,
2017
$ 4,737
-
1,821,286
130,536
1,274
3,261		 Ownership
held by the
Company
(direct or
indirect)
100
50
7
100
100
100		 Investment
income (loss)
recognised by the
Company for the
year ended
December 31,
2017 (Note B)
$ 4,737
-
-
130,536
1,274
3,261		 Book value of
investments in
Mainland
China as of
December 31,
2017

$ 74,038
192,427
4,814,606
371,711
5,840
7,556		 Accumulated
amount of
investment
income
remitted back
to Taiwan as of
December 31,
2017
$ -
-
-
-
-
-		 Footnote
$



2.6
2.7
2.1
3.1
3.2
3.2

Ceiling on investments in Mainland China:

Company name
Innolux Corporation		 Accumulated amount of remittance from
Taiwan to Mainland China as of December
31, 2017
$ 26,761,777
 Investment amount approved by the
Investment Commission of the Ministry
of Economic Affairs (MOEA)
$ _35,873,581		 $ Ceiling on investments in Mainland Ceiling on investments in Mainland


China imposed by the Investment
Commission of MOEA
158,595,029

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, 2017 was audited by independent accountants. Note C: The investment methods are as follows:

  1. Directly investing in Mainland China.

  2. Through investing in companies in the third area, which then invested in the investee in Mainland China.

  3. 2.1. Through investing in Innolux Holding Limited in the third area, which then invested in the investee in Mainland China.

  4. 2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

  5. 2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.

  6. 2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.

  7. 2.5. Through investing in Innolux Hong Kong Holding Ltd in the third area, which then invested in the investee in Mainland China.

  8. 2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.

  9. 2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.

267

2.8. Nanjing Innoloux Optoelectornics Ltd. acquired Kunpal Optoelectronics Ltd. by merger, which was approved by the Investment Commission of the Ministry of Economic Affairs in November 2017.

  1. Others.

  2. 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. 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.

268

Innolux Corporation Chairman: Jyh-Chau Wang

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