OFFERING MEMORANDUM

STRICTLY CONFIDENTIAL

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Innolux Corporation

(incorporated with limited liability in Taiwan, Republic of China)

US$300,000,000 Zero Coupon Convertible Bonds due 2025

We are offering (this “Offering”) US$300,000,000 aggregate principal amount of US dollar denominated zero coupon convertible bonds due 2025 (the “Bonds”), through UBS AG Hong Kong Branch and Credit Suisse (Hong Kong) Limited (the “Initial Purchasers”).

The Bonds will be direct, unconditional, unsubordinated and unsecured obligations of Innolux Corporation (the “Company” or “Issuer”, and together with its subsidiaries, the “Group”), and will rank pari passu without any preference or priority among themselves and with all of the Company’s other present and future direct, unconditional, unsubordinated and unsecured obligations, except as otherwise provided herein. Unless the Bonds have been previously redeemed, repurchased and canceled or converted, the Company will redeem the Bonds at 100% of the outstanding principal amount thereof at maturity. The Bonds will not bear any interest.

The Bonds will be convertible into our common shares, par value NT$10.00 per share (the “Shares” or the “Common Shares”), during the period from and including April 23, 2020 to and including December 23, 2024 (subject to certain restrictions) at a conversion price which will initially be NT$10.72 per Share (subject to adjustment as set forth in “Description of the Bonds — Conversion — Adjustments to the Conversion Price”) determined on the basis of a fixed exchange rate of NT$29.913 = US$1.00 (the “Fixed Exchange Rate”) applicable on conversion of the Bonds. The Shares are currently listed under the trading code “3481” on the Taiwan Stock Exchange (the “TWSE”) in the Republic of China (the “ROC”) and application will be made to list the Shares issued on conversion of the Bonds on the TWSE. The closing price per Share on the TWSE on January 15, 2020 was NT$9.12 (equivalent to US$0.30 at the exchange rate of NT$29.913 to US$1.00 based on the Taipei Forex Inc. Taiwan Dollar 11:00 Fixing Rate on January 15, 2020). See “Risk Factors — Risks Relating to Ownership of the Bonds and the Shares.”

At any time after January 22, 2023, by giving the requisite notice, we may redeem the Bonds, in whole or in part, at the applicable Early Redemption Amount (as defined herein), if the closing price (converted into U.S. Dollars at the Prevailing Rate (as defined herein)) of the Shares for 20 consecutive Trading Days (as defined herein) immediately prior to the date upon which notice of such redemption was given, is at least 130% of the quotient of the Early Redemption Amount divided by the Conversion Ratio (as defined herein) then in effect. In addition, we may redeem the Bonds then outstanding, in whole but not in part, at the applicable Early Redemption Amount if (i) more than 90% in principal amount of the Bonds originally issued has been redeemed, repurchased and canceled or converted or (ii) we become obligated to pay Additional Amounts (as defined herein) as a result of certain changes in the taxation in the ROC occurring on or after the Closing Date, which is expected to be on January 22, 2020.

You may require us to repurchase the Bonds, in whole or in part (being US$200,000 in principal amount or any integral multiples thereof), at 100% of the principal amount in US dollars with respect to your Bonds on January 22, 2023. You may also require us to repurchase the Bonds at the applicable Early Redemption Amount, if the Shares cease to be listed or admitted to trading on the TWSE or there is a Change of Control (as defined herein).

Application will be made for the listing and quotation of the Bonds on the Singapore Exchange Securities Trading Limited (the “SGX-ST”). The SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this offering memorandum. Approval in-principle for the listing and quotation of the Bonds and admission of the Bonds to the Official List of the SGX-ST are not to be taken as an indication of the merits of this Offering, the Company, the Group, its subsidiaries, or any of their associated companies or the Bonds. Prior to this Offering, there has been no market anywhere for the Bonds, or any market outside the ROC for the Common Shares.

Notification pursuant to Section 309B of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”)—The Bonds are prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore).

Investing in and holding the Bonds involve a high degree of risk. See “Risk Factors” beginning on page 14 for a discussion of certain factors to be considered in connection with an investment in, and the holding of, the Bonds.

The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws. The Bonds are being offered and sold only outside the United States in reliance on Regulation S under the Securities Act (“Regulation S”). The Bonds are sold subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and the applicable securities laws of any state or other jurisdiction pursuant to registration thereunder or exemption from registration. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. The Bonds are not being directly or indirectly offered in the ROC. See “Transfer Restrictions” and “Plan of Distribution.”

The Bonds will be represented by beneficial interests in one or more global bonds registered in the name of a nominee of the common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”). Except as described herein, beneficial interests in the global bonds will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream and their participants. The Initial Purchasers expects to deliver the Bonds to purchasers’ accounts on or about January 22, 2020.

Bonds Issue Price: 100%

Sole Global Coordinator UBS

Joint Bookrunners

UBS Credit Suisse

Offering memorandum dated January 15, 2020

You should rely only on the information contained in this offering memorandum. Neither we nor the Initial Purchasers have authorized anyone to provide you with different information. Neither we nor the Initial Purchasers are making an offer of these securities in any state or jurisdiction where the offer is not permitted. This offering memorandum does not constitute an offer to sell or the solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities by any person in any circumstances in which such offer or solicitation is unlawful. You should not assume that the information contained in this offering memorandum is accurate as of any date other than the date of this offering memorandum. Our business, financial condition, results of operations and prospects may have changed since that date.

Except as described below, we accept no responsibility for the information contained in this offering memorandum. We, having made all reasonable enquiries, confirm that this offering memorandum contains all information with respect to us, our consolidated subsidiaries, the Bonds and the Shares to be delivered upon conversion of the Bonds that is material in the context of the issue and offering of the Bonds, that the information contained in this offering memorandum is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this offering memorandum are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions, that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this offering memorandum as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects and that all reasonable enquiries have been made by us to verify the accuracy of such information and that this offering memorandum does not contain an untrue statement of a material fact or omit to state a material fact required to be stated or necessary in order to make the statements, in the light of the circumstances under which they are made, not misleading. The information contained in the section entitled “Appendix A — The Securities Markets of the ROC” has been extracted from publicly available resources. However, such information has not been verified by us, the Initial Purchasers or any of our or the Initial Purchasers’ respective affiliates or advisors in connection with this offering.

The distribution of this offering memorandum and the offering and sale of the Bonds, in certain jurisdictions may be restricted by law. Persons into whose possession this offering memorandum comes are required by us and the Initial Purchasers to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on the offering and sale of the Bonds, and distribution of this offering memorandum, see “Plan of Distribution” and “Transfer Restrictions.” This offering memorandum does not constitute an offer of, or an invitation by or on behalf of us or the Initial Purchasers to subscribe for or purchase any of the Bonds in any jurisdiction in which such offer or invitation would be unlawful. This offering memorandum may be used only for the purposes for which it has been published.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this offering memorandum. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek” and similar words identify forwardlooking statements. In addition, all statements other than statements of historical fact included in this offering memorandum are forward-looking statements. Our forward-looking statements contain information regarding:

our future revenue and profitability;
our business strategies;
expected change in demand in the LCD and related markets;
expected fluctuations of market prices of our products;
expected supply growth in the LCD and related markets;
expected industry trends;
our capital expenditure plans; and
other matters discussed in this offering memorandum regarding matters that are not historical facts,

are only forecasts based on information currently available to us. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that these expectations and projections are reasonable, these forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others:

the intensely competitive industries in which we operate;
changes in the supply of products similar to ours;
industry risks;
general economic, political and social conditions and developments in the ROC, the PRC and other jurisdictions in which we operate our business;
market acceptance of our products;
risks associated with our entry into new markets or businesses;
technology replacement risks;
our rate of growth and ability to meet the demands in relation to our growth;
changes in the availability and prices of raw materials, components and machinery and equipment we need to manufacture our products;
our ability to meet financial and other covenants provided under our loan agreements;
our continued ability to secure funding to meet our liquidity needs and investment objectives;

legal proceedings, if any; and
other risks identified in the “Risk Factors” section of this offering memorandum.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove correct. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of the foregoing and the risks, uncertainties and assumptions in “Risk Factors” and elsewhere in this offering memorandum, the forward-looking events in this offering memorandum are not guarantees of future performance and might not occur and our actual results could differ materially from those anticipated in those forward-looking statements.

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ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC AND THE PRC

We are a company limited by shares and incorporated under the ROC Company Act. Most of our directors and executive officers named in this offering memorandum are residents of the ROC and a significant portion of our assets and the assets of such persons are located in the ROC. As a result, it may be difficult for investors to enforce judgments obtained outside the ROC against us or such persons in the ROC, including those predicated upon the civil liability provisions of the federal securities laws of the United States. Any final judgment obtained against us or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to our Bonds or Shares to be issued upon conversion of the Bonds will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that:

the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC;
neither the judgment nor the court proceedings resulting in the judgment are contrary to the public order or good morals of the ROC;
if the judgment was rendered by default by the court rendering the judgment, (i) process was duly served on us or such persons within a reasonable period of time within the jurisdiction of such court in accordance with the laws and regulations of such jurisdiction or (ii) process was served on us or such persons with judicial assistance of the ROC; and
judgments of the courts of the ROC are recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis.

A party seeking to enforce a foreign judgment in the ROC would, except under limited circumstances, be required to obtain foreign exchange approval from the Central Bank of the Republic of China (Taiwan), or the CBC, for the remittance out of the ROC of any amounts exceeding US$100,000 or its equivalent recovered in respect of such judgment denominated in a currency other than NT dollars. See “Appendix B — Foreign Investment and Exchange Controls in the ROC.”

Further, a significant portion of our assets are located in the PRC. JunHe LLP, our PRC counsel, advises us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions, provided that the foreign judgments do not violate the basic principles of laws of the PRC or its sovereignty, security or social and public interest.

CERTAIN CONVENTIONS AND OTHER DATA

Unless otherwise indicated, the following references in this offering memorandum have the following meaning:

“AAS-HCR” refers to azimuthal anchoring switch high contrast ratio technology;
“AM miniLED” refers to active matrix sub-millimeter light emitting diode technology;
“AMOLED” refers to the active matrix organic light emitting diode technology;
“China” or the “PRC” refers to the People’s Republic of China, excluding, for the purpose of this offering memorandum only, Hong Kong, Macau and Taiwan;
“Foxconn” refers to Foxconn Technology Co., Ltd., a company incorporated in the ROC;
“G3.5,” “G4,” “G4.5,” “G5,” “G5.5,” “G6,” “G7.5”, “G8.5” and “G8.6” and similar terms refer to third, 3.5-, fourth-, 4.5-, fifth-, 5.5-, sixth-, 7.5-, 8.5-and 8.6- and other corresponding generations of TFTLCD industry panel production technologies, respectively;
“Hon Hai Group” refers to Hon Hai Precision Industry Co., Ltd. (“Hon Hai”), a company incorporated in the ROC, and its subsidiaries;
“IGZO” refers to indium gallium zinc oxide technology;
“Initial Purchasers” refers to the initial purchasers named in the section entitled “Plan of Distribution” which will initially purchase the Bonds from our company for resale to investors;
“LCD” refers to liquid crystal display;
“LTPS” refers to low-temperature polycrystalline silicon technology;
“microLED” refers to micro light emitting diode technology;
“OLED” refers to the organic light emitting diode technology;
“on-cell touch” refers to the technology where the touch panel functionality is embedded in the LCD panel;
“our company,” “we,” “us” and “our” refer to Innolux Corporation, formerly named as InnoLux Display Corporation and Chimei Innolux Corporation, and, as the context may require, its subsidiaries;
“Taiwan” or the “ROC” refers to the island of Taiwan and other areas under the effective control of the Republic of China;
“TFT-LCD” refers to thin film transistor liquid crystal display;
“TID” refers to the touch-in-display technology; and
“TOD” refers to the touch-on-display technology.

Certain names with Chinese characters have been translated into English names. Such translations are provided solely for the convenience of investors and should not be construed as representations that the English names actually represent the Chinese characters.

All references to “United States dollars,” “US dollars” and “US$” are to United States dollars, references to “New Taiwan dollars,” “NT dollars” and “NT$” are to New Taiwan dollars, references to “HK Dollars” and “HK$” are to Hong Kong dollars and references to “Renminbi” and “RMB” are to Renminbi.

As the Shares are listed on the TWSE, our financial statements are required to be presented in New Taiwan dollars, the lawful currency of Taiwan.

Unless expressly stated otherwise, all financial information, description and other information regarding our financial condition and results of operations as of and for the years ended December 31, 2016, 2017 and 2018 and as of and for the nine months ended September 30, 2018 and 2019 included in this offering memorandum are presented on a consolidated basis. Our consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 have been audited by PricewaterhouseCoopers, Taiwan, our independent auditors. Our unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 have been reviewed by our independent auditors.

In this offering memorandum, where information has been presented in thousands, millions or billions of units, amounts may have been rounded up or down. Accordingly, the total of columns or rows of numbers in tables may not be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due to rounding.

In this offering memorandum, information related to the company’s production capacity is disclosed for illustration purpose only. The company may adjust the actual production volume according to market supply and demand from time to time in its sole discretion.

We have compiled all industry and market information and statistics contained in this offering memorandum from various published and private sources, which may be inconsistent with other information compiled elsewhere. Neither we, nor the Initial Purchasers, have independently verified the accuracy of any of such information.

NON-GAAP FINANCIAL MEASURES

We refer to the terms EBITDA and EBITDA margin (as defined in “Summary Financial Data”) in various places in this offering memorandum. These non-GAAP financial data are supplemental financial measures that are not required by, or presented in accordance with Taiwan IFRS (as defined in “Summary Financial Data”), US GAAP or IFRS and are therefore referred to as “non-GAAP” financial measures. They are not measurements of our financial performance under Taiwan IFRS, US GAAP or IFRS and should not be considered as an alternative to profit from operations or any other performance measures derived in accordance with Taiwan IFRS, US GAAP or IFRS or as an alternative to cash flows from operating activities or as a measure of our liquidity.

Our measurement of these non-GAAP items may not be comparable to those of other companies. See “Summary Financial Data” and “Selected Financial Information” for more discussion of our use of these non-GAAP items in this offering memorandum, including the reasons why we believe this information is useful to management and why they may be useful to investors, and a reconciliation of EBITDA to the most closely comparable financial measure calculated in accordance with Taiwan IFRS.

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Page SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................................................ ii ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC AND THE PRC ......................................... iv CERTAIN CONVENTIONS AND OTHER DATA ............................................................................................. v NON-GAAP FINANCIAL MEASURES ............................................................................................................ vii SUMMARY .......................................................................................................................................................... 1 THE OFFERING ................................................................................................................................................... 7 SUMMARY FINANCIAL DATA ...................................................................................................................... 11 RISK FACTORS ................................................................................................................................................. 14 USE OF PROCEEDS .......................................................................................................................................... 34 DIVIDENDS AND DIVIDEND POLICY .......................................................................................................... 35 MARKET PRICE INFORMATION ................................................................................................................... 36 EXCHANGE RATES .......................................................................................................................................... 37 CAPITALIZATION ............................................................................................................................................ 38 SELECTED FINANCIAL INFORMATION ...................................................................................................... 39 BUSINESS .......................................................................................................................................................... 42 HISTORY ............................................................................................................................................................ 65 MANAGEMENT ................................................................................................................................................ 66 MAJOR SHAREHOLDERS ............................................................................................................................... 71 CHANGES IN ISSUED SHARE CAPITAL ...................................................................................................... 72 RELATED PARTY TRANSACTIONS .............................................................................................................. 73 DESCRIPTION OF OUR SHARE CAPITAL .................................................................................................... 75 DESCRIPTION OF THE BONDS ...................................................................................................................... 79 TAXATION ...................................................................................................................................................... 108 TRANSFER RESTRICTIONS .......................................................................................................................... 110 PLAN OF DISTRIBUTION .............................................................................................................................. 112 SUMMARY OF CERTAIN MATERIAL DIFFERENCES BETWEEN TAIWAN IFRS AND IFRS ............ 119 LEGAL MATTERS .......................................................................................................................................... 120 INDEPENDENT AUDITORS .......................................................................................................................... 121 GENERAL INFORMATION ............................................................................................................................ 122 INDEX TO FINANCIAL STATEMENTS ....................................................................................................... F-1 APPENDIX A — THE SECURITIES MARKET OF THE ROC ..................................................................... A-1 APPENDIX B — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC ..................... B-1

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SUMMARY

The following is only a summary and it may not contain all the information you should consider before deciding to invest in the Bonds. You should read this entire offering memorandum carefully, including the “Risk Factors” section and the financial statements and related notes.

Overview

We are one of the world’s leading TFT-LCD panel manufacturers. Our operations cover a comprehensive value chain with the capability to design, develop and manufacture large-sized TFT-LCD panels, small and medium-sized TFT-LCD panels and touch panels for a wide range of applications, including LCD televisions, desktop monitors, notebook computers, automotive displays, mobile and consumer electronics, medical equipment and industrial products. According to IHS Markit, we are the world’s fourth-largest TFT-LCD panel manufacturer in 2018 based on shipment volume by area, with a market share of 13.6%.

We employ leading technology in the display market. Our technology capabilities and product knowhow, which were mostly developed in-house, enable us to enhance key performance features of panels, such as wider viewing angle, higher contrast ratio and faster response time for television displays and wide-aspect displays for monitors, and thinner and lighter panels with lower power consumption for notebook computers. In particular, we are the market leader in producing ultra-high resolution 8K4K with high color saturation TFT-LCD panels to provide better visual and sensual experience for our end-users. In addition, we have developed advanced technologies such as narrow-bezel foldable displays, AM miniLED, Megazone, AASHCR and TID solutions which have been applied to our product portfolio.

We pride ourselves in our forward-backward integration manufacturing model. Our model comprehensively covers multiple links of the TFT-LCD supply chain from front-end panel production to back-end module assembly and television assembly. We utilize our 14 panel fabrication facilities, commonly known as “fabs,” located in Taiwan for front-end panel production and our module assembly facilities located in the PRC and Taiwan for back-end assembly processes. As of September 30, 2019, the total input capacity of our 14 fabs was 2,788,530 square meters of glass substrates per month and the total input capacity of our module assembly facilities in the PRC and Taiwan was 2,252,330 square meters of glass substrates per month. Our fabs cover a comprehensive suite of G3.5, G4, G4.5, G5, G5.5, G6, G7.5, G8.5, G8.6 and LTPS6 technologies, giving us the flexibility to produce a combination of panels of various sizes, ranging from 1.36-inch to 120-inch panels. With such flexibility, we are able to manufacture a wide range of different sized panels to fit our comprehensive product portfolio, and to adapt our product mix to the cyclical panel industry. In addition to TFT-LCD panels, we also utilize 10 of our 14 fabs to concurrently produce touch panels as well as other panel products. As of September 30, 2019, the total production capacity of our 10 touch panel facilities was approximately 1,122,070 square meters of glass substrates per month.

We sell our display products directly to brand companies as well as to system integrators that service brand companies. Our brand company customers include most of the world’s leading manufacturers of LCD televisions, desktop monitors and notebook computers, as well as certain of the world’s leading manufacturers of mobile phones, automotive and medical equipment.

In 2018 and the nine months ended September 30, 2019, our sales revenues were NT$279,376.1 million (US$9,004.3 million) and NT$186,393.3 million (US$6,007.5 million), respectively. We recorded a net income of NT$2,222.8 million (US$71.6 million) for 2018 and a net loss of NT$10,581.3 million (US$341.0 million) for the nine months ended September 30, 2019. Our operating cash flow was NT$52,579.6 million (US$1,694.6 million) for 2018 and NT$1,065.3 million (US$34.3 million) for the nine months ended September 30, 2019. We recorded net cash to equity ratios of 13.3% and 15.2% as of December 31, 2018 and September 30, 2019, respectively. Our cash, including cash, cash equivalents and time deposit with maturity over three months, were NT$85,273.4 million (US$2,748.4 million) and NT$53,304.7 million (US$1,718.0 million) as of December 31, 2018 and September 30, 2019, respectively, and we had debt ratios, defined as total liabilities divided by total assets, of 38.1% and 36.8%, respectively.

Competitive Strengths

Leading market position in the display industry supported by a comprehensive fab profile and forwardbackward integration manufacturing capabilities

We are the world’s fourth-largest TFT-LCD panel manufacturer in 2018 based on shipment volume by area, with a market share of 13.6%, according to IHS Markit. Our forward-backward integration manufacturing model allows us to cover multiple links of the TFT-LCD supply chain from front-end panel production to back-end module assembly and television assembly. We believe we have the most complete range of fab generations among all major TFT-LCD panel manufacturers, ranging from G3.5 to G8.6, which gives us manufacturing flexibility to produce various sizes of LCD panels efficiently to fit our comprehensive product portfolio, and to adapt our product mix to the cyclical panel industry. In particular, we believe we have the largest G6 fab in the world to manufacture 65-inch or larger panels, which enables us to build up a strong large-sized portfolio to capture the market trend. Moreover, our forward-backward integration manufacturing model is further supported by our module assembly and television assembly facilities in the PRC and Taiwan.

Comprehensive product offerings for a diverse customer base

We offer a broad and comprehensive range of TFT-LCD panels to serve the needs of our diverse customers. A significant portion of our panels are used in LCD televisions, notebook computers and desktop monitors. Our existing portfolio consists of a wide range of display products, including 8K4K television panels, 100-inch high-luminosity quantum dot public displays, ultra-light 2.0mm notebook computer panels, narrow-bezel foldable mobile phone panels and high refresh rate gaming displays. In addition, we have strategically tapped into and possessed a leading market position in certain high-growth sectors, such as automotive and industrial panels. As to automotive displays, we focus on large-sized, curved and free-form displays, which require leading-edge technology and production know-how. We are a tier 1 supplier of automotive display systems for manufacture for world-leading car brands. Moreover, we are one of the very few TFT-LCD panel manufacturers which also produces medical and industrial panels that require a high level of reliability under extreme conditions to meet certain stringent safety standards. In 2018 and the nine months ended September 30, 2019, sales of medical, industrial and automotive panels accounted for 11.4% and 12.7% of our sales revenues, respectively.

Our diversified product mix and well-established marketing channels enable us to market our products directly to global brand company customers. We provide globally integrated one-stop-shop services covering multiple links of the TFT-LCD supply chain. Through our comprehensive product portfolio, we have built a diverse customer base by addressing the needs of our existing customers and entering new markets. With a broad customer base, we could better manage concentration risks in terms of specific customers as well as product applications. In addition, we do not produce end-use applications under our own brands and therefore we are well-positioned to service our customers without directly competing against them in the downstream market. We believe that by adopting such independent market position, together with our comprehensive product offerings, we are able to establish long-term, collaborative relationships with a diverse group of customers. Our brand company customers include some of the world’s leading manufacturers of LCD televisions, desktop monitors and notebook computers as well as some of the world’s leading manufacturers of automotive displays.

Track record of optimizing product size mix through industry cycles.

Due to constant fluctuations in supply and demand of TFT-LCD panels of difference sizes, our results of operations largely depend on our management’s capability in predicting the pricing trend of panels of different sizes and optimizing our product size mix. Our management team, equipped with an average of over 25 years of TFT-LCD industry experience and an average of over 17 years with our company, have been able to adapt ourselves to changing industry trends and make strategic decisions to maintain our leading market position. In addition, we are the market pioneer in developing new differentiated panel sizes, being the first company in the world to develop 23.6-inch, 40-inch, 50-inch and 58-inch television panels utilizing our G5.5, G6, G7 and G8.5 fabs. Capitalizing on our familiarity with the market and our management knowhow, we are in a better position to predict market trends and reduce exposure to size-specific overcapacity

of TFT-LCD panels. Our comprehensive fab profile enables high flexibility to switch between the production of TFT-LCD panels of different sizes, including mainly 32-inch, 43-inch, 55-inch and 65-inch TFT-LCD panels, hence allowing our company to achieve operational efficiency and accurately meet cyclical demand. Backed by our management’s capability and track record, we believe we are well positioned to prosper in the competitive and cyclical TFT-LCD panel industry.

Efficient and cost-competitive operations supported by automation and a real-time proprietary system

One of our strengths is our cost effectiveness. For labor-intensive manufacturing processes such as module assembly, we have in recent years adopted manufacturing process automation in all of our production facilities to further save labor costs and improve production quality, efficiency and accuracy, as well as mitigate our risk exposure to specific jurisdictions. For example, we have developed a “zero-touch” lightsout factory in Taiwan, which is a fully automated facility with minimal human intervention, to maintain high productivity at a low maintenance and labor cost. Through the use of our automated facilities and artificial intelligence systems, we have reduced the size of our labor force from 117,892 as of December 31, 2010 to 56,606 as of September 30, 2019. Furthermore, our innovations in process technology, investments in easing bottlenecks and production facility upgrades have allowed us to improve throughput and manufacturing yields while reducing costs. Our large production volume and long-term relationships with major suppliers also allow us to secure flexible and competitive sourcing arrangements to manage procurement costs.

Our competitive operations are supported by our proprietary real-time enterprise resource planning and business management system, which has enabled our management to better monitor and adjust our operations in line with market dynamics and customer orders. This information system also allows our customers and suppliers to access certain operating data to facilitate more transparent and efficient communication. Furthermore, our management deploys a stringent set of internal controls to achieve industry-leading operational excellence.

Advanced research and development platform developing innovative products and technologies

Our technology capabilities and product know-how enable us to enhance key performance specifications, customize products and develop first-to-market technologies. We have enhanced key performance features of panels, such as wider viewing angle, higher contrast ratio, faster response time, thinner and lighter panels, and lower power consumption. Our advanced research and development platform has also enabled us to lead the TFT-LCD market in the commercial application of various innovative technologies and customize TFT-LCD panels according to our customers’ needs and requirements. Our strong research and development capabilities attract brand customers to co-develop innovative products thereby allowing us to secure exclusive relationships with our customers at product development stage. Some of our proprietary collaborations include Megazone dual-cell television display, privacy display notebook panel, TFT fingerprint identification sensor, LC Antenna and LC window. Such innovations and collaborations allow us to derive deeper industry insight, further strengthening our research and development capabilities. In addition, we are in the process of developing cutting-edge technologies such as microLED and AM miniLED. We have commenced mass production of AM miniLED public displays in the third quarter of 2019. Our other advanced technologies such as narrow-bezel foldable displays, Megazone, AASHCR and TID solutions have been applied to our panel products. In addition to the development of baseline technologies, we also pivot our existing technologies to innovate new features and value propositions for our display products. For instance, we pioneered the development of large-sized television displays by introducing new sizes of 50-, 58-, 65-, 75-, 82-, 85-, 100- and 120-inch TFT-LCD panels. Our dedicated research and development team of 4,425 personnel, of whom over 54% holding either Masters or Doctorate degrees in the ROC and have an average of 11-year experience in the TFT-LCD industry, provides strong support to our innovative efforts. With our comprehensive fab profile and advanced research and development platform, we believe that we are well-positioned to capture new display market opportunities and to maintain our position as a leader in the display industry.

Ability to leverage our relationship with the Hon Hai Group

The Hon Hai Group is one of the largest global manufacturing services providers in the computer, communications and consumer electronics industries. Our relationship with the Hon Hai Group has been

further strengthened since our merger with CMO and TPO in March 2010. In addition to the customer relationships we originate through our own sales force, we also collaborate with the Hon Hai Group to expand our market reach to other leading global brand companies. With our strategic relationship with Hon Hai Group, we are able to have a broader customer base than many competitors, which will in turn not only expand our revenue base, but also give us deeper insight on industry trends and developments. We have also acquired significant operational and management expertise from the Hon Hai Group especially in relation to manufacturing, global supply chain and logistics management.

Strategies

We strive to strengthen our position as a global leader in the display panel industry. To reinforce our position in the display market, we intend to increase cost efficiency in matured sectors, such as TFT-LCD panels for televisions, notebook computers and desktop monitors, and to innovate and utilize our forwardbackward integration capability to enter into high-growth sectors, such as automotive, medical and industry panels.

Further penetrate strategic high-growth sectors

Capitalizing on our deep insight on industry trends, we have strategically tapped into and possessed a leading market position in certain high-growth sectors, such as automotive, medical and industrial panels. Automotive displays and medical equipment have contributed to our growth substantially by broadening our product pipeline and sales base. Our long-term strategy is to further explore and penetrate these high-growth sectors to capture the growth opportunities, to diversify our business portfolio, to enhance our long-term profitability and to effectively compete with our competitors. Through technology integration, product diversification and close collaboration with our brand customers, we intend to develop and commercialize value-added specialty products that meet our customers’ needs to further build up our market position in these high-growth sectors. Our forward-backward integration capability also enhances our capability to engage with customers directly, which is critical in many of these high-growth sectors. For example, leveraging on such capability, we have been, and will continue to be, tier 1 supplier of automotive display systems for manufacture for world-leading car brands.

Continue to optimize our cost structure and efficiency through upgrading our fabs

We intend to continue to optimize our cost structure through the use of high-efficiency and automated manufacturing processes. For instance, we have developed “zero-touch” lights-out factory in Taiwan, which is a fully automated facility with minimal human intervention and we intend to further enhance automation in our existing and overseas facility sites. Automation also gives us flexibility to adjust our production capacity in different jurisdictions, and thereby reducing our risk exposure to specific jurisdictions. Going forward, we will continue to invest in automated facilities and artificial intelligence systems to improve our production quality, efficiency and accuracy at a lower maintenance cost. To enhance efficiency and costcompetitiveness, we will continue to utilize our real-time proprietary system to effectively monitor and adjust our operations in accordance with market dynamics and customer orders. Overall, we seek to improve our manufacturing processes, enhance production technologies, develop new products, explore alternative material inputs, leverage automation and economies of scale in our operations.

Maintain our market leading position in the display industry by developing and applying advanced technologies to our specialty products

We intend to maintain our leading market position in the TFT-LCD industry by continuing to develop differentiated specialty products. With respect to television display, we are currently the mass producer of 65-inch and 75-inch 8K4K television display panels and we showcased our 120-inch 8K television in 2019. Going forward, we anticipate that our large-sized portfolio and 8K4K technology, together with Megazone and AM miniLED technologies, will be our key growth driver in the television segment. For notebook computers and desktop monitors, utilizing our patented AAS-HCR and our unique Megazone technology, we plan to develop niche products with competitive edge in order realize greater premiums. In addition, we are in the process of developing large-area image sensor technology, which will replace the traditional singlepoint image sensor. Utilizing our G3.5 and LTPS fabs, we expect to commence mass production of TFT

fingerprint identification sensor in the first quarter of 2020. We have developed a market-leading natural 3D technology which seeks to provide innovative virtual reality experience for our customers and we intend to commence mass production of natural 3D public displays in 2020. For automotive displays, we aim to provide a complete automotive solution to our end-users and intend to commence mass production of our AM mini-LED automotive displays in near future.

Provide high quality customer services and maintain close customer relationships

Leveraging our unique market position, we aim to provide high quality and more value-added customer services and maintain close relationships with our customers. We plan to further move some of our back-end production to Taiwan to form a more integrated manufacturing process in order to achieve better production quality and to save costs from tariffs or other restrictions placed on our products as a result of any foreign government regulations. We also plan to continue our collaborations with our brand customers in the design and development of their new products, which will allow us to gain insights into their product development strategies and market trends, and enable us to anticipate customer needs and take advantage of emerging market opportunities. In addition, we seek to locate our service teams in close proximity to certain customers, which will enable us to timely address their various needs, including design, qualification, logistics and quality assurance. We aim to further deepen relationship with top-tier brands with their comprehensive product solutions, superior technology and manufacturing capabilities.

Maintain a diversified product portfolio and optimize product allocation across our fabs to best serve our customers

We plan to maintain a diversified product portfolio, which we believe will allow us to strengthen our customer relationships and further penetrate our current markets by addressing the needs of our existing customers as well as to enter new markets. We will continue our forward-backward integration manufacturing model to cover multiple links of the manufacturing supply chain of TFT-LCD products from front-end panel production to back-end module assembly and television assembly. We believe our capability to best serve our customers benefits our results of operations in a long run. For example, we are wellpositioned as a trusted supplier to win urgent purchase orders from long-term customers when the market demand turns around, and thereby enhancing our profitability. Moreover, we intend to maintain an optimal product mix that will enable us to capture high growth sectors across various product categories with significant growth potential, such as public displays, large-sized television panels and automotive displays. We currently operate a portfolio of fabs that ranges from G3.5 to G8.6. Through the additional large-sized TFT-LCD panel capacity, we aim to enhance our flexibility to adjust our TFT-LCD panel production strategy according to changing market dynamics and capture relatively higher margins from differentiated products as the industry experiences cyclical overcapacity.

Recent Developments

In accordance with the ROC Securities and Exchange Act and the applicable regulations, we publicly file with the TWSE our unaudited preliminary sales results on a monthly basis. As of the date of this offering memorandum, we have announced unaudited preliminary sales results for each of October, November and December 2019, the fourth quarter of 2019, and the year ended December 31, 2019. These sales results have been prepared by our management and have not been audited or reviewed by our independent accountants and may be subject to change. The following tables set forth the combined net sales and shipment for the periods indicated:

Unaudited combined net sales (NT$ million)(1)................................ Large-sized shipment (units in thousands) ........................................ Small and medium-sized shipment (units in thousand) .....................	For the Month Ended	For the Month Ended	For the Month Ended
	October 31, 2019	November 30, 2019	December 31, 2019
	22,015 10,410 21,955	21,497 10,900 23,040	22,066 11,274 29,183

Unaudited combined net sales (NT$ million)(1)................................................... Large-sized shipment (units in thousands) .......................................................... Small and medium-sized shipment (units in thousand) ....................................... Unaudited combined net sales (NT$ million)(1)................................................... Large-sized shipment (units in thousands) .......................................................... Small and medium-sized shipment (units in thousand) .......................................	For the Three Months Ended	For the Three Months Ended
	September 30, 2019 December 31, 2019 63,294 65,578 30,633 32,584 63,902 74,178 For the Year Ended December 31,	December 31, 2019
	2018 279,376 126,697 271,799	2019
		251,971 122,662 256,776

(1) Combined net sales consist of revenues of our company and our TFT-LCD related subsidiaries. For more information on our subsidiaries, see “Business — Subsidiaries”.

THE OFFERING

The following is only a summary and is qualified in its entirety by reference to the “Description of the Bonds.”

Issuer .................................................... Innolux Corporation The Offering ......................................... US$300,000,000 aggregate principal amount of US dollar denominated zero coupon convertible bonds due 2025, being offered outside the United States in reliance on Regulation S. Interest ................................................. The Bonds will not bear any interest. Closing Date ......................................... January 22, 2020 Maturity Date and Final Redemption ... Unless previously redeemed, repurchased and canceled or converted, the Bonds will mature, and we will redeem the Bonds, on January 22, 2025 at 100% of the outstanding principal amount thereof. Issue Price ............................................ 100% Ranking ................................................ The Bonds will be our direct, unconditional, unsecured and unsubordinated obligations (but subject to a negative pledge, as described in “Negative Pledge” below), and will rank pari passu without any preference or priority among themselves and with all of our other present and future direct, unconditional, unsubordinated and unsecured obligations. Conversion ........................................... Subject to certain conditions, each holder of the Bonds (a “Holder”) will have the right during the Conversion Period (as defined herein) to convert its Bonds (or any portion thereof being US$200,000 in principal amount or integral multiples thereof) into Common Shares, provided , however , that the Conversion Right during any Closed Period (as defined herein) shall be suspended and the Conversion Period shall not include any such Closed Period. See “Description of the Bonds — Conversion” and “Risk Factors — Risks Relating to the Ownership of the Bonds and the Shares — There are limitations on the Bondholders’ ability to exercise conversion rights.” Subject to changes to ROC laws and regulations, we shall as soon as practicable but in no event more than five Trading Days (as defined herein) from the Conversion Date (as defined herein) deliver Common Shares in book-entry form to the local agent appointed by the converting Holders for the purpose of trading the Common Shares on the TWSE or through physical delivery of share certificate(s). Conversion Price .................................. The conversion price will initially be NT$10.72 per share determined on the basis of the Fixed Exchange Rate applicable on conversion of Bonds of NT$29.913 = US$1.00. The conversion price will be subject to adjustments for, among other things, subdivision or consolidation of shares, right issues, distributions,

	stock dividends, and other dilutive events. See “Description of the
	Bonds.”
Early Redemption Amount ...................	The Early Redemption Amount for each US$200,000 of the
	Bonds is determined so that it represents for the Holder a yield of
	0.0% per annum, calculated on a semi-annual basis.
Redemption at the Option of the	At any time after January 22, 2023 and prior to the Maturity Date,
Issuer .............................................	the Bonds may be redeemed at the option of us, in whole or in
	part, on not less than 30 nor more than 60 days’ notice to the
	Holders (which notice shall be irrevocable) and to the Trustee and
	the Agents, at the applicable Early Redemption Amount,provided
	that: (l) the Closing Price (converted into U.S. Dollars at the
	Prevailing Rate) of the Common Shares for 20 consecutive
	Trading Days immediately prior to the date upon which notice of
	such redemption was given, is at least 130% of the quotient of the
	Early Redemption Amount dividend by the Conversion Ratio (as
	defined herein) then in effect; and (2) the applicable Redemption
	Date does not fall within a Closed Period.
	Notwithstanding the foregoing, we may redeem the Bonds, in
	whole but not in part, at any time, on not less than 30 nor more
	than 60 days’ notice, at the applicable Early Redemption Amount
	if more than 90% in principal amount of the Bonds originally
	issued has been redeemed, repurchased and canceled or
	converted; provided that the applicable Redemption Date does not
	fall within a Closed Period.
Additional Amounts ........................	Payment of principal of and other amounts on the Bonds will be
	made without withholding or deduction for or on account of taxes
	of the ROC or such other jurisdiction in which we are then
	organized or resident for tax purposes or from which any payment
	on the Bonds is made (or any political subdivision or authority or
	agency thereof), unless such withholding or deduction is required
	by law or by regulation or governmental policy having the force
	of law. In the event that any such withholding or deduction is so
	required, we will, subject to certain exceptions, pay such
	Additional Amounts (as defined herein) on the Bonds as will
	result in receipt by the Holder of each Bond of such amounts as
	would have been received by such Holder had no such
	withholding or deduction been required.
Tax Redemption ..................................	If, as a result of certain changes relating to the tax laws in the ROC
	or such other jurisdiction in which we are then organized or
	resident for tax purposes (or any political subdivision or authority
	or agency thereof) on or after the Closing Date, we become
	obligated to pay Additional Amounts, the Bonds may be
	redeemed at the option of us, in whole but not in part, at the
	applicable Early Redemption Amount;_provided_that such right
	cannot be exercised earlier than 45 days prior to the first date on
	which we would be obligated to make an Additional Amounts
	payment with respect to all or substantially all of the outstanding
	Bonds were a payment then due. Notwithstanding the foregoing,
	if the outstanding principal amount of the Bonds at the time when
	such redemption notice is given is greater than 10% of the

	aggregate principal amount of the Bonds as of the Closing Date,
	Holders may elect not to have their Bonds redeemed but with no
	entitlement to any Additional Amounts or reimbursement of
	additional tax. See “Description of the Bonds — Redemption of
	the Bonds — Redemption for Taxation Reasons.”
Repurchase at the Option of the	Unless the Bonds have been previously redeemed, repurchased
Holder ...........................................	and canceled or converted, each Holder shall have the right, at
	such Holder’s option, to require us to repurchase, in whole or in
	part (being US$200,000 in principal amount or an integral
	multiple thereof), such Holder’s Bonds, on January 22, 2023 at
	100% of the principal amount in US dollars with respect to such
	Holder’s Bonds to be repurchased.
Repurchase in the Event of Change of	Unless the Bonds have been previously redeemed, repurchased
Control ..........................................	and canceled or converted, each Holder shall have the right, at
	such Holder’s option, to require us to repurchase, in whole or in
	part (being US$200,000 in principal amount or integral multiples
	thereof), such Holder’s Bonds at the applicable Early Redemption
	Amount upon the occurrence of a Change of Control, as defined
	herein. See “Description of the Bonds — Repurchase of the Bonds
	— Repurchase in the Event of Change of Control.”
Repurchase in the Event of Delisting ...	Unless the Bonds have been previously redeemed, repurchased
	and canceled or converted, in the event that the Common Shares
	cease to be listed or admitted to trading on TWSE, each Holder
	shall have the right, at such Holder’s option, to require us to
	repurchase, in whole or in part (being US$200,000 in principal
	amount or an integral multiple thereof), such Holder’s Bonds on
	the date set by the Issuer for such repurchase, which shall not be
	less than 30 nor more than 60 days following the date on which
	the Trustee sends to each Holder a notice regarding such delisting
	at the applicable Early Redemption Amount with respect to such
	Holder’s Bonds to be repurchased. See “Description of the Bonds
	— Repurchase of the Bonds — Repurchase in the Event of
	Delisting.”
Negative Pledge ...................................	Subject to certain exceptions, we will not, and will ensure that
	none of our Subsidiaries (as defined herein) will, create or permit
	to subsist any Lien (as defined herein) on any of its or, as the case
	may be, such Subsidiary’s, property, assets or revenues, present
	or future, to secure for the benefit of the holders of any
	International Investment Securities (as defined herein) any sum
	owing in respect thereof or any guarantee or indemnity thereof
	without making effective provision to secure the Bonds (a)
	equally and ratably with such International Investment Securities
	with a similar Lien or (b) with such other security as shall be
	approved by Holders holding not less than 50% of the principal
	amount of the outstanding Bonds. See “Description of the Bonds
	— Certain Covenants — Negative Pledge.”
Form and Denomination.......................	The Bonds will be issuable only in book-entry form and only in
	denominations of US$200,000 in principal amount or any integral
	multiples thereof. Bonds will be represented by the Global Bond.
	On the closing date of the Offering, we will deliver the Global
	Bond to a common depositary (the “Common Depositary”) for
	Euroclear and Clearstream. If(i)at anytime,the Common

Depositary advises the Company in writing that it is unwilling or unable to continue as a depository for the Global Bond and a successor depository is not appointed by the Company within 90 days, (ii) either Euroclear or Clearstream or any alternative clearing system on behalf of which the Bonds evidenced by the Global Bond may be held is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or in fact does so, or (iii) an event of default has occurred and is continuing with respect to the Bonds and the Trustee notifies the Company in writing that any of the Bonds have become immediately due and payable pursuant to the Indenture, the Company shall issue individual certificated bonds in registered form in exchange for the Global Bond in any authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Bond.

The Bonds will not be issuable in a bearer form.

Use of Proceeds ....................................	The net proceeds to be received by us from this offering are
	expected to be US$298,000,000, after deducting underwriting
	commissions and related expenses. We intend to use the net
	proceeds of this offering for procurement of raw materials in
	foreign currencies. See “Use of Proceeds.”
Listing ..................................................	For so long as the Bonds are listed on the SGX-ST and the rules
	of the SGX-ST so require, the Bonds will be traded on the SGX-
	ST in a minimum board lot size of US$200,000.
Lock-Ups ..............................................	We have agreed that for a period of 90 days after the Closing Date,
	we will not, without the Initial Purchasers’ prior written consent,
	offer, pledge, sell, contract to sell or otherwise dispose of any
	Shares or any securities convertible into or exercisable or
	exchangeable for Shares. See “Plan of Distribution.”
Trading Market for the Common	The only trading market for the Common Shares is TWSE. The
Shares ............................................	Common Shares have been listed on the TWSE under the trading
	code “3481”.
Governing Law .....................................	The Indenture and the Bonds will be governed by, and construed
	in accordance with, the laws of the State of New York.
Trustee ..................................................	The Bank of New York Mellon, London Branch
Paying Agent and Conversion Agent ...	The Bank of New York Mellon, London Branch
Registrar and Transfer Agent ...............	The Bank of New York Mellon SA/NV, Luxembourg Branch
Transfer Restrictions ............................	None of the Bonds or the Shares issuable upon conversion of the
	Bonds has been registered under the Securities Act, and those
	securities are subject to restrictions on transfer. See “Transfer
	Restrictions”.
Delivery of the Bonds ..........................	Delivery of the Bonds, against payment in same-day funds, will
	be on the Closing Date.

SUMMARY FINANCIAL DATA

The following summary financial data has been derived from our audited consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 and unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 included elsewhere in this offering memorandum, which have been prepared 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 (collectively, the “Taiwan IFRS”) and with “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and International Accounting Standard 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission, respectively. The consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 have been audited by PricewaterhouseCoopers, Taiwan, our independent auditors, and the unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 have been reviewed by PricewaterhouseCoopers, Taiwan. Our consolidated financial statements are presented in conformity with the Taiwan IFRS. You should read the following selected financial information together with our financial statements included elsewhere in this offering memorandum. Neither these data nor the format in which they are presented should be viewed as comparable to information prepared in accordance with IFRS or generally accepted accounting principles elsewhere. See “Summary of Certain Material Differences between Taiwan IFRS and IFRS.”

Consolidated Statements of Comprehensive Income Data

2016	Year Ended	December 31,	December 31,	Nine Months Ended September 30,	Nine Months Ended September 30,	Nine Months Ended September 30,
	2017	2018		2018	2019
NT$ (audited) 287,089,277 (261,000,786)	NT$ (audited) 329,174,401 (260,435,724)	NT$ US$ NT$ (audited) (unaudited) (unaudited) (in thousands, except per share information) 279,376,115 9,004,290 207,132,750 (252,562,557) (8,140,089) (184,786,697)			NT$ (unaudited) 186,393,293 (181,997,479)	US$ (unaudited) 6,007,455 (5,865,778)
26,088,491 (2,301,561) (6,241,602) (11,132,079)	68,738,677 (1,942,594) (6,857,153) (12,916,721)	26,813,558 (3,071,282) (6,771,502) (12,135,478)	864,201 (98,988) (218,245) (391,126)	22,346,053 (2,007,849) (4,986,577) (9,085,754)	4,395,814 (2,825,849) (5,092,786) (9,278,610)	141,677 (91,077) (164,140) (299,050)
(19,675,242)	(21,716,468)	(21,978,262)	(708,359)	(16,080,180)	(17,197,245)	(554,267)
6,413,249 (1,421,129)	47,022,209 1,918,980	4,835,296 1,734,134	155,842 55,891	6,265,873 1,232,875	(12,801,431) 2,948,876	(412,590) 95,042
4,992,120	48,941,189	6,569,430	211,733	7,498,748	(9,852,555)	(317,548)
(3,121,433)	(11,912,580)	(4,346,668)	(140,093)	(4,578,998)	(728,752)	(23,487)
1,870,687	37,028,609	2,222,762	71,640	2,919,750	(10,581,307)	(341,035)
(6,152,001)	2,286,939	(3,596,644)	(115,920)	(2,956,524)	(850,403)	(27,409)
(4,281,314)	39,315,548	(1,373,882)	(44,280)	(36,774)	(11,431,710)	(368,444)
1,870,687	37,028,609	2,222,762	71,640	2,919,750	(10,583,525)	(341,107)
－	－	－	－	－	2,218	72
0.19	3.72	0.22	0.01	0.29	(1.06)	(0.03)
0.19	3.63	0.22	0.01	0.29	(1.06)	(0.03)

Selected Consolidated Balance Sheet Data

	As of December 31,	As of December 31,	As of December 31,	As of September 30,	As of September 30,	As of September 30,
2016	2017	2018		2018	2019
NT$ (audited) 35,384,839 91,613,292 126,998,131 244,481,417 371,479,548	NT$ (audited) 65,988,955 92,541,000 158,529,955 256,328,803 414,858,758	NT$ (audited) 33,847,328 135,886,788 169,734,116 242,185,488 411,919,604	US$ (unaudited) (in thousands) 1,090,899 4,379,629 5,470,528 7,805,636 13,276,164	NT$ (unaudited) 37,889,585 106,067,481 143,957,066 245,677,847 389,634,913	NT$ (unaudited) 36,840,982 104,615,748 141,456,730 241,581,282 383,038,012	US$ (unaudited) 1,187,385 3,371,765 4,559,150 7,786,163 12,345,313
226,006,363 －	264,325,048 －	254,990,705 －	8,218,349 －	256,326,658 －	241,916,070 182,190	7,796,953 5,872
116,165,904 29,307,281	131,894,172 18,639,538	120,274,676 36,654,223	3,876,450 1,181,365	117,087,377 16,220,878	108 ,926,439 32,013,313	3,510,699 1,031,789
145,473,185	150,533,710	156,928,899	5,057,815	133,308,255	140,939,752	4,542,488
371,479,548	414,858,758	411,919,604	13,276,164	389,634,913	383,038,012	12,345,313

Consolidated Statements of Cash Flow Data

	Year Ended December 31,	Year Ended December 31,	Year Ended December 31,	Nine Months Ended September 30,	Nine Months Ended September 30,	Nine Months Ended September 30,
2016	2017	2018		2018	2019
NT$ (audited) 33,399,247 (40,866,329) (6,776,598)	NT$ (audited) 82,642,659 (21,332,109) (29,602,740)	NT$ (audited) 52,579,619 (99,036,816) 14,605,502	US$ NT$ (unaudited) (unaudited) (in thousands) 1,694,642 38,456,009 (3,191,956) (55,133,776) 470,735 (10,746,141)		NT$ (unaudited) 1,065,289 15,456,297 (13,196,371)	US$ (unaudited) 34,333 498,157 (425,319)
(2,894,271)	(1,103,694)	(289,932)	(9,346)	(675,462)	(331,561)	(10,685)
(17,137,951)	30,604,116	(32,141,627)	(1,035,925)	(28,099,370)	2,993,654	96,486

Other Selected Financial Data

Gross margin(1)........................ Operating margin(2)................. Net margin(3)........................... EBITDA (in billion)(4)(6)......... EBITDA margin(5)(6)...............		Year Ended December 31,	Year Ended December 31,	Nine Months Ended September 30,	Nine Months Ended September 30,
	2016	2017	2018	2018	2019
	9.1% 2.2% 0.7% NT$47.3 16.5%	20.9% 14.3% 11.2% NT$83.2 25.3%	(unaudited) 9.6% 1.7% 0.8% NT$43.0 US$1.4 15.4%	10.8% 3.0% 1.4% NT$35.1 16.9%	2.4% (6.9%) (5.7%) NT$17.4 US$0.6 9.3%

(1) Gross margin is calculated by dividing net operating margin by sales revenue, multiplied by 100%.

(2) Operating margin is calculated by dividing operating profit (loss) by operating revenue, multiplied by 100%.

(3) Net margin is calculated by dividing net income (loss) by operating revenue, multiplied by 100%.

(4) EBITDA is defined as net income (loss) excluding depreciation and amortization, interest expense and tax expense, and interest income. EBITDA is a key financial measure used by our senior management to internally evaluate the performance of our business. EBITDA is not a measure determined in accordance with Taiwan IFRS, and you should not consider EBITDA as:

an alternative to net income (loss) or operating income (loss);
an indicator of our operations or cash flow data prepared in accordance with Taiwan IFRS; or

an alternative to cash flow as a measure of liquidity.
The items of net income (loss) excluded from EBITDA are significant components in understanding and assessing our financial performance, and our computation of EBITDA may not be comparable to other similarly titled measures of other companies.
(5) EBITDA margin is calculated by dividing EBITDA by operating revenue, multiplied by 100%.
(6) We have presented EBITDA and EBITDA margin because we consider them important supplemental measures of our operating performance and believe they are frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. Our management uses EBITDA and EBITDA margin as additional measurement tools for purposes of business decision-making, including developing budgets, managing expenditures and evaluating potential acquisitions or divestitures. Other companies in our industry may calculate EBITDA and EBITDA margin differently than we do. EBITDA and EBITDA margin are not measures of operating performance under Taiwan IFRS and should not be considered as a substitute for, or superior to, operating profit (loss) or operating margin prepared in accordance with Taiwan IFRS. EBITDA and EBITDA margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under Taiwan IFRS. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating EBITDA and EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

RISK FACTORS

Investing in the Bonds involves risks, and you should carefully consider the risks described below before making an investment decision. In addition, you should also carefully consider all of the information contained in this offering memorandum, including our financial statements and related notes. You should note that we are governed in the ROC and the PRC by a legal and regulatory environment that in some material respects may be different from that prevailing in other countries.

Risks Relating to Our Business and Industry

Declining market prices as a result of cyclical market conditions, excess capacity in the TFT-LCD panel industry or other factors may continue to adversely affect our business, financial condition and results of operations.

Our business is significantly affected by cyclical market conditions. In recent years, the TFT-LCD panel industry has been subject to significant downturn cycles as a result of excess capacity. Such cyclical industry-wide excess capacity is caused by TFT-LCD manufacturers making additional investments in manufacturing capacity for size-specific panels on similar schedules in light of increased market competition and expectations of growth in customer demand. Any significant excess capacity in the TFT-LCD panel that are not accompanied by a sufficient increase in customer demand may cause sharp declines in average selling prices of our products. The decrease in average selling prices may be further compounded by a seasonal weakening demand growth for end products such as consumer electronic products, tablets, mobile phones and other application products. If the average selling prices of our products are below our cash costs, there will be a negative impact on our cash flows. Negative cash flows may reduce business liquidity and our flexibility to manufacture new product offerings.

In addition, other factors such as technology advancement and customer cost reductions have driven down and may continue to drive down our average selling prices irrespective of cyclical market conditions for the TFT-LCD panel industry. The decline in market prices, due to cyclical excess capacity, slowdown in demand and other factors, has caused significant fluctuations in the panel manufacturers’ gross margins. As a result, our gross margin fluctuated in recent years, being 20.9%, 9.6% and 2.4% in 2017, 2018 and the nine months ended September 30, 2019, respectively.

Given the cyclical market conditions, we recorded net income of NT$37,028.6 million and NT$ 2,222.8 million (US$71.6 million) for 2017 and 2018 respectively, and net loss of NT$10,581.3 million (US$341.0 million) for the nine months ended September 30, 2019. We cannot assure you that we will be able to be profitable in the short run. If we are unable to effectively anticipate and counter the price erosion of our products, our profit margins and consequently our business, financial condition and results of operations may be materially and adversely affected.

We operate in a highly competitive environment, and we may not be able to sustain our current market position.

The TFT-LCD industry is highly competitive. We have experienced pressure on prices and margins of our major products due to additional capacity from other panel players from the ROC, the PRC, Korea and Japan. Current and prospective customers evaluate our capabilities against, among other things, the merits of manufacturing TFT-LCD display products themselves. The principal elements of competition in the TFT-LCD industry include: price, product performance features and quality, product size, customer service and product design support, ability to reduce manufacturing cost, ability to provide sufficient quantity of products to fulfill customers’ needs, research and development, time-to-market, and access to capital. Our ability to compete successfully in the TFT-LCD industry also depends on factors beyond our control such as general economic conditions.

The price of TFT-LCD display products depends largely on the price of the TFT-LCD panels. Hence, the ability to manufacture TFT-LCD panels on a large scale with greater cost efficiencies is a competitive advantage in our industry. We cannot assure you that we will be able to successfully upgrade our fabs, machinery and equipment to remain competitive with other TFT-LCD panel manufacturers, many of which

may have greater access to capital and substantially greater manufacturing, research and development, intellectual property, marketing and other resources than us. In addition, some of the larger TFT-LCD panel manufacturers have more extensive intellectual property portfolios than ours, which they may use to their advantage when negotiating cross-licensing agreements for technologies. As a result, these companies may be able to compete more aggressively over a longer period of time than us. For example, some TFT-LCD panel manufacturers have already made substantial investments in fabs that are in later generations than ours. If we are unable to compete successfully with or provide these advanced technologies, we may lose customers and, as a result, may not be able to sustain our current market position.

Competing or alternative display technologies could render our products uncompetitive.

We currently manufacture products primarily using TFT-LCD technology. We face competition from panel manufacturers utilizing competing or alternative display technologies such as OLED, which has certain advantages to LCD in terms of form factor (e.g. energy efficiency, lightness and inherently better picture quality). We started our research and development efforts on AM miniLED technology to remain competitive with other panel manufacturers that utilize competing or alternative display technologies such as OLED. We have commenced mass production of AM miniLED public displays in the third quarter of 2019 and we are co-developing AM miniLED backlight panels for televisions and other IT applications with our brand customers. Advancement and changes in competing or alternative display technologies are dependent on manufacturing economics and consumer demand. We cannot assure you that our research and development and the commercialization of our AM miniLED products will be successful. In addition, there are other display technologies currently in the research and development stage or in the initial commercial promotion stage, such as micro-LED technology and TID technology. If any of these technologies are brought to market successfully by our competitors before us, they may compete with our TFT-LCD technology and AM miniLED technology and render our products uncompetitive and our manufacturing facilities obsolete. As a result, we may be required to make substantial investments in research and development and capital expenditures to regain our competitiveness, and there will be no assurance that such future investments will be successful either. We cannot assure you that we will be able to allocate our existing or future capacity to the production of other products or technologies should our key customers adopt other technologies instead of those that we produce.

Tariffs or other restrictions placed on the Company’s products imported into the United States from the PRC, or any related counter-measures taken by the PRC, could have a material adverse effect on the Company’s business, profitability and results of operations.

The trade tension between the United States and the PRC could have a material adverse effect on our business, results operation and financial condition. Beginning in 2018, the United States has imposed additional duties, ranging from 10% to 25%, on a variety of goods imported from the PRC. Effective in September 2018, the Office of the U.S. Trade Representative, or the USTR, imposed tariffs of 10% on approximately $200 billion worth of goods, or the List 3 products, imported from the PRC. In August 2019, the United States further directed the USTR to increase tariffs on List 3 products from 25% to 30% effective October 2019, which increases were subsequently delayed indefinitely. In May 2019, the USTR proposed imposing additional tariffs of up to 25% on essentially all remaining Chinese-origin imports, including approximately $300 billion worth of goods, or the List 4 products, from the PRC. Tariffs of 15% were imposed on certain List 4 products initially in September 2019, but was reduced to 7.5% to be effective in February 2020 as part of the phase one trade deal between the United States and the PRC. The tariffs to be imposed on the remainder of List 4 products were delayed indefinitely as of the date of this offering memorandum.

We manufacture and assemble products for brand companies as original equipment manufacturer, or OEM. Our module assembly and television assembly facilities are located mainly in the PRC and certain of our products, including our key products such as televisions and automotive displays, are among List 4 products and hence subject to an additional 15% tariffs. In 2018 and the nine months ended September 30, 2019, our net sales of televisions and automotive displays from the PRC to the United States was NT$23,565.0 million (US$759.5 million) and NT$6,373.0 million (US$205.4 million), respectively. Our sales revenues from U.S. exports was NT$10,775.1 million (US$347.3 million) in 2018, and we anticipate that our tax burden for U.S. imports will be increased by NT$3,600 million (US$116 million) annually. In

addition, we were required to pay retrospective supplementary tax payments for our automotive displays that were imported from the PRC to the U.S. since January 2017. We expect the relevant tax payment for automotive displays will accumulate up to NT$10,100 million (US$326 million) for the next three years.

Continuation of these additional tariffs on List 3 products and List 4 products, or any further additional tariffs or other restrictions placed on our products imported into the United States from the PRC, could increase our cost and reduce the demand of our products, increase the cost of components or affect our ability to compete against competitors who do not manufacture in the PRC or otherwise are not subject to such tariffs. Moreover, any counter-measures by the PRC could increase our cost of goods and reduce our profitability.

Disruptions in the international trading environment and changing international trade regulation may seriously decrease our international sales.

A majority of our net sales are derived from sales to customers located outside of the ROC. In 2016, 2017 and 2018 and the nine months ended September 30, 2019, sales to customers outside of the ROC accounted for 66.7%, 64.8%, 72.9% and 78.9%, respectively, of our sales revenues. In addition, a significant portion of our sales to customers in the ROC are made to OEM service provider customers that use our display panels in the products that they manufacture on a contract basis for brand companies worldwide. We expect sales to customers outside of the ROC to continue to represent a significant portion of our sales revenues. As a result, our business will continue to be vulnerable to disruptions in the international trading environment, including those caused by adverse changes in foreign government regulations, political unrest, international economic downturns, and terrorist attacks. These disruptions in the international trading environment may affect the demand for our products and change the terms upon which we sell our products overseas, which could seriously decrease our international sales.

In addition, our ability to compete effectively could be materially and adversely affected by a number of factors relating to international trade regulation. Any higher tariffs, duties, or our failure to comply with trade regulations could restrict our ability to export products or compete effectively with our competitors, resulting in a decrease in our international sales.

The slowdown in the global economy has put downward pressure on prices and demand for our products.

The slowdown in the global economy, Brexit and the ongoing Sino-U.S. trade tension have adversely affected the market demand for display products and negatively impacted our product sales. There have also been some recent signs of a slowdown in economic growth in the PRC, which has been one of the major markets for display products. A decrease in market demand typically puts significant downward pressure on our average selling prices. At the same time, reduced corporate and commercial activity also has a negative impact on the demand for and prices of our products. We cannot predict when the market for our products will recover if at all. While various governments, including that of the ROC, have implemented measures to stimulate the economy and increase liquidity in the financial markets, there can be no assurance that these measures will be successful. If the economies of the United States, the PRC and our other core markets, as well as the ROC economy, continue to grow at a slower rate, or experience a prolonged recession, our business, financial condition and results of operations would be adversely affected.

If we are unable to obtain adequate supplies of key raw materials and components at acceptable prices, our production schedules may be delayed and there may be a material adverse effect on our results of operations.

Raw materials and component costs represent a substantial portion of our cost of goods sold. We must obtain sufficient quantities of high quality raw materials and components at acceptable prices and in a timely manner in order to manufacture our display products. At times, the pricing and availability of raw materials and components can be volatile, attributable to numerous factors beyond our control, including general economic conditions, currency exchange rates, industry cycles and production levels of the suppliers.

The TFT-LCD display industry has experienced intermittent shortages of critical raw materials and components. Based on announced plans for new TFT-LCD production capacity, there could be a shortage in

the supply of driver integrated circuits in the future. Our operations would be adversely affected if we could not obtain driver integrated circuits in sufficient quantity and quality at acceptable prices. In addition, we source most of our raw materials and components, including liquid crystal, glass, and driver integrated circuits, from a limited group of suppliers. If we are unable to obtain sufficient quantities of critical raw materials or components, we may be forced to delay our production schedules, or if we source critical materials or components at exceedingly high cost, in each case it would cause a decrease in our revenues and profits.

We have in the past experienced losses and cannot assure you that we will remain profitable.

Primarily as a result of the global economic downturn, the declines in market prices of display products as a result of excess capacity and the Sino-U.S. trade tension’s impact on our exports, we incurred a net loss of NT$10,581.3 million (US$341.0 million) for the nine months ended September 30, 2019. We cannot assure you that our results of operations will improve or we will be profitable in the near future, or at all.

We have significant indebtedness and we rely on our ability to access capital in the future.

We have significant indebtedness, including syndicated loans, and other short-term and long-term loans, principally to finance our capital expenditures and working capital needs. As of December 31, 2018 and September 30, 2019, our total indebtedness amounted to NT$156,928.9 million (US$5,057.8 million) and NT$140,939.8 million (US$4,542.5 million), respectively. Our significant indebtedness may adversely affect our operations and future growth strategies in a number of ways. For example, a substantial portion of our cash flow from operations may be required to service our indebtedness, thereby reducing the funds available for capital expenditures and other purposes. If we are unable to service our indebtedness, we may need to adopt alternative strategies such as reducing or delaying capital expenditures and selling assets. We cannot assure you that any of these strategies, if implemented, will be effected on satisfactory terms.

We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which would put us in default under such debt obligations.

We are a party to numerous loans and other agreements relating to the incurrence of debt, many of which include financial covenants and broad default provisions. The financial covenants primarily include current ratios, leverage ratios, interest coverage ratios, tangible net worth and other technical requirements, which, in general, govern our existing long-term debt and debt we may incur in the future. Such financial covenants could limit our ability to plan for or react to market conditions or to meet our capital needs in a timely manner and we may have to curtail some of our operations and growth plans to maintain compliance. In addition, any global or regional economic deterioration may cause us to incur significant net losses or force us to assume considerable liabilities, which would adversely impact our ability to comply with the financial covenants of our outstanding loans. If the relevant creditors decline to grant waivers for any noncompliance with the covenants, such non-compliance will constitute an event of default which may trigger a requirement for acceleration of the amounts due under the applicable loan agreements. Some of our loan agreements also contain cross-default clauses, which could enable creditors under our other debt instruments to declare an event of default when there is a default in other loan agreements. We cannot assure you that we will be able to remain in compliance with our financial covenants. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis. An event of default under any agreement governing our existing or future debts, if not cured by us or waived by our creditors, could have a material adverse effect on our liquidity, financial condition and results of operations. If we breach our financial or other covenants, our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt. We have on occasion failed to comply with certain financial covenants in some of our loan agreements. Although in the past we have either obtained waivers for such noncompliance from the relevant banks or fully repaid the facility, we cannot assure you that we will always be able to do that in the future.

We require a significant amount of capital to fund necessary upgrade and expansion of our fabs.

Display manufacturing is a capital intensive business. Continuously significant capital expenditures are required for the technological upgrade of our fabs and enhancement of the value of our capacity, which is critical to keep ourselves competitive in this industry. For 2020, we expect that our total capital expenditures will amount to approximately NT$21,000 million (US$677 million) to NT$23,000 million (US$741 million). We are required to make these capital expenditures before we are able to generate sales from these expenditures. If adequate funds are not available on satisfactory terms at appropriate times, we may have to curtail our planned growth, which could result in a loss of customers, adversely affect our ability to implement our business strategy successfully, and substantially harm our business prospect. Our ability to establish advanced technology fabs will continue to largely depend on our ability to obtain sufficient cash flow from operations as well as external funding. Availability of capital depends on a number of factors such as general economic conditions, prevailing interest rate level, and the state of financial or capital markets, many of which are beyond our control. We cannot assure you that we will be able to continue to raise funds required to implement our business strategies on commercially acceptable terms, or at all. If we incur additional debts to finance our capital expenditure plan, risks relating to our indebtedness will intensify. If capital resources required for our planned growth or development are not available, or if our debt obligations constrain our ability to make significant capital expenditures or investments in research and development, our business, financial condition and results of operations could be materially and adversely affected.

We have had severe fines and penalties imposed on us in anti-trust proceedings and investigations. If we or our employees are found to have violated anti-trust law in pending actions or if new claims, charges or investigations are brought against us or our employees, our business, financial condition and results of operations could be materially and adversely affected.

We are from time to time involved in anti-trust proceedings and investigations. In particular, there have been various civil and administrative proceedings and investigations concerning the alleged price fixing by manufacturers of TFT-LCD panels, including CMO, one of our merged entities, during the period from 2001 to 2006. For example, in March 2019 we were fined US$3.5 million by the Administrative Council for Economic Defense in Brazil. In September 2018, our US subsidiary and other panel manufacturers in Taiwan, Japan and Korea received a civil complaint from the Government of Puerto Rico for unjust enrichment in relation to the alleged involvement of CMO and other manufacturers in anticompetitive price fixing practices in the sale of TFT-LCD panels. See “Business—Legal Proceedings.” If we are found to have violated anti-trust law in the pending proceedings, we may be held liable for substantial fines, penalties or damages. We are also from time to time subject to other new claims, charges or investigations. Defending against any of these pending or future actions will likely be costly and time-consuming and could significantly divert management’s efforts and resources. The ultimate outcome of anti-trust proceedings and investigations cannot be predicted with certainty and any adverse determination may have a material adverse effect on our business, financial condition and results of operations.

Our results of operations fluctuate from quarter to quarter, which makes it difficult to evaluate our business and to predict our future performance.

Our results of operations have varied significantly in the past. Our gross profit was NT$68,738.7 million in 2017, and decreased to NT$26,813.6 million (US$864.2 million) and NT$4,395.8 million (US$141.7 million) in 2018 and the nine months ended September 30, 2019 respectively. Our net income was NT$37,028.6 million in 2017 and decreased to NT$2,222.8 million (US$71.6 million) in 2018. We recorded a net loss of NT$ 10,581.3 million (US$341.0 million) in the nine months ended September 30, 2019. Our results of operations may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. Our business and operations may be adversely affected by, among other factors:

the cyclical nature of both the TFT-LCD industry, including fluctuations in average selling prices, and the markets served by our customers;
changes in tariffs;

access to raw materials and components, equipment, electricity, water and other required utilities on a timely and economical basis;
the loss of key customers or their postponement of orders or adjustments in inventory policy;
changes in end-users’ spending patterns; and
the outcome of on-going and future litigation and government investigations.

Due to the factors noted above and other risks discussed in this section and elsewhere in this offering memorandum, many of which are beyond our control, you should not rely on quarter-to-quarter comparisons to predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations. In addition, our results of operations may be below the expectations of public market analysts and investors in some future periods, which may result in a decline in the price of our Common Shares.

Our future competitiveness and growth prospects could be affected adversely if we are unable to successfully expand or upgrade our fabs as planned.

As part of our business growth strategy, we have undertaken and will continue to undertake in the future a number of expansions and upgrades for our panel fabrication facilities, commonly known as fabs. For example, we established our G8.6 fab and commenced mass production of 2,250 mm x 2,600 mm largesized TFT-LCD panels in 2016. In the PRC, we maintain a significant portion of our module assembly operations in our facilities. The successful expansion or upgrade of our fabs and commencement of commercial production depend upon a number of other factors, including the timely delivery of equipment and machinery and the hiring and training of new skilled personnel. Although we believe that we have the internal capabilities and know-how to expand our fabs and commence commercial production, we cannot assure you that we will be able to successfully upgrade our fabs, machinery and equipment. In addition, we cannot assure you that we will be able to obtain from third parties, if necessary, the technology, intellectual property or know-how that may be required for the expansion of our fabs on acceptable terms. Furthermore, delays in the delivery of equipment and machinery as a result of increased demand for such equipment and machinery or the delivery of equipment and machinery that do not meet our specifications could delay the establishment or expansion of these fabs. If we face unforeseen disruptions in the installation, expansion or manufacturing processes with respect to our fabs, we may not be able to realize the anticipated or potential gains and may face disruptions in capturing growth opportunities.

Our results of operations may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer needs on a timely basis.

New products are developed in anticipation of future demands. Early product development by itself does not guarantee the success of a new product. Our success will depend greatly on our ability to respond quickly to emerging customer requirements and to develop new products in anticipation of future demand. Any delay in our development of commercially successful products with reliable quality and advanced features may adversely affect our business, financial condition and results of operations.

The success of a new product also depends on other factors such as close cooperation with our customers to gain insights into their product needs and to understand general trends in the market. When developing new products, we often work with equipment suppliers to make new products more efficient. If we are unable to successfully cooperate with our customers and equipment suppliers, or to sufficiently understand their respective needs and capabilities, our ability to introduce new products in a timely manner may be adversely affected, which may have a material adverse effect on our business, financial condition and results of operations.

In recent years, a significant amount of profits in the display market has been attributable to the sales of products utilizing advanced technologies. If these products are not introduced into the market in a timely

manner, we may not be able to remain competitive and, as a result, our business may be materially and adversely affected.

Our results of operations may be adversely affected if we cannot predict the pricing trend of panels of different sizes.

Our results of operations depend on our management’s capability to predict the pricing trend of panels of different sizes and optimize our product size mix. To adapt to changing industry trends and cyclical market excess capacity, our business operations and prospects depend on our ability to make strategic decisions to allocate capital and resources on production of panels with high margins. In addition, we rely on our fab profiles to switch production between panels of different sizes to meet cyclical demand and reduce exposure to size-specific overcapacity of TFT-LCD panels. Our current fab profile enables flexibility to switch between the production of TFT-LCD panels of different sizes, including mainly 32-inch, 43-inch, 55-inch and 65-inch TFT-LCD panels. However, we cannot assure you that we can accurately predict the market trends and flexibly produce panels of different sizes. If we fail to predict the pricing trend of display panels to allocate resources accordingly, our business, financial condition and results of operations may be adversely affected.

We depend on a small number of customers for a substantial portion of our net sales, and a loss of any one of these customers, or a significant decrease in orders from any of these customers, would adversely affect our net sales.

We depend on a small number of customers for a substantial portion of our business. Our five largest customers accounted for 26.9% and 29.3% of our sales revenues in 2018 and the nine months ended September 30, 2019, respectively. Moreover, our largest customer accounted for 10% of our net sales in 2018. Our ability to maintain stable business relationships with our customers is critical to our business. If any of our key customers reduces, delays or cancels its orders or the financial condition of our key customers deteriorate, our business could be seriously harmed. Similarly, a failure to manufacture sufficient quantities of products to meet customer demand may cause us to lose customers, which may adversely affect our results of operations and business prospects. If our customers lose market share, they may reduce their orders from us. We may not be able to obtain orders from other customers to offset a reduction in orders from any of our largest customers and a failure to do so would materially and adversely affect our business, financial condition and results of operations.

In addition, mergers, acquisitions, divestments or consolidations involving our key customers can present risks to our business, as new management may change business practices, including their transactions with us, or may decide not to use us as one of their suppliers of TFT-LCD display products. In addition, we cannot assure you that a combined entity resulting from a merger, acquisition or consolidation will continue to purchase TFT-LCD display products from us at the same level as each entity purchased in the aggregate when they were separate companies, or that a divested company will purchase TFT-LCD display products from us at all.

If brand companies do not continue to outsource the manufacturing of their products to OEM service providers with manufacturing operations in the ROC or the PRC, our sales and results of operations could be adversely affected.

In recent years, brand companies have continued to outsource the manufacturing of their products to OEM service providers in the ROC, or such providers with part or all of their manufacturing operations in the PRC. We believe that we have benefited from this outsourcing trend in large part due to our manufacturing locations in the ROC and PRC, which have allowed us to better coordinate our manufacturing operations with our customers’ requirements, especially in the areas of delivery time and product design support. We cannot assure you that this outsourcing trend will continue. If brand companies do not continue to outsource the manufacturing of their products to OEM service providers with their manufacturing operations in the ROC or the PRC or any other countries in which we plan to have manufacturing operations, our sales and results of operations could be materially and adversely affected.

Our customers generally do not place long-term orders or volume purchase in advance, which makes it difficult for us to predict our future revenues and allocate capacity efficiently and in a timely manner.

Our customers typically provide us with three-month rolling forecasts of their panel requirements. In addition, due to the cyclical nature of the TFT-LCD industry, the precise terms of our customers’ purchase orders, including pricing, product specifications and quantities, vary significantly from period to period. As our key customers are not obliged to place any orders even after entering into sales agreements, we face the risk that orders placed might be reduced or cancelled. We do not typically operate with any significant backlog, which makes it difficult for us to forecast our revenues in future periods. Moreover, we incur expenses and adjust inventory levels of raw materials and components based in part on customers’ forecasts, and we may be unable to allocate TFT-LCD panel manufacturing and assembly capacity in a timely manner to compensate for shortfalls in sales. We expect that, in the future, our sales in any quarter will continue to be substantially dependent upon purchase orders received in that quarter. The inability to adjust manufacturing costs, to obtain necessary raw materials and components or to allocate TFT-LCD panel manufacturing and assembly capacity quickly to respond to the demand for our products may lower utilization of our manufacturing facilities and, as a result, affect our results of operations.

If we are not able to attract and retain key management personnel or skilled technical personnel, our operations and expansion plans would be adversely affected.

Our success depends on the continued services of key senior management and our ability to attract and retain skilled employees, particularly engineering and technical personnel in the research and development and manufacturing processing areas. We do not carry key person insurance for any of our senior management personnel. If we lose the services of key senior management personnel, we may not be able to find suitable replacements or integrate replacement personnel in a timely manner or at all, which would materially and adversely harm our business.

Without a sufficient number of skilled employees, our operations and manufacturing quality would suffer. Competition for qualified technical personnel and operators in the ROC and the PRC is intense, and the replacement of skilled employees is difficult. We may encounter this problem in the future in conjunction with requiring increased numbers of skilled employees for our expansion. If we are unable to attract and retain our technical personnel and other employees, our operating efficiency may deteriorate, which in turn may affect our business, financial condition and results of operations.

We may experience losses on inventories.

Frequent new product introductions in the computer, communications and consumer electronics industries can result in the obsolescence of our existing TFT-LCD inventory. This can result in a decrease in the stated value of our TFT-LCD inventory, which we value at the lower of aggregate cost or market value.

We manage our inventory based on our customers’ and our own forecasts. An inventory buildup at our customers may result in decreased purchases from us. While we maintain open channels of communication with our major customers to avoid unexpected decreases in firm orders or subsequent changes to placed orders, decreased purchases by our customers may have an adverse effect on our inventory management and lead to a decrease in our revenues. Furthermore, TFT-LCD panel prices fluctuate depending on industry supply and demand. If we maintain a higher than expected inventory level when TFT-LCD panel prices decrease, we may suffer an inventory loss, which in turn may materially and adversely affect our business, financial condition and results of operations.

We may encounter difficulties in achieving expected strategic objectives and other benefits of any acquisitions or investments within the anticipated time frames.

As part of our growth strategy, we may evaluate opportunities to acquire or invest in TFT-LCD panel manufacturing capacity. If we use our equity securities to pay for acquisitions, the underlying Common Shares may be diluted. If we borrow funds to finance acquisitions, such debt instruments may contain restrictive covenants that can, among other things, restrict us from distributing dividends.

The success of any acquisition depends, in part, on our ability to capture anticipated synergies, growth opportunities and cost savings, which may be impeded, delayed or reduced as a result of numerous factors, some of which are beyond our control. These factors include:

complexity of managing a more diversified business, including supply chain management, manufacturing capacity management, research and development, human resources and financial and audit management;
difficulties in integrating the operations and financial condition, products, personnel and cultures;
unforeseen contingent risks or latent liabilities relating to the merger that may become apparent in the future;
diversion of management’s time and attention from our core business;
dilution of the stock ownership of existing shareholders or earnings per share; and
effects on our capacity utilization as a result of post-merger excess capacity and market conditions.

Our failure to address these risks successfully may have a material adverse effect on our business, financial condition and results of operations.

In addition, as part of our strategy to further manage our supply chain, we may seek to make minority investments in raw materials and/or components suppliers, with a view toward obtaining a strategic source of such raw materials and/or components. We cannot assure you that we would be successful in making such investments or establishing such relationships.

The interests of our major shareholders may be different from those of our other shareholders and our relationships with them expose us to certain risks.

As of April 22, 2019, Hon Hai Group and its chairman Terry Tai-Ming Gou, together with certain of their respective affiliates and investee companies, beneficially owned an aggregate of approximately 7.72% of our outstanding Shares. See “Major Shareholders.” The interests of these or other major shareholders may differ from the interests of our other shareholders. Our major shareholders could have significant influence in determining the outcome of any corporate transaction or other matter submitted to our shareholders for approval, including mergers, consolidations and the sale of all, or substantially all, of our assets, election of directors, and other significant corporate actions. Our major shareholders have no obligation to consider our interests or the interests of our other shareholders, and our other shareholders could be disadvantaged by the actions that our major shareholders choose to pursue.

In addition, we also engage in a variety of transactions, including the sale of TFT-LCD display products and the purchase of parts and components, with the Hon Hai Group. See “Related Party Transactions.” Our close relationship with the Hon Hai Group could limit our potential to do business with competitors of companies in the Hon Hai Group. On the other hand, if there is any significant deterioration in the relationship between the Hon Hai Group and us, such as the Hon Hai Group ceasing to be one of our major shareholders, our competitiveness and results of operations could be materially adversely affected.

We may not be able to obtain or renew all licenses, approvals or permits necessary for our current and future operations.

Our current and future operations in the ROC, the PRC, and other regions require a number of regulatory licenses, approvals and permits. We cannot assure you that we will be able to obtain licenses, approvals or permits or make filings and registrations necessary for our operations in the ROC, the PRC and other regions, or that we will be able to successfully renew our existing licenses, approvals or permits. In addition, if the relevant authorities enact new regulations, we may not be able to meet successfully the requirements under such regulations. If we fail to obtain or renew the necessary regulatory licenses,

approvals or permits, or make the necessary filings and registrations, we may have to cease construction or operation of the relevant projects, be subject to fines, or face other penalties, which could have a material adverse effect on our business, financial condition and results of operations. Even if we already obtained the licenses, approvals and permits, there could be parties or interest groups with different views who may take actions against the renewal of such licenses, approvals and permits, which may have an adverse effect on our business, financial condition and results of operations.

We and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.

Most of our existing manufacturing operations, and the operations of many of our suppliers, are located in the ROC and the PRC, which are vulnerable to natural disasters. As a result of this geographic concentration, disruption of operations at our fabs or the facilities of our customers and suppliers caused by work stoppages, power outages, water supply shortages, fire, typhoons, earthquakes or other natural disasters and events outside of our control could cause delays in manufacturing and shipments of our products. Any delays or disruptions could result in our customers seeking to source TFT-LCD display products from other manufacturers.

Our manufacturing processes require a substantial amount of water. Although currently a substantial portion of the water used in our manufacturing process is recycled, our manufacturing operations may be seriously disrupted by water shortages. If a drought were to occur and we or the authorities were unable to source water from alternative sources in sufficient quantity, we may be required to shut down temporarily or substantially to reduce the operations of these fabs, which would seriously affect our operations. In addition, even if we were able to source water from alternative sources, our reliance on supplemental water supplies would increase our operating costs. Furthermore, the disruption of operations at our customers’ facilities could lead to reduced demand for our products. The occurrence of any of these events in the future could adversely affect our business, financial condition and results of operations.

Our TFT-LCD manufacturing processes consume substantial amounts of electricity, which is supplied by Taiwan Power Company in the ROC and sourced locally at our manufacturing facilities in the PRC. We have in the past experienced unstable voltage. We maintain backup power generators for the purpose of providing electricity to our machinery and equipment until they can be safely turned off in order to reduce the loss of works-in-process and to facilitate smooth resumption of electricity supply. If we experience inadequate supplies of electricity at our 14 fabs or at our assembly plants, our business, financial condition and results of operations may be adversely affected.

We face risks related to health epidemics and other outbreaks of contagious diseases, including avian flu, SARS, and swine flu.

Our business could be adversely affected by the effects of SARS, avian flu, swine flu or another epidemic or outbreak. Outbreaks of contagious diseases, and other adverse public health developments in the ROC or the PRC, could include restrictions on our ability to ship our products outside of the ROC or the PRC as well as cause the temporary closure of our manufacturing facilities. Such closures or shipment restrictions would materially and adversely affect our business, financial condition and results of operations.

If we are unable to maintain high capacity utilization rates and production yields, our profitability will be adversely affected.

High capacity utilization rates and production yields allow us to allocate fixed costs over a greater quantity of products. Increases or decreases in capacity utilization rates and production yields can significantly impact our gross margins. Accordingly, our ability to maintain or improve our gross margins will continue to depend, in part, on maintaining high capacity utilization rates and production yields. We cannot assure you that our utilization rates and production yields will not be negatively affected by adverse factors such as, among others, excess capacity, equipment malfunction, interruption in the availability of utilities, deficiencies in quality control, inadequate sample testing and human errors. We cannot assure you that we will be able to maintain high capacity utilization rates and production yields in the future. If demand for our products does not meet our expectations, our capacity utilization and gross margins will decrease. In

addition, if we fail to maintain high quality production standards, our reputation may suffer and our customers may cancel their orders or return our products, which will negatively affect our business, financial condition and results of operations.

Our manufacturing processes are highly complex, costly and potentially vulnerable to disruptions, which can significantly increase our production costs and delay product shipments to our customers.

Our manufacturing processes are highly complex, require advanced and costly equipment and are modified periodically to improve manufacturing yields and production efficiency. We face the risk of production difficulties from time to time, which could cause delivery delays and reduced production yields. These production difficulties include capacity constraints, construction delays, difficulties in upgrading or expanding existing facilities, difficulties in changing our manufacturing technology and delays in the delivery or relocation of specialized equipment. We may encounter these difficulties in connection with the adoption of new manufacturing process technologies. We cannot assure you that we will be able to develop and expand our fabs without equipment delays or difficulties, or that we will not encounter manufacturing difficulties in the future.

Our operations can expose us to the risk of environmental claims which could result in damages awarded or fines imposed against us.

We must comply with regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes resulting from our manufacturing processes. Future changes to existing environmental regulations or unknown contamination of our sites, including contamination by prior owners and operators of our sites, may give rise to additional compliance costs or potential exposure to liability for environmental claims that may seriously affect our business, financial condition and results of operations.

Disputes over intellectual property rights are costly and could deprive us of the technologies we need to stay competitive.

Technology is an integral part of our manufacturing process and products. We have from time to time been the subject of allegations that our products or processes infringe third party intellectual property rights (such as patent rights). For example, Eidos Displays, LLC and Eidos III, LLC (together, “Eidos”) filed a lawsuit in the U.S. against us, certain of our affiliates and other TFT-LCD manufacturers for the infringement of Eidos’ patents in the U.S. relating to the production of electro-optical device for TFT-LCD panels, and we expect to continue to be involved in disputes over intellectual property rights. See “Business—Legal Proceedings.” There is no means of knowing all of the patent applications that have been filed in the United States or elsewhere and whether, if the applications are granted and the patentees exercise their right to assert their patents against us, the enforcement of such patents would have a material adverse effect on our business. Often with respect to recently developed processes and products, it is uncertain who may claim ownership rights over such processes and products. Uncertainty of this type increases the risk of claims alleging that our processes or products infringe upon third-party rights. If a third party were to make intellectual property infringement claims against our customers or us, and the third party successfully proves that our products infringe upon its intellectual property rights before a court of a competent jurisdiction, we may be required to do one or more of the following:

pay substantial monetary damages;
seek to develop non-infringing technologies;
seek to acquire licenses to the infringed technology; or
discontinue selling the infringing products into the territory where the infringement was found pursuant to an injunction order issued by the court.

If our products or manufacturing processes are found by a court to infringe upon third-party rights, we may be subject to significant liabilities and be required to re-design our manufacturing processes or products. In addition to subjecting us to potential liability for damages, we may be required to obtain licenses in order to manufacture the affected products and technology. If we need to obtain technology licensing arrangements and are unable to obtain them on mutually beneficial economic terms, we may lose the legal right to use certain of the processes and designs which we may have employed to manufacture our products. This could cause significant disruption to our operations, and we may lose important customers because we are unable to continue providing our customers with products based on advanced manufacturing process and product technologies. See “Business—Intellectual Property.”

If a court were to find us liable for intellectual property infringement, the resulting penalties or damages imposed against us may have a material adverse effect on our business, financial condition and results of operations. In addition, any litigation, whether to enforce our patents or other intellectual property rights or to defend ourselves against claims that we have infringed the intellectual property rights of others, could adversely affect our business and results of operations because of the management attention required and legal costs incurred.

We rely on certain technologies licensed by third parties.

We have entered into global cross-licensing agreements with several leading electronics companies in Asia with respect to the use of key technologies such as In-Plane Switching technology (“IPS”), photo alignment and OLED, among others. See “Business—Intellectual Property.” We cannot assure you that these third parties will continue to license their existing technologies or provide additional technologies to us. If we are unable to renew the global cross-licensing agreements with these third parties, we may lose the legal right to use some of the technologies we require to produce our products, and we might be required to design around our products or develop these technologies on our own. We may not be able to independently develop any of these technologies successfully. Failure to do so could result in a loss of key customers as we may be unable to continue providing our customers with products employing the same or similar technologies, and could materially and adversely affect our business, financial condition and results of operations.

Our ability to compete will be harmed if we are unable to adequately protect our intellectual property.

We believe that the protection of our intellectual property rights is, and will continue to be, important to the success of our business. We rely primarily on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. However, these afford only limited protection, and despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain, copy, or use information that we regard as proprietary, such as product design and manufacturing process expertise. As of September 30, 2019, we held a total of 4,560 patents, including 380 in the ROC, 1,680 in the PRC, 2,040 in the United States, and 460 in other jurisdictions. Any future patent applications may not be sufficiently broad to protect our proprietary technologies. Moreover, policing any unauthorized use of our products is difficult and costly, and we cannot be certain that the measures we have implemented will prevent misappropriation or unauthorized use of our technologies, particularly in foreign jurisdictions where the laws may not protect our proprietary rights as fully as the laws of the United States. Others may independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property. Our failure to effectively protect our intellectual property could materially and adversely harm our business.

We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive in the display panel industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented know-how could negatively affect our business.

We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological innovation in our business. The information we rely upon includes price forecasts, core technology and key customer information. Our current standard employment agreement with our employees contains a confidentiality provision which generally provides that all confidential information shall be kept confidential. All the unpatented know-hows and other intellectual property rights that developed or made known to the individual during the term of the employment relationship is our exclusive property

during and after the employment term. In addition, we have a set of internal measures in place for protection of our trade secrets and technological know-how, including trade secrets education training for employees, encrypted e-mail system and information system authority control. However, we cannot assure you that our employees will not breach any of their obligations under the employment agreements or that these agreements will be enforceable. Moreover, it is uncertain whether we will have adequate remedies in the event of any breach. Our competitors may come to know about our trade secrets and other proprietary information through a variety of methods. Failure to protect our trade secrets or other know-how could materially and adversely affect our business, financial condition and results of operations.

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

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

Exchange rate fluctuations could negatively affect our results of operations.

Exchange rate fluctuations, in particular between the U.S. dollar and the NT dollar and between the Japanese yen and the NT dollar, affect our gross and operating margins. We are subject to foreign exchange translation risk. Although we maintain our books and report our results in NT dollars, our sales, raw materials and components and capital expenditures are denominated in different currencies in varying amounts. For example, historically a substantial portion of our sales revenues have been denominated in U.S. dollars, our costs of raw materials and components have been denominated principally in U.S. dollars and Japanese yen, and our labor costs have been denominated principally in NT dollars and Renminbi. The majority of our accounts receivable and the majority of our accounts payable are denominated in U.S. dollars. We record a foreign currency denominated transaction on the date it occurs in NT dollars using the prevailing exchange rate for such date. The realized gains or losses resulting from the application of a different foreign exchange rate when the transaction is settled and the amount received or paid in settlement is converted into or from NT dollars and credited or charged to income. At the end of each period, we restate the balances of foreign currency assets and liabilities at the period-end spot exchange rate and credit or charge to income for such period the resulting foreign exchange gains or losses, as the case may be. As a result, changes in the exchange rate between the NT dollar and the U.S. dollar and the Japanese yen affect our gross and operating profit margins and could result in foreign exchange and operating losses. In addition, foreign exchange fluctuations could result in foreign exchange losses to our assets and liabilities denominated in foreign currencies. The impact of future exchange rate fluctuations cannot be predicted.

Risks relating to the ROC

We are subject to risks associated with the political status and international relations of the ROC.

We are incorporated in the ROC, some of our assets and operations are located in the ROC, and the Shares are listed on the TWSE. Accordingly, our business, results of operations and financial condition and the market price of the Shares may be affected by changes in the ROC governmental policies, law, taxation, inflation, interest rates, social instability and other political, economic, diplomatic or social developments in or affecting the ROC which are outside our control. The ROC has a unique international political status. Since 1949, the ROC and the Chinese mainland have been separately governed. The PRC government regards Taiwan as a province of the PRC and does not recognize the legitimacy of the ROC. Although significant economic and cultural relations have been established in the past decade between the ROC and the PRC, the PRC has refused to renounce the possibility that it may use military force to gain control over

the ROC, particularly under what it considers as highly provocative circumstances, such as a declaration of independence by the ROC. Furthermore, the PRC government passed the Anti-Secession Law in March 2005, which authorized non-peaceful means and other necessary measures should the ROC move to gain independence from the PRC. Relations between the PRC and the ROC have at times been strained. Strained relations could result in future military actions or economic sanctions or other disruptive activities undertaken by either government. Past tensions between the ROC and the PRC have from time to time adversely affected the value of securities listed on the TWSE, including the price of the Shares. Tension between the ROC and the PRC and other factors affecting political or economic conditions in the ROC could have a material adverse effect on our results of operations and financial condition, as well as the market price and liquidity of the Shares.

Further, if relations between the ROC and the PRC worsen, it could also have a material adverse effect on the ROC’s economy and our ability to manage and operate our production facilities in the PRC and to implement future plans for the expansion of our existing PRC production facilities or the establishment of new production facilities in the PRC. There can be no assurance that the present tensions will not worsen, which could have a significant adverse impact on our financial condition, results of operations and future prospects.

Our future investment in the PRC or other countries may be restricted by the ROC laws and regulations relating to investment of ROC entities in the PRC or foreign countries and failure to obtain, maintain or renew approvals for inbound and outbound investments may materially and adversely affect our financial condition and results of operation.

Under Taiwan Relations Between Peoples of the Taiwan Area and the Mainland Area Act (the “Act”), Taiwanese nationals may only invest in the PRC after obtaining the prior approval of the Investment Commission of the Ministry of Economic Affairs unless the investment amount is less than US$1,000,000. The display panel industry falls within the permitted investment category under the Act and we obtained the qualification as an operational headquarters in Taiwan approved by the Industrial Development Bureau of the Ministry of Economic Affairs, which allows us to make investments in the PRC without being subject to the restriction on investment amount set forth in the regulations governing investments by ROC persons in the PRC. However, the qualification as an operational headquarters approved by the Industrial Development Bureau is valid for three years only. Our approval for such qualification will expire on September 27, 2021. There is no assurance that we may be able to obtain such qualification in the future and if we fail to obtain such qualification, we would be subject to the restriction on the investment amount which is currently 60% of the amount of our consolidated net assets and thus limit our capability to invest in the PRC and our growth potential.

The ROC Investment Commission has supervisory and regulatory authority for matters relating to, among other things, inbound investment in Taiwan companies by non-ROC persons and overseas ROC nationals, and outbound investments by Taiwan companies or individuals. Under current ROC law, ROC companies are required to obtain prior approval from or, within the period of time prescribed by relevant laws and regulations, a post filing with Taiwan Investment Commission for making certain investments in any other jurisdictions outside Taiwan under certain circumstances. There is no assurance that we will be able to continue to satisfy the requirements for, or otherwise obtain, permits or approvals for current and future projects. Failure to obtain, maintain or renew such permits and approvals may impede or hinder our operations, and adversely affect our financial condition, results of operations and business prospects.

The imposition of foreign exchange restrictions may have an adverse effect on foreign investors’ abilities to acquire ROC securities, including the Shares, or to repatriate the interest, dividends or sale proceeds from those securities.

The ROC government may impose foreign exchange restrictions in certain emergency situations, including situations where there are sudden fluctuations in interest rates or exchange rates, where the ROC government experiences extreme difficulty in stabilizing the balance of payments or where there are substantial disturbances in the financial and capital markets in Taiwan. These restrictions may require foreign investors to obtain Taiwan government’s approval before acquiring ROC securities, repatriating the interest or dividends from those securities or repatriating the proceeds from the sale of those securities. There can be

no assurance that these restrictions, if imposed, will not adversely affect, among other things, the secondary market price of the Bonds.

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

We are subject to financial reporting requirements in the ROC that differ in significant respects from those applicable to companies in certain other countries, including the United States. In addition, our financial statements are prepared in accordance with Taiwan IFRS, which differ in certain significant respects from generally accepted accounting principles in certain other countries, such as US GAAP or IFRS. See “Summary of Certain Material Differences Between Taiwan IFRS and IFRS.” The accounting treatment adopted by us under Taiwan IFRS may cause volatility of our revenue and/or profits. Potential investors should consult their own professional advisers for an understanding of such differences and how they might affect the financial information contained herein.

You may not be able to enforce a judgment of a foreign court in the ROC.

We are a company incorporated under the ROC Company Act. Most of our directors and executive officers and certain of the parties named herein are residents of Taiwan, and certain portion of our assets and the assets of such persons are located in Taiwan. As a result, it may be difficult for investors to enforce judgments obtained outside Taiwan against us or such persons in Taiwan, including those predicated upon the civil liability provisions of the federal securities laws of the United States.

Risks Relating to the PRC

We are subject to the political and economic environments in the PRC.

Currently, a significant portion of our manufacturing facilities are located in the PRC and we may make further investments in the PRC in the future. Accordingly, our business, financial condition and results of operations are subject to the political and economic environments and legal developments in the PRC. Since 1978, the PRC government has permitted foreign investment and implemented economic reforms, gradually changing from a planned economy toward a market-oriented economy. However, many of the reforms and economic policies adopted or to be adopted by the PRC government are unprecedented or experimental in nature and may have unforeseen results, which may have an adverse effect on enterprises with substantial business in the PRC, including us.

The PRC government has implemented policies from time to time to regulate economic expansion in the PRC. Although in recent years the PRC government has implemented measures emphasizing the use of market forces for economic reform, it continues to play a significant role in regulating industrial development and it has broad discretion and authority to regulate the technology industry in the PRC. It also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

While the PRC’s economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors in the economy. The PRC government has implemented various measures to encourage economic growth and guided the allocation of resources. Some of these measures benefit the overall economy of the PRC, but may have a negative effect on us. Significant change to governmental controls over capital investments or changes in tax regulations, for example, could materially and adversely affect our business, financial condition and results of operations.

Uncertainties in the PRC legal system could adversely affect our business and operating results.

Since 1979, many new laws and regulations covering general economic matters have been promulgated in the PRC. However, since these laws and regulations are relatively new and the PRC legal system continues to evolve, interpretations of laws, regulations and rules are not always uniform and enforcement involves uncertainties. Despite the development of the legal system, the PRC’s system of laws is not yet complete. Even where laws and regulations exist in the PRC, there may be laws and regulations at

the national level or local level which are not commonly seen in developed countries and which may impose additional procedural or compliance requirements on us.

PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. In the case of a foreign judgment rendered by a foreign court where the country and the PRC do not have treaty or other agreement that provide for the reciprocal recognition and enforcement of foreign judgments, such a judgment may not be enforced by a PRC court. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. Therefore, it is uncertain whether a PRC court would enforce a foreign judgment rendered by a foreign court. The relative inexperience of the PRC’s judiciary in many cases also creates additional uncertainty as to the outcome of any litigation. Furthermore, interpretation of laws and regulations of the PRC may be subject to government policies reflecting domestic political changes.

Our activities in the PRC will be subject to administrative review and approval by various national and local agencies of the PRC government. Due to the changes occurring in the legal and regulatory structure of the PRC, we may not be able to secure the required governmental approval for our activities in the PRC. In addition, local government authorities may adopt their own policies and practices. Failure to obtain the requisite governmental approval or to comply with the local government’s policies or practices for any of our activities could adversely affect our business and operating results.

We cannot predict the effects of future developments of the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, the preemption of local regulations by national laws, or the overturn of local governments’ decisions by the central government. These uncertainties may limit the legal protections available to us. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of our resources and management’s attention.

Our PRC operations may be constrained by increasing challenges in recruiting and retaining employees at reasonable cost.

As of September 30, 2019, approximately 48.0% of our employees were located in the PRC. However, it has been increasingly challenging in recent years to recruit and retain employees at all levels and we cannot assure you that labor will continue to be available to us in the PRC at a relatively low cost. The PRC has experienced rapid social, political and economic changes in recent years which have led to rising salaries and wages. In addition, there has been a growing shortage of workers in the PRC who are willing to work in factories. Rising wages as well as a shortage of labor in the PRC may increase our overall cost of production, cause delays in production and could lower the cost competitiveness of our PRC operations, which may have a material adverse effect on our business, financial condition and results of operations.

Labor laws in the PRC may adversely affect our results of operations.

Labor laws and regulations in the PRC impose strict requirements on signing labor contracts, paying remuneration, paid annual leave, probation and dissolving labor contracts. PRC labor law also requires the terms of employment contracts to be placed in writing within one month of the commencement of an employment relationship, which makes hiring temporary workers difficult. In the event we decide to significantly change or decrease the workforce of our PRC subsidiaries, the PRC labor laws and regulations could adversely affect our ability to enact such changes in a manner that is most advantageous to the business of our PRC subsidiaries or in a timely and cost-effective manner, which may materially and adversely affect our business, financial condition and results of operations.

Our business could suffer if we or any of our suppliers fail to use acceptable labor practices or are subject to labor disruptions.

Violation of labor laws by us or our suppliers, or our or their divergence of labor practices from those generally accepted as ethical or legal in other jurisdictions could damage our business and reputation or

disrupt the shipment of supplies to us. In addition, factories in the PRC have recently been experiencing an increase in strikes and workplace stoppages by their labor forces. There can be no assurance that we or our suppliers will not experience such strikes or stoppages by our labor force in the future. Labor disputes, work stoppages or slowdowns at our facilities could significantly disrupt our operations or expansion plans. Delays caused by any such disruptions could materially adversely affect our production and revenues, which could have a material adverse effect on our business and results of operations.

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

As an offshore holding company of its PRC subsidiaries, we may make loans to its PRC subsidiaries, or it may make additional capital contributions to its PRC subsidiaries. Any loans to the our PRC subsidiaries are subject to PRC regulations and approvals. For example, loans by our company to its PRC subsidiaries in China, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits. The Issuer may also decide to finance its PRC subsidiaries through capital contributions. These capital contributions must be, unless special access administrative measures requires, registered to the PRC Ministry of Commerce or its local counterpart for record. There is no assurance that the Issuer will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to capital contributions or future loans by it to its subsidiaries or any of their respective subsidiaries. If the Issuer fails to receive such registrations or approvals or if such procedure requirements should be changed in the future, its ability to capitalize its PRC operations may be negatively affected, which could adversely and materially affect its liquidity and its ability to fund and expand its business.

Risks Relating to Ownership of the Bonds and the Shares

There are limitations on the Bondholders’ ability to exercise conversion rights.

The Bondholders will not be able to exercise conversion rights during any Closed Period, as defined in “Description of the Bonds.” In addition, under the current ROC laws, regulations and policies, a PRC person is not permitted to convert the Bonds or to register as our shareholder unless (i) it is a qualified domestic institutional investor, or a QDII, who will hold less than 10% of the Issuer ’s issued shares after conversion of the Bonds, or (ii) it otherwise obtains the approval of the Investment Commission of the Ministry of Economic Affairs if all the business items are within the positive list promulgated by the ROC government from time to time and it will hold 10% or more (or other threshold required by the regulators) of the Issuer ’s issued shares after conversion of the Bonds. There are also restrictions on the amount remitted to the ROC for investments by QDIIs, separately and jointly. Accordingly, the qualification criteria for a PRC person to make investment and the investment threshold imposed by the Financial Supervisory Commission of the ROC (the “FSC”) and the TWSE may cause a Bondholder who is a PRC person to be unable to convert the Bonds and hold the Shares. Under current ROC laws, “PRC person” means an individual holding a passport issued by the PRC, a resident of any area of the PRC under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong and Macau, if so excluded by applicable laws of Taiwan), any agency or instrumentality of the PRC and any corporation, partnership or other entity organized under the laws of any such area or controlled by, or directly or indirectly having more than 30% of its capital owned by, or beneficially owned by any such person, resident, agency or instrumentality.

Shares or any securities that are substantially similar to the Shares, including any securities that may be convertible into, or exchangeable for, the Shares that are eligible for future sale by us or our current shareholders, may adversely affect the value of your investment.

The market prices of the Bonds and the Shares could decline as a result of sales of a large number of our Shares or any securities that are substantially similar to the Shares including, but not limited to any securities that may be convertible into, or exchangeable for, the Shares after this offering or the perception that such sales could occur. In connection with the Offering, we agreed to certain lock-ups, subject to certain exceptions, for a period of 90 days after the Closing Date not to offer, sell, contract to sell or otherwise

dispose of any of our Shares or securities that are substantially similar to the Shares without the prior written consent of the Initial Purchasers.

Nevertheless, the Initial Purchasers may lift or waive all or some of these restrictions at their sole discretion, and when the applicable restrictive period expires, we will be able to sell or otherwise dispose of the Shares, subject to legal restrictions. In addition, we cannot assure you that any of our shareholders will not sell, or otherwise dispose of, the Shares. If our shareholders sell a large number of the Shares after this offering, the market price of the Bonds and the Shares could be depressed and the value of your investment could substantially decrease. The market prices of the Shares and the Bonds could also decline if substantial amounts of the Shares or securities convertible or exchangeable into the Shares are sold after the closing of this offering, or if there is a perception that these sales could occur.

A liquid market for the Bonds may not develop, and the market for the Shares may not be liquid.

Prior to this offering, there has been no market for the Bonds. We will apply for approval in-principle for the listing and quotation of the Bonds but not the Shares on the SGX-ST, and we may not obtain or be able to maintain a listing on the SGX-ST. An active trading market for the Bonds might not develop.

The Bonds have not been registered under the securities laws of the United States or elsewhere and cannot be publicly offered, sold, pledged or otherwise transferred in any jurisdiction where such registration may be required. The Bonds may not be publicly offered or sold, directly or indirectly, in Taiwan. Furthermore, there has been no trading market for the Shares outside Taiwan, and the only trading market for the Shares is the TWSE.

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

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

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

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

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

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

Holders of the Bonds are subject to government-imposed requirements of appointing a tax guarantor and local agent in Taiwan.

When a non-ROC person converts the Bonds or registers as our shareholder, such non-ROC person will be required under the current ROC laws and regulations to appoint an agent, or a tax guarantor, in Taiwan for filing tax returns and making tax payments. A tax guarantor must meet certain qualifications set by the Ministry of Finance of Taiwan and, upon appointment, becomes a guarantor of your ROC tax

obligations. We cannot assure that such non-ROC person will be able to appoint and obtain approval for a tax guarantor in a timely manner, if at all.

In addition, under current ROC laws, if a non-ROC person is an overseas Chinese or foreign national or entity having not been registered with the TWSE, when exercising the conversion right, such non-ROC person will be required to first register with the TWSE and then appoint a local agent to, among other things, open a securities trading account with a local securities brokerage firm to hold or trade the common shares, open an NT dollar bank account, remit funds, pay ROC tax, exercise shareholders’ rights, and perform such other matters as may be designated by the converting holder. In addition, under the current ROC laws, a nonROC person is required to appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds, and reporting and declaration of information. Under existing ROC laws and regulations, without satisfying these requirements, a non-ROC person will not be able to hold or to sell or otherwise transfer our shares on the TWSE or otherwise.

Holders of the Bonds may be subject to the income tax imposed by Taiwan when they sell the Shares delivered upon conversion of the Bonds.

As used in this section, a “Non-ROC Resident Individual” is a foreign national individual who owns the Bonds or the Shares and is not physically present in the ROC for 183 days or more during any calendar year, and a “Non-ROC Resident Entity” is a corporation or a non-corporate body that owns the Bonds or the Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or business agent in the ROC. “Non-ROC Resident Individuals” and “Non-ROC Resident Entities” are jointly referred to as “Non-ROC Holders”.

Starting from January 1, 2016, capital gains realized from the sale or disposal of our Shares are exempt from ROC income tax under Article 4-1 of Taiwan Income Tax Act. Nevertheless, capital gains realized from the sale or disposal of the Bonds are exempt from ROC income tax. There is no assurance that capital gains realized from the sale or disposal of our Shares may be able to be exempted from ROC income tax in the future.

A holder of the Bonds or its designee requesting the conversion of the Bonds may be required to provide certain information to us or the Conversion Agent, and failure to provide such information may result in a delay of the conversion.

A holder of the Bonds or its designee requesting the conversion of the Bonds may be required to provide certain information to us or the Conversion Agent, including the name and nationality of the person to be registered as the shareholder, the number of Shares the person is acquiring and has acquired in the past as a result of the conversion of the Bonds it holds, the Conversion Date, or such other information as may be reasonably required, before such conversion is effected. Under applicable ROC laws, we are required to report to the FSC if the person to be registered as a shareholder (i) is a “related party” of ours as defined in the Regulations Governing the Preparation of Financial Reports by Securities Issuer or (ii) will hold, immediately following such conversion, more than 10% of the total number of the Shares deliverable upon conversion of the aggregate principal amount of all such Bonds at the time of issue. Failure to provide such information may cause the delay or rejection of such conversion of the Bonds.

The value of the Shares and the Bonds may be adversely affected by the volatility of Taiwan securities market.

The ROC securities market is smaller and more volatile than the securities markets in the United States and in certain European and other countries. The TWSE has experienced substantial fluctuations in the prices and volumes of sales of listed securities and there are currently limits on the range of daily price movements on the TWSE. In 2018, the TWSE Weighted Index reached a low of 9,478.99 on December 26, 2018 and peaked at 11,253.11 on January 23, 2018. In 2019, the TWSE Weighted Index reached a low of 9,382.51 on January 4, 2019 and peaked at 12,122.45 on December 18, 2019. The daily closing values of the Shares which are listed on the TWSE, ranged from NT$5.96 per share to NT$14.60 per share between January 1, 2018 and December 31, 2019. On January 14, 2020, the TWSE Weighted Index closed at 12,179.81 and the daily closing value of the Shares was NT$9.21 per share. The TWSE has experienced

problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems and restrictions on price movements could adversely affect the market price and liquidity of the securities of ROC companies, including the Bonds and the Shares, in both domestic and international markets. See “Appendix A — The Securities Markets of the ROC.”

In response to major past declines and volatility in the securities markets in Taiwan, and in line with similar activities by other countries in Asia, Taiwan government formed the National Stabilization Fund in 2000, which has purchased, and may from time to time purchase, shares listed on the TWSE to support these securities markets in Taiwan. In addition, other funds associated with Taiwan government have in the past purchased, and may from time to time purchase, shares listed on the TWSE or other securities markets in Taiwan. In the future, market activity by government entities, or the perception that such activity is taking place, may take place or has ceased, may cause fluctuations in the market prices and liquidity of the Shares.

Our public shareholders may have more difficulty in protecting their interests than they would as a shareholder of a corporation of other jurisdictions.

Our corporate affairs are governed by our articles of incorporation and ROC laws and regulations. The rights of our shareholders to bring shareholders’ suits against our board of directors under ROC laws are much more limited than those of the shareholders of corporations of some other jurisdictions. Therefore, our public shareholders may have more difficulty in protecting their interests in connection with actions taken against our management, members of our board of directors or controlling shareholders than they would as shareholders of corporations of other jurisdictions.

A Bondholder’s right to receive payments on the Bonds is structurally subordinated.

As of September 30, 2019, we had outstanding secured debt of NT$41,117 million (US$1,325 million). The Bonds will be effectively subordinated to any of our secured obligations with respect to assets that secure such obligations. The terms of the Bonds do not prevent us from incurring additional debt in the future and we are generally permitted to secure this indebtedness, although our existing financial covenants may restrict our future borrowings. If we incur further indebtedness, our ability to make payments on the Bonds and, if required, to redeem the Bonds may be adversely affected.

USE OF PROCEEDS

The net proceeds to be received by us from the Offering are expected to be US$298,000,000, after deducting underwriting commissions and related expenses. We intend to use the net proceeds of the Offering for procurement of raw materials in foreign currencies.

DIVIDENDS AND DIVIDEND POLICY

Dividend Policy

Under the ROC Company Act, we are not permitted to distribute dividends or make other distributions to our shareholders in respect of any financial year in which we did not have earnings or retained earnings, except in limited circumstances. Under the ROC Company Act, we are required to set aside 10% of our annual net income (after deduction of tax due and less prior years’ losses) as a legal reserve until such time as the accumulated legal reserve equals our paid-in capital and to set aside special reserves under certain circumstances. At the annual shareholders’ meeting, our board of directors submits for shareholder approval our financial statements in respect of the preceding financial year and any proposals for dividend distributions or other distributions to shareholders out of the retained earnings of such financial year.

According to our articles of incorporation as amended in the shareholders’ meeting held on June 20, 2019, net income must be distributed in the following order:

(1) to make up for prior years’ loss;
(2) as legal reserve for 10% of net income after tax and distribution pursuant to clause (1);
(3) as any other legally required reserve; and
(4) to pay dividends on preferred shares.

Our dividend policy requires the board of directors to consider our budget for future capital expenditure and funding needs when proposing the distribution of earnings to the shareholders’ meeting to resolve such proposal.

At the ordinary meeting of our shareholders, our board of directors submits to the shareholders for their approval our financial statements for the preceding financial year and any proposal for the distribution of the dividend or the making of any other distribution to shareholders from our retained earnings (subject to compliance with the requirements mentioned above) for the preceding financial year. Dividends may be distributed in the form of cash or shares, or a combination of both, provided, however, dividends distributed in respect of any financial year in the form of shares shall not exceed two-thirds of total dividends to shareholders. All Shares issued, outstanding and fully paid as of the relevant dividend record date are entitled to share equally in any dividend or other distribution approved by our shareholders.

Past Dividends

On June 20, 2019, our shareholders approved the distribution of a cash dividend of NT$0.06 per Share in the total amount of NT$597.1 million in respect of the 2018 financial year. These dividends were distributed on August 15, 2019. On June 20, 2018, our shareholders approved the distribution of a cash dividend of NT$0.80 per Share in the total amount of NT$7,961.7 million in respect of the 2017 financial year. These dividends were distributed on August 15, 2018. On June 20, 2017, our shareholders approved the distribution of a cash dividend of NT$0.10 per Share in the total amount of NT$995.2 million in respect of the 2016 financial year. These dividends were distributed on August 15, 2017.

Our past dividend payment history is not, and should not be taken as, an indication of our potential future practice with respect to dividend payments.

MARKET PRICE INFORMATION

Our Shares have been listed on the TWSE since October 24, 2006.

The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the TWSE for the Shares and the highest and lowest of the daily closing values of the ROC Stock Exchange Weighted Index.

	Closing priceper	Share(1)	Average daily Trading	Closing of the Taiwan Stock Exchange Weighted Index	Closing of the Taiwan Stock Exchange Weighted Index
	High	Low	volume(2)	High	Low
	(NT$)			(Shares)
2014 ....................................................	15.95	10.05	83,717.64	9,569.17	8,264.48
2015 ....................................................	19.35	9.10	72,820.35	9,973.12	7,410.34
2016 ....................................................	12.35	8.80	54,188.01	9,392.68	7,664.01
2017 ....................................................	16.30	11.95	91,654.98	10,854.57	9,272.88
First Quarter ................................	14.20	11.95	70,390.84	9,972.49	9,272.88
Second Quarter ............................	16.00	12.60	141,066.74	10,513.96	9,632.69
Third Quarter ...............................	16.30	13.60	95,755.50	10,631.57	10,225.28
Fourth Quarter .............................	14.30	12.30	61,181.00	10,854.57	10,355.76
2018 ....................................................	14.60	9.01	49,420.93	11,253.11	9,478.99
First Quarter ................................	14.60	12.35	84,056.48	11,253.11	10,371.75
Second Quarter ............................	13.15	10.85	49,974.21	11,251.75	10,488.58
Third Quarter ...............................	11.80	10.30	37,577.64	11,099.57	10,608.57
Fourth Quarter .............................	10.70	9.01	30,426.06	10,919.63	9,478.99
2019 ....................................................	10.50	5.96	77,414.15	12,122.45	9,382.51
January .........................................	10.50	9.50	23,210.57	10,013.33	9,382.51
February .......................................	10.40	9.73	37,922.50	10,391.55	10,004.25
March ...........................................	10.30	9.89	26,945.38	10,641.04	10,241.75
April .............................................	10.35	9.90	33,489.37	11,039.86	10,690.30
May ..............................................	9.91	7.21	68,819.50	11,096.30	10,301.78
June ..............................................	7.49	7.06	79,025.81	10,803.77	10,409.20
July ..............................................	7.92	7.16	97,048.04	10,947.26	10,702.78
August .........................................	7.10	5.96	131,926.51	10,618.05	10,327.13
September ....................................	7.29	6.60	77,461.10	10,929.69	10,558.21
October ........................................	7.13	6.62	67,876.85	11,380.28	10,875.91
November ....................................	7.90	6.67	116,301.01	11,656.40	11,427.28
December .....................................	8.80	7.55	144,888.04	12,122.45	11,502.83
2020 ....................................................
January (through January 14) ......	9.35	8.10	198,274.20	12,167.44	11,818.76

Source: TWSE Notes:

(1) As reported.

(2) As adjusted retroactively for cash and stock dividends, rights issues and stock splits, but excluding new shares offered in initial public offering.

The TWSE has experienced substantial fluctuations in the prices of listed securities and there are currently limits on the range of daily price movements. See “Risk Factors — Risks Relating to Ownership of the Bonds and the Shares — The value of the Shares and the Bonds may be adversely affected by the volatility of the ROC securities market” and “Appendix A — The Securities Markets of the ROC.”

EXCHANGE RATES

We publish our financial statements in New Taiwan dollars, the lawful currency of the ROC. In this offering memorandum, “$”, “US$” and “U.S. dollars” mean United States dollars, the lawful currency of the United States, and “NT$” and “NT dollars” mean New Taiwan dollars. This offering memorandum contains translations of certain NT dollar amounts into U.S. dollars at specified rates solely for the convenience of the reader. The translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollars were made by the exchange rate as set forth in the statistical release of the Taipei Forex Inc. Unless otherwise noted, all translations were made at the exchange rate as of September 27, 2019, which was NT$31.027 to US$1.00.

No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2019, on an actual basis and as adjusted for the issuance of the Bonds under the Bond Offering, without deducting underwriting discount and commission and other offering expenses. Other than as disclosed herein, there has been no material change in our capitalization since September 30, 2019.

The following table should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

As of September 30, 2019	As of September 30, 2019	As of September 30, 2019
Actual As Adjusted for Offering of Bonds NT$ US$(1) NT$ US$(1) (in millions) 108,926.4 3,510.7 108,926.4 3,510.7 96.6 3.1 9,404.3 303.1 24,852.3 801.0 24,852.3 801.0 1,197.6 38.6 1,197.6 38.6 5,210.0 167.9 5,210.0 167.9 656.8 21.2 656.8 21.2 32,013.3 1,031.8 41,321.0 1,331.8 99,520.7 3,207.6 99,520.7 3,207.6 99,633.4 3,211.2 99,633.4 3,211.2 7,870.7 253.7 7,870.7 253.7 4,663.5 150.3 4,663.5 150.3 36,770.5 1,185.1 36,770.5 1,185.1 (1,029.2) (33.2) (1,029.2) (33.2) (5,513.5) (177.7) (5,513.5) (177.7) 241,916.1 7,797.0 241,916.1 7,797.0 273,929.4 8,828.7 283,237.1 9,128.8	As Adjusted for Offering of Bonds
NT$ 108,926.4 96.6 24,852.3 1,197.6 5,210.0 656.8 32,013.3 99,520.7 99,633.4 7,870.7 4,663.5 36,770.5 (1,029.2) (5,513.5) 241,916.1 273,929.4		US$(1)
		3,510.7 303.1 801.0 38.6 167.9 21.2 1,331.8 3,207.6 3,211.2 253.7 150.3 1,185.1 (33.2) (177.7)
		7,797.0
		9,128.8

Notes:

(1) Translation of amounts from U.S. dollars into NT dollars has been made at the rate prevailing on September 27, 2019 of NT$31.027 = US$1.00. However, the sum of the line item “Common shares” is arrived at by multiplying the total number of Shares issued by NT$10, which is the par value of a Share, and then translated at the fixed historical exchange rate as of the date indicated.

(2) Long-term borrowings include syndicated bank loans of NT$40,980.0 million (US$1,320.8 million) and secured loans of NT$137.0 million (US$4.4 million), less administrative expenses charged by syndicated banks of NT$241.7 million (US$7.8 million) and current portion (including administrative expenses) of NT$16,023.0 million (US$516.4 million).

(3) Other non-current liabilities include pensions.

(4) Other equity includes financial assets at fair value through other comprehensive income of NT$2,125.1 million (US$68.5 million) and currency translation of negative NT$7,638.6 million (negative US$  million).

(5) Total capitalization is total long-term liabilities plus total shareholders’ equity of the parent company.

(6) The bifurcation of derivative instruments from the Bonds payable upon initial recognition under Taiwan IFRS and issuance cost were not taken into consideration for the adjusted basis.

SELECTED FINANCIAL INFORMATION

The following selected financial information has been derived from our audited consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 and unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 included elsewhere in this offering memorandum, which have been prepared in accordance with Taiwan IFRS and with “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and International Accounting Standard 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission, respectively. The consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 have been audited by PricewaterhouseCoopers, Taiwan, our independent auditors, and the unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 have been reviewed by PricewaterhouseCoopers, Taiwan. Our consolidated financial statements are presented in conformity with the Taiwan IFRS. You should read the following selected financial information together with our financial statements included elsewhere in this offering memorandum. Neither these data nor the format in which they are presented should be viewed as comparable to information prepared in accordance with IFRS or generally accepted accounting principles elsewhere. See “Summary of Certain Material Differences between Taiwan IFRS and IFRS.”

Consolidated Statements of Comprehensive Income Data

	Year Ended December 31,	Year Ended December 31,	Year Ended December 31,	Nine Months Ended September 30,	Nine Months Ended September 30,	Nine Months Ended September 30,
2016	2017	2018		2018	2019
NT$ (audited) 287,089,277 (261,000,786)	NT$ (audited) 329,174,401 (260,435,724)	NT$ US$ NT$ (audited) (unaudited) (unaudited) (in thousands, except per share information) 279,376,115 9,004,290 207,132,750 (252,562,557) (8,140,089) (184,786,697)			NT$ (unaudited) 186,393,293 (181,997,479)	US$ (unaudited) 6,007,455 (5,865,778)
26,088,491 (2,301,561) (6,241,602) (11,132,079)	68,738,677 (1,942,594) (6,857,153) (12,916,721)	26,813,558 (3,071,282) (6,771,502) (12,135,478)	864,201 (98,988) (218,245) (391,126)	22,346,053 (2,007,849) (4,986,577) (9,085,754)	4,395,814 (2,825,849) (5,092,786) (9,278,610)	141,677 (91,077) (164,140) (299,050)
(19,675,242)	(21,716,468)	(21,978,262)	(708,359)	(16,080,180)	(17,197,245)	(554,267)
6,413,249 (1,421,129)	47,022,209 1,918,980	4,835,296 1,734,134	155,842 55,891	6,265,873 1,232,875	(12,801,431) 2,948,876	(412,590) 95,042
4,992,120	48,941,189	6,569,430	211,733	7,498,748	(9,852,555)	(317,548)
(3,121,433)	(11,912,580)	(4,346,668)	(140,093)	(4,578,998)	(728,752)	(23,487)
1,870,687	37,028,609	2,222,762	71,640	2,919,750	(10,581,307)	(341,035)
(6,152,001)	2,286,939	(3,596,644)	(115,920)	(2,956,524)	(850,403)	(27,409)
(4,281,314)	39,315,548	(1,373,882)	(44,280)	(36,774)	(11,431,710)	(368,444)
1,870,687	37,028,609	2,222,762	71,640	2,919,750	(10,583,525)	(341,107)
－	－	－	－	－	2,218	72
0.19	3.72	0.22	0.01	0.29	(1.06)	(0.03)
0.19	3.63	0.22	0.01	0.29	(1.06)	(0.03)

Selected Consolidated Balance Sheet Data

		As of December 31,	As of December 31,	As of December 31,	As of September 30,	As of September 30,	As of September 30,
	2016	2017	2018		2018	2019
	NT$ (audited)	NT$ (audited)	NT$ (audited)	US$ (unaudited) (in thousands)	NT$ (unaudited)	NT$ (unaudited)	US$ (unaudited)
Cash and cash equivalents .......... Other current assets. ................... Current assets .............................. Non-current assets. ..................... Total assets.................................. Equity attributable to owners of the parent ............................... Non-controlling interests ............ Current liabilities ........................ Non-current liabilities ................. Total liabilities ............................ Total liabilities and equity ..........	35,384,839 91,613,292 126,998,131 244,481,417	65,988,955 92,541,000 158,529,955 256,328,803	33,847,328 135,886,788 169,734,116 242,185,488	1,090,899 4,379,629 5,470,528 7,805,636	37,889,585 106,067,481 143,957,066 245,677,847	36,840,982 104,615,748 141,456,730 241,581,282	1,187,385 3,371,765 4,559,150 7,786,163
	371,479,548	414,858,758	411,919,604	13,276,164	389,634,913	383,038,012	12,345,313
	226,006,363 －	264,325,048 －	254,990,705 －	8,218,349 -	256,326,658 －	241,916,070 182,190	7,796,953 5,872
	116,165,904 29,307,281	131,894,172 18,639,538	120,274,676 36,654,223	3,876,450 1,181,365	117,087,377 16,220,878	108 ,926,439 32,013,313	3,510,699 1,031,789
	145,473,185	150,533,710	156,928,899	5,057,815	133,308,255	140,939,752	4,542,488
	371,479,548	414,858,758	411,919,604	13,276,164	389,634,913	383,038,012	12,345,313

Consolidated Statements of Cash Flow Data

	Year Ended December 31,	Year Ended December 31,	Year Ended December 31,	Nine Months Ended September 30, 2018 2019 NT$ NT$ US$ (unaudited) (unaudited) (unaudited) 38,456,009 1,065,289 34,333 (55,133,776) 15,456,297 498,157 (10,746,141) (13,196,371) (425,319) (675,462) (331,561) (10,685) (28,099,370) 2,993,654 96,486	Nine Months Ended September 30, 2018 2019 NT$ NT$ US$ (unaudited) (unaudited) (unaudited) 38,456,009 1,065,289 34,333 (55,133,776) 15,456,297 498,157 (10,746,141) (13,196,371) (425,319) (675,462) (331,561) (10,685) (28,099,370) 2,993,654 96,486
2016	2017	2018		2018
NT$ (audited) 33,399,247 (40,866,329) (6,776,598) (2,894,271)	NT$ (audited) 82,642,659 (21,332,109) (29,602,740) (1,103,694)	NT$ (audited) 52,579,619 (99,036,816) 14,605,502 (289,932)	US$ (unaudited) (in thousands) 1,694,642 (3,191,956) 470,735 (9,346)	NT$ (unaudited) 38,456,009 (55,133,776) (10,746,141) (675,462)	NT$ (unaudited) 1,065,289 15,456,297 (13,196,371) (331,561)
(17,137,951)	30,604,116	(32,141,627)	(1,035,925)	(28,099,370)	2,993,654

Other Selected Financial Data

Gross margin(1)..................................... Operating margin(2)............................... Net margin(3)......................................... EBITDA (in billion)(4)(6)....................... EBITDA margin(5)(6).............................		Year Ended	December 31,	Nine Months Ended September 30,	Nine Months Ended September 30,
	2016	2017	2018	2018	2019
	9.1% 2.2% 0.7% NT$47.3 16.5%	20.9% 14.3% 11.2% NT$83.2 25.3%	(unaudited) 9.6% 1.7% 0.8% NT$43.0 US$1.4 15.4%	10.8% 3.0% 1.4% NT$35.1 16.9%	2.4% (6.9%) (5.7%) NT$17.4 US$0.6 9.3%

(1) Gross margin is calculated by dividing net operating margin by sales revenue, multiplied by 100%.

(2) Operating margin is calculated by dividing operating profit (loss) by operating revenue, multiplied by 100%.

(3) Net margin is calculated by dividing net income (loss) by operating revenue, multiplied by 100%.

an alternative to net income (loss) or operating income (loss);
an indicator of our operations or cash flow data prepared in accordance with Taiwan IFRS; or

 an alternative to cash flow as a measure of liquidity. The items of net income (loss) excluded from EBITDA are significant components in understanding and assessing our financial performance, and our computation of EBITDA may not be comparable to other similarly titled measures of other companies.

(5) EBITDA margin is calculated by dividing EBITDA by operating revenue, multiplied by 100%.
(6) We have presented EBITDA and EBITDA margin because we consider them important supplemental measures of our operating performance and believe they are frequently used by analysts, investors and other interested parties in the evaluation of companies in our industry. Our management uses EBITDA and EBITDA margin as additional measurement tools for purposes of business decision-making, including developing budgets, managing expenditures and evaluating potential acquisitions or divestitures. Other companies in our industry may calculate EBITDA and EBITDA margin differently than we do. EBITDA and EBITDA margin are not measures of operating performance under Taiwan IFRS and should not be considered as a substitute for, or superior to, operating profit (loss) or operating margin prepared in accordance with Taiwan IFRS. EBITDA and EBITDA margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under Taiwan IFRS. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating EBITDA and EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of EBITDA and EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

BUSINESS

Overview

Competitive Strengths

Leading market position in the display industry supported by a comprehensive fab profile and forwardbackward integration manufacturing capabilities

Comprehensive product offerings for a diverse customer base

We offer a broad and comprehensive range of TFT-LCD panels to serve the needs of our diverse customers. A significant portion of our panels are used in LCD televisions, notebook computers and desktop monitors. Our existing portfolio consists of a wide range of display products, including 8K4K television panels,100-inch high-luminosity quantum dot public displays, ultra-light 2.0mm notebook computer panels, narrow-bezel foldable mobile phone panels and high refresh rate gaming displays. In addition, we have strategically tapped into and possessed a leading market position in certain high-growth sectors, such as automotive and industrial panels. As to automotive displays, we focus on large-sized, curved and free-form displays, which require leading-edge technology and production know-how. We are a tier 1 supplier of automotive display systems for manufacture for world-leading car brands. Moreover, we are one of the very few TFT-LCD panel manufacturers which also produce medical and industrial panels that require a high level of reliability under extreme conditions to meet certain stringent safety standards. In 2018 and the nine months ended September 30, 2019, sales of medical, industrial and automotive panels accounted for 11.4% and 12.7% of our sales revenues, respectively.

Track record of optimizing product size mix through industry cycles.

Efficient and cost-competitive operations supported by automation and a real-time proprietary system

Advanced research and development platform developing innovative products and technologies

Ability to leverage our relationship with the Hon Hai Group

The Hon Hai Group is one of the largest global manufacturing services providers in the computer, communications and consumer electronics industries. Our relationship with the Hon Hai Group has been

Strategies

Further penetrate strategic high-growth sectors

Continue to optimize our cost structure and efficiency through upgrading our fabs

Maintain our market leading position in the display industry by developing and applying advanced technologies to our specialty products

Provide high quality customer services and maintain close customer relationships

Maintain a diversified product portfolio and optimize product allocation across our fabs to best serve our customers

Products

We design, develop, manufacture and sell mainly (i) large-sized TFT-LCD panels, including panel modules and open cells for display applications of 9 inches or above; (ii) small and medium-sized TFT-LCD panels, including panel modules and open cells for display applications under 9 inches; and (iii) touch panels, which are display panels equipped with the touch function.

Apart from engaging in front-end panel production, we also focus on module assembly and television assembly businesses. For television assembly, panel modules consist of TFT-LCD panels assembled with a PCB, driver electronics, bezel and a backlight. As an OEM, we assemble panel modules together with all other structural components including SoC mainboard, power board, WiFi module, IR board, keypad board, speaker and front and back covers to produce assembled televisions for our brand customers. We have built complete television assembly production lines in Tainan and the PRC. In 2018, we sold 1.9 million units of assembled televisions, compared to 0.1 million in 2017.

The following graph illustrates the panel module and other structural components required for television assembly:

==> picture [226 x 149] intentionally omitted <==

Our products are used mainly in the manufacture of the following types of applications:

LCD televisions

With the ability to produce a wide range of product sizes among our 14 fabs, our current portfolio of LCD television panels ranges in size from 23.6-inch to 120-inch panels, including 23.6-inch to 40-inch entrylevel models, 40-inch to 65-inch mainstream models, 75-inch and larger high-end models, as well as the 65-inch to 75-inch 8K4K ultra-high resolution models. In 2018, we introduced a 100-inch high-luminosity quantum dot public display which was largely used in large-sized billboards. We are the world’s third-largest supplier of LCD television panels in terms of shipment volume by unit for 2018, according to IHS Markit. For the nine months ended September 30, 2019, 62.1% of LCD television panels we produced were 40 inches or above. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of TFT-LCD panels for LCD television accounted for 50.6%, 49.0%, 41.2% and 39.6%, respectively, of our sales revenues. In 2018, we sold 44.1 million units of TFT-LCD television panels, compared to approximately 40.8 million in 2017, and net sales for TFT-LCD panels for LCD television were NT$114,997.4 million (US$3,706.4 million), compared to NT$161,176.2 million in 2017.

As part of our forward-backward integration manufacturing model, we also assemble LCD televisions as OEM. Our current portfolio of assembled televisions mainly ranges in size from 32-inch to 65-inch. In 2019, we assembled the world’s largest 120-inch 8K television. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of OEM televisions accounted for nil, 0.3%, 3.1% and 8.1%, respectively, of our sales revenues. In 2018, we sold 1.9 million units of assembled televisions, compared to approximately 0.1 million in 2017, and net sales for assembled televisions were NT$8,714.0 million (US$280.9 million), compared to NT$875.7 million in 2017.

Notebook computers

The most valuable features of panels for notebook computers have changed in recent years, partly as a result of a migration in TFT-LCD production technology. We provide various products for our customers with a combination of technologies such as LTPS, IGZO, touch-embedded solutions, narrow border and high-contrast ratio. Our AAS-HCR notebook panels, being the world’s highest contrast AAS notebook panels, have a static contrast of three times higher than conventional notebook panels. Our product mix for notebook computer panels primarily includes 11.6- inch to 17.3-inch panels for notebook and ultrabook computers. We have employed automated production processes for the bulk of our notebook and ultrabook panels, which accounted for more than 80% of our total shipment as of September 30, 2019. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of notebook computer panels accounted for 15.8%, 15.9%, 18.3% and 19.2%, respectively, of our sales revenues. In 2018, we sold 67.4 million unit of notebook computer panels compared to 67.5 million in 2017, and net sales of our notebook computer panels were NT$51,063 million (US$1,646 million) in 2018 compared to NT$52,505 million in 2017.

Desktop monitors

Desktop monitor panels typically range in size from 18.5-inch to 34-inch. We have developed and released various globally-leading innovative products such as high-refresh rate gaming, low blue-light and privacy desktop displays. According to IHS Markit, we are the world’s third-largest desktop monitor panel supplier based on shipment volume by unit for 2018. The product line for our customers includes entry level models ranged from 18.5 inch to 34 inch as well as premium models with wide-view angle or ultra-high resolution features. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of desktop monitor panels accounted for 12.1%, 10.6%, 13.1% and 12.1%, respectively, of our sales revenues. In 2018, we sold 27.2 million units of desktop monitors, compared to 23.6 million in 2017, and net sales for desktop monitors were NT$36,469 million (US$1,175 million), compared to NT$34,757 million in 2017.

Mobile and consumer electronics

Our panels for mobile and consumer electronics display products typically range in size from 1.4-inch to 10-inch and are used in mobile devices and consumer electronics such as smartphones, portable DVD players, home appliances, smartwatches, VR head-mounted displays, digital cameras, multi-function printers and videogames. We have applied LTPS and IPS technologies to our mobile and consumer electronics to meet the increased customer demand for high resolution and wide viewing angles. As a result, we are able to produce mobile and consumer electronics with enhanced value which are lighter, thinner, free form, full-screen and more power saving. Our experience with advanced technology and our mass production capacity allow us to work closely with major clients around the world. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of mobile and consumer electronics panels accounted for 10.2%, 13.1%, 13.2% and 14.6%, respectively, of our sales revenues. In 2018, we sold 150.1 million units of mobile and consumer electronics panels, compared to 184.7 million in 2017, and sales of our mobile and consumer electronics panels were NT$36,872.5 million (US$1,188.4 million), compared to NT$42,969.3 million in 2017.

Automotive displays and medical equipment

Our long term strategy of manufacturing automotive displays and medical equipment, which requires advanced technology and safety standards, contributed to our significant growth by broadening our product pipeline and sales base.

We have the ability to produce large-sized, curved panels and free-form automotive displays. We integrate high resolution, high contrast AM mini-LED and TOD technologies into our automotive panels. Our automotive displays, assembling digital dashboard, central control display and safety glass, provide a complete automotive solution to our end-users. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of automotive panels accounted for 9.7%, 7.1%, 8.6% and 9.8%, respectively, of our sales revenues. In 2018, we sold 21.9 million units of automotive displays, compared to 17.7 million in 2017, and net sales of our automotive panels were NT$24,026.0 million (US$774.4 million), compared to NT$23,246.5 million in 2017.

Our medical displays range in size from 21.3-inch to 30-inch. We adopt 10 bits driving technology and high efficiency LED backlight to produce high resolution medical monitors for a more accurate detection of medical conditions. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of medical equipment accounted for 0.2%, 0.3%, 0.3% and 0.5%, respectively, of our sales revenues. We sold 0.1 million units of medical equipment in 2017 and 2018, respectively, and net sales of our medical equipment were NT$918.3 million (US$29.6 million) in 2018, compared to NT$875.1 million in 2017.

Integrated touch solutions

As touch technology penetrated into various portable applications, we have also developed integrated total solutions to improve the optical performance and integrated functions of touch panels. We have established an advanced research and development platform that focuses on touch integrated LCD module design. We have developed and applied several key TOD solutions including InnoTouch and TOD to our mobile devices and notebooks. Our newly developed TID technology, incorporating deep sensing technology and active stylus solutions, features a thinner and lighter module design. We will continue to develop new touch technologies for a diverse range of applications including mobile devices, tablets, consumer electronics and automotive products.

We aim to be a total touch solution provider that covers display, touch and cover lens. In 2016, 2017, 2018 and the nine months ended September 30, 2019, sales of touch panels accounted for 5.1%, 6.2%, 8.7%, and 12.0% of our net sales, respectively. In 2018, unit sales of our touch panels were approximately 51.9 million compared to approximately 51.5 million in 2017, and net sales of touch panels were NT$24,336.2 million (US$784.4 million) in 2018, compared to NT$20,313.9 million in 2017.

Manufacturing Process

The diagram below sets forth the steps in the TFT-LCD panel manufacturing and module assembly processes:

==> picture [467 x 279] intentionally omitted <==

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

Front-end Back-end
Color Filter Process
 Matrix formation
 Color resist application
 Photolithography
 Etching and stripping
Module Assembly Global Logistics
Cell Process
Process Platform
 Sealant application  Attaching polarizers,
 One-Drop Filling driver integrated circuits
 Cutting of substrates and backlights
 Affixing printed circuit
Array Process board
 Attaching metal frame
 Module aging and testing
 Photo resist application
 Photolithography
----- End of picture text -----

Etching and stripping

TFT-LCD panel manufacturing process

A TFT-LCD panel consists of a layer of liquid crystal between two glass substrates. After light passes through the liquid crystal and a color filter composed of the three primary colors of red, green and blue, it is perceived by the human eye as colored light. LCDs utilize the properties of liquid crystals and polarizing filters to generate images. The molecular structure of liquid crystals changes when an electrical current is conducted through them, thus changing the way light passes through the crystals. The TFT-LCD panel manufacturing process consists of hundreds of steps and may vary between panels with different value-added specifications, but can be categorized into three general steps, which are as follows:

Color Filter Process . Color filters are formed by depositing chemicals onto the color filter substrate. The formation consists of the following main steps: polishing of the substrate, formation of the black matrix, application of the color resist, photolithography, stripping of the unexposed photo resist and cleaning of the color filter. A separate pattern must be applied for each of the primary colors of red, green and blue. The process is similar to the TFT array process but involves depositing colored dyes instead of transistors.

Array Process . TFT arrays are formed by depositing chemicals onto the glass substrate in patterns to form the TFTs. The formation process consists of the following main steps: chemical deposition, photo resist application, photolithography and etching and stripping away the unexposed photo resist. All of these steps are fully automated. These several steps result in the TFT circuitry being printed layer by layer onto the glass substrate.
Cell Process . This stage of the TFT-LCD manufacturing process consists of the following main steps: applying edge sealant, dropping liquid crystals on substrate, placing substrates together, cutting the substrates into panels and final baking. As a result, the arrayed bottom substrate and the top substrate, which contains the color filters, are assembled and the cell space between the two substrates is filled with liquid crystals. This stage, like the first stage described above, is relatively technology-intensive.

The array and cell processes are capital-intensive and require highly automated production equipment. We have automated our array and cell processes, with the exception of some steps in the cell process, such as panel inspection and panel baking.

Module assembly process

To produce our module products, we go through a mechanical finishing stage consisting of the following main steps: metal framing, affixing of polarizers, attachment of driver integrated circuits, assembling with backlight unit and final testing. This results in the attachment of external integrated circuits and printed circuit boards, which carry the integrated circuits and other electric components, to the TFTLCD panel. In contrast to the array and cell processes, the module-assembly process is highly labor-intensive, as it involves manual labor to assemble the pieces.

Touch panel production process

The production of touch panels consists of two separate processes: a front-end production process and a back-end production process. Each process includes indium tin oxide (“ITO”) deposition and patterning, metal trace and insulation processes. The diagram below sets forth the steps in the touch panel production processes:

==> picture [432 x 98] intentionally omitted <==

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

ITO Dielectric Metal Passivation Lamination
• See-through • ITO insulation • Metal trace • Photo resist • Lamination with
electric layer layer insulation layer cover glass
• Lamination with
TFT-LCD module
----- End of picture text -----

Our Manufacturing Facilities

TFT-LCD panel manufacturing

We currently operate 14 fabs located in Jhunan, Tainan and Kaohsiung in Taiwan. As of September 30, 2019, our total input capacity was approximately 2,788,530 square meters of glass substrates per month. All of our fabs operate 24 hours per day, seven days a week, except for annual scheduled maintenance stoppages.

Each of our fabs is optimized to produce a different mix of panel sizes based on our specific glass substrate inputs. For example, our G5 TFT-LCD fabs, currently one of the largest in capacity among TFTLCD panel manufacturers in the world, are capable of processing substrates with dimensions of 1,100 mm x 1,300 mm and are mainly used to produce TFT-LCD panels for mobile phones, notebooks and monitors. Our G6 TFT-LCD panel fabs, currently one of the largest in capacity among TFT-LCD panel manufacturers in the world, are capable of processing substrates with dimensions of 1,500 mm x 1,850 mm and are mainly

used to manufacture products including monitors and large-sized television panels. We are currently the only panel maker in the industry with the ability to produce 40-inch television panels in a G6 fab. Our G7.5 TFTLCD panel fab is capable of producing substrates with dimensions of 1,950 mm x 2,250 mm and is mainly used to produce large-sized TFT-LCD panels, including the first-in-industry 50-inch television panels, which have grown in popularity. We believe our diversity in substrate sizes not only provides us with flexibility to efficiently produce a wide range of panel sizes, but also enables us to take advantage of what we believe will continue to be a shift in market demand toward larger size for television panels. We plan to continue upgrading our fabs and production facilities to improve our technology and production efficiency, which enables us to produce more advanced products with higher profits. The following table sets forth certain information relating to our fabs as of September 30, 2019:

Fab Generation G3.5 ...................... G4/G4.5 ................ G5/G5.5 ................ G6 ......................... G7.5 ...................... G8.5 ...................... G8.6 ...................... LTPS6 ...................	No of Fabs 2 2 4 2 1 1 1 1	Installed Capacity (sub.per month) 119,920 103,590 499,380 331,630 131,980 66,680 43,589 22,285	Main Product Sizes (in inches) 3.2 to 23.6 2.0 to 30.0 1.8 to 58.0 18.5 to 65.0 42.0, 50.0, 75.0, 85.0 23.6, 31.5, 32.0, 42.0, 55.0 50.0, 58.0 5.46 to 6.59	Utilization Rate(1)
				<100% <100% approximately 100% approximately 100% 100% approximately 100% 100% <100%

(1) Calculated based on demand divided by standard capacity

Module assembly and back-end production

Module assembly is the last and most labor-intensive phase of the TFT-LCD panel production process. As of September 30, 2019, we had an aggregate module assembly capacity of approximately 15.9 million panels per month.

Our module assembly facilities are located mainly in the PRC and, to a lesser extent, in Taiwan. In order to secure sufficient labor resources and to leverage on our proximity to suppliers to lower material costs, we maintain a significant portion of our module assembly operations in our facilities in the PRC in Ningbo, Zhejiang Province, Foshan, Guangdong Province, Nanjing, Jiangsu Province, and Shanghai. Most of these module assembly facilities are strategically located near many of our customers in the PRC.

The following table sets forth certain information relating to our module assembly facilities as of September 30, 2019:

Site Nanjing, PRC ................................................................................................................... Ningbo, PRC ................................................................................................................... Foshan, PRC .................................................................................................................... Shanghai, PRC ................................................................................................................. Tainan, Taiwan ................................................................................................................ Jhunan, Taiwan ................................................................................................................	Capacity (thousand units per month)
	6,500 7,858 4,300 650 5,000 116

Site
Nanjing, PRC ...................................................................................................................
Ningbo, PRC ...................................................................................................................
Foshan, PRC ....................................................................................................................
Shanghai, PRC .................................................................................................................
Tainan, Taiwan ................................................................................................................
Jhunan, Taiwan ................................................................................................................

Capacity
(thousand units per
month)

6,500
7,858
4,300
650
5,000
116

Most of the above module assembly facilities, such as those located in Ningbo and Foshan, PRC, are also involved in various production processes other than module assembly, such as television assembly, film cutting, screen printing, injection molding and pressing. In addition, we have continued to actively develop our automated manufacturing technology and have relocated certain back-end production to Taiwan due to the increase of labor costs and lack of labor resources in the PRC. In October 2019, we have commenced the development of new television assembly facilities in Tainan, Taiwan with an additional capacity of 240,000 units to facilitate the relocation of certain back-end operations from the PRC to Taiwan.

Touch panel production

In addition to TFT-LCD panels, ten of our current fabs are concurrently used to produce touch panels as well as other panel products. As of September 30, 2019, these fabs had a total input capacity of approximately 1,122,070 square meters of glass substrates per month with respect to the production of touch panels. Due to an increase in demand for TOD tablets, TOD mobile devices and TOD automotive displays, we expect our shipment of touch panels as a percentage of total shipments to continue to increase.

Equipment

TFT-LCD manufacturing is a highly complex process that relies upon technologically advanced equipment meeting stringent requirements. Our equipment suppliers customize the equipment used in our production process to our specifications. In addition, our engineers implement and optimize our equipment sets in our fabs to optimize manufacturing productivity and achieve consistently high yields. We have in recent years adopted manufacturing process automation in all of our production facilities to further save labor costs and improve production quality, efficiency and accuracy, as well as mitigate our risk exposure to specific jurisdictions. For example, we have developed a “zero-touch” lights-out factory in Taiwan, which is a fully automated facility with minimal human intervention, to maintain high productivity at a low maintenance and labor cost. The principal equipment used by us to manufacture TFT-LCDs are chemical vapor deposition equipment, coaters and developers, dry etchers, cleaners, stepper machines and automatic material handling systems. We generally deal with at least two suppliers for each type of equipment that we use. We own all of the equipment used at our fabs.

In implementing our capacity expansion and technology upgrades plans, we expect to make significant purchases of equipment. Some of the equipment is available from a limited number of vendors and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed. Our five largest equipment suppliers accounted for 15.3% of our net equipment purchases in 2018 and 17.9% of our net equipment purchases for the nine months ended September 30, 2019. Moreover, our largest equipment supplier accounted for 5.6% and 5.0% of our net equipment purchases in 2018 and the nine months ended September 30, 2019, respectively. The lead time for delivery of equipment may be three to six months following the time the orders are placed. We believe that our relationships with our equipment suppliers are good, and we work closely with these suppliers so that they are able to provide us with equipment that is customized to our technological and other requirements.

Research and Development

The display panel industry is characterized by frequent and rapid changes in technology. Historically, glass substrate size progressed one generation approximately every one to two years due to improvements in manufacturing efficiency and cost. This characteristic defines the capital-intensive investment feature of the industry. While the substrate size migration has slowed in the past few years due to the weak global economic environment and the slowdown of the market growth rate in various display products, the technology migration relating to display features has nonetheless been speeding up. For example, the demand for high resolution and high colour saturation for television panels prompted the development of color filter technology and underlying LCD technology. Customer’s need for multitasking with smartphones and tablets has triggered the development of narrow-border, foldable panels and ultra-wide view angle displays for small and medium-sized display products. This evolution forces display panel manufacturers to modify their production line in a very significant portion of their existing capacity.

Because of the intensive capital requirement and rapid technological evolution, the choice of technologies and the response to fast-changing demand is critical. Brand customers are becoming more experienced and demanding in their selection of cutting-edge display technologies to differentiate their products. We believe that our future success relies significantly on the careful choice and successful execution of our future technology platform, and more importantly our ability to anticipate the trend of end product features. To accomplish that, we seek to focus on the technology platform which will have an impact on a wider range of product features and have high flexibility to combine different technology building blocks to create new product features in a short time. In order to maximize this flexibility, we will focus on

our proprietary technology development and also seek to optimize some of our licensed technologies in our product development efforts.

Apart from the development of manufacturing baseline technologies, we also seek to leverage our existing technologies to create new features and value propositions for our display products. For instance, we pioneered the development of large-sized television displays by introducing new sizes of 50-, 58-, 65-, 75-, 82-, 85-, 100- and 120-inch TFT-LCD panels. Guided by a strong focus on both product design trend and research and development investment, we intend to focus our research and development efforts in the following areas: higher resolution display, eco-design concept, thinner and flexible module design for portable devices (including mobile phones, tablets, and ultrabooks) and end applications (including automotive display and medical equipment). Some of our key technology and product developments are as follows:

TFT fingerprint identification sensor. We are actively deploying our optical and ultrasound technologies to develop fingerprint identification sensor. We are in the process of developing the market’s first external full-screen TFT fingerprint identification sensor and embedded full-screen fingerprint identification sensor. Our large-area image sensor aims to replace the traditional single-point image sensor and will be placed under the OLED display to achieve external full-screen TFT fingerprint identification. Utilizing our G3.5 and LTPS fabs, we expect to commence mass production of our TFT fingerprint identification sensor in the first quarter of 2020.
Narrow-bezel foldable panels. To meet the modern needs of our customers for multi-tasking, we produce customized two-fold mobile phones and three-fold tablets. Our foldable panels allow for simultaneous use of multiple screens at a time and can be folded into one large single full-screen. Unlike existing OLED foldable displays in the market, our foldable displays do not have wrinkles at the central axis even after long-term use and have high hardness and strong abrasion resistance due to its LCD cover lens. In 2019, we launched a narrow bezel 5.99-inch foldable mobile phone with FHD LTPS technology and 2.5D curved cover lens. To provide ultimate wide-viewing full-screen visual enjoyment for our end-users, the side bezels and bottom bezel of our mobile phone are only 0.3mm and 2.0mm, respectively, with screen ratio as high as 98.6%. We expect to commence mass production of our foldable mobile panels in the second quarter of 2020.
Underwater-workable TID. Utilizing our patented underwater TID, or UTID technology, we developed the world's only high resolution capacitive touch full-screen display that supports underwater use. Our UTID technology integrates general and precise underwater touch functions to enable high-functionality for up to 5 meters below water. Our integrated underwater touch mobile panel, with simplified manufacturing process, are light and easy to carry.
Chip-on-film technology. Chip-on film (“COF”), an innovative IC packaging technology, is an important material for panel production. In 2018, the industry experienced COF shortage, which led to an increase in COF prices hence increased costs for panel production. To circumvent the effect of potential shortage of COF, we are the first TFT-LCD company to self-develop COF technology. We have obtained patents in the United States and the PRC for our COF technology. Our COF technology takes advantage of fine pitch and is not affected by traditional width limits. We commenced mass production of COF for notebook computers in May 2019.
AM miniLED. In comparison with traditional LED displays, our AM miniLED displays have more refined gray-scale performance and afford better eye protections for end-users. In order to maximize the potential of miniLED, we have used TFT as the driving circuit to achieve active matrix in our AM miniLED technology. Our AM miniLED panels offer comparable brightness and contrast ratio, and is more affordable than OLED panels in the market. In April 2019, our AM miniLED panel won the CITE 2019 Innovative Product Award. Using our AM miniLED as backlight panels, we have co-developed with our brand customers panels for automotive, televisions and IT applications. We have commenced mass production of AM miniLED panels for public displays in the third quarter of 2019. We expect to commence mass production of AM miniLED automotive and television displays in near future.

Free-shaped and curved automotive display. In 2019, we showcased our 28.3-inch integrated freeshaped and curved display in Taiwan. Our automotive displays, assembling digital dashboard, center console display and safety glass, provide a complete automotive solution to our end-users. Utilizing our in-depth panel know-how and innovative AM miniLED technology, our free-shaped and curved automotive panels have cutting-edge features, including high resolution of 6720 x 1620 pixels, local dimming, high backlight contrast, 100% NTSC and center console touch function.
AAS-HCR technology. To tackle the weakness of the lack of dark contrast for IPS, we have developed our very own patented AAS technology with high contrast ratio. AAS has become the mainstream technology for products such as laptops or monitors hence we have increased our AAS production by 131%. Our AAS-HCR laptop panels, being the world’s highest contrast AAS notebook panels, have a static contrast of three times higher than conventional laptops. In addition, we have developed various value-added products with our new AAS technology including 17.3-inch 240Hz gaming laptop, 17.3inch low blue light laptop and 13.3-inch privacy laptop and 31.5-inch 4K144hz high refresh rate gaming display. Equipped with AM miniLED technology, Megazone technology and low blue light eye protection, our AAS-HCR laptop panels are able to satisfy our customers’ needs.
Natural 3D technology. We have exclusively developed a market-leading natural 3D, or N3D, technology named Kirameki. Our N3D Kirameki display integrates high reflection material, novel optical elements and unique design structure with advanced 3D image processing technology to provide virtual reality experience for our customers. In co-operation with international advertisement and media companies, we have launched 65-inch vertical and horizontal Kirameki public displays in 2019 and we expect to commence mass production of our N3D Kirkameki public displays in 2020.
Fan-out panel level packaging technology. We are in the process of developing fan-out panel level packaging, or FOPLP, to cater for new generation packaging. In comparison with the current fan-out wafer-level packaging technology, FOPLP has a lower production cost and higher utilization rate. We anticipate that our new FOPLP technology will be capable of high-resolution wire capacity of below 2 microns. We plan to complete transformation of old packaging technology to FOPLP technology by 2022.

To support our research and development efforts, we will continue to invest in a number of carefully selected research and development programs. We spent NT$11,132.1 million, NT$12,916.7 million, NT$12,135.5 million (US$391.1 million) and NT$9,278.6 million (US$299.0 million) in 2016, 2017, 2018 and the nine months ended September 30, 2019, respectively, on research and development. Our research and development spending represented 3.9%, 3.9%, 4.3% and 5.0% of our sales revenues in the same periods, respectively. As of September 30, 2019, we had a dedicated research and development team of 4,425 personnel of whom over 54% had either Masters or Doctorate degrees in the ROC.

Raw Materials, Components and Suppliers

Our manufacturing processes utilize many raw materials and components, primarily glass substrates, liquid crystal, polarizers, backlight units, driver integrated circuits, printed circuit board and assembly, liquid crystal, and other components. Our raw materials and supplies represented 59.7% and 66.0% of our sales revenues in 2018 and the nine months ended September 30, 2019, respectively.

Most of our raw materials and components are available from several sources, both within Taiwan and abroad. We select only those vendors that have demonstrated superior quality control and reliability regarding delivery time and to maintain several sources for each raw material or component, so that a quality or delivery problem with any one vendor will not adversely affect our operations. The lead time required by our components manufacturers is generally less than one month from the date the order is received by the vendor. We evaluate the quality and delivery performance of each vendor on a monthly or quarterly basis, and quantity allocations are adjusted for subsequent periods based upon these evaluations.

Part of our procurement strategy is to source components from local suppliers. For example, we source a significant portion of our glass substrates from the AGC Display Glass Taiwan Inc. and Corning Display

Technologies Taiwan Co., Ltd. factories in southern Taiwan. We source a significant portion of our backlight unit requirements from suppliers located near us in southern Taiwan, including Coretronic Corporation and Radiant Optoelectronics Corporation. For driver integrated circuits, we source a significant portion from Novatek Microelectronics Corp., Himax Technologies, Inc. and Fitipower Integrated Technology Inc. Our close cooperation with, and oversight of, our vendors and each part of supply chain also facilitates the integration of these components, technology improvements and the development of new products. Our ten largest suppliers accounted for 36.2% of our net purchases in 2018 and 36.1% of our net purchases for the nine months ended September 30, 2019. In addition, our largest supplier accounted for 6.8% and 7.9% of our net purchases in 2018 and the nine months ended September 30, 2019 respectively.

The following table sets forth a list of our major suppliers:

Component Glass substrates ........................................................... Polarizers ...................................................................... Backlight units.............................................................. Driver integrated circuits .............................................. Printed circuits board and assembly ............................. Liquid crystal................................................................	Major Suppliers
	AGC Display Glass Taiwan Inc. Corning Display Technologies Taiwan Co. Ltd. AvanStrate Taiwan Inc. Sumika Technology Co., Ltd. Taiwan Nitto Corporation Cheng Mei Materials Technology Corporation Coretronic Corporation Radiant Opto-electronics Corporation Novatek Microelectronics Corp. Himax Technologies, Inc. Fitipower Integrated Technology Inc. Hon Hai Precision Ind. Co., Ltd Taiwan Surface Mounting Technology Corp. Merck Performance Materials Ltd.

Component
Glass substrates ...........................................................
Polarizers ......................................................................
Backlight units..............................................................
Driver integrated circuits ..............................................
Printed circuits board and assembly .............................
Liquid crystal................................................................

Major Suppliers

AGC Display Glass Taiwan Inc.
Corning Display Technologies Taiwan Co. Ltd.
AvanStrate Taiwan Inc.
Sumika Technology Co., Ltd.
Taiwan Nitto Corporation
Cheng Mei Materials Technology Corporation
Coretronic Corporation
Radiant Opto-electronics Corporation
Novatek Microelectronics Corp.
Himax Technologies, Inc.
Fitipower Integrated Technology Inc.
Hon Hai Precision Ind. Co., Ltd
Taiwan Surface Mounting Technology Corp.
Merck Performance Materials Ltd.

While we typically enter into long-term agreements with our suppliers as part of our procurement strategy to prevent raw material shortages, such agreements do not carry binding purchase quantity obligations. We generally carry less than one month of inventory of raw materials and components, since sufficient quantities can be obtained from our suppliers within this period. Although we believe that our supplies of raw materials and components, are adequate, we have from time to time experienced shortages of various components due to an interruption in supply or increased demand from the TFT-LCD industry and other industries.

Sales and Marketing

We conduct most of our sales directly with brand companies and system integrators with whom we seek to build close long-term relationships. In most cases, we negotiate the terms of the sales directly with brand companies and then sell our display panels to brand companies or system integrators that service those brand companies. We generally do not enter into any long-term sales agreements with our customers. However, our customers typically provide us with three-month rolling forecasts of their panel requirements. We ship the final products to our customers generally within one month from the date we receive their orders, and require our customers to make payment generally within 180 days from receipt of our products. We generally provide a limited product warranty to cover the repair or replacement of defective products during a period of 24 months from the date of shipment.

Our TFT-LCD display products are included in products sold by many of the world’s leading manufacturers of LCD television, desktop monitors, notebook computers and small and medium-sized displays, such as Vizio, Acer, Asus, Dell, Hewlett Packard, Hisense, Huawei, Lenovo, LG Electronics, Microsoft, Panasonic, Samsung Electronics, Skyworth, Sony and TPV Technology. The major customers for our principal products include:

LCD television: brand companies based in Japan, South Korea, United States and the PRC;

Desktop monitor and notebook computers: brand companies and OEM service providers with production operations in Taiwan, United States and the PRC;
Mobile phones: brand companies and OEM service providers located in the United States, Europe, Japan, South Korea and the PRC; and
Automotive displays: auto OEM customers in the automotive industry located in the United States, Europe and the PRC.

In 2018 and the nine months ended September 30, 2019, our five largest customers accounted for 26.9% and 29.3%, respectively, of our sales revenues. In addition, our largest customer accounted for 10.4% and 8.4% of our sales revenues in 2018 and the nine months ended September 30, 2019.

Our sales and marketing team aims to leverage our product mix, pricing and technologies to maintain and strengthen our existing customer relationships and expand our business by attracting new customers. We focus our sales activities on a number of large customers with whom we seek to build close relationships. We appoint a sales manager to serve as the main contact person and be primarily responsible for our relationship with each of our major customers. Each product category has its own sales and marketing division, and is further subdivided into smaller teams dedicated to each of our major customers. Our sales teams are mainly focused on the following six geographic regions: (i) Europe and the United States, (ii) Taiwan, and (iii) the PRC, (iv) Hong Kong and (v) other markets.

Export sales constitute a significant portion of our sales revenues. In 2018 and the nine months ended September 30, 2019, our export sales were NT$203,781.9 million (US$6,567.9 million) and NT$ 147,004.3 million (US$4,737.9 million), respectively, which accounted for 72.9% and 78.9% of our sales revenues, respectively.

The follow table sets forth our sales to (i) Europe and the United States, (ii) Taiwan, and (iii) the PRC, (iv) Hong Kong and (v) other markets for the periods indicated.

For the Year Ended December 31,	For the Year Ended December 31,	For the Year Ended December 31,	For the Nine Months Ended September 30,	For the Nine Months Ended September 30,
2016	2017	2018	2018	2019
8.6 33.3 20.8 23.3 14.0	% of Total Sales 5.9 8.0 6.3 35.2 27.1 28.2 20.9 17.3 18.6 22.8 28.6 28.4 15.2 19.0 18.5			14.4 21.1 16.8 28.7 19.0
100.0	100.0	100.0	100.0	100.0

Intellectual Property

Our intellectual property is derived from both our own research and development efforts and from licenses we have entered into with, and patents we have acquired from, third parties.

We have developed internally a significant amount of technology and know-how, and, as of September 30, 2019, we held a total of 4,560 patents, including 380 in Taiwan, 1,680 in the PRC, 2,040 in the United States, and 460 in other jurisdictions. These patents will expire at various dates from  through  . As of September 30, 2019, we also had approximately 1,450 patent applications pending in Taiwan and other jurisdictions. We generally require all of our employees to enter into an employment agreement which prohibits the disclosure of any of our trade secrets, confidential information and proprietary technologies. Our Company’s IT policy includes limiting access to outside email and limiting the usage of portable storage devices and communications ports in order to keep sensitive data from being released without authorization

We also have access to a significant number of third-party patents and other know-how as a result of our licensing arrangements with third parties. We have entered into global cross-licensing agreements with leading electronics companies and other patent owners, pursuant to which each of these companies and we mutually grant each other a license, with specified royalties or on a royalty-free basis, to use certain of the parties’ respective patents relating specifically to the manufacture, use and sales of certain LCD products, particularly those employing key technologies such as IPS, photo alignment and OLED, among others. These licenses cover not only those patents that were registered before the agreement went into effect, but also those patents developed during the term of the agreement. These agreements are either for an infinite term or will expire at various dates from 2019 through 2028. In the future, we may need to obtain additional patent licenses or renew existing license agreements.

We may find it necessary to enforce our patents or other intellectual property rights or defend ourselves against infringement claims through litigation, which could result in substantial costs and diversion of our management resources. We may suffer legal liabilities and financial and reputational damages if we are found to infringe product or process technology rights held by others. We are currently involved in litigation regarding alleged patent infringement. See “—Legal Proceedings” below.

Our equipment and component vendors generally indemnify us for losses resulting from any law suit or proceedings brought against us involving allegations of infringement of intellectual property rights owing to our use of the equipment or components supplied by them.

Manufacturing Quality and Reliability

We believe that our superior product quality and customer service are the foundation for our continued success. Therefore, our organization at all levels is committed to developing, implementing and improving effective quality control systems, as we are guided by the overall principle of seeking to make continuous improvement and achieve customer satisfaction in all respects. Our quality control programs are designed in compliance with the requirements of the International Standards Organization’s ISO 9001 (2008 version) and ISO/TS 16949 (2009 version) certifications, as well as the IECQ’s QC080000 certification.

We believe that our management experience and our advanced manufacturing process technology and know-how have allowed us to maintain a high standard of manufacturing quality and reliability. Our policy is to implement quality assurance measures at all stages of the product development and manufacturing processes. Standard operational procedures are established and maintained, and quality control training and certification programs are provided to relevant personnel depending on the particular skills and knowledge required to ensure the effective and consistent application of these quality control procedures. Together these measures comprise a comprehensive quality management system that enables us to provide our customers with safe, reliable and consistently high-quality products:

During the new product development phase, we hold product review meetings, conduct reliability tests on new products, and apply the design failure mode and effect analysis (“DFMEA”) to identify and resolve production problems early in the development process.
During the manufacturing phase, we adopt measures such as inspections of materials, regularly auditing our suppliers, continuous improvements of manufacturing process, and conducting product reliability and pre-delivery tests. We use control tools in order to avoid or minimize the use of defective materials or production of defective products.
During the post-sale phase, we have dedicated customer representatives serving customers and visiting them periodically to proactively offer technological support, receive customers’ feedbacks and handle complaints and quality issues. We conduct customer satisfaction surveys and analyze customer data with a view to achieving continuous production improvement and high customer satisfaction.

Furthermore, our customers typically perform on-site fab audits as part of the product and production line qualification process. These audits focus on various aspects ranging from supplier and material control, the product development process, and the manufacturing process, to customer support in connection with

our management systems for the procurement process, document control, resource planning, training and certification, and calibration. Through these audits, we pursue the goal of achieving the highest customer satisfaction and creating a win-win situation for our customers and our company.

Competition

We compete internationally and domestically with other TFT-LCD panel manufacturers. Our main competitors are other manufacturers of large-sized TFT-LCD panels, including LG Display and Samsung Electronics in South Korea, BOE Display and China Star Optoelectronics Technology in the PRC, as well as AU Optronics and other manufacturers of large-sized TFT-LCD panels in Taiwan. We also compete with manufacturers of displays employing alternative technologies such as AMOLED.

Competitive factors in the TFT-LCD industry include:

price and quality of products;
technology and research and development;
product features;
manufacturing capacity and flexibility;
supply chain management; and
customer service.

Some of our competitors may also have access to greater financial, technological and other resources than we do. As a result, these companies may also be able to compete more aggressively over a longer period of time than we can.

Employees

Substantially all of our employees are located in Taiwan and the PRC. The following table sets forth the number of our full-time employees in Taiwan and the PRC by function as of the dates indicated:

Function	As of December 31,	As of December 31,	As of December 31,
	2016	2017	2018
Taiwan Production ........................................................................................ Research and development ............................................................... Administrative .................................................................................. Sales and marketing ......................................................................... Subtotal ................................................................................................ PRC Production ........................................................................................ Research and development ............................................................... Administrative .................................................................................. Sales and marketing ......................................................................... Subtotal ................................................................................................ Other countries .................................................................................... Total ....................................................................................................	28,992 4,215 1,016 220	27,163 4,109 1,088 221	24,770 4,295 1,114 238
	34,443	32,581	30,417
	28,213 1,664 906 44	25,247 1,484 755 63	26,426 1,537 828 49
	30,827	27,549	28,840
	261	269	297
	65,531	60,339	59,554

As of September 30, 2019, the average number of years of service for our employees in Taiwan was approximately 8 years. As of the same date, approximately 61% of our workforce in Taiwan possessed a

post-secondary degree and approximately 19% of the workforce in Taiwan held a master’s or doctorate degree. We believe that, in order to maintain and improve quality control, efficiency in the manufacturing process and workplace safety, it is important that our employees receive continuing training in these areas.

Our employees in Taiwan and the PRC are not covered by any collective bargaining agreements. We have not experienced any strikes or work stoppages.

Taiwan Employee Benefits

We maintain a pension plan for our employees under the old pension scheme in accordance with the ROC Labor Standards Law. To meet our obligations under the ROC Labor Standards Law, we have set up a pension fund and contributes 2% of the total salary and wages paid per month to the fund, for which Bank of Taiwan acts as trustee. Actual payment of pensions under the ROC Labor Standards Law and our pension plan is financed by a pension reserve, and we are required to fund any insufficiency.

Under the new pension scheme and pursuant to the ROC Labor Pension Act, each of our employees who is a resident of the ROC has an individual pension account with the Labor Insurance Bureau. With this individual account, even if his or her employment with us is terminated, he or she may continue to build up his or her retirement savings with a new employer. All employers under the Labor Pension Act are required to deposit a minimum of 6% of an employee’s monthly salary into his or her pension account. However, the new pension plan will only be applied at the election of the employee. If an employee does not elect to apply the new pension plan by July 1, 2010, such option will expire and the old pension plan will continue to apply to that employee.

Our employees also participate in our profits in three ways. Employees may receive incentives in cash bonuses. The aggregate amount of these bonuses is determined based on our performance and is divided among the employees of each department based upon their individual performance. We are also required under ROC law to establish an employee welfare fund, into which we deposit, on a monthly basis, 0.05% of our sales revenues. In addition, we may, subject to shareholders’ approval, distribute any remaining accumulated retained earnings as employee bonus. Pursuant to our articles of incorporation, we allocate at least 5% of the remaining accumulated retained earnings, after deducting the dividends to holders of preferred shares, as employee bonus.

PRC Employee Benefits

We have set up a pension plan for our employees in the PRC. Monthly contributions in accordance with the social security related regulations in the PRC are based on the relevant employee’s monthly salaries. We contribute a monthly amount equal to 13% to 16% (depending on provincial regulations) of the employee’s monthly salaries.

Properties

As of September 30, 2019, we had 14 fabs, all located in Taiwan, and six module assembly facilities, including two in Taiwan and four owned or leased in the PRC. These manufacturing facilities have a total area of approximately 2,788,530 square meters. For more information on our fabs and module assembly facilities, see “—Our Manufacturing Facilities” above. We purchase and own the right to use the land on which our manufacturing facilities are located and own the buildings, or we lease the land use right and the building constructed thereon.

Our corporate headquarters are located in the Jhunan Science Park in Jhunan, Miaoli County, Taiwan, having a total area of approximately 1,674,159 square meters. This location comprises not only four of our fabs and one of our module assembly facilities, but also our research and development and engineering centers, as well as offices for sales and marketing, operations and general administrations.

Insurance and Risk Management

We maintain property damage and business interruption insurance policies in Taiwan, covering damage to all of our assets including buildings, facilities, machinery and inventory under replacement cost basis and loss of gross profit in full value, caused by fire, earthquake, flood and other natural disasters and accidents.

We also maintain property damage insurance in PRC, covering damage to all of our assets including buildings, facilities, machinery and inventory caused by fire, earthquake, flood and other natural disasters and accidents under replacement value basis or cost basis.

As of September 30, 2019, in addition to the above mentioned insurances, we also maintain various line of insurances, including commercial general liability insurance, directors and officers liability insurance, employee group insurance, travel insurance, stock throughput insurance and marine cargo insurance.

We have an environmental, safety and health department that develops plans in response to potential emergencies and disasters, such as earthquakes, floods, fires, power outages, typhoons, and chemical leaks that could affect our operations in order to ensure existing operations in our facilities and to minimize our damages. Our environmental, safety and health department focuses on loss prevention, emergency response, crisis management, evacuation procedures and business recovery. In addition, we retain a third-party consultant to assist us in our risk management.

Investment Policy

Under our investment policy, we mainly focus on evaluating the risks, profitability and asset growth of potential investments before making an investment decision. For investments in companies, we look at their future prospects as well as their past records in compliance, profitability and liquidity.

Environmental, Health and Safety Regulation

The TFT-LCD production process generates gaseous chemical waste, liquid waste, waste water and other industrial wastes in various stages of the manufacturing process. We have installed pollution control equipment for the treatment of gaseous chemical waste and waste water and equipment for recycling treated water and liquid waste in our fabs. Our Taiwan operations are subject to regulation and periodic monitoring by the ROC Environmental Protection Administration and local environmental protection authorities, including the Taiwan Science Park Administration.

We believe that we have adopted safety and pollution control measures for the effective maintenance of occupational health and safety and environmental protection standards consistent with the practice of the TFT-LCD industry in Taiwan. We also believe that we are in compliance in all material respects with all occupational health and safety and environmental laws and regulations applicable to our operations.

Each of our sites has been certified as meeting the ISO 14001 environmental management system standards and ISO 45001 occupational health and safety standards. The ISO 14001 environmental management system standards and ISO 45001 occupational health and safety management standards are part of a comprehensive series of quality standards for environmental and occupational health and safety management published by the International Standards Organization. The ISO 14001 and ISO 45001 standards cover environmental and occupational health and safety management principles, systems and supporting techniques.

Legal Proceedings

We and our merged entities have from time to time been involved in legal proceedings concerning matters arising from our business and operations. These include anti-trust proceedings, intellectual property proceedings, and other disputes that arise from time to time during the ordinary course of business. The outcome and costs of pending or future proceedings are difficult to estimate and may have a material adverse effect on our business, financial condition and results of operations. See “Risk Factors—Risks Relating to

Our Business and Industry—We have had severe fines and penalties imposed on us in anti-trust proceedings and investigations.”

We have put in place various measures to ensure compliance with anti-trust laws and regulations, including anti-trust compliance trainings for employees, regular employee antitrust compliance questionnaires and setting up of information firewall for projects.

In each of the ongoing matters, we are continually evaluating the merits of the respective claims and vigorously defending ourselves. Irrespective of the validity or the successful assertion of the claims described above, we may incur significant costs with respect to litigating or settling any or all of the asserted claims. While we continue to vigorously contest the various proceedings described above, it is possible that one or more proceedings may result in an unfavorable outcome. We recognized provisions in 2017, 2018 and the nine months ended September 30, 2019 with respect to those contingencies in which our management has concluded that the likelihood of an unfavorable outcome is probable and the amount of loss is reasonably estimable. However, actual liability may be materially different from that estimated as of September 30, 2019 and may have a material adverse effect on our business, financial condition and results of operations.

Anti-trust Proceedings

In March 2019, we were fined by the Administrative Council for Economic Defence in Brazil in the amount of US$3.5 million for CMO’s alleged involvement in anti-competitive price fixing practices in the sale of TFT-LCD panels to Brazilian purchasers. Seventeen of our employees were subject to individual fines. We completed the payment of fines in June 2019 and was awarded a compliance certificate by the Administrative Council for Economic Defence.

In September 2018, our US subsidiary, together with other panel manufacturers in Taiwan, Japan and Korea, received a civil complaint from the Government of Puerto Rico for unjust enrichment in relation to the alleged involvement of CMO and other manufacturers in anticompetitive price fixing practices in the sale of TFT-LCD panels. The proceedings remain ongoing.

Intellectual Property Proceedings

As is the case with many companies involved in the manufacturing of products requiring a high level of specialized technology and know-how, we have received from time to time communications from third parties asserting that our technologies or manufacturing processes infringe upon the intellectual property rights of others. These claims are often settled through technical meetings between the parties. In some cases, proof of the use of the relevant technology or know-how prior to the date of the relevant patent is useful in resolving these claims. However, we are currently involved in certain intellectual property proceedings. See “Risk Factors—Risks Relating to Our Business and Industry—Disputes over intellectual property rights are costly and could deprive us of the technologies we need to stay competitive.”

In April 2011, Eidos Display LLC and Eidos III, LLC (together “Eidos”) filed a lawsuit in the United States District Court in the Eastern District of Texas against us, certain of our affiliates and other TFT-LCD manufacturers for the infringement of Eidos’ patents in the United States relating to the production of TFTLCD panels for electro-optical device. A summary judgment ruling that Eidos’ patents were invalid was granted by the administrative law judge in favor of us in December 2013. The presiding judge confirmed the summary judgment in January 2014. In February 2014, Eidos appealed the District Court decision to the U.S. Court of Appeals for the Federal Circuit (“CAFC”). In March 2015, CAFC overruled the decision by the District Court and ordered a retrial. In June 2017, the jury in the District Court’s determined that our products constituted direct infringement of Eidos’ patent. In March 2018, the District Court ordered an infringement compensation in favor of Eidos. The case was appealed to the U.S. Court of Appeals for the Federal Circuit but the appeal was temporarily put on hold. The Court ordered Eidos and us to proceed with compulsory settlement for this case. As of the date of this offering memorandum, no settlement has been achieved. We do not expect that the lawsuit will have a material adverse effect on our financial position in the short-term.

In March 2018, Chongqing Huike Jinyu Optoelectronics Technology Co., Ltd (“Huike Jinyu”) filed five lawsuits against us in Chongqing No.5 Intermediate People’s Court for alleged infringement of certain

of Huike Jinyu’s patents in the PRC. We filed an application to the National Intellectual Property Administration in China to invalidate the patents involved in the case. As of May 2019, all of the patents involved in the lawsuits were declared invalid by the National Intellectual Property Administration. In June 2019, the lawsuits were dismissed by the court in the PRC. The lawsuits have no impact on our business and financial affairs. In December 2019, we filed three lawsuits against Huike Jinyu in Liaoning Shenyang Municipal Intermediate People's Court for alleged infringement of certain of our TV display panel related patents in the PRC, requesting Huike Jinyu to cease the manufacture and sale of products concerning such patents and to compensate us. The proceedings remain ongoing.

In July 2018, Vista Peak Ventures, LLC (“Vista”) filed four complaints against us in the United States District Court in the Eastern District of Texas for the infringement of several of its patents. We subsequently entered into a settlement agreement with Vista and we succeeded in obtaining the authorization of the relevant patents.

Criminal charges against employees

In April 2016, two of our former employees were prosecuted for breach of trust with respect to illegal receipt of rebate during their employment with us. Both former employees pleaded guilty to the criminal charges and were subsequently sentenced to prison for six months and subject to individual fines. We are of the view that the sentencing was not severe enough and we requested an appeal from the prosecutor. This case has been appealed to Taiwan High Court. In August 2017, we also brought a collateral civil action against the two former employees to severally and jointly compensate our company for damages equivalent to the amount of their illegal receipt. In November 2019, the Taiwan New Taipei District Court granted in favor of our damages claims partially against the two former employees and ordered them to compensate us in the amount of NT$5.5 million (US$ 0.2 million) (including interests accrued therefrom).

Subsidiaries

We are a company incorporated under the laws of ROC. All controlled entities and majority-owned subsidiaries wherein we own directly or indirectly more than 50% ownership are included in our consolidated financial statements.

The following table sets forth information on our consolidated subsidiaries as of September 30, 2019:

Company CarUX Holding Limited ...................... Foshan Innolux Flnet Electronics Ltd. Foshan Innolux Logistics Ltd. ............. Foshan Innolux Optoelectronics Ltd. .. InnoCare Optoelectronics Japan Co., Ltd. ................................................... InnoCare Optoelectronics USA, Inc. .. Innocom Technology (Shenzhen) Co., Ltd. ................................................... InnoJoy Investment Corporation .........	Registered Office The Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands No. 18 dorm B Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, P.R.C. North Factory, Xingye Road, Nanhai Economic Zone, Foshan, Guangdong, 528325, P.R.C. Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, P.R.C. 4F, No. 6, 1-Chome Building, Ginza, Chuo-ku, Tokyo, Japan 101 Metro Drive Suite 510, San Jose, CA 95110, U.S.A. 1F, Zone 4, G2 Zone 2F A region, 3F, 4F and 5F Foxconn Technology Industrial Park E, Bao'an District, Shenzhen City, Guangdong Province, P.R.C. No.8, Zhongxin Rd., Xinshi Dist., Tainan City 744, Taiwan (R.O.C.)	Our Shareholding (%)
		100% 100% 100% 100% 100% 100% 100% 100%

Company Innolux Automations and Intelligence Systems (ShenZhen) Co.,Ltd. ......... Innolux Europe B.V. ........................... Innolux Holding Limited ..................... Innolux Hong Kong Holding Limited . Innolux Hong Kong Limited ............... Innolux Japan Co., Ltd. ....................... Innolux Optoelectronics Hong Kong Holding Limited ............................... Innolux Optoelectronics India Private Limited ............................................. Innolux Optoelectronics Malaysia SDN. BHD. ...................................... Innolux Optoelectronics Philippines Corp. ................................................ Innolux Singapore Holding Pte. Ltd. ... Innolux Technology Germany GmbH . Innolux USA, Inc. ............................... Keyway Investment Management Limited ............................................. Lakers Trading Ltd .............................. Landmark International Ltd ................. Leadtek Global Group Limited ........... Nanjing Innolux Technology Ltd…… Nanjing Innolux Optoelectronics Ltd. . Nets Trading Ltd. ................................ Ningbo Innolux Display Ltd. ............... Ningbo Innolux Flnet Electronics Ltd. Ningbo Innolux Electronics Ltd. .........	Registered Office 5K, Block B, No. 8, Donghuan 2nd Road, Fukang Community, Longhua Street, Longhua District, Shenzhen, P.R.C. Stationstraat 39G, 6411NK, Heerlen, The Netherlands Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa Unit 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong Unit 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong 8F, kowa kawasaki-nishiguchi Bldg., 66-2 horikawa- cho, Saiwai-ku, Kawasaki-City, Kanagawa 212-0013, Japan Unit 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong 701, Platina, Plot No. C-59, Platina G-Block, Bandra Kurla Complex, Bandra (E), Near Citi Bank, Mumbai, Mumbai City, Maharashtra 400069, India No 9-1, Jalan Putra Mahkota 7/4A, Putra Heights, 47650 Subang Jaya, Selangor Darul Ehsan, Malaysia Km 23 West Service Road, South Superhighway, Alabang, Muntinlupa City, 1770, Philippines 6 Temasek Boulevard, #09-05, Suntec Tower Four 038986, Singapore Kaiserswerther Strasse 115, D-40880 Ratingen, Germany 101 Metro Drive Suite 510, San Jose, CA 95110, U.S.A Portcullis TrustNet Chambers, P.O. Box 1225, Apia, Samoa Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa Portcullis TrustNet Chambers, 4th Floor, Ellen Skelton Building, 3076 Sir Francis Drake's Highway, P.O. Box 3444, Road Town, VG1110, Tortola, British Virgin Islands No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, P.R.C. No. 93, Focheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, P.R.C. Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa No.8 Cao E River Rd., Ningbo Bonded Zone, Zhejiang, P.R.C. 1F, Building 2, No.8, Cao E River Rd., Ningbo Bonded Zone, Zhejiang, P.R.C. 2F, Building 2, No.8 Cao E River Rd., Ningbo Bonded Zone, Zhejiang, P.R.C.	Our Shareholding (%)
		100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Company Ningbo Innolux Optoelectronics Ltd. .. Rockets Holding Ltd. .......................... Stanford Developments Ltd ................. Suns Holding Ltd. ............................... Toppoly Optoelectronics (B.V.I.) Ltd . Toppoly Optoelectronics (Cayman) Ltd. ................................................... Shanghai Innolux Optoelectronics Ltd.. .................................................. Shenzhen PixinLED Technology Co., Ltd…………………………………. .. ....................................................... Warriors Technology Investments Ltd Yuan Chi Investment Co., Ltd. ............ CarUX Technology Inc. ...................... InnoCare Optoelectronics Corporation GIO Optoelectronics Corp. .................. GIO (Maanshan) Optoelectronics Co., Ltd. .................................................. Double Star Inc. ..................................	Registered Office No.16, Yangzijiang Northern Road, Ningbo Export Processing Zone, and No.6, Yangzijiang Southern Road, Ningbo Export Processing Zone, Zhejiang, P.R.C. Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands Grand Pavilion, Hibiscus Way, 802 West Bay Road, P. O. Box 31119, KY1-1205, Cayman Islands 272-2, Ba Sheng Road, New Customs, Wai Gao Qiao Free Trade Zone, 200131, Pudong, Shanghai, P.R.C. 5K, Block B, No. 8, Donghuan 2nd Road, Fukang Community, Longhua Street, Longhua District, Shenzhen, P.R.C. Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa No.8, Zhongxin Rd., Xinshi Dist., Tainan City 744, Taiwan (R.O.C.) Room A, No. 12, Nanke 8th Rd., Shanhua Dist., Tainan City, Tainan Science Park, Taiwan (R.O.C.) Room B, No. 2, Section 2, Huanxi Rd., Xinshi Dist., Tainan City, Tainan Science Park, Taiwan (R.O.C.) No.5, Titanggang Rd., Xinshi Dist., Tainan City, Taiwan (R.O.C.) Cihu Economic Development Zone, Maanshan City, Anhui Province, China Level 3, Alexander House, 35 Cybercity, Ebene, Mauritius	Our Shareholding (%)
		100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 63% 63% 63%

HISTORY

We were incorporated as InnoLux Display Corporation under the laws of the ROC as a company limited by shares on January 14, 2003. We commenced operations as a vertically integrated manufacturer of TFT-LCD display products. We were primarily engaged in the upstream manufacture of TFT-LCD panels and certain other key components, as well as the downstream assembly of LCD modules and TFT-LCD display systems, prior to our merger with Chi Mei Optoelectronics Corporation (“CMO”) and TPO Displays Corporation (“TPO”) in March 2010.

Our Common Shares have been listed on the TWSE since October 24, 2006. Our global depositary shares were listed on the London Stock Exchange on November 7, 2007.

On October 5, 2009, we announced our proposed merger with TPO, with a view to combining the two company’s strengths and integrating the two companies’ small and medium-sized panel business. This was followed by our announcement on November 14, 2009 of our proposed merger with CMO to create the largest TFT-LCD panel manufacturer in Taiwan. On November 20, 2009, we, together with CMO and TPO, announced that the board of directors of each company unanimously approved the three-in-one merger. Shareholders of each company subsequently approved the merger in January 2010, and all requisite regulatory approvals were obtained.

On March 18, 2010, we completed the merger in an all-stock transaction. Shareholders of CMO and TPO exchanged 2.05 CMO shares and 3.82912866 TPO shares, respectively, for one InnoLux share. CMO and TPO merged with and into InnoLux, which is the surviving company following the merger. We changed our name from “Innolux Display Corporation” to “Chimei Innolux Corporation” on March 30, 2010.

On November 14, 2012, we changed our name from “Chimei Innolux Corporation” to “Innolux Corporation.”

On January 23, 2013, our global depositary shares were listed and traded on the Luxembourg Stock Exchange. On March 24, 2013, we announced the delisting of our global depositary shares listed on the London Stock Exchange.

CMO

CMO was incorporated under the laws of the ROC as a company limited by shares on August 6, 1998. Prior to the merger, CMO was primarily engaged in the research, development, manufacture and sale of TFT-LCD panels, as well as color filters, and was the fourth largest manufacturer of large-sized TFT-LCD panels in terms of shipments, according to DisplaySearch.

Prior to the completion of the merger, CMO’s common shares had been listed on the TWSE since August 26, 2002 and its global depositary shares had been listed on the Euro MTF market of the Luxembourg Stock Exchange and designated as eligible for quotation on the International Order Book of the London Stock Exchange Limited. Its common shares and global depositary shares were both canceled and delisted from the respective stock exchanges in connection with the merger.

TPO

TPO was incorporated under the laws of the ROC as a company limited by shares on December 24, 1999. TPO was formerly known as “Toppoly Optoelectronics Corporation” and changed its name to “TPO Displays Corporation” in June 2006 as a result of its merger with Philips’ Mobile Display Systems business unit. Prior to the merger, TPO was primarily engaged in the research, development, manufacture and sale of LTPD TFT-LCD and the sale of super-twisted nematic TFT-LCD.

MANAGEMENT

Directors

Our board of directors is responsible for the management of our business. Currently our board of directors consists of six members (including three independent directors), who are elected by our shareholders at a general shareholders’ meeting at which a quorum of more than 50% of all issued and outstanding Shares is present. Our directors serve three-year terms, which may be renewed for any number of consecutive terms, and may be removed from office at any time by a resolution adopted at a shareholders’ meeting. Our articles of incorporation provide for a board comprising five to nine directors, of which at least three but no less than one-fifth of the total number of directors should be independent directors. The chairman of our board of directors is elected by our directors.

Of our current directors, Chin-Lung Ting and Chu-Hsiang Yang, were elected in their capacity as the representatives of Hyield Venture Capital Co., Ltd. For more information regarding the shareholding of the Company, see “Major Shareholders.” A director serving as a representative of a legal entity may be removed or replaced at the discretion of that legal entity, and the replacement director may serve the remainder of the term of the office of the replaced director.

Under the ROC law, the management, board of directors and staff of a company are required to conduct business in accordance with the ROC laws and regulations, the articles of incorporation of the company, and resolutions adopted at the meetings of shareholders of the company. The directors have to exercise a fiduciary duty when conducting their business in accordance with the ROC Company Act. Accordingly, our directors (including independent directors) are required to act in our company’s best interests when performing their duties. For a company to be eligible for listing, the TWSE requires that the company pass an independence test that a listing company is financially and operationally separable from any third party. Our listing status in the TWSE shows that we have fulfilled such a test.

Our board of directors established a compensation committee on August 25, 2011 pursuant to the ROC Securities and Exchange Act. A compensation committee should have at least one independent director who is considered independent under the ROC securities regulations. Our compensation committee currently consists of three of our independent directors, namely Chi-Chia Hsieh, Yuk-Lun Yim and Zhen-Wei Wang. Our compensation committee meets at least twice a year. Our board of directors has adopted a compensation committee charter for our compensation committee. The compensation committee has responsibility for, among other things, setting forth and reviewing policies, systems, standards and structures regarding performance evaluation and compensation of the directors, supervisors and managerial personnel, and evaluating compensation of the directors, supervisors and managerial personnel.

In compliance with the ROC Securities and Exchange Act, our board of directors set up an audit committee on July 1, 2016. Pursuant to the ROC securities regulations, public company’s audit committee should be composed of all of its independent directors but it needs to have no less than three members, of which at least one member should have accounting or related financial management expertise. Chi-Chia Hsieh, Yuk-Lun Yim and Zhen-Wei Wang are the members of our audit committee. The audit committee has responsibility for: (1) the adoption or amendment of the internal control system, (2) the assessment of the effectiveness of the internal control system, (3) the adoption or amendment of procedures governing material financial or operational actions, such as acquisition or disposal of assets and derivatives trading, (4) a matter relating to the personal interest of a director, (5) a material asset or derivatives transaction, (6) the adoption of material loan, endorsement, or provision of guarantee, (7) the offering, issuance, or private placement of any equity-related securities, (8) the designation or dismissal of an attesting certified public accountant, or the compensation given thereto, (9) the appointment or discharge of a financial, accounting, or internal auditing officer, (10) the approval of annual and semi-annual financial reports, and (11) any other material matter so required by the company or the competent authorities.

The present members of our board of directors took office on July 1, 2019 for a term of three years.

The following table sets forth certain specified information with respect to each director as of November 30, 2019.

Name Jin-Yang Hung(3).......... Chin-Lung Ting(5)........ Chu-Hsiang Yang(4)(5).. Chi-Chia Hsieh ............. Yuk-Lun Yim ............... Zhen-Wei Wang ...........	Position Chairman Director Director Independent Director Independent Director Independent Director	Age 48 56 52 76 61 66	Position Held Since June 21, 2018 June 24, 2016 July 1, 2019 June 19, 2013 June 19, 2013 July 1, 2019	Number of Shares Held(1) 150,000 177,398,282 177,244,757 - - -	Percentage of Total Shares Issued and Outstanding(2)
					* 1.83% 1.83% - - -

(1) Where applicable, the figure also includes the number of Shares held by such person’s spouse and minor children.

(2) Calculated by dividing the number of Shares held by such person and such person’s spouse and minor children by the number of total issued and outstanding Shares.

(3) Jing-Yang Hung also serve as our chief executive officer.

(4) Chu-Hsiang Yang also serves as our president and chief operational officer.

(5) Chin-Lung Ting and Chu-Hsiang Yang were elected in the capacity as representatives of Hyield Venture Capital Co., Ltd. The total number of Shares held by such persons indicated above includes the shareholding of the respective corporation for which they act as representatives. For more information regarding the shareholding of Hyield Venture Capital Co., Ltd., See “Major Shareholders.”
Less than 0.01%.

Purchases and sales of our Shares by our directors are reported by such persons on the Market Observation Post System website of the TWSE at mops.twse.com.tw.

The business address of each director is our registered office. Set forth below is a biography of each of our directors and supervisors:

Jin-Yang Hung is our chairman and chief executive officer. Prior to joining us, he was the associate vice president at Foxconn Group and the president of TCC International Holdings Limited. Mr. Hung holds an MBA from Colombia University.

Chin-Lung Ting is our director acting in the capacity as representative of Hyield Venture Capital Co., Ltd. Mr. Ting worked as vice president at CMO. He is currently the chairman of each GIO Optoelectronics Corporation and Double Star Inc. He holds a master’s degree from Graduate Institute of Electronics Engineering, National Taiwan University.

Chu-Hsiang Yang is our director acting in the capacity as representative of Hyield Venture Capital Co., Ltd.. Mr Yang is also our president and chief operational officer. He joined CMO in 1998. Prior to joining us, he worked as deputy section manager at Chunghwa Picture Tubes, Ltd. He holds a master’s degree in chemical engineering from National Central University.

Chi-Chia Hsieh is our independent director. He is a chairman in IQE Taiwan Corporation and the independent director of AcBel Polytech Inc. Mr. Hsieh received his Ph.D. degree in mechanical engineering from Santa Clara University.

Yuk-Lun Yim is our independent director. He is also the founder and the chairman of S.A.S. Dragon Holdings Limited. He is the member of Justices of Peace in the Government of the Hong Kong Special Administrative Region and the Permanent Honorary President of Hong Kong Trade Services Council.

Zhen-Wei Wang is our independent director. He is also the independent director of each Casetek Holding Limited, Simplo Technology Co., Ltd and Phison Electronics Corporation. Mr. Wang graduated from National Chiao Tung University.

Executive Officers and Other Significant Employees

The following table sets forth certain specified information with respect to our executive officers as of November 30, 2019.

Name Jin-Yang Hung(3).......... Chu-Hsiang Yang(4)...... Yao-Tung Chen ............ Hung-Wen Yang .......... Chih-Ming Chen .......... Ker-Yih Kao ................. Tai-Chi Pan .................. Kuo-Hsiang Kuo .......... Chung-Kuang Wei ........ Jia-Pang Pang ............... Yu-Shuei Guo ............... Cheng-Hsia Kuo ........... Tien-Jen Lin ................. Ching-Hui Lin .............. Chun-Yi Yu .................. Ken-Jung Hsu ............... Ching-Wen Huang ........ Chien-Lang Lo ............. Chin-Yuan Chang .........	Position Chief Executive Officer President and Chief Operating Officer Vice President Vice President Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Associate Vice President Finance Supervisor Accounting Supervisor	Age 48 52 64 52 54 55 53 59 57 51 48 50 55 52 54 53 47 51 54	Position Held Since June 21, 2018 March 18, 2010 March 18, 2010 June 1, 2007 March 18, 2010 March 18, 2010 March 18, 2010 March 18, 2010 March 18, 2010 November 8, 2010 December 1, 2014 September 23, 2013 September 23, 2013 December 25, 2015 December 25, 2015 January 1, 2019 July 3, 2019 May 7, 2014 January 9, 2009	Number of Shares Held(1) 150,000 933,538 1,706,066 350,270 48,056 607,488 945,560 1,009,640 64,395 2,445,089 160,000 524,802 1,158,859 273,039 109,537 - 600 147,629 219,192	Percentage of Total Shares Issued and Outstanding(2)
					0.01% 0.02% 0.01% 0.01% 0.01% 0.03% 0.01% 0.01% -

(1) Where applicable, the figure also includes the number of Shares held by such person’s spouse and minor children.
(2) Calculated by dividing the number of Shares held by such person and such person’s spouse and minor children by the number of total issued and outstanding Shares.
(3) Jin-Yang Hung also serves as our chairman.
(4) Chu-Hsiang Yang also serves as our president.
Less than 0.01%.

Purchases and sales of our Shares by our executive officers are reported by such persons on the Market Observation Post System website of the TWSE at mops.twse.com.tw.

The business address of each executive officer is our registered office. Set forth below is a biography of each of our executive officers and significant employees:

Jin-Yang Hung. For a biography of Mr. Hung, see “– Directors” above.

Chu-Hsiang Yang. For a biography of Mr. Yang, see “– Directors” above.

Yao-Tung Chen is our vice president. Prior to joining us, he worked as the manager of Hitachi Electronics Co., Ltd. Mr.Chen holds an executive MBA degree from Sun Yat-sen University.

Hung-Wen Yang is our vice president. Prior to joining us, Mr. Yang worked as the plant director of HannsTouch Corporation, the deputy plant director of AU Optronics Corporation and the manager of Unipac Optoelectronics Corporation. He holds a master’s degree in chemical engineering from National Cheng Kung University.

Chih-Ming Chen is our vice president in charge of Tainan TFT Manufacturing Center. Mr. Chen is responsible for front-end process production management and Ningbo Chi Mei Manufacturing Fab. He started his career in the panel industry in 1996 and joined CMO in 1998. He holds a bachelor’s degree in National Cheng Kung University.

Ker-Yih Kao is our associate vice president. Prior to joining us, he worked as the assistant manager of Unipac Optoelectronics Corporation. Mr. Kao holds a master’s degree in chemical engineering from University of Florida.

Tai-Chi Pan is our associate vice president. He joined CMO in 1998 and has more than 20 years of experience in LCD industry. Mr. Pan holds a master's degree from the National Institute of Electrical Engineering of the National Cheng Kung University.

Kuo-Hsiang Kuo is our associate vice president. Mr. Kuo also works as the chairman of the board of Ningbo Innolux Optoelectronics Ltd. and Ningbo Innolux Display Ltd. He holds a bachelor’s degree in mechanical engineering from Waseda University in Japan.

Chung-Kuang Wei currently serves as our associate vice president. Mr. Wei has work experience at electronics research laboratories of Industrial Technology Research Institute. He holds a Ph.D. degree from Institute of Electro-Optical Engineering of National Chiao Tung University.

Jia-Pang Pang is our associate vice president. Prior to joining us, he worked as the deputy director of TFT Manufacturing Plant of AU Optronics Corporation. He holds a Ph.D. degree from electronics engineering of University of Tokyo in Japan.

Yu-Shuei Guo is our associate vice president. Prior to joining us, Mr. Kuo worked as the associate vice president of Entire Technology Co. Ltd., the manager of AU Optronics Corporation and the associate manager of Prodisc Technology Inc. He holds a master’s degree of mechanical engineering from Yuan Ze University.

Cheng-Hsia Kuo is our associate vice president. Mr. Kuo has worked in the TFT-LCD industry since 1996 and joined CMO in 1999. He also works as a director of Ampower Holding Ltd. He holds a bachelor’s degree from the Department of Industrial Engineering and Management at National Chiao Tung University.

Tien-Jen Lin is our associate vice president. Mr. Lin has been in the TFT-LCD industry since 1994 and joined CMO in 1998. He holds a master’s degree from the Graduate Institute of Electrical Engineering at National Taiwan University.

Ching-Hui Lin is our associate vice president. Prior to joining us, he worked as the research and development director of Chunghwa Picture Tubes, Ltd. Mr. Lin holds a master’s degree from the National Central University.

Chun-Yi Yu is our associate vice president. Prior to joining us, Mr. Yu worked as the production manager of AU Optronics Corporation. Mr. Yu holds a master’s degree in industrial engineering from Texas Tech University.

Ken-Jung Hsu is our associate vice president. Prior to joining us, Mr. Hsu worked as the company engineer of Macronix International Co., Ltd and vice president of Foxconn Electronics Inc. Mr. Hsu hold a master’s degree in Material Science and Engineering from National Cheng Kung University.

Ching-Wen Huang is our associate vice president. Prior to joining us, Ms. Huang was the assistant manager in AU Optronics Corporation. Ms. Huang graduated from National Taipei University of Business.

Chien-Lang Lo is our financial supervisor. Prior to joining us, he worked as the assistant manager at Sumitomo Mitsui Banking Corporation and the deputy manager at The Hongkong and Shanghai Banking Corporation Limited. He holds an MBA degree from Baruch College The City of University of New York.

Chin-Yuan Chang is our accounting supervisor. Prior to joining us, he worked as the vice president of finance at Xiamen Prima Technology Inc. and the finance director at the information products operations of BenQ Corporation. He holds an MBA from National Chengchi University.

Compensation of Directors and Executive Officers

According to our articles of incorporation and Compensation Committee Charter, subject to the decision and review of our compensation committee, we may pay salaries, benefits or allowances in kind of no more than NT$500,000 (US$16,115) in aggregate per month to our directors. Our directors receive from us salaries, benefits or allowances to compensate them for the time and expenses they incurred attending our

board meetings and participating in our operation, which amounted to an aggregate of NT$10.8 million, NT$54.9 million, NT$11.2 million (US$0.4 million) and NT$5.7 million (US$0.2 million) in 2016, 2017, 2018 and the nine months ended September 30, 2019, respectively. We paid our presidents and vice presidents an aggregate of NT$106.6 million, NT$177.3 million, NT$112.1 million (US$3.6 million), and NT$27.2 million (US$0.9 million) in 2016, 2017, 2018 and the nine months ended September 30, 2019, respectively, which included salaries, bonuses and other compensation. We have a compensation committee to review compensation of our directors, supervisors and executive officers. A new proposal of our directors and supervisors’ salary packages and compensation structures was passed by our compensation committee on July 30, 2019. We do not have service contracts with our executive officers, directors or supervisors that provide for benefits upon termination of employment.

Interests of Management in Certain Transactions

Of our current directors, two directors, Chin-Lung Ting and Chu-Hsiang Yang, were elected in their capacity as the representatives of Hyield Venture Capital Co., Ltd. Hyield Venture Capital Co., Ltd. is one of our ten largest shareholders, see “Major Shareholders.” Save as otherwise disclosed in this offering memorandum, we did not conduct any transactions with our directors, supervisors or executive officers in 2016, 2017 and 2018 and the nine months ended September 30, 2019. There are no conflicts of interests and no potential conflicts of interest between any duties to us of our directors and their private interest, and/or other duties. There are no outstanding loans or loan guarantees granted by us to members of the administrative, management and supervisory bodies. Pursuant to the ROC Company Act, interested directors are required to abstain from voting on any transactions in which he or she, or their respective corporate shareholders that they represent, may have a potential conflict of interest.

As of the date of this offering memorandum, other than as described in “– Compensation of Directors and Executive Officers” above, we have not granted stock options or stock compensations to any of our directors or executive officers.

MAJOR SHAREHOLDERS

The following table sets forth information with respect to the Shares owned by each of our ten largest shareholders or the major shareholders, as of April 22, 2019 (the date of our latest share register) and the Shares owned by all of our directors and executive officers as a group as of November 30, 2019. As of April 22, 2019 and November 30, 2019, the total number of our issued and outstanding Shares was 9,952,071,977 and 9,711,071,977, respectively. This information does not include any subsequent changes in shareholdings by our major shareholders or our directors, supervisors and executive officers as a group.

Shareholder Chi Mei Corporation........................................................................................ Terry Tai-Ming Gou(1)..................................................................................... Hyield Venture Capital Co., Ltd.(2).................................................................. Hon Hai Precision Ind. Co., Ltd.(1) (2) (3) (4)....................................................... JPMorgan Managed Advanced Stars Advance Aggregate International Equity Index ................................................................................................ JPMorgan hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account ......................................................................................................... Foxconn Technology Co., Ltd.(3) (4)................................................................. Hua Zhu Investment Co., Ltd(4)...................................................................... Citibank Bank of Taiwan Managed Secondary Emerging Markets Evaluation Fund Account ............................................................................ Compal Electronics, Inc. .................................................................................	As of April 22, 2019	As of April 22, 2019
	Number of Directly Owned Shares 570,929,561 194,746,000 176,311,219 147,965,363 137,362,024 132,419,952 127,556,349 121,036,800 114,247,544 109,227,335	Percentage of Total Issued and Outstanding Shares
		5.74% 1.96% 1.77% 1.49% 1.38% 1.33% 1.28% 1.22% 1.15% 1.10%

Shareholder Directors and executive officers as a group .....................................................	As of November 30, 2019	As of November 30, 2019
	Number of Shares(5) 11,940,823	Percentage of Total Issued and Outstanding Shares(6)
		0.12%

(1) Terry Tai-Ming Gou directly owned 1.96% of our total issued and outstanding Shares. Terry Gou is the chairman of the board of directors and the major shareholder of Hon Hai, which owned 1.49% of our total issued and outstanding Shares.

(2) Hyield Venture Capital Co., Ltd. is an investee company accounted for under the equity method of Hon Hai.

(3) Foxconn is an investee company accounted for under the equity method of Hon Hai.

(4) Hua Zhu Investment Co., Ltd is an investee company accounted for under the equity method of Foxconn.

(5) Where applicable, the figure also includes the number of Shares held by such person’s spouse and minor children.

(6) Excluding the shareholding of Hyield Venture Capital Co., Ltd. for which Chin-Lung Ting and Chu-Hsiang Yang act as representatives.

The information regarding ownership of our Shares provided above is based on information provided to us by our shareholders. Because we do not independently verify this information, we cannot assure you that it is correct or that our major shareholders do not own more of our Shares.

None of our major shareholders has different voting rights from those of the other shareholders.

CHANGES IN ISSUED SHARE CAPITAL

Changes in our issued share capital since January 1, 2016 and up to the date of this offering memorandum are set forth below:

Registered Date February 2016 May 2016 August 2016 November 2016 March 2017 May 2017 November 2019	Type of Issue Cancellation of employee restricted share units Cancellation of employee restricted share units Cancellation of employee restricted share units Cancellation of employee restricted share units Cancellation of employee restricted share units Cancellation of employee restricted share units Cancellation of treasury Shares	Number of Shares Issued/(Cancelled) Number of Shares Outstanding Following the Issue/(Cancellation) (in thousands) (in thousands) (555) 9,952,682 (330) 9,952,351 (141) 9,942,210 (62) 9,952,149 (70) 9,952,078 (6) 9,952,072 (241,000) 9,711,072

RELATED PARTY TRANSACTIONS

We have from time to time entered into a variety of transactions with our related parties. Our policy on related party transactions is to conduct these transactions on terms obtainable in a comparable arm’slength transaction with a third party.

Sales and Purchases of Goods and Services

We sold goods and services to certain related parties in the total amount of NT$16,651.0 million, NT$48,895.3 million, NT$18,655.4 million (US$601.3 million) and NT$7,018.8 million (US$226.2 million) in 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively, which represented 5.8%, 14.9%, 6.7% and 3.8% of our sales revenues for the same periods, respectively. The accounts receivable from related parties (excluding transferred other receivable if any) were NT$11,599.4 million, NT$17,727.1 million, NT$4,450.0 million (US$143.4 million) and NT$2,773.2 million (US$89.4 million) as of December 31, 2016, 2017 and 2018 and September 30, 2019, respectively, which represented 18.0%, 30.0%, 9.0% and 5.8% of our total receivables respectively.

We purchased goods and services from related companies in the amount of NT$10,209.0 million, NT$13,859.3 million, NT$6,982.2 million (US$225.0 million) and NT$7,608.7 million (US$245.2 million) in 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively, which represented 3.9%, 5.3%, 2.8% and 4.2% of our total cost of sales for the same periods, respectively. The accounts payable to related parties were NT$5,120.2 million, NT$2,565.0 million, NT$2,652.1 million (US$85.5 million) and NT$3,188.5 million (US$102.8 million) as of December 31, 2016, 2017 and 2018 and September 30, 2019, respectively.

Sales

Hon Hai Group

Hon Hai Group is one of the largest global manufacturing services providers in the computer, communications and consumer electronics industries. It operates under the “Foxconn” brand name. Hon Hai Precision Industry Co., Ltd. and its chairman and founder, Terry Gou, are both shareholders of our company. We sold large-sized TFT-LCD panel modules, small and medium-sized TFT-LCD panel module and other related supplies to Hon Hai Group in the amount of NT$16,089.9 million, NT$48,471.9 million , NT$18,631.8 million (US$600.5 million) and NT$6,984.9 million (US$225.1 million) for the years ended December 31, 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively. Accounts receivable from Hon Hai Group were NT$11,481.6 million, NT$17,701.6 million, NT$4,402.1 million (US$141.9 million) and NT$2,710.9 million (US$87.4 million) as of December 31, 2016, 2017 and 2018 and September 30, 2019, respectively.

Purchases

Hon Hai Group

We purchased various product components from Hon Hai Group in the amount of NT$7,296.7 million, NT$12,366.3 million, NT$5,403.1 million (US$174.1 million) and NT$3,798.7 million (US$122.4 million) for the years ended December 31, 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively. Accounts payable to Hon Hai Group were NT$4,332.2 million, NT$2,369.2 million, NT$2,382.3 million (US$76.8 million) and NT$1,692.9 million (US$54.6 million) as of December 31, 2016, 2017 and 2018 and September 30, 2019, respectively.

Property

We also sold a very small amount of property, plant and equipment to related parties in 2016, 2017, 2018 and the nine months ended September 30, 2019.

We purchased property, plant and equipment from related parties in the amount of NT$93.9 million, NT$31,499.3 million, NT$50.4 million (US$1.6 million) and NT$34.2 million (US$1.1 million) for the years ended December 31, 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively.

Purchase of Property

Hon Hai Group

We purchased machine and equipment from Hon Hai Group in the amount of nil, NT$76.6 million, NT$31,479.1 million, NT$47.4 million (US$1.5 million) and NT$31.2 million (US$1.0 million) for the years ended December 31, 2016, 2017 and 2018 and the nine months ended September 30, 2019, respectively.

Compensation to Management

See “Management—Compensation of Directors and Executive Officers.”

DESCRIPTION OF OUR SHARE CAPITAL

Set forth below is certain information relating to our share capital, including brief summaries of certain provisions of our articles of incorporation, the ROC Securities and Exchange Act, the regulations promulgated under ROC Securities and Exchange Act and ROC Company Act as of the date of this offering memorandum.

We were incorporated on January 14, 2003 as a company limited by shares under the ROC Company Act. As of the date of this offering memorandum, our authorized share capital and paid-in share capital was 10,500,000,000 Shares and 9,711,071,977 Shares, respectively, with a par value of NT$10 per share. Our articles of incorporation authorize both common and preferred shares. However, as of the date of this offering memorandum, we have not issued any preferred shares. All of our issued and outstanding Shares are fully paid and in registered form.

According to our articles of incorporation as amended in the shareholders’ meeting held on June 20, 2019, net income must be distributed in the following order:

(1) to make up for prior years’ loss;
(2) as legal reserve for 10% of net income after tax and distribution pursuant to clause (1);
(3) as any other legally required reserve; and
(4) to pay dividends on preferred shares.

Our dividend policy requires our board of directors to consider our budget for future capital expenditure and funding needs when proposing the distribution of earnings to the shareholders’ meeting to resolve such proposal.

Changes in Share Capital and Pre-Emptive Rights

The ROC Company Act and ROC Securities and Exchange Act provide that any change in the authorized share capital of a company limited by shares, such as ours, requires an amendment to the company’s articles of incorporation approved by the shareholders at a shareholders’ meeting. In addition, for a public company such as ours, the approval of ROC FSC is required if the paid-in capital is increased.

The Science Park Administration requires us to register changes of our authorized and paid-in share capital. Our authorized but unissued Shares may be issued at such times and, subject to the provisions of ROC Company Act and ROC Securities and Exchange Act mentioned below, upon such terms as our board of directors may determine.

Under the ROC Company Act, when we issue new shares for cash, our existing shareholders who are listed on our shareholders’ register as of the record date have pre-emptive rights to subscribe for the new issue in proportion to their existing shareholdings. In addition, our employees, whether or not they are shareholders, have rights to subscribe for 10% to 15% of the new issue as determined by our board of directors. Any new shares that remain unsubscribed by either our existing shareholders or our employees at the end of the subscription period may be offered to the public or privately placed by us.

In addition, in accordance with the ROC Securities and Exchange Act, a public company, such as ours, whose securities are listed on the TWSE, that intends to offer new shares for cash must offer to the public at least 10% of these shares. This percentage may be increased by a resolution passed at our shareholders’ meeting, thereby diminishing the number of new shares subject to the pre-emptive rights of existing shareholders. The pre-emptive rights provisions will not apply to an offering of new shares through a private placement approved at a shareholders’ meeting.

Meetings of Shareholders

Meetings of our shareholders may be ordinary or extraordinary meetings. Ordinary meetings of our shareholders are generally held in Miaoli, Taiwan, within six months following the end of each fiscal year. Extraordinary meetings may be convened by our board of directors by passing a board resolution or by our board of directors upon the written request of any shareholder or shareholders who has or have held 3% or more of our issued and outstanding Shares for a period exceeding one year. Extraordinary meetings of our shareholders may also be convened by an independent director or one or more shareholders who have continuously held no less than 50% of the issued and outstanding Shares for no less than three months. Notice in writing of our shareholders’ meeting, stating the place, time and purpose of the meeting, must be dispatched to each shareholder of record at least 30 days (in the case of ordinary meetings) and at least 15 days (in the case of extraordinary meetings) prior to the date set for the meeting.

Under the ROC Company Act, holders of 1% or more of our issued and outstanding Shares are entitled to submit one written proposal each year for consideration at our annual general meeting of shareholders in accordance with the requirements under the ROC Company Act. Our articles of incorporation provide for a candidate nomination system for election of directors and independent directors. Holders of 1% or more of our issued and outstanding Shares would be entitled to submit a roster of candidates to be considered for nomination to our directors, independent directors at a meeting of our shareholders involving the election of directors and independent directors in accordance with the requirements under the ROC Company Act.

Voting Rights

The ROC Company Act provides that a holder of shares has one vote for each share held. There is cumulative voting for the election of directors and independent directors. As authorized under the ROC Company Act, we have adopted a nomination procedure for election of our independent directors in our newly amended articles of incorporation. According to our articles of incorporation, ballots for the election of directors and independent directors are cast separately. Except as otherwise provided by law and our articles of incorporation, a resolution can be adopted by the holders of at least 50% of the shares represented at our shareholders’ meeting at which the holders of more than 50% of all issued and outstanding shares are present. Under the ROC Company Act, however, to approve certain major corporate actions, including any amendment to the articles of incorporation (which is required, among other things, for any increase in the authorized share capital), the dissolution, amalgamation of a company or spin-off, the transfer of the whole or an important part of a company’s business, the taking over of the whole of the business of another company or the distribution of any share dividend, a meeting of the shareholders must be convened with a quorum of holders of at least two-thirds of all issued and outstanding shares at which the shareholders of at least a majority of the shares represented at the meeting vote in favor of the corporate action. Alternatively, the ROC Company Act provides that in the case of a public company, such as ours, a resolution to approve these major corporate actions may be adopted by the holders of at least two-thirds of the shares represented at a shareholders’ meeting at which holders of at least a majority of issued and outstanding shares are present.

A shareholder may be represented at our ordinary or extraordinary meetings by proxy if a valid proxy form is delivered to us at least five days prior to the commencement of the ordinary or extraordinary meeting. Voting rights attached to our shares that are exercised by our shareholders’ proxies shall be subject to the ROC proxy regulations.

Any shareholder who has a personal interest in a matter to be discussed at our shareholders’ meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another shareholder on such matter.

Register of Shareholders and Record Dates

Grand Fortune Securities Co., Ltd. is our share registrar and maintains our share register in Taipei, Taiwan, and enters transfers of our Shares in our share register upon presentation of, among other documents, certificates in respect of the Shares transferred.

Under ROC Company Act, we may, by giving advance public notice, set a record date and close our share register for a specified period (60 days, 30 days and 5 days, respectively, immediately before each ordinary meeting of shareholders, extraordinary meeting of shareholders and the relevant record date) in order for us to determine the shareholders who are entitled to certain rights pertaining to the Shares.

Other Rights of Shareholders

Under ROC Company Act, dissenting shareholders are entitled to appraisal rights in certain major corporate actions, such as a proposed amalgamation by the company. A dissenting shareholder may request the company to redeem all of the shares owned by the shareholder at a fair price determined by mutual agreement or determined by a court order if an agreement cannot be reached. Shareholders may exercise their appraisal rights by serving written notice to the company prior to the related shareholders’ meeting and/or by raising and registering an objection at the shareholders’ meeting. In addition to appraisal rights, shareholders have the right to sue for the annulment of any resolution adopted at a shareholders’ meeting where the procedures were legally defective. One or more shareholders who have held more than 3% of the issued and outstanding shares of a company for more than one year may require a supervisor to bring a derivative action on behalf of the company against a director as a result of the director’s unlawful actions or failure to act. In addition, one or more shareholders who have held more than 3% of the issued and outstanding shares of a company for more than one year may require the board of directors to convene an extraordinary general meeting of shareholders by sending a written request to the board of directors. One or more shareholders who have continuously held no less than 50% of the issued and outstanding shares for no less than three months may convene an extraordinary general meeting of shareholders directly.

Financial Statements

For a period of at least 10 days prior to our annual shareholders’ meeting, our annual financial statements must be available at our principal office and our share registrar in Taipei for inspection by our shareholders.

Transfer of Shares

Under ROC Company Act, the transfer of shares is effected by endorsement and delivery of the related share certificates. However, in order to exercise his shareholder’s rights, a transferee of our shares must have his name and address registered on our share register. Our shareholders are also required to file their respective specimen seals with us. The settlement of trading of shares on the TWSE is carried out on the book-entry system maintained by the ROC Depository & Clearing Corporation.

Acquisitions of Shares by Us

With minor exceptions, we may not acquire our Shares under ROC Company Act.

Under ROC Securities and Exchange Act and our articles of incorporation, we may, by a board resolution adopted by an affirmative majority vote of all directors present at a meeting attended by at least two-thirds of our directors, purchase our Shares on the TWSE or by a tender offer, in accordance with the procedures prescribed by ROC FSC, for the following purposes:

(i) to transfer Shares to our employees;
(ii) to convert bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by us into Shares; and
(iii) if necessary, to maintain our credit and our shareholders’ equity; provided that the Shares so purchased shall be canceled thereafter.

Shares purchased by us pursuant to (i) and (ii) above shall be transferred to the intended transferees within five years after the purchase date; otherwise, such Shares shall be canceled. For Shares to be purchased by us pursuant to (iii) above, we are required to complete the amendment registration within six months after the purchase date.

We are not allowed to purchase more than 10% of our total issued and outstanding Shares. In addition, we may not spend more than the aggregate amount of the retained earnings, the premium from issuing Shares and the realized portion of the capital reserve to purchase our Shares.

We may not pledge or hypothecate any purchased Shares. In addition, we may not exercise any shareholders’ rights attached to such Shares. In the event that we purchase our Shares on the TWSE, our affiliates, directors, supervisors, managers and their respective spouses and minor children and/or nominees are prohibited from selling any of our Shares during the period in which we purchase our Shares.

In addition, our subsidiaries may not acquire our Shares.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all our debts, liquidation expenses and taxes will be distributed pro rata to our shareholders in accordance with the ROC Company Act.

Transfer Restrictions

The ROC Securities and Exchange Act (1) requires each director, supervisor, manager or shareholder holding more than 10% of the shares of a public company to report any changes in that person’s shareholding to the company and (2) limits the number of shares that can be sold or transferred on the TWSE or on the GreTai Securities Market (“GTSM”) by that person per day. The number of shares that can be sold or transferred on the TWSE and the GTSM by any such person per day is either: (i) for a company with no more than 30 million outstanding shares, 0.2% of the outstanding shares of the company; and for a company with more than 30 million outstanding shares, the aggregate of (a) 0.2% of 30 million shares plus (b) 0.1% of the outstanding shares exceeding 30 million shares; or (ii) 5% of the average trading volume (number of shares) on the TWSE or on the GTSM for the 10 consecutive trading days preceding the reporting day on which day the director, supervisor, manager or a shareholder holding more than 10% of the shares reports the intended share transfer to ROC FSC.

Our directors (other than independent directors) are required to hold in the aggregate certain percentage of our total outstanding Shares according to rules published by the ROC FSC. Given that we have more than two independent directors, our directors (other than independent directors) are required to hold no less than 1.6% of our total outstanding Shares.

DESCRIPTION OF THE BONDS

The Bonds are to be issued under an indenture, to be dated as of January 22, 2020 (the “Indenture”), between Innolux Corporation (the “Issuer” or the “Company”) and The Bank of New York Mellon, London Branch, in its capacity as trustee (the “Trustee”). The following summary of certain provisions of the Bonds and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the provisions of the Bonds and Indenture, including the definitions of certain terms therein. Whenever particular Sections or defined terms of the Indenture not otherwise defined herein are referred to, such Sections or defined terms are incorporated herein by reference. Copies of the Indenture will be available for inspection by any Holder (as defined below) on or after the Closing Date (as defined below) at the office of the Trustee on any weekday (excluding public holidays) during normal office hours (being between 9.00 a.m. and 3.00 p.m. (London time)).

General

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

The Bonds will be issued on or about January 22, 2020 (the date on which the Bonds are issued under the Indenture being referred to herein as the “Closing Date”) as direct, unconditional, unsecured and unsubordinated obligations of the Issuer limited in aggregate principal amount to US$300,000,000 and will be redeemed on January 22, 2025 (the “Maturity Date”) unless earlier redeemed, repurchased and canceled or converted pursuant to the terms thereof and of the Indenture.

The Bonds will not bear interest.

Each Bond will be convertible into the Common Shares (as defined below), subject to compliance with certain conditions and procedures (see “— Conversion — Procedures; Conversion Notice; Taxes and Duties” below), at the Holder’s election on any Business Day (as defined below) during the period (the “Conversion Period”) commencing on April 23, 2020 (the next day immediately after the end of a threemonth period following the Closing Date) and ending at the close of business in the location of the applicable Agent (as defined below) on (i) December 23, 2024 (the 30th day prior to the Maturity Date) or (ii) the fifth (5th) Business Day prior to the applicable Purchase Date of such Bonds or date fixed for redemption (other than the Maturity Date) of such Bond pursuant to a notice of redemption given by the Issuer in accordance with the provisions of the Indenture. The Conversion Period shall not include any Closed Period (as defined below).

The principal of and other amounts on the Bonds will be payable in US Dollars by the Issuer pursuant to the Indenture, and the Bonds may be presented for registration of transfer or conversion, at the office or agency of the Issuer maintained for such purpose located at One Canada Square, London E14 5AL, United Kingdom (being the office of The Bank of New York Mellon, London Branch acting as the Trustee under the Indenture, as paying agent (the “Paying Agent”) and as conversion agent (the “Conversion Agent”) with regard to the Bonds).

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

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

The Issuer and its Affiliates (as defined below) may at any time, subject to applicable law, purchase the Bonds in the open market, or otherwise, at any price. The Bonds which are purchased by the Issuer (including purchase in the open market), early redeemed, repurchased and repaid when due, converted or sold back by the Holders will be canceled and will not be re-issued. A Bond does not cease to be outstanding because any of the Issuer’s Affiliates holds such Bond; provided, however, any Bonds owned by any Affiliate of the Issuer will be deemed not to be outstanding in determining whether the Holders of the requisite principal amount of Bonds have given or concurred in any request, demand, authorization, direction, notice, consent or waiver under the Indenture.

Book Entry; Delivery and Form

The Bonds will only be represented by a global certificate in fully registered book-entry form (the “Global Bond”) and will be deposited with a common depositary (the “Common Depositary”) for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”) and registered in the name of a nominee of the Common Depositary. If (i) at any time, the Common Depositary advises the Issuer in writing that it is unwilling or unable to continue as a depository for the Global Bond and a successor depository is not appointed by the Issuer within 90 days, (ii) either Euroclear or Clearstream or any alternative clearing system on behalf of which the Bonds evidenced by the Global Bond may be held is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or in fact does so, or (iii) an Event of Default has occurred with respect to the Bonds and the Trustee notifies the Issuer in writing that any of the Bonds have become immediately due and payable pursuant to the Indenture, the Issuer shall issue individual certificated bonds in registered form in exchange for the Global Bond in any authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Bond. The Bonds will have minimum denominations of US$200,000 or in any integral multiples thereof.

The Bonds are not issuable in bearer form.

Ranking

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

The Bonds will be effectively subordinated to all secured obligations but subject to the negative pledge as described in “Certain Covenants — Negative Pledge” of the Issuer with respect to claims against the assets securing such obligations (“Secured Debt”). As of September 30, 2019, the Issuer had outstanding Secured Debt of NT$ 41,117 million (US$1,325 million).

Sinking Fund

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

Transfer of Certificated Bonds and Delivery of New Certificated Bonds

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

Transfer of Certificated Bonds

A Certificated Bond may be transferred upon the surrender at the office of the Trustee or at the office of any transfer agent, together with the form of transfer endorsed thereon (the “Form of Transfer”) duly completed and executed and any other evidence that such transfer agent or the registrar may reasonably require. In the case of a transfer of only part of a holding of Certificated Bonds, a new Certificated Bond

shall be issued to the transferee in respect of the part transferred and a further new Certificated Bond in respect of the balance of the holding not transferred shall be issued to the transferor.

Delivery of New Certificated Bonds

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

Formalities Free from Charge

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

Restricted Transfer Periods

No Holder may require the transfer of a Certificated Bond to be registered (i) during the period of 15 days preceding a Redemption Date, (ii) after such Bond has been selected by the Issuer or the Holder for redemption, pursuant to the terms of the Indenture or (iii) after such Holder has exercised its Conversion Right (as defined below).

Payments

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

Interest

The Bonds will not bear interest.

In any case where the date of the payment of the principal of the Bonds or the date fixed for redemption of the Bonds is not a Business Day (as defined below), then payment of such principal or the Early Redemption Amount (as defined below) shall be made on the next succeeding Business Day, with the same force and effect as if made on the Maturity Date or the date fixed for redemption, as the case may be, and no interest shall accrue for the period after such date.

Additional Amounts

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

withholding or deduction been required, except that no Additional Amounts shall be payable for or on account of:

(i) any Taxes that would not have been imposed but for:
(A) the existence of any present or former connection between the Holder of such Bond and the ROC or any other jurisdiction in which the Issuer is organized or resident for tax purposes, other than merely holding such Bond or receiving payments or enforcing rights thereunder, including such Holder being or having been a national, domiciliary or resident of or treated as a resident thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein;
(B) the presentation of such Bond (if presentation is required) more than 30 days after the later of the date on which the payment of the principal of or other amounts on such Bond became due and payable pursuant to the terms thereof or the date that such payment was made or duly provided for, except to the extent that the Holder thereof would have been entitled to such Additional Amounts if it had presented such Bond for payment on any date within such 30 day period;
(C) the failure of the holder or beneficial owner to comply with a timely request from us or any successor, addressed to the Holder, to provide certification, information, documents or other evidence concerning such Holder’s or beneficial owner’s nationality, residence, identity or connection with the relevant jurisdiction, or to make any declaration or satisfy any other reporting requirement relating to such matters, if and to the extent that due and timely compliance with such request is required by statute, regulation or administrative practice of the relevant jurisdiction in order to reduce or eliminate any withholding or deduction as to which additional amounts would have otherwise been payable;
(D) the presentation of such Bond (if presentation is required) for payment in the ROC, unless such Bond could not have been presented for payment elsewhere;
(ii) any estate, inheritance, gift, sale, transfer, stamp, personal property or similar tax, assessment or other governmental charge;
(iii) any tax, duty, assessment or other governmental charge that is payable otherwise than by withholding from payments or deliveries under or with respect to the Bonds;
(iv) any tax, assessment, withholding or deduction required by sections 1471 through 1474 of the United States Internal Revenue Code of 1986, as amended (“FATCA”), any current or future Treasury Regulations or rulings promulgated thereunder, any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA, any intergovernmental agreement between the United States and any other jurisdiction to implement FATCA or any law enacted by such other jurisdiction to give effect to such agreement, or any agreement with the U.S. Internal Revenue Service under FATCA; or
(v) any combination of Taxes referred to in the preceding clauses (i), (ii), (iii) and/or (iv),

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

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

Subject to certain exceptions, the Issuer will pay any present or future stamp, court or documentary taxes, or any other excise or property taxes, charges or similar levies which arise in any jurisdiction from the issue, initial delivery or registration of the Bonds or any other document or instrument referred to herein, including those resulting from or required to be paid in connection with, the enforcement of the Bonds or any other document or instrument following the occurrence of any Event of Default with respect to the Bonds and excluding those payable upon issue and delivery of Bonds to the order of a person other than a Holder.

Neither the Trustee nor any Agent shall be responsible for paying any Additional Amounts or for determining whether such amounts are payable or the amount thereof, and none of them shall be responsible or liable for any failure by the Issuer, the Holders or any other person to pay such Additional Amounts or be responsible to provide any notice or information in relation to the Bonds in connection with payment of such tax, duty, charges, assessments, withholding or other payment imposed by or in any jurisdiction.

Redemption of the Bonds

Redemption for Taxation Reasons

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

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

Redemption at the Option of the Issuer

At any time after January 22, 2023 and prior to the Maturity Date, the Issuer may, on not less than 30 nor more than 60 days’ notice to the Holders (which notice shall be irrevocable) and to the Trustee and the Agents, redeem the Bonds, in whole or in part, at the applicable Early Redemption Amount; provided , however , that no such redemption may be made unless:

(1) the Closing Price (converted into US Dollars at the Prevailing Rate) of the Common Shares for 20 consecutive Trading Days (the “Calculation Period”) immediately prior to the date upon which notice of such redemption was given, is at least 130% of the quotient of the Early Redemption Amount divided by the Conversion Ratio (as defined below) then in effect; and
(2) the applicable Redemption Date does not fall within a Closed Period (as defined below).

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

Notwithstanding the foregoing, the Issuer may redeem the Bonds, in whole but not in part, at any time, on not less than 30 nor more than 60 days’ notice, at the applicable Early Redemption Amount if more than 90% in principal amount of the Bonds originally issued has been redeemed, repurchased and canceled or converted; provided that the applicable Redemption Date does not fall within a Closed Period (as defined below).

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

Redemption at Maturity

Unless the Bonds have been previously redeemed, repurchased and canceled or converted, the Issuer will redeem the Bonds on the Maturity Date at a redemption price equal to 100% of the outstanding principal amount thereof. The Bonds may be redeemed prior to the Maturity Date only as described herein.

Redemption Procedures

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

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

Repurchase of the Bonds

Repurchase at the Option of the Holder

Unless the Bonds have been previously redeemed, repurchased and canceled or converted, each Holder shall have the right (the “Holder’s Put Right”), at such Holder’s option, to require the Issuer to repurchase, in whole or in part (being US$200,000 in principal amount or any integral multiples thereof), such Holder’s Bonds, on January 22, 2023 (the “Bondholder’s Put Option Date”) at a price equal to 100% of the principal amount in US Dollars with respect to such Holder’s Bonds to be repurchased (the “Holder’s Put Price”).

Repurchase in the Event of Delisting

In the event that the Common Shares cease to be listed or admitted to trading on the TWSE (a “Delisting”) each Holder shall have the right (the “Delisting Put Right”), at such Holder’s option to require the Issuer to repurchase, in whole or in part (being US$200,000 in principal amount or any integral multiples thereof), such Holder’s Bonds on the date set by the Issuer for such repurchase (the “Delisting Put Date”), which shall not be less than 30 nor more than 60 days following the date on which the Trustee sends to each Holder a notice regarding the Delisting referred to under “— Repurchase Procedures” below at the applicable Early Redemption Amount with respect to such Holder’s Bonds to be repurchased on the Delisting Put Date (the “Delisting Put Price”).

Repurchase in the Event of Change of Control

If a Change of Control (as defined below) occurs with respect to the Issuer, each Holder shall have the right (the “Change of Control Put Right”), at such Holder’s option, to require the Issuer to repurchase, in whole or in part (being US$200,000 in principal amount or any integral multiples thereof), such Holder’s Bonds on the date set by the Issuer for such repurchase (the “Change of Control Put Date”), which shall be not less than 30 nor more than 60 days following the date on which the Issuer notifies the Trustee, the Paying Agent and the Holders in writing of the Change of Control, at the applicable Early Redemption Amount with respect to such Holder’s Bonds to be repurchased on the Change of Control Put Date (the “Change of Control Put Price”).

Repurchase Procedures

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

(i) the Bondholder’s Put Option Date, the Delisting Put Date or the Change of Control Put Date, as the case may be (each, a “Purchase Date”);
(ii) in the case of a Delisting, the date of such Delisting and, briefly, the events causing such Delisting;
(iii) in the case of a Change of Control, the date of such Change of Control and, briefly, the events causing such Change of Control;
(iv) the date by which the Holder Purchase Notice (as defined below) must be given;
(v) the Holder’s Put Price, the Delisting Put Price or the Change of Control Put Price, as the case may be, and the method by which such amount will be paid;
(vi) the names and addresses of all Paying Agents;

(vii) briefly, the Conversion Right (as defined below) of the Holders and the then current Conversion Price and the date on which the right to convert such Bond will expire;
(viii) the procedures that Holders must follow and the requirements that Holders must satisfy in order to exercise their repurchase rights and/or Conversion Right; and
(ix) that a Holder Purchase Notice, once validly given, may not be withdrawn.

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

Payment of the Holder’s Put Price upon exercise of the Holder’s Put Right, Delisting Put Price upon exercise of the Delisting Put Right or Change of Control Put Price upon exercise of the Change of Control Put Right for any Certificated Bond for which a Holder Purchase Notice has been delivered is conditioned upon delivery of such Certificated Bond (together with any necessary endorsements) to any Paying Agent on any Business Day together with the delivery of such Holder Purchase Notice and will be made promptly following the later of the Purchase Date and the time of delivery of such Certificated Bond. If the Paying Agent holds on the Purchase Date money sufficient to pay the Holder’s Put Price, Delisting Put Price or the Change of Control Put Price, as the case may be, of Bonds for which Holder Purchase Notices have been delivered in accordance with the provisions of the Indenture upon exercise of such right, then, whether or not such Bond is delivered to the Paying Agent, on and after such Purchase Date, (i) such Bond will cease to be outstanding, (ii) such Bond will be deemed paid, and (iii) all other rights of the Holder shall terminate (other than the right to receive the Holder’s Put Price, the Delisting Put Price or the Change of Control Put Price, as the case may be).

Certain Definitions

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

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

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

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

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

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

“ Change of Control ” occurs when:

(1) any Person or Persons (as defined below) acting together acquires Control of the Issuer if such

Person or Persons does not or do not have, and would not be deemed to have, control of the Issuer on the Closing Date;

(2) the Issuer consolidates with or merges into or sells or transfers all or substantially all of the Issuer’s assets to any other Person, unless the consolidation, merger, sale or transfer will not result in the other Person or Persons acquiring Control over the Issuer or any successor entity; or
(3) one or more other Persons acquire the legal or beneficial ownership of all or substantially all of the Issuer’s Capital Stock.

“ Closing Price ” means for any Trading Day (a) with respect to the Common Shares, the closing price of the Common Shares on the TWSE on such day or, if no reported sales take place on such day, the average of the reported closing bid and offered prices, in either case as reported by the TWSE for such day as furnished by an Independent Investment Bank, and (b) with respect to Capital Stock of the Issuer (other than Common Shares), the closing price for such Capital Stock (other than Common Shares) on the Selected Exchange (as defined under “Trading Day” below); provided that for the purpose of determining the Closing Price used in “— Redemption at the Option of the Issuer” above for all Trading Days on or between the exrights or ex-dividends date and the record date for the determination of the shareholders entitled to receive such rights or dividends, the Closing Price shall be adjusted upwards to include the value of such rights or dividends.

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

“ Control ” means (i) the right to appoint and/or remove all or the majority of the members of the Issuer’s board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise; or (ii) the acquisition or control of more than 50% of the voting rights of the issued share capital of the Issuer.

“ Conversion Price ” means the initial conversion price of NT$10.72 per Common Share set forth on the cover of this Offering Circular, subject to adjustment in the manner provided in “— Conversion — Adjustments to the Conversion Price” below.

“ Conversion Ratio ” means the principal amount of each Bond (i.e. US$200,000) divided by the applicable Conversion Price then in effect (translated into US Dollars at the Fixed Exchange Rate).

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

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

“ Early Redemption Amount ” means for each US$200,000 in principal amount of the Bonds, the amount which represents a gross yield of 0.0% per annum, calculated on a semi-annual basis up to the redemption date.

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

“ Fixed Exchange Rate ” means the fixed rate of US$1.00=NT$29.913.

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

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

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

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

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

“ Person ” means any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organization, trust, state or agency of a state (in each case whether or not being a separate legal entity), limited liability company, government or political subdivision or agency or instrumentality thereof, or any other entity or organization; provided that in the context of a Change of Control, a Person does not include the Issuer’s board of directors or any other governing board and does not include the Issuer’s whollyowned direct or indirect Subsidiaries.

“ Prevailing Rate ” for each day, means a rate determined by the Issuer in good faith as follows:

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

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

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

As soon as practicable after the Prevailing Rate has been determined, the Issuer will notify the Agents of the Prevailing Rate on such day.

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

“ Purchase Date ” has the meaning specified under the caption “— Repurchase Procedures” above.

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

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

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

“ Subsidiary ” means, with respect to any Person, (a) any entity which is controlled or of which more than 50% of its Capital Stock is owned directly or indirectly by such Person, or (b) any entity which at any time has its accounts consolidated with those of that Person or which, under the law, regulations or generally accepted accounting principles of the jurisdiction of incorporation of such Person from time to time, should have its accounts consolidated with those of that Person.

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

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

“ TWSE ” means Taiwan Stock Exchange Corporation.

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

Certain Covenants

Negative Pledge

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

International Investment Securities are secured by such Lien or (b) with such other security, guarantee, indemnity or other arrangement as shall be approved by Holders holding not less than 50% of the principal amount of the outstanding Bonds.

As used herein, “International Investment Securities” means bonds, debentures, notes or other similar investment securities of the Issuer or any other person evidencing indebtedness, or any guarantees thereof, which (i) either (A) are by their terms payable, or confer a right to receive payment, in any currency other than NT Dollars or (B) are denominated in NT Dollars and more than 50% of the aggregate principal amount thereof is initially distributed outside the ROC by or with the consent of the Issuer and (ii) are for the time being, or are intended to be or capable of being, quoted, listed, dealt in or traded on any stock exchange or over-the-counter or other securities market.

Consolidation, Amalgamation or Merger

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

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

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

Provision of Financial Statements and Reports

So long as any Bond remains outstanding, the Issuer shall: (i) maintain proper accounting records as may be necessary for it to comply with all applicable laws and so as to enable the financial statements of the Issuer to be prepared; (ii) within six months of the end of each fiscal year, provide the Trustee with copies of its annual audited consolidated accounts in English and Chinese; (iii) as soon as practicable, provide to the Trustee copies of its unaudited, semi-annual, consolidated accounts in English only (or English translations if English versions are not available) and copies of its unaudited, quarterly consolidated accounts in English only (or English translations if English versions are not available); (iv) as soon as practicable, provide to the Trustee three copies in English of all notices, statements and other documents (or summaries thereof) issued to holders of its Common Shares or its creditors (when such notifications, statements and other documents (or summary thereof) are required to be provided to all of such creditor(s) as a whole); and (v) maintain proper accounting records and permit Trustee access thereto.

Delivery of these reports and information to the Trustee is for informational purposes only and the Trustee’s receipt of them will not constitute actual or constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on officers’ certificates). The Trustee is not obliged to review, examine, distribute or request such report, information or document from the Issuer. If such report, information or document shall not be in the English language, the Trustee shall not be required to request or obtain or arrange for an English translation of the same, and the Trustee shall not be liable to any Bondholder or any other person for not doing so.

Conversion

Conversion Right

Each Holder will have the right (the “Conversion Right”) during the Conversion Period to convert its Bonds (being US$200,000 in principal amount or any integral multiples thereof), at the option of such converting Holder, upon delivery of an irrevocable notice (the “Conversion Notice”) at the office of the conversion agent, on any Business Day during normal office hours (being between 9.00 a.m. and 3.00 p.m. (London time)) at the location of the conversion agent to which such Conversion Notice is delivered, into Common Shares; provided , however , that the Conversion Right during any Closed Period (as defined below) shall be suspended and the Conversion Period shall not include any such Closed Period. “Closed Period” means (i) the 60-day period immediately prior to the date of any of the Issuer’s annual general shareholders’ meetings; (ii) the 30-day period immediately prior to the date of any of the Issuer’s extraordinary general shareholders’ meetings; (iii) the period from the fifteenth Trading Day prior to the record date for the determination of the shareholders entitled to the receipt of dividends in cash or shares, subscription of new Common Shares due to capital increase or other benefits and bonuses to such record date; (iv) the period from the record date for the determination of the shareholders participating in any capital reduction to one day prior to the Trading Day on which the Common Shares are reissued after such capital reduction; and (v) such other periods during which the Issuer may be required to close its stock transfer books under ROC laws and regulations and the rules of the TWSE applicable from time to time. The Issuer shall procure that Holders (and other applicable parties) are given at least 10 days’ but not more than 60 days’ prior notice of any Closed Period in accordance with the provisions of the Indenture.

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

The Conversion Price shall at all times be subject to Anti-dilution Adjustment (as defined below). The Issuer shall not take any action that would reduce the Conversion Price below a level that may be prescribed by applicable laws and regulations from time to time (if any).

Restrictions on Shareholdings by PRC Persons

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

ROC Procedures for Foreign Persons Holding Common Shares

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

Delivery of Common Shares upon Conversion

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

The Issuer’s delivery to the Bondholder of the number of Common Shares into which the Bonds are convertible, together with any cash payment for any fraction of Common Shares, will be deemed to satisfy the Issuer’s obligation to pay the principal of and other amounts on such Bonds.

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

Procedures; Conversion Notice; Taxes and Duties

In order to effect a conversion, each Holder must complete, execute and deliver at such Holder’s expense during the Conversion Period to the office of the conversion agent on any Business Day during normal office hours (being between 9.00 a.m. and 3.00 p.m. (London time)) at the location of the conversion agent, a Conversion Notice, in substantially the form then obtainable from the office of the conversion agent, together, in the case of Certificated Bonds, with the certificate representing the Bonds to be converted, and any certificates and other documents as may be required under applicable law and any expenses or other payments required to be paid by the Holder pursuant to the terms of the Indenture. The Conversion Notice

shall contain, inter alia, an appointment of a local agent by such converting Holder and the name and address of such local agent.

Upon receipt of such Conversion Notices, the conversion agent shall process and transmit such Conversion Notices to the Issuer.

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

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

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

On the Conversion Date, the Issuer will register the converting Holder (or its designee) in the Issuer’s register of shareholders as the owner of the number of Common Shares to be issued upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days from the Conversion Date (subject to changes to ROC laws and regulations) (or where the converting Holder has not appointed a local agent, after such local agent is appointed), there be delivered to the local agent appointed by the converting Holder through book-entry system of Taiwan Depository & Clearing Corporation (“TDCC”) or through physical delivery of a certificate or certificates for the relevant Common Shares, registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

Neither the Trustee nor any of the Agents shall have any responsibility or liability to pay any such stamp duty, income, transfer and registration tax or any other duties and taxes or any brokers’ commissions or other stock exchange transaction costs or brokers’ commissions, together with any value added or other tax thereon, arising in any jurisdiction and shall not be liable to any Bondholder or any other person for not doing so.

Adjustments to the Conversion Price

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

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

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

where:

NCP = the Conversion Price after such adjustment.

OCP = the Conversion Price before such adjustment.

N = the number of Common Shares outstanding at the time of issuance of such dividend and/or distribution (or at the close of business in Taipei on such record date, as the case may be).

n = the number of Common Shares to be distributed to the shareholders as a dividend and/or distribution.

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

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

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

where:

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

N = the number of Common Shares outstanding at the close of business in the ROC (in the case of (a) above) on such record date or (in the case of (b) above) on the date the Issuer fixes the said consideration.

n = the number of Common Shares to be issued in connection with such rights issue at the said consideration.

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

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

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

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

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

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

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

where:

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

n = the number of Common Shares initially to be issued upon exercise of such warrants at the said consideration where no applications by shareholders entitled to such warrants are required. Where applications by shareholders entitled to such warrants are required, n equals the number of such Common Shares that equals (A) the number of warrants which underwriters have agreed to underwrite as referred to below or, as the case may be, and (B) the number of warrants for which applications are received from shareholders as referred to below except to the extent already adjusted for under (A).

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

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

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

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

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

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

where:

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

M = the Market Value per Common Share on the record date for the determination of shareholders entitled to receive such distribution.

fmv = the Fair Market Value (as determined by an independent financial institution selected by the Issuer, at the expense of the Issuer and promptly notified in writing to the Trustee) of the portion of Capital Stock other than Common Shares, evidences of indebtedness or other assets so distributed applicable to one Common Share less any consideration payable for the same by the relevant Shareholder.

(vi) In case the Issuer shall, by dividend or otherwise, distribute to all holders of Common Shares cash then, in such case, the Conversion Price shall be adjusted downward, not upward (with such adjustment to be effective on the record date for the determination of the shareholders entitled to receive such distribution) in accordance with the following formula and rounded to the nearest cent of a NT Dollar;

NCP = OCP x [1 – (C/M)]

where:

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

C = the amount of cash so distributed applicable to one Common Share.

M = the Market Value per Common Share on such record date.

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

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

NCP = OCP x (N/n)

where:

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

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

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

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

(B) If the Issuer shall reduce its share capital other than by means of canceling any

Common Shares repurchased for the purpose of holding such Common Shares in treasury and shall distribute cash in connection with such share capital reduction, the Conversion Price then in effect on the record date for the determination of the shareholders participating in such capital reduction shall be adjusted in accordance with the following formula:

NCP

= (OCP – C) x (N/n)

where:

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

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

C = the amount of cash distributed per Common Share.

(C) Effective date of adjustment: Such adjustment shall become effective immediately on the record date for the determination of the shareholders participating in such capital reduction.
(viii) In case a tender or exchange offer made by the Issuer or any Subsidiary of the Issuer for all or any portion of the Common Shares shall expire and such tender or exchange offer shall involve the payment by the Issuer or such Subsidiary of consideration per Common Share having a Fair Market Value (as determined by an independent financial institution selected by the Issuer, at the expense of the Issuer and promptly notified in writing to the Trustee) at the last time (the “Expiration Date”) tenders or exchanges could have been made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Market Value per Common Share, as of the Expiration Date, the Conversion Price shall be adjusted in accordance with the following formula:

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

where:

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

N = the number of Common Shares outstanding (including any tendered or exchanged Common Shares) on the Expiration Date.

M = Market Value per Common Share as of the Expiration Date.

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

n = the number of Purchased Shares.

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

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

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

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

where:

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

N = the number of Common Shares outstanding on the date of issuance of such Common Shares or initially convertible or exchangeable securities, immediately prior to such issuance.

n = the number of Common Shares issued or issuable upon conversion or exchange of such initially convertible or exchangeable securities.

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

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

(x) If the Issuer shall declare a dividend in, or make a free distribution or bonus issue of, Common Shares which dividend, issue or distribution is to be paid or made to shareholders as of a record date which is also:

(A) the record date for the issue of any rights or warrants which requires an adjustment of the Conversion Price pursuant to subsections (iii) or (iv) above;
(B) the day immediately before the date of issue of any securities convertible into or exchangeable for Common Shares which requires an adjustment of the Conversion Price pursuant to subsection (ix) above;
(C) the day immediately before the date of a distribution which requires an adjustment of the Conversion Price pursuant to subsection (v) above;
(D) the record date for distribution of cash which requires an adjustment of the Conversion Price pursuant to subsection (vi) above;
(E) the record date for the determination of the shareholders participating in capital reduction which requires an adjustment of the Conversion Price pursuant to subsection (vii) above;
(F) the Expiration Date with respect to any tender or exchange offer which requires an adjustment to the Conversion Price pursuant to subsection (viii) above; or
(G) the relevant date for an analogous event or circumstance which requires an adjustment to the Conversion Price;

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

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

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

Provisions Applicable to All Conversions and Adjustments of Conversion Price

No adjustment of the Conversion Price will be required to be made until cumulative adjustments, required to be made in the circumstances set forth above, amount to 1.0% or more of the Conversion Price as last adjusted. However, any adjustment, required to be made in the circumstances set forth above, which

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is not made because of failure to meet the 1.0% threshold, will be carried forward. Except as otherwise described below, the Conversion Price may at any time be reduced by the Issuer.

All calculations relating to conversion, including adjustments of the Conversion Price, will be made to the lower 0.001 of a share of securities or other property or nearest cent, as the case may be.

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

Neither the Trustee nor any Agent shall be under any duty to monitor whether any event or circumstance has happened or exists which may require an adjustment to be made to the Conversion Price or to make any calculation (or verification thereof) in connection with the Conversion Price and will not be responsible to Bondholders for any loss arising from any failure by it to do so or for any delay by the Issuer in making a determination or any erroneous determination in connection with the Conversion Price.

Events of Default; Notice and Waiver

The Indenture provides that, if one or more of the following events or conditions (each an “Event of Default”) shall have occurred, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Bonds then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the written direction of such Holders shall, subject to the Trustee being indemnified and/or secured and/or prefunded to its satisfaction), declare the Bonds to be immediately due and payable at the Early Redemption Amount, Additional Amounts, if any, and other amounts. In the case of certain events of bankruptcy or insolvency, the Bonds shall automatically become and be immediately due and payable at the Early Redemption Amount, Additional Amounts, if any, and other amounts. Under certain circumstances, the Holders of a majority in aggregate principal amount of the outstanding Bonds may rescind any such acceleration with respect to the Bonds and its consequences.

Under the Indenture, Events of Default include:

(i) default in payment of the principal of any Bond, as and when the same becomes due and payable;
(ii) default in the payment of Additional Amounts upon any Bond as and when the same becomes due and payable;
(iii) failure by the Issuer to deliver the Common Shares as and when such Common Shares are required to be delivered following conversion of a Bond;
(iv) failure on the part of the Issuer duly to observe or perform any of the covenants or agreements provided in the Bonds or the Indenture (other than those referred to in clauses (i), (ii) or (iii) above) which failure cannot be remedied or, if such failure is capable of being remedied, is not remedied within 10 days after the date on which written notice thereof requiring the Issuer to remedy the same shall have been given to the Issuer by the Trustee or the Holders of at least 25% in aggregate principal amount of the Bonds then outstanding;
(v) there shall have been entered against the Issuer or any of its Subsidiaries a final judgment, decree or order by a court of competent jurisdiction for the payment of money in excess of US$20 million with respect to the Issuer or any of its Subsidiaries (or its equivalent in any other currency or currencies) and 10 days shall have passed since the entry of the order without it being bonded, satisfied, discharged or stayed;

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(vi) (A) the Issuer or any of its Subsidiaries shall fail to make any payment with respect to present or future Debt (other than the Bonds) in an aggregate principal amount in excess of US$20 million with respect to the Issuer or any of its Subsidiaries (or its equivalent in any other currency or currencies) when and as the same shall become due and payable, if such failure shall continue for more than the period of grace, if any, originally applicable thereto or (B) the Issuer or any of its Subsidiaries shall fail to perform or observe any covenant or agreement to be performed or observed by the Issuer or any of its Subsidiaries contained in any agreement or instrument evidencing Debt (other than the Bonds) in an aggregate principal amount in excess of US$20 million with respect to the Issuer or any of its Subsidiaries (or its equivalent in any other currency or currencies) and such failure results in the acceleration of the maturity of any amount owing thereunder;
(vii) a decree or order by a court having jurisdiction shall have been entered under any applicable bankruptcy, insolvency, reorganization or other similar law (A) adjudging the Issuer or any of its Subsidiaries as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of the Issuer or any of its Subsidiaries or (B) appointing a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Issuer or any of its Subsidiaries or of its property or (C) ordering the winding up or liquidation of the affairs of the Issuer or any of its Subsidiaries and in any such case such decree or order shall have continued undischarged and unstayed for a period of 10 days;
(viii) the Issuer or any of its Subsidiaries shall voluntarily commence proceedings to be adjudicated as bankrupt or insolvent, or shall consent to the filing of a bankruptcy or insolvency proceeding against it, or shall file a petition or answer or consent seeking reorganization under any applicable bankruptcy, insolvency, reorganization or other similar law or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or its property, or shall make an assignment for the benefit of creditors;
(ix) a distress, attachment, execution or other legal process is levied, enforced or sued out on or against all or any material part of the property, assets or revenues of the Issuer or any of its Subsidiaries;
(x) any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed by the Issuer or any of its Subsidiaries becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, manager or other similar person);
(xi) any step is taken by any person with a view to the seizure, compulsory acquisition, expropriation or nationalization of all or a material part of the assets of the Issuer or any of its Subsidiaries;
(xii) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done in order (a) to enable the Issuer lawfully to enter into, exercise its rights and perform and comply with its obligations under the Bonds and the Indenture, (b) to ensure that those obligations are legally binding and enforceable, and (c) to make the Bonds and the Indenture admissible in evidence in the courts of the ROC is not taken, fulfilled or done;
(xiii) it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Bonds or the Indenture; or
(xiv) any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of paragraphs (i) to (xiii) (both inclusive).

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If an Event of Default shall have occurred and be continuing, interest shall accrue on the overdue sum at the rate of 3% per annum from the due date and ending on the date on which payment is made to the Holders in respect thereof (both dates inclusive). Such default interest shall accrue on the basis of the actual number of days elapsed and a 360-day year consisting of 12 months of 30 days each.

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

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

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

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

The Trustee and the Agents shall not be required to take any steps to ascertain whether an Event of Default or any event which could lead to the occurrence of an Event of Default has occurred and will not be responsible to Holders or any other person for any loss arising from any failure by it to do so. The Trustee or the Agents shall be entitled to assume that no such event has occurred and that the Issuer is performing all its obligations under the Indenture and the Bonds until they have received written notice to the contrary from the Issuer. The Trustee is entitled to rely on any opinion of counsel or officer’s certificate regarding whether an Event of Default has occurred.

The Issuer will be required to furnish to the Trustee, within 14 days of its annual audited financial statements being made available to its shareholders and also within 14 days after any request by the Trustee, a statement concerning the performance and observance of its obligations under the Bonds or the Indenture. In addition, the Issuer is required to file promptly with the Trustee written notice of the occurrence of any Default or Event of Default, specifying each such default and the nature and status thereof.

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Prescription

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

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

Meeting of Bondholders; Modification and Waiver

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

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

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

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(xiii) release the Issuer from any obligation under the Indenture other than in accordance with the provisions of the Indenture, or amend or modify any provision relating to such release in a manner that materially adversely affects the rights of the Holders.

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

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

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

Notices

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

Concerning the Trustee

The Bank of New York Mellon, London Branch has been appointed as Trustee under the Indenture, as Paying Agent and as Conversion Agent and The Bank of New York Mellon SA/NV, Luxembourg Branch as registrar (the “Registrar”) and as transfer agent (the “Transfer Agent”, and together with the Paying Agent, Conversion Agent and the Registrar, the “Agents”) with regard to the Bonds. The Indenture provides that, prior to the occurrence of an Event of Default, the Trustee will not be liable except for the performance of such duties as are specifically set forth in such Indenture, and no implied covenant, duty or obligation shall be read into the Indenture, the Bonds or any documents to which the Trustee is a party against the Trustee. If an Event of Default has occurred and is continuing, the Trustee will be obligated to use the same degree of care and skill as a prudent person in its exercise of the rights and powers vested in it under the Indenture. The Trustee will not be responsible for any loss, liability, cost, claim, actions, demand, expense or inconvenience which may result from their exercise or non-exercise of any rights or powers conferred under the Indenture for the benefit of the Holders. Whenever in the Indenture, the Bonds or by law, the Trustee shall have discretion or permissive power it may decline to exercise the same in the absence of approval by the Bondholders. In the exercise of its duties, the Trustee shall not be responsible for the verification of the accuracy or completeness of any certification submitted to it by the Issuer and is entitled to rely exclusively on the certification contained therein, and take action based on the information contained in, the certification or legal opinion. Notwithstanding anything described herein, the Trustee has no duty to monitor the performance or compliance of the Issuer in the fulfillment of its obligations under the Indenture and the

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Bonds. Furthermore, the Trustee shall not be deemed to have knowledge of any event unless it has been actually notified in writing of such event.

The Trustee shall not be responsible for the performance by any other person appointed by the Issuer in relation to the Bonds and, unless notified in writing to the contrary, shall assume that the same are being duly performed. The Trustee shall not be liable to any Holders or any other person for any action taken by the Holders or the Trustee in accordance with the instructions of the Holders.

The Trustee is entitled to rely on all instructions, notices, declarations and certifications received pursuant to the Indenture or the Bonds without investigating or being responsible for the accuracy, authenticity and validity of these instructions, notices, declarations and certifications.

Neither the Trustee nor the Agents will be responsible for making calculations or for verifying calculations performed by the Issuer or any other persons unless otherwise specified in the Indenture.

Pursuant to the terms of the Indenture and the Bonds, the Issuer will reimburse the Trustee and the Agents for all reasonable expenses except to the extent that any such expense was due to the Trustee’s gross negligence or willful misconduct.

The Indenture contains limitations on the rights of the Trustee, should it become a creditor of the Issuer to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions with the Issuer and its Affiliates and shall not be obligated to account for any profits therefrom; provided, however , that if it becomes aware it has acquired any conflicting interest, it must eliminate such conflict or resign. The Trustee and the Agents may have an interest in, may be providing, or may in the future provide financial or other services to other parties.

The Trustee will not be under any obligation to exercise and have absolute and uncontrolled discretion as to exercise or non-exercise of any rights or powers conferred under the Indenture for the benefit of the Holders unless such Holders have instructed the Trustee in writing and offered to the Trustee indemnity and/or security indemnity and/or pre-funding satisfactory to the Trustee against any loss, liability or expense. Furthermore, each Holder, by accepting the Bonds will agree, for the benefit of the Trustee, that it is solely responsible for its own independent appraisal of and investigation into all risks arising under or in connection with the Indenture and has not relied on and will not at any time rely on the Trustee in respect of such risks.

Disclosure Obligations

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

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

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

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Governing Law and Jurisdiction

The Indenture and the Bonds are governed by, and shall be construed in accordance with, the laws of the State of New York. In relation to any legal action or proceedings arising out of or in connection with the Indenture and the Bonds, the Issuer has in the Indenture irrevocably and unconditionally submitted to the exclusive jurisdiction of the New York State and United States Federal courts sitting in the Borough of Manhattan, The City of New York. The Issuer has appointed Cogency Global Inc., now located at 122 East 42[nd] Street, 18[th] Floor, New York, NY 10168, as its agent for service of process.

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

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TAXATION

We are incorporated in the ROC, and our principal operating subsidiaries are located in the PRC and the ROC.

ROC Taxation of Non-Residents

The following summary constitutes the material ROC tax consequences of the ownership and disposition of our Shares or the Bonds by a non-resident individual or non-resident entity (referred to here as a “non-ROC holder”). As used in the preceding sentence, a “non-resident individual” is a non-ROC national who owns the Company shares or the Bonds and is not physically present in the ROC for 183 days or more during any calendar year, and a “non-resident entity” is a corporation or a non-corporate body that owns the Company shares or the Bonds, is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or business agent in the ROC.

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

Payments on the Bonds

Payments of principal on the Bonds made by the Issuer will not be subject to ROC withholding tax.

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

Sale of Bonds

The sale of convertible bonds which were issued and offered by ROC companies outside of the ROC is not subject to ROC securities transaction tax. Accordingly, the sale of the Bonds will not be subject to ROC securities transaction tax.

Capital gains in transactions of corporate bonds issued by ROC companies are exempt from ROC income tax. Accordingly, capital gains derived from the sale of the Bonds are exempt from ROC income tax.

Conversion of Bonds

The conversion of Bonds into Common Shares will not be taxable to Non-ROC holders under ROC income tax law, i.e., you will generally not recognize gain or loss on the conversion of your Bonds into the Shares except to the extent of cash received in lieu of a fractional Share. The amount of gain or loss you recognize on the receipt of cash in lieu of a fractional Share will be equal to the difference between the amount of cash you receive in respect of the fractional Share and the portion of your adjusted tax basis in the Bonds allocable to the fractional Share. The tax basis of the Shares received upon a conversion of a Bond will equal the adjusted tax basis of the Bond that was converted (excluding the portion of the tax basis allocable to any fractional Share).

In addition, securities transaction tax, gift tax and/or income tax may be imposed in relation to the converting holder’s designation of other person to be the holder of Common Shares upon conversion of the Bonds.

Dividends

Dividends (whether in the form of cash or Common Shares) declared by us out of retained earnings and distributed to a non-ROC holder are subject to ROC withholding tax, currently at the rate of 21% (unless a preferable tax rate is provided under a tax treaty between the ROC and the jurisdiction where the non-ROC holder is a resident) on the amount of the distribution (in the case of cash dividends) or on the par value of

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the Common Shares distributed (in the case of stock dividends). A 10% undistributed earnings tax was imposed on an ROC company for its after-tax earnings generated after January 1, 1998 which were not distributed in the following year. The undistributed earnings tax was reduced to 5% on January 1, 2018. The undistributed earnings tax so paid will further reduce the retained earnings available for future distribution. Furthermore, if and when we distribute any dividends in year 2018, for the portion of dividends out of those retained earnings on which we had paid the 10% ROC undistributed earnings tax, a credit of up to 5% of such portion of dividends may be offset against the 21% withholding tax imposed on the non-ROC holders. Starting from 2019, no undistributed earnings tax paid can be offset as a credit against the 21% withholding tax.

Distributions of our Shares or cash out of capital reserves are not subject to the ROC withholding tax, except under limited circumstances.

Capital Gains

Starting from January 1, 2016, capital gains realized from the sale or disposal of our Shares are exempt from ROC income tax under Article 4-1 of the ROC Income Tax Act.

Securities Transaction Tax

Securities transaction tax will be imposed on the seller at the rate of 0.3% of the transaction price upon a sale of our Shares. Transfers of our Shares (received from conversion of the Bonds) are subject to ROC securities transaction tax.

Subscription Rights

Distributions of statutory subscription rights for our Shares in compliance with the ROC Company Act are currently not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are subject to securities transaction tax, currently at the rate of 0.3% of the gross amount received. Non-ROC holders are exempt from income tax on capital gains from the sale of statutory subscription rights evidenced by securities. Proceeds derived from sales of statutory subscription rights which are not evidenced by securities are not subject to securities transaction tax but are subject to income tax at a fixed rate of 20% of the income if the seller is a non-ROC holder. Subject to compliance with ROC law, we have the sole discretion to determine whether statutory subscription rights will be evidenced by securities.

Estate and Gift Tax

ROC estate tax is payable on any property within the ROC left by a deceased, and ROC gift tax is payable on any property within the ROC donated by an individual. Estate tax and gift tax are currently payable at the progressive rates of 10%, 15% and 20%. Under the ROC Estate and Gift Tax Act, common shares issued by ROC companies are deemed located in the ROC without regard to the location of the owner. A holder of Bonds or Shares will be considered to own common shares for this purpose.

Tax Treaty

At present, the ROC has income tax treaties with Indonesia, Singapore, New Zealand, Australia, the United Kingdom, South Africa, Gambia, Eswatini, Malaysia, Macedonia, the Netherlands, Senegal, Sweden, Belgium, Denmark, Israel, Vietnam, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Austria, Italy, Japan, Canada and Poland. These tax treaties may limit the rate of ROC withholding tax on interest or dividends paid with respect to bonds or common shares issued by ROC companies. Accordingly, holders of our Bonds and Shares who wish to apply a reduced withholding tax rate that is provided under a tax treaty should consult their own tax advisers concerning such application.

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TRANSFER RESTRICTIONS

Transfer Restrictions on the Bonds

Because of the following restrictions, we encourage you to consult a legal counsel prior to making any offer, resale, pledge or other transfer of the Bonds or the Shares issuable upon conversion of the Bonds.

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

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

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

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

THE ZERO COUPON CONVERTIBLE BONDS DUE 2025 (THE “BONDS”) AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THE BONDS HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE SECURITIES LAWS. EACH HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE BONDS EVIDENCED HEREBY, REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING RESTRICTIONS;

it understands that the Bonds will be represented initially by a Global Bond; and
we, the Trustee, the Initial Purchasers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.

Each purchaser of Bonds that may wish to resell any Bonds pursuant to Regulations S is advised that approval in-principle has been received for the listing and quotation of the Bonds on the SGX-ST. The SGXST is a “designated offshore securities market” (within the meaning of Regulation S) and accordingly, a

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resale transaction could be effected in, on or through the facilities of such exchange in reliance upon the safe harbor provided by Rule 904 of Regulation S, subject to compliance with the conditions of Rule 904.

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PLAN OF DISTRIBUTION

UBS AG Hong Kong Branch and Credit Suisse (Hong Kong) Limited are the joint bookrunners and the Initial Purchasers of this offering.

Subject to the terms and conditions stated in a purchase agreement, dated as of January 15, 2020, entered into between us and the Initial Purchasers, the Initial Purchasers have agreed to purchase, and we have agreed to sell to the Initial Purchasers, the following principal amounts of the Bonds:

Initial Purchaser		Principal Amount US$210,000,000
UBS AG Hong Kong Branch ........................................... Credit Suisse (Hong Kong) Limited ................................. Total.................................................................................
		US$90,000,000
		US$300,000,000

The purchase agreement provides that the obligations of the Initial Purchasers to purchase the Bonds included in this offering are subject to certain conditions, including receipt of certain legal opinions, and entitles the Initial Purchaser to terminate it in certain circumstances prior to payment being made to us.

The Initial Purchasers or its affiliates may purchase the Bonds for its own account and enter into transactions, including (i) credit derivatives including asset swaps, repackaging and credit default swaps relating to the Bonds and/or our securities or (ii) equity derivatives and stock loan transactions relating to the Common Shares at the same time as the offer and sale of the Bonds or in secondary market transactions. Such transactions would be carried out as bilateral trades with selected counter-parties and separately from any existing sale or resale of the Bonds to which this offering memorandum relates (notwithstanding that such selected counterparties may also be purchasers of the Bonds). The Initial Purchasers or its affiliates may purchase Bonds and be allocated Bonds for asset management and/or proprietary purposes and not with a view to distribution. The Initial Purchasers or its affiliates are not expected to disclose such transactions or the extent of any such investment, except as required by any legal or regulatory obligation to do so. These transactions may involve a substantial portion of the Bonds.

The Bonds and the Shares (to be delivered upon conversion of the Bonds) have not been and will not be registered under the Securities Act or any state securities laws and may not be offered or sold within the United States except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. See “Transfer Restrictions.” The Bonds will not be offered or sold directly or indirectly in the ROC, or to, or for the account or benefit of, any ROC person.

Application will be made for the listing and quotation of the Bonds on the Official List of the SGXST. However, we cannot assure you that the prices at which the Bonds will sell in the market after this offering will not be lower than the initial offering price or that an active trading market for the Bonds will develop and continue after this offering.

For a period of 90 days after the Closing Date, without the prior written consent of the Initial Purchasers of this offering, we will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any Shares or any securities convertible into or exercisable or exchangeable for the Shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Shares or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of the Shares or such other securities, in cash or otherwise, other than the Bonds to be offered and sold in this offering and the Shares issuable upon conversion of the Bonds. Notwithstanding the foregoing, we may (A) issue stock dividends, (B) implement stock splits, (C) transfer the Shares repurchased by us to our employees.

The Initial Purchasers have performed commercial banking, investment banking and advisory services for us from time to time for which it has received customary fees and reimbursement of expenses. The Initial Purchasers may, from time to time, engage in transactions with and perform services for us in the ordinary

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course of its business for which it may receive customary fees and reimbursement of expenses. In addition, affiliates of the Initial Purchasers are lenders, and in some cases agents or managers for the lenders, under our credit facility.

Pursuant to the purchase agreement, we have agreed to indemnify the Initial Purchasers against certain losses and liabilities, including civil liabilities under the Securities Act in certain situation, or to contribute to payments that the Initial Purchasers may be required to make in respect thereof.

Notice to prospective investors in the ROC and restriction on related party subscription under ROC law

The Bonds may not be offered or sold directly or indirectly in the ROC, or to, or for the account or benefit of, any ROC person.

Under applicable ROC laws and regulations, we and the Initial Purchasers are prohibited from offering and selling the Bonds to the “related parties” as set forth in the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the persons as specified in Section 36 of the ROC Securities Association Rules Governing Underwriting and Resale of Securities by Securities Firms. Therefore, each subscriber or purchaser of the Bonds described in this offering memorandum will be deemed to have acknowledged and represented to us and the Initial Purchasers that he, she or it is not: (a) a related party to us, (b) a business entity that is invested by us using equity method in our accounting reporting, (c) a business entity that invests in our company and uses equity method in its accounting reporting, (d) a company whose chairperson of the board or president is the same as that of our company or is the spouse thereof, (e) a foundation with one-third of its total paid-in funds donated by us, (f) our director, president, vice-president, assistant vice president, and other department head under the immediate supervision by our president, (g) a spouse of our director or president, (h) a director or employee of any member of the underwriting syndicate or a spouse thereto, and (i) a person subscribing for the Bonds on behalf of or for the benefit of any person set forth in items (b) to (h) above.

Notice to prospective investors in the European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”), an offer of securities described in this offering memorandum may not be made to the public in that Relevant Member State, other than:

to any legal entity which is a qualified investor as defined in the Prospectus Directive;
to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers nominated by the Issuer for any such offer; or
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall require the Issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any of the securities described in this offering memorandum in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Relevant Member State, by any measure implementing the Prospectus Directive in that Relevant Member State, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant

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Member State), and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Notice to prospective investors in the United Kingdom

This offering memorandum is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a “relevant person”). This offering memorandum and its contents should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

Notice to prospective investors in France

Neither this offering memorandum nor any other offering material relating to the securities described in this offering memorandum has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this offering memorandum nor any other offering material relating to the securities has been or will be:

released, issued, distributed or caused to be released, issued or distributed to the public in France; or
used in connection with any offer for subscription or sale of the securities to the public in France. Such offers, sales and distributions will be made in France only:
to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with, articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;
to investment services providers authorized to engage in portfolio management on behalf of third parties; or
in a transaction that, in accordance with article L.411-2-II-1 0 -or-2 0 -or 3 0 of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).

The securities may be resold directly or indirectly, only in compliance with articles L.411-1, L.4112, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.

Notice to prospective investors in Hong Kong

The securities may not be offered or sold in Hong Kong by means of any document other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made under the SFO; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and no advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to

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securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.

Notice to prospective investors in Japan

The securities offered in this offering memorandum have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Law No. 25 of 1948) (as amended) (the “FIEA”). Accordingly, the securities have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to, or for the account of, any resident of Japan, or to others for re-offering or re-sale, directly or indirectly in Japan or to, for the benefit of, any resident of Japan, except pursuant to any exemption from the registration requirements of the FIEA and otherwise in compliance with the FIEA and other applicable provisions of Japanese laws, regulations and governmental guidelines. As used in this paragraph, “resident of Japan” means any person residing in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to prospective investors in Singapore

This document has not been, and will not be, registered as a prospectus with the Monetary Authority of Singapore (the “MAS”), and the Bonds will be offered pursuant to exemptions under the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”). Accordingly, this offering memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Bonds may not be circulated or distributed, nor may the Bonds be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018 of Singapore) or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Bonds are subscribed or purchased in reliance of an exemption under Section 274 or 275 of the SFA, the Bonds shall not be sold within the period of six (6) months from the date of the initial acquisition of the bonds, except to any of the following persons:

(i) an institutional investor (as defined in Section 4A of the SFA);
(ii) a relevant person (as defined in Section 275(2) of the SFA); or
(iii) any person pursuant to an offer referred to in Section 275(1A) of the SFA,

unless expressly specified otherwise in Section 276(7) of the SFA or Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

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

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

securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable within six (6) months after that corporation or that trust has acquired the bonds pursuant to an offer made under Section 275 of the SFA except:

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(1) to an institutional investor or to a relevant person as defined in Section 275(2) of the SFA, or (in the case of such corporation) where the transfer arises from an offer referred to in Section 276(3)(i)(B) of the SFA or (in the case of such trust) where the transfer arises from an offer referred to in Section 276(4)(i)(B) of the SFA;
(2) where no consideration is or will be given for the transfer;
(3) where the transfer is by operation of law;
(4) pursuant to Section 276(7) of the SFA; or
(5) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

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

Notice to prospective investors in the United Arab Emirates

This offering memorandum is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates, or the UAE. The Bonds have not been and will not be registered under Federal Law No. 4 of 2000 concerning the Emirates Securities and Commodities Authority and the Emirates Security and Commodity Exchange, or with the UAE Central Bank, the Dubai Financial Market, the Abu Dhabi Securities Market or with any other UAE exchange.

The offering of the Bonds has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities in the UAE, and do not constitute a public offer of securities in the UAE in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.

In relation to its use in the UAE, this offering memorandum is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The Bonds may not be offered or sold directly or indirectly to the public in the UAE.

Notice to prospective investors in the PRC

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

Notice to prospective investors in Canada

This offering memorandum constitutes an “exempt offering document” as defined in and for the purposes of applicable Canadian securities laws. No prospectus has been filed with any securities commission or similar regulatory authority in Canada in connection with the offer and sale of the Bonds. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this offering memorandum or on the merits of the Bonds and any representation to the contrary is an offense.

The Bonds may be sold only to purchasers in Canada purchasing, or deemed to be purchasing, as principal that (i) are “accredited investors”, as defined in National Instrument 45-106. Prospectus Exemptions (NI 45-106), or in Ontario, as defined in subsection 73.3 (1) of the Securities Act (Ontario), and

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(ii) are “permitted clients”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

The offer and sale of the Bonds in Canada is being made on a private placement basis only and is exempt from the requirement that the Company prepares and files a prospectus under applicable Canadian securities laws. Any resale of the Bonds acquired by a Canadian purchaser in this offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with Canadian prospectus requirements, pursuant to a statutory exemption from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Bonds outside of Canada.

Securities legislation in certain of the Canadian jurisdictions provides certain purchasers of securities pursuant to an offering memorandum (such as this offering memorandum), including where the distribution involves an “eligible foreign security” as such term is defined in Ontario Securities Commission Rule 45501 Ontario Prospectus and Registration Exemptions and in Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions, as applicable, with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum, or other offering document that constitutes an offering memorandum, and any amendment thereto, contains a “misrepresentation” as defined under applicable Canadian securities laws. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed under, and are subject to limitations and defenses under, applicable Canadian securities legislation. In addition, these remedies are in addition to and without derogation from any other right or remedy available at law to the purchaser.

Canadian purchasers are advised that this offering memorandum has been prepared in reliance on section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105). Pursuant to section 3A.3 of NI 33-105, this offering memorandum is exempt from the requirement that the Company and the Initial Purchasers provide Canadian purchasers with certain conflicts of interest disclosure pertaining to “connected issuer” and/or “related issuer” relationships that may exist between the Company and the Initial Purchasers as would otherwise be required pursuant to subsection 2.1(1) of NI 33-105.

Prospective Canadian purchasers are hereby notified that: (a) we may be required to provide personal information pertaining to the purchasers as required to be disclosed in Schedule I of Form 45-106F1 under NI 45- 106 (including, without limitation, the purchaser ’s name, address, telephone number and the aggregate purchase price of any Bonds purchased) (“personal information”), which Form 45-106F1 may be required to be filed by us under NI 45-106, (b) such personal information may be delivered to the Ontario Securities Commission (the “OSC”) in accordance with NI 45-106, (c) such personal information is collected indirectly by the OSC under the authority granted to it under the securities legislation of Ontario, (d) such personal information is collected for the purposes of the administration and enforcement of the securities legislation of Ontario, and (e) the public official in Ontario who can answer questions about the OSC’s indirect collection of such personal information is the Administrative Support Clerk at the OSC, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8, Telephone: (416) 593-3684. Prospective Canadian purchasers that purchase Bonds in this offering will be deemed to have authorized the indirect collection of the personal information by the OSC, and to have acknowledged and consented to its name, address, telephone number and other specified information, including the aggregate purchase price paid by the purchaser, being disclosed to other Canadian securities regulatory authorities, and to have acknowledged that such information may become available to the public in accordance with requirements of applicable Canadian laws.

Any discussion of taxation and related matters contained in this offering memorandum does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a Canadian purchaser when deciding to purchase the Bonds and, in particular, does not address any Canadian tax considerations. No representation or warranty is hereby made as to the tax consequences to a resident, or deemed resident, of Canada of an investment in the Bonds or with respect to the eligibility of the Bonds for investment by such purchaser under relevant Canadian federal and provincial legislation and regulations.

117

Upon receipt of the offering memorandum, each Canadian purchaser hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the Bonds described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque acheteur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

118

SUMMARY OF CERTAIN MATERIAL DIFFERENCES BETWEEN TAIWAN IFRS AND IFRS

Our audited financial statements as of and for the years ended December 31, 2016, 2017 and 2018 are prepared and presented in accordance with Taiwan IFRS, which differs in certain material respects from IFRS. Certain material differences between Taiwan IFRS applicable to us and IFRS are summarized below. The summary should not be taken as inclusive of all Taiwan IFRS/IFRS differences. Additionally, no attempt has been made to quantify all differences or identify all disclosure, presentation or classification differences that would affect the manner in which events and transactions are presented in the financial statements or notes thereto. Further, no attempt has been made to identify future differences between Taiwan IFRS and IFRS as a result of prescribed changes in accounting standards. Regulatory bodies that promulgate Taiwan IFRS and IFRS have significant projects ongoing that could affect future comparisons such as this one.

If we were to prepare a complete reconciliation between Taiwan IFRS and IFRS additional accounting and disclosure differences might have come to our attention.

Subject Tax on undistributed earnings	Taiwan IFRS Under Taiwan IFRS, companies in Taiwan are subject to 10% surtax on profits earned and retained since December 31, 1997. If the retained profits are distributed to the shareholders in the fiscal year following the year of earnings, the surtax could be avoided. If the earnings are not fully distributed to the shareholders, surtax is recorded as income tax expenses in the fiscal year when shareholders’ decision on distribution is made.	IFRS
		Under IFRS, current and deferred tax assets and liabilities are measured at the tax rate applicable to the undistributed profits. Consequently, tax on undistributed earnings should be accrued during the period the earnings arise and adjusted to the extent of the distributions approved by the shareholders in the following year.

The information set forth above does not in any way attempt to quantify the effects of the aforementioned differences between Taiwan IFRS and IFRS and the impact of such differences would have on net income or shareholders’ equity under IFRS.

119

LEGAL MATTERS

Certain legal matters with respect to the Bonds will be passed upon for us by Baker and McKenzie as to ROC law, JunHe LLP as to PRC law and WongPartnership LLP as to Singapore law, and for the Initial Purchasers by Sullivan & Cromwell (Hong Kong) LLP as to U.S. Federal and New York law.

120

INDEPENDENT AUDITORS

The consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 included in this offering memorandum have been audited by PricewaterhouseCoopers, Taiwan, independent auditors, to the extent and for the periods indicated in their report appearing herein. Such reports express an unqualified opinion on the financial statements. PricewaterhouseCoopers, Taiwan are located at 27th Floor, No. 333, Section 1, Keelung Road, Xinyi District, Taipei City, Taiwan. PricewaterhouseCoopers, Taiwan are a member of the Taiwan CPA Association.

With respect to the unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019 included in this offering memorandum, PricewaterhouseCoopers, Taiwan, our independent auditors, have reported that they have applied limited procedures in accordance with professional standards for a review of such financial statements in accordance with ROC Statement of Auditing Standards No. 65, Review of Financial Information Performed by the Independent Auditor of the Entity. However, the separate review report included in this offering memorandum states that they did not audit and do not express an opinion on such financial statements. In addition, the review report included the paragraphs of Basis for Qualified Conclusion and Qualified Conclusion stating that certain subsidiaries and investments accounted for by using the equity method were not reviewed. Insofar as they relate to the amounts of these subsidiaries and equity method investments included in the consolidated financial statements, they were based solely on non-reviewed financial statements. Accordingly, the degree of reliance on their report on such financial statements should be restricted in light of the limited nature of the review procedures applied.

121

GENERAL INFORMATION

The date of our incorporation, as registered with Taiwan Science Park Administration under registration number 12800225, was January 14, 2003. According to Article 2 of our articles of incorporation, the scope of our business includes electronic parts and components manufacturing, international trade, electric appliance and audiovisual electric products manufacturing, synthetic resin and plastic manufacturing and other chemical materials manufacturing. Our legal name is “Innolux Corporation.” Our registered address is No. 160 Kesyue Road, Jhunan Science Park, Miaoli, Taiwan, ROC. Our telephone number is +886 37-586-000.

The Bonds have been accepted for clearance and settlement by Euroclear and Clearstream. Relevant trading information is set forth below.

Bonds ...........................................................................	ISIN XS2099548427	Common Code
		209954842

Application will be made for the listing and quotation of the Bonds on the Official List of the SGXST. The SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this offering memorandum.

We have obtained all necessary consents, approvals and authorizations in connection with the issue of the Bonds, including the approvals of the CBC and the FSC which have been duly obtained and are, and will be on the Closing Date, in full force and effect.

The issue of the Bonds was authorized by the resolutions of our board of directors passed on December 17, 2019.

Except as disclosed, there has been no significant change in our financial or trading position since September 30, 2019 or any material adverse change in our financial position or prospects since September 30, 2019.

－ Except as disclosed in “Business Legal Proceedings”, neither we nor any of our subsidiaries is involved in any litigation or arbitration proceedings which may have, or have had during the period recently preceding the date of this offering memorandum, a material adverse effect on our financial position, nor, so far as any of our subsidiaries is aware, are any such proceedings pending or threatened except as may be otherwise disclosed or referred to herein.

No company in which we have a direct or indirect holding of more than 50% of capital or issued shares holds any Shares.

Copies (and certified English translations where the documents are not in English) of the following documents may be inspected, free of charge, at the specified offices of the Issuer, so long as the Bonds remain outstanding:

our articles of incorporation;
the Indenture relating to the Bonds;
the purchase agreement relating to the Bonds;
this offering memorandum; and
a copy of our audited consolidated financial statements as of and for the years ended December 31, 2016, 2017 and 2018 and our unaudited consolidated financial statements as of and for the nine months ended September 30, 2018 and 2019.

122

Trades for the Bonds on the SGX-ST will be cleared through Clearstream and Euroclear in accordance with their respective rules and operating procedures.

For so long as the Bonds are listed on the SGX-ST and the rules of the SGX-ST so require, we will appoint and maintain a paying agent in Singapore, where the Bonds may be presented or surrendered for payment or redemption. In addition, in the event that any of the Global Bonds is exchanged for individual definitive Bonds, announcement of such exchange will be made by us or on our behalf through the SGX-ST. Such announcement will include all material information with respect to the delivery of the individual definitive Bonds, including details of the paying agent in Singapore. For so long as the Bonds are listed on the SGX-ST and the rules of the SGX-ST so require, the Bonds will be traded on the SGX-ST in a minimum board lot size of US$200,000.

123

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Innolux Corporation and its Subsidiaries

Review Report of Independent Accountants ..................................................................................................... F-3 Consolidated Balance Sheets as of September 30, 2018, December 31, 2018 and September 30, 2019 ........... F-5 Consolidated Statements of Comprehensive Income for the three-month and nine-month periods ended September 30, 2018 and 2019 ........................................................................................................................... F-7 Consolidated Statements of Changes in Equity for the nine-month periods ended September 30, 2018 and 2019 ............................................................................................................................................................ F-9 Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2018 and 2019 ... F-11 Notes to the Consolidated Financial Statements .............................................................................................. F-13 Report of Independent Accountants ................................................................................................................ F-62 Consolidated Balance Sheets as of December 31, 2017 and 2018 .................................................................. F-67 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017 and 2018 ....... F-69 Consolidated Statements of Changes in Equity for the years ended December 31, 2017 and 2018 ................ F-71 Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2018 ........................... F-73 Notes to the Consolidated Financial Statements .............................................................................................. F-75 Report of Independent Accountants .............................................................................................................. F-139 Consolidated Balance Sheets as of December 31, 2016 and 2017 ................................................................ F-144 Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2017 ..... F-146 Consolidated Statements of Changes in Equity for the years ended December 31, 2016 and 2017 .............. F-147 Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2017 ......................... F-148 Notes to the Consolidated Financial Statements ............................................................................................ F-150

F-1

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REVIEW REPORT OF INDEPENDENT

ACCOUNTANTS

SEPTEMBER 30, 2018 AND 2019

F-2

REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Corporation:

Introduction

We have reviewed the accompanying consolidated balance sheets of Innolux Corporation and subsidiaries (the “Group”) as at September 30, 2018 and 2019, and the related consolidated statements of comprehensive income for the three-month and nine-month periods then ended, as well as the consolidated statements of changes in equity and of cash flows for the nine-month periods then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and International Accounting Standard 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission. Our responsibility is to express a conclusion on these consolidated financial statements based on our reviews.

Scope of Review

We conducted our reviews in accordance with the Statement of Auditing Standards No. 65 “Review of Financial Information Performed by the Independent Auditor of the Entity” in the Republic of China. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Group as at September 30, 2018 and 2019, and of its consolidated financial performance for the three-month and nine-month periods then ended and its consolidated cash flows for the ninemonth periods then ended in accordance with “Regulations Governing the Preparation of Financial F-3

Reports by Securities Issuers” and International Accounting Standard 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission.

PricewaterhouseCoopers, Taiwan

November 8, 2019

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

F-4

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2018, DECEMBER 31, 2018 AND SEPTEMBER 30, 2019 (Expressed in thousands of New Taiwan dollars)

(The consolidated balance sheets as of September 30, 2018 and 2019 are reviewed, not audited)

Assets Notes Current Assets 1100 Cash and cash equivalents 6(1) 1110 Financial assets at fair value through profit or loss - current 6(2) 1136 Financial assets at amortized cost - current 6(4) 1170 Accounts receivable, net 6(5) 1180 Accounts receivable, net - related parties 7 1200 Other receivables 7 130X Inventory 6(6) 1410 Prepayments 1479 Other current assets 8 11XX Total current assets Non-current assets 1510 Financial assets at fair value through profit or loss - non-current 6(2) 1517 Financial assets at fair value through other comprehensive income - non- current 6(3) 1550 Investments accounted for under equity method 6(7) 1600 Property, plant and equipment 6(8)(30), 7 and 8 1755 Right-of-use assets 6(9) 1760 Investment property, net 6(10) 1780 Intangible assets 6(11)(30) and 8 1840 Deferred income tax assets 1990 Other non-current assets 6(8) and 8 15XX Total non-current assets 1XXX Total assets	September 30, 2018 NT$ `$ 37,889,585` `53,645` `18,888,750` `46,331,041` `4,189,537` `1,445,101` `32,933,026` `2,154,788` `71,593` `143,957,066` `1,364,210` `5,050,988` `1,986,572` `209,507,770` `-` `554,651` `17,697,151` `6,509,446` `3,007,059` `245,677,847` `$ 389,634,913`	December 31, 2018 NT$ `$ 33,847,328` `398,913` `51,426,053` `45,064,157` `4,449,977` `1,489,260` `30,856,552` `1,993,152` `208,724` `169,734,116` `1,599,869` `3,834,376` `1,802,921` `206,617,960` `-` `551,970` `17,681,485` `7,223,864` `2,873,043` `242,185,488` `$ 411,919,604`	September30,2019	September30,2019
			NT$	US$
			`$ 36,840,982` `42,810` `16,463,737` `44,988,906` `2,773,216` `1,105,455` `34,052,739` `4,993,400` `195,485` `141,456,730` `3,227,484` `4,250,433` `1,902,323` `198,296,981` `6,365,067` `534,117` `17,597,223` `6,963,064` `2,444,590` `241,581,282` `$383,038,012`	(Unaudited) (noted 2) `$` `1,187,385` `1,380` `530,626` `1,449,992` `89,381` `35,629` `1,097,520` `160,937` `6,300`
				`4,559,150`
				`104,022` `136,991` `61,312` `6,391,110` `205,146` `17,215` `567,158` `224,420` `78,789`
				`7,786,163`
				`$ 12,345,313`

(Continued)

F-5

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2018, DECEMBER 31, 2018 AND SEPTEMBER 30, 2019 (Expressed in thousands of New Taiwan dollars)

(The consolidated balance sheets as of September 30, 2018 and 2019 are reviewed, not audited)

					September 30,	December 31,
					2018	2018	September	30,2019
	Liabilities and Equity	Notes			NT$	NT$	NT$		US$
									(Unaudited)
									(noted 2)
	Current Liabilities
2120	Financial liabilities at fair value through	6(2)
	profit or loss - current			`$`	`346,577 $`	`23,779 $`	`248,821`	`$`	`8,019`
2170	Accounts payable				`51,320,183`	`52,350,845`	`47,706,481`		`1,537,580`
2180	Accounts payable - related parties	7			`2,574,729`	`2,652,127`	`3,188,459`		`102,764`
2200	Other payables	6(12)
		and 7			`37,064,789`	`32,581,609`	`27,105,996`		`873,626`
2230	Current income tax liabilities				`5,508,591`	`5,593,063`	`2,488,826`		`80,215`
2250	Provisions - current	6(17)
		and 9			`6,337,829`	`6,782,914`	`6,667,796`		`214,903`
2280	Lease liabilities - current				`-`	`-`	`466,574`		`15,038`
2320	Long-term liabilities, current portion	6(14)			`10,960,000`	`16,194,486`	`16,022,951`		`516,420`
2399	Other current liabilities				`2,974,679`	`4,095,853`	`5,030,535`		`162,134`
21XX	Total current liabilities				`117,087,377`	`120,274,676`	`108,926,439`		`3,510,699`
	Non-current liabilities
2530	Corporate bonds payable	6(13)			`-`	`-`	`96,599`		`3,113`
2540	Long-term borrowings	6(14)			`14,867,711`	`35,142,090`	`24,852,303`		`800,990`
2570	Deferred income tax liabilities				`661,380`	`880,013`	`1,197,569`		`38,598`
2580	Lease liabilities - non-current				`-`	`-`	`5,210,007`		`167,918`
2600	Other non-current liabilities	6(15)			`691,787`	`632,120`	`656,835`		`21,170`
25XX	Total non-current liabilities				`16,220,878`	`36,654,223`	`32,013,313`		`1,031,789`
2XXX	Total liabilities				`133,308,255`	`156,928,899`	`140,939,752`		`4,542,488`
	Equity attributable to owners of the
	parent
3110	Share capital - common stock	6(18)			`99,520,720`	`99,520,720`	`99,520,720`		`3,207,552`
3200	Capital surplus	6(19)			`99,646,960`	`99,648,115`	`99,633,370`		`3,211,182`
	Retained earnings	6(20)
3310	Legal reserve				`7,648,437`	`7,648,437`	`7,870,713`		`253,673`
3320	Special reserve				`1,090,721`	`1,090,721`	`4,663,463`		`150,303`
3350	Unappropriated retained earnings				`52,467,065`	`51,746,175`	`36,770,508`		`1,185,114`
3400	Other equity interest	6(21)	`(`		`4,047,245 )(`	`4,663,463 )(`	`5,513,481) (`		`177,699 )`
3500	Treasury shares	6(18)			`-`	`- (`	`1,029,223) (`		`33,172 )`
31XX	Equity attributable to owners of the
	parent				`256,326,658`	`254,990,705`	`241,916,070`		`7,796,953`
36XX	Non-controlling interests				`-`	`-`	`182,190`		`5,872`
3XXX	Total equity				`256,326,658`	`254,990,705`	`242,098,260`		`7,802,825`
3X2X	Total liabilities and equity			`$`	`389,634,913 $`	`411,919,604 $383,038,012`		`$`	`12,345,313`

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

F-6

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019

(Expressed in thousands of New Taiwan dollars, except for (loss) earnings per share amounts) (Reviewed, not audited)

					Three months ended	September 30		Nine months	Nine months	ended September 30
					2018	2019		2018		2019		2019
	Items	Notes			NT$	NT$		NT$		NT$		US$
												(Unaudited)
												(noted 2)
4000	Sales revenue	6(22) and 7		`$`	`73,907,131 $`	`63,293,735`	`$`	`207,132,750`	`$`	`186,393,293`	`$`	`6,007,455`
5000	Operating costs	6(6)(26) and 7	`(`		`66,474,938)(`	`62,116,985)(`		`184,786,697) (`		`181,997,479) (`		`5,865,778 )`
5900	Net operating margin				`7,432,193`	`1,176,750`		`22,346,053`		`4,395,814`		`141,677`
	Operating expenses	6(26)
6100	Selling expenses		`(`		`809,766 )(`	`1,088,171)(`		`2,007,849) (`		`2,825,849 ) (`		`91,077 )`
6200	General and administrative expenses		`(`		`1,678,813 )(`	`1,711,986)(`		`4,986,577) (`		`5,092,786 ) (`		`164,140 )`
6300	Research and development expenses		`(`		`3,153,355)(`	`3,228,671)(`		`9,085,754) (`		`9,278,610) (`		`299,050 )`
6000	Total operating expenses		`(`		`5,641,934)(`	`6,028,828)(`		`16,080,180) (`		`17,197,245) (`		`554,267 )`
6900	Operating profit (loss)				`1,790,259 (`	`4,852,078)`		`6,265,873 (`		`12,801,431) (`		`412,590 )`
	Non-operating income and expenses
7010	Other income	6(23)			`822,015`	`756,790`		`2,012,692`		`2,287,278`		`73,719`
7020	Other gains and losses	6(24)	`(`		`42,524 )`	`830,756 (`		`701,927)`		`1,181,768`		`38,088`
7050	Finance costs	6(25)	`(`		`111,980 )(`	`263,340)(`		`369,035) (`		`796,972 ) (`		`25,686 )`
7060	Share of profit of associates and joint ventures	6(7)
	accounted for under equity method				`107,947`	`72,608`		`291,145`		`276,802`		`8,921`
7000	Total non-operating income and expenses				`775,458`	`1,396,814`		`1,232,875`		`2,948,876`		`95,042`
7900	Profit (loss) before income tax				`2,565,717 (`	`3,455,264)`		`7,498,748 (`		`9,852,555 ) (`		`317,548 )`
7950	Income tax expense	6(28)	`(`		`652,769)(`	`430,911)(`		`4,578,998) (`		`728,752) (`		`23,487 )`
8200	Profit (loss) for the period			`$`	`1,912,948( $`	`3,886,175)`	`$`	`2,919,750 ($`		`10,581,307) (`	`$`	`341,035 )`

(Continued)

F-7

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019

(Expressed in thousands of New Taiwan dollars, except for (loss) earnings per share amounts) (Reviewed, not audited)

				Three months ended	September 30		Nine months	Nine months	ended September 30
				2018	2019		2018		2019		2019
	Items	Notes		NT$	NT$		NT$		NT$		US$
											(Unaudited)
											(noted 2)
	Other comprehensive (loss) income (net)
	Components of other comprehensive income (loss) that will
	not be reclassified to profit or loss
8316	Unrealized (losses) gains on financial assets at fair value	6(21)
	through other comprehensive income		`($`	`1,670,324 ) $`	`68,978`	`($`	`1,610,671)`	`$`	`266,359`	`$`	`8,585`
8349	Income tax related to components of other comprehensive	6(28)
	income that will not be reclassified to profit or loss			`-`	`-`		`-`		`61,035`		`1,967`
8310	Components of other comprehensive (loss) income that
	will not be reclassified to profit or loss		`(`	`1,670,324 )`	`68,978`	`(`	`1,610,671)`		`327,394`		`10,552`
	Components of other comprehensive income (loss) that will
	be reclassified to profit or loss
8361	Financial statements translation differences of foreign	6(21)
	operations		`(`	`2,410,807 )(`	`1,960,536)(`		`1,460,938)(`		`1,123,768) (`		`36,219 )`
8370	Share of other comprehensive income (loss) of associates	6(21)
	and joint ventures accounted for under equity method			`1,004 (`	`15,676)`		`115,085 (`		`54,029) (`		`1,742 )`
8360	Components of other comprehensive loss that will be
	reclassified to profit or loss		`(`	`2,409,803 )(`	`1,976,212)(`		`1,345,853)(`		`1,177,797) (`		`37,961 )`
8300	Other comprehensive loss for the period, net of tax		`($`	`4,080,127 )($`	`1,907,234)($`		`2,956,524)($`		`850,403) (`	`$`	`27,409 )`
8500	Total comprehensive loss for the period		`($`	`2,167,179 )($`	`5,793,409)($`		`36,774)($`		`11,431,710) (`	`$`	`368,444 )`
	Profit (loss) attributable to:
8610	Owners of the parent		`$`	`1,912,948 ($`	`3,888,393)`	`$`	`2,919,750 ($`		`10,583,525) (`	`$`	`341,107 )`
8620	Non-controlling interest		`$`	`-$`	`2,218`	`$`	`-`	`$`	`2,218`	`$`	`72`
	Other comprehensive (loss) income attributable to:
8710	Owners of the parent		`($`	`2,167,179 )($`	`5,795,242)($`		`36,774)($`		`11,433,543) (`	`$`	`368,503 )`
8720	Non-controlling interest		`$`	`-$`	`1,833`	`$`	`-`	`$`	`1,833`	`$`	`59`
	Earnings (loss) per share (in dollars)	6(29)
9750	Basic earnings (loss) per share		`$`	`0.19 ($`	`0.39)`	`$`	`0.29 ($`		`1.06) (`	`$`	`0.0342 )`
9850	Diluted earnings (loss) per share		`$`	`0.19 ($`	`0.39)`	`$`	`0.29 ($`		`1.06) (`	`$`	`0.0342 )`

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

F-8

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019 (Expressed in thousands of New Taiwan dollars)

((Reviewed, not audited)

Notes				Equityattributable to	Equityattributable to	owners of thepare	nt			Total	Non-controlling interests	Total
	Commonstock `$ 99,520,720` `-` `99,520,720` `-` `-` `-` `-` `-` `-` `-` `$ 99,520,720` `$ 99,520,720` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$ 99,520,720`	Capitalsurplus		RetainedEarnings	Unappropriated earnings		Other EquityInteres	t Unrealized gain (loss) on available-for-sale financial assets `$ 4,626,502` `(` `4,626,502)` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-` `$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-`	Treasury shares
			Legal reserve	Special reserve		Financial statements translation differences of foreign operations	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income `$` `-` `4,626,502` `4,626,502` `-` `(` `1,610,671)` `(` `1,610,671)` `-` `-` `-` `-` `$ 3,015,831` `$ 1,797,686` `-` `327,394` `327,394` `-` `-` `-` `-` `-` `-` `-` `$ 2,125,080`
6(21) 6(21) 6(20) 6(19) 6(21) 6(20) 6(19) 6(19) 6(18) 6(30)		`$ 99,646,919` `-` `99,646,919` `-` `-` `-` `-` `-` `-` `41` `$ 99,646,960` `$ 99,648,115` `-` `-` `-` `-` `-` `-` `(` `14,756)` `11` `-` `-` `$ 99,633,370`	`$ 3,945,576` `-` `3,945,576` `-` `-` `-` `3,702,861` `-` `-` `-` `$ 7,648,437` `$ 7,648,437` `-` `-` `-` `222,276` `-` `-` `-` `-` `-` `-` `$ 7,870,713`	`$ 3,418,804` `-` `3,418,804` `-` `-` `-` `-` `(` `2,328,083)` `-` `-` `$ 1,090,721` `$ 1,090,721` `-` `-` `-` `-` `3,572,742` `-` `-` `-` `-` `-` `$ 4,663,463`	`$ 58,883,750` `-` `58,883,750` `2,919,750` `-` `2,919,750` `(` `3,702,861)` `2,328,083` `(` `7,961,657)` `-` `$ 52,467,065` `$ 51,746,175` `(` `10,583,525)` `-` `(` `10,583,525)` `(` `222,276)` `(` `3,572,742)` `(` `597,124)` `-` `-` `-` `-` `$ 36,770,508`	`($ 5,717,223)` `-` `(` `5,717,223)` `-` `(` `1,345,853)` `(` `1,345,853)` `-` `-` `-` `-` `($ 7,063,076)` `($ 6,461,149)` `-` `(` `1,177,412)` `(` `1,177,412)` `-` `-` `-` `-` `-` `-` `-` `($ 7,638,561)`			`$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-` `$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `(` `1,029,223)` `-` `($ 1,029,223)`	`$ 264,325,048` `-` `264,325,048` `2,919,750` `(` `2,956,524)` `(` `36,774)` `-` `-` `(` `7,961,657)` `41` `$ 256,326,658` `$ 254,990,705` `(` `10,583,525)` `(` `850,018)` `(` `11,433,543)` `-` `-` `(` `597,124)` `(` `14,756)` `11` `(` `1,029,223)` `-` `$ 241,916,070`	`$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-` `$` `-` `2,218` `(` `385)` `1,833` `-` `-` `-` `-` `6` `-` `180,351` `$` `182,190`	`$ 264,325,048` `-` `264,325,048` `2,919,750` `(` `2,956,524)` `(` `36,774)` `-` `-` `(` `7,961,657)` `41` `$ 256,326,658` `$ 254,990,705` `(` `10,581,307)` `(` `850,403)` `(` `11,431,710)` `-` `-` `(` `597,124)` `(` `14,756)` `17` `(` `1,029,223)` `180,351` `$ 242,098,260`

(Continued)

F-9

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019 (Expressed in thousands of New Taiwan dollars)

((Reviewed, not audited)

Notes				Equityattributable to	Equityattributable to	owners of thepare	nt			Total	Non-controlling interests	Total
	Commonstock `$ 3,207,552` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$ 3,207,552`	Capitalsurplus		RetainedEarnings	Unappropriated earnings		Other EquityInteres	t Unrealized gain (loss) on available-for-sale financial assets `$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-`	Treasury shares
			Legal reserve	Special reserve		Financial statements translation differences of foreign operations	Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income `$` `57,939` `-` `10,552` `10,552` `-` `-` `-` `-` `-` `-` `-` `$` `68,491`
6(21) 6(20) 6(19) 6(19) 6(18) 6(30)		`$ 3,211,658` `-` `-` `-` `-` `-` `-` `(` `476)` `-` `-` `-` `$ 3,211,182`	`$` `246,509` `-` `-` `-` `7,164` `-` `-` `-` `-` `-` `-` `$` `253,673`	`$` `35,154` `-` `-` `-` `-` `115,149` `-` `-` `-` `-` `-` `$` `150,303`	`$ 1,667,779` `(` `341,107)` `-` `(` `341,107)` `(` `7,164)` `(` `115,149)` `(` `19,245)` `-` `-` `-` `-` `$ 1,185,114`	`($` `208,242)` `-` `(` `37,948)` `(` `37,948)` `-` `-` `-` `-` `-` `-` `-` `($` `246,190)`			`$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `(` `33,172)` `-` `($` `33,172)`	`$ 8,218,349` `(` `341,107)` `(` `27,396)` `(` `368,503)` `-` `-` `(` `19,245)` `(` `476)` `-` `(` `33,172)` `-` `$ 7,796,953`	`$` `-` `72` `(` `13)` `59` `-` `-` `-` `-` `-` `-` `5,813` `$` `5,872`	`$` `8,218,349` `(` `341,035)` `(` `27,409)` `(` `368,444)` `-` `-` `(` `19,245)` `(` `476)` `-` `(` `33,172)` `5,813` `$` `7,802,825`

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

F-10

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019

(Expressed in thousands of New Taiwan dollars)

(Reviewed, not audited)

	(Reviewed, not audited)
CASH FLOWS FROM OPERATING ACTIVITIES Profit (loss) before tax Adjustments Adjustments to reconcile profit (loss) Depreciation and amortization Net loss (gain) on financial assets or liabilities at fair value through profit or loss Share of loss of associates and joint ventures accounted for under equity method Gain from disposal of investments Loss on disposal of property, plant and equipment Gain on lease modification Interest expense Interest income Dividend income Unrealized foreign exchange loss (gain) Changes in operating assets and liabilities Changes in operating assets Financial assets /liabilities at fair value through profit or loss - current 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	2018 Notes NT$ `$` `7,498,748` `(` 6(26) `27,210,068` `503,769` `(` 6(7) `(` `291,145` `)` `(` 6(24) `(` `1,087` `)` `(` 6(24) `205,497` `-` `(` 6(25) `369,035` 6(23) `(` `656,009` `)` `(` 6(23) `(` `234,902` `)` `(` `68,255` `(` `645,492` `(` `2,681,429` `)` `13,537,760` `(` `218,227` `)` `(` `2,674,005` `)` `(` `(` `666,956` `)` `(` `3,852` `443,683` `(` `9,719` `(` `3,558,603` `)` `(` `876,967` `(` `(` `750,258` `)` `11,108` `39,651,332` `(` `1,195,323` `)` `(` `38,456,009`	2019 NT$ US$ (Unaudited) (noted 2) `$` `9,852,555` `)` `(` `$` `317,548` `)` `26,472,441` `853,207` `1,515,433` `)` `(` `48,842` `)` `276,802` `)` `(` `8,921` `)` `21,069` `)` `(` `679` `)` `107,249` `3,457` `457` `)` `(` `15` `)` `796,972` `25,686` `857,040` `)` `(` `27,623` `)` `124,396` `)` `(` `4,009` `)` `170,696` `)` `(` `5,502` `)` `581,125` `18,730` `83,322` `2,685` `1,687,921` `54,402` `328,078` `10,574` `3,195,965` `)` `(` `103,006` `)` `3,169,681` `)` `(` `102,159` `)` `32,054` `1,033` `4,645,718` `)` `(` `149,731` `)` `536,158` `17,280` `3,207,463` `)` `(` `103,377` `)` `115,118` `)` `(` `3,710` `)` `758,365` `24,442` `20,338` `655` `4,251,630` `137,029` `3,186,341` `)` `(` `102,696` `)` `1,065,289` `34,333`
		NT$ `$` `9,852,555` `)` `26,472,441` `1,515,433` `)` `276,802` `)` `21,069` `)` `107,249` `457` `)` `796,972` `857,040` `)` `124,396` `)` `170,696` `)` `581,125` `83,322` `1,687,921` `328,078` `3,195,965` `)` `3,169,681` `)` `32,054` `4,645,718` `)` `536,158` `3,207,463` `)` `115,118` `)` `758,365` `20,338` `4,251,630` `3,186,341` `)` `1,065,289`
			(Unaudited) (noted 2) `(` `$` `317,548` `)` `853,207` `(` `48,842` `)` `(` `8,921` `)` `(` `679` `)` `3,457` `(` `15` `)` `25,686` `(` `27,623` `)` `(` `4,009` `)` `(` `5,502` `)` `18,730` `2,685` `54,402` `10,574` `(` `103,006` `)` `(` `102,159` `)` `1,033` `(` `149,731` `)` `17,280` `(` `103,377` `)` `(` `3,710` `)` `24,442` `655` `137,029` `(` `102,696` `)` `34,333`

(Continued)

F-11

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019

(Expressed in thousands of New Taiwan dollars)

(Reviewed, not audited)

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets or liabilities at fair value through profit or loss - non-current Proceeds from disposal of financial assets at fair value through profit or loss Acquisition of investments in equity instruments measured at fair value through other comprehensive income (Increase) decrease in financial assets at amortized cost - current Increase in investment accounted for under equity method Proceeds from disposal of investment accounted for under equity method Increase in other financial assets Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Net cash inflows from business combination Increase in other non-current assets Interest received Dividends received Net cash flows (used in) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term borrowings Payment of long-term borrowings Interest paid Payment of the principal portion of lease liabilities Cash dividends paid Payments to acquire treasury shares Net cash flows used in financing activities Effect of changes in foreign currency exchange Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period	Notes `(` `(` `(` `(` `(` 6(31) `(` 6(11) `(` 6(31) `(` `(` `(` `(` `(` 6(18) `(` `(` `(`	2018 2019 NT$ NT$ US$ (Unaudited) (noted 2) `$` `141,600` `)` `(` `$` `148,874` `)` `(` `$` `4,798` `)` `-` `35,585` `1,147` `1,568,983` `)` `(` `147,364` `)` `(` `4,750` `)` `18,971,750` `)` `35,045,337` `1,129,511` `93,443` `)` `-` `-` `28,928` `-` `-` `298,701` `)` `(` `3,612` `)` `(` `116` `)` `34,915,398` `)` `(` `20,275,443` `)` `(` `653,477` `)` `24,627` `5,401` `174` `63,512` `)` `(` `34,069` `)` `(` `1,098` `)` `-` `330,546` `10,654` `12,624` `)` `(` `397,087` `)` `(` `12,798` `)` `643,778` `919,367` `29,631` `234,902` `126,510` `4,077` `55,133,776` `)` `15,456,297` `498,157` `8,500,000` `500,000` `16,115` `10,960,000` `)` `(` `10,960,500` `)` `(` `353,257` `)` `324,484` `)` `(` `764,441` `)` `(` `24,638` `)` `-` `(` `345,083` `)` `(` `11,122` `)` `7,961,657` `)` `(` `597,124` `)` `(` `19,245` `)` `-` `(` `1,029,223` `)` `(` `33,172` `)` `10,746,141` `)` `(` `13,196,371` `)` `(` `425,319` `)` `675,462` `)` `(` `331,561` `)` `(` `10,685` `)` `28,099,370` `)` `2,993,654` `96,486` `65,988,955` `33,847,328` `1,090,899` `$` `37,889,585` `$` `36,840,982` `$` `1,187,385`

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

F-12

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2019

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

(Reviewed, not audited)

1. HISTORY AND ORGANIZATION

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

These consolidated financial statements were reported to the Board of Directors on November 8, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

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

New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

follows:
New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
Amendments to IFRS 9, ‘Prepayment features with negative compensation’ IFRS 16, ‘Leases’ Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’ IFRIC 23, ‘Uncertainty over income tax treatments’ Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

Except for the following, the above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment. IFRS 16, ‘Leases’

A. 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

F-13

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.

B. The Group has elected to apply IFRS 16 by not restating the comparative information (referred herein as the ‘modified retrospective approach’) when applying “IFRSs” effective in 2019 as endorsed by the FSC. Accordingly, the Group increased ‘right-of-use asset’ by $6,935,181 (US$ 223,521), increased ‘lease liability’ by $6,180,682 (US$ 199,203) and has no effect on retained earnings with respect to the lease contracts of lessees on January 1, 2019.
C. The Group has used the following practical expedients permitted by the standard at the date of initial application of IFRS 16:
(a) Reassessment as to whether a contract is, or contains, a lease is not required, and instead, the application of IFRS 16 depends on whether or not the contracts were previously identified as leases applying IAS 17 and IFRIC 4.
(b) The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.
(c) The accounting for operating leases whose period will end before December 31, 2019 as shortterm leases and accordingly, rent expense recognized in the third quarter of 2019 was included in the expense on short-term lease contracts in Note 6(9).
(d) The exclusion of initial costs for the measurement of ‘right-of-use asset’.
(e) The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
D. The Group recognized lease liabilities which had previously been classified as ‘operating leases’ under the principles of IAS 17, ‘Leases’. The reconciliation between operating lease commitments under IAS 17 measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate and lease liabilities recognized as of January 1, 2019 is as follows:

follows:
			NT$			US$
Operating lease commitments disclosed by applying IAS 17 as		`$`	`3,208,917`		`$`		`103,423`
at December 31, 2018
Less: Short-term leases	`(`			`3,250)`	`(`		`105)`
Add/Less: Adjustments as a result of a different treatment of
extension and termination options			`3,728,860`				`120,181`
Total lease contracts amount recognized as lease liabilities by
applying IFRS 16 on January 1, 2019		`$`	`6,934,527`		`$`		`223,499`
Incremental borrowing interest rate at the date of initial
application			`1.8143%~`	`3.05%`		`1.8143%~`	`3.05%`
Lease liabilities recognized as at January 1, 2019 by applying
IFRS 16		`$`	`6,180,682`		`$`		`199,203`

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2018 are as follows:

F-14

New Standards,Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendment to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of Material’ Amendments to IFRS 3, ‘Definition of a business’	January 1, 2020 January 1, 2020

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

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

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

endorsed by the FSC are as follows:
New Standards,Interpretations and Amendments	Effective date by International Accounting Standards Board
Amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest rate benchmark reform’ Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’ IFRS 17, ‘Insurance contracts’	January 1, 2020 To be determined by International Accounting Standards Board January 1, 2021

The above standards and interpretations have no significant impact to the Group’s financial condition

and financial performance based on the Group’s assessment.

4. 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.

(1) Compliance statement

A. The consolidated financial statements of the Group have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Accounting Standard 34, “Interim financial reporting” as endorsed by the FSC.
B. These financial statements should be read with the consolidated financial statements for the year ended December 31, 2018.

(2) Basis of preparation

A. Except for the following items, these consolidated financial statements have been prepared under
the historical cost convention:
(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
(b) Financial assets at fair value through other comprehensive income.
(c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligations.

F-15

B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the 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.
(3) Basis of consolidation
A. Basis for preparation of consolidated financial statements

The basis applied in these consolidated financial statements is consistent with that applied in the consolidated financial statements for the year ended December 31, 2018.

B. Subsidiaries included in the consolidated financial statements:

September December September
30,2018
31,2018
30,2019
Description
100
100
-
(i)
100
100
-
(b)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
54
54
54
-
100
100
100
-
-
-
100
(c)
Ownership (%)

F-16

Main
Business
Name of Investor
Name ofSubsidiary
Activities
Innolux Corporation
InnoCare Optoelectronics
Corporation
Investment, R&D,
manufacturing
and distribution
company
GIO Optoelectronics Corp.
Investment, R&D,
manufacturing
and distribution
company
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
Keyway Investment
Management Limited
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.
Investment,
distribution, and
R&D testing
company
Innolux Japan Co., Ltd.
Investment, R&D,
manufacturing
and distribution
company
Innolux Japan Co.,
Ltd.
Innolux USA, Inc.
Distribution
company
Innolux Singapore
Holding Pte. Ltd.
Innolux Optoelectronics
India Private Limited
Distribution
company
Innolux Optoelectronics
Philippines Corp.
Manufacturing
and distribution
company

September December September
30,2018
31,2018
30,2019
Description
Ownership (%)
-
-
100
(e)
24
24
63
(h)
100
-
-
(a)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
46
46
46
-
100
100
100
-
100
100
100
-
100
100
100
-

F-17

Main
Business
Name of Investor
Name ofSubsidiary
Activities
Innolux Singapore
Holding Pte. Ltd.
Innolux Optoelectronics
Malaysia SDN. BHD.
Manufacturing
and distribution
company
Rockets Holding Ltd. Stanford Developments Ltd.
Investment
holdings
Nets Trading Ltd.
Investment
company
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
Innolux
Optoelectronics Hong
Kong Holding
Limited
Shanghai Innolux
Optoelectronics Ltd.
Processing
company
Innolux Europe B.V.
Innolux Technology
Germany GmbH
Testing and
maintenance
company
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
Innocom Technology
(Shenzhen) Co.,
LTD.
Shenzhen PixinLED
Technology Co., LTD.
R&D and
distribution
company
Innolux Automations and
Intelligence Systems
(ShenZhen) Co., Ltd.
R&D and
distribution
company
InnoCare
Optoelectronics
Corporation
InnoCare Optoelectronics
Japan Co., Ltd.
Distribution
company
InnoCare Optoelectronics
USA, INC.
Distribution
company
GIO Optoelectronics
Corp.
Double Star Inc.
Investment
holdings
GIO (Maanshan)
Optoelectronics Co., Ltd.
Processing
company

September December September
30,2018
31,2018
30,2019
Description
Ownership (%)
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
100
100
100
-
49
49
100
(d)
-
-
100
(f)
-
-
100
(g)
100
100
100
(h)
100
100
100
(h)

(a) In the fourth quarter of 2018, VAP Optoelectronics (Nanjing) Corp. had completed liquidation and dissolution.

F-18

  - (b) In the first quarter of 2019, Golden Achiever International Limited has completed liquidation.

  - (c) CarUX Technology Inc. was established in the first quarter of 2019 and was included in the consolidated financial statements since the date of establishment.

  - (d) Remaining 51% of shares of Innolux Automations and Intelligence Systems (ShenZhen) Co., Ltd. were acquired in the first quarter of 2019 and Innolux Automations and Intelligence Systems (ShenZhen) Co., Ltd. was included in the consolidated financial statements since the effective date of share transfer.

  - (e) InnoCare Optoelectronics Corporation was established in the second quarter of 2019 and was included in the consolidated financial statements since the date of establishment.

  - (f) InnoCare Optoelectronics Japan Co., Ltd. was established in the third quarter of 2019 and was included in the consolidated financial statements since the date of establishment.

  - (g) InnoCare Optoelectronics USA, INC. was established in the third quarter of 2019 and was included in the consolidated financial statements since the date of establishment.

  - (h) GIO Optoelectronics Corp. and its subsidiaries were formerly associates accounted for under the equity method; the group acquired obtained control over it in the third quarter of 2019. GIO Optoelectronics Corp. and its subsidiaries were included in the consolidated financial statements since the control commenced.

  - (i) In the third quarter of 2019, Bright Information Holding Ltd. had completed liquidation and dissolution.

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.
(4) Leasing arrangements (lessee) - right-of-use assets / lease liabilities
A. Leases are recognized as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. For short-term leases or leases of low-value assets, lease payments are recognized as an expense on a straight-line basis over the lease term.
B. Lease liabilities include the net present value of the remaining lease payments at the commencement date, discounted using the incremental borrowing interest rate. Lease payments are comprised of the following:
- (a) Fixed payments, less any lease incentives receivable; and
- (b) Variable lease payments that depend on an index or a rate.
- The Group subsequently measures the lease liability at amortized cost using the interest method and recognizes interest expense over the lease term. The lease liability is remeasured and the amount of remeasurement is recognized as an adjustment to the right-of-use asset when there are changes in the lease term or lease payments and such changes do not arise from contract modifications.
C. At the commencement date, the right-of-use asset is stated at cost comprising the following:

F-19

(a) The amount of the initial measurement of lease liability; and
(b) Any lease payments made at or before the commencement date.

The right-of-use asset is measured subsequently using the cost model and is depreciated from the commencement date to the earlier of the end of the asset’s useful life or the end of the lease term. When the lease liability is remeasured, the amount of remeasurement is recognized as an adjustment to the right-of-use asset.

(5) Convertible bonds payable

Convertible bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group’s common shares by exchanging a fixed amount of cash for a fixed number of common shares). The Group classifies the bonds payable upon issuance as a financial liability or an equity instrument in accordance with the contract terms. They are accounted for as follows:

A. The host contracts of bonds are initially recognized at fair value. Any difference between the initial recognition and the redemption value is accounted for as the premium or discount on bonds payable and is subsequently amortized in profit or loss as an adjustment to ‘finance costs’ over the period of circulation using the effective interest method.
B. The embedded conversion options which meet the definition of an equity instrument are initially recognized in ‘capital surplus—share options’ at the residual amount of total issue price less the amount of bonds payable as stated above. Conversion options are not subsequently remeasured.
C. Any transaction costs directly attributable to the issuance are allocated to each liability or equity component in proportion to the initial carrying amount of each abovementioned item.
D. When bondholders exercise conversion options, the liability component of the bonds (including bonds payable) shall be remeasured on the conversion date. The issuance cost of converted common shares is the total book value of the abovementioned liability component and ‘capital surplus—share options’.
(6) Employee benefits
Except for the following additional accounting policies, the accounting policies on employee benefits are the same as those described in Note 4 of the 2018 consolidated financial statements. Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. And, the related information is disclosed accordingly.
(7) Employee share based payment

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

F-20

compensation cost recognized is based on the number of equity instruments that eventually vest.

(8) Income tax
Except for the following additional accounting policies, the accounting policies on income tax are the same as those described in Note 4 of the 2018 consolidated financial statements.
A. The interim period income tax expense is calculated according to pretax income times, effective income tax rate, and the related information is disclosed accordingly.
B. If a change in tax rate is enacted or substantively enacted in an interim period, the Group recognizes the effect of the change immediately in the interim period in which the change occurs. The effect of the change on items recognized outside profit or loss is recognized in other comprehensive income or equity while the effect of the change on items recognized in profit or loss is recognized in profit or loss.
(9) Treasury shares
Where the Company repurchases the Company’s equity share capital that has been issued, the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company’s equity holders. Where such shares are subsequently reissued, the difference between their book value and any consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable to the Company’s equity holders.
(10) Business combinations
A. The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisitionrelated costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.
B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognized and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognized directly in profit or loss on the acquisition date.
(11) Convenience conversion into U.S. dollars

The financial statements are stated in NT dollars. Conversion of September 30, 2019 New Taiwan dollar amounts into U.S. dollar amounts using the noon buying rate of NT$31.027 (in dollars) to U.S.$1.00 (in dollars) effective on September 27, 2019, provided by the Taipei Forex Inc. database

F-21

is included in the financial statements solely for the convenience of the readers. The convenience conversion is unaudited and should not be construed as a representation that the NT dollar amounts have been, or could in the future be, converted into U.S. dollars at this or any other exchange rate.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION

UNCERTAINTY

For more information, please refer to Note 5 of the consolidated financial statements for the year ended December 31, 2018.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

Cash and cash equivalents
Cash on hand, checking accounts and demand deposits Time deposits Cash equivalents - repurchase bonds	September30,2018 NT$ `18,837,790` `$` `18,181,795` `37,019,585` `870,000` `37,889,585` `$`	December31,2018 NT$ `14,148,462` `$` `19,698,866` `33,847,328` `-` `33,847,328` `$`	September	30,2019
			NT$ `19,173,524` `$` `17,667,458` `36,840,982` `-` `36,840,982` `$`	US$
				`617,963` `$` `569,422`
				`1,187,385` `-`
				`1,187,385` `$`

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.

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

Assets Current items Financial assets mandatorily measured at fair value through profit or loss Forward foreign exchange contracts Forward exchange swap contracts Non-current items Financial assets mandatorily measured at fair value through profit or loss Listed stocks Unlisted stocks Convertible bonds	September30,2018 NT$ `8,108` `$` `45,537` `53,645` `$` `991,908` `$` `372,302` `-` `1,364,210` `$`	December31,2018 NT$ `398,913` `$` `-` `398,913` `$` `1,221,135` `$` `343,175` `35,559` `1,599,869` `$`	September	30,2019
			NT$ `42,810` `$` `-` `42,810` `$` `2,830,037` `$` `361,512` `35,935` `3,227,484` `$`	US$
				`1,380` `$` `-`
				`1,380` `$`
				`91,212` `$` `11,652` `1,158`
				`104,022` `$`

F-22

Liabilities Current items Financial liabilities held for trading Forward foreign exchange contracts Forward exchange swap contracts	September30,2018 NT$ `346,577` `$` `-` `346,577` `$`	December31,2018 NT$ `16,644` `$` `7,135` `23,779` `$`	September	30,2019
			NT$ `248,821` `$` `-` `248,821` `$`	US$
				`8,019` `$` `-`
				`8,019` `$`

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

September30,2018	December31,2018	December31,2018
Contract Period USD (sell) `392,000` `$` 2018/7-2018/12 JPY (buy) `43,586,415` 2018/7-2018/12 EUR (sell) `10,000` 2018/8-2018/11 JPY (buy) `1,262,925` 2018/8-2018/11 HKD (sell) `364,400` 2018/8-2018/10 EUR (buy) `40,000` 2018/8-2018/10 USD (sell) `900,000` 2018/7-2018/12 RMB (buy) `6,177,972` 2018/7-2018/12 USD (sell) `225,000` 2018/9-2018/10 TWD (buy) `6,910,950` 2018/9-2018/10 Contract Amount (Notional Principal) (in thousands)	Contract Amount (Notional Principal) (in thousands)	Contract Period
	Contract Amount (Notional Principal) (in thousands)	Contract Period
	EUR (sell) `44,000` `$` HKD (buy) `386,048` TWD (sell) `10,368,822` JPY (buy) `35,700,000` USD (sell) `43,000` JPY (buy) `4,600,470` USD (sell) `460,000` RMB (buy) `3,256,642` HKD (sell) `211,749` USD (buy) `27,000` JPY (sell) `21,062` USD (buy) `200`	2019/7-2019/10 2019/7-2019/10 2019/7-2020/1 2019/7-2020/1 2019/7-2019/12 2019/7-2019/12 2019/7-2019/12 2019/7-2019/12 2019/8-2019/11 2019/8-2019/11 2019/8-2019/11 2019/8-2019/11

F-23

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

(3) Financial assets at fair value through other comprehensive income

Non-current items Equity instruments Listed stocks Unlisted stocks	September30,2018 NT$ `3,258,050` `$` `1,792,938` `5,050,988` `$`	December31,2018 NT$ `2,661,075` `$` `1,173,301` `3,834,376` `$`	September	30,2019
			NT$ `3,005,531` `$` `1,244,902` `4,250,433` `$`	US$
				`96,868` `$` `40,123` `136,991` `$`

A. The Group has elected to classify equity instruments that are considered to be strategic investments as financial assets at fair value through other comprehensive income.
B. For information about that the Group recognized other comprehensive income for fair value change for the nine-month periods ended September 30, 2018 and 2019, please refer to Note 6(21) “Other equity”.

(4) Financial assets at amortized cost

Current items Time deposits with maturity over three months	September30,2018 NT$ `18,888,750` `$`	December31,2018 NT$ `51,426,053` `$`	September	30,2019
			NT$ `16,463,737` `$`	US$
				`530,626` `$`

The Group recognized $363,220, $38,191 , $80,518 (US$2,595) and $38,191 (US$1,231) of interest income arising from the financial assets at amortized cost for the three-month and nine-month periods ended September 30, 2018 and 2019, respectively.

(5) Notes receivable and accounts receivable

Notes receivable Accounts receivable Less: Allowance for uncollectible accounts `(`	September30,2018 NT$ `31,827` `$` `46,408,587` `46,440,414` `109,373)` `(` `46,331,041` `$`	December31,2018 NT$ `25,132` `$` `45,248,754` `45,273,886` `209,729)` `(` `45,064,157` `$`	September	30,2019
			NT$ `22,771` `$` `45,175,554` `45,198,325` `209,419)` `(` `44,988,906` `$`	US$
				`734` `$` `1,456,008` `1,456,742` `6,750)` `1,449,992` `$`

A. The aging analysis of accounts receivable and notes receivable is as follows:

Not past due Up to 60 days 61 to 180 days Over 180 days	September30,2018 NT$ `45,572,904` `$` `845,379` `12,277` `9,854` `46,440,414` `$`	December31,2018 NT$ `44,209,582` `$` `1,003,472` `54,125` `6,707` `45,273,886` `$`	September	30,2019
			NT$ `44,388,114` `$` `642,876` `142,988` `24,347` `45,198,325` `$`	US$
				`1,430,629` `$` `20,720` `4,609` `784` `1,456,742` `$`

F-24

The above aging analysis was based on past due date.

B. As of September 30, 2018 and 2019, accounts receivable and notes receivable were all from contracts with customers. As of January 1, 2018, the balance of receivables from contracts with customers amounted to $43,759,108.
C. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(6) Inventories

Inventories
Raw materials and supplies Work in progress Finished goods	September30,2018 NT$ `5,365,264` `$` `16,377,450` `11,190,312` `32,933,026` `$`	December31,2018 NT$ `4,768,663` `$` `14,071,053` `12,016,836` `30,856,552` `$`	September	30,2019
			NT$ `4,604,193` `$` `15,034,710` `14,413,836` `34,052,739` `$`	US$
				`148,393` `$` `484,569` `464,558` `1,097,520` `$`

For the three-month and nine-month periods ended September 30, 2018 and 2019, the Group recognized cost of goods sold for inventories that have been sold at $66,510,623, $62,118,290, $184,916,618 and $181,860,950 (US$5,861,377) and recognized net inventory gain (loss) at $35,685, $1,305, $129,921 and ($136,529) (US$4,401) due to write down (reversal) of cost of scrap inventories to net realizable value, respectively.

(7) Investments accounted for under the equity method

Ampower Holding Ltd. FI Medical Device Manufacturing Co., Ltd. Others	September30,2018 NT$ `967,550` `$` `817,967` `201,055` `1,986,572` `$`	December31,2018 NT$ `956,577` `$` `655,827` `190,517` `1,802,921` `$`	September	30,2019
			NT$ `904,353` `$` `945,958` `52,012` `1,902,323` `$`	US$
				`29,147` `$` `30,488` `1,677` `61,312` `$`

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

below:
Profit for the period from continuing operations Other comprehensive (loss) income - net of tax Total comprehensive income	2018 2019 NT$ NT$ `107,947` `$` `72,608` `$` `1,004` `15,676)` `(` `108,951` `$` `56,932` `$` For the three-month periods endedSeptember30,	For the nine-month periods endedSeptember30,
		2018 NT$ `291,145` `$` `115,085` `406,230` `$`	2019
			NT$ `276,802` `$` `54,029)` `(` `222,773` `$`	US$
				`8,921` `$` `1,742)` `(` `7,179` `$`

F-25

(8) Property, plant and equipment

2018

							2018
									Transfer, net
										exchange
										differences
			AtJanuary1		Additions		Disposals			and others	At		September30
Cost:
Land		`3,852,792` `$`		`$`	`-`	`$`	`-`		`$`	`-`		`$`	`3,852,792`
Buildings			`196,417,863`		`255,757`	`(`	`11,524)`			`2,307,940`			`198,970,036`
Machinery and equipment			`496,794,502`		`1,148,626`	`(`	`3,466,477)`		`13,275,765`				`507,752,416`
Other equipment			`39,761,461`		`43,126`	`(`	`1,791,348)`			`4,228,122`			`42,241,361`
			`736,826,618`		`1,447,509`	`(`	`5,269,349)`		`19,811,827`				`752,816,605`
Accumulated depreciation
and impairment:
Buildings	`(`		`114,356,774)`	`(`	`6,637,998)`		`11,066`			`146,503`	`(`		`120,837,203)`
Machinery and equipment	`(`		`384,279,016)`	`(`	`16,743,187)`		`3,262,843`	`(`		`249,677)`	`(`		`398,009,037)`
Other equipment	`(`		`33,205,003)`	`(`	`3,402,655)`		`1,765,315`	`(`		`701,365)`	`(`		`35,543,708)`
	`(`		`531,840,793)`	`(`	`26,783,840)`		`5,039,224`	`(`		`804,539)`	`(`		`554,389,948)`
Unfinished construction
and equipment under
acceptance			`15,878,802`		`15,396,357`		`-`	`(`	`20,194,046)`				`11,081,113`
		`$`	`220,864,627`									`$`	`209,507,770`

Transfer, net Acquired exchange from business differences At January1 Additions combinations Disposals and others At September 30 Cost: Land `3,852,792` `$` `-` `$` `240,934` `$` `-` `$` `-` `$` `4,093,726` `$` Buildings `199,521,281` `364,137` `214,129` `15,535)` `(` `2,287,840` `202,371,852` Machinery and equipment `510,649,778` `2,023,126` `184,682` `1,980,610)` `(` `6,784,900` `517,661,876` Other equipment `43,298,695` `72,792` `505,875` `2,034,712)` `(` `4,349,661` `46,192,311` `757,322,546` `2,460,055` `1,145,620` `4,030,857)` `(` `13,422,401` `770,319,765` Accumulated depreciation and impairment: Buildings `122,903,947)` `(` `6,225,953)` `(` `139,922)` `(` `13,814` `284,746` `128,971,262)` `(` Machinery and equipment `403,140,224)` `(` `16,222,729)` `(` `183,618)` `(` `1,921,823` `163,431)` `(` `417,788,179)` `(` Other equipment `36,348,744)` `(` `3,413,255)` `(` `488,367)` `(` `1,982,570` `872,668)` `(` `39,140,464)` `(` `562,392,915)` `(` `25,861,937)` `(` `811,907)` `(` `3,918,207` `751,353)` `(` `585,899,905)` `(` Unfinished construction and equipment under acceptance `11,688,329` `15,513,812` `-` `-` `13,325,020)` `(` `13,877,121` `206,617,960` `$` `198,296,981` `$` 2019 NT$			2019
	At January1	Additions	Acquired from business combinations Disposals NT$	Transfer, net exchange differences and others	At September 30

F-26

2019

Transfer, net Acquired exchange from business differences At January1 Additions combinations Disposals and others At September 30 Cost: Land `124,175` `$` `-` `$` `7,765` `$` `-` `$` `-` `$` `131,940` `$` Buildings `6,430,570` `11,736` `6,901` `501)` `(` `73,737` `6,522,443` Machinery and equipment `16,458,239` `65,205` `5,952` `63,835)` `(` `218,677` `16,684,238` Other equipment `1,395,516` `2,346` `16,304` `65,579)` `(` `140,191` `1,488,778` `24,408,500` `79,287` `36,922` `129,915)` `(` `432,605` `24,827,399` Accumulated depreciation and impairment: Buildings `3,961,193)` `(` `200,662)` `(` `4,510)` `(` `445` `9,177` `4,156,743)` `(` Machinery and equipment `12,993,207)` `(` `522,858)` `(` `5,918)` `(` `61,940` `5,267)` `(` `13,465,310)` `(` Other equipment `1,171,520)` `(` `110,010)` `(` `15,740)` `(` `63,898` `28,124)` `(` `1,261,496)` `(` `18,125,920)` `(` `833,530)` `(` `26,168)` `(` `126,283` `24,214)` `(` `18,883,549)` `(` Unfinished construction and equipment under acceptance `376,715` `500,011` `-` `-` `429,466)` `(` `447,260` `6,659,295` `$` `6,391,110` `$` US$	At January1	Additions	Acquired from business combinations Disposals US$	Transfer, net exchange differences and others	At September 30

					`131,940` `$` `6,522,443` `16,684,238` `1,488,778`
					`24,827,399`
					`18,883,549)` `(`
					`447,260`
					`6,391,110` `$`

A. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.
B. As of September 30, 2018, December 31, 2018 and September 30, 2019, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to$1,678,508, $1,559,446 and $1,555,527 (US$50,135), respectively.
－
(9) Leasing arrangements lessee
A. The Group leases various assets including land, office and business vehicles. Rental contracts are typically made for periods of 2 to 50 years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose covenants, but leased assets may not be used as security for borrowing purposes.
B. Short-term leases with a lease term of 12 months or less comprise office, dormitory and equipment. Low-value assets comprise computer equipment.
C. The carrying amount of right-of-use assets and the depreciation charge are as follows:

September	For the nine-month period endedSeptember30,2019	For the nine-month period endedSeptember30,2019
Carrying	Depreciation charge
NT$ `6,312,617` `$` `47,872` `4,578` `6,365,067` `$`	NT$ `383,054` `$` `16,397` `968` `400,419` `$`	US$
		`12,346` `$` `529` `31` `12,906` `$`

F-27

D. For the three-month and nine-month periods ended September 30, 2019, the additions to right-ofuse assets were $0 and $25,336 (US$817), respectively.
E. The information on income and expense accounts relating to lease contracts is as follows:

Items affecting profit or loss Interest expense on lease liabilities Expense on variable lease payments Expense on short-term lease contracts Expense on leases of low-value assets	For the three-month period endedSeptember30,2019 NT$ `26,120` `$` `44,737` `27,743` `9,409`	For the nine-month period endedSeptember30,2019	For the nine-month period endedSeptember30,2019
		NT$ `81,169` `$` `99,419` `83,708` `28,271`	US$
			`2,616` `$` `3,204` `2,698` `911`

F. For the nine-month period ended September 30, 2019, the Group’s total cash outflow for leases was $637,650 (US$20,551).
(10) Investment property

Investment property
Cost: Land Buildings Accumulated depreciation: Buildings Cost: Land Buildings Accumulated depreciation: Buildings Cost: Land Buildings Accumulated depreciation: Buildings		2018
	AtJanuary1 Additions AtSeptember30 `188,247` `$` `-` `$` `188,247` `$` `439,228` `-` `439,228` `627,475` `-` `627,475` `64,778)` `(` `8,046)` `(` `72,824)` `(` `562,697` `$` `8,046)` `($` `554,651` `$` 2019		AtSeptember30
	AtJanuary1	Additions NT$	AtSeptember30

	`188,247` `$` `439,228` `627,475` `75,505)` `(` `(` `551,970` `$` `(`	`-` `$` `-` `-` `17,853)` `(` `17,853)` `$` 2019	`188,247` `$` `439,228` `627,475` `93,358)` `534,117` `$`
	AtJanuary1	Additions US$	AtSeptember30

	`6,067` `$` `14,156` `20,223` `2,433)` `(` `(` `17,790` `$` `(`	`-` `$` `-` `-` `575)` `(` `575)` `$`	`6,067` `$` `14,156` `20,223` `3,008)` `17,215` `$`

F-28

The fair value of the investment property held by the Group as at September 30, 2018, December 31, 2018 and September 30, 2019 was $1,580,155, $1,660,504 and $1,320,248 (US$42,552), 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.

(11) Intangible assets

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

Transfer, net exchange differences AtJanuary1 Additions Disposals and others AtSeptember30 Cost: Patents and royalty `8,154,685` `$` `-` `$` `-` `$` `-` `$` `8,154,685` `$` Goodwill `17,096,628` `-` `-` `-` `17,096,628` Others `5,005,156` `63,512` `18,852)` `(` `137,809` `5,187,625` `30,256,469` `63,512` `18,852)` `(` `137,809` `30,438,938` Accumulated amortization and impairment: Patents and royalty `8,143,082)` `(` `3,235)` `(` `-` `-` `8,146,317)` `(` Others `4,202,479)` `(` `414,947)` `(` `18,852` `3,104` `4,595,470)` `(` `12,345,561)` `(` `418,182)` `(` `18,852` `3,104` `12,741,787)` `(` `17,910,908` `$` `354,670)` `($` `-` `$` `140,913` `$` `17,697,151` `$` 2018 Transfer, net Acquired exchange from business differences AtJanuary1 Additions combinations Disposals and others AtSeptember30 Cost: Patents and royalty `8,154,685` `$` `-` `$` `-` `$` `-` `$` `-` `$` `8,154,685` `$` Goodwill `17,096,628` `-` `20,711` `-` `-` `17,117,339` Others `5,247,197` `34,069` `-` `12,578)` `(` `52,501` `5,321,189` `30,498,510` `34,069` `20,711` `12,578)` `(` `52,501` `30,593,213` Accumulated amortization and impairment: Patents and royalty `8,147,367)` `(` `3,150)` `(` `-` `-` `-` `8,150,517)` `(` Others `4,669,658)` `(` `189,082)` `(` `-` `12,578` `689` `4,845,473)` `(` `12,817,025)` `(` `192,232)` `(` `-` `12,578` `689` `12,995,990)` `(` `17,681,485` `$` `158,163)` `($` `20,711` `$` `-` `$` `53,190` `$` `17,597,223` `$` 2019 NT$			2018

F-29

2019

			2019	2019
AtJanuary1 Additions Cost: Patents and royalty `262,825` `$` `-` `$` Goodwill `551,024` `-` Others `169,117` `1,098` `982,966` `1,098` Accumulated amortization and impairment: Patents and royalty `262,589)` `(` `103)` `(` Others `150,503)` `(` `6,093)` `(` `413,092)` `(` `6,196)` `(` `569,874` `$` `5,098)` `($`	AtJanuary1	Additions	Acquired from business combinations Disposals US$		Transfer, net exchange differences and others	AtSeptember30

			`-` `$` `668` `-` `(` `668` `(` `-` `-` `-` `668` `$`	`-` `$` `-` `405)` `405)` `-` `405` `405` `-` `$`	`-` `$` `262,825` `$` `-` `551,692` `1,692` `171,502` `1,692` `986,019` `-` `262,692)` `(` `22` `156,169)` `(` `22` `418,861)` `(` `1,714` `$` `567,158` `$`

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

For the nine-month periods endedSeptember30,	For the nine-month periods endedSeptember30,	For the nine-month periods endedSeptember30,
2018 NT$ `320,572` `$` `97,610` `418,182` `$`	2019
	NT$ `74,316` `$` `117,916` `192,232` `$`	US$
		`2,395` `$` `3,801` `6,196` `$`

C. The Group performed impairment assessment on the recoverable amount of goodwill on the financial period-end, and calculated based on the value in use. The computation of value in use was based on the cash flow of financial forecast in the next 5 years. The periodical assessment did not include the impairment loss of goodwill.

(12) Other payables

Other payables
Other personnel expenses Payable on machinery and equipment Repairs and maintenance expense payable Utilities expense payable Other payables	September30,2018 NT$ `9,733,331` `$` `14,309,806` `2,370,849` `1,268,227` `9,382,576` `37,064,789` `$`	December31,2018 NT$ `10,642,647` `$` `7,982,978` `2,625,869` `1,093,497` `10,236,618` `32,581,609` `$`	September	30,2019
			NT$ `7,717,976` `$` `5,681,402` `2,443,446` `1,289,484` `9,973,688` `27,105,996` `$`	US$
				`248,750` `$` `183,112` `78,752` `41,560` `321,452`
				`873,626` `$`

F-30

(13) Bonds payable

onds payable
Bonds payable Less: Discount on bonds payable	September	30,2019
	NT$ `100,000` `$` `3,401)` `(` `96,599` `$`	US$
		`3,223` `$` `110)` `(` `3,113` `$`

A. The issuance of domestic convertible bonds by the Group’s subsidiary GIO Optoelectronics Corp. (referred herein as “GIO Company”):
The terms of the first domestic secured convertible bonds issued by GIO Company are as follows:
(a) GIO Company issued $100,000 (US$3,223), 0% first domestic secured convertible bonds, as approved by the regulatory authority. The bonds mature 3 years from the issue date (October 1, 2018 ~ October 1, 2021) and will be redeemed in cash at face value at the maturity date.
(b) The bondholders have the right to ask for conversion of the bonds into common shares of GIO Company during the period from the date after three months of the bonds issue to 10 days before the maturity date, except for the stop transfer period as specified in the terms of the bonds or the laws/regulations. The rights and obligations of the new shares converted from the bonds are the same as the issued and outstanding common shares.
(c) The conversion price of the bonds is set up based on the pricing model in the terms of the bonds, and is subject to adjustments if the condition of the anti-dilution provisions occurs subsequently. The conversion price was $10.7 (in dollars) per share upon issuance.
(d) Under the terms of the bonds, all bonds redeemed (including bonds repurchased from the Taipei Exchange), matured and converted are retired and not to be re-issued; all rights and obligations attached to the bonds are also extinguished.
B. Regarding the issuance of convertible bonds, the equity conversion options of GIO company amounting to $4,778 (US$154) were separated from the liability component and were recognized in ‘capital surplus—share options’ in accordance with IAS 32.

- (14) Long term borrowings

Type of loans	Period	September 30,2018	September 30,2018	December 31,2018	December 31,2018			September	September	30,2019	30,2019
			NT$		NT$			NT$			US$
Syndicated bank	2015/3/12	`$`	`25,940,000`	`$`	`51,440,000`		`$`	`40,980,000`		`$`	`1,320,785`
loans	~2024/4/15
Secured	2014/3/19
borrowings	~2022/7/28		`-`		`-`			`137,000`			`4,415`
Less:
Administrative
expenses
charged
by syndicated
banks		`(`	`112,289)`	`(`	`103,424)`	`(`		`241,746)`	`(`		`7,790)`
Current portion
(includes
administrative
expenses)		`(`	`10,960,000)`	`(`	`16,194,486)`	`(`		`16,022,951)`	`(`		`516,420)`
		`$`	`14,867,711`	`$`	`35,142,090`		`$`	`24,852,303`		`$`	`800,990`
Range of interest	rates		`1.74%~1.96%`		`1.74%~1.96%`			`1.79%~2.07%`			`1.79%~2.07%`

F-31

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.
B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, 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, 2018 are in compliance with the covenants on the syndicated loan agreement.
C. For repayment of borrowings from financial institutions and financing mid-term working capital fund, the Board of Directors approved the signing of a syndicated loan with financial institution in the amount of NT$43.75 billion on June 20, 2018.
(15) Pensions
A. Defined benefit pension plan

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.

B. Defined contribution pension plan
- (a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality.
- (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 three-month and nine-month periods ended September 30, 2018 and 2019 were $507,878, $454,001, $1,506,152 and $1,395,885 (US$44,989), respectively.
(16) Share-based payment
A. For the nine-month period ended September 30, 2019, the Group’s subsidiary — GIO Optoelectronics Corp.’s (referred herein as “GIO Company”) share-based payment arrangements were as follows:

were as follows:
Type of arrangement	Grant date	Quantity granted (in thousand units)	Contract period (inyears)	Vestingconditions
Employee stock options	2017.10.1	`6,600`	`5`	Note

Note: The employees’ stock options is based on the issue date. According to the date of issuance (2 to 3 years), the employees can exercise their employee stock options in batch at the ratio of 60% and 40%. Stock options which are not exercised before the expiry date are permanently forfeited.

F-32

B. Details of the share-based payment arrangements are as follows:

2019

		2019	2019
Options outstanding at the beginning of the period Options forfeited `(` Options outstanding at the end of the period Options exercisable at the end of the period	Quantity (in thousand units) `6,372` `140)` `6,232` `-`	exerciseprice(in dollars) Weighted-average
		NT$ `9.8` `$` `-` `9.8` `$` `-` `$`	US$
			`0.3` `$` `-`
			`0.3` `$`
			`-` `$`

C. The expiry date and exercise price of stock options outstanding at balance sheet date are as follows:

follows:
Issue date approved 2017.10.1	Expirydate 2022.9.30	September30,2019
		Quantity (in thousand units) `6,232`	(in dollars) Exercise price
			NT$ `$ 9.8`	US$ `0.3` `$`

D. The fair value of stock options granted is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

Type of arrangement	Grant date	Price (in dollars)	Exercise price (in dollars)	Expected volatility (%)	Expected duration (inyears)	Expected dividends	Risk-free interest rate(%)	Fair value per unit (in dollars)
Employee stock options	2017.10.1	`$ 2.18`	`10` `$`	`48.38` `~48.58`	`3.5~4`	`-`	`0.63~` `0.68`	`$0.0783` `~0.1099`

E. For the nine-month period ended September 30, 2019, the Group recognized expense on sharebased payment transaction (equity settlement) in the amount of $8 (US$0.26).
(17) Provisions-current

Provisions-current
At January 1, 2019 Additions during the period Used during the period At September 30, 2019 At January 1, 2019 Additions during the period Used during the period At September 30, 2019		NT$
	Warranty `3,773,214` `$` `773,201` `688,644)` `(` `3,857,771` `$`	Litigation and others `3,009,700` `$` `-` `199,675)` `(` `2,810,025` `$` US$	Total
			`6,782,914` `$` `773,201` `888,319)` `(` `6,667,796` `$`
	Warranty `121,611` `$` `24,920` `22,195)` `(` `124,336` `$`	Litigation and others `97,003` `$` `-` `6,436)` `(` `90,567` `$`	Total
			`218,614` `$` `24,920` `28,631)` `(` `214,903` `$`

F-33

A. Warranty

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

B. Litigation and others

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

(18) Share capital

A. As of September 30, 2019, the Company’s authorized and outstanding capital were $105,000,000 (US$3,384,149) and $99,520,720 (US$3,207,552), with a par value of $10 (US$0.32) (in dollars) per share, respectively. All proceeds from shares issued have been collected.
B. Treasury shares
(a) Reason for share reacquisition and number of the Company’s treasury shares are as follows:

Name of company holdingthe shares	Reason for reacquisition	September30,2019	September30,2019	value
		Quantity (in thousand units)	Book
		NT$	NT$	US$
The Company	To be reissued to employees and maintain the company's credit and shareholders' rights	`138,200`	`1,029,223` `$`	`$ 33,172`

(b) Pursuant to the R.O.C. Securities and Exchange Act, the number of shares bought back as treasury share should not exceed 10% of the number of the Company’s issued and outstanding shares and the amount bought back should not exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital surplus.
(c) Pursuant to the R.O.C. Securities and Exchange Act, treasury shares should not be pledged as collateral and the shareholder's rights should not be enjoyed before it is reissued.
(d) Pursuant to the R.O.C. Securities and Exchange Act, treasury shares should be reissued to the employees within five years from the reacquisition date and shares not reissued within the five-year period are to be retired. Treasury shares to maintain the Company’s credit rating and the stockholders’ equity should be retired within six months of acquisition.

(19) 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 paidin capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

F-34

2018

			2018	2018
At January 1 Recognition of change in equity of associates in proportion to the Group's ownership At September 30 At January 1 Recognition of changes in ownership interests in subsidiaries Recognition of change in equity of associates in proportion to the Group's ownership At September 30 At January 1 Recognition of changes in ownership interests in subsidiaries Recognition of change in equity of associates in proportion to the Group's ownership At September 30	Sharepremium `99,614,690` `$` `-` `99,614,690` `$`		Share of profit (loss) of associates accounted for under equitymethod `32,229` `$` `41` `32,270` `$` 2019			Total
			`$`		`$`	`99,646,919` `41` `99,646,960`
			`$`		`$`

				NT$
	Sharepremium `99,614,690` `$` `-` `-` `99,614,690` `$`	Changes in ownership interests in subsidiaries `-` `$` `11` `-` `11` `$`		Share of profit (loss) of associates accounted for under equitymethod `33,425` `$` `-` `14,756)` `(` `18,669` `$` 2019		Total
						`99,648,115` `$` `11` `14,756)` `(` `99,633,370` `$`
				US$
	Sharepremium `3,210,581` `$` `-` `-` `3,210,581` `$`	Changes in ownership interests in subsidiaries `-` `$` `-` `-` `-` `$`		Share of profit (loss) of associates accounted for under equitymethod `1,077` `$` `-` `476)` `(` `601` `$`		Total
						`3,211,658` `$` `-` `476)` `(` `3,211,182` `$`

(20) 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

F-35

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 twothirds of distributable dividends in current period.

B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company’s paid-in capital.
C. The details of the appropriation of 2017 and 2018 net income which was approved at the stockholders’ meeting in June 2018 and 2019, respectively, are as follows:

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. The details of the appropriation of 2017 and 2018 net income which was approved at the stockholders’ meeting in June 2018 and 2019, respectively, are as follows:	for the issuance of stocks or cash to shareholders in proportion to their itted, provided that the balance of the reserve exceeds 25% of the al. priation of 2017 and 2018 net income which was approved at the June 2018 and 2019, respectively, are as follows:	for the issuance of stocks or cash to shareholders in proportion to their itted, provided that the balance of the reserve exceeds 25% of the al. priation of 2017 and 2018 net income which was approved at the June 2018 and 2019, respectively, are as follows:	for the issuance of stocks or cash to shareholders in proportion to their itted, provided that the balance of the reserve exceeds 25% of the al. priation of 2017 and 2018 net income which was approved at the June 2018 and 2019, respectively, are as follows:
Dividends per Dividends per Amount share(in dollars) Amount share(in dollars) Legal reserve `3,702,861` `$` `222,276` `$` Provision (reversal) of special reserve `2,328,083)` `(` `3,572,742` Cash dividends `7,961,657` `0.80` `$` `597,124` `0.06` `$` `9,336,435` `$` `4,392,142` `$` Years ended December31, 2017 2018	Years ended December31,
		2018
		Amount `222,276` `$` `3,572,742` `597,124` `4,392,142` `$`	Dividends per share(in dollars)
			`0.06` `$`

D. For the information relating to employees’ compensation and directors’ remuneration, please refer to Note 6(27).
(21) Other equity items

refer to Note 6(27). Other equity items
Currency translation At January 1 `5,717,223)` `($` Effect of modified retrospectvie approach under IFRS 9 `-` `(` Balance after retropective adjustment `5,717,223)` `(` Revaluation - gross `-` Currency translation differences `1,460,938)` `(` Share of other comprehensive income of associates `115,085` At September 30 `7,063,076)` `($`		2018
		Financial assets Available- at fair value through for-sale other comprehensive investments income Total `4,626,502` `$` `-` `$` `1,090,721)` `($` `4,626,502)` `4,626,502` `-` `-` `4,626,502` `1,090,721)` `(` `-` `1,610,671)` `(` `1,610,671)` `(` `-` `-` `1,460,938)` `(` `-` `-` `115,085` `-` `$` `3,015,831` `$` `4,047,245)` `($`	Total

F-36

2019

	2019
Currency translation At January 1 `6,461,149)` `($` Revaluation - gross `-` Currency translation differences `1,123,383)` `(` Share of other comprehensive loss of associates `54,029)` `(` Effect of income tax `-` At September 30 `7,638,561)` `($` Currency translation At January 1 `208,242)` `($` Revaluation - gross `-` Currency translation differences `36,207)` `(` Share of other comprehensive loss of associates `1,741)` `(` Effect of income tax `-` At September 30 `246,190)` `($`	NT$
	Financial assets at fair value through other comprehensive income Total `1,797,686` `$` `4,663,463)` `($` `266,359` `266,359` `-` `1,123,383)` `(` `-` `54,029)` `(` `61,035` `61,035` `2,125,080` `$` `5,513,481)` `($` 2019	Total
	US$
	Financial assets at fair value through other comprehensive income Total `57,939` `$` `150,303)` `($` `8,585` `8,585` `-` `36,207)` `(` `-` `1,741)` `(` `1,967` `1,967` `68,491` `$` `177,699)` `($`	Total

(22) Operating income

Operating income
The Group derives revenue from the transfer of goods at a point in time. Other income 2018 NT$ NT$ US$ TFT-LCD products `207,132,750` `$` `186,393,293` `$` `6,007,455` `$` 2019 For the nine-monthperiods endedSeptember30, 2018 2019 2018 NT$ NT$ NT$ NT$ US$ Interest income Interest income from bank deposits `187,700` `$` `94,256` `$` `617,818` `$` `493,820` `$` `15,916` `$` Interest income from financial assets at amortized cost `38,191` `80,518` `38,191` `363,220` `11,707` `225,891` `174,774` `656,009` `857,040` `27,623` Rental revenue `37,568` `33,195` `126,094` `146,265` `4,714` Dividend income `17,986` `14,587` `234,902` `124,396` `4,009` Other income `540,570` `534,234` `995,687` `1,159,577` `37,373` `822,015` `$` `756,790` `$` `2,012,692` `$` `2,287,278` `$` `73,719` `$` For the three-month periods endedSeptember30, 2019 For the nine-month periods endedSeptember30,	For the nine-monthperiods endedSeptember30,
		2019
					US$
			2018 NT$ `617,818` `$` `38,191` `656,009` `126,094` `234,902` `995,687` `2,012,692` `$`	2019
				NT$ `493,820` `$` `363,220` `857,040` `146,265` `124,396` `1,159,577` `2,287,278` `$`		US$
						`15,916` `$` `11,707`
						`27,623` `4,714` `4,009` `37,373`
						`73,719` `$`

(23) Other income

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(24) Other gains and losses

		For the three-month	For the three-month	periods		For the nine-month periods	For the nine-month periods	For the nine-month periods	For the nine-month periods	For the nine-month periods
		endedSeptember30,					ended		September30,
		2018		2019		2018			2019
		NT$		NT$		NT$			NT$		US$
Net (loss) gain on financial	`($`	`1,251,965)`	`$`	`283,711`	`($`	`2,150,099)`		`$`	`1,414,996`	`$`	`45,605`
assets and liabilities at fair
value through profit or loss
Net currency exchange
gain (loss)		`1,339,262`		`627,557`		`1,716,431`		`(`	`38,244)`	`(`	`1,233)`
(Loss) gain on disposal of
investments	`(`	`15,141)`		`10,916`		`1,087`			`21,069`		`679`
Loss on disposal of
property, plant and
equipment	`(`	`51,864)`	`(`	`20,498)`	`(`	`205,497)`		`(`	`107,249)`	`(`	`3,457)`
Other losses	`(`	`62,816)`	`(`	`70,930)`	`(`	`63,849)`		`(`	`108,804)`	`(`	`3,506)`
	`($`	`42,524)`	`$`	`830,756`	`($`	`701,927)`		`$`	`1,181,768`	`$`	`38,088`

(25) Finance costs

Finance costs
Expenses by nature Interest expense: Bank borrowings Others Employee benefit expense: Salaries and other short-term employee benefits Share-based payment Post-employment benefits Depreciation Amortization	2018 2019 NT$ NT$ `111,978` `$` `236,766` `$` `2` `26,574` `111,980` `$` `263,340` `$` For the three-month periods endedSeptember30, 2018 2019 NT$ NT$ `9,549,775` `$` `9,161,869` `$` `-` `8` `507,878` `454,001` `8,767,429` `8,801,090` `125,818` `61,523` `18,950,900` `$` `18,478,491` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
		2018 NT$ NT$ US$ `368,822` `$` `715,349` `$` `23,056` `$` `213` `81,623` `2,630` `369,035` `$` `796,972` `$` `25,686` `$` 2019 endedSeptember30, For the nine-month periods	2019
				US$
	2018 NT$ `9,549,775` `$` `-` `507,878` `8,767,429` `125,818` `18,950,900` `$`	2018 NT$ `28,426,826` `$` `-` `1,506,152` `26,791,886` `418,182` `57,143,046` `$`	2019
			NT$ `27,419,845` `$` `8` `1,395,885` `26,280,209` `192,232` `55,288,179` `$`	US$
				`883,741` `$` `-` `44,989` `847,011` `6,196` `1,781,937` `$`

(26) Expenses by nature

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(27) 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 three-month and nine-month periods ended September 30, 2018 and 2019, the amount of employees’ compensation was accrued (reversed) at $113,750, $0, $284,619 and $0 (US$0), respectively. For the nine-month periods ended September 30, 2018 and 2019, the Group did not recognize directors’ remuneration, aforementioned amounts were accounted as expenses. The employees’ compensation and directors’ remuneration for the year ended December 31, 2018 were $294,289 and $4,528, respectively, and were estimated based on the profit of current year. The employees’ compensation will be distributed in the form of cash. The Board of Directors resolved to distribute employees’ compensation and directors’ remuneration in the amount of $294,289 and $4,528, respectively, in the form of cash. The actual distributed amount were in consistent with the amounts recognized as expense in 2018.
- 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.

(28) Income tax

A. Income tax expense

(a) Components of income tax expense:

endedSeptember30, For the nine-month periods	endedSeptember30, For the nine-month periods	endedSeptember30, For the nine-month periods
2018 NT$ `2,008,296` `$` `2,704,311` `100,119` `(` `4,812,726` `735,558` `969,286)` `(` `4,578,998` `$`	2019
	NT$ `1,032,617` `$` `-` `943,256)` `(` `89,361` `639,391` `-` `728,752` `$`	US$
		`33,281` `$` `-` `30,401)` `2,880` `20,608` `-` `23,488` `$`

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

follows:
Changes in fair value of financial assets at fair value through other comprehensive income	2018 2019 NT$ NT$ `-` `$` `-` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
	2018 NT$ `-` `$`	2018 NT$ `-` `$`	2019
			NT$ US$ `61,035)` `($` `1,967)` `($`	US$

B. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority.
C. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China on February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018. The Group has assessed the impact of the change in income tax rate.

(29) Earnings (loss) per share

Earnings (loss) per share
Profit (loss) attributable to ordinary shareholders of the parent Weighted average number of ordinary shares outstanding (shares in thousands) Basic earnings (loss) per share (in dollars) Profit (loss) 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 Diluted earnings (loss) per share (in dollars) Diluted earnings (loss) per share Basic earnings (loss) per share	2018 2019 NT$ NT$ `1,912,948` `$` `3,888,393)` `($` `9,952,072` `9,880,993` `0.19` `$` `0.39)` `($` `1,912,948` `$` `3,888,393)` `($` `9,952,072` `9,880,993` `26,851` `-` `9,978,923` `9,880,993` `0.19` `$` `0.39)` `($` For the three-month periods endedSeptember30,	2018 NT$ NT$ US$ `2,919,750` `$` `10,583,525)` `($` `341,107)` `($` `9,952,072` `9,928,118` `9,928,118` `0.29` `$` `1.06)` `($` `0.0342)` `($` `2,919,750` `$` `10,583,525)` `($` `341,107)` `($` `9,952,072` `9,928,118` `9,928,118` `70,212` `-` `-` `10,022,284` `9,928,118` `9,928,118` `0.29` `$` `1.06)` `($` `0.0342)` `($` 2019 endedSeptember30, For the nine-month periods
	2018 NT$ `1,912,948` `$` `(` `9,952,072` `0.19` `$` `(` `1,912,948` `$` `(` `9,952,072` `26,851` `9,978,923` `0.19` `$` `(`	2018 NT$ `2,919,750` `$` `(` `9,952,072` `0.29` `$` `(` `2,919,750` `$` `(` `9,952,072` `70,212` `10,022,284` `0.29` `$` `(`

(30) Business combinations

A. On September 18, 2019, the Group acquired 39 % of the share capital of GIO Optoelectronics Corp. for $192,405 (US$6,201), which the ownership change from 24% to 63%, and obtained

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control over GIO Optoelectronics Corp.. The main business of GIO Optoelectronics Corp. is LCD glass substrate processing, LED lighting and its control power supply. As a result of the acquisition, the Group is expected to increase economic scale and strategic synergy.

B. The reference date of the consolidation was set on September 18, 2019. Under the principles of IFRS 3, ‘Business Combinations’, details of the acquisition are as follows:

			GIO Optoelectronics	GIO Optoelectronics	Corp.
			NT$		US$
Purchase consideration - cash paid		`$`	`192,405`	`$`	`6,201`
Fair value of equity interest in GIO Optoelectronics Corp. held
before the business combination			`117,446`		`3,785`
Fair value of the non-controlling interest			`180,351`		`5,813`
			`490,202`		`15,799`
Fair value of the identifiable assets acquired and liabilities assumed
Cash			`522,951`		`16,855`
Notes and accounts receivable and other current assets			`62,231`		`2,006`
Property, plant and equipment			`333,713`		`10,754`
Other non-current assets			`9,766`		`315`
Notes and accounts payable and other current liabilities	`(`		`290,131)`	`(`	`9,351)`
Other non-current liabilities	`(`		`169,039)`	`(`	`5,448)`
Total identifiable net assets			`469,491`		`15,131`
Goodwill		`$`	`20,711`	`$`	`668`

C. The Group recognized a gain of $10,915 (US$352) as a result of measuring at fair value its 24% equity interest in GIO Optoelectronics Corp. held before the business combination.
D. The operating revenue included in the consolidated statement of comprehensive income since September 18, 2019 contributed by GIO Optoelectronics Corp. was $1,788 (US$58). GIO Optoelectronics Corp. also contributed profit before income tax of $6,029 (US$194) over the same period. Had GIO Optoelectronics Corp. been consolidated from January 1, 2019, the consolidated statement of comprehensive income would show operating revenue of $186,477,863 (US$6,010,180) and loss before income tax of $9,856,820 (US$317,685).
E. As of September 30, 2019, the allocation of the purchase price of the acquisition is still in process, and the Group is still assessing the fair value of the identifiable assets.
(31) Supplemental cash flow information
A. 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 period	2018 NT$ NT$ US$ `16,843,866` `$` `17,973,867` `$` `579,298` `$` `32,381,338` `7,982,978` `257,291` `14,309,806)` `(` `5,681,402)` `(` `183,112)` `(` `34,915,398` `$` `20,275,443` `$` `653,477` `$` 2019 For the nine-monthperiods endedSeptember30,	2018 NT$ NT$ US$ `16,843,866` `$` `17,973,867` `$` `579,298` `$` `32,381,338` `7,982,978` `257,291` `14,309,806)` `(` `5,681,402)` `(` `183,112)` `(` `34,915,398` `$` `20,275,443` `$` `653,477` `$` 2019 For the nine-monthperiods endedSeptember30,
	2018 NT$ `16,843,866` `$` `32,381,338` `14,309,806)` `(` `34,915,398` `$`
		NT$ `17,973,867` `$` `7,982,978` `5,681,402)` `(` `20,275,443` `$`

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B. Cash received for the acquisition of business subsidiary:

Cash received for the acquisition of business subsidiary:
Total consideration Less: Cash of subsidiary Net cash received for the acquisition of business subsidiary	endedSeptember30,2019 For the nine-month period
	NT$ US$ `192,405` `$` `6,201` `$` `522,951)` `(` `16,855)` `(` `330,546)` `($` `10,654)` `($`	US$

(32) Changes in liabilities from financing activities

For the nine-month periods ended September 30, 2018 and 2019, all changes in liabilities from financing activities are changes in cash flow from financing activities. Please refer to consolidated statements of cash flows.

7. RELATED PARTY TRANSACTIONS

(1) Names and relationship of related parties

statements of cash flows. LATED PARTY TRANSACTIONS Names and relationship of related parties
Names of relatedparties	Relationship with theGroup
Hon Hai Precision Industry Co., Ltd. and its subsidiaries CHENG MEI MATERIALS TECHNOLOGY CORPORATION and its subsidiaries Fu Lian Net International (Hong Kong) Limited Pan Zhou Fu Gui Kang Precision Electronic Co. Ltd. Chongqing Fuyusheng Electronics Technology Co., Ltd. FI Medical Device Manufacturing Co., Ltd. GIO Optoelectronics Corp. (Note)	Other related party Other related party Other related party Other related party Other related party Associate Associate

(Note) GIO Optoelectronics Corp. was included in the consolidated financial statements in the third quarter of 2019. Please refer to Note 4(3).

(2) Significant related party transactions

A. Operating revenue

gnificant related party Operating revenue	transactions
Sales of goods: Other related parties Associates	2018 2019 NT$ NT$ `3,042,279` `$` `1,988,096` `$` `-` `7,859` `3,042,279` `$` `1,995,955` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
	2018 NT$ `3,042,279` `$` `-` `3,042,279` `$`	2018 NT$ `16,097,784` `$` `21,418` `16,119,202` `$`	2019
			NT$ `7,003,557` `$` `15,206` `7,018,763` `$`	US$
				`225,725` `$` `490`
				`226,215` `$`

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

F-42

B. Purchases of goods

Purchases of goods
Purchases of goods: Other related parties Associates	2018 2019 NT$ NT$ `1,576,112` `$` `2,536,275` `$` `387,133` `396,505` `1,963,245` `$` `2,932,780` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
	2018 NT$ `1,576,112` `$` `387,133` `1,963,245` `$`	2018 NT$ `3,825,875` `$` `1,078,374` `4,904,249` `$`	2019
			NT$ `6,359,844` `$` `1,248,897` `7,608,741` `$`	US$
				`204,978` `$` `40,252`
				`245,230` `$`

The payment term was 30~120 days to related parties after delivery, and 30~180 days to nonrelated 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

Accounts receivable: Other related parties Associates Less: Transferred other receivables	September30,2018 NT$ `4,521,724` `$` `36,152` `4,557,876` `368,339)` `(` `(` `4,189,537` `$`	December31,2018 NT$ `5,087,175` `$` `47,881` `5,135,056` `685,079)` `4,449,977` `$`	September	30,2019
			NT$ `2,721,975` `$` `51,265` `2,773,240` `24)` `(` `2,773,216` `$`	US$
				`87,729` `$` `1,653` `89,382` `1)` `(` `89,381` `$`

(a) The receivables from related parties arise mainly from sales transactions. The receivables are due 30~90 days after the date of sale. The receivables are unsecured in nature and bear no interest.

(b) The abovementioned receivables from related parties that exceed normal granting periods were transferred under ‘Other receivables – related parties’.

D. Other receivables from related parties

F-43

E.	Payables to related parties Other receivables: Accounts receivable transferred to other receivables - Other related parties - Fu Lian Net International (Hong Kong) Limited - Pan Zhou Fu Gui Kang Precision Electronic Co. Ltd. - Chongqing Fuyusheng Electronics Technology Co., Ltd. - Others Other receivables - Other related parties - Associates Accounts payable: Other related parties Associates	September30,2018 NT$ `367,549` `$` `-` `-` `790` `12,978` `9,494` `390,811` `$` September30,2018 NT$ `2,373,530` `$` `201,199` `2,574,729` `$`	December31,2018 NT$ `369,837` `$` `178,663` `136,555` `24` `9,832` `7,820` `702,731` `$` December31,2018 NT$ `2,382,269` `$` `269,858` `2,652,127` `$`	September	30,2019
				NT$ `-` `$` `-` `-` `24` `7,841` `10,670` `18,535` `$` September	US$
					`-` `$` `-` `-` `1` `253` `344`
					`598` `$`
					30,2019
				NT$ `3,031,023` `$` `157,436` `3,188,459` `$`	US$
					`97,690` `$` `5,074`
					`102,764` `$`

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

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

erty transactions chase of property Acquisition of property,	plant and equipment:
Other related parties Associates	2018 2019 NT$ NT$ `11,510` `$` `421` `$` `-` `263` `11,510` `$` `684` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
	2018 NT$ `11,510` `$` `-` `11,510` `$`	2018 NT$ `47,783` `$` `2,458` `50,241` `$`	2019
			NT$ `31,174` `$` `3,031` `34,205` `$`	US$
				`1,005` `$` `98`
				`1,103` `$`

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

September30,2018 December31,2018 NT$ NT$ Other related parties - Hon Hai Precision Industry Co., Ltd. `9,053,325` `$` `2,225,585` `$` - Others `5,939` `378` `9,059,264` `$` `2,225,963` `$`	September	30,2019
Other related parties - Hon Hai Precision Industry Co., Ltd. - Others	NT$ `1,114,213` `$` `454` `1,114,667` `$`	US$
		`35,911` `$` `15`
		`35,926` `$`

Sale of property

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

of property roceeds from sale of property and gain on disposal:
Period-end balances arising from sale of property (shown as ‘other receivables’) Disposal Gain on proceeds disposal NT$ US$ NT$ US$ Other related parties `537` `$` `48` `$` `-` `$` `-` `$` `-` `$` `-` `$` Disposal Gain on proceeds disposal NT$ US$ NT$ US$ Other related parties `537` `$` `48` `$` `828` `$` `27` `$` `141` `$` `5` `$` For the three-month period endedSeptember30,2019 For the three-month period endedSeptember30,2018 Disposal proceeds Gain on disposal disposal For the nine-month period endedSeptember30,2018 For the nine-month period endedSeptember30,2019 Disposal proceeds Gain on September30,2018 December31,2018 NT$ NT$ NT$ US$ Other related parties `534` `$` `269` `$` `-` `$` `-` `$` September30,2019	For the three-month period endedSeptember30,2019
	NT$ US$ NT$ US$ `-` `$` `-` `$` `-` `$` `-` `$` Disposal proceeds Gain on disposal For the nine-month period endedSeptember30,2019		Gain on disposal
					US$
					`-` `$`
			disposal Gain on
					US$
		NT$ `-` `$`		US$
				`-` `$`

(b) Period-end balances arising from sale of property (shown as ‘other receivables’)

(3) Key management compensation

2018 2019 NT$ NT$ `138,185` `$` `8,991` `$` `197` `151` `138,382` `$` `9,142` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods	endedSeptember30, For the nine-month periods	endedSeptember30, For the nine-month periods
2018 NT$ `138,185` `$` `197` `138,382` `$`	2018 NT$ `241,761` `$` `591` `242,352` `$`	2019
		NT$ `32,350` `$` `555` `32,905` `$`	US$
			`1,043` `$` `18` `1,061` `$`

F-45

8. PLEDGED ASSETS

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

Pledged asset Other current assets -Demand deposits -Time deposits Property, plant and equipment Intangible assets Other non-current assets -Time deposits -Refundable deposits		Book value	Purpose NT$ US$ `1,850` `$` `60` `$` Long-term loans `78,372` `2,526` Tariff and credit card guarantee `99,608,495` `3,210,381` Long-term loans `73` `2` Long-term loans `1,240` `40` Tariff guarantee `372,090` `11,992` Guarantee for litigation `100,062,120` `$` `3,225,001` `$` September30,2019	Purpose
	September30,2018 NT$ `-` `$` `444` `63,383,215` `2,439` `-` `365,916` `63,752,014` `$`	December31,2018 NT$ `-` `$` `77,849` `111,162,901` `1,122` `-` `368,194` `111,610,066` `$`
			NT$ `1,850` `$` `78,372` `99,608,495` `73` `1,240` `372,090` `100,062,120` `$`

9. 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. In March 2019, the Company received a sanction from the Brazil Administrative Council for Economic Defense - CADE and paid all fines on May 8, 2019 also obtained the confirmation from the representative lawyer of CADE that the Company complied with the sanction. 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. The Company’s subsidiary in the U.S. received a civil complaint from the government of Puerto Rico in September 2018, claiming that the Company, together with other defendants of Taiwan, Japan and South Korea panel factories, had unjustified enrichment from the TFT-LCD pricing collaborations in 2006 and requested monetary compensation. The U.S. subsidiary of the company has appointed a lawyer to handle the lawsuit.
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.

F-46

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. On March 5, 2018, the court made first instance judgement and the Company had appealled. 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. On July 10, 2018, Vista Peak Ventures, LLC (VPV) filed four complaints against the Company in the United States District Court for the Eastern District of Texas, alleging the infringement of several of its patents. The Company reached settlements with VPV for the aforementioned lawsuits and acquired relevant patent portfolio licensing in the first quarter of 2019. VPV also dismissed the action and the lawsuits have no effect on the Company’s financial position and results of operations.
D. On March 23, 2018, Chongqing HKC Optoelectronics Technology Co., Ltd. (HFC) filed five complaints against the subsidiaries of the Company, Ningbo Innolux Optoelectronics Ltd., Foshan Innolux Optoelectronics Ltd. as well as their customers and terminal distributors of TV products with the Fifth Intermediate People’s Court in Chongqing, alleging the infringement of its patents. Ningbo Innolux Optoelectronics Ltd. submitted a request of patent invalidity to the National Intellectual Property Administration, PRC upon the patents asserted in the complaints. As of May 21, 2019, all five patents asserted by HKC were declared invalid by the National Intellectual Property Administration, PRC. The five lawsuits that were previously disclosed were allegedly withdrawn by the Chongqing court on June 18, 2019. Thus, the lawsuits have no effect on the Company’s financial position and results of operations.
E. The Company had assessed and recognized related losses and liabilities as shown in ‘provisionscurrent’ 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 is as follows:

Property, plant and equipment	September30,2018 NT$ `23,209,615` `$`	December31,2018 NT$ `22,914,278` `$`	September	30,2019
			NT$ `16,535,499` `$`	US$
				`532,939` `$`

B. Outstanding letters of credit

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

Outstanding letters of credit	September30,2018 NT$ `298,634` `$`	December31,2018 NT$ `445,458` `$`	September	30,2019
			NT$ `194,999` `$`	US$
				`6,285` `$`

10. SIGNIFICANT DISASTER LOSS

None.

F-47

11. SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

(1) On November 8, 2019, the Board of Directors of the Company at their meeting resolved to adjust the overseas business investment structure, whereby the company’s subsidiary, Innolux Hong Kong Holding Limited, transferred its 100% equity interest in Innolux Optoelectronics Hong Kong Holding Limited and 100% equity interest in Europe BV, to CarUX Holding Limited and CarUX Technology Pte. Ltd., subsidiaries of the Company.
(2) On November 8, 2019, the Board of Directors of the Company at their meeting resolved to cancel the total of 241,000 thousand shares of treasury shares, and set November 8, 2019 as the record date of capital reduction. The amount of share capital after the capital reduction was 9,711,072 thousand shares, with a par value of $10 (US$0.32) (in dollars) per share, for a total of $97,110,720 (US$3,129,878).

12. OTHERS

(1) Capital management

No significant changes during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2018.

(2) Financial instruments
A. Financial instruments by category
- For information of the Group’s financial assets (financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, financial assets at amortized cost, cash and cash equivalents, accounts receivable (including related parties) and other receivables) and financial liability (financial liabilities at fair value through profit or loss, accounts payable (including related parties), other payables, lease liability, corporate bonds payable and long-term borrowings (including current portion)), please refer to Note 6 and consolidated balance sheets.
B. Risk management policies
- No significant changes during the period. Please refer to Note 12 in the consolidated financial statements for the year ended December 31, 2018.
C. Significant financial risks and degrees of financial risks
- Except for the following, there was no significant change in the period. Please refer to Note 12. (a) Market risk

Foreign exchange risk

i. The Group operates internationally and is exposed to foreign exchange risk arising from the transactions of the company and its subsidiaries used in various functional currency, 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.
ii. The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $340,699 and $194,310

F-48

(US$6,263) for the nine-month periods ended September 30, 2018 and 2019, 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 assets Monetary items USD `5,653,543` `$` `30.53` `172,602,668` `$` JPY `8,017,434` `0.27` `2,164,707` EUR `12,797` `35.48` `454,038` Non-monetary items USD `2,551,723` `$` `30.53` `77,904,103` `$` HKD `103,845` `3.90` `404,996` JPY `13,313,597` `0.27` `3,594,671` Financial liabilities Monetary items USD `4,167,525` `$` `30.53` `127,234,538` `$` JPY `45,281,881` `0.27` `12,226,108` EUR `47,656` `35.48` `1,690,835` Financial assets Monetary items USD JPY HKD EUR Non-monetary items USD HKD JPY Financial liabilities Monetary items USD JPY EUR September30,2018	December31,2018
	Foreign Currency Exchange Amount Rate Book Value (In Thousands) (Note) (NTD) `5,960,855` `$` `30.72` `183,117,466` `$` `8,247,993` `0.28` `2,309,438` `48,137` `35.20` `1,694,422` `2,576,131` `$` `30.72` `79,138,744` `$` `180,600` `3.92` `707,952` `13,237,769` `0.28` `3,706,575` `4,311,235` `$` `30.72` `132,441,139` `$` `46,306,961` `0.28` `12,965,949` `13,025` `35.20` `458,480` September30,2019
	Foreign Currency Exchange Amount Rate Book Value (In Thousands) (Note) (NTD) `4,830,847` `$` `31.04` `149,949,491` `$` `8,344,384` `0.29` `2,419,871` `185,963` `3.96` `736,413` `50,384` `33.95` `1,710,537` `2,576,158` `$` `31.04` `79,963,944` `$` `559,860` `3.96` `2,217,046` `7,554,924` `0.29` `2,190,928` `4,036,719` `$` `31.04` `125,299,758` `$` `34,188,827` `0.29` `9,914,760` `5,030` `33.95` `170,769`

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

iii.Total exchange loss, including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the three-month and nine-month periods ended September 30, 2018 and 2019 amounted to $1,339,262, $627,557, $1,716,431 and $(38,244) (US$1,233), respectively.

F-49

Price risk

i. The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.
ii. 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 nine-month periods ended September 30, 2018 and 2019 would have increased/decreased by $272,842 and $638,310 (US$20,573), respectively; other comprehensive gains and losses would have increased/decreased by $1,010,198 and $850,087 (US$27,398), respectively.
Cash flow and fair value interest rate risk
i. The Group’s main interest rate risk arises from long-term borrowings with variable rates, which expose the Group to cash flow interest rate risk. During the nine-month periods ended September 30, 2018 and 2019, the Group’s borrowings at variable rate were denominated in the NTD.
ii. If the borrowing interest rate of NTD had increased/decreased by 0.25% with all other variables held constant, profit, net of tax for the nine-month periods ended September 30, 2018 and 2019 would have decreased/increased by $64,850 and $102,793 (US$3,313), respectively. The main factor is that changes in interest expense result in floating-rate borrowings.
(b) Credit risk
i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the contract cash flows.
ii. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the managements. The utilization of credit limits is regularly monitored.
iii. The Group adopts the following assumption under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition:

F-50

If the contract payments are past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.

iv. The Group adopts the assumptions under IFRS 9, the default occurs when the contract payments are past due over 90 days.
v. The Group classifies customer’s accounts receivable in accordance with credit rating of customer, credit risk on trade and customer types. The Group applies the simplified approach using provision matrix to estimate expected credit loss under the provision matrix basis.
vi. The following indicators are used to determine whether the credit impairment of debt instruments has occurred:
(i) It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;
(ii) Default or delinquency in interest or principal repayments;
(iii) Adverse changes in national or regional economic conditions that are expected to cause a default.
vii. The Group uses the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable.
According to abovementioned consideration and information, the Group does not expect any significant default possibility of accounts receivable.
viii. Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

		2018	2018
		Accounts	receivable
At January 1_IAS 39	`$`			`109,496`
Adjustments under new standards				`-`
At January 1_IAS 9	`$`			`109,496`
Write-offs	`(`			`123)`
Effect of exchange rate changes				`-`
At September 30	`$`			`109,373`
		2019
		Accounts	receivable
		NT$		US$
At January 1	`$`	`209,729`	`$`	`6,760`
Provision		`-`		`-`
Reversal	`(`	`310)`	`(`	`10)`
At September 30	`$`	`209,419`	`$`	`6,750`

ix. The Group did not recognize significant impairment provision in accordance with 12 months expected credit losses, because the Group’s financial assets/loans to others and receivables at amortized cost all with low credit risk.

F-51

(c) Liquidity risk

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

September30,2018 Long-term borrowings (including current portion) December 31,2018 Long-term borrowings (including current portion) September 30,2019 (NT$) Lease liability Bonds payable Long-term borrowings (including current portion) September30,2019 (US$) Lease liability Bonds payable Long-term borrowings (including current portion)	Less than 1year `10,960,000` `$` Less than 1year `16,210,000` `$` Less than 1year `565,770` `$` `-` `16,046,000` Less than 1year `18,235` `$` `-` `517,162`	Between 1 and3 years `11,180,000` `$` Between 1 and 3years `35,230,000` `$` Between 1 and3 years `1,100,858` `$` `100,000` `24,621,000` Between 1 and3 years `35,481` `$` `3,223` `793,535`	Between 3 and5 years `3,800,000` `$` Between 3 and 5years `-` `$` Between 3 and5 years `1,088,207` `$` `-` `450,000` Between 3 and5 years `35,073` `$` `-` `14,503`	Over 5 years `-` `$` Over 5years `-` `$` Over 5 years `3,577,109` `$` `-` `-` Over 5 years `115,290` `$` `-` `-`	Total
					`25,940,000` `$` Total
					`51,440,000` `$` Total
					`6,331,944` `$` `100,000` `41,117,000` Total
					`204,079` `$` `3,223` `1,325,200`

Except for the above, the non-derivative and derivative financial liabilities of the Group are all due within one year.

(3) Fair value estimation

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks is included in Level 1.

F-52

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.
B. Fair value information of investment property at cost is provided in Note 6(10).
C. Financial instruments not measured at fair value
The carrying amounts of cash and cash equivalents, accounts receivable, other receivables, financial assets at amortized cost, accounts payable, other payables, lease liability, corporate bonds payable and long-term borrowings (including current portion) are approximate to their fair values.
D. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities is as follows:
(a) The related information of natures of the assets and liabilities is as follows:

September 30,2018 Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Forward exchange swap contracts Financial assets at fair value through other comprehensive income Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts December31,2018 Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Convertible bonds Financial assets at fair value through other comprehensive income Equity securities	Level 1 `991,908` `$` `-` `-` `3,704,850` `4,696,758` `$` `-` `$` Level 1 `1,221,135` `$` `-` `-` `2,661,075` `3,882,210` `$`	Level 2 `-` `$` `8,108` `45,537` `-` `53,645` `$` `346,577` `$` Level 2 `-` `$` `398,913` `-` `-` `398,913` `$`	Level 3 `372,302` `$` `-` `-` `1,346,138` `1,718,440` `$` `-` `$` Level3 `343,175` `$` `-` `35,559` `1,173,301` `1,552,035` `$`	Total
				`1,364,210` `$` `8,108` `45,537` `5,050,988`
				`6,468,843` `$`
				`346,577` `$`
				Total
				`1,564,310` `$` `398,913` `35,559` `3,834,376`
				`5,833,158` `$`

F-53

December31,2018 Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts Forward exchange swap contracts September30,2019 NT$ Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Convertible bonds Financial assets at fair value through other comprehensive income Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts September30,2019 US$ Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Convertible bonds Financial assets at fair value through other comprehensive income Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts	Level 1 `-` `$` `-` `-` `$` Level 1 `2,830,037` `$` `-` `-` `3,005,531` `5,835,568` `$` `-` `$` Level 1 `91,212` `$` `-` `-` `96,868` `188,080` `$` `-` `$`	Level 2 `16,644` `$` `7,135` `23,779` `$` Level 2 `-` `$` `42,810` `-` `-` `42,810` `$` `248,821` `$` Level 2 `-` `$` `1,380` `-` `-` `1,380` `$` `8,019` `$`	Level3 `-` `$` `-` `-` `$` Level3 `361,512` `$` `-` `35,935` `1,244,902` `1,642,349` `$` `-` `$` Level3 `11,652` `$` `-` `1,158` `40,123` `52,933` `$` `-` `$`	Total
				`16,644` `$` `7,135`
				`23,779` `$`
				Total
				`3,191,549` `$` `42,810` `35,935` `4,250,433`
				`7,520,727` `$`
				`248,821` `$`
				Total
				`102,864` `$` `1,380` `1,158` `136,991`
				`242,393` `$`
				`8,019` `$`

F-54

(b) The methods and assumptions the Group used to measure fair value are as follows:
- i. The instruments the Group used market quoted prices as their fair values (that is, Level
  - 1) are listed below by characteristics:
  - Listed shares Emerging stocks Corporate bond
  - Market quoted price Closing price Last transaction price Weighted average quoted price
- ii. Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
- iii. When assessing non-standard and low-complexity financial instruments, for example, 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.
- iv. The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts and foreign exchange swap contracts are usually valued based on the current forward exchange rate.
- v. The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
- vi. The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.
E. For the nine-month periods ended September 30, 2018 and 2019, there was no transfer between Level 1 and Level 2.
F. The following table presents the changes in level 3 instruments for the nine-month periods ended September 30, 2018 and 2019:

F-55

		2018
		Equitysecurities
At January 1	`$`	`313,724`
Gains and losses recognized in profit or loss	`(`	`83,042)`
Gains and losses recognized in other
comprehensive income	`(`	`44,951)`
Acquired in the period		`1,532,689`
Effect on exchange rate changes		`20`
At September 30	`$`	`1,718,440`

	2019
	NT$
Equitysecurities `1,516,476` `$` `5,501` `75,475)` `(` `198,768` `35,585)` `(` `3,271)` `(` `1,606,414` `$`	Hybrid instrument `35,559` `$` `-` `-` `-` `-` `376` `35,935` `$` 2019	Total
		`1,552,035` `$` `5,501` `75,475)` `(` `198,768` `35,585)` `(` `2,895)` `(` `1,642,349` `$`
	US$
Equitysecurities `48,876` `$` `177` `2,433)` `(` `6,406` `1,147)` `(` `104)` `(` `51,775` `$`	Hybrid instrument `1,146` `$` `-` `-` `-` `-` `12` `1,158` `$`	Total
		`50,022` `$` `177` `2,433)` `(` `6,406` `1,147)` `(` `92)` `(` `52,933` `$`

G. For the nine-month periods ended September 30, 2018 and 2019, 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

F-56

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 Hybrid instrument: Convertible bond	Fair value at September 30,2018	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
	`1,692,515` `$` `25,925` Fair value at December 31,2018	Market comparable companies Net asset value Valuation technique	Price to earnings ratio multiple, price to sales ratio multiple, price to book ratio multiple Discount for lack of marketability Not applicable Significant unobservable input Price to earnings ratio multiple, price to sales ratio multiple, price to book ratio multiple Discount for lack of marketability Not applicable Volatility and Discount rate	`0.68~43.54` `(5.1)` `30%~70%` `(33%)` Not applicable Range (weighted average) `0.58~41.52` `(5.06)` `30%~70%` `(33%)` Not applicable `2.5%~46.7%` `(24.6%)`	The higher the multiple, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable Relationship of inputs to fair value The higher the multiple, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable The higher the volatility, the higher the fair value; the higher the discount rate, the lower the fair value
	`1,490,390` `$` `26,086` `35,559`	Market comparable companies Net asset value Discounted cash flow method and Option pricing model

F-57

Non-derivative equity instrument: Unlisted shares Venture capital shares Private equity fund investment Hybrid instrument: Convertible bond	Fair value at September 30,2019	Fair value at September 30,2019	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
	NT$ `1,580,052` `$` `26,362` `35,935`	US$ `50,925` `$` `850` `1,158`	Market comparable companies Net asset value Discounted cash flow method and Option pricing model	Price to earnings ratio multiple, price to sales ratio multiple, price to book ratio multiple Discount for lack of marketability Not applicable Volatility and Discount rate	`0.62~41.52` `(5.45)` `30%~70%` `(33%)` Not applicable `2.5%~46.7%` `(24.6%)`	The higher the multiple, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable The higher the volatility, the higher the fair value; the higher the discount rate, the lower the fair value

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 measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorized within Level 3 if the inputs used to valuation models have changed:

September 30, 2018

			September	30,2018
Financial assets	Input	Change `± 1%` Change `± 1%` `± 1%`	Favourable Unfavourable change change `$ -` `$ -` December Recognized in other comprehensive income	Favourable Unfavourable change change `$ 17,184` `($ 17,184)` Favourable Unfavourable change change `$ 11,733` `($ 11,733)` `-` `-` Recognized in other comprehensive income 31,2018 Recognized in other comprehensive income
			Favourable change `$ -`
Equity instrument Financial assets	`$ 1,718,440` Input
			Recognized in
Equity instrument Hybrid instrument	`$ 1,516,476` `35,559`

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==> picture [477 x 260] intentionally omitted <==

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

September 30, 2019
NT$
Recognized in other
Recognized in profit or loss comprehensive income
Favourable Unfavourable Favourable Unfavourable
Financial assets Input Change change change change change
Equity instrument $ 1,606,414 ± 1% $ 3,615 ($ 3,615) $ 12,449 ($ 12,449)
Hybrid instrument 35,935 ± 1% 359 ( 359) - -
September 30, 2019
US$
Recognized in other
Recognized in profit or loss comprehensive income
Favourable Unfavourable Favourable Unfavourable
Financial assets Input Change change change change change
Equity instrument $ 51,775 ± 1% $ 117 ($ 117) $ 401 ($ 401)
Hybrid instrument 1,158 ± 1% 12 ( 12) - -
----- End of picture text -----

13. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

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

(2) Information on investees

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

(3) Information on investments in Mainland China

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

F-59

14. SEGMENT INFORMATION

(1) 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 discontinued operations of individual operating segment.

(2) 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 (loss) income Depreciation and amortization Capital expenditure- property, plant and equipment	2018 2019 TFT LCD TFT LCD NT$ NT$ `73,907,131` `$` `63,293,735` `$` `2,565,717` `$` `3,455,264)` `($` `8,893,247` `$` `8,893,247` `$` `12,017,347` `$` `5,033,775` `$` For the three-month periods endedSeptember30,	endedSeptember30, For the nine-month periods
	2018 TFT LCD NT$ `73,907,131` `$` `2,565,717` `$` `(` `8,893,247` `$` `12,017,347` `$`	2018 TFT LCD NT$ `207,132,750` `$` `7,498,748` `$` `(` `27,210,068` `$` `34,915,398` `$`	2019
			TFT LCD
			NT$ US$ `186,393,293` `$` `6,007,455` `$` `9,852,555)` `$` `317,548)` `($` `26,472,441` `$` `853,207` `$` `20,275,443` `$` `653,477` `$`	US$

(3) 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.

F-60

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2017 AND 2018

F-61

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 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the 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 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and 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.

F-62

The key audit matters in relation to the financial statements for the year ended December 31, 2018 are outlined as follows:

Inventory valuation

Description

The industry is characterised 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.

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 Notes 6(8) and 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.

F-63

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 2018.

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, 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.

F-64

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.

F-65

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

PricewaterhouseCoopers, Taiwan February 14, 2019

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.

F-66

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

Notes	December	31, 2018
	NT$ `$` `33,847,328` `398,913` `51,426,053` `45,064,157` `4,449,977` `1,489,260` `30,856,552` `1,993,152` `208,724` `169,734,116` `1,599,869` `3,834,376` `-` `1,802,921` `206,617,960` `551,970` `17,681,485` `7,223,864` `2,873,043` `242,185,488` `$` `411,919,604`	US$
6(1) 6(2) 6(4) 6(5) 7 7 6(6) 8 6(2) 6(3) 12(4) 6(7) 6(8), 7 and 8 6(9) 6(10) and 8 6(25) 6(8) and 8		(Unaudited) (noted 2) `$` `1,090,899` `12,857` `1,657,461` `1,452,417` `143,423` `47,999` `994,506` `64,239` `6,727`
		`5,470,528`
		`51,564` `123,582` `-` `58,108` `6,659,295` `17,790` `569,874` `232,825` `92,598`
		`7,805,636`
		`$` `13,276,164`

(Continued)

F-67

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

				December 31, 2017	December 31,	December 31,	2018
	Liabilities andEquity	Notes		NT$	NT$		US$
							(Unaudited)
							(noted	2)
	Current Liabilities
2120	Financial liabilities at fair value through	6(2)
	profit or loss - current		`$`	`52,500 $`	`23,779`	`$`		`766`
2170	Accounts payable			`50,876,500`	`52,350,845`		`1,687,267`
2180	Accounts payable - related parties	7		`2,565,010`	`2,652,127`			`85,478`
2200	Other payables	6(11)
		and 7		`58,897,804`	`32,581,609`		`1,050,105`
2230	Current income tax liabilities	6(25)		`1,891,188`	`5,593,063`			`180,264`
2250	Provisions - current	6(14)
		and 9		`5,460,862`	`6,782,914`			`218,613`
2320	Long-term liabilities, current portion	6(12)		`10,951,114`	`16,194,486`			`521,948`
2399	Other current liabilities			`1,199,194`	`4,095,853`			`132,009`
21XX	Total current liabilities			`131,894,172`	`120,274,676`		`3,876,450`
	Non-current liabilities
2540	Long-term borrowings	6(12)		`17,287,788`	`35,142,090`		`1,132,629`
2570	Deferred income tax liabilities	6(25)		`734,423`	`880,013`			`28,363`
2600	Other non-current liabilities	6(13)		`617,327`	`632,120`			`20,373`
25XX	Total non-current liabilities			`18,639,538`	`36,654,223`		`1,181,365`
2XXX	Total liabilities			`150,533,710`	`156,928,899`		`5,057,815`
	Equity attributable to owners of the
	parent
3110	Share capital - common stock	6(15)		`99,520,720`	`99,520,720`		`3,207,552`
3200	Capital surplus	6(16)		`99,646,919`	`99,648,115`		`3,211,658`
	Retained earnings	6(17)
3310	Legal reserve			`3,945,576`	`7,648,437`			`246,509`
3320	Special reserve			`3,418,804`	`1,090,721`			`35,154`
3350	Unappropriated retained earnings			`58,883,750`	`51,746,175`		`1,667,779`
3400	Other equity interest	6(18) `(`		`1,090,721 )(`	`4,663,463)(`			`150,303)`
3XXX	Total equity			`264,325,048`	`254,990,705`		`8,218,349`
3X2X	Total liabilities and equity		`$`	`414,858,758 $`	`411,919,604`	`$`	`13,276,164`

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

F-68

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

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

					2017	2018
	Items	Notes			NT$	NT$	US$
							(Unaudited)
							(noted	2)
4000	Sales revenue	6(19)
		and 7		`$`	`329,174,401 $`	`279,376,115 $`	`9,004,290`
5000	Operating costs	6(6)(23)
		and 7	`(`		`260,435,724 )(`	`252,562,557)(`	`8,140,089)`
5900	Net operating margin				`68,738,677`	`26,813,558`		`864,201`
	Operating expenses	6(24)
6100	Selling expenses		`(`		`1,942,594 )(`	`3,071,282)(`		`98,988)`
6200	General and administrative expenses		`(`		`6,857,153 )(`	`6,771,502)(`		`218,245)`
6300	Research and development expenses		`(`		`12,916,721 )(`	`12,135,478)(`		`391,126)`
6000	Total operating expenses		`(`		`21,716,468 )(`	`21,978,262)(`		`708,359)`
6900	Operating profit				`47,022,209`	`4,835,296`		`155,842`
	Non-operating income and expenses
7010	Other income	6(20)			`2,528,814`	`3,025,467`		`97,511`
7020	Other gains and losses	6(21)	`(`		`154,188 )(`	`1,168,235)(`		`37,652)`
7050	Finance costs	6(22)	`(`		`730,500 )(`	`566,967)(`		`18,273)`
7060	Share of profit/(loss) of associates and	6(7)
	joint ventures accounted for under
	equity method				`274,854`	`443,869`		`14,305`
7000	Total non-operating income and
	expenses				`1,918,980`	`1,734,134`		`55,891`
7900	Profit before income tax				`48,941,189`	`6,569,430`		`211,733`
7950	Income tax expense	6(25)	`(`		`11,912,580 )(`	`4,346,668)(`		`140,093)`
8200	Profit for the year			`$`	`37,028,609$`	`2,222,762 $`		`71,640`

(Continued)

F-69

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

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

					2017	2018	2018
	Items	Notes			NT$	NT$		US$
								(Unaudited)
								(noted	2)
	Other comprehensive (loss) income
	(net)
	Components of other comprehensive
	loss that will not be reclassified to
	profit or loss
8311	Remeasurement of defined benefit	6(13)
	obligations		`($`		`49,571 )($`	`29,878)($`			`963)`
8316	Unrealized gains (losses) on financial	6(18)
	assets at fair value through other
	comprehensive income				`- (`	`2,828,816)(`			`91,173)`
8349	Income tax related to components of	6(25)
	other comprehensive income that will
	not be reclassified to profit or loss				`8,427`	`5,976`			`193`
8310	Components of other
	comprehensive loss that will not
	be reclassified to profit or loss		`(`		`41,144 )(`	`2,852,718)(`			`91,943)`
	Components of other comprehensive
	income (loss) that will be reclassified
	to profit or loss
8361	Financial statements translation	6(18)
	differences of foreign operations		`(`		`1,643,264 )(`	`828,563)(`			`26,705)`
8362	Unrealized gain on valuation of	6(18)
	available-for-sale financial assets				`4,322,008`	`-`			`-`
8370	Share of other comprehensive (loss)	6(18)
	income of associates and joint
	ventures accounted for under equity
	method		`(`		`33,551 )`	`84,637`			`2,728`
8399	Income tax relating to the components	6(25)
	of other comprehensive loss that will
	be reclassified to profit or loss		`(`		`317,110 )`	`-`			`-`
8360	Components of other
	comprehensive income (loss) that
	will be reclassified to profit or loss				`2,328,083 (`	`743,926)(`			`23,977)`
8300	Other comprehensive income (loss) for
	the year, net of tax			`$`	`2,286,939 ($`	`3,596,644)($`			`115,920)`
8500	Total comprehensive income (loss) for
	the year			`$`	`39,315,548 ($`	`1,373,882)($`			`44,280)`
	Profit (loss) attributable to:
8610	Owners of the parent			`$`	`37,028,609 $`	`2,222,762`	`$`		`71,640`
	Other comprehensive income (loss)
	attributable to:
8710	Owners of the parent			`$`	`39,315,548 ($`	`1,373,882)($`			`44,280)`
	Earnings per share (in dollars)	6(26)
9750	Basic earnings per share			`$`	`3.72 $`	`0.22`	`$`		`0.0071`
9850	Diluted earnings per share			`$`	`3.63$`	`0.22`	`$`		`0.0071`

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

F-70

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

Notes					Equity attributableto	Equity attributableto	Equity attributableto	Equity attributableto	owners of the parent	owners of the parent
		Commonstock		Capitalsurplus			RetainedEarnings				Other EquityInteres	t
					Legal reserve		Special reserve		Unappropriated earnings	Financial statements translation differences of foreign operations	Total Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income		Unrealized gain (loss) on available-for-sale financialassets
6(18) 6(17) 6(16) 6(18) 6(18) 6(17) 6(16)	`$ 99,521,488` `-` `-` `-` `-` `-` `-` `(` `768 )` `-` `$ 99,520,720` `$ 99,520,720` `-` `99,520,720` `-` `-` `-` `-` `-` `-` `-` `$ 99,520,720`		`$ 99,647,810` `-` `-` `-` `-` `-` `-` `768` `(` `1,659` `)` `$ 99,646,919` `$ 99,646,919` `-` `99,646,919` `-` `-` `-` `-` `-` `-` `1,196` `$ 99,648,115`		`$ 3,758,507` `-` `-` `-` `187,069` `-` `-` `-` `-` `$ 3,945,576` `$ 3,945,576` `-` `3,945,576` `-` `-` `-` `3,702,861` `-` `-` `-` `$ 7,648,437`	`$` `-` `-` `-` `-` `-` `3,418,804` `-` `-` `-` `$ 3,418,804` `$ 3,418,804` `-` `3,418,804` `-` `-` `-` `-` `( 2,328,083 )` `-` `-` `$ 1,090,721`		`$ 26,497,362` `37,028,609` `(` `41,144 )` `36,987,465` `(` `187,069 )` `(` `3,418,804 )` `(` `995,204 )` `-` `-` `$ 58,883,750` `$ 58,883,750` `-` `58,883,750` `2,222,762` `(` `23,902 )` `2,198,860` `(` `3,702,861 )` `2,328,083` `(` `7,961,657 )` `-` `$ 51,746,175`		`($ 4,040,408 )` `-` `( 1,676,815 )` `( 1,676,815 )` `-` `-` `-` `-` `-` `($ 5,717,223 )` `($ 5,717,223 )` `-` `( 5,717,223 )` `-` `(` `743,926 )` `(` `743,926 )` `-` `-` `-` `-` `($ 6,461,149 )`	`$` `-` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-` `$` `-` `4,626,502` `4,626,502` `-` `(` `2,828,816 )` `(` `2,828,816 )` `-` `-` `-` `-` `$` `1,797,686`	`$` `621,604` `-` `4,004,898` `4,004,898` `-` `-` `-` `-` `-` `$ 4,626,502` `$ 4,626,502` `(` `4,626,502 )` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-`		`$ 226,006,363` `37,028,609` `2,286,939` `39,315,548` `-` `-` `(` `995,204` `)` `-` `(` `1,659` `)` `$ 264,325,048` `$ 264,325,048` `-` `264,325,048` `2,222,762` `(` `3,596,644` `)` `(` `1,373,882` `)` `-` `-` `(` `7,961,657` `)` `1,196` `$ 254,990,705`

(Continued)

F-71

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

Notes			Equity attributableto	Equity attributableto	Equity attributableto	Equity attributableto	owners of the parent	owners of the parent
	Commonstock	Capitalsurplus			RetainedEarnings				Other EquityInteres	t
			Legal reserve		Special reserve		Unappropriated earnings	Financial statements translation differences of foreign operations	Total Unrealized gains (losses) from financial assets measured at fair value through other comprehensive income	Unrealized gain (loss) on available-for-sale financialassets
6(18) 6(18) 6(17) 6(16)	`$ 3,207,552` `-` `3,207,552` `-` `-` `-` `-` `-` `-` `-` `$ 3,207,552`	`$ 3,211,620` `-` `3,211,620` `-` `-` `-` `-` `-` `-` `38` `$ 3,211,658`	`$` `127,166` `-` `127,166` `-` `-` `-` `119,343` `-` `-` `-` `$` `246,509`	`$` `110,188` `-` `110,188` `-` `-` `-` `-` `(` `75,034 )` `-` `-` `$` `35,154`		`$ 1,897,822` `-` `1,897,822` `71,640` `(` `770 )` `70,870` `(` `119,343 )` `75,034` `(` `256,604 )` `-` `$ 1,667,779`		`($` `184,265 )` `-` `(` `184,265 )` `-` `(` `23,977 )` `(` `23,977 )` `-` `-` `-` `-` `($` `208,242 )`	`$` `-` `149,112` `149,112` `-` `(` `91,173 )` `(` `91,173 )` `-` `-` `-` `-` `$` `57,939`	`$` `149,112` `(` `149,112 )` `-` `-` `-` `-` `-` `-` `-` `-` `$` `-`	`$` `8,519,195` `-` `8,519,195` `71,640` `(` `115,920` `)` `(` `44,280` `)` `-` `-` `(` `256,604` `)` `38` `$` `8,218,349`

F-72

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation and amortization

Net loss on financial assets or liabilities at
fair value through profit or loss
Expected credit loss
Share of loss of associates and joint
ventures accounted for under equity
method

Gain 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 - current
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 2017
2018
Notes
NT$
NT$
US$
(Unaudited)
(noted 2)
$
48,941,189 $
6,569,430 $
211,733
6(23)
33,564,048
35,878,131
1,156,352
-
301,253
9,709
-
100,233
3,231
6(7)
(
274,854 ) (
443,869 ) (
14,305 )
6(21)(
2,483,645 ) (
968 ) (
31 )
6(21)
597,261
267,509
8,622
6(21)
3,120,824
-
-
6(22)
730,500
566,967
18,273
6(20)(
472,331 ) (
991,116 ) (
31,944 )
6(20)(
151,677 ) (
236,574 ) (
7,625 )
(
4,725 )
149,778
4,827
(
1,486,042 ) (
22,574 ) (
728 )
11,532,927 (
1,514,778 ) (
48,821 )
(
6,127,723 )
13,277,320
427,928
845,803 (
214,028 ) (
6,898 )
(
6,857,293 ) (
597,531 ) (
19,258 )
64,541 (
505,320 ) (
16,286 )
23,807 (
55,873 ) (
1,801 )
(
998,805 )
1,474,345
47,518
(
2,555,225 )
87,117
2,808
6,975,259 (
1,755,666 ) (
56,585 )
1,695,628
1,322,052
42,610
(
221,458 )
370,916
11,955
16,688 (
78,805 ) (
2,541 )
86,474,697
53,947,949
1,738,743
(
3,832,038 ) (
1,368,330 ) (
44,101 )
82,642,659
52,579,619
1,694,642
(Continued)

F-73

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of financial assets or liabilities at
fair value through profit or loss - non-current
Acquisition of investments in equity
instruments measured at fair value through
other comprehensive income
Acquisition of financial assets at amortized
cost
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
Increase in investment accounted for under
equity method
Proceeds from disposal of investment
accounted for under equity method
Increase 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 in short-term borrowings
Increase in long-term borrowings
Payment of long-term borrowings
Interest paid
Cash dividends paid

Net cash flows (used in) from
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 2017
2018
Notes
NT$
NT$
US$
(Unaudited)
(noted 2)
$
- ($
172,555 ) ($
5,561 )
- (
1,568,983 ) (
50,568 )
- (
51,592,853 ) (
1,662,837 )
(
122,755 )
-
-
2,907,052
-
-
145,575
-
-
- (
93,443 ) (
3,012 )
-
28,928
932
(
45,381 ) (
376,107 ) (
12,122 )
6(27)(
25,016,706 ) (
46,702,767 ) (
1,505,230 )
263,357
32,249
1,039
6(10)(
327,760 ) (
72,614 ) (
2,340 )

(
2,404 )
6,777
218
448,903
928,781
29,935
418,010
545,771
17,590
(
21,332,109 ) (
99,036,816 ) (
3,191,956 )
(
11,579,025 )
-
-
-
34,000,000
1,095,820
(
16,440,000 ) (
10,960,000 ) (
353,241 )
(
588,511 ) (
472,841 ) (
15,240 )
6(17)(
995,204 ) (
7,961,657 ) (
256,604 )
(
29,602,740 )
14,605,502
470,735

(
1,103,694 ) (
289,932 ) (
9,346 )
30,604,116 (
32,141,627 ) (
1,035,925 )

35,384,839
65,988,955
2,126,824
$
65,988,955 $
33,847,328 $
1,090,899

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

F-74

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2018

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

1. HISTORY AND ORGANIZATION

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

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on February 14, 2019.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

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

New standards, interpretations and amendments endorsed by FSC effective from 2018 are as follows:

New Standards,Interpretations and Amendments

Effective Date by
International Accounting
Standards Board

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
unrealized losses’
Amendments to IAS 40, ‘Transfers of investment property’
IFRIC 22, ‘Foreign currency transactions and advance consideration’

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

F-75

New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
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, 2017 January 1, 2018

(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 assets at fair value through profit or loss, financial assets measured at fair value through other comprehensive income or financial assets measured at amortized cost. Equity instruments would be classified as financial assets 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.
(d) The Group has elected not to restate prior period financial statements using the modified retrospective approach under IFRS 9. The significant effect of applying the new standards as of January 1, 2018 are summarized as below:
i. In accordance with IFRS 9, the Group reclassified available-for-sale financial assets in the amount of $5,086,506 (US$163,938), and made an irrevocable election at initial

F-76

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 (US$163,938). There was no effect on retained earnings and other equity interest.

  - ii. In accordance with IFRS 9, the Group reclassified available-for-sale financial assets in the amount of $1,468,683 (US$47,336) by increasing financial assets at fair value through profit or loss in the amount of 1,468,683 (US$47,336). There was no effect on retained earnings and other equity interest.

B. IFRS 15, ‘Revenue from contracts with customers’ and amendments
(a) 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.

(b) The Group has elected not to restate prior period financial statements using the modified retrospective approach under IFRS 15. The significant effects of applying the new standards as of January 1, 2018 are summarized as below:
Presentation of assets and liabilities in relation to contracts with customers
In line with IFRS 15 requirements, the Group changed 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 refund liabilities, but were previously presented as accounts receivableallowance for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance amounted to $2,327,123 (US$75,003).

F-77

C. 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.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Group

New standards, interpretations and amendments endorsed by the FSC effective from 2019 are as follows:

follows:
New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
Amendments to IFRS 9, ‘Prepayment features with negative compensation’ IFRS 16, ‘Leases’ Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ Amendments to IAS 28, ‘Long-term interests in associates and joint ventures’ IFRIC 23, ‘Uncertainty over income tax treatments’ Annual improvements to IFRSs 2015-2017 cycle	January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019 January 1, 2019

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. The Group expects to recognize the lease contract of lessees in line with IFRS 16. However, the Group intends not to restate the financial statements of prior period (collectively referred herein as the “ modified retrospective approach ” ). On January 1, 2019, it is expected that right-of-use asset and lease liability will be increased by $7,029,771 (US$226,569) and $6,180,682 (US$199,203), and retained earnings stay the same.

F-78

(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:

endorsed by the FSC are as follows:
New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
Amendment to IAS 1 and IAS 8, ‘Disclosure Initiative-Definition of Material’ Amendments to IFRS 3, ‘Definition of a business’ Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets between an investor and its associate or joint venture’ IFRS 17, ‘Insurance contracts’	January 1, 2020 January 1, 2020 To be determined by International Accounting Standards Board January 1, 2021

The above standards and interpretations have no significant impact to the Group’s financial condition and financial performance based on the Group’s assessment.

4. 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.

(1) Compliance statement

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

(2) Basis of preparation
A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
- (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
- (b) Financial assets at fair value through other comprehensive income/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. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified

F-79

retrospective approach. There was no cumulative impact of the adoption on retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 was not restated. The financial statements for the year ended December 31, 2017 were prepared in compliance with International Accounting Standard 39 (‘IAS 39’), International Accounting Standard 11 (‘IAS 11’), International Accounting Standard 18 (‘IAS 18’) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies and details of significant accounts.

(3) Basis of consolidation
A. Basis for preparation of consolidated financial statements
- (a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
- (b) Significant inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
- (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling 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.

F-80

B. Subsidiaries included in the consolidated financial statements:

Main
Business
Name of Investor
Name ofSubsidiary
Activities
Innolux Corporation
Bright Information Holding
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 Japan Co., Ltd.
(Formerly name: 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
Keyway Investment
Management Limited
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

December
December
31,2017
31,2018
Description
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
49
54
(c)
100
-
(c)
100
-
(c)
100
100
-
100
-
(e)
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
Ownership (%)

F-81

Main
Business
Name of Investor
Name ofSubsidiary
Activities
Innolux Hong Kong
Holding Limited
Innolux Optoelectronics
Hong Kong Holding Limited
Investment holdings
Innolux Hong Kong Limited
Distribution
company
Innolux Europe B.V.
(Formerly name: Innolux
Technology Europe B.V.)
Investment,
distribution, and
R&D testing
company
Innolux Japan Co., Ltd.
Investment, R&D.
manufacturing and
distribution
company
Innolux Japan Co.,
Ltd.
Innolux USA, Inc.
(Formerly name: Innolux
Optoelectronics USA, Inc.)
Distribution
company
Innolux Singapore
Holding Pte. Ltd.
Innolux Optoelectronics India
Private Limited
Distribution
company
Innolux Optoelectronics
Philippines Corp.
Manufacturing and
distribution
company
Innolux Optoelectronics
Malaysia SDN. BHD.
Manufacturing and
distribution
company
Rockets Holding Ltd. Stanford Developments Ltd.
Investment holdings
Nets Trading Ltd.
Investment
company
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
Innolux
Optoelectronics Hong
Kong Holding
Shanghai Innolux
Optoelectronics Ltd.
Processing company
Innolux Europe B.V.
Innolux Technology Germany
GmbH
Testing and
maintenance
company
Innolux Optoelectronics
Germany GmbH
After sales service
company
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

December
December
31,2017
31,2018
Description
Ownership (%)
100
100
-
100
100
-
100
100
-
51
46
-
100
100
(c)
-
100
(b)
-
100
(b)
-
100
(b)
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
-
(a)
100
100
-
100
100
-
100
100
-

F-82

Main Business Name of Investor Name ofSubsidiary Activities Foshan Innolux Optoelectronics Ltd. Foshan Innolux Flent Electornics Ltd. Distribution company Innocom Technology (Shenzhen) Co., LTD. Shenzhen PixinLED Technology Co., LTD. R&D and distribution company	December December 31,2017 31,2018 Description Ownership (%) 100 100 - - 100 (d)

  - (a) In the third quarter of 2018, Innolux Optoelectronics Germany Gmbh had completed liquidation and dissolution.

  - (b) Innolux Optoelectronics India Private Limited, Innolux Optoelectronics Philippines Corp. and Innolux Optoelectronics Malaysia SDN. BHD was established in the first quarter of 2018 and was included in the consolidated financial statements since the date of establishment.

  - (c) The Company’s wholly-owned subsidiary, Innolux Japan Co., Ltd., issued new shares to obtain the equity share of Innolux Corporation and Innolux Technology USA Inc. which also are wholly owned by the Company. Innolux Optoelectronics USA, Inc., the directly wholly-owned subsidiary of Innolux Japan Co., Ltd., issued new share to Innolux Japan Co., Ltd. and obtained the equity share of Innolux Corporation and Innolux Technology USA Inc., and merged with these companies. Innolux Optoelectronics USA, Inc. was the surviving company. The effective date was February 28, 2018, and was accounted as reorganization. Innolux Optoelectronics USA, Inc. was renamed Innolux USA, Inc on March 2018.

  - (d) Shenzhen PixinLED Technology Co., Ltd. was established in the first quarter of 2018 and was included in the consolidated financial statement since the date of establishment.

  - (e) In the fourth quarter of 2018, VAP Optoelectronics (Nanjing) Corp. had completed liquidation and dissolution.

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.
(4) 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 retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.

F-83

  - (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, nonmonetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

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

B. Translation of foreign operations
- (a) The operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
  - i. Assets and liabilities for each balance sheet presented are translated at the spot exchange rate at the date of that balance sheet;
  - ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
  - iii. All resulting exchange differences are recognized in other comprehensive income.
- (b) When the foreign operation partially disposed of or sold is an associate, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, 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.
(5) Classification of current and non-current items
A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
- (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
- (b) Assets held mainly for trading purposes;
- (c) Assets that are expected to be realized within twelve months from the balance sheet date;

F-84

  - (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.
(6) 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.

(7) Financial assets at fair value through profit or loss
A. Financial assets at fair value through profit or loss are financial assets that are not measured at amortized cost or fair value through other comprehensive income.
B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value and recognizes the transaction costs in profit or loss. The Group subsequently measures the financial assets at fair value, and recognizes the gain or loss in profit or loss.
D. The Group recognizes the dividend income when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.
(8) Financial assets at fair value through other comprehensive income
A. Financial assets at fair value through other comprehensive income comprise equity securities which are not held for trading, and for which the Group has made an irrevocable election at initial recognition to recognize changes in fair value in other comprehensive income.
B. On a regular way purchase or sale basis, financial assets at fair value through other comprehensive income are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. The Group subsequently measures the financial assets at fair value: The changes in fair value of equity investments that were recognized in other comprehensive income are reclassified to retained earnings and are not reclassified to profit or loss following the

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derecognition of the investment. Dividends are recognized as revenue when the right to receive payment is established, future economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

(9) Financial assets at amortized cost
A. Financial assets at amortized cost are those that meet all of the following criteria:
- (a) The objective of the Group’s business model is achieved by collecting contractual cash flows.
- (b) The assets’ contractual cash flows represent solely payments of principal and interest.
B. On a regular way purchase or sale basis, financial assets at amortized cost are recognized and derecognized using trade date accounting.
C. At initial recognition, the Group measures the financial assets at fair value plus transaction costs. Interest income from these financial assets is included in finance income using the effective interest method. A gain or loss is recognized in profit or loss when the asset is derecognized or impaired.
D. The Group’s time deposits which do not fall under cash equivalents are those with a short maturity period and are measured at initial investment amount as the effect of discounting is immaterial.
(10) Accounts and notes receivable
A. Accounts and notes receivable entitle the Group a legal right to receive consideration in exchange for transferred goods or rendered services.
B. The short-term accounts and notes receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
C. The Group’s operating pattern of accounts receivable that are expected to be factored is for the purpose of receiving contract cash flow and selling, and the accounts receivable are subsequently measured at fair value, with any changes in fair value recognized in other comprehensive income.
(11) Impairment of financial assets
For accounts receivable that have a significant financing component, at each reporting date, the Group recognizes the impairment provision for 12 months expected credit losses if there has not been a significant increase in credit risk since initial recognition or recognizes the impairment provision for the lifetime expected credit losses (ECLs) if such credit risk has increased since initial recognition after taking into consideration all reasonable and verifiable information that includes forecasts. On the other hand, for accounts receivable that do not contain a significant financing component, the Group recognizes the impairment provision for lifetime ECLs.
(12) Derecognition of financial assets
The Group derecognizes a financial asset when one of the following conditions is met:
A. The contractual rights to receive the cash flows from the financial asset expire.
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.

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(13) 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.

(14) 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.

(15) Investments accounted for using equity method / associates
A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.
B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognizes change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.
D. 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.

(16) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount 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.

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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 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

(17) 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.

(18) 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.
(19) 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

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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.

(20) Borrowings
A. Borrowings comprise long-term and short-term bank borrowings. 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 capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.
(21) Notes and accounts payable
A. Accounts payable are liabilities for purchases of raw materials, goods or services and notes payable are those resulting from operating and non-operating activities.
B. The short-term notes and accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
(22) Financial liabilities at fair value through profit or loss
A. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges.
B. At initial recognition, the Group measures the financial liabilities at fair value. All related transaction costs are recognized in profit or loss. The Group subsequently measures these financial liabilities at fair value with any gain or loss recognized in profit or loss.
C. If the credit risk results in fair value changes in financial liabilities designated as at fair value through profit or loss, they are recognized in other comprehensive income in the circumstances other than avoiding accounting mismatch or recognizing in profit or loss for loan commitments or financial guarantee contracts.
(23) 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.
(24) Employee benefits

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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.
(25) Employee share based payment
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’.
(26) 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

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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 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 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 utilized.
(27) Revenue recognition
A. The Group is primarily engaged in manufacture and sale of TFT-LCD panel products. The Group recognizes revenue when the right of control is transferred to the customer when the products are delivered to customer and the Group has no unperformed obligation that could affect customer acceptance of the product. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, or the Group has objective evidence that all criteria for acceptance have been satisfied.
B. Sales revenue is calculated based on the contract price, net of volume discounts and sales returns and discounts. Revenue from these sales is recognized based on the price specified in the contract, net of the estimated volume discounts/ sales discounts and allowances. Accumulated experience is used to estimate and provide for the volume discounts, sales discounts and allowances, using the expected value method, and revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. The estimation is subject to an assessment at each reporting date. A refund liability is recognized for expected volume discounts, sales discounts and allowances payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales are made, which is consistent with market practice.
C. A receivable is recognized when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

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(28) 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.

(29) Convenience conversion into U.S. dollars

The financial statements are stated in NT dollars. Conversion of December 31, 2018 New Taiwan dollar amounts into U.S. dollar amounts using the noon buying rate of NT$31.027 (in dollars) to U.S.$1.00 (in dollars) effective on September 27, 2019, provided by the Taipei Forex Inc. database is included in the financial statements solely for the convenience of the readers. The convenience conversion is unaudited and should not be construed as a representation that the NT dollar amounts have been, or could in the future be, converted into U.S. dollars at this or any other exchange rate.

5. 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:

(1) 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:

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 utilized 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. Please refer to Notes 6(8) and 6(10) for the information of impairment assessment impairment.

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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.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

Cash and cash equivalents
Cash on hand, checking accounts and demand deposits Time deposits Cash equivalents - repurchase bonds	December31,2017 NT$ `37,758,696` `$` `27,562,983` `65,321,679` `667,276` `65,988,955` `$`	December	31,2018
		NT$ `14,148,462` `$` `19,698,866` `33,847,328` `-` `33,847,328` `$`	US$
			`456,005` `$` `634,894` `1,090,899` `-` `1,090,899` `$`

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

Assets Current items Financial assets mandatorily measured at fair value through profit or loss forward foreign exchange contracts Non-current items Financial assets mandatorily measured at fair value through profit or loss Listed stocks Unlisted stocks Convertible bonds	December	31,2018
	NT$ `398,913` `$` `1,221,135` `$` `343,175` `35,559` `1,599,869` `$`	US$
		`12,857` `$`
		`39,357` `$` `11,061` `1,146`
		`51,564` `$`

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Liabilities Current items Financial liabilities held for trading Forward foreign exchange contracts Forward exchange swap contracts	December	31,2018
	NT$ `16,644` `$` `7,135` `23,779` `$`	US$
		`536` `$` `230`
		`766` `$`

A. 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 exchange swap contracts	December31,2018	December31,2018
	Contract Amount (Notional Principal) (inthousands)	ContractPeriod
	USD (sell) `398,000` `$` JPY (buy) `44,416,685` EUR (sell) `35,000` HKD (buy) `312,329` EUR (sell) `10,000` JPY (buy) `1,288,425` USD (sell) `900,000` RMB (buy) `6,241,751` USD (sell) `225,000` TWD (buy) `6,905,790`	2018/10-2019/3 2018/10-2019/3 2018/11-2019/2 2018/11-2019/2 2018/11-2019/2 2018/11-2019/2 2018/10-2019/3 2018/10-2019/3 2018/12-2019/1 2018/12-2019/1

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.

B. Information on financial assets and liabilities at fair value through profit or loss as of December 31, 2017 is provided in Note 12(4).

(3) Financial assets at fair value through other comprehensive income

		December	31,	2018
		NT$		US$
Non-current items
Equity instruments
Listed stocks	`$`	`2,661,075`	`$`	`85,767`
Emerging stocks and unlisted stocks		`1,173,301`		`37,815`
	`$`	`3,834,376`	`$`	`123,582`

A. The Group has elected to classify equity instruments that are considered to be strategic investments as financial assets at fair value through other comprehensive income.
B. For information about that the Group recognized other comprehensive income for fair value change

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for the year ended December 31, 2018, Please refer to Note 6(18) “Other equity”.

C. Information on available-for-sale financial assets as of December 31, 2017 is provided in Note 12(4).

(4) Financial assets at amortized cost

12(4). Financial assets at amortized cost
Current items Time deposits with maturity over three months	December	31, 2018
	NT$ `51,426,053` `$`	US$
		`1,657,461` `$`

The Group recognized $200,018 (US$6,447) of interest income arising from the financial assets at amortized cost for the year ended December 31, 2018.

(5) Notes receivable and accounts receivable

amortized cost for the year ended December 31, 2018. Notes receivable and accounts receivable
December 31, 2017 NT$ Notes receivable `27,641` `$` Accounts receivable `43,731,467` `43,759,108` Less: Allowance for sales returns and discounts `2,326,907)` `(` Allowance for uncollectible accounts `109,496)` `(` `41,322,705` `$`	December	31, 2018
	NT$ `25,132` `$` `45,248,754` `45,273,886` `-` `209,729)` `(` `(` `45,064,157` `$`	US$
		`810` `$` `1,458,367` `1,459,177` `-` `6,760)` `1,452,417` `$`

A. The aging analysis of accounts receivable and notes receivable is as follows:

Not past due Up to 60 days 61 to 180 days Over 180 days	December31,2017 NT$ `40,242,878` `$` `3,321,622` `193,350` `1,258` `43,759,108` `$`	December	31,2018
		NT$ `44,209,582` `$` `1,003,472` `54,125` `6,707` `45,273,886` `$`	US$
			`1,424,875` `$` `32,342` `1,744` `216` `1,459,177` `$`

The above aging analysis was based on past due date.

B. Information relating to credit risk of accounts receivable is provided in Note 12(2).

(6) Inventories

Inventories
Raw materials and supplies Work in progress Finished goods	December31,2017 NT$ `3,921,134` `$` `13,754,503` `12,583,384` `30,259,021` `$`	December	31,2018
		NT$ `4,768,663` `$` `14,071,053` `12,016,836` `30,856,552` `$`	US$
			`153,694` `$` `453,510` `387,302` `994,506` `$`

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For the years ended December 31, 2017 and 2018, the Company and Subsidiaries recognized cost of goods sold for inventories that have been sold at $260,371,976 and $252,621,898 (US$8,142,002) and recognized net inventory loss (gain) at $63,748 and ($59,340) (US$1,913) due to write down (reversal) of cost of scrap inventories to net realizable value, respectively.

(7) Investments accounted for under the equity method

Ampower Holding Ltd. FI Medical Device Manufacturing Co., Ltd. Others	December31,2017 NT$ `853,016` `$` `525,926` `112,197` `1,491,139` `$`	December	31,2018
		NT$ `956,577` `$` `655,827` `190,517` `1,802,921` `$`	US$
			`30,830` `$` `21,137` `6,141`
			`58,108` `$`

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

below:
					Years			endedDecember31,
			2017							2018
				NT$				NT$					US$
Profit for the year from continuing
operations		`$`			`274,854`		`$`	`443,869` `$`					`14,305`
Other comprehensive income
(loss) - net of tax		`(`			`33,551)`			`84,637`					`2,728`
Total comprehensive income		`$`			`241,303`		`$`	`528,506` `$`					`17,033`
Property, plant and equipment
								2017
										Transfer, net
										exchange
										differences
		At January1			Additions		Disposals			and others		AtDecember31
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`

(8) Property, plant and equipment

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Transfer, net exchange differences At January1 Additions Disposals and others At December 31 Cost: Land `3,852,792` `$` `-` `$` `-` `$` `-` `$` `3,852,792` `$` Buildings `196,417,863` `342,354` `209,999)` `(` `2,971,063` `199,521,281` Machinery and equipment `496,794,502` `1,590,240` `3,999,317)` `(` `16,264,353` `510,649,778` Other equipment `39,761,461` `71,244` `2,183,162)` `(` `5,649,152` `43,298,695` `736,826,618` `2,003,838` `6,392,478)` `(` `24,884,568` `757,322,546` Accumulated depreciation and impairment: Buildings `114,356,774)` `(` `8,762,007)` `(` `201,616` `13,218` `122,903,947)` `(` Machinery and equipment `384,279,016)` `(` `22,108,105)` `(` `3,749,549` `502,652)` `(` `403,140,224)` `(` Other equipment `33,205,003)` `(` `4,505,027)` `(` `2,141,540` `780,254)` `(` `36,348,744)` `(` `531,840,793)` `(` `35,375,139)` `(` `6,092,705` `1,269,688)` `(` `562,392,915)` `(` Unfinished construction and equipment under acceptance `15,878,802` `20,300,569` `-` `24,491,042)` `(` `11,688,329` `220,864,627` `$` `206,617,960` `$` 2018 NT$ Transfer, net exchange differences AtJanuary1 Additions Disposals and others At December31 Cost: Land `124,175` `$` `-` `$` `-` `$` `-` `$` `124,175` `$` Buildings `6,330,546` `11,034` `6,768)` `(` `95,758` `6,430,570` Machinery and equipment `16,011,684` `51,253` `128,898)` `(` `524,200` `16,458,239` Other equipment `1,281,512` `2,296` `70,363)` `(` `182,071` `1,395,516` `23,747,917` `64,583` `206,029)` `(` `802,029` `24,408,500` Accumulated depreciation and impairment: Buildings `3,685,718)` `(` `282,399)` `(` `6,498` `426` `3,961,193)` `(` Machinery and equipment `12,385,310)` `(` `712,544)` `(` `120,848` `16,201)` `(` `12,993,207)` `(` Other equipment `1,070,197)` `(` `145,198)` `(` `69,022` `25,147)` `(` `1,171,520)` `(` `17,141,225)` `(` `1,140,141)` `(` `196,368` `40,922)` `(` `18,125,920)` `(` Unfinished construction and equipment under acceptance `511,774` `654,288` `-` `789,347)` `(` `376,715` `7,118,466` `$` `6,659,295` `$` 2018 US$			2018
			NT$
						At December 31

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:

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Year ended December 31, 2017 Capitalized amount $ 203,902 Range of the interest rates for capitalization 2.15%~2.41%

B. For the year ended December 31, 2018, the Group has no amount of borrowing costs capitalized.
C. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.
D. As of December 31, 2017 and 2018, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $1,423,391 and$1,559,446 (US$50,261), respectively.
E. Information on impairment assessments is provided in Note 6 (10).
(9) Investment property

Investment property
Cost: Land Buildings Accumulated depreciation: Buildings Cost: Land Buildings Accumulated depreciation: Buildings `(` Cost: Land Buildings Accumulated depreciation: Buildings `(`		2017	AtDecember31 `188,247` `$` `439,228` `627,475` `64,778)` `562,697` `$` At December 31 `188,247` `$` `439,228` `627,475` `75,505)` `551,970` `$` At December 31 `6,067` `$` `14,156` `20,223` `2,433)` `17,790` `$`
	At January1 `188,247` `$` `439,228` `627,475` `54,050)` `(` `(` `573,425` `$` `(`	Additions `-` `$` `-` `-` `10,728)` `(` `10,728)` `$` 2018
		NT$
	At January1 `188,247` `$` `439,228` `627,475` `64,778)` `(` `562,697` `$` `(`	Additions `-` `$` `-` `-` `10,727)` `(` `10,727)` `$` 2018
		US$
	At January1 `6,067` `$` `14,156` `20,223` `2,088)` `(` `18,135` `$` `(`	Additions `-` `$` `-` `-` `345)` `(` `345)` `$`

F-98

The fair value of the investment property held by the Group as at December 31, 2017 and 2018 was $1,423,964 and $1,660,504 (US$53,518), 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.

2017
Disposals `-` `$` `-` `55,492)` `55,492)` `-` `55,492` `55,492` `-` `$` 2018	Transfer, net exchange differences and others At December31 `-` `$` `8,154,685` `$` `-` `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` `$` `17,910,908` `$`	At December31
NT$
Disposals `-` `$` `-` `21,237)` `21,237)` `-` `21,237` `(` `21,237` `(` `-` `$`	Transfer, net exchange differences and others At December31 `-` `$` `8,154,685` `$` `-` `17,096,628` `190,664` `5,247,197` `190,664` `30,498,510` `-` `8,147,367)` `(` `436)` `4,669,658)` `(` `436)` `12,817,025)` `(` `190,228` `$` `17,681,485` `$`	At December31

F-99

2018 US$

AtJanuary1 Additions Cost: Patents and royalty `262,825` `$` `-` `$` Goodwill `551,024` `-` Others `161,316` `2,340` `(` `975,165` `2,340` `(` Accumulated amortization and impairment: Patents and royalty `262,451)` `(` `138)` `(` Others `135,446)` `(` `15,728)` `(` `397,897)` `(` `15,866)` `(` `577,268` `$` `13,526)` `($`	Disposals `-` `$` `-` `684)` `684)` `-` `684` `(` `684` `(` `-` `$`	Transfer, net exchange differences and others At December31 `-` `$` `262,825` `$` `-` `551,024` `6,145` `169,117` `6,145` `982,966` `-` `262,589)` `(` `13)` `150,503)` `(` `13)` `413,092)` `(` `6,132` `$` `569,874` `$`

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

Details of amortization of intangible	assets are as follows:	assets are as follows:	assets are as follows:
Operating costs Operating expenses	Years ended December 31,
	2017 NT$ `1,051,664` `$` `135,341` `1,187,005` `$`	2018
		NT$ `355,874` `$` `136,391` `492,265` `$`	US$
			`11,470` `$` `4,396`
			`15,866` `$`

C. The Group 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 9.08% for the year ended December 31, 2018, 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 Group did not recognize impairment loss on goodwill for the year ended December 31, 2018.
(11) Other payables

ended December 31, 2018. Other payables
Other personnel expenses Payable on machinery and equipment Repairs and maintenance expense payable Utilities expense payable Other payables	December31,2017 NT$ `13,116,498` `$` `32,381,338` `2,568,063` `1,070,308` `9,761,597` `58,897,804` `$`	December	31,2018
		NT$ `10,642,647` `$` `7,982,978` `2,625,869` `1,093,497` `10,236,618` `32,581,609` `$`	US$
			`343,012` `$` `257,291` `84,632` `35,243` `329,927` `1,050,105` `$`

F-100

- (12) Long term borrowings

Long-term borrowings
Type of loans Period December31,2017 NT$ NT$ US$ Syndicated bank loans `2015/3/12` `~2021/12/6` `28,400,000` `$` `51,440,000` `$` `1,657,911` `$` Less: Administrative expenses charged by syndicated banks `161,098)` `(` `103,424)` `(` `3,334)` `(` Current portion (includes administrative expenses) `10,951,114)` `(` `16,194,486)` `(` `521,948)` `(` `17,287,788` `$` `35,142,090` `$` `1,132,629` `$` Range of interest rates `1.75%~2.06%` `1.74%~1.96%` `1.74%~1.96%` December31,2018	December	31,2018
		US$

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 years ended December 31, 2017 and 2018 are in compliance with the covenants on the syndicated loan agreement.
D. For repayment of borrowings from financial institutions and financing mid-term working capital fund, the Board of Directors approved the signing of a syndicated loan with financial institution in the amount of NT$43.75 billion on June 20, 2018.
(13) 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 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

F-101

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:

in the following year, the Company and its domestic subsidiaries will make the deficit by next March. The amounts recognized in the balance sheet are as follows:	in the following year, the Company and its domestic subsidiaries will make the deficit by next March. The amounts recognized in the balance sheet are as follows:	in the following year, the Company and its domestic subsidiaries will make the deficit by next March. The amounts recognized in the balance sheet are as follows:	sidiaries will make ws:	contributions for
Movements in net defined benefit liabilities are as follows: December31,2017 NT$ NT$ Present value of defined benefit obligations `1,902,852` `$` `2,000,113` `$` Fair value of plan assets `1,548,769)` `(` `1,686,545)` `(` Net defined benefit liability `354,083` `$` `313,568` `$` December Present value of defined benefit Fair value obligations ofplan assets Year ended December 31, 2017 Balance at January 1 `1,827,687` `$` `1,534,864` `$` Current service cost `6,711` `-` Interest expense / income `31,071` `26,093` `37,782` `26,093` Remeasurements: Experience adjustments `49,488` `83)` `(` Benefits paid `12,105)` `(` `12,105)` `(` `37,383` `12,188)` `(` Balance at December 31 `1,902,852` `$` `1,548,769` `$` Present value of defined benefit Fair value obligations ofplan assets Year ended December 31, 2018 Balance at January 1 `1,902,852` `$` `1,548,769` `$` Current service cost `5,749` `-` Interest expense / income `28,468` `23,157` `34,217` `23,157` Remeasurements: Experience adjustments `69,773` `39,895` Benefits paid `6,729)` `(` `6,729)` `(` `63,044` `33,166` Contribution for the year `-` `81,453` `(` Balance at December 31 `2,000,113` `$` `1,686,545` `$` NT$			December	US$ `64,463` `$` `54,357)` `(` `10,106` `$` 31,2018 Net defined benefit liability `292,823` `$` `6,711` `4,978` `11,689` `49,571` `-` `49,571` `354,083` `$` Net defined benefit liability
	`1,902,852` `$` `5,749` `28,468` `34,217` `69,773` `6,729)` `(` `63,044` `-` `2,000,113` `$`	`1,548,769` `$` `-` `23,157` `23,157` `39,895` `6,729)` `33,166` `81,453` `(` `1,686,545` `$`		`354,083` `$` `5,749` `5,311` `11,060` `29,878` `-` `29,878` `81,453)` `313,568` `$`

F-102

Year ended December 31, 2018 Balance at January 1 Current service cost Interest expense / income Remeasurements: Experience adjustments Benefits paid `(` Contribution for the year Balance at December 31	Present value of defined benefit obligations	Fair value ofplanassets US$	Net defined benefitliability `11,412` `$` `185` `171` `356` `963` `-` `963` `2,625)` `10,106` `$`
	`61,329` `$` `185` `917` `1,102` `2,249` `217)` `(` `2,032` `-` `64,463` `$`	`49,917` `$` `-` `746` `746` `1,286` `217)` `1,069` `2,625` `(` `54,357` `$`

(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 utilization plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund” (Article 6: The scope of utilization 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 utilization 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 2018 is given in the Annual Labor Retirement Fund Utilization 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%`	2018
		`1.25%`
		`1.50%`

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

F-103

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

December 31, 2017 Effect on present value of defined benefit obligation `(` December 31, 2018 (NT$) Effect on present value of defined benefit obligation `(` December 31, 2018 (US$) Effect on present value of defined benefit obligation `(`	Increase Decrease 0.25% 0.25% `74,882)` `$` `78,699` `$` Increase Decrease 0.25% 0.25% `74,991)` `$` `78,684` `$` Increase Decrease 0.25% 0.25% `2,417)` `$` `2,536` `$` Discount rate Discount rate Discount rate	Increase Decrease 0.25% 0.25% `78,501` `$` `75,063)` `($` Increase Decrease 0.25% 0.25% `78,288` `$` `74,991)` `($` Increase Decrease 0.25% 0.25% `2,523` `$` `2,417)` `($` Future salaryincreases Future salaryincreases Future salaryincreases
	Increase 0.25% `2,417)` `$`	Increase 0.25% `2,523` `$` `(`

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) As of December 31, 2018, the weighted average duration of the retirement plan is 15 years.
B. Defined contribution pension plan
(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.
(b) The subsidiaries in Mainland China have defined contribution plans. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and wages.
C. The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2017 and 2018 were $1,921,461 and $1,929,402 (US$62,185), respectively.

F-104

(14) Provisions-current

Provisions-current
At January 1, 2018 Additions during the year Used during the year `(` At December 31, 2018 At January 1, 2018 Additions during the year Used during the year `(` At December 31, 2018		NT$	Total `5,460,862` `$` `2,396,000` `1,073,948)` `6,782,914` `$` Total `176,003` `$` `77,223` `34,613)` `218,613` `$`
	Warranty `2,691,162` `$` `2,156,000` `1,073,948)` `3,773,214` `$`	Litigation and others `2,769,700` `$` `240,000` `-` `(` `3,009,700` `$` US$
	Warranty `86,736` `$` `69,488` `34,613)` `121,611` `$`	Litigation and others `89,267` `$` `7,735` `-` `(` `97,002` `$`

A. Warranty

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

B. Litigation and others

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

(15) Share capital

As of December 31, 2018, the Company’s authorized and outstanding capital were $105,000,000 (US$3,384,149) and $99,520,720 (US$3,207,552), 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:

respectively. All proceeds from shares issued have been collected. Movements in the number of the Company’s ordinary shares outstanding	are as follows:
2017 Number of ordinary shares(in thousands) At January 1 9,952,149 Cancellation of restricted stock to employees 77) ( At December 31 9,952,072	2018
	Number of ordinary shares(in thousands)
	9,952,072 -
	9,952,072

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. As of December 31, 2018, the Company has no unit of GDR outstanding.

F-105

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 (in dollars) 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. For the years ended December 31, 2017 and 2018, the Company has retired 77 and 0 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.
(16) Capital surplus

	2017	2017
Share premium `99,614,516` `$` `-` `174` `-` `99,614,690` `$`	Share of profit (loss) of associates Restricted accounted for under stock to equitymethod employees `33,888` `$` `594)` `($` `-` `768` `-` `174)` `(` `1,659)` `(` `-` `32,229` `$` `-` `$` 2018
	`$` `(`
	`$`		`$`

		NT$
Sharepremium `99,614,690` `$` `-` `99,614,690` `$`		Share of profit (loss) of associates accounted for under equitymethod `32,229` `$` `1,196` `33,425` `$`
				`$`
				`$`

F-106

	2018
	US$
Sharepremium `3,210,581` `$` `-` `3,210,581` `$`	Share of profit (loss) of associates accounted for under equitymethod `1,039` `$` `38` `1,077` `$`	Total
		`3,211,620` `$` `38`
		`3,211,658` `$`

(17) 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 twothirds of distributable dividends in current period.
B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company’s paid-in capital.
C. The details of the appropriation of 2016 and 2017 net income which was approved at the stockholders’ meeting in June 2017 and 2018, respectively, are as follows:

Years ended December 31,

	Years endedDecember31,	ecember31,	ecember31,
Legal reserve (Reversal) Provision of special reserve Cash dividends	Dividends per Dividends per Amount share (indollars) Amount share (indollars) `187,069` `$` `3,702,861` `$` `3,418,804` `2,328,083)` `(` `995,204` `0.10` `$` `7,961,657` `0.80` `$` `4,601,077` `$` `9,336,435` `$` 2017 2016	2017
	Amount `187,069` `$` `3,418,804` `995,204` `4,601,077` `$`		Dividends per share (indollars)
			`0.80` `$`

D. For the information relating to employees’ compensation and directors’ remuneration, please refer to Note 6(24).

F-107

(18) Other equity items

Other equity items
Available- Currency for-sale translation investments Total At January 1 `4,040,408)` `($` `621,604` `$` `3,418,804)` `($` Revaluation of available-for-sale investments - gross `-` `3,675,370` `3,675,370` Revaluation transfer of available-for- sale investment - gross `-` `646,638` `646,638` Currency translation differences `1,643,264)` `(` `-` `1,643,264)` `(` Share of other comprehensive loss of associates `33,551)` `(` `-` `33,551)` `(` Effect of income tax `-` `317,110)` `(` `317,110)` `(` At December 31 `5,717,223)` `($` `4,626,502` `$` `1,090,721)` `($` 2017 Financial assets at fair value Available- through other Currency for-sale comprehensive translation investments income Total At January 1 `5,717,223)` `($` `4,626,502` `$` `-` `$` `1,090,721)` `($` Effect of modified retrospective approach under IFRS 9 `-` `4,626,502)` `(` `4,626,502` `-` Balance after retropective adjustment `5,717,223)` `(` `-` `4,626,502` `1,090,721)` `(` Revaluation - gross `-` `-` `2,828,816)` `(` `2,828,816)` `(` Currency translation differences `828,563)` `(` `-` `-` `828,563)` `(` Share of other comprehensive income of associates `84,637` `-` `-` `84,637` At December 31 `6,461,149)` `($` `-` `$` `1,797,686` `$` `4,663,463)` `($` 2018 NT$ Financial assets at fair value Available- through other Currency for-sale comprehensive translation investments income Total At January 1 `184,265)` `($` `149,112` `$` `-` `$` `35,153)` `($` Effect of modified retrospective approach under IFRS 9 `-` `149,112)` `(` `149,112` `-` Balance after retropective adjustment `184,265)` `(` `-` `149,112` `35,153)` `(` Revaluation - gross `-` `-` `91,173)` `(` `91,173)` `(` Currency translation differences `26,705)` `(` `-` `-` `26,705)` `(` Share of other comprehensive income of associates `2,728` `-` `-` `2,728` At December 31 `208,242)` `($` `-` `$` `57,939` `$` `150,303)` `($` 2018 US$	Currency translation `4,040,408)` `($` `-` `-` `1,643,264)` `(` `33,551)` `(` `-` `5,717,223)` `($`		2017	Total `3,418,804)` `3,675,370` `646,638` `1,643,264)` `33,551)` `317,110)` `1,090,721)`
			Available- for-sale investments `621,604` `$` `($` `3,675,370` `646,638` `-` `(` `-` `(` `317,110)` `(` `(` `4,626,502` `$` `($` 2018
			NT$
		Financial assets at fair value Available- through other for-sale comprehensive investments income Total `4,626,502` `$` `-` `$` `1,090,721)` `($` `4,626,502)` `(` `4,626,502` `-` `-` `4,626,502` `1,090,721)` `(` `-` `2,828,816)` `(` `2,828,816)` `(` `-` `-` `828,563)` `(` `-` `-` `84,637` `-` `$` `1,797,686` `$` `4,663,463)` `($` Financial assets at fair value Available- through other for-sale comprehensive investments income Total `149,112` `$` `-` `$` `35,153)` `($` `149,112)` `149,112` `-` `-` `149,112` `35,153)` `(` `-` `91,173)` `(` `91,173)` `(` `-` `-` `26,705)` `(` `-` `-` `2,728` `-` `$` `57,939` `$` `150,303)` `($` 2018 US$		Total

F-108

(19) Operating income

Operating income
TFT-LCD products	Years endedDecember31,
	2017 NT$ `329,174,401` `$`	2018
		NT$ `279,376,115` `$`	US$
			`9,004,290` `$`

The Group derives revenue from the transfer of goods at a point in time.

(20) Other income

The Group derives revenue from the transfer of goods at a point in time. (20) Other income	ansfer of goods at a point in time.	ansfer of goods at a point in time.	ansfer of goods at a point in time.
(21) Other gains and losses (22) Finance costs 2017 NT$ NT$ US$ Interest income Interest income from bank deposits `472,331` `$` `791,098` `$` `25,497` `$` Interest income from financial assets at amortized cost `-` `200,018` `6,447` `472,331` `991,116` `31,944` Dividends revenue `151,677` `236,574` `7,625` Rental revenue `137,037` `163,043` `5,255` Other income `1,767,769` `1,634,734` `52,687` `2,528,814` `$` `3,025,467` `$` `97,511` `$` 2018 Years ended December 31, 2017 NT$ NT$ US$ Net gain (loss) on financial assets and liabilities at fair value through profit or loss `1,987,818` `$` `1,766,189)` `($` `56,924)` `($` Net currency exchange (loss) gain `2,134,155)` `(` `1,320,427` `42,557` Gain on disposal of investments `2,483,645` `968` `31` Loss on disposal of property, plant and equipment `597,261)` `(` `267,508)` `(` `8,622)` `(` Impairment loss `3,120,824)` `(` `-` `-` Net disaster gain `2,051,579` `-` `-` Other losses `824,990)` `(` `455,933)` `(` `14,694)` `(` `154,188)` `($` `1,168,235)` `($` `37,652)` `($` Years endedDecember31, 2018 2017 NT$ NT$ US$ Interest expense: Bank borrowings `730,468` `$` `565,826` `$` `18,237` `$` Others `32` `1,141` `36` `730,500` `$` `566,967` `$` `18,273` `$` Years endedDecember31, 2018	2017 NT$ NT$ US$ `472,331` `$` `791,098` `$` `25,497` `$` `-` `200,018` `6,447` `472,331` `991,116` `31,944` `151,677` `236,574` `7,625` `137,037` `163,043` `5,255` `1,767,769` `1,634,734` `52,687` `2,528,814` `$` `3,025,467` `$` `97,511` `$` 2018 Years ended December 31, Years endedDecember31,
		2018
			US$
	2017 NT$ `730,468` `$` `32` `730,500` `$`	2018
		NT$ `565,826` `$` `1,141` `566,967` `$`	US$ `18,237` `$` `36` `18,273` `$`

F-109

(23) Expenses by nature

Expenses by nature
Employee benefit expense: Salaries and other short-term employee benefits Post-employment benefits Depreciation Amortization	Years ended December 31,
	2017 NT$ `45,506,559` `$` `1,933,150` `32,377,043` `1,187,005` `81,003,757` `$`	2018
		NT$ `37,767,899` `$` `1,940,462` `35,385,866` `492,265` `75,586,492` `$`	US$
			`1,217,259` `$` `62,541` `1,140,486` `15,866`
			`2,436,152` `$`

(24) 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 2018, employees’ compensation was accrued at $3,136,952 and $294,289 (US$9,485), respectively; while directors’ remuneration was accrued at $48,261 and$4,528 (US$146), respectively. The aforementioned amounts were recognized in expenses.
The expenses recognized for 2018 were accrued based on the earnings of current year. The employees’ compensation and directors’ remuneration were $294,289 (US$9,485) and $4,528 (US$146) in the form of cash, respectively, as resolved by the Board of Directors on February 14, 2019. The accrued amounts were in agreement with the amount of recorded expense for the year ended December 31, 2018.

The employees’ compensation and directors’ remuneration for the year ended December 31, 2017 were $3,136,952 and $48,261, respectively, and were estimated based on the profit of current year. The employees’ compensation will be distributed in the form of cash. The Board of Directors resolved to distribute employees’ compensation and directors’ remuneration in the amount of $3,136,952 and $48,261, respectively, in the form of cash. The actual distributed amount were in consistent with the amounts recognized 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.

F-110

(25) Income tax

A. Income tax expense

(a) Components of income tax expense:

e tax ome tax expense Components of income tax expense:
Current tax: Current tax on profit for the year Tax on undistributed surplus earnings Prior year income tax under (over) estimation Total current tax Deferred tax: Origination and reversal of temporary differences Impact of change in tax rate Income tax expense	Years endedDecember31,
	2017 NT$ `3,886,976` `$` `-` `76,547)` `(` `3,810,429` `8,102,151` `-` `11,912,580` `$`	2018
		NT$ `2,246,381` `$` `2,704,311` `119,513` `5,070,205` `245,749` `969,286)` `(` `4,346,668` `$`	US$
			`72,401` `$` `87,160` `3,852` `163,413` `7,920` `31,240)` `(` `140,093` `$`

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

follows:
				Years endedDecember31,
				2017				2018
				NT$				NT$			US$
Fair value of available-for-sale		`$`		`317,110`			`$`	`-`		`$`	`-`
financial assets
Remeasurements of defined benefit
obligations		`(`		`8,427)`			`(`	`5,976)`		`(`	`193)`
			`$`	`308,683`			`($`	`5,976)`		`($`	`193)`
Reconciliation between income tax expense and accounting							profit:
				Years ended December					31,
				2017				2018
				NT$				NT$			US$
Tax calculated based on profit	`$`	`11,532,189`				`$`		`3,029,631`		`$`	`97,645`
before tax and statutory tax rate
Effects from items disallowed by tax
regulation	`(`			`477,430)`	`(`			`445,094)`	`(`		`14,345)`
Prior year income tax overestimation	`(`			`76,547)`				`119,513`			`3,852`
Effect from changes in tax regulation				`-`	`(`			`969,286)`	`(`		`31,240)`
Additional 10% tax on undistributed
earnings				`-`				`2,704,311`			`87,160`
Separate taxation				`-`				`89,783`			`2,894`
Change in assessment of realization
of deferred tax assets				`934,368`	`(`			`182,190)`	`(`		`5,873)`
Tax expense	`$`	`11,912,580`				`$`		`4,346,668`		`$`	`140,093`

B. Reconciliation between income tax expense and accounting profit:

F-111

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

carryforward are as follows:
													2017
																Recognized
											Recognized					in other
											in profit			comprehensive
					January	1					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`
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) loss			`($`		`113,545)`					`$`	`71,832`				`$`		`-`		`($`		`41,713)`
Amortization 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`
												2018
												NT$
														Recognized
								Recognized							in other
									in profit				comprehensive
			January1						or		loss				income				December 31
Temporary differences:
- Deferred tax assets:
Sales returns and discount		`$`	`429,340`				`$`				`46,385`		`$`				`-`		`$`		`475,725`
provisions
Accrued royalties and warranty
provisions			`1,095,009`							`444,298`							`-`				`1,539,307`
Unrealized exchange loss					`-`					`162,222`							`-`				`162,222`
Unrealized loss on financial
instruments			`430,539`								`80,707`						`-`				`511,246`
Prior year expense carryforward					`3,480`						`112`						`-`				`3,592`
Loss carryforward			`3,752,755`								`74,393`						`-`				`3,827,148`
Others			`637,638`								`61,010`					`5,976`					`704,624`
		`$`	`6,348,761`				`$`			`869,127`			`$`			`5,976`			`$`		`7,223,864`
- Deferred tax liabilities:
Unrealized exchange (gain) loss	`($`			`41,713)`			`$`				`41,713`		`$`				`-`		`$`		`-`
Amortization charges on goodwill	`(`		`641,795)`			`(`				`210,163)`							`-`	`(`			`851,958)`
Others	`(`			`50,915)`							`22,860`						`-`	`(`			`28,055)`
	`($`		`734,423)`			`($`				`145,590)`			`$`				`-`	`($`			`880,013)`
		`$`	`5,614,338`				`$`			`723,537`			`$`			`5,976`			`$`		`6,343,851`

F-112

							2018	2018
							US$
									Recognized
						Recognized			in other
						in profit		comprehensive
			January1			or loss			income		December 31
Temporary differences:
- Deferred tax assets:
Sales returns and discount		`$`	`13,838`		`$`	`1,495`		`$`	`-`		`$`	`15,333`
provisions
Accrued royalties and warranty
provisions			`35,292`			`14,320`			`-`			`49,612`
Unrealized exchange loss			`-`			`5,228`			`-`			`5,228`
Unrealized loss on financial
instruments			`13,876`			`2,601`			`-`			`16,477`
Prior year expense carryforward			`112`			`4`			`-`			`116`
Loss carryforward			`120,951`			`2,398`			`-`			`123,349`
Others			`20,551`			`1,966`			`193`			`22,710`
		`$`	`204,620`		`$`	`28,012`		`$`	`193`		`$`	`232,825`
- Deferred tax liabilities:
Unrealized exchange (gain) loss	`($`		`1,344)`		`$`	`1,344`		`$`	`-`		`$`	`-`
Amortization charges on goodwill	`(`		`20,685)`	`(`		`6,774)`			`-`	`(`		`27,459)`
Others	`(`		`1,641)`			`737`			`-`	`(`		`904)`
	`($`		`23,670)`	`($`		`4,693)`		`$`	`-`	`($`		`28,363)`
		`$`	`180,950`		`$`	`23,319`		`$`	`193`		`$`	`204,462`

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets

are as follows:

December 31, 2017

			December 31,2017
Year incurred 2011 2012 2016	Amount filed / assessed Assessed Assessed Filed		Unused amount `26,496,656` `$` `42,898,003` `1,282,669` `70,677,328` `$` December31,2018	Unrecognized deferred tax assets `18,260,810` `$` `29,564,194` `883,982` `48,708,986` `$`		Usable untilyear
							2021 2022 2026
Amount Year filed / incurred assessed 2011 Assessed 2012 Assessed 2016 Assessed		NT$ US$ `23,793,756` `$` `766,873` `$` `42,643,231` `1,374,391` `1,051,680` `33,896` `67,488,667` `$` `2,175,160` `$` Unused amount		Unrecognized deferred tax assets			Usable untilyear
		NT$ `23,793,756` `$` `42,643,231` `1,051,680` `67,488,667` `$`			US$		2021 2022 2026

F-113

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

are as follows:
Deductible temporary differences	December31,2017 NT$ `51,673,594` `$`	December	31, 2018
		NT$ `51,258,623` `$`	US$
			`1,652,065` `$`

F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2017 and 2018, the amounts of temporary differences unrecognized as deferred tax liabilities were $31,293,045 and $30,554,931 (US$984,785), respectively.
G. The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority.
H. Under the amendments to the Income Tax Act which was promulgated by the President of the Republic of China in February 7, 2018, the Company’s applicable income tax rate was raised from 17% to 20% effective from January 1, 2018. The Group has assessed the impact of the change in income tax rate.

(26) Earnings per share

change in income tax rate. 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	ended December 31,
	2017 NT$ `37,028,609` `$` `9,952,051` `3.72` `$` `37,028,609` `$` `9,952,051` `259,625` `22` `10,211,698` `3.63` `$`	2018
		NT$ `2,222,762` `$` `9,952,072` `0.22` `$` `2,222,762` `$` `9,952,072` `65,645` `-` `10,017,717` `0.22` `$`	US$
			`71,640` `$` `9,952,072` `0.0071` `$` `71,640` `$` `9,952,072` `65,645` `-` `10,017,717` `0.0071` `$`

F-114

(27) Supplemental cash flow information

Investing activities with partial cash payments:

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,
	2017 NT$ `54,058,280` `$` `3,339,764` `32,381,338)` `(` `25,016,706` `$`	2018
		NT$ `22,304,407` `$` `32,381,338` `7,982,978)` `(` `46,702,767` `$`	US$
			`718,871` `$` `1,043,650` `257,291)` `1,505,230` `$`

(28) Changes in liabilities from financing activities

For the year ended December 31, 2018, all changes in liabilities from financing activities are changes

in cash flow from financing activities. Please refer to consolidated statements of cash flows.

7. RELATED PARTY TRANSACTIONS

(1) Names and relationship of related parties

Names and relationship of related parties
Names of related parties	Relationship withthe Group
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. Fu Lian Net International (Hong Kong) Limited Panxian FuguiKang Precision electronic Ltd. Chongqing Fuyusheng Electronics Technology Co.,Ltd.	Other related party Other related party Associate Associate Other related party Other related party Other related party

(2) Significant related party transactions

A. Operating revenue

Operating revenue
Sales of goods: Other related parties Associates	Years endedDecember31,
	2017 NT$ `48,858,191` `$` `37,115` `48,895,306` `$`	2018
		NT$ `18,631,752` `$` `23,687` `18,655,439` `$`	US$
			`600,501` `$` `764`
			`601,265` `$`

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.

F-115

B. Purchases of goods

Purchases of goods
			Years ended		December 31,
		2017			2018
		NT$		NT$				US$
Purchases of goods:
Other related parties	`$`	`12,518,080` `$`		`5,403,092`		`$`		`174,142`
Associates		`1,341,203`		`1,579,096`				`50,894`
	`$`	`13,859,283` `$`		`6,982,188`		`$`		`225,036`
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.
Receivables from related parties
		December 31,2017			December 31,			2018
			NT$		NT$			US$
Accounts receivable:
Other related parties
- Nanjing Hongfusharp Precision
Electronics Co., Ltd.		`$`	`7,617,857`	`$`	`175,236`		`$`	`5,648`
- Others			`10,086,180`		`4,911,939`			`158,312`
Associates			`25,463`		`47,881`			`1,543`
			`17,729,500`		`5,135,056`			`165,503`
Less: Transferred other receivable		`(`	`2,418)`	`(`	`685,079)`		`(`	`22,080)`
		`$`	`17,727,082`	`$`	`4,449,977`		`$`	`143,423`

C. Receivables from related parties

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

(b) The abovementioned receivables from related parties that exceed normal granting periods were transferred under ‘Other receivables – related parties’.

D. Other receivables from related parties

transferred under ‘Other receivables Other receivables from related parties	– related parties’.
Other receivables: Accounts receivables transferred to other receivables - Other related parties - Fu Lian Net International (Hong Kong) Limited - Panxian FuguiKang Precision electronic Ltd. - Chongqing Fuyusheng Electronics Technology Co., Ltd. - Others Other receivables - Other related parties - Associates	December 31,2017 NT$ `-` `$` `-` `-` `2,418` `13,001` `2,547` `17,966` `$`	December	31,2018
		NT$ `369,837` `$` `178,663` `136,555` `24` `9,832` `7,820` `702,731` `$`	US$
			`11,920` `$` `5,758` `4,401` `1` `317` `252`
			`22,649` `$`

F-116

E. Payables to related parties

Payables to related parties
Accounts payable: Other related parties Associates	December31,2017 NT$ `2,371,033` `$` `193,977` `2,565,010` `$`	December	31, 2018
		NT$ `2,382,269` `$` `269,858` `2,652,127` `$`	US$ `76,781` `$` `8,697` `85,478` `$`

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

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

Years endedDecember31,	Years endedDecember31,	Years endedDecember31,
2017 NT$ `31,456,795` `$` `42,459` `-` `31,499,254` `$`	2018
	NT$ `469` `$` `47,448` `2,458` `50,375` `$`	US$
		`15` `$` `1,529` `80`
		`1,624` `$`

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

Other related parties - Hon Hai Precision Industry Co., Ltd. - Others	December 31, 2017 NT$ `26,609,511` `$` `1,974` `26,611,485` `$`	December	31, 2018
		NT$ `2,225,585` `$` `378` `2,225,963` `$`	US$
			`71,731` `$` `12` `71,743` `$`

Sale of property

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

YearendedDecember31,2018	YearendedDecember31,2018	YearendedDecember31,2018
NT$ US$ `804` `$` `26` `$` Disposal proceeds	Gain on disposal
NT$ `804` `$`	NT$ `91` `$`	US$
		`3` `$`

(b) Period-end balances arising from sale of property (shown as ‘other receivables’)

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				December 31, 2017	December 31, 2017	December 31, 2017			December 31, 2018	December 31, 2018	December 31, 2018
					NT$				NT$		US$
Other related parties				`$`		`-`	`$`		`269`	`$`	`9`
(3) Key management compensation
						Years endedDecember31,
					2017				2018
					NT$				NT$		US$
Salaries and other short-term
employee benefits				`$`		`130,223`	`$`		`252,050`	`$`	`8,124`
Post-employment benefit						`432`			`789`		`25`
				`$`		`130,655`	`$`		`252,839`	`$`	`8,149`
PLEDGED ASSETS
The Group’s assets pledged	as collateral are as				follows:
						Book value
Pledged asset	December			31,2017		December 31,			2018		Purpose
			NT$			NT$			US$
Other current assets										Tariff and credit card
-Time deposits		`$`		`1,594`	`$`	`77,849`		`$`	`2,509`	guarantee
Property, plant and equipment			`70,966,784`			`111,162,901`			`3,582,780`	Long-term loans
Intangible assets				`7,446`		`1,122`			`36`	Long-term loans
Other non-current assets										Guarantee for contract
-Time deposits				`722`			`-`		`-`	and	performance bond
-Refundable deposits				`-`		`368,194`			`11,867`	Guarantee for litigation
		`$`	`70,976,546`		`$`	`111,610,066`		`$`	`3,597,192`

8. PLEDGED ASSETS

9. 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.

The company’s subsidiary in U.S. received a civil complaint from the government of Puerto Rico

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in September 2018, claiming that the company, together with other defendants of Taiwan, Japan and South Korea panel factories, had unjustified enrichment from the TFT-LCD pricing collaborations in 2006 and requested monetary compensation. The U.S. subsidiary of the company has appointed a lawyer to handle the lawsuit.

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.

C. On July 10, 2018, Vista Peak Ventures, LLC filed four complaints against the Company in the United States District Court for the Eastern District of Texas, alleging the infringement of several of its patents. Currently no court date has been set. The Company has engaged outside legal counsels to handle this lawsuit. Since the final results of the litigation are dependent on future litigation progress and are uncertain, the Company does not expect that the lawsuit will have a material adverse effect on its financial position or results of operations in the short term.
D. The Company had assessed and recognized related losses and liabilities as shown in ‘provisionscurrent’ 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 is as follows:

Property, plant and equipment	December 31, 2017 NT$ `18,794,836` `$`	December	31, 2018
		NT$ `22,914,278` `$`	US$
			`738,527` `$`

B. Operating lease commitments

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

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follows:

follows:
Not later than one year Later than one year but not later than five years Later than five years	December 31, 2017 NT$ `579,498` `$` `1,943,547` `541,101` `3,064,146` `$`	December	31, 2018
		NT$ `581,550` `$` `1,635,763` `991,604` `3,208,917` `$`	US$
			`18,743` `$` `52,721` `31,959` `103,423` `$`

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 NT$ `45,687` `$`	December	31, 2018
		NT$ `445,458` `$`	US$
			`14,357` `$`

10. 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 had been paid as of September 30, 2017. The Company accrued gain of $755,413 after offsetting the loss with insurance claim.

11. SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. 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. Financial instruments by category

For information of the Group’s financial assets (financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, available-for-sale financial assets, financial assets at amortized cost, cash and cash equivalents, accounts receivable (including related parties) and other receivables) and financial liability (financial liabilities at fair value through profit or loss, accounts payable (including related parties), other payables and longterm borrowings (including current portion)), please refer to Note 6 and consolidated balance sheets.

B. Risk management policies

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(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

i. The Group operates internationally and is exposed to foreign exchange risk arising from the transactions of the company and its subsidiaries used in various functional currency, 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.
ii. 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.
iii. The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $278,159 and $412,558 (US$ 13,297) for the years ended December 31, 2017 and 2018, respectively. The information on assets and liabilities denominated in foreign currencies whose values

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would be materially affected by the exchange rate fluctuations is as follows:

would be materially affected by the exchange rate	fluctuations is as follows:	fluctuations is as follows:	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` 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` December31,2017 Financial liabilities Monetary items	December31,2018
	Foreign Currency Amount (In Thousands) `5,960,855` `$` `8,247,993` `48,137` `2,576,131` `$` `180,600` `13,237,769` `4,311,235` `$` `46,306,961` `13,025`	Exchange Rate (Note) `30.72` `0.28` `35.20` `30.72` `3.92` `0.28` `30.72` `0.28` `35.20`	Book Value (NTD)
			`183,117,466` `$` `2,309,438` `1,694,422` `79,138,744` `$` `707,952` `3,706,575` `132,441,139` `$` `12,965,949` `458,480`

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

iv. 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 2018 amounted to ($2,134,155) and$1,320,427 (US$42,557), respectively.

Price risk

i. The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and available-for-sale financial assets. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group.
ii. 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 2018 would have increased/decreased by $51,535 and $312,862 (US$10,084), respectively; other comprehensive gains and losses would have increased/decreased by $1,311,038 and $766,875 (US$24,716), respectively.

Cash flow and fair value interest rate risk

i. The Group’s main interest rate risk arises from long-term borrowings with variable rates,

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which expose the Group to cash flow interest rate risk. During the years ended December 31, 2017 and 2018, the Group’s borrowings at variable rate were denominated in the NTD.

ii. The Group analyses 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.
iii. If the borrowing interest rate of NTD had increased/decreased by 0.25% with all other variables held constant, profit, net of tax for the years ended December 31, 2017 and 2018 would have decreased/increased by $71,000 and $128,600 (US$4,145), respectively. The main factor is that changes in interest expense result in floating-rate borrowings.
(b) Credit risk
i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The main factor is that counterparties could not repay in full the accounts receivable based on the agreed terms, and the contract cash flows.
ii. According to the Group’s credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the managements. The utilization of credit limits is regularly monitored.
iii. The Group adopts following assumption under IFRS 9 to assess whether there has been a significant increase in credit risk on that instrument since initial recognition: If the contract payments are past due over 30 days based on the terms, there has been a significant increase in credit risk on that instrument since initial recognition.
iv. The Group adopts the assumptions under IFRS 9, the default occurs when the contract payments are past due over 90 days.
v. The Group classifies customer’s accounts receivable in accordance with credit rating of customer, credit risk on trade and customer types. The Group applies the simplified approach using provision matrix to estimate expected credit loss under the provision matrix basis.
vi. The following indicators are used to determine whether the credit impairment of debt instruments has occurred:
- (i) It becomes probable that the issuer will enter bankruptcy or other financial reorganization due to their financial difficulties;

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(ii) Default or delinquency in interest or principal repayments;
(iii) Adverse changes in national or regional economic conditions that are expected to cause a default.
vii. The Group uses the forecastability to adjust historical and timely information to assess the default possibility of accounts receivable.
According to abovementioned consideration and information, the Group does not expect any significant default possibility of accounts receivable.
viii. Movements in relation to the Group applying the simplified approach to provide loss allowance for accounts receivable are as follows:

At January 1 Effect of exchange rate changes At December 31 At January 1_IAS 39 Adjustments under new standards At January 1_IFRS 9 Provision Write-offs `(` At December 31	2017 Accountsreceivable `109,501` `$` `5)` `(` `109,496` `$` NT$ US$ `109,496` `$` `3,529` `$` `-` `-` `109,496` `3,529` `100,357` `3,235` `124)` `4)` `(` `209,729` `$` `6,760` `$` 2018 Accountsreceivable
	NT$ `109,496` `$` `-` `109,496` `100,357` `124)` `(` `209,729` `$`

ix. The Group did not recognize significant impairment provision in accordance with 12 months expected credit losses, because the Group’s financial assets/loans to others and receivables at amortized cost all with low credit risk.
x. Credit risk information of 2017 is provided in Note 12(4).
(c) Liquidity risk
i. 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.
ii. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group’s treasury. Group treasury invests surplus cash in interest bearing savings accounts, time deposits, money market deposits and marketable securities. The Group chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the

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abovementioned forecasts. These are expected to readily generate cash inflows for managing liquidity risk.

iii. 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 nonderivative 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 Long-term borrowings (including current portion) December 31,2018 NT$ Long-term borrowings (including current portion) December 31,2018 US$ Long-term borrowings (including current portion)	Less than 1year `10,960,000` `$` Less than 1year `16,210,000` `$` Less than 1year `522,448` `$`	Between 1 and 3years `16,890,000` `$` Between 1 and 3years `35,230,000` `$` Between 1 and 3years `1,135,463` `$`	Between 3 and 5years `550,000` `$` Between 3 and 5years `-` `$` Between 3 and 5years `-` `$`	Total
				`28,400,000` `$` Total
				`51,440,000` `$` Total
				`1,657,911` `$`

Except for the above, the non-derivative and derivative financial liabilities of the Group are all due within one year.

(3) Fair value estimation

A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group’s investment in listed stocks is included in Level 1.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group’s investment in derivative instruments is included in Level 2.
Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in equity investment without active market is included in Level 3.
B. Fair value information of investment property at cost is provided in Note 6(9).
C. Financial instruments not measured at fair value
The carrying amounts of cash and cash equivalents, accounts receivable, other receivables, financial assets at amortized cost, accounts payable, other payables and long-term borrowings (including current portion) are approximate to their fair values.
D. The related information of financial and non-financial instruments measured at fair value by level

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on the basis of the nature, characteristics and risks of the assets and liabilities is as follows: (a) The related information of natures of the assets and liabilities is as follows:

December31,2017 Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities 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 December31,2018		Level 1 `257,676` `-` `-` `6,241,465` `6,499,141` `-` Level 1		Total
	`$`		`$`	`257,676` `$` `328,170` `76,890` `6,555,189`
	`$`		`$`	`7,217,925` `$`
	`$`		`$`	`52,500` `$`
				Total
NT$ Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Convertible bonds Financial assets at fair value through other comprehensive income Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts Forward exchange swap contracts
		`1,221,135` `$` `-` `-` `-` `2,661,075`		`1,564,310` `$` `398,913` `35,559` `-` `3,834,376` `5,833,158` `$` `16,644` `$` `7,135` `23,779` `$`
		`3,882,210` `$`
		`-` `$` `-`
		`-` `$`

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December 31, 2018

December31,2018
US$ Assets Recurring fair value measurements Financial assets at fair value through profit or loss Equity securities Forward exchange contracts Convertible bonds Financial assets at fair value through other comprehensive income Equity securities Liabilities Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts Forward exchange swap contracts	Level 1 `39,357` `$` `-` `-` `-` `85,767` `125,124` `$` `-` `$` `-` `-` `$`	Level 2 `-` `$` `12,857` `-` `-` `-` `12,857` `$` `536` `$` `230` `766` `$`	Level3 `11,061` `$` `-` `1,146` `-` `37,815` `50,022` `$` `-` `$` `-` `-` `$`	Total
				`50,418` `$` `12,857` `1,146` `-` `123,582`
				`188,003` `$`
				`536` `$` `230`
				`766` `$`

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

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

ii. Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
iii. When assessing non-standard and low-complexity financial instruments, for example, 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.
iv. The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts and foreign exchange swap contracts are usually valued based on the current forward exchange rate.
v. The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted

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accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.

vi. The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.
E. For the years ended December 31, 2017 and 2018, 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 2018:

2018:
		2017
		Equity securities
At January 1	`$`	`242,351`
Gains and losses recognized in profit or loss	`(`	`490,901)`
Gains and losses recognized in other comprehensive income		`585,094`
Acquired in the period		`122,755`
Effect on exchange rate changes	`(`	`145,575)`
At December 31	`$`	`313,724`

Acquired in the period Effect on exchange rate changes At December 31	es	`(`
Equity securities At January 1 `313,724` `$` Gains and losses recognized in profit or loss `114,507)` `(` Gains and losses recognized in other comprehensive income `217,789)` `(` Acquired in the period `1,532,689` Effect on exchange rate changes `2,359` `(` At December 31 `1,516,476` `$`		2018
		NT$

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Equity securities At January 1 `10,111` `$` Gains and losses recognized in profit or loss `3,691)` `(` Gains and losses recognized in other comprehensive income `7,019)` `(` Acquired in the period `49,399` Effect on exchange rate changes `76` `(` At December 31 `48,876` `$`		2018
		US$

G. For the years ended December 31, 2017 and 2018, 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:

Fair value at Range December Valuation Significant (weighted Relationship of inputs 31, 2017 technique unobservable input average) to fair value Non-derivative equity instrument: Unlisted shares $ 286,940 Market Price to earnings ratio 1.26~61.93 The higher the comparable multiple, price to sales (26.49) multiple, the higher companies ratio multiple, price to the fair value book ratio multiple Discount for lack of 30%~70% The higher the marketability (51%) discount for lack of marketability, the lower the fair value Venture capital 26,784 Net asset Not applicable Not Not applicable shares value applicable Private equity fund investment

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Non-derivative equity instrument: Unlisted shares Venture capital shares Private equity fund investment Hybrid instrument: Convertible bond	NT$ US$ `1,490,390` `$` `48,035` `$` `26,086` `841` `35,559` `1,146` Fair value at December 31, 2018	NT$ US$ `1,490,390` `$` `48,035` `$` `26,086` `841` `35,559` `1,146` Fair value at December 31, 2018	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
		US$ `48,035` `$` `841` `1,146`	Market comparable companies Net asset value Discounted cash flow method and Option pricing model	Price to earnings ratio multiple, price to sales ratio multiple, price to book ratio multiple Discount for lack of marketability Not applicable Volatility and Discount rate	`0.58~41.52` `(5.06)` `30%~70%` `(33%)` Not applicable `2.5%~46.7%` `(24.6%)`	The higher the multiple, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable The higher the volatility, the higher the fair value; The higher the discount rate, the lower the fair value

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 measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorized within Level 3 if the inputs used to valuation models have changed:

have changed:
Financial assets	Input	Change `± 1%` Change `± 1%` `± 1%` Change `± 1%` `± 1%`		December	31,2017
			Recognized in	Unfavourable change `$ -` December profit or loss	Recognized in other comprehensive income
			Favourable change `$ -`		Favourable Unfavourable change change `$ 3,137` `($ 3,137)` 31,2018	Unfavourable change
Equity instrument Financial assets	`$ 313,724` Input
				NT$
			Favourable Unfavourable change change `$ 3,432` `($ 3,432)` `356` `( 356)` Recognized in other comprehensive income December		Recognized in other comprehensive income
					Favourable Unfavourable change change `$ 11,733` `($ 11,733)` `-` `-` 31,2018	Unfavourable change
Equity instrument Hybrid instrument Financial assets	`$ 1,516,476` `35,559` Input
			US$
			Favourable Unfavourable change change `$ 111` `($ 111)` `11` `( 11)` Recognized in other comprehensive income		Recognized in other comprehensive income
					Favourable Unfavourable change change `$ 378` `($ 378)` `-` `-`	Unfavourable change
Equity instrument Hybrid instrument	`$ 48,876` `1,146`

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(4) Effects on initial application of IFRS 9 and information on application of IAS 39 in 2017

A. Summary of significant accounting policies adopted in 2017:
(a) Financial assets at fair value through profit or loss
i. They 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 categorised 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:
(i) Hybrid (combined) contracts; or
(ii) They eliminate or significantly reduce a measurement or recognition inconsistency; or
(iii) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
ii. 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.
iii. 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 liabilities 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.
(b) Available-for-sale financial assets
i. Available-for-sale financial assets are non-derivatives that are designated in this category.
ii. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.
iii. 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.
(c) Loans and receivables
Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
(d) Impairment of financial assets
i. 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 the financial asset or group of financial assets that can be reliably estimated.

F-131

ii. The criteria that the Group uses to determine whether there is objective evidence of an impairment loss is as follows:
(i) Significant financial difficulty of the issuer or debtor;
(ii) A breach of contract, such as a default or delinquency in interest or principal payments;
(iii) 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
(iv) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
iii. 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:
(i) 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.
(ii) 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.
B. For details of the reconciliations of carrying amount of financial assets transferred from December 31, 2017, IAS 39, to January 1, 2018, IFRS 9, please refer to Note 3(1).
C. As of December 31, 2017 and for the year ended December 31, 2017, the details of significant

F-132

accounting items are as follows:

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

ounting items are as follows: 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 Forward exchange swap contracts	December31,2017
	`328,170` `$` `76,890`
	`405,060` `$`
	`48,040` `$` `209,636`
	`257,676` `$`
	December31,2017
	`52,500` `$` `-`
	`52,500` `$`

i. For the year ended December 31, 2017, the Group recognized net profit of $1,987,818 in the abovementioned financial instruments.
ii. The non-hedging derivative financial assets and liabilities transaction are as follows:

December 31, 2017

Derivative financial
assets and liabilities
Current items
Forward foreign
USD (sell)
400,000
$
exchange contracts
JPY (buy)
44,934,619
Forward foreign
EUR (sell)
15,800
exchange contracts
USD (buy)
18,841
Forward foreign
EUR (sell)
34,200
exchange contracts
JPY (buy)
4,554,765
Forward foreign
HKD (sell)
371,732
exchange contracts
EUR (buy)
40,000
Forward foreign
USD (sell)
430,000
exchange contracts
RMB (buy)
2,870,455
Forward foreign
USD (sell)
410,000
swap contracts
TWD (buy)
12,289,569
Contract amount
(Notional principal) (in thousands) Contract
period

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

The Group entered into the forward foreign exchange contracts to hedge exchange rate risk of price and foreign currency amount position of import and export. However, these forward

F-133

foreign exchange contracts are used to satisfy capital needs and are not accounted for under hedge accounting.

(b) Available-for-sale financial assets

hedge accounting. Available-for-sale financial assets
Non-current items Listed stocks Emerging and unlisted stocks	December31,2017
	`5,969,565` `$` `585,624`
	`6,555,189` `$`

  - i. The Group recognized comprehensive income for fair value change and reclassified from equity to profit or loss for year ended December 31, 2017. Please refer to Note 6(19).

  - ii. For the year ended December 31, 2017, the Company and its subsidiary assessed that investment value of certain investee companies was impaired and recognized impairment loss of $3,120,824 which was listed as ‘other gains and losses’.

D. Information on credit risk as of December 31, 2017 and for the year ended December 31, 2017 is as follows:
(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) For the year ended December 31, 2017, no credit limits were exceeded during the reporting periods, and management does not expect any significant losses from non-performance by these counterparties.
(c) On December 31, 2017, the aging analysis of accounts receivable that were past due but not impaired is as follows:

impaired is as follows:
Up to 60 days 61 to 180 days Over 181 days	December31,2017
	`3,321,622` `$` `193,350` `1,258`
	`3,516,230` `$`

F-134

(d) Movement analysis of accounts receivable that were impaired is as follows:
i. As of December 31, 2017, the Group accrued accounts receivable that were impaired and recognized $109,496, respectively.
ii. Movement on allowance for bad debts for impairment loss on individual provision is as follows:

At January 1 Net exchange differences At December 31	2017 `109,501` `$` `5)` `(` `109,496` `$`

(5) Effects of initial application of IFRS 15 and information on application of IAS 11 and IAS 18 in

2017

A. The significant accounting policies applied on revenue recognition for the year ended December 31, 2017 are set out below.
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 of value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities.
B. There is no effect on single account of the statement of comprehensive income, if the Group continues applying abovementioned accounting policy in the 2018. Under IFRS 15, refund liabilities are presented as accounts receivable-allowance for sales return and discounts in the previous reporting period. As of December 31, 2018, the effect from changes in accounting policy was $2,081,707 (US$67,093).

13. SUPPLEMENTARY DISCLOSURES

(1) 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 period: Please refer to Table 6.

F-135

(2) Information on investees

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

(3) 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.

14. SEGMENT INFORMATION

(1) General information

(2) Segment information

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

Segment information The segment information provided to the is as follows:	chief operating decision-maker for the reportable segments	chief operating decision-maker for the reportable segments	chief operating decision-maker for the reportable segments
Segment revenue Segment income Depreciation and amortization Capital expenditure-property, plant and equipment Segment assets	Years endedDecember31,
	2017 TFT LCD NT$ `329,174,401` `$` `48,941,189` `$` `33,564,048` `$` `25,016,706` `$` `414,858,758` `$`	2018
		TFT LCD
		NT$ `279,376,115` `$` `6,569,430` `$` `35,878,131` `$` `46,702,767` `$` `411,919,604` `$`	US$
			`9,004,290` `$`
			`211,733` `$`
			`1,156,352` `$`
			`1,505,230` `$`
			`13,276,164` `$`

(3) 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.

(4) Information on products

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

F-136

(5) Geographical information

Geographical information for the years ended December 31, 2017 and 2018 is as follows:

Years ended December 31,

		Years ended December31,	Years ended December31,	Years ended December31,
Taiwan Hong Kong China Singapore Europe US Others Total	Revenue Non-current assets NT$ NT$ `115,922,366` `$` `211,482,604` `$` `75,037,923` `108` `68,728,719` `29,891,298` `17,892,659` `-` `11,408,208` `24,951` `8,022,386` `612` `32,162,140` `275,743` `329,174,401` `$` `241,675,316` `$` 2017	2018
	Revenue NT$ `115,922,366` `$` `75,037,923` `68,728,719` `17,892,659` `11,408,208` `8,022,386` `32,162,140` `329,174,401` `$`	NT$ US$ `75,594,192` `$` `2,436,400` `$` `79,813,964` `2,572,404` `48,206,617` `1,553,699` `14,362,284` `462,896` `11,444,728` `368,864` `10,775,116` `347,282` `39,179,214` `1,262,745` `279,376,115` `$` `9,004,290` `$` Revenue	Non-current assets
		NT$ `75,594,192` `$` `79,813,964` `48,206,617` `14,362,284` `11,444,728` `10,775,116` `39,179,214` `279,376,115` `$`	NT$ `196,073,680` `$` `-` `31,236,727` `-` `38,722` `736` `6,399` `227,356,264` `$`	US$
				`6,319,453` `$` `-` `1,006,759` `-` `1,248` `24` `207`
				`7,327,691` `$`

(6) 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 2018 are set forth below:

Years ended December 31,

Company A	Sale amount Percentage of sales `50,574,810` `$` `15%` 2017	2018
		NT$ US$ `28,944,033` `$` `932,866` `$` Sale amount	Percentage of sales
		NT$ `28,944,033` `$`	`10%`

F-137

INNOLUX CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2016 AND 2017

F-138

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, 2016 and 2017 and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as at December 31, 2016 and 2017 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

Key audit matters

F-139

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

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.

F-140

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).

How our audit addressed the matter

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial statements of Innolux Co., Ltd. as at and for the years ended December 31, 2016 and 2017.

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

F-141

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

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.

F-142

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.

PricewaterhouseCoopers, Taiwan

February 9, 2018

F-143

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

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(2) 6(4)(5) 7 7 6(6) 6(1) and 8 6(2) 6(3) 6(7) 6(8), 7 and 8 6(9) 6(10) and 8 6(26) 6(8) and 8	December 31, 2016 `$` `35,384,839` `64,241` `52,855,632` `11,599,359` `2,034,427` `23,401,728` `1,552,373` `105,532` `126,998,131` `250,101` `5,840,929` `1,517,418` `201,360,858` `573,425` `18,446,321` `14,698,143` `1,794,222` `244,481,417` `$` `371,479,548`	December 31, 2017
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			`$` `65,988,955` `405,060` `41,322,705` `17,727,082` `1,212,164` `30,259,021` `1,487,832` `127,136`
			`158,529,955`
			`257,676` `6,555,189` `1,491,139` `220,864,627` `562,697` `17,910,908` `6,348,761` `2,337,806`
			`256,328,803`
			`$` `414,858,758`

(Continued)

F-144

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity Notes
December 31, 2016
December 31, 2017
6(11)
$
11,583,750
$
-
6(2)
1,190,148
52,500
51,875,305
50,876,500
7
5,120,235
2,565,010
6(12) and 7
22,916,097
58,897,804
1,912,797
1,891,188
6(16) and 9
3,765,234
5,460,862
6(13)
16,381,686
10,951,114
1,420,652
1,199,194
116,165,904
131,894,172
6(13)
28,128,467
17,287,788
6(26)
672,971
734,423
6(14)
505,843
617,327
29,307,281
18,639,538
145,473,185
150,533,710
6(17)
99,521,488
99,520,720
6(18)
99,647,810
99,646,919
6(19)
3,758,507
3,945,576
-
3,418,804
26,497,362
58,883,750
6(20)
(
3,418,804) (
1,090,721)
226,006,363
264,325,048
$
371,479,548
$
414,858,758

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.

F-145

INNOLUX CORPORATION AND SUBSIDIARIES

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

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

Items YearendedDecember31
Notes
2016
2017
7
$
287,089,277
$
329,174,401
6(6)(24) and 7
(
261,000,786) (
260,435,724)
26,088,491
68,738,677
6(24)
(
2,301,561) (
1,942,594)
(
6,241,602) (
6,857,153)
(
11,132,079) (
12,916,721)
(
19,675,242) (
21,716,468)
6,413,249
47,022,209
6(21)
2,388,895
2,528,814
6(22)
(
3,103,952) (
154,188)
6(23)
(
893,526) (
730,500)
6(7)
187,454
274,854
(
1,421,129)
1,918,980
4,992,120
48,941,189
6(26)
(
3,121,433) (
11,912,580)
$
1,870,687
$
37,028,609
$
44,027
( $
49,571)
(
7,485)
8,427
36,542
(
41,144)
6(20)
(
5,708,026) (
1,643,264)
(
339,384)
4,322,008
(
27,676) (
33,551)
6(26)
(
113,457) (
317,110)
(
6,188,543)
2,328,083
($
6,152,001)
$
2,286,939
($
4,281,314)
$
39,315,548
$
1,870,687
$
37,028,609
($
4,281,314)
$
39,315,548
6(27)
$
0.19
$
3.72
$
0.19
$
3.63

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.

F-146

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

(Expressed in thousands of New Taiwan dollars)

Notes			Equity attributableto owners of the parent	Equity attributableto owners of the parent	Equity attributableto owners of the 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- sale 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.

F-147

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

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
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
2016
2017
$
4,992,120 $
48,941,189
6(24)
41,418,534
33,564,048
6(24)
15,260
-
6(7)
(
187,454 ) (
274,854 )
6(22)
23,258 (
2,483,645 )
6(22)
163,659
597,261
6(22)
502,857
3,120,824
6(23)
874,879
730,500
6(21)
(
291,240 ) (
472,331 )
6(21)
(
177,880 ) (
151,677 )
4,725 (
4,725 )
1,012,239 (
1,486,042 )
(
4,665,841 )
11,532,927
(
8,966,506 ) (
6,127,723 )
1,648,507
845,803
5,864,361 (
6,857,293 )
(
444,504 )
64,541
(
7,263 )
23,807
(
5,194,646 ) (
998,805 )
1,760,302 (
2,555,225 )
(
1,636,830 )
6,975,259
(
1,786,525 )
1,695,628
289,323 (
221,458 )
(
12,343 )
16,688
35,198,992
86,474,697
(
1,799,745 ) (
3,832,038 )
33,399,247
82,642,659

(Continued)

F-148

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2017

(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
2016
2017
$
- ($
122,755 )
222,372
2,907,052
159,335
145,575
23,680
-
2,091,694 (
45,381 )
6(28)
(
44,152,843 ) (
25,016,706 )
42,268
263,357
(
22,251 ) (
327,760 )
38,230 (
2,404 )
326,610
448,903
404,576
418,010
(
40,866,329 ) (
21,332,109 )
11,579,025 (
11,579,025 )
822,702
-
(
16,440,000 ) (
16,440,000 )

(
1,372 )
-
(
747,143 ) (
588,511 )
6(19)
(
1,989,810 ) (
995,204 )
(
6,776,598 ) (
29,602,740 )
(
2,894,271 ) (
1,103,694 )
(
17,137,951 )
30,604,116
52,522,790
35,384,839
$
35,384,839 $
65,988,955

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

F-149

INNOLUX CORPORATION AND SUBSIDIARIES

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

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

1. 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.

2. 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.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) E ffect of t he adopti on of new issuances of or amendment s t o Int ernati onal F i nanci al Reporti n g Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

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

New Standards,Interpretations and Amendments

Effective Date by
International Accounting
Standards Board

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

F-150

New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
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

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 Group

New standards, interpretations and amendments as endorsed by the FSC effective from 2018 are as follows:

follows:

New Standards,Interpretations and Amendments

Effective Date by
International Accounting
Standards Board

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

F-151

New Standards,Interpretations and Amendments	Effective Date by International Accounting Standards Board
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

(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 of the remaining benefits from, the asset.

F-152

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.

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

F-153

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.

(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 endorsed by the FSC effective are as follows:

endorsed by the FSC effective are as follows:

New Standards,Interpretations and Amendments

Effective Date by
International Accounting
Standards Board

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

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.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

F-154

(1) Compliance statement

(2) Basis of preparation
A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
- (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
- (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.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements
(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
(b) 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 noncontrolling 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.

F-155

(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:

Main
Business
Name of Investor
Name ofSubsidiary
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,
2016
2017
Description
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
100
-
100
-
(e)
100
49
(d)
-
100
(f)
-
100
(f)
-
100
(g)
100
100
-
100
100
-
100
100
-
100
100
-
Ownership (%)

F-156

Main
Business
Name of Investor
Name ofSubsidiary
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,
2016
2017
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
-

F-157

Main
Business
Name of Investor
Name ofSubsidiary
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,
2016
2017
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
-

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

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

(c) 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.

(d) 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

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

  - (e) 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.

  - (f) 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.

  - (g) 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.
(4) 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 retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.
(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary 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-

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monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

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

B. Translation of foreign operations
- (a) The operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
  - i. Assets and liabilities for each balance sheet presented are translated at the spot exchange rate at the date of that balance sheet;
  - ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
  - iii. All resulting exchange differences are recognized in other comprehensive income.
- (b) When the foreign operation partially disposed of or sold is an associate, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, 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.
(5) Classification of current and non-current items
A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
- (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
- (b) Assets held mainly for trading purposes;
- (c) Assets that are expected to be realized within twelve months from the balance sheet date;
- (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to settle liabilities more than twelve months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
- (a) Liabilities that are expected to be settled within the normal operating cycle;
- (b) Liabilities arising mainly from trading activities;
- (c) Liabilities that are to be settled within twelve months from the balance sheet date;
- (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the

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counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(6) Cash equivalents

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

(7) 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.

(8) 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.

(9) 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.

(10) 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

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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.
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.

(11) 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.

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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.

(12) 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.

(13) Inventories

(14) Investments accounted for using equity method / associates
A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.
B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate’s equity do not arise from profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognizes change in ownership interests in the associate in ‘capital surplus’ in proportion to its ownership.
D. 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.

(15) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives.

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Each part of an item of property, plant, and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each financial year-end. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

Buildings and structures 2~51 years Machinery and equipment 5~11 years Other equipment 2~6 years

(16) Investment property

(17) 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.

(18) 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.

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(19) 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.
(20) 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.
(21) 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.

(22) 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.
(23) Employee benefits
A. Short-term employee benefits

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B. Pensions

(a) Defined contribution plans

(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.

- (24) 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 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’.

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(25) 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.

(26) 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.

(27) 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 acquisitiondate 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

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fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognized directly in profit or loss on the acquisition date.

(28) Operating segments

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION

UNCERTAINTY

(1) 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.
(2) Critical accounting estimates and assumptions
The Group makes estimates and assumptions based on the expectation of future events that are believed to be reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be different from the 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 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.

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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

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

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

A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.
B. The above time deposits and bonds with repurchase agreement expire in 3 months and risks of changes in their values are remote. The remaining unpledged time deposits which did not meet the definition of cash equivalents were $4,998 and $50,541 at December 31, 2016 and 2017, respectively, and were classfied as ‘other current assets’.

(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 Non-current items Financial assets held for trading Stock-Advanced Optoelectronic Technology Inc. Valuation adjustment	December31,2016 `64,241` `$` `-` `64,241` `$` `77,019` `$` `173,082` `250,101` `$`	December31,2017
		`328,170` `$` `76,890`
		`405,060` `$`
		`48,040` `$` `209,636`
		`257,676` `$`

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Liabilities

December 31, 2016

December 31, 2017

Current items

Financial liabilities held for trading Forward foreign exchange contracts

$      1,190,148$         52,500

A. The Group recognized net (loss) gain of ($1,244,206) and $1,987,818 on the financial instruments for the years ended December 31, 2016 and 2017, 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	December31,2016	December31,2016	December31,2017	December31,2017
	(in thousands) Contract Amount (Notional Principal)	Contract Period	(in thousands) Contract Amount (Notional Principal)	Contract Period
	USD (sell) `360,000` `$` JPY (buy) `39,597,920` TWD (sell) `621,240` USD (buy) `20,000` EUR (sell) `19,000` USD (buy) `20,706` EUR (sell) `55,000` JPY (buy) `6,516,335` EUR (sell) `8,960` TWD (buy) `302,364` USD (sell) `715,000` RMB (buy) `4,948,754` HKD (sell) `330,712` EUR (buy) `39,000`	2016/10-2017/3 2016/10-2017/3 2016/9-2017/2 2016/9-2017/2 2016/10-2017/1 2016/10-2017/1 2016/9-2017/4 2016/9-2017/4 2016/12-2017/1 2016/12-2017/1 2016/9-2017/2 2016/9-2017/2 2016/10-2017/1 2016/10-2017/1	USD (sell) `400,000` `$` 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

(3) Available-for-sale financial assets

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

A. The Group recognized net gain (loss) in other comprehensive income for fair value change and reclassified from equity to profit or loss for the years ended December 31, 2016 and 2017. Please refer to Note 6(20).
B. For the years ended December 31, 2016 and 2017, the Company and its subsidiary assessed that investment value of certain investee companies was impaired and recognized impairment loss of $500,000 and $3,120,824 which is listed as ‘other gains and losses’.

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(4) Notes receivable and accounts receivable

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

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	December31,2016 `391,369` `$` `8,364` `-` `399,733` `$`	December31,2017
		`3,321,622` `$` `193,350` `1,258` `3,516,230` `$`

C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:
(a) As of December 31, 2016 and 2017, the Group’s accounts receivable that were impaired were $109,501 and $109,496, respectively.
(b) Movement on allowance for bad debts for impairment loss on individual provision is as follows:

2016 At January 1 `118,516` `$` Allowance for bad debts - write-offs `9,001)` `(` Net exchange difference `14)` `(` `(` At December 31 `109,501` `$`	2017 `109,501` `$` `-` `5)` `109,496` `$`

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

F-171

(6) Inventories

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

A. For the years ended December 31, 2016 and 2017, the Company and subsidiaries recognized cost of goods sold for inventories that have been sold at $260,067,090 and $260,371,976, and recognized net inventory loss at $933,696 and $63,748 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

Investments accounted for under the equity method
Ampower Holding Ltd. FI Medical Device Manufacturing Co., Ltd. Others	December31,2016 `870,941` `$` `451,943` `194,534` `1,517,418` `$`	December31,2017
		`853,016` `$` `525,926` `112,197` `1,491,139` `$`

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	2016 2017 `187,454` `$` `274,854` `$` `27,676)` `33,551)` `(` `159,778` `$` `241,303` `$` Years ended December31,
	2016 `187,454` `$` `27,676)` `(` `159,778` `$`

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(8) Property, plant and equipment

2016

							2016
									Transfer, net
										exchange
										differences
		AtJanuary1			Additions		Disposals			and others	At December31
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`									`$`	`201,360,858`
							2017
									Transfer, net
										exchange
										differences
		AtJanuary1			Additions		Disposals			and others	At December31
Cost:
Land	`3,852,792` `$`			`$`	`-`	`$`	`-`		`$`	`-`	`$`	`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`

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:

Capitalized amount Range of the interest rates for capitalization	Years endedDecember31,	Years endedDecember31,
	2016 `323,503` `$` `2.00%~2.26%`	2017
		`203,902` `$` `2.15%~2.41%`

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B. The Group evaluated the recoverable amount for assets with impairment indicators; the impairment loss for the years ended December 31, 2016 and 2017 was $2,857 and $0, respectively, shown under “other gains and losses”.
C. Information about the property, plant and equipment that were pledged to others as collateral is provided in Note 8.
D. As of December 31, 2016 and 2017, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $896,996 and $1,423,391, 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

						2016	2016	2016
		At January1				Additions			Transfers	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
						2017
		At January1				Additions			Disposals	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

The fair value of the investment property held by the Group as at December 31, 2016 and 2017 was $1,109,891 and $1,423,964, 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.

F-174

(10) Intangible assets

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

AtJanuary1 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` `$` `1,168,169)` `($` AtJanuary1 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` `$` `859,245)` `($`			2016
			Disposals `-` `$` `-` `70,918)` `70,918)` `-` `70,918` `70,918` `-` `$` 2017
			Disposals `-` `$` `-` `55,492)` `55,492)` `-` `55,492` `55,492` `-` `$`

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

Operating costs Operating expenses	Years ended December31,	Years ended December31,
	2016 `1,004,043` `$` `186,377` `1,190,420` `$`	2017
		`1,051,664` `$` `135,341`
		`1,187,005` `$`

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

F-175

five years, which was discounted at the discount rate of 5.86% and 6.32% for the years ended December 31, 2016 and 2017, respectively, to reflect the specific risks of the related cash generating units. The future cash flows were estimated based on the future revenue, gross profit, and other operating costs each year. Based on the evaluation above, the Company did not recognize impairment loss on goodwill for the years ended December 31, 2016 and 2017.

(11) Short-term borrowings

Type ofborrowings Bank loans Credit loans Range of interest rates	December31,2016 `11,583,750` `$` `0.83%~1.59%`	Collateral None

As of December 31, 2017, the Group has no short-term borrowings.

(12) Other payables

Other payables
Payable on machinery and equipment Wages and salaries and bonus payable Repairs and maintenance expense payable Utilities expense payable Other payables	December31,2016 `3,339,764` `$` `6,566,523` `1,974,059` `1,064,275` `9,971,476` `22,916,097` `$`	December31,2017
		`32,381,338` `$` `13,116,498` `2,568,063` `1,070,308` `9,761,597` `58,897,804` `$`

- (13) Long term borrowings

Type of loans Syndicated bank loans Less: Administrative expenses charged by syndicated banks Current portion (includes administrative expenses) Range of interest rates	Period December31,2016 December31,2017 2015/3/12 ~2021/12/6 `44,840,000` `$` `28,400,000` `$` `329,847)` `(` `161,098)` `(` `16,381,686)` `(` `10,951,114)` `(` `28,128,467` `$` `17,287,788` `$` `1.77%~2.06%` `1.75%~2.06%`

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, 2016 and 2017 are in compliance with the covenants on the syndicated loan agreement.

F-176

(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 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	December31,2016 `1,827,687` `$` `1,534,864)` `(` `292,823` `$`	December31,2017 `1,902,852` `$` `1,548,769)` `354,083` `$`

		Present value of	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`

F-177

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 obligations 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` `$` `6,711` `4,978` `11,689` `49,571` `-` `49,571` `354,083` `$`

(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 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, 2016 and 2017 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

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

	Years endedDecember31,	Years endedDecember31,
	2016	2017
Discount rate	`1.70%`	`1.50%`
Future salary increases	`3.00%`	`1.50%`
Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience
Mortality Table.

F-178

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

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

(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
(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.
(b) The subsidiaries in Mainland China have defined contribution plans. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and wages.
(c) The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2016 and 2017 were $2,021,115 and $1,921,461, respectively.

F-179

(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 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 BlackScholes 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`

F-180

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

follows:
StockOptions 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 December31,2016
	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, 2016 and 2017, the expenses incurred from share-based payment arrangements were $15,260 and $0, 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

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	2016 Number of ordinary shares(in thousands) `9,953,237` `1,088)` `(` `9,952,149`	2017 Number of ordinary shares(in thousands) `9,952,149` `77)` `9,952,072`

F-181

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, 2016 and 2017, the Company has retired 1,088 thousand and 77 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 paidin capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

At January 1 Cancellation of restricted stock to employees Vested restricted stock to employees Changes in restricted stock to employees Expiration of employee stock options Recognition of change in equity of associates in proportion to the Group's ownership At December 31		2016
	Sharepremium `99,101,649` `$` `-` `119,367` `-` `393,500` `-` `99,614,516` `$`

F-182

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	Share of profit (loss) of associates accounted for Restricted under equity stock to Sharepremium method employees Total 99,614,516 $ 33,888 $ 594) ($ 99,647,810 $ - - 768 768 174 - 174) ( - - 1,659) ( - 1,659) ( 99,614,690 $ 32,229 $ - $ 99,646,919 $

(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 twothirds 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.

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C. The details of the appropriations of 2015 and 2016 net income which was approved at the stockholders’ meeting in June 2016 and 2017, respectively, are as follows:

Legal reserve Special reserve Cash dividends	Years ended December31,	Years ended December31,
	Dividends per Amount share(in dollars) `1,081,560` `$` `-` `1,989,810` `0.20` `$` `3,071,370` `$` 2015	2016
	Amount `1,081,560` `$` `-` `1,989,810` `3,071,370` `$`	Dividends per Amount share(in dollars) `187,069` `$` `3,418,804` `995,204` `0.10` `$` `4,601,077` `$`

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

refer to Note 6(25). Other equity items
					2016
					Available-			Employee
			Currency		for-sale			unearned
			translation		investments		compensation			Total
At January 1		`$`	`1,695,294`	`$`	`1,074,445`	`($`		`19,402)`	`$`	`2,750,337`
Revaluation of available-for-sale
investments - gross			`-`	`(`	`839,384)`			`-`	`(`	`839,384)`
Revaluation transfer of available-for-
sale investment - gross			`-`		`500,000`			`-`		`500,000`
Currency translation differences	`(`		`5,708,026)`		`-`			`-`	`(`	`5,708,026)`
Changes in restricted stocks to
employees			`-`		`-`			`4,142`		`4,142`
Compensation related to share-based
payment			`-`		`-`			`15,260`		`15,260`
Share of other comprehensive loss
of associates	`(`		`27,676)`		`-`			`-`	`(`	`27,676)`
Effect of income tax			`-`	`(`	`113,457)`			`-`	`(`	`113,457)`
At December 31	`($`		`4,040,408)`	`$`	`621,604`		`$`	`-`	`($`	`3,418,804)`

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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

(21) (22)	Other income Other gains and losses 2016 2017 Rental revenue `162,665` `$` `137,037` `$` Interest income `291,240` `472,331` Dividend income `177,880` `151,677` Other income `1,757,110` `1,767,769` `2,388,895` `$` `2,528,814` `$` Years endedDecember31, 2016 2017 Net (loss) gain on financial assets and liabilities at fair value through profit or loss `1,244,206)` `($` `1,987,818` `$` Net currency exchange gain (loss) `1,360,559` `2,134,155)` `(` (Loss) gain on disposal of investments `23,258)` `(` `2,483,645` Loss on disposal of property, plant and equipment `163,659)` `(` `597,261)` `(` Impairment loss `502,857)` `(` `3,120,824)` `(` Net disaster (loss) gain `1,296,166)` `(` `2,051,579` Others `1,234,365)` `(` `824,990)` `(` `3,103,952)` `($` `154,188)` `($` Years endedDecember31,	Years endedDecember31,	Years endedDecember31,
		2016 2017 `162,665` `$` `137,037` `$` `291,240` `472,331` `177,880` `151,677` `1,757,110` `1,767,769` `2,388,895` `$` `2,528,814` `$` Years endedDecember31,	2017
			2017

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(23) Finance costs

Finance costs
Interest expense: Bank borrowings Others Factoring expense of accounts receivable	Years endedDecember31,
	2016 `874,873` `$` `6` `18,647` `893,526` `$`	2017
		`730,468` `$` `32` `-`
		`730,500` `$`

(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,
	2016 `38,738,413` `$` `15,260` `2,034,184` `40,228,114` `1,190,420` `82,206,391` `$`	2017
		`45,506,559` `$` `-` `1,933,150` `32,377,043` `1,187,005`
		`81,003,757` `$`

(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, 2016 and 2017, employees’ compensation was accrued at $192,788 and $3,136,952, respectively; while directors’ remuneration was accrued at $1,928 and $48,261, 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.

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

website of the Taiwan Stock Exchange. e tax ome tax expense Components of income tax expense:
Current tax: Current tax on profit for the year Tax on undistributed surplus earnings Prior year income tax overestimation `(` Total current tax Deferred tax: Origination and reversal of temporary differences Income tax expense	2016 2017 `1,313,262` `$` `3,886,976` `$` `590,712` `-` `10,800)` `76,547)` `(` `1,893,174` `3,810,429` `1,228,259` `8,102,151` `3,121,433` `$` `11,912,580` `$` Years endedDecember31,
	2016 `1,313,262` `$` `590,712` `10,800)` `1,893,174` `1,228,259` `3,121,433` `$`

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

Fair value gains/losses on available-for-sale financial assets Remeasurements of defined benefit obligations	2016 2017 `113,457` `$` `317,110` `$` `7,485` `8,427)` `(` `120,942` `$` `308,683` `$` Years endedDecember31,
	2016 `113,457` `$` `7,485` `120,942` `$`

B. Reconciliation between income tax expense and accounting profit:

		Years ended	December31,	December31,
		2016		2017
Tax calculated based on profit before tax and	`$`	`1,503,372`	`$`	`11,532,189`
statutory tax rate
Effects from items disallowed by tax regulation	`(`	`372,858)`	`(`	`477,430)`
Prior year income tax overestimation	`(`	`10,800)`	`(`	`76,547)`
Additional 10% tax on undistributed earnings		`590,712`		`-`
Change in assessment of realization of deferred
tax assets		`1,411,007`		`934,368`
Tax expense	`$`	`3,121,433`	`$`	`11,912,580`

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

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						2016	2016	2016
									Recognised
									in other
					Recognised in			comprehensive
			January1		profit or loss				income		December31
Temporary differences:
- Deferred tax assets:
Sales returns and discount provisions		`$`	`243,526`	`$`		`26,957`		`$`	`-`		`$`	`270,483`
Accrued royalties and warranty
provisions			`654,557`			`77,287`			`-`			`731,844`
Unrealized loss (gain) on financial
instruments			`926,234`	`(`		`342,383)`	`(`		`113,457)`			`470,394`
Prior year expense 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`
						2017
									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`
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`

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

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

		December31,2017	December31,2017
Year incurred 2011 2012 2016	Amount filed / assessed Assessed Assessed Filed	Unused amount `26,496,656` `$` `42,898,003` `1,282,669` `70,677,328` `$`	Unrecognised deferred taxassets `18,260,810` `$` `29,564,194` `883,982` `48,708,986` `$`	Usable untilyear
				2021 2022 2026

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

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

F. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2017, 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:

1998. he details of imputation system are as follows:
(a) Balance of tax credit account (b) Estimated (Actual) creditable tax rate	December31,2016 `1,420,948` `$` 2016 (Actual) `7.47%`	December31,2017
		`2,043,097` `$` 2017(Estimated)
		`3.47%`

F-189

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

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 endedDecember31,	Years endedDecember31,
2016 `43,518,455` `$` `3,974,152` `3,339,764)` `(` `44,152,843` `$`	2017
	`54,058,280` `$` `3,339,764` `32,381,338)` `25,016,706` `$`

7. RELATED PARTY TRANSACTIONS

(1) 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

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(2) Significant related party transactions

A. Operating revenue

nificant related party transactions Operating revenue
Sales of goods: Others Associates	Years endedDecember31,
	2016 `16,537,094` `$` `113,916` `16,651,010` `$`	2017
		`48,858,191` `$` `37,115`
		`48,895,306` `$`

B. Purchases of goods

Purchases of goods
Purchases of goods: Others Associates	Years endedDecember31,
	2016 `8,825,302` `$` `1,383,704` `10,209,006` `$`	2017
		`12,518,080` `$` `1,341,203`
		`13,859,283` `$`

C. Receivables from related parties

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

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.

F-191

D. Payables to related parties

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

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:

perty transactions chase of property Acquisition of property, plant and equipment:
Others - Hon Hai Precision Industry Co., Ltd. - Others	Years endedDecember31,
	2016 `-` `$` `93,923` `93,923` `$`	2017
		`31,456,795` `$` `42,459`
		`31,499,254` `$`

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

Others - Hon Hai Precision Industry Co., Ltd. - Others	December31,2016 `-` `$` `27,031` `27,031` `$`	December31,2017
		`26,609,511` `$` `1,974`
		`26,611,485` `$`

Sale of property

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

balances arising from sale of property (shown as “Other receivables”): Disposalproceeds Gainondisposal Disposalproceeds Gainondisposal `1,365` `$` `940` `$` `716` `$` `34` `$` Year ended December31,2016 Year ended December31,2017 December31,2016 December31,2017 `1,570` `$` `-` `$`	Year ended December31,2017	Year ended December31,2017
balances arising from Disposalproceeds `1,365` `$`		Gainondisposal
		`34` `$`
	`-` `$`

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

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(3) Key management compensation

Key management compensation
Salaries and other short-term employee benefits Share-based payments Post-employment benefit	Years endedDecember31,
	2016 `138,669` `$` `665` `458` `139,792` `$`	2017
		`130,223` `$` `-` `432`
		`130,655` `$`

8. 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	December31,2017 Purpose `1,594` `$` Credit card guarantee `70,966,784` Long-term loans `7,446` Long-term loans `722` Guarantee for contract and performance bond `70,976,546` `$` value	Purpose
	December31,2016 `1,726` `$` `80,828,544` `15,551` `752` `80,846,573` `$`

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 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.

F-193

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 ‘provisionscurrent’ 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 is as follows:

Property, plant and equipment

December31,2016 `17,531,784` `$`	December31,2017
	`18,794,836` `$`

B. Operating lease commitments

Not later than one year Later than one year but not later than five years Later than five years	December31,2016 `547,803` `$` 1,962,352 888,807 `3,398,962` `$`	December31,2017
		`579,498` `$` 1,943,547 541,101
		`3,064,146` `$`

C. Outstanding letters of credit

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

Outstanding letters of redit	December31,2016 `245,565` `$`	December31,2017
		`45,687` `$`

10. 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.

11. SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

12. 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.

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

F-195

years ended December 31, 2016 and 2017, respectively. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

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

Note: Exchange rate represents the amount of NT dollars for which one foreign currency could be exchanged.
d) Total exchange gain (loss), including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Group for the years ended December 31, 2016 and 2017 amounted to $1,360,559 and ($2,134,155), respectively.
Price risk
a) The Group is exposed to equity securities price risk because of investments held by the Company that are classified as available-for-sale or at fair value through profit or loss in consolidated balance sheet. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio in accordance with the policy set by the Company.
b) The Group’s investments in equity securities comprise domestic listed and unlisted stocks. The prices of equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased/decreased by 20% with all other variables held constant, post-tax profit for the years ended December 31, 2016 and 2017 would have increased/decreased by $50,020 and $51,535, respectively, as a result of gains/losses on equity securities classified as at fair value through profit or loss; other components of equity would have increased/decreased by $1,168,186 and $1,311,038, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

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Interest rate risk

a) The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During the years ended December 31, 2016 and 2017, 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 $112,100 and $71,000 for the years ended December 31, 2016 and 2017, 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

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Company’s and its subsidiaries’ debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and external regulatory or legal requirements.

b) Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group’s treasury. Group treasury invests surplus cash in interest bearing savings accounts, time deposits, money market deposits and marketable securities. The Group chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts. These are expected to readily generate cash inflows for managing liquidity risk.
c) The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for nonderivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

Non-derivative financial liabilities

Non-derivative financial liabilities
Less than December31,2016 1year Short-term borrowings `11,583,750` `$` Accounts payable `56,995,540` Other payables `22,916,097` Long-term borrowings (including current portion) `16,440,000` Less than December31,2017 1year Accounts payable `53,441,510` `$` Other payables `58,897,804` Long-term borrowings (including current portion) `10,960,000` Derivative financial liabilities December31,2016	Between 1 Between 3 and3 years and5 years `-` `$` `-` `$` `-` `-` `-` `-` `27,550,000` `850,000` Between 1 Between 3 and3 years and5 years `-` `$` `-` `$` `-` `-` `16,890,000` `550,000` Less than 1year `1,190,148` `$` `$` Less than 1year `52,500` `$` `$`		Total
			`11,583,750` `$` `56,995,540` `22,916,097` `44,840,000` Total
			`53,441,510` `$` `58,897,804` `28,400,000` Total
Forward exchange contracts December31,2017 Forward exchange contracts			`1,190,148` Total `52,500`
		`$`

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.

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(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.
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, 2016 and 2017 is as follows:

2016 and 2017 is as follows:
December31,2016 Level 1 Assets Financial assets at fair value through profit or loss Equity securities `250,101` `$` Forward exchange contracts `-` Available-for-sale financial assets Equity securities `5,598,578` `5,848,679` `$` Liabilities Financial liabilities at fair value through profit or loss Forward exchange contracts `-` `$` Recurring fair value measurements Recurring fair value measurements	Level 2 `-` `$` `64,241` `-` `64,241` `$` `1,190,148` `$`	Level3 `-` `$` `-` `242,351` `242,351` `$` `-` `$`	Total
			`250,101` `$` `64,241` `5,840,929`
			`6,155,271` `$`
			`1,190,148` `$`
Financial liabilities at fair value through profit or loss Forward exchange contracts

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December31,2017 Level 1 Assets Financial assets at fair value through profit or loss Equity securities `257,676` `$` Forward exchange contracts `-` Forward exchange swap contract `-` Available-for-sale financial assets Equity securities `6,241,465` `6,499,141` `$` Liabilities Financial liabilities at fair value through profit or loss Forward exchange contracts `-` `$` `-` `$` Recurring fair value measurements Recurring fair value measurements	Level 2 `-` `$` `328,170` `76,890` `-` `405,060` `$` `52,500` `$` `52,500` `$`	Level3 `-` `$` `-` `-` `313,724` `313,724` `$` `-` `$` `-` `$`	Total
			`257,676` `$` `328,170` `76,890` `6,555,189`
			`7,217,925` `$`
			`52,500` `$`
Financial liabilities at fair value through profit or loss Forward exchange contracts
			`52,500` `$`

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

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

(b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
(c) When assessing non-standard and low-complexity financial instruments, for example, 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.
(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 forward exchange rate.
(e) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments.

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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.

(f) The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.
E. For the years ended December 31, 2016 and 2017, there was no transfer between Level 1 and Level 2.
F. The following table presents the changes in level 3 instruments as at December 31, 2016 and 2017:

2017:
		Equity securities
		2016		2017
At January 1	`$`	`719,585`	`$`	`242,351`
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		`31,501`		`585,094`
Acquired in the period		`-`		`122,755`
Proceeds from capital reduction	`(`	`159,335)`	`(`	`145,575)`
At December 31	`$`	`242,351`	`$`	`313,724`

G. The Group holds private equity shares issued by Fitipower Integrated Technology Inc. The required procedures for becoming publicly traded were completed and its shares started to be traded as emerging stock in the Taipei Exchange from October 2016. The Group has transferred the fair value from Level 3 into Level 1 at the end of month when the event occurred.
H. 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.

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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 31,2016	Valuation technique	Significant unobservable input	Range (weighted average)	Relationship of inputs to fair value
	`214,665` `$` `27,686` Fair value at December 31,2017	Market comparable companies Net asset value Valuation technique	Price to earnings ratio multiple, price to book ratio multiple, control premium Discount for lack of marketability Not applicable Significant unobservable input	`0.68~1.55` `(0.88)` `30%~70%` `(31%)` `308` `(308)` Range (weighted average)	The higher the multiple and control premium, the higher the fair value The higher the discount for lack of marketability, the lower the fair value Not applicable Relationship of inputs to fair value
	`286,940` `$` `26,784`	Market comparable companies Net asset value	Price to earnings ratio multiple, price to sales ratio multiple, price to book ratio Discount for lack of marketability Not applicable	`1.26~61.93` `(26.49)` `30%~70%` `(51%)` Not applicable	The higher the multiple, 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 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 `2,424` `( 2,424)` `$ 3,137` `($ 3,137)`	Unfavourable change
Equity instrument Equity instrument	`2016/12/31` `2017/12/31`	`242,351` `$ 313,724`

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13. SUPPLEMENTARY DISCLOSURES

(1) 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.
(2) Information on investees

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

(3) 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.

14. SEGMENT INFORMATION

(1) 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 smallmedium 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.

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(2) 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 endedDecember31,
	2016 TFT LCD `287,089,277` `$` `4,992,120` `$` `41,418,534` `$` `44,152,843` `$` `371,479,548` `$`	2017
		TFT LCD
		`329,174,401` `$`
		`48,941,189` `$`
		`33,564,048` `$`
		`25,016,706` `$`
		`414,858,758` `$`

(3) 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.

(4) Information on products

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

(5) Geographical information

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

Years ended December 31,

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

(6) Major customer information

The individual sales to the Group’s customers that exceed 10% of the sales in the statements of comprehensive income for the years ended December 31, 2016 and 2017 are set forth below:

Years ended December 31,

Company A	Sales amount Percentage ofsales `41,448,102` `$` `14%` 2016	2017	2017
	Sales amount `41,448,102` `$`	Sales amount `50,574,810` `$`	Percentage ofsales
			`15%`

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APPENDIX A — THE SECURITIES MARKET OF THE ROC

The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by us, the Initial Purchasers, or any of our or its affiliates or advisors in connection with the offering. References to the FSC in this section include both the ROC Securities and Futures Commission and the ROC Securities and Exchange Commission, the predecessors of the Securities and Futures Bureau of the FSC.

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

THE TWSE

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

The TWSE commenced operations in 1962. During the early 1980s, the FSC actively encouraged new listings on the TWSE and the number of listed companies has grown from 119 in 1983 to 907 as of December 31, 2017. As of September 30, 2018, 920 companies had listed equity securities on the TWSE and the market capitalization of those companies was approximately NT$33.1 trillion.

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

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

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

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

The following table sets forth, for the periods indicated, information relating to the TWSE:

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Period Ended December 31, 1997 .......................................... 1998 .......................................... 1999 .......................................... 2000 .......................................... 2001 .......................................... 2002 .......................................... 2003 .......................................... 2004 .......................................... 2005 .......................................... 2006 .......................................... 2007 .......................................... 2008 .......................................... 2009 .......................................... 2010 .......................................... 2011 .......................................... 2012 .......................................... 2013 .......................................... 2014 .......................................... 2015 .......................................... 2016 .......................................... 2017 .......................................... 2018 .......................................... 2019 ..........................................	Number of Listed Companies at the Period End 404 437 462 531 584 638 669 697 691 688 698 718 741 758 790 809 838 854 874 892 907 928 942	Stock Trading Values 37,241.15 29,618.97 29,291.53 30,526.57 18,354.94 21,873.95 20,333.24 23,875.37 18,818.90 23,900.36 33,043.85 26,115.41 29,680.47 28,218.68 26,197.41 20,238.17 18,940.93 21,898.54 20,191.49 16,771.14 23,972.24 29,608.87 26,464.63	Index High (NT$ in billion) 10,116.84 9,277.09 8,608.91 10,202.20 6,104.24 6,462.30 6,142.32 7,034.10 6,575.53 7,823.72 9,809.88 9,295.20 8,188.11 8,972.50 9,145.35 8,144.04 8,623.43 9,569.17 9,973.12 9,392.68 10,854.57 11,253.11 12,122.45	Index Low 6,820.35 6,251.38 5,474.79 4,614.63 3,446.26 3,850.04 4,139.50 5,316.87 5,632.97 6,257.80 7,344.56 4,089.93 4,242.61 7,071.67 6,633.33 6,894.66 7,616.64 8,264.48 7,410.34 7,664.01 9,272.88 9458.99 9,382.51	Index at Period End
					8,187.27 6,418.43 8,448.84 4,739.09 5,551.24 4,452.45 5,890.69 6,139.69 6,548.34 7,823.70 8,506.28 4,591.22 8,188.11 8,972.50 7,072.08 7,699.50 8,611.51 9,307.26 8,338.06 9,253.50 10,642.86 9727.41 11,997.14

Source: TWSE

The Taipei Exchange

To complement the TWSE, the Taipei Exchange (the “TPEx”, formerly known as GreTai Securities Market) was established in September 1982 on the initiative of the FSC to encourage the trading of securities of companies who do not qualify for listing on the TWSE, and later renamed as the TPEx. As of September 30, 2019, 936 companies had listed equity securities on the TPEx and the total market capitalization of those companies was approximately NT$37.8 trillion.

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

Price Limits, Commissions, Transaction Tax and Other Matters

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

A-2

to sell less than 1,000 shares of a listed company occasionally experience delays in effecting such sales. Starting from January 15, 2016, upon the occurrence of any matter which may have a material impact on the shareholders’ equity or the price of securities of a TWSE-listed company (e.g., merger), such company should apply to the TWSE, or the TWSE should request, for suspension of trading of its shares for one to three trading days (or a longer period if necessary).

Regulation and Supervision

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

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

directors, supervisors, managers, as well as the spouses, minor children and nominees of these parties, and shareholders (together with their spouses, minor children and nominees) who hold more than 10% of the issuing company’s shares and any individual designated by a governmental or corporate director or supervisor to act on its behalf;
any person who has learned material nonpublic information due to an occupational or controlling relationship with the issuing company;
any person who has discharged from the status or position in the first and second bullet points for not more than six months; and
any person who has learned material non-public information from any of the above.
Sanctions include imprisonment. In addition, damages may be awarded to persons injured by the transaction. ROC Securities and Exchange Act also imposes criminal liability on certified public accountants and lawyers who make false certifications in their examination and audit of an issuer’s contracts, reports and other documents related to securities transactions. The FSC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

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

issuance of warnings;

A-3

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

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

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APPENDIX B — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

Foreign Investment

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

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

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

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

Depositary Receipts

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

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

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

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

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

Other Foreign Investment

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

Under current law, any non-ROC person possessing an Investment Approval may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends

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attributable to such investment. Dividends attributable to such investment may be repatriated upon submitting certain required documents to the remitting bank, and investment capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other authorities have been obtained.

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

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

Exchange Controls

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

Aside from trade-related foreign exchange transactions, ROC companies and individual residents of the ROC may, without foreign exchange approval, remit to and from the ROC foreign currencies of up to US$50 million, or its equivalent, and US$5 million, or its equivalent, respectively, in each calendar year. These limits apply to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies. In addition, all private enterprises are required to register all medium- and long-term foreign debt with the CBC.

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

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REGISTERED OFFICE OF THE ISSUER

Innolux Corporation

No. 160 Kesyue Road Jhunan Science Park Miaoli County, Taiwan Republic of China

TRUSTEE, PAYING AGENT AND CONVERSION AGENT

TRANSFER AGENT AND REGISTRAR

The Bank of New York Mellon, London Branch One Canada Square London E14 5AL United Kingdom

The Bank of New York Mellon SA/NV, Luxembourg Branch Vertigo Building, Polaris 2-4 rue Eugène Ruppert L-2453 Luxembourg

ROC Legal Counsel to the Company

PRC Legal Counsel to the Company

Baker & McKenzie 15th Floor 168 Tun Hwa North Road Taipei, Taiwan Republic of China

JunHe LLP

26/F HKRI Centre One HKRI Taikoo Hui 288 Shimen Road (No.1) Shanghai 200041, PRC

Counsel to the Trustee

U.S. Federal and New York Singapore Legal Counsel to Legal Counsel to the the Company and Singapore Initial Purchasers Listing Agent Sullivan & Cromwell WongPartnership LLP Clifford Chance (Hong Kong) LLP 12 Marina Boulevard Level 28 27[th] Floor Jardine House 28[th] Floor Marina Bay Financial Centre One Connaught Place Nine Queen’s Road Central Tower 3 Hong Kong Hong Kong Singapore 018982

INDEPENDENT ACCOUNTANTS OF THE ISSUER

PricewaterhouseCoopers, Taiwan

27th Floor, No. 333, Sec.1 Keelung Road, Xinyi District Taipei 11012 the ROC

AI assistant

INX — Capital/Financing Update 2013

52330_rns_2013-01-28_17654bd0-4206-4c2c-9cb0-e371f64dec98.pdf

Innolux Corporation

US$300,000,000 Zero Coupon Convertible Bonds due 2025

Bonds Issue Price: 100%

Joint Bookrunners

UBS Credit Suisse

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC AND THE PRC

CERTAIN CONVENTIONS AND OTHER DATA

NON-GAAP FINANCIAL MEASURES

TABLE OF CONTENTS

SUMMARY

Overview

Competitive Strengths

Leading market position in the display industry supported by a comprehensive fab profile and forwardbackward integration manufacturing capabilities

Comprehensive product offerings for a diverse customer base

Track record of optimizing product size mix through industry cycles.

Efficient and cost-competitive operations supported by automation and a real-time proprietary system

Advanced research and development platform developing innovative products and technologies

Ability to leverage our relationship with the Hon Hai Group

Strategies

Further penetrate strategic high-growth sectors

Continue to optimize our cost structure and efficiency through upgrading our fabs

Maintain our market leading position in the display industry by developing and applying advanced technologies to our specialty products

Provide high quality customer services and maintain close customer relationships

Maintain a diversified product portfolio and optimize product allocation across our fabs to best serve our customers

Recent Developments

THE OFFERING

SUMMARY FINANCIAL DATA

Consolidated Statements of Comprehensive Income Data

Selected Consolidated Balance Sheet Data

Consolidated Statements of Cash Flow Data

Other Selected Financial Data

RISK FACTORS

Risks Relating to Our Business and Industry

Declining market prices as a result of cyclical market conditions, excess capacity in the TFT-LCD panel industry or other factors may continue to adversely affect our business, financial condition and results of operations.

We operate in a highly competitive environment, and we may not be able to sustain our current market position.

Competing or alternative display technologies could render our products uncompetitive.

Tariffs or other restrictions placed on the Company’s products imported into the United States from the PRC, or any related counter-measures taken by the PRC, could have a material adverse effect on the Company’s business, profitability and results of operations.

Disruptions in the international trading environment and changing international trade regulation may seriously decrease our international sales.

The slowdown in the global economy has put downward pressure on prices and demand for our products.

If we are unable to obtain adequate supplies of key raw materials and components at acceptable prices, our production schedules may be delayed and there may be a material adverse effect on our results of operations.

We have in the past experienced losses and cannot assure you that we will remain profitable.

We have significant indebtedness and we rely on our ability to access capital in the future.

We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which would put us in default under such debt obligations.

We require a significant amount of capital to fund necessary upgrade and expansion of our fabs.

Our results of operations fluctuate from quarter to quarter, which makes it difficult to evaluate our business and to predict our future performance.

Our future competitiveness and growth prospects could be affected adversely if we are unable to successfully expand or upgrade our fabs as planned.

Our results of operations may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer needs on a timely basis.

Our results of operations may be adversely affected if we cannot predict the pricing trend of panels of different sizes.

We depend on a small number of customers for a substantial portion of our net sales, and a loss of any one of these customers, or a significant decrease in orders from any of these customers, would adversely affect our net sales.

If brand companies do not continue to outsource the manufacturing of their products to OEM service providers with manufacturing operations in the ROC or the PRC, our sales and results of operations could be adversely affected.

Our customers generally do not place long-term orders or volume purchase in advance, which makes it difficult for us to predict our future revenues and allocate capacity efficiently and in a timely manner.

If we are not able to attract and retain key management personnel or skilled technical personnel, our operations and expansion plans would be adversely affected.

We may experience losses on inventories.

We may encounter difficulties in achieving expected strategic objectives and other benefits of any acquisitions or investments within the anticipated time frames.

The interests of our major shareholders may be different from those of our other shareholders and our relationships with them expose us to certain risks.

We may not be able to obtain or renew all licenses, approvals or permits necessary for our current and future operations.

We and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.

We face risks related to health epidemics and other outbreaks of contagious diseases, including avian flu, SARS, and swine flu.

If we are unable to maintain high capacity utilization rates and production yields, our profitability will be adversely affected.

Our manufacturing processes are highly complex, costly and potentially vulnerable to disruptions, which can significantly increase our production costs and delay product shipments to our customers.

Our operations can expose us to the risk of environmental claims which could result in damages awarded or fines imposed against us.

Disputes over intellectual property rights are costly and could deprive us of the technologies we need to stay competitive.

We rely on certain technologies licensed by third parties.

Our ability to compete will be harmed if we are unable to adequately protect our intellectual property.

We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive in the display panel industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented know-how could negatively affect our business.

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

Exchange rate fluctuations could negatively affect our results of operations.

Risks relating to the ROC

We are subject to risks associated with the political status and international relations of the ROC.

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

You may not be able to enforce a judgment of a foreign court in the ROC.

Risks Relating to the PRC

We are subject to the political and economic environments in the PRC.

Uncertainties in the PRC legal system could adversely affect our business and operating results.

Our PRC operations may be constrained by increasing challenges in recruiting and retaining employees at reasonable cost.

Labor laws in the PRC may adversely affect our results of operations.

INX Capital/Financing Update 2013