inside cover - vis · growth in the us, and the eurozone also enjoyed widespread gains across...

Inside Cover: Spokesman

D. L. Tseng

Vice President, Finance

Tel: 886-3-5770355

E-mail: [email protected]

Acting Spokesperson

K. S. Chiang

Director, Finance Division

Tel: 886-3-5770355

E-mail: [email protected]

Vanguard International Semiconductor Corporation

123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Website: http: //www.vis.com.tw

Tel: 886-3-5770355

Fax: 886-3-5788572

Fab1

123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Tel: 886-3-5770355

Fab2

9, Li-Shin Rd., Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C.

Tel: 886-3-5632111

Fab3

168, Chang-Rong RD.,14 Neighborhood, ChangXing Vil., Luzhu Dist.,Taoyuan City,

Taiwan ,R.O.C..

Tel: 886-3-3116111

Common Stock Transfer Agent

China Trust Commercial Bank

Transfer Agency Department

Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei, Taiwan 100, R.O.C.

Website: http://www.ctbcbank.com

Tel: 886-2-6636-5566

Auditors

Yu-Feng Huang / Cheng-Chih Lin

Deloitte & Touche

12th Floor, 156 Min Sheng E. Road, Sec. 3, Taipei 105, Taiwan R.O.C.

Website: http: //www.deloitte.com.tw

Tel: 886-2-2545-9988

Name of any exchanges where the company's securities are traded offshore, and

method by which to access information on said offshore securities: Not

applicable

Contents

I. A Letter to Shareholders ···················································································· 1

II. A Brief Introduction of VIS ··············································································· 6Company Profile ··············································································································································· 6

III. Corporate Governance Report ········································································· 8A. Company Organization ································································································································· 8

B. Information on the company’s directors, supervisors, general manager, assistant general managers,deputy assistant general managers, and the chiefs of all the company’s divisions and branches ·················· 10

C. Remuneration to Directors, Supervisors & Managers ················································································· 16

D. Implementation of Corporate Governance ·································································································· 21

E. Information Regarding VIS’s Independent Auditors ··················································································· 56

F. Information on Replacement of Certified Public Accountant ······································································ 57

G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying Accounting Firm or Its Affiliate Business in the Past Year ···························································································· 57

H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More ·············································· 58

I. Top 10 shareholders relation ······················································································································· 59

J. VIS Long-Term Investment Ownership ······································································································ 60

IV. Information On Implementation Of The Company Funds UtilizationPlans ···················································································································· 61 A. Capital and shares ······································································································································· 61

B. Issuance of Corporate Bond ························································································································ 65

C. Issuance of Preferred Stock ························································································································ 65

D. Issuance of Depositary Shares ···················································································································· 65

E. Issuance of Employee Stock Option ··········································································································· 65

F. Status of Mergers and Acquisitions ············································································································ 65

G. Fund Plan Implementation ·························································································································· 65

V. Operational Highlights ····················································································· 66 A. A description of the business ······················································································································ 66

B. Industry survey and market analysis ··········································································································· 79

C. Personnel Structure ····································································································································· 84

D. Environmental Protection Measure ············································································································· 84

E Employee / employer relations ··················································································································· 88

F. Major Contracts ·········································································································································· 97

VI. Financial Statements ························································································ 98A. Brief Balance Sheets and Brief Statements of Income ················································································ 98

B. Financial Analysis ···································································································································· 100

C. Audit Committee’s Review Report ··········································································································· 102

D. Financial Statements and Independent Auditors’ Report ··········································································· 103

E. Consolidated Financial Statements and Independent Auditors’ Report ····················································· 103

F. The financial impact to the Company due to company or affiliate companies financial difficulties ··········· 103

VII. Financial Position, Operating Results And Risk Management ················ 104A. Analysis of Consolidated Financial Position ····························································································· 104

B. Analysis of Consolidated Financial Performance ······················································································ 104

C. Analysis of Consolidated Cash Flow ········································································································ 105

D. Major Capital Expenditure ························································································································ 105

E. Long Term Investment ····························································································································· 106

F. Risk Management ····································································································································· 106

G. Other important matters ···························································································································· 111

VIII. Special Notes ···································································································· 112A. Affiliated Information ······························································································································· 112

B. Private placements Securities ··················································································································· 114

C. VIS Common Shares acquired, disposed of and held by subsidiaries ························································ 114

D. Other Necessary Supplement ···················································································································· 114

E. Any Events in Y2017 that had Significant Impacts on Shareholders’ Right or Security Prices asstarted in Item 3 paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan ···························· 114

IX. Financial Statements, Consolidated Financial Statements andIndependent Auditors’ Report ······································································ 115Consolidated Financial Statements and Independent Auditors' Report ··························································· 116

Financial Statements and Independent Auditors' Report ················································································ 185

I. A Letter to Shareholders

Dear Shareholders,

In 2017, global GDP growth was approximately 3.6%, up from 3.2% in 2016,

revealing a steadily growing global economy which is driving stable growth in the

semiconductor industry. In particular, the output value of the foundry industry grew

by 7%, and the 8-inch wafer fabrication market, which comprises an important sector

for VIS, also recorded slight growth of approximately 1%. In terms of the Company's

overall operating performance in 2017, due to the unfavorable foreign exchange, VIS

posted consolidated revenue of NT$24.91 billion in Y2017, a decrease of 3.6% over

Y2016’s consolidated revenue of NT$25.83 billion. And gross profit margin of about

32%, after-tax net income of approximately NT$4.5 billion, the earning per share of

NT$2.73, and return on equity about 15.9% in Y2017. In the future, we will keep the

invest in research and development to advance our process technologies and establish

new customer bases, so as to deliver better performances in times of economic

recovery.

Capacity and Business

VIS’ capital expenditure amounted to approximately NT$ 1.8 billion with yearly

capacity around 2.34 million wafers and capacity utilization was around 89% in

Y2017. Annual wafer shipments reached 2.09 million units. In order to continually

upgrade process technologies and expand production capacity, we estimate capital

expenditure will be around NT$2.1 billion in Y2018. Furthermore, VIS plans to

pursue a more diverse and profitable product portfolio with an aim to steadily increase

the Company's shareholder equity.

Technology Development

In order to provide customers with more competitive technologies and services, the

company has continued to develop more specialized applications from core

technologies and enhance the value of services we provide. In the field of display

driver IC technology development, our 0.2um, 0.18um, 0.15um, and 0.11um high-

voltage processes, and 0.16um, 0.11um high-voltage process with embedded non-

volatile memory exclusively designed for touch panels, have entered into mass

production.

1

In addition, VIS has acquired relevant automotive electronic certifications for the

0.5/0.4 μm SOI manufacturing process as well as accumulated a certain level of

inventory on hand, and the reliability of this manufacturing process conforms to

global automotive specifications, representing a new milestone in the Company's goal

of expanding into the automotive electronics market.

In BCD (Bipolar-CMOS-DMOS) processes for power management ICs, apart from

the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um and 0.11um processes that have

already put into mass production. Furthermore, we have completed development of

second-generation 0.5um ultra low Rdson, simplified ultra-high-voltage and 0.25um

SOI processes, and ready to be used for customers’ product design and entered into

mass production. In addition, the Company has acquired relevant automotive

electronic certifications for the 0.5/0.4 μm SOI manufacturing process as well as

accumulated a certain level of inventory on hand, and the reliability of this

manufacturing process conforms to global automotive specifications, representing a

new milestone in the Company's goal of expanding into the automotive electronics

market.

Particularly, we have started mass production with unique Magnetic Sensor process

technology which is mainly applied in mobile and automotive systems. In addition,

with the prevalence of fingerprint identification becoming a standard design feature in

many mobile devices, VIS's prescient commitment over the years to developing ICs

for fingerprint sensors is now resulting in noticeable gains, and it is anticipated that

this burgeoning technology will help contribute to further revenue growth in future.

Meanwhile, client development has been completed for the 0.18μm IC manufacturing

process, which is used for optical fingerprint recognition applications and has also

been smoothly integrated into smartphones, thus successfully demonstrating the latest

functionality of optical fingerprint recognition. Meanwhile, VIS is keenly aware of the

increasingly important role that internet of things (IoT) plays in the semiconductor

industry. Hence, the Company is continuing to invest substantial resources in the

development of embedded flash and anticipates moving the 0.18/0.11μm production

process to mass production this year, which will allow us to provide customers with

an even wider array of options. In addition, with respect to wide bandgap

semiconductors, the Company has made preliminary progress in the application of

gallium nitride (GaN) including for providing special base materials and also by

completing development on the production of epitaxial wafers (epiwafers). Moreover,

the Company is continuing to develop additional application components, and we

2

anticipate being able to provide customers with better alternatives to conventional

silicon-based materials in upcoming next-generation power control and high-

frequency components.

The Company is steadfastly committed to actively continuing to develop next-

generation technology platforms, strengthening business relationships with customers,

and incorporating advanced manufacturing processes to satisfy the needs of our

customers.

Visions and Outlook

In 2017, the global economy continued to improve in tandem with stable economic

growth in the US, and the eurozone also enjoyed widespread gains across leading

indicators, portending a stronger overall economic outlook. Closely connected to GDP

growth, the semiconductor industry registered a 20% increase in overall output value

at approximately US$411 billion with the most significant growth from memory. Due

to there is certain level of market demand for advanced process technologies, foundry

industry grew by approximately 7%, achieving an output of US$57 billion, of which

roughly US$16 billion was contributed by 8" foundry.

Integral parts of the Company's end products business, including displays, tablets, and

LCD TVs have currently reached a point of market saturation. However, other

applications which generally maintain a certain level of demand, such as smartphones

and laptop computers, still hold the potential for multi-percentage point growth. VIS

has also greatly benefited from the prevailing demand for panels used in large-format

TV displays (especially point-to-point (P2P) interfaces), and in 2017 the Company's

performance in the P2P market for driver ICs used in TV panels exceeded the industry

average. Furthermore, with the sustained demand for UHD 4K panels fueling further

growth, the driver IC market continued to yield a substantial contribution to VIS's

overall business performance in 2017. Moreover, VIS's commitment to expanding

into the automobile electronics sector is now steadily yielding tangible results. In

addition to incorporating numerous production process technologies, we are also

making the transition to mass production in due course. Consequently, many leading

global customers continue to express keen interest in VIS's production of display

driver ICs, power management ICs, and discrete components for use in automotive

applications.

3

In terms of general macroeconomic trends which lie ahead in 2018, based on the

economic indicator of global GDP and current projections from the IMF, the fog of

economic uncertainty over the economies of China and the European Union has

finally lifted, the job market in the United States has continued to improve, and the

unemployment rate has remained steady at around 4%. Together, these factors bode

well for sustaining worldwide economic growth in the coming year ahead. At present,

global GDP growth for 2018 is projected to reach 3.7%, surpassing that of 2017.The

global semiconductor market is expected to reach US$427 billion, representing a

growth of 4%. Driven by the demand of advanced technology process, the foundry

industry is also expected to grow at an annual rate of roughly 3% to US$59 billion, of

which roughly US$16.2 billion was contributed by 8" foundry to reach 2% growth

YoY.

With our display driver IC, power management and discrete power devices all

exhibiting distinctive operational performances, and in order to diversify product and

market centralization, reduce operating risks and extend its reaches in the high-margin

market. In addition to our existing high-voltage analog, BCD, and ultra-high-voltage

processes, the company will continue to accelerate the development projects relating

to sensing devices, fingerprint sensor ICs, high current power management ICs, and

embedded flash, to adapt to the energy saving and carbon reduction era and to satisfy

market demand for automobile electronics and Internet of Things applications. We

believe those efforts will be beneficial toward enhancing our business operations.

Furthermore, the company will continue to engage more IDM companies and oversea

customers to expand customer base and will strengthen ties and forge long-lasting

partnerships with customers to secure our leading position among specialty IC

foundry industries, and ultimately to become one of the world’s leading companies in

HV, PMIC and discrete power in foundry industry.

4

Finally, we would like to express our thankfulness to all shareholders, customers and

employees for your continuing support and contributions to VIS. We wish you all the

best of health and prosperity in the year ahead.

*Y2018 sales forecast: 2,392 thousands wafers

Chairman & President Leuh Fang

0 1000 2000

2018

2017

2016

Wafer shipments Unit: thousands of 8" wafers

*

5

josh

經理人簽(en)

II. A Brief Introduction of VIS

Company Profile

Vanguard International Semiconductor Corporation (VIS) is a leading specialty IC

foundry service provider. Since its founding in December 5th, 1994 in Hsinchu

Science Park, Taiwan, VIS has been achieving continuous success in its technology

development and production efficiency improvement. VIS has also been consistently

offering its customers cost-effective solutions and high value-added services. VIS has

three 8-inch fabs with a monthly capacity of approximately 195,000 wafers in Y2017.

VIS is a spin-off of the Sub-Micron Project, sponsored by the Industrial Technology

Research Institute (ITRI). Original investors include Taiwan Semiconductor

Manufacturing Corporation (TSMC) and 13 other institutional investors. VIS was

founded with the primary focuses on the production and development of DRAM and

other memory IC. In March 1998, VIS became a listed company on the Taiwan Over-

The-Counter Stock Exchange (OTC). Its main shareholders include Taiwan

Semiconductor Manufacturing Corporation (TSMC), National Development Fund and

other institutional investors.

In 1999, VIS started to work as a subcontractor for TSMC for the manufacturing of

logic and mixed signal products. In Y2000, VIS officially announced its plan to

transform from a DRAM manufacturer into a foundry service provider. After that,

VIS offers a various foundry process technologies, including High Voltage, and

0.18um flash and entered into mass production. In July 2004, VIS completely

terminated its DRAM production and became a pure-play foundry company. In

Y2007, VIS announced the procurement of 8” fabs from Winbond. With this

acquisition, VIS unleashed the growth momentum, accommodated customers’

demands in capacity and technology, and provided a more comprehensive solution

portfolio for our customers. In 2014, VIS acquired Nanya Technology's 8-inch fab

located in Taoyuan County and machineries and equipment from Sumpro Electronic.

This transaction not only granted VIS the opportunity to expand its production

capacity, but also enabled VIS to grow continually and earn profits steadily.

VIS has continued its investment in the product development and process technology

for the market needs. VIS offers a wide range of process technologies, including High

Voltage, Ultra High Voltage, Bipolar CMOS DMOS (BCD), Silicon on Insulator

(SOI), Discrete, Logic, Mixed-Signal, Analog, High Precision Analog, Magnetic

Sensor, and Embedded Memory to further help increase its foundry customers’ global

competitiveness.

6

In order to enhance its IP service capability, VIS has continued its IP development by

strengthening strategic relationship with its IP provision partners. Currently available

IPs are standard cell library, SRAM, one-time programmable, multiple-time

programmable, electrical fuse, power phantom cell, etc…Furthermore, we’re

accelerating the set-up of non-volatile flash IP. With the help from strategic IP

partners, VIS can also provide IPs that are required by specialty ICs.

VIS has about 5,200 employees. We are committed to adhere to our customer-

oriented business philosophy to provide our customers with continuously improved

and enhanced specialty IC foundry services. To better serve its worldwide customers,

VIS has established sales offices in Taiwan and sales representatives in worldwide

main IC clusters.

With our display driver IC, power management and discrete power devices all

exhibiting distinctive operational performances, and in order to diversify product and

market centralization, reduce operating risks and extend its reaches in the high-margin

market. In addition to our existing high-voltage analog, BCD, and ultra-high-voltage

processes, the company will continue to accelerate the development projects relating

to sensing devices, fingerprint sensor ICs, high current power management ICs, and

embedded flash, to adapt to the energy saving and carbon reduction era and to satisfy

market demand for automobile electronics and Internet of Things applications. We

believe those efforts will be beneficial toward enhancing our business operations.

Furthermore, the company will continue to engage more IDM companies and oversea

customers to expand customer base and will strengthen ties and forge long-lasting

partnerships with customers to secure our leading position among specialty IC

foundry industries, and ultimately to become one of the world’s leading companies in

HV, PMIC and discrete power in foundry industry.

7

III. CORPORATE GOVERNANCE REPORTA. Company Organization

1. Company's structure:

Organization Chart of Corporate Governance:

For the purpose of implementing corporate governance and reinforcing the

management capabilities of the Board of Directors, the Company established the

Audit Committee and Compensation Committee under the Board of Directors. In

addition, the Corporate Social Responsibility Committee (CSR Committee) was

established to handle the following roles and responsibilities: responsible for

proposing and executing specific implementation plans concerning CSR policies,

systems, or relevant management strategies. The Corporate Social Responsibility

Committee (CSR Committee) convenes a meeting once quarterly and presents a report

once every six months to the Board of Directors on the state of implementation of

various tasks including corporate governance, charitable causes, employee rights and

interests, environmental sustainability, and supply chain management so as to

continuously review implementation outcomes and make improvements which ensure

that the Company's CSR policies are effectively implemented.

Audir Committee Internal AuditCompensation Committee

Finance/ Accounting Public & Investor Relations Material Management Human ResourcesQuality/ Reliability Customer Service Legal Sales & MarketingOperation Risk & Env. Safety Mgt.

CSR Committee

Board of DirectorShareholder Meeting

8

Company Organization:

2. Tasks of its principal divisions:President Management of company-wide operations. Establish VIS business strategy and target.

VP of Finance Corporate Accounting Div., Finance Div., PR & IR dept. and Corporate Planning Div. Responsible for the company finance, accounting operation as well as BOD related, establishing the company's external communication channel, and maintaining the company's corporate image, investor relationship, long-term investment planning, and planning & improving the efficiency of the company.

VP of Worldwide Sales and Planning

Customer Engineering Div., Corporate Sales Div., Sales Planning dept., Field Technology Support Div., Business Development Div., and Backend Operation Div.. Planning of company products, including sales and marketing for these products. Responsible for product service, market analysis and development, and establishing and execution of sales plan.

VP of Research & Development

Lead specialty technology and IP development, as well as providing services for device engineering, IP resources, ESD, LAD, PDK, SPICE, layout, photomask solution, and CAD tool management. Incl.: Technology Development Div., Device Engineering Div., Design Service Engineering Div., Design System Technology Div., and Project Management Dept.

VP of Operation & Environment Safety

VP of Operation & Environment Safety Corporate Wafer Production, Risk & Env. Safety Management Dept., Computer Int. Mfg. Div., Product Engineering Div., Module Development Program and Special Project Dept.. Improve operation efficiency, and ensure timely delivery of high quality products to customers.

VP of Administration Corporate Human Resources Div., Material Management Div., and IT & E-commerce Div. Responsible for the company material management, as well as IT support, recruiting the most qualified and suitable talents, providing employee training & development programs to meet company's growth, and establishing an effective & innovative personnel management system and work environment in order to maintain good labor relations.

General Counsel of Legal

Corporate legal affairs, Intellectual property protection and Legal compliances.

Quality Reliability Assurance Div.

Corporate Quality Assurance Dept., Reliability Assurance Dept., Quality System Management Dept., and in charge of product inspection, quality control, and promoting quality policy and strategy in VIS.

Internal Auditing Evaluate the design and operating effectiveness of internal control systems, and provide suggestions to achieve the objectives of internal control systems.

9

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ives

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uh F

ang

M

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.C.

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.O.C

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M

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SA

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ter o

f Bus

ines

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dmin

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ng H

sing

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ium

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ank

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pace

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.O.C

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Way

M

2015

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, D

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tte T

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N

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nalit

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ame

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Dat

e El

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ear)

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t El

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to

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ncia

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ITA

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aim

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lect

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orp.

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or

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.C.

Chi

ntay

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h M

2015

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20

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00

00

0 0

0 0

Cha

irman

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titut

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r In

form

atio

n In

dust

ry

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iden

t, In

dust

rial

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nolo

gy R

esea

rch

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itute

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n, C

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hnol

ogy

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agem

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iona

l Tsi

ng

Hua

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vers

ity

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Eng

inee

ring,

Pr

ince

ton

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vers

ity, U

SA

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esso

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nal T

sing

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U

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rsity

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depe

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alTe

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com

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ua

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pend

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.O.C

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enso

n W

.C. L

iu

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2012

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12

00

00

0 0

0 0

Cha

irman

& C

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risto

l-M

yers

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ibb

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wan

) Ltd

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bal

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chip

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p.

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pend

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irect

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dvan

tech

C

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, May

wuf

a C

ompa

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pend

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.O.C

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enne

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in

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12

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or V

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vers

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omic

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l Tsi

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ua

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ity

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pend

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ory

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nolo

gy In

c.

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pend

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e Te

chno

logi

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c.

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pend

ent D

irect

or, G

loba

l U

nich

ip C

orp.

D

irect

or, M

edia

Tek

Inc.

Non

e N

one

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e

11

Maj

or S

har

ehol

der

s of

th

e In

stit

uti

onal

Sh

areh

old

ers

As

of 7

/2/2

017

Inst

itu

tion

al S

har

ehol

der

s S

har

ehol

der

s O

wn

ersh

ip (

%)

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wan

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icon

duct

or

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ufac

turi

ng C

o., L

td.

AD

R-T

aiw

an S

emic

ondu

ctor

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ufac

turi

ng C

ompa

ny, L

td.

20.6

0%

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iona

l Dev

elop

men

t Fun

d, E

xecu

tive

Yua

n R

epre

sent

ativ

e: M

ei-l

ing

Che

n 6.

38%

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ernm

ent o

f S

inga

pore

2.

52%

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gan

Cha

se B

ank

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. Tai

pei B

ranc

h in

Cus

tody

for

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oPac

ific

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wth

Fun

d 1.

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orge

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ank

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%

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n C

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k N

.A. T

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i Bra

nch

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arke

ts F

unds

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gan

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se B

ank

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pei B

ranc

h in

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tody

for

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guar

d To

tal I

nter

natio

nal S

tock

Ind

ex F

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a s

erie

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ard

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ds

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%

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n C

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k N

.A. T

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nch

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dy f

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audi

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bian

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etar

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genc

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97%

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angu

ard

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ng M

arke

ts S

tock

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ex F

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erie

s of

Van

guar

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atio

nal E

quity

Ind

ex F

unds

0.

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ew P

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ectiv

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und

0.85

%

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itu

tion

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har

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Rep

rese

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ajor

Sh

areh

old

ers

of t

he

Inst

itu

tion

al S

har

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der

s As

of 7

/2/2

017

Inst

itutio

nal S

hare

hold

ers

Maj

or S

hare

hold

ers

of th

e In

stitu

tiona

l Sha

reho

lder

s

Non

e, a

ll ar

e no

n--c

ompa

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rgan

izat

ion

12

Independence Analysis of Board Members under Taiwan SFC Criteria: February 28, 2018

Name Over 5 years of working experience Criteria（Note） Number of other public

companies that concurrently serve as an independent

director

College Instructor or higher level in Business, Legal, Finance, Accounting or company business related area

Court Judge, Prosecutor, Lawyer, Accountant, or other Certified Professional expert related to company business

Business, Legal, Finance, Accounting or company business required working experience

1 2 3 4 5 6 7 8 9 10

Leuh Fang 0 F.C. Tseng 1

Benson W.C. Liu 2 Kenneth Kin 3 Chintay Shih 2 Lai Shou Su 0

Edward Y. Way 4

Note :

1. Not an employee of affiliated companies of the company and company.

2. Not a director, supervisor of affiliated companies of the company.

3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company

outstanding shares, nor one of the Company top 10 natural person shareholders.

4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.

5. Not a director, supervisor or employee of a shareholder of juridical person of the Company

directly or indirectly owning more than 5% of the Company's outstanding shares, nor one of the

Company's top five share-holders of juridical person.

6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares

of certain companies or institutions that have financial or business relationship with the Company.

7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company

or institution and his/her spouse, or the specialist and his/her spouse, that provides finance,

commerce, legal consultation and services to the Company or affiliated companies within one

year.

8. Not a spouse or first-or-second-degree relative to any other director.

9. Not a juridical person or its representative as defined in Article 30 of Company Law.


Diversity of directors: Vanguard International Semiconductor Corporation Corporate Governance Practice Principles: The composition of the board of directors should be diversified, such as different professional backgrounds, fields of work or gender, and possesses the necessary knowledge, skills and literacy to perform his duties. To achieve the ideal corporate governance, the board of directors shall possess the following abilities: 1. Ability to make operational judgments.2. Ability to perform accounting and financial analysis.3. Ability to conduct management administration.4. Ability to conduct crisis management.5. Knowledge of the industry.

13

6. An international market perspective.7. Ability to lead.8. Ability to make policy decisions.

Item

Name

Operational judgments /

Management administration

Accounting and Financial

Knowledge of the industry

Crisis management

International market

perspective

Lead and make policy

decisions

Leuh Fang V V V V V

F.C. Tseng V V V V V

Benson W.C. Liu V V V V V

Kenneth Kin V V V V V

Chintay Shih V V V V V

Lai Shou Su V V V V V

Edward Y. Way V V V V V

14

2.M

anag

ers:

Febr

uary

28,

201

8

Title

Nam

eSe

xD

ate

Elec

ted

Cur

rent

Sha

reho

ldin

gSp

ouse

& M

inor

Sh

areh

oldi

ng

Shar

ehol

ding

by

Nom

inee

A

rran

gem

ent

Educ

atio

n &

Sele

cted

Pas

t Pos

ition

s Se

lect

ed C

urre

nt P

ositi

ons

Man

ager

s Are

Spo

use

or

With

in S

econ

d-de

gree

R

elat

ive

of

Con

sang

uini

ty to

Eac

h O

ther

Sh

ares

%

Sh

ares

%

Sh

ares

%

Title

N

ame

Rel

atio

n

Pres

iden

t Le

uh F

ang

M20

09.2

.20

3,22

3,34

2 0.

20%

0 0

0 0

MS,

Mat

eria

ls S

cien

ce a

nd E

ngin

eerin

g,

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vers

ity o

f Was

hing

ton

Fab

Dire

ctor

, Tai

wan

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icon

duct

or

Man

ufac

turin

g C

ompa

ny, L

td.

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e Pr

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ent,

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ctor

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nt, V

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s Inc

. D

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dent

, VIS

Inve

stm

ent H

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ng,

Inc.

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irect

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IS M

icro

, Inc

. D

irect

or, J

-MEX

Inc

.

Non

e N

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Non

e

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e Pr

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nce

D. L

. Tse

ng

M20

11.5

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54,9

27

0.00

%30

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7 0.

02%

0 0

Bac

helo

r, N

atio

nal C

heng

chi U

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Man

ager

, Phi

lips E

lect

roni

cs

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ctor

and

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e Pr

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Ass

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nc.

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ctor

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, VIS

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stm

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ng, I

nc.

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and

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, VIS

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ro In

c.

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ctor

, V

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hang

hai C

ompa

ny L

imite

d

Non

e N

one

Non

e

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e Pr

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ent

Wor

ldw

ide

Sale

s and

Pl

anni

ng

Thom

as C

hang

M20

03.8

.22

202,

086

0.01

%0

0 0

0

MS,

Ele

ctric

al E

ngin

eerin

g, U

nive

rsity

of

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cinn

ati

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e Pr

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ent,

Mos

el V

itelic

Inc.

Dire

ctor

and

Pre

side

nt, V

IS M

icro

Inc.

N

one

Non

e N

one

Vic

e Pr

esid

ent

Adm

inis

tratio

n To

mm

y Li

u M

2017

.11.

2360

,569

0.

00%

0 0

0 0

MS.

, Bus

ines

s Adm

inis

tratio

n, U

nive

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of

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este

r Pr

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ent o

f Hon

ghw

a In

c.

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Du

M20

18.1

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0 0.

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0 0

0 0

Ph.

D. i

n So

lid S

tate

Eng

inee

ring,

Col

umbi

a U

nive

rsity

, USA

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nior

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of R

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and

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ngin

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g, N

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nal T

sing

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ua U

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e

Ass

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te V

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Pres

iden

t R

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&

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Chr

ong-

Jung

Li

n M

2015

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01

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0.00

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0

Ph. D

, Ele

ctric

al E

ngin

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g, N

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nal T

sing

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ua U

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iona

l Ts

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roje

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15

C.

Rem

uner

atio

n to

Dir

ecto

rs, S

uper

viso

rs &

Man

ager

s 1.

Rem

uner

atio

n to

Dir

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rs:

Uni

t: N

T$, i

n th

ousa

nds

Title

Nam

e

Rem

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A+B

+C+D

as %

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Net

Inco

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Rem

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+C+D

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as %

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vest

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r. K

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16

Range of Remuneration to Directors (NT$)

Number of Director A+B+C+D A+B+C+D+E+F+G

VIS VIS & Affiliates VIS VIS & AffiliatesLess than 2,000,000 2,000,000～4,999,999 Leuh Fang (Taiwan

Semiconductor Manufacturing Co., Ltd.Representative) F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd.Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Lai Shou Su / K. H. Hsiao (National Development Fund, Executive Yuan Representative) Edward Y. Way

Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Lai Shou Su / K. H. Hsiao (National Development Fund, Executive Yuan Representative) Edward Y. Way

F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Lai Shou Su / K. H. Hsiao (National Development Fund, Executive Yuan Representative) Edward Y. Way

F.C. Tseng (Taiwan Semiconductor Manufacturing Co., Ltd. Representative) Benson W.C. Liu Kenneth Kin Chintay Shih Lai Shou Su / K. H. Hsiao (National Development Fund, Executive Yuan Representative) Edward Y. Way

5,000,000～9,999,99910,000,000～14,999,99915,000,000～29,999,99930,000,000～49,999,999 Leuh Fang (Taiwan

Semiconductor Manufacturing Co., Ltd. Representative)

Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd. Representative)

Total 7 7 7 7

2. Remuneration to Supervisors: None

17

3.R

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19

4. Comparison and Description of all Company Paid Remuneration to Net

Income Ratio Analysis and Company Remuneration Policy, Pattern,

Procedures and Ties to the Operational Result

（1） Analysis of Remuneration to Net Income Ratio in the last two years

for Company Directors, Supervisors and Executive Officers:

Unit: NT$, in thousands

Title

VIS Paid Remuneration as % of Net Income

Y2016 Y2017

Remuneration Net Income Remuneration as % of

Net Income Remuneration Net Income

Remuneration as % of Net Income

Directors 20,000

5,537,925

0.36% 15,625

4,505,064

0.35%

Supervisors 0 0.00% 0 0.00%

President and Vice Presidents

107,003 1.93% 106,167 2.36%


Title

VIS & Affiliates Paid Remuneration as % of Net Income

Y2016 Y2017

Remuneration Net Income Remuneration as % of

Net Income Remuneration Net Income

Remuneration as % of Net Income

Directors 20,000

5,537,925

0.36% 15,625

4,505,064

0.35%

Supervisors 0 0.00% 0 0.00%

President and Vice Presidents

111,361 2.01% 109,615 2.43%

（2） Company Remuneration Policy, Pattern, Procedures and Ties to

the Operational Result:

In accordance with the regulations set forth under Article 29 of the

Company's Articles of Incorporation concerning remuneration of the

Company's directors, no more than 1% of the profit for the year may be

distributed as remuneration to directors, the Company's business results

shall be taken into consideration, and reasonable compensation shall be

provided which is commensurate with the extent to which individual

directors participate in the Company's operations and contribute to the

Company; the remuneration policy for the President and Vice President

takes into consideration a necessary level of industry competitiveness

and aims to be able to attract and retain outstanding managers as well

as incentivize managers to, contingent on the Company's risk appetite,

achieve the best short-term and long-term performance.

The procedures for formulating remuneration packages are reviewed in

accordance with the Company's "Policies, Systems, Standards, and

Structure of the Performance Assessment and Remuneration of

20

Directors" and the "Policies, Systems, Standards, and Structure of the

Performance Assessment and Remuneration of Managers", and

reasonable compensation is provided which takes into consideration the

Company's overall operating performance, individual performance

achievement rate, and level of contribution to the Company's

performance. Relevant performance evaluations and compensation are

subject to review by the Compensation Committee and the Board of

Directors, and regularly reviews and adjustments are conducted

annually. In principle, significant changes are not made unless a

material change occurs either in the prevailing industry standards or the

Company's performance targets.

D. Implementation of Corporate Governance 1. Implementation of Board Meeting:

The Board convened 6 meetings in Y2017. Meeting attendance was as

follows:

Title Name No. of Meetings

Attended No. of Meetings

Substituted Attendance Rate Note

Chairman Leuh Fang 6 0 100%Vice Chairman F.C. Tseng 6 0 100%

Independent Director Benson W.C. Liu 6 0 100% Independent Director Chintay Shih 5 1 83% Independent Director Kenneth Kin 6 0 100%

Director Edward Y. Way 6 0 100%

Director K. H. Hsiao Lai Shou Su

3 3

0 100%

21

Y2017 Meeting attendance of Independent Directors was as follows: ◎:Attendence ; ☆:Proxy ; ＊:Absence

Y2017 1st 2nd 3rd 4th 5th 6thBenson W.C. Liu ◎ ◎ ◎ ◎ ◎ ◎

Chintay Shih ◎ ◎ ☆ ◎ ◎ ◎

Kenneth Kin ◎ ◎ ◎ ◎ ◎ ◎

Supplement Notes: 1. There were no written or otherwise recorded resolutions on which an independent director had a dissenting opinion or qualified

opinion in Y2017

Opinions of Independent directors in respect of important proposals:

BOD Meeting Important proposals List on Article14-3

of the Securities and Exchange Act

Independent director expresses an objection or

reservation

11th BOD meeting (8th Term) 2017/02/21

To amend the Procedures for Acquisition or Disposal of Assets.

V

To approve capital injection to VIS Associates Inc., a wholly-owned subsidiary.

V

To approve to establish VIS Shanghai Company Limited.

V

To approve the hiring of attesting CPA of VIS Shanghai Company Limited and the compensation given thereto.

V

To amend the Internal Control System. V 12th BOD meeting (8th Term) 2017/03/28

To approve VIS purchasing equipments from potential counterparties to expand capacity. V



V

To approve the hiring of an attesting CPA and the compensation given thereto.

V


To approve capital injection to VIS Associates Inc., a wholly-owned subsidiary. V



V

To amend the Internal Control System. V Opinions of Independent directors in respect of the above proposals：None The responses to opinions of Independent directors : None Resolved: The above proposals were approved unanimously.

2. Recusals of directors due to conflicts of interests in 2017:Chairman and President: Leuh Fang recused himself from the discussion and voting of his performance and compensationresolution.

3. Measures taken to strengthen the functionality of the Board:a. VIS Board continues to improve and strengthen on the corporate governance and the corporate social responsibilities.b. VIS Board continues to obtain a good performance on the Corporate Governance Ranking.c. VIS Board delegates various responsibilities and authority to two Board Committees, Audit Committee and Compensation

Committee. Both the two Committees consist solely of the three Independent Directors. Each Committee’s chairpersonregularly reports to the Board on the activities and actions of the relevant committee.

Dissenting opinions held by directors and supervisors in respect of important

resolutions passed by the board directors: None.

The State of Participation in Board Meetings by the Supervisors: NA

2. Implementation of Audit Committee Meeting:

The primary purpose of establishing the Audit Committee is to reinforce the

oversight capabilities of the Board of Directors. The Audit Committee is

22

tasked with overseeing adequate representation of the Company's financial

statements, appointment (or dismissal) of certified public accountants as

well as their competence, independence, and performance, effective

implementation of the Company's internal controls, the Company's

compliance with relevant laws and regulations, and control over existing or

potential risks to the Company. The main scope of authority of the Audit

Committee consists of the following:

a. The adoption of or amendments to the internal control system pursuant

to Article 14-1 of the Securities and Exchange Act.

b. Assessment of the effectiveness of the internal control system.

c. The adoption or amendment, pursuant to Article 36-1 of the Securities

and Exchange Act, of the procedures for handling financial or business

activities of a material nature, such as acquisition or disposal of assets,

derivatives trading, loaning of funds to others, and endorsements or

guarantees for others.

d. Matters in which a director is an interested party.

e. Asset transactions or derivatives trading of a material nature.

f. Loans of funds, endorsements, or provision of guarantees of a material

nature.

g. The offering, issuance, or private placement of equity-type securities.

h. The hiring or dismissal of a certified public accountant, or their

compensation.

i. The appointment or discharge of a financial, accounting, or internal

audit officer.

j. Annual, semi-annual, and quarterly financial reports.

k. Review of the annual business report, the surplus earning distribution,

or loss make-up proposal.

l. Review the changes of accounting policies or accounting estimate and

other material matters as may be required by this Corporation or by the

competent authority.

The qualifications of members of the Audit Committee are identical to those

of the Compensation Committee.

The Audit Committee convened 6 regular meetings in Y2017. Meeting

attendance was as follows:

Title Name No. of Meetings


Substituted Attendance

Rate Note

Independent Director Benson W.C. Liu 6 0 100% Independent Director Chintay Shih 5 0 83.33% Independent Director Kenneth Kin 6 0 100%

23

Supplement Notes: 1. In the event that the Audit Committee encounters any of the following conditions

during the course of its operations, a description of the date, term, and content of the proposed motion of the Board of Directors along with the result of the Audit Committee's resolution and the Company's handling of the Audit Committee's opinion shall be provided.

a. Conditions stipulated in Article 14-5 of the Securities and Exchange Act:

Board of Directors

Proposed Motions Resolution

Adopted by the Audit Committee

Action Taken by the Company in Response

to Opinion of the Audit Committee

11th Meeting (8th Term)

2017/2/21

1. Individual and Consolidated FinancialStatements of the Company for Y2016

2. Revision to the Company's Internal ControlSystem

3. Proposed capital increase for the Company'ssubsidiary VIS Associates, Inc.

4. Review of the effectiveness of the Company'sannual internal control system for Y2016, andreaching an agreement to issue a statement onthe effectiveness of the internal control's designand implementation.

5. Investment to establish the VIS subsidiary inShanghai

6. Appointment of a certified public accountant atthe Shanghai subsidiary

7. Revision to the Company's "Procedure forAcquisition and Disposal of Assets".

All committee members present

Reviewed and approved

(2017/2/21)

All directors present

Unanimously resolved


2017/11/6


2. Appointment and independence, suitability forappointment, and performance evaluation of theCompany's certified public accountants.



(2017/11/6)




2017/12/12

Proposed capital increase of US$45 million for the Company's subsidiary VIS Associates, Inc.



(2017/12/12)




2018/2/5

1. Individual and Consolidated FinancialStatements of the Company for Y2017

2. Revision to the Company's Internal ControlSystem


4. Review of the effectiveness of the Company'sannual internal control system for Y2017, andreaching an agreement to issue a statement onthe effectiveness of the internal control's designand implementation.



(2018/2/5)



24

b. Other resolutions not approved by the Audit Committee but passed by more

than a two-thirds majority of all Board members:

There were no instances of the Company adopting a resolution which was not

approved by the Audit Committee but approved by more than a two-thirds

majority of all Board members.

2. No refusing case for Audit Committee in the latest fiscal year.

3. Conditions concerning communication between the Company's independentdirectors, internal audit supervisors, and accountants (which shall include carryingout various tasks related to communication matters, methods, and resultsconcerning the Company's financial affairs and sales performance):

a. There are direct channels of communication available between all of the

Company's independent directors and internal audit supervisors, resulting in a

satisfactory level of communication. An Audit Committee meeting is convened

at least once each quarter, consisting of a closed-door meeting with internal

audit supervisors. The meeting shall include discussing and verifying the annual

audit plan and current state of implementation of the Company's internal audit

procedures. Each month, internal audit supervisors are to submit a report in

writing to the independent directors and communicate important points of

concern as deemed necessary.

b. There is a satisfactory level of communication between the Company's

independent directors and accountants. Each quarter, a closed-door meeting is

held between the Audit Committee and the Company's accountants. The

Company's accountants are tasked with discussing and communicating various

matters with the independent directors, including submitting a report on the

results of audits/reviews of the financial statements of VIS and other companies

in which VIS is invested along with matters pertaining to material changes in

accounting estimates, accounting principles, and important issues discussed with

the supervisory authority, changes in securities and tax laws, and the statement

of independence issued by the Company's accountants.

To read a summary of the current state of communication between the Company's

independent directors, internal audit supervisors, and accountants, please visit the

official VIS website:

http://www.vis.com.tw/visCom/chinese/d_ir/d0402_committees.htm

25

3.V

IS Im

plem

enta

tion

as R

equi

red

by T

aiw

an F

inan

cial

Sup

ervi

sory

Com

mis

sion

:

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n 1.

Did

the

com

pany

form

ulat

e an

ddi

sclo

se c

orpo

rate

gov

erna

nce

prac

tice

prin

cipl

es a

ccor

ding

to th

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orpo

rate

Gov

erna

nce

Bes

t Pra

ctic

ePr

inci

ples

for T

WSE

/GTS

M L

iste

dC

ompa

nies

?

VV

IS f

orm

ulat

ed o

ur C

orpo

rate

Gov

erna

nce

Prac

tice

Prin

cipl

es o

n N

ov.

11,

2016

. It

upho

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hare

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e po

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he b

oard

of d

irect

ors,

fulfi

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the

func

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udit

Com

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ee, r

espe

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e rig

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and

inte

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s of

sta

keho

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d en

hanc

ing

info

rmat

ion

trans

pare

ncy.

Fo

r th

e de

tails

of

Com

pany

’s C

orpo

rate

Gov

erna

nce

Prac

tice

Prin

cipl

es,

plea

se r

efer

s to

our

web

site

via

w

ww

.vis

.com

.tw.

Non

e

2.Sh

areh

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VV

IS h

as s

peci

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taff

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"Pr

oced

ures

fo

r H

andl

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Shar

ehol

der

Com

plai

nts"

wer

e fo

rmul

ated

on

Feb.

5,

2018

as

an a

dditi

on t

o th

e C

ompa

ny's

inte

rnal

con

trol s

yste

m. M

atte

rs re

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d to

sha

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nts

are

sole

ly h

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y th

e Le

gal D

epar

tmen

t an

d ar

e im

plem

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d in

acc

orda

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with

the

afor

emen

tione

d pr

oced

ures

, and

writ

ten

reco

rds

of a

ll ha

ndlin

g pr

oced

ures

are

reta

ined

for f

utur

e re

fere

nce.

Han

dlin

g of

litig

atio

n pr

ocee

ding

s an

d du

ties

and

resp

onsi

bilit

ies

of th

e Le

gal D

epar

tmen

t are

as f

ollo

ws:

1.

Not

ify th

e Fi

nanc

e D

epar

tmen

t and

mak

e an

ann

ounc

emen

t whe

re re

quire

d by

law.

2. C

ondu

ct a

n in

tern

al i

nves

tigat

ion

of m

atte

rs r

elat

ing

to t

he a

llege

d le

gal

viol

atio

n or

con

trave

ntio

n of

com

pany

byl

aws.

3.Pr

esen

t a re

port

on th

e in

vest

igat

ion

to b

oard

mem

bers

or m

anag

emen

t exe

cutiv

es w

ho d

o no

t hav

e co

nflic

tof

inte

rest

in th

e m

atte

r, an

d co

nfirm

the

resu

lts o

f the

inve

stig

atio

n.4.

Prov

ide

a re

spon

se o

r neg

otia

te a

settl

emen

t on

the

basi

s of t

he re

sult

of th

e in

vest

igat

ion.

5.D

epen

ding

on

the

com

plex

ity o

f th

e ca

se in

que

stio

n, a

fter

it ha

s be

en e

xam

ined

and

a d

ecis

ion

has

been

reac

hed

by th

e ch

airm

an o

r a re

spon

sibl

e su

perv

isor

aut

horiz

ed b

y th

e ch

airm

an, a

n ex

tern

al a

ttorn

ey m

aybe

app

oint

ed to

han

dle

the

litig

atio

n pr

ocee

ding

s and

ass

ista

nce

is p

rovi

ded

to th

e ap

poin

ted

atto

rney

dur

ing

the

litig

atio

n pr

ocee

ding

s to

form

ulat

e a

lega

l def

ense

.(2

) The

Com

pany

's po

sses

sion

of

maj

or sh

areh

olde

r's li

st a

nd th

e lis

t of u

ltim

ate

owne

rs o

f the

se

maj

or sh

areh

olde

rs

VV

IS tr

acks

the

shar

ehol

ding

s of d

irect

ors,

offic

ers,

and

shar

ehol

ders

hol

ding

mor

e th

an 1

0% o

f the

out

stan

ding

sh

ares

of V

IS.

26

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n (3

) Has

the

Com

pany

bui

lt an

d ex

ecut

ed a

risk

man

agem

ent

syst

em a

nd “

firew

all”

bet

wee

n th

e C

ompa

ny a

nd it

s affi

liate

s?

VV

IS h

as e

stab

lishe

d pr

oper

org

aniz

atio

n co

ntro

l st

ruct

ure

to m

onito

r th

e m

ajor

fin

anci

al a

nd b

usin

ess

oper

atio

ns i

n an

y of

the

sub

sidi

arie

s. V

IS a

lso

follo

ws

the

inte

rnal

con

trol

regu

latio

ns t

o re

view

rel

ated

bu

sine

sses

of t

he s

ubsi

diar

ies

regu

larly

so

as to

bui

ld a

nd e

xecu

ted

a ris

k m

anag

emen

t sys

tem

and

“fir

ewal

l”

betw

een

the

Com

pany

and

its a

ffilia

tes.

(4) D

id th

e co

mpa

ny d

evel

op

inte

rnal

rule

s for

pro

hibi

ting

com

pany

insi

ders

from

trad

ing

secu

ritie

s usi

ng in

form

atio

n no

t di

sclo

sed

to th

e m

arke

t?

VV

IS h

as fo

rmul

ated

an

"Ope

ratin

g Pr

oced

ure

for P

roce

ssin

g of

Maj

or In

tern

al In

form

atio

n" o

n A

ug. 3

rd, 2

012

by b

oard

of d

irect

ors,

proh

ibiti

ng c

ompa

ny in

side

rs fr

om tr

adin

g se

curit

ies

usin

g in

form

atio

n no

t dis

clos

ed to

th

e m

arke

t. A

nd m

easu

res f

or p

rohi

bitio

n of

buy

ing

and

selli

ng in

clud

e:

1.W

hen

any

dire

ctor

s, m

anag

eria

l offi

cers

, or

empl

oyee

s of

the

Com

pany

bec

ome

awar

e of

mat

eria

l ins

ide

info

rmat

ion

that

influ

ence

s th

e C

ompa

ny's

stoc

k pr

ice,

they

may

not

, with

in th

e tim

e fr

ame

spec

ified

in th

eSe

curit

ies

and

Exch

ange

Act

, buy

and

sel

l sto

cks

that

are

trad

ed b

y th

e C

ompa

ny in

the

open

mar

ket o

rot

her n

egot

iabl

e se

curit

ies t

hat f

eatu

re st

ock

prop

ertie

s.2.

Ten

days

bef

ore

the

inve

stor

con

fere

nce

are

deem

ed a

s th

e qu

iet

perio

d. T

he C

ompa

ny s

hall

info

rm t

hepe

rson

nel o

f rel

ated

uni

t who

are

par

ticip

atin

g in

pre

para

tions

and

dis

cuss

ions

that

they

are

pro

hibi

ted

from

buyi

ng a

nd se

lling

the

Com

pany

's sh

ares

.3.

Com

posi

tion

and

Res

pons

ibili

ties o

fth

e B

oard

of D

irect

ors

Non

e

(1) D

id th

e bo

ard

of d

irect

ors

form

ulat

e ap

prop

riate

pol

icy

on

dive

rsity

bas

ed o

n th

e co

mpo

sitio

n of

its m

embe

rs a

nd

impl

emen

t suc

h po

licy

acco

rdin

gly?

VA

rticl

e 20

of

the

com

pany

's C

orpo

rate

Gov

erna

nce

Prac

tice

Prin

cipl

es s

peci

fical

ly d

iscl

oses

the

exe

cutiv

e di

rect

ors

shou

ld n

ot e

xcee

d on

e th

ird o

f the

sea

ts o

f the

boa

rd o

f dire

ctor

s. Th

e co

mpo

sitio

n of

the

boar

d of

di

rect

ors

shou

ld b

e di

vers

ified

, suc

h as

diff

eren

t pro

fess

iona

l bac

kgro

unds

, fie

lds

of w

ork

or g

ende

r, an

d po

sses

ses t

he n

eces

sary

kno

wle

dge,

skill

s and

lite

racy

to p

erfo

rm h

is d

utie

s; C

ompa

ny re

quire

men

ts a

nd th

e di

vers

ity o

f bo

ard

of d

irect

ors

are

cons

ider

ed i

n th

e no

min

atio

ns f

or r

e-el

ectin

g di

rect

ors

of t

he b

oard

. A

mon

g th

e cu

rren

t boa

rd o

f dire

ctor

s:

1.D

irect

ors’

Educ

atio

n &

Sel

ecte

d Pa

st P

ositi

ons i

nclu

de: M

S, M

ater

ials

Sci

ence

and

Eng

inee

ring,

Uni

vers

ityof

Was

hing

ton;

Ph.

D. i

n El

ectri

cal E

ngin

eerin

g, N

atio

nal C

heng

kung

Uni

vers

ity, T

aiw

an; M

BA

, Uni

vers

ityof

Geo

rgia

2.In

depe

nden

t Dire

ctor

s’ Ed

ucat

ion

& S

elec

ted

Past

Pos

ition

s in

clud

e: P

h.D

. Ele

ctric

Eng

inee

ring,

Prin

ceto

nU

nive

rsity

, U

SA;

Pres

iden

t, In

dust

rial

Tech

nolo

gy R

esea

rch

Inst

itute

; D

ean,

Col

lege

of

Tech

nolo

gyM

anag

emen

t, N

atio

nal T

sing

Hua

Uni

vers

ity; M

aste

r, In

tern

atio

nal B

usin

ess

Adm

inis

tratio

n, U

nive

rsity

of

Nor

thro

p, U

SA; C

hairm

an, C

hine

se C

orpo

rate

Gov

erna

nce

Ass

ocia

tion;

Mas

ter o

f Bus

ines

s Adm

inis

tratio

n,N

orth

Tex

as U

nive

rsity

, USA

; Ph.

D. N

ucle

ar E

ngin

eerin

g an

d A

pplie

d Ph

ysic

s, C

olum

bia

Uni

vers

ity, U

SA;

Prof

esso

r, D

epar

tmen

t of E

cono

mic

s, C

olle

ge o

f Tec

hnol

ogy

Man

agem

ent,

Nat

iona

l Tsi

ng H

ua U

nive

rsity

etc.

27

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n (2

) In

addi

tion

to e

stab

lishi

ng

rem

uner

atio

n co

mm

ittee

and

au

dit c

omm

ittee

, did

the

com

pany

vol

unta

rily

set u

p ot

her

func

tiona

l com

mitt

ees?

V

In a

dditi

on to

est

ablis

hing

a re

mun

erat

ion

com

mitt

ee a

nd a

udit

com

mitt

ee, w

e di

d no

t set

up

othe

r fun

ctio

nal

com

mitt

ees.

(3) D

id th

e co

mpa

ny fo

rmul

ate

rule

s an

d m

etho

ds fo

r boa

rd o

f di

rect

ors’

perf

orm

ance

as

sess

men

ts, a

nd p

erfo

rm

perio

dic

perf

orm

ance

as

sess

men

ts e

ach

year

?

VTh

e C

ompa

ny h

as f

orm

ulat

ed a

ser

ies

of r

ules

and

pol

ices

per

tain

ing

to e

valu

atio

ns,

incl

udin

g "P

olic

ies,

Syst

ems,

Stan

dard

s, an

d St

ruct

ure

of th

e Pe

rfor

man

ce A

sses

smen

t and

Rem

uner

atio

n of

Dire

ctor

s" o

n A

pr.

20th

, 201

2 as

wel

l as a

"B

oard

of D

irect

ors P

erfo

rman

ce E

valu

atio

n Po

licy"

on

Nov

. 1st

, 201

6; T

he C

ompa

ny

shal

l con

duct

an

inte

rnal

Boa

rd P

erfo

rman

ce A

sses

smen

t onc

e a

year

and

an

exte

rnal

inde

pend

ent p

rofe

ssio

nal

inst

itutio

n or

a p

anel

of e

xter

nal e

xper

ts a

nd s

chol

ars

at le

ast o

nce

ever

y th

ree

year

s. Th

e sc

ope

of e

valu

atio

n co

vers

ind

ivid

ual

Boa

rd m

embe

rs,

the

Boa

rd a

s a

who

le,

and

func

tiona

l co

mm

ittee

s. Th

e m

etho

ds o

f ev

alua

tion

may

be

eith

er i

nter

nal

eval

uatio

n, e

xter

nal

eval

uatio

n, o

r bo

th. I

nter

nal

eval

uatio

n in

clud

es s

elf-

eval

uatio

n by

indi

vidu

al B

oard

mem

bers

, int

erna

l eva

luat

ion

by th

e B

oard

, int

erna

l eva

luat

ion

by f

unct

iona

l co

mm

ittee

s, re

-eva

luat

ion

by th

e C

ompe

nsat

ion

Com

mitt

ee, a

nd re

solu

tions

of m

eetin

gs o

f the

Boa

rd. E

xter

nal

eval

uatio

n in

clud

es e

valu

atio

ns b

y ap

poin

ted

exte

rnal

pro

fess

iona

l ins

titut

ions

, exp

erts

, or

othe

r ap

prop

riate

m

etho

ds. I

nter

nal e

valu

atio

n sh

all b

e ad

opte

d fo

r th

e ev

alua

tion

of in

divi

dual

Boa

rd m

embe

rs a

nd fu

nctio

nal

com

mitt

ees.

Bot

h in

tern

al a

nd e

xter

nal e

valu

atio

ns sh

all b

e ad

opte

d fo

r the

eva

luat

ion

of th

e B

oard

as a

who

le.

The

crite

ria fo

r ass

essi

ng th

e pe

rfor

man

ce o

f the

indi

vidu

al B

oard

mem

bers

shal

l cov

er th

e fo

llow

ing

five

aspe

cts:

(1

) Boa

rd m

eetin

g at

tend

ance

and

con

tinui

ng e

duca

tion;

(2

) Par

ticip

atio

n in

supp

ortin

g th

e co

mpa

ny's

obje

ctiv

es a

nd st

rate

gies

; (3

) Ins

truct

ions

to a

nd c

omm

unic

atio

n w

ith m

anag

emen

t exe

cutiv

es;

(4) S

uper

visi

on o

f the

exe

cutio

n of

bus

ines

s pla

ns a

nd tr

acki

ng th

e pr

ogre

ss o

f suc

h ex

ecut

ion;

(5

) Int

erna

l con

trol a

nd a

void

ance

of c

onfli

cts o

f int

eres

t;

The

crite

ria fo

r ass

essi

ng th

e pe

rfor

man

ce o

f the

Boa

rd a

s a

who

le a

nd e

ach

func

tiona

l com

mitt

ee s

hall

cove

r th

e fo

llow

ing

five

aspe

cts:

(1

) Par

ticip

atio

n in

the

oper

atio

n of

the

com

pany

; (2

) Im

prov

emen

t of t

he q

ualit

y of

the

Boa

rd o

f Dire

ctor

s' de

cisi

on m

akin

g;

(3) C

ompo

sitio

n an

d st

ruct

ure

of th

e B

oard

of D

irect

ors;

(4

) Ele

ctio

n an

d co

ntin

uing

edu

catio

n of

the

dire

ctor

s; a

nd

(5) I

nter

nal c

ontro

l W

e fo

rmul

ate

perf

orm

ance

ass

essm

ent i

tem

s at t

he b

egin

ning

of e

ach

year

, eva

luat

e th

e pe

rfor

man

ce a

t the

end

of

eac

h ye

ar, a

nd i

ncor

pora

te t

he a

sses

smen

t re

sults

int

o co

nsid

erat

ion

for

rem

uner

atio

n of

the

Boa

rd. T

he

28

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n ex

tern

al p

erfo

rman

ce a

sses

smen

t of 2

016

was

con

duct

ed b

y Ta

iwan

Cor

pora

te G

over

nanc

e A

ssoc

iatio

n, w

hich

ha

s no

busi

ness

rela

tions

with

VIS

; it i

s an

inde

pend

ent i

nstit

utio

n. T

he in

tern

al a

nd e

xter

nal a

sses

smen

t res

ults

ar

e di

sclo

sed

on o

ur w

ebsi

te :

http

://w

ww

.vis

.com

.tw/v

isC

om/e

nglis

h/d_

ir/d0

402_

com

mitt

ees.h

tm

(4) D

id th

e co

mpa

ny e

valu

ate

the

inde

pend

ence

of C

ertif

ied

Publ

ic

Acc

ount

ants

(CPA

) per

iodi

cally

?

VTh

e A

udit

Com

mitt

ee a

nnua

lly e

valu

ates

the

ind

epen

denc

e of

Cer

tifie

d Pu

blic

Acc

ount

ants

(C

PA)

mai

nly

incl

udin

g fin

anci

al i

nter

ests

, fin

anci

ng a

nd g

uara

ntee

s, bu

sine

ss r

elat

ions

hips

, em

ploy

men

t, no

n-au

dite

d se

rvic

es,

sign

ifica

nt v

alue

of

gifts

, co

ntin

uous

eng

agem

ents

, et

c. a

nd a

sses

s C

PA's

perf

orm

ance

and

co

mpe

tenc

e an

d re

ports

the

asse

ssm

ents

to th

e bo

ard

of d

irect

ors o

n N

ovem

ber 6

, 201

7.

4. A

s a T

WSE

/TPE

x-lis

ted

com

pany

,ha

s VIS

set u

p a

full-

(or p

art-)

tim

eco

rpor

ate

gove

rnan

ce u

nit o

rpe

rson

nel i

n ch

arge

of c

orpo

rate

gove

rnan

ce a

ffairs

and

des

igna

ted

ase

nior

offi

cer t

o be

in c

harg

e of

supe

rvis

ion

(incl

udin

g bu

t not

limite

d to

furn

ishi

ng in

form

atio

nre

quire

d by

dire

ctor

s and

supe

rvis

ors

to c

ondu

ct b

usin

ess,

hand

ling

mat

ters

rela

ting

to b

oard

mee

tings

and

shar

ehol

ders

' mee

tings

as

requ

ired

by la

w, h

andl

ing

corp

orat

ere

gist

ratio

n an

d am

endm

ent

regi

stra

tion,

pro

duci

ng m

inut

es o

fbo

ard

mee

tings

and

shar

ehol

ders

'm

eetin

gs, e

tc.)?

VTh

e C

ompa

ny's

Fina

ncia

l M

anag

emen

t D

epar

tmen

t un

der

the

Fina

nce

Div

isio

n w

as e

stab

lishe

d by

the

Com

pany

to s

erve

as

a de

dica

ted

corp

orat

e go

vern

ance

uni

t und

er th

e ju

risdi

ctio

n of

the

Vic

e Pr

esid

ent o

fFi

nanc

e. T

he V

ice

Pres

iden

t of

Fin

ance

is

prim

arily

res

pons

ible

for

pla

nnin

g an

d ov

ersi

ght,

and

the

dedi

cate

d un

it is

res

pons

ible

for

for

mul

atin

g an

d ex

ecut

ing

rele

vant

cor

pora

te g

over

nanc

e pl

ans

and

hand

ling

corp

orat

e re

gist

ratio

n an

d am

endm

ent r

egis

tratio

n, e

nsur

ing

that

a m

echa

nism

is in

pla

ce w

hich

safe

guar

ds th

e rig

hts a

nd in

tere

sts o

f sha

reho

lder

s, re

info

rce

the

role

of t

he B

oard

of D

irect

ors a

nd fu

nctio

nof

the A

udit

Com

mitt

ee, r

espe

ct st

akeh

olde

rs' r

ight

s, an

d im

prov

e in

form

atio

n tra

nspa

renc

y.Th

e C

ompa

ny's

rele

vant

dep

artm

ents

and

uni

ts in

clud

ing

the

Secr

etar

iat o

f the

Boa

rd o

f Dire

ctor

s, In

tern

alA

udit

Dep

artm

ent,

and

Dep

artm

ent

of H

uman

Res

ourc

es a

re r

espo

nsib

le f

or f

urni

shin

g in

form

atio

nre

quire

d by

dire

ctor

s an

d su

perv

isor

s to

con

duct

bus

ines

s, an

d th

e Se

cret

aria

t of

the

Boa

rd is

task

ed w

ithca

rryi

ng o

ut re

leva

nt ta

sks

rela

ting

to b

oard

mee

tings

and

sha

reho

lder

s' m

eetin

gs in

acc

orda

nce

with

Rul

esof

Pro

cedu

re o

f B

oard

of

Dire

ctor

s M

eetin

gs a

nd p

rodu

cing

mee

ting

min

utes

for

boa

rd m

eetin

gs a

ndsh

areh

olde

rs' m

eetin

gs.

The

Com

pany

's V

ice

Pres

iden

t of

Fin

ance

is

conf

irmed

to

poss

ess

thre

e or

mor

e ye

ars

of p

rofe

ssio

nal

man

agem

ent e

xper

ienc

e ha

ndlin

g th

e fin

anci

al a

ffai

rs o

f a p

ublic

com

pany

.Th

e C

ompa

ny's

stat

us o

f ope

ratio

ns fo

r 201

7 is

as f

ollo

ws:

1.A

ssis

ted

inde

pend

ent d

irect

ors

and

ordi

nary

boa

rd m

embe

rs to

exe

cute

thei

r du

ties,

prov

ided

req

uire

din

form

atio

n, a

nd a

rran

ged

for s

even

dire

ctor

s to

unde

rgo

a to

tal o

f 82

hour

s of c

ontin

uing

edu

catio

n.2.

Ass

iste

d th

e B

oard

of D

irect

ors

and

shar

ehol

ders

' mee

tings

on

regu

lato

ry c

ompl

ianc

e m

atte

rs re

latin

g to

mee

ting

agen

das

and

reso

lutio

ns,

and

com

plet

ed

the

mee

ting

min

utes

of

bo

ard

mee

tings

an

dsh

areh

olde

rs' m

eetin

gs a

fter a

djou

rnm

ent t

here

of.

3 Th

e C

ompa

ny's

corp

orat

e re

gist

ratio

n w

as a

men

ded

a to

tal o

f thr

ee ti

mes

with

in th

e sp

ecifi

ed d

eadl

ine

in a

ccor

danc

e w

ith la

w.

Non

e

29

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n 5.

Did

the

com

pany

mai

ntai

n ch

anne

lsof

com

mun

icat

ion

with

its

stak

ehol

ders

(inc

ludi

ng b

ut n

otlim

ited

to sh

areh

olde

rs, e

mpl

oyee

s,cl

ient

s and

supp

lies)

, des

igna

te a

stak

ehol

ders

sect

ion

on it

s web

site

,an

d ad

equa

tely

resp

ond

tost

akeh

olde

rs' c

once

rns r

egar

ding

corp

orat

e so

cial

resp

onsi

bilit

y?

VV

IS a

ttach

es g

reat

im

porta

nce

to t

he c

omm

unic

atio

n be

twee

n ou

r st

akeh

olde

rs a

nd u

s. Th

e st

akeh

olde

rs

incl

ude

but

not

limite

d to

sha

reho

lder

s, em

ploy

ees,

clie

nts

and

supp

lies.

We

mai

ntai

n go

od c

omm

unic

atio

n w

ith o

ur s

take

hold

ers

thro

ugh

rele

vant

dep

artm

ents

dep

endi

ng o

n si

tuat

ion.

Fur

ther

mor

e, w

e ha

ve p

ublic

ly

disc

lose

d th

e co

ntac

t inf

orm

atio

n of

our

cor

pora

te s

poke

sper

son

and

rele

vant

dep

artm

ents

. Als

o, w

e ha

ve a

st

akeh

olde

r se

ctio

n on

our

cor

pora

te w

ebsi

te t

o ad

dres

s ou

r co

rpor

ate

soci

al r

espo

nsib

ilitie

s an

d an

y ot

her

issu

es.

Stak

ehol

der C

omm

unic

atio

n M

echa

nism

incl

udes

: a.

Shar

ehol

ders

and

inve

stor

sIs

sue

of c

once

rn:

Bus

ines

s stra

tegy

, Bus

ines

s per

form

ance

, Cor

pora

te g

over

nanc

e, In

nova

tion

man

agem

ent

Met

hod

and

freq

uenc

y of

com

mun

icat

ion:

Ann

ual m

eetin

g of

shar

ehol

ders

Qua

rterly

mee

tings

of t

he B

oard

of D

irect

ors a

nd in

vest

ors c

onfe

renc

eM

onth

ly b

usin

ess r

even

ue a

nnou

ncem

ents

Imm

edia

te u

pdat

e of

mat

eria

l inf

orm

atio

n on

the

corp

orat

ion

web

site

and

the

Mar

ket

Con

tact

Win

dow

: In

vest

or R

elat

ions

: Jan

ey L

iu, T

el: 8

86-3

-577

0355

ext

. 142

1, E

mai

l: cy

liuc@

vis.c

om.tw

O

bser

vatio

n Po

st S

yste

m

b.C

usto

mer

sIs

sue

of c

once

rn: S

ervi

ce q

ualit

y an

d cu

stom

er sa

tisfa

ctio

n, M

anag

ing

cust

omer

rela

tions

and

met

hods

for f

iling

a c

ompl

aint

, Cus

tom

er p

rivac

yM

etho

d an

d fr

eque

ncy

of c

omm

unic

atio

n:R

eal-t

ime

onlin

e cu

stom

er c

omm

unic

atio

n sy

stem

Qua

rterly

bus

ines

s mee

ting

Reg

ular

pro

ject

dis

cuss

ion

mee

tings

Uns

ched

uled

cus

tom

er v

isits

Con

tact

Win

doe:

Sa

les:

Ken

Che

n, T

el: 8

86-3

-577

0355

ext

. 200

4, E

mai

l: ke

nc@

vis.c

om.tw

C

usto

mer

Ser

vice

: Sev

en D

ong,

Tel

: 886

-3-5

7703

55 e

xt. 5

213,

Em

ail:

jcdo

ng2@

vis.c

om.tw

c.

Empl

oyee

sIs

sue

of c

once

rn: T

alen

t rec

ruitm

ent a

nd re

tent

ion,

Lab

or-M

anag

emen

t Rel

atio

ns, E

mpl

oyee

com

mun

icat

ion

and

satis

fact

ion,

Hum

an re

sour

ces d

evel

opm

ent,

Empl

oyee

div

ersi

ty, M

etho

d fo

r fili

ng a

labo

r con

ditio

nco

mpl

aint

, Hum

an ri

ghts

pol

icy,

For

ced

labo

r, D

iscr

imin

atio

n, C

hild

labo

r

Non

e

30

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n M

etho

d an

d fr

eque

ncy

of c

omm

unic

atio

n:

Inte

rnal

net

wor

k an

d te

leph

one

com

mun

icat

ion

plat

form

Empl

oyee

Ass

ista

nce

Prog

ram

(EA

P) h

otlin

eQ

uarte

rly m

eetin

g be

twee

n em

ploy

er a

nd e

mpl

oyee

sQ

uarte

rly m

eetin

g of

fact

ory

dire

ctor

sPr

esid

ent c

omm

unic

atio

n m

eetin

gM

ailb

ox o

f the

exe

cutiv

es, m

ailb

ox o

f the

Aud

it C

omm

ittee

, mai

lbox

of t

he c

hairm

anC

onta

ct W

indo

w:

Hum

an R

esou

rces

: And

rew

Che

n, T

el: 8

86-3

-577

0355

ext

. 110

0, E

mai

l: an

drew

chen

@vi

s.com

.tw

d.G

over

nmen

t aut

horit

yIs

sue

of c

once

rn: C

ompl

ianc

e w

ith e

nviro

nmen

tal p

rote

ctio

n re

gula

tions

, Occ

upat

iona

l hea

lth, s

afet

y, a

ndsa

nita

tion,

Ene

rgy

effic

ienc

y, E

nerg

y m

anag

emen

t, W

aste

man

agem

ent,

Ant

i-cor

rupt

ion,

Wat

er re

sour

cem

anag

emen

t, G

reen

hous

e ga

s em

issi

ons,

Clim

ate

Cha

nge,

Dire

ct im

pact

of g

oods

and

serv

ices

on

the

envi

ronm

ent,

Com

plia

nce

with

pro

duct

regu

latio

ns, C

arbo

n m

anag

emen

tM

etho

d an

d fr

eque

ncy

of c

omm

unic

atio

n:In

stan

t com

mun

icat

ion

acco

rdin

g to

law

Perio

dic

repo

rting

e.Su

pplie

rIs

sue

of c

once

rn:

Man

agem

ent

of c

onfli

ct m

iner

als,

Gre

en p

rocu

rem

ent,

Com

plia

nce

with

env

ironm

enta

lpr

otec

tion

regu

latio

ns, R

aw m

ater

ials

, Com

plia

nce

with

pro

duct

regu

latio

ns, M

anag

emen

t of s

uppl

y ch

ains

,W

aste

man

agem

ent,

Haz

ardo

us s

ubsta

nce

man

agem

ent,

Car

bon

man

agem

ent,

Ant

i-cor

rupt

ion,

Con

flict

min

eral

s, A

sses

smen

t of

supp

liers

' hum

an r

ight

s po

licie

s, Lo

cal p

rocu

rem

ent a

nd lo

cal r

ecru

itmen

t, C

hild

labo

rM

etho

d an

d fr

eque

ncy

of c

omm

unic

atio

n:Se

mi-a

nnua

l joi

nt re

view

of q

ualif

ied

supp

liers

Ann

ual a

udit

of m

ajor

supp

liers

Sche

dule

d ye

arly

com

mun

icat

ion

with

supp

liers

E-Su

pply

supp

lier c

omm

unic

atio

n pl

atfo

rmC

onta

ct W

indo

w:

Mat

eria

l Man

agem

ent:

Jay

Tasi

, Tel

: 886

-3-5

7703

55 e

xt. 4

300,

Em

ail:

cjts

ai@

vis.c

om.tw

f.C

omm

unity

Issu

e of

con

cern

: Cha

ritab

le e

vent

s, C

ompl

ianc

e w

ith e

nviro

nmen

tal p

rote

ctio

n re

gula

tions

, Wat

er re

sour

cem

anag

emen

t, W

aste

man

agem

ent,

Haz

ardo

us s

ubst

ance

man

agem

ent,

Gre

enho

use

gas

emis

sion

s, C

arbo

n

31

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n m

anag

emen

t, En

viro

nmen

tal i

nves

tmen

t, D

irect

impa

ct o

f goo

ds a

nd s

ervi

ces

on th

e en

viro

nmen

t, C

limat

e C

hang

e, C

harit

able

eve

nts,

Com

mun

ity i

mpa

ct a

sses

smen

t, G

reen

con

stru

ctio

n, B

iodi

vers

ity, C

omm

unity

in

vest

men

t,

Met

hod

and

freq

uenc

y of

com

mun

icat

ion:

H

old

rand

omly

sche

dule

d ev

ents

and

mak

es d

onat

ions

Spon

sor r

egul

ar re

gion

al b

road

cast

show

s to

disc

uss s

ocia

l con

cern

sC

onta

ct W

indo

w:

Publ

ic R

elat

ions

: Lily

Hsu

, Tel

: 886

-3-5

7703

55 e

xt. 1

901,

Em

ail:

llhsu

@vi

s.com

.tw

g.M

edia

Issu

e of

con

cern

: Bus

ines

s pe

rfor

man

ce, C

orpo

rate

gov

erna

nce,

Com

plia

nce

with

env

ironm

enta

l pro

tect

ion

regu

latio

ns, C

ompl

ianc

e w

ith p

rodu

ct re

gula

tions

Met

hod

and

freq

uenc

y of

com

mun

icat

ion:

Q

uarte

rly c

onfe

renc

esM

onth

ly b

usin

ess r

even

ue a

nnou

ncem

ents

Imm

edia

te u

pdat

e of

mat

eria

l inf

orm

atio

n on

the

corp

orat

ion

web

site

and

the

Mar

ket O

bser

vatio

n Po

stSy

stem

Con

tact

Win

dow

: Pu

blic

Rel

atio

ns: L

ily H

su, T

el: 8

86-3

-577

0355

ext

. 190

1, E

mai

l: llh

su@

vis.c

om.tw

6.

Did

the

com

pany

eng

age

apr

ofes

sion

al sh

areh

olde

r ser

vice

sag

ent t

o ha

ndle

shar

ehol

ders

mee

ting

mat

ters

?

VW

e ha

ve d

esig

nate

d C

hina

trust

Com

mer

cial

Ban

k as

our

serv

ice

agen

t to

hand

le sh

areh

olde

rs m

eetin

g m

atte

rs.

Non

e

7.In

form

atio

n D

iscl

osur

eN

one

(1) E

stab

lishm

ent o

f cor

pora

tew

ebsi

te to

dis

clos

e in

form

atio

n re

gard

ing

the

Com

pany

's fin

anci

als,

busi

ness

and

co

rpor

ate

gove

rnan

ce st

atus

VV

IS d

iscl

oses

our

fina

ncia

ls, b

usin

ess a

nd c

orpo

rate

gov

erna

nce

stat

us o

n its

web

site

at h

ttp://

ww

w.v

is.c

om.tw

32

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n (2

) Oth

er in

form

atio

n di

sclo

sure

ch

anne

ls (e

.g. E

nglis

h w

ebsi

te,

appo

intin

g re

spon

sibl

e pe

ople

to

hand

le in

form

atio

n co

llect

ion

and

disc

losu

re, a

ppoi

ntin

g sp

okes

pers

on, w

ebca

stin

g in

vest

or c

onfe

renc

e)

VV

IS h

as la

unch

ed b

iling

ual C

hine

se a

nd E

nglis

h w

ebsi

tes

and

has

assi

gned

the

rela

ted

depa

rtmen

ts to

col

lect

an

d re

veal

com

pany

info

rmat

ion,

whi

le th

e Pu

blic

rela

tions

and

Inve

stor

Rel

atio

ns d

epar

tmen

t is

in c

harg

e of

in

tegr

ated

man

agem

ent.

We

have

Inv

esto

r R

elat

ions

seg

men

t on

our

cor

pora

te w

ebsi

te,

and

it co

ntai

ns

hist

oric

al In

vest

or C

onfe

renc

e R

epor

t and

the

vide

o of

late

st In

vest

or C

onfe

renc

e. In

add

ition

, bas

ed o

n ar

ticle

11

of

Com

pany

’s "

Ope

ratin

g Pr

oced

ure

for

Proc

essi

ng o

f M

ajor

Int

erna

l In

form

atio

n",

the

disc

losu

re o

f m

ater

ial i

nsid

e in

form

atio

n of

the

Com

pany

shal

l be

hand

led

by a

spok

espe

rson

des

igna

ted

by th

e C

ompa

ny o

r a

depu

ty s

poke

sper

son

actin

g on

his

/her

beh

alf

in a

spe

cifie

d se

quen

tial o

rder

unl

ess

pres

crib

ed o

ther

wis

e in

re

leva

nt la

ws

or o

rder

s. Th

e di

sclo

sure

may

be

mad

e di

rect

ly b

y th

e re

spon

sibl

e pe

rson

of

the

Com

pany

if

deem

ed n

eces

sary

. 8.

Has

the

Com

pany

dis

clos

ed o

ther

info

rmat

ion

to fa

cilit

ate

a be

tter

unde

rsta

ndin

g of

its c

orpo

rate

gove

rnan

ce p

ract

ices

(e.g

. inc

ludi

ngbu

t not

lim

ited

to e

mpl

oyee

righ

ts,

empl

oyee

wel

lnes

s, in

vest

orre

latio

ns, s

uppl

ier r

elat

ions

, rig

hts o

fst

akeh

olde

rs, d

irect

ors’

train

ing

reco

rds,

the

impl

emen

tatio

n of

risk

man

agem

ent p

olic

ies a

nd ri

skev

alua

tion

mea

sure

s, th

eim

plem

enta

tion

of c

usto

mer

rela

tions

pol

icie

s, an

d pu

rcha

sing

insu

ranc

e fo

r dire

ctor

s)?

VFo

r em

ploy

ee ri

ghts

and

em

ploy

ee w

elln

ess,

plea

se re

fer t

o “E

mpl

oyee

/ em

ploy

er re

latio

ns”

of th

isA

nnua

l Rep

ort.

Inve

stor

rela

tions

:V

IS h

as sp

ecifi

c st

affs

han

dle

shar

ehol

ders

’ sug

gest

ions

, dou

bts a

nd d

ispu

tes.

In a

dditi

on, w

e ho

ld In

vest

orC

onfe

renc

e fo

r ins

titut

iona

l inv

esto

rs e

very

qua

rter a

nd w

e al

so d

isclo

se C

hine

se a

nd E

nglis

h fin

anci

alre

ports

on

our c

orpo

rate

web

site

.Fo

r sup

plie

r rel

atio

ns a

nd ri

ghts

of s

take

hold

ers,

ple

ase

refe

r to

Impl

emen

tatio

n of

Cor

pora

te S

ocia

lR

espo

nsib

ility

Mea

sure

sof

this

Ann

ual R

epor

t.Fo

r Dire

ctor

s’ tra

inin

g re

cord

s, pl

ease

refe

r to

“Dire

ctor

s’ tra

inin

g re

cord

s” o

f thi

s Ann

ual R

epor

t.Fo

r the

impl

emen

tatio

n of

risk

man

agem

ent p

olic

ies a

nd ri

sk e

valu

atio

n m

easu

res,

plea

se re

fer t

o Th

epo

licy

of th

e ris

k m

anag

emen

tan

dTh

e or

gani

zatio

n ch

art o

f the

risk

man

agem

ent

of th

is A

nnua

lR

epor

t.Im

plem

enta

tion

of c

usto

mer

rela

tions

pol

icie

s:Fr

om th

e m

omen

t we

star

t neg

otia

ting

with

our

cus

tom

ers a

bout

bus

ines

s opp

ortu

nitie

s, w

e re

quire

all

cust

omer

s to

sign

a N

on-D

iscl

osur

e Agr

eem

ent.

To p

rote

ct c

usto

mer

priv

acy

right

s, w

e de

term

ine

the

secu

rity

leve

l of c

onfid

entia

l inf

orm

atio

n an

d es

tabl

ish

corr

espo

ndin

g co

ntro

l mea

sure

s, re

quiri

ng o

nly

thos

e w

ith p

erm

issi

on to

acc

ess t

he in

form

atio

n. A

ll ot

her p

erso

nnel

mus

t not

atte

mpt

to m

ake

inqu

iries

on

cust

omer

info

rmat

ion,

and

whe

n cu

stom

ers m

ake

requ

ests

or a

pply

for d

ocum

ents

thro

ugh

our V

IS-o

nlin

esy

stem

, pro

per a

utho

rizat

ion

mus

t be

obta

ined

.W

e m

aint

ain

D&

O In

sura

nce

for i

ts d

irect

ors a

nd o

ffice

rs.

Non

e

33

Item

Im

plem

enta

tion

Stat

us

Non

-im

plem

enta

tion

and

Its R

easo

n(s)

Ye

s N

o D

escr

iptio

n 9.

Con

sulte

d th

e ex

plan

atio

n of

im

prov

emen

ts t

o th

e co

rpor

ate

gove

rnan

ce e

valu

atio

n re

sults

for

the

mos

t re

cent

yea

r pu

blis

hed

by t

he T

aiw

an S

tock

Exc

hang

e C

orpo

ratio

n (T

WSE

)C

orpo

rate

Gov

erna

nce

Cen

ter a

nd p

ropo

sed

fast

-trac

ked

impl

emen

tatio

n of

impr

ovem

ents

and

rela

ted

mea

sure

s for

are

as w

hich

had

yet

to b

e re

ctifi

ed.

For t

hree

yea

rs in

a ro

w, t

he C

ompa

ny h

as b

een

rank

ed in

the

top

5% o

f the

Cor

pora

te G

over

nanc

e Ev

alua

tion.

With

resp

ect t

o th

e st

ate

of im

prov

emen

ts m

ade

in 2

017,

a d

iver

sity

pol

icy

for t

he c

ompo

sitio

n of

the

Boa

rd o

f Dire

ctor

s w

as d

rafte

d an

d en

acte

d, li

abili

ty in

sura

nce

was

pur

chas

ed to

cov

er a

ll di

rect

ors

and

supe

rvis

ors

of th

e C

ompa

ny a

nd p

rese

nted

to th

e B

oard

of D

irect

ors,

dire

ctor

s co

mpl

eted

des

igna

ted

hour

s of

con

tinui

ng e

duca

tion

in a

ccor

danc

e w

ith r

egul

atio

ns, b

oard

per

form

ance

rev

iew

s w

ere

perio

dica

lly c

ondu

cted

, and

var

ious

CSR

pol ic

ies,

syst

ems,

and

rele

vant

man

agem

ent g

uide

lines

wer

e fo

rmul

ated

and

impl

emen

ted

by p

art-t

ime

units

task

ed w

ith h

andl

ing

corp

orat

e go

vern

ance

, CSR

, and

eth

ical

man

agem

ent b

est

prac

tice

prin

cipl

es. T

he C

ompa

ny a

lso

subm

its a

rep

ort r

egar

ding

the

impr

oved

item

s to

the

Boa

rd o

f Dire

ctor

s an

d, a

fter

taki

ng in

to c

onsi

dera

tion

the

spec

ific

aspe

cts

of e

ach

indu

stry

segm

ent a

nd a

ctua

l ope

ratin

g re

quire

men

ts, t

he B

oard

has

con

tinue

d its

effo

rts to

enh

ance

the

Com

pany

's co

rpor

ate

gove

rnan

ce, t

here

by b

oost

ing

the

core

com

petit

iven

ess o

f VIS

.

34

4. Compensation Committee

VIS has established a Compensation Committee as required by the

competent authority for assisting the BOD in the study and design of the

compensation policy and structure in order to attract, motivate, reward, and

retain talent. The functions of this committee are: Map out the

compensation policy and structure, the method for the release of fees for

directors and supervisors, the salaries of the managers and release of the

salaries, the reward for the managers and incentives for motivating people,

Planning and implementation of performance evaluations for the Board of

directors (including the Chairman) and managers (including the President)

any other duties assigned by or authorized by BOD.

Members of the Compensation Committee

Title Name

Over 5 years of working experience Criteria（Note） Number of other

public companies that concurrently serve as an member of

Compensation Committee

Remark

College Instructor or

higher level in Business, Legal,

Finance, Accounting or

company business related

area

Court Judge, Prosecutor,

Lawyer, Accountant, or other Certified Professional

expert related to company business

Business, Legal,

Finance, Accounting or

company business required working

experience

1 2 3 4 5 6 7 8

Independent Director

Chintay Shih

V V V V V V V V V V 2


Kenneth Kin

V V V V V V V V V V 3


Benson W.C. Liu

V V V V V V V V V 2

Note :

1. Not an employee of affiliated companies of the company and company.

2. Not a director, supervisor of affiliated companies of the company and company.

3. Not a natural person shareholder directly or indirectly owning more than 1% of the Company

outstanding shares, nor one of the Company top 10 natural person shareholders.

4. Not a spouse or a first-or-second-degree relative to any person specified in Criteria 1–3.

5. Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or

indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's top

five share-holders of juridical person.

6. Not a director, supervisor, manager or shareholder holding more than 5%of the outstanding shares of

certain companies or institutions that have financial or business relationship with the Company.

7. Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or

institution and his/her spouse, or the specialist and his/her spouse, that provides finance, commerce,

legal consultation and services to the Company or affiliated companies within one year.


35

Compensation Committee Operations Information

1. The company’s Compensation Committee is composed of three members

2. Term of office for the current members: June 8, 2015 to June 7, 2018. The

committee has met 5 times in the most recent year. Membership and attendance

information are provided below:

Title NameNo. of Meetings


Substituted Attendance

Rate Note

Convener Kenneth Kin 5 0 100%

Member Chintay Shih 4 1 80%

Member Benson W.C. Liu 5 0 100%

Other items of note: 1. If the Board of Directors does not adopt or amend the Compensation Committee’s

recommendations, the date, period, motion, decision of the board, and how the Company shallhandle the Committee’s recommendations must be clearly stated: None.

2. If members of the Compensation Committee oppose or reserve their opinions for any resolvedissues and have a record or written statement for it, the date, period, motion, and all opinions ofthe members and how these opinions were handled shall be clearly stated: None.

3. Matters concerning the Board of Directors Performance Evaluation Policy and methods andimplementation status of performance evaluations (in cases where an external institution orexperts are appointed to conduct evaluations of Board performance, the Company shall disclosethe name of the external institution in question and names of the experts and a description oftheir specialties, and indicate whether the external institution and experts have business dealingswith the Company and whether they are independent):The Company has formulated the Board of Directors Performance Evaluation Policy, which is aperformance evaluation policy which applies to Board members.The scope of the performance evaluation for the Company's Board of Directors includesevaluating individual directors, the Board as a whole, and functional committees. Internalevaluation shall be adopted for the evaluation of individual Board members and functionalcommittees. Both internal and external evaluations shall be adopted for the evaluation of theBoard as a whole.(1) Internal performance evaluation for individual Board members:

The evaluation items and evaluation forms compiled by the Compensation Committee during Q4 of each calendar year shall be used in the performance reviews carried out after the first quarter of the following calendar year (to be regularly implemented once annually), and the assessment results are incorporated into consideration for Board remuneration. Cumulative Evaluation Results for Y2017: The performance of all directors was determined to have met expectations.

(2) Internal performance evaluations for the Board as a whole and functional committees: The evaluation items and evaluation forms compiled by the Compensation Committee during the fourth quarter of each calendar year shall be used in the performance reviews carried out after the first quarter of the following calendar year (to be regularly implemented once annually). Cumulative evaluation results for Y2017: The overall performance of the Board as a whole and each functional committee was determined to have met expectations.

(3) External performance evaluation for the Board of Directors: At least once every three years, an outside professional institution is retained to carry out an

36

assessment. For Y2016, the Company engaged the Taiwan Corporate Governance Association to carry out an assessment.

Cumulative Evaluation Results for Y2016: The Company's Board of Directors and management team were found to have maintained open and direct lines of communication; the Board of Directors provided guidance on the Company's developmental strategies, established an incentive mechanism for managers, exercised effective oversight of the VIS management team's operating achievements, reduced the Company's operating risks, and regularly examined the effectiveness and implementation of various systems, and furthermore gradually consolidated the Company's corporate governance culture, thereby ensuring the Company possesses a strong foundation for future sustainability.

37

5.Im

plem

enta

tion

of C

orpo

rate

Soc

ial R

espo

nsib

ility

Mea

sure

s

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

1.Im

plem

enta

tion

of C

orpo

rate

Gov

erna

nce

(1)D

id th

e co

mpa

ny fo

rmul

ate

corp

orat

eso

cial

resp

onsi

bilit

y po

licie

s or s

yste

ms

and

revi

ew th

e ef

fect

iven

ess o

f its

im

plem

enta

tion?

(2)D

id th

e co

mpa

ny p

erio

dica

lly h

old

soci

al

resp

onsi

bilit

y tra

inin

g?

(3)D

id th

e co

mpa

ny e

stab

lish

a un

it ex

clus

ivel

y fo

r the

pro

mot

ion

of c

orpo

rate

so

cial

resp

onsi

bilit

y, a

nd d

id th

e bo

ard

of

dire

ctor

s aut

horiz

e hi

gh-le

vel

man

agem

ents

to m

anag

e th

is u

nit a

nd

repo

rt m

anag

emen

t pro

gres

s to

the

boar

d of

dire

ctor

s?

(4)D

id th

e co

mpa

ny fo

rmul

ate

reas

onab

le

rem

uner

atio

n po

licy,

inte

grat

e em

ploy

ee

V(1

)To

im

plem

ent

corp

orat

e so

cial

res

pons

ibili

ty a

nd e

mbr

ace

the

over

all

deve

lopm

ent

of

soci

etie

s, V

IS

has

esta

blis

hed

the

"Cor

pora

te

Soci

al

Res

pons

ibili

ty

Polic

y"

and

"Cor

pora

te S

ocia

l R

espo

nsib

ility

Rep

ort"

. V

IS c

omm

its t

o ab

ide

by e

thic

al n

orm

s in

bu

sine

ss m

anag

emen

t, as

sum

e en

viro

nmen

tal

prot

ectio

n re

spon

sibi

lity,

pro

vide

a s

afe

wor

king

env

ironm

ent,

and

prot

ect e

mpl

oyee

righ

ts, a

s the

cru

cial

crit

eria

for m

aint

aini

ng

posi

tive

deve

lopm

ents

in o

ur so

ciet

y.

(2)

To e

mbr

ace

soci

al r

espo

nsib

ility

and

pro

mot

e co

rpor

ate

gove

rnan

ce,

VIS

con

stan

tly

rem

inds

and

pro

mot

es c

orpo

rate

gov

erna

nce

conc

epts

and

arr

ange

s co

rpor

ate

soci

al

resp

onsi

bilit

y tra

inin

g to

the

boar

d of

dire

ctor

s, in

depe

nden

t dire

ctor

s, an

d em

ploy

ees.

For e

xam

ple,

form

ulat

ing

ethi

cal n

orm

s fo

r bus

ines

s pr

actic

e re

pres

ents

the

advo

cacy

of

inte

grity

and

eth

ical

bus

ines

s be

havi

or;

prom

otin

g th

e im

porta

nce

of i

nteg

rity

and

uprig

htne

ss h

elps

em

ploy

ees

unde

rsta

nd th

e co

ncep

t an

d pr

inci

ples

of

busi

ness

eth

ics,

ther

eby

mot

ivat

ing

them

to c

ompl

y w

ith la

ws

and

regu

latio

ns. E

mpl

oyee

s' pa

rtici

patio

n in

rel

evan

t tra

inin

g pr

ogra

ms

is r

ecor

ded

and

regi

ster

ed.

The

train

ing

outc

omes

are

pr

ovid

ed

to

thei

r re

spec

tive

supe

rvis

ors

as

refe

renc

e fo

r em

ploy

ee

perf

orm

ance

as

sess

men

ts.

(3)

The

com

pany

has

set

up

the

"Cor

pora

te S

ocia

l Res

pons

ibili

ty P

rom

otio

n C

omm

ittee

" to

ta

ke c

harg

e of

est

ablis

hing

the

corp

orat

e so

cial

res

pons

ibili

ty p

olic

y an

d pr

opos

ing

and

impl

emen

ting

syst

ems

whi

le a

t the

sam

e tim

e co

nsta

ntly

ref

lect

ing

the

impl

emen

tatio

n ef

fect

iven

ess

and

mak

ing

cons

tant

impr

ovem

ents

, ens

urin

g ex

ecut

ion

of th

e co

mpa

ny's

corp

orat

e so

cial

resp

onsi

bilit

y po

licy.

The

Com

mitt

ee p

erio

dica

lly re

ports

to th

e bo

ard

of

dire

ctor

s reg

ardi

ng p

rom

otio

n pr

ogre

ss. T

he st

ruct

ure

of c

ompa

ny’s

CSR

com

mitt

ee

plea

se re

fers

to o

ur w

ebsi

te v

ia

http

://w

ww

.vis

.com

.tw/v

isC

om/e

nglis

h/do

wnl

oad/

csr_

grou

p.jp

g A

nd V

IS C

SR A

ctiv

ities

& P

erfo

rman

ce p

leas

e re

fers

to o

ur w

ebsi

te v

ia

http

://w

ww

.vis

.com

.tw/v

isC

om/e

nglis

h/a_

abou

t/a05

_cor

pora

tion_

soci

al_r

esp.

htm

Th

e co

mm

ittee

has

des

igna

ted

repr

esen

tativ

es to

con

vene

mee

tings

on

a qu

arte

rly

Bas

is, a

nd re

porte

d to

Boa

rd o

f Dire

ctor

s tw

ice

in a

yea

r. (4

)V

IS p

rovi

des

its e

mpl

oyee

s w

ith c

ompe

nsat

ion

abov

e th

e st

anda

rd o

f th

at o

f th

e sa

me

indu

strie

s. A

dditi

onal

ly, t

he c

ompa

ny's

perf

orm

ance

ass

essm

ent

syst

em c

onsi

ders

bot

h

No

varia

tion

38

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

perf

orm

ance

ass

essm

ents

with

the

corp

orat

e so

cial

resp

onsi

bilit

y po

licy,

and

es

tabl

ish

an e

ffect

ive

rew

ardi

ng a

nd

puni

shm

ent s

yste

m?

com

pany

stra

tegi

es a

nd p

erso

nal p

erfo

rman

ce g

oals

to

keep

em

ploy

ees'

rem

uner

atio

ns

are

clos

ely

linke

d w

ith t

heir

perf

orm

ance

. Th

e pu

rpos

e is

to

enco

urag

e an

d re

war

d em

ploy

ees

for

thei

r ef

forts

du

ring

polic

y pr

omot

ions

, th

ereb

y st

reng

then

ing

the

sust

aina

bilit

y of

futu

re p

olic

y pr

omot

ions

. 2.

Dev

elop

men

t of S

usta

inab

le E

nviro

nmen

t(1

)Is t

he c

ompa

ny c

omm

itted

to e

nhan

cing

the

usag

e ef

ficie

ncy

of v

ario

us re

sour

ces

and

utili

zing

rene

wab

le m

ater

ials

that

ex

ert a

low

impa

ct o

n en

viro

nmen

tal l

oad?

(2)D

id th

e co

mpa

ny e

stab

lish

an a

ppro

pria

te

envi

ronm

enta

l man

agem

ent s

yste

m

acco

rdin

g to

its i

ndus

try c

hara

cter

istic

s?

V

(1)

Min

imiz

ing

envi

ronm

enta

l im

pact

thro

ugh

gree

n pr

oduc

tion

is V

IS's

core

env

ironm

enta

l po

licy.

In Y

2017

, the

Com

pany

targ

eted

115

item

s in

an

ende

avor

to e

nhan

ce th

e us

age

effic

ienc

y of

var

ious

res

ourc

es,

was

te r

educ

tion

and

pollu

tion

min

imiz

atio

n. F

or

exam

ple,

VIS

has

mad

e ef

forts

to m

inim

ize

the

volu

me

of c

hem

ical

s an

d ga

ses

used

in

prod

uctio

n pr

oces

ses

and

has

inst

itute

d an

impr

ovem

ent p

lan

for d

ry p

ump

exha

ust k

its,

redu

ced

AC

T, O

2, T

MA

H, N

2, a

nd p

hoto

res

ista

nt w

aste

, in

corp

orat

ed t

he u

se o

f an

en

ergy

-sav

ing

dow

n-fr

eque

ncy

prim

ary

pum

p fo

r th

e co

ld w

ater

sys

tem

, 4%

H2/

N2

auto

mat

ic a

erat

ion

supp

ly t

o re

duce

ene

rgy

usag

e, a

nd o

ther

mea

sure

s de

sign

ed t

o m

itiga

te n

egat

ive

envi

ronm

enta

l im

pact

s.

(2)

In a

dditi

on to

uph

oldi

ng th

e sp

irit o

f co

ntin

uous

impr

ovem

ent e

mbe

dded

in th

e PD

CA

(P

lan-

Do-

Che

ck-A

ctio

n) m

etho

dolo

gy u

nder

ISO

140

01 (

Cer

tific

ated

sin

ce 1

997)

, VIS

co

nduc

ts a

rev

iew

of

rele

vant

env

ironm

enta

l pr

otec

tion

law

s an

d re

gula

tions

on

a m

onth

ly b

asis

and

mak

es c

orre

spon

ding

adj

ustm

ents

as

need

ed.

We

also

con

duct

di

scus

sion

mee

tings

with

env

ironm

enta

l, sa

fety

, and

hea

lth c

omm

ittee

s of

var

ious

leve

ls.

For e

xam

ple,

fab

dire

ctor

s ho

ld m

onth

ly c

omm

ittee

mee

tings

to e

xam

ine

envi

ronm

enta

l sa

fety

and

hea

lth is

sues

, and

the

vario

us d

epar

tmen

ts o

f ea

ch a

rea

(fab

man

ufac

turin

g,

AD

M

adm

inis

tratio

n,

and

IS

&

QR

A)

hold

qu

arte

rly

mee

tings

to

ex

amin

e th

e C

ompa

ny's

over

all o

pera

tions

rel

atin

g to

env

ironm

enta

l saf

ety

and

heal

th m

anag

emen

t sy

stem

s. A

rep

ort i

s th

en p

rese

nted

at a

qua

rterly

com

pany

-wid

e en

viro

nmen

tal s

afet

y an

d he

alth

com

mitt

ee m

eetin

g ho

sted

by th

e Pr

esid

ent o

f V

IS. I

n co

mpl

ianc

e w

ith th

e IS

O 1

4001

and

OH

SAS

1800

1 (C

ertif

icat

ed s

ince

200

3/22

6),

VIS

mai

ntai

ned

the

envi

ronm

ent,

safe

ty,

and

heal

th p

erfo

rman

ces

of i

ts m

anuf

actu

ring

plan

ts a

t le

vels

ex

ceed

ing

the

stan

dard

requ

irem

ents

. VIS

dem

onst

rate

d gr

eate

r tha

n 90

% e

ffici

ency

for

its h

andl

ing

of a

ir po

llutio

n pr

even

tion;

gre

ater

than

85%

wat

er re

cycl

ing

proc

essi

ng ra

te

(mor

e th

an 7

0% f

or F

ab 3

); gr

eate

r th

an 9

2% w

aste

rec

yclin

g ra

te (

mor

e th

an 8

7% f

or

Fab

3); z

ero

acci

dent

s, an

d le

ss th

an 2

abn

orm

al in

cide

nts p

er y

ear.

No

varia

tion

39

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

(3)D

id th

e co

mpa

ny sh

ow c

once

rns f

or th

e in

fluen

ce th

at c

limat

e ch

ange

has

on

its

busi

ness

act

iviti

es, a

nd e

mba

rk o

n in

vent

oryi

ng g

reen

hous

e ga

s em

issi

ons

and

form

ulat

ing

stra

tegi

es to

con

serv

e en

ergy

, red

uce

carb

on e

mis

sion

, and

de

crea

se g

reen

hous

e ga

s vol

ume?

(3)

Clim

ate

chan

ge to

pics

hav

e at

tract

ed a

ttent

ion

wor

ldw

ide,

so

as to

VIS

. In

addi

tion

to

follo

win

g ru

les

and

regu

latio

ns c

lose

ly, V

IS c

ondu

cts

corp

orat

ion-

wid

e G

HG

em

issi

on

inve

ntor

ies

annu

ally

as

wel

l as

exte

rnal

ver

ifica

tions

. Inv

ento

ry a

nd v

erifi

catio

n re

sults

ar

e re

porte

d to

the

gove

rnm

ent a

s w

ell a

s th

e hi

gh le

vel e

xecu

tives

in th

e H

ealth

, Saf

ety

and

Envi

ronm

enta

l Pr

otec

tion

Com

mitt

ee. A

nd o

ur t

arge

t fo

r co

nser

ve e

nerg

y, r

educ

e ca

rbon

em

issi

on,

and

decr

ease

gre

enho

use

gas

volu

me

is i

n 20

21,

the

elec

trici

ty

cons

umpt

ion

per u

nit a

rea

of w

afer

is re

duce

d by

10%

com

pare

d w

ith 2

016.

And

bas

ed

on t

he 2

015

GH

G c

arbo

n em

issi

on c

oeffi

cien

t an

noun

ced

by t

he T

aiw

an P

ower

C

ompa

ny, t

he G

HG

em

issi

on p

er u

nit a

rea

of w

afer

is e

xpec

ted

to b

e 15

% le

ss b

y 20

21

than

the

amou

nt e

mitt

ed in

201

6.

3.Pr

otec

tion

of S

ocie

ty's

Publ

ic In

tere

st(1

)Did

the

com

pany

form

ulat

e ap

plic

able

man

ager

ial p

olic

ies a

nd p

roce

dure

s in

acco

rdan

ce w

ith re

leva

nt re

gula

tions

and

in

tern

atio

nal h

uman

righ

ts c

onve

ntio

ns?

(2)D

id th

e co

mpa

ny e

stab

lish

a st

aff

com

plai

nt m

echa

nism

and

cha

nnel

s, an

d ad

equa

tely

han

dle

empl

oyee

com

plai

ns?

(3)D

id th

e co

mpa

ny p

rovi

de e

mpl

oyee

s a sa

fe

heal

thy

wor

king

env

ironm

ent,

and

perio

dica

lly e

duca

te e

mpl

oyee

s on

safe

ty

and

heal

th is

sues

?

V

(1)

VIS

is d

edic

ated

to th

e es

tabl

ishm

ent o

f a h

arm

onio

us a

tmos

pher

e in

labo

r-man

agem

ent

rela

tions

thro

ugh

mut

ual t

rust

in c

orpo

rate

man

agem

ent.

The

Com

pany

stric

tly o

bser

ves

all r

elev

ant l

abor

law

s of t

he g

over

nmen

t with

resp

ect t

o re

crui

tmen

t, hi

ring,

ap

poin

tmen

t, an

d di

smis

sal o

f em

ploy

ees,

and

we

supp

ort r

elev

ant i

nter

natio

nal l

abor

an

d hu

man

righ

ts st

anda

rds i

nclu

ding

the

UN

's U

nive

rsal

Dec

lara

tion

of H

uman

Rig

hts

(UD

HR

) as w

ell a

s the

Ele

ctro

nic

Indu

stry

Citi

zens

hip

Coa

litio

n (E

ICC

) Cod

e of

C

ondu

ct.V

IS h

as e

stab

lishe

d th

e em

ploy

ee h

andb

ook,

as w

ell a

s the

per

sonn

el

regu

latio

ns m

anua

l for

em

ploy

ees t

o im

plem

ent t

he ru

les.

(2

)V

IS is

ded

icat

ed to

the

esta

blis

hmen

t of h

arm

onio

us a

tmos

pher

e in

labo

r-man

agem

ent

rela

tion

thro

ugh

mut

ual t

rust

in c

orpo

rate

man

agem

ent.

It em

brac

es a

n ac

tive,

ope

n m

anag

emen

t mod

el to

cre

ate

a w

ork

envi

ronm

ent t

hat i

s bot

h ch

alle

ngin

g an

d fu

n. V

IS

prov

ides

a v

arie

ty o

f way

to im

prov

ing

empl

oyee

labo

r-man

agem

ent c

omm

unic

atio

n,

such

as h

ostin

g or

ient

atio

n of

new

peo

ple,

qua

rterly

labo

r-man

agem

ent m

eetin

gs, a

nd

exec

utiv

e m

eetin

gs. T

he c

ompa

ny a

lso

sets

up

a m

ailb

ox fo

r em

ploy

ee c

omm

unic

atio

n.

In a

dditi

on, V

IS c

ondu

cts s

urve

y on

em

ploy

ee o

pini

ons r

egar

ding

thei

r sat

isfa

ctio

n w

ith

man

agem

ent a

nd th

e w

elfa

re sy

stem

regu

larly

. (3

)V

IS h

ighl

y va

lues

em

ploy

ees'

phys

ical

and

men

tal

heal

th,

impr

ovem

ents

in

wor

k en

viro

nmen

t, an

d pr

ovis

ion

of re

crea

tiona

l act

iviti

es a

nd fa

cilit

ies,

and

exer

ts it

s ut

mos

t ef

fort

in r

einf

orci

ng h

ealth

and

ins

uran

ce-r

elat

ed s

ervi

ces.

To c

ater

to

the

need

s of

em

ploy

ees'

daily

liv

es,

VIS

offe

rs a

cle

an w

orki

ng e

nviro

nmen

t w

ith a

n ar

ray

of

recr

eatio

nal

faci

litie

s al

ong

with

a v

arie

ty o

f re

crea

tiona

l ev

ents

to

give

em

ploy

ees

a

No

varia

tion

40

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

(4)D

id th

e co

mpa

ny d

evis

e a

perio

dic

com

mun

icat

ion

mec

hani

sm fo

r its

em

ploy

ees,

and

notif

y em

ploy

ees i

n a

reas

onab

le m

anne

r of p

oten

tial m

ajor

in

fluen

ces t

o th

e co

mpa

ny's

oper

atio

nal

proc

ess?

(5

)Did

the

com

pany

est

ablis

h ef

fect

ive

care

er

deve

lopm

ent p

rogr

ams f

or it

s em

ploy

ees?

(6)D

id th

e co

mpa

ny fo

rmul

ate

rele

vant

po

licie

s for

pro

tect

ion

of c

onsu

mer

righ

ts

and

inte

rest

s and

con

sum

er c

ompl

aint

s pr

oced

ure

with

rega

rds t

o re

sear

ch &

de

velo

pmen

t (R

&D

), pr

ocur

emen

t,

chan

ce t

o en

joy

rela

xatio

n an

d fu

lfillm

ent

outs

ide

of w

ork.

In

orde

r to

saf

egua

rd t

he

heal

th o

f ou

r em

ploy

ees,

VIS

als

o of

fers

phy

sica

l he

alth

exa

min

atio

ns t

o re

fres

hers

, sp

ecifi

c em

ploy

ees,

and

in-s

ervi

ce e

mpl

oyee

s. In

add

ition

, we

regu

larly

pro

mot

e sp

ecia

l he

alth

che

cks;

hav

e m

easu

res

in p

lace

for

new

and

exp

ecta

nt m

othe

rs,

stre

ss-r

elie

f m

assa

ge s

ervi

ces,

coun

selin

g, a

nd e

xclu

sive

hea

lth a

nd f

itnes

s cl

asse

s. In

201

7,

empl

oyee

s pa

rtici

pate

d in

hea

lth-p

rom

otio

n pr

ojec

ts a

tot

al o

f 4,

317

times

. V

IS a

lso

rece

ived

the

Act

ive

Wor

kpla

ce A

war

d fr

om th

e H

ealth

Pro

mot

ion

Adm

inis

tratio

n. S

ince

20

14, V

IS h

as p

rocu

red

flu v

acci

nes

and

reta

ined

doc

tors

to v

acci

nate

em

ploy

ees

on th

e C

ompa

ny's

prem

ises

. In

addi

tion,

VIS

has

bee

n re

cogn

ized

for

its

vacc

inat

ion

prog

ram

tw

o ye

ars

in a

row

by

the

Taiw

an C

ente

rs f

or D

isea

se C

ontro

l (C

DC

), an

d V

IS h

as

invi

ted

med

ical

phy

sici

ans

to p

rovi

de m

edic

al c

are

serv

ices

at

our

faci

litie

s, su

ch a

s pr

ovid

ing

heal

th c

onsu

ltatio

ns,

med

ical

exa

min

atio

ns,

and

help

ing

inju

red

empl

oyee

s un

derg

o re

habi

litat

ion

and

retu

rn to

wor

k.

(4)

Mor

eove

r, th

e co

mpa

ny

prov

ided

di

ffere

nt

chan

nels

fo

r la

bor-m

anag

emen

t co

mm

unic

atio

ns, s

uch

as h

ostin

g or

ient

atio

n of

new

peo

ple,

qua

rterly

labo

r-man

agem

ent

mee

tings

, and

exe

cutiv

e m

eetin

gs. T

he c

ompa

ny a

lso

sets

up

a m

ailb

ox f

or e

mpl

oyee

co

mm

unic

atio

n. In

add

ition

, VIS

con

duct

s su

rvey

on

empl

oyee

opi

nion

s re

gard

ing

thei

r sa

tisfa

ctio

n w

ith m

anag

emen

t and

the

wel

fare

syst

em re

gula

rly.

(5)

VIS

ha

s a

com

preh

ensi

ve

train

ing

syste

m

for

train

ing

prof

essi

onal

ta

lent

s an

d de

velo

ping

em

ploy

ees’

pote

ntia

l. Th

is c

ompr

ehen

sive

tra

inin

g sy

stem

inc

lude

s ne

w

com

ers’

orie

ntat

ion,

man

ager

ial

train

ing,

pro

fess

iona

l tra

inin

g, e

xter

nal

train

ing,

and

se

lf- d

evel

opm

ent.

To s

yste

mat

ize

all l

earn

ing

proc

ess,

we

have

est

ablis

hed

the

Trai

ning

M

anag

emen

t Sys

tem

, whi

ch p

rovi

des

pers

onal

lear

ning

pla

ns f

or th

e ye

ar o

r en

dura

nce

culti

vatio

n pr

ogra

ms

for e

mpl

oyee

s to

bui

ld u

p pe

rson

al le

arni

ng ro

adm

ap a

nd c

ultiv

ate

self-

mot

ivat

ed le

arni

ng c

ultu

re. M

eanw

hile

, to

help

dev

elop

key

man

agem

ent p

erso

nnel

, th

e C

ompa

ny a

lso

offe

rs v

ario

us c

aree

r dev

elop

men

t res

ourc

es a

nd a

ctiv

ities

to fa

cilit

ate

the

plac

emen

t of

man

agem

ent p

erso

nnel

at e

ach

leve

l of

the

Com

pany

and

sea

mle

ssly

fil

l cru

cial

job

posi

tions

with

in e

ach

unit.

(6

)V

IS

has

esta

blis

hed

a G

uide

line

for

Han

dlin

g C

usto

mer

C

ompl

aint

s, pr

ovid

ing

cust

omer

s a

trans

pare

nt,

effe

ctiv

e ch

anne

l to

file

the

com

plai

nts

they

hav

e fo

r ou

r pr

oduc

ts a

nd s

ervi

ces.

In a

dditi

on, t

he c

ompa

ny h

andl

es c

usto

mer

com

plai

nts

fairl

y an

d in

stan

tly, a

nd c

ompl

ies w

ith re

leva

nt la

ws a

nd re

gula

tions

in re

spec

ting

cust

omer

priv

acy

41

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

prod

uctio

n, o

pera

ting,

and

serv

ice

proc

edur

es?

(7)D

id th

e co

mpa

ny c

ompl

y w

ith a

pplic

able

la

ws,

regu

latio

ns, a

nd in

tern

atio

nal

stan

dard

s whe

n m

arke

ting

and

labe

ling

its

prod

ucts

and

serv

ices

?

(8)B

efor

e co

oper

atin

g w

ith a

supp

lier,

did

the

com

pany

ass

ess w

heth

er th

e su

pplie

r had

re

cord

s of e

ngag

ing

in a

ctiv

ities

that

in

fluen

ced

the

envi

ronm

ent a

nd so

ciet

y?

(9)I

n th

e co

ntra

ct si

gned

bet

wee

n V

IS a

nd it

s pr

imar

y su

pplie

rs, d

oes i

t inc

lude

pr

ovis

ions

stat

ing

the

term

inat

ion

or

resc

indm

ent o

f the

con

tract

for i

nsta

nces

w

hen

the

supp

lier v

iola

tes t

he c

ompa

ny's

corp

orat

e so

cial

resp

onsi

bilit

y po

licy

such

th

at it

s act

ions

sign

ifica

ntly

influ

ence

d th

e en

viro

nmen

t and

soci

ety?

and

prot

ectio

n cu

stom

er

info

rmat

ion.

V

IS

also

pe

riodi

cally

as

sess

es

cust

omer

sa

tisfa

ctio

n w

ith

the

com

pany

, co

mm

issi

onin

g ex

tern

al

agen

cies

to

ha

ndle

su

ch

asse

ssm

ents

. Th

e co

mpa

ny v

iew

s cu

stom

ers

as i

ts c

ruci

al s

take

hold

ers,

atte

ndin

g to

cu

stom

er o

pini

ons

and

usin

g th

ese

opin

ions

as

the

basi

s to

impr

ove

proc

ess

tech

nolo

gy,

serv

ice

and

prod

uct d

eliv

ery

perf

orm

ance

. (7

)Th

e co

mpa

ny c

ompl

ies

with

app

licab

le l

aws,

regu

latio

ns,

and

inte

rnat

iona

l st

anda

rds

whe

n m

arke

ting

its p

rodu

cts a

nd se

rvic

es.

(8)

Bef

ore

coop

erat

ing

with

a n

ew s

uppl

ier,

VIS

's re

leva

nt u

nit

eval

uate

s th

e po

tent

ial

supp

lier

to e

nsur

e it

is n

ot in

volv

ed in

act

iviti

es th

at a

dver

sely

impa

ct th

e en

viro

nmen

t an

d so

ciet

y an

d to

mak

e su

re th

e su

pplie

r ful

fills

all

lega

l req

uire

men

ts. M

oreo

ver,

VIS

pe

rfor

ms

a qu

alifi

catio

ns r

evie

w, c

ondu

cts

an o

n-si

te a

udit,

and

req

uest

s th

e po

tent

ial

supp

lier t

o si

gn V

IS's

Cor

pora

te S

ocia

l Res

pons

ibili

ty R

ules

. (9

)Th

e co

mpa

ny s

peci

fies

in th

e co

ntra

ct th

at th

e su

pplie

r mus

t adh

ere

to re

leva

nt la

ws

and

regu

latio

ns (

incl

udin

g bu

t no

t lim

ited

to t

he c

orpo

rate

soc

ial

resp

onsi

bilit

y po

licy)

; fa

ilure

to d

o so

shal

l res

ult i

n te

rmin

atio

n of

coo

pera

tion

with

VIS

.

4.St

reng

then

ing

of In

form

atio

n D

iscl

osur

eM

easu

res

(1)D

id th

e co

mpa

ny d

iscl

ose

any

rele

vant

and

relia

ble

corp

orat

e so

cial

resp

onsi

bilit

y in

form

atio

n on

its w

ebsi

te a

nd o

n th

e M

arke

t Obs

erva

tion

Post

Sys

tem

of t

he

Taiw

an S

tock

Exc

hang

e w

ebsi

te?

V

VIS

com

pile

s a

corp

orat

e so

cial

resp

onsi

bilit

y re

port

each

yea

r and

pub

lishe

s su

ch re

port

on

the

com

pany

web

site

and

on

the

Mar

ket O

bser

vatio

n Po

st S

yste

m, a

llow

ing

inve

stor

s ac

cess

to

rele

vant

cor

pora

te so

cial

resp

onsi

bilit

y in

form

atio

n.

No

varia

tion

5.If

the

com

pany

did

form

ulat

e pr

inci

ples

for c

orpo

rate

soci

al re

spon

sibi

lity

prac

tices

acc

ordi

ng to

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es, p

leas

e st

ate

the

varia

tions

in th

e op

erat

ions

and

rule

s of s

uch

prac

tice:

VIS

has

dev

elop

ed a

VIS

Cor

pora

te S

ocia

l Res

pons

ibili

ty M

anua

l as a

gui

de fo

r the

com

pany

to im

plem

ent i

ts so

cial

resp

onsi

bilit

ies;

such

impl

emen

tatio

n co

nfor

ms t

o th

e sp

irit o

f the

42

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

Cor

pora

te S

ocia

l Res

pons

ibili

ty B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es.

6.O

ther

Info

rmat

ion

for B

ette

r Und

erst

andi

ng o

f the

com

pany

's co

rpor

ate

soci

al re

spon

sibi

lity

prac

tices

:V

ISC

SR A

ctiv

ities

& P

erfo

rman

ce

In te

rms

of e

cono

mic

act

iviti

es, V

IS w

ill c

ontin

ue to

pro

vide

com

petit

ive

man

ufac

turin

g pr

oces

s te

chno

logi

es a

nd s

ervi

ces,

and

enha

nce

its b

usin

ess

perf

orm

ance

to m

axim

ize

the

econ

omic

va

lue

for i

ts sh

areh

olde

rs, e

mpl

oyee

s, an

d so

ciet

y.

Econ

omic

ally

: Dra

gged

by

NTD

app

reci

atio

n, re

venu

e of

NT$

24.9

1 bi

llion

in 2

017,

a 3

.6%

dec

reas

e fr

om 2

016,

whi

le m

aint

aini

ng s

tabl

e pr

ofit

at n

et in

com

e af

ter t

ax o

f NT$

4.51

bill

ion

at

NT$

2.73

ear

ning

s per

shar

e. T

he re

turn

on

shar

ehol

ders

' equ

ity w

as 1

5.93

%.

As

for e

nviro

nmen

tal p

rote

ctio

n, V

IS m

aint

aine

d th

e sp

irit o

f con

tinuo

usly

impr

ovin

g its

env

ironm

enta

l pro

tect

ion

prac

tices

and

hea

lth a

nd s

afet

y m

anag

emen

t. In

com

plia

nce

with

the

ISO

14

001

and

OH

SAS

1800

1 st

anda

rds,

VIS

mai

ntai

ned

the

envi

ronm

ent,

safe

ty,

and

heal

th p

erfo

rman

ces

of i

ts m

anuf

actu

ring

plan

ts a

t le

vels

exc

eedi

ng t

he s

tand

ard

requ

irem

ents

. V

IS

dem

onst

rate

d gr

eate

r tha

n 90

% e

ffici

ency

for i

ts h

andl

ing

of a

ir po

llutio

n pr

even

tion;

gre

ater

than

85%

wat

er re

cycl

ing

proc

essin

g ra

te (T

arge

t for

Fab

3 w

as re

vise

d up

from

mor

e th

an 7

0% in

20

16 to

mor

e th

an 7

5% in

201

7); g

reat

er th

an 9

2% w

aste

recy

clin

g ra

te (m

ore

than

87%

for F

ab 3

); ze

ro a

ccid

ents

. The

tabl

e be

low

sum

mar

izes

the

over

all e

nviro

nmen

tal,

safe

ty a

nd h

ealth

pe

rfor

man

ce o

f the

Com

pany

in 2

017:

C

orpo

rate

Soc

ial

Res

pons

ibili

ty Is

sues

G

oals

Pe

rfor

man

ce In

dica

tor o

r C

riter

ia

2017

Out

com

e Fu

ture

dire

ctio

n/C

ontin

ual A

ctio

n Pl

an

Ener

gy C

onse

rvat

ion

Ener

gy C

onse

rvat

ion

Kw

H/c

m2

4.8%

less

ele

ctric

ity p

er u

nit a

rea

of w

afer

was

co

nsum

ed in

201

7 co

mpa

red

with

201

6.

Con

tinue

to in

trodu

ce IS

O 5

0001

Ene

rgy

Man

agem

ent

Syst

em a

nd re

ceiv

ed c

ertif

icat

ion

in D

ecem

ber ‘

17.

In 2

017,

the

elec

trici

ty c

onsu

mpt

ion

per u

nit

area

of w

afer

is re

duce

d by

3%

com

pare

d w

ith 2

016.

Con

tinue

to in

stal

l ene

rgy-

effic

ient

and

ene

rgy

recy

clin

g sy

stem

s

In 2

021,

the

elec

trici

ty c

onsu

mpt

ion

per u

nit

area

of w

afer

is re

duce

d by

10%

com

pare

d w

ith 2

016.

Air

Pollu

tion

Red

uce

the

inte

nsity

of v

olat

ile o

rgan

ic

com

poun

d (V

OC

) em

issi

ons

Kg/

waf

er-m

2 In

201

7, th

e in

tens

ity o

f VO

C e

mis

sion

s is r

educ

ed b

y 10

.9%

com

pare

d w

ith 2

016

Con

tinue

to e

ncou

rage

the

redu

ctio

n of

VO

C e

mis

sion

In 2

017,

the

inte

nsity

of V

OC

em

issi

ons i

s re

duce

d by

5%

com

pare

d w

ith 2

016

Con

tinue

to im

prov

e tre

atm

ent e

quip

men

t eff

icie

ncy

In 2

021,

the

inte

nsity

of V

OC

em

issi

ons i

s re

duce

d by

15%

com

pare

d w

ith 2

016

Wat

er C

onse

rvat

ion

Fab1

/Fab

2: G

reat

er th

an 8

5% w

ater

recy

clin

g pr

oces

sing

rate

W

ater

recy

clin

g pr

oces

sing

ra

te (%

) Fa

b1/F

ab2:

Gre

ater

than

85%

wat

er re

cycl

ing

proc

essi

ng ra

te

Con

tinue

to p

rom

ote

proc

ess o

ptim

izat

ion

for r

educ

tion

of w

ater

con

sum

ptio

n

43

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

an

d R

easo

n fo

r the

Var

iatio

n

Yes

No

Des

crip

tion

Fab3

: Gre

ater

than

75%

wat

er re

cycl

ing

proc

essi

ng ra

te

Fab3

: Gre

ater

than

75%

wat

er re

cycl

ing

proc

essi

ng

rate

Was

te m

anag

emen

t

Incr

easi

ng re

cycl

ing

rate

of i

ndus

trial

was

te

(%)

Rec

yclin

g ra

te o

f ind

ustri

al

was

te (%

)

In 2

017,

the

recy

clin

g ra

te o

f ind

ustri

al w

aste

exc

eede

d 92

% fo

r sev

en y

ears

in a

row

C

ontin

ue to

pro

mot

e w

aste

redu

ctio

n an

d w

aste

re

cycl

ing/

reus

e

In 2

017,

the

recy

clin

g ra

te o

f ind

ustri

al w

aste

ex

ceed

ed 9

0%

In 2

017,

0%

of i

ndus

trial

was

tes w

ere

burie

d C

oope

rate

with

ven

dors

to d

evel

op n

ew w

aste

rec

yclin

g te

chno

logi

es

Prev

entio

n an

d C

ontro

l of P

ollu

tion

Ach

ieve

ze

ro

pollu

tion

(e.g

., w

aste

ga

s, w

aste

wat

er, u

nder

grou

nd p

ollu

tion)

Insp

ectio

n pa

ss ra

te (%

); no

vi

olat

ions

acc

ordi

ng to

in

spec

tions

by

the

com

pete

nt a

utho

rity

100%

pas

s rat

e ac

hiev

ed in

201

7 C

ontin

ue

to

prom

ote

ISO

14

001

Envi

ronm

enta

l M

anag

emen

t Sys

tem

Occ

upat

iona

l Hea

lth

and

Safe

ty

Prov

ide

safe

and

cle

an w

ork

envi

ronm

ents

fo

r em

ploy

ees

Num

ber o

f cat

astro

phic

oc

cupa

tiona

l haz

ards

Th

ere

wer

e no

inc

iden

ts o

f ca

tast

roph

ic o

ccup

atio

nal

haza

rds (

incl

udin

g in

jurie

s and

occ

upat

iona

l dis

ease

s)En

sure

wor

kpla

ce s

afet

y an

d pr

even

t th

e oc

curr

ence

of

occu

patio

nal d

isea

ses

Red

uce

disa

blin

g in

jury

fr

eque

ncy

and

seve

rity

of d

isab

ling

inju

ries

Dis

ablin

g in

jury

freq

uenc

y an

d se

verit

y of

dis

ablin

g in

jurie

s

Empl

oyee

dis

ablin

g in

jury

fre

quen

cy a

nd s

ever

ity o

f di

sabl

ing

inju

ries

wer

e lo

wer

than

the

aver

age

valu

e of

th

e do

mes

tic

sem

icon

duct

or

indu

stry

fo

r th

ree

cons

ecut

ive

year

s an

d w

ere

low

er t

han

the

aver

age

valu

e of

the

dom

estic

ele

ctro

nic

com

pone

nt i

ndus

try

for f

ive

cons

ecut

ive

year

s

Bec

ome

a w

orld

-cla

ss

benc

hmar

k w

ith

the

low

est

disa

blin

g in

jury

fr

eque

ncy

and

seve

rity

of

disa

blin

g in

jurie

s

Dam

age

Prev

entio

n an

d C

ontro

l R

educ

e pr

oper

ty lo

sses

cau

sed

by a

ccid

enta

l in

cide

nts (

incl

udin

g na

tura

l dis

aste

rs)

Num

ber o

f fire

dis

aste

rs

Ther

e w

ere

no a

ccid

enta

l in

cide

nts

aris

ing

from

fire

di

sast

ers

Prev

ent f

ire-r

elat

ed a

ccid

enta

l inc

iden

ts a

nd b

ecom

e th

e be

nchm

ark

com

pany

th

at

achi

eved

th

e be

st

dam

age

prev

entio

n pe

rfor

man

ce in

the

indu

stry

Am

ount

of p

rope

rty lo

sses

ca

used

by

fire

disa

ster

Th

ere

wer

e no

pro

perty

loss

es c

ause

d by

fire

dis

aste

r R

educ

e pr

oper

ty lo

sses

cau

sed

by e

arth

quak

e

In te

rms

of s

ocia

l jus

tice,

the

Com

pany

will

do

its b

est t

o co

ntrib

ute

to th

e co

mm

unity

by

allo

catin

g m

ore

reso

urce

s, sp

onso

ring

char

ity e

vent

s, pr

omot

ing

cultu

ral e

duca

tion,

and

par

ticip

atin

g in

arts

/cul

tura

l act

iviti

es. I

n 20

17, V

IS h

as in

tegr

ated

vol

unte

er g

roup

s fo

rmed

by

its e

mpl

oyee

s an

d es

tabl

ishe

d ac

tivity

gro

ups

base

d on

the

requ

irem

ents

of c

are

reci

pien

ts. I

n ad

ditio

n, V

IS

44

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

rTW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Yes

No

Des

crip

tion

will

effe

ctiv

ely

utili

ze it

s re

sour

ces

to e

ffici

ently

pro

mot

e va

rious

cha

rity

even

ts a

nd p

rovi

de s

ervi

ces

to th

ose

in n

eed.

In 2

017

VIS

gav

e ba

ck to

the

com

mun

ity b

y do

natin

g N

T$4,

852,

000

to

char

ity a

nd d

isad

vant

aged

gro

ups.

Reg

ardi

ng e

mpl

oyee

ben

efits

, the

tota

l cos

t of

empl

oyee

ben

efits

in 2

017

was

NT$

6.38

bill

ion;

this

num

ber

refle

cted

the

Com

pany

's co

ntin

ued

effo

rts in

ca

ring

for

and

rew

ardi

ng i

ts e

mpl

oyee

s. Th

e C

SR C

omm

ittee

will

con

tinue

to

hold

reg

ular

mee

tings

, dur

ing

whi

ch c

omm

ittee

mem

bers

will

dis

cuss

and

pla

n re

leva

nt a

ctiv

ities

tha

t ar

e be

nefic

ial t

o so

ciet

y or

cha

ritab

le c

ause

s. O

ther

det

ails

incl

udes

: So

cial

Con

cern

s:

The

Com

pany

act

ivel

y ta

kes

part

in c

omm

unity

and

pub

lic c

harit

y ev

ents

and

con

sist

ently

dem

onst

rate

s its

con

cern

for

dis

adva

ntag

ed p

erso

ns w

ithin

our

com

mun

ities

by

mak

ing

tang

ible

co

ntrib

utio

ns to

soci

ety.

In J

anua

ry 2

017,

the

Com

pany

est

ablis

hed

a pr

ogra

m fo

r rai

sing

cha

ritab

le d

onat

ions

for S

man

gus c

onstr

uctio

n of

thei

r new

kin

derg

arte

n. In

all,

our

col

leag

ues h

elpe

d ra

ise

NT$

1.22

mill

ion

whi

ch w

as fu

rther

mat

ched

by

a do

natio

n of

NT$

780,

000

from

the

Com

pany

for a

gra

nd to

tal o

f NT$

2 m

illio

n to

hel

p th

e Sm

angu

s con

stru

ct th

eir n

ew k

inde

rgar

ten

and

turn

the

ir dr

eam

int

o a

real

ity.

In a

dditi

on,

the

Com

pany

org

aniz

es e

mpl

oyee

out

ings

to

mou

ntai

nous

are

as i

n or

der

to p

rovi

de v

olun

teer

ser

vice

s an

d le

nd e

duca

tiona

l as

sist

ance

to

kind

erga

rtens

. In

2017

, a to

tal o

f 23

empl

oyee

s vol

unte

ered

to v

isit

Sman

gus,

an in

dige

nous

vill

age,

and

pro

vide

edu

catio

nal s

ervi

ces a

s wel

l as d

onat

e a

colle

ctio

n of

boo

ks a

nd c

ompu

ters

to a

ki

nder

garte

n. F

rom

Jun

e 21

–22,

VIS

em

ploy

ees

orga

nize

d an

edu

catio

nal f

ield

trip

for a

gro

up o

f sch

oolc

hild

ren

from

Sm

angu

s to

vis

it th

e N

atio

nal T

aiw

an S

cien

ce E

duca

tion

Cen

ter a

nd th

e Ta

ipei

Zoo

. To

car

e fo

r tho

se w

ith p

hysi

cal a

nd m

enta

l dis

abili

ties,

the

Com

pany

invi

ted

the

the

St. J

osep

h So

cial

Wel

fare

Fou

ndat

ion,

Syi

nlu

Soci

al W

elfa

re F

ound

atio

n, a

nd C

hild

ren

Are

Us

Foun

datio

n to

atte

nd th

e C

ompa

ny's

year

-end

par

ty to

cel

ebra

te to

geth

er w

ith V

IS e

mpl

oyee

s, an

d V

IS d

onat

ed N

T$20

0,00

0 to

eac

h of

the

Foun

datio

n to

fun

d le

arni

ng a

nd r

ehab

ilita

tion

serv

ices

for

pe

ople

with

phy

sica

l and

men

tal d

isab

ilitie

s. Fu

rther

mor

e, th

e C

ompa

ny h

as c

ontin

ued

to m

ake

its a

nnua

l con

tribu

tion

of N

T$20

0,00

0 to

the

St. J

osep

h So

cial

Wel

fare

Fou

ndat

ion'

s ch

arity

pr

ogra

ms

and

Chr

istm

as e

vent

s to

brin

g jo

y an

d w

arm

th to

our

frie

nds

in th

e co

mm

unity

who

hav

e ph

ysic

al a

nd m

enta

l dis

abili

ties.

In a

dditi

on, V

IS a

lso

invi

ted

Hua

shan

Soc

ial W

elfa

re

Foun

datio

n an

d C

hild

ren

Are

Us

Foun

datio

n to

par

ticip

ate

in th

e C

ompa

ny's

Sept

embe

r 23r

d Fa

mily

Day

act

ivity

hel

d at

Leo

foo

Vill

age

Them

e Pa

rk, a

nd V

IS a

lso

dona

ted

NT$

200,

000

to

each

of t

hese

Fou

ndat

ions

. V

IS a

lso

spon

sore

d N

atio

nal T

sing

Hua

Uni

vers

ity's

"Sun

rise

Prog

ram

" by

pro

vidi

ng a

n an

nual

sch

olar

ship

of

NT$

200,

000

to tw

o st

uden

ts w

ho e

ach

com

e fr

om a

dis

adva

ntag

ed f

amily

ba

ckgr

ound

, ena

blin

g th

ese

low

-inco

me

stud

ents

to

conc

entra

te o

n th

eir

scho

olin

g w

ithou

t ha

ving

to

wor

ry a

bout

fin

anci

al c

once

rns.

In a

n ef

fort

to h

elp

give

bac

k to

soc

iety

, VIS

als

o sp

onso

red

the

"TSM

C M

usic

al T

heat

er E

vent

” by

pro

vidi

ng N

T$10

0,00

0 in

a b

id to

pro

mot

e ar

t edu

catio

n.

Furth

erm

ore,

to p

rom

ote

soci

al h

arm

ony,

the

Com

pany

has

mad

e a

spec

ial s

pons

orsh

ip o

f NT$

2 m

illio

n to

IC B

road

cast

ing

Co.

, Ltd

. sin

ce 2

015,

to p

rodu

ce "

The

Futu

re o

f Tai

wan

& T

aiw

an

in th

e Fu

ture

". In

this

pro

gram

, cur

rent

glo

bal t

rend

s, ed

ucat

ion

in T

aiw

an, t

alen

ted

peop

le, s

ocia

l liv

elih

ood,

ene

rgy

reso

urce

s, an

d en

viro

nmen

tal p

rote

ctio

n et

c. to

pics

are

dis

cuss

ed. A

fter

broa

dcas

ting

the

prog

ram

, the

re w

as a

n as

toun

ding

resp

onse

Pr

oduc

t Con

cern

s:

In 2

017,

VIS

suc

cess

fully

sol

icite

d 30

0 of

its

supp

liers

to s

ign

and

com

ply

with

the

Com

pany

's C

SR P

olic

y A

gree

men

t, an

d th

e C

ompa

ny a

lso

carr

ied

out o

n-si

te a

udits

at t

he p

rem

ises

of 7

su

pplie

rs.

Envi

ronm

enta

l and

Per

sonn

el C

once

rns:

Fo

r fur

ther

det

ails

, ple

ase

refe

r to

Sect

ion

IV: "

Bus

ines

s Ove

rvie

w –

Env

ironm

enta

l Pro

tect

ion

Expe

nditu

res a

nd L

abor

-Man

agem

ent R

elat

ions

" of

this

Ann

ual R

epor

t. 6.

If th

e co

mpa

ny's

corp

orat

e so

cial

resp

onsi

bilit

y re

port

pass

es th

e ve

rific

atio

n st

anda

rds o

f rel

evan

t ver

ifica

tion

inst

itutio

ns, d

escr

iptio

ns o

f it s

houl

d be

pro

vide

d:Y

2016

CSR

repo

rt ha

ve b

een

verif

ied

to c

ompl

y w

ith th

e ac

coun

tabi

lity

prin

cipl

es o

f inc

lusi

vity

, mat

eria

lity

and

resp

onsi

vene

ss b

y th

e B

ritis

h St

anda

rds I

nstit

utio

n (B

SI) T

aiw

an b

ranc

h of

fice,

45

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

rTW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Yes

No

Des

crip

tion

acco

rdin

g to

the

AA

1000

AS:

200

8 A

ssur

ance

Sta

ndar

ds a

nd th

e re

quire

men

ts o

f GRI

G4.

And

the

repo

rt ad

here

s to

the

"Cor

e" o

ptio

n of

the

GR

I G4,

and

con

form

s to

the

AA

1000

Typ

e II

hi

gh-le

vel a

ccou

ntab

ility

. (Th

e C

ompa

ny's

2017

CSR

Rep

ort i

s cur

rent

ly u

nder

goin

g a

revi

ew.)

ISO

900

1 qu

ality

man

agem

ent s

yste

m c

ertif

icat

ion

ISO

/TS

1694

9 ve

hicl

e qu

ality

man

agem

ent s

yste

m c

ertif

icat

ion

ISO

140

01 e

nviro

nmen

tal m

anag

emen

t sys

tem

cer

tific

atio

nO

HSA

S 18

001

safe

ty a

nd h

ealth

man

agem

ent s

yste

m c

ertif

icat

ion

QC

080

000

Haz

ardo

us su

bsta

nce

man

agem

ent s

yste

m c

ertif

icat

ion

Taiw

an o

ccup

atio

nal s

afet

y an

d he

alth

man

agem

ent s

yste

m (T

OSH

MS)

ver

ifica

tion

Gre

enho

use

gas (

GH

G) a

ccou

ntin

g an

d ve

rific

atio

n in

acc

orda

nce

with

ISO

-140

64SO

NY

Gre

en P

artn

er c

ertif

icat

ion

Prod

uct c

arbo

n fo

otpr

int c

alcu

latio

n an

d ve

rific

atio

nIS

O-1

4067

: Car

bon

Foot

prin

t of P

rodu

cts

ISO

140

46: E

nviro

nmen

tal M

anag

emen

t – W

ater

Foo

tprin

tIS

O 5

0001

Ene

rgy

Man

agem

ent S

yste

m20

17: R

ecei

ved

the

EPA

's Si

lver

Aw

ard

at th

e R

OC

Ent

erpr

ises

Env

ironm

enta

l Pro

tect

ion

Awar

d.20

17: R

ecei

ved

the

Ben

chm

ark

Ente

rpris

e Aw

ard

from

the

Occ

upat

iona

l Saf

ety

and

Hea

lth A

dmin

istra

tion,

Min

istry

of L

abor

at t

he N

atio

nal O

ccup

atio

nal S

afet

y &

Hea

lth A

war

d.20

17: R

ecei

ved

the

Taoy

uan

Dep

artm

ent o

f Env

ironm

enta

l Pro

tect

ion'

s Aw

ard

for R

educ

tion

of A

irbor

ne P

ollu

tant

s in

Publ

ic a

nd P

rivat

e Sp

aces

.20

17: R

ecei

ved

Exce

llenc

e in

Occ

upat

iona

l Saf

ety

and

Hea

lth P

rom

otio

n Pe

rfor

man

ce A

war

d fr

om th

e H

sinc

hu S

cien

ce P

ark

Adm

inis

tratio

n.20

17: R

ecei

ved

the

Partn

er in

Env

ironm

enta

l Edu

catio

n Pr

omot

ion

Awar

d fr

om th

e H

sinc

hu S

cien

ce P

ark

Adm

inis

tratio

n.20

17: R

ecei

ved

the

Out

stan

ding

Ach

ieve

men

t in

Envi

ronm

enta

l Pro

tect

ion

Awar

d fr

om th

e H

sinc

hu B

urea

u of

Env

ironm

enta

l Pro

tect

ion.

46

6.Im

plem

enta

tion

of In

tegr

ity M

anag

emen

t and

Mea

sure

sTh

e co

mpa

ny’s

phi

loso

phy

dict

ates

that

em

ploy

ees

of th

e C

ompa

ny, r

egar

dles

s of

thei

r phy

sica

l loc

atio

n, s

hall

adhe

re to

the

high

est s

tand

ards

of p

rofe

ssio

nal e

thic

san

d m

aint

ain

such

in th

eir p

erso

nal c

ondu

ct. W

hen

enga

ged

in d

ay-to

-day

wor

k, e

mpl

oyee

s sh

all o

bser

ve b

usin

ess

ethi

cs a

nd m

aint

ain

the

Com

pany

’s re

puta

tion

toga

in th

e re

spec

t and

trus

t of c

usto

mer

s, su

pplie

rs, a

nd a

ll ot

her p

rofe

ssio

nals

.

Impl

emen

tatio

n of

inte

grity

man

agem

ent

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

and

Rea

son

for t

he

Varia

tion

Yes

No

Des

crip

tion

1.Fo

rmul

atio

n of

Inte

grity

Man

agem

ent P

olic

y an

dM

easu

res

(1)D

id th

e co

mpa

ny e

xplic

itly

stat

e th

e po

licy

and

prac

tices

of i

nteg

rity

man

agem

ent i

n its

re

gula

tions

and

ext

erna

l doc

umen

ts, a

nd d

id th

e bo

ard

of d

irect

ors a

nd m

anag

emen

ts c

omm

it to

im

plem

entin

g su

ch m

anag

emen

t pol

icy?

(2)D

id th

e co

mpa

ny fo

rmul

ate

mea

sure

s for

pr

even

ting

dish

ones

t beh

avio

r, sp

ecify

ope

ratin

g pr

oced

ures

, beh

avio

ral g

uide

lines

, vio

latio

n pe

nalti

es, a

nd sy

stem

of a

ppea

l in

such

m

easu

res,

and

impl

emen

t suc

h m

easu

res?

(3)D

id th

e co

mpa

ny a

dopt

pre

vent

ion

mea

sure

s ag

ains

t bus

ines

s act

iviti

es w

ithin

its b

usin

ess

scop

e at

a h

ighe

r ris

k of

bei

ng in

volv

ed in

an

unet

hica

l con

duct

or t

hose

list

ed in

Par

agra

ph 2

of

Arti

cle

7 of

the

Ethi

cal C

orpo

rate

M

anag

emen

t Bes

t Pra

ctic

e Pr

inci

ples

for

V

V

V

(1)

In o

rder

to fo

ster

a c

orpo

rate

cul

ture

of e

thic

al m

anag

emen

t and

soun

d de

velo

pmen

t, an

d of

fer

a re

fere

nce

fram

ewor

k fo

r es

tabl

ishi

ng g

ood

com

mer

cial

pra

ctic

es,

the

com

pany

ha

s es

tabl

ishe

d “I

nteg

rity

Man

agem

ent

Polic

y an

d M

easu

res”

on

N

ovem

ber

1, 2

016.

And

arti

cle

1 of

VIS

's bu

sine

ss p

hilo

soph

y: H

onor

ing

the

prin

cipl

e of

goo

d fa

ith,

abid

ing

by a

n ex

actin

g co

de o

f pr

ofes

sion

al e

thic

s. Th

e co

mpa

ny c

lear

ly re

gula

tes

the

prac

tice

of th

is p

hilo

soph

y in

the

"Pro

fess

iona

l Cod

e of

Eth

ics,"

requ

iring

all

empl

oyee

s to

und

erst

and

and

abid

e by

the

prof

essi

onal

cod

e of

eth

ics

and

pers

onal

int

egrit

y. I

n ad

ditio

n, t

he P

rofe

ssio

nal

Cod

e of

Eth

ics

for

Dire

ctor

s ex

plic

itly

stat

es th

e ne

ed fo

r dire

ctor

s to

uph

old

the

prin

cipl

e of

goo

d fa

ith

and

abid

e by

a b

ehav

ior o

f pro

fess

iona

l sta

ndar

ds.

(2)

The

artic

le 6

, 21

, an

d 24

of

VIS

Eth

ical

Cor

pora

te M

anag

emen

t B

est

Prac

tice

Prin

cipl

es h

ave

form

ulat

ed t

he r

elat

ed m

easu

res,

and

the

com

pany

sta

tes

the

oper

atin

g pr

oced

ures

, m

etho

ds,

viol

atio

n pe

nalti

es,

and

syst

em o

f ap

peal

in

its

Prof

essi

onal

Cod

e of

Eth

ics,

and

prov

ides

em

ploy

ee t

rain

ing

whe

n en

coun

terin

g co

nflic

ts o

f int

eres

t eac

h ye

ar in

acc

orda

nce

with

the

prov

isio

ns in

the

Prof

essi

onal

C

ode

of E

thic

s. (3

)Th

e co

mpa

ny sp

ecifi

es th

e re

ason

able

scop

e of

gift

pre

sent

atio

n an

d ho

spita

lity

in it

s Pr

ofes

sion

al C

ode

of E

thic

s: E

mpl

oyee

s m

ust

upho

ld t

he h

ighe

st s

tand

ards

of

prof

essi

onal

eth

ics

tow

ard

the

com

pany

's su

pplie

rs, c

ontra

ctor

s, cu

stom

ers,

or o

ther

st

akeh

olde

rs (

incl

udin

g go

vern

men

tal

offic

ials

) an

d ar

e ab

solu

tely

for

bidd

en f

rom

br

ibes

of a

ny fo

rms.

In th

e V

IS C

orpo

rate

Soc

ial R

espo

nsib

ility

Pol

icy,

VIS

ple

dges

to

uph

old

inte

grity

in e

mpl

oyee

and

exe

cutiv

e co

nduc

t in

all b

usin

ess

activ

ities

and

No

varia

tion

47

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

and

Rea

son

for t

he

Varia

tion

Yes

No

Des

crip

tion

TWSE

/GTS

M L

iste

d C

ompa

nies

? in

tern

al i

nter

actio

ns.

Bus

ines

s bo

oks

shal

l be

cle

ar a

nd a

ccur

ate,

tra

nspa

rent

, an

d co

mpl

iant

w

ith

appl

icab

le

regu

latio

ns

and

accu

rate

ly

refle

ct

the

finan

cial

pe

rfor

man

ce a

nd h

ealth

of

the

Com

pany

. VIS

will

wor

k ag

ains

t cor

rupt

ion

in a

ny

and

all f

orm

s, in

clud

ing

exto

rtion

, brib

ery,

and

em

bezz

lem

ent.

2.Im

plem

enta

tion

of In

tegr

ity M

anag

emen

t(1

)D

id th

e co

mpa

ny a

sses

s the

inte

grity

of i

tstra

nsac

tion

parti

es, a

nd sp

ecify

pro

visi

ons

perta

inin

g to

beh

avio

rs o

f int

egrit

y in

the

cont

ract

sign

ed w

ith th

e tra

nsac

tion

party

?

(2)

Did

the

com

pany

est

ablis

h a

unit

affil

iate

d w

ith

the

boar

d of

dire

ctor

s exc

lusi

vely

for t

he

prom

otio

n of

cor

pora

te in

tegr

ity m

anag

emen

t an

d pe

riodi

cally

repo

rt to

the

boar

d of

dire

ctor

s re

gard

ing

the

impl

emen

tatio

n pr

ogre

ss?

(3)

Did

the

com

pany

form

ulat

e po

licie

s for

pr

even

tion

agai

nst c

onfli

cts o

f int

eres

ts, p

rovi

de

appr

opria

te c

hann

els o

f com

mun

icat

ion,

and

V

V

V

(1)

The

com

pany

man

date

s in

its

Pro

fess

iona

l C

ode

of E

thic

s th

at e

mpl

oyee

s m

ust

upho

ld th

e hi

ghes

t sta

ndar

ds o

f pro

fess

iona

l eth

ics

tow

ard

the

com

pany

's su

pplie

rs,

cont

ract

ors,

cust

omer

s, or

oth

er s

take

hold

ers

(incl

udin

g go

vern

men

tal o

ffici

als)

and

ar

e ab

solu

tely

for

bidd

en f

rom

brib

es o

f an

y fo

rm. I

n ad

ditio

n, th

e Et

hica

l Cod

e of

V

IS a

nd S

uppl

ier

stip

ulat

es th

at e

ither

par

ty m

ay n

ot g

ive

or r

ecei

ve b

ribes

of

any

form

or

act

in a

ny w

ay c

ontra

ry t

o th

e in

tere

sts

of e

ither

par

ty a

nd s

hall

avoi

d en

gagi

ng i

n fr

eque

nt o

r im

prop

er h

ospi

talit

y be

havi

ors

durin

g bu

sine

ss a

ctiv

ities

. Su

pplie

rs i

n vi

olat

ion

of t

he a

fore

men

tione

d re

gula

tion

shal

l pr

ompt

VIS

to

strin

gent

ly r

evie

w it

s bu

sine

ss c

oope

rativ

e re

latio

nshi

p w

ith th

e su

pplie

r an

d ad

opt

nece

ssar

y m

easu

res,

incl

udin

g ad

just

men

t to

the

am

ount

of

purc

hase

s fr

om t

he

supp

lier.

(2)

To a

chie

ve s

ound

eth

ical

cor

pora

te m

anag

emen

t, th

e co

mpa

ny a

ssig

ned

Hum

an

Res

ourc

e D

ivis

ion

to

resp

onsi

ble

for

esta

blis

hing

an

d su

perv

isin

g th

e im

plem

enta

tion

of

the

ethi

cal

corp

orat

e m

anag

emen

t po

licie

s an

d pr

even

tion

prog

ram

s. Th

e H

uman

Res

ourc

e D

ivis

ion

shal

l be

in

char

ge o

f th

e fo

llow

ing

mat

ters

, and

sha

ll co

mpi

le th

e re

port

to th

e A

udit

Com

mitt

ee a

nd re

port

to th

e bo

ard

of d

irect

ors o

n a

year

ly b

asis

. Bes

ides

, the

com

pany

has

set u

p th

e "C

orpo

rate

Soc

ial

Res

pons

ibili

ty P

rom

otio

n C

omm

ittee

" to

take

cha

rge

of e

stab

lishi

ng th

e "c

orpo

rate

so

cial

res

pons

ibili

ty p

olic

y" a

nd p

ropo

sing

and

im

plem

entin

g sy

stem

s an

d as

sist

w

ith th

e pr

omot

ion

of c

orpo

rate

inte

grity

man

agem

ent.

In a

dditi

on, t

he C

omm

ittee

pe

riodi

cally

sub

mits

the

com

pany

's co

rpor

ate

soci

al r

espo

nsib

ility

rep

ort

to t

he

boar

d of

dire

ctor

s, an

d th

e bo

ard

will

sup

ervi

se t

he i

mpl

emen

tatio

n of

cor

pora

te

inte

grity

man

agem

ent.

(3)

The

com

pany

has

for

mul

ated

the

Con

flict

s of

Int

eres

t Pr

even

tion

polic

y in

the

Pr

ofes

sion

al C

ode

of E

thic

s: C

onfli

cts o

f int

eres

ts sh

all b

e pe

riodi

cally

repo

rted

on a

ye

arly

bas

is a

nd a

n ap

prop

riate

cha

nnel

of

com

mun

icat

ion

shal

l be

pro

vide

d fo

r No

varia

tion

48

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

and

Rea

son

for t

he

Varia

tion

Yes

No

Des

crip

tion

impl

emen

t suc

h po

licie

s and

com

mun

icat

ion?

(4

)D

id th

e co

mpa

ny se

t up

an e

ffect

ive

acco

untin

g sy

stem

and

inte

rnal

con

trol s

yste

m to

impl

emen

t in

tegr

ity m

anag

emen

t, an

d de

sign

ate

inte

rnal

au

dit u

nits

or e

ntru

st a

ccou

ntan

ts to

per

form

au

dits

of t

hese

syst

ems?

(5)

Did

the

com

pany

per

iodi

cally

hol

d in

tern

al a

nd

exte

rnal

trai

ning

on

inte

grity

man

agem

ent?

V

V

impl

emen

tatio

n of

pre

vent

ive

mea

sure

s. (4

)V

IS h

as f

orm

ulat

ed a

ccou

ntin

g sy

stem

s ac

cord

ing

to t

he I

nter

natio

nal

Fina

ncia

l R

epor

ting

Stan

dard

s (I

FRS)

, m

anda

ting

the

need

to

adop

t C

PA’s

opi

nion

s du

ring

acco

untin

g pr

ojec

t as

sess

men

ts b

efor

e pr

esen

ting

the

mos

t su

itabl

e pr

ojec

t to

the

ex

ecut

ive-

in-c

harg

e fo

r re

view

and

app

rova

l; Fu

rther

mor

e, i

n lig

ht o

f ch

ange

s to

ac

coun

ting

polic

ies

and

estim

atio

ns, t

he c

ompa

ny h

as d

evel

oped

rela

ted

proc

edur

es

acco

rdin

g to

the

Reg

ulat

ions

Gov

erni

ng t

he P

repa

ratio

n of

Fin

anci

al R

epor

ts b

y Se

curit

ies

Issu

ers.

All

finan

cial

st

atem

ents

ar

e au

dite

d by

ce

rtifie

d pu

blic

ac

coun

tant

s to

ensu

re th

e fa

irnes

s of t

he fi

nanc

ial s

tate

men

ts a

nd a

re re

view

ed b

y th

e co

mpa

ny's

Aud

it C

omm

ittee

. V

IS h

as e

stab

lishe

d a

com

preh

ensi

ve in

tern

al c

ontro

l sys

tem

, to

whi

ch c

ontro

l poi

nts

for e

ach

oper

atio

n ha

ve b

een

inco

rpor

ated

. The

sys

tem

is re

view

ed a

nd m

odifi

ed o

n a

year

ly b

asis

and

insp

ecte

d by

inte

rnal

aud

it un

its fo

r fun

ctio

nalit

y. R

espe

ctiv

e un

its

are

aske

d to

per

form

spon

tane

ous i

nspe

ctio

ns o

n a

daily

bas

is. I

n ad

ditio

n, th

e B

oard

of

Dire

ctor

s an

d th

e m

anag

emen

t will

dis

cuss

resu

lts o

f the

spo

ntan

eous

insp

ectio

ns

and

audi

t re

ports

fro

m t

he a

udit

depa

rtmen

t pe

riodi

cally

to

ensu

re t

he r

elia

bilit

y,

trans

pare

ncy,

ef

fect

iven

ess

and

effic

ienc

y,

accu

racy

of

fin

anci

al

repo

rts,

and

com

plia

nce

with

the

appl

icab

le la

ws a

nd re

gula

tions

of t

he c

ompa

ny o

pera

tion.

(5

)Th

e C

ompa

ny p

erio

dica

lly h

osts

inte

rnal

trai

ning

on

ethi

cal m

anag

emen

t eac

h ye

ar,

incl

udin

g on

line

cour

ses

perta

inin

g to

cor

pora

te e

thic

s pr

inci

ples

, an

d de

sign

ates

re

leva

nt re

pres

enta

tives

to p

artic

ipat

e in

ext

erna

l tra

inin

g pr

ogra

ms o

r for

ums (

e.g.

, a

corp

orat

e go

vern

ance

foru

m h

oste

d by

the

Age

ncy

Aga

inst

Cor

rupt

ion)

. In

addi

tion,

ex

perts

fro

m t

he T

aiw

an C

orpo

rate

Gov

erna

nce

Ass

ocia

tion

wer

e al

so r

etai

ned

to

visi

t the

Com

pany

and

car

ry o

ut a

n et

hics

rev

iew

. To

esta

blis

h a

corp

orat

e cu

lture

an

d so

und

deve

lopm

ent

with

a

basi

s in

et

hica

l m

anag

emen

t, th

e C

ompa

ny

impl

emen

ted

vario

us c

ours

es in

201

7 on

topi

cs in

clud

ing

ethi

cal m

anag

emen

t bes

t pr

actic

e pr

inci

ples

, cod

e of

pro

fess

iona

l eth

ics,

corp

orat

e so

cial

res

pons

ibili

ty, a

nd

prot

ectio

n of

pro

prie

tary

info

rmat

ion;

em

ploy

ees

parti

cipa

ted

a to

tal o

f 11,

156

times

in

the

tra

inin

g, c

ompl

etin

g 8,

580

train

ing

man

-hou

rs; t

he a

im o

f th

e tra

inin

g is

to

ensu

re th

at e

mpl

oyee

s ar

e ab

le t

o fu

lly u

nder

stan

d th

e C

ompa

ny's

com

mitm

ent

to

ethi

cal c

orpo

rate

man

agem

ent a

nd to

hel

p th

em p

erso

nally

abi

de b

y th

ese

prin

cipl

es

in w

ord

and

deed

and

inco

rpor

ate

thes

e pr

actic

es in

to d

aily

wor

k ro

utin

es.

49

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

and

Rea

son

for t

he

Varia

tion

Yes

No

Des

crip

tion

3.O

pera

tion

of V

IS W

hist

le-B

low

ing

Syst

em(1

)Did

the

com

pany

est

ablis

h co

ncre

te w

hist

le-

blow

ing

and

ince

ntiv

e sy

stem

s and

con

veni

ent

whi

stle

-blo

win

g ch

anne

ls, a

nd a

ppoi

nt a

su

itabl

e pe

rson

nel t

o ha

ndle

the

repo

rted

case

s?

(2)D

id th

e co

mpa

ny d

evis

e st

anda

rd o

pera

ting

proc

edur

es fo

r han

ding

the

inve

stig

atio

n of

re

porte

d ca

ses a

nd re

leva

nt c

onfid

entia

lity

mec

hani

sms?

(3)D

id th

e co

mpa

ny a

dopt

mea

sure

s for

pro

tect

ing

whi

stle

-blo

wer

s fro

m in

appr

opria

te d

isci

plin

ary

actio

ns d

ue to

thei

r whi

stle

-blo

win

g?

V

V

V

(1)

The

com

pany

has

for

mul

ated

con

cret

e w

hist

le-b

low

ing

syst

ems

and

conv

enie

nt

whi

stle

-blo

win

g ch

anne

ls i

n th

e Pr

ofes

siona

l C

ode

of E

thic

s. Em

ploy

ees

and

stak

ehol

ders

can

dire

ctly

mak

e re

ports

to

the

com

pany

's bo

ard

of d

irect

or A

udit

Com

mitt

ee b

y us

ing

the

whi

stle

-blo

win

g m

ailb

ox o

n th

e co

mpa

ny w

ebsi

te.

In

addi

tion,

ded

icat

ed u

nits

and

per

sonn

el a

re a

ppoi

nted

to h

andl

e re

porte

d ca

ses.

(2)

The

com

pany

ha

s sp

ecifi

ed

stan

dard

op

erat

ing

proc

edur

es

for

hand

ling

the

inve

stig

atio

n of

rep

orte

d ca

ses

and

rele

vant

con

fiden

tialit

y m

echa

nism

s in

the

Pr

ofes

sion

al C

ode

of E

thic

s. Th

e bo

ard

of d

irect

or A

udit

Com

mitt

ee sh

all a

ppoi

nt su

itabl

e su

perv

isor

s to

esta

blish

an

inv

estig

ator

y gr

oup

com

pris

ing

pers

onne

l w

ho s

peci

aliz

e in

int

erna

l au

dits

, hu

man

re

sour

ces,

and

lega

l af

fairs

. Su

ch

inve

stig

ator

y gr

oup

shal

l pe

rfor

m

inve

stig

atio

ns a

nd c

ompi

le re

ports

to th

e A

udit

Com

mitt

ee. I

f evi

denc

e of

vio

latio

n is

iden

tifie

d, th

e su

bjec

t bei

ng r

epor

ted

shal

l be

give

n a

chan

ce f

or a

ppea

l, an

d th

e su

bjec

t and

his

/her

resp

ectiv

e su

perv

isor

sha

ll be

info

rmed

of t

he p

enal

ties

impo

sed

ther

eof.

(3)

The

com

pany

ha

s st

ipul

ated

m

easu

res

for

prot

ectin

g w

hist

le-b

low

ers

from

in

appr

opria

te d

isci

plin

ary

actio

ns d

ue t

o th

eir

whi

stle

-blo

win

g in

the

Pro

fess

iona

l C

ode

of E

thic

s; V

IS h

olds

the

prin

cipl

e of

fai

rnes

s an

d co

nfid

entia

lity

durin

g th

e in

vest

igat

ion

proc

ess.

The

com

pany

sha

ll pr

otec

t w

hist

le-b

low

ers

hand

ling

the

inve

stig

atio

n fr

om su

bjec

ting

to u

nfai

r rev

enge

or t

reat

men

t.

No

varia

tion

4.St

reng

then

ing

of In

form

atio

n D

iscl

osur

e M

easu

res

(1)D

id th

e co

mpa

ny d

iscl

ose

the

cont

ent a

ndpr

omot

ion

effe

ctiv

enes

s of i

ts in

tegr

ity

man

agem

ent p

rinci

ples

on

its w

ebsi

te a

nd o

n th

e M

arke

t Obs

erva

tion

Post

Sys

tem

of t

he T

aiw

an

Stoc

k Ex

chan

ge w

ebsi

te?

V

The

com

pany

has

est

ablis

hed

a w

ebsi

te f

or p

erio

dica

lly d

iscl

osin

g re

leva

nt c

orpo

rate

in

tegr

ity m

anag

emen

t inf

orm

atio

n on

a y

early

bas

is to

its s

tock

hold

ers a

nd in

vest

ors.

The

info

rmat

ion

disc

lose

d on

the

com

pany

web

site

is u

nifo

rmly

com

pile

d an

d an

noun

ced

by

publ

ic re

latio

n an

d in

vest

or re

latio

ns d

epar

tmen

t.

No

varia

tion

5.If

the

com

pany

did

form

ulat

e pr

inci

ples

for i

nteg

rity

man

agem

ent a

ccor

ding

to th

e Et

hica

l Cor

pora

te M

anag

emen

t Bes

t Pra

ctic

e Pr

inci

ples

for T

WSE

/GTS

M L

iste

d C

ompa

nies

, ple

ase

stat

eth

e va

riatio

ns in

the

oper

atio

ns a

nd ru

les o

f suc

h pr

actic

e:In

ord

er t

o fo

ster

a c

orpo

rate

cul

ture

of

ethi

cal

man

agem

ent

and

soun

d de

velo

pmen

t, an

d of

fer

a re

fere

nce

fram

ewor

k fo

r es

tabl

ishin

g go

od c

omm

erci

al p

ract

ices

, th

e co

mpa

ny h

asfo

rmul

ated

prin

cipl

es fo

r int

egrit

y m

anag

emen

t acc

ordi

ng to

the

Ethi

cal C

orpo

rate

Man

agem

ent B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es. I

n ad

ditio

n, th

e co

mpa

ny h

as

50

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n Va

riatio

n co

mpa

red

with

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for

TWSE

/GTS

M L

iste

d C

ompa

nies

and

Rea

son

for t

he

Varia

tion

Yes

No

Des

crip

tion

spec

ified

ope

ratin

g pr

oced

ures

and

met

hods

in it

s Pr

ofes

sion

al C

ode

of E

thic

s: E

mpl

oyee

s sh

all h

onor

the

prof

essi

onal

cod

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d pu

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ests

, com

ply

with

the

prin

cipl

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f co

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entia

lity,

eng

age

in f

air

trade

, pro

tect

and

pro

perly

util

ize

com

pany

ass

ets,

adhe

re t

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ws

and

regu

latio

ns, p

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nt c

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r or

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italit

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nd a

bide

by

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atin

g pr

oced

ures

for p

unis

hmen

t and

app

eals

. Th

e co

mpa

ny h

as s

peci

fied

regu

latio

ns a

nd g

uide

lines

in th

e Pr

ofes

sion

al C

ode

of E

thic

s fo

r D

irect

ors:

The

boa

rd o

f di

rect

ors

shal

l avo

id p

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nal c

onfli

cts

of in

tere

st, a

void

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rson

al in

tere

sts,

keep

con

fiden

tial b

usin

ess

secr

ets,

enga

ge in

fair

trade

, pre

vent

insi

der

tradi

ng, a

dher

e to

law

s an

d re

gula

tions

, and

pre

sent

rep

orts

of

mis

cond

uct,

alle

ged

dish

ones

t or

illeg

al a

ctiv

ity. N

o va

riatio

n w

ith th

e ab

ove.

6.

Oth

er In

form

atio

n fo

r Bet

ter U

nder

stan

ding

of t

he c

ompa

ny's

inte

grity

man

agem

ent p

ract

ices

:Th

e Et

hica

l Cod

e of

VIS

and

Sup

plie

r: W

e an

ticip

ate

that

all

our s

uppl

iers

, bus

ines

s pa

rtner

s, an

d ot

her c

oope

ratin

g gr

oups

und

erst

and

our s

tand

ards

of b

usin

ess

ethi

cs. A

ll su

pplie

rs s

hall

ackn

owle

dge

VIS

's et

hica

l con

duct

and

con

firm

thei

r com

plia

nce

with

the

regu

latio

ns s

tipul

ated

in th

is d

ocum

ent b

efor

e en

gagi

ng in

bus

ines

s ac

tiviti

es w

ith V

IS. I

n an

y ca

se, s

uppl

iers

invi

olat

ion

of th

e af

orem

entio

ned

regu

latio

n sh

all p

rom

pt V

IS to

stri

ngen

tly re

view

its

busi

ness

coo

pera

tive

rela

tions

hip

with

the

supp

lier a

nd a

dopt

nec

essa

ry m

easu

res,

incl

udin

g ad

just

men

tto

the

amou

nt o

f pur

chas

es fr

om th

e su

pplie

r.Pr

ofes

sion

al C

ode

of E

thic

s: W

e ho

pe th

at o

ur c

usto

mer

s, su

pplie

rs, b

usin

ess

partn

ers,

and

othe

r st

akeh

olde

rs c

an u

nder

stan

d an

d su

ppor

t our

pro

fess

iona

l cod

e of

eth

ics.

Empl

oyee

s ar

ere

quire

d to

per

iodi

cally

repo

rt of

any

vio

latio

ns to

the

prin

cipl

e of

con

flict

s of

inte

rest

acc

ordi

ng to

regu

latio

ns o

n a

year

ly b

asis

. Eac

h ye

ar, V

IS a

lso

re-r

evie

ws

and

upda

tes

its P

rofe

ssio

nal

Cod

e of

Eth

ics a

ccor

ding

to re

cent

law

s and

regu

latio

ns a

nd p

ract

ices

of i

ts c

ompe

titor

s.

51

7. Disclosure of Company Governance Principles and Regulations

VIS announced Corporate Governance Practice Principles is as below:

http://www.vis.com.tw/visCom/download/d_ir/orporate_governance_rule_e

.pdf

8. Other Important Information Disclosed for Better Understanding of

Corporate Governance

Three out of the seven directors are independent directors

All members of the Compensation Committee and the Audit

Committee are independent directors

VIS was granted the highest rating of “Outstanding” in Corporate

Governance Assessment by Taiwan Corporate Governance

Association.

VIS was ranked in the best Top 5% during the third Corporate

Governance Evaluation.

VIS conducts an internal Board Performance Assessment once a year

and the scope covers the assessment of individual directors, the Board

as a whole, and functional committees. The results will be disclosed on

the company website.

VIS’s Board Performance Assessment is conducted by an external

independent professional institution or a panel of external experts and

scholars once every three years.

VIS completed First External Evaluation of Board Performance by

Taiwan Corporate Governance Association in Y2016

52

9. Internal Control:


Internal Control Statement

Date: February 5, 2018

The Company states the following with regard to its internal control system in

Y2017, based on the findings of a self-evaluation:

1. The Company is fully aware that establishing, operating, and

maintaining an internal control system are the responsibility of its

Board of Directors and management. The Company has established

such a system aimed at providing reasonable assurance of the

achievement of objectives in the effectiveness and efficiency of

operations (including profits, performance, and safeguard of asset

security), reliability of financial reporting, transparency and

efficiency, and compliance with applicable laws and regulations.

2. An internal control system has inherent limitations. No matter how perfectly

designed, an effective internal control system can provide only reasonable

assurance of accomplishing the three goals mentioned above. Furthermore,

the effectiveness of an internal control system may change along with

changes in environment or circumstances. The internal control system of the

Company contains self-monitoring mechanisms, however, and the Company

takes corrective actions as soon as a deficiency is identified.

3. The Company judges the design and operating effectiveness of its internal

control system based on the criteria provided in the Regulations Governing

the Establishment of Internal Control Systems (herein below, the

regulations”). The internal control system judgment criteria adopted by the

Regulations divide internal control into five elements based on the process

of management control: 1. control environment, 2. risk estimation, 3. control

activities, 4. information and communications, 5. monitoring. Each element

further contains several items. Please refer to the Regulations for details.

4. The Company has evaluated the design and operating effectiveness of its

internal control system according to the aforesaid criteria.

5. Based on the findings of the evaluation mentioned in the preceding

paragraph, the Company believes that during the stated time period its

internal control system (including its supervision of subsidiaries),

encompassing internal controls for knowledge of the degree of achievement

of operational effectiveness and efficiency objectives, reliability of financial

reporting, and compliance with applicable laws and regulations, was

effectively designed and operating, and reasonably assured the achievement

53

of the above-stated objectives.

6. This Statement will become a major part of the content of the Company's

Annual Report and Prospectus, and will be made public. Any falsehood,

concealment, or other illegality in the content made public will entail legal

liability under Articles 20, 32, 171, and 174 of the Securities and Exchange

Law.

7. This statement has been approved by the Board of Directors Meeting held on

February 5, 2018. All of the 7 attending directors affirmed the content of this

Statement.


Chairman & President Leuh Fang

54

josh

經理人簽(en)

Where a CPA has been hired to carry out a special audit of the internal control

system, furnish the CPA audit report: None

10. Legal Penalty:

VIS has not violated in any aspect the internal control requirement that

resulted in penalty.

11. Major Resolutions of Shareholders Meetings and Board Meetings:

Review of Shareholder Meetings

The Y2017 Regular Shareholders’ Meeting was held on June 16, 2017.

The major resolutions and implementation status were as below:Date Subject Result Implementation status

2017/06/16 To approve the Y2016 business report and financial statements

After voting by poll, was approved as proposed.

Implement as approved and disclosed on VIS's website.

To approve the proposal for Y2016 profit distribution


Set July 12, 2017 as recording date for dividend distribution. July 28, 2017 sent out cash dividend,each common share holder received a cash dividend of NT$3 per share.

To amend the Procedures for Acquisition or Disposal of Assets.


June 16, 2017, the implement as approved and disclosed on VIS's website.

Review of Board Meetings

Major resolutions adopted are summarized as below:

Y2017： a. Agreed to convene the Y2017 regular shareholders meeting and related

issues.b. Approved Y2016 annual business and operation report.c. Approved Y2016 annual financial report.d. Approved Y2016 profit distribution plan.e. Approved Y2016 internal control system statement.f. Approved Y2017 remuneration of managerial officers.g. Approved Y2017 remuneration of chairman and directors.h. Amended the Internal Control System.i. Approved Y2016 compensation of employees and directors.j. Approved capital injection to VIS Associates Inc., a wholly-owned

subsidiary.k. Approved to establish VIS Shanghai Company Limited.l. Amended the Procedures for Acquisition or Disposal of Assets.m. Approved VIS to purchase equipments from potential counterparties to

expand capacity.n. Approved the investment of preferred stocks of Quora Technology,

Inc.o. Amended the Legal Document Management Policy.p. Approved Y2017 capital expenditure budget raising plan.q. Amended the Rules of Procedure of Board of Directors Meetings.r. Amended the Audit Committee Charter.

55

s. Amended the Performance Index and the Remuneration Structure ofManagerial Officers.

t. Approved Vice President of RD Mr. Jun-Wei Chen to retire.u. Approved Mr. Tommy Liu to be appointed as Vice President of ADM.v. Approved Dr. Yang Du to be appointed as Vice President of RD.w. Approved the investment of stocks of Shenzhen Winsemi

Microelectronics Co., Ltd.x. Approved Y2018 operation plan and capital expenditure budget plan.y. Approved Y2018 Internal audit plan.z. Agreed to Deloitte Touche Tohmatsu Limited to audit Y2018 financial

statements of Vanguard and the subsidiaries.Y2018 (As of February 28, 2018):

a. Agreed to convene the Y2018 regular shareholders meeting and relatedissues.

b. Approved Y2017 annual business and operation report.c. Approved Y2017 annual financial report.d. Approved Y2017 profit distribution plan.e. Approved Y2017 internal control system statement.f. Approved Y2018 remuneration of managerial officers.g. Approved Y2018 remuneration of chairman and directors.h. Amended the Internal Control System.i. Approved Y2017 compensation of employees and directors.j. Approved capital injection to VIS Associates Inc., a wholly-owned

subsidiary.

12. Dissenting Opinions Held by Directors and Supervisors in Respect of

Important Resolutions Passed by the Board of Directors:

No dissenting opinions held by directors in respect of important

resolutions passed by the board of directors from Y2017 to publish of this

annual report.

13. Personnel Termination Summary Related to Annual Financial

Report:Title Name Date of Elected Date of Resigned Remark

Vice President Research & Development

Jun-Wei Chen 2014/10/30 2017/07/31 Retirement

E. Information Regarding VIS's Independent Auditors Unit: NT$, in thousands

Accounting Firm

Name of CPA

Audit Fee

Non-audit Fee Whether the CPA's audit

period covers an entire fiscal year

System Design

Company Registration

Human Resource

Others (Note)

Subtotal Yes No Audit Period

Deloitte & Touche

Yu-Feng Huang

5,600 0 0 0 313 313 v 2017.01.01~ 2017.12.31 Cheng-Chih

Lin Note: Fees mainly related to taxation consulting service and directors training fee.

56

The non-auditing fee amounted to NT$313 thousand is less than 25% of the audit fee.

Audit fee of Y2017 did not reduce more than 15% of previous year.

F. Information on Replacement of Certified Public Accountant (1) Former CPAs

Date of change January 1, 2018 (Approved by BOD on November 6, 2017)

Reasons and explanation of changes

Due to its internal personal changes, Deloitte & Touche updated the audit partners for VIS from Yu-Feng Huang and Cheng-Chih Lin to Tung-Hui Yeh and Ming-Yuan Chung.

State whether the appointment is terminated or rejected by the consignor or CPAs

Clients Status

CPA Consignor

Appointment terminated automatically Not available Not available Appointment rejected (discontinued) Not available Not available

The opinions other than unmodified opinion issued in the last two years and the reasons

None

Is there any disagreement in opinion with the issuer

Yes

Accounting principle or practice Disclosure of financial statements Auditing scope or procedures

Others No V

Explanation Supplementary Disclosure (Disclosures Specified in Article 10.6.1.4~7 of the Standards)

None

(2) Successor CPAs Accounting firm Deloitte & Touche

CPA Tung-Hui Yeh and Ming-Yuan Chung

Date of Engagement January 1, 2018 (Approved by BOD on November 6, 2017)

Prior to the Formal Engagement, Any Inquiry or Consultation on the Accounting Treatment or Accounting Principles for Specific Transactions, and the Type of Audit Opinion that Might be Rendered on the Financial Report

None

Written Opinions from the Successor CPAs that are Different from the Former CPA's Opinions

None

(3) The reply of former CPAs on Article 10.6.1 and Article 10.6.2.3 of the standards: None.

G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying Accounting Firm or Its Affiliate Business in the Past Year: None

57

H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More:

Title Name

Y2017 01/01/2018 ~ 02/28/2018

Net Change in

Shareholding

Net Change in

Shares Pledged

Net Change in

Shareholding

Net Change in

Shares Pledged

Chairman Vice Chairman

Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Leuh Fang F.C. Tseng

0 0 0 0

Director National Development Fund, Executive YuanRepresentative: Lai Shou Su

0 0 0 0

Director Edward Y. Way 0 0 0 0


Benson W.C. Liu 0 0 0 0


Chintay Shih 0 0 0 0


Kenneth Kin 0 0 0 0

President Leuh Fang 8,342 0 0 0Vice President D. L. Tseng 2,200 0 0 0Vice President Thomas Chang (97,914) 0 0 0Vice President Chi-Kuang Liu

(2017/11/23 on board)10,000 0 0 0

Vice President Jun-Wei Chen (2017/7/31 retired)

1,904 0 0 0

Vice President Du Yang (2018/1/22 on board)

0 0 0 0

Vice President Chan-Jen Kuo 1,904 0 0 0Associate Vice President

Chrong-Jung Lin 182 0 0 0

Major shareholder

Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc)

0 0 0 0

Major shareholder

National Development Fund, Executive Yuan

0 0 0 0

Stock Trade with Related Party: None

Stock Pledge with Related Party: None

58

I. Top 10 shareholders relation

As of February 28, 2018

Name Shareholding Spouse & Minor

shareholding

Shareholding by nominee

arrangement

Top 10 shareholders with the relation of SFAS No.6

Note

Share % Share % Share % Name RelationTaiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Chairman:Leuh Fang Vice Chairman:F.C. Tseng

464,223,493 28.32% 0 0 0 0 National Development Fund, Executive Yuan Representatives: Director: Lai Shou Su

Director of tsmc

National Development Fund, Executive Yuan Representatives: Director: Lai Shou Su

274,029,592 16.72% 0 0 0 0 Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc) Representatives: Director: Leuh Fang Director: F.C. Tseng

Investee of NDF

JPMorgan Chase Bank N.A. Taipei Branch in custody for Capital Income Builder

114,815,725 7.01% 0 0 0 0 None

SmallCap World Fund Inc. 83,546,386 5.10% 0 0 0 0 NoneJPMorgan Chase Bank N.A. Taipei Branch in custody for The Income Fund of America

79,128,000 4.83% 0 0 0 0 None

JPMorgan Chase Bank， N.A.， Taipei Branch in Custody for International Growth and Income Fund

50,975,000 3.11% 0 0 0 0 None

FUBON LIFE INSURANCE CO.，LIMITED.-TWOTC-FFI

43,127,000 2.63% 0 0 0 0 None

JPMorgan Chase Bank N.A. Taipei Branch in custody for JPMorgan Funds

36,231,000 2.21% 0 0 0 0 None

Seafarer Overseas Growth and Income Fund

24,959,000 1.52% 0 0 0 0 None

Shin Kong Life Insurance Co., Ltd. 21,777,000 1.33% 0 0 0 0 None

59

J. V

IS L

ong-

Ter

m I

nve

stm

ent

Ow

ner

ship

A

s of

Feb

ruar

y 28

, 201

8; U

nit:

shar

es; %

Lon

g-Te

rm I

nves

tmen

t O

wne

rshi

p by

VIS

D

irec

t/In

dire

ct O

wne

rshi

p by

D

irec

tors

, Sup

ervi

sors

, and

M

anag

emen

t To

tal O

wne

rshi

p

Sha

res

%S

hare

s %

S

hare

s %

VIS

Ass

ocia

tes

Inc.

26

9,00

010

0.00

%

--

269,

000

100.

00%

Qro

mis

Inc

. 9,

832,

150

46.4

8%

--

9,83

2,15

046

.48%

CM

SC

Inc

. 9,

902,

000

24.9

4%

--

9,90

2,00

024

.94%

Uni

ted

Indu

stri

al G

ases

Co.

, Ltd

. 4,

246,

079

1.95

%

21,2

30,4

149.

75%

25,4

76,4

9311

.70%

Imag

e M

atch

Des

ign

Inc.

1,

400,

000

4.71

%

--

1,40

0,00

04.

71%

AnD

AP

T1,

000,

000

4.01

%

--

1,00

0,00

04.

01%

Vol

tafi

eld

Tech

nolo

gy C

orp.

60

0,00

01.

81%

-

-60

0,00

01.

81%

Cha

mpi

on M

icro

elec

tron

ic C

orp.

39

9,85

60.

58%

-

-39

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60.

58%

Adv

ance

d M

icro

elec

tron

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rodu

cts,

Inc

30

,000

,000

9.43

%

--

30,0

00,0

009.

43%

VIS

Sha

ngha

i Com

pany

Lim

ited

N

ot A

ppli

cabl

e (N

ote)

100.

00%

N

ot A

ppli

cabl

e (N

ote)

-N

ot A

ppli

cabl

e (N

ote)

100.

00%

Not

e: N

ot a

ppli

cabl

e. T

hese

fir

ms

do n

ot is

sue

shar

es. V

IS’s

inve

stm

ent i

s m

easu

red

as a

per

cent

age

of o

wne

rshi

p.

60

IV. INFORMATION ON IMPLEMENTATION OF THE COMPANYFUNDS UTILIZATION PLANS

A. Capital and shares 1. Source of capital

Unit: Shares As of February 28, 2018 Authorized Capital Paid-in Capital Remark

Month/Year Price Shares Amount Shares Amount Sources of

Capital

Capital Increase by Assets other than

Cash

Date of Approval & Approval Document

No.

8/2014 NT$14.5 3,300,000,000 33,000,000,000 1,638,982,267 16,389,822,670 Exercise of employees stock

options

(92)Tai-Tsai-Zheng (I) No.0920144383

* There is no change of Capital since Aug. ‘14.Unit: Shares As of February 28, 2018

Type of Stock Authorized Capital

Note Listed Shares Non-listed shares Total Shares

Common Stock 1,638,982,267 1,661,017,733 3,300,000,000

Shelf Registration: None

2. Shareholder StructureAs of February 28, 2018

Government Agencies

Financial Institutions

Other JuridicalPerson

Foreign Institutions &

Natural Persons

Domestic Natural Persons

Total

Number of Shareholders 1 12 84 600 32,821 33,518

Shareholding 274,029,592 81,223,186 483,706,610 716,215,199 83,807,680 1,638,982,267

Holding Percentage（%） 16.72% 4.96% 29.51% 43.70% 5.11% 100.00%

3. Distribution Profile of Shareholder OwnershipAs of February 28, 2018

Shareholder Ownership (Share) Number of Shareholders Ownership (Share) Ownership (%) 1~ 999 17,658 4,853,434 0.30%

1,000~ 5,000 12,293 23,977,806 1.46%5,001~ 10,000 1,796 12,483,596 0.76%

10,001~ 15,000 542 6,506,684 0.40%15,001~ 20,000 253 4,533,346 0.28%20,001~ 30,000 222 5,455,232 0.33%30,001~ 50,000 212 8,365,593 0.51%50,001~ 100,000 169 12,024,253 0.73%100,001~ 200,000 112 16,358,099 1.00%200,001~ 400,000 87 24,336,714 1.48%400,001~ 600,000 32 16,077,992 0.98%600,001~ 800,000 32 21,954,727 1.34%800,001~1,000,000 21 19,237,591 1.17%

Over 1,000,001 89 1,462,817,200 89.26%Total 33,518 1,638,982,267 100.00%

Preferred Stock: Not Applicable

61

4. Major ShareholdersAs of February 28, 2018

Major Shareholders Total Shares Owned Ownership (%) Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) 464,223,493 28.32%National Development Fund, Executive Yuan 274,029,592 16.72%

5. Market Price, Net Worth, Earnings and Dividends Per Common Share

Unit: NT$; shares, in thousands

YearItem Y2016 Y2017

01/01/2018~ 02/28/2018

Market Price Per Share

Highest Market Price 69.50 73.30 70.40 Lowest Market Price 36.90 51.80 58.00Average Market Price 53.26 59.67 64.81

Net Worth Per Share

Before distribution 17.51 17.01 - After distribution 14.51 (Note 4) -

Diluted Earnings Per Share

Weighted Average Shares 1,654,896 1,651,090 -

Earnings Per Share 3.35 2.73 -

Dividends Per Share

Cash Dividends 3.00 (Note 4)3.00 -

Stock Dividends

Dividends from Retained Earnings

- (Note 4)

-

Dividends from Capital Surplus

- (Note 4)

-

Accumulated Undistributed Dividends - - -

Return on Investment

Price/Earnings Ratio (Note1) 15.90 21.86 - Price/Dividend Ratio (Note 2) 17.75 (Note 4) - Cash Dividend Yield Rate (Note 3) 5.63% (Note 4) -

Note 1：Price / Earnings Ratio = Average Market Price / Earnings per Share Note 2：Price / Dividend Ratio = Average Market Price / Cash Dividends per Share Note 3：Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price Note 4：Pending shareholders' meeting resolution.

6. Dividend Policy

According to the Company’s Articles of Incorporations, when allocating the

earnings for each fiscal year, the Company shall first offset its losses in previous

years and set aside a legal capital reserve at 10% of total remaining profits; this

excludes circumstances in which accumulated legal capital reserve is equivalent

to the total capital of the Company. The Company shall set aside or reverse a

special capital reserve in accordance with relevant laws or regulations or as

requested by the authorities in charge. Any balance left over plus accumulated

undistributed earnings shall be allocated according to the following principles per

resolution of the shareholders' meeting:

(1) Except for when distribution of capital reserve is conducted in accordance

with Subparagraph 2 or Paragraph 1 of this article, the Company shall not

allocate dividends or bonuses when there is no surplus earning. VIS may

fully allocate its distributable earnings for the year based on factors such as

financial, business, operation, etc. Earning distributions may be paid out

with cash or stock dividends jointly or separately. Due to the steady growth

62

experienced by our Company to date, the amount of cash dividends

distributed shall be no less than 60% of the gross amount dividends.

(2) In the event the Company suffers no losses in a certain year but possesses no

distributable earnings, or the earnings of a certain year is significantly less

than the earnings distributed by the Company during the previous year, or in

consideration of the company's financial, business, or operational factors,

the Company may allocate all or a portion of its reserve for distribution in

accordance with relevant laws or regulations, or upon the provisions of

competent authorities. Where legal reserve is distributed by issuing new

shares or cash, only the portion of legal reserve which exceeds 25% of the

paid-in capital may be distributed.

VIS aims for a steady dividend policy. Looking forward to next year, the

cash dividend per share would be equal or more than the amount that to be

distributed in Y2018.

Y2017 Profit Distribution for Common Shareholders, Directors Compensation, and

Employee Compensation: Unit: NT$

Year Date of Board

Resolution Dividend to Common Shareholders

(Cash) Directors Compensation

(Cash) Employee Compensation

(Cash) 2017 2018/2/5 4,916,946,801 9,900,000 675,759,960

7. Stock Dividend Distribution: Not Applicable

8. Compensation to employees, directors, and supervisors:

a. The percentages or ranges with respect to employee, director, and supervisor

compensation, as set forth in the company's articles of incorporation

The Corporation should distribute no less than 10% of the current year’s

profit as employees’ compensation in the form of stock or in cash as

resolved by the board of directors. The employees include those of

subsidiaries meeting some conditions agreed by the board of directors. The

Corporation should also distribute no higher than 1% of the current year’s

profit as remuneration to directors. However, the Corporation’s

accumulated losses shall have been covered. If there is a change in the

proposed amounts after the annual consolidated financial statements are

authorized for issue, the differences are recorded as a change in accounting

estimate.

b. The basis for estimating the amount of employee, director, and supervisor

compensation, for calculating the number of shares to be distributed as

employee compensation, and the accounting treatment of the discrepancy, if

63

any, between the actual distributed amount and the estimated figure, for the

current period.

For the year ended December 31, 2017, the employees’ compensation and

the remuneration to directors were $675,759,960 and $9,900,000,

respectively. The above calculated were at a certain percentage of the base

income. Any discrepancy between amount resolved by the board of directors

and the above estimated figure will be recorded a change in accounting

estimate and adjusted to profit and loss of next year.

c. Information on any approval by the board of directors of distribution of

compensation.

(1) The amount of any employees’ compensation distributed in cash or

stocks and remuneration to directors and supervisors. If there is any

discrepancy between that amount and the estimated figure for the fiscal

year these expenses are recognized, the discrepancy, its cause, and the

status of treatment shall be disclosed.

The amounts of employees’ compensation and remuneration to directors

resolved by the board of directors on February 5, 2018 were as follows:

The employees’ compensation amounted to NT$675,759,960. The

distribution will be paid in cash. There is no difference between the

amount resolved by the board of directors and the expense recognized

in Y2017.

The remuneration to directors amounted to NT$9,900,000. The

distribution will be paid in cash. There is no difference between the

amount resolved by the board of directors and the expense recognized

in Y2017.

(2) The amount of any employees’ compensation distributed in stocks, and

the size of that amount as a percentage of the sum of the after-tax net

income stated in the parent company only financial reports for the current

period and total employees’ compensation: Not Applicable.

d. The actual distribution of employee, director, and supervisor compensation

for the previous fiscal year (with an indication of the number of shares,

monetary amount, and stock price, of the shares distributed), and, if there is

any discrepancy between the actual distribution and the recognized

employee, director, or supervisor compensation, additionally the

discrepancy, cause, and how it is treated.

64

Distribution of employees’ compensation and remuneration to directors for the Y2016

were as follows. Board of Directors

Resolution (February 21, 2017)

Actual Distribution

Amount (NT$) Amount (NT$)Underlying Number

of Shares Dilution

Remuneration to Directors 14,100,000 14,100,000 NA NA

Employees’ compensation in cash 831,803,372 831,803,372 NA NA

Total 845,903,372 845,903,372 NA NA

The above figures have been recognized in the Y2016 financial report. There is no

difference between the amount resolved by the board of directors and the expense

recognized in Y2016.

9. Share Buy-back : None

B. Issuance of Corporate Bond : None

C. Issuance of Preferred Stock 1. Preferred Stock : None

2. Preferred Stock with Warrants : None

D. Issuance of Depositary Shares: None

E. Issuance of Employee Stock Option 1. Status of Employee Stock Option Plan (ESOP): None

2. New restricted employee shares: None

F. Status of Mergers and Acquisitions: None

G. Fund Plan Implementation: None

65

V. OPERATIONAL HIGHLIGHTS

A. A description of the business 1. Scope of business

VIS’ scope of business is in wafer foundry manufacturing. Main focuses are

providing variety process technologies for customers to design and produce

PMIC/LCD Display IC/ NVM/ Discrete/Finger Print IC and Sensor products.

At the same time, dedicate on the developing of BCD and high-voltage/ultra

high-voltage new technologies. VIS also supports specialty IC process

manufacturing and is committed to instilling a zero-defect mindset for

production, supply chain management, and service flow. We are firmly

dedicated to continuous improvement in order to reach our ultimate goal of

providing panel and power management products with zero defects to

customers while also focusing on enhancing our manufacturing processes

required for general commercial applications and special automotive

specification markets.Meanwhile, VIS is co-operating with various IP service

providers to expand VIS service in manufacturing. Above are all for the

purpose of establishing VIS as the preferred partner in specialty IC foundry &

service.

Y2017 VIS Sales Revenue

Item AMT

(NT$ in thousands) （1） Wafer Foundry 24,649,634 （2） Others 405,750Less Sales returns and allowances 145,771 TTL Net Revenue 24,909,613

2. Overview of the industry

Current state of industry and trends

Macroeconomic aspectsFigure 1 illustrates fluctuations in the unemployment rate of the US and major EU member states over the past year. Various tax cuts and reform measures introduced by the new government administration have resulted in an increase in nonfarm payroll employment. In the US, the unemployment rate has held steady at about 4.1% for five consecutive months as compared to 4.7% in January 2017, and this will be reflected to a certain degree in the US's GDP growth. Meanwhile, the average unemployment rate of the EU's 28 member states has declined from 8.4% to 7.3%, with Germany continuing to fare best with an unemployment rate reaching a low of just 3.7% in January, followed by the U.K., at 4.3%, which has continued to see improvement in economic conditions in the wake of its "Brexit" referendum to leave the EU. Only France, despite being one

66

of the largest economies in the EU, continued to struggle with higher than average unemployment, even though it has continued to show gradual improvement within the same time period. Looking ahead, the global GDP growth rate is expected to continue to steadily increase, and this projection is buttressed by the fact that unemployment rates continue to be kept under control.

Statistics and projections concerning global GDP growth based on the latest World Economic Outlook (WEO) report issued by the International Monetary Fund (IMF) in January 2018 are shown in Table 1. In the US, buoyed by tax relief measures and a low and stable unemployment rate of 4.1%, economic growth for 2018 and 2019 is projected to be 2.7% and 2.5%, respectively, which exceeds estimates for other developed nations, and this is likely to have a positive ripple effect on the economies of other countries.

Statistics and projections concerning global GDP growth based on the latest World Economic Outlook (WEO) report issued by the International Monetary Fund (IMF) in January 2018 are shown in Table 1. In the US, buoyed by tax relief measures and a low and stable unemployment rate of 4.1%, economic growth for 2018 and 2019 is projected to be 2.7% and 2.5%, respectively, which exceeds estimates for other developed nations, and this is likely to have a positive ripple effect on the economies of other countries.

As regards the eurozone, economic growth in 2018 and 2019 is projected at 2.2% and 2%, respectively, with strong and sustained market demand acting as the primary driver of growth. Issues in Spain involving the Catalan independence movement along with government instability in Italy, however, are uncertain variables which could have significant ramifications for the future of the eurozone.

As for China, GDP growth in 2017 clocked in at 6.9%, handily exceeding the official target of 6.5%. In 2018, China is expected to continue pursuing policies aimed at curbing corruption and strengthening financial regulatory frameworks, which could pose a slight detriment to GDP growth, presently estimated at 6.6%. In addition to being the "world's factory", China is also now the country with the most robust consumer market on the planet, and this trend is expected to continue for numerous years ahead. As such, it is estimated that continuing to maintain GDP growth at 6.5% or higher will not be particularly difficult for China to achieve.

Meanwhile, the IMF has increased its 2018 growth rate projection for emerging markets; in addition to expecting an increase from last year's 4.7% to 4.9% this year, the US, as the leading developed nation, is also expected to increase its growth rate from 2.3% last year to 2.7% this year, reflecting an upturn in manufacturing and overall increase in consumer strength. Although some concerns still loom over the economic status of the eurozone, from a macro perspective, global GDP growth in 2018 and 2019 is still expected to outpace 2017 by about 0.2% each year, with a current nominal forecasted growth of 3.9% — and this bodes well for market growth in the global semiconductor industry.

67

Figure 1. Fluctuations in the unemployment rate of the US and EU member states in the past year. (January 2017 – January 2018)

Source：Bureau of Labor Statistics of USA, Eurostat (Feb. 2018)

Statistics and forecasting of global GDP growth (2016-2019)

Source：IMF (Jan. 2018)

Economic Output of Global Semiconductor and Foundry Industries

While many lamented 2017's declining growth in shipments of smartphones in the end-user market, it turned out that PCs and tablets also had a relatively unimpressive performance during the same period. In spite of this, system providers are still continuing to pursue product innovation and upgrading product specifications. Smart automotive electronics applications, on the other hand, are still highly reliant on the use of semiconductor components. Driven by demand for memory and to a lesser extent by ASIC components, the global semiconductor industry was valued at US$411.1 billion, a new high which surpassed the US$400 billion milestone, representing an annual growth rate of 20% (see Figure 2). Markets of particular interest relating to wafer fabrication production capacity include arithmetic processors (APs), radio frequency integrated circuits (RF ICs), power management ICs, discrete components, display driver ICs, and sensor ICs for fingerprint recognition, all of which have continued to result in impressive gains. In all, the output value of the global wafer fabrication market in 2017 amounted to approximately US$57 billion, marking a growth of 7%.

Looking ahead to the remainder of 2018, smartphones are still one of the primary focal points for the semiconductor industry, while artificial intelligence (AI) is

9.0%8.6%

7.3%

4.3% 4.1%3.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%U

nem

ploy

men

t rat

e

France

EA-19

EU-28

UK

USA

Germany

2016 2017 2018 e 2019 fWorldwide 3.2% 3.7% 3.9% 3.9%

Advanced Economies 1.7% 2.3% 2.3% 2.2%

Emerging and Developing Economies 4.3% 4.7% 4.9% 5.0%

USA 1.8% 2.3% 2.7% 2.5%

Euro Area 1.8% 2.4% 2.2% 2.0%

Germany 1.9% 2.5% 2.3% 2.0%

China 6.7% 6.8% 6.6% 6.4%

Country / Region

68

continuing to drive growth in the semiconductor market, not only in terms of industrial applications such as fully automated manufacturing plants, but also in commercial markets such as the service industry. There also continues to be sustainable growth in the demand for foundries' production capacity, particularly for the production of key ICs including arithmetic processors and memory, power management ICs, and sensor ICs which provide higher performance and greater energy-saving capabilities. According to data published by Gartner, the semiconductor industry's total revenue for 2018 is poised to reach US$427.4 billion, a growth of about 4%. And foundry industry to grow by approximately 3%, achieving a scale of US$59 billion.

Global Semiconductor and Foundry Production Value

Source：Gartner (Dec. 2017)

Revenue and ranking of global foundry providers

The following chart shows Y2017 global foundry (including pure player

foundry and IDM) revenue and market share projections from Gartner. TSMC

remained the dominant player in Y2017 with 9% revenue growth. While

TSMC's market share declined 1.4% to 53.8%. GlobalFoundries occupied the

No. 2 position with 8.9% market share. UMC was ranked third with 8.2%

market share, followed by Samsung, while SMIC occupied fifth place with a

market share of 5.2%. TowerJazz was ranked No. 6 position with 2.3% market

share and an annual revenue growth of 14%, which is attributed to the M&A

and product mixed improvement. Powerchip, also a memory foundry, ranked

seventh with a market share of 1.9%. Here at VIS, our 2017 revenue of

US$0.816 billion enabled us to secure a No. 9 ranking, occupying a market

share of 1.4%. The top 10 firms revenue declined 1.6% YoY and accounted

for 92% of the overall market; the foundry industry is dominated to a large

degree by these major players.

411 427

57 59

20%

4%7%

3%

-5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

350

400

450

500

2017 2018 2019 2020 2021

YoY

$B

Semiconductor, $B

Total Foundry, $B

Semiconductor (YoY)

Total Foundry (YoY)

69

Global Foundry (Pure+IDM) Revenue and Market Share

Source：Gartner (Mar. 2018)

Taiwan Semiconductor Industrial

The following chart displays the statistics and forecasting of industry output

values for various secondary semiconductor industries in Taiwan. According

to the data presented by the TSIA and IEK, overall industry output in 2017

grew 1%, which is equivalent to a scale of NT$2462.3 billion. This

performance is weaker than the global semiconductor industries. The

manufacturing and packaging testing industries have continued to sustain

positive growth of about 3%, while the IC design industry recorded -6% YoY

performance, the first time negative growth has been seen in this sector since

2008.It is expected that in 2018 the overall semiconductor industry in Taiwan

will be able to achieve a 6% growth.

Output values of various secondary semiconductor industries in Taiwan

2016(NTD$100M)

2017(NTD$100M)

2018 e(NTD$100M) 16'-17' YoY 17'-18' YoY

Overall Industry output value 24,493 24,623 26,050 1% 6% - IC design 6,531 6,171 6,578 -6% 7% - IC manufacturing (foundry + memory) 13,324 13,682 14,492 3% 6% - IC packaging & testing 4,638 4,770 4,980 3% 4%

Source: TSIA and IEK (Feb. 2018)

The following demonstrates 2017 rankings for revenues earned by the major

foundry manufacturers of Taiwan (Remark: Revenue of Innotera Memories

Inc. and Rexchip Electronics Corporation have been incorporated into Micron

Technology data, its revenues cannot be determined and are therefore

expressed as N/A). The top two providers in the foundry industry were TSMC

and UMC, while VIS occupied 7th place. Currently, out of all foundry

$M Share % $M Share % Rev. % Share %1 tsmc Pure-FDY 29,466 55.3% 32,091 53.8% 9% -1.4%2 GF Pure-FDY 4,639 8.7% 5,300 8.9% 14% 0.2%3 UMC Pure-FDY 4,592 8.6% 4,888 8.2% 6% -0.4%4 Samsung IDM 3,700 6.9% 4,475 7.5% 21% 0.6%5 SMIC Pure-FDY 2,921 5.5% 3,099 5.2% 6% -0.3%6 TowerJazz Pure-FDY 1,220 2.3% 1,388 2.3% 14% 0.0%7 Powerchip Pure-FDY 987 1.9% 1,119 1.9% 13% 0.0%8 Fujitsu Pure-FDY 875 1.6% 870 1.5% -1% -0.2%9 Vanguard Pure-FDY 802 1.5% 816 1.4% 2% -0.1%

10 Huahong Grace Pure-FDY 713 1.3% 808 1.4% 13% 0.0%Top-10 49,915 93.6% 54,854 92.0% 10% -1.6%Top-10 % 94% 92% -2%Others 3,385 6.4% 3,385 5.7% 0% -0.7%Total 53,300 100.0% 59,603 100.0% 12% 0.0%

2016 YoY20172017 Company Foundry Type

70

manufacturers in Taiwan, Nanya Technology Corporation is the only one

DRAM manufacturer, whereas other firms, except for Winbond Electronics

Corporation, which is an IDM firm, have all adopted a foundry operating

model.

Regarding the revenue rankings for Taiwan's foundry manufacturers

2017 Ranking Company2016

(NTD$100M)2017

(NTD$100M) 16'-17' YoY Note

1 tsmc 9,479 9,774 3% Pure Foundry2 UMC 1,479 1,493 1% Pure Foundry3 Nanya 416 549 32% DRAM4 Winbond 421 476 13% IDM5 Powerchip 418 463 11% Pure Foundry6 Macronix 241 342 42% IDM/Foundry7 Vanguard 258 249 -4% Pure Foundry8 Nuvoton 83 92 11% IDM/Foundry

Source: Company data (Mar. 2018)

The relationships between up-, mid-, and downstream industry

segments are as shown in the following chart

Product development trends and state of competition

a. Product development trends

VIS provides the best quality IC foundry services and logic foundry process

technology. Apart from existing logic, mixed-signal and high-voltage

process, VIS also offers ultra high voltage, BCD (Bipolar-CMOS-DMOS),

SOI (Silicon on Insulator), and embedded non- volatile memory processes.

Our high voltage processes range from 10V to 800V, enabling us to satisfy

the needs of different product specifications and help customers expand

71

applications in different field. In response to the automobile industry's

demand for semiconductors, VIS has actively proposed solution plans and

applied for AEC-Q100 & VDA6.3 certifications to provide our customers

with multiple choices of technical platforms. In light of the increasing need

for consumable electronics, VIS has completed building the structure of an

IC application platform for magnetic and fingerprint sensor process

technologies, thereby providing customers with additional options other than

driver ICs, power management ICs, and discrete components.

Our wafer foundry services are closely linked with end markets, including

computer, consumer electronics, communications and automotive markets.

We chiefly supply products for computers (including desktop, notebook,

netbook, and tablet), LCD TVs, and cell phones; the following are demand

forecasts for various end markets from the research firms:

Computer：

Soft demand continued to impact the shipment of PC products in 2017. The

shipment of desktop computers was 95 million units with a drop of 8%.

While notebook market has a minor rebound, with a shipment of 160 million,

which reflects a 2% increase YoY. The shipment of tablet did not grow as the

increased shipment of large size smartphones. And 12.9" tablet did not

motivate corporate clients in the use of tablet computers, generating an

overall shipment of 158 million, which reflects a 6% decrease. Looking

ahead into 2018, the PC, notebook, and tablet market is expected to continue

to exhibit distress. Projections and Annual Growth Rate of Global PC Shipments, including Tablets (in millions)

Source：IHS, Gartner, IDC (1Q18)

Consumer Electronic：

The following two tables depict the global shipment and resolution trend of

LCD TVs. In 2017, a 0.2% annual growth rate (approximately 225 million)

was observed, with FHD (1920x1080) accounting for 32%. The penetration

rate of UFHD (3840x2160, 4k2k) was about 35%. According to IHS,

Gartner, and IDC, the overall shipment of LCD TVs for the next few years is

Mu, YoY% 2017 2018 2019 2020 2021Desktop 95 92 89 88 85 Notebook 160 158 158 160 161 Tablet 158 150 148 145 142 Desktop YoY -8% -3% -3% -2% -3%Notebook YoY 2% -1% -1% 1% 0%Tablet YoY -6% -5% -1% -2% -2%

72

projected to grow by 2% annually. Regarding UFHD resolution devices,

favorable growth is expected under the influence of price fluctuations,

occupying 48% of the overall LCD TV market by 2021. Meanwhile, with the

market for 4K/2K devices continuing to mature and with consumers gaining

more exposure to this technology, 8K/4K televisions will soon begin hitting

the market.A positive growth in the shipment of LCD TVs and enhanced

panel resolution are market trends that positively influence VIS business

performance in driver IC operations. Global TV Shipment Volume (in millions of units) and Annual Growth Rate


LCD Shipment Ratio by Resolution

Source：IHS (1Q18)

Communication：

The following table depicts the global shipment and annual growth rate

forecasts for mobile phones. Smartphones maintained small growth in 2017,

but their growth is no longer comparable to that in the past. Premium high-

end devices have broken from the past trend of being subordinate to

utility/basic devices; in 2017, the discrepancy in annual growth rate was 7%

and 6%, respectively.Regarding the average compound growth rate for

shipments from 2017 to 2021, functional mobile phones register a decline of

-8.7%, whereas mid-/low-end devices and premium high-end devices each

project an around 3.5% growth. VIS supplies driver IC capacity for products

with ramless in response to customer demands for mid-/low-end devices.

225

229

0.2%

2.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

215

220

225

230

235

240

245

2017 2018 2019 2020 2021Yo

Y

Mu LCD TV

4kx2k %

2017 2018 2019 2020 20211366 x 768 33% 32% 31% 29% 28%1920 x 1080 32% 27% 25% 24% 23%3840 x 1080 (4kx2k) 35% 41% 44% 46% 48%7680 x 4320 (8kx4k) 0% 0% 1% 1% 1%

73

Global Mobile Phone Shipments (in millions of units) and Growth Rate Forecast


Automotive Electronics

The global automotive shipment volume is shown in the following figure.

The shipment volume in 2017 was approximately 95 million vehicles, mostly

traditional fossil fuel vehicles. The growth rate of battery electric, plug-in and

hybrid electric vehicles will increase drastically as energy conservation and

carbon reduction topics ferment and the European Union gradually

implements laws and regulations for controlling automobile carbon dioxide

emissions. It is predicted that 100 million new vehicles will be shipped in

2021, with electric vehicles accounting for 61% of the projected number. 至

於全球各地區汽車出貨量，中國成長動能最大，目前已是全球單一最大

市場是30%的比重。 Global Automotive Shipment Volume (in millions of units)

Source：IHS, Gartner (1Q18)

The global automotive electronic semiconductor output value is illustrated in

the following table. As can be seen, the '17-'21 annual compound growth rate

was 9.4%. In addition to the aforementioned energy conservation

requirements for electric vehicles, the automotive market will become highly

dependent on semiconductor elements as product designs that incorporate

networking capabilities and driverless. Moreover, the industry output as a

whole has the opportunity to achieve a scale of US$53.9 billion in 2021. VIS

is currently actively cultivating this market in response to the growing

demand for automotive electronics.

Mu, YoY % 2017 2018 2019 2020 2021 CAGR (17-21)Feature phone 371 337 305 277 258 -8.7%Utility/Basic Smart phone 904 966 1,003 1,008 1,038 3.5%Premium Smart Phone 698 743 759 779 793 3.3%Feature phone YoY -11% -9% -9% -9% -7%Utility/Basic Smart phone YoY 6% 7% 4% 0% 3%Premium Smart Phone YoY 7% 6% 2% 3% 2%

28 28

42%46%

52%58% 61%

0%

10%

20%

30%

40%

50%

60%

70%

0

20

40

60

80

100

120

2017 2018 2019 2020 2021

EV re

late

d %

Mu

Middle East/Africa

South Asia

Japan/Korea

North/South America

Europe

Greater China

EV+PHEV+HEV %

74

Automobile semiconductor output value (US$ Billion)

Source：Gartner (4Q17)

b. Competitiveness

In IC foundry processes, in addition to the 0.5um, 0.35um, 0.25um, 0.18um,

0.16um, and 0.11um processes, we have developed multiple integrated circuit

technologies and successfully mass produced these products to enhance the

competitiveness of our customers' products. In contrast to digital ICs, analog

ICs, mixed-signal ICs, and high-voltage technologies are the key to bridging

communication between reality and digital systems. The design of each

product requires specific components and IP. VIS therefore cultivates the

development of specific components and IP to help clients quickly enter the

market. This business model of jointly developing novel technologies with

our customers helps VIS in forming a consolidated, longstanding partnership

with its customers.

3. Technology and R&D

R&D expenses in past 2 years and to the day this report was printed.

Year R&D spending (in NTD thousand)

2016 1,555,504

2017 1,546,994

2017/01/01–2017/02/28 204,924

In order to provide customers with more competitive technologies and services, the Company is continuously developing more specialized applications from its core technology as well as enhancing the value of the services we provide. In terms of sensor ICs used in fingerprint recognition, VIS's 0.18um/0.15μm IC manufacturing process for capacitive fingerprint sensors has now entered full-scale mass production. Furthermore, VIS has achieved gains in client development for optical fingerprint recognition ICs using the 0.18μm IC manufacturing process for optical fingerprint recognition applications and has integrated this technology into smartphones, successfully showcasing the latest optical fingerprint recognition functionality. Besides, 0.11um high voltage process technology was developed from Y2012 and Finger Print IC technology was also co- worked with customer and developed since Y2014. For high growth of Automotive Display market, the Company is active developing Automotive Display Driver ICs and lists it to operational focus. The advanced 0.11um

Device Category Device 2017 2018 2019 2020 2021 17-21 CAGRTotal, $B 37.6 40.8 44.5 48.8 53.9 9.4%

ASIC 1.8 1.8 1.9 2.1 2.2 5.5%ASSP 10.7 11.7 12.8 14.4 16.4 11.3%Analog 2.9 3.1 3.3 3.6 3.8 7.6%Discrete 5.2 5.7 6.3 6.8 7.3 8.6%Memory 2.2 2.3 2.4 2.6 3.0 7.8%MCU 6.6 7.0 7.6 8.3 8.9 7.9%Optoelectronics 3.3 3.9 4.6 5.3 6.1 16.5%Nonoptical Sensors 4.1 4.2 4.4 4.7 4.9 5.0%

Application-Specific

General-Purpose

75

automotive technology platforms also passed automotive qualification and customers started verifying their products.

With regards to the BCD (Bipolar-CMOS-DMOS) process for power management ICs, apart from the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um processes that have already gone into mass production. The advanced 0.11um BCD and 120V extension technology platforms also passed automotive qualification; customers started verifying their products and expected to enter into mass production this year. The advanced 0.11um AMR eCompass SOC platform has been adopted by customers and will be certified by the end of next year. In addition, customers are using 0.18um AMR platform to develop automotive and industrial magnet resistor products, plan to kick off mass production in next year. Moreover, the 0.5um HV SOI technology continues in mass production. The new generation, 0.25um HV SOI technologies completed the process development customers’ production verification as well. The next generation of 0.5um ultra-high-voltage processing with ultra-low on resistance and cost effective version has been accomplished and start the mass production this year. With respect to wide bandgap semiconductors, the Company has made preliminary progress in the application of gallium nitride (GaN) including for providing special base materials and also by completing development on the production of epitaxial wafers (epiwafers). Moreover, the Company is continuing to evaluate development of additional components, and we anticipate being able to provide customers with better alternatives to conventional silicon-based materials in upcoming next-generation power control components. In the future, Vanguard International will continue to actively develop the high voltage and power management technology components that the market demands and continue to collaborate with TSMC to develop even more advanced processes.

It is expected that VIS will increase its R&D spending in Y2018 to 6% of its

revenue.

Project Description

0.5um UHV Low Ron & High Side Technology

Based on customer demand, develop UHV Technology for Motor Driver IC & LED Driver IC.

Power Management IC Technology Platform

Develop 0.15um/0.11um with 120V extension power management IC technology platforms to supply products for computers (including desktop, notebook, netbook, and tablet), cell phones, and automotive application.

Display driver IC technology platform

Based on customer demand, develop display driver IC technology platform for 8K4K, 4K2K TV, tablet, mobile phone, touch panel and automotive panel display.

Finger Print IC Technology Platform Research and develop fingerprint IC technology platform that fulfills the requirement of customization and industry's latest development applications.

76

4. Long and short-term business development plans

Short-term development plan

We are constantly innovating and developing new technologies. We have

conducted R&D in the high-voltage process field for many years. In the

short term we will continue to apply our high-voltage process technology to

driver IC products, while developing BCD, UHV, SOI, NVM processes in

an effort to response to customers' increasing diverse needs and enhance

customer service quality.

a. Short-term business development plan: We will strengthen our on-time

delivery rate in order to boost customer satisfaction: We plan production

of most of our products after get orders from customers. Because our

customers' exacting design and customization needs, we commonly

engage in face-to-face communication with customers, and provide

consulting-style services. Our superior process technology, professional

technical personnel, and rigorous certification measures have helped us

win our customers' trust.

b. We will continue to improve our large panel driver ICs performance. We

have developed e-book, tablet, and TV applications, and hope to capture

over 40% market share of for gate driver ICs and over 25% market share

for source driver ICs.

c. We will strive to develop high-efficiency, energy-conserving, carbon-

reducing products. We look forward to the continued growth of our power

management ICs in the years ahead. Our current main products include

DC to AC power converters and AC to DC converters, which are used in

small-/medium-size computers, smartphones, LCD TVs, and energy-

saving home appliances and lighting fixtures.

d. We will endeavor to set up an embedded Flash, magnetic and fingerprint

sensor IC platform and expand other markets in addition to the driver IC

and power management IC markets, in order to provide more devices

solutions to customers.

e. Various reliability certifications recently obtained by VIS pertaining to

automotive application technologies, including AEC-Q100 Grade 0 and

VDA 6.3 Grade A, will be utilized to make further inroads in the

automotive electronics market.

f. We will integrate our global resource and actively expand our foreign

market.

77

Long-term development plan

a. We will strengthen our BCD, UHV, Discrete, and eNVM R&D, enhance

our yield rates and technological maturity, improve our processes, and

cut costs.

b. We will continue to develop new process technologies, keep on going

processes for products with new specifications such as GaN, expand our

range of product applications, widen our customer base, and strengthen

overseas market development.

c. We will seek partners to establish strategic alliance and attempt to

prolong the life cycle of our 8-inch FAB.

d. Planning and rolling out expansions into new areas of business and new

production capacity.

78

B. Industry survey and market analysis 1. Market analysis

Major product sales areas

Unit: NT$, in thousands Y2016 Y2017

Net Revenue % Net Revenue %

Asia 23,656,799 92 22,556,304 91America 1,187,913 4 851,199 3Europe 978,862 4 1,501,670 6Oceania 5,060 0 440 0Total 25,828,634 100 24,909,613 100

Market share

VIS has cultivated the high-voltage process market for many years, and will

continue to develop BCD and SOI process technology, boosting operating

performance. VIS had revenue of approximately NT$24.9 billion in Y2017.

According to statistics from the research firm, Gartner, VIS had a market share

of roughly 1.4% in Y2017, making it the world's ninth largest pure foundry

player.

(Please see Industry Overview concerning future supply and demand and

growth)

Favorable and unfavorable factors affecting competitive niche and

development vision, and response measures

Favorable competitive factors

(1) As new information, communications, and consumer products emerge in

rapid succession, shipment volumes have set new records. In addition,

international IDM firms are constantly releasing foundry orders in order

to boost the competitiveness of their products. As a result, the foundry

market, which VIS is enjoying steady growth. Furthermore, future

development trends for relevant end products such as LCD flat panel

displays, PCs, handheld devices, and automotive electronics bode well

for VIS, which will provide technical blueprints for process services,

continuously monitor with market trends, and keep up with customers'

needs.

(2) VIS received ISO 9001 international quality certification in 1996, ISO

14001 international environmental certification in 1997, QS 9000

international quality management system certification in 2002, and

ISO/TS 16949: 2002 international quality management system in

79

2004.VIS is now recognized as a top global vendor due to its exceptional

manufacturing service quality. In addition, VIS has obtained various

automotive electronics certifications including AEC-Q100 and VDA 6.3

to conform to the requirements of certain customers, and the Company

has continued to cultivate excellent business relationships with numerous

large-scale global vendors, facilitating a greater degree of stable

production capacity and a higher market share.

(3) VIS and TSMC maintain a close wafer foundry service relationship, and

VIS has been transferred TSMC's 0.5um/0.35um /0.25um /0.18um

/0.16um /0.11um process technologies, which have been successfully

entered in mass production. VIS has also successfully developed many

specialty IC technologies, which have been used in mass production.

(4) Our highly effective management team, in conjunction with our

professional process team and outstanding sales team, enable us to

achieve superb business performance.

(5) Our highly flexible customer support system helps us to form long-term

partnerships with customers.

Unfavorable factors to competition

(1) The current trend of component integration is such that, when the

accumulated degree of integration is higher, the Company’s 8-inch

process technology might not be able to meet the needs of advanced

processing customers.

(2) The merging and acquisition trend within semiconductor industries have

elevated market centralization, which is detrimental to the Company's

business operations.

(3) China's self-sufficiency policies have caused tectonic plate shifts in our

supply chain, and this shift is also detrimental to the Company's future

operations.

Response measures

(1) We will continue to improve our process technology, quality, and mass

production capability, reduce production costs for various products,

enhance our yield rate and service, boost production efficiency, and

consolidate our professional wafer foundry service capacity.

(2) We will accelerate process development, make opportune innovations in

the specialty IC foundry area, and consolidate our partnerships with

80

customers by maintaining differentiation, making us become the best

choice of specialty IC manufacturing service provider.

(3) We will focus on and optimize high-voltage, ultra-high-voltage, and

discrete, BCD, as well as eNVM technology, and concentrate our

resources in order to enhance our competitiveness.

(4) We will strengthen our partnerships with customers and adopt an IDM

Fab-lite strategy in order to better complement our customers.

(5) We will strengthen marketing and customer service performance,

continue to raise customer satisfaction, and achieve our goal of

sustainable operation.

2. Major Applications of Products

VIS provides world-class quality Logic IC manufacturing service. Those

products can be applied into Computers and its peripherals (including TFT

LCD monitor, CD-ROMs and Motherboard), Communications (including

Mobile phone, Wireless LAN, Switch, and mobile navigator), and

Consumer electronics (including High Resolution TV, tablet, e-book, Digital

Camera, and DVD player).

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81

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83

C. Personnel Structure As of February 28, 2018

Year 2016 2017 2018/02/28

Personnel Direct 2,254 2,385 2,433

Indirect 2,720 2,789 2,794 Total 4,974 5,174 5,227

Average Age 37 37 37Average Year of Service 6.85 7.13 7.17

Average Year of Service

Education

PH. D 40 44 47Master 1,247 1,352 1356College 2,191 2,272 2311

High School 1,489 1,499 1506 Less than High School 7 7 7

D. Environmental Protection Measures

Environmental Investment

VIS continuously improves our environmental management and upgrade

pollution control equipments. In Y2017, in addition to the existing equipment

maintenance, we continuously invested in purchasing pollution control

equipments for special chemical substances, wastewater and exhaust, and local

scrubbers. The total investment was around NT$316 million. VIS also made

an investment around NT$1927 million in green products procurement and

will keep surveying and purchasing relative green products in order to fulfill

our environmental protection responsibility. In 2017, a legal fine amounting to

NT$72,500 was incurred due to the discovery of a damaged treatment channel

in the pure water system; consequently, relevant safeguards and monitoring

were enhanced, and the frequency of regular inspections has been increased.

Greenhouse Gases Emissions Management

Climate change is a major topic of discussion in the United Nations and

among governments, societies, and corporate bodies worldwide. This is also

the case for VIS. The Vice President of Finance of VIS established the VIS

Corporate Social Responsibility Promotion Committee, which incorporates

climate change issues into project implementation and promotion. The

results of implementation are periodically reported to the Board of

Directors.

In addition to periodically monitoring regulatory compliance, the VIS CSR

Committee has also worked to implement product carbon footprint and

water footprint inventories in recent years, providing a basis for future

environmental mitigation measures. In 2017, the Company also introduced

Environmental Accounting and ISO 50001 Energy Management Systems to

84

reduce the environmental impact of the Company's operations. The

Company completed a product carbon and water footprint analysis in 2016

and will continue to promote this program in 2018.

And the company’s GHG emissions in Y2015, Y2016, and Y2017 are 627.6

thousand tons CO2e, 721.1 thousand tons CO2e, and 711.1 thousand tons

CO2e, respectively. As for the GHG reduction, the company has

accomplished, from Y2015 to Y2017, 189.3 thousand tons CO2e, 269.2

thousand tons CO2e, 285.3 thousand tons CO2e, respectively.

VIS conducts its GHG inventories by following ISO/CNS 14064-1

standards, the Executive Yuan Environmental Protection Administration

(EPA) Greenhouse Gas Validation Guidelines Note, "Greenhouse Gas

Emission Inventory Registration Guidelines", and the WBCSD/WRI GHG

Protocol, with 100% control to define organizational boundaries

(Operational Control Act).

Based on the 2015 GHG carbon emission coefficient announced by the

Taiwan Power Company, the GHG emission per unit area of wafer is

expected to be 15% less by 2021 than the amount emitted in 2016.

VIS ensures the transparency of its GHG information by disclosing relevant

GHG emission and reduction information through various channels. VIS

performs self-inspection during the disclosure process and obtains external

opinions in order to continuously reduce its GHG emissions. Information

disclosure channels include the following:

• Since 2005, VIS has utilized third-party verification for annual greenhouse

gas (GHG) emissions and submitted annual reports of GHG emission to

the Taiwan Semiconductor Industry Association (TSIA) and EPA,

Executive Yuan.

• Since 2014, VIS has voluntarily participated in the Carbon Disclosure

Project (CDP) to disclose climate change-related information on a yearly

basis which includes information on GHG emissions and reductions. In

addition, we conduct inspections and make improvements on risks and

opportunities relating to legal regulations, natural disasters, finance, and

business operations. External bodies are able to access relevant

information on the CDP website.

• Since 2014, VIS has made its annual CSR reports publicly available on the

Company's website, which includes information disclosures which are of

concern to our customers and investors.

Furthermore, the company announced its safety, health, and environment

policy to promote environmental protection and development of a

85

sustainable environment. For details, please visit VIS website as follows:

http://www.vis.com.tw/visCom/chinese/a_about/a04_environmental.htm

Energy Management

The Company continues to conserve energy within its public facilities. For

example, while maintaining high product quality, VIS has increased the

environmental temperature in non-photo areas of cleanroom, improved

energy consumption of fan filter units in the cleanroom, installed heat

pumps on external air-conditioning boxes in the cleanroom, purchased

energy-saving production equipment, and adopted variable frequency

control systems in the vacuum pumps of manufacturing equipment in order

to conserve energy. With respect to conserving natural gas, the external dew

point temperature is used to set the optimal operational level of boilers

within each plant. Air pollution treatment equipment and the VOC burner

were upgraded to recycle and reuse high-temperature exhaust gas. In

addition, ISO 50001 certification was obtained for three VIS plants in 2017.

The systematic management processes of ISO 50001 have enabled VIS to

identify new opportunities for improving our energy-saving capabilities,

thus enhancing the Company's energy conservation efforts. In 2017 we

conserved 12,150 Kwh of electricity, reducing electricity costs by

approximately NT$29.78 million.

VIS's target for energy management is as follows. We aim to conserve 10%

less energy per unit area of wafer by 2021 than the amount consumed in

2016.

Air Pollution Control

VIS currently has three wafer fabrication plants, all of which are equipped

with extensive waste gas and wastewater collection, monitoring and

treatment systems that surpass the regulatory requirements and operate

continuously 24 hours a day. To prevent abnormal discharge of waste gas

and wastewater during power outage, we have included our production

machinery and pollution control equipment into the emergency power

supply system to make sure that all waste gas and wastewater are adequately

treated before discharge. For waste gas treatment, our various waste gas

scrubbers are monitored 24 hours a day, allowing on-duty personnel to

quickly manage any system issues that may occur. The level of volatile

organic compounds in the treated waste gas we discharge is far below the

legal standard.

86

Water resource management/ Prevention and control of water pollution

In terms of water resource management, in order to lessen the impact of

water shortages on production processes during periods of low rainfall, the

Company has developed the "VIS water vehicle transportation contingency

response plan during water shortages" based on the status and condition at

each plant as well as the practices of other foundries. This response

mechanism can be activated in the event of water shortages to minimize

impacts on production.

VIS maximizes the reuse of water discharged from its manufacturing

processes. Based on the characteristics of the discharged water, VIS has

established over 10 types of water discharge pipes and three types of

recycling systems, which are classified according to water quality and user

demands into low-concentration HF waste recycling (LHF-R) system,

chemical mechanical polishing wastewater recycling (CMP-R) system, and

low-concentration acidic wastewater recycling (DLA) system. LHF-R

provides additional water for scrub columns and cooling water towers, and

water produced by the CMP-R system provides additional water for scrub

columns. Lastly, the DLA system recycles water for use in a pure water

system. The recycling systems described above can be used to reduce

wastewater discharge and ease the burden on the environment, as well as

prevent the use of tap water for refilling, thereby conserving more water.

VIS's water pollution prevention strategy is focused on reducing the

generation of pollutants and recycling and treating water pollutants by using

effective equipment, thereby ensuring that the quality of discharged water

meets or exceeds government standards.

VIS has installed water quality and quantity monitoring equipment at the

discharge outlet of its wastewater treatment facilities to monitor and record

changes in water quality and quantity. To prevent wastewater tanks from

rupturing and causing contamination of underground water, VIS also

conducts annual groundwater sampling tests at its plant sites and tests the

soil at its facilities every three years. This ensures that wastewater discharge

and underground water and soil conditions near the vicinity of the plant

comply with monitoring standards.

Waste management and recycling

To ensure that waste generated at the Company is adequately managed, we

have documented management measures in compliance with the spirit of

ISO 14001, and require all employees to faithfully implement the tasks of

waste classification, collection, storage, and disposal. We currently engage a

87

qualified waste disposal and recycling organization to help us properly

dispose, process, or reuse waste. As a result of our efforts, fabs have

maintained a recycling rate of 90% over the past few years.

With regard to VIS's promotion of environmental, safety, and health

management, please see the chapter of E. Employee / employer relations,

5. Employee Working Environment and Personal Safety, or the VIS

Corporate Social Responsibility Report for more details.

E. Employee / employer relations 1. Employee Benefit and Implementation

VIS places high priority in employee's health, and made great effort to

improve the working environment, setting up facilities and planned leisure

activities as well as providing health and insurance services. VIS was

granted a number of awards, including the "Leading Enterprise for

Occupational Health and Safety Award", "Golden Ideas for Sporty Offices

Award" and "Workplace Equality Award" in 2017.

Miscellaneous Employee Benefits

To ensure the comfort of employee's health and daily life, in terms of

facilities, VIS provides a clean and comfortable work environment, several

and variety of leisure facilities and regular examination of environment

operation. In terms of health, the Medical Center arranges health checkup

for supervisors and all members; in occasions, discounted health checkup

and consulting services by doctors are arranged in each FAB. Moreover, we

constantly organize activities to help enhance employee's health condition

and relieve work pressure, helping make life more pleasant for all.

For details of VIS Employee Benefits, please refer to VIS 2017 Corporate

Social Responsibility Report.

Employee profit sharing plan:

The profit sharing plan with employees refers to financial goal of the

employees are in line with the business goal of the Company. All employees

work hard for creating profit in a concerted effort. This allows the

employees to share the joy of success of the Company. If there is a surplus

at the end of the fiscal year after account settlement, specific percentage of

the profit will be allocated as employee bonuses.

Group insurance

Labor insurance and national health insurance give basic protection for the

employees. VIS seeks to provide better protection of its people by taking a

group insurance policy to cover the inadequacy of the said insurance

88

programs. Under this group insurance policy, the spouse and the dependents

of the employees are also protected so that the families of VIS people can

enjoy the benefits as well. The limitation of insurance benefits claim under

the group policy is much lesser than the labor insurance and the benefit

amount is higher. The Company pays for the group insurance premium and

employees are entitled to take specific options on their own under the group

coverage at their own cost. (The scope of coverage: life insurance, accident

insurance, medical insurance on accidents, coverage for hospitalization and

treatment of cancer.)

2. Training

Education and Training programs:

To better facilitate the Company's vision and help meet strategic goals,

education and training programs are a critical area of focus for human

resources, and to this end VIS has continued its endeavors to construct a

comprehensive talent development system. To help employees develop and

hone their core competencies, VIS has created a range of learning

development programs tailored for individual employees covering subjects

such as engineering, quality assurance, industrial safety, general knowledge,

management, and other types of courses. Furthermore, the Company also

encourages employees to participate in continuing education and external

training courses, reflecting our commitment to cultivating an educational

environment characterized by a diverse collection of advanced learning and

higher quality training programs. VIS offers more hours of training and

dedicates more resources to training than its industry competitors. The hope

is that each employee will use what he or she learns to raise the quality of

his or her work. This in turn leads to higher profits for VIS, while at the

same time furthering the careers of our employees.

a. VIS has a comprehensive training system for training professional

talents and developing employees’ potential. This comprehensive

training system includes new comers’ orientation, professional /

technical training, external training, managerial training and self-

development.

b. In order to effectively track each stage of our employee's education, VIS

has created a robust e-training management program which serves as a

basis for arranging future training and talent development plans. Each

year, every employee designates personal learning and development

goals, and after discussing the goals together with their supervisors,

89

employees formulate personal development plans to achieve continuous

growth and facilitate life-long learning goals.

c. We provide an e-Learning web portal which offers over 733 courses,

and the Company's educational materials are constantly being updated.

At present, VIS's training covers a wide range of topics including

engineering technology, professional competencies, management, and

other courses on specialized skill sets. Our comprehensive learning

programs feature extensive and innovative content, allowing VIS

employees to expand their knowledge without limitations imposed by

time or location. By learning at their own pace, employees can increase

their competitiveness and foster a Company culture which values self-

motivated education. Total over 80 thousand times online class was

studied by company employees in Y2017.

d. The training statistics of Y2017 are summarized in the following table.

And employee average training hours in Y2017 was about 34.2 hours.Numbers of Personnel

Total Training Expense

Total Employees Trained

Total Training Hours

5,215 7,195,919 138,881 178,769

3. Retirement Plan:

The specific content and current state of implementation of the Company's

retirement system is as follows:

Proportion and status of disbursements under the new and old retirement

systems:

The monthly contribution rate for labor pension disbursements provided by

the Company for applicable employees as stipulated under the Labor

Pension Act is six percent (6%) of the employee's monthly wage or salary;

under the old labor pension fund system, the contribution rate for

disbursements is two percent (2%) of the employee's monthly wage or

salary.

Procedures and Qualifications for Employee Retirement Applications:

The Company's standards for employee retirement are implemented in

accordance with the following regulations:

(1) An employee of the Company who meets any one of the following

conditions may apply for voluntary retirement:

a. The employee has worked at the Company for 15 years or longer and

is aged 55 or older.

b. The employee has worked at the Company for 25 years or longer.

c. The employee is aged 60 or older and has worked for 10 years or

longer.

90

(2) An employee of the Company who meets any one of the following

conditions shall be subject to compulsory retirement:

a. The employee is aged 65 or older.

b. The employee is mentally or physically incapacitated such that he or

she is unable to perform his or her work duties.

The Company may request the central competent authority to approve an

adjustment to the age limit stipulated in Subparagraph 1 of the preceding

paragraph if the specific job entails risk, requires substantial physical

strength, or otherwise of a special nature, but the minimum age may be no

lower than 55.

Except where otherwise stipulated in the Labor Pension Act or other law or

regulation, the calculation method for pensions shall be handled in

accordance with the regulations set forth under the Labor Standards Act.

When applying for retirement, an employee shall fill out a Retirement

Application Form and submit it for review; applications shall not be

effective until they have been reviewed and approved. If an employee's

pension plan is governed by the old pension system, an application shall be

submitted to the Pension Supervisory Committee for review, and the

pension shall be disbursed to the employee within 30 days from the date of

retirement. An employee whose pension plan is subject to the new labor

pension system shall submit an application on his or her own behalf to the

Bureau of Labor Insurance; If an employee becomes deceased prior to

claiming his/her pension, the employee's survivor(s) or designated

claimant(s) shall apply to the Bureau of Labor Insurance to claim the

insurance benefits. Where an employee's pension plan was already subject

to the retirement provisions set forth under the Labor Standards Act prior to

promulgation of the Labor Pension Act, and where the employee continued

to work at the Company after the foregoing provisions went into effect, and

where the employee opted to remain bound by the pension system

prescribed by the foregoing provisions, the employee shall retain the

number of years of service he/she accumulated prior to being subject to the

foregoing provisions, and he/she may continue to be subject to the

retirement provisions stipulated under the Labor Standards Act.

4. Other important agreements and employment protection policies:

The Company treasures the establishment of harmonious atmosphere in

labor-management relation through mutual trust in corporate management,

and adopts the proactive openness model of management to create a

challenging and joyful work environment.

91

For example, VIS highly treasures the opinions of the employees and

thereby established an “Employee Relation Section” for handling labor-

management relation and related matters. Different channels were cultivated

for labor-management communications in order to create an open

environment. Further to department meetings, which were held not on a

regular basis and orientation of new people, quarterly labor-management

meetings, and executive meetings, VIS also set up a mailbox for employee

communication. In addition, VIS conducts survey on employee opinions on

their satisfaction with management and the welfare system regularly. VIS

not only made efforts in sustaining positive labor-management relation, but

also provided consultation services to employees, and organized related

speech presentations and symposiums with the employees at any time as

needed to strengthen the communications of idea and establish a consensus.

Labor-management relation at VIS is harmonious, and there is no loss or

damage deriving from labor-management disputes ever since its

establishment.

5. Employee Working Environment and Personal Safety

VIS's Environmental, Safety, and Health Policies

When it comes to the Company's environmental, safety, and health policies,

VIS places a strong emphasis on full participation by all employees to

ensure across-the-board safety. After being reviewed and signed by VIS

Chairperson and President Leuh Fang, the latest policies are posted on the

Company's official website and the announcement board of each production

site. To ensure that each employee clearly understands the Company's

policies and works to achieve their objectives, the policies are also printed

out onto cards which are then distributed to all employees, thereby

facilitating widespread compliance. In addition, VIS's contractors are

required to comply with the Company's policies pertaining to safety and

health management. To this end, VIS has incorporated various informational

directives concerning health, safety, and environmental policies into related

education training provided to contractors, ensuring that all contractors

which handle work for VIS clearly grasp the Company's health, safety, and

environmental policies

Environmental, Safety and Health Management Systems

With regard to safety and health management as it relates to VIS's

improvement-oriented management methodology, our primary strategy for

boosting occupational safety is to prevent harm associated with equipment

use to the greatest extent possible. To this end, the Company continually

92

proposes and implements improvement plans where feasible in a bid to

clamp down on potential safety and health risks. In terms of environmental

protection, the top three approaches VIS has adopted to improve its impact

on the environment are waste reduction, re-use and recycling, and energy

conservation, all of which effectively serve to reduce the waste of resources.

In the course of promoting our environmental, safety, and health

management system, we create relevant forms in the system in order to

comply with PDCA (Plan-Do-Check-Action) tracking methodology and to

uphold our spirit of continuous improvement, including: Environmental

Safety & Health (ESH) management system, regulatory compliance

verification, corrective and preventive measures, and other systems for

managing non-compliance.

Promotion of Environmental, Safety, and Health in Each Department

Each department designates senior personnel to record and assess safety and

health risks and environmental aspects associated with the various types of

occupational activities, products, and services encountered on the job as

well as common occupational hazards, insurance company audits,

recommendations from outside experts, and records of previous accidents

and regulatory requirements of each department and partnering plants. In

addition, VIS departments are required to submit ESH improvement

proposals which address high-risk and significant environmental aspects.

Proposals currently being implemented include the following:

a. Formulating environmental, safety, and health management programs

b. Determining and verifying regulatory compliance

c. Measuring safety and health performance, and managing environmental

monitoringd. Administering competitive KPI benchmarks for environmental, safety,

and health compliance

e. Carrying out internal and external audits

Promotion of Environmental Safety and Health Education

To enhance employee's comprehension of safety, health, and environmental

protection concepts both inside and outside the Company, and to sharpen

skills and awareness related to the safety of employees at their respective

work sites, VIS has arranged classes as required by law and also formulated

health, safety, and environmental training plans based on the actual needs of

our plants to reinforce employees' safety and health awareness and sense of

responsibility.

93

a. Training for New Employees: Prior to officially starting work, all new

employees must first complete a 6-hour set of comprehensive internal

training courses on health, safety, and environmental education in order

to ensure they fully understand VIS's environmental, safety, and health

regulations and relevant company policies.

b. On-the-Job Training Employees participate in various on-the-job

training programs in order to enhance specific skill sets related to

different job duties.

c. Promoting Education: VIS is dedicated to fulfilling its responsibilities

as a good corporate citizen, including participating in the "annual

industrial safety and environmental protection month" events hosted by

the Hsinchu Science Park Administration, ensuring that employees are

able to participate in both on-site and off-site CSR activities.

Company Achievements Relating to Environmental, Safety, and Health in

Y2017

a. 2017: Received the EPA's Silver Award at the ROC Enterprises

Environmental Protection Award.

b. 2017: Received the Benchmark Enterprise Award from the

Occupational Safety and Health Administration, Ministry of Labor at

the National Occupational Safety & Health Award.

c. 2017: Received the Taoyuan Department of Environmental Protection's

Award for Reduction of Airborne Pollutants in Public and Private

Spaces.

d. 2017: Received Excellence in Occupational Safety and Health

Promotion Performance Award from the Hsinchu Science Park

Administration.

e. 2017: Received the Partner in Environmental Education Promotion

Award from the Hsinchu Science Park Administration.

f. 2017: Received the Outstanding Achievement in Environmental

Protection Award from the Hsinchu Bureau of Environmental

Protection.

Promotion of employee health

VIS takes on the responsibility for caring for and safeguarding the health of

its employees. Apart from providing protective gears and conducting

biannual measurement tests of the work environment, the in-house

infirmary arranges regular health check-ups for employees. Our in-house

infirmary arranges regular health check-ups or low-cost examination

94

programs from time to time for our supervisors and employees, offers free

flu shots, provides general physical health consultations, promotes breast

feeding, and ensures a friendly environment for breast feeding is provided.

We also hold special managerial/ departmental health classes and provide

employees with stress-relieving massage service aimed at boosting

employees' immunity and work efficiency. Our Health Promotion

Committee holds health leisure activities occasionally to encourage and

motivate employees and their spouses to cultivate the habit of exercising

regularly to maintain vitality and health both physically and mentally. In

addition, our infirmary holds various types of health workshops and health

promotion awareness activities so as to enhance employees' awareness of

personal health management.

Employee Behavior and Ethical Standards

VIS takes the following as its core managerial principles: “rounded in

integrity, guided by professional ethics” and “Ethical Management and

Guidelines for Conduct.” Furthermore, it has established a code of

professional conduct for its employees. Not only are employees asked to

adhere to this code, they are forbidden from giving or taking bribes, from

acting in any way contrary to the interests of the company, and from any

instance of conflict of interest. Each year, employees are asked to fill out a

conflict of interest disclosure form as well as a voluntary disclosure form.

VIS has established a Proprietary Information Protection policy, which

clearly lays out guidelines for confidential company information as well as

the receiving, sending, saving and utilization of sensitive data.

To align with the corporate vision and value, VIS specifies four core

competencies as the behavior/ethical standards for management team and

employees.

Integrity

All VIS employees should emphasize business ethics, operation standards,

professionalism, and work of the highest quality and devote completely to

fulfilling the promise within the limits of the law once a promise is made.

Integrity is a fundamental value of the company.

Customer Orientation

VIS always places its customer needs first, and this principle drives its

corporate culture. This allows VIS to anticipate and understand customers’

problems and needs, creating an atmosphere of open, direct, and

constructive responsiveness and communication. In creating win-win

95

situations, VIS is able to work with all customers and foster a spirit of

teamwork.

Value Orientation

VIS is constantly coming up with innovative ways of thinking, and works

proactively to improve the way that it operates. Even in challenging times,

VIS forges ahead and persists in doing what is right, fully living up to its

roles, mission, and responsibilities.

Commitment

VIS pledges to execute the most effective and timely strategy even in the

most challenging and competitive of times. When taking on demanding new

tasks, VIS works with enthusiasm, taking each task as an opportunity to

learn and to make a real contribution. With focus and persistence in

fulfilling our role, we meet our goals and get results. Through strategic

thinking and overcoming challenges, VIS always gets the job done and with

the highest quality.

2. Losses due to labor disputes from previous year till current year

printing of annual report:

VIS sees its employees as its most precious asset, and strives to allow

employees to continue to develop. Thus, we have maintained harmonious

labor relations and have not suffered any losses due to labor disputes.

96

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97

VI. FINANCIAL STATEMENTSA. Brief Balance Sheets and Brief Statements of Income

1. Brief Balance Sheets

Brief Consolidated Balance Sheets


Year Item

Financial analysis from 2013 to 2017 2013 2014 2015 2016 2017

Current assets 21,556,195 25,114,426 24,800,749 25,662,921 23,993,539 Property, plant and equipment 6,639,474 7,983,767 6,979,397 6,284,081 6,249,123 Intangible assets 17,011 37,174 41,596 30,282 19,271 Other assets 637,279 619,403 562,499 3,002,758 4,036,391 Total Assets 28,849,959 33,754,770 32,384,241 34,980,042 34,298,324

Current liabilities Before distribution 3,697,865 5,391,799 4,262,001 5,476,672 5,498,113 After distribution 6,571,190 9,651,152 8,523,355 10,393,619 Note 1

Non-current liabilities 722,334 816,655 712,611 804,107 924,209

Total Liabilities Before distribution 4,420,199 6,208,454 4,974,612 6,280,779 6,422,322 After distribution 7,293,524 10,467,807 9,235,966 11,197,726 Note 1

Equity attributable to shareholders of parent company

24,429,760 27,546,316 27,409,629 28,699,263 27,876,002

Capital stock 16,365,859 16,389,823 16,389,823 16,389,823 16,389,823 Capital surplus 733,578 838,029 855,123 862,594 856,629

Retained earnings Before distribution 7,871,013 10,398,845 10,280,494 11,484,802 11,006,580 After distribution 4,997,688 6,139,492 6,019,140 6,567,855 Note 1

Other equity (53,700) (70,506) (115,811) (37,956) (377,030)Treasury stock (486,990) (9,875) - - - Non-controlling interests - - - - -

Total Equity Before distribution 24,429,760 27,546,316 27,409,629 28,699,263 27,876,002 After distribution 21,556,435 23,286,963 23,148,275 23,782,316 Note 1

Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

Brief Unconsolidated Balance Sheets Unit: NT$, in thousands

YearItem


Current assets 21,344,163 24,875,522 24,545,917 24,829,499 19,852,150Property, plant and equipment 6,639,170 7,983,500 6,979,148 6,282,629 6,248,171Intangible assets 17,011 37,174 41,596 30,282 19,271Other assets 845,519 856,692 813,426 3,828,955 8,173,041Total Assets 28,845,863 33,752,888 32,380,087 34,971,365 34,292,633

Current liabilities Before distribution 3,693,769 5,389,917 4,257,847 5,467,995 5,492,422After distribution 6,567,094 9,649,270 8,519,201 10,384,942 Note 1

Non-current liabilities 722,334 816,655 712,611 804,107 924,209

Total Liabilities Before distribution 4,416,103 6,206,572 4,970,458 6,272,102 6,416,631After distribution 7,289,428 10,465,925 9,231,812 11,189,049 Note 1

Capital stock 16,365,859 16,389,823 16,389,823 16,389,823 16,389,823Capital surplus 733,578 838,029 855,123 862,594 856,629

Retained earnings Before distribution 7,871,013 10,398,845 10,280,494 11,484,802 11,006,580After distribution 4,997,688 6,139,492 6,019,140 6,567,855 Note 1

Other equity (53,700) (70,506) (115,811) (37,956) (377,030)Treasury stock (486,990) (9,875) - - -

Total Equity Before distribution 24,429,760 27,546,316 27,409,629 28,699,263 27,876,002After distribution 21,556,435 23,286,963 23,148,275 23,782,316 Note 1

Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

98

2. Brief Statements of Income

Brief Consolidated Statements of Comprehensive Income


Year Item


Net revenue 21,135,060 23,931,479 23,319,721 25,828,634 24,909,613 Gross profit 6,862,933 8,613,673 6,897,266 8,924,152 7,973,638 Operating income 4,837,208 6,206,459 4,611,982 6,100,905 5,228,458 Non-operating income and expenses 225,123 289,607 326,529 159,189 52,170 Income before income tax 5,062,331 6,496,066 4,938,511 6,260,094 5,280,628 Income from operations of continued segments-after tax

4,370,988 5,440,081 4,157,583 5,537,925 4,505,064

Income (loss) from operations of discontinued segments-after tax

- - - - -

Net Income 4,370,988 5,440,081 4,157,583 5,537,925 4,505,064 Other comprehensive income (loss) (6,821) (68,552) (61,886) 5,592 (405,413)Total comprehensive income 4,364,167 5,371,529 4,095,697 5,543,517 4,099,651 Net income attributable to owner of the corporation 4,370,988 5,440,081 4,157,583 5,537,925 4,505,064 Net income attributable to non-controlling interests - - - - - Total comprehensive income attributable to owner of the corporation

4,364,167 5,371,529 4,095,697 5,543,517 4,099,651

Total comprehensive income attributable to non-controlling interests

- - - - -

Diluted earnings per share (Note 1) 2.71 3.30 2.50 3.35 2.73 Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

Brief Unconsolidated Statements of Comprehensive Income


Year Item


Net revenue 21,135,060 23,931,479 23,319,721 25,828,634 24,909,613 Gross profit 6,862,933 8,613,673 6,897,266 8,924,152 7,973,638 Operating income 4,835,731 6,204,596 4,610,048 6,097,353 5,225,314 Non-operating income and expense 225,271 289,373 328,012 166,174 58,478 Income before income tax 5,061,002 6,493,969 4,938,060 6,263,527 5,283,792 Income from operations of continued segments-after tax

4,370,988 5,440,081 4,157,583 5,537,925 4,505,064

Income (loss) from operations of discontinued segments-after tax

- - - - -

Net Income 4,370,988 5,440,081 4,157,583 5,537,925 4,505,064 Other comprehensive (loss) income (6,821) (68,552) (61,886) 5,592 (405,413)Total comprehensive income 4,364,167 5,371,529 4,095,697 5,543,517 4,099,651 Diluted earnings per share (Note 1) 2.71 3.30 2.50 3.35 2.73 Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

3. Auditors’ Opinion

VIS has retained Deloitte & Touche Certified Public Accountants as theexternal auditors over the last 5 years.

Year CPA Audit Opinion2013 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2014 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2015 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2016 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion 2017 Yu-Feng Huang, Cheng-Chih Lin An Unqualified Opinion

99

B. Financial Analysis Consolidated Financial Analysis

Year Item


Capital Structure Analysis

Debt Ratio(%) 15.32 18.39 15.36 17.95 18.72 Long Term Capital to Properties, Plant and Equipment (%) 378.83 355.25 402.93 469.49 460.86 Current Ratio (%) 582.94 465.78 581.90 468.58 436.39

Liquidity Analysis

Quick Ratio(%) 534.93 417.33 525.26 424.92 382.47

Times Interest Earned (Times) - - - - -

Operating Performance

Analysis

Avg. Collection Turnover (Times) 7.51 6.82 6.62 7.36 6.20 Avg. Collection Days 49 54 55 50 59 Avg. Inventory Turnover (Times) 8.10 7.34 6.91 7.59 6.78 Avg. Payment Turnover (Times) 18.27 15.43 16.11 16.83 13.87 Avg. Inventory Turnover Days 45 50 53 48 54 Properties, Plant and Equipment Turnover (Times)

2.84 3.27 3.11 3.89 3.97

Total Assets Turnover (Times) 0.79 0.76 0.70 0.76 0.71

Profitability Analysis

Return on Total Assets (%) 16.30 17.37 12.57 16.44 13.00 Return on Total Equity (%) 19.26 20.93 15.13 19.74 15.93 Pre-tax Income to Capital Stock (%) 30.93 39.63 30.13 38.19 32.21 Net Margin (%) 20.68 22.73 17.82 21.44 18.08 Basic Earnings per Share(NT$) (Note) 2.76 3.35 2.54 3.38 2.75 Diluted Earnings per Share(NT$) (Note) 2.71 3.30 2.50 3.35 2.73 Cash Flow Ratio (%) 203.71 123.63 168.52 145.58 108.30

Cash Flow Cash Flow Adequacy Ratio (%) 184.46 147.25 143.49 149.39 125.49 Cash Flow Reinvestment Ratio (%) 6.97 4.16 3.14 3.84 1.06

Leverage Analysis

Operating Leverage 3.29 2.93 3.82 3.19 3.53 Financial Leverage 1.00 1.00 1.00 1.00 1.00

Analysis of variation over 20% - Y2017 vs. Y2016: 1. The return on total assets decreased by 21% was mainly due to the decrease in net income.2. The cash flow ratio and cash flow reinvestment ratio decreased by 26% and 72%, respectively, were mainly due to the

decrease in net cash flow from operating activities.Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

Unconsolidated Financial Analysis Year

Item Financial analysis from 2013 to 2017

2013 2014 2015 2016 2017

Capital Structure Analysis

Debt Ratio (%) 15.31 18.38 15.35 17.93 18.71 Long Term Capital to Properties, Plant and Equipment (%) 378.84 355.26 402.94 469.60 460.93

Liquidity Analysis

Current Ratio (%) 577.84 461.51 576.48 454.08 361.44 Quick Ratio (%) 529.80 413.05 519.80 410.37 307.48 Times Interest Earned (Times) - - - - -

Operating Performance

Analysis

Avg. Collection Turnover (Times) 7.51 6.82 6.62 7.36 6.20 Avg. Collection Days 49 54 55 50 59 Avg. Inventory Turnover (Times) 8.10 7.34 6.91 7.59 6.78 Avg. Payment Turnover (Times) 18.27 15.43 16.11 16.83 13.87 Avg. Inventory Turnover Days 45 50 53 48 54 Properties, Plant and Equipment Turnover (Times)

2.84 3.27 3.11 3.89 3.97

Total Assets Turnover (Times) 0.79 0.76 0.70 0.76 0.71

Profitability Analysis

Return on Total Assets (%) 16.30 17.38 12.57 16.44 13.00 Return on Total Equity (%) 19.26 20.93 15.13 19.74 15.93 Pre-tax Income to Capital Stock (%) 30.92 39.62 30.12 38.21 32.23

100

YearItem


Net Margin(%) 20.68 22.73 17.82 21.44 18.08 Basic Earnings per Share(NT$) (Note 1) 2.76 3.35 2.54 3.38 2.75 Diluted Earnings per Share(NT$) (Note 1) 2.71 3.30 2.50 3.35 2.73 Cash Flow Ratio (%) 203.77 123.41 168.53 145.55 107.19

Cash Flow Cash Flow Adequacy Ratio (%) 184.50 147.07 143.20 149.21 125.11 Cash Flow Reinvestment Ratio (%) 6.96 4.14 3.13 3.83 0.99

Leverage Analysis

Operating Leverage 3.30 2.94 3.82 3.19 3.53 Financial Leverage 1.00 1.00 1.00 1.00 1.00

Analysis of variation over 20% - Y2017 vs. Y2016: 1. The current ratio and quick ratio decreased by 20% and 25%, respectively, were mainly due to capital injection into

subsidiary VIS Associates Inc. in 2017.2. The return on total assets decreased by 21% was mainly due to the decrease in net income.3. The cash flow ratio decreased by 26% , was mainly due to the decrease in net cash flow from operating activities.4. The cash flow reinvestment ratio decreased by 74%, were mainly due to the decrease in net cash flow from operating

activities and increase in Long term investments.Note 1: Based on weighted average outstanding shares in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

The calculation formula of financial analysis was listed as follows:

1. Capital Structure Analysis(1) Debt ratio = Total Liabilities / Total Assets(2) Long-term capital to properties, plant and equipment = (Equity + Non-current Liabilities) /

Net Properties, Plant and Equipment 2. Liquidity Analysis

(1) Current ratio = Current Assets / Current Liabilities(2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities(3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance Analysis(1) Average collection turnover = Net Revenue / Average Trade Receivables(2) Average collection days = 365 / Average collection turnover(3) Average inventory turnover = Cost of Revenue / Average Inventory(4) Average payment turnover = Cost of Revenue / Average Trade Payables(5) Average inventory turnover days = 365 / Average Inventory Turnover(6) Properties, plant and equipment turnover = Net Revenue / Average Net Properties, Plant and

Equipment (7) Total assets turnover = Net Revenue / Average Total Assets

4. Profitability Analysis(1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate)) / Average

Total Assets (2) Return on total equity = Net Income / Average Total Equity (3) Net margin = Net Income / Net Revenue (4) Earnings per share = (Net Income Attributable to Owner of the Corporation - Preferred Stock

Dividend) / Weighted Average Outstanding Shares 5. Cash Flow

(1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of

capital expenditures, inventory additions, and cash dividends (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /

(Gross Properties, Plant and Equipment + Investment + Other Non-current Assets + Working Capital)

6. Leverage Analysis(1) Operating leverage = (Net Revenue - Variable Cost and Expenses) / Income from Operations(2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)

101

C. Audit Committee’s Review Report

The company’s 2017 financial statement (including individual and

consolidated financial reports), which was approved by our Audit Committee

and authorized through the Board of Directors resolution, has been audited and

certified by Deloitte & Touche, and for which an audit report has been issued.

The Board of Directors has also prepared and submitted the Y2017 business

report and earnings distribution plan, which have been audited and confirmed

by our Audit Committee as having being properly prepared in accordance with

Article 14-4 of the Securities and Exchange Law and Article 219 of the

Company Act.

Please kindly review and approve the provided information.

The above is respectfully submitted at the VIS 2018 General Shareholders'

Meeting


Convener of the Audit Committee: Benson W.C. Liu

February 28, 2018

102

D. Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements

and Independent Auditors’ Report

E. Consolidated Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements

and Independent Auditors’ Report

F. The financial impact to the Company due to company or affiliate

companies financial difficulties: None

103

VII. Financial Position, Operating Results and Risk ManagementA. Analysis of Consolidated Financial Position


Year Item 2017 2016

Difference Amount %

Current Assets 23,993,539 25,662,921 (1,669,382) (7)Property, Plant and Equipment 6,249,123 6,284,081 (34,958) (1)Other Non-Current Assets 4,055,662 3,033,040 1,022,622 34 Total Assets 34,298,324 34,980,042 (681,718) (2)Current Liabilities 5,498,113 5,476,672 21,441 0 Non-Current Liabilities 924,209 804,107 120,102 15 Total Liabilities 6,422,322 6,280,779 141,543 2Capital Stock 16,389,823 16,389,823 0 0 Capital Surplus 856,629 862,594 (5,965) (1)Retained Earnings 11,006,580 11,484,802 (478,222) (4)Total Shareholders' Equity 27,876,002 28,699,263 (823,261) (3)Analysis for variation over 20% : The increase in other non-current assets was mainly due to the increase in investments.

B. Analysis of Consolidated Financial Performance Unit: NT$, in thousands

Year Item

2017 2016 Difference %

Net Revenue $ 24,909,613 $ 25,828,634 $ (919,021) (4)Cost of Revenue 16,935,975 16,904,482 31,493 0 Gross Profit 7,973,638 8,924,152 (950,514) (11)Operating Expenses 2,745,180 2,823,247 (78,067) (3)Operating Income 5,228,458 6,100,905 (872,447) (14)Non-operating Income and Expenses 52,170 159,189 (107,019) (67)Income before Income Tax 5,280,628 6,260,094 (979,466) (16)Income Tax Expenses 775,564 722,169 53,395 7 Net Income 4,505,064 5,537,925 (1,032,861) (19)Other Comprehensive Income (Loss) (405,413) 5,592 (411,005) (7,350)Total Comprehensive Income $ 4,099,651 $ 5,543,517 $ (1,443,866) (26)

1. Analysis for variation over 20% :1.1 The decrease in non-operating income and expenses was mainly due to the increase in net foreign exchange losses.1.2 The decrease in other comprehensive income (loss) was due to the decrease in exchange differences on translation offoreign operations.

2. Reasons for changing the Company's major business; explain the variance resulting from the adjustment of selling pricesor costs, the increase or decrease of quantity and the combination of production and selling, or the replacement of oldproducts. If the Company's operation strategy, market situation, economic environment of other internal or externalfactors has changed or expects to have any significant changes, explain the fact, influencing factors and the possibleimpact to the Company's future finance and responding proposal : Not Applicable

3. Planned selling quantities and its base for next year. Explain the major factors that keep the Company's forecast salesquantity to rise or decline : Please refer to the " Letter To The Shareholders"

104

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d th

e ac

quis

itio

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ial a

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Cas

h us

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fin

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ng a

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ities

NT

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illi

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t of

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cash

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naly

sis

of C

ash

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ws

for Y

2018

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ash

prov

ided

by

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$8,030

mil

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mai

nly

from

net

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and

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mai

nly

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to c

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al e

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and

the

paym

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f th

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sh d

ivid

ends

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Maj

or C

apit

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apit

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re w

as a

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xim

atel

y N

T$1

.8 b

illi

on in

201

7 pr

imar

ily

spen

t on

acqu

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g an

d re

nova

tion

of

faci

liti

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nd e

quip

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ts.

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t : N

T$,

in m

illi

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Pro

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l or

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ned

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rces

of

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ital

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lann

ed C

ompl

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n D

ate

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r/M

onth

To

tal C

apit

al

Exp

endi

ture

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xecu

tion

of

Maj

or C

apit

al E

xpen

ditu

re

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16

Y20

17

Y20

18

1 P

urch

ase

and

reno

vate

faci

liti

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quip

men

ts

Ow

n ca

pita

l 20

18.1

2 5,

205

1,30

0 1,

768

2,13

7

105

E. Long-term Investment Policy and Results

VIS’s long-term investments were made for strategic purposes. In 2017, the

investment loss was mainly due to recognizing the impairment loss of Qromis

Inc. Looking forward, VIS will continue to focus on strategic investment.

F. Risk Management 1. Interest Rates Fluctuation, Foreign Exchange Rate Volatility and

Inflation

Interest rate:

VIS’ exposure to interest rate fluctuation relates primarily to long-term

liabilities for capital expenditures. Due to small scale of liabilities, no major

impact is expected from interest rate fluctuation. VIS’ interest income is

most sensitive to fluctuations in R.O.C. and U.S. interest rates. Changes in

R.O.C. and U.S. interest rates affect the interest earned on the Company’s

cash, cash equivalent and marketable securities and the fair value of those

securities.

Foreign exchange:

VIS employs natural hedging and forward foreign exchange to avoid risks

from exchange rate fluctuations.

Most of VIS’ revenues are denominated in US dollar. VIS mainly utilizes

spot and forward foreign exchange trading to adjust its foreign exchange

position as per the foreign exchange market conditions for the purpose of

reducing the impact of exchange rate fluctuation on the company. In

addition, VIS’ materials and equipments payments are made in US Dollars,

Japanese Yens and Euros, among which a substantial portion is in US

Dollars. Henceforth, VIS enjoys a certain degree of natural hedge as a

result of set-off between account payables and account receivables. But if

the U.S. dollar appreciates significantly versus other major currencies, the

demand for the products and services of VIS’ customers and for its goods

and services will likely decrease, which will negatively affect our revenues.

Inflation:

Inflation in Taiwan was 0.62% in Y2017. This inflation rate did not impact

on our operation and profit significantly. And we believe the impact will

remain insignificant in the future if the inflation rate is similar to that of in

the past.

2. High risk, high leveraged investment, lending, endorsement and

guarantee for other parties and financial derivatives transactions

VIS focuses on its foundry manufacturing operations and IC wafer

production. Accordingly, the company does not engage in high risk/high

106

leveraged investments. In order to control and monitor certain types of

transactions, VIS has established internal control policies and procedures

conforming to the relevant laws and regulations promulgated by the

authorities concerned. These policies and procedures include 「Policies and

Procedures for Financial Derivative Transactions 」 , 「 Procedures for

Lending Funds to Other Parties」 and 「Procedures for Endorsement and

Guarantee」. Until now, the company and affiliates have neither lent funds

to others, nor provided endorsement or guarantee for others. Financial

derivatives transactions that VIS enters into are strictly for hedging purpose

and not for trading and speculative purposes.

3. R&D Plan and Progress

In Y2017, VIS capital expenditure is about NT$1.8 billion, while in Y2018

capital expenditure is planned to be around NT$2.14 billion. Other than

equipment and facility maintaining expense, capital expenditure covers the

product and process R&D to provide complete IC manufacturing service for

customers and to enhance our competitiveness in global market. VIS will

continue to build on the existing foundation and strengthen the specialty

process technologies. R&D budget in Y2018, estimated around 6% of total

sales. (Please refer to「Technology and R&D Status」)

4. Changes in Domestic and International Policies and Regulations

Management team closely monitors political and regulatory developments

that could have a material impact on business and operations. Political and

regulatory developments did not have any material adverse effect on VIS

during Y2017.

5. Changes in Technology

VIS has continued its investment in the product development and process

technology for the market needs; on the other hand, we also adapt ourselves

to the changes and needs due to technology evolutions to reduce risks and

pursue long-term steady development in finance and business. (please refer

to Overview of the Industry”)

6. Changes in Company Image

The Company focuses on its primary business activities, upholds the

principle of good faith, abides by rigorous code of professional ethics,

endeavors to improve the Company's competitiveness and pursue corporate

sustainability, and strictly forbids conducts that violate the Company's

principle of good faith and core corporate values.

The Company conducts regular inspections on its external environment,

operating models, and management systems, simulates unexpected incidents

107

that may influence corporate reputation, proposes response strategies, and

minimizes the potential impact of uncertain factors and disasters that the

Company may face in the future, in order to maintain the Company's normal

operations and protect the overall interest of our shareholders, customers,

and employees.

Furthermore, the Company also actively participates in community and

charity events in fulfillment of its corporate social responsibilities. From

Y2017 to the publication date of this annual report, the Company has been

and remains free of changes in corporate image or events that have

influenced its capacity for crisis management.

7. Risks from Merge, Acquisition and Plant Expansion

No merger and acquisition event occurred from Y2017 to the date of

publishing this annual report.

8. Risks from Plant Expansion

No plant expansion occurred from Y2017 to the publishing date of this

annual report.

9. Risks from Concentration of Stock and Sales

To avoid overly concentrated risk and to protect raw materials supply for the

manufacturing process at all time, VIS has maintained multiple suppliers for

the major materials to spread the risk. In Y2016 and Y2017, the top two

customers have made around 46% and 43% of company annual sales

respectively. The concentration of sales is the industry nature of our

business as focused specialty foundry. To minimize the risks, we’ll continue

to expand the product lines and customer base.

10. Transfer of Shareholdings of Directors, Supervisors or Large

Shareholders

The value of shareholders’ investment may be reduced by possible future

sales of VIS shares owned by the major shareholders. No other transfer of

shareholdings of directors, supervisors or large shareholders occurred from

Y2017 to the date of publishing this annual report.

11. Change of Management

No change of management occurred from Y2017 to the date of publishing

this annual report.

12. Litigation or non-litigation proceedings

No litigation or non-litigation proceedings with material effect occurred

from Y2017 to the date of publishing this annual report.

108

13. Other Material Risks

Measures responding to events that seriously impact on the company

operations

VIS regularly conducts drills and trainings for managing natural or man-

made damage, such as typhoon, earthquake, fire, gas and chemicals leak,

and establish broad and detailed prevention measures as well as contingent

plans. VIS is capable of maintaining the company operations and protecting

the interests of shareholders, customers and employees. No emergency

event occurred from Y2017 to the publishing date of this annual report.

The Policy of the risk management

Vanguard International Semiconductor Corporation adopts professional risk

assessment techniques and concepts from local and abroad to facilitate its

pro-active risk prevention and loss control. By adopting effective

engineering technologies and risk management policies, the Company is

able to ensure employees' full participation and ongoing improvements. The

Company has incorporated risk management measures into its daily

operations. Every department is required to perform regular self assessments

on risk control, while the board of directors and the executive management

supervise the effectiveness of existing risk management measures and

ensure that risks are kept within tolerable levels.

The organization chart of the risk management

Below is a description of the Company's risk management organization:

Board of directors (including the Audit Committee): determines the overall

risk management system and monitors to ensure that the system remains

effective.

The executive management (Chairman and President): executes the board's

risk management decisions and supervises regional heads and the Health,

Safety and Environmental Protection Committee. It is also responsible for

identifying risks and monitoring the effectiveness of various control

measures.

The management (vice president and the Health, Safety and Environmental

Protection Committee): consolidates information regarding the effectiveness

of risk management activities; assists and supervises subordinates in

identifying risks and implementing proper control.

Risk management and policy execution units: the Company has specialized

units responsible for identifying possible risks in daily operations and

establishing control measures to address such risks. Their efforts are

reviewed and reported to the management on a regular basis.

109

Responsibilities of risk management and policy execution units are:

Internal Auditing: The overall implementation of the risk management

system, risk management guidance for various departments within the

Company, progress review and control, ensuring the effectiveness and

robustness of current practices, and reporting back their findings to the

executive management and board of directors to help improve the risk

management system.

Legal: Responsible for managing the legal risks with accordance of laws

from government and authorities, handling contract and law suit dispute to

lower our legal risk;

Human Resources: Responsible for human resources structure and

utilization planning. Enhance man-power efficiency and improve industrial

harmony to lower risks in management.

Quality Reliability Assurance Div.: In charge of product inspection, quality

control, and promoting quality policy and strategy in VIS to reduce

operating risk.

Finance Div: Responsible for establishing the financial operation and

planning systems. Evaluate and supervise the long-term investment

decisions and executions. Under the risk management monitoring

mechanism, conduct safety, liquidity and profitability analysis. Establish

hedge process in foreign exchanges to lower the risks in finance.

Operations and Environmental Safety: Corporate Wafer Production,

Production Control, Special Project, Risk & Env. Safety Management,

Operation Planning, Computer Int. Mfg., and Product Engineering. Improve

operation efficiency, cost control, ensure timely delivery of high quality

product to customers and reduce operating risk.

Worldwide Sales and Planning: Oversees customer service planning and

management for the purpose of reducing operational risks; explores local

and foreign opportunities and gains control of customers' information to

reduce market risks; learns the competition and market trends to develop

marketing strategies.

Research & Development: Leader to the IP Management, Design Service,

Information Tech and eCommerce, and Technology divisions. Responsible

for technology development and the provision of technical support to IP

resources, Mask, CAD, and layout teams to reduce R&D risk.

ACCT Div: Responsible for the establishment of the accounting system in

order to achieve the goal of reliability of financial reporting to lower the

risks in finance.

110

MM Div.: Responsible for materials management, VIS will continue to

monitor the inventory and the costs of the materials to reduce operating risk.

ITEC Div.: Responsible for network planning, operations and network

quality maintenance to lower information risk.

G. Other important matters: None

111

VIII. SPECIAL NOTESA. Affiliated Information

1. VIS Affiliated Companies Chart

As of December 31, 2017

2. Business Scope of the Affiliated Companies

As of December 31, 2017

Investee Company Major Business Items

VIS Associates Inc. Investment

VIS Investment Holding, Inc. Investment

VIS Micro, Inc. Marketing service

VIS Shanghai Company Limited Marketing Service

VIS Associates Inc. VIS Shanghai Company Limited

VIS Investment Holding, Inc.

VIS Micro, Inc.

100%

100%

100%

100%

Vanguard International Semiconductor Corp.

112

3.A

ffil

iate

s In

form

atio

nU

nit:

US

D, i

n th

ousa

nds,

As

of D

ecem

ber

31, 2

017

Nam

e of

Ent

erpr

ise

Dat

e of

E

stab

lish

men

t A

ddre

ssP

aid-

in C

apit

alM

ajor

Bus

ines

s /

Pro

duct

ion

Item

s

VIS

Ass

ocia

tes

Inc.

19

96.9

.24

Tri

dent

Cha

mbe

rs, P

O B

ox 1

46, R

oad

Tow

n To

rtol

a, B

riti

sh

Vir

gin

Isla

nds

US

D 2

22,0

00IC

bus

ines

s in

vest

men

t

VIS

Inv

estm

ent H

oldi

ng, I

nc.

1996

.11.

15

Cor

pora

tion

Tru

st C

ente

r 12

09 O

rang

e St

reet

W

ilm

ingt

on, D

elaw

are

1980

1 U

SD

6,2

50IC

bus

ines

s in

vest

men

t

VIS

Mic

ro, I

nc.

1996

.11.

21

1475

S. B

asco

m A

ve, S

uite

109

C

ampb

ell,

CA

950

08

US

D 2

00C

ondu

ct s

ervi

ce a

nd m

arke

ting

act

ivit

ies

VIS

Sha

ngha

i Com

pany

Lim

ited

20

17.0

8.16

25

39, 1

361

Si C

huan

Bei

Rd.

, Hon

gkou

Dis

tric

t, S

hang

hai C

ity,

C

hina

, 200

085

RM

B 1

,000

Con

duct

ser

vice

and

mar

keti

ng a

ctiv

itie

s

Not

e: F

orei

gn e

xcha

nge

rate

s on

bal

ance

she

et d

ate

is $

1 U

SD

= $

29.6

59 N

TD

; $1

RM

B =

$4.

549

NT

D.

4.V

IS S

har

ehol

der

s R

epre

sen

tin

g B

oth

Hol

din

g C

omp

anie

s an

d S

ub

ord

inat

es:

Non

e

5.D

irec

tors

, Su

per

viso

rs &

Pre

sid

ents

of

Aff

ilia

tes

As

of D

ecem

ber

31, 2

017

Nam

e of

Ent

erpr

ise

Titl

e N

ame

or R

epre

sent

ativ

e H

oldi

ng S

hare

s S

hare

s (K

) %

V

IS A

ssoc

iate

s In

c.

Dir

ecto

r F

ang,

Leu

h ; T

seng

, D. L

. 22

2 10

0%V

IS I

nves

tmen

t Hol

ding

, Inc

. D

irec

tor

Fan

g, L

euh

; Tse

ng, D

. L.

63

100%

VIS

Mic

ro, I

nc.

Dir

ecto

r F

ang,

Leu

h ; T

seng

, D. L

, Cha

ng ;

Tun

g-L

ung

200

100%

VIS

Sha

ngha

i Com

pany

Lim

ited

Dir

ecto

r / S

uper

viso

rTs

eng,

D. L

. / C

hian

g, K

un-S

heng

In

vest

men

t Am

ount

R

MB

1,0

00

100%

6.O

per

atin

g H

igh

ligh

ts o

f A

ffil

iate

sU

nit:

NT

$, in

thou

sand

s

Nam

e of

Ent

erpr

ise

Cap

ital

Tota

l Ass

ets

Tota

l Lia

bilit

ies

Net

Wor

th

Net

Rev

enue

O

pera

ting

Inco

me

Net

Inc

ome

(Los

s)E

PS

(N

T$)

(a

fter

tax)

V

IS A

ssoc

iate

s In

c.

$6,8

95,6

84

$6,7

68,7

45

$0

$6,7

68,7

45

$0

($22

5)$8

0,81

3 $6

43.6

5 V

IS I

nves

tmen

t Hol

ding

, Inc

. 18

5,36

9 72

,821

13

3 72

,688

0

(506

)7,

597

121.

56

VIS

Mic

ro, I

nc.

5,93

2 71

,620

15

,988

55

,632

84

,296

4,

014

2,79

6 13

.98

VIS

Sha

ngha

i Com

pany

Lim

ited

4,

556

4,55

1 13

8 4,

413

0 (1

38)

(137

)N

one

Not

e 1

: For

eign

exc

hang

e ra

te f

or b

alan

ce s

heet

am

ount

s is

$1

USD

= $

29.6

59 N

TD

; $1

CN

Y =

$4.

549

NT

D.

2: F

orei

gn e

xcha

nge

rate

for

inco

me

stat

emen

t am

ount

s is

$1

US

D =

$30

.522

NT

D; $

1 C

NY

= $

4.50

8 N

TD

.

113

B.

Pri

vate

pla

cem

ents

Sec

uri

ties

V

IS h

as n

o pr

ivat

e pl

acem

ents

sec

urit

ies

from

Y20

17 to

the

publ

ishi

ng d

ate

of th

is a

nnua

l rep

ort.

C. V

IS C

omm

on S

har

es a

cqu

ired

, dis

pos

ed o

f an

d h

eld

by

sub

sid

iari

es

VIS

Com

mon

Sha

res

was

not

acq

uire

d, d

ispo

sed

of a

nd h

eld

by s

ubsi

diar

ies

from

Y20

17 to

the

publ

ishi

ng d

ate

of th

is a

nnua

l rep

ort.

D.

Oth

er N

eces

sary

Su

pp

lem

ent:

Non

e

E.

An

y E

ven

ts i

n Y

2017

th

at h

ad S

ign

ific

ant

Imp

acts

on

Sh

areh

old

ers’

Rig

ht

or S

ecu

rity

Pri

ces

as s

tart

ed i

n I

tem

3 p

arag

rap

h 2

of

Art

icle

36

of S

ecu

riti

es a

nd

Exc

han

ge L

aw o

f T

aiw

an:

Non

e

114

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in

accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business

Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended

December 31, 2017 are all the same as the companies required to be included in the consolidated

financial statements of parent and subsidiary companies as provided in International Financial

Reporting Standard NO.10 “Consolidated Financial Statements”. Relevant information that

should be disclosed in the consolidated financial statements of affiliates has all been disclosed in

the consolidated financial statements of parent and subsidiary companies. Hence, we do not

prepare a separate set of consolidated financial statements of affiliates.

Very truly yours,

VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION

By

LEUH FANG Chairman

February 5, 2018

IX. Financial Statements, Consolidated Financial Statements andIndependent Auditors’ Report

115

josh

經理人簽(en)

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Vanguard International Semiconductor Corporation

Opinion

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

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

Basis for Opinion

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

Key Audit Matters

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

The key audit matters of the consolidated financial statements of the Group for the year ended December 31, 2017, are described as follows:

Timing of revenue recognition

1. The sales revenue of the Group is material to the Group. Please refer to Note 23. The major types oftransactions together with their timing of recognition are as follows:

1) Revenue generated from domestic shipment with the transaction term of ex-works accounted forapproximately 57% of total revenue and is recognized as sales revenue at point of ex-factory. Revenuegenerated from domestic shipment with the transaction term of delivered-at-place accounted for 25% of

116

total revenue and is also recognized at point of ex-factory due to its nature of the goods delivering and receiving are at the same day.

2) Revenue generated from oversea shipment accounted for 18% of the total revenue depending on thetrade terms where the revenue is recognized when the risk of goods is transferred to customers.

2. Revenues generated from either domestic or foreign shipments whose trade terms denote that the revenuesare recognized at point of ex-factory consist of 99% of total revenue. The recognition process of revenuethereof is to have sales personnel verify the shipment on the computer system, and the system automaticallyrecognizes the sale revenue and issues invoice. When the customers or their designated forwarders cometo withdraw the goods, warehouse personnel will have them sign off on handheld devices and transmit theinformation to the shipping system. The system automatically checks the shipment on a daily basis. Forgoods that are not withdrawn, the system will notify sales personnel for confirmation and delete the shippinglist where the sales revenue will be reversed automatically and the invoice cancelled.

3. Since the above process consists of manual controls, risk exists that revenue before or after the end of thereporting period being unrecognized in the appropriate period due to human errors.

4. We reviewed the revenue recognition policy of the Group, assessed the reasonableness of the revenuerecognition, conducted on-site observation and recorded the details of the last shipment of the year ended2017. We also traced all of the shipping records at December 31, 2017 against relevant supportingdocuments and accounting records to verify the accuracy of the timing of sales revenue recognition as wellas the monetary amount, and evaluated whether the risk and rewards of goods are transferred.

Timing of capitalization of property, plant and equipment

1. The annual capital expenditure of the Group relating to property, plant and equipment is significant to itsconsolidated financial statements. Because of the significance of such expenditure, delaying incapitalization thereof may lead to the consolidated financial statements not fairly presented. Please refer toNote 15.

2. We reviewed the capital expenditure policy of the Group on property, plant and equipment, assessed thereasonableness of the timing of capitalization, and conducted procedures as follows:

1) Selecting samples of newly acquired items from the lists of Advance Payments and Construction inProgress of the year to verify whether they are included in the un-capitalized list of the current month.

2) Selecting samples from those that are transferred from Advance Payments and Construction in Progressto Property, Plant and Equipment of the year to verify whether such items are not included in theun-capitalized list of the current month.

3) Selecting samples from the un-capitalized list at the year end and perform on-site count to observewhether such items were not ready for their intended use.

4) Selecting samples of items that were not capitalized over three months from the un-capitalized list toexamine whether the reasons of such items not capitalized explained by applicants or users wereapproved by supervisors.

Other Matter

We have also audited the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the years ended December 31, 2017 and 2016 on which we have issued an unmodified opinion.

117

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

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

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

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

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

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

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

118

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We areresponsible for the direction, supervision, and performance of the group audit. We remain solelyresponsible for our audit opinion.

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

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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

The engagement partners on the audit resulting in this independent auditors’ report are Yu-Feng Huang and Cheng-Chih Lin.

Deloitte & Touche Taipei, Taiwan Republic of China

February 5, 2018

Notice to Readers

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

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

119

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120

VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

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

2017 2016 Amount % Amount %

NET REVENUE (Notes 4, 5, 20, 23 and 30) $ 24,909,613 100 $ 25,828,634 100

COST OF REVENUE (Notes 4, 12, 24 and 30) 16,935,975 68 16,904,482 65

GROSS PROFIT 7,973,638 32 8,924,152 35

OPERATING EXPENSES (Notes 4, 24 and 30) Marketing 271,987 1 274,542 1General and administrative 926,199 4 993,201 4Research and development 1,546,994 6 1,555,504 6

Total operating expenses 2,745,180 11 2,823,247 11

OPERATING INCOME 5,228,458 21 6,100,905 24

NONOPERATING INCOME AND EXPENSES (Note 4)Interest income 218,252 1 170,492 1Dividend income 25,211 - 24,003 -Other income (Note 30) 70,494 - 83,450 -Gain on disposal of property, plant and equipment 10 - 2,634 -Gain on financial assets and liabilities at fair value

through profit or loss 152,219 1 195,683 1Loss on disposal of investment (Notes 10 and 14) - - (76) -Net foreign exchange loss (356,725) (2) (188,002) (1)Impairment loss on financial assets (Note 8) - - (120,000) (1)Share of losses of associates and joint ventures (Note

14) (57,291) - (8,995) -

Total nonoperating income and expenses 52,170 - 159,189 -

INCOME BEFORE INCOME TAX 5,280,628 21 6,260,094 24

INCOME TAX EXPENSE (Notes 4 and 25) (775,564) (3) (722,169) (3)

NET INCOME 4,505,064 18 5,537,925 21(Continued)

121


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


OTHER COMPREHENSIVE INCOME (Notes 4 and 22)Items that will not be reclassified subsequently to

profit or loss: Remeasurement of defined benefit plans (Note 21) $ (66,339) - $ (72,263) -

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign

operations (346,560) (2) 2,496 -Unrealized gains on available-for-sale financial

assets 7,491 - 74,911 -Share of other comprehensive (loss) income of

associates and joint ventures (Note 14) (5) - 448 -

Total other comprehensive (loss) income (405,413) (2) 5,592 -

TOTAL COMPREHENSIVE INCOME $ 4,099,651 16 $ 5,543,517 21

NET INCOME ATTRIBUTABLE TO Owner of the Corporation $ 4,505,064 18 $ 5,537,925 21Non-controlling interests - - - -

$ 4,505,064 18 $ 5,537,925 21

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO Owner of the Corporation $ 4,099,651 16 $ 5,543,517 21Non-controlling interests - - - -

$ 4,099,651 16 $ 5,543,517 21

EARNINGS PER SHARE (Note 26) Basic $ 2.75 $ 3.38Diluted $ 2.73 $ 3.35

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

122

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123


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

2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 5,280,628 $ 6,260,094Adjustments for:

Depreciation 2,017,275 2,032,173Amortization 16,633 21,061Provision of allowance for doubtful accounts 1,300 -Net loss (gain) on financial assets and liabilities at fair value through

profit or loss 52,031 (4,096)Interest income (218,252) (170,492)Dividend income (25,211) (24,003)Share of losses of associates and joint ventures 57,291 8,995Gains on disposal of property, plant and equipment (10) (2,634)Loss on disposal of investment - 76Impairment loss on financial assets - 120,000Net losses on foreign currency exchange 7,206 6,527Changes in operating assets and liabilities:

Financial assets held for trading (6,168) 1,276Notes and accounts receivable (298,586) (828,834)Receivable from related parties 185,583 (79,279)Other receivables (8,984) (15,209)Other receivables from related parties (7,424) 14,260Inventories (591,195) 50,836Prepaid expenses 17,895 (27,833)Other current assets (249) (92)Financial liabilities held for trading (43,029) 14,555Derivative financial liabilities for hedging - (7,020)Notes and accounts payable 179,777 252,255Other payables (33,393) 424,385Other payables to related parties (7,722) 17,916Provisions (6,527) 99,760Other current liabilities (2,633) 33,439Net defined benefit liabilities 2,409 5,098Accrued profit sharing to employees and remuneration to

directors (160,243) 208,677Cash generated from operations 6,408,402 8,411,891Interest received 213,440 163,401Income tax paid (667,032) (602,057)

Net cash provided by operating activities 5,954,810 7,973,235(Continued)

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

2017 2016

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of financial assets designated as fair value through profit

or loss $ (2,902,082) $ (1,909,981)Proceeds from disposal of financial assets designated as fair value

through profit or loss 4,054,307 1,582,610Acquisitions of available-for-sale financial assets (332,794) (525,947)Proceed from disposal of available-for-sale financial assets 395,382 -Acquisitions of held-to-maturity financial assets (2,322,515) (2,133,864)Proceeds from disposal of held-to-maturity financial assets - 257,878Proceeds from redemption of held-to-maturity financial assets 605,997 141,212Acquisition of financial assets measured at cost - (32,610)Proceed from disposal of financial assets measured at cost - 38,187Acquisitions of investment accounted for using equity method (150,575) (166,175)Proceeds from disposal of investment accounted for using equity

method - 19,633Acquisitions of property, plant and equipment (2,001,154) (1,279,436)Proceeds from disposal of property, plant and equipment 10 6,573Increase in refundable deposits (185,460) (189)Acquisitions of intangible assets (6,280) (10,132)Decrease (increase) in other financial assets 90,983 (102,331)Dividends received 25,211 24,003

Net cash used in investing activities (2,728,970) (4,090,569)

CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in other non-current liabilities 30,178 (1,094)Cash dividends (4,916,947) (4,261,354)Other financing activities 162 -

Net cash used in financing activities (4,886,607) (4,262,448)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (143,365) (6,162)

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,804,132) (385,944)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,564,903 17,950,847

CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,760,771 $ 17,564,903

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

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

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The functional currency of the Corporation is New Taiwan dollars. The consolidated financial statementsare presented in New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorized for issue by the Board of Directors onFebruary 5, 2018.

3. APPLICATION OF NEW REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reportsby Securities Issuers and the International Financial Reporting Standards (IFRS), InternationalAccounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)endorsed and issued into effect by the Financial Supervisory Commission (FSC) (collectively, the“IFRSs”).

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSsendorsed and issued into effect by the FSC would not have any material impact on the accountingpolicies of the Corporation and entities controlled by the Corporation (collectively, the “Group”) :

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

The amendments include additions of several accounting items and requirements for disclosures ofimpairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by theFSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendmentsalso include an emphasis on certain recognition and measurement considerations and add requirementsfor disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the board ofdirectors or president serves as the chairman of the board of directors or the president of the Group, oris the spouse or second immediate family of the chairman of the board of directors or president of theGroup, are deemed to have a substantive related party relationship, unless it can be demonstrated thatno control, joint control, or significant influence exists. Furthermore, the amendments require thedisclosure of the names of the related parties and the relationship with whom the Group has significant

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transaction. If the transaction amount or balance with a specific related party is 10% or more of the Group’s respective total transaction amount or balance, such transaction should be separately disclosed by the name of each related party.

When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party transactions are enhanced. Refer to Note 30 for related disclosures.

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSsendorsed by the FSC for application starting from 2018.

New, Revised or Amended Standards and Interpretations (the “New IFRSs”)

Effective Date Announced by IASB (Note 1)

Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendment to IFRS 2 “Classification and Measurement of

Share-based Payment Transactions” January 1, 2018

Amendments to IFRS 4“Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”

January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

January 1, 2019 (Note 3)

IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendments to IFRS 15 “Clarifications to IFRS15 Revenue from

Contracts with Customers” January 1, 2018

Amendments to IAS 7 “Disclosure Initiative” January 1, 2017 Amendments to IAS 12 “Recognition of Deferred Tax Assets for

Unrealized Losses” January 1, 2017

Amendments to IAS 40 “Transfers of investment property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance

Consideration” January 1, 2018

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

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

Note 3: The amendments to IFRS 9 are not yet endorsed by the FSC; however, the FSC permits that entities may elect to early adopt the amendment starting from 2018.

1) IFRS 9 “Financial Instruments” and related amendments

Classification, measurement, and impairment of financial assets

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

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

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

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

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

The Group elects to early adopt the amendments to IFRS 9 “Prepayment Features with Negative Compensation” when it first applies IFRS 9. The amendments stipulated that for the purpose of assessing whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding, the prepayment amount of a contractual term may include reasonable compensation that shall be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early.

The Group analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of financial assets. Under IFRS 9:

a) Listed shares, unlisted shares and financial assets carried at cost will be designated as at fairvalue through other comprehensive income and the gains or losses accumulated in other equitywill be transferred directly to retained earnings instead of being reclassified to profit or losswhen the assets are derecognised.

b) Debt investments classified as held-to-maturity financial assets and measured at amortized costwill be classified as measured at amortized cost under IFRS 9 because, on initial recognition,the contractual cash flows that are solely payments of principal and interest on the principaloutstanding and these investments are held within a business model whose objective is to collectthe contractual cash flows.

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

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full-lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

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

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

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

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

Carrying Amount as of December 31,

2017

Adjustments Arising from

Initial Application

Adjusted Carrying

Amount as of January 1, 2018

Impact on assets, liabilities and equity

Financial assets at fair value through profit or loss - current $ 229,998 $ - $ 229,998

Held-to-maturity financial assets - current 774,864 (774,864) - Financial assets measured at amortized

cost - current - 774,864 774,864 Financial assets at fair value through other

comprehensive income - non-current - 165,620 165,620 Available-for-sale financial assets -

non-current 508,516 (508,516) - Held-to-maturity financial assets -

non-current 2,624,969 (2,624,969) - Financial assets measured at amortized

cost - non-current - 3,082,352 3,082,352 Financial assets carried at cost -

non-current 85,327 (85,327) -

Total effect on assets $ 4,223,674 $ 29,160 $ 4,252,834 (Continued)

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2017


Initial Application

Adjusted Carrying


Retained earnings $ 6,908,060 $ 120,000 $ 7,028,060 Other equity

Unrealized (loss) gain on available-for-sale financial assets 7,601 (7,601) -

Unrealized (loss) gain on financial assets at fair value through other comprehensive income - (83,239) (83,239)

Total effect on equity $ 6,915,661 $ 29,160 $ 6,944,821 (Concluded)

Hedge accounting

The main change in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.

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

Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contract; and Recognize revenue when the Group satisfies a performance obligation.

In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Group regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each good or service individually rather than to transfer a combined output).

Under IFRS 15, the net effect of revenue recognized and consideration received and receivable is recognized as a contract asset or a contract liability. Currently, the receivable is recognized or the deferred revenue is reduced when revenue is recognized for the contract under IAS 18.

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The Group elects to retrospectively apply IFRS 15 to contracts that are not complete on January 1, 2018 and recognize the cumulative effect of the change in retained earnings on January 1, 2018.

For all contract modifications that occurred on or before December 31, 2017, the Group will not apply the requirements in IFRS 15 individually to each of the modifications, and will identify the performance obligations and determine and allocate transaction prices in a manner that reflects the aggregate effect of all modifications that occurred before December 31, 2017.

In addition, the Group will disclose the difference between the amount that results from applying IFRS 15 and the amount that results from applying current standards for 2018.

The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed below:


2017


Initial Application

Adjusted Carrying


Refund liabilities - current $ - $ 229,809 $ 229,809 Provisions - current 229,809 (229,809) -

Total effect on liabilities $ 229,809 $ - $ 229,809

3) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

The amendment clarifies that the difference between the carrying amount of the debt instrumentmeasured at fair value and its tax base gives rise to a temporary difference, even though there areunrealized losses on that asset, irrespective of whether the Group expects to recover the carryingamount of the debt instrument by sale or by holding it and collecting contractual cash flows.

In addition, in determining whether to recognize a deferred tax asset, the Group should assess adeductible temporary difference in combination with all of its other deductible temporarydifferences, unless the tax law restricts the utilization of losses to deduction against income of aspecific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendments also stipulatethat, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Group’s assets for more than their carrying amount if there issufficient evidence that it is probable that the Group will achieve the higher amount, and that theestimate for future taxable profit should exclude tax deductions resulting from the reversal ofdeductible temporary differences.

In assessing deferred tax asset, the Group currently assumes it will recover the asset at its carryingamount when estimating probable future taxable profit; the amendment will be appliedretrospectively in 2018.

4) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in thefunctional currency by applying to the spot exchange rate between the functional currency and theforeign currency at the date of the transaction. IFRIC 22 further explains that the date of thetransaction is the date on which an entity recognizes a non-monetary asset or non-monetary liabilityfrom payment or receipt of advance consideration. If there are multiple payments or receipts inadvance, the entity shall determine the date of the transaction for each payment or receipt ofadvance consideration.

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The Group will apply IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the Interpretation.

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

New IFRSs Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets

between an Investor and its Associate or Joint Venture” To be determined by IASB

IFRS 16 “Leases” January 1, 2019 (Note 2) IFRS 17 ”Insurance Contracts” January 1, 2021 Amendments to IAS 28 ”Long-term Interests in Associates and Joint

Ventures” January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019


Note 2: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.

1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control over an associate or a jointventure, the gain or loss resulting from the transaction is recognized only to the extent of theunrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or lossis eliminated.

2) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.

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

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The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor.

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

3) IFRIC 23 “Uncertainty over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group shouldassume that the taxation authority will have full knowledge of all related information when makingrelated examinations. If the Group concludes that it is probable that the taxation authority willaccept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unusedtax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to beused in its income tax filings. If it is not probable that the taxation authority will accept anuncertain tax treatment, the Group should make estimates using either the most likely amount or theexpected value of the tax treatment, depending on which method the entity expects to better predictthe resolution of the uncertainty. The Group has to reassess its judgments and estimates if factsand circumstances change.

On initial application, the Group shall apply IFRIC 23 either retrospectively to each prior reportingperiod presented, if this is possible without the use of hindsight, or retrospectively with thecumulative effect of the initial application of IFRIC 23 recognized at the date of initial application.

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

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

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for thefinancial instruments which are measured at fair values and net defined benefit liabilities which aremeasured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, where are grouped into Levels 1 to 3 based on the degree to which thefair value measurement inputs are observable and based on the significance of the inputs to the fairvalue measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for anasset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

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c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within 12 months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle aliability for at least 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within 12 months after the reporting period; and

3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Corporation and theentities controlled by the Corporation (its subsidiaries).

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

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

See Note 13, Table 6 and Table 7 for detailed information on subsidiaries (including percentages ofownership and main businesses).

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies otherthan the entity’s functional currency (i.e. foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Exchange differences arisingfrom the retranslation of non-monetary items are included in profit or loss for the period except forexchange differences arising from the retranslation of non-monetary items in respect of which gains andlosses are recognized directly in other comprehensive income, in which case, the exchange differencesare also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using theexchange rate at the date of the transaction.

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

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation), all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit or loss.

f. Inventories

Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and cost necessary to make the sale.Inventories are recorded at the weighted-average cost on the balance sheet date.

g. Investment in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiarynor an interest in a joint venture.

The Group uses the equity method to account for its investments in associates.

Under the equity method, investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Group’s share of the profit or loss and other comprehensive income of theassociate. The Group also recognized the changes in the Group’s share of the equity of associates.

When the Group subscribes for additional new shares of the associate at a percentage different from itsexisting ownership percentage, the resulting carrying amount of the investment differs from the amountof the Group’s proportionate interest in the associate. The Group records such a difference as anadjustment to investments with the corresponding amount charged or credited to capital surplus -changes in the Group’s share of the equity of associates. If the Group’s ownership interest is reduceddue to its additional subscription of the new shares of the associate, the proportionate amount of thegains or losses previously recognized in other comprehensive income in relation to that associate isreclassified to profit or loss on the same basis as would be required if the investee had directly disposedof the related assets or liabilities. When the adjustment should be debited to capital surplus, but thecapital surplus recognized from investments accounted for by the equity method is insufficient, theshortage is debited to retained earnings.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a singleasset by comparing its recoverable amount with its carrying amount. Any impairment loss recognizedforms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases to bean associate. Any retained investment is measured at fair value at that date and the fair value isregarded as the investment’s fair value on initial recognition as a financial asset. The differencebetween the previous carrying amount of the associate attributable to the retained interest and its fairvalue is included in the determination of the gain or loss on disposal of the associate. The Groupaccounts for all amounts previously recognized in other comprehensive income in relation to thatassociate on the same basis as would be required if that associate had directly disposed of the relatedassets or liabilities.

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When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’ consolidated financial statements only to the extent that interests in the associate are not related to the Group.

h. Property, plant, and equipment

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

Depreciation of property, plant, and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each reporting period, with the effect of any changes in the estimatesaccounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceedsand the carrying amount of the asset is recognized in profit or loss.

i. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful lives, residual values,and amortization method are reviewed at the end of each reporting period, with the effect of anychanges in the estimates accounted for on a prospective basis.

2) Internally-generated intangible assets - research and development expenditure

Expenditures on research activities are recognized as an expense in the period in which they areincurred.

An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:

a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;

b) The intention to complete the intangible asset and use or sell it;

c) The ability to use or sell the intangible asset;

d) How the intangible asset will generate probable future economic benefits;

e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and

f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.

The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, such intangible assets are measured on the same basis as intangible assets that are acquired separately.

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3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and thecarrying amount of the asset is recognized in profit or loss.

j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered any impairment loss. If any such indication exists, the recoverable amount of the assetis estimated in order to determine the extent of the impairment loss. When it is not possible toestimate the recoverable amount of an individual asset, the Group estimates the recoverable amount ofthe cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment at least annually, and whenever there is an indication that the asset may be impaired.

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

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset orcash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extentof the carrying amount that would have been determined had no impairment loss been recognized forthe asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized inprofit or loss.

k. Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to thecontractual provisions of the instruments.

Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets

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

1) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss, held-to-maturity financial assets, available-for-sale financial assets and loans andreceivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when such financial assetsare either held for trading or designated as at fair value through profit or loss.

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A financial asset may be designated as at fair value through profit or loss upon initial recognition if:

i) Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

ii) The financial asset forms part of a group of financial assets or financial liabilities or both,which is managed and has performance evaluated on a fair value basis, in accordance withthe Group’s documented risk management or investment strategy, and information about thegrouping is provided internally on that basis; or

iii) The contract contains one or more embedded derivatives so that the entire hybrid(combined) contract can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 29.

b) Held-to-maturity financial assets

Corporate bonds which the Group invests in and has positive intent and ability to hold tomaturity are classified as held-to-maturity financial assets.

Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amountsof available-for-sale monetary financial assets relating to changes in foreign currency exchangerates, interest income calculated using the effective interest method and dividends onavailable-for-sale equity investments are recognized in profit or loss. Other changes in thecarrying amount of available-for-sale financial assets are recognized in other comprehensiveincome and will be reclassified to profit or loss when the investments are disposed of or aredetermined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when theGroup’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured and derivatives that are linked to and must besettled by delivery of such unquoted equity investments are measured at cost less any identifiedimpairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assetscan be reliably measured, the financial assets are remeasured at fair value. The differencebetween carrying amount and fair value is recognized in other comprehensive income onfinancial assets. Any impairment losses are recognized in profit and loss.

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d) Loans and receivables

Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured using the effective interest method atamortized cost less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.

Cash equivalent includes time deposits and repurchase bonds, which are highly liquid, readilyconvertible to a known amount of cash and be subject to an insignificant risk of changes invalue. These cash equivalents are held for the purpose of meeting short-term cashcommitments.

2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.

Objective evidence of impairment could include: Significant financial difficulty of the debtor; orit becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a defaultor delinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or disappearance of an active market for thatfinancial asset because of the issuer’s financial difficulties or other reasons.

For financial assets carried at amortized cost, such as accounts receivable, such assets are assessedfor impairment on a collective basis even if they were assessed not to be impaired individually.Objective evidence of impairment for a portfolio of accounts receivable could include the Group’spast experience of collecting payments, an increase in the number of delayed payments, as well asobservable changes in national or local economic conditions that correlate with defaults onreceivables.

For a financial asset carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the financial assets at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not beenrecognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of thesecurity below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

a) Significant financial difficulty of the issuer or counterparty; or

b) Breach of contract, such as a default or delinquency in interest or principal payments; or

c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or

d) The disappearance of an active market for that financial asset because of financial difficulties.

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When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

3) Derecognition of financial assets

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

On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the sum of the consideration received and receivable and the cumulative gain or lossthat had been recognized in other comprehensive income is recognized in profit or loss.

Equity instruments

Equity instruments issued by a group entity are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.

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

Financial liabilities

1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liabilitiesare either held for trading or designated as at fair value through profit or loss.

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Financial liabilities held for trading are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividends paid on the financial liability. Fair value is determined in the manner described in Note 29.

2) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts; and the contracts are not measured at fair value through profit or loss.

l. Hedge accounting

The Group designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.

1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Group revokes the designated hedgingrelationship, when the hedging instrument expires or is sold, terminated, or exercised, or when thehedging instrument no longer meets the criteria for hedge accounting.

2) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gains or losses relating to theineffective portion are recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the line item relating to the hedgeditem in the same period when the hedged items affect profit or loss. If a hedge of a forecastedtransaction subsequently results in the recognition of a non-financial asset or a non-financial

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liability, the associated gains and losses that were recognized in other comprehensive income are removed from equity and included in the initial cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when the hedging instrument no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecasted transaction is no longer expected to occur, the gains or losses accumulated in equity are recognized immediately in profit or loss.

m. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.

n. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Allowances for sales returns andliabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of futurereturns and past experience and other relevant factors.

1) Sale of goods

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

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

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

c) The amount of revenue can be measured reliably;

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

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

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Dividend and interest income

Dividend income from investments is recognized when a shareholder’s right to receive payment hasbeen established and provided that it is probable that the economic benefits will flow to the Groupand that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Group and the amount of income can be measured reliably. Interest income isaccrued on a time basis by reference to the principal outstanding and at the applicable effectiveinterest rate.

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o. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rentals are recognized as income in the period in which they areincurred.

2) The Group as lessee

Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related services.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefitretirement benefit plans are determined using the projected unit credit method. Service cost(including current service cost) and net interest on the net defined benefit liabilities are recognizedas employee benefits expense in the period in which they occur. Remeasurement, comprisingactuarial gains and losses and the return on plan assets (excluding interest), is recognized in othercomprehensive income in the period in which they occur. Remeasurement recognized in othercomprehensive income is reflected immediately in retained earnings and will not be reclassified toprofit or loss.

Net defined benefit liabilities represent the actual deficit in the Group’s defined benefit plans.

3) Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Group can no longerwithdraw the offer of the termination benefit and when the Group recognizes any relatedrestructuring costs.

q. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve to retain earnings.

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

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2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences. Deferred tax assets aregenerally recognized to the extent that it is probable that taxable profits will be available againstwhich those deductible temporary differences and loss carryforwards can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in theforeseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that therewill be sufficient taxable profits against which to utilize the benefits of the temporary differencesand they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreviewed at the end of each reporting period and recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in theperiod in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws)that have been enacted or substantively enacted by the end of the reporting period. Themeasurement of deferred tax liabilities and assets reflects the tax consequences that would followfrom the manner in which the Group expects, at the end of the reporting period, to recover or settlethe carrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimatesand assumptions about the carrying amounts of assets and liabilities that are not readily apparent from othersources. The estimates and associated assumptions are based on historical experience and other factorsthat are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.

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a. Revenue recognition

The Group recognizes revenue when the conditions described in Note 4 (n) are satisfied. The Groupalso records a provision for estimated future returns and other allowances in the same period the relatedrevenue is recorded. Provision for estimated sales returns and other allowances is generally made andadjusted at a specific percentage based on historical experience and any known factors that wouldsignificantly affect the allowance, and our management periodically reviews the adequacy of thepercentage used.

As of December 31, 2017 and 2016, the Group recognized provisions for estimated sales returns andother allowances of $229,809 thousand and $236,336 thousand, respectively.

b. Held-to-maturity financial assets

Management has reviewed the Group’s held-to-maturity financial assets in light of its capitalmaintenance and liquidity requirements and has confirmed the Group’s positive intention and ability tohold those assets to maturity.

c. Income taxes

As of December 31, 2017 and 2016, the carrying amount of the deferred tax assets in relation to unusedtax losses was $33,276 thousand and $25,920 thousand, respectively. As of December 31, 2017 and2016, no deferred tax asset has been recognized on the tax losses of $24,764 thousand and $20,543thousand, respectively, due to the unpredictability of future profit streams. The realizability of thedeferred tax asset mainly depends on whether sufficient future profits or taxable temporary differenceswill be available. In cases where the actual future profits generated are less than expected, a materialreversal of deferred tax assets may arise, which would be recognized in profit or loss for the period inwhich such reversal takes place.

d. Estimated impairment of accounts receivable

When there is objective evidence of impairment loss, the Group takes into consideration the estimationof future cash flows. The amount of the impairment loss is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate.Where the actual future cash flows are less than expected, a material impairment loss may arise.

e. Write-down of inventory

The net realizable value of inventory is the estimated selling price in the ordinary course of businessless the estimated costs of completion and disposal. The estimation of net realizable value was basedon current market conditions and the historical experience with product sales of a similar nature.Changes in market conditions may have a material impact on the estimation of the net realizable value.

f. Recognition and measurement of defined benefit plans

The net defined benefit liabilities and the resulting defined benefit costs under the defined benefitpension plans are calculated using the projected unit credit method. Actuarial assumptions comprisethe discount rate, rate of employee turnover, future salary increase, etc. Changes in economiccircumstances and market conditions will affect these assumptions and may have a material impact onthe amount of expenses and liabilities.

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6. CASH AND CASH EQUIVALENTS

December 312017 2016

Deposits in bank $ 15,554,271 $ 16,023,446Cash equivalents

Bonds acquired under resale agreements 206,500 1,541,457

$ 15,760,771 $ 17,564,903

The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:


Bank deposits 0%-2.3% 0%-1.80% Bonds acquired under resale agreements 0.37%-0.40% 0.42%-1.50%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS


Financial assets designated as at FVTPL

Credit linked notes (a) $ 220,269 $ 715,491 Interest rate linked notes (a) - 612,427 Exchange linked notes (a) - 96,613

220,269 1,424,531

Financial assets held for trading

Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) 1,851 1,098 Currency-swap contracts (c) 7,878 2,457

9,729 3,555

Financial assets at FVTPL-current $ 229,998 $ 1,428,086

Financial liabilities held for trading

Derivative financial liabilities (not designated as hedging instruments) Forward exchange contracts (b) $ - $ 42,073 Currency-swap contracts (c) - 956

Financial liabilities at FVTPL-current $ - $ 43,029

a. The Group entered into structured investment contracts with a bank in 2017 and 2016. The structuredinvestment contracts included embedded derivative instruments which were not closely related to thehost contracts. The Group designated the entire contract as financial asset at FVTPL on initialrecognition.

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b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:

Currency Maturity Date

Contract Amount

(In Thousands)

December 31, 2017

Sell forward exchange contracts US$ to NT$ 2018.01.11-2018.01.16 US$ 6,000

December 31, 2016


c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2017


December 31, 2016

Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.01.24 US$ 11,000 Buy forward exchange contracts US$ to NT$ 2017.03.27 US$ 10,000

The Group entered into foreign exchange forward contracts and currency-swap contracts during the years ended December 31, 2017 and 2016 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS


Current

Foreign corporate bonds $ - $ 64,386

Non-current

Listed stocks $ 49,153 $ 43,648 Domestic bonds 459,363 460,033

$ 508,516 $ 503,681

The Group recognized impairment loss of $120,000 thousand in 2016.

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9. HELD-TO-MATURITY FINANCIAL ASSETS


Current

Foreign investments $ 774,864 $ -

Non-current

Foreign investments $ 2,624,969 $ 1,888,367

10. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT


Unlisted stocks $ 85,327 $ 85,327

Classification of financial assets Available-for-sale financial assets $ 85,327 $ 85,327

The management believed that the fair value of the aforementioned unlisted equity investments held by the Group cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of the reporting period.

The Group sold its interest in Image Match Design Inc. with carrying amount of $10,000 thousand in August 2016 and recognized a gain of $14,925 thousand.

11. NOTES AND ACCOUNTS RECEIVABLE, NET


Notes and accounts receivable $ 3,648,920 $ 3,350,334 Allowance for doubtful accounts (3,287) (1,987)

Notes and accounts receivable, net $ 3,645,633 $ 3,348,347

The average credit period on sales of goods was 30 to 45 days after month closing. No interest was charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Group considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts was based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Group had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.

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The aging analyses of notes and accounts receivable were as follows:

December 31Past Due Days 2017 2016

Not past due and not impaired 0 days $ 3,564,166 $ 3,288,291Past due but not impaired Less than 60 days 78,247 24,548

61-90 days 2,605 35,479More than 90 days 615 29

81,467 60,056

$ 3,645,633 $ 3,348,347

The above aging analyses were based on the past due dates.

Movements of the allowance for doubtful accounts were as follows:

Years Ended December 31 2017 2016

Balance, beginning of year $ 1,987 $ 1,987 Add: Provision 1,300 -

Balance, end of year $ 3,287 $ 1,987

12. INVENTORIES


Finished goods $ 184,492 $ 202,723 Work in process 1,574,457 1,212,579 Raw materials 628,689 431,448 Supplies and spare parts 403,332 353,025

$ 2,790,970 $ 2,199,775

Cost of revenue, the write-downs of inventory and unallocated manufacturing overheads included in the cost of revenue were as below:


Cost of revenue $ 16,935,975 $ 16,904,482Provision of inventory valuation and obsolescence loss $ 87,311 $ 16,449Unallocated manufacturing overheads $ 306,971 $ 130,382

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13. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements

Proportion of OwnershipDecember 31

Investor Investee Nature of Business 2017 2016 Explanation


VIS Associates Inc. Investments 100% 100%


VIS Shanghai Company Limited

Marketing service 100% - (1)

VIS Associates Inc. Specialty TechFarm, Inc. Investments - - (2) VIS Associates Inc. VIS Investment Holding, Inc. Investments 100% 100% VIS Investment Holding, Inc. VIS Micro, Inc. Marketing service 100% 100%

(1) VIS Shanghai Company Limited was established in August 2017. The Corporation injected capital of RMB 1,000 thousand in October 2017.

(2) Specialty TechFarm, Inc. completed liquidation in April 2016.

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associatesDecember 31

2017 2016

Associates individually immaterial

CMSC, Inc. $ 50,190 $ 61,440 Qromis, Inc. (Note) 233,150 147,553

$ 283,340 $ 208,993

Note: Quora Technology, Inc. changed its company named as Qromis, Inc. in October 2017.

Refer to Table 6 “Information on Investees” for the nature of business, principal place of business and country of incorporation of the associates.

Aggregate information of associates that are not individually material

Years Ended December 312017 2016

The Group’s share of: Loss from continuing operations $ (57,291) $ (8,995)Other comprehensive income (loss) (5) 448

Total comprehensive loss for the year $ (57,296) $ (8,547)

The Group sold all of its interest in SkyTraq Technology Inc. in February 2016. This transaction resulted in the recognition of a loss of $9,326 thousand.

In March 2016, the Group subscribed 5,000 thousand shares of preferred stocks of Qromis, Inc. in cash amounting to $166,175 thousand with 31.04% of voting rights and exercised significant influence over Qromis, Inc. In June 2017, the Group subscribed 4,832 thousand shares of preferred stocks of Qromis, Inc. amounting to 150,575 thousand. As of December 31, 2017, the Group’s percentage of voting rights in Qromis, Inc. was 46.48%.

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The investments in associates accounted for using the equity method, the share of net profit or loss and the share of other comprehensive (loss) income from investments were calculated based on the unaudited financial statements. The Group’s management considered the use of unaudited financial statements of the investees did not have material impact on its consolidated financial statements.

15. PROPERTY, PLANT AND EQUIPMENT

Advance Payments and

Buildings Machinery and

Equipment Other

Equipment Construction in Progress Total

Cost

Balance, January 1, 2016 $ 15,006,190 $ 56,335,943 $ 393,907 $ 209,717 $ 71,945,757Additions 79,335 984,319 3,129 273,637 1,340,420Disposal (5,028) (16,688) (390) - (22,106)Reclassified - - 385 - 385Translation adjustments - - (43) - (43)

Balance, December 31, 2016 $ 15,080,497 $ 57,303,574 $ 396,988 $ 483,354 $ 73,264,413

Accumulated depreciation

Balance, January 1, 2016 $ 12,099,724 $ 52,323,139 $ 359,976 $ - $ 64,782,839Depreciation 606,511 1,414,817 10,845 - 2,032,173Disposal (1,089) (16,688) (390) - (18,167)Translation adjustments - - (34) - (34)

Balance, December 31, 2016 $ 12,705,146 $ 53,721,268 $ 370,397 $ - $ 66,796,811

Accumulated impairment

Balance, January 1, 2016 and December 31, 2016 $ - $ 183,521 $ - $ - $ 183,521

Carrying amounts on December 31, 2016 $ 2,375,351 $ 3,398,785 $ 26,591 $ 483,354 $ 6,284,081

Cost

Balance, January 1, 2017 $ 15,080,497 $ 57,303,574 $ 396,988 $ 483,354 $ 73,264,413Additions 275,794 1,396,087 2,347 307,533 1,981,761Disposal - (2,437) (769) - (3,206)Reclassified - - 658 - 658Translation adjustments - - (231) - (231)



Balance, January 1, 2017 $ 12,705,146 $ 53,721,268 $ 370,397 $ - $ 66,796,811Depreciation 544,058 1,462,128 11,089 - 2,017,275Disposal - (2,437) (769) - (3,206)Translation adjustments - - (129) - (129)





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

BuildingsMain plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years

Machinery and equipment 3 to 5 yearsOther equipment 3 to 7 years

16. INTANGIBLE ASSETS


Computer software

CostBalance, January 1 $ 788,983 $ 779,436 Additions 6,280 10,132 Disposal - (200) Reclassified to property, plant and equipment (658) (385) Balance, December 31 794,605 788,983

Accumulated amortization Balance, January 1 758,701 737,840 Amortization 16,633 21,061 Disposal - (200) Balance, December 31 775,334 758,701

Carrying amount, end of year $ 19,271 $ 30,282

Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:

Computer software 3 to 5 years

17. OTHER ASSETS


Pledged time deposit $ 303,831 $ 303,704 Other financial assets - 96,597 Others 3,037 2,788

$ 306,868 $ 403,089

Current $ 3,037 $ 99,385 Non-current 303,831 303,704

$ 306,868 $ 403,089

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18. OTHER PAYABLES


Bonus $ 621,686 $ 742,580 Maintenance 535,817 506,275 Utilities 127,234 124,321 Others 833,352 778,306

$ 2,118,089 $ 2,151,482

19. OTHER CURRENT LIABILITIES


Advance receipts $ 112,000 $ 109,809 Others 251 5,075

$ 112,251 $ 114,884

20. PROVISIONS - CURRENT


Sales returns and allowances $ 229,809 $ 236,336

The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.Besides, VIS Micro is required by local regulations to make monthly contributions at certain percentageof the basic salary of their employees.

b. Defined benefit plans

The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the 6 months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required to

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fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Corporation has no right to influence the investment policy and strategy.

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


Present value of defined benefit obligation $ 1,107,016 $ 1,034,785Fair value of plan assets (329,915) (326,432)

Net defined benefit liability $ 777,101 $ 708,353

Movements in net defined benefit liability were as follows:

Present Value of Defined

Benefit Obligation

Fair Value of Plan Assets

Net Defined Benefit

Liability

Balance at January 1, 2016 $ 970,547 $ (339,555) $ 630,992Service cost

Current service cost 7,419 - 7,419Interest expense (income) 18,364 (6,518) 11,846

Recognized in profit or loss 25,783 (6,518) 19,265Remeasurement

Return on plan assets (excluding amounts included in net interest) - 4,157 4,157

Actuarial loss - changes in financial assumptions 54,189 - 54,189

Actuarial loss - experience adjustments 13,917 - 13,917Recognized in other comprehensive income 68,106 4,157 72,263Contributions from the employer - (14,167) (14,167)Benefits paid (29,651) 29,651 -Balance at December 31, 2016 1,034,785 (326,432) 708,353Service cost




Actuarial gain - changes in financial assumptions (21,662) - (21,662)

Actuarial loss - experience adjustments 86,361 - 86,361Recognized in other comprehensive income 64,699 1,640 66,339Contributions from the employer - (14,699) (14,699)Benefits paid (15,568) 14,479 (1,089)

Balance at December 31, 2017 $ 1,107,016 $ (329,915) $ 777,101

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Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:


Discount rates 1.65% 1.50%Expected rates of salary increase 3.50% 3.50%

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


Discount rates 0.50% increase $ (68,284) $ (67,148)0.50% decrease $ 74,471 $ 73,416

Expected rates of salary increase 0.50% increase $ 72,739 $ 71,5950.50% decrease $ (64,445) $ (66,229)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

December 31 2017 2016

The expected contributions to the plan for the next year $ 15,213 $ 14,663

The average duration of the defined benefit obligation 13 years 13.7 years

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Maturity analyses of pension benefit were as follows:


Maturity analysis of undiscounted pension benefitNo later than 1 year $ 24,818 $ 13,754Later than 1 year and not later than 5 years 164,613 102,104Later than 5 years 1,342,568 1,174,944

$ 1,531,999 $ 1,290,802

22. EQUITY

a. Capital stock

Common stock


Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982

Issued capital $ 16,389,823 $ 16,389,823

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus


May be used to offset a deficit, distributed by cash or transferred to capital

Issuance of common stock $ 544,884 $ 544,884

May be used to offset a deficit only

Employee stock options (transferred and inactive) 285,845 285,845 Share of changes in equities of subsidiaries, associates and joint

ventures 25,738 31,865 Overdue dividends 162 -

$ 856,629 $ 862,594

The capital surplus from stock issued in excess of par may be used to offset a deficit; in addition, when the Group has no deficit, such capital surplus may be distributed in cash or stock transferred to capital, which are limited to a certain percentage of the Group’s paid-in capital.

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c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends andbonuses are limited to shareholders and do not include employees. The shareholders held their regularmeeting on June 7, 2016 and, in that meeting, had resolved amendments to the Corporation’s Articles ofIncorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and theaddition of the policy on distribution of employees’ compensation and remuneration to directors.Please refer to c. Refer to employees’ compensation of directors in Note 24.

Under the dividend policy as set forth in the amended Articles, where the Corporation made profit in afiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, settingaside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve inaccordance with the laws and regulations, and then any remaining profit together with any undistributedretained earnings shall be used by the Corporation’s board of directors as the basis for proposing adistribution plan, which should be resolved in the shareholders’ meeting for distribution of dividendsand bonus to shareholders.

The Corporation’s Articles also stipulate that all profits may be distributed after taking intoconsideration to financial, business and operational factors. Dividends are in cash and/or in the formof stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (inany given year) should be at least 60% of the dividends of the current year’s appropriation. If there isno profit for distribution, or the profit is far less than the profit actually distributed by the Corporation inthe previous year or other reasons so require, all or part of the capital surplus may be distributed inaccordance with relevant laws or regulations of the authorities in charge.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’spaid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and thelegal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred tocapital or distributed in cash.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers forSpecial Reserves Appropriated Following Adoption of IFRSs”. Distributions can be made out of anysubsequent reversal of the debit to other equity items.

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

The appropriations of earnings for 2016 and 2015 have been approved in the shareholders’ meeting onJune 16, 2017 and June 7, 2016, respectively, were as follows:

Appropriations of Earnings Dividends Per Share (NT$) 2016 2015 2016 2015

Provision of legal reserve $ 553,793 $ 415,758 $ - $ -(Reversal) provision of special

reserve (77,855) 45,305 - -Cash dividends 4,916,947 4,261,354 3.00 2.60

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The appropriation of earnings for 2017 had been proposed by the Corporation’s board of directors on February 5, 2018. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividend Per Share (NT$)

Provision of legal reserve $ 450,506 $ - Provision of special reserve 339,074 - Cash dividend 4,916,947 3.00

The appropriation of earnings for 2017 is subject to the resolution of the shareholders’ meeting to be held on June 14, 2018.

d. Other equity

1) Exchange differences on translation of foreign operationsYears Ended December 31

2017 2016

Balance, beginning of year $ (38,066) $ (41,010) Exchange differences arising from translation of foreign

operations (346,560) 2,496 Share of exchange differences of associates accounted for

using equity method (5) (237) Disposal of foreign associates - 685

Balance, end of year $ (384,631) $ (38,066)

2) Unrealized gain (loss) on available-for-sale financial assets


Balance, beginning of year $ 110 $ (74,801) Unrealized gain arising from available-for-sale financial

assets 7,491 74,911

Balance, end of year $ 7,601 $ 110

Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

23. REVENUE

Revenue of the Group for the years ended December 31, 2017 and 2016 were analyzed as follow:


Wafer foundry $ 24,503,863 $ 25,469,353Other revenue 405,750 359,281

$ 24,909,613 $ 25,828,634

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The Group designated certain foreign sales as hedged items to hedge the risk of cash flow. Losses on the hedging instrument amounting to $1,766 thousand and $10,692 thousand that were determined to be an effective hedge were recognized as decrease of revenue for the years ended December 31, 2017 and 2016, respectively.

24. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME

a. Depreciation and amortization


Property, plant and equipment $ 2,017,275 $ 2,032,173 Intangible assets 16,633 21,061

$ 2,033,908 $ 2,053,234

Classification of deprecation - by function Cost of revenue $ 1,942,260 $ 1,980,762 Operating expenses 75,015 51,411

$ 2,017,275 $ 2,032,173

Classification of amortization - by function Cost of revenue $ 7,750 $ 10,643 Operating expenses 8,883 10,418

$ 16,633 $ 21,061

b. Employee benefits expense


Post-employment benefits (see Note 21) Defined contribution plans $ 213,226 $ 197,904 Defined benefit plans 18,197 19,265

231,423 217,169 Other employee benefits 6,303,687 6,354,084

Total employee benefits expense $ 6,535,110 $ 6,571,253

Employee benefits expense summarized by function Cost of revenue $ 5,158,039 $ 5,141,284 Operating expenses 1,377,071 1,429,969

$ 6,535,110 $ 6,571,253

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c. Employees’ compensation and remuneration of directors

The Corporation should distribute no less than 10% of the current year’s profit as employees’compensation in the form of stock or in cash as resolved by the board of directors. The employeesinclude those of subsidiaries meeting some conditions agreed by the board of directors. TheCorporation should also distribute no higher than 1% of the current year’s profit as remuneration todirectors. However, the Corporation’s accumulated losses shall have been covered. For the yearsended December 31, 2017 and 2016, the employees’ compensation were $675,760 thousand and$831,803 thousand, respectively. For the years ended December 31, 2017 and 2016, the remunerationto directors were $9,900 thousand and $14,100 thousand, respectively. The above calculation were ata certain percentage of the base income.

If there is a change in the proposed amounts after the annual consolidated financial statements areauthorized for issue, the differences are recorded as a change in accounting estimate.

The appropriations of employees’ compensation and remuneration to directors for 2017 and 2016 wereresolved by the board of directors on February 5, 2018 and February 21, 2017, respectively. Theamounts of the employees’ compensation and remuneration to directors are disclosed on the tablebelow.

For the Years Ended December 31 2017 2016 Cash Stock Cash Stock

Employees’ compensation $ 675,760 $ - $ 831,803 $ - Remuneration to directors 9,900 - 14,100 -

There is no difference between the actual paid amounts of employees’ compensation and remuneration of directors and the amounts recognized in the consolidated financial statements for the years ended December 31, 2016.

The employees’ compensation and the remuneration to directors for 2015 were resolved by the board of directors on January 27, 2016. The respective amounts recognized in the consolidated financial statements were as follows:

For the Year Ended December 31, 2015

Employees’ Compensation

Remunerationof Directors

Amounts resolved by the board of directors $ 623,638 $ 13,384 Amounts recognized in the annual financial statements $ 623,638 $ 13,588

The difference of 2015 remuneration of directors was adjusted to profit and loss for the year ended December 31, 2016.

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

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25. INCOME TAXES

a. Major components of tax expenses recognized in profit or loss:


Current tax In respect of the current year $ 905,320 $ 868,365 Adjustments for prior years’ tax (117,955) (158,696) Other (714) (90)

786,651 709,579 Deferred income tax

In respect of the current year (11,087) 12,590

Income tax expenses recognized in profit or loss $ 775,564 $ 722,169

A reconciliation of accounting profit and income tax expenses was as follow:


Income before income tax $ 5,280,628 $ 6,260,094

Income tax expense calculated at the statutory rate $ 885,978 $ 1,065,124 Additional items in determining taxable income 18,448 6,997 Tax-exempt income - (206,770)Income tax on unappropriated earnings 7,278 - The origination and reversal of temporary differences (13,808) 18,571 Effect of tax on loss carryforward (3,663) (2,967)Adjustments for prior years’ tax (117,955) (158,696)Others (714) (90)

Income tax expense recognized in profit or loss $ 775,564 $ 722,169

The applicable corporate income tax rate used by the group entities in the ROC is 17%, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

In January 2018, it was announced that the Income Tax Act in the ROC was amended and, starting from 2018, the statutory corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to increase by $5,109 thousand and $18,335 thousand, respectively, in 2018.

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

b. Current tax liabilities


Current tax liabilities Income tax payable $ 725,013 $ 604,714

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c. Deferred income tax assets and liabilities

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

For the year ended December 31, 2017

Deferred Income Tax Assets

Balance, Beginning of

Year Movements Balance, End of

Year

Loss carryforwards $ 5,377 $ 3,135 $ 8,512 Temporary differences 2,673 29,127 31,800

$ 8,050 $ 32,262 $ 40,312

Deferred Income Tax Liabilities



Year

Temporary differences $ 82,723 $ 21,176 $ 103,899





Year

Loss carryforwards $ 2,469 $ 2,908 $ 5,377 Temporary differences 2,942 (269) 2,673

$ 5,411 $ 2,639 $ 8,050




Year


d. Items for which no deferred income tax assets have been recognized


Loss carryforwards Expire in 2020 $ 21,779 $ 18,298 Expire in 2021 405 313 Expire in 2027 218 169 Expire in 2034 2,275 1,763 Expire in 2036 87 -

$ 24,764 $ 20,543

Deductible temporary differences $ 184,063 $ 207,756

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e. Unrecognized deferred income tax liabilities associated with investments

As of December 31, 2017 and 2016, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.

f. Integrated income tax


Balance of the Imputation Credit Account - the Corporation $ 730,142 $ 775,454

The creditable ratio for distributing the earnings of 2016 was 13.29%.

The newly the amended Income Tax Act announced in January 2018 abolished the imputation tax system, no creditable ratio applicable for distribution the earnings of 2017.

The unappropriated retained earnings as of December 31, 2017 and 2016 did not contain the unappropriated earnings generated before January 1, 1998.

g. Income tax exemption with respect to the issuance of shares

The Corporation was granted a five-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.

h. Income tax assessments

Income tax returns through 2015 had been examined and cleared by the tax authorities.

26. EARNINGS PER SHARE

Unit: NT$ Per Share


Basic earnings per share $ 2.75 $ 3.38 Diluted earnings per share $ 2.73 $ 3.35

The earnings and weighted average number of common shares used in the computation of earnings per share were as follows:

Earnings


Earnings used in computation of basic earnings per share $ 4,505,064 $ 5,537,925 Effect of dilutive potential common stocks:

Employees’ compensation - -

Earnings used in the computation of diluted earnings per share $ 4,505,064 $ 5,537,925

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Shares


Weighted average number of common stocks used in the computation of basic earnings per share 1,638,982 1,638,982

Effect of dilutive potential common shares: Employees’ compensation 12,108 15,914

Weighted average number of common stocks used in the computation of diluted earnings per share 1,651,090 1,654,896

Since the Corporation is allowed to settle compensation paid to employees by cash or shares, the Corporation assumed that the entire amount of the compensation will be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share as the shares had dilutive effect. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees in the following year.

27. OPERATING LEASE ARRANGEMENTS

The Group as lessee

The Group leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from December 2019, December 2027, December 2029 and December 2034.The rental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to thelease contract, and the lease is renewable upon expiration.

The future minimum lease payments of non-cancellable operating lease commitments are as follows:

December 31 2017 2016

Not later than 1 year $ 75,432 $ 77,120 Later than 1 year and not later than 5 years 306,228 313,513 Later than 5 years 505,471 595,023

$ 887,131 $ 985,656

The lease payments recognized as expenses were as follows:


Minimum lease payment $ 76,534 $ 77,426

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28. CAPITAL MANAGEMENT

The Group manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Group’s overall strategy has no significant variations.

The capital structure of the Group consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital reserves, retained earnings and other equity).

The Group is not subject to any externally imposed capital requirements.

29. FINANCIAL INSTRUMENTS

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

Financial assets and liabilities with material difference between carrying value and fair value


Carrying Fair Value Carrying Fair Value Amount Level 1 Level 2 Amount Level 1 Level 2

Financial assets

Held-to-maturity financial assets $ 3,399,833 $ 3,377,588 $ - $ 1,888,367 $ 1,874,119 $ -Other current assets

Structured time deposit - - - 96,597 - 96,509

b. Fair value of financial instruments measured at fair value on a recurring basis

1) Fair value hierarchy

December 31, 2017

Level 1 Level 2 Level 3 Total

Financial assets at FVTPL Derivative financial

instruments $ - $ 229,998 $ - $ 229,998

Available-for-sale financial assets Domestic listed stocks -

equity investment $ 19,153 $ 30,000 $ - $ 49,153 Bond investments 459,363 - - 459,363

$ 478,516 $ 30,000 $ - $ 508,516

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December 31, 2016



instruments $ - $ 1,428,086 $ - $ 1,428,086



$ 538,067 $ 30,000 $ - $ 568,067

Financial liabilities at FVTPL Derivative financial

instruments $ - $ 43,029 $ - $ 43,029

There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2017 and 2016, respectively.

There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2017 and 2016, respectively.

2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy

The fair values of financial assets and financial liabilities are determined as follows:

a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.

Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.

b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.

The Group uses “Black-Scholes model” to determine the fair value.

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c. Categories of financial instruments

December 31 2017 2016

Financial assets

Fair value through profit or loss (FVTPL) Held for trading $ 9,729 $ 3,555Designated as at FVTPL 220,269 1,424,531

Held-to-maturity financial assets 3,399,833 1,888,367Loans and receivables (Note 1) 20,325,079 22,080,243Available-for-sale financial assets (Note 2) 593,843 653,394


Fair value through profit or loss (FVTPL) Held for trading - 43,029

Measured at amortized cost (Note 3) 4,431,040 4,477,709

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivables, other receivables, and other financial assets.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payables and other payables.

d. Objectives and policies of financial risk management

The Group’s major financial instruments include equity and bond investments, accounts receivable andaccounts payables. The Group’s corporate finance function provides services to the business,coordinates access to domestic and international financial markets, monitors and manages the financialrisks relating to the operations of the Group through internal risk reports which analyze exposures bydegree and magnitude of risks. These risks include market risk (including foreign currency risk,interest rate risk and other price risk), credit risk and liquidity risk.

The Group seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Group’s policies approvedby the board of directors, which provided written principles on foreign exchange risk, interest rate risk,credit risk, the use of derivatives and non-derivative financial instruments, and the investment of excessliquidity. The compliance with policies and the control of exposure limits are continuously reviewedby the internal auditors on a continuous basis. The Group does not enter into or trade financialinstruments, including derivative financial instruments, for speculative purposes.

The corporate finance function reports quarterly to the Group’s board of directors and audit committeefor their independent mentorship to risks and policy implementation.

1) Market risk

The Group’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Group enters into a variety of derivative financial instruments including forwardexchange and currency - swap contracts to manage its exposure to foreign currency risk.

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There has been no change to the Group’s exposure to market risks or the manner in which these risks are managed and measured.

a) Foreign currency risk

The Group’s operating activities are partially denominated in foreign currencies and applynatural hedge. The purpose of the Group’s management of the foreign currency risk is tohedge the risk instead of making a profit.

The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Group selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheGroup currently utilizes derivative financial instruments, primarily buy/sell forward exchangecontracts, to hedge its currency exposure.

The Group uses forward exchange contracts to eliminate currency exposure. It is the Group’spolicy to negotiate the terms of the hedge derivatives to match the terms of the hedged item formaximizing the hedge effectiveness.

Investing in foreign operations is for strategic purposes; it is not hedged by the Group.

Sensitivity analysis

The Group is mainly exposed to the exchange rate fluctuation of USD.

The following table details the Group’s sensitivity to a 5% increase and decrease in the NewTaiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, financial assets, accounts receivable, other receivables,refundable deposits, accounts payable, and other payables) and the hedge contracts, for whichtheir translation at period end is adjusted for a 5% change in foreign currency rates. Thefollowing table indicates the influences which the New Taiwan dollars strengthen 5% againstthe relevant currency.

Impact on USD Items Years Ended December 31

2017 2016

Loss $ 139,411 $ 73,706

b) Interest rate risk

The Group’s financial assets are exposed to interest rate risk both at fixed and floating interestrates.

The carrying amounts of the Group’s financial assets with exposure to interest rates at the endof the reporting period were as follows.

December 31 2017 2016

Fair value interest rate risk Financial assets $ 18,022,023 $ 19,699,152

Cash flow interest rate risk Financial assets 2,122,044 2,103,369

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The sensitivity analyses below are determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset at the end of the reporting date is outstanding during the reporting period.

If the market interest rate increases/decrease by 0.1% and all other variables remain constant, the pre-tax profit of the Group for the years ended on December 31, 2017 and 2016 will increase/decrease $2,122 thousand and $2,103 thousand, respectively, resulting from the exposure of the net assets with floating rates.

c) Other price risk

The Group is exposed to price risk arising from its investments in available-for-sale stocks andbonds. Investments are held for strategic rather than trading purposes. The Group does notactively trade these investments. The Group’s security price risk is mainly concentrated onequity and bond instruments.


The sensitivity analyses below were determined based on the exposure to security price risks atthe end of the reporting period.

If available-for sale stocks and bonds prices had been 5% higher/lower, the other comprehensiveincome for the years ended December 31, 2017 and 2016 would have increased/decreased by$25,426 thousand and $28,403 thousand, respectively, as a result of the changes in fair value ofavailable-for-sale financial investments in stocks and bonds.

2) Credit risk

Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Group. As of the end of the reporting period, the Group may have a financialloss due to the default on obligation from counterparts, and the maximum exposure to credit risk isthe carrying amount of the respective recognized financial assets as stated in the consolidatedbalance sheets.

In order to mitigate credit risk, the Group has made the policy of credit management to ensure thatappropriate action is taken to recover overdue receivables. In addition, the Group reviews therecoverable amount of each receivable debt at the end of the reporting period to ensure thatadequate impairment losses are made for irrecoverable amounts. In this regard, the Groupconsiders the credit risk is significantly reduced.

The credit risk on operating funds and derivatives is limited as the counterparts are creditworthybanks.

The Group’s accounts receivable outstanding arose from trading with its customers spreading acrossdiverse industries and geographical areas. The balances are monitored on an ongoing basis byevaluating the customer’s financial conditions.

169

The Group’s credit concentration risk was related to the 5 largest customers. Besides the 5 largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivable at any time during the period. The 5 largest customers are creditworthy counterparts, therefore, the Group believes the concentration of credit risk is insignificant for the remaining accounts receivable.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining adequate reserves of cash andcash equivalents to fund the Group’s operations and mitigate the effects of fluctuations in cashflows.

The following tables detail the Group’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Group can berequired to pay. The tables include both interest and principal cash flows.

December 31, 2017

Less than 1 Year

More than 1 Year

Non-derivative financial liabilities

Non-interest bearing $ 4,431,040 $ -

December 31, 2016

Less than 1 Year

More than 1 Year



The following tables detail the Group’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.

December 31, 2017

Less than 1 Year

More than 1 Year

Gross settled

Forward exchange and currency-swap contracts Inflows $ 1,038,896 $ -Outflows (1,029,167) -

$ 9,729 $ -

170

December 31, 2016

Less than 1 Year

More than 1 Year

Gross settled

Forward exchange and currency-swap contracts Inflows $ 5,721,697 $ -Outflows (5,761,171) -

$ (39,474) $ -

30. TRANSACTIONS WITH RELATED PARTIES

Intercompany balances and transactions between the Corporation and its subsidiaries, which are relatedparties of the Corporation, have been eliminated on consolidation and are not disclosed in this note.Details of transactions between the Group and other related parties were disclosed below.

a. Name and relationship of related parties

Name Relationship with the Group

Taiwan Semiconductor Manufacturing Company Ltd. Investors that have significant influence over the Group

Image Match Design Inc. Key management personnel Advanced Microelectronic Products Inc. (Non-related

parties since June 26, 2017) Key management personnel

INNO-TECH Co., Ltd. (Non-related parties since February 24, 2016)

Key management personnel

Goyatek Technology Inc. (Non-related parties since February 24, 2016)


Global Unichip Corp. Substantial related parties TSMC China Company Limited Substantial related parties CMSC, Inc. Associates Qromis, Inc. (Note) Associates

Note: Quora Technology, Inc. changed its company name as Qromis, Inc. in October 2017.

b. Operating transactions

Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Investors that have significant influence over the Group Taiwan Semiconductor

Manufacturing Company Ltd. $ 5,728,778 $ 6,702,249 $ - $ 700

Associates $ 37,305 $ 23,844 $ - $ - Key management personnel $ 112,264 $ 37,666 $ - $ - Substantial related parties $ 42,228 $ 32,654 $ - $ -

171

Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Investors that have significant influence over the Group $ 358,758 $ 418,307 $ 2,334 $ 931

Substantial related parties $ 4 $ - $ - $ - Associates $ - $ - $ 275 $ -

Marketing Expenses Years Ended December 31

2017 2016

Investors that have significant influence over the Group $ - $ 2,200

Rental Revenue Nonoperating

Income and Gains Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Investors that have significant influence over the Group Taiwan Semiconductor

Manufacturing Company Ltd. $ - $ 2,467 $ 16,124 $ 15,600

Key management personnel - - 178 630

$ - $ 2,467 $ 16,302 $ 16,230

The following balances were outstanding at the end of the reporting period:

Receivables from Related PartiesDecember 31

2017 2016

Investors that have significant influence over the Group Taiwan Semiconductor Manufacturing Company Ltd. $ 402,422 $ 586,847

Key management personnel 6,217 14,469 Associates 8,172 4,817 Substantial related parties 10,820 7,081

$ 427,631 $ 613,214

172

Other Receivables from Related Parties December 31

2017 2016

Investors that have significant influence over the Group Taiwan Semiconductor Manufacturing Company Ltd. $ 7,528 $ 560

Key management personnel Image Match Design Inc. 564 264

Associates 156 -

$ 8,248 $ 824

Other Payables to Related PartiesDecember 31

2017 2016

Investors that have significant influence over the Group Taiwan Semiconductor Manufacturing Company Ltd. $ 77,948 $ 85,535

Substantial related parties - 135

$ 77,948 $ 85,670

The terms of sales and purchases transactions with related parties were not significantly different from those with third parties. However, for other related-party transactions, license fees, research and development expenses, marketing expenses and nonoperating income and gains, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.

The Group leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly.

c. Compensation of key management personnel


Short-term employee benefits $ 148,195 $ 142,246 Post-employment benefits 2,694 2,420

$ 150,889 $ 144,666

The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

173

31. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:

December 31 2017 2016

Pledged time deposits (presented under other non-current assets) $ 303,831 $ 303,704

32. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The significant commitments of the Group as of December 31, 2017 were as follows:

The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according tothe net sales of certain products and reserve a portion of its production capacity.

33. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:


Foreign Currencies Exchange Rate


Financial assets

Monetary items USD $ 393,797 29.659 $ 316,305 32.199 EUR 1,194 35.58 226 34.30 JPY 57,491 0.2646 82,646 0.2780

Non-monetary items USD 8,861 29.659 5,583 32.199


Monetary items USD 37,307 29.659 26,229 32.199 EUR 1,564 35.58 907 34.30 JPY 200,739 0.2646 205,024 0.2780

174

The significant unrealized foreign exchange gains (losses) were as follows:



Net Foreign Exchange Gain

(Loss) Exchange Rate


(Loss)

USD 30.522 (USD:NTD) $ (110,809) 32.278 (USD:NTD) $ 40,939 EUR 34.46 (EUR:NTD) (195) 35.91 (EUR:NTD) 1,014 JPY 0.2732 (JPY:NTD) (830) 0.2986 (JPY:NTD) 495 RMB 4.508 (RMB:NTD) - 4.865 (RMB:NTD) 18,870

$ (111,834) $ 61,318

34. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees:

a. Financing provided to others: None.

b. Endorsements/guarantees provided: None.

c. Marketable securities held (excluding investment in subsidiaries, associates and jointly ventures):Table 1 (attached)

d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)

e. Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital:None.

f. Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:None.

g. Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)

h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 4 (attached)

i. Trading in derivative instruments: Note 7.

j. Intercompany relationships and significant intercompany transactions: Table 5 (attached)

k. Information on investees: Table 6 (attached)

l. Information on investment in Mainland China:

1) Information on any investee company in mainland China, showing the name, principal businessactivities, paid-in capital, method of investment, inward and outward remittance of funds,ownership percentage, net income of investees, investment income or loss, carrying amount of theinvestment at the end of the period, repatriations of investment income, and limit on the amount ofinvestment in the mainland China area: Table 7 (attached)

175

2) Any of the following significant transactions with investee companies in mainland China, eitherdirectly or indirectly through a third party, and their prices, payment terms, and unrealized gains orlosses: None.

a) The amount and percentage of purchases and the balance and percentage of the related payablesat the end of the period

b) The amount and percentage of sales and the balance and percentage of the related receivables atthe end of the period

c) The amount of property transactions and the amount of the resultant gains or losses

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at theend of the period and the purposes

e) The highest balance, the end of period balance, the interest rate range, and total current periodinterest with respect to financing of funds

f) Other transactions that have a material effect on the profit or loss for the period or on thefinancial position, such as the rendering or receiving of services

35. SEGMENT INFORMATION

a. For the purpose of resources allocation and performance assessment, the Group’s chief operatingdecision maker reviews operating results and financial information on a per plant basis. It focuses onthe operating result of each of the plants operated under Vanguard International SemiconductorCorporation and its subsidiaries. Accordingly, each of the plants constitutes an operating segment ofthe Group. As each plant shares similar economic characteristics, produces similar products by usingsimilar production process and all of products produced are distributed and sold to the same level ofcustomers through a central sales function, the Group’s segments are aggregated into a single reportablesegment.

The revenues, operating results and financial information on a plant by plant basis presented to the chiefoperating decision maker are consistent with the information in the consolidated financial statements.The segment revenues and operating results for the years ended December 31, 2017 and 2016 can bereferred to the consolidated statements of comprehensive income for the years ended December 31,2017 and 2016. The segment assets as of December 31, 2017 and 2016 can be referred to theconsolidated balance sheets as of December 31, 2017 and 2016.

b. Revenue from major products and services

The following is an analysis of the Group’s revenue from its major products and services:


Wafer foundry $ 24,503,863 $ 25,469,353Others revenue 405,750 359,281

$ 24,909,613 $ 25,828,634

176

c. Geographic information

Revenue Non-current AssetsYears Ended December 31 December 31

2017 2016 2017 2016

Asia $ 22,556,304 $ 23,656,799 $ 6,248,171 $ 6,282,629America 851,199 1,187,913 952 1,452Eurpoe 1,501,670 978,862 - -Oceania 440 5,060 - -

$ 24,909,613 $ 25,828,634 $ 6,249,123 $ 6,284,081

Non-current assets exclude the investments accounted for by the equity method, financial instruments, intangible assets, deferred income tax assets, refundable deposits and other assets.

d. Major customers

Sales to customers amounting to at least 10% of total gross revenue:

Years Ended December 31 Customer 2017 2016

A $ 5,728,778 $ 6,702,249 B 4,934,838 5,290,430

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184

INDEPENDENT AUDITOR’S REPORT

The Board of Directors and Shareholders Vanguard International Semiconductor Corporation

Opinion

We have audited the accompanying parent company only financial statements of Vanguard International Semiconductor Corporation (the Corporation), which comprise the parent company only balance sheets as of December 31, 2017 and 2016, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Corporation as of December 31, 2017 and 2016, and the parent company only financial performance and the parent company only cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

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

Key Audit Matters

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

The key audit matters of the parent company only financial statements of the Corporation for the year ended December 31, 2017, are described as follows:

Timing of revenue recognition

1. The sales revenue of the Corporation is material to the Corporation. Please refer to Note 21. The majortypes of transactions together with their timing of recognition are as follows:

1) Revenue generated from domestic shipment with the transaction term of ex-works accounted forapproximately 57% of total revenue and is recognized as sales revenue at point of ex-factory. Revenuegenerated from domestic shipment with the transaction term of delivered-at-place accounted for 25% oftotal revenue and is also recognized at point of ex-factory due to its nature of the goods delivering andreceiving are at the same day.

185

2) Revenue generated from oversea shipment accounted for 18% of the total revenue depending on thetrade terms where the revenue is recognized when the risk of goods is transferred to customers.

2. Revenues generated from either domestic or foreign shipments whose trade terms denote that the revenuesare recognized at point of ex-factory consist of 99% of total revenue. The recognition process of revenuethereof is to have sales personnel verify the shipment on the computer system, and the system automaticallyrecognizes the sale revenue and issues invoice. When the customers or their designated forwarders cometo withdraw the goods, warehouse personnel will have them sign off on handheld devices and transmit theinformation to the shipping system. The system automatically checks the shipment on a daily basis. Forgoods that are not withdrawn, the system will notify sales personnel for confirmation and delete the shippinglist where the sales revenue will be reversed automatically and the invoice cancelled.

3. Since the above process consists of manual controls, risk exists that revenue before or after the end of thereporting period being unrecognized in the appropriate period due to human errors.

4. We reviewed the revenue recognition policy of the Corporation, assessed the reasonableness of the revenuerecognition, conducted on-site observation and recorded the details of the last shipment of the year ended2017. We also traced all of the shipping records at December 31, 2017, against relevant supportingdocuments and accounting records to verify the accuracy of the timing of sales revenue recognition as wellas the monetary amount, and evaluated whether the risk and rewards of goods are transferred.

Timing of capitalization of property, plant and equipment

1. The annual capital expenditure of the Corporation relating to property, plant and equipment is significant toits parent company only financial statements. Because of the significance of such expenditure, delaying incapitalization thereof may lead to the parent company only financial statements not fairly presented.Please refer to Note 13.

2. We reviewed the capital expenditure policy of the Corporation on property, plant and equipment, assessedthe reasonableness of the timing of capitalization, and conducted procedures as follows:

1) Selecting samples of newly acquired items from the lists of Advance Payments and Construction inProgress of the year to verify whether they are included in the un-capitalized list of the current month.

2) Selecting samples from those that are transferred from Advance Payments and Construction in Progressto Property, Plant and Equipment of the year to verify whether such items are not included in theun-capitalized list of the current month.

3) Selecting samples from the un-capitalized list at the year end and perform on-site count to observewhether such items were not ready for their intended use.

4) Selecting samples of items that were not capitalized over three months from the un-capitalized list toexamine whether the reasons of such items not capitalized explained by applicants or users wereapproved by supervisors.

Responsibilities of Management and Those Charged with Governance for the Parent Company Only Financial Statements

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

186

In preparing the parent company only financial statements, management is responsible for assessing the Corporation’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 Corporation or to cease operations, or has no realistic alternative but to do so.

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

Auditors’ Responsibilities for the Audit of the Parent Company Only Financial Statements

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

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

1. Identify and assess the risks of material misstatement of the parent company only financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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

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

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

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

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Corporation to express an opinion on the parent company only financial statements.We are responsible for the direction, supervision and performance of the audit. We remain solelyresponsible 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.

187

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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

The engagement partners on the audit resulting in this independent auditors’ report are Yu-Feng Huang and Cheng-Chih Lin.

Deloitte & Touche Taipei, Taiwan Republic of China

February 5, 2018

Notice to Readers

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

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

188

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189


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


NET REVENUE (Notes 4, 5, 18, 21 and 28) $ 24,909,613 100 $ 25,828,634 100

COST OF REVENUE (Notes 4, 11, 22 and 28) 16,935,975 68 16,904,482 65

GROSS PROFIT 7,973,638 32 8,924,152 35

OPERATING EXPENSES (Notes 4, 22 and 28) Marketing 275,863 1 278,986 1General and administrative 925,467 4 992,309 4Research and development 1,546,994 6 1,555,504 6

Total operating expenses 2,748,324 11 2,826,799 11

OPERATING INCOME 5,225,314 21 6,097,353 24

NONOPERATING INCOME AND EXPENSES (Note 4)Interest income 143,886 1 151,673 1Dividend income 25,211 - 24,003 -Other income (Note 28) 70,492 - 83,448 -Gains on disposal of property, plant and equipment 10 - 2,634 -Gain on disposal of investment (Note 9) - - 14,925 -Gains on financial assets and liabilities at fair value

through profit or loss 152,219 1 195,683 1Share of profit of subsidiaries, associates and joint

ventures (Note 12) 23,385 - 1,434 -Net foreign exchange losses (356,725) (2) (187,626) (1)Impairment loss on financial assets (Note 8) - - (120,000) (1)

Total nonoperating income and expenses 58,478 - 166,174 -

INCOME BEFORE INCOME TAX 5,283,792 21 6,263,527 24

INCOME TAX EXPENSE (Notes 4 and 23) (778,728) (3) (725,602) (3)

NET INCOME 4,505,064 18 5,537,925 21(Continued)

190


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


OTHER COMPREHENSIVE INCOME (Notes 4 and 20)Items that will not be reclassified subsequently to

profit or loss: Remeasurement of defined benefit plans (Note 19) $ (66,339) - $ (72,263) -

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign

operations (346,560) (2) 2,496 -Unrealized gains on available-for-sale financial

assets 7,491 - 74,911 -Share of other comprehensive (loss) income of

subsidiaries, associates and joint ventures (Note 12) (5) - 448 -

Total other comprehensive (loss) income (405,413) (2) 5,592 -

TOTAL COMPREHENSIVE INCOME $ 4,099,651 16 $ 5,543,517 21

EARNINGS PER SHARE (Note 24) Basic $ 2.75 $ 3.38Diluted $ 2.73 $ 3.35

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

191

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192


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

2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 5,283,792 $ 6,263,527Adjustments for:

Depreciation 2,016,877 2,031,909Amortization 16,633 21,061Provision of allowance for doubtful accounts 1,300 -Net loss (gain) on financial assets and liabilities at fair value through

profit or loss 52,031 (4,096)Interest income (143,886) (151,673)Dividend income (25,211) (24,003)Share of profit of subsidiaries, associates and joint ventures (23,385) (1,434)Gains on disposal of property, plant and equipment (10) (2,634)Gain on disposal of investment - (14,925)Impairment loss on financial assets - 120,000Net losses on foreign currency exchange 7,206 6,527Changes in operating assets and liabilities:

Financial assets held for trading (6,168) 1,276Notes and accounts receivable (298,586) (828,834)Receivables from related parties 185,583 (79,279)Other receivables (13,385) (8,981)Other receivables from related parties (7,424) 14,260Inventories (591,195) 50,836Prepaid expenses 17,827 (27,885)Other current assets (254) (127)Financial liabilities held for trading (43,029) 14,555Derivative financial liabilities for hedging - (7,020)Notes and accounts payable 179,777 252,255Other payables (29,123) 415,444Other payables to related parties (8,909) 22,590Provisions (6,527) 99,760Other current liabilities (2,744) 33,306Net defined benefit liabilities 2,409 5,098Accrued profit sharing to employees and remuneration to

directors (160,243) 208,677Cash generated from operations 6,403,356 8,410,190Interest received 150,504 150,223Income tax paid (666,192) (601,222)

Net cash provided by operating activities 5,887,668 7,959,191(Continued)

193


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

2017 2016

CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of financial assets designated as fair value through profit

or loss $ (2,902,082) $ (1,909,981)Proceeds from disposal of financial assets designated as fair value

through profit or loss 4,054,307 1,582,610Acquisitions of available-for-sale financial assets (332,794) (525,947)Proceed from disposal of available-for-sale financial assets 395,382 -Acquisitions of held-to-maturity financial assets (613,362) -Proceeds from redemption of held-to-maturity financial assets 605,997 141,212Acquisition of financial assets measured at cost - (32,610)Proceed from disposal of financial assets measured at cost - 24,925Acquisitions of investment accounted for using equity method (4,454,033) (2,567,465)Acquisitions of property, plant and equipment (2,001,154) (1,277,959)Proceeds from disposal of property, plant and equipment 10 6,573Increase in refundable deposits (185,445) (193)Acquisitions of intangible assets (6,280) (10,132)Decrease (increase) in other financial assets 90,983 (102,331)Dividends received 25,211 24,003

Net cash used in investing activities (5,323,260) (4,647,295)

CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in other non-current liabilities 30,178 (1,094)Cash dividends (4,916,947) (4,261,354)Other financing activities 162 -

Net cash used in financing activities (4,886,607) (4,262,448)

NET DECREASE IN CASH AND CASH EQUIVALENTS (4,322,199) (950,552)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 16,747,623 17,698,175

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 12,425,424 $ 16,747,623

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

194


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

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The parent company only financial statements are presented in the Corporation’s functional currency, NewTaiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The parent company only financial statements were approved and authorized for issue by the Board ofDirectors on February 5, 2018.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reportsby Securities Issuers and the International Financial Reporting Standards (IFRS), InternationalAccounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)endorsed and issued into effect by the Financial Supervisory Commission (FSC) (collectively, the“IFRSs”)

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSsendorsed and issued into effect by the FSC would not have any material impact on the Corporation’saccounting policies:

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

The amendments include additions of several accounting items and requirements for disclosures ofimpairment of non-financial assets as a consequence of the IFRSs endorsed and issued into effect by theFSC. In addition, as a result of the post implementation review of IFRSs in Taiwan, the amendmentsalso include an emphasis on certain recognition and measurement considerations and add requirementsfor disclosures of related party transactions and goodwill.

The amendments stipulate that other companies or institutions of which the chairman of the board ofdirectors or president serves as the chairman of the board of directors or the president of theCorporation, or is the spouse or second immediate family of the chairman of the board of directors orpresident of the Corporation, are deemed to have a substantive related party relationship, unless it canbe demonstrated that no control, joint control, or significant influence exists. Furthermore, theamendments require the disclosure of the names of the related parties and the relationship with whomthe Corporation has significant transaction. If the transaction amount or balance with a specific related

195

party is 10% or more of the Corporation’s respective total transaction amount or balance, such transaction should be separately disclosed by the name of each related party.

When the amendments are applied retrospectively from January 1, 2017, the disclosures of related party transactions are enhanced. Refer to Note 28 for related disclosures.

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSsendorsed by the FSC for application starting from 2018.

New, Revised or Amended Standards and Interpretations (the “New IFRSs”)

Effective Date Announced by IASB (Note 1)

Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendment to IFRS 2 “Classification and Measurement of

Share-based Payment Transactions” January 1, 2018

Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”

January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

January 1, 2019 (Note 3)

IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendments to IFRS 15 “Clarifications to IFRS15 Revenue from

Contracts with Customers” January 1, 2018

Amendments to IAS 7 “Disclosure Initiative” January 1, 2017 Amendments to IAS 12 “Recognition of Deferred Tax Assets for

Unrealized Losses” January 1, 2017

Amendments to IAS 40 “Transfers of investment property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance

Consideration” January 1, 2018


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

Note 3: The amendments to IFRS 9 are not yet endorsed by the FSC; however, the FSC permits that entities may elect to early adopt the amendment starting from 2018.

1) IFRS 9 “Financial Instruments” and related amendments

Classification, measurement, and impairment of financial assets

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

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

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

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

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

The Corporation elects to early adopt the amendments to IFRS 9 “Prepayment Features with Negative Compensation” when it first applies IFRS 9. The amendments stipulated that for the purpose of assessing whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding, the prepayment amount of a contractual term may include reasonable compensation that shall be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early.

The Corporation analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of classification. Listed shares, unlisted shares and financial assets carried at cost will be designated as at fair value through other comprehensive income and the gains or losses accumulated in other equity will be transferred directly to retained earnings instead of being reclassified to profit or loss when the assets are derecognized.

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

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

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

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

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


2017


Initial Application

Adjusted Carrying


Impact on assets, liabilities and equity

Financial assets at fair value through profit or loss - current $ 229,998 $ - $ 229,998

Financial assets at fair value through other comprehensive income - non-current - 165,620 165,620

Available-for-sale financial assets - non-current 508,516 (508,516) -

Financial assets measured at amortized cost - non-current - 457,383 457,383

Financial assets carried at cost - non-current 85,327 (85,327) -

Total effect on assets $ 823,841 $ 29,160 $ 853,001

Retained earnings $ 6,908,060 $ 120,000 $ 7,028,060 Other equity Unrealized (loss) gain on financial assets

at fair value through other comprehensive income - (83,239) (83,239)

Unrealized (loss) gain on available-for-sale financial assets 7,601 (7,601) -

Total effect on equity $ 6,915,661 $ 29,160 $ 6,944,821

Hedge accounting

The main change in hedge accounting amended the application requirements for hedge accounting to better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way the hedging cost of derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

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2) IFRS 15 “Revenue from Contracts with Customers” and related amendment

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.

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

Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contract; and Recognize revenue when the Corporation satisfies a performance obligation.

In identifying performance obligations, IFRS 15 and related amendment require that a good or service is distinct if it is capable of being distinct (for example, the Corporation regularly sells it separately) and the promise to transfer it is distinct within the context of the contract (i.e. the nature of the promise in the contract is to transfer each good or service individually rather than to transfer a combined output).

Under IFRS 15, the net effect of revenue recognized and consideration received and receivable is recognized as a contract asset or a contract liability. Currently, the receivable is recognized or the deferred revenue is reduced when revenue is recognized for the contract under IAS 18.

The Corporation elects to retrospectively apply IFRS 15 to contracts that are not complete on January 1, 2018 and recognize the cumulative effect of the change in retained earnings on January 1, 2018.

For all contract modifications that occurred on or before December 31, 2017, the Corporation will not apply the requirements in IFRS 15 individually to each of the modifications, and will identify the performance obligations and determine and allocate transaction prices in a manner that reflects the aggregate effect of all modifications that occurred before December 31, 2017.

In addition, the Corporation will disclose the difference between the amount that results from applying IFRS 15 and the amount that results from applying current standards for 2018.

The anticipated impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed below:


2017


Initial Application

Adjusted Carrying


Refund liabilities - current $ - $ 229,809 $ 229,809 Provisions - current 229,809 (229,809) -

Total effect on liabilities $ 229,809 $ - $ 229,809

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3) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

The amendment clarifies that the difference between the carrying amount of the debt instrumentmeasured at fair value and its tax base gives rise to a temporary difference, even though there areunrealized losses on that asset, irrespective of whether the Corporation expects to recover thecarrying amount of the debt instrument by sale or by holding it and collecting contractual cashflows.

In addition, in determining whether to recognize a deferred tax asset, the Corporation should assessa deductible temporary difference in combination with all of its other deductible temporarydifferences, unless the tax law restricts the utilization of losses to deduction against income of aspecific type, in which case, a deductible temporary difference is assessed in combination only withother deductible temporary differences of the appropriate type. The amendments also stipulatethat, when determining whether to recognize a deferred tax asset, the estimate of probable futuretaxable profit may include some of the Corporation’s assets for more than their carrying amount ifthere is sufficient evidence that it is probable that the Corporation will achieve the higher amount,and that the estimate for future taxable profit should exclude tax deductions resulting from thereversal of deductible temporary differences.

In assessing deferred tax asset, the Corporation currently assumes it will recover the asset at itscarrying amount when estimating probable future taxable profit; the amendment will be appliedretrospectively in 2018.

4) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in thefunctional currency by applying to the spot exchange rate between the functional currency and theforeign currency at the date of the transaction. IFRIC 22 further explains that the date of thetransaction is the date on which an entity recognizes a non-monetary asset or non-monetary liabilityfrom payment or receipt of advance consideration. If there are multiple payments or receipts inadvance, the entity shall determine the date of the transaction for each payment or receipt ofadvance consideration.

The Corporation will apply IFRIC 22 prospectively to all assets, expenses and income recognizedon or after January 1, 2018 within the scope of the Interpretation.

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

New IFRSs Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

To be determined by IASB

IFRS 16 “Leases” January 1, 2019 (Note 2) IFRS 17 ”Insurance Contracts” January 1, 2021 Amendments to IAS 28 ”Long-term Interests in Associates and Joint Ventures”

January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019

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

Note: 2 On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.

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1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control over an associate or a jointventure, the gain or loss resulting from the transaction is recognized only to the extent of theunrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or lossis eliminated.

2) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.

Under IFRS 16, if the Corporation is a lessee, it shall recognize right-of-use assets and leaseliabilities for all leases on the parent company only balance sheets except for low-value andshort-term leases. The Corporation may elect to apply the accounting method similar to theaccounting for operating leases under IAS 17 to low-value and short-term leases. On the parentcompany only statements of comprehensive income, the Corporation should present thedepreciation expense charged on right -of-use asset separately from interest expense accrued on thelease liability; interest is computed by using the effective interest method. On the parent companyonly statements of cash flows, cash payments for the principal portion of lease liabilities areclassified within financing activities; cash payments for the interest portion are classified withinoperating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of theCorporation as lessor.

When IFRS 16 becomes effective, the Corporation may elect to apply this Standard eitherretrospectively to each prior reporting period presented or retrospectively with the cumulative effectof the initial application of this Standard recognized at the date of initial application.

3) IFRIC 23 “Uncertainty over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Corporation shouldassume that the taxation authority will have full knowledge of all related information when makingrelated examinations. If the Corporation concludes that it is probable that the taxation authoritywill accept an uncertain tax treatment, the Corporation should determine the taxable profit, taxbases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used orplanned to be used in its income tax filings. If it is not probable that the taxation authority willaccept an uncertain tax treatment, the Corporation should make estimates using either the mostlikely amount or the expected value of the tax treatment, depending on which method the entityexpects to better predict the resolution of the uncertainty. The Corporation has to reassess itsjudgments and estimates if facts and circumstances change.

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On initial application, the Corporation shall apply IFRIC 23 either retrospectively to each prior reporting period presented, if this is possible without the use of hindsight, or retrospectively with the cumulative effect of the initial application of IFRIC 23 recognized at the date of initial application.

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

The parent company only financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers.

b. Basis of preparation

The parent company only financial statements have been prepared on the historical cost basis except forfinancial instruments which are measured at fair values and net defined benefit liabilities which aremeasured at the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, where are grouped into Levels 1 to 3 based on the degree to which thefair value measurement inputs are observable and based on the significance of the inputs to the fairvalue measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for anasset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

When preparing its parent company only financial statements, the Corporation used equity method to account for its investment in subsidiaries, associates and joint ventures. The amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements were the same as the amounts attributable to the owner of the Corporation in its consolidated financial statements.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within 12 months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle aliability for at least 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

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2) Liabilities due to be settled within 12 months after the reporting period; and

3) Liabilities for which the Corporation does not have an unconditional right to defer settlement for atleast 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Foreign currencies

In preparing the parent company only financial statements, transactions in currencies other than theCorporation’s functional currency (i.e. foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Exchange differences arisingfrom the retranslation of non-monetary items are included in profit or loss for the period except forexchange differences arising from the retranslation of non-monetary items in respect of which gains andlosses are recognized directly in other comprehensive income, in which case, the exchange differencesare also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using theexchange rate at the date of the transaction.

e. Inventories

Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and costs necessary to make the sale.Inventories are recorded at the weighted-average cost on the balance sheet date.

f. Investment in subsidiaries

The Corporation uses the equity method to account for its investments in subsidiaries.

Subsidiary is an entity that is controlled by the Corporation.

Under the equity method, investment in a subsidiary is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe subsidiary. The Corporation also recognizes the changes in the Corporation’s share of the equityof subsidiaries.

Changes in the Corporation’s ownership interest in a subsidiary that do not result in the Corporationlosing control of the subsidiary are equity transactions. The Corporation recognizes directly in equityany difference between the carrying amount of the investment and the fair value of the considerationpaid or received.

The Corporation assesses its investment for any impairment by comparing the carrying amount with theestimated recoverable amount as assessed based on the entire financial statements of the investedcompany. Impairment loss is recognized when the carrying amount exceeds the recoverable amount.If the recoverable amount of the investment subsequently increases, the Corporation recognizes the

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reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

Profits or losses resulting from downstream transactions are eliminated in full in the parent company only financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized in the parent company only financial statements only to the extent of interests in the subsidiaries that are not related to the Corporation.

g. Investment in associates

An associate is an entity over which the Corporation has significant influence and that is neither asubsidiary nor an interest in a joint venture.

The Corporation uses the equity method to account for its investments in associates.

Under the equity method, investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe associate. The Corporation also recognized the changes in the Corporation’s share of the equity ofassociates.

When the Corporation subscribes for additional new shares of the associate at a percentage differentfrom its existing ownership percentage, the resulting carrying amount of the investment differs from theamount of the Corporation’s proportionate interest in the associate. The Corporation records such adifference as an adjustment to investments with the corresponding amount charged or credited to capitalsurplus - changes in the Corporation’s share of the equity of associates. If the Corporation’sownership interest is reduced due to its additional subscription of the new shares of the associate, theproportionate amount of the gains or losses previously recognized in other comprehensive income inrelation to that associate is reclassified to profit or loss on the same basis as would be required if theinvestee had directly disposed of the related assets or liabilities. When the adjustment should bedebited to capital surplus, but the capital surplus recognized from investments accounted for by theequity method is insufficient, the shortage is debited to retained earnings.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a singleasset by comparing its recoverable amount with its carrying amount. Any impairment loss recognizedforms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.

When the Corporation transacts with its associate, profits and losses resulting from the transactions withthe associate are recognized in the Corporation’s parent company only financial statements only to theextent that interests in the associate are not related to the Corporation.

h. Property, plant, and equipment

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

Depreciation of property, plant and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each reporting period, with the effect of any changes in the estimatesaccounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceedsand the carrying amount of the asset is recognized in profit or loss.

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i. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful lives, residual values,and amortization method are reviewed at the end of each reporting period, with the effect of anychanges in the estimates accounted for on a prospective basis.

2) Internally-generated intangible assets - research and development expenditure

Expenditures on research activities are recognized as an expense in the period in which they areincurred.

An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:

a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;

b) The intention to complete the intangible asset and use or sell it;

c) The ability to use or sell the intangible asset;

d) How the intangible asset will generate probable future economic benefits;

e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and

f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.

The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, such intangible assets are measured on the same basis as intangible assets that are acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and thecarrying amount of the asset is recognized in profit or loss.

j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered any impairment loss. If any such indication exists, the recoverable amount of the assetis estimated in order to determine the extent of the impairment loss. When it is not possible toestimate the recoverable amount of an individual asset, the Corporation estimates the recoverableamount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment at least annually, and whenever there is an indication that the asset may be impaired.

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

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

k. Financial instruments

Financial assets and financial liabilities are recognized when the Corporation becomes a party to thecontractual provisions of the instruments.

Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets

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

1) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value throughprofit or loss, held-to-maturity financial assets, available-for-sale financial assets, and loans andreceivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when such financial assetsare either held for trading or designated as at fair value through profit or loss.

A financial asset may be designated as at fair value through profit or loss upon initialrecognition if:

i Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

ii The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and has performance evaluated on a fair value basis, in accordance with the Corporation’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

iii The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.

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Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 27.

b) Held-to-maturity financial assets

Corporate bonds which the Corporation invests in and has positive intent and ability to hold tomaturity are classified as held-to-maturity financial assets.

Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amountsof available-for-sale monetary financial assets relating to changes in foreign currency exchangerates, interest income calculated using the effective interest method and dividends onavailable-for-sale equity investments are recognized in profit or loss. Other changes in thecarrying amount of available-for-sale financial assets are recognized in other comprehensiveincome and will be reclassified to profit or loss when the investments are disposed of or aredetermined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when theCorporation’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured and derivatives that are linked to and must besettled by delivery of such unquoted equity investments are measured at cost less any identifiedimpairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assetscan be reliably measured, the financial assets are remeasured at fair value. The differencebetween carrying amount and fair value is recognized in other comprehensive income onfinancial assets. Any impairment losses are recognized in profit and loss.

d) Loans and receivables

Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured using the effective interest method atamortized cost less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.

Cash equivalent includes time deposits and repurchase bonds, which are highly liquid, readilyconvertible to a known amount of cash and be subject to an insignificant risk of changes invalue. These cash equivalents are held for the purpose of meeting short-term cashcommitments.

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2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.

Objective evidence of impairment could include: Significant financial difficulty of the debtor; orit becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a defaultor delinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or disappearance of an active market for thatfinancial asset because of the issuer’s financial difficulties or other reasons.

For financial assets carried at amortized cost, such as accounts receivable, such assets are assessedfor impairment on a collective basis even if they were assessed not to be impaired individually.Objective evidence of impairment for a portfolio of accounts receivable could include theCorporation’s past experience of collecting payments, an increase in the number of delayedpayments, as well as observable changes in national or local economic conditions that correlate withdefaults on receivables.

For a financial asset carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the financial assets at the date the impairment isreversed does not exceed what the amortized cost would have been had the impairment not beenrecognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of thesecurity below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

a) Significant financial difficulty of the issuer or counterparty; or

b) Breach of contract, such as a default or delinquency in interest or principal payments; or

c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or

d) The disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When trade receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

3) Derecognition of financial assets

The Corporation derecognizes a financial asset only when the contractual rights to the cash flowsfrom the asset expire, or when it transfers the financial asset and substantially all the risks andrewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the sum of the consideration received and receivable and the cumulative gain or lossthat had been recognized in other comprehensive income is recognized in profit or loss.

Equity instruments

Equity instruments issued by the Corporation are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.

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


1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method:

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liabilitiesare either held for trading or designated as at fair value through profit or loss.

Financial liabilities held for trading are stated at fair value, with any gains or losses arising onremeasurement recognized in profit or loss. The net gain or loss recognized in profit or lossincorporates any interest or dividends paid on the financial liability. Fair value is determined inthe manner described in Note 27.

2) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.

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Derivative financial instruments

The Corporation enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts; and the contracts are not measured at fair value through profit or loss.

l. Hedge accounting

The Corporation designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.

1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised; orwhen the hedging instrument no longer meets the criteria for hedge accounting.

2) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gains or losses relating to theineffective portion are recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the line item relating to the hedgeditem in the same period when the hedged items affect profit or loss. If a hedge of a forecastedtransaction subsequently results in the recognition of a non-financial asset or a non-financialliability, the associated gains and losses that were recognized in other comprehensive income areremoved from equity and included in the initial cost of the non-financial asset or non-financialliability.

Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, orwhen the hedging instrument no longer meets the criteria for hedge accounting. The cumulativegain or loss on the hedging instrument that has been previously recognized in other comprehensiveincome from the period when the hedge was effective remains separately in equity until the forecasttransaction occurs. When a forecasted transaction is no longer expected to occur, the gains orlosses accumulated in equity are recognized immediately in profit or loss.

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m. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.

n. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Allowances for sales returns andliabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of futurereturns and past experience and other relevant factors.

1) Sale of goods

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

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

b) The Corporation retains neither continuing managerial involvement to the degree usuallyassociated with ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

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

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

The Corporation does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Dividend and interest income

Dividend income from investments is recognized when a shareholder’s right to receive payment hasbeen established and provided that it is probable that the economic benefits will flow to theCorporation and that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Corporation and the amount of income can be measured reliably. Interest incomeis accrued on a time basis by reference to the principal outstanding and at the applicable effectiveinterest rate.

o. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Corporation as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rentals are recognized as income in the period in which they areincurred.

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2) The Corporation as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.Contingent rentals are recognized as expenses in the period in which they are incurred.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related services.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefitretirement benefit plans are determined using the projected unit credit method. Service cost(including current service cost) and net interest on the net defined benefit liabilities are recognizedas employee benefits expense in the period in which they occur. Remeasurement, comprisingactuarial gains and losses and the return on plan assets (excluding interest), is recognized in othercomprehensive income in the period in which they occur. Remeasurement recognized in othercomprehensive income is reflected immediately in retained earnings and will not be reclassified toprofit or loss.

Net defined benefit liabilities represent the actual deficit in the Corporation’s defined benefit plans.

3) Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Corporation can nolonger withdraw the offer of the termination benefit and when the Corporation recognizes anyrelated restructuring costs.

q. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve to retain earnings.

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

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences. Deferred tax assets aregenerally recognized to the extent that it is probable that taxable profits will be available againstwhich those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Corporation is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Corporation expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

In the application of the Corporation’s accounting policies, management is required to make judgments,estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparentfrom other sources. The estimates and associated assumptions are based on historical experience andother factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.

a. Revenue recognition

The Corporation recognizes revenue when the conditions described in Note 4 (n) are satisfied. TheCorporation also records a provision for estimated future returns and other allowances in the sameperiod the related revenue is recorded. Provision for estimated sales returns and other allowances isgenerally made and adjusted at a specific percentage based on historical experience and any knownfactors that would significantly affect the allowance, and our management periodically reviews theadequacy of the percentage used.

As of December 31, 2017 and 2016, the Corporation recognized provisions for estimated sales returnsand other allowances of $229,809 thousand and $236,336 thousand, respectively.

b. Estimated impairment of accounts receivable

When there is objective evidence of impairment loss, the Corporation takes into consideration theestimation of future cash flows. The amount of the impairment loss is measured as the difference

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between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

c. Write-down of inventory

The net realizable value of inventory is the estimated selling price in the ordinary course of businessless the estimated costs of completion and disposal. The estimation of net realizable value was basedon current market conditions and the historical experience with product sales of a similar nature.Changes in market conditions may have a material impact on the estimation of the net realizable value.

d. Recognition and measurement of defined benefit plans

The net defined benefit liabilities and the resulting defined benefit costs under the defined benefitpension plans are calculated using the projected unit credit method. Actuarial assumptions comprisethe discount rates, rates of employee turnover, future salary increases, etc. Changes in economiccircumstances and market conditions will affect these assumptions and may have a material impact onthe amount of expenses and liabilities.

6. CASH AND CASH EQUIVALENTS


Deposits in bank $ 12,218,924 $ 15,206,166Cash equivalents

Bonds acquired under resale agreements 206,500 1,541,457

$ 12,425,424 $ 16,747,623

The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:


Bank deposits 0%-1.12% 0%-1.40% Bonds acquired under resale agreements 0.37%-0.40% 0.42%-1.50%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS


Financial assets designated as at FVTPL

Credit linked notes (a) $ 220,269 $ 715,491 Interest rate linked notes (a) - 612,427 Exchange linked notes (a) - 96,613

220,269 1,424,531 (Continued)

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Financial assets held for trading

Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) $ 1,851 $ 1,098 Currency-swap contracts (c) 7,878 2,457

9,729 3,555

Financial assets at FVTPL - current $ 229,998 $ 1,428,086

Financial liabilities held for trading

Derivative financial liabilities (not designated as hedging instruments) Forward exchange contracts (b) $ - $ 42,073 Currency-swap contracts (c) - 956

Financial liabilities at FVTPL - current $ - $ 43,029 (Concluded)

a. The Corporation entered into structured investment contracts with bank in 2017 and 2016. Thestructured investment contracts included embedded derivative instruments which were not closelyrelated to the host contracts. The Corporation designated the entire contract as financial asset atFVTPL on initial recognition.

b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2017


December 31, 2016


c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2017

Sell forward exchange contracts US$ to NT$ 2018.01.05-2018.01.19 US$ 28,700 (Continued)

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Contract Amount

(In Thousands)

December 31, 2016

Sell forward exchange contracts US$ to NT$ 2017.01.03-2017.01.24 US$ 11,000 Buy forward exchange contracts US$ to NT$ 2017.03.27 US$ 10,000

(Concluded)

The Corporation entered into foreign exchange forward contracts and currency-swap contracts during the years ended December 31, 2017 and 2016 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS


Current

Foreign corporate bonds $ - $ 64,386

Non-current

Listed stocks $ 49,153 $ 43,648 Domestic bonds 459,363 460,033

$ 508,516 $ 503,681

The Corporation recognized impairment loss of $120,000 thousand in 2016.

9. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT


Unlisted stocks $ 85,327 $ 85,327

Classification of financial assets Available-for-sale financial assets $ 85,327 $ 85,327

The management believed that the fair value of the aforementioned unlisted equity investments held by the Corporation cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of reporting period.

The Corporation sold its interest in Image Match Design Inc. with carrying amount of $10,000 thousand in August 2016 and recognized a gain of $14,925 thousand.

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10. NOTES AND ACCOUNTS RECEIVABLE, NET


Notes and accounts receivable $ 3,648,920 $ 3,350,334 Allowance for doubtful accounts (3,287) (1,987)

Notes and accounts receivable, net $ 3,645,633 $ 3,348,347

The average credit period on sales of goods was 30 to 45 days after month closing. No interest was charged on notes and accounts receivables. In determining the recoverability of a trade receivable, the Corporation considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts was based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Corporation had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.

The aging analyses of notes and accounts receivable were as follows:

December 31Past Due Days 2017 2016

Not past due and not impaired 0 days $ 3,564,166 $ 3,288,291Past due but not impaired Less than 60 days 78,247 24,548

61-90 days 2,605 35,479More than 90 days 615 29

81,467 60,056

$ 3,645,633 $ 3,348,347

The above aging analyses were based on the past due dates.

Movements of the allowance for doubtful accounts were as follows:


Balance, beginning of year $ 1,987 $ 1,987 Add: Provision 1,300 -

Balance, end of year $ 3,287 $ 1,987

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11. INVENTORIES


Finished goods $ 184,492 $ 202,723 Work in process 1,574,457 1,212,579 Raw materials 628,689 431,448 Supplies and spare parts 403,332 353,025

$ 2,790,970 $ 2,199,775

Cost of revenue, the write-downs of inventory and unallocated manufacturing overheads included in the cost of revenue were as below:


Cost of revenue $ 16,935,975 $ 16,904,482Provision of inventory valuation and obsolescence loss $ 87,311 $ 16,449Unallocated manufacturing overheads $ 306,971 $ 130,382

12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD


Investments in subsidiaries $ 6,773,158 $ 2,722,779 Investments in associates 283,340 208,993

$ 7,056,498 $ 2,931,772

a. Investments in subsidiaries


Unlisted stocks VIS Associates Inc. $ 6,768,745 $ 2,722,779 VIS Shanghai Company Limited 4,413 -

$ 6,773,158 $ 2,722,779

Proportion of Ownership and Voting Rights December 31

2017 2016

VIS Associates Inc. 100% 100%VIS Shanghai Company Limited (Note) 100% -

Note: VIS Shanghai Company Limited was established in August 2017. The Corporation injected capital of RMB1,000 thousand in October 2017.

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The investments in subsidiaries accounted for using equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2017 and 2016 were based on the subsidiaries’ financial statements audited by the auditors for the same years.

b. Investments in associates


Associates individually immaterial

CMSC, Inc. $ 50,190 $ 61,440 Qromis, Inc. (Note) 233,150 147,553

$ 283,340 $ 208,993


Refer to Table 5 “Information on Investees” for the nature of activities, principal place of business and country of incorporation of the associates.

Aggregate information of associates that are not individually material


The Corporation’s share of Loss from continuing operations $ (57,291) $ (11,162)Other comprehensive loss (5) (11)

Total comprehensive loss for the year $ (57,296) $ (11,173)

In March 2016, the Corporation subscribed 5,000 thousand shares of preferred stocks of Qromis, Inc. in cash amounting to $166,175 thousand with 31.04% of voting rights and exercised significant influence over Qromis, Inc. In June 2017, the Corporation subscribed 4,832 thousand shares of preferred stocks of Qromis, Inc. amounting to 150,575 thousand. As of December 31, 2017, the Corporation’s percentage of voting rights in Qromis, Inc. was 46.48%.

The investments in associates accounted for using equity method and the share of profit or loss and other comprehensive income (loss) of those investments were calculated based on the unaudited financial statements. Management believes there is no material impact on its parent company only financial statements.

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13. PROPERTY, PLANT AND EQUIPMENT

Advance Payments and

Machinery and Other ConstructionBuildings Equipment Equipment in Progress Total

Cost

Balance, January 1, 2016 $ 15,006,190 $ 56,335,943 $ 392,042 $ 209,717 $ 71,943,892Additions 79,335 984,319 1,653 273,637 1,338,944Disposal (5,028 ) (16,688 ) (328 ) - (22,044 )Reclassified - - 385 - 385



Balance, January 1, 2016 $ 12,099,724 $ 52,323,139 $ 358,360 $ - $ 64,781,223Depreciation 606,511 1,414,817 10,581 - 2,031,909Disposal (1,089 ) (16,688 ) (328 ) - (18,105 )





Cost

Balance, January 1, 2017 $ 15,080,497 $ 57,303,574 $ 393,752 $ 483,354 $ 73,261,177Additions 275,794 1,396,087 2,347 307,533 1,981,761Disposal - (2,437 ) (469 ) - (2,906 )Reclassified - - 658 - 658



Balance, January 1, 2017 $ 12,705,146 $ 53,721,268 $ 368,613 $ - $ 66,795,027Depreciation 544,058 1,462,128 10,691 - 2,016,877Disposal - (2,437 ) (469 ) - (2,906 )





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

BuildingsMain plants 20 yearsMechanical and electrical power equipment 5 to 10 yearsClean rooms 10 years

Machinery and equipment 3 to 5 yearsOther equipment 3 to 5 years

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14. INTANGIBLE ASSETS


Computer software

CostBalance, January 1 $ 788,983 $ 779,436 Additions 6,280 10,132 Disposal - (200) Reclassified to property, plant and equipment (658) (385) Balance, December 31 794,605 788,983

Accumulated amortization Balance, January 1 758,701 737,840 Amortization 16,633 21,061 Disposal - (200) Balance, December 31 775,334 758,701

Carrying amount, end of year $ 19,271 $ 30,282

Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:

Computer software 3 to 5 years

15. OTHER ASSETS


Pledged time deposit $ 303,831 $ 303,704 Other financial assets - 96,597 Others 2,977 2,724

$ 306,808 $ 403,025

Current $ 2,977 $ 99,321 Non-current 303,831 303,704

$ 306,808 $ 403,025

16. OTHER PAYABLES


Bonus $ 611,285 $ 727,872 Maintenance 535,817 506,275 Utilities 127,234 124,321 Others 830,042 775,033

$ 2,104,378 $ 2,133,501

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17. OTHER CURRENT LIABILITIES


Advance receipts $ 112,000 $ 109,809 Others 7 4,942

$ 112,007 $ 114,751

18. PROVISIONS - CURRENT


Sales returns and allowances $ 229,809 $ 236,336

The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans

The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the 6 months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required tofund the difference in one appropriation that should be made before the end of March of the next year.The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); theCorporation has no right to influence the investment policy and strategy.

The amounts included in the parent company only balance sheets in respect of the Corporation’sdefined benefit plans were as follows:


Present value of defined benefit obligation $ 1,107,016 $ 1,034,785 Fair value of plan assets (329,915) (326,432)

Net defined benefit liability $ 777,101 $ 708,353

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Movements in net defined benefit liability were as follows:

Present Value of Defined

Benefit Obligation

Fair Value of Plan Assets

Net Defined Benefit

Liability

Balance at January 1, 2016 $ 970,547 $ (339,555) $ 630,992Service cost




Actuarial loss - changes in financial assumptions 54,189 - 54,189

Actuarial loss - experience adjustments 13,917 - 13,917Recognized in other comprehensive income 68,106 4,157 72,263Contributions from the employer - (14,167) (14,167)Benefits paid (29,651) 29,651 -Balance at December 31, 2016 1,034,785 (326,432) 708,353Service cost




Actuarial gain - changes in financial assumptions (21,662) - (21,662)

Actuarial loss - experience adjustments 86,361 - 86,361Recognized in other comprehensive income 64,699 1,640 66,339Contributions from the employer - (14,699) (14,699)Benefits paid (15,568) 14,479 (1,089)

Balance at December 31, 2017 $ 1,107,016 $ (329,915) $ 777,101

Through the defined benefit plans under the Labor Standards Law, the Corporation is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease the present value of the defined benefit obligation.

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The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

December 31 2017 2016

Discount rates 1.65% 1.50%Expected rates of salary increase 3.50% 3.50%

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


Discount rates 0.50% increase $ (68,284) $ (67,148)0.50% decrease $ 74,471 $ 73,416

Expected rates of salary increase 0.50% increase $ 72,739 $ 71,5950.50% decrease $ (64,445) $ (66,229)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

December 31 2017 2016

The expected contributions to the plan for the next year $ 15,213 $ 14,663

The average duration of the defined benefit obligation 13 years 13.7 years

Maturity analyses of pension benefit were as follows:

December 31 2017 2016

Maturity analysis of undiscounted pension benefitNo later than 1 year $ 24,818 $ 13,754Later than 1 year and not later than 5 years 164,613 102,104Later than 5 years 1,342,568 1,174,944

$ 1,531,999 $ 1,290,802

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20. EQUITY

a. Capital stock

Common stock


Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982Issued capital $ 16,389,823 $ 16,389,823

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus


May be used to offset a deficit, distributed by cash or transferred to capital

Issuance of common stock $ 544,884 $ 544,884

May be used to offset a deficit only

Employee stock options (transferred and inactive) 285,845 285,845 Share of changes in equities of subsidiaries, associates and joint

ventures 25,738 31,865 Overdue dividends 162 -

$ 856,629 $ 862,594

The capital surplus from stocks issued in excess of par may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed in cash or transferred to capital, which are limited to a certain percentage of the Corporation’s paid-in capital.

c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends andbonuses are limited to shareholders and do not include employees. The shareholders held their regularmeeting on June 7, 2016 and, in that meeting, had resolved amendments to the Corporation’s Articles ofIncorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and theaddition of the policy on distribution of employees’ compensation and remuneration to directors.Please refer to c. Refer to employees’ compensation and remuneration of directors in Note 22.

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Under the dividend policy as set forth in the amended Articles, where the Corporation made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting aside or reversing special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Corporation’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders.

The Corporation’s Articles also stipulate that all profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 60% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be distributed in accordance with relevant laws or regulations of the authorities in charge.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items.

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

The appropriations of earnings for 2016 and 2015 having been approved in the shareholders’ meetings on June 16, 2017 and June 7, 2016, respectively, were as follows:

Appropriations of Earnings Dividends Per Share (NT$) 2016 2015 2016 2015

Provision of legal reserve $ 553,793 $ 415,758 $ - $ -(Reversal) provision of special

reserve (77,855) 45,305 - -Cash dividends 4,916,947 4,261,354 3.00 2.60

The appropriation of earnings for 2017 had been proposed by the Corporation’s board of directors on February 5, 2018. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividend Per Share (NT$)

Provision of legal reserve $ 450,506 $ - Provision of special reserve 339,074 - Cash dividend 4,916,947 3.00

The appropriation of earnings for 2017 is subject to the resolution of the shareholders’ meeting to be held on June 14, 2018.

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d. Other equity

1) Exchange differences on translation of foreign operations


Balance, beginning of year $ (38,066) $ (41,010) Exchange differences arising from translation of foreign

operations (346,560) 2,496 Share of exchange differences of subsidiaries and associates

accounted for using equity method (5) 448

Balance, end of year $ (384,631) $ (38,066)

2) Unrealized gain (loss) on available-for-sale financial assets


Balance, beginning of year $ 110 $ (74,801) Unrealized gain arising from available-for-sale financial

assets 7,491 74,911

Balance, end of year $ 7,601 $ 110

Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

21. REVENUE

Revenue of the Corporation for the years ended December 31, 2017 and 2016 were analyzed as follows:


Wafer foundry $ 24,503,863 $ 25,469,353Other revenue 405,750 359,281

$ 24,909,613 $ 25,828,634

The Corporation designated certain foreign sales as hedged items to hedge the risk of cash flow. Losses on the hedging instrument amounting to $1,766 thousand and $10,692 thousand that were determined to be an effective hedge were recognized as decrease of revenue for the years ended December 31, 2017 and 2016, respectively.

227

22. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME

a. Depreciation and amortization


Property, plant and equipment $ 2,016,877 $ 2,031,909 Intangible assets 16,633 21,061

$ 2,033,510 $ 2,052,970

Classification of deprecation - by function Cost of revenue $ 1,942,260 $ 1,980,762 Operating expenses 74,617 51,147

$ 2,016,877 $ 2,031,909

Classification of amortization - by function Cost of revenue $ 7,750 $ 10,643 Operating expenses 8,883 10,418

$ 16,633 $ 21,061

b. Employee benefits expense


Post-employment benefits (see Note 19) Defined contribution plans $ 211,573 $ 196,218 Defined benefit plans 18,197 19,265

229,770 215,483 Other employee benefits 6,236,810 6,278,225

Total employee benefits expense $ 6,466,580 $ 6,493,708

Employee benefits expense summarized by function Cost of revenue $ 5,158,039 $ 5,141,284 Operating expenses 1,308,541 1,352,424

$ 6,466,580 $ 6,493,708

c. Employees’ compensation and remuneration of directors

The Corporation should distribute no less than 10% of the current year’s profit as employees’compensation in the form of stock or in cash as resolved by the board of directors. The employeesinclude those of subsidiaries meeting some conditions agreed by the board of directors. TheCorporation should also distribute no higher than 1% of the current year’s profit as remuneration todirectors. However, the Corporation’s accumulated losses shall have been covered. For the yearsended December 31, 2017 and 2016, the employees’ compensation were $675,760 thousand and$831,803 thousand, respectively. For the years ended December 31, 2017 and 2016, the remunerationto directors were $9,900 thousand and $14,100 thousand, respectively. The above calculations were ata certain percentage of the base income.

228

If there is a change in the proposed amounts after the annual parent company only financial statements are authorized for issue, the differences are recorded as a change in accounting estimate.

The appropriations of employees’ compensation and remuneration to directors for 2017 and 2016 were resolved by the board of directors on February 5, 2018 and February 21, 2017, respectively. The amounts of the employees’ compensation and remuneration to directors are disclosed on the table below.

For the Years Ended December 31 2017 2016

Cash Stock Cash Stock

Employees’ compensation $ 675,760 $ - $ 831,803 $ - Remuneration to directors 9,900 - 14,100 -

There is no difference between the actual paid amounts of employees’ compensation and remuneration of directors and the amounts recognized in the parent company only financial statements for the years ended December 31, 2016.

The employees’ compensation and the remuneration to directors for 2015 were resolved by the board of directors on January 27, 2016. The respective amounts recognized in the parent company only financial statements were as follows:

For the Year Ended December 31, 2015

Employees’ Compensation

Remunerationof Directors

Amounts resolved by the board of directors $ 623,638 $ 13,384 Amounts recognized in the annual financial statements $ 623,638 $ 13,588

The difference of 2015 remuneration of directors was adjusted to profit and loss for the year ended December 31, 2016.

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

23. INCOME TAXES

a. Major components of tax expenses recognized in profit or loss:


Current tax In respect of the current year $ 904,460 $ 867,379 Adjustments for prior years’ tax (117,955) (158,696)

786,505 708,683 Deferred income tax

In respect of the current year (7,777) 16,919

Income tax expenses recognized in profit or loss $ 778,728 $ 725,602

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A reconciliation of accounting profit and income tax expenses was as follow:


Income before income tax $ 5,283,792 $ 6,263,527

Income tax expense calculated at the statutory rate $ 898,245 $ 1,064,800 Additional items in determining taxable income 4,761 4,996 Tax-exempt income - (206,770)Income tax on unappropriated earnings 7,278 - The origination and reversal of temporary differences (13,601) 21,272 Adjustments for prior years’ tax (117,955) (158,696)

Income tax expense recognized in profit or loss $ 778,728 $ 725,602

The applicable tax rate used by the Corporation is 17%.

In January 2018, it was announced that the Income Tax Act in the ROC was amended and, starting from 2018, the statutory corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to increase by $5,109 thousand and $18,335 thousand, respectively, in 2018.

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

b. Current tax liabilities

December 31 2017 2016

Current tax liabilities Income tax payable $ 724,904 $ 604,591

c. Deferred income tax assets and liabilities

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





Year

Temporary differences $ - $ 28,953 $ 28,953




Year


230





Year

Temporary differences $ 1,690 $ (1,690) $ -




Year


d. Items for which no deferred income tax assets have been recognized

December 31 2017 2016

Deductible temporary differences $ 184,063 $ 207,756

e. Unrecognized deferred income tax liabilities associated with investments

As of December 31, 2017 and 2016, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.

f. Integrated income tax

December 31 2017 2016

Balance of the Imputation Credit Account $ 730,142 $ 775,454

The actual creditable ratio for distributing the earnings of 2016 was 13.29%.

The newly amended Income Tax Act announced in January 2018 abolished the imputation tax system, no creditable ratio applicable for distributing the earnings of 2017 is expected.

The unappropriated retained earnings as of December 31, 2017 and 2016 did not contain the unappropriated earnings generated before January 1, 1998.

g. Income tax exemption with respect to the issuance of shares

The Corporation was granted a 5-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.

h. Income tax assessments

Income tax returns through 2015 had been examined and cleared by the tax authorities.

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24. EARNINGS PER SHARE

Unit: NT$ Per Share


Basic earnings per share $ 2.75 $ 3.38 Diluted earnings per share $ 2.73 $ 3.35

The earnings and weighted average number of common shares used in the computation of earnings per share were as follows:

Earnings


Earnings used in computation of basic earnings per share $ 4,505,064 $ 5,537,925 Effect of dilutive potential common stocks:

Employees’ compensation - -

Earnings used in the computation of diluted earnings per share $ 4,505,064 $ 5,537,925

Shares


Weighted average number of common stocks used in the computation of basic earnings per share 1,638,982 1,638,982

Effect of dilutive potential common stocks: Employees’ compensation 12,108 15,914

Weighted average number of common stocks used in the computation of diluted earnings per share 1,651,090 1,654,896

Since the Corporation is allowed to settle the compensation paid to employees by cash or shares, the Corporation assumed that the entire amount of compensation will be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share as the shares had dilutive effect. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees in the following year.

232

25. OPERATING LEASE ARRANGEMENTS

The Corporation as lessee

The Corporation leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from December 2019, December 2027, December 2029 and December 2034.The rental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to thelease contract, and the lease is renewable upon expiration.

The future minimum lease payments of non-cancellable operating leases commitments are as follows:

December 31 2017 2016

Not later than 1 year $ 75,432 $ 77,120 Later than 1 year and not later than 5 years 306,228 313,513 Later than 5 years 505,471 595,023

$ 887,131 $ 985,656

The lease payments recognized as expenses were as follows:


Minimum lease payment $ 76,534 $ 77,426

26. CAPITAL MANAGEMENT

The Corporation manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Corporation’s overall strategy has no significant variations.

The capital structure of the Corporation consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital surplus, retained earnings and other equity).

The Corporation is not subject to any externally imposed capital requirements.

27. FINANCIAL INSTRUMENTS

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

Financial assets and liabilities with material difference between carrying value and fair value


Carrying Fair Value Carrying Fair Value Amount Level 1 Level 2 Amount Level 1 Level 2

Financial assets

Other current assetsStructured time deposit $ - $ - $ - $ 96,597 $ - $ 96,509

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b. Fair value of financial instruments measured at fair value on a recurring basis

1) Fair value hierarchy

December 31, 2017



instruments $ - $ 229,998 $ - $ 229,998



$ 478,516 $ 30,000 $ - $ 508,516

December 31, 2016



instruments $ - $ 1,428,086 $ - $ 1,428,086



$ 538,067 $ 30,000 $ - $ 568,067

Financial liabilities at FVTPL Derivative financial

instruments $ - $ 43,029 $ - $ 43,029

There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2017 and 2016, respectively.

There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2017 and 2016, respectively.

2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy

The fair values of financial assets and financial liabilities are determined as follows:

a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.

234

Fair values of forward exchange contacts and currency-swap contracts are determined by using valuation techniques based on forward rates for each contract. The Reuter’s quotation system is mainly used as reference for the forward rates.

b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.

The Corporation uses “Black-Scholes model” to determine the fair value.

c. Categories of financial instruments

December 31 2017 2016

Financial assets

Fair value through profit or loss (FVTPL) Held for trading $ 9,729 $ 3,555Designated as at FVTPL 220,269 1,424,531

Loans and receivables (Note 1) 16,959,325 21,247,694Available-for-sale financial assets (Note 2) 593,843 653,394


Fair value through profit or loss (FVTPL) Held for trading - 43,029

Measured at amortized cost (Note 3) 4,425,702 4,469,288

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes and accounts receivable, other receivables, and other financial assets.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payable and other payables.

d. Objectives and policies of financial risk management

The Corporation’s major financial instruments include equity and bond investments, accountsreceivable and accounts payable. The Corporation’s corporate finance function provides services tothe business, coordinates access to domestic and international financial markets, monitors and managesthe financial risks relating to the operations of the Corporation through internal risk reports whichanalyze exposures by degree and magnitude of risks. These risks include market risk (includingforeign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Corporation seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Corporation’s policiesapproved by the board of directors, which provided written principles on foreign exchange risk, interestrate risk, credit risk, the use of derivative and non-derivative financial instruments, and the investmentof excess liquidity. The compliance with policies and the control of exposure limits are continuouslyreviewed by the internal auditors on a continuous basis. The Corporation does not enter into or tradefinancial instruments, including derivative financial instruments, for speculative purposes.

235

The corporate finance function reports quarterly to the Corporation’s board of directors and audit committee for their independent monitorship to risks and policy implementation.

1) Market risk

The Corporation’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Corporation enters into a variety of derivative financial instruments includingforward exchange and currency-swap contracts to manage its exposure to foreign currency risk.

There has been no change to the Corporation’s exposure to market risks or the manner in whichthese risks are managed and measured.

a) Foreign currency risk

The Corporation’s operating activities are partially denominated in foreign currencies and applythe natural hedge. The purpose of the Corporation’s management of the foreign currency riskis to hedge the risk instead of making a profit.

The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Corporation selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheCorporation currently utilizes derivative financial instruments, primarily buy/sell forwardexchange contracts, to hedge its currency exposure.

The Corporation uses forward exchange contracts to eliminate currency exposure. It is theCorporation’s policy to negotiate the terms of the hedge derivatives to match the terms of thehedged item for maximizing the hedge effectiveness.

Investing in foreign operations is for strategic purposes; it is not hedged by the Corporation.


The Corporation is mainly exposed to the exchange rate fluctuation of USD.

The following table details the Corporation’s sensitivity to a 5% increase and decrease in theNew Taiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, financial assets, accounts receivable, other receivables,refundable deposits, accounts payable, and other payables) and the hedge contracts, for whichtheir translation at period end is adjusted for a 5% change in foreign currency rates. Thefollowing table indicates the influences which the New Taiwan dollars strengthen 5% againstthe relevant currency.

Impact on USD Items Years Ended December 31

2017 2016

Loss $ 139,411 $ 73,706

b) Interest rate risk

The Corporation’s financial assets are exposed to interest rate risk both at fixed and floatinginterest rates.

236

The carrying amounts of the Corporation’s financial assets with exposure to interest rates at the end of the reporting period were as follows:

December 31 2017 2016

Fair value interest rate risk Financial assets $ 11,541,581 $ 17,259,371

Cash flow interest rate risk Financial assets 1,867,306 1,837,503


The sensitivity analyses below are determined based on the Corporation’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the asset at the end of the reporting date is outstanding during the reporting period.

If the market interest rate increases/decreases by 0.1% and all other variables remain constant, the pre-tax profit of the Corporation for the years ended on December 31, 2017 and 2016 will increase/decrease $1,867 thousand and $1,838 thousand, respectively, resulting from the exposure of the net assets with floating rates.

c) Other price risk

The Corporation is exposed to price risk arising from its investments in available-for-sale stocksand bonds. Investments are held for strategic rather than trading purposes. The Corporationdoes not actively trade these investments. The Corporation’s security price risk is mainlyconcentrated on equity and bond instruments.


The sensitivity analyses below were determined based on the exposure to security price risks atthe end of the reporting period.

If available-for-sale stocks and bonds prices had been 5% higher/lower, the othercomprehensive income for the years ended December 31, 2017 and 2016 would haveincreased/decreased by $25,426 thousand and $28,403 thousand, respectively, as a result of thechanges in fair value of available-for-sale financial investments in stocks and bonds.

2) Credit risk

Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Corporation. As of the end of the reporting period, the Corporation may havea financial loss due to the default on obligation from counterparts, and the maximum exposure tocredit risk is the carrying amount of the respective recognized financial assets as stated in the parentcompany only balance sheets.

In order to mitigate credit risk, the Corporation has made the policy of credit management to ensurethat appropriate action is taken to recover overdue receivables. In addition, the Corporationreviews the recoverable amount of each receivable debt at the end of the reporting period to ensurethat adequate impairment losses are made for irrecoverable amounts. In this regard, theCorporation considers the credit risk is significantly reduced.

The credit risk on operating funds and derivatives is limited as the counterparts are creditworthybanks.

237

The Corporation’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customers’ financial conditions.

The Corporation’s credit concentration risk was related to the 5 largest customers. Besides the 5 largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivable at any time during the period. The 5 largest customers are creditworthy counterparts, therefore, the Corporation believes the concentration of credit risk is insignificant for the remaining accounts receivable.

3) Liquidity risk

The Corporation manages liquidity risk by monitoring and maintaining adequate reserves of cashand cash equivalents to fund the Corporation’s operations and mitigate the effects of fluctuations incash flows.

The following tables detail the Corporation’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Corporation canbe required to pay. The tables include both interest and principal cash flows.

December 31, 2017

Less Than 1 Year

More Than 1 Year



December 31, 2016

Less Than 1 Year

More Than 1 Year



The following tables detail the Corporation’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.

December 31, 2017

Less Than 1 Year

More Than 1 Year

Gross settled

Forward exchange and currency-swap contracts Inflows $ 1,038,896 $ - Outflows (1,029,167) -

$ 9,729 $ -

238

December 31, 2016

Less Than 1 Year

More Than 1 Year

Gross settled

Forward exchange and currency-swap contracts Inflows $ 5,721,697 $ - Outflows (5,761,171) -

$ (39,474) $ -

28. TRANSACTIONS WITH RELATED PARTIES

a. Name and relationship of related parties

Name Relationship with the Corporation

Taiwan Semiconductor Manufacturing Company Ltd. Investors that have significant influence over the Corporation

Image Match Design Inc. Key management personnel Advanced Microelectronic Products Inc. (Non-related

parties since June 26, 2017) Key management personnel

INNO-TECH Co., Ltd. (Non-related parties since February 24, 2016)


Goyatek Technology Inc. (Non-related parties since February 24, 2016)


Global Unichip Corp. Substantial related parties TSMC China Company Limited Substantial related parties CMSC, Inc. Associates Qromis, Inc. (Note) Associates Vis Micro, Inc. Subsidiaries


b. Operating transactions

Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Investors that have significant influence over the Corporation Taiwan Semiconductor

Manufacturing Company Ltd. $ 5,728,778 $ 6,702,249 $ - $ 700

Associates $ 37,305 $ 23,844 $ - $ -Key management personnel $ 112,264 $ 37,666 $ - $ -Substantial related parties $ 42,228 $ 32,654 $ - $ -

239

Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Investors that have significant influence over the Corporation $ 358,758 $ 418,307 $ 2,334 $ 931

Substantial related parties $ 4 $ - $ - $ - Associates $ - $ - $ 275 $ -

Marketing Expenses Rental Revenue Years Ended December 31 Years Ended December 31

2017 2016 2017 2016

Subsidiaries Vis Micro, Inc. $ 84,296 $ 92,555 $ - $ -

Investors that have significant influence over the Corporation - 2,200 - 2,467

$ 84,296 $ 94,755 $ - $ 2,467

Nonoperating Income and GainsYears Ended December 31

2017 2016

Investors that have significant influence over the Corporation Taiwan Semiconductor Manufacturing Company Ltd. $ 16,124 $ 15,600

Key management personnel 178 630

$ 16,302 $ 16,230

The following balances were outstanding at the end of the reporting period:

Receivables from Related PartiesDecember 31

2017 2016


Key management personnel 6,217 14,469 Associates 8,172 4,817 Substantial related parties 10,820 7,081

$ 427,631 $ 613,214

240

Other Receivables from Related Parties

December 31 2017 2016

Investors that have significant influence over the Corporation Taiwan Semiconductor Manufacturing Company Ltd. $ 7,528 $ 560

Key management personnel Image Match Design Inc. 564 264

Associates 156 -

$ 8,248 $ 824

Other Payables to Related PartiesDecember 31

2017 2016


SubsidiariesVis Micro, Inc. 8,373 9,560

Substantial related parties - 135

$ 86,321 $ 95,230

The terms of sales and purchases transactions with related parties were not significantly different from those with third parties. However, for other related-party transactions, license fees, research and development expenses, marketing expenses and nonoperating income and gains, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.

The Corporation leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly.

c. Compensation of key management personnel


Short-term employee benefits $ 144,746 $ 137,890 Post-employment benefits 2,694 2,420

$ 147,440 $ 140,310

The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

241

29. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:

December 31 2017 2016

Pledged time deposits (presented under other non-current assets) $ 303,831 $ 303,704

30. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The significant commitments of the Corporation as of December 31, 2017 were as follows:

The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according tothe net sales of certain products and reserve a portion of its production capacity.

31. SIGNIFICANT ASSETS AND LABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of theCorporation and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:




Financial assets

Monetary items USD $ 165,837 29.659 $ 231,802 32.199 EUR 1,194 35.58 226 34.30 JPY 57,491 0.2646 82,646 0.2780

Non-monetary items USD 237,080 29.659 90,144 32.199


Monetary items USD 37,128 29.659 27,020 32.199 EUR 1,564 35.58 907 34.30 JPY 200,739 0.2646 205,024 0.2780

242

The significant unrealized foreign exchange gains (losses) were as follows:




(Loss) Exchange Rate


(Loss)

USD 30.522 (USD:NTD) $ (110,809) 32.278 (USD:NTD) $ 40,939 EUR 34.46 (EUR:NTD) (195) 35.91 (EUR:NTD) 1,014 JPY 0.2732 (JPY:NTD) (830) 0.2986 (JPY:NTD) 495 RMB 4.508 (RMB:NTD) - 4.865 (RMB:NTD) 7,092

$ (111,834) $ 49,540

32. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees:

a. Financing provided to others: None.

b. Endorsements/guarantees provided: None.

c. Marketable securities held (excluding investment in subsidiaries, associates and joint ventures): Table1 (attached)

d. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)

e. Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital:None.

f. Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:None.

g. Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of thepaid-in capital: Table 3 (attached)

h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 4 (attached)

i. Trading in derivative instruments: Note 7.

j. Information on investees: Table 5 (attached)

k. Information on investment in Mainland China:

1) Information on any investee company in mainland China, showing the name, principal businessactivities, paid-in capital, method of investment, inward and outward remittance of funds,ownership percentage, net income of investees, investment income or loss, carrying amount of theinvestment at the end of the period, repatriations of investment income, and limit on the amount ofinvestment in the mainland China area: Table 6 (attached)

243

2) Any of the following significant transactions with investee companies in mainland China, eitherdirectly or indirectly through a third party, and their prices, payment terms, and unrealized gains orlosses: None.

a) The amount and percentage of purchases and the balance and percentage of the related payablesat the end of the period

b) The amount and percentage of sales and the balance and percentage of the related receivables atthe end of the period

c) The amount of property transactions and the amount of the resultant gains or losses

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at theend of the period and the purposes

e) The highest balance, the end of period balance, the interest rate range, and total current periodinterest with respect to financing of funds

f) Other transactions that have a material effect on the profit or loss for the period or on thefinancial position, such as the rendering or receiving of services

244

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fina

ncia

l ass

ets -

non

curr

ent

-15

3,61

5-

153,

615

Not

e 3

Taiw

an C

oope

rativ

e B

ank

2014

1st S

ubor

dina

ted

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ncia

l Deb

entu

res

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vaila

ble-

for-

sale

fina

ncia

l ass

ets -

non

curr

ent

-10

2,22

7 -

102,

227

Not

e 3

Stoc

ksC

ham

pion

Mic

roel

ectro

nic

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p.

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stee

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vaila

ble-

for-

sale

fina

ncia

l ass

ets -

non

curr

ent

400

19,1

53

119

,153

N

ote

3 A

dvan

ced

Mic

roel

ectro

nic

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ucts

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vest

ee

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ilabl

e-fo

r-sa

le fi

nanc

ial a

sset

s - n

oncu

rren

t 30

,000

30

,000

9

30,0

00N

ote

2U

nite

d In

dust

rial G

ases

Co.

, Ltd

. In

vest

eeFi

nanc

ial a

sset

s car

ried

at c

ost -

non

curr

ent

4,24

638

,717

238

,717

N

ote

4 Im

age

Mat

ch D

esig

n In

c.

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stee

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nanc

ial a

sset

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ried

at c

ost -

non

curr

ent

1,40

0 14

,000

5

14,0

00

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e 4

AnD

APT

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Inve

stee

Fi

nanc

ial a

sset

s car

ried

at c

ost -

non

curr

ent

1,00

0 32

,610

4

32,6

10

Not

e 4

Not

e 1:

M

arke

tabl

e se

curit

ies m

entio

ned

in th

e ta

ble

incl

ude

stoc

ks, b

onds

, ben

efic

iary

cer

tific

ate

and

the

deriv

ativ

e se

curit

ies f

rom

afo

rem

entio

ned

item

s.

Not

e 2:

Th

e fa

ir va

lue

was

bas

ed o

n va

luat

ion

tech

niqu

es.

Not

e 3:

Th

e m

arke

t val

ue w

as b

ased

on

stock

clo

sing

pric

e as

of D

ecem

ber 3

1, 2

017.

Not

e 4:

Th

e m

arke

t val

ue w

as b

ased

on

the

book

val

ue a

s of D

ecem

ber 3

1, 2

017.

Not

e 5:

A

s of D

ecem

ber 3

1, 2

017,

all

the

secu

ritie

s wer

e no

t ple

dged

or r

estri

cted

.

Not

e 6:

W

ith re

spec

t to

the

info

rmat

ion

of su

bsid

iarie

s, as

soci

ates

and

join

t ven

ture

s, pl

ease

see

TAB

LE 5

and

TA

BLE

6.

245

TA

BLE

2

VA

NG

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ICO

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LE S

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D D

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OF

AT

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STS

OR

PR

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OF

AT

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ION

OR

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OF

TH

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API

TA

L FO

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HE

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ND

ED D

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BER

31,

201

7 (I

n Th

ousa

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f New

Tai

wan

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lars

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tate

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pany

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e T

ype

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e of

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tem

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ount

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ands

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mou

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usan

ds)

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ount

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nits

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hous

ands

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mou

ntC

ost

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n (L

oss)

on

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osal

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ares

/Uni

ts

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usan

ds)

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ount

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guar

d In

tern

atio

nal

Stru

ctur

ed in

stru

men

tsSe

mic

ondu

ctor

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ratio

n Y

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a in

tere

st li

nked

pr

inci

pal g

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ntee

no

tes

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ncia

l ass

ets a

t fai

r va

lue

thro

ugh

prof

it or

loss

- cu

rren

t

- -

- $

45

1,29

3-

$

2,68

2,08

2-

$

3,12

6,92

7 $

3,

126,

927

$

--

$

-

AD

SEM

ICor

pora

tion

Bon

dsA

vaila

ble-

for-

sale

fin

anci

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sset

s -

cu

rren

t

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,386

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2,79

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397,

111

397,

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246

TA

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3

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OM

OR

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LES

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CA

PIT

AL

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DE

D D

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R 3

1, 2

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(In

Tho

usan

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f New

Tai

wan

Dol

lars

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Com

pany

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e R

elat

ed P

arty

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atur

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actio

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mal

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r R

ecei

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les

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ount

%

to T

otal

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ymen

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mU

nit P

rice

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mE

ndin

g B

alan

ce%

to T

otal

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guar

d In

tern

atio

nal

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icon

duct

or C

orpo

ratio

n Ta

iwan

Sem

icon

duct

or

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ufac

turin

g C

ompa

ny L

td.

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or sh

areh

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r Sa

les

$ 5,

728,

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23

30 d

ays a

fter

clos

ing

$

- -

$

402,

422

10

-

247

TA

BLE

4

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NG

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ION

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OM

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AT

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TA

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ER

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n T

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ands

of N

ew T

aiw

an D

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e R

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arty

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atur

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pE

ndin

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alan

ce

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nove

r R

ate

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rdue

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mou

nt R

ecei

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in

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nt P

erio

d A

llow

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Bad

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ts

Am

ount

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ion

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n

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guar

d In

tern

atio

nal S

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icon

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or

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ufac

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g C

ompa

ny L

td.

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or sh

areh

olde

r $

402,

422

11.5

8

$

- -

$

39

9,93

9

$

-

248

TA

BLE

5

VA

NG

UA

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ATI

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AL

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INFO

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ATI

ON

ON

INV

EST

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FOR

TH

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EAR

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DED

DE

CE

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ER 3

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sand

s of N

ew T

aiw

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nles

s Sta

ted

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erw

ise)

Inve

stor

Com

pany

In

vest

ee C

ompa

ny

Loca

tion

Mai

n Bu

sine

sses

and

Pro

duct

s

Inve

stm

ent A

mou

nt

Bala

nce

as o

f Dec

embe

r 31

, 201

7 N

et G

ain

(Los

s) o

f the

In

vest

ee

(For

eign

C

urre

ncie

s in

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sand

s)

Inve

stm

ent

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n (L

oss)

R

ecog

nize

d (F

orei

gn

Cur

renc

ies i

n Th

ousa

nds)

Not

e

Dec

embe

r 31

, 20

17(F

orei

gn

Cur

renc

ies i

n Th

ousa

nds)

Dec

embe

r 31

, 20

16(F

orei

gn

Cur

renc

ies i

n T

hous

ands

)

Shar

es (I

n T

hous

ands

)Pe

rcen

tage

of

Ow

ners

hip

Car

ryin

g V

alue

(F

orei

gn

Cur

renc

ies i

n Th

ousa

nds)

Van

guar

d In

tern

atio

nal

VIS

Ass

ocia

tes I

nc.

Brit

ish

Virg

in Is

land

s In

vest

men

ts

$ 6

,895

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$ 2

,596

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222

100

$ 6

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$

80,8

13 $

80

,813

Su

bsid

iary

S

emic

ondu

ctor

Cor

pora

tion

CM

SC, I

nc.

Hsi

nchu

City

, Tai

wan

In

tegr

ated

circ

uit d

esig

n se

rvic

es a

nd re

late

d bu

sine

sses

11

2,65

011

2,65

09,

902

2550

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(45,

087)

(11,

245)

Inv

estm

ent a

ccou

nted

fo

r usi

ng e

quity

m

etho

d Q

rom

is, I

nc. (

Not

e)

Del

awar

e, U

SA

Sem

icon

duct

or re

sear

ch a

nd d

evel

opm

ent r

elat

ed

busi

ness

es

316,

750

( USD

10,

000)

166,

175

( USD

5,

000)

9,83

246

233,

150

( USD

7,

861)

(108

,238

)( U

SD (3

,569

))(4

6,04

6)

( USD

(1,5

20))

Inve

stm

ent a

ccou

nted

fo

r usi

ng e

quity

m

etho

d

Not

e:

Quo

ra T

echn

olog

y, In

c. c

hang

ed it

s com

pany

nam

e as

Qro

mis

, Inc

. in

Oct

ober

201

7.

249

TA

BL

E 6

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NG

UA

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ON

AL

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ICO

ND

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AT

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INFO

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ATI

ON

ON

INV

EST

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NT

IN M

AIN

LA

ND

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INA

FO

R T

HE

YEA

R E

ND

ED D

EC

EM

BER

31,

201

7 (I

n Th

ousa

nds o

f New

Tai

wan

Dol

lars

, Unl

ess S

tate

d O

ther

wise

)

Inve

stee

Com

pany

M

ain

Bus

ines

ses a

nd

Prod

ucts

Pa

id-in

Cap

ital

Met

hod

of

Inve

stm

ent

Acc

umul

ated

O

utw

ard

Rem

ittan

ce fo

r In

vest

men

t fro

m

Taiw

an a

s of

Janu

ary

1, 2

017

Rem

ittan

ce o

f Fun

ds

Acc

umul

ated

O

utw

ard

Rem

ittan

ce fo

r In

vest

men

t fro

m

Taiw

an a

s of

D

ecem

ber

31, 2

017

Net

Inco

me

(Los

s)

of th

e In

vest

ee

% O

wne

rshi

p of

D

irec

t or

Indi

rect

In

vest

men

t

Inve

stm

ent

G

ain

(Los

s)

(Not

e 2)

Car

ryin

g A

mou

nt

as o

f Dec

embe

r 31

, 20

17

Acc

umul

ated

R

epat

riat

ion

of

Inve

stm

ent I

ncom

e as

of D

ecem

ber

31,

2017

Not

e O

utflo

wIn

flow

VIS

Sha

ngha

i Com

pany

Li

mite

d M

arke

ting

serv

ices

$

4,

556

(R

MB

1,

000

thou

sand

)

Not

e 1

$-

$

4,55

6

(RM

B

1,00

0 th

ousa

nd)

$

- $

4,

556

(R

MB

1,

000

thou

sand

)

$

(1

37)

(R

MB

(3

0)

thou

sand

)

100

$

(1

37)

(R

MB

(3

0)

thou

sand

)

$

4,

413

(R

MB

97

0 th

ousa

nd)

$

-

-

Acc

umul

ated

Out

war

d R

emitt

ance

for

Inve

stm

ent

in M

ainl

and

Chi

na a

s of

Dec

embe

r 31

, 201

7

Inve

stm

ent A

mou

nt A

utho

rize

d by

Inve

stm

ent

Com

mis

sion,

MO

EA

Upp

er L

imit

on th

e A

mou

nt o

f Inv

estm

ent

Stip

ulat

ed b

y In

vest

men

t Com

miss

ion,

MO

EA

$4,5

56

(RM

B1,

000

thou

sand

) $4

,556

(R

MB

1,00

0 th

ousa

nd)

$16,

725,

601

Not

e 1:

Dire

ctly

inve

sted

.

Not

e 2:

A

mou

nt w

as re

cogn

ized

bas

ed o

n th

e su

bsid

iary

’s a

udite

d fin

anci

al st

atem

ents

whi

ch w

ere

audi

ted

by th

e ce

rtifie

d pu

blic

acc

ount

ant o

f par

ent c

ompa

ny.

250

Leuh Fang , Chairman


josh

世界先進公司章

josh

董事長方略

inside cover - vis · growth in the us, and the eurozone also enjoyed widespread gains across...

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