Innolux Corporation 2015 Annual Report Corporation 2015 Annual Report Notice to readers This English-version annual report is a summary translation of the Chinese version and is not

Stock Code: 3481

Innolux Corporation 2015 Annual Report

Notice to readers This English-version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail. 2015 annual report is available at: Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw Innolux’s website:http://www.innolux.com Printed on April 30, 2016

A. Spokesperson & Deputy Spokesperson information. Spokesperson Name: Jyh Chau Wang Title: President Tel: 886-37-586000 E-mail: [email protected]

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

B Headquarters, Branches and Plant. Headquarters: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Branch: No.21 Zidong Road, Fenghuali, Xinshi District, Tainan City Tel: 886-6- 5889998 Plant

Fab T1: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T2: No.168, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T3: No. 12, Kejung Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586393 STSP Touch Fab 1: No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880 STSP Touch Fab 2: No.3, Sect. 1, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park

Tel: 886-6-5051888

Fab A: No.1, Ciye Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051881 Fab B: No.2, Sect. 2, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051889 Fab C: No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Tel: 886-6-5051880 Fab D: No.3, Sect. 1, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051888 Fab F: No.11, Luke 10th Road, Kaohsiung City, Southern Taiwan Science Park Tel: 886-7-6278888 Touch Module Fab : No. 12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880

C. Stock Transfer Agent Grand Fortune Securities Co., Ltd. Address: 6th Floor, No.6, Sec. 1 Zhongxiao W Rd., Zhongzheng Dist., Taipei City 10041, Taiwan Tel: 886-2-23711658 Website: http://www.gfortune.com.tw

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

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

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

Contents

I. Letter to Shareholders..............................................................................................................1 1.1 2015 Operating Report ...................................................................................................... 1 1.2 Summary of 2015 Business Plan....................................................................................... 2

II. Company Profile .......................................................................................................................3 2.1 Date of Incorporation ........................................................................................................ 3 2.2 Company History .............................................................................................................. 3

III. Corporate Governance Report................................................................................................8 3.1 Organization...................................................................................................................... 8 3.2 Directors, Supervisors and Management Team............................................................... 10 3.3 Remuneration of Directors, Supervisors, President, and Vice President ........................ 20 3.4 Implementation of Corporate Governance...................................................................... 27 3.5 Information Regarding Innolux’s Independent Auditors ................................................ 51 3.6 Replacement of independent auditors ............................................................................. 51 3.7 The Company’s chairman, general manager, or any managerial officer in charge of

finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise................................................. 51

3.8 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders.................................................................................................................... 52

3.9 Information Disclosing the Relationship between any of the Company’s Top Ten Shareholders.................................................................................................................... 53

3.10 The number of shares held by the Company, the Company’s directors and supervisors, managerial officers and enterprises under control, either directly or indirectly, with consolidated calculation of the comprehensive shareholding ratio. As of 12/31/2015............................................................................................................. 54

IV. Capital Overview ....................................................................................................................55 4.1 Capital and Shares........................................................................................................... 55 4.2 Issuance of Corporate Bonds .......................................................................................... 61 4.3 Preferred Shares .............................................................................................................. 61 4.4 Issuance of Global Depositary Shares............................................................................. 62 4.5 Employee Stock Options................................................................................................. 63 4.6 Status of Employee Restricted Stock .............................................................................. 65 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions................ 66 4.8 Financing Plans and Implementation:............................................................................. 66

V. Operational Highlights...........................................................................................................67 5.1 Business Activities .......................................................................................................... 67 5.2 Market and Sales Overview ............................................................................................ 74 5.3 Human Resources............................................................................................................ 80 5.4 Environmental expenditures Information ....................................................................... 80 5.5 Labor Relations ............................................................................................................... 80 5.6 Important Contracts......................................................................................................... 84

VI. Financial Information ............................................................................................................86 6.1 Five-Year Financial Summary......................................................................................... 86 6.2 Five-Year Financial Analysis .......................................................................................... 94 6.3 Supervisors’ Report in the Most Recent Year ............................................................... 102 6.4 Consolidated Financial Statements for the Years Ended December 31, 2015 and

2014, and Independent Auditors’ Report....................................................................... 105 6.5 Financial Statements for the Years Ended December 31, 2015 and 2014, and

Independent Auditors’ Report ....................................................................................... 105 6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial

Difficulties..................................................................................................................... 105

VII. Review of Financial Conditions, Operating Results, and Risk Management .................106 7.1 Analysis of Financial Status.......................................................................................... 106 7.2 Analysis of Operating Results....................................................................................... 107 7.3 Analysis of Cash Flow .................................................................................................. 108 7.4 Major Capital Expenditure Items .................................................................................. 109 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement

Plans and the Investment Plans for the Coming Year ................................................... 109 7.6 Analysis of Risk Management ...................................................................................... 109 7.7 Other Important Matters................................................................................................ 113

VIII. Special Disclosure ................................................................................................................. 114 8.1 Summary of Affiliated Companies................................................................................ 114 8.2 Private Placement Securities in the Most Recent Years................................................ 122 8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent

Years.............................................................................................................................. 122 8.4 Special Notes................................................................................................................. 122

IX. Materially might affect shareholders' equity or the price of the company's securities, has occurred during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, such situations shall be listed one by one............122

1

I. Letter to Shareholders 1.1 2015 Operating Report

The overall economic environment experienced a substantial change in 2015. The global demand for IT panels was weak due to the economic recession. The market consumption demand was less than the expectation, especially for tablet computers with the worst case scenario. In terms of mobile phones, the overall business growth was not as expected due to the recession of the Chinese market. Furthermore, the production surplus, exchange rate fluctuations, deflation, and demand uncertainties affected the global economy substantially. As for the panel industry, the additional production capability provided by the new panel plants in China caused a supply surplus with the average market price declining and severe challenges to the operational growth of the panel makers.

Faced with such a difficult macroeconomy and market uncertainty, the company, in

addition to a due-dilgent operation and rapid response, enacted a better use of resources to create highly added value. Therefore, the operational performance of the company in 2015 was not as good as the year before; however, through the effort of the management team, the company had a fairly good business result to show. The annual consolidated revenue amounted to NT$364.1 billion, gross profit amounted to NT$46.6 billion, operating profit amounted to NT$22.4 billion, net income amounted to NT$10.8 billion, and earnings per share amounted to NT$1.09 per share.

As for research and development and market segmentation, continuing technology

development and refinement has been the key to the company’s operation growth. The application of TV panels mainly focuses on the differentiated strategy of large size and high resolution development; also, the development of monitor panels is towards wide viewing angle and high resolution. As for notebook computers, the focus is on enhancing the resolution of the panel and actively increasing the ratio of FHD and QHD high-resolution products. Moreover, the company, in addition to developing high-tech products, continues to strengthen cost competitiveness and provide customers with “better quality stable price” cost-effective products in order to create a win-win situation for the company and customers.

As we move forward, we will continue to endeavor, to concentrate and to innovate for

the best interest of our shareholders.

(I) Result of Business Plan In 2015 our consolidated revenue was NT$ 364,132,984 thousand, which is decrease

NT$64,528,914 thousand by compared with 2014 yearly revenue of NT$ 428,661,898 thousand. In 2015 Net income was NT$10,815,594 thousand and earnings per share were NT$1.09.

(II) Budget Implementation

No financial forecast disclosed for 2015, therefore not applicable to disclose budget implementation.

2

(III) Financial Analysis from 2014 to 2015 2014 2015

Debt to Asset Ratio (%) 52.50 40.05 Capital Structure Analysis

Long-term Capital to Fixed Asset Ratio (%)

121.31 138.84

Current Ratio (%) 95.10 125.70 Quick Ratio (%) 77.41 97.37

Liquidity Analysis

Times Interest Earned (Times 7.28 9.68 Return on Total Assets (%) 4.98 2.81 Return on Equity Attributable to Shareholders of the Parent (%) 10.23 4.69

Operating Income to Paid-in Capital Ratio (%)

28.30 22.54

Pre-tax Income to Paid-in Capital Ratio (%)

22.64 14.93

Net Margin (%) 5.06 2.97

Profitability Analysis

Earnings Per Share (NT$) 2.31 1.09

(IV) Research and development We keep helping client to intensify product competiveness, fit market demand and be

friendly to the environment as our main objective of display technique development. About the development, mainly include environment protection material, electronics saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic display, touch, wide viewing angle and all-around system services integration, we all obtained remarkable achievement.

For the purpose of further enhancing the company’s competitive advantage, the

company has actively involved itself in the research and development of new technologies and new products, such as, the development of highly-flexibile IGZO AMOLED panels, touch integrated technology, color-edge displays, and medium- and large-size touch panels with good results to show that are helpful to the company in continuously outperforming other competitors.

1.2 Summary of 2015 Business Plan

(I) Improvement of technique

OLED technology development: Organized the unit responsible for promoting it continuously.

(II) Continue to promote industry 4.0 Industry 4.0 has a specific effort dedicated to realizing factory automation; also, replacing the no-added-value work with automated equipment.

(III) Continuous growth on middle and small size products

1. Speed up the process from new product development to mass production 2. TOD technology should be expanded and promoted to the Tablet.

(IV) Diligent Management

In year 2016, the entire staff will also to fully devote themselves to work. Please continue to give us your support and encouragement. Lastly, I wish everyone a good health and the best of luck. Thank you. Lastly, I wish everyone a good health and the best of luck. Thank you.

Chairman: Hsing-Chien Tuan Manager: Hsing-Chien Tuan Chief Accountant: Chin-Yuan Chang

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II. Company Profile 2.1 Date of Incorporation: January 14 2003 2.2 Company History

January 2003 Inception and registration of the Company

March 2003 Invested in a subsidiary, Innolux Holding Ltd.

May 2003 Ground breaking ceremony for the TFT and Color Filter Plant In Jhunan

August 2003 The TFT and Color Filter Plant In Jhunan commenced construction

March 2004 Entered into a 7-year NT$20 billion syndicated loan contract with a syndicate including Bank of Communications

June 2004 Machinery installation started in the TFT factory and Color Filter Plant In Jhunan

September 2004 Birth of the first TFT-LCD panel

October 2004 Invested in Innocom Technology (Shenzhen) Ltd. in China

January 2005 Public issuance of the Company’s shares approved by the Financial Supervisory Commission

February 2005 Invested in Innolux Corporation Ltd. in the U.S.

March 2005 Obtained ISO 9001 certification

Granted the “2005 Outstanding Award in Makingthe Science Park Green by Planting Trees” by the Science Park Administration

July 2005 Registered as an emerging stock on the GreTai Securities Market

Obtained ISO 14001 and OHSAS 18001 certifications

August 2005 Ranked 51st nationwide in actual import/export performance in 2004

Granted the Excellent Award in Import/Export Performance by the Ministry of Economic Affairs and Bureau of Foreign Trade

November 2005 Recognized as an outstanding waste disposal model factory by the Environmental Protection Administration, Executive Yuan

December 2005 Recognized as an Occupational Safety and Health Administration Voluntary Protection Unit by the Council of Labor Affairs, Executive Yuan

October 2006 Shares became listed on the Taiwan Stock Exchange on 24 October

November 2006 The Board passed the resolution of merging with Jemitek Electronics Corp. on 21 November

March 2007 Completed merger with Jemitek Electronics Corp.

June 2007 Invested in InnoJoy Investment Corporation

August 2007 Invested in InnoFun Investment Corporation

November 2007 Global Deposit Receipts became listed on the London Stock Exchange on 7 November

June 2008 Topping out ceremony for the sixth generation factory of the Company

July 2008 Granted the “Outstanding Award in Making Green by Planting Trees” by the Science Park Administration

Recognized as one of the TOP 10 Leading Companies among the “Taiwan Technology Top 100”

Ranked sixth among Deloitte Technology FAST50 Taiwan in terms of profit growth

September 2008 Entered into a 5-year NT$24 billion and US$200 million syndicated loan contract with a syndicate of 20 banks including Mega International Commercial Bank

Selected as one of the 12 units in the national industrial group by the Water Assessment Programme organized by the Ministry of Economic Affairs

October 2008 Received the Bronze Award of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs

Granted the 2008 Excellence Award in Recycling and Reducing Waste Production by the Environmental Protection Administration, Executive Yuan

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November 2008 Recognized as a nationwide friendly workplace in 2008 by the Council of Labor Affairs, Executive Yuan

December 2008 Granted the 2008 Outstanding Water Conservation Award by the Water Resources Agency, Ministry of Economic Affairs

Honored with the "2008 Taiwan CSR Awards-Silver Award" by the Taiwan Institute for Sustainable Energy

February 2009 Innolux Display’s Fab T1 passed and obtained the Taiwan Occupational Safety and Health Management System (TOSHMS) certification

April 2009 Innolux Display’s Fab T1 was granted the excellent award in achieving zero work accident hours by the Council of Labor Affairs

May 2009 Innolux Display’s Fab T2 obtained ISO 9001/ISO 14001/OHSAS 18001/QC 080000 4-in-1 management system certification

June 2009 Granted the 2008 excellent personnel award by the National Labor Safety and Health Partnership of the Council of Labor Affairs

September 2009 Issued the 2008 Sustainability Report of Innolux Display

Innolux Display’s Fab T0, T1, and T2 obtained the TS 16949 quality system certification

October 2009 Innolux Display announced a merger with TPO Displays Corp.

Honored with the “Energy Conservation Outstanding Innovation Award” by the Bureau of Energy, Ministry of Economic Affairs

November 2009 Innolux Display announced a merger with Chi Mei Optoelectronics Corporation

Entered into an NT$48 billion syndicated credit facility with a syndicate of 19 banks including Mega International Commercial Bank

Received two Bronze Awards of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs

Granted the excellent award in low carbon production and waste reduction by the Industrial Development Bureau, Ministry of Economic Affairs

December 2009 Innolux Display was honored with the "2009 Taiwan CSR Awards-Bronze Award" for its 2008 Sustainability Report by the Taiwan Institute for Sustainable Energy.

Received the outstanding award in the “2009 Outstanding Energy Saving Companies Selection” from the Science Park Administration

Recognized as the Best Managed Company in Taiwan by Asiamoney

Granted the excellence award in environmental protection by the Science Park Administration

January 2010 Obtained “Labeling of Energy Saving Action” from the Environmental Protection Administration

February 2010 Granted the excellent award for outstanding achievement on training and management for occupational health by the Council of Labor Affairs, Executive Yuan

March 2010 Completed the merger with Chi Mei Optoelectronics and TPO Displays

Innolux Display renamed as Chimei Innolux

Granted the outstanding performance award in occupational safety and health on the occasion of the 2009 Nationwide Occupational Safety and Health Week, held by the Council of Labor Affairs, Executive Yuan

May 2010 Winner of Taiwan's Environmental Protection Administration's 2009 Enterprise Green Procurement Performance Award.

Recognized as an outstanding unit in achieving zero work accident hours by the Council of Labor Affairs, Executive Yuan

June 2010 18.5-inch LCD panel is awarded 2009 FPD green quality certification.

42-inch 120Hz+ MEMC is awarded the best integrated LCD panel at the Taiwan Gold Panel Awards 2010 with the 13 th Annual Outstanding Optoelectronics Product Awards.

September 2010 Awarded the Outstanding Energy Conservation Award by the Department of Energy, Ministry of Economic Affairs

October 2010 Passed DNV third-party independent verification for its 18.5-inch LCD flat panel monitor (M185B1-L02), making CMI the first panel maker to receive a supply chain “water footprint” verification statement, Granted “the Excellent Environmental Protection Award” by the Science

5

Park Administration

November 2010 Granted the 2010 excellence award in recycling and reducing waste production by the Environmental Protection Administration

Completed the merger with Chi Mei Energy

December 2010 Granted “the 2010 Outstanding Energy Saving Award” by the Science Park Administration

Granted “the Excellent Award in Low-Carbon Management” by the Science Park Administration

Granted “the 2010 Outstanding Award in Making Green by Planting Trees” by the Science Park Administration

January 2011 Became the first manufacturer to obtain “water footprint” verification for its product supply-chain with regard to its desktop LCD monitors and LCD TVs.

March 2011 2.65-inch and 5.3-inch Memory-In-Display (Midis) technology, which was a new energy-saving panel technology, obtained the Best Paper Award of the 17th IDW (International Display Workshops), Japan.

April 2011 Honored with the 2011 Taiwan Excellence Gold Awards for its ultra-thin 13.3-inch HD notebook display module.

May 2011 Kobe site was awarded the Best Safety & Hygiene Company by the Safety Management Committee of Kobe, Japan.

June 2011 Won the Outstanding Photonics Product Award 2011 for its 21.5-inch PCT (Projected Capacitive Touch) display module by the Photonics Industry & Technology Development Association (PIDA).

Honored with the “2011 Contribution to Job Creation” award by the Ministry of Economic Affairs and Council of Labor Affairs, Executive Yuan

August 2011 Ranked third among the “2010 Outstanding Export Growth Companies” by the Bureau of Foreign Trade, Ministry of Economic Affairs

September 2011 Granted the 2010 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan

October 2011 STSP Branch was honored with the “Jin-Jhan Award” by the Council of Labor Affairs, Executive Yuan.

Honored with “National Industrial Safety and Health Award” by the Council of Labor Affairs, Executive Yuan

April 2012 Entered into the Joint Debt Restructuring Agreement with the syndicate

June 2012 Won the Outstanding Photonics Product Award 2012 for its 50-inch 3D Direct-Type LED panel by the PIDA.

August 2012 Honored with the “Taiwan Excellence Silver Award” for its 23.6-inch USB super energy-saving LCD screen

September 2012 Recognized as an outstanding unit for hiring disabled persons by surpassing the target

Granted the 2011 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan and the only panel factory granted the award for four consecutive years and fulfilling its responsibility of a sustainable environmental protection enterprise

Chi Mei Optoelectronics UK Limited revoked

December 2012 Changed its name to “群創光電股份有限公司” with the English name of “Innolux Corporation”

January 2013 Global depository receipts listed and traded on the Luxembourg Stock Exchange on 23 January

Merger of the subsidiaries InnoJoy Investment Corporation and InnoFun Investment Corporation, in which InnoJoy Investment Corporation was the surviving company

Eastern Vision Co., Ltd. Liquidated

March 2013 Trading Limited liquidated

Dragon Flame Industrial Ltd. liquidated

April 2013 Nanhai Plant took the lead in obtaining the first MFCA material flow cost accounting certification in the world

The Company’s 65-inch 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award”

The Company’s 4.3-inch active organic light emitting display (TRUEOLED) was awarded the 21st

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“Taiwan Excellence Silver Award”

The Company's 50-inch ultra-high resolution (4K2K) thin narrow frame LCD TV module was awarded the 21st "Taiwan Excellence Award"

The Company’s 30-inch six million pixel medical monitor was awarded the 21st "Taiwan Excellence Award"

The Company’s 5-inch Full HD LCD panel module was awarded the 21st "Taiwan Excellence Award"

The Company’s 3.4-inch active organic light emitting display was awarded the 21st "Taiwan Excellence Award"

June 2013 The Company's 65-inch ultra-high resolution thin narrow frame LCD TV module was recognized by the 16th “Annual Outstanding Optoelectronics Products Awards”

Granted the first “National Environmental Education Award – Excellence Award for Private Enterprises Group” by the Environmental Protection Administration

Innocom Technology (Jiashan) Co., Ltd. liquidated

September 2013 Ningbo Chi Mei Electronics Ltd. renamed as Ningbo Innolux Optoelectronics Ltd.

Nanhai Chi Mei Optoelectronics Ltd. renamed as Ningbo Innolux Technology Ltd.

Ningbo Chi Hsin Electrics Ltd. renamed as Ningbo Innolux Display Ltd.

Ningbo Chi Mei Logistics Corp renamed as Ningbo Innolux Logistics Ltd.

October 2013 The Company’s “Intelligent Automation” team was granted the “Annual Innovative Pilot Award” of the Industry Innovation Award for theone-stop touch innovative operating model by the Ministry of Economic Affairs

Foshan Chi Mei Logistics Co., Ltd. renamed as Foshan Innolux Logistics Co., Ltd.

TPO Displays (Nanjing) Ltd. renamed as Nanjing Innolux Optoelectronics Ltd.

November 2013 Awarded the 2013 Green Building Gold Mark by the Ministry of Economic Affairs

Awarded the “Premium” honor of the 2013 Taiwan CSR Awards

Full Lucky Investment Limited liquidated

December 2013 Selected as an outstanding water saving unit for 2013 by the Water Resources Agency of the Ministry of Economic Affairs

Dongguan Chi Hsin Electrics Ltd. revoked

TPO Displays (Shanghai) Ltd. renamed as Shanghai Innolux Optoelectronics Ltd.

Global Deposit Receipts listed on the London Stock Exchange delisted

January 2014 Plant T1 and Plant B, D, TOC, F (Tainan) awarded Health Promotion Label of Healthy Workplace Certification

Ningbo site awarded Safe Standard Level 2 Corporation

Chi Mei Optoelecttonics (Singapore) Pte. Ltd. revoked

Innocom Technology (Xiamen) Co., Ltd. revoked

Merger of Nanhai Chi Mei Electronics Ltd. and Nanhai Chi Mei Optoelectronics Ltd., in which Nanhai Chi Mei Electronics Ltd. was the surviving company

February 2014 Foshan site awarded as an Advanced Corporation in Promotion of Environmental Protection in Si-shan town

Ningbo site awarded as an Advanced Corporation in Safe Production and Workplace in Ningbo City 2013

March 2014 Honored with the Healthy Corporation Award for the 2014 Southern Science Park Ecological and Humanistic Marathon

April 2014 Nanhai Chi Mei Electronics Ltd. renamed as Foshan Innolux Optoelectronics Ltd.

Honored with the Taiwan Excellence Sliver Award for its 65-inch ultra-high-analytic 3D TV panel

Awarded a certificate of recognition for offering disability employment opportunities to realize corporate social responsibilities by the Southern Taiwan Science Park Administration, Ministry of Science and Technology

The Companu’s 28-inch 4K2K and 23.6-inch touch panel won the“Taiwan Excellence Silver Award”

September 2014 Chi Mei Optoelectronics USA, Inc. renamed as Innolux Optoelectronics USA, Inc.

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TPO Displays USA Inc. renamed as Innolux Technology USA Inc.

October 2014 TPO Displays Japan K.K. renamed as Innolux Technology Japan Co.,Ltd.

November 2014 Chi Mei Optoelectronics Europe B.V. renamed as Innolux Optoelectronics Europe B.V.

TPO Displays (Shinepal) Ltd. renamed as Nanjing Innolux Technology Ltd.

Chi Mei Optoelectronics Japan Co., Ltd. renamed as Innolux Optoelectronics Japan Co.,Ltd.

TPO Displays Hong Kong Ltd renamed as Innolux Hong Kong Ltd.

December 2014 Health Management Award and Nutrition Health Award by the Health Promotion Administration

Granted 2014 Taiwan Sustainable Development Awards by National Council for Sustainable Development

TPO Displays Hong Kong Holding Ltd. renamed as Innolux Optoelectronics Hong Kong Holding Ltd.

TPO Hong Kong Holding Ltd. renamed as Innolux Hong Kong Holding Ltd.

TPO Displays Europe B.V. renamed as Innolux Technology Europe B.V.

February 2015 Signed an agreement for a syndicated credit line of NT$68.5B with Bank of Taiwan and 15 other banks

Innocom Technology (Chengdu) Co., Ltd. revoked

March 2015 The company terminated the debt restructuring negotiation and canceled the debt negotiations

April 2015 The Company’s 100% high color saturation 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award”

Awarded a certificate of recognition for social responsibilities by the Global Views

June 2015 Innolux as the model of innovation awarded National Industrial Innovation Award-Award for Excellence by the MOEA

July 2015 Innolux as an outstanding import/export company honored The Best Contribution Award of the MOEA's Award for International Trade 2015

August 2015 Foshan Innolux Optoelectronics Ltd was awarded International Carbon-Value Award in China

September 2015 Innolux named to Dow Jones Sustainability World Index

October 2015 Awarded the Outstanding Energy Conservation Award 2015 by the Department of Energy, Ministry of Economic Affairs

Completed the merger with Chi Mei EL corporation

November 2015 Inception and registration of Ningbo Innolux Electronics Ltd

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III. Corporate Governance Report 3.1 Organization 3.1.1 Organization Chart

9

3.1.2 Major Corporate Functions

Divisions Main duties

President’s Office Manage the businesses of the Company according to the resolutions passed by the shareholders’ meetings and the Board and the orders of the Board.

Auditor's Office

Responsible for assessing the soundness of the internal control system and all the standards, checking whether the internal control system is operating effectively on a continual basis, measuring the operating results of the departments and providing improvement recommendations for efficient operation.

Global Sales Business Center Set up business and support units for different types of customers to provide a one-stop solution for all customers’ needs.

Product Technology Center Integrate the research and development of technologies and products, and assess and introduce new technologies and new products.

Production Technology Center Responsible for process technology, automation technology and initial equipment and material purchase, etc.

LCD Panel Manufacturing Center

Responsible for the production of large-size LCD panel products.

Module Manufacturing Center Responsible for the production of LCD module products. Touch Panel Business Unit Responsible for the sales and marketing, technology development and production of

touch panel products. Mobile Device Business Unit

Responsible for the sales, marketing, and product development of LCD wireless communication and audio-visual systems as well as production of panel production.

Sales & Marketing Responsible for market development, promotion, and customer service. Technology Development Develop, improve, verify, and test new technologies and new processes. Product Development Development and improvement of new products; design, development, verification,

and testing of products. Manufacturing Production, packaging, and repair of products.

Environmental & Safety Division

Responsible for handling company-wide issues including environmental protection, occupational safety, damage prevention, and risk control of the factories, staff health management and workplace improvement, and greenhouse gas reduction; implementing and managing the environmental safety and health policies of the Company.

Quality Management Center

Responsible for the quality management of the Company; providing the best and the most efficient quality management services (including quality control, product quality guarantee, quality system, and documentary management); and promoting the concept of total quality control.

Finance & Accounting Center Coordinate the capital operating system of the Company, provide financial and accounting information, manage investment plans and risk aversion, and manage overall financial, investment, stock, accounting, and tax matters.

Legal and Intellectual Property Center

Responsible for drafting and reviewing contracts; providing business-related legal consultation services; and coordinating local and international intellectual property matters of the Company.

Strategic Procurement Center Responsible for the overall procurement strategy of the Company, strategic planning of important parts and components, material preparation for the introduction of products and standardized cost management.

Business Management Center

Responsible for the operation and management, industrial engineering and information system of the Company; profits and losses of cost accounting, business strategy consultation, work-flow efficiency improvement, capacity expansion planning, production efficiency enhancement, hardware and software infrastructure, and information system construction.

Human Resources Management Center

Responsible for overall human resources policy, promotion of talent selection, education, deployment and retention, employee communications, general administration and corporate social responsibilities, etc.

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3.2 Directors, Supervisors and Management Team 3.2.1 Directors and Supervisors

April 26, 2016

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding

Shareholding by Nominee Arrangement

Executives, Directors or Supervisors who are

spouses or within two degrees of kinship

Title Citizenship Name

(Note 1) Date

Elected Term

(Years)

Date First

Elected

Shares ％ Shares ％ Shares ％ Shares ％

Experience (Education) Other Position

Title Name Relation

Chairman &

Chief Executive Officer

Taiwan Hsing-Chien Tuan

Jun 19, 2013 3

Nov 21, 2002 17,166,567 0.17 17,471,561 0.18 －－－－

Chairman of the Board and CEO, Innolux Corporation Ph. D, Electronic Engineering, Stanford University (U.S.A.) President, AU Optronics Corp. President, Unipac Optoelectronics Corp.

Chairman of Innolux Holding Ltd., Chairman of Nets Trading Ltd.

－－－

Institutional Director

Taiwan

Hyield Venture Capital Co., Ltd

Jun 19, 2013

3 Nov 21, 2002

163,989,223 1.65 176,311,219 1.77 －－－－－－－－－

Representative Taiwan Jeng-Wu Tai(Note 2)

Jun 19, 2013

3 Sep 11, 2015

N.A. － 300,060 － 605 －－－ Tatung Institute of Technology, Taiwan

Note 2 －－－

Institutional Director Taiwan

Jialian Investment Co., Ltd.

Jun 19, 2013 3

Jun 29, 2012 9,926,773 0.10 10,672,661 0.11 －－－－－－－－－

Representative Taiwan Jyh-Chau Wang

Jun 19, 2013

3 Jun 29, 2012

N.A. － 912,067 0.01 607 －－－

M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories, Industrial Technology Research Institute

Note 3 －－－

Independent Director

Hong Kong Stanley Yuk Lun Yim

Jun 19, 2013

3 Jun 19, 2013

－－－－－－－－ High school graduate Note 4 －－－

Independent Director Taiwan

Chi-Chia Hsieh

Jun 19, 2013 3

Jun 19, 2013

－－－－－－－－ Ph. D of Mechanical Engineering, Santa Clara University, USA

Note 5 －－－

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Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding


Executives, Directors or Supervisors who are

spouses or within two degrees of kinship

Title Citizenship Name (Note 1)

Date Elected

Term (Years)

Date First

Elected

Shares ％ Shares ％ Shares ％ Shares ％


Title Name Relation

Supervisor Taiwan Ren-Guang Lin

Jun 19, 2013 3

Jun 29, 2012

－－－－－－－－

Bachelor of Laws, Soochow University, Master of international banking law, Boston University, USA Master of Law, Duke University,USA Ph. D of Law, Duke University,USA

Professor at National Taiwan University School of Law Director of Securities and Futures Investors Protection Center

－－－

Supervisor Taiwan Yi-Fang Chen

Jun 19, 2013 3

Jun 29, 2012

－－－－－－－－

M.S., Accounting, Soochow University Lecturer, Accounting Soochow University Former PwC Partner

Note 6 －－－

Supervisor Taiwan I-Chen Investment Ltd.

Jun 19, 2013 3

May 19, 2004 25,611,545 0.26 27,535,972 0.28 －－－－－－－－－

Representative Taiwan Te-Tsai Huang

Jun 19, 2013 3

Jul 1, 2010 N.A. － 212,619 －－－－－

Graduated from National Chiao Tung University Manager, Philips Taiwan Ltd. CFO, Vanguard International Semiconductor Corporation CFO, Foxconn Precision Components Co., Ltd.

Note 7 －－－

Note 1: Existing Directors and Supervisor as of the date of the annual report. Note 2: 2015/09/11 Juristic-person director appoints new representative.

Vice Chairman of HH,Director of HungChiau International Investment(Statutory representative),Director of Xin Xi science and technology (Statutory representative), Chairman of Foxconn Precision Component(Shenzhen)Co., Ltd. Chairman of Shenzhen Fu Xun Trade Co., Ltd. Chairman of Rich Kang Precision Electronics (Huizhou) Co., Ltd., Chairman of Ultra-expensive photovoltaic (Guiyang) Co., Ltd.,Director of Fitipower Integrated Technology Inc. (Statutory representative), Director of ESON Precision Engineering Co. Ltd.

Note3: Concurrently as chairman of the board: Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd., Innolux Hong Kong Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Innolux Technology Germany GmbH, Innolux Technology Europe B.V., Innolux Technology USA Inc., Yuan Chi Investment Co., Ltd.(Statutory representative) Concurrently as director: Innolux Optoelectronics Japan Co., Ltd., Innolux Technology Japan Co.,Ltd., InnoJoy Investment Corporation(Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)

Note4: A founder and Executive Director of S.A.S. Dragon Holding Limited, a member of Justices of Peace in the Government of the Hong Kong Special Administrative Region,

12

the deputy chairman of Hong Kong Electronic Industry Association, a permanent Honorary President of Hong Kong Trade Services Council, a member of Hong Kong Professionals and Senior Executive Assoication; the chairman of District Fight Crime Committee,Tsuen Wan District Office; a counselor for Coucil of Yan Chai Hospital, a committee member of Political Consultative Conference Shanghai and Yunfu Committee; and a honoary member of Junior Police Call Committee, Tsuen Wan District.

Note5: Concurrently as chairman of the board: Microelectronics Technology Inc. IQE Taiwan Corporation, Jupiter Network Corp., Welltop Technology Co. Ltd, Jupiter Technology (Wuxi) Co., Ltd. Concurrently as independent director: AcBel Polytech Inc. Concurrently as director: Asia Pacific Telecom(Statutory representative), China Synthetic Rubber Corp. (Statutory representative), E-ONE Moli Energy Corp. (Statutory representative), Advanced Wireless Semiconductor Company, Bright Led Electronics Corp., Kobrite Taiwan Corporation (Statutory representative), Advanced Crystal Application Technology, Inc. (Statutory representative), Sasson Capital (Statutory representative), Kopin Corporation, Inc. The convener of the 11th supvervision meeting for the Allied Association for Science Park Industries

Note6: A lead accountant of YiFang CPA firm, and a Supervisor of YKK Taiwan Co. and NatureWise Biotech & Medicals Corp. Note7: Concurrently as chairman of the board: Hyield Venture Capital Co., Ltd. (Statutory representative)

Concurrently as director position in HungChi International Investment (Statutory representative), Pao Shin International Investment Co., Ltd. (Statutory representative), HungChiau International Investment, FuRuei International Investment; and Fuxuntong Trading, ShenZhen. Concurrently as supervisor: HungJing International Investment (Statutory representative), LiYi International Investment (Statutory representative), HungYuan International Investment (Statutory representative), and Pan-International.

13

Major shareholders of the institutional shareholders April 26, 2016

Name of institutional shareholders Major shareholders of the institutional shareholders

Hyield Venture Capital Co., Ltd. Hon Hai Precision Components Co., Ltd. (97.95%), Pao Shin International Investment Co., Ltd. (1.64%) Chiu-Lien Huang (0.205%), Hsiang-Fu Yu (0.205%)

Jialian Investment Co.,Ltd. Super Venture Investments Limited, Samoa（100%）

I-Chen Investment Ltd. Company Objective Developments Limited, Samoa (100%)

Major shareholders of the major shareholders that are juridical persons

April 26, 2016

Name of juridical persons Major shareholders of the juridical persons

Hon Hai Precision Ind. Co., Ltd. (Note)

Terry Tai-Ming Gou (12.62%), Citi Managed Government of Singapore Investment accounts (2.25%), JPMorgan hosting Saudi-Arabia Central Bank investment account (2.11%), Citigroup hosting Hon Hai Precision Ind. Co. Ltd. Depositary Receipts account (1.77%), Standard Chartered hosting Vatican Gardner emerging market equity index fund account (1.37%), Citi Bank hosted Norges Bank Investment account (1.23%), JPMorgan Managed Stichting Depositary APG investment account (1.20%), JP Morgan Chase Bank hosted Abu Dhabi Investment Authority invested more than accounts (1.17%),Standard Chartered Hosting Fidelity light called Trust: Fidelity Low of shares of the Fund (1.06%), JPMorgan Managed Advanced Stars advanced aggregate International Equity Index(0.91%)

Pao Shin International Investment Co., Ltd. Hon Hai Precision Industry Co., Ltd. (100%) Super Venture Investments Limited, Samoa（100%）

Diamond Luck Enterprises Ltd（100%）

Company Objective Developments Limited, Samoa (100%)

Perfect Impulse Investments Limited（100%）

Note: The information is derived from the close of registrar information of the company dated 24 April 2016.

14

Professional qualifications and independence analysis of directors and supervisors April 26,2016

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience Independence Criteria (Note)

Number of Other Public Companies in Which the Individual

is Concurrently Serving as an

Independent Director Criteria

Name

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company

1 2 3 4 5 6 7 8 9 10

Hsing-Chien Tuan －－ V －－ V V V V V V V V － Hyield Venture Capital Co., Ltd

Jeng-Wu Tai －－ V V V V V V V V V V －－

Jialian Investment Co., Ltd. Jyh-Chau Wang

－－ V －－ V V V V V V V －－

Stanley Yuk Lun Yim －－ V V V V V V V V V V V － Chi-Chia Hsieh －－ V V V V V V V V V V V 1 Ren-Guang Lin V V V V V V V V V V V V V － Yi-Fang Chen V V V V V V V V V V V V V －

I-Chen Investment Ltd. Te-Tsai Huang

－－ V V V V V V V V V V －－

Note：Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the

Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else's name(s),

in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds

shares ranking in the top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with

15

the Company. 7. Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial,

legal, financial, accounting services, or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Law

16

3.2.2 Management Team April 26, 2016

Shareholding Spouse & Minor

Shareholding


Managers who are Spouses or Within Two

Degrees of Kinship Title Citizenship Name Note 1

Effective Date

Shares ％ Shares ％ Shares ％


Title Name Relation Chairman

& Chief

Executive Officer

Taiwan Hsing-Chien

Tuan Jan 14, 2003 17,471,561 0.18 －－－－

Chairman of the Board and CEO, Innolux Corporation Ph. D, Electronic Engineering, Stanford University (U.S.A.) General Manager, AU Optronics Corp. General Manager, Unipac Optoelectronics Corp.

Chairman of Innolux Holding Ltd., Chairman of Nets Trading Ltd.

－－－

President Taiwan Jyh-Chau

Wang Mar 18,

2010 912,067 0.01 607 －－－

M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories, Industrial Technology Research Institute

Note 2 －－－

Vice President Taiwan Wen-Jyh Sah

Mar 18, 2010 1,459,963 0.01 9,543 －－－

Ph. D, Electrical Engineering, National Taiwan University Senior Consultant, Chi Lin Technology Co., Ltd.

－－－－

Vice President Taiwan

Chin-Lung Ting

Mar 18, 2010 1,087,063 0.01 －－－－

M.S., Graduate Institute of Electronics Engineering, National Taiwan University Manager, Unipac Optoelectronics Corp.

Note 3 －－－

Vice President

Taiwan Yao-Tong Chen

Mar 18, 2010

1,689,644 0.02 16,422 －－－ Master of EMBA, Sun Yat-sen University Manager, Hitachi Electronics Co., Ltd.

－－－－


Chih-Hung Hsiao

Jan 14, 2003 470,480 － 3,600,000 0.04 －－

B.S., Industrial Engineering, Tunghai University Plant Director, AU Optronics Corp. Deputy Plant Director, Unipac Optoelectronics Corp. Supervisor, Center for Measurement Standards (CMS), Industrial Technology Research Institute

Note 4 －－－

Vice President

Taiwan Hung-Wen Yang(Note 5)

Jun 1, 2007

320,769 － 59,002 －－－

M.S., Chemical Engineering, National Cheng Kung University Plant Director, Sintek Photronic Corp Deputy Plant Director, AU Optronics Corp. Manager, Unipac Optoelectronics Corp.

－－－－


Chih-Ming Chen(Note 5)

Mar 18, 2010 312,193 － 863 －－－

Graduated from Metallurgy and Materials Science Research Institute of National Cheng Kung University Engineer, Shyen Sheng Fuat Steel & Iron Works Co., Ltd Senior Engineer, Unipac Optoelectronics Corp.

－－－－

Vice Taiwan Chu-Hsiang Mar 18, 925,585 0.01 7,953 －－－ M.S., Chemical Engineering, National Central Note 6 －－－

17


Shareholding




Effective Date



Title Name Relation President Yang(Note 6) 2010 University

Deputy Section Manager, Chunghwa Picture Tubes, Ltd.

Assistant Vice

President Taiwan

Kuo-Hsiung Kuo

Mar 18, 2010 714,100 0.01 295,540 －－－ B.S., Mechanical Engineering, Waseda

University, Japan Note 7 －－－

Assistant Vice

President Taiwan Ke-Yi Kao Mar 18,

2010 607,488 0.01 －－－－

M.S., Chemical Engineering, University of Florida (U.S.A.) Assistant Manager, Unipac Optoelectronics Corp.

－－－－

Assistant Vice

President Taiwan Chung-Kuang

Wei Mar 18,

2010 717,395 0.01 －－－－

Ph. D, Institute of Photonics, National Chiao Tung University Electronics Research Laboratories, Industrial Technology Research Institute

－－－－

Assistant Vice

President Taiwan Tai-Chi Pan Mar 18,

2010 886,880 0.01 58,680 －－－

Graduated in Electrical Engineering of National Cheng Kung University Assistant Manager, Unipac Optoelectronics Corp.

－－－－

Assistant Vice

President Taiwan Jia-Pang Pang Nov 8,

2010 2,445,089 0.02 －－－－

Ph. D, Electronics Engineering, University of Tokyo, Japan Deputy Director of TFT Manufacturing Plant, AU Optronics Corp.

－－－－

Assistant Vice

President Taiwan

Zheng-Xia Kuo

Sept 23, 2013 549,802 0.01 26,000 －－－

Bachelor of Industrial Engineering and Management, National Chiao Tung University Person-in-charge of BU, GIO Optoelectronics Corp. Manager of Chi Mei Lighting Technology Corporation Engineer of Chunghwa Picture Tubes, Ltd. Engineer of Behavior Tech Computer Corp.

Director of Ampower Holding Ltd.

－－－

Assistant Vice

President Taiwan Tian-Ren Lin Sept 23,

2013 1,149,554 0.01 302,081 －－－

Master of Electrical Engineering, National Taiwan University Advisor to General Manager's Office, Unity Opto Technology Co., Ltd. Director of Head Office of Product Development, Chi Mei Lighting Technology Corporation

－－－－

Assistant Vice

President Taiwan Yu Shui Kuo

Dec 1, 2014 160,000 －－－－－

Master of Mechanical Engineering, Yuan Ze University Associate President of Entire Technology Co. Ltd. Manager of AU Optronics Corp. Associate Manager of Prodisc

－－－－

18


Shareholding




Effective Date



Title Name Relation Coordinator Of Ritek Corporation

Assistant Vice

President Taiwan Mao-Sheng

Hung(Note 8) Dec 25,

2015 144,800 －－－－－

Master of management, National Taiwan University Department representative of Gigabyte Marketing Executive of BenQ

－－－－

Assistant Vice

President Taiwan Jun-Yi Yu

(Note 8) Dec 25,

2015 109,537 －－－－－

Master of Industrial Engineering,Texas Tech University Production Manager of AU Optronics Corp.

Note 9 －－－

Assistant Vice

President Taiwan

Qing-Hui Lin(Note 8)

Dec 25, 2015 56,039 －－－－－

Master of institute of science engineering, National Central University R&D Director, Chunghwa Picture Tubes, Ltd.

Note 10 －－－

Finance Supervisor Taiwan Chien-Lang Lo

May 7, 2014 147,431 － 198 －－－

Master of Business Administration, Baruch College, College of the City of New York Assitant manager of Sumitomo Mitsui Banking Corporation. Deputy manager of HSBC Bank director of Tokyo-Mitsubishi UFJ.

Note 11 －－－

Account Supervisor

Taiwan Chin-Yuan

Chang Jan 9, 2009

300,192 －－－－－

Master of Business Administration, National Chengchi University Vice President of Finance, Xiamen Overseas Chinese Electronic Co., Ltd. CFO, Information Product Business Group, BENQ

Note 12 －－－

Note 1: Existing Managers as of the date of the annual report. Note 2: Concurrently as chairman of the board: Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd., Innolux Hong Kong

Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Innolux Technology Germany GmbH, Innolux Technology Europe B.V., Innolux Technology USA Inc., Yuan Chi Investment Co., Ltd. (Statutory representative) Concurrently as director: Innolux Optoelectronics Japan Co., Ltd., Innolux Technology Japan Co., Ltd., InnoJoy Investment Corporation (Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)

Note 3: Concurrently as chairman of the board: GIO Optoelectronics Corp., Double Star Inc. Concurrently as director: Innolux Optoelectronics Japan Co., Ltd.

Note 4: Concurrently as chairman of the board: Rockets Holding LTD., Stanford Developments Ltd., Suns Holding Ltd., Lakers Trading Ltd., Warriors Technology Investments Ltd., InnoJoy Investment Corporation (Statutory representative) Concurrently as director: Yuan Chi Investment Co., Ltd. (Statutory representative)

Note 5: Promoted to Vice President on 25 December 2015 Note 6: Promoted to Vice President on 19 March 2016

Concurrently as director: Chi Lin Optoelectronics. (Statutory representative),FI Medical Device Manufacturing Co. (Statutory representative) Note 7: Concurrently as chairman of the board: Ningbo Innolux Logistics Co., Ltd., Ningbo Innolux Technology Ltd., Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux

Display Ltd.

19

Concurrently as director: Chi Mei Frozen Food Co., Ltd. Note 8: Promoted to Assistant Vice President on 25 December 2015 Note 9: Concurrently as chairman of the board: Bright Information Holding Ltd.,Innolux Hong Kong Holding Limited, Innolux Optoelectronics Hong Kong Holding Ltd.,

Shanghai Innolux Optoelectronics Ltd., Foshan Innolux Optoelectronics Ltd, Kunpal Optoelectronics Ltd., Nanjing Innolux Optoelectronics Ltd., Innocom Technology (Shenzhen) Co., Ltd.

Note 10: Concurrently as chairman of the board: Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd. Note 11: Concurrently as chairman of the board:Best China Investments Ltd., Mega Chance Investments Ltd., Magic Sun Ltd.,Asiaward Investments Ltd., Main Dynasty

Investment Ltd., Sun Dynasty Development Ltd. Concurrently as director: Ningbo Innolux Logistics Co., Ltd., Ningbo Innolux Technology Ltd., Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., InnoJoy Investment Corporation (Statutory representative), Yuan Chi Investment Co., Ltd. (Statutory representative)

Note 12: Concurrently as chairman: Innolux Optoelectronics Europe B.V., Innolux Optoelectronics Germany GmbH Concurrently as director: Innocom Technology (Shenzhen) Co., Ltd., Nanjing Innolux Optoelectronics Ltd., Kunpal Optoelectronics Ltd., Nanjing Innolux Technology Ltd., VAP Optoelectronics (Nanjing) Corp., Shanghai Innolux Optoelectronics Ltd. Concurrently as supervisor: Ningbo Innolux Logistics Co., Ltd., , Ningbo Innolux Technology Ltd., , Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., Innolux Optoelectronics Japan Co., Ltd., Innolux Technology Japan Co., Ltd., Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd., InnoJoy Investment Corporation (Statutory representative)

20

3.3 Remuneration of Directors, Supervisors, President, and Vice President 3.3.1 Remuneration of Directors

Unit: NT$; Shares: thousands Director Remuneration Remuneration received as an employee

Compensation (A) (Note 2) Pensions (B)

Directors remuneration (C) (Note 3)

Service execution fees (D) (Note 4)

Ratio of total remuneration

(A+B+C+D) to net income

(%)(Note10)

Salary, Bonuses, and

Allowances (E) (Note 5)

Pensions (F) (Note 6)

Employees’ remuneration (G) (Note 7)

Number of shares

subscribed under employee stock options

(Note 8)

Number of new shares obtained with restrictive

rights of employees

(Note9)

Ratio of total compensation (A+B+C+D+E+F+G) to net

income (%)(Note10)

The company

All companies in the

financial report

Title Name (Note 1) T

he co

mp

any

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Cash Stock Cash Stock

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

Th

e com

pan

y

All co

mp

anies in th

e fin

ancial repo

rt

An

y rem

une

ration

received

from

R

ecipients o

the

r than su

bsidia

ries

Chairman &

Chief Executive

Officer

Hsing-Chien Tuan

Institutional director

Hyield Venture

Capital Co., Ltd

Representative Jeng-Wu Tai(Note11)

Institutional director

Jialian Investment Co., Ltd.

Representative Jyh-Chau Wang


Stanley Yuk Lun Yim


Chi-Chia Hsieh

7,200 7,200 －－ 2,993 2,993 190 190 0.10 0.10 31,817 31,817 －－ 20,389 － 20,389 － 900 900 －－ 0.58 0.58 －

Note 1: Existing Directors as of the date of the annual report. Note 2: Refers to directors’ remuneration paid in 2015. Note 3: The proposal of 2015 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of directors in 2015. Note 5: Refers to the salaries, bonuses and special disbursement, etc. received as employees by directors in 2015. Note 6: Refers to the amounts transferred to government authorities in 2015. Note 7: The proposal for 2015 profit distribution of remuneration received as an employee has been resolved by the board of directors. Note 8: Number of shares subscribed under employee stock options excludes the exercised portion. Note 9: Number of shares subscribed under restrictive rights of employees excludes the exercised portion. Note 10: Ratio of total net income (Alone). Note 11:2015/9/11 Representative changed.

21

Range of remuneration table

Name of Directors

Total of (A+B+C+D) Total of (A+B+C+D+E+F+G) Range of remuneration paid to each director of the Company

The company All companies in the financial

report The company All companies in the financial

report

Under NT$ 2,000,000

Hyield Venture Capital Co., Ltd Jeng-Wu Tai


Stanley Yuk Lun Yim Chi-Chia Hsieh



Stanley Yuk Lun Yim Chi-Chia Hsieh


Jialian Investment Co., Ltd. Stanley Yuk Lun Yim

Chi-Chia Hsieh


Jialian Investment Co., Ltd. Stanley Yuk Lun Yim

Chi-Chia Hsieh

NT$2,000,000 ~ NT$5,000,000 Hsing-Chien Tuan Hsing-Chien Tuan NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 Jyh-Chau Wang Jyh-Chau Wang NT$30,000,000 ~ NT$50,000,000 Hsing-Chien Tuan Hsing-Chien Tuan NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total 7 7 7 7

22

3.3.2 Remuneration of Supervisors Unit: NT$; Share: thousands

Supervisors’ Remuneration

Base Compensation (A) (Note 2)

Remuneration (B) (Note 3)

Service execution fees (C) (Note 4)

Ratio of total remuneration (A+B+C) to net income

(%)(Note 5) Title Name(Note 1)

The company

All companies in the financial report

The company


The company


The company


Any remuneration received from

Recipients other than subsidiaries

Supervisor Ren-Guang Lin

Supervisor Yi-Fang Chen

Supervisor I-Chen Investment Ltd. Te-Tsai Huang

2,700 2,700 1,497 1,497 140 140 0.04% 0.04% －

Note 1: Existing Supervisors as of the date of the annual report. Note 2: Refers to the remuneration paid to supervisors in 2015. Note 3: The proposal of 2015 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of supervisors in 2015. Note 5: Ratio of total net income (Alone).


Name of Supervisors Total of (A+B+C) Range of remuneration paid to each

supervisor of the Company The company All companies in the financial report D

Under NT$ 2,000,000 I-Chen Investment Ltd. Te-Tsai Huang, Ren-Guang Lin, Yi-Fang Chen

I-Chen Investment Ltd. Te-Tsai Huang, Ren-Guang Lin,Yi-Fang Chen

NT$2,000,000 ~ NT$5,000,000

NT$5,000,000 ~ NT$10,000,000

NT$10,000,000 ~ NT$15,000,000

NT$15,000,000 ~ NT$30,000,000

NT$30,000,000 ~ NT$50,000,000

NT$50,000,000 ~ NT$100,000,000

Over NT$100,000,000

Total 4 4

23

3.3.3 Compensation of President and Vice President Unit: NT$ thousands

Salary (A) (Note 2) Pensions (B) (Note 3) Bonuses and Allowances (C) (Note 4)

Profit Sharing- Employee Bonus (D) (Note 5)

Ratio of total compensation

(A+B+C+D) to net income (%)(Note 6)

Number of employee stock options obtained

(Note 7)

Number of new shares obtained with

restrictive rights of employees(Note 8)

The company All companies in

the financial report

Title Name(Note 1)

The company

All companies

in the financial

report

The company

All companies

in the financial

report

The company

All companies in the financial

report Cash Stock Cash Stock

The company

All companies

in the financial

report

The company

All companies in the financial

report

The company

All companies

in the financial

report

Any remuneration received from

Recipients other than subsidiaries

Chief Executive

Officer

Hsing-Chien Tuan

President Jyh-Chau Wang

Vice President

Wen-Jyh Sah

Vice President

Chin-Lung Ting

Vice President Yao-Tong Chen

Vice President

Chih-Hung Hsiao

Vice President

Hung-Wen Yang(Note 9)

Vice President

Chih-Ming Chen(Note 9)

Vice President

Chu-Hsiang Yang(Note 10)

24,913 24,913 220 220 48,854 48,854 34,285 － 34,285 － 1.00% 1.00% 2,345 2,345 24 24 －

Note 1: Existing President and Vice President as of the date of the annual report. Note 2: Refers to remuneration paid in 2015. Note 3: Refers to amounts transferred to government authorities in 2015. Note 4: Refers to the bonuses, special disbursement and 593 tousand for a car and oil costs for CEO & President. Note 5: The proposal of 2015 profit distribution has resolved by the board of director. Note 6: Ratio of total net income (Alone). Note 7: Number of shares subscribed under employee stock options excludes the exercised portion. Note 8: Number of shares subscribed under restrictive rights of employees excludes the exercised portion. Note 9: Promoted to Vice President on 25 December 2015 Note 10: Promoted to Vice President on 19 March 2016

24


Name of President and Vice President Range of remuneration paid to each president and vice president

The company All companies in the financial report

Under NT$ 2,000,000 Hung-Wen Yang,Chih-Ming Chen, Chu-Hsiang Yang

Hung-Wen Yang,Chih-Ming Chen, Chu-Hsiang Yang

NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 Yao-Tong Chen Yao-Tong Chen NT$10,000,000 ~ NT$15,000,000 Wen-Jyh Sah, Chin-Lung Ting, Chih-Hung Hsiao Wen-Jyh Sah, Chin-Lung Ting, Chih-Hung Hsiao NT$15,000,000 ~ NT$30,000,000 Hsing-Chien Tuan ,Jyh-Chau Wang Hsing-Chien Tuan ,Jyh-Chau Wang NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000

Over NT$100,000,000 Total 9 9

25

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

Unit: NT$ thousands as of April 30, 2016

Title Name (Note 1)

Amount of stock

Amount of cash (Note 2)

Total

Ratio of Total Amount to Net

Income (%)(Note 3)

Chief Executive Officer Hsing-Chien Tuan

President Jyh-Chau Wang Vice President Wen-Jyh Sah Vice President Chin-Lung Ting Vice President Yao-Tong Chen Vice President Chih-Hung Hsiao Vice President Hung-Wen Yang Vice President Chih-Ming Chen Vice President Chu-Hsiang Yang Associate Vice President Kuo-Hsiung Kuo

Associate Vice President Ke-Yi Kao

Associate Vice President

Chung-Kuang Wei

Associate Vice President Tai-Chi Pan

Associate Vice President Jia-Pang Pang

Associate Vice President Zheng-Xia Kuo


Tian-Ren Lin

Associate Vice President Yu Shui Kuo

Associate Vice President Mao-Sheng Hung

Associate Vice President Jun-Yi Yu


Qing-Hui Lin

Manager Chien-Lang Lo

Managerial officers

Manager Chin-Yuan Chang

- 53,035 53,035 0.49%

Note 1: Refers to current managerial officers as of the printing date of the annual report. Note 2: The proposal of 2015 profit distribution has resolved by the Board of director. Note 3: Ratio of Total Amount to Net Income of alone.

26

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

A. The ratio of total remuneration paid by the company and by all companies included in the

consolidated financial statements for the most recent two fiscal years to directors, supervisors, presidents, and vice presidents of the Company to the net income.

Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income

2014 2015 (Note 1)

The company Companies in the

consolidated financial statements

The company Companies in the

consolidated financial statements

Directors 0.31 0.31 0.58 0.58 Supervisors 0.03 0.03 0.04 0.04

Presidents&Vice Presidents 0.46 0.46 1.00 1.00

Note 1: The proposal of 2015 profit distribution has resolved by the Board of director..

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

B. The policies, standards, and portfolios for the payment of remuneration, the procedures for

determining remuneration, and the correlation with business performance.

Remunerations of directors and supervisors of the Company are determined in accordance with the Articles of Association of the Company, their participation and value of contributions made to the operation of the Company and with reference to industry standards. For years when the Company has a final net profit, after offsetting losses and making transfers to legal reserves or special reserves, distribution of special stock dividends and employees’ bonuses, the Board will recommend a profit distribution proposal, including remuneration for directors and supervisors, at its own discretion after considering the industry environment and capital requirements of the Company and distribution payments will be made after approval by the shareholders.

Remuneration of presidents and vice presidents includes salaries, bonuses, special

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

27

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

A total of 5 meetings of the board of directors were held in the previous period. Director attendance was as follows:

Title Name Attendance in Person (B)

By Proxy Attendance Rate (%)

[B/A] Remarks

Chairman Hsing-Chien Tuan 5 0 100% -

Director Hyield Venture Capital Co., Ltd Hong-Jen Chuang 4 0 100%

2015/09/11 Juristic-person director appoints new representative

Director Hyield Venture Capital Co., Ltd Jeng-Wu Tai 0 1 -

2015/09/11 Juristic-person director appoints new representative

Director Jialian Investment Co., Ltd. Jyh-Chau Wang 5 0 100% -


Stanley Yuk Lun Yim 4 1 80% -


Chi-Chia Hsieh 5 0 100% -

Other mentionable items: 1. If the circumstances referred to in Article 14-3 of the Securities and Exchange Act and resolutions of the

directors’ meetings objected to by Independent Directors or subject to qualified opinion and recorded or declared in writing exist, the dates of meetings, sessions, contents of motions, all independent opinions, and the Company’s response to the independent directors’ opinions should be specified: None

2. If the Directors avoid motions in a conflict of interest, the Directors’ names, contents of motions, causes for avoidance, and voting should be specified:

Date Name Contents of motions Causes for avoidance Voting

2015/2/10 Hsing-Chien Tuan Jyh-Chau Wang

The Compensation Committee is proposing manager bonus for the year of 2014 and amendment the rule of Reward System of executives.

The board member Hsing-Chien Tuan and board member and manager Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the regulations specified in Article 178 of the Company Act.

Did not for the disucssion


The Compensation Committee is proposing manager bonus for the year of 2014.




The Compensation Committee is proposing manager bonus for the year of 2015 and amendment the rule of Reward System of executives.



3. Measures taken to strengthen the functionality of the Board: (1) The Compnay has set up a Compensation Committee on August 25, 2011 for assisting the Board to

conduct regular compensation review and set up compenstation standard for the Directors and managers. The Committee is also in charged of making regular review of performance of the Director and managers, and the related remuneration policy, system, standard, and structure. Please see page 34 for the detail of the Committee’s operation.

28

(2) The Company has re-elected its Board Director on 19 June, 2013. The new Board is made of five board member, including two independent directs and three supervisors fors strengthening the Board function and Corporate Governance.

(3) The Board members continuing education extending beyond the scope of the professional expertise of the directors and supervisors, and to select courses encompassing corporate governance related topics such as finance, risk management, business, commerce, legal affairs, accounting, and corporate social responsibility, or courses relating to internal control systems or liability for financial reports. Please see page 43 for the detail of the status of Directors and Supervisors' participation in corporate governance related courses and trainings.

3.4.2 Audit Committee A. Audit Committee: N.A. 3.4.3 Attendance of Supervisors for Board Meetings

A total of 5 meetings of the board of directors were held in the previous period. Supervisor attendance was as follows:

Title Name Attendance in Person (B)

Attendance rate (%) [B/A]

Remarks

Supervisor Ren-Guang Lin 5 100% - Supervisor Yi-Fang Chen 5 100% -

Supervisor I-Chen Investment Ltd. Te-Tsai Huang 4 80% -

Other mentionable items: 1. Composition and responsibilities of supervisors:

(1) Communications between supervisors and the Company's employees and shareholders (e.g. the communication channels and methods, etc.): Our Supervisor could communicate with employees and shareholders in anytime if necessary.

(2) Communications between supervisors and the Company's Chief Internal Auditor and CPA (e.g. the items, methods, and results of the audits of corporate finance or operations, etc.): A. Communications with the employees & shareholders: Supervisors could communicate

with employee and shareholder in anytime if necessary. B. Communications with the Chief Internal Auditor & CPA: The Company holds a Board

Meeting each quarter and keeps the meeting minutes. The Directors, President, and the company's management are then notified of important discussions and resolutions. All Supervisors had attended on each occasion, and the CFO, Chief Internal Auditor, and CPAs were also present at the meetings to discuss the related subjects, Chief Internal Auditor was also present at the meetings to report on the audit operations and major internal auditing matters, including execution, reporting, and monitoring of Supervisors’ instructions. In addition, Supervisors obtained audit reports on a monthly basis, which were submitted by the Chief Internal Auditor.

2. If a supervisor expresses an opinion during a meeting of the Board of Directors, the dates of meetings, sessions, contents of motions, resolutions of the directors’ meetings, and the Company’s response to the supervisor’s opinion should be specified: None

29

3.4.4 Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission

Operation Item

Yes No Reasons

Difference from corporate governance practice principles for TWSE/GTSM-Listed companies

and reasons I. Has the Company enacted and

disclosed Corporate Governance Best-Practice Principles in accordance with “Corporate Governance Best-Practice Principles of Companies Listed on the Taiwan Stock Exchange or Over-the-Counter Securities Exchange”?

No The Company has not yet enacted “Corporate Governance Best-Practice Principles” for the time being. In accordance with the philosophy of “Corporate Governance Best-Practice Principles of Companies Listed on the Taiwan Stock Exchange or Over-the-Counter Securities Exchange”, nevertheless, the Company has, case-by-case one after another, updated (enacted) “Procedure Rules for Shareholders’ Meeting”, “Regulations Governing Transactions with the Enterprises within the Conglomerate and Related Parties”, “Procedure Rules for Board of Directors Meeting ”, “Operating Procedures for Management over Major Internal Information”, “Guidelines for Employee Behaviors”, “Policies of Responsibility Toward the Society”, “Code of Ethical Conduct for Directors and Managerial Officers” ,“Code of Ethical Conduct for Ethics Implementation“ and such rules and regulations to put into implementation thoroughly the spirit of corporate governance. For hands-on performance by the Company in corporate governance, please refer to the present Annual Report “Performance of Corporate Governance”, page 8 to page 54 for details.

No significant difference compared to corporate governance practice principles

II. Equity structure and shareholder rights

(I) How the Company handles shareholder suggestions of shareholders and disputes.

(II) Company’s control of the list of its major shareholders and final decision-makers

(III) How the Company establishes its

risk management mechanism and firewalls involving related enterprises.

(IV) Has the Company enacted the internal regulations to ban the personnel inside the Company from buying, selling negotiable securities by taking advantage of the information which has not yet been made public in the market?

Yes

Yes

Yes

Yes

(I) The Company has enacted “Operating Procedures for Management over Major

Internal Information” and has, besides, set up spokesman and acting spokesman to take charge of proposals or disputes from shareholders.

(II) The Company is in a position to dominate the name lists of the key shareholders and the terminal controllers of the key shareholders and has duly input such information to public into the Market Observation Post System (MOPS) promulgated by the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan

(III) The Company has duly enacted the “Regulations Governing Transaction with Related Parties”, “Regulations Governing Supervision over Subsidiaries” and has, besides, set up relevant departments with sound mechanisms to evaluate and monitor potential risks with affiliated enterprises.

(IV) The Company has duly ancted the “Operating Procedures for Management over Major Internal Information” and further in accordance with the Company’s internal control system, enacted “Operating Procedures to Prevent Inside Trading and for Management over Major Information” to ben inside personnel from buying, selling negotiable securities by taking advantage of the information which has not yet been made public in the market.


30

Operation Item

Yes No Reasons


and reasons III. Organization and responsibilities of

the Board of Directors (I) Has the board of directors worked

out diversified, comprehensive and multifaceted policies aiming at its members and put into implementation thoroughly?

(II) Other than the Remuneration

Committee and Audit Committee, has the Company taken the initiative to set up a variety of other function committee?

(III) Has the Company set up regulations

and methods to evaluate the performance by the board of directors and conduct evaluation of performance on an annual basis?

(IV) Regular assessment on independence of CPAs

Yes

Yes

No

No

(I) The board of directors is composed of 8 members with a professional background

and who are technically experienced, two independent directors, and 3 supervisors (one female). They are well-balance and also have multiple part related expertise to raise stockholders’ interest. The Company’s independent directors and supervisors are well known for their hands-on experiences accumulated in the profssion and individual expertises to firmly safeguard the interests of all the Company’s shareholders. Meanwhile, the board of directors has taken into independent and objective account the key issues which would affect the successful development by the Company.

(II) Exactly as resolved in the board of directors on August 25, 2011, the Company already set up the Remuneration Committee where the Company’s independent directors and 2 experts hired from outside the Company serve as the Committee members. For more details regarding the business performance of the Company’s Remuneration Committee, please refer to page 34 of this Annual Report. The Company, nevertheless, has not yet set up committee of other functions to date.

(III) The Company has not yet conducted self-evaluation of the Company’s board of directors, functional committees and individual directors.

(IV) The Company’s board of directors evaluates the Certified Public Accountant’s

independence on a regular basis, say, on an annual basis, and retains creditworthy Certified Public Accountant(s) to certify financial statements. The Certified Public Accountant(s) so retained has (have) been free of any interested party involvement and has (have) independent as the strict requirements.


IV. Has the Company set up sound channels to communicate interested parties, or set up special zone for interested parties through the Company’s website to appropriately respond to interested parties regarding the key responsibility toward the society issues?

Yes Innolux offers a variety of features including investor services, supplier area, sales services, product inquiries, media communications, anti-corruption reporting and so forth in order to communicate and respond to shareholders‘ needs and expectations by strengthening communications with stakeholders and thereby meeting their expectations.


V. Did the company engage a professional agency to handle shareholder services for Innolux?

Yes Innolux has appointed a professional agency to handle shareholder related services for the company.


31

Operation Item

Yes No Reasons


and reasons VI. Disclosure of information (I) Establishment of a Website where

information on financial operations and corporate governance is disclosed.

(II) Use of other methods for information disclosure (such as setting an English website, appointing personnel in charge of collecting and disclosing information, implementing a spokesman system and publication of shareholder meeting records on the Company’s website).

Yes

Yes

(I) Through the company’s website (http:// www.innolux.com) with Chinese and

English versions, we provide financial, business, and corporate governance information and keep updating.

(II) The company’s English website announces information and our Public Relations,

Investor relations department, Stock department and the related department responsible for collecting and disclosing the related information also set up positions for its spokesperson in accordance with the regulations and the company provides Investor Conference report on the official website.


VII. Other important information for better understanding the Company’s corporate governance operation (including but not limited to the interests and rights of employees, care for employees, relations with investors, relations with suppliers, relations with materially related parties, further study of directors and supervisors, execution of risk management policy and risk measuring standards, execution of customer policies and liability insurance for the Company’s directors and supervisors)

Yes (I) Employee's Rights: Please refer to page 80 “5.5 Labor Relations” of the annual report

(II) Employee Care

The company values employees’ mental and physical balance and provides hardware which can release stresses, such as “Le Qun Guan” and “Huo Li Guan”. Innolux also holds different kinds of activities to provide physical and mental relaxation for our employees. We encourage our employees to join clubs 40 clubs in Taiwan to create an active and positive working environment by supporting those clubs with resources.

Innolux cares for our employees from healthcare to daily lives. We not only introduce all-you-can eat organic fruits and vegetables and weekly non-meat-day to the group meals, we also conduct an expanded diet plan. We had been awarded as “Workplace Loss Diet Award” from Bureau of Health Promotion in 2015. We care about the health of mothers in the workplace and provide a friendly working environment such as lactation room，mothers’ classroom, new parent lessons, and support for lactation during work, maternity leave, birth benefits, and parental subsidies. We also established mothers’ healthcare protection measures and rules.

(III) Maintaining good relations and interactions with investors, suppliers, and interested

parties. According to different interested groups, Innolux has established multiple and

unobstructed communication channels, such as investors’ service on company’s webpage, suppliers zone, business service and product consulting, media


32

Operation Item

Yes No Reasons


and reasons communications, so that we can keep communicating and getting feedback from those interests groups’ needs and expectations. 1. Investors: the company treats our shareholders with the principle of fairness and

openness. We call the shareholders meetings according to the Company Act and other related laws every year, encourage stockholders to actively participate in the stockholders meeting with proposals and questions.

2. Customers: we have salespeople and customer service units to reply to customers’ demands effectively, establish a CRM system, monitor the progress of handling issues, field audits and questionnaire feedback, and customers’ satisfaction survey.

3. Employees: we set up a direct employee line, mobilization meeting, Innolux mailbox, interactive factory meeting (Labor-Management Meeting, the Employee Welfare Committee, management interview, Industrial Safety), employee questionnaires (group meals, activities, training), and opinion collection mail box.

4. Suppliers: setting up an interactive platform for supplier purchasing and procurement management, and a buyer and procurement management department to host ad quality meetings monthly / quoterly with other departments and suppliers

5. Communities: Having departments or individuals to be responsible for the communications with community residents, visit the district officers and residents from time to time, caring, and being kind to the neighbors.

6. Governments: actively participate the regulation public hearing and seminar that host by the governing departments, maintain good interactions with the governments, and follow the government’s environmental protecting actions.

7. Non-governmental organizations: participating the professional seminars host by NGOs, listening to the suggestions from outsiders, keep tracking with the industrial changes, become the reference of CSR policy planning, organizing projects that supporting weakness and promoting environmental protection.

(IV) Directors and Supervisors Profession Enhancement Status

Innolux’s Directors and Supervisors have both professional background and practical experience. The company arranges further studies for Directors and Supervisors every year. For the latest further study updates please refer to page 43 of this annual report.

(V) Risk Management

Innolux has established a risk management system to regularly monitor the

33

Operation Item

Yes No Reasons


and reasons related financial risks, regulation risks, climate change risks, water resource risks, supplier chain risks, information safety risks, and the environment, safety, and health risks.

The factories in Taiwan and mainland China have reduced the risks of business suspension and improved the survival capability to face hazard incidents by implementing business continuity plans, including the subjects of earthquake, fire, information interrupts, and infectious disease in 2015.

(VI) The implementation of customer policy

1. The customer satisfaction service The company practicing the quality policy and views customer service as

the core value of this company. We continuously implement improvement plans for our internal process, such as the quality concepts of product design, manufacturing, information systems, and logistic cooperation, to provide the most competitive service in order to reach the highest customer satisfaction.

2. Customer satisfaction The company collect the KPI of services via VOC sysytem and we

monitor, analyze, and improve the feedback from customers. We also keep interacting with customers pro-actively.

(VII) The company implements and maintains D&O insurance for its Directors,

Supervisors, and key officers by the company Innolux maintains D&O insurance for its Directors, Supervisors, and key officers

VIII. Are there corporate governance evaluation reports done by the Company itself or outsourced to professional agencies? If yes, please state the evaluation result, major shortcomings or recommendations, and improvement:

Yes The company has followed TWSE’s policy to review the corporate governance implementation status item by item, the result disclosured on April 11th.


34

3.4.5 Composition, Responsibilities and Operations of the Compensation Committee A. The Compensation Committee Members’ Professional Qualifications and Independent Analysis

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience Independence Criteria(Note 2) Criteria

Name (Note 1)

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company

1 2 3 4 5 6 7 8

Number of Other Public Companies in Which the

Individual is Concurrently Serving for Compensation

Committee(Note3)

Independent Director Chi-Chia

Hsieh

－－ v v v v v v v v v 1

External Expert

Chi-Lin Wei －－ v v v v v v v v v 5

External Expert

Guan-Jun Wang

v －－ v v v v v v v v 1

Note 1: Director; Independent Director or others. Note 2: If Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate

corresponding boxes: 1. Not an employee of the company or any of its affiliates; 2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its

parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares; 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else’s name(s), in an

aggregate amount of one percent or more of the total number of issued shares of the company or ranking as one of its top ten shareholders; 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship of any of the above persons in the preceding three subparagraphs; 5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or

ranking as one of its top five shareholders; 6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with

the company; 7. Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal,

financial, accounting services, or consultation to the company or to any affiliate of the company, or a spouse thereof; 8. Has not been a person under any conditions defined in Article 30 of the Company Law.

Note 3: If the identity of the member is a board member, please state if that meets Article 6 Section 5 of Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter.

35

B. Compensation Committee Meeting Status Mr. Chi-Chia Hsieh, Chairman of the Compensation Committee, convened 3 regular meetings in 2015. The Committee members’ attendance status is as follows:

Title Name Attendance in Person (B) By Proxy Attendance rate (%) [B/A] Remarks

Chair Chi-Chia Hsieh 3 － 100 -

Member Chi-Lin Wei 3 － 100 -

Member Guan-Jun Wang 3 － 100 -

Annotation: 1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of

Directors in 2015. 2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a

dissenting opinion or qualified opinion.

36

3.4.6 Social Contributions

Operation

Item

Yes No Reasons

Difference from company social

responsibility practice principles for

TWSE/GTSM-Listed companies and

reasons I. Implementation of Corporate

Governance (I) Corporate social

responsibility policy and performance evaluation

(II) Has the company been

routinely organizing CSR trainings?

(III) Has the company established

a designated unit in charge of promoting CSR that consists of members of senior management authorized by the board and report to the board regarding its operation?

(IV) Has the company established

reasonable salary and renumeration policies that incorporate employee performance evaluation and CSR policies to create an definitive and effective system of merits/demerits?

Yes

Yes

No

No

(I) Innolux has established relevant CSR

policies although CSR policies has not yet to approve by Board of Director meeting directly, but still enacted relevant policies and guidelines have also been made available on the company’s website as a declaration of Innolux’s committment and obligation to fulfilling its corporate social responsibilities.

(II) In the orientation training for new employees, Innolux Code of Conduct training has been incorporated as a component. In addition, the company has also incorporated concepts of CSR by emphasizing values such as labor rights in the trainings for assembly line foreman and supervisors.

(III) Innolux has established a designated unit responsible for the promotion and planning of CSR in addition to the formulation of approaches and objectives for sustainable development. Innolux also convenes CSR committee meetings on a quarterly basis, although the company has not yet to report and CSR issue to Board of Director meeting directly but the President serving as the management representative. The meeting is attended by senior supervisors from various business divisions, HR, EHS department, green product management department and so forth to discuss the performance of CSR promotion and rate of object accomplishsment in an effort to fulfill the company’s corproate social responsibilities.

(IV) Innolux takes the issue of employee benefit and welfare very seriously and has taken steps to ensure that factors such as gender would result in different wage/benefit for employees. By taking various factors (such as employees‘ academic backgrounds, professional experience and surveys of reasonable market salaries) into consideration, Innolux is able to offer competitive salaries. Through the companys’ “Corporate Conduct and Ethics” ,“employee Code of Conduct“,”Employee Reward/Punishment Procedure“with CSR principle tally.

Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.

II. Sustainable Environment Development

(I) Commitment to improving resource utilization and the use of renewable materials

Yes

(I) Innolux has not only reduced its discharge

of contaminants from the source but also reduced the quantity of pollutants in its

Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s

37

Operation

Item

Yes No Reasons




reasons (II) Environmental management

system designed for industry characteristics.

(III) Company strategy for climate

change, energy conservation, and greenhouse gas reduction to reflect the affects on operating activities.

Yes

Yes

waste water discharge to increase its recycling rate.

(II) The company has been actively promoting relevant EHS management systems such as the ISO 14001, OHSAS18001 and so forth in order to facilitate a positive cycle of gradual improvement for green sustainability and safety culture.

(III) Innolux has completed its GHG inventory and 3rd party audit as prescribed by ISO 14064-1. Innolux has not only managed its GHG emission information through a GHG Information Platform but also actively participated in the international Carbon Disclosure Project (CDP). Innolux scored 100 points for disclosure in 2015 and was the top-ranking company in the panel industry. On top of that, Innolux was also selected as Asian Region’s for carbon disclosure in the Carbon Disclosure Leadership Index (CDLI).

CSR policies have no distinctive differences.

III. Maintaining social services (I) Has the company established

relevant management policies and procedures for social services in accordance with pertinent regulations and international conventions on human rights?

(II) Has the company established

systems/channels for employee complaints and handle the complaints in an appropriate manner?

(III) Does the company offer a safe

and healthy working environment for its employees and conduct safety and health education for employees on a regular basis?

(IV) Has the company established a system for routine communication with its employees and to inform employees regarding significant changes to the company’s operation in a reasonable manner?

Yes

Yes

Yes

Yes

(I) Innolux makes an effort to adhere to

pertinent regulations prescribed in the Labor Standards Act. In addition, specific regulations on labor rights have also been established in accordance with the Electronic Industry Code of Conduct,which states that employees shall be free from harrassments or discriminations for reasons including (but not limited to) race.

(II) Innolux has established a number of channels for employees filing complaints, including „Communication Hotline“, „Employee Communication Email“ and „Suggestion Box“ that have been setup at various facilities for employees to voice their opinions/thoughts with/without stating their names.

(III) The company has also established its EHS Division to take charge of operations including loss and risk aversion,EHS management and employee education and obtained OHSAS18001 from 2005.

(IV) By establishing comprehensive channels of communication and convening labor-management meetings and employee welfare commitee meetings on a quarterly basis, representatives of management (consisting of senior-ranking supervisors) and labor representatives (elected by employees) are able to engage in direct, bi-lateral communications. With regards to the notice of labor contract termination, relevant notification procedures are fully compliant with pertinent regulations.


38

Operation

Item

Yes No Reasons




reasons (V) Has the company established

effective career competence development/training plan for its employees?

(VI) Has the company established

relevant policies and complaint procedures for operations such as R&D, purchasing, production, operation and services to safeguard consumers‘rights?

(VII) Has the company adhered to pertinent regulations and international standards for the marketing and labeling of its products and services?

(VIII) Does the company evaluate

suppliers‘ past records of environmental/social impacts before forming partnerships with them?

(IX) Does the company’s contract

with its key suppliers include specific clauses that entail immediate termination or rescission of the contract should the supplier be found to violate the company’s CSR policies or cause significant impact on the environment/society?

Yes

Yes

Yes

Yes

Yes

(V) Guided by the philosophy that „talents are the foundation of the company’s development“, Innolux has established the „Employee Career Development Roadmap“and the company also offers a list of qualifications that correspond to specific positions, legal certificates and other diplomas in order to boost employees‘ vocational tenacity, competence and competitiveness.

(VI) Innolux has established operating principles that are customer-oriented and through means of telephone calls, email exchanges and face-to-face meetings, we are able to have solid grasp of customers‘needs so as to formulate improvement strategies to respond to customers in a timely manner.

(VII) Product safety has always been the most important consideration for consumers. And as such, safe product design and a series of safety specification accreditations have been incorporated at the early stage of proeduct design to ensure the safety of consumers. Innolux has taken the initiative to apply for international standard accreditation labels for its LCD panels in order to help consumers identify safe products at a glance.

(VIII) With regards to new suppliers, Innolux will refer to relevant guidelines on social/economic/environmental and supply chain assessment along with adequate risk evaluation to screen candidates before choosing official suppliers. Suppliers with actual/potential flaws in operation that have failed to show effective improvement despite notification and guidance from Innolux would be included in the list of forbidden/restricted suppliers.

(IX) Innolux reserves the right to halt payment/immediately terminate or rescind any contract of transaction/order and revoke the undersigned vendor or its affiliated businesses‘ qualification as an authorized supplier. Innolux would also be entitled to file for compensation for any losses incurred on the company’s part.

IV. Enhanced information disclosure

(I) Has the company disclosed relevant and reliable information relating to corporate social responsibilities on its website and/or MOPS?

Yes

Innolux has established a „Corporate Social Responsibilities“ section on its official website.


39

Operation

Item

Yes No Reasons




reasons V. If the company has established its CSR guideline in accordance with the „Corporate Social Responsibility Best

Practice Principles for TWSE/GTSM Listed Companies“, please describe the differences in the actual operation and principles established: The Company has not yet enacted “Corporate Governance Best Practice Principles for TWSE/GTSM Listed Companies” for the time being,but has established „Innolux Corporate Code of Conduct“ as a working guideline that prescribes the philosophies and behaviors that are expected of all Innolux employees. The code of conduct serves as a reminder that in the face of different challenges from compeititons, no one shall engage in amoral or illegal business activities for the sake of company profit or growth and that everyone at Innolux must adopt higher standards of self-expectation in order to create greater values to contribute to the society. Using tools such as PC startup screen, posters and relevant promotional platforms, Innolux has disseminated the contents of the code of conduct and incorporated CSR and employee code of conduct courses in the new employee orientations.

VI. Other important information that help to shed light on the company’s status of CSR fulfillment: Innolux publishes its CSR Report annually. The report features relevant chapters and contents on Innolux’s CSR commitment, corproate governance and development, initiatives such as „To Earth, with L.O.V.E“ and „To People, with S.M.I.L.E“ to offer comprehensive disclosure of relevant strategies, directions, measures and performance indicators for issues that were of concern to shareholders. As for Innolux’s CSR performance, in addition to the publication of the report, relevant information is also made available on the company’s website.

VII. A clear statement shall be made if the products or corporate social responsibility report of the Company pass the inspection of the relevant certification agencies: Innolux’s CSR Report for 2015 has been verified by 3rd party institute SGS Taiwan for full compliance with the AA1000AS (AccountAbility 1000 Assurance Standard) in Category II high assurance level and GRI G4’s requirement for comprehensive disclosure.

40

3.4.7 Taiwan Corporate Conduct and Ethics Implementation as Required by the Taiwan Financial Supervisory Commission

Operation

Item

Yes No Reasons

Difference from corporate integrity

practice principles for TWSE/GTSM-Listed

companies and reasons

I. Set up operational integrity policy and programs

(I) The company clarifies the integrity operation policy in its regulations and external documents and the commitment of the board of directors and managers to active implementation.

(II) Has the company established

solutions for the prevention of dishonest behaviors and specify relevant operating procedures, guidelines, disciplinary actions for violations and system of complaint and carried out relevant operations accordingly?

(III) Has the company taken

preventive measures for operations specified in item 2, Article 7 of the Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies and other business activities of higher risks of dishonest behaviors?

Yes

Yes

Yes

(I) Innolux has established Corporate

Conduct and Ethics and has clearly laid out the management’s philosophy of honest management also in the „CSR Management Handbook“ and „Code of Moral Conduct“. These documentations strictly require all employees to adhere to the company’s policies on honesty. Additionally, Innolux’s honest management policy and implementations by the board and management are duly disclosed in both the annual report and CSR report.

(II) With regards to the prevention of dishonest behavior, Innolux has established clearly defined regulations for appropriate behaviors in the”Corporate Conduct and Ethics” “Corporate Integrity Practice Principles of Innolux” „Code of Moral Conduct“, which states that any act of violation shall be subjected to corresponding punitive actions in accordance with pertinent regulations and work regulations. In addition, Innolux has also established relevant systems for loding complaints as a means for offending employees to seek aid.

(III) Should any Innolux employee be found to take part in any act of dishonesty, the offending employee shall receive corresponding disciplinary actions. Should said employee be found to be involved in incidents of corruption, receiving bribery/commission, theft, misappropriate/embezzle company property to result in loss of property/significant damage to the company’s reputation would face dismissal. Should any supplier be found to violate the commitment to honesty and integrity (including the offering/acceptance of bribery, offering illegal political contributions and so forth), Innolux would revoke the supplier’s status as a qualified supplier and cease all collaboration with said supplier.

Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies

II. Putoperation integrity into practice

(I) Does the company evaluate past records of businesses that deal with the company and incorporate terms of honest behavior in relevant contracts?

Yes

(I) The company request for global suppliers

has a cooperation relationship to follow the Supplier CSR Code of Conduct Operating Standards and sign the Supplier's Undertaking About the Code of


41

Operation

Item

Yes No Reasons




(II) Has the company established a

designated unit or personnel in charge of promoting corporate ethical management and reporting the status of implementation to the board on a routine basis?

(III) Has the company established

relevant policies to prevent conflicts of interests and offered suitable channels of communication? Has the company conducted relevant operations according to said policies?

(IV) Has the company established effective systems of accounting and internal control in an effort to achieve honest management? Has the company designated internal audit unit or appointed qualified accountants to carry out routine audits?

(V) Does the company conduct

internal/external training on honest management routinely?

Yes

Yes

Yes

No

Conduct Integrity, the company request suppliers to guarantee that they will refrain from bribes or offering to bribe Innolux's employees. Suppliers shall also not offer bribes or benefits to political parties or candidates.

(II) The company has not yet established a designated unit or personnel in charge of promoting corporate ethical management for the time being. In accordance with the philosophy of “Corporate Integrity Practice Principles of Innolux”, nevertheless, the Company has established an Integrity Committee, which is directly report to Chairman to investigation any contrary of integrity matters.

(III) The company clearly makes rules about preventing conflicts of interest in the Code of Conduct. If there is any violation, the company also provides a proper way to report, including a Mailbox for Anti-Corruption Reporting ([email protected]) and staff complaint mailboxes.

(IV) Based on the annual audit plan approved by the Board of Directors, perform the internal audit's fieldwork auditing or review depending on the risk. Report of the audit results on a regular basis to ensure that the board and managers are aware of the level of goal achievement in the fields of operational results and efficiency, financial reports are reliable, and the company complies with the relevant decrees.

(V) We have made all of our various policies available through easy access on our intranet and require all employees to be trained on corporate social responsibility, also promoted via internal computer boot screens, newsletters, and posters to enhance the staff’s understanding of these policies. We also require our stakeholders, such as our suppliers and vendors, to accept and abide by the integrity policy.

III. Implementation Status of the Company establishes the channels for reporting any ethical irregularities

(I) Has the company established a concrete whistleblowing and reward system? Has the company established a convenient reporting channel for whistleblowers and assigned appropriate personnel to handle the personnel being

Yes

(I) Innolux has implemented a Mailbox for

Anti-Corruption Reporting and staff complaint mailboxes to encourage employees and related people to report evidence. For anti-integrity and anti-corruption incidents, investigators will conduct confidential factual investigations. The investigation reports


42

Operation

Item

Yes No Reasons




reported? (II) Has the company established

standard operating procedures for whistleblowing and relevent confidentiality system?

(III) Has the company adopted any

measures to safeguard employees from being subjected to inappropriate treatment due to accusations of misconduct?

Yes

Yes

are submitted to the Integrity Commission for resolution and penalties are imposed internally or the incident is prosecuted.

(II) Innolux Corporation ratified the “Operating Standards for the Investigation and Management of Corruption Cases” as the investigation standard for incidents and related confidentiality systems.

(III) The company designed a confidentiality system to protect the informants and listed it in the Code of Conduct; the company will protect employees from any revenge due to reporting an incident.

IV. Enhanced information disclosure The company discloses the code of operational integrity and implements the results in its website and the Taiwan Stock Exchange's Market Observation Post System.

Yes The company discloses the Code of Conduct on the Company’s official website and Taiwan Stock Exchange's Market Observation Post System. It also discloses related information about operational integrity and implements results in the official website and corporate social responsibility report.


V. If the company makes its own integrity operation according to the Integrity Operation Best Practice Principles for TWSE/GTSM-Listed Companies, please state the differences. The Company has enacted “Corporate Integrity Practice Principles of Innolux” approved by Board of director meeting and disclose on the official website and M.O.P.S. Other important information for better understanding of the integrity operation (such as the company’s review and revise the regulations on integrity operation): In order to ensure full compliance to the company’s policies for honest management, all newcomers are required to sign a „Honesty, Integrity & IP Protection Agreement“ and suppliers over the world that collaborate with Innolux to sign the „Vendor Commitment“ in the hopes of helping all employees and collaborating partners of Innolux to understand and respect the company’s moral standards. In addition, the company has also been disseminating relevant concepts via workstation startup screens along with routine publication of legal-affairs & IP newsletters containing relevant legal issues so that „Honesty and Integrity“ would become the core of Innolux’s fundamental corporate culture. In addition, Innolux conducts business ethics regulation risk assessment on a yearly basis to monitor the company’s management of business ethics through internal control whilst verifying and updating pertinent regulations on business ethics.

A clear statement shall be made if the products or corporate social responsibility report of the Company passes the inspection of relevant certification agencies: The Company has submitted its annual report on corporate social responsibilities TTA for inspection.

43

3.4.8 Corporate Governance Guidelines and Regulations Please refer to the Company’s website at www. innolux.com 3.4.9 Other Important Information Regarding Corporate Governance

1. Standard operating procedures for the handling of vital internal information: Innolux has established its „Vital Internal Information Handling Procedure“ that clearly regulates the handling of important internal information and system of disclosure as a working reference for board members, supervisors, managers and employees to follow. Relevant procedures have been submitted to the board for approal and internal announcements have been made in the company along with relevant trainings for all employees.

2. Status of Directors and Supervisors' participation in corporate governance related courses and trainings as of the deadline of annual report publication April 30, 2016

Title Name Date Sponsoring Organization Course Training hours

Mar 20, 2015 Taiwan Corporate Governance Association

Audit Committee Practice Discussion 3

Chairman Hsing-Chien Tuan

Sept 01, 2015 Securities & Futures Institute

The regulations of the company insiders’ market manipulation and practice

3

May 28, 2015 Taiwan Corporate Governance Association

Corporate Governance and Securities regulations

3

Jun 15, 2015 Securities & Futures Institute

Determination of the business which is contrary to normal of insiders and apply the Business Judgment Rule

3 Director Hyield venture Capital Co., Ltd. Jeng-Wu Tai

Jun 30, 2015 Securities & Futures Institute How to use financial information to do business decisions

3



Director

Jialian Investment Co., Ltd. Jyh-Chau Wang Sept 01, 2015 Securities & Futures Institute


3



Independent Director Chi-Chia Hsieh



3




Stanley Yuk Lun Yim



3



Supervisor Ren-Guang Lin Sept 01, 2015 Securities & Futures Institute


3

Feb 05, 2015 Securities & Futures Institute Risk management system as part of the company operation

3



Supervisor Yi-Fang Chen

Apr 08, 2015 Securities & Futures Institute Employee remuneration policy and tool

3

44




3



Supervisor I-Chen investment Ltd. Te-Tsai Huang Sept 01, 2015 Securities & Futures Institute


3

45

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

April 30, 2016 Title Name Date Sponsoring Organization Course Training hours



Apr 27, 2015 Innolux Corporation Compliance with Anti-Trust Law 1 Chairman Hsing-Chien

Tuan



3



Apr 27, 2015 Innolux Corporation Compliance with Anti-Trust Law 1

Aug 03, 2015 Innolux Corporation Trade secret act and policy of Anti- corruption

0.5 President Jyh-Chau Wang



3


Aug 03, 2015 Innolux Corporation Compliance with Anti-Trust Law 0.5 Vice

President Wen-Jyh Sah


0.5




Aug 03, 2015 Innolux Corporation Compliance with Anti-Trust Law 0.5

Vice President Chin-Lung Ting


0.5






0.5

Vice President Yao-Tong Chen



3






0.5

Vice President

Chih-Hung Hsiao



3



Vice President

Hung-Wen Yang


0.5

46




3




0.5 Vice

President Chih-Ming Chen



3




0.5 Vice

President Chu-Hsiang Yang



3


Audit Committee Practice Discussion

3


Aug 03, 2015 Innolux Corporation Trade secret act and policy of Anti- corruption 0.5 Manager Chien-Lang Lo



3


Audit Committee Practice Discussion

3


Aug 03, 2015 Innolux Corporation Trade secret act and policy of Anti- corruption 0.5 Manager Chin-Yuan

Chang



3

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

Information Number of Employees Certification

Finance&Accounting Internal Audit Certified Internal Auditor (CIA) - 2 Chartered Financial Analyst (CFA) 1 - Financial Risk Manager (FRM) 1 - Senior Securities Specialist 6 - Securities Specialist 5 - Internal controller test of Securities & Futures Institute

1 -

47

3.4.10 Internal Control System 1. Statement of internal control system

Innolux Corporation

Statement of Internal Controls Date: Feb 02, 2016

According to the examination on internal control systems done by the Company itself in 2015, we hereby state as follows:

I. The Company’s board of directors and management team understand their responsibilities of developing, implementing and maintaining the Company’s internal control system, and such a system has been established. The purpose of establishing the internal control system is to reasonably assure the following objectives: (a) The effectiveness and efficiency of business operation (including earnings, operation performance, and the safeguard of company assets); (b) The reliability of the financial and related reports; and (c) The compliance of the relevant laws/regulations and company policies;

II. Due to the innate limitations in designing a faultless internal control system, this system can only assure that the reasonableness of the above three objectives has been fairly achieved. In addition, the effectiveness of the internal control system may change over time due to the change of the business environment or situation. Since the Company’s internal control system has included a self-examination capability, the Company will make immediate corrections when errors are detected.

III. The evaluation of effectiveness of the internal control system design and implementation is made in accordance with the “Guidelines for the Establishment of Internal Control Systems by Public Companies” (the Guidelines). The Guidelines are made to examine the following five factors during the management and control process: (1) control environment, (2) risk assessment and response, (3) control activities, (4) information and communication, and (5) supervision. Each factor also includes several items. Details of each factor can be found in the Guidelines.

IV. The Company has examined the effectiveness of each respected area in the internal control system based on the Guidelines.

V. The examination results indicated that the Company’s internal control system (including subsidiary governance) dated December 31, 2015 had effectively assured that the following objectives had been reasonably achieved during the assessing period: (a) The degree of effectiveness and efficiency of business operation; (b) The reliability of the financial and related reports; (c) The compliance of the relevant laws/regulations and company policies

VI. This Statement is a significant part of the Company’s annual report and prospectus available to the general public. If it contains false information or omits any material content, the Company is in violation of Article 20, Article 32, Article 171, and Article 174 set forth in the Taiwan’s Securities and Exchange Act.

VII. The Company hereby declares that this statement had been approved by the Board of Directors on Feb 02, 2016. Among the 5 attending Directors, no one raised any objection to the contents of this statement.

Innolux Corporation Chairman: Hsing-Chien Tuan General Manager: Hsing-Chien Tuan

2. Hire an accountant to audit the Company’s internal control system and disclose the audit report

made by accountants: None.

48

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

3.4.12 Major Resolutions of Shareholders’ Meeting and Board Meetings

1. Important resolutions and implementation made by the Shareholders’ Meeting and Board of Directors by the end of 2015 (1) Adoption of the 2014 Business Report and Financial Statements

Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(2) Adoption of the Proposal for Distribution of 2014 Profits Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(3) Carried the resolution to process domestic capital increase by cash to issue common shares, to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Status of execution: Resolution carried and the Board has been authorized to conduct fund raising but it is no any shares issued in the latest year and up to the printing date of this Annual Report.

(4) Resolution to revise Innolux’s charter carried. Status of execution: Resolution carried and implemented in accordance with the revised procedure Implementation Status: Fully implemented in accordance with the resolutions

(5) Resolution to revise Innolux’s Rules of Shareholders' Meeting. Status of execution: Resolution carried and. Implementation Status: Fully implemented in accordance with the resolutions

(6) Resolution to revise Innolux’s Election Rules of Directors and Supervisors of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

2.Important resolutions by the Board for 2015 prior to the deadline of annual report publication Item Major resolutions

The Company’s individual financial statements and consolidated financial statements, 2014. Proposal to execute agreement with Bank of Taiwan and other financial institution(s) for NT$6.85 billion syndicated loans. Revocation of the Company’s capital increase through cash injection to issue common shares and issue global depositary receipts (GDR). Proposal for syndicated loans for the capital expenditures for the Company in 2015. In line with the Company’s investment deployments in Taiwan and the Company’s need for land for Tainan Plant regions, it is proposed that the Company should obtain assets required for business operation through auction by court. Proposal to revoke the Company’s restriction upon employees’ right for new shares issued in Quarter IV, 2014. Passed the assessment of the independence and appropriateness. Proposal for execution of short-term loan agreements with financial institutions. Declaration of the Company’s internal control system 2014.

February 10,2015

Amendment of the Company’s “Full Incentive System along with Appendix for Managerial Officers” and submittal of the “Full Incentives for Managerial Officers 2014”. The Company’s Business Plan 2015. Amendment of the Company’s “Procedure Rules for Shareholders’Meeting”. Amendment of the Company’s “Regulations Governing Election of Directors and Supervisors”. Proposal to convene the Company’s regular shareholders meeting 2015.

March 20,2015

Proposal for execution of short-term loan agreements with financial institutions. Prepare and compile Innolux’s Account of Business for 2014. April 28,2015 Draft of Innolux’s Dividend Remittance for 2014.

49

Item Major resolutions Proposal to process domestic capital increase by cash to issue common shares,to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Amendment to Articles of Incorporation of the Company. New proposals at the 2015Annual Meeting of Shareholders. Proposal to supplemental public issuance of Private Equity. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter I, 2015. The company merger with subsidiary Chi Mei EL Corporation. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter II, 2015. Proposal for execution loan agreements with financial institutions. The rule of remuneration to directors and supervisors and the amount of remuneration to directors and supervisors for 2014.

July 30,2015

The Compensation Committee is proposing manager bonus for the year of 2014. Approve the financial reporting assessment of the company. Approve the motion of the enactment of the“Procedures for halt and resumption applications”. Passed the motion of the enactment of the“Ethical Corporate Management Best Practice Principles”. Passed the motion of the enactment of “Employee Retired Management approach in Taiwan”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter III, 2015. Passed the Audit plan of 2016.

October 29, 2015

Proposal for execution of loan agreements with financial institutions. Amendment to part of the provisions of the“Articles of Incorporation”. The Company’s individual financial statements and consolidated financial statements, 2015. Passed the assessment of the independence and appropriateness. The Company’s Business Plan 2016. Proposal for syndicated loans for the capital expenditures for the Company in 2016. Amendment to part of the provisions of the“Rules for Shareholders Meeting”&“Election Rules of Directors and Supervisors”. Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of Assets”&“Polices and Procedures for Financial Derivates Transactions” &“Procedures for Loaning of Funds to Others” &“Procedures for Endorsement & Guarantee”. Election the members of the Seventh Term Board of Directors. Proposal to convene the Company’s regular shareholders meeting 2016. Amendment of the Company’s “Full Incentive System along with Appendix for Managerial Officers” and submittal of the “Full Incentives for Managerial Officers 2015”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter IV, 2015.

February 2, 2016

Declaration of the Company’s internal control system 2015. Proposal for execution of loan agreements with financial institutions.

50

3.4.13 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors

None 3.4.14 Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports

None

51

3.5 Information Regarding Innolux’s Independent Auditors

Accounting Firm Name of CPA Audit Period Note Pricewaterhousecoopers Wu, Han-Chi Sheng-Chung Hsu Jan 1, 2015 - Dec 31, 2015

Unit: NT$ thousands

Items Amount Range Audit Fee Non-Audit Fee Total

1 Below 2 million 2 2 million to 4 million 3 4 million to 6 million 4 6 million to 8 million 5 8 million to 10 million 6 Above 10 million V V V

3.5.1 Non-audit fee paid to auditors, the audit firm and its affiliates accounted for more than

one-fourth of total audits Fees should disclosure the audit fee and non-audit fee amount and non-audit service content

Audit Fee: NT$ Thousands Non-Audit Fee Accounting

Firm Name of CPA Audit Fee System

Design Company

Registration Human resource Others Subtotal

Audit Period Note

Pricewaterhousecoopers

Han-Chi Wu Sheng-Chung Hsu 21,714 - 160 - 13,012 13,172

Jan 1, 2015 to

Dec 31, 2015 -

3.5.2 Replaced the audit firm and the audit fee paid to the new audit firm was less than the

payment of the previous year: No. 3.5.3 Audit fee reduced more than 15% year over year, required to disclose the reduced

amount, proportion, and reason: No. 3.6 Replacement of independent auditors:N.A. 3.7 The Company’s chairman, general manager, or any managerial officer in charge of

finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise: None

52

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

Unit: Per share 2014 2015 As of Apr. 30, 2016

Title Name (Note 1) Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Holding Increase

(Decrease)


(Decrease)

Holding Increase

(Decrease)


(Decrease) Chairman & CEO Hsing-Chien Tuan 1,414,994 － (350,000) (8,000,000) 290,000 －

Institutional Director Hyield Venture Capital Co., Ltd

12,321,996 －－－－－

Representative Jemg-Wu Tai(Note 2) －－－－－－

Institutional Director Jialian investment Co., Ltd 745,888 －－－－－ Representative Jyh-Chau Wang 121,179 － 86,000 － 320,000 －

Independent Director Stanley Yuk Lun Yim －－－－－－

Independent Director Chi-Chia Hsieh －－－－－－

Supervisor Ren-Guang Lin －－－－－－

Supervisor Yi-Fang Chen －－－－－－ Supervisor I-Chen investment Ltd. 1,924,427 －－－－－

Representative Te-Tsai Huang 14,859 －－－－－

Vice President Wen-Jyh Sah 352,000 － 204,000 － 180,000 －

Vice President Chin-Lung Ting 165,068 － (415,000) － 160,000 －

Vice President Yao-Tong Chen (255,196) － (55,000) － 80,000 － Vice President Chih-Hung Hsiao 872,544 － (3,730,000) － 200,000 － Vice President Hung-Wen Yang 23,846 － (340,000) － 160,000 － Vice President Chih-Ming Chen (45,807) － (293,000) － 151,000 － Vice President Chu-Hsiang Yang 406,537 － (166,000) － 140,000 － Associate Vice President Kuo-Hsiung Kuo 188,005 － 120,000 － 120,000 － Associate Vice President Ke-Yi Kao 198,554 － 102,000 － 120,000 － Associate Vice President Chung-Kuang Wei (64,508) － 84,000 － 120,000 － Associate Vice President Tai-Chi Pan 412,423 － (230,000) － 120,000 － Associate Vice President Jia-Pang Pang 308,980 － 120,000 － 120,000 － Associate Vice President Zheng-Xia Kuo 229,802 － 34,000 － 160,000 － Associate Vice President Tian-Ren Lin 526,353 － 84,000 － 64,000 － Associate Vice President Yu Shui Kuo (Note 3) －－ 80,000 － 80,000 － Associate Vice President Mao-Sheng Hung(Note4) －－－－ 136,000 － Associate Vice President Jun-Yi Yu(Note4) －－－－ 96,000 － Associate Vice President Qing-Hui Lin(Note4) －－－－ 56,000 －

Manager Chien-Lang Lo(Note5) －－ (53,000) － 24,000 － Manager Chin-Yuan Chang 32,339 － (108,000) － 42,000 －

Note 1: Refers to current managerial officers as of the printing date of the annual report Note 2: Appointed to office on September 11, 2015 thus the change in equity in 2015 was not calculated. Note 3: Appointed to office on December 01, 2014 thus the change in equity in 2014 was not calculated. Note 4: Appointed to office on December 25, 2015 thus the change in equity in 2015 was not calculated. Note 5: Appointed to office on May 07, 2014 thus the change in equity in 2014 was not calculated. Note 6: The increase(decrease) of the shares held includes the inward or outward transfer of the trusted shareholding. 3.8.2 Shares Trading with Related Parties None 3.8.3 Shares Pledge with Related Parties None

53

3.9 Information Disclosing the Relationship between any of the Company’s Top Ten Shareholders

Shareholding Spouse & Minor Shareholding by Nominee Arrangement

The relationship between any of the Company’s Top Ten Share

holders

Remarks % Name

Shares % Shares % Shares % Name Relation Chimei Corporation 570,929,561 5.74% －－－－ N.A. N.A. Representative: Hsu Chun-hua

－－－－－－ N.A. N.A.

Cathay Life Insurance Co.,Ltd.

244,300,330 2.46% －－－－ N.A. N.A.

Representative: Tsai Hong-Tu

－－－－－－ N.A. N.A.

Terry Gou 243,964,977 2.45% －－－－ Hon Hai

Precision Ind. Co., Ltd.

Chairman

Hyield Venture Capital Co., Ltd 176,311,219 1.77% －－－－

Hon Hai Precision Ind.

Co., Ltd.

Subsidiary of Hon Hai


Representative: Te-Tsai Huang

212,619 －－－－－ N.A. N.A.

Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

152,264,726 1.53% －－－－ N.A. N.A.

Terry Gou Chairman

Hon Hai Precision Ind. Co., Ltd.

147,965,363 1.49% －－－－ Hyield Venture Capital Co., Ltd

Subsidiary of Hon Hai


Representative: Terry Gou 243,964,977 2.45% －－－－

Hon Hai Precision Ind.

Co., Ltd. Chairman

Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custody of Newly Emerging Market Evaluation Fund

142,560,544 1.43% －－－－ N.A. N.A.

Compal Electronics, Inc. 134,877,335 1.36% －－－－ N.A. N.A. Representative: Hsu, Sheng-Hsiung

2, 317,754 0.02% －－－－ N.A. N.A.

Foxconn Technology Co., Ltd.

127,556,349 1.28% －－－－ N.A. N.A.

Representative: Lin, Dong Liang

－－－－－－ N.A. N.A.

JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets Equity Pool

123,639,169 1.24% －－－－ N.A. N.A.

54

3.10 The number of shares held by the Company, the Company’s directors and supervisors, managerial officers and enterprises under control, either directly or indirectly, with consolidated calculation of the comprehensive shareholding ratio. As of 12/31/2015

Ownership by INX

Ownership by Directors, Managers, and

Directly/Indirectly Owned Subsidiaries

Total Ownership Long-term Investment

Shares % Shares % Shares % Asiaward Investment Ltd. - - 77,830,001 100% 77,830,001 100% Best China Investments Ltd. - - 10,000,001 100% 10,000,001 100% Bright Information Holding Ltd. 4,910,000 100% - - 4,910,000 100% Golden Achiever International Limited 40,250 100% - - 40,250 100% InnoLux Corporation - - 2,000 100% 2,000 100% Innolux Holding Ltd. 246,768,185 100% - - 246,768,185 100% Innolux Hong Kong Holding Limited 1,158,844,000 100% - - 1,158,844,000 100% Innolux Hong Kong Limited - - 35,000,000 100% 35,000,000 100% Innolux Optoelectronics Europe B.V. 180 100% - - 180 100.% Innolux Optoelectronics Germany GmbH - - 250 100% 250 100% Innolux Optoelectronics Hong Kong Holding Ltd.

- - 162,897,802 100% 162,897,802 100%

Innolux Optoelectronics Japan Co., Ltd. 80 100% - - 80 100% Innolux Optoelectronics USA, Inc. - - 1,000 100% 1,000 100% Innolux Technology Europe B.V. - - 375,810 100% 375,810 100% Innolux Technology Germany GmbH - - 100,000 100% 100,000 100% Innolux Technology Japan Co., Ltd. - - 201 100% 201 100% Innolux Technology USA Inc. - - 1,000 100% 1,000 100% Keyway Investment Management Limited 5,656,410 100% - - 5,656,410 100% Lakers Trading Ltd. - - 1 100% 1 100% Landmark International Ltd. 709,450,000 100% - - 709,450,000 100% Leadtek Global Group Limited 50,000,000 100% - - 50,000,000 100% Magic Sun Ltd. - - 38,000,001 100% 38,000,001 100% Main Dynasty Investment Ltd. - - 139,623,801 100% 139,623,801 100% Mega Chance Investments Ltd. - - 18,000,000 100% 18,000,000 100% Nets Trading Ltd. - - 900,001 100% 900,001 100% Rockets Holding Ltd. - - 226,504,550 100% 226,504,550 100% Stanford Developments Ltd. - - 164,000,000 100% 164,000,000 100% Sun Dynasty Development Ltd. - - 295,969,001 100% 295,969,001 100% Suns Holding Ltd. - - 18,177,052 100% 18,177,052 100% Toppoly Optoelectronics (B.V.I.) Ltd. 144,447,000 100% - - 144,447,000 100% Toppoly Optoelectronics (Cayman) Ltd. - - 144,417,000 100% 144,417,000 100% Warriors Technology Investments Ltd. - - 18,177,052 100% 18,177,052 100% Shanghai Innolux Optoelectronics Ltd. - - - 100% - 100% Yuan Chi investment co., Ltd - 100% - - - 100% Foshan Innolux Optoelectronics Ltd. - - - 100% - 100% Foshan Innolux Logistics Ltd. - - - 100% - 100% VAP Optoelectromics (NanJing) Corp. - - - 100% - 100% Kunpal Optoelectronics Ltd. - - - 100% - 100% Nanjing Innolux Technology Ltd. - - - 100% - 100% Nanjing Innolux Optoelectronics Ltd. - - - 100% - 100% InnoJoy Investment Corp. 167,405,392 100% - - 167,405,392 100% Innocom Technology (Shenzhen) Co., LTD - - - 100% - 100% Ningbo Innolux Technology Co., LTD - - - 100% - 100% Ningbo Innolux Optoelectronics Co., LTD - - - 100% - 100% Ningbo Innolux Display LTD - - - 100% - 100% Ningbo Innolux Logistics LTD - - - 100% - 100%

55

IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital A. Type of Stock

Authorized Capital Outstanding Share Type

Issued Shares Unlisted Total Shares Un-issued

Shares Total Remarks

Common Shares 9,952,681,577 - 9,952,681,577 547,318,423 10,500,000,000

B. Issued Shares

Unit: Shares Thousand ; NT Thousand Authorized Capital Paid-in Capital Remark

Month/ Year

Par Value Shares Amount Shares Amount Sources of Capital

Capital Increased by Assets Other

than Cash Other

2003.01 - 120,000 1,200,000 35,000 350,000 Created at inception None 2003.01.14

Yuan-Shang-Zih No. 0920001669

2003.05 10 120,000 1,200,000 100,000 1,000,000 65 million shares from cash capital increase None

2003.05.30 Yuan-Shang-Zih No.

0920013164

2003.10 10 1,000,000 10,000,000 300,000 3,000,000 200 million shares from cash capital increase None


0920030835

2004.04 10 1,000,000 10,000,000 900,000 9,000,000 600 million shares from cash capital increase None


0930013914

2004.09 12 2,500,000 25,000,000 1,500,000 15,000,000 600 million shares from cash capital increase None


9300030355



0940019992

2006.01 - 2,500,000 25,000,000 2,106,624 21,066,240 6.624 million new shares issued upon the exercise of employee stock options

None 2006.02.13



None 2006.05.09


2006.09 - 2,500,000 25,000,000 2,112,129 21,121,290 273 thousand new shares issued upon the exercise of employee stock options

None 2006.10.16




0950032417


None 2007.02.09


2007.03 - 3,300,000 33,000,000 2,331,706 23,317,062 5.650 million shares from capital increase in connection with merger

None 2007.05.30



None 2007.05.31



None 2007.08.30


2007.09 - 3,300,000 33,000,000 2,442,155 24,421,550 101.390 million shares from capital increase through capitalization of retained earnings

None 2007.09.19



None 2007.10.29


2007.11 146 3,300,000 33,000,000 2,742,372 27,423,720

300 million shares from cash capital increase to participate in the issuance of overseas depositary receipts

None 2007.12.10


56

Authorized Capital Paid-in Capital Remark Month/ Year



than Cash Other


None 2008.02.12



None 2008.05.14



None 2008.08.21



None 2008.09.09



None 2008.11.18



None 2009.03.02



None 2009.05.18



None 2009.07.23



None 2009.09.07



None 2009.11.19



None 2010.02.12


2010.03 - 10,500,000 105,000,000 8,032,930 80,329,300

4,778,089,000 common stocks from capital increase in connection with merger; private placement of 731.707 million preferred shares

None 2010.03.30



None 2010.04.29



None 2010.08.26


2010.11 - 10,500,000 105,000,000 7,311,789 73,117,890 Reduced capital by 731.707 million shares through private placement of preferred shares

None 2010.11.11


2011. 01 - 10,500,000 105,000,000 7,311,809 73,118,090 20 thousand new shares issued upon the exercise of employee stock options

None 2011.01.03


2011. 03 - 10,500,000 105,000,000 7,312,674 73,126,740 865 thousand new shares issued upon the exercise of employee stock options

None 2011.03.25



None 2011.05.04



None 2011.07.26



None 2011.11.28



2012.10.15 Yuan-Shang-Zih No. 1010031831

2013.02 12.98 10,500,000 105,000,000 9,037,970 90,379,700

1.125 billion shares from cash capital increase to participate in the issuance of overseas depositary receipts

None 2013.02.18


2013.02 5/- 10,500,000 105,000,000 9,100,272 91,002,720

Issuance of 31,151,000 new shares with restricted employee rights at positive consideration Issuance of 31,151,000 new shares with restricted employee rights at nil consideration

None 2013.02.21


2013.04 5/- 10,500,000 105,000,000 9,101,960 91,019,600 Issuance of 844,000 new shares None 2013.04.16

57

Authorized Capital Paid-in Capital Remark Month/ Year



than Cash Other

with restricted employee rights at positive consideration Issuance of 844,000 new shares with restricted employee rights at nil consideration


2013.08 10,500,000 105,000,000 9,101,670 91,016,700 Capital reduced by 290,000 new shares with restricted employee rights

None 2013.08.23


2013.11 - 10,500,000 105,000,000 9,100,892 91,008,920 Capital reduced by 778,000 new shares with restricted employee rights

None 2013.11.27


2013.12 5/- 10,500,000 105,000,000 9,109,428 91,094,280

Issuance of 4,268,000 new shares with restricted employee rights at positive consideration Issuance of 4,268,000 new shares with restricted employee rights at nil consideration

None 2013.12.27


2014.04 - 10,500,000 105,000,000 9,106,457 91,064,570 Capital reduced by 2,970,000 new shares with restricted employee rights

None 2014.04.10

Zhu-Shang-Zih No.1030009955


2014.09.05 Zhu-Shang-Zih No.1030026932

2014.09 - 10,500,000 105,000,000 9,955,407 99,554,070 Capital reduced by 1,049,000 new shares with restricted employee rights

None 2014.09.05



None 2014.11.19



None 2015.03.17



None 2015.05.20



None 2015.08.19



None 2015.11.18



None 2016.02.26


C. Information for Shelf Registration: None

58

4.1.2 Status of Shareholders As of 04/26/2016

Item Government Agencies

Financial Institutions

Other Juridical Person

Domestic Natural Persons

Foreign Institutions &

Natural Persons

Total

Number of Shareholders 7 76 541 342,104 1,117 343,845 Shareholding (shares) 40,625,931 420,193,941 2,086,443,656 3,431,690,713 3,973,727,336 9,952,681,577 Percentage 0.41% 4.22% 20.96% 34.48% 39.93% 100.00% 4.1.3 Shareholding Distribution Status A. Common Shares (The par value for each share is NT$10)

As of 04/26/2016

Class of Shareholding (Unit: Share) Number of Shareholders Shareholding (Shares) Percentage

1 ~ 999 95,792 29,954,318 0.30% 1,000 ~ 5,000 153,102 359,543,209 3.61% 5,001 ~ 10,000 42,316 325,626,402 3.27% 10,001 ~ 15,000 15,579 191,359,672 1.92% 15,001 ~ 20,000 10,052 184,728,543 1.86% 20,001 ~ 30,000 9,190 231,471,800 2.33% 30,001 ~ 50,000 7,499 299,257,017 3.01% 50,001 ~ 100,000 5,631 402,756,336 4.05% 100,001 ~ 200,000 2,392 335,440,568 3.37% 200,001 ~ 400,000 1,054 294,224,607 2.96% 400,001 ~ 600,000 366 180,230,410 1.81% 600,001 ~ 800,000 170 117,785,964 1.18%

800,001 ~ 1,000,000 125 112,181,206 1.13% 1,000,001 or over 577 6,888,121,525 69.20%

Total 343,845 9,952,681,577 100.00% 4.1.4 List of Major Shareholders

As of 04/26/2016 Shareholding

Shareholder's Name Shares Percentage

Chimei Corporation 570,929,561 5.74% Cathay Life Insurance Co.,Ltd. 244,300,330 2.46% Terry Guo 243,964,977 2.45% Hyield Venture Capital Co., Ltd 176,311,219 1.77% Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

152,264,726 1.53%

Hon Hai Precision Ind. Co., Ltd. 147,965,363 1.49% Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custody of Newly Emerging Market Evaluation Fund.

142,560,544 1.43%

Compal Electronics, Inc. 134,877,335 1.36% Foxconn Technology Co., Ltd. 127,556,349 1.28% JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets Equity Pool

123,639,169 1.24%

59

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Unit: NT$ Thousand share

Year Item 2014 2015 As of 03/31/2016

Highest Market Price 15.95 19.35 11.60 Lowest Market Price 10.05 9.10 8.80 Market Price

per Share Average Market Price 12.77 13.48 10.29

Net Worth per Share

Before Distribution 22.87 23.34 22.39

Weighted Average Shares (thousand shares) 9,377,302 9,922,525 9,941,843

Earnings per Share Diluted

Earnings Per Share

Adjusted Diluted Earnings Per Share 2.31 1.09 (0.86)

Cash Dividends 0.7 0.2(Note) N.A. Dividends from Retained Earnings

－－－ Stock Dividends Dividends from

Capital Surplus －－－

Dividends per Share(Note2)

Accumulated Undistributed Dividends None None None

Price/Earnings Ratio 5.53 12.37 N.A. Price/Dividend Ratio 18.24 67.40 N.A. Return on

Investment Cash Dividend Yield Rate 5.48% 1.48% N.A.

Note:2015 Distribution of Dividends already gets approval from the Board of Directors, subject to shareholders’ approval in Annual General Shareholders’ Meeting.

60

4.1.6 Dividend Policy and Implementation Status A. Dividend Policy

When allocating the net profits for each fiscal year, the following order shall be followed: (1) To cover losses (2) To transfer 10% to the legal reserve account (3) To transfer the others to the special reserve account or reverse special reserve account pursuant

to the regulation (4) To pay dividends on preferred shares (5) To distribute the remaining pursuant to the profit distribution proposal of the Board and subject

to shareholders’ approval at Annual Shareholders’ Meeting.

The Company is growing stably in a fast-growing and capital-intensive emerging industry. The Board shall prepare a dividend distribution proposal that caters to the future long-term financial planning of the Company, the investment environment and industrial competition, by taking into account the future capital expenditure and capital requirements of the Company, subject to the approval of the shareholders’ meeting. Nevertheless, the amount of dividend distributed to the shareholders shall not exceed two-thirds of the total amount of dividend during the year. B. Proposed Distribution of Dividend

The Board adopted a proposal in May 12, 2016 for profit distribution as follows: Cash Dividends to Common Shareholders from retained earnings: NT$ 0.2 (Per share). The proposal is subject to shareholders’ approval at the 2016 Annual Shareholders’ Meeting.

C. Significant changes of Dividend policy: None. 4.1.7 Effect of 2016 Share Dividends to Operating Performance and EPS. No financial forecast disclosed for 2016, therefore not applicable. 4.1.8 Employee, Directors' and Supervisors' Remuneration A. Information Relating to EmployeeS’, Directors’ and Supervisors’ Remuneration in the Articles

of Incorporation The annual budgeted net income of the Company shall be distributed in the following order:

To pay not less than 5% of the net income as employees’ bonuses and which less than 0.1% shall be paid as remuneration to directors and supervisors after recover loss.

A company may, by a resolution adopted by a majority vote at a meeting of board of directors

attended by two-thirds of the total number of directors, have the profit distributable as employees’ compensation in the preceding two paragraphs distributed in the form of shares or in cash; and in addition thereto a report of such distribution shall be submitted to the shareholders’ meeting.

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

B. Estimate Foundation of Employee Bonus and Directors’ and Supervisors’ Remuneration

The company has an amount equivalent to a certain percentage of the current net earnings (net income before tax before deducting the remuneration to employees and the remuneration to directors and supervisors) minus the accumulated losses estimated and appropriated as remuneration to employees and remuneration to directors and supervisors, which will be reported as operating cost or operating expense. The remuneration to employees paid with stock is with the

61

number of shares calculated in accordance with the closing price of common stock in the day prior to the resolution reached by the board of directors. If there is any change in the estimated stock share to be distributed after the publication of the financial report in the following year, it is to be treated as changes in accounting estimates and with the effect of such change recognized in the profit and loss of the following year.

C. Profit Distribution of 2015 Approved in Board of Directors Meeting for Employee Bonus and

Directors’ and Supervisors’ Remuneration

(1) For the remuneration to employees and remuneration to directors and supervisors paid in cash or with stock shares: If such distribution amount is different from the estimated amount recognized, the amount of difference, root cause, and accounting treatment should be disclosed as follows:

It was resolved in the company’s board meeting on May 12, 2016 to have the remuneration to employees paid in cash for an amount of NT$734,523,681 and the remuneration to directors and supervisors for an amount of NT$4,489,924.

The estimated remuneration to employees and the estimated remuneration to directors

and supervisors referred to above is different from the estimated expense in 2015 for an amount of NT$510,076 that will be treated as changes in accounting estimates and booked as profit and loss adjustments for 2016 after a resolution reached in the shareholders’ meeting.

(2) The amount of remuneration to employees paid with stock shares and its ratio to the net

income and total employee remuneration in the current proprietary or individual financial report:

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

D. Information of 2014 Earnings Set Aside to Employee Bonus and Directors’ and Supervisors’

Remuneration: Distribution of 2014 Earnings (NT$) Directors' and Supervisors' Remuneration $6,954,142 Employee Bonus $1,436,186,891 Employees’ bonus and directors’ and supervisors’ remuneration were accrued at $1,436,187 and $0, respectively, for the year ended December 31, 2014. The amount was accrued by considering the period’s net profit after tax, legal reserve amongst other factors and the Company’s Articles of Incorporation. As resolved by the stockholders in June 2015, employees’ bonus and directors’ and supervisors’ remuneration were $1,436,187 and $6,954, respectively, resulting to a difference of $6,954 from the amounts in 2014 financial statements. The difference was caused by different accrual ratio which has been processed as accounting estimates after being approved at the stockholders’ meeting and recorded as expense in 2015. (NT$ Thousand)

4.1.9 Buyback of Common Stock: None 4.2 Issuance of Corporate Bonds 4.2.1 Corporate Bonds: None. 4.2.2 Convertible Bonds: None. 4.2.3 Exchangeable Bonds: None. 4.2.4 Shelf Registration: None. 4.2.5 Bond with Warrants: None. 4.2.6 Private placement of Corporate Bonds: None. 4.3 Preferred Shares: None.

62

4.4 Issuance of Global Depositary Shares Issuing Date

Item 01/23/2013

Issuing Date 01/23/2013 Issuance & Listing Luxembourg Stock Exchange Total Amount (US$) 453,701,250 Offering Price Per GDS (US$) 4.481 Units Issued 101,250,000 Underlying Securities Common Shares Common Shares Represented 1,012,500,000 Rights & Obligations of GDS Holders Same as those of Common Share Holders Trustee Not Applicable Depositary Bank Citibank, N.A. – New York Custodian Bank Citibank, N.A. – Taipei Branch ADSs Outstanding(units) 193,873 Apportionment of Expenses for Issuance & Maintenance

Borne by INX

Terms and Conditions in the Deposit Agreement & Custody Agreement

See Deposit Agreement and Custody Agreement for Details

High 6.17 Low 2.81 2015 Average 4.30 High 3.53 Low 2.71

Closing Price Per GDS(US$) Jan 1, 2016

- Apr 30, 2016 Average 3.10

63

4.5 Employee Stock Options 4.5.1 Issuance of Employee Stock Options

Unit: NT $: per share Type of Stock Option 2010 Regulatory approval date Jun 9, 2010 Issue date May 19, 2011 Units issued 50,000,000 Option shares to be issued as a percentage of outstanding shares

0.50%

Duration 5 Years Conversion measures New Common Share Conditional conversion periods and percentages

2nd Year: 30% 3rd Year: 60% 4th Year: 100%

Converted shares － Exercised amount － Number of shares yet to be converted 50,000,000 Adjusted exercise price for those who have yet to exercise their rights

21.87

Unexercised shares as a percentage of total issued shares

0.50%

Impact on possible dilution of shareholdings Dilution to Shareholders’ Equity is limited Note:The aggregate total of issued and outstanding shares represents the aggregate total of issued and

outstanding shares having been reported to and registered in the Ministry of Economic Affairs as of the Annual Report date.

64

4.5.2 List of Executives and the Top 10 Employees Receiving Employee Stock Options Apr 30, 2016; Unit: Thousand

Exercised Unexercised

Title Name

No

. of O

ption

Sh

are

s

Op

tion S

ha

res a

s a

Pe

rcentage

of

Sh

are

s lssued

No

. of S

ha

res

Conve

rted

Strike

Price

(N

T$

)

Am

oun

t (N

T$

thou

sand

)

Conve

rted

Sh

are

s as a

P

ercen

tage o

f S

ha

res lssu

ed

No

. of S

ha

res

Conve

rted

Strike

Price

(N

T$

)

Am

oun

t (N

T$

thou

sand

)

Conve

rted

Sh

are

s as a

P

ercen

tage o

f S

ha

res lssu

ed

Chairman Hsing-Chien Tuan President Jyh-Chau Wang

Vice President Wen-Jyh Sah Vice President Chin-Lung Ting Vice President Yao-Tong Chen Vice President Chih-Hung Hsiao Vice President Hung-Wen Yang Vice President Chih-Ming Chen Vice President Chu-Hsiang Yang Associate Vice

President Kuo-Hsiung Kuo


Associate Vice President Chung-Kuang Wei




Associate Vice President Tian-Ren Lin




Associate Vice President Qing-Hui Lin

Managerial Officer Chien-Lang Lo

Managerial Officer Chin-Yuan Chang

3,755 0.04% －－－－ 3,755 21.87 82,122 0.04%

Employees Jian-Ting Lai Employees Qiu-Lian Yang Employees Zheng-Xu Zhou Employees Kun-Feng Huang Employees Zong-Ren Kuo Employees Hao-Kun Liu Employees Shu-Fu Hsu Employees Yang-Feng Lin Employees Fu-Shou Wu Employees Min-Zheng Wang

1,100 0.01% －－－－ 1,100 21.87 24,057 0.01%

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

Economic Affairs as of the date of the printing of the Annual Report.

65

4.6 Status of Employee Restricted Stock 4.6.1 Status of Employee Restricted Stock

30 April 2016,Unit: in thousands of Dollars, in units of thousands.

Class of new restricted shares First time New restricted shares

Second time New restricted shares

Third time New restricted shares

Effective date of registration Dec 13, 2012 Issue date Jan 30, 2013 Mar 29, 2013 Dec 12, 2013

Number of new restricted shares issued 62,302,000（Note1） 1,688,000（Note 2） 8,536,000（Note 3） Issue price 0.00/5.00

Number of new restricted shares issued as a percentage of the total number of

issued shares (Note 4) 0.63% 0.02% 0.09%

Vesting conditions for new restricted shares

Employees shall be in active service during each of the following vesting periods since the capital increase base date with the attainment of the annual individual performance appraisal result of Grade B or G or above over the years. Besides, they shall have fully complied with the service code and have not violated the Company’s service agreement and integrity and intellectual property agreement, work rules, stipulations in contracts with the Company or the regulations of the Company. The percentages of shares in which the vesting conditions are fulfilled are set out below. Upon expiration of one year: 20% of the number of shares subscribed Upon expiration of two years: 40% of the number of shares subscribed Upon expiration of three years: 40% of the number of shares subscribed

Restrictions of new restricted shares

(1) shall not be sold, pledged, transferred, given to others as gifts, attached or otherwise dealt with.

(2) no voting rights at general meetings. (3) not entitled to participating in the placement (subscription) of shares,

dividend distribution for the original shareholders. (4) From the book closure day for the placement of shares at nil onsideration,

the book closure day for cash dividends, share subscription in connection with a cash capital increase, the book closure period for general meetings as stipulated in Paragraph 3 under Section 165 of the Company Law, or other statutory book closure periods based on the occurrence of facts to the entitlement distribution date, shares without restrictions of employees who fulfill the vesting conditions in this duration are still not entitled to any voting rights, surplus distribution rights, share placement (subscription) rights, and/or dividend distribution rights.

Custody of new restricted shares Custody of shares in trust

If the vesting conditions are not fulfilled after employees are placed

with or subscribe for new shares

Being placed with new shares: Shares will be reacquired by the Company at nil consideration for cancellation. Subscribing for new shares: All shares will be repurchased by the Company at the closing price or the original subscription price, whichever is lower, on the expiry dates of the respective periods for cancellation.

Number of new restricted shares reacquired or repurchased 7,136,800 401,200 711,600

Number of shares without restrictions 55,063,600 1,278,800 4,745,200 Number of shares with restrictions 101,600 8,000 3,079,200

Number of shares with restrictions as a percentage of the total number of issued

shares (%) －－ 0.03%

Impact on interests of shareholders The impact is limited as the dilution ratio is low

The impact is limited as the dilution ratio is low

The impact is limited as the dilution ratio is low

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


66

4.6.2 Employee Restricted Stock Granted to Management Team and to Top 10 Employees

30 April 2016,Unit: in thousands of Dollars, in units of thousands.

Without restrictions With restrictions

Title Name

Nu

mbe

r of ne

w re

stricted

sha

res acqu

ired

Nu

mbe

r of ne

w re

stricted

sha

res acqu

ired a

s a

pe

rcentag

e of th

e total

nu

mbe

r of issu

ed sh

ares

(No

te 2)

Nu

mbe

r of sha

res

withou

t restrictio

ns

Issue

price

Issue

am

oun

t (in

thousan

d dolla

rs)

Nu

mbe

r of sha

res

withou

t restrictio

ns

as a pe

rcenta

ge o

f the

tota

l num

be

r of

issued sha

res

Nu

mbe

r of sha

res

with re

strictions

Issue

price

Su

bscrip

tion a

moun

t (in

thousand

dolla

rs)

Nu

mbe

r of sha

res

with re

strictions a

s a

pe

rcentag

e of th

e

total num

be

r of

issued share

s

Chairman Hsing-Chien Tuan President Jyh-Chau Wang

Vice President Wen-Jyh Sah Vice President Chin-Lung Ting Vice President Yao-Tong Chen Vice President Chih-Hung Hsiao Vice President Hung-Wen Yang Vice President Chih-Ming Chen Vice President Chu-Hsiang Yang Associate Vice

President Kuo-Hsiung Kuo


Associate Vice President Chung-Kuang Wei




Associate Vice President Tian-Ren Lin




Associate Vice President Qing-Hui Lin

Managerial Officer Chien-Lang Lo

Managerial Officer Chin-Yuan Chang

8,022 0.081% 7,969 0/5 19,923 0.080% 53 0/5 133 -

Employees Yong-Yu Cai Employees Chao-Jun Zhong Employees Nai-Jian Zheng Employees Geng Ron Xu Employees Zheng-Xu Zhou Employees Dong-Rong Wang Employees Min-Zheng Wang Employees Kun-Feng Huang Employees Zhi-Xian Wang Employees Sheng-Neam Wei

2,590 0.03% 2,446 0/5 6,115 0.02% 144 0/5 360 -

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


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

67

V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope

1. Major business operation Scope of business The combined operating revenue of the Company is derived from TFT-LCD Flat Panel Displays

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

2. Combined Weighing of Different Business Operations in the Year of 2015

Unit: NT$ thousand Major Divisions Total Sales in 2015 (%) of total sales

TFT-LCD 364,132,984 100% Total 364,132,984 100%

3. Current commodities (services) items

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

4. Planned Development of New Commodities (Services)

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

5.1.2 Industry Overview

1. Current situation and development of industry Owing to excellent product properties and improving costs and image quality, TFT-LCD has

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

The Company adopts the forward–backward integration manufacturing model in response to the

development of TFT-LCD Industry, and comprehensively arranges the early phrase glass of every product generation and the later phrase of all-sized modules and integrates IDM product lines, including 3.5 generation, 4.5 generation, 5 generation, 5.5 generation, 6 generation, 7.5 generation, 8.5 generation and 8.6 generation TFT-LCD plants, 2.5 generation, 4.5 generation, and 5 generation

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touch-control sensor plants and production lines and later phrase module plants for IDM products such as later phrase product lines, Light Guide Plate/Backlight modules, PCB manufacture, assembly and pressing type paints. The production capacity and scale of every production line are comprehensive and flexible, matching a-Si, p-Si, LTPS, OLED processing and VA, AAS, TN Fringe field Switching and therefore all-sized products can be produced effectively.

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

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

3. Development trend of products TFT-LCD has a low energy consumption rate, small size, low weight, and low radiation

features. Japan, Korea, and Taiwan have actively invested in the production technology for many years, and the technology is getting mature. Now it is widely applied to flat panel displays; especially for notebooks and desktop displays, most of them using TFT-LCD. In the home appliance market, flat screen TVs are the mainstream. The future developing trend of these products are listed below:

(i) Mobile Computers (Notebooks & Tablets)

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

Glass Panel

Reticle

ITO Conduct

Colour Filter

LCD Panel

Driving IC

PCB

Backit Modules

LCM Modules

LCD Monitor LCD TVs NB

Mobile, PDA Others

LCD

Polarized

INX

Electro

nics

Up

stream

M

idd

le stream

Do

wn

stream

Consumers

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Nearly years high end tablets not only have improved computational efficiency and completeness of software function, in the same time there has been more focus on the customer’s visual sensibility about high screen resolution. The demand of high end tablets has increased significantly due to large size and more high resolution products continuing to be released. For many computer users, a keyboard is still the main input device, and notebooks coming with a physical keyboard still have a considerable market. Facing the rise of tablets, personal computer manufacturers have also started to import new design concepts in notebooks, such as transformer books that can switch between two different modes of tablet and notebook at any time, are gradually becoming the mainstream design of 10-inch to 13-inch notebooks. Ultra-thin, wide viewing angle, high colour, and touch function are also becoming important factors. As for those customers with high document requirements and lower mobile requirements, the bigger screen goes with FHD resolution to provide better webpage browsing and visual entertainment experience. 13-inch to 16-inch products are mainstream applications. As for those who emphasize video and audio effects or use the product to replace desktop products, they go with bigger, low energy consumption, and wide color gamut panels to present better color expression. About the size of the panels, due to the development of next generation production lines and wide screens generally supported by operating systems, 16:9 products are already becoming the mainstream of the market. In addition, to fit the trend of thin and light, panels using thinner glass and thinner organization design are essential factors for products.

(ii) LCD Monitor

LCD monitors mainly go with desktops; two mainstream markets are office use and personal video and audio entertainment use. For office use LCD monitors, generally sales are for computers hosted by brand manufacturers and product structure is relatively simple and of moderate cost to fit the budget of enterprise and government organizations. For personal video and audio entertainment product, due to more focus on video and audio purposes, recently the proportion of the product equipped with wide viewing angle technology has gradually increased. We expecting the proportion is going to increase continually in 2016. Meanwhile due to customers increasing demand for high quality products, we are expecting 4K2K high resolution products to be released on the market, having a wide viewing angle and narrow frames will become the mainstream of the high end market gradually. In addition, there is increasing customer demands for touch operation. When the software platforms of new versions of Windows gradually spread and become mature, we anticipate the product proportion of our touch function is going to gradually increase. About size, due to an increase in the manufacturing efficiency and efficiency of product design structure, the price of TFT-LCD products is dropping and accelerating market demand for a transfer to the bigger size. For office use types, a gradual transfer from 18.5-inch and 19-inch to 20-inch and 21.5-inch etc.; the average size is bigger for personal video and audio entertainment products, 23.6-inch and 27-inch units will gradually increase their proportion soon. Except for standard LCD monitors, the market will release All-In-One (AIO) which is an integrated design of the desktop host and monitor. Because of advantages in functionality saving space , the product is winning customers. As the Windows 10 operating system penetration rate increases, it accompanies the All-in-One product with touch function adding greater entertainment function. It also shows a new appearance for the market of LCD monitors.

(iii) LCD TV

Since 2005, Taiwan, Japan and Korea, started to mass produce generation six (G6). The production of TFT-LCD panels above 32-inches increased significantly and LCD TVs have

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taken up living rooms rapidly. In recent years, LCD TVs fast popularization due to each manufacturer developing G7 and G8 capacity, goes with the improvement of each phase of production technology. It not only has become customers’ first choice when buying a new TV, but also has stimulated the traditional TV refresh cycle. Meanwhile, when the market is warming up and products becomes popular. Innolux is the pioneer of providing differentiated large size models (especially 40-inch, 50-inch and 65-inch), dedicated to effectively improving the technology of each product to significantly increase the panel’s added value, gain customers’ brand recognition, and market segmentation, and increase the market share of large sizes. Meanwhile, mobile display devices gradually move toward high resolution to satisfy customers' demand for high definition TV. We released 4K2K ultra high resolution products in succession since the second half of 2012 and became the pioneer manufacturer of the first of mass production and the highest market share. The company keeps developing high resolution 4K2K(3840x 2160) with Wide Color Gamut (NTSC 100％), including 85-inch, 75-inch, 65-inch, 58-inch and 50-inch panels and were granted the 2015 “Taiwan Excellence Gold Award”. The 85-inch 100% wide color Gamut and 4K2K LCD TV panel were granted the 2015 Taiwan Flat Panel product technical award. The Innolux 4K2K large size series panel solves dynamic image roughness and increases vividness. The quality of the TV is delicate and the color has higher fidelity, smoother dynamic image, and is mentally in the scene. Moreover, with the standard of 4K high resolution transport protocol agreement completed in the end of 2013, we are expecting the 4K2K product trend will extend into 2015 and future development. Each manufacturer will release 4K2K photographic equipment and go with 4K2K film releases and programs. 4K2K will become the necessary specifications of large TVs. On the design of panel appearance, the company provides ultra-narrow frames (6mm and 7.5mm) and 50-inch ultra-thin design (thickness <10mm), integrate paint design on appearance to make client rapid input and mass production. End customers not only enjoy the real 4K image, also provide the real high quality of excellent vision and sensual experience. Innolux provide client and customer comprehensive and high competitive TV panel by innovation continually, and continue to lead the market trend and become lead firm of the industry.

(iv) Medium and small size panel

Before 2008, no matter technology or shipment, panel manufacturer of Japan always the leader of medium and small size panel industry; after 2009, Taiwan manufacturer shipment started to exceed Japan and Korea, became the leader of medium and small size panel industry instead. As the competition is more and more intense, panel manufacturer of medium and small size started to produce by higher generation factory. From 2011, even some panel manufacturer started to mass produce mobile phone panel by G6 factory. However, industry competition of medium and small panel not only at price competition, but also at market demands of higher resolution and higher definition panel. It drives medium and small panel manufacturer to be more enhancement in technical part. Since 2013, not only wide viewing angle technology is sharp competitive edge for manufacturers, each manufacturer release high resolution product continually. By a-si realize high cost-effective in over 5-inch screen of FHD resolution and by LTPS provide WQHD resolution in over 5.5-inch screen. In 2015, keep improving resolution in 4-inch to 6-inch screen and compete in lighter, thinner, narrow frames and lower energy consumption products. Manufacturers have R&D input in abnormality cutting wearable device and flexible panel for next generation technology, hoping besides the price competition can developing some more niche products to widen difference with competitors by technology and keeping sustainable operation in the industry.

4. Market competition situation

In competition of the industry, in order of countries input in TFT-LCD, countries are South Korea, Taiwan, China and Japan. Korea has large-scale investment in two big corporate groups Samsung and LG. Due to domestic support on their own brand, they lead in production volume and production value recent years. Taiwan’s manufacturers based on complete supply chain integration

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and high production efficiency, the market share is hot pursuit subsequently after Korea manufacturer. The main manufacturers are Innolux and AU Optronics, etc. Japan manufacturers’ market share decrease gradually due to production cost and decreased in new factory investment plan, transfer to high end mobile display and ultra-big TV market. When we look at China, due to huge domestic demand, it attracts government’s support and factory’s input. Recently BOE and ChinaStar step into generation eight production, but due to the production line’s limitation, they cannot provide whole size product.

5.1.3 Research and Development 1. Technical Level and Research Development

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

2. Facts of research & development:

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

(1) In the aspect of upgrade of product quality:

Including the technology & know-how for broad visual angle, high solution, low energy consumption, thin thickness, high hue, dyamic image, high dynamic range, narrow frames, new touch panel and the like.

(2) New material technical process:

Including IGZO, In-Cell Touch Technique, Copper Manufacture Procedure, COA(Color Filter on Array), Photo-Alignment, Horizontal Electronic Field High Transparency and High Contract Positive Magnetic Susceptibility, Reducing Mask and Automotive wide temperature range display material technique.

(3) In the aspect of new product application:

The up-to-date technology & know-how developed by the Company have been put into volume production one after another and applied onto a good number of products, including notably general cell phones, cameras, MPD, electronic paper, tablets, notebooks, desk monitors, AIO, television, medical treatment services, vehicular carriage, aerospace and touch panel and the like, in the dimensions ranging from 1.36” to 85” TFT-LCD products. In the days and years ahead, we shall continually invest in the research & development oriented human resources and fund to develop more and more TFT-LCD display and monitor products of added dimensions, application ranges, thinner, more environmental protection friendly and high efficiency to live up to the future trends in application and satisfy customers in varied ranges.

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

Annual Report date. Unit: NT$ thousand

Item 2015 March 31,2016 R & D expense 14,404,490 2,258,969 Net Revenue 364,132,984 56,417,120

Percentage of revenue (%)

3.96% 4.00%

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4. Successful development technical or product The company’s develop technical and products for each direction are listed below.

(1) TV: A. The first company of the world develop 40-inch/50-inch/58-inch the best cutting efficiency size

in G5.5/G6/G7.5 generation factory, we creating market differentiation and improve add-value of product.

B. Introduce 4Kx2K ultra high definition and high resolution TV display, the product line is complete, product size from 40-inch to 85-inch, providing higher quality TV image and better product competitiveness, lead 4K TV industry going to fast development and trend.

C. Introduce new size 40-inch/75-inch/85-inch TV display, overall arrangement in big size application, creating more differentiation product than competitors.

D. Develop high chroma technique, increasing to over 130% sRGB colour range and without increase energy consumption, not only increase the performance of display, but also make customers feeling more about the value-added of big size TV product.

E. Develop new MEMC improvement technique, apparent improving dynamic quality and integrate IC, increase dynamic picture quality and integrated technique.

F. Develop and mass produce a series of over 50-inch thin TV model (<10mm), providing artistic and fashion appearance model to clients.

G. Develop 0.5mm thin glass and apply to TV display, reduce glass usage and cost. Whole series big size TV import and mass production successfully.

H. Whole series big size TV import and mass production successfully. I. Develop Inno Module model, combine narrow frames and front and back appearance, provide

clients high competitive module and reduce assembled time and cost. J. Cooperate with brand to develop big size (65-inch and 75-inch) Curve model, mass production

successfully and assist client to introduce the product to the market for customers.

(2) Monitors: A. Release whole series wide viewing angle VA desktop monitor panel and with high brightness,

high contrast, high saturation, not only increase product quality and value, but also provide client the best choice of high end monitor LCD panel.

B. Develop several model of globally new Inno-touch monitor and AIO personal computer, by integrate touch as multi-function use can reduce module thickness to become light, increase touch functional can close to end customers’ need.

C. Release 28-inch and 32-inch 4K2K monitor panel, panel monitor can have higher resolution visual enjoyment, not only increase product value, but also provide client the best choice of high end monitor LCD panel.

D. Develop monitor panel of frameless and wide viewing angle and integrate InnoTouch, not only provide thinner and better appearance design to clients, but also have touch function and provide full service.

(3) Notebook:

A. Release whole series light-weight notebook panel, the thickness of whole series of notebook (11.6-inch/12.5-inch/13.3-inch/14-inch/15.6-inch) is only 2.6mm, show light feature and solve the heavy problem of notebook.

B. Interface technical of Notebook panel is totally from LVDS to eDP. It can connect to high resolution trend, also can save space to help thinner design of the system and lower the energy consumption.

C. Release whole series FHD AAS wide viewing angle notebook panel and goes with Low Power-consumption & Wide Color Gamut to increase color range but not increase energy consumption to increase visual performance.

D. Develop TOD technical on notebook panel, through touch integration, notebook not only can be thinner but also can reduce produce process of the module and simplify the complexity of new product.

(4) Small/Medium:

A. Develop oxide TFT technical, using the technique goes with wide viewing angle technique, reduce power consumption and increase optical performance, further can improve optical specification and realize high quality panel product.

B. Develop high resolution panel and smart phone panel, resolution can reach above 500ppi, at the

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same time have high quality, low energy consumption features to delicate the image but not cost too much energy. The product successfully equipped with better viewing quality and lasting for long time to use in portable product.

C. Develop display with Low Power-consumption & Wide Color Gamut, increasing color gamut but not increase energy consumption in smart phone panel and tablet, can reach 130% sRGB color gamut and increase competitiveness of the product.

D. Develop LTPS AAS panel of frames narrow than 0.6mm and high resolution, reduce the size of the panel module to fit the narrow frames demand from smart phone and tablet user, increase the design freedom of portable device display appearance.

(5) Touch Panel:

The company already develops several touch technique solutions (including InnoTouch, TOD, TID, Hybrid, Total Solution): A. New type Inno-touch technique is integrated touch panel and induction glass technology. The

advantage is able to simplified production process and provides economic touch panel option. The technology can goes with multiple size panels; meets the new development trend of affordable electronic product toward to touch function.

B. Touch On Display (TOD): Through TOD technique can make portable device have light performance effectively, also with well optical performance and increase portable electronics competitiveness. Not only medium and small size smart phone and tablet apply and mass production, but also apply to bigger size notebook products.

C. Touch In Display (TID) & Hybrid : Not only have TOD technical advantage, the company develop TID Hybrid technical to make it even more lighter, and high touch sensibility technique apply to portable product can improve the users’ experience about portable electronic product.

D. Provide more completeness Touch Total Solution: Through highly vertical integration of streamlined production, we may provide client complete and all-round touch integration service. Not only shorten the process and time of production and delivery, but also help client to enter the market, make better arrangement and configuration at capacity and resource of panel and touch. Equip with integrated InnoTouch, TOD, TID Hybrid product and process technical to serve customers.

(6) Special Application

Release 21.3-inch to 30-inch (AAS; 5/6/10/14 MegaPixel) medical LCD display, with high resolution, high brightness, high contrast, adopt 10 bits drive new technology and high efficiency LED BL, to make the image more delicate and medical personnel can make more precise judgment. Big size public display 75-inch/ 85-inch present natural high color gamut and give consideration to both indoor and outdoor environment. Also first release horizon LCD display (32:9) presents multiple sizes can fit for multiple environments.

5.1.4 Long- and Short-Term Business Development Plans 1. Short-Term In the short-run, we shall devote ourselves profoundly toward televisions, notebooks, tablet computers, cell phones, monitors oriented to vehicles, medical treatment services and industries. Continually we shall help customers pep up competitive edge through our pround monitor technology & know-how, live up to the market and environment-friendly demands. About the development, it mainly includes environment protection materials, electronic saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic displays, touch, wide viewing angle, and all-around system services integration. We already have obtained remarkable achievements. Meanwhile, we shall spare no effort to profoundly team up with customers in strategic alliance to solidify our firm foundation in the panel supply chains and create the happy win-win aspects through the teamwork.

2. Long-Term Long-term development: Other than the efforts to do research & development for up-to-date monitors, strengthen manufacturing process to optimize the productivity. For the emerging of new model monitor know-how, we shall invest appropriate resources, cultivate autonomous development capability, like the embedded touch know-how, super narrow frames, super thin design, super high solution, curved plate design and niche oriented application products and the like. Through such efforts, we hope to set up the optimal strategic deployment in the brand new monitor application regions. Meanwhile, we shall further stress value

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chian integration and development of products high added values, to make our products more competitive in both pricing and specifications to provide customers with added solutions and services and to provide terminal end consumers with added excitements in visual enjoyment. 5.2 Market and Sales Overview 5.2.1 Market Analysis 1. Main products selling area

Unit；NT$thousand；% Area Amount of Sales %

Domestic sales 103,617,666 28.46% Americas 21,274,692 5.84% Europe 24,000,586 6.59% Asia 213,401,351 58.61%

Other Area 1,838,689 0.50%

Foreign sales

Total amount of F/S 260,515,318 71.54% Total 364,132,984 100.00%

2. Market Share

According to the statistic of IHS/DisplaySearch research report, until Q3 2015, the market of the company’s big size panel shipment is 18%, which is the third-largest supplier of the world LCD panel industry. Based on application product, global market share of LCD display panel is 18.3%, maintains world’s second ranking performance; global market share of LCD TV panel is 19.1%, world’s third ranking performance; global market share of notebook (including tablet) is 17.4% which is the world’s third ranking. Overall, under the tough economic environment and strong market competition, the company still maintains nice performance in the market of big size product application. The market share of medium and small panel is 7.2% until Q3 2015. 3. The supply and demand situation and growth of the future market

Due to the outstanding product feature and the continuous improvement of cost and quality, TFT-LCD already become the mainstream of flat display and the sales will keep growth as the improvement of application level and penetration. According to the estimation of IHS/DisplaySearch, the global shipment of big size (over 9-inch) TFT-LCD panel will be 520 million chips.

If analyzing market size of several main application level, about LCD TV part, as new size development and new technical input and plus new capacity growth stable, global shipment of LCD TV will be 230 million in 2015 and average size increase an inch each year. About LCD monitor, the shipment forecast is 136 million and will slightly decline to 134 million, but as the demand increased of big size and high resolution product, the penetration rate of high value product will increase gradually. About mobile PC (including notebook and tablet), the shipment is 370 million slightly declined in 2015 and the forecast will slightly decline to 360 million in 2016.

Data Source: DisplaySearch

According to the estimation from IHS/DisplaySearch, global shipment of medium and small size panel will be 230 million in 2015, increased 6.4 % compared with 2014. The shipment will be 240 million in 2016 and annual growth rate is 3%. Cell phone shipment reach 159 million in 2015 and the forecast will increase to 171 million in 2016 and annual growth rate is 7.4%.As middle-end smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall cell phone panel shipment

Million

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is going to grow continually until 2020 and will be the main growth power of middle and small size panel.

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

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

� Continued investment in research & development to suffice technical talents, improve product design and application of materials. We shall proceed with research & development of advanced and improved manufacturing process and new generation monitor technology & know-how so as to create added lead in know-how of products and production costs.

� With wholehearted efforts, we shall deploy integrated product lines for new products. The products manufactured by our Company cover televisions, computers, mobile devices, vehicles- and medical treatment oriented products. We provide varied modes to sell panels, whole machines, touch integration and the like. Through such efforts, we virtually bring down the potential risks of fluctuation with single products.

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

4. Niches in competition.

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

(2) Vertical and horizontal integration:

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

(3) Portfolios of our products:

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

(4) Our advantages in costs:

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

(5) Concerted performance (synergy) in marketing:

We are dominant of sound marketing channels to get connected with world class customers. Toward those world-class giant customers, we are capable of rendering prompt design, integrated

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products with global services through which our customers enjoy the excitements of one-stop shopping.

(6) Customize Provide customize service for our customers. In looking back over 2015, our production lines for all sorts of panels were complete and comprehensive and were in an excellent position to enable customers to enjoy the excitements of one-stop shopping. In extensive aspects notably the productivity scale, product design capability, quality rate, supply, managerial plans as well as financial stability, we have accomplished further upgrade. Besides, the Company has continually without interruption teamed up with customers in the product designs and supply chain management profoundly to continually boost customer approval-level and, in turn, expanded our shares in the panel markets. In 2015, we saw continued shipment growth, apparently that our efforts in performance have yielded fruit step-by-step. We anticipate that in the days and years ahead, we are in a position to further optimize product, upgrade quality and assure further upgraded approval-level from customers.

5. Advantage and disadvantage of long term development and reaction strategy (1) Advantage:

A. Keep developing new product applications With rapid development of wireless communication and cloud technologies, TV, PC, pad and cellphone are gradually integrated their contents. The development of “one cloud with multiple screens” is the major strategy of all companies. Because the service of cloud information is surrounding people’s life, the flat-panel monitor, as the intermediary of information, has become more important. The more delicate the information content is, the demand of size, resolution, visual angel, and light specification design of consumers rise. It also raises the unit price of TFT-LCD products, and brings new applications and demand increases. The main stream products of all major TV industry brands is ”smart TV”, which is also the sign of the rapid involvement of cloud applications in TV area. 4K2K ultra HD TV, which were put into market in the second half of 2012 and provided higher level of joy for watching TV, has grown very fast and become the major spec of middle or high end product from 2015. Regarding to the LCD monitors, because the market is more matured, the major product requirement is energy saving and HD quality to encourage the customers to upgrade the current product lines. Regarding to notebooks, the new market drives come from the new operating system and calculating platform. Ultra Mobile products innovation, this is good for the production of middle size panels. Regarding to the medium and small size panels, the common use of smart phones and gradually matured touch panel technologies allows smart phones to become general consumer products. The delivery of production is growing rapidly while 2015 might deliver more than 1.59 billion and 2016 1.71 billion to be expected. Because the panel size of smart phone increases from the size of functional phones, panel’s unit price rises while the requirements of wide visual angle, high resolution, and color presentation upgrades. Thus, cellphone panels’ revenue rises rapidly, too.

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

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

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

(2) Disadvantage and Reaction Strategy

A. The balance of supply and demand is hard to keep due to the intense competition in this industry. LCD panel industry’s economy cycle is more obvious than other industry and the balance of supply and demand is more difficult to maintain because the high capital intensity and long establishment time. Other competitors in Taiwan, Japan and Korea are planning to build up next generation panel factories and the rising production capability in China since 2012 also brought competition to the industry. Innolux has 3.5th generation, 4th generation, 4.5th generation, 5th generation, 6th generation, 7.5th generation, 8.5th generation and 8.6th generation production lines, which can produce all sizes of LCD panels and touch panels. The production capability is the 3rd largest panel manufacturer. We try to produce the best combination of products and adjust the production allocation according to market supply-demand condition, so that we can optimize the use our production capacity.

B. The complicated technology and patent portfolio The design and production of TFT-LCD requires highly professional technology. All companies that in this industry are aggressively making their portfolio in technology and patent applications. To avoid the violation of patent rights in the production process, Innolux has been developing our own patents and technology since the beginning of this company. We recruited domestic and international talents to join the research team, and evaluate the feasibility of getting the usage rights of some key technology from foreign companies at the same time. Regarding to intellectual poverty, we not only aggressively conduct R&D and the patent applications, we also keep strong legal support team to protect our intellectual poverty.

C. The global economy influences demand and supply Global growth for 2015 is projected at 3.1 percent, 0.3 percentage point lower than in 2014, and 0.2 percentage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update. Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row.The regional or global economy fluctuate will influence the demands of LCD monitor products. We provide products that are competitive for its cost and specifications by constantly optimizing our products and technology. We also help our supply chain partners to develop business to diminish the operation disadvantages of fluctuation of external demands.

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5.2.2 The Production Procedures of Main Products 1. Important function of main products

(1) TFT-LCD TFT-LCD products are display application for digital information delivery, its wide application including information display equipment for business and industry, computer, telecom related and consumer electronics display equipment, etc. As the development of integrated digital age 3C market, the main area of TFT-LCD product are: � Information Technology, IT: such as Desktop monitor and Notebooks, etc. � LCD TV � Communications and Consumer Electronics: Mobile phone, digital camera, digital video,

digital photo frame, automotive display, portable DVD player, portable game console, tablet and other high mobility and portable electronic products application.

� Special application: medical display, Avionics display, automotive display and other touch panel application.

(2) Touch Panel business � Small size (below 7 inch) products mainly apply to smart phone, multimedia player, GPS and

digital camera, etc. � Medium size (7 inch to 19 inch) products mainly apply to tablet, eBook, Ultrabook, notebook,

etc. � Large size (above 20 inch) products mainly apply to All-in-one computer (AIO), Public

Information Display, etc.

2. Production process of main products (1) Three Steps in the TFT-LCD Production Process:

� In the Array or TFT Process mentioned in the preceding paragraph, injection and washing for glass baseplates→gate metallic layer sputtered coating→gatemetallic layer lithography→Semiconductor layer continued filming→Semiconductor lithography→source/drain film-forming→source/ drain medal sputtered coating→source/drain lithography→Protection film manufacturing process→Protection film lithography→Transparent conducting layer sputtered coating transparent conducting layer lithography→thin film transistor electrical analysis→thin film transistor completion.

� Cell or LCD Process: The Cell process fits the Array substrate to a color-filter substrate; liquid crystal is then inserted between the two substrate layers.

� Module Assembly or LCM Process: taking the panel from the Cell process and bonding the assembling backlights, IC and frame and other components to make the Open cell, module and system and other types based on clients’ demand.

(2) Touch Panel business � Sensor Process: Use Semiconductor Litho process to put sensor on the glass. � Lamination & FPC Bonding Process: � Touch panel modules and LCD/LCM assembling process (TP & LCD/LCM Direct Bonding &

Advanced Direct Bonding): A.TP & LCM: taking LCM as the baseplates to be attached to the touch panel modules for overall combination. B.TP & LCD: LCD(Open-Cell) as the baseplates to be attached to the touch panel modules for overall combination before being assembled with Back Light modules(BLM).

5.2.3 Supply Status of Main Materials

Major Raw Materials Source of Supply Supply Situation Driver IC Supplier U Good

Glass Supplier P, Supplier Q, Supplier S Good Polarizer Supplier R, Supplier T, Supplier V Good

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5.2.4 Major Suppliers and Clients A. Major Clients Information for the Last Two Calendar Years

Unit：NT Thousand$ 2014 2015

Item Company Name Amount Percent

Relation with

Issuer

Company Name Amount Percent Relation

with Issuer

1 －－－－ Customer A 39,802,830 10.93 － 2 Others 428,661,898 100.00 None Others 324,330,154 89.07 None

Net Total Supplies 428,661,898 100.00 － Net Total

Supplies 364,132,984 100.00 －

B. Major Suppliers Information for the Last Two Calendar Years


Item Company Name Amount Percent

Relation with

Issuer

Company Name Amount Percent

Relation with

Issuer 1 Others 248,184,050 100.00 － Others 205,711,096 100.00 － Net Sales 248,184,050 100.00 － Net Sales 205,711,096 100.00 －

5.2.5 Production over the Last Two Years Unit: NT Thousand$

2014 2015 Year Output

Major Products (or by departments)

Capacity Quantity Amount Capacity Quantity Amount

TFT-LCD 605,200 574,940 371,700,000 368,000 349,515 317,400,000

Total 605,200 574,940 371,700,000 368,000 349,515 317,400,000

5.2.6 Shipments and Sales over the Last Two Years


Local Export Local Export

Year Shipments & Sales

Major Products (or by departments)

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

TFT-LCD 56,087 91,333,989 405,536 337,327,909 76,165 103,617,666 298,805 260,515,318 Total 56,087 91,333,989 405,536 337,327,909 76,165 103,617,666 298,805 260,515,318

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5.3 Human Resources

Year 2014 2015 As of 4/30/2016

Manager 2,974 2,873 2,828

IDL 17,306 15,810 14,817

DL 79,952 61,962 51,918 Number of Employees

Total 91,232 80,645 69,563

Average Age 27.50 28.75 29.61

Average Years of Service 2.79 3.37 3.90

Ph. D. 0.11% 0.12% 0.13%

Masters 6.28% 7.28% 8.20%

Bachelor’s Degree 73.14% 75.74% 73.51%

Senior High School 15.99% 14.42% 15.63%

Below Senior High School 4.48% 2.45% 2.53%

Education

Total 100% 100% 100%

5.4 Environmental expenditures Information Innolux has disclosed the reactions and the total lost (including compensations) and the

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

1. Mar 6, 2015, Nanjing Innolux Optoelectronics Ltd. had been reported for excess storage of

chemicals and imposes a fine for RMB 20,000. This reported incident happened because the inventory amount Non-compliance the rules of Nanjing production security rule. (1) Getting that excess storage of chemicals to return process immediately. (2) Controlling for each of the chemicals to ensure the storage of chemicals is not

excessive. 5.5 Labor Relations 5.5.1 List any employee benefit plans, continuing education, training, retirement systems, and

the status of their implementation, and the status of labor-management agreements and measures for preserving employees' rights and interests.

1. Employee welfare and the situation of implementation

(1) Besides the basic monthly salary, we also provide Luna Festival, dragon boat festival and New Year bonus, and proper performance bonus according to the company operation revenue.

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

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

(4) With the concepts of energy, comfortable life, and happiness, we built the employee’s center, which provides leisure and exercise functions to release our employees’ mental and physical stress.

(5) We set up the employee welfare committee to be responsible for welfare planning and execution, including club activities, exercise periods, earth environmental day, family day, coherence activities, public lecture, special discounts and festival substitutes, wedding or other special events, and emergencies.

(6) We provide health promotion and a mental consulting plan to take care of employees’

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mental and physical health. (7) Strengthening the concepts of sustainable management: we hire mentally or physically

ill employees and insist on environmental protection and being responsible for social welfare.

(8) We integrate and continuously improve the system, process and plan of talents development, and we earned the Silver Award of TTQS’ evaluation in 2015.

(9) We provide internal and external trainings, such as professional studies, headquarter training, oversea training to develop employees’ professional knowledge and skills.

(10) Comprehensive certification development framework, based on the professional positions and management functions certification to promote quality, green products, and regulatory courses vertically; also, to promote departmental training horizontally in order to achieve the company’s objectives and to provide the diversified education and training network needed by the organization.

2. Retirement structure and the situation of implement

(1) Retirement structure and the situation of implement. (2) We hire actuary to evaluate our employees’ retirement preparation fund and issue the

evaluation report according to the ROC’s financial principles. (3) We transfer 2%~15% monthly salary to retirement preparation every month. (4) We will conduct the new retirement structure according to the laws from Jul 1, 2005.

3. Labor and management settlement

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

In order to maintain mutual communications and interactions, we have communicating meetings such as labor-management meeting, the Employee welfare union meeting and mobilization meetings etc., issuing INX digital news, establishing employee communication mailbox to listen and solve employees’ opinions and thoughts.

4. Working environment and individual safety protection

(1) Safety and Health organization and operation The company has an environmental safety office to be in charge of all safety and

health risks in company operation management, and to integrate the safety and health departments in all factories. The environmental safety office reports to the factory manager, related departments and the soviet in “factory fields’ safety and environmental protection committee” every season. Analysis and Statistics of Occupational Hazards

Through the incident management system the company analyzes the statistics and causes of incidents including traffic accidents and near miss. With reports and surveys generated, the system would announce improvements in hazard prevention, as well as accident reviews and improvements. It also ensures parallel deployment across plants to prevent re-occurrence of incidents. Over 2015 the Disabling Frequency Rate (FR) increased by 9.50% compared with 2014, while the Disabling Severity Rate (SR) increased by 28.70% compared to 2014.

In addition, the Disabling Severity Raty (SR) decreased from 11.59% in 2010 to 6.24% in 2015, reduced the number of days lost about 1,593 days also reduced the loss NTD$ 2560,000.

Business Continuity Management

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

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communication and coordination and doing PDCA if the accident happened. ESH Training

'Employees are the most valuable asset. Training is an investment that never depreciates.' ESH training is the basis for the promotion and practical implementation of our ESH management. We make long-term investments in human and material resources according to the hazard profile of each plant. We plan, design and deliver training to the staff regarding ESH knowledge and skills, such as handling chemicals, dangerous machinery and equipment, injury prevention, machinery safety, fire safety management, and plant safety management. We also monitor and control the training quality and effectiveness. In 2015, 1,999 ESH training sessions were held, for a total of 493,601 participants. On average, employees joined over 5 training sessions per person per year.

(2) Safety Culture and Risk Management Self-audit on Injury Prevention and Risk Management Early waring system

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

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

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

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

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

(3) Recruitment and Staffing

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

(4) Zero Distance Communication Innolux emphasizes harmonious labor relations. To this end, we convene quarterly

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

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To protect employees from sexual harassment, Innolux adopted the 'Sexual Harassment Prevention, Complaint and Management Procedures for Taiwan site' to effectively prevent and deal with sexual harassment. Investigation of sexual harassment is conducted in a non-public fashion to protect the privacy of the parties involved. Everyday protection from sexual harassment is promoted through the start-up screens of computers to build a friendly workplace and eliminate sexual harassment. In 2015 16 sexual harassment cases were reported, handled, and solved. EAPs Employee Assistance Programs

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

Innolux takes employee feedback seriously. We offer various feedback channels to employees, to effectively prevent and solve employee issues. From 2013 onward, we put more focus on integrating our employee care channels across Taiwan and China. Thus, we unified the representative code of Employee care hotline and the Employee Care Mailbox at different sites. The same was advertised via internal announcements and the start-up screens on computers. We expect this integrated approach will pay off through more efficient handling of cases.

5.5.2 List any loss sustained as a result of labor disputes in the most recent fiscal year, and

during the current fiscal year up to the date of printing of the annual report, disclose an estimate of losses incurred to date or likely to be incurred in the future, and indicate mitigation measures being or to be taken. If the loss cannot be reasonably estimated, make a statement to that effect. NT$2,250 Thousand.

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5.6 Important Contracts Agreement Counterparty Period Major Contents Restrictions

Lease Agreement of the Land

Science-based Industrial Park Administration

Feb 2001- Dec 2020

Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County

Pursuant to the terms and conditions set forth under the Agreement



May 28, 2003 - Dec 31, 2022

Leasehold of land Pursuant to the terms and conditions set forth under the Agreement



Feb 2004 - Dec 2023

Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County (Plant No. II)




Apr 6, 2004 – Dec 31, 2023

Leasehold of land Pursuant to the terms and conditions set forth under the Agreement



Dec 1, 2007 – Dec 31, 2026

T2 Leasehold of land oriented for factory



South Taiwan Science-based Industrial Park Administration

Mar 9, 2015 - Mar 8, 2035 Leasehold of land


Engineering Project Agreement

Chung Lin Construction Co., Ltd.

Feb 2001Till expiry of warranty period

FAB I Project of Civil Engineering Construction



Hu Tzu Construction Co., Ltd.

Jul 2005Till expiry of warranty period

FAB II Newly constructed project



Cheng Teh Fireproof Industrial Co., Ltd.

Sep 2005Till expiry of warranty period

New construction of Plant No. II, award of the fire prevention project contract


Lease Agreement Chan Mao Optical Co., Ltd. Jul 4, 2013 – Jul 3, 2016

Leasehold of land for construction purposes


Syndicated Loans

CTBC Bank and the bank syndicate

Jul 8, 2004 – Jul 8, 2015

Financing for fund for setup (establishment) of next generation (Generation V up) fund financing for TFT-LCD.


Syndicated Loans Mega Bank and the bank syndicate

Feb 2005 – Mar 2015

FAB I Loan for machine and equipment procurement


Syndicated Loans Bank of Taiwan and bank groups

Mar 9, 2006 - Nov 15, 2016

Financing Loan for next generation (Above 7.5 generation) of TFT-LCD procurement



Feb 8, 2007 – Aug 8, 2016

Financing Loan for next generation (6 generation) of TFT-LCD procurement


Syndicated Loans CTBC Bank and the bank syndicate

Aug 2008 – Aug 2016

Loan for factory and machine and equipment procurement


Syndicated Loans Mega Bank and Taiwan Cooperative Bank and other 20 bank

Sept 25, 2008 – Nov 20, 2016

Invest to build generation 6 TFT LCD factory and the fund for machine and equipment and the related


85

Agreement Counterparty Period Major Contents Restrictions attached equipment procurement, NT$ 24 billion and US$ 200 million.


Sept 9, 2009 – Sept 9, 2016

In an attempt to reimburse the syndicated loan credit loans due in 2009 and June 2010.


Syndicated Loans Mega Bank and Taiwan Cooperative Bank and other 19 bank

Nov 17, 2009 – Nov 14, 2016

To be used to suffice the Company’s general mid-term working capital and to expand the existent productivity and equipment & facilities, in the amount of NT$48 billion.



Mar 12, 2015 - Mar 12, 2018

1. To be used by the Loanee to reimburse, under the syndicated accord, the mid-term and long-term syndicated loans, for all fund required for the outstanding balance of principal as mentioned above. 2. In the amount of NT$68.5 billion


Joint agreement of settlement contract

Bank Syndicate Apr 5, 2012 – Dec 31, 2016

Negotiate with syndicate to extend the participating loan and medium-short term loan amount


Patent authorization

Foreign Company A Jun 17, 2013 – Jun 17, 2016

3D Relevant technology & know-how


Cross-licensing Foreign Company B Sept 30, 2010 – Sept 30, 2017

LCDRelevant patents Pursuant to the terms and conditions set forth under the Agreement

Cross-licensing Multinational Enterprise C. June 28, 2010 - Dec 31, 2019

IPS Relevant technology & know-how


Cross-licensing Foreign Company D Jul 2, 2012 – Jul 7, 2022

Display of the relevant cross-patent licensing within the regions.


Cross-licensing Foreign Company E Jul 1, 2013 – Jul 1, 2023

LCD Relevant technology & know-how


Patent authorization Foreign Company F Jan 1, 2013 –

Dec 31, 2019 LCD Relevant technology & know-how


Patent authorization Foreign Company G

Sept 5, 2013 – Sept 5, 2018

LCD Relevant technology & know-how


Patent authorization

Multinational Enterprise H Oct 31, 2013 - Oct 31, 2017

LCD related technical Pursuant to the terms and conditions set forth under the Agreement

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VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Five-Year Financial Summary 1. Condensed Balance Sheet-IFRS-Consolidate

Unit: NT Thousand

Five-Year Financial Summary(Note1) Year

Item 2011 2012 2013 2014 2015

Financial data of

ending date in March 31,

2016

Current assets － 173,139,399 171,701,969 189,380,812 138,866,987 108,812,385 Fixed assets － 332,525,859 273,505,759 233,609,843 199,482,740 193,473,161 Intangible assets － 22,909,059 21,214,994 20,219,137 19,342,856 19,090,785 Other assets － 42,888,840 41,778,163 39,306,763 29,749,753 29,882,030 Total assets － 571,463,157 508,200,885 482,516,555 387,442,336 351,258,361

Before distribution － 237,566,939 300,586,751 199,135,498 110,471,463 91,887,681 Current liabilities After distribution － 237,566,939 301,944,190 206,082,686 Note 3 － Non current liabilities － 162,539,193 13,036,280 54,209,621 44,706,150 36,560,388

Before distribution － 400,106,132 313,623,031 253,345,119 155,177,613 128,448,069 Total liabilities After distribution － 400,106,132 314,980,470 260,292,307 Note 3 － Equity attributable to owners of the parent

－ 169,823,860 193,043,229 227,690,063 232,264,723 222,810,292

Capital stock － 79,129,708 91,094,288 99,545,364 99,532,372 99,526,816 Capital surplus － 119,677,980 96,058,741 99,584,369 99,643,564 99,645,204

Before distribution － (24,979,239) 7,421,697 26,632,674 30,338,450 21,756,942 Retained earnings After distribution － (24,979,239) 7,331,202 19,685,486 Note 3 － Other equity interest － (4,004,589) (1,531,497) 1,927,656 2,750,337 1,881,330 Treasury stock －－－－－－ Non controlling interest － 1,533,165 1,534,625 1,481,373 －－

Before distribution － 171,357,025 194,577,854 229,171,436 232,264,723 222,810,292 Total shareholders’ equity After distribution － 171,357,025 193,220,415 222,224,248 Note 3 －

Note 1: Financial data by IFRS less than 5 years, preparing the following report by ROC GAAP Note 2: Numbers are audited. Note 3: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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2. Condensed Statement of Income-IFRS-Consolidate Unit: NT Thousand

Five-Year Financial Summary (Note1) Year

Item 2011 2012 2013 2014 2015(Note3)

Financial data of

ending date in March 31,

2016

Operating revenue － 483,609,931 422,730,500 428,661,898 364,132,984 56,417,120 Gross profit (loss) from operations － 4,499,935 37,759,115 50,385,001 46,640,105 (4,037,460) Net operating income (loss) － (19,749,654) 15,349,268 28,173,396 22,430,709 (8,402,287) Non-operating income and expenses － (11,064,521) (9,705,915) (5,639,056) (7,571,522) (131,293) Profit (loss) before tax － (30,814,175) 5,643,353 22,534,340 14,859,187 (8,533,580) Profit (loss) from continuing operations

－ (30,167,283) 5,095,019 21,676,908 10,814,141 (8,581,508)

Profit (loss) from discontinued operations

－－－－－－

Profit (loss) － (30,167,283) 5,095,019 21,676,908 10,814,141 (8,581,508) Other comprehensive income, net － (1,975,663) 2,859,517 3,159,493 507,196 (882,994) Comprehensive income － (32,142,946) 7,954,536 24,836,401 11,321,337 (9,464,502) Profit (loss), attributable to owners of parent

－ (29,899,236) 5,102,568 21,676,759 10,815,594 (8,581,508)

Profit (loss), attributable to non-controlling interests

－ (268,047) (7,549) 149 (1,453) －

Comprehensive income, attributable to owners of parent

－ (31,688,130) 7,953,076 24,844,853 11,352,532 (9,464,502)

Comprehensive income, attributable to non-controlling interests

－ (454,816) 1,460 (8,452) (31,195) －

Earnings per share － (4.00) 0.57 2.31 1.09 (0.86) Note 1: Financial data by IFRS less than 5 years, preparing the following report by ROC GAAP Note 2: Numbers are audited. Note 3: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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3. Condensed Balance Sheet-IFRS-Alone Unit: NT Thousand


Item 2011 2012 2013 2014 2015

Current assets － 147,154,273 138,274,531 162,875,147 111,926,408 Fixed assets － 287,051,335 233,557,614 192,599,182 163,921,697 Intangible assets － 22,796,701 21,114,443 20,127,184 19,264,025 Other assets － 100,240,714 100,611,858 106,252,898 102,927,491 Total assets － 557,243,023 493,558,446 481,854,411 398,039,621

Before distribution － 238,165,426 287,413,773 205,189,126 121,257,442 Current liabilities After distribution － 238,165,426 288,771,212 212,136,314 Note 3 Non current liabilities － 149,253,737 13,101,444 48,975,222 44,517,456

Before distribution － 387,419,163 300,515,217 254,164,348 165,774,898 Total liabilities

After distribution － 387,419,163 301,872,656 261,111,536 Note 3 Equity attributable to owners of the parent

－ 169,823,860 193,043,229 227,690,063 232,264,723

Capital stock － 79,129,708 91,094,288 99,545,364 99,532,372 Capital surplus － 119,677,980 96,058,741 99,584,369 99,643,564

Before distribution － (24,979,239) 7,421,697 26,632,674 30,338,450 Retained earnings After distribution － (24,979,239) 7,331,202 19,685,486 Note 3 Other equity interest － (4,004,589) (1,531,497) 1,927,656 2,750,337 Treasury stock －－－－－ Non controlling interest －－－－－

Before distribution － 169,823,860 193,043,229 227,690,063 232,264,723 Total shareholders’ equity After distribution － 169,823,860 191,685,790 220,742,875 Note 3

Note 1: Financial data by IFRS less than 5 years, preparing the following report by ROC GAAP Note 2: Numbers are audited. Note 3: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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4. Condensed Statement of Income-IFRS-Alone Unit: NT Thousand


Item 2011 2012 2013 2014 2015(Note 3)

Operating revenue － 471,524,374 419,738,269 426,005,033 360,638,133 Gross profit (loss) from operations － (7,116,158) 27,531,818 36,395,248 33,712,246 Net operating income (loss) － (24,249,282) 11,300,119 20,439,440 15,826,909 Non-operating income and expenses － (7,431,680) (6,864,968) 1,238,394 (2,017,968) Profit (loss) before tax － (31,680,962) 4,435,151 21,677,834 13,808,941 Profit (loss) from continuing operations － (29,899,236) 5,102,568 21,676,759 10,815,594 Profit (loss) from discontinued operations －－－－－ Profit (loss) － (29,899,236) 5,102,568 21,676,759 10,815,594 Other comprehensive income, net － (1,788,894) 2,850,508 3,168,094 536,938 Comprehensive income － (31,688,130) 7,953,076 24,844,853 11,352,532 Profit (loss), attributable to owners of parent － (29,899,236) 5,102,568 21,676,759 10,815,594 Profit (loss), attributable to non-controlling interests

－－－－－

Comprehensive income, attributable to owners of parent

－ (31,688,130) 7,953,076 24,844,853 11,352,532

Comprehensive income, attributable to non-controlling interests

－－－－－

Earnings per share － (4.00) 0.57 2.31 1.09 Note 1: Financial data by IFRS less than 5 years, preparing the following report by ROC GAAP Note 2: Numbers are audited. Note 3: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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6.1.2 Five-Year Financial Summary 1. Condensed Balance Sheet-GAAP-Consolidate

Unit: NT Thousand

Five-Year Financial Summary(Note) Year

Item 2011 2012 2013 2014 2015

Current assets 212,582,766 174,628,466 －－－ Funds & Long-term investments 22,059,603 23,623,033 －－－ Fixed assets 403,808,043 328,297,554 －－－ Intangible assets 18,517,906 18,065,083 －－－ Other assets 26,696,758 26,244,104 －－－ Total assets 683,665,076 570,858,240 －－－

Before distribution 419,171,745 237,029,639 －－－ Current liabilities After distribution 419,171,745 237,029,639 －－－ Long-term liabilities 55,703,297 152,491,697 －－－ Other liabilities 10,122,091 8,894,958 －－－

Before distribution 484,997,133 398,416,294 －－－ Total liabilities

After distribution 484,997,133 398,416,294 －－－ Capital stock 73,129,708 79,129,708 －－－ Capital surplus 191,835,695 119,594,471 －－－

Before distribution (69,654,839) (26,984,855) －－－ Retained earnings After distribution (69,654,839) (26,984,855) －－－ Unrealized gain or loss on financial instruments (2,107,490) (985,693) －－－

Cumulative translation adjustments 2,977,862 155,150 －－－ Net loss unrecognized as pension cost

－－－－－

Minority interest 2,487,007 1,533,165 －－－

Before distribution 198,667,943 172,441,946 －－－ Total shareholders’ equity After distribution 198,667,943 172,441,946 －－－

Note: Numbers are audited.

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2. Condensed Statement of Income-GAAP-Consolidate Unit: NT Thousand, EPS NTD


Item 2011 2012 2013 2014 2015

Operating Revenue 510,081,200 483,609,931 －－－ Gross profit (loss) from operations (35,208,648) 4,737,345 －－－ Net operating income (loss) (62,700,308) (19,344,622) －－－ Non-operating revenue and gain 8,311,203 6,999,454 －－－ Non-operating expense and loss (15,341,165) (17,725,537) －－－ Profit (loss) from continuing operations Before tax (69,730,270) (30,070,705) －－－

Profit (loss) from continuing operations (64,760,598) (29,473,396) －－－


－－－－－

Extraordinary gain or loss －－－－－ Cumulative effect of accounting principle changes

－－－－－

Net income (64,760,598) (29,473,396) －－－ Earnings per share (8.81) (3.91) －－－ Note 1: Numbers are audited.

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3. Condensed Balance Sheet-GAAP-Alone Unit: NT Thousand


Item 2011 2012 2013 2014 2015

Current assets 155,428,602 148,614,892 －－－ Funds & Long-term investments 82,495,850 82,455,767 －－－ Fixed assets 342,612,740 284,338,966 －－－ Intangible assets 18,515,631 18,064,885 －－－ Other assets 22,596,907 23,121,395 －－－ Total assets 621,649,730 556,595,905 －－－

Before distribution 380,305,366 237,628,126 －－－ Current liabilities After distribution 380,305,366 237,628,126 －－－ Long-term liabilities 33,946,997 139,310,440 －－－ Other liabilities 11,216,431 8,748,558 －－－

Before distribution 425,468,794 385,687,124 －－－ Total liabilities

After distribution 425,468,794 385,687,124 －－－ Capital stock 73,129,708 79,129,708 －－－ Capital surplus 191,835,695 119,594,471 －－－

Before distribution (69,654,839) (26,984,855) －－－ Retained earnings After distribution (69,654,839) (26,984,855) －－－ Unrealized gain or loss on financial instruments (2,107,490) (985,693) －－－

Cumulative translation adjustments 2,977,862 155,150 －－－ Net loss unrecognized as pension cost

－－－－－

Before distribution 196,180,936 170,908,781 －－－ Total shareholders’ equity After distribution 196,180,936 170,908,781 －－－

Note 1: Numbers are audited.

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4. Condensed Statement of Income-GAAP-Alone Unit: NT Thousand EPS NTD


Item 2011 2012 2013 2014 2015

Operating Revenue 485,403,114 471,524,374 －－－ Gross profit (loss) from operations (43,979,512) (6,872,735) －－－ Net operating income (loss) (63,395,419) (23,838,237) －－－ Non-operating revenue and gain 7,966,978 7,345,941 －－－ Non-operating expense and loss (14,733,347) (14,445,196) －－－ Profit (loss) from continuing operations Before tax (70,161,788) (30,937,492) －－－

Profit (loss) from continuing operations

－－－－－


－－－－－

Extraordinary gain or loss －－－－－ Cumulative effect of accounting principle changes

－－－－－

Net income (64,439,778) (29,205,349) －－－ Earnings per share (8.81) (3.91) －－－ Note 1: Numbers are audited. 6.1.3 Auditors’ Opinions from 2011 to 2015 Year CPA Firm CPA's Name Auditing Opinion 2011 PricewaterhouseCoopers Hsiao Chun-Yuan & Hsu Yung-Chien Unqualified-modified wording 2012 PricewaterhouseCoopers Hsiao Chun-Yuan & Hsu Yung-Chien Unqualified-modified wording 2013 PricewaterhouseCoopers Hsiao Chun-Yuan & Wu Han-Chi Unqualified-modified wording 2014 PricewaterhouseCoopers Wu Han-Chi & Sheng Chung-Hsu Unqualified-modified wording 2015 PricewaterhouseCoopers Wu Han-Chi & Sheng Chung-Hsu Unqualified wording 6.1.4 If there was change/replacement of the CPA within the most recent 5 fiscal years,

explanation made by the company’s previous and current CPA over the causes for such change/replacement shall be set forth.

Year Former CPA's Name Current CPA's Name Reason 2011 None 2012 None 2013 Hsiao Chun-Yuan & Hsu Yung-Chien Hsiao Chun-Yuan & Wu Han-Chi Unqualified-modified wording 2014 Hsiao Chun-Yuan & Wu Han-Chi Wu Han-Chi & Sheng Chung-Hsu Unqualified-modified wording 2015 None

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6.2 Five-Year Financial Analysis 1. Financial Analysis-IFRS-Consolidate

Financial analysis in the past five years(Note 1) Year (Note 1)

Item 2011 2012 2013 2014 2015

Ending date in March 31,2016

Ratio of liabilities to assets － 70.01 61.71 52.50 40.05 36.57 Financial structure

(%) Ratio of long-term capital to fixed assets

－ 100.41 75.91 121.31 138.84 134.06

Current ratio － 72.88 57.12 95.10 125.7 118.42 Quick ratio － 54.77 39.92 77.41 97.37 85.41

Solvency (%)

Times interest earned ratio －－ 2.12 7.28 9.68 － Accounts receivable turnover (turns)

－ 6.11 5.56 5.88 5.68 5.19

Average collection period － 60 66 62 64 70 Inventory turnover (turns) － 8.51 7.67 8.41 9.29 7.68 Accounts payable turnover (turns)

－ 4.47 4.54 4.90 4.52 4.5

Average days in sales － 43 48 43 39 48 Fixed assets turnover (turns) － 1.31 1.40 1.69 1.68 1.15

Operating ability

Total assets turnover (turns) － 0.77 0.78 0.87 0.84 0.61 Return on total assets (%) － (3.77) 1.72 4.98 2.81 (2.25) Return on stockholders' equity (%)

－ (16.18) 2.79 10.23 4.69 (3.77)

Ratio to issued capital (%) － (38.94) 6.20 22.64 14.93 (8.57) Profit ratio (%) － (6.18) 1.21 5.06 2.97 (15.21)

Profitability

Earnings per share ($) － (4.00) 0.57 2.31 1.09 (0.86) Cash flow ratio － 21.16 25.25 52.33 73.38 (2.89) Cash flow adequacy ratio － 64.93 84.75 129.39 226.97 287.06

Cash flow (%)

Cash reinvestment ratio － 7.83 12.91 14.58 9.86 (0.36) Operating leverage －－ 4.77 3.02 3.35 －

Leverage Financial leverage －－ 1.49 1.15 1.08 －

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) 1. Ratio of liabilities to assets decrease Mainly due to bank loan repayment. 2. Current ratio and Quick ratio increase mainly due to bank loan repayment. 3. Times interest earned ratio increase mainly due to interest expense decrease in 2015. 4. Various ratios of profitability decrease due primarily to economy is in a slump, the profits earned by the

Company decreased than 2014’s. 5. Cash flow ratio increase mainly due to decrease in cash provided by operating activities. 6. Various ratios of Cash flow adequacy ratio rose due primarily to the facts that in 2015, the Capital

expenditures by the Company decreased than 2014’s. 7. Cash reinvestment ratio fall due primarily to economy is in a slump, Cash provided by operating activities

decrease in 2015. Note 1: We adopted International Financial Reporting Standards ( IFRS). For period less than five(5) years, we worked

Table 4 below, adopted the Financial Reporting Standards of the Republic of China. Note 2: Numbers are audited. Note 3: Financial Ratio Formula

1. Financial Structure analysis (1) Debt ratio= Total Liabilities / Total Assets (2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property,

plant and equipment, net 2. Liquidity analysis

(1) Current ratio = Current assets / Current liability (2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability (3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense

3. Operating performance analysis (1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) =

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Sales / Average trade receivables (2) Days to collect accounts receivable = 365 / Average collection turnover (3) Average inventory turnover = Cost of goods sold / Average inventories (4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) =

operating costs / Average trade payables (5) Average days to sell inventory = 365 / Average inventory turnover (6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net (7) Total assets turnover = Sales / Average total assets

4. Return on investment analysis (1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets (2) Rate of return on equity = Profit / Average total Equity (3) Profit to sales = Profit / Sales (4) Earnings per share = (Equity attributable to owners of parent - Dividend-preferred stock ) / Weighted

average outstanding shares 5. Cash flow

(1) Cash flow ratio = Net cash provided by operating activities / Current liability (2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense +

Increase in inventories + Cash dividend) (3) Cash flow reinvestment ratio = (Net cash provided by operating activities - Cash dividend) - (Property,

plant and equipment, net + Long-term investments + Other non-current assets + Operating Capital) 6. Leverage

(1) Operating Leverage= (Net sales – Variable cost) / Operating income (2) Financial leverage = Operating income / (Operating income – Interest expenses)

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2. Financial Analysis-IFRS-Alone

Financial analysis in the past five years(Note 1) Year (Note 1)

Item 2011 2012 2013 2014 2015

Ratio of liabilities to assets － 69.52 60.89 52.75 41.65 Financial structure (%) Ratio of long-term capital to

fixed assets － 111.16 88.26 143.65 168.85

Current ratio － 61.79 48.11 79.38 92.30 Quick ratio － 46.82 34.07 65.50 71.48 Solvency (%) Times interest earned ratio － (5.27) 2.03 8.23 9.59 Accounts receivable turnover (turns) － 6.16 5.66 6.03 5.82

Average collection period － 59 64 61 63 Inventory turnover (turns) － 9.99 9.62 10.78 11.61 Accounts payable turnover (turns)

－ 3.13 3.11 3.39 3.40

Average days in sales － 37 38 34 31 Fixed assets turnover (turns) － 1.49 1.61 2.00 2.02

Operating ability

Total assets turnover (turns) － 0.80 0.80 0.87 0.82 Return on total assets (%) － (4.36) 1.65 4.95 2.76 Return on stockholders' equity (%)

－ (16.35) 2.81 10.30 4.70

Ratio to issued capital (%) － (40.04) 4.87 21.78 13.87 Profit ratio (%) － (6.34) 1.22 5.09 3.00

Profitability

Earnings per share ($) － (4.00) 0.57 2.31 1.09 Cash flow ratio － 17.11 17.30 44.53 39.11 Cash flow adequacy ratio － 81.66 96.55 153.66 214.96

Cash flow (%)

Cash reinvestment ratio － 7.06 9.34 14.02 5.79 Operating leverage －－ 5.81 3.63 4.12

Leverage Financial leverage －－ 1.62 1.17 1.11

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) 1. Ratio of liabilities to assets: Mainly due to bank loan repayment. 2. Various ratios of profitability decrease due primarily to economy is in a slump, the profits earned by the

Company decreased than 2014’s. 3. Various ratios of Cash flow adequacy ratio rose due primarily to the facts that in 2015, the Capital

expenditures by the Company decreased than 2014’s. 4. Cash reinvestment ratio fall due primarily to economy is in a slump, Cash provided by operating activities

decrease in 2015. Note 1: We adopted International Financial Reporting Standards ( IFRS). For period less than five(5) years, we worked

Table 3 below, adopted the Financial Reporting Standards of the Republic of China. Note 2: Numbers are audited. Note 3: Financial Ratio Formula






operating costs / Average trade payables

97

(5) Average days to sell inventory = 365 / Average inventory turnover (6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net (7) Total assets turnover = Sales / Average total assets







98

3. Financial Analysis-GAAP-Consolidate Financial analysis in the past five years(Note 1) Year (Note 1)

Item 2011 2012 2013 2014 2015

Ratio of liabilities to assets 70.94 69.79 －－－ Financial

structure (%) Ratio of long-term capital to fixed assets 65.50 101.68 －－－

Current ratio 50.71 73.67 －－－ Quick ratio 36.10 54.89 －－－ Solvency (%) Times interest earned ratio (10.85) (2.91) －－－ Accounts receivable turnover (turns) 7.28 6.11 －－－

Average collection period 50 60 －－－ Inventory turnover (turns) 7.87 8.50 －－－ Accounts payable turnover (turns) 4.76 4.46 －－－

Average days in sales 46 43 －－－ Fixed assets turnover (turns) 1.18 1.32 －－－

Operating ability

Total assets turnover (turns) 0.73 0.77 －－－ Return on total assets (%) (8.54) (3.64) －－－ Return on stockholders' equity (%) (27.92) (15.74) －－－

Ratio to issued capital (%) (85.74) (24.45) －－－ Ratio to Profit before tax (95.35) (38.00) －－－ Profit ratio (%) (12.63) (6.04) －－－

Profitability

Earnings per share ($) (8.81) (3.91) －－－ Cash flow ratio 6.71 18.36 －－－ Cash flow adequacy ratio 56.37 62.57 －－－ Cash flow(%) Cash reinvestment ratio 5.75 6.89 －－－ Operating leverage －－－－－

Leverage Financial leverage －－－－－

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.):N.A. Note 1: Numbers are audited. Note 2: Calculation formula of financial ratio








average outstanding shares

99

5. Cash flow (1) Cash flow ratio = Net cash provided by operating activities / Current liability (2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense +




100

4. Financial Analysis-GAAP-Alone Financial analysis in the past five years (Note 1) Year (Note 1)

Item 2011 2012 2013 2014 2015

Ratio of liabilities to assets 68.44 69.29 －－－ Financial

structure (%) Ratio of long-term capital to fixed assets 67.17 109.10 －－－

Current ratio 40.87 62.54 －－－ Quick ratio 27.31 46.93 －－－ Solvency (%) Times interest earned ratio (14.02) (4.93) －－－ Accounts receivable turnover (turns) 7.13 6.16 －－－

Average collection period 51 59 －－－ Inventory turnover (turns) 8.81 9.99 －－－ Accounts payable turnover (turns) 3.75 3.13 －－－

Average days in sales 41 37 －－－ Fixed assets turnover (turns) 1.31 1.50 －－－

Operating ability

Total assets turnover (turns) 0.75 0.80 －－－ Return on total assets (%) (9.36) (4.22) －－－ Return on stockholders' equity (%) (28.33) (15.91) －－－

Ratio to issued capital (%) (86.69) (30.13) －－－ Ratio to Profit before tax (95.94) (39.10) －－－ Profit ratio (%) (13.28) (6.19) －－－

Profitability

Earnings per share ($) (8.81) (3.91) －－－ Cash flow ratio 16.16 14.96 －－－ Cash flow adequacy ratio 73.1 79.33 －－－ Cash flow (%) Cash reinvestment ratio 15.98 6.65 －－－ Operating leverage －－－－－

Leverage Financial leverage －－－－－

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.):N.A. Note 1: Financial data by IFRS less than 5 years, preparing the following table 3 by ROC GAAP Note 2: Numbers are audited. Note 3: Financial Ratio Formula








101






102

6.3 Supervisors’ Report in the Most Recent Year

Innolux Corporation

Supervisors’ Audit Report

The Board of Directors has duly submitted the 2015 operating report, financial statements,

and table of profit distribution. The financial statements has been duly reviewed and approved by CPA Mr. Wu Han-Chi and CPA Mr. Sheng-Chung Hsu of PwC Taiwan with the issuance of Independent Auditor’s Report. I, as the supervisor of the Company, have completed the audit and review, and had found nothing inconsistent with any of the above. Therefore, I issue this audit report for acknowledgment in accordance with Article 219 of the Company Act. For your approval. To General Shareholders Meeting of the Company in 2016

Supervisor: Lin, Ren-Guang

Date: May 12, 2016

103

Innolux Corporation



and table of profit distribution. The financial statements has been duly reviewed and approved by CPA Mr. Wu Han-Chi and CPA Mr. Sheng-Chung Hsu of PwC Taiwan with the issuance of Independent Auditor’s Report.

I, as the supervisor of the Company, have completed the audit and review, and had found nothing inconsistent with any of the above. Therefore, I issue this audit report for acknowledgment in accordance with Article 219 of the Company Act. For your approval. To General Shareholders Meeting of the Company in 2016

Supervisor: Chen, Yi-Fang

Date: May 12, 2016

104

Innolux Corporation



and table of profit distribution. The financial statements has been duly reviewed and approved by CPA Mr. Wu Han-Chi and CPA Mr. Sheng-Chung Hsu of PwC Taiwan with the issuance of Independent Auditor’s Report.

I, as the supervisor of the Company, have completed the audit and review, and had found nothing inconsistent with any of the above. Therefore, I issue this audit report for acknowledgment in accordance with Article 219 of the Company Act. For your approval. To General Shareholders Meeting of the Company in 2016

Supervisor:

I-Chen Investment Ltd.

Representative: Te-Tsai Huang

Date: May 12, 2016

105

6.4 Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014, and Independent Auditors’ Report Please refer to page 123 of the annual report.

6.5 Financial Statements for the Years Ended December 31, 2015 and 2014, and

Independent Auditors’ Report

Please refer to page 209 of the annual report.

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

106

VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status

Unit: NT Thousand Difference Year

Item

2014 2015 Amount %

Current Assets (1) 189,380,812 138,866,987 (50,513,825) (26.67) Fixed Assets 233,609,843 199,482,740 (34,127,103) (14.61) Intangible assets 20,219,137 19,342,856 (876,281) (4.33) Other Assets (2) 39,306,763 29,749,753 (9,557,010) (24.31)

Total Assets 482,516,555 387,442,336 (95,074,219) (19.70) Current Liabilities (3) 199,135,498 110,471,463 (88,664,035) (44.52) Other Liabilities- non-current 54,209,621 44,706,150 (9,503,471) (17.53)

Total Liabilities (4) 253,345,119 155,177,613 (98,167,506) (38.75) Capital stock 99,545,364 99,532,372 (12,992) (0.01) Capital surplus 99,584,369 99,643,564 59,195 0.06 Retained Earnings 26,632,674 30,338,450 3,705,776 13.91 Other equity (5) 1,927,656 2,750,337 822,681 42.68 Non controlling equity (6) 1,481,373 － (1,481,373) (100.00)

Total Stockholders' Equity 229,171,436 232,264,723 3,093,287 1.35 Analysis of changes in financial ratios: 1. Mainly due to decrease in cash and cash equivalents, accounts receivable, accounts receivable – related

parties and inventory. 2. Mainly due to decrease in Other Financial Assets - Noncurrent. 3. Mainly due to decrease in short- term debt, accounts payable and Long-Term Liabilities-Current Portion. 4. Mainly due to decrease in Current Liabilities. 5. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and

increase in Unrealized Gains (Losses) on Available-for-sale financial assets. 6. Mainly due to merger subsidiary Chi Mei EL Corporation.

107

7.2 Analysis of Operating Results Unit: NT Thousand Difference Year

Item

2014 2015 Amount %

Operating Revenue 428,661,898 364,132,984 (64,528,914) (15.05) Operating Costs 378,276,897 317,492,879 (60,784,018) (16.07) Gross Profit 50,385,001 46,640,105 (3,744,896) (7.43) Operating Expenses 22,211,605 24,209,396 1,997,791 8.99 Operating Income(1) 28,173,396 22,430,709 (5,742,687) (20.38) Non-operating Income and Expenses(2) (5,639,056) (7,571,522) (1,932,466) 34.27 Income Before Tax(3) 22,534,340 14,859,187 (7,675,153) (34.06) Tax Benefit (Expense)(4) 857,432 4,045,046 3,187,614 371.76 Net income(5) 21,676,908 10,814,141 (10,862,767) (50.11) Other comprehensive income(6) 3,159,493 507,196 (2,652,297) (83.95) Total comprehensive income(7) 24,836,401 11,321,337 (13,515,064) (54.42) Analysis of changes in financial ratios: 1. Mainly due to decrease in Gross Profit and increase in Operating Expenses. 2. Mainly due to increase in Annual court fees. 3. Mainly due to decrease in Operating Income. 4. Mainly due to increase in Undistributed Surplus Earnings. 5. Mainly due to decrease in Income Before Tax and increase in Tax Benefit Expense. 6. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and

increase in Unrealized Gains (Losses) on Available-for-sale financial assets. 7. Mainly due to decrease in Net income.

108

7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year

Unit: NT Thousand Year

Items 2015 Analysis

Net cash provided by operating activities

81,064,293 Net cash provided mainly due to depreciation and reasonable control for operating cycle.

Net cash used in investing activities

(20,802,751) Mainly due to additions to property, plant and equipment.

Net cash used in financing activities

(79,457,353) Mainly due to bank loan repayment and cash dividends

7.3.2 Cash Flow Analysis for the Coming Year

Unit: NT Thousand

Remedy Actions for Estimated Cash Shortfall

Cash and cash equivalents at

beginning of year (1)

Estimated Net cash provided by

operating activities for whole year (2)

Estimated Net decrease in cash

and cash equivalent for whole year (3)

Estimated Surplus (Shortage) of Cash

(1)+(2)+(3) Investment Plan Financing Plan

52,522,790 23,469,000 24,441,000 51,550,790 －－ 2016 Analysis of changes in cash flow

Operating Activities: Net Cash inflow due to expected the average selling price for panels will return to the stable and lower production cost continually Investing Activities: Net cash outflow due to overcome difficulties continually and capital expenditure for new techniques Financing Activities: Net cash inflow mainly due to bank loan borrowing Remedy Actions for Cash Shortfall: None

109

7.4 Major Capital Expenditure Items Capital Expenditures in 2015 focus on high-precision, high aperture ratio, yield quality

improvement,Generation 8.6, LTPS and Green environmental protection, Total amount approximately 24 billion.

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

and the Investment Plans for the Coming Year In terms of outward investment, the Company focused on the up- and down-streams of

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

In the consolidated financial report of the Company in 2015, the investment gain recognized in equity method came to NT$213,587,000, thanks primarily to the upturn of the overall economy where the business performance of the invested businesses turned better. Some outward investments appeared at a loss. Overall, the performance with the Company’s outward reinvestments have been well up to our expectation and have been continually integrated with our business development.

7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on

Corporate Finance, and Future Response Measures

1. Interest rate Domestic economic affected by the global trade slowdown and export decreased, the economic growth rate decrease this year. The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan anticipated the economic growth rate (yoy) by 2016 would hit 2.32%, 1.26% outgrew the annual rate of 2015 at 1.06%. Given the factors of economic growth and commodity prices, the Central Bank would maintain an easy interest rate policy in 2016. The M2 currency growth targets were set at 2.5%~6.5%. To prevent an increase in the Company’s loan costs as a result of an adjustment of currency policy and rise in interest rate in the market, the Company would undertake interest swap transactions in due time over the current loans in floating interest rates so as to evade the risks of the change in cash flow possibly incurred by fluctuation of interest rate.

2. Foreign exchange rates a. To prevent a potential disadvantage to the foreign currencies in input, ouput,

investment and financing activities to the Company’s assets, liabilities values, operating results due to fluctuation in exchange rates, the Company, in due time, would undertake forward foreign exchange to evade potential risks in fluctuation in exchange rates.

b. The Company adopted Natural Hedge in principle to evade exchange rate risks by taking the revenues from sales in foreign currencies to pay off required foreign currencies. We, therefore, only undertook the hedge transaction aiming at the positions of net assets or liabilities in foreign currencies.

c. In the Company, over 90% of the operating revenues came from U. S. Dollars and other foreign currencies. For capital expenditures and manufacturing costs, the primary demand for foreign currencies came from U. S. Dollars and Japanese yen. Any unfavorable significant change in exchange rate would lead to a passive impact upon the financial profit and/or loss. In calculation with the Company’s output and marketing as well as cost structure in 2015, where the New Taiwan Dollars is

110

appreciated by 1% over U. S. Dollars, the Company’s gross profit would drop 0.4%~0.55%.

3. Inflation The DGBAS forecasts a -0.31% CPI growth rate for the entire year as domestic inflation is projected to be subdued.While low international commodity prices including oil have dragged down inflation expectations, energy price slumps will likely weigh less on the inflation downtrend next year. The CPI annual growth rate is expected to rise mildly toward 0.84% in 2016. The high-speed inflation and deflation would interfere with the efficiency in the markets; discourage investment, consumption, savings and such behaviors. To prevent potential impact on the negative aspect from high speed inflation which would, in turn, dampen investment, consumption and savings, the communications has tried by all means of lower various costs to enhance competitive edge and would be closely watchful the change in the supply and demand in the market, to flexbly adjust product portfolio to closely live up to actual demand in the market.

7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to

High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions

1. The Company had not engaged in highly risky and high financial leverage investment. Exactly as required by the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan and the laws and ordinances concerned, we have set up wholesome financial and operating grounds in the managerial regulations and operating procedures, including “Procedures to Engage in Transaction and Disposal of Derivatives”, “Procedures for Loaning of Funds to Others” and “Operating Procedures of Endorsements/Guarantees”.

2. In an attempt to control potential risks in finance, we hold a very wholesome and conservative principle in derivative financial instruments to primarily evade the potential risks of the exchange rates in the substantial positions incurred by input, output and financing activities. In the days and years ahead, we shall stick to such same principle to coordinate with the trends of exchange rates and interest rates as well as the Company’s business operation, we shall adjust the financial risk management in real time in accordance with laws and ordinances concerned, internal managerial rule and operating procedures.

7.6.3 Future Research & Development Projects and Corresponding Budget

In terms of the technical development in the future, the Company will continually aim at the development in the monitor application regions. Primarily, we would aim at broad vision TFT LCD monitor technology & know-how to upgrade the contrast and dues in TFT LCD; upgrade of the high penetrating TFT LCD know-how in the optical utilization rate; ultra dimension TFT LCD monitoring technology & know-how; high solution, high brightness, narrow frame TFT LCD moules; in high solution, high brightness, high temperature, low energy consumption. TFT LCD bare-eye monitor know-how upgrade into stereo display effect, rightness monitor technology & know-how, built-in touch panel technology & know-how (TOD, TID, Hybrid) , attachment process technology & know-how. In 2015, the Company invest research & development funds in amount 14.4 billion, the amount will over 10 billion in 2016, we shall continually invest in technical research & development and boost competitive edge.

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

Finance and Sales As of the Annual Report’s publication date, there has been no adversely impact on financial or business due to any policy and law changed. All the Company’s teammates would be

111

closely watchful of potential changes in major policies and laws and ordinances concerned at home and abroad and set up legal personnel to help such issues. Through such efforts, we shall be able to take right countermeasures in real-time to minimize the potential impact upon the Company’s financial standing which might be incurred by major policies at home and abroad and change in laws.

7.6.5 Effects of and Response to Changes in Technology and in Industry Relating to

Corporate Finance and Sales

1. Technology Change The TFT-LCD industry is challenged by the constantly upgraded know-how and new products while the mainstream products are being replaced by new generation at a quickening pace. Should we fail to deal with the impact incurred by the change in science and technology, that would be an impact upon the business and financial standing on the seamy sides. Since the Company first came into being, we have spared no effort to accumulate the technical capability of TFT-LCD displays to deal with the impact incurred by the change in science and technology. Other than investment in high level research & development toward high display quality, high solution, broad vision angles, high open rates, quick response, thin and light designs, narrow frames, ultra energy conservaton and such technology & know-how, we have, as wll, tried to develop low temperature LTPS and organic lighting display OLED and such technology & know-how to assure firm competitive edge and effective growth in the Company’s business and financial standing.

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

7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the

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

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

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

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

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

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

Excessive Customer Concentration There is no risk associated with excessive customer concentration, due to the plenty production line and the main customers are international brand manufacturers. Innolux’s

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usually have two or more suppliers for main material. Therefore there is no risk associated with excessive concentration of purchasing. We will keep developing new products and new customers in the future and seeking for the better quality and the lower cost of purchase sources to reduce the risk of excessive customer concentration or excessive purchasing concentration.

7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in

Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10% As of the date of this Annual Report, there were no such risks for Innolux.

7.6.11 Effects of, Risks Relating to and Response to Changes in Control over the Company As of the date of this Annual Report, there were no such risks for Innolux.

7.6.12 Litigation or Non-litigation Matters

1. The lawsuits, non-contentious cases, administrative litigation that are decided by the court or still in proceeding in recent years until this report was issued.

(1) Former Chi Mei Optoelectronics Corporation, CMO Japan Co. Ltd. CMO UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics U.S.A. Inc. were inquired by the Department of Justice of U.S.A. in December 2006 regarding to their being suspected of involving violating Anti-trust Laws. Some state governments in the U.S.A, European Union, China, Brazil, and Korean governments also conducted investigations. Some of the retailers and consumers in the U.S. and Canada had brought individual or collective Civil Procedure lawsuits toward panel manufacturers. Former Chi Mei Optoelectronics Corporation and Chi Mei Optoelectronics U.S.A. Inc. were listed as defendant in some of the cases. The debriefing of major investigations related to anti-trust laws are as following: A. The company had reached agreement with the U.S.A. Department of Justice to

pay 220 million USD sentence with five years installment plan. Until the end of February 2015, the company finished the payment 220 million USD. From 2012 to presents, the company has reached settlement agreements with individual plaintiffs in the U.S.A, and recognizes the related losses. From 2011 November to presents, the company has reached settlement agreements with 14 state governments, and the company had agreed to settle the civil procedure lawsuits by paying the sentences according to civil codes. And all state governments are solved and finished.

B. The company received European Commission’s notice in December 2010 to inquire the company paying 300 million via Euro sentences. The company had appealed to EU Court of Justice in February 2011. EU Court of Justice decided to accepted parts of the appeal and decreased the sentence to 288 million Euro in February 2014. The company made appeal to parts of the judgment within legal time limit. The EU Court of Justice dismisses the appeal and sustains the original judgement in July 2015.

C. Except the final judgment remaining unpredictable, the company has recognized the losses according to the facts and evaluation regarding to anti-trust investigation related items revealed in previous paragraphs. The losses are listed in“Provisions Liabilities-Current” and “other financial non-current liabilities”.

(2) Eidos Display, LLC and Eidos III, LLC (below as Eidos) had brought a suit to Eastern District Court of Texas in April 25, 2011, to accuse certain products of Innolux and its US branch’s infringes its patent rights. The summary judgment，which decided the invalidation of Eidos’ patent rights, of this case had been issued by the administrative judge in December 2013 and the judge of this case had confirmed

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the summary judgment in January 2014. Eidos had appealed to the United States courts of appeals in February 2014. The United States courts of appeals made decision to rejected and remanded to the district court in March 2015. The company has a form to United States courts of appeals and raise defences actively. The United States courts of appeals rejected INX’s request in June 2015. The company has a form to US Supreme Court and made petition for writ of certiorari on September 2015, but rejected by US Supreme Court on November 2015. The final judgment depends on the suit proceedings and can’t be certain; therefore, this case doesn’t influence Innolux’s business and finance in short order.

2. Board members, monitors, CEO, responsible person in fact, shareholders and their companies holding more than 10% shares that involved in lawsuits, non-contentious cases, administrative litigation that were decided by the court or still in proceeding in recent years until this report was issued and might cause major influence on Innolux stockholder's equity and securities price: None.

7.6.13 Other Major Risks:None. 7.7 Other Important Matters: None.

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VIII. Special Disclosure 8.1 Summary of Affiliated Companies

115

8.1.2 Innolux Subsidiaries December 31, 2015

Company Date of Incorporation Address Capital Stock Business Activities

Asiaward Investment Ltd. Jan 9, 2008 Room 1701, 111 Leighton Road,

Causeway Bay, Hong Kong USD 10,000,000 Controlling Company

Best China Investments Ltd. Jan 3, 2007 Offshore Chambers, P.O.

Box,217, Apia, Samoa USD 10,000,000 Controlling Company

Bright Information Holding Ltd.

Nov 26, 2008

Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.

USD 4,910,000 Controlling Company

Golden Achiever International Limited Sept 30, 2005

Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands

USD 40,250 Controlling Company

InnoLux Corporation Nov 22, 2004 2525 Brockton Drive, Suite 300, Austin, TX 78758 USD 200,000 Sales company

Innolux Holding Ltd. Feb 28, 2002 Offshore Chambers, P.O. Box,217, Apia, Samoa.


Innolux Hong Kong Holding Limited Dec 14, 2005

Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong

HKD 1,158,844,000 Controlling Company

Innolux Hong Kong Limited

Feb 15, 2006


HKD 35,000,000 Entrepot trade company

Innolux Optoelectronics Europe B.V.

Nov 29, 2004 Jupiterstraat 106, 2132 HE Hoofddorp,The Netherlands EUR 18,000

Operating electronics parts and LCD display import and export sale

Innolux Optoelectronics Germany GmbH

Mar 02, 2006 Hanns-Martin Schleyer Strasse 9b-9c,47877 Willich-Munchheide EUR 25,000

Operating electronics parts and LCD display import and export sale and after service

Innolux Optoelectronics Hong Kong Holding Ltd.

Nov 16, 2001


HKD 162,897,802 Controlling Company

Innolux Optoelectronics Japan Co., Ltd.

Aug 20, 1991

8F, kowa kawasaki-nishiguchi Bldg., 66-2 horikawa-cho, Saiwai-ku, Kawasaki-City, Kanagawa 212-0013, Japan

JPY 314,258,270 Operating TFT-LCD development, manufacture and sales

Innolux Optoelectronics USA, INC.

May 9, 2002 101 Metro Drive Suite 510,San Jose,CA95110, U.S.A US$6,000,000

Operating electronics parts and computer display sale

Innolux Technology Europe B.V. Mar 8, 2006 Stationstraat 39G, 6411NK,

Heerlen, The Netherlands EUR 37,581,000

Controlling Company of Researching, developing and Testing

Innolux Technology Germany GmbH Feb 17, 2006 Kaiserswerther Strasse

115,D-40880 Ratingen, Germany EUR 100,000 Testing & Maintenance Company

Innolux Technology Japan Co., Ltd. Mar 1, 2005

1-1-1, Ibukidaihigashimachi, Nishi-ku, Kobe-city, 651-2242, Japan

JPY 146,570,164 Distributor

Innolux Technology USA Inc. Apr 12, 2006

2300 North Barrington Road, Suite 400, Hoffman Estates, IL 60169, USA

USD 1,000 Distributor

Keyway Investment Management Limited Mar 30, 2005 Portcullis TrustNet Chambers,

P.O Box 1225, Apia, Samoa USD 5,656,410 Controlling Company

Lakers Trading Ltd. Jun 4, 2004 Offshore Chambers, P.O. Box,217, Apia, Samoa USD 1 Entrepot trade

company Landmark International Ltd. Apr 24, 2003 Offshore Chambers, P.O.Box

217, Apia, Samoa USD 709,450,000 Controlling Company

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Leadtek Global Group Limited Mar 30, 2005 P.O. Box 3444,Road

Town,Tortola,BVI USD 50,000,000 Entrepot trade company

Magic Sun Ltd. Nov 10, 2009 Offshore Chambers, P.O. Box,217, Apia, Samoa

US$38,000,000 Controlling Company

Main Dynasty Investment Ltd. Dec 06, 2007 Room 1701, 111 Leighton Road,


Mega Chance Investments Ltd. Jan 3, 2007 Offshore Chambers, P.O. Box

217, Apia, Samoa USD 18,000,000 Controlling Company

Nets Trading Ltd. May 2, 2008 Offshore Chambers, P.O. Box 217, Apia, Samoa USD900,001 General Investment

Industry

Rockets Holding Ltd. Dec 18, 2002 Offshore Chambers, P.O. Box,217, Apia, Samoa


Stanford Developments Ltd. Aug 12, 1999 Offshore Chambers, P.O.

Box,217, Apia, Samoa USD 164,000,000 Controlling Company

Sun Dynasty Development Ltd. Nov 6, 2009 Room 1701, 111 Leighton Road,


Suns Holding Ltd. Dec 18, 2006 Offshore Chambers, P.O. Box,217, Apia, Samoa


Toppoly Optoelectronics (B.V.I.) Ltd.

Jul 17, 2001 CITCO Building, P.O. Box 662, Road Town, Tortola , British Virgin Islands.


Toppoly Optoelectronics (Cayman) Ltd.

Jul 17, 2001

89 Nexus Way, Camana Bay, P. O. Box 31106, Georgetown Grand Cayman KY1-1205, Cayman Islands


Warriors Technology Investments Ltd. Jan 3, 2007 Offshore Chambers, P.O.

Box,217, Apia, Samoa US$18,177,052 Investment activities

Shanghai Innolux Optoelectronics Ltd. Jan 9, 2006

No. 272-2, Ba Sheng Road, New Customs, Wai Gao Qiao Free Trade Zone, 200131 Pudong, Shanghai, China

USD 21,000,000

Manufacturing & selling LCD back end module related technologies and products.

Yuan Chi investment co., Ltd Jul 6, 2005

No.8, Zhongxin Rd., Xinshi Dist., Tainan City 74148, Taiwan (R.O.C.)

NTD 2,100,000,000 Investment activities

Foshan Innolux Optoelectronics Ltd. Apr 21, 2006

Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, China

USD 383,000,000


Foshan Innolux Logistics Ltd.

Jul 17, 2008 North Factory, Xingye Rd., Nanhai Economic Zone, Foshan, Guangdong, 528325, China

USD 1,500,000 Storage services

VAP Optoelectromics (NanJing) Corp. Mar 29, 2007

No. 8, Jiu Zu Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 10,100,000


Kunpal Optoelectronics Ltd. Jan 9, 2009

No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 4,000,000 Thinner glass process service

Nanjing Innolux Technology Ltd.

Oct 24, 2007


USD 2,100,000 Business of display and related product.

Nanjing Innolux Optoelectronics Ltd. May 23, 2001


USD 142,000,000


InnoJoy Investment Jun 26, 2007 No.8, Zhongxin Rd., Xinshi NTD1,674,053,920 Investment activities

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Corp. Dist., Tainan City 74148, Taiwan (R.O.C.)

Innocom Technology (Shenzhen) Co., LTD Jun 24, 2004

1F, Zone 4, G2 Zone 2F A region, 3F, 4F and 5F Foxconn Technology Industrial Park E, Bao'an District, Shenzhen City, Guangdong Province, China

USD 164,000,000


Ningbo Innolux Technology Co., LTD Jun 7, 2005

No.8, Cao E River Rd., Ningbo Bonded Zone USD 130,000,000


Ningbo Innolux Electronics Ltd.

Nov 04,2015 No.8, Cao E River Rd., Ningbo Bonded Zone Building 2 2F

CNY 30,000,000

Selling LCD back end module related technologies and products.

Ningbo Innolux Optoelectronics Co., LTD

Dec 14, 2004 No.16, YangZi River North Rd., Ningbo Export Processing Zone, 315800, China

USD 310,000,000


Ningbo Innolux Display LTD Dec 05, 2006

No.8, Cao E River Rd., Ningbo Bonded Zone USD 30,000,000


Ningbo Innolux Logistics LTD Dec 05, 2006 No.8, Alishan Road, Ningbo

Export Processing Zone, China USD 4,000,000 Storage services

8.1.3 Shareholders in Common of INX and Its Subsidiaries with Deemed Control and

Subordination: None. 8.1.4 Business Scope of INX and Its Subsidiaries:

The company and its subsidiary operating business include the development, manufacture, after service and sale of TFT-LCD. By the layout of globalization, combine the distribution of Taiwan and China production base; provide downstream manufacturer or panel module manufacturer to have high flexibility supply capacity. There are a small number of affiliated companies are setting investment business as operating scope, to strength vertical integration and strategy investment and coordinate the company’s future operation.

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8.1.5 Rosters of Directors, Supervisors, and Presidents of INX’s Subsidiaries: As of 12/31/2015

Shareholding Company Title Name

Shares % (Investment

Holding) Asiaward Investment Ltd. Chairman Chien-Lang Lo - - Best China Investments Ltd. Chairman Chien-Lang Lo - -

Chairman Jyh Chau, Wang - - Director Chao-Hsien Liu - - Bright Information Holding Ltd. Director Jun-Yi Yu - -

Golden Achiever International Limited

Chairman Chao-Hsien Liu - -

InnoLux Corporation Chairman Nai-Hsun Kuo - - Innolux Holding Ltd. Chairman Hsing-Chien Tuan - -

Chairman Jyh Chau, Wang - - Director Chao-Hsien Liu - - Innolux Hong Kong Holding

Limited Director Jun-Yi Yu - - Chairman Jyh Chau, Wang - - Director Tzu-En Hung - - Innolux Hong Kong Limited Director Nai-Hsun Kuo - -


Chairman Chin-Yuan Chang - -

Innolux Optoelectronics Germany GmbH Chairman Chin-Yuan Chang - -

Chairman Jyh Chau, Wang - - Director Shu-Mei He - - Innolux Optoelectronics Hong

Kong Holding Ltd. Director Jun-Yi Yu - - Chairman Suzuki Mikio - - Director Jyh Chau, Wang - - Director Ching-Lung Ting - - Supervisor Kida Masukichi - - Supervisor Hui-Chuan Chien - -


Supervisor Chin-Yuan Chang - - Chairman Junichi Ishi - - Director Suzuki Mikio - - Innolux Optoelectronics USA,

INC. Director Sato Takahiro - - Chairman Jyh Chau, Wang - -

Innolux Technology Europe B.V. Director van Riel, Lucien Franciscus

Henricus - -

Chairman Jyh Chau, Wang - -

Director van Riel, Lucien Franciscus Henricus

- - Innolux Technology Germany GmbH

Director Akkie Petrus Lambert Kersten - - Chairman Taruda Kiyoshi - - Director Jyh Chau, Wang - - Director Hui-Chuan Chien - -

Innolux Technology Japan Co., Ltd.

Supervisor Chin-Yuan Chang - - Chairman Jyh Chau, Wang - - Innolux Technology USA Inc. Director Brant White - -

Keyway Investment Management Limited Chairman Jyh Chau, Wang - -

Lakers Trading Ltd. Chairman Chih-Hung Hsiao - - Landmark International Ltd. Chairman Jyh Chau, Wang - - Leadtek Global Group Limited Chairman Jyh Chau, Wang - - Magic Sun Ltd. Chairman Chien-Lang Lo - - Main Dynasty Investment Ltd. Chairman Chien-Lang Lo - - Mega Chance Investments Ltd. Chairman Chien-Lang Lo - - Nets Trading Ltd. Chairman Hsing-Chien Tuan - - Rockets Holding Ltd. Chairman Chih-Hung Hsiao - - Stanford Developments Ltd. Chairman Chih-Hung Hsiao - -

119



Holding) Sun Dynasty Development Ltd. Chairman Chien-Lang Lo - - Suns Holding Ltd. Chairman Chih-Hung Hsiao - - Toppoly Optoelectronics (B.V.I.) Ltd. Chairman Jyh Chau, Wang - -


Chairman Jyh Chau, Wang - -

Warriors Technology Investments Ltd.

Chairman Chih-Hung Hsiao - -

Chairman Nai-Jian Zheng - 100% Director Chin-Yuan Chang - 100% Shanghai Innolux Optoelectronics

Ltd Director Jun-Yi Yu - 100%

Chairman Innolux Corporation Representative - Jyh-Chau Wang - 100%

Director Innolux Corporation Representative – Chien-Lang Lo - 100% Yuan Chi investment co., Ltd

Director Innolux Corporation Representative - Chih-Hung Hsiao

- 100%

Chairman Qing-Hui Lin - 100% Director Chien-Ming Chen - 100% Director Jun-Yi Yu - 100%

Foshan Innolux Optoelectronics Ltd.

Supervisor Chin-Yuan Chang - 100% Chairman Qing-Hui Lin - 100% Director Jung-Hsien Chien - 100% Director Kuei Wang - 100% Foshan Innolux Logistics Ltd.

Supervisor Chin-Yuan Chang - 100% Chairman Nai-Jian Zheng - 100% Director Chin-Yuan Chang - 100% Director Nai-Hsun Kuo - 100%

VAP Optoelectromics (NanJing) Corp.

Supervisor Kun Ma - 100% Chairman Nai-Jian Zheng - 100% Director Jun-Yi Yu - 100% Director Chin-Yuan Chang - 100% Kunpal Optoelectronics Ltd.

Supervisor Kun Ma - 100% Chairman Nai-Jian Zheng - 100% Director Chin-Yuan Chang - 100% Director Chih-Chiang Lu - 100% Nanjing Innolux Technology Ltd.

Supervisor Kun Ma - 100% Chairman Nai-Jian Zheng - 100% Director Chin-Yuan Chang - 100% Director Jun-Yi Yu - 100%

Nanjing Innolux Optoelectronics Ltd.

Supervisor Kun Ma - 100%

Chairman Innolux Corporation Representative - Chih-Hung Hsiao

167,405,392 100%

Director Innolux Corporation Representative - Jyh Chau, Wang

167,405,392 100%

Director Innolux Corporation Representative – Chien-Lang Lo

167,405,392 100% InnoJoy Investment Corp

Supervisor Innolux Corporation Representative - Chin-Yuan Chang

167,405,392 100%

Chairman Zhen-Da chiu - 100% Director Jun-Yi Yu - 100% Innocom Technology (Shenzhen)

Co., LTD Director Chin-Yuan Chang - 100% Chairman Kuo-Hsiung Kuo - 100% Director Chien-Lang Lo - 100%

Ningbo Innolux Technology Co., LTD

Director Cheng-Chung Chiang - 100%

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Holding) Supervisor Chin-Yuan Chang - 100% Chairman Cheng-Chung Chiang - 100% Ningbo Innolux Electronics Ltd. Director Chao-Hsien Liu - 100% Chairman Kuo-Hsiung Kuo - 100% Director Chien-Lang Lo - 100% Director Cheng-Chung Chiang - 100%


Supervisor Chin-Yuan Chang - 100% Chairman Kuo-Hsiung Kuo - 100% Director Chien-Lang Lo - 100% Director Cheng-Chung Chiang - 100% Ningbo Innolux Display LTD

Supervisor Chin-Yuan Chang - 100% Chairman Kuo-Hsiung Kuo - 100% Director Chien-Lang Lo - 100% Director Cheng-Chung Chiang - 100% Ningbo Innolux Logistics LTD

Supervisor Chin-Yuan Chang - 100%

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8.1.6 Operational Highlights of INX Subsidiaries

Unit: NT$ thousands, 12/31/2015

Company Capital Stock Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share

Asiaward Investment Ltd. 329,610 266,110 - 266,110 - - 781 0.01 Best China Investments Ltd.

328,250 266,110 - 266,110 - - 781 0.08

Bright Information Holding Ltd.

161,171 105,122 424 104,698 - (422) (205) (0.04)

Golden Achiever International Limited

1,321 66,583 - 66,583 - - (2,048) (50.89)

InnoLux Corporation 6,565 64,649 157,514 (92,865) - (1,574) (1,327) (663.52) Innolux Holding Ltd. 8,100,166 20,263,127 - 20,263,127 - - 293,551 1.19 Innolux Hong Kong Holding Limited

4,907,704 2,908,171 - 2,908,171 - - 687,929 0.59

Innolux Hong Kong Limited

148,225 15,018,116 16,863,138 (1,845,022) 45,445,873 214,048 317,860 9.08


646 163,822 31,180 132,642 90,939 1,601 (4,827) (26,816.67)

Innolux Optoelectronics Germany GmbH

897 18,679 1,656 17,023 29,766 1,406 (7,957) (31,827.20)

Innolux Optoelectronics Hong Kong Holding Ltd.

689,872 1,055,807 - 1,055,807 - - 295,546 1.81


85,698 1,779,369 271,988 1,507,381 1,753,930 29,887 36,154 451,923.92

Innolux Optoelectronics USA, Inc.

196,950 367,656 89,952 277,704 871,707 15,153 9,020 9,019.72

Innolux Technology Europe B.V.

1,348,406 2,390,123 108,859 2,281,264 703,812 41,844 32,697 87.00

Innolux Technology Germany GmbH

3,588 87,211 28,133 59,078 26,091 1,242 173 1.73

Innolux Technology Japan Co., Ltd.

39,970 1,777,235 70,276 1,706,959 300,026 18,981 17,594 87,533.16

Innolux Technology USA Inc.

33 717,879 354,387 363,492 1,628,549 35,615 24,231 24,231.43

Keyway Investment Management Limited

185,672 230,932 - 230,932 - - (3,746) (0.66)

Lakers Trading Ltd. - 56,879,198 56,629,118 250,080 147,471,396 (147,484) - - Landmark International Ltd.

23,287,696 45,947,765 - 45,947,765 - - 4,159,463 5.86

Leadtek Global Group Limited

1,641,250 37,689,599 37,922,462 (232,863) 65,759 65,759 (103,103) (2.06)

Magic Sun Ltd. 1,247,350 1,092,270 - 1,092,270 - - 92,832 2.44 Main Dynasty Investment Ltd.

591,307 438,236 - 438,236 - - 1,286 0.01

Mega Chance Investments Ltd.

590,850 438,237 - 438,237 - - 1,286 0.07

Nets Trading Ltd. 29,543 30,916 - 30,916 - - - - Rockets Holding Ltd. 7,435,012 15,064,678 - 15,064,678 - - 102,191 0.45 Stanford Developments Ltd.

5,383,300 13,237,065 42 13,237,023 - - 7,291 0.04

Sun Dynasty Development Ltd.

1,253,429 1,092,270 - 1,092,270 - - 92,832 0.31

Suns Holding Ltd. 596,662 5,041,225 - 5,041,225 - - 192,687 10.60 Toppoly Optoelectronics (B.V.I.) Ltd.

4,741,473 6,787,268 - 6,787,268 - - 751,258 5.20


4,740,488 6,786,885 - 6,786,885 - - 751,258 5.20

Warriors Technology Investments Ltd.

596,662 5,041,223 - 5,041,223 - (2) 192,687 10.60

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Company Capital Stock Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share

Shanghai Innolux Optoelectronics Ltd.

689,325 6,780,952 5,725,145 1,055,807 19,156,619 403,584 295,546 -

Yuan Chi investment co., Ltd

2,100,000 1,138,486 504 1,137,982 - (305) (215,059) -

Foshan Innolux Optoelectronics Ltd.

12,571,975 53,655,567 33,706,792 19,948,775 83,039,005 2,310,115 1,669,650 -

Foshan Innolux Logistics Ltd.

49,238 77,846 9,580 68,266 93,204 1,321 3,161 -

VAP Optoelectromics (NanJing) Corp.

331,533 75,820 9,648 66,172 - (170) (2,048) -

Kunpal Optoelectronics Ltd.

131,300 91,745 13,884 77,861 96,629 (218) 234 -

Nanjing Innolux Technology Ltd.

68,933 607,407 1,286 606,121 - (1,645) 12,948 -

Nanjing Innolux Optoelectronics Ltd.

4,661,150 19,119,688 12,938,947 6,180,741 39,575,507 780,761 738,310 -

InnoJoy Investment Corp. 1,674,054 1,242,974 214 1,242,760 - (226) (338,289) (2.02) Innocom Technology (Shenzhen) Co., LTD

5,383,300 13,854,983 617,973 13,237,010 1,414,499 352,344 7,291 -

Ningbo Innolux Technology Co., LTD

4,267,250 10,153,413 6,711,131 3,442,282 23,512,300 476,693 299,191 -

Ningbo Innolux Electronics Ltd.

151,650 151,688 - 151,688 - - 38 -


10,175,750 38,583,538 16,278,476 22,305,062 63,518,261 1,620,283 2,185,851 -

Ningbo Innolux Display LTD

984,750 4,046,400 3,687,205 359,195 5,683,539 185,227 105,198 -

Ningbo Innolux Logistics LTD

131,300 158,584 915 157,669 13,105 (8,868) (6,907) -

8.2 Private Placement Securities in the Most Recent Years: None. 8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent

Years: None. 8.4 Special Notes: None. IX. Materially might affect shareholders' equity or the price of the company's

securities, has occurred during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, such situations shall be listed one by one: None.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Innolux Corporation:

We have audited the accompanying consolidated balance sheets of Innolux Corporation and its subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Innolux Corporation and subsidiaries as of December 31, 2015 and 2014, and their financial performance and cash flows for the years then ended in conformity with the “Regulations Governing the Preparation of Financial Statements by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

We have also audited the separate financial statements of Innolux Corporation as of and for the years ended December 31, 2015 and 2014, and have expressed an unqualified opinion on such financial statements.

PricewaterhouseCoopers, Taiwan

February 2, 2016 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2015 AND 2014 (Expressed in thousands of New Taiwan dollars)

124

Assets Notes 2015 2014

Current Assets

1100 Cash and cash equivalents 6(1) $ 52,522,790 $ 70,989,741

1110 Financial assets at fair value

through profit or loss - current

6(2)

120,036 52,453

1125 Available-for-sale financial assets

- current

6(3)

- 220,000

1170 Accounts receivable, net 6(5) 48,189,791 70,976,005

1180 Accounts receivable, net - related

parties

7

2,632,853 6,112,400

1200 Other receivables 7 2,024,204 2,849,589

130X Inventory 6(6) 30,198,432 33,787,842

1410 Prepayments 1,107,869 1,441,603

1476 Other financial assets - current 6(1) and 8 1,979,467 2,802,110

1479 Other current assets 91,545 149,069

11XX Total current assets 138,866,987 189,380,812

Non-current assets


through profit or loss - non-current

6(2)

281,922 605,155


- non-current

6(3)

7,123,034 5,137,117

1550 Investments accounted for under

equity method

6(7)

1,610,586 2,364,225

1600 Property, plant and equipment 6(8), 7 and 8 199,482,740 233,609,843

1760 Investment property, net 6(9) 680,503 693,677

1780 Intangible assets 6(10) 19,342,856 20,219,137

1840 Deferred income tax assets 6(25) 15,888,467 17,778,516

1980 Other financial assets -

non-current

8

119,703 11,160,082

1990 Other non-current assets 6(8) 4,045,538 1,567,991

15XX Total non-current assets 248,575,349 293,135,743

1XXX Total assets $ 387,442,336 $ 482,516,555

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


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

125

Liabilities and Equity Notes 2015 2014

Current Liabilities 2100 Short-term borrowings 6(11) $ - $ 22,526,999 2120 Financial liabilities at fair value

through profit or loss - current 6(2)

265,525 605,016 2125 Derivative financial liabilities for

hedging - current 6(4)

- 1,351 2170 Accounts payable 57,069,951 74,954,439 2180 Accounts payable - related parties 7 3,359,933 5,252,946 2200 Other payables 7 and 9 24,912,360 23,912,180 2230 Current income tax liabilities 1,819,368 582,258 2250 Provisions - current 6(15) 5,551,759 3,133,489 2320 Long-term liabilities, current

portion 6(12)

16,361,238 66,162,663 2399 Other current liabilities 1,131,329 2,004,157 21XX Total current liabilities 110,471,463 199,135,498 Non-current liabilities 2540 Long-term borrowings 6(12) 43,629,968 42,293,423 2570 Deferred income tax liabilities 6(25) 514,094 477,580 2600 Other non-current liabilities 6(13) 562,088 11,438,618 25XX Total non-current liabilities 44,706,150 54,209,621 2XXX Total liabilities 155,177,613 253,345,119 Equity attributable to owners of

the parent

3110 Share capital - common stock 6(16) 99,532,372 99,545,364 3200 Capital surplus 6(14)(17) 99,643,564 99,584,369 Retained earnings 6(18) 3310 Legal reserve 2,676,947 509,272 3320 Special reserve - 1,144,229 3350 Unappropriated retained earnings 27,661,503 24,979,173 3400 Other equity interest 6(19) 2,750,337 1,927,656 31XX Equity attributable to owners

of the parent

232,264,723 227,690,063 36XX Non-controlling interest - 1,481,373 3XXX Total equity 232,264,723 229,171,436 Significant contingent liabilities

and unrecognized contract

commitments

9

3X2X Total liabilities and equity $ 387,442,336 $ 482,516,555

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

126

Items Notes 2015 2014

4000 Sales revenue 7 $ 364,132,984 $ 428,661,898

5000 Operating costs 6(6)(23) and 7 ( 317,492,879) ( 378,276,897)

5900 Net operating margin 46,640,105 50,385,001

Operating expenses 6(23)

6100 Selling expenses ( 3,204,824) ( 3,224,079)

6200 General and administrative

expenses

( 6,600,082) ( 6,810,443)

6300 Research and development

expenses

( 14,404,490) ( 12,177,083)

6000 Total operating expenses ( 24,209,396) ( 22,211,605)

6900 Operating profit 22,430,709 28,173,396

Non-operating income and

expenses

7010 Other income 6(20) 2,313,182 2,734,952

7020 Other gains and losses 6(21) ( 8,683,203) ( 5,130,475)

7050 Finance costs 6(22) ( 1,415,088) ( 3,309,347)

7060 Share of profit/(loss) of

associates and joint ventures

accounted for under equity

method

213,587 65,814

7000 Total non-operating income

and expenses

( 7,571,522) ( 5,639,056)

7900 Profit before income tax 14,859,187 22,534,340

7950 Income tax expense 6(25) ( 4,045,046) ( 857,432)

8200 Profit for the year $ 10,814,141 $ 21,676,908

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



127

Items Notes 2015 2014 Other comprehensive income

(net)

Components of other

comprehensive loss that will not be reclassified to profit or loss

8311 Remeasurement of defined

benefit obligations 6(13)

($ 195,939) ($ 55,790) 8349 Income tax relating to the

components of other comprehensive income that will not be reclassified

6(25)

33,309 9,484 8310 Components of other

comprehensive loss that will not be reclassified to profit or loss

( 162,630) ( 46,306) Components of other

comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation

differences of foreign operations

( 1,421,828) 3,078,767 8362 Unrealized gain on valuation of

available-for-sale financial assets

2,266,346 284,946 8363 Cash flow hedges 6(4) ( 297,675) ( 278,458) 8370 Share of other comprehensive

income of associates and joint ventures accounted for under equity method

4,432 81,659 8399 Income tax relating to the

components of other comprehensive income that will be reclassified

6(25)

118,551 38,885 8360 Components of other

comprehensive income that will be reclassified to profit or loss

669,826 3,205,799 8300 Other comprehensive income for

the year, net of tax

$ 507,196 $ 3,159,493

8500 Total comprehensive income for the year

$ 11,321,337 $ 24,836,401

Profit attributable to: 8610 Owners of the parent $ 10,815,594 $ 21,676,759 8620 Non-controlling interest ( 1,453) 149 Total $ 10,814,141 $ 21,676,908

Other comprehensive income attributable to:

8710 Owners of the parent $ 11,352,532 $ 24,844,853 8720 Non-controlling interest ( 31,195) ( 8,452) Total $ 11,321,337 $ 24,836,401

Earnings per share (in dollars) 6(26) 9750 Basic earnings per share $ 1.09 $ 2.31 9850 Diluted earnings per share $ 1.07 $ 2.28

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

(Expressed in thousands of New Taiwan dollars)

Equity attributable to owners of the parent Retained Earnings Other Equity Interest

Notes Common stock Capital surplus Legal reserve Special reserve

Unappropriated earnings

Financial statements translation


Unrealized gain (loss) on available- for-sale

financial assets

Changes in gain (loss)

on cash flow hedge

Employee unearned

compensation Total

Non- controlling

interest Total


128

2014 Balance at January 1, 2014 $ 91,094,288 $ 96,058,741 $ 2,328,981 $ - $ 5,092,716 ( $ 78,074 ) ($ 1,544,345 ) $ 478,190 ($ 387,268 ) $ 193,043,229 $ 1,534,625 $ 194,577,854 Capital issued for cash 6(18) 8,500,000 2,125,000 - - - - - - - 10,625,000 - 10,625,000 Appropriations of 2013 earnings: 6(18) Legal reserve - - 509,272 - ( 509,272 ) - - - - - - - Special reserve - - - 1,144,229 ( 1,144,229 ) - - - - - - - Cash dividends - - - - ( 90,495 ) - - - - ( 90,495 ) - ( 90,495 ) Cash paid from capital surplus 6(18) - ( 1,266,944 ) - - - - - - - ( 1,266,944) - ( 1,266,944 ) Capital surplus offset against

accumulated deficit 6(18)

- 2,328,981 ( 2,328,981 ) - - - - - - - - - Cancellation of restricted stock to

employees

( 48,924 ) 48,924 - - - - - - - - - - Changes in restricted stock to

employees

- 47,174 - - - - - - ( 43,951 ) 3,223 - 3,223 Compensation related to share-based

payment 6(14)

- 289,523 - - - - - - 288,704 578,227 - 578,227 Changes in net equity of long-term

equity investments

- ( 47,030 ) - - - - - - - ( 47,030 ) - ( 47,030 ) Changes in non-controlling interests - - - - - - - - - - ( 44,800 ) ( 44,800 ) Profit for the year - - - - 21,676,759 - - - - 21,676,759 149 21,676,908 Other comprehensive income for the

year 6(19)

- - - - ( 46,306 ) 3,161,022 284,498 ( 231,120 ) - 3,168,094 ( 8,601 ) 3,159,493 Balance at December 31, 2014 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ($ 1,259,847 ) $ 247,070 ($ 142,515 ) $ 227,690,063 $ 1,481,373 $ 229,171,436

2015 Balance at January 1, 2015 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ($ 1,259,847 ) $ 247,070 ($ 142,515 ) $ 227,690,063 $ 1,481,373 $ 229,171,436 Appropriations of 2014 earnings: 6(18) Legal reserve - - 2,167,675 - ( 2,167,675 ) - - - - - - - Special reserve - - - ( 1,144,229) 1,144,229 - - - - - - - Cash dividends - - - - ( 6,947,188 ) - - - - ( 6,947,188) - ( 6,947,188 ) Cancellation of restricted stock to

employees

( 12,992 ) 12,992 - - - - - - - - - - Changes in restricted stock to

employees

- ( 3,760 ) - - - - - - 2,411 ( 1,349 ) - ( 1,349 ) Compensation related to share-based

payment 6(14)

- 22,740 - - - - - - 120,702 143,442 - 143,442 Changes in net equity of long-term

equity investments

- 27,185 - - - - - - - 27,185 - 27,185 Changes in non-controlling interests - 38 - - - - - - - 38 ( 1,450,178 ) ( 1,450,140 ) Profit for the year - - - - 10,815,594 - - - - 10,815,594 ( 1,453 ) 10,814,141 Other comprehensive income for the

year 6(19)

- - - - ( 162,630 ) ( 1,387,654 ) 2,334,292 (247,070 ) - 536,938 ( 29,742 ) 507,196 Balance at December 31, 2015 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $ 232,264,723 $ $ 232,264,723

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (Expressed in thousands of New Taiwan dollars)

Notes 2015 2014

129

CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated profit before tax for the year $ 14,859,187 $ 22,534,340 Adjustments to reconcile net income to net cash provided by

operating activities

Income and expenses having no effect on cash flows Depreciation and amortization 6(23) 53,571,172 60,899,556 Compensation related to share-based payment 6(14) 143,442 578,227 Provision for doubtful accounts 6(5) - 820 Share of profit of associates and joint ventures

accounted for under equity method

( 213,587 ) ( 65,814 ) Loss (gain) on disposal of investments 6(21) 47,583 ( 794,041 ) Loss on disposal of property, plant and equipment 6(21) 180,829 179,758 Impairment loss 6(21) 589,911 351,066 Interest expense 6(22) 1,712,758 3,586,581 Interest income 6(20) ( 484,873 ) ( 328,633 ) Dividend income 6(20) ( 224,441 ) ( 39,958 ) Unrealized foreign exchange (gain) loss ( 225,917 ) 1,417,004 Changes in assets/liabilities relating to operating activities Net changes in assets relating to operating activities Financial assets /liabilities at fair value through profit

or loss

( 83,841 ) 198,617 Accounts receivable 22,786,214 ( 4,618,534 ) Accounts receivable - related parties 3,479,547 ( 4,062,415 ) Other receivables 849,827 ( 1,047,816 ) Inventories 3,589,410 16,736,314 Prepayments 333,734 ( 246,732 ) Other current assets 57,524 259,826 Net changes in liabilities relating to operating activities Derivative financial liabilities for hedging ( 299,026 ) ( 299,025 ) Accounts payable ( 17,884,488 ) 9,518,853 Accounts payable - related parties ( 1,893,013 ) ( 3,503,297 ) Other payables ( 713,699 ) 4,070,494 Provisions - current 2,418,270 1,184,460 Other current liabilities ( 821,001 ) ( 290,486 ) Other non-current liabilities 6,891 ( 721,826 ) Cash generated from operations 81,782,413 105,497,339 Cash paid for income tax ( 718,120 ) ( 768,062 ) Net cash provided by operating activities 81,064,293 104,729,277

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2015 2014

130

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets $ - ( $ 240,167 )

Proceeds from disposal of available-for-sale financial assets 450,057 802,524

Acquisition of investment accounted for under equity

method

- ( 73,500 )

Proceeds from disposal of investment accounted for under

equity method

- 1,685,201

Proceeds from capital reduction of investments accounted

for under equity method

- 59,451

Decrease (increase) in other financial assets 783,662 ( 52,903 )

Acquisition of property, plant and equipment 6(27) ( 24,511,490 ) ( 20,526,552 )

Proceeds from disposal of property, plant and equipment 6(27) 1,798,359 4,253,209

Acquisition of intangible assets ( 16,392 ) ( 18,140 )

Proceeds from disposal of intangible assets 856 -

Increase in other non-current assets ( 4,453 ) ( 22,070 )

Interest received 449,038 368,335

Dividends received 247,612 64,221

Net cash used in investing activities ( 20,802,751 ) ( 13,700,391 )

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in short-term borrowings ( 22,449,868 ) ( 8,881,219 )

Increase in long-term borrowings 68,100,131 -

Payment of long-term borrowings ( 116,527,861 ) ( 61,671,395 )

Capital issued for cash 6(16) - 10,625,000

Repurchase from issuance of restricted stock to employees ( 3,676 ) ( 7,754 )

Changes in non-controlling interests ( 50 ) ( 44,800 )

Interest paid ( 1,628,841 ) ( 3,608,923 )

Cash paid from capital surplus 6(18) - ( 1,266,944 )

Cash dividends paid 6(18) ( 6,947,188 ) ( 90,495 )

Net cash used in financing activities ( 79,457,353 ) ( 64,946,530 )

Effect of changes in foreign currency exchange 728,860 769,567

(Decrease) increase in cash and cash equivalents ( 18,466,951 ) 26,851,923

Cash and cash equivalents at beginning of year 70,989,741 44,137,818

Cash and cash equivalents at end of year $ 52,522,790 $ 70,989,741

131

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

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

HISTORY AND ORGANIZATION

(1)Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for Establishment and

Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock

Exchange Corporation (the “TSEC”) in October 2006. The Company merged with TPO Displays Corporation and

Chi Mei Optoelectronics Corporation on March 18, 2010, with the Company as the surviving entity.

(2)The Company and its subsidiaries (the “Group”) engage in the research, development, design, manufacture and

sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND

PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on February 2, 2016.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”)

as endorsed by the Financial Supervisory Commission (“FSC”)

According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued by FSC on April 3, 2014,

commencing 2015, companies with shares listed on the TWSE or traded on the Taipei Exchange or Emerging

Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, ‘Financial instruments’) as endorsed

by the FSC and the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” effective

January 1, 2015 (collectively referred herein as ‘‘the 2013 version of IFRS”) in preparing the consolidated

financial statements. The impact of adopting the 2013 version of IFRS is listed below:

A. IAS 19 (revised), ‘Employee benefits’

The revised standard makes amendments that net interest amount, calculated by applying the discount rate to

the net defined benefit asset or liability, replaces the finance charge and expected return on plan assets.

Additional disclosures are required for defined benefit plans.

B. IAS 1, ‘Presentation of financial statements’

The amendment requires entities to separate items presented in OCI classified by nature into two groups on

the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions

are met. If the items are presented before tax then the tax related to each of the two groups of OCI items

(those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly,

the Group will adjust its presentation of the statement of comprehensive income.

C. IFRS 12, ‘Disclosure of interests in other entities’

The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and

unconsolidated structured entities. Also, the Group will disclose additional information about its interests in

consolidated entities and unconsolidated entities accordingly.

D. IFRS 13, ‘Fair value measurement’

132

The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability

in an orderly transaction between market participants at the measurement date. The standard sets out a

framework for measuring fair value from market participants’ perspective, and requires disclosures about fair

value measurements. For non-financial assets only, fair value is determined based on the highest and best use

of the asset. Based on the Group’s assessment, the adoption of the standard has no significant impact on its

consolidated financial statements, and the Group will disclose additional information about fair value

measurements accordingly.

Based on the Group’s assessment, the adoption of the 2013 version of IFRS has no significant impact on the

consolidated financial statements for the years ended December 31, 2015 and 2014.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group

None.

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

New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRS

as endorsed by the FSC:

New Standards, Interpretations and Amendments

Effective Date byInternational Accounting

Standards Board

IFRS 9, ‘Financial instruments’ January 1, 2018

Sale or contribution of assets between an investor and its associate orjoint venture (amendments to IFRS 10 and IAS 28)

To be determined byInternational Accounting

Standards BoardInvestment entities: applying the consolidation exception (amendmentsto IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations(amendments to IFRS 11)

January 1, 2016

IFRS 14, ‘Regulatory deferral accounts’ January 1, 2016

IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

IFRS 16, ‘Leases’ January 1, 2019

Disclosure initiative (amendments to IAS 1) January 1, 2016

Disclosure initiative (amendments to IAS 7) January 1, 2017

Recognition of deferred tax assets for unrealised losses (amendments toIAS 12)

January 1, 2017

133



Standards Board

Clarification of acceptable methods of depreciation and amortisation(amendments to IAS 16 and IAS 38)

January 1, 2016

Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016

Defined benefit plans: employee contributions (amendments to IAS19R)

July 1, 2014

Equity method in separate financial statements (amendments to IAS 27) January 1, 2016

Recoverable amount disclosures for non-financial assets (amendmentsto IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting(amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Improvements to IFRSs 2010-2012 July 1, 2014

Improvements to IFRSs 2011-2013 July 1, 2014

Improvements to IFRSs 2012-2014 January 1, 2016

The Group is assessing the potential impact of the new standards, interpretations and amendments above. The

impact will be disclosed when the assessment is complete.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out

below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

These consolidated financial statements are the consolidated financial statements prepared by the Group in

accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”,

International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC

Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(2) Basis of preparation

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

cost convention:

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

loss.

(b) Available-for-sale financial assets measured at fair value.

(c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of

defined benefit obligations.

B. The preparation of financial statements in conformity with International Financial Reporting Standards,

International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC

(collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also

requires management to exercise its judgment in the process of applying the Group’s accounting policies. The

134

areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are

significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

A. Basis for preparation of consolidated financial statements

(a) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities

(including structured entities) controlled by the Group. The Group controls an entity when the Group is

exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect

those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group

obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

(b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies

within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to

ensure consistency with the policies adopted by the Group.

(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent

and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent

and to the non-controlling interests even if this results in the non-controlling interests having a deficit

balance.

(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the

subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e.

transactions with owners in their capacity as owners. Any difference between the amount by which the

non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised

directly in equity.

(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former

subsidiary at its fair value. Any difference between fair value and carrying amount is recognised in profit or

loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are

reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were

disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised

in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or

loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are

disposed of.

135

B. Subsidiaries included in the consolidated financial statements:

Main

BusinessName of Investor Name of Subsidiary Activities 2015 2014 Description

Innolux Corporation Bright InformationHolding Ltd.

Investmentholdings

100 100 -

Gold UnionInvestments Ltd.

Investmentholdings

- 100 (d)

Golden AchieverInternational Ltd.

Investmentholdings

100 100 -

Innolux Holding Ltd. Investmentholdings

100 100 -

Keyway InvestmentManagement Limited

Investmentholdings

100 100 -

Landmark InternationalLtd.

Investmentholdings

100 100 -

ToppolyOptoelectronics(B.V.I.) Ltd.

Investmentholdings

100 100 -

Innolux Hong KongHolding Ltd.(Former TPO HongKong Holding Ltd.)

Investmentholdings

100 100 -

Leadtek Global GroupLimited

Orderswappingcompany

100 100 -

Yuan Chi InvestmentCo., Ltd.

Investmentcompany

100 100 -

InnoJoy InvestmentCorporation

Investmentcompany

100 100 -

Innolux OptoelectronicsEurope B.V. (FormerChi MeiOptoelectronics EuropeB.V.)

Investment anddistributioncompany

100 100

-

Innolux OptoelectronicsJapan Co., Ltd.(Former Chi MeiOptoelectronics JapanCo., Ltd.)

Investment anddistributioncompany

100 100 -

Chi Mei El Corporation Production anddistributioncompany

- 97 (a)

Ownership (%)

December 31,

136

Main


Bright InformationHolding Ltd.

Kunpal OptoelectronicsLtd.

Processingcompany

100 100 -

Gold UnionInvestments Ltd.

Ningbo Innolux DisplayLtd.

Processingcompany

- 100 (c)

Golden AchieverInternational Ltd.

VAP Optoelectronics(Nanjing) Corp.

Processingcompany

100 100 -

Innolux HoldingLtd.

Rockets Holding Ltd. Investmentholdings

100 100 -

Suns Holding Ltd. Investmentholdings

100 100 -

Lakers Trading Ltd. Orderswappingcompany

100 100 -

Innolux Corporation Distributioncompany

100 100 -

Keyway InvestmentManagement

Ningbo InnoluxLogistics Ltd.

Warehousingcompany

100 100 -

Limited Foshan InnoluxLogistics Ltd.

Warehousingcompany

100 100 -

LandmarkInternational Ltd.

Ningbo InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Ningbo InnoluxTechnology Ltd.

Processingcompany

100 100 -

Foshan InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Ningbo Innolux DisplayLtd.

Processingcompany

100 - (c)

ToppolyOptoelectronics(B.V.I.) Ltd.

ToppolyOptoelectronics(Cayman) Ltd.

Investmentholdings

100 100 -

Innolux Hong KongHolding Ltd.

Innolux OptoelectronicsHong Kong HoldingLtd. (Former TPODisplays Hong KongHolding Ltd.)

Investmentholdings

100 100 -

Innolux Hong KongLtd. (Former TPODisplays Hong KongLtd.)

Orderswappingcompany

100 100 -

Ownership (%)

December 31,

137

Main Business

Name of Investor Name of Subsidiary Activities 2015 2014 DescriptionInnolux Hong KongHolding Ltd.

Innolux TechnologyEurope B.V. (FormerTPO Displays EuropeB.V.)

Investment andR&D company

100 100 -

Innolux TechnologyJapan Co., Ltd.(Former TPO DisplaysJapan K.K.)

R&D company 100 100 -

Innolux TechnologyUSA Inc. (Former TPODisplays USA Inc.)

Distributioncompany

100 100 -

InnoluxOptoelectronicsEurope B.V.

Innolux OptoelectronicsGermany GmbH(Former Chi MeiOptoelectronicsGermany GmbH)

After salesservicecompany

100 100 -

InnoluxOptoelectronicsJapan Co., Ltd.

Innolux OptoelectronicsUSA, Inc. (Former ChiMei Optoelectronics,USA, Inc.)

Distributioncompany

100 100 -

Rockets HoldingLtd.

Best China InvestmentsLtd.

Investmentholdings

100 100 -

Mega ChanceInvestments Ltd.

Investmentholdings

100 100 -

Magic Sun Ltd. Investmentholdings

100 100 -

Stanford DevelopmentsLtd.

Investmentholdings

100 100 -

Nets Trading Ltd. Investmentcompany

100 100 -

Suns Holding Ltd. Warriors TechnologyInvestments Ltd.

Investmentcompany

100 100 -

ToppolyOptoelectronics(Cayman) Ltd.

Nanjing InnoluxTechnology Ltd.(Former TPO Displays(Shinepal) Ltd.)

Distributioncompany

100 100 -

Nanjing InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Ownership (%)December 31,

138

Main


InnoluxOptoelectronicsHong Kong HoldingLtd.

Shanghai InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Innolux TechnologyEurope B.V.

Innolux TechnologyGermany GmbH(Former TPO DisplaysGermany GmbH)

Testing andmaintenancecompany

100 100 -

Best ChinaInvestments Ltd.

Asiaward InvestmentLtd.

Investmentholdings

100 100 -

Mega ChanceInvestments Ltd.

Main DynastyInvestment Ltd.

Investmentholdings

100 100 -

Magic Sun Ltd. Sun DynastyDevelopment Ltd.

Investmentholdings

100 100 -

StanfordDevelopments Ltd.

Innocom Technology(Shenzhen) Co., Ltd.

Processingcompany

100 100 -

Sun DynastyDevelopment Ltd.

Innocom Technology(Chengdu) Co., Ltd.

Processingcompany

- 100 (b)

Ningbo InnoluxDisplay Ltd.

Ningbi InnoluxElectronics Ltd.

Distributioncompany

100 - (e)

Ownership (%)

December 31,

(a) The Board of Directors of the Company in July, 2015 resolved to conduct a simple merger with Chi Mei El

Corporation (Chi Mei El), a 97%-owned subsidiary of the Company effective September 1, 2015. The

Company was the surviving company while Chi Mei El was dissolved after the merger. Said merger was

accounted for an as equity transaction.

(b) Innocom Technology (Chengdu) Ltd. ceased operations and was liquidated in the first quarter of 2015.

(c) Ningbo Innolux Display Ltd., a wholly-owned subsidiary of Gold Union Investments Ltd., became

Landmark International Ltd.’s subsidiary after the reorganization in August 2015.

(e) Gold Union Investments Ltd. ceased operations and was liquidated in the fourth quarter of 2015.

(f) Ningbo Innolux Electronics Ltd. was established in November 2015 and was included in the consolidated

financial statements since the date of establishment.

C. Subsidiaries not included in the consolidated financial statements: None.

D. Adjustments for subsidiaries with different balance sheet dates: None.

E. The restrictions on fund remittance from subsidiaries to the parent company: None.

F. Subsidiaries that have non-controlling interests that are material to the Group: None.

(4) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the

primary economic environment in which the entity operates (the “functional currency”). The consolidated

139

financial statements are presented in NTD, which is the Company’s functional and the Group’s presentation

currency.

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing

at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses

resulting from the settlement of such transactions are recognized in profit or loss in the period in which they

arise, except when deferred in other comprehensive income as qualifying cash flow hedges.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the

exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the

balance sheet date are recognized in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or

loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences

are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held

at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the

balance sheet date; their translation differences are recognized in other comprehensive income. However,

non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are

translated using the historical exchange rates at the dates of the initial transactions.

(d) All foreign exchange gains and losses are presented in the statement of comprehensive income under “other

gains and losses”.

B. Translation of foreign operations

(a) The operating results and financial position of all the group entities and associates that have a functional

currency different from the presentation currency are translated into the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the exchange rate prevailing at

the dates of that balance sheet;

ii. Income and expenses for each statement of comprehensive income are translated at average exchange

rates of that period;

iii. All resulting exchange differences are recognized in other comprehensive income.

(b) When a foreign operation partially disposed of or sold is an associate, exchange differences that were

recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain

or loss on sale. In addition, even the Group still retains partial interest in the former foreign associate after

losing significant influence over the former foreign associate, such transactions should be accounted for as

disposal of all interest in these foreign operations.

(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences

that were recorded in other comprehensive income are proportionately transferred to the non-controlling

interest in this foreign operation. In addition, if the Group retains partial interest in the former foreign

subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as

disposal of all interest in the foreign operation.

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(5) Classification of current and non-current items

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

non-current assets:

(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or

consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realized within twelve months from the balance sheet date;

(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be

exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

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

classified as non-current liabilities:

(a) Liabilities that are expected to be paid off within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

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

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

after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its

settlement by the issue of equity instruments do not affect its classification.

(6) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of

cash and subject to an insignificant risk of changes in value. Time deposits and bonds sold under repurchase

agreements that meet the above criteria and held for the purpose of meeting short-term cash commitment in

operations are classified as cash equivalents.

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

A. Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair

value through profit or loss on initial recognition. Financial assets are classified in this category of held for

trading if acquired principally for the purpose of sale in the short-term. Derivatives are also categorized as

financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the

following criteria are designated as at fair value through profit or loss on initial recognition:

(a) Hybrid (combined) contracts; or

(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

(c) They are managed and their performance is evaluated on a fair value basis, in accordance with a

documented risk management or investment strategy.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and

derecognized using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction

costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value,

and any changes in the fair value of these financial assets are recognized in profit or loss.

141

(8) Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are designated in this category. On a regular way

purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date

accounting.

B. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial

assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial

assets are recognized in other comprehensive income.

(9) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling

goods or providing services to customers in the ordinary course of business. Accounts receivable are initially

recognized at fair value and subsequently measured at amortized cost using the effective interest method, less

provision for impairment. However, short-term accounts receivable which are non-interest bearing are

subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(10) Impairment of financial assets

A. The Group assesses at each balance sheet date whether there is objective evidence that an individual financial

asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial

recognition of the asset and that loss event has an impact on the estimated future cash flows of an individual

financial asset or group of financial assets that can be reliably estimated.

B. The objective evidence that the Group uses to determine whether there is an impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) Information about significant changes with an adverse effect that have taken place in the technology,

market, economic or legal environment in which the issuer operates, and indicates that the cost of the

investment in the equity instrument may not be recovered; or

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

C. When the Group assesses that there has been objective evidence of impairment and an impairment loss has

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

(a) Financial assets measured at amortized cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows discounted at the financial asset’s original effective interest

rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss

decreases and the decrease can be related objectively to an event occurring after the impairment loss was

recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that

the carrying amount of the asset does not exceed its amortized cost that would have been at the date of

reversal had the impairment loss not been recognized previously. Impairment loss is recognized and

reversed by adjusting the carrying amount of the asset through the use of an impairment allowance

account.

(b) Available-for-sale financial assets

142

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less

any principal repayment and amortisation) and current fair value, less any impairment loss on that financial

asset previously recognized in profit or loss, and is reclassified from “other comprehensive income” to

“profit or loss”. If, in a subsequent period, the fair value of an investment in a debt instrument increases,

and the increase can be related objectively to an event occurring after the impairment loss was recognized,

then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity

instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is

recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment

allowance account.

(11) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the

weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct

labor, other direct costs and related production overheads (allocated based on normal operating capacity). It

excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable

value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated

cost of completion and applicable variable selling expenses.

(12) Investments accounted for under the equity method / associates

A. Associates are all entities over which the Group has significant influence but not control. In general, it is

presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or

more of the voting power of the investee. Investments in associates are accounted for using the equity method

and are initially recognized at cost.

B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its

share of post-acquisition movements in other comprehensive income is recognized in other comprehensive

income. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the

Group does not recognize further losses, unless it has incurred legal or constructive obligations or made

payments on behalf of the associate.

C. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of

the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group

recognizes all the change in equity in “capital surplus” in proportion to its ownership.

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

Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted

where necessary to ensure consistency with the policies adopted by the Group.

E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares

proportionately, which results in a change in the Group’s ownership percentage of the associate but maintains

significant influence on the associate, then “capital surplus” and “investments accounted for under the equity

143

method” shall be adjusted for the increase or decrease of its share of equity interest. If the above condition

causes a decrease in the Group’s ownership percentage of the associate, in addition to the above adjustment,

the amounts previously recognized in other comprehensive income in relation to the associate are reclassified

to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were

disposed of.

F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the

former associate at its fair value. Any difference between fair value and carrying amount is recognized in

profit or loss.

G. When the Group disposes its investment in an associate and loses significant influence over this associate, the

amounts previously recognized in other comprehensive income in relation to the associate are reclassified to

profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of.

H. When the Group disposes its investment in an associate and loses significant influence over this associate, the

amounts previously recognized as capital surplus in relation to the associate are reclassified to profit or loss. If

it retains significant influence over this associate, then the amounts previously recognized as capital surplus in

relation to the associate are reclassified to profit or loss proportionately.

(13) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction

period are capitalized.

B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,

only when it is probable that future economic benefits associated with the item will flow to the Group and the

cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other

repairs and maintenance are charged to profit or loss when incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the

straight-line method to allocate their cost over their estimated useful lives. If each component of property,

plant and equipment is significant, it is depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at

each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous

estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have

changed significantly, any change is accounted for as a change in estimate under IAS 8, “Accounting Policies,

Changes in Accounting Estimates and Errors”, from the date of the change. The estimated useful lives of

property, plant and equipment are as follows:

Buildings 3~50 years

Machinery and equipment 2~9 years

Others 2~6 years

(14) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model. Except for

land, investment property is depreciated on a straight-line basis over its estimated useful life of 25~50 years.

144

(15) Intangible assets

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

B. Intangible assets, mainly patents, royalties and other intangible assets, are amortized on a straight-line basis

over their estimated useful lives of 2～10 years.

(16) Impairment of non-financial assets

A. The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an

indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s

carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value

less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing

impairment loss for an asset in prior years no longer exist, the impairment loss shall be reversed to the extent

of the loss previously recognized in profit or loss. Such recovery of impairment loss shall not result to the

asset’s carrying amount greater than its amortized cost where no impairment loss was recognized.

B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and intangible assets that

have not yet been available for use shall be evaluated periodically. An impairment loss is recognized for the

amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment loss of goodwill

previously recognized in profit or loss shall not be reversed in the following years.

C. For impairment testing purpose, goodwill is allocated to cash generating units. This allocation is based on

operating segments. Goodwill is allocated to a cash generating unit or a group of cash generating units that

expects to benefit from business combination that will produce goodwill.

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

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading. Financial

liabilities are classified in this category of held for trading if acquired principally for the purpose of

repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless

they are designated as hedges.

B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction

costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair

value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

(18) Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are

subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.

B. The Group designates certain derivatives as either:

(a) Hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge).

(b) Hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast

transaction (cash flow hedge).

C. The Group documents at the inception of the transaction the relationship between hedging instruments and

hedged items, as well as its risk management objectives and strategy for undertaking various hedging

transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of

whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair

145

values or cash flows of hedged items.

D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining

maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining

maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or

liabilities.

E. Fair value hedge

(a) Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded

in profit or loss, together with any changes in the fair value of the hedged asset or liability that are

attributable to the hedged risk. The Group only applies fair value hedge accounting for hedging foreign

currency on long-term borrowings. The gain or loss relating to the effective portion of currency swaps

hedging long-term borrowings denominated in foreign currency is recognized in the statement of

comprehensive income within “finance costs”. The gain or loss relating to the ineffective portion is

recognized in the statement of comprehensive income within “other gains and losses”. Changes in the fair

value of the hedge long-term borrowings denominated in foreign currency attributable to interest rate risk

are recognized in the statement of comprehensive income within “finance costs”.

(b) If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a

hedged item for which the effective interest method is used is amortized to profit or loss over the period to

maturity.

F. Cash flow hedge

(a) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash

flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective

portion is recognized immediately in the statement of comprehensive income within “other gains and

losses”.

(b) Amounts accumulated in other comprehensive income are reclassified into profit or loss in the periods

when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate

swaps hedging variable rate borrowings is recognized in the statement of comprehensive income within

“finance costs”.

(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge no longer meets the

criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that

time remains in other comprehensive income. When a forecast transaction occurs or is no longer expected

to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred to

profit or loss in the periods when the hedged forecast cash flow affects profit or loss.

(19) Employee benefit

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid

and should be recognized as expenses in that period when the employees render service.

B. Pensions

146

(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses on an accrual basis.

Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future

payments.

(b) Defined benefit plans

i. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present

value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The

defined benefit obligation is calculated annually by independent actuaries using the projected unit

credit method. The rate used to discount is determined by using interest rates of government bond (at

the balance sheet date) of a currency and term consistment with the currency and term of the

employment benefit abligations.

ii. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the

period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognized immediately in profit or loss.

C. Employees’, directors’ and supervisors’ remuneration

Employees’ remuneration and directors’ and supervisors’ remuneration are recognized as expenses and

liabilities, provided that such recognition is required under legal or constructive obligation and those amounts

can be reliably estimated.

(20) Employee share-based payment

A. For the equity-settled share-based payment arrangements, the employee services received are measured at the

fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over

the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted

shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is

subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the

number of equity instruments that are expected to vest under the non-market vesting conditions at each

balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity

instruments that eventually vest.

B. Restricted stocks to employees:

(a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at

the grant date, and are recognized as compensation cost over the vesting period.

(b) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the

vesting period, they must return the stocks to the Group and the Group must refund their payments on the

stocks. The Group recognizes the payments from the employees who are expected to resign during the

vesting period as liabilities at the grant date, and recognizes the payments from the employees who are

expected to be eventually vested with the stocks in “capital surplus – others”.

C. The grant date for the shares reserved for employee preemption in cash capital increase is the date on which

the Company informs employees of the grant and both the Company and employees agree to the number of

shares granted and the price for subscription.

147

(21) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except

to the extent that it relates to items recognized in other comprehensive income or items recognized directly in

equity, in which cases the tax is recognized in other comprehensive income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at

the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable

income. Management periodically evaluates positions taken in tax returns with respect to situations in

accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts

expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained

earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet.

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted

by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or

the deferred income tax liability is settled.

D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will

be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized

and recognized deferred income tax assets are reassessed.

E. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from acquisitions

of equipment or technology, research and development expenditures and equity investments to the extent that

it is possible that future taxable profit will be available against which the unused tax credits can be utilized.

(22) Revenue recognition

The Group manufactures and sells TFT-LCD panels. Revenue is measured at the fair value of the consideration

received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to

external customers in the ordinary course of the Group’s activities.

(23) Business combinations

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

the non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of the

acquirer’s identifiable net assets on an acquisition-by-acquisition basis.

B. If the total of the fair values of the consideration of acquisition and any non-controlling interest in the

acquiree as well as the acquisition-date fair value of any previous equity interest in the acquiree is higher than

the fair value of the Group’s share of the identifiable net assets acquired, the difference is recorded as

goodwill; if less than the fair value of the Group’s share of the identifiable net assets acquired, the difference

is recognized directly in profit or loss.

(24) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief

operating decision-maker, who is responsible for allocating resources and assessing performance of the operating

segments.

148

CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical judgments in

applying the Group’s accounting policies and make critical assumptions and estimates concerning future events.

Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on

historical experience and other factors. The information is addressed below:

(25) Critical judgements in applying the Group’s accounting policies

Financial assets - impairment of equity investments

The Group follows the guidance of IAS 39 to determine whether a financial asset-equity investment is impaired.

This determination requires significant judgement. In making this judgement, the Group evaluates, among other

factors, the duration and extent to which the fair value of an equity investment is less than its cost and the

financial health of and short-term business outlook for the investee, including factors such as industry and sector

performance, changes in technology and operational and financing cash flow.

If the decline of the fair value of an individual equity investment below cost was considered significant or

prolonged, the accumulated fair value adjustments recognized in other comprehensive income on the impaired

“available-for-sale financial assets” is transferred to profit or loss.

(26) Critical accounting estimates and assumptions

The Group makes estimates and assumptions based on the expectation of future events that are believed to be

reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be

different from the related actual results. The estimates and assumptions that have a significant risk of causing a

material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed

below:

A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Group’s subjective judgment, including identifying

cash-generating units, allocating assets and liabilities as well as goodwill to related cash-generating units, and

determining the recoverable amounts of related cash-generating units. Please refer to Note 6(10) for the

information on goodwill impairment.

B. Impairment assessment of tangible and intangible assets (excluding goodwill)

The Group assesses impairment based on its subjective judgement and determines the separate cash flows of a

specific group of assets, useful lives of assets and the future possible income and expenses arising from the

assets depending on how assets are utilised and industrial characteristics. Any changes of economic

circumstances or estimates due to the change of Group strategy might cause material impairment on assets in

the future.

C. Realizability of deferred income tax assets

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be

available against which the deductible temporary differences can be utilized. Assessment of the realizability of

deferred income tax assets involves critical accounting judgments and estimates of the management, including

the assumptions of expected future sales, revenue growth rate, profit rate, tax holiday, available tax credits, and

tax planning, etc. Any change in global economic environment, industrial environment, and laws and

149

regulations might cause material adjustments to deferred income tax assets.

D. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Group must determine the net

realizable value of inventories on balance sheet date using judgments and estimates. Due to the rapid

technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories

or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the

net realizable value.

E. Financial assets - fair value measurement of unlisted stocks without active market

The fair value of unlisted stocks held by the Group that are not traded in an active market is determined

considering those companies’ recent fund raising activities and technical development status, fair value

assessment of other companies of the same type, market conditions and other economic indicators existing on

balance sheet date. Any changes in these judgments and estimates will impact the fair value measurement of

these unlisted stocks. Please refer to Note 12(3) for the financial instruments fair value information.

DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

December 31, 2015 December 31, 2014

Cash on hand and revolving funds 2,255$ 2,572$

Checking accounts and demand deposits 28,526,258 45,954,667

Time deposits 23,331,155 20,806,255

51,859,668 66,763,494

Cash equivalents - Repurchase bonds 663,122 4,226,247

52,522,790$ 70,989,741$

A. The Group associates with a variety of financial institutions all with high credit quality to disperse credit risk,

so it expects that the probability of counterparty default is remote.

B. The above time deposits and bonds with repurchase agreement expire in 3 months and risks of changes in their

values are remote. The remaining time deposits which did not meet the definition of cash equivalents were

$1,973,263 and $517,240 at December 31, 2015 and December 31, 2014 respectively, and were classfied as

‘other financial assets - current’.

150

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


Assets:

Current items:

Financial assets held for trading

Forward foreign exchange contracts 120,036$ 52,453$

Non-current items:

Financial assets held for trading

Stock-Advanced Optoelectronic Technology Inc. 77,019$ 77,019$

Valuation adjustment 204,903 528,136

281,922$ 605,155$

Liabilities:

Current items:

Financial liabilities held for trading

Forward foreign exchange contracts 265,525$ 605,016$

A. The Group recognized net loss of $663,075 and $976,857 on financial assets held for trading for the years

ended December 31, 2015 and 2014, respectively.

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

Derivative financial

assets and liabilities Contract Period Contract Period

Current items

Forward foreign USD (sell) 150,000$ 2015/10-2016/2 USD (sell) 425,000$ 2014/10-2015/3

exchange contracts TWD (buy) 4,896,705 2015/10-2016/2 JPY (buy) 48,580,180 2014/10-2015/3

Forward foreign USD (sell) 295,000 2015/10-2016/3 EUR (sell) 38,000 2014/10-2015/2

exchange contracts JPY (buy) 35,649,520 2015/10-2016/3 USD (buy) 47,574 2014/10-2015/2

Forward foreign EUR (sell) 5,000 2015/11-2016/1

exchange contracts USD (buy) 175,075 2015/11-2016/1

Forward foreign EUR (sell) 80,500 2015/10-2016/3

exchange contracts JPY (buy) 10,668,495 2015/10-2016/3

Forward foreign HKD (sell) 321,477 2015/11-2016/1

exchange contracts EUR (buy) 39,000 2015/11-2016/1

Forward foreign USD (sell) 240,000 2015/10-2016/2

exchange contracts RMB (buy) 1,541,675 2015/10-2016/2

(in thousands) (in thousands)


Contract Amount Contract Amount

(Notional Principal) (Notional Principal)

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of import and export

proceeds and foreign currency. However, these forward foreign exchange contracts are not accounted for under

hedge accounting.

151


Items December 31, 2015 December 31, 2014

Current items

Bond investments -$ 220,000$

Non-current items

Listed stocks and bond investments 6,403,449$ 3,582,677$

Emerging and unlisted stocks 719,585 1,554,440

7,123,034$ 5,137,117$

A. The Group recognised net gain (loss) in other comprehensive income for fair value change and reclassified

from equity to profit or loss for the years ended December 31, 2015 and 2014. Please refer to Note 6(19).

B. For the years ended December 31, 2015, the Group assessed that investment value of certain investee

companies was impaired and recognized impairment loss of $108,000 which is listed as ‘other gains and

losses’.

C. The counterparties of the Group’s debt instrument investments have good credit quality.

(4) Hedging derivative financial liabilities


Current items

Interest rate swap - cash flow hedges -$ 1,351$

Cash flow hedges

Derivative Period of Gain

Instruments Period of (Loss) Expected

Designated Fair Value Anticipated to be RecognizedHedged Items as Hedges December 31, 2014 Cash Flow in Profit or Loss

Long-term borrowings Interest rate swap 1,351)($ 2008~2015 2008~2015

Designated as Hedging Instruments

A. The Company was exposed to significant risk of future cash flow changes on principal payments associated

with the Company’s floating interest rate bearing borrowings, both current and long-term portion. Therefore,

the Company entered into interest rate swap contracts for exchanging floating interest rate for fixed interest rate

(TWD90/180CP (Page51328) to hedge such exposures. The contract had matured and was settled in February,

2015.

152

B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other

comprehensive income:

Items 2015 2014

Amount of gain or loss adjusted in other comprehensive income

5$ 1,224$

Amount of gain or loss transferred from other comprehensive income to profit or loss

297,670 277,234

Years ended December 31,

(5) Accounts and notes receivable


Notes receivable -$ 21,447$

Accounts receivable 48,944,637 71,922,008

48,944,637 71,943,455

Less: Allowance for sales returns and discounts 636,330)( 827,583)(

Allowance for bad debts 118,516)( 139,867)(

48,189,791$ 70,976,005$

A. The Group’s accounts receivable that were neither past due nor impaired meet the credit ranking rule based on

the counterparties’ industrial characteristics scale of business and profitability.

B. The aging analysis of accounts receivable and notes receivable that were past due but not impaired is as

follows:


Up to 60 days 644,656$ 611,670$

61 to 180 days 42,281 64,488

Over 180 days 15,766 73,023

702,703$ 749,181$ C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:

(a) As of December 31, 2015 and 2014, the Group’s accounts receivable that were impaired were $118,516 and

$139,867, respectively.

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

2015 2014

At January 1 139,867$ 139,221$

Allowance for bad debts - provision - 820

Allowance for bad debts - write-offs 21,447)( 211)(

Net exchange difference 36 37

Allowance for bad debts - reclassifications 60 -

At December 31 118,516$ 139,867$

153

(6) Inventories


Raw materials and supplies 3,952,699$ 3,851,583$

Work in process 13,906,846 17,996,857

Finished goods 12,338,887 11,939,402

30,198,432$ 33,787,842$ Expenses and losses incurred on inventories are as follows:

2015 2014

Cost of inventories sold 317,186,303$ 378,358,466$

Gain on reversal of decline in market value 602,609)( 473,142)(

Disposal loss and others 909,185 391,573

317,492,879$ 378,276,897$


The Group had disposed its expired and slow-moving inventories for the years ended December 31, 2015 and

2014. Thus, the risk of reduction in the inventory’s market price had decreased and the net realizable value of

inventories had been recovered.

(7) Investments accounted for under the equity method


Ampower Holding Ltd. 881,351$ 1,477,199$

TOA Optronics Corporation 310,074 364,907

GIO Optoelectronics Corporation 99,533 450,726

Others 319,628 71,393

1,610,586$ 2,364,225$

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

2015 2014

Profit or loss for the year from continuing operations 213,587$ 65,814$

Other comprehensive income - net of tax 4,432 81,659

Total comprehensive income 218,019$ 147,473$


154


Transfer, net

exchange

differencesAt January 1 Additions Disposals and others At December 31

Cost:

Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 185,352,098 77,904 285,434)( 551,758 185,696,326

Machinery and equipment 432,578,807 745,188 11,488,751)( 10,624,985 432,460,229

Others 30,029,064 311,893 3,317,504)( 6,609,029 33,632,482

651,812,761 1,134,985 15,091,689)( 17,785,772 655,641,829

Accumulated depreciation and impairment:

Buildings 83,503,695)( 13,130,422)( 216,190 525,499 95,892,428)(

Machinery and equipment 325,264,992)( 35,070,724)( 10,473,424 2,464,586)( 352,326,878)(

Others 22,124,028)( 4,123,746)( 3,167,673 3,800,392)( 26,880,493)(

430,892,715)( 52,324,892)( 13,857,287 5,739,479)( 475,099,799)(

Unfinished construction and equipment under acceptance 12,689,797 24,661,681 796,613)( 17,614,155)( 18,940,710

233,609,843$ 199,482,740$

2015

Transfer, net

exchange


Cost:

Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 184,139,364 8,652 341,088)( 1,545,170 185,352,098


Others 29,178,672 210,165 4,149,307)( 4,789,534 30,029,064

650,612,875 612,152 23,651,608)( 24,239,342 651,812,761

Accumulated depreciation and impairment: Buildings 68,425,305)( 15,250,980)( 327,125 154,535)( 83,503,695)(


Others 20,748,143)( 3,617,759)( 4,042,819 1,800,945)( 22,124,028)(

380,372,283)( 59,373,934)( 22,433,211 13,579,709)( 430,892,715)(

Unfinished construction and equipment under acceptance 3,265,167 19,220,115 814,963)( 8,980,522)( 12,689,797

273,505,759$ 233,609,843$

2014

A. The Group evaluated the recoverable amount for assets with impairment indicators; the impairment loss for the

years ended December 31, 2015 and 2014 was $481,911 and $351,066, respectively, shown under “other gains

and losses”.

155

B. Information about the property, plant and equipment that were pledged to others as collateral is provided in

Note 8.

C. As of December 31, 2015 and 2014, the prepayments for business facilities which have not yet entered the

factory (shown as ‘other non-current assets’) amounted to $3,110,696 and $591,998, respectively.


At January 1 Additions Disposals At December 31

Cost:

Land 188,247$ -$ -$ 188,247$

Buildings 568,440 - 4,331)( 564,109

756,687 - 4,331)( 752,356

Accumulated

depreciation and

impairment:

Buildings 63,010)( 13,174)( 4,331 71,853)(

693,677$ 13,174)($ -$ 680,503$

2015

At January 1 Additions Disposals At December 31

Cost:

Land 188,247$ -$ -$ 188,247$

Buildings 568,440 - - 568,440

756,687 - - 756,687

Accumulated

depreciation and

impairment:

Buildings 49,837)( 13,173)( - 63,010)(

706,850$ 13,173)($ -$ 693,677$

2014

The fair value of the investment property held by the Group as at December 31, 2015 and 2014 was $1,077,466

and $1,110,523, respectively. The amounts mentioned above represent valuation results of comparative method

based on market trading information.

156


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

Transfer, netexchange


Cost:

Patents and royalty 8,137,035$ -$ -$ 15,650$ 8,152,685$

Goodwill 17,096,628 - - - 17,096,628

Others 3,993,161 16,392 116,305)( 322,252 4,215,500

29,226,824 16,392 116,305)( 337,902 29,464,813

Accumulated

amortization and impairment:

Patents and royalty 5,735,685)( 933,024)( - - 6,668,709)(

Others 3,272,002)( 300,082)( 115,449 3,387 3,453,248)(

9,007,687)( 1,233,106)( 115,449 3,387 10,121,957)(

20,219,137$ 1,216,714)($ 856)($ 341,289$ 19,342,856$

2015

Transfer, netexchange


Cost:

Patents and royalty 8,807,308$ -$ 673,622)($ 3,349$ 8,137,035$

Goodwill 17,096,628 - - - 17,096,628

Others 3,497,213 18,140 8,911)( 486,719 3,993,161

29,401,149 18,140 682,533)( 490,068 29,226,824

Accumulated

amortization and impairment:

Patents and royalty 5,215,970)( 1,193,337)( 673,622 - 5,735,685)(

Others 2,970,185)( 319,112)( 7,012 10,283 3,272,002)(

8,186,155)( 1,512,449)( 680,634 10,283 9,007,687)(

21,214,994$ 1,494,309)($ 1,899)($ 500,351$ 20,219,137$

2014

157

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

2015 2014

Operating costs 1,005,129$ 960,230$

Operating expenses 227,977 552,219

1,233,106$ 1,512,449$


C. The Company performed impairment analysis for recoverable amount of the goodwill at each reporting date

and used the value in use as the basis for calculation of the recoverable amount. The value in use was

calculated based on the estimated present value of future cash flows for five years, which was discounted at

the discount rate of 5.72% and 4.89% for the years ended December 31, 2015 and 2014, respectively, to

reflect the specific risks of the related cash generating units. The future cash flows were estimated based on

the future revenue, gross profit, and other operating costs each year. Based on the evaluation above, the

Company did not recognize impairment loss on goodwill for the years ended December 31, 2015 and 2014.

(11) Short-term borrowings

Type of borrowings December 31, 2014 Collateral

Bank loans

Credit loans 22,526,999$ None

Range of interest rates 1.20%~3.92%

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

(12) Long-term borrowings

Type of loans Period December 31, 2015 December 31, 2014

Syndicated bank loans 2015/3/12~2018/3/12 60,280,000$ 108,368,190$

Guaranteed commercial papers - 129,148

60,280,000 108,497,338

Less: Administrative expenses charged by syndicated banks 288,794)( 41,252)(

Current portion 16,361,238)( 66,162,663)(

43,629,968$ 42,293,423$

Range of interest rates 1.90%~2.19% 1.25%~2.47%

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

B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability

ratio, interest coverage, and tangible net equity, which were based on the Company’s annual consolidated

financial statements audited by independent auditors. The Company’s financial ratios on the consolidated

financial statements for the years ended December 31, 2015 and 2014 are in compliance with the covenants

158

on the syndicated loan agreement.

C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the

“Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its

meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit

line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company

acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’,

and waive negotiation on the debt issue.

(13) Pensions

A. Defined benefit pension plan

(a) The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the

Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor

Pension Act on July 1, 2005, and service years thereafter of employees who choose to continue to be

subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are

accrued for each year of service for the first 15 years and one unit for each additional year thereafter,

subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the

average monthly salaries and wages of the last six months prior to retirement. The Company contributes

monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund

deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee.

Also, the Company would assess the balance in the aforementioned labor pension reserve account by

December 31, every year. If the account balance is not enough to pay the pension calculated by the

aforementioned method to the employees expected to qualify for retirement in the following year, the

Company will make contribution for the deficit by next March.

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


Present value of defined benefit obligations 1,852,905$ 1,605,920$

Fair value of plan assets 1,529,124)( 1,488,938)(

Net defined benefit liability 323,781$ 116,982$

159

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

Present value of

defined benefit Fair value of Net definedobligations plan assets benefit liability

Year ended December 31, 2015

Balance at January 1 1,605,920$ 1,488,938$ 116,982$

Current service cost 8,228 - 8,228

Interest expense/income 36,133 33,501 2,632

44,361 33,501 10,860

Remeasurements:

Change in financial assumptions 172,133 - 172,133

Experience adjustments 30,491 6,685 23,806

202,624 6,685 195,939

Balance at December 31 1,852,905$ 1,529,124$ 323,781$

Present value of

defined benefit Fair value of Net definedobligations plan assets benefit liability


Balance at January 1 1,504,354$ 1,454,627$ 49,727$

Current service cost 10,470 - 10,470

Interest expense/income 30,087 29,092 995

40,557 29,092 11,465

Remeasurements:Change in demographic assumptions 77,419 - 77,419

Change in financial assumptions 76,611)( - 76,611)(


61,009 5,219 55,790

Balance at December 31 1,605,920$ 1,488,938$ 116,982$ (d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension

plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for

Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope of

utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in

domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic

or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum

earnings in the annual distributions on the final financial statements shall be no less than the earnings

attainable from the amounts accrued from two-year time deposits with the interest rates offered by local

banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit

160

after being authorized by the Regulator. The Company has no right to participate in managing and

operating that fund and hence the Company is unable to disclose the classification of plan assets fair value

in accordance with IAS 19 paragraph 142. The compositon of fair value of plan assets as of December 31,

2015 and 2014 is given in the Annual Labor Retirement Fund Utilisation Report announced by the

government.

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

2015 2014

Discount rate 1.70% 2.25%

Future salary increases 3.00% 3.00%


Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience Mortality

Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected.

The analysis was as follows:

Increase 1% Decrease 1% Increase 1% Decrease 1%

December 31, 2015

Effect on present value of defined benefit obligation 299,276)($ 367,992$ 337,723$ 283,242)($

Discount rate Future salary increases

The sensitivity analysis above was arrived at based on one assumption which changed while the other

conditions remain unchanged. In practice, more than one assumption may change all at once. The method

of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the

same.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park

Administration in June 2013.

(g) As of December 31, 2015, the weighted average duration of that retirement plan is 19 years.

B. Defined contribution pension plan

(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution

pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees

with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute

monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’

individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in

lump sum upon termination of employment.

(b) The subsidiaries in Mainland China have defined contribution plans. Monthly contributions to an

independent fund administered by the government in accordance with the pension regulations in the

People’s Republic of China (PRC) are based on certain percentages of employees’ monthly salaries and

wages. Other than the monthly contributions, the Group has no further obligations.

(c) The pension costs under the defined contribution pension plans of the Group for the years ended

161

December 31, 2015 and 2014 were $2,283,605 and $1,999,252, respectively.

(14) Share-based payment

A. As of December 31, 2015, the Company’s share-based payment transactions were set forth below:

Quantity Contract

granted (in period Vesting

Type of arrangement Grant datethousand units) (in years) conditions

Employee stock options 2010.05.13 20,000 5 Note (a), (b)Employee stock options 2011.05.19 50,000 5 Note (a)Restricted stocks to employees - shares without consideration 2013.01.30 31,151 3 Note (c), (d) - shares subscribed with consideration

2013.01.30 31,151 3 Note (c), (d)

- shares without consideration 2013.03.29 844 3 Note (c), (d) - shares subscribed with consideration

2013.03.29 844 3 Note (c), (d)

- shares without consideration 2013.12.12 4,268 3 Note (c), (d) - shares subscribed with consideration

2013.12.12 4,268 3 Note (c), (d)

Reservation for new share subscription by employees

2014.07.09 85,000 - Vested immediately

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40% of total options

granted on completion of the specified year(s) of service (one to four years) from the grant date.

(b) The employee stock options had already expired.

(c) The employees may exercise the stock options by stage based on 20%, 40% and 40% of total options

granted on completion of the specified year(s) of service (one to three years) from the grant date.

(d) The restricted stocks issued by the Company cannot be transferred. Voting right and dividend right are

restricted on these stocks before vested.

162

(e) The fair value of stock options granted from 2010 to first quarter of 2014 is measured using the

Black-Scholes option-pricing model. Relevant information is as follows:

Exercise Expected Expected Expected Free Fair value

Type of Grant Price price volatility duration dividend interest per unit

arrangement date (in dollars) (in dollars) (%) (month) yield (%) rate (%) (in dollars)

Reservation fornew sharesubscription byemployees

2014.7.9 $ 14.9 $ 12.5 36.01 0.84 - 0.42 $ 2.42

Restricted stocksto employees:- shares issued with no consideration

2013.12.12 10.65 - - - - - 10.65

- shares subscribed with consideration

2013.12.12 10.65 5.00 - - - - 5.65

- shares issued with no consideration

2013.3.29 18.4 - - - - - 18.40


2013.3.29 18.4 5.00 - - - - 13.40


2013.1.30 15.35 - - - - - 15.35


2013.1.30 15.35 5.00 - - - - 10.35

Employee stockoptions

2011.05.19 26.7 26.7 35.67 48.60 0.00 1.00 7.31~8.32


2010.05.13 39.85 39.85 51.57 48.60 0.00 0.80 15.12~16.98

163

B. The details of the employee stock option plan for the years ended December 31, 2015 and 2014 are as

follows:

Weighted Weighted Weighted average

average Range of average stock price of

Quantity exercise exercise remaining stock options

(in thousand price price vesting at exerciseStock Options units) (in dollars) (in dollars) period date (in dollars)

Outstanding options at the beginning of the year

70,000 25.63$

Options exercised - - 13.61$ Options expired 20,000)( 32.59 Outstanding options at the end of the year 50,000 22.85 22.85$ 0.39 years

Exercisable options at the end of the year 50,000 22.85


Weighted Weighted Weighted average

average Range of average stock price of

Quantity exercise exercise remaining stock options

(in thousand price price vesting at exerciseStock Options units) (in dollars) (in dollars) period date (in dollars)

Outstanding options at the beginning of the year

94,819 28.71$

Options exercised - - 12.68$ Options expired 24,819)( 32.10 Outstanding options at the end of the year 70,000 25.63 32.59$ 0.38 years

22.85 1.39 years



C. For the years ended December 31, 2015 and 2014, the expenses incurred from share-based payment

arrangements were $143,442 and $578,227, respectively.

164

(15) Provisions-current

Warranty Litigation and others Total

At January 1, 2015 747,021$ 2,386,468$ 3,133,489$

Addition 1,970,000 4,626,005 6,596,005

Used during the year 1,908,885)( 2,268,850)( 4,177,735)(

At December 31, 2015 808,136$ 4,743,623$ 5,551,759$ A. Warranty

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

historical warranty data of TFT-LCD panel products.

B. Litigation and others

Litigation and other provisions for the Group are related to patents of TFT-LCD panel products and anti-trust

litigations. For information on estimation of provisions, please refer to Note 9(1).

(16) Share capital

A. As of December 31, 2015, the Company’s authorized and outstanding capital were $120,000,000 (including

$500,000 reserved for employee stock options) and $99,532,372, respectively, with a par value of $10 (in

dollars) per share. All proceeds from shares issued have been collected.

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

2015 2014Number of ordinary Number of ordinary

shares (in thousands) shares (in thousands)At January 1 9,954,536 9,109,429 Capital issued for cash - 850,000 Cancellation of restricted stock to employees 1,299)( 4,893)(

At December 31 9,953,237 9,954,536 B. On June 20, 2014, the Board of Directors approved the domestic capital increase with 850,000,000 shares.

The issue price was determined to be $12.5 in July 2014. The Company’s capital has increased by

$10,625,000 on August 12, 2014 and has been effective on September 5, 2014.

C. The Board of Directors of the Company resolved to increase capital for cash by issuing global depositary

receipts (the “GDR”). The amount of $9,360,000 (approximately equivalent to US$312,625 thousand) is

tentatively scheduled for release. Based on shareholder’s interest, the issuance of the GDR was cancelled in

accordance with the Financial Supervisory Commission (FSC)’s approval on January 30, 2015.

D. As authorized by the shareholders during their meeting in June 2012, the Board of Directors of the Company

resolved to increase capital for cash by issuing the GDR on July 18, 2012, and had been completed in January

2013. The Company issued 1,125,000 thousand shares of common stock for cash, including 112,500 thousand

shares regarded as employee stock options, and 101,250,000 units of GDRs which represent 1,012,500

thousand shares of common stock, with a unit of GDR representing 10 shares of common stock at the

Luxembourg Stock Exchange. Per unit was issued at a premium of US$4.481, which was equivalent to $12.98

per share and raised a total of $14,519,051, net of issuance cost. As of December 31, 2015, there were 193

165

thousand units outstanding, representing 1,939 thousand shares of common stocks.

E. As authorized by the shareholders at the shareholders’ meeting in June, 2012, the Board of Directors of the

Company adopted a resolution on January 30, 2013, March 29, 2013 and November 12, 2013 to issue

restricted shares to employees, consisting of 36,263 thousand shares without consideration and 36,263

thousand shares with consideration (the price for subscription is $5 per share). The effective dates of the

issuance were on January 30, 2013, March 29, 2013 and December 12, 2013. Until the vesting conditions are

met by employees, those shares are restricted with regard to transfer of voting rights, dividend and other rights.

As of December 31, 2015 and 2014, the Company bought back 1,299 and 4,893 thousand shares of unvested

restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

F. The stockholders during their meeting on January 6, 2010 approved the merger of the Company with another

company by issuing new shares, with the Company as the surviving company. The Company issued 4,046,382

thousand new shares according to the merger contract. The new shares included the common stock issued by

the acquired companies in May and December 2006 through private placement. The issuance of 570,929

thousand shares was determined based on the exchange ratio in the merger contract. The rights and

obligations of the private common shares were the same as other issued common shares, except for the

transfer restriction under R.O.C. Securities and Exchange Act and the listing restriction that no public listing

will be allowed within three years since the day of issuance and only if the Company completes the

application to publicly issue the shares. The Board of Directors of the Company approved the public issuance

of the above private common shares on April 28, 2015. As approved by Financial Supervisory Committee on

July 30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from August 7, 2015.

(17) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on

issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or

cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated

deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be

capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall

first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

166

Share of profit

(loss) of

associates

accounted for Restricted

under equity Employee stock to

Share premium method stock options employees Total

At January 1 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$

Cancellation of restricted stock to employees - - - 12,992 12,992

Vested restricted stock to employees 125,600 - - 125,600)( -

Changes in restricted stock to employees - - - 3,760)( 3,760)(

Compensation related to share-based payment - - 22,740 - 22,740

Expiration of employee stock options 1,003,099 - 1,003,099)( - -

Changes in net equity of long-term equity investments - 27,185 - - 27,185

Changes in non-controlling interests 38 - - - 38

At December 31 99,101,649$ 36,458$ 393,500$ 111,957$ 99,643,564$

2015

Share of profit

(loss) of

associates


under equity Employee stock to

Share premium method stock options employees Total

At January 1 94,106,611$ 56,303$ 1,697,935$ 197,892$ 96,058,741$

Capital issued for cash 2,125,000 2,125,000

Cash paid from capital surplus 1,266,944)( - - - 1,266,944)( Capital surplus offset against accumulated deficit 2,328,981 - - - 2,328,981



Changes in restricted stock to employees - - - 47,174 47,174

Compensation related to share-based payment 205,700 - 83,823 - 289,523

Expiration of employee stock options 407,899 - 407,899)( - -

Changes in net equity of long-term equity investments - 47,030)( - - 47,030)(

At December 31 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$

2014

167

(18) Retained earnings

A. In accordance with the Company’s Articles of Incorporation, net income must be distributed in the following

order:

(a) To pay all tax accruals and payables arising from the current year and to cover prior years’ losses, if any;

(b) As legal reserve equal to 10% of net income after tax and distribution pursuant to clause (a);

(c) As any special reserve;

(d) To pay dividends on preferred shares;

(e) To pay bonuses to employees not less than 5% of net income after tax and distribution pursuant to clauses

(a) to (d); and

(f) The remaining amount, if any, shall be distributed pursuant to the proposal of the Board of Directors in

accordance with the Company’s dividend policy and the resolution approved at the stockholders’ meeting,

of which 0.1% should be paid as remuneration to directors and supervisors and the remaining amount as

dividends to stockholders.

Dividends distributed in respect of any fiscal year in the form of shares shall not exceed two-thirds of total


B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their

share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the

issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that

the balance of the reserve exceeds 25% of the Company’s paid-in capital.

C. The details of the appropriation of 2014 net income which was approved at the stockholders’ meeting in June

2015 and the appropriation of 2013 net income which was approved at the stockholders’ meeting in June 2014

are as follows:

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 2,167,675$ 509,272$

Special reserve - 1,144,229

Cash dividends 6,947,188 0.70$ 90,495 0.01$

9,114,863$ 1,743,996$

2014 2013

Furthermore, the Company’s stockholders have resolved to distribute $0.14 per share as cash dividend from

capital surplus amounting to $1,266,944 in June 2014. Accordingly, the Company distributed a total of $0.15

cash dividend per share.

The Company’s appropriations of earnings for 2015 are to be authorized by the Board of Directors and

presented for approval in the Company’s stockholders’ meeting for 2016.

D. For the information relating to employees’ remuneration (bonuses) and directors’ and supervisors’

remuneration, please refer to Note 6(24).

168

(19) Other equity items

Available- Employee

Currency for-sale Hedging unearned

translation investments reserve compensation Total

At January 1 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

Fair value losses of cash flow hedges - - 5)( - 5)(

Reclassified as current income of cash flow hedges - - 297,670)( - 297,670)(

Revaluation of available-for-sale investments - gross - 2,304,633 - - 2,304,633

Revaluation transfer of available-for-sale investment - gross - 38,287)( - - 38,287)(

Currency translation differences 1,392,086)( - - - 1,392,086)(

Issuance of restricted stocks to employees - - - 2,411 2,411

Compensation related to share-based payment - - - 120,702 120,702

Share of subsidiaries and other comprehensive income of associates 4,432 - - - 4,432

Effect of income tax - 67,946 50,605 - 118,551

At December 31 1,695,294$ 1,074,445$ -$ 19,402)($ 2,750,337$

2015

Available- EmployeeCurrency for-sale Hedging unearned


At January 1 78,074)($ 1,544,345)($ 478,190$ 387,268)($ 1,531,497)($

Fair value losses of cash flow hedges - - 1,224)( - 1,224)(


Revaluation of available-for-sale investments - gross - 536,429 - - 536,429


Currency translation differences 3,087,368 - - - 3,087,368

Issuance of restricted stocks to employees - - - 43,951)( 43,951)(


Share of other comprehensive income of associates 73,654 8,005 - - 81,659

Effect of income tax - 8,453)( 47,338 - 38,885

At December 31 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

2014

169

(20) Other income

2015 2014

Rental revenue 182,349$ 634,368$

Interest income 484,873 328,633

Dividend income 224,441 39,958

Other interest income 1,421,519 1,731,993

2,313,182$ 2,734,952$


(21) Other gains and losses

2015 2014

Net loss on financial assets and liabilities at fair value through profit or loss 663,075)($ 976,857)($

Net currency exchange gain 814,978 1,242,754

(Loss) gain on disposal of investments 47,583)( 794,041

Loss on disposal of property, plant and equipment 180,829)( 179,758)(

Impairment loss 589,911)( 351,066)(

Litigation loss and others 8,016,783)( 5,659,589)(

8,683,203)($ 5,130,475)($


(22) Finance costs

2015 2014

Interest expense: Bank borrowings 1,707,993$ 3,579,026$

Others 4,765 7,555 Gain on cash flow hedges, reclassified from equity 297,670)( 277,234)(

1,415,088$ 3,309,347$


(23) Expenses by nature

2015 2014

Employee benefit expense:

Salaries and other short-term employee benefits 43,675,968$ 43,517,392$

Share-based payments 143,442 578,227

Post-employment benefits 2,294,465 2,010,717

Depreciation 52,338,066 59,387,107

Amortization 1,233,106 1,512,449

99,685,047$ 107,005,892$


170

(24) Employees’, directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation of the Company, when distributing earnings, the Company shall

distribute bonus to the employees and pay remuneration to the directors and supervisors that account for 5%

and 0.1%, respectively, of the total distributed amount.

However, in accordance with the Company Act amended on May 20, 2015, a company shall distribute

employee remuneration, based on the current year's profit condition, in a fixed amount or a proportion of

profits. If a company has accumulated deficit, earnings should be channeled to cover losses. Aforementioned

employee remuneration could be paid by cash or stocks. Specifics of the compensation are to be determined in

a board meeting that registers two-thirds of directors in attendance, and the resolution must receive support

from half of participating members. The resolution should be reported during the shareholders' meeting.

Qualification requirements of employees, including the employees of subsidiaries of the company meeting

certain specific requirements, entitled to receive aforementioned stock or cash may be specified in the Articles

of Incorporation. The board of directors of the Company has approved the amended Articles of

Incorporation of the Company on February 2, 2016. According to the amended articles, a ratio of profit of the

current year distributable, after covering accumulated losses, shall be distributed as employees' compensation

and directors’ and supervisors’ remuneration. The ratio shall not be lower than 5% for employees’

compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration. The amended

articles will be resolved during the shareholders’ meeting in 2016.

B. For the years ended December 31, 2015 and 2014, employees’ compensation (bonus) was accrued at

$734,524 and $1,436,187, respectively; while directors’ and supervisors’ remuneration was accrued at $5,000

and $0, respectively. The aforementioned amounts were recognized in expenses.

The expenses recognized for 2015 were accrued based on the earnings of current year and are to be presented

for approval by the Board of Directors and reported during the Company’s stockholders’ meeting.

The expenses recognized for 2014 were accrued based on the net income for 2014 and the percentage

specified in the Articles of Incorporation of the Company, taking into account other factors such as legal

reserve. Employees’ bonus and directors’ and supervisors’ remuneration were accrued at $1,436,187 and $0,

respectively, for the year ended December 31, 2014. Employees’ bonus and directors’ and supervisors’

remuneration for 2014 as resolved by the stockholders were $1,436,187 and $6,954, respectively. The

difference of $6,954 between employees’ bonus (directors’ and supervisors’ remuneration) as resolved by the

stockholders and the amount recognized in the 2014 financial statements was caused by a different accrual

ratio which was accounted for as a change in accounting estimate after being approved at the stockholders’

meeting and recorded as expense in 2015.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as

resolved by the board of directors will be posted in the “Market Observation Post System” at the website of

the Taiwan Stock Exchange.

(25) Income tax

A. Income tax expense

(a) Components of income tax expense:

171

2015 2014

Current tax:

Current tax on profit for the year 1,010,940$ 791,019$

Tax on undistributed surplus earnings 915,947 -

Adjustments in respect of prior years 39,736 104,819

Total current tax 1,966,623 895,838

Deferred tax:Origination and reversal of temporary differences 2,078,423 38,406)(

Income tax expense 4,045,046$ 857,432$


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

2015 2014

Fair value gains/losses on available-for-sale financial assets 67,946)($ 8,453$

Cash flow hedges 50,605)( 47,338)(

Actuarial gains/losses on defined benefit obligations 33,309)( 9,484)(

151,860)($ 48,369)($


B. Reconciliation between income tax expense and accounting profit:

2015 2014Tax calculated based on profit before tax and statutory tax rate

3,623,079$ 4,535,027$

Effects from items disallowed by tax regulation 929,272)( 533,680)(

Under provision of prior year's income tax 39,736 104,819

Additional 10 percent tax on undistributed earnings

915,947 -

Effect from Alternative Minimum Tax 42 74,672

Change in assessment of realization of deferred tax assets 395,514 3,323,406)(

Tax expenses 4,045,046$ 857,432$


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

follows:

172

Recognised

in other

Recognised in comprehensive

January 1 profit or loss income December 31

Temporary differences:-Deferred tax assets: Sales returns and discount provisions

166,373$ 77,153$ -$ 243,526$

Accrued royalties and warranty provisions 327,918 326,639 - 654,557 Unrealized loss on financial instruments 699,962 158,326 67,946 926,234

Unrealized expenses 40,794 29,924)( - 10,870

Unrealized exchange loss (gain)

200,697 81,480)( - 119,217

Net operating loss carryforward 15,993,574 2,375,483)( - 13,618,091

Others 349,198 66,535)( 33,309 315,972

17,778,516$ 1,991,304)($ 101,255$ 15,888,467$

-Deferred tax liabilities: Unrealized (gain) loss on cash flow hedges 50,605)($ -$ 50,605$ -$

Amortization charges on goodwill 394,687)( 82,369)( - 477,056)(

Others 32,288)( 4,750)( - 37,038)(

477,580)($ 87,119)($ 50,605$ 514,094)($

17,300,936$ 2,078,423)($ 151,860$ 15,374,373$


173

Recognised

in other

Recognised in comprehensive

January 1 profit or loss income December 31


288,013$ 121,640)($ -$ 166,373$

Accrued royalties and warranty provisions

364,411 36,493)( - 327,918

Unrealized loss (gain) on financial instruments

448,380 260,035 8,453)( 699,962

Unrealized expenses 97,965 57,171)( - 40,794

Unrealized exchange loss (gain)

- 200,697 - 200,697

Net operating loss carryforward

16,702,351 708,777)( - 15,993,574

Others 222,749 116,965 9,484 349,198

18,123,869$ 346,384)($ 1,031$ 17,778,516$

-Deferred tax liabilities: Unrealized exchange (gain) loss 51,357)($ 51,357$ -$ -$ Unrealized (gain) loss on cash flow hedges 97,943)( - 47,338 50,605)(

Amortization charges on goodwill 726,842)( 332,155 - 394,687)(

Others 33,566)( 1,278 - 32,288)(

909,708)($ 384,790$ 47,338$ 477,580)($

17,214,161$ 38,406$ 48,369$ 17,300,936$


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

Amount filed / Unrecognised

Year incurred assessed Unused amount deferred tax assets Usable until

2011 Assessed 66,433,000$ 18,410,536$ 2021

2012 Filed 43,278,299 11,950,753 2022

109,711,299$ 30,361,289$

December 31, 2015

174

Amount filed / Unrecognised

Year incurred assessed Unused amount deferred tax assets Usable until

2010 Assessed 14,641,521$ 3,414,183$ 2015~20202011 Filed 63,808,943 14,879,288 20212012 Filed 43,505,968 10,055,723 2022

121,956,432$ 28,349,194$

December 31, 2014

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


Deductible temporary differences 33,185,717$ 31,105,662$ F. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as

deferred tax liabilities. As of December 31, 2015 and 2014, the amounts of temporary differences

unrecognised as deferred tax liabilities were $29,289,598 and $20,486,590, respectively.

G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor -

liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.

H. The Company’s income tax returns through 2013 have been assessed and approved by the Tax Authority.

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

K. The details of imputation system are as follows:


(a) Balance of tax credit account 761,660$ 738,931$

2015 (Estimated) 2014 (Actual)

(b) Estimated (Actual) creditable tax rate 6.06% 3.90%

175

(26) Earnings per share

2015 2014

Basic earnings per share

Profit attributable to ordinary shareholders of the parent 10,815,594$ 21,676,759$

Weighted average number of ordinary shares outstanding (shares in thousands) 9,922,525 9,377,302

Basic earnings per share (in dollar) 1.09$ 2.31$

Diluted earnings per share



Assumed conversion of all dilutive potential ordinary shares:

-Employees’ bonus 116,513 106,514

-Restricted stocks 27,519 41,875

10,066,557 9,525,691

Diluted earnings per share (in dollar) 1.07$ 2.28$


As employee stock options had anti-dilutive effect for the years ended December 31, 2015 and 2014, they were

not included in the calculation of diluted earnings per share.

(27) Non-cash transaction

A. Investing activities with partial cash payments:

2015 2014

Purchase of property, plant and equipment

25,796,666$ 19,832,267$

Add: Opening balance of payable on equipment 2,688,976 3,383,261 Less: Ending balance of payable on equipment 3,974,152)( 2,688,976)(

Cash paid during the year 24,511,490$ 20,526,552$


B. Investing activities with partial cash receipts:

Year endedDecember 31, 2014

Disposal of property, plant and equipment 1,839,001$

Add: Opening balance of receivable on equipment 2,414,208

Less: Ending balance of receivable on equipment -

Cash received during the year 4,253,209$

176

RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

A. Operating revenue

2015 2014

Sales of goods:

Others 13,068,072$ 14,450,540$

Associates 233,299 33,263

13,301,371$ 14,483,803$


The collection period was 30~120 days upon delivery or on a monthly-closing basis to related parties, and

30~90 days to non-related parties. The sales prices and the trading terms to related parties above were not

significantly different from those of sales to third parties.

B. Purchases of goods

2015 2014

Purchases of goods:

Others 8,949,014$ 13,019,919$

Associates 360,626 11,275,187

9,309,640$ 24,295,106$


The payment term was 30~120 days to related parties after delivery, and 30~180 days to non-related parties

after delivery or on a monthly-closing basis. The purchase prices and the payment terms from related parties

above were not materially different from those of purchases from third parties.

C. Consigned processing

(a) Consigned processing

2015 2014

Processing costs:

Others 99,587$ 124,425$


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


Payables to related parties:

Others 70,229$ 2,505,250$ The Group subcontracted the processing of products of associates in Mainland China. The processing fees

were mainly charged based on cost plus method.

177

D. Accounts receivable


Receivables from related parties:

Others 2,551,425$ 6,084,501$


2,632,853$ 6,112,400$

The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120 days

after the date of sale. The receivables are unsecured in nature and bear no interest. There are no provisions held

against receivables from related parties.

E. Accounts payable

December 31, 2015 December 31, 2014Payables to related parties:

Others 3,284,529$ 5,225,129$


3,359,933$ 5,252,946$

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date

of purchase. The payables bear no interest.

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

2015 2014

Others 41,366$ 21,407$

Associates 220 639,044

41,586$ 660,451$


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


Others 7,365$ 748$

Associates - 229

7,365$ 977$ Sale of property

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

178

Disposal Gain on Disposal Gain on

proceeds disposal proceeds disposal

Others 1,812$ 45$ 46,157$ 2,807$

Years ended December 31

2015 2014

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


Others 794$ 46,382$ (2) Key management compensation

2015 2014

Salaries and other short-term employee benefits 136,698$ 73,982$


Post-employment benefit 220 216

143,204$ 92,836$


PLEDGED ASSETS

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

Pledged asset December 31, 2015 December 31, 2014 Purpose

Other financial assets-current

Time deposits 6,204$ 253$ Tariff guarantee and land lease

Demand deposits - 2,284,617 Syndicated bank loans

Property, plant and equipment 59,669,639 163,632,314 Long-term loans and performance guarantee for lease payable

Other financial assets-non-current

Refundable deposits - 11,079,360 Guarantee to European Commission for litigation

Time deposits 119,703 80,722 Tariff guarantee, land

lease and guarantee

for contract

59,795,546$ 177,077,266$

Book value

179

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

(1) Contingencies - Significant Litigations

A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei

Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were

investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of

the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the

European Union, China, Brazil and Korea also started to investigate this case. In addition, certain downstream

customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against

the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as

defendants. Details of the investigations on significant cases related to the alleged violation of the anti-trust

laws are as follows:

(a) The Company had reached a plea agreement with the U.S. Department of Justice in December 2009,

agreeing to pay a fine of US$220 million through installment over five years. The fine had been fully paid

as of February 2015.

The Company had also reached out-of-court settlement agreements with the plaintiffs on separate civil

lawsuits in the U.S. since 2012 and recognized related losses.

Further, the Company had reached out-of-court settlement agreements with fourteen State Governments

since November 2011, agreeing to pay civil statutory damages in order to settle these civil lawsuits. All

civil lawsuits between the Company and the U.S state governments have been settled.

(b) In December 2010, the Company had been ordered by the European Commission to pay a fine of EUR 300

million. The Company appealed the case in February 2011, and the General Court of the European Union

rendered a judgment in February 2014 lowering the fine from EUR 300 million to EUR 288 million. The

Company further filed an appeal against a part of the judgment and the Court of Justice of the European

Union has adjudicated to maintain the aforementioned amount of fine.

(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated, the

Company has recognized actual or estimated losses or liabilities in “other payables” and “other non-current

liabilities”.

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District Court for the

District of East Texas on April 25, 2011, alleging infringement of its patent. The administrative law judge has

ruled a summary judgment for the lawsuit in December 2013 rendering Eidos’ patent as invalid, and the

presiding judge has confirmed the summary judgment in January 2014. Eidos has filed a complaint in February

2014. The United States Court of Appeals for the Federal Circuit has rejected the judgement and sent back to

the United States District Court in March 2015. The Company submitted an application to ask the United States

Court of Appeals for the Federal Circuit to rehear en banc in April 2015. Though the United States Court of

Appeals rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015 and

petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of the Company

180

in November 2015. The case remains at the ruling by the United States Court of Appeals for the Federal Circuit

in March 2015. However, the results of the litigation are uncertain and are dependent on the future litigation

progress. The Company does not expect that the lawsuit would have a material adverse effect on the

Company’s financial position or results of operations in the short-term.

(2) Commitments

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


Property, plant and equipment 37,625,398$ 15,338,375$

B. Operating lease commitments

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

of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum

lease payments under non-cancellable operating leases are as follows:


No later than one year 581,145$ 571,800$

Later than one year but no later than five years 2,150,162.00 2,152,538.00

Later than five years 1,219,709 1,541,309

3,951,016$ 4,265,647$

C. Outstanding letters of credit

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


Outstanding letters of credit 474,222$ 693,635$

SIGNIFICANT DISASTER LOSS

None.

SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

(1) Capital management

The Group’s objectives are to maintain an optimal capital structure, and constructively reduce the debt ratio and

the cost of capital in order to maximize shareholders' equity.

(2) Financial instruments

A.Fair value information of financial instruments

The carrying amounts of the Group’s financial instruments not measured at fair value (including cash and

cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans,

accounts payable, other payables and long-term loans) are approximate to their fair values. The fair value

information of financial instruments measured at fair value is provided in Note 12(3).

B.Financial risk management policies

(a)The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk,

interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management

181

programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse

effects on the Group’s financial position and financial performance. The Group uses derivative financial

instruments to hedge certain risk exposures (see Notes 6(2), (4)).

(b)Risk management is carried out by each treasury department (of all group companies) under policies

approved by the board of directors. Group treasury identifies, evaluates and hedges financial risks in close

cooperation with the Group’s operating units. The Board provides principles for overall risk management,

as well as policies covering specific areas and matters, such as foreign exchange risk, interest rate risk,

credit risk, use of derivative financial instruments and non-derivative financial instruments, and

investment by excess liquidity.

C.Significant financial risks and degrees of financial risks

(a)Market risk

Foreign exchange risk

a) The Group operates internationally and is exposed to foreign exchange risk arising from various

currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from

future commercial transactions, recognized assets and liabilities and net investments in foreign

operations.

b) Management has set up a policy to require group companies to manage their foreign exchange risk

against their functional currency. The group companies are required to hedge their entire foreign

exchange risk exposure via their treasury departments. To manage their foreign exchange risk arising

from future commercial transactions and recognized assets and liabilities, entities in the Group use

forward foreign exchange contracts. Foreign exchange risk arises when future commercial transactions

or recognized assets or liabilities are denominated in a currency that is not the entity’s functional

currency.

c) The Group’s businesses involve some non-functional currency operations (the Company’s and certain

subsidiaries’ functional currency: NTD; other certain subsidiaries’ functional currency: RMB). Based

on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be

an increase of $161,700 and $304,219 for the years ended December 31, 2015 and 2014, respectively.

The information on assets and liabilities denominated in foreign currencies whose values would be

materially affected by the exchange rate fluctuations is as follows:

182

Foreign ForeignCurrency Exchange Currency ExchangeAmount Rate Book Value Amount Rate Book Value

(In Thousands) (Note) (NTD) (In Thousands) (Note) (NTD)

Financial assets

Monetary items

USD 4,589,186$ 32.83 150,662,976$ 7,672,372$ 31.65 242,830,574$

JPY 9,363,752 0.27 2,528,213 6,197,615 0.26 1,611,380

EUR 75,963 35.88 2,725,552 363,657 38.47 13,989,885

Non-monetary items

USD 2,342,530$ 32.83 76,905,260$ 2,217,538$ 31.65 70,185,078$

HKD 178,232 4.24 755,704 322,534 4.08 1,315,939

JPY 5,527,619 0.27 1,492,457 5,383,824 0.26 1,399,794

EUR 3,697 35.88 132,648 3,834 38.47 147,494

USD 4,009,239$ 32.83 131,623,316$ 6,531,987$ 31.65 206,737,389$

JPY 29,629,471 0.27 7,999,957 38,466,012 0.26 10,001,163

EUR 3,440 35.88 123,427 292,992 38.47 11,271,402


Financial liabilities

Monetary items

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

exchanged.

d) Total exchange gain (loss), including realized and unrealized arising from significant foreign exchange

variation on the monetary items held by the Group for the years ended December 31, 2015 and 2014

amounted $814,978 and $1,242,754, respectively.

Price risk

a) The Group is exposed to equity securities price risk because of investments held by the Group that are

classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or

loss. To manage its price risk arising from investments in equity securities, the Group diversifies its

portfolio in accordance with the policy set by the Group.

b) The Group’s investments in equity securities comprise domestic listed and unlisted stocks. The prices of

equity securities would change due to the change of the future value of investee companies. If the

prices of these equity securities had increased/decreased by 20% with all other variables held constant,

post-tax profit for the years ended December 31, 2015 and 2014 would have increased/decreased by

$56,384 and $121,031, respectively, as a result of gains/losses on equity securities classified as at fair

value through profit or loss; other components of equity would have increased/decreased by

$1,424,607 and $1,027,423, respectively, as a result of gains/losses on equity securities classified as

available-for-sale.

Interest rate risk

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

183

expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents

held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

During the years ended December 31, 2015 and 2014, the Group’s borrowings at variable rate were

denominated in the NTD, USD and RMB.

b) The Group analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated

taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.

Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate

shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run

only for liabilities that represent the major interest-bearing positions.

c) Based on the simulations performed, the impact on post-tax profit of a 0.1% shift would be a maximum

increase of $150,700 or decrease of $271,243 for the years ended December 31, 2015 and 2014,

respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is

within the limit given by the management.

d) Based on the various scenarios, the Group manages its cash flow interest rate risk by using

floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting

borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at

floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed

at fixed rates directly. The Group agrees with other parties to exchange interest rate, at specified

intervals. The difference between fixed contract rates and floating-rate interest amounts are calculated

by reference to the agreed notional amounts.

(b)Credit risk

a) Credit risk refers to the risk of financial loss to the Group arising from default by the clients or

counterparties of financial instruments on the contract obligations. According to the Group’s credit

policy, each local entity in the Group is responsible for managing and analyzing the credit risk for each

of their new clients before standard payment and delivery terms and conditions are offered. Customer

credit quality is assessed via internal risk control, considering customer financial position, past

experience and other factors. Individual risk limits are set by the board of directors based on internal or

external ratings. The utilization of credit limits is regularly monitored. Credit risk arises from cash and

cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as

well as credit exposures to wholesale and retail customers, including outstanding receivables. Because

the Company's counterparties and executor are banks with good credit standing and financial

institutions and Government with investment grade or above, there is no significant default. Therefore,

there is no significant credit risk.

b) No credit limits were exceeded during the reporting periods. Management does not expect any

significant losses from non-performance by these counterparties.

c) The individual analysis of financial assets that had been impaired is provided in Note 6.

(c)Liquidity risk

a) Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has

184

sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn

committed borrowing facilities (Note 6(12)) at all times so that the Group does not breach borrowing

limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into

consideration the Group’s debt financing plans, covenant compliance, compliance with internal

balance sheet ratio targets and, external regulatory or legal requirements.

b) Surplus cash held by the operating entities over and above balance required for working capital

management are transferred to the Group treasury. Group treasury invests surplus cash in interest

bearing savings accounts, time deposits, money market deposits and marketable securities. The Group

chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient

headroom as determined by the abovementioned forecasts. These are expected to readily generate cash

inflows for managing liquidity risk.

c) The table below analyses the Group’s non-derivative financial liabilities and net-settled or gross-settled

derivative financial liabilities into relevant maturity groupings based on the remaining period at the

balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the

expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the

contractual undiscounted cash flows.

Less than Between 1 Between 3 Over 5December 31, 2015 1 year and 3 years and 5 years years Total

Accounts payable 60,429,884$ -$ -$ -$ 60,429,884$

Other payables 24,912,360 - - - 24,912,360

Long-term borrowings (including current portion) 16,440,000 43,840,000 - - 60,280,000

Non-derivative financial liabilities:


Short-term borrowings 22,526,999$ -$ -$ -$ 22,526,999$

Accounts payable 80,207,385 - - - 80,207,385

Other payables 23,912,180 - - - 23,912,180

Long-term borrowings (including current portion) 66,192,903 42,304,435 - - 108,497,338

Other financial liabilities 36,821 10,938,112 663 6,344 10,981,940

Between 1

December 31, 2015 Less than 1 year and 3 years Total

Forward exchange contracts 265,525$ -$ 265,525$

Derivative financial liabilities:

Between 1December 31, 2014 Less than 1 year and 3 years Total

Forward exchange contracts 605,016$ -$ 605,016$

Interest rate swap contracts 1,351 - 1,351

185

d) The related information on the repayment of the medium and long-term syndicated loans from the

‘‘Agreed-upon Agreement’’ is described in Note 6(12).

(3) Fair value estimation

A.Details of the fair value of the Group’s financial assets and financial liabilities not measured at fair value are

provided in Note 12(2)A. Details of the fair value of the Group’s investment property measured at cost are

provided in Note 6(9).

B.The different levels that the inputs to valuation techniques are used to measure fair value of financial and

non-financial instruments have been defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can

access at the measurement date. A market is regarded as active where a market in which transactions

for the asset or liability take place with sufficient frequency and volume to provide pricing

information on an ongoing basis. The fair value of the Group’s investment in listed stocks and

on-the-run bonds is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. The fair value of the Group’s investment in derivative instruments is

included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s investment in equity

investment without active market is included in Level 3.

C.The related information of financial and non-financial instruments measured at fair value by level on the basis

of the nature, characteristics and risks of the assets and liabilities at December 31, 2015 and 2014 is as

follows:

December 31, 2015 Level 1 Level 2 Level 3 Total

AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Equity securities 281,922$ -$ -$ 281,922$

Forward exchange contracts - 120,036 - 120,036

Available-for-sale financial assets

Equity securities 6,403,449 - 719,585 7,123,034

6,685,371$ 120,036$ 719,585$ 7,524,992$

LiabilitiesRecurring fair value measurementsFinancial liabilities at fair value through profit or loss Forward exchange contracts -$ 265,525$ -$ 265,525$

186


Assets

Financial assets at fair value through profit or loss Equity securities 605,155$ -$ -$ 605,155$

Forward exchange contracts - 52,453 - 52,453

Available-for-sale financial assets Equity securities 3,296,020 - 1,841,097 5,137,117

Debt securities 220,000 - - 220,000

4,121,175$ 52,453$ 1,841,097$ 6,014,725$

Liabilities

Financial liabilities at fair value through profit or loss Forward exchange contracts -$ 605,016$ -$ 605,016$ Derivative financial liabilities for hedging Interest rate swap contracts - 1,351 - 1,351

-$ 606,367$ -$ 606,367$

Recurring fair value measurements

Recurring fair value measurements

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

(a)The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below

by characteristics:

Listed shares Emerging stocks Corporate bond

Market quoted price Closing priceLast

transaction priceWeighted average

quoted price

(b)Except for financial instruments with active markets, the fair value of other financial instruments is

measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial

instruments measured by using valuation techniques can be referred to current fair value of instruments

with similar terms and characteristics in substance, discounted cash flow method or other valuation

methods, including calculated by applying model using market information available at the consolidated

balance sheet date.

(c)When assessing non-standard and low-complexity financial instruments, for example, debt instruments

without active market, interest rate swap contracts, foreign exchange swap contracts and options, the

Group adopts valuation technique that is widely used by market participants. The inputs used in the

valuation method to measure these financial instruments are normally observable in the market.

(d)The valuation of derivative financial instruments is based on valuation model widely accepted by market

participants, such as present value techniques and option pricing models. Forward exchange contracts are

usually valued based on the current forward exchange rate.

(e)The output of valuation model is an estimated value and the valuation technique may not be able to capture

187

all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value

derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or

liquidity risk and etc. In accordance with the Group’s management policies and relevant control

procedures relating to the valuation models used for fair value measurement, management believes

adjustment to valuation is necessary in order to reasonably represent the fair value of financial and

non-financial instruments at the consolidated balance sheet. The inputs and pricing information used

during valuation are carefully assessed and adjusted based on current market conditions.

(f)The Group takes into account adjustments for credit risks to measure the fair value of financial and

non-financial instruments to reflect credit risk of the counterparty and the Group’s credit quality.

E.For the years ended December 31, 2015 and 2014, there was no transfer between Level 1 and Level 2.

188

F.The following table presents the changes in level 3 instruments as at December 31, 2015 and 2014:

2015 2014

At January 1 1,841,097$ 1,703,929$

Acquired in the period - 162,730

Transfers out from level 3 903,073)( -

Gains and losses recognized in profit or loss - 10,701

Gains and losses recognized in other comprehensive income 218,439)( 196,382

Disposed in the period - 232,645)(

At December 31 719,585$ 1,841,097$

Equity securities

G.For the year ended December 31, 2014, there was no transfer into or out from Level 3. As the shares of

General Interface Solution (GIS) Holding Limited had been listed in June 2015, the Group transferred the fair

value from Level 3 into Level 1 at the end of month when the event occurred.

H.Investment management segment is in charge of valuation procedures for fair value measurements being

categorized within Level 3, which is to verify independent fair value of financial instruments. Such

assessment is to ensure the valuation results are reasonable by applying independent information to make

results close to current market conditions, confirming the resource of information is independent, reliable and

in line with other resources and represented as the exercisable price, and frequently calibrating valuation

model, performing back-testing, updating inputs used to the valuation model and making any other necessary

adjustments to the fair value.

Investment management segment set up valuation policies, valuation processes and rules for measuring fair

value of financial instruments and ensure compliance with the related requirements in IFRS.

189

I.The following is the qualitative information of significant unobservable inputs and sensitivity analysis of

changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

Fair value

at December

31, 2015

Valuation

technique

Significant

unobservable input

Range (weighted

average)

Relationship of

inputs to fair value

Non-derivative equity instrument:

Unlisted shares 388,799$ Marketcomparablecompanies

Price to earningsratio multiple,price to book ratiomultiple, controlpremium

0.56~1.41

(0.70)

The higher themultiple and controlpremium, the higherthe fair value

Discount for lackof marketability

20%~70%

(22%)

The higher thediscount for lack ofmarketability, thelower the fair value

Venture capital shares Private equity fund investment

28,596$ Net asset value Not applicable 318

(318)

The higher the netasset value, thehigher the fair value

Private placement shares (emerging companies)

302,190 Market pricemethod

Discount for lackof marketability

30%

(30%)


J.The Group has carefully assessed the valuation models and assumptions used to measure fair value; therefore,

the fair value measurement is reasonable. However, use of different valuation models or assumptions may

result in different measurement. The following is the effect of profit or loss or of other comprehensive income

from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have

changed:

Financial assets Period Input Change Favourable

change Unfavourable

change

Equity instrument 2015/12/31 $ 719,585 ± 1% $ 7,196 ($ 7,196)

Equity instrument 2014/12/31 1,841,097 ± 1% 18,411 ( 18,411)

Recognised in othercomprehensive income

190

SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

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

ventures): Please refer to table 3.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the

Company’s paid-in capital: None.

E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more:

Please refer to table 4.

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

5.

I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2) and 6(4).

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

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China):


(3) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

B. Significant transactions, either directly or indirectly through a third area, with investee companies in the

Mainland Area: Please refer to Notes 13(1)A, G, H, J.

SEGMENT INFORMATION

(1) General information

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

The chief operating decision-maker considered the business from a perspective of product size of TFT LCD.

TFT LCD products are currently classified into big size and small-medium size. Because the Company met the

criteria for combining the segment information of big-size and small-medium-size TFT LCD departments, the

Company disclosed only one reportable operating segment for all TFT LCD products.

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

policies. The chief operating decision-maker allocated resources and assesses performance of the operating

segments primarily based on the operating revenue and profit (loss) before tax and discontinued operations of

individual operating segment.

(2) Segment information

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

follows:

191

2015 2014

TFT LCD TFT LCD

Segment revenue 364,132,984$ 428,661,898$

Segment income 14,862,088$ 22,523,244$

Depreciation and amortization 53,557,244$ 60,883,074$

Capital expenditure-property, plant and equipment 24,511,490$ 20,526,552$

Segment assets 387,442,336$ 480,984,747$


(3) Reconciliation for segment income (loss)

A reconciliation of reported segment income (loss) and income from continuing operations before tax is provided

as follows:

A. Reconciliation of segment revenue with operating revenue:

2015 2014

Segment revenue 364,132,984$ 428,661,898$

Other revenue - -

Operating revenue 364,132,984$ 428,661,898$


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

2015 2014

Reportable segments income/(loss) 14,862,088$ 22,523,244$

Others 2,901)( 11,096

Income/(loss) before tax from continuing operations 14,859,187$ 22,534,340$


C. Reconciliation of segment assets with total assets:


Segment assets 387,442,336$ 480,984,747$

Others - 1,531,808

387,442,336$ 482,516,555$

192

D. Other significant reconciliation:

2015 2014

Depreciation and amortization 53,557,244$ 60,883,074$

Others 13,928 16,482

53,571,172 60,899,556

Capital expenditure - property, plant and equipment 24,511,490 20,526,552

Others - -

24,511,490$ 20,526,552$


(4) Information on product

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

2015 2014

Sales of TFT LCD products 364,132,984$ 428,661,898$

Other revenues - -

364,132,984$ 428,661,898$


(5) Geographical information

Geographical information for the years ended December 31, 2015 and 2014 is as follows:

Revenue Non-current assets Revenue Non-current assets

Taiwan 103,617,666$ 187,010,460$ 91,333,989$ 214,158,469$

China 92,893,492 36,492,781 103,061,439 41,762,276

Hong Kong 73,942,347 181 124,681,779 -

Europe 24,000,586 25,094 31,048,822 28,601

USA 16,352,055 450 11,727,851 513

Others 53,326,838 22,671 66,808,018 140,789

364,132,984$ 223,551,637$ 428,661,898$ 256,090,648$

2015 2014


(6) Major customer information

None of the individual sales to the Group’s customers exceeds 10% of the sales in the consolidated statement of

comprehensive income for the year ended December 31, 2014. The individual sales to the Group’s customers

that exceed 10% of the sales in the statements of comprehensive income for the year ended December 31, 2015

are set forth below:

Sales Percentage of sales

Customer A 39,802,830$ 11%


193

Item Value

1 Ningbo InnoluxOptoelectronics Ltd.


Otherreceivables

Relatedparties

3,282,500$ $ - $ - - Short-termfinancing

- Operatingsupport

- - - $ 232,264,723 $ 232,264,723 A



Otherreceivables

Relatedparties

1,969,500 - - - Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

2 InnocomTechnology(Shenzhen) Co.,Ltd.


Otherreceivables

Relatedparties

4,549,500 4,549,500 4,493,390 1.925%~

2.00%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties

707,700 707,700 707,700 2% Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A

3 Innolux TechnologyUSA Inc.

Innolux Hong KongLtd.

Otherreceivables

Relatedparties

196,950 196,950 196,950 0.16%~

0.56%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

4 Innolux TechnologyEurope B.V.


Otherreceivables

Relatedparties

1,391,278 1,391,278 1,362,788 0.000%~

0.269%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

5 Innolux TechnologyJapan Co., Ltd.

Leadtek GlobalGroup Limited

Otherreceivables

Relatedparties

1,418,040 1,418,040 1,418,040 1% Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

6 InnoluxOptoelectronicsJapan Co., Ltd.

Innolux Corporation Otherreceivables

Relatedparties

409,050 - - - Businessassociation

- - - - - 602,953 602,953 B



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A

Balance at

December 31,

2015

Actual amount

drawn downNo. Creditor Borrower

General

ledger

account

Is a

related

party

Allowance

for

doubtful

accounts

Innolux Corporation and subsidiaries

Loans to others

For the year ended December 31, 2015

Table 1 Expressed in thousands of NTD

(Except as otherwise indicated)

Maximum

outstanding

balance during

the year ended

December 31,

2015

Interest

rate Nature of loan

Amount of

transactions

with the

borrower

Reason

for short-term

financing

CollateralLimit on loans

granted to

a single party

Ceiling on

total loans granted Footnote

194

Note A: The Company - Innolux Corporation

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

　　 2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity.

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

Note B: The subsidiary - Innolux Optoelectronics Japan Co., Ltd.

　　 1. For the company’s short-term capital needs, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the parent company; for the companies having

business relationship with the Company, financial limit on loans granted to a single party shall not exceed the amount of business transactions occurred between the creditor and borrower.

　　 2.The financial limit on loans granted shall not exceed 30% of the company’s net equity, based on the most recent audited financial statements of the parent company; with intercompany transaction, the company’s financial limit on loans granted shall not

exceed 40% of the company's equity.

　　 3.The amount of loans provided by the company and intercompany shall not exceed 40% of the company’s equity.

195

Company name

Relationship

with the

endorser/

guarantor

0 Innolux Corporation Leadtek GlobalGroup Limited

An indirectwholly-ownedsubsidiary

$ 116,132,362 $ 17,528,550 $ - $ - $ - - $ 116,132,362 Y N N A,B

Note A:

Note B: Accumulated endorsement/guarantee amount provided by the Company shall not exceed 50% of the Company’s net equity.

Endorser/

guarantor

Party being

endorsed/guaranteed

Limit on

endorsements/

guarantees

provided for a

single party

Maximum

outstanding

endorsement/

guarantee

amount as of

December 31,

2015

Innolux Corporation and subsidiariesProvision of endorsements and guarantees to others




Number

Limits on endorsement/guarantee amount provided to each counterparty did not exceed 0.5% of the Company’s net equity based on the most recent audited financial statements of the Company. Maximum endorsement/guarantee amountsallowable should not exceed 1% of the Company’s net equity based on the most recent audited financial statements of the Company. For subsidiaries with over 90% of shares directly or indirectly owned by the Company, the endorsement/ guarantee amount provided by the Company shall not exceed 10% of the Company’s net equity. The limitation is not required for direct or indirect wholly-owned subsidiaries of the Company.

Provision of

endorsements/

guarantees to

the party in

Mainland

China Footnote

Amount of

endorsements/

guarantees

secured with

collateral

Ratio of

accumulated

endorsement/

guarantee amount

to net asset value

of the endorser/

guarantor company

Ceiling on

total amount of

endorsements/

guarantees

provided

Provision of

endorsements/

guarantees by

parent

company to

subsidiary

Provision of

endorsements/

guarantees by

subsidiary to

parent

company

Outstanding

endorsement/

guarantee

amount at

December 31,

2015

Actual

amount

drawn down

196

Number of shares Book value Ownership (%) Fair value

Common stock

Innolux Corporation AvanStrate Inc.None

Available-for-sale financialassets - non-current

900,000 $ 62,091 1 $ 62,091

Innolux Corporation TPV Technology Ltd.None


150,500,000 650,115 6 650,115

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financialassets - non-current

48,283,725 319,955 19 319,955

Innolux Corporation Epistar Corporation None Available-for-sale financialassets - non-current

89,072 2,271 - 2,271

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financialassets - non-current

44,741,305 910,485 9 910,485

Innolux Corporation Allied Material Technology Corp. None Available-for-sale financialassets - non-current

1,209 - - -

Yuan Chi Investment Co., Ltd. Trillion Science Inc. None Available-for-sale financialassets - non-current

1,439,180 694 2 694

Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. None Available-for-sale financialassets - non-current

12,283,000 97,281 3 97,281

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial asset at fair valuethrough profit or loss

11,165,222 281,922 8 281,922

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financialassets - non-current

10,000,000 302,190 7 302,190

InnoJoy Investment Corporation G-TECH Optoelectronics Corporation None Available-for-sale financialassets - non-current

6,311,734 78,266 2 78,266

InnoJoy Investment Corporation Entire Technology Co., Ltd. None Available-for-sale financialassets - non-current

7,271,326 189,782 6 189,782

Warriors Technology Investments Ltd. OED Holding Ltd. None Available-for-sale financialassets - non-current

16,000,000 6,058 6 6,058

Warriors Technology Investments Ltd. General Interface Solution (GIS) HoldingLimited

None Available-for-sale financialassets - non-current

40,500,000 4,475,250 13 4,475,250

Nets Trading Ltd. PilotTech Global Fund None Available-for-sale financialassets - non-current

90 28,596 - 28,596

Relationship

with the

securities issuer

General

ledger account Footnote

As of December 31, 2015


Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)December 31, 2015



Securities held by Marketable securities

197

Purchases

(sales) Amount

Percentage of total

purchases (sales) Credit term Unit price Credit term Balance

Percentage

of total

notes/accounts

receivable

(payable)

Innolux Corporation Lakers Trading Ltd. An indirect wholly-ownedsubsidiary

Sales $ 8,538,206 2 60 days Similar withgeneral sales

No materialdifference

-$ -

Innolux Corporation Hon Hai Precision Industry Co.,Ltd.

Same major stockholder Sales 3,414,590 1 45~60 days Similar withgeneral sales


1,031,767 2

Innolux Corporation Honfujin Precision Electronics(Chongqing) Co., Ltd.

An indirect wholly-ownedsubsidiary of Hon Hai PrecisionIndustry Co., Ltd.

Sales 3,187,388 1 45~60 days Similar withgeneral sales


404,513 1

Innolux Corporation Shenzhen FuTaiHong PrecisionIndustry Co., Ltd.


Sales 2,488,188 1 60 days Similar withgeneral sales


133,501 -

Innolux Corporation Innolux Optoelectronics JapanCo., Ltd.

A subsidiary of the Company Sales 1,561,151 - 45 days Single salestarget, no basisfor comparison


138,810 -

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-ownedsubsidiary

Sales 1,512,160 - 60 days Similar withgeneral sales


173,166 -

Innolux Corporation Competition Team Ireland Ltd. An indirect wholly-ownedsubsidiary of Hon Hai PrecisionIndustry Co., Ltd.



- -

Innolux Corporation Innolux Optoelectronics USA,Inc.

An indirect wholly-ownedsubsidiary

Sales 734,048 - 45 days Similar withgeneral sales


71,538 -

Innolux Corporation Futaijing Precision Electronics(Yantai) Co., Ltd.




35,124 -

Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-ownedsubsidiary



- -

Innolux Corporation Futaijing Precision Electronics(Beijing) Co., Ltd.




- -

Innolux Corporation Hongfujin Precision Electronics(Zhengzhou) Co., Ltd.




74,849 -


Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or moreFor the year ended December 31, 2015


FootnotePurchaser/seller Counterparty Relationship with the counterparty

Transaction

Differences in transaction terms

compared to third party

transactions Notes/accounts receivable (payable)


198

Innolux Corporation Honfujin Precision Electronics(Shenzhen) Co., Ltd.


Sales $ 331,460 - 60 days Similar withgeneral sales


$ 139,373 -

Innolux Corporation FI Medical DeviceManufacturing Co., Ltd.

The company's investmentsaccounted for under the equitymethod



81,427 -

Innolux Corporation Honfujin Precision Electronics(Wuhan) Co., Ltd.




76,783 -

Innolux Corporation Competition Team Technology(India) Private Ltd.




144,167 -

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. The company is a corporate directorof Chi Lin Optoelectronics

Sales 133,737 - 45~90 days Similar withgeneral sales


40,420 -


Same major stockholder Purchases 2,087,965 1 60~90 days afteracceptance

Singlepurchasestarget, no basisfor comparison


( 821,291) 1


Purchases 822,868 - 120 days afteracceptance



289,219)( -






58,375)( -

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processingexpense

44,091,210 13 60~90 days Cost plus No materialdifference

20,900,275)( 29


Processingexpense


14,958,119)( 20


Processingexpense


8,331,372)( 11


Innolux Hong Kong Ltd. An indirect wholly-ownedsubsidiary

Processingrevenue

33,337,143 98 60 days Similar withgeneraltransactions


7,831,158 98

199


Leadtek Global Group Limited A subsidiary of the Company Processingrevenue

$ 28,498,599 84 60 days Similar withgeneraltransactions


$ 14,623,208 91


Lakers Trading Ltd. An indirect wholly-ownedsubsidiary

Processingrevenue



8,018,465 82

Ningbo Innolux TechnologyLtd.




2,204,994 78



Processingrevenue



2,149,428 95

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-ownedsubsidiary

Processingrevenue



1,027,542 100



Processingrevenue

644,975 46 60 days Similar withgeneraltransactions


3,360,510 92

Innolux Technology JapanCo., Ltd.


Servicerevenue



48,127 85


Ningbo Innolux Technology Ltd. An indirect wholly-ownedsubsidiary

Sales 3,479,126 6 90 days Similar withgeneraltransactions


742,775 3


Nanjing Innolux OptoelectronicsLtd.


Sales 658,797 3 60 days Similar withgeneraltransactions


119,316 3


Ningbo Innolux Display Ltd. An indirect wholly-ownedsubsidiary

Sales 263,304 - 60 days Similar withgeneraltransactions


161,406 1


Ningbo Lin Moug Optronics Co.,Ltd.

An indirect wholly-ownedsubsidiary of Chi LinOptoelectronics Co., Ltd.

Purchases 1,720,767 3 120 days aftergoods areshipped

Similar withgeneraltransactions


617,975)( 4


Hon Hai Precision Industry Co.,Ltd.

Same major stockholder Purchases 744,581 1 60 days aftergoods areshipped



249,403)( 2






294,409)( 1

200



Same major stockholder Purchases $ 729,655 3 90 days aftergoods areshipped



185,937)($ 3






112,654)( 1


Honfujin Precision Electronics(Shenzhen) Co., Ltd.


Purchases 465,072 1 90 days aftergoods areshipped



117,821)( 1







190,049)( 3

Ningbo Innolux Display Ltd. Hon Hai Precision Industry Co.,Ltd.




187,611)( 7

201

Table 5

Amount Action taken

Innolux Corporation Shenzhen FuTaiHongPrecision Industry Co., Ltd.

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

$ 133,501 2.97 $ - - $ 88,285 -

Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder 1,031,767 2.35 84,118 Subsequent collection 212,224 -



404,513 3.78 10,639 Subsequent collection 78,969 -

Innolux Corporation Kangzhun Electronics Technology(Kunshan) Co., Ltd.


286,218 - 31,754 Subsequent collection 59,298 -

Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company 138,810 9.59 - - - -

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary 173,166 8.71 - - - -

Innolux Corporation Hongfujin Precision Electronics(Shenzhen) Co., Ltd.


139,373 4.17 - - 97,623 -

Innolux Corporation Competition Team Technology (India)Private Ltd.



Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 8,018,465 1.77 8,018,465 Subsequent collection 5,284,848 -

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company 14,623,208 1.66 13,732,390 Subsequent collection 3,349,891 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary 7,831,158 4.24 3,085,461 Subsequent collection 2,975,253 -

Ningbo Innolux Technology Ltd. Leadtek Global Group Limited A subsidiary of the Company 2,204,994 3.56 150,784 Subsequent collection 1,587,768 -

Innocom Technology (Shenzhen) Co.,Ltd.

Lakers Trading Ltd. An indirect wholly-owned subsidiary 3,360,510 0.23 2,910,074 Subsequent collection - -

Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 2,149,428 4.95 - - 545,267 -

Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary 119,316 5.36 - - - -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. An indirect wholly-owned subsidiary 742,775 4.07 92,453 Subsequent collection 442,391 -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary 161,406 1.63 - - 37,153 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 1,027,542 4.57 - - 598,463 -

Leadtek Global Group Limited Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary 518,992 - 150,784 Subsequent collection 241,922 -

December 31, 2015Expressed in thousands of NTD(Except as otherwise indicated)

Amount collected

subsequent to the

balance sheet date

Allowance for

doubtful accounts Creditor Counterparty

Relationship

with the counterparty

Balance as

at December 31, 2015 Turnover rate

Overdue receivables


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

202

General ledger account Amount

Transaction terms

(Note B)

Percentage of

consolidated total

operating revenues or total

assets

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Sales 628,495$ - -

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Processing expense 34,025,843 - 9

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Accrued expenses 8,331,372)( - 2

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Sales 1,561,151 - -

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Accounts receivable 138,810 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 734,048 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 1,512,160 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Accounts receivable 173,166 - -

0 Innolux Corporation Lakers Trading Ltd. 1 Sales 8,538,206 - 2

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 44,600,117 - 12

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses 14,958,119)( - 4

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 44,091,210 - 12

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses 20,900,275)( - 5

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Sales 658,797 - -

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Accounts receivable 119,316 - -

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 12,905,853 - 4

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 2,149,428 - 1

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 26,744,283 - 7

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 8,018,465 - 2

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 33,337,143 - 9

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 7,831,158 - 2

4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Processing revenue 644,975 - -

4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Accounts receivable 3,360,510 - 1

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Processing revenue 16,347,277 - 4

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Accounts receivable 2,204,994 - 1

Relationship

(Note A)

Transaction (Note C)


Number Company name Counterparty


Significant inter-company transactions during the reporting periodsFor the year ended December 31, 2015


203

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 28,498,599$ - 8

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 14,623,208 - 4

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. 3 Sales 3,479,126 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. 3 Accounts receivable 742,775 - -

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 263,304 - -

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 161,406 - -

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 4,597,437 - 1

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable 1,027,542 - -

8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 3 Service revenue 275,557 - -

9 Leadtek Global Group Limited Ningbo Innolux Display Ltd. 3 Accounts receivable 518,992 - -

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

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

term was 30~120 days upon receipt of goods.

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

204

Balance as at

December 31,

2015

Balance as at

December 31,

2014 Number of shares

Ownership

(%) Book value

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings 119,724$ 119,724$ 4,910,000 100 104,699$ 205)($ 2,044)($

Innolux Corporation Gold Union Investments Ltd. SamoaInvestment holdings - 348,999 - - - 104,634 104,634

Innolux Corporation Golden Achiever International Ltd. BVI Investment holdings 119,106 9,083 40,250 100 65,966 2,048)( 5,354

Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings 7,858,300 7,858,300 246,768,185 100 20,242,553 293,551 295,014

Innolux Corporation Keyway Investment ManagementLimited

Samoa Investment holdings 197,554 197,554 5,656,410 100 230,932 3,746)( 3,746)(

Innolux Corporation Landmark International Ltd. SamoaInvestment holdings 33,438,542 32,925,315 709,450,000 100 45,888,559 4,159,463 4,281,112

Innolux Corporation Toppoly Optoelectronics (B.V.I.) Ltd. BVI Investment holdings 3,596,307 3,596,307 144,447,000 100 6,787,268 751,258 751,258

Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings 2,107,291 2,107,291 1,158,844,000 100 2,907,677 687,929 660,141

Innolux Corporation Leadtek Global Group Limited BVI Order swap company - - 50,000,000 100 232,863)( 103,103)( 103,103)(

Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 1,137,982 215,059)( 215,059)(

Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,242,760 338,289)( 338,289)(

Innolux Corporation Innolux Optoelectronics Europe B.V. Netherlands Importing, exporting,buying, selling andlogistics services ofelectronic equipmentand TFT-LCDmonitors

121,941 121,941 180 100 132,641 4,827)( 4,827)(

Innolux Corporation Innolux Optoelectronics Japan Co.,Ltd.

Japan Researching,manufacturing andselling of the filmtransistor liquid crystaldisplay

1,335,486 1,335,486 80 100 1,507,382 36,154 36,154

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 881,351 271)( 8,925)(

Innolux Corporation Jetronics International Corp. Samoa Investment holdings 86,149 86,149 726,941 32 2,055)( 1,268 406

Innolux Corporation FI Medical Device ManufacturingCo., Ltd.

Taiwan Production and sellingof the absorption formedical element

73,500 73,500 7,350,000 49 321,683 554,470 271,690

Innolux Corporation iZ3D, Inc. USA Research anddevelopment and saleof 3D flat monitor

- - 4,333 35 - - -



Location

Main business

activities

Initial investment amount Shares held as at December 31, 2015

Information on investeesFor the year ended December 31, 2015


Net profit (loss)

of the investee

for the year

ended December

31, 2015

Investment

income (loss)

recognised by the

Company for the

year ended

December 31,

2015 Footnote Investor Investee

205

Innolux Corporation Chi Mei Lighting TechnologyCorporation

Taiwan Manufacturing ofelectronic equipmentand lighting equipment

819,312$ 819,312$ 78,195,856 33 -$ -$ -$

Innolux Corporation Chi Mei El Corporation Taiwan Developing, designing,manufacturing andselling of organic lightemitting diodes

- 361,382 - - - 51,718)( 50,265)(

Innolux Corporation GIO Optoelectronics Corp. Taiwan Developing, designing,manufacturing andselling of componentsof back light moduleon TFT-LCD

800,892 800,892 63,521,501 24 98,785 21,911 5,210

Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings 7,296,530 7,296,530 226,504,550 100 15,064,678 102,191 102,191

Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 5,041,225 192,687 192,687

Innolux Holding Ltd. Lakers Trading Ltd. Samoa Order swap company - - 1 100 250,080 - -

Innolux Holding Ltd. Innolux Corporation USA Distributor company 6,348 6,348 2,000 100 92,865)( 1,327)( 1,327)(

Toppoly Optoelectronics (B.V.I.)Ltd.

Toppoly Optoelectronics (Cayman)Ltd.

Cayman Investment holdings 3,572,384 3,572,384 144,417,000 100 6,786,885 751,258 751,258

Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong KongHolding Ltd.

Hong Kong Investment holdings - - 162,897,802 100 1,055,807 295,546 295,546

Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Order swap company - - 35,000,000 100 1,845,021)( 317,860 317,860

Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company andR&D testing company

3,073,072 3,073,072 375,810 100 2,281,088 32,523 32,523

Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd. Japan R&D testing company 1,815,603 1,815,603 201 100 1,706,959 17,594 17,594

Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company 263,685 263,685 1,000 100 363,492 24,231 24,231

Innolux Optoelectronics EuropeB.V.

Innolux Optoelectronics GermanyGmbH

Germany Importing, exporting,buying, selling andlogistics services ofelectronic equipmentand TFT-LCDmonitors

10,324 10,324 250 100 17,023 7,957)( 7,957)(

Innolux Optoelectronics JapanCo., Ltd.

Innolux Optoelectronics USA, Inc. USA Selling of electronicequipment andcomputer monitors

2,400 2,400 1,000 100 277,704 9,020 9,020

Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings 314,740 314,740 10,000,001 100 266,110 781 781

Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings 573,940 573,940 18,000,000 100 438,237 1,286 1,286

Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings 1,146,370 1,146,370 38,000,001 100 1,092,270 92,832 92,832

206

Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings 5,391,125$ 5,391,125$ 164,000,000 100 13,237,023$ 7,291$ 7,291$

Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 30,916 - -

Suns Holding Ltd. Warriors Technology InvestmentsLtd.

Samoa Investment company 555,422 555,422 18,177,052 100 5,041,223 192,687 192,687

Innolux Technology Europe B.V. Innolux Technology Germany GmbH Germany Testing andmaintenance company

33,735 33,735 100,000 100 59,078 173 173

Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings 314,740 314,740 77,830,001 100 266,110 781 781

Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings 573,940 573,940 139,623,801 100 438,236 1,286 1,286

Magic Sun Ltd. Sun Dynasty Development Ltd. Hong Kong Investment holdings 1,146,370 1,146,370 295,969,001 100 1,092,270 92,832 92,832

Yuan Chi Investment Co., Ltd. Chi Mei Lighting TechnologyCorporation

Taiwan Trading business,manufacturing ofelectronic equipmentand lighting equipment

263,812 263,812 19,673,402 8 - - -

Yuan Chi Investment Co., Ltd. GIO Optoelectronics Corp. Taiwan Developing, designing,manufacturing andselling of componentsof back light moduleon TFT-LCD

6,881 6,881 467,519 - 748 21,911 39

Yuan Chi Investment Co., Ltd. TOA Optronics Corporation Taiwan Selling electronicmaterials, tradingbusiness,manufacturing ofelectronic equipmentsand lightingequipments

423,606 423,606 58,007,000 40 310,074 237,256)( 54,833)(

207

Remitted to

Mainland China

Remitted back

to Taiwan

Innocom Technology (Shenzhen) Co., Ltd. Manufacturing and selling of LCD backendmodule and related components

$ 5,383,300 2 $ 4,165,878 $ - $ - $ 4,165,878 $ 7,291 100 $ 7,291 $ 13,237,010 $ 1,217,422 2.1

OED Company Manufacturing and selling of electronic paper 318,465 2 65,650 - - 65,650 ( 248,223) 4 - 14,840 - 2.1

Ningbo Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

10,175,750 2 241,758 - - 241,758 2,185,851 100 2,185,851 22,305,061 5,666,742 2.2

Ningbo Innolux Technology Ltd. Manufacturing and selling of LCD backendmodule and related components

4,267,250 2 4,267,250 - - 4,267,250 299,191 100 299,191 3,442,283 - 2.2

Foshan Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

12,571,975 2 12,571,975 - - 12,571,975 1,669,650 100 1,672,129 19,839,990 - 2.2

Ningbo Innolux Display Ltd. Manufacturing and selling of LCD backendmodule and related components

984,750 2 984,750 - - 984,750 105,005 100 105,005 359,195 - 2.2

Nanjing Innolux Technology Ltd. Purchases and sales of monitor-relatedcomponents company

68,933 2 68,933 - - 68,933 12,948 100 12,948 606,121 - 2.3

Kunpal Optoelectronics Ltd. Glass thinning processing service 131,300 2 124,139 - - 124,139 234 100 234 77,861 - 2.4

VAP Optoelectronics (Nanjing) Corp. Manufacturing and selling of LCD backendmodule and related components

331,533 2 9,848 114,888 - 124,735 ( 2,048) 100 ( 2,048) 66,172 - 2.5

Nanjing Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

4,661,150 2 4,661,150 - - 4,661,150 738,310 100 738,310 6,180,741 - 2.3

Ningbo Innolux Logistics Ltd. Warehousing services 131,300 2 131,300 - - 131,300 ( 6,907) 100 ( 6,907) 157,669 - 2.7

Shanghai Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

689,325 2 - - - - 295,546 100 295,546 1,055,807 - 2.6

Foshan Innolux Logistics Ltd. Warehousing services 49,238 2 49,238 - - 49,238 3,161 100 3,161 68,266 - 2.7

Amlink (Shanghai) Ltd. Manufacturing and selling of power supply,modem, ADSL, and other IT equipments

656,500 2 328,250 - - 328,250 ( 19,288) 50 ( 9,065) 372,990 - 2.8

Kunshan Guann-Jye Electronics Co., Ltd. Manufacturing of transformers 275,730 2 88,299 - - 88,299 - 32 - - - 2.9

Interface Optoelectronics (Shenzhen) Co.,Ltd.

Development of new type of flat panel display,monitor and peripherals, production andmanagement, and offer of after-sales service

3,157,765 2 443,138 - - 443,138 - 13 - 4,475,256 - 2.1

Ningbo Innolux Electronics Ltd. Manufacturing and selling of LCD backendmodule and related components

151,650 3 - - - - 38 100 38 151,688 - 3.1

Accumulated

amount

of investment

income

remitted back to

Taiwan as of

December 31,

2015

Table 8

Footnote Main business activities

Paid-in capital

(Note A)

Investment method

(Note C)

Accumulated

amount of

remittance from

Taiwan to

Mainland China

as of January 1,

2015

Amount remitted from Taiwan to

Mainland China/

Amount remitted back

to Taiwan for the year ended

December 31, 2015

Innolux Corporation and subsidiariesInformation on investments in Mainland China


Expressed in thousands of NTD(Except as otherwise indicated)

Investee in Mainland China

Book value of

investments in

Mainland China

as of December

31, 2015

Accumulated

amount

of remittance

from Taiwan to

Mainland China

as of December

31, 2015

Ownership

held by

the

Company

(direct or

indirect)

Investment income

(loss) recognised

by the Company

for the year ended

December 31, 2015

(Note B)

Net income

(loss) of

investee for the

year ended

December 31 ,

2015

208

Ceiling on investments in Mainland China:

Company name

Accumulated amount of remittance

from Taiwan to Mainland China

as of December 31, 2015

Investment

amount approved

by the Investment

Commission of

the Ministry of

Economic Affairs

(MOEA)

Ceiling on

investments in

Mainland China

imposed by the

Investment

Commission of

MOEA

Innolux Corporation 29,821,744$ 40,547,247$ 139,358,834$

Note A: The relevant figures are listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate.Note B: Profit or loss recognised for the year ended December 31, 2015 was audited by independent accountants.Note C: The investment methods are as follows:

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

2.1.Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.2.Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China. 2.3.Through investing in Toppoly Optoelectronics (B.V.I.) Ltd. in the third area, which then invested in the investee in Mainland China. 2.4.Through investing in Bright Information Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.5.Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China. 2.6.Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.7.Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China. 2.8.Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.9.Through investing in Jetronics International Corporation in the third area, which then invested in the investee in Mainland China.

3. Others. 3.1.The company invests in the company via investee companies in Mainland China is Ningbo Innolux Electronics Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be approved by Investment Commission of the Ministry of Economic Affairs.

209

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Innolux Corporation: We have audited the accompanying parent company only balance sheets of Innolux Corporation as

of December 31, 2015 and 2014, and the related parent company only statements of comprehensive

income, of changes in equity and of cash flows for the years then ended. These parent company

only financial statements are the responsibility of the Company’s management. Our responsibility is

to express an opinion on these parent company only financial statements based on our audits. We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation

of Financial Statements by Certified Public Accountants” and generally accepted auditing standards

in the Republic of China. Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement. An

audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and significant

estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion. In our opinion, the parent company only financial statements referred to above present fairly, in all

material respects, the financial position of Innolux Corporation as of December 31, 2015 and 2014,

and their financial performance and cash flows for the years then ended in conformity with the

“Regulations Governing the Preparation of Financial Statements by Securities Issuers”. PricewaterhouseCoopers, Taiwan

February 2, 2016 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

INNOLUX CORPORATION PARENT COMPANY ONLY BALANCE SHEETS


210

Assets Notes 2015 2014

Current assets

1100 Cash and cash equivalents 6(1) $ 35,279,610 $ 55,543,195



6(2)

81,858 52,453


- current

6(3)

- 220,000

1170 Accounts receivable, net 6(5) 45,755,129 68,858,149

1180 Accounts receivable - related

parties

7

2,904,753 6,067,658

1200 Other receivables 872,255 699,592

1210 Other receivables - related parties 7 377,364 691,024

130X Inventory 6(6) 24,546,126 27,938,165

1410 Prepayments 705,456 542,334

1476 Other financial assets - current 6(1) and 8 1,400,856 2,250,035

1479 Other current assets 3,001 12,542

11XX Total current assets 111,926,408 162,875,147

Non-current assets


- non-current

6(3)

1,944,917 3,101,461

1550 Investments accounted for under

equity method

6(7)

81,315,320 73,096,389

1600 Property, plant and equipment 6(8), 7 and 8 163,921,697 192,599,182

1760 Investment property, net 6(9) 680,503 693,677

1780 Intangible assets 6(10) 19,264,025 20,127,184

1840 Deferred income tax assets 6(25) 15,722,814 17,575,426

1980 Other financial assets -

non-current

8

119,703 11,160,082

1990 Other non-current assets 6(8) 3,144,234 625,863

15XX Total non-current assets 286,113,213 318,979,264

1XXX Total assets $ 398,039,621 $ 481,854,411

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY BALANCE SHEETS


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

211

Liabilities and Equity Notes 2015 2014

Current liabilities

2100 Short-term borrowings 6(11) $ - $ 1,300,000

2120 Financial liabilities at fair value


6(2)

53,921 605,016

2125 Derivative financial liabilities for

hedging - current

6(4)

- 1,351

2170 Accounts payable 27,731,035 33,731,780

2180 Accounts payable - related parties 7 45,433,862 85,171,012

2200 Other payables 7 and 9 24,387,687 18,688,940

2230 Current income tax liabilities 6(25) 902,134 -

2250 Provisions - current 6(15) 5,551,759 3,133,489

2320 Long-term liabilities, current

portion

6(12)

16,361,238 61,092,333

2399 Other current liabilities 835,806 1,465,205

21XX Total current liabilities 121,257,442 205,189,126

Non-current liabilities

2540 Long-term borrowings 6(12) 43,629,968 37,223,093

2570 Deferred income tax liabilities 6(25) 514,094 477,579

2670 Other non-current liabilities 6(13) 373,394 11,274,550

25XX Total non-current liabilities 44,517,456 48,975,222

2XXX Total liabilities 165,774,898 254,164,348

Equity

3110 Share capital - common stock 6(16) 99,532,372 99,545,364

3200 Capital surplus 6(14)(17) 99,643,564 99,584,369

Retained earnings 6(18)

3310 Legal reserve 2,676,947 509,272

3320 Special reserve - 1,144,229

3350 Unappropriated retained earnings 27,661,503 24,979,173

3400 Other equity interest 6(19) 2,750,337 1,927,656

3XXX Total equity 232,264,723 227,690,063

Significant contingent liabilities

and unrecognized contract

commitments

9

3X2X Total liabilities and equity $ 398,039,621 $ 481,854,411

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME



212

Items Notes 2015 2014

4000 Sales revenue 7 $ 360,638,133 $ 426,005,033

5000 Operating costs 6(6)(23) and 7 ( 326,925,887) ( 389,609,785)

5900 Net operating margin 33,712,246 36,395,248

Operating expenses 6(23)

6100 Selling expenses ( 1,167,637) ( 1,092,207)

6200 General and administrative expenses ( 3,183,374) ( 3,451,341)

6300 Research and development expenses ( 13,534,326) ( 11,412,260)

6000 Total operating expenses ( 17,885,337) ( 15,955,808)

6900 Operating profit 15,826,909 20,439,440

Non-operating income and expenses

7010 Other income 6(20) 1,301,865 1,379,919

7020 Other gains and losses 6(21) ( 7,842,919) ( 3,418,822)

7050 Finance costs 6(22) ( 1,310,112) ( 2,721,239)

7070 Share of profit of subsidiaries, associates

and joint ventures accounted for under

equity method

5,833,198 5,998,536

7000 Total non-operating income and expenses

( 2,017,968) 1,238,394

7900 Profit before income tax 13,808,941 21,677,834

7950 Income tax expense 6(25) ( 2,993,347) ( 1,075)

8200 Profit for the year $ 10,815,594 $ 21,676,759

Other comprehensive income (net)

Components of other comprehensive loss that will not be reclassified to profit or loss

8311 Remeasurement of defined benefit

obligations

6(13)

( $ 195,939) ( $ 55,790)

8349 Income tax relating to the components of

other comprehensive income that will not

be reclassified

33,309 9,484

8310 Components of other comprehensive

loss that will not be reclassified to profit or loss

( 162,630) ( 46,306)

Components of other comprehensive income that will be reclassified to profit or loss

8361 Financial statements translation


( 1,392,086) 3,087,368

8362 Unrealized (loss) gain on valuation of

available-for-sale financial assets

( 1,149,260) 103,510

8363 Cash flow hedges 6(4) ( 297,675) ( 278,458)

8380 Share of other comprehensive income of

subsidiaries, associates and joint ventures

accounted for under equity method

3,420,038 263,095

8399 Income tax relating to the components of

other comprehensive income that will be

reclassified

6(25)

118,551 38,885

8360 Components of other comprehensive

income that will be reclassified to profit or loss

699,568 3,214,400

8300 Other comprehensive income for the year, net of tax

$ 536,938 $ 3,168,094

8500 Total comprehensive income for the year $ 11,352,532 $ 24,844,853

Earnings per share (in dollars) 6(26)

9750 Basic earnings per share $ 1.09 $ 2.31

9850 Diluted earnings per share $ 1.07 $ 2.28

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY


Retained Earnings Other Equity Interest

Notes

Common stock

Capital surplus

Legal reserve

Special reserve

Unappropriated earnings

Financial statements translation

differences of foreign

operations

Unrealized gain

(loss) on available-

for-sale financial assets

Changes in gain (loss) on

cash flow hedges

Employee unearned

compensation

Total


213

2014 Balance at January 1, 2014 $ 91,094,288 $ 96,058,741 $ 2,328,981 $ - $ 5,092,716 ( $ 78,074 ) ( $ 1,544,345 ) $ 478,190 ($ 387,268 ) $193,043,229 Capital issued for cash 6(16) 8,500,000 2,125,000 - - - - - - - 10,625,000 Appropriation of 2013 earnings(Note1): 6(18) Legal reserve - - 509,272 - ( 509,272 ) - - - - - Special reserve - - - 1,144,229 ( 1,144,229 ) - - - - - Cash dividends - - - - ( 90,495 ) - - - - ( 90,495 ) Cash paid from capital surplus 6(18) - ( 1,266,944) - - - - - - - ( 1,266,944 ) Capital surplus offset against

accumulated deficit

- 2,328,981 ( 2,328,981) - - - - - - - Cancellation of restricted stock to

employees

( 48,924 ) 48,924 - - - - - - - - Changes in restricted stock to

employees

- 47,174 - - - - - - ( 43,951 ) 3,223 Compensation related to share-based

payment 6(14)

- 289,523 - - - - - - 288,704 578,227 Changes in net equity of long-term

equity investments

- ( 47,030) - - - - - - - ( 47,030 ) Profit for the year - - - - 21,676,759 - - - - 21,676,759 Other comprehensive income for the

year 6(19)

- - - - ( 46,306 ) 3,161,022 284,498 ( 231,120) - 3,168,094 Balance at December 31, 2014 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ( $ 1,259,847 ) $ 247,070 ($ 142,515 ) $227,690,063 2015 Balance at January 1, 2015 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ( $ 1,259,847 ) $ 247,070 ($ 142,515 ) $227,690,063 Appropriation of 2014 earnings(Note2): 6(18) Legal reserve - - 2,167,675 - ( 2,167,675 ) - - - - - Special reserve - - - ( 1,144,229) 1,144,229 - - - - - Cash dividends - - - - ( 6,947,188 ) - - - - ( 6,947,188 ) Cancellation of restricted stock to

employees

( 12,992) 12,992 - - - - - - - - Changes in restricted stock to

employees

- ( 3,760) - - - - - - 2,411 ( 1,349 ) Compensation related to share-based

payment 6(14)

- 22,740 - - - - - - 120,702 143,442 Changes in net equity of long-term

equity investments

- 27,185 - - - - - - - 27,185 Changes in non-controlling interests - 38 - - - - - - - 38 Profit for the year - - - - 10,815,594 - - - - 10,815,594 Other comprehensive income for the

year 6(19)

- - - - ( 162,630 ) ( 1,387,654 ) 2,334,292 ( 247,070 ) - 536,938

Balance at December 31, 2015 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $232,264,723

Note1: Employees’ bonus and directors’ and supervisors’ remuneration accrued at $172,217 and $4,004 had been deducted from the statement of comprehensive income for the year ended December 31, 2013. Note2: Employee’s bonus and directors’ and supervisors’ remuneration accrued at $1,436,187 and $6,954 had been deducted from the statement of comprehensive income for the year ended December 31, 2014.

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014


Notes 2015 2014

214

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax for the year $ 13,808,941 $ 21,677,834

Adjustments to reconcile net income to net cash provided by

operating activities

Income and expenses having no effect on cash flows

Depreciation and amortization 6(23) 49,383,090 56,134,539

Compensation related to share-based payment 6(14) 143,442 578,227

Share of profit of subsidiaries and associates accounted


( 5,833,198 ) ( 5,998,536 )

Loss (gain) on disposal of investments 6(21) 112,058 ( 452,613 )

Loss (gain) on disposal of property, plant and

equipment

6(21)

100,841 ( 22,568 )

Interest income 6(20) ( 144,282 ) ( 126,493 )

Dividend income 6(20) ( 117,882 ) ( 7,567 )

Interest expense 6(22) 1,607,782 2,998,473

Unrealized foreign exchange (gain) loss ( 148,786 ) 1,188,553

Changes in assets/liabilities relating to operating activities

Net changes in assets relating to operating activities

Financial assets/liabilities at fair value through profit

or loss

( 580,500 ) 91,169

Accounts receivable 23,103,020 ( 5,094,884 )

Accounts receivable - related parties 3,162,905 ( 3,657,816 )

Other receivables ( 178,584 ) ( 89,561 )

Inventories 3,392,039 11,572,044

Prepayments ( 143,809 ) 306,774

Other current assets 9,541 14,142

Net changes in liabilities relating to operating activities

Derivative financial liabilities for hedging ( 299,026 ) ( 299,025 )

Accounts payable ( 6,000,745 ) 4,707,855

Accounts payable - related parties ( 39,736,875 ) 3,193,266

Other payables 4,001,150 4,125,260

Provisions - current 2,418,270 1,184,460

Other current liabilities ( 577,572 ) 309,564

Other non-current liabilities ( 17,734 ) ( 951,067 )

Cash generated from operations 47,464,086 91,382,030

Cash paid for income tax ( 38,833 ) ( 1,075 )

Net cash provided by operating activities 47,425,253 91,380,955

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014


Notes 2015 2014


215

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in other receivables – related parties $ 225,689 $ 96,927

Acquisition of available-for-sale financial assets - ( 135,456 )

Proceeds from disposal of available-for-sale financial

assets

231,275 167,288

Acquisition of investment accounted for under equity

method

( 623,249 ) ( 753,906 )

Proceeds from disposal of investment accounted for under

equity method

- 1,550,113

Proceeds from capital reduction of investments accounted


531,696 736,214

Acquisition of property, plant and equipment 6(27) ( 21,096,240 ) ( 14,629,033 )

Decrease in other financial assets 810,198 440,446

Proceeds from disposal of property, plant and equipment 42,240 12,761

Decrease (increase) in other non-current assets 329 ( 568,172 )

Interest received 138,837 125,498

Dividends received 141,053 1,444,112

Cash inflow from incorporation of subsidiary 11,874 -

Net cash used in investing activities ( 19,586,298 ) ( 11,513,208 )

CASH FLOWS FROM FINANCING ACTIVITIES

Decrease in short-term borrowings ( 1,300,000 ) ( 643,565 )

Increase in long-term borrowings 68,100,131 -

Payment of long-term borrowings ( 106,427,892 ) ( 57,625,650 )

Capital issued for cash 6(16) - 10,625,000

Cash dividends paid 6(18) ( 6,947,188 ) ( 90,495 )

Cash paid from capital surplus 6(18) - ( 1,266,944 )

Repurchase from issuance of restricted stock to employees ( 3,676 ) ( 7,754 )

Acquisition of subsidiary stock ( 50 ) -

Interest paid ( 1,523,865 ) ( 2,920,036 )

Net cash used in financing activities ( 48,102,540 ) ( 51,929,444 )

(Decrease) increase in cash and cash equivalents ( 20,263,585 ) 27,938,303

Cash and cash equivalents at beginning of year 55,543,195 27,604,892

Cash and cash equivalents at end of year $ 35,279,610 $ 55,543,195

216

INNOLUX CORPORATION

NOTES TO THE PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

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

1. HISTORY AND ORGANIZATION

(1)Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for Establishment and

Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock

Exchange Corporation (the “TSEC”) in October 2006. The Company merged with TPO Displays Corporation and

Chi Mei Optoelectronics Corporation on March 18, 2010, with the Company as the surviving entity.

(2)The Company engages in the research, development, design, manufacture and sales of TFT-LCD panels, modules

and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE PARENT COMPANY ONLY FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These parent company only financial statements were authorized for issuance by the Board of Directors on February 2,

2016.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued by FSC on April 3, 2014,

commencing 2015, companies with shares listed on the TWSE or traded on the Taipei Exchange or Emerging

Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, ‘Financial instruments’) as endorsed

by the FSC and the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” effective

January 1, 2015 (collectively referred herein as ‘‘the 2013 version of IFRS”) in preparing the financial

statements. The impact of adopting the 2013 version of IFRS is listed below:

A. IAS 19 (revised), ‘Employee benefits’

The revised standard makes amendments that net interest amount, calculated by applying the discount rate to

the net defined benefit asset or liability, replaces the finance charge and expected return on plan assets.

Additional disclosures are required for defined benefit plans.

B. IAS 1, ‘Presentation of financial statements’

The amendment requires entities to separate items presented in OCI classified by nature into two groups on

the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions

are met. If the items are presented before tax then the tax related to each of the two groups of OCI items

(those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly,

the Company will adjust its presentation of the statement of comprehensive income.

C. IFRS 12, ‘Disclosure of interests in other entities’

The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and

unconsolidated structured entities. Also, the Company will disclose additional information about its interests

217

in consolidated entities and unconsolidated entities accordingly.

D. IFRS 13, ‘Fair value measurement’

The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability

in an orderly transaction between market participants at the measurement date. The standard sets out a

framework for measuring fair value from market participants’ perspective, and requires disclosures about fair

value measurements. For non-financial assets only, fair value is determined based on the highest and best use

of the asset. Based on the Company’s assessment, the adoption of the standard has no significant impact on its

parent company only financial statements, and the Company will disclose additional information about fair

value measurements accordingly.

Based on the Company’s assessment, the adoption of the 2013 version of IFRS has no significant impact on the

parent company only financial statements for the years ended December 31, 2015 and 2014.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company

None.

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

New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRS

as endorsed by the FSC:



Standards Board

IFRS 9, ‘ Financial instruments’ January 1, 2018Sale or contribution of assets between an investor and its associate or To be determined byjoint venture (amendments to IFRS 10 and IAS 28) International Accounting

Standards BoardInvestment entities: applying the consolidation exception (amendmentsto IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations January 1, 2016(amendments to IFRS 11)IFRS 14, ‘Regulatory deferral accounts’ January 1, 2016IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018IFRS 16, ‘Leases’ January 1, 2019Disclosure initiative (amendments to IAS 1) January 1, 2016Disclosure initiative (amendments to IAS 7) January 1, 2017Recognition of deferred tax assets for unrealised losses (amendments toIAS 12)

January 1, 2017

218



Standards Board

Clarification of acceptable methods of depreciation and amortisation January 1, 2016(amendments to IAS 16 and IAS 38)Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016Defined benefit plans: employee contributions (amendments to IAS19R)

July 1, 2014

Equity method in separate financial statements (amendments to IAS 27) January 1, 2016Recoverable amount disclosures for non-financial assets (amendmentsto IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting January 1, 2014(amendments to IAS 39)IFRIC 21, ‘Levies’ January 1, 2014Improvements to IFRSs 2010-2012 July 1, 2014Improvements to IFRSs 2011-2013 July 1, 2014Improvements to IFRSs 2012-2014 January 1, 2016

The Company is assessing the potential impact of the new standards, interpretations and amendments above. The

impact will be disclosed when the assessment is complete.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these parent company only financial statements are set

out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

These parent company only financial statements are prepared by the Company in accordance with the “Rules

Governing the Preparation of Financial Statements by Securities Issuers.

(2) Basis of preparation

A. Except for the following items, these parent company only financial statements have been prepared under the

historical cost convention:

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

loss.

(b) Available-for-sale financial assets measured at fair value.

(c) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of

defined benefit obligations.

B. The preparation of financial statements in conformity with International Financial Reporting Standards,

International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC

(collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also

requires management to exercise its judgment in the process of applying the Company’s accounting policies.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are

significant to the parent company only financial statements are disclosed in Note 5.

219

(3) Foreign currency translation

Items included in the financial statements are measured using the currency of the primary economic environment

in which the entity operates (the “functional currency”). The parent company only financial statements are

presented in NTD, which is the Company’s functional and presentation currency.

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing

at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses

resulting from the settlement of such transactions are recognized in profit or loss in the period in which they

arise, except when deferred in other comprehensive income as qualifying cash flow hedges.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the

exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the

balance sheet date are recognized in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or

loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences

are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held

at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the

balance sheet date; their translation differences are recognized in other comprehensive income. However,

non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are

translated using the historical exchange rates at the dates of the initial transactions.

(d) All foreign exchange gains and losses are presented in the statement of comprehensive income under “other

gains and losses”.

B. Translation of foreign operations

(a) The operating results and financial position of all the group entities and associates that have a functional

currency different from the presentation currency are translated into the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the exchange rate prevailing at the

dates of that balance sheet;

ii. Income and expenses for each statement of comprehensive income are translated at average exchange

rates of that period;

iii. All resulting exchange differences are recognized in other comprehensive income.

(b) When a foreign operation partially disposed of or sold is an associate, exchange differences that were

recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain

or loss on sale. In addition, if the Company retains partial interest in the former foreign associate after losing

significant influence over the former foreign associate, such transactions should be accounted for as

disposal of all interest in these foreign operations.

(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences

that were recorded in other comprehensive income are proportionately transferred to the non-controlling

interest in this foreign operation. In addition, if the Company retains partial interest in the former foreign

subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as

220

disposal of all interest in the foreign operation.

(4) Classification of current and non-current items

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

non-current assets:

(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or

consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realized within twelve months from the balance sheet date;

(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be

exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

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

classified as non-current liabilities:

(a) Liabilities that are expected to be paid off within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

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

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

after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its

settlement by the issue of equity instruments do not affect its classification.

(5) Cash equivalents

Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of

cash and subject to an insignificant risk of changes in value. Time deposits and bonds sold under repurchase

agreements that meet the above criteria and held for the purpose of meeting short-term cash commitment in

operations are classified as cash equivalents.

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

A. Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair

value through profit or loss on initial recognition. Financial assets are classified in this category of held for

trading if acquired principally for the purpose of sale in the short-term. Derivatives are also categorized as

financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the

following criteria are designated as at fair value through profit or loss on initial recognition:

(a) Hybrid (combined) contracts; or

(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

(c) They are managed and their performance is evaluated on a fair value basis, in accordance with a

documented risk management or investment strategy.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and

derecognized using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction

costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value,

and any changes in the fair value of these financial assets are recognized in profit or loss.

221


A. Available-for-sale financial assets are non-derivatives that are designated in this category. On a regular way

purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date

accounting.

B. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial

assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial

assets are recognized in other comprehensive income.

(8) Loans and receivables

Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling

goods or providing services to customers in the ordinary course of business. Accounts receivable are initially

recognized at fair value and subsequently measured at amortized cost using the effective interest method, less

provision for impairment. However, short-term accounts receivable which are non-interest bearing are

subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(9) Impairment of financial assets

A. The Company assesses at each balance sheet date whether there is objective evidence that an individual

financial asset or a group of financial assets is impaired as a result of one or more events that occurred after

the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of an

individual financial asset or group of financial assets that can be reliably estimated.

B. The objective evidence that the Company uses to determine whether there is an impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) Information about significant changes with an adverse effect that have taken place in the technology, market,

economic or legal environment in which the issuer operates, and indicates that the cost of the investment in

the equity instrument may not be recovered; or

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

C. When the Company assesses that there has been objective evidence of impairment and an impairment loss has

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

(a) Financial assets measured at amortized cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and

the present value of estimated future cash flows discounted at the financial asset’s original effective interest

rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss

decreases and the decrease can be related objectively to an event occurring after the impairment loss was

recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that

the carrying amount of the asset does not exceed its amortized cost that would have been at the date of

reversal had the impairment loss not been recognized previously. Impairment loss is recognized and

reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s acquisition cost (less

222

any principal repayment and amortisation) and current fair value, less any impairment loss on that financial

asset previously recognized in profit or loss, and is reclassified from “other comprehensive income” to

“profit or loss”. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and

the increase can be related objectively to an event occurring after the impairment loss was recognized, then

such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity

instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is

recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment

allowance account.

(10) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the

weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct

labor, other direct costs and related production overheads (allocated based on normal operating capacity). It

excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable

value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated

cost of completion and applicable variable selling expenses.

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

A. Subsidiaries are all entities (including structured entities) controlled by the Company. The Company controls

an entity when the Company is exposed, or has rights, to variable returns from its involvement with the

entity and has the ability to affect those returns through its power over the entity.

B. Inter-company transactions, balances and unrealised gains or losses on transactions between companies

within the Company are eliminated. Accounting policies of subsidiaries have been adjusted where necessary

to ensure consistency with the policies adopted by the Company.

C. The Company's share of its subsidiaries' post-acquisition profits or losses is recognised in profit or loss, and

its share of post-acquisition movements in other comprehensive income is recognised in other

comprehensive income. When the Company’s share of losses in a subsidiary equals or exceeds its interest

in the subsidiary, the Company continues to recognise losses proportionate to its ownership.

D. If changes in the Company’s shares in subsidiaries do not result in loss in control (transactions with

non-controlling interest), transactions shall be considered as equity transactions, which are transactions

between owners. Difference of adjustment of non-controlling interest and fair value of consideration paid or

received is recognised in equity.

E. When the Company loses control of a subsidiary, the Company remeasures any investment retained in the

former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a

financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair

value and carrying amount is recognised in profit or loss. The Company should reclassify all amounts

previously recognized as other comprehensive income and amounts relating to the prior subsidiary to profit

or loss.

F. Associates are all entities over which the Company has significant influence but not control. In general, it is

presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or

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more of the voting power of the investee. Investments in associates are accounted for using the equity

method and are initially recognized at cost.

G. The Company’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its

share of post-acquisition movements in other comprehensive income is recognized in other comprehensive

income. When the Company’s share of losses in an associate equals or exceeds its interest in the associate,

the Company does not recognize further losses, unless it has incurred legal or constructive obligations or

made payments on behalf of the associate.

H. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of

the associate and such changes do not affect the Company’s ownership percentage of the associate, the

Company recognizes all the change in equity in “capital surplus” in proportion to its ownership.

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I. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the

Company’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted

where necessary to ensure consistency with the policies adopted by the Company.

J. In the case that an associate issues new shares and the Company does not subscribe or acquire new shares

proportionately, which results in a change in the Company’s ownership percentage of the associate but

maintains significant influence on the associate, then “capital surplus” and “investments accounted for under

the equity method” shall be adjusted for the increase or decrease of its share of equity interest. If the above

condition causes a decrease in the Company’s ownership percentage of the associate, in addition to the

above adjustment, the amounts previously recognized in other comprehensive income in relation to the

associate are reclassified to profit or loss proportionately on the same basis as would be required if the

relevant assets or liabilities were disposed of.

K. When the Company loses its control in an associate, the Company revalues the remaining investment in the

prior associate at fair value, and recognises the difference between fair value and book value in the profit or

loss for the period.

L. When the Company disposes its investment in an associate and loses significant influence over the associate,

the amounts previously recognised in other comprehensive income in relation to the associate, are

reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were

disposed of.

M. When the Company disposes its investment in an associate and loses significant influence over the associate,

capital surplus in relation to the associate is transferred to profit or loss; if it retains significant influence

over the associate, the amounts are transferred in accordance with the disposal ratio to profit or loss.

N. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities Issuers,” profit

(loss) of the current period and other comprehensive income in the parent company only financial statements

shall equal to the amount attributable to owners of the parent in the financial statements prepared with basis

for consolidation. Owners’ equity in the parent company only financial statements shall equal to equity

attributable to owners of the parent in the financial statements prepared with basis for consolidation.


A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction

period are capitalized.

B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate,

only when it is probable that future economic benefits associated with the item will flow to the Company and

the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All

other repairs and maintenance are charged to profit or loss when incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the

straight-line method to allocate their cost over their estimated useful lives. If each component of property,

plant and equipment is significant, it is depreciated separately.

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D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at

each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous

estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have

changed significantly, any change is accounted for as a change in estimate under IAS 8, “Accounting Policies,

Changes in Accounting Estimates and Errors”, from the date of the change. The estimated useful lives of

property, plant and equipment are as follows:

Buildings 3~50 years

Machinery and equipment 2~9 years

Others 2~6 years


An investment property is stated initially at its cost and measured subsequently using the cost model. Except for

land, investment property is depreciated on a straight-line basis over its estimated useful life of 25~50 years.


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

B. Intangible assets, mainly patents, royalties and other intangible assets, are amortized on a straight-line basis

over their estimated useful lives of 2～10 years.

(15) Impairment of non-financial assets

A. The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an

indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s

carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair

value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for

recognizing impairment loss for an asset in prior years no longer exist, the impairment loss shall be reversed

to the extent of the loss previously recognized in profit or loss. Such recovery of impairment loss shall not

result to the asset’s carrying amount greater than its amortized cost where no impairment loss was

recognized.

B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and intangible assets that

have not yet been available for use shall be evaluated periodically. An impairment loss is recognized for the

amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment loss of goodwill

previously recognized in profit or loss shall not be reversed in the following years.

C. For impairment testing purpose, goodwill is allocated to cash generating units. This allocation is based on

operating segments. Goodwill is allocated to a cash generating unit or a group of cash generating units that

expects to benefit from business combination that will produce goodwill.

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

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading. Financial

liabilities are classified in this category of held for trading if acquired principally for the purpose of

repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless

they are designated as hedges.

B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related

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transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and

stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or

loss.

(17) Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are

subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.

B. The Company designates certain derivatives as either:

(a) Hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge).

(b) Hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast

transaction (cash flow hedge).

C. The Company documents at the inception of the transaction the relationship between hedging instruments and

hedged items, as well as its risk management objectives and strategy for undertaking various hedging

transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis,

of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in

fair values or cash flows of hedged items.

D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining

maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining

maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or

liabilities.

E. Fair value hedge

(a) Changes in the fair value of derivatives that are designated and qualified as fair value hedges are

recorded in profit or loss, together with any changes in the fair value of the hedged asset or liability that

are attributable to the hedged risk. The Company only applies fair value hedge accounting for hedging

foreign currency on long-term borrowings. The gain or loss relating to the effective portion of currency

swaps hedging long-term borrowings denominated in foreign currency is recognized in the statement of

comprehensive income within “finance costs”. The gain or loss relating to the ineffective portion is

recognized in the statement of comprehensive income within “other gains and losses”. Changes in the

fair value of the hedge long-term borrowings denominated in foreign currency attributable to interest

rate risk are recognized in the statement of comprehensive income within “finance costs”.

(b) If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a

hedged item for which the effective interest method is used is amortized to profit or loss over the period

to maturity.

F. Cash flow hedge

(a) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash

flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective

portion is recognized immediately in the statement of comprehensive income within “other gains and

losses”.

(b) Amounts accumulated in other comprehensive income are reclassified into profit or loss in the periods

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when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest

rate swaps hedging variable rate borrowings is recognized in the statement of comprehensive income

within “finance costs”.

(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge no longer meets

the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at

that time remains in other comprehensive income. When a forecast transaction occurs or is no longer

expected to occur, the cumulative gain or loss that was reported in other comprehensive income is

transferred to profit or loss in the periods when the hedged forecast cash flow affects profit or loss.

(18) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid

and should be recognized as expenses in that period when the employees render service.

B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses on an accrual basis.

Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future

payments.

(b) Defined benefit plans

i. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present

value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The

defined benefit obligation is calculated annually by independent actuaries using the projected unit

credit method. The rate used to discount is determined by using interest rates of government bond (at

the balance sheet date).

ii. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the

period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognized immediately in profit or loss.

C. Employees’, directors’ and supervisors’ remuneration

Employees’ remuneration and directors’ and supervisors’ remuneration are recognized as expenses and

liabilities, provided that such recognition is required under legal or constructive obligation and those

amounts can be reliably estimated.

(19) Employee share-based payment

A. For the equity-settled share-based payment arrangements, the employee services received are measured at the

fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over

the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments

granted shall reflect the impact of market vesting conditions and non-market vesting conditions.

Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied

and the estimates of the number of equity instruments that are expected to vest under the non-market vesting

conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on

228

the number of equity instruments that eventually vest.

B. Restricted stocks to employees:

(a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at

the grant date, and are recognized as compensation cost over the vesting period.

(b) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the

vesting period, they must return the stocks to the Company and the Company must refund their

payments on the stocks. The Company recognizes the payments from the employees who are expected

to resign during the vesting period as liabilities at the grant date, and recognizes the payments from the

employees who are expected to be eventually vested with the stocks in “capital surplus – others”.

C. The grant date for the shares reserved for employee preemption in cash capital increase is the date on which

the Company informs employees of the grant and both the Company and employees agree to the number of

shares granted and the price for subscription.

(20) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except

to the extent that it relates to items recognized in other comprehensive income or items recognized directly

in equity, in which cases the tax is recognized in other comprehensive income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at

the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable

income. Management periodically evaluates positions taken in tax returns with respect to situations in

accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts

expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained

earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the parent company only balance

sheet. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially

enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is

realized or the deferred income tax liability is settled.

D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will

be available against which the temporary differences can be utilized. At each balance sheet date,

unrecognized and recognized deferred income tax assets are reassessed.

E. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from acquisitions

of equipment or technology, research and development expenditures and equity investments to the extent

that it is possible that future taxable profit will be available against which the unused tax credits can be

utilized.

(21) Revenue recognition

The Company manufactures and sells TFT-LCD panels. Revenue is measured at the fair value of the

consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the

sale of goods to external customers in the ordinary course of the Company’s activities.

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(22) Business combinations

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

measure the non-controlling interest in the acquiree at the non-controlling interest’s proportionate share of

the acquirer’s identifiable net assets on an acquisition-by-acquisition basis.

B. If the total of the fair values of the consideration of acquisition and any non-controlling interest

in the acquiree as well as the acquisition-date fair value of any previous equity interest in the

acquiree is higher than the fair value of the Company’s share of the identifiable net assets

acquired, the difference is recorded as goodwill; if less than the fair value of the Company’s

share of the identifiable net assets acquired, the difference is recognized directly in profit or

loss.

230

CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY

The preparation of these parent company only financial statements requires management to make critical judgments in

applying the Company’s accounting policies and make critical assumptions and estimates concerning future events.

Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on

historical experience and other factors. The information is addressed below:

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

Financial assets - impairment of equity investments

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

impaired. This determination requires significant judgment. In making this judgment, the Company evaluates,

among other factors, the duration and extent to which the fair value of an equity investment is less than its cost

and the financial health of and short-term business outlook for the investee, including factors such as industry and

sector performance, changes in technology and operational and financing cash flow.

If the decline of the fair value of an individual equity investment below cost was considered significant or

prolonged, the accumulated fair value adjustments recognized in other comprehensive income on the impaired

“available-for-sale financial assets” is transferred to profit or loss.

(2) Critical accounting estimates and assumptions

The Company makes estimates and assumptions based on the expectation of future events that are believed to be

reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be

different from the related actual results. The estimates and assumptions that have a significant risk of causing a

material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed

below:

A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Company’s subjective judgment, including identifying

cash-generating units, allocating assets and liabilities as well as goodwill to related cash-generating units, and

determining the recoverable amounts of related cash-generating units. Please refer to Note 6(10) for the

information on goodwill impairment.

B. Impairment assessment of tangible and intangible assets (excluding goodwill)

The Group assesses impairment based on its subjective judgement and determines the separate cash flows of a

specific group of assets, useful lives of assets and the future possible income and expenses arising from the

assets depending on how assets are utilised and industrial characteristics. Any changes of economic

circumstances or estimates due to the change of Group strategy might cause material impairment on assets in

the future.

C. Realizability of deferred income tax assets

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will

be available against which the deductible temporary differences can be utilized. Assessment of the

realizability of deferred income tax assets involves critical accounting judgments and estimates of the

management, including the assumptions of expected future sales, revenue growth rate, profit rate, tax holiday,

available tax credits, and tax planning, etc. Any change in global economic environment, industrial

231

environment, and laws and regulations might cause material adjustments to deferred income tax assets.

D. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Company must determine the net

realizable value of inventories on balance sheet date using judgments and estimates. Due to the rapid

technology innovation, the Company evaluates the amounts of normal inventory consumption, obsolete

inventories or inventories without market selling value on balance sheet date, and writes down the cost of

inventories to the net realizable value.

E. Financial assets - fair value measurement of unlisted stocks without active market

The fair value of unlisted stocks held by the Company that are not traded in an active market is determined

considering those companies’ recent fund raising activities and technical development status, fair value

assessment of other companies of the same type, market conditions and other economic indicators existing on

balance sheet date. Any changes in these judgments and estimates will impact the fair value measurement of

these unlisted stocks. Please refer to Note 12(3) for the financial instruments fair value information.

DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

December 31, 2015 December 31, 2014Cash on hand and revolving funds 255$ 255$ Checking accounts and demand deposits 22,427,408 40,578,940 Time deposits 12,851,947 11,394,000

35,279,610 51,973,195 Cash equivalents - Repurchase Bonds - 3,570,000

35,279,610$ 55,543,195$

A. The Company associates with a variety of financial institutions all with high credit quality to disperse credit

risk, so it expects that the probability of counterparty default is remote.

B. The above time deposits expire in 3 months and risks of changes in their values are remote. The remaining time

deposits which did not meet the definition of cash equivalents were $1,400,000 at December 31, 2015, and

were classfied as ‘other financial assets-current’.

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

Assets December 31, 2015 December 31, 2014

Current items Financial assets held for trading Forward foreign exchange contracts 81,858$ 52,453$

Liabilities December 31, 2015 December 31, 2014

Current items Financial liabilities held for trading Forward foreign exchange contracts 53,921$ 605,016$

A. The Company recognized net loss of $133,873 and $883,120 on financial assets held for trading for the years

ended December 31, 2015 and 2014, respectively.

232

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

Derivative financial

assets and liabilities Contract Period Contract Period

Current items

Forward foreign USD (sell) 295,000$ 2015/10~2016/3 USD (sell) 425,000$ 2014/10~2015/3

exchange contracts JPY (buy) 35,649,520 2015/10~2016/3 JPY (buy) 48,580,180 2014/10~2015/3

Forward foreign USD (sell) 150,000 2015/10~2016/2 EUR (sell) 38,000 2014/10~2015/2

exchange contracts TWD (buy) 4,896,705 2015/10~2016/2 USD (buy) 47,574 2014/10~2015/2

Forward foreign EUR (sell) 5,000 2015/11~2016/1

exchange contracts TWD (buy) 175,075 2015/11~2016/1

Forward foreign EUR (sell) 80,500 2015/10~2016/3

exchange contracts JPY (buy) 10,668,495 2015/10~2016/3


Contract Amount Contract Amount

(Notional Principal) (Notional Principal)(in thousands) (in thousands)

The Company entered into forward foreign exchange contracts to hedge exchange rate risk of import and

export proceeds and foreign currency. However, these forward foreign exchange contracts are not accounted for

under hedge accounting.



Current items Bond investments -$ 220,000$

Non-current items Listed stocks and bond investments 1,562,871$ 2,537,965$

Emerging and unlisted stocks 382,046 563,496

1,944,917$ 3,101,461$

A. The Company recognised net gain (loss) in other comprehensive income for fair value change and reclassified

from equity to profit or loss for the years ended December 31, 2015 and 2014. Please refer to Note 6(19).

B. The counterparties of the Company’s debt instrument investments have good credit quality.

(4) Hedging derivative financial liabilities


Current item Interest rate swap - cash flow hedges -$ 1,351$

Cash flow hedges

Derivative Period of Gain

Instruments Period of (Loss) Expected

Designated Fair Value Anticipated to be Recognised

Hedged Items as Hedges December 31, 2014 Cash Flow in Profit or Loss

Long-term borrowings Interest rate swap 1,351)($ 2008~2015 2008~2015

Designated as Hedging Instruments

233

A. The Company was exposed to significant risk of future cash flow changes on principal payments associated

with the Company’s floating interest rate bearing borrowings, both current and long-term portion. Therefore,

the Company entered into interest rate swap contracts for exchanging floating interest rate for fixed interest

rate (TWD90/180CP (Page51328) to hedge such exposures. The contract had matured and was settled in

February, 2015.

B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other

comprehensive income:

Items 2015 2014

Amount of gain or loss adjusted in other comprehensive income

5$ 1,224$

Amount of gain or loss transferred from other comprehensive income to profit or loss 297,670 277,234


(5) Accounts and notes receivable


Notes receivable -$ 21,447$

Accounts receivable 46,508,958 69,802,557

46,508,958 69,824,004

Less: Allowance for sales returns and discounts 636,330)( 827,583)(

Allowance for bad debts 117,499)( 138,272)(

45,755,129$ 68,858,149$

A. The Company’s accounts receivable that were neither past due nor impaired meet the credit ranking rule

based on the counterparties’ industrial characteristics scale of business and profitability.

234

B. The aging analysis of accounts receivable and notes receivable that were past due but not impaired is as

follows:


Up to 60 days 482,335$ 534,490$

61 to 180 days 14,480 64,153

Over 180 days 14,481 4,309

511,296$ 602,952$

The above ageing analysis was based on past due date.

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

(a) As of December 31, 2015 and 2014, the Company’s accounts receivable that were impaired were

$117,499 and $138,272, respectively.

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

2015 2014

At January 1 138,272$ 138,483$

Allowance for bad debts - reclassified 674 -

Allowance for bad debts - write-offs 21,447)( 211)(

At December 31 117,499$ 138,272$

(6) Inventories


Raw materials and supplies 1,954,960$ 1,780,875$

Work in process 11,769,129 16,122,356

Finished goods 10,822,037 10,034,934

24,546,126$ 27,938,165$

Expenses and losses incurred on inventories are as follows:

2015 2014

Cost of inventories sold 326,638,579$ 389,619,753$

Gain on reversal of decline in market value 602,500)( 383,000)(

Disposal loss and others 889,808 373,032

326,925,887$ 389,609,785$


The Company had disposed its expired and slow-moving inventories. Thus, the risk of reduction in the inventory’s

market price had decreased and the net realizable value of inventories had been recovered.

235

(7) Investments accounted for under the equity method


Subsidiaries:

Landmark International Ltd. 45,888,559$ 41,425,623$

Innolux Holding Ltd. 20,242,553 16,796,396

Toppoly Optoelectronics (B.V.I.) Ltd. 6,787,268 5,945,861

Innolux Hong Kong Holding Ltd. 2,907,677 2,393,227

Innolux Optoelectronics Japan Co., Ltd. 1,507,382 1,572,495

InnoJoy Investment Corporation 1,242,760 1,670,083

Yuan Chi Investment Co., Ltd. 1,137,982 918,468

Others 301,375 375,650

Associates:

Ampower Holding Ltd. 881,351 1,477,199

GIO Optoelectronics Corporation 98,785 449,994

Others 319,628 71,393

81,315,320$ 73,096,389$

A. The Company’s subsidiaries

(a)Details of the Company’s subsidiaries are provided in Note 4(3) of the Company’s consolidated financial

statements as of and for the year ended December 31, 2015.

(b)The Board of Directors of the Company in July, 2015 resolved to conduct a simple merger with Chi Mei El

Corporation (Chi Mei El), a 97%-owned subsidiary of the Company effective September 1, 2015. The

Company was the surviving company while Chi Mei El was dissolved after the merger. Said merger was

accounted for an as equity transaction.

B. The Company’s associates

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

2015 2014

Profit or loss for the year from continuing operations 268,381$ 101,899$

Other comprehensive income - net of tax 4,437 74,419

Total comprehensive income 272,818$ 176,318$


236


At January 1 Additions Disposals Transfer At December 31

Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 156,858,729 40,626 19,452)( 782,147 157,662,050


Others 22,584,306 - 2,164,598)( 6,204,932 26,624,640 558,366,136 102,793 8,637,067)( 18,645,407 568,477,269

Accumulated depreciation and impairment: Buildings 72,766,956)( 11,798,206)( 19,172 24,146)( 84,570,136)(


Others 17,590,360)( 3,522,586)( 2,163,943 3,182,164)( 22,131,167)( 374,560,328)( 48,163,869)( 8,442,159 8,333,355)( 422,615,393)(

Unfinished construction and equipment under acceptance 8,793,374 22,380,334 - 13,113,887)( 18,059,821

192,599,182$ 163,921,697$

2015


Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 156,365,038 - 303,647)( 797,338 156,858,729


Others 20,655,250 2,223 2,591,901)( 4,518,734 22,584,306

557,025,225 53,570 17,210,096)( 18,497,437 558,366,136 Accumulated depreciation and impairment: Buildings 59,116,947)( 13,954,331)( 302,794 1,528 72,766,956)(


Others 15,428,084)( 2,767,296)( 2,588,567 1,983,547)( 17,590,360)(

326,608,753)( 54,636,872)( 17,201,246 10,515,949)( 374,560,328)( Unfinished construction and equipment under acceptance 3,141,142 14,127,037 130)( 8,474,675)( 8,793,374

233,557,614$ 192,599,182$

2014

A. Information about the property, plant and equipment that were pledged to others as collateral is provided in

Note 8.

B. As of December 31, 2015 and 2014, the prepayments for business facilities which have not yet entered the

factory (shown as ‘other non-current assets’) amounted to $3,110,696 and $591,998, respectively.

237


At At At AtJanuary 1 Additions DisposalsDecember 31 January 1 Additions December 31

Cost: Land 188,247$ -$ -$ 188,247$ 188,247$ -$ 188,247$

Buildings 568,440 - 4,331)( 564,109 568,440 - 568,440

756,687 - 4,331)( 752,356 756,687 - 756,687

Accumulated depreciation and impairment: Buildings 63,010)( 13,174)( 4,331 71,853)( 49,837)( 13,173)( 63,010)(

693,677$ 680,503$ 706,850$ 693,677$

2015 2014

The fair value of the investment property held by the Company as at December 31, 2015 and 2014 was

$1,077,466 and $1,110,523, respectively. The amounts mentioned above represent valuation results of

comparative method based on market trading information.


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


Cost: Patents and royalty 8,137,035$ -$ -$ 15,650$ 8,152,685$

Goodwill 17,096,628 - - - 17,096,628

Others 3,686,545 - 113,730)( 327,238 3,900,053

28,920,208 - 113,730)( 342,888 29,149,366

Accumulated amortisation and impairment: Patents and royalty 5,735,683)( 933,024)( - - 6,668,707)(

Others 3,057,341)( 273,023)( 113,730 - 3,216,634)(

8,793,024)( 1,206,047)( 113,730 - 9,885,341)(

20,127,184$ 19,264,025$

2015


Cost: Patents and royalty 8,807,308$ -$ 673,622)($ 3,349$ 8,137,035$

Goodwill 17,096,628 - - - 17,096,628

Others 3,267,074 - 79,340)( 498,811 3,686,545

29,171,010 - 752,962)( 502,160 28,920,208

Accumulated amortisation and impairment: Patents and royalty 5,215,968)( 1,193,337)( 673,622 - 5,735,683)(

Others 2,840,599)( 291,157)( 79,340 4,925)( 3,057,341)(

8,056,567)( 1,484,494)( 752,962 4,925)( 8,793,024)(

21,114,443$ 20,127,184$

2014

238

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

2015 2014

Operating costs 998,974$ 954,350$

Operating expenses 207,073 530,144

1,206,047$ 1,484,494$


C. The Company performed impairment analysis for recoverable amount of the goodwill at each reporting date

and used the value in use as the basis for calculation of the recoverable amount. The value in use was

calculated based on the estimated present value of future cash flows for five years, which was discounted at

the discount rate of 5.72% and 4.89% for the years ended December 31, 2015 and 2014, respectively, to

reflect the specific risks of the related cash generating units. The future cash flows were estimated based on

the future revenue, gross profit, and other operating costs each year. Based on the evaluation above, the

Company did not recognize impairment loss on goodwill for the years ended December 31, 2015 and 2014.

(11) Short-term borrowings

Type of borrowings December 31, 2014 Collateral Bank loans Credit loans 1,300,000$ None

Interest rate 2.5%

As of December 31, 2015, the Company has no short-term borrowing.

(12) Long-term borrowings

Type of loans Period December 31, 2015December 31, 2014

Syndicated bank loans 2015/3/12~2018/3/12

60,280,000$ 98,227,530$

Guaranteed commercial papers - 129,148

60,280,000 98,356,678

Less: Administrative expenses charged by syndicated banks 288,794)( 41,252)(

Current portion 16,361,238)( 61,092,333)(

43,629,968$ 37,223,093$

Range of interest rates 1.90%~2.19% 1.25%~2.47% A. Please refer to Note 8 for the information on assets pledged as collateral for long-term borrowings.

B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability

ratio, interest coverage, and tangible net equity, which were based on the Company’s annual parent company

only financial statements audited by independent auditors. The Company’s financial ratios on the parent

company only financial statements for the years ended December 31, 2015 and 2014 are in compliance with

the covenants on the syndicated loan agreement.

C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the

239

“Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its

meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit

line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company

acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’,

and waive negotiation on the debt issue.

(13) Pensions

A. Defined benefit pension plan

(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering

all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005, and

service years thereafter of employees who choose to continue to be subject to the pension mechanism

under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for

the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units.

Pension benefits are based on the number of units accrued and the average monthly salaries and wages of

the last six months prior to retirement. The Company contributes monthly an amount equal to 2% of the

employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee,

under the name of the independent retirement fund committee. Also, the Company would assess the

balance in the aforementioned labor pension reserve account by December 31, every year. If the account

balance is not enough to pay the pension calculated by the aforementioned method to the employees

expected to qualify for retirement in the following year, the Company will make contribution for the

deficit by next March.

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


Present value of defined benefit obligations 1,852,905$ 1,605,920$

Fair value of plan assets 1,529,124)( 1,488,938)(

Net defined benefit liability 323,781$ 116,982$

240

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

Present value of defined benefit Fair value of Net defined

obligations plan assets benefit liability

Year ended December 31, 2015Balance at January 1 1,605,920$ 1,488,938$ 116,982$

Current service cost 8,228 - 8,228 Interest expense/income 36,133 33,501 2,632

44,361 33,501 10,860

Remeasurements:Change in financial assumptions 172,133 - 172,133


202,624 6,685 195,939


Present value of defined benefit Fair value of Net defined

obligations plan assets benefit liability

Year ended December 31, 2014Balance at January 1 1,504,354$ 1,454,627$ 49,727$

Current service cost 10,470 - 10,470 Interest expense/income 30,087 29,092 995

40,557 29,092 11,465

Remeasurements:Change in demographic assumptions 77,419 - 77,419

Change in financial assumptions 76,611)( - 76,611)(


61,009 5,219 55,790


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

plan in accordance with the Fund’s annual investment and utilisation plan and the “Regulations for

Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund” (Article 6: The scope

of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in

domestic or foreign listed, over-the-counter, or private placement equity securities, investment in

domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its

minimum earnings in the annual distributions on the final financial statements shall be no less than the

earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered

by local banks. If the earnings is less than aforementioned rates, government shall make payment for the

deficit after being authorized by the Regulator. The Company has no right to participate in managing and

operating that fund and hence the Company is unable to disclose the classification of plan assets fair

value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of

241

December 31, 2015 and 2014 is given in the Annual Labor Retirement Fund Utilisation Report

announced by the government.

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

2015 2014

Discount rate 1.70% 2.25%

Future salary increases 3.00% 3.00%


Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience Mortality

Table.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected.

The analysis was as follows:

Increase 1% Decrease 1% Increase 1% Decrease 1%

December 31, 2015Effect on present value ofdefined benefit obligation 299,276)($ 367,992$ 337,723$ 283,242)($

Discount rate Future salary increases

The sensitivity analysis above was arrived at based on one assumption which changed while the other

conditions remain unchanged. In practice, more than one assumption may change all at once. The method

of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the

same.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park

Administration in June 2013.

(g) As of December 31, 2015, the weighted average duration of that retirement plan is 19 years.

B. Defined contribution pension plan

(a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”)

under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under

the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly

salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The

benefits accrued are paid monthly or in lump sum upon termination of employment.

(b) The pension costs under the defined contribution pension plans of the Company for the years ended

December 31, 2015 and 2014 were $1,003,836 and $939,629, respectively.

242

(14) Share-based payment

A. As of December 31, 2015, the Company’s share-based payment transactions are set forth below:

Quantity granted Contract period

Type of arrangement Grant date (in thousand units) (in years) Vesting conditions

Employee stock options 2010.05.13 20,000 5 Note (a), (b)

Employee stock options 2011.05.19 50,000 5 Note (a)

Restricted stocks to employees

-shares without consideration 2013.01.30 31,151 3 Note (c), (d)

-shares subscribed with consideration 2013.01.30 31,151 3 Note (c), (d)

-shares without consideration 2013.03.29 844 3 Note (c), (d)

-shares subscribed with consideration 2013.03.29 844 3 Note (c), (d)

-shares without consideration 2013.12.12 4,268 3 Note (c), (d)

-shares subscribed with consideration 2013.12.12 4,268 3 Note (c), (d)

Reservation for new share subscription by employees

2014.07.09 85,000 - Vested immediately

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40% of total options

granted on completion of the specified year(s) of service (one to four years) from the grant date.

(b) The employee stock options had already expired.

(c) The employees may exercise the stock options by stage based on 20%, 40% and 40% of total options

granted on completion of the specified year(s) of service (one to three years) from the grant date.

(d) The restricted stocks issued by the Company cannot be transferred. Voting right and dividend right are

restricted on these stocks before vested.

243

(e) The fair value of stock options granted from 2010 to first quarter of 2014 is measured using the

Black-Scholes option-pricing model. Relevant information is as follows:

Risk Exercise Expected Expected Expected free Fair value

Type of Price price volatility duration dividend interest per unitarrangement Grant date (in dollars) (in dollars) (%) (month) yield (%) rate (%) (in dollars)

Reservation for newshare subscriptionby employees

2014.07.09 14.90$ 12.50$ 36.01 0.84 - 0.42 2.42$

Restricted stocks to employees


2013.12.12 10.65 - - - - - 10.65


2013.12.12 10.65 5.00 - - - - 5.65


2013.03.29 18.40 - - - - - 18.40


2013.03.29 18.40 5.00 - - - - 13.40


2013.01.30 15.35 - - - - - 15.35


2013.01.30 15.35 5.00 - - - - 10.35


2011.05.19 26.70 26.70 35.67 48.60 0.00 1.00 7.31

~8.32


2010.05.13 39.85 39.85 51.57 48.60 0.00 0.80 15.12

~16.98

B. The details of the employee stock option plan for the years ended December 31, 2015 and 2014 are as

follows:

WeightedWeighted averageaverage Range of stock price of

Quantity exercise exercise stock options(in thousand price price at exercise

Stock Options units) (in dollars) (in dollars) date (in dollars) Outstanding options at the beginning of the year

70,000 $ 25.63

Options exercised - - $ 13.61

Options expired ( 20,000) 32.59

Outstanding options at the end of the year 50,000 22.85 $ 22.85 0.39 years


period


Weightedaverage

remaining vesting

244

WeightedWeighted averageaverage Range of stock price of

Quantity exercise exercise stock options(in thousand price price at exercise

Stock Options units) (in dollars) (in dollars) date (in dollars) Outstanding options at the beginning of the year

94,819 $ 28.71

Options exercised - - $ 12.68

Options expired ( 24,819) 32.10

Outstanding options at the end of the year 70,000 25.63 $ 32.59 0.38 years

22.85 1.39 yearsExercisable options at the end of the year 50,000 26.75

period


Weightedaverage

remaining vesting

C. For the years ended December 31, 2015 and 2014, the expenses incurred from share-based payment

arrangements were $143,442 and $578,227, respectively.

(15) Provisions-current

Warranty Litigation and others Total

At January 1, 2015 747,021$ 2,386,468$ 3,133,489$

Addition 1,970,000 4,626,005 6,596,005

Used during the year 1,908,885)( 2,268,850)( 4,177,735)(

At December 31, 2015 808,136$ 4,743,623$ 5,551,759$

A. Warranty

The Company provides warranty on TFT-LCD panel products sold. Provision for warranty is estimated

based on historical warranty data of TFT-LCD panel products.

B. Litigation and others

Litigation and other provision for the Company are related to patents of TFT-LCD panel products and

anti-trust litigations. For information on estimation of provisions, please refer to Note 9(1).

245

(16) Share capital

A. As of December 31, 2015, the Company’s authorized and outstanding capital were $120,000,000 (including

$500,000 reserved for employee stock options) and $99,532,372, respectively, with a par value of $10 (in

dollars) per share. All proceeds from shares issued have been collected.

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

2015 2014Number of ordinary Number of ordinary

shares (in thousands) shares (in thousands)At January 1 9,954,536 9,109,429

Capital issued for cash - 850,000

Cancellation of restricted stock to employees 1,299)( 4,893)(

At December 31 9,953,237 9,954,536

B. On June 20, 2014, the Board of Directors approved the domestic capital increase with 850,000,000 shares.

The issue price was determined to be $12.5 in July 2014. The Company’s capital has increased by

$10,625,000 on August 12, 2014 and has been effective on September 5, 2014.

C. The Board of Directors of the Company resolved to increase capital for cash by issuing global depositary

receipts (the “GDR”). The amount of $9,360,000 (approximately equivalent to US$312,625 thousand) is

tentatively scheduled for release. As the Company has received the bank’s approval for extending capital

increase, based on shareholder’s interest, the issuance of the GDR was cancelled in accordance with the

Financial Supervisory Commission (FSC)’s approval on January 30, 2015.

D. As authorized by the shareholders during their meeting in June 2012, the Board of Directors of the Company

resolved to increase capital for cash by issuing the GDR on July 18, 2012, and had been completed in

January 2013. The Company issued 1,125,000 thousand shares of common stock for cash, including 112,500

thousand shares regarded as employee stock options, and 101,250,000 units of GDRs which represent

1,012,500 thousand shares of common stock, with a unit of GDR representing 10 shares of common stock at

the Luxembourg Stock Exchange. Per unit was issued at a premium of US$4.481, which was equivalent to

$12.98 per share and raised a total of $14,519,051, net of issuance cost. As of December 31, 2015, there

were 193 thousand units outstanding, representing 1,939 thousand shares of common stocks.

E. As authorized by the shareholders at the shareholders’ meeting in June, 2012, the Board of Directors of the

Company adopted a resolution on January 30, 2013, March 29, 2013 and November 12, 2013 to issue

restricted shares to employees, consisting of 36,263 thousand shares without consideration and 36,263

thousand shares with consideration (the price for subscription is $5 per share). The effective dates of the

issuance were on January 30, 2013, March 29, 2013 and December 12, 2013. Until the vesting conditions

are met by employees, those shares are restricted with regard to transfer of voting rights, dividend and other

rights. As of December 31, 2015 and 2014, the Company bought back 1,299 and 4,893 thousand shares of

unvested restricted stocks to employees, respectively, and decreased capital in accordance with related

regulation.

F. The stockholders during their meeting on January 6, 2010 approved the merger of the Company with another

company by issuing new shares, with the Company as the surviving company. The Company issued

4,046,382 thousand new shares according to the merger contract. The new shares included the common

stock issued by the acquired companies in May and December 2006 through private placement. The

246

issuance of 570,929 thousand shares was determined based on the exchange ratio in the merger contract. The

rights and obligations of the private common shares were the same as other issued common shares, except

for the transfer restriction under R.O.C. Securities and Exchange Act and the listing restriction that no public

listing will be allowed within three years since the day of issuance and only if the Company completes the

application to publicly issue the shares. The Board of Directors of the Company approved the public

issuance of the above private common shares on April 28, 2015. As approved by Financial Supervisory

Committee on July 30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from

August 7, 2015.

(17) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par value on

issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or

cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated

deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be

capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall

first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

Share of profit(loss) of

associatesaccounted for Restricted under equity Employee stock to

Share premium method stock option employees Total

At January 1 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$



Changes in restricted stock to employees - - - 3,760)( 3,760)(

Compensation related to share-based payment - - 22,740 - 22,740

Expiration of employee stock options 1,003,099 - 1,003,099)( - -

Changes in net equity of long-term equity investments

- 27,185 - - 27,185

Changes in non-controlling interests 38 - - - 38

At December 31 99,101,649$ 36,458$ 393,500$ 111,957$ 99,643,564$

2015

247

Share of profit

(loss) of

associates


under equity Employee stock toShare premium method stock option employees Total

At January 1 94,106,611$ 56,303$ 1,697,935$ 197,892$ 96,058,741$

Capital issued for cash 2,125,000 - - - 2,125,000

Cash paid from capital surplus 1,266,944)( - - - 1,266,944)(

Capital surplus offset against accumulated deficit 2,328,981 - - - 2,328,981



Changes in restricted stock to employees - - - 47,174 47,174

Compensation related to share-based payment 205,700 - 83,823 - 289,523

Expiration of employee stock options 407,899 - 407,899)( - -

Changes in net equity of long-term equity investments - 47,030)( - - 47,030)(

At December 31 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$

2014

(18) Retained earnings

A. In accordance with the Company’s Articles of Incorporation, net income must be distributed in the following

order:

(a) To pay all tax accruals and payables arising from the current year and to cover prior years’ losses, if any;

(b) As legal reserve equal to 10% of net income after tax and distribution pursuant to clause (a);

(c) As any special reserve;

(d) To pay dividends on preferred shares;

(e) To pay bonuses to employees not less than 5% of net income after tax and distribution pursuant to

clauses (a) to (d); and

(f) The remaining amount, if any, shall be distributed pursuant to the proposal of the Board of Directors in

accordance with the Company’s dividend policy and the resolution approved at the stockholders’

meeting, of which 0.1% should be paid as remuneration to directors and supervisors and the remaining

amount as dividends to stockholders.

Dividends distributed in respect of any fiscal year in the form of shares shall not exceed two-thirds of total


B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their

share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the

issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that

the balance of the reserve exceeds 25% of the Company’s paid-in capital.

248

C. The details of the appropriation of 2014 net income which was approved at the stockholders’ meeting in June

2015 and the appropriation of 2013 net income which was approved at the stockholders’ meeting in June

2014 are as follows:

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 2,167,675$ 509,272$

Special reserve - 1,144,229

Cash dividends 6,947,188 0.70$ 90,495 0.01$

9,114,863$ 1,743,996$

2014 2013

Furthermore, the Company’s stockholders have resolved to distribute $0.14 per share as cash dividend from

capital surplus amounting to $1,266,944 in June 2014. Accordingly, the Company distributed a total of $0.15

cash dividend per share.

The Company’s appropriations of earnings for 2015 are to be authorized by the Board of Directors and

presented for approval in the Company’s stockholders’ meeting for 2016.

D. For the information relating to employees’ remuneration (bonuses) and directors’ and supervisors’

remuneration, please refer to Note 6(24).

(19) Other equity items

Available- Employee

Currency for-sale Hedging unearned


At January 1 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

Fair value losses of cash flow hedges - - 5)( - 5)(


Revaluation of available-for-sale investments - gross - 1,145,267)( - - 1,145,267)(


Currency translation differences 1,392,086)( - - - 1,392,086)(

Issuance of restricted stocks to employees - - - 2,411 2,411


Share of subsidiaries and other comprehensive income of associates 4,432 3,415,606 - - 3,420,038

Effect of income tax - 67,946 50,605 - 118,551

At December 31 1,695,294$ 1,074,445$ -$ 19,402)($ 2,750,337$

2015

249

Available- Employee

Currency for-sale Hedging unearned translation investments reserve compensation Total

At January 1 78,074)($ 1,544,345)($ 478,190$ 387,268)($ 1,531,497)($

Fair value losses of cash flow hedges - - 1,224)( - 1,224)(


Revaluation of available-for-sale investments - gross - 138,700 - - 138,700


Currency translation differences 3,087,368 - - - 3,087,368

Issuance of restricted stocks to employees - - - 43,951)( 43,951)(


Share of subsidiaries and other comprehensive income of associates 73,654 189,441 - - 263,095

Effect of income tax - 8,453)( 47,338 - 38,885

At December 31 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

2014

(20) Other income

2015 2014

Rental revenue 165,372$ 139,286$

Interest income 144,282 126,493

Dividend income 117,882 7,567

Other income 874,329 1,106,573

1,301,865$ 1,379,919$


(21) Other gains and losses

2015 2014Net loss on financial assets and liabilities at fair value through profit or loss 133,873)($ 883,120)($

Net currency exchange (loss) gain 66,797)( 1,143,155

(Loss) gain on disposal of investments 112,058)( 452,613

(Loss) gain on disposal of property, plant and equipment 100,841)( 22,568

Litigation loss and others 7,429,350)( 4,154,038)(

7,842,919)($ 3,418,822)($


250

(22) Finance costs

2015 2014

Interest expense:

Bank borrowings 1,601,674$ 2,984,966$

Others 6,108 13,507 Gain on cash flow hedges, reclassified from equity 297,670)( 277,234)(

1,310,112$ 2,721,239$


(23) Expenses by nature

2015 2014

Employee benefit expense:

Salaries and other short-term employee benefits 26,436,720$ 24,882,037$


Post-employment benefits 1,014,696 951,094

Depreciation 48,177,043 54,650,045

Amortization 1,206,047 1,484,494

76,977,948$ 82,545,897$


(24) Employees’, directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation of the Company, when distributing earnings, the Company shall

distribute bonus to the employees and pay remuneration to the directors and supervisors that account for 5%

and 0.1%, respectively, of the total distributed amount.

However, in accordance with the Company Act amended on May 20, 2015, a company shall distribute

employee remuneration, based on the current year's profit condition, in a fixed amount or a proportion of

profits. If a company has accumulated deficit, earnings should be channeled to cover losses. Aforementioned

employee remuneration could be paid by cash or stocks. Specifics of the compensation are to be determined in

a board meeting that registers two-thirds of directors in attendance, and the resolution must receive support

from half of participating members. The resolution should be reported during the shareholders' meeting.

Qualification requirements of employees, including the employees of subsidiaries of the company meeting

certain specific requirements, entitled to receive aforementioned stock or cash may be specified in the Articles

of Incorporation. The board of directors of the Company has approved the amended Articles of

Incorporation of the Company on February 2, 2016. According to the amended articles, a ratio of profit of the

current year distributable, after covering accumulated losses, shall be distributed as employees' compensation

and directors’ and supervisors’ remuneration. The ratio shall not be lower than 5% for employees’

compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration. The amended

articles will be resolved during the shareholders’ meeting in 2016.

B. For the years ended December 31, 2015 and 2014, employees’ compensation (bonus) was accrued at

$734,524 and $1,436,187, respectively; while directors’ and supervisors’ remuneration was accrued at $5,000

251

and $0, respectively. The aforementioned amounts were recognized in expenses.

The expenses recognized for 2015 were accrued based on the earnings of current year and are to be presented

for approval by the Board of Directors and reported during the Company’s stockholders’ meeting.

The expenses recognized for 2014 were accrued based on the net income for 2014 and the percentage

specified in the Articles of Incorporation of the Company, taking into account other factors such as legal

reserve. Employees’ bonus and directors’ and supervisors’ remuneration were accrued at $1,436,187 and $0,

respectively, for the year ended December 31, 2014. Employees’ bonus and directors’ and supervisors’

remuneration for 2014 as resolved by the stockholders were $1,436,187 and $6,954, respectively. The

difference of $6,954 between employees’ bonus (directors’ and supervisors’ remuneration) as resolved by the

stockholders and the amount recognized in the 2014 financial statements was caused by a different accrual

ratio which was accounted for as a change in accounting estimate after being approved at the stockholders’

meeting and recorded as expense in 2015.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as

resolved by the board of directors will be posted in the “Market Observation Post System” at the website of

the Taiwan Stock Exchange.

252

(25) Income tax

A. Income tax expense

(a) Components of income tax expense:

2015 2014Current tax:Current tax on profit for the year 42$ 123,787$

Tax on undistributed surplus earnings 915,947 -

Adjustments in respect of prior years 36,371 1,075

Total current tax 952,360 124,862

Deferred tax:Origination and reversal of temporary differences

2,040,987 123,787)(

Income tax expense 2,993,347$ 1,075$


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

2015 2014Fair value gains/losses on available-for-sale financial assets 67,946)($ 8,453$

Cash flow hedges 50,605)( 47,338)(

Actuarial gains/losses on defined benefit obligations 33,309)( 9,484)(

151,860)($ 48,369)($


B. Reconciliation between income tax expense and accounting profit:

2015 2014

Tax calculated based on profit before tax and statutory tax rate 2,347,520$ 3,685,232$

Effects from items disallowed by tax regulation 975,322)( 575,514)(

Under provision of prior year's income tax 36,371 1,075

Additional 10% tax on undistributed earnings 915,947 -

Effect from estimated investment tax credit - 74,672

Effect from Alternative Minimum Tax 42 -

Change in assessment of realization of deferred tax assets 668,789 3,184,390)(

Tax expenses 2,993,347$ 1,075$


253

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

follows:

Recognisedin other

Recognised in comprehensiveJanuary 1 profit or loss income December 31


166,373$ 77,153$ -$ 243,526$

Accrued royalties and warranty provisions 327,918 326,639 - 654,557

Unrealized exchange loss (gain) 200,697 81,480)( - 119,217 Unrealized loss on financial instruments 699,962 158,326 67,946 926,234

Net operating loss carryforward 15,848,188 2,385,024)( - 13,463,164

Others 332,288 49,481)( 33,309 316,116

17,575,426$ 1,953,867)($ 101,255$ 15,722,814$

-Deferred tax liabilities: Unrealized (gain) loss on cash flow hedges 50,605)($ -$ 50,605$ -$ Amortisation charges on goodwill 394,687)( 82,369)( - 477,056)(

Others 32,287)( 4,751)( - 37,038)(

477,579)($ 87,120)($ 50,605$ 514,094)($

17,097,847$ 2,040,987)($ 151,860$ 15,208,720$


254

Recognisedin other

Recognised in comprehensiveJanuary 1 profit or loss income December 31


288,013$ 121,640)($ -$ 166,373$

Accrued royalties and warranty provisions 364,411 36,493)( - 327,918

Unrealized exchange loss (gain) - 200,697 - 200,697 Unrealized loss (gain) on financial instruments 449,511 258,904 8,453)( 699,962

Net operating loss carryforward 16,520,833 672,645)( - 15,848,188

Others 212,631 110,173 9,484 332,288

17,835,399$ 261,004)($ 1,031$ 17,575,426$

-Deferred tax liabilities: Unrealized exchange (gain) loss 51,357)($ 51,357$ -$ -$ Unrealized (gain) loss on cash flow hedges 97,943)( - 47,338 50,605)( Amortisation charges on goodwill 726,842)( 332,155 - 394,687)(

Others 33,566)( 1,279 - 32,287)(

909,708)($ 384,791$ 47,338$ 477,579)($

16,925,691$ 123,787$ 48,369$ 17,097,847$


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

Unrecognised

Amount filed / deferred UsableYear incurred assessed Unused amount tax assets until year

2011 Assessed 66,433,000$ 18,410,536$ 2021

2012 Filed 43,123,372 11,950,753 2022

109,556,372$ 30,361,289$

December 31, 2015

255

Unrecognised

Amount filed / deferred UsableYear incurred assessed Unused amount tax assets until year

2010 Assessed 14,641,521$ 3,414,183$ 2015~2020

2011 Assessed 63,808,943 14,879,288 2021

2012 Filed 43,123,373 10,055,723 2022

121,573,837$ 28,349,194$

December 31, 2014

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


Deductible temporary differences 33,185,717$ 31,105,662$ F. The Company has not recognised taxable temporary differences associated with investment in subsidiaries as

deferred tax liabilities. As of December 31, 2015 and 2014, the amounts of temporary differences

unrecognised as deferred tax liabilities were $29,289,598 and $20,486,590, respectively.

G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor -

liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.

H. The Company’s income tax returns through 2013 have been assessed and approved by the Tax Authority.

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

J. The details of imputation system are as follows:


(a)Balance of tax credit account 761,660$ 738,931$

2015 (Estimate) 2014 (Actual)

(b)Estimated (Actual) creditable tax rate 6.06% 3.9%

256

(26) Earnings per share

2015 2014

Basic earnings per share



Basic earnings per share (in dollar) 1.09$ 2.31$

Diluted earnings per share



Assumed conversion of all dilutive potential ordinary shares: -Employees’ bonus 116,513 106,514 -Restricted stocks 27,519 41,875

10,066,557 9,525,691

Diluted earnings per share (in dollar) 1.07$ 2.28$


As employee stock options had anti-dilutive effect for the years ended December 31, 2015 and 2014, they were

not included in the calculation of diluted earnings per share.

(27) Non-cash transaction

Investing activities with partial cash payments:

2015 2014

Purchase of property, plant and equipment 22,483,127$ 14,180,607$

Add: Opening balance of payable on equipment 2,732,538 3,180,964

Less: Ending balance of payable on equipment 4,119,425)( 2,732,538)(

Cash paid during the year 21,096,240$ 14,629,033$


257

RELATED PARTY TRANSACTIONS

(1) Significant related party transactions

A. Operating revenue

2015 2014

Sales of goods:　Subsidiaries 13,048,043$ 7,967,864$

　Others 13,019,281 14,374,629

　Associates 233,299 27,050

26,300,623$ 22,369,543$


The collection period was 30~120 days upon delivery or on a monthly-closing basis to related parties, and

30~90 days to non-related parties. The sales prices and the trading terms to related parties above were not

significantly different from those of sales to third parties.

B. Purchases of goods

2015 2014

　Others 2,960,453$ 2,767,390$

　Associates 311,987 4,431,198

　Subsidiaries 123,169 420,519

3,395,609$ 7,619,107$


Purchases of goods:

The payment term was 30~120 days to related parties after delivery, and 30~180 days to non-related parties

after delivery or on a monthly-closing basis. The purchase prices and the payment terms to related parties above

were not materially different from those of purchases from third parties.

C. Consigned processing

(a) Consigned processing

2015 2014

Processing costs:　Subsidiaries 122,717,171$ 167,873,521$

　Others 31,116 15,192

122,748,287$ 167,888,713$


258

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


Payables to related parties:

　Subsidiaries 3,765,006$ 2,677,593$

The Company subcontracted the processing of products of associates in Mainland China. The processing

fees were mainly charged based on cost plus method.

D. Accounts receivable


Receivables from related parties:

　Others 2,659,151$ 5,821,222$

　Subsidiaries 519,539 774,814

　Associates 81,427 27,899

3,260,117 6,623,935

Less: Transfer to other receivables 355,364)( 556,217)(

Allowance for bad debts - 60)(

2,904,753$ 6,067,658$

(a) The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120

days after the date of sale. The receivables are unsecured in nature and bear no interest. There are no

provisions held against receivables from related parties.

(b) The above receivables from related parties that exceed normal granting periods were transferred to ‘other

receivables – related parties’.

E. Other receivables


Transfer from accounts receivable 355,364$ 556,217$

Other receivables 22,000 134,807

377,364$ 691,024$ F. Accounts payable


Payables to related parties:　Subsidiaries 44,235,860$ 83,822,951$

Others 1,130,282 1,347,900

　Associates 67,720 161

45,433,862$ 85,171,012$

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date

of purchase. The payables bear no interest.

259

G. Other payables-short-term financing

Maximum

outstanding Actual amount Interest Accruedbalance drawn down Interest rate expense expense

Subsidiaries 410,850$ -$ 0.00% 2,168$ -$

2015

Maximum

outstanding Actual amount Interest Accruedbalance drawn down Interest rate expense expense

Subsidiaries 396,900$ 396,900$ 1.38% 5,952$ -$

2014

H. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

2015 2014

Subsidiaries 148,450$ 597,848$

Others 7,820 2,398

Associates 220 510,051

156,490$ 1,110,297$


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


Subsidiaries 542,694$ 586,682$

Others 6,273 748

548,967$ 587,430$ I. Endorsements and guarantees

As of December 31, 2014, the balances of endorsement/guarantee provided by the Company for bank

borrowings are as follows. Details are provided in Table 2.

December 31, 2014

Subsidiaries 16,901,100$ As of December 31, 2015, the Company has no endorsements/guarantees provided to other subsidiaries.

260

(2) Key management compensation

2015 2014

Salaries and other short-term employee benefits 136,698$ 73,982$


Post-employment benefits 220 216

143,204$ 92,836$


PLEDGED ASSETS

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

Pledged asset December 31, 2015December 31, 2014 Purpose

Other financial assets-current

Demand deposits -$ 2,250,035$ Syndicated bank loans

Time deposits 856 - Land leaseProperty, plant and equipment 59,669,639 163,632,314 Long-term loans and performance

guarantee for lease payableOther financial assets-non-current Refundable deposits - 11,079,360 Guarantee to European

Commission for litigation

Time deposits 119,703 80,722 Tariff guarantee, land lease and guarantee for contract

59,790,198$ 177,042,431$

Book value

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

(1) Contingencies－Significant Litigations

A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei

Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were

investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of

the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the

European Union, China, Brazil and Korea also started to investigate this case. In addition, certain downstream

customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against

the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as

defendants. Details of the investigations on significant cases related to the alleged violation of the anti-trust

laws are as follows:

(a) The Company had reached a plea agreement with the U.S. Department of Justice in December 2009,

agreeing to pay a fine of US$220 million through installment over five years. The fine had been fully paid

as of February 2015.

The Company had also reached out-of-court settlement agreements with the plaintiffs on separate civil

lawsuits in the U.S. since 2012 and recognized related losses.

Further, the Company had reached out-of-court settlement agreements with fourteen State Governments

since November 2011, agreeing to pay civil statutory damages in order to settle these civil lawsuits. All

261

civil lawsuits between the Company and the U.S state governments have been settled.

(b) In December 2010, the Company had been ordered by the European Commission to pay a fine of EUR 300

million. The Company appealed the case in February 2011, and the General Court of the European Union

rendered a judgment in February 2014 lowering the fine from EUR 300 million to EUR 288 million. The

Company further filed an appeal against a part of the judgment and the Court of Justice of the European

Union has adjudicated to maintain the aforementioned amount of fine.

(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated, the

Company has recognized actual or estimated losses or liabilities in “other payables” and “other non-current

liabilities”.

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District Court for the

District of East Texas on April 25, 2011, alleging infringement of its patent. The administrative law judge has

ruled a summary judgment for the lawsuit in December 2013 rendering Eidos’ patent as invalid, and the

presiding judge has confirmed the summary judgment in January 2014. Eidos has filed a complaint in February

2014. The United States Court of Appeals for the Federal Circuit has rejected the judgement and sent back to

the United States District Court in March 2015. The Company submitted an application to ask the United States

Court of Appeals for the Federal Circuit to rehear en banc in April 2015. Though the United States Court of

Appeals rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015 and

petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of the Company

in November 2015. The case remains at the ruling by the United States Court of Appeals for the Federal Circuit

in March 2015. However, the results of the litigation are uncertain and are dependent on the future litigation

progress. The Company does not expect that the lawsuit would have a material adverse effect on the

Company’s financial position or results of operations in the short-term.

(2) Commitments

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


Property, plant and equipment 38,262,634$ 19,350,952$

B. Operating lease commitments

The Company leases plant, land and warehouses under non-cancellable operating lease agreements. The

majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate

minimum lease payments under non-cancellable operating leases are as follows:


Not later than one year 508,974$ 500,648$

Later than one year but not later than five years 1,873,940 1,943,776

Later than five years 1,207,891 1,490,584

3,590,805$ 3,935,008$

C. Outstanding letters of credit

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

262


Outstanding letters of credit 474,222$ 693,635$

SIGNIFICANT DISASTER LOSS

None.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

(1) Capital management

The Company’s objectives are to maintain an optimal capital structure, and constructively reduce the debt ratio

and the cost of capital in order to maximize shareholders' equity.

(2) Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Company’s financial instruments not measured at fair value (including cash and

cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans,

accounts payable, other payables and long-term loans) are approximate to their fair values. The fair value

information of financial instruments measured at fair value is provided in Note 12(3).

B. Financial risk management policies

(a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange

risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk

management programme focuses on the unpredictability of financial markets and seeks to minimize

potential adverse effects on the Company’s financial position and financial performance. The Company

uses derivative financial instruments to hedge certain risk exposures (see Notes 6(2), (4)).

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

directors. Company treasury identifies, evaluates and hedges financial risks in close cooperation with the

Company’s operating units. The Board provides principles for overall risk management, as well as

policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk,

use of derivative financial instruments and non-derivative financial instruments, and investment by

excess liquidity.

263

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

e) The Company operates internationally and is exposed to foreign exchange risk arising from various

currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from

future commercial transactions, recognized assets and liabilities and net investments in foreign

operations.

f) Management has set up a policy to require group companies to manage their foreign exchange risk

against their functional currency. The group companies are required to hedge their entire foreign

exchange risk exposure via the Company’s treasury departments. To manage their foreign exchange

risk arising from future commercial transactions and recognized assets and liabilities, entities in the

Company use forward foreign exchange contracts. Foreign exchange risk arises when future

commercial transactions or recognized assets or liabilities are denominated in a currency that is not the

entity’s functional currency.

g) The Company’s businesses involve some non-functional currency operations (the Company’s functional

currency: NTD). Based on the simulations performed, the impact on post-tax profit of a 1% exchange

rate fluctuation would be an increase of $29,120 or a decrease of $13,765 for the years ended

December 31, 2015 and 2014, respectively. The information on assets and liabilities denominated in

foreign currencies whose values would be materially affected by the exchange rate fluctuations is as

follows:

Foreign Foreign

Currency Exchange Currency Exchange

Amount Rate Book Value Amount Rate Book Value(In Thousands) (Note) (NTD) (In Thousands) (Note) (NTD)

Financial asstes

Monetary items

USD 2,229,374$ 32.83 73,190,348$ 3,689,844$ 31.65 116,783,563$

JPY 1,607,428 0.27 434,006 2,740,487 0.26 725,133

EUR 75,928 35.88 2,724,297 363,356 38.47 13,978,305

Non-monetary

items

USD 2,342,530$ 32.83 76,905,260$ 2,217,538$ 31.65 70,185,078$

HKD 178,232 4.24 755,704 278,754 4.08 1,137,316

JPY 5,527,619 0.27 1,492,457 5,383,824 0.26 1,424,560

EUR 3,697 35.88 132,648 3,834 38.47 147,494

Monetary items

USD 1,990,752$ 32.83 65,356,388$ 3,568,162$ 31.65 112,932,327$

JPY 29,475,552 0.27 7,958,399 32,732,829 0.26 8,661,107

EUR 3,397 35.88 121,884 292,958 38.47 11,270,094


Financial liabilities

264

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

exchanged.

h) Total exchange loss (gain), including realized and unrealized arising from significant foreign exchange

variation on the monetary items held by the Company for the years ended December 31, 2015 and 2014

amounted $66,797 and ($1,143,155), respectively.

Price risk

c) The Company is exposed to equity securities price risk because of investments held by the Company

that are classified on the parent company only balance sheet either as available-for-sale or at fair value

through profit or loss. To manage its price risk arising from investments in equity securities, the

Company diversifies its portfolio in accordance with the policy set by the Company.

d) The Company’s investments in equity securities comprise domestic listed and unlisted stocks. The

prices of equity securities would change due to the change of the future value of investee companies. If

the prices of these equity securities had increased/decreased by 20% with all other variables held

constant, other components of equity for the years ended December 31, 2015 and 2014 would have

increased/decreased by $388,983 and $620,292, respectively, as a result of gains/losses on equity

securities classified as available-for-sale.

Interest rate risk

e) The Company’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates

expose the Company to cash flow interest rate risk which is partially offset by cash and cash

equivalents held at variable rates. Borrowings issued at fixed rates expose the Company to fair value

interest rate risk. During the years ended December 31, 2015 and 2014, the Company’s borrowings at

variable rate were denominated in the NTD and USD.

f) The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated

taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.

Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest

rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are

run only for liabilities that represent the major interest-bearing positions.

g) Based on the simulations performed, the impact on post-tax profit of a 25% shift would be a maximum

increase of $150,700 or decrease of $245,892 for the years ended December 31, 2015 and 2014,

respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is

within the limit given by the management.

h) Based on the various scenarios, the Company manages its cash flow interest rate risk by using

floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting

borrowings from floating rates to fixed rates. Generally, the Company raises long-term borrowings at

floating rates and swaps them into fixed rates that are lower than those available if the Company

borrowed at fixed rates directly. The Company agrees with other parties to exchange interest rate, at

specified intervals. The difference between fixed contract rates and floating-rate interest amounts are

calculated by reference to the agreed notional amounts.

265

(b) Credit risk

d) Credit risk refers to the risk of financial loss to the Company arising from default by the clients or

counterparties of financial instruments on the contract obligations. According to the Company’s credit

policy, each local entity in the Company is responsible for managing and analyzing the credit risk for

each of their new clients before standard payment and delivery terms and conditions are offered.

Customer credit quality is assessed via internal risk control, considering customer financial position,

past experience and other factors. Individual risk limits are set by the board of directors based on

internal or external ratings. The utilization of credit limits is regularly monitored. Credit risk arises

from cash and cash equivalents, derivative financial instruments and deposits with banks and financial

institutions, as well as credit exposures to wholesale and retail customers, including outstanding

receivables. Because the Company's counterparties and executor are banks with good credit standing

and financial institutions and government with investment grade or above, there is no significant

default. Therefore, there is no significant credit risk.

e) No credit limits were exceeded during the reporting periods. Management does not expect any

significant losses from non-performance by these counterparties.

f) The individual analysis of financial assets that had been impaired is provided in Note 6.

(c) Liquidity risk

e) Company treasury monitors rolling forecasts of the Company’s liquidity requirements to ensure it has

sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn

committed borrowing facilities (Note 6(12)) at all times so that the Company does not breach

borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting

takes into consideration the Company’s debt financing plans, covenant compliance, compliance with

internal balance sheet ratio targets and external regulatory or legal requirements.

f) Surplus cash held by the operating entities over and above balance required for working capital

management are transferred to the Company treasury. Company treasury invests surplus cash in

interest bearing savings accounts, time deposits, money market deposits and marketable securities. The

Company chooses instruments that are with appropriate maturities or sufficient liquidity to provide

sufficient headroom as determined by the abovementioned forecasts. These are expected to readily

generate cash inflows for managing liquidity risk.

g) The table below analyses the Company’s non-derivative financial liabilities and net-settled or

gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining

period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities

and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table

are the contractual undiscounted cash flows.

266


Accounts payable 73,164,897$ -$ -$ -$ 73,164,897$

Other payables 24,387,687 - - - 24,387,687

Long-term borrowings(including current portion) 16,440,000 43,840,000 - - 60,280,000

Non-derivative financial liabilities:

Less than Between 1 Between 3 Over 5

December 31, 2014 1 year and 3 years and 5 years years Total

Short-term borrowings 1,300,000$ -$ -$ -$ 1,300,000$

Accounts payable 118,902,792 - - - 118,902,792

Other payables 18,688,940 - - - 18,688,940

Long-term borrowings(including current portion) 61,122,573 37,234,105 - - 98,356,678

Other financial liabilities - 11,230,850 - 6,344 11,237,194

Financial guarantee contracts 10,140,660 - - - 10,140,660

Derivative financial liabilities:Between 1

December 31, 2015 Less than 1 year and 3 years Total

Forward exchange contracts $ 53,921 $ - $ 53,921

Between 1December 31, 2014 Less than 1 year and 3 years Total

Forward exchange contracts $ 605,016 $ - $ 605,016

Interest rate swap contracts 1,351 - 1,351

h) The related information on the repayment of the medium and long-term syndicated loans from the

‘‘Agreed-upon Agreement’’ is described in Note 6(12).

267

(3) Fair value estimation

A. Details of the fair value of the Company’s financial assets and financial liabilities not measured at fair value

are provided in Note 12(2)A. Details of the fair value of the Company’s investment property measured at

cost are provided in Note 6(9).

B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and

non-financial instruments have been defined as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can

access at the measurement date. A market is regarded as active where a market in which

transactions for the asset or liability take place with sufficient frequency and volume to provide

pricing information on an ongoing basis. The fair value of the Company’s investment in listed

stocks and on-the-run bonds is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. The fair value of the Company’s investment in derivative instruments is

included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Company’s investment in equity

investment without active market is included in Level 3.

C. The related information of financial and non-financial instruments measured at fair value by level on the basis

of the nature, characteristics and risks of the assets and liabilities at December 31, 2015 and 2014 is as

follows:


AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Forward exchange contracts -$ 81,858$ -$ 81,858$

Available-for-sale financial assets Equity securities 1,562,871 - 382,046 1,944,917

1,562,871$ 81,858$ 382,046$ 2,026,775$


268

December 31, 2014 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Forward exchange contracts -$ 52,453$ -$ 52,453$ Available-for-sale financial assets Equity securities 2,537,965 - 563,496 3,101,461

Debt securities 220,000 - - 220,000

2,757,965$ 52,453$ 563,496$ 3,373,914$


Derivative financial liabilities for hedging Interest rate swap contracts - 1,351 - 1,351

-$ 606,367$ -$ 606,367$

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

(a) The instruments the Company used market quoted prices as their fair values (that is, Level 1) are listed

below by characteristics:

Listed shares Emerging stocks Corporate bond

Market quoted price Closing price Last transaction priceWeighted average

quoted price

(b) Except for financial instruments with active markets, the fair value of other financial instruments is

measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial

instruments measured by using valuation techniques can be referred to current fair value of instruments

with similar terms and characteristics in substance, discounted cash flow method or other valuation

methods, including calculated by applying model using market information available at the parent

company only balance sheet date.

(c) When assessing non-standard and low-complexity financial instruments, for example, debt instruments

without active market, interest rate swap contracts, foreign exchange swap contracts and options, the

Company adopts valuation technique that is widely used by market participants. The inputs used in the

valuation method to measure these financial instruments are normally observable in the market.

(d) The valuation of derivative financial instruments is based on valuation model widely accepted by market

participants, such as present value techniques and option pricing models. Forward exchange contracts are

usually valued based on the current forward exchange rate.

(e) The output of valuation model is an estimated value and the valuation technique may not be able to

269

capture all relevant factors of the Company’s financial and non-financial instruments. Therefore, the

estimated value derived using valuation model is adjusted accordingly with additional inputs, for example,

model risk or liquidity risk and etc. In accordance with the Company’s management policies and relevant

control procedures relating to the valuation models used for fair value measurement, management believes

adjustment to valuation is necessary in order to reasonably represent the fair value of financial and

non-financial instruments at the parent company only balance sheet. The inputs and pricing information

used during valuation are carefully assessed and adjusted based on current market conditions.

(f) The Company takes into account adjustments for credit risks to measure the fair value of financial and

non-financial instruments to reflect credit risk of the counterparty and the Company’s credit quality.

E. For the years ended December 31, 2015 and 2014, there was no transfer between Level 1 and Level 2.

F. The following table presents the changes in level 3 instruments as at December 31, 2015 and 2014:

2015 2014

At January 1 563,496$ 644,661$

Acquired in the period - 135,456 Gains and losses recognized in other comprehensive income 181,450)( 216,621)(

At December 31 382,046$ 563,496$

Equity securities

G. For the years ended December 31, 2015 and 2014, there was no transfer into or out from Level 3.

H. Investment management segment is in charge of valuation procedures for fair value measurements being

categorized within Level 3, which is to verify independent fair value of financial instruments. Such

assessment is to ensure the valuation results are reasonable by applying independent information to make

results close to current market conditions, confirming the resource of information is independent, reliable and

in line with other resources and represented as the exercisable price, and frequently calibrating valuation

model, performing back-testing, updating inputs used to the valuation model and making any other necessary

adjustments to the fair value.

Investment management segment set up valuation policies, valuation processes and rules for measuring fair

value of financial instruments and ensure compliance with the related requirements in IFRS.

I. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of

changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

270

Fair value Range

at December Valuation Significant (Weighted Relationship of

31, 2015 technique unobservable input average) inputs to fair value

Non-derivative equity instrument:

The higher themultiple and controlpremium, thehigher the fair value

Discount for lack ofmarketability

Unlisted shares 382,046$ Marketcomparablecompanies

Price to earningsratio multiple,price to book ratiomultiple controllpremium


20%~30%

(22%)

0.56~1.41

(0.70)

J. The Company has carefully assessed the valuation models and assumptions used to measure fair value;

therefore, the fair value measurement is reasonable. However, use of different valuation models or

assumptions may result in different measurement. The following is the effect of profit or loss or of other

comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to

valuation models have changed:

Favourable UnfavourableFinancial assets Period Input Change change change

Equity instrument 2015/12/31 382,046$ ± 1% 3,820$ 3,820)($

Equity instrument 2014/12/31 563,496 ± 1% 5,635 5,635)(

Recognised in other

comprehensive income

SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: Please refer to table 1.

B. Provision of endorsements and guarantees to others: Please refer to table 2.

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

ventures): Please refer to table 3.

D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the

Company’s paid-in capital: None.

E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more:


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

5.

I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes 6(2) and 6(4).

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

271

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China):


(3) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

B. Significant transactions, either directly or indirectly through a third area, with investee companies in the

Mainland Area: Please refer to Notes 13(1)A, G, H, J.

SEGMENT INFORMATION

None.

272

Item Value



Otherreceivables

Relatedparties

3,282,500$ $ - $ - - Short-termfinancing

- Operatingsupport

- - - $ 232,264,723 $ 232,264,723 A



Otherreceivables

Relatedparties

1,969,500 - - - Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties

4,549,500 4,549,500 4,493,390 1.925%~

2.00%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A

3 Innolux TechnologyUSA Inc.


Otherreceivables

Relatedparties

196,950 196,950 196,950 0.16%~

0.56%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

4 Innolux TechnologyEurope B.V.


Otherreceivables

Relatedparties

1,391,278 1,391,278 1,362,788 0.000%~

0.269%

Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A

5 Innolux TechnologyJapan Co., Ltd.


Otherreceivables

Relatedparties

1,418,040 1,418,040 1,418,040 1% Short-termfinancing

- Operatingsupport

- - - 232,264,723 232,264,723 A


Innolux Corporation Otherreceivables

Relatedparties

409,050 - - - Businessassociation

- - - - - 602,953 602,953 B



Otherreceivables

Relatedparties


- Operatingsupport

- - - 232,264,723 232,264,723 A

Allowance

for

doubtful

accounts

Interest

rate Nature of loan

Amount of

transactions

with the

borrower

Reason

for short-term

financing

CollateralLimit on loans

granted to

a single party

Ceiling on

total loans granted Footnote

Innolux Corporation

Loans to others




Maximum

outstanding

balance during

the year ended

December 31,

2015

Balance at

December 31,

2015

Actual amount

drawn downNo. Creditor Borrower

General

ledger

account

Is a

related

party

273

Note A: The Company - Innolux Corporation

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

　　 2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity.

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

Note B: The subsidiary - Innolux Optoelectronics Japan Co., Ltd.

　　 1. For the company’s short-term capital needs, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the parent company; for the companies having

business relationship with the Company, financial limit on loans granted to a single party shall not exceed the amount of business transactions occured between the creditor and borrower.

　　 2.The financial limit on loans granted shall not exceed 30% of the company’s net equity, based on the most recent audited financial statements of the parent company; with intercompany transaction, the company’s financial limit on loans granted shall not

exceed 40% of the company's equity.

　　 3.The amount of loans provided by the company and intercompany shall not exceed 40% of the company’s equity.

274

Company name

Relationship

with the

endorser/

guarantor

0 Innolux Corporation Leadtek GlobalGroup Limited

An indirectwholly-ownedsubsidiary

$ 116,132,362 $ 17,528,550 $ - $ - $ - - $ 116,132,362 Y N N A,B

Note A:

Note B: Accumulated endorsement/guarantee amount provided by the Company shall not exceed 50% of the Company’s net equity.

Limits on endorsement/guarantee amount provided to each counterparty did not exceed 0.5% of the Company’s net equity based on the most recent audited financial statements of the Company. Maximum endorsement/guarantee amountsallowable should not exceed 1% of the Company’s net equity based on the most recent audited financial statements of the Company. For subsidiaries with over 90% of shares directly or indirectly owned by the Company, the endorsement/ guarantee amount provided by the Company shall not exceed 10% of the Company’s net equity. The limitation is not required for direct or indirect wholly-owned subsidiaries of the Company.

Provision of

endorsements/

guarantees to

the party in

Mainland

China Footnote

Amount of

endorsements/

guarantees

secured with

collateral

Ratio of

accumulated

endorsement/

guarantee amount

to net asset value

of the endorser/

guarantor company

Ceiling on

total amount of

endorsements/

guarantees

provided

Provision of

endorsements/

guarantees by

parent

company to

subsidiary

Provision of

endorsements/

guarantees by

subsidiary to

parent

company

Outstanding

endorsement/

guarantee

amount at

December 31,

2015

Actual

amount

drawn down

Limit on

endorsements/

guarantees

provided for a

single party

Innolux CorporationProvision of endorsements and guarantees to others


Table 2 Expressed in thousands of NTD(Except as otherwise indicated)

Maximum

outstanding

endorsement/

guarantee

amount as of

December 31,

2015Number

Endorser/

guarantor

Party being

endorsed/guaranteed

275

Number of shares Book value Ownership (%) Fair value

Common stock

Innolux Corporation AvanStrate Inc.None


900,000 $ 62,091 1 $ 62,091

Innolux Corporation TPV Technology Ltd.None


150,500,000 650,115 6 650,115

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financialassets - non-current

48,283,725 319,955 19 319,955

Innolux Corporation Epistar Corporation None Available-for-sale financialassets - non-current

89,072 2,271 - 2,271

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financialassets - non-current

44,741,305 910,485 9 910,485

Innolux Corporation Allied Material Technology Corp. None Available-for-sale financialassets - non-current

1,209 - - -

Yuan Chi Investment Co., Ltd. Trillion Science Inc. None Available-for-sale financialassets - non-current

1,439,180 694 2 694

Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. None Available-for-sale financialassets - non-current

12,283,000 97,281 3 97,281

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial asset at fair valuethrough profit or loss

11,165,222 281,922 8 281,922

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financialassets - non-current

10,000,000 302,190 7 302,190

InnoJoy Investment Corporation G-TECH Optoelectronics Corporation None Available-for-sale financialassets - non-current

6,311,734 78,266 2 78,266

InnoJoy Investment Corporation Entire Technology Co., Ltd. None Available-for-sale financialassets - non-current

7,271,326 189,782 6 189,782

Warriors Technology Investments Ltd. OED Holding Ltd. None Available-for-sale financialassets - non-current

16,000,000 6,058 6 6,058

Warriors Technology Investments Ltd. General Interface Solution (GIS) HoldingLimited

None Available-for-sale financialassets - non-current

40,500,000 4,475,250 13 4,475,250

Nets Trading Ltd. PilotTech Global Fund None Available-for-sale financialassets - non-current

90 28,596 - 28,596

Relationship

with the

securities issuer

General

ledger account Footnote

As of December 31, 2015

Innolux Corporation

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)December 31, 2015



Securities held by Marketable securities

276

Purchases

(sales) Amount

Percentage of total

purchases (sales) Credit term Unit price Credit term Balance

Percentage

of total

notes/accounts

receivable

(payable)


Sales $ 8,538,206 2 60 days Similar withgeneral sales


-$ -


Same major stockholder Sales 3,414,590 1 45~60 days Similar withgeneral sales


1,031,767 2



Sales 3,187,388 1 45~60 days Similar withgeneral sales


404,513 1

Innolux Corporation Shenzhen FuTaiHong PrecisionIndustry Co., Ltd.


Sales 2,488,188 1 60 days Similar withgeneral sales


133,501 -

Innolux Corporation Innolux Optoelectronics JapanCo., Ltd.

A subsidiary of the Company Sales 1,561,151 - 45 days Single salestarget, no basisfor comparison


138,810 -

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-ownedsubsidiary



173,166 -

Innolux Corporation Competition Team Ireland Ltd. An indirect wholly-ownedsubsidiary of Hon Hai PrecisionIndustry Co., Ltd.



- -

Innolux Corporation Innolux Optoelectronics USA,Inc.




71,538 -

Innolux Corporation Futaijing Precision Electronics(Yantai) Co., Ltd.




35,124 -




- -

Innolux Corporation Futaijing Precision Electronics(Beijing) Co., Ltd.




- -

Innolux Corporation Hongfujin Precision Electronics(Zhengzhou) Co., Ltd.




74,849 -


Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or moreFor the year ended December 31, 2015


FootnotePurchaser/seller Counterparty Relationship with the counterparty

Transaction

Differences in transaction terms

compared to third party

transactions Notes/accounts receivable (payable)

Innolux Corporation

277

Innolux Corporation Honfujin Precision Electronics(Shenzhen) Co., Ltd.


Sales $ 331,460 - 60 days Similar withgeneral sales


$ 139,373 -





81,427 -

Innolux Corporation Honfujin Precision Electronics(Wuhan) Co., Ltd.




76,783 -

Innolux Corporation Competition Team Technology(India) Private Ltd.




144,167 -


Sales 133,737 - 45~90 days Similar withgeneral sales


40,420 -


Same major stockholder Purchases 2,087,965 1 60~90 days afteracceptance



( 821,291) 1





289,219)( -






58,375)( -

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processingexpense


20,900,275)( 29


Processingexpense


14,958,119)( 20


Processingexpense


8,331,372)( 11



Processingrevenue



7,831,158 98



$ 28,498,599 84 60 days Similar withgeneraltransactions


$ 14,623,208 91



Processingrevenue



8,018,465 82





2,204,994 78



Processingrevenue



2,149,428 95

278

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-ownedsubsidiary

Processingrevenue



1,027,542 100



Processingrevenue



3,360,510 92

Innolux Technology JapanCo., Ltd.


Servicerevenue



48,127 85


Ningbo Innolux Technology Ltd. An indirect wholly-ownedsubsidiary

Sales 3,479,126 6 90 days Similar withgeneraltransactions


742,775 3


Nanjing Innolux OptoelectronicsLtd.


Sales 658,797 3 60 days Similar withgeneraltransactions


119,316 3


Ningbo Innolux Display Ltd. An indirect wholly-ownedsubsidiary

Sales 263,304 - 60 days Similar withgeneraltransactions


161,406 1




Purchases 1,720,767 3 120 days aftergoods areshipped



617,975)( 4






249,403)( 2






294,409)( 1



Same major stockholder Purchases $ 729,655 3 90 days aftergoods areshipped



185,937)($ 3






112,654)( 1


Honfujin Precision Electronics(Shenzhen) Co., Ltd.





117,821)( 1







190,049)( 3

Ningbo Innolux Display Ltd. Hon Hai Precision Industry Co.,Ltd.




187,611)( 7

279

Table 5

Amount Action taken

Innolux Corporation Shenzhen FuTaiHongPrecision Industry Co., Ltd.


$ 133,501 2.97 $ - - $ 88,285 -

Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder 1,031,767 2.35 84,118 Subsequent collection 212,224 -




Innolux Corporation Kangzhun Electronics Technology(Kunshan) Co., Ltd.


286,218 - 31,754 Subsequent collection 59,298 -

Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company 138,810 9.59 - - - -

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary 173,166 8.71 - - - -

Innolux Corporation Hongfujin Precision Electronics(Shenzhen) Co., Ltd.


139,373 4.17 - - 97,623 -

Innolux Corporation Competition Team Technology (India)Private Ltd.



Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 8,018,465 1.77 8,018,465 Subsequent collection 5,284,848 -

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company 14,623,208 1.66 13,732,390 Subsequent collection 3,349,891 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary 7,831,158 4.24 3,085,461 Subsequent collection 2,975,253 -

Ningbo Innolux Technology Ltd. Leadtek Global Group Limited A subsidiary of the Company 2,204,994 3.56 150,784 Subsequent collection 1,587,768 -

Innocom Technology (Shenzhen) Co.,Ltd.

Lakers Trading Ltd. An indirect wholly-owned subsidiary 3,360,510 0.23 2,910,074 Subsequent collection - -

Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 2,149,428 4.95 - - 545,267 -

Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary 119,316 5.36 - - - -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. An indirect wholly-owned subsidiary 742,775 4.07 92,453 Subsequent collection 442,391 -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary 161,406 1.63 - - 37,153 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary 1,027,542 4.57 - - 598,463 -

Leadtek Global Group Limited Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary 518,992 - 150,784 Subsequent collection 241,922 -

December 31, 2015Expressed in thousands of NTD(Except as otherwise indicated)

Amount collected

subsequent to the

balance sheet date

Allowance for

doubtful accounts Creditor Counterparty

Relationship

with the counterparty

Balance as

at December 31, 2015 Turnover rate

Overdue receivables

Innolux Corporation

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

280

General ledger account Amount

Transaction terms

(Note B)

Percentage of

consolidated total

operating revenues or total

assets

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Sales 628,495$ - -

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Processing expense 34,025,843 - 9

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Accrued expenses 8,331,372)( - 2

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Sales 1,561,151 - -

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Accounts receivable 138,810 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 734,048 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 1,512,160 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Accounts receivable 173,166 - -

0 Innolux Corporation Lakers Trading Ltd. 1 Sales 8,538,206 - 2

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 44,600,117 - 12

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses 14,958,119)( - 4

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 44,091,210 - 12

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses 20,900,275)( - 5

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Sales 658,797 - -

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Accounts receivable 119,316 - -

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 12,905,853 - 4

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 2,149,428 - 1

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 26,744,283 - 7

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 8,018,465 - 2

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 33,337,143 - 9

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 7,831,158 - 2

4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Processing revenue 644,975 - -

4 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Accounts receivable 3,360,510 - 1

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Processing revenue 16,347,277 - 4

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Accounts receivable 2,204,994 - 1

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 28,498,599$ - 8

Number Company name Counterparty

Transaction (Note C)


Innolux Corporation

Significant inter-company transactions during the reporting periodsFor the year ended December 31, 2015


Relationship

(Note A)

281

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 14,623,208 - 4

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. 3 Sales 3,479,126 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Technology Ltd. 3 Accounts receivable 742,775 - -

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 263,304 - -

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 161,406 - -

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 4,597,437 - 1

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable 1,027,542 - -

8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 3 Service revenue 275,557 - -

9 Leadtek Global Group Limited Ningbo Innolux Display Ltd. 3 Accounts receivable 518,992 - -

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

　　　3. The subsidiary to the subsidiary.

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

term was 30~120 days upon receipt of goods.

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

282

Balance as at

December 31,

2015

Balance as at

December 31,

2014 Number of shares

Ownership

(%) Book value

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings 119,724$ 119,724$ 4,910,000 100 104,699$ 205)($ 2,044)($

Innolux Corporation Gold Union Investments Ltd. SamoaInvestment holdings - 348,999 - - - 104,634 104,634

Innolux Corporation Golden Achiever International Ltd. BVI Investment holdings 119,106 9,083 40,250 100 65,966 2,048)( 5,354

Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings 7,858,300 7,858,300 246,768,185 100 20,242,553 293,551 295,014

Innolux Corporation Keyway Investment ManagementLimited

Samoa Investment holdings 197,554 197,554 5,656,410 100 230,932 3,746)( 3,746)(

Innolux Corporation Landmark International Ltd. SamoaInvestment holdings 33,438,542 32,925,315 709,450,000 100 45,888,559 4,159,463 4,281,112

Innolux Corporation Toppoly Optoelectronics (B.V.I.) Ltd. BVI Investment holdings 3,596,307 3,596,307 144,447,000 100 6,787,268 751,258 751,258

Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings 2,107,291 2,107,291 1,158,844,000 100 2,907,677 687,929 660,141

Innolux Corporation Leadtek Global Group Limited BVI Order swap company - - 50,000,000 100 232,863)( 103,103)( 103,103)(

Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 1,137,982 215,059)( 215,059)(

Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,242,760 338,289)( 338,289)(

Innolux Corporation Innolux Optoelectronics Europe B.V. Netherlands Importing, exporting,buying, selling andlogistics services ofelectronic equipmentand TFT-LCDmonitors

121,941 121,941 180 100 132,641 4,827)( 4,827)(

Innolux Corporation Innolux Optoelectronics Japan Co.,Ltd.

Japan Researching,manufacturing andselling of the filmtransistor liquid crystaldisplay

1,335,486 1,335,486 80 100 1,507,382 36,154 36,154

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 881,351 271)( 8,925)(

Innolux Corporation Jetronics International Corp. Samoa Investment holdings 86,149 86,149 726,941 32 2,055)( 1,268 406

Innolux Corporation FI Medical Device ManufacturingCo., Ltd.

Taiwan Production and sellingof the absorption formedical element

73,500 73,500 7,350,000 49 321,683 554,470 271,690

Innolux Corporation iZ3D, Inc. USA Research anddevelopment and saleof 3D flat monitor

- - 4,333 35 - - -

Net profit (loss)

of the investee

for the year

ended December

31, 2015

Investment

income (loss)

recognised by the

Company for the

year ended

December 31,

2015 Footnote Investor Investee Location

Main business

activities

Initial investment amount Shares held as at December 31, 2015

Information on investeesFor the year ended December 31, 2015



Innolux Corporation

283

Innolux Corporation Chi Mei Lighting TechnologyCorporation

Taiwan Manufacturing ofelectronic equipmentand lighting equipment

819,312$ 819,312$ 78,195,856 33 -$ -$ -$

Innolux Corporation Chi Mei El Corporation Taiwan Developing, designing,manufacturing andselling of organic lightemitting diodes

- 361,382 - - - 51,718)( 50,265)(

Innolux Corporation GIO Optoelectronics Corp. Taiwan Developing, designing,manufacturing andselling of componentsof back light moduleon TFT-LCD

800,892 800,892 63,521,501 24 98,785 21,911 5,210

Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings 7,296,530 7,296,530 226,504,550 100 15,064,678 102,191 102,191

Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 5,041,225 192,687 192,687

Innolux Holding Ltd. Lakers Trading Ltd. Samoa Order swap company - - 1 100 250,080 - -

Innolux Holding Ltd. Innolux Corporation USA Distributor company 6,348 6,348 2,000 100 92,865)( 1,327)( 1,327)(

Toppoly Optoelectronics (B.V.I.)Ltd.

Toppoly Optoelectronics (Cayman)Ltd.

Cayman Investment holdings 3,572,384 3,572,384 144,417,000 100 6,786,885 751,258 751,258

Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong KongHolding Ltd.

Hong Kong Investment holdings - - 162,897,802 100 1,055,807 295,546 295,546

Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Order swap company - - 35,000,000 100 1,845,021)( 317,860 317,860

Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company andR&D testing company

3,073,072 3,073,072 375,810 100 2,281,088 32,523 32,523

Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd. Japan R&D testing company 1,815,603 1,815,603 201 100 1,706,959 17,594 17,594

Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company 263,685 263,685 1,000 100 363,492 24,231 24,231

Innolux Optoelectronics EuropeB.V.

Innolux Optoelectronics GermanyGmbH

Germany Importing, exporting,buying, selling andlogistics services ofelectronic equipmentand TFT-LCDmonitors

10,324 10,324 250 100 17,023 7,957)( 7,957)(

Innolux Optoelectronics JapanCo., Ltd.

Innolux Optoelectronics USA, Inc. USA Selling of electronicequipment andcomputer monitors

2,400 2,400 1,000 100 277,704 9,020 9,020

Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings 314,740 314,740 10,000,001 100 266,110 781 781

Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings 573,940 573,940 18,000,000 100 438,237 1,286 1,286

Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings 1,146,370 1,146,370 38,000,001 100 1,092,270 92,832 92,832

Rockets Holding Ltd. Stanford Developments Ltd. SamoaInvestment holdings 5,391,125$ 5,391,125$ 164,000,000 100 13,237,023$ 7,291$ 7,291$

Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 30,916 - -

Suns Holding Ltd. Warriors Technology InvestmentsLtd.

Samoa Investment company 555,422 555,422 18,177,052 100 5,041,223 192,687 192,687

284

Innolux Technology Europe B.V. Innolux Technology Germany GmbH Germany Testing andmaintenance company

33,735 33,735 100,000 100 59,078 173 173

Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings 314,740 314,740 77,830,001 100 266,110 781 781

Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings 573,940 573,940 139,623,801 100 438,236 1,286 1,286

Magic Sun Ltd. Sun Dynasty Development Ltd. Hong KongInvestment holdings 1,146,370 1,146,370 295,969,001 100 1,092,270 92,832 92,832

Yuan Chi Investment Co., Ltd. Chi Mei Lighting TechnologyCorporation

Taiwan Trading business,manufacturing ofelectronic equipmentand lighting equipment

263,812 263,812 19,673,402 8 - - -

Yuan Chi Investment Co., Ltd. GIO Optoelectronics Corp. Taiwan Developing, designing,manufacturing andselling of componentsof back light moduleon TFT-LCD

6,881 6,881 467,519 - 748 21,911 39

Yuan Chi Investment Co., Ltd. TOA Optronics Corporation Taiwan Selling electronicmaterials, tradingbusiness,manufacturing ofelectronic equipmentsand lightingequipments

423,606 423,606 58,007,000 40 310,074 237,256)( 54,833)(

285

Remitted to

Mainland China

Remitted back

to Taiwan

Innocom Technology (Shenzhen) Co., Ltd. Manufacturing and selling of LCD backendmodule and related components

$ 5,383,300 2 $ 4,165,878 $ - $ - $ 4,165,878 $ 7,291 100 $ 7,291 $ 13,237,010 $ 1,217,422 2.1

OED Company Manufacturing and selling of electronic paper 318,465 2 65,650 - - 65,650 ( 248,223) 4 - 14,840 - 2.1

Ningbo Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

10,175,750 2 241,758 - - 241,758 2,185,851 100 2,185,851 22,305,061 5,666,742 2.2

Ningbo Innolux Technology Ltd. Manufacturing and selling of LCD backendmodule and related components

4,267,250 2 4,267,250 - - 4,267,250 299,191 100 299,191 3,442,283 - 2.2

Foshan Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

12,571,975 2 12,571,975 - - 12,571,975 1,669,650 100 1,672,129 19,839,990 - 2.2

Ningbo Innolux Display Ltd. Manufacturing and selling of LCD backendmodule and related components

984,750 2 984,750 - - 984,750 105,005 100 105,005 359,195 - 2.2

Nanjing Innolux Technology Ltd. Purchases and sales of monitor-relatedcomponents company

68,933 2 68,933 - - 68,933 12,948 100 12,948 606,121 - 2.3

Kunpal Optoelectronics Ltd. Glass thinning processing service 131,300 2 124,139 - - 124,139 234 100 234 77,861 - 2.4

VAP Optoelectronics (Nanjing) Corp. Manufacturing and selling of LCD backendmodule and related components

331,533 2 9,848 114,888 - 124,735 ( 2,048) 100 ( 2,048) 66,172 - 2.5

Nanjing Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

4,661,150 2 4,661,150 - - 4,661,150 738,310 100 738,310 6,180,741 - 2.3

Ningbo Innolux Logistics Ltd. Warehousing services 131,300 2 131,300 - - 131,300 ( 6,907) 100 ( 6,907) 157,669 - 2.7

Shanghai Innolux Optoelectronics Ltd. Manufacturing and selling of LCD backendmodule and related components

689,325 2 - - - - 295,546 100 295,546 1,055,807 - 2.6

Foshan Innolux Logistics Ltd. Warehousing services 49,238 2 49,238 - - 49,238 3,161 100 3,161 68,266 - 2.7

Amlink (Shanghai) Ltd. Manufacturing and selling of power supply,modem, ADSL, and other IT equipments

656,500 2 328,250 - - 328,250 ( 19,288) 50 ( 9,065) 372,990 - 2.8

Kunshan Guann-Jye Electronics Co., Ltd. Manufacturing of transformers 275,730 2 88,299 - - 88,299 - 32 - - - 2.9

Interface Optoelectronics (Shenzhen) Co.,Ltd.

Development of new type of flat panel display,monitor and peripherals, production andmanagement, and offer of after-sales service

3,157,765 2 443,138 - - 443,138 - 13 - 4,475,256 - 2.1

Ningbo Innolux Electronics Ltd. Manufacturing and selling of LCD backendmodule and related components

151,650 3 - - - - 38 100 38 151,688 - 3.1

Amount remitted from Taiwan to

Mainland China/

Amount remitted back

to Taiwan for the year ended

December 31, 2015

Table 8

Footnote Main business activities

Paid-in capital

(Note A)

Investment method

(Note C)

Accumulated

amount of

remittance from

Taiwan to

Mainland China

as of January 1,

2015

Accumulated

amount

of remittance

from Taiwan to

Mainland China

as of December

31, 2015

Ownership

held by

the

Company

(direct or

indirect)

Investment income

(loss) recognised

by the Company

for the year ended

December 31, 2015

(Note B)

Net income

(loss) of

investee for the

year ended

December 31 ,

2015

Innolux CorporationInformation on investments in Mainland China


Expressed in thousands of NTD(Except as otherwise indicated)

Investee in Mainland China

Book value of

investments in

Mainland China

as of December

31, 2015

Accumulated

amount

of investment

income

remitted back to

Taiwan as of

December 31,

2015

286

Ceiling on investments in Mainland China:

Company name

Accumulated amount of remittance

from Taiwan to Mainland China

as of December 31, 2015

Investment

amount approved

by the Investment

Commission of

the Ministry of

Economic Affairs

(MOEA)

Ceiling on

investments in

Mainland China

imposed by the

Investment

Commission of

MOEA

Innolux Corporation 29,821,744$ 40,547,247$ 139,358,834$

Note A: The relevant figures are listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate.Note B: Profit or loss recognised for the year ended December 31, 2015 was audited by independent accountants.Note C: The investment methods are as follows:

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

2.1.Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.2.Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China. 2.3.Through investing in Toppoly Optoelectronics (B.V.I.) Ltd. in the third area, which then invested in the investee in Mainland China. 2.4.Through investing in Bright Information Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.5.Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China. 2.6.Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.7.Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China. 2.8.Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China. 2.9.Through investing in Jetronics International Corporation in the third area, which then invested in the investee in Mainland China.

3. Others. 3.1.The company invests in the company via investee companies in Mainland China is Ningbo Innolux Electronics Ltd. Except for the investment via the holding companies in Mainland China, Ceiling on investments in Mainland China:

Innolux Corporation Chairman: Hsing-Chien Tuan

Documents

Innolux Corporation 2015 Annual Report Corporation 2015 Annual Report Notice to readers This English-version annual report is a summary translation of the Chinese version and is not