Inside Cover - VIS › visCom › annualreport › 2015 › 2015_VIS_annual...Inside Cover: Spokesman D. L. Tseng Vice President, Finance Tel: 886-3-5770355 E-mail: [email protected]

Inside Cover: Spokesman

D. L. Tseng Vice President, Finance Tel: 886-3-5770355 E-mail: [email protected]

Acting Spokesperson K. S. Chiang Director, Finance Division Tel: 886-3-5770355 E-mail: [email protected]

Vanguard International Semiconductor Corporation 123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Website: http: //www.vis.com.tw Tel: 886-3-5770355 Fax: 886-3-5788572 Fab1 123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Tel: 886-3-5770355 Fab2 9, Li-Shin Rd., Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Tel: 886-3-5632111 Fab3 168,Chang-Rong RD.,14 Neighborhood, ChangXing Vil., Luzhu Dist.,Taoyuan City, Taiwan ,R.O.C.. Tel: 886-3-3116111

Common Stock Transfer Agent China Trust Commercial Bank Transfer Agency Department Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei, Taiwan 100, R.O.C. Website: http: //www.chinatrust.com.tw Tel: 886-2-6636-5566 Auditors Andy Huang / Horace Lin Deloitte & Touche 12th Floor, 156 Min Sheng E. Road, Sec. 3, Taipei 105, Taiwan R.O.C. Website: http: //www.deloitte.com.tw Tel: 886-2-2545-9988 Name of any exchanges where the company's securities are traded offshore, and

the method by which to access information on said offshore securities: None

I. A Letter to Shareholders.............................................................................. 1II. A Brief Introduction of VIS......................................................................... 4

Company Profile......................................................................................................................................... 4III. Corporate Governance Report..................................................................... 6

A. Company Organization....................................................................................................................... 6B. Information on the company’s directors, supervisors, general manager, assistant general

managers, deputy assistant general managers, and the chiefs of all the company’s divisions and branches................................................................................................................................................ 8

C. Remuneration to Directors, Supervisors & Managers...................................................................... 13D. Implementation of Corporate Governance........................................................................................ 18E. Information Regarding VIS’s Independent Auditors....................................................................... 43F. Information on Replacement of Certified Public Accountant......................................................... 43G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying

Accounting Firm or Its Affiliate Business in the Past Year......................................................... 43H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors,

Supervisors, Management and Shareholders of 10% Shareholdings or More............................. 43I. Top 10 shareholders relation.............................................................................................................. 44J. VIS Long-Term Investment Ownership............................................................................................ 45

IV. Information On Implementation Of The Company Funds UtilizationPlans.............................................................................................................. 46A. Capital and shares................................................................................................................................ 50B. Issuance of Corporate Bond .............................................................................................................. 50C. Issuance of Preferred Stock Issuance................................................................................................. 50D. Issuance of Depositary Shares Issuance............................................................................................. 50E. Status of Mergers and Acquisitions.................................................................................................... 50F. Fund Plan Implementation.................................................................................................................. 50

V. Operational Highlights................................................................................. 51A. A description of the business..................................................................................................... 51B. Industry survey and market analysis................................................................................................. 63C. Personnel Structure.............................................................................................................................. 68D. Environmental Protection Measures.................................................................................................. 68E. Industrial Relations.............................................................................................................................. 74F. Major Contracts................................................................................................................................... 85

VI. Financial Statements.................................................................................... 86A. Brief Balance Sheets and Brief Statements of Income..................................................................... 86B. Financial Analysis................................................................................................................................. 90C. Audit Committee’s Review Report..................................................................................................... 95D. Financial Statements and Independent Auditors’ Report................................................................ 96E. Consolidated Financial Statements and Independent Auditors’ Report......................................... 96

Contents

F. The financial impact to the Company due to company or affiliate companies financial difficulties.............................................................................................................................................. 96

VII. Financial Position, Operating Results And Risk Management.................. 97A. Analysis of Consolidated Financial Position..................................................................................... 97B. Analysis of Consolidated Financial Performance............................................................................. 98C. Analysis of Consolidated Cash Flow................................................................................................... 99D. Major Capital Expenditure................................................................................................................. 99E. Long Term Investment......................................................................................................................... 100F. Risk Management................................................................................................................................ 100G. Other important matters..................................................................................................................... 105

VIII. Special Notes.................................................................................................. 106A. Affiliated Information.......................................................................................................................... 106B. Private placements Securities.............................................................................................................. 108C. VIS Common Shares acquired, disposed of and held by subsidiaries............................................ 108D. Other Necessary Supplement.............................................................................................................. 108E. Any Events in Y2015 that had Significant Impacts on Shareholders’ Right or Security

Prices as started in Item 3 paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan................................................................................................................................................... 108

IX. Financial Statements, Consolidated Financial Statements andIndependent Auditors’ Report ................................................................... 109Financial Statements and Independent Auditors' Report......................................................................... 109Consolidated Financial Statements and Independent Auditors' Report................................................. 188

I. A Letter to Shareholders

Dear Shareholders,

2015 was a challenging year for global semiconductor industries. In contrast to the optimistic expectations generally harbored at the beginning of the year, the declining global economy impacted market confidence, thereby weakening end market demand . VIS posted consolidated revenue of NT$23.32 billion in Y2015 which represented an decrease of 2.6% over NT$23.93 billion in Y2014. And gross profit margin of about 29.6%, after-tax net income of approximately NT$4.16 billion, the earning per share of NT$2.5, and return on equity about 15.1% in Y2015. In the future, we will more actively invest in research and development to advance our process technologies and establish new customer bases, so as to deliver better performances in times of economic recovery.

Capacity and Business

VIS’ capital expenditure amounted to approximately NT$ 1.5 billion with yearly capacity around 2.13 million wafers and capacity utilization was around 82% in Y2015. Annual wafer shipments reached 1.736 million units. In order to continually upgrade process technologies and expand production capacity, we estimate capital expenditure will be around NT$1.3 billion in Y2016.

Technology Development

In order to provide customers with more competitive technologies and services, the company has continued to develop more specialized applications from core technologies and enhance the value of services we provide. In the field of display driver IC technology development, our 0.2um, 0.18um, and 0.15um high-voltage processes, and 0.16um, 0.11um high-voltage process with embedded non-volatile memory exclusively designed for touch panels, have entered into mass production.

In BCD (Bipolar-CMOS-DMOS) processes for power management ICs, apart from the 0.5um, 0.4um, 0.35um, 0.25um, and 0.15um processes that have already put into mass production, the development of a next-generation 0.11um BCD process also will be completed this year. Furthermore, we have completed the development of second-generation 0.5um ultra low Rdson, simplified ultra-high-voltage and phase 1 0.25um SOI processes, and ready to be used for customers’ product design. Particularly, we have started mass production with unique Magnetic Sensor process technology which is mainly applied in mobile and automotive systems. In the future, VIS will continue to develop high voltage and power management platforms to accommodate market demand, and collaborate with Taiwan Semiconductor Manufacturing Co. (TSMC) on the transfer of various advanced process technologies to satisfy customers’ need.

1

Vanguard InternationalSemiconductor Corporation

Visions and Outlook

The global economy in 2015 indicated that China and European countries had decelerated. Although the United States delivered favorable performance, the global GDP reflected a declining trend. Closely connected to GDP growth, the semiconductor industry also registered a 2% decrease in overall output value at approximately US$334 billion. Due to there is certain level of market demand for advanced process technologies, foundry industry grew by approximately 3%, achieving an output of US$48 billion, of which roughly US$14 billion was contributed by 8" foundry.

As integral parts of the company's business, end products including displays, notebooks, tablets, mobile phones, and LCD TVs disclosed an unexpected performance in terms of shipment due to the influence of the economic downturn. Continuously cannibalized by tablets and smartphones, computer products indicated a decreased of about 9% throughout the year. Furthermore, tablets, originally enjoyed high market demand, showed a dramatic decline of about 14% due to minimal changes in product design and low willingness for replacement from consumers. And mobile phone market slightly increased by about 10%, mainly attributed to demand from smartphone. However, the annual growth rate were not exceeded 25% compared to that of the past. As to the LCD TVs, thanks to the price drop of ultra-high resolution panel drove certain market demand, shipment declined by approximately 1%. In general, the decline of the end market demand did have certain impact on the Company's business operations, continued to introduce new process technologies and put into mass production in a timely manner have enabled us to mitigate the magnitude of decline in our business performance for 2015.

Looking ahead to 2016, the World Bank recently predicted a 2.9% global GDP growth in 2016, this is the first time global growth rate has failed to exceed 3% since the economic recovery in 2012. Although China's economy remains uncertain, the European economy is expected to re-stabilize, the US market will continue to improve, and further driven by the Olympic game, the rebound of the end market demand is expected. The global semiconductor market is expected to reach US$340 billion, representing a growth of 2%. The foundry industry is also expected to grow at an annual rate of roughly 5% to US$51 billion.

With our display driver IC and discrete power devices both exhibiting distinctive operational performances, and in order to diversify product and market centralization, reduce operating risks and extend its reaches in the high-profit market. In addition to our existing high-voltage analog, BCD process, and ultra-high-voltage processes, the company will continue to accelerate the development projects relating to sensing

2


devices, fingerprint sensor ICs, and power management ICs, to adapt to the energy saving and carbon reduction era and to satisfy market demand for automobile electronics and Internet of Things applications. We believe those efforts will be beneficial toward enhancing our business operations. Furthermore, the company will continue to engage more IDM companies and oversea customers to expand customer base and will strengthen ties and forge long-lasting partnerships with customers to secure our leading position among specialty IC foundry industries, and ultimately to become one of the world’s leading companies in HV and PMIC in foundry industry.

Finally, we would like to express our thankfulness to all shareholders, customers and employees for your continuing support and contributions to VIS. We wish you all the best of health and prosperity in the year ahead.

*Y2016 sales forecast: 1,856 thousands wafers

Chairman & President Leuh Fang

0 1000 2000

2016

2015

2014

Wafer shipments thousands of 8" wafers

*

3


josh

經理人簽(en)

II. A Brief Introduction of VIS

Company Profile

Vanguard International Semiconductor Corporation (VIS) is a leading specialty IC foundry service provider. Since its founding in December 5th, 1994 in Hsinchu Science Park, Taiwan, VIS has been achieving continuous success in its technology development and production efficiency improvement. VIS has also been consistently offering its customers cost-effective solutions and high value-added services. VIS has three 8-inch fabs with a monthly capacity of approximately 177,000 wafers in Y2015.

VIS is a spin-off of the Sub-Micron Project, sponsored by the Industrial Technology Research Institute (ITRI). Original investors include Taiwan Semiconductor Manufacturing Corporation (TSMC) and 13 other institutional investors. VIS was founded with the primary focuses on the production and development of DRAM and other memory IC. In March 1998, VIS became a listed company on the Taiwan Over-The-Counter Stock Exchange (OTC). Its main shareholders include Taiwan Semiconductor Manufacturing Corporation (TSMC), National Development Fund and other institutional investors.

In 1999, VIS started to work as a subcontractor for TSMC for the manufacturing of logic and mixed signal products. In Y2000, VIS officially announced its plan to transform from a DRAM manufacturer into a foundry service provider. After that, VIS offers a various foundry process technologies, including High Voltage, and 0.18um flash and entered into mass production. In July 2004, VIS completely terminated its DRAM production and became a pure-play foundry company. In Y2007, VIS announced the procurement of 8” fabs from Winbond. With this acquisition, VIS unleashed the growth momentum, accommodated customers’ demands in capacity and technology, and provided a more comprehensive solution portfolio for our customers. In 2014, VIS acquired Nanya Technology's 8-inch fab located in Taoyuan County and mechanical equipment from Sumpro Electronic. This transaction not only granted VIS the opportunity to expand its production capacity, but also enabled VIS to grow continually and earn profits steadily.

VIS has continued its investment in the product development and process technology for the market needs. VIS offers a wide range of process technologies, including High Voltage, Ultra High Voltage, Bipolar CMOS DMOS (BCD), Silicon on Insulator (SOI), Discrete, Logic, Mixed-Signal, Analog, High Precision Analog, Magnetic Sensor, and Embedded Memory to further help increase its foundry customers’ global competitiveness.

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

4


strengthening strategic relationship with its IP provision partners. Currently available IPs are standard cell library, SRAM, one-time programmable, multiple-time programmable, electrical fuse, power phantom cell, etc…Furthermore, we’re accelerating the set-up of non-volatile flash IP. With the help from strategic IP partners, VIS can also provide IPs that are required by specialty ICs.

VIS has about 4,600 employees. We are committed to adhere to our customer-oriented business philosophy to provide our customers with continuously improved and enhanced specialty IC foundry services. To better serve its worldwide customers, VIS has established sales offices in Taiwan and sales representatives in worldwide main IC clusters.

Besides the display-related ICs, particularly power management ICs and mixed signal ICs market are VIS’s focus. Due to the current global trend towards energy-saving and low-carbon technologies, it is also expected that high-voltage analog, PMIC, and discrete power device demand will continue to enjoy stable growth, and the company's customer base will expand from fabless producers to even more large IDM firms. We will continue to establish long-term partnerships with customers to secure our leading position among specialty foundry industry.

5


III. CORPORATE GOVERNANCE REPORTA. Company Organization

1. Organizational chart:

2. Function DescriptionPresident Management of company-wide operations. Establish VIS business strategy

and target. VP of Finance Corporate Accounting Div., Finance Div., Material Management Div., PR &

IR dept., IT & E-commerce Div., and Corporate Planning Div. Responsible for the company finance, accounting operation and material management, as well as BOD, establishing the company's external communication channel, and maintaining the company's corporate image, investor relationship, investment analysis, and long-term investment planning.

VP of Worldwide Sales and Planning

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

VP of Research & Development

Corporate technology and IP development, as well as providing supports for device engineering, IP resources, layout, mask generation, and CAD tool management. Incl.: Technology Development Div., Device Engineering Div., Design Service Engineering Div., Design System Technology Dept., Project Management Dept., and Design Service Dept..

VP of Operation & Corporate Wafer Production, Risk & Env. Safety Management Dept.,

6


Environment Safety

Computer Int. Mfg. Div., Product Engineering Div., Backend Operation Div., Module Development Program and Special Project Dept.. Improve operation efficiency, and ensure timely delivery of high quality products to customers.

General Counsel of Legal

Corporate legal affairs, Intellectual property protection and Legal compliances.

Human Resources Div.

Recruiting the most qualified and suitable talents, providing employee training & development programs to meet company's growth, and establishing an effective & innovative personnel management system and work environment in order to attract and retain talents, and maintain good labor relations.

Quality Reliability Assurance Div.

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

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

7


B.

Info

rmat

ion

on

th

e co

mp

any'

s d

irec

tors

, su

per

viso

rs,

gen

eral

m

anag

er,

assi

stan

t ge

ner

al

man

ager

s,

dep

uty

as

sist

ant

gen

eral

m

anag

ers,

and

th

e ch

iefs

of

all t

he

com

pany

's d

ivis

ion

s an

d b

ran

ches

1.

Dir

ecto

rs:

Febr

uary

29,

201

6

Title

N

atio

nalit

y N

ame

Dat

e El

ecte

d Te

nure

(Y

ear)

D

ate

Firs

t El

ecte

d

Shar

ehol

ding

whe

n El

ecte

d C

urre

nt S

hare

hold

ing

Spou

se &

Min

or

Shar

ehol

ding

Shar

ehol

ding

by

Nom

inee

A

rran

gem

ent

Educ

atio

n &

Sele

cted

Pas

t Po

sitio

ns

Sele

cted

Cur

rent

Pos

ition

s

Man

ager

s Are

Spo

use

or

With

in S

econ

d-de

gree

R

elat

ive

of C

onsa

ngui

nity

to

Each

Oth

er

Shar

es

%

Shar

es

%

Shar

es%

Sh

ares

%

Title

N

ame

Rel

atio

n C

hairm

an

R.O

.C.

Taiw

an

Sem

icon

duct

or

Man

ufac

turin

g C

o.,

Ltd.

(tsm

c)

Leuh

Fan

g

2015

.06.

08

3 19

94.1

1.10

546,

223,

493

3,21

5,00

0

33.3

3

020

464,

223,

493

3,21

5,00

0

28.3

2

0.20

00

00

Fab

Dire

ctor

, Tai

wan

Se

mic

ondu

ctor

Man

ufac

turin

g C

ompa

ny, L

td.

Vic

e Pr

esid

ent,

SSM

C

MS,

Mat

eria

ls S

cien

ce a

nd

Engi

neer

ing,

Uni

vers

ity o

f W

ashi

ngto

n

Pres

iden

t, Va

ngua

rd In

tern

atio

nal

Sem

icon

duct

or C

orpo

ratio

n D

irect

or a

nd P

resi

dent

, VIS

Ass

ocia

tes I

nc.

Dire

ctor

and

Pre

side

nt, V

IS In

vest

men

t H

oldi

ng, I

nc.

Dire

ctor

, VIS

Mic

ro, I

nc.

Dire

ctor

, J-M

EX I

nc.

Non

e N

one

Non

e

Taiw

anSe

mic

ondu

ctor

M

anuf

actu

ring

Co.

, Lt

d. (t

smc)

R

epre

sent

ativ

es:

2015

.06.

08

3 19

94.1

1.10

546,

223,

493

33.3

346

4,22

3,49

328

.32

Vic

e C

hairm

an

R.O

.C.

F.C

. Tse

ng

1,44

4,28

20.

091,

444,

282

0.09

00

00

Pres

iden

t, Va

ngua

rd

Inte

rnat

iona

l Sem

icon

duct

or

Cor

p.

Pres

iden

t, TS

MC

Ph

.D. i

n El

ectri

cal

Engi

neer

ing,

Nat

iona

l C

heng

kung

Uni

vers

ity, T

aiw

an

Cha

irman

, TSM

C C

hina

Com

pany

Ltd

. C

hairm

an, G

loba

l Uni

chip

Cor

p.

Vic

e C

hairm

an, T

SMC

In

depe

nden

t Dire

ctor

, Ace

r Inc

.

Non

e N

one

Non

e

Dire

ctor

R

.O.C

. N

atio

nal

Dev

elop

men

t Fun

d Ex

ecut

ive Y

uan

Rep

rese

ntat

ive:

K

. H. H

siao

2015

.06.

08

3 19

99.0

3.01

27

4,02

9,59

2 0

16.7

2 0

274,

029,

592 0

16.7

2 0

00

00

Exec

utiv

e Se

cret

ary,

Nat

iona

l D

evel

opm

ent F

und,

Exe

cutiv

e Yu

an

Dire

ctor

, Dep

artm

ent o

f Se

ctor

al P

lann

ing,

CEP

D,

Exec

utiv

e Yua

n M

aste

r's D

egre

e in

Agr

icul

tura

l Ec

onom

ics,

Nat

iona

l Tai

wan

U

nive

rsity

Cou

nsel

or, N

atio

nal D

evel

opm

ent C

ounc

ilN

one

Non

e N

one

Dire

ctor

R

.O.C

. Ed

war

d Y.

Way

20

15.0

6.08

3

2010

.05.

26

00

00

0

0

0

0M

anag

ing

Partn

er &

CEO

, D

eloi

tte T

aiw

an

MB

A, U

nive

rsity

of G

eorg

ia

Inde

pend

ent D

irect

or, S

ynne

x Te

chno

logy

In

tern

atio

nal C

orp.

In

depe

nden

t Dire

ctor

, Tai

wan

Cem

ent C

orp.

In

depe

nden

t Dire

ctor

, Far

Eas

tern

D

epar

tmen

t Sto

res,

Ltd.

Non

e N

one

Non

e

8


9


Sh

areh

oldi

ng w

hen

Elec

ted

Cur

rent

Sha

reho

ldin

gSp

ouse

& M

inor

Sh

areh

oldi

ng

Shar

ehol

ding

by

Nom

inee

A

rran

gem

ent

Man

ager

s Are

Spo

use

or

With

in S

econ

d-de

gree

R

elat

ive

of C

onsa

ngui

nity

to

Each

Oth

er

Title

N

atio

nalit

y N

ame

Dat

e El

ecte

d Te

nure

(Y

ear)

D

ate

Firs

t El

ecte

d

Shar

es

%

Shar

es

%

Shar

es%

Sh

ares

%

Educ

atio

n &

Sele

cted

Pas

t Po

sitio

ns

Sele

cted

Cur

rent

Pos

ition

s

Title

N

ame

Rel

atio

n

Inde

pend

ent D

irect

or, P

rimax

Ele

ctro

nics

Lt

d.

Dire

ctor

, MIT

AC

Hol

ding

s Cor

p.

Rep

rese

ntat

ive

Dire

ctor

, Wow

prim

e C

orp.

D

irect

or, I

ron

Forc

e In

dust

rial C

o., L

td.

Supe

rvis

or, S

erco

mm

Cor

p., R

epre

sent

ativ

e Su

perv

isor

, Chi

lisin

Ele

ctro

nics

Cor

p.,

Rep

rese

ntat

ive

Supe

rvis

or, U

nite

d W

ay o

f Tai

wan

Inde

pend

ent

Dire

ctor

R

.O.C

. C

hint

ay S

hih

2015

.06.

08

3 20

12.0

6.12

00

00

0 0

0 0

Cha

irman

, Ins

titut

e fo

r In

form

atio

n In

dust

ry

Pres

iden

t, In

dust

rial

Tech

nolo

gy R

esea

rch

Inst

itute

Dea

n, C

olle

ge o

f Tec

hnol

ogy

Man

agem

ent,

Nat

iona

l Tsi

ng

Hua

Uni

vers

ity

Ph.D

. Ele

ctric

Eng

inee

ring,

Pr

ince

ton

Uni

vers

ity, U

SA

Prof

esso

r, C

olle

ge o

f Tec

hnol

ogy

Man

agem

ent,

Nat

iona

l Tsi

ng H

ua

Uni

vers

ity

Inde

pend

ent D

irect

or, F

ocal

Tech

Sys

tem

s, Lt

d.

Inde

pend

ent D

irect

or, S

erco

mm

Cor

p.

Non

e N

one

Non

e

Inde

pend

ent

Dire

ctor

R

.O.C

. B

enso

n W

.C.

Liu

2015

.06.

08

3 20

12.0

6.12

0

00

00

0 0

0 C

hairm

an &

CEO

, B

risto

l-Mye

rs S

quib

b (T

aiw

an)

Ltd

Mas

ter,

Inte

rnat

iona

l Bus

ines

s A

dmin

istra

tion,

Uni

vers

ity o

f N

orth

rop,

USA

Inde

pend

ent D

irect

or, G

loba

l Uni

chip

Cor

p.

Inde

pend

ent D

irect

or, P

olyl

ite T

aiw

an

Co.

,Ltd

.

Vic

e C

hairm

an, C

hine

se C

orpo

rate

G

over

nanc

e A

ssoc

iatio

n

Dire

ctor

, May

wuf

a C

ompa

ny L

td.

Non

e N

one

Non

e

Inde

pend

ent

Dire

ctor

R

.O.C

. K

enne

th K

in

2015

.06.

08

3 20

12.0

6.12

0

00

00

0 0

0 Se

nior

Vic

e Pr

esid

ent,

TSM

C

Vic

e Pr

esid

ent,

Wor

ldw

ide

Sale

s & S

ervi

ces,

IBM

M

icro

elec

troni

cs D

ivis

ion

Ph.D

. Nuc

lear

Eng

inee

ring

and

App

lied

Phys

ics,

Col

umbi

a U

nive

rsity

, USA

Ass

ocia

te D

ean

and

prof

esso

r, C

olle

ge o

f Te

chno

logy

Man

agem

ent,

Nat

iona

l Tsi

ng

Hua

Uni

vers

ity

Inde

pend

ent D

irect

or, e

Mem

ory

Tech

nolo

gy

Inc.

In

depe

nden

t Dire

ctor

, Azu

reW

ave

Tech

nolo

gies

Inc.

In

depe

nden

t Dire

ctor

, Her

mes

Mic

rovi

sion

, In

c.

Dire

ctor

, Med

iaTe

k In

c.

Non

e N

one

Non

e

Maj

or S

har

ehol

der

s of

th

e In

stit

uti

onal

Sh

areh

old

ers:

As o

f 12/

31/2

015

Inst

itutio

nal S

hare

hold

ers

Maj

or S

hare

hold

ers o

f the

Inst

itutio

nal S

hare

hold

ers

Taiw

an S

emic

ondu

ctor

M

anuf

actu

ring

Co.

, Ltd

. A

DR

-Tai

wan

Sem

icon

duct

or M

anuf

actu

ring

Com

pany

, Ltd

. N

atio

nal D

evel

opm

ent F

und,

Exe

cutiv

e Yu

an

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy fo

r Sau

di A

rabi

an M

onet

ary

Age

ncy

Gov

ernm

ent o

f Sin

gapo

re

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy fo

r Eur

oPac

ific

Gro

wth

Fun

d JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for A

BU

DH

AB

I Inv

estm

ent A

utho

rity

Cat

hay

Life

Insu

ranc

e C

o., L

td.

Vang

uard

Em

ergi

ng M

arke

ts S

tock

Inde

x Fu

nd, a

Ser

ies o

f Van

guar

d In

tern

atio

nal E

quity

Inde

x Fu

nds

Nor

ges B

ank

JPM

orga

n C

hase

Ban

k, N

.A.,

Taip

ei B

ranc

h in

cus

tody

for S

ticht

ing

Dep

osita

ry A

PG E

mer

ging

Mar

kets

Equ

ity P

ool

20.6

9%

6.38

%

2.47

%

2.45

%

1.37

%

1.24

%

1.11

%

0.97

%

0.91

%

0.89

%

Inst

itu

tion

al S

har

ehol

der

Rep

rese

nta

tive

s fo

r M

ajor

Sh

areh

old

ers

of t

he

Inst

itu

tion

al S

har

ehol

der

s As o

f 12/

31/2

015

Inst

itutio

nal S

hare

hold

ers

Maj

or S

hare

hold

ers o

f the

In

stitu

tiona

l Sha

reho

lder

s

Cat

hay

Life

Insu

ranc

e C

o., L

td.

Cat

hay

Fina

ncia

l Hol

ding

s 10

0%

AD

R-T

aiw

an S

emic

ondu

ctor

Man

ufac

turin

g C

ompa

ny, L

td.

Nat

iona

l Dev

elop

men

t Fun

d, E

xecu

tive

Yuan

JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for S

audi

Ara

bian

Mon

etar

y A

genc

y G

over

nmen

t of S

inga

pore

JP

Mor

gan

Cha

se B

ank

N.A

. Tai

pei B

ranc

h in

cus

tody

for E

uroP

acifi

c G

row

th F

und

JPM

orga

n C

hase

Ban

k N

.A. T

aipe

i Bra

nch

in c

usto

dy fo

r AB

U D

HA

BI I

nves

tmen

t Aut

horit

y Va

ngua

rd E

mer

ging

Mar

kets

Sto

ck In

dex

Fund

, a S

erie

s of V

angu

ard

Inte

rnat

iona

l Equ

ity In

dex

Fund

s N

orge

s Ban

k JP

Mor

gan

Cha

se B

ank,

N.A

., Ta

ipei

Bra

nch

in c

usto

dy fo

r Stic

htin

g D

epos

itary

APG

Em

ergi

ng M

arke

ts E

quity

Poo

l

Non

-com

pany

org

aniz

atio

n

10


Independence Analysis of Board Members under Taiwan SFC Criteria:

February 29, 2016

Name

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

public companies that concurrently serve as an independent

director

College Instructor or higher level in

Business, Legal, Finance, Accounting or company business

related area

Court Judge, Prosecutor,

Lawyer, Accountant, or other Certified Professional

expert related to company business

Business, Legal, Finance,

Accounting or company business required working

experience

1 2 3 4 5 6 7 8 9 10

Leuh Fang 0F.C. Tseng 1

Edward Y. Way 4 K. H. Hsiao 0 Chintay Shih 2 Benson W.C.

Liu 2

Kenneth Kin 3

Note :

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

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

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

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

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

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

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

share-holders of juridical person.

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

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

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

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

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

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

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


11


2.E

xecu

tive

Off

icer

s:

Feb

ruar

y 29

, 201

6

Title

N

ame

Dat

e El

ecte

d C

urre

nt S

hare

hold

ing

Spou

se &

Min

or

Shar

ehol

ding

Sh

areh

oldi

ng b

y N

omin

ee A

rran

gem

ent

Educ

atio

n &

Sele

cted

Pas

t Pos

ition

s Se

lect

ed C

urre

nt P

ositi

ons

Man

ager

s Are

Spo

use

or

With

in S

econ

d-de

gree

R

elat

ive

of

Con

sang

uini

ty to

Eac

h O

ther

Sh

ares

%

Sh

ares

%

Sh

ares

%

Ti

tle

Nam

e R

elat

ion

Pres

iden

tLe

uh F

ang

2009

.2.2

0 3,

215,

000

0.20

%0

0 0

0

MS,

M

ater

ials

Sc

ienc

e an

d En

gine

erin

g,

Uni

vers

ity o

f Was

hing

ton

Fab

Dire

ctor

, Ta

iwan

Se

mic

ondu

ctor

M

anuf

actu

ring

Com

pany

, Ltd

. V

ice

Pres

iden

t, SS

MC

Dire

ctor

and

Pre

side

nt, V

IS A

ssoc

iate

s Inc

. D

irect

or a

nd P

resi

dent

, V

IS I

nves

tmen

t H

oldi

ng,

Inc.

D

irect

or, V

IS M

icro

, Inc

. D

irect

or, J

-MEX

Inc

. N

one

Non

e N

one

Vic

e Pr

esid

ent,

Fina

nce

D. L

. Tse

ng20

11.5

.1

52,7

27

0.00

%30

8,93

7 0.

02%

0 0

Bac

helo

r, N

atio

nal C

heng

chi U

nive

rsity

D

ept.

Man

ager

, Phi

lips E

lect

roni

cs

Dire

ctor

and

Vic

e Pr

esid

ent,

VIS

Ass

ocia

tes I

nc.

Dire

ctor

and

CFO

, VIS

Inve

stm

ent H

oldi

ng, I

nc.

Dire

ctor

and

CFO

, VIS

Mic

ro In

c.

Non

e N

one

Non

e

Vic

e Pr

esid

ent

Wor

ldw

ide

Sale

s an

d Pl

anni

ng

Thom

as

Cha

ng

2003

.8.2

2 30

0,00

0 0.

02%

0 0

0 0

MS,

Ele

ctri

cal

Engi

neer

ing,

Uni

vers

ity o

f C

inci

nnat

i V

ice

Pres

iden

t, M

osel

Vite

lic In

c.

Dire

ctor

and

Pre

side

nt, V

IS M

icro

Inc.

D

irect

or, S

peci

alty

Tec

hFar

m, I

nc.

Non

e N

one

Non

e

Vic

e Pr

esid

ent

Res

earc

h &

D

evel

opm

ent

Jun-

Wei

C

hen

2014

.10.

30

0 0.

00%

0 0

0 0

Ph.

D.,

Elec

tric

al E

ngin

eeri

ng,

Car

negi

e-M

ello

n U

nive

rsity

G

ener

al M

anag

er, V

IS M

icro

Inc

Vic

e Pr

esid

ent

of

Tech

nolo

gy,

Kin

etic

Te

chno

logi

es, I

nc.

Vic

e Pr

esid

ent

of T

echn

olog

y, A

dvan

ced

Ana

logi

c Te

chno

logi

es, I

nc.

Non

e

Non

e N

one

Non

e

Vic

e Pr

esid

ent

Ope

ratio

n &

En

viro

nmen

t Sa

fety

Cha

n-Je

n K

uo20

07.5

.21

224,

913

0.01

%0

0 0

0 M

S, E

lect

rica

l Eng

inee

ring

, Nat

iona

l Tsi

ng

Hua

Uni

vers

ity

Non

e N

one

Non

e N

one

Ass

ocia

te V

ice

Pres

iden

t R

esea

rch

&

Dev

elop

men

t

Chr

ong-

Jung

Li

n 20

15.1

2.01

0

0.00

%0

0 0

0

Ph.

D,

Elec

tric

al

Engi

neer

ing,

N

atio

nal

Tsin

g H

ua U

nive

rsity

Pr

ofes

sor,

Elec

tric

al E

ngin

eeri

ng,

Nat

iona

l Ts

ing

Hua

Uni

vers

ity

R&

D P

rogr

am M

anag

er, T

SMC

Non

e

Non

e N

one

Non

e

12


C.

Rem

uner

atio

n to

Dir

ecto

rs, S

uper

viso

rs &

Man

ager

s 1.

R

emun

erat

ion

to D

irec

tors

: U

nit:

NT$

, in

thou

sand

s

Rem

uner

atio

n to

Dire

ctor

s Em

ploy

ee P

rofit

Sha

ring

Rem

uner

atio

n(A

) R

etire

men

t pay

(B)

dire

ctor

s' co

mpe

nsat

ion

(C)

Tran

spor

tatio

n (D

)

A+B

+C+D

as %

of

Net

Inco

me

Sala

ry &

Bon

us (E

) R

etire

men

t pay

(F

) em

ploy

ees'

com

pens

atio

n (G

Num

ber o

f Em

ploy

ee S

tock

O

ptio

ns G

rant

ed

(H)

Num

ber o

f Em

ploy

ee

Res

trict

ed S

tock

G

rant

ed (I

)

A+B

+C+D

+E+F

+G

as %

of

Net

Inco

me

VIS

V

IS &

Aff

iliat

es

Title

N

ame

VIS

VIS

&

Aff

iliat

esV

IS

VIS

&

Aff

iliat

es

VIS

V

IS &

A

ffili

ates

VIS

V

IS &

A

ffili

ates

VIS

V

IS &

A

ffili

ates

VIS

V

IS &

A

ffili

ates

VIS

VIS

&

Aff

iliat

esC

ash

Stoc

kC

ash

Stoc

kV

ISV

IS &

A

ffili

ates

VIS

VIS

&

Aff

iliat

es

VIS

V

IS &

A

ffili

ates

Oth

er

Rem

uner

atio

n

Cha

irman

Leuh

Fan

g (T

aiw

an

Sem

icon

duct

or

Man

ufac

turin

g C

o., L

td.

Rep

rese

ntat

ive)

Cha

irman

C

hing

-Chu

Cha

ng

(rel

ieve

d)

Vice

Cha

irman

F.C

. Tse

ng

(Tai

wan

Se

mic

ondu

ctor

M

anuf

actu

ring

Co.

, Ltd

. R

epre

sent

ativ

e)

Dire

ctor

Edw

ard

Y. W

ay

(Dire

ctor

/ Fo

rmer

Ta

iwan

Se

mic

ondu

ctor

M

anuf

actu

ring

Co.

, Ltd

. R

epre

sent

ativ

e)

Dire

ctor

K. H

. Hsi

ao

(Nat

iona

l D

evel

opm

ent

Fund

, Exe

cutiv

e Yu

an

R

epre

sent

ativ

e)

Inde

pend

ent

Dire

ctor

C

hint

ay S

hih

Inde

pend

ent

Dire

ctor

B

enso

n W

.C. L

iu

Inde

pend

ent

Dire

ctor

K

enne

th K

in

7,47

07,

470

22,0

80

22,0

80

13,3

8413

,384

1,13

11,

131

1.06

%1.

06%

20,3

2120

,321

0

0 19

,577

019

,577

0 0

0 0

0 2.

02%

2.

02%

N

one

13


Range of Remuneration to Directors (NT$)

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

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

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

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

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

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

2,000,000～4,999,9995,000,000～9,999,99910,000,000～14,999,99915,000,000～29,999,99930,000,000～49,999,999 Ching-Chu Chang

(relieved) Ching-Chu Chang(relieved)

Ching-Chu Chang(relieved) Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd. Representative)

Ching-Chu Chang(relieved) Leuh Fang (Taiwan Semiconductor Manufacturing Co., Ltd. Representative)

50,000,000～99,999,999100,000,000~Total 8 8 8 8

2. Remuneration to Supervisors: None

Note 1：Ching-Chu Chang was relieved as Chairman of VIS on June 8, 2015. Note 2：Leuh Fang was appointed as Chairman & President of VIS on June 8, 2015.

14


3.R

emu

ner

atio

n t

o P

resi

den

t an

d V

ice

Pre

sid

ents

:U

nit:

NT$

, in

thou

sand

s

Title

N

ame

Sala

ry (A

) R

etire

men

t pay

(B

) B

onus

(C)

Empl

oyee

Pro

fit S

harin

g (D

) （

Not

e 1）

A

+B+C

+D a

s %

of N

et In

com

e ES

OP

Shar

es

Gra

nted

No.

of s

hare

s ac

quire

d by

em

ploy

ees

exer

cisi

ng st

ock

optio

ns

Oth

er

Rem

uner

atio

n

VIS

V

IS &

A

ffili

ates

V

IS

VIS

&

Aff

iliat

esV

ISV

IS &

A

ffili

ates

VIS

V

IS &

Aff

iliat

es

VIS

VIS

&

Aff

iliat

esV

ISV

IS &

A

ffili

ates

VIS

VIS

&

Aff

iliat

esC

ash

Stoc

kC

ash

Stoc

kPr

esid

ent

Leuh

Fan

g

21,4

5525

,811

0

0 34

,231

34,2

31

39,5

690

39,5

69

0 2.

292.

40

0 0

21,4

5525

,811

N

one

Vic

e Pr

esid

ent,

Fina

nce

D. L

. Tse

ng

Vic

e Pr

esid

ent

Wor

ldw

ide

Sale

s and

Pl

anni

ng

Thom

as

Cha

ng

Vic

e Pr

esid

ent

Res

earc

h &

D

evel

opm

ent

Jun-

Wei

C

hen

Vic

e Pr

esid

ent

Ope

ratio

n &

En

viro

nmen

t Sa

fety

Cha

n-Je

n K

uo

Ass

ocia

te

Vic

e Pr

esid

ent

Res

earc

h &

D

evel

opm

ent

Chr

ong-

Jung

Li

n

Not

e 1

: As

of th

e an

nual

repo

rt pu

blic

atio

n da

te, p

rior t

o th

e sh

areh

olde

rs m

eetin

g re

solu

tion

conc

erni

ng th

e Y

2015

dis

tribu

tion

of e

arni

ngs,

the

boar

d of

dire

ctor

s ap

prov

ed a

pro

posa

l det

erm

inin

g th

e am

ount

s of

th

e bo

nuse

s gra

nted

to th

e pr

esid

ent a

nd v

ice

pres

iden

t; th

e fig

ure

abov

e is

a te

ntat

ive

estim

ate,

and

the

amou

nt w

ill b

e im

plem

ente

d fo

llow

ing

a re

solu

tion

at th

e Y

2016

shar

ehol

ders

mee

ting.

N

ote

2 : C

hron

g-Ju

ng L

in w

as a

ppoi

nted

as A

ssoc

iate

Vic

e Pr

esid

ent o

f VIS

on

Dec

embe

r 01,

201

5.

15


Ran

ge o

f Rem

uner

atio

n to

P

resi

dent

and

Vic

e Pr

esid

ent (

NT$

) N

ame

of P

resi

dent

and

Vic

e Pr

esid

ent

VIS

V

IS &

Aff

iliat

es

<2,0

00,0

00

Chr

ong-

Jung

Lin

C

hron

g-Ju

ng L

in

2,00

0,00

0～4,

999,

999

5,00

0,00

0～9,

999,

999

10,0

00,0

00～

14,9

99,9

99

D. L

. Tse

ng, T

hom

as C

hang

, Jun

-We

Che

n, C

han-

Jen

Kuo

D

. L. T

seng

, Tho

mas

Cha

ng, J

un-W

e C

hen,

Cha

n-Je

n K

uo

15,0

00,0

00～

29,9

99,9

9930

,000

,000～

49,9

99,9

99

Leuh

Fan

g Le

uh F

ang

Tota

l6

6

Em

plo

yee

Pro

fit

Sh

arin

g G

ran

ted

to

Man

agem

ent

Tea

m:

Fe

brua

ry 2

9, 2

016

Title

N

ame

Stoc

k C

ash

Tota

l To

tal a

s % o

f Net

Inco

me

Pres

iden

tLe

uhFa

ng

039

,569

39

,569

0.95

Vic

e Pr

esid

ent,

Fina

nce

D. L

. Tse

ng

Vic

e Pr

esid

ent M

arke

ting

& S

ales

Th

omas

Cha

ng

Vic

e Pr

esid

ent R

esea

rch

& D

evel

opm

ent

Jun-

Wei

Che

n V

ice

Pres

iden

t Ope

ratio

n &

Env

ironm

ent S

afet

y C

han-

Jen

Kuo

A

ssoc

iate

Vic

e Pr

esid

ent R

esea

rch

& D

evel

opm

ent

Chr

ong-

Jung

Lin

Not

e 1

: As o

f the

ann

ual r

epor

t pub

licat

ion

date

, prio

r to

the

shar

ehol

ders

mee

ting

reso

lutio

n co

ncer

ning

the

Y20

15 d

istri

butio

n of

ear

ning

s, th

e bo

ard

of d

irect

ors a

ppro

ved

a pr

opos

al

dete

rmin

ing

the

amou

nts

of th

e bo

nuse

s gr

ante

d to

the

pres

iden

t and

vic

e pr

esid

ent;

the

figur

e ab

ove

is a

tent

ativ

e es

timat

e, a

nd th

e am

ount

will

be

impl

emen

ted

follo

win

g a

reso

lutio

n at

the

Y20

16 sh

areh

olde

rs m

eetin

g.

Not

e 2

: Chr

ong-

Jung

Lin

was

app

oint

ed a

s Ass

ocia

te V

ice

Pres

iden

t of V

IS o

n D

ecem

ber 0

1, 2

015.

16


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

Income Ratio Analysis and Company Remuneration Policy, Pattern,

Procedures and Ties to the Operational Result

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

years for Company Directors, Supervisors and Executive Officers: Unit: NT$, in thousands

Title

VIS Paid Remuneration as % of Net Income

Y2014 Y2015

Remuneration Net Income Remuneration as % of Net Income Remuneration Net Income Remuneration as % of

Net Income Directors 46,052

5,440,081

0.85% 44,065

4,157,583

1.06%

Supervisors 0 0.00% 0 0.00%President and

Vice Presidents 143,551 2.64% 95,255 2.29%

Unit: NT$, in thousands

Title

VIS & Affiliates Paid Remuneration as % of Net Income

Y2014 Y2015

Remuneration Net Income Remuneration as % of Net Income Remuneration Net Income Remuneration as % of

Net Income Directors 46,052

5,440,081

0.85% 44,065

4,157,583 Supervisors 0 0.00% 0 0.00%President and

Vice Presidents 147,337 2.71% 99,611 2.40%

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

the Operational Result:

The compensation policy for board directors and supervisors is regulated in the company policy. Based on the general pattern in the industry, it is further adjusted by profit distribution approved by board and shareholder meetings. It is heavily influenced by the company operational result. Executive compensation and bonus situation is set by adjustable company rules, education and experience level, and comparison with industry peers. It is further adjusted by profit distribution approved by board and shareholder meetings. It is heavily influenced by company operational result.

17


1.06%

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

The Board convened 7 meetings in Y2015. Meeting attendance was as follows:

Title Name No. of Meetings Attended

No. of Meetings Substituted Attendance Rate Note

Chairman Leuh Fang 5 0 100% Former Chairman Ching-Chu Chang 1 1 50%

Vice Chairman F.C. Tseng 7 0 100% Independent Director Benson W.C. Liu 7 0 100% Independent Director Chintay Shih 6 1 86% Independent Director Kenneth Kin 7 0 100%

Director Edward Y. Way 7 0 100% Director K. H. Hsiao 7 0 100%

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

qualified opinion in Y2015. 2. Recusals of directors due to conflicts of interests in Y2015:

Former Chairman: Ching-Chu Chang & Chairman: Leuh Fang recused themselves from the discussion and voting of their compensation resolution.

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

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

Dissenting opinions held by directors and supervisors in respect of

important resolutions passed by the board directors: None.

The State of Participation in Board Meetings by the Supervisors: NA 2. Implementation of Audit Committee Meeting:

The Audit Committee convened 4 regular meetings in Y2015. Meeting attendance was as follows:


No. of Meetings Substituted Attendance Rate Note

Independent Director Benson W.C. Liu 4 0 100% Independent Director Chintay Shih 3 1 75% Independent Director Kenneth Kin 4 0 100%

Supplement Notes : 1. In the latest fiscal year Audit Committee has no Security & Exchange Law Article 14-5 items to report, none

resolutions approved by two thirds of board members without Audit Committee approval. 2. No refusing case for Audit Committee in the latest fiscal year. 3. Whenever the accountants audit/review Company financial and business status, they also communicate with the

accounting and internal auditor. Audit Committee holds review meeting by guarterly basis to audit company financial reports. They also hold closed-door meetings with the CPA or Director of Internal Audit Dept. to communicate issues regarding VIS financial and business conditions.

18


3.T

aiw

an C

orp

orat

e G

over

nan

ce I

mp

lem

enta

tion

as

Req

uir

ed b

y S

FC

:

Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n 1.

Did

the

com

pany

form

ulat

e an

d di

sclo

seco

rpor

ate

gove

rnan

ce p

ract

ice

prin

cipl

esac

cord

ing

to th

e C

orpo

rate

Gov

erna

nce

Bes

tPr

actic

e Pr

inci

ples

for T

WSE

/GTS

M L

iste

dC

ompa

nies

?

W

e di

d no

t fo

rmul

ate

corp

orat

e go

vern

ance

pra

ctic

e pr

inci

ples

. H

owev

er,

we

have

spe

cifie

dap

plic

able

reg

ulat

ions

acc

ordi

ng t

o th

e ke

y co

rpor

ate

gove

rnan

ce p

rinci

ples

of

prot

ectin

gsh

areh

olde

rs' r

ight

s an

d in

tere

sts,

enha

ncin

g th

e fu

nctio

n of

boa

rd o

f di

rect

ors,

empo

wer

ing

the

supe

rvis

ors,

resp

ectin

g st

akeh

olde

rs' r

ight

s, an

d im

prov

ing

info

rmat

ion

trans

pare

ncy

(e.g

. Arti

cles

of I

ncor

pora

tion,

rul

es a

nd p

roce

dure

s of

sha

reho

lder

s' m

eetin

g, r

ules

and

pro

cedu

res

of b

oard

mee

ting,

rul

es f

or r

eque

stin

g an

d m

anag

ing

audi

o an

d vi

deo

reco

rdin

gs o

f bo

ard

mee

tings

,or

gani

zatio

n ru

les

for a

udit

com

mitt

ees

and

rem

uner

atio

n co

mm

ittee

s, an

d gu

idel

ines

for i

nter

nal

man

agem

ent o

f com

pany

web

site

). W

e ha

ve im

plem

ente

d th

ese

regu

latio

ns.

No

varia

tion

2.Sh

areh

oldi

ng S

truct

ure

& S

hare

hold

ers'

Rig

hts

(1)

Did

the

com

pany

est

ablis

h in

tern

al o

pera

ting

proc

edur

es to

pro

cess

shar

ehol

ders

' su

gges

tions

, dou

bts,

disp

utes

, and

litig

atio

n m

atte

rs, a

nd im

plem

ent t

he p

roce

dure

s ac

cord

ingl

y?

(2)

The

Com

pany

's po

sses

sion

of m

ajor

sh

areh

olde

r's li

st a

nd th

e lis

t of u

ltim

ate

owne

rs o

f the

se m

ajor

shar

ehol

ders

(3)

Did

the

com

pany

est

ablis

h an

d ca

rry

out r

isk

cont

rol m

anag

emen

t and

fire

wal

ls fo

r its

af

filia

ted

ente

rpris

e?

(4)

Did

the

com

pany

dev

elop

inte

rnal

rule

s for

pr

ohib

iting

com

pany

insi

ders

from

trad

ing

secu

ritie

s usi

ng in

form

atio

n no

t dis

clos

ed to

th

e m

arke

t?

A

lthou

gh w

e ha

ve n

ot y

et e

stab

lishe

d in

tern

al o

pera

ting

proc

edur

es; h

owev

er, w

e ha

ve a

ssig

ned

vario

us d

epar

tmen

ts in

clud

ing

the

Publ

ic a

nd C

orpo

ratio

n In

vest

or R

elat

ions

, Leg

al, S

ecre

taria

t of

the

Boa

rd o

f D

irect

ors

to p

roce

ss s

hare

hold

ers'

sugg

estio

ns,

doub

ts,

or d

ispu

tes

and

litig

atio

nm

atte

rs. W

e ha

ve a

lso

liste

d co

ntac

t w

indo

ws

of t

he V

IS f

inan

ce d

epar

tmen

t an

d th

e co

mm

onst

ock

trans

fer a

genc

y on

com

pany

web

site

, und

er th

e in

vest

or re

latio

ns s

ectio

n to

resp

ond

to a

nysu

gges

tions

or a

rgum

ents

in ti

me.

VIS

ass

embl

es s

hare

hold

ers’

mee

ting

ever

y ye

ar, a

nd ta

ke in

pro

posa

ls o

f th

e sh

areh

olde

rs a

s is

regu

late

d. D

urin

g th

e sh

areh

olde

rs’ m

eetin

g, V

IS a

ssig

ns re

ason

able

tim

e fo

r dis

cuss

ion,

and

for

shar

ehol

ders

to sp

eak

up.

VIS

has

alre

ady

built

up

a m

echa

nism

to

mon

itor

any

shar

ehol

ding

cha

nges

fro

m t

he b

oard

m

embe

rs, m

anag

ers

and

the

shar

ehol

ders

that

ow

n ov

er 1

0% o

f the

com

pany

com

mon

sto

cks,

an

d re

port

to th

e m

anag

emen

t for

upd

ated

shar

ehol

ding

stru

ctur

e.

All

VIS

sub

sidi

arie

s ar

e m

ainl

y in

sem

icon

duct

or b

usin

ess

inve

stm

ent a

nd IC

sal

es s

ervi

ces.

VIS

ha

s es

tabl

ishe

d pr

oper

org

aniz

atio

n co

ntro

l stru

ctur

e to

mon

itor

the

maj

or fi

nanc

ial a

nd b

usin

ess

oper

atio

ns in

any

of

the

subs

idia

ries.

VIS

als

o fo

llow

s th

e in

tern

al c

ontro

l reg

ulat

ions

to r

evie

w

rela

ted

busi

ness

es o

f the

subs

idia

ries r

egul

arly

so a

s to

effe

ctiv

ely

cont

rol r

isks

.

We

have

for

mul

ated

an

"Ope

ratin

g Pr

oced

ure

for

Proc

essi

ng o

f M

ajor

Int

erna

l In

form

atio

n",

proh

ibiti

ng c

ompa

ny i

nsid

ers

from

tra

ding

sec

uriti

es u

sing

inf

orm

atio

n no

t di

sclo

sed

to t

he

mar

ket.

No

varia

tion

19


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n 3.

Com

posi

tion

and

Res

pons

ibili

ties o

f the

Boa

rdof

Dire

ctor

s(1

) D

id th

e bo

ard

of d

irect

ors f

orm

ulat

e ap

prop

riate

pol

icy

on d

iver

sity

bas

ed o

n th

e co

mpo

sitio

n of

its m

embe

rs a

nd im

plem

ent

such

pol

icy

acco

rdin

gly?

(2)

In a

dditi

on to

est

ablis

hing

a re

mun

erat

ion

com

mitt

ee a

nd a

udit

com

mitt

ee, d

id th

e co

mpa

ny v

olun

taril

y se

t up

othe

r fun

ctio

nal

com

mitt

ees?

(3)

Did

the

com

pany

form

ulat

e ru

les a

nd

met

hods

for b

oard

of d

irect

ors’

perf

orm

ance

as

sess

men

ts, a

nd p

erfo

rm p

erio

dic

perf

orm

ance

ass

essm

ents

eac

h ye

ar?

(4)

Is th

e co

mpa

ny's

boar

d of

dire

ctor

s co

mpo

sed

of in

depe

nden

t dire

ctor

s?

Prov

isio

n 5

of t

he c

ompa

ny's

Reg

ulat

ion

for

Boa

rd E

lect

ion

spec

ifica

lly d

iscl

oses

the

pol

icy

on

dive

rsity

of

boar

d of

dire

ctor

mem

bers

; C

ompa

ny r

equi

rem

ents

and

the

div

ersi

ty o

f bo

ard

ofdi

rect

ors o

f the

boa

rd a

re c

onsi

dere

d in

the

nom

inat

ions

for r

e-el

ectin

g di

rect

ors o

f the

boa

rd.

In a

dditi

on to

est

ablis

hing

a re

mun

erat

ion

com

mitt

ee a

nd a

udit

com

mitt

ee, w

e di

d no

t set

up

othe

r fu

nctio

nal c

omm

ittee

s.

We

have

for

mul

ated

rul

es f

or b

oard

of

dire

ctor

s’ pe

rfor

man

ce a

sses

smen

ts,

that

is,

the

Polic

y,

Syst

em,

Stan

dard

s, an

d St

ruct

ure

for

Boa

rd o

f D

irect

ors

Perf

orm

ance

and

Ass

essm

ent

and

Rem

uner

atio

n; W

e fo

rmul

ate

boar

d pe

rfor

man

ce a

sses

smen

t ite

ms

at th

e be

ginn

ing

of e

ach

year

, ev

alua

te t

he p

erfo

rman

ce a

t th

e en

d of

eac

h ye

ar,

and

inco

rpor

ate

the

asse

ssm

ent

resu

lts i

nto

cons

ider

atio

n fo

r boa

rd re

mun

erat

ion.

V

IS A

udit

Com

mitt

ee m

embe

rs r

egul

arly

hol

d m

eetin

gs e

very

yea

r. W

ith r

egar

d to

mat

ters

tha

t m

ay

influ

ence

in

depe

nden

ce

(suc

h as

: fin

anci

al

inte

rest

s, fin

anci

ng

and

guar

ante

es,

clos

e co

mm

erci

al r

elat

ions

hips

, C

PAs,

and

thei

r em

ploy

men

t of

per

sons

with

in t

he s

econ

d de

gree

of

kins

hip,

gi

fts

with

m

ajor

va

lue,

no

n-au

dite

d m

atte

rs,

busi

ness

re

crui

ting,

et

c.),

asse

ss

the

inde

pend

ence

of

the

atte

stin

g C

PA w

ith r

espe

ct t

o ea

ch m

atte

r, an

d re

view

the

sui

tabi

lity

of t

he

CPA

bas

ed o

n hi

s pa

st p

erfo

rman

ce, a

cade

mic

bac

kgro

und

and

wor

k ex

perie

nce,

and

cus

tom

ers

that

con

stitu

te th

e C

PA's

chie

f res

pons

ibili

ty. T

hey

will

als

o re

port

thei

r con

clus

ions

to th

e bo

ard

of

dire

ctor

s for

re-c

onfir

mat

ion

to e

nsur

e th

e ob

ject

iven

ess o

f the

CPA

.

No

varia

tion

4.D

id th

e co

mpa

ny m

aint

ain

chan

nels

of

com

mun

icat

ion

with

its s

take

hold

ers,

desi

gnat

e a

stak

ehol

ders

sect

ion

on it

sw

ebsi

te, a

nd a

dequ

atel

y re

spon

d to

stak

ehol

ders

' con

cern

s reg

ardi

ng c

orpo

rate

soci

al re

spon

sibi

lity?

To

enh

ance

com

mun

icat

ions

with

sta

keho

lder

s, V

IS n

ot o

nly

publ

ical

ly a

nnou

nces

the

con

tact

w

indo

ws

and

cont

act i

nfor

mat

ion

of th

e re

late

d de

partm

ents

on

com

pany

web

site

, but

als

o ho

lds

regu

lar

sem

inar

s fo

r co

rpor

ate

inve

stor

s, an

d pa

ys v

isits

to

maj

or c

usto

mer

s to

und

erst

and

any

prod

uct i

ssue

s and

thei

r fut

ure

need

s. Pl

ease

vis

it V

IS’ c

ompa

ny w

ebsi

te

(http

://w

ww.

vis.c

om.tw

/vis

Com

/eng

lish/

g_fo

oter

/g02

_con

tact

us.js

p) W

ithin

the

Com

pany

, we

set

up su

gges

tion

boxe

s for

em

ploy

ees t

o pr

ovid

e in

puts

to th

e Pr

esid

ent a

nd V

ice

Pres

iden

ts, w

e ho

ld

com

mun

icat

ion

mee

tings

eve

ry q

uarte

r fo

r be

tter

com

mun

icat

ions

, the

Boa

rd o

f D

irect

ors

shal

l al

so s

et u

p a

Cha

irman

/Aud

it C

omm

ittee

em

ail

inbo

x on

the

Com

pany

’s w

ebsi

te f

or r

ecei

ving

co

mpl

aint

s di

rect

ed a

gain

st th

e C

ompa

ny’s

bus

ines

s et

hics

, con

duct

, and

/or

sugg

estin

g un

law

ful

acts

. The

se c

ompl

aint

s sha

ll be

han

dled

by

the

Cha

irman

and

Inde

pend

ent D

irect

ors.

No

varia

tion

5.D

id th

e co

mpa

ny e

ngag

e a

prof

essi

onal

shar

ehol

der s

ervi

ces a

gent

to h

andl

esh

areh

olde

rs m

eetin

g m

atte

rs?

W

e ha

ve d

esig

nate

d C

hina

trust

Com

mer

cial

Ban

k as

our

ser

vice

age

nt t

o ha

ndle

sha

reho

lder

s m

eetin

g m

atte

rs.

No

varia

tion

20


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n 6.

Info

rmat

ion

Dis

clos

ure

(1)

Esta

blis

hmen

t of c

orpo

rate

web

site

to

disc

lose

info

rmat

ion

rega

rdin

g th

e C

ompa

ny's

finan

cial

s, bu

sine

ss a

nd

corp

orat

e go

vern

ance

stat

us

(2)

Oth

er in

form

atio

n di

sclo

sure

cha

nnel

s (e.

g.

Engl

ish

web

site

, app

oint

ing

resp

onsi

ble

peop

le to

han

dle

info

rmat

ion

colle

ctio

n an

d di

sclo

sure

, app

oint

ing

spok

espe

rson

, w

ebca

stin

g in

vest

or c

onfe

renc

e)

VIS

has

laun

ched

com

pany

web

site

(w

ww

.vis

.com

.tw)

with

reg

ular

upd

ates

to r

evea

l the

late

st

finan

ce a

nd c

orpo

rate

gov

erna

nce

info

rmat

ion.

VIS

has

lau

nche

d bi

lingu

al (

Chi

nese

and

Eng

lish)

web

site

s an

d ha

s as

sign

ed t

he r

elat

ed

depa

rtmen

ts to

col

lect

and

reve

al c

ompa

ny in

form

atio

n, w

hile

the

Publ

ic a

nd C

orpo

rate

Inve

stor

R

elat

ion

depa

rtmen

t is i

n ch

arge

of t

he re

new

al a

nd th

e co

rrec

tnes

s of t

he w

ebsi

te in

form

atio

n.

VIS

has

ass

igne

d sp

okes

man

and

act

ing

spok

esm

an a

s re

gula

ted,

and

rev

eale

d th

eir

nam

es a

nd

cont

act i

nfor

mat

ion

on c

ompa

ny w

ebsi

te.

Ever

y qu

arte

r, V

IS h

old

inve

stor

s co

nfer

ence

s. Th

e br

iefin

g m

ater

ials

in th

e co

nfer

ence

wer

e al

so

reve

aled

on

com

pany

web

site

. We

also

mak

e th

e vi

deo

reco

rd o

f th

e la

test

inve

stor

con

fere

nce

avai

labl

e on

com

pany

web

site

for i

nqui

ries.

No

varia

tion

7.D

oes t

he c

ompa

ny p

osse

ss o

ther

impo

rtant

info

rmat

ion

for b

ette

r und

erst

andi

ng o

f the

Com

pany

's co

rpor

ate

gove

rnan

ce p

ract

ices

?

V

IS a

lway

s ta

kes

empl

oyee

s be

nefit

s se

rious

ly. T

o ta

ke c

are

of e

mpl

oyee

s’ he

alth

, VIS

pro

vide

d w

ell-r

ound

ed m

edic

al p

lans

and

ser

vice

s. V

IS e

mpl

oyee

s no

t onl

y ca

n se

e th

e do

ctor

s in

the

offic

e bu

ildin

g, t

ake

adva

ntag

e of

the

ann

ual

heal

th i

nspe

ctio

n, t

hey

can

also

mak

e th

e m

ost

of t

he

fem

ale

heal

thca

re, c

ance

r scr

eeni

ng, g

ym fa

cilit

y, a

nd w

eigh

t con

trol c

onso

ling

prog

ram

s. V

IS a

ggre

ssiv

ely

parti

cipa

tes

in c

omm

unity

wel

fare

eve

nts,

and

give

s fe

edba

ck t

o so

ciet

y in

ac

tions

. In

2015

, the

Com

pany

invi

ted

stud

ents

from

The

Uni

que

Ata

yal C

olle

ge to

par

ticip

ate

in

the

Com

pany

's Fa

mily

Day

eve

nts

and

to e

mba

rk o

n an

inte

llect

ual j

ourn

ey to

the

Nat

iona

l Pal

ace

Mus

eum

. Th

ese

stud

ents

, w

ho l

ive

in r

ural

are

as,

wer

e th

us g

iven

the

opp

ortu

nity

to

com

e in

co

ntac

t with

the

exte

nsiv

e an

d pr

ofou

nd h

erita

ge o

f C

hine

se c

ultu

re. F

urth

erm

ore,

we

colle

cted

do

natio

ns (

gifts

, boo

ks, a

nd s

tatio

nery

) fro

m w

ithin

the

orga

niza

tion,

the

resu

lting

gift

s of

whi

ch

wer

e di

strib

uted

to sc

hool

s in

rura

l are

as b

y ou

r vol

unte

ers.

To c

are

for t

hose

with

phy

sica

l and

men

tal d

isab

ilitie

s, th

e C

ompa

ny d

onat

ed N

T$20

0,00

0 to

the

St. J

osep

h So

cial

Wel

fare

Fou

ndat

ion

in H

sinc

hu C

ity to

fund

lear

ning

and

reha

bilit

atio

n se

rvic

es

for

peop

le w

ith p

hysi

cal

and

men

tal

disa

bilit

ies.

Our

em

ploy

ees

also

for

med

a c

hoir

grou

p to

pe

rfor

m a

t th

e Fo

unda

tion'

s ch

arity

eve

nts

and

Chr

istm

as e

vent

s to

brin

g jo

y an

d w

arm

th t

o fr

iend

s of t

he c

omm

unity

with

phy

sica

l and

men

tal d

isab

ilitie

s. To

con

tribu

te t

o th

e co

mm

unity

, w

e su

ppor

ted

the

Nat

iona

l Th

eate

r &

Con

cert

Hal

l (N

atio

nal

Perf

orm

ing

Arts

Cen

ter)

by

fund

ing

two

char

ity p

erfo

rman

ces

of th

e "S

leep

ing

Bea

uty"

Chi

ldre

n's

Ope

ra f

or s

tude

nts

of T

he U

niqu

e A

taya

l Col

lege

. In

addi

tion,

we

also

spo

nsor

ed th

e "T

rave

ling

with

a M

issi

on"

proj

ect h

eld

by th

e W

.Isla

nd O

rgan

izat

ion,

with

an

aim

to in

spire

you

ng p

eopl

e to

ch

eris

h an

d pu

rsue

the

ir in

divi

dual

dre

ams.

Our

vol

unte

ers

and

empl

oyee

s al

so p

rom

oted

the

No

varia

tion

21


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n co

ncep

t of

env

ironm

enta

l he

alth

and

saf

ety

at t

he J

ianG

ong

Prim

ary

Scho

ol i

n H

sinc

hu C

ity..

Furth

erm

ore,

to

prom

ote

soci

al h

arm

ony,

the

com

pany

has

sin

ce J

anua

ry 2

015

excl

usiv

ely

spon

sore

d IC

Bro

adca

stin

g C

o., L

td. w

ith N

T$2

mill

ion

to p

rodu

ce t

he b

road

cast

pro

gram

, the

Fu

ture

of T

aiw

an &

Tai

wan

in th

e Fu

ture

, in

whi

ch to

pics

suc

h as

cur

rent

glo

bal t

rend

s, ed

ucat

ion

in T

aiw

an, t

alen

ted

peop

le, s

ocia

l liv

elih

ood,

ene

rgy

reso

urce

s, an

d en

viro

nmen

tal p

rote

ctio

n ar

e di

scus

sed.

Em

ploy

ees

of V

IS re

gula

rly d

onat

e m

ater

ials

and

boo

ks to

hom

es fo

r the

old

age

, nur

sery

gar

den,

an

d sc

hool

chi

ldre

n in

rur

al d

istri

cts.

Sinc

e 20

06, t

he f

amili

es o

f V

IS e

mpl

oyee

s al

so o

rgan

ized

th

emse

lves

into

a v

olun

teer

gro

up to

act

as

volu

ntee

r gu

ides

for

the

Taic

hung

Sci

ence

Mus

eum

du

ring

the

wee

kend

and

rec

ogni

zed

holid

ays

to i

ntro

duce

the

pub

lic t

o th

e kn

owle

dge

and

appl

icat

ion

of I

C. I

n Y

2015

, the

re w

ere

203

pers

ons/

times

of

volu

ntee

r se

rvic

e at

the

mus

eum

. V

IS v

olun

teer

gro

ups

are

also

eng

aged

in c

omm

unity

ser

vice

. The

y vi

site

d an

d se

rved

the

elde

rly

vete

ran

sold

iers

just

as i

f the

y w

ere

serv

ing

thei

r ow

n pa

rent

s. Th

ey a

lso

visi

ted

the

child

ren

in S

t. Te

resa

Chi

ldre

n C

ente

r an

d sc

hool

s in

rur

al a

reas

to

show

the

ir lo

ve f

or t

he c

hild

ren.

The

vo

lunt

eers

are

ver

y en

thus

iast

ic i

n se

rvin

g th

e pu

blic

. In

Y20

15,

they

par

ticip

ated

in

300

pers

ons/

times

in c

omm

unity

serv

ice.

Fo

r m

any

year

s, V

IS h

as d

evot

ed i

ts e

ffort

to c

ontin

ue im

prov

ing

the

envi

ronm

ent,

safe

ty, a

nd

publ

ic h

ealth

. Dis

tinct

from

pas

t yea

rs, 2

014

mar

ks th

e po

int i

n tim

e w

hen

VIS

sha

res

its y

ears

of

expe

rienc

e on

env

ironm

ent,

safe

ty, a

nd p

ublic

hea

lth to

pics

with

peo

ple

of th

e ne

xt g

ener

atio

n,

with

the

hop

e of

enc

oura

ging

peo

ple

to s

tep

out

of t

heir

hom

e an

d sh

ine

amon

gst

a cr

owd.

Th

eref

ore,

we

sele

cted

the

Lon

gsha

n El

emen

tary

Sch

ool

near

us

and

prep

ared

a s

erie

s of

en

viro

nmen

tal

prot

ectio

n ga

mes

for

stu

dent

s in

the

sec

ond

grad

e, i

nclu

ding

Env

ironm

enta

l Pr

otec

tion

Cla

ss,

Res

ourc

e Sp

ecia

l Fo

rces

, an

d Pu

zzle

Com

petit

ion,

thu

s en

ablin

g ch

ildre

n to

le

arn

in a

hap

py, r

elax

ed e

nviro

nmen

t. D

urin

g th

e pr

oces

s, w

e sa

w h

ow th

e ch

ildre

n en

deav

ored

to

sho

w th

eir

team

wor

k, la

ughe

d in

cess

antly

, giv

ing

us w

arm

, sin

cere

res

pons

es. M

oreo

ver,

the

scho

ol p

rinci

pal,

dire

ctor

, an

d cl

ass

teac

hers

hav

e al

so s

trong

ly a

ffirm

ed t

he e

fforts

we

have

sh

own.

V

IS B

OD

mem

bers

are

all

prof

icie

ncy

with

wor

king

exp

erie

nces

and

exp

ertis

e. T

hey

also

tak

e tra

inin

g co

urse

s lis

ted

in th

e G

uide

lines

for P

rom

otio

n of

the

Educ

atio

n of

the

BO

D M

embe

rs a

nd

Supe

rvis

ors o

f Pub

lic C

ompa

nies

. In

Y20

15, t

he B

OD

mem

bers

took

29

exte

rnal

trai

ning

cla

sses

. Th

e ris

k m

anag

emen

t po

licy,

aim

ing

at z

ero

risk

and

zero

los

s, w

as a

ssem

bled

und

er t

he

oper

atio

ns p

lan

appr

oved

by

the

BO

D, w

hich

put

toge

ther

pot

entia

l ris

ks in

ope

ratio

ns, f

inan

ce

and

publ

ic h

ealth

and

env

ironm

enta

l saf

ety.

Eac

h de

partm

ent s

et u

p th

e re

gula

tions

acc

ordi

ng to

th

eir f

unct

iona

litie

s to

con

trol r

isks

. Arti

cles

rega

rdin

g ris

ks in

fina

nce

incl

ude

the

Gui

delin

es fo

r

22


Item

Im

plem

enta

tion

Stat

us

Rea

son

for N

on-

Impl

emen

tatio

n Ye

sN

o D

escr

iptio

n D

eriv

ativ

es T

radi

ng, O

pera

ting

Proc

edur

es a

nd E

ndor

sem

ent t

o Lo

an F

unds

to O

ther

s, G

uide

lines

fo

r C

redi

t M

anag

emen

t, an

d G

uide

lines

fo

r C

ash

Inve

stm

ent.

Arti

cles

in

op

erat

ions

ris

k m

anag

emen

t in

clud

e M

anua

l fo

r Sa

fety

, H

ealth

and

Env

ironm

enta

l M

anag

emen

t, Em

erge

ncy

Res

pons

e Pr

ogra

m, G

uide

lines

for M

anag

emen

t of t

he T

oxic

Che

mic

al S

ubst

ance

s, an

d G

uide

lines

fo

r En

viro

nmen

tal M

onito

ring.

For

det

ail,

refe

r to

the

note

s to

“R

isk

Man

agem

ent P

olic

y” a

nd “

R

isk

Man

agem

ent O

rgan

izat

iona

l Stru

ctur

e” in

this

ann

ual r

epor

t. V

IS h

as p

urch

ased

liab

ility

insu

ranc

e fo

r the

BO

D m

embe

rs a

nd su

perv

isor

s to

redu

ce a

nd d

iver

se

the

risk

of th

em c

ausi

ng si

gnifi

cant

loss

es to

the

Com

pany

and

the

shar

ehol

ders

due

to m

ista

kes o

r ne

glig

ence

. 8.

Did

the

com

pany

pro

vide

des

crip

tions

of t

here

sults

, sug

gest

ions

, and

impr

ovem

ent f

rom

self

eval

uatio

n re

port

or o

ther

ass

essm

ent

repo

rt co

nduc

ted

by o

utsi

de a

genc

ies,

if an

y.

V

IS p

artic

ipat

ed i

n th

e Y

2008

Cor

pora

te G

over

nanc

e A

sses

smen

t Sy

stem

ini

tiate

d by

Tai

wan

C

orpo

rate

Gov

erna

nce

Ass

ocia

tion.

Thr

ough

the

eva

luat

ion

com

mitt

ee a

sses

smen

ts,

VIS

was

pres

ente

d C

G60

04 C

orpo

rate

Gov

erna

nce A

sses

smen

t Cer

tific

ate,

the

Gen

eral

Cop

y.

The

com

pany

per

form

ed a

sel

f-as

sess

men

t of

cur

rent

cor

pora

te g

over

nanc

e op

erat

ions

and

the

st

ate

of im

plem

enta

tion

in Y

2013

in a

ccor

danc

e w

ith th

e "C

orpo

rate

Gov

erna

nce

Self-

asse

ssm

ent

Item

s." T

he r

esul

ts r

evea

led

that

onl

y m

inor

dev

iatio

n ag

ains

t as

sess

men

t in

dica

tors

, w

here

co

ntin

ued

rem

edia

l ef

forts

will

be

mad

e, a

nd m

et r

equi

rem

ents

for

all

othe

r in

dica

tors

. Th

e co

mpa

ny's

full

asse

ssm

ent r

epor

t can

be

view

ed v

ia th

e M

arke

t Obs

erva

tion

Post

Sys

tem

, and

can

al

so b

e se

en o

n th

e co

mpa

ny's

web

site

. h

ttp://

ww

w.v

is.c

om.tw

/vis

Com

/chi

nese

/d_i

r/d04

_cor

pora

te.h

tm.

Due

to

its e

xcel

lent

per

form

ance

in

the

Firs

t C

orpo

rate

Gov

erna

nce

Ass

essm

ent,

the

Com

pany

w

as ra

nked

in th

e to

p 5

perc

ent a

nd re

ceiv

ed jo

int c

omm

enda

tions

from

the

Fina

ncia

l Sup

ervi

sory

C

omm

issi

on, t

he T

aiw

an S

tock

Exc

hang

e, a

nd T

aipe

i Exc

hang

e.

No

varia

tion

23


4. Compensation Committee

VIS has established a Compensation Committee as required by thecompetent authority for assisting the BOD in the study and design of thecompensation policy and structure in order to attract, motivate, reward, andretain talent. The functions of this committee are: Map out thecompensation policy and structure, the method for the release of fees fordirectors and supervisors, the salaries of the managers and release of thesalaries, the reward for the managers and incentives for motivating people,any other duties assigned by or authorized by BOD.

Members of the Compensation Committee

Title Name

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

public companies that concurrently serve as an member of

Compensation Committee

Remark

College Instructor or

higher level in Business, Legal,

Finance, Accounting or

company business related

area

Court Judge, Prosecutor,

Lawyer, Accountant, or other Certified Professional

expert related to company business

Business, Legal,

Finance, Accounting or

company business required working

experience

1 2 3 4 5 6 7 8

Independent Director

Chintay Shih

V V V V V V V V V V 2


Kenneth Kin

V V V V V V V V V V 3


Benson W.C. Liu

V V V V V V V V V 2

Note :

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

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

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

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

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

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

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

five share-holders of juridical person.

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

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

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

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

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


24


Compensation Committee Operations Information

1. The company’s Compensation Committee is composed of three members 2. Term of office for the current members: June 8, 2015 to June 7, 2018. The

committee has met 7 times in the most recent year. Membership and attendance information are provided below:


No. of Meetings Substituted

Attendance Rate Note

Convener Kenneth Kin 7 100%

Member Chintay Shih 5 2 71%

Member Benson W.C. Liu 7 100% Other items of note:

1. If the Board of Directors does not adopt or amend the Compensation Committee’s recommendations, the date, period, motion, decision of the board, and how the Company shall handle the Committee’s recommendations must be clearly stated: the Company’s board of directors adopt and do not amend the Compensation Committee’s proposals.

2. If members of the Compensation Committee oppose or reserve their opinions for any resolved issues and have a record or written statement for it, the date, period, motion, and all opinions of the members and how these opinions were handled shall be clearly stated: the Company’s Compensation Committee members do not oppose or reserve their opinions for any resolved issues.

25


26


5.

Impl

emen

tatio

n of

Cor

pora

te S

ocia

l Res

pons

ibili

ty M

easu

res

Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

1.

Impl

emen

tatio

n of

Cor

pora

te G

over

nanc

e

(1)

Did

the

com

pany

form

ulat

e co

rpor

ate

soci

al

resp

onsi

bilit

y po

licie

s or s

yste

ms a

nd

revi

ew th

e ef

fect

iven

ess o

f its

im

plem

enta

tion?

(2

) D

id th

e co

mpa

ny p

erio

dica

lly h

old

soci

al

resp

onsi

bilit

y tra

inin

g?

(3)

Did

the

com

pany

est

ablis

h a

unit

excl

usiv

ely

for t

he p

rom

otio

n of

cor

pora

te

soci

al re

spon

sibi

lity,

and

did

the

boar

d of

di

rect

ors a

utho

rize

high

-leve

l man

agem

ents

to

man

age

this

uni

t and

repo

rt m

anag

emen

t pr

ogre

ss to

the

boar

d of

dire

ctor

s?

(4)

Did

the

com

pany

form

ulat

e re

ason

able

re

mun

erat

ion

polic

y, in

tegr

ate

empl

oyee

pe

rfor

man

ce a

sses

smen

ts w

ith th

e co

rpor

ate

soci

al re

spon

sibi

lity

polic

y, a

nd e

stab

lish

an

effe

ctiv

e re

war

ding

and

pun

ishm

ent s

yste

m?

V

V

V

V

(1)

To im

plem

ent c

orpo

rate

soci

al re

spon

sibi

lity

and

embr

ace

the

over

all d

evel

opm

ent o

f so

ciet

ies i

n Ta

iwan

, VIS

has

est

ablis

hed

the

"Cor

pora

te S

ocia

l Res

pons

ibili

ty P

olic

y"

and

"Cor

pora

te S

ocia

l Res

pons

ibili

ty R

epor

t"(F

or d

etai

ls a

bout

Cor

pora

te S

ocia

l R

espo

nsib

ility

Rep

ort,

plea

se re

fer t

o co

mpa

ny w

ebsi

te v

ia

http

://w

ww

.vis

.com

.tw/v

isC

om/e

nglis

h/a_

abou

t/a05

_cor

pora

tion_

soci

al_r

esp.

htm

).. V

IS

com

mits

to a

bide

by

ethi

cal n

orm

s in

busi

ness

man

agem

ent,

assu

me

envi

ronm

enta

l pr

otec

tion

resp

onsi

bilit

y, p

rovi

de a

safe

wor

king

env

ironm

ent,

and

prot

ect e

mpl

oyee

rig

hts,

as th

e cr

ucia

l crit

eria

for m

aint

aini

ng p

ositi

ve d

evel

opm

ents

in o

ur so

ciet

y.

(2)

To e

mbr

ace

soci

al r

espo

nsib

ility

and

pro

mot

e co

rpor

ate

gove

rnan

ce,

VIS

con

stan

tly

rem

inds

and

pro

mot

es c

orpo

rate

gov

erna

nce

conc

epts

and

arr

ange

corp

orat

e so

cial

re

spon

sibi

lity

train

ing

to th

e bo

ard

of d

irect

ors,

inde

pend

ent d

irect

ors,

and

empl

oyee

s. Fo

r exa

mpl

e, fo

rmul

atin

g et

hica

l nor

ms

for b

usin

ess

prac

tice

repr

esen

ts th

e ad

voca

cy o

f in

tegr

ity a

nd e

thic

al b

usin

ess

beha

vior

; pr

omot

ing

the

impo

rtanc

e of

int

egrit

y an

d up

right

ness

hel

ps e

mpl

oyee

s un

ders

tand

the

conc

ept

and

prin

cipl

es o

f bu

sine

ss e

thic

s, th

ereb

y m

otiv

atin

g th

em to

com

ply

with

law

s an

d re

gula

tions

. Em

ploy

ees'

parti

cipa

tion

in r

elev

ant

train

ing

prog

ram

s is

rec

orde

d an

d re

gist

ered

. Th

e tra

inin

g ou

tcom

es a

re

p rov

ided

to

th

eir

resp

ectiv

e su

perv

isor

s as

re

fere

nce

for

empl

oyee

pe

rfor

man

ce

asse

ssm

ents

. (3

) Th

e co

mpa

ny h

as s

et u

p th

e "C

orpo

rate

Soc

ial R

espo

nsib

ility

Pro

mot

ion

Com

mitt

ee"

to

take

cha

rge

of e

stab

lishi

ng th

e"c

orpo

rate

soci

al re

spon

sibi

lity

polic

y" a

nd p

ropo

sing

and

im

plem

entin

g sy

stem

s w

hile

at t

he s

ame

time

cons

tant

ly r

efle

ctin

g th

e im

plem

enta

tion

effe

ctiv

enes

s an

d m

akin

g co

nsta

nt im

prov

emen

ts, e

nsur

ing

exec

utio

nof

the

com

pany

's co

rpor

ate

soci

al re

spon

sibi

lity

polic

y. T

he C

omm

ittee

per

iodi

cally

repo

rts to

the

boar

d of

di

rect

ors r

egar

ding

pro

mot

ion

prog

ress

. (4

) V

IS p

rovi

des

its e

mpl

oyee

s w

ith c

ompe

nsat

ion

abov

e th

e st

anda

rd o

f th

at o

f th

e sa

me

indu

strie

s. A

dditi

onal

ly, t

he c

ompa

ny's

perf

orm

ance

ass

essm

ent

syst

em c

onsi

ders

bot

h co

mpa

ny s

trate

gies

and

per

sona

l per

form

ance

goa

ls t

o ke

ep e

mpl

oyee

s' re

mun

erat

ions

are

clos

ely

linke

d w

ith t

heir

perf

orm

ance

. Th

e pu

rpos

e is

to

enco

urag

e an

d re

war

d em

ploy

ees

for

thei

r ef

forts

du

ring

polic

y pr

omot

ions

, th

ereb

y st

reng

then

ing

the

sust

aina

bilit

y of

futu

re p

olic

y pr

omot

ions

.

No

varia

tion

27


Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

2.

Dev

elop

men

t of S

usta

inab

le E

nviro

nmen

t

(1)

Is th

e co

mpa

ny c

omm

itted

to e

nhan

cing

the

usag

e ef

ficie

ncy

of v

ario

us re

sour

ces a

nd

utili

zing

rene

wab

le m

ater

ials

that

exe

rt a

low

impa

ct o

n en

viro

nmen

tal l

oad?

(2

) D

id th

e co

mpa

ny e

stab

lish

an a

ppro

pria

te

envi

ronm

enta

l man

agem

ent s

yste

m

acco

rdin

g to

its i

ndus

try c

hara

cter

istic

s?

(3)

Did

the

com

pany

show

con

cern

s for

the

influ

ence

that

clim

ate

chan

ge h

as o

n its

bu

sine

ss a

ctiv

ities

, and

em

bark

on

inve

ntor

ying

gre

enho

use

gas e

mis

sion

s and

fo

rmul

atin

g st

rate

gies

to c

onse

rve

ener

gy,

redu

ce c

arbo

n em

issi

on, a

nd d

ecre

ase

gree

nhou

se g

as v

olum

e?

V

V

V

(1

) M

inim

izin

g en

viro

nmen

tal i

mpa

ct th

roug

h gr

een

prod

uctio

n is

VIS

's co

re e

nviro

nmen

tal

polic

y. I

n Y

2015

, th

e co

mpa

ny h

as t

arge

ted

72ite

ms

in a

n en

deav

or t

o en

hanc

e th

e us

age

effic

ienc

y of

var

ious

res

ourc

es f

or w

aste

red

uctio

n. F

or e

xam

ple,

VIS

has

at

tem

pted

to m

inim

ize

the

volu

me

of c

hem

ical

s an

d ga

ses

used

in a

pro

duct

ion

proc

ess;

re

plac

e th

e us

e of

PM

sol

vent

s, pr

olon

g th

e lif

espa

n of

spa

re p

arts

and

con

sum

able

s to

re

duce

the

amou

nt o

f w

aste

pro

duce

d. R

egar

ding

rec

yclin

g an

d re

use,

was

te p

ipel

ines

re

mov

ed a

fter

a co

nstru

ctio

n, in

add

ition

to e

xhau

st h

ook

up m

ater

ials

are

rec

ycle

d fo

r re

use

to m

itiga

te th

e im

pact

on

the

envi

ronm

ent.

(2

) V

IS is

a w

orld

lead

ing

foun

dry

serv

ice

prov

ider

. As w

e co

ntin

ue to

adv

ance

and

inno

vate

on

our

waf

er p

rodu

ctio

n te

chno

logy

, we

neve

r ne

glec

t our

soc

ial r

espo

nsib

ilitie

s in

the

area

s of

env

ironm

enta

l pro

tect

ion,

saf

ety,

and

hea

lth. W

e ke

ep c

lose

trac

k of

cha

nges

in

impo

rtant

env

ironm

enta

l, sa

fety

and

hea

lth p

olic

ies

and

regu

latio

ns a

nd a

djus

t ou

r in

tern

al o

pera

tions

acc

ordi

ngly

in

a tim

ely

man

ner

in r

espo

nse

to t

he i

ncre

asin

gly

strin

gent

dom

estic

and

for

eign

reg

ulat

ory

requ

irem

ents

. W

e al

so p

roac

tivel

y em

brac

e in

tern

atio

nal

norm

s an

d ad

opt

auto

nom

ous

man

agem

ent

syst

ems

unde

r th

e tre

nds

of

inte

rnat

iona

lizat

ion

of b

usin

ess.

We

belie

ve th

at th

e re

latio

nshi

p be

twee

n en

viro

nmen

tal

prot

ectio

n,

safe

ty,

and

heal

th

is

just

as

in

sepa

rabl

e as

th

e re

latio

nshi

p be

twee

n in

divi

dual

s, en

viro

nmen

t, an

d he

alth

. W

e im

plem

ent

our

envi

ronm

enta

l, he

alth

, an

d sa

fety

man

agem

ent p

olic

ies:

mai

ntai

n co

rpor

ate

sust

aina

bilit

y, fu

lfill

the

resp

onsi

bilit

ies

of a

goo

d co

rpor

ate

citiz

ens,

and

on th

e ba

sis

of ri

sk m

anag

emen

t, gr

een

prod

uctio

n, a

nd

envi

ronm

enta

l im

pact

co

nsid

erat

ion,

en

sure

co

mpa

ny-w

ide

parti

cipa

tion

in

the

oper

atio

ns o

f sa

fety

, he

alth

, an

d en

viro

nmen

tal

man

agem

ent

syst

em s

oas

to

achi

eve

com

plia

nce

with

law

s an

d re

gula

tions

, int

erna

tiona

l env

ironm

enta

l con

vent

ions

, and

the

goal

of m

aint

aini

ng o

vera

ll sa

fety

, hea

lth, a

nd e

nviro

nmen

tal p

rote

ctio

n.

(3)

The

com

pany

has

act

ivel

y pr

omot

ed e

nerg

y co

nser

vatio

n an

d re

duct

ion

of c

arbo

n an

d gr

eenh

ouse

gas

em

issi

ons

by p

urch

asin

g hi

gh-p

erfo

rman

ce g

reen

hous

e ga

s pr

oces

sing

eq

uipm

ent e

ach

year

. In

addi

tion,

VIS

con

tinua

lly u

tiliz

es a

ltern

ativ

e ga

ses

with

low

er

GW

P to

red

uce

the

emis

sion

of

gree

nhou

se g

ases

. All

of o

ur r

educ

tion

outc

omes

hav

e re

ceiv

ed a

3rd

-par

ty v

erifi

catio

n ac

cord

ing

to I

SO-1

4064

cer

tific

atio

n. A

ccor

ding

to a

n em

issi

on re

duct

ion

test

for Y

2013

con

duct

ed in

Y20

14, t

he a

mou

nt o

f red

uctio

n re

ache

d 13

9,20

0 m

etric

tons

of

CO

2e; e

mis

sion

red

uctio

n te

st f

or Y

2015

con

duct

ed in

Y20

16,

the

amou

nt o

f red

uctio

n re

ache

d 18

9,30

0 m

etric

tons

of C

O2e

. And

the

com

pany

’s G

HG

No

varia

tion

28


Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

em

issi

on i

n Y

2013

, Y

2014

, an

d Y

2015

is

arou

nd 3

92.7

tho

usan

d to

ns C

O2e

, 53

4 th

ousa

nd t

ons

CO

2e, a

nd 6

27.6

tho

usan

d t

ons

CO

2e(u

nder

ver

ifica

tion)

res

pect

ivel

y.

Furth

erm

ore,

the

com

pany

ann

ounc

ed i

ts s

afet

y, h

ealth

, an

d en

viro

nmen

t po

licy

to

prom

ote

envi

ronm

enta

l pro

tect

ion

and

deve

lopm

ent o

f a su

stai

nabl

e en

viro

nmen

t. Fo

r de

tails

, ple

ase

visi

t VIS

web

site

as f

ollo

ws:

h

ttp://

ww

w.v

is.c

om.tw

/vis

Com

/chi

nese

/a_a

bout

/a04

_env

ironm

enta

l.htm

3.

Pro

tect

ion

of S

ocie

ty's

Publ

ic In

tere

st

(1)

Did

the

com

pany

form

ulat

e ap

plic

able

m

anag

eria

l pol

icie

s and

pro

cedu

res i

n ac

cord

ance

with

rele

vant

regu

latio

ns a

nd

inte

rnat

iona

l hum

an ri

ghts

con

vent

ions

?

(2)

Did

the

com

pany

est

ablis

h a

staf

f com

plai

nt

mec

hani

sm a

nd c

hann

els,

and

adeq

uate

ly

hand

le e

mpl

oyee

com

plai

ns?

(3)

Did

the

com

pany

pro

vide

em

ploy

ees a

safe

he

alth

y w

orki

ng e

nviro

nmen

t, an

d pe

riodi

cally

edu

cate

em

ploy

ees o

n sa

fety

an

d he

alth

issu

es?

V

V

(1

) V

IS is

ded

icat

ed to

the

esta

blis

hmen

t of

harm

onio

us a

tmos

pher

e in

labo

r-man

agem

ent

rela

tion

thro

ugh

mut

ual

trust

in

corp

orat

e m

anag

emen

t. V

IS h

as e

stab

lishe

d th

eem

ploy

ee h

andb

ook,

as

wel

l as

the

per

sonn

el r

egul

atio

ns m

anua

l fo

r em

ploy

ees

toim

plem

ent t

he ru

les.

(2

) V

IS is

ded

icat

ed to

the

esta

blis

hmen

t of

harm

onio

us a

tmos

pher

e in

labo

r-man

agem

ent

rela

tion

thro

ugh

mut

ual

trust

in

corp

orat

e m

anag

emen

t. It

embr

aces

an

activ

e, o

pen

man

agem

ent m

odel

to c

reat

e a

wor

k en

viro

nmen

t tha

t is

both

cha

lleng

ing

and

fun.

VIS

va

lues

em

ploy

ees'

opin

ions

and

phy

sica

l and

men

tal h

ealth

, offe

ring

“Em

ploy

ee H

ealth

C

lass

” fo

r ha

ndlin

g em

ploy

ee l

abor

-man

agem

ent

rela

tion

and

heal

th-r

elat

ed m

atte

rs.

Mor

eove

r, di

ffere

nt c

hann

els,

such

as

Aud

it C

omm

ittee

mai

lbox

and

Exe

cutiv

e m

ailb

ox,

are

prov

ided

to h

andl

e em

ploy

ee c

ompl

aint

s an

d as

sist

em

ploy

ees

with

res

olvi

ng th

eir

soci

etal

, ps

ycho

logi

cal,

finan

cial

, an

d he

alth

-rel

ated

pro

blem

s. In

add

ition

, co

ntac

t w

indo

ws

are

esta

blis

hed

to p

rovi

de a

var

iety

of s

ervi

ces

to e

mpl

oyee

s, su

ch a

s m

edic

al

care

, sex

ual h

aras

smen

t pre

vent

ion,

psy

chol

ogic

al c

onsu

ltatio

n, a

nd la

wye

r ref

erra

ls.

(3)

VIS

hig

hly

valu

es e

mpl

oyee

s' ph

ysic

al a

nd m

enta

l hea

lth, i

mpr

ovem

ents

in w

ork

envi

ronm

ent,

and

prov

isio

n of

recr

eatio

nal a

ctiv

ities

and

faci

litie

s, an

d ex

erts

its u

tmos

t ef

fort

in re

info

rcin

g he

alth

and

insu

ranc

e-re

late

d se

rvic

es. T

o ca

ter f

or e

mpl

oyee

s' da

ily

lives

, VIS

not

onl

y of

fers

a c

lean

wor

king

env

ironm

ent w

ith a

n ar

ray

of re

crea

tiona

l fa

cilit

ies,

but a

lso

a w

hole

var

iety

of r

ecre

atio

nal e

vent

s to

allo

w e

mpl

oyee

s a c

hanc

e to

br

ing

som

e re

laxa

tion

and

fulfi

llmen

t to

thei

r life

out

side

of w

ork.

In o

rder

to sa

fegu

ard

empl

oyee

hea

lth, V

IS o

ffers

phy

sica

l hea

lth e

xam

inat

ions

to re

fres

hers

, spe

cific

em

ploy

ees,

and

in-s

ervi

ce e

mpl

oyee

s. In

add

ition

, we

regu

larly

pro

mot

e sp

ecia

l hea

lth

chec

ks su

ch a

s: a

bdom

inal

ultr

asou

nd, 3

-in-1

pac

kage

for w

omen

(pap

smea

r, br

east

ul

traso

und,

and

gyn

ecol

ogic

ultr

asou

nd),

and

taki

ng m

amm

ogra

ms.

In th

e w

inte

r of p

ast

12 y

ears

, VIS

pro

cure

s flu

vac

cine

, hiri

ng d

octo

rs to

adm

inis

ter i

t ons

ite fo

r its

No

varia

tion

29


Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

(4

) D

id th

e co

mpa

ny d

evis

e a

perio

dic

com

mun

icat

ion

mec

hani

sm fo

r its

em

ploy

ees,

and

notif

y em

ploy

ees i

n a

reas

onab

le m

anne

r of p

oten

tial m

ajor

in

fluen

ces t

o th

e co

mpa

ny's

oper

atio

nal

proc

ess?

(5

) D

id th

e co

mpa

ny e

stab

lish

effe

ctiv

e ca

reer

de

velo

pmen

t pro

gram

s for

its e

mpl

oyee

s?

(6

) D

id th

e co

mpa

ny fo

rmul

ate

rele

vant

pol

icie

s fo

r pro

tect

ion

of c

onsu

mer

righ

ts a

nd

inte

rest

s and

con

sum

er c

ompl

aint

s pr

oced

ure

with

rega

rds t

o re

sear

ch &

de

velo

pmen

t (R

&D

), pr

ocur

emen

t, pr

oduc

tion,

ope

ratin

g, a

nd se

rvic

e pr

oced

ures

?

(7

) D

id th

e co

mpa

ny c

ompl

y w

ith a

pplic

able

la

ws,

regu

latio

ns, a

nd in

tern

atio

nal

stan

dard

s whe

n m

arke

ting

and

labe

ling

its

prod

ucts

and

serv

ices

?

(8)

Bef

ore

coop

erat

ing

with

a su

pplie

r, di

d th

e co

mpa

ny a

sses

s whe

ther

the

supp

lier h

ad

V

V

V

V

V

empl

oyee

s. V

IS h

as in

vite

d m

edic

al p

hysi

cian

s to

prov

ide

med

ical

car

e se

rvic

es a

t our

fa

cilit

ies;

thes

e se

rvic

es in

clud

ed p

rovi

ding

hea

lth c

onsu

ltatio

ns, m

edic

al e

xam

inat

ions

, an

d as

sist

ing

inju

red

empl

oyee

s bac

k to

wor

k. T

he C

ompa

ny h

as p

urch

ased

med

ical

ul

traso

und

imag

ing

equi

pmen

t in

orde

r to

prov

ide

high

-qua

lity

med

ical

exa

min

atio

n se

rvic

es fo

r our

em

ploy

ees.

(4

) M

oreo

ver,

the

com

pany

pr

ovid

ed

diffe

rent

ch

anne

ls

for

labo

r-man

agem

ent

com

mun

icat

ions

and

agr

eem

ents

, suc

h as

hos

ting

orie

ntat

ion

of n

ew p

eopl

e, q

uarte

rly

labo

r-man

agem

ent

mee

tings

, an

d ex

ecut

ive

mee

tings

. Th

e co

mpa

ny a

lso

sets

up

a m

ailb

ox f

or e

mpl

oyee

com

mun

icat

ion

and

publ

ishe

d th

e “C

omm

unic

atio

n M

onth

ly

New

s” t

o re

port

on t

he C

ompa

ny.

In a

dditi

on,

VIS

con

duct

s su

rvey

on

empl

oyee

op

inio

ns re

gard

ing

thei

r sat

isfa

ctio

n w

ith m

anag

emen

t and

the

wel

fare

syst

em re

gula

rly.

(5)

VIS

ha

s a

com

preh

ensi

ve

train

ing

syst

em

for

train

ing

prof

essi

onal

ta

lent

s an

d de

velo

ping

em

ploy

ees’

pote

ntia

l. Th

is c

ompr

ehen

sive

tra

inin

g sy

stem

inc

lude

s ne

w

com

ers’

orie

ntat

ion,

man

ager

ial

train

ing,

pro

fess

iona

l tra

inin

g, e

xter

nal

train

ing,

and

se

lf-de

velo

pmen

t. To

sys

tem

atiz

e al

l lea

rnin

g pr

oces

s, w

e ha

ve e

stab

lishe

d th

e Tr

aini

ng

Man

agem

ent S

yste

m, w

hich

pro

vide

s pe

rson

al le

arni

ng p

lans

for

the

year

or

endu

ranc

e cu

ltiva

tion

prog

ram

s fo

r em

ploy

ees

to b

uild

up

pers

onal

lear

ning

road

map

and

cul

tivat

e se

lf-m

otiv

ated

lear

ning

cul

ture

. (6

) V

IS

has

esta

blis

hed

a G

uide

line

for

Han

dlin

g C

usto

mer

C

ompl

aint

s, pr

ovid

ing

cust

omer

s a

trans

pare

nt,

effe

ctiv

e ch

anne

l to

file

the

com

plai

nts

they

hav

e fo

r ou

r pr

oduc

ts a

nd s

ervi

ces.

In a

dditi

on, t

he c

ompa

ny h

andl

es c

usto

mer

com

plai

nts

fairl

y an

d in

stan

tly,

and

com

plie

s w

ith r

elev

ant

law

s an

d re

gula

tions

in

resp

ectin

g cu

stom

er

priv

acy

and

prot

ectio

n cu

stom

er i

nfor

mat

ion.

VIS

als

o pe

riodi

cally

ass

esse

s cu

stom

er

satis

fact

ion

with

th

e co

mpa

ny,

com

mis

sion

ing

exte

rnal

ag

enci

es

to

hand

le

such

as

sess

men

ts.

The

com

pany

vie

ws

cust

omer

s as

its

cru

cial

sta

keho

lder

s, at

tend

ing

to

cust

omer

opi

nion

s an

d us

ing

thes

e op

inio

ns a

s th

e ba

sis

to im

prov

e se

rvic

e an

d pr

oduc

t de

liver

y pe

rfor

man

ce.

(7)

The

com

pany

com

plie

s w

ith a

pplic

able

law

s, re

gula

tions

, an

d in

tern

atio

nal

stan

dard

s w

hen

mar

ketin

g its

pro

duct

s and

serv

ices

.

(8)

Bef

ore

coop

erat

ing

with

a n

ew s

uppl

ier,

VIS

's re

leva

nt u

nit w

ould

eva

luat

e th

e su

pplie

r to

ens

ure

the

supp

lier

is n

ot i

nvol

ved

in a

ctiv

ities

tha

t in

fluen

ce t

he e

nviro

nmen

t an

d

30


Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

re

cord

s of e

ngag

ing

in a

ctiv

ities

that

in

fluen

ced

the

envi

ronm

ent a

nd so

ciet

y?

(9)

In th

e co

ntra

ct si

gned

bet

wee

n V

IS a

nd it

s pr

imar

y su

pplie

rs, d

oes i

t inc

lude

pro

visi

ons

stat

ing

the

term

inat

ion

or re

scin

dmen

t of t

he

cont

ract

for i

nsta

nces

whe

n th

e su

pplie

r vi

olat

es th

e co

mpa

ny's

corp

orat

e so

cial

re

spon

sibi

lity

polic

y su

ch th

at it

s act

ions

si

gnifi

cant

ly in

fluen

ced

the

envi

ronm

ent

and

soci

ety?

V

soci

ety

and

fulfi

lls le

gal r

equi

rem

ents

.

(9)

The

com

pany

spe

cifie

s in

the

cont

ract

that

the

supp

lier m

ust a

dher

e to

rele

vant

law

s an

d re

gula

tions

(in

clud

ing

but

not

limite

d to

the

cor

pora

te s

ocia

l re

spon

sibi

lity

polic

y);

failu

re to

do

so sh

all r

esul

t in

term

inat

ion

of c

oope

ratio

n w

ith V

IS.

4.St

reng

then

ing

of In

form

atio

n D

iscl

osur

e M

easu

res

(1)

Did

the

com

pany

dis

clos

e an

y re

leva

nt a

nd

relia

ble

corp

orat

e so

cial

resp

onsi

bilit

y in

form

atio

n on

its w

ebsi

te a

nd o

n th

e M

arke

t Obs

erva

tion

Post

Sys

tem

of t

he

Taiw

an S

tock

Exc

hang

e w

ebsi

te?

V

VIS

com

pile

s a

corp

orat

e so

cial

resp

onsi

bilit

y re

port

each

yea

r and

pub

lishe

s su

ch re

port

on

the

com

pany

web

site

and

on

the

Mar

ket O

bser

vatio

n Po

st S

yste

m,a

llow

ing

inve

stor

s ac

cess

to

rele

vant

cor

pora

te so

cial

resp

onsi

bilit

y in

form

atio

n.

No

varia

tion

5. I

f th

e co

mpa

ny d

id f

orm

ulat

e pr

inci

ples

for

cor

pora

te s

ocia

l re

spon

sibi

lity

prac

tices

acc

ordi

ng t

o th

e C

orpo

rate

Soc

ial

Res

pons

ibili

ty B

est

Prac

tice

Prin

cipl

es f

or T

WSE

/GTS

M L

iste

d C

ompa

nies

, ple

ase

stat

e th

e va

riatio

ns in

the

oper

atio

ns a

nd ru

les o

f suc

h pr

actic

e:

VIS

has

dev

elop

ed a

VIS

Cor

pora

te S

ocia

l R

espo

nsib

ility

Man

ual

as a

gui

de f

or th

e co

mpa

ny t

o im

plem

ent

its s

ocia

l re

spon

sibi

litie

s; s

uch

impl

emen

tatio

n co

nfor

ms

to t

he s

pirit

of

the

Cor

pora

te S

ocia

l Res

pons

ibili

ty B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es.

6. O

ther

Info

rmat

ion

for B

ette

r Und

erst

andi

ng o

f the

com

pany

's co

rpor

ate

soci

al re

spon

sibi

lity

prac

tices

: In

201

5, th

e C

ompa

ny in

vite

d st

uden

ts fr

om T

he U

niqu

e A

taya

l Col

lege

to p

artic

ipat

e in

the

Com

pany

's Fa

mily

Day

eve

nts

and

to e

mba

rk o

n an

inte

llect

ual j

ourn

ey to

the

Nat

iona

l Pal

ace

Mus

eum

. The

se s

tude

nts,

who

live

in ru

ral a

reas

, wer

e th

us g

iven

the

oppo

rtuni

ty to

com

e in

con

tact

with

the

exte

nsiv

e an

d pr

ofou

nd h

erita

ge o

f Chi

nese

cul

ture

. Fur

ther

mor

e, w

e co

llect

ed

dona

tions

(gift

s, bo

oks,

and

stat

ione

ry) f

rom

with

in th

e or

gani

zatio

n, th

e re

sulti

ng g

ifts o

f whi

ch w

ere

dist

ribut

ed to

scho

ols i

n ru

ral a

reas

by

our v

olun

teer

s. To

car

e fo

r th

ose

with

phy

sica

l and

men

tal d

isab

ilitie

s, th

e C

ompa

ny d

onat

ed N

T$20

0,00

0 to

the

St. J

osep

h So

cial

Wel

fare

Fou

ndat

ion

in H

sinc

hu C

ity to

fun

d le

arni

ng a

nd r

ehab

ilita

tion

serv

ices

for p

eopl

e w

ith p

hysi

cal a

nd m

enta

l dis

abili

ties.

Our

em

ploy

ees a

lso

form

ed a

cho

ir gr

oup

to p

erfo

rm a

t the

Fou

ndat

ion'

s cha

rity

even

ts a

nd C

hris

tmas

eve

nts t

o br

ing

joy

and

war

mth

to

frie

nds o

f the

com

mun

ity w

ith p

hysi

cal a

nd m

enta

l dis

abili

ties.

To c

ontri

bute

to

the

com

mun

ity,

we

supp

orte

d th

e N

atio

nal

Thea

ter

& C

once

rt H

all

(Nat

iona

l Pe

rfor

min

g A

rts C

ente

r) b

y fu

ndin

g tw

o ch

arity

per

form

ance

s of

the

"Sl

eepi

ng B

eaut

y"

Chi

ldre

n's

Ope

ra fo

r stu

dent

s of

The

Uni

que

Ata

yal C

olle

ge. I

n ad

ditio

n, w

e al

so s

pons

ored

the

"Tra

velin

g w

ith a

Mis

sion

" pr

ojec

t hel

d by

the

W.Is

land

Org

aniz

atio

n, w

ith a

n ai

m to

insp

ire

youn

g pe

ople

to c

heris

h an

d pu

rsue

thei

r ind

ivid

ual d

ream

s. O

ur v

olun

teer

s an

d em

ploy

ees

also

pro

mot

ed th

e co

ncep

t of e

nviro

nmen

tal h

ealth

and

saf

ety

at th

e Ji

anG

ong

Prim

ary

Scho

ol in

H

sinc

hu C

ity.

31


Cur

rent

Situ

atio

n

Ass

essm

ent I

tem

s Ye

s N

o D

escr

iptio

n

Varia

tion

com

pare

d w

ith th

e C

orpo

rate

Soc

ial R

espo

nsib

ility

B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es

and

Rea

son

for t

he V

aria

tion

Fu

rther

mor

e, to

pro

mot

e so

cial

har

mon

y, th

e C

ompa

ny h

as m

ade

a sp

ecia

l spo

nsor

ship

of N

T$2

mill

ion

to IC

Bro

adca

stin

g C

o., L

td. i

n 20

15, t

o pr

oduc

e "T

he F

utur

e of

Tai

wan

& T

aiw

an in

th

e Fu

ture

". In

this

pro

gram

, cur

rent

glo

bal t

rend

s, ed

ucat

ion

in T

aiw

an, t

alen

ted

peop

le, s

ocia

l liv

elih

ood,

ene

rgy

reso

urce

s, an

d en

viro

nmen

tal p

rote

ctio

n et

c. to

pics

are

dis

cuss

ed.

Apa

rt fr

om c

orpo

rate

spo

nsor

ship

s, ou

r em

ploy

ees

regu

larly

par

ticip

ate

in d

onat

ion

driv

es f

or b

ooks

and

goo

ds, a

nd d

eliv

er d

onat

ed it

ems

to n

ursi

ng h

omes

, chi

ldre

n’s

hom

es, a

nd s

choo

l ch

ildre

n liv

ing

in r

emot

e ar

eas.

Furth

erm

ore,

em

ploy

ees

and

thei

r fa

mili

es h

ave

form

ed a

vol

unte

er g

roup

who

se m

embe

rs s

erve

as

volu

ntee

r gu

ides

on

a ro

tatin

g ba

sis

at t

he N

atio

nal

Mus

eum

of N

atur

al S

cien

ce o

n w

eeke

nds a

nd h

olid

ays t

o ex

plai

n to

vis

itors

the

natu

re a

nd a

pplic

atio

ns o

f int

egra

ted

circ

uits

; in

Y20

15, v

olun

teer

gui

de se

rvic

es w

ere

prov

ided

at t

he m

useu

m

203

times

. Our

col

leag

ues a

lso

perf

orm

com

mun

ity v

olun

teer

serv

ice.

Em

brac

ing

the

spiri

t of h

onor

ing

old

peop

le a

s we

do o

ur o

wn

aged

par

ents

, VIS

vol

unte

ers a

lso

visi

t the

Hsi

nchu

Hom

e fo

r El

derly

Vet

eran

s on

wee

kend

s an

d ho

liday

s w

here

they

hel

p se

nior

s en

joy

thei

r w

eeke

nds

as w

ell a

s th

e St

. Ter

esa

Chi

ldre

n's

Cen

ter,

whe

re th

ey s

pend

tim

e re

adin

g to

chi

ldre

n. O

ur

volu

ntee

r col

leag

ues h

ave

been

ver

y ge

nero

us w

ith th

eir t

ime,

and

per

form

ed c

omm

unity

serv

ice

wor

k a

tota

l of 3

00 ti

mes

in Y

2015

. 7.

If th

e co

mpa

ny's

corp

orat

e so

cial

resp

onsi

bilit

y re

port

pass

es th

e ve

rific

atio

n st

anda

rds o

f rel

evan

t ver

ifica

tion

inst

itutio

ns, d

escr

iptio

ns o

f it s

houl

d be

pro

vide

d:

ISO

900

1 qu

ality

man

agem

ent s

yste

m c

ertif

icat

ion

I

SO/T

S 16

949

vehi

cle

qual

ity m

anag

emen

t sys

tem

cer

tific

atio

n

ISO

140

01 e

nviro

nmen

tal m

anag

emen

t sys

tem

cer

tific

atio

n

OH

SAS

1800

1 sa

fety

and

hea

lth m

anag

emen

t sys

tem

cer

tific

atio

n

QC

080

000

Haz

ardo

us su

bsta

nce

man

agem

ent s

yste

m c

ertif

icat

ion

T

aiw

an o

ccup

atio

nal s

afet

y an

d he

alth

man

agem

ent s

yste

m (T

OSH

MS)

ver

ifica

tion

G

reen

hous

e ga

s (G

HG

) acc

ount

ing

and

verif

icat

ion

in a

ccor

danc

e w

ith IS

O-1

4064

S

ON

Y G

reen

Par

tner

cer

tific

atio

n

Pro

duct

car

bon

foot

prin

t cal

cula

tion

and

verif

icat

ion

2

011

Exce

llenc

e in

Lab

or S

afet

y an

d H

ealth

Pro

mot

ion

Perf

orm

ance

Aw

ard

from

the

Scie

nce

Park

Adm

inis

tratio

n

201

1 D

esig

nate

d M

odel

Env

ironm

enta

l Pro

tect

or A

war

d fr

om th

e En

viro

nmen

tal P

rote

ctio

n A

dmin

istra

tion,

Exe

cutiv

e Yu

an

FA

B1

rece

ived

the

2012

Ene

rgy

Con

serv

atio

n &

Car

bon

Prod

uctio

n A

ctio

n M

ark"

from

the

Envi

ronm

enta

l Pro

tect

ion

Adm

inis

tratio

n, E

xecu

tive Y

uan.

F

AB

2 re

ceiv

ed th

e 20

12 O

utst

andi

ng W

aste

Man

agem

ent A

war

d fr

om th

e En

viro

nmen

tal P

rote

ctio

n A

dmin

istra

tion,

Exe

cutiv

e Yua

n.

FA

B2

rece

ived

the

2012

Out

stan

ding

Env

ironm

enta

l Pro

tect

ion

Awar

d fr

om th

e H

sinch

u Sc

ienc

e Pa

rk A

dmin

istra

tion.

F

AB

1 re

ceiv

ed th

e 20

12 “

Hea

lth P

rom

otio

n M

ark

for S

elf-

Cer

tific

atio

n of

Hea

lthy

Wor

kpla

ce”

from

the

Bur

eau

of H

ealth

Pro

mot

ion,

Dep

artm

ent o

f Hea

lth.

FA

B1

rece

ived

the

2013

“H

ealth

Pro

mot

ion

Mar

k fo

r Sel

f-C

ertif

icat

ion

of H

ealth

y W

orkp

lace

” fr

om th

e B

urea

u of

Hea

lth P

rom

otio

n, D

epar

tmen

t of H

ealth

. F

AB

2 re

ceiv

ed th

e 20

14 A

war

d of

exc

elle

nce

in th

e Sc

ienc

e Pa

rk A

dmin

istra

tion'

s 201

4 Sc

ienc

e Pa

rk O

utst

andi

ng C

arbo

n R

educ

tion

Ente

rpris

e Aw

ards

. F

AB

2 re

ceiv

ed th

e 20

14 S

cien

ce P

ark

Ente

rpris

e w

ith O

utst

andi

ng A

chie

vem

ent i

n En

viro

nmen

tal P

rote

ctio

n Aw

ard

from

the

Hsi

nchu

Bur

eau

of E

nviro

nmen

tal P

rote

ctio

n.

FA

B1

rece

ived

the

2015

Aw

ard

of e

xcel

lenc

e in

the

Scie

nce

Park

Adm

inis

tratio

n's 2

015

Gre

en F

acto

ry A

war

ds.

FA

B1

rece

ived

the

2015

Aw

ard

of e

xcel

lenc

e in

the

Hsi

nchu

Cou

nty'

s 201

5 En

terp

rise

Envi

ronm

ent V

alua

tion.

F

AB

1 re

ceiv

ed th

e 20

15 A

war

d of

bro

nze

med

al in

the

Envi

ronm

enta

l Pro

tect

ion

Adm

inis

tratio

n's 2

015

Ann

ual E

nter

pris

e En

viro

nmen

t Pro

tect

ion

Awar

d.

Y20

14 C

orpo

rate

Soc

ial R

espo

nsib

ility

Rep

ort(i

ssue

d in

Nov

. 201

5) h

ave

been

ver

ified

to c

ompl

y w

ith th

e "C

ore"

opt

ion

of th

e G

RI G

4, a

nd c

onfo

rms

to th

e A

A10

00 T

ype

II h

igh-

leve

l ac

coun

tabi

lity.

And

rece

ived

the

Brit

ish

Stan

dard

s Ins

titut

ion'

s (B

SI's)

dec

lara

tion

of in

depe

nden

t ass

uran

ces.

6.Im

ple

men

tati

on o

f In

tegr

ity

Man

agem

ent

and

Mea

sure

s

The

com

pany

’s p

hilo

soph

y di

ctat

es th

at e

mpl

oyee

s of

the

Com

pany

, reg

ardl

ess

of th

eir p

hysi

cal l

ocat

ion,

sha

ll ad

here

to th

e hi

ghes

t sta

ndar

ds o

f pro

fess

iona

l eth

ics

and

mai

ntai

n su

ch in

thei

r per

sona

l con

duct

. Whe

n en

gage

d in

day

-to-d

ay w

ork,

em

ploy

ees

shal

l obs

erve

bus

ines

s et

hics

and

mai

ntai

n th

e C

ompa

ny’s

repu

tatio

n to

gain

the

resp

ect a

nd tr

ust o

f cus

tom

ers,

supp

liers

, and

all

othe

r pro

fess

iona

ls.

32


Imp

lem

enta

tion

of

inte

grit

y m

anag

emen

t

Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e Et

hica

l Cor

pora

te M

anag

emen

t B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r the

Va

riatio

n

Yes

No

Des

crip

tion

1.Fo

rmul

atio

n of

Inte

grity

Man

agem

ent P

olic

y an

dM

easu

res

(1)

Did

the

com

pany

exp

licitl

y st

ate

the

polic

y an

d pr

actic

es o

f int

egrit

y m

anag

emen

t in

its

regu

latio

ns a

nd e

xter

nal d

ocum

ents

, and

did

the

boar

d of

dire

ctor

s and

man

agem

ents

com

mit

to

impl

emen

ting

such

man

agem

ent p

olic

y?

(2)

Did

the

com

pany

form

ulat

e m

easu

res f

or

prev

entin

g di

shon

est b

ehav

ior,

spec

ify o

pera

ting

proc

edur

es, b

ehav

iora

l gui

delin

es, v

iola

tion

pena

lties

, and

syst

em o

f app

eal i

n su

ch m

easu

res,

and

impl

emen

t suc

h m

easu

res?

(3

) D

id th

e co

mpa

ny a

dopt

pre

vent

ion

mea

sure

s ag

ains

t bus

ines

s act

iviti

es w

ithin

its b

usin

ess

scop

e at

a h

ighe

r ris

k of

bei

ng in

volv

ed in

an

unet

hica

l con

duct

or t

hose

list

ed in

Par

agra

ph 2

of

Arti

cle

7 of

the

Ethi

cal C

orpo

rate

Man

agem

ent

Bes

t Pra

ctic

e Pr

inci

ples

for T

WSE

/GTS

M L

iste

d C

ompa

nies

?

V

V

V

(1)

Arti

cle

1 of

VIS

's bu

sine

ss p

hilo

soph

y: H

onor

ing

the

prin

cipl

e of

goo

d fa

ith, a

bidi

ng

by a

n ex

actin

g co

de o

f pr

ofes

sion

al e

thic

s. Th

e co

mpa

ny c

lear

ly r

egul

ates

the

pr

actic

e of

thi

s ph

iloso

phy

in t

he "

Prof

essi

onal

Cod

e of

Eth

ics,"

req

uirin

g al

l em

ploy

ees

to u

nder

stan

d an

d ab

ide

by th

e pr

ofes

sion

al c

ode

of e

thic

s an

d pe

rson

al

inte

grity

. In

addi

tion,

the

Prof

essi

onal

Cod

e of

Eth

ics

for D

irect

ors

expl

icitl

y st

ates

th

e ne

ed fo

r dire

ctor

s to

uph

old

the

prin

cipl

e of

goo

d fa

ith a

nd a

bide

by

a be

havi

or

of p

rofe

ssio

nal s

tand

ards

. (2

) Th

e co

mpa

ny s

tate

s th

e op

erat

ing

proc

edur

es,

met

hods

, vi

olat

ion

pena

lties

, an

d sy

stem

of a

ppea

l in

its P

rofe

ssio

nal C

ode

of E

thic

s, an

d pr

ovid

es e

mpl

oyee

trai

ning

w

hen

enco

unte

ring

conf

licts

of i

nter

est e

ach

year

in a

ccor

danc

e w

ith th

e pr

ovis

ions

in

the

Prof

essi

onal

Cod

e of

Eth

ics.

(3)

The

com

pany

spec

ifies

the

reas

onab

le sc

ope

of g

ift p

rese

ntat

ion

and

hosp

italit

y in

its

Prof

essi

onal

Cod

e of

Eth

ics:

Em

ploy

ees

mus

t up

hold

the

hig

hest

sta

ndar

ds o

f pr

ofes

sion

al e

thic

s to

war

d th

e co

mpa

ny's

supp

liers

, con

tract

ors,

cust

omer

s, or

oth

er

stak

ehol

ders

(in

clud

ing

gove

rnm

enta

l of

ficia

ls)

and

are

abso

lute

ly f

orbi

dden

fro

m

brib

es o

f any

form

s. In

the

VIS

Cor

pora

te S

ocia

l Res

pons

ibili

ty P

olic

y, V

IS p

ledg

es

to u

phol

d in

tegr

ity in

em

ploy

ee a

nd e

xecu

tive

cond

uct i

n al

l bus

ines

s ac

tiviti

es a

nd

inte

rnal

int

erac

tions

. B

usin

ess

book

s sh

all

be c

lear

and

acc

urat

e, t

rans

pare

nt,

and

com

plia

nt

with

ap

plic

able

re

gula

tions

an

d ac

cura

tely

re

flect

th

e fin

anci

al

perf

orm

ance

and

hea

lth o

f th

e C

ompa

ny. V

IS w

ill w

ork

agai

nst c

orru

ptio

n in

any

an

d al

l for

ms,

incl

udin

g ex

torti

on, b

riber

y, a

nd e

mbe

zzle

men

t.

No

varia

tion

2.Im

plem

enta

tion

of In

tegr

ity M

anag

emen

t(1

) D

id th

e co

mpa

ny a

sses

s the

inte

grity

of i

ts

trans

actio

n pa

rties

, and

spec

ify p

rovi

sion

s pe

rtain

ing

to b

ehav

iors

of i

nteg

rity

in th

e co

ntra

ct

sign

ed w

ith th

e tra

nsac

tion

party

?

V

(1)

The

com

pany

man

date

s in

its

Pro

fess

iona

l C

ode

of E

thic

s th

at e

mpl

oyee

s m

ust

upho

ld th

e hi

ghes

t sta

ndar

ds o

f pro

fess

iona

l eth

ics

tow

ard

the

com

pany

's su

pplie

rs,

cont

ract

ors,

cust

omer

s, or

oth

er s

take

hold

ers

(incl

udin

g go

vern

men

tal o

ffici

als)

and

ar

e ab

solu

tely

for

bidd

en f

rom

brib

es o

f an

y fo

rm. I

n ad

ditio

n, th

e Et

hica

l Cod

e of

V

IS a

nd S

uppl

ier

stip

ulat

es th

at e

ither

par

ty m

ay n

ot g

ive

or r

ecei

ve b

ribes

of

any

No

varia

tion

33


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e Et

hica

l Cor

pora

te M

anag

emen

t B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r the

Va

riatio

n

Yes

No

Des

crip

tion

(2)

Did

the

com

pany

est

ablis

h a

unit

affil

iate

d w

ith

the

boar

d of

dire

ctor

s exc

lusi

vely

for t

he

prom

otio

n of

cor

pora

te in

tegr

ity m

anag

emen

t and

pe

riodi

cally

repo

rt to

the

boar

d of

dire

ctor

s re

gard

ing

the

impl

emen

tatio

n pr

ogre

ss?

(3)

Did

the

com

pany

form

ulat

e po

licie

s for

pr

even

tion

agai

nst c

onfli

cts o

f int

eres

ts, p

rovi

de

appr

opria

te c

hann

els o

f com

mun

icat

ion,

and

im

plem

ent s

uch

polic

ies a

nd c

omm

unic

atio

n?

(4)

Did

the

com

pany

set u

p an

effe

ctiv

e ac

coun

ting

syst

em a

nd in

tern

al c

ontro

l sys

tem

to im

plem

ent

inte

grity

man

agem

ent,

and

desi

gnat

e in

tern

al

audi

t uni

ts o

r ent

rust

acc

ount

ants

to p

erfo

rm

audi

ts o

f the

se sy

stem

s?

V

V

V

form

or

act

in a

ny w

ay c

ontra

ry t

o th

e in

tere

sts

of e

ither

par

ty a

nd s

hall

avoi

d en

gagi

ng i

n fr

eque

nt o

r im

prop

er h

ospi

talit

y be

havi

ors

durin

g bu

sine

ss a

ctiv

ities

. Su

pplie

rs i

n vi

olat

ion

of t

he a

fore

men

tione

d re

gula

tion

shal

l pr

ompt

VIS

to

strin

gent

ly r

evie

w it

s bu

sine

ss c

oope

rativ

e re

latio

nshi

p w

ith th

e su

pplie

r an

d ad

opt

nece

ssar

y m

easu

res,

incl

udin

g ad

just

men

t to

the

am

ount

of

purc

hase

s fr

om t

he

supp

lier.

(2

) Th

e co

mpa

ny

has

set

up

the

"Cor

pora

te

Soci

al

Res

pons

ibili

ty

Prom

otio

n C

omm

ittee

" to

tak

e ch

arge

of

esta

blis

hing

the

"co

rpor

ate

soci

al r

espo

nsib

ility

po

licy"

and

pro

posi

ng a

nd im

plem

entin

g sy

stem

s an

d as

sist

with

the

prom

otio

n of

co

rpor

ate

inte

grity

man

agem

ent.

In a

dditi

on, t

he C

omm

ittee

per

iodi

cally

subm

its th

e co

mpa

ny's

corp

orat

e so

cial

res

pons

ibili

ty r

epor

t to

the

boa

rd o

f di

rect

ors,

and

the

boar

d w

ill su

perv

ise

the

impl

emen

tatio

n of

cor

pora

te in

tegr

ity m

anag

emen

t.

(3)

The

com

pany

has

for

mul

ated

the

Con

flict

s of

Int

eres

t Pr

even

tion

polic

y in

the

Pr

ofes

sion

al C

ode

of E

thic

s: C

onfli

cts o

f int

eres

ts sh

all b

e pe

riodi

cally

repo

rted

on a

ye

arly

bas

is a

nd a

n ap

prop

riate

cha

nnel

of

com

mun

icat

ion

shal

l be

pro

vide

d fo

r im

plem

enta

tion

of p

reve

ntiv

e m

easu

res.

(4

) V

IS h

as f

orm

ulat

ed a

ccou

ntin

g sy

stem

s ac

cord

ing

to t

he I

nter

natio

nal

Fina

ncia

l R

epor

ting

Stan

dard

s (I

FRS)

, m

anda

ting

the

need

to

adop

t C

PA’s

opi

nion

s du

ring

acco

untin

g pr

ojec

t as

sess

men

ts b

efor

e pr

esen

ting

the

mos

t su

itabl

e pr

ojec

t to

the

ex

ecut

ive-

in-c

harg

e fo

r re

view

and

app

rova

l; Fu

rther

mor

e, i

n lig

ht o

f ch

ange

s to

ac

coun

ting

polic

ies

and

estim

atio

ns, t

he c

ompa

ny h

as d

evel

oped

rela

ted

proc

edur

es

acco

rdin

g to

the

Reg

ulat

ions

Gov

erni

ng t

he P

repa

ratio

n of

Fin

anci

al R

epor

ts b

y Se

curit

ies

Issu

ers.

All

finan

cial

st

atem

ents

ar

e au

dite

d by

ce

rtifie

d pu

blic

ac

coun

tant

s to

ensu

re th

e fa

irnes

s of t

he fi

nanc

ial s

tate

men

ts a

nd a

re re

view

ed b

y th

e co

mpa

ny's

Aud

it C

omm

ittee

. V

IS h

as e

stab

lishe

d a

com

preh

ensi

ve i

nter

nal

cont

rol

syst

em,

to w

hich

con

trol

poin

ts f

or e

ach

oper

atio

n ha

ve b

een

inco

rpor

ated

. Th

e sy

stem

is

revi

ewed

and

m

odifi

ed o

n a

year

ly b

asis

and

ins

pect

ed b

y in

tern

al a

udit

units

for

fun

ctio

nalit

y.

Res

pect

ive

units

are

ask

ed to

per

form

spo

ntan

eous

insp

ectio

ns o

n a

daily

bas

is. I

n ad

ditio

n, t

he B

oard

of

Dire

ctor

s an

d th

e m

anag

emen

t w

ill d

iscu

ss r

esul

ts o

f th

e sp

onta

neou

s in

spec

tions

and

aud

it re

ports

from

the

audi

t dep

artm

ent p

erio

dica

lly to

en

sure

the

relia

bilit

y, tr

ansp

aren

cy,e

ffect

iven

ess

and

effic

ienc

y, a

ccur

acy

of fi

nanc

ial

34


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e Et

hica

l Cor

pora

te M

anag

emen

t B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r the

Va

riatio

n

Yes

No

Des

crip

tion

(5)

Did

the

com

pany

per

iodi

cally

hol

d in

tern

al a

nd

exte

rnal

trai

ning

on

inte

grity

man

agem

ent?

V

repo

rts, a

nd c

ompl

ianc

e w

ith th

e ap

plic

able

law

s an

d re

gula

tions

of

the

com

pany

’s

oper

atio

n.

(5)

The

com

pany

per

iodi

cally

hos

ts in

tern

al tr

aini

ng o

n in

tegr

ity m

anag

emen

t on

a ye

arly

bas

is, a

nd d

esig

nate

s sui

tabl

e re

pres

enta

tives

to p

artic

ipat

e in

ext

erna

l tra

inin

g pr

ogra

ms o

r for

ums (

e.g.

cor

pora

te g

over

nanc

e fo

rum

hos

ted

by th

e Age

ncy

Aga

inst

Cor

rupt

ion)

. Mor

eove

r, ex

perts

from

Tai

wan

Cor

pora

te G

over

nanc

e A

ssoc

iatio

n ar

e in

vite

d to

trai

n V

IS's

boar

d of

dire

ctor

s and

man

ager

s.

3.O

pera

tion

of V

IS W

hist

le-B

low

ing

Syst

em(1

) D

id th

e co

mpa

ny e

stab

lish

conc

rete

whi

stle

-bl

owin

g an

d in

cent

ive

syst

ems a

nd c

onve

nien

t w

hist

le-b

low

ing

chan

nels

, and

app

oint

a su

itabl

e pe

rson

nel t

o ha

ndle

the

repo

rted

case

s?

(2)

Did

the

com

pany

dev

ise

stan

dard

ope

ratin

g pr

oced

ures

for h

andi

ng th

e in

vest

igat

ion

of

repo

rted

case

s and

rele

vant

con

fiden

tialit

y m

echa

nism

s?

(3)

Did

the

com

pany

ado

pt m

easu

res f

or p

rote

ctin

g w

hist

le-b

low

ers f

rom

inap

prop

riate

dis

cipl

inar

y ac

tions

due

to th

eir w

hist

le-b

low

ing?

V

V

V

(1)

The

com

pany

has

form

ulat

ed c

oncr

ete

whi

stle

-blo

win

g sy

stem

s and

con

veni

ent

whi

stle

-blo

win

g ch

anne

ls in

the

Prof

essi

onal

Cod

e of

Eth

ics.

Empl

oyee

s and

st

akeh

olde

rs c

an d

irect

ly m

ake

repo

rts to

the

com

pany

's bo

ard

of d

irect

or A

udit

Com

mitt

ee b

y us

ing

the

whi

stle

-blo

win

g m

ailb

ox o

n th

e co

mpa

ny w

ebsi

te. I

n ad

ditio

n, d

edic

ated

uni

ts a

nd p

erso

nnel

are

app

oint

ed to

han

dle

repo

rted

case

s.

(2)

The

com

pany

has

spec

ified

stan

dard

ope

ratin

g pr

oced

ures

for h

andl

ing

the

inve

stig

atio

n of

repo

rted

case

s and

rele

vant

con

fiden

tialit

y m

echa

nism

s in

the

Prof

essi

onal

Cod

e of

Eth

ics.

The

boar

d of

dire

ctor

Aud

it C

omm

ittee

shal

l app

oint

suita

ble

supe

rvis

ors t

o es

tabl

ish

an in

vest

igat

ory

grou

p co

mpr

isin

g pe

rson

nel w

ho sp

ecia

lize

in in

tern

al a

udits

, hu

man

reso

urce

s, an

d le

gal a

ffairs

. Suc

h in

vest

igat

ory

grou

p sh

all p

erfo

rm

inve

stig

atio

ns a

nd c

ompi

le re

ports

to th

e Aud

it C

omm

ittee

. If e

vide

nce

of v

iola

tion

is id

entif

ied,

the

subj

ect b

eing

repo

rted

shal

l be

give

n a

chan

ce fo

r app

eal,

and

the

subj

ect a

nd h

is/h

er re

spec

tive

supe

rvis

or sh

all b

e in

form

ed o

f the

pen

altie

s im

pose

d th

ereo

f.

(3)

The

com

pany

has

stip

ulat

ed m

easu

res f

or p

rote

ctin

g w

hist

le-b

low

ers f

rom

in

appr

opria

te d

isci

plin

ary

actio

ns d

ue to

thei

r whi

stle

-blo

win

g in

the

Prof

essi

onal

C

ode

of E

thic

s; V

IS h

olds

the

prin

cipl

e of

fairn

ess a

nd c

onfid

entia

lity

durin

g th

e in

vest

igat

ion

proc

ess.

The

com

pany

shal

l pro

tect

whi

stle

-blo

wer

s han

dlin

g th

e in

vest

igat

ion

from

subj

ectin

g to

unf

air r

even

ge o

r tre

atm

ent.

No

varia

tion

4.St

reng

then

ing

of In

form

atio

n D

iscl

osur

e M

easu

res

(1)

Did

the

com

pany

dis

clos

e th

e co

nten

t and

pr

omot

ion

effe

ctiv

enes

s of i

ts in

tegr

ity

V

1.Th

e co

mpa

ny h

as e

stab

lishe

d a

web

site

for p

erio

dica

lly d

iscl

osin

g re

leva

ntco

rpor

ate

inte

grity

man

agem

ent i

nfor

mat

ion

on a

yea

rly b

asis

to it

s sto

ckho

lder

s and

No

varia

tion

35


Ass

essm

ent I

tem

s

Cur

rent

Situ

atio

n

Varia

tion

com

pare

d w

ith th

e Et

hica

l Cor

pora

te M

anag

emen

t B

est P

ract

ice

Prin

cipl

es fo

r TW

SE/G

TSM

Lis

ted

Com

pani

es a

nd R

easo

n fo

r the

Va

riatio

n

Yes

No

Des

crip

tion

man

agem

ent p

rinci

ples

on

its w

ebsi

te a

nd o

n th

e M

arke

t Obs

erva

tion

Post

Sys

tem

of t

he T

aiw

an

Stoc

k Ex

chan

ge w

ebsi

te?

inve

stors

. The

info

rmat

ion

disc

lose

d on

the

com

pany

web

site

is u

nifo

rmly

com

pile

d an

d an

noun

ced

by p

ublic

rela

tion

depa

rtmen

t.

5.If

the

com

pany

did

form

ulat

e pr

inci

ples

for i

nteg

rity

man

agem

ent a

ccor

ding

to th

e Et

hica

l Cor

pora

te M

anag

emen

t Bes

t Pra

ctic

e Pr

inci

ples

for T

WSE

/GTS

M L

iste

d C

ompa

nies

, ple

ase

stat

eth

e va

riatio

ns in

the

oper

atio

ns a

nd ru

les o

f suc

h pr

actic

e:Th

e co

mpa

ny h

as s

peci

fied

oper

atin

g pr

oced

ures

and

met

hods

in it

s Pr

ofes

sion

al C

ode

of E

thic

s: E

mpl

oyee

s sh

all h

onor

the

prof

essi

onal

cod

e of

eth

ics,

avoi

d pu

rsui

ng p

erso

nal i

nter

ests

,co

mpl

y w

ith th

e pr

inci

ples

of c

onfid

entia

lity,

eng

age

in fa

ir tra

de, p

rote

ct a

nd p

rope

rly u

tiliz

e co

mpa

ny a

sset

s, ad

here

to la

ws

and

regu

latio

ns, p

reve

nt c

onfli

cts

of in

tere

sts,

offe

r or a

ccep

tbr

ibes

and

hos

pita

lity,

and

abi

de b

y op

erat

ing

proc

edur

es fo

r pun

ishm

ent a

nd a

ppea

ls.

The

com

pany

has

spe

cifie

d re

gula

tions

and

gui

delin

es in

the

Prof

essi

onal

Cod

e of

Eth

ics

for

Dire

ctor

s: T

he b

oard

of

dire

ctor

s sh

all a

void

per

sona

l con

flict

s of

inte

rest

, avo

id p

ursu

ing

pers

onal

inte

rest

s, ke

ep c

onfid

entia

l bus

ines

s se

cret

s, en

gage

in f

air

trade

, pre

vent

insi

der

tradi

ng, a

dher

e to

law

s an

d re

gula

tions

, and

pre

sent

rep

orts

of

mis

cond

uct,

alle

ged

dish

ones

t or

illeg

al a

ctiv

ity. N

o va

riatio

n w

ith th

e ab

ove.

6.O

ther

Info

rmat

ion

for B

ette

r Und

erst

andi

ng o

f the

com

pany

's in

tegr

ity m

anag

emen

t pra

ctic

es:

The

Ethi

cal C

ode

of V

IS a

nd S

uppl

ier:

We

antic

ipat

e th

at a

ll ou

r sup

plie

rs, b

usin

ess

partn

ers,

and

othe

r coo

pera

ting

grou

ps u

nder

stan

d ou

r sta

ndar

ds o

f bus

ines

s et

hics

. All

supp

liers

sha

llac

know

ledg

e V

IS's

ethi

cal c

ondu

ct a

nd c

onfir

m th

eir c

ompl

ianc

e w

ith th

e re

gula

tions

stip

ulat

ed in

this

doc

umen

t bef

ore

enga

ging

in b

usin

ess

activ

ities

with

VIS

. In

any

case

, sup

plie

rs in

viol

atio

n of

the

afor

emen

tione

d re

gula

tion

shal

l pro

mpt

VIS

to s

tring

ently

revi

ew it

s bu

sine

ss c

oope

rativ

e re

latio

nshi

p w

ith th

e su

pplie

r and

ado

pt n

eces

sary

mea

sure

s, in

clud

ing

adju

stm

ent

to th

e am

ount

of p

urch

ases

from

the

supp

lier.

Prof

essi

onal

Cod

e of

Eth

ics:

We

hope

that

our

cus

tom

ers,

supp

liers

, bus

ines

s pa

rtner

s, an

d ot

her

stak

ehol

ders

can

und

erst

and

and

supp

ort o

ur p

rofe

ssio

nal c

ode

of e

thic

s. Em

ploy

ees

are

requ

ired

to p

erio

dica

lly re

port

of a

ny v

iola

tions

to th

e pr

inci

ple

of c

onfli

cts

of in

tere

st ac

cord

ing

to re

gula

tions

on

a ye

arly

bas

is. E

ach

year

, VIS

als

o re

-rev

iew

s an

d up

date

s its

Pro

fess

iona

lC

ode

of E

thic

s acc

ordi

ng to

rece

nt la

ws a

nd re

gula

tions

and

pra

ctic

es o

f its

com

petit

ors.

36


7. Disclosure of Company Governance Principles and Regulations

a. VIS has not subscribed company governance principles and regulations. But VIS has announced the Audit report of Company Governance and established following rules and regulations under applicable legal rules: (1) Article of Incorporation (2) Procedure for the Acquisition and Disposition of Assets (3) Procedure for Financing Third Parties (4) Procedure for Guaranty and Endorsement (5) Procedure for Derivative Trade (6) Internal Audit Organization and Operation (7) Professional Code of Ethics (8) Audit Committee Organization Charter (9) Parliamentary Procedure for General Meeting of Shareholders (10) Parliamentary Procedure for BOD (11) Regulation for the Election of Directors (12) Compensation Committee Organization Charter (13) Professional Code of Ethics for Directors (14) Internal Material Information Processing Procedure (15) Procedures for applications for halt and resumption of trading

b. For inquiry of the disclosure of the financial position and information on corporate governance of VIS, please visit http://www.vis.com.tw/visCom/chinese/d_ir/d04_corporate.htm

8. Other Important Information Disclosed for Better Understanding of

Corporate Governance

VIS has been actively planning business strategies with corporate governance fundamentals ever since its inauguration, ensuring company capability to maximize investor return with effective corporate governance mechanism and sound operations. Board of VIS has set up the Audit Committee and Compensation Committee directly under the board in compliance with the regulation changes and corporate governance requirements from the government. BOD also formulated organization charter of Audit Committee and organization charter of Compensation Committee based on the stipulation examples provided by the government, and constituted rules and procedures of board of directors meeting, in order to ensure the effective execution of the important corporate governance principles.

37


VIS has established and effectively implemented a comprehensive internal control system. All departments are required to conduct regular internal evaluation for daily operation. Besides, BOD and the management review the evaluation reports and reports from internal audit department regularly to ensure the operational efficiency, the accuracy of financial reporting and the compliance with all applicable rules and regulations.

38


9. Internal Control:

Vanguard International Semiconductor Corporation Internal Control Statement

Date: January 27, 2016 The Company states the following with regard to its internal control system in Y2015, based on the findings of a self-evaluation:

1. The Company is fully aware that establishing, operating, and maintaining aninternal control system are the responsibility of its Board of Directors andmanagement. The Company has established such a system aimed atproviding reasonable assurance of the achievement of objectives in theeffectiveness and efficiency of operations (including profits, performance,and safeguard of asset security), reliability of financial reporting,transparency and efficiency, and compliance with applicable laws andregulations.

2. An internal control system has inherent limitations. No matter how perfectlydesigned, an effective internal control system can provide only reasonableassurance of accomplishing the three goals mentioned above. Furthermore,the effectiveness of an internal control system may change along withchanges in environment or circumstances. The internal control system of theCompany contains self-monitoring mechanisms, however, and the Companytakes corrective actions as soon as a deficiency is identified.

3. The Company judges the design and operating effectiveness of its internalcontrol system based on the criteria provided in the Regulations Governingthe Establishment of Internal Control Systems (herein below, theregulations”). The internal control system judgment criteria adopted by theRegulations divide internal control into five elements based on the processof management control: 1. control environment, 2. risk estimation, 3. controlactivities, 4. information and communications, 5. monitoring. Each elementfurther contains several items. Please refer to the Regulations for details.

4. The Company has evaluated the design and operating effectiveness of itsinternal control system according to the aforesaid criteria.

5. Based on the findings of the evaluation mentioned in the precedingparagraph, the Company believes that during the stated time period itsinternal control system (including its supervision of subsidiaries),encompassing internal controls for knowledge of the degree of achievementof operational effectiveness and efficiency objectives, reliability of financialreporting, and compliance with applicable laws and regulations, waseffectively designed and operating, and reasonably assured the achievement

39


of the above-stated objectives. 6. This Statement will become a major part of the content of the Company's

Annual Report and Prospectus, and will be made public. Any falsehood,concealment, or other illegality in the content made public will entail legalliability under Articles 20, 32, 171, and 174 of the Securities and ExchangeLaw.

7. This statement has been approved by the Board of Directors Meeting held onJanuary 27, 2016. All of the 7 attending directors affirmed the content of thisStatement.Vanguard International Semiconductor Corporation

Chairman & President Leuh Fang

40


josh

經理人簽(en)

Where a CPA has been hired to carry out a special audit of the internal control system, furnish the CPA audit report: None

10. Legal Penalty:

VIS has not violated in any aspect the internal control requirement thatresulted in penalty.

11. Major Resolutions of Shareholders Meetings and Board Meetings:

Review of Shareholder Meetings

The Y2015 Regular Shareholders’ Meeting was held on June 8, 2015. Themajor resolutions and implementation status were as below:

Date Subject Result Implementation status 2015.06.08 Approved the Y2014 business

report and financial statements After voting by poll, was approved as proposed. Implement as approved and disclose

on VIS's website. The proposal for profit distribution

After voting by poll, was approved as proposed. Set July 9, 2015 as recording date for dividend distribution. July 22, 2015 send out cash dividend.

Elected VIS's 8th Board of Directors.

The list of the newly elected director Directors: Leuh Fang (Representative of Taiwan Semiconductor Manufacturing Co., Ltd.), F.C. Tseng (Representative of Taiwan Semiconductor Manufacturing Co., Ltd.) K. H. Hsiao (Representative of National Development Fund, Executive Yuan) Edward Y. Way Independent Directors: Benson W.C. Liu Kenneth Kin Chintay Shih.

Disclose on VIS's website and complete the registration on June 25, 2015.

Approved the removal of non-competition restrictions on Board of Director elected in the shareholders' meeting.

After voting by poll, was approved as proposed. Implement as approved and disclose on VIS's website.

Review of Board Meetings Major resolutions adopted are summarized as below: Y2015： a. Agreed to convene the Y2015 regular shareholders meeting and related

issues.b. Approved Y2014 annual business and operation report.c. Approved Y2014 annual financial report.d. Approved Y2014 profit distribution plan.e. Approved Y2015 capital expenditure budget raising plan.f. Approved Y2014 internal control system statement.g. Approved Y2015 remuneration of managerial officers.h. Approved Y2015 remuneration of chairman and directors.i. Reviewed the qualifications of each director nominee.

41


j. Elected Mr. Leuh Fang as Chairman and Mr. F.C. Tseng as Vice Chairman.

k. Approved Mr. Chintay Shih, Mr. Benson W.C. Liu and Mr. Kenneth Kin were appointed as members of compensation committee.

l. Amended the performance index and the remuneration structure of the directors.

m. Amended the performance index and the remuneration structure of managerial officers.

n. Approved Y2016 operation plan and capital expenditure budget plan. o. Approved Y2016 Internal audit plan. p. Agreed to Deloitte Touche Tohmatsu Limited to audit financial

statements of Vanguard and the subsidiaries. q. Approved Mr. Chrong Jung Lin to be Appointed as Associate Vice

President. r. Approved the procedures for halt and resumption applications, for

security trade. Y2016 (As of February 29, 2016): a. Agreed to convene the Y2016 regular shareholders meeting and related

issues. b. Approved Y2015 annual business and operation report. c. Approved Y2015 annual financial report. d. Approved Y2015 profit distribution plan. e. Approved Y2015 internal control system statement. f. Approved Y2016 remuneration of managerial officers. g. Approved Y2016 remuneration of chairman and directors. h. Amended the Articles of Incorporation. i. Approved Y2015 employees’ compensation and directors’

compensation. j. Approved Specialty TechFarm Inc., the subsidiary of VIS, to apply for

liquidation. k. Amended the Internal Control System.

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

Important Resolutions Passed by the Board of Directors:

No dissenting opinions held by directors in respect of important resolutions passed by the board of directors from Y2015 to publish of this annual report.

42


13. Personnel Termination Summary Related to Annual Financial Report:

Title Name Date of Elected

Date of Resigned Remark

Chairman Ching-Chu Chang 2009.6.10 2015.6.8 BOD re-election

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

Non-audit Fee Whether the CPA's audit

period covers an entire fiscal year Accounting

Firm Name of

CPA Audit Fee

System Design

Company Registration

Human Resource

Others (Note) Subtotal Yes No Audit Period

Andy Huang Deloitte &

Touche Horace Lin 5,300 0 0 0 280 280 v 2015.01.01~

2015.12.31

Note: Fees mainly related to taxation consulting service and review of valuation report.

The non-auditing fee amounted to NT$280 thousand is less than 25% of the total engagement fee.

Audit fee of Y2015 did not reduce more than 15% of previous year.

F. Information on Replacement of Certified Public Accountant There is no replacement of certified public accountant in Y2014, Y2015, and as of February 29, 2016.

G. Company Chairman, President, Financial or Accounting Head has

Worked for Certifying Accounting Firm or Its Affiliate Business in the Past Year: None

H. Information on Net Change in Shareholding and Net Change in

Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More:

Y2015 01/01/2016 ~ 02/29/2016

Title Name Net Change in Shareholding

Net Change in Shares Pledged

Net Change in Shareholding

Net Change in Shares Pledged

Chairman Vice Chairman

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

(82,000,000) 0 0 0

Former Chairman

Ching-Chu Chang 0 0 0 0

Director National Development Fund, Executive YuanRepresentative: K. H. Hsiao

0 0 0 0

43


Director Edward Y. Way 0 0 0 0


Chintay Shih 0 0 0 0


Benson W.C. Liu 0 0 0 0


Kenneth Kin 0 0 0 0

President Leuh Fang 0 0 0 0Vice President D. L. Tseng 0 0 0 0Vice President Thomas Chang (300,000) 0 0 0Vice President Jun-Wei Chen 0 0 0 0Vice President Chan-Jen Kuo (756,000) 0 (36,000) 0Associate Vice President

Chrong-Jung Lin 0 0 0 0

Major shareholder

Taiwan Semiconductor Manufacturing Co., Ltd.(tsmc)

(82,000,000) 0 0 0

Major shareholder

National Development Fund, Executive Yuan

0 0 0 0

Stock Trade with Related Party: None

Stock Pledge with Related Party: None

I. Top 10 shareholders relation

As of February 29, 2016

Name Shareholding Spouse & Minor shareholding

Shareholding by nominee

arrangement

Top 10 shareholders with the relation of SFAS No.6 Note

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

464,223,493 28.32% 0 0 0 0 National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao

Director of tsmc

National Development Fund, Executive Yuan Representatives: Director: K. H. Hsiao

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

Investee of NDF

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

55,449,446 3.38% 0 0 0 0 None

Cathay Life Insurance Co., Ltd. Hong-Tu Tsai

50,757,000 3.10% 0 0 0 0 None

SmallCap World Fund Inc. 50,525,554 3.08% 0 0 0 0 NoneJPMorgan Chase Bank， N.A.， Taipei Branch in Custody for International Growth and Income Fund

50,246,000 3.07% 0 0 0 0 None

Fubon Life Insurance Co., Ltd. Pen-Yuan Cheng

31,000,000 1.89% 0 0 0 0 None

JPMorgan Chase Bank N.A. Taipei Branch in custody for The Income Fund of America

29,925,000 1.83% 0 0 0 0 None

JPMorgan Chase Bank， N.A.， Taipei Branch in Custody for Columbia Acorn Trust - Columbia Acorn International

27,141,000 1.66% 0 0 0 0 None

China Life Insurance Co., Ltd. Alan Wang

22,000,000 1.34% 0 0 0 0 None

44


J. V

IS L

ong-

Ter

m I

nve

stm

ent

Ow

ner

ship

A

s of F

ebru

ary

29, 2

016;

Uni

t: sh

ares

; %

Long

-Ter

m In

vest

men

t O

wne

rshi

p by

VIS

D

irect

/Indi

rect

Ow

ners

hip

by

Dire

ctor

s, Su

perv

isor

s, an

d M

anag

emen

t To

tal O

wne

rshi

p

Shar

es

%

Shar

es

%

Shar

es

%

VIS

Ass

ocia

tes I

nc.

6,00

010

0.00

%

- -

6,00

010

0.00

%

CM

SC In

c.

9,90

2,00

024

.94%

--

9,90

2,00

024

.94%

Uni

ted

Indu

stria

l Gas

es C

o., L

td.

4,24

6,07

91.

95%

21

,230

,414

9.75

%25

,476

,493

11.7

0%

Cha

mpi

on M

icro

elec

troni

c C

orp.

34

6,03

90.

58%

34

6,03

90.

58%

Imag

e M

atch

Des

ign

Inc.

2,

400,

000

9.80

%

2,40

0,00

09.

80%

Adv

ance

d M

icro

elec

troni

c Pr

oduc

ts, I

nc

30,0

00,0

0016

.43%

--

30,0

00,0

0016

.43%

45


IV. INFORMATION ON IMPLEMENTATION OF THE COMPANYFUNDS UTILIZATION PLANSA. Capital and shares

1.

Source of capital

Unit: Shares As of February 29, 2016

Month/Year Price

Authorized Capital Paid-in Capital Remark

Shares Amount Shares Amount Sources of Capital

Capital Increase by

Assets other than

Cash

Date of Approval & Approval Document

No.

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

employees stock options

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

*There is no change of Capital in Y2015 & as of 2016/2/29Unit: Shares As of February 29, 2016

Type of Stock Authorized Capital Note Listed Shares Non-listed shares Total Shares Common Stock 1,638,982,267 1,661,017,733 3,300,000,000

Shelf Registration: None

2. Shareholder StructureAs of February 29, 2016

Government Agencies

FinancialInstitutions

Other Juridical Person

Foreign Institutions & Natural Persons

Domestic Natural Persons

Treasury stock Total

Number of Shareholders 1

14 117 590 38,995

0 39,717Shareholding 274,029,592 128,025,779 506,015,799 610,223,673 120,687,424 0 1,638,982,267Holding Percentage（%） 16.72% 7.81% 30.87% 37.24% 7.36% 0.00% 100.00%

3.

Distribution Profile of Shareholder OwnershipAs of February 29, 2016

Shareholder Ownership (Share) Number of Shareholders Ownership (Share) Ownership (%) 1~ 999 19,087 5,267,237 0.32%

1,000~ 5,000 15,708 31,428,443 1.92%5,001~ 10,000 2,520 18,170,118 1.11%

10,001~ 15,000 769 9,349,216 0.57%15,001~ 20,000 346 6,301,953 0.38%20,001~ 30,000 340 8,493,151 0.52%30,001~ 50,000 282 11,131,409 0.68%50,001~ 100,000 218 15,545,087 0.95%100,001~ 200,000 146 21,017,687 1.28%200,001~ 400,000 105 29,671,175 1.81%400,001~ 600,000 28 14,197,555 0.87%600,001~ 800,000 26 18,496,758 1.13%800,001~1,000,000 15 13,193,667 0.80%

Over 1,000,001 127 1,436,718,811 87.66%Total 39,717 1,638,982,267 100.00%

Preferred Stock: Not Applicable

46


4. Major ShareholdersAs of February 29, 2016

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

5. Market Price, Net Worth, Earnings and Dividends Per Common Share Unit: NT$; stocks, in thousands

YearItem Y2014 Y2015 01/01/2016~

02/29/2016 Highest Market Price 53.60 58.40 51.70Lowest Market Price 32.95 31.50 37.05

Market Price Per Share Average Market Price 44.13 45.94 46.47

Before distribution (Note5) 16.81 16.72 - Net Worth Per Share After distribution 14.21 (Note 4) -

Weighted Average Shares 1,648,514 1,662,258 - Diluted EarningsPer Share Earnings Per Share (Note 5) 3.30 2.50 -

Cash Dividends 2.60 (Note 4) 2.60 - Dividends from Retained Earnings - (Note4) -

Stock Dividends Dividends from Capital Surplus - (Note4) -

Dividends Per Share

Accumulated Undistributed Dividends - - - Price/Earning Ratio (Note1) 13.37 18.38 - Price/Dividend Ratio (Note2) 16.97 (Note 4) - Return on

Investment Cash Dividend Yield Rate (Note3) 5.89% (Note 4) -

Note 1：Price / Earnings Ratio = Average Market Price / Earnings per Share

Note 2：Price / Dividend Ratio = Average Market Price / Cash Dividends per Share

Note 3：Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price

Note 4：Pending shareholders' meeting resolution.

Note 5：Y2014 figures have been restated in accordance with 2013 version of IFRSs.

6. Dividend PolicyAccording to the Company’s Articles of Incorporations, VIS shall not paydividends when there is no profit for a particular fiscal year. When allocating netprofits for each fiscal year, the Corporation shall first offset its losses in previousyears and set aside a legal capital reserve, then set aside special capital reserve inaccordance with relevant laws or regulations or as requested by the authorities incharge; then set aside no more than 1% of the balance as bonus to directors, andno less than 1% as bonus to employees of this Corporation. The distribution ofprofits may be in the form of cash dividend, stock dividend or a combination ofcash and stock. The distribution of cash dividend should not be less than 10% ofthe total dividend. The Company BOD has proposed to distribute Y2015 profit asdescribed in following sections.Dividend Policy (resolution of 2016/1/27 BOD meeting, will be adopted after2016/6/7 AGM resolution)According to the Company’s Articles of Incorporations, VIS shall not pay

47


dividends when there is no profit for a particular fiscal year. When allocating net profits for each fiscal year, the Corporation shall first offset its losses in previous years and set aside a legal capital reserve, then set aside special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge. The distribution of profits may be in the form of cash dividend, stock dividend or a combination of cash and stock. The distribution of cash dividend should not be less than 60% of the total dividend.

Y2015 Profit Distribution for Directors & Supervisors Compensation, and Employee

Profit Sharing: Unit: NT$

Year Date of Board Resolution

Dividend to Common Shareholders (Cash) Directors Compensation Employee Profit

(cash) 2015 2016/1/27 4,261,353,894 13,384,109 623,637,511

7. Stock Dividend Distribution: Not Applicable

8. Compensation of employees, directors, and supervisors:

a. The percentages or ranges with respect to employee, director, and supervisorcompensation, as set forth in the company's articles of incorporation

In compliance with the amendments to the Company Act in May 2015, theconsequential amendment to VIS’s Articles of Incorporation had beenproposed by VIS Board of Directors on January 27, 2016, and subject to theresolution of the shareholders’ meeting on June 7, 2016. The proposedamended Articles of Incorporation stipulate to distribute employees’compensation at the rate of no less than 10% of profit and resolved by Boardof Directors to be decided paid in cash or stock. And distribute theremuneration to directors at the rate of no higher than 1% of profit. However,when the company has accumulated loss, it shall first set aside an amount tooffset the losses and then distribute employees’ compensation andremuneration to directors in accordance with aforesaid ratios.

b. The basis for estimating the amount of employee, director, and supervisorcompensation, for calculating the number of shares to be distributed asemployee compensation, and the accounting treatment of the discrepancy, ifany, between the actual distributed amount and the estimated figure, for thecurrent period.

According to related regulation and the proposed amended Articles ofIncorporation, VIS accrued employees’ compensation and remuneration todirectors no less than 10% and no higher than 1%, respectively, based on thenet profit before income tax, without deducting employees’ compensationand the remuneration to directors. For the year ended December 31, 2015,

48


VIS recognized the employees’ compensation and remuneration to directors amounting to NT$623,637,511 and NT$13,588,273, respectively, representing 11% and 0.2%, respectively, based on the above-mentioned calculation base. Any discrepancy between actual distributed amount and the estimated figure which is insignificant will be treated in accordance with changes of accounting estimation. However, the discrepancy will be recognized as fiscal year expense if it’s significant.

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

(1) The amount of any employee compensation distributed in cash or stocksand compensation for directors and supervisors. If there is any discrepancy between that amount and the estimated figure for the fiscal year these expenses are recognized, the discrepancy, its cause, and the status of treatment shall be disclosed.

The amounts of employees’ compensation and remuneration to directors resolved by the Board of Directors on January 27, 2016 were as follows which shall be reported in the shareholders’ meeting to be held on June 7, 2016 after the shareholders’ meeting resolves the amendment of Articles of Incorporation.

The bonus to employees amounted to NT$623,637,511. Thedistribution will be paid in cash. There is no difference in theexpense recognized in Y2015.

The remuneration to directors amounted to NT$13,384,109 which isNT$204,164 lower than the estimated amount recognized in Y2015financial report. The difference was due to the change of accountingestimate and will reflect on Y2016 profit and loss. The distributionwill be paid in cash.

(2) The amount of any employee compensation distributed in stocks, and the size of that amount as a percentage of the sum of the after-tax net income stated in the parent company only financial reports or individual financial reports for the current period and total employee compensation: Not Applicable.

d. The actual distribution of employee, director, and supervisor compensationfor the previous fiscal year (with an indication of the number of shares,monetary amount, and stock price, of the shares distributed), and, if there isany discrepancy between the actual distribution and the recognizedemployee, director, or supervisor compensation, additionally thediscrepancy, cause, and how it is treated.

49


Board of Directors Resolution Actual Distribution

Amount (NT$) Amount (NT$) Underlying Number of Shares Dilution

Remuneration to Directors 34,800,000 34,800,000 NA NA Employees’ compensation in cash 815,683,321 815,683,321 NA NA

Total 850,483,321 850,483,321 NA NA

The above figures have been recognized in the Y2014 financial report. There is no discrepancy between the actual distribution approved in the Board of Directors and the shareholders’ meeting and the recognized amounts in the Y2014 financial report.

9. Share Buy-back : None

B. Issuance of Corporate Bond : None C. Issuance of Preferred Stock Issuance

1. Preferred Stock : None

2. Preferred Stock with Warrants : None

D. Issuance of Depositary Shares Issuance: None

1. Status of Employee Stock Option Plan (ESOP): None2. New restricted employee shares: None

E. Status of Mergers and Acquisitions: None

F. Fund Plan Implementation: None

Distribution of employees’ compensation and remuneration to directors for the Y2014 were as follows.

50


V. OPERATIONAL HIGHLIGHTS A. A description of the business

1. Scope of business

VIS’ scope of business is in wafer manufacturing. Main focus on HV/BCD/SOI/UHV/Discrete processes for Panel display and PMIC applications in both consumer and automotive market segments. At the same time, dedicate on the developing of BCD and high-voltage/ultra high-voltage new technologies. VIS also support specialty IC process manufacturing, and committed to embedding zero defect mindset within production, supply chain management, and service flow, and dedicated to reach ultimate goal of zero defect by continuous improvement. Mean while, VIS is co-operating with various IP service providers to expand VIS service in manufacturing. Above are all for the purpose of establishing VIS as the preferred partner in specialty IC foundry & service.

Item AMT (NT$ in thousands)

（1） Wafer Foundry 23,239,079 （2） Others 309,316Less Sales returns and allowances 228,674 TTL Net Revenue 23,319,721

2. Overview of the industryCurrent state of industry and trendsMacroeconomic aspects

The table below represents the proportion of contributions in various major countries in terms of GDP output value, data that is also closely related to the global economic development. At the end of 2008, the financial crisis caused by the Wall Street crash not only severely impacted the US economy, but also induced a global chain effect. However, at the end of 2014, the United States remained the world's largest economic power, in light of which the Federal Reserve (FED) made a resolution that further influenced global economic orientation. In 2010, China surpassed Japan and became the second largest GDP contributor as major constructions in infrastructure facilitated an exponential economic boost. China's economic policies also played a significant role in impacting the global market.

Under the influence of its policy on quantitative easing (QE), the United States was the first to cast off the shadows of financial turmoil and exhibit an

51


outstanding GDP growth in 2015 among other developed nations. By contrast, China systematically lowered the frequency of its investment in major constructions in 2015 and implemented control and regulation at the macroscopic level. As a result, China's GDP growth has for the first time reduced to less than 7%, which stagnated the GDP growth of the global economy to 3.1%, even less than the already sluggish number of 3.4% in 2014.

According to the latest GDP forecasts for 2016 and 2017 announced by IMF, the United States will still be playing a leading role. As unemployment rates gradually fall, overall growth is expected to remain significantly stable within the next two years. In addition, the interest rate raise enforced by the FED attracted an influx of investment from various countries, causing declines in the growth of other regions due to investment slowdown, although member states of the 2016 G20 international forum believe this is merely a result of excessive panic. The current global economy is indeed exhibiting a downturn, and even though all members agree that such a downturn is incomparable to that of 2008, participating nations have each developed a set of policies in response to this phenomenon. Despite a growth rate much less significant that the two-digits it had preciously exhibited, China was still able to maintain a rate of around 6%. Concurrently, the Eurozone and Japan are gradually stabilizing while the global economy is anticipated to demonstrate very slight growth for the next two years.

Total global GDP output value and contribution of major countries (2009-2014)

Source: World Bank (Feb. 2016)

2009 2010 2011 2012 2013 2014

Worldwide GDP, $Trillion 59.78 65.59 72.66 74.15 76.24 77.85

US 24% 23% 21% 22% 22% 22%China 8% 9% 10% 11% 12% 13%Japan 8% 8% 8% 8% 6% 6%EU 28% 26% 25% 23% 24% 24% - Germany 6% 5% 5% 5% 5% 5% - France 5% 4% 4% 4% 4% 4% - UK 4% 4% 4% 4% 4% 4%

52


Statistics and forecasting of global GDP growth (2014-2017)

Source: IMF (Jan. 2016)

Global Semiconductor and Foundry Production Value

Source: Gartner (Dec. 2015)

Revenue and ranking of global foundry providers

The following chart shows initial global foundry (including pure player and IDM) revenue and market share projections from Gartner. TSMC remained the dominant player in 2015, and its 6% revenue growth was higher than the 3% figure for the industry as a whole. In addition, TSMC's market share rose from 53.7% in 2014 to 55.3% in 2015. UMC retained its second-place ranking with a 9.4% market share after returning to the No. 2 position in 2014. GlobalFoundries was ranked third, followed closely by Samsung, while SMIC occupied fifth place with a market share of 4.6% and revenue growth of 13% contributed by the increase in market demand. TowerJazz attained its No. 6 position with an annual revenue growth of 16%, which is attributed to the enhanced production capacity of TPSCo. Powerchip, also a memory OEM, fell to seventh place with a market share of 1.8%. Here at VIS, our 2015 revenue of US$737 million enabled us to secure a No. 8 ranking, occupying a market share of 1.5%. The top 10 firms enjoyed 4% revenue growth in 2015 and

Country / Region 2014 2015 2016 e 2017 fUSA 2.4% 2.5% 2.6% 2.6%Euro Area 0.9% 1.5% 1.7% 1.7%UK 2.9% 2.2% 2.2% 2.2%Japan 0.0% 0.6% 1.0% 0.3%Russia 0.6% ‐3.7% ‐1.0% 1.0%China 7.3% 6.9% 6.3% 6.0%India 7.3% 7.3% 7.5% 7.5%Brazil ‐0.2% ‐3.8% ‐3.5% 0.0%Worldwide 3.4% 3.1% 3.4% 3.6%Advanced Economies 1.8% 1.9% 2.1% 2.1%Emerging and Developing Economies 4.6% 4.0% 4.3% 4.7%

334 340

‐2%

2%

3%5%

‐5%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

350

400

450

2014 2015 2016 2017 2018 2019 2020

YoY

$B

Semiconductor, $B

Total Foundry, $B

Semiconductor (YoY)

Total Foundry (YoY)

53


accounted for 91.1% of the overall market, compared with 90.6% in 2014; the foundry industry is dominated to a large degree by these major players.

Global Pure Foundry Revenue and Market Share

Source: Gartner (Jan. 2016)

Taiwan Semiconductor Industrial

The following chart displays the statistics and forecasting of industry output values for various secondary semiconductor industries in Taiwan. According to the data presented by the Institute for Information Industry's MIC division, overall industry output in 2015 reflected a minimal growth of 1%, which is equivalent to a scale of NT$2,161.6 billion. This performance is better than the 2% downfall exhibited by global semiconductor industries and is primarily attributed to the 4% positive growth of IC manufacturing industry, particularly the contribution of the foundry business. On the other hand, IC designs and packaging testing industries respectively registered a drop of 4% and 2%. It is expected that in 2016 the overall semiconductor industry in Taiwan will be able to achieve a 2% growth in output under the influence of global semiconductor steady growth.

Output values of various secondary semiconductor industries in Taiwan

Source: Institute for Information Industry's MIC division (Dec. 2015)

$M Share % $M Share % Rev. % Share %

1 tsmc Pure‐FDY 25,175 53.7% 26,703 55.3% 6% 1.6%2 UMC Pure‐FDY 4,621 9.9% 4,561 9.4% ‐1% ‐0.4%3 GF Pure‐FDY 4,400 9.4% 4,300 8.9% ‐2% ‐0.5%4 Samsung IDM 2,412 5.1% 2,361 4.9% ‐2% ‐0.3%5 SMIC Pure‐FDY 1,970 4.2% 2,225 4.6% 13% 0.4%6 TowerJazz Pure‐FDY 828 1.8% 958 2.0% 16% 0.2%7 Powerchip Pure‐FDY 917 2.0% 876 1.8% ‐4% ‐0.1%8 Vanguard Pure‐FDY 790 1.7% 737 1.5% ‐7% ‐0.2%9 Huahong Grace Pure‐FDY 665 1.4% 659 1.4% ‐1% ‐0.1%10 Fujitsu Pure‐FDY 653 1.4% 600 1.2% ‐8% ‐0.2%

Top‐10 42,431 90.6% 43,980 91.1% 4% 0.5%Top‐10 % 91% 91%Others 4,421 9.4% 4,322 8.9% ‐2% ‐0.5%Total 46,852 48,302 3%

YoY2014 2015 e2015 Company Foundry Type

‐ IC manufacturing industry (OEM + memory)

‐ IC design industry

‐ IC packaging testing industry

Overall industry output value (grand total)

2014

21,423

12,027

5,310

4,086

(NT$100 million)2013

18,021

9,697

4,658

3,666

(NT$100 million)2015 e

21,616

12,518

5,094

4,004

(NT$100 million)2016 f

22,135

13,271

4,788

4,076

(NT$100 million)'14‐'15YoY

1%

4%

‐4%

‐2%

"15‐'16YoY

2%

6%

‐6%

2%

54


The following demonstrates 2015 rankings for revenues earned by the Top-9 foundry manufacturers of Taiwan (Remark: Real Green Material Technology Corporation (RGMTC) was renamed as Micron Technology in 2014; because RGMTC's revenues have been incorporated into Micron Technology data, its revenues cannot be determined and are therefore expressed as N/A). The top two providers in the foundry industry were TSMC and UMC, while VIS occupied 7th place. Currently, out of all foundry manufacturers in Taiwan, Inotera Memories and Nanya Technology Corporation are the only two DRAM manufacturers, whereas other firms, except for Winbond Electronics Corporation, which is an IDM firm, have all adopted an OEM operating model.

Regarding the revenue rankings for Taiwan's Top-9 foundry manufacturers

Source: Company data (Jan. 2016)

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

segments are as shown in the following chart

Product development trends and state of competition

Company

1 Taiwan Semiconductor Manufacturing Company (TSMC) Pure Foundry

2 United Microelectronics Corporation (UMC) Pure Foundry

3 Inotera Memories DRAM

4 Nanya Technology Corporation DRAM

5 Powerchip Semiconductor Corporation (PSC) Pure Foundry

6 Winbond Electronics Corporation IDM

7 Vanguard International Semiconductor Corporation (VIS) Pure Foundry

8 Macronix International Co., Ltd. IDM/Foundry

9 Nuvoton Technology Corporation IDM/Foundry

*** Real Green Material Technology Corporation (RGMTC) DRAM

2015Ranking

Industry category /Product category

2014

7,628

1,400

826

491

401

380

239

224

68

NA


8,435

1,448

608

439

411

384

233

209

73

NA


(NT$100 million)

5,970

1,233

590

470

362

331

211

222

68

428

'14-15 YoY

11%

3%

-26%

-11%

3%

1%

-3%

-7%

7%

55


a. Product development trends

VIS provides the best quality IC foundry services and logic foundry processtechnology. Apart from existing logic, mixed-signal and high-voltageprocess, VIS also offers ultra high voltage, BCD (Bipolar-CMOS-DMOS),SOI (Silicon on Insulator), and embedded non- volatile memory processes.Our high voltage processes range from 10V to 800V, enabling us to satisfythe needs of different product specifications and help customers expandapplications in different field. In response to the automobile industry'sdemand for semiconductors, VIS has actively proposed solution plans andapplied for AEC-Q100 certifications to provide our customers with multiplechoices of technical platforms. In light of the increasing need for consumableelectronics, VIS has completed building the structure of an IC applicationplatform for magnetic and fingerprint sensor process technologies, therebyproviding customers with additional options other than driver ICs, powermanagement ICs, and discrete components. Our wafer foundry services areclosely linked with end markets, including computer, consumer electronics,and communications and automotive markets. We chiefly supply products forcomputers (including desktop, notebook, netbook, and tablet), LCD TVs, andcell phones; the following are demand forecasts for various end markets fromthe research firms:

Computer：

Microsoft's Win 10 operating system did not prompt PC replacements as expected. In addition, sluggish economic growth continued to impact the shipment of PC products in 2015. Specifically, the shipment of desktop computers was 114 million units with a significant drop of 17%. The declining trend is also observed in the notebook market, with a shipment of 163 million, which reflects a 4% drop. The shipment of small tablet computers did not grow as it did in the past because of the increased shipment of large size smartphones. Although Apple launched its 12.9" iPad Pro, hoping to motivate corporate clients in the use of tablet computers, the market did not seem to have adopted this trend, generating an overall shipment of 195 million, which reflects a 12% decrease. Looking ahead into 2016, the PC market is expected to continue to exhibit distress, including a declining trend in the growth of tablet computers.

56


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

Source: IHS, Gartner, IDC (4Q15)

Consumer Electronic： The following two tables depict the global shipment and resolution trend of LCD TVs. In 2015, a 5% annual growth rate (approximately 224 million) was observed, with FHD (1920x1080) accounting for 48%. The penetration rate of UFHD (3840x2160, 4k2k) was about 15%. According to IHS, Gartner, and IDC, the overall shipment of LCD TVs for the next few years is projected to grow by 3 to 5% annually. Regarding UFHD resolution devices, favorable growth is expected under the influence of price fluctuations, occupying 43% of the overall LCD TV market by 2020. A positive growth in the shipment of LCD TVs and enhanced panel resolution are market trends that positively influence VIS business performance in driver IC operations.

Global TV Shipment Volume (in millions of units) and Annual Growth Rate

Source: IHS, Gartner, IDC (4Q15) LCD Shipment Ratio by Resolution

Source: IHS (4Q15)

2015 2016 2017 2018 2019 2020

Desktop 114 108 105 104 103 101Notebook 163 161 163 167 170 173Tablet 195 182 180 178 177 166Desktop YoY -17% -5% -2% -1% -2% -2%Notebook YoY -4% -1% 2% 2% 2% 2%Tablet YoY -12% -7% -1% -1% -1% -6%

224230

5%

3%

0%

1%

2%

3%

4%

5%

6%

200

210

220

230

240

250

260

2015 2016 2017 2018 2019 2020

YoY

Mu LCD TV

LCD TV YoY

2015 2016 2017 2018 2019 2020

1366 x 768 36% 34% 32% 31% 27% 24%1920 x 1080 (FHD) 48% 44% 42% 39% 35% 33%3840 x 2160 (4k2k) 15% 22% 26% 31% 38% 43%

57


Communication： A comprehensive summary of global shipment and annual growth rate forecasts for mobile phones provided by IHS, Gartner, and IDC is shown below. Smartphones maintained growth in 2015, but their growth is no longer comparable to that in the past. The annual growth rate of utility and basic mid-/low-end devices was higher than that of premium high-end products, and this trend will continue into 2020. Regarding the average compound growth rate for shipments from 2015 to 2020, functional mobile phones register a decline of 23%, whereas mid-/low-end devices and premium high-end devices project an 8% and 3% growth, respectively. VIS supplies driver IC capacity for products without RAM in response to customer demands for mid-/low-end devices.

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

Source: IHS, Gartner, IDC (4Q15)

Automotive Electronics The global automotive shipment volume is shown in the following figure. The shipment volume in 2015 was approximately 90 million vehicles, mostly traditional fossil fuel vehicles. The growth rate of battery electric, plug-in and hybrid electric vehicles will increase drastically as energy conservation and carbon reduction topics ferment and the European Union gradually implements laws and regulations for controlling automobile carbon dioxide emissions. It is predicted that 110 million new vehicles will be shipped in 2020, with electric vehicles accounting for 60% of the projected number. The global automotive electronic semiconductor output value is illustrated in the following charts. As can be see, the '15-'19 annual compound growth rate was 6%. In addition to the aforementioned energy conservation requirements for battery electric vehicles, the automobile market will become highly dependent on semiconductor elements as product designs that incorporate networking capabilities. Moreover, the industry output as a whole has the opportunity to achieve a scale of US$39.3 billion in 2019. VIS is currently actively cultivating this market in response to the growing demand for automotive electronics.

2015 2016 2017 2018 2019 2020'15‐'20CAGR

Feature phone 435 323 220 159 131 120 ‐23%Utility/Basic Smart phone 787 893 993 1,067 1,120 1,149 8%Premium Smart Phone 672 699 746 769 784 793 3%Feature phone YoY ‐19% ‐26% ‐32% ‐28% ‐18% ‐9%Utility/Basic Smart phone YoY 12% 13% 11% 7% 5% 3%Premium Smart Phone YoY 9% 4% 7% 3% 2% 1%

58


Global Automotive Shipment Volume (in millions of units)

Source: IHS, Gartner (4Q14) Automobile semiconductor output value (US$ Billion)

Source: Gartner (4Q15)

b. Competitiveness

In IC foundry processes, in addition to the 0.5um, 0.35um, 0.25um, 0.18um,0.16um, and 0.11um processes, we have developed multiple integratedcircuit technologies and successfully mass produced this product to enhancethe competitiveness of our customers' products. In contrast to digital ICs,analog ICs, mixed-signal ICs, and high-voltage technologies are the key tobridging communication between reality and digital systems. The design ofeach product requires specific components and IP. VIS therefore cultivatesthe development of specific components and IP to help clients quickly enterthe market. This business model of jointly developing novel technologieswith our customers helps VIS in forming a consolidated, longstandingpartnership with its customers.

2 3 4 6 7 923 29 34

4045

51

6361

5856

5044

0

20

40

60

80

100

120

2015 2016 2017 2018 2019 2020

Mu

Conventional vehicle

HEV

PHEV

EV

Category Device 2015 2016 2017 2018 2019'15-'19CAGR

30.9 32.8 34.9 36.9 39.3 6%ASIC 1.6 1.7 1.8 2.0 2.1 7%ASSP 8.0 8.1 8.3 8.7 9.3 4%Analog 2.1 2.2 2.3 2.4 2.5 4%Discrete 4.6 4.7 4.9 5.1 5.4 4%Logic 0.7 0.8 0.9 1.0 1.0 11%Memory 1.6 1.5 1.5 1.6 1.6 0%MCU 5.8 6.1 6.5 7.0 7.4 6%Optoelectronics 2.9 3.8 4.6 4.8 5.2 15%Nonoptical Sensors 3.6 3.9 4.1 4.4 4.8 7%

Total

Application Specific

General purpose

59


3. Technology and R&DIn order to provide customers with more competitive technologies andservices, the Company is continuously developing more specializedapplications from its core technology as well as enhancing the value of theservices we provide. In terms of technological developments for displaydriver IC, the 0.2 μm, 0.18 μm, and 0.15 μm high voltage productionprocesses and the additional embedded non-volatile memory 0.16 μm highvoltage production process, especially designed for touch panels, are nowall being utilized in mass production. Besides, 0.11um high voltage processtechnology was developed from Y2012 and Finger Print IC technology wasalso co- worked with customer and developed since Y2014. For high growthof Automotive Display market, the Company is active developingAutomotive Display Driver ICs and lists it to operational focus. Withregards to the BCD (Bipolar-CMOS-DMOS) process for powermanagement ICs, apart from the 0.5μm, 0.4μm, 0.35μm, 0.25μm, and0.15μm processes that have already gone into mass production, we willcomplete development of a next-generation 0.11um BCD process this year.Moreover, the next generation of 0.5μm ultra-high-voltage processing withultra-low on resistance and cost effective version has been accomplishedand is ready to be used in customers’ product designs. The high quality0.5um HV SOI technology continues in mass production. The newgeneration, 0.25um HV SOI technology, will be ramped up next year. In thefuture, Vanguard International will continue to actively develop the highvoltage and power management technology components that the marketdemands and continue to collaborate with TSMC to develop even moreadvanced processes.

It is expected that VIS will increase its R&D spending in Y2016 to 6% of its revenue.

Project Description

0.5um UHV Low Ron & High Side Technology

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

Power Management IC Technology Platform

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

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

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

60


R&D expenses in past 2 years and to the day this report was printed. Year R&D spending (in NTD thousand) 2014 1,191,246

2015 1,240,265

2016/01/01–2016/02/29 207,632

4. Long and short-term business development plans

Short-term development plan

We are constantly innovating and developing new technologies. We have conducted R&D in the high-voltage process field for many years. In the short term we will continue to apply our high-voltage process technology to driver IC products, while developing BCD and UHV processes in an effort to response to customers' increasing diverse needs and enhance customer service quality.

a. Short-term business development plan: We will strengthen our on-timedelivery rate in order to boost customer satisfaction: We orderproduction of most of our products after orders have been accepted.Because our customers' exacting design and customization needs, wecommonly engage in face-to-face communication with customers, andprovide consulting-style services. Our superior process technology,professional technical personnel, and rigorous certification measureshave helped us win our customers' trust.

b. We will continue to improve our large panel driver ICs. We havedeveloped e-book, tablet, and 3D TV applications, and hope to captureover 40% market share of for gate driver ICs and over 20% marketshare for source driver ICs.

c. We will strive to develop high-efficiency, energy-conserving, carbon-reducing products. We look forward to the continued growth of ourpower management ICs in Y2016. Our current leading productsinclude DC to AC power converters and AC to DC converters, whichare used in small-/medium-size computers, smartphones, and LCDTVs.

d. We will endeavor to set up a magnetic and fingerprint sensor ICplatform and expand other markets in addition to the driver IC andpower management IC markets, in order to produce an array of productcombinations.

e. We will integrate our global resource and actively expand our foreignmarket.

61


Long-term development plan

a. We will accelerate the process of acquiring AEC-Q100 verification forour automotive application technology platform and actively explorethe automotive electronics market

b. We will strengthen our BCD, UHV, and Discrete R&D, enhance ouryield rates and technological maturity, improve our processes, and cutcosts.

c. We will continue to develop new process technologies, keep on goingprocesses for products with new specifications, expand our range ofproduct applications, widen our customer base, strengthen overseasmarket development, increase our order ratio simultaneously, andcontinue 8” foundry life cycle.

d. We will seek partners to establish strategic alliance and attempt toprolong the life cycle of our 8-inch FAB.

62


B. Industry survey and market analysis 1. Market analysis

Major product sales areas

Market share VIS has cultivated the high-voltage process market for many years, and will continue to develop BCD and SOI process technology, boosting operating performance. VIS had revenue of approximately NT$23.3 billion in Y2015. According to statistics from the research firm, Gartner, VIS had a market share of roughly 1.5% in Y2015, making it the world's eighth largest pure foundry player.

(Please see Industry Overview concerning future supply and demand and

growth)

Favorable and unfavorable factors affecting competitive niche and

development vision, and response measures

Favorable competitive factors

(1) As new information, communications, and consumer products emerge in rapid succession, shipment volumes have set new records. In addition, international IDM firms are constantly releasing foundry orders in order to boost the competitiveness of their products. As a result, the foundry market, which VIS is enjoying steady growth. Furthermore, future development trends for relevant end products such as LCD flat panel displays, PCs, and handheld devices bode well for VIS, which will provide technical blueprints for process services, continuously monitor with market trends, and keep up with customers' needs.

63


Unit: NT$, in thousands Y2014 Y2015 Net Revenue % Net Revenue % Asia 22,559,651 94 21,899,205 94 America 884,219 4 816,720 3 Europe 487,609 2 602,560 3 Oceania 0 0 1,236 0 Total 23,931,479 100 23,319,721 100

(2) VIS received ISO 9001 international quality certification in 1996, ISO 14001 international environmental certification in 1997, QS 9000 international quality management system certification in 2002, and ISO/TS 16949: 2002 international quality management system in 2004. Our first-rate manufacturing service standards and excellent relationships with large international manufacturers will greatly facilitate our future efforts to increase our market share.

(3) VIS and TSMC maintain a close wafer foundry service relationship, and VIS has acquired TSMC's 0.5um/0.35um /0.25um /0.18um /0.16um /0.11um process technologies, which have been successfully employed in mass production. VIS has also successfully developed many specialty IC technologies, which have been used in mass production.

(4) Our highly effective management team, in conjunction with our professional process team and outstanding sales team, enable us to achieve superb business performance.

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

Unfavorable factors to competition

(1) The current trend of terminal system component integration is such that, when the accumulated degree of system integration is higher, the Company’s 8-inch process technology might not be able to meet the needs of advanced processing customers.

(2) The merging and acquisition trend within semiconductor industries have elevated market centralization, which is detrimental to the Company's business operations.

(3) China's industrial policies have caused tectonic plate shifts in our supply chain, and this shift is also detrimental to the Company's future operations, particularly with regards to the aspect of driver IC manufacture.

Response measures

(1) We will continue to improve our process technology, quality, and mass production capability, reduce production costs for various products, enhance our yield rate and service, boost production efficiency, and consolidate our professional wafer foundry service capacity.

(2) We will accelerate process development, make opportune innovations in the specialty IC foundry area, and consolidate our partnerships with

64


customers by maintaining differentiation, making us the optimal specialty IC manufacturing service provider.

(3) We will focus on and optimize high-voltage, ultra-high-voltage, and discrete elements, as well as BCD technology, and concentrate our resources in order to enhance our competitiveness.

(4) We will strengthen our partnerships with customers and adopt an IDM Fab-lite strategy in order to better complement our customers.

(5) We will strengthen marketing and customer service performance, continue to raise customer satisfaction, and achieve our goal of sustainable operation.

2. Major Applications of Products

VIS provides world-class quality Logic IC manufacturing service. Thoseproducts can be applied into Computers and its peripherals (including TFTLCD monitor, CD-ROMs and Motherboard), Communications (includingMobile handset, Wireless LAN and Switch), and Consumer electronics(including High Resolution TV, e-book, DVD player, and Digital StillCamera).

Production Flow

65


3.M

ajor

Mat

eria

ls S

up

ply

Sta

tus

Maj

or P

rodu

ctM

ajor

Mat

eria

l M

ajor

Sup

plie

rs

Supp

ly S

tatu

s

Logi

c Fo

undr

y

Waf

er

FOR

MO

SA S

UM

CO

TEC

HN

OLO

GY

Cor

p.

SILT

RO

NIC

gro

up.

(Loc

al A

gent

: Silt

roni

c A

G, T

aiw

an B

ranc

h)

TAIS

IL E

LEC

TRO

NIC

MAT

ERIA

LS C

orp.

SH

IN-E

TSU

HA

ND

OTA

I TA

IWA

N C

o., L

td.

(Loc

al A

gent

: TO

PCO

SC

IEN

TIFI

C C

o., L

td.)

GLO

BA

LWA

FER

S C

O.,

LTD

.

Nor

mal

Che

mic

al

CA

BO

T M

ICR

OEL

ECTR

ON

ICS

Cor

p. T

AIW

AN

Bra

nch

WA

H L

EE IN

DU

STR

IAL

Cor

p.

BA

SF E

LEC

TRO

NIC

MAT

ERIA

LS T

AIW

AN

LTD

. A

IR P

RO

DU

CTS

SA

N F

U G

AS

CO

., LT

D.

Nor

mal

Phot

o R

esis

t

TOK

YO

OH

KA

KO

GY

O C

orp.

Ltd

. TO

PCO

SC

IEN

TIFI

C C

O.,

LTD

. SU

MIT

RO

NIC

S TA

IWA

N C

O.,

LTD

. R

OH

M A

ND

HA

AS

ELEC

TRO

NIC

MAT

ERIA

LS T

AIW

AN

LTD

.

Nor

mal

Gas

UN

ITED

IND

UST

RIA

L G

ASE

S C

O.,

LTD

. B

OC

LIE

NH

WA

IND

UST

RIA

L G

ASE

S C

O.,

LTD

. A

IR P

RO

DU

CTS

SA

N F

U C

O.,

LTD

. SH

OW

A S

PEC

IALT

Y G

AS(

TAIW

AN

) CO

. LTD

.

Nor

mal

4.S

up

pli

ers

and

cli

ents

acc

oun

tin

g fo

r 10

per

cen

t or

mor

e of

tot

al p

rocu

rem

ent

(sal

es)

amou

nt

in e

ith

er o

f th

e 2

mos

t re

cent

fis

cal y

ears

a.M

ajor

Cu

stom

ers

Uni

t: N

T$, i

n th

ousa

nds

Y20

14

Y20

15

No

Cus

tom

er

Net

Rev

enue

%

R

elat

ion

to V

IS

Cus

tom

er

Net

Rev

enue

%

R

elat

ion

to V

IS

1 TS

MC

7,

362,

019

31M

ajor

Sha

reho

lder

TSM

C

7,10

0,08

230

Maj

or S

hare

hold

er

2B

6,20

6,60

326

Non

eB

4,57

7,10

320

Non

eO

ther

s10

,362

,857

43O

ther

s11

,642

,536

50

Net

Rev

enue

23

,931

,479

100

Net

Rev

enue

23,3

19,7

2110

0

66


b.M

ajor

Sup

plie

rsU

nit:

NT$

, in

thou

sand

s Y

2014

Y

2015

N

o Su

pplie

r A

mou

nt%

R

elat

ion

to V

IS

Supp

lier

Am

ount

%

Rel

atio

n to

VIS

1

FOR

MO

SA S

UM

CO

TEC

HN

OLO

GY

C

OR

POR

ATIO

N

750,

187

13N

one

FOR

MO

SA S

UM

CO

TEC

HN

OLO

GY

C

OR

POR

ATIO

N

849,

262

15N

one

O

ther

s 5,

136,

246

87O

ther

s4,

826,

596

85N

et P

rocu

rem

ent

5,88

6,43

310

0N

et P

rocu

rem

ent

5,67

5,85

810

0

5.Pr

oduc

tions

Ove

r th

e L

ast T

wo

Yea

rs U

nit:

Cap

acity

and

Qua

ntity

(8 in

ch e

quiv

alen

t waf

er) /

Am

ount

(NT$

, in

thou

sand

s)

Y20

14

Y20

15

Maj

or

Prod

uct

Cap

acity

Q

uant

ity

Am

ount

C

apac

ity

Qua

ntity

A

mou

nt

Foun

dry

1,8

19,0

00

1,8

63,0

75

15,

615,

643

2,

126,

800

1,7

42,0

46

15,7

60,8

45To

tal

1,8

19,0

00

1,8

63,0

75

15,

615,

643

2,

126,

800

1,7

42,0

46

15,7

60,8

45

6.Sh

ipm

ent a

nd N

et R

even

ue o

ver

the

Las

t Tw

o Y

ears

Uni

ts: Q

uant

ity (8

inch

equ

ival

ent w

afer

) / A

mou

nt (N

T$, i

n th

ousa

nds)

Y

2014

Y

2015

D

omes

tic

Expo

rt To

tal

Dom

estic

Ex

port

Tota

l Q

uant

ity

Net

Rev

enue

Q

uant

ityN

et R

even

ueQ

uant

ity

Net

Rev

enue

Qua

ntity

N

et R

even

ueQ

uant

ityN

et R

even

ueQ

uant

ity

Net

Rev

enue

W

afer

Fou

ndry

1,

625,

034

20,5

83,7

68

210,

755

3,09

1,08

9 1,

835,

789

23,6

74,8

57

1,43

7,33

3 18

,612

,340

29

8,59

5 4,

398,

065

1,73

5,92

8 23

,010

,405

O

ther

0

201,

525

055

,097

0

256,

622

0 20

2,32

9 0

106,

987

0 30

9,31

6 To

tal

1,62

5,03

4 20

,785

,293

21

0,75

5 3,

146,

186

1,83

5,78

9 23

,931

,479

1,

437,

333

18,8

14,6

69

298,

595

4,50

5,05

2 1,

735,

928

23,3

19,7

21

67


C. Personnel Structure As of February 29, 2016

Year 2014 2015 2016/02/29

Personnel Direct 2,377 2,158 2,116

Indirect 2,574 2,531 2,518 Total 4,951 4,689 4,634

Average Age 35 36 37Average Year of Service 6.54 6.63 6.81

Average Year of Service Education

PH. D 37 41 39Master 1,071 1,079 1,075 College 2,252 2,113 2,091

High School 1,581 1,449 1,422 Less than

High School 10 7 7

D. Environmental Protection Measures

Environmental Investment

VIS continuously improves our environmental management and upgrade pollution control equipments. In Y2015, in addition to the existing equipment maintenance, we continuously invested in purchasing pollution control equipments for special chemical substances, wastewater and exhaust, and local scrubbers. The total investment was around NT$3.1 million. VIS also made an investment around NT$23.6 million in green products procurement and will keep surveying and purchasing relative green products in order to fulfill our environmental protection responsibility. VIS is a world leading foundry service provider. As we continue to advance and innovate on our wafer production technology, we never neglect our social responsibilities in the areas of environmental protection, safety, and health. We keep close track of changes in important environmental, safety and health policies and regulations and adjust our internal operations accordingly in a timely manner in response to the increasingly stringent domestic and foreign regulatory requirements. We also proactively embrace international norms and adopt autonomous management systems under the trends of internationalization of business. We believe that the relationship between environmental protection, safety, and health is just as inseparable as the relationship between individuals, environment, and health. Therefore, we have adopted and combined the ISO 14001 and OHSAS 18001 management systems, and establish an environmental, health, and safety system well-suited to our corporate culture based on these two complementary systems. Under the guidance of this system, we implement our environmental, health, and safety management policies: maintain corporate sustainability, fulfill the

68


responsibilities of a good corporate citizens, and on the basis of risk management, green production, and environmental impact consideration, ensure company-wide participation in the operations of safety, health, and environmental management system to as to achieve compliance with laws and regulations, international environmental conventions, and the goal of maintaining overall safety, health, and environmental protection. Holding onto the spirit of continuous improvement embedded in the PDCA (Plan-Do-Check-Action) methodology in ISO 14001, we ask respective departments to propose improvement projects on environmental issues every year. The projects proposed in Y2015 fall primarily into three categories: waste reduction, energy conservation and recycle/reuse. The main spirits of the VIS safety and health management system lie in employee participation at all levels, adoption of PDCA P-D-C-A cycle, and fostering a comfortable and safe work environment and achieving the goal of zero accident through risk identification, risk assessment and risk control. We obtained the certification of OHSAS-18001 for occupational health and safety the first time in 2003 and have been recertified four times since. We have also been accredited by TOSHMS-Taiwan Occupational Safety and Health Management System since 2009 and completed the certification of our occupational safety and health management system for compliance with CNS 15506:2011 in 2012 in coordination with the amendment undertaken by the Council of Labor Affairs.

1. Greenhouse Gases Emissions ReductionVIS firmly believes that global warming is a global concern, in which CO2generated from GHG reactions is one of the primary causes. Therefore, theCompany has devoted great efforts in the reduction of GHG. In Y1994, VISsigned the “Memorandum of Cooperation for the Reduction ofPerfluorinated Compound Emissions” with TSIA and the EPA of ExecutiveYuan. Specifically, VIS joined semiconductor industries from worldwide inaddressing the reduction of PFCs emissions during manufacturing processesto mitigate the global greenhouse effect, including our commitment to theWSC and EPA in achieving the goal of reducing PFC emissions.To fulfill our commitment to reducing PFC emissions, we proposed a“Three-Year PFC Emissions Reduction and Local Scrubber Upgrade Plan”in Y2007. Following a detailed survey of process gases, assessments ofalternative gases, evaluation of introducing high-efficiency scrubbers, andreviews of manpower and funding needs of relevant departments, ourattainment of PFC reduction target was confirmed in Y2011 following

69


verification by an impartial third-party organization. Between Y2000 and Y2010, 1,050,000 tons of CO2e reduction amount were calculated and which can be submitted for the early action promotion program. These efforts have turned us into a leading environmentally conscientious wafer producer. Since 2007, we have completed company-wide greenhouse gas (GHG) accounting and verification for each year from 2000 to 2014 in compliance with ISO 14064. The GHG verification results not only enable us to better grasp the state of wafer production, but also help to map out the directions for our continued efforts in GHG reduction. Based on the verification results, we have shifted from discharging waste PFCs from our main sources of GHG emissions to using them as an indirect source of power. Based on the verification results, we have shifted from discharging waste PFCs from our main sources of GHG emissions to using them as an indirect source of power. In the case of FAB1, its ratio in the manufacturing process dropped from 40.16% in 2011 to 30.68% in 2015. And the company’s GHG emission in Y2013, Y2014, and Y2015 is around 392.7 thousand tons CO2e, 534 thousand tons CO2e, and 627.6 thousand tons CO2e (under verification) respectively.

2. Energy ManagementWhile we are not in the position to choose a cleaner source of power, westill actively promote various energy conservation measures. Our energy-saving measures include assessing power system efficiency, installinginverters, optimizing our ice water air conditioning systems, optimizinglighting in office areas, turning off lights during lunch break, changing ourlighting to LED light bulbs, turning off PCs after work, increasing thetemperature of our general air-conditioning systems by 2°C, adjusting andlowering the pressure supplied by PCW systems, improving the damages tothe primary air pipes in our solvent and GEX exhaust systems, decreasingthe temperature of the make-up air unit in the cleanroom, and improving theCDA compressor rotor and dryer. These measures have resulted inconsiderable levels of power conservation every year, while significantlyreducing our carbon dioxide emissions. In 2015 we conserved 8,916,273Kwh of electricity, reducing electricity costs by approximately NT$23.53million.

70


3. Air Pollution ControlVIS currently has three wafer fabrication plants, all of which are equippedwith extensive waste gas and wastewater collection, monitoring andtreatment systems that surpass the regulatory requirements and operatecontinuously 24 hours a day. To prevent abnormal discharge of waste gasand wastewater during power outage, we have included our productionmachinery and pollution control equipment into the emergency powersupply system to make sure that all waste gas and wastewater areadequately treated before discharge. For waste gas treatment, our variouswaste gas scrubbers are monitored 24 hours a day, allowing on-dutypersonnel to quickly manage any system issues that may occur. The level ofvolatile organic compounds in the treated waste gas we discharge is farbelow the legal standard.

4. Water resource managementTo effectively utilize limited water resources, we keep detailed monthlywater use records and carry out comparative analyses of these records toensure the effective collection and reuse of process water. With thecollective efforts of all VIS personnel, we now recycle more than 85% ofthe process water in our FAB 1 and FAB 2 plants, which is superior to theperformance demonstrated by our counterparts in the global semiconductorindustry. Since July 2014, when FAB 3 plant was acquired by VIS, therecycling rate of its process wastewater has increased gradually from 62%to 70.5%. In the future, we will continue to implement measures andfacilities that improve our waste recycling rate. With regards to non-processwater conservation, we also constantly educate our employees on theimportance of water conservation by displaying promotional material andposters, regulating the frequency of external wall cleaning, and cutting backon water usage in landscape maintenance. We are also taking steps toestablish rainwater runoff collection systems in a further effort to reduce theuse of tap water. We also plan to promote water footprint verification of ourproducts in the future to keep abreast of the international and marketdevelopment trends.

71


86.4 86.6 87.3 86.8 86.9 86.8

81.0

50.0

60.0

70.0

80.0

90.0

2009 2010 2011 2012 2013 2014 2015

5. Prevention and control of water pollutionFor wastewater treatment, we have established a fully-functioningwastewater treatment plant to ensure that wastewater quality is stable andmeets effluent standards. VIS's FAB 1 and FAB 2 plants have undergonecontinuous implementation of pollutant discharge reduction projects for 3years to date, such as reducing the content of ammonia nitrogen and TMAH(tetra-methyl ammonium hydroxide) in effluents. By focusing our attentionon waste reduction at the source of the process, we have reduced usage ofammonia water and TMAH by 30% and 5%, respectively. With theinstallation of a TMAH wastewater treatment system in our FAB 1 plant,the quality of our wastewater now fully fulfills water quality standardsstipulated by the Science Park. In light of the success at our FAB 1 and FAB2 plants, our FAB 3 plant is currently undergoing a wastewaterimprovement plan. Currently, its wastewater quality now fulfills theregulatory standards for ammonia nitrogen discharge stipulated by theEnvironmental Protection Administration.

6. Waste management and recyclingTo ensure that waste generated at the Company is adequately managed, wehave drafted detailed management measures in compliance with the spirit ofISO 14001, and require all employees to faithfully implement the tasks ofwaste classification, collection, storage, and disposal. We currently engage aqualified waste disposal and recycling organization to help us properlydispose, process, or reuse waste. Because of our diligent efforts in collectingand sorting in-house waste materials, our waste has high reuse value, andmany waste disposal service providers have been eager to sign a disposalservice contract with us. As a result of our efforts, fabs have maintained a

Proc

ess w

aste

recy

clin

g ra

te (%

)

72


recycling rate of 90% over the past few years. Since July 2014 when Fab3 plant was acquired, the recycling rate of wastewater increased from 78.4% to 86.9%.

7. Green productsVIS is committed to the reduction, elimination and restriction of hazardoussubstances with a hazardous substance process management system (QC080000) in place. By establishing management systems for green design,green procurement, green production and green services, we continue toensure that the wafers we produce meet the international regulations andcustomer requirements for hazardous substances management. To satisfycustomer demands for our wafers, we have continuously focused onupholding the requirements of the following major international regulationsand standards(1) RoHS Directive (2011/65/EU) –Restriction of the Use of Hazardous

Substances (2) Registration, Evaluation, Authorization, and Restriction of Chemicals

(REACH) (3) Sony’s “Management Regulations for the Environment-Related

Substances to be Controlled which are Included in Parts and Materials”, (SS-00259) (MANAGEMENT REGULATIONS FOR THE ENVIRONMENT-RELATED SUBSTANCES TO BE CONTROLLED WHICH ARE INCLUDED IN PARTS AND MATERIALS)

According to the results of wafer testing performed by impartial third-party organizations, the wafers we produce fully comply with international regulations and standards.

8. Product carbon footprintIn light of rising global awareness to carbon dioxide and greenhouse effectissues, apart from implementing company-wide GHG emission verificationmeasures, we also embarked on inventorying our carbon footprint to reflectthe carbon emissions of our production processes and wafers. The inventorycovered supply chain, employee business travel, product use and disposal,outsourced waste treatment, parts clean, and product distribution andlogistics. Our carbon footprint calculation has been verified by DNVTaiwan in 2011, which is found superior to the carbon footprint calculationsperformed by other domestic 8-inch wafer producers in the past (560-740 kgCO2e / piece).

73


74


E. Industrial Relations 1. Employee Benefit and Implementation

VIS regards employee health in high priority and made great effort to improve working environment, set up leisure activities and facilities, and provide health and insurance services. VIS has been conferred a number of awards, including the “Outstanding Labor Education Company (1998)”, “Distinguished Performance in Human Resources Training (1998)”, “Outstanding Labor Publication Award (1998)”, “Excellent Employee Welfare Institution Award (1999)”, “Outstanding Enterprise with high attention to Female Workforce award (2002)”, “ 1st Active Enterprise Award (2006)”, participation in the “Healthy Workplace Self-Certification” organized by National Health Insurance Bureau in Y2007, “Healthy Workplace self-certification—Health Management Award (2009)”, “Job Creation Award (2010)”, “2011 Outstanding Healthy Workplace Contribution Special Award—Healthy Weight Management Award”, 2012 Healthy Workplace Self-Certification—Health Promotion Label, and 2013 Healthy Workplace Self-Certification: Health Inspiration Label. Taipei City Department of Labor 4th Contest for Best Companies to Work For (2014), Hsinchu City Department of Health Outstanding Breast-Feeding Room Certification (2014), Copper medal for the Preliminary Workplace Contest of Hsinchu City - Healthy Exercise (2014), and National Regional Semifinals for Healthy Exercises in Workplace─Best Team Performance Award (2014) VIS cares for the overall quality of life of its employees. Not only do we offer a clean and beautiful working environment with an array of recreational facilities (basketball courts, gymnasium, recreation center, aerobics room, karaoke rooms, and lounge), we put on a whole variety of recreational events such as new year banquets, family days, Christmas parties, karaoke competitions, and a variety of sports competitions. Through the thoughtful planning of the benefits committee in putting on these events, we want to allow employees a chance to bring some relaxation and fulfillment to their life outside of work. In order to safeguard employee health, VIS not only offers pre-employment physical examinations and specific employee health exams, it also offers periodic physical exams for employees. In the winter of past 12 years, VIS procures flu vaccine, hiring doctors to administer it onsite for its employees. Conferred the Infection Prevention Award by Department of Health for two consecutive years of 2009 and 2010 (the only winner in the park).

2. Training

Education and Training programs:

In this age of swift industrial and technological change, VIS strives to keep

its employees ahead of the curve and aligned with the company goals.

Training is thus a high priority for our human resources department. VIS

continues to offer employees technical, informational, attitudinal, language,

75


VIS not only offers a clean working environment with an array of recreational facilities, but also a whole variety of recreational events to allow employees a chance to bring some relaxation and fulfillment to their life outside of work. In order to safeguard employee health, VIS offers physical health examinations to refreshers, specific employees, and in-service employees. In addition, we regularly promote special health checks such as: abdominal ultrasound, 3-in-1 package for women (pap smear, breast ultrasound, and gynecologic ultrasound), and taking mammograms. Hiring doctors to administer it onsite for its employees. VIS has invited medical physicians to provide medical care services at our facilities; these services included providing health consultations, medical examinations, and assisting injured employees back to work. Employee profit sharing plan: The profit sharing plan with employees refers to financial goal of the employees are in line with the business goal of the Company. All employees work hard for creating profit in a concerted effort. This allows the employees to share the joy of success of the Company. If there is a surplus at the end of the fiscal year after account settlement, VIS shall cover loss carried forward from previous period and allocate 10% as mandatory reserve. Specific percentage of the remainder will be allocated as employee bonuses. Group insurance Labor insurance and national health insurance give basic protection for the employees. VIS seeks to provide better protection of its people by taking a group insurance policy to cover the inadequacy of the said insurance programs. Under this group insurance policy, the spouse and the dependents of the employees are also protected so that the families of VIS people can enjoy the benefits as well. The limitation of insurance benefits claim under the group policy is much lesser than the labor insurance and the benefit amount is higher. The Company pays for the group insurance premium and employees are entitled to take specific options on their own under the group coverage at their own cost. (The scope of coverage: life insurance, accident insurance, medical insurance on accidents, coverage for hospitalization and treatment of cancer.)

and managerial training. This allows employees to not only keep up in terms

of technical skills and know-how, but to foster good work attitudes, skills,

and managerial acumen. VIS offers more hours of training and dedicates

more resources to training than its industry competitors. The hope is that

each employee will use what he or she learns to raise the quality of his or

her work. This in turn leads to higher profits for VIS, while at the same time

furthering the careers of our employees.

a. VIS has a comprehensive training system for training professional

talents and developing employees’ potential. This comprehensive

training system includes new comers’ orientation, professional /

technical training, external training, managerial training and self-

development.

b. We have established The Training Management System to systematize

all learning process.

c. We provide e-Learning web portal, which carries over 800 courses, for

employees to build up personal learning roadmap and cultivate self-

motivated learning atmosphere. Total over 50,000 times online class

was studied by company employee in Y2015.

d. The training statistics of Y2015 are summarized in the following table.

And employee average trained 24.6 hours in Y2015.

Numbers of Personnel

Total training ExpenseTotal employees

trained Total Training hours

4,722 5,379,413 73,725 116,203

3. Retirement Plan:

The pension system under the “Pension Fund Statue” requires the allocation

of specific amount of contribution for retirement equivalent to 6% of

employees' monthly salaries allocated to their personal pension fund

accounts at the Labor Insurance Bureau. The pension system under the

“Labor Standards Act” requires guaranteed disbursement of pension funds

whereby the Company shall make contributions to the employee pension

fund on the basis of the total employee salaries. This fund shall be

monitored by the Pension Reserve Monitoring Committee and deposited at

the special account of the Bank of Taiwan under the title of the committee.

4. Other important agreements and employment protection policies:

The Company treasures the establishment of harmonious atmosphere in

labor-management relation through mutual trust in corporate management,

and adopts the proactive openness model of management to create a

challenging and joyful work environment.

76


For example, VIS highly treasures the opinions of the employees and

thereby established an “Employee Health Section” for handling labor-

management relation and related matters. Different channels were cultivated

for labor-management communications in order to create an open

environment. Further to department meetings, which were held not on a

regular basis, and orientation of new people, quarterly labor-management

meetings, and executive meetings, VIS also set up a mailbox for employee

communication and published the “Communication Monthly News” to

report on the Company. In addition, VIS conducts survey on employee

opinions on their satisfaction with management and the welfare system

regularly. VIS not only made efforts in sustaining positive labor-

management relation, but also provided consultation services to employees,

and organized related speech presentations and symposiums with the

employees at any time as needed to strengthen the communications of idea

and establish a consensus.

Labor-management relation at VIS is harmonious, and there is no loss or

damage deriving from labor-management disputes ever since its

establishment.

5. Employee Working Environment and Personal Safety

To fulfill its goal of continual improvement on operational safety by a

systematical, spontaneous and effective approach, VIS has accomplished

the 3rd party verification of OHSAS 18001 since 2003. In 2009, VIS also

attained to the 3rd party verification of TOSHMS:2007. In December 2012,

due to the regulatory requirements of Taiwan government, VIS achieved

conversion verification of CNS 15506:2011 from TOSHMS:2007.

In addition, under the full participation of VIS all employees in our safety

and health management system, and the supervision of managers at all

levels on safety and health management measures, we build a comfortable

and safe working environment by adopting hazard identification, risk

assessment, and risk control as management tools.

Our working environment, personal safety and relative measures are

described as below:

Process and facility safety management

Apart from requiring newly-purchased machinery to comply with

SEMI-S2 and domestic regulatory requirements, we also take steps to

improve the safety of existing machinery chiefly based on the safety

notices provided by the equipment suppliers. We implement safety and

quality inspection control procedures intended to minimize safety risks

77


when installing new equipment. When process revisions or engineering changes may result in hazards, we implement engineering change risk management regulations (SMOC) to assess and reduce potential risks that may be caused by the change. Moreover, we establish e-systems to aid and control the safety checkpoints in each stage of the change process. We have drafted hazardous work permission regulations and high-risk operation control measures to ensure effective safety management of various processes. We have additionally control measures in place for high-hazard areas in order to implement work-related communication and safety reminder mechanisms for such hazardous areas. We have implemented safety stock and standard repackaging procedures for chemicals used in our plants, and keep extensive personal safety gear on hand for use by operators to ensure safe chemical use and storage. At the same time, we reduce the risk of fire hazard by implementing FAB area fire load reduction plans and reduce/reorganize the total amounts of combustible materials in our plants.

Health and safety risk assessment All departments must use risk assessment methods and techniques to identify the risk levels of their work areas. For high-risk areas, we implement engineering and management improvements and ask respective departments to propose their own health and safety improvement plans to minimize possible risks.

Epidemic prevention and management In light of the possible impact of major contagious diseases, such as SARS, influenza, and H1N1 on the health of employees and operations of the Company, we have formulated an annual response plan as follows: Regular prevention strategies

Prepare ear thermometers, masks and other necessary materials at building entrances/exits.

Set up rinse-free hand wash devices at entrances/exits and elevator lobby.

Step up the disinfection of public areas and elevator buttons in the plant area.

Arrange flu shot for employees . Conduct health education.

78


In case of a local outbreak

Monitor epidemic information released by World Health

Organization and Taiwan Centers for Disease Control.

Sick Employee Management Guidelines;

Monitor employees leave due to flu or flu-like illness;

Follow-up the condition of employees after they return home

from hospital;

Return to work guidelines.

Activate business continuity management arrangements in case of

spread of epidemics

Substitute system.

Manpower backup system;

Work-from-home guide.

Monitoring of work environment

We conduct regular inspection and testing of work environment,

including assessment of individual exposure dosage. Apart from

checking various personal protective gears that are required to be worn

when performing various types of work, we conduct regular checks of

the effectiveness of protective gear, and conduct weekly inspections of

organic/special chemical work. All working areas where organic

vapors or dust may be present are equipped with local exhaust

facilities, and areas where special gases are used are installed with

detection and alarm systems to constantly monitor possible hazardous

leaks. We currently monitor all items required by applicable laws and

regulations. Apart from material safety data sheets established in

accordance with regulations, we also assess and control safety

protection during transport, storage, use, and disposal of newly-

acquired chemical products.

Health and safety training

To enhance the safety, health and environmental protection concepts of

employees and hone their safety skills and awareness to their own

operating environment, we arrange classes required by law and draw

up health, safety, and environmental protection training plans based on

the actual needs of our plants (training plans include refresher classes

79


concerning safe operation of equipment used by various units). We also hold regular and special classes to reinforce employees' health and safety awareness and sense of responsibility. The online health, safety, and environmental license management system records related licenses held by in-plant personnel. The systematic tracking and recording of licenses ensures that we can effectively comply with regulatory requirements and fulfill our responsibility to inform. All participants in the 2015 health and safety training all completed the training.

Contractor managementContractor management hinges on implementation. We haveestablished an online contractor management system to integratecontractor management information at all of our departments. Inparticular, we carefully control access to our plant areas and cleanrooms by contractor personnel, including time spent in such areas, andhave strengthened entry controls, work safety, and evacuationmeasures. Contractors are required to hold a safety meeting before thestart of work each day as well as daily toolbox meetings to inform theirworkers things to note in work safety and health. A total of 2,233people from contractors completed the training in 2015.

Health and safety auditsWe actively promote 5S activity within our plants, and strictly enforceproper arrangement, orderliness, clean up, cleanliness, and discipline.Staff is assigned on a daily basis to perform roaming audits of in-planthealth and safety, including such items as hazardous work, high-riskoperation, contractor management, chemical safety management, anduse of personal protective gear, ensuring that the work environmentmeets the highest standards of cleanliness, safety, and comfort. Internaland external units regularly perform follow-up audits of theoccupational health and safety management system to ensure thatrelevant health and safety management measures continue to complywith OHSAS 18001 and CNS15506: 2011 requirements.

Promotion of employee healthVIS takes on the responsibility for caring for and safeguarding thehealth of its employees. Apart from providing protective gears andconducting biannual measurement tests of the work environment, thein-house infirmary arranges regular health check-ups for employees.Our in-house infirmary arranges regular health check-ups or low-cost

80


examination programs from time to time for our supervisors and employees, offers free flu shots, provides general physical health consultations, promotes breast feeding, and ensures a friendly environment for breast feeding is provided. We also hold special managerial/ departmental health classes and provide employees with stress-relieving massage service aimed at boosting employees' immunity and work efficiency. Our Health Promotion Committee holds health leisure activities occasionally to encourage and motivate employees and their spouses to cultivate the habit of exercising regularly to maintain vitality and health both physically and mentally. In addition, our infirmary holds various types of health workshops and health promotion awareness activities so as to enhance employees' awareness of personal health management.

Establishment of a safety cultureTo enhance employee awareness to health and safety, we post relevantpromotional materials in lavatories and put up health, safety, andenvironmental protection posters in public areas. We also conductvarious activities on health, safety, and environmental protection topicsto boost employee participation and increase the effectiveness ofawareness measures. To promote “motoring safety”, we hold vehiclecheck-up activities to help colleagues promptly discover any potentialproblems with their vehicles and prevent traffic accidents.We will continue to foster the spirit of “company-wide participation”and “continuous improvement”, while preventing occupationalaccidents and maintaining the safety and health of our employees.

Natural disaster preventionMajor natural disasters in Taiwan are earthquake and typhoon. Apartfrom establishing comprehensive disaster management and emergencyresponse procedures, we take steps to harness our earthquake safetyand protection. In 2007, we worked with National Taiwan UniversityYen Tjing Ling industrial Research Institute to complete the earthquakesimulation on all existing buildings and carried out seismic upgrade forbuilding structures and equipment based on the simulation results. In2012, we worked with an insurance broker company MARSH to assessthe earthquake resistance of machines and equipment at the waferplants using mechanical analysis and carried out reinforcement basedon the assessment results. Through continuous improvement, VISstrives to enhance the seismic capacity of our buildings and onsite

81


equipment. Taiwan’s geological location puts the island under the influence of climate and altitude. Typhoons that typically come with strong wind and heavy rain visit Taiwan frequently in the summer time, and bring threat to people’s lives and company operations, especially in recent years as abnormal weather becomes the norm. In response to climate change, VIS has been collaborating since 2010 with a well-known local insurance company and an academic institution to carry out plant area flood inundation potential simulation. Based on the flooding depth caused by one-day maximum precipitation over a 200-year recurrence interval. In 2013, we constructed floodgates and raised the elevation of low-lying areas around our FAB 1 and FAB 2 plants. Flood potential analysis was conducted for the FAB 3 plant in 2015 in order to provide a basis for the construction of floodgates and assessment of elevation changes. We have also established a flood management and response plan to improve our readiness and response capabilities during a natural disaster to ensure the safety of our employees and facilities. Ke-Zi-Hu-Si river regulation works around the FAB 2 plant completed in 2015: During the process, we consulted with competent authorities on construction methods and conducted on-site investigations, after which we fully complied with and supported the river regulation works of the Ministry of Economic Affairs river management office. Construction works were completed on June 30, 2015, successfully reinforcing the protection around our facilities.

Emergency response and business continuity planTo ensure immediate and effective response to and elimination ofincidents, we continue to conduct all kinds of emergency responsetraining and drills. We provide such training to both employees andcontractor personnel stationed in our plants. Response training coursescover evacuation drills for the plant area and office personnel, firesafety and fire extinguishing training, emergency response team (ERT)response to earthquake/chemical/toxic gas leak, command officertraining, and dormitory fire safety and emergency escape training. Wehave installed emergency telephone notification systems in our plants,and perform regular testing of group call notification system to ensurethe accuracy of contact information and timeliness of communicationin case of an emergency. A total of 115 rounds of emergency responsedrills were organized in 2015.

82


We have established a business continuity plan and a Risk Book to determine improvement strategies through risk assessment since 2007. Meanwhile, we perform operation impact assessments through periodical drills and take preventive measures accordingly. We have also established the crisis communication mechanism and manpower backup plan. It is hoped that through well-planned risk and crisis management, we can minimize the uncertainties while ensuring continuity in business operations in case of an emergency. In Y2015, VIS received following award and certification regarding environment protection and Safety & Healthy related: 1. ISO 14001 environmental management system certification,

OHSAS 18001 safety and health management system certification, and CNS 15506 safety and health management system certification.

2. QC 080000 Hazardous substance management system certification. 3. FAB1 received the 2015 Award of bronze medal in the

Environmental Protection Administration's 2015 Annual Enterprise Environment Protection Award.

4. FAB1 received the 2015 Award of excellence in the Hsinchu County's 2015 Enterprise Environment Valuation.

5. FAB2 received the 2015 Excellence in Labor Safety and Health Promotion Performance Award from the Science Park Administration.

6. FAB2 received the 2015 Science Park Enterprise with Outstanding Achievement in Environmental Protection Award from the Hsinchu Bureau of Environmental Protection.

Existing Important employment agreements and implementation

Employee Behavior and Ethical Standards VIS takes the following as its core managerial principles: rounded in

integrity, guided by professional ethics.” Furthermore, it has established a code of professional conduct for its employees. Not only are employees asked to adhere to this code, they are forbidden from giving or taking bribes, from acting in any way contrary to the interests of the company, and from any instance of conflict of interest. Each year, employees are asked to fill out a conflict of interest disclosure form as well as a voluntary disclosure form. VIS has established a Proprietary Information Protection policy, which clearly lays out guidelines for confidential company

83


information as well as the receiving, sending, saving and utilization of sensitive data. To align with the corporate vision and value, VIS specifies four core competencies as the behavior/ethical standards for management team and employees. Integrity

All VIS employees should emphasize business ethics, operation standards, professionalism, and work of the highest quality and devote completely to fulfilling the promise within the limits of the law once a promise is made. Integrity is a fundamental value of the company.

Customer Orientation VIS always places its customer needs first, and this principle drives its corporate culture. This allows VIS to anticipate and understand customers’ problems and needs, creating an atmosphere of open, direct, and constructive responsiveness and communication. In creating win-win situations, VIS is able to work with all customers and foster a spirit of teamwork. Value Orientation︰ VIS is constantly coming up with innovative ways of thinking, and works proactively to improve the way that it operates. Even in challenging times, VIS forges ahead and persists in doing what is right, fully living up to its roles, mission, and responsibilities. Commitment:

VIS pledges to execute the most effective and timely strategy even in the most challenging and competitive of times. When taking on demanding new tasks, VIS works with enthusiasm, taking each task as an opportunity to learn and to make a real contribution. With focus and persistence in fulfilling our role, we meet our goals and get results. Through strategic thinking and overcoming challenges, VIS always gets the job done and with the highest quality.

6. Losses due to labor disputes from previous year till current year

printing of annual report:

VIS sees its employees as its most precious asset, and strives to allowemployees to continue to develop. Thus, we have maintained harmoniouslabor relations and have not suffered any losses due to labor disputes.

84


F.

Maj

or C

ontr

acts

M

ajor

Con

tract

C

ontra

ctin

g Pa

rty

Term

of A

gree

men

tM

ajor

Con

tent

s of A

gree

men

t Li

mita

tion

Man

ufac

turin

g, L

icen

se,

and

Tech

nolo

gy

Tran

sfer

Agr

eem

ent

Taiw

an S

emic

ondu

ctor

Man

ufac

turin

g C

o.,

Ltd.

(TSM

C)

Apr

il 1,

200

4 to

M

arch

31,

200

6 to

be

rene

wed

on

an

annu

al b

asis

.

TSM

C g

rant

s spe

cific

pro

cess

te

chno

logy

lice

nse

to V

IS fo

r m

anuf

actu

ring

TSM

C a

nd V

IS fo

undr

y pr

oduc

ts. V

IS re

serv

es c

erta

in c

apac

ity

for T

SMC

.

Non

e

85


VI. FINANCIAL STATEMENTS A. Brief Balance Sheets and Brief Statements of Income

1. Brief Balance Sheets

Brief Consolidated Balance Sheets (IFRS) Unit: NT$, in thousands

Financial analysis from 2012 to 2015 YearItem 2012 2013 2014 2015 Current assets 15,976,612 21,556,195 25,114,426 24,800,749Property, plant and equipment 8,219,842 6,639,474 7,983,767 6,979,397Intangible assets 6,660 17,011 37,174 41,596Other assets 579,088 637,279 619,403 562,499Total Assets 24,782,202 28,849,959 33,754,770 32,384,241Current liabilities Before distribution 3,242,906 3,697,865 5,391,799 4,262,001 After distribution 4,795,229 6,571,190 9,651,152 Note 1Non-current liabilities 572,099 722,334 816,655 712,611Total Liabilities Before distribution 3,815,005 4,420,199 6,208,454 4,974,612 After distribution 5,367,328 7,293,524 10,467,807 Note 1Equity attributable to shareholders of parent company 20,967,197 24,429,760 27,546,316 27,409,629Capital stock 16,284,830 16,365,859 16,389,823 16,389,823Capital surplus 594,675 733,578 838,029 855,123Retained earnings Before distribution 5,074,462 7,871,013 10,398,845 10,280,494 After distribution 3,522,139 4,997,688 6,139,492 Note 1Other equity (68,993) (53,700) (70,506) (115,811)Treasury stock (917,777) (486,990) (9,875) - Non-controlling interests - - - - Total Equity Before distribution 20,967,197 24,429,760 27,546,316 27,409,629 After distribution 19,414,874 21,556,435 23,286,963 Note 1 Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

Brief Unconsolidated Balance Sheets (IFRS) Unit: NT$, in thousands

Financial nanlysis from 2012 to 2015 YearItem 2012 2013 2014 2015 Current assets 15,776,312 21,344,163 24,875,522 24,545,917Property, plant and equipment 8,219,778 6,639,170 7,983,500 6,979,148Intangible assets 6,660 17,011 37,174 41,596Other assets 778,604 845,519 856,692 813,426Total Assets 24,781,354 28,845,863 33,752,888 32,380,087

Before distribution 3,242,058 3,693,769 5,389,917 4,257,847Current liabilities After distribution 4,794,381 6,567,094 9,649,270 Note 1Non-current liabilities 572,099 722,334 816,655 712,611

Before distribution 3,814,157 4,416,103 6,206,572 4,970,458Total Liabilities After distribution 5,366,480 7,289,428 10,465,925 Note 1Capital stock 16,284,830 16,365,859 16,389,823 16,389,823Capital surplus 594,675 733,578 838,029 855,123

Before distribution 5,074,462 7,871,013 10,398,845 10,280,494Retained earnings After distribution 3,522,139 4,997,688 6,139,492 Note 1Other equity (68,993) (53,700) (70,506) (115,811)Treasury stock (917,777) (486,990) (9,875) -

Before distribution 20,967,197 24,429,760 27,546,316 27,409,629Total Equity After distribution 19,414,874 21,556,435 23,286,963 Note 1Note 1: Subject to change after shareholders' meeting resolution. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

86


Brief Consolidated Balance Sheets (ROC GAAP) Unit: NT$, in thousands

Financial analysis Year Item 2011 2012 Current assets 12,122,633 16,102,675Fund and Investment 305,121 211,108Fixed assets 9,404,061 7,547,491Intangible assets - - Other assets 987,988 866,126Total Assets 22,819,803 24,727,400

Before distribution 2,057,788 3,187,175Current liabilities After distribution 3,026,183 4,739,498

Long-term liabilities - - Other liabilities 492,838 509,667

Before distribution 2,550,626 3,696,842Total Liabilities After distribution 3,519,021 5,249,165Capital stock 16,191,160 16,284,830Capital Surplus 528,717 663,507

Before distribution 3,707,532 5,068,946Retained earnings After distribution 2,739,137 3,516,623

Unrealized gains(losses) on financial instruments (44,327) 1,689Cumulative translation adjustments (60,729) (70,637)Treasury Stock (53,176) (917,777)Loss on unrecognized pension costs - -

Before distribution 20,269,177 21,030,558Total Shareholders’ Equity After distribution 19,300,782 19,478,235

Note: For comparison, certain accounts in the financial statement of year 2011 have been reclassified to be consistent with that of year 2012.

Brief Unconsolidated Balance Sheets (ROC GAAP) Unit: NT$, in thousands

Financial analysis Year Item 2011 2012 Current assets 11,923,288 15,901,192Fund and Investment 505,164 412,590Fixed assets 9,403,945 7,547,427Intangible assets - - Other assets 987,171 865,343Total Assets 22,819,568 24,726,552

Before distribution 2,057,553 3,186,327Current liabilities After distribution 3,025,948 4,738,650

Long-term liabilities - - Other liabilities 492,838 509,667

Before distribution 2,550,391 3,695,994Total Liabilities After distribution 3,518,786 5,248,317

Capital stock 16,191,160 16,284,830Capital Surplus 528,717 663,507

Before distribution 3,707,532 5,068,946Retained earnings After distribution 2,739,137 3,516,623

Unrealized gains(losses) on financial instruments (44,327) 1,689Cumulative translation adjustments (60,729) (70,637)Treasury Stock (53,176) (917,777)Loss on unrecognized pension costs - -

Before distribution 20,269,177 21,030,558Total Shareholders’ Equity After distribution 19,300,782 19,478,235

Note: For comparison, certain accounts in the financial statement of year 2011 have been reclassified to be consistent with that of year 2012.

87


2. Brief Statements of Income

Brief Consolidated Statements of Comprehensive Income (IFRS)

Unit: NT$, in thousands Financial analysis from 2012 to 2015 Year

Item 2012 2013 2014 2015 Net revenue 17,190,000 21,135,060 23,931,479 23,319,721Gross profit 3,978,189 6,862,933 8,613,673 6,897,266Operating income 2,268,874 4,837,208 6,206,459 4,611,982Non-operating income and expense 272,879 225,123 289,607 326,529Income before income tax 2,541,753 5,062,331 6,496,066 4,938,511Income from operations of continued segments-after tax 2,329,692 4,370,988 5,440,081 4,157,583

Income (loss) from operations of discontinued segments-after tax - - - -

Net Income 2,329,692 4,370,988 5,440,081 4,157,583Other comprehensive (loss) income 102 (6,821) (68,552) (61,886)Total comprehensive income 2,329,794 4,364,167 5,371,529 4,095,697Net income attributable to owner of the corporation 2,329,692 4,370,988 5,440,081 4,157,583Net income attributable to non-controlling interests - - - - Total comprehensive income attributable to owner of the corporation 2,329,794 4,364,167 5,371,529 4,095,697

Total comprehensive income attributable to non-controlling interests - - - -

Diluted earnings per share (Notel) 1.48 2.71 3.30 2,50Note 1: Based on weighted average shares outstanding in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

Brief Unconsolidated Statements of Comprehensive Income (IFRS)

Unit: NT$, in thousands Financial analysis from 2012 to 2015 Year

Item 2012 2013 2014 2015 Net revenue 17,190,000 21,135,060 23,931,479 23,319,721Gross profit 3,978,189 6,862,933 8,613,673 6,897,266Operating income 2,268,095 4,835,731 6,204,596 4,610,048Non-operating income and expense 273,475 225,271 289,373 328,012Income before income tax 2,541,570 5,061,002 6,493,969 4,938,060Income from operations of continued segments-after tax 2,329,692 4,370,988 5,440,081 4,157,583

Income (loss) from operations of discontinued segments-after tax - - - -

Net Income 2,329,692 4,370,988 5,440,081 4,157,583Other comprehensive (loss) income 102 (6,821) (68,552) (61,886)Total comprehensive income 2,329,794 4,364,167 5,371,529 4,095,697Diluted earnings per share (Notel) 1.48 2.71 3.30 2.50Note 1: Based on weighted average shares outstanding in each year. Note 2: 2014 figures have been restated in accordance with 2013 version of IFRSs.

88


Brief Consolidated Income Statements (ROC GAAP) Unit: NT$, in thousands

Financial analysis Year Item 2011 2012 Net revenue 15,190,418 17,162,545Gross profit 2,248,921 4,088,540Income from operations 905,242 2,379,566Non-operating income and gain 332,449 431,913Non-operating expenses and losses 230,905 269,609Income from operations of continued segments-before tax 1,006,786 2,541,870

Income from operations of continued segments-after tax 882,183 2,329,809

Income (loss) from operations of discontinued segments-after tax - -

Extraordinary income (loss) - - Cumulative effect on change in accounting principle - -

Net income 882,183 2,329,809Diluted earnings per share (Note) 0.53 1.48

Note: Based on weighted average shares outstanding in each year.

Brief Unconsolidated Income Statements (ROC GAAP) Unit: NT$, in thousands

Financial analysis Year Item 2011 2012

Net revenue 15,190,418 17,162,545Gross profit 2,248,921 4,088,540Income from operations 904,317 2,378,787Non-operating income and gain 326,784 430,149Non-operating expenses and losses 222,075 267,249Income from operations of continued segments-before tax 1,009,026 2,541,687

Income from operations of continued segments-after tax 882,183 2,329,809

Income (loss) from operations of discontinued segments-after tax - -

Extraordinary income (loss) - - Cumulative effect on change in accounting principle - -

Net income 882,183 2,329,809Diluted earnings per share (Note) 0.53 1.48


89


Note 1 Based on weighted average shares outstanding in each year.

Note 2： 2014 figures have been restated in accordance with 2013 version of IFRSs.

3. Auditors’ Opinion

VIS has retained Deloitte & Touche Certified Public Accountants as the external auditors over the last 5 years.

Year CPA Audit Opinion Year CPA Audit Opinion

2010 H.W. Huang Z.Y. Chang An Unqualified Opinion 2013 Andy Huang

Horace Lin An Unqualified Opinion

2011 Andy Huang Z.Y. Chang An Unqualified Opinion 2014 Andy Huang


2012 Andy Huang Horace Lin An Unqualified Opinion 2015 Andy Huang


B. Financial Analysis Consolidated Financial Analysis (IFRS)

Financial analysis from 2012 to 2015 YearItem 2012 2013 2014 2015

Debt Ratio(%) 15.39 15.32 18.39 15.36Capital Structure Analysis Long Term Capital to Properties, Plant and

Equipment(%) 262.04 378.83 355.25 402.93

Current Ratio(%) 492.66 582.94 465.78 581.90Quick Ratio(%) 431.72 534.93 417.33 525.26Liquidity Analysis Times Interest Earned (Times) - - - - Avg. Collection Turnover (Times) 6.93 7.51 6.82 6.62Avg. Collection Days 53 49 54 55Avg. Inventory Turnover (Times) 8.57 8.10 7.34 6.91Avg. Payment Turnover (Times) 22.56 18.27 15.43 16.11Avg. Inventory Turnover Days 43 45 50 53Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 3.11

Operating Performance

Analysis Total Assets Turnover (Times) 0.72 0.79 0.76 0.70

Return on Total Assets(%) 9.78 16.30 17.37 12.57Return on Total Equity(%) 11.31 19.26 20.93 15.13Pre-tax Income to Capital Stock(%) 15.61 30.93 39.63 30.13Net Margin(%) 13.55 20.68 22.73 17.82Basic Earnings per Share(NT$) (Note) 1.50 2.76 3.35 2.54

Profitability Analysis

Diluted Earnings per Share(NT$) (Note) 1.48 2.71 3.30 2.50

Cash Flow Ratio(%) 179.89 203.71 123.63 168.52Cash Flow Adequacy Ratio(%) 121.13 184.46 147.25 143.49Cash Flow Cash Flow Reinvestment Ratio(%) 6.09 6.97 4.16 3.14Operating Leverage 4.03 3.29 2.93 3.82Leverage Analysis Financial Leverage 1.00 1.00 1.00 1.00

Analysis of Variation over 20% - Y2015 vs. Y2014: 1. The current ratio and the quick ratio increased by 25% and 26%, respectively, were mainly due to the decrease

in payable. 2. The return on total assets and return on total equity decreased by 28% , respectively, were mainly due to the

decrease in net profit. 3. The pre-tax income to capital stock decreased by 24% was primarily due to the decrease in net profit. 4. The net margin(%) decreased by 22%, as result of the decrease in net income. 5. The earnings per share decreased by 24%, as result of the decrease in net income. 6. The cash flow ratio increased by 36% was mainly due to the increase in cash flow from operating activity and

decrease in payable. 7. The cash flow reinvestment ratio decreased by 25% was mainly due to the increase in working capital and

plant and equipments. 8. The operating leverage increased by 30% was mainly due to the decrease in operation income.

90


Unconsolidated Financial Analysis (IFRS) Financial analysis from 2012 to 2015 Year

Item 2012 2013 2014 2015 Debt Ratio(%) 15.39 15.31 18.38 15.35Capital Structure

Analysis Long Term Capital to Properties, Plant and Equipment(%) 262.04 378.84 355.26 402.94

Current Ratio(%) 486.61 577.84 461.51 576.48Liquidity Analysis Quick Ratio(%) 425.66 529.80 413.05 519.80

Times Interest Earned (Times) - - - - Avg. Collection Turnover (Times) 6.93 7.51 6.82 6.62Avg. Collection Days 53 49 54 55Avg. Inventory Turnover (Times) 8.57 8.10 7.34 6.91Avg. Payment Turnover (Times) 22.56 18.27 15.43 16.11Avg. Inventory Turnover Days 43 45 50 53Properties, Plant and Equipment Turnover (Times) 1.87 2.84 3.27 3.11

Operating

Performance Analysis

Total Assets Turnover (Times) 0.72 0.79 0.76 0.70

Return on Total Assets(%) 9.78 16.30 17.38 12.57Return on Total Equity(%) 11.31 19.26 20.93 15.13Pre-tax Income to Capital Stock(%) 15.61 30.92 39.62 30.12Net Margin(%) 13.55 20.68 22.73 17.82Basic Earnings per Share(NT$) (Notel) 1.50 2.76 3.35 2.54


Diluted Earnings per Share(NT$) (Notel) 1.48 2.71 3.30 2.50

Cash Flow Ratio(%) 179.85 203.77 123.41 168.53Cash Flow Adequacy Ratio(%) 121.18 184.50 147.07 143.20

Cash Flow

Cash Flow Reinvestment Ratio(%) 6.08 6.96 4.14 3.13Operating Leverage 4.02 3.30 2.94 3.82Leverage Analysis Financial Leverage 1.00 1.00 1.00 1.00

Analysis of variation over 20% - Y2015 vs. Y2014: 1. The current ratio and quick ratio increased by 25% and 26%, respectively, were mainly due to the decrease in

payable. 2. The return on total assets and return on total equity both decreased by 28% were mainly due to the decrease in

net profit. 3. The pre-tax income to capital stock and net margin decreased by 24% and 22%, respectively, were primarily due

to a decrease in net profit. 4. The earnings per share decreased by 24% was a result of a decrease in net income. 5. The cash flow ratio increased by 37% was mainly due to the increase in cash flow from operating activity and

decrease in payable. 6. The cash flow reinvestment ratio decreased by 24% was mainly due to the increase in working capital and plant

and equipments. 7. Operating Leverage increased by 30% was mainly due to the decrease in operating income.

Note 1：Based on weighted average shares outstanding in each year.

Note 2：2014 figures have been restated in accordance with 2013 version of IFRSs.

The calculation formula of financial analysis was listed as follows:

1. Capital Structure Analysis (1) Debt ratio = Total Liabilities / Total Assets (2) Long-term capital to properties, plant and equipment = (Equity + Non-current Liabilities) /

Net Properties, Plant and Equipment 2. Liquidity Analysis

(1) Current ratio = Current Assets / Current Liabilities (2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities (3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance Analysis

91


(1) Average collection turnover = Net Revenue / Average Trade Receivables (2) Average collection days = 365 / Average collection turnover (3) Average inventory turnover = Cost of Revenue / Average Inventory (4) Average payment turnover = Cost of Revenue / Average Trade Payables (5) Average inventory turnover days = 365 / Average Inventory Turnover (6) Properties, plant and equipment turnover = Net Revenue / Average Net Properties, Plant and

Equipment (7) Total assets turnover = Net Revenue / Average Total Assets

4. Profitability Analysis (1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate)) / Average

Total Assets (2) Return on total equity = Net Income / Average Total Equity (3) Net margin = Net Income / Net Revenue (4) Earnings per share = (Net Income Attributable to Owner of the Corporation - Preferred Stock

Dividend) / Weighted Average Outstanding Shares 5. Cash Flow

(1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of

capital expenditures, inventory additions, and cash dividends (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /

(Gross Properties, Plant and Equipment + Investment + Other Non-current Assets + Working Capital)

6. Leverage Analysis (1) Operating leverage = (Net Revenue - Variable Cost and Expenses) / Income from Operations (2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)

Consolidated Financial Analysis (ROC GAAP) Financial analysis Year

Item 2011 2012 Debt Ratio(%) 11.18 14.95Capital

Structure Analysis Long Term Fund to Fixed Assets(%) 215.54 278.64

Current Ratio(%) 589.11 505.23Quick Ratio(%) 525.12 443.22Liquidity

Analysis Times Interest Earned (Times) - - Avg. Collection Turnover (Times) 7.20 7.06Avg. Collection Days 51 52Avg. Inventory Turnover (Times) 9.09 8.48Avg. Payment Turnover (Times) 23.51 22.32Avg. Inventory Turnover Days 40 43Fixed Assets Turnover (Times) 1.54 2.02


Analysis

Total Assets Turnover (Times) 0.65 0.72Return on Total Assets(%) 3.76 9.80Return on Total Shareholders’ Equity(%) 4.29 11.28Operating Income(Loss) to Capital Stock(%) 5.59 14.61

Income before Tax to Capital Stock(%) 6.22 15.61Net Hargin (%) 5.81 13.57

Basic 0.54 1.50

Profitability t Analysis

Earnings per share(NT$)(Note) Diluted 0.53 1.48

Cash Flow Ratio(%) 185.21 183.84Cash Flow Adequacy Ratio(%) 84.06 121.23Cash Flow Cash Flow Reinvestment Ratio(%) 3.76 6.19Operating Leverage 8.13 3.84Leverage

Analysis Financial Leverage 1.00 1.00


92


Unconsolidated Financial Analysis (ROC GAAP) Financial analysis Year

Item 2011 2012 Debt Ratio(%) 11.18 14.95Capital

Structure Analysis Long Term Fund to Fixed Assets(%) 215.54 278.65

Current Ratio(%) 579.49 499.04Quick Ratio(%) 515.51 437.03Liquidity

Analysis Times Interest Earned (Times) - - Avg. Collection Turnover (Times) 7.20 7.06Avg. Collection Days 51 52Avg. Inventory Turnover (Times) 9.09 8.48Avg. Payment Turnover (Times) 23.51 22.32Avg. Inventory Turnover Days 40 43Fixed Assets Turnover (Times) 1.54 2.02


Analysis

Total Assets Turnover (Times) 0.65 0.72Return on Total Assets(%) 3.76 9.80Return on Total Shareholders’ Equity(%) 4.29 11.28Operating Income(Loss) to Capital Stock(%) 5.59 14.61Income before Tax to Capital Stock(%) 6.23 15.61Net Margin (%) 5.81 13.57

Basic 0.54 1.50


Earnings per share(NT$)(Note) Diluted 0.53 1.48Cash Flow Ratio(%) 183.58 183.76Cash Flow Adequacy Ratio(%) 84.02 121.27Cash Flow Cash Flow Reinvestment Ratio(%) 3.72 6.19Operating Leverage 8.08 3.82Leverage

Analysis Financial Leverage 1.00 1.00


The calculation formula of financial analysis was listed as follows:

1. Capital Structure Analysis(1) Debt ratio = Total Liabilities / Total Assets(2) Long-term fund to fixed assets = (Shareholders' Equity + Long-term Liabilities) / Net Fixed

Assets 2. Liquidity Analysis

(1) Current ratio = Current Assets / Current Liabilities(2) Quick ratio = (Current Assets -Inventories - Prepaid Expenses) / Current Liabilities(3) Times interest earned = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance Analysis(1) Average collection turnover = Net Sales / Average Trade Receivables(2) Average collection days = 365 / Average collection turnover(3) Average inventory turnover = Cost of Sales / Average Inventory(4) Average payment turnover = Cost of Sales / Average Trade Payables(5) Avg. inventory turnover days = 365 / Avg. Inventory Turnover(6) Fixed assets turnover = Net Sales /Average Net Fixed Assets(7) Total assets turnover = Net Sales / Average Total Assets

4. Profitability Analysis(1) Return on total assets = (Net Income + Interest Expenses * (1 - Effective tax rate) / Average

Total Assets (2) Return on shareholders’ equity = Net Income / Average Shareholders' Equity (3) Net Margin = Net Income / Net Sales

93


(4) Earnings per share = (Net Income - Preferred Stock Dividend) / Weighted Average Number of Shares Outstanding

5. Cash Flow (1) Cash flow ratio = Net Cash Provided by Operating Activities / Current Liabilities (2) Cash flow adequacy ratio = Five-year sum of cash provided by operations / Five-year sum of

capital expenditures, inventory additions, and cash dividends (3) Cash flow reinvestment ratio = (Cash Provided by Operating Activities - Cash Dividends) /

(Gross Plant + Investment + Other Assets + Working Capital) 6. Leverage Analysis

(1) Operating leverage = (Net Sales - Variable Cost and Expenses) / Income from Operations (2) Financial leverage = Income from Operations / (Income from Operations - Interest Expenses)

94


C. Audit Committee’s Review Report

Our 2015 financial statement (including individual and consolidated financial reports), which was approved by our Audit Committee and authorized through the Board of Directors resolution, has been audited and certified by Deloitte & Touche, and for which an audit report has been issued. The Board of Directors has also prepared and submitted the Y2015 business report and earnings distribution plan, which have been audited and confirmed by our Audit Committee as having being properly prepared in accordance with Article 219 of the Company Act. Please kindly review and approve the provided information. The above is respectfully submitted at the VIS 2016 General Shareholders' Meeting

Vanguard International Semiconductor Corporation

Convener of the Audit Committee: Benson W.C. Liu

February 29, 2015

95


D. Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report

E. Consolidated Financial Statements and Independent Auditors’ Report

Please refer to IX. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report

F. The financial impact to the Company due to company or affiliate

companies financial difficulties: None

96


VII. Financial Position, Operating Results and Risk Management A. Analysis of Consolidated Financial Position

Unit: NT$, in thousands Difference Year

Item 2015 2014 Amount %

Current Assets 24,800,749 25,114,426 (313,677) (1)Property, Plant and Equipment 6,979,397 7,983,767 (1,004,370) (13)Other Non-Current Assets 604,095 656,577 (52,482) (8)Total Assets 32,384,241 33,754,770 (1,370,529) (4)Current Liabilities 4,262,001 5,391,799 (1,129,798) (21)Non Current Liabilities 712,611 816,655 (104,044) (13)Total Liabilities 4,974,612 6,208,454 (1,233,842) (20)Capital Stock 16,389,823 16,389,823 0 0 Capital Surplus 855,123 838,029 17,095 2 Retained Earnings 10,280,494 10,398,845 (118,351) (1)Total Shareholders' Equity 27,409,629 27,546,316 (136,687) (0)Analysis for variation over 20% : 1.The decrease in current liabilities was mainly due to the decrease of payable. Note: 2014 figures have been restated in accordance with 2013 version of IFRSs.

97


B. Analysis of Consolidated Financial Performance Unit: NT$, in thousands

Year Item 2015 2014 Difference %

Net Revenue $ 23,319,721 $ 23,931,479 $ (611,758) (3) Cost of Revenue 16,422,455 15,317,806 1,104,649 7 Gross Profit 6,897,266 8,613,673 (1,716,407) (20) Operating Expense 2,285,284 2,407,214 (121,930) (5) Operating Income 4,611,982 6,206,459 (1,594,477) (26) Non-operating Income and Expenses 326,529 289,607 36,923 13 Income before Income Tax 4,938,511 6,496,066 (1,557,555) (24) Income Tax Expenses 780,928 1,055,985 (275,057) (26) Net Income 4,157,583 5,440,081 (1,282,498) (24) Other Comprehensive Loss (61,886) (68,552) 6,666 (10) Total Comprehensive Income $ 4,095,697 $ 5,371,529 $ (1,275,832) (24)

1. Analysis for variation over 20% :

1.1 The decrease in gross profit was a result of lower sales volume, utilization and higher cost. 1.2 The decrease in operating income was a result of a decrease in gross profit. 1.3 The decrease in income before tax was mainly due to a decrease in operating income. 1.4 The decrease in income tax expenses was due to lower taxable income. 1.5 The decrease in net income was due to a decrease in net revenue, and lower pre-tax income. 1.6 The decrease in total comprehensive income was due to a decrease in net income.

2. Reasons for changing the Company's major business; explain the variance resulting from the adjustment of selling prices or costs, the increase or decrease of quantity and the combination of production and selling, or the replacement of old products. If the Company's operation strategy, market situation, economic environment of other internal or external factors has changed or expects to have any significant changes, explain the fact, influencing factors and the possible impact to the Company's future finance and responding proposal : Not Applicable

3. Planned selling quantities and its base for next year. Explain the major factors that keep the Company's forecast sales quantity to rise or decline: Please refer to the " Letter To The Shareholders"

4. 2014 figures have been restated in accordance with 2013 version of IFRSs.

98


angel

線段

C. A

naly

sis o

f Con

solid

ated

Cas

h Fl

ow

Uni

t : N

T$, i

n m

illio

ns

Rem

edy

for C

ash

Shor

tfall

Cas

h B

alan

ce

2015

/1/1

N

et C

ash

Prov

ided

by

Ope

ratin

g A

ctiv

ities

N

et C

ash

Use

d in

Inve

stin

g an

d Fi

nanc

ing

Act

iviti

es

Cas

h B

alan

ce

2015

/12/

31

Inve

stin

g Pl

an

Fina

ncin

g Pl

an

17,1

507,

192

(6,3

91)

17,9

51 N

one

N

one

1.

Ana

lysi

s of C

ash

Flow

s for

Y20

15:

1.

1 C

ash

prov

ided

by

oper

atin

g ac

tiviti

es N

T$7,

192

mill

ion

was

mai

nly

from

net

inco

me

and

depr

ecia

tion/

amor

tizat

ion.

1.

2 C

ash

used

in in

vest

ing

activ

ities

NT$

2,05

6 m

illio

n w

as m

ainl

y du

e to

cap

ital e

xpen

ditu

res a

nd t

he a

cqui

sitio

ns o

f fin

anci

al a

sset

s. 1.

3 C

ash

used

in fi

nanc

ing

activ

ities

NT$

4,33

5 m

illio

n w

as m

ainl

y fo

r the

pay

men

t of t

he c

ash

divi

dend

s.

2. R

emed

y fo

r Cas

h Sh

ortfa

ll an

d Li

quid

ity A

naly

sis :

N

ot A

pplic

able

.

3. C

ash

Flow

Pro

ject

ion

for N

ext Y

ear :

R

emed

y fo

r Cas

h Sh

ortfa

ll C

ash

Bal

ance

20

16/1

/1

Net

Cas

h Pr

ovid

ed b

y O

pera

ting

Act

iviti

es

Net

Cas

h U

sed

in In

vest

ing

and

Fina

ncin

g A

ctiv

ities

Cas

h B

alan

ce

2016

/12/

31

Inve

stin

g Pl

an

Fina

ncin

g Pl

an

17,9

516,

481

(4,7

69)

19,6

63 N

one

N

one

1.

Ana

lysi

s of C

ash

Flow

s for

Y20

16:

1.

1 C

ash

prov

ided

by

oper

atin

g ac

tiviti

es N

T$6,

481

mill

ion

was

mai

nly

from

net

inco

me

and

depr

ecia

tion/

amor

tizat

ion.

1.

2 C

ash

used

in in

vest

ing

and

finan

cing

act

iviti

es N

T$4,

769

mill

ion

was

mai

nly

due

to c

apita

l exp

endi

ture

s and

the

paym

ent o

f the

cas

h di

vide

nds.

D

. M

ajor

Cap

ital E

xpen

ditu

re

In 2

015

maj

or c

apita

l exp

endi

ture

was

app

roxi

mat

ely

NT$

1.5

billi

on w

hich

prim

arily

spen

t on

acqu

iring

and

reno

vatio

n of

faci

litie

s and

equ

ipm

ents

.

U

nit :

NT$

, in

mill

ions

Exec

utio

n of

Maj

or C

apita

l Exp

endi

ture

Pr

ojec

t A

ctua

l or P

lann

ed

Sour

ces o

f Cap

ital

Plan

ned

Com

plet

ion

Dat

e Ye

ar/M

onth

To

tal C

apita

l Ex

pend

iture

Y

2014

Y

2015

Y

2016

1 Pu

rcha

sing

and

Ren

ewin

g Fa

cilit

ies a

nd E

quip

men

ts

Ow

n Eq

uity

20

16.1

2 6,

570

3,44

9 1,

497

1,62

4

99


E. Long Term Investment None of Y2015 investments and the current year investments exceeded 5% of the Company paid-in Capital.

F. Risk Management 1. Interest Rates Fluctuation, Foreign Exchange Rate Volatility and

Inflation

Item 2015 (NTD in thousands; %) Net interest income and expenses 197,218

Net exchange gain/loss 24,936

Net interest income and expense to revenue ratio 0.85%

Net interest income and expense to EBT ratio 3.99%

Net exchange gain/loss to revenue ratio 0.11%

Net exchange gain/loss to EBT ratio 0.50%

Interest rate:

VIS’ exposure to interest rate fluctuation relates primarily to long-term liabilities for capital expenditures. Due to small scale of liabilities, no major impact is expected from interest rate fluctuation

Foreign exchange:

VIS employs natural hedging and forward foreign exchange to avoid risks from exchange rate fluctuations. Most of VIS’ revenues are denominated in US dollar. VIS mainly utilizes spot and forward foreign exchange trading to adjust its foreign exchange position as per the foreign exchange market conditions for the purpose of reducing the impact of exchange rate fluctuation on the company. In addition, VIS’ materials and equipments payments are made in US Dollars, Japanese Yens and Euros, among which a substantial portion is in US Dollars. Henceforth, VIS enjoys a certain degree of natural hedge as a result of set-off between account payables and account receivables. Inflation:

Inflation in Taiwan was -0.31% in Y2015. This inflation rate did not impact on our operation and profit significantly. And we believe the impact will remain insignificant in the future if the inflation rate is similar to that of in the past.

2. High risk, high leveraged investment, lending, endorsement and

guarantee for other parties and financial derivatives transactions

VIS focuses on its foundry manufacturing operations and IC wafer

100


production. Accordingly, the company does not engage in high risk/high leveraged investments. In order to control and monitor certain types of transactions, VIS has established internal control policies and procedures conforming to the relevant laws and regulations promulgated by the authorities concerned. These policies and procedures include 「Policies and Procedures for Financial Derivative Transactions 」 , 「 Procedures for Lending Funds to Other Parties」 and 「Procedures for Endorsement and Guarantee」. Until now, the company and affiliates have neither lent funds to others, nor provided endorsement or guarantee for others. Financial derivatives transactions that VIS enters into are strictly for hedging purpose and not for trading and speculative purposes.

3. R&D Plan and Progress

In Y2015, VIS capital expenditure is about NT$1.5 billion, while in Y2016capital expenditure is planned to be around NT$1.3 billion. Other thanequipment and facility maintaining expense, capital expenditure covers theproduct and process R&D to provide complete IC manufacturing service forcustomers and to enhance our competitiveness in global market. VIS willcontinue to build on the existing foundation and strengthen the specialtyprocess technologies. R&D budget in Y2016, estimated around 6% of totalsales. (Please refer to「Technology and R&D Status」)

4. Changes in Domestic and International Policies and Regulations

Management team closely monitors political and regulatory developmentsthat could have a material impact on business and operations. Political andregulatory developments did not have any material adverse effect on VISduring Y2015.

5. Changes in Technology

VIS has continued its investment in the product development and processtechnology for the market needs; on the other hand, we also adapt ourselvesto the changes and needs due to technology evolutions to reduce risks andpursue long-term steady development in finance and business. (please referto Overview of the Industry”)

6. Changes in Company Image

The Company focuses on its primary business activities, upholds theprinciple of good faith, abides by rigorous code of professional ethics,

101


endeavors to improve the Company's competitiveness and pursue corporate sustainability, and strictly forbids conducts that violate the Company's principle of good faith and core corporate values. The Company conducts regular inspections on its external environment, operating models, and management systems, simulates unexpected incidents that may influence corporate reputation, proposes response strategies, and minimizes the potential impact of uncertain factors and disasters that the Company may face in the future, in order to maintain the Company's normal operations and protect the overall interest of our shareholders, customers, and employees. Furthermore, the Company also actively participates in community and charity events in fulfillment of its corporate social responsibilities. From Y2015 to the publication date of this annual report, the Company has been and remains free of changes in corporate image or events that have influenced its capacity for crisis management.

7. Risks from Merge, Acquisition and Plant Expansion

No merger and acquisition event occurred from Y2015 to the date ofpublishing this annual report.

8. Risks from Plant Expansion

No plant expansion occurred from Y2015 to the publishing date of thisannual report.

9. Risks from Concentration of Stock and Sales

To avoid overly concentrated risk and to protect raw materials supply forthe manufacturing process at all time, VIS has maintained multiple suppliersfor the major materials to spread the risk. In Y2014 and Y2015, the top twocustomers have made around 57% and 50% of company annual salesrespectively. The concentration of sales is the industry nature of ourbusiness as focused specialty foundry. To minimize the risks, we willcontinue to expand the product lines and customer base.

10. Transfer of Shareholdings of Directors, Supervisors or Large

Shareholders

The TSMC Board of Directors approved the sale of 82 million commonshares of VIS, approximately 5% of VIS’ paid-in-capital in 2015. TSMCwill remain the largest shareholder of VIS, and TSMC announces that it has

102


no plan to sell more VIS shares in the foreseeable future. This share sale will not affect the strategic relations between the two companies. TSMC expects to continue its close collaboration with VIS, including licensing certain technologies and transferring certain technical know-how to, and sourcing wafers from, the latter. No other transfer of shareholdings of directors, supervisors or large shareholders occurred from Y2015 to the date of publishing this annual report.

11. Change of Management

No change of management occurred from Y2015 to the date of publishing this annual report.

12. Litigation or non-litigation proceedings

No litigation or non-litigation proceedings occurred from Y2015 to the date of publishing this annual report.

13. Other Material Risks

Measures responding to events that seriously impact on the company

operations

VIS regularly conducts drills and trainings for managing natural or man-made damage, such as typhoon, earthquake, fire, gas and chemicals leak, and establish broad and detailed prevention measures as well as contingent plans. VIS is capable of maintaining the company operations and protecting the interests of shareholders, customers and employees. No emergency event occurred from Y2015 to the publishing date of this annual report.

The Policy of the risk management

Vanguard International Semiconductor Corporation adopts professional risk assessment techniques and concepts from local and abroad to facilitate its pro-active risk prevention and loss control. By adopting effective engineering technologies and risk management policies, the Company is able to ensure employees' full participation and ongoing improvements. The Company has incorporated risk management measures into its daily operations. Every department is required to perform regular self assessments on risk control, while the board of directors and the executive management supervise the effectiveness of existing risk management measures and ensure that risks are kept within tolerable levels.

103


The organization chart of the risk management

Below is a description of the Company's risk management organization: Board of directors (including the Audit Committee): determines the overall risk management system and monitors to ensure that the system remains effective. The executive management (Chairman and President): executes the board's risk management decisions and supervises regional heads and the Health, Safety and Environmental Protection Committee. It is also responsible for identifying risks and monitoring the effectiveness of various control measures. The management (vice president and the Health, Safety and Environmental Protection Committee): consolidates information regarding the effectiveness of risk management activities; assists and supervises subordinates in identifying risks and implementing proper control. Risk management and policy execution units: the Company has specialized units responsible for identifying possible risks in daily operations and establishing control measures to address such risks. Their efforts are reviewed and reported to the management on a regular basis. Responsibilities of risk management and policy execution units are: Internal Auditing: The overall implementation of the risk management system, risk management guidance for various departments within the Company, progress review and control, ensuring the effectiveness and robustness of current practices, and reporting back their findings to the executive management and board of directors to help improve the risk management system. Legal: Responsible for managing the legal risks with accordance of laws from government and authorities, handling contract and law suit dispute to lower our legal risk; Human Resources: Responsible for human resources structure and utilization planning. Enhance man-power efficiency and improve industrial harmony to lower risks in management. Quality Reliability Assurance Div.: In charge of product inspection, quality control, and promoting quality policy and strategy in VIS to reduce operating risk. Finance Div: Responsible for establishing the financial operation and planning system. Evaluate and supervise the long-term investment decisions and executions. Under the risk management monitoring mechanism, conduct safety, liquidity profitability analysis. Establish hedge process in foreign exchanges to

104


lower the risks in finance. Operations and Environmental Safety: Corporate Wafer Production, Production Control, Special Project, Risk & Env. Safety Management, Operation Planning, Computer Int. Mfg., and Product Engineering. Improve operation efficiency, cost control, ensure timely delivery of high quality product to customers and reduce operating risk. Worldwide Sales and Planning: Oversees customer service planning and management for the purpose of reducing operational risks; explores local and foreign opportunities and gains control of customers' information to reduce market risks; learns the competition and market trends to develop marketing strategies. Research & Development: Leader to the IP Management, Design Service, Information Tech and eCommerce, and Technology divisions. Responsible for technology development and the provision of technical support to IP resources, Mask, CAD, and layout teams to reduce R&D risk. ACCT Div: Responsible for the establishment of the accounting system in order to achieve the goal of reliability of financial reporting to lower the risks in finance. MM Div.: Responsible for materials management, VIS will continue to monitor the inventory and the costs of the materials to reduce operating risk. ITEC Div.: Responsible for network planning, operations and network quality maintenance to lower information risk.

G. Other important matters: None

105


VIII. SPECIAL NOTES A. Affiliated Information

1. VIS Affiliated Companies Chart

2. Business Scope of the Affiliated Companies

Investee Company Major Business Items

VIS Associates Inc. Investment

VIS Investment Holding, Inc. Investment

Specialty TechFarm, Inc. Investment

VIS Micro, Inc. Marketing Service

VIS

VIS Associates Inc.

Specialty TechFarm Inc. VIS Investment Holding, Inc.

VIS Micro, Inc.

100%

100%

100%

100%

106


3. A

ffili

ates

Info

rmat

ion

U

nit:

USD

, in th

ousa

nds

Nam

e of

Ent

erpr

ise

Dat

e of

Es

tabl

ishm

ent

Add

ress

Pa

id-in

Cap

ital

Maj

or B

usin

ess /

Pro

duct

ion

Item

s

VIS

Ass

ocia

tes I

nc.

1996

.9.2

4 Tr

iden

t Cha

mbe

rs, P

O B

ox 1

46, R

oad

Tow

n To

rtola

, Brit

ish

Virg

in Is

land

s U

SD 6

,000

Inve

stm

ent

VIS

Inve

stm

ent H

oldi

ng, I

nc.

1996

.11.

15

Cor

pora

tion

Trus

t Cen

ter 1

209

Ora

nge

Stre

et

Wilm

ingt

on, D

elaw

are

1980

1 U

SD 6

,250

Inve

stm

ent

Spec

ialty

Tec

hFar

m, I

nc.

2004

.8.6

O

MC

Cha

mbe

rs, P

.O. B

ox 3

152,

Roa

d To

wn,

Tor

tola

, Brit

ish

Virg

in Is

land

s U

SD 1

0,00

0In

vest

men

t

VIS

Mic

ro, I

nc.

1996

.11.

21

1475

S. B

asco

m A

ve, S

uite

109

C

ampb

ell,

CA

950

08

USD

200

Mar

ketin

g Se

rvic

e

Not

e：Fo

reig

n ex

chan

ge ra

tes o

n ba

lanc

e sh

eet d

ate

is $

1USD

=$32

.895

NT.

4. V

IS S

hare

hold

ers R

epre

sent

ing

Bot

h H

oldi

ng C

ompa

nies

and

Sub

ordi

nate

s: N

one

5.

Dir

ecto

rs, S

uper

viso

rs &

Pre

side

nts o

f Aff

iliat

es

Hol

ding

Sha

res

Nam

e of

Ent

erpr

ise

Title

N

ame

or R

epre

sent

ativ

e Sh

ares

(K)

%

VIS

Ass

ocia

tes I

nc.

Dire

ctor

Fa

ng, L

euh

; Tse

ng, D

. L.

6 10

0%V

IS In

vest

men

t Hol

ding

, Inc

. D

irect

or

Fang

, Leu

h ; T

seng

, D. L

. 63

10

0%Sp

ecia

lty T

echF

arm

, Inc

. D

irect

or

Cha

ng, T

ung-

Lung

; Chi

ang,

Kun

-She

ng; L

in, C

hia-

Che

n 10

,000

10

0%V

IS M

icro

, Inc

. D

irect

or

Fang

, Leu

h； T

seng

, D. L

. Cha

ng, T

ung-

Lung

20

0 10

0%

6. O

pera

ting

Hig

hlig

hts o

f Aff

iliat

es

Uni

t: N

T$, i

n th

ousa

nds

Nam

e of

Ent

erpr

ise

Cap

ital

Tota

l Ass

ets

Tota

l Lia

bilit

ies

Net

Val

ue

Net

Rev

enue

O

pera

ting

Inco

me

(Los

s)N

et In

com

e (L

oss)

EPS

(NT$

)

VIS

Ass

ocia

tes I

nc.

$195

,492

$3

01,0

19

$0

$301

,019

$0

($

182)

$9,2

96

$1,5

49.3

4V

IS In

vest

men

t Hol

ding

, Inc

. 20

5,59

4 64

,400

14

8 64

,252

0

(536

)2,

501

40.0

2Sp

ecia

lty T

echF

arm

, Inc

. 32

8,95

0 65

,240

51

65

,188

0

(203

)10

,482

1.

05V

IS M

icro

, Inc

. 6,

579

65,4

07

10,2

03

55,2

04

62,2

80

2,97

1 1,

598

7.99

Not

e：Fo

reig

n ex

chan

ge ra

tes f

or b

alan

ce sh

eet a

mou

nts i

s as f

ollo

w：

$1U

SD=$

32.8

95N

T

Fore

ign

exch

ange

rate

s for

inco

me

shee

tmen

t am

ount

s is a

s fol

low：

$1U

SD=$

31.6

75N

T

107


B.

Pri

vate

pla

cem

ents

Sec

uri

ties

V

IS h

as n

o pr

ivat

e pl

acem

ents

secu

ritie

s fro

m Y

2015

to th

e pu

blis

hing

dat

e of

this

ann

ual r

epor

t.

C. V

IS C

omm

on S

har

es a

cqu

ired

, dis

pos

ed o

f an

d h

eld

by

sub

sid

iari

es

VIS

Com

mon

Sha

res w

as n

ot a

cqui

red,

dis

pose

d of

and

hel

d by

subs

idia

ries f

rom

Y20

15 to

the

publ

ishi

ng d

ate

of th

is a

nnua

l rep

ort.

D.

Oth

er N

eces

sary

Su

pp

lem

ent:

Non

e

E.

An

y E

ven

ts i

n Y

2015

th

at h

ad S

ign

ific

ant

Imp

acts

on

Sh

areh

old

ers’

Rig

ht

or S

ecu

rity

Pri

ces

as s

tart

ed i

n I

tem

3 p

arag

rap

h 2

of

Art

icle

36

of S

ecu

riti

es a

nd

Exc

han

ge L

aw o

f T

aiw

an:

Non

e

108


INDEPENDENT AUDITOR’S REPORT

The Board of Directors and Stockholders Vanguard International Semiconductor Corporation

We have audited the accompanying parent company only balance sheets of Vanguard International Semiconductor Corporation (the “Corporation”) as of December 31, 2015 and 2014 and the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014. These parent company only financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and 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 parent company only financial position of Vanguard International Semiconductor Corporation as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

The statements of major accounting items listed in the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the year ended December 31, 2015 are presented for the purpose of additional analysis. Such statements have been subjected to the auditing procedures applied in our audits of the financial statements mentioned above. In our opinion, such statements are fairly stated in all material respects in relation to the financial statements as a whole.

January 27, 2016

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance/results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

IX. Financial Statements, Consolidated Financial Statements andIndependent Auditors’ Report

109


josh

會計師

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

PA

RE

NT

CO

MP

AN

Y O

NL

Y B

AL

AN

CE

SH

EE

TS

DE

CE

MB

ER

31,

201

5 A

ND

201

4 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

2015

2014

(R

esta

ted)

(N

ote

3)

2015

2014

(R

esta

ted)

(N

ote

3)

ASS

ET

SA

mou

nt

%

Am

ount

%

LIA

BIL

ITIE

S A

ND

EQ

UIT

Y

Am

ount

%A

mou

nt%

CU

RR

EN

T A

SSE

TS

CU

RR

EN

T L

IAB

ILIT

IES

Cas

h an

d ca

sh e

quiv

alen

ts (

Not

es 4

and

6)

$ 1

7,69

8,17

5 55

$

16,

913,

272

50

Fina

ncia

l lia

bili

ties

at f

air

valu

e th

roug

h pr

ofit

or lo

ss -

Fi

nanc

ial a

sset

s at

fai

r va

lue

thro

ugh

prof

it or

loss

- c

urre

nt

curr

ent (

Not

es 4

, 7 a

nd 3

0)

$

28,4

74

- $

90

,584

-

(Not

es 4

, 7 a

nd 3

0)

1,09

7,89

5 3

810,

921

3 D

eriv

ativ

e fi

nanc

ial l

iabi

litie

s fo

r he

dgin

g -

curr

ent

Hel

d-to

-mat

urit

y fi

nanc

ial a

sset

s -

curr

ent (

Not

es 4

, 5, 9

and

(N

otes

4, 1

0 an

d 30

) 7,

020

-15

,206

-

30)

139,

502

--

-N

otes

and

acc

ount

s pa

yabl

e87

8,12

63

1,16

0,06

64

Der

ivat

ive

fina

ncia

l ass

ets

for

hedg

ing

- cu

rren

t (N

otes

4, 1

0 A

ccru

ed p

rofi

t sha

ring

to e

mpl

oyee

s an

d re

mun

erat

ion

to

and

30)

- -

70

- di

rect

ors

(Not

e 24

) 63

7,22

6 2

850,

483

3 N

otes

and

acc

ount

s re

ceiv

able

, net

(N

otes

4, 5

and

12)

2,

519,

513

8 3,

261,

444

10

Pay

able

s to

con

trac

tors

and

equ

ipm

ent s

uppl

iers

201,

154

140

8,35

11

Rec

eiva

bles

fro

m r

elat

ed p

arti

es (

Not

es 4

, 5 a

nd 3

1)

533,

935

2 72

9,17

1 2

Oth

er p

ayab

les

(Not

e 18

) 1,

718,

057

5 1,

712,

177

5 O

ther

rec

eiva

bles

(N

ote

4)

125,

952

- 13

9,89

7 1

Oth

er p

ayab

les

to r

elat

ed p

arti

es (

Not

e 31

) 72

,640

-

113,

993

- O

ther

rec

eiva

bles

fro

m r

elat

ed p

arti

es (

Not

es 4

and

31)

15

,084

-

18,5

15

- C

urre

nt in

com

e ta

x li

abil

itie

s (N

otes

4 a

nd 2

5)

497,

129

284

0,43

13

Inve

ntor

ies

(Not

es 4

, 5 a

nd 1

3)

2,25

0,61

1 7

2,49

8,40

0 7

Pro

visi

ons

- cu

rren

t (N

otes

4, 5

and

20)

13

6,57

6 -

110,

906

- P

repa

id e

xpen

ses

162,

653

1 11

3,64

5 -

Oth

er c

urre

nt li

abili

ties

(Not

e 19

) 81

,445

-87

,720

- O

ther

cur

rent

ass

ets

(Not

es 4

, 17

and

30)

2,59

7-

390,

187

1 T

otal

cur

rent

liab

ilitie

s 4,

257,

847

135,

389,

917

16

Tot

al c

urre

nt a

sset

s 24

,545

,917

7624

,875

,522

74

NO

N-C

UR

RE

NT

LIA

BIL

ITIE

S

NO

N-C

UR

RE

NT

ASS

ET

S D

efer

red

inco

me

tax

liabi

litie

s (N

otes

4 a

nd 2

5)

67,4

94

-10

4,19

2-

Ava

ilabl

e-fo

r-sa

le f

inan

cial

ass

ets

- no

n-cu

rren

t (N

otes

4, 8

N

et d

efin

ed b

enef

it lia

bili

ties

- no

n-cu

rren

t (N

otes

4, 5

and

an

d 30

) 88

,731

-

143,

038

-21

)63

0,99

22

613,

106

2Fi

nanc

ial a

sset

s ca

rrie

d at

cos

t - n

on-c

urre

nt (

Not

es 4

and

11)

62

,716

-

62,7

16

- O

ther

non

-cur

rent

liab

iliti

es (

Not

e 31

) 14

,125

-99

,357

- In

vest

men

t acc

ount

ed f

or u

sing

equ

ity

met

hod

(Not

es 4

and

14)

35

2,45

8 1

342,

322

1 P

rope

rty,

pla

nt a

nd e

quip

men

t (N

otes

4 a

nd 1

5)

6,97

9,14

8 22

7,

983,

500

24

Tot

al n

on-c

urre

nt li

abili

ties

712,

611

281

6,65

52

Inta

ngib

le a

sset

s (N

otes

4 a

nd 1

6)

41,5

96

- 37

,174

-

Def

erre

d in

com

e ta

x as

sets

(N

otes

4 a

nd 2

5)

1,69

0 -

154

- T

otal

liab

ilitie

s 4,

970,

458

156,

206,

572

18

Ref

unda

ble

depo

sits

4,27

9-

5,07

8-

Oth

er n

on-c

urre

nt a

sset

s (N

otes

4, 1

7 an

d 32

) 30

3,55

21

303,

384

1 E

QU

ITY

(N

otes

4 a

nd 2

2)

Cap

ital s

tock

T

otal

non

-cur

rent

ass

ets

7,83

4,17

024

8,87

7,36

626

Com

mon

stoc

k16

,389

,823

5016

,389

,823

49

Cap

ital s

urpl

us

855,

123

3 83

8,02

92

Ret

aine

d ea

rnin

gs

Leg

al r

eser

ve

3,09

1,01

3 10

2,54

7,22

48

Spec

ial r

eser

ve70

,506

-53

,700

-U

napp

ropr

iate

d ea

rnin

gs

7,11

8,97

522

7,79

7,92

123

T

otal

ret

aine

d ea

rnin

gs

10,2

80,4

9432

10,3

98,8

4531

O

ther

equ

ity

(115

,811

)-

(70,

506)

- T

reas

ury

stoc

k -

-(9

,875

)-

Tot

al e

quit

y 27

,409

,629

8527

,546

,316

82

TO

TA

L A

SSE

TS

$ 3

2,38

0,08

7 10

0 $

33,

752,

888

100

TO

TA

L L

IAB

ILIT

IES

AN

D E

QU

ITY

$

32,

380,

087

100

$ 3

3,75

2,88

8 10

0

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e pa

rent

com

pany

onl

y fi

nanc

ial s

tate

men

ts.

110


VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2015

2014 (Restated) (Note 3)

Amount % Amount %

NET REVENUE (Notes 4, 5, 20, 23 and 31) $ 23,319,721 100 $ 23,931,479 100

COST OF REVENUE (Notes 4, 13, 24 and 31) 16,422,455 70 15,317,806 64

GROSS PROFIT 6,897,266 30 8,613,673 36

OPERATING EXPENSES (Notes 3, 4, 24 and 31) Marketing 205,436 1 250,367 1General and administrative 841,517 4 967,464 4 Research and development 1,240,265 5 1,191,246 5

Total operating expenses 2,287,218 10 2,409,077 10

OPERATING INCOME 4,610,048 20 6,204,596 26

NONOPERATING INCOME AND EXPENSES (Note 4) Interest income 190,695 1 187,428 1 Dividend income 21,004 - 19,860 - Other income (Note 31) 71,830 - 68,639 - Gain (loss) on disposal of property, plant and

equipment 28 - (1,917) -Net foreign exchange gains (Note 34) 180,276 1 240,585 1 Losses on financial assets at fair value through profit

or loss (146,066) (1) (213,180) (1) Share of profit (loss) of subsidiaries, associates and

joint ventures (Note 14) 10,245 - (12,042) -

Total nonoperating income and expenses 328,012 1 289,373 1

INCOME BEFORE INCOME TAX 4,938,060 21 6,493,969 27

INCOME TAX EXPENSE (Notes 4 and 25) (780,477) (3) (1,053,888) (4)

NET INCOME 4,157,583 18 5,440,081 23

OTHER COMPREHENSIVE INCOME (Notes 4 and 22) Items that will not be reclassified subsequently to

profit or loss: Remeasurement of defined benefit plans (Note 21) (16,581) - (51,746) (1)

(Continued)

111



PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2015


Amount % Amount %

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign

operations $ 10,992 - $ 16,387 - Unrealized losses on available-for-sale financial

assets (54,307) - (31,875) -Cash flow hedges (70) - 70 - Share of other comprehensive loss of subsidiaries,

associates and joint ventures (Note 14) (1,920) - (1,388) -

Total other comprehensive loss (61,886) - (68,552) (1)

TOTAL COMPREHENSIVE INCOME $ 4,095,697 18 $ 5,371,529 22

EARNINGS PER SHARE (Note 26) Basic $ 2.54 $ 3.35 Diluted $ 2.50 $ 3.30

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

112


VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

PA

RE

NT

CO

MP

AN

Y O

NL

Y S

TA

TE

ME

NT

S O

F C

HA

NG

ES

IN E

QU

ITY

F

OR

TH

E Y

EA

RS

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

AN

D 2

014

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

Oth

er E

quit

y U

nrea

lized

E

xcha

nge

(Los

ses)

Ret

aine

d E

arni

ngs

Dif

fere

nces

on

Gai

ns o

n U

napp

ropr

iate

d T

rans

lati

on o

f A

vaila

ble-

for-

sale

C

apit

al S

tock

C

apit

al S

urpl

us

Leg

al R

eser

ve

Spec

ial R

eser

ve

Ear

ning

s F

orei

gn O

pera

tion

s F

inan

cial

Ass

ets

Cas

h F

low

Hed

ges

Tre

asur

y St

ock

Tot

al E

quit

y

BA

LA

NC

E, J

AN

UA

RY

1, 2

014

$

16,3

65,8

59

$

733,

578

$

2,11

0,12

5 $

68

,948

$

5,

691,

940

$

(65,

081)

$

11

,381

$

-

$

(486

,990

) $

24

,429

,760

Eff

ect o

f re

tros

pect

ive

appl

icat

ion

(Not

e 3)

-

--

-12

,822

--

--

12,8

22

RE

ST

AT

ED

BA

LA

NC

E, J

AN

UA

RY

1, 2

014

16,3

65,8

5973

3,57

82,

110,

125

68,9

485,

704,

762

(65,

081)

11,3

81-

(486

,990

)24

,442

,582

App

ropr

iatio

n of

pri

or y

ear's

ear

ning

s L

egal

res

erve

-

- 43

7,09

9 -

(437

,099

)-

--

--

Cas

h di

vide

nds

- 18

%

- -

- -

(2,8

73,3

25)

--

--

(2,8

73,3

25)

Rev

ersa

l of

spec

ial r

eser

ve

- -

- (1

5,24

8)

15,2

48

- -

- -

-

Cha

nges

in c

apit

al s

urpl

us f

rom

inve

stm

ent i

n su

bsid

iari

es,

asso

ciat

es a

nd jo

int v

entu

res

acco

unte

d fo

r us

ing

equi

ty m

etho

d-

18,2

46-

--

--

--

18,2

46

Net

inco

me

for

the

year

end

ed D

ecem

ber

31, 2

014

- -

- -

5,44

0,08

1 -

- -

- 5,

440,

081

Oth

er c

ompr

ehen

sive

inco

me

for

the

year

end

ed D

ecem

ber

31,

2014

--

--

(51,

746)

14,9

99(3

1,87

5)70

-(6

8,55

2)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed D

ecem

ber

31,

2014

--

--

5,38

8,33

514

,999

(31,

875)

70-

5,37

1,52

9

Sha

re-b

ased

pay

men

t tra

nsac

tion

23

,964

86,2

05-

--

--

-47

7,11

558

7,28

4

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

014

16,3

89,8

23

838,

029

2,54

7,22

4 53

,700

7,

797,

921

(50,

082)

(20,

494)

70(9

,875

) 27

,546

,316

App

ropr

iatio

n of

pri

or y

ear's

ear

ning

s L

egal

res

erve

-

- 54

3,78

9 -

(543

,789

)-

--

--

Spec

ial r

eser

ve

- -

- 16

,806

(1

6,80

6)-

--

--

Cas

h di

vide

nds

- 26

%

- -

- -

(4,2

59,3

53)

--

--

(4,2

59,3

53)

Cha

nges

in c

apita

l sur

plus

fro

m in

vest

men

t in

subs

idia

ries

, as

soci

ates

and

join

t ven

ture

s ac

coun

ted

for

usin

g eq

uity

met

hod

-(9

,181

)-

--

--

--

(9,1

81)

Net

inco

me

for

the

year

end

ed D

ecem

ber

31, 2

015

- -

- -

4,15

7,58

3 -

- -

- 4,

157,

583

Oth

er c

ompr

ehen

sive

inco

me

for

the

year

end

ed D

ecem

ber

31,

2015

--

--

(16,

581)

9,07

2(5

4,30

7)(7

0)-

(61,

886)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed D

ecem

ber

31,

2015

--

--

4,14

1,00

29,

072

(54,

307)

(70)

-4,

095,

697

Sha

re-b

ased

pay

men

t tra

nsac

tion

-

26,2

75-

--

--

-9,

875

36,1

50

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

015

$

16,3

89,8

23

$

855,

123

$

3,09

1,01

3 $

70

,506

$

7,

118,

975

$

(41,

010)

$

(7

4,80

1)

$

- $

-

$

27,4

09,6

29

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e pa

rent

com

pany

onl

y fi

nanc

ial s

tate

men

ts.

113



PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

2015


CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 4,938,060 $ 6,493,969Adjustments for:

Depreciation 2,303,867 2,072,482Amortization 15,347 8,837Net loss (gain) on financial assets and liabilities at fair value through

profit or loss 1,118 (30,016) Interest income (190,695) (187,428) Dividend income (21,004) (19,860) Share-based payment 26,278 75,582Share of (gain) loss of subsidiaries, associates and joint ventures (10,245) 12,042(Gain) loss on disposal of property, plant and equipment (28) 1,917Net loss (gain) on foreign currency exchange 6,968 (18,424) Changes in operating assets and liabilities:

Financial assets held for trading 504,866 (489,190) Notes and accounts receivable 741,931 (962,355) Receivable from related parties 195,236 (1,815) Other receivables 12,907 (5,262) Other receivables from related parties 3,431 2,748Inventories 247,789 (827,456)Prepaid expenses (49,008) (9,980) Other current assets 198 (914) Financial liabilities held for trading (62,110) 69,085Derivative financial liabilities for hedging (8,186) 2,882Notes and accounts payable (281,940) 335,217Other payables 5,880 286,680Other payables to related parties (41,353) 1,183Provisions 25,670 9,802Other current liabilities (6,275) 1,556Net defined benefit liabilities 1,305 4,193Accrued profit sharing to employees and remuneration to

directors (213,257) 185,235Cash generated from operations 8,146,750 7,010,710Interest received 191,356 185,321Income tax paid (1,162,012) (543,817)

Net cash provided by operating activities 7,176,094 6,652,214(Continued)

114



PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

2015


CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of financial assets designated as fair value through profit

or loss $ (1,342,920) $ (262,238) Proceeds from disposal of financial assets designated as fair value

through profit or loss 549,963 314,725Acquisition of available-for-sale financial assets - (150,000) Acquisitions of held-to-maturity financial assets (141,305) -Acquisitions of property, plant and equipment (1,501,065) (3,120,361) Proceeds from disposal of property, plant and equipment 28 840Decrease (increase) in refundable deposits 799 (921) Acquisitions of intangible assets (26,731) (29,000) Decrease (increase) in other financial assets 383,748 (32,652) Dividends received 21,004 19,860

Net cash used in investing activities (2,056,479) (3,259,747)

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in other non-current liabilities (85,232) 50,287Cash dividends (4,259,353) (2,873,325) Proceeds from exercise of employee stock options - 34,747Treasury stock transferred to employees 9,873 476,955

Net cash used in financing activities (4,334,712) (2,311,336)

NET INCREASE IN CASH AND CASH EQUIVALENTS 784,903 1,081,131

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 16,913,272 15,832,141

CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 17,698,175 $ 16,913,272

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

115



NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The parent company only financial statements are presented in the Corporation’s functional currency, NewTaiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The parent company only financial statements were approved and authorized for issue by the Board ofDirectors on January 27, 2016.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reportsby Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS),International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS(SIC) endorsed by the Financial Supervisory Commission (FSC)

Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that theCorporation should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)endorsed by the FSC and the related amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers starting January 1, 2015.

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSsversion would not have any material impact on the Corporation’s accounting policies:

1) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries,joint arrangements, associates and unconsolidated structured entities. In general, the disclosurerequirements in IFRS 12 are more extensive. Please refer to Note 14 for related disclosures.

116


2) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,establishes a framework for measuring fair value, and requires disclosures about fair valuemeasurements. The disclosure requirements in IFRS 13 are more extensive. For example,quantitative and qualitative disclosures based on the three-level fair value hierarchy previouslyrequired for financial instruments only are extended by IFRS 13 to cover all assets and liabilitieswithin its scope.

The fair value measurements under IFRS 13 were applied prospectively from January 1, 2015.Refer to Note 30 for related disclosures.

3) Amendment to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendment to IAS 1 requires items of other comprehensive income to be grouped into thoseitems that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassifiedsubsequently to profit or loss. Income taxes on related items of other comprehensive income aregrouped on the same basis. Under previous IAS 1, there were no such requirements.

The Group retrospectively applied the above amendments starting in 2015. Items not expected tobe reclassified to profit or loss are remeasurements of the defined benefit plans. Items expected tobe reclassified to profit or loss are the exchange differences on translation of foreign operations,unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of othercomprehensive income (except the share of the remeasurements of the defined benefit plans) ofassociates and joint ventures accounted for using the equity method. However, the application ofthe above amendments would not have any impact on the net profit for the year, othercomprehensive income for the year (net of income tax), and total comprehensive income for theyear.

4) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fairvalue of plan assets when they occur, and hence eliminates the “corridor approach” permitted underprevious IAS 19 and accelerate the recognition of past service costs. The revision requires allremeasurements of the defined benefit plans to be recognized immediately through othercomprehensive income in order for the net pension asset or liability to reflect the full value of theplan deficit or surplus. Remeasurement of the defined benefit plans is presented as retainedearnings.

Furthermore, the interest cost and expected return on plan assets used in previous IAS 19 arereplaced with a “net interest” amount, which is calculated by applying the discount rate to the netdefined benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in thepresentation of the defined benefit cost, and also includes more extensive disclosures.

On initial application of the revised IAS 19, the changes in cumulative employee benefit costs as ofDecember 31, 2013 resulting from the retrospective application are adjusted to net defined benefitliabilities and retained earnings. In addition, the Corporation elects not to present 2014comparative information about the sensitivity of the defined benefit obligation.

Because of the retrospective application of aforementioned amendments, as of December 31, 2014and January 1, 2014, the primary impacts on the Corporation would include the adjustment in netdefined benefit liabilities for a decrease of $12,084 thousand and $12,822 thousand, respectivelyand the adjustment in retained earnings for an increase of $12,084 thousand and $12,822 thousand,respectively; and adjustment in operating expenses for a decrease of $1,823 thousand and $2,192thousand for the year ended December 31, 2015 and 2014, respectively.

117


b. New IFRSs in issue but not yet endorsed by the FSC

The Corporation has not applied the following New IFRSs issued by the IASB but not yet endorsed bythe FSC. As of the date the parent company only financial statements were authorized for issue, theFSC has not announced their effective dates.

New IFRSs Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

To be determined by IASB

Amendments to IFRS 10, IFRS 12 and IAS 28“'Investment Entities: Applying the Consolidation Exception”

January 1, 2016

Amendment to IFRS 11 “ Accounting for Acquisitions of Interests in Joint Operations”

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 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable

Methods of Depreciation and Amortization” January 1, 2016

Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions” July 1, 2014

Amendment to IAS 27 “Equity Method in Separate Financial Statements”

January 1, 2016

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

118


The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Corporation’s accounting policies, except for the following:

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.

For the debt instruments invested by the Corporation that have contractual cash flows that are solelypayments of principal and interest on the principal amount outstanding, their classification andmeasurement are as follows

a) If the objective of the Corporation’s business model is to collect the contractual cash flows, suchfinancial assets are measured at amortized cost and are assessed for impairment continuouslywith impairment loss recognized in profit or loss, if any. Interest revenue is recognized inprofit or loss by using the effective interest method;

b) If the objective of the Corporation’s business model is both to collect contractual cash flows andto sell financial assets, such financial assets are measured at fair value through othercomprehensive income (FVTOCI) and are assessed for impairment continuously. Interestrevenue is recognized in profit or loss by using the effective interest method, and other gain orloss shall be recognized in other comprehensive income, except for impairment gains or lossesand foreign exchange gains and losses. When the debt instruments are derecognized orreclassified, the cumulative gain or loss previously recognized in other comprehensive incomeis reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Corporation may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a significant financing component.

For purchased or originated credit-impaired financial assets, the Corporation takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

119


Hedge accounting

The main change in hedge accounting amended the application requirements for hedge accounting, and it lets the financial statements better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

2) Amendment to IAS 19: Amendment in 2013

The amended IAS 19 states that if contributions from employees or third parties are not linked toservice, these contributions affect the remeasurement of the net defined benefit liability (asset). Ifthe contributions are linked solely to service, the employees’ service rendered in that period inwhich they are paid, these contributions may be recognized as a reduction of service cost in thesame period. If the contributions depend on the number of years of service, an entity is required toattribute these contributions to service periods as a reduction of service cost.

3) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to thedisclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose inevery reporting period the recoverable amount of an asset or each cash-generating unit. Theamendment clarifies that such disclosure of recoverable amounts is required only when animpairment loss has been recognized or reversed during the period. Furthermore, the Corporationis required to disclose the discount rate used in measurements of the recoverable amount based onfair value less costs of disposal measured by using a present value technique.

4) Annual Improvements to IFRSs: 2010-2012 Cycle

Several standards including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” andIFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applyingthe aggregation criteria to operating segments. The amendment also clarifies that a reconciliationof the total of the reportable segments’ assets to the entity’s assets should only be provided if thesegments’ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measureshort-term receivables and payables with no stated interest rate at their invoice amounts withoutdiscounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnelservices to the Corporation is a related party of the Corporation. Consequently, the Corporation isrequired to disclose as related party transactions the amounts paid or payable to the managemententity for the provision of key management personnel services. However, disclosure of thecomponents of such compensation is not required.


Several standards including IFRS 3, IFRS 13 and IAS 40 “Investment Property” were amended inthis annual improvement.

120


6) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations from January 1, 2018.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contracts; and Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

7) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control in an associate or a joint venture,the gain or loss resulting from the transaction is recognized only to the extent of the unrelatedinvestors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss iseliminated.


Several standards including IFRS 5 “Non-current assets held for sale and discontinued operations”,IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement.

9) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.

Under IFRS 16, if the Corporation is a lessee, it shall recognize right-of-use assets and leaseliabilities for all leases on the parent company only balance sheets except for low-value andshort-term leases. The Corporation may elect to apply the accounting method similar to theaccounting for operating lease under IAS 17 to the low-value and short-term leases. On the parentcompany only financial statements of comprehensive income, the Corporation should present thedepreciation expense charged on the right-of-use asset separately from interest expense accrued onthe lease liability; interest is computed by using effective interest method. On the parent companyonly statements of cash flows, cash payments for the principal portion of the lease liability areclassified within financing activities; cash payments for interest portion are classified withinoperating activities.

121


The application of IFRS 16 is not expected to have a material impact on the accounting of the Corporation as lessor.

When IFRS 16 becomes effective, the Corporation may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

Except for the above impact, as of the date the parent company only financial statements were authorized for issue, the Corporation continuingly assesses the possible impact that the application of other standards and interpretations will have on the Corporation’s financial position and financial performance, and will disclose the relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

The parent company only financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers.

b. Basis of preparation

The parent company only financial statements have been prepared on the historical cost basis except forfinancial instruments which are measured at fair values.

The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair valuemeasurement inputs are observable and the significance of the inputs to the fair value measurement inits entirety, which are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable forthe asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for the asset or liability.

When preparing its parent company only financial statements, the Corporation used equity method to account for its investment in subsidiaries, associates and joint ventures. The amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements were the same as the amounts attributable to the owner of the Corporation in its consolidated financial statements.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within twelve months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle aliability for at least twelve months after the reporting period.

122


Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within twelve months after the reporting period; and

3) Liabilities for which the Corporation does not have an unconditional right to defer settlement for atleast twelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Foreign currencies

In preparing the parent company only financial statements, transactions in currencies other than theCorporation’s functional currency (foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise, except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Exchange differences arisingfrom the retranslation of non-monetary items are included in profit or loss for the period except forexchange differences arising from the retranslation of non-monetary items in respect of which gains andlosses are recognized directly in other comprehensive income, in which case, the exchange differencesare also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

e. Inventories

Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and costs necessary to make the sale.Inventories are recorded at weighted-average cost on the balance sheet date.

f. Investment in subsidiaries

The Corporation uses the equity method to account for its investments in subsidiaries.

Subsidiary is an entity that is controlled by the Corporation.

Under the equity method, investment in a subsidiary is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe subsidiary. The Corporation also recognizes the changes in the Corporation’s share of equity ofsubsidiaries.

Changes in the Corporation’s ownership interest in a subsidiary that do not result in the Corporationlosing control of the subsidiary are equity transactions. The Corporation recognizes directly in equityany difference between the carrying amount of the investment and the fair value of the considerationpaid or received.

123


The Corporation assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the reversal of the impairment loss is recognized as a gain; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

Profits or losses resulting from downstream transactions are eliminated in full in the parent company only financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized in the parent company only financial statements only to the extent of interests in the subsidiaries that are not related to the Corporation.

g. Investment in associates

An associate is an entity over which the Corporation has significant influence and that is neither asubsidiary nor an interest in a joint venture.

The Corporation uses the equity method to account for its investments in associates.

Under the equity method, investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Corporation’s share of the profit or loss and other comprehensive income ofthe associate. The Corporation also recognized the changes in the share of equity of associates.

When the Corporation subscribes for additional new shares of the associate, at a percentage differentfrom its existing ownership percentage, the resulting carrying amount of the investment differs from theamount of the Corporation’s proportionate interest in the associate. The Corporation records such adifference as an adjustment to investments with the corresponding amount charged or credited to capitalsurplus - changes in the Corporation’s share of equity of associates. If the Corporation’s ownershipinterest is reduced due to the additional subscription of the new shares of associate, the proportionateamount of the gains or losses previously recognized in other comprehensive income in relation to thatassociate is reclassified to profit or loss on the same basis as would be required if the investee haddirectly disposed of the related assets or liabilities. When the adjustment should be debited to capitalsurplus, but the capital surplus recognized from investments accounted for by the equity method isinsufficient, the shortage is debited to retained earnings.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a singleasset by comparing its recoverable amount with its carrying amount. Any impairment loss recognizedforms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.

When the Corporation transacts with its associate, profits and losses resulting from the transactions withthe associate are recognized in the Corporation’s parent company only financial statements only to theextent of interests in the associate that are not related to the Corporation.

h. Property, plant, and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation andsubsequent accumulated impairment loss.

Depreciation on property, plant and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each year, with the effect of any changes in estimate accounted foron a prospective basis.

124


On derecognition of an item of property, plant and equipment, the difference between the disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each year, with the effect of any changes inestimates accounted for on a prospective basis.

2) Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:

a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;

b) The intention to complete the intangible asset and use or sell it;

c) The ability to use or sell the intangible asset;

d) How the intangible asset will generate probable future economic benefits;

e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and

f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.

The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, they are measured on the same basis as intangible assets that acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and thecarrying amount of the asset is recognized in profit or loss.

j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss. When it is not possible to estimatethe recoverable amount of an individual asset, the Corporation estimates the recoverable amount of thecash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment at least annually, and whenever there is an indication that the asset may be impaired.

125


Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

k. Financial instruments

Financial assets and financial liabilities are recognized when the Corporation becomes a party to thecontractual provisions of the instruments.

Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis.

1) Measurement category

Financial assets are classified into the following specified categories: Financial assets at fair valuethrough profit or loss, held-to-maturity financial assets, available-for-sale financial assets, and loansand receivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.

A financial asset may be designated as at fair value through profit or loss upon initialrecognition if:

i Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

ii The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and evaluated performance on a fair value basis, in accordance with the Corporation’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

iii The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.

126


Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising from remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 30.

b) Held-to-maturity financial assets

The corporate bonds which the Corporation invests in and has positive intent and ability to holdto maturity are classified as held-to-maturity financial assets.

Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Dividends on available-for-saleequity instruments are recognized in profit or loss. Other changes in the carrying amount ofavailable-for-sale financial assets are recognized in other comprehensive income and will bereclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when theCorporation’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured and derivatives that are linked to and must besettled by delivery of such unquoted equity investments are measured at cost less any identifiedimpairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assetscan be reliably measured, the financial assets are remeasured at fair value. The differencebetween carrying amount and fair value is recognized in other comprehensive income onfinancial assets. Any impairment losses are recognized in profit and loss.

d) Loans and receivables

Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured at amortized cost using the effectiveinterest method, less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.

Cash equivalent includes time deposits investments with original maturities within three monthsfrom the date of acquisition, highly liquid, readily convertible to a known amount of cash andbe subject to an insignificant risk of changes in value. These cash equivalents are held for thepurpose of meeting short-term cash commitments.

2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.

127


Objective evidence of impairment could include: significant financial difficulty of the debtor; or it becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a default or delinquency in interest or principal payments; or extension of the maturity date; or significant financial difficulty of the final issuer or debtor; or disappearance of an active market for that financial asset because of the issuer’s financial difficulties or other reasons.

Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Corporation’s past experience in the collection of payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is 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.

For financial assets measured at amortized cost, 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 was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the financial assets at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

a) Significant financial difficulty of the issuer or counterparty; or

b) Breach of contract, such as a default or delinquency in interest or principal payments; or

c) It becoming probable that the borrower will enter bankruptcy or financial re-organization; or

d) The disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment losses is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

128


The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

3) Derecognition of financial assets

The Corporation derecognizes a financial asset only when the contractual rights to the cash flowsfrom the asset expire, or when it transfers the financial asset and substantially all the risks andrewards of ownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the aggregate of the consideration received and receivable and the cumulative gain orloss that had been recognized in other comprehensive income is recognized in profit or loss.

Equity instruments

Equity instruments issued by the Corporation are classified as equity in accordance with the substance of the contractual arrangements and the definition of an equity instrument.

Equity instruments issued by the Corporation are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method:

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liability iseither held for trading or it is designated as at fair value through profit or loss.

Financial liabilities held for trading are stated at fair value, with any gain or loss arising fromremeasurement recognized in profit or loss. The net gain or loss recognized in profit or lossincorporates any interest or dividend paid for the financial liability. Fair value is determined in themanner described in Note 30.

2) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.

Derivative financial instruments

The Corporation enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.

129


Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

l. Hedge accounting

The Corporation designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.

1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, orwhen it no longer meets the criteria for hedge accounting.

2) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gain or loss relating to theineffective portion is recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the same period when the hedgeditems affect profit or loss. If a hedge of a forecast transaction subsequently results in therecognition of a non-financial asset or a non-financial liability, the associated gains and losses thatwere recognized in other comprehensive income are removed from equity and are included in theinitial cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued prospectively when the Corporation revokes the designatedhedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, orwhen it no longer meets the criteria for hedge accounting. The cumulative gain or loss on thehedging instrument that has been previously recognized in other comprehensive income from theperiod when the hedge was effective remains separately in equity until the forecast transactionoccurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated inequity is recognized immediately in profit or loss.

130


m. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.

n. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Sales returns are recognized atthe time of sale according to the reliable estimate of future returns based on past experience and otherrelevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Corporation has transferred to the buyer the significant risks and rewards of ownership ofthe goods;

b) The Corporation retains neither continuing managerial involvement to the degree usuallyassociated with ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

d) It is probable that the economic benefits associated with the transaction will flow to theCorporation; and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Corporation does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive paymenthas been established, provided that it is probable that the economic benefits will flow to theCorporation and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Corporation and the amount of income can be measured reliably. Interest incomeis accrued on a time basis, by reference to the principal outstanding and at the effective interest rateapplicable.

o. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Corporation as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rents are recognized as income in the period in which they are incurred.

131


2) The Corporation as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.Contingent rents are recognized as an expense in the period in which they are incurred.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the definedbenefit retirement benefit plans are determined using the projected unit credit method. Servicecost (including current service cost) and net interest on the net defined benefit liability arerecognized as employee benefits expense in the period they occur. Remeasurement, comprisingactuarial gains and losses and the return on plan assets (excluding net interest), is recognized inother comprehensive income in the period in which they occur. Remeasurement recognized inother comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.

Net defined benefit liability represents the actual deficit in the Corporation’s defined benefit plan.

3) Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Corporation can nolonger withdraw the offer of the termination benefit and when the Corporation recognizes anyrelated restructuring costs.

q. Share-based payment arrangements

Employee stock options granted to employee

The fair value at the grant date of the employee share options is expensed on a straight-line basis overthe vesting period, based on the Corporation’s best estimates of the number of shares or options that areexpected to ultimately vest, with a corresponding increase in capital surplus - employee stock options.It is recognized as an expense in full at the grate date if vesting immediately.

At the end of each reporting period, the Corporation revises its estimate of number of employee shareoptions expected to vest.

r. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve the retention of the earnings.

132


Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences. Deferred tax assets aregenerally recognized for all deductible temporary differences, unused loss carry forward or unusedtax credits for research and development expenditures and personnel training expenditures to theextent that it is probable that taxable profits will be available against which those deductibletemporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, except where the Corporation is able to control the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in theforeseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that therewill be sufficient taxable profits against which to utilize the benefits of the temporary differencesand they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreviewed at the end of each reporting period and recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in theperiod in which the liability is settled or the asset is realized, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Corporation expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred tax are also recognized in other comprehensive income or directly in equity respectively.

s. Treasury stocks

Repurchase of the Corporation’s own equity instruments (treasury stocks) is recognized and deducteddirectly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue orcancellation of the Corporation’s own equity instruments.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

In the application of the Corporation’s accounting policies, management is required to make judgments,estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparentfrom other sources. The estimates and associated assumptions are based on historical experience andother factors that are considered relevant. Actual results may differ from these estimates.

133


The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a. Revenue recognition

The Corporation recognizes revenue when the conditions described in Note 4 (n) are satisfied. TheCorporation also records a provision for estimated future returns and other allowances in the sameperiod the related revenue is recorded. Provision for estimated sales returns and other allowances isgenerally made and adjusted at a specific percentage based on historical experience and any knownfactors that would significantly affect the allowance, and our management periodically reviews theadequacy of the percentage used.

As of December 31, 2015 and 2014, the Corporation recognized provisions for estimated sales returnsand other allowances of $136,576 thousand and $110,906 thousand, respectively.

b. Held-to-maturity financial assets

Management has reviewed the Corporation’s held-to-maturity financial assets in light of its capitalmaintenance and liquidity requirements and has confirmed the Corporation’s positive intention andability to hold those assets to maturity.

c. Estimated impairment of accounts receivables

When there is objective evidence of impairment loss, the Corporation takes into consideration theestimation of future cash flows. The amount of the impairment loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the financial asset’s original effectiveinterest rate. Where the actual future cash flows are less than expected, a material impairment lossmay arise.

d. Write-down of inventory

Net realizable value of inventory is the estimated selling price in the ordinary course of business less theestimated costs of completion and the estimated costs necessary to make the sale. The estimation ofnet realizable value was based on current market conditions and the historical experience of sellingproducts of a similar nature. Changes in market conditions may have a material impact on theestimation of net realizable value.

e. Recognition and measurement of defined benefit plans

Net defined benefit liabilities and the resulting defined benefit costs under defined benefit pension plansare calculated using the projected unit credit method. Actuarial assumptions comprise the discountrate, rate of employee turnover, and future salary increase, etc. Changes in economic circumstancesand market conditions will affect these assumptions and may have a material impact on the amount ofthe expense and the liability.

134


6. CASH AND CASH EQUIVALENTS

December 31 2015 2014

Deposits in bank $ 16,511,530 $ 16,873,272Cash equivalents

Bonds acquired under resale agreements 1,186,645 40,000

$ 17,698,175 $ 16,913,272

The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:

December 31 2015 2014

Bank deposits 0%-4.00% 0%-3.30% Bonds acquired under resale agreements 0.35%-5.10% 0.60%-0.62%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2015 2014

Financial assets designated as at FVTPL

Interest rate linked structured dollar investment notes (a) $ - $ 158,007 Credit linked notes (a) 1,094,381 27,842 Convertible bonds - 111,369

1,094,381 297,218

Financial assets held for trading

Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) 3,514 318 Currency-swap contracts (c) - 1,288

Non-derivative financial assets Mutual funds - 512,097

3,514 513,703

Financial assets at FVTPL - current $ 1,097,895 $ 810,921

Financial liabilities held for trading

Derivative financial liabilities (not designated as hedging instruments) Forward exchange contracts (b) $ 15,720 $ 3,731 Currency-swap contracts (c) 12,754 86,853

Financial liabilities at FVTPL - current $ 28,474 $ 90,584

a. The Corporation entered into structured investment contracts with a bank in 2015 and 2014. Thestructured investment contracts include an embedded derivative instrument which is not closely relatedto the host contracts. The Corporation designated the entire contract as financial asset at FVTPL oninitial recognition.

135


b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:

Currency Maturity Date

Contract Amount

(In Thousands)

December 31, 2015

Sell forward exchange contracts US$ to NT$ 2016.01.04-2016.05.06 US$ 130,000

December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.06-2015.04.07 US$ 5,000 Sell forward exchange contracts US$ to JPY 2015.01.22 US$ 3,000

c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2015


December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.08-2015.03.24 US$ 149,000 Buy forward exchange contracts JPY to US$ 2015.01.22 US$ 500

The Corporation entered into foreign exchange forward contracts during the years ended December 31, 2015 and 2014 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS – CURRENT

December 31 2015 2014

Listed stocks $ 88,731 $ 143,038

9. HELD-TO-MATURITY FINANCIAL ASSETS - CURRENT

December 31 2015 2014

Foreign investments Volkswagen Int’l Finance N.V. bonds (a) $ 49,655 $ - China Construction Bank Asia Co bonds (b) 44,928 - China Minmetals Corp bonds (c) 44,919 -

$ 139,502 $ -

136


a. In August 2015, the Corporation bought 5-year corporate bonds issued by Volkswagen Int’l FinanceN.V. with a coupon rate of 2.15% and an effective interest rate of 3.51%-3.81%, at par value ofRMB$10,000 thousand.

b. In August 2015, the Corporation bought 2-year corporate bonds issued by China Construction BankAsia Co with a coupon rate of 3.25% and an effective interest rate of 3.42%-3.70%, at par value ofRMB$9,000 thousand.

c. In August 2015, the Corporation bought 3-year corporate bonds issued by China Minmetals Corp with acoupon rate of 3.65% and an effective interest rate of 3.76%-4.25%, at par value of RMB$9,000thousand.

10. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

December 31 2015 2014

Fair Value Hedge

Cash Flow Hedge

Fair Value Hedge

Cash Flow Hedge

Derivative financial assets for hedging - current

Currency-swap contracts $ - $ - $ - $ 70

Derivative financial liabilities for hedging - current

Currency-swap contracts $ 7,020 $ - $ 15,206 $ -

a. Fair value hedge

The Corporation used forward exchange contracts and currency-swap contracts to hedge risks onexchange rate fluctuations of foreign-currency denominated accounts receivable. The forwardexchange contracts and currency-swap contracts had the same term as the respective financial assets;the management believed the forward exchange contracts and currency-swap contracts were highlyeffective hedge instruments.

The outstanding currency-swap contracts at the end of the reporting period were as follows:


Contract Amount

(In Thousands)

December 31, 2015


December 31, 2014


137


b. Cash flow hedge

The Corporation used cash flow hedge to manage risks on exchange rate fluctuation and changes in timevalue of money for those expected sales transactions.

The terms of the currency-swap contracts had been negotiated to match the terms of the respectivedesignated hedged items.



Contract Amount

(In Thousands)

December 31, 2014


11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT

December 31 2015 2014

Unlisted stocks $ 62,716 $ 62,716

The classification of financial assets Available-for-sale financial assets $ 62,716 $ 62,716

The management believed that the fair value of the aforementioned unlisted equity investments held by the Corporation cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of reporting period.

12. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31 2015 2014

Notes and accounts receivable $ 2,521,500 $ 3,263,431 Allowance for doubtful accounts (1,987) (1,987)

Notes and accounts receivable, net $ 2,519,513 $ 3,261,444

The average credit period on sales of goods is 30 to 45 days after the end of the month. No interest is charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Corporation considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts is based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Corporation had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.

138


The aging analyses of notes and accounts receivable were as follows:

December 31 Past Due Days 2015 2014

Not past due and not impaired 0 days $ 2,470,291 $ 3,243,422 Past due but not impaired Less than 60 days 44,432 3,087

61-90 days 6,162 2,423More than 90 days 615 14,499

51,209 20,009 $ 2,521,500 $ 3,263,431

Movements of the allowance for doubtful accounts were as follows:

Years Ended December 312015 2014

Balance, beginning of year $ 1,987 $ 2,399 Less: Amounts written off as uncollectible - (412)

Balance, end of year $ 1,987 $ 1,987

The Corporation had no impairment loss recognized on the accounts receivable during the years ended December 31, 2015 and 2014.

13. INVENTORIES

December 31 2015 2014

Finished goods $ 314,299 $ 418,565 Work in process 1,181,419 1,397,276 Raw materials 377,668 281,253 Supplies and spare parts 377,225 401,306

$ 2,250,611 $ 2,498,400

The write-down of inventories included in the cost of revenue was as below:


Provision of inventory valuation and obsolescence losses $ 69,547 $ 124,536

For the years ended December 31, 2015 and 2014, cost of revenue included unallocated manufacturing overheads amount of $703,284 thousand and $153,662 thousand, respectively.

139


14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

December 31 2015 2014

Investments in subsidiaries $ 301,019 $ 291,875 Investments in associates 51,439 50,447

$ 352,458 $ 342,322

a. Investments in subsidiaries

December 31 2015 2014

Unlisted stocks VIS Associates Inc. $ 301,019 $ 291,875

Proportion of Ownership and Voting Rights December 31

2015 2014

VIS Associates Inc. 100% 100%

The investment in subsidiary accounted for using equity method, the share of profit or loss and the share of other comprehensive income of subsidiary for the years ended December 31, 2015 and 2014 were based on the subsidiaries’ financial statements audited by the auditors for the same years.

b. Investments in associates

December 31 2015 2014

Associates that are not individually material

CMSC, Inc. $ 51,439 $ 50,447

Refer to Table 5 “Information on Investees” for the nature of activities, principal place of business and country of incorporation of the associates.

Aggregate information of associates that are not individually material

Years Ended December 31 2015 2014

The Corporation’s share of Profit (loss) from continuing operations $ 949 $ (5,176)Other comprehensive income (loss) 3 (8)

Total comprehensive income (loss) for the year $ 952 $ (5,184)

The investment accounted for using equity method, the share of net profit or loss and the share of other comprehensive income (loss) from investment were accounted based on the unaudited financial statements. Management believes there is no material impact on its parent company only financial statements.

140


15. PROPERTY, PLANT AND EQUIPMENT

Advance Payments and

Machinery and Other Construction Buildings Equipment Equipment in Progress Total

Cost

Balance, January 1, 2014 $ 13,979,826 $ 52,815,803 $ 370,292 $ 115,274 $ 67,281,195 Additions 628,747 1,803,091 18,597 969,134 3,419,569Disposal - (7,592 ) (2,742 ) - (10,334 )

Balance, December 31, 2014 $ 14,608,573 $ 54,611,302 $ 386,147 $ 1,084,408 $ 70,690,430

Accumulated depreciation

Balance, January 1, 2014 $ 10,856,026 $ 49,261,418 $ 341,060 $ - $ 60,458,504 Depreciation 621,867 1,439,893 10,722 - 2,072,482 Disposal - (4,835 ) (2,742 ) - (7,577 )

Balance, December 31, 2014 $ 11,477,893 $ 50,696,476 $ 349,040 $ - $ 62,523,409

Accumulated impairment

Balance, January 1, 2014 and December 31, 2014 $ - $ 183,521 $ - $ - $ 183,521

Carrying amounts, December 31, 2014 $ 3,130,680 $ 3,731,305 $ 37,107 $ 1,084,408 $ 7,983,500

Cost

Balance, January 1, 2015 $ 14,608,573 $ 54,611,302 $ 386,147 $ 1,084,408 $ 70,690,430 Additions 397,617 1,761,332 8,295 (874,691 ) 1,292,553Disposal - (42,993 ) (3,060 ) - (46,053 ) Reclassified - 6,302 660 - 6,962

Balance, December 31, 2015 $ 15,006,190 $ 56,335,943 $ 392,042 $ 209,717 $ 71,943,892


Balance, January 1, 2015 $ 11,477,893 $ 50,696,476 $ 349,040 $ - $ 62,523,409 Depreciation 621,831 1,669,656 12,380 - 2,303,867 Disposal - (42,993 ) (3,060 ) - (46,053 )




Carrying amounts, December 31, 2015 $ 2,906,466 $ 3,829,283 $ 33,682 $ 209,717 $ 6,979,148

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings Main plants 20 years Mechanical and electrical power equipment 5 to 10 years Clean rooms 10 years

Machinery and equipment 3 to 5 years Other equipment 3 to 5 years

141


16. INTANGIBLE ASSETS


Computer software

Cost Balance, January 1 $ 760,644 $ 731,644 Additions 26,731 29,000 Disposal (977) - Reclassified to property, plant and equipment (6,962) - Balance, December 31 779,436 760,644

Accumulated amortization Balance, January 1 723,470 714,633 Amortization 15,347 8,837 Disposal (977) - Balance, December 31 737,840 723,470

Carrying amount, end of year $ 41,596 $ 37,174

Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:

Computer software 3 to 5 years

17. OTHER ASSETS

December 31 2015 2014

Pledged time deposit $ 303,552 $ 303,384 Other financial assets - 387,392 Others 2,597 2,795

$ 306,149 $ 693,571

Current $ 2,597 $ 390,187 Non-current 303,552 303,384

$ 306,149 $ 693,571

18. OTHER PAYABLES

December 31 2015 2014

Bonus $ 497,608 $ 644,281 Maintenance 381,115 343,613 Utilities 145,776 148,855 Royalties 21,547 18,855 Others 672,011 556,573

$ 1,718,057 $ 1,712,177

142


19. OTHER CURRENT LIABILITIES

December 31 2015 2014

Advance receipts $ 81,073 $ 87,491 Others 372 229

$ 81,445 $ 87,720

20. PROVISIONS - CURRENT

December 31 2015 2014

Sales returns and allowances $ 136,576 $ 110,906

The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Under the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans

The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the six months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required tofund the difference in one appropriation that should be made before the end of March of the next year.The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); theCorporation has no right to influence the investment policy and strategy.

The amounts included in the parent company only balance sheets in respect of the Corporation’sdefined benefit plans were as follows:

December 31 2015 2014

Present value of defined benefit obligation $ 970,547 $ 953,437 Fair value of plan assets (339,555) (340,331)

Net defined benefit liability $ 630,992 $ 613,106

143


Movements in net defined benefit liability were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of Plan Assets

Net Defined Benefit

Liability

Balance at January 1, 2014 $ 876,984 $ (319,817) $ 557,167 Service cost

Current service cost 7,076 - 7,076 Interest expense (income) 18,815 (6,999) 11,816

Recognized in profit or loss 25,891 (6,999) 18,892 Remeasurement

Return on plan assets (excluding amounts included in net interest) - (708) (708)

Actuarial gain - changes in financial assumptions (13,992) - (13,992)

Actuarial loss - experience adjustments 66,446 - 66,446 Recognized in other comprehensive income 52,454 (708) 51,746 Contributions from the employer - (14,699) (14,699) Benefits paid (1,892) 1,892 - Balance at December 31, 2014 953,437 (340,331) 613,106 Service cost



Return on plan assets (excluding amounts included in net interest) - (1,272) (1,272)

Actuarial loss - changes in financial assumptions 46,228 - 46,228

Actuarial gain - experience adjustments (28,375) - (28,375) Recognized in other comprehensive income 17,853 (1,272) 16,581 Contributions from the employer - (14,485) (14,485) Benefits paid (46,296) 24,216 (22,080)

Balance at December 31, 2015 $ 970,547 $ (339,555) $ 630,992

Through the defined benefit plans under the Labor Standards Law, the Corporation is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/ foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease the present value of the defined benefit obligation.

144


The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

December 31 2015 2014

Discount rates 1.90% 2.25% Expected rates of salary increase 3.50% 3.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

December 31, 2015

Discount rates 0.50% increase $ (68,251) 0.50% decrease $ 67,741

Expected rates of salary increase 0.50% increase $ 66,260 0.50% decrease $ (67,605)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

December 31 2015 2014

The expected contributions to the plan for the next year $ 14,992 $ 15,213

The average duration of the defined benefit obligation 14.9 years 14.7 years

Maturity analyses of pension benefit were as follows:

December 31 2015 2014

Maturity analysis of undiscounted pension benefit No later than 1 year $ 8,044 $ 12,980 Later than 1 year and not later than 5 years 123,406 98,165 Later than 5 years 1,189,049 1,278,838

$ 1,320,499 $ 1,389,983

145


22. EQUITY

a. Capital stock

Common stock

December 31 2015 2014

Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982Issued capital $ 16,389,823 $ 16,389,823

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus

December 31 2015 2014

May be used to offset a deficit, distributed by cash, or transferred to capital

Arising from issuance of common stock $ 544,884 $ 544,884

May be used to offset a deficit only

Arising from employee stock options (transferred and inactive) 285,845 259,570 Arising from share of changes in equities of subsidiaries,

associates and joint ventures 24,394 33,575

$ 855,123 $ 838,029

The capital surplus from stocks issued in excess of par may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed in cash or transferred to capital, which are limited to a certain percentage of the Corporation’s paid-in capital.

c. Retained earnings and dividend policy

The Corporation’s Articles of Incorporation provide that the following should be appropriated from theannual net income after deducting the applicable income taxes, any deficit and 10% legal reserve:

1) Special reserve;

2) Not more than 1% as remuneration to directors;

3) At least 1% as bonus to employees; and

4) Final balance, appropriation in accordance with the resolutions of shareholders’ meeting.

146


All profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 10% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be transferred to capital for distribution in accordance with relevant laws or regulations of the authorities in charge.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The consequential amendments to the Corporation’s Articles of Incorporation had been proposed by the Corporation’s board of directors on January 27, 2016 and are subject to the resolution of the shareholders in their meeting to be held on June 7, 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and the actual appropriations, please refer to b. Employee benefits expense in Note 24.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation.

The appropriations of earnings for 2014 and 2013 which have been approved in the shareholders’ meetings on June 8, 2015 and June 12, 2014, respectively, were as follows:

Appropriations of Earnings Dividends Per Share (NT$) 2014 2013 2014 2013

Legal reserve $ 543,789 $ 437,099 $ - $ -Provision (reversal) of special

reserve 16,806 (15,248) - - Cash dividends 4,259,353 2,873,325 2.60 1.80

$ 4,819,948 $ 3,295,176

The appropriation of earnings for 2015 had been proposed by the Corporation’s board of directors on January 27, 2016. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividends Per Share (NT$)

Legal reserve $ 415,758 $ - Special reserve 45,305 - Cash dividends 4,261,354 2.6

The appropriation of earnings for 2015 is subject to the resolution of the shareholders’ meeting to be held on June 7, 2016.

147


d. Other equity

1) Exchange differences on translation of foreign operations


Balance, beginning of year $ (50,082) $ (65,081) Exchange differences arising from translation of foreign

operations 10,992 16,387 Share of exchange differences of subsidiaries and associates

accounted for using equity method (1,920) (1,388)

Balance, end of year $ (41,010) $ (50,082)

2) Unrealized gain (loss) on available-for-sale financial assets


Balance, beginning of year $ (20,494) $ 11,381 Unrealized loss arising from available-for-sale financial

assets (54,307) (31,875)


Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

3) Cash flow hedges


Balance, beginning of year $ 70 $ - (Loss) gain arising from changes in fair value of hedging

instruments Currency-swap contracts (70) 70

Balance, end of year $ - $ 70

The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.

148


e. Treasury stock

(Shares in Thousands)

Purpose of Treasury Stock

Number of Shares,

Beginning of Year

Addition During the

Year

Reduction During the

Year

Number of Shares, End of

Year

Year ended December 31, 2014

Transfer to employees 40,294 - (39,524) 770


Transfer to employees 770 - (770) -

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares.

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares.

Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge treasury stocks nor exercise stockholders’ rights on these shares, such as rights to dividends and to vote.

Treasury stocks were granted on March 1, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $12.70 Exercise price (NT$) 11.49 Expected volatility 30.12%-31.53% Expected life 2 years Risk-free interest rate 0.8012%

Treasury stocks were granted on April 25, 2012, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $13.35 Exercise price (NT$) 12.83 Expected volatility 29.46%-29.72% Expected life 2 years Risk-free interest rate 0.8442%

149


Treasury stocks were granted on August 2, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $31 Exercise price (NT$) 12.83 Expected volatility 42.85% Expected life 1 year Risk-free interest rate 0.6952%

Treasury stocks were granted on November 1, 2013, and determined the fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $32.35 Exercise price (NT$) 12.83 Expected volatility 43.26% Expected life 0.4822 year Risk-free interest rate 0.641%

Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $46.50 Exercise price (NT$) 11.49-12.83 Expected volatility 45.90% Expected life 0.2027 year Risk-free interest rate 0.5329%

Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:


Treasury stocks were granted on March 9, 2015 and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:


Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of 2-year government bond was used as the risk-free interest rate.

Compensation costs recognized were $26,278 thousand and $75,582 thousand for the years ended December 31, 2015 and 2014, respectively.

150


23. REVENUE

Revenue of the Corporation for the years ended December 31, 2015 and 2014 were analyzed as follows:


Wafer foundry $ 23,010,405 $ 23,674,857Other 309,316 256,622

$ 23,319,721 $ 23,931,479

The Corporation designated certain foreign sales as hedged items to hedge the risk of cash flow. Loss on the hedging instrument amounting to $8,596 thousand and $14,230 thousand that were determined to be an effective hedge were recognized as decrease of revenue for the years ended December 31, 2015 and 2014, respectively.

24. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME

a. Depreciation and amortization


Property, plant and equipment $ 2,303,867 $ 2,072,482 Intangible assets 15,347 8,837

$ 2,319,214 $ 2,081,319

Classification of deprecation - by function Cost of revenue $ 2,254,409 $ 2,012,533 Operating expenses 49,458 59,949

$ 2,303,867 $ 2,072,482

Classification of amortization - by function Cost of revenue $ 7,470 $ 3,836 Operating expenses 7,877 5,001

$ 15,347 $ 8,837

151


b. Employee benefits expense


Post-employment benefits (see Note 21) Defined contribution plans $ 190,102 $ 171,341 Defined benefit plans 37,870 18,892

227,972 190,233Share-based payments (see Note 22)

Equity-settled 26,278 75,582Other employee benefits 5,589,510 5,486,229

Total employee benefits expense $ 5,843,760 $ 5,752,044

Employee benefits expense summarized by function Cost of revenue $ 4,762,693 $ 4,494,225 Operating expenses 1,081,067 1,257,819

$ 5,843,760 $ 5,752,044

For the year ended December 31, 2014, according to the existing Articles of Incorporation and based on past experiences, the Corporation stipulated to distribute $815,683 thousand of bonus to employees and $34,800 thousand of remuneration to directors at the rates of 15% of net income (net of the bonus and remuneration) and no higher than 1% of net income (net of the bonus and remuneration, legal reserve and special reserve), respectively.

To be in compliance with the Company Act amended in May 2015, the proposed amended Articles of Incorporation of the Corporation stipulate to distribute employees’ compensation and remuneration to directors at the rates of no less than 10% and no higher than 1%, respectively, of net profit before income tax, employees’ compensation and remuneration to directors. For the year ended December 31, 2015, the employees’ compensation and the remuneration to directors were $623,638 thousand and $13,588 thousand, respectively, representing 11% and 0.2%, respectively, of the base net profit. The amounts of employees’ compensation and remuneration to directors resolved by the board of directors on January 27, 2016 and the amounts recognized in the parent company only financial statements were as follows:

Year Ended December 31, 2015Employees’

Compensation Remuneration

to Directors

Amounts resolved in board meeting $ 623,638 $ 13,384 Amounts recognized in the parent company only financial

statements $ 623,638 $ 13,588

Above employees’ compensation and remuneration to directors resolved by the board of directors shall be reported in the shareholders’ meeting to be held on June 7, 2016 after the shareholders’ meeting resolves the amendment of Articles of Incorporation. Since the difference between the amounts resolved by the board of directors and the amounts recognized in the parent company only financial statements is insignificant, it will be recorded as a change in accounting estimate.

152


The appropriations of bonus to employees and remuneration to directors for 2014 and 2013 approved in the shareholders’ meetings on June 8, 2015 and June 12, 2014, respectively, were as follows:


Cash Bonus Stock Bonus Cash Bonus Stock Bonus

Bonus to employees $ 815,683 $ - $ 655,648 $ - Remuneration to directors 34,800 - 9,600 -

There was no difference between the amounts of the bonus to employees and the remuneration to directors approved in the shareholders’ meetings on June 8, 2015 and June 12, 2014 and the amounts recognized in the parent company only financial statements for the years ended December 31, 2014 and 2013, respectively.

Information on the bonus to employees and the remuneration to directors approved by the Corporation’s shareholders’ meeting is available on the Market Observation Post System website of the Taiwan Stock Exchange.

25. INCOME TAXES

a. Major components of tax expenses recognized in profit or loss:


Current tax In respect of the current year $ 820,624 $ 1,044,988 Adjustments tax for prior years (1,914) 7,278

818,710 1,052,266Deferred income tax

In respect of the current year (38,233) 1,622

Income tax expenses recognized in profit or loss $ 780,477 $ 1,053,888

A reconciliation of accounting profit and income tax expense is as follow:


Income before income tax $ 4,938,060 $ 6,493,969

Income tax expense calculated at the statutory rate (17%) $ 839,470 $ 1,103,975 Additional items in determining taxable income 2,037 8,604 Tax-exempt income (130,535) (168,345)Income tax on unappropriated earnings 56,913 107,581 The origination and reversal of temporary differences 14,506 3,129 Effect of tax on investment credits - (8,334)Adjustments tax for prior years (1,914) 7,278

Income tax expense recognized in profit or loss $ 780,477 $ 1,053,888

The Corporation applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China.

153


As the status of 2016 appropriations of 2015 earnings is uncertain, the potential income tax consequences of 2015 unappropriated earnings cannot be reliably determined.

b. Current tax liabilities

December 31 2015 2014

Current tax liabilities Income tax payable $ 497,129 $ 840,431

c. Deferred income tax assets and liabilities

The movements of deferred income tax assets and liabilities were as follows:

For the year ended December 31, 2015

Deferred Income Tax Assets

Balance, Beginning of

the Year Movements Balance, End of

the Year

Temporary differences $ 154 $ 1,536 $ 1,690

Deferred Income Tax Liabilities



the Year

Temporary differences $ 104,192 $ (36,698) $ 67,494





the Year

Temporary differences $ 859 $ (705) $ 154




the Year

Temporary differences $ 103,275 $ 917 $ 104,192

d. Items for which no deferred income tax assets have been recognized

December 31 2015 2014

Deductible temporary differences $ 205,460 $ 189,062

e. Unrecognized deferred income tax liabilities associated with investments

As of December 31, 2015 and 2014, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.

154


f. Integrated income tax

December 31 2015 2014

Balance of the Imputation Credit Account- the Corporation $ 930,217 $ 472,583

The expected and actual creditable ratios for distributing the earnings of 2015 and 2014 were 16.42% and 14.70%, respectively.

Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credit allocated to ROC resident shareholders of the Corporation is calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the Corporation is based on the balance of the Imputation Credit Account as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2015 earnings may differ from the actual creditable ratio to be used in allocating imputation credit to the shareholders.

The unappropriated retained earnings as of December 31, 2015 and 2014 did not contain the unappropriated earnings generated before January 1, 1998.

g. Income tax exemption with respect to the issuance of shares

The Corporation was granted a five-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2005. The income tax exemption period is from January 1,2012 to December 31, 2016.

h. Income tax assessments

Income tax returns through 2013 had been examined and cleared by the tax authorities.

26. EARNINGS PER SHARE

Unit: NT$ Per Share


Basic earnings per share $ 2.54 $ 3.35 Diluted earnings per share $ 2.50 $ 3.30

The earnings and weighted average number of common stocks used in the computation of earnings per share were as follows:

Earnings


Earnings used in the computation of basic earnings per share $ 4,157,583 $ 5,440,081 Effect of dilutive potential common stocks:

Bonus to employees - - Employee stock options - -

Earnings used in the computation of diluted earnings per share $ 4,157,583 $ 5,440,081

155


Shares


Weighted average number of common stocks used in the computation of basic earnings per share 1,638,792 1,625,505

Effect of dilutive potential common stocks: Bonus to employees 23,466 22,815 Employee stock options - 194

Weighted average number of common stocks used in the computation of diluted earnings per share 1,662,258 1,648,514

If the Corporation may settle the bonuses or compensation paid to employees by cash or shares, the Corporation presumes that the entire amount of the bonus or compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share when the shares had a dilutive effect. Such dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees in the following year.

27. SHARE-BASED PAYMENT

On September 18, 2003, the Securities and Futures Bureau approved the Corporation’s Employee StockOption Plan (hereinafter referred to as the 2003 Plan). The 2003 Plan consisted of 70,000 thousand units.These options generally vest at a certain percentage from two years after the date of grant and the optionsgranted are valid for 10 years.

Information about stock options was as follow:

Year Ended December 31, 2014Number of Weighted-

Outstanding average Stock Option Exercise

Rights Price(In Thousands) (NT$)

Balance at January 1 4,062 $ 14.50 Options exercised (4,062) 14.50

Balance at December 31 - -

28. OPERATING LEASE ARRANGEMENTS

The Corporation as lessee

The Corporation leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on various dates from March 2016, December 2027, December 2029 and December 2034. Therental pay to Hsinchu Science-Based Industrial Park Administration can be adjusted according to the leasecontract, and the lease is renewable upon expiration.

156


The future minimum lease payments of non-cancellable operating leases are as follows:

December 31 2015 2014

Not later than 1 year $ 77,091 $ 70,123 Later than 1 year and not later than 5 years 306,685 249,806 Later than 5 years 658,714 520,516

$ 1,042,490 $ 840,445

The lease payments recognized as expenses were as follows:


Minimum lease payment $ 76,725 $ 79,373

29. CAPITAL MANAGEMENT

The Corporation manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Corporation’s overall strategy has no significant variations.

The capital structure of the Corporation consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital surplus, retained earnings and other equity).

The Corporation is not subject to any externally imposed capital requirements.

30. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments that are not measured at fair value

1) Financial assets and liabilities with material difference between carrying value and fair value

Except as detailed in the following table, the management considers that the carrying amounts offinancial assets and financial liabilities recognized in the parent company only financial statementsapproximate their fair values or their fair values cannot be reliably measured.

December 31 2015 2014

Carrying Amount Fair Value


Financial assets

Held-to-maturity financial assets $ 139,502 $ 138,834 $ - $ -

Other current assets Structured time deposit - - 387,392 389,013

157


2) Fair value hierarchy as at December 31, 2015

Level 1 Level 2 Level 3 Total

Financial assets

Held-to-maturity financial assets $ 138,834 $ - $ - $ 138,834

b. Fair value of financial instruments that are measured at fair value on a recurring basis

1) Fair value hierarchy

The fair value hierarchies of financial assets and financial liabilities the Corporation measured atfair value on a recurring basic were as follows:

December 31, 2015


Financial assets at FVTPL Derivative financial

instruments $ - $ 1,097,895 $ - $ 1,097,895

Available-for-sale financial assets Domestic listed stocks -

equity investment $ 16,731 $ 72,000 $ - $ 88,731

Financial liabilities at FVTPL Derivative financial

instruments $ - $ 35,494 $ - $ 35,494

December 31, 2014



instruments $ 111,369 $ 187,525 $ - $ 298,894 Mutual funds 512,097 - - 512,097

$ 623,466 $ 187,525 $ - $ 810,991




instruments $ - $ 105,790 $ - $ 105,790

158


There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2015 and 2014, respectively.

There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2015 and 2014, respectively.

2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy

The fair values of financial assets and financial liabilities are determined as follows:

a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.

Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.

b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.

The Corporation used “Black-Scholes model” to determine the fair value.

c. Categories of financial instruments

December 31 2015 2014

Financial assets

Fair value through profit or loss (FVTPL) Held for trading $ 3,514 $ 513,703Designated as at FVTPL 1,094,381 297,218

Derivative instruments in designated hedge accounting - 70Held-to-maturity financial assets 139,502 -Loans and receivables (Note 1) 21,196,211 21,753,075Available-for-sale financial assets (Note 2) 151,447 205,754


Fair value through profit or loss (FVTPL) Held for trading 28,474 90,584

Derivative instruments in designated hedge accounting 7,020 15,206Measured at amortized cost (Note 3) 3,507,203 4,245,070

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, other financial assets, notes and accounts receivable, and other receivables.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payable and other payables.

159


d. Objectives and policies of financial risk management

The Corporation’s major financial instruments include equity and bond investments, accountsreceivable, and accounts payable. The Corporation’s Corporate Finance function provides services tothe business, coordinates access to domestic and international financial markets, monitors and managesthe financial risks relating to the operations of the Corporation through internal risk reports whichanalyze exposures by degree and magnitude of risks. These risks include market risk (includingforeign currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Corporation seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Corporation’s policiesapproved by the board of directors, which provided written principles on foreign exchange risk, interestrate risk, credit risk, the use of derivative and non-derivative financial instruments, and the investmentof excess liquidity. The compliance with policies and the control of exposure limits are continuouslyreviewed by the internal auditors on a continuous basis. The Corporation does not enter into or tradefinancial instruments, including derivative financial instruments, for speculative purposes.

The Corporate Finance function reports quarterly to the Corporation’s Board of Directors and AuditCommittee for their independent monitorship to risks and policy implementation.

1) Market risk

The Corporation’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Corporation enters into a variety of derivative financial instruments includingforward exchange and currency-swap contracts to manage its exposure to foreign currency risk.

There has been no change to the Corporation’s exposure to market risks or the manner in whichthese risks are managed and measured.

a) Foreign currency risk

The Corporation’s operating activities are partially denominated in foreign currencies and applythe natural hedge. The purpose of the Corporation’s management of the foreign currency riskis to hedge the risk instead of making a profit.

The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Corporation selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheCorporation currently utilizes derivative financial instruments, primarily buy/sell forwardexchange contracts, to hedge its currency exposure.

The Corporation uses forward exchange contracts to eliminate currency exposure. It is theCorporation’s policy to negotiate the terms of the hedge derivatives to match the terms of thehedged item for maximizing the hedge effectiveness.

Investing in foreign operations is for strategic purposes; it is not hedged by the Corporation.

Sensitivity analysis

The Corporation is mainly exposed to the exchange rate fluctuation of USD and RMB.

160


The following table details the Corporation’s sensitivity to a 5% increase and decrease in the New Taiwan dollars (the functional currency) against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items (including cash and cash equivalents, financial assets, accounts receivables, other receivables, accounts payables, and other payables) and the hedge contracts, for which their translation at period end is adjusted for a 5% change in foreign currency rates. The following table indicates the influences which the New Taiwan dollars strengthen 5% against USD dollars and RMB.

Impact on USD Items Years Ended December 31

2015 2014

Gains $ 32,480 $ 36,268

Impact on RMB Items Years Ended December 31

2015 2014

Losses $ (20,857) $ (46,057)

b) Interest rate risk

The Corporation’s financial assets are exposed to interest rate risk both at fixed and floatinginterest rates.

The carrying amounts of the Corporation’s financial assets with exposure to interest rates at theend of the reporting period were as follows:

December 31 2015 2014

Fair value interest rate risk Financial assets $ 16,195,737 $ 15,670,797

Cash flow interest rate risk Financial assets 3,039,873 2,119,100


The sensitivity analyses below are determined based on the Corporation’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the outstanding asset at the end of the reporting period is outstanding for the whole year.

If the market interest rate increases/decreases by 0.1% and all other variables are constant, the pre-tax profit of the Corporation for the years ended on December 31, 2015 and 2014 will increases/decreases $3,040 thousand and $2,119 thousand, respectively, resulting from the exposure of the net assets with floating rate.

c) Other price risk

The Corporation is exposed to equity price risk arising from its investments in listed equitysecurities. Equity investments are held for strategic rather than trading purposes. TheCorporation does not actively trade these investments. The Corporation’s equity price risk ismainly concentrated on equity instruments operating in electronic industry quoted in the TaiwanStock Exchange and GreTai Securities Market.

161



The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 5% higher/lower, the other comprehensive income for the years ended December 31, 2015 and 2014 would have increased/decreased by $4,437 thousand and $7,152 thousand, respectively, as a result of the changes in fair value of available-for-sale financial investments.

2) Credit risk

Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Corporation. As of the end of the reporting period, the Corporation may havea financial loss due to the default on obligation from counterparts, and the maximum exposure tocredit risk is the carrying amount of the respective recognized financial assets as stated in the parentcompany only balance sheets.

In order to mitigate credit risk, the Corporation has made the policy of credit management to ensurethat appropriate action is taken to recover overdue receivables. In addition, the Corporationreviews the recoverable amount of each receivable debt at the end of the reporting period to ensurethat adequate impairment losses are made for irrecoverable amounts. In this regard, theCorporation considers the credit risk is significantly reduced.

The credit risk on operating funds and derivatives is limited as the counterparts are creditworthybanks.

The Corporation’s accounts receivable outstanding arose from trading with its customers spreadingacross diverse industries and geographical areas. The balances are monitored on an ongoing basisby evaluating the customers’ financial conditions.

The Corporation’s credit concentration risk was related to the five largest customers. Besides thefive largest customers, credit concentration risks related to other customers do not exceed 10% oftotal gross accounts receivables at any time during the period. The five largest customers arecreditworthy counterparts, therefore, the Corporation believes the concentration of credit risk isinsignificant for the remaining accounts receivable.

3) Liquidity risk

The Corporation manages liquidity risk by monitoring and maintaining adequate reserves of cashand cash equivalents to fund the Corporation’s operations and mitigate the effects of fluctuations incash flows.

The following tables detail the Corporation’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Corporation canbe required to pay. The tables include both interest and principal cash flows.

December 31, 2015

Less Than 1 Year

More Than 1 Year

Non-derivative financial liabilities

Non-interest bearing $ 3,507,203 $ -

162


December 31, 2014

Less Than 1 Year

More Than 1 Year



The following tables detail the Corporation’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.

December 31, 2015 Less Than

1 Year More Than

1 Year Gross settled

Forward exchange contracts Inflows $ 6,481,230 $ - Outflows (6,513,210) -

$ (31,980) $ -

December 31, 2014 Less Than

1 Year More Than

1 Year Gross settled


$ (104,114) $ -

31. TRANSACTIONS WITH RELATED PARTIES

a. Operating transactions

Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Investors that have significant influence over the Corporation $ 7,100,082 $ 7,362,019 $ 259 $ -

Associates $ 19,847 $ 21,582 $ - $ -Key management personnel $ 43,155 $ 66,104 $ - $ -Substantial related parties $ 32,208 $ 38,036 $ - $ -

163


Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Investors that have significant influence over the Corporation $ 358,179 $ 471,272 $ 1,673 $ 1,298

Marketing Expenses Rental Revenue Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Subsidiaries $ 62,280 $ 58,116 $ - $ - Investors that have significant

influence over the Corporation 1,369 - 3,453 -

Substantial related parties - - - 22,371

$ 63,649 $ 58,116 $ 3,453 $ 22,371

Nonoperating Income and Gains Years Ended December 31

2015 2014

Investors that have significant influence over the Corporation $ 20,720 $ 22,895 Key management personnel 940 474

$ 21,660 $ 23,369

The following balances were outstanding at the end of the reporting period:

Receivables from Related Parties December 31

2015 2014

Investors that have significant influence over the Corporation $ 519,735 $ 693,310 Key management personnel 8,134 28,918 Associates 2,059 3,348Substantial related parties 4,007 3,595

$ 533,935 $ 729,171

Other Receivables from Related Parties

December 31 2015 2014

Investors that have significant influence over the Corporation $ 12,362 $ 15,096 Key management personnel 2,722 1,210 Substantial related parties - 2,209

$ 15,084 $ 18,515

164


Other Payables to Related PartiesDecember 31

2015 2014

Investors that have significant influence over the Corporation $ 67,754 $ 108,535 Subsidiaries 4,886 5,458

$ 72,640 $ 113,993

Guarantee Deposits (Other Non-current Liabilities)

December 31 2015 2014

Investors that have significant influence over the Corporation $ 1,362 $ -

The terms of sales and purchases transactions with related parties were not significantly different from those of sales and purchases to third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.

The Corporation leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly and in advance.

Guarantee deposits of related parties were for lease.

b. Compensation of key management personnel


Short-term employee benefits $ 119,539 $ 194,935 Share-based payments - 13,806 Post-employment benefits 18,276 2,086

$ 137,815 $ 210,827

The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

32. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:

December 31 2015 2014

Pledged time deposits (presented under other non-current assets) $ 303,552 $ 303,384

165


33. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The significant commitments of the Corporation as of December 31, 2015 were as follows:

The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” withTaiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according tothe net sales of certain products and reserve a portion of its production capacity.

34. SIGNIFICANT ASSETS AND LABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

December 31 2015 2014

Foreign Currencies Exchange Rate


Financial assets

Monetary items USD $ 197,748 32.895 $ 177,777 31.604 EUR 137 36.14 799 38.65JPY 108,309 0.2745 31,171 0.2665RMB 83,513 4.995 181,183 5.084

Non-monetary items USD 9,151 32.895 9,235 31.604


Monetary items USD 19,495 32.895 26,229 31.604EUR 852 36.14 672 38.65JPY 171,160 0.2745 239,662 0.2665

The significant unrealized foreign exchange gains (losses) were as follows:



Net Foreign Exchange Gain

(Loss) Exchange Rate


(Loss)

USD 31.675 (USD:NTD) $ (112,467) 30.216 (USD:NTD) $ 89,096 EUR 35.61 (EUR:NTD) 1,077 40.533 (EUR:NTD) 182 JPY 0.2648 (JPY:NTD) 551 0.290 (JPY:NTD) (781) RMB 5.043 (RMB:NTD) (15,233) 4.914 (RMB:NTD) 12,490

$ (126,072) $ 100,987

166


35. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees:

a. Loans provided to other parties: None.

b. Endorsement/guarantee provided: None.

c. Marketable securities held (excluding investment in subsidiaries, associates and jointly controlledentities): Table 1 (attached)

d. Purchases or sales of the same marketable securities amounting to at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)

e. Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital:None.

f. Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: None.

g. Purchase or sale with related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 3 (attached)

h. Receivable from related parties amounting to at least $100 million or 20% of the paid-in capital:Table 4 (attached)

i. Derivative transactions: Notes 7 and 10.

j. Information on investees: Table 5 (attached)

k. Information on investment in Mainland China: None.

167


TA

BL

E 1

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

MA

RK

ET

AB

LE

SE

CU

RIT

IES

HE

LD

D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Hol

ding

Com

pany

Nam

e M

arke

tabl

e Se

curi

ty T

ype

and

Nam

e (N

ote1

) R

elat

ions

hip

wit

h th

e Se

curi

ties

Iss

uer

Fin

anci

al S

tate

men

t A

ccou

nt

Dec

embe

r 31

, 201

5

Not

e Sh

ares

/Uni

ts

(Tho

usan

ds)

Car

ryin

g V

alue

(US$

in T

hous

ands

) %

of

Ow

ners

hip

Mar

ket

Val

ue o

r N

et A

sset

Val

ue

(US$

in T

hous

ands

)

Van

guar

d In

tern

atio

nal

Fi

nanc

ial i

nstr

umen

ts

Sem

icon

duct

or C

orpo

rati

on A

cer

cred

it li

nked

str

uctu

red

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

$

128,

308

- $

12

8,30

8 N

ote

4

Tun

g H

o S

teel

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

140,

253

-14

0,25

3 N

ote

4

Eve

rlig

ht c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-20

3,77

7-

203,

777

Not

e4

GF

RT

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

10,0

29-

10,0

29

Not

e4

SK

FH

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

240,

412

-24

0,41

2 N

ote

4

TX

C c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- Fi

nanc

ial a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

40,0

75-

40,0

75

Not

e4

Gig

asol

ar c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-10

,015

-10

,015

N

ote

4

Hon

Chu

an c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-5,

016

-5,

016

Not

e4

Zon

gtai

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

20,0

19-

20,0

19

Not

e4

U.S

. Tre

asur

y B

ond

equi

ty li

nked

str

uctu

red

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

296,

477

-29

6,47

7 N

ote

4

Vol

ksw

agen

Int

’l F

inan

ce N

.V. B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

100

49,6

55

- 49

,226

N

ote

2 C

hain

Con

stru

ctio

n B

ank

Asi

a C

o B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

90

44,9

28

- 44

,821

N

ote

2 C

hina

Min

met

als

Cor

p B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

90

44,9

19

- 44

,787

N

ote

2 S

tock

C

ham

pion

Mic

roel

ectr

onic

Cor

p.

Inve

stee

A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s –

non-

curr

ent

346

16,7

31

1 16

,731

N

ote

2 A

dvan

ced

Mic

roel

ectr

onic

Pro

duct

s In

c.

Inve

stee

A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s –

non-

curr

ent

30,0

00

72,0

00

16

72,0

00

Not

e 4

Uni

ted

Indu

stri

al G

ases

Co.

, Ltd

. In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

4,24

6 38

,716

2

38,7

16

Not

e 3

Imag

e M

atch

Des

ign

Inc.

In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

2,40

0 24

,000

10

24

,000

N

ote

3

Not

e 1:

M

arke

tabl

e se

curi

ties

men

tion

ed in

the

tabl

e in

clud

e st

ocks

, bon

ds, b

enef

icia

ry c

erti

fica

te a

nd th

e de

riva

tive

sec

urit

ies

from

afo

rem

enti

oned

item

s.

Not

e 2:

T

he m

arke

t val

ue w

as b

ased

on

stoc

k cl

osin

g pr

ice

as o

f D

ecem

ber

31, 2

015.

Not

e 3:

T

he m

arke

t val

ue w

as b

ased

on

the

book

val

ue a

s of

Dec

embe

r 31

, 201

5.

Not

e 4:

T

he f

air

valu

e w

as b

ased

on

valu

atio

n te

chni

ques

.

Not

e 5:

A

s of

Dec

embe

r 31

, 201

5, a

ll th

e se

curi

ties

wer

e no

t ple

dged

or

rest

rict

ed.

Not

e 6:

W

ith

resp

ect t

o th

e in

form

atio

n of

sub

sidi

arie

s, a

ssoc

iate

s an

d jo

int v

entu

res,

ple

ase

see

TA

BL

E 5

.

168


TA

BL

E 2

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

MA

RK

ET

AB

LE

SE

CU

RIT

IES

AC

QU

IRE

D A

ND

DIS

PO

SED

AT

CO

STS

OR

PR

ICE

S O

F A

T L

EA

ST $

300

MIL

LIO

N O

R 2

0% O

F T

HE

PA

ID-I

N C

AP

ITA

L

FO

R T

HE

YE

AR

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Com

pany

Nam

e T

ype

and

Nam

e of

M

arke

tabl

e Se

curi

ties

Fin

anci

al S

tate

men

t A

ccou

nt

Cou

nter

part

y R

elat

ions

hip

Beg

inni

ng B

alan

ce

Acq

uisi

tion

D

ispo

sal

End

ing

Bal

ance

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Cos

tG

ain

(Los

s) o

n D

ispo

sal

Shar

es/U

nits

(T

hous

ands

) A

mou

nt

Van

guar

d In

tern

atio

nal

Fun

d S

emic

ondu

ctor

C

orpo

rati

on

Yua

nta

RM

B M

oney

M

arke

t Fun

d F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

- c

urre

nt

--

19,8

21

$

200,

000

9,36

3

$ 10

0,00

0 29

,184

$ 31

1,59

4

$ 30

0,00

0

$ 11

,594

-

$

-

169


TA

BL

E 3

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

TO

TA

L P

UR

CH

ASE

S F

RO

M O

R S

AL

ES

TO

RE

LA

TE

D P

AR

TIE

S A

MO

UN

TIN

G T

O A

T L

EA

ST N

T$1

00 M

ILL

ION

OR

20%

OF

TH

E P

AID

-IN

CA

PIT

AL

F

OR

TH

E Y

EA

R E

ND

ED

DE

CE

MB

ER

31,

201

5 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

Com

pany

Nam

e R

elat

ed P

arty

N

atur

e of

Rel

atio

nshi

p T

rans

acti

on D

etai

l A

bnor

mal

Tra

nsac

tion

N

otes

/Acc

ount

s P

ayab

le o

r R

ecei

vabl

e N

ote

Pur

chas

es/S

ales

A

mou

nt

% t

o T

otal

P

aym

ent

Ter

m

Uni

t Pri

ce

Pay

men

t T

erm

E

ndin

g B

alan

ce

% t

o T

otal

Van

guar

d In

tern

atio

nal

Sem

icon

duct

or C

orpo

ratio

n T

aiw

an S

emic

ondu

ctor

M

anuf

actu

ring

C

ompa

ny L

td.

Maj

or s

hare

hold

er

Sale

s $

7,10

0,08

2 30

30

day

s af

ter

clos

ing

$

- -

$ 51

9,73

5 17

-

170


TA

BL

E 4

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

RE

CE

IVA

BL

ES

FR

OM

RE

LA

TE

D P

AR

TIE

S A

MO

UN

TIN

G T

O A

T L

EA

ST N

T$1

00 M

ILL

ION

OR

20%

OF

TH

E P

AID

-IN

CA

PIT

AL

D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

Com

pany

Nam

e R

elat

ed P

arty

N

atur

e of

Rel

atio

nshi

p E

ndin

g B

alan

ce

Tur

nove

r R

ate

Ove

rdue

A

mou

nt R

ecei

ved

in

Subs

eque

nt P

erio

d A

llow

ance

for

B

ad D

ebts

A

mou

ntA

ctio

n T

aken

Van

guar

d In

tern

atio

nal S

emic

ondu

ctor

Cor

pora

tion

T

aiw

an S

emic

ondu

ctor

M

anuf

actu

ring

C

ompa

ny L

td.

Maj

or s

hare

hold

er

$

519,

735

11.7

1 $

-

- $

-

$

-

171


TA

BL

E 5

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

NA

ME

S, L

OC

AT

ION

S, A

ND

RE

LA

TE

D I

NF

OR

MA

TIO

N O

F I

NV

EST

EE

S O

VE

R W

HIC

H T

HE

CO

MP

AN

Y E

XE

RC

ISE

S SI

GN

IFIC

AN

T I

NF

LU

EN

CE

F

OR

TH

E Y

EA

R E

ND

ED

DE

CE

MB

ER

31,

201

5 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

, Unl

ess

Stat

ed O

ther

wis

e)

Inve

stor

Com

pany

In

vest

ee C

ompa

ny

Loc

atio

n M

ain

Bus

ines

ses

and

Pro

duct

s In

vest

men

t A

mou

nt

Bal

ance

as

of D

ecem

ber

31, 2

015

Net

Gai

n (L

oss)

of

the

Inve

stee

Inve

stm

ent

Gai

n (L

oss)

R

ecog

nize

d N

ote

Dec

embe

r 31

, 20

15

Dec

embe

r 31

, 20

14

Shar

es (

In

Tho

usan

ds)

Per

cent

age

of

Ow

ners

hip

Car

ryin

g V

alue

Van

guar

d In

tern

atio

nal

VIS

Ass

ocia

tes

Inc.

B

riti

sh V

irgi

n Is

land

s In

vest

men

ts

$

195,

492

$

195,

492

6 10

0 $

30

1,01

9 $

9,

296

$

9,29

6 S

ubsi

diar

y S

emic

ondu

ctor

Cor

pora

tion

C

MS

C, I

nc.

Hsi

nchu

City

, Tai

wan

In

tegr

ated

cir

cuit

des

ign

serv

ices

and

rel

ated

bu

sine

sses

11

2,65

011

2,65

09,

902

25

51,4

393,

803

949

Inve

stm

ent a

ccou

nted

for

usin

g eq

uity

m

etho

d

172


THE CONTENTS OF STATEMENTS OF MAJOR ACCOUNTING ITEMS

ITEM STATEMENT INDEX

MAJOR ACCOUNTING ITEMS IN ASSETS, LIABILITIES AND EQUITY STATEMENT OF CASH AND CASH EQUIVALENTS 1 STATEMENT OF FINANCIAL ASSETS AT FAIR VALUE THROUGH

PROFIT OR LOSS Note 7

STATEMENT OF HELD-TO-MATURITY FINANCIAL ASSETS - CURRENT

Note 9

STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE 2 STATEMENT OF INVENTORIES 3 STATEMENT OF PREPAID EXPENSES 4 STATEMENT OF OTHER CURRENT ASSETS Note 17 STATEMENT OF CHANGES IN AVAILABLE-FOR-SALE FINANCIAL

ASSETS - NONCURRENT 5

STATEMENT OF CHANGES IN FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

6

STATEMENT OF CHANGES IN INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

7

STATEMENT OF CHANGES IN PROPERTY, PLANT AND EQUIPMENT Note 15 STATEMENT OF CHANGES IN ACCUMULATED DEPRECIATION AND

ACCUMULATED IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Note 15

STATEMENT OF CHANGES IN INTANGIBLE ASSETS Note 16 STATEMENT OF DEFERRED INCOME TAX ASSETS Note 25 c. STATEMENT OF OTHER NONCURRENT ASSETS Note 17 STATEMENT OF NOTES AND ACCOUNTS PAYABLE 8 STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT

SUPPLIERS 9

STATEMENT OF OTHER PAYABLES Note 18 STATEMENT OF OTHER CURRENT LIABILITIES Note 19 STATEMENT OF PROVISIONS Note 20 STATEMENT OF DEFERRED INCOME TAX LIABILITIES Note 25 c.

MAJOR ACCOUNTING ITEMS IN PROFIT OR LOSS STATEMENT OF NET REVENUE 10 STATEMENT OF COST OF REVENUE 11 STATEMENT OF OPERATING EXPENSES 12 SUMMARY OF EMPLOYEE BENEFITS, DEPRECIATION AND

AMORTIZATION EXPENSES BY FUNCTION 13

173


STATEMENT 1


STATEMENT OF CASH AND CASH EQUIVALENTS DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Item Description

Annual Interest

Rate (%) Amount

Cash in banks Time deposits Including NT$14,061,322 thousand,

US$25,000 thousand @32.895 and CNY12,728 thousand @4.995

0.30-4.00 $ 14,947,273

Current accounts Including NT$12,651 thousand, US$55,322 thousand @32.895, JPY108,309 thousand @0.2745, EUR137 thousand @36.14, CNY64 thousand @4.995, small amount of HKD and SGD

0-0.53 1,867,603

Checking accounts 206 Pledged time deposit (303,552)

16,511,530 Bonds acquired under resale

agreements Expired by the end of January, 2016 0.35-5.10 1,186,645

$ 17,698,175

174


STATEMENT 2


STATEMENT OF NOTES AND ACCOUNTS RECEIVABLE DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars)

Client Name Amount

Notes receivable $ 132 Accounts receivable

Client A 742,757 Client B 219,210 Client C 175,333 Client D 141,861 Client E 133,640 Others (Note) 1,108,567

2,521,368 Less: Allowance for doubtful accounts (1,987)

$ 2,519,513

Note: The amount of individual client included in others does not exceed 5% of the account balance.

175


STATEMENT 3


STATEMENT OF INVENTORIES DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars)

Item Cost Allowance for Valuation Loss Net Amount

Net Realizable Value

Finished goods $ 368,154 $ 53,855 $ 314,299 $ 447,637 Work in process 1,232,191 50,772 1,181,419 3,155,657 Raw materials 395,477 17,809 377,668 377,668 Supplies and spare parts 390,904 13,679 377,225 377,225

$ 2,386,726 $ 136,115 $ 2,250,611 $ 4,358,187

Note: Inventories were fully insured according to the amount in the parent company only balance sheet.

176


STATEMENT 4


STATEMENT OF PREPAID EXPENSES DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars)

Item Amount

Software utilization expenses $ 76,998 Long-service bonuses 71,793 Others (Note) 13,862

$ 162,653

Note: The amount of each item in others does not exceed 5% of the account balance.

177


STA

TE

ME

NT

5

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

STA

TE

ME

NT

OF

CH

AN

GE

S IN

AV

AIL

AB

LE

-FO

R-S

AL

E F

INA

NC

IAL

ASS

ET

S -

NO

NC

UR

RE

NT

F

OR

TH

E Y

EA

R E

ND

ED

DE

CE

MB

ER

31,

201

5 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

, Unl

ess

Stat

ed O

ther

wis

e)

Bal

ance

, Jan

uary

1, 2

015

Add

itio

ns (

Red

ucti

ons)

U

nrea

lized

B

alan

ce, D

ecem

ber

31, 2

015

Shar

esSh

ares

Cha

nges

in

Shar

esN

ame

of F

inan

cial

Ass

ets

(In

Tho

usan

ds)

Am

ount

(I

n T

hous

ands

) A

mou

nt

Fai

r V

alue

(I

n T

hous

ands

)

%

Am

ount

C

olla

tera

l

Lis

ted

com

pany

C

ham

pion

Mic

roel

ectr

onic

Cor

p.

319

$

25,7

38

27

$

- $

(9

,007

) 34

6 1

$

16,7

31

Nil

Adv

ance

d M

icro

elec

tron

ic P

rodu

cts

Inc.

30

,000

11

7,30

0-

-(4

5,30

0)30

,000

1672

,000

Nil

$

143,

038

$

- $

(5

4,30

7)

$88

,731

178


STA

TE

ME

NT

6

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

STA

TE

ME

NT

OF

CH

AN

GE

S IN

FIN

AN

CIA

L A

SSE

TS

CA

RR

IED

AT

CO

ST

FO

R T

HE

YE

AR

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Bal

ance

, Jan

uary

1, 2

015

Add

itio

ns (

Red

ucti

ons)

B

alan

ce, D

ecem

ber

31, 2

015

Shar

esSh

ares

Shar

esIn

vest

ees

(In

Tho

usan

ds)

Am

ount

(I

n T

hous

ands

) A

mou

nt

(In

Tho

usan

ds)

%

A

mou

nt

Col

late

ral

Unl

iste

d co

mpa

ny

Uni

ted

Indu

stri

al G

ases

Co.

, Ltd

. 4,

246

$

38,7

16

- $

-

4,24

6 2

$

38,7

16

Nil

Imag

e M

atch

Des

ign

Inc.

2,

400

24,0

00-

-2,

400

1024

,000

Nil

$

62,7

16

$

- $

62,7

16

179


STA

TE

ME

NT

7

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

STA

TE

ME

NT

OF

CH

AN

GE

S IN

IN

VE

STM

EN

TS

AC

CO

UN

TE

D F

OR

USI

NG

EQ

UIT

Y M

ET

HO

D

FO

R T

HE

YE

AR

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Inve

stm

ent

Cap

ital

Exc

hang

eP

rofi

tSu

rplu

s D

iffe

renc

eB

alan

ce, J

anua

ry 1

, 201

5 R

ecog

nize

d by

Rec

ogni

zed

by

Ari

sing

fro

m

Bal

ance

, Dec

embe

r 31

, 201

5 Sh

ares

A

ddit

ions

th

e E

quit

y th

e E

quit

y F

orei

gn

Shar

es

Net

Ass

ets

Inve

stee

s (I

n T

hous

ands

) A

mou

nt

(Not

e 1)

M

etho

d M

etho

d O

pera

tion

s (I

n T

hous

ands

)

%

Am

ount

V

alue

C

olla

tera

l R

emar

ks

VIS

Ass

ocia

tes

Inc.

6

$

291,

875

$

5,09

7 $

9,

296

$

(14,

318)

$

9,

069

6 10

0 $

30

1,01

9 $

30

1,01

9 N

il

Not

e 2

CM

SC

, Inc

. 9,

902

50,4

47-

949

403

9,90

225

51,4

3951

,439

Nil

Not

e3

$

342,

322

$

5,09

7 $

10

,245

$

(1

4,27

8)

$

9,07

2 $

35

2,45

8 $

35

2,45

8

Not

e 1:

T

he a

ddit

ion

is th

e co

mpe

nsat

ion

cost

gen

erat

ed f

rom

the

gran

t of

trea

sury

sto

ck o

f pa

rent

com

pany

to e

mpl

oyee

s of

sub

sidi

ary.

Not

e 2:

T

he n

et v

alue

was

bas

ed o

n au

dite

d fi

nanc

ial s

tate

men

ts o

f th

e sa

me

peri

od.

Not

e 3:

T

he n

et v

alue

was

bas

ed o

n un

audi

ted

fina

ncia

l sta

tem

ents

of

the

sam

e pe

riod

.

180


STATEMENT 8


STATEMENT OF NOTES AND ACCOUNTS PAYABLE DECEMBER 31, 2015 (In thousands of New Taiwan Dollars)

Vendor Name Amount

Notes payable $ 528 Accounts payable

Formosa Sumco Technology Corporation 146,563 SHIN-ETSU HANDOTAI TAIWAN CO.,

LTD. 106,570 Taisil Electronic Materials Corporation 49,758 Others (Note) 574,707

877,598

$ 878,126


181


STATEMENT 9


STATEMENT OF PAYABLES TO CONTRACTORS AND EQUIPMENT SUPPLIERS DECEMBER 31, 2015 (In thousands of New Taiwan Dollars)

Vendor Name Amount

ASML Taiwan Ltd. $ 26,556

GENES TECH Co., Ltd. 15,759

J.E.T. Co., Ltd. 15,306

YAMAHA Corporation 13,720

Uangyih - Tech Industrial Co., Ltd. 11,263

M+W High Tech Projects Taiwan Co., Ltd. 10,853

Others (Note) 107,697

$ 201,154

Note: The amount of individual vendor in others does not exceed 5% of the account balance.

182


STATEMENT 10


STATEMENT OF NET REVENUE FOR THE YEAR ENDED DECEMBER 31, 2015 (In thousands of New Taiwan Dollars and Pieces)

Item Shipments (Piece) Amount

Wafer 1,735,928 $ 23,239,079Other 309,316

23,548,395Sales returns and allowance (228,674)

$ 23,319,721

183


STATEMENT 11


STATEMENT OF COST OF REVENUE FOR THE YEAR ENDED DECEMBER 31, 2015 (In thousands of New Taiwan Dollars)

Item Amount

Raw materials used Balance, beginning of year $ 286,458Raw material purchased 2,434,410Raw materials, end of year (395,477) Transferred to manufacturing and operating

expenses (160,780) 2,164,611

Direct labors 1,072,450Manufacturing expenses 12,523,784Manufacturing cost 15,760,845Work in process, beginning of year 1,471,827Work in process, end of year (1,232,191) Cost of finished goods 16,000,481Finished goods, beginning of year 452,653Finished goods, end of year (368,154) Transferred to manufacturing and operating expenses (65,365) Cost of goods manufactured 16,019,615Other operating cost

Inventory valuation loss 69,547Sales of raw materials and supplies 3,527Royalties 329,766

Cost of revenue $ 16,422,455

184


STATEMENT 12


STATEMENT OF OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2015 (In thousands of New Taiwan Dollars)

Item Marketing Expense

General and Administrative

Expense

Research and Development

Expense

Payroll and related expense $ 98,860 $ 379,167 $ 374,794

Commission 67,694 - -

Research project expense 2,937 3,952 736,917

Science-based Industrial Park administrative expense - 45,040 -

Others (Note) 35,945 413,358 128,554

$ 205,436 $ 841,517 $ 1,240,265


185


STA

TE

ME

NT

13

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

SUM

MA

RY

OF

EM

PL

OY

EE

BE

NE

FIT

S, D

EP

RE

CIA

TIO

N A

ND

AM

OR

TIZ

AT

ION

EX

PE

NSE

S B

Y F

UN

CT

ION

F

OR

TH

E Y

EA

RS

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

AN

D 2

014

(In

thou

sand

s of

New

Tai

wan

Dol

lars

)

Yea

r E

nded

Dec

embe

r 31

, 201

5 Y

ear

End

ed D

ecem

ber

31, 2

014

Cla

ssif

ied

as

C

lass

ifie

d as

C

lass

ifie

d as

C

lass

ifie

d as

C

ost

of R

even

ue

Ope

rati

ng E

xpen

ses

Tot

al

Cos

t of

Rev

enue

O

pera

ting

Exp

ense

s T

otal

Em

ploy

ee b

enef

its e

xpen

ses

Sala

ry a

nd b

onus

$

3,

793,

970

$

852,

821

$

4,64

6,79

1 $

3,

622,

739

$

1,06

3,67

8 $

4,

686,

417

Lab

or a

nd h

ealth

insu

ranc

e29

7,27

962

,955

360,

234

261,

446

57,6

8631

9,13

2Pe

nsio

n 17

4,44

653

,526

227,

972

157,

629

32,6

0419

0,23

3O

ther

s 49

6,99

811

1,76

560

8,76

345

2,41

110

3,85

155

6,26

2

$

4,76

2,69

3 $

1,

081,

067

$

5,84

3,76

0 $

4,

494,

225

$

1,25

7,81

9 $

5,

752,

044

Dep

reci

atio

n $

2,

254,

409

$

49,4

58

$

2,30

3,86

7 $

2,

012,

533

$

59,9

49

$

2,07

2,48

2 A

mor

tiza

tion

$

7,47

0 $

7,

877

$

15,3

47

$

3,83

6 $

5,

001

$

8,83

7

Not

e:

As

of D

ecem

ber

31, 2

015

and

2014

, the

Cor

pora

tion

had

4,72

2 an

d 4,

994

empl

oyee

s, r

espe

ctiv

ely.

186


DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in

accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business

Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended

December 31, 2015 are all the same as the companies required to be included in the consolidated

financial statements of parent and subsidiary companies as provided in International Financial

Reporting Standard NO.10 “Consolidated Financial Statements”. Relevant information that

should be disclosed in the consolidated financial statements of affiliates has all been disclosed in

the consolidated financial statements of parent and subsidiary companies. Hence, we do not

prepare a separate set of consolidated financial statements of affiliates.

Very truly yours,


By

LEUH FANG Chairman

January 27, 2016

187


josh

經理人簽(en)

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Vanguard International Semiconductor Corporation

We have audited the accompanying consolidated balance sheets of Vanguard International Semiconductor Corporation (the “Corporation”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2015 and 2014 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014. These consolidated financial statements are the responsibility of the Corporation’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 Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of the Group as of December 31, 2015 and 2014, and their consolidated financial performance and consolidated cash flows for the years ended 2015 and 2014 in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China.

We have also audited the parent company only financial statements of Vanguard International Semiconductor Corporation as of and for the years ended December 31, 2015 and 2014 on which we have issued an unqualified report.

January 27, 2016

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance/results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

188


josh

會計師

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

CO

NSO

LID

AT

ED

BA

LA

NC

E S

HE

ET

S D

EC

EM

BE

R 3

1, 2

015

AN

D 2

014

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

2015

2014

(R

esta

ted)

(N

ote

3)

2015

2014

(R

esta

ted)

(N

ote

3)

ASS

ET

SA

mou

nt

%

Am

ount

%

L

IAB

ILIT

IES

AN

D E

QU

ITY

A

mou

nt

%

Am

ount

%

CU

RR

EN

T A

SSE

TS

C

UR

RE

NT

LIA

BIL

ITIE

S

Cas

h an

d ca

sh e

quiv

alen

ts (

Not

es 4

and

6)

$ 1

7,95

0,84

7 56

$

17,

149,

735

51

Fin

anci

al li

abil

itie

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

- c

urre

nt

curr

ent (

Not

es 4

, 7 a

nd 3

1)

$

28,4

74

- $

90

,584

-

(Not

es 4

, 7 a

nd 3

1)

1,09

7,89

5 3

810,

921

2 D

eriv

ativ

e fi

nanc

ial l

iabi

liti

es f

or h

edgi

ng -

cur

rent

(N

otes

4, 1

0 H

eld-

to-m

atur

ity

fina

ncia

l ass

ets

- cu

rren

t (N

otes

4, 5

, 9 a

nd 3

1)

139,

502

- -

- an

d 31

) 7,

020

- 15

,206

-

Der

ivat

ive

fina

ncia

l ass

ets

for

hedg

ing

- cu

rren

t (N

otes

4, 1

0 an

d N

otes

and

acc

ount

s pa

yabl

e 87

8,12

6 3

1,16

0,06

6 4

31)

- -

70

- A

ccru

ed p

rofi

t sha

ring

to e

mpl

oyee

s an

d re

mun

erat

ion

to d

irec

tors

N

otes

and

acc

ount

s re

ceiv

able

, net

(N

otes

4, 5

and

12)

2,

519,

513

83,

261,

444

10(N

ote

25)

637,

226

285

0,48

33

Rec

eiva

bles

fro

m r

elat

ed p

arti

es (

Not

es 4

, 5 a

nd 3

2)

533,

935

2 72

9,17

1 2

Pay

able

s to

con

trac

tors

and

equ

ipm

ent s

uppl

iers

20

1,15

41

408,

351

1O

ther

rec

eiva

bles

(N

ote

4)

127,

125

- 14

1,71

2 1

Oth

er p

ayab

les

(Not

e 19

) 1,

727,

097

5 1,

719,

517

5 O

ther

rec

eiva

bles

fro

m r

elat

ed p

arti

es (

Not

es 4

and

32)

15

,084

-

18,5

15

- O

ther

pay

able

s to

rel

ated

par

ties

(N

ote

32)

67,7

54

- 10

8,53

5-

Inve

ntor

ies

(Not

es 4

, 5 a

nd 1

3)

2,25

0,61

1 7

2,49

8,40

0 7

Cur

rent

inco

me

tax

liab

ilit

ies

(Not

es 4

and

26)

49

7,12

9 2

840,

431

3 P

repa

id e

xpen

ses

163,

541

1 11

4,27

1 -

Pro

visi

ons

- cu

rren

t (N

otes

4, 5

and

21)

13

6,57

6 -

110,

906

- O

ther

cur

rent

ass

ets

(Not

es 4

, 18

and

31)

2,69

6-

390,

187

1 O

ther

cur

rent

liab

iliti

es (

Not

e 20

) 81

,445

-87

,720

-

Tot

al c

urre

nt a

sset

s 24

,800

,749

7725

,114

,426

74T

otal

cur

rent

liab

ilit

ies

4,26

2,00

113

5,39

1,79

916

NO

N-C

UR

RE

NT

AS

SET

S

NO

N-C

UR

RE

NT

LIA

BIL

ITIE

S A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s -

non-

curr

ent (

Not

es 4

, 8 a

nd

Def

erre

d in

com

e ta

x li

abil

itie

s (N

otes

4 a

nd 2

6)

67,4

94

-10

4,19

2-

31)

88,7

31

- 14

3,03

8 1

Net

def

ined

ben

efit

liab

iliti

es -

non

-cur

rent

(N

otes

4, 5

and

22)

63

0,99

2 2

613,

106

2 F

inan

cial

ass

ets

carr

ied

at c

ost -

non

-cur

rent

(N

otes

4 a

nd 1

1)

82,4

97

- 78

,436

-

Oth

er n

on-c

urre

nt li

abil

itie

s (N

ote

32)

14,1

25-

99,3

57-

Inve

stm

ent a

ccou

nted

for

usi

ng e

quit

y m

etho

d (N

otes

4 a

nd 1

5)

77,8

61

- 85

,751

-

Pro

pert

y, p

lant

and

equ

ipm

ent (

Not

es 4

and

16)

6,

979,

397

22

7,98

3,76

7 24

T

otal

non

-cur

rent

liab

iliti

es

712,

611

281

6,65

52

Inta

ngib

le a

sset

s (N

otes

4 a

nd 1

7)

41,5

96

- 37

,174

-

Def

erre

d in

com

e ta

x as

sets

(N

otes

4, 5

and

26)

5,

411

- 3,

554

- T

otal

liab

ilit

ies

4,97

4,61

215

6,20

8,45

418

R

efun

dabl

e de

posi

ts4,

447

-5,

240

-O

ther

non

-cur

rent

ass

ets

(Not

es 4

, 18

and

33)

303,

552

130

3,38

41

EQ

UIT

Y (

Not

es 4

and

23)

C

apita

l sto

ck

Tot

al n

on-c

urre

nt a

sset

s 7,

583,

492

238,

640,

344

26C

omm

onst

ock

16,3

89,8

2350

16,3

89,8

2349

C

apit

al s

urpl

us

855,

123

383

8,02

92

Ret

aine

d ea

rnin

gs

Leg

al r

eser

ve

3,09

1,01

3 10

2,54

7,22

48

Spe

cial

res

erve

70,5

06-

53,7

00-

Una

ppro

pria

ted

earn

ings

7,

118,

975

227,

797,

921

23

Tot

al r

etai

ned

earn

ings

10

,280

,494

3210

,398

,845

31

Oth

er e

quit

y (1

15,8

11)

-(7

0,50

6)-

Tre

asur

y st

ock

--

(9,8

75)

-

Tot

al e

quit

y 27

,409

,629

8527

,546

,316

82

TO

TA

L A

SS

ET

S

$ 3

2,38

4,24

110

0 $

33,

754,

770

100

TO

TA

L L

IAB

ILIT

IES

AN

D E

QU

ITY

$ 3

2,38

4,24

110

0 $

33,

754,

770

100

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e co

nsol

idat

ed f

inan

cial

sta

tem

ents

.

189


VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2015


Amount % Amount %

NET REVENUE (Notes 4, 5, 21, 24 and 32) $ 23,319,721 100 $ 23,931,479 100

COST OF REVENUE (Notes 4, 13, 25 and 32) 16,422,455 70 15,317,806 64

GROSS PROFIT 6,897,266 30 8,613,673 36

OPERATING EXPENSES (Notes 3, 4, 25 and 32) Marketing 202,581 1 247,631 1General and administrative 842,438 4 968,337 4 Research and development 1,240,265 5 1,191,246 5

Total operating expenses 2,285,284 10 2,407,214 10

OPERATING INCOME 4,611,982 20 6,206,459 26

NONOPERATING INCOME AND EXPENSES (NOTE 4) Interest income 197,218 1 192,453 1 Dividend income 21,004 - 19,860 - Other income (Note 32) 71,834 - 68,642 - Gain (loss) on disposal of property, plant and equipment 28 - (1,917) - Gain (loss) on disposal of investment (Note 15) 22,354 - (44) - Net foreign exchange gains (Note 35) 171,002 1 237,025 1 Losses on financial assets at fair value through profit or

loss (146,066) (1) (213,180) (1)Impairment loss on financial assets (Note 11) (7,900) - - - Share of losses of associates and joint ventures (Note 15) (2,945) - (13,232) -

Total nonoperating income and expenses 326,529 1 289,607 1

INCOME BEFORE INCOME TAX 4,938,511 21 6,496,066 27

INCOME TAX EXPENSE (Notes 4 and 26) (780,928) (3) (1,055,985) (4)

NET INCOME 4,157,583 18 5,440,081 23

OTHER COMPREHENSIVE INCOME (Notes 4 and 23) Items that will not be reclassified subsequently to profit or

loss: Remeasurement of defined benefit plans (Note 22) (16,581) - (51,746) (1)

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign

operations 9,567 - 15,996 -Unrealized losses on available-for-sale financial assets (54,307) - (31,875) -

(Continued)

190



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2015


Amount % Amount %

Cash flow hedges $ (70) - $ 70 - Share of other comprehensive loss of associates and

joint ventures (Note 15) (495) - (997) -

Total other comprehensive loss (61,886) - (68,552) (1)

TOTAL COMPREHENSIVE INCOME $ 4,095,697 18 $ 5,371,529 22

NET INCOME ATTRIBUTABLE TO Owner of the Corporation $ 4,157,583 18 $ 5,440,081 23 Non-controlling interests - - - -

$ 4,157,583 18 $ 5,440,081 23

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO Owner of the Corporation $ 4,095,697 18 $ 5,371,529 22 Non-controlling interests - - - -

$ 4,095,697 18 $ 5,371,529 22

EARNINGS PER SHARE (Note 27) Basic $ 2.54 $ 3.35 Diluted $ 2.50 $ 3.30

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

191


VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

CO

NSO

LID

AT

ED

ST

AT

EM

EN

TS

OF

CH

AN

GE

S IN

EQ

UIT

Y

FO

R T

HE

YE

AR

S E

ND

ED

DE

CE

MB

ER

31,

201

5 A

ND

201

4 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

Oth

er E

quit

y E

xcha

nge

Dif

fere

nces

on

Unr

ealiz

ed

Ret

aine

d E

arni

ngs

Tra

nsla

tion

of

(Los

ses)

Gai

ns o

n U

napp

ropr

iate

dF

orei

gnA

vaila

ble-

for-

sale

Cap

ital

Sto

ck

Cap

ital

Sur

plus

L

egal

Res

erve

Sp

ecia

l Res

erve

E

arni

ngs

Ope

rati

ons

Fin

anci

al A

sset

s C

ash

Flo

w H

edge

s T

reas

ury

Stoc

k T

otal

Equ

ity

BA

LA

NC

E, J

AN

UA

RY

1, 2

014

$ 1

6,36

5,85

9 $

73

3,57

8 $

2,

110,

125

$

68,9

48

$

5,69

1,94

0 $

(6

5,08

1)

$

11,3

81

$

- $

(4

86,9

90)

$ 2

4,42

9,76

0

Eff

ect o

f re

tros

pect

ive

appl

icat

ion

(Not

e 3)

-

--

-12

,822

--

--

12,8

22

RE

ST

AT

ED

BA

LA

NC

E, J

AN

UA

RY

1, 2

014

16,3

65,8

5973

3,57

82,

110,

125

68,9

485,

704,

762

(65,

081)

11,3

81-

(486

,990

)24

,442

,582

App

ropr

iatio

n of

pri

or y

ear's

ear

ning

s L

egal

res

erve

--

437,

099

- (4

37,0

99)

--

--

-C

ash

divi

dend

s -

18%

-

- -

- (2

,873

,325

) -

- -

- (2

,873

,325

) R

ever

sal o

f sp

ecia

l res

erve

-

- -

(15,

248)

15

,248

-

- -

- -

Cha

nges

in c

apita

l sur

plus

fro

m in

vest

men

t in

asso

ciat

es a

nd jo

int

vent

ures

acc

ount

ed f

or u

sing

equ

ity m

etho

d-

3,80

4-

--

--

--

3,80

4

Net

inco

me

for

the

year

end

ed D

ecem

ber

31, 2

014

- -

- -

5,44

0,08

1 -

- -

- 5,

440,

081

Oth

er c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

4 -

--

-(5

1,74

6)14

,999

(31,

875)

70-

(68,

552)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

4 -

--

-5,

388,

335

14,9

99(3

1,87

5)70

-5,

371,

529

Sha

re-b

ased

pay

men

t tra

nsac

tion

23

,964

100,

647

--

--

--

477,

115

601,

726

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

014

16,3

89,8

23

838,

029

2,54

7,22

4 53

,700

7,

797,

921

(50,

082)

(2

0,49

4)

70

(9,8

75)

27,5

46,3

16

App

ropr

iatio

n of

pri

or y

ear's

ear

ning

s L

egal

res

erve

--

543,

789

- (5

43,7

89)

--

--

-Sp

ecia

l res

erve

--

-16

,806

(16,

806)

--

--

-C

ash

divi

dend

s-

26%

--

--

(4,2

59,3

53)

--

--

(4,2

59,3

53)

Cha

nges

in c

apita

l sur

plus

fro

m in

vest

men

t in

asso

ciat

es a

nd jo

int

vent

ures

acc

ount

ed f

or u

sing

equ

ity m

etho

d-

4,12

0-

--

--

--

4,12

0

Net

inco

me

for

the

year

end

ed D

ecem

ber

31, 2

015

- -

- -

4,15

7,58

3 -

- -

- 4,

157,

583

Oth

er c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

5 -

--

-(1

6,58

1)9,

072

(54,

307)

(70)

-(6

1,88

6)

Tot

al c

ompr

ehen

sive

inco

me

for

the

year

end

ed

Dec

embe

r 31

, 201

5 -

--

-4,

141,

002

9,07

2(5

4,30

7)(7

0)-

4,09

5,69

7

Dis

posa

l of

inve

stm

ents

acc

ount

ed f

or u

sing

equ

ity

met

hod

(Not

e 15

)-

(18,

398)

--

--

--

-(1

8,39

8)

Sha

re-b

ased

pay

men

t tra

nsac

tion

-

31,3

72-

--

--

-9,

875

41,2

47

BA

LA

NC

E, D

EC

EM

BE

R 3

1, 2

015

$ 1

6,38

9,82

3 $

85

5,12

3 $

3,

091,

013

$

70,5

06 $

7,

118,

975

$

(41,

010)

$

(7

4,80

1)

$-

$-

$ 2

7,40

9,62

9

The

acc

ompa

nyin

g no

tes

are

an in

tegr

al p

art o

f th

e co

nsol

idat

ed f

inan

cial

sta

tem

ents

.

192



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

2015


CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 4,938,511 $ 6,496,066Adjustments for:

Depreciation 2,303,949 2,072,554Amortization 15,347 8,837Net loss (gain) on financial assets and liabilities at fair value through

profit or loss 1,118 (30,016) Interest income (197,218) (192,453) Dividend income (21,004) (19,860) Share-based payment 31,374 88,277Share of losses of associates and joint ventures 2,945 13,232(Gain) loss on disposal of property, plant and equipment (28) 1,917(Gain) loss on disposal of investments (22,354) 44Impairment loss on financial assets 7,900 -Net loss (gain) on foreign currency exchange 6,968 (18,425) Changes in operating assets and liabilities:

Financial assets held for trading 504,866 (489,190) Notes and accounts receivable 741,931 (962,355) Receivable from related parties 195,236 (1,815) Other receivables 12,907 (5,262) Other receivables from related parties 3,431 2,748Inventories 247,789 (827,456)Prepaid expenses (49,291) (9,829) Other current assets 99 (914) Financial liabilities held for trading (62,110) 69,085Derivative financial liabilities for hedging (8,186) 2,882Notes and accounts payable (281,940) 335,217Other payables 7,580 282,788Other payables to related parties (40,781) 2,860Provisions 25,670 9,802Other current liabilities (6,275) 1,556Net defined benefit liabilities 1,305 4,193Accrued profit sharing to employees and remuneration to

directors (213,257) 185,235Cash generated from operations 8,146,482 7,019,718Interest received 198,568 190,379Income tax paid (1,162,614) (544,148)

Net cash provided by operating activities 7,182,436 6,665,949(Continued)

193



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

2015


CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of financial assets designated as fair value through profit

or loss $ (1,342,920) $ (262,238) Proceeds from disposal of financial assets designated as fair value

through profit or loss 549,963 314,725Acquisition of available-for-sale financial assets - (150,000) Acquisitions of held-to-maturity financial assets (141,305) -Acquisitions of property, plant and equipment (1,501,118) (3,120,408) Proceeds from disposal of property, plant and equipment 28 870Decrease (increase) in refundable deposits 793 (950) Acquisitions of intangible assets (26,731) (29,000) Decrease (increase) in other financial assets 383,748 (32,652) Dividends received 21,004 19,860

Net cash used in investing activities (2,056,538) (3,259,793)

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in other non-current liabilities (85,232) 50,287Cash dividends (4,259,353) (2,873,325) Proceeds from exercise of employee stock options - 34,747Treasury stock transferred to employees 9,873 476,955

Net cash used in financing activities (4,334,712) (2,311,336)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 9,926 13,192

NET INCREASE IN CASH AND CASH EQUIVALENTS 801,112 1,108,012

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 17,149,735 16,041,723

CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,950,847 $ 17,149,735

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

194



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION

Vanguard International Semiconductor Corporation (the “Corporation”) was incorporated in HsinchuScience-based Industrial Park in December 1994 and commenced business in January 1995. TheCorporation engages mainly in the manufacturing, selling, packaging, testing and computer-aided design ofintegrated circuits and other semiconductor devices and the manufacturing of masks.

The Corporation’s shares have been traded over the counter on the Republic of China (ROC) GreTaiSecurities Market since March 25, 1998.

The functional currency of the Corporation is New Taiwan dollars. The consolidated financial statementsare presented in New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved and authorized for issue by the Board of Directors onJanuary 27, 2016.

3. APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS ANDINTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reportsby Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS),International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS(SIC) endorsed by the Financial Supervisory Commission (FSC)

Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that theGroup should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”)endorsed by the FSC and the related amendments to the Regulations Governing the Preparation ofFinancial Reports by Securities Issuers starting January 1, 2015.

Except for the following, whenever applied, the initial application of the amendments to theRegulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSsversion would not have any material impact on the Group’s accounting policies:

1) IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12“Consolidation - Special Purpose Entities”. The Group considers whether it has control over otherentities for consolidation. The Group has control over an investee if and only if it has i) powerover the investee; ii) exposure or rights to variable returns from its involvement with the investeeand iii) the ability to use its power over the investee to affect the amount of its returns. Additionalguidance has been included in IFRS 10 to explain when an investor has control over an investee.

195


2) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries,joint arrangements, associates and unconsolidated structured entities. In general, the disclosurerequirements in IFRS 12 are more extensive. Please refer to Notes 14 and 15 for relateddisclosures.

3) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value,establishes a framework for measuring fair value, and requires disclosures about fair valuemeasurements. The disclosure requirements in IFRS 13 are more extensive, for example,quantitative and qualitative disclosures based on the three-level fair value hierarchy previouslyrequired for financial instruments only are extended by IFRS 13 to cover all assets and liabilitieswithin its scope.

The fair value measurements under IFRS 13 were applied prospectively from January 1, 2015.Refer to Note 31 for related disclosures.

4) Amendment to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendment to IAS 1 requires items of other comprehensive income to be grouped into thoseitems that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassifiedsubsequently to profit or loss. Income taxes on related items of other comprehensive income aregrouped on the same basis. Under current IAS 1, there were no such requirements.

The Group retrospectively applied the above amendments starting in 2015. Items not expected tobe reclassified to profit or loss are remeasurements of the defined benefit plans. Item expected tobe reclassified to profit or loss are the exchange differences on translation of foreign operations,unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of the othercomprehensive income (except the share of the remeasurements of the defined benefit plans) ofassociates and joint ventures accounted for using the equity method. However, the application ofthe above amendments would not have any impact on the net profit for the year, othercomprehensive income for the year (net of income tax), and total comprehensive income for theyear.

5) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fairvalue of plan assets when they occur, and hence eliminates the “corridor approach” permitted underprevious IAS 19 and accelerate the recognition of past service costs. The revision requires allremeasurements of the defined benefit plans to be recognized immediately through othercomprehensive income in order for the net pension asset or liability to reflect the full value of theplan deficit or surplus. Remeasurement of the defined benefit plans is presented as retainedearnings.

Furthermore, the interest cost and expected return on plan assets used in previous IAS 19 arereplaced with a “net interest” amount, which is calculated by applying the discount rate to the netdefined benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in thepresentation of the defined benefit cost, and also includes more extensive disclosures.

On initial application of the revised IAS 19, the changes in cumulative employee benefit costs as ofDecember 31, 2013 resulting from the retrospective application are adjusted to net defined benefitliabilities and retained earnings. In addition, the Group elects not to present 2014 comparativeinformation about the sensitivity of the defined benefit obligation.

196


Because of the retrospective application of aforementioned amendments, as of December 31, 2014 and January 1, 2014, the primary impacts on the Group would include the adjustment in net defined benefit liabilities for a decrease of $12,084 thousand and $12,822 thousand, respectively, and the adjustment in retained earnings for an increase of $12,084 thousand and $12,822 thousand, respectively; the adjustment in operating expenses for a decrease of $1,823 thousand and $2,192 thousand in 2015 and 2014, respectively.

b. New IFRSs in issue but not yet endorsed by the FSC

The Group has not applied the following New IFRSs issued by the IASB but not yet endorsed by theFSC. As of the date the consolidated financial statements were authorized for issue, the FSC has notannounced their effective dates.

New IFRSs Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

To be determined by IASB

Amendments to IFRS 10, IFRS 12 and IAS 28“'Investment Entities: Applying the Consolidation Exception”

January 1, 2016

Amendment to IFRS 11 “ Accounting for Acquisitions of Interests in Joint Operations”

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 Amendment to IAS 1 “Disclosure Initiative” January 1, 2016 Amendments to IAS 16 and IAS 38 “Clarification of Acceptable

Methods of Depreciation and Amortization” January 1, 2016

Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” January 1, 2016 Amendment to IAS 19 “Defined Benefit Plans: Employee

Contributions” July 1, 2014

Amendment to IAS 27 “Equity Method in Separate Financial Statements”

January 1, 2016

Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets”

January 1, 2014

Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting”

January 1, 2014

IFRIC 21 “Levies” January 1, 2014

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

197


The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Group’s accounting policies, except for the following:

1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39“Financial Instruments: Recognition and Measurement” are subsequently measured at amortizedcost or fair value. Under IFRS 9, the requirement for the classification of financial assets is statedbelow.

For the debt instruments invested by the Group that have contractual cash flows that are solelypayments of principal and interest on the principal amount outstanding, their classification andmeasurement are as follows

a) If the objective of the Group’s business model is to collect the contractual cash flows, suchfinancial assets are measured at amortized cost and are assessed for impairment continuouslywith impairment loss recognized in profit or loss, if any. Interest revenue is recognized inprofit or loss by using the effective interest method;

b) If the objective of the Group’s business model is both to collect contractual cash flows and tosell financial assets, such financial assets are measured at fair value through othercomprehensive income (FVTOCI) and are assessed for impairment continuously. Interestrevenue is recognized in profit or loss by using the effective interest method, and other gain orloss shall be recognized in other comprehensive income, except for impairment gains or lossesand foreign exchange gains and losses. When the debt instruments are derecognized orreclassified, the cumulative gain or loss previously recognized in other comprehensive incomeis reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gains or losses previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not have a significant financing component.

198


For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

Hedge accounting

The main change in hedge accounting amended the application requirements for hedge accounting, and it lets the financial statements better reflect the entity’s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item.

2) Amendment to IAS 19: Amendment in 2013

The amended IAS 19 states that if contributions from employees or third parties are not linked toservice, these contributions affect the remeasurement of the net defined benefit liability (asset). Ifthe contributions are linked solely to service, the employees’ service rendered in that period inwhich they are paid, these contributions may be recognized as a reduction of service cost in thesame period. If the contributions depend on the number of years of service, an entity is required toattribute these contributions to service periods as a reduction of service cost.

3) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment to thedisclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose inevery reporting period the recoverable amount of an asset or each cash-generating unit. Theamendment clarifies that such disclosure of recoverable amounts is required only when animpairment loss has been recognized or reversed during the period. Furthermore, the Group isrequired to disclose the discount rate used in measurements of the recoverable amount based on fairvalue less costs of disposal measured by using a present value technique.


Several standards including IFRS 2 “Share-based Payment”, IFRS 3 “Business Combinations” andIFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applyingthe aggregation criteria to operating segments. The amendment also clarifies that a reconciliationof the total of the reportable segments’ assets to the entity’s assets should only be provided if thesegments’ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measureshort-term receivables and payables with no stated interest rate at their invoice amounts withoutdiscounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnelservices to the Group is a related party of the Group. Consequently, the Group is required todisclose as related party transactions the amounts paid or payable to the management entity for theprovision of key management personnel services. However, disclosure of the components of suchcompensation is not required.

199



Several standards including IFRS 3, IFRS 13 and IAS 40 “Investment Property” were amended inthis annual improvement.

6) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number ofrevenue-related interpretations.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contracts; and Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

7) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture”

The amendments stipulated that, when an entity sells or contributes assets that constitute a business(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transactionis recognized in full. Also, when an entity loses control of a subsidiary that contains a business butretains significant influence or joint control, the gain or loss resulting from the transaction isrecognized in full.

Conversely, when an entity sells or contributes assets that do not constitute a business to anassociate or joint venture, the gain or loss resulting from the transaction is recognized only to theextent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share ofthe gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does notcontain a business but retains significant influence or joint control in an associate or a joint venture,the gain or loss resulting from the transaction is recognized only to the extent of the unrelatedinvestors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss iseliminated.


Several standards including IFRS 5 “Non-current assets held for sale and discontinued operations”,IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement.

9) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number ofrelated interpretations.

Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities forall leases on the consolidated balance sheets except for low-value and short-term leases. TheGroup may elect to apply the accounting method similar to the accounting for operating lease underIAS 17 to the low-value and short-term leases. On the consolidated statements of comprehensiveincome, the Group should present the depreciation expense charged on the right-of-use asset

200


separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor.

When IFRS 16 becomes effective, the Group may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group continuingly assesses the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers and IFRSs endorsed by the FSC.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except forfinancial instruments which are measured at fair values.

The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair valuemeasurement inputs are observable and the significance of the inputs to the fair value measurement inits entirety, which are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable forthe asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for the asset or liability.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within twelve months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle aliability for at least twelve months after the reporting period.

201


Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within twelve months after the reporting period; and

3) Liabilities for which the Group does not have an unconditional right to defer settlement for at leasttwelve months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Corporation and theentities controlled by the Corporation (its subsidiaries).

When necessary, adjustments are made to the financial statements of subsidiaries to bring theiraccounting policies in line with those used by the Corporation.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

See Note 14 and Table 6 for the detail information of the subsidiaries.

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies otherthan the entity’s functional currency (foreign currencies) are recognized at the rates of exchangeprevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslatedat the rates prevailing at that date. Exchange differences on monetary items arising from settlement ortranslation are recognized in profit or loss in the period in which they arise, except for exchangedifferences on transactions entered into in order to hedge certain foreign currency risks.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslatedat the rates prevailing at the date when the fair value was determined. Exchange differences arisingfrom the retranslation of non-monetary items are included in profit or loss for the period except forexchange differences arising from the retranslation of non-monetary items in respect of which gains andlosses are recognized directly in other comprehensive income, in which case, the exchange differencesare also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purpose of presenting consolidated financial statements, the functional currencies of theCorporation and the Group entities (including subsidiaries, associates, joint ventures and branches inother countries that use currency different from the currency of the Corporation) are translated into thepresentation currency - New Taiwan dollars as follows: Assets and liabilities are translated at theexchange rates prevailing at the end of the reporting period; income and expense items are translated atthe average exchange rates for the period. The resulting currency translation differences arerecognized in other comprehensive income.

202


When disposing of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, or a partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit or loss.

f. Inventories

Inventories consist of raw materials, supplies and spare parts, work-in-process and finished goods andare stated at the lower of cost or net realizable value. Inventory write-downs are made by item, exceptwhere it may be appropriate to group similar or related items. Net realizable value is the estimatedselling price of inventories less all estimated costs of completion and cost necessary to make the sale.Inventories are recorded at weighted-average cost on the balance sheet date.

g. Investment in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiarynor an interest in a joint venture.

The results, assets and liabilities of associates are incorporated in these consolidated financialstatements using the equity method of accounting.

Under the equity method, an investment in an associate is initially recognized at cost and adjustedthereafter to recognize the Group’s share of the profit or loss and other comprehensive income of theassociate. The Group also recognized the changes in the share of equity of associates.

When the Group subscribes for additional new shares of the associate, at a percentage different from itsexisting ownership percentage, the resulting carrying amount of the investment differs from the amountof the Group’s proportionate interest in the associate. The Group records such a difference as anadjustment to investments with the corresponding amount charged or credited to capital surplus. If theGroup’s ownership interest is reduced due to the additional subscription of the new shares of associate,the proportionate amount of the gains or losses previously recognized in other comprehensive income inrelation to that associate is reclassified to profit or loss on the same basis as would be required if theinvestee had directly disposed of the related assets or liabilities. When the adjustment should bedebited to capital surplus, but the capital surplus recognized from investments accounted for by theequity method is insufficient, the shortage is debited to retained earnings.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a singleasset by comparing its recoverable amount with its carrying amount. Any impairment loss recognizedforms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases to bean associate. Any retained investment is measured at fair value at that date and the fair value isregarded as its fair value on initial recognition as a financial asset. The difference between theprevious carrying amount of the associate attributable to the retained interest and its fair value isincluded in the determination of the gain or loss on disposal of the associate. The Group accounts forall amounts previously recognized in other comprehensive income in relation to that associate and thejoint venture on the same basis as would be required if that associate had directly disposed of the relatedassets or liabilities.

When a group entity transacts with its associate, profits and losses resulting from the transactions withthe associate are recognized in the Group’ consolidated financial statements only to the extent ofinterests in the associate that are not related to the Group.

203


h. Property, plant, and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation andsubsequent accumulated impairment loss.

Depreciation on property, plant, and equipment is recognized using the straight-line method. Eachsignificant part is depreciated separately. The estimated useful lives, residual values and depreciationmethod are reviewed at the end of each year, with the effect of any changes in estimates accounted foron a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the disposalproceeds and the carrying amount of the asset is recognized in profit or loss.

i. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at costand subsequently measured at cost less accumulated amortization and accumulated impairment loss.Amortization is recognized on a straight-line basis. The estimated useful life, residual value, andamortization method are reviewed at the end of each year, with the effect of any changes inestimates accounted for on a prospective basis.

2) Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from the development phase of an internal project isrecognized if, and only if, all of the following have been demonstrated:

a) The technical feasibility of completing the intangible asset so that it will be available for use orsale;

b) The intention to complete the intangible asset and use or sell it;

c) The ability to use or sell the intangible asset;

d) How the intangible asset will generate probable future economic benefits;

e) The availability of adequate technical, financial and other resources to complete thedevelopment and to use or sell the intangible asset; and

f) The ability to measure reliably the expenditure attributable to the intangible asset during itsdevelopment.

The amount initially recognized for internally-generated intangible assets is the aggregate of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, they are measured on the same basis as intangible assets that acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and thecarrying amount of the asset is recognized in profit or loss.

204


j. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible andintangible assets, excluding goodwill, to determine whether there is any indication that those assetshave suffered an impairment loss. If any such indication exists, the recoverable amount of the asset isestimated in order to determine the extent of the impairment loss. When it is not possible to estimatethe recoverable amount of an individual asset, the Group estimates the recoverable amount of thecash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested forimpairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverableamount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carryingamount of the asset or cash-generating unit is reduced to its recoverable amount, with the resultingimpairment loss recognized in profit or loss.

When an impairment loss subsequently is reversed, the carrying amount of the asset or cash-generatingunit is increased to the revised estimate of its recoverable amount, but only to the extent of the carryingamount that would have been determined had no impairment loss been recognized for the asset orcash-generating unit in prior years. A reversal of an impairment loss is recognized immediately inprofit or loss.

k. Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to thecontractual provisions of the instruments.

Financial assets and financial liabilities are initially recognized at fair value. Transaction costs that aredirectly attributable to the acquisition or issue of financial assets and financial liabilities (other thanfinancial assets and financial liabilities at fair value through profit or loss) are added to or deductedfrom the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fairvalue through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade datebasis.

1) Measurement category

Financial assets are classified into the following specified categories: Financial assets at fair valuethrough profit or loss, held-to-maturity financial assets, available-for-sale financial assets and loansand receivables.

a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset iseither held for trading or it is designated as at fair value through profit or loss.

205


A financial asset may be designated as at fair value through profit or loss upon initial recognition if:

i) Such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

ii) The financial asset forms part of a group of financial assets or financial liabilities or both,which is managed and evaluated performance on a fair value basis, in accordance with theGroup’s documented risk management or investment strategy, and information about thegrouping is provided internally on that basis; or

iii) The contract contains one or more embedded derivatives so that the entire hybrid(combined) contract can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising from remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 31.

b) Held-to-maturity financial assets

The corporate bonds which the Corporation invests in and has positive intent and ability to holdto maturity are classified as held-to-maturity financial assets.

Subsequent to initial recognition, held-to-maturity financial assets are measured at amortizedcost using the effective interest method less any impairment.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated asavailable-for-sale or are not classified as loans and receivables, held-to-maturity financial assetsor financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Dividends on available-for-saleequity investments are recognized in profit or loss. Other changes in the carrying amount ofavailable-for-sale financial assets are recognized in other comprehensive income and will bereclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when theGroup’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active marketand whose fair value cannot be reliably measured and derivatives that are linked to and must besettled by delivery of such unquoted equity investments are measured at cost less any identifiedimpairment loss at the end of each reporting period and are presented in a separate line item asfinancial assets carried at cost. If, in a subsequent period, the fair value of the financial assetscan be reliably measured, the financial assets are remeasured at fair value. The differencebetween carrying amount and fair value is recognized in other comprehensive income onfinancial assets. Any impairment losses are recognized in profit and loss.

d) Loans and receivables

Loans and receivables (including cash and cash equivalent, accounts receivable, otherreceivables, and other financial assets) are measured at amortized cost using the effectiveinterest method, less any impairment, except for short-term receivables when the effect ofdiscounting is immaterial.

206


Cash equivalent includes time deposits investments with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators ofimpairment at the end of each reporting period. Financial assets are considered to be impairedwhen there is objective evidence that, as a result of one or more events that occurred after the initialrecognition of the financial asset, the estimated future cash flows of the investment have beenaffected.

Objective evidence of impairment could include: significant financial difficulty of the debtor; or itis becoming probable that the debtor will enter bankruptcy or financial reorganization.; or a defaultor delinquency in interest or principal payments; or extension of the maturity date; or significantfinancial difficulty of the final issuer or debtor; or active market for that financial asset hasdisappeared because of the issuer’s financial difficulties or other reasons.

Accounts receivable that are assessed as not impaired individually are further assessed forimpairment on a collective basis. Objective evidence of impairment for a portfolio of accountsreceivable could include the Group’s past experience in the collection of payments, an increase inthe number of delayed payments, as well as observable changes in national or local economicconditions that correlate with defaults on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is thedifference between the asset’s carrying amount and the present value of estimated future cash flows,discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of theimpairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognized, the previously recognized impairment loss is reversed through profit orloss to the extent that the carrying amount of the investment at the date the impairment is reverseddoes not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of thesecurity below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

a) Significant financial difficulty of the issuer or counterparty; or

b) Breach of contract, such as a default or delinquency in interest or principal payments; or

c) It is becoming probable that the borrower will enter bankruptcy or financial re-organization; or

d) The disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

207


In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

3) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows fromthe asset expire, or when it transfers the financial asset and substantially all the risks and rewards ofownership of the asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the asset’s carryingamount and the aggregate of the consideration received and receivable and the cumulative gain orloss that had been recognized in other comprehensive income and accumulated in equity isrecognized in profit or loss.

Equity instruments

Equity instruments issued by a group entity are classified as equity in accordance with the substance of the contractual arrangements and the definitions of an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.


1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using theeffective interest method.

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liability iseither held for trading or it is designated as at fair value through profit or loss.

Financial liabilities held for trading are stated at fair value, with any gains or losses arising fromremeasurement recognized in profit or loss. The net gain or loss recognized in profit or lossincorporates any interest or dividend paid for the financial liability. Fair value is determined in themanner described in Note 31.

208


2) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and theconsideration paid, including any non-cash assets transferred or liabilities assumed, is recognized inprofit or loss.

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts and currency-swap contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

l. Hedge accounting

The Group designates certain hedging instruments, which include derivatives in respect of foreigncurrency risk, as both fair value hedges and cash flow hedges. Hedges of foreign exchange risk onfirm commitments are accounted for as cash flow hedges.

1) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges arerecognized in profit or loss immediately, together with any changes in the fair value of the hedgedasset or liability that are attributable to the hedged risk. The change in the fair value of thehedging instrument and the change in the hedged item attributable to the hedged risk are recognizedin profit or loss in the line item relating to the hedged item.

Hedge accounting is discontinued prospectively when the Group revokes the designated hedgingrelationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when itno longer meets the criteria for hedge accounting.

2) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify ascash flow hedges is recognized in other comprehensive income. The gain or loss relating to theineffective portion is recognized immediately in profit or loss.

The associated gains or losses that were recognized in other comprehensive income are reclassifiedfrom equity to profit or loss as a reclassification adjustment in the same period when the hedgeditems affect profit or loss. If a hedge of a forecast transaction subsequently results in therecognition of a non-financial asset or a non-financial liability, the associated gains and losses thatwere recognized in other comprehensive income are removed from equity and are included in theinitial cost of the non-financial asset or non-financial liability.

209


Hedge accounting is discontinued prospectively when the Group revokes the designated hedging relationship, or when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been previously recognized in other comprehensive income from the period when the hedge was effective remains separately in equity until the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss.

m. Provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration requiredto settle the present obligation at the end of the reporting period, taking into account the risks anduncertainties surrounding the obligation.

n. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reducedfor estimated customer returns, rebates and other similar allowances. Sales returns are recognized atthe time of sale according to the reliable estimate of future returns based on past experience and otherrelevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Group has transferred to the buyer the significant risks and rewards of ownership of thegoods;

b) The Group retains neither continuing managerial involvement to the degree usually associatedwith ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

d) It is probable that the economic benefits associated with the transaction will flow to the Group;and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive paymenthas been established, provided that it is probable that the economic benefits will flow to the Groupand the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefitswill flow to the Group and the amount of income can be measured reliably. Interest income isaccrued on a time basis, by reference to the principal outstanding and at the effective interest rateapplicable.

210


o. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of therelevant lease. Contingent rents are recognized as revenue in the period in which they areincurred.

2) The Group as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.Contingent rents are recognized as an expense in the period in which they are incurred.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscountedamount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense whenemployees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the definedbenefit retirement benefit plans are determined using the projected unit credit method. Servicecost (including current service cost) and net interest on the net defined benefit liability arerecognized as employee benefits expense in the period they occur. Remeasurement, comprisingactuarial gains and losses and the return on plan assets (excluding net interest), is recognized inother comprehensive income in the period in which they occur. Remeasurement recognized inother comprehensive income is reflected immediately in retained earnings and will not bereclassified to profit or loss.

Net defined benefit liability represents the actual deficit in the Group’s defined benefit plan.

3) Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Group can no longerwithdraw the offer of the termination benefit and when the Group recognizes any relatedrestructuring costs.

q. Share-based payment arrangements

Employee stock options granted to employee

The fair value at the grant date of the employee share options is expensed on a straight-line basis overthe vesting period, based on the Group’s best estimates of the number of shares or options that areexpected to ultimately vest, with a corresponding increase in capital surplus - employee stock options.It is recognized as an expense in full at the grate date if vesting immediately.

At the end of each reporting period, the Group revises its estimate of number of employee share optionsexpected to vest.

211


r. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is providedfor as income tax in the year the shareholders approve the retention of the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s taxprovision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets andliabilities and the corresponding tax bases used in the computation of taxable profit. Deferred taxliabilities are generally recognized for all taxable temporary differences. Deferred tax assets aregenerally recognized for all deductible temporary differences, unused loss carry forward or unusedtax credits for research and development expenditures and personnel training expenditures to theextent that it is probable that taxable profits will be available against which those deductibletemporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investmentsin subsidiaries and associates, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will not reverse in theforeseeable future. Deferred tax assets arising from deductible temporary differences associatedwith such investments and interests are only recognized to the extent that it is probable that therewill be sufficient taxable profits against which to utilize the benefits of the temporary differencesand they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period andreduced to the extent that it is no longer probable that sufficient taxable profits will be available toallow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is alsoreviewed at the end of each reporting period and recognized to the extent that it has becomeprobable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in theperiod in which the liability is settled or the asset is realized, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Group expects, at the end of the reporting period, to recover or settle thecarrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that arerecognized in other comprehensive income or directly in equity, in which case, the current anddeferred tax are also recognized in other comprehensive income or directly in equity respectively.

s. Treasury stocks

Repurchase of the Group’s own equity instruments (treasury stocks) is recognized and deducted directlyfrom equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellationof the Group’s own equity instruments.

212


5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATIONUNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimatesand assumptions about the carrying amounts of assets and liabilities that are not readily apparent from othersources. The estimates and associated assumptions are based on historical experience and other factorsthat are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised if the revision affects only that periodor in the period of the revision and future periods if the revision affects both current and future periods.

a. Revenue recognition

The Group recognizes revenue when the conditions described in Notes 4 (n) are satisfied. The Groupalso records a provision for estimated future returns and other allowances in the same period the relatedrevenue is recorded. Provision for estimated sales returns and other allowances is generally made andadjusted at a specific percentage based on historical experience and any known factors that wouldsignificantly affect the allowance, and our management periodically reviews the adequacy of thepercentage used.

As of December 31, 2015 and 2014, the Group recognized provisions for estimated sales returns andother allowances of $136,576 thousand and $110,906 thousand, respectively.

b. Held-to-maturity financial assets

Management has reviewed the Group’s held-to-maturity financial assets in light of its capitalmaintenance and liquidity requirements and has confirmed the Group’s positive intention and ability tohold those assets to maturity.

c. Income taxes

As of December 31, 2015 and 2014, the carrying amount of the deferred tax assets in relation to unusedtax losses was $28,515 thousand and $28,044 thousand, respectively. As of December 31, 2015 and2014, no deferred tax asset has been recognized on the tax losses of $26,046 thousand and $25,672thousand, respectively, due to the unpredictability of future profit streams. The realizability of thedeferred tax asset mainly depends on whether sufficient future profits or taxable temporary differenceswill be available. In cases where the actual future profits generated are less than expected, a materialreversal of deferred tax assets may arise, which would be recognized in profit or loss for the period inwhich such reversal takes place.

d. Estimated impairment of accounts receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimationof future cash flows. The amount of the impairment loss is measured as the difference between theasset’s carrying amount and the present value of estimated future cash flows (excluding future creditlosses that have not been incurred) discounted at the financial asset’s original effective interest rate.Where the actual future cash flows are less than expected, a material impairment loss may arise.

e. Write-down of inventory

Net realizable value of inventory is the estimated selling price in the ordinary course of business less theestimated costs of completion and the estimated costs necessary to make the sale. The estimation ofnet realizable value was based on current market conditions and the historical experience of sellingproducts of a similar nature. Changes in market conditions may have a material impact on theestimation of net realizable value.

213


f. Recognition and measurement of defined benefit plans

Net defined benefit liabilities and the resulting defined benefit costs under defined benefit pension plansare calculated using the projected unit credit method. Actuarial assumptions comprise the discountrate, rate of employee turnover, and future salary increase, etc. Changes in economic circumstancesand market conditions will affect these assumptions and may have a material impact on the amount ofthe expense and the liability.

6. CASH AND CASH EQUIVALENTS

December 31 2015 2014

Deposits in bank $ 16,764,202 $ 17,109,735Cash equivalents

Bonds acquired under resale agreements 1,186,645 40,000

$ 17,950,847 $ 17,149,735

The market rate intervals of cash and cash equivalents at the end of the reporting period were as follows:

December 31 2015 2014

Bank deposits 0%-4.10% 0%-3.30% Bonds acquired under resale agreements 0.35%-5.10% 0.60%-0.62%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2015 2014

Financial assets designated as at FVTPL

Interest rate linked structured dollar investment notes (a) $ - $ 158,007 Credit linked notes (a) 1,094,381 27,842 Convertible bonds - 111,369

1,094,381 297,218

Financial assets held for trading

Derivative financial assets (not designated as hedging instruments) Forward exchange contracts (b) 3,514 318 Currency-swap contracts (c) - 1,288

Non-derivative financial assets Mutual funds - 512,097

3,514 513,703

Financial assets at FVTPL-current $ 1,097,895 $ 810,921 (Continued)

214


December 31 2015 2014

Financial liabilities held for trading

Derivative financial liabilities (not designated as hedging instruments Forward exchange contracts (b) $ 15,720 $ 3,731 Currency-swap contracts (c) 12,754 86,853

Financial liabilities at FVTPL-current $ 28,474 $ 90,584 (Concluded)

a. The Group entered into structured investment contracts with a bank in 2015 and 2014. The structuredinvestment contracts include an embedded derivative instrument which is not closely related to the hostcontracts. The Group designated the entire contract as financial asset at FVTPL on initial recognition.

b. At the end of the reporting period, outstanding forward exchange contracts that did not meet the criteriaof hedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2015


December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.06-2015.04.07 US$ 5,000 Sell forward exchange contracts US$ to JPY 2015.01.22 US$ 3,000

c. At the end of the reporting period, outstanding currency-swap contracts that did not meet the criteria ofhedge accounting were as follows:


Contract Amount

(In Thousands)

December 31, 2015


December 31, 2014

Sell forward exchange contracts US$ to NT$ 2015.01.08-2015.03.24 US$ 149,000 Buy forward exchange contracts JPY to US$ 2015.01.22 US$ 500

The Group entered into foreign exchange forward contracts during the years ended December 31, 2015 and 2014 to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities.

215


8. AVAILABLE-FOR-SALE FINANCIAL ASSETS - CURRENT

December 31 2015 2014

Listed stocks $ 88,731 $ 143,038

9. HELD-TO-MATURITY FINANCIAL ASSETS - CURRENTDecember 31

2015 2014

Foreign investments Volkswagen Int’l Finance N.V. bonds (a) $ 49,655 $ - China Construction Bank Asia Co bonds (b) 44,928 - China Minmetals Corp bonds (c) 44,919 -

$ 139,502 $ -

a. In August 2015, the Group bought 5-year corporate bonds issued by Volkswagen Int’l Finance N.V.with a coupon rate of 2.15% and an effective interest rate of 3.51%-3.81%, at par value of RMB$10,000thousand.

b. In August 2015, the Group bought 2-year corporate bonds issued by China Construction Bank Asia Cowith a coupon rate of 3.25% and an effective interest rate of 3.42%-3.70%, at par value of RMB$9,000thousand.

c. In August 2015, the Group bought 3-year corporate bonds issued by China Minmetals Corp with acoupon rate of 3.65% and an effective interest rate of 3.76%-4.25%, at par value of RMB$9,000thousand.

10. DERIVATIVE FINANCIAL INSTRUMENTS FOR HEDGING

December 31 2015 2014

Fair Value Hedge

Cash Flow Hedge

Fair Value Hedge

Cash Flow Hedge

Derivative financial assets for hedging - current

Currency-swap contracts $ - $ - $ - $ 70

Derivative financial liabilities for hedging - current

Currency-swap contracts $ 7,020 $ - $ 15,206 $ -

a. Fair value hedge

The Group used forward exchange contracts and currency-swap contracts to hedge risks on exchangerate fluctuations of foreign-currency denominated accounts receivable. The forward exchangecontracts and currency-swap contracts had the same term as the respective financial assets; themanagement believed the forward exchange contracts and currency-swap contracts were highlyeffective hedge instruments.

216




Contract Amount

(In Thousands)

December 31, 2015


December 31, 2014


b. Cash flow hedge

The Group used cash flow hedge to manage risks on exchange rate fluctuation and changes in timevalue of money for those expected sales transactions.

The terms of the currency-swap contracts had been negotiated to match the terms of the respectivedesignated hedged items.



Contract Amount

(In Thousands)

December 31, 2014


11. FINANCIAL ASSETS CARRIED AT COST - NON-CURRENT

December 31 2015 2014

Unlisted stocks $ 82,497 $ 78,436

The classification of financial assets Available-for-sale financial assets $ 82,497 $ 78,436

The management believed that the fair value of the aforementioned unlisted equity investments held by the Group cannot be reliably measured due to the range of reasonable fair value estimates was significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, the unlisted stocks were measured at cost less impairment at the end of the reporting period.

The Group recognized $7,900 thousand of impairment loss in 2015 due to investee’s capital reduction to offset a deficit.

217


12. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31 2015 2014

Notes and accounts receivable $ 2,521,500 $ 3,263,431 Allowance for doubtful accounts (1,987) (1,987)

Notes and accounts receivable, net $ 2,519,513 $ 3,261,444

The average credit period on sales of goods is 30 to 45 days after the end of the month. No interest is charged on notes and accounts receivable. In determining the recoverability of a trade receivable, the Group considered any changes in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts is based on estimated irrecoverable amounts determined by reference to past default experience of the counterparts and an analysis of their current financial position.

For the accounts receivable balance that were past due at the end of the reporting period, the Group had not recognized an allowance for doubtful accounts since there had not been a significant change in the credit quality of its customers and the amounts were still considered recoverable.

The aging analyses of notes and accounts receivable were as follows:

December 31 Past Due Days 2015 2014

Not past due and not impaired 0 days $ 2,470,291 $ 3,243,422 Past due but not impaired Less than 60 days 44,432 3,087

61-90 days 6,162 2,423More than 90 days 615 14,499

51,209 20,009

$ 2,521,500 $ 3,263,431

Movements of the allowance for doubtful accounts were as follows:


Balance, beginning of year $ 1,987 $ 2,399 Less: Amounts written off as uncollection - (412)

Balance, end of year $ 1,987 $ 1,987

The Group had no impairment loss recognized on the accounts receivable during the years ended December 31, 2015 and 2014.

218


13. INVENTORIES

December 31 2015 2014

Finished goods $ 314,299 $ 418,565 Work in process 1,181,419 1,397,276 Raw materials 377,668 281,253 Supplies and spare parts 377,225 401,306

$ 2,250,611 $ 2,498,400

The write-downs of inventories included in the cost of revenue were as below:


Provision of inventory valuation and obsolescence losses $ 69,547 $ 124,536

For the years ended December 31, 2015 and 2014, cost of revenue included unallocated manufacturing overheads amount of $703,284 thousand, and $153,662 thousand, respectively.

14. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements

Proportion of Ownership December 31

Investor Investee Nature of Business 2015 2014


VIS Associates Inc. Investments 100% 100%

VIS Associates Inc. Specialty TechFarm, Inc. Investments 100% 100% VIS Associates Inc. VIS Investment Holding, Inc. Investments 100% 100% VIS Investment Holding, Inc. VIS Micro, Inc. Marketing service 100% 100%

15. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates

December 31 2015 2014

Associates individually immaterial

CMSC, Inc. $ 51,439 $ 50,447 SkyTraq Technology, Inc. 26,422 28,222 INNO-TECH Co., Ltd. - 7,082

$ 77,861 $ 85,751

Refer to Table 6 “Information on Investees” for the nature of business, principal place of business and country of incorporation of the associates.

219


INNO-TECH Co., Ltd. conducted the election of directors and supervisors in June 2015 with the result that the Group no longer exercise significant influence. The 13% interest held by the Group with a fair value of US$353 thousand was changed to be treated as a financial asset carried at cost. For the year ended December 31, 2015, due to the above transaction, the Group recognized $22,354 thousand of gain on disposal of investment which include write-off the exchange differences on translation of foreign operations and retained capital surplus and the difference of fair value.

Aggregate information of associates that are not individually material


The Group’s share of:Loss from continuing operations $ (2,945) $ (13,232)Other comprehensive loss (495) (997)

Total comprehensive loss $ (3,440) $ (14,229)

The investments accounted for using equity method, the share of net profit or loss and the share of other comprehensive income (loss) from investments were accounted for based on the unaudited financial statements. The Group’s management considered the use of unaudited financial statements of the investees did not have material impact on its consolidated financial statements.

16. PROPERTY, PLANT AND EQUIPMENT


Buildings Machinery and

Equipment Other

Equipment Construction in Progress Total

Cost

Balance, January 1, 2014 $ 13,979,826 $ 52,815,803 $ 372,209 $ 115,274 $ 67,283,112 Additions 628,747 1,803,091 18,645 969,134 3,419,617Disposal - (7,592) (2,780) - (10,372)Translation adjustments - - 117 - 117

Balance, December 31, 2014 $ 14,608,573 $ 54,611,302 $ 388,191 $ 1,084,408 $ 70,692,474


Balance, January 1, 2014 $ 10,856,026 $ 49,261,418 $ 342,673 $ - $ 60,460,117 Depreciation 621,867 1,439,893 10,794 - 2,072,554Disposal - (4,835) (2,750) - (7,585)Translation adjustments - - 100 - 100




Carrying amounts on December 31, 2014 $ 3,130,680 $ 3,731,305 $ 37,374 $ 1,084,408 $ 7,983,767

(Continued)

220



Buildings Machinery and

Equipment Other

Equipment Construction in Progress Total

Cost

Balance, January 1, 2015 $ 14,608,573 $ 54,611,302 $ 388,191 $ 1,084,408 $ 70,692,474 Additions 397,617 1,761,332 8,349 (874,691) 1,292,607Disposal - (42,993) (3,366) - (46,359)Reclassified - 6,302 660 - 6,962Translation adjustments - - 73 - 73

Balance, December 31, 2015 $ 15,006,190 $ 56,335,943 $ 393,907 $ 209,717 $ 71,945,757


Balance, January 1, 2015 $ 11,477,893 $ 50,696,476 $ 350,817 $ - $ 62,525,186 Depreciation 621,831 1,669,656 12,462 - 2,303,949Disposal - (42,993) (3,366) - (46,359)Translation adjustments - - 63 - 63




Carrying amounts on December 31, 2015 $ 2,906,466 $ 3,829,283 $ 33,931 $ 209,717 $ 6,979,397

(Concluded)

The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful lives as follows:

Buildings Main plants 20 years Mechanical and electrical power equipment 5 to 10 years Clean rooms 10 years

Machinery and equipment 3 to 5 years Other equipment 3 to 7 years

17. INTANGIBLE ASSETS


Computer software

Cost Balance, January 1 $ 760,644 $ 731,644 Additions 26,731 29,000Disposal (977) -Reclassified to property, plant and equipment (6,962) - Balance, December 31 779,436 760,644

(Continued)

221



Accumulated amortization Balance, January 1 $ 723,470 $ 714,633 Amortization 15,347 8,837Disposal (977) - Balance, December 31 737,840 723,470

Carrying amount, end of year $ 41,596 $ 37,174 (Concluded)

Intangible assets were amortized on a straight-line basis over the estimated useful lives as follows:

Computer software 3 to 5 years

18. OTHER ASSETS

December 31 2015 2014

Pledged time deposit $ 303,552 $ 303,384 Other financial assets - 387,392 Others 2,696 2,795

$ 306,248 $ 693,571

Current $ 2,696 $ 390,187 Non-current 303,552 303,384

$ 306,248 $ 693,571

19. OTHER PAYABLES

December 31 2015 2014

Bonus $ 503,849 $ 649,586 Maintenance 381,115 343,613Utilities 145,776 148,855Royalties 21,547 18,855Others 674,810 558,608

$ 1,727,097 $ 1,719,517

222


20. OTHER CURRENT LIABILITIES

December 31 2015 2014

Advance receipts $ 81,073 $ 87,491 Others 372 229

$ 81,445 $ 87,720

21. PROVISIONS - CURRENT

December 31 2015 2014

Sales returns and allowances $ 136,576 $ 110,906

The provision of sales returns and allowances was estimated based on historical experience, management’s judgments and any other known factors that would affect the returns and allowances. The provision was recognized as a reduction of revenue in the periods of the related products sold.

22. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is astate-managed defined contribution plan. Based on the LPA, the Corporation makes monthlycontributions to employees’ individual pension accounts at 6% of monthly salaries and wages.Besides, VIS Micro is required by local regulations to make monthly contributions at certain percentageof the basic salary of their employees.

b. Defined benefit plans

The Corporation adopted the defined benefit plan under the Labor Standards Law and the “Pension Planof Senior Management” of the Corporation. Pension benefits are calculated on the basis of the lengthof service and average monthly salaries of the six months before retirement. The Corporationcontributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered bythe pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan inthe committee’s name. Before the end of each year, the Corporation assesses the balance in thepension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefitsfor employees who conform to retirement requirements in the next year, the Corporation is required tofund the difference in one appropriation that should be made before the end of March of the next year.The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); theCorporation has no right to influence the investment policy and strategy.

223


The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows:

December 31 2015 2014

Present value of defined benefit obligation $ 970,547 $ 953,437 Fair value of plan assets (339,555) (340,331)

Net defined benefit liability $ 630,992 $ 613,106

Movements in net defined benefit liability were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of Plan Assets

Net Defined Benefit

Liability

Balance at January 1, 2014 $ 876,984 $ (319,817) $ 557,167 Service cost



Return on plan assets (excluding amounts included in net interest) - (708) (708)

Actuarial gain - changes in financial assumptions (13,992) - (13,992)

Actuarial loss - experience adjustments 66,446 - 66,446 Recognized in other comprehensive income 52,454 (708) 51,746 Contributions from the employer - (14,699) (14,699) Benefits paid (1,892) 1,892 - Balance at December 31, 2014 953,437 (340,331) 613,106 Service cost



Return on plan assets (excluding amounts included in net interest) - (1,272) (1,272)

Actuarial loss - changes in financial assumptions 46,228 - 46,228

Actuarial gain - experience adjustments (28,375) - (28,375) Recognized in other comprehensive income 17,853 (1,272) 16,581 Contributions from the employer - (14,485) (14,485) Benefits paid (46,296) 24,216 (22,080)

Balance at December 31, 2015 $ 970,547 $ (339,555) $ 630,992

224


Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

1) Investment risk: The plan assets are invested in domestic/foreign equity and debt securities, bankdeposits, etc. The investment is conducted at the discretion of the Bureau or under the mandatedmanagement. However, in accordance with relevant regulations, the return generated by planassets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of thedefined benefit obligation; however, this will be partially offset by an increase in the return on thedebt investments of the plan assets.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to thefuture salaries of plan participants. As such, an increase in the salary of the plan participants willincrease the present value of the defined benefit obligation.

The actuarial valuations of present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:

December 31 2015 2014

Discount rates 1.90% 2.25% Expected rates of salary increase 3.50% 3.50%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

December 31, 2015

Discount rates 0.50% increase $ (68,251)0.50% decrease $ 67,741

Expected rates of salary increase 0.50% increase $ 66,260 0.50% decrease $ (67,605)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

December 31 2015 2014

The expected contributions to the plan for the next year $ 14,992 $ 15,213

The average duration of the defined benefit obligation 14.9 years 14.7 years

225


Maturity analyses of pension benefit were as follows:

December 31 2015 2014

Maturity analysis of undiscounted pension benefit No later than 1 year $ 8,044 $ 12,980 Later than 1 year and not later than 5 years 123,406 98,165 Later than 5 years 1,189,049 1,278,838

$ 1,320,499 $ 1,389,983

23. EQUITY

a. Capital stock

Common stock

December 31 2015 2014

Authorized shares (in thousands) 3,300,000 3,300,000Authorized capital $ 33,000,000 $ 33,000,000Issued and fully paid shares (in thousands) 1,638,982 1,638,982

Issued capital $ 16,389,823 $ 16,389,823

The authorized shares include 300,000 thousand shares reserved for the exercise of employee stock options.

b. Capital Surplus

December 31 2015 2014

May be used to offset a deficit, distributed by cash, or transferred to capital

Arising from issuance of common stock $ 544,884 $ 544,884

May be used to offset a deficit only

Arising from employee stock options (transferred and inactive) 285,845 259,570 Arising from share of changes in equities of subsidiaries,

associates and joint ventures 24,394 33,575

$ 855,123 $ 838,029

The capital surplus from stock issued in excess of par may be used to offset a deficit; in addition, when the Group has no deficit, such capital surplus may be distributed in cash or stock transferred to capital, which are limited to a certain percentage of the Group’s paid-in capital.

226


c. Retained earnings and dividend policy

The Corporation’s Articles of Incorporation provide that the following should be appropriated from theannual net income after deducting the applicable income taxes, any deficit and 10% legal reserve:

1) Special reserve;

2) Not more than 1% as remuneration to directors;

3) At least 1% as bonus to employees; and

4) Final balance, appropriation in accordance with the resolutions of shareholders’ meeting.

All profits may be distributed after taking into consideration to financial, business and operational factors. Dividends are in cash and/or in the form of stock. Since the Corporation’s operation is at the steady growth stage, the cash dividend paid (in any given year) should be at least 10% of the dividends of the current year’s appropriation. If there is no profit for distribution, or the profit is far less than the profit actually distributed by the Corporation in the previous year or other reasons so require, all or part of the capital surplus may be transferred to capital for distribution in accordance with relevant laws or regulations of the authorities in charge.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The consequential amendments to the Corporation’s Articles of Incorporation had been proposed by the Corporation’s board of directors on January 27, 2016 and are subject to the resolution of the shareholders in their meeting to be held on June 7, 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and the actual appropriations, please refer to b. Employee benefits expense in Note 25.

The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”. Distributions can be made out of any subsequent reversal of the debit to other equity items.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Except for non-ROC resident shareholders, other shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation.

The appropriations of earnings for 2014 and 2013 which have been approved in the shareholders’ meeting on June 8, 2015 and June 12, 2014, respectively, were as follows:

Appropriations of Earnings Dividends Per Share (NT$) 2014 2013 2014 2013

Legal reserve $ 543,789 $ 437,099 $ - $ -Provision (reversal) of special

reserve 16,806 (15,248) - -Cash dividends 4,259,353 2,873,325 2.6 1.80

$ 4,819,948 $ 3,295,176

227


The appropriation of earnings for 2015 had been proposed by the Corporation’s board of directors on January 27, 2016. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividends Per Share (NT$)

Legal reserve $ 415,758 $ - Special reserve 45,305 - Cash dividends 4,261,354 2.60

The appropriation of earnings for 2015 is subject to the shareholders’ meeting to be held on June 7, 2016.

d. Other equity

1) Exchange differences on translation of foreign operations


Balance, beginning of year $ (50,082) $ (65,081) Exchange differences arising from translation of foreign

operations 11,078 15,996 Share of exchange differences of associates accounted for

using equity method (495) (997) Reclassified adjustment of disposal of the foreign associate (1,511) -


2) Unrealized gain (loss) on available-for-sale financial assets


Balance, beginning of year $ (20,494) $ 11,381 Unrealized loss arising from available-for-sale financial

assets (54,307) (31,875)


Unrealized gains or losses on available-for-sale financial assets represent the cumulative gains or losses arising from the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income netting the amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

3) Cash flow hedges


Balance, beginning of year $ 70 $ - (Loss) gain arising from changes in fair value of hedging

instruments Currency-swap contracts (70) 70

Balance, end of year $ - $ 70

228


The cash flow hedges represent the cumulative gains or losses arising from changes in fair value of the hedging instruments entered into as cash flow hedges. The cumulative gains or losses will be reclassified to profit or loss only when the hedge transaction affects the profit or loss, or used for adjusting the recognition of the non-financial hedged item.

e. Treasury stock

(Shares in Thousands)

Purpose of Treasury Stock

Number of Shares,

Beginning of Year

Addition During the

Year

Reduction During the

Year

Number of Shares, End of

Year


Transfer to employees 40,294 - (39,524) 770


Transfer to employees 770 - (770) -

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 76,160 thousand shares from the GreTai Securities Market during the period from December 16, 2011 to February 15, 2012 with buyback prices in the range from NT$8 to NT$15. The Corporation had repurchased 44,525 thousand shares.

The Corporation held a meeting of the Board of Directors and approved a share buyback plan to repurchase the Corporation’s common shares up to 31,635 thousand shares from the GreTai Securities Market during the period from February 20, 2012 to April 19, 2012 with buyback prices in the range from NT$10 to NT$16. The Corporation had repurchased 31,635 thousand common shares.

Under the Securities and Exchange Act of the R.O.C., the Corporation shall neither pledge treasury stocks nor exercise stockholders’ rights on these shares, such as rights to dividends and to vote.

Treasury stocks were granted on March 1, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 12.70 Exercise price (NT$) 11.49 Expected volatility 30.12%-31.53% Expected life 2 years Risk-free interest rate 0.8012%

Treasury stocks were granted on April 25, 2012, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 13.35 Exercise price (NT$) 12.83 Expected volatility 29.46%-29.72% Expected life 2 years Risk-free interest rate 0.8442%

229


Treasury stocks were granted on August 2, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 31 Exercise price (NT$) 12.83 Expected volatility 42.85% Expected life 1 year Risk-free interest rate 0.6952%

Treasury stocks were granted on November 1, 2013, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 32.35 Exercise price (NT$) 12.83 Expected volatility 43.26% Expected life 0.4822 year Risk-free interest rate 0.641%

Treasury stocks were granted on May 30, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 46.50 Exercise price (NT$) 11.49-12.83 Expected volatility 45.90% Expected life 0.2027 year Risk-free interest rate 0.5329%

Treasury stocks were granted on December 1, 2014, and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:

Stock price on grant date (NT$) $ 47.30 Exercise price (NT$) 12.83 Expected volatility 32.44% Expected life 0.0356 year Risk-free interest rate 0.4798%

Treasury stocks were granted on March 9, 2015 and determined their fair value by using the binomial option pricing model. The valuation assumptions were as follows:


Expected volatility was based on the historical stock price volatility over the same period as the expected life of each treasury stocks at the date of grant. The yield of 2-year government bond was used as the risk-free interest rate.

Compensation costs recognized were $31,374 thousand and $88,277 thousand for the years ended December 31, 2015 and 2014, respectively.

230


24. REVENUE

Revenue of the Group for the years ended December 31, 2015 and 2014 were analyzed as follow:


Wafer foundry $ 23,010,405 $ 23,674,857Other revenue 309,316 256,622

$ 23,319,721 $ 23,931,479

The Group designated certain foreign sales as hedged items to hedge the risk of cash flow. Loss on the hedging instrument amounting $8,596 thousand and $14,230 thousand that was determined to be an effective hedge were reclassified as decrease of revenue for the years ended December 31, 2015 and 2014, respectively.

25. OTHER ITEMS IN THE STATEMENTS OF COMPREHENSIVE INCOME

a. Depreciation and amortization


Property, plant and equipment $ 2,303,949 $ 2,072,554 Intangible assets 15,347 8,837

$ 2,319,296 $ 2,081,391

Classification of deprecation - by function Cost of revenue $ 2,254,409 $ 2,012,534 Operating expenses 49,540 60,020

$ 2,303,949 $ 2,072,554

Classification of amortization - by function Cost of revenue $ 7,470 $ 3,836 Operating expenses 7,877 5,001

$ 15,347 $ 8,837

b. Employee benefits expense


Post-employment benefits (see Note 22) Defined contribution plans $ 191,106 $ 172,368 Defined benefit plans 37,870 18,892

228,976 191,260(Continued)

231



Share-based payments (see Note 23) Equity-settled $ 31,374 $ 88,277

Other employee benefits 5,635,591 5,523,496

Total employee benefits expense $ 5,895,941 $ 5,803,033

Employee benefits expense summarized by function Cost of revenue $ 4,762,693 $ 4,494,225 Operating expenses 1,133,248 1,308,808

$ 5,895,941 $ 5,803,033 (Concluded)

For the year ended December 31, 2014, according to the existing Articles of Incorporation and based on past experiences, the Corporation stipulated to distribute $815,683 thousand of bonus to employees and $34,800 thousand of remuneration to directors at the rates of 15% of net income (net of the bonus and remuneration) and no higher than 1% of net income (net of the bonus and remuneration, legal reserve and special reserve), respectively.

To be in compliance with the Company Act amended in May 2015, the proposed amended Articles of Incorporation of the Corporation stipulate to distribute employees’ compensation and remuneration to directors at the rates of no less than 10% and no higher than 1%, respectively, of net profit before income tax, employees’ compensation and remuneration to directors. For the year ended December 31, 2015, the employees’ compensation and the remuneration to directors were $623,638 thousand and $13,588 thousand, respectively, representing 11% and 0.2%, respectively, of the base net profit. The amounts of employees’ compensation and remuneration to directors resolved by the board of directors on January 27, 2016 and the amounts recognized in the consolidated financial statements were as follows:

Year Ended December 31, 2015Employees’

Compensation Remuneration

to Directors

Amounts approved by board meetings $ 623,638 $ 13,384 Amounts recognized in the consolidated financial statements $ 623,638 $ 13,588

Above employees’ compensation and remuneration to directors resolved by the board of directors shall be reported in the shareholders’ meeting to be held on June 7, 2016 after the shareholders’ meeting resolves the amendment of Articles of Incorporation. Since the difference between the amounts resolved by the board of directors and the amounts recognized in the consolidated financial statements is insignificant, it will be recorded as a change in accounting estimate.

The appropriations of bonus to employees and remuneration to directors for 2014 and 2013 approved in the shareholders’ meetings on June 8, 2015 and June 12, 2014, respectively, were as follows:


Cash Dividends

Share Dividends

Cash Dividends

Share Dividends

Bonus to employees $ 815,683 $ - $ 655,648 $ - Remuneration to directors 34,800 - 9,600 -

232


There was no difference between the amounts of the bonus to employees and the remuneration to directors approved in the shareholders’ meetings on June 8, 2015 and June 12, 2014 and the amounts recognized in the consolidated financial statements for the years ended December 31, 2014 and 2013, respectively.

Information on the bonus to employees and the remuneration to directors approved by the Corporation’s shareholders’ meeting is available on the Market Observation Post System website of the Taiwan Stock Exchange.

26. INCOME TAXES

a. Major components of tax expenses recognized in profit or loss:


Current tax In respect of the current year $ 821,251 $ 1,047,312 Adjustments tax for prior years (1,914) 6,947 Other 146 196

819,483 1,054,455Deferred income tax

In respect of the current year (38,555) 1,530

Income tax expenses recognized in profit or loss $ 780,928 $ 1,055,985

A reconciliation of accounting profit and income tax expense is as follow:


Income before income tax $ 4,938,511 $ 6,496,066

Income tax expense calculated at the statutory rate $ 839,311 $ 1,106,086 Additional items in determining taxable income 3,678 7,453 Tax-exempt income (130,535) (168,345)Income tax on unappropriated earnings 56,913 107,581 The origination and reversal of temporary differences 13,329 5,989 Effect of tax on investment credits - (8,334)Effect of tax on loss carryforward - (1,588)Adjustments tax for prior years (1,914) 6,947 Others 146 196

Income tax expense recognized in profit or loss $ 780,928 $ 1,055,985

The Group applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the entities measures taxes by using the applicable tax rate for each individual jurisdiction.

As the status of 2016 appropriations of earnings is uncertain, the potential income tax consequences of 2015 unappropriated earnings added 10% income tax are not reliably determinable.

233


b. Current tax liabilities

December 31 2015 2014

Current tax liabilities Income tax payable $ 497,129 $ 840,431

c. Deferred income tax assets and liabilities

The movements of deferred income tax assets and liabilities were as follows:





the Year

Loss carryforwards $ 2,372 $ 97 $ 2,469 Temporary differences 1,182 1,760 2,942

$ 3,554 $ 1,857 $ 5,411




the Year

Temporary differences $ 104,192 $ (36,698) $ 67,494





the Year

Loss carryforwards $ 671 $ 1,701 $ 2,372 Temporary differences 3,497 (2,315) 1,182

$ 4,168 $ (614) $ 3,554




the Year

Temporary differences $ 103,275 $ 917 $ 104,192

234


d. Items for which no deferred income tax assets have been recognized

December 31 2015 2014

Loss carryforwards Expire in 2020 $ 23,751 $ 23,463 Expire in 2021 321 308 Expire in 2027 173 166 Expire in 2034 1,801 1,735

$ 26,046 $ 25,672

Deductible temporary differences $ 205,460 $ 189,062

e. Unrecognized deferred income tax liabilities associated with investments

As of December 31, 2015 and 2014, there were no taxable temporary differences associated withinvestment in subsidiaries for which no deferred income tax liabilities have been recognized.

f. Integrated income tax

December 31 2015 2014

Balance of the Imputation Credit Account - the Corporation $ 930,217 $ 472,583

The expected and actual creditable ratios for distributing the earnings of 2015 and 2014 were 16.42% and 14.70%, respectively.

Under the Income Tax Law, for distribution of earnings generated after January 1, 1998, the imputation credits allocated to ROC resident shareholders of the Corporation is calculated based on the creditable ratio as of the date of dividend distribution. The actual imputation credit allocated to shareholders of the Corporation is based on the balance of the Imputation Credit Accounts as of the date of dividend distribution. Therefore, the expected creditable ratio for the 2015 earnings may differ from the actual creditable ratio to be used in allocating imputation credit to the shareholders.

The unappropriated retained earnings as of December 31, 2015 and 2014 did not contain the unappropriated earnings generated before January 1, 1998.

g. Income tax exemption with respect to the issuance of shares

The Corporation was granted a five-year income tax exemption period with respect to the issuance ofshares from the appropriation for year 2015. The income tax exemption period is from January 1,2012 to December 31, 2016.

h. Income tax assessments

Income tax returns through 2013 had been examined and cleared by the tax authorities.

235


27. EARNINGS PER SHARE

Unit: NT$ Per Share


Basic earnings per share $ 2.54 $ 3.35 Diluted earnings per share $ 2.50 $ 3.30

The earnings and weighted average number of common shares used in the computation of earnings per share were as follows:

Earnings


Earnings used in computation of basic earnings per share $ 4,157,583 $ 5,440,081 Effect of dilutive potential common stocks:

Bonus to employees - - Employee stock options - -

Earnings used in the computation of diluted earnings per share $ 4,157,583 $ 5,440,081

Shares


Weighted average number of common stocks used in the computation of basic earnings per share 1,638,792 1,625,505

Effect of dilutive potential common shares: Bonus to employees 23,466 22,815 Employee stock options - 194

Weighted average number of common stocks used in the computation of diluted earnings per share 1,662,258 1,648,514

If the Corporation may settle the bonuses or compensation paid to employees by cash or shares, the Corporation presumed that the entire amount of the bonus or compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share when the shares had a dilutive effect. Such dilutive effect of the potential shares will be included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees in the following year.

28. SHARE-BASED PAYMENT

On September 18, 2003, the Securities and Futures Bureau approved the Corporation‘s Employee StockOption Plan (hereinafter referred to as the 2003 Plan). The 2003 Plan consisted of 70,000 thousand units.These options generally vest at a certain percentage from two years after the date of grant and the optionsgranted are valid for 10 years.

236


Information about stock options was as follow:

Year Ended December 31, 2014 Number of Weighted-

Outstanding average Stock Option Exercise

Rights Price(In Thousands) (NT$)

Beginning balance 4,062 $ 14.50 Options exercised (4,062) 14.50Ending balance - -

29. OPERATING LEASE ARRANGEMENTS

The Group as lessee

The Group leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-BasedIndustrial Park Administration and a certain individual under renewable operating lease agreementsexpiring on March 2016, December 2027, December 2029 and December 2034. The rental pay toHsinchu Science-Based Industrial Park Administration can be adjusted according to the lease contract, andthe lease is renewable upon expiration.

The future minimum lease payments of non-cancellable operating lease commitments are as follows:

December 31 2015 2014

Not later than 1 year $ 77,091 $ 70,123 Later than 1 year and not later than 5 years 306,685 249,806 Later than 5 years 658,714 520,516

$ 1,042,490 $ 840,445

The lease payments recognized as expenses were as follows:


Minimum lease payment $ 76,725 $ 79,373

30. CAPITAL MANAGEMENT

The Group manages its capital in a manner to ensure its ability to continue as a going concern whilemaximizing the return to shareholders. The Group’s overall strategy has no significant variations.

The capital structure of the Group consists of net debt (loans offset by cash and cash equivalents) andequity (i.e. capital stock, capital reserves, retained earnings and other equity).

The Group is not subject to any externally imposed capital requirements.

237


31. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments that are not measured at fair value

1) Financial assets and liabilities with material difference between carrying value and fair value

Except as detailed in the following table, the management considers that the carrying amounts offinancial assets and financial liabilities recognized in the consolidated financial statementsapproximate their fair values or their fair values cannot be reliably measured.

December 31 2015 2014



Financial assets

Held-to-maturity financial assets $ 139,502 $ 138,834 $ - $ -

Other current assets Structured time deposit - - 387,392 389,013

2) Fair value hierarchy as at December 31, 2015


Financial assets

Held-to-maturity financial assets $ 138,834 $ - $ - $ 138,834

b. Fair value of financial instruments that are measured at fair value on a recurring basis

1) Fair value hierarchy

The fair value hierarchies of financial assets and liabilities measured at fair value on a recurringbasic were as follows:

December 31, 2015



instruments $ - $ 1,097,895 $ - $ 1,097,895




instruments $ - $ 35,494 $ - $ 35,494

238


December 31, 2014



instrument $ 111,369 $ 187,525 $ - $ 298,894 Mutual fund 512,097 - - 512,097

$ 623,466 $ 187,525 $ - $ 810,991




instruments $ - $ 105,790 $ - $ 105,790

There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended December 31, 2015 and 2014, respectively.

There were no acquisition or disposal of financial assets measured by Level 3 of the fair value hierarchy for the years ended December 31, 2015 and 2014, respectively.

2) Valuation techniques and assumptions applied to Level 2 of fair value hierarchy

The fair values of financial assets and financial liabilities are determined as follows:

a) For those instruments such as derivative financial instruments with no quoted market prices,their fair values are determined by using valuation techniques incorporating estimates andassumptions consistent with those generally used by other market participants in their estimatesof fair values.

Fair values of forward exchange contacts and currency-swap contracts are determined by usingvaluation techniques based on forward rates for each contract. The Reuter’s quotation systemis mainly used as reference for the forward rates.

b) For the private placement shares issued by listed companies with no quoted market prices, thefair value is determined by using valuation techniques incorporating estimates and assumptionsconsistent with those generally used by other market participants in their estimates of fairvalues.

The Group used “Black-Scholes model” to determine the fair value.

239


c. Categories of financial instruments

December 31 2015 2014

Financial assets

Fair value through profit or loss (FVTPL) Held for trading $ 3,514 $ 513,703Designated as at FVTPL 1,094,381 297,218

Derivative instruments in designated hedge accounting - 70Held-to-maturity financial assets 139,502 -Loans and receivables (Note 1) 21,450,056 21,991,353Available-for-sale financial assets (Note 2) 171,228 221,474


Fair value through profit or loss (FVTPL) Held for trading 28,474 90,584

Derivative instruments in designated hedge accounting 7,020 15,206Measured at amortized cost (Note 3) 3,511,357 4,246,952

Note 1: The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, other financial assets, notes and accounts receivables, and other receivables.

Note 2: The balances included the carrying amount of available-for-sale financial assets measured at cost.

Note 3: The balances included financial liabilities measured at amortized cost, which comprise accounts payables and other payables.

d. Objectives and policies of financial risk management

The Group’s major financial instruments include equity and bond investments, accounts receivable andaccounts payables. The Group’s Corporate Finance function provides services to the business,coordinates access to domestic and international financial markets, monitors and manages the financialrisks relating to the operations of the Group through internal risk reports which analyze exposures bydegree and magnitude of risks. These risks include market risk (including foreign currency risk,interest rate risk and other price risk), credit risk and liquidity risk.

The Group seeks to minimize the effects of these risks by using derivative financial instruments tohedge risk exposures. The use of financial derivatives is governed by the Group’s policies approvedby the board of directors, which provided written principles on foreign exchange risk, interest rate risk,credit risk, the use of derivatives and non-derivative financial instruments, and the investment of excessliquidity. The compliance with policies and the control of exposure limits are continuously reviewedby the internal auditors on a continuous basis. The Group does not enter into or trade financialinstruments, including derivative financial instruments, for speculative purposes.

The Corporate Finance function reports quarterly to the Group’s Board of Directors and AuditCommittee for their independent mentorship to risks and policy implementation.

240


1) Market risk

The Group’s activities are exposed to the financial risks primarily arising from the changes inforeign currency exchange rates (see (a) below), interest rates (see (b) below) and other prices (see(c) below). The Group enters into a variety of derivative financial instruments including forwardexchange and currency - swap contracts to manage its exposure to foreign currency risk.

There has been no change to the Group’s exposure to market risks or the manner in which theserisks are managed and measured.

a) Foreign currency risk

The Group’s operating activities are partially denominated in foreign currencies and applynatural hedge. The purpose of the Group’s management of the foreign currency risk is tohedge the risk instead of making a profit.

The strategy of foreign currency risk management is to review the net position exposed toforeign currency risk and manage the risk of the net position. The Group selects theinstruments to hedge currency exposure by considering the hedge cost and hedge period. TheGroup currently utilizes derivative financial instruments, primarily buy/sell forward exchangecontracts, to hedge its currency exposure.

The Group uses forward exchange contracts to eliminate currency exposure. It is the Group’spolicy to negotiate the terms of the hedge derivatives to match the terms of the hedged item formaximizing the hedge effectiveness.

Investing in foreign operations is for strategic purposes; it is not hedged by the Group.


The Group is mainly exposed to the exchange rate fluctuation of USD and RMB.

The following table details the Group’s sensitivity to a 5% increase and decrease in the NewTaiwan dollars (the functional currency) against the relevant foreign currencies. Thesensitivity analysis includes only outstanding foreign currency denominated monetary items(including cash and cash equivalents, financial assets, accounts receivables, other receivables,accounts payables, and other payables) and the hedge contracts, for which their translation atperiod end is adjusted for a 5% change in foreign currency rates. The following table indicatesthe influences which the New Taiwan dollars strengthen 5% against foreign currency dollars.

Impact on USD Items Years Ended December 31

2015 2014

Gains $ 28,196 $ 32,464

Impact on RMB Items Years Ended December 31

2015 2014

Losses $ (29,058) $ (54,073)

241


b) Interest rate risk

The Group’s financial assets are exposed to interest rate risk both at fixed and floating interestrates.

The carrying amounts of the Group’s financial assets with exposure to interest rates at the endof the reporting period were as follows.

December 31 2015 2014

Fair value interest rate risk Financial assets $ 16,421,582 $ 15,884,207

Cash flow interest rate risk Financial assets 3,066,700 2,142,153


The sensitivity analyses below are determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For floating rate assets, the analysis is prepared assuming the amount of the outstanding asset at the end of the reporting period is outstanding for the whole year.

If the market interest rate increases/decrease by 0.1% and all other variables remain constant the pre-tax profit of the Group for the years ended on December 31, 2015 and 2014 will increases/decrease $3,067 thousand and $2,142 thousand, respectively, resulting from the exposure of the net assets with floating rate.

c) Other price risk

The Group is exposed to equity price risk arising from its investments in listed equity securities.Equity investments are held for strategic rather than trading purposes. The Group does notactively trade these investments. The Group’s equity price risk is mainly concentrated onequity instruments operating in electronic industry quoted in the Taiwan Stock Exchange andGreTai Securities Market.


The sensitivity analyses below were determined based on the exposure to equity price risks atthe end of the reporting period.

If equity prices had been 5% higher/lower, the other comprehensive income for the years endedDecember 31, 2015 and 2014 would have increased/decreased by $4,437 thousand and $7,152thousand, respectively, as a result of the changes in fair value of available-for-sale financialinvestments.

2) Credit risk

Credit risk refers to the risk that a counterpart will default on its contractual obligations and result infinancial loss to the Group. As of the end of the reporting period, the Group may have a financialloss due to the default on obligation from counterparts, and the maximum exposure to credit risk isthe carrying amount of the respective recognized financial assets as stated in the consolidatedbalance sheets.

242


In order to mitigate credit risk, the Group has made the policy of credit management to ensure that appropriate action is taken to recover overdue receivables. In addition, the Group reviews the recoverable amount of each receivable debt at the end of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Group considers the credit risk is significantly reduced.

The credit risk on operating funds and derivatives is limited as the counterparts are creditworthy banks.

The Group’s accounts receivable outstanding arose from trading with its customers spreading across diverse industries and geographical areas. The balances are monitored on an ongoing basis by evaluating the customer’s financial conditions.

The Group’s credit concentration risk was related to the five largest customers. Besides the five largest customers, credit concentration risks related to other customers do not exceed 10% of total gross accounts receivables at any time during the period. The five largest customers are creditworthy counterparts, therefore, the Group believes the concentration of credit risk is insignificant for the remaining accounts receivable.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining adequate reserves of cash andcash equivalents to fund the Group’s operations and mitigate the effects of fluctuations in cashflows.

The following tables detail the Group’s remaining contractual maturity for its non-derivativefinancial liabilities with agreed repayment periods. The tables have been drawn up based on theundiscounted cash flows of financial liabilities from the earliest date on which the Group can berequired to pay. The tables include both interest and principal cash flows.

December 31, 2015

Less than 1 Year

More than 1 Year



December 31, 2014

Less than 1 Year

More than 1 Year



The following tables detail the Group’s liquidity analysis for its derivative financial instruments. The tables were based on the undiscounted net inflows and outflows from those derivatives with gross settlement.

243


December 31, 2015

Less than 1 Year

More than 1 Year

Gross settled


$ (31,980) $ -

December 31, 2014

Less than 1 Year

More than 1 Year

Gross settled


$ (104,114) $ -

32. TRANSACTIONS WITH RELATED PARTIES

Intercompany balances and transactions between the Corporation and its subsidiaries, which are relatedparties of the Corporation, have been eliminated on consolidation and are not disclosed in this note.Details of transactions between the Group and other related parties were disclosed below.

a. Operating transactions

Revenue from Sales of Goods Purchases Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Investors that have significant influence over the Group $7,100,082 $7,362,019 $ 259 $ -

Associates $ 19,847 $ 21,582 $ - $ - Key management personnel $ 43,155 $ 66,104 $ - $ - Substantial related parties $ 32,208 $ 38,036 $ - $ -

Manufacturing Expenses Research and Development

Expenses Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Investors that have significant influence over the Group $ 358,179 $ 471,272 $ 1,673 $ 1,298

244


Marketing Expenses Years Ended December 31

2015 2014

Investors that have significant influence over the Group $ 1,369 $ -

Rental Revenue Nonoperating

Income and Gains Years Ended December 31 Years Ended December 31

2015 2014 2015 2014

Substantial related parties $ $ 22,371 $ - $ - Investors that have significant

influence over the Group 3,453 - 20,720 22,895 Key management personnel - - 940 474

$ 3,453 $ 22,371 $ 21,660 $ 23,369

The following balances were outstanding at the end of the reporting period:

Receivables from Related Parties December 31

2015 2014

Investors that have significant influence over the Group $ 519,735 $ 693,310 Key management personnel 8,134 28,918 Associates 2,059 3,348Substantial related parties 4,007 3,595

$ 533,935 $ 729,171

Other Receivables from Related Parties December 31

2015 2014

Investors that have significant influence over the Group $ 12,362 $ 15,096 Key management personnel 2,722 1,210 Substantial related parties - 2,209

$ 15,084 $ 18,515

Other Payables to Related PartiesDecember 31

2015 2014

Investors that have significant influence over the Group $ 67,754 $ 108,535

245


Guarantee Deposits (Other Non-current Liabilities)

December 31 2015 2014

Investors that have significant influence over the Group $ 1,362 $ -

The terms of sales and purchases transactions with related parties were not significantly different from those of sales and purchases to third parties. However, for other related-party transactions, license fees, research and development expenses, there were no similar transactions in the market; thus, transaction terms were determined in accordance with related contracts.

The Group leased certain plant and offices to related parties. The lease terms and prices were determined in accordance with mutual agreements. Related parties paid the rental monthly and in advance.

Guarantee deposits of related parties were for lease.

b. Compensation of key management personnel


Short-term employee benefits $ 123,895 $ 198,721 Share-based payments - 13,806 Post-employment benefits 18,276 2,086

$ 142,171 $ 214,613

The remuneration to directors and other key management personnel were determined by the Compensation Committee in accordance with the individual performance and the market trends.

33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets had been pledged as collateral for the guarantee of customs duty and lease of themanufacturing plant from the Hsinchu Science-Based Industrial Park Administration:

December 31 2015 2014

Pledged time deposits (presented under other non-current assets) $ 303,552 $ 303,384

34. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The significant commitments of the Group as of December 31, 2015 were as follows:

The Corporation entered into a “Manufacturing, License, and Technology Transfer Agreement” with Taiwan Semiconductor Manufacturing Company Ltd. beginning January 1, 2004 to pay fees according to the net sales of certain products and reserve a portion of its production capacity.

246


35. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by the foreign currencies other than functional currencies of thegroup entities and the exchange rates between foreign currencies and respective functional currencies weredisclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

December 31 2015 2014



Financial assets

Monetary items USD $ 200,479 32.895 $ 180,244 31.604 EUR 137 36.14 799 38.65JPY 108,309 0.2745 31,171 0.2665RMB 116,348 4.995 212,717 5.084

Non-monetary items USD 803 32.895 893 31.604


Monetary items USD 19,622 32.895 26,289 31.604EUR 852 36.14 672 38.65JPY 171,160 0.2745 239,662 0.2665

The significant unrealized foreign exchange gains (losses) were as follows:




(Loss) Exchange Rate


(Loss)

USD 31.675 (USD:NTD) $ (112,467) 30.216 (USD:NTD) $ 89,096 EUR 35.61 (EUR:NTD) 1,077 40.533 (EUR:NTD) 182 JPY 0.2648 (JPY:NTD) 551 0.290 (JPY:NTD) (781) RMB 5.043 (RMB:NTD) (24,506) 4.914 (RMB:NTD) 8,930

$ (135,345) $ 97,427

36. SEPARATELY DISCLOSED ITEMS

Information on significant transactions and information on investees:

a. Loans provided to other parties: None.

b. Endorsement/guarantee provided: None.

c. Marketable securities held (excluding investment in subsidiaries, associates and jointly controlledentities): Table 1 (attached)

d. Purchases or sales of the same marketable securities amounting to at least NT$300 million or 20% ofthe paid-in capital: Table 2 (attached)

247


e. Acquisition of individual real estate at costs of at least $300 million or 20% of the paid-in capital:None.

f. Disposal of individual real estate at prices of at least $300 million or 20% of the paid-in capital: None.

g. Purchase or sale with related parties amounting to at least NT$100 million or 20% of the paid-in capital:Table 3 (attached)

h. Receivable from related parties amounting to at least $100 million or 20% of the paid-in capital:Table 4 (attached)

i. Derivative transactions: Notes 7 and 10.

j. Intercompany relationships and significant intercompany transactions: Table 5 (attached)

k. Information on investees: Table 6 (attached)

l. Information on investment in Mainland China: None.

37. SEGMENT INFORMATION

a. For the purpose of resources allocation and performance assessment, the Group’s chief operatingdecision maker reviews operating results and financial information on a per plant basis. It focuses onthe operating result of each of the plants operated under Vanguard International SemiconductorCorporation and its subsidiaries. Accordingly, each of the plants constitutes an operating segment ofthe Group. As each plant shares similar economic characteristics, produces similar products by usingsimilar production process and all of products produced are distributed and sold to the same level ofcustomers through a central sales function, the Group’s segments are aggregated into a single reportablesegment.

The revenues, operating results and financial information on a plant by plant basis presented to the chiefoperating decision maker are consistent with the information in the consolidated financial statements.The segment revenues and operating results for the years ended December 31, 2015 and 2014 can bereferred to the consolidated statements of comprehensive income for the years ended December 31,2015 and 2014. The segment assets as of December 31, 2015 and 2014 can be referred to theconsolidated balance sheets as of December 31, 2015 and 2014.

b. Revenue from major products and services

The following is an analysis of the Group’s revenue from its major products and services:


Wafer $ 23,010,405 $ 23,674,857 Others 309,316 256,622

$ 23,319,721 $ 23,931,479

248


c. Geographic information

Revenue Non-current AssetsYears Ended December 31 December 31

2015 2014 2015 2014

Taiwan $ 18,814,669 $ 20,785,293 $ 6,979,148 $ 7,983,500Singapore 1,156,690 753,633 - -China 919,160 366,315 - -United States of America 646,625 765,561 249 267Japan 496,362 286,196 - -Austria 436,828 389,228 - -Philippines 319,071 159,212 - -Switzerland 136,172 73,448 - -Korea 101,935 128,864 - -Cayman Islands 95,753 102,526 - -Others 196,456 121,203 - -

$ 23,319,721 $ 23,931,479 $ 6,979,397 $ 7,983,767

Non-current assets exclude the investments accounted for by the equity method, financial instruments, intangible assets, deferred income tax assets, refundable deposits and other assets.

d. Major customers

Sales to customers amounting to at least 10% of total gross sales:

Years Ended December 31 Customer 2015 2014

A $ 7,100,082 $ 7,362,019 B 4,577,103 6,206,603

249


TA

BL

E 1

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

MA

RK

ET

AB

LE

SE

CU

RIT

IES

HE

LD

D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Hol

ding

Com

pany

Nam

e M

arke

tabl

e Se

curi

ty T

ype

and

Nam

e (N

ote1

) R

elat

ions

hip

wit

h th

e Se

curi

ties

Iss

uer

Fin

anci

al S

tate

men

t A

ccou

nt

Dec

embe

r 31

, 201

5

Not

e Sh

ares

/Uni

ts

(Tho

usan

ds)

Car

ryin

g V

alue

(US$

in T

hous

ands

) %

of

Ow

ners

hip

Mar

ket

Val

ue o

r N

et A

sset

Val

ue

(US$

in T

hous

ands

)

Van

guar

d In

tern

atio

nal

Fi

nanc

ial i

nstr

umen

ts

Sem

icon

duct

or C

orpo

rati

on A

cer

cred

it li

nked

str

uctu

red

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

$

128,

308

- $

12

8,30

8 N

ote

4

Tun

g H

o S

teel

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

140,

253

-14

0,25

3 N

ote

4

Eve

rlig

ht c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-20

3,77

7-

203,

777

Not

e4

GF

RT

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

10,0

29-

10,0

29

Not

e4

SK

FH

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

240,

412

-24

0,41

2 N

ote

4

TX

C c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- Fi

nanc

ial a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

40,0

75-

40,0

75

Not

e4

Gig

asol

ar c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-10

,015

-10

,015

N

ote

4

Hon

Chu

an c

redi

t lin

ked

stru

ctur

ed in

vest

men

t not

es

- F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

-

curr

ent

-5,

016

-5,

016

Not

e4

Zon

gtai

cre

dit l

inke

d st

ruct

ured

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

20,0

19-

20,0

19

Not

e4

U.S

. Tre

asur

y B

ond

equi

ty li

nked

str

uctu

red

inve

stm

ent n

otes

-

Fin

anci

al a

sset

s at

fai

r va

lue

thro

ugh

prof

it o

r lo

ss -

cu

rren

t -

296,

477

-29

6,47

7 N

ote

4

Vol

ksw

agen

Int

’l F

inan

ce N

.V. B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

100

49,6

55

- 49

,226

N

ote

2 C

hain

Con

stru

ctio

n B

ank

Asi

a C

o B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

90

44,9

28

- 44

,821

N

ote

2 C

hina

Min

met

als

Cor

p B

onds

-

Hel

d-to

-mat

urity

fin

anci

al a

sset

s -

curr

ent

90

44,9

19

- 44

,787

N

ote

2 S

tock

C

ham

pion

Mic

roel

ectr

onic

Cor

p.

Inve

stee

A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s –

non-

curr

ent

346

16,7

31

1 16

,731

N

ote

2 A

dvan

ced

Mic

roel

ectr

onic

Pro

duct

s In

c.

Inve

stee

A

vail

able

-for

-sal

e fi

nanc

ial a

sset

s –

non-

curr

ent

30,0

00

72,0

00

16

72,0

00

Not

e 4

Uni

ted

Indu

stri

al G

ases

Co.

, Ltd

. In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

4,24

6 38

,716

2

38,7

16

Not

e 3

Imag

e M

atch

Des

ign

Inc.

In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

2,40

0 24

,000

10

24

,000

N

ote

3 S

peci

alty

Tec

hFar

m, I

nc.

Sto

ck

Goy

atek

Tec

hnol

ogy

Inc.

In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

1,78

5 U

S$

48

13

US

$ 48

N

ote

3 U

niba

nd E

lect

roni

c C

orp.

In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

960

US

$ 20

0 3

US

$ 20

0 N

ote

3 IN

NO

-TE

CH

Co.

, Ltd

. In

vest

ee

Fin

anci

al a

sset

s ca

rrie

d at

cos

t – n

on-c

urre

nt

2,58

4 U

S$

353

13

US

$ 35

3 N

ote

3

Not

e 1:

M

arke

tabl

e se

curi

ties

men

tion

ed in

the

tabl

e in

clud

e st

ocks

, bon

ds, b

enef

icia

ry c

erti

fica

te a

nd th

e de

riva

tive

sec

urit

ies

from

afo

rem

enti

oned

item

s.

Not

e 2:

T

he m

arke

t val

ue w

as b

ased

on

stoc

k cl

osin

g pr

ice

as o

f D

ecem

ber

31, 2

015.

Not

e 3:

T

he m

arke

t val

ue w

as b

ased

on

the

book

val

ue a

s of

Dec

embe

r 31

, 201

5.

Not

e 4:

T

he f

air

valu

e w

as b

ased

on

valu

atio

n te

chni

ques

.

Not

e 5:

A

s of

Dec

embe

r 31

, 201

5, a

ll th

e se

curi

ties

wer

e no

t ple

dged

or

rest

rict

ed.

Not

e 6:

W

ith

resp

ect t

o th

e in

form

atio

n of

sub

sidi

arie

s, a

ssoc

iate

s an

d jo

int v

entu

res,

ple

ase

see

TA

BL

E 6

.

250


TA

BL

E 2

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

MA

RK

ET

AB

LE

SE

CU

RIT

IES

AC

QU

IRE

D A

ND

DIS

PO

SED

AT

CO

STS

OR

PR

ICE

S O

F A

T L

EA

ST $

300

MIL

LIO

N O

R 2

0% O

F T

HE

PA

ID-I

N C

AP

ITA

L

FO

R T

HE

YE

AR

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs, U

nles

s St

ated

Oth

erw

ise)

Com

pany

Nam

e T

ype

and

Nam

e of

M

arke

tabl

e Se

curi

ties

Fin

anci

al S

tate

men

t A

ccou

nt

Cou

nter

part

y R

elat

ions

hip

Beg

inni

ng B

alan

ce

Acq

uisi

tion

D

ispo

sal

End

ing

Bal

ance

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Sh

ares

/Uni

ts

(Tho

usan

ds)

Am

ount

Cos

tG

ain

(Los

s) o

n D

ispo

sal

Shar

es/U

nits

(T

hous

ands

) A

mou

nt

Van

guar

d In

tern

atio

nal

Fun

d S

emic

ondu

ctor

C

orpo

rati

on

Yua

nta

RM

B M

oney

M

arke

t Fun

d F

inan

cial

ass

ets

at f

air

valu

e th

roug

h pr

ofit

or

loss

- c

urre

nt

--

19,8

21

$

200,

000

9,36

3

$ 10

0,00

0 29

,184

$ 31

1,59

4

$ 30

0,00

0

$ 11

,594

-

$

-

251


TA

BL

E 3

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

TO

TA

L P

UR

CH

ASE

S F

RO

M O

R S

AL

ES

TO

RE

LA

TE

D P

AR

TIE

S O

F A

T L

EA

ST N

T$1

00 M

ILL

ION

OR

20%

OF

TH

E P

AID

-IN

CA

PIT

AL

F

OR

TH

E Y

EA

R E

ND

ED

DE

CE

MB

ER

31,

201

5 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

)

Com

pany

Nam

e R

elat

ed P

arty

N

atur

e of

Rel

atio

nshi

p T

rans

acti

on D

etai

l A

bnor

mal

Tra

nsac

tion

N

otes

/Acc

ount

s P

ayab

le o

r R

ecei

vabl

e N

ote

Pur

chas

es/S

ales

A

mou

nt

% t

o T

otal

P

aym

ent

Ter

m

Uni

t Pri

ce

Pay

men

t T

erm

E

ndin

g B

alan

ce

% t

o T

otal

Van

guar

d In

tern

atio

nal

Sem

icon

duct

or C

orpo

ratio

n T

aiw

an S

emic

ondu

ctor

M

anuf

actu

ring

C

ompa

ny L

td.

Maj

or s

hare

hold

er

Sale

s $

7,10

0,08

2 30

30

day

s af

ter

clos

ing

$

- -

$ 51

9,73

5 17

-

252


TA

BL

E 4

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

RE

CE

IVA

BL

ES

FR

OM

RE

LA

TE

D P

AR

TIE

S A

MO

UN

TIN

G T

O A

T L

EA

ST N

T$1

00 M

ILL

ION

OR

20%

OF

TH

E P

AID

-IN

CA

PIT

AL

D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

Com

pany

Nam

e R

elat

ed P

arty

N

atur

e of

Rel

atio

nshi

p E

ndin

g B

alan

ce

Tur

nove

r R

ate

Ove

rdue

A

mou

nt R

ecei

ved

in

Subs

eque

nt P

erio

d A

llow

ance

for

B

ad D

ebts

A

mou

ntA

ctio

n T

aken

Van

guar

d In

tern

atio

nal S

emic

ondu

ctor

Cor

pora

tion

T

aiw

an S

emic

ondu

ctor

M

anuf

actu

ring

C

ompa

ny L

td.

Maj

or s

hare

hold

er

$

519,

735

11.7

1 $

-

- $

-

$

-

253


TA

BL

E 5

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

INT

ER

CO

MP

AN

Y R

EL

AT

ION

SHIP

S A

ND

SIG

NIF

ICA

NT

IN

TE

RC

OM

PA

NY

TR

AN

SAC

TIO

NS

FO

R T

HE

YE

AR

EN

DE

D D

EC

EM

BE

R 3

1, 2

015

(In

Tho

usan

ds o

f N

ew T

aiw

an D

olla

rs)

No.

C

ompa

ny N

ame

Com

pany

Nam

e N

atur

e of

Rel

atio

nshi

p

Inte

rcom

pany

Tra

nsac

tion

s

Fin

anci

al S

tate

men

t Ite

m

Am

ount

T

erm

s (N

ote)

Per

cent

age

of

Con

solid

ated

Net

Rev

enue

or

Tot

al A

sset

s

0 V

angu

ard

Inte

rnat

iona

l Sem

icon

duct

or C

orpo

ratio

n V

IS M

icro

, Inc

. T

rans

actio

n fr

om

ultim

ate

pare

nt

com

pany

to

subs

idia

ry

Mar

ketin

g ex

pens

es

$

62,2

80

- 0.

27%

Oth

er p

ayab

les

to r

elat

ed p

artie

s 4,

886

- 0.

02%

Not

e:

For

inte

rcom

pany

tran

sact

ions

, the

term

s w

ere

base

d on

rel

ated

agr

eem

ents

.

254


TA

BL

E 6

VA

NG

UA

RD

IN

TE

RN

AT

ION

AL

SE

MIC

ON

DU

CT

OR

CO

RP

OR

AT

ION

AN

D S

UB

SID

IAR

IES

NA

ME

S, L

OC

AT

ION

S, A

ND

RE

LA

TE

D I

NF

OR

MA

TIO

N O

F I

NV

EST

EE

S O

VE

R W

HIC

H T

HE

CO

MP

AN

Y E

XE

RC

ISE

S SI

GN

IFIC

AN

T I

NF

LU

EN

CE

F

OR

TH

E Y

EA

R E

ND

ED

DE

CE

MB

ER

31,

201

5 (I

n T

hous

ands

of

New

Tai

wan

Dol

lars

, Unl

ess

Stat

ed O

ther

wis

e)

Inve

stor

Com

pany

In

vest

ee C

ompa

ny

Loc

atio

n M

ain

Bus

ines

ses

and

Pro

duct

s

Inve

stm

ent

Am

ount

B

alan

ce a

s of

Dec

embe

r 31

, 201

5 N

et G

ain

(Los

s) o

f th

e In

vest

ee

(For

eign

C

urre

ncie

s in

T

hous

ands

)

Inve

stm

ent

Gai

n (L

oss)

R

ecog

nize

d (F

orei

gn

Cur

renc

ies

in

Tho

usan

ds)

Not

e

Dec

embe

r 31

, 20

15

(For

eign

C

urre

ncie

s in

T

hous

ands

)

Dec

embe

r 31

, 20

14

(For

eign

C

urre

ncie

s in

T

hous

ands

)

Shar

es (

In

Tho

usan

ds)

Per

cent

age

of

Ow

ners

hip

Car

ryin

g V

alue

(F

orei

gn

Cur

renc

ies

in

Tho

usan

ds)

Van

guar

d In

tern

atio

nal

VIS

Ass

ocia

tes

Inc.

B

riti

sh V

irgi

n Is

land

s In

vest

men

ts

$

195,

492

$

195,

492

6 10

0 $

30

1,01

9

$ 9,

296

$

9,29

6 S

ubsi

diar

y S

emic

ondu

ctor

Cor

pora

tion

C

MS

C, I

nc.

Hsi

nchu

City

, Tai

wan

In

tegr

ated

cir

cuit

des

ign

serv

ices

and

rel

ated

bu

sine

sses

11

2,65

011

2,65

09,

902

25

51,4

393,

803

949

Inve

stm

ent a

ccou

nted

for

usin

g eq

uity

m

etho

d V

IS A

ssoc

iate

s In

c.

VIS

Inv

estm

ent H

oldi

ng, I

nc

Del

awar

e, U

SA

In

vest

men

ts

205,

594

(U

S$

6,25

0)

205,

594

(U

S$

6,25

0)

63

100

64,2

52

(U

S$

1,95

3)

2,50

1 (

US$

79

) 2,

501

(U

S$

79)

Subs

idia

ry

Spec

ialty

Tec

hFar

m, I

nc.

Bri

tish

Vir

gin

Isla

nds

Inve

stm

ents

32

8,95

0 (

US

$ 10

,000

) 32

8,95

0 (

US

$ 10

,000

) 10

,000

100

65,1

88

(U

S$

1,98

2)

10,4

82

(U

S$

331)

10

,482

(

US$

33

1)

Subs

idia

ry

VIS

Inv

estm

ent H

oldi

ng, I

nc

VIS

Mic

ro, I

nc.

Sant

a C

lara

CA

, USA

M

arke

ting

serv

ices

6,

579

(U

S$

200)

6,

579

(U

S$

200)

20

010

0 55

,204

(U

S$

1,67

8)

1,59

8 (

US$

50

) 1,

598

(U

S$

50)

Subs

idia

ry

Spe

cial

ty T

echF

arm

, Inc

. S

kyT

raq

Tec

hnol

ogy,

Inc

. B

riti

sh V

irgi

n Is

land

s In

tegr

ated

cir

cuit

des

ign

serv

ices

and

rel

ated

bu

sine

sses

49

,343

(

US

$ 1,

500)

49

,343

(

US

$ 1,

500)

4,

688

26

26,4

22

(U

S$

803)

(9

,735

) (

US$

(3

07))

(2

,495

) (

US$

(7

9))

Inve

stm

ent a

ccou

nted

fo

r us

ing

equi

ty

met

hod

255


Leuh Fang , Chairman


josh

世界先進公司章

josh

董事長方略

Documents

Inside Cover - VIS › visCom › annualreport › 2015 › 2015_VIS_annual...Inside Cover: Spokesman D. L. Tseng Vice President, Finance Tel: 886-3-5770355 E-mail: [email protected]