FORMOSA ADVANCED TECHNOLOGIES CO., LTD.

Transcription

1 FORMOSA ADVANCED TECHNOLOGIES CO., LTD ANNUAL SHAREHOLDERS MEETING MEETING HANDBOOK (SUMMARY) (This English translation is prepared in accordance with the Chinese version and is for reference purposes only. If there are any inconsistency between the Chinese original and this translation, the Chinese version shall prevail.) JUNE 23, 2017

2 Table of Contents Meeting Procedure Page 1 Meeting Agenda.... Page 2 Report Items.. Page 3 Ratification Items. Page 10 Discussion Items Page 12 Appendices... Page 28

3 FORMOSA ADVANCED TECHNOLOGIES CO., LTD. Notice of the 2017 Annual Shareholders Meeting (Summary) 2017 ANNUAL SHAREHOLDERS MEETING PROCEDURE 1. Call Meeting to Order 2. Chairman s Address 3. Report Items 4. Ratification Items 5. Discussion Items 6. Extraordinary Motions 7. Meeting Adjourned

4 FORMOSA ADVANCED TECHNOLOGIES CO., LTD ANNUAL SHAREHOLDERS MEETING AGENDA Time: 1:30 p.m., Friday, June 23, 2017 Venue: Briefing Room, FORMOSA TAFFETA CO., LTD. (No. 317, Shu Liu RD., Touliu City, Yunlin County, Taiwan, R.O.C.) 1. Report Items (1)Business Report for 2016 (2)Supervisors Review Report on the 2016 Financial Statements (3)Distribution of 2016 Employees, Directors and Supervisors Compensation 2. Ratification Items (1) Please approve the 2016 Business Report and Financial Statements as required by the Company Act. (2) Please approve the Proposal for Distribution of 2016 Profits as required by the Company Act. 3. Discussion Items (1) Amendment of the Company s Procedures for Acquisition and Disposal of Assets of the Company.

5 Report Items 1. About the Company s business operation condition of 2016, please refer to Business Report for further details (on page 4 through page 8 of the Handbook.), the above is hereby reported for record. 2. The Company s Supervisors reviewed the 2016 Business Report and Financial Statements and issued their Review Report according to the applicable laws. Please refer to Supervisors Review Report (on page9 of the Handbook.), the above is hereby reported for record. 3. The company has issued the report on the compensation distributed to its employees, directors and supervisors for The pre-tax profit prior to deducting employees, directors and supervisors compensation distributable for 2016 is NT$ 1,291,369,99. The company has no accumulated losses. Adopted by the Board Meeting on March 17, 2017, 2.30% of the profit is allocated as employees, 0.23% of the profit is allocated as directors' and supervisors' compensation in accordance with Article 19 of the Articles of Incorporation. The total allocated amount of employees is NT$ 29,701,510 and the directors and supervisors is NT$ 2,970,151. The employees, directors and supervisors compensation paid in full in cash. The above is hereby reported for record.

6 2016 Business Report of Formosa Advanced Technologies Co., Ltd. I Operation Profile The turnover of the company for 2016 was US$263,063 thousand, a decrease of US$8,345 thousand, or 3.1%, compared with that for 2015, which was US$271,408 thousand. The pre-tax income was US$39,019 thousand, a decrease of US$3,511 thousand, or 8.3%, compared with that for 2015, which was US$42,530 thousand. Revenues and incomes decreased primarily because the demand for niche memory end products and commodity memory PC products during the first half of 2016 was experiencing a downward trend. With regard to supply, the capital expenditure restriction, process conversion, and production impairment of the foundries also resulted in the decreased production of wafers and demand of IC particles, further influencing the volume of OEM products. The company has implemented many response measures, including developing various niche products, certifying new miniature process products manufactured by foundries, and developing high-added value multi-chip products in order to optimize the portfolio of products and enhance the volume of OEM products. In 2017, the company is aiming to improve its product portfolio, reduce the cost of raw materials and other costs, promote automation of equipment, and enhance the efficiency of employees in the hopes of achieving great success again.

7 II. Status of Production and Sales The status of the company s sales and production for each product is as follows: Name of Product Production Sales Package Test 915,575 thousand pieces 932,307 thousand pieces 912,540 thousand pieces 930,327 thousand pieces Module 2,604 thousand pieces 2,514 thousand pieces The revenue from package products was US$157,339 thousand, or 59.8% of the total revenue of the company. It dropped by 1.2% this year compared with 2015 when it was US$159,186 thousand. The volume of OEM products was 932,307 thousand, a decrease of 0.02% from 2015 when it was 932,436 thousand. The revenue from test products was US$91,660 thousand, or 34.9% of the total revenue of the company. It decreased by 8.0% this year compared with 2015 when it was US$99,651 thousand. The volume of OEM products was 930,327 thousand, an increase of 2.7% from 2015 when it was 905,778 thousand. The revenue from module products was US$14,063 thousand, or 5.3% of the total revenue of the company. It increased by 11.9% this year compared with 2015 when it was US$12,571 thousand. The volume of OEM products was 2,514 thousand, an increase of 1.1% from 2015 when it was 2,486 thousand.

8 III. Status of Operation The revenue for 2016 was US$263,063 thousand, a decrease of US$8,345 thousand compared with that for 2015, which was US$271,408 thousand. After deducting the operating costs of US$220,487 thousand and the sales managmenet and R&D expenses of US$4,194 thousand, the operating income was US$38,382 thousand, and the operating profit margin was 14.6%. Including the non-operating income and expenses of US$638 thousand, the pre-tax income for 2016 was US$39,020 thousand. IV. Business Prospects for 2017 The demand for memory has been gradually expanding so far in The market is expected to continue growing steadily as long as the increase in production remains limited. The company is seizing this opportunity by soliciting and receiving more orders for mobile memories, niche memories, server memories, and commodity memories in the field of assembly and testing, The company is also expanding and increasing the weight of OEM multi-chip package products. The key operation points for 2017 are explained below: 1. As the applications for memory multiply, the demand for ultra-thin notebooks, advanced smartphones, high definition digital televisions, in-vehicle infotainment systems, and cloud data center servers will continue to expand. Regarding market development, the company is not only continuously cultivating relationships with foundries and IC design customers, but also making every effort to get OEM business from foreign customers, expand the customer base, and enhance the market share.

9 2. As for research and development, the company is focusing on developing new processes and new technologies for niche and mobile memories, as well as emphasizing enhancement of the weight of new products with high values. The ratio of the revenue of new multi-chip high-value package products to the total revenue of the company is expected to rise in The memory capacity will be developed from 2Gb 4Gb 8Gb. Processed wafers will be refined from 30 nm to 20 nm in cooperation with customers. Package types will go from single chip package homogeneous chip package on package heterogeneous chip package on package system in package flip chip in package. Test products will evolve from DDR2 DDR3 DDR4 development of software and hardware for the burn-in test of automobile and industry-grade products and multi-chip products. Module products will evolve from memory modules modules for advanced cloud servers development of niche modules, such as industrial control modules, mobile device modules, household appliance modules, network communication modules, and storage modules. 3. With regard to production deployment, the company will carefully expand the multi-chip and single chip assembly and test capacity to satisfy the needs of growing orders, in the hopes of further enhancing revenue by expanding production capacity and optimizing its product portfolio.

10 4. Regarding business management, the company will promote each improvement with the spirit of getting to the bottom of concerned matters until achieving absolute perfection. The company will especially focus on the automation of equipment so that employees can work more efficiently, the effect of production can be enhanced, and the company can be more competitive. Over the coming year, the company will continuously strive to develop its position in the OEM market concerning memory products and consistently conduct research and development in relevant fields. We are adopting more flexible and creative methods to expand into new markets, are actively carrying out the research and development of new products positively, and will be devoted to shortening the production cycle, accelerating the development schedule, and enhancing the defect-free rate in order to satisfy customer requirements. By making such efforts, the company hopes to become one of the most competitive companies with a great variety of products and the most advanced technology in the assembly and testing industry. The company will also continuously enhance business performance to create the greatest value for its shareholders. Chairman: Wen-Yuan Wong President: Shih-Ming Hsieh Chief Accountant: Tsai-Hua Shen

11 FORMOSA ADVACED TECHNOLOGIES CO., LTD. Supervisors Review Report The Board of Directors has prepared the Company s 2016 Business Report, Proposal for Profits Distribution, and Financial Statements audited by the CPA. We as the Supervisors of the Company have examined the aforementioned documents and found no unconformities. According to Article 219 of Company Act, we hereby submit this report. Please be advised accordingly. Submitted to: The Company s 2017 Annual Shareholders Meeting Supervisors: Chiu-Ming Chen Ming-Ta Hsieh Bo-Lie Hou Chen-Nan Lin March 17, 2017

12 Ratification Items Proposal 1 Proposal: For approval of the 2016 Business Report and Financial Statements as required by the Company Act. Proposed by the Board of Directors Explanation: 1. The preparation of the Company s 2016 Consolidated and Individual Financial Statements were completed and the same were approved at the 1st meeting of the Board in 2016 and audited by independent auditors, Mr. Chien-Hung Chou and Ms. Juanlu Nan-Yu of PwC. The aforesaid Financial Statements together with the Business Report were reviewed by the supervisors, which the Supervisors Review Report is presented. 2. For the aforementioned Business Report, please refer to page 4 through page 8 of the Meeting Handbook. As for the Financial Statements, please refer to page 22 through page 26 of the Handbook. Please approve the Business Report and the Financial Statements. Resolution:

13 Ratification Items Proposal 2 Proposal: For Approval of the Proposal for Distribution of 2016 Profits as required by the Company Act. Proposed by the Board of Directors Attachment: Please refer to page 27 of the Handbook for the Statement of Profits Distribution, which has been approved by the Board of Directors on March 17, Please approve the Statement of Profits Distribution. Resolution:

14 Discussion Items Proposal 1 Proposal: Amendment to the Procedures for Acquisition and Disposal of Assets of the company submitted for discussion. Proposed by the Board of Directors Explanation: To comply with the requirements provided in the order Jin-Guan-Zheng-Fa-Zi No dated Feb. 9, 2017 by the Financial Supervisory Commission, certain articles of the Procedures for Acquisition and Disposal of Assets provided by the company have been amended. The comparison table for articles before and after amendment is hereby attached. Please determine whether the amendments are reasonable. Article Article before Amendment Article after Amendment Article 7 In acquiring or disposing of real property or equipment where the transaction amount reaches 20 percent of the company's paid-in capital or NT$300 million or more, the Company, unless transacting with a government agency, engaging others to build on its own land, engaging others to build on rented land, or acquiring or disposing of equipment for business use, shall obtain In acquiring or disposing of real property or equipment where the transaction amount reaches 20 percent of the company's paid-in capital or NT$300 million or more, the Company, unless transacting with a government institution, engaging others to build on its own land, engaging others to build on rented land, or acquiring or disposing of equipment for business use, shall obtain

15 Article 8-1 an appraisal report prior to the date of occurrence of the event from a professional appraiser and shall further comply with the following provisions: (Omitted) (Added) an appraisal report prior to the date of occurrence of the event from a professional appraiser and shall further comply with the following provisions: (Omitted) In acquiring or disposing of membership cards or intangible assets where the transaction amount reaches 20 percent of the company's paid-in capital or NT$300 million or more, the Company, unless transacting with a government institution, shall obtain a CPA s opinion on the reasonableness of the transaction price prior to the date of occurrence of the event. The CPA shall handle the matter in accordance with Statement No. 20 of the Statements on Auditing Standards issued by the Accounting Research and

16 Article 8-2 The calculation of the transaction amounts referred to in the preceding two articles shall be done in accordance with paragraph 2 of Article 26, herein, and "within the preceding year" as used herein refers to the year preceding the date of occurrence of the current transaction. Items for which an appraisal report from a professional appraiser or a CPA's opinion has been obtained need not be counted toward the transaction amount. Development Foundation. The calculation of the transaction amounts referred to in the preceding three articles shall be done in accordance with paragraph 2 of Article 26, herein, and "within the preceding year" as used herein refers to the year preceding the date of occurrence of the current transaction. Items for which an appraisal report from a professional appraiser or a CPA's opinion has been obtained need not be counted toward the transaction amount. Article 12 When the Company intends to acquire or dispose of real property from or to a related party, or when it intends to acquire or dispose of When the Company intends to acquire or dispose of real property from or to a related party, or when it intends to acquire or dispose of

17 Article 18 assets other than real property from or to a related party and the transaction amount reaches 20 percent or more of paid-in capital, 10 percent or more of the Company's total assets, or NT$300 million or more, except in trading of government bonds or bonds under repurchase and resale agreements, or subscription or redemption of domestic money market funds, the Company may not proceed to enter into a transaction contract or make a payment until the following matters have been approved by the Board of Directors and the Supervisors recognition: (Omitted) The Company that conducts a merger, demerger, acquisition, or assets other than real property from or to a related party and the transaction amount reaches 20 percent or more of paid-in capital, 10 percent or more of the Company's total assets, or NT$300 million or more, except in trading of government bonds or bonds under repurchase and resale agreements, or subscription or repurchase of money market funds issued by domestic securities investment trust enterprises, the Company may not proceed to enter into a transaction contract or make a payment until the following matters have been approved by the Board of Directors and the Supervisors recognition: (Omitted) The Company that conducts a merger, demerger, acquisition, or

18 assignment of shares shall, prior to convening the Board of Directors to resolve on the matter, engage a CPA, attorney, or securities underwriter to give an opinion on the reasonableness of the share exchange ratio, acquisition price, or distribution of cash or other property to shareholders, and propose the opinion to the Board of Directors for deliberation and approval. assignment of shares shall, prior to convening the Board of Directors to resolve on the matter, engage a CPA, attorney, or securities underwriter to give an opinion on the reasonableness of the share exchange ratio, acquisition price, or distribution of cash or other property to shareholders, and propose the opinion to the Board of Directors for deliberation and approval. However, the Company is not required to obtain an opinion on the reasonableness from any of the aforementioned experts when the Company merges with a subsidiary whose shares issued are 100% owned, or whose capital is 100% owned, directly or indirectly by the Company, or when the

19 Article 26 Under any of the following circumstances, the Company acquiring or disposing of assets shall publicly announce and report the relevant information on the securities competent authority's designated website in the appropriate format as prescribed by regulations within 2 days commencing immediately from the date of occurrence of the event: 1. Acquisition or disposal of real property from or to a related party, or acquisition or disposal of assets other than real property from or to a related party where the subsidiaries whose shares issued are 100% owned, or whose capital is 100% owned, directly or indirectly by the Company merge with each other. Under any of the following circumstances, the Company acquiring or disposing of assets shall publicly announce and report the relevant information on the securities competent authority's designated website in the appropriate format as prescribed by regulations within 2 days commencing immediately from the date of occurrence of the event: 1.Acquisition or disposal of real property from or to a related party, or acquisition or disposal of assets other than real property from or to a related party where the

20 transaction amount reaches 20 percent or more of paid-in capital, 10 percent or more of the Company's total assets, or NT$300 million or more; provided, this shall not apply to trading of government bonds or bonds under repurchase and resale agreements, or subscription or redemption of domestic money market funds. 2. Merger, demerger, acquisition, or assignment of shares. 3. Losses from derivatives trading reaching the limits on aggregate losses or losses on individual contracts set out in the procedures adopted by the Company. 4.Where an asset transaction other than any of those referred to transaction amount reaches 20 percent or more of paid-in capital, 10 percent or more of the Company's total assets, or NT$300 million or more; provided, this shall not apply to trading of government bonds or bonds under repurchase and resale agreements, or subscription or repurchase of money market funds issued by domestic securities investment trust enterprises. 2. Merger, demerger, acquisition, or assignment of shares. 3. Losses from derivatives trading reaching the limits on aggregate losses or losses on individual contracts set out in the procedures adopted by the Company. 4. Where the type of asset

21 in the preceding three subparagraphs, a disposal of receivables by a financial institution, or an investment in the Mainland China area reaches 20 percent or more of paid-in capital or NT$300 million; provided, this shall not apply to the following circumstances: (1) Trading of government bonds. (2) Trading of bonds under repurchase/resale agreements, or subscription or redemption of domestic money market funds. (3)Where the type of asset acquired or disposed is equipment/machinery for business use, the trading counterparty is not a related party and acquired or disposed is equipment/machinery for business use, the trading counterparty is not a related party, and the transaction amount is more than NT$500 million. 5. Acquisition of land under an arrangement or engaging others to build on the company's own land, engaging others to build on rented land, joint construction and allocation of housing units, joint construction and allocation of ownership percentages, or joint construction and separate sale where the amount the Company expects to invest in the transaction is more than NT$500 million. 6. An asset transaction other than any of those referred to in the

22 the transaction amount is less than NT$500 million. (4) Acquisition of land under an arrangement or engaging others to build on the company's own land, joint construction and allocation of housing units, joint construction and allocation of ownership percentages, or joint construction and separate sale, and the amount the company expects to invest in the transaction is less than NT$500 million. (Omitted) preceding five subparagraphs, a disposal of receivables by a financial institution, or an investment in the mainland China area where the transaction amount reaches 20 percent or more of paid-in capital or NT$300 million or more, provided this shall not apply to the following circumstances: (1)Trading of government bonds. (2)Trading of bonds under repurchase/resale agreements or the subscription or repurchase of money market funds issued by domestic securities investment trust enterprises.

23 Article 27 When the Company at the time of public announcement makes an error or omission in an item required by regulations to be publicly announced and so is required to correct it, all the items shall be again publicly announced and reported in their entirety. (Omitted) When the Company at the time of public announcement makes an error or omission in an item required by regulations to be publicly announced and so is required to correct it, all the items shall be again publicly announced and reported in their entirety within two days from the date when is the Company becomes aware of the error or omission. Resolution:

24 FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS) Years ended December 31, Items Notes AMOUNT % AMOUNT % 4000 Operating Revenue 6(15) 5000 Operating Costs 6(6)(18)(19) and Net Operating Margin Operating Expenses 6(18)(19) and Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6000 Total Operating Expenses 6900 Operating profit Non Operating Income and Expenses 7010 Other income 6(16) 7020 Other gains and losses 6(17) 7050 Finance costs 7000 Total Non Operating Income and Expenses 7900 Profit before income tax 7950 Income tax expense 6(20) 8200 Profit for the year Other Comprehensive Income Items that will not be reclassified to profit or loss subsequently 8311 Loss on remeasurement of defined benefit plan 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss Item that may be reclassified to profit or loss subsequently 8362 Unrealized gains on 6(3) valuation of available for sale financial assets 8500 Total comprehensive income for the year Basic earnings per share (in dollars) 6(22) Before tax After tax Diluted earnings per share (in dollars) 6(22) Before tax After tax

25 Current assets FORMOSA ADVANCED TECHNOLOGIES CO., LTD. BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) December 31, 2016 December 31, 2015 Assets Notes AMOUNT % AMOUNT % 1100 Cash and cash equivalents 6(1) 1110 Financial assets at fair value 6(2) through profit or loss current 1125 Available for sale financial assets 6(3) current 1150 Notes receivable, net 1170 Accounts receivable, net 6(5) 1180 Accounts receivable related 6(5) and 7 parties, net 1200 Other receivables 1210 Other receivables related 7 parties 130X Inventories 6(6) 1470 Other current assets 11XX Total current assets Non current assets 1523 Available for sale financial assets 6(3) non current 1543 Financial assets carried at cost 6(4) non current 1600 Property, plant and equipment, 6(7) net 1840 Deferred income tax assets 1900 Other non current assets 15XX Total non current assets 1XXX TOTAL ASSETS (Continued)

26 FORMOSA ADVANCED TECHNOLOGIES CO., LTD. BALANCE SHEETS (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) December 31, 2016 December 31, 2015 Liabilities and Equity Notes AMOUNT % AMOUNT % Current liabilities 2120 Financial liabilities at fair value 6(8) through profit or loss current 2150 Notes payable 2170 Accounts payable 2180 Accounts payable related parties Other payables 6(9) 2230 Current income tax liabilities 2300 Other current liabilities 21XX Total current liabilities Non current liabilities 2600 Other non current liabilities 25XX Total non current liabilities 2XXX TOTAL LIABILITIES Share capital 6(11) 3110 Share capital common stock Capital surplus 6(12) 3200 Capital surplus Retained earnings 6(13) 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 6(14) 3XXX TOTAL EQUITY Significant commitments and 8 contingent liabilities 3X2X TOTAL LIABILITIES AND EQUITY

27 FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF CHANGES IN EQUITY (Expressed in thousands of New Taiwan dollars) Notes Share capital - common stock Total capital surplus, additional paid-in capital Legal reserve Retained Earnings Special reserve Unappropriated retained earnings Unrealized gain or loss on available-for-s ale financial assets Total equity Year ended December 31, 2015 Balance at January 1, 2015 Appropriation of retained earnings and distribution Legal reserve Special reserve Cash dividends Net income for 2015 Other comprehensive income (loss) for 2015 Balance at December 31, 2015 Year ended December 31, 2016 Balance at January 1, 2016 Appropriation of retained earnings and distribution Legal reserve Reversal of special reserve Cash dividends Net income for 2016 Other comprehensive income (loss) for (3)(13)(14) Balance at December 31, 2016

28 FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF CASH FLOWS (Expressed in thousands of New Taiwan dollars) Years ended December 31, Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Depreciation 6(7)(18) Amortization 6(18) Reversal of provision for bad debts 6(5) Impairment loss 6(4)(17) (Gain) loss on disposal and scrap of property, plant and 6(17) equipment Loss on valuation of financial assets 6(17) Interest expense 6(20) Interest income 6(16) Dividend income 6(16) Changes in operating assets and liabilities Changes in operating assets Financial assets held for trading Notes receivable, net Accounts receivable, net Accounts receivable - related parties Other receivables Inventories Other current assets Changes in operating liabilities Notes payable Accounts payable Accounts payable - related parties Other payables Other current liabilities Other non-current liabilities Cash inflow generated from operations Interest received Dividends received Interest paid Income tax paid Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Acquisition of property, plant, and equipment 6(22) Acquisition of available-for-sale financial assets Increase in other non-current assets Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITY Payment of cash dividends Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

29 Formosa Advanced Technologies CO.,LTD Statement of Profits Distribution For the year of 2016 Unit NT$ Items Amount Items Amount Explanation Available for Distribution: (1)Unappropriated Less:Other comprehensive income transferred into unappropriated earnings (2) Net profit after tax of current year 1,095,270,807-12,249,885 1,022,556,115 Distribution Items: (1) Appropriation of legal reserve (10% of the after-tax profit ) (2) Distribution of dividends and bonus in cash ( $2.0 per share) (3) Unappropriated retained earnings carried forward to next year 102,255, ,444,446 1,118,876, Registered capital of the company is NT$4,422,222, The Company plans to distribute dividends of $2.0 per share for current year (among which, $ will be distributed as dividends and $ will be distributed as bonus); all of which are cash dividends. 3. The Company distributes dividends and bonus were all from 1998 of net profit after tax.. 4. While the distribution of cash dividends to each individual shareholder is less than 1 dollar, the distribution will be rounded to the nearest dollar. Total 2,105,577,037 Total 2,105,577,037

30 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Formosa Advanced Technologies Co., Ltd. Opinion We have audited the accompanying balance sheets of Formosa Advanced Technologies Co., Ltd. and its subsidiaries (the Company ) as at December 31, 2016 and 2015, and the related statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission. Basis for opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the Code ), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters. Allowance for inventory valuation losses Description Please refer to Note 4(12) for description of accounting policy, Note 5(2) for accounting estimates and assumption uncertainty in relation to inventory valuation, and Note 6(6) for details of inventory. As of December 31, 2016, the Company s inventory and allowance for inventory valuation losses amounted

31 NT$1,155,854 thousand and NT$57,488 thousand, respectively. The Company is primarily engaged in packaging, testing, and manufacturing integrated circuit. These kinds of products are easily affected by fluctuation in market price due to the rapidly changing industry. As a result, the Company s inventories are subject to higher risk of decline in market value that would result to inventory valuation loss. Given that the amount of inventory is material to the financial statements, inventory items are voluminous, and determination of fair value of individually identified obsolete or scrap inventory rely on subjective management judgement, we consider the estimation of allowance for inventory valuation loss as key audit matter. How our audit addressed the matter: Our audit procedures in relation to the above key audit matter included : Comparing whether the allowance for inventory valuation loss in the financial period is in accordance with Company s policy, and evaluating the reasonableness of policy; Verifying whether the systematic method used in preparing the inventory aging report and individually identifying obsolete or scrap inventory by management is appropriate, and checking whether obsolete inventories that are over a certain age are listed in the report; Evaluating the reasonableness of individually identified obsolete or scrap inventory by management against supporting documents; Verifying the information from inventory physical count against the waste, slow moving, scrap, and damaged inventory report by management; and Discussing the calculation of net realizable value from waste, slow moving, scrap, and damaged inventory report with management, and gathering supporting documents. Audit of cash and cash equivalents Please refer to Note 4(5) for description of accounting policy on cash equivalents, and Note 6(1) for details of cash and cash equivalents. As of December 31, 2016, cash and cash equivalents amounted NT$3,954,890 thousand. Cash and cash equivalents comprise 35% of total assets as of December 31, Cash and cash equivalents are assets with high liquidity and generally have a high degree of inherent risk. Further, management needs to determine whether its time deposits meet the definition of cash equivalents. Cash equivalents are short-term, highly liquid investments that are readily convertible to cash, and subject to insignificant risk of changes in value. Considering the related risk mentioned above, we consider the audit of cash and cash equivalents a key audit matter.

32 How our audit addressed the matter: Our audit procedures in relation to the above key audit matter included: Evaluating and testing the internal control over cash management, including segregation of duties for cash receipts and recording, authorization of receipt and payment in cash, reviewing bank reconciliation, etc. Verifying the existence, rights and obligations of cash and cash equivalents by sending out confirmation for bank accounts and special agreements with financial institutions, if any. Examining whether the condition of short term notes and bills are in agreement with the definition of cash equivalents. Testing the correctness of calculation and checking for unusual reconciling items, including: a) Amount of bank reconciliation at year end against general ledger; b) Bank balance against bank account statement; and c) Passbook or amount in confirmation reply. Responsibilities of management and those charged with governance for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including audit committee (or supervisors), are responsible for overseeing the Company s financial reporting process. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement

33 when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and

34 other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. For and on behalf of PricewaterhouseCoopers, Taiwan March 17, The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

35 Information regarding the Proposed Employees, Directors and Supervisors Compensation to Adopted by the Board of Directors of the Company: 1. Amounts of employees cash compensation, stock compensation, and Directors & Supervisors compensation: Employees cash Compensation NT$ 29,701,510 Employees stock Compensation NT$ 0 Directors and Supervisors Compensation NT$ 2,970, Share amount of the employees stock compensation and the percentage of the share amount to that of all stock dividend: Share amount of employees stock compensation 0 share Percentage of the share amount to that of all 0% stock dividend The above-listed amount of employees, directors and supervisors cash compensation is consistent with the proposed amount adopted by the Board of Directors of the Company. Effect upon Business Performance and Earnings Per Share of the Company by the Stock Dividend Distribution Proposed at the 2017 Annual Shareholders Meeting: Not applicable since the Company does not propose the stock dividend distribution at the 2017 Annual Shareholders Meeting and does not required to prepare financial forecast information.

36 Formosa Advanced Technologies Corporation Current Shareholdings of Directors and Supervisors Title Name Shareholding (share) Chairman Wen-Yuan Wong Representative of Formosa Taffeta 290,464,472 Corporation Vice Chairman Shih-Ming Hsieh Representative of Formosa Taffeta 290,464,472 Corporation Director Fu-Yuan Hong Representative of Formosa Taffeta 290,464,472 Corporation Director Dong-Terng Huang Representative of Formosa Taffeta 290,464,472 Corporation Director Ming-Chang Lee Representative of Formosa Taffeta 290,464,472 Corporation Director Solomon Chang 139,983 Director Wen-Tsai Chen 247,669 Director Chun-Ming Huang 50,000 Independent Director Yu Cheng 0 Independent Director Hui-Ya Shen 0 Independent Director Chia-chi Kuo 0 Supervisor Chiu-Ming Chen 0

37 Supervisor Chen-Nan Lin Representative of Yu-Yuang Textile 1,600,851 Corporation Supervisor Ming-Ta Hsieh 766,750 Supervisor Bo-lie Hou 0 Note: According to Article 26 of Securities and Exchange Act, the minimum shareholdings of the Company s Directors and Supervisors are 16,000,000 shares and 1,600,000 shares. As of April 25, 2017, the actual shareholdings of the Company s Directors and Supervisors are 290,902,124 shares and 2,367,601 shares.