YAGEO Corporationnew-web.yageo.com/exep/pages/download/IR/Annual Report/FY18.pdf · market pioneer...

Stock Code: 2327

YAGEO Corporation

2018 Annual Report .

Notice to readers This English-version annual report is a translation of the Chinese version. If there is any discrepancy between the English and Chinese versions, the Chinese version shall prevail Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw Website http://www.yageo.com Printed on May 15, 2019

Spokesperson

Name: Sandy Chang

Title: Director

Phone: 886-2-66299999

E-mail: [email protected]

Deputy Spokesperson

Name: Andy Sung

Title: Manager

Phone:886-2-66299999

E-mail:[email protected]

Stock Transfer Agent

MasterLink Securities Corp.

B1, No.35, Ln. 11, Guangfu N. Rd., Taipei,

Taiwan

Phone: 886-2-27686668

www.masterlink.com.tw

Auditors

Deloitte & Touche

Yung-Hsiang Chao and Jr-Shian Ke.

20F, No. 100, Songren Rd., Xinyi Dist.,

Taipei, Taiwan

Phone.: 886-2-25459988

www.deloitte.com.tw

Overseas Securities Exchange

Luxembourg Stock Exchange

Disclosed information can be found at

https://www.bourse.lu

Ｙageo Corporation Website

http://www. yageo.com

Headquarters

3F,233-1,Baoqiao Rd., Xindian Dist., New

Taipei City ,

Taiwan

Phone:+886 2 6629 9999

Major Factory

Yageo YP

No.16,West 3rd St, N.E.P.Z., Kaohsiung,

Taiwan

Phone: 886-7-9618999

Yageo YR

No.16,West 3rd St, N.E.P.Z., Kaohsiung,

Taiwan

Phone: 886-7-9616999

Yageo YF

No.10 Zhuyuan Rd,Suzhou New District,

Suzhou City, China

Phone: 886-7-8606999

Yageo SZ

No.10 Zhuyuan Rd,Suzhou New District,

Suzhou City,China

Phone: 512-68255568

Yageo DG

7-1,Gaoli RD.,Gaoli IND,Zone Tangxia Town,

Dongguan City, China

Phone: 769-87720275

Contents I. Letter to Shareholders........................................................................................................1

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

III. Corporate Governance Report 3.1 Company Structure….....................................................................................................4 3.2 Directors, Supervisors and Management Team……………………………………….6 3.3 Remuneration paid during the most recent fiscal year to Directors, Supervisors,….

And Management Team …...........................................................................................10 3.4 Implementation of Corporate Governance………………............................................15 3.5 Information on CPA professional fees………………..………………………………32 3.6 Information on replacement of certified public accountant…………………………32 3.7 Where the company’s chairperson, general manager, or any managerial officer in…

charge of finance or accounting matters has in the most recent year held a position.. at the accounting firm of its certified public accountant or at an affiliated. Enterprise of such accounting firm:………………………………………….33

3.8 Any transfer of equity interests and/or pledge of or change in equity interests (during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report) by a director, supervisor, managerial officer, or shareholder with a stake of more than 10 percent during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report…..………………………………………………………………….33

3.9 Relationship information, if among the company's 10 largest shareholders any one is a related party or a relat ive within the second degree of kinship of another…..…………………………………………………….…………….33

3.10 The total number of shares and total equity stake held in any single enterprise by. the company, its directors and supervisors, managers, and any companies controlled either directly or indirectly by the company…….................................34

IV. Information on Capital Raising Activities 4.1 Capital and Shares………………………………………………………….……36 4.2 Corporate Bonds….………………………………………………………….……40 4.3 Preferred Stock…….………………………………………………………………40 4.4 The section on Global Depository Receipts…………………………………………40 4.5 The section on Employee Share subscription warrants………………………………41 4.6 The section on issuance of new shares in connection with mergers or acquisitions

or with acquisitions of shares of other companies…………………………………..42 4.7 The section on implementation of the company's capital allocation plans………....42

V. Operational Highlights 5.1 Business Activities……………………………………………………………….43 5.2 Market, Production and Sales Review..………………………….……………..46 5.3 Human Resources……….……………………………………………………….48 5.4 Disbursements for environmental protection................................................49 5.5 Labor Relations…………………………………………………………………49 5.6 Important Contracts………………………………………………………………50

VI. Financial Information 6.1 Five-Year Financial Summary for the past 5 fiscal years………………….………..51 6.2 Financial analyses for the past 5 fiscal years……………………….………55 6.3 Audit Committee’s report for the most recent year's financial statement……………58 6.4 Consolidated Financial Statements for the most recent year audited by the CPA…....58 6.5 Financial Statements for the most recent year audited by the CPA…………………..58

6.6 If the company or its affiliates have experienced financial difficulties in the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, the annual report shall explain how said difficulties will affect the company's financial situation…………………….……………………...58

VII. Review and Analyze of Financial Position, Financial Performance, and RiskManagement

7.1 Analysis of Financial Status…………………………………………………………..59 7.2 Analysis of Financial Performance……………………………………………..…….59 7.3 Analysis of Cash Flow……………………………………………..…………………59 7.4 The effect upon financial operations of any major capital expenditures during the

most recent fiscal year…………………………….………………………………60 7.5 Reinvestment policy for the most recent fiscal year, the main reasons for the

profits/losses generated thereby, the plan for improving re-investment profitability, and investment plans for the coming year………………….…60

7.6 The section on risks shall analyze and assess for the most recent fiscal year and as they stood on the date of publication of the annual export ………..…..….…61

7.7 Other major matters…………………………………………….…………………..65

VIII. Special Disclosure8.1 Summary of Affiliated Companies……………………………………..……….……66 8.2 The status of issuing private placement securities in the most recent year and up to.

the publication of the annual report……………………………………………….73 8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent

Years……………………………………………………………….………….73 8.4 Other necessary supplementary notes……………………………………..………….73

IX. The occurrence of any events as stated in Section 3 Paragraph 2 in Article 36of the Securities Exchange Act that had significant impact on shareholder’s equityor securities prices in the most recent year and up to the publication of the annualreport…………………………………………………………………………………..73

Attachment………………………………………………………...…………….…………..74

1

I. Letter to Shareholders

Dear Shareholders,

Yageo achieved another mild stone year in year 2018. The consolidated sales, gross margin, operating margin, net income and earning per share all reached record high. The remarkable performance is attributable to Yageo’s forward-looking vision, concentration on core business, growth in high-end product, best offering of value-added service and enterprise solutions and maintaining operational efficiency. Teamwork enabled Yageo not only accomplished high growth but also maintained solid financial position supported by sound operational and financial indicators. In addition, Yageo merged a protective component company- BrightKing and a high-end electronic component company- Pulse Electronics in 2018 in order to expand Yageo’s product portfolios and to provide one-stop-shopping service to our customers. These acquisitions are expected to drive operational growth and realize consolidation synergies in near future.

1. 2018 Financial Performance:2018 consolidated sales reported NT$ 77,156 million, up 139.2% compared to 2017.Gross margin posted 63.3%. The operating income reached NT$ 36,908 million with47.8% of operating profit margin. Net consolidated profits after tax attributable to parentcompany amounted to NT$ 33,839 million or NT$ 80.30 earnings per share.

2. 2018 Budget Execution Rate:Not applicable. Yageo did not disclose financial projection for 2018.

3. Financial Ratio Analysis:Financial Ratio 2018

Capital Structure

Debt Ratio (%) 51.58 Long-term Funds to Fixed Asset (%) 365.85

Liquidity Current Ratio (%) 115.67

Profitability indicator

Return on Asset (%) 35.65 Return on Equity (%) 74.56 Net Profit Margin (%) 43.86 Earning Per Share (NT$) 80.30

4. 2019 Business Plan:Yageo will implement the following business development strategies in the hope ofcontinuously creating value for its shareholders, customers and employees.

(1) Increase revenue from high-end products: evolves with technology trend and focuseson profitable product with high unit selling price and high gross margin. Boostsproduct sales with end applications from automotive electronics, 5G, automationequipment, power supple, Internet of Things networking and data centers. Be themarket pioneer to expand end applications. Builds stronger business partnership withkey customers.

(2) Ensures operational excellence: provides differentiated services, consolidatesresources in business units and global sales channels. Improves operational

2

efficiency and cost controls. Implements automated production and Industrial 4.0 innovated application through advanced planning and technology.

(3) Develops innovative product mix: utilizes our existing products and techniques toinvest in advanced technology. Seeks for external strategic cooperation opportunitiesto obtain high-value component product. Executes new product development andproduct launch plan rigorously and refines quality control process. Provides a broadspectrum of quality product to meet the needs of various customers.

(4) Maintains organizational effectiveness: fully empowers management and coachessuccessors, recruits and retains talents, establishes clear role and responsibility, anddedicates to build a high-performance organization through organizationalinnovation and process improvement.

Moving forward, despite there is uncertainty in global economics and the electronic industry, such as international trade dispute, foreign exchange fluctuation risk, tightening of environmental protection regulation, weak demand from electronic supply chain, price competition among passive component peers, Yageo will continue to increase capacity in automotive and industrial product, optimize product mix and customer base, upgrade production equipment while comply with environmental protection regulation. At the same time, the company will keep expanding the operational scale and acquiring advanced technology in order to strengthen Yageo’s international competitiveness and to serve our global customers rapidly and effectively and all in all to drive profitable growth and create value for our shareholders and the industry. I would like to thank our shareholders for your long-term and continuing support to Yageo, and wish you all good health and happiness.

Tie-Min Chen Chairman

3

II. Company Profile 2.1 Date of Incorporation: September 09, 1987 2.2 Company History

The Company was formerly known as Taiwan Resistor Corporation, which mainly produced various types of precision resistors, such as carbon film resistor, metal film resistor, metal oxide film resistor, wirewound resistor, through hole resistor, chip resistor, network chip resistor and array chip resistor. All of the Company's products were distributed to overseas markets and major domestic manufacturers via former Yageo Corporation. In addition, former Yageo Corporation’s product- metal rods is one of the raw materials for producing metal film resistors. Yageo Corporation and Taiwan Resistor Corporation officially merged on November 3rd, 1989 in seeking to achieve operational benefits by integrating the upstream, middle stream and downstream of the resistor industry. After the merger, Taiwan Resistor Corporation became extinct and Yageo Corporation is the surviving company. The history of Yageo Corporation is described in below:

1977-Jul Former Yageo Corporation established, its main product include automatic welding machine and carbon film resistor.

1977-Sep Taiwan Resistor Corporation established. 1989-Nov Taiwan Resistor Corporation and Yageo Corporation merged. 1991-May Registered on Emerging Stock Board of Taipei Stock Exchange. 1992-Mar Listed in Taipei Stock Exchange. 1993-Jul The Ministry of Finance approved the listing of the Company's shares. 1993-Oct Listed in Taipei Stock Exchange.

1994-Dec Yageo Holding (Bermuda) Limited established, its main business is to conduct M&A activities in international electronic component vendors.

1995-Jul Awarded with “Top 10 Best Operating Enterprises in Taiwan” by AsiaMoney magazine. 1995-Nov Awarded with “The Best 100 Small Companies Outside U.S.A.” by Forbes magazine. 1996-May Yageo Holding (Bermuda) Limited merged German resistor maker- Vitrohm group.

1997-May Kaohsiung plant II construction work completed and began production. The combined capacity of thick film resistor reached 5 billion pieces per month.

1998-Aug Yageo’s Affiliate Company- Teapo Electronic Co., Ltd. was listed in Taiwan Stock Exchange. 2000-Jul Acquired MLCC and magnetic component business from Philips Electronics.

2001-Sep Yageo’s Affiliate Company- Chilisin Electronics Corporation was listed in Taiwan Stock Exchange.

2003-May Merged Phycomp Taiwan Ltd. 2005-Jul Acquired Compostar Technology Co., Ltd. through equity swap.

2005-Aug Yageo’s Affiliate Company- Global Testing Corporation was listed in Singapore Exchange. 2006-Jul Acquired Chipcera Technology Co., Ltd. through equity swap. 2007-Jun Yageo's US$230 million ECB offering approved, KKR brought in as a strategic investor 2008-Jul Merged Kuo Chung Development Ltd.

2008- Oct Merged Compostar Technology Co., Ltd. 2008-Dec Merged Chipcera Technology Co., Ltd. 2013-Sep Capital reduction of NT$6,616 million in cash 2014-Sep Capital reduction of NT$15,395 million in cash 2016-Jul Capital reduction of NT$1,286 million in cash 2017-Jun Capital reduction of NT$1,509 million in cash 2018-Jun Acquired Brightking Holdings Limited 2018-Dec Acquired Pulse Electronics

4

Shareholder’s Meetings

CEO

Board of Directors

Chairman

Finance & Administration Global SBU Global Product BU Legal R&D

Greater China

Europe

America

Japan

Korea

Singapore

Chip Resistor

MLCC

Through-Hole Resistor

Wireless Component

Circuit Protection Component

Pulse Electronics

Finance & Accounting

Information Technology

Global Logistics

Human Resource

Investor Relation

General Affairs

Internal Audit

Audit Committee

Compensation Committee

III. Corporate Governance Report 3.1 Company Structure 3.1.1 Organizational Chart

5

3.1.2 Functions and Responsibilities

Departments Functions and Responsibilities

Internal Audit Inspection and review of Yageo’s internal control system, its adequacy in design and effectiveness in operation with independent risk assessment to ensure compliance with Yageo’s policies and procedures.

Global SBU Sales, market development, customers service and account receivable collection. Global SBU is divided into Greater China, Europe, America, Japan, Korea, Asia and other regions.

Global Product BU R&D, production, quality control and product strategy of company product.

Chip Resistor BU R&D, production, quality control and product strategy of Chip Resistor Product.

MLCC BU R&D, production, quality control and product strategy of MLCC Product.

Through-Hole Resistor BU R&D, production, quality control and product strategy of Through-Hole Resistor Product.

Wireless Component BU R&D, production, quality control and product strategy of Wireless Product.

Circuit Protection Component BU

R&D, production, quality control and product strategy of Circuit Protection Product, including TVS, MOV, GDT, SPG, ESD, PTC, TSS, and NTC.

Pulse Electronics BU R&D, production, quality control and product strategy of wireless components, high-end transformers, integrated connector modules, RF chip inductors, power supplies and cable system.

R&D Integrate R&D resources for each business unit, and develop advanced technologies in production process, material and machinery, and formulating short-term and long-term technology and R&D strategies.

Legal Corporate legal affairs including commercial transactions and contracts, legal consultation, patents and management of other intellectual properties, litigation, regulatory compliances, etc.

Finance & Administration Corporate finance, accounting, IT, corporate communication, human resources and administration.

Finance & Accounting Treasury, credit control, accounting, tax and reporting.

Information Technology Integration of the Company’s business IT systems and data base, infrastructure development, communication services and assurance of IT security and service quality.

Investor Relations Manage communication between the Company and the investors/media.

Human Resources Human resource management including recruitment, training and retention and organizational development. Establish performance management and compensation and benefit system to ensure harmonious employee and labor relations.

General Affairs Manage office environment, equipment and asset.

Global Logistics Organize order fulfillment, warehousing, and distribution and transportation of goods.

6

3.2 Directors and Management Team 3.2.1 Directors As of April 07, 2019

Title/Mane Nationality/

Place of Incorporation

Gender Date

Elected Term

(Years) Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding

Shareholding by Nominee Arrangement Experience (Education) Other Position

Shares % Shares % Shares % Shares %

Chairman

Tie-Min Chen ROC Male 06 05, 2018 3 06 03, 1993 28,862,741 7.65 34,184,697 8.00 - - - -

BS in Engineering, National Cheng ung University President of Yageo Corp

Strategic Investment Management Committee of Yageo Corp. Chairman of Kuo Shin Investment Ltd Chairman of Chilisin Electronics Corp.

Director

Hsu Chang Investment Ltd Representatives

Victor C. Wang

ROC Male 06 05, 2018 3

06 02,1998 3,354,562 0.95 4,019,156 0.94 - - - - EMBA, National Taiwan University BA in Accounting, Soochow University Vice Chairman of Deloitte & Touche

Independent Director of Taiwan Cement Co., Ltd. Independent Director of Da-Cin Construction Co., Ltd. Independent Director of Taiwan Navigation., Co., Ltd. Independent Director of Fulin-KY

06 13, 2012 - - - - - - - -

Director


Tzong-Yeng Lin

ROC Male 10 17, 2018 3

06 02,1998 3,354,562 0.95 4,019,156 0.94 - - - - Master of Law, National Taiwan University Bachelor of Law, National Chung-Shing University President of Mega Financial Holding Company

None 10.17, 2007 - - - - - - - -

Director


Shih-Chien Yang

ROC Male 06 05, 2018 3

06 02,1998 3,354,562 0.95 4,019,156 0.94 - - - - Ph.D., Electrical Engineering, Northwestern University MS, Electrical Engineering, Northwestern University BS, Electrical Engineering, National Taiwan University Senior Vice Minister, Ministry of Economic Affairs Mar.

Chairman and CEO, Global Strategic Investment Fund Independent director of Topkey Group Independent director of WUS Printed Circuit Co., Ltd. 06 14, 2006 - - - - - - - -

Director


Chi-Wen Chang

ROC Female 06 05, 2018 3

06 02,1998 3,354,562 0.95 4,019,156 0.94 - - - - MBA in Finance, UCLA, Anderson School BA in Economics, National Taiwan University Chief Financial Officer of Advantech Co., Ltd. Chief Financial Officer of Yageo Corp

CEO and Present of Yageo Corp Director of the Board of Kuo Shin Investment Ltd Independent Director of POSIFLEX TECHNOLOGY, INC. 12 19, 2007 202,427 0.05 1,229,868 0.29 - - - -

Director


Lai-Fu Lin

ROC Male 06 05, 2018 3

06 02,1998 3,354,562 0.95 4,019,156 0.94 - - - - ROC Certified Public Accountant Accountant of Deloitte & Touche

Independent Director, O2Micro International Limited Chief Executive partner , UHY L&C Company 06 13, 2012 - - - - - - - -

7

Title/Mane Nationality/

Place of Incorporation

Gender Date

Elected Term

(Years) Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding

Shareholding by Nominee Arrangement Experience (Education) Other Position

Shares % Shares % Shares % Shares %

Independent Director

Jerry Lee ROC Male 06 05, 2018 3 06 13,2012 - - - - - - - -

BA in Accounting, Tam-Kang University Vice Chairman of Yageo Corp. Audit manager of Deloitte & Touche

None


Hilo Chen ROC Male 06 05, 2018 3 06 05,2018 - - - - - - - -

EMBA, National Taiwan University BS of Transportation Technology and Management, National Chiao Tung University President and CEO of Systex Corp General Manager, Yahoo! China & VP of Commercial Ops, Yahoo! North Asia

Founder & Chairman of GuoShi Partners Independent Director of GIANT MANUFACTURING CO., LTD. Independent Director of Momo.com Inc. Independent Director of CHINA CHEMICAL & PHARMACEUTICAL CO., LTD.


Tun-Son Lin Dominica Male 06 05, 2018 3 06 13,2012 - - - - - - - - King’s College London, University of

London(PH.D)

Chairman and Managing Partner of Whitesun Equily Ltd. Independent Director of Ubright Optronics Corporation

Note: The above Directors also serve for the subsidiaries, please refer to the “Attachment III Each affiliated company’s Director, Supervisor, and President” of the Annual report

3.2.1.1. Major shareholders of the institutional shareholders As of April 07, 2019

3.2.1.2. Major shareholders of the Company’s major institutional shareholders

Name of Institutional Shareholders Major Shareholders

Hsu Chang Investment Ltd Hsu Tai Investment Ltd. (99%)

Name of Institutional Shareholders Major Shareholders

Hsu Tai Investment Ltd. Hwei-Jan Lee (99%)

8

3.2.1.3. Professional qualifications and independence analysis of directors

Note: Please tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during the term of office.

1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. Not applicable in cases where the person is an independent director of the Company, its parent company, or any subsidiary as appointed in

accordance with the Act or with the laws of the country of the parent or subsidiary. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the

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

holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting

services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. These restrictions do not apply to any member of the remuneration committee who exercises powers pursuant to Article 7 of the “Regulations Governing the Establishment and Exercise of Powers of Remuneration Committees of Companies whose Stock is Listed on the TWSE or Traded on the TPEx“.

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

Criteria

Name

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

Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director

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

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

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

1 2 3 4 5 6 7 8 9 10

Tie-Min Chen V V V V V V V 0 Jerry Lee V V V V V V V V V V V 0 Hilo Chen V V V V V V V V V V V 3 Tun-Son Lin V V V V V V V V V V V 1 Chi-Wen Chang V V V V V V V V 1 Victor C. Wang V V V V V V V V V V 4 Tzong-Yeong Lin V V V V V V V V V V 0 Shih-Chien Yang V V V V V V V V V V 2 Lai-Fu Lin V V V V V V V V V V V 0

9

3.2.2 Major Managers

Title/Name Nationality Gender Date Effective

Shareholding Spouse &

Minor Shareholding

Shareholding by Nominee Arrangement Experience（Education）

Other

Position

Managers who are Spouses or Within Two Degrees of

Kinship

Shares % Shares % Shares % Title Name Relation

Chairman Tie-Min Chen

ROC Male 06 23,2007 34,184,697 8.00 - - - - BS in Engineering, National Cheng Kung University Chairman of Global Testing Corporation Limited General Manager of Yageo Corp.

Note 1 None None None

CEO & President Chi-Wen Chang

ROC Female 08 12,2014 1,229,868 0.29 - - - -

MBA in Finance, UCLA, Anderson School BA in Economics, National Taiwan University Chief Financial Officer of Advantech Co., Ltd. Chief Financial Officer of Yageo Corp.


CTO Masayuki Fujimoto

Japan Male 07 1, 2008 - - - - - -

Ph.D. in Engineering ,University of Tokyo Bachelor , Tokyo University of Science General Manager of Central Research Laboratories, Taiyo Yuden Co., Ltd Visiting Scientist at the Massachusetts Institute of Technology.

None None None None

Vice President Owen Yang

ROC Male 09 1, 2016 - - - - - - Industrial Engineering, Provincial Taipei Institute of Technology Executive Vice President of Ralec Electronic Co., Ltd


Vice President Chris Yang

ROC Male 8 12, 2014 58 0.00 - - - -

Master, Information Engineering ,Feng Chia University Bachelor, Computer Science, Soochow University Director of TPO Displays Corp Senior Manager of NXP Semiconductors


Vice President C.T Lee

ROC Male 8 12, 2014 28,622 0.00 - - - - Ph.D., Resources Engineering , National Cheng Kung University None None None None

Note 1 : Strategic Investment Management Committee of Yageo Corp.; Director & Chairman of Kuo Shin Investment Ltd. ; Chairman of Chilisin Electronics Corp. ; Director & Chairman of Yageo Holding (Bermuda) Ltd. ; Director of Hsu Tai International (H.K.)

Note 2 : President of Yageo Corp. ; Director of Kuo Shin Investment Ltd. ; Director of Yageo Holding (Bermuda) Ltd. ; Supervisor of Ko-E Corp. ; Director of Ko-E Holding (Cayman) Ltd. ; Director of Ko-E (H.K.) Ltd. ; Director of Ko-E Technology (Shenzhen) Co.Ltd. ; Director of Yageo Electronics (Dongguan) Co.. Ltd. ; Director of Yageo Electronics (China) Co., Ltd. ; Director of Yageo Compoent (Suzhou) Co.. Ltd. ; Director of Yageo Trade (Suzhou) Co.. Ltd. ; Director of Pulse Electronics Corp. ; Director of Yageo America ; Director of Yageo Europe Holding B.V. ; Director of Yageo Corporation (Korea) Ltd. ; Director of Yageo Corporation (Japan) Ltd. ; Director of Compostar Technology (Dongguan) Co., ; Director of Yageo USA (H.K.) Ltd. ; Director of Hsu Tai International Ltd. ; Independent Director of POSIFLEX TECHNOLOGY, INC.

Note 3 : Director of Ko-E Technology (Shenzhen) Co.Ltd. ; Director of Ko-E (H.K.) Ltd. ; Director of Ko-E Corp. ; Director of Yageo USA (H.K.) Ltd. ; Supervisor of Yageo Compoent (Suzhou) Co., Ltd. ; Director of Yageo Corporation (South Asia) ; Director of Yageo America ; Director of Yageo Europe Holding B.V. ; Director of Vitrohm Holding ; Director of Yageo South Asia (M) SDN BHD

Note 4 : Director of Yageo Electronics (China) Co., Ltd. ; Supervisor of Yageo Trade (Suzhou) Co., Ltd. ; Director of Compostar Technology (Dongguan) Co.,

10

3.3 Remuneration paid during the most recent fiscal year to Directors, Supervisors, and Management Team

3.3.1. Remuneration of Directors Unit: NT$ thousands

Title/ Name

Remuneration Total Remuneration (A+B+C+D) as a % of 2018 Net Income

Relevant Remuneration Received by Directors Who are Also Employees Total Remuneration (A+B+C+D+E+F+G) as a % of 2018 Net Income

Compensation Paid to Directors from an Invested Company Other than the Company’s Subsidiary

Base Compensation (A)

Severance Pay (B)

Directors Compensation

(C)

Allowances (D)

Salary, Bonuses, and Allowances

(E)

Severance Pay (F)

Employee Compensation (G)

The company

From all companies

consolidated entities

The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


Cash Stock Cash Stock

Chairman Tie-Min Chen - - - - 156,512 156,512 - - 0.46 0.46 8,173 8,173 - - 4,000 - 4,000 - 0.50 0.50 -

Independent Director Jerry Lee, Hilo Chen Tun-Son Lin (note 2)

5,512 5,512 - - - - 288 288 0.02 0.02 - - - - - - - - 0.02 0.02 -

Director

Hsu Chang Investment Ltd Representatives Victor C. Wang Shih-Chien Yang、 Chi-Wen Chang、 Lai-Fu Lin (note 2)、 Tzong-Yeong Lin (note 3)、 Pao-Yuan Wang (note 4)

4,640 4,640 - - 860,818 860,818 360 360 2.56 2.56 23,775 23,775 108 108 4,000 - 4,000 - 2.64 2.64 -

In addition to the above disclosed, Director Remuneration received for the services of all companies in the financial report (such as consultants who are not employees) amount is 0.

Note 1. Retirement pension is the amount of 6% of the monthly salary of the employee to the Bureau of Labor Insurance. Note 2.New appointment in June 5, 2018 Note 3. New appointment in Oct. 17, 2018 Note 4. Conge in Oct. 17, 2018

11

Range of Remuneration


Name of Directors

Total of (A+B+C+D) Total of (A+B+C+D+E+F+G)

The company From all companies consolidated entities The company From all companies


Under NT$ 2,000,000 Chi-Wen Chang, Tun-Son Lin, Lai-Fu Lin, Tzong-Yeong Lin, Pao-Yuan Wang

Chi-Wen Chang, Tun-Son Lin, Lai-Fu Lin, Tzong-Yeong Lin, Pao-Yuan Wang



NT$2,000,001 ~ NT$5,000,000 Jerry Lee, Hilo Chen, Victor C. Wang, Shih-Chien Yang

Jerry Lee, Hilo Chen, Victor C. Wang, Shih-Chien Yang



NT$5,000,001 ~ NT$10,000,000 0 0 0 0

NT$10,000,001 ~ NT$15,000,000 0 0 0 0

NT$15,000,001 ~ NT$30,000,000 0 0 0 0

NT$30,000,001~ NT$50,000,000 0 0 0 0

NT$50,000,001 ~ NT$100,000,000 0 0 0 0

Over NT$100,000,000 Hsu Chang Investment Ltd, Tie-Min Chen

Hsu Chang Investment Ltd, Tie-Min Chen



Total 11 11 11 11

12

3.3.2. Remuneration of Supervisors Unit: NT$ thousands

Title / Name

Remuneration Ratio of Total Remuneration (A+B+C) to Net Income (%) Compensation Paid to

Supervisors from an Invested Company Other than the Company’s Subsidiary

Base Compensation (A) Bonus to Supervisors (B) Allowances (C)

The company

From all companies


The company

From all companies


The company

From all companies consolidated entities The company

From all companies


Supervisor Hung Tai Investment Ltd.Representatives Yuan Ho Lai ,

Lai-Fu Lin

928 928 156,512 156,512 72 72 0.47 0.47 1,250

Note: All Yageo’s independent directors established the Audit Committee in order to substitute for the supervisor’s function.



Name of Supervisors

Total of (A+B+C)

The company From all companies consolidated entities

Under NT$ 2,000,000 Yuan Ho Lai , Lai-Fu Lin Yuan Ho Lai , Lai-Fu Lin

NT$2,000,001 ~ NT$5,000,000 0 0

NT$5,000,001 ~ NT$10,000,000 0 0

NT$10,000,001 ~ NT$15,000,000 0 0

NT$15,000,001 ~ NT$30,000,000 0 0

NT$30,000,001 ~ NT$50,000,000 0 0

NT$50,000,001 ~ NT$100,000,000 0 0

Over NT$100,000,000 Hung Tai Investment Ltd Hung Tai Investment Ltd

Total 3 3

13

3.3.3. Remuneration of Major Managers Unit: NT$ thousands

Title Name

Salary(A) Severance Pay (B) Bonuses and Allowances (C) Employee Compensation (D)

Ratio of total compensation (A+B+C+D) to net income (%) Compensation Paid to the

President and Vice Presidents from an Invested

Company Other than the Company’s Subsidiary

The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies


The company

From all companies

consolidated entities Cash Stock Cash Stock


25,404 30,880 432 432 26,431 28,120 10,700 - 10,700 - 0.19 0.21 -

CEO & President Chi-Wen Chang CTO Masayuki Fujimoto Vice President Owen Yang, Chris Yang, C.T Lee

Note 1. Retirement pension is the amount of 6% of the monthly salary of the employee to the Bureau of Labor Insurance

Note 2. Earnings distribution employee bonus is presented in estimates. Range of Remuneration

Range of Remuneration Name of Major Managers

The company From all companies consolidated entities Under NT$ 2,000,000 Masayuki Fujimoto 0 NT$2,000,001 ~ NT$5,000,000 0 0 NT$5,000,001 ~ NT$10,000,000 Chris Yang, C.T Lee Chris Yang, Masayuki Fujimoto, C.T Lee NT$10,000,001 ~ NT$15,000,000 Tie-Min Chen, Owen Yang Tie-Min Chen, Owen Yang NT$15,000,001 ~ NT$30,000,000 Chi-Wen Chang Chi-Wen Chang NT$30,000,001 ~ NT$50,000,000 0 0 NT$50,000,001 ~ NT$100,000,000 0 0 Over NT$100,000,000 0 0 Total 6 6

14

3.3.4. Employee Compensation of the Managers: Unit: NT$ thousands

Title Name Employee Compensation

- in Stock (Fair Market Value)

Employee Compensation - in Cash Total

Ratio of Total Amount to Net

Income (%)

Manager


- 10,700 10,700 0.03

CEO & President Chi-Wen Chang

CTO Masayuki Fujimoto

Vice President Owen Yang

Vice President Chris Yang

Vice President C.T Lee

3.3.5 Separately compare and describe total remuneration, as a percentage of net income stated in the parent company only financial reports or individual financial reports, as paid by this company and by each other company included in the consolidated financial statements during the past 2 fiscal years to directors, supervisors, general managers, and assistant general managers, and analyze and describe remuneration policies, standards, and packages, the procedure for determining remuneration, and its linkage to operating performance and future risk exposure:

Year

Ratio of total remuneration paid to net income (%)

2018 2017

The company From all companies The company From all companies

Directors and Supervisors 3.63 3.63 4.18 4.18

Major Managers 0.19 0.21 0.83 0.92

15

3.4. Implementation of Corporate Governance

3.4.1. The state of operations of the board of directors: A total of 12 (A) meetings of the Board of Directors were held in the previous period. The attendance of directors and supervisors were as follows:

Title Name Attendance in Person (B)

By Proxy

Attendance Rate (%) 【Ｂ/Ａ】 Remarks

Chairman Tie-Min Chen 11 1 92 Reelected

Director

Hsu Chang Investment Ltd Representatives Victor C. Wang 8 4 67 Reelected

Director Hsu Chang Investment Ltd Representatives Tzong-Yeong Lin 3 1 38

(meeting held 8 times) Resigned on Jun. 5 ,2018

Reassigned on Oct. 17, 2018

Director Hsu Chang Investment Ltd Representatives Shih-Chien Yang 3 9 75 Reelected

Director Hsu Chang Investment Ltd Representatives Chi-Wen Chang 11 1 92 Reelected

Director Hsu Chang Investment Ltd Representatives Pao-Yuan Wang 4 5 44

(meeting held 5 times) Reelected on Jun. 5, 2018 Resigned on Oct. 17, 2018

Director Hsu Chang Investment Ltd Representatives Yung-Lung Wu 2 3 40

(meeting held 5 times) Resigned on Jun. 5, 2018

Director Hsu Chang Investment Ltd Representatives Lai-Fu Lin 7 0 100

(meeting held 7 times) New appointment

Independent Director Jerry Lee 11 1 92 Reelected

Independent Director Hilo Chen 10 2 83 Reelected

Independent Director Tun-Son Lin 5 2 71 (meeting held 7 times) New appointment

Supervisor Hung Tai Investment Ltd. Representatives Yuan Ho Lai 4 N/A 80


Supervisor Hung Tai Investment Ltd. Representatives Lai-Fu Lin 5 N/A 100


Other mentionable items: 1. If any of the following circumstances occur,, the dates of the meetings, sessions, contents of motion, all independent directors’ opinions and the

16

company’s response should be specified:

(1) Matters referred to in Article 14-3 of the Securities and Exchange Act.

BOD Subjects Resolution results

Opinions of independent

directors

Company’s treatment of the pinions

Company’s treatment of the

pinons

Feb. 22.2018

Amendment to the “Operational Procedures for Lending of Capital, Endorsements and Guarantees”. approved None None None Amendment to the “Procedures for Acquisition or Disposal of Assets”. approved None None None Amendment to the “Procedures for Internal Control System General”. approved None None None The Company’s offering endorsement/guarantee to the subsidiaries for applying for bank credit line. approved None None None

Apr. 24, 2018 Change accounting officer . approved None None None May 22, 2018 Acquire 100% shares of Pulse Electronics Corporation. approved None None None

Jul. 9, 2018

Merger between Yageo Holding (Cayman) Ltd. and Brightking Holding Ltd. approved None None None The Company loan NT$2 billion to Kuo-Shin Investment Ltd. approved None None None

Aug. 7, 2018

The Company’s offering endorsement/guarantee to the subsidiaries for applying for bank credit line. approved None None None Yageo Electronics (China) Co., Ltd to increase capital through capitalization of earnings. approved None None None

Oct. 31, 2018 Assurance CPA appointment. approved None None None The Company’s offering endorsement/guarantee to the subsidiaries for applying for bank credit line. approved None None None

Nov. 8, 2018 Acquire real estate. approved None None None

Nov. 28, 2018 Increase capital to Pluto Merger Corporation for Pulse acquisition settlement. approved None None None

(2) Other matters involving objections or expressed reservations by independent directors that were recorded or stated in writing that require a resolution by the board of directors. None

2. If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: None

3. Measures taken to strengthen the functionality of the board: The Board of Directors has established an Audit Committee and a Remuneration Committee to

17

assist the board in carrying out its various duties. The Company established the Audit Committee on June 5, 2018, and the company’s Website exposed financial, business, shareholder meetings, corporate briefings and other relevant information to enhance information transparency.

Note1: All Yageo’s independent directors established the Audit Committee in order to substitute for the supervisor’s function

3.4.2. The state of operations of the audit committee:

A total of 6 (A) Audit Committee meetings were held in the previous period. The attendance of the independent directors was as follows:

Title Name Attendance in Person (B) By Proxy Attendance Rate

(%)【Ｂ/Ａ】 Remarks

Independent director Jerry Lee 6 0 100 All Yageo’s independent directors established the Audit Committee in order to substitute for the supervisor’s function

Independent director Hilo Chen 5 1 83 Independent director Tun-Son Lin 3 3 50 Other mentionable items:

1. If any of the following circumstances occur, the dates of meetings, sessions, contents of motion, resolutions of the Audit Committee and the Company’s response to the Audit Committee’s opinion should be specified:

(1) Matters referred to in Article 14-5 of the Securities and Exchange Act.

Audit Committee Subjects Resolution results

Opinions of independent

directors


pinions


pinions

Jul. 9, 2018

Merger between Yageo Holding (Cayman) Ltd. and Brightking Holding Ltd. approved None None None

The Company loan NT$2 billion to Kuo-Shin Investment Ltd. approved None None None

Set the date for the company's employee stock option to issue new shares. approved None None None

Jul. 17, 2018 The Company treasury share repurchase program. approved None None None Set the Company’s " Regulations Governing Share Repurchase " approved None None None

Aug. 7, 2018

The Company’s 2018Q2 consolidated financial statement. approved None None None

Handling OCBC Bank Singapore account opening and new Credit. approved None None None

18

The Company’s offering endorsement/guarantee to the subsidiaries for applying for bank credit line. approved None None None

Yageo Electronics (China) Co., Ltd to increase capital through capitalization of earnings. approved None None None

Oct. 31, 2018

Approval of the 2018Q3 consolidated financial statement. approved None None None

Assurance CPA appointment. approved None None None Review the internal audit report approved None None None

Nov. 8, 2018 Acquire real estate. approved None None None

(2) Other matters which were not approved by the Audit Committee but were approved by two-thirds or more of all directors: None

2. If there are independent directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: None

3. Communications between the independent directors, the Company's chief internal auditor and CPAs (e.g. the material items, methods and results of audits of corporate finance or operations, etc.)

(1)The internal auditors have communicated the result of the audit reports to the members of the Audit Committee periodically, and have presented the findings of all audit reports in the quarterly meetings of the Audit Committee. Should the urgency of the matter require it, the Company's chief internal auditor will inform the members of the Audit Committee outside of the regular reporting. The communication channel between the Audit Committee and the internal auditor has been functioning well.

(2)The Company’s CPAs have presented the findings or the comments for the quarterly corporate financial reports, as well as those matters communication of which is required by law, in the regular quarterly meetings of the Audit Committee. Under applicable laws and regulations, the CPAs are required to communicate to the Audit Committee any material matters that they have discovered. The communication channel between the Audit Committee and the CPAs has been functioning well.

19

3.4.3. The state of the company's implementation of corporate governance, any departure of such implementation from the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies, and the reason for any such departure:

Evaluation Item Implementation Status 1 Deviations from “the Corporate

Governance Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons Yes No Abstract Illustration

1. Does the company establish and disclose the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”?

V The company's practical operations follow the relevant provisions of the “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”. None

2. Shareholding structure & shareholders’ rights (1) Does the company establish an internal operating

procedure to deal with shareholders’ suggestions, doubts, disputes and litigations, and implement based on the procedure?

(2) Does the company possess the list of its major shareholders as well as the ultimate owners of those shares?

(3) Does the company establish and execute the risk

management and firewall system within its conglomerate structure?

(4) Does the company establish internal rules against insiders trading with undisclosed information?

V

V

V

V

(1) The Company has a spokesperson, deputy

spokesperson and stock affairs department to effectively handle shareholders’ suggestions, doubts, disputes and litigation.

(2) The company maintains a list of shareholders of major shareholders and the list of ultimate owners of those shares based on the register of shareholders provided by the stock agent.

(3) The management responsibilities of the Company and the affiliated enterprises are clearly defined and operate independently; also, business transactions are conducted in compliance with the Company’s internal control system and the relevant requirements.

(4) The Company advertises relevant Securities related law and relevant securities market regulations, from time to time, to the insiders in order to prevent any violations.

None

3. Composition and Responsibilities of the Board of Directors (1) Does the Board develop and implement a diversified

policy for the composition of its members?

(2) Does the company voluntarily establish other functional

V

V

(1) The board of directors of the company ( including

independent directors) have relevant professional knowledge background and ability to implement the functions of the board of directors and improve the company's development goals.

(2) The Company has not yet established other functional

None

20



committees in addition to the Remuneration Committee and the Audit Committee?

(3) Does the company establish a standard to measure the performance of the Board, and implement it annually?

(4) Does the company regularly evaluate the independence of

CPAs?

V

V

committee. (3) The performance of the company's board of directors

is not regularly reviewed in addition to the review of the board of directors and the audit committee.

(4) The Company evaluates the independence of CPAs annually, ensuring that that they are not stakeholders such as a Board member, supervisor, shareholder or person paid by the Company.

4. Does the company set up a corporate governance unit or appoint personnel responsible for corporate governance matters (including but not limited to providing information for directors and supervisors to perform their functions, handling work related to meetings of the board of directors and the shareholders' meetings, filing company registration and changes to company registration, and producing minutes of board meetings and shareholders’ meetings)?

V

Corporate governance related matters are handled by the Company's legal department, accounting, auditing and board of directors and other departments..

None

5. Does the company establish a communication channel and build a designated section on its website for stakeholders (including but not limited to shareholders, employees, customers, and suppliers), as well as handle all the issues they care for in terms of corporate social responsibilities?

V

The company has spokesperson and management associated person assigned to establish a comprehensive communication channel. The Company has set up Social Responsibility Area, Stakeholder Area and CSR report on the website. And provides detailed contact information, including telephone numbers and email addresses in the “Stakeholder Area” section of the corporate website. In addition, personnel are in place to exclusively deal with issues of social responsibility, ensuring that various interested parties have channels to communicate with the Company.

None

6. Does the company appoint a professional shareholder service agency to deal with shareholder affairs?

V

The Company designates MasterLink Securities Corp. to deal with shareholder affairs.

None

21



7. Information Disclosure (1) Does the company have a corporate website to disclose

both financial standings and the status of corporate governance?

(2) Does the company have other information disclosure channels (e.g. building an English website, appointing designated people to handle information collection and disclosure, creating a spokesman system, webcasting investor conferences)?

V

V

(1) The Company has set up a Chinese/English website

(www.yageo.com) to disclose information regarding the Company’s financials, business, shareholders' meetings, investor conference and corporate governance status.

(2) The Company's financials, business, and corporate governance status are fully disclosed on MOPS. And has assigned spokesperson and management associated person to handle.

None

8. Is there any other important information to facilitate a better understanding of the company’s corporate governance practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?

V

(1) Status of employee rights and employee wellness: Please refer to the “5.5 Labor Relations” section of this annual report.

(2) Status of investor relations, Supplier relation, and the interests of Implementation of the stakeholder rights: Please refer to the “CSR report” on the Company website.

(3) Status of continuing education of directors had been disclosed on MOPS.

(4) Status of risk management policies and risk evaluation: Please refer to the “VII. Review of Financial Conditions, Financial Performance, and Risk Management” of this annual report

(5) The Company has purchased D&O insurance for its directors.

None

9. Please explain the improvements which have been made in accordance with the results of the Corporate Governance Evaluation System released by the Corporate Governance Center, Taiwan Stock Exchange, and provide the priority enhancement measures. The company has compiled year 2017 CSR report and disclosed it on the company's website to enhance the transparency of corporate governance and to implement corporate social responsibility

22

3.4.4. The state of the Company's Remuneration Committee 3.4.4.1. Remuneration Committee Members

Criteria

Identity Name

Meets One of the Following Professional Qualification Requirements, Together with at Least Five Years’ Work Experience

Independence Criteria (Note)

Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member

Remarks

An instructor or higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the Company in a public or private junior college, college or university

A judge, public prosecutor, attorney, Certified Public Accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the Company

Has work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company

1 2 3 4 5 6 7 8

Independent director Jerry Lee v v v v v v v v v 0

Independent director Tun-Son Lin v v v v v v v v v 3

Independent director Hilo Chen v v v v v v v v v 1

Note: Please tick the corresponding boxes that apply to a member during the two years prior to being elected or during the term(s) of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of affiliated companies. Not applicable in cases where the person is an independent director of the parent company, or any subsidiary as appointed in accordance with the Act or

with the laws of the country of the parent or subsidiary. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the

total number of outstanding shares of the Company, or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three sub-paragraphs. 5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who holds shares ranking in the top five

holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting

services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not a person of any conditions defined in Article 30 of the Company Law.

23

3.4.4.2. Attendance of Members at Remuneration Committee Meetings a. There are 3 members in the Remuneration Committee. b. Current term of office: June 05, 2018 ~ June 04, 2021; A total of 4 (A) Remuneration Committee meetings were held in the

previous period. The attendance record of the Remuneration Committee members was as follows:

Title Name Attendance in Person(B) By Proxy Attendance Rate

(%)【Ｂ/Ａ】 Remarks

Convener Jerry Lee 4 0 100% Reelected

Committee Member Tun-Son Lin 3 1 75% Reelected

Committee Member Hilo Chen 1 1 50% New appointment (meeting held 2 times)

Committee Member S.C. Hong 2 0 100% Resigned on Jun. 5, 2018 (meeting held 2 times)

Other mentionable items: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify

the date of the meeting, session, content of the motion, resolution by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., the remuneration passed by the Board of Directors exceeds the recommendation of the remuneration committee, the circumstances and cause for the difference shall be specified): None.

2. Resolutions of the remuneration committee objected to by members or expressed reservations and recorded or declared in writing, the date of the meeting, session, content of the motion, all members’ opinions and the response to members’ opinion should be specified: None.

24

3.4.5. The state of the company's performance of corporate social responsibilities:

Evaluation Item

Implementation Status 1 Deviations from “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons

Yes No Abstract Explanation 2

1. Corporate Governance Implementation (1) Does the company declare its corporate social responsibility

policy and examine the results of the implementation? (2) Does the company provide educational training on corporate

social responsibility on a regular basis?

(3) Does the company establish exclusively (or concurrently) dedicated first-line managers authorized by the board to be in charge of proposing the corporate social responsibility policies and reporting to the board?

(4) Does the company have a reasonable salary remuneration policy, and integrate the employee performance review system with its corporate social responsibility policy, as well as establish an effective reward and disciplinary system?

V

V

V

V

(1) The Company believes harmonious labor relations and safe working

environment are the keys to quality goods and customer services, so the Company is committed to comply with EICC code of conduct and supports our vendors to adopt the same standard.

(2) The Company regularly organizes labor management consultation meetings to discuss about the reward system of outstanding employees and implementation method.

(3) The human resources department, corporate development department and marketing department jointly promote the Company’s corporate social responsibility development.

(4) The Company’s average employees salaries are superior to the industry’s average and the Company reviews and adjusts employee remuneration based on market condition, internal productivity indicators, and individual performance annually.

None

2. Sustainable Environment Development (1) Does the company endeavor to utilize resources more

efficiently and use renewable materials which have low impact on the environment?

(2) Does the company establish proper environmental management systems based on the characteristics of the industry?

(3) Does the company monitor the impact of climate change on its operations and conduct greenhouse gas inspections, as well as establish company strategies for energy conservation and

V

V

V

(1) The Company is actively engaged in environmental protection

activities, and implement energy saving, industrial waste reduction, resource recycle and reuse, and non-use of banned substances.

(2) The Company establishes and implements environmental management system based on ISO-14001, which allows the company to implement pollution prevention, pursue sustainable development, and comply with environmental protection laws and regulations.

(3) The Company adopts environmental assessment management process to assess the relationship between climate change and operational activities regularly and to set targets for carbon and greenhouse gas

None

25

Evaluation Item



carbon reduction? reduction annually. 3. Preserving Social Welfare (1) Does the company formulate appropriate management policies

and procedures according to relevant regulations and the International Bill of Human Rights?

(2) Has the company set up an employee hotline or grievance mechanism to handle complaints with appropriate solutions?

(3) Does the company provide a healthy and safe working environment and organize training on health and safety for its employees on a regular basis?

(4) Does the company setup a communication channel with employees on a regular basis, as well as reasonably inform employees of any significant changes in operations that may have an impact on them?

(5) Does the company provide its employees with career development and training sessions?

(6) Does the company establish any consumer protection mechanisms and appealing procedures regarding research development, purchasing, producing, operating and service?

(7) Does the company advertise and label its goods and services according to relevant regulations and international standards?

V

V

V

V

V

V

V

(1) The Company establishes recruitment and remuneration procedures

which are in compliance with Labor Standard Law and Employment Service Law to protect employees’ interests and legal rights.

(2) The Company establishes and implements guidelines for workplace safety and emergency response measures, and educates employees to promote safety awareness.

(3) The Company provides employees with a safe and comfortable working environment and regularly promotes employees safety and health education.

(4) The Company setups employee section in internal website and bulletin boards in manufacturing sites to communicate changes in operations that may have significant impacts on employees.

(5) The Company provides training program for professional management, sales and logistics and offers job rotation opportunities for employee career development.

(6) The Company does not deal with individual end consumers directly. Our corporate customers can reach to our sales representative/ customer service staff and through RMA complaint handling procedures if needed.

(7) The Company is committed to maintain social responsibility and is dedicated to environmental protection and production of environmental friendly products. The Company follows the Directive for Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS), and is subject to the EU environmental protection policy that came into effect in July 2006. The Company’s production is RoHS compliant and the metal

None

26

Evaluation Item



(8) Does the company evaluate the records of suppliers’ impact on

the environment and society before taking on business partnerships?

(9) Do the contracts between the company and its major suppliers include termination clauses which come into force once the suppliers breach the corporate social responsibility policy and cause material impacts on the environment and society?

V

V

contained in the products meets all related requirements. (8) The company requires suppliers to cooperate with the company's

energy efficiency, waste reduction and environmental protection policies, and work together to improve corporate social responsibility.

(9) The company has clearly stated the requirements of integrity clause and environmental protection clause in the procurement contract, and strictly requires the suppliers to comply with it. Violations of the agreed terms can lead to compensatory damages and punitive damages claims, or even up to termination of contracts.

4. Enhancing Information Disclosure (1) Does the company disclose relevant and reliable information

regarding its corporate social responsibility on its website and the Market Observation Post System (MOPS)?

V

The Company discloses information related to social responsibility on both Company website and MOPS. None

5. If the Company has established the corporate social responsibility principles based on “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the Principles and their implementation:

The Company follows the "Electronic Industry Code of Conduct" to ensure that the working environment of the electronics industry supply chain is safe, the employees' rights and interests are protected and respected, the manufacturing process prevents pollution effectively and fulfills social and environmental responsibility. Currently there is no material discrepancy between the principles and the implementation.

6. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices： Based on the awareness of social responsibility and environmental protection, the Company takes responsibility for the environment, vigorously adopts environmental friendly products, implements measures to reduce pollution, and actively participates in environmental protection related activities and strictly complies with domestic environmental protection regulations, and is self-disciplined on international environmental protection conventions. The procurement of raw materials, personnel management, product development, quality control activities, customer service, manufacturing process, pollution prevention measures, emergency response measures, etc., all follow the Company’s environmental policy. The Company also establishes and enforces an environmental management system, implements pollution prevention, dedicated to sustainable development of the Company and continuous improvement of the environment. Our employees actively participate in environmental protection activities, including the implementation of energy saving, industrial waste reduction, resource recycle and reuse and non-use of banned substances.

7. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: The Company is committed to the management of the environmental safety system. The Company obtained the OHSAS18001 occupational safety and health management system in August 2010 and the ISO14001 environmental management system certification in 2012. The Company’s Corporate Social Responsibility Report has disclosed corporate social responsibility related strategies, concepts, measures and performance in accordance with the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines (G4).

27

3.4.6. The state of the company’s performance in the area of good faith management and the adoption of related measures

Evaluation Item

Implementation Status Deviations from “the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons

Yes No Abstract Illustration

1. Establishment of ethical corporate management policies and programs

(1) Does the company declare its ethical corporate management policies and procedures in its guidelines and external documents, as well as the commitment from its board to implement the policies?

(2) Does the company establish policies to prevent unethical

conduct with clear statements regarding relevant procedures, guidelines of conduct, punishment for violation, rules of appeal, and the commitment to implement the policies?

(3) Does the company establish appropriate precautions against high-potential unethical conducts or listed activities stated in Article 2, Paragraph 7 of the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies?

V

V

V

(1) As long-term sustainability is one of Yageo’s visions, we not only comply with related laws and regulations but also declare the ethical corporate management policy in our employee handbook and contracts or documents, and we are committed to implement the policy actively.

(2) Our employee handbook covers guidance for information security, gift, favorable terms or discounts, business entertainment, fair trade and non-compete clause. The employee handbook is given to and acknowledged by employees upon first day of employment.

(3) Employee code of conduct states that giving or receiving bribery in any form is strictly forbidden and offering gifts or favorable terms and discounts should base on business practice, law, ethical standards and social norm.

None

2. Fulfill operations integrity policy (1) Does the company evaluate business partners’ ethical records

and include ethics-related clauses in business contracts?

(2) Does the company establish an exclusively (or concurrently) dedicated unit supervised by the Board to be in charge of corporate integrity?

(3) Does the company establish policies to prevent conflicts of interest and provide appropriate communication channels, and implement it?

(4) Has the company established effective systems for both accounting and internal control to facilitate ethical corporate management, and are they audited by either internal auditors or CPAs on a regular basis?

(5) Does the company regularly hold internal and external educational trainings on operational integrity?

V

V

V

V

V

(1) Yageo requires its vendors and business partners to provide

integrity agreement, in which includes the principle of honesty, integrity and liability for breach of contract.

(2) Human resources, Finance, Corporate Development and Internal Audit Departments are jointly responsible for planning and promoting corporate integrity practice.

(3) Employee code of conduct prescribes that employees are prohibited to gain personal interests from job duties. In addition, family members of employee should avoid working in a superior-subordinate relationship or job arrangement which involves conflict of interests in Yageo and its affiliates.

(4) Yageo’s accounting and internal control system is established based on related laws and regulations, and internal auditors assess and examine operations and report audit results to Board of Directors periodically.

(5) Yageo holds internal and external trainings on operational integrity regularly.

None

28

Evaluation Item

Implementation Status Deviations from “the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies” and Reasons

Yes No Abstract Illustration

3. Operation of the integrity channel (1) Does the company establish both a reward/punishment

system and an integrity hotline? Can the accused be reached by an appropriate person for follow-up?

(2) Does the company establish standard operating procedures for confidential reporting on investigating accusation cases?

(3) Does the company provide proper whistleblower protection?

V

V

V

(1) All employees can whistle blow on wrongdoing and unethical

behavior in workplace and their reporting is kept confidential. To protect the whistle blower, there is an independent investigation process to verify the allegation and the employee who is accused can respond and appeal in relevant way. If non-compliant conduct or breach of the employee code of conduct is proven factual, it may result in disciplinary action, including but not limited to, termination of employment or legal action against employee.

(2) Whistle blowing cases are always handled confidentially and investigated prudentially.

(3) Sanction or retaliation to whistleblowers with good faith or employees who assist the investigation process is strictly prohibited in Yageo.

None

4. Strengthening information disclosure (1) Does the company disclose its ethical corporate management

policies and the results of its implementation on the company’s website and MOPS?

V

(1) Yageo publishes its ethical corporate management policies in

internal website where employees have access to, and material amendments to the policies are communicated through emails.

None

5. If the company has established the ethical corporate management policies based on the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies, please describe any discrepancy between the policies and their implementation. Yageo has not established “Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies”, but has complied with relevant laws and regulations and the spirit of integrity operation principle. There is no material discrepancy so far.

6. Other important information to facilitate a better understanding of the company’s ethical corporate management policies (e.g., review and amend its policies). None.

3.4.7. If the company has adopted corporate governance best-practice principles or related bylaws, disclose how these are to be searched: None

3.4.8. Other significant information that will provide a better understanding of the state of the company's implementation of corporate governance may also be disclosed: None.

29

3.4.9. The section on the state of implementation of the company's internal control system shall furnish the following

3.4.9.1 A Statement on Internal Control:

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

system, furnish the CPA audit report: None

Yageo Corporation Statement of Internal Control System

As of March 14, 2019 Based on the findings of a self-assessment, Yageo states the following with regard to its internal control system during the year 2018： I. The company’s Board of Directors and Management are responsible for establishing,

implementing, and maintaining an adequate internal control system, and the company has established such a system. Our internal control system is designed to provide reasonable assurance over the effectiveness and efficiency of operations ( including profitability, performance, and safeguarding of assets), reliability, timeliness, transparency of reporting, and compliance with applicable laws and regulations.

II. The internal control system has its inherent limitations. No matter how perfectly designed, an effective internal control system can only provide reasonable assurance of accomplishment the objectives mentioned above. Furthermore, the effectiveness of the internal control system may be subject to changes due to circumstances beyond control. Nevertheless, the internal control system of the company contains self-monitoring mechanisms, and the company takes immediate remedial actions in response to any identified deficiencies.

III. The company evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the “Regulations Governing the Establishment of Internal Control Systems by Public Companies” ( herein below, the “Regulations”). The criteria adopted by the Regulations identify five components of managerial internal control:(1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring activities. Each component further contains several items. Please refer to the Regulations for details.

IV. The company has evaluated the design and operation effectiveness of its internal control system according to the aforesaid criteria.

V. Based on the findings of the evaluation mentioned in the preceding paragraph, the company believes that, on December 31, 2018, it has maintained, in all material respects, and effective internal control system (that includes the supervision and management of subsidiaries), to provide reasonable assurance over operational effectiveness and efficiency, reliability, timeliness, transparency of reporting, and compliance with applicable laws and regulations.

VI. This Statement will be an integral part of the company’s annual report and prospectus and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Article 20,32,171, and 174 of the Securities and Exchange Act.

VII. This Statement has been passed by the Board of Directors in their meeting on March 14, 2019, with all of the 8 attending directors all affirming the content of this Statement.

Yageo Corporation Chairman: Tie-Min Chen President: Chi-Wen Chang

30

3.4.10. For the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, disclose any sanctions imposed in accordance with the law upon the company or its internal personnel, any sanctions imposed by the company upon its internal personnel for violations of internal control system provisions, principal deficiencies, and the state of any efforts to make improvements: None.

3.4.11. Material resolutions of a shareholders meeting or a board of directors meeting during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report

A.Major Resolution of Shareholders’ Meeting Time: Wednesday 9:00 a.m. on June 5, 2018 Place: VIP 1 Conference Room, Holiday Inn East Taipei No. 265, Sec. 3, Beishen Rd., Shenkeng Dist., New Taipei City, Taiwan The resolutions reached in the shareholders’ meeting and their implementations are as follows: (1) The acknowledgement of the 2017 business report and financial statement

Implementation: Resolved and acknowledged. (2) The acknowledgement of the Company’s 2017 earnings distribution.

Implementation : Scheduled the distribution date on July 15, 2018 and the payment date on August 8, 2018 (Cash dividend NT$14.86477692 and Stock dividend NT$1.98116669 per share)

(3) The acknowledgement of the Company's Articles of Incorporation amendment. Implementation : The Ministry of Economic Affairs approved on June 6, 2018.

(4) The acknowledgement of the Operational Procedures for Acquisition and Disposal of Assets amendment. Implementation : The revised rules were published on MOPS on June 22, 2018.

(5) The acknowledgement of the Operational Procedures for Lending of Capital, Endorsements and Guarantees amendment. Implementation : The revised rules were published on MOPS on June 22, 2018.

(6) Election of the Board of Directors Director: Tie-Min Chen ; Hsu Chang Investment Ltd. Representatives: Victor C. Wang, Pao-Yuan Wang, Shih-Chien Yang, Chi-Wen Chang, and Lai-Fu Lin, Independent Directors : Jerry Lee , Hilo Chen , and Tun-Son Lin Implementation : The Ministry of Economic Affairs approved on June 6, 2018.

31

B. Major Resolution of Board Meetings

Date Major resolutions

Feb. 22, 2018

1. Approval of the 2017 financial statements. 2. Approval of the 2017 business report. 3. Approval of the distribution of 2017 earnings. 4. Approval of cash distribution from capital surplus. 5. Approval of the new shares issuance through capitalization of

earnings. 6. Approval of the 2017 distribution of remuneration to

employees and remuneration to Directors and Supervisors. 7. Approval of the Company's Articles of Incorporation

amendment. 8. Approval of re-election of all board directors.

Apr. 24, 2018 1. Approval of the 2018Q1 consolidated financial statements. 2. Approval of 2018 general shareholders’ meeting convening

matters. 3. Approval of the accounting officer change.

Apr. 27, 2018 1. Approval of public tender offer for common shares of Brightking Holdings Limited.

May. 22, 2018 1. Approval for acquire 100% shares of Pulse Electronics.

Jun. 6, 2018 1. Approval of the election of Chairman. 2. Approval of Audit Committee. 3. Approval of the Remuneration Committee.

Jul. 9, 2018 1. Approval of merger between subsidiaries.

Jul. 17, 2018 1. Approval of share buyback program.

Aug. 7, 2018 1. Approval of the 2018Q2 consolidated financial statements.

Oct. 31, 2018 1. Approval of the 2018Q3 consolidated financial statements. 2. Approval of Internal Auditing plan.

Nov. 8, 2018 1. Approval for acquire real estate.

Mar. 14, 2019

1. Approval of the 2018 consolidated financial statements. 2. Approval of the 2018 business report. 3. Approval of the distribution of 2018 earnings. 4. Approval of cash distribution from capital surplus. 5. Approval of the 2018 distribution of remuneration to

employees and remuneration to Directors and Supervisors. 6. Approval of the Company's Articles of Incorporation

amendment. April 24, 2019 1. Approval of the 2019Q1 consolidated financial statements.

3.4.12. Where, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, a director or supervisor has expressed a dissenting opinion with respect to a material resolution passed by the board of directors, and said dissenting opinion has been recorded or prepared as a written declaration, disclose the principal content thereof: None

3.4.13. A summary of resignations and dismissals, during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, of the

32

company's chairman, general manager, principal accounting officer, principal financial officer, chief internal auditor, and principal research and development officer

As of March 14, 2019

Title Name Date of Appointment

Date of Termination

Reasons for Resignation or Dismissal

Chief Internal Auditor Anne Yang Aug. 23, 2011 Mar. 14, 2019 personal career plan

3.5. Information on CPA professional fees: Accounting Firm Name of CPA Period Covered by CPA’s Audit Remarks

Deloitte & Touche Yung-Hsiang Chao

Jan. 01, 2018 ~ Dec. 31, 2018 Internal rotation

of the CPA Jr-Shian Ke.

Deloitte & Touche Yung-Hsiang Chao

Jan. 01, 2019 ~ Dec. 31, 2019 Cheng-Tsai Tsai

Unit : NT$ Thousand

Fee Items

Fee Range Audit Fee Non-audit Fee Total

1 Under NT$ 2,000,000

2 NT$2,000,001 ~ NT$4,000,000 3 NT$4,000,001 ~ NT$6,000,000 4 NT$6,000,001 ~ NT$8,000,000 5 NT$8,000,001 ~ NT$10,000,000 6 Over NT$100,000,000

3.5.1. When non-audit fees paid to the certified public accountant, to the accounting firm of the certified public accountant, and/or to any affiliated enterprise of such accounting firm are one quarter or more of the audit fees paid thereto, the amounts of both audit and non-audit fees as well as details of non-audit services shall be disclosed: None

3.5.2. When the company changes its accounting firm and the audit fees paid for the fiscal year in which such change took place are lower than those for the previous fiscal year, the amounts of the audit fees before and after the change and the reasons shall be disclosed: None.

3.5.3. When the audit fees paid for the current fiscal year are lower than those for the previous fiscal year by 15 percent or more, the reduction in the amount of audit fees, reduction percentage, and reason(s) therefore shall be disclosed: None.

3.6. Information on replacement of certified public accountant:

3.6.1. Regarding the former certified public accountant: None

3.6.2. Regarding the successor certified public accountant: Na

33

3.7. Where the company's chairperson, general manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the accounting firm of its certified public accountant or at an affiliated enterprise of such accounting firm: None

3.8. Any transfer of equity interests and/or pledge of or change in equity interests (during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report) by a director, managerial officer, or shareholder with a stake of more than 10 percent during the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report:

3.8.1 Changes in equity:

Title Name

2018 As of March. 31, 2019

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease) Chairman Tie-Min Chen 7,321,956 (1,804,685) - -

Director Hsu Chang Investment Ltd 664,594 - - -

Representatives: Chi-Wen Chang 1,447,441 - (410,000) - Vice President Chris Yang 95,040 (77,000) (67,000) - Vice President Ken Hsu 28,176 (10,000) - - Vice President C.T Lee 62,892 - (51,000) -

Manager N.J. Chen 8,386 (8,386) - - Manager C.L. Hu 9,265 - 33,969 -

Financial Officer Sandy Chang (75,468) - - -

3.8.2. Shares Trading with Related Parties: None

3.8.3. Shares Pledge with Related Parties: None

3.9. Relationship information, if among the company's 10 largest shareholders any one is a related party or a relative within the second degree of kinship of another

Name Current

Shareholding Spouse’s/ minor’s

Shareholding

Shareholding by Nominee Arrangement

Name and Relationship Between the Company’s Top Ten Shareholders, or

Spouses or Relatives Within Two Degrees

Remarks

Shares % Shares % Shares % Name Relationship

PRC HOLDING Ltd. 35,053,556 8.20 - - - - None None None

CTBC BANK CO., LTD IN CUSTODY FOR Dominant Investment Holdings Ltd.

34,991,943 8.19 - - - - None None None

Tie-Min Chen 34,184,697 8.00 - - - - None None None

MEGA INTERNATIONAL COMMERCIAL BANK CO., LTD. ACTING AS CUSTODAIN FOR THE INVESTMENT ACCOUNT OF WHOLLY GROUP JAPAN III LIMITED

29,469,618 6.89 - - - - None None None

CTBC BANK CO., LTD IN CUSTODY FOR Components Investment Holdings Limited

16,885,768 3.95 - - - - None None None

Cathay Life Insurance Co., Ltd. 9,116,736 2.13 - - - - None None None NAN SHAN LIFE INSURANCE CO., LTD 8,083,837 1.89 - - - - None None None

34

Name Current

Shareholding Spouse’s/ minor’s

Shareholding

Shareholding by Nominee Arrangement

Name and Relationship Between the Company’s Top Ten Shareholders, or

Spouses or Relatives Within Two Degrees

Remarks

Shares % Shares % Shares % Name Relationship JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds

6,081,428 1.42 - - - - None None None

VANGUARD EMERGING MARKETS STOCK INDEX FUND, A SERIES OF VANGUARD INTERNATIONAL EQUITY INDEX FUNDS

6,079,933 1.42 - - - - None None None

Hsu Tai Investment Ltd. 5,402,577 1.26 - - - - None None None

Note 1: Illustrate the name of the Top-10 shareholders; also, illustrate separately the name of the institutional shareholder and its representative.

Note 2 : The shareholding ratio is calculated by referring to the shares held by the Principal, the Principal’s spouses and underage children, or by nominee agreement.

Note 3 : Disclose the relationship among shareholders referred to above, including the juristic person and natural person.

3.10. The total number of shares and total equity stake held in any single enterprise by the company, its directors, managers, and any companies controlled either directly or indirectly by the company

Unit: thousand shares/ %

Affiliated Enterprises Ownership by the

Company

Direct or Indirect Ownership by

Directors/Managers Total Ownership

Shares % Shares % Shares %

Yageo Holding (Bermuda) Ltd. 90,000 100.00 - - 90,000 100.00

Kuo Shin Investment Co,. 89,300 100.00 - - 89,300 100.00

Ferroxcube Holding (Samoa) Ltd 1,000 100.00 - - 1,000 100.00

Brightking Holding Ltd. 45,608 100.00 - - 45,608 100.00

Yageo Corporation (South Asia) - 100.00 - - - 100.00

Yageo Europe Holding B.V. - 100.00 - - - 100.00

Yageo America 1 100.00 - - 1 100.00

Yageo South Asia (M) Sdn. Bhd. - 100.00 - - - 100.00

Yageo Holding (Cayman) Ltd. - 100.00 - - - 100.00

Pulse Electronics Corp. 25,574 100.00 - - 25,574 100.00

Chilisin Electronics Corp. 25,276 10.39 5,410 2.22 30,686 12.61

Global Testing Co., Ltd 8,232 23.28 2,465 6.99 10,697 30.38

Teapo Electronic Corp. 11,002 12.02 2,598 2.84 13,600 14.86

Strong Components Co., Ltd. 6,530 31.42 - - 6,530 31.42

Yageo (Hong Kong) Ltd. - - 1,030,499 100.00 1,030,499 100.00

Yageo USA (H.K) Ltd. - - - 100.00 - 100.00

Ko-E Holding (Cayman Islands) - - 4,500 83.83 4,500 83.83

Vitrohm Holding GmbH - - - 100.00 - 100.00

Belkin International - - 1,104 46.00 1,104 46.00

35

Affiliated Enterprises Ownership by the

Company

Direct or Indirect Ownership by

Directors/Managers Total Ownership

Shares % Shares % Shares %

Yageo Korea - - - 100.00 - 100.00

Yageo Japan - - - 100.00 - 100.00

Hsu Tai International Co., Ltd. - - 1 100.00 1 100.00

Brightking Enterprise (H.K.) Co., Ltd - - 153,968 100.00 153,968 100.00

Egston Holding GmbH - - - 100.00 - 100.00

Ko-E Corp. - - 4,500 83.83 4,500 83.83

Ko-E (Hong Kong) Ltd. - - - 83.83 - 83.83

Brightking Electronics Inc. - - 12,750 100.00 12,750 100.00

Brightking Electronics Co., Ltd. - - 12,939 100.00 12,939 100.00

Bestbright Electronics Co., Ltd (Taiwan) - - 10 100.00 10 100.00

Yageo Electronics(Dongguan) Co., Ltd. - - - 100.00 - 100.00

Yageo Electronics(China)Co., Ltd. - - - 100.00 - 100.00

Yageo Components(Suzhou) Co., Ltd. - - - 100.00 - 100.00

Yageo (Suzhou) Trade Co., Ltd. - - - 100.00 - 100.00

Compostar Technology (DongGuan) Co., Ltd. - - - 100.00 - 100.00

Ko-E (ShenZhen) Co., Ltd. - - - 83.83 - 83.83

Bestbright Electronics Co., Ltd. - - - 100.00 - 100.00

Brightking (Shenzhen) Co., Ltd. - - - 100.00 - 100.00

Brightking (Shanghai0 Co., Ltd. - - - 100.00 - 100.00

Brightking (Beijing) Co., Ltd. - - - 100.00 - 100.00

Huizhou Lien Shun Electronics Co., Ltd. - - - 100.00 - 100.00

Ceramate Technical (Suzhou) Co., Ltd. - - - 100.00 - 100.00

Zhejiang Bestbright Electronics Co., Ltd. - - - 100.00 - 100.00

Dongguan Pulse Electronics Co., Ltd. - - - 100.00 - 100.00

Mianyang Pulse Electronics Co., Ltd. - - - 100.00 - 100.00

Suining Pulse Electronics Co., Ltd. - - - 100.00 - 100.00

Pulse (Suzhou) Wireless Products Co., Ltd. - - - 100.00 - 100.00

Pulse Electronics (Shenzhen) Co., Ltd. - - - 100.00 - 100.00

Sonion (Suzhou II) Co., Ltd. - - - 100.00 - 100.00

Egston Zhuhai Co., Ltd. - - - 100.00 - 100.00

36

IV. Information on Capital Raising Activities

4.1 Capital and shares

4.1.1 Source of capital stock As of April 07, 2019

Month/ Year

Par Value (NT$)

Authorized Capital Paid-in Capital Remark

Shares Amount (NT$) Shares Amount

(NT$) Sources of Capital

(NT$)

Capital Increased by Assets Other

than Cash

Other

04.2017 10 4,000,000,000 40,000,000,000 503,222,998 5,032,229,980 Conversion of Option 5,266,456 Cancellation of Treasury stock 18,349,000 - Note 43

Note 44

07.2017 10 4,000,000,000 40,000,000,000 352,256,099 3,522,560,990 Capital reduction 150,966,899 - Note 45

08.2017 10 4,000,000,000 40,000,000,000 349,241,792 3,492,417,920 Conversion of Option 377,693 Cancellation of Treasury stock 3,392,000 - Note 43

Note 46 11.2017 10 4,000,000,000 40,000,000,000 350,400,955 3,504,009,550 Conversion of Option 1,159,163 - Note 43

03.2018 10 4,000,000,000 40,000,000,000 350,563,746 3,505,637,460 Conversion of Option 162,791 - Note 43

05.2018 10 4,000,000,000 40,000,000,000 350,739,298 3,507,392,980 Conversion of Option 175,552 Note 43

07.2018 10 4,000,000,000 40,000,000,000 424,181,531 4,241,815,310 Capitalization by earnings 70,141,276 Conversion of Option 3,300,957 Note 43

12,2018 10 4,000,000,000 40,000,000,000 427,039,419 4,270,394,190 Conversion of Option 2,857,888 - Note 43

04,2019 10 4,000,000,000 40,000,000,000 427,121,695 4,271,216,950 Conversion of Option 82,276 - Note 43

Note 43： Approval Document No.: The 09 May 2014 Letter No. Financial-Supervisory-Securities-1030016332 of the Securities and

Futures Bureau of the Financial Supervisory Commission, Executive Yuan. Note 44： Approval Document No.: The 03 March 2017 Letter No. Financial-Supervisory-Securities-1060006612 of the Securities

and Futures Bureau of the Financial Supervisory Commission, Executive Yuan. Note 45： Approval Document No.: The 30 June 2017 Letter No. Financial-Supervisory-Securities-1060023036 of the Securities and

Futures Bureau of the Financial Supervisory Commission, Executive Yuan. Note 46： Approval Document No.: The 12 May 2017 Letter No. Financial-Supervisory-Securities-1060017379 of the Securities and

Futures Bureau of the Financial Supervisory Commission, Executive Yuan.

Share Type Authorized Capital

Remarks Issued Shares Un-issued Shares Total Shares

Common Stock 427,121,695 3,572,878,305 4,000,000,000

4.1.2 Shareholder structure: As of April 07, 2019

Item Government Agencies

Financial Institutions

Other Juridical Persons

Domestic Natural Persons

Foreign Institutions &

Natural Persons Total

Number of Shareholders 2 49 256 67,127 848 68,282

Shareholding (shares) 407,824 29,277,154 19,496,934 163,460,210 214,479,573 427,121,695

Percentage 0.1％ 6.85％ 4.56％ 38.27％ 50.22％ 100.00﹪

37

4.1.3 Diffusion of ownership: As of April 07,2019

Class of Shareholding (Unit: Share)

Number of Shareholders Shareholding (Shares) Percentage

1 ~ 999 33,451 6,070,471 1.42% 1,000 ~ 5,000 30,064 54,349,278 12.73%

5,001 ~ 10,000 2,559 19,427,455 4.55% 10,001 ~ 15,000 755 9,604,210 2.25% 15,001 ~ 20,000 370 6,720,440 1.57% 20,001 ~ 30,000 368 9,283,028 2.17% 30,001 ~ 50,000 294 11,643,059 2.72% 50,001 ~ 100,000 183 12,987,159 3.04%

100,001 ~ 200,000 106 15,055,103 3.53% 200,001 ~ 400,000 55 15,259,691 3.57% 400,001 ~ 600,000 22 10,588,687 2.48% 600,001 ~ 800,000 10 6,787,629 1.59%

800,001 ~ 1,000,000 6 5,209,707 1.22% 1,000,001 or over 39 244,135,778 57.16%

Total 68,282 427,121,695 100.00％

4.1.4 List of major shareholders: Please refer to “3.6 Relationship among the Top Ten Shareholders” of the Annual report.

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share for the past 2 fiscal years

Unit: NT$ Items 2017 2018 As of March 31, 2019

Market Price per Share Highest Market Price 355.00 1,310.00 386.50 Lowest Market Price 58.50 292.00 287.00 Average Market Price 166.72 540.93 336.31

Net Worth per Share Before Distribution 89.07 138.92 146.70 After Distribution 72.22 (note 4) -

Earnings per Share Weighted Average Shares (thousand shares) 509,835 421,408 424,103

Diluted Earnings Per Share 15.64 80.30 6.11 Adjusted Diluted Earnings Per Share 13.05 - -

Dividends per Share Cash Dividends 14.86477692 45(note 5) - Stock Dividends Dividends from Retained Earnings 1.98116669 - - Dividends from Capital Surplus - - -

Accumulated Undistributed Dividends - - - Return on Investment

Price / Earnings Ratio (Note 1) 12.78 (note 4) Na Price / Dividend Ratio (Note 2) 11.22 (note 4) Na Cash Dividend Yield Rate (Note 3) 8.92 (note 4) Na

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 on the approval of the 2018 Shareholders Meeting. Note 5: Cash distribution includes dividend from Retained Earnings and Capital Surplus

38

4.1.6 Company's dividend policy and implementation thereof:

A. Dividend Policy

If the Company is making profit at the end of the year, the Company shall set aside not less than 2% employee compensation and not more than 3% compensation for the directors. However, the Company's accumulated losses shall have been covered. But if the Company had losses from the last period, corporation shall have reserved a sufficient amount to offset its accumulated losses.

If the Company made a profit every year, the Company must pay tax and last year losses, also share the profit as follows: 1. Set aside 10% of the legal capital reserve. However when the legal reserve amounts

to the authorized capital, this shall not apply. 2. Set aside special capital reserve in accordance with relevant laws or regulations. 3. Paying dividends or bonuses to shareholders, corporation shall set aside not less than

10% as profit sharing bonuses, point one and two are exclude from the calculation of profit and dividend for the shareholders and reports shall be prepared by the Board of Directors, and submitted to the regular shareholders’ meeting for acceptance.

The Company's policy of distributing dividends should be based on shareholders' equity. Board members and the present and future company investment plan, industry environment consideration dividend will be given in cash and common stock with an appropriate rate and reports shall be prepared by board directors, and submitted to the shareholders’ meeting for acceptance every year.

Earnings of corporation as employee compensation may be distributed by way of stock dividend as stated in the preceding paragraphs. The employees of subsidiaries also included. Earnings of corporation shall be allocated by board directors’ evaluation.

B. Proposed Distribution of Dividend

(1) 2018 net profit is NT$33,839,292,755. After setting aside the legal reserve of NT$ 3,383,929,276, appropriating special reserve of NT$ 1,210,063,443, and then adding adjusted retained earnings of NT$ 15,639,381,102, the retained earnings available for distribution are NT$ 44,884,681,138, of which, NT$ 18,790,141,589 will be distributed as cash dividends to shareholders, or NT$ 44.3 per share.

(2) The cash dividend is issued to the rounded full NT dollar, and any distributed amounts less than NT$1 will be transferred to the company’s other revenues.

(3) In the event that, before the distribution record date, the proposed earnings distribution of cash dividends per share is affected by an amendment by the competent authorities, or the number of actual shares outstanding, it is proposed that the Chairman be authorized to handle matters related to the changes.

(4) Upon the approval of the Annual Meeting of Shareholders, it is proposed that the Chairman be authorized to resolve the ex-dividend date and other relevant issues.

(5) According to the Article 241 of Company Act, where a company incurs no loss, it may capitalize its legal reserve and capital surplus – the income derived from the

39

issuance of new shares at a premium, in whole or in part, by issuing new shares or cash which shall be distributable as dividend shares to its original shareholders in proportion to the number of shares being held by each of them at a premium. The total cash available distributed from capital surplus is NT$ 296,909,687, or NT$ 0.7 per share. Upon the approval of the Annual Meeting of Shareholders for the cash distribution from capital surplus, the total cash distribution to shareholders is NT$ 45 per share.

Yageo Corporation Earnings Distribution Proposal

Year 2018 Item Amount (In NTD) Undistributed retained earnings, beginning 14,959,926,861 Add:：Retroactive adjustments of using IFRS 9 5,440,447 Adjusted undistributed retained earnings, beginning 14,965,367,308 Add：Equity investments at fair value through other comprehensive income

698,772,519 Add：Re-measurement of defined benefit plan 26,880,345 Less：Adjustment arising from investments accounted for using equity method (51,639,070) Adjusted undistributed retained earnings 15,639,381,102 Add：2018 Net profit 33,839,292,755 Less：10% Legal reserve (3,383,929,276) Less：Special reserve (1,210,063,443) Total retained earnings available for distribution 44,884,681,138 Appropriations: Common share dividend – Cash (18,790,141,589) Undistributed retained earnings, end 26,094,539,549

Chairman: Tie-Min Chen President: Chi-Wen Chang Chief Accounting Officer: Eric Lee

4.1.7 Effect upon business performance and earnings per share of any stock dividend distribution proposed or adopted at the most recent shareholders' meeting: None

4.1.8 Compensation of employees, directors, and supervisors:

A. The percentages or ranges with respect to employee, director, and supervisor compensation, as set forth in the company's articles of incorporation: Please refer to “4.1.6.1. Dividend Policy” of the Annual report.

B. The basis for estimating the amount of employee, director, and supervisor compensation, for calculating the number of shares to be distributed as employee compensation, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period:

For the earnings distribution resolved in the shareholders’ meeting, if the amount of the employee compensation and remuneration to directors and supervisors is changed, the amount of difference should be handled in accordance with changes in accounting estimates and booked in the profit and loss of the following year without affecting the financial report that had already been acknowledged.

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

40

compensation: (a) Employees’ compensation of 2018 is NT$1,173,843,115(3%) , and remuneration

to directors and supervisors is NT$1,173,843,115(3%) , based on pre-tax income before deduct employees’ compensation and remuneration to directors and supervisors. Both are paid in cash.

(b) If 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: Na.

D. The actual distribution of employee, director, and supervisor compensation for the previous fiscal year:

The actual distribution of compensation of employees, directors and supervisors was in line with the resolution of the Board of Directors.

4.1.9. Buyback of Treasury Stock As of March 31, 2019

The number of times 13th Buyback

Purpose Transfer of shares to employees

Types and number of shares 4,500,000 common shares

Schedule period 2018/07/19~2018/09/17

Price range NT$ 632.8~1,616.8

Repurchase types and number of shares 2,965,000 common shares

Repurchase period 2018/07/19~2018/08/09

Repurchase Amount NT$ 2,421,551,797

Canceled and transferred -

Cumulative shares held 2,965,000 common shares

Ratio of cumulative shares held of total company’s shares issued 0.85%

4.2. Corporate Bonds: None

4.3. Preferred Stock ：None

4.4 The section on global depository receipts: As of March 31, 2019

Issue date Item September 26, 1994 July 13, 2001

Issuance and listing LuxSE / LSE LuxSE

Total amount US$91,600,000 US$136,480,000

Unit issuing price US$22.9 US$3.412

Units issued 5,000,000 40,000,000

Source of negotiable securities The Company’s common shares held by the original shareholders

Amount of negotiable securities 25,000,000 200,000,000 Rights and obligations of GDR holders Same as those of 5 common shares

Trustee None

41

Depository bank Citibank, N.A

Custodian bank Citibank, N.A

Outstanding balance 12,364 unit

Treatment of expenses incurred at issuance and thereafter

Issue cost: amortized by the issuing companies and shareholder participants according to the actual shares issued Expenses incurred after issuance: amortized by the issuing company

Important conventions about depository and escrow agreement

The depositary institution performs the obligations for GDR holders, while the guarantee agency holds the GDR common shares.

Market price per unit (USD)

2017

Highest 59.36

Lowest 9.16

Average 24.82

2018

Highest 206.89

Lowest 48.10

Average 96.27

As of March 31,2019

Highest 62.03

Lowest 46.91

Average 53.81

4.5. The section on employee share subscription warrants

4.5.1. Issuance of Employee Stock Options Type of Stock Option 4th Employee Stock Option

Approval date May 09, 2014 Issue date May 16, 2014 Units issued 40,000,000 shares Shares of stock options to be issued as a percentage of outstanding shares 1.79%

Duration 10 years Conversion measures Issuance of new shares

Conditional conversion periods and percentages

30% of the granted stock option certificate is exercisable after 3 years, 45% after 4 years, 60% after 5 years, 75% after 6 years, 100% after 6 years.

Converted shares 15,433,363 Exercised amount 725,348,699 Number of shares yet to be converted 8,504,048 Adjusted exercise price for those who have yet to exercise their rights NT$ 48.60

Unexercised shares as a percentage of total issued shares 1.99

Impact on possible dilution of shareholdings

The granted employee stock option certificates after 2 years shall be exercised in accordance with the conditioned subscription period and ratio, which will not have significant impact on shareholder’s equity.

42

4.5.2. List of Executives Receiving Employee Stock Options and the Top Ten Employees with Stock Options

As of Mar 31, 2019

4.6. The section on issuance of new shares in connection with mergers or acquisitions or with acquisitions of shares of other companies: None

4.7. The section on implementation of the company's capital allocation plans: None

Title Name

No. of Stock

Options ( thousand

shares)

Stock Options as a Percentage of Shares Issued

Exercised Unexercised No. of Shares

Converted ( thousand

shares)

Strike Price (NT$)

Amount (NT$

thousands)

Converted Shares as a

Percentage of Shares Issued

No. of Shares

Converted ( thousand

shares)

Strike Price (NT$)

Amount (NT$

thousands)

Converted Shares as a Percentage of Shares Issued

Manager

10,830 2.54%

255

3,044

98

1,352

2,059

35.60

42.90

41.70

58.20

48.60

9,078

130,574

4,078

78,701

100,074

0.06%

0.71%

0.02%

0.32%

0.48%

4,022 48.60 195,487 0.94%

Chairman & Strategic Investment Management Committee Chairman / Tie-Min Chen CEO & President / Chi-Wen Chang Chief Financal Officer / Sandy Chang Vice President / C.T. Lee Vice President / Ken Hsu Vice President / Chris Yang Direct / C.L. Hu Direct / N.J. Chen

Employees

3,289 0.77%

450

321

78

367

784

35.60

42.90

41.70

58.20

48.60

16,020

13,775

3,254

21,348

38,085

0.11%

0.08%

0.02%

0.09%

0.18%

1,289 48.60 62,649 0.30%

Gray Wang F.D. lee F.J. Wu L.Y. Yi Feiqian Wei Y.G. Chen Bensen Tsai Roger Cheng Vic Hsian Cindy Hsien

43

V. Operational Highlights 5.1 Business Activities

5.1.1 Business Scope

A. Core Business: The Company is engaged in the R&D, manufacturing, and sales of passive and other electronic components and related production equipment.

B. Revenue distribution Unit；NT$ thousands

Major Products (%) of Total Sales in 2018 MLCC 60.4%

Chip Resistor 33.7% Wireless Component 0.6%

Through-Hole Resistor 1.3% Circuit Protection Component 1.9%

Other 2.1% Total 100.0%

C. Current Product (1) MLCC (2) Chip resistors (3) wireless components (4) Through-hole resistors (5) Circuit protection component (6) Other electronic components: high-end transformers, integrated connector

modules, RF chip inductors, power supplies and cable system. (7) Related production machinery, raw materials and semi-finished goods of above

products.

D. New Product Development Plan

(1) MLCC: The three major factors of MLCC product are raw materials, production process and manufacturing machinery. As the Company is capable of producing high-end ceramic powder and metal pastes and is able to design and develop the key manufacturing process and machinery, it can effectively control the production cost and quality and ensure the production efficiency and high yield rate.

Through pursuing continuous optimization in manufacturing process, Yageo maintains the leadership position among the MLCC suppliers in the Greater China Region. The Company continues to develop product of high capacitance, high voltage, high reliability, and small size. The end applications are diversified, including consumer electronics, 5G, automotive, and industrial grade, to meet customer needs.

(2) Chip resistor: Yageo is in the leading position of advanced technologies and provides customer

44

design-in services. The product portfolio includes high reliability, high power, small /large size and covers various end applications, including flagship smartphone and automotive and industrial use.

Yageo’s production capacity in high-precision thick film resistors is not only for small-size products, but also for the medium and large size products targeted at automotive and industrial markets. The Company provides a full range of products with all sizes to meet market demand. Meanwhile, the capacity of thin film resistors and current sensing resistors has also grown to a large extent and is expected to reach the world’s number one after further technology breakthrough and successful product development given the strong demand for IOT, automotive and industrial applications.

(3) Wireless component: The Company has been dedicated to the development of RF attenuator and antenna products for wireless communication device for years, and in 2018 the Company acquired Pulse Electronics to further strengthen its technology and product portfolio as well as to provide more diverse, customized, and professional services to customers. Yageo expects to be positioned as a vendor with wireless total solution.

Yageo offers high performance communication antenna products used in wireless wide area network (WWAN), wireless metro network (WMAN), wireless local area network (WLAN) and wireless personal network (WPAN) that address multi-frequency, broadband, dual or multiple network technologies. Our products enable the internet networking services that meet the needs of various wifi users.

The Company possessed comprehensive wireless manufacturing technologies, including ceramic patch antennas, low temperature co-fired ceramic (LTCC), LDS, FluidAnt, and base station wireless technology, which can be used in NFC, bluetooth earphone, wireless network, GPS satellite navigation, IoT networking, automotive, mini base stations, etc. Yageo currently is developing RF attenuator and antenna products which support sub-6GHz and mmWave in relation to 5G applications.

5.1.2 Industry Summary

A. Industry Status and Development

5G networking development and the technology advancements in IoT networking, wireless communication (flagship smartphones, smart wearable devices, and navigation equipment in particular), electronic home appliance (LCD/LED TV, MOD set-up box, etc.), and computers (multiple CPUs processing) will drive the growth of IT and communication industry in mid to long term. Furthermore, the recent industry news that Japanese peers will gradually exit commodity market also present expandable market and more demand in MLCC and Chip Resistors for Yageo.

B. The Supply Chain in Upstream, Midstream, and Downstream

45

Product Upstream Midstream Downstream

MLCC Ceramic Powder Murata,

SEMCO, Taiyo Yuden

Automotive, industrial, automation equipment, networking communication equipment, server, IoT networking, VR, smartphone, notebook, tablet, audio home appliance, and gaming machine.

Electrode material

Chip Resistor

Substrate KOA, Rohm,

Vishay Paste

Ink

C. The Industry Development

(1) Based on the increasing popularity of smart phones, tablets and portable electronic appliances, the design of electronic components is going miniaturized to meet the needs of users. Currently the output of 01005 products is increasing quarter by quarter and 0201 products have become one of the major mass production products.

(2) Reduce use of precious metal has become main stream trend from the perspective of cost control, supply issue and technology development. Base metal manufacturing process has been applied in the Company’s X8R/X7R/X5R/Y5V and NPO series.

(3) Higher capacitance value in same size and use of MLCC to replace part of the tantalum capacitors and electrolytic capacitors market.

(4) Higher temperature MLCC product, e.g. X5R replaces Y5V series and increasing demand for X8R/X7R.

(5) Higher voltage MLCC product, e.g. input voltage ranges from 4~5KV.

5.1.3 Technology and Research & Development Summary A. Research and Development Expenses in the past year

Unit；NT$ thousands Year

Item 2018 As of March 31, 2019

R&D Expenses 413,353 204,434

B. Successfully Developed Technology or Product (1) High capacitance product (2) Mini size (01005) and high compatible MLCC (3) NPO series using base metal manufacturing process (4) X7R series using base metal manufacturing process (5) Thin film resistor (6) Current sensing, low ohmic chip resistor (7) Multi-frequency/high-frequency antennas

5.1.4 Business Plan

46

A. Short Term Business Plan (1) Utilize the strength of each manufacturing site and distribute resources to control

quality and cost effectively to meet the need of local market. (2) Continue to de-bottleneck and increase capacity and output. (3) Develop International key customers so as to be able to compete with American

and Japanese Peers, and expand in market with higher growth rate. (4) Increase sales of thin film resistors, high voltage/capacitance MLCC and small size

products and provide value-added service. Produce ceramic chip antennas to actively develop business in handset wireless device market.

B. Mid to Long Term Business Plan (1) Continuous improvement of manufacturing process to increase production yield

and reduce costs. (2) Continue to implement industrial integration policies to stabilize market order and

increase profitability. (3) Accelerate the development and increase market share of specialty products. (4) Improve the operation and management of merged company to deliver synergies.

5.2 Market, Production and Sales Review

5.2.1 Market Analysis

A. Sales Region

Year Area 2014 2015 2016 2017 2018

Americas 2% 2% 2% 2% 4% Asia 9% 10% 9% 9% 10%

China 77% 79% 78% 79% 74% Europe 12% 9% 11% 10% 12%

B. Market Strategy

(1) MLCC The Company is devoted to the development of high capacitance, high voltage, small size (0201 or 01005) and SMD array products. The Company increases its capacity to be in line with MLCC market growth rate (10%-15% annually). MLCC production requires not only advanced manufacturing process but also chemical formulation. The technical development trend of MLCC is: miniaturized product, higher capacitance value (gradually replaces the tantalum capacitor), increase the voltage load capacity (up to 5KV) to meet the needs of the market.

(2) Chip Resistor (a) Dedicated to the development of miniaturized product (01005), SMD array

resistors (0201*4), and low ohmic current sensing resistor as these are the fast growing new products.

(b) The Company is the number one Chip Resistor supplier in terms of capacity, and our technical team is committed to manufacturing process improvement and quality controls.

47

(c) Enhance product marketing, strengthen customer service and cooperation with key customers.

C. Advantages and Disadvantages of Competitiveness

(1) Competitive Advantage (a) Technology leadership position (b) Global operations (c) Provide one-stop shipping service to customers (d) Water solvent system in MLCC manufacturing process.

(2) Competitive Disadvantage (a) Capacity expansion in the industry (b) High cost of raw material (precious metal) (c) Labor shortage (d) More stringent environmental protection standard and regulation

5.2.2 Manufacturing Processes of Major Products

(1) MLCC

Ceramic Power

Powder Milling

Foil Casting

Screen Printing

Lamination

Dripping

Tumbling Cutting Binder Burn Out

Sintering

Curing Plating Testing Taping

(2) Chip Resistors

5.2.3 Raw Material The main raw materials of passive components are ceramic powder, porcelain rod, iron cap, lacquer, copper wire, substrate, conductive paste, and resistor paste. Most of the raw materials are imported from Europe and Japan. Considering cost control, stable delivery and local supply chain cluster, part of the raw materials have been changed to purchase from domestic vendor.

Back Conductor Print

Front Conductor Print

Conductor Firing

Resistor Print Resistor Print

Glass Print

Glass Firing Laser Trim Epoxy Print Epoxy Curing

Bar Break Roller Coating

Plating

Chip Break Testing & Taping

48

5.2.4 Lst of any suppliers and clients accounting for 10 percent or more of the company's total procurement (sales) amount in either of the 2 most recent fiscal years, the amounts bought from (sold to) each, the percentage of total procurement (sales) accounted for by each, and an explanation of the reason for increases or decreases in the above figures

A. List of Major Suppliers with over 10% of the total purchase in the Last Two Years: None

B. List of Major Clients with over 10% of the total sales in the Last Two Years: None

5.2.5 An indication of the production volume for the 2 most recent fiscal years Unit: Quantity million pcs ; NT$ million

Year

Output Major Products

2017 2018

Capacity Quantity Amount Capacity Quantity Amount

Chip Resistor 984,458 894,496 14,263 1,297,340 933,288 29,122 MLCC 405,643 413,941 12,390 540,726 463,949 51,224 Total 1,390,101 1,308,437 26,653 1,838,066 1,397,237 80,346

5.2.6 An indication of the volume of units sold for the 2 most recent fiscal years

Unit: Quantity million pcs ; NT$ million Year

Shipments & Sales Major Products

2017 2018

Domestic Export Domestic Export

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

Chip Resistor 38,202 615 855,208 12,583 29,775 802 838,622 25,230

MLCC 38,738 865 423,579 15,826 23,768 2,084 364,748 44,525

Wireless Component 6 93 83 397 8 105 86 350

Through-Hole Resistor 59 21 3,510 913 47 19 3,379 993

Circuit Protection Component - - - - - - 1,327 1,442

Other 4 2 8,210 943 4 3 3,172 1,602

Total 77,009 1,596 1,290,590 30,662 53,602 3,013 1,211,334 74,142

5.3 Human Resources

Year 2017 2018 As of March 31, 2019

Number of

Employees

Direct Labor 9,024 10,903 9,599

Indirect Labor 2,462 4,941 4,725

Total 11,486 15,844 14,324

49

Average Age 32 35 35

Average Years of Service 3.98 5.41 5.83

Education

Background

Ph.D. 21 25 24

Masters 228 771 753

University 2,362 3,689 3,503

High School 6,824 6,620 5,552

Under High School 2,033 4,739 4,492

5.4 Disbursements for environmental protection: Total losses (including damage awards) and fines for environmental pollution for the 2 most recent fiscal years, and during the current fiscal year up to the date of publication of the annual report: None

5.5 Labor Relations

5.5.1 List any employee welfare plans, continuing education, training, retirement systems, and the status of their implementation, and the status of labor-management agreements and measures for preserving employees' rights and interests.

A. Employee Welfare:

The Company believes that high productivity and performance are based on harmonious employee relationship. Work-Life balance is critical for our employees and our organization as a whole Yageo’s work and life balance program helps employees enjoy a better quality of life and it also contributes to Yageo’s success. Based on salary changes in the industry, productivity at Yageo, and individual employee performances, annual salary raises will be calculated. Therefore, the Company cares employees’ well-beings by providing a healthy, safe working environment, and offering a variety of activities and offers employees a wide range of benefits, which include: Employee bonus; Employee cafeteria; Group insurance, Labor insurance, National health insurance; Travel allowance, gift vouchers, movies tickets form Employee Welfare Committee Festival bonuses Annual health check Community activity Marriage, funeral, celebration grants

B. Education and training:

Yageo not only employs talented people, but is also focusing its energies on enhancing the leadership and capabilities of its staff. Yageo offers opportunities for people to grow both professionally and personally by adding value to the organization, improving their leadership skills and work capabilities through our management training programs by external professional institution.

50

The company train worker to industry standards, and provides comprehensive learning opportunities and resources to all employees and a tailor-made individual development plan to the employee’s development needs, also with business needs. Training days for each indirect labor received in averages is 6 days, and 42 days for each direct labor.

In 2018, the total training expenses were NT$1,177 thousand. The training courses and time as below table:

Unit: hour Legal require System Professional Total

External 700 48 0 748 Internal 8,442 5,592 824 14,858

Total 9,142 5,640 824 15,606

C. Retirement policy:

The Company in accordance with the provisions of the Labor Standards Law and Labor Pension Act provides a retirement plan for all formal employees. And establish the Labor Pension Reserve Committee.

D. Manager training

Training Date Organizer Courses Major content hours

Dec. 3, 2018 ~ Dec. 5, 2018

Accounting Research and Development Foundation

Internal auditor’s initial training course

a. Common Internal Violations of Corporate Internal Audit, Legal Responsibility and Case Analysis

b.Internal auditors should understand the internal control points and the necessary techniques for implementation - audit procedures, flow charts, working papers and audit reports

c.Internal auditors "computer audit" practice discussion

18

5.5.2 Labor/Employer dispute loss incurrent in the most recent year and up to the publication of the annual report; also, disclosing estimated current and future loss and its countermeasure: None.

5.6 Important Contracts

Agreement Counterparty Period Major Contents Restrictions Long-term loan

Agreement Mega etc. Sydication loan

with 21 banks. 2017.04~2022.04 NT10.8 Billion None

Long-term loan Agreement

Mega etc. Sydication loan with 9 banks. 2013.09~2018.09 NT7.4 Billion None

51

VI. Financial Information

6.1 Five-Year Financial Summary for the past 5 fiscal years

6.1.1 Yageo Corporation and Subsidiaries Consolidated Balance Sheet – Based on IFRS Unit: NT$ thousands

Note 1: The 2019Q1 financial information were reviewed by the CPA Note 2: The 2018 financial statement has not yet approved by the shareholders’ meeting.

Year Item

Financial Summary for The Last Five Years As of 2019/03/31

(note 1) 2014 2015 2016 2017 2018

Current assets 26,472,463 24,178,070 31,389,200 35,081,944 61,111,421 62,386,437 Property, Plant and Equipment 14,025,426 13,392,339 12,157,617 16,274,877 19,112,389 20,010,152

Intangible assets 2,278,555 2,184,963 2,080,661 2,160,087 24,498,120 24,460,640

Other assets 6,925,794 6,055,667 6,039,331 16,180,317 18,034,692 17,920,965

Total assets 49,702,238 45,811,039 51,666,809 69,697,225 122,756,622 124,778,194

Current liabilities

Before distribution 18,436,504 19,225,460 24,745,475 32,447,402 52,834,712 54,648,164

After distribution 21,144,503 20,511,097 26,246,101 37,710,132 Note 2 Note 2

Non-current liabilities 6,950,068 3,036,123 3,928,282 5,916,416 10,483,558 7,371,851

Total liabilities



Equity attributable to shareholders of the parent

25,613,693 25,187,740 24,687,702 31,225,047 59,334,695 62,657,189

Capital stock 6,678,919 6,515,947 5,214,784 3,505,638 4,270,847 4,271,217

Capital surplus

Before distribution 2,022,862 554,298 504,611 3,101,438 5,543,599 5,545,391

After distribution 208,847 263,634 279,517 2,874,852 Note 2 Note 2

Retained earnings



Other equity interest 984,727 607,119 (1,286,097) 247,296 (1,210,064) (779,535)

Treasury stock - (215,300) - - (2,421,552) (2,421,552) Business combinations under common control with successor

(1,423,768) (1,749,070) (1,808,243) - - -

Non-controlling interest 125,741 110,786 113,593 108,360 103,657 100,990

Total equity



52

6.1.2 Yageo Corporation and Subsidiaries Consolidated Statement of Comprehensive Income – Based on IFRS

Unit: NT$ thousands; NT$ for EPS

Note 1: The 2019Q1 financial data were reviewed by the CPA

Year

tem

Financial Summary for The Last Five Years As of 2019/03/31 ( note 1 ) 2014 2015 2016 2017 2018

Operating revenue 25,062,515 25,649,726 27,784,157 32,258,599 77,155,611 11,394,306

Gross profit 6,369,496 5,859,339 6,557,700 10,498,109 48,845,268 5,109,164

Profit from operations 3,652,128 3,148,927 3,614,143 7,593,319 36,907,968 2,999,291

Non-operating income 782,822 964,852 885,252 228,903 2,987,393 130,732

Income before tax 4,434,950 4,113,779 4,499,395 7,822,222 39,895,361 3,130,023

Net income (Loss) 3,546,243 3,279,194 3,604,284 6,681,014 33,840,152 2,589,551 Other comprehensive income (income after tax)

848,748 (313,729) (1,578,976) 1,416,422 (731,829) 728,114

Total comprehensive income for the year 4,394,991 2,965,465 2,025,308 8,097,436 33,108,323 3,317,665 Net income attributable to shareholders of the parent 3,863,046 3,630,267 3,954,115 6,847,300 33,839,293 2,590,351 Business combinations under common control with successor

(346,320) (392,871) (401,416) (191,474) - -

Net income attributable to non-controlling interest 29,517 41,798 51,585 25,188 859 (800) Comprehensive income attributable to Owners of the company

4,575,287 3,249,847 2,034,823 8,569,219 33,113,026 3,320,332

Business combinations under common control with successor

(211,812) (325,302) (59,173) (489,154) - -

Comprehensive income attributable to non-controlling interests

31,516 40,920 49,658 17,371 (4,703) (2,667)

Earnings per share 2.09 4.88 6.14 13.05 80.30 6.11

53

6.1.3. Yageo Corporation Balance Sheet – Based on IFRS Unit: NT$ thousands

Year

Item

Financial Summary for The Last Five Years

2014 2015 2016 2017 2018

Current assets 8,112,940 6,019,908 10,576,782 9,615,762 19,045,661

Property, Plant and Equipment 5,084,530 4,770,435 4,582,434 6,495,138 5,932,977

Intangible assets 165,394 190,132 200,577 195,088 191,439

Other assets 35,845,452 36,206,725 35,729,408 47,250,108 90,839,825

Total assets 49,208,316 47,187,200 51,089,201 63,556,096 116,009,902

Current liabilities

Before distribution 14,004,962 16,978,826 20,806,659 26,348,635 46,846,216

After distribution 16,712,961 18,264,463 22,307,285 31,606,365 Note 1

Non-current liabilities 11,017,446 6,769,704 7,403,083 5,982,414 9,828,991

Total liabilities



Equity attributable to shareholders of the parent 25,613,693 25,187,740 24,687,702 31,225,047 59,334,695

Capital stock 6,678,919 6,515,947 5,214,784 3,505,638 4,270,847

Capital surplus

Before distribution 2,022,862 554,298 504,611 3,101,438 5,543,599

After distribution 208,847 263,634 279,517 2,874,852 Note 1

Retained earnings



Other equity interest 984,727 607,119 (1,286,097) 247,296 (1,210,064)

Treasury stock - (215,300) - - (2,421,552)

Business combinations under common control with successor (1,423,768) (1,749,070) (1,808,243) - -

Non-controlling interest

Total equity Before distribution 24,189,925 23,438,670 22,879,459 31,225,047 59,334,695

After distribution 21,481,926 22,153,033 21,378,833 25,260,904 Note 1 Note1: The 2018 financial statement has not yet approved by the shareholders’ meeting.

54

6.1.4. Yageo Corporation Statement of Comprehensive Income– Based on IFRS Unit: NT$ thousands

Year

Item Financial Summary for The Last Five Years

2014 2015 2016 2017 2018

Operating revenue 12,670,857 12,096,407 13,392,102 15,637,652 37,221,892

Gross profit 3,349,311 2,540,625 3,042,061 4,545,417 23,716,114

Profit from operations 2,006,770 1,237,697 1,639,226 3,300,592 17,345,038

Non-operating income 2,531,610 2,912,641 2,484,028 4,033,082 19,435,380

Income before tax 4,538,380 4,150,338 4,123,254 7,333,674 36,780,418

Net income (Loss) 3,516,726 3,237,296 3,552,699 6,655,826 33,839,293 Other comprehensive income (income after tax) 846,749 (312,851) (1,577,049) 1,424,239 (726,267)

Total comprehensive income for the year 4,363,475 2,924,545 1,975,650 8,080,065 33,113,026 Net income attributable to shareholders of the parent 3,863,046 3,630,267 3,954,115 6,847,300 33,839,293

Business combinations under common control with successor (346,320) (392,871) (401,416) (191,474) -

Comprehensive income attributable to Owners of the company 4,575,287 3,249,847 2,034,823 8,569,219 33,113,026

Business combinations under common control with successor (211,812) (325,302) (59,173) (489,154) -

Earnings per share 2.09 4.88 6.14 13.05 80.30

6.1.5. Auditors’ Opinions for the last five years

Year Accounting Firm CPA Audit Opinion

2014 Deloitte & Touche Jr-Shian Ke and Cheng-Tsai Tsai Modified unqualified opinion

2015 Deloitte & Touche Meng-Chieh Chiu and Jr-Shian Ke Modified unqualified opinion

2016 Deloitte & Touche Jr-Shian Ke and Meng-Chieh Chiu Unqualified opinion

2017 Deloitte & Touche Yung-Hsiang Chao and Jr-Shian Ke Unqualified opinion

2018 Deloitte & Touche Yung-Hsiang Chao and Jr-Shian Ke Unqualified opinion

55

6.2 Financial analyses for the past 5 fiscal years

6.2.1. Yageo Corporation and Subsidiaries Consolidated Financial Analysis – Based on IFRS

Note 1: The 2019Q1 financial data were reviewed by the CPA

Year

Item

Financial Analysis for the Last Five Years As of March

31, 2019 (Note 1)

2014 2015 2016 2017 2018

Financial structure (%)

Debt Ratio 51.08 48.59 55.50 55.04 51.58 49.70 Ratio of long-term capital to property, plant and equipment 222.92 198.51 221.44 228.88 365.30 349.97

Solvency (%)

Current ratio 143.59 125.76 126.85 108.12 115.67 114.16

Quick ratio 114.08 98.93 106.40 91.76 93.96 94.38

Interest earned ratio (times) 23.16 20.27 24.20 27.12 73.93 23.34

Operating performance

Accounts receivable turnover (times) 3.15 2.88 3.03 3.09 4.89 2.94

Average collection period 115.87 126.73 120.46 118.12 74.64 124.12

Inventory turnover (times) 3.60 3.57 3.98 4.13 3.38 2.25

Accounts payable turnover (times) 4.17 4.11 3.76 3.15 3.14 2.78

Average days in sales 101.38 102.24 91.70 88.37 107.98 162.47 Property, plant and equipment turnover (times) 1.77 1.87 2.17 2.27 4.36 2.38

Total assets turnover (times) 0.47 0.54 0.57 0.53 0.80 0.37

Profitability

Return on total assets (%) 6.90 7.22 7.71 11.43 35.65 2.19

Return on stockholders' equity (%) 13.50 13.70 15.49 24.60 74.65 4.25 Pre-tax income to paid-in capital (%) 66.40 63.13 87.15 223.24 934.23 73.28

Profit ratio (%) 14.15 12.78 12.97 20.71 43.86 22.73

Earnings per share (NT$) 2.09 4.88 6.14 13.05 80.30 6.11

Cash flow

Cash flow ratio (%) 27.49 27.02 27.82 24.74 79.08 13.20

Cash flow adequacy ratio (%) 191.53 194.71 221.02 168.49 183.38 165.06

Cash reinvestment ratio (%) 9.06 4.88 10.87 10.46 45.23 8.84

Leverage Operating leverage 1.61 1.69 1.52 1.24 1.21 1.24

Financial leverage 1.06 1.07 1.06 1.04 1.02 1.05

Analysis of financial ratio differences for the last two years. 1. The increase in Ratio of long-term capital to property, plant and equipment: Mainly due to the increase in

Shareholders’ Equity by merged BrightKing and Pulse. 2. The increase in Interest earned ratio: The ratio increased was driven by higher profit in this year caused the

increase in Earnings before Interest and Taxes. 3. The increase in Operating performance: The performance improved was attributed to the increase in Net

Sales. 4. The increase in Profitability: Mainly due to the increase in Net Income and Operation Income. 5. The increase in Cash flow ratio and Cash reinvestment ratio: The ratio raised was because of the increase in

Cash Flow from Operating Activities.

56

6.2.2. Yageo Corporation Financial Analysis – Based on IFRS

Year

Item

Financial Analysis for the Last Five Years

2014 2015 2016 2017 2018

Financial structure (%)

Debt Ratio 50.85 50.33 55.22 50.87 48.85 Ratio of long-term capital to property, plant and equipment 720.04 669.91 660.84 572.85 1,165.75

Solvency (%)

Current ratio 57.93 35.46 50.83 36.49 40.66

Quick ratio 47.79 27.77 43.62 31.01 33.55

Interest earned ratio (times) 37.61 25.56 27.63 35.85 93.37

Operating performance

Accounts receivable turnover (times) 2.44 2.50 2.95 2.44 5.01

Average collection period 149.59 146.00 123.73 149.59 72.85

Inventory turnover (times) 5.88 5.82 6.20 6.49 5.30 Accounts payable turnover (times) 3.04 2.49 2.11 1.68 1.78

Average days in sales 62.07 62.71 58.87 56.24 68.86 Property, plant and equipment turnover (times) 2.49 2.54 2.92 2.41 6.27

Total assets turnover (times) 0.24 0.25 0.27 0.27 0.41

Profitability

Return on total assets (%) 7.53 7.84 7.50 11.94 38.10 Return on stockholders' equity (%) 14.11 14.30 14.78 24.60 74.73

Pre-tax income to paid-in capital (%) 67.95 63.70 79.86 209.29 861.29

Profit ratio (%) 30.51 30.01 26.53 42.56 90.91

Earnings per share (NT$) 2.09 4.88 6.14 13.05 80.30

Cash flow

Cash flow ratio (%) 23.56 23.70 12.64 10.09 73.03

Cash flow adequacy ratio (%) 175.20 189.82 182.57 137.61 226.43

Cash reinvestment ratio (%) 6.64 3.11 3.14 2.33 35.06

Leverage Operating leverage 1.45 1.74 1.53 1.26 1.22

Financial leverage 1.07 1.16 1.10 1.07 1.02

Analysis of financial ratio differences for the last two years. 1. The increase in Ratio of long-term capital to property, plant and equipment: Mainly due to the increase in

Shareholders’ Equity by merged BrightKing and Pulse. 2. The increase in Interest earned ratio: The ratio increased was driven by higher profit in this year caused the

increase in Earnings before Interest and Taxes. 3. The increase in Operating performance: The performance improved was attributed to the increase in Net

Sales. 4. The increase in Profitability: Mainly due to the increase in Net Income and Operation Income 5. The increase in Cash flow ratio and Cash reinvestment ratio: The ratio raised was because of the increase in

Cash Flow from Operating Activities.

57

Formula:

1. Financial Structure

(1) Debt ratio = Total Liabilities / Total Assets

(2) Ratio of long-term capital to property, plant and equipment = (Shareholders’ Equity + Long-term

Liabilities) / Net Property, Plant and Equipment

2. Solvency

(1) Current ratio = Current Assets / Current Liabilities

(2) Quick ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities

(3) Interest earned ratio (times) = Earnings before Interest and Taxes / Interest Expenses

3. Operating Performance

(1) Accounts receivable turnover (times) = Net Sales / Average Account Receivable

(2) Average collection period = 365 / Accounts receivable turnover

(3) Inventory turnover (times) = Cost of Goods Sold / Average Inventory

(4) Accounts payable turnover (times) = Cost of Goods Sold / Average Account Payable

(5) Average days in sales = 365 / Inventory Turnover

(6) Property, plant and equipment turnover (times) = Net Sales / Average Net Property, Plant and

Equipment

(7) Total assets turnover (times) = Net Sales / Average Total Assets

4. Profitability

(1) Return on total assets = (Net Income + Interest Expenses × (1-Effective Tax Rate)) / Average Total

Assets

(2) Return on stockholders' equity = Net Income / Average Net Equity

(3) Pre-tax income to paid-in capital = Net Income before Tax / Issued Capital Stock

(4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital

(5) Profit ratio = Net Income / Net Sales

(6) Earnings per Share = (Net Income – Preferred Stock Dividend) / Weighted Average Outstanding Shares

5. Cash Flow

(1) Cash flow ratio = Cash Provided from Operating Activities / Current Liabilities

(2) Cash flow adequacy ratio = Most Recent Five-year Cash from Operating Activities / Most Recent

Five-year( Capital Expenditures +Increases in Inventory + Cash Dividend)

(3) Cash reinvestment ratio = (Cash Flow from Operating Activities – Cash Dividend) / (Gross Fixed

Assets + Long-term Investments + Other Assets + Working Capital)

6. Leverage

(1) Operating Leverage = (Net Sales – Variable Cost of Goods Sold and Operating Expense) / Operating

Income

(2) Financial Leverage = Operating Income / (Operating Income – Interest Expenses)

58

6.3 Audit Committee’s report for the most recent year's financial statement

6.4 Consolidated Financial Statements for the most recent year audited by the CPA: Please refer to Attachment I of the Annual report

6.5 Financial Statements for the most recent year audited by the CPA: Please refer to Attachment II of the Annual report

6.6. If the company or its affiliates have experienced financial difficulties in the most recent fiscal year or during the current fiscal year up to the date of publication of the annual report, the annual report shall explain how said difficulties will affect the company's financial situation: None

YAGEO Corporation Audit Committee's Review Report

The Board of Directors has approved the Company’s 2018 Financial Statements, Business Report, and proposal for distribution of earnings. The CPA firm of Deloitte & Touche, which was appointed by the Board of Directors, has audited the Company’s 2018 Financial Statements and issued an unqualified opinion. We have examined the Company’s 2018 Financial Statements, Business Report, and the proposal for distribution of earnings that have been approved by the Board of Directors. We hereby respectfully prepare and present this Report in accordance with Article 14-4 of Securities and Exchange Law and Article 219 of The Company Act for your review. Yageo Corporation

Chairman of the Audit Committee: Jerry Lee March 14, 2019

59

VII. Review and Analyze of Financial Position, Financial Performance, and

Risk Management

7.1 Analysis of Financial Status

YAGEO and Subsidiaries Consolidated balance sheets , please refer to “VI. Financial Information” of the Annual report.

The major changes in assets, liabilities and shareholders' equity in the last two years and their major impacts are as follows:

Assets : The increase in assets was mainly due to merge BrightKing's and Pulse's related assets account and the goodwill occurred by acquisition.

Liabilities : The increase in liabilities was mainly due to merge BrightKing's and Pulse's related liabilities, long-term borrowings and short-term borrowings

Shareholders' Equity : The change in common stock was mainly due to the capitalization of earnings and execution of employee stock options.

The changes in capital reserve and retained earnings are mainly due to the distribution of 2017 cash dividends and stock dividends, recognition of changes in capital reserve of related companies and transfer of financial assets and interests to retained earnings.

Other equity projects are mainly due to the increase in the exchange difference loss due to the translation of the financial statements of foreign operating institutions and the decrease in the unrealized benefits of financial assets measured by fair value through other comprehensive gains and losses.

7.2 Analysis of Financial Performance

YAGEO and Subsidiaries Consolidated balance sheets, please refer to “VI. Financial Information” of the Annual report .

FY18 consolidated sales reported up 139.2% y-o-y. The operating income reached 47.8% of operating profit margin, up 24.3% percentage point y-o-y. Gross margin posted 63.3%, up 30.8% percentage point y-o-y. Net consolidated profits after tax attributable to parent company reported NT$ 80.30 earnings per share. The demand has grown steadily in 2018, and the overall product has been continuously optimized, so the profit is higher than last year. The change in non-operating income and expenses was mainly due to the increase in foreign currency exchange benefits realized and not realized in 2018. The increase in other comprehensive gains and losses is mainly due to the difference between the conversion of the financial statements of the foreign operating institutions and the unrealized gains and losses of financial assets measured at fair value through other comprehensive gains and losses.

7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the most recent fiscal year

60

7.3.2 Remedy for Cash Deficit and Liquidity Analysis : Na

7.3.3 Cash Flow Analysis for the coming year :

Yageo expects that cash inflows from cash and operating activities in the next year will be sufficient to cover various cash expenses such as capital expenditures and cash dividends, and the cash flow will be good in the next year.

7.4 The effect upon financial operations of any major capital expenditures during the most recent fiscal year

The Company and its subsidiaries spent NT$9,074,910 thousand in capital expenditure in 2018. The capital expenditure mainly involved purchase of equipment to replace existing machinery and capacity expansion targeted at high capacitance, high voltage, and automotive grade with large size capacitors and resistors, which was in line with recent market demand. The consolidated sales of Yageo rose from NT$32,259 million in 2017 to NT$77,156 million in 2018, which indicated the benefits from the capital expenditure plan.

7.5 Reinvestment policy for the most recent fiscal year, the main reasons for the profits/losses generated thereby, the plan for improving re-investment profitability, and investment plans for the coming year

(1) Investment policy for the most recent fiscal year and investment plans for the coming year:

The company’s investment policy focuses on consolidating the passive component industry and expanding in high-end electronic component product. The management team’s investment goal is to maximize shareholders’ returns.

Moving forward, Yageo will keep a prudential and optimistic attitude toward developing the core business, implementing the established investment policy, accelerating R&D and expanding business in Europe and America to strengthen Yageo’s international competitiveness and drive further business growth.

Year

Item

2018 2017 Gain or Loss ratio (%)

Cash flow ratio (%) 79.08 24.74 219.64% Cash flow adequacy ratio (%) 183.38 168.49 8.84% Cash reinvestment ratio (%) 45.23 10.46 332.41% Analysis of change in cash flow in the current year: The increase in Cash flow ratio was mainly due to the increase in net Cash Flow from Operating Activities compared to current liabilities. The increase in Cash flow adequacy ratio was mainly due to the growth in net Cash Flow from Operating Activities. The increase in Cash reinvestment ratio was mainly due to the growth in net Cash Flow from Operating Activities, resulting in an increase in cash available for investment.

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(2) Main reasons for the profits generated thereby

The Company recognized NT$635,527 thousand of investment income under equity method in 2018 as our affiliated companies are in good operating condition and are profitable.

7.6 The section on risks shall analyze and assess for the most recent fiscal year and as they stood on the date of publication of the annual report:

7.6.1 The effect upon the company's profits (losses) of interest and exchange rate fluctuations and changes in the inflation rate, and response measures to be taken in the future

The Company creates positive cash flow through operating activities and disposal of non-core assets to reduce bank liabilities and reduce interest expenses. As the company's financial structure strengthens, it also seeks better financing costs from banks. The Company's current assets and current liabilities denominated in foreign currencies are subject to foreign exchange hedging operations and avoiding the effects of exchange rate changes after considering the net difference. In the past year, inflation has had a limited impact on the company's operating costs, and the company continued to upgrade the proportion of high-end automotive electronics and industrial products, expand the development of high-end customers, and increase the production capacity of niche products, so that the company's overall product portfolio continues to optimize, all Annual consolidated operating income, operating gross profit, operating net profit, after-tax net profit and after-tax earnings per share all hit record highs over the years.

7.6.2 The company's policy regarding high-risk investments, highly leveraged investments, loans to other parties, endorsements, guarantees, and derivatives transactions; the main reasons for the profits/losses generated thereby; and response measures to be taken in the future:

The Company engages in fund lending with others, endorsement guarantees and derivative commodity transactions in accordance with the procedures passed by the board of directors, and does not engage in high-risk, highly leveraged investments that affect profit and loss.

7.6.3 Research and development work to be carried out in the future, and further expenditures expected for research and development work: Please refer to the “V. Operational Highlights description , and the plan is implemented on schedule” of the Annual report.

7.6.4 Effect on the company's financial operations of important policies adopted and changes in the legal environment at home and abroad, and measures to be taken in response:

The Company consistently pays close attention to any changes in local and foreign policies and makes appropriate amendments to our systems when necessary. During 2017 and as of the date of publication of this annual report, changes in related laws

62

have not had a significant impact on our operations.

7.6.5Effect on the company's financial operations of developments in science and technology as well as industrial change, and measures to be taken in response:

Yageo constantly monitors the technical progress of the industry and assignees dedicated person/team to evaluate action plans for future development and the impacts to our business and financial position when needed. Yageo pays close attention to 5G development so as to keep up with industry trend and related business opportunities. The Company actively deploys and adjusts production capacity to meet market demand in relation to the industry dynamics that Japanese peers announced to exit commodity market gradually.

7.6.6 Effect on the company's crisis management of changes in the company's corporate image, and measures to be taken in response:

The Company attaches great importance to corporate risk management, such as prevention and mitigation of both natural and human-made disasters, and has established extensive action plans and procedures for building a project response team. Risk management planning includes thorough analysis of the root cause and impact of the incident, the alternative plan and solutions to various conditions, and prevention and reconstruction measures. The responsibility of the project team is to minimize the impacts of physical injuries, operation disruption and financial damage and to maintain smooth operation when accident happened. The Company’s operation has been stable over the years, and there is no significant risk that may interrupt normal operation or damage corporate image.

7.6.7 Expected benefits and possible risks associated with any merger and acquisitions, and mitigation measures being or to be taken:

Yageo completed the following acquisitions in 2018: (1) On Apr 27th, 2018, the Board of Director resolved to acquire 100% of Brightking Holdings Limited’s total issued common stock at the price of NT$3.365 billion; (2) On May 22th, 2018, the Board of Director resolved to acquire 100% shares of Pulse Electronics at the price of US$740 million (equivalent to NT$22 billion).

The strategic objectives to acquire Brightking and Pulse Electronics are: (1) expand Yageo’s product portfolio from passive components to other electronic components such as circuit protection component, wireless components, high-end transformers, integrated connector modules, RF chip inductors, power supplies and cable systems so as to provide one-stop shopping services to our customers; (2) expand the market for circuit protection component from China to global through Yageo’s long established global sales channels. Increase Yageo’s operation scale and market presence in the United States and Europe through Pulse Electronics’ brand name; (3) strengthen Yageo’s business foundation in Automotive and industrial markets; (4) leverage the synergies in the combined companies’ technology, production and corporate management. Through these acquisitions, Yageo expects to continue to expand the Company's operating scale, obtain more advanced technologies to

63

enhance its international competitiveness, provide faster and more effective service to global customers, and create value for the industry and the shareholders.

7.6.8 Expected benefits and possible risks associated with any plant expansion, and mitigation measures being or to be taken:

Yageo utilizes the advantages of conducting business in Taiwan, including frontier R&D, industry cluster and supply chain integration, to ensure driving forces for long-term growth and maintain operation sustainability. Considering the ongoing trade dispute between China and US, the Company decided to expand its investment scale in Taiwan locally while continuously developing business globally.

7.6.9 Risks associated with any consolidation of sales or purchasing operations, and mitigation measures being or to be taken:

The Company has consistently focused on identifying alternative sources for purchasing, and has worked to diversify its customer base in order to reduce the concentration of sales.

7.6.10 Effect upon and risk to the company in the event a major quantity of shares belonging to a director, supervisor, or shareholder holding greater than a 10% stake in the company has been transferred or has otherwise changed hands, and mitigation measures being or to be taken:

The shareholdings of the Company’s directors have been stable during the last few years, and there have been no major transfers or swaps of shares.

7.6.11 Effect upon and risk to company associated with any change in governance personnel or top management, and mitigation measures being or to be taken: None

7.6.12 Litigious and non-litigious matters:

(1) Disclosure of the information on the facts, monetary amounts, important dates, primary litigants and status quo of the proceedings, including the law suits of which rulings have been made already, the proceedings in progress, non-contentious cases and administrative disputes that have occurred during the past two years up to the release date of the Annual report, and in which the Company is a concerned litigant and of which results may cause material impacts on shareholders’ rights or security prices:

Having obtained authorization from the suffering investors, the Securities and Futures Investors Protection Center, or SFIPC, has filed a civil case on June 23, 2009 with a joint and several damage of TWD 296.9 million at Taipei District Court against 29 corporate and individuals altogether, including Far Eastern Transport (FAT), FAT management, FAT board of directors/supervisors and the certified public accountant and the accounting firm hired by FAT, excluding our Company, claiming that the co-defendants have committed frauds by deliberately falsifying sales and receivable records on financial reports to trap unwitting investors. The SFIPC on January 2010 has further sued our Company and two

64

other companies in the abovementioned civil case on the ground that our Company has committed negligence in performing the duties as a supervisor of FAT. In specific, the SFIPC is seeking joint and several damage against our Company and the individuals that are assigned by our Company as representatives to perform the roles as the supervisors of FAT. The law suit is resumed after FAT’s 2015 reorganization, followed by the court’s ruling on November 14, 2018. This case is currently being appealed through our attorneys.

(2) Disclosure of the information concerning our Company’s directors, supervisors, de facto persons in charge and any entity or subsidiary that holds more than 10% of total shares who are involved in the proceedings that have occurred during the past two years up to the release date of the Annual report, including the proceedings of which rulings have been made and the proceedings that are litigation in progress, non-contentious cases and administrative disputes, and may cause material impacts on the Company’s shareholders’ rights or security prices (information disclosed is similar to Item 1 of this Article):

Having obtained authorization from the suffering investors, the Securities and Futures Investors Protection Center, or SFIPC, has filed a civil case on June 23, 2009 with a joint and several damage of TWD 296.9 million at Taipei District Court against 29 corporate and individuals altogether, including Far Eastern Transport (FAT), FAT management, FAT board of directors/supervisors and the certified public accountant and the accounting firm hired by FAT, excluding our Company, claiming that the co-defendants have committed frauds by deliberately falsifying sales and receivable records on financial reports to trap unwitting investors. The SFIPC on January 2010 has further sued our Company and two other companies in the abovementioned civil case on the ground that our Company has committed negligence in performing the duties as a supervisor of FAT. In specific, the SFIPC is seeking joint and several damage against our Company and the individuals that are assigned by our Company as representatives to perform the roles as the supervisors of FAT. The law suit is resumed after FAT’s 2015 reorganization, followed by the court’s ruling on November 14, 2018. This case is currently being appealed through our attorneys.

A claim made by a third party against our Company and the individuals that our Company have assigned as representatives to perform the roles of director or supervisor of another company for performing their duties is covered by the directors’ and officers’ liability insurance policy of our Company. Our assessment concludes that this case poses no critical threat to our Company’s finance and business operation.

(3) Disclosure of the information concerning our Company’s directors, supervisors, officers and any major shareholder that holds more than 10% of total shares and are involved in an incident that is regulated by Article 157 of the Securities and Exchange Act and that has occurred during the past two years up to the release date of the Annual report, and the status quo of the said incident: None

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7.6.13 Other Major Risks:

Risks Associated with Cyber : Yageo attaches great importance to the information security of financial business and establishes a complete security protection and data protection mechanism to ensure that the financial business can avoid the risk of information leakage or damage. In response to technological changes, Yageo continued to invest in advanced information security equipments such as firewalls and anti-virus walls to block cyber attacks, and also established a comprehensive data protection mechanism to ensure that financial information can be properly preserved.

7.7 Other major matters: None

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VIII. Special Disclosure

8.1 Summary of Affiliated Companies 8.1.1 Affiliated Company’s Consolidated Business Report

8.1.1.1 Organization Chart of the Affiliated Companies:

Kuo-Shin Investment

Ltd.

Yageo Holding

(Bermuda)

Yageo Coproation

Vitrohm Portuguesa

Vitrohm Holding GmbH

Yageo South Asia (M) Sdn. Bhd.

Yageo Korea Yageo (Hong Kong) Ltd.

Yageo Europe

Yageo USA (H.K.) Ltd. Yageo Japan

Yageo Corporation (South Asia)

PTE .Ltd.

Ko-E Holding (Cayman)

83.83% Hsu Tai

International (H.K.)

Compostar Technology (Dogguan) Co., Ltd.

Ko-E Corporation

Ko-E (H.K.) Ltd.

Ko-E Technology (Shenzhen) Co., Ltd.

Yageo Electronics (Dongguan)

Co., Ltd.

Yageo Electronics (China) Co.,

Ltd.

Yageo Components

(Suzhou) Co., Ltd.

Yageo Trade (Suzhou) Co.,

Ltd.

Ferroxcube Holding (Samoa)

Yageo America

Corporation

Brightking Holdings Ltd

Brightking Enterprise (H.K.) Co.

Huizhou Lien Shun Electronics

Bestbright Electronics (Taiwan)

Brightking Electronics Co., Ltd.

Brightking Electronics Inc.

Bestbright Electronics Co., Ltd.

BrightKing (Shenzhen)

Ceramate Technical (Suzhou)

Zhejiang Bestbright

Electronics.

BrightKing (Shanghai)

BrightKing (Beijing)

100% 100% 100% 100% 100% 100%

100% 100% 100% 100% 100% 100% 100% 100%

100%

100% 100% 100% 100%

100% 100% 100%

100% 100% 71.63% 28.37%

100%

100% 100% 100% 100% 100% 100% 100% 100% Pulse

Electronics Corporation

100% Yageo Holding

(Cayman) Limited

100%

100%

Egston Holding GmbH

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8.1.1.2 Basic Information of the Affiliated Companies: Unit: $ thousands

Company Name Establishing Date Location Paid-in Capital Main Business or Production Items

Yageo Corporation Sep. 9, 1987 Taiwan NTD 4,271,217 Manufacture and marketing of electronic components and related production machinery.

Yageo Holding (Bermuda) Ltd. Dec. 7, 1994 Bermuda USD 90,000 Investment

Kuo-Shin Investment Ltd. Mar 1, 2001 Taiwan NTD 893,000 Investment

Brightking Holdings Ltd. Dec. 21,2009 Cayman Islands NTD 460,990 Holding company Yageo Corporation （South Asia） Pte.Ltd. Jul. 2,2000 Singapore - Electronic component marketing

Yageo South Asia (M) Sdn. Bhd. Oct. 7, 2014 Malaysia - Electronic component marketing

Yageo America Apr. 24, 2000 America USD 48 Electronic component marketing

Yageo Europe Holding B.V. Dec. 4, 2009 Netherlands - Holding company

Pulse Electronics Corp. Apr 10,1947 America USD 1,737 Holding company

Vitrohm Holding GmbH Dec 17, 1996 Germany EUR 26 Investment

Vitrohm Portuguesa Jul. 24, 1970 Portugal EUR 100 Manufacture and marketing of electronic components and related production machinery.

Yageo Korea Sep. 4, 2001 Korea KRW 100,000 Resistor marketing

Yageo Japan Sep. 20, 2001 Japan JPY 40,000 Resistor marketing

Yageo (Hong Kong) Ltd. Nov. 28, 2007 Hong Kong HKD 1,807,337 Investment

Yageo Electronics (Dongguan) Co., Ltd. Mar. 26, 1996 Dongguan CNY 468,628 Manufacture and marketing of passive components

Yageo Electronics (China) Co., Ltd. Mar. 19, 1996 Suzhou CNY 1,786,955 Manufacture and marketing of passive components

Yageo Components (Suzhou) Co., Ltd. Sep. 1, 2003 Suzhou CNY 40,412 Manufacture and marketing of passive components

Yageo Trade (Suzhou) Co., Ltd. Jul. 9, 2008 Suzhou CNY 34,194 Passive components marketing Compostar Technology (Dogguan) Co., Ltd. Jul. 4, 2001 Dongguan CNY 12,475 Manufacture and marketing of passive components

Yageo USA (H.K.) Ltd. May. 20, 1988 Hong Kong HDK 8,000 Passive Component marketing

Hsu Tai International (H.K.) 1996 Hong Kong HKD 1 Investment

Ko-E Holding (Cayman) May. 30, 2006 Cayman Islands USD 5,736 Holding company

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Company Name Establishing Date Location Paid-in Capital Main Business or Production Items

Ko-E Corporation Jul. 31, 2006 Taiwan NTD 45,000 Electronic component marketing

Ko-E (H.K.) Ltd. Jun. 17, 2006 Hong Kong HKD 27,223 Electronic component marketing

Ko-E Technology (Shenzhen) Co., Ltd. Jul. 25, 2006 Shenzhen CNY 25,748 Manufacture and marketing of electronic components

Brightking Enterprise (H.K.) Co., Ltd. Oct. 2, 2003 Hong Kong HKD 153,942 Marketing of overvoltage and overcurrent protection electronic components

Bestbright Electronics Co., Ltd. Jul. 23, 2007 Guangdong CNY 69,079 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

Ceramate Technical(Suzhou) Co., Ltd. Dec. 30, 2012 Suzhou CNY 17,500 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

Zhejiang Bestbright Electronics Co., Ltd. Jul. 6, 2016 Zhejiang CNY 49,000 Manufacturing and marketing of overvoltage and

overcurrent protection electronic components

BrightKing (Shenzhen) Co.,Ltd. May 18, 2001 Shenzhen CNY 20,000 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

BrightKing(Shanghai) Co., Ltd. Oct. 17,2002 Shanghai CNY 6,000 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

BrightKing (Beijing) Co., Ltd. Mar. 15, 2005 Beijing CNY 4,000 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

Huizhou Lien Shun Electronics Co., Ltd. Jun. 14, 2000 Huizhou CNY 26,819 Manufacturing and marketing of overvoltage and


Brightking Electronics Inc. Apr. 30, 2010 America USD 1,275 Marketing of overvoltage and overcurrent protection electronic components

Brightking Electronics Co.,Ltd. Jan. 28, 2011 Taiwan NTD 129,393 Manufacturing and marketing of overvoltage and overcurrent protection electronic components

Bestbright Electronics Co., Ltd. Jan. 28, 2011 Taiwan NTD 27 Process and marketing of overvoltage and overcurrent protection electronic components

Egston Holding GmbH Jul. 13, 1990 Austria EUR 363 Holding company

8.1.1.3 The Company does not have any other affiliated companies with a presumed controlling and dependency relationship according to Article 369.3 of the Company Law.

8.1.1.4 The overall affiliated company’s business operation covers the investment business and the manufacture and marketing of the Passive Components . The division of labor among the affiliated companies : manufacture and marketing of Capacitor and Resistor.

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8.1.1.5 Each Affiliated Company’s Directors, Supervisors and President:

Company Name Title Name or Representative

Shareholding

Shares or investment amount ($ Thousand)

Shareholding or investment ratio (%)

Yageo Corportion

Chairman Tie-Min Chen 34,185 Thousand shares 8.00 CEO & President Chi-Wen Chang 1,230 Thousand shares 0.29

Director Hsu Tai Investment Ltd.／Victor C. Wang、Tzong-Yeong Lin、

Shih-Chien Yang、Chi-Wen Chang、Lai-Fu Lin 4,019 Thousand shares 0.94

Independent Director Jerry Lee、Hilo Chen、Tun-Son Lin - -

Yageo Holding (Bermuda) Ltd. Chairman Yageo／Tie-Min Chen

90,000 Thousand shares 100 Director Yageo／Tie-Min Chen、Chi-Wen Chang、Wayne Chu

Kuo-Shin Investment Ltd. Chairman Yageo／Tie-Min Chen

89,300 Thousand shares 100 Director Yageo／Tie-Min Chen、Chi-Wen Chang、Tzong-Yeong Lin Supervisor Yageo／Freddy Wu

Yageo (South Asia) Director Yageo／Tan Yuw Ghee、Owen Yang - 100

Yageo South Asia (M) Sdn. Bhd. Director Yageo／Tan Yuw Ghee、 Ko Guit Poh、Owen Yang - 100 Yageo America Director Yageo／Chi-Wen Chang、Owen Yang、Chih-Hao Chen 1 Thousand shares 100

Yageo Europe Holding B.V . Director Yageo／Chi-Wen Chang、Ken Hsu、Wayne Chu、Owen Yang - 100

Ferroxcube Holding (Somoa) Ltd. Chairman/President Yageo／Calvin Cheng

1,000 Thousand shares 100 Director Yageo／Calvin Cheng、Wayne Chu、Benjamin Huang

Vitrohm Holding Director Yageo Holding (Bermuda)／Ken Hsu、Owen Yang EUR26 100

Vitrohm Portuguesa Director Vitrohm Holding／Carlos Paiva、Ken Hsu EUR100 100

Yageo Korea Director Yageo Holding (Bermuda)／James Jung、Chi-Wen Chang、Freddy Wu KRW100,000 100

Yageo Japan Director

Supervisor

Yageo Holding (Bermuda)／Masayuki Fujimoto、 Chi-Wen Chang、Freddy Wu

Yageo Holding (Bermuda)／Ken Hsu JPY40,000 100

Yageo (Hong Kong) Ltd. Director Yageo Holding (Bermuda)／Wayne Chu HKD1,807,337 100

Yageo Electronics (Dongguan) Co., Ltd. Chairman/President Yageo USA (H.K.) Ltd.／Benjamin Huang

CNY468,628 100 Director Yageo USA (H.K.) Ltd.／Benjamin Huang、Chi-Wen Chang、Ken Hsu

Yageo Electronics (China) Co., Ltd. Chairman/President Yageo USA (H.K.) Ltd.／Ken Hsu

CNY1,786,955 100 Director Yageo USA (H.K.) Ltd.／Ken Hsu、Chi-Wen Chang、Chris Yang Supervisor Yageo USA (H.K.) Ltd.／Wayne Chu

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Shareholding



Yageo Components (Suzhou) Co., Ltd.

Chairman Yageo USA (H.K.) Ltd.／Ken Hsu

CNY40,412 100 President Yageo USA (H.K.) Ltd.／Yita Liu Director Yageo USA (H.K.) Ltd.／Ken Hsu、Yita Liu、Chi-Wen Chang Supervisor Yageo USA (H.K.) Ltd.／Owen Yang

Yageo Trade (Suzhou) Co., Ltd. Chairman Yageo USA (H.K.) Ltd.／Ken Hsu

CNY34,194 100 Director Yageo USA (H.K.) Ltd.／Ken Hsu、Chi-Wen Chang、Freddy Wu Supervisor Yageo USA (H.K.) Ltd.／Chris Yang

Compostar Technology (Dogguan) Co., Ltd.

Chairman / President Yageo USA (H.K.) Ltd.／Hu-Chiang Liu CNY12,475 100

Director Yageo USA (H.K.) Ltd.／Hu-Chiang Liu、Chi-Wen Chang、Chris Yang

Yageo USA (H.K.) Ltd. Chairman / President Yageo Holding (Bermuda)／Wayne Chu

HKD8,000 100 Director Yageo Holding (Bermuda)／Wayne Chu、Chi-Wen Chang、Owen Yang

Hsu Tai International (H.K.) Director Yageo Holding (Bermuda)／Tie-Min Chen、Chi-Wen Chang、 Wayne Chu

1 Thousand shares 100

Ko-E Holding (Cayman) Chairman Yageo Holding (Bermuda)／Wayne Chu

USD5,736 83.8 Director Yageo Holding (Bermuda)／Wayne Chu、Chi-Wen Chang、Freddy Wu

Ko-E Corporation Chairman Ko-E Holding (Cayman)／Wayne Chu

4,500 Thousand shares 100 Director Ko-E Holding (Cayman)／Wayne Chu、Freddy Wu、Owen Yang Supervisor Ko-E Holding (Cayman)／Chi-Wen Chang

Ko-E (H.K.) Ltd. Chairman Ko-E Holding (Cayman)／Wayne Chu

HKD27,223 100 Director

Ko-E Holding (Cayman)／Wayne Chu、Chi-Wen Chang、 Owen Yang、Freddy Wu

Ko-E Technology (Shenzhen) Co., Ltd. Chairman Ko-E (H.K.) Ltd.／Wayne Chu

CNY25,748 100 Director Ko-E (H.K.) Ltd.／Wayne Chu、Chi-Wen Chang、Owen Yang、

Freddy Wu

Brightking Holdings Ltd. Chairman Yageo／ Roger Liang

153,968 Thousand shares 100 Director Yageo／Tie-Min Chen, Chi-Wen Chang, Ken Hsu

Brightking Enterprise (H.K.) Co., Ltd. Director Ken Hsu, Lian Chen 12,750 Thousand shares 100

BestBright Electronics Co., Ltd. Chairman Brightking Enterprise (H.K.) Co., Ltd／Humol Hu

CNY69,079 100 Director Brightking Enterprise (H.K.) Co., Ltd.／Ken Hsu、Roger Liang Supervisor Brightking Enterprise (H.K.) Co., Ltd.／Lian Chen

Ceramate Technical(Suzhou) Co., Ltd. Director BestBright Electronics Co., Ltd.／Humol Hu

CNY17,500 100 Supervisor BestBright Electronics Co., Ltd.／Ken Hsu

71


Shareholding



Zhejiang Bestbright Electronics Co., Ltd.

Chairman BestBright Electronics Co., Ltd.／Humol Hu

CNY49,000 100 Director BestBright Electronics Co., Ltd.／Sandy Chang、Ken Hsu、 Roger Liang

Supervisor BestBright Electronics Co., Ltd.／KASH Wang

BrightKing (Shenzhen) Co.,Ltd. Director BestBright Electronics Co., Ltd.／Roger Liang

CNY 20,000 100 Supervisor BestBright Electronics Co., Ltd.／Humol Hu

BrightKing (Shanghai) Co., Ltd. Director BrightKing (Shenzhen) Co.,Ltd.／Roger Liang

CNY6,000 100 Supervisor BrightKing (Shenzhen) Co.,Ltd.／Humol Hu

BrightKing (Beijing) Co., Ltd. Director BrightKing (Shenzhen) Co.,Ltd.／Roger Liang

CNY4,000 100 Supervisor BrightKing (Shenzhen) Co.,Ltd.／Humol Hu

Huizhou Lien Shun Electronics Co., Ltd.

Chairman、Present BrightKing (Shenzhen) Co.,Ltd.／Humol Hu

CNY26,819 100 Director Director

BrightKing (Shenzhen) Co.,Ltd.／Roger Liang Brightking Enterprise (H.K.) Co., Ltd.／Ken Hsu

Supervisor BrightKing (Shenzhen) Co.,Ltd.／KASH Wang

Brightking Electronics Inc. Chairman、Present Brightking Enterprise (H.K.) Co., Ltd.／Roger Liang USD1,275 100

Brightking Electronics Co., td. Chairman Brightking Enterprise (H.K.) Co., Ltd.／Roger Liang

12,939 Thousand shares 100 Director Brightking Enterprise (H.K.) Co., Ltd.／Eric Lee、Lian Chen Supervisor Brightking Enterprise (H.K.) Co., Ltd.／Sandy Chang

Bestbright Electronics Co., Ltd. Chairman Brightking Enterprise (H.K.) Co., Ltd.／Roger Liang

10 Thousand shares 100 Director Brightking Enterprise (H.K.) Co., Ltd.／Eric Lee、Lian Chen Supervisor Brightking Enterprise (H.K.) Co., Ltd.／Sandy Chang

Pulse Electronics Co. Director Yageo／Chi-Wen Chang、Sedgewick Cheng 25,574 Thousand shares 100

Egston Holding GmbH Director Pulse Electronics Co.／Ｍark Twaalfhoven EUR363 100

72

8.1.1.6 Each Affiliated Company’s Operating Results: Please refer to Attachment IV Unit: NT$ Thousand, Except earnings per share in NT$

Company Name Capital Stock Total Assets Total Liabilities Net Worth Operating

Income Operating

Profit (Loss) Net

Income (Loss) EPS (Loss) / NT$

(after tax) Yageo Corportion 4,270,394 116,009,902 56,675,207 59,334,695 37,221,892 17,345,038 33,839,293 80.30 Kuo-Shin Investment Ltd. 893,000 1,797,144 18,545 1,778,599 - (746) 287,674 3.22 Yageo Holding (Bermuda) Ltd. 2,765,970 52,885,025 1,909,472 50,975,553 0 (264,982) 16,288,524 180.98 Yageo Corporation (South Asia) - 2,435,306 1,820,715 614,591 4,281,658 395,923 331,977 - Yageo South Asia (M) Sdn. Bhd. - 2,412 1,817 595 - (12,368) 588 - Yageo America 1,477 124,474 402,961 (278,487) 101,672 4,815 4,729 4,729 Yageo Europe Holding B.V. - 10,984,034 8,884,954 2,099,080 5,197,376 414,778 553,207 - Ferroxcube Holding (Samoa) Ltd. 817,498 784,280 - 784,280 - - 37 - Vitrohm Holding 900 415,552 131,303 284,249 30,249 23,550 15,748 - Vitrohm Portuguesa 3,512 253,350 45,985 207,365 267,653 24,745 16,397 - Yageo Korea 2,760 113,188 14,080 99,108 - (37,521) 44,724 - Yageo Japan 11,128 10,704 6,109 4,595 676 (29,412) 1,241 - Yageo (Hong Kong) Ltd. 7,092,896 24,126,005 4,116 24,121,890 - (99) 5,075,572 5 Yageo Electronics (Dongguan) Co., Ltd. 2,098,330 10,378,569 5,661,880 4,716,689 11,563,343 746,504 499,257 - Yageo Electronics (China) Co., Ltd. 8,001,271 27,567,015 9,783,323 17,783,692 19,608,349 5,107,939 4,150,199 - Yageo Components (Suzhou) Co., Ltd. 180,949 504,416 127,357 377,059 363,369 21,658 33,110 - Yageo Trade (Suzhou) Co., Ltd. 153,107 4,898,933 1,484,960 3,413,971 8,921,043 3,276,252 2,350,801 - Compostar Technology (Dogguan) Co., Ltd. 55,860 75,970 2,502 73,465 - - - - Yageo USA (H.K.) Ltd. 31,396 19,995,402 1,778,172 18,217,230 31,467,415 10,854,840 11,389,013 - Hsu Tai International (H.K.) 4 32,203 71 32,132 - (619) 2,395 2,395 Ko-E Holding (Cayman) 164,972 596,751 973 595,778 - (229) (40,026) - Ko-E Corporation 45,000 89,707 35,121 54,585 139,038 5,378 2,619 0.58 Ko-E (H.K.) Ltd. 106,835 5,014,210 4,492,525 521,686 15,838,992 (406,685) (42,424) - Ko-E Technology (Shenzhen) Co., Ltd. 115,288 2,420,272 1,814,419 605,853 8,528,647 265,152 254,892 - Brightking Holdings Ltd. 460,990 2,038,604 224,633 1,813,971 - (31,899) 198,147 4.34 Brightking Enterprise (H.K.) Co., Ltd. 604,146 2,205,582 173,265 2,032,316 35,885 283 233,053 - BestBright Electronics Co., Ltd. 309,307 2,561,611 408,980 2,152,632 2,199,298 260,537 319,867 - Ceramate Technical(Suzhou) Co., Ltd. 78,360 30,120 19,548 10,572 55,923 (12,368) (16,194) - Zhejiang Bestbright Electronics Co., Ltd. 219,402 215,649 45 215,604 - (1,5270 (1,469) - BrightKing (Shenzhen) Co.,Ltd. 89,552 833,055 133,182 699,873 816,191 70,147 114,806 -

73

Company Name Capital Stock Total Assets Total Liabilities Net Worth Operating

Income Operating

Profit (Loss) Net

Income (Loss) EPS (Loss) / NT$

(after tax) BrightKing (Shanghai) Co., Ltd. 26,866 543,742 297,277 246,465 1,026,081 105,037 87,596 - BrightKing (Beijing) Co., Ltd. 17,910 125,414 61,926 63,488 247,534 20,922 14,924 - Huizhou Lien Shun Electronics Co., Ltd. 120,086 169,882 118,862 51,020 365,137 (58,632) (56,16) - Brightking Electronics Inc. 39,185 8,520 9,560 (1,040) 16,880 (8,012) (7,879) - Brightking Electronics Co.,Ltd. 129,393 80,151 60,561 19,590 85,839 (48,150) (48,033) - Bestbright Electronics Co., Ltd. 27 - - - - - - - Pluse Electronics Co. 66,157 7,957,046 4,551,170 3,405,876 1,131,622 133,049 214,534 8.39

8.1.2 The companies to be included in the affiliate’s consolidated financial statements are same as the companies to be included in the parent company-subsidiary consolidated financial statements in accordance with IFRS 10 ; therefore, the affiliate’s consolidated financial statements will not be prepared separately.

8.1.3 The company is not a subsidiary of other companies; therefore, it is not necessary to have the relationship report prepared.

8.2 The status of issuing private placement securities in the most recent year and up to the publication of the annual report: None

8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None

8.4. Other necessary supplementary notes: Yageo attaches great importance to the information security of financial business and establishes a complete security protection and data protection mechanism to ensure that the financial business can avoid the risk of information leakage or damage. In response to technological changes, Yageo continued to invest in advanced information security equipments such as firewalls and anti-virus walls to block cyber attacks, and also established a comprehensive data protection mechanism to ensure that financial information can be properly preserved.

IX. The occurrence of any events as stated in Section 3 Paragraph 2 in Article 36 of the Securities Exchange Act that had significant impact on shareholder’s equity or securities prices in the most recent year and up to the publication of the annual report:

Please refer to “7.6.7 Expected benefits and possible risks associated with any merger and acquisitions, and mitigation measures being or

to be taken” of the Annual report.

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INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Yageo Corporation Opinion We have audited the accompanying consolidated financial statements of Yageo Corporation (the Company) and its subsidiaries (collectively referred to as the Group), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, based on our audits and the reports of other auditors (refer to the other matter paragraph below), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Based on our audits and the reports of other auditors, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters on the consolidated financial statements for the year ended December 31, 2018 are as follows: Allowance for Expected Credit Loss of Trade Receivables

Attachment I Consolidated Financial Statements for the most recent year audited by the CPA

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The recoverable amount of trade receivables is determined by management’s evaluation of the credit risk of overdue receivables, which is affected by management’s assumptions about a client’s credit quality. In our audit, we focused on clients with significant trade receivables and overdue balances, and we evaluated the reasonableness of management’s estimation of the allowance for expected credit loss of trade receivables. For a summary of the significant accounting policies on expected credit loss of trade receivables, refer to Note 4 to the accompanying consolidated financial statements. Refer to Note 13 to the consolidated financial statements for the carrying amount of trade receivables. Our audit procedures for the aforementioned key audit matter are described as follows: 1. We tested the completeness and the accuracy of the aging report of the trade receivables which

served as a basis for the calculation of the expected credit loss allowance and verified that the percentage of such allowance was consistent with the Group’s policy on the allowance for expected credit loss.

2. We confirmed the recoverability of trade receivables outstanding at yearend by checking the

collections after the balance sheet date. 3. For the past due, outstanding amount, we assessed the reasonableness of the allowance through

understanding the history of the client and whether collateral was obtained; we also assessed the state of the overall economy.

Allowance for Inventory Valuation Loss The value of inventory is affected by the volatility of market demand and the ever-changing technology which can cause inventory to become outdated and obsolete. The allocation of inventory costs and the estimations of the net realizable value of inventory require management’s judgment. In our audit, we focused on testing whether the value of inventory is stated at the lower of cost or net realizable value. We also assessed the reasonableness of management’s estimation of the allowance for inventory valuation loss. For a summary of the significant accounting policies on inventory valuation, refer to Note 4 to the accompanying consolidated financial statements. Refer to Note 14 to the consolidated financial statements for the carrying amount of inventory. Our audit procedures for the aforementioned key audit matter are described as follows: 1. We tested the aging of inventory and we calculated the amount of allowance for inventory

valuation loss per the Group’s policy. 2. We selected samples of inventory items at yearend and we compared the respective actual

selling prices with the book values to ensure that the book values do not exceed the net realizable values.

Business Combinations In 2018, the Company acquired 100% of the equity interests of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively. The acquisitions were identified as key audit matter because the transactions involved complicated calculations such as in the determination of the consideration transferred and the assessment of the fair value of the acquired assets and assumed liabilities. We verified that the business combinations had been properly evaluated and approved by inspecting the minutes of meetings of the board of directors and by reviewing the compliance with the internal control systems established by the Group and that the relevant provisions and

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procedures for the acquisition and disposal of assets were followed. In addition, we also performed the following audit procedures: 1. We tested the controls for the acquisition and disposal of assets and assessed if the design and

implementation of the internal control are effective. 2. We verified the date of the transaction, reviewed the relevant cash payment documents and the

fair value of the assets, performed the recalculation of the profit and loss, and confirmed that the accounting treatment was appropriate.

Other Matter We did not audit the financial statements of partial subsidiaries included in the consolidated financial statements of the Group, as of and for the years ended December 31, 2018 and 2017. The total assets of these subsidiaries were 10.63% (NT$13,051,571 thousand) and 12.16% (NT$8,476,474 thousand) of the Group’s total consolidated assets as of December 31, 2018 and 2017, respectively, and the total revenue of these subsidiaries was 7.24% (NT$5,584,073 thousand) and 5.79% (NT$1,868,715 thousand) of the Group’s total consolidated revenue for the years ended December 31, 2018 and 2017, respectively. As disclosed in Note 16 to the accompanying consolidated financial statements, we also did not audit the financial statements of some investees accounted for using the equity method. The total investments in these investees accounted for using the equity method were 0.13% (NT$154,651 thousand) and 0.25% (NT$177,328 thousand) of the Group’s total consolidated assets as of December 31, 2018 and 2017, respectively; the Group’s total share of the profit (loss) of such associates was (0.06%) (NT$(23,364) thousand) and (0.03%) (NT$(2,539) thousand) of the Group’s consolidated profit before income tax for the years ended December 31, 2018 and 2017, respectively. The financial statements of the aforementioned subsidiary and investees accounted for using the equity method were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the related amounts included herein, is based solely on the reports of other auditors. We have also audited the parent company only financial statements of the Company as of and for the years ended December 31, 2018 and 2017 on which we have issued an unqualified opinion with other matter paragraph. As described in Note 1 to the accompanying consolidated financial statements, on August 1, 2017, the Company sold 100% of its interest in Ferroxcube International Holding B.V. in a cash settlement amounting to €133,188 thousand. In addition, in 2018, the Company acquired 100% of the equity interest of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively. Responsibilities of Management and Those Charged with Governance for the Consolidated

Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going

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concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including supervisors, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements,

whether 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 Group’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 Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial

statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities

or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies

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in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Yung-Hsiang Chao and Jr-Shian Ke. Deloitte & Touche Taipei, Taiwan Republic of China March 14, 2019

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 ASSETS Amount % Amount % CURRENT ASSETS

Cash and cash equivalents (Notes 3, 4 and 6) $ 20,388,744 17 $ 5,760,889 8 Financial assets at fair value through profit or loss - current (Notes 3, 4 and 7) 80,458 - 211,359 - Financial assets at amortized cost - current (Notes 3, 4 and 9) 8,568,937 7 - - Debt investments with no active market - current (Notes 3, 4 and 12) - - 11,575,280 16 Notes receivable (Notes 3, 4, 5 and 13) 553,176 - 1,196,757 2 Trade receivable (Notes 3, 4, 5, 13 and 34) 19,251,951 16 10,546,437 15 Other receivables (Notes 3, 4 and 34) 442,998 - 428,652 1 Inventories (Notes 4, 5 and 14) 10,473,077 9 4,872,001 7 Prepayment (Note 20) 996,362 1 435,710 1 Other current assets 355,718 - 54,859 -

Total current assets 61,111,421 50 35,081,944 50

NONCURRENT ASSETS

Financial assets at fair value through profit or loss - non-current (Notes 3, 4 and 7) 89,196 - - - Financial assets at fair value through other comprehensive income - non-current (Notes 3, 4 and 8) 2,226,976 2 - - Available-for-sale financial assets - noncurrent (Notes 3, 4 and 10) - - 4,347,325 6 Held-to-maturity financial assets - noncurrent (Notes 3, 4 and 11) - - 7,133,802 10 Financial assets at amortized cost - non-current (Notes 3, 4 and 9) 6,946,640 6 - - Investments accounted for using the equity method (Notes 4 and 16) 6,205,942 5 3,480,124 5 Property, plant and equipment (Notes 4, 5, 17 and 35) 19,112,389 15 16,274,877 24 Goodwill (Notes 4, 5 and 18) 20,466,026 17 2,074,005 3 Other intangible assets (Notes 4 and 19) 4,032,094 3 86,082 - Deferred tax assets (Notes 4 and 26) 2,207,304 2 922,820 2 Refundable deposits (Note 3) 104,372 - 82,635 - Long-term prepayments for lease, net of current portion (Note 20) 110,730 - 73,061 - Other noncurrent assets 143,532 - 140,550 -

Total noncurrent assets 61,645,201 50 34,615,281 50

TOTAL $ 122,756,622 100 $ 69,697,225 100 LIABILITIES AND EQUITY CURRENT LIABILITIES

Short-term borrowings (Note 21) $ 23,667,981 19 $ 17,624,878 25 Short-term bills payable (Note 21) 499,487 - 1,099,772 2 Financial liabilities at fair value through profit or loss - current (Notes 4 and 7) 27,674 - 82,995 - Notes payable 163,595 - 3,449 - Trade payable (Note 34) 10,347,305 9 7,511,421 11 Other payables (Notes 22 and 34) 11,065,243 9 4,874,382 7 Current tax liabilities (Notes 4 and 26) 6,782,248 6 1,209,130 2 Other current liabilities 281,179 - 41,375 -

Total current liabilities 52,834,712 43 32,447,402 47

NONCURRENT LIABILITIES

Long-term borrowings (Notes 21 and 35) 9,000,000 7 5,500,000 8 Deferred tax liabilities (Notes 4 and 26) 383,698 - 376 - Accrued pension liabilities (Notes 4 and 23) 471,418 1 346,478 - Guarantee deposits received 150,895 - 69,562 - Other noncurrent liabilities 477,547 1 - -

Total noncurrent liabilities 10,483,558 9 5,916,416 8

Total liabilities 63,318,270 52 38,363,818 55

EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY

Share capital Common shares 4,270,394 3 3,504,010 5 Capital collected in advance 453 - 1,628 -

Total share capital 4,270,847 3 3,505,638 5 Capital surplus

Issuance of common shares 2,718,524 2 2,652,778 4 From share of changes in capital surplus of associates 2,804,929 3 415,813 1 From employee share options 20,146 - 32,847 -

Total capital surplus 5,543,599 5 3,101,438 5 Retained earnings

Legal reserve 3,235,596 3 2,550,866 4 Special reserve 437,595 - 1,723,692 2 Unappropriated earnings 49,478,674 40 20,096,117 29

Total retained earnings 53,151,865 43 24,370,675 35 Other equity

Exchange differences on translation of foreign operations (1,820,627) (1) (1,664,627) (3) Unrealized gain on financial assets at FVTOCI 610,563 - - - Unrealized loss on available-for-sale financial assets - - 1,911,923 3

Total other equity (1,210,064) (1) 247,296 - Treasury shares (2,421,552) (2) - -

Total equity attributable to owners of the Company 59,334,695 48 31,225,047 45

NONCONTROLLING INTERESTS 103,657 - 108,360 -

Total equity 59,438,352 48 31,333,407 45 TOTAL $ 122,756,622 100 $ 69,697,225 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 14, 2019)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % OPERATING REVENUE (Notes 4 and 34)

Net sales $ 77,155,611 100 $ 32,258,599 100 OPERATING COSTS (Notes 4, 14, 25 and 34)

Cost of goods sold 28,310,343 37 21,760,490 68 GROSS PROFIT 48,845,268 63 10,498,109 32 OPERATING EXPENSES (Notes 4 and 25)

Selling and marketing 6,496,642 8 1,462,724 5 General and administrative 3,523,253 5 1,138,150 3 Research and development 413,353 - 303,916 1 Expected credit loss (Notes 4 and 13) 1,504,052 2 - -

Total operating expenses 11,937,300 15 2,904,790 9

PROFIT FROM OPERATIONS 36,907,968 48 7,593,319 23 NONOPERATING INCOME

Finance costs (Notes 4 and 25) (547,020) (1) (299,494) (1) Share of profit of associates (Note 4) 635,527 1 299,831 1 Interest income (Note 4) 1,091,535 1 507,890 2 Rental income (Notes 4 and 34) 41,662 - 22,156 - Gain on financial instruments at fair value through

profit or loss (Note 4) 1,288,486 2 152,805 - Loss on financial instruments at fair value through

profit or loss (Note 4) (974,160) (1) (412,233) (1) Other gains and losses (Note 25) 1,451,363 2 (42,052) -

Total nonoperating income 2,987,393 4 228,903 1

PROFIT BEFORE INCOME TAX 39,895,361 52 7,822,222 24 INCOME TAX EXPENSE (Notes 4 and 26) 6,055,209 8 1,141,208 3 NET PROFIT FOR THE YEAR 33,840,152 44 6,681,014 21

(Continued)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 4) $ 29,415 - $ (54,555) - Unrealized loss on investments in equity

instruments at fair value through other comprehensive income (Notes 4 and 24) (598,587) (1) - -

Share of the other comprehensive income of associates accounted for using the equity method (Note 4) 282 - (1,532) -

Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 26) (2,817) - 9,396 -

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

operations (Notes 4 and 24) (266,131) - (682,466) (2) Unrealized gain on available-for-sale financial

assets (Notes 4 and 24) - - 2,101,738 6 Share of the other comprehensive income of

associates accounted for using the equity method (Notes 4 and 24) (8,200) - (72,379) -

Income tax relating to items that may be reclassified subsequently to profit or loss (Notes 4 and 26) 114,209 - 116,220 -

Other comprehensive income for the year, net

of income tax (731,829) (1) 1,416,422 4 TOTAL COMPREHENSIVE INCOME FOR THE

YEAR $ 33,108,323 43 $ 8,097,436 25 NET PROFIT ATTRIBUTABLE TO:

Owners of the Company $ 33,839,293 44 $ 6,847,300 21 Business combinations under common control with

successor - - (191,474) - Noncontrolling interests 859 - 25,188 -

$ 33,840,152 44 $ 6,681,014 21

(Continued)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % TOTAL COMPREHENSIVE INCOME

ATTRIBUTABLE TO: Owners of the Company $ 33,113,026 43 $ 8,569,219 27 Business combinations under common control with

successor - - (489,154) (2) Noncontrolling interests (4,703) - 17,371 -

$ 33,108,323 43 $ 8,097,436 25 EARNINGS PER SHARE (NEW TAIWAN

DOLLARS; Note 27) Basic $ 80.30 $ 13.05 Diluted $ 78.09 $ 12.77

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 14, 2019) (Concluded)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of the Company Other Equity

Retained Earnings

Exchange Differences on

Translating Unrealized Gain

(Loss) on

Unrealized Gain (Loss) on

Financial Assets at Fair Value

Through Other

Business Combinations

under Common Share Capital (Note 24) Capital Surplus Unappropriated Foreign Available-for-sale Comprehensive Control with Non-controlling Capital Collected (Notes 4, 24 Legal Reserve Special Reserve Earnings Operations Financial Assets Income Treasury Stock Successor Interests (Notes 4, Common Shares in Advance Total and 28) (Note 24) (Note 24) (Note 24) Total (Notes 4 and 24) (Notes 4 and 24) (Notes 4 and 24) (Note 24) Total (Notes 4 and 24) 24 and 30) Total Equity BALANCE, JANUARY 1, 2017 $ 5,163,056 $ 51,728 $ 5,214,784 $ 504,611 $ 2,155,454 $ 437,595 $ 17,661,355 $ 20,254,404 $ (1,097,198 ) $ (188,899 ) $ - $ - $ 24,687,702 $ - $ 113,593 $ 24,801,295 Retrospective restatement of business combinations under common control

with successor - - - - - - - - - - - - - (1,808,243 ) - (1,808,243 ) BALANCE, JANUARY 1, 2017 AFTER RESTATED 5,163,056 51,728 5,214,784 504,611 2,155,454 437,595 17,661,355 20,254,404 (1,097,198 ) (188,899 ) - - 24,687,702 (1,808,243 ) 113,593 22,993,052 Capital reduction (1,509,669 ) - (1,509,669 ) - - - - - - - - - (1,509,669 ) - - (1,509,669 ) Cash dividends distributed by subsidiaries - - - - - - - - - - - - - 200,853 (22,604 ) 178,249 Appropriation of the 2016 earnings

Cash dividends distributed by the Company - - - - - - (1,283,218 ) (1,283,218 ) - - - - (1,283,218 ) - - (1,283,218 ) Special reserve - - - - - 1,286,097 (1,286,097 ) - - - - - - - - - Legal reserve - - - - 395,412 - (395,412 ) - - - - - - - - -

Changes in capital surplus from investments in associates accounted for by

using equity method - - - 340,636 - - (10,930 ) (10,930 ) - - - - 329,706 - - 329,706 Issue of share dividends from capital surplus - - - (225,094 ) - - - - - - - - (225,094 ) - - (225,094 ) Restructuring - - - 2,416,738 - - - - (235,217 ) - - - 2,181,521 2,096,544 - 4,278,065 Recognition of compensation cost of employee share options - - - 11,490 - - - - - - - - 11,490 - - 11,490 Recognition of employee share options by the Company 68,033 (50,100 ) 17,933 62,994 - - - - - - - - 80,927 - - 80,927 Net profit for the year ended December 31, 2017 - - - - - - 6,847,300 6,847,300 - - - - 6,847,300 (191,474 ) 25,188 6,681,014 Other comprehensive income(loss) for the year ended December 31, 2017,

net of income tax - - - - - - (46,691 ) (46,691 ) (332,212 ) 2,100,822 - - 1,721,919 (297,680 ) (7,817 ) 1,416,422 Buyback of treasury shares - - - - - - - - - - - (1,617,537 ) (1,617,537 ) - - (1,617,537 ) Cancellation of treasury shares (217,410 ) - (217,410 ) (9,937 ) - - (1,390,190 ) (1,390,190 ) - - - 1,617,537 - - - - BALANCE, DECEMBER 31, 2017 3,504,010 1,628 3,505,638 3,101,438 2,550,866 1,723,692 20,096,117 24,370,675 (1,664,627 ) 1,911,923 - - 31,225,047 - 108,360 31,333,407 Retrospective restatement - - - - - - 5,440 5,440 - (1,911,923 ) 1,906,483 - - - - - BALANCE, JANUARY 1, 2018 AFTER RESTATED 3,504,010 1,628 3,505,638 3,101,438 2,550,866 1,723,692 20,101,557 24,376,115 (1,664,627 ) - 1,906,483 - 31,225,047 - 108,360 31,333,407 Appropriation of the 2017 earnings

Legal reserve - - - - 684,730 - (684,730 ) - - - - - - - - - Special reserve - - - - - (1,286,097 ) 1,286,097 - - - - - - - - - Cash dividends distributed by the Company - - - - - - (5,036,144 ) (5,036,144 ) - - - - (5,036,144 ) - - (5,036,144 ) Share dividends distributed by the Company 701,413 - 701,413 - - - (701,413 ) (701,413 ) - - - - - - - -


using equity method - - - 2,389,116 - - - - - - - - 2,389,116 - - 2,389,116 Issue of share dividends from capital surplus - - - (226,586 ) - - - - - - - - (226,586 ) - - (226,586 ) Actual acquisitions of interests in subsidiaries - - - - - - (25,874 ) (25,874 ) - - - - (25,874 ) - (543,571 ) (569,445 ) Changes in percentage of ownership interests in subsidiaries - - - - - - (25,765 ) (25,765 ) - - - - (25,765 ) - - (25,765 ) Recognition of employee share options by the Company 64,971 (1,175 ) 63,796 279,631 - - - - - - - - 343,427 - - 343,427 Net profit for the year ended December 31, 2018 - - - - - - 33,839,293 33,839,293 - - - - 33,839,293 - 859 33,840,152 Other comprehensive income (loss) for the year ended December 31, 2018,

net of income tax - - - - - - 26,880 26,880 (156,000 ) - (597,147 ) - (726,267 ) - (5,562 ) (731,829 ) Buyback of treasury shares - - - - - - - - - - - (2,421,552 ) (2,421,552 ) - - (2,421,552 ) Disposals of investments in equity instruments designated as at fair value

through other comprehensive income - - - - - - 698,773 698,773 - - (698,773 ) - - - - - Non-controlling interests - - - - - - - - - - - - - - 543,571 543,571 BALANCE, DECEMBER 31, 2018 $ 4,270,394 $ 453 $ 4,270,847 $ 5,543,599 $ 3,235,596 $ 437,595 $ 49,478,674 $ 53,151,865 $ (1,820,627 ) $ - $ 610,563 $ (2,421,552 ) $ 59,334,695 $ - $ 103,657 $ 59,438,352 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 14, 2019)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 39,895,361 $ 7,822,222 Adjustments for:

Expected credit loss recognized on trade receivables 1,504,052 - Impairment loss recognized on trade receivables - 23,916 Depreciation expenses 7,500,217 1,782,331 Amortization expenses 76,677 55,701 Amortization of prepayments for lease 2,444 2,386 Amortization of prepayments 6,745 4,811 Net (gain) loss on fair value change of financial assets and liabilities

held for trading (314,326) 259,428 Finance costs 547,020 299,494 Interest income (1,091,535) (507,890) Dividend income (148,998) (79,907) Compensation cost of employee share options - 11,490 Share of profit of associates (635,527) (299,831) Net loss on disposal of property, plant and equipment, net 22,279 7,017 Net gain on disposal of available-for-sale financial assets - (202,028) Write-downs of inventories 77,515 47,477 (Gain) loss on unrealized foreign currency exchange 93,207 (29,629) Changes in operating assets and liabilities:

Financial assets held for trading - (224,298) Financial assets mandatorily classified at fair value through profit

or loss 59,368 - Notes receivable 735,928 (553,318) Accounts receivable (6,544,318) (2,115,484) Other receivables 11,979 978,918 Inventories (3,353,349) (101,305) Prepayments (344,788) (54,846) Other current assets 32,391 99,924 Notes payable 150,387 (4,620) Accounts payable 310,976 1,298,545 Other payables 4,587,537 48,189 Other current liabilities 154,559 (58,382) Accrued pension liabilities (100,570) -

Cash generated from operations 43,235,231 8,510,311 Interest received 1,077,893 473,807 Dividend received 148,998 79,907 Interest paid (518,382) (291,537) Income tax paid (2,160,957) (745,177)

Net cash generated from operating activities 41,782,783 8,027,311

(Continued)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of held for trading financial assets $ - $ (2,019,471) Proceeds from sale of financial assets at fair value through other

comprehensive income 1,429,614 - Purchase of financial assets at amortized cost (210,977) - Proceeds from sale of financial assets at amortized cost 3,556,572 - Purchase of financial assets at fair value through profit or loss (149,648) - Proceeds from sale of financial assets at fair value through profit or

loss 482,128 1,873,213 Purchase of available-for-sale financial assets - (51,941) Proceeds from sale of available-for-sale financial assets - 322,719 Proceeds from capital reduction of available-for-sale financial assets - 14,579 Purchase of debt investments with no active market - (3,299,561) Purchase of held-to-maturity financial assets - (7,243,278) Proceeds from capital reduction of financial assets at fair value through

profit or loss 10,497 - Acquisition of associates - (607,223) Acquisition of subsidiaries (23,920,521) - Net cash inflow on disposal of subsidiaries - 4,235,378 Proceeds from capital reduction of associates 45,261 22,261 Payments for property, plant and equipment (9,074,910) (4,949,752) Proceeds from disposal of property, plant and equipment 92,506 16,851 Increase in refundable deposits (21,737) - Decrease in refundable deposits - 6,247 Payments for intangible assets (10,012) (12,250) Increase in other noncurrent assets - (1,280) Dividends received from associates 246,719 245,675

Net cash used in investing activities (27,524,508) (11,447,833)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds of short-term borrowings 5,612,797 4,907,924 Repayments of short-term bills payable (600,285) - Repayments of bond payables (287,599) - Proceeds of long-term borrowings 3,500,000 4,100,000 Repayments of long-term borrowings - (2,200,000) Proceeds of guarantee deposits received 81,352 39,409 Dividends paid to the owners of the Company (5,262,730) (1,500,626) Capital reduction - (1,509,669) Proceeds from employee share options 343,427 80,927 Payments for buyback of treasury shares (2,421,552) (1,617,537) Dividends paid to noncontrolling interests (569,445) (49,457)

Net cash generated from financing activities 395,965 2,250,971

(Continued)

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YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF

CASH HELD IN FOREIGN CURRENCIES $ (26,385) $ (689,105) NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 14,627,855 (1,858,656) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 5,760,889 7,619,545 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 20,388,744 $ 5,760,889 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 14, 2019) (Concluded)

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YAGEO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars Unless Stated Otherwise) 1. GENERAL INFORMATION

Yageo Corporation (the Company) was incorporated in 1987 in the Republic of China (ROC). The Company’s shares are traded on the Taiwan Stock Exchange. The Company manufactures and sells passive components. The consolidated financial statements of the Company and its subsidiaries, collectively referred to as the “Group”, are presented in the Company’s functional currency, the New Taiwan dollar. On August 1, 2017, the Company sold 100% of its equity interest in Ferroxcube International Holding B.V. (“Ferroxcube”) in a cash settlement amounting to €133,188 thousand. In addition, in 2018, the Company acquired 100% of the equity interests of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 14, 2019.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports

by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies: 1) Annual Improvements to IFRSs 2014-2016 Cycle

Several standards, including IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures,” were amended in this annual improvement. The amendment to IFRS 12 clarifies that when an entity’s interest in a subsidiary, a joint venture or an associate is classified as held for sale or is included in a disposal group that is classified as held for sale, the entity is not required to disclose summarized financial information of that subsidiary, joint venture or associate in accordance with IFRS 12. However, all other requirements in IFRS 12 apply to interests in entities classified as held for sale in accordance with IFRS 5. The Group applied the aforementioned amendment retrospectively.

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2) IFRS 9 “Financial Instruments” and related amendments IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

Classification, measurement and impairment of financial assets On the basis of the facts and circumstances that existed as of January 1, 2018, the Group has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods. The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Group’s financial assets and financial liabilities as of January 1, 2018.

Measurement Category Carrying Amount Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark

Cash and cash equivalents Loans and receivables Amortized cost $ 5,760,889 $ 5,760,889 Derivatives Held for trading‑ ‑ Mandatorily at fair value

through profit or loss (i.e. FVTPL)

1,359 1,359

Equity securities Held for trading‑ ‑ Mandatorily at FVTPL 210,000 210,000 Available for sale‑ ‑ Mandatorily at FVTPL 143,695 143,695 (a) Available for sale‑ ‑ Fair value through other

comprehensive income (i.e. FVTOCI) - equity instruments

4,203,630 4,203,630 (a)

Debt securities Held-to-maturity Amortized cost 7,133,802 7,133,802 (b) Time deposits with

original maturities of more than 3 months

Loans and receivables Amortized cost 11,575,280 11,575,280 (c)

Notes receivable, trade receivables and other receivables

Loans and receivables Amortized cost 12,171,846 12,171,846 (d)

Refundable deposits Loans and receivables Amortized cost 82,635 82,635

Financial Assets

IAS 39 Carrying Amount as of

January 1, 2018 Reclassifi-

cations

IFRS 9 Carrying Amount as of

January 1, 2018

Retained Earnings Effect on

January 1, 2018

Other Equity

Effect on January 1,

2018 Remark FVTPL $ 211,359 Add: Reclassification from available-for-sale (

IAS 39)

Required reclassification - $ 143,695 (a) 211,359 143,695 $ 355,054

FVTOCI Equity instruments - Add: Reclassification from available-for-sale

(IAS 39) -

4,203,630

$ 5,440

$ (5,440 )

(a)

- 4,203,630 4,203,630 5,440 (5,440 ) Amortized cost Add: Reclassification from held-to-maturity (IAS 39) 7,133,802 (b) Add: Reclassification from loans and receivables

(IAS 39) -

29,590,650

(c), (d)

- 36,724,452 36,724,452 - - $ 211,359 $ 41,071,777 $ 41,284,136 $ 5,440 $ (5,440 )

a) The Group elected to classify all of its investments in equity securities previously classified as

available-for-sale under IAS 39 as at FVTPL and FVTOCI under IFRS 9. As a result, the subsidiary reclassified the related other equity - unrealized gain on available-for-sale financial assets to retained earnings in the amount of $5,440 thousand.

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b) Debt investments previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9, because on January 1, 2018, the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows.

c) Debt investments previously classified as debt investments with no active market and measured

at amortized cost under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9, because on January 1, 2018, the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows.

d) Notes receivable, trade receivables and other receivables that were previously classified as loans

and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9.

3) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for related accounting policies. The Group assessed that the application of IFRS 15 to contracts that were not complete as of January 1, 2018 would not affect the recognition, measurement and presentation of revenue.

4) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

The amendments clarify that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. In addition, in determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Group’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve the higher amount and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. Prior to the amendment, in assessing a deferred tax asset, the Group assumed that it will recover the asset at its carrying amount when estimating probable future taxable profit. The Group applied the above amendments retrospectively in 2018.

5) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are

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multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Group applied IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the Interpretation.

b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations (the “New IFRSs”)

Effective Date Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 9 “Prepayment Features with Negative

Compensation” January 1, 2019 (Note 2)

IFRS 16 “Leases” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or

Settlement” January 1, 2019 (Note 3)

Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”

January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates. Note 2: The FSC permits the election for early adoption of the amendments starting from 2018. Note 3: The Group shall apply these amendments to plan amendments, curtailments or settlements

occurring on or after January 1, 2019.

1) IFRS 16 “Leases” IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 “Leases”, IFRIC 4 “Determining Whether an Arrangement Contains a Lease” and a number of related interpretations. Definition of a lease Upon initial application of IFRS 16, the Group will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16. The Group as lessee Upon initial application of IFRS 16, the Group will recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Group will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases

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are classified within operating activities on the consolidated statements of cash flows. Leased assets and finance lease payables are recognized for contracts classified as finance leases.

The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated. The Group expects to apply the following practical expedients: a) The Group will apply a single discount rate to a portfolio of leases with reasonably similar

characteristics to measure lease liabilities. b) The Group will adjust the right-of-use assets on January 1, 2019 by the amount of any

provisions for onerous leases recognized as of December 31, 2018. c) The Group will account for those leases for which the lease term ends on or before December

31, 2019 as short-term leases. d) The Group will exclude initial direct costs from the measurement of right-of-use assets on

January 1, 2019. e) The Group will use hindsight, such as in determining lease terms, to measure lease liabilities. For leases currently classified as finance leases under IAS 17, the carrying amounts of right-of-use assets and lease liabilities on January 1, 2019 will be determined as at the carrying amounts of the respective leased assets and finance lease payables as of December 31, 2018. The Group as lessor Except for sublease transactions, the Group will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019. Anticipated impact on assets and liabilities

Carrying Amount as of December 31,

2018

Adjustments Arising from

Initial Application

Adjusted Carrying

Amount as of January 1, 2019

Right-of-use assets $ - $ 28,588 $ 28,588 Total effect on assets $ - $ 28,588 $ 28,588 Lease liabilities - current $ - $ 28,588 $ 28,588 Total effect on liabilities $ - $ 28,588 $ 28,588

2) IFRIC 23 “Uncertainty over Income Tax Treatments”

IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Group concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain

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tax treatment, the Group should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the Group expects to better predict the resolution of the uncertainty. The Group has to reassess its judgments and estimates if facts and circumstances change. Upon initial application of IFRIC 23, the Group will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

3) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” The amendments clarified that IFRS 9 shall be applied to account for other financial instruments in an associate or joint venture to which the equity method is not applied. These included long-term interests that, in substance, form part of the Group’s net investment in an associate or joint venture. For long-term interests that, in substance, form part of the Group’s net investment in an associate or joint venture and are governed by IFRS 9, the Group shall, based on the facts and circumstances that exist on January 1, 2019, perform an assessment of the classification under IFRS 9 applied retrospectively. Upon initial application of the above amendments, the Group will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

4) Amendments to IFRS 9 “Prepayment Features with Negative Compensation”

IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of the principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explain that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early.

Upon initial application of the above amendments, the Group will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

5) Annual Improvements to IFRSs 2015-2017 Cycle

Several standards, including IFRS 3, IFRS 11, IAS 12 and IAS 23 “Borrowing Costs”, were amended in this annual improvement. IAS 23 was amended to clarify that, if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, the related borrowing costs shall be included in the calculation of the capitalization rate on general borrowings.

6) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The Group will apply the above amendments prospectively.

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Except for the above impacts, as of the date the financial statements were authorized for issue, the Group continues assessing other possible impacts that the application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Group’s financial position and financial performance and will disclose these other impacts when the assessment is completed.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs Effective Date

Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets

between An Investor and Its Associate or Joint Venture” To be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3) 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 Group shall apply these amendments to business combinations for which the acquisition

date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 3: The Group shall apply these amendments prospectively for annual reporting periods

beginning on or after January 1, 2020. 1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture” The amendments stipulate that, when the Group 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 transaction is recognized in full. Also, when the Group loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when the Group sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Group’s interest as an unrelated investor in the associate or joint venture, i.e. the Group’s share of the gain or loss is eliminated. Also, when the Group loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Group’s interest as an unrelated investor in the associate or joint venture, i.e. the Group’s share of the gain or loss is eliminated.

2) Amendments to IFRS 3 “Definition of a Business” The amendments clarify that, to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process applied to the input that together significantly contribute to the ability to create outputs. The amendments narrow the definitions of outputs by focusing on goods and services provided to customers, and the reference to an ability to reduce costs is removed. Moreover, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. In addition, the amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

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Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

b. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value. The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an

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 an 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 12 months after the reporting period; and 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a

liability for at least 12 months after the reporting period. Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within 12 months after the reporting period; and 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least

12 months after the reporting period. Assets and liabilities that are not classified as current are classified as non-current.

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d. Basis of consolidation Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the interests of the Group and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company. See Note 15, Table 7 and 8 for detailed information on subsidiaries (including percentages of ownership and main businesses).

e. Business combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as they are incurred. Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interests in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred and the fair value of the acquirer’s previously held interests in the acquiree, the excess is recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of the measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value.

f. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

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At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise except for exchange differences on: Monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investments. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the group entities (including subsidiaries and associates in other countries that use currencies which are different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving the loss of control over a subsidiary that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to the non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss. Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income.

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

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h. Investments in associates An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor an interest in a joint venture. The Group uses the equity method to account for its investments in associates. Under the equity method, investments in an associate is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. When the Company subscribes for additional new shares of an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates accounted for using the equity method. If the Group’s ownership interest is reduced due to its additional subscription of the new shares of the associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate. The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized 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 be an associate. Any retained investment is measured at fair value at that date, and the fair value is regarded as the investment’s fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the joint venture. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasure the retained interest. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate is recognized in the Group’ consolidated financial statements only to the extent that interests in the associate is not related to the Group.

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i. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. Property, plant and equipment in the course of construction are carried at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use. Freehold land is not depreciated. Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. If a lease term is shorter than the assets’ useful lives, such assets are depreciated over the lease term. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis. On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

j. Goodwill Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units or groups of cash-generating units (referred to as “cash-generating units”) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then pro rata to the other assets of the unit based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. Any impairment loss recognized for goodwill is not reversed in subsequent periods. If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation which is disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

k. Intangible assets

1) Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in the estimates accounted for on a prospective basis.

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2) Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.

3) Derecognition of intangible assets

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

l. 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 and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation. The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss. When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

m. Financial instruments Financial assets and financial liabilities are recognized when a group becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from 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 FVTPL are recognized immediately in profit or loss. 1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. a) Measurement categories

2018 Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost and equity instruments at FVTOCI.

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i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria. Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 33.

ii. Financial assets at amortized cost Financial assets that meet the following conditions are subsequently measured at amortized cost: i) The financial asset is held within a business model whose objective is to hold financial

assets in order to collect contractual cash flows; and ii) The contractual terms of the financial asset give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal amount outstanding. Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents and trade receivables at amortized cost, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for: i) Purchased or originated credit-impaired financial assets, for which interest income is

calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and

ii) Financial assets that are not credit-impaired on purchase or origination but have

subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

iii. Investments in equity instruments at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified

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to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings. Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017 Financial assets are classified into the following categories: Financial assets at FVTPL, held-to-maturity investments, available-for-sale financial assets and loans and receivables. i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such financial assets are either held for trading or designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 33.

ii. Held-to-maturity investments Corporate bonds is above specific credit ratings and which the Group has positive intent and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

iii. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL. Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value of such financial assets is recognized in other comprehensive income. Any impairment losses are recognized in profit and loss.

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iv. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalents and debt investments with no active market) are measured using the effective interest method at amortized cost less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

b) Impairment of financial assets and contract assets 2018 The Group recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), investments in debt instruments that are measured at FVTOCI, lease receivables, as well as contract assets. The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs. Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such a financial asset. 2017 Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of such financial assets, that the estimated future cash flows of the investment have been affected. Financial assets at amortized cost, such as trade receivables, are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience with collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with defaults on receivables.

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For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference between such an asset’s carrying amount and the present value of its estimated future cash flows, discounted at the financial asset’s original effective interest rate. For a financial asset 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 investment (at the date on which 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 significant financial difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to impairment is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of such an investment can be objectively related to an event occurring after the recognition of the impairment loss. The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables and other receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized

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in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Equity instruments Debt and equity instruments issued by a group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments issued by a group are recognized at the proceeds received, net of direct issue costs. The repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Company’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement Except the following situations, all financial liabilities are measured at amortized cost using the effective interest method: Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when such financial liabilities are either held for trading or designated as at FVTPL. Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any interest or dividends paid on such financial liability. Fair value is determined in the manner described in Note 33.

b) Derecognition of financial liabilities The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts.

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

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Before 2018, derivatives embedded in non-derivative host contracts were treated as separate derivatives when they met the definition of a derivative; their risks and characteristics were not closely related to those of the host contracts; and the contracts were not measured at FVTPL. Starting from 2018, derivatives embedded in hybrid contracts that contain financial asset hosts that is within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets that is within the scope of IFRS 9 (e.g. financial liabilities) 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 host contracts are not measured at FVTPL.

n. Revenue recognition

2018 The Group identifies contracts with customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligations are satisfied. The Group does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control. 2017 Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Allowances for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors. 1) Revenue from the 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 the

goods; b) The Group retains neither continuing managerial involvement to the degree usually associated

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 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 the materials’ ownership.

2) Dividend and interest income

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

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Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis with reference to the principal outstanding and at the applicable effective interest rate.

o. Leasing Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and 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 the relevant lease.

2) The Group as lessee Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

p. Borrowing costs Borrowing costs directly attributable to an acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other than that which is stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

q. Employee benefits 1) Short-term employee benefits

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

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions. Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liabilities (assets)) are recognized as employee benefits expense in the period in which they occur, or when the plan amendment or curtailment occurs. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in other equity and will not be reclassified to profit or loss. Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

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r. Employee share options

The fair value at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Group’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vested immediately. At the end of each reporting period, the Group revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expenses reflect the revised estimate, with a corresponding adjustment to capital surplus - employee share options.

s. 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 unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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3) Current and deferred taxes for the year

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

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods. a. Estimated impairment of financial assets - 2018

The provision for impairment of trade receivables, investments in debt instruments, and financial guarantee contracts is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Notes 9 and 13. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

b. Estimated impairment of trade receivables - 2017

When there is objective evidence of impairment loss of receivables, the Group takes into consideration the estimation of the future cash flows of such assets. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

c. Write-down of inventories

The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realizable value was based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

d. Impairment of property, plant and equipment The impairment of equipment in relation to the production of passive components was based on the recoverable amounts of those assets, which are the higher of their fair value less costs of disposal and their value in use. Any changes in the market prices or future cash flows will affect the recoverable amounts of those assets and may lead to the recognition of additional impairment losses or reversal of impairment losses.

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e. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

December 31 2018 2017 Cash on hand $ 2,743 $ 1,573 Demand deposits 15,223,019 5,471,062 Cash equivalents (with original maturities of less than 3 months)

Short-term bills 127,835 - Time deposits 5,035,147 288,254

$ 20,388,744 $ 5,760,889 The market rate intervals of cash in bank at the end of the reporting period were as follows: December 31 2018 2017 Short-term bills 0.5% - Demand deposits 0.01%-4.7% 0.01%-5.2%

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31 2018 2017 Financial assets at FVTPL - current Financial assets held for trading

Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts $ - $ 1,359

Non-derivative financial assets Domestic quoted shares

Walsin Technology Co., Ltd - 210,000 - 211,359

Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting)

Foreign exchange forward contracts 20,398 - Non-derivative financial assets

Domestic quoted shares Walsin Technology Co., Ltd 60,060 - 80,458 - $ 80,458 $ 211,359

(Continued)

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December 31 2018 2017 Financial assets at FVTPL - non-current Non-derivative financial assets

Overseas unlisted shares Xmholder Technology Co., Ltd. $ 43,092 $ -

Domestic unlisted shares Hsin Bung International Co., Ltd. 33,622 - Jihsun Securities Investment Trust Co., Ltd. 12,000 - Linko International Golf & Country Club 482 -

$ 89,196 $ - Financial liabilities - current Financial liabilities held for trading

Derivative financial liabilities (not under hedge accounting) Foreign exchange forward contracts $ - $ 82,995

Financial assets mandatorily classified as at FVTPL Derivative financial liabilities (not under hedge accounting)

Foreign exchange forward contracts 27,674 - $ 27,674 $ 82,995

(Concluded) At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

Currency Maturity Notional Amount (In Thousands)

December 31, 2018 Buy USD/NTD 2019.01.04-2019.01.28 USD 581,500/NTD 17,903,315 Buy EUR/USD 2019.01.07 EUR 6,000/USD 6,831 Sell EUR/CZK 2019.01.31-2019.04.30 EUR 1,750/CZK 46,486 December 31, 2017 Buy USD/NTD 2018.01.02-2018.01.31 USD 303,500/NTD 9,105,480 Buy EUR/USD 2018.01.05 EUR 6,000/USD 7,133 Buy USD/RMB 2018.09.10-2018.09.17 USD 30,000/RMB 200,514 Buy USD/RMB 2018.01.03 USD 3,050/RMB 19,944 Sell USD/RMB 2018.01.22 USD 6,000/RMB 39,813 Sell EUR/USD 2018.01.07-2018.02.22 EUR 9,770/USD 11,931 The Group entered into foreign exchange forward contracts to manage exposures to exchange rate fluctuations of foreign currency denominated assets and liabilities.

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8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018

December 31,

2018 Non-current Investments in equity instruments at FVTOCI $ 2,226,976 Investments in equity instruments at FVTOCI

December 31,

2018 Non-current Domestic investments

Listed shares and emerging market shares TA-I Technology Co., Ltd. $ 1,327,605

Foreign investments Overseas listed shares

SHS KOA Corp. 899,371

$ 2,226,976 These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Note 3 and Note 10 for information relating to their reclassification and comparative information for 2017.

9. FINANCIAL ASSETS AT AMORTIZED COST

December 31,

2018 Current Domestic investments

Time deposits with original maturity of more than 3 months (a) $ 8,568,937 Non-current Foreign investments

Corporate bonds (b) $ 6,946,640 a. The interest rates for time deposits with original maturity of more than 3 months were from 3.10% to

5.40% as at the end of the reporting period. The time deposits were classified as debt investments with no active market under IAS 39. Refer to Notes 3 and 12 for information relating to their reclassification and comparative information for 2017.

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b. From August to October 2017 and August to November 2018, the Group bought corporate bonds at face value of $230,100 and $6,695 in thousand U.S. dollars with the coupon rates of 2.95% to 5.50% and 4.10%-4.88%, and the effective interest rates of 2.53% to 4.35% and 3.84%-3.95%, respectively. The bonds were classified as held-to-maturity financial assets under IAS 39. Refer to Note 3 and Note 11 for information relating to their reclassification and comparative information for 2017.

In October 2018, part of the bonds were sold to manage credit concentration risk; the bonds were sold at fair value of $550,229.

10. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31,


Listed shares and emerging market shares TA-I Technology Co., Ltd. $ 1,049,349 Honey Hope Honesty Enterprise Co., Ltd. 42,800

Unlisted shares Xmholder Technology Co., Ltd. 44,122 Hsin Bung International Co., Ltd. 33,622 Jihsun Securities Investment Trust Co., Ltd. 12,000 Parawin Venture Capital Corp. 10,669 Linko International Golf & Country Club 482

1,193,044 Foreign investments

Overseas listed shares SHS KOA Corp. 3,154,281

$ 4,347,325

11. HELD-TO-MATURITY FINANCIAL ASSETS

December 31,

2017 Non-current Foreign investments

Corporate bonds $ 7,133,802 The Group’s investments in bonds were as follows:

December 31,

2017 Total par value (in thousand U.S. dollars) $ 230,100 Coupon rates 2.95%-5.50% Effective interest rates 2.29%-4.58% Average time to maturity (in years) 2024

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12. DEBT INVESTMENTS WITH NO ACTIVE MARKET

December 31,

2017 Current Time deposits with original maturities of more than 3 months $ 11,575,280 The market interest rates of the time deposits with original maturities more than 3 months were 1.95%-5.05% per annum at December 31, 2017.

13. NOTES RECEIVABLE AND TRADE RECEIVABLES

December 31 2018 2017 Notes receivable At amortized cost

Gross carrying amount $ 553,176 $ 1,196,757 Notes receivable - operating $ 553,176 $ 1,196,757 Trade receivables At amortized cost

Gross carrying amount $ 20,767,427 $ 10,237,622 Less: Allowance for impairment loss (1,614,602) (50,142) $ 19,152,825 $ 10,187,480 Trade receivables - related party (Note 34) $ 99,126 $ 358,957 Trade Receivables For the year ended December 31, 2018 The average credit period of sales of goods was 30-90 days. No interest was charged on trade receivables. The Group adopted a policy of dealing with major customers that the Group could use other publicly available financial information or its own trading records to rate and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. In order to minimize credit risk, the management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced.

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The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss. The aging of receivables was as follows:

December 31,

2018 Current term $ 15,054,779 Past due

1-60 days 4,479,367 61-90 days 476,379 91-181 days 750,791 More than 181 days 105,237 $ 20,866,553

The above aging schedule was based on the past due days from end of credit term. The movements of the loss allowance of trade receivables were as follows:

For the Year Ended

December 31, 2018

Balance at January 1, 2018 (IAS 39 and IFRS 9) $ 50,142 Acquisitions through business combinations 30,988 Add: Net remeasurement of loss allowance 1,504,052 Less: Amounts written off (468) Foreign exchange gains and losses 29,888 Balance at December 31, 2018 $ 1,614,602

For the year ended December 31, 2017 The Group applied the same credit policy in 2018 and 2017. The average credit period of sales of goods was 30-90 days. In determining the recoverability of a trade receivable, the Group considered any change in the credit quality of the Trade receivable since the date credit was initially granted to the end of the reporting period. The Group recognized an allowance for impairment loss of 100% against all receivables over 365 days because historical experience was that receivables that are past due beyond 365 days are not recoverable. Allowance for impairment loss was recognized against trade receivables between 61 days and 365 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial positions.

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For the trade receivables balances that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss, because there was no significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements for these balances. The aging of receivables was as follows:

December 31,


1-60 days 694,297 61-90 days 5,997 91-181 days 8,329 More than 181 days 42,551

$ 10,596,579 The above aging schedule was based on the past due days from end of credit term. The aging of receivables that were past due but not impaired was as follows:

December 31,

2017 Less than 60 days $ 694,297 The above aging schedule was based on the past due days from end of credit term. The movements of the allowance for doubtful trade receivables were as follows:

Individually Assessed for Impairment

Collectively Assessed for Impairment Total

Balance at January 1, 2017 $ - $ 52,059 $ 52,059 Add: Impairment loss recognized (reversal of

impairment loss) on receivables 24,287 (371) 23,916 Less: Amounts written off during the year as

uncollectable - (23,432) (23,432) Foreign exchange translation gains and losses - (2,401) (2,401) Balance at December 31, 2017 $ 24,287 $ 25,855 $ 50,142

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14. INVENTORIES December 31 2018 2017 Finished goods and merchandise $ 4,016,387 $ 2,251,635 Work in progress 1,954,122 700,312 Raw materials 4,205,334 1,743,034 Supplies 285,790 137,114 Inventory in transit 11,444 39,906 $ 10,473,077 $ 4,872,001 The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 was $28,310,343 thousand and $21,760,490 thousand, respectively. The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 included inventory write-downs of $77,515 thousand and $47,477 thousand, respectively.

15. SUBSIDIARIES

Entities included in the consolidated financial statements:

Proportion of

Ownership (%) December 31

Investor Investee Nature of Activities 2018 2017 Remark Yageo Corporation Yageo Holding (Bermuda) Ltd. Investment 100.00 100.00 Ko-Shin Investment Ltd. Investment 100.00 100.00 Ferroxcube (Samoa) Holding Ltd. Investment 100.00 100.00 Brightking Holdings Limited Holding company 100.00 - c. Yageo Corporation (South Asia) Pte. Ltd. Electronic component selling 100.00 100.00 Yageo Europe Holding B.V. Holding company 100.00 100.00 Yageo America Corporation Electronic component selling 100.00 100.00 Yageo South Asia (M) Sdn. Bhd. Electronic component selling 100.00 100.00 Yageo Holding (Cayman) Limited Holding company 100.00 - b. Pulse Electronics Corporation Holding company 100.00 - d. Yageo Holding Yageo (Hong Kong) Limited Investment 100.00 100.00 (Bermuda) Ltd. Yageo USA (H.K.) Limited Passive component selling 100.00 100.00 Ko-E Holding (Cayman) Holding company 83.83 83.83 Vitrohm Holding GmbH Investment 100.00 100.00 Yageo Korea Resistor selling 100.00 100.00 Yageo Japan Resistor selling 100.00 100.00 Hsu Tai International (H.K.) Ltd. Investment 100.00 100.00 Brightking Holdings

Limited Brightking Enterprise (H.K.) Co., Ltd. Manufacturing and selling

overvoltage and overcurrent protection electronic components

100.00 - c.

Pulse Electronics Corporation

Egston Holding GmbH Investment 100.00 - d.

Yageo (Hong Kong) Limited

Yageo Electronics (China) Co., Ltd. Passive component manufacturing and selling

100.00 100.00

Yageo Electronics (Dongguan) Co., Ltd. Passive component manufacturing and selling

100.00 100.00

Yageo (Suzhou) Trade Co., Ltd. Passive component selling 100.00 100.00 Yageo Components (Suzhou) Co., Ltd. Passive component manufacturing

and selling 100.00 100.00

Compostar Technology (Dongguan) Co., Ltd.

Passive component manufacturing and selling

100.00 100.00


Ko-E (H.K.) Limited Electronic component selling 100.00 100.00

Ko-E Corp. Electronic component selling 100.00 100.00 (Continued)

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Proportion of

Ownership (%) December 31

Investor Investee Nature of Activities 2018 2017 Remark Brightking Enterprise

(H.K.) Co., Ltd. Bestbright Electronics Co., Ltd. Manufacturing and selling

overvoltage and overcurrent protection electronic components

100.00 - c.

Brightking Electronics Inc. Selling overvoltage and overcurrent protection electronic components

100.00 - c.

Brightking Electronics Co., Ltd. Manufacturing and selling overvoltage and overcurrent protection electronic components

100.00 - c.

Bestbright Electronics Co., Ltd. (Taiwan) Manufacturing and selling overvoltage and overcurrent protection electronic components

100.00 - c.

Huizhou Lien Shun Electronics Co., Ltd. Manufacturing and selling overvoltage protection electronic components

23.87 - c.

Ko-E (H.K.) Limited Ko-E Technology (Shenzhen) Co., Ltd. Electronic component selling 100.00 100.00 Bestbright

Electronics Co., Ltd.

Brightking (Shenzhen) Co., Ltd. Selling overvoltage and overcurrent protection electronic components

100.00 - c.

Ceramate Technical (Suzhou) Co., Ltd. Manufacturing and selling overvoltage protection electronic components

100.00 - c.

Zhejiang Bestbright Electronics Co., Ltd. Manufacturing and selling overvoltage protection electronic components

100.00 - c.

Brightking (Shenzhen) Co., Ltd.

Brightking (Shanghai) Co., Ltd. Selling overvoltage and overcurrent protection electronic components

100.00 - c.

Brightking (Beijing) Co., Ltd. Selling overvoltage and overcurrent protection electronic components

100.00 - c.

Huizhou Lien Shun Electronics Co., Ltd. Manufacturing and selling overvoltage protection electronic components

71.63 - c.

(Concluded) Remarks: a. On August 1, 2017, the Company sold 100% of its interest of Ferroxcube International Holding B.V.

(“Ferroxcube”) in a cash settlement amounting to €133,188 thousand. b. Established in May 2018. c. The Company acquired 100% of interests of Brightking Holdings Limited in a cash settlement

amounting to NT$3,328,253 thousand in 2018. d. The Company acquired 100% of interests of Pulse Electronics Corporation in a cash settlement

amounting to US$721,461 thousand in 2018.

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16. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in Associates December 31 2018 2017 Material associates

Chilisin Electronics Corp. $ 5,158,426 $ 2,585,773 Teapo Electronics Corporation 615,983 363,523 Global Testing Corporation Limited (GTCL) 276,882 353,500 6,051,291 3,302,796

Associates that are not individually material Strong Components Co., Ltd. 88,161 86,172 Belkin International Enterprises Ltd. (Samoa) 35,061 59,170 Guo Chuang Electronics (Dongguan) Co., Ltd. 31,429 31,986

154,651 177,328 $ 6,205,942 $ 3,480,124 Material Associates

Proportion of Ownership and

Voting Rights December 31

Name of Subsidiary 2018 2017 Chilisin Electronics Corp. 12.47% 18.65% Teapo Electronic Corp. 14.86% 14.86% GTCL 28.61% 28.48% Refer to Table 7 “Information on Investees” and Table 8 “Information on Investments in Mainland China” for the nature of activities, principal places of business and countries of incorporation of the associates. Fair values (Level 1) of investments in associates with available published price quotations are summarized as follows: December 31 Name of Associate 2018 2017 Chilisin Electronics Corp. $ 2,379,300 $ 4,197,277 Teapo Electronic Corp. 545,328 595,645 GTCL 135,845 224,322 $ 3,060,473 $ 5,017,244 Investments in Chilisin Electronics Corp. and Teapo Electronics were accounted for by the equity method since the Group had significant influence over it or the Group’s proportion of ownership was over 20%. The financial statements of some investment in associates - Strong Components Co., Ltd., Belkin International Enterprises Ltd. (Samoa), and Guo Chuang Electronics (Dongguan) Co., Ltd. as of and for the years ended December 31, 2018 and 2017 had been audited by other auditors.

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17. PROPERTY, PLANT AND EQUIPMENT

Freehold Land Buildings Machinery Equipment

Other Equipment

Construction in Progress and Unaccepted equipment Total

Cost Balance at January 1, 2017 $ 710,132 $ 11,714,623 $ 25,034,746 $ 1,896,709 $ 481,628 $ 39,837,838 Additions - 898 4,293 7,468 5,975,093 5,987,752 Disposals - (44,193 ) (865,045 ) (84,244 ) (104 ) (993,586 ) Effect of foreign currency

exchange differences 3,935 (39,287 ) (130,299 ) 7,154 15,875 (142,622 ) Reclassifications - 428,347 3,269,391 144,633 (3,874,523 ) (32,152 ) Balance at December 31, 2017 $ 714,067 $ 12,060,388 $ 27,313,086 $ 1,971,720 $ 2,597,969 $ 44,657,230 Accumulated depreciation and impairment Balance at January 1, 2017 $ 202,067 $ 5,450,524 $ 20,356,831 $ 1,670,799 $ - $ 27,680,221 Disposals - (43,055 ) (844,082 ) (82,581 ) - (969,718 ) Depreciation expense - 473,757 1,224,961 83,613 - 1,782,331 Effect of foreign currency

exchange differences 1,741 (1,046 ) (61,335 ) (49,841 ) - (110,481 ) Balance at December 31, 2017 $ 203,808 $ 5,880,180 $ 20,676,375 $ 1,621,990 $ - $ 28,382,353 Carrying amounts at

December 31, 2017 $ 510,259 $ 6,180,208 $ 6,636,711 $ 349,730 $ 2,597,969 $ 16,274,877 Cost Balance at January 1, 2018 $ 714,067 $ 12,060,388 $ 27,313,086 $ 1,971,720 $ 2,597,969 $ 44,657,230 Additions - 664 69,556 29,602 8,798,103 8,897,925 Disposals - (182,179 ) (944,410 ) (58,365 ) - (1,184,954 ) Effect of foreign currency

exchange differences (1,081 ) (188,276 ) (374,376 ) (50,773 ) (40,215 ) (654,721 ) Reclassifications - 1,437,710 7,165,433 257,274 (8,904,220 ) (43,803 ) Acquisitions through business

combinations (Note 29) 17,962 409,195 3,696,182 849,664 212,378 5,185,381 Balance at December 31, 2018 $ 730,948 $ 13,537,502 $ 36,925,471 $ 2,999,122 $ 2,664,015 $ 56,857,058 Accumulated depreciation and impairment Balance at January 1, 2018 $ 203,808 $ 5,880,180 $ 20,676,375 $ 1,621,990 $ - $ 28,382,353 Disposals - (180,063 ) (843,965 ) (46,141 ) - (1,070,169 ) Depreciation expense - 533,774 6,846,137 120,306 - 7,500,217 Effect of foreign currency

exchange differences - (70,756 ) (273,092 ) (43,522 ) - (387,370 ) Acquisitions through business

combinations (Note 29) - 222,322 2,528,571 568,745 - 3,319,638 Balance at December 31, 2018 $ 203,808 $ 6,385,457 $ 28,934,026 $ 2,221,378 $ - $ 37,744,669 Carrying amounts at

December 31, 2018 $ 527,140 $ 7,152,045 $ 7,991,445 $ 777,744 $ 2,664,015 $ 19,112,389 The above items of property, plant and equipment were depreciated on a straight-line basis over the estimated useful live as follow: Building

Main buildings 50-56 years Engineering system 40-56 years Others 1-20 years

Machinery equipment 1-20 years Other equipment 1-20 years Property, plant and equipment pledged as collateral for bank borrowings were set out in Note 35.

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18. GOODWILL

For the Year Ended December 31 2018 2017 Cost Balance at January 1 $ 2,074,005 $ 1,989,296 Acquisitions through business combinations (Note 29) 17,826,168 - Effect of foreign currency exchange differences 565,853 84,709 Balance at December 31 $ 20,466,026 $ 2,074,005 The recoverable amount of the cash-generating unit was determined based on a value in use calculation. The Group’s management estimated the recoverable amounts of core assets at their expected useful lives and thus based the cash flow forecast with the following discount rates as of December 31, 2018 and 2017: 14.82% and 8.15%, respectively. The operating revenue forecast was based on the expected future growth rate of the passive product industry along with the projected advancement of the Group’s own business. The Group’s management believed that any reasonable changes in the principal assumptions would not result in the carrying values exceeding the recoverable amounts. As of December 31, 2018 and 2017, there was no indication of impairment loss based on the principal assumptions.

19. OTHER INTANGIBLE ASSETS

Computer Software Expertise

Client Relations Trade Mark Total

Cost Balance at January 1, 2017 $ 192,221 $ - $ - $ - $ 192,221 Additions 12,250 - - - 12,250 Disposals (13,871) - - - (13,871) Reclassifications 38,171 - - - 38,171 Effect of foreign currency

exchange differences (435) - - -

(435) Balance at December 31, 2017 $ 228,336 $ - $ - $ - $ 228,336 Accumulated amortization and impairment

Balance at January 1, 2017 $ 100,856 $ - $ - $ - $ 100,856 Amortization expenses 55,701 - - - 55,701 Disposals (13,871) - - - (13,871) Effect of foreign currency


(432) Balance at December 31, 2017 $ 142,254 $ - $ - $ - $ 142,254 Carrying amounts at

December 31, 2017 $ 86,082 $ - $ - $ -

$ 86,082 (Continued)

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Computer Software Expertise

Client Relations Trade Mark Total

Cost Balance at January 1, 2018 $ 228,336 $ - $ - $ - $ 228,336 Additions 10,012 - - - 10,012 Reclassifications 32,146 - - - 32,146 Acquisitions through business

combinations (Note 29) 25,397 267,000 337,000 3,357,150

3,986,547 Effect of foreign currency


(23) Balance at December 31, 2018 $ 295,868 $ 267,000 $ 337,000 $ 3,357,150 $ 4,257,018 Accumulated amortization and impairment

Balance at January 1, 2018 $ 142,254 $ - $ - $ - $ 142,254 Amortization expenses 47,331 11,609 17,737 - 76,677 Acquisitions through business

combinations (Note 29) 5,419 - - -

5,419 Effect of foreign currency

exchange differences 574 - - -

574 Balance at December 31, 2018 $ 195,578 $ 11,609 $ 17,737 $ - $ 224,924 Carrying amounts at

December 31, 2018 $ 100,290 $ 255,391 $ 319,263 $ 3,357,150

$ 4,032,094 (Concluded)

The trademark acquired through business combinations for the year was NT$3,357,150 thousand. Various studies including industrial characteristics, product life cycle studies and enterprise characteristics have been performed by management of the Group, which supported their opinion that there is no foreseeable limit to the period over which the trademarked products are expected to generate net cash flows. Therefore, the trademark is considered to have an indefinite useful life. The trademark will not be amortized until its useful life is determined to be finite. Instead it will be tested for impairment annually and whenever there is an indication that it may be impaired.

20. PREPAYMENTS FOR LEASES

December 31 2018 2017 Current asset (included in prepayment) $ 2,376 $ 2,433 Non-current asset 110,730 73,061 $ 113,106 $ 75,494 As of December 31, 2018 and 2017, lease prepayments included rights to use the land in Mainland China with carrying amounts of $113,106 thousand and $75,494 thousand, respectively.

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21. BORROWINGS a. Short-term borrowings

December 31 2018 2017 Unsecured borrowings Line of credit borrowings $ 23,667,981 $ 17,624,878 The effective interest rates for bank loans had ranges of 0.70%-4.20% and 0.84%-4.20% per annum as of December 31, 2018 and 2017, respectively.

b. Short-term bills payable For the Year Ended December 31 2018 2017 Commercial paper $ 500,000 $ 1,100,000 Less: Unamortized discount on bills payable 513 228 $ 499,487 $ 1,099,772 Outstanding short-term bills payable as follows: December 31, 2018

Promissory Institutions

Nominal Amount

Discount Amount

Carrying Value Interest Rate Collateral

Carrying Value of

Collateral Commercial paper Mega Bills $ 500,000 $ 513 $ 499,487 0.968% - $ -

December 31, 2017


Nominal Amount

Discount Amount


Carrying Value of

Collateral Commercial paper International Bills $ 500,000 $ 164 $ 499,836 0.918% - $ - China Bills 600,000 64 599,936 0.918% - - $ 1,100,000 $ 228 $ 1,099,772 $ -

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c. Long-term borrowings

December 31 2018 2017 Secured borrowings Bank loans $ 7,500,000 $ 5,500,000 Unsecured borrowings Line of credit borrowings $ 1,500,000 $ - $ 9,000,000 $ 5,500,000 The effective interest rate of long-term bank loans was 0.9800%-1.7970% and 1.7970% per annum as of December 31, 2018 and 2017, respectively. The Company signed a $1,500,000 thousand medium agreement with MUFG Bank, Ltd. on March 23, 2018. The terms of the loans are summarized as follows:

Credit Lines Credit Period Interest Rate Repayment Agreement $ 1,500,000 Three years after the

date of first borrowing

Fixed rate 0.98% for the first year, and 0.99% for the second and third year

Three years after the date of first borrowing

The Company signed a $10,800,000 thousand syndicated loan agreement with Mega International Commercial Bank and twenty one other financial institutions on April 10, 2017. The terms of the loans are summarized as follows:

Credit Lines Credit Period Interest Rate Repayment Agreement $ 10,800,000 Five years after the

date of contract Fixed rate (0.6%) based on a

specific average rate of notes transacted in Taiwan

Four quarterly installments from the 42nd month after the contract signing date

Under the loan agreement, the Company should collateralize the freehold land, the office buildings and machinery equipment of the factory located in the administrative office in Xindian in New Taipei City and in the Nan-Zi Branch and in the Da-fa industrial estate and a capacitor-line factory in a village in Dashe in Kaohsiung City. The Company will have to maintain its interim and annual current ratios, debt ratios and interest coverage ratios at percentages specified in the agreement.

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22. OTHER LIABILITIES December 31 2018 2017 Current Other payables

Payables for compensation of employees and remuneration of directors and supervisors $ 2,527,914 $ 562,005

Payables for salaries or bonuses 1,372,575 1,313,637 Payables for purchases of equipment 1,140,176 1,317,161 Payables for annual leave 43,251 39,775 Payables for dividends 7,686 - Others 5,973,639 1,641,802

11,065,241 4,874,380 Other payables - related party (Note 34) 2 2 $ 11,065,243 $ 4,874,382

23. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company, Brightking Electronics Co., Ltd., Bestbright Electronics Co., Ltd. (Taiwan) and Ko-E Corp. of the Group adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. The subsidiaries-Yageo Dongguan, Yageo China, Yageo Components (Suzhou) Co., Ltd., Yageo Trade (Suzhou) Co., Ltd., Yageo USA (H.K.) Limited, Yageo Europe, Vitrohm Portuguesa, Yageo Japan, Yageo America Corporation, Yageo Corporation (South Asia) Pte. Ltd., Yageo South Asia (M) Sdn. Bhd., Ko-E H.K., Ko-E Technology (Shenzhen), Bestbright Electronics Co., Ltd., Brightking Electronics Inc., Huizhou Lien Shun Electronics Co., Ltd., Brightking (Shenzhen) Co., Ltd., Ceramate Technical (Suzhou) Co., Ltd., Zhejiang Bestbright Electronics Co., Ltd., Brightking (Shanghai) Co., Ltd., Brightking (Beijing) Co., Ltd., Pulse Electronics (Dongguan) CO., Ltd., Mian Yang Pulse Electronics Co., Ltd., Suining Pulse Electronics Co., Ltd., Pulse (Suzhou) Wireless Products Co., Ltd., Pulse Electronics (ShenZhen) CO., Ltd., Shengsheng Technology (Suzhou) Co., Ltd. and Egston Electronics Zhuhai Ltd. have defined contribution plans and make contributions based on a fixed rate of salaries and wages according to the local laws. The subsidiaries-Yageo Holding (Bermuda), Kuo Shin Investment, Ferroxcube Holding (Samoa), Hsu Tai (H.K.), Ko-E Holding (Cayman), Yageo Hong Kong, Yageo Holding (Cayman) Limited and Brightking Holdings Limited do not have pension plans since there is no employee.

b. Defined benefit plans The defined benefit plans adopted by the Company in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company and its subsidiaries contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by a pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The

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pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right to influence the investment policy and strategy. All the employees of Vitrohm Holding GmbH, Yageo Korea, Pulse Electronics Corporation and Egston Holding GmbH (AT) have defined benefit plans. As of December 31, 2018 and 2017, the pension liabilities amounted to $357,934 thousand and $139,336 thousand, respectively, included in accrued pension liabilities. The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows: December 31 2018 2017 Present value of defined benefit obligation $ 346,860 $ 379,066 Fair value of plan assets (233,376) (171,924) Net defined benefit liability $ 113,484 $ 207,142 Movements in the net defined benefit liability (asset) were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of the Plan Assets

Net Defined Benefit

Liability (Asset) Balance at January 1, 2017 $ 332,759 $ (176,395) $ 156,364 Service cost

Current service cost 3,215 - 3,215 Net interest expense (income) 4,575 (2,483) 2,092 Recognized in profit or loss 7,790 (2,483) 5,307 Remeasurement

Actuarial loss - changes in demographic assumptions 829 - 829

Actuarial loss - changes in financial assumptions 4,146 - 4,146

Actuarial gain - experience adjustments 48,309 784 49,093 Recognized in other comprehensive income 53,284 784 54,068 Contributions from the employer - (8,597) (8,597) Benefits paid (14,767) 14,767 - Balance at December 31, 2017 379,066 (171,924) 207,142 Service cost




Actuarial gain - experience adjustments (29,780) (4,746) (34,526) Recognized in other comprehensive income (25,332) (4,746) (30,078) Contributions from the employer - (69,213) (69,213) Benefits paid (15,052) 15,052 - Balance at December 31, 2018 $ 346,860 $ (233,376) $ 113,484

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An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows: For the Year Ended December 31 2018 2017 Operating costs $ 4,429 $ 4,056 Selling and marketing expenses 280 275 General and administrative expenses 627 711 Research and development expenses 297 265 $ 5,633 $ 5,307 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 and foreign equity and debt securities,

bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the corporate bond interest rate will increase the present value of the

defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the

future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows: December 31 2018 2017 Discount rates 1.125% 1.250% Expected rates of salary increase 1.500% 1.500% 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 2018 2017 Discount rates

0.25% increase $ (7,541) $ (8,430) 0.25% decrease $ 7,804 $ 8,728

Expected rates of salary increase 0.25% increase $ 7,542 $ 8,441 0.25% decrease $ (7,325) $ (8,194)

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The sensitivity analysis presented above may not be representative of the actual changes in the present value of the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated. December 31 2018 2017 Expected contributions to the plans for the next year $ 8,750 $ 8,597 Average duration of the defined benefit obligation 12 years 12 years

24. EQUITY

a. Share capital

1) Common shares

December 31 2018 2017 Number of shares authorized (in thousands) 4,000,000 4,000,000 Shares authorized $ 40,000,000 $ 40,000,000 Number of shares issued and fully paid (in thousands) 427,039 350,401 Shares issued $ 4,270,394 $ 3,504,010 Fully paid common shares, which have a par value of NT$10, carry one vote per share and carry a right to dividends. The movements of the common shares were due to issue share dividends and the exercise of employee share options.

2) Global depositary receipts

The Company’s global depositary receipts (GDRs) as of December 31, 2018 were as follows: Equivalent GDRs Common Stock (In Thousand (In Thousand Units) Shares) Initial offering 5,000 25,000 Converted from overseas convertible bonds 34,981 174,903 Net increase due to capital increase or capital reduction 68,873 344,363 Reissued within authorized units 66,911 334,557 GDRs transferred to common shares (175,753) (878,761) Outstanding GDRs issued 12 62 The owners of GDRs have the same rights as holders of common shares, except that the GDR owners should exercise, through a depositary trust company, the following beneficial interests subject to the terms of the depositary agreements and the relevant Taiwan laws and regulations: a) Exercise voting rights; b) Convert the GDRs into common shares; and c) Receive dividends and exercise preemptive rights or other rights and interests.

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3) Capital reduction For purpose of enhancing the return on equity, profitability per share and proper use of the capital, the capital reduction through a cash return to shareholders, which was proposed by the Company’s board on April 21, 2017, was approved at the shareholders’ meeting on June 7, 2017. Total capital reduction amounted to $1,509,669 thousand, which represented the cancellation of 150,967 thousand shares (30% of common shares). This capital reduction became effective upon the approval by the Securities and Futures Bureau under the FSC on June 30, 2017 as well as the Company’s board approved the day as the effective date of cash return date. The Company had registered this capital reduction with MOEA.

b. Capital surplus

December 31 2018 2017 May be used to offset a deficit, distributed as cash dividends or transferred to share capital (1) Issuance of ordinary shares $ 2,018,115 $ 2,244,701 May be used to offset a deficit only Transferring from employee share options to issuance of

common shares due to exercise 700,409 408,077 May not be used for any purpose Share of changes in capital surplus of associates or subsidiaries

(2) 2,804,929 415,813 Employee share options 20,146 32,847 $ 5,543,599 $ 3,101,438 1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit,

such capital surplus may be distributed as cash dividends or may be transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).

2) Such capital surplus arises from the effect of changes in ownership interest in a subsidiaries resulted

from equity transactions other than actual disposal or acquisition, or from changes in capital surplus of subsidiaries accounted for by using equity method.

c. Retained earnings and dividend policy

Under the Company’s Articles of Incorporation, when the Company has earnings for the year, remuneration of directors at 3% or less and employees’ bonus of at least 2% of the remaining earnings should be appropriated. If the Company has accumulated deficit, the Company should retain earnings to offset deficit in advance. When the Company has earnings for the year, the Company should first make tax payments, offset any past years’ deficit, then distribute the remaining profit in the following order: 1) Legal reserve is appropriated at 10% of the remaining profit. There's no restrict if the legal reserve

equals the Company’s paid-in capital. 2) Special reserve is appropriated or reversed in accordance with the laws and regulations.

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3) Appropriations for dividends and bonuses, of at least 10% of the remaining profit after appropriations for legal reserve and special reserve, may be proposed by the Company’s board of directors and approved at the shareholders’ meeting.

The Company’s dividend policy takes into account the Company’s current and future competitiveness in the domestic and foreign markets, the investment environment and cash requirements. The policy authorizes the Company’s board to propose an earnings distribution in the form of shares or in cash appropriately in accordance with the laws and regulations, with the board’s proposal subject to approval at the shareholders’ meeting. For the policies on distribution of the compensation of employees and remuneration of directors and supervisors before and after amendment, refer to e. employee benefits expense in Note 25. Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. Items referred to under Order No. 1010012865, Order No. 1010047490 and Order No. 1030006415 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from a special reserve by the Company. Except for non-Taiwan resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company. The appropriations of earnings, bonuses to employees and remuneration to directors and supervisors for 2017 and 2016 approved in the shareholders’ meetings on June 5, 2018 and June 7, 2017, respectively, were as follows:

Appropriation of Earnings Dividends Per Share

(NT$)

For the Year Ended

December 31 For the Year Ended

December 31 2017 2016 2017 2016 Legal reserve $ 684,730 $ 395,412 $ - $ - Special reserve (1,286,097) 1,286,097 - - Cash dividends 5,036,144 1,283,219 14.36 2.55 Share dividends 701,413 - 2.00 - The Company’s shareholders on June 5, 2018, resolved to issue cash dividends at NT$0.64 per share from capital surplus of $226,586 thousand. The 2017 dividends paid aggregated to NT$17 per share, consisting cash dividends of NT$0.64 and NT$14.36 and share dividends of NT$2. The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 14, 2019. The appropriations and dividends per share were as follows:

Appropriation

of Earnings Dividends Per Share (NT$)

Legal reserve $ 3,383,929 $ - Special reserve 1,210,063 - Cash dividends 18,790,142 44.30 The appropriations of earnings for 2018 are subject to the resolution of the shareholders’ meeting to be held on June 5, 2019.

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d. Special reserves

For the Year Ended December 31 2018 2017 Beginning at January 1 $ 1,723,692 $ 437,595 Debit to other equity items - 1,286,097 Reversal of the debits to other equity items (1,286,097) - Balance at December 31 $ 437,595 $ 1,723,692

e. Other equity items

1) Exchange differences on translating the financial statements of the foreign operations

For the Year Ended December 31 2018 2017 Balance at January 1 $ (1,664,627) $ (1,097,198) Effect of change in tax rate 60,167 - Exchange differences on translating the financial statements

of foreign operations (208,455) (312,885) Share of exchange difference of associates accounted for

using the equity method (7,712) (59,314) Business combinations under common control with successor - (195,230) Balance at December 31 $ (1,820,627) $ (1,664,627)

Amount Before

Tax Related Income

Tax Amount After

Tax Balance at January 1, 2017 $ (1,321,926) $ 224,728 $ (1,097,198) Other comprehensive income recognized

for the year

(683,649) 116,220 (567,429) Balance at December 31, 2017 $ (2,005,575) $ 340,948 $ (1,664,627) Balance at January 1, 2018 $ (2,005,575) $ 340,948 $ (1,664,627) Effect of change in tax rate - 60,167 60,167 Other comprehensive income recognized

for the year

(270,209) 54,042 (216,167) Balance at December 31, 2018 $ (2,275,784) $ 455,157 $ (1,820,627)

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2) Unrealized gain (loss) on available-for-sale financial assets

For the Year Ended

December 31, 2017

Balance at January 1, 2017 $ (188,899) Unrealized gain on revaluation of available-for-sale financial

assets 2,101,738 Share from associates accounted for using the equity method (916 ) Balance at December 31, 2017 1,911,923 Adjustment on initial application of IFRS 9 (5,440 ) Balance at January 1, 2018 per IFRS 9 $ 1,906,483

3) Unrealized gain/(loss) on financial assets at FVTOCI

For the Year Ended

December 31, 2018

Balance at January 1 per IFRS 9 $ 1,911,923 Adjustment on initial application of IFRS 9 (5,440) Balance at January 1, 2018 per IFRS 9 1,906,483 Recognized for the year

Unrealized gain - equity instruments (598,587) Share from associates accounted for using the equity

method 1,440 Cumulative unrealized gain of equity instruments transferred

to retained earnings due to disposal (698,773) Balance at December 31 $ 610,563

f. Business combinations under common control with successor

Exchange differences on translating the financial statements of the foreign operations:

For the Year Ended

December 31, 2017

Balance at January 1 $ (62,463) Exchange differences on translating the financial statements of

foreign operations (297,680) Business combinations under common control with successor 235,217 Balance at December 31 $ -

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g. Non-controlling interests For the Year Ended December 31 2018 2017 Balance at January 1 $ 108,360 $ 113,593 Attributable to non-controlling interests:

Share of profit for the year 859 25,188 Exchange difference on translating the financial statements of

foreign entities (5,562) (7,817) Non-controlling interests arising from acquisition of

Brightking Holdings Limited 543,571 - Acquisition of non-controlling interests in Brightking

Holdings Limited (543,571) - Cash dividends distributed by subsidiaries - (22,604)

Balance at December 31 $ 103,657 $ 108,360

h. Treasury shares

Purpose of Buyback

Shares Canceled

(In Thousands of Shares)

Number of shares on January 1, 2017 - Increase during the year 21,741 Decrease during the year (21,741) Number of shares on December 31, 2017 -

Purpose of Buyback

Transfer to Employee


Number of shares on January 1, 2018 - Increase during the year 2,965 Number of shares on December 31, 2018 2,965 To maintain the Company’s credibility and shareholders’ rights and interests, the Company’s board resolved on December 23, 2016, to buy back up to 30,000 thousand common shares with the buyback price ranging from NT$40.00 to NT$87.80 between December 26, 2016 and February 24, 2017 on the Taiwan Stock Exchange. As of February 24, 2017, the last day of the buyback period, the Company had bought back 18,349 thousand shares at a total amount of $1,294,350 thousand. The Company had canceled the buyback shares and registered the change with the MOEA. To maintain the Company’s credibility and shareholders’ rights and interests, the Company’s board resolved on March 3, 2017, to buy back up to 30,000 thousand common shares with the buyback price ranging from NT$52.20 to NT$109.30 between March 6 and May 5, 2017 on the Taiwan Stock Exchange. As of May 5, 2017, the last day of the buyback period, the Company had bought back 3,392 thousand shares at a total amount of $323,187 thousand. The Company had canceled the buyback shares and registered the change with the MOEA.

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To maintain the Company’s credibility, shareholders’ rights and interests and enhance employee coherence, the Company’s board resolved on July 17, 2018, to buy back up to 4,500 thousand common shares with the buyback price ranging from NT$632.80 to NT$1,616.80 between July 19 and September 17, 2018 on the Taiwan Stock Exchange. As of September 17, 2018, the last day of the buyback period, the Company had bought back 2,965 thousand shares at a total amount of $2,421,552 thousand. The Company had canceled the buyback shares and registered the change with the MOEA. Under the Securities and Exchange Act, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.

25. NET PROFIT FOR THE YEAR a. Other gains and losses

For the Year Ended December 31 2018 2017 Loss on disposal of property, plant and equipment $ (22,279) $ (7,017) Net foreign exchange gains (losses) 1,363,987 (524,163) Dividend income 148,998 79,907 Gain on disposal of available-for-sale financial assets - 202,028 Other gains 98,592 238,401 Other losses (137,935) (31,208) $ 1,451,363 $ (42,052)

b. Finance costs

For the Year Ended December 31 2018 2017 Interest on bank loans $ 535,609 $ 289,154 Interest on short-term bills 6,732 5,274 Other finance costs 4,679 5,066 $ 547,020 $ 299,494

c. Depreciation and amortization

For the Year Ended December 31 2018 2017 Property, plant and equipment $ 7,500,217 $ 1,782,331 Prepayments 9,189 7,197 Intangible assets (included in operating expenses) 76,677 55,701 $ 7,586,083 $ 1,845,229 An analysis of depreciation by function

Operating costs $ 7,337,191 $ 1,648,192 Operating expenses 163,026 134,139

$ 7,500,217 $ 1,782,331

(Continued)

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For the Year Ended December 31 2018 2017 An analysis of amortization by function

Operating costs $ 1,536 $ 776 Selling and marketing expenses 2,480 1,676 General and administrative expenses 74,222 53,849 Research and development expenses 1,849 2,104 Other expenses 5,779 4,493

$ 85,866 $ 62,898

(Concluded)

d. Employee benefit expense For the Year Ended December 31 2018 2017 Post-employment benefits (Note 23)

Defined contribution plans $ 267,302 $ 217,658 Defined benefit plans 10,662 9,781

277,964 227,439 Other employee benefits 8,363,283 5,083,209 Total employee benefit expense $ 8,641,247 $ 5,310,648 An analysis of employee benefit expense by function

Operating costs $ 4,773,687 $ 3,740,562 Operating expenses 3,867,560 1,570,086

$ 8,641,247 $ 5,310,648

e. Employees’ compensation and remuneration of directors and supervisors

The Company accrued employees’ compensation and remuneration of directors and supervisors at rates of no less than 2% and no higher than 3%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors and supervisors for the years ended December 31, 2018 and 2017, which have been approved by the Company’s board of directors on March 14, 2019 and February 22, 2018, respectively, were as follows: Accrual rate For the Year Ended December 31 2018 2017 Employees’ compensation 3% 3% Remuneration of directors and supervisors 3% 3%

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Amount For the Year Ended December 31 2018 2017 Cash Shares Cash Shares Employees’ compensation $ 1,173,843 $ - $ 240,164 $ - Remuneration of directors and

supervisors 1,173,843 - 240,164 - If there is a change in the amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate. There was no difference between the actual amounts of compensation of employees and remuneration of directors and supervisors paid and the amounts recognized in the financial statements for the year ended December 31, 2017 and 2018. Information on the compensation of employees and remuneration to directors and supervisors and bonus to employees, directors and supervisors resolved by the shareholders' meeting in 2019 and 2018 are available on the Market Observation Post System website of the Taiwan Stock Exchange.

f. Gain or loss on foreign currency exchange

For the Year Ended December 31 2018 2017 Foreign exchange gains $ 3,765,966 $ 1,589,113 Foreign exchange losses (2,401,979) (2,113,276) $ 1,363,987 $ (524,163)

26. INCOME TAXES

a. Major components of tax expense recognized in profit or loss

For the Year Ended December 31 2018 2017 Current tax In respect of current year $ 6,857,850 $ 930,853 Income tax on unappropriated earnings 166,442 94,949 Adjustments for prior years (209,729) 77,067 6,814,563 1,102,869 Deferred tax In respect of current year (725,267) 38,339 Effect of tax rate changes (90,021) - Adjustments for prior years 55,934 - (759,354) 38,339 Income tax expense recognized in profit or loss $ 6,055,209 $ 1,141,208

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A reconciliation of accounting profit and income tax expenses were as follows: For the Year Ended December 31 2018 2017 Profit before tax $ 39,895,361 $ 7,822,222 Income tax expense calculated at the statutory rate $ 7,979,072 $ 1,329,778 Unrecognized deductible temporary differences (4,337,584) (580,470) Income tax on unappropriated earnings 166,442 94,949 Effect of tax rate changes (90,021) - Effect of different tax rates of group entities operating in other

jurisdictions 2,491,095 219,884 Adjustments for prior years’ tax (153,795) 77,067 Income tax expense recognized in profit or loss $ 6,055,209 $ 1,141,208 In 2017, the applicable corporate income tax rate used by the group entities in the ROC is 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%. The applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions. As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 additional tax at 5% of unappropriated earnings are not reliably determinable.

b. Income tax recognized in other comprehensive income

For the Year Ended December 31 2018 2017 Deferred tax Effect of change in tax rate $ (63,088) $ - In respect of the current year

Translation of foreign operations (54,042) (116,220) Actuarial (gain) loss on defined benefit plan 5,738 (9,396)

$ (111,392) $ (125,616)

c. Current tax liabilities

December 31 2018 2017 Current tax liabilities

Income tax payable $ 6,782,248 $ 1,209,130

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d. Deferred tax assets and liabilities The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2018

Opening Balance

Effect of change in tax

rate Recognized in Profit or Loss

Recognized in Other

Compreh- ensive

Income Exchange

Differences

Acquisitions

through Business

combinations

Closing Balance

Deferred tax assets Temporary differences

Impairment loss on goodwill $ 118,163 $ 20,852 $ (55,606 ) $ - $ -

$ -

$ 83,409

Impairment loss on property, plant and equipment 192,335 33,941 (6,228 ) - -

-

220,048 Inventory

write-downs 54,172 9,560 7,574 - - -

71,306

Accrued expenses 60,890 10,745 25,000 - - - 96,635 Defined benefit

obligation 55,691 5,413 (38,067 ) (5,738 ) - -

17,299

Exchange difference on foreign operation 340,947 60,167 - 54,042 -

-

455,156 Others 82,207 12,431 957,882 - - 200,488 1,253,008

904,405 153,109 890,555 48,304 - 200,488 2,196,861 Loss carryforwards 18,415 - (7,972 ) - - - 10,443 $ 922,820 $ 153,109 $ 882,583 $ 48,304 $ - $ 200,488 $ 2,207,304 Deferred tax liabilities Temporary differences

Others $ 376 $ - $ 213,250 $ - $ - $ 170,072 $ 383,698 For the year ended December 31, 2017

Opening Balance

Effect of change in tax

rate Recognized in Profit or Loss

Recognized in Other

Compreh- ensive

Income Exchange

Differences

Acquisitions

through business

combinations

Closing Balance


Impairment loss on goodwill $ 165,429 $ - $ (47,266 ) $ - $ -

$ -

$ 118,163

Impairment loss on property, plant and equipment 197,630 - (5,295 ) - -

-

192,335 Inventory

write-downs 50,436 - 3,736 - - -

54,172

Accrued expenses 83,413 - (22,523 ) - - - 60,890 Defined benefit

obligation 48,513 - (10 ) 9,396 (2,208 ) -

55,691

Exchange difference on foreign operation 224,727 - - 116,220 -

-

340,947 Others 45,505 - 26,484 - 10,218 - 82,207

815,653 - (44,874 ) 125,616 8,010 - 904,405 Loss carryforwards 18,076 - 1,734 - (1,395 ) - 18,415 $ 833,729 $ - $ (43,140 ) $ 125,616 $ 6,615 $ - $ 922,820 Deferred tax liabilities Temporary differences

Others $ 5,194 $ - $ (4,801 ) $ - $ (17) $ - $ 376

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e. Deductible temporary differences, unused loss carryforwards and unused investment credits for which

no deferred tax assets have been recognized in the consolidated balance sheets December 31 2018 2017 Loss carryforwards

Expire in 2019 $ 204,147 $ 208,138 Expire in 2020 11,839 11,839 Expire in 2027 - 530 $ 215,986 $ 220,507

f. Information about unused investment credits, unused loss carry-forward and tax-exemption

Loss carryforwards as of December 31, 2018 comprised of:

Unused Amount Expiry Year

Kuo-Shin Investment Ltd. $ 204,147 2019 11,839 2020 Vitrohm Holding GmbH 35,461 2020 $ 251,447

g. Income tax assessments

The Company’s income tax returns through 2015 had been assessed by the tax authorities.

27. EARNINGS PER SHARE

Unit: NT$ Per Share For the Year Ended December 31 2018 2017 Basic earnings per share $ 80.30 $ 13.05 Diluted earnings per share $ 78.09 $ 12.77 The basic and diluted earnings per share adjusted retrospectively for the year ended December 31, 2017 were as follows:

Unit: NT$ Per Share

Before Retrospective Adjustment

After Retrospective Adjustment

Basic earnings per share $ 15.64 $ 13.05 Diluted earnings per share $ 15.23 $ 12.77

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The earnings and weighted average number of common shares outstanding in the computation of earnings per share were as follows: Net Profit for the Year For the Year Ended December 31 2018 2017 Profit for the period attributable to owners of the Company $ 33,839,293 $ 6,847,300 Business combinations under common control with successor - (191,474) $ 33,839,293 $ 6,655,826 Weighted average number of common shares outstanding (in thousand shares): For the Year Ended December 31 2018 2017 Weighted average number of common shares in computation of basic

earnings per share 421,408 509,835 Effect of potentially dilutive common shares:

Employee share option 7,825 9,604 Bonus issue to employees 4,105 1,932

Weighted average number of common shares used in the

computation of diluted earnings per share 433,338 521,371 If the Company offered to settle compensation or bonuses paid to employees in cash or shares, the Company assumed the entire amount of the compensation or bonuses 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, as the effect is dilutive. Such dilutive effect of the potential shares was included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

28. SHARE-BASED PAYMENT ARRANGEMENTS a. Employee share option plan in 2007

On November 30, 2007, the Company’s board approved the issue of 100,000 thousand units of share options, which had been approved by the Securities and Futures Bureau under the FSC. The Company issued the entire 100,000 thousand units on December 20, 2007. Each option represents one share of the Company’s common share, and the exercise price per share is $10.25. The vesting period of these options is 10 years. Qualified employees may exercise up to 10%, 20%, 40% and 70% of the vested options after two years, three years, four years and five years, respectively, from the grant date. All options vested may be exercised after six years from the grant date. If the number of the Company’s common shares changes, the exercise price will be revised, as required under the Plan terms. As of December 31, 2018, 42,091 thousand units of employee share options were exercised and converted to 42,091 thousand common shares of the Company.

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Information on employee share options was as follows:

For the Year Ended

December 31 2017

Number of Options (In Thousands)

Weighted-average Exercise

Price (NT$)

Balance at January 1 241 $55.70 Options adjusted (72) 24.00 Options expired (169) 79.70 Balance at December 31 - - Options exercisable, end of year -

Options granted in 2007 were priced using the Black-Scholes pricing model and the inputs to the model were as follows: November 2007 Risk-free interest rate 2.48% Expected life (years) 7.30 Expected price volatility 48.60% Expected dividend yield 4.87%

b. Employee share option plan in 2014

Qualified employees of the Company and its subsidiaries were granted 40,000 thousand units of share options in May 2014. Each option represents one share of the Company’s common share. The vesting period of these options is 10 years. Qualified employees may exercise at certain percentages of the options after two years, from the grant date. The options were granted at an exercise price equal to the closing price of the Company’s common shares listed on the on the grant date. For any subsequent changes in the Company’s capital surplus, the exercise price is adjusted accordingly. Information on employee share options was as follows: For the Year Ended December 31 2018 2017


Weighted- average Exercise

Price (NT$)


Weighted- average Exercise

Price (NT$)

Balance at January 1 15,308 $ 58.20 23,846 $ 42.90 Options forfeited (387 ) 48.60-58.20 - - Options adjusted - - (6,745) 15.30 Options granted (6,380 ) 48.60-58.20 (1,793) 41.70-58.20 Balance at December 31 8,541 48.60 15,308 58.20 Options exercisable, end of

year 5,125 64

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Information about outstanding options as of December 31, 2018 and 2017 was as follows: December 31 2018 2017 Range of exercise price (NT$) $48.60 $58.20 Weighted-average remaining contractual life (in years) 5.33 6.33 Options granted in May 2014 were priced using the binomial option pricing model and the inputs to the model were as follows: May 2014 Grant-date share price $17.70 Exercise price $17.70 Expected volatility 37.50% Expected life (in years) 10 Expected dividend yield - Risk-free interest rate 1.52% Expected volatility was based on the historical share price volatility over the past 10 years. To allow for the effects of early exercise, the Company assumed that employees would exercise their options after the vesting date when the share price was 1.3 times the exercise price. Compensation cost recognized was zero and $11,490 thousand for the years ended December 31, 2018 and 2017, respectively.

29. BUSINESS COMBINATIONS

a. Subsidiaries acquired

Subsidiary Principal Activity Date of Acquisition

Proportion of Voting Equity

Interests Acquired (%)

Consideration Transferred

Brightking

Holdings Limited

Holding company components

June 2018 81.08 $ 2,471,209



December 2018 100.00 22,325,600

$ 24,796,809 In order to continue the expansion of the Group’s activities in passive component, the Company acquired Brightking Holdings Limited and Pulse Electronics Corporation in 2018.

b. Consideration transferred

Brightking Holdings Limited

Pulse Electronics

Corporation Cash $ 2,471,209 $ 22,325,600

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c. Assets acquired and liabilities assumed at the date of acquisition


Pulse Electronics

Corporation Current assets

Cash and cash equivalents $ 446,980 $ 429,308 Other current assets 1,584,307 4,570,373

Non-current assets Property, plant and equipment 382,183 1,483,560 Intangible assets 623,978 3,357,150 Other non-current assets 124,795 1,623,500

Current liabilities (585,522) (4,982,608) Non-current liabilities (444,725) (1,099,067) $ 2,131,996 $ 5,382,216 The initial accounting for the acquisition of Pulse Electronics Corporation was only provisionally determined at the end of the reporting period. The tax bases of Pulse Electronics Corporation’s assets were required to be reset based on the market values of the assets. At the date of issuance of these consolidated financial statements, the necessary market valuations and other calculations have not been finalized, and they have, therefore, only been provisionally determined based on management’s best estimate of the likely tax values.

d. Goodwill recognized on acquisitions


Pulse Electronics

Corporation Consideration transferred $ 2,471,209 $ 22,325,600 Plus: Non-controlling interests 543,571 - Less: Fair value of identifiable net assets acquired (2,131,996) (5,382,216) Goodwill recognized on acquisitions $ 882,784 $ 16,943,384 The non-controlling interest (a 18.92% ownership interest in Brightking Holdings Limited) recognized at the acquisition date. The goodwill recognized in the acquisition of Brightking Holdings Limited and Pulse Electronics Corporation mainly represents the control premium included in the cost of the combination. In addition, the consideration paid for the combination effectively included amounts attributed to the benefits of expected synergies, revenue growth, future market development and the assembled workforce of Brightking Holdings Limited and Pulse Electronics Corporation. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

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e. Net cash outflow on acquisition of subsidiaries


Pulse Electronics

Corporation Consideration paid in cash $ 2,471,209 $ 22,325,600 Less: Cash and cash equivalent balances acquired (446,980) (429,308) $ 2,024,229 $ 21,896,292

f. Impact of acquisitions on the results of the Group

The results of the acquirees since the acquisition date included in the consolidated statements of comprehensive income were as follows:


Pulse Electronics

Corporation Revenue $ 1,441,980 $ 1,131,622 Profit $ 112,442 $ 181,051 Had these business combinations been in effect at the beginning of the annual reporting period, the Group’s revenue from continuing operations would have been $91,042,488 thousand, and the profit from continuing operations would have been $34,083,971 thousand for the year ended December 31, 2018. This pro-forma information is for illustrative purposes only and is not necessarily an indication of the revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on January 1, 2018, nor is it intended to be a projection of future results.

30. EQUITY TRANSACTIONS WITH NON-CONTROLLING INTERESTS

On second quarter to the fourth quarter, 2018, the Group subscribed for additional new shares of Brightking Holdings Limited, increasing its continuing interest from 81.08% to 100%. The above transactions were accounted for as equity transactions, since the Group did not cease to have control over these subsidiaries.


Cash consideration received (paid) $ 569,445 The proportionate share of the carrying amount of the net assets of

the subsidiary transferred to (from) non-controlling interests (543,571) Differences recognized from equity transactions $ 25,874 Line items adjusted for equity transactions Retained earnings $ 25,874

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31. OPERATING LEASE ARRANGEMENTS a. The Group as lessee

The Group leases the property and plant with operating leases expired until 2021. The lessees have a bargain purchase option to acquire the property at the expiry of the lease periods. December 31 2018 2017 Not later than 1 year $ 117,878 $ - Over 1 year and not later than 5 years 209,529 - $ 327,407 $ -

b. The Group as lessor Operating leases relate to the property owned by the Group with lease terms between 1 to 5 years. The lessees do not have a bargain purchase option to acquire the property at the expiry of the lease periods. The future minimum lease payments of noncancellable operating lease were as follows: December 31 2018 2017 Not later than 1 year $ 16,894 $ 13,561 Over 1 year and not later than 5 years 535 1,211 $ 17,429 $ 14,772

32. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to shareholders through the optimization of the debt and equity balance. The Group’s overall strategy in accordance with the Company operations and cash flow to assess the situation and to be properly adjusted to adapt to changes in the market in a timely manner. The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity attributable to owners of the Company (comprising issued capital, reserves, retained earnings and other equity). Key management personnel of the Group review the capital structure on an annual basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may reduce the Group’s capital or adjust the amount of dividends paid to shareholders and the number of shares repurchased.

33. FINANCIAL INSTRUMENTS a. Fair value of financial instruments that are not measured at fair value

The Group’s management consider that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

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b. Fair value of financial instruments that are measured at fair value on a recurring basis

1) Fair value hierarchy

December 31, 2018 Level 1 Level 2 Level 3 Total Financial assets at FVTPL

Derivative financial assets $ - $ 20,398 $ - $ 20,398 Domestic quoted shares 60,060 - - 60,060 Domestic unlisted shares - - 46,104 46,104 Overseas unlisted shares - - 43,092 43,092 $ 60,060 $ 20,398 $ 89,196 $ 169,654

Financial assets at FVTOCI

Investments in equity instruments at FVTOCI Domestic quoted shares $ 1,327,605 $ - $ - $ 1,327,605 Overseas quoted shares 899,371 - - 899,371

$ 2,226,976 $ - $ - $ 2,226,976 Financial liabilities at FVTPL

Derivative financial liabilities $ - $ 27,674 $ - $ 27,674 December 31, 2017 Level 1 Level 2 Level 3 Total Financial assets at FVTPL

Derivative financial assets $ - $ 1,359 $ - $ 1,359 Non-derivative financial assets

held for trading 210,000 - - 210,000 $ 210,000 $ 1,359 $ - $ 211,359

Available-for-sale financial

assets Securities listed in ROC

Equity securities $ 1,092,149 $ - $ - $ 1,092,149 Securities listed in other

countries Equity securities 3,154,281 - - 3,154,281

Unlisted securities - ROC Equity securities - - 56,773 56,773

Unlisted securities - other countries Equity securities - - 44,122 44,122

$ 4,246,430 $ - $ 100,895 $ 4,347,325 Financial liabilities at FVTPL

Derivative financial liabilities $ - $ 82,995 $ - $ 82,995

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There were no transfers between Levels 1 and 2 in the current and prior periods.

2) Reconciliation of Level 3 fair value measurements of financial instruments For the year ended December 31, 2018

Financial Assets

at FVTPL

Equity

Instruments Financial assets Balance at January 1, 2018 $ - Reclassification 100,895 Recognized in profit 5,393 Sales (5,564) Repayment of capital reduction (10,497) Effect of foreign currency exchange differences (1,031) Balance at December 31, 2018 $ 89,196

Available- for-sale

Financial Assets

Equity

Instruments Financial assets Balance at January 1, 2017 $ 116,069 Repayment of capital reduction (14,579) Effect of foreign currency exchange differences (595) Balance at December 31, 2017 $ 100,895

3) Valuation techniques and inputs used for Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign

exchange forward contracts

Discounted cash flow. Future cash flows are estimated on the basis of observable forward

exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

4) Valuation techniques and inputs applied for Level 3 fair value measurement

The fair values of unlisted equity securities - ROC were determined using the income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The significant unobservable inputs used are listed in the table below. An increase in long-term revenue growth rates or long-term pre-tax operating margin or a decrease in WACC or discount for the lack of marketability used in isolation would result in increases in fair value.

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c. Categories of financial instruments

December 31 2018 2017 Financial assets FVTPL

Held for trading $ - $ 211,359 Mandatorily classified as at FVTPL 169,654 -

Held-to-maturity investments - 7,133,802 Loans and receivables (1) - 29,590,650 Available-for-sale financial assets (2) - 4,347,325 Financial assets at amortized cost (3) 56,256,818 - Financial assets at FVTOCI 2,226,976 -

Equity instruments Financial liabilities FVTPL

Held for trading - 82,995 Mandatorily classified as at FVTPL 27,674 -

Amortized cost (4) 54,894,506 36,683,464 1) The balances included loans and receivables measured at amortized cost, which comprise cash and

cash equivalents, debt investments with no active market, notes receivable, trade and other receivables (including related parties) and refundable deposits.

2) The balances included the carrying amount of held-for-trading financial assets measured at cost. 3) The balances included loans and receivables measured at amortized cost, which comprise cash and

cash equivalents, debt investments, notes receivable, trade and other receivables (including related parties) and refundable deposits.

4) The balances included financial liabilities measured at amortized cost, which comprise short-term

loans, long-term loans, short-term bills payable, notes payable, trade and other payables (including related parties), long-term loans and guarantee deposits received.

d. Financial risk management objectives and policies

The Group’s major financial instruments include equity and debt investments, trade receivables, trade payables, and borrowings. The Group’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree 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 sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Group’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis. The Group did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

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The Group’s impartment financial activities are reviewed by the board of directors in accordance with related standard and internal controls. In executing financial plan, the Group have to obey the related financial operating procedures regarding financial risk management and segregation of duties. 1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). There had been no change to the Group’s exposure to market risks or the manner in which these risks were managed and measured. a) Foreign currency risk

The Group had foreign currency sales and purchases, which exposed the Group to foreign currency risk. Exchange rate exposures were managed within approved policy parameters utilizing forward foreign exchange contracts. The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Note 37. Sensitivity analysis The Group assessed the foreign currency risk of its significant assets and liabilities as well as taking unexpired exchange forward contracts into consideration. The Group was mainly exposed to the USD, EUR and JPY. The following table details the Group’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. A negative number below indicates an increase (a decrease) in pre-tax profit associated with New Taiwan dollars strengthening 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be positive. USD Impact EUR Impact JPY Impact

For the Year Ended



December 31 2018 2017 2018 2017 2018 2017 Profit or loss $ (396,589) $ (211,535) $ (43,516) $ (65,303) $ 6,458 $ 4,682 The analysis of profit or loss of the table was mainly attributable to the exposure to outstanding USD, EUR and JPY which were not hedged, at the end of the reporting period. The Group’s sensitivity to foreign currency exchange increased during the current year mainly because it had more USD-denominated net assets.

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b) Interest rate risk The Group was exposed to interest rate risk because entities in the Group borrowed funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix of fixed and floating rate. The carrying amount of the Group’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows: December 31 2018 2017 Fair value interest rate risk

Financial assets $ 20,678,559 $ 18,997,336 Financial liabilities 33,167,468 24,224,650

Cash flow interest rate risk Financial assets 15,223,019 5,471,062

The Group’s fixed-term time deposits, bank borrowings and short-term bills are exposed to fair value interest rate risk; however, this expected risk is insignificant. Sensitivity analysis The sensitivity analysis below was determined based on the Group’s exposure to interest rates for both derivative and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of each liability outstanding at the end of the reporting period was outstanding for the whole year. A 1% increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 1% higher and all other variables were held constant, the Group’s variable-rate financial assets for the years ended December 31, 2018 and 2017 would result in cash inflows by $152,230 thousand and $54,711 thousand, respectively. The Group’s sensitivity to interest rates increased during the current year mainly due to the increase in variable-rate financial assets from the prior year.

c) Other price risk The Group was exposed to equity price risk through its investments in listed equity securities. Sensitivity analysis The sensitivity analysis below was determined based on the exposure to equity price risks at the end of the reporting period. If equity prices had been 1% lower, the pre-tax profit for the year ended December 31, 2018 would have decreased by $601 thousand, as a result of the changes in fair value of financial assets at FVTPL, and the pre-tax other comprehensive income for the year ended December 31, 2018 would have decreased by $22,270 thousand, as a result of the changes in fair value of financial assets at FVTOCI. If equity prices had been 1% lower, the pre-tax other comprehensive income for the years ended December 31, 2017 would decrease by $2,100 thousand and $42,464 thousand, respectively, as a result of the changes in fair value of available-for-sale shares.

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The Group’s sensitivity to available-for-sale investments has not changed significantly from the prior year.

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk, which would cause a financial loss to the Group due to failure of counterparties to discharge an obligation and financial guarantees provided by the Group could arise from: a) The carrying amount of the respective recognized financial assets as stated in the balance sheets;

and b) The amount of contingent liabilities in relation to financial guarantee issued by the Group. The Group adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. In order to minimize credit risk, management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the Group’s credit risk was significantly reduced. The credit risk on liquid funds and derivatives was limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Ongoing credit evaluation is performed on the financial condition of trade receivables. The Group did transactions with a large number of unrelated customers and, thus, no concentration of credit risk was observed.

3) Liquidity risk The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants. The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Group had available unutilized short-term bank loan facilities of $8,911,414 thousand and $4,697,768 thousand, respectively.

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a) Liquidity and interest risk rate tables for nonderivative financial liabilities The table below summarizes the maturity profile of the Group’s financial liabilities based on undiscounted contractual payments but did not include the financial liabilities with carrying amounts that approximated contractual cash flows:

Carrying

Value Contractual Cash Flows

Within 1 Year

More than 1 Year

December 31, 2018 Short-term borrowings $ 23,667,981 $ 23,768,211 $ 23,768,211 $ - Short-term bills payable 499,487 500,000 500,000 - Long-term borrowings 9,000,000 9,043,648 - 9,043,648 $ 33,167,468 $ 33,311,859 $ 24,268,211 $ 9,043,648 December 31, 2017 Short-term borrowings $ 17,624,878 $ 17,668,377 $ 17,668,377 $ - Short-term bills payable 1,099,772 1,100,000 1,100,000 - Long-term borrowings 5,500,000 5,507,853 - 5,507,853 $ 24,224,650 $ 24,276,230 $ 18,768,377 $ 5,507,853

b) Liquidity and interest risk rate tables for derivative financial liabilities The following table detailed the Group’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period. December 31, 2018

On Demand or Less than 3 Months

3 Months to 6 Months

Over 6 Months to 12 Months

Gross settled Foreign exchange forward contracts

Inflows $ 18,108,376 $ 37,587 $ - Outflows (18,138,450) (36,389) -

$ (30,074) $ 1,198 $ -

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December 31, 2017



Over 6 Months to 12 Months


Inflows $ 9,902,711 $ - $ 895,440 Outflows (9,937,688) - (919,056)

$ (34,977) $ - $ (23,616)

34. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Besides as disclosed elsewhere in the other notes, details of transactions between the Group and other related parties are disclosed below. a. The Company’s related parties and their relationships were as follows:

Related Party Relationships with the Group Chilisin Electronics Corp. Associates Teapo Electronics Corp. Associates Teapo Electronics (H.K.) Ltd. Subsidiary of associates Teapo Electronics (Dongguan) Co., Ltd. Subsidiary of associates Dongguan Zhiguo Electronics Co., Ltd. Subsidiary of associates Ralec Electronic Corporation Subsidiary of associates ASJ Pte. Limited (ASJ Pte.) Subsidiary of associates ASJ Components (M) Sdn. Bhd. Subsidiary of associates CRL Components (S) Pte. Ltd. Subsidiary of associates Guo Chuang Electronics (Dongguan) Associates Ferroxcube International Holding B.V. Subsidiary of associates Hsin Bung International Co., Ltd. Substantial related parties Yixin International Co., Ltd. Substantial related parties

b. Sales of goods

For the Year Ended December 31 Line Items Related Party Categories 2018 2017 Sales Substantial related parties $ 766,539 $ 431,376 Associates 200,195 164,944 $ 966,734 $ 596,320

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c. Purchases of goods For the Year Ended December 31 Related Party Categories 2018 2017 Substantial related parties $ 534,782 $ 378,654 Associates 188,189 623,959 $ 722,971 $ 1,002,613

d. Receivables from related parties (excluding loans to related parties)

December 31 Line Items Related Party Categories 2018 2017 Trade receivable Substantial related parties $ 62,399 $ 329,902 Associates 36,727 29,055 $ 99,126 $ 358,957 Other receivables Associates/Chilisin Electronics Corp. $ 92,206 $ 89,544 Associates/Others 7,661 7,641 $ 99,867 $ 97,185 The outstanding trade receivable from related parties are unsecured. For the years ended December 31, 2018 and 2017, no impairment loss was recognized for trade receivable from related parties.

e. Payables to related parties (excluding loans from related parties)

December 31 Line Items Related Party Categories 2018 2017 Trade payable Substantial related party $ 98,661 $ 38,567 Associates 36,508 107,538 $ 135,169 $ 146,105 Other payables Associates $ 2 $ 2 The outstanding trade payable from related parties are unsecured. The payment terms for the trade receivable from (trade payable to) related parties were based on the terms of the related contracts. Other related-party transactions were conducted under normal terms.

f. Disposals of property, plant and equipment Proceeds Gain on Disposal

For the Year Ended


December 31 Related Party Category/Name 2018 2017 2018 2017 Associates $ - $ 435 $ - $ 219

- 154 -

g. Disposals of other assets Proceeds Gain on Disposal

For the Year Ended


December 31 Related Party Category/Name 2018 2017 2018 2017 Associates/Chilisin Electronics

Corp. $ - $ 4,329,425 $ - $ - On August 1, 2017, the Company sold 100% of its interest of Ferroxcube International Holding B.V. in a cash settlement amounting to €133,188 thousand.

h. Other transactions with related parties

For the Year Ended December 31 Line Items Related Party Categories 2018 2017 Rental income Associates/Teapo Electronics (Dongguan)

Co., Ltd. $ 24,525 $ 11,321

Associates/Others 1,100 3,861 $ 25,625 $ 15,182 Other expense Associates $ 239 $ - All the terms and conditions of above rental contracts conformed to normal business practice.

i. Compensation of key management personnel

For the Year Ended December 31 2018 2017 Short-term employee benefits $ 1,257,296 $ 316,973 Post-employment benefits 432 432 $ 1,257,728 $ 317,405 The remuneration of directors and key executives was determined by the remuneration committee having regard to the performance of individuals and market trends.

35. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY The following assets were provided as collateral for bank loans: December 31 2018 2017 Property, plant and equipment, net $ 2,792,249 $ 2,788,239

- 155 -

36. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS In addition to those disclosed in other notes, significant commitments and contingencies of the Group as of December 31, 2018 and 2017, were as follows: a. Significant commitments

Unrecognized commitments were as follows: December 31 2018 2017 Acquisition of property, plant and equipment $ 2,110,530 $ 1,660,649

b. Contingencies

Contingent liabilities 1) Please refer to Table 2 about the endorsements/guarantees and between the Company and

subsidiaries. 2) The Securities and Future Investors Protection Center (SFIPC) alleged that Far Eastern Air

Transport Ltd. (FEATL) had been involved in exaggerating the turnover and trade receivable. The SFIPC charged that FEATL window-dressed its financial reports and thus harmed its investors’ welfare. Under these investors’ authorization, the SFIPC sued 33 defendants, including the FEATL and its management, directors and supervisors, certified public accountant, its accounting firm, etc., (excluding the Company) and filed a civil action lawsuit to demand compensation for damages with the district court of Taipei on June 23, 2009. In January 2010, the SFIPC included in its lawsuit the Company and two other companies because they were FEATL’s directors and supervisors from 2005 to 2007. Since the joint defendants increased to 36, SFIPC appealed for a compensation amounted of $296,989 thousand. Since the Company has business liability insurance, the Company believes that if the court’s ruling is not favorable to the Company, the compensatory damages would not significantly affect its finance and business status.

37. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Group entities’ significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows: December 31, 2018

Foreign Currencies

(In Thousands) Exchange Rate Carrying Amount

Financial assets Monetary items

USD $ 1,043,120 30.7330 (USD:NTD) $ 32,058,207 USD 405,755 6.8637 (USD:RMB) 12,470,029

(Continued)

- 156 -

Foreign Currencies


USD $ 307,233 7.8311 (USD:HKD) $ 9,442,238 USD 105,924 0.8733 (USD:EUR) 3,255,418 USD 977 69.9160 (USD:INR) 30,028 EUR 564 1.1451 (EUR:USD) 19,848 EUR 125,389 35.1924 (EUR:NTD) 4,412,740 EUR 3,688 25.7350 (EUR:CZK) 129,790 JPY 838,986 0.2782 (JPY:NTD) 233,406 JPY 1,244,366 0.0091 (JPY:USD) 348,012 RMB 56,797 0.1457 (RMB:USD) 254,325 HKD 8,125 0.8765 (HKD:RMB) 31,887

$ 62,685,928 Non-monetary items

Investments accounted for using equity method USD 10,150 30.7330 (USD:NTD) $ 311,943 RMB 7,019 1.1409 (RMB:HKD) 31,429 $ 343,372

Investments in equity instruments at

FVTOCI JPY 839,029 0.2782 (JPY:NTD) $ 233,418 JPY 2,381,207 0.0091 (JPY:USD) 665,953 $ 899,371

Financial liabilities Monetary items

USD 434,443 30.7330 (USD:NTD) $ 13,351,737 USD 128,457 6.8637 (USD:RMB) 3,947,857 USD 9,677 0.8733 (USD:EUR) 297,408 EUR 811 35.1924 (EUR:NTD) 28,541 EUR 3,239 25.7350 (EUR:CZK) 113,989 EUR 1,504 80.0608 (EUR:INR) 52,933 EUR 434 118.1630 (EUR:RSD) 15,272 JPY 2,410,354 0.2782 (JPY:NTD) 670,560 JPY 2,002,097 0.0621 (JPY:RMB) 556,701 HKD 16,521 0.8765 (HKD:RMB) 64,839 HKD 5,500 0.1277 (HKD:USD) 21,585 RMB 113,621 0.1457 (RMB:USD) 508,772 SGD 16,377 22.4804 (SGD:NTD) 368,162 $ 19,998,356

(Concluded)

- 157 -

December 31, 2017

Foreign Currencies



USD $ 605,129 29.8480 (USD:NTD) $ 18,061,890 USD 528,402 6.5120 (USD:RMB) 15,771,612 USD 318,432 7.8147 (USD:HKD) 9,504,637 USD 106,716 0.8361 (USD:EUR) 3,185,448 USD 1,496 1,065.2900 (USD:KRW) 44,623 EUR 181,044 1.1961 (EUR:USD) 6,463,487 EUR 15,398 35.7012 (EUR:NTD) 549,727 EUR 710 7.7890 (EUR:RMB) 25,348 JPY 1,811,186 0.0074 (JPY:EUR) 478,495 JPY 182,363 0.2651 (JPY:NTD) 48,344 JPY 178,037 0.0578 (JPY:RMB) 47,167 RMB 24,182 0.1536 (RMB:USD) 110,866 HKD 43,456 3.8195 (HKD:NTD) 165,980 HKD 29,083 0.1280 (HKD:USD) 111,113


Investments accounted for using equity method USD 13,826 29.8480 (USD:NTD) $ 412,670 RMB 6,979 1.2000 (RMB:HKD) 31,986 $ 444,656

Available-for-sale financial assets

JPY 2,909,068 0.2651 (JPY:NTD) $ 771,194 JPY 5,148,220 0.0089 (JPY:USD) 1,364,793 JPY 1,811,045 0.0074 (JPY:EUR) 480,108 JPY 2,030,132 0.0694 (JPY:HKD) 538,186 $ 3,154,281


USD 318,660 29.8480 (USD:NTD) $ 9,511,364 USD 357,087 6.5120 (USD:RMB) 10,658,244 USD 160,564 7.8147 (USD:HKD) 4,792,554 USD 15,162 0.8361 (USD:EUR) 452,582 EUR 936 35.7012 (EUR:NTD) 33,416 EUR 13,300 1.1961 (EUR:USD) 474,826 JPY 1,825,667 0.2651 (JPY:NTD) 483,984 JPY 2,107,151 0.0578 (JPY:RMB) 558,240 HKD 634 0.8333 (HKD:RMB) 2,422 RMB 220,458 0.1536 (RMB:USD) 1,010,723 $ 27,978,355

- 158 -

For the years ended December 31, 2018 and 2017, realized and unrealized net foreign exchange gains or losses were $1,363,987 thousand and $(524,163) thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

38. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:

1) Financing provided to others. (Table 1) 2) Endorsements/guarantees provided. (Table 2) 3) Marketable securities held (excluding investment in subsidiaries, associates and joint controlled

entities). (Table 3) 4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the

paid-in capital. (Table 4) 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in

capital. (None) 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital.

(None) 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the

paid-in capital. (Table 5) 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in

capital. (Table 6) 9) Information on investees. (Table 7) 10) Trading in derivative instruments. (Notes 7 and 33) 11) Intercompany relationships and significant transactions. (Table 9)

b. Information on investments in mainland China

1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 8)

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses: a) The amount and percentage of purchases and the balance and percentage of the related payables

at the end of the period. (Table 5) b) The amount and percentage of sales and the balance and percentage of the related receivables at

the end of the period. (Table 5)

- 159 -

c) The amount of property transactions and the amount of the resultant gains or losses. (Eliminated

from the consolidated financial statements) d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the

end of the period and the purposes. (Table 2) e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds. (Table 1) f) Other transactions that have a material effect on the profit or loss for the period or on the

financial position, such as the rendering or receiving of services. (None)

39. SEGMENT INFORMATION a. Basic information

Information reported to the chief operating decision maker for resource allocation and the assessment of segment performance is solely based on the financial information of each plant owned by the Group. Each plant has similar economic features as well as manufacturing procedures. In addition, products are sold by the Group in a centralized way. Thus, the Group is reported as a single segment. The Group’s revenues and operating results in 2018 and 2017 are shown in the consolidated statements of comprehensive income for 2018 and 2017.

b. Revenue from major products The following is an analysis of the Group’s revenue from its major products. For the Year Ended December 31 2018 2017 Capacitors $ 46,609,294 $ 16,624,037 Resistors 26,032,119 13,128,572 Others 4,514,198 2,505,990 $ 77,155,611 $ 32,258,599

c. Geographical information

The Group’s revenue from external customers by location of operations and information about its noncurrent assets by location of assets are detailed below:

Revenue from

External Customers Noncurrent Assets Year Ended December 31 December 31 2018 2017 2018 2017 Domestic $ 17,349,383 $ 6,278,301 $ 6,223,536 $ 6,788,370 Europe 5,668,332 2,104,123 2,021,857 2,065,895 Asia 53,258,270 23,797,557 13,312,483 9,857,471 USA 761,074 - 22,392,064 - Others 118,552 78,618 19,203 19,474 $ 77,155,611 $ 32,258,599 $ 43,969,143 $ 18,731,210

- 160 -

Noncurrent assets exclude financial instruments and deferred tax assets.

d. Information about major customers No single customer contributed 10% or more to the Group’s revenue for both 2018 and 2017.

- 161 -

TABLE 1 YAGEO CORPORATION AND SUBSIDIARIES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No. Lender Borrower Financial Statement Account

Related Party

Highest Balance for the Year Ending Balance Actual Borrowing

Amount Interest Rate Nature of Financing (Note 3)

Business Transaction

Amount

Reasons for Short-term Financing

Allowance for Impairment Loss

Collateral Financing Limit for Each Borrower

(Note 1)

Aggregate Financing Limits

(Note 2) Item Value

0 Yageo Corporation Kuo-Shin Investment

Limited Receivables from related

parties Yes $ 1,200,000 $ 1,200,000 $ - 0.84 b $ - For revolving fund $ - None $ - $ 23,733,878 $ 23,733,878

1 Yageo Holding

(Bermuda) Ltd. Hsu Tai International

(H.K.) Receivables from related

parties Yes US$ 7,514 US$ - US$ -

1.0 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Hsu Tai International (H.K.)

Receivables from related parties

Yes HK$ 14,926 HK$ - HK$ - 1.0 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Yageo Japan Receivables from related parties

Yes JPY 5,405 JPY 5,405 JPY 5,405 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Yageo America Receivables from related parties

Yes US$ 9,742 US$ 9,742 US$ 9,742 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Yageo Europe Holding B.V.


Yes US$ 2,699 US$ 791 US$ 791 1.0 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659



Yes EUR 2,000 EUR 2,000 EUR 2,000 1.0 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659


Loans to subsidiaries considered as a component of investment

Yes EUR 172,956 EUR 172,956 EUR 172,956 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Brightking Holdings Ltd.


Yes US$ 5,000 US$ 5,000 US$ 2,200 2.5 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

2 Vitrohm Holding GmbH Yageo Holding

(Bermuda) Ltd. Receivables from related

parties Yes EUR 6,167 EUR 6,167 EUR 6,167 1.25 b - For revolving fund - None - EUR 11,719 EUR 11,719

3 Yageo Electronics

(China) Co., Ltd. Yageo Trade (Suzhou)

Co., Ltd. Receivables from related

parties Yes RMB 200,000 RMB 200,000 RMB - 3.5 b - For revolving fund - None - RMB 3,971,702 RMB 3,971,702

Yageo Holding (Bermuda) Ltd.


Yes US$ 50,000 US$ - US$ - 1.6 b - For revolving fund - None - RMB 3,971,702 RMB 3,971,702

4 Yageo USA (H.K.)

Limited Yageo Holding


parties Yes US$ 50,000 US$ 50,000 US$ 50,000 0.5 b - For revolving fund - None - US$ 592,774 US$ 592,774

5 Yageo Trade (Suzhou)

Co., Ltd. Yageo Electronics

(China) Co., Ltd. Receivables from related

parties Yes RMB 100,000 RMB 100,000 RMB 90,000 3.5 b - For revolving fund - None - RMB 770,852 RMB 770,852

6 Yageo Europe Holding

B.V. Yageo USA (H.K.)


parties Yes US$ 56,000 US$ 52,000 US$ 52,000 0.5 b - For revolving fund - None - EUR 59,646 EUR 59,646

7 Brightking Holdings

Ltd. Brightking Enterprise

(H.K.) Co., Ltd. Other Receivables-related

parties Yes 121,840 - - 2.434 b - For revolving fund - None - 1,813,971 3,627,943

Brightking Enterprise (H.K.) Co., Ltd.

Other Receivables-related parties

Yes 123,872 122,932 - 3.848 b - For revolving fund - None - 1,813,971 3,627,943

8 Brightking Enterprise

(H.K.) Co., Ltd. Brightking Electronics

Inc. Other Receivables-related

parties Yes 9,290 9,220 - 4.5 b - For revolving fund - None - 2,032,316 4,064,632




9 Brightking Electronics

Co., Ltd. Brightking Holdings

Ltd. Other Receivables-related

parties Yes 33,000 - - 1.5 b - For revolving fund - None - 7,836 7,836



Yes 10,000 - - 1.5 b - For revolving fund - None - 7,836 7,836

10 Kuo-Shin Investment

Limited Brightking Electronics


parties Yes 100,000 100,000 38,000 1.0 b - For revolving fund - None - 711,440 711,440

(Continued)

- 162 -

Note 1: For the Company and its domestic investees (Kuo-Shin Investment Limited and Brightking Electronics Co., Ltd.) business relationship, financing limit to each borrowing company is the amount of business operation (based on the previous year’s actual sales and purchase amount when the loan contract was awarded). The

financing limit to the counterparty which has short-term loan need is 40% of its net worth presented in the latest financial statements audited or reviewed by auditors. According to the financing procedure for Company’s overseas investees, maximum financing amount that can be made by Yageo Holding (Bermuda) Ltd., Yageo Electronics (China) Co., Ltd., Yageo USA (H.K.) Limited, Yageo Trade (Suzhou) Co., Ltd., Vitrohm Holding GmbH and Yageo Europe Holding B.V. is 100% of each net worth presented in the latest financial statements audited or reviewed by auditors. For Brightking Holdings Ltd. and its overseas investees, the maximum financing amount that can be made is limited to 100% of each net worth presented in the latest financial statements audited or reviewed by auditors.

Note 2: For the Company and its domestic investees (Kuo-Shin Investment Limited and Brightking Electronics Co., Ltd.) the financing amount to each counterparty is limited to 40% of its net worth presented in the latest financial statements audited or reviewed by auditors. According to the financing procedures for Company’s

overseas investees, maximum financing amount that can be made by Yageo Holding (Bermuda) Ltd., Yageo Electronics (China) Co., Ltd., Yageo USA (H.K.) Limited, Yageo Trade (Suzhou) Co., Ltd., Vitrohm Holding GmbH and Yageo Europe Holding B.V. is 100% of each net worth presented in the latest financial statements audited or reviewed by auditors. For Brightking Holdings Ltd. and its overseas investees, the maximum financing amount that can be made is 200% of each net worth presented in the latest financial statements audited or reviewed by auditors.

Note 3: Reasons for financing are as follows:

a. Business relationship. b. For financing. According to letter No. 0980000271 issued by the FSC on January 15, 2009, which revised article 3 of the operating procedures of the regulation on financing provided and endorsement/guarantee provided, the overseas investees in which the Company has 100% ownership and voting rights directly and

indirectly, the financing amount to each counterparty is not subject to the short-term financing limit. However, the limits and the terms for the financing should still be specified by the financing procedures. Note 4: The currency rate on December 31, 2018, stated one New Taiwan dollar to HKD, USD, JPY, EUR and RMB are 1: 3.9245, 1: 30.733, 1:0.2782, 1: 35.1924 and 1: 4.4776, respectively; stated one U.S. dollar to HKD, JPY, EUR, and RMB are 1: 0.1277, 1: 0.0091, 1: 1.1451 and 1: 0.1457, respectively. Note 5: All intercompany financing loans have been eliminated from consolidation.

(Concluded)

- 163 -

TABLE 2 YAGEO CORPORATION AND SUBSIDIARIES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No. Endorser/Guarantor

Endorsee/Guarantee Limits on

Endorsement/ Guarantee Given on Behalf of Each

Party (Note 1)

Maximum Amount

Endorsed/ Guaranteed

During the Year (Note 4)

Outstanding Endorsement/

Guarantee at the End of the Year

(Note 4)

Actual Borrowing Amount

Amount Endorsed/

Guaranteed by Collaterals

Ratio of Accumulated Endorsement/

Guarantee to Net Equity In Latest

Financial Statements (%)

Aggregate Endorsement/

Guarantee Limit (Note 2)

Endorsement/ Guarantee Given

by Parent on Behalf of

Subsidiaries


by Subsidiaries on Behalf of Parent


on Behalf of Companies in

Mainland China

Name Relationship

0 Yageo Corporation Yageo Holding (Bermuda) Ltd. Subsidiary $ 59,334,695 $ 5,425,552

(US$ 144,000 NT$ 1,000,000)

$ 5,425,552 (US$ 144,000 NT$ 1,000,000)

$ -

$ - 9.14 $ 89,002,044 Yes No No

The shared borrowing facilities of Yageo Electronics (China) Co., Ltd., and Yageo Electronics (Dongguan) Co., Ltd.

Subsidiary 59,334,695 122,932 (US$ 4,000)

122,932 (US$ 4,000)

- - 0.21 89,002,044 Yes No Yes

The shared borrowing facilities of Yageo USA (H.K.) Limited and Yageo Holding (Bermuda) Ltd.

Subsidiary 59,334,695 61,466 (US$ 2,000)

61,466 (US$ 2,000)

- - 0.10 89,002,044 Yes No No

Kuo-Shin Investment Limited Subsidiary 59,334,695 1,600,000 1,300,000 - - 2.19 89,002,044 Yes No No 1 Yageo Holding (Bermuda)

Ltd. (Note 3) Yageo USA (H.K.) Limited Subsidiary 50,975,567 61,466

(US$ 2,000) -

- - - 76,463,351 Yes No No

2 Brightking Holdings Ltd. Brightking Electronics Co., Ltd. Subsidiary 906,986 30,000 30,000 - - 1.65 1,813,972 Yes No No 3 Brightking (Shenzhen) Co.,

Ltd. Bestbright Electronics Co., Ltd. Parent Company 349,938 140,507 - - - - 699,876 No Yes Yes


Subsidiary 349,938 46,836 - - - - 699,876 Yes No Yes

4 Bestbright Electronics Co.,

Ltd. Huizhou Lien Shun Electronics Co.,

Ltd. Subsidiary 1,076,317 46,836 - - - - 2,152,634 Yes No Yes

Note 1: For the Company, endorsements or guarantees to each counterparty is limited to 100% of its net worth presented in the latest financial statements. According to the endorsements/guarantees procedure for the Company’s overseas investees, endorsements/guarantees made by Yageo Holding

(Bermuda) Ltd. to each counterparty is limited to 100% of its net worth presented in the latest financial statements. For Brightking Holdings Ltd. and its overseas investees, endorsements or guarantees to each counterparty are limited to 50% of its net worth presented in the latest financial statements.

Note 2: Maximum endorsements/guarantees allowed for the Company is 150% of its net worth presented in the latest financial statements. According to the endorsements/guarantees procedure for the Company’s overseas investees, maximum endorsements/guarantees that can be made by Yageo

Holding (Bermuda) Ltd. is limited to 150% of its net worth presented in the latest financial statements. Maximum endorsements/guarantees allowed for Brightking Holdings Ltd. and its overseas investees are 100% of its net worth presented in the latest financial statements. Note 3: The endorsements/guarantees limit to each counterparty and endorsements/guarantees limit of Yageo Holding (Bermuda) Ltd. are US$1,658,659 thousand and US$2,487,989 thousand, respectively. Note 4: The endorsements/guarantees was based on the currency rate on December 31, 2018, stated one New Taiwan dollar to USD is 1:30.733.

- 164 -

TABLE 3 YAGEO CORPORATION AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Holding Company Name Type and Issuer/Name of Marketable Securities

Relationship with the Holding Company Financial Statement Account

December 31, 2018 Shares or Units (All Common Shares Unless

Stated Otherwise) (In

Thousands)

Carrying Amount

Percentage of Ownership

(%)

Fair Value (Note) Note

Yageo Corporation Stock Linko International Golf & Country Club - Financial assets at FVTPL - noncurrent - $ 482 0.1 $ 482 1 TA-I Technology Co., Ltd. - Financial assets at FVTOCI - noncurrent 17,266 878,826 9.0 878,826 1 SHS KOA Corp. - Financial assets at FVTOCI - noncurrent 648 233,418 1.8 233,418 1 Bonds Bank of America Corp. - Financial assets at amortized cost - noncurrent - 290,365 290,365 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 290,042 - 290,042 2 Morgan Stanley - Financial assets at amortized cost - noncurrent - 288,391 - 288,391 2 Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,495 - 287,495 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,397 - 284,397 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 280,056 - 280,056 2 China Construction Bank - Financial assets at amortized cost - noncurrent - 280,041 - 280,041 2 Verizon Communications - Financial assets at amortized cost - noncurrent - 279,800 - 279,800 2 Lenovo Group Ltd. - Financial assets at amortized cost - noncurrent - 279,357 - 279,357 2 Proven Glory Capital Ltd. - Financial assets at amortized cost - noncurrent - 279,176 - 279,176 2 Ko-Shin Investment Ltd. Stock Walsin Technology Co., Ltd. - Financial assets at FVTPL - current 390 60,060 0.1 60,060 1 Hsin Bung International Co., Ltd. - Financial assets at FVTPL - noncurrent 2,761 33,622 16.6 33,622 1 Jihsun Securities Investment Trust Co., Ltd. - Financial assets at FVTPL - noncurrent 1,560 12,000 4.0 12,000 1 Ta-I Technology Co., Ltd. - Financial assets at FVTOCI - noncurrent 8,817 448,779 4.6 448,779 1 Yageo Holding (Bermuda) Ltd. Stock SHS KOA Corp. - Financial assets at FVTOCI - noncurrent 1,850 US$ 21,669 5.0 US$ 21,669 1 Bonds Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,918 - 287,918 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,471 - 284,471 2 Lenovo Group Ltd - Financial assets at amortized cost - noncurrent - 279,337 - 279,337 2 Proven Glory Capital Ltd - Financial assets at amortized cost - noncurrent - 217,150 - 217,150 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 170,868 - 170,868 2 Morgan Stanley - Financial assets at amortized cost - noncurrent - 160,284 - 160,284 2 Bank of America Corp. - Financial assets at amortized cost - noncurrent - 64,523 - 64,523 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 62,222 - 62,222 2

(Continued)

- 165 -





Thousands)

Carrying Amount


(%)


Ko-E Corp. (Shenzhen) Share certificates Xmholder Technology Co., Ltd. - Financial assets at FVTPL - noncurrent - RMB 9,624 17.0 RMB 9,624 1 Yageo Europe Holding B.V. Bonds - Bank of America Corp. - Financial assets at amortized cost - noncurrent - 290,787 - 290,787 2 Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,743 - 287,743 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,420 - 284,420 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 280,110 - 280,110 2 Lenovo Group Ltd - Financial assets at amortized cost - noncurrent - 278,849 - 278,849 2 Proven Glory Capital Ltd - Financial assets at amortized cost - noncurrent - 278,204 - 278,204 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 273,375 - 273,375 2 Morgan Stanley Financial assets at amortized cost - noncurrent 259,070 - 259,070 2 China Construction Bank - Financial assets at amortized cost - noncurrent - 217,728 - 217,728 2 AVNET Inc. - Financial assets at amortized cost - noncurrent - 130,461 - 130,461 2 Note 1: The listed common shares are valued by their closing prices as of December 31, 2018. The debt investments with no active market is valued by the evaluated information provided by the Company. Note 2: The carrying amount is calculated at amortized cost.

(Concluded)

- 166 -

TABLE 4 YAGEO CORPORATION AND SUBSIDIARIES MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name Type and Name of

Marketable Securities

Financial Statement Account Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance Number of

Shares Amount Number of Shares Amount Number of

Shares Amount Carrying Amount Gain (Loss) on Disposal

Number of Shares Amount

Yageo Corporation Brightking Holdings

Ltd Investments accounted for

using the equity method - - - $ - 45,608,336 $ 3,328,253 - $ - $ - $ - 45,608,336 $ 3,328,253


Investments accounted for using the equity method

- - - - 25,574,331 22,325,600 - - - - 25,574,331 22,325,600

Hsu Tai International

(H.K.) SHS KOA Corp Financial assets at FVTOCI -

noncurrent - - 871,900 HK$ 140,867 - - 871,900 HK$ 140,867 HK$ 140,867 - - -

Yageo Europe Holding

B.V. SHS KOA Corp Financial assets at FVTOCI -

noncurrent - - 778,000 EUR 13,448 - - 778,000 EUR 13,448 EUR 13,448 - - -

Note 1: The marketable securities mentioned in this table refer to stocks, bonds, beneficiary certificates, and securities derived from the above items. Note 2: The Company acquired 100% of Brightking Holdings Limited in a cash settlement amounting to NT$3,328,253 thousand in 2018. Note 3: The Company acquired 100% of Brightking Holdings Limited in a cash settlement amounting to NT$22,325,600 thousand in 2018.

- 167 -

TABLE 5 YAGEO CORPORATION AND SUBSIDIARIES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands)

Buyer Related Party Relationship Transaction Details (Note) Abnormal Transaction Notes/Accounts (Payable) or

Receivable Remark Purchase/ Sale Amount % to

Total Payment Terms Unit Price Payment Terms Ending Balance % to Total

Yageo Corporation Yageo Electronics (Dongguan) Co., Ltd. Subsidiary Sale $ (3,177,485) (9) Offset account T/T 90 days $ - - $ - - - Purchase 193,863 1 Offset account T/T 90 days - - (2,073,844) (27) Yageo Electronics (China) Co., Ltd. Subsidiary Sale (2,167,438) (6) T/T 90 days - - 36,910 1 - Purchase 632,949 5 T/T 90 days - - (2,876,324) (37) - Yageo Corporation (South Asia) Pte. Ltd. Subsidiary Sale (4,079,500) (11) T/T 90 days - - 1,586,134 23 - Yageo Europe Holding B.V Subsidiary Sale (3,961,698) (11) T/T 45 days - - 1,789,751 26 - Ko-E (H.K.) Limited Subsidiary Sale (2,758,072) (7) T/T 60 days - - 399,348 6 - Yageo USA (H.K.) Limited Subsidiary Sale (6,344,285) (17) Offset account T/T 90 day - - 778,701 11 - Yageo Components (Suzhou) Co., Ltd. Subsidiary Purchase 135,781 1 T/T 90 days - - (31,927) - - Yixin International Co., Ltd. Substantial Related Party Sale (251,233) (2) T/T 60 days - - 11,231 - - Purchase 351,879 1 T/T 60 days - - (67,722) (1) Yageo USA (H.K.) Limited Yageo Trade (Suzhou) Co., Ltd. Associate Sale HK$ (1,434,000) (18) T/T 90 days - - HK$ 233,526 9 - Ko-E (H.K.) Limited Associate Sale HK$ (1,988,394) (24) T/T 90 days - - HK$ 275,239 10 - Yageo Electronics (China) Co., Ltd. Ko-E (H.K.) Limited Associate Sale RMB (561,141) (13) T/T 65 days - - RMB 126,223 10 - Yageo Europe B.V. Associate Sale RMB (198,781) (5) T/T 90 days - - RMB 41,872 3 - Yageo Trade (Suzhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Associate Sale RMB (1,429,984) (73) T/T 65 days - - RMB 367,904 59 - Ko-E Corp. Yixin International Co., Ltd. Substantial Related Party Purchase 128,231 99 T/T 60 days - - (30,494) (100) - Hsin Bung International Co., Ltd. Substantial Related Party Sale (139,038) (100) T/T 60 days - - 32,494 98 - Ko-E (H.K.) Limited Hsin Bung International Co., Ltd. Substantial Related Party Sale (359,070) (13) T/T 60 days - - 18,471 7 - Yageo Corporation (South Asia) Ptd Ltd CRL Components (S) Pte.Ltd Associate Sale US$ (4,718) (3) T/T 60 days - - US$ 863 3 - Bestbright Electronics Co., Ltd. Brightking (Shanghai) Co., Ltd. Subsidiary Sale (819,016) (48) T/T 30 days - - 290,016 48 Brightking (Shenzhen) Co., Ltd. Subsidiary Sale (561,688) (33) T/T 30 days - - 111,062 18 Brightking (Beijing) Co., Ltd. Subsidiary Sale (184,491) (11) T/T 30 days - - 54,585 9 Mian Yang Pulse Electronics Co., Ltd. Pulse Electronics (Singapore) Pte. Ltd Parent company Sale US$ (3,925) (10) T/T 90 days - - US$ 870 1 - Pulse Components. Ltd Pulse Electronics (Singapore) Pte. Ltd Parent company Sale US$ (3,327) (9) T/T 90 days - - US$ 745 1 - EGSTON System Electronic spol.s.r.o.

(CZ) EGSTON System Electronics Eggenburg

GmbH (AT) Associate Sale US$ (4,093) (11) T/T 30 days - - - - -

Note: All intercompany transactions have been eliminated from consolidation.

- 168 -

TABLE 6 YAGEO CORPORATION AND SUBSIDIARIES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands)

Company Name Related Party Relationship Ending Balance Turnover Rate

Overdue Amounts Received in Subsequent

Period

Allowance for Impairment Loss Amount Action Taken

Yageo Corporation Yageo USA (H.K.) Limited Subsidiary $ 779,170

(Note 5) 11.27 $ - - $ - $ -

Ko-E (H.K.) Limited Subsidiary 399,474 (Note 5)

5.52 - - 31,151 -

Yageo Europe Holding B.V. Subsidiary 1,789,765 (Note 5)

5.79 - - - -

Yageo Corporation (South Asia) Pte. Ltd. Subsidiary 1,586,134 (Note 5)

7.08 - - - -

Yageo Holding (Bermuda) Ltd. Yageo America Associate US$ 9,742

(Note 3) - - - - -

Yageo Europe Holding B.V. Associate US$ 201,370 (Note 1)

- - - - -

Yageo USA (H.K.) Limited Yageo Trade (Suzhou) Co., Ltd. Associate HK$ 233,526 2.66 - - HK$ 167,998 - Ko-E (H.K.) Limited Associate HK$ 275,466

(Note 5) 4.93 - - HK$ 160,792 -

Yageo Holding (Bermuda) Ltd. Parent company HK$ 394,354 (Note 2)

- - - - -

Yageo Electronics (China) Co., Ltd. Ko-E (H.K.) Limited Associate RMB 126,223 4.89 - - RMB 98,717 - Yageo Europe Holding B.V. Associate RMB 41,872 6.41 - - RMB 41,872 - Yageo Corporation Ultimate parent company RMB 642,381 2.55 - - RMB 240,316 - Yageo Trade (Suzhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Associate RMB 367,904 3.49 - - RMB 169,604 - Yageo Electronics (Dongguan) Co., Ltd. Yageo Corporation Ultimate parent company RMB 463,160 4.13 - - RMB 270,104 - Vitrohm Holding GmbH Yageo Holding (Bermuda) Ltd. Parent company EUR 6,245

(Note 2) - - - - -

Bestbright Electronics Co., Ltd. Brightking (Shanghai) Co., Ltd. Parent company 290,016 3.96 - - 105,892 - Brightking (Shenzhen) Co., Ltd. Parent company 111,062 5.37 - - 79,038 - Pulse Components. Ltd Pulse Electronics Inc. Associate US$ 3,546 - - - - - Note 1: Loans to subsidiaries were considered a component of investment. Note 2: Considered financing and other receivables

(Continued)

- 169 -

Note 3: Considered financing Note 4: Considered other receivables Note 5: Including other receivables Note 6: All intercompany transactions have been eliminated from consolidation.

(Concluded)

- 170 -

TABLE 7 YAGEO CORPORATION AND SUBSIDIARIES INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands))

Investor Company Investee Company Location Main Business and Product Original Investment Amount As of December 31, 2018

Carrying Amount Net Income (Loss) of the

Investee

Share of Profits (Loss) Remarks December 31,

2018 December 31,

2017 Shares %

Yageo Corporation Yageo Holding (Bermuda) Ltd. Bermuda Investment US$ 347,747 US$ 347,747 90,000 100.00 $ 50,355,543 $ 16,288,524 $ 16,288,524 Subsidiary Ferroxcube Holding (Samoa) Ltd. West Samoa Investment US$ 25,433 US$ 25,433 1,000 100.00 784,278 (37) (37) Subsidiary Kuo-Shin Investment Limited Taipei Investment 1,612,059 1,612,059 89,300 100.00 1,751,697 287,674 287,674 Subsidiary Brightking Holdings Ltd Cayman Holding company 3,328,253 - 45,608 100.00 3,310,532 112,442 77,197 Subsidiary Yageo Corporation (South Asia)

Pte. Ltd. Singapore Electronic component

marketing SGD 780 SGD 780 - 100.00 (231,872) 331,977 331,977 Subsidiary

Yageo Europe Holding B.V. Netherlands Holding company US$ 147,757 US$ 147,757 - 100.00 1,023,882 553,207 561,336 Subsidiary Yageo America America Electronic component

marketing US$ 2,347 US$ 2,347 1 100.00 (278,487) 4,729 4,729 Subsidiary

Yageo South Asia (M) Sdn. Bhd. Malaysia Electronic component marketing

- - - 100.00 596 588 588 Subsidiary

Yageo Holding (Cayman) Limited Cayman Holding company - - - 100.00 - - - Subsidiary Pulse Electronics Corporation America Holding company US$ 721,461 - 25,574 100.00 22,506,651 214,534 181,051 Subsidiary Chilisin Electronics Corp. Hsinchu Inductor manufacture and

marketing 1,468,855 1,571,448 25,276 10.40 4,301,324 3,001,586 368,551 Associate

GTCL Singapore Holding company 60,603 80,897 8,232 23.39 211,496 (150,483) (35,120) Associate Teapo Electronics Corporation New Taipei City Capacitor manufacture and

marketing 1,075,558 1,075,558 11,002 12.02 506,512 1,749,115 210,272 Associate

Strong Components Co., Ltd. Kaohsiung Electronic component manufacture and marketing.

79,384 79,384 6,530 31.42 88,161 6,331 1,989 Associate

Kuo-Shin Investment Ltd. Chilisin Electronics Corp. Hsinchu Inductor manufacture and

marketing 263,814 284,245 5,034 2.07 857,102 3,001,586 73,394 Associate



Yageo Holding (Bermuda) Yageo (Hong Kong) Limited Hong Kong Investment HK$2,093,178 HK$2,093,178 1,030,499 100.00 US$ 784,906 US$ 168,276 US$ 168,276 Subsidiary Ltd. Yageo USA (H.K.) Limited Hong Kong Passive Component

marketing HK$ 8,000 HK$ 8,000 - 100.00 US$ 592,774 US$ 377,592 US$ 377,592 Subsidiary

Ko-E Holding (Cayman) Cayman Islands Holding company US$ 4,500 US$ 4,500 4,500 83.83 US$ 16,038 US$ (1,327) US$ (1,112) Subsidiary Vitrohm Holding GmbH Germany Investment EUR 15,849 EUR 15,849 - 100.00 US$ 13,419 US$ 1,065 US$ 1,065 Subsidiary Belkin International Samoa Investment US$ 1,104 US$ 1,104 1,104 46.00 US$ 1,141 US$ (1,841) US$ (847) Associate Yageo Korea Korea Resistor marketing US$ 236 US$ 236 - 100.00 US$ 3,232 US$ 1,469 US$ 1,469 Subsidiary Yageo Japan Japan Resistor marketing US$ 339 US$ 339 - 100.00 US$ 150 US$ 41 US$ 41 Subsidiary Hsu Tai International (H.K.) Hong Kong Investment US$ 2,400 US$ 2,400 1 100.00 US$ 1,046 US$ 79 US$ 79 Subsidiary \ Brightking Enterprise (H.K.) Co.,

Ltd. Hong Kong Selling overvoltage and


600,165 600,165 153,968 100.00 2,032,316 233,053 111,713 Subsidiary

Pulse Electronics

Corporation Egston Holding GmbH Austria Holding company US$ 22,030 - - 100.00 US$ 24,562 US$ 917 US$ 2,342 Subsidiary

(Continued)

- 171 -



Investee


2018 December 31,

2017 Shares %

Ko-E Holding (Cayman) Ko-E Corp. New Taipei City Electronic components

marketing US$ 1,393 US$ 1,393 4,500 100.00 US$ 1,774 US$ 2,619 US$ 87 Subsidiary

Ko-E (H.K.) Limited Hong Kong Electronic components marketing

US$ 4,662 US$ 4,662 - 100.00 US$ 16,975 US$ (11,023) US$ (1,407) Subsidiary

Brightking Enterprise (H.K.)

Co., Ltd. Brightking Electronics Inc. America Selling overvoltage and


41,425 41,425 12,750 100.00 (1,040) (7,879) (6,010) Subsidiary

Brightking Electronics Co., Ltd. New Taipei City Manufacturing and selling overvoltage and overcurrent protection electronic components

129,393 129,393 12,939 100.00 19,590 (48,033) (13,531) Subsidiary

Bestbright Electronics Co., Ltd. (Taiwan)

New Taipei City Manufacturing and selling overvoltage and overcurrent protection electronic components

101 101 10 100.00 1 - - Subsidiary

Note 1: Information on investment in Mainland China please refer to Table 8. Note 2: All the above investment account and share of profit or loss relevant to subsidiaries have been eliminated from consolidation.

(Concluded)

- 172 -

TABLE 8 YAGEO CORPORATION AND SUBSIDIARIES INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investee Company Main Businesses and Products Paid-in Capital (Note 3) Method of Investment

Accumulated Outflow of

Investment from Taiwan as of

January 1, 2018 (Note 3)

Remittance of Funds Accumulated

Outflow of Investment from

Taiwan as of December 31, 2018

(Note 3)

Net Income (Loss) of the Investee (Note 4)

% Ownership of Direct or

Indirect Investment

Investment Gain (Loss)

(Note 4)

Carrying Value as of

December 31, 2018 (Note 3)

Accumulated Inward Remittance

of Earnings as of December 31, 2018

(Note 3)

Outflow (Note 3)

Inflow (Note 3)

Yageo Electronics (Dongguan) Co.,

Ltd. Manufacture and marketing of passive

components US$ 53,250 ($ 1,636,532 )

Indirect: Through a company registered in a third region

US$ 46,510 ($ 1,429,392 )

$ - $ - US$$ 46,510 ($ 1,429,392 )

HK$$ 129,721 ($ 499,257)

100.00 HK$$ 119,822 ($ 461,159)

HK$$ 1,195,031 ($ 4,689,899)

$ -

Yageo Electronics (China) Co., Ltd. Manufacture and marketing of passive

components US$ 301,977 ($ 9,280,659 )


US$ 204,977 ($ 6,299,558)

- - US$ 204,977 ($ 6,299,558)

HK$ 1,078,338 ($ 4,150,199)

100.00 HK$ 1,078,338 ($ 4,150,199)

HK$ 3,959,981 ($ 15,540,945)

US$ 7,751 ($ 238,211 )

Yageo Components (Suzhou) Co.,


components US$ 5,000 ($ 153,665 )


US$ 5,000 ($ 153,665)

- - US$ 5,000 ($ 153,665)

HK$ 8,603 ($ 33,110)

100.00 HK$ 8,456 ($ 32,545)

HK$ 95,800 ($ 375,967)

-

Yageo Trade (Suzhou) Co., Ltd. Marketing of passive components US$ 5,000

($ 153,665 ) Indirect: Through a company

registered in a third region US$ 5,000 ($ 153,665)

- - US$ 5,000 ($ 153,665)

HK$ 610,804 ($ 2,350,801)

100.00 HK$ 610,804 ($ 2,350,801)

HK$ 869,886 ($ 3,413,868)

-

Compostar Technology (Dongguan)

Co., Ltd. Manufacture and marketing of

passive.components US$ 1,500 ($ 46,100 )


US$ 1,164 ($ 35,773)

- - US$ 1,164 ($ 35,773)

- 100.00 - HK$ 18,720 ($ 73,467)

-

Compostar Technology (Suzhou)

Co., Ltd. Manufacture and marketing of passive

components US$ 5,150 ($ 158,275 )


US$ 5,150 ($ 158,275)

- - US$ 5,150 ($ 158,275)

- - - - -

Guo Chuang Electronics (Dongguan)


components US$ 1,709 ($ 52,523 )


US$ 789 ($ 24,248)

- - US$ 789 ($ 24,248)

HK$ 143 ($ 550)

35.00 HK$ 50 ($ 192)

HK$ 8,008 ($ 31,429)

-

Ko-E Technology (Shenzhen) Co.,

Ltd. Manufacture and marketing of

electronic components US$ 3,500 ($ 107,566 )


US$ 3,150 ($ 96,809)

- - US$ 3,150 ($ 96,809)

HK$ 66,229 ($ 254,896)

83.83 HK$ 55,520 ($ 213,680)

HK$ 154,372 ($ 605,833)

-

Guo Ray Electronics Co., Ltd. Marketing of electronic components US$ 1,000


registered in a third region US$ 460 ($ 14,137)

- - US$ 460 ($ 14,137)

US$ (1,841) ($ (55,530))

46.00 US$ (847) ($ (25,548))

US$ (350) ($ (10,757))

-

Chen-Xin Electronic (Chiao-Tao)


components HK$ 1,000 ($ 3,925 )


US$ 59 ($ 1,813)

- - US$ 59 ($ 1,813)

- - - - -

Chen Xin (Dongguan) Production of passive components US$ 1,000


registered in a third region US$ 460 ($ 14,137)

- - US$ 460 ($ 14,137)

- - - - -

Bestbright Electronics Co., Ltd. Manufacturing and selling overvoltage

and overcurrent protection electronic components

342,073 Indirect: Through a company registered in a third region

- US$ 110,301 ($ 3,389,881) (Note 6)

- US$ 110,301 ($ 3,389,881)

319,867

100.00 143,929 2,149,670 -

Brightking (Shenzhen) Co., Ltd. Manufacturing and selling overvoltage


94,380


- - - - 114,806

100.00 1,257 652,687 -

Brightking (Shanghai) Co., Ltd. Manufacturing and selling overvoltage


29,249


- - - - 87,596

100.00 10,158 246,458 -

Brightking (Beijing) Co., Ltd Manufacturing and selling overvoltage


18,876


- - - - 14,924

100.00 (115)

63,486 -

Huizhou Lien Shun Electronics Co.,

Ltd. Manufacturing and selling overvoltage


130,395


- US$ 1,603 ($ 49,265) (Note 6)

- US$ 1,603 ($ 49,265)

(56,316)

100.00 (36,778)

50,264 -

(Continued)

- 173 -





Remittance of Funds Accumulated

Outflow of Investment from

Taiwan as of December 31, 2018

(Note 3)


% Ownership of Direct or

Indirect Investment


(Note 4)





(Note 3)

Outflow (Note 3)

Inflow (Note 3)

Ceramate Technical (Suzhou) Co.,



$ 81,661


$ - $ - $ - $ - $ (16,194)

100.00 $ (11,437)

$ 18,208 -

Zhejiang Bestbright Electronics Co.,



186,642


- - - - (1,469)

100.00 (692)

215,598 -

Pulse Electronics (Dongguan) CO.,

LTD Manufacturing automotive electronic

components 774,291


- US$ 397,542 ($ 12,217,658) (Note 6)

- US$ 397,542 ($ 12,217,658)

(86,761)

100.00 39,230

1,233,779 -

Mian Yang Pulse Electronics Co.,

Ltd. Manufacturing automotive electronic

components 64,539


- US$ 38,414 ($ 1,180,577) (Note 6)

- US$ 38,414 ($ 1,180,577)

69,376 100.00 9,666

149,108 -

Suining Pulse Electronics Co., Ltd Manufacturing automotive electronic

components 15,367


- US$ 38,864 ($ 1,194,407) (Note 6)

- US$ 38,864 ($ 1,194,407)

(11,070)

100.00 (13,368)

102,454 -

Pulse (Suzhou) Wireless Products

Co., Ltd Manufacturing automotive electronic

components 777,545


- US$ 22,613 ($ 694,965) (Note 6)

- US$ 22,613 ($ 694,965)

17,192 100.00 10,418 42,330 -

Pulse Electronics (ShenZhen) Co.,

Ltd Manufacturing automotive electronic

components 19,976


- US$ 3,667 ($ 112,698) (Note 6)

- US$ 3,667 ($ 112,698)

4,804 100.00 179 15,500 -

Shengsheng Technology (Suzhou)

Co., Ltd. Manufacturing automotive electronic

components 276,597


- US$ 10,021 ($ 307,975) (Note 6)

- US$ 10,021 ($ 307,975)

(324)

100.00 (513)

35,968 -

Egston Electronics Zhuhai Ltd Manufacturing automotive electronic

components 71,915


- US$ 20,496 ($ 629,904) (Note 6)

- US$ 20,496 ($ 629,904)

33,432 100.00 50 107,699 -

Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2018

(Note 3)

Investment Amounts Authorized by Investment Commission, MOEA (Note 3)

Upper Limit on the Amount of Investment Stipulated by Investment Stipulated by Investment Commission,

MOEA

$28,158,835 (US$916,241) $32,755,385 (US$1,065,805) (Note 1) (Note 2) Note 1: Investment Commission of MOEA approved the transfer of earnings to capital of Yageo Electronics (Dongguan) Co., Ltd. and Yageo Electronics (China) Co., Ltd. amounting to US$6,740 thousand and US$97,000 thousand, respectively. Note 2: Referred to under Order No. 10720416280 issued by the MOEA on June 8, 2018, the Company obtained the operational headquarters certification documents issued by the Industrial Bureau of the MOEA valid from June 4, 2018 to June 3, 2021. Therefore, the investment in mainland china is not restricted. Note 3: The currency rate on December 31, 2018, stated one New Taiwan dollar to HKD and USD are 1:3.9245 and 1:30.733, respectively. Note 4: The currency rate in 2017, stated one New Taiwan dollar to HKD and USD are 1:3.8487 and 1:30.163, respectively. Note 5: Subsidiary Compostar Technology (Suzhou) Co., Ltd., Chen-Xin Electronic (Chiao-Tao) Co., Ltd. and Chen Xin (Dongguan) had been liquidated and withdrawn of investment approved by Investment Commission of MOEA. Note 6: The amount of the investment approved by Investment Commission of MOEA. The actual amount of investment is currently under approval and preparation. Note 7: All the above investment account and share of profit or loss relevant to subsidiaries have been eliminated from consolidation.

(Concluded)

- 174 -

TABLE 9 YAGEO CORPORATION AND SUBSIDIARIES INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. Company Name Related Party Flow of Transactions (Note 1)

Transaction Details

Financial Statement Account Amount Payment Terms % to

Total Sales or Assets

0 Yageo Corporation Yageo Electronics (China) Co., Ltd. a. Receivables from related parties $ 84,591 T/T 90 days - Yageo Trade (Suzhou) Co., Ltd. a. Receivables from related parties 69,777 T/T 90 days - Yageo Components (Suzhou) Co., Ltd. a. Receivables from related parties 27,025 T/T 90 days - Ko-E (H.K.) Limited a. Receivables from related parties 399,474 T/T 60 days 1 Yageo USA (H.K.) Limited a. Receivables from related parties 779,170 Offset account T/T 90 days 1 Yageo Europe Holding B.V. a. Receivables from related parties 1,789,765 T/T 45 days 1 Yageo America a. Receivables from related parties 78,553 T/T 90 days - Yageo Corporation (South Asia) Pte. Ltd. a. Receivables from related parties 1,586,134 T/T 90 days 1 Yageo Electronics (China) Co., Ltd. a. Sales 2,167,438 T/T 90 days 3 Yageo Trade (Suzhou) Co., Ltd. a. Sales 91,465 T/T 90 days - Yageo Components (Suzhou) Co., Ltd. a. Sales 33,954 T/T 90 days - Yageo Electronics (Dongguan) Co., Ltd. a. Sales 3,177,485 Offset account T/T 90 days 4 Ko-E (H.K.) Limited a. Sales 2,758,072 T/T 60 days 4 Yageo USA (H.K.) Limited a. Sales 6,344,285 Offset account T/T 90 days 8 Yageo Europe Holding B.V. a. Sales 3,961,698 T/T 45 days 5 Yageo Corporation (South Asia) Pte. Ltd. a. Sales 4,079,500 T/T 90 days 5 Ko-E (H.K.) Limited a. Logistics service income 88,988 T/T 60 days -

1 Yageo Holding (Bermuda) Ltd. Yageo (Hong Kong) Limited a. Receivables from related parties 12,064 Advances - Yageo Europe Holding B.V. c. Receivables from related parties 6,181,422 Financing 5 Brightking Electronics Co., Ltd. c. Receivables from related parties 67,613 Financing - Yageo America Corporation c. Receivables from related parties 299,406 Financing -

2 Yageo Electronics (China) Co., Ltd. Ko-E (H.K.) Limited c. Receivables from related parties 565,178 T/T 65 days 1 Yageo Corporation b. Receivables from related parties 2,876,324 T/T 90 days 2 Yageo Europe Holding B.V. c. Receivables from related parties 187,488 T/T 90 days - Ko-E (H.K.) Limited c. Sales 2,558,745 T/T 65 days 3 Yageo Corporation b. Sales 632,949 T/T 90 days 1 Yageo Europe Holding B.V. c. Sales 906,420 T/T 90 days 1

3 Yageo USA (H.K.) Limited Yageo Trade (Suzhou) Co., Ltd. c. Receivables from related parties 916,499 T/T 60 days 1 Ko-E (H.K.) Limited c. Receivables from related parties 1,081,068 T/T 90 days 2 Yageo Electronics (China) Co., Ltd. c. Receivables from related parties 11,132 T/T 90 days - Yageo Holding (Bermuda) Ltd. b. Receivables from related parties 1,536,650 Financing 1 Yageo Holding (Bermuda) Ltd. b. Receivables from related parties 11,034 By agreements - Yageo Trade (Suzhou) Co., Ltd. c. Sales 5,519,037 T/T 60 days 7 Ko-E (H.K.) Limited c. Sales 7,652,734 T/T 90 days 12 Ko-E (H.K.) Limited c. Logistics service income 492,516 T/T 90 days -

(Continued)

- 175 -


Transaction Details



4 Yageo Electronics (Dongguan) Co., Ltd. Yageo Corporation b. Receivables from related parties $ 2,073,844 Offset account T/T 90 days 2 Yageo Corporation b. Sales 193,863 Offset account T/T 90 days -

5 Yageo Trade (Suzhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. c. Receivables from related parties 1,647,328 T/T 65 days 1 Yageo Components (Suzhou) Co., Ltd. c. Receivables from related parties 17,024 T/T 90 days - Yageo USA (H.K.) Limited c. Receivables from related parties 18,532 T/T 90 days - Yageo Electronics (China) Co., Ltd. c. Receivables from related parties 402,984 Financing - Yageo Electronics (China) Co., Ltd. c. Sales 19,473 T/T 90 days 8 Ko-E Technology (Shenzhen) Co., Ltd. c. Sales 6,520,584 T/T 65 days - Yageo Components (Suzhou) Co., Ltd. c. Sales 48,143 T/T 90 days - Yageo USA (H.K.) Limited c. Sales 18,872 T/T 30 days -

6 Yageo Components (Suzhou) Co., Ltd. Yageo Corporation b. Receivables from related parties 31,927 T/T 90 days - Yageo Corporation b. Sales 135,781 T/T 90 days - Yageo Europe Holding B.V. c. Sales 31,334 T/T 90 days - Vitrohm Portuguesa Lda. Portugal c. Sales 32,816 T/T 90 days -

7 Yageo Korea Yageo Corporation b. Receivables from related parties 99,990 T/T 30 days - Yageo Corporation b. Commission income 95,135 T/T 30 days -

8 Yageo Japan Yageo Holding (Bermuda) Ltd. b. Commission income 31,229 T/T 30 days -

9 Vitrohm Holding GmbH Yageo Holding (Bermuda) Ltd. b. Receivables from related parties 217,027 Financing -

10 Ko-E Holding (Cayman) Ko-E (H.K.) Limited a. Receivables from related parties 17,995 Advances -

11 Yageo America Corporation Yageo Corporation b. Commission income 101,830 T/T 90 days -

12 Yageo South Asia (M) Sdn. Bhd. Yageo Corporation (South Asia) Pte. Ltd. c. Commission income 13,047 T/T 30 days -

13 Ko-Shin Investment Ltd. Brightking Electronics Co., Ltd. c. Receivables from related parties 38,000 Financing -

14 Bestbright Electronics Co., Ltd. Brightking Enterprise (H.K.) Co., Ltd. b. Sales 32,000 T/T 30-60 days - Brightking Enterprise (H.K.) Co., Ltd. b. Receivables from related parties 12,097 T/T 30-60 days - Brightking Electronics Inc. c. Sales 14,242 T/T 30-60 days - Brightking Electronics Inc. c. Receivables from related parties 11,965 T/T 30-60 days - Brightking Electronics Co., Ltd. c. Sales 18,075 T/T 30-60 days - Ceramate Technical (Suzhou) Co., Ltd. a. Sales 46,719 T/T 30-60 days - Brightking (Shenzhen) Co., Ltd. a. Sales 561,688 T/T 30-60 days 1 Brightking (Shenzhen) Co., Ltd. a. Receivables from related parties 111,062 T/T 30-60 days - Brightking (Shanghai) Co., Ltd. a. Sales 819,016 T/T 30-60 days 1 Brightking (Shanghai) Co., Ltd. a. Receivables from related parties 290,016 T/T 30-60 days - Brightking (Beijing) Co., Ltd. a. Sales 184,491 T/T 30-60 days -

(Continued)

- 176 -


Transaction Details



15 Huizhou Lien Shun Electronics Co., Ltd. Bestbright Electronics Co., Ltd. b. Sales $ 50,173 T/T 30-60 days -

Brightking (Shenzhen) Co., Ltd. b. Sales 76,689 T/T 30-60 days - Brightking (Shenzhen) Co., Ltd. b. Receivables from related parties 16,233 T/T 30-60 days - Brightking (Shanghai) Co., Ltd. c. Sales 71,267 T/T 30-60 days - Brightking (Shanghai) Co., Ltd. c. Receivables from related parties 14,429 T/T 30-60 days -

16 Ceramate Technical (Suzhou) Co., Ltd. Bestbright Electronics Co., Ltd. b. Sales 49,027 T/T 30-60 days -

17 Brightking Electronics Co., Ltd. Bestbright Electronics Co., Ltd. c. Sales 28,793 T/T 30-60 days -

18 Dongguan Pulse Electronics Co. Ltd. Pulse Electronics (Singapore) Pte. Ltd b. Sales 70,889 T/T 90 days - Pulse Electronics (Singapore) Pte. Ltd b. Receivables from related parties 70,053 T/T 90 days -

19 Mianyang Pulse Electronics Co. Ltd. Pulse Electronics Inc. c. Sales 38,123 T/T 90 days - Pulse Electronics (Singapore) Pte. Ltd b. Sales 118,378 T/T 90 days - Pulse Electronics Inc. c. Receivables from related parties 73,787 T/T 90 days -

20 Pulse (Suzhou) Wireless Products Co. Ltd. Pulse Electronics (Singapore) Pte. Ltd b. Sales 83,980 T/T 90 days -

21 Suining Pulse Electronics Co. Ltd. Pulse Electronics (Singapore) Pte. Ltd b. Sales 65,963 T/T 90 days - Pulse Electronics (Singapore) Pte. Ltd b. Receivables from related parties 88,815 T/T 90 days -

22 Pulse Components. Ltd Pulse Electronics Inc. c. Sales 19,256 T/T 90 days - Pulse Electronics (Singapore) Pte. Ltd b. Sales 100,351 T/T 90 days - Pulse Electronics Inc. c. Receivables from related parties 108,973 T/T 90 days -

Pulse Electronics (Singapore) Pte. Ltd b. Receivables from related parties 517,113 T/T 90 days -

23 Egston Electronics Zhuhai Ltd Egston Far East GmbH (AT) c. Receivables from related parties 69,954 T/T 60 days -

24 EGSTON System Electronic spol.s.r.o. (CZ)

EGSTON System Electronics Eggenburg GmbH (AT)

c. Sales 123,457 T/T 30 days -

Note 1: The flow of related-party transactions is as follows:

a. From the parent company to its subsidiary b. From a subsidiary to its parent company c. Between subsidiaries

Note 2: The intercompany transactions have been eliminated from consolidation.

(Concluded)

- 177 -

TABLE 10 YAGEO CORPORATION AND SUBSIDIARIES THE GROUP’S ORGANIZATION CHART DECEMBER 31, 2018 AND 2017 2018

(Continued)

100%

Kuo-Shin Investment

Limited


100%

Yageo Corporation

Vitrohm Portuguesa


100%

100%

100%

Yageo Korea

100%


100%

100%

Yageo USA (H.K.) Limited

100%

Yageo Japan

100%

Yageo

Corporation (South Asia)

Pte. Ltd.

100%


83.83% 100% Hsu Tai


Ko-E Corp. Ko-E (H.K.) Limited

Ko-E Technology

(Shenzhen) Co., Ltd.

100% 100%

100%


Co., Ltd.


Co., Ltd.


Ltd.


Ltd.

100% 100% 100%


Ltd.

100%

Yageo America Corporation

100% 100%

100%


Yageo Europe B.V.


Ltd.

Yageo Holding (Cayman) Limited

100%


100% 100%

Brightking Holdings Ltd


Co., Ltd.

100%


Co., Ltd.

28.37%


100%

Brightking Electronics Co.,

Ltd.

100% 100%

Brightking Electronics Inc.

100%

Bestbright Electronics Co.,

Ltd.

Brightking (Shenzhen)

Co., Ltd.

Ceramate Technical

(Suzhou) Co., Ltd.

Zhejiang Bestbright

Electronics Co., Ltd.

100%100% 100%

71.63%

Brightking (Beijing) Co., Ltd.

100%

Brightking (Shanghai) Co.,

Ltd.

100%

100%

Egston Holding GmbH

- 178 -

2017

(Concluded)

100%

Kuo-Shin Investment

Limited


100%

Yageo Corporation

Vitrohm Portuguesa


100%

100%

100%

Yageo Korea

100%


100%

100%

Yageo USA (H.K.) Limited

100%

Yageo Japan

100%

Yageo Corporation (South Asia)

Pte. Ltd.

100%


83.83% 100% Hsu Tai


Ko-E Corp. Ko-E (H.K.) Limited

Ko-E Technology

(Shenzhen) Co., Ltd.

100% 100%

100%


Co., Ltd.


Co., Ltd.


Ltd.


Ltd.

100% 100% 100%


Ltd.

100%

Yageo America Corporation

100% 100%

100%


Yageo Europe B.V.


Ltd.

- 179 -

INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Yageo Corporation Opinion We have audited the accompanying financial statements of Yageo Corporation (the Company), which comprise the balance sheets as of December 31, 2018 and 2017, and the statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the financial statements, including a summary of significant accounting policies. In our opinion, based on our audits and the reports of other auditors (please refer to the Other Matter paragraph), the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, 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. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Based on our audits and the reports of other auditors, 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 for the year ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters of the financial statements for the year ended December 31, 2018 are as follows: Allowance for Expected Credit Loss of Trade Receivables The recoverable amount of trade receivables is determined by management’s evaluation of the credit risk of overdue receivables, which is affected by management’s assumptions about a client’s credit quality. In our audit, we focused on clients with significant trade receivables and overdue balances, and we evaluated the reasonableness of management’s estimation of the allowance for expected credit loss of trade receivables.

Attachment II Financial Statements for the most recent year audited by the CPA

- 180 -

For a summary of the significant accounting policies on expected credit loss of trade receivables, refer to Note 4 to the accompanying financial statements. Refer to Note 12 to the financial statements for the carrying amount of trade receivables. Our audit procedures for the aforementioned key audit matter are described as follows: 1. We tested the completeness and the accuracy of the aging report of the trade receivables which

served as a basis for the calculation of the expected credit loss allowance and we verified that the percentage of such allowance was consistent with the Company’s policy on the allowance for expected credit loss.

2. We examined the recoverability of trade receivables outstanding at yearend by checking the

collections after the balance sheet date. 3. For the past due, outstanding amount, we assessed the reasonableness of the allowance through

understanding the history of the client and whether collateral was obtained; we also assessed the state of the overall economy.

Allowance for Inventory Valuation Loss The value of inventory is affected by the volatility of market demand and the ever-changing technology which can cause inventory to become outdated and obsolete. The allocation of inventory costs and the estimations of the net realizable value of inventory require management’s judgment. In our audit, we focused on testing whether the value of inventory is stated at the lower of cost or net realizable value. We also assessed the reasonableness of management’s estimation of the allowance for inventory valuation loss. For a summary of the significant accounting policies on inventory valuation, refer to Note 4 to the accompanying financial statements. Refer to Note 13 to the financial statements for the carrying amount of inventory. Our audit procedures for the aforementioned key audit matter are described as follows: 1. We tested the aging of inventory and we calculated the amount of allowance for inventory

valuation loss per the Company’s policy. 2. We selected samples of inventory items at yearend and we compared the respective actual

selling prices with the book values to ensure that the book values do not exceed the net realizable values.

Acquisition of Subsidiaries In 2018, the Company acquired 100% of the equity interests of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively. The acquisitions were identified as key audit matter because the transactions involved complicated calculations such as in the determination of the consideration transferred and the assessment of the fair value of the acquired assets and assumed liabilities. We verified that the business combinations had been properly evaluated and approved by inspecting the minutes of meetings of the board of directors and by reviewing the compliance with the internal control systems established by the Company and that the relevant provisions and procedures for the acquisition and disposal of assets were followed. In addition, we also performed the following audit procedures: 1. We tested the controls for the acquisition and disposal of assets and assessed if the design and

implementation of the internal control are effective.

- 181 -

2. We verified the date of the transaction, reviewed the relevant cash payment documents and the

fair value of the assets, performed the recalculation of the profit and loss, and confirmed that the accounting treatment was appropriate.

Other Matter As described in Note 14, we did not audit the financial statements of partial investees accounted for using the equity method. The financial statements of the aforementioned investees accounted for using the equity method were audited by other auditors; our opinion, insofar as it relates to the related amounts included herein, is based solely on the reports of other auditors. The total investments in these investees accounted for using the equity method were 0.96% (NT$1,112,043 thousand) and 2.37% (NT$1,509,359 thousand) of the Company’s total assets as of December 31, 2018 and 2017, respectively, and the amounts of the Company’s share of profit of such associates were 1.53% (NT$563,325 thousand) and 5.73% (NT$419,909 thousand) of the Company’s profit before income tax for the years ended December 31, 2018 and 2017, respectively. As described in Note 1 to the accompanying financial statements, on August 1, 2017, the Company sold 100% of its interest in Ferroxcube International Holding B.V. in a cash settlement amounting to €133,188 thousand. In addition, in 2018, the Company acquired 100% of the equity interest of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively. 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 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 supervisors, are responsible for overseeing the Company’s financial reporting process. Auditors’ 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 auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

- 182 -

As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the 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 auditors’ 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 auditors’ 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.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities

or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision, and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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 for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

- 183 -

The engagement partners on the audit resulting in this independent auditors’ report are Yung-Hsiang Chao and Jr-Shian Ke. Deloitte & Touche Taipei, Taiwan Republic of China March 14, 2019

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

- 184 -

YAGEO CORPORATION BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 ASSETS Amount % Amount % CURRENT ASSETS

Cash and cash equivalents (Notes 3, 4 and 6) $ 8,535,682 7 $ 461,352 1 Financial assets at fair value through profit or loss - current (Notes 3, 4 and 7) 16,901 - 117 - Notes receivable (Notes 3, 4, 5 and 12) - - 445 - Trade receivables (Notes 3, 4, 5 and 12) 2,212,586 2 1,053,020 2 Trade receivables from related parties (Notes 3, 4 and 29) 4,694,386 4 6,291,951 10 Other receivables (Notes 3 and 29) 256,243 - 362,487 - Inventories (Notes 4, 5 and 13) 3,059,022 3 1,352,999 2 Prepayment 270,229 - 92,877 - Other current assets 612 - 514 -

Total current assets 19,045,661 16 9,615,762 15

NON-CURRENT ASSETS

Financial assets at fair value through profit or loss - non-current (Notes 3, 4 and 7) 482 - - - Financial assets at fair value through other comprehensive income - non-current (Notes 3, 4 and 8) 1,112,244 1 - - Available-for-sale financial assets - non-current (Notes 3, 4 and 10) - - 1,419,141 2 Held-to-maturity financial assets - non-current (Notes 3, 4 and 11) - - 3,050,039 5 Financial assets at amortized cost - non-current (Notes 3, 4 and 9) 2,839,120 3 - - Investments accounted for using the equity method (Notes 4 and 14) 84,840,672 73 41,828,770 66 Property, plant and equipment (Notes 4, 5, 15 and 30) 5,932,977 5 6,495,138 10 Computer software (Note 4) 81,796 - 85,445 - Goodwill (Notes 4, 5 and 16) 109,643 - 109,643 - Deferred tax assets (Notes 4 and 22) 1,961,908 2 867,618 2 Refundable deposits (Note 3) 5,990 - 5,131 - Other non-current assets 79,409 - 79,409 -

Total non-current assets 96,964,241 84 53,940,334 85

TOTAL $ 116,009,902 100 $ 63,556,096 100 LIABILITIES AND EQUITY CURRENT LIABILITIES

Short-term borrowings (Note 17) $ 20,417,300 18 $ 13,979,440 22 Short-term bills payable (Note 17) 499,487 - 1,099,772 2 Financial liabilities at fair value through profit or loss - current (Notes 4 and 7) 27,674 - 72,443 - Contract liabilities - current (Note 29) 8,359,581 7 - - Notes payable 162,247 - 3,449 - Trade payables 2,473,120 2 2,449,296 4 Trade payables to related parties (Note 29) 5,182,279 5 4,880,008 8 Other payables (Note 18) 4,993,586 4 2,921,063 5 Current tax liabilities (Notes 4 and 22) 3,923,898 3 920,897 1 Other current liabilities 807,044 1 22,267 -

Total current liabilities 46,846,216 40 26,348,635 42

NON-CURRENT LIABILITIES

Long-term borrowings (Notes 17 and 30) 9,000,000 8 5,500,000 9 Deferred tax liabilities (Notes 4 and 22) 205,022 - - - Accrued pension liabilities (Notes 4 and 19) 113,484 - 207,142 - Guarantee deposits received 126 - 126 - Other non-current liabilities (Notes 4 and 14) 510,359 1 275,146 -

Total non-current liabilities 9,828,991 9 5,982,414 9

Total liabilities 56,675,207 49 32,331,049 51

EQUITY

Share capital Common shares 4,270,394 3 3,504,010 6 Capital collected in advance 453 - 1,628 -

Total share capital 4,270,847 3 3,505,638 6 Capital surplus

Issuance of common shares 2,718,524 2 2,652,778 4 From share of changes in capital surplus of associates 2,804,929 3 415,813 1 From employee share options 20,146 - 32,847 -

Total capital surplus 5,543,599 5 3,101,438 5 Retained earnings

Legal reserve 3,235,596 3 2,550,866 4 Special reserve 437,595 - 1,723,692 3 Unappropriated earnings 49,478,674 43 20,096,117 31

Total retained earnings 53,151,865 46 24,370,675 38 Other equity

Exchange differences on translation of foreign operations (1,820,627) (2) (1,664,627) (3) Unrealized gain on financial assets at fair value through other comprehensive income 610,563 1 - - Unrealized gain on available-for-sale financial assets - - 1,911,923 3

Total other equity (1,210,064) (1) 247,296 - Treasury shares (2,421,552) (2) - -

Total equity 59,334,695 51 31,225,047 49

TOTAL $ 116,009,902 100 $ 63,556,096 100 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 14, 2019)

- 185 -

YAGEO CORPORATION STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % OPERATING REVENUE (Notes 4 and 29)

Net sales $ 37,221,892 100 $ 15,637,652 100 OPERATING COSTS (Notes 4, 13, 21 and 29)

Cost of goods sold 13,505,778 36 11,092,235 71 GROSS PROFIT 23,716,114 64 4,545,417 29 REALIZED GAIN (LOSS) ON TRANSACTIONS

WITH SUBSIDIARIES (Note 4) (2,227,783) (6) 32,648 - REALIZED GROSS PROFIT 21,488,331 58 4,578,065 29 OPERATING EXPENSES (Notes 4, 21 and 29)

Selling and marketing 1,180,751 3 406,002 2 General and administrative 2,687,290 7 608,394 4 Research and development 275,757 1 263,077 2 Reversal of expected credit losses (Notes 4 and 12) (505) - - -

Total operating expenses 4,143,293 11 1,277,473 8

PROFIT FROM OPERATIONS 17,345,038 47 3,300,592 21 NONOPERATING INCOME

Finance costs (Notes 4 and 21) (398,205) (1) (210,409) (1) Share of profit of subsidiaries and associates

(Note 4) 18,278,731 49 4,302,491 28 Interest income (Note 4) 495,310 1 117,056 1 Rental income (Notes 4 and 29) 2,694 - 3,560 - Gain on financial instruments at fair value through

profit or loss (Note 4) 380,397 1 62,305 - Loss on financial instruments at fair value through

profit or loss (Note 4) (210,786) - (399,298) (3) Other gains and losses (Notes 4, 21 and 29) 887,239 2 157,377 1

Total nonoperating income 19,435,380 52 4,033,082 26

PROFIT BEFORE INCOME TAX 36,780,418 99 7,333,674 47 INCOME TAX EXPENSE (Notes 4 and 22) 2,941,125 8 677,848 4 NET PROFIT FOR THE YEAR 33,839,293 91 6,655,826 43

(Continued)

- 186 -

YAGEO CORPORATION STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2018 2017 Amount % Amount % OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4

and 19) $ 30,078 - $ (54,068) - Unrealized gain on investments in equity

instruments at fair value through other comprehensive income (Notes 4 and 20) 531,170 1 - -

Share of the other comprehensive income of associates accounted for using the equity method (Note 4) (104) - (1,815) -

Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 22) (3,094) - 9,192 -

Items that may be reclassified subsequently to profit or loss: Unrealized gain on available-for-sale financial

assets (Notes 4 and 20) - - 707,200 4 Share of the other comprehensive income of

associates accounted for using the equity method (Notes 4 and 20) (1,398,526) (4) 647,510 4

Income tax relating to items that may be reclassified subsequently to profit or loss (Notes 4, 20 and 22) 114,209 1 116,220 1

Other comprehensive income (loss) for the year,

net of income tax (726,267) (2) 1,424,239 9 TOTAL COMPREHENSIVE INCOME FOR THE

YEAR $ 33,113,026 89 $ 8,080,065 52 EARNINGS PER SHARE (NEW TAIWAN

DOLLARS; Note 23) Basic $ 80.30 $ 13.05 Diluted $ 78.09 $ 12.77

The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 14, 2019) (Concluded)

- 187 -

YAGEO CORPORATION STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of the Company Other Equity

Exchange

Differences on Unrealized Gain

Unrealized Gain on Financial Assets at Fair

Value Business

Combinations Retained Earnings Translating (Loss) on Through Other under Common Share Capital Capital Surplus Unappropriated Foreign Available-for-sale Comprehensive Control with Common Shares Capital Collected (Notes 4, 20 Legal Reserve Special Reserve Earnings Operations Financial Assets Income Successor (Note 20) in Advance Total and 24) (Note 20) (Note 20) (Note 3, 4, 19, 20) Total (Notes 4 and 20) (Notes 3, 4 and 20) (Notes 3, 4 and 20) Total Treasury Stock Total (Notes 4 and 20) Total Equity BALANCE, JANUARY 1, 2017 $ 5,163,056 $ 51,728 $ 5,214,784 $ 504,611 $ 2,155,454 $ 437,595 $ 17,661,355 $ 20,254,404 $ (1,097,198 ) $ (188,899 ) $ - $ (1,286,097 ) $ - $ 24,687,702 $ (1,808,243 ) $ 22,879,459 Capital reduction (1,509,669 ) - (1,509,669 ) - - - - - - - - - - (1,509,669 ) - (1,509,669 ) Cash dividends distributed by subsidiaries - - - - - - - - - - - - - - 200,853 200,853 Appropriation of the 2016 earnings

Legal reserve - - - - 395,412 - (395,412 ) - - - - - - - - - Special reserve - - - - - 1,286,097 (1,286,097 ) - - - - - - - - - Cash dividends distributed by the Company - - - - - - (1,283,218 ) (1,283,218 ) - - - - - (1,283,218 ) - (1,283,218 )


using equity method - - - 340,636 - - (10,930 ) (10,930 ) - - - - - 329,706 - 329,706 Issue of share dividends from capital surplus - - - (225,094 ) - - - - - - - - - (225,094 ) - (225,094 ) Restructuring - - - 2,416,738 - - - - (235,217 ) - - (235,217 ) - 2,181,521 2,096,544 4,278,065 Recognition of compensation cost of employee share options - - - 11,490 - - - - - - - - - 11,490 - 11,490 Recognition of employee share options by the Company 68,033 (50,100 ) 17,933 62,994 - - - - - - - - - 80,927 - 80,927 Net profit for the year ended December 31, 2017 - - - - - - 6,847,300 6,847,300 - - - - - 6,847,300 (191,474 ) 6,655,826 Other comprehensive income for the year ended December 31, 2017, net of

income tax - - - - - - (46,691 ) (46,691 ) (332,212 ) 2,100,822 - 1,768,610 - 1,721,919 (297,680 ) 1,424,239 Buyback of treasury shares - - - - - - - - - - - - (1,617,537 ) (1,617,537 ) - (1,617,537 ) Cancellation of treasury shares (217,410 ) - (217,410 ) (9,937 ) - - (1,390,190 ) (1,390,190 ) - - - - 1,617,537 - - - BALANCE AT DECEMBER 31, 2017 3,504,010 1,628 3,505,638 3,101,438 2,550,866 1,723,692 20,096,117 24,370,675 (1,664,627 ) 1,911,923 - 247,296 - 31,225,047 - 31,225,047 Retrospective restatement - - - - - - 5,440 5,440 - (1,911,923 ) 1,906,483 (5,440 ) - - - - BALANCE AT JANUARY 1, 2018 AFTER RESTATED 3,504,010 1,628 3,505,638 3,101,438 2,550,866 1,723,692 20,101,557 24,376,115 (1,664,627 ) - 1,906,483 241,856 - 31,225,047 - 31,225,047 Appropriation of the 2017 earnings

Legal reserve - - - - 684,730 - (684,730 ) - - - - - - - - - Special reserve - - - - - (1,286,097 ) 1,286,097 - - - - - - - - - Cash dividends distributed by the Company - - - - - - (5,036,144 ) (5,036,144 ) - - - - - (5,036,144 ) - (5,036,144 ) Share dividends distributed by the Company 701,413 - 701,413 - - - (701,413 ) (701,413 ) - - - - - - - -


using equity method - - - 2,389,116 - - - - - - - - - 2,389,116 - 2,389,116 Issue of share dividends from capital surplus - - - (226,586 ) - - - - - - - - - (226,586 ) - (226,586 ) Actual acquisitions of interests in subsidiaries - - - - - - (25,874 ) (25,874 ) - - - - - (25,874 ) - (25,874 ) Changes in percentage of ownership interests in subsidiaries - - - - - - (25,765 ) (25,765 ) - - - - - (25,765 ) - (25,765 ) Recognition of employee share options by the Company 64,971 (1,175 ) 63,796 279,631 - - - - - - - - - 343,427 - 343,427 Net profit for the year ended December 31, 2018 - - - - - - 33,839,293 33,839,293 - - - - - 33,839,293 - 33,839,293 Other comprehensive loss for the year ended December 31, 2018, net of

income tax - - - - - - 26,880 26,880 (156,000 ) - (597,147 ) (753,147 ) - (726,267 ) - (726,267 ) Buyback of treasury shares - - - - - - - - - - - - (2,421,552 ) (2,421,552 ) - (2,421,552 ) Disposals of investments in equity instruments designated as at fair value

through other comprehensive income - - - - - - 698,773 698,773 - - (698,773 ) (698,773 ) - - - - BALANCE AT DECEMBER 31, 2018 $ 4,270,394 $ 453 $ 4,270,847 $ 5,543,599 $ 3,235,596 $ 437,595 $ 49,478,674 $ 53,151,865 $ (1,820,627 ) $ - $ 610,563 $ (1,210,064 ) $ (2,421,552 ) $ 59,334,695 $ - $ 59,334,695 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 14, 2019)

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YAGEO CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 36,780,418 $ 7,333,674 Adjustments for:

Expected credit loss reversed on trade receivables (505) - Impairment loss recognized on trade receivables - 24,222 Depreciation expenses 3,762,953 787,810 Amortization expenses 45,805 55,298 Amortization of prepayments 5,779 4,493 Net (gain) loss on fair value change of financial assets and liabilities

held for trading (169,611) 336,993 Finance costs 398,205 210,409 Interest income (495,310) (117,056) Dividend income (23,269) (17,281) Compensation cost of employee share options - 11,490 Share of profit of subsidiaries and associates (18,278,731) (4,302,491) Net loss (gain) on disposal of property, plant and equipment, net 1,023 (1,060) Net gain on disposal of available-for-sale financial assets - (2,204) Write-downs of inventories 37,874 36,364 Realized loss (gain) on the transactions with subsidiaries 2,227,783 (32,648) Net unrealized gain on foreign currency exchange (40,696) (11,633) Changes in operating assets and liabilities:

Financial assets held for trading - (246,530) Financial assets mandatorily classified as at fair value through

profit or loss 108,058 - Notes receivable 445 (311) Trade receivables (1,152,369) (288,374) Trade receivables - related parties 1,641,691 (2,142,312) Other receivables 104,954 (217,350) Inventories (1,743,897) 55,937 Prepayments (187,509) 59,481 Other current assets (98) 1,608 Contract liabilities 8,359,581 - Notes payable 158,798 (4,620) Trade payables 4,512 484,879 Trade payables - related parties 244,185 1,160,445 Other payables 2,267,545 (5,714) Other current liabilities 784,777 3,492 Accrued pension liabilities (63,579) (3,290)

Cash generated from operations 34,778,812 3,173,721 Interest received 496,918 88,594 Dividend received 23,269 17,281 Interest paid (397,648) (206,904) Income tax paid (691,300) (413,725)

Net cash generated from operating activities 34,210,051 2,658,967

(Continued)

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YAGEO CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars) 2018 2017 CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of financial assets at fair value through other comprehensive income $ 280,073 $ -

Proceeds from sale of financial assets at amortized cost 277,875 - Purchase of held for trading financial assets - (1,873,213) Proceeds from sale of held for trading financial assets - 1,873,213 Purchase of held-to-maturity financial assets - (3,050,039) Acquisition of associates (25,653,852) (1,472,691) Proceeds from capital reduction of associates 122,887 18,196 Payments for property, plant and equipment (3,480,310) (1,964,254) Proceeds from disposal of property, plant and equipment 29,697 6,554 (Increase) decrease in refundable deposits (859) 3,163 Payments for intangible assets (10,010) (12,250) Dividends received from associates 301,773 209,809

Net cash used in investing activities (28,132,726) (6,261,512)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds of short-term borrowings 6,437,860 2,860,440 Repayments of short-term bills payable (600,000) - Proceeds of long-term borrowings 3,500,000 4,100,000 Repayments of long-term borrowings - (2,200,000) Refund of guarantee deposits received - (3,286) Dividends paid to the owners of the Company (5,262,730) (1,500,626) Capital reduction - (1,509,669) Proceeds from employee share options 343,427 80,927 Payments for buyback of treasury shares (2,421,552) (1,617,537)

Net cash generated from financing activities 1,997,005 210,249

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 8,074,330 (3,392,296) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

YEAR 461,352 3,853,648 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 8,535,682 $ 461,352 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 14, 2019) (Concluded)

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YAGEO CORPORATION NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars Unless Stated Otherwise) 1. GENERAL INFORMATION

Yageo Corporation (the Company) was incorporated in 1987 in the Republic of China (ROC). The Company’s shares are traded on the Taiwan Stock Exchange. The Company manufactures and sells passive components. The financial statements of the Company are presented in the Company’s functional currency, the New Taiwan dollar. On August 1, 2017, the Company sold 100% of its equity interest in Ferroxcube International Holding B.V. (“Ferroxcube”) in a cash settlement amounting to €133,188 thousand. In addition, in 2018, the Company acquired 100% of the equity interests of Brightking Holdings Limited and Pulse Electronics Corporation in a cash settlement amounting to NT$3,328,253 thousand and US$721,461 thousand, respectively.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s board of directors on March 14, 2019.

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

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports

by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC) and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Company’s accounting policies: 1) Annual Improvements to IFRSs 2014-2016 Cycle

Several standards, including IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures,” were amended in this annual improvement. The amendment to IFRS 12 clarifies that when an entity’s interest in a subsidiary, a joint venture or an associate is classified as held for sale or is included in a disposal group that is classified as held for sale, the entity is not required to disclose summarized financial information of that subsidiary, joint venture or associate in accordance with IFRS 12. However, all other requirements in IFRS 12 apply to interests in entities classified as held for sale in accordance with IFRS 5. The Company applied the aforementioned amendment retrospectively.

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2) IFRS 9 “Financial Instruments” and related amendments IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies. Classification, measurement and impairment of financial assets On the basis of the facts and circumstances that existed as of January 1, 2018, the Company has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods. The following table shows the original measurement categories and carrying amount under IAS 39 and the new measurement categories and carrying amount under IFRS 9 for each class of the Company’s financial assets and financial liabilities as of January 1, 2018.

Measurement Category Carrying Amount Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark

Cash and cash equivalents Loans and receivables Amortized cost $ 461,352 $ 461,352 Derivatives Held‑for‑trading Mandatorily at fair value

through profit or loss (i.e. FVTPL)

117 117

Equity securities Available‑for‑sale Mandatorily at FVTPL 482 482 a) Available‑for‑sale Fair value through other

comprehensive income (i.e. FVTOCI) - equity instruments

1,418,659 1,418,659 a)

Debt securities Held-to-maturity Amortized cost 3,050,039 3,050,039 b) Notes receivable, trade

receivables and other receivables

Loans and receivables Amortized cost 7,707,903 7,707,903 c)

Refundable deposits Loans and receivables Amortized cost 5,131 5,131

Financial Assets

IAS 39 Carrying

Amount as of January 1,

2018 Reclassifi-

cations

IFRS 9 Carrying

Amount as of January 1,

2018

Retained Earnings Effect on

January 1, 2018

Other Equity

Effect on January 1,

2018 Remark FVTPL $ 117 Add: Reclassification from

available-for-sale (IAS 39)

Required reclassification - $ 482 a) 117 482 $ 599

FVTOCI Equity instruments Add: Reclassification from

available-for-sale (IAS 39) -

1,418,659

$ 5,440

$ (5,440 )

a)

- 1,418,659 1,418,659 5,440 (5,440 ) Amortized cost Add: Reclassification from

held-to-maturity (IAS 39) - 3,050,039 b)

Add: Reclassification from loans and receivables (IAS 39)

-

8,174,386

c)

- 11,224,425 11,224,425 - - $ 117 $ 12,643,566 $ 12,643,683 $ 5,440 $ (5,440 ) a) The Company elected to classify all of its investments in equity securities previously classified

as available-for-sale under IAS 39 as at FVTPL and FVTOCI under IFRS 9. As a result, the subsidiary reclassified the related other equity - unrealized gain on available-for-sale financial assets to retained earnings in the amount of $5,440 thousand.

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b) Debt investments previously classified as held-to-maturity financial assets and measured at amortized cost under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9, because on January 1, 2018, the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows.

c) Notes receivable, trade receivables and other receivables that were previously classified as loans

and receivables under IAS 39 were classified as at amortized cost with an assessment of expected credit losses under IFRS 9.

3) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. Refer to Note 4 for related accounting policies. The Company assessed that the application of IFRS 15 to contracts that were not complete as of January 1, 2018 would not affect the recognition, measurement and presentation of revenue.

4) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” The amendments clarify that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Company expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. In addition, in determining whether to recognize a deferred tax asset, the Company should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses as deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendments also stipulate that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Company will achieve the higher amount and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. Prior to the amendment, in assessing a deferred tax asset, the Company assumed that it will recover the asset at its carrying amount when estimating probable future taxable profit. The Company applied the above amendments retrospectively in 2018.

5) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Company applied IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the Interpretation.

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b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations (the “New IFRSs”)

Effective Date Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 9 “Prepayment Features with Negative

Compensation” January 1, 2019 (Note 2)

IFRS 16 “Leases” January 1, 2019 Amendments to IAS 19 “Plan Amendment, Curtailment or

Settlement” January 1, 2019 (Note 3)

Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”

January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates. Note 2: The FSC permits the election for early adoption of the amendments starting from 2018. Note 3: The Company shall apply these amendments to plan amendments, curtailments or settlements

occurring on or after January 1, 2019. 1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 “Leases”, IFRIC 4 “Determining Whether an Arrangement Contains a Lease” and a number of related interpretations. Definition of a lease Upon initial application of IFRS 16, the Company will elect to apply the guidance of IFRS 16 in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16. The Company as lessee Upon initial application of IFRS 16, the Company will recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for those whose payments under low-value asset and short-term leases will be recognized as expenses on a straight-line basis. On the statements of comprehensive income, the Company will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within operating activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the statements of cash flows. Leased assets and finance lease payables are recognized for contracts classified as finance leases. The Company anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized in retained earnings on January 1, 2019. Comparative information will not be restated.

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The Company expects to apply the following practical expedients: a) The Company will apply a single discount rate to a portfolio of leases with reasonably similar

characteristics to measure lease liabilities. b) The Company will adjust the right-of-use assets on January 1, 2019 by the amount of any

provisions for onerous leases recognized as of December 31, 2018, and will not assesse impairment under IAS 36.

c) The Company will account for those leases for which the lease term ends on or before

December 31, 2019 as short-term leases. d) The Company will exclude initial direct costs from the measurement of right-of-use assets on

January 1, 2019. e) The Company will use hindsight, such as in determining lease terms, to measure lease liabilities. For leases currently classified as finance leases under IAS 17, the carrying amounts of right-of-use assets and lease liabilities on January 1, 2019 will be determined as at the carrying amounts of the respective leased assets and finance lease payables as of December 31, 2018. The Company as lessor Except for sublease transactions, the Company will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019. Anticipated impact on assets and liabilities

Carrying Amount as of December 31,

2018

Adjustments Arising from

Initial Application

Adjusted Carrying

Amount as of January 1, 2019

Right-of-use assets $ - $ 5,107 $ 5,107 Total effect on assets $ - $ 5,107 $ 5,107 Lease liabilities - current $ - $ 5,107 $ 5,107 Total effect on liabilities $ - $ 5,107 $ 5,107

2) IFRIC 23 “Uncertainty over Income Tax Treatments” IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Company concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Company should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Company should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the Company expects to better predict the resolution of the uncertainty. The Company has to reassess its judgments and estimates if facts and circumstances change.

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Upon initial application of IFRIC 23, the Company will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

3) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” The amendments clarified that IFRS 9 shall be applied to account for other financial instruments in an associate or joint venture to which the equity method is not applied. These included long-term interests that, in substance, form part of the Company’s net investment in an associate or joint venture. For long-term interests that, in substance, form part of the Company’s net investment in an associate or joint venture and are governed by IFRS 9, the Company shall, based on the facts and circumstances that exist on January 1, 2019, perform an assessment of the classification under IFRS 9 applied retrospectively. Upon initial application of the above amendments, the Company will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

4) Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of the principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explain that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early. Upon initial application of the above amendments, the Company will recognize the cumulative effect of retrospective application in retained earnings on January 1, 2019.

5) Annual Improvements to IFRSs 2015-2017 Cycle

Several standards, including IFRS 3, IFRS 11, IAS 12 and IAS 23 “Borrowing Costs”, were amended in this annual improvement. IAS 23 was amended to clarify that, if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, the related borrowing costs shall be included in the calculation of the capitalization rate on general borrowings.

6) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current service cost and the net interest for the remainder of the annual reporting period are determined using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities (assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. The Company will apply the above amendments prospectively.

Except for the above impacts, as of the date the financial statements were authorized for issue, the Company continues assessing other possible impacts that the application of the aforementioned amendments and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers will have on the Company’s financial position and financial performance and will disclose these other impacts when the assessment is completed.

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c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs Effective Date

Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets

between An Investor and Its Associate or Joint Venture” To be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3) 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 Company shall apply these amendments to business combinations for which the

acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

Note 3: The Company shall apply these amendments prospectively for annual reporting periods

beginning on or after January 1, 2020. 1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture” The amendments stipulate that, when the Company 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 transaction is recognized in full. Also, when the Company loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when the Company sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate or joint venture, i.e. the Company’s share of the gain or loss is eliminated. Also, when the Company loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the Company’s interest as an unrelated investor in the associate or joint venture, i.e. the Company’s share of the gain or loss is eliminated.

2) Amendments to IFRS 3 “Definition of a Business” The amendments clarify that, to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process applied to the input that together significantly contribute to the ability to create outputs. The amendments narrow the definitions of outputs by focusing on goods and services provided to customers, and the reference to an ability to reduce costs is removed. Moreover, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. In addition, the amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

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Except for the above impact, as of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance The financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

b. Basis of preparation The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value. The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an

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 an asset or liability.

When preparing these parent company only financial statements, the Company used the equity method to account for its investments in subsidiaries and associates. In order for 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 to be the same with the amounts attributable to the owners of the Company in its financial statements, adjustments arising from the differences in accounting treatments between the parent company only basis and the consolidated basis were made to investments accounted for using the equity method, the share of profit or loss of subsidiaries and associates, the share of other comprehensive income of subsidiaries and associates and the related equity items, as appropriate, in these parent company only financial statements.

c. Classification of current and non-current assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within 12 months after the reporting period; and 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a

liability for at least 12 months after the reporting period. Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within 12 months after the reporting period, and

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3) Liabilities for which the Company does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

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

d. Foreign currencies In preparing the Company’s financial statements, transactions in currencies other than the Company’s functional currency (i.e. foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise except for exchange differences on: Monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investments. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. For the purpose of presenting financial statements, the functional currencies of the Company and the Company entities (including subsidiaries, associates, joint ventures and branches in other countries that use currencies which are different from the currency of the Company) are translated into the presentation currency, the New Taiwan dollar, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; and income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving the 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 [attributable to the owners of the Company] are reclassified to profit or loss. In relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to the non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss. Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognized in other comprehensive income.

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e. Inventories

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

f. Investments in subsidiaries The Company uses the equity method to account for its investments in subsidiaries. A subsidiary is an entity (including a structured entity) that is controlled by the Company. Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of subsidiaries attributable to the Company. Changes in the Company’s ownership interest in a subsidiary that do not result in the Company losing control of the subsidiary are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received. When the Company’s share of losses of a subsidiary exceeds its interest in that subsidiary (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses. Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognized immediately in profit or loss. The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the investee’s financial statements as a whole. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes a reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period. When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of the previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides this, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

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

g. Investments in associates

An associate is an entity over which the Company has significant influence and which is neither a subsidiary nor an interest in a joint venture. The Company uses the equity method to account for its investments in associates. Under the equity method, investments in an associate is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate. The Company also recognizes the changes in the Company’s share of the equity of associates attributable to the Company. Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. When the Company subscribes for additional new shares of an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates accounted for using the equity method. If the Company’s ownership interest is reduced due to its additional subscription of the new shares of the associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings. When the Company’s share of losses of an associate equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for using the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate. The entire carrying amount of an investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

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The Company discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date, and the fair value is regarded as the investment’s fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the joint venture. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Company continues to apply the equity method and does not remeasure the retained interest. When a company transacts with its associate, profits and losses resulting from the transactions with the associate recognized in the Company’s financial statements only to the extent that interests in the associate is not related to the Company.

h. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. Property, plant and equipment in the course of construction are carried at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for their intended use. Freehold land is not depreciated. Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. If a lease term is shorter than the assets’ useful lives, such assets are depreciated over the lease term. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis. On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

i. Goodwill For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash-generating units or groups of cash-generating units (referred to as “cash-generating units”) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then pro rata to the other assets of the unit based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. Any impairment loss recognized for goodwill is not reversed in subsequent periods. If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation which is disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained.

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j. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives, residual values, and amortization methods are reviewed at the end of each reporting period, with the effect of any changes in the estimates accounted for on a prospective basis.

2) Derecognition of intangible assets On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss.

k. Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill, to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation. The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss. When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized on the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

l. Financial instruments Financial assets and financial liabilities are recognized when a company becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from 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 FVTPL are recognized immediately in profit or loss. 1) Financial assets

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

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a) Measurement categories

2018 Financial assets are classified into the following categories: Financial assets at FVTPL, financial assets at amortized cost and equity instruments at FVTOCI. i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria. Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 28.

ii. Financial assets at amortized cost Financial assets that meet the following conditions are subsequently measured at amortized cost: i) The financial asset is held within a business model whose objective is to hold financial

assets in order to collect contractual cash flows; and ii) The contractual terms of the financial asset give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal amount outstanding. Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents and trade receivables at amortized cost, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for: i) Purchased or originated credit-impaired financial assets, for which interest income is

calculated by applying the credit-adjusted effective interest rate to the amortized cost of such financial assets; and

ii) Financial assets that are not credit-impaired on purchase or origination but have

subsequently become credit-impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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iii. Investments in equity instruments at FVTOCI

On initial recognition, the Company may make an irrevocable election to designate investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings. Dividends on these investments in equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

2017 Financial assets are classified into the following categories: Financial assets at FVTPL, held-to-maturity investments, available-for-sale financial assets and loans and receivables. i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such financial assets are either held for trading or designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 28.

ii. Held-to-maturity investments Corporate bonds is above specific credit ratings and which the Company has positive intent and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

iii. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL. Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

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

iv. Loans and receivables Loans and receivables (including trade receivables, cash and cash equivalents and debt investments with no active market) are measured using the effective interest method at amortized cost less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

b) Impairment of financial assets and contract assets 2018 The Company recognizes a loss allowance for expected credit losses on financial assets at amortized cost (including trade receivables), investments in debt instruments that are measured at FVTOCI, lease receivables, as well as contract assets. The Company always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables. For all other financial instruments, the Company recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs. Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. The Company recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such a financial asset. 2017 Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of such financial assets, that the estimated future cash flows of the investment have been affected.

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Financial assets at amortized cost, such as trade receivables, are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience with collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference between such an asset’s carrying amount and the present value of its estimated future cash flows, discounted at the financial asset’s original effective interest rate. For a financial asset 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 investment (at the date on which 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 significant financial difficulty of the issuer or counterparty, breach of contract such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to impairment is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of such an investment can be objectively related to an event occurring after the recognition of the impairment loss. The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When trade receivables and other receivables are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables that are written off against the allowance account.

c) Derecognition of financial assets The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. On derecognition of an investment in a debt instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss, and the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Equity instruments Debt and equity instruments issued by a company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments issued by a company are recognized at the proceeds received, net of direct issue costs. The repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Company’s own equity instruments.

3) Financial liabilities a) Subsequent measurement

Except the following situations, all financial liabilities are measured at amortized cost using the effective interest method: Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when such financial liabilities are either held for trading or designated as at FVTPL. Financial liabilities held for trading are stated at fair value, with any gain or loss arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any interest or dividends paid on such financial liability. Fair value is determined in the manner described in Note 28.

b) Derecognition of financial liabilities The difference between the carrying amount of a financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

4) Derivative financial instruments The Company enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts.

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Derivatives are initially recognized at fair value at the date on which the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument; in which event, the timing of the recognition in profit or loss depends on the nature of the hedging relationship. When the fair value of a derivative financial instrument is positive, the derivative is recognized as a financial asset; when the fair value of a derivative financial instrument is negative, the derivative is recognized as a financial liability. Before 2018, derivatives embedded in non-derivative host contracts were treated as separate derivatives when they met the definition of a derivative; their risks and characteristics were not closely related to those of the host contracts; and the contracts were not measured at FVTPL. Starting from 2018, derivatives embedded in hybrid contracts that contain financial asset hosts that is within the scope of IFRS 9 are not separated; instead, the classification is determined in accordance with the entire hybrid contract. Derivatives embedded in non-derivative host contracts that are not financial assets that is within the scope of IFRS 9 (e.g. financial liabilities) 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 host contracts are not measured at FVTPL.

m. Revenue recognition

2018 The Company identifies contracts with customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligations are satisfied. The Company does not recognize revenue on materials delivered to subcontractors because this delivery does not involve a transfer of control. 2017 Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Allowances for sales returns and liabilities for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors. 1) Revenue from the sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied: a) The Company has transferred to the buyer the significant risks and rewards of ownership of the

goods; b) The Company retains neither continuing managerial involvement to the degree usually

associated 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 the

Company; and e) The costs incurred or to be incurred in respect of the transaction can be measured reliably. The Company does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of the materials’ ownership.

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2) Dividend and interest income Dividend income from investments is recognized when a shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Company and that the amount of income can be measured reliably. Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis with reference to the principal outstanding and at the applicable effective interest rate.

n. Leasing Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

2) The Company as lessee Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

o. Borrowing costs Borrowing costs directly attributable to an acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other than that which is stated above, all other borrowing costs are recognized in profit or loss 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 undiscounted amount of the benefits expected to be paid in exchange for the related services.

2) Retirement benefits Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions.

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Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur or when the plan amendment or curtailment occurs or when the settlement occurs. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

q. Employee share options Employee share options granted to employees and others providing similar services The fair value at the grant date of the employee share options is expensed on a straight-line basis over the vesting period, based on the Company’s best estimates of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options. It is recognized as an expense in full at the grant date if vested immediately. At the end of each reporting period, the Company revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expenses reflect the revised estimate, with a corresponding adjustment to capital surplus - employee share options.

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 of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforwards and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint arrangements, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred taxes for the year

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

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY In the application of the Company’s accounting policies, management is required to make judgments, estimations, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revisions affect only that period or in the period of the revisions and future periods if the revisions affect both current and future periods. a. Estimated impairment of financial assets - 2018

The provision for impairment of trade receivables, investments in debt instruments, and financial guarantee contracts is based on assumptions about risk of default and expected loss rates. The Company uses judgment in making these assumptions and in selecting the inputs to the impairment calculation, based on the Company’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. For details of the key assumptions and inputs used, see Note 12. Where the actual future cash inflows are less than expected, a material impairment loss may arise.

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b. Estimated impairment of trade receivables - 2017 When there is objective evidence of impairment loss of receivables, the Company takes into consideration the estimation of the future cash flows of such assets. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

c. Write-down of inventories The net realizable value of inventories is the estimated selling price in the ordinary course of business less the estimated costs of completion and disposal. The estimation of net realizable value is based on current market conditions and historical experience with product sales of a similar nature. Changes in market conditions may have a material impact on the estimation of the net realizable value.

d. Impairment of property, plant and equipment The impairment of equipment in relation to the production of passive components was based on the recoverable amounts of those assets, which are the higher of their fair value less costs of disposal and their value in use. Any changes in the market prices or future cash flows will affect the recoverable amounts of those assets and may lead to the recognition of additional impairment losses or the reversal of impairment losses.

e. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The calculation of the value in use requires management to estimate the future cash flows expected to arise from the cash-generating units and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

December 31 2018 2017 Cash on hand $ 205 $ 205 Demand deposits 8,218,509 371,603 Cash equivalents (with original maturities of less than 3 months)

Time deposits 316,968 89,544 $ 8,535,682 $ 461,352 The market rate intervals of cash in bank at the end of the reporting period were as follows: December 31 2018 2017 Demand deposits 0.01%-2.95% 0.01%-2.05%

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7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31 2018 2017 Financial assets at FVTPL - current Financial assets held for trading

Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts $ - $ 117

Financial assets mandatorily classified as at FVTPL Derivative financial assets (not under hedge accounting)

Foreign exchange forward contracts 16,901 - $ 16,901 $ 117 Financial assets at FVTPL - non-current Financial assets mandatorily classified as at FVTPL

Non-derivative financial assets Domestic unlisted shares

Linko International Golf & Country Club $ 482 $ - Financial liabilities - current Financial liabilities held for trading

Derivative financial liabilities (not under hedge accounting) Foreign exchange forward contracts $ - $ 72,443

Financial assets mandatorily classified as at FVTPL Derivative financial liabilities (not under hedge accounting)

Foreign exchange forward contracts 27,674 - $ 27,674 $ 72,443 At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

Currency Maturity Notional Amount (In Thousands)

December 31, 2018 Buy USD/NTD 2019.01.04-2019.01.28 USD581,500/NTD17,903,315 December 31, 2017 Buy USD/NTD 2018.01.02-2018.01.31 USD303,500/NTD9,105,480 Sell EUR/USD 2018.01.07-2018.02.22 EUR9,770/USD11,931 The Company entered into foreign exchange forward contracts to manage exposures to exchange rate fluctuations of foreign currency denominated assets and liabilities.

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8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

December 31,

2018 Non-current Investments in equity instruments at FVTOCI $ 1,112,244 Investments in equity instruments at FVTOCI

December 31,


Listed shares and emerging market shares TA-I Technology Co., Ltd. $ 878,826

Foreign investments Overseas listed shares

SHS KOA Corp. 233,418

$ 1,112,244 These investments in equity instruments are not held for trading. Instead, they are held for medium to long-term strategic purposes. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Company’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Note 3 and Note 10 for information relating to their reclassification and comparative information for 2017.

9. FINANCIAL ASSETS AT AMORTIZED COST

December 31,


Corporate bonds $ 2,839,120 From August to October 2017, the Company bought corporate bonds at face value of $98,500 in thousand U.S. dollars with a coupon rate of 2.95% to 5.50% and an effective interest rate 2.53% to 3.65%. The bonds were classified as held-to-maturity financial assets under IAS 39. Refer to Notes 3 and 11 for information relating to their reclassification and comparative information for 2017. In October 2018, part of the bonds were sold to manage credit concentration risk; the bonds were sold at fair value of $277,875.

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10. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31,


Listed shares and emerging market shares TA-I Technology Co., Ltd. $ 647,465

Unlisted shares Linko International Golf & Country Club 482

647,947 Foreign investments

Overseas listed shares SHS KOA Corp. 771,194

$ 1,419,141

11. HELD-TO-MATURITY FINANCIAL ASSETS

December 31,


Corporate bonds $ 3,050,039 The Company’s investments in bonds were as follows:

December 31,

2017 Total par value (in thousand U.S. dollars) $ 98,500 Coupon rates 2.95%-5.50% Effective interest rates 2.37%-3.65% Average time to maturity (in years) 2024

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12. NOTES RECEIVABLE AND TRADE RECEIVABLES December 31 2018 2017 Notes receivable At amortized cost

Gross carrying amount $ - $ 445 Notes receivable - operating $ - $ 445 Trade receivables At amortized cost

Gross carrying amount $ 2,241,772 $ 1,082,711 Less: Allowance for impairment loss (29,186) (29,691) $ 2,212,586 $ 1,053,020 Trade Receivables For the year ended December 31, 2018 The average credit period of sales of goods was 30-90 days. No interest was charged on trade receivables. The Company adopted a policy of dealing with major customers that the Company could use other publicly available financial information or its own trading records to rate and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved annually. In order to minimize credit risk, the management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced. The Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Company’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Company’s different customer base. The Company writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Company continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

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December 31, 2018 The aging of receivables was as follows:

December 31,


1-60 days 270,746 61-90 days 643 91-181 days 13,829 More than 181 days 17,981 $ 2,241,772

The above aging schedule was based on the past due days from end of credit term. The movements of the loss allowance of trade receivables were as follows:

For the Year Ended

December 31, 2018

Balance at January 1, 2018 (IAS 39 and IFRS 9) $ 29,691 Less: Net remeasurement of loss allowance (505) Balance at December 31, 2018 $ 29,186 For the year ended December 31, 2017 The Company applied the same credit policy in 2018 and 2017. The average credit period of sales of goods was 30-90 days. In determining the recoverability of a trade receivable, the Company considered any change in the credit quality of the Trade receivable since the date credit was initially granted to the end of the reporting period. The Company recognized an allowance for impairment loss of 100% against all receivables over 365 days because historical experience was that receivables that are past due beyond 365 days are not recoverable. Allowance for impairment loss was recognized against trade receivables between 61 days and 365 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial positions. For some trade receivables balances that were past due at the end of the reporting period, the Company did not recognize an allowance for impairment loss, because there was no significant change in credit quality and the amounts were still considered recoverable. The Company did not hold any collateral or other credit enhancements for these balances.

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The aging of receivables was as follows:

December 31,

2017 Current term $ 989,827 Past due

1-60 days 47,839 61-90 days 4,707 91-181 days - More than 181 days 40,338

$ 1,082,711 The above aging schedule was based on the past due days from end of credit term. The aging of receivables that were past due but not impaired was as follows:

December 31,

2017 Less than 60 days $ 47,839 The above aging schedule was based on the past due days from end of credit term. The movements of the allowance for doubtful trade receivables were as follows:

Individually Assessed for Impairment

Collectively Assessed for Impairment Total

Balance at January 1, 2017 $ - $ 5,469 $ 5,469 Add: Impairment loss recognized (reversal of

impairment loss) on receivables 24,287 (65) 24,222 Balance at December 31, 2017 $ 24,287 $ 5,404 $ 29,691

13. INVENTORIES

December 31 2018 2017 Finished goods and merchandise $ 1,608,086 $ 403,561 Work in progress 338,084 302,662 Raw materials 940,228 588,846 Supplies 172,624 57,930 $ 3,059,022 $ 1,352,999 The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 was $13,505,778 thousand and $11,092,235 thousand, respectively. The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017 included inventory write-downs of $37,874 thousand and $36,364 thousand, respectively.

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14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in Associates December 31 2018 2017 Investments in subsidiaries $ 79,733,179 $ 39,010,027 Investment in subsidiaries classified as other noncurrent liabilities $ (510,359) $ (275,146) Investments in associates $ 5,107,493 $ 2,818,743 a. Investments in subsidiaries

December 31 2018 2017 Yageo Holding (Bermuda) Ltd. $ 50,355,543 $ 35,472,004 Pulse Electronics Corporation 22,506,651 - Brightking Holdings Limited 3,310,532 - Ko-Shin Investment Ltd. 1,751,697 1,104,858 Yageo Europe Holding B.V. 1,023,882 1,423,187 Ferroxcube (Samoa) Holding Ltd. 784,278 761,724 Yageo South Asia (M) Sdn. Bhd. 596 14 Yageo Corporation (South Asia) Pte. Ltd. (231,872) 248,240 Yageo America Corporation (278,487) (275,146) 79,222,820 38,734,881 Add: Investment in subsidiaries classified as other noncurrent

liabilities 510,359 275,146 $ 79,733,179 $ 39,010,027



Name of Subsidiary 2018 2017 Yageo Holding (Bermuda) Ltd. 100.0% 100.0% Yageo Europe Holding B.V. 100.0% 100.0% Ko-Shin Investment Ltd. 100.0% 100.0% Ferroxcube (Samoa) Holding Ltd. 100.0% 100.0% Yageo Corporation (South Asia) Pte. Ltd. 100.0% 100.0% Yageo South Asia (M) Sdn. Bhd. 100.0% 100.0% Yageo America Corporation 100.0% 100.0% Brightking Holdings Limited 100.0% - Yageo Holding (Cayman) 100.0% - Pulse Electronics Corporation 100.0% - For details about the acquisition of Brightking Holdings Limited and Pulse Electronics Corporation, refer to Note 29 to the Company’s consolidated financial statements for the year ended December 31, 2018.

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The investments in subsidiaries accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2018 and 2017 was based on the subsidiaries’ financial statements which have been audited for the same years. The financial statements of Yageo Europe Holding B.V. as of and for the years ended December 31, 2018 and 2017 had been audited by other auditors.

b. Investments in associates

December 31 2018 2017 Material associates

Chilisin Electronics Corp. $ 4,301,322 $ 2,156,087 Teapo Electronics Corporation 506,514 302,268 Global Testing Corporation Limited (GTCL) 211,496 274,216 5,019,332 2,732,571

Associates that are not individually material Strong Components Co., Ltd. 88,161 86,172

$ 5,107,493 $ 2,818,743 Material associates



Name of Associates 2018 2017 Chilisin Electronics Corp. 10.40% 15.55% Teapo Electronic Corp. 12.02% 12.02% GTCL 23.39% 23.28% Refer to Table 7 “Information on Investees” for the nature of activities, principal places of business and countries of incorporation of the associates. Fair values (Level 1) of investments in associates with available published price quotations are summarized as follows: December 31 Name of Associate 2018 2017 Chilisin Electronics Corp. $ 1,984,169 $ 3,500,234 Teapo Electronic Corp. 441,179 481,887 GTCL 111,040 185,637 $ 2,536,388 $ 4,167,758 Investments in Chilisin Electronics Corp. and Teapo Electronics were accounted for by the equity method since the Company had significant influence over it. The investments accounted for using the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2018 and 2017 were based on the associates’ financial statements which have been audited for the same years. The financial statements of Strong Components Co., Ltd. as of and for the years ended December 31, 2018 and 2017 had been audited by other auditors.

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15. PROPERTY, PLANT AND EQUIPMENT

Freehold Land Buildings Machinery Equipment

Other Equipment

Construction in Progress and Unaccepted equipment Total

Cost Balance at January 1, 2017 $ 634,828 $ 4,234,103 $ 12,046,265 $ 915,381 $ 171,301 $ 18,001,878 Additions - - 647 2,090 2,741,433 2,744,170 Disposals - (43,055 ) (618,598 ) (25,915 ) - (687,568 ) Reclassifications - 157,239 1,405,824 81,459 (1,682,113 ) (37,591 ) Balance at December 31, 2017 $ 634,828 $ 4,348,287 $ 12,834,138 $ 973,015 $ 1,230,621 $ 20,020,889 Accumulated depreciation and impairment Balance at January 1, 2017 $ 3,808 $ 2,791,664 $ 9,830,249 $ 793,723 $ - $ 13,419,444 Disposals - (43,055 ) (612,556 ) (25,892 ) - (681,503 ) Depreciation expense - 144,968 598,260 44,582 - 787,810 Balance at December 31, 2017 $ 3,808 $ 2,893,577 $ 9,815,953 $ 812,413 $ - $ 13,525,751 Carrying amounts at

December 31, 2017 $ 631,020 $ 1,454,710 $ 3,018,185 $ 160,602 $ 1,230,621 $ 6,495,138 Cost Balance at January 1, 2018 $ 634,828 $ 4,348,287 $ 12,834,138 $ 973,015 $ 1,230,621 $ 20,020,889 Additions - 155 269 3,208 3,260,627 3,264,259 Disposals - (177,659 ) (444,606 ) (16,676 ) - (638,941 ) Reclassifications - 430,696 3,113,662 148,693 (3,725,610 ) (32,559 ) Balance at December 31, 2018 $ 634,828 $ 4,601,479 $ 15,503,463 $ 1,108,240 $ 765,638 $ 22,613,648 Accumulated depreciation and impairment Balance at January 1, 2018 $ 3,808 $ 2,893,577 $ 9,815,953 $ 812,413 $ - $ 13,525,751 Disposals - (176,266 ) (415,406 ) (16,361 ) - (608,033 ) Depreciation expense - 162,359 3,537,782 62,812 - 3,762,953 Balance at December 31, 2018 $ 3,808 $ 2,879,670 $ 12,938,329 $ 858,864 $ - $ 16,680,671 Carrying amounts at

December 31, 2018 $ 631,020 $ 1,721,809 $ 2,565,134 $ 249,376 $ 765,638 $ 5,932,977 The above items of property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives as follows: Building

Main buildings 50-56 years Engineering system 40-56 years Others 1-20 years

Machinery equipment 1-20 years Other equipment 1-20 years Property, plant and equipment pledged as collateral for bank borrowings are set out in Note 30.

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16. GOODWILL For the Year Ended December 31 2018 2017 Cost Balance at January 1 and December 31 $ 109,643 $ 109,643 The recoverable amount of the cash-generating unit was determined based on a value in use calculation. The Company’s management estimated the recoverable amounts of core assets at their expected useful lives and thus based the cash flow forecast with the following discount rates as of December 31, 2018 and 2017: 14.82% and 8.15%, respectively. The operating revenue forecast was based on the expected future growth rate of the passive product industry along with the projected advancement of the Company’s own business. The Company’s management believed that any reasonable changes in the principal assumptions would not result in the carrying values exceeding the recoverable amounts. As of December 31, 2018 and 2017, there was no indication of impairment loss based on the principal assumptions.

17. BORROWINGS

a. Short-term borrowings

December 31 2018 2017 Unsecured borrowings Line of credit borrowings $ 20,417,300 $ 13,979,440 The effective interest rates for bank loans had ranges of 0.7000%-3.2056% and 0.8400%-2.2690% per annum as of December 31, 2018 and 2017, respectively.

b. Short-term bills payable For the Year Ended December 31 2018 2017 Commercial paper $ 500,000 $ 1,100,000 Less: Unamortized discount on bills payable 513 228 $ 499,487 $ 1,099,772 Outstanding short-term bills payable were as follows: December 31, 2018


Nominal Amount

Discount Amount


Carrying Value of

Collateral Commercial paper Mega Bills $ 500,000 $ 513 $ 499,487 0.968% - $ -

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December 31, 2017


Nominal Amount

Discount Amount


Carrying Value of

Collateral Commercial paper International Bills $ 500,000 $ 164 $ 499,836 0.918% - $ - China Bills 600,000 64 599,936 0.918% - - $ 1,100,000 $ 228 $ 1,099,772 $ -

c. Long-term borrowings

December 31 2018 2017 Secured borrowings Bank loans $ 7,500,000 $ 5,500,000 Unsecured borrowings Line of credit borrowings 1,500,000 - $ 9,000,000 $ 5,500,000 The effective interest rate of long-term bank loans was 0.9800%-1.7970% and 1.7970% per annum as of December 31, 2018 and 2017, respectively. The Company signed a $1,500,000 thousand medium agreement with MUFG Bank, Ltd. on March 23, 2018. The terms of the loans are summarized as follows:

Credit Lines Credit Period Interest Rate Repayment Agreement $ 1,500,000 Three years after the

date of first borrowing

Fixed rate 0.98% for the first year, and 0.99% for the second and third year

Three years after the date of first borrowing

The Company signed a $10,800,000 thousand syndicated loan agreement with Mega International Commercial Bank and twenty one other financial institutions on April 10, 2017. The terms of the loans are summarized as follows:

Credit Lines Credit Period Interest Rate Repayment Agreement $ 10,800,000 Five years after the

date of contract Fixed rate (0.6%) based on a

specific average rate of notes transacted in Taiwan

Four quarterly installments from the 42nd month after the contract signing date

Under the loan agreement, the Company should collateralize the freehold land, the office buildings and machinery equipment of the factory located in the administrative office in Xindian in New Taipei City and in the Nan-Zi Branch and in the Da-fa industrial estate and a capacitor-line factory in a village in Dashe in Kaohsiung City. The Company will have to maintain its interim and annual current ratios, debt ratios and interest coverage ratios at percentages specified in the agreement.

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18. OTHER LIABILITIES December 31 2018 2017 Current Other payables

Payables for compensation of employees and remuneration of directors and supervisors $ 2,527,914 $ 562,005

Payables for purchases of equipment 724,057 940,108 Payables for salaries or bonuses 426,225 641,940 Payables for annual leave 43,251 39,775 Payables for dividends 7,686 - Others 1,264,426 737,235

$ 4,993,586 $ 2,921,063

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

b. Defined benefit plans The defined benefit plans adopted by the Company in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by a pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy. The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as follows: December 31 2018 2017 Present value of defined benefit obligation $ 346,860 $ 379,066 Fair value of plan assets (233,376) (171,924) Net defined benefit liability $ 113,484 $ 207,142

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Movements in the net defined benefit liability (asset) were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of the Plan Assets

Net Defined Benefit

Liability (Asset) Balance at January 1, 2017 $ 332,759 $ (176,395) $ 156,364 Service cost




Actuarial gain - experience adjustments 48,309 784 49,093 Recognized in other comprehensive income 53,284 784 54,068 Contributions from the employer - (8,597) (8,597) Benefits paid (14,767) 14,767 - Balance at December 31, 2017 379,066 (171,924) 207,142 Service cost




Actuarial gain - experience adjustments (29,780) (4,746) (34,526) Recognized in other comprehensive income (25,332) (4,746) (30,078) Contributions from the employer - (69,213) (69,213) Benefits paid (15,052) 15,052 - Balance at December 31, 2018 $ 346,860 $ (233,376) $ 113,484 An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows: For the Year Ended December 31 2018 2017 Operating costs $ 4,429 $ 4,056 Selling and marketing expenses 280 275 General and administrative expenses 627 711 Research and development expenses 297 265 $ 5,633 $ 5,307

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Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks: 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,

bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the corporate bond interest rate will increase the present value of the

defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the

future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows: December 31 2018 2017 Discount rates 1.125% 1.250% Expected rates of salary increase 1.500% 1.500% 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 2018 2017 Discount rates

0.25% increase $ (7,541) $ (8,430) 0.25% decrease $ 7,804 $ 8,728

Expected rates of salary increase 0.25% increase $ 7,542 $ 8,441 0.25% decrease $ (7,325) $ (8,194)

The sensitivity analysis presented above may not be representative of the actual changes in the present value of the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated. December 31 2018 2017 Expected contributions to the plans for the next year $ 8,750 $ 8,597 Average duration of the defined benefit obligation 12 years 12 years

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20. EQUITY a. Share capital

1) Common shares

December 31 2018 2017 Number of shares authorized (in thousands) 4,000,000 4,000,000 Shares authorized $ 40,000,000 $ 40,000,000 Number of shares issued and fully paid (in thousands) 427,039 350,401 Shares issued $ 4,270,394 $ 3,504,010 Fully paid common shares, which have a par value of NT$10, carry one vote per share and carry a right to dividends. The movements of the common shares were due to issue share dividends and the exercise of employee share options.

2) Global depositary receipts The Company’s global depositary receipts (GDRs) as of December 31, 2018 were as follows: Equivalent GDRs Common Stock (In Thousand (In Thousand Units) Shares) Initial offering 5,000 25,000 Converted from overseas convertible bonds 34,981 174,903 Net increase due to capital increase or capital reduction 68,873 344,363 Reissued within authorized units 66,911 334,557 GDRs transferred to common shares (175,753) (878,761) Outstanding GDRs issued 12 62 The owners of GDRs have the same rights as holders of common shares, except that the GDR owners should exercise, through a depositary trust company, the following beneficial interests subject to the terms of the depositary agreements and the relevant Taiwan laws and regulations: a) Exercise voting rights; b) Convert the GDRs into common shares; and c) Receive dividends and exercise preemptive rights or other rights and interests.

3) Capital reduction For purpose of enhancing the return on equity, profitability per share and proper use of the capital, the capital reduction through a cash return to shareholders, which was proposed by the Company’s board on April 21, 2017, was approved at the shareholders’ meeting on June 7, 2017. Total capital reduction amounted to $1,509,669 thousand, which represented the cancellation of 150,967 thousand shares (30% of common shares). This capital reduction became effective upon the approval by the Securities and Futures Bureau under the FSC on June 30, 2017 as well as the Company’s board approved the day as the effective date of cash return date. The Company had registered this capital reduction with MOEA.

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b. Capital surplus December 31 2018 2017 May be used to offset a deficit, distributed as cash dividends or transferred to share capital (1) Issuance of ordinary shares $ 2,018,115 $ 2,244,701 May be used to offset a deficit only Transferring from employee share options to issuance of

common shares due to exercise 700,409 408,077 May not be used for any purpose Share of changes in capital surplus of associates or subsidiaries

(2) 2,804,929 415,813 Employee share options 20,146 32,847 $ 5,543,599 $ 3,101,438 1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit,

such capital surplus may be distributed as cash dividends or may be transferred to share capital (limited to a certain percentage of the Company’s capital surplus and to once a year).

2) Such capital surplus arises from the effect of changes in ownership interest in a subsidiaries resulted

from equity transactions other than actual disposal or acquisition, or from changes in capital surplus of subsidiaries accounted for by using equity method.

c. Retained earnings and dividend policy

Under the Company’s Articles of Incorporation, when the Company has earnings for the year, remuneration of directors at 3% or less and employees’ bonus of at least 2% of the remaining earnings should be appropriated. If the Company has accumulated deficit, the Company should retain earnings to offset deficit in advance. When the Company has earnings for the year, the Company should first make tax payments, offset any past years’ deficit, then distribute the remaining profit in the following order: 1) Legal reserve is appropriated at 10% of the remaining profit. The appropriation to legal reserve has

no restriction even if the legal reserve equals the Company’s paid-in capital. 2) Special reserve is appropriated or reversed in accordance with the laws and regulations. 3) Appropriations for dividends and bonuses, of at least 10% of the remaining profit after

appropriations for legal reserve and special reserve, may be proposed by the Company’s board of directors and approved at the shareholders’ meeting.

The Company’s dividend policy takes into account the Company’s current and future competitiveness in the domestic and foreign markets, the investment environment and cash requirements. The policy authorizes the Company’s board to propose an earnings distribution in the form of shares or in cash appropriately in accordance with the laws and regulations, with the board’s proposal subject to approval at the shareholders’ meeting. For the policies on distribution of the compensation of employees and remuneration of directors and supervisors before and after amendment, refer to e. employee benefits expense in Note 21.

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Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. Items referred to under Order No. 1010012865, Order No. 1010047490 and Order No. 1030006415 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs” should be appropriated to or reversed from a special reserve by the Company. The appropriations of earnings, bonuses to employees and remuneration to directors and supervisors for 2017 and 2016 approved in the shareholders’ meetings on June 5, 2018 and June 7, 2017, respectively, were as follows:

Appropriation of Earnings Dividends Per Share

(NT$)

For the Year Ended


December 31 2017 2016 2017 2016 Legal reserve $ 684,730 $ 395,412 $ - $ - Special reserve (1,286,097) 1,286,097 - - Cash dividends 5,036,144 1,283,219 14.36 2.55 Share dividends 701,413 - 2.00 - The Company’s shareholders on June 5, 2018, resolved to issue cash dividends at NT$0.64 per share from capital surplus of $226,586 thousand. The 2017 dividends paid aggregated to NT$17 per share, consisting cash dividends of NT$0.64 and NT$14.36 and share dividends of NT$2. The appropriations of earnings for 2018 had been proposed by the Company’s board of directors on March 14, 2019. The appropriations and dividends per share were as follows:

Appropriation

of Earnings Dividends Per Share (NT$)

Legal reserve $ 3,383,929 $ - Special reserve 1,210,063 - Cash dividends 18,790,142 44.30 The appropriations of earnings for 2018 are subject to the resolution of the shareholders’ meeting to be held on June 5, 2019.

d. Special reserves For the Year Ended December 31 2018 2017 Beginning at January 1 $ 1,723,692 $ 437,595 Debit to other equity items - 1,286,097 Reversal of the debits to other equity items (1,286,097) - Balance at December 31 $ 437,595 $ 1,723,692

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e. Other equity items 1) Exchange differences on translating the financial statements of the foreign operations

For the Year Ended December 31 2018 2017 Balance at January 1 $ (1,664,627) $ (1,097,198) Effect of change in tax rate 60,167 - Share from subsidiaries and associates accounted for using

the equity method (216,167) (372,199) Business combinations under common control with successor - (195,230) Balance at December 31 $ (1,820,627) $ (1,664,627)

Amount Before

Tax Related Income

Tax Amount After

Tax Balance at January 1, 2017 $ (1,321,926) $ 224,728 $ (1,097,198) Other comprehensive income recognized

for the year

(683,649) 116,220 (567,429) Balance at December 31, 2017 $ (2,005,575) $ 340,948 $ (1,664,627) Balance at January 1, 2018 $ (2,005,575) $ 340,948 $ (1,664,627) Effect of change in tax rate - 60,167 60,167 Other comprehensive income recognized

for the year

(270,209) 54,042 (216,167) Balance at December 31, 2018 $ (2,275,784) $ 455,157 $ (1,820,627)

2) Unrealized gain (loss) on available-for-sale financial assets

For the Year Ended

December 31, 2017

Balance at January 1, 2017 $ (188,899) Unrealized gain on revaluation of available-for-sale financial

assets 707,200 Share from associates accounted for using the equity method 1,393,622 Balance at December 31, 2017 1,911,923 Adjustment on initial application of IFRS 9 (5,440) Balance at January 1, 2018 per IFRS 9 $ 1,906,483

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3) Unrealized gain on financial assets at FVTOCI

For the Year Ended

December 31, 2018

Balance at January 1 per IFRS 9 $ 1,911,923 Adjustment on initial application of IFRS 9 (5,440) Balance at January 1, 2018 per IFRS 9 1,906,483 Recognized for the year

Unrealized gain - equity instruments 531,170 Share from associates accounted for using the equity

method (1,128,317) Cumulative unrealized gain of equity instruments transferred

to retained earnings due to disposal (698,773) Balance at December 31 $ 610,563

f. Business combinations under common control with successor

Exchange differences on translating the financial statements of the foreign operations:

For the Year Ended

December 31, 2017

Balance at January 1 $ (62,463) Exchange differences on translating the financial statements of

foreign operations (297,680) Business combinations under common control with successor 235,217 Balance at December 31 $ -

g. Treasury shares

Purpose of Buyback

Shares Canceled


Number of shares on January 1, 2017 - Increase during the year 21,741 Decrease during the year (21,741) Number of shares on December 31, 2017 - Number of shares on January 1, 2018 - Increase during the year 2,965 Number of shares on December 31, 2018 2,965

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To maintain the Company’s credibility and shareholders’ rights and interests, the Company’s board resolved on December 23, 2016, to buy back up to 30,000 thousand common shares with the buyback price ranging from NT$40.00 to NT$87.80 between December 26, 2016 and February 24, 2017 on the Taiwan Stock Exchange. As of February 24, 2017, the last day of the buyback period, the Company had bought back 18,349 thousand shares at a total amount of $1,294,350 thousand. The Company had canceled the buyback shares and registered the change with the MOEA. To maintain the Company’s credibility and shareholders’ rights and interests, the Company’s board resolved on March 3, 2017, to buy back up to 30,000 thousand common shares with the buyback price ranging from NT$52.20 to NT$109.30 between March 6 and May 5, 2017 on the Taiwan Stock Exchange. As of May 5, 2017, the last day of the buyback period, the Company had bought back 3,392 thousand shares at a total amount of $323,187 thousand. The Company had canceled the buyback shares and registered the change with the MOEA. To maintain the Company’s credibility, shareholders’ rights and interests and enhance employee’s coherence, the Company’s board resolved on July 17, 2018, to buy back up to 4,500 thousand common shares with the buyback price ranging from NT$632.80 to NT$1,616.80 between July 19 and September 17, 2018 on the Taiwan Stock Exchange. As of September 17, 2018, the last day of the buyback period, the Company had bought back 2,965 thousand shares at a total amount of $2,421,552 thousand. The Company had canceled the buyback shares and registered the change with the MOEA. Under the Securities and Exchange Act, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote.

21. NET PROFIT FOR THE YEAR a. Other gains and losses

For the Year Ended December 31 2018 2017 Gain (loss) on disposal of property, plant and equipment $ (1,023) $ 1,060 Gain on disposal of investments - 2,204 Net foreign exchange gains (losses) 855,767 (126,761) Dividend income 23,269 17,281 Other gains 118,354 270,330 Other losses (109,128) (6,737) $ 887,239 $ 157,377

b. Finance costs

For the Year Ended December 31 2018 2017 Interest on bank loans $ 387,398 $ 200,069 Interest on short-term bills 6,128 5,274 Other finance costs 4,679 5,066 $ 398,205 $ 210,409

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c. Depreciation and amortization For the Year Ended December 31 2018 2017 Property, plant and equipment $ 3,762,953 $ 787,810 Intangible assets 45,805 55,298 Prepayments 5,779 4,493 $ 3,814,537 $ 847,601 An analysis of depreciation by function

Operating costs $ 3,672,191 $ 696,935 Operating expenses 90,762 90,875

$ 3,762,953 $ 787,810 An analysis of amortization by function

Operating costs $ 797 $ 910 Selling and marketing expenses 2,480 1,676 General and administrative expenses 40,679 50,607 Research and development expenses 1,849 2,105 Other expenses 5,779 4,493

$ 51,584 $ 59,791

d. Employee benefit expense For the Year Ended December 31 2018 2017 Post-employment benefits (Note 19)

Defined contribution plans $ 81,615 $ 67,271 Defined benefit plans 5,633 5,307

Other employee benefits 4,520,101 2,243,595 Total employee benefit expense $ 4,607,349 $ 2,316,173 An analysis of employee benefit expense by function

Operating costs $ 2,114,672 $ 1,725,628 Operating expenses 2,492,677 590,545

$ 4,607,349 $ 2,316,173

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e. Employees’ compensation and remuneration of directors and supervisors The Company accrued employees’ compensation and remuneration of directors and supervisors at rates of no less than 2% and no higher than 3%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors. The employees’ compensation and remuneration of directors and supervisors for the years ended December 31, 2018 and 2017, which have been approved by the Company’s board of directors on March 14, 2019 and February 22, 2018, respectively, were as follows: Accrual rate For the Year Ended December 31 2018 2017 Employees’ compensation 3% 3% Remuneration of directors and supervisors 3% 3% Amount For the Year Ended December 31 2018 2017 Cash Shares Cash Shares Employees’ compensation $ 1,173,843 $ - $ 240,164 $ - Remuneration of directors and

supervisors 1,173,843 - 240,164 - If there is a change in the amounts after the annual financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate. There was no difference between the actual amounts of compensation of employees and remuneration of directors and supervisors paid and the amounts recognized in the financial statements for the year ended December 31, 2017 and 2018. Information on the compensation of employees and remuneration to directors and supervisors and bonus to employees, directors and supervisors resolved by the shareholders' meeting in 2019 and 2018 are available on the Market Observation Post System website of the Taiwan Stock Exchange.

f. Gain or loss on foreign currency exchange

For the Year Ended December 31 2018 2017 Foreign exchange gains $ 1,401,979 $ 850,482 Foreign exchange losses (546,212) (977,243) $ 855,767 $ (126,761)

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22. INCOME TAXES a. Major components of tax expense recognized in profit or loss

For the Year Ended December 31 2018 2017 Current tax In respect of current year $ 3,762,565 $ 480,490 Income tax on unappropriated earnings 166,442 94,949 Adjustments for prior years (209,729) 77,067 3,719,278 652,506 Deferred tax In respect of current year (744,066) 30,395 Effect of tax rate changes (90,021) - Adjustments for prior years 55,934 (5,053) (778,153) 25,342 Income tax expense recognized in profit or loss $ 2,941,125 $ 677,848 A reconciliation of accounting profit and income tax expenses were as follows: For the Year Ended December 31 2018 2017 Profit before tax $ 36,780,418 $ 7,525,148 Income tax expense calculated at the statutory rate $ 7,356,084 $ 1,279,275 Unrecognized deductible temporary differences (3,655,746) (763,974) Effect of tax rate changes (90,021) - Others (681,839) (4,416) Income tax on unappropriated earnings 166,442 94,949 Adjustments for prior years’ tax (153,795) 72,014 Income tax expense recognized in profit or loss $ 2,941,125 $ 677,848 The applicable corporate income tax rate used by the Company is 17%. In February 2018, it was announced by the President of the ROC that the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%. As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 additional tax at 5% of unappropriated earnings are not reliably determinable.

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b. Income tax recognized in other comprehensive income For the Year Ended December 31 2018 2017 Deferred tax Effect of change in tax rate $ (63,088) $ - In respect of the current year

Translation of foreign operations (54,042) (116,220) Actuarial (gain) loss on defined benefit plan 6,015 (9,396)

$ (111,115) $ (125,616)

c. Current tax liabilities

December 31 2018 2017 Current tax liabilities

Income tax payable $ 3,923,898 $ 920,897 d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2018

Opening Balance

Effect of Change in Tax

Rate Recognized in Profit or Loss

Recognized in Other

Comprehen- sive Income

Closing Balance


Impairment loss on goodwill $ 118,163 $ 20,852 $ (55,606) $ - $ 83,409 Impairment loss on property, plant

and equipment 192,335 33,941 (6,228) - 220,048 Inventory write-downs 54,172 9,560 7,574 - 71,306 Accrued expenses 60,890 10,745 25,000 - 96,635 Defined benefit obligation 30,676 5,413 (12,775) (6,015) 17,299 Exchange difference on foreign

operation 340,947 60,167 - 54,042 455,156 Others 70,435 12,431 935,189 - 1,018,055

$ 867,618 $ 153,109 $ 893,154 $ 48,027 $ 1,961,908 Deferred tax liabilities Temporary differences

Others $ - $ - $ 205,022 $ - $ 205,022

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For the year ended December 31, 2017

Opening Balance

Effect of Change in Tax

Rate Recognized in Profit or Loss

Recognized in Other

Comprehen- sive Income

Closing Balance


Impairment loss on goodwill $ 165,429 $ - $ (47,266) $ - $ 118,163 Impairment loss on property, plant

and equipment 197,630 - (5,295) - 192,335 Inventory write-downs 50,436 - 3,736 - 54,172 Accrued expenses 83,413 - (22,523) - 60,890 Defined benefit obligation 22,067 - (583) 9,192 30,676 Exchange difference on foreign

operation 224,727 - - 116,220 340,947 Others 28,876 - 41,559 - 70,435

$ 772,578 $ - $ (30,372) $ 125,412 $ 867,618 Deferred tax liabilities Temporary differences

Others $ 5,030 $ - $ (5,030) $ - $ - e. Income tax assessments

The Company’s income tax returns through 2015 had been assessed by the tax authorities.

23. EARNINGS PER SHARE

Unit: NT$ Per Share For the Year Ended December 31 2018 2017 Basic earnings per share $ 80.30 $ 13.05 Diluted earnings per share $ 78.09 $ 12.77 The basic and diluted earnings per share adjusted retrospectively for the year ended December 31, 2017 were as follows:

Unit: NT$ Per Share

Before Retrospective Adjustment

After Retrospective Adjustment

Basic earnings per share $ 15.64 $ 13.05 Diluted earnings per share $ 15.23 $ 12.77

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The earnings and weighted average number of common shares outstanding in the computation of earnings per share were as follows: Net Profit for the Year For the Year Ended December 31 2018 2017 Profit for the period attributable to owners of the Company $ 33,839,293 $ 6,847,300 Business combinations under common control with successor - (191,474) $ 33,839,293 $ 6,655,826 Weighted average number of common shares outstanding (in thousand shares): For the Year Ended December 31 2018 2017 Weighted average number of common shares in computation of basic

earnings per share 421,408 509,835 Effect of potentially dilutive common shares:

Employee share option 7,825 9,604 Bonus issue to employees 4,105 1,932

Weighted average number of common shares used in the

computation of diluted earnings per share 433,338 521,371 If the Company offered to settle compensation or bonuses paid to employees in cash or shares, the Company assumed the entire amount of the compensation or bonuses 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, as the effect is dilutive. Such dilutive effect of the potential shares was included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

24. SHARE-BASED PAYMENT ARRANGEMENTS

a. Employee share option plan in 2007

On November 30, 2007, the Company’s board approved the issue of 100,000 thousand units of share options, which had been approved by the Securities and Futures Bureau under the FSC. The Company issued the entire 100,000 thousand units on December 20, 2007. Each option represents one share of the Company’s common share, and the exercise price per share is $10.25. The vesting period of these options is 10 years. Qualified employees may exercise up to 10%, 20%, 40% and 70% of the vested options after two years, three years, four years and five years, respectively, from the grant date. All options vested may be exercised after six years from the grant date. If the number of the Company’s common shares changes, the exercise price will be revised, as required under the Plan terms. As of December 31, 2018, 42,091 thousand units of employee share options were exercised and converted to 42,091 thousand common shares of the Company.

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Information on employee share options was as follows:

For the Year Ended December 31, 2017


Weighted-average Exercise

Price (NT$)

Balance at January 1 241 $55.70 Options adjusted (72) 24.00 Options expired (169) 79.70 Balance at December 31 - - Options exercisable, end of year - Options granted in 2007 were priced using the Black-Scholes pricing model and the inputs to the model were as follows: November 2007 Risk-free interest rate 2.48% Expected life (years) 7.30 Expected price volatility 48.60% Expected dividend yield 4.87%

b. Employee share option plan in 2014

Qualified employees of the Company and its subsidiaries were granted 40,000 thousand units of share options in May 2014. Each option represents one share of the Company’s common share. The vesting period of these options is 10 years. Qualified employees may exercise at certain percentages of the options after two years, from the grant date. The options were granted at an exercise price equal to the closing price of the Company’s common shares listed on the on the grant date. For any subsequent changes in the Company’s capital surplus, the exercise price is adjusted accordingly. Information on employee share options was as follows: For the Year Ended December 31 2018 2017


Weighted- average

Exercise Price (NT$)


Weighted- average

Exercise Price (NT$)

Balance at January 1 15,308 $58.20 23,846 $42.90 Options forfeited (387) 48.60-58.20 - - Options adjusted - - (6,745) 15.30 Options granted (6,380) 48.60-58.20 (1,793) 41.70-58.20 Balance at December 31 8,541 48.60 15,308 58.20 Options exercisable, end

of year 5,125 64

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Information about outstanding options as of December 31, 2018 and 2017 was as follows: December 31 2018 2017 Range of exercise price (NT$) $48.60 $58.20 Weighted-average remaining contractual life (in years) 5.33 6.33 Options granted in May 2014 were priced using the binomial option pricing model and the inputs to the model were as follows: May 2014 Grant-date share price $17.70 Exercise price $17.70 Expected volatility 37.50% Expected life (in years) 10 Expected dividend yield - Risk-free interest rate 1.52% Expected volatility was based on the historical share price volatility over the past 10 years. To allow for the effects of early exercise, the Company assumed that employees would exercise their options after the vesting date when the share price was 1.3 times the exercise price. Compensation cost recognized was zero and $11,490 thousand for the years ended December 31, 2018 and 2017, respectively.

25. ACQUISITION OF SUBSIDIARIES - WITH OBTAINED CONTROL

Subsidiary Principal Activity Date of Acquisition

Proportion of Voting Equity

Interests Acquired (%)

Consideration Transferred

Brightking Holdings

Limited Holding company

components June 2018 81.08 $ 2,471,209



December 2018 100.00 22,325,600

$ 24,796,809 In order to continue the expansion of the Company’s activities in passive component, the Company acquired Brightking Holdings Limited and Pulse Electronics Corporation in 2018. For details about the acquisition of Brightking Holdings Limited and Pulse Electronics Corporation, refer to Note 29 to the Company’s consolidated financial statements for the year ended December 31, 2018.

26. OPERATING LEASE ARRANGEMENTS

a. The Company as lessee The Company’s assets for operation are all belonged to the Company. Therefore, the Company has no significant noncancellable operating leases.

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b. The Company as lessor Operating leases relate to the property owned by the Company with lease terms between 1 to 5 years. The lessees do not have a bargain purchase option to acquire the property at the expiry of the lease periods. The future minimum lease payments of noncancellable operating lease were as follows: December 31 2018 2017 Not later than 1 year $ 2,289 $ 2,547 Over 1 year and not later than 5 years 1,895 4,433 $ 4,184 $ 6,980

27. CAPITAL MANAGEMENT

The Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to shareholders through the optimization of the debt and equity balance. The Company’s overall strategy in accordance with the Company operations and cash flow to assess the situation and to be properly adjusted to adapt to changes in the market in a timely manner. The capital structure of the Company consists of net debt (borrowings offset by cash and cash equivalents) and equity attributable to owners of the Company (comprising issued capital, reserves, retained earnings and other equity). Key management personnel of the Company review the capital structure on an annual basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Company may reduce the Company’s capital or adjust the amount of dividends paid to shareholders and the number of shares repurchased.

28. FINANCIAL INSTRUMENTS a. Fair value of financial instruments that are not measured at fair value

The Company’s management consider that the carrying amounts of financial assets and financial liabilities recognized in the financial statements approximate their fair values.

b. Fair value of financial instruments that are measured at fair value on a recurring basis

1) Fair value hierarchy


Derivative financial assets $ - $ 16,901 $ - $ 16,901 Unlisted shares - ROC - - 482 482

$ - $ 16,901 $ 482 $ 17,383

(Continued)

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Level 1 Level 2 Level 3 Total Financial assets at FVTOCI

Investments in equity instruments at FVTOCI Listed shares and emerging

market shares - ROC $ 878,826 $ - $ - $ 878,826 Overseas listed shares 233,418 - - 233,418

$ 1,112,244 $ - $ - $ 1,112,244 Financial liabilities at FVTPL

Derivative financial liabilities $ - $ 27,674 $ - $ 27,674 (Concluded)


Derivative financial assets $ - $ 117 $ - $ 117 Available-for-sale financial

assets Securities listed in ROC

Equity securities $ 647,465 $ - $ - $ 647,465 Securities listed in other

countries Equity securities 771,194 - - 771,194

Unlisted securities - ROC Equity securities - - 482 482

$ 1,418,659 $ - $ 482 $ 1,419,141 Financial liabilities at FVTPL

Derivative financial liabilities $ - $ 72,443 $ - $ 72,443 There were no transfers between Levels 1 and 2 in the current and prior periods.

2) Valuation techniques and inputs used for Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign

exchange forward contracts

Discounted cash flow. Future cash flows are estimated on the basis of observable forward

exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

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3) Valuation techniques and inputs applied for Level 3 fair value measurement The fair values of unlisted equity securities - ROC were determined using the income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The significant unobservable inputs used are listed in the table below. An increase in long-term revenue growth rates or long-term pre-tax operating margin or a decrease in WACC or discount for the lack of marketability used in isolation would result in increases in fair value.

c. Categories of financial instruments December 31 2018 2017 Financial assets FVTPL

Held for trading $ - $ 117 Mandatorily classified as at FVTPL 17,383 -

Held-to-maturity investments - 3,050,039 Loans and receivables (1) - 8,174,386 Available-for-sale financial assets (2) - 1,419,141 Financial assets at amortized cost (3) 18,544,007 - Financial assets at FVTOCI

Equity instruments 1,112,244 - Financial liabilities FVTPL

Held for trading - 72,443 Mandatorily classified as at FVTPL 27,674 -

Amortized cost (4) 42,728,145 30,833,154 1) The balances included loans and receivables measured at amortized cost, which comprise cash and

cash equivalents, notes receivable, trade and other receivables (including related parties) and refundable deposits.

2) The balances included the carrying amount of held-for-trading financial assets measured at cost. 3) The balances included financial assets at amortized cost, which comprise cash and cash equivalents,

debt investments, notes receivable, trade and other receivables (including related parties) and refundable deposits.

4) The balances included financial liabilities at amortized cost, which comprise short-term and

long-term loans, short-term bills payable, notes payable, trade and other payables (including related parties) and guarantee deposits received.

d. Financial risk management objectives and policies

The Company’s major financial instruments include equity and debt investments, trade receivables, trade payables, and borrowings. The Company’s Corporate Treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree 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.

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The Company sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis. The Company did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The Company’s impartment financial activities are reviewed by the board of directors in accordance with related standard and internal controls. In executing financial plan, the Company have to obey the related financial operating procedures regarding financial risk management and segregation of duties. 1) Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). There had been no change to the Company’s exposure to market risks or the manner in which these risks were managed and measured. a) Foreign currency risk

The Company had foreign currency sales and purchases, which exposed the Company to foreign currency risk. Exchange rate exposures were managed within approved policy parameters utilizing forward foreign exchange contracts. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities and of the derivatives exposing to foreign currency risk at the end of the reporting period are set out in Note 32. Sensitivity analysis The Company assessed the foreign currency risk of its significant assets and liabilities as well as taking unexpired exchange forward contracts into consideration. The Company was mainly exposed to the USD, EUR and JPY. The following table details the Company’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. A negative number below indicates an increase (a decrease) in pre-tax profit associated with New Taiwan dollars strengthening 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be positive. USD Impact EUR Impact JPY Impact

For the Year Ended



December 31 2018 2017 2018 2017 2018 2017 Profit or loss $ (153,635) $ (85,505) $ (61,738) $ (5,163) $ 4,372 $ 4,356

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The analysis of profit or loss of the table was mainly attributable to the exposure to outstanding USD, EUR and JPY which were not hedged, at the end of the reporting period. The Company’s sensitivity to foreign currency exchange increased during the current year mainly because it had more USD-denominated net assets.

b) Interest rate risk The Company was exposed to interest rate risk because entities in the Company borrowed funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix of fixed and floating rate. The carrying amount of the Company’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows: December 31 2018 2017 Fair value interest rate risk

Financial assets $ 3,156,088 $ 3,139,583 Financial liabilities 29,916,787 20,579,212

Cash flow interest rate risk Financial assets 8,218,509 371,603

The Company’s fixed-term time deposits, bank borrowings and short-term bills are exposed to fair value interest rate risk; however, this expected risk is insignificant. Sensitivity analysis The sensitivity analysis below was determined based on the Company’s exposure to interest rates for both derivative and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of each liability outstanding at the end of the reporting period was outstanding for the whole year. A 1% increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 1% higher and all other variables were held constant, the Company’s variable-rate financial assets for the years ended December 31, 2018 and 2017 would result in cash inflows by $82,185 thousand and $3,716 thousand, respectively. The Company’s sensitivity to interest rates increased during the current year mainly due to the increase in variable-rate financial assets from the prior year.

c) Other price risk The Company was exposed to equity price risk through its investments in listed equity securities. Sensitivity analysis The sensitivity analysis below was determined based on the exposure to equity price risks at the end of the reporting period.

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If equity prices had been 1% lower, the pre-tax other comprehensive income for the years ended December 31, 2018 and 2017 would decrease by $11,122 thousand and $14,191 thousand, respectively, as a result of the changes in fair value of investments in equity instruments at FVTOCI and available-for-sale shares. The Company’s sensitivity to investments in equity instruments at FVTOCI has not changed significantly from the prior year.

2) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk, which would cause a financial loss to the Company due to failure of counterparties to discharge an obligation and financial guarantees provided by the Company could arise from: a) The carrying amount of the respective recognized financial assets as stated in the balance sheets;

and b) The amount of contingent liabilities in relation to financial guarantee issued by the Company. The Company adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. In order to minimize credit risk, management of the Company has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the Company’s credit risk was significantly reduced. The credit risk on liquid funds and derivatives was limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Ongoing credit evaluation is performed on the financial condition of trade receivables. The Company did transactions with a large number of unrelated customers and, thus, no concentration of credit risk was observed.

3) Liquidity risk The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants. The Company relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Company had available unutilized short-term bank loan facilities of $8,911,414 thousand and $4,697,768 thousand, respectively.

- 247 -

a) Liquidity and interest risk rate tables for nonderivative financial liabilities

The table below summarizes the maturity profile of the Company’s financial liabilities based on undiscounted contractual payments but did not include the financial liabilities with carrying amounts that approximated contractual cash flows:

Carrying

Value Contractual Cash Flows

Within 1 Year

More than 1 Year

December 31, 2018 Short-term borrowings $ 20,417,300 $ 20,448,076 $ 20,448,076 $ - Short-term bills payable 499,487 500,000 500,000 - Long-term borrowings 9,000,000 9,043,648 - 9,043,648 $ 29,916,787 $ 29,991,724 $ 20,948,076 $ 9,043,648 December 31, 2017 Short-term borrowings $ 13,979,440 $ 13,998,248 $ 13,998,248 $ - Short-term bills payable 1,099,772 1,100,000 1,100,000 - Long-term borrowings 5,500,000 5,507,853 - 5,507,853 $ 20,579,212 $ 20,606,101 $ 15,098,248 $ 5,507,853

b) Liquidity and interest risk rate tables for derivative financial liabilities The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period. December 31, 2018




Inflows $ 17,871,240 $ - Outflows (17,903,315) -

$ (32,075) $ -

- 248 -

December 31, 2017




Inflows $ 9,414,984 $ - Outflows (9,454,281) -

$ (39,297) $ -

29. TRANSACTIONS WITH RELATED PARTIES

Besides as disclosed elsewhere in the other notes, details of transactions between the Company and other related parties are disclosed below. a. The Company’s related parties and their relationships were as follows:

Related Party Relationships with the Group Yageo Electronics (China) Co., Ltd. Subsidiaries Yageo Components (Suzhou) Co., Ltd. Subsidiaries Yageo Electronics (Dongguan) Co., Ltd. Subsidiaries Yageo USA (H.K.) Limited Subsidiaries Vitrohm Portuguesa Subsidiaries Yageo Europe Holding B.V. Subsidiaries Ko-E (H.K.) Limited Subsidiaries Yageo Corporation (South Asia) Pte. Ltd. Subsidiaries Yageo Trade (Suzhou) Co., Ltd. Subsidiaries Yageo Japan Subsidiaries Ko-E Technology (Shenzhen) Co., Ltd. Subsidiaries Ko-Shin Investment Ltd. Subsidiaries Yageo America Corporation Subsidiaries Yageo Korea Subsidiaries Chilisin Electronics Corp. Associates Teapo Electronics Corp. Associates Ralec Electronic Corp. Subsidiary of associates ASJ Pte. Limited (ASJ Pte.) Subsidiary of associates CRL Components (S) Pte. Ltd. (CRL(S)) Subsidiary of associates Guo Chuang Electronics (Dongguan) Associates Hsin Bung International Co., Ltd. Substantial related parties Yixin International Co., Ltd. Substantial related parties

- 249 -

b. Sales of goods

For the Year Ended December 31 Line Items Related Party Categories 2018 2017

Sales Subsidiaries

Yageo USA (H.K.) Limited $ 6,344,285 $ 1,137,424 Yageo Corporation (South Asia) Pte. Ltd. 4,079,500 840,021

Yageo Europe Holding B.V. 3,961,698 1,020,668 Yageo Electronics (Dongguan) Co., Ltd. 3,177,485 3,473,648 Yageo Electronics (China) Co., Ltd. 2,167,438 2,514,862 Others 2,883,833 1,263,100 Associates 7,991 4,334 Substantial related parties 258,524 26,966 $ 22,880,754 $ 10,281,023

c. Purchases of goods

For the Year Ended December 31 Related Party Categories 2018 2017 Subsidiaries $ 962,634 $ 725,578 Associates 92,420 100,625 Substantial related parties 351,879 171,912 $ 1,406,933 $ 998,115

d. Contract liabilities

December 31 Related Party Category/Name 2018 2017

Subsidiaries

Yageo USA (H.K.) Limited $ 8,359,206 $ - Others 375 - $ 8,359,581 $ -

e. Receivables from related parties (excluding loans to related parties)

For the Year Ended December 31 Line Items Related Party Categories 2018 2017

Trade receivables Subsidiaries Yageo Europe Holding B.V. $ 1,789,751 $ 213,784 Yageo Corporation (South Asia) Pte. Ltd. 1,586,134 175,593 Yageo USA (H.K.) Limited 778,701 3,881,189 Yageo Electronics (China) Co., Ltd. 36,910 1,164,513 Others 489,920 752,913 Associates 1,498 1,417 Substantial related parties 11,472 102,542 $ 4,694,386 $ 6,291,951

(Continued)

- 250 -

For the Year Ended December 31

Line Items Related Party Categories 2018 2017 Other receivables Subsidiaries

Yageo America Corporation $ 78,553 $ - Yageo Electronics (China) Co., Ltd. 47,681 43,304 Ko-Shin Investment Ltd. - 197,429 Others 6,810 3,807 Associates 7 19 $ 133,051 $ 244,559

(Concluded) The outstanding trade receivable from related parties are unsecured. For the years ended December 31, 2018 and 2017, no impairment loss/expected credit loss was recognized for trade receivable from related parties.

f. Payables to related parties (excluding loans from related parties) December 31

Line Items Related Party Categories 2018 2017 Trade payables Subsidiaries Yageo Electronics (China) Co., Ltd. $ 2,876,324 $ 2,837,300 Yageo Electronics (Dongguan) Co., Ltd. 2,073,844 1,911,328 Others 131,945 89,064 Associates 32,444 42,316 Substantial related parties 67,722 - $ 5,182,279 $ 4,880,008 The outstanding trade payable from related parties are unsecured. The payment terms for the trade receivable from (trade payable to) related parties were based on the terms of the related contracts. Other related-party transactions were conducted under normal terms.

g. Disposals of property, plant and equipment

Proceeds Gain on Disposal

For the Year Ended


December 31 Related Party Category/Name 2018 2017 2018 2017 Associates $ - $ 22 $ - $ -

h. Disposals of other assets

Proceeds Gain (Loss) on Disposal

For the Year Ended


December 31 Related Party Category/Name 2018 2017 2018 2017 Associates/Chilisin Electronics

Corp. $ - $ 4,329,425 $ - $ -

- 251 -

On August 1, 2017, the Company sold 100% of its interest of Ferroxcube International Holding B.V. in a cash settlement amounting to €133,188 thousand.

i. Other transactions with related parties

December 31 Line Items Related Party Categories 2018 2017

Commission Subsidiaries expenses Yageo America $ 101,830 $ 78,192 Yageo Korea 95,135 47,762 $ 196,965 $ 125,954 Others - expense reduction Subsidiaries $ (204) $ (144) Rental income Subsidiaries Ko-E (H.K.) Limited. $ 1,440 $ 1,512 Others 192 192 Associates Teapo Electronics Corp. 197 197 Chilisin Electronics Corp. - 828 $ 1,829 $ 2,729 Service income Subsidiaries Ko-E (H.K.) Limited. $ 88,988 $ 28,669 All the terms and conditions of above rental contracts conformed to normal business practice.

j. Compensation of key management personnel For the Year Ended December 31 2018 2017 Short-term employee benefits $ 1,250,132 $ 310,610 Post-employment benefits 432 432 $ 1,250,564 $ 311,042 The remuneration of directors and key executives was determined by the remuneration committee based on the performance of individuals and market trends.

30. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY The following assets were provided as collateral for bank loans: December 31 2018 2017 Property, plant and equipment, net $ 2,792,249 $ 2,788,239

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31. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS In addition to those disclosed in other notes, significant commitments and contingencies of the Company as of December 31, 2018 and 2017, were as follows: a. Significant commitments

Unrecognized commitments were as follows: December 31 2018 2017 Acquisition of property, plant and equipment $ 1,967,406 $ 1,514,140

b. Contingencies

Contingent liabilities 1) Please refer to Table 2 about the endorsements/guarantees and between the Company and

subsidiaries. 2) The Securities and Future Investors Protection Center (SFIPC) alleged that Far Eastern Air

Transport Ltd. (FEATL) had been involved in exaggerating the turnover and trade receivable. The SFIPC charged that FEATL window-dressed its financial reports and thus harmed its investors’ welfare. Under these investors’ authorization, the SFIPC sued 33 defendants, including the FEATL and its management, directors and supervisors, certified public accountant, its accounting firm, etc., (excluding the Company) and filed a civil action lawsuit to demand compensation for damages with the district court of Taipei on June 23, 2009. In January 2010, the SFIPC included in its lawsuit the Company and two other companies because they were FEATL’s directors and supervisors from 2005 to 2007. Since the joint defendants increased to 36, SFIPC appealed for a compensation amounted of $296,989 thousand. Since the Company has business liability insurance, the Company believes that if the court’s ruling is not favorable to the Company, the compensatory damages would not significantly affect its finance and business status.

32. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES The Company entities’ significant financial assets and liabilities denominated in foreign currencies aggregated by the foreign currencies other than functional currencies and the related exchange rates between foreign currencies and respective functional currencies were as follows: December 31, 2018

Foreign Currencies



USD $ 1,134,825 30.7330 $ 34,876,577 EUR 176,342 35.1924 6,205,898

(Continued)

- 253 -

Foreign Currencies


JPY $ 838,999 0.2782 $ 233,410 HKD 10,466 3.9245 41,074 SGD 15,642 22.4804 351,638


Investments in equity instruments at FVTOCI JPY 839,029 0.2782 $ 233,418


USD 634,923 30.7330 $ 19,513,089 EUR 913 35.1924 32,131 JPY 2,410,354 0.2782 670,560 $ 20,215,780

(Concluded) December 31, 2017

Foreign Currencies



USD $ 605,129 29.8480 $ 18,061,890 EUR 15,398 35.7012 549,727 JPY 182,363 0.2651 48,344 HKD 43,456 3.8195 165,980


Available-for-sale financial assets JPY 2,909,068 0.2651 $ 771,194


USD 318,660 29.8480 $ 9,511,364 EUR 936 35.7012 33,416 JPY 1,825,667 0.2651 483,984 $ 10,028,764

- 254 -

For the years ended December 31, 2018 and 2017, realized and unrealized net foreign exchange gains or losses were $855,767 thousand and $(126,761) thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the Company entities.

33. SEPARATELY DISCLOSED ITEMS a. Information about significant transactions and investees:

1) Financing provided to others. (Table 1) 2) Endorsements/guarantees provided. (Table 2) 3) Marketable securities held (excluding investment in subsidiaries, associates and joint controlled

entities). (Table 3) 4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the

paid-in capital. (Table 4) 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in

capital. (None) 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital.

(None) 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the

paid-in capital. (Table 5) 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in

capital. (Table 6) 9) Information on investees. (Table 7) 10) Trading in derivative instruments. (Notes 7 and 28)

b. Information on investments in mainland China

1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership percentage, net income of investees, investment income or loss, carrying amount of the investment at the end of the period, repatriations of investment income, and limit on the amount of investment in the mainland China area. (Table 8)

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or losses: a) The amount and percentage of purchases and the balance and percentage of the related payables

at the end of the period. (Table 5) b) The amount and percentage of sales and the balance and percentage of the related receivables at

the end of the period. (Table 5) c) The amount of property transactions and the amount of the resultant gains or losses. (None)

- 255 -

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes. (Table 2)

e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds. (Table 1) f) Other transactions that have a material effect on the profit or loss for the period or on the

financial position, such as the rendering or receiving of services. (Note 29)

- 256 -

TABLE 1 YAGEO CORPORATION AND INVESTEES FINANCING PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No. Lender Borrower Financial Statement Account

Related Party

Highest Balance for the Year Ending Balance Actual Borrowing

Amount Interest Rate Nature of Financing (Note 3)

Business Transaction

Amount

Reasons for Short-term Financing

Allowance for Impairment Loss

Collateral Financing Limit for Each Borrower

(Note 1)

Aggregate Financing Limits

(Note 2) Item Value

0 Yageo Corporation Kuo-Shin Investment


parties Yes $ 1,200,000 $ 1,200,000 $ - 0.84 b $ - For revolving fund $ - None $ - $ 23,733,878 $ 23,733,878

1 Yageo Holding

(Bermuda) Ltd. Hsu Tai International

(H.K.) Receivables from related

parties Yes US$ 7,514 US$ - US$ -

1.00 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Hsu Tai International (H.K.)


Yes HK$ 14,926 HK$ - HK$ - 1.00 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Yageo Japan Receivables from related parties

Yes JPY 5,405 JPY 5,405 JPY 5,405 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

Yageo America Receivables from related parties

Yes US$ 9,742 US$ 9,742 US$ 9,742 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659



Yes US$ 2,699 US$ 791 US$ 791 1.00 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659



Yes EUR 2,000 EUR 2,000 EUR 2,000 1.00 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659


Loans to subsidiaries considered as a component of investment

Yes EUR 172,956 EUR 172,956 EUR 172,956 - b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659



Yes US$ 5,000 US$ 5,000 US$ 2,200 2.50 b - For revolving fund - None - US$ 1,658,659 US$ 1,658,659

2 Vitrohm Holding GmbH Yageo Holding


parties Yes EUR 6,167 EUR 6,167 EUR 6,167 1.25 b - For revolving fund - None - EUR 11,719 EUR 11,719

3 Yageo Electronics

(China) Co., Ltd. Yageo Trade (Suzhou)


parties Yes RMB 200,000 RMB 200,000 RMB - 3.50 b - For revolving fund - None - RMB 3,971,702 RMB 3,971,702



Yes US$ 50,000 US$ - US$ - 1.60 b - For revolving fund - None - RMB 3,971,702 RMB 3,971,702

4 Yageo USA (H.K.)

Limited Yageo Holding


parties Yes US$ 50,000 US$ 50,000 US$ 50,000 0.50 b - For revolving fund - None - US$ 592,774 US$ 592,774

5 Yageo Trade (Suzhou)

Co., Ltd. Yageo Electronics

(China) Co., Ltd. Receivables from related

parties Yes RMB 100,000 RMB 100,000 RMB 90,000 3.50 b - For revolving fund - None - RMB 770,852 RMB 770,852

6 Yageo Europe Holding

B.V. Yageo USA (H.K.)


parties Yes US$ 56,000 US$ 52,000 US$ 52,000 0.50 b - For revolving fund - None - EUR 59,646 EUR 59,646

7 Brightking Holdings

Ltd. Brightking Enterprise

(H.K.) Co., Ltd. Other receivables - related

parties Yes 121,840 - - 2.434 b - For revolving fund - None - 1,813,971 3,627,943

Brightking Enterprise (H.K.) Co., Ltd.

Other receivables - related parties


8 Brightking Enterprise

(H.K.) Co., Ltd. Brightking Electronics

Inc. Other receivables - related

parties Yes 9,290 9,220 - 4.50 b - For revolving fund - None - 2,032,316 4,064,632




9 Brightking Electronics

Co., Ltd. Brightking Holdings

Ltd. Other receivables - related

parties Yes 33,000 - - 1.50 b - For revolving fund - None - 7,836 7,836



Yes 10,000 - - 1.50 b - For revolving fund - None - 7,836 7,836

10 Kuo-Shin Investment

Limited Brightking Electronics


parties Yes 100,000 100,000 38,000 1.00 b - For revolving fund - None - 711,440 711,440

(Continued)

- 257 -

Note 1: For the Company and its domestic investees (Kuo-Shin Investment Limited and Brightking Electronics Co., Ltd.) business relationship, financing limit to each borrowing company is the amount of business operation (based on the previous year’s actual sales and purchase amount when the loan contract was awarded). The financing limit to the counterparty which has short-term loan need is 40% of its net worth presented in the latest financial statements audited or reviewed by auditors. According to the financing procedure for Company’s overseas investees, maximum financing amount that can be made by Yageo Holding (Bermuda) Ltd., Yageo Electronics (China) Co., Ltd., Yageo USA (H.K.) Limited, Yageo Trade (Suzhou) Co., Ltd., Vitrohm Holding GmbH and Yageo Europe Holding B.V. is 100% of each net worth presented in the latest financial statements audited or reviewed by auditors. For Brightking Holdings Ltd. and its overseas investees, the maximum financing amount that can be made is limited to 100% of each net worth presented in the latest financial statements audited or reviewed by auditors.

Note 2: For the Company and its domestic investees (Kuo-Shin Investment Limited and Brightking Electronics Co., Ltd.) the financing amount to each counterparty is limited to 40% of its net worth presented in the latest financial statements audited or reviewed by auditors. According to the financing procedures for Company’s

overseas investees, maximum financing amount that can be made by Yageo Holding (Bermuda) Ltd., Yageo Electronics (China) Co., Ltd., Yageo USA (H.K.) Limited, Yageo Trade (Suzhou) Co., Ltd., Vitrohm Holding GmbH and Yageo Europe Holding B.V. is 100% of each net worth presented in the latest financial statements audited or reviewed by auditors. For Brightking Holdings Ltd. and its overseas investees, the maximum financing amount that can be made is 200% of each net worth presented in the latest financial statements audited or reviewed by auditors.

Note 3: Reasons for financing are as follows:

a. Business relationship. b. For financing. According to letter No. 0980000271 issued by the FSC on January 15, 2009, which revised article 3 of the operating procedures of the regulation on financing provided and endorsement/guarantee provided, the overseas investees in which the Company has 100% ownership and voting rights directly and

indirectly, the financing amount to each counterparty is not subject to the short-term financing limit. However, the limits and the terms for the financing should still be specified by the financing procedures. Note 4: The currency rate on December 31, 2018, stated one New Taiwan dollar to HKD, USD, JPY, EUR and RMB are 1:3.9245, 1:30.733, 1:0.2782, 1:35.1924 and 1:4.4776, respectively; stated one U.S. dollar to HKD, JPY, EUR, and RMB are 1:0.1277, 1:0.0091, 1:1.1451 and 1:0.1457, respectively.

(Concluded)

- 258 -

TABLE 2 YAGEO CORPORATION AND INVESTEES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (In New Taiwan Dollars, Unless Stated Otherwise; All Amounts in Thousands)

No. Endorser/Guarantor

Endorsee/Guarantee Limits on

Endorsement/ Guarantee Given on Behalf of Each

Party (Note 1)

Maximum Amount

Endorsed/ Guaranteed

During the Year (Note 4)

Outstanding Endorsement/

Guarantee at the End of the Year

(Note 4)

Actual Borrowing Amount

Amount Endorsed/

Guaranteed by Collaterals

Ratio of Accumulated Endorsement/

Guarantee to Net Equity In Latest

Financial Statements (%)

Aggregate Endorsement/

Guarantee Limit (Note 2)


by Parent on Behalf of

Subsidiaries


by Subsidiaries on Behalf of Parent


on Behalf of Companies in

Mainland China

Name Relationship

0 Yageo Corporation Yageo Holding (Bermuda) Ltd. Subsidiary $ 59,334,695 $ 5,425,552

(US$ 144,000 NT$ 1,000,000)

$ 5,425,552 (US$ 144,000 NT$ 1,000,000)

$ -

$ - 9.14 $ 89,002,044 Yes No No

The shared borrowing facilities of Yageo Electronics (China) Co., Ltd., and Yageo Electronics (Dongguan) Co., Ltd.

Subsidiary 59,334,695 122,932 (US$ 4,000)

122,932 (US$ 4,000)

- - 0.21 89,002,044 Yes No Yes

The shared borrowing facilities of Yageo USA (H.K.) Limited and Yageo Holding (Bermuda) Ltd.

Subsidiary 59,334,695 61,466 (US$ 2,000)

61,466 (US$ 2,000)

- - 0.10 89,002,044 Yes No No

Kuo-Shin Investment Limited Subsidiary 59,334,695 1,600,000 1,300,000 - - 2.19 89,002,044 Yes No No 1 Yageo Holding (Bermuda)

Ltd. (Note 3) Yageo USA (H.K.) Limited Subsidiary 50,975,567 61,466

(US$ 2,000) -

- - - 76,463,351 Yes No No

2 Brightking Holdings Ltd. Brightking Electronics Co., Ltd. Subsidiary 906,986 30,000 30,000 - - 1.65 1,813,972 Yes No No 3 Brightking (Shenzhen) Co.,

Ltd. Bestbright Electronics Co., Ltd. Parent company 349,938 140,507 - - - - 699,876 No Yes Yes


Subsidiary 349,938 46,836 - - - - 699,876 Yes No Yes

4 Bestbright Electronics Co.,

Ltd. Huizhou Lien Shun Electronics Co.,

Ltd. Subsidiary 1,076,317 46,836 - - - - 2,152,634 Yes No Yes

Note 1: For the Company, endorsements or guarantees to each counterparty is limited to 100% of its net worth presented in the latest financial statements. According to the endorsements/guarantees procedure for the Company’s overseas investees, endorsements/guarantees made by Yageo Holding

(Bermuda) Ltd. to each counterparty is limited to 100% of its net worth presented in the latest financial statements. For Brightking Holdings Ltd. and its overseas investees, endorsements or guarantees to each counterparty are limited to 50% of its net worth presented in the latest financial statements.

Note 2: Maximum endorsements/guarantees allowed for the Company is 150% of its net worth presented in the latest financial statements. According to the endorsements/guarantees procedure for the Company’s overseas investees, maximum endorsements/guarantees that can be made by Yageo

Holding (Bermuda) Ltd. is limited to 150% of its net worth presented in the latest financial statements. Maximum endorsements/guarantees allowed for Brightking Holdings Ltd. and its overseas investees are 100% of its net worth presented in the latest financial statements. Note 3: The endorsements/guarantees limit to each counterparty and endorsements/guarantees limit of Yageo Holding (Bermuda) Ltd. are US$1,658,659 thousand and US$2,487,989 thousand, respectively. Note 4: The endorsements/guarantees was based on the currency rate on December 31, 2018, stated one New Taiwan dollar to USD is 1:30.733.

- 259 -

TABLE 3 YAGEO CORPORATION AND INVESTEES MARKETABLE SECURITIES HELD DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)





Thousands)

Carrying Amount


(%)


Yageo Corporation Stock Linko International Golf & Country Club - Financial assets at FVTPL - noncurrent - $ 482 0.1 $ 482 1 TA-I Technology Co., Ltd. - Financial assets at FVTOCI - noncurrent 17,266 878,826 9.0 878,826 1 SHS KOA Corp. - Financial assets at FVTOCI - noncurrent 648 233,418 1.8 233,418 1 Bonds Bank of America Corp. - Financial assets at amortized cost - noncurrent - 290,365 290,365 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 290,042 - 290,042 2 Morgan Stanley - Financial assets at amortized cost - noncurrent - 288,391 - 288,391 2 Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,495 - 287,495 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,397 - 284,397 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 280,056 - 280,056 2 China Construction Bank - Financial assets at amortized cost - noncurrent - 280,041 - 280,041 2 Verizon Communications - Financial assets at amortized cost - noncurrent - 279,800 - 279,800 2 Lenovo Group Ltd. - Financial assets at amortized cost - noncurrent - 279,357 - 279,357 2 Proven Glory Capital Ltd. - Financial assets at amortized cost - noncurrent - 279,176 - 279,176 2 Ko-Shin Investment Ltd. Stock Walsin Technology Co., Ltd. - Financial assets at FVTPL - current 390 60,060 0.1 60,060 1 Hsin Bung International Co., Ltd. - Financial assets at FVTPL - noncurrent 2,761 33,622 16.6 33,622 1 Jihsun Securities Investment Trust Co., Ltd. - Financial assets at FVTPL - noncurrent 1,560 12,000 4.0 12,000 1 Ta-I Technology Co., Ltd. - Financial assets at FVTOCI - noncurrent 8,817 448,779 4.6 448,779 1 Yageo Holding (Bermuda) Ltd. Stock SHS KOA Corp. - Financial assets at FVTOCI - noncurrent 1,850 US$ 21,669 5.0 US$ 21,669 1 Bonds Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,918 - 287,918 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,471 - 284,471 2 Lenovo Group Ltd - Financial assets at amortized cost - noncurrent - 279,337 - 279,337 2 Proven Glory Capital Ltd - Financial assets at amortized cost - noncurrent - 217,150 - 217,150 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 170,868 - 170,868 2 Morgan Stanley - Financial assets at amortized cost - noncurrent - 160,284 - 160,284 2 Bank of America Corp. - Financial assets at amortized cost - noncurrent - 64,523 - 64,523 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 62,222 - 62,222 2

(Continued)

- 260 -





Thousands)

Carrying Amount


(%)


Ko-E Corp. (Shenzhen) Share certificates Xmholder Technology Co., Ltd. - Financial assets at FVTPL - noncurrent - RMB 9,624 17.0 RMB 9,624 1 Yageo Europe Holding B.V. Bonds - Bank of America Corp. - Financial assets at amortized cost - noncurrent - 290,787 - 290,787 2 Goldman Sachs Group Inc. - Financial assets at amortized cost - noncurrent - 287,743 - 287,743 2 AT&T Inc. - Financial assets at amortized cost - noncurrent - 284,420 - 284,420 2 Bank of Communications - Financial assets at amortized cost - noncurrent - 280,110 - 280,110 2 Lenovo Group Ltd. - Financial assets at amortized cost - noncurrent - 278,849 - 278,849 2 Proven Glory Capital Ltd. - Financial assets at amortized cost - noncurrent - 278,204 - 278,204 2 Citigroup Inc. - Financial assets at amortized cost - noncurrent - 273,375 - 273,375 2 Morgan Stanley - Financial assets at amortized cost - noncurrent 259,070 - 259,070 2 China Construction Bank - Financial assets at amortized cost - noncurrent - 217,728 - 217,728 2 AVNET Inc. - Financial assets at amortized cost - noncurrent - 130,461 - 130,461 2 Note 1: The listed common shares are valued by their closing prices as of December 31, 2018. The debt investments with no active market is valued by the evaluated information provided by the Company. Note 2: The carrying amount is calculated at amortized cost.

(Concluded)

- 261 -

TABLE 4 YAGEO CORPORATION AND INVESTEES MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name Type and Name of

Marketable Securities

Financial Statement Account Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance Number of

Shares Amount Number of Shares Amount Number of

Shares Amount Carrying Amount Gain (Loss) on Disposal

Number of Shares Amount

Yageo Corporation Brightking Holdings

Ltd. Investments accounted for

using the equity method - - - $ - 45,608,336 $ 3,328,253 - $ - $ - $ - 45,608,336 $ 3,328,253


Investments accounted for using the equity method

- - - - 25,574,331 22,325,600 - - - - 25,574,331 22,325,600

Hsu Tai International

(H.K.) SHS KOA Corp. Financial assets at FVTOCI -

noncurrent - - 871,900 HK$ 140,867 - - 871,900 HK$ 140,867 HK$ 140,867 - - -

Yageo Europe Holding

B.V. SHS KOA Corp. Financial assets at FVTOCI -

noncurrent - - 778,000 EUR 13,448 - - 778,000 EUR 13,448 EUR 13,448 - - -

Note 1: The marketable securities mentioned in this table refer to stocks, bonds, beneficiary certificates, and securities derived from the above items. Note 2: The Company acquired 100% of Brightking Holdings Limited in a cash settlement amounting to NT$3,328,253 thousand in 2018. Note 3: The Company acquired 100% of Brightking Holdings Limited in a cash settlement amounting to NT$22,325,600 thousand in 2018.

- 262 -

TABLE 5 YAGEO CORPORATION AND INVESTEES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands)

Buyer Related Party Relationship Transaction Details (Note) Abnormal Transaction Notes/Accounts (Payable) or

Receivable Remark Purchase/ Sale Amount % to

Total Payment Terms Unit Price Payment Terms Ending Balance % to Total

Yageo Corporation Yageo Electronics (Dongguan) Co., Ltd. Subsidiary Sale $ (3,177,485) (9) Offset account T/T 90 days $ - - $ - - - Purchase 193,863 1 Offset account T/T 90 days - - (2,073,844) (27) - Yageo Electronics (China) Co., Ltd. Subsidiary Sale (2,167,438) (6) T/T 90 days - - 36,910 1 - Purchase 632,949 5 T/T 90 days - - (2,876,324) (37) - Yageo Corporation (South Asia) Pte. Ltd. Subsidiary Sale (4,079,500) (11) T/T 90 days - - 1,586,134 23 - Yageo Europe Holding B.V Subsidiary Sale (3,961,698) (11) T/T 45 days - - 1,789,751 26 - Ko-E (H.K.) Limited Subsidiary Sale (2,758,072) (7) T/T 60 days - - 399,348 6 - Yageo USA (H.K.) Limited Subsidiary Sale (6,344,285) (17) Offset account T/T 90 day - - 778,701 11 - Yageo Components (Suzhou) Co., Ltd. Subsidiary Purchase 135,781 1 T/T 90 days - - (31,927) - - Yixin International Co., Ltd. Substantial related party Sale (251,233) (2) T/T 60 days - - 11,231 - - Purchase 351,879 1 T/T 60 days - - (67,722) (1) - Yageo USA (H.K.) Limited Yageo Trade (Suzhou) Co., Ltd. Associate Sale HK$ (1,434,000) (18) T/T 90 days - - HK$ 233,526 9 - Ko-E (H.K.) Limited Associate Sale HK$ (1,988,394) (24) T/T 90 days - - HK$ 275,239 10 - Yageo Electronics (China) Co., Ltd. Ko-E (H.K.) Limited Associate Sale RMB (561,141) (13) T/T 65 days - - RMB 126,223 10 - Yageo Europe B.V. Associate Sale RMB (198,781) (5) T/T 90 days - - RMB 41,872 3 - Yageo Trade (Suzhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Associate Sale RMB (1,429,984) (73) T/T 65 days - - RMB 367,904 59 - Ko-E Corp. Yixin International Co., Ltd. Substantial related party Purchase 128,231 99 T/T 60 days - - (30,494) (100) - Hsin Bung International Co., Ltd. Substantial related party Sale (139,038) (100) T/T 60 days - - 32,494 98 - Ko-E (H.K.) Limited Hsin Bung International Co., Ltd. Substantial related party Sale (359,070) (13) T/T 60 days - - 18,471 7 - Yageo Corporation (South Asia) Ptd Ltd CRL Components (S) Pte. Ltd Associate Sale US$ (4,718) (3) T/T 60 days - - US$ 863 3 - Bestbright Electronics Co., Ltd. Brightking (Shanghai) Co., Ltd. Subsidiary Sale (819,016) (48) T/T 30 days - - 290,016 48 - Brightking (Shenzhen) Co., Ltd. Subsidiary Sale (561,688) (33) T/T 30 days - - 111,062 18 - Brightking (Beijing) Co., Ltd. Subsidiary Sale (184,491) (11) T/T 30 days - - 54,585 9 - Mian Yang Pulse Electronics Co., Ltd. Pulse Electronics (Singapore) Pte. Ltd Parent company Sale US$ (3,925) (10) T/T 90 days - - US$ 870 1 - Pulse Components. Ltd Pulse Electronics (Singapore) Pte. Ltd Parent company Sale US$ (3,327) (9) T/T 90 days - - US$ 745 1 - EGSTON System Electronic spol.s.r.o.

(CZ) EGSTON System Electronics Eggenburg

GmbH (AT) Associate Sale US$ (4,093) (11) T/T 30 days - - - - -

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TABLE 6 YAGEO CORPORATION AND INVESTEES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands)

Company Name Related Party Relationship Ending Balance Turnover Rate

Overdue Amounts Received in Subsequent

Period

Allowance for Impairment

Loss Amount Action Taken

Yageo Corporation Yageo USA (H.K.) Limited Subsidiary $ 779,170

(Note 5) 11.27 $ - - $ - $ -

Ko-E (H.K.) Limited Subsidiary 399,474 (Note 5)

5.52 - - 31,151 -

Yageo Europe Holding B.V. Subsidiary 1,789,765 (Note 5)

5.79 - - - -

Yageo Corporation (South Asia) Pte. Ltd. Subsidiary 1,586,134 (Note 5)

7.08 - - - -

Yageo Holding (Bermuda) Ltd. Yageo America Associate US$ 9,742

(Note 3) - - - - -

Yageo Europe Holding B.V. Associate US$ 201,370 (Note 1)

- - - - -

Yageo USA (H.K.) Limited Yageo Trade (Suzhou) Co., Ltd. Associate HK$ 233,526 2.66 - - HK$ 167,998 - Ko-E (H.K.) Limited Associate HK$ 275,466

(Note 5) 4.93 - - HK$ 160,792 -

Yageo Holding (Bermuda) Ltd. Parent company HK$ 394,354 (Note 2)

- - - - -

Yageo Electronics (China) Co., Ltd. Ko-E (H.K.) Limited Associate RMB 126,223 4.89 - - RMB 98,717 - Yageo Europe Holding B.V. Associate RMB 41,872 6.41 - - RMB 41,872 - Yageo Corporation Ultimate parent company RMB 642,381 2.55 - - RMB 240,316 - Yageo Trade (Suzhou) Co., Ltd. Ko-E Technology (Shenzhen) Co., Ltd. Associate RMB 367,904 3.49 - - RMB 169,604 - Yageo Electronics (Dongguan) Co., Ltd. Yageo Corporation Ultimate parent company RMB 463,160 4.13 - - RMB 270,104 - Vitrohm Holding GmbH Yageo Holding (Bermuda) Ltd. Parent company EUR 6,245

(Note 2) - - - - -

Bestbright Electronics Co., Ltd. Brightking (Shanghai) Co., Ltd. Parent company 290,016 3.96 - - 105,892 - Brightking (Shenzhen) Co., Ltd. Parent company 111,062 5.37 - - 79,038 - Pulse Components. Ltd Pulse Electronics Inc. Associate US$ 3,546 - - - - - Note 1: Loans to subsidiaries were considered a component of investment.

(Continued)

- 264 -

Note 2: Considered financing and other receivables Note 3: Considered financing Note 4: Considered other receivables Note 5: Including other receivables

(Concluded)

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TABLE 7 YAGEO CORPORATION AND INVESTEES INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise, All Amounts in Thousands)



Investee


2018 December 31,

2017 Shares %

Yageo Corporation Yageo Holding (Bermuda) Ltd. Bermuda Investment US$ 347,747 US$ 347,747 90,000 100.00 $ 50,355,543 $ 16,288,524 $ 16,288,524 Subsidiary Ferroxcube Holding (Samoa) Ltd. West Samoa Investment US$ 25,433 US$ 25,433 1,000 100.00 784,278 (37) (37) Subsidiary Kuo-Shin Investment Limited Taipei Investment 1,612,059 1,612,059 89,300 100.00 1,751,697 287,674 287,674 Subsidiary Brightking Holdings Ltd Cayman Holding company 3,328,253 - 45,608 100.00 3,310,532 112,442 77,197 Subsidiary Yageo Corporation (South Asia)

Pte. Ltd. Singapore Electronic component

marketing SGD 780 SGD 780 - 100.00 (231,872) 331,977 331,977 Subsidiary

Yageo Europe Holding B.V. Netherlands Holding company US$ 147,757 US$ 147,757 - 100.00 1,023,882 553,207 561,336 Subsidiary Yageo America America Electronic component

marketing US$ 2,347 US$ 2,347 1 100.00 (278,487) 4,729 4,729 Subsidiary

Yageo South Asia (M) Sdn. Bhd. Malaysia Electronic component marketing

- - - 100.00 596 588 588 Subsidiary

Yageo Holding (Cayman) Limited Cayman Holding company - - - 100.00 - - - Subsidiary Pulse Electronics Corporation America Holding company US$ 721,461 - 25,574 100.00 22,506,651 214,534 181,051 Subsidiary Chilisin Electronics Corp. Hsinchu Inductor manufacture and

marketing 1,468,855 1,571,448 25,276 10.40 4,301,324 3,001,586 368,551 Associate


marketing 1,075,558 1,075,558 11,002 12.02 506,512 1,749,115 210,272 Associate

Strong Components Co., Ltd. Kaohsiung Electronic component manufacture and marketing.

79,384 79,384 6,530 31.42 88,161 6,331 1,989 Associate

Kuo-Shin Investment Ltd. Chilisin Electronics Corp. Hsinchu Inductor manufacture and




Yageo Holding (Bermuda) Yageo (Hong Kong) Limited Hong Kong Investment HK$ 2,093,178 HK$ 2,093,178 1,030,499 100.00 US$ 784,906 US$ 168,276 US$ 168,276 Subsidiary Ltd. Yageo USA (H.K.) Limited Hong Kong Passive Component

marketing HK$ 8,000 HK$ 8,000 - 100.00 US$ 592,774 US$ 377,592 US$ 377,592 Subsidiary

Ko-E Holding (Cayman) Cayman Islands Holding company US$ 4,500 US$ 4,500 4,500 83.83 US$ 16,038 US$ (1,327) US$ (1,112) Subsidiary Vitrohm Holding GmbH Germany Investment EUR 15,849 EUR 15,849 - 100.00 US$ 13,419 US$ 1,065 US$ 1,065 Subsidiary Belkin International Samoa Investment US$ 1,104 US$ 1,104 1,104 46.00 US$ 1,141 US$ (1,841) US$ (847) Associate Yageo Korea Korea Resistor marketing US$ 236 US$ 236 - 100.00 US$ 3,232 US$ 1,469 US$ 1,469 Subsidiary Yageo Japan Japan Resistor marketing US$ 339 US$ 339 - 100.00 US$ 150 US$ 41 US$ 41 Subsidiary Hsu Tai International (H.K.) Hong Kong Investment US$ 2,400 US$ 2,400 1 100.00 US$ 1,046 US$ 79 US$ 79 Subsidiary Brightking Holdings Ltd Brightking Enterprise (H.K.) Co.,

Ltd. Hong Kong Selling overvoltage and


600,165 600,165 153,968 100.00 2,032,316 233,053 111,713 Subsidiary

(Continued)

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Investee


2018 December 31,

2017 Shares %

Pulse Electronics

Corporation Egston Holding GmbH Austria

Investment US$ 22,030 $ - - 100.00 US$ 24,562 US$ 917 US$ 2,342 Subsidiary

Ko-E Holding (Cayman) Ko-E Corp. New Taipei City Electronic components

marketing US$ 1,393 US$ 1,393 4,500 100.00 US$ 1,774 US$ 2,619 US$ 87 Subsidiary

Ko-E (H.K.) Limited Hong Kong Electronic components marketing

US$ 4,662 US$ 4,662 - 100.00 US$ 16,975 US$ (11,023) US$ (1,407) Subsidiary


Co., Ltd. Brightking Electronics Inc. America Selling overvoltage and


41,425 41,425 12,750 100.00 (1,040) (7,879) (6,010) Subsidiary

Brightking Electronics Co., Ltd. New Taipei City Manufacturing and selling overvoltage and overcurrent protection electronic components

129,393 129,393 12,939 100.00 19,590 (48,033) (13,531) Subsidiary


New Taipei City Manufacturing and selling overvoltage and overcurrent protection electronic components

101 101 10 100.00 1 - - Subsidiary

Note: Information on investment in Mainland China please refer to Table 8.

(Concluded)

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TABLE 8 YAGEO CORPORATION AND INVESTEES INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)





Remittance of Funds Accumulated Outflow of




% Ownership of Direct or Indirect

Investment


(Note 4)





(Note 3)

Outflow (Note 3)

Inflow (Note 3)

Yageo Electronics (Dongguan) Co.,


components US$ 53,250 ($ 1,636,532 )


US$ 46,510 ($ 1,429,392 )

$ - $ - US$ 46,510 ($ 1,429,392 )

HK$ 129,721 ($ 499,257 )

100.00 HK$ 119,822 ($ 461,159 )

HK$ 1,195,031 ($ 4,689,899 )

$ -

Yageo Electronics (China) Co., Ltd. Manufacture and marketing of passive

components US$ 301,977 ($ 9,280,659 )


US$ 204,977 ($ 6,299,558 )

- - US$ 204,977 ($ 6,299,558 )

HK$ 1,078,338 ($ 4,150,199 )

100.00 HK$ 1,078,338 ($ 4,150,199 )

HK$ 3,959,981 ($ 15,540,945 )

US$ 7,751 ($ 238,211 )



components US$ 5,000 ($ 153,665 )


US$ 5,000 ($ 153,665 )

- - US$ 5,000 ($ 153,665 )

HK$ 8,603 ($ 33,110 )

100.00 HK$ 8,456 ($ 32,545 )

HK$ 95,800 ($ 375,967 )

-

Yageo Trade (Suzhou) Co., Ltd. Marketing of passive components US$ 5,000


registered in a third region US$ 5,000 ($ 153,665 )

- - US$ 5,000 ($ 153,665 )

HK$ 610,804 ($ 2,350,801 )

100.00 HK$ 610,804 ($ 2,350,801 )

HK$ 869,886 ($ 3,413,868 )

-


Co., Ltd. Manufacture and marketing of passive.

components US$ 1,500 ($ 46,100 )


US$ 1,164 ($ 35,773 )

- - US$ 1,164 ($ 35,773 )

- 100.00 - HK$ 18,720 ($ 73,467 )

-

Compostar Technology (Suzhou)


components US$ 5,150 ($ 158,275 )


US$ 5,150 ($ 158,275 )

- - US$ 5,150 ($ 158,275 )

- - - - -

Guo Chuang Electronics (Dongguan)


components US$ 1,709 ($ 52,523 )


US$ 789 ($ 24,248 )

- - US$ 789 ($ 24,248 )

HK$ 143 ($ 550 )

35.00 HK$ 50 ($ 192 )

HK$ 8,008 ($ 31,429 )

-

Ko-E Technology (Shenzhen) Co.,

Ltd. Manufacture and marketing of

electronic components US$ 3,500 ($ 107,566 )


US$ 3,150 ($ 96,809 )

- - US$ 3,150 ($ 96,809 )

HK$ 66,229 ($ 254,896 )

83.83 HK$ 55,520 ($ 213,680 )

HK$ 154,372 ($ 605,833 )

-

Guo Ray Electronics Co., Ltd. Marketing of electronic components US$ 1,000


registered in a third region US$ 460 ($ 14,137 )

- - US$ 460 ($ 14,137 )

US$ (1,841 ) ($ (55,530))

46.00 US$ (847 ) ($ (25,548))

US$ (350 ) ($ (10,757))

-

Chen-Xin Electronic (Chiao-Tao)


components HK$ 1,000 ($ 3,925 )


US$ 59 ($ 1,813 )

- - US$ 59 ($ 1,813 )

- - - - -

Chen Xin (Dongguan) Production of passive components US$ 1,000


registered in a third region US$ 460 ($ 14,137 )

- - US$ 460 ($ 14,137 )

- - - - -

Bestbright Electronics Co., Ltd. Manufacturing and selling overvoltage


342,073


- US$ 110,301 ($ 3,389,881 )

(Note 6)

- US$ 110,301 ($ 3,389,881 )

319,867

100.00 143,929 2,149,670 -

Brightking (Shenzhen) Co., Ltd. Manufacturing and selling overvoltage


94,380


- - - - 114,806

100.00 1,257 652,687 -

Brightking (Shanghai) Co., Ltd. Manufacturing and selling overvoltage


29,249


- - - - 87,596

100.00 10,158 246,458 -

Brightking (Beijing) Co., Ltd Manufacturing and selling overvoltage


18,876


- - - - 14,924

100.00 (115 )

63,486 -


Co., Ltd. Manufacturing and selling overvoltage


130,395


- US$ 1,603 ($ 49,265 )

(Note 6)

- US$ 1,603 ($ 49,265 )

(56,316 )

100.00 (36,778 )

50,264 -

(Continued)

- 268 -





Remittance of Funds Accumulated Outflow of




% Ownership of Direct or Indirect

Investment


(Note 4)





(Note 3)

Outflow (Note 3)

Inflow (Note 3)

Ceramate Technical (Suzhou)



$ 81,661


$ - $ - $ - $ - $ (16,194 )

100.00 $ (11,437 ) $ 18,208 $ -

Zhejiang Bestbright Electronics



186,642 Indirect: Through a company registered in a third region

- - - - (1,469 ) 100.00 (692 ) 215,598 -

Pulse Electronics (Dongguan)

CO., LTD Manufacturing automotive electronic

components 774,291


- US$ 397,542 ($ 12,217,658 )

(Note 6)

- US$ 397,542 ($ 12,217,658 )

(86,761 ) 100.00 (39,230 )

1,233,779 -

Mian Yang Pulse Electronics


components 64,539 Indirect: Through a company

registered in a third region - US$ 38,414

($ 1,180,577 ) (Note 6)

- US$ 38,414 ($ 1,180,577 )

69,376 100.00 9,666 149,108 -

Suining Pulse Electronics Co., Ltd Manufacturing automotive electronic



($ 1,194,407 ) (Note 6)

- US$ 38,864 ($ 1,194,407 )

(11,070 )

100.00 (13,368 ) 102,454 -

Pulse (Suzhou) Wireless Products




($ 694,965 ) (Note 6)

- US$ 22,613 ($ 694,965 )

17,192 100.00 10,418 42,330 -

Pulse Electronics (ShenZhen)




($ 112,698 ) (Note 6)

- US$ 3,667 ($ 112,698 )

4,804 100.00 179 15,500 -

Shengsheng Technology (Suzhou)




($ 307,975 ) (Note 6)

- US$ 10,021 ($ 307,975 )

(324 ) 100.00 (513 )

35,968 -

Egston Electronics Zhuhai Ltd Manufacturing automotive electronic



($ 629,904 ) (Note 6)

- US$ 20,496 ($ 629,904 )

33,432 100.00 50 107,699 -

Accumulated Outward Remittance for Investment in Mainland China as of December 31, 2018

(Note 3)

Investment Amounts Authorized by Investment Commission, MOEA (Note 3)

Upper Limit on the Amount of Investment Stipulated by Investment Stipulated by Investment Commission,

MOEA

$28,158,835 (US$916,241) $32,755,385 (US$1,065,805) (Note 1) (Note 2) Note 1: Investment Commission of MOEA approved the transfer of earnings to capital of Yageo Electronics (Dongguan) Co., Ltd. and Yageo Electronics (China) Co., Ltd. amounting to US$6,740 thousand and US$97,000 thousand, respectively. Note 2: Referred to under Order No. 10720416280 issued by the MOEA on June 8, 2018, the Company obtained the operational headquarters certification documents issued by the Industrial Bureau of the MOEA valid from June 4, 2018 to June 3, 2021. Therefore, the investment in mainland China is not restricted. Note 3: The currency rate on December 31, 2018, stated one New Taiwan dollar to HKD and USD are 1:3.9245 and 1:30.733, respectively. Note 4: The currency rate in 2017, stated one New Taiwan dollar to HKD and USD are 1:3.8487 and 1:30.163, respectively. Note 5: Subsidiary Compostar Technology (Suzhou) Co., Ltd., Chen-Xin Electronic (Chiao-Tao) Co., Ltd. and Chen Xin (Dongguan) had been liquidated and withdrawn of investment approved by Investment Commission of MOEA. Note 6: The amount of investment approved by the Investment Commission of MOEA. The actual amount of investment is currently under approval and preparation.

(Concluded)

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