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2023 ReportStock Code: 2324 Compal Electronics, Inc. 2018 Annual Report Notice to readers This English version annual report is a translation of the Mandarin version. This document is created for the sole purpose of the convenience for its non-Mandarin readers and is not an official document to represent the financial status of the Company per Taiwan laws. Should any discrepancy arise between the English and Mandarin versions, the Mandarin version shall prevail. Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw The Company's Annual Report is available at: http://www.compal.com Printed on May 13, 2019 Spokesperson I. Spokesperson: Ching-Hsiung Lu/Vice President Deputy Spokesperson: Cheng-Chiang Wang /Vice President of Accounting Dept. Tel: 886-2-8797-8588 E-mail: Investor@compal.com II. Headquarters, Branches and Plant Headquarters Address: No.581& 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan Tel: 886-2- 8797-8588 Manufacturing Site Address: No. 8, South East Rd., Pingzhen City, Taoyuan County Tel: 886-3-439-1707 III. Share Administration Agency Chinatrust Transfer Agent Address: 5F, No. 83, Sec 1, Chung Ching Nan Road, Taipei, Taiwan Tel: 886-2-6636-5566 Website: https://www.ctbcbank.com IV. Auditors CPA Firm: KPMG Taiwan Auditors: Chien, Szu Chuan and Au, Yiu Kwan Address: 68F, No. 7, Sec. 5, Xinyi Road, Taipei, Taiwan Tel.: 886-2-8101-6666 Website: http://www.kpmg.com.tw V. Overseas Securities Exchange Luxembourg Stock Exchange: http://www.bourse.lu London Stock Exchange http://www.londonstockexchange.com VI. Corporate Website http://www.compal.com 1 Table of Contents 4 I. Letter to Shareholders II. Company Profile 6 6 2.1 Date of Incorporation 2.2 Company History III. Corporate Governance Report 7 9 31 83 84 85 3.1 Organization 3.2 Directors, Supervisors and Management Team 3.3 Implementation of Corporate Governance 3.4 Information Regarding the Company’s Audit Fee and Independence 3.5 Replacement of CPA 3.6 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year 85 3.7 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders 88 89 3.8 Relationship among the Top Ten Shareholders 3.9 Ownership of shares in Affiliated Enterprises IV. Capital Overview 91 96 96 96 98 98 98 98 4.1 Capital and Shares 4.2 Bonds 4.3 Preferred shares 4.4 Global Depository Receipts 4.5 Employee Warrants 4.6 Subscription of New Shares by Employees and Restricted Shares 4.7 New Share Issuance in Connection with Mergers and Acquisitions 4.8 Financing Plans and Implementation V. Operational Highlights 99 114 131 132 132 134 5.1 Business Activities 5.2 Market and Sales Overview 5.3 Human Resources 5.4 Environmental Protection Expenditure 5.5 Labor Relations 5.6 Important Contracts 2 VI. Financial Information 135 139 143 144 6.1 Five-Year Financial Summary 6.2 Five-Year Financial Analysis 6.3 Audit Committee’s Report in the Most Recent Year 6.4 Consolidated Financial Statements and Independent Auditors’ Report (Attachment I) 144 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report (Attachment II) 144 6.6 Status of financial difficulties for the Company and its subsidiaries VII. Review of Financial Position, Operating Results, and Risk Management 145 146 147 148 148 150 154 7.1 Analysis of Financial Status 7.2 Analysis of Operation Results 7.3 Analysis of Cash Flow 7.4 Major Capital Expenditures 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year 7.6 Analysis of Risk Management 7.7 Other material issues VIII. Special Disclosure 155 185 185 185 185 8.1 Summary of Affiliated Companies 8.2 Private Placement of Securities in the Most Recent Year 8.3 Subsidiaries’ Holding of the Company’s Shares in the Most Recent Year 8.4 Other supplementary notes, where applicable 8.5 Events with Significant Impacts Attachment I II Consolidated Financial Statements and Independent Auditors’ Report Parent-Company-Only Financial Statements and Independent Auditors’ Report 3 I. Letter to Shareholders Dear Shareholders, First of all, we would like to express our sincere gratitude for your long-term support to the company! 2018 was a challenging year given external noises concerning trade conflicts between US and China, Brexit events and China economy fluctuations, whereas the industry was also impacted by the rising prices of components and supply shortage. Despite the prevailing challenges, Compal still made some accomplishments last year and successfully completed the re-election of the board of directors that symbolizes transition into a new generation. Please refer to the following for a summary of last year's financial and business performance and this year's prospect. 2018 Financial Results In 2018, Compal generated consolidated revenues totaling NT$967,706 million, up NT$80,049 million or 9% from the previous year. Driven by the market's growing demand for PC products and Smart Devices, total shipment of 5C electronics increased to 83 million units. Consolidated operating profit amounted to NT$9,262 million, up 1% from the previous year. In addition, the Company sold equity interest in LCFC, it recognized NT$2,511 million of non-operating income to conclude net income attributable to parent company totaling NT$8,913 million, up NT$3,164 million or 55% from the previous year. After-tax EPS is concluded at NT$2.05. Steady Growth of Core Business In terms of business development, Compal made several accomplishments in 2018 including: record-high consolidated revenues, more than 30% revenue contribution from non-PC segments, and reclaiming of its position as the No. 1 Notebook PC designer and manufacturer. With respect to PC products, we continue to strengthen our relationship with brand companies by bringing added value to customers through quality and innovative design. Apart from existing product lines, we are also increasing our investments in Server and Edge Computing products. As for Smart Devices, development of AI, IoT and wearable technology has progressed to the point capable of contributing rapid growth to Compal's non-PC segment. Progress in Smart Medical Compal has made significant progress in smart medical, one of its new business segments, over the last three years and invested into several different fields from remote healthcare, electronic medical records, smart ward, smart medical terminal, to cancer immunotherapy. The company is currently working with multiple medical institutions to develop AI-based smart medical solutions. Ongoing projects include: " iDiabCare®" – the tele health management and care ICT solution for chronic conditions that is being promoted in joint effort with Changhua Christian Hospital, Yeezen General Hospital and Wei Gong Memorial Hospital and has so far accumulated more than 1,700 active users; "Compal iCare" – the tele healthcare service currently being used in collaboration with 120 institutions nationwide; Compal "Smart Ward Total Solution" currently in development with Taipei City Hospital Zhongxiao Branch; and IOT “BoostFix – tele-rehabilitation solution” that completed its clinical trial with Taipei Municipal Wanfang Hospital and obtained TFDA permit. Furthermore, Compal is participating in the Smart City project introduced by the Ministry of Economic Affairs and assisting the government in the establishment of smart healthcare service centers at Chiayi City, Chiayi County, Yunlin County and Penghu County by offering Compal's proprietary software and hardware integrated systems. Meanwhile, one of Compal's investments - General Life Biotechnology has made promising progress last year, with the product of 3-in-1 multi-function monitoring system for glucose, total 4 cholesterol, and uric acid. Corporate Governance and Business Sustainability Compal has always made sustainability the goal of business management. We approach environmental, social and corporate governance issues with an emphasis towards innovation, harmony and ongoing improvement, and execute a sustainable talent training program. Compal was honored to receive "Taiwan Corporate Sustainability Awards" from Taiwan Institute for Sustainable Energy in 2018, and has maintained its ranking in the top 6%-20% among the listed companies during the latest "Corporate Governance Evaluation." Compal has been selected as a composition of FTSE4GOOD Index for 3 consecutive years, and for 12 consecutive years, the company has been selected as a composite of the MSCI ESG Leaders Index. They represent how international institutions have long recognized Compal's sustainable value as an investment. In the future, we shall continue giving back to our employees, shareholders and the society through acts of sharing and mutual benefit. 2019 Prospects Year 2019 presents us with many economic uncertainties, which we have responded actively by undertaking new measures and plans. In terms of manufacturing, in response to customer demand, we not only invested into the expansion of the Chongqing Plant in China, but also re-activated investments in Taiwan and Vietnam. Apart from process optimization and productivity improvement, we will also focus on speeding up automation and digitalization of our production processes. Technology-wise, we have invested in the development of new technologies such as AI, AR and 5G communication, and thereby prepare ourselves for the next wave of industrial competition. Although the macro environment is still full of challenges, we still expect 5C electronics shipments to continue last year's momentum after taking into account the market condition and Compal's business plans for 2019, and exhibit another year of growth. As for the non-PC segment, Compal aims to increase revenue contributions toward 40% in the mid-to-long run. In the meantime, we will place additional focus on profitability and raise Compal's stature and value within the industry. Once again, we thank the shareholders for their support and guidance to Compal. Yours truly, Chairman: Sheng-Hsiung Hsu (Rock Hsu) CEO: Chung-Pin Wong (Martin Wong) Head of Accounting: Cheng-Chiang Wang (Jack Wang) 5 II. Company Profile 2.1 Date of Incorporation: June 1, 1984 2.2 Company History Company history in the past two years: Year 2017 • Chairman Rock Hsu received the “Pan Wen Yuan Award” – the most prestigious award for technology in Taiwan. Milestones • • • • • • Won 4 awards at the 2017 “iF design” awards and ranked 27th in Global Innovation. • Ranked within the top 6%~20% of TWSE-listed companies in the “Third Round of Corporate Governance Evaluations” by TWSE. Ranked 5th in CommonWealth Magazine’s “Top-2000 Manufacturers”. Ranked 53th in CommonWealth Magazine’s “Cross-strait Top 1000 Survey”. Ranked 458th on the Fortune Global 500. Ranked 1531th on the Forbes Global 2000. Received Taiwan Corporate Sustainability Report Awards at the “2017 TCSA” – ICT Manufacturing – The Gold Medal. The Company’s share capital reached NTD 44.2 billion by 2017. The Company earned NTD 887.7 billion in consolidated revenues in 2017. • • • Won 11 awards at the 2018 “iF design” awards and ranked 18th in Global Innovation. • Selected to take part in the CDP climate change program for four consecutive years (2014-2017) and received an overall CDP rating of B at the Management Level for 2017. Ranked within the top 6%~20% of TWSE-listed companies in the “4th Round of Corporate Governance Evaluations” by TWSE Chairman Rock Hsu received the Economic Profession Medal (First Rank). Ranked 6th in CommonWealth Magazine’s “Top-2000 Manufacturers”. Ranked 59th in CommonWealth Magazine’s “Cross-strait Top 1000 Survey”. Ranked 404th on the Fortune Global 500. Ranked 1500th on the Forbes Global 2000. Received Taiwan Corporate Sustainability Report Awards at the “2018 TCSA” – ICT Manufacturing – The Platinum Medal. The Company’s share capital reached NTD 44.1 billion by 2018. The Company earned NTD 967.7 billion in consolidated revenues in 2018. • • • Won 13 awards at the 2019 “iF design” awards and ranked 17th in Global Innovation. • • • • • • • Ranked World Design Index - TOP 3 Taiwan , Top 10 Asia, Top 10 Computer and Top 25 Companies 2015~2019 Selected to take part in the CDP climate change program for five consecutive years (2014-2018) and received an overall CDP rating of B- at the Management Level for 2018. Ranked within top the 6%~20% TWSE-listed companies of the “5th Round of Corporate Governance Evaluations” by TWSE. Ranked 6th in CommonWealth Magazine’s “Top-2000 Manufacturers”. Ranked 62nd in CommonWealth Magazine’s “Cross-strait Top 1000 Survey”. • • • • 6 2018 2019 III. Corporate Governance Report 3.1 Organization 3.1.1 Organizational Chart (As of Jan 1, 2019) Shareholders Board of Directors President Office Remuneration Committee Audit Committee Auditing Office Personnel Evaluation Committee Top Management Committee Investment Planning & Management Office Legal Affairs Office Insider Trading Prevention Office Green Sustainability Office Corporate Social Responsibility Office PCBG GOBG SDBG HR & ADM Group Accounting Group 7 3.1.2 Major Corporate Functions Department Functions President’s Office Responsible for the Company’s operation Investment Planning & Management Office Responsible for investment-related activities Auditing Office Conducts internal audits Legal Affairs Office Handles the Company’s legal affairs Green Sustainability Office Executes “Green Life” projects Insider Trading Prevention Office Corporate Social Responsibility Office PCBG GOBG SDBG Implements preventive measures against insider trading Promotes and executes CSR-related affairs Responsible for the R&D, production, quality control and sale of PC products Responsible for production, quality control of All Products Responsible for the R&D, production, quality control and sale of smart devices Accounting Group Handles accounting, share administration, and funding affairs HR & Administration Group Responsible for human resource, training, education, employee relations, general affairs, and building management 8 3.2 Directors, Supervisors and Management Team 3.2.1 Directors and Supervisors Title Name/ Nationality/Gender (Note 1) Elected Date Term First Elected Date (Note 3) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Current shareholding Shares held by proxy Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Major career (academic) achievements Shareholdin g Percentage (%) 1984.04.16 8,975,401 0.20% 8,975,401 0.20% 17,107,025 0.39% 0 0.00% Chairman Sheng-Hsiung Hsu 2018.6.22 Vice Chairman Jui-Tsung Chen 2018.6.22 3 years 3 years 1992.04.30 35,352,587 0.80% 35,352,587 0.80% 1,069,405 0.02% Binpal Investment Co., Ltd. 2018.6.22 5,000,000 0.11% 5,000,000 0.11% Director Representative: Wen-Being Hsu 2018.6.22 3 years 1984.04.16 4,000,000 0.09% 5,000,000 0.11% Kinpo Electronics, Inc. 1990.06.22 151,628,692 3.43% 151,628,692 3.44% Director Representative: Shyh-Yong Shen 2018.6.22 3 years 2012.03.14 0 0.00% 0 0.00% - 0 - 0 - 0.00% - 0.00% 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% Director Charng-Chyi Ko 2018.6.22 3 years 1984.04.16 7,896,867 0.18% 7,896,867 0.18% 30,645 0.00% 0 0.00% Director Sheng-Chieh Hsu 2018.6.22 Director Yen-Chia Chou 2018.6.22 Director Chung-Pin Wong 2018.6.22 3 years 3 years 3 years 1997.05.29 9,119,297 0.21% 8,894,297 0.20% 8,152,928 0.18% (Note 2) (Note 2) 1987.06.13 8,022,874 0.18% 8,022,874 0.18% 2,502,768 0.06% 0 0.00% 2007.06.15 6,618,618 0.15% 6,618,618 0.15% 1,398 0.00% 0 0.00% 9 Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Title Name Relationship Selected Current Positions held concurrently in the company and/or any other companies (Note 4) Director Director Sheng-Chieh Hsu Shyh-Yong Shen Brothers Father and son in law (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) Chairman Sheng-Hsiung Hsu Father and son in law (Note 4) N/A N/A N/A (Note 4) Chairman Sheng-Hsiung Hsu Brothers (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A Honorary Doctorate, National Taiwan Normal University Chairman of Kinpo and Compal Electronics Inc. Honorary Doctorate, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. National Tao-Yuan Sr. Vocational Agricultural & Industrial School Director of BAOTEK, Inc. MBA, University of Southern California, USA, Ph.D, Law, Whittier Law School, USA Director and President of Kinpo Electronics Inc. National Taiwan University College of Management PhD, Lincoln University, USA Chairman and President of Taiwan Biotech Co., Ltd. Department of Architecture, Tam-Kang University Managing Director of Kinpo Electronics Inc. Department of Geosciences, National Taiwan University Supervisor of Kinpo Electronics Inc. Graduate Institute of Management Science, National Chiao Tung University Chairman of Compal Broadband Networks, Inc. Title Name/ Nationality/Gender (Note 1) Elected Date Term First Elected Date (Note 3) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Current shareholding Shares held by proxy Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Major career (academic) achievements Shareholdin g Percentage (%) Director Chiung-Chi Hsu 2018.6.22 Director Ming-Chih Chang 2018.6.22 Director Anthony Peter Bonadero 2018.6.22 Director Sheng-Hua Peng 2018.6.22 Independent Director Min-Chih Hsuan 2018.6.22 3 years 3 years 3 years 3 years 3 years 1994.04.23 2,000,731 0.05% 2,117,731 0.05% 30,000 0.00% 0 0.00% 2018.6.22 1,919,489 0.04% 1,919,489 0.04% 2018.6.22 0 0.00% 0 0.00% 2018.6.22 835,000 0.02% 835,000 0.02% 0 0 0 0.00% 0.00% 0 0 0.00% 0.00% 0.00% 0 0.00% 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Independent Director Duei Tsai 2018.6.22 3 years 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Independent Director Duh-Kung Tsai 2018.6.22 3 years 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Note: 1. All directors are male; except that Anthony Peter Bonadero is citizen of U.S, the remainders are ROC nationals. 2. Director Sheng-Chieh Hsu held 3,500,000 shares (0.08%) through proxies. 3. Directors Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen left office on June 22, 2018. Master’s Degree, Golden Gate University, San Francisco, USA Director of I PAO Bearing Co., Ltd. Master’s degree in San Francisco Golden Gate University. Director of Mactech Co., Ltd. Texas A&M University EVP of Auscom Engineering Inc. Graduate Institute of Electronics Engineering of National Taiwan University Director of Arcadyan Technology Corp. Honorary Doctorate, National Chiao Tung University Chairman of United Microelectronics Corp. & Faraday Technology Corp. PhD, Graduate Institute of Electrical Engineering, National Taiwan University Minister of Transportation and Communications R.O.C. Department of Industrial Engineering, National Taipei Institute of Technology Chairman of Powertech Technology Inc. Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Title Name Relationship Selected Current Positions held concurrently in the company and/or any other companies (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A 10 4. Selected Current Positions as below: Title Name Chairman Sheng-Hsiung Hsu Selected Current Positions Chairman：Kinpo Electronics, Inc., AcBel Polytech Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Teleport Access Services, Inc., AcSacca Solar Energy Co., Ltd., Cal-Comp Electronics And communications Co., Ltd., Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Jipo Investment Inc., Kinpo Group Management Consultant Company, Breeze Integrated Development Co., Ltd., NTNU Innovation Investment Holding Company, Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Kinpo Electronics (China) Co., Ltd. Managing Director：Taiwan Biotech Co., Ltd. Director：Crownpo Technology Inc., Compal System Trading (Kunshan) Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Acbel Polytech Holdings Inc., Acbel Polytech (Singapore) Pte. Ltd., Ascendant Private Equity Investment Ltd., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics (Holding) Ltd., Compal Electronics International Ltd., Compal International Ltd., Compal International Holding (HK) Limited, Compal International Holding Co., Ltd., Compal Rayonnant Holdings Ltd., Core Profit Holdings Limited, Flight Global Holding Inc., Forward International Ltd., Fortune Way Technology Corp., Global Strategic Investment Inc., Goal Reach Enterprises Ltd., HengHao Holdings A Co., Ltd., HengHao Holdings B Co., Ltd., HengHao Trading Co., Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Kinpo International (Singapore) Pte. Ltd., Kinpo International Ltd., Lipo Holding Co., Ltd., Prospect Fortune Group Ltd., Prisco International Co., Ltd., Ranashe International Ltd., Smart International Trading Ltd. President：Kinpo Group Management Consultant Company Other： Honorary Chairman of Chinese National Federation of Industries, Honorary Chairman of Importers & Exporters Association of Taipei, Chairman of The Third Wednesday Club-Young Entrepreneur Group, Policy Consultant of Taiwan Electric & Electronic Manufacturers’ Association, Chairman of China Productivity Center, Vice Chairman of Straits Exchange Foundation, Vice Chairman of Sinocon Industrial Standards Foundation, Managing Director of Taiwan Design Center, Director of Management Institute in Taipei Vice Chairman Jui-Tsung Chen Chairman：Arcadyan Technology Corporation, Ripal Optotronics Co., Ltd., Palcom International Corporation, Unicom Global, Inc., General Life Biotechnology Co., Ltd., Rally Biopharma Co., Ltd., Ray-Kwong Medical Management Consulting Co., Ltd., Raycore Biotech Co., Ltd., UniCore Biomedical Co., Ltd., Compal System Trading (Kunshan) Co., Ltd. Director：Kinpo Electronics, Inc., Compal Broadband Networks, Inc., HengHao Technology Co. Ltd., Mactech Co., Ltd., Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd., Kinpo Group Management Consultant Company, Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Networking (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd., Compal (Vietnam) Co., Ltd., Compal Development & Management (Vietnam) Co., Ltd., Ascendant Private Equity Investment Ltd., Arcadyan Technology N.A. Corporation, Arcadyan Holding (BVI) Corp., Arch Holding (BVI) Corp., Billion Sea Holdings Limited, Big Chance International Co., Ltd., Bizcom Electronics, Inc., Center Mind International Co., Ltd., Compal Display Holding (HK) Limited, Compal Electronics International 11 Title Name Selected Current Positions Ltd., Compal Electronics (Holding) Ltd., Compal International Ltd., Compal International Holding Co., Ltd., Compal International Holding (HK) Limited, Compal Rayonnant Holdings Ltd., Compalead Electronics B.V., Core Profit Holdings Limited, Etrade Management Co., Ltd., Flight Global Holding Inc., Forever Young Technology Inc., Fortune Way Technology Corp., Giant Rank Trading Ltd., Goal Reach Enterprises Ltd., High Shine Industrial Corp., Intelligent Universal Enterprise Ltd., Jenpal International Ltd., Just International Ltd., Prospect Fortune Group Ltd., Prisco International Co., Ltd., Smart International Trading Ltd., Sinoprime Global Inc., Wah Yuen Technology Holding Ltd., Webtek Technology Co., Ltd. Chief Strategy Officer：Compal Electronics, Inc. President：Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd. Director Binpal Investment Co., Ltd. Representative:Wen-Being Hsu Chairman：Binpal Investment Co., Ltd. Director：Baotek Industrial Materials Ltd. Kinpo Electronics Inc. Director Kinpo Electronics Inc. Representative: Shyh-Yong Shen Director：AcBel Polytech Inc., CastleNet Technology Inc., Teleport Access Services, Inc., Crownpo Technology Inc., Cal-Comp Biotech Co., Ltd., iHELPER Inc., Cal-Comp Big Data, Inc., XYZprinting, Inc., Norm Pacific Automation Corp., Kinpo Group Management Consultant Company, Jipo Investment Inc., PK Venture Capital Corp., Prudence Venture Investment Corp., NTNU Innovation Investment Holding Company Supervisor：Cal-Comp Biotech Co., Ltd., Jipo Investment Inc. Chairman：CastleNet Technology Inc., Cal-Comp Biotech Co., Ltd., QBit Semiconductor Ltd., Jipo Investment Inc., New Era AI Robotic Inc., iHELPER Inc., Cal-Comp Big Data, Inc., XYZprinting, Inc., Tung-WAN Kai-Bao Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Cal-Comp Optical Electronics (Yueyang) Co., Ltd., Cal-Comp Precision (Yueyang) Co., Ltd., CastleNet Technology Inc (Kunshan)., XYZprinting (Shanghai) Cloud Technology Co., Ltd., Cal-Comp Precision (Wujiang) Co., Ltd., Cal-Comp Precision (Dongguan) Co., Ltd., XYZprinting (Suzhou) Co., Ltd., ICKP(Beijing) Technology Development Co., Ltd., Cal Comp (Malaysia) SDN. BHD., Cal-Comp Electronics de Mexico Co. S.A. de C.V., Cal-Comp Precision (Philippines) Inc., Cal-Comp Technology (Philippines), Inc., Kinpo Electronics (Philippines) Inc., New Era AI Robotic Ltd., XYZLife (Philippines) Inc., XYZprinting Japan, Inc. Vice Chairman：Cal-Comp Electronics(Thailand) Public Company Limited, PChome (Thailand) Co., Ltd. Director：Kinpo Electronics, Inc., AcBel Polytech Inc., Cal-Comp Electronics And communications Co., Ltd., Kinpo Group Management Consultant Company, Kinpo Electronics (China) Co., Ltd., Ascendant Private Equity Investment Ltd., Cal-Comp Big Data International Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp (India) Private Ltd., Cal-Comp Automation and Industrial 4.0 Service (Thailand) Co., Ltd., Cal-Comp Holding (Brasil) S.A., Cal-Comp Industria De Semicondutores S.A., Cal-Comp Precision (Malaysia) SDN. BHD., Cal-Comp Precision (Singapore) Ltd., Cal-Comp Precision (Thailand) Ltd., Cal-Comp USA (Indiana), Co., Inc., Cal-Comp USA (San Diego), Co., Inc., Castlenet Technology (BVI) Inc., Kinpo International (Singapore) Pte. Ltd., Kinpo International Ltd., Logistar International Holding Company Limited, Nexa3D Inc., Ruten Singapore Pte. Ltd., Power Station Holdings Ltd., QBit Semiconductor Holding, Ltd., XYZprinting, Inc. (Korea), XYZprinting, Inc. (Samoa), XYZprinting, Inc. (USA), XYZprinting Netherlands, B.V., XYZprinting (Thailand) Co., Ltd. President：Kinpo Electronics, Inc., Cal-Comp Electronics And communications Co., Ltd., Kinpo Electronics (China) Co., Ltd., Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Cal-Comp Optical Electronics (Yueyang) Co., Ltd., Cal-Comp Precision (Yueyang) Co., Ltd., XYZprinting (Shanghai) cloud technology Co., Ltd., XYZprinting (suzhou) Co., Ltd., Cal-Comp Electronics (USA) Co., Ltd., Cal-Comp USA (Indiana), Co., Inc., Cal-Comp USA (San Diego), Co., Inc., XYZprinting, Inc. (USA) Director Charng-Chyi Ko Chairman：Taiwan Biotech Co., Ltd., Evergene Biotech Industrial Co., Ltd., Weck Tech Biotech Co., Ltd., Global BioPharma, Inc., Genhealth Pharma Co., Ltd., Taiwan Veterans Pharmaceutical Co., Ltd., Aseptic Innovative Medicine Co., Ltd., Young & Health Care Resorts Inc., Taiwan Venture Capital Co., Ltd., Long Yee Investment Co. Ltd., Yinfeng International, Inc., Taiwan Chariston AMC Corp., Ltd., Twin Luck Global Company Ltd. Director：Kinpo Electronics, Inc., Baotek Industrial Materials Ltd., Formosan Union Chemical Corp., Chang Yao Technology Inc., OmniHealth Group, Inc., All 12 Title Name Selected Current Positions Information Inc., Spiregene Biotech Co., Ltd., Chipgene International Enterprise Co., Ltd., Minsheng Medical Holding Inc., Global Strategic Investment Inc. (Samoa), Gold Precision Ltd., KKXC Intergrated Management Holding (CYPRUS) Ltd., Optics Lab Inc., Syn Pharm Inc. Supervisor：Teleport Access Services, Inc., Kenly Precision Industrial Co., LTD., Sunny Special Dyeing & Finishing Co. Ltd., Kaipal Investment Co., Ltd., Commonwealth Magazine Co, Ltd. Other：Managing Supervisor of Cross-Strait Health Care and Leisure Activities Association, Director of Health, Welfare & Environment Foundation, Chairman of Yang Bi Li Education Foundation Of Management Chairman：Integrate Investment Corp. Director：Kinpo Electronics, Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Cal-Comp Electronics And communications Co., Ltd., Jipo Investment Inc., Kinpo Electronics (China) Co., Ltd., Tung-WAN Kai-Bao Co., Ltd., Kinpo International Ltd. Supervisor：Gempal Technology Corp., Panpal Technology Corp., Hong Ji Capital Co., Ltd., Hong Jin Investment Co., Ltd. Chairman：Sceptre Industry Co., Ltd. Director：Kinpo Electronics, Inc., Micro Metal Electronics Co., Ltd. Supervisor：Full Power Investment Co., Ltd. President：Sceptre Industry Co., Ltd. Chairman：Compal Broadband Networks, Inc., HengHao Technology Co. Ltd., Rayonnant Technology Co., Ltd., Auscom Engineering Inc., Wah Yuen Technology Holding Ltd. Executive Director：Compower Global Service Co., Ltd. Director：Arcadyan Technology Corporation, Mactech Co., Ltd., Panpal Technology Corp., Ripal Optotronics Co., Ltd., Unicom Global, Inc., General Life Biotechnology Co., Ltd., UniCore Biomedical Co., Ltd., Kinpo Group Management Consultant Company, Taiwan Sanga Co., Ltd., Hong Jin Investment Co., Ltd., Maxima Ventures I, Inc., Infinno Technology Corp.,Taiwan, Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd. , Compal Electronics (ChongQing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Investment (Sichuan) Co., Ltd. , Compal Management (Chengdu) Co., Ltd., Allied Power Holding Corp., Amexcom Electronics, Inc., Bizcom Electronics, Inc., Compal Connector Manufacture Ltd., Compal Europe (Poland) Sp. z o.o., HengHao Holdings A Co., Ltd., HengHao Holdings B Co., Ltd., HengHao Trading Co., Ltd, Primetek Enterprises Ltd., Shennona Corporation, Speedlink Tradings Limited, Sirqul Inc. Supervisor：Hong Ya Technology Corporation President：Compal Electronics, Inc. Chairman：Full Power Investment Co., Ltd. Director：Plank Optoelectronics Inc., E-Bow Bearing Co., Ltd., Juan Hsin Bao Hardware co., Ltd. Director：Mactech Co., Ltd., Kunshan Botai Electronics Co., Ltd. President：Compal System Trading (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compower Global Service Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Executive Vice President：Compal Electronics, Inc. Director Sheng-Chieh Hsu Director Yen-Chia Chou Director Chung-Pin Wong Director Chiung-Chi Hsu Director Ming-Chih Chang Director Anthony Peter Bonadero Executive Vice President: Auscom Engineering Inc. Director Sheng-Hua Peng Chairman：Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., HANHELT Communications (Nanjing) 13 Title Name Selected Current Positions Co., Ltd, Compal Communications (Nanjing) Co., Ltd. Director：Arcadyan Technology Corporation, Gempal Technology Corp., Palcom International Corporation, Ripal Optotronics Co., Ltd., General Life Biotechnology Co., Ltd., UniCore Biomedical Co., Ltd., Hong Ji Capital Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Amexcom Electronics, Inc., Bizcom Electronics, Inc., CENA Electromex S.A. de C.V., President：Palcom International Corporation, Compal Investment (Jiangsu) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., HANHELT Communications (Nanjing) Co., Ltd, Compal Smart Device (Chongqing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd. Executive Vice President：Compal Electronics, Inc. Chairman：Taiwan Memory Company, Meridigen Biotech Co., Ltd., Fusionvax, Inc., TC-1 Culture Fund, Vital First Investment Corporation, Maxima Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh-Kung Tsai Ventures I, Inc., Taiwan, Maxima Ventures II, Inc. Director：General Biologicals Corporation, SIPP, Inc., Clientron Corp., Elevant Biopharma Co., Ltd., Tonghua United Capsules Co., Ltd., Angeluca Science Ltd. (Republic of Seychelles), Ikala Global Online Corp., Pacgen Biopharmaceuticals Corporation (Canada) Supervisor：Meribank Biotech Co., Ltd. Remuneration Committee Member：Compal Electronics, Inc. Audit Committee Member：Compal Electronics, Inc. Independent Director：Getac Technology Corp., Taiwan Taxi Co., Ltd., TTY Biopharm Company Ltd. Remuneration Committee Member：Compal Electronics, Inc., Getac Technology Corp., Taiwan Taxi Co., Ltd., TTY Biopharm Company Ltd. Audit Committee Member：Compal Electronics, Inc., TTY Biopharm Company Ltd. Chairman：Powertech Technology Inc., Greatek Electronics Inc. Director：Powertech Technology (Suzhou) Ltd., Powertech Technology Akita Inc., Powertech Holding (B.V.I.) Inc., Powertech Technology (Singapore) Pte. Ltd., PTI Technology (Singapore) Pte. Ltd., Tera Probe, Inc. Business Executive Representative：Powertech Technology Japan Ltd. Independent Director：Chicony Power Technology Co., Ltd. Remuneration Committee Member：Compal Electronics, Inc., Chicony Power Technology Co., Ltd. Audit Committee Member：Compal Electronics, Inc., Chicony Power Technology Co., Ltd. Chief Executive Officer：Powertech Technology Inc. 14 Major shareholders of the Company’s corporate shareholders Name of corporate shareholder Major shareholders of the corporate shareholder (Note) Kinpo Electronics, Inc. Bank Custodian for Norges Bank (2.40%), Panpal Technology Corp. (1.60%), Ho Bao Investment Co., Ltd. (1.50%), Li-Chu Tsai (1.49%), Shyh-Yong Shen Compal Electronics, Inc. (8.54%), Jipo Investment Inc. (3.18%), Lai-Shun Shen, Tsai (2.88%), Nan Shan Life Insurance Co., Ltd. (2.82%), Citi (Taiwan) April 26, 2019 Note: If the major shareholder is also a corporate entity, please refer to the following table. (1.46%), Standard Charter Bank Custodian for Nattis Investment Account (1.44%) Major shareholders of the Company’s major corporate shareholders Name of corporate shareholder Major shareholders of corporate shareholders Jipo Investment Inc. Kinpo Electronics, Inc. (100%) First Commercial Bank Trustee Account For Representative of Ruen Chen Investment Holding Co., Ltd. (68.17%), Representative of Ruen Chen Nan Shan Life Insurance Co., Ltd. Investment Holding Co., Ltd. (22.46%), Ying-Tsong Du (3.25%), Ruen Hua Dyeing & Weaving Co., Ltd (0.28%), Ruentax Leasing Co., Ltd. (0.13%), Chi-Pin Investment Company (0.11%), Boon-Teik Koay (0.10%), Pou Chi Investments Co., Ltd. (0.05%), Pou Yih Investments Co., Ltd. (0.05%), Pou Huei Panpal Technology Corporation Compal Electronics, Inc. (100%) Investments Co., Ltd. (0.05%), Pou Hwang Investments Co., Ltd. (0.05%) Ho Bao Investment Co., Ltd. Chieh-Li Hsu (41.52%), Li-Chu Tsai (27.83%), Chun-Chi Hsu (13.91%), Yung-Hsu Hsu (12.50%), Hsin Hsu, Huang (2.83%), Yueh-Hsia Huang, Hsu (1.41%) 15 Criteria Professional qualifications and independence analysis of directors and supervisors Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience 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 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 Having Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Name Independence Criteria (Note) 1 2 3 4 5 6 7 8 9 10 (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director 0 0 0 0 0 0 0 0 0 0 0 0 0 3 1 (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) Sheng-Hsiung Hsu Jui-Tsung Chen Representative of Binpal Investment Co., Ltd.: Wen-Being Hsu Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min Chih Hsuan Duei Tsai Duh-Kung Tsai Note: 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 in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under 16 someone else's name(s), in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the 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. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not a person of any conditions defined in Article 30 of the Company Act. 10. Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Act. 17 3.2.2 Management Team Title Name/ Nationality/ Gender (Note 1) Date elected /appointed Shares held Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements April 23, 2019 Spouse or relatives of second degree or closer acting as managers Title Name Relationship Selected Current Positions Chief Strategy Officer Jui-Tsung Chen 2018.07.04 35,352,587 0.80% 1,069,405 0.02% 0 0.00% Honorary Doctorate, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. Refer to Page11-12 Vice President Po-Tang Wang Relative by affinity President Chung-Pin Wong 2018.07.04 6,618,618 0.15% 1,398 0.00% Executive Vice President Executive Vice President Executive Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Ming-Chih Chang 2018.07.04 1,919,489 0.04% Sheng-Hua Peng 2018.07.04 835,000 0.02% Chen-Chang Hsu 2011.08.31 0 0.00% 0 0 0 0.00% 0.00% 0.00% Chun-Te Shen 2007.01.01 2,953,700 0.07% 900,000 0.02% Kuo-Chuan Chen 2007.01.01 991,823 0.02% 10,924 0.00% Pei-Yuan Chen 2009.10.06 3,487,698 0.08% 1,045,585 0.02% Chyou-Jui Wei 2010.03.18 0 0.00% 142,966 0.00% 0.00% Graduate Institute of Management Science, National Chiao Tung University Chairman of Compal Broadband Networks, Inc. 0.00% Department of Electrical Engineering, Ming Chi University of Technology Director of Mactech Co., Ltd. 0.00% Graduate Institute of Electrical Engineering, National Taiwan University Director of Arcadyan Technology Corp. Refer to Page 13 Refer to Page 13 Refer to Page 14 N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% National Chiao Tung University EMBA Executive Vice President of WINTEK Corporation 0.00% Graduate Institute of Electrical Engineering, National Taiwan University Director of Kinpo Electronics Inc. 0.00% Department of Physics, Chung Yuan Christian University Senior Vice President of Compal Communication Inc. 0.00% Department of International Trade, Hsingwu College Director of Kinpo Electronics Inc. 0.00% Master of Business Administration, University of Washington, USA Senior Vice President of Toppoly Optoelectronics Corp. (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A 0 0 0 0 0 0 0 0 18 Title Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Name/ Nationality/ Gender (Note 1) Date elected /appointed Shares held Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Ying Chang 2011.02.24 735,000 0.02% Wen-Da Hsu 2014.02.27 1,333,000 0.03% Wei-Chang Chen 2004.04.01 810,656 0.02% Shi-Kuan Chen 2009.05.01 Chi-Wai Wan 2017.05.10 0 0 0.00% 0.00% 0 0.00% 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0 0.00% MBA, University Of Georgia President of Swenc Technology Co., Ltd. 0.00% Department of Media Administration, Shih Hsin University Senior Vice President of Compal Communication Inc. 0.00% Department of Electronic Engineering, Taipei College of Maritime Technology Vice President of Cheong Tat Technology 0.00% Master of Industrial Design, Cranbrook Academy of Art Director of Design and Customer Affairs, Philips (Hong Kong) 0.00% Department of Electrical Engineering, Fu Jen Catholic University Inventec Corp. Vice President Min-Tung Weng 2018.12.01 623,786 0.01% 0 0.00% 0 0.00% Lo-Chun Lee 2018.12.01 420,000 0.01% 0 0.00% 0 0.00% Master of Business Administration, University of Washington, USA Deputy Manager of Sales, Kapok Computer Company Department of Electronic Engineering, Lee-Ming Institute of Technology Chairman's Special Assistant, Mag Technology Co., Ltd. 19 Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relationship (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A Title Name/ Nationality/ Gender (Note 1) Date elected /appointed Shares held Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relationship Vice President Chih-Chuan Cheng 2003.01.01 2,103,786 0.05% 51,194 0.00% 0 0.00% Department of Electronic Engineering, Lunghwa University of Science and Technology Deputy Manager of Research and Development, Top Information Technologies Co., Ltd. Vice President Ching-Hsiung Lu 2003.01.01 7,707,007 0.17% 1,000,000 0.02% Vice President Po-Hsiung Chang 2006.02.21 0 0.00% 270 0.00% Vice President Po-Tang Wang 2007.07.10 559,548 0.01% 486 0.00% Vice President Tzong-Ming Wang 2009.07.16 313,184 0.01% Vice President Fu-Chuan Chang 2009.07.16 150,662 0.00% Vice President Yung-Nan Chang 2011.01.01 0 0.00% Vice President Sheng-Hung Li 2011.07.01 504,574 0.01% 0 0 0 0 0.00% 0.00% 0.00% 0.00% Vice President Yong-Ho Su 2011.07.01 500,401 0.01% 82,000 0.00% 0 0 0 0 0 0 0 0 0.00% Department of Accounting, Feng Chia University Director Compal Communication Inc. 0.00% Department of Electrical Engineering, National Taipei Institute of Technology UNICOM GLOBAL., Inc. Director 0.00% Department of Computer Science and Information Engineering, National Taiwan University President of Vibo Telecom Inc. 0.00% National Taipei Institute of Technology Head of Research and Development, CLEVO Company 0.00% National Chin-Yi University of Technology Production Manager, ADI Corp 0.00% MBA, Pacific Western University Factory Manager, Delta Electronics Inc. 0.00% Department of Electronics, National Taipei Institute of Technology 0.00% Department of Electrical Engineering, National Taipei Institute of Technology Vice President of Arima Photovoltaic & Optical Corp. N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A Chief Strategy Officer t Jui-Tsung Chen Relative by affinity N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Vice President Jyh-Shyan Liang 2011.10.31 120,000 0.00% 0 0.00% 0 0.00% University of Colorado Postgraduate Institute of Digital Communication/Vice President of Wireless Communication, Altek Corporation N/A N/A N/A N/A 20 Title Name/ Nationality/ Gender (Note 1) Date elected /appointed Shares held Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relationship Vice President Chiao-Lie Huang 2014.02.27 38,992 0.00% 0 0.00% Vice President Chung-Hsing Tan 2014.02.27 60,000 0.00% 5,320 0.00% Vice President Yi-Yun Chang 2014.08.13 300,246 0.01% Vice President Hsin-Kung Mao 2014.11.13 420,714 0.01% Vice President Hsin-Hsiung Huang 2015.01.22 419,001 0.01% Vice President Shih-Hong Huang 2016.02.24 280,000 0.01% Vice President Yi-Chiang Chiu 2016.02.24 280,000 0.01% Vice President Tsing-Fa Lee 2016.02.24 185,690 0.00% Vice President Bor-Heng Chen 2016.02.24 280,010 0.01% Vice President Jui-Chun Shyur 2016.05.11 0 0.00% 0 0 0 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Vice President Shyh-An Lee 2016.06.29 76,071 0.00% 4,259 0.00% 0.00% Graduate Institute of Electrical Engineering, National Taiwan University Vice President of Compal Communication Inc. 0.00% Department of Electrical Engineering, Tatung University Vice President of Compal Communication Inc. 0.00% Graduate Institute of Electrical Engineering, National Taiwan University Senior Manager of Compal Communication Inc. 0.00% Master of Business Administration, University of Lincoln Director of Avalue Technology Inc. 0.00% Department of Electronics, Chung Yuan Christian University Senior Manager of Compal Communication Inc. 0.00% Master in Control Engineering, National Chiao Tung University Director of Coretronic Corporation 0.00% Master in Earth Sciences, National Central University 0.00% Information Engineering Ph.D., National Tsing Hua University Vice General Manager – Eten Technology Inc. 0.00% COLUMBIA UNIVERSITY Master of Industrial Engineering and Operations Management 0.00% PhD, Graduate Institute of Electrical Engineering, National Taiwan University Photonics Industries International, Inc.President 0.00% Department of Navigation, Taipei College of Maritime Technology LCFC Taiwan Branch Vice CEO (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A 0 0 0 0 0 0 0 0 0 0 0 21 Title Name/ Nationality/ Gender (Note 1) Date elected /appointed Shares held Shares held by spouse and underage children Subsidiary shareholding Total shares held in the names of others Shares held Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as managers Title Name Relationship Vice President Ta-Chun Wang 2016.06.29 204,200 0.00% 4,119 0.00% Vice President Fei-Long Chen 2016.06.29 0 0.00% Vice President Jen-Liang Lin 2018.03.06 100,500 0.00% General Counsel Peng-Hong Chan 2018.05.09. 0 0.00% Vice President Wei-Chia Wang 2018.12.01 120,000 0.00% 0 0 0 0 0.00% 0.00% 0.00% 0.00% Accounting & Corporate Governance Officer Cheng-Chiang Wang 2018.07.04 2019.05.13 955,808 0.02% 30 0.00% Vice President Cheng-Hui Su 2018.12.01 Vice President Tu-Chuan Tu 2018.12.01 Vice President Chang-Chieh Tien 2018.12.01 105,000 593,081 403 0.00% 0.01% 0.00% Internal Audit Officer Po-Wen Hsieh 2010.10.27 0 0.00% 0 62,105 0 0 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0 0 0 0 0 0 0.00% Master of Industrial Engineering, University of Illinois Shanghai Real Industrial Co., Ltd. Managing Vice President 0.00% PhD, Industrial Engineering, Auburn Uni., USA Kunshan MYZY Technology Co., Ltd. CTO 0.00% Department of Industrial Engineering, Feng Chia University Director of Operations Division, Compal Fab No. 2 0.00% Master of Cornell University Law School CSO, Pou Chen Group 0.00% Chung Yuan Christian University, Electrical Engineering Senior Director of LCFC 0.00% Fu Jen Catholic University, Department of Accounting Financial officer of Allied Circuit Co., Ltd. 0.00% Tulane University Master of MBA 0.00% Vanung University, Electrical Engineering 0.00% National Chiao Tung University,Transportation Management 0.00% Department of Accounting, National Taiwan University Audit Manager, KGT Telecom N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Note: 1. All managers are ROC nationals; except for Senior Vice President Chyou-Jui Wei, all other managers are male. 2. Executive Vice President Chao-Cheng Chen, Vice Presidents Ling-Sheng Wu, Chi-Hsiang Ma and Shih-Tung Wang resigned in 2018. 3. Concurrent positions in other companies 22 Title Name Concurrent positions in other companies Executive Vice President Senior Vice President Senior Vice President Chen-Chang Hsu Chun-Te Shen Chairman：HengHong Optoelectronics Technology (Kunshan) Co., Ltd., LUCOM Display Technology (KunShan) Limited Vice Chairman：HengHao Technology Co. Ltd., LUCOM Display Technology (KunShan) Limited Director：Mactech Co., Ltd. President：HengHao Technology Co. Ltd., HengHong Optoelectronics Technology (Kunshan) Co., Ltd., LUCOM Display Technology (KunShan) Limited Director：Kinpo Electronics, Inc., Compal Information Research & Development (Nanjing) Co., Ltd., Auscom Engineering Inc. President：Compal Information Research & Development (Nanjing) Co., Ltd. Pei-Yuan Chen Director：Kinpo Electronics, Inc., Infinno Technology Corp., Full Power Investment Co., Ltd. Senior Vice President Chyou-Jui Wei Chairman：Rapha Bio Ltd. Director：Taiwan Star Telecom Co., Ltd., UniCore Biomedical Co., Ltd., Trust Bio-sonics, Inc., Raycore Biotech Co., Ltd., Maxima Ventures I, Inc., Taiwan, Hua Vi Venture Capital Corporation, Hua VII Venture Capital Corporation, Cdib & Partners Investment Holding Corp., Compal Electronic Technology (Chongqing) Co., Ltd., ZhengYing Electronics (Chongqing) Co., Ltd., Compal Precision Module(Jiangsu) Co., Ltd., ShengBao Precision Electronics (Taicang) Ltd., Rayonnant Technology (HK) Holdings Limited Supervisor：HengHao Technology Co. Ltd., Infinno Technology Corp., Rayonnant Technology Co., Ltd., Ripal Optotronics Co., Ltd., Mactech Co., Ltd., Unicom Global, Inc., General Life Biotechnology Co., Ltd., Global BioPharma, Inc., Ray-Kwong Medical Management Consulting Co., Ltd., Rayonnant Technology (Taicang) Co., Ltd. Independent Director：SYNergy ScienTech Corp. Remuneration Committee Member：SYNergy ScienTech Corp. Audit Committee Member：SYNergy ScienTech Corp. Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Vice President and head of finance Vice President Vice Ying Chang Director：Allied Circuit Co., Ltd. Wen-Da Hsu Director：HANHELT Communications (Nanjing) Co., Ltd Wei-Chang Chen Director：Shennona Corporation Hsi-Kuan Chen Director：Rayonnant Technology Co., Ltd., Rayonnant Technology (Taicang) Co., Ltd. Ming-Dong Wong Ching-Hsiung Lu Director：Auscom Engineering Inc. President：Auscom Engineering Inc. Director：Zhi-Bao Technology Corporation, Arcadyan Technology (Shanghai) Corp., Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd., Great Arch Group Ltd., Leading Images Limited Supervisor：Accesstek Inc., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd., Compal Electronics (ChongQing) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co., Ltd., Compal Networking (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Fu-Chuan Chang President：Compal Optoelectronics (Kunshan) Co., Ltd., Compal Electronics, (China) Co., Ltd. Chiao-Lieh Huang Supervisor：HANHELT Communications (Nanjing) Co., Ltd 23 Title President Vice President Vice President Vice President Vice President Accounting & Corporate Governance Officer Name Chung-Shing Tan Hsin-Kung Mao Hsin-Hsiung Huang Shyh-An Lee Cheng-Chiang Wang Concurrent positions in other companies Director：HANHELT Communications (Nanjing) Co., Ltd Director：Avalue Technology Inc., Unicom Global, Inc., Amexcom Electronics, Inc., CENA Electromex S.A. de C.V., Compalead Electronics B.V., Mexcom Electronics, LLC, Mexcom Technologies, LLC President：Amexcom Electronics, Inc. Director：Compal Wireless Communications (Nanjing) Co., Ltd., Compal Digital Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co., Ltd. Director：Rayonnant Technology (Taicang) Co., Ltd. Infinno Technology Corp. Director：Zhi-pal Technology Inc., HengHao Technology Co. Ltd., Palcom International Corporation Supervisor：Compal System Trading (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Compower Global Service Co., Ltd., HengHong Optoelectronics Technology (Kunshan) Co., Ltd., Compal Smart Device (Chongqing) Co., Ltd. 24 3.2.3 Remuneration of Directors, Supervisors, President and Vice Presidents Remuneration of Directors Directors' remuneration Remuneration as an employee Unit: NTD thousand; thousand shares; % Remuneration (A) Pension (B) Title Name The Company All companies included in the financial statement s The Compan y All companies included in the financial statements Remuneration from earnings appropriation (C) Business department implementation Fees for services rendered (D) The sum of A, B, C and D as a percentage of after-tax profit Salaries, bonuses, special allowances etc (E) Retirement Pension (F) The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Share of profit as an employee (G) The sum of A, B, C, D, E, F, and G as a percentage of after-tax profit The Company All companies included in the financial statements Cash Amount Stock Amount Cash Stock The Company All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (H) 7,200 7,200 0 0 49,223 49,223 2,759 3,429 0.66% 0.67% 19,729 48,732 806 806 57,500 0 57,500 0 1.54% 1.87% 111,746 Chairman Sheng-Hsiung Hsu Vice Chairman Director Director Jui-Tsung Chen Representative: of Binpal Investment Co., Ltd. Wen-Being Hsu Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Director Director Director Director Chung-Pin Wong Director Director Ming-Chih Chang Director Anthony Peter Bonadero Chiung-Chi Hsu Sheng-Hua Peng Min-Chih Hsuan Director Independent Director Independent Director Independent Director Duei Tsai Duh-Kung Tsai Director Wen-Chung Shen Director Yung-Ching Chang Director Chao-Cheng Chen * Remuneration collected by Directors for their services (i.e. acting as advisor for non-employees) as disclosed in the Financial Report in the most recent year not shown in the table: 0 Note: 1. Directors Ming-Chih Chang, Anthony Peter Bonadero and Sheng-Hua Peng took office on June 22, 2018. Directors Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen left office on June 22, 107. 2. In 2017, the Company made pension contributions totaling NT$ 744 thousand (including NT$ 405 thousand under the new system and NT$ 339 thousand under the old system) for directors who also assumed managerial roles as employees; Meanwhile, all companies reported in the financial statements had made pension contributions totaling NT$ 744 thousand (including NT$ 405 thousand under the new system and NT$ 339 thousand under the old system). 3. Directors’ compensation refers to the estimated directors’ compensation approved by the Board of Directors meeting on March 22, 2019. 25 Range of Remuneration Total of (A+B+C+D) Total of (A+B+C+D+E+F+G+H) Number of Directors The Company The Company Companies in the consolidated financial statements Companies in the consolidated financial statements 7 (Note 4) 10 (Note 5) 3 (Note 6) 7 (Note 1) 10 (Note 2) 3 (Note 3) Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total Note: 1. 2. Wen-Being Hsu, Sheng-Chieh Hsu, Yung-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Binpal Investment Co., Ltd. and Shyh-Yong Shen, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng, Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen – 7 position 3 (Note 12) 8 (Note 13) 2 (Note 14) 4 (Note 15) 1 (Note 16) 2 (Note 17) 5 (Note 7) 9 (Note 8) 2 (Note 9) 3 (Note 10) 1 (Note 11) 20 20 20 20 Kinpo Electronics Inc. – 10 positions Sheng-Hsiung Hsu, Jui-Tsung Chen, Charng-Chi Ko – 3 position Shyh-Yong Shen, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng, Wen-Chung Shen, Yung-Ching Chang and, Chao-Cheng Chen – 7 position 3. 4. 5. Wen-Being Hsu, Sheng-Chieh Hsu, Yung-Chia Chou, Chung-Pin Wong, Chiung-Chi Hsu, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Binpal Investment Co., Ltd. and Kinpo Electronics Inc. – 10 positions Sheng-Hsiung Hsu, Jui-Tsung Chen, Charng-Chi Ko – 3 position Shy-Yong Shen, Anthony Peter Bonadero, Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen – 5 positions 6. 7. 8. Wen-Being Hsu, Sheng-Chieh Hsu, Yung-Chia Chou, Chiung-Chi Hsu, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Binpal Investment Co., Ltd. and Kinpo Electronics Inc. – 9 positions Sheng-Hsiung Hsu, Charng-Chi Ko – 2 positions 9. 10. Chung-Pin Wong, Ming-Chih Chang, Sheng-Hua Peng – 3 positions 11. Jui-Tsung Chen – 1 position 12. Wen-Chung Shen, Chao-Cheng Chen, Binpal Investment Co., Ltd. – 3 position 13. Wen-Being Hsu, Yung-Chia Chou, Chiung-Chi Hsu, Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai, Yung-Ching Chang and Kinpo Electronics Inc. – 8 positions 14. Charng-Chi Ko, Sheng-Chieh Hsu – 2 position 15. Chung-Pin Wong, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng, -4 position 16. Jui-Tsung Chen – 1 positions 17. Sheng-Hsiung Hsu, Shyh-Yong Shen – 2 positions 26 Remuneration of Supervisors: Not Applicable (The Company adopts an Audit Committee system) Remuneration of the President and Vice Presidents Salary (A) Pension (B) Bonus and special allowances (C) Share of profit as an employee (D) The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Cash Amount Stock Amount Cash Amount Stock Amount Unit: NTD thousand; thousand shares; % Remuneration from invested businesses other than the subsidiaries (E) Sum of A, B, C and D as a percentage of after-tax profit (%) The Company All companies included in the financial statements 117,301 123,971 5,913 5,913 91,565 92,086 127,150 0 127,150 0 3.84% 3.92% 1,337 Title Name 50 employees including CSO Jui-Tsung Chen (Note1) Note: 1.Managers’ titles and names ‧Chief Strategy Officer: Jui-Tsung Chen – 1 position ‧President: Chung-Pin Wong – 1 position ‧Executive Vice Presidents: Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, and Chao-Cheng Chen, – 4 positions ‧Senior Vice Presidents: Chun-Te Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Shi-Kuan Chen, Chi-Wai Wan, Min-Tung ‧Vice Presidents: Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Hsiung Chang, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Sheng-Hung Li, Yong-Ho Su, Weng, Lo-Chun Lee – 11 positions Jyh-Shyan Liang, Chiao-Lie Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Tsing-Fa Lee, Bor-Heng Chen, Jui-Chun Shyur, Shyh -An Lee, Ta-Chun Wang, Fei-Long Chen, Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Ling-Sheng Wu, Chi-Hsiang Ma, Shih-Tung Wang,– 33 positions 2. The Company made pension contributions totaling NT$ 5,913 thousand (including NT$ 4,349 thousand under the new system and NT$ 1,564 thousand under the old system). While all companies reported in the financial statements made pension contributions totaling NT$ 5,913 thousand (including NTD NT$ 4,349 thousand under the new system and NT$ 1,564 thousand under the old system). 3. Employees’ compensation appropriation was approved by the Board of Directors at the meeting on March 22, 2019. The compensations of the aforementioned managers were not yet final and will be reviewed based on the list of the date of distribution. 27 Range of Remuneration Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Number of President and Vice Presidents Total of (A+B+C+D) The Company 3 (Note 1) 20 (Note 2) 19 (Note 3) 2 (Note 4) 5 (Note 5) 1 (Note 6) Total of (A+B+C+D+E) Companies in the consolidated financial statements 3 (Note 7) 19 (Note 8) 20 (Note 9) 2 (Note 10) 5 (Note 11) 1 (Note 12) 50 50 Total Note: 1. 2. 3. 4. 5. 6. 7. 8. 9. Chao-Cheng Chen, Ling-Sheng Wu, Shih-Tung Wang – 3 positions Ching-Hsiung Lu, Po-Hsiung Chang, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Yong-Ho Su, Chiao-Lie Huang, Yi-Yun Chang, Hsin-Kung Mao, Jui-Chun Shyur, Shyh -An Lee, Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Chi-Hsiang Ma – 20 position Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Min-Tung Weng, Lo-Chun Lee, Chih-Chuan Cheng, Sheng-Hung Li, Jyh-Shyan Liang, Chung-Hsing Tan, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Tsing-Fa Lee, Bor-Heng Chen,, Ta-Chun Wang, Fei-Lung Chen – 19 positions Chun-Te Shen, Shi-Kuan Chen – 2 positions Chung-Pin Wong, Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, Chi-Wai Wan – 5 positions Jui-Tsung Chen– 1 position Chao-Cheng Chen, Ling-Sheng Wu, Shih-Tung Wang – 3 positions Ching-Hsiung Lu, Po-Hsiung Chang, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Yong-Ho Su, Chiao-Lie Huang, Yi-Yun Chang, Hsin-Kung Mao, Jui-Chun Shyur, Shyh -An Lee, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Chi-Hsiang Ma – 19 positions Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Min-Tung Weng, Lo-Chun Lee, Chih-Chuan Cheng, Sheng-Hung Li, Jyh-Shyan Liang, Chung-Hsing Tan, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Tsing-Fa Lee, Bor-Heng Chen,, Ta-Chun Wang, Fei-Lung Chen, Liang-Jen Lin – 20 positions 10. Chun-Te Shen, Shi-Kuan Chen – 2 positions 11. Chung-Pin Wong, Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, Chi-Wai Wan – 5 positions 12. Jui-Tsung Chen – 1 position 28 Employee profit sharing granted to the management team Unit: NTD thousand Title Name Stock dividends Cash dividends Total Total as a percentage to after-tax profit (%) 47 employees including CSO Jui-Tsung Chen (Note 1) 0 127,350 127,350 1.43% Note: 1.Managers’ titles and names ‧Chief Strategy Officer: Jui-Tsung Chen – 1 position ‧President: Chung-Pin Wong – 1 position ‧Executive Vice Presidents: Ming-Chih Chang, Shen-Hua Peng, Chen-Chang Hsu, – 3 positions ‧Senior Vice Presidents: Chun-Te Shen, Kuo-Chuan Chen, Pei-Yuan Chen, Chyou-Jui Wei, Ying Chang, Wen-Da Hsu, Wei-Chang Chen, Shi-Kuan Chen, Chi-Wai Wan, ‧Vice Presidents :Chih-Chuan Cheng, Ching-Hsiung Lu, Po-Hsiung Chang, Po-Tang Wang, Tzong-Ming Wang, Fu-Chuan Chang, Yung-Nan Chang, Sheng-Hung Li, Min-Tung Weng, Lo-Chun Lee – 11 positions Yong-Ho Su, Jyh-Shyan Liang, Chiao-Lie Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Hsin-Hsiung Huang, Shih-Hong Huang, Yi-Chiang Chiu, Tsing-Fa Lee, Bor-Heng Chen, Jui-Chun Shyur, Shyh -An Lee, Ta-Chun Wang, Fei-Long Chen, Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien, Ling-Sheng Wu, Chi-Hsiang Ma, Shih-Tung Wang – 30 positions ‧Other: Po-Wen Hsieh - 1 position 2. Executive Vice Presidents Chao-Cheng Chen, Vice Presidents Ling-Sheng Wu, Chi-Hsiang Ma, Shih-Tung Wang, resigned in 2018. 3. Employees’ compensation appropriation was approved by the Board of Directors at the March 22, 2019 meeting. The compensations of the aforementioned managers have not been finalized and will be reviewed based on the list upon the date of distribution. 29 3.2.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents, and Vice Presidents A. The percentage of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, supervisors, presidents, and vice presidents of the Company, relative to net income. 2018 2017 (Note) Amount % Amount % Increase (Decrease) % Amount Unit: NT$ thousands 437,080 4.90% 461,102 8.02% (24,022) (5.21)% Analysis Directors CSO, Presidents and Vice Presidents Net Income 8,913,365 5,749,525 3,163,840 Note: 2017 is the actual amount. B. The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and correlation with business performance. ‧Remuneration paid by the Company to Directors has been made in accordance with the Articles of Incorporation. When the Company makes profit in a year, no more than 2% of the Company’s pre-tax profit (not including remuneration for employees and Directors) shall be paid to Directors as remuneration along with reasonable compensation based on other factors such as the Company’s operational performance and the individual Director’s contribution to the Company’s performance taken into consideration. ‧The Company’s remuneration policy for Managers has been established based on various factors, including the Company’s wage policy, the average wage offered by competitors for the same position, the duties and responsibilities for the position in question, and the Manager’s actual contribution to the Company’s operational objectives. ‧The Company’s procedure for determining remuneration not only takes into account the Company’s overall operational performance but also includes employee’s personal performance and their contribution to the Company’s performance in order to determine a reasonable compensation. Relevant wages and compensations are reviewed by the Remuneration Committee and resolved by the Board of Directors. The Company will also be keeping a close eye on the latest developments in the global economy, international financial environment, and state of the industry in order to predict its operational development, profit status, operational risks and changes in pertinent regulations in the near future in order to review the compensation system, thereby striving for an ideal balance between the Company’s sustainable operation and relevant risk control. 30 3.3 Implementation of Corporate Governance 3.3.1 Board of Directors ‧The term of the 12th committee is from June 26, 2015 to June 22, 2018. ‧The term of the 13th committee is from June 22, 2018 to June 21, 2021. ‧There were seven Board meetings during 2018 (A). Director’s attendance records are as shown below: Title Chairman Director Director Director Director Director Director Director Director Director Director Director Director Director Director Independent Director Independent Director Independent Director Name Sheng-Hsiung Hsu Jui-Tsung Chen Wen-Being Hsu Kinpo Electronics, Inc. Representative: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Wen-Chung Shen Yung-Ching Chang Chao-Cheng Chen Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Attendance in Person (B) 7 7 5 2 7 7 6 7 7 3 1 3 2 1 4 7 7 5 By Proxy Attendance Rate (%)[B/A] Remarks 0 0 1 5 0 0 1 0 0 0 1 0 2 2 0 0 0 2 100% 100% 71% 29% 100% 100% 86% 100% 100% 100% 33% 100% 50% 25% 100% 100% 100% 71% Note1 Note1 Note1 Note 2 Note 2 Note 2 Note: 1. Directors Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen left office on June 22, 2018. 2. Director Ming-Chih Chang, Anthony Peter Bonadero, and Sheng-Hua Peng took office on June 22, 2018. ․In 2018, Independent Director’s attendance records are as shown below: Title Name Independent Director Independent Director Independent Director Min-Chih Hsuan Duei Tsai Duh-Kung Tsai 1st Meeting 2nd Meeting 3rd Meeting 4th Meeting 5th Meeting 6th Meeting 7th Meeting ● ● ★ ● ● ● ● ● ● ● ● ● ● ● ● ● ● ★ ● ● ● Note: ●: AZendance in Person﹔★: By Proxy﹔ 〇: Absent 31 A. Enhance the valuation regarding the target achievement and execution by the Board of Directors in the current and most recent year: The Company established a “Remuneration Committee” since 2011. During the election of the 11th Board of Directors and Supervisors at the 2012 shareholders’ meeting, 3 independent directors were elected and appointed to be the committee members of the Remuneration Committee. Supervisors were replaced with the Audit committee after the 12th Board of Directors was chosen at the 2015 shareholders’ meeting. In 2019, the amendment to the Rules and Procedures for Board of Directors Meetings was handled in accordance with the “Key points for the establishment and compliance of exercising duties of powers of the board of directors by TWSE Listed Companies” and “Company Act”. B. Other notes: 1. For board of directors meetings that meet any of the following descriptions, state the date, session, the discussed topics, independent directors' opinions and how the company has responded to such opinions: (1) Conditions described in Article 14-3 of the Securities and Exchange Act: Not applicable (the Company has assembled the Audit Committee in place of supervisors) (2) Any other documented objections or qualified opinions raised by independent directors against board resolutions in relation to matters other than those described above: None. 2. Disclosure regarding avoidance of interest-conflicting agendas, including the names of directors concerned, the agendas, the nature of conflicting interests, and the voting outcome: ◆ March 6, 2018, the 16th meeting of the 12th term of the board of directors ‧ Approved the change of the chairman of Corporate Social Responsibility Committee An interested party relationship exited in Director Chung-Pin Wong. In order to avoid conflict of interest, the Director excused himself from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ◆ May 9, 2018, the 18th meeting of the 12th term of the board of directors ‧ Approved the release of non-competition restrictions for managers An interested parties relationship existed among Directors Jui-Tsung Chen, Chung-Pin Wong, and Chao-Cheng Chen, who are also acting as managerial officers of Compal. In order to avoid conflict of interest, these Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ‧ Approved the first mid-year employees’ bonus of 2018 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship existed among any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, and Chao-Cheng Chen, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ‧ Approved employees’ salary adjustment of 2018 32 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship existed among any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, and Chao-Cheng Chen, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ◆ July 4, 2018, the 1st meeting of the 13th term of board of directors ・Passed the senior level management change An interested parties relationship exits among Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang (attended by proxy of Sheng-Hua Peng), and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Passed the appointment of the term 4th remuneration committee members An interested parties relationship exits among Independent Directors Min-Chih Hsuan, Duei Tsai, and Duh-Kung Tsai. In order to avoid conflict of interest, these Independent Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ◆ August 9, the 2nd meeting of the 13th term of board of directors ・Passed the compensation of Directors’ Remuneration of 2017 Chairman Sheng-Hsiung Hsu asked the Independent Director Min-Chih Hsuan to act as a deputy chairman to preside at this meeting for discussion and voting on this proposal. Since an interested party relationship exists, the Directors (i.e., Sheng-Hsiung Hsu, Jui-Tsung Chen, Wen Being Hsu, Shyh-Yong Shen［attended by proxy of Sheng-Hsiung Hsu］, Charng-Chyi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong and Chiung-Chi Hsu) excused themselves from discussion and voting on this proposal to avoid conflict of interest. Upon solicitation of comments by the deputy chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve the second mid-year employees’ bonus of 2018 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ◆ November 8, the 4th meeting of the 13th term of board of directors ・Approved the compensation of Employee bonuses in cash of year 2017 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of 33 interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the proposal for 2018 year-end employees’ bonus In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ◆ May 13, 2019, the 7th meeting of the 13th term of board of directors ・Approved the release of non-competition restrictions for the managers An interested parties relationship existed among Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approved the establishment of Compal Electronics Kaohsiung Branch Office An interested party relationship exited in Director Chung-Pin Wong. In order to avoid conflict of interest, the Director excused himself from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve the first mid-year employees’ bonus of 2019 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship existed among any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Approve employees’ salary adjustment of 2019 In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship existed among any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang, and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 34 3.3.2 Audit Committee ‧The Company’s Audit Committee has three members. ‧The term of the 1st committee is from June 26, 2015 to June 22, 2018. ‧The term of the 2nd committee is from June 22, 2018 to June 21, 2021. ‧There were six Audit Committee meetings during 2018 (A). The attendance records of the Independent Directors are as follows: Title Name Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh Kung Tsai •Duties of the Audit Committee Attendance in Person (B) 6 6 5 By Proxy 0 0 1 Attendance Rate (%) [B/A] 100% 100% 83% Remarks - - - The Audit Committee exists as an enhancement to the Company's supervisory and management function. It assists the Board of Directors in various decisions such as review of financial statements, internal control policies, internal audits, accounting policies and procedures, major asset transactions, appointment/dismissal/independence/suitability of certified public accountants, appointment/dismissal of the chief accountant and chief auditor, etc., thereby ensuring that the Company operates in compliance with the competent authority's instructions and relevant laws. •The major audit items of the Audit Committee in 2018 are as follows: 1. 2017 and 1H 2018 Financial Statement 2. To evaluate the CPAs’ independence and competence for performing the financial report audit. 3. Appointment of the attesting CPA 4. A matter bearing on the personal interest of the director and Manager 5. Appointment of the Accounting Officer and Internal Audit Officer 6. A material monetary loan 7. A material asset transaction. 8. Assessment of the design and operation effectiveness of the internal control system. 9. The defects, irregularities, and the status of corrections in the internal control system. 10. Annual audit plan for year 2019 11. Compliance with the relevant laws and regulations by this Corporation. ・Review Financial Statements for the year 2018 The Company’s 2018 financial statements have been approved by the Audit Committee and by the Board of Directors. Szu-Chuan Chien and Yiu-Kwan Au, certified public accountants of KPMG, have completed the audit of the financial statements and issued an audit report relating thereto. In addition, the Board of Directors has prepared and submitted the Company’s 2018 business report and proposal for distribution of earnings to us. We, the Audit Committee members, have duly examined and determined such business report and proposal for distribution of earnings to be in line with the requirements under the Company Law and relevant laws and regulations. ・The Internal Audit Officer prepared the internal audit report and tracking report for each independent director’s review routinely. In addition, he/she reported the relevant internal audit affairs to the Audit Committee face-to-face quarterly. 35 Independent directors engage external auditors to discuss the outcome of the financial statement audit and other relevant legal issues at least once a year. Independent directors are also involved in decisions such as appointment, independence review, and suitability review of certificated public accountants. •The implementations of the Audit Committee in 2018 are as follows: Board of Directors Meeting Content of discussion and actions taken in response 1. To review and approve the Consolidated and Individual Financial Statements for 2017. 2. To review and approve the Company’s Internal Control Declaration for 2017. 17th Meeting (12th Term) 2018.3.19 3. To review and approve the independence and fitness of the CPA engaged by the Company for the Financial Statements. ▲Resolution adopted by the Audit Committee (2018.3.19): Matters listed in Not approved by the Audit Committee but had the Item 5, Article 14 of the Security Act consent of more than two-thirds of all directors. V V V N.A N.A N/A Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to opinion of the Audit CommiZee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1. To approve the motion of changing the Company’s CPA. 2. To review and approve the independence and fitness of the CPA engaged by the Company for the Financial Statements. 3. To review and approve the motion to lift the non-competition restriction for Managers. ▲Resolution adopted by the Audit Committee (2018.5.9): V V V N/A N/A N/A 18th Meeting (12th Term) 2018.5.9 Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to the opinion of the Audit CommiZee: ・Motion 1 and 2: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. ‧Motion 3: An interested parties relationship existed among Directors Jui-Tsung Chen, Chung-Pin Wong, and Chao-Cheng Chen, who are also acting as managerial officers of Compal. In order to avoid conflict of interest, these Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 1.Election of the Convener and Meeting chair of the 2nd V N/A Audit Committee 36 1st Meeting (13th Term) Board of Directors Meeting 2018.7.4 Content of discussion and actions taken in response 2.To approve for senior level management change 3.To approve the appointment of Accounting Officer 4. To approve the appointment of Internal Audit Officer ▲Resolution adopted by the Audit Committee (2018.7.4): ・Motion 1: Not approved by the Audit Matters listed in Item 5, Article 14 of Committee but had the the Security Act consent of more than two-thirds of all directors. V V V N/A N/A N/A Min-Chih Hsuan is elected by all members the Audit Committee as the convener and meeting Chairman. ・Motion 2, 3 and 4: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to opinion of the Audit CommiZee: ・Motion 1: Not applicable (without the consent of the Board of Directors) ・Motion 2: An interested parties relationship exits among Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang (attended by proxy of Sheng-Hua Peng), and Sheng-Hua Peng. In order to avoid conflict of interest, these Directors excused themselves from discussion and voting on this proposal. Upon solicitation of comments by the Chairman of the meeting, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ‧Motion 3 and 4: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1. To approve the 1H 2018 Consolidated Financial Statements 2.To approve a loan to Henghao Technology Co., Ltd. 3.To approve for a loan to Unicom Global, Inc. ▲Resolution adopted by the Audit Committee (2018.8.9): V V V N/A N/A N/A Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to opinion of the Audit CommiZee: ・Motion 1: not applicable (the motion was a report intended for the Board of Directors) ‧Motion 2 and 3: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1.Compal’s 100% owned subsidiary – Billion Sea Holdings – plans to dispose of the 49% owned JV – LC Future Center Limited ▲Resolution adopted by the Audit Committee (2018.8.7): V N/A Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to opinion of the Audit CommiZee: 37 2nd Meeting (13th Term) 2018.8.9 3rd Meeting (13th Term) 2018.8.7 Board of Directors Meeting Content of discussion and actions taken in response Not approved by the Audit Matters listed in Item 5, Article 14 of Committee but had the the Security Act consent of more than two-thirds of all directors. Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1.To propose for approval of annual audit plan for year 2019 ▲Resolu\on adopted by the Audit CommiZee (2018.11.8): V N/A 4th Meeting (13thT Term) 2018.11.8 Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Ac\on taken by the Company in response to opinion of the Audit CommiZee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. •Other notes: 1. The Company should record the date of the Board of Directors’ meeting, the term, content of discussion, the result of the Audit Committee’s decision and the actions the Company has taken in response should any of the following situations arise in the operation of the Audit Committee: (1) Matters listed in Item 5, Article 14 of the Security Act: None (2) With the exception of the aforementioned matter, other matters not approved by the Audit Committee but had the consent of more than two-thirds of all directors: None. 2. The actions of the independent directors with respect to the avoidance of conflict of interest should be disclosed including the name of the independent director, the matter, the reasons for the avoidance, and the voting and attendance status: None. 3. Status of communication between Independent Directors, Internal Audit Officer and CPA: (1). Method of communication between Independent Directors, the Internal Audit Officer, and CPA: ‧After the Internal Audit Officer has submitted an audit report and follow-up report, he/she should provide the completed audited items to the independent directors for their review by the end of the following month. Should the Independent Directors require clarification of the audit and follow-up, they should contact the internal audit supervisor at any time. The internal auditor shall report the audit results to the Audit Committee on a quarterly basis and discuss the relevant matters in person with the committee. ‧The Independent Directors must communicate with the CPA on a yearly basis through the Audit Committee or Board of Directors’ Meeting. The CPA shall report to the Independent Directors on the results of the financial statement audit and other pertinent legal requirements while the Audit Committee shall also evaluate the selection, independence, and fitness of the CPA engaged by the Company. 38 (2). Summary of the communications between Independent Directors and Internal Audit Officer: Date 2018.3.19 2018.5.9 2018.8.9 2018.11.8 2019.3.22 Key point of communication Report on audits carried out between 2017.11.1~2018.1.31, internal control systems self-assessment review results and to produce Internal Control System Statement Report on audits carried out between 2018.2.1~2018.4.30 Report on audits carried out between 2018.5.1~2018.7.31 Report on audits carried out between 2018.8.1~2018.10.31 and formulation of the Audit Plan for 2019 Report on audits carried out between 2018.11.1~2019.1.31, internal control system self-evaluation review results and to produce Internal Control System Statement (3). Summary of the communications between the Independent Directors and CPA: Date Key point of communication 2018.3.19 Report on the key audit items for the 2017 consolidated and individual financial statements and audit outcomes 2019.3.22 Report on the key audit items for the 2018 consolidated and individual financial statements and audit outcomes 39 3.3.3 Corporate Governance Implementation and Deviations from the “Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies” Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description Yes The Company’s corporate governance principles were approved by the Board of Directors on May 13, 2019, and have been disclosed on its official website and MOPS. No deviations were found I. Has the company established and disclosed its corporate governance principles based on the “Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies?” II. Shareholding structure and shareholders’ interests 1. Has the company Yes implemented a set of internal procedures to handle shareholders’ suggestions, queries, disputes, and litigations? 2. Is the company Yes constantly informed of the identities of its major shareholders and the ultimate controller? 3. Has the company established and implemented risk management practices and firewalls for companies it is affiliated with? 4. Has the company Yes Yes established internal policies that prevent insiders from trading securities against non-public information? III. Assembly and The Company has a spokesperson and acting spokesperson that represent the interest of the shareholders and a unit that in addressing shareholders’ suggestions, queries, specializes disputes, and litigations. No deviations were found The Company keeps track of the identity of its ultimate controller by monitoring insider shareholding positions (including that of directors, supervisors, managers, and shareholders with more than 10% ownership interest), with the shareholder registry held by the share administration agency. The Company has established “Internal Control Policy - Non-trade Activities - Supervision and Management of Subsidiaries”, “Internal Control Policy Investment Management”, and “Guidelines on Financial and Business Dealings Between Affiliated Enterprises” to set up and execute firewalls and risk controls over related parties. - Trade Activities – No deviations were found No deviations were found No deviations were found To prevent insider trading, the “CO10 Insider Trading Prevention Management” and “Insider Trading Prevention Procedures” have been included as part of the internal control of the company and details are published on the intranet and linked to the TWSE website to which employees have access. Both policies have been included as part of the compulsory e-Learning courses for departmental heads, and eCSA questionnaires are issued on a yearly basis to facilitate self-assessment. Insiders such as directors, supervisors, and managers are given a copy of the TWSE “Insider Share Trading Manual” when they come aboard to make them aware of the company insider rules. 40 Assessment criteria Actual governance Yes No Summary description Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies obligations of the board of directors 1. Has the board devised Yes and implemented policies to ensure the diversity of its members? The Company has established rules and regulations such as the “Corporate Governance Guidelines” and “Rules for Director Election” to ensure a diversified board member composition in addition to drafting suitable guidelines for diversification based on the Board’s operation, the Company’s operating format, and its needs and developments. As such, board members are required to possess the required knowledge, skills, and character in order to accomplish the goal of ideal corporate governance. For more information on the diversification of board members, please refer to page 42. No deviations were found No Apart from the Remuneration and Audit Committees, the Company has also established a CSR Committee headed by President & CEO Chung-Pin Wong, who in turn reports to the Board of Directors regarding the operating status and results of the committee on a yearly basis. No deviations were found No At present, the Company has yet to establish any policy or assessment tool to evaluate Board performance. Such policies and tools will be created after careful consideration. 2. Apart from the Remuneration Committee and Audit Committee, has the company assembled other functional committees at its own discretion? 3. Has the Company established a set of policies and assessment tools to evaluate the board’s performance? Is performance evaluated regularly at least on an annual basis? 4. Is the independence of Yes external auditors assessed on a regular basis? Yes IV. Has the company established a dedicated unit or full time (or part time) personnel responsible for The CPA issues an “Independent Auditor’s Report” on an annual basis and is required to decline engagement should he/she be involved in any direct or indirect material interest. The Company evaluates the independence and suitability of the CPA at least once a year, in accordance with Article 47 of the CPA Law and Bulletin 10 of the Norms of Ethics for Certified Public Accountants. The CPA cannot be a director, supervisor, or shareholder of the company and may not be on the payroll or be a related party to the Company. The Company then submits the “CPA Independence and Fitness Evaluation Form” along with the “Independent Auditor’s Report” to the Audit Committee for review before it is submitted to the Board of Directors for examination and discussion. The same principles apply to whenever there is an internal rotation within the accounting firm. VP Cheng-Chiang Wang has been appointed to take charge of and supervise affairs pertaining in the Company’s “Corporate Governance accordance with Guidelines”, while the BOD secretariat was assigned as the Company’s responsible unit for corporate governance to handle relevant affairs. to corporate governance 41 No deviations were found No deviations were found Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies corporate governance-related affairs (including but not limited to providing the requisite information/data to directors or supervisors to perform their duties, organizing director and shareholder meetings as required by pertinent regulations, processing company registration and/or changes in registration, and preparing the agendas for board of directors’ meetings/sharehold ers’ meetings)? V. Has the company provided proper communication channels and created dedicated sections on its website to address corporate social responsibility issues that are of significant concern to stakeholders (including but not limited to shareholders, employees, customers, and suppliers)? VI. Does the company engage a share administration agency to handle shareholder meeting affairs? VII. Information Yes No Summary description VP Cheng-Chiang Wang and the designated personnel responsible for corporate governance have more than 25 years of experience in stock affairs and meeting-related management for publicly traded companies. They are primarily responsible for handling corporate governance affairs, such as handling matters relating to board meetings and shareholders meetings according to the laws, producing minutes in of board meetings and shareholders meetings, assisting onboarding and continuous development of directors, furnishing information required for duty execution by directors and members of the audit committee, ensuring legal compliance and taking other matters set out in the articles or corporation or contracts, periodically examining and revising the Company’s corporate governance guidelines and relevant procedures, improving disclosure transparency, safeguarding shareholder rights and promoting better corporate governance. For more information on the status of Compal’s corporate governance operations for 2018, refer to page 45. Yes The Company has addressed its stakeholder relations on its corporate website, CSR report, and CSR Sustainability website. Separate contact persons, phone numbers, and e-mail addresses have been provided for each type of stakeholder relation to ensure that queries are directed to the relevant departments. In addition, an online “Material Aspects” questionnaire has also been created for stakeholders to identify issues that are of significant concern. The Company will address stakeholders’ responses properly and take their suggestions as part of the Company’s goals. No deviations were found Yes The Chinatrust Commercial Bank – Securities Trust has been appointed as the share administration agency responsible for handling shareholder affairs and meetings while offering share administration services. No deviations were found 42 Assessment criteria Actual governance Yes No Summary description Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies disclosure 1. Has the company Yes The Company website at (www.compal.com) is regularly updated with information such as financial performance, corporate governance and shareholder meetings No deviations were found established a website that discloses financial, business and corporate governance-related information? 2. Has the company adopted other means to disclose information (e.g. an English website, assignment of specific personnel to collect and disclose corporate information, implementation of a spokesperson system, broadcasting of investor conferences via the company website)? VIII. Does the company offer other vital information (including but not limited to employee rights, employee care, investor relationships, supplier relationships, stakeholders’ interests, continuing education of directors/supervisors , risk management policies, risk assessment standard implementation status, implementation status of customer policies, insuring against liabilities of company directors and supervisors) that would enable a better understanding of the company’s Yes ‧The Company website has both Chinese and English pages. The information is gathered and disclosed by a dedicated department. ‧The Company has also appointed a spokesperson and an acting No deviations were found spokesperson in place. ‧Investor conferences are held regularly and whenever deemed necessary. The proceedings are posted on the Company’s website and also broadcast on the TWSE platform (at https://www.compal.com/investor-relations/financial-release/ ). Yes • Employee welfare and care to employees (page 45) • Directors and Managers code of conduct, Employee code of No deviations were found conduct (page 46) • Investor relations (page 46) • Supplier relations and execution of customer policy (page 46) • Stakeholders’ interests (page 47) • Risk management execution and framework (page 47~49), risk analysis and evaluation (page 149~153) • Insuring against liabilities of company directors and supervisors (page 49) • Directors’, supervisors’, and managers’ ongoing education (page 49) • Succession plan for Board members and key Management team (page 50) • Certificate and qualification acquisition status for personnel (page 50) 43 Assessment criteria Actual governance Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description corporate governance practices? IX. State the improvements that have been made with regards to the results of the latest Corporate Governance Evaluation conducted by TWSE in the most recent year. For items that have yet to be improved upon, state the company’s priorities and measures for improvement. •Pursuant to the amendments to the “Regulations Governing the Exercise of Powers by Audit Committees of Public Companies” (effective July 28, 2017) by the FSC, the entire proceedings of Audit Committee Meetings shall be recorded on audio tape. •With regards to the further education of Directors (including Independent Directors), Compal has advocated and encouraged Directors to take part in courses on the pertinent regulations offered by subsidiary Kinpo Group Management Consultant Company or training provided by external professional organizations. In 2018, members of the Board of Directors completed a total of 33 hours of training. •In 2018, the "Corporate Social Responsibility Committee Organizational Rules" were adopted as the basis for the operation of the Corporate Social Responsibility Committee •In 2019, the amendment to the “Articles of Incorporation”, “Procedures for Acquisition or Disposal of Assets”, “Procedures for Financial Derivatives Transactions”, “Procedures for Endorsements and Guarantees”, “Procedures for Lending Funds to Other Parties”, “Corporate Governance Best-Practice Principles”, “Rules and Procedures for Board of Directors Meetings” are proposed to accommodate the business needs and the requirements of applicable laws and regulations. •In the “5th Round of Corporate Governance Evaluations” by TWSE, Compal was placed in the top 6%~20% listed companies. •The Company provided quarterly financial report in English since the fourth quarter of 2018. A. Status of board member diversification : Core items for diversification Name of director (Note) Sheng-Hsiung Hsu Jui-Tsung Chen Representative of Binpal Investment Co., Ltd.:Wen-Being Hsu Operation management Leadership and decision-making Knowledge of the industry International market perspective Finance and accounting Legal V V V V V V V V V V V V V V V V V V V V Representative of Kinpo Electronics Inc.: Shyh-Yong Shen Charng-Chyi Ko Sheng-Chieh Hsu Yen-Chia Chou Chung-Pin Wong Chiung-Chi Hsu Ming-Chih Chang Anthony Peter Bonadero Sheng-Hua Peng Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Note: Except for Anthony Peter Bonadero, who is a US citizen, others are Chinese nationality and male V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V V 44 B. The status of Compal’s corporate governance operations for 2018 is as follows: ․Compiled and prepared relevant documents needed for the Audit Committee and the Board of Directors’ Meetings in accordance with the pertinent regulations and operational/financial needs, also responsible for coordination of relevant units and coordination of proposals from different relevant units. ․Pursuant to business operation needs, partial revisions have been made to the “Corporate Social Responsibility Committee Organizational Rules” and submitted to the Board of Directors for approval. ․Canceled and changed the registration for new restricted employee shares because the criteria was not met by the intended employees. ․Planned the communication meeting between Independent Directors, Internal Audit Supervisors, and CPA to have the Audit Committee determine the independence and fitness of the CPA engaged by the Company as a measure to ensure sound corporate governance. For the records of the communication meetings, access Compal’s website. ․Pursuant to the “Directions for the Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and TPEx Listed Companies”, Compal has advocated and encouraged Directors to take part in the courses on pertinent regulations offered by subsidiary Kinpo Group Management Consultant Company or by external professional organizations. ․Disclosed and announced in conjunction with Board of Directors Meetings, Shareholders Meetings, financial and sales information. In addition, the Company has also held investor conferences at least two times annually, and has been invited to attend domestic/overseas investor conferences to help investors better understand the Company’s status of operation. information important ․Registered the date for Shareholders Meetings as required by law, prepared meeting notifications within the scheduled deadline, meeting handbook and meeting minutes, election and filing of the 13th term directors, coordinated relevant units, agents for stock affairs, CPA, attorneys and so forth. ․ Contents on the chapter for corporate governance – responsible for the collection of data, compilation of stock affairs data, coordination of different units and editing. ․ Corporate governance evaluation – responsible for the collection of data, compilation of stock affairs data, coordination of different units and website maintenance. ․The Company has offered liability coverage for directors, supervisors, and managers. The amount for their liability insurance in 2018 came to USD 50,000 thousand which was roughly equivalent to NTD 1,541,500 thousand. C. Other vital information on the operating status of corporate governance: ■ Employees' rights and care for employees Compal respects employees' rights and tends to their needs. All internal policies are updated constantly to reflect the latest labor regulations, and published to ensure understanding and compliance from employees. Compal's subsidiaries in the USA, China, Brazil, Poland, Vietnam, and India have all established employment guidelines in accordance with local labor regulations, and all terms of employment are compliant with the laws of the local countries and regions. The Company's support for equal work opportunities and respect for employees' freedom of association have led to the assembly of a union at Kunshan Factory. Employees are offered equal compensation for equal work, whereas salary details are approved based on the nature of work involved and individual performance. The Company has nursery rooms available throughout the organization. It actively prevents and resolves sexual harassment incidents, grants workers the break and overtime pay they deserve, purchases social insurance coverage, and contributes to employees' pension funds. Compal is committed to creating communication platforms where employees may exchange opinions and information. A “Sunshine Group” and hotlines have been set up at all plant sites and are run by compassionate people who promptly respond to employees' thoughts. By providing employees with the means to express feelings and complaints, the Company is able to help employees resolve difficulties in a timely manner. In an attempt to create a joyful work environment where talents are assigned to suitable positions, Compal publishes recruitment information internally and offers employees the freedom to choose or transfer to positions they consider suitable, and thereby assures satisfaction across the work force and protects employees' interest. Compal provides employees with the following health-related facilities and services outside of work: ‧ Common dining: Employee dining facilities have been made available to serve nutritional and healthy foods. ‧ Recreation center: Places where employees may hold club activities, exercise, and make friends. ‧ Spiritual, health, and arts seminars: The Company organizes health seminars, spiritual seminars, musical performances, and art exhibitions from time to time, and uses them as a means of stress relief to cater to employees' physical and mental health. Infirmary and stationed physicians: Employees may consult physicians and access timely medical assistance for them and their family members. ・ Employee assistance services are available. Employees can consult with consultants on work, family, relationships, physical and mental health, mental illness, finance, legal, and management issues through a ‧ 45 dedicated line or E-mail. ■ Codes of conduct for directors, managers, and employees Compal has established an ethics policy as described below to enforce business integrity and to guide employees toward complying with laws and ethics for the protection of Compal's and stakeholders' assets, interests, and reputation: ‧ Comply with government regulations. ‧ Protect the interests of employees, customers, shareholders, suppliers, communities, and relevant organizations. ‧ Uphold business integrity and the principles of fair trade, fair advertising, and fair competition. Refrain from making illicit gains. Make information transparent to stakeholders while at the same time respecting intellectual property rights, privacy, and identity protection. Prohibit retaliation and make responsible purchase of minerals. ‧ Continually improve, execute, and convey the Company's ethics policy to relevant organizations. In addition to implementing an ethics policy, Compal has also established a Human Resource Management Policy, Director and Manager Code of Conduct, and Employee Code of Conduct not only in the employees' best interest, but also to communicate with stakeholders about the moral standards and behavioral guidelines that employees are bound to obey when carrying out their duties. All employees are required to sign a "Confidentiality Commitment Letter" when coming on board, which is a declaration to abide by the Company's rules, the Human Resources Management Policy and to maintain confidentiality of the Company's business secrets. ■ Investor rela\ons The Company has an Investor Relations Department available to handle shareholders' recommendations. The department bridges communication between the Company and its investors. In addition to hosting investor seminars on a regular and ad-hoc basis, the department has also created an Investor Relations section on the Company's website to facilitate complete and fair disclosure of Compal's latest progress, and thereby provide investors with full understanding of the Company's business performance and long-term goals. In 2018, Compal organized two investor conferences on its own and was invited to participate in four investor forums hosted by foreign brokers, which it used as a means to promote investors' understanding towards the Company's operations. ■ Supplier rela\ons and execu\on of customer policy The Company signs contract with all suppliers and customers not only to protect the interests of both parties, but also to maintain a strong working relationship. With respect to green products and parts, the Company coordinates closely and systematically with partnered suppliers, and follows a robust review and certification process to ensure effective communication, tracking, management, and elimination of parts that contain prohibited chemical substances. Every supplier and business partner thereof is able to inquire about the latest "Compal Environmental Management Standard for Parts and Materials" through the SDCP (Supplier Design Cooperation Portal: sdcp.compal.com)/GPMS (Green Product Management System). They are also required to provide assurance that all raw materials supplied are free of substances that may potentially harm the environment. The Company's R&D, production and quality assurance departments and all major customers are able to learn information concerning chemical composition and content of green products through the use of this system, and take measures such as sample testing and on-site inspection as deemed necessary. The Company operates throughout Europe, America, and Asia, and has service centers established at main business locations to provide customers with safe and high-quality products, as well as complete and correct product information. The Company addresses customer complaints actively and immediately. It accepts customers' audit requests, participates in customers' activities, and handles critical correspondences in a confidential manner. The Company has always been protective of customers' secrets. It has firewalls in place to block exchange of confidential information between customers, teams, office areas, and factories. A specialized team has been assembled to monitor the security of network information from time to time for the protection of customers' interests. Meanwhile, all employees are required to sign a confidentiality agreement that prohibits them from openly discussing customers' details. It is the organization's goal to provide customers with the most comprehensive service network and the best protection anywhere in the world. There has been no violation of law concerning the offering and use of products or services. ■ Stakeholders' interests Stakeholders are able to communicate with and make suggestions to the Company for the protection of their interests. The Company provides safe and high-quality products along with complete and accurate product information to customers. Customers' complaints are addressed immediately. 46 ■ Risk management 1. Risk management practice (1) One of the purposes of the risk management policy is to discover any risk factors in advance that might adversely affect operations, so that the Company may then apply appropriate assessments and treatments to transfer risks and mitigate or prevent losses. Another purpose is to enable timely detection and warning of changes in the internal and external environment, and thereby allow employees worldwide to execute risk management practices within their areas of responsibility in a timely manner. The Company has established its own financial, sales, and accounting system, and a system for monitoring financial and business information of its subsidiaries in accordance with "Regulations Governing the Establishment of Internal Control Systems by Public Companies". The Company has also set up relevant guidelines for supplier management, customer relations, R&D, human resources, financial affairs, credit/endorsement/guarantee arrangements with affiliated businesses, and acquisition/disposal of key assets. These policies, risk assessment standards, and procedures serve as a guideline by which employees may abide for risk assessment and management. Dedicated personnel have been appointed in every department to manage, control, minimize, and prevent Company risks. (2) The Internal Control System developed by the Company is distinguished between the Overall Level and Operation Level. Five elements (Control Environment, Risk Assessment, Control Operation, Information and Communication, Supervision) have been incorporated into each transaction cycle at the operation level. In recent years, the Company has made enhancements to corporate risk management based on the latest Regulations Governing Establishment of Internal Control Systems by Public Companies, corporate governance practice, internal audit theory, technology, and various codes of conduct by adopting robust risk detection, assessment, reporting, handling, and prevention measures. The Company's risk control mechanism operates on three levels: ‧ The first level involves the organizer or handling officer, who is responsible for risk discovery, assessment and control at first contact, as well as designing preventive measures against risks. ‧ The second level involves heads of various divisions (offices), headquarters, business departments/centers and regional business groups/centers, Executive Vice Presidents and the President. This level comprises members of the senior management, who are responsible for assessing the feasibility of various operations as well as identifying, handling, and preventing operational risks. ‧ The third level involves review by Legal Affairs, the Auditing Office, the Board of Directors, and the Audit Committee. The Company involves all employees as part of the risk management system and implements layered controls over day-to-day operations. (3) From the implementation perspective, the Company prepares its annual budget and work plan based on risk assessment results, which also serve as a valuable reference for decision-making and project planning in the coming year. At the same time, the audit department also drafts audit plans for the coming year based on the results of risk assessment and includes the progress of implementation into the Board of Directors meeting agenda. Given the Company's role as an ODM for 5C electronics, we review and assess business risks on an annual basis, and reflect our findings in the financial statements under accounts such as allowance for doubtful debts, warranty reserves, and royalties. All provisioning policies are submitted to the CPA for review whenever adjustments are made. This is to ensure that financial reports present a fair view of the Company's operations. Furthermore, the Company has dedicated personnel appointed to monitor and control exchange rate risks, and take hedging measures as necessary (please refer to page 149). Important risk assessment issues that concern business execution but without having to undergo 2nd tier (4) or 3rd tier review are circulated to the Auditing Office, and sometimes involve the Legal Affairs Office for support. The purpose of this practice is to engage different expertise for advice on risk identification, assessment, and prevention. If a potential urgent risk is identified, it can be reported to the supervisor immediately for proper prevention. For extremely important matters, such as investments and project tendering, each project will be jointly reviewed or supervised. Inspection will be performed on a regular and intermittent basis. In conclusion, we believe our practices to be appropriate for the given purpose, and minimized risks and kept operations under control. 47 2. Risk management framework Key risk areas ‧ Interest rate, exchange rate, inflation and financial risks ‧ High-risk or highly leveraged investment, loan to third party, endorsement, guarantee, trading of derivatives and treasury investment ‧ R&D planning ‧ Changes in policy and law ‧ Changes in technology and industry ‧ Changes in corporate image ‧ Investment, subsidiary and M&A benefits ‧ Expansion of factory, production site and equipment ‧ Centralized purchase or sale ‧ Equity transfer involving directors, supervisors, and major shareholders ‧ Change of management ‧ Litigation and non-contentious cases ‧ Handling of product safety incidents ‧ Other operational affairs ‧ Personnel behaviors, ethics, and conduct ‧ Rules (including SOP), internal control system and compliance with regulations Front line unit (Business organizer) (Level 1) Risk review and control (Executive management meeting) (Level 2) ‧ Finance Department ‧ Operation Team Board of directors, Audit Committee, Legal Affairs Office, Auditing Office (Level 3) ‧ Legal Affairs Office: Oversees legal affairs and makes suggestions on risk identification, assessment and prevention ‧ Business departments/centers (Note 1) ‧ Common departments (Note 3) ‧ Corporate investment review ‧ Executive management meeting ‧ Subsidiaries monitoring and management report ‧ Auditing Office: Risk inspection, evaluation, supervision, improvement and reporting ‧ Board of Directors, Audit Committee: Decision-making and ultimate control over risk evaluation ‧ Business ‧ Monthly operating departments/centers (Note 1) ‧ Common departments (Note 3) ‧ Share administration affairs ‧ Board of Directors meeting ‧ Production and marketing meeting ‧ Share administration affairs ‧ Head of ‧ Product risk management ‧ Managers of all levels Finance/Accounting ‧ Legal affairs ‧ Business groups/centers (Note 2) ‧ Managers of all levels ‧ HR & Administration ‧ Managers of all levels ‧ Legal Affairs Office ‧ Personnel Evaluation Committee ‧ Investment Planning and Management Office ‧ Auditing Office ‧ Finance ‧ Accounting ‧ HR & Administration ‧ IT ‧ Board of Directors Meetings ‧ Share administration affairs ‧ Secretary of the Board ‧ Legal Affairs Office ‧ Auditing Office ‧ Prevention of insider trading ‧ Managers of all levels ‧ Insider Trading of Directors ‧ Information security management ‧ Managers of all levels ‧ Product risk management Prevention Office ‧ IT Department Notes: 1. Business departments/centers:America/Europe, Asia Pacific, Operations, Enterprise Products, Auto Electronics, IPC Project, Creativity, Quality Assurance, Procurement, R&D, Manufacturing, and Sales, etc. 2. Business groups/centers: PC Business Group, Smart Devices Business Group, Global Operations, PC R&D, etc. 3. Common departments: Finance, Accounting, HR & Administration, Investment Planning and Management Office, Legal Affairs Office, etc. 48 (cid:2) Purchasing liability coverage for the Company’s directors, supervisors, and managers Starting from 2002, the Company has been purchasing liability coverage for directors, supervisors, and managers. The amount for their liability insurance in 2018 came to USD 50,000,000, which was roughly equivalent to NTD 1,541,500,000. Vital information relating to their liability insurance was reported to the Board of Directors on February 22, 2019. (cid:2) Continuing education for directors, supervisors and managers All directors and managers are equipped with relevant professional knowledge and skills. In addition to offering relevant information both on a regular and intermittent basis to directors and managers, the Company would also organize seminars and workshops when deemed necessary. Training completed by directors and managers in 2018 include: Organized by Course title Hours of training Title Name Director Jui-Tsung Chen Date of training 2018.7.17 Director Chang Chi Ko 2018.9.21 Director Chung-Pin Wong 2018.7.17 Independent Director Min-Chih Hsuan 2018.9.5 2018.9.25. Independent Director Duei Tsai 2018.3.5 Taiwan Corporate Governance Association Taiwan Corporate Governance Association Taiwan Corporate Governance Association Securities & Futures Institute Youth Career Development Association Taiwan Depository & Clearing Corporation 2018.5.28 2018.7.27 Taiwan Corporate Governance Association Securities & Futures Institute 2018.8.24 Securities & Futures Institute Independent Director Duh-Kung Tsai 2018.10.30 Accounting Supervisor Cheng-Chiang Wang 2018.10.1~ 2018.10.9 Taiwan Corporate Governance Association Accounting Research and Development Foundation 49 3 3 3 3 3 2 3 3 3 3 30 Corporate Governance and Securities Regulations Discussion on the amendment of 2018 company law (1) Corporate Governance and Securities Regulations Strengthening corporate governance with the self-assessment system of the board of directors Company law amendment - description and observation Seminar on “Electronic Voting and Corporate value enhancement” The trend of “Artificial Intelligence” and “Anti- tradition business era” Conference for relevant Insider trading laws and compliance for TWSEC listed and public–hold companies. The impact on and new outlook for corporate governance affairs and Director’s/Supervisor’s responsibility due to modification of “The Company Act” 5. Laws risk with respect to the Directors and the Managers “Training program for the new Accounting Officer” The class for the new Accounting Officer, requested due to the company share exchange/transaction on public place. Title Name Date of training Head of Auditing Po-Wen Hsieh 2018.2.6 2018.6.11 Organized by Course title Accounting Research and Development Foundation Accounting Research and Development Foundation The Practice and Case Study of The Internal Audit for Material Systems in the Manufacturing Industry. Internal Audit: The Common Internal Weaknesses and Deficiencies, Legal Liabilities, and Case Studies Hours of training 6 6 (cid:2) Succession plan for Board members and key Management team Compal launched the succession plan for Board members and the key management team in 2018. The former President Jui-Tsung Chen (Ray Chen) was promoted to the position of Vice Chairman and Chief Strategy Officer of the company, responsible for the company’s long-term strategy development and implementation. The President's position was taken by Executive VP Chung-Pin Wong, who joined Compal in 1989 and has full experience in various positions, such as marketing, procurement, sales, etc. In addition, Anthony Peter Bonadero, Sheng-Hua Peng (Eric Peng), and Ming-Chih Chang (Mage Chang) were promoted from Senior VP to Executive VP positions and were appointed to lead the three business group: PCBG, SDBG, and GOBG, separately. They were also been elected as the 13th Board of Directors in 2018. By this, Compal has successfully completed the succession of the Board members and the key management team that symbolizes transition into a new generation. (cid:2) Certificate and qualification acquisition status for personnel involved in financial information transparency Name of certificate CPA qualification USCPA qualification Senior Securities Specialist Securities Specialist Futures Specialist Securities Investment Trust and Consulting Professional Certified Internal Auditor - Taiwan Certified Internal Auditor Chartered Financial Analyst No. of persons 7 persons 2 persons 12 persons 8 persons 7 persons 5 persons 3 persons 4 persons 1 person 50 3.3.4 Composition, Responsibilities, and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members Criteria Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience 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 Having work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company 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 Independence Criteria (Note 2) 1 2 3 4 5 6 7 8 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member Remarks 0 3 1 - - - Title (Note 1) Name Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh-Kung Tsai Note 1: Please fill in “director”, “independent director”, or “other” in the identification. Note 2: Please check “ ” in the box for a member, who during the two years before being elected or during the term of office, any of the following applied: (1) Not an employee of the company or any of its affiliates. (2) Not a director or supervisor of the company or any of its affiliates. (The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.) (3) Not a natural-person shareholder or holder of shares, together with those held by a spouse, minor children, or held by the person under other names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranking within the top 10 in holdings. (4) Not a spouse, relative within a second degree of kinship, or lineal relative within the third degree of kinship, or a person in compliance with any of the preceding three subparagraphs. (5) Not a director, supervisor, or employee of a corporate shareholder that directly holds five percent or more of the total number of issued shares of the company or that holds shares ranking within the top five in holdings. (6) Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company. (7) Not a professional individual who, as 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 the spouse thereof. (8) No matters as noted in Article 30 of the Company Law. 51 B. Attendance of Members at Remuneration Committee Meetings ‧The Company elected three members of the Remuneration Committee. ‧The term of the 3rd committee is from July 9, 2015 to June 22, 2018. ‧The term of the 4th committee is from July 4, 2018 to June 21, 2021. ‧There were five Remuneration Committee meetings during 2018(A) and the committee member qualifications and attendance records are as follows: Title Convener Committee Member Committee Member Name Min-Chih Hsuan Duei Tsai Duh-Kung Tsai Attendance in Person (B) By Proxy Attendance Rate (%) [B/A] Remarks 5 5 5 0 0 0 100% 100% 100% - - - ■Functions and Tasks of the Remuneration Committee • Prescribe and periodically review the performance review and remuneration policy, system, standards, and structure for directors/independent directors, and managerial officers. • Periodically evaluate and prescribe the remuneration of directors/independent directors, and managerial officers. "Remuneration" as used in the preceding two paragraphs includes cash compensation, stock options, profit sharing and stock ownership, retirement benefits or severance pay, allowances or stipends of any kind, and other substantive incentive measures. ■The discussion of the salary and Remuneration Committee and the outcome of the resolution, as well as the actions the Company has taken in response should any of the situations arise in the operation of the Remuneration Committee. Board of Directors Meeting 17th Meeting (12th Term) 2018.3.19 18th Meeting (12th Term) 2018.5.9 Resolution Adopted by the Remuneration Committee 1. To approve the distribution of compensation to employees and directors for 2017 ▲Resolution Adopted by the Remuneration Committee (2018.3.19): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Action taken by the Company in Response to the Opinion of the Remuneration Committee: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present. 1. To approve the 1st mid-year bonus of 2018 2. Salary adjustment of 2018 3. To approve the percentage of employees’ compensation and directors' remuneration of 2018 ▲Resolution Adopted by the Remuneration Committee (2018.5.9): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Action taken by the Company in Response to the Opinion of the Remuneration Committee: ・Motion 1 and 2: 52 Board of Directors Meeting Resolution Adopted by the Remuneration Committee Directors Jui-Tsung Chen, Chung-Pin Wong and Chao-Cheng Chen, who held concurrent managerial positions, had disassociated from the discussion and voting that pertained to their personal interests. Discussions for other parties were passed as proposed without objection from the remaining directors present at the meeting. ・Motion 3: Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Directors present 1. Election of the convener and meeting chair of the 4th Remuneration Committee. ▲Resolution Adopted by the Remuneration Committee (2018.7.4): Min-Chih Hsuan was elected by all Committee members as the convener and meeting chair. ▲Action taken by the Company in Response to the Opinion of the Remuneration Committee: 1st Meeting (13th Term) 2018.7.4 Not applicable (without the consent of the Board of Directors) 1. To approve the Directors' remuneration of 2017 2. To approve the 2nd mid-year bonus of 2018 ▲Resolution Adopted by the Remuneration Committee (2018.8.9): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Action taken by the Company in Response to the Opinion of the Remuneration Committee: ・Motion 1: ・Passed the compensation of Directors’ Remuneration of 2017 Chairman Sheng-Hsiung Hsu asked the Independent Director Min-Chih Hsuan to act as a deputy chairman to preside at this meeting for discussion and voting on this proposal. Since an interested party relationship exists, the Directors (i.e., Sheng-Hsiung Hsu, Jui-Tsung Chen, Wen Being Hsu, Shyh-Yong Shen［attended by proxy of Sheng-Hsiung Hsu］, Charng-Chyi Ko, Sheng-Chieh Hsu, Yen-Chia Chou, Chung-Pin Wong and Chiung-Chi Hsu) excused themselves from discussion and voting on this proposal to avoid conflict of interest. Upon solicitation of comments by the deputy chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ・Motion 2: In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. 1. To approve employees' compensation in cash of 2017 2. To approve the year-end bonus payment of 2018 ▲Resolution Adopted by the Remuneration Committee (2018.11.8): Upon solicitation of comments by the Chairman, there was no objection addressed and the resolution was adopted unanimously by the Committee Members present. ▲Action taken by the Company in Response to the Opinion of the Remuneration Committee: 53 2nd Meeting (13th Term) 2018.8.9 4th Meeting (13th Term) 2018.11.8 Board of Directors Meeting ・Motion 1 and 2: Resolution Adopted by the Remuneration Committee In accordance with the Company’s Regulations Governing the Proceedings of Board of Directors Meetings, if an interested party relationship exists between any Directors and any agenda proposals, such Directors should excuse themselves during discussion of and voting on those proposals. Accordingly, to avoid conflict of interest, Directors Jui-Tsung Chen, Chung-Pin Wong, Ming-Chih Chang and Sheng-Hua Peng, who are also acting as managerial officers of Compal, avoided discussion and voting on this proposal. Upon solicitation of comments by the chairman, there was no objection addressed and the resolution was adopted unanimously by the remaining Directors present. ■Other notes: 1. If the board of directors declines to adopt or modify a recommendation of the remuneration committee, it should specify the date of the meeting, the session, the nature of motion, the resolution made by the board of directors, and the Company’s response to the remuneration committee’s opinion (e.g., if the amount of remuneration passed by the Board of Directors exceeds the remuneration committee’s recommended amount, the circumstances and cause for the difference shall be specified): None. 2. If resolutions of the remuneration committee are objected to by members or become subject to a qualified opinion, which has been recorded or declared in writing, then the date of the meeting, the session, the nature of the motion, all members’ opinions and the response to members’ opinions should be specified: None. 54 3.3.5 Corporate Social Responsibility I. 1. 2. 3. Assessment criteria Yes No Yes Sound corporate governance Does the company have a corporate social responsibility policy or system in place? Is progress reviewed on a regular basis? Does the company organize social responsibility training on a regular basis? Yes Yes Does the company have a unit that specializes (or is involved) in CSR practices? Is the CSR unit run by senior management and reports its progress to the board of directors? 4. Has the company implemented Yes Actual governance Summary description Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies The Company has established its CSR policies and relevant management guidelines, including Corporate Governance Best-Practice Procedures, Code of Conduct for Directors and Managers, Code of Conduct for Employees, Ethical Corporate Management Best Practice Principles, Business Integrity Procedures and Behaviors, Insider Trading Prevention Procedures, Corporate Social Responsibility Best Practice Principles and so forth. The CSR Committee reports annually to the Board of Directors to present the results of implementation, review the outcomes, and establish the targets for the following year. Under the CSR Committee, there are other subordinating units including the CSR Office and CSR Execution Teams for each factory/(Corporate social responsibility framework please refer to page 60)/fab responsible for the implementation, follow-up, revision and recording of relevant plans. The results of implementation are also disclosed in our Annual Report, CSR Report, and on our corporate website/CSR sustainability website. No deviations were found No deviations were found The Company organizes annual CSR training courses in accordance with its Employee Code of Conduct and CSR-related policies. These training courses cover a broad variety of topics including corporate policies, HR system, employee code of conduct, personal information protection act and other areas as the law may require. All training courses are accessible online and have been made as requisites for new employees. Existing employees may complete courses online at their own discretion at any time. In 2018, 3,923 employees had completed their training for a total of 18,338.58 hours The Company has established a CSR Committee and a dedicated unit responsible for the prevention of insider trading. The Committee consists of members of senior management authorized by the Board of Directors to oversee affairs pertaining to CSR and integrity management. In addition, Compal has also initiated its CSR Office with designated personnel to handle the promotion of relevant tasks resolved by the CSR Committee. For the 2018 Corporate Social responsibility operation and implementation please refer to page 61, the targets and plans of 2019 Corporate Social Responsibility please refer to page 62. The results of implementation are also disclosed in our Annual Report, CSR Report, and on our corporate website/CSR sustainability website. Employees’ salary levels are set based upon those of similar responsibilities, with adjustments made No deviations were No deviations were found 55 Assessment criteria a reasonable remuneration system that associates employees’ performance appraisals with CSR? Is the remuneration system supported by an effective reward/discipline system? Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description based on individual work performance. Different salary levels may be granted depending on education, experience, job grade, and the assigned duties. Furthermore, employees are entitled to a portion of the share of the Company’s current year profits. The Company has set clear guidelines to reward and penalize employees’ conduct and performance. Rewards and penalties are decided to depend on the severity and impact of the event involved. Generally speaking, employees’ compensation includes 12 months of salary, a mid-year bonus and year-end bonus (to be determined based on the Company’s operational performance and employees’ individual performance), with adjustment to their wages. In addition, pursuant to the Articles of Incorporation, when the Company makes profit in a year, no more than 2% of the Company’s pre-tax profit (not including remuneration for employees and Directors) shall be appropriated to employees. The aforementioned bonus, adjustment in wages, and employee compensations are reviewed by the Remuneration Committee and resolved by the Board of Directors. found II. 1. 2. Fostering a sustainable environment Is the company committed to achieving efficient use of resources, and using renewable materials that produce less impact on the environment? Yes Has the company developed an appropriate environmental management system, given its distinctive characteristics? Yes 3. Is the company aware of how Yes No deviations were found Throughout the "product life cycle", we consider the environmental impacts of raw material procurement, manufacturing, transportation and distribution, consumer use and disposal, etc., at the beginning of product design. In addition to focusing on user needs, functionality and additional Value, the R&D team is more focused on product development and design from the perspective of “environmental load minimization” at each stage, covering at least the three core directions of “green materials”, “energy efficiency”, and “ease of dis-assembly/recycling”. Improve production line yield and energy efficiency, develop, and use recycled materials stably, design energy-saving products to reduce energy consumption during reuse, and increase the recoverable proportion of waste entering the waste phase The Company began its implementation of ISO 14001 Environment Management System in April 1997. Quality and environmental safety policies were created in 2005 to guide the Company’s efforts on employee workplace safety and corporate responsibilities. Operating procedures and environmental/safety/health management systems have been established based on government international standards such as ISO 45001. The Company adopts proper regulations and communication channels to convey its environmental and safety policies and goals to employees, suppliers, contractors, surrounding neighbors, and interest groups. The Company began its greenhouse gas surveys (scopes 1 and 2) and carbon footprint inventory as No deviations were No deviations were found 56 Assessment criteria Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies climate changes affect its business activities? Are there any actions taken to measure and reduce greenhouse gas emissions and energy use? Yes No Summary description early as 2010. Starting from 2014, the Company has conducted greenhouse gas (scopes 3) inventory on a yearly basis. In 2015, Compal was included in the CDP Climate Disclosure Leadership Index for the first time (CDLI). The Company has actively participated in the Carbon Disclosure Project (CDP) as a means to improve its response to climate changes. The CDP achieves its purpose by assessing a company’s carbon emissions, reduction progress, compliance risks and exposure to physical risks in the hopes of reducing operational risks and costs through autonomous carbon reduction or even turning risks into opportunities to ensure the Company’s sustainability. found III. 1. 2. 3. Enforcement of public welfare Has the company developed its policies and procedures in accordance with laws and International Bill of Human Rights? Yes Yes Yes Does the company have means through which employees may raise complaints? Are employee complaints being handled properly? Does the company provide employees with a safe and healthy work environment? Are employees trained regularly on safety and health issues? 4. Does the company have means to communicate with Yes The Company places great emphasis on equal opportunities and business ethics. It has policies and systems in place to ensure compliance with international conventions. The Company and all its subsidiaries throughout the world have established employment guidelines according to international human rights conventions and local labor regulations. All employment terms have been assured to conform with the laws of the local country or region. Out of respect to labor rights, the Company changes its policies and rules in line with the latest regulations, and announces them to the understanding of all its employees. For the purpose of maintaining harmonic employer-employee relations, a communication platform has been created to enable exchange of opinions and information between the Company and its employees. The Company has set up email contacts through which employees may express their opinions and offer suggestions. These opinions and suggestions are referred to appropriate units within the Company. Progress and outcomes are reported back to employees as they become available. The Company is well-aware of how significantly “workplace safety and health” affects a company, its employees, and stakeholders. This was the reason why the Company has enhanced its environmental, safety, and quality policies and obtained ISO14001 and ISO45001 certification, which requires all departments to implement proper safety and health practices, as well as regular training on matters such as fire safety equipment, utility plans, waste disposal, emergency response procedures, etc. The Company organizes health and safety training for employees on a regular basis as a means to prevent occupational hazards and ensure workplace safety. In 2018, 2,861 employees had completed their training for a total of 5,785 hours. The Company is committed to creating communication platforms where employees may exchange opinions and information. “Employee opinion boxes” have been made available at the headquarters 57 No deviation was found No deviations were found No deviations were found No deviations were found Assessment criteria Actual governance Yes No Summary description Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies employees on a regular basis, and inform them of operational changes that may be of significant impact? 5. 6. 7. 8. 9. Yes Yes Has the company implemented an effective training program that helps employees develop skills over their career? Has the company implemented consumer protection and grievance policies with regards to its research, development, procurement, production, operating and service activities? Has the company complied with laws and international standards with regards to the marketing and labeling of products and services? Does the company evaluate suppliers’ environmental and social conduct before commencing business relationships? Is the company entitled to terminate supply agreements at any time with a major Yes Yes Yes and at various plant sites to receive employees’ complaints. A “Sunshine Group” and hotlines have been set up in all plant sites and are run by compassionate people who promptly respond to employees’ opinions so that the Company can rectify its flaws and help solve employees’ problems immediately. Townhall Meetings are organized regularly at the turn of the year, during which the CEO will personally address employees on the Company’s new business developments. All department managers announce key points of the meeting to their subordinates. Annual training programs are tailored to suit the needs of different employees, based on the Company’s business strategies, policy guidelines, and career roadmaps. The Company constantly aims to establish itself as a learning organization and coaching management. No deviations were found The Company is an OEM/ODM manufacturer, manufacturing TV sets, notebooks, cell phones and electronics for top brands. There is a dedicated unit responsible for every step in the production process such as product development and design, shipping, and repair and maintenance services Once customers have launched their products, the Company will continue to support them with services and parts until the product no longer requires after-sale responsibilities. Customers are given the option to visit Compal’s website, click on the Stakeholder Communication Area, and leave messages using an exclusive link. These messages will then be handled by the appropriate departments. The Company is an OEM/ODM. It manufactures TV sets, notebooks, cell phones and electronics for the world’s top brands. All products are printed with customers’ trademarks, names, and labeling that conform with relevant laws and international guidelines. However, the Company does not print its own logos or names on the products it produces. No deviations were found No deviations were found The Company requests all its suppliers to fulfill their responsibilities with respect to the environment, labor, management, and ethics. Furthermore, the Company also demands its suppliers to sign and comply with the Letter of Undertaking for Compliance with the Responsible Business Alliance (RBA) Code of Conduct by Vendor and evaluates suppliers’ performance by their contribution to corporate social responsibilities. The Company requires all major suppliers to comply with local regulations and fulfill their duties to the environment and society. They are demanded to immediately rectify any violations found to ensure the business relationship with the Company. No deviations were found No deviations were found 58 Assessment criteria Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies supplier, if the supplier is found to have violated its corporate social responsibilities and caused significant impacts against the environment or society? Enhanced information disclosure Has the company disclosed relevant and reliable CSR information on its website and at the Market Observation Post System? IV. 1. Yes No Summary description The Company’s standard procurement contract specifically requires suppliers to comply with the Responsible Business Alliance (RBA) Code of Conduct and environmental protection laws. The contract empowers the Company to terminate procurement relationship with any supplier that is found to have violated the above rules. Yes A “CSR” section is created on the Company’s website to disclose information in different categories. A “News” section is also available on the home page where stakeholders are given access to the latest information. The Company prepares CSR reports on an annual basis to disclose how it has fulfilled its social responsibilities. This report may be downloaded from the Company’s website and from the Market Observation Post System (MOPS). No deviations were found 59 ████ Corporate social responsibility framework Board of Directors Corporate Social Responsibility Steering Committee (CSR Steering Committee) CSR Office Executive Secretary CSR Executive Seeders • Implementation and execution of CSR • Sound corporate governance • Fostering a sustainable environment • Upholding public interest • Enhanced CSR disclosure Employee care unit Corporate Governance Group Environmental Safety and Health Group Supply Chain Management Group • Responsible purchase • Prohibition against conflict minerals • Green purchase • Supplier CSR commitment • Certified supplier audit • Waste and raw materials management • Prohibition against child labor • Workers' freedom and human rights • Employee health and safety • Equal employment opportunities • Employee salary and welfare • Professional skills training and management • Diverse communication with employees • Employee care • Commercial integrity • Anti-corruption • Regulatory compliance • Enforcement of internal control and internal audit • Information transparency • Accurate financial data • Protection of shareholders' equity • Protection of intellectual property rights • Information security and privacy management • Safe work environment • Green environment and sustainability • Green design and production • Reduction of carbon, energy and greenhouse gas; promotion of product carbon footprint and CDP • Management of waste and hazardous substances • Use of renewable energy source 60 ████ The operation and implementation of Corporate Social Responsibility in 2018 Item Corporate Governance Supply Chain Management Green Environment Green Product Social Welfare Result 1. We were awarded "4th Corporate Governance Evaluation top 6-20% in the publicly traded company group", which was held by Taiwan Stock Exchange (TWSE). 2. We have been selected into the MSCI ESG Leaders Index, the most importance sustainable performance evaluation indexes taken by international investors, for 12 consecutive years. 3. We finished the Corporate Social Responsibility Committee Organizational Rules. 1. To achieve Conflict-Free Minerals, we completed the investigation of Conflict Minerals and signed commitment statements. 2. To reinforce CSR audits and management on Tier 1 suppliers, we audited 15 suppliers in 2018. 1. We received a B- grade for CDP in 2018 and have been selected for CDP Climate Change for five consecutive years. 2. We built solar power generators and introduced an ISO 50001 energy management system at plants of CD, KSP3, and PCP. 1. In 2018, we produced 63 halogen-free notebooks, 12 halogen-free smart phones, 2 halogen-free tablets and 20 halogen-free wearable devices. 2. 92.6 % of notebook computers and tablets product were certified of Energy Star 6.1. 6 display products were certified Energy Star 7.0. 1. We donated NT$10 million to Hualien Earthquake Disaster Relief. 2. To encourage employees to participate in social welfare, we offer a paid volunteering leave. 3. We consistently donate tablets and AIO computers to promote digital mobile learning in schools in remote areas and achieve the SDGs (Sustainable Development Goals) of the United Nations. 4. We consistently participate in charities with the HCI foundation and sponsored the children's theatre of the W3 Troupe in Taitung, annual fundraising, as well as blood donation events (350 employees donated 546 units of blood in 2018.) 5. We built up a CSR page on Facebook to enhance internal and external communication and share information. Employee Care 1. We offer employee care including health Counseling, health lectures, weight loss programs, birthday events, department gathering, and all kinds club activities. 2. To improve fertility rates, we provide an NT$ 66,000 maternity subsidy to employees for each newborn baby. 253 Compal babies were born in 2018. Awards and Honors 1. The Compal CSR report in 2017 was assured by SGS Taiwan Ltd., which has been engaged to provide assurance for AA1000 AS and GRI Standards disclosure in accordance with Core Options. Meanwhile, the report won the Platinum Medal in the Taiwan Corporate Sustainability Report of TCSA. 2. We were ranked 404th of Fortune Top 500, 1500th of Forbes Top 2000, 6th of Common Wealth Magazine’s Top 2000 Manufacturers, and 59th of Common Wealth Magazine’s Top 1000 in China, Taiwan, and Hong Kong 61 ████ The targets and plans of Corporate Social Responsibility in 2018 Target In response to all of the "United Nations Sustainable Development Goals (SDGS)", the 14th "Life below water" event was launched. Focus on the mitigation and adaptation of climate change, continuously producing green designs, as well as managing the energy conservation and extreme climate resilience in plants. Keep collaborating with customers and suppliers and promote the establishment of a CSR management platform and system before the year 2020. Introduce the Employee Assistance Program (EAP) to strengthen the employee's physical and mental health care. Plan (1)Held beach cleaning activities and lectures on environment protection, which invited professional environmental lecturers to educate our colleagues on the correct action to take care of the sea. (2)Promote reading education – focusing on the marine ecology and plastic reduction. (3)Hold the sketch/painting activities for employees and their children and marine ecology. (1)Promise to reduce greenhouse gas emissions. With the emission volume of 2014 as the standard, we will decrease our emission volume (Revenue in NT$ per million) by 6% by 2020 (2)Continue to promote our suppliers with energy-saving and carbon-reducing plans in order to help them carry out decreases and adjustments to cope with climate change. (3)Continue to refer to the TCFD framework to effectively identify risks associated with climate change and master green business opportunities. (4)Promote lean production, adopt systematic management methods, reduce unhelpful waste in production process, control energy resource use, create economic effects, and improve environmental efficiency and enterprise competitiveness. (5)Continue to transport solar power plants to maximize the use of renewable energy. (1)Complete the platform and system of supply chain management before the end of October 2020. (2)Complete the CSR data collection, analysis and tracking improvement by suppliers on the system. (1)Cooperate with external professional consultants to provide our employees more of the assistance support in physical and mental health. (2)Hold parent-child education/legal/financial management and other related lectures to help our staff understand more and take care of their family. (3)Actively execute in the health promotion management for the moderate and high-risk groups in cardiovascular in health examinations. NO. 1 2 3 4 V. If the company has established the corporate social responsibility principles based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies”, please describe any discrepancy between the Principles and their implementation: ■ The Company has established the “Compal Corporate Social Responsibility Best Practices” based on “Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies”. A “CSR Office” has also been introduced specifically for the purpose of promoting social responsibilities, environmental sustainability, public welfare, and information disclosure. The Company has adopted the principles of RBA by including corporate social responsibilities as part of its overall business plan, thereby making sure that everything it does confirms with RBA. The CSR Office reports its progress regularly to the Board of Directors, and publishes annual CSR reports to ensure proper disclosure of CSR information. In order to implement the development of sustainable environment, maintain environmental management system, the company regularly organizes environmental education courses for management and employees. At the same time, green management has been introduced from the product design stage and the supply chain. Reduce the energy consumption of products and services, effectively manage harmful substances, reduce the generation of waste water and waste, and properly handle and adopt the best feasible pollution prevention and control technology measures. Improve product life and reliability, and maximize the sustainable use of renewable resources with the concept of easy disassembly and recycling. Formulate the company's energy ■ 62 conservation and carbon reduction targets, carry out greenhouse gas reduction operations, and do its utmost to reduce the adverse impact of the company's operations on human health and the natural environment. VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices: ■ External ini\a\ves and par\cipa\on As a significant member of the Earth, the Company actively participates in global and local environmental initiatives and actions. Since 2009, Compal has been participating in CDP's questionnaires on climate change, water, and supply chain carbon management. In addition, the Company takes part in the GHG Protocol developed by World Business Council for Sustainable Development (WBCSD) and World Resources Institute (WRI), and the “Business Transformation Carbon Footprint Program” introduced by the Industrial Technology Research Institute (ITRI) and Taiwan Electrical and Electronic Manufacturers' Association (TEEMA). The Company has been named a “Low-carbon pioneer”, and is a current participant of DSJI and the Supply Chain GHG Task Force under the International Sustainability Index Promotion Alliance for Taiwanese Businesses, and took part in the Taipei Earth Day Corporate Environment Education Commitment campaign. In 2014, Compal was invited to the annual meeting of Taiwan's “Cradle to Cradle” platform. In 2015, Compal was selected as part of CDP's Climate Disclosure Leadership Index (CDLI) for the first time. In 2018, Compal received an overall CDP Management score of B-. ■ Energy management system Increasing productivity per unit of energy is the most fundamental solution to reducing energy consumption and greenhouse gas emission. In 2018 , it obtained the ISO 50001 certification of the Pingzhen Plant and Plant 3 in Kunshan. It plans to complete the Chengdu plant energy management system certification this year and extend the relevant experience to other factories. ■ Supply chain carbon management Being one of the world's key IT producers, Compal uses “information platform” and “workshops” to keep suppliers informed of the latest energy/carbon reduction technologies and green living, and inspires them to commit to active care for the local environment. The Company requires all its suppliers to be certified for ISO9001 (quality management system) and ISO14001 (environmental management system), and follow EICC guidelines by signing a letter of commitment to the behavioral standards of the RBA Code of Conduct. Under this commitment, upstream suppliers are bound to comply with international, national, and local regulations with respect to all activities. In the second half of 2017, Compal launched its “Supply Chain GHG Management Program” and held seminars at various factories as a means to communicate with suppliers on how they are expected to contribute and assist in Compal's global environmental protection and quality management initiatives. Compal also took the opportunity to exchange and share experiences on CSR issues with suppliers. ■ Corporate environmental educa\on The Company continued to incorporate environmental education and green experience into employees' training throughout 2018. Invite the popular professors of National Taiwan Ocean University to share the information on sustainable seafood, small ecological travel of the stream, the ecological and cultural history of Dadaotun Wharf, ecological and cultural lectures on Huajiang Wild Geese, and the natural ecological journey. The Company had provided full support from the top-down, while employees and their family members enthusiastically participated in a series of “experiential” environmental education. We rallied our employees to exercise our influence as consumers to select safe foods and sponsor quality rice fields and tea farms. The crops are later presented to clients as Chinese New Year gifts. By modifying demand, we hope to change supply and promote more sustainable agriculture, forestry, animal husbandry, and fishery. All new recruits are required to undergo 0.5 hours of online environmental training in their initial year. The course covers a variety of topics from green living, preservation of ecosystems, climate change, to green design. In the future, the Company will also make “green products” a mandatory course and introduce more advanced courses on green design issues. A core team will be assembled specifically for the purpose of improving green energy efficiency, and building up Compal's distinguished values in the ICT (Information and Communication Technologies) industry. 63 ■ Suppor\ng social enterprises In recent years, many social enterprises have emerged with goals to protect the environment and improve public interest. In support of their efforts, the Company encourages employees to purchase products and services offered by social enterprises, hoping that by redirecting purchasing power, we may be able to muster positive energy to solve society's problems. In 2018, Compal collaborated with Mennonite Hualien County Sheltered Workshop, Taiwan Association for Marine Environmental Education, I Can Sheltered Workshop, Hanner Family, Taiwan Mountain and Maritime Protection Society, and managed to raise several hundred thousand dollars of donations from employees. ■ Community engagement The Company has long been sponsoring the maintenance and management of Zhouzi Park No. 2 in Neihu in order to provide community residents and industrial park workers an ideal place for leisure and recreation activities. ■ Social services ‧Compal's employees have been running the “Compal Volunteer Club” since 2004. Members of this club visit disadvantaged children during weekends and guide them to reading good books. The goal of this program is to help them develop the habit of reading and the ability to think independently, and hence prepare them for the future. The volunteers have also been working with Hsu Chauing Social Welfare and Charity Foundation to provide extra-curriculum education for immigrant children. Since 2009, they have been visiting Jong Jen Elementary School, Wuhan Elementary School, Nan-Shi Primary School, Chung Ping Elementary School, Shuang Long Elementary School, Neihai Elementary School, Nan Sing Elementary School, Hsiang An Elementary School, Tien Hsin Elementary School, Hua Hsun Elementary School, Wu Cyuan Elementary School, San He Elementary School, Chung-Shing Elementary School, Sin-Jie Elementary School, Xin Lu Elementary School, Fu An Elementary School, Dacheng Elementary School, Long-Sing Primary School, San Keng Primary School, Shanghu Primary School, Yisheng Elementary School, Shi-Hai Primary School, Te-Long Elementary School, Sha Keng Elementary School, Da Po Elementary School and Haibin Elementary School in Taoyuan during public holidays to accompany children in their reading activities. By the end of 2018, the volunteers had assisted 1,810 immigrant children and children from disadvantaged families. ‧Compal has been encouraging college volunteer clubs to join the Company's “reading volunteers” initiative and provide study aids to children from low-income families in the neighborhood. By sharing good reading materials and environmental awareness, the Company hopes to contribute to the learning progress of disadvantaged children. ■ Social welfare (1) Budget sponsorship ‧Sponsoring of budgets for college volunteer clubs- In an attempt to encourage college students to participate in volunteer service, the Company has been contributing NT$600,000 every year since 2004 to sponsor college clubs in promoting children's reading, after-school classes, and environmental education in locations that lack resources and for low-income households. A total of 19 college clubs applied for sponsorship and 401 volunteers participated in sponsored volunteer activities in 2018, for which the Company contributed a sum of NT$600,000 that benefited 1,016 students. ‧Sponsoring of W3 Troupe's charity performance - Compal donated NT$800,000 and invited more than 1250 disadvantaged children and their teachers to W3 Troupe's show - “Fantasy Valley I - Finding Lost Courage”. Through art therapy, we hope to give children the right influence they need to develop a positive mind, and encourage them to listen, see, and experience for themselves the wonders of life. ‧In addition to charity involvement, the Company also provides strong support to academic and industrial organizations including: NTU System Culture Foundation, Taipei City Friends of the Police Association Neihu Office, International Council for Small Business –ROC, Taiwan Pawprint K9 Rescue, Taoyuan Enterprise Chamber, Garden Homeless Animal Association, Cheng Dian Culture & Education Foundation, Fire Department, Taipei City Government, Taiwan District of Kiwanis International, Shenkeng District Office of New Taipei City, National Pingtung University of 64 Science and Technology, Kenting National Park Headquarters, Spinal Cord Injury Foundation, Taoyuan County Volunteer Fire Brigade Pingzhen Division. A sum of NT$6,251,720 donated to the abovementioned entities in 2018 (2) Donation of supplies ‧320 tablets, 25 AIOs, 30 NBs, 15 E-sports Nbs, and 15 sets of desktop computers (including a host computer and LCD) were donated to support the digital learning Program in remote areas. The Company donated 150 tablets to eight digital centers located in Sanzhi Dist of New Taipei City, Gongguan Township of Miaoli County, Yuanli Township of Miaoli County, Mailiao Township of Yunlin County, Zhuqi Township of Chiayi County, Dalin Township of Chiayi County, Fengbin Township of Hualien County, and Jincheng Township of Kinmen County. In addition, the company donated 50 tablets, 30 NBs, 15 sets of desktop computers (including a host computer and LCD) to Fu Jen University Taiwan Bi-Education Care Center and the Love Reading Service of Department of Library & Information Science. 25 AIOs were donated to 5 elementary schools located in Pingtung and Taoyuan County, 15 sets of 21-inch curved E-sports notebooks to Wen Huan elementary schools in Taoyuan County, 120 tablets to 5 elementary schools located in New Taipei City, Taoyuan City and Miaoli County, and assisted Township schools and communities to help promote digital mobile learning. (3) Charity Arts Exhibition and Concert “Meeting pets” was the theme of the Charity art exhibition in 2018 and the Thanksgiving concert to show supports and warmness to pets. 15 photographs from employees and 19 hand-drawing bags from employees and their kids were displayed at the exhibition. Meanwhile, all exhibits were on sale for charity. We collected NT$67,793 from the exhibition subscription and donated NT$44,055 to the Taiwan animal protection association and NT$23,738 to the Taiwan Guide Dog Association respectively. ■ Human rights The Company respects the human rights of all employees. In addition to prohibiting the use of child labor and overtime working, the Company treats all employees of different ethnicities, religious beliefs, skin color, gender, nationality, age and physical features with equal respect and fairness. It has been explicitly stated in the Human Resource Management Policy that “The Company shall recruit employees based on knowledge, morality, skills, experience and suitability for the position/job in question. Under no circumstances may the Company reject recruitment for reasons such as gender, ethnicity, religion, political association, nationality, sexual preference, or age”. The Company also refrains from using involuntary workers and child labor. ■ Safety and health At a time when financial performance is as important as environmental protection, the Company considers “occupational safety and health” to be an important issue that no business shall neglect. Only by creating a safe work environment are employees able to unleash their full potential, which is a driving force behind the Company's progress. For this reason, the Company not only ensures that every operation is compliant with environmental, safety, and health rules, but also commits to eliminate or reduce safety and health risks to employees, suppliers, contractors and stakeholders that are caused by production procedures, facilities, and activities. At Compal, we see financial performance, environmental protection, and occupational safety and health as three co-existing and complementing factors of business administration. The Company created its official environmental safety and quality policies to guide employees toward protection in the workplace and social responsibilities. Furthermore, these policies also provide employees and external stakeholders (such as suppliers, contractors, customers, environmental organizations, government agencies and community residents) with a better understanding of the Company's environmental safety efforts and its resolve to protect and minimize risks to the environment. Ultimately, we hope to direct the attention of our partnered vendors to environmental protection, safety and health, and work together towards accomplishing our goals. 65 (1) Environment safety policy: ‧Comply with environmental, safety and health laws, and related requirements. ‧Conduct environment safety and health training to raise employees' awareness towards individual responsibilities as well as safety and health concerns of the surrounding environment, while at the same time encouraging their participation in relevant issues. ‧Continually improve environmental, safety and health performance through programs such as pollution prevention, accident prevention, energy/resource conservation, waste reduction, and responsible care. ‧Pay attention to the control of pollution sources and reducing waste from production. Enhance safety and health facilities to prevent pollution and minimize risks. ‧Establish proper communication channels to convey the Company's environmental safety policy, requirements, and goals to employees, suppliers, contractors, nearby residents and concerned organizations. (2) Environmental safety and health systems/measures: In an attempt to minimize losses on occupational hazards and rectify hidden dangers and recurring safety incidents for more harmonic labor-management relations, the Company subsequently assembled an Environment Safety Promotion Committee that specializes in the development of environment safety plans. Any environment safety-related policies and goals proposed are subject to review during the Environmental Safety Management Review Meeting. Once reviewed, the Committee becomes responsible for supervising work safety units in the implementation of safety and health-related measures, auto inspections, maintenance, and training to eliminate hazardous factors in the environment. In addition, the Committee also supervises relevant departments in completing hazard prevention and loss control systems. (3) Execution ‧Fire safety equipment (facility) plans and execution: Appropriateness and adequacy of fire safety equipment (facilities) are reviewed whenever there is a change to the layout of the business premises. Locations of fire safety equipment (facility) and evacuation routes are clearly labeled on each floor. The Company also engages professional and qualified fire safety inspectors to conduct annual fire safety inspections and reports according to law. ‧Water/power plans and execution: The Company promotes proper awareness and implements appropriate control on all uses of water and power equipment for more effective conservation of energy and resources. The administrative department is responsible for the day-to-day inspection of power usage, power systems, and water equipment. All inspection findings are detailed in the “Safety and Health Equipment Inspection Log” and any issues discovered are rectified immediately. ‧Cleaning, monitoring, and control of industrial waste: Handled by the Factory Affairs Division of various factories and General Affairs Department of the headquarters. Waste generated from factories can be classified into the following categories: a. Hazardous waste: Sorted according to “Standards for Defining Hazardous Industrial Waste” stipulated by the Environmental Protection Administration (EPA), Executive Yuan, and collected by certified contractors for subsequent treatment. b. Industrial waste: Industrial waste other than hazardous industrial waste is collected and treated by certified contractors. 66 ‧Emergency response procedures: These procedures have been established to guide the Company through disruption of production, information, and raw material supply in the occurrence of natural or man-made disasters. Incident resolution procedures: Hazard alert occurs 危害警訊發生 Incident reporting 事故通報 Confirmation of 危害確認 Harzard YES YES Activate emergency 緊急應變組織運作 response NO NO Update 列入紀錄 records i 事 故 調 查 報 告 m 及 e a s 改 u r e 善 s n 預 r i s 防 k m 措 a n a 施 g e 納 m e n 入 t s 風 y s t e 險 m 管 理 系 統 修 正 I n c l u s i o n o f i n c i d e n t i n v e s t i g a t i o n r e p o r t a n d i m p r o v e m e n t / p r e v e n t i v e Confirmation of 危害控制確認 damage control NO 否 Request external 請求外部支援 support YES 是 Post-disaster recovery 災後復原工作運作 Incident investigation and proposal 事故調查、擬定預防對策 of preventive measures Level 1 hazard: 危害等級1： (cid:3) Any death or 3 major injuries or higher ◆ 人員死亡或3人以上重傷 (cid:3) Loss of work hour exceeding 1 day ◆ 損失工時1日以上 (cid:3) Loss of property above US$1 million ◆ 財產損失100萬美元以上 SP：屬危害等級：1 須通 報高階風險管理委員會 SP: Occurrence of Level 1 hazard must be escalated to the Senior Risk Management Committee (4) Quality Policy (pursuing continuous improvement to meet customer needs): We commit to . Implement customer-oriented performance management. . Create competitive advantages in products and services. 67 VII. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: ■ Criteria undertaken by institutions to certify the Company’s products: The Company adopts the green concept right from the design and development stage for all products it manufactures. In addition to making sure that all manufactured products conform with compulsory regulations and voluntary certifications in the countries where they are distributed, the Company also takes the initiative in developing talents and technologies in relation to energy-saving issues and thereby keeping up with world’s latest trends and challenges. Apart from knowing the latest news in environmental regulations and certifications, Compal also possesses adequate R&D and execution capacity to quickly respond to customers’ needs for certification, such as IECQ QC 080000, Energy Star, US & EPEAT, US & WW EPEAT, China CECP & CEC, Taiwan Green Mark and Indoor Air Quality Testing & Certification. ■ Criteria undertaken by institutions to certify the Company’s CSR report: The Company has been preparing annual CSR reports and disclosing them to stakeholders on its website since 2010. The CSR report was first certified by an external institution in 2012. The Company adopted Global Reporting Initiative’s most updated guidelines (GRI Standards, published in 2016) to prepare its 2018 CSR report. The report was compiled based on issues concerning stakeholders and the Company’s key objectives. To ensure the credibility of reported contents, the Company commissioned SGS to provide independent assurance based on the criteria specified in AA 1000 AS and GRI Standards. After their assurance, the report was certified to meet AA 1000 AS Standard Type 2, mid-level accountability and GRI Standards application core requirements. The Company was awarded Silver or Bronze Awards by Taiwan Institute for Sustainable Energy for its “Taiwan Corporate Sustainability Report Award” in 2014-2017 and a Top 50 Platinum Award in 2018. 68 3.3.6 Ethical Corporate Management Assessment criteria Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description I. Establishment of integrity policies and solutions 1. Has the company stated in Yes The Company has clearly outlined the procedures for ethical management and guidelines for No deviations were its Memorandum or conduct in its HR policies, social responsibility policies, the integrity principles and code of conduct found external correspondence for directors, supervisors, managers, and the general code of conduct. The Board of Directors and the policies and practices it the management have committed themselves to business integrity. The Company’s “Board of has to maintain business Directors Meeting Guidelines” contain a conflicting interest clause that requires directors to integrity? Are the board of disassociate from all discussion and voting on any agenda that poses a conflict of interest between directors and the the Company and themselves or the entities they represent. management committed to fulfilling this commitment? 2. Does the company have any Yes The Company has established the “Ethical Corporate Management Best Practice Principles” and No deviations were measures against dishonest “Procedures for Ethical Management and Guidelines for Conduct” (hereinafter, “Procedures and found conduct? Are these measures supported by proper procedures, behavioral guidelines, disciplinary actions and complaint systems? Behaviors”) as an incentive to insiders and outsiders to report unethical or unseemly conduct. Any insider who makes a false report or a malicious accusation shall be subject to disciplinary action and be removed from office if the circumstance has substance. This Company has appointed a contact person, and has established a hotline and mailbox that can be used either through the Intranet of the Company website or the official Company website. Any person involved in unethical conduct will be referred to an authorized department and processed 69 Assessment criteria Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description according to the “Procedures for Ethical Management and Guidelines for Conduct”. 3. Has the company taken Yes The Company’s “Procedures for Ethical Management and Guidelines for Conduct” govern the No deviations were steps to prevent occurrences listed in Article 7, Paragraph 2 of “Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies” or business conducts that are prone to integrity risks? Integrity actions found following ‧ Prohibition against offering and acceptance of improper gains ‧ Prohibition against lobbying ‧ Prohibition against illegal political donations ‧ Prohibition against improper donations or sponsorships ‧ Prohibition against inappropriate gifts, treatments and illegitimate benefits ‧ Prohibition against unfair competition ‧ Prohibition against leakage of commercial secrets and infringement of intellectual property rights ‧ Prohibition against insider trading and rules of confidentiality Furthermore, the “Information Security Policy” has introduced measures to prevent violation of commercial secrets. Does the company evaluate Yes The Company requires all suppliers to sign the Letter of Undertaking for Compliance with the No deviations were the integrity of all counterparties it has Responsible Business Alliance (RBA) Code of Conduct by Vendors, which binds them to local found regulations on workers, environment, safety, health, management, and moral conduct, and prevents business relationships with? them against corruptive and unethical behaviors. II. 1. Are there any integrity clauses in the agreements it signs with business 70 Assessment criteria partners? Actual governance Yes No Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 2. Does the company have a Yes The Company has appointed its Human Resources, Administrative Management and Legal Affairs No deviations were unit that specializes (or is Office as the competent units in charge of the Company’s ethical matters. These units jointly set the found involved) in business integrity? Does this unit report its progress to the board of directors on a regular basis? guidelines and policies, which are monitored by the auditors and reports to the Board of Directors on a yearly basis. To prevent potential conflicts of interest, the Company has established the “Ethical Corporate Management Best Practice Principles” and “Procedures for Ethical Management and Guidelines for Conduct” in 2014 and 2015 respectively. In addition, the Company has also designed relevant course for its online e-Learning, including legal affairs related training on information security, personal information protection act, relevant company policies and employees’ code of conduct so as to familiarize all employees with the aforementioned guidelines and thereby facilitate the promotion of honest management. Status of Operation and Implementation in 2018: A total of 682 suppliers (91%) engaged in business transactions with the Company signed the RBA Code of Conduct commitment or completed the RBA Code of Conduct questionnaire. In addition, a total of 4,655 employees completed a total of 20,963 hours of integrity management related training, including: ‧Orientation training for new employees and group activities, covering topics such as: Company policies, corporate culture, human resource system, ethical corporate management best practice principles, trade secrets, information security, Personal Information Protection Act, and so forth 71 Assessment criteria Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description ‧Management for the prevention of insider trading (for senior managers) ‧Responsible Business Alliance ‧Introduction to intellectual property rights, understanding information security, and Personal Information Protection Act, and case studies 3. Does the company have any Yes The Company has established the “Ethical Corporate Management Best Practice Principles” and No deviations were policy that prevents conflict “Procedures for Ethical Management and Guidelines for Conduct” (hereinafter, “Procedures and found of interest, and channels Behaviors”). A Company director, officer or other stakeholder attending, or present at a board that facilitate the report of meeting, or a juristic representative whose presence infers a likelihood that company interests might conflicting interests? be prejudiced may not participate in a discussion or vote on that proposal, shall recuse themselves from any discussion and voting, and may not exercise voting rights as a proxy on behalf of another director. The directors shall exercise discipline among themselves, and may not support each other in any inappropriate manner. If, in the course of conducting company business, an employee of this Corporation discovers that a potential conflict of interest exists involving themselves or the juristic person that they represent, or that they or their spouse, parents, children, or a person with whom they have a relationship of interest is likely to obtain improper benefit, the matter shall be reported to their immediate supervisor and the responsible unit, and the supervisor shall provide the employee with the proper instructions. No employee of this Corporation may use company resources for commercial activities other than those of this Corporation, nor may his or her job performance be affected by involvement in commercial activities other than those of this Corporation. The Company’s HR policy and employee code of conduct have introduced rules to identify, 72 Assessment criteria Actual governance Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies Yes No Summary description supervise, and manage conflicts of interest for business activities that are more highly prone to dishonest behaviors. There are channels in place for directors, supervisors, managers, stakeholders, and board meeting participants to state their conflicting interests with the Company. To prevent leakage of material non-public information, the Company has established “CO10 Insider Trading Prevention Management” as part of its internal control and demanded strict compliance from directors, supervisors, managers, employees, and any party that gains knowledge to the Company’s material non-public information whether because of their identity, job responsibility, or controlling relationships. 4. Has the company Yes The Company has set “Ethical Corporate Management Best Practice Principles” and focuses on No deviations were implemented effective accounting and internal control systems for the purpose of maintaining business integrity? Are these systems reviewed by internal or external auditors on a regular basis? creating an effective accounting system and internal control system to avoid high-risk or unethical found business activities and the use of external or secret accounts. Self-evaluation is done on a regular basis to make sure the design and execution of the system is effective. The Company’s internal audit unit oversees compliance of the system every year and prepares routine audit reports for the Board of Directors. 5. Does the company organize Yes The Company organizes training courses in accordance with “Regulations Governing the No deviations were internal or external training Establishment of Internal Control Systems by Public Companies” and the board-approved “Insider found on a regular basis to Trading Prevention Principles”. Insider training prevention courses are organized for vice maintain business integrity? president-grade employees and above, while general employees are subjected to training on ethical 73 Assessment criteria Actual governance Yes No Summary description behaviors on a yearly basis. III. Implementation of whistleblowing system Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 1. Does the company provide Yes The Company has mailboxes in place to receive malpractice reports from within or outside the No deviations were incentives and means for Company. Once a report has been sent to the mailbox, it will be referred to the appropriate found employees to report malpractice? Does the department and personnel depending on the nature of the underlying issue. The identity of the informer and details of the report will be kept confidential, and may involve internal auditors if the company assign dedicated situation requires it. personnel to investigate the reported malpractice? 2. Has the company Yes The Company has specifically instructed case handlers to strictly follow procedures when building, No deviations were implemented any standard assigning and investigating cases, and to exercise discretion during the investigation process. found procedures or confidentiality measures for handling reported malpractices? 3. Does the company assure Yes The Company has confidentiality procedures built into its management policies and employee code No deviations were malpractice reporters that of conduct to protect informers and investigators from improper treatments or retaliation. found they will not be mistreated for making such reports? IV Enhanced information 74 Assessment criteria disclosure Actual governance Yes No Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 1. Has the company disclosed Yes The Company has disclosed corporate governance and business integrity matters and updated the No deviations were its integrity principles and progress onto its website and MOPS? progress of such efforts in its annual reports, CSR reports and “Investor Relations-corporate found governance” and “CSR” sections of its website. V If the company has established business integrity policies in accordance with “Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies”, please describe its current practices and any deviations from the Best Practice Principles: The Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors” have been passed by the Board of Directors and disclosed at the Company’s website and MOPS. A specialized unit will be empowered to enforce these policies and ensure employees’ compliance. VI. Other information relevant to understanding the company’s business integrity (e.g. reviews over business integrity principles): Courses have been introduced to the e-Learning system so that employees are made aware of the Company’s “Business Integrity Principles” and “Business Integrity Procedures and Behaviors”. 75 3.3.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website→ Investor Rela\ons → Corporate Governance → Major Internal Policies https://www.compal.com/investor-relations/corporate-governance/ ‧Framework of Corporate Governance ‧Articles of Incorporation ‧Rules of Procedure for Shareholders’ Meetings ‧Regulations for Election of Directors ‧Procedures for Acquisition or Disposal of Assets ‧Procedures for Financial Derivatives Transactions ‧Procedures for Lending Funds to Other Parties ‧Procedures for Endorsements and Guarantees ‧Board of Directors Meeting Guidelines ‧The Responsibilities and Rules for Independent Directors ‧Audit Committee Procedures ‧Remuneration Committee Procedures ‧CSR Committee Procedure ‧Corporate Governance Best-Practice Procedures ‧Code of Conduct for Directors and Managers ‧Code of Conduct for Employees ‧Ethical Corporate Management Best Practice Principles ‧Business Integrity Procedures and Behaviors ‧Insider Trading Prevention Procedures ‧Corporate Social Responsibility Best Practice Principles ‧Rules Governing Financial and Business Matters Between this Corporation and its Affiliated Enterprises ‧Procedures of Application to Suspend and Resume Trading 3.3.8 Other Important Information Regarding Corporate Governance Please refer to the Company’s website→ CSR https://www.compal.com/CSR/ZH/ ‧Sustainable Management ‧Stakeholders ‧Supply Chain Management ‧Environment ‧Employee Relationship ‧Charity ‧Download Report Please refer to the Company’s website→ Stakeholder Communica\on https://www.compal.com/stakeholder-communication-area/ ‧Employee Relations ‧Customer Relations ‧Supplier Relations ‧Investor Relations 76 3.3.9 Internal Control Systems Compal Electronics, Inc. Statement of the Internal Control System The Company states the following with regard to its internal control system during fiscal year 2018, based on the findings of a self-assessment: Date: March 22 2019 1. The Company is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. The Company has established such a system aimed at providing reasonable assurance of the achievement of objectives in the effectiveness and efficiency of operations (including profits, performance, and safeguard of asset security), reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with applicable laws, regulations, and bylaws. 2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three goals mentioned above. Furthermore, the effectiveness of an internal control system may change along with changes in environment or circumstances. The internal control system of the Company contains self-monitoring mechanisms, however, and the Company takes corrective actions as soon as a deficiency is identified. 3. The Company judges the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the “Regulations”). The internal control system judgment criteria adopted by the Regulations divide internal control into five elements based on the process of management control: 1. control environment 2. risk assessment 3. control activities 4. information and communications 5. monitoring activities. Each element further contains several items. Please refer to the Regulations for details. 4. The Company has assessed the design and operating effectiveness of its internal control system according to the aforesaid criteria. 5. Based on the findings of the assessment mentioned in the preceding paragraph, the Company believes that as of Dec 31, 2018 its internal control system (including its supervision and management of subsidiaries), encompassing internal controls for knowledge of the degree of achievement of operational effectiveness and efficiency objectives, reliability, timeliness, transparency, and regulatory compliance of reporting, and compliance with applicable laws, regulations, and bylaws, is effectively designed and operating, and reasonably assures the achievement of the above-stated objectives. 6. This Statement will become a major part of the content of the Company's Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Act. 7. This Statement has been passed by the Board of Directors Meeting of the Company held on March 22, 2019, where 0 of the 14 attending directors expressed dissenting opinions, and the remainder all affirmed the content of this Statement. Compal Electronics, Inc. Chairman: Sheng-Hsiung Hsu (Rock Hsu) President: Chung-Pin Wong (Martin Wong) 77 3.3.10 Penalties imposed against the company and its staff, or penalties imposed by the company against its staff for violations of internal control or regulations. State any corrective actions taken in the most recent years up to the date of the annual report: None. 3.3.11 Major Resolutions Made in Shareholders’ Meeting and Board Meetings 1. Shareholders’ meeting ▓Time：9:00 am, June 22, 2018 ▓Place：B1, No. 581, Ruiguang Rd., Neihu District, Taipei City 11492, Taiwan (R.O.C.) ▓Major Resolutions: (1)Election of the 13th Term of Directors, the result of the elections: ・New Directors are: Sheng-Hsiung Hsu, Jui-Tsung Chen, Binpal Investment Co., Ltd., Kinpo Electronics, Inc., Charng-Chyi Ko, Sheng-Chieh Hsu , Yen-Chia Chou, Chung-Pin Wong , Chiung-Chi Hsu, Ming-Chih Chang, Anthony Peter Bonadero, Sheng-Hua Peng ・New Independent Director are: Min-Chih Hsuan, Duei Tsai, Duh-Kung Tsai (2) Ratified the Business Report and Financial Statements for 2017. (3) Ratified the Distribution of Earnings for 2017. (4) Approval cash distribution from capital surplus. (5)Approval of the release of non-competition restrictions for Directors. ▓Post-meeting Execution: (1) The 13th Term of Directors approved by the Ministry of Economic Affairs on July 23, 2018 (2) The 2018 distribution of cash dividends and capital reserves are summarized as follows: ‧Cash Dividends: NTD 1 per share ‧Cash Distributed from Capital Reserve: NTD 0.2 per share ‧Ex-dividend Date: July 29, 2018. ‧Declaration Date: August 17, 2018. 78 2. Board meetings Board of Directors Meeting Major Resolutions 1. Approved the promotion of Managers. 2. Approved the cancellation of restricted employee warrant shares where conditions had not 16th Meeting (12th Term) 2018.3.6 been met by the intended employee. 3. Approved the CSR Committee Procedure. 4. Approve the chairman of Corporate Social Responsibility Committee change. 5. Approved the Company’s CSR Promotion Plan for 2018. 6. Approved the financing of the re-investment company through the issue of a Company 17th Meeting (12th Term) 2018.3.19 18th Meeting (12th Term) 2018.5.9 1st Meeting (13th Term) 2018.7.4 Letter of Support. 7. Approved of the Company’s financing authorization from the financial institute. 1. Approved the 2017 employee and Director compensation. 2. Approved the 2017 Consolidated and Individual Financial Statements. 3. Approved 2017 Statement of Internal Control System. 4. Approved the evaluation of the independence and suitability of the Company CPA. 5. Approved the call of 2018 Shareholders’ Meeting. 6. Approved of the Company’s financing authorization from the financial institute. 7. Approved the election of the 13th Term of Directors. 1. Approved the appointment of the Manager. 2. Approved the change of the Company CPA. 3. Approved the evaluation of the independence and suitability of the Company CPA. 4. Approved the 2017 Operation Report. 5. Approved the 2018 Operation Plan. 6. Approved the 2017 Distribution of Earnings. 7. Approved the distribution of capital surplus to Shareholders. 8. Approved the review of eligibility for the 13th Term of Directors and Independent Director nominees. 9. Approve the release of non-competition restrictions for managers 10. Approve the release of non-competition for the 13th Term of Directors and Independent Director-eligible nominees. 11. Approve the first mid-year employees’ bonus of 2018. 12. Approve employee salary adjustment of 2018 13. Approved the 2018 appropriation of Director and employee compensation ratio. 14. Approved the cancellation of restricted employee warrant shares where conditions had not been met by the intended employee. 15. Approved of the Company’s financing authorization from the financial institute. 1. Election of the 13th Term of Chairman of the Board 2. Election of the 13th Term of Vice Chairman of the Board 3. Approved the senior level management change 4. Approved the appointment of the Accounting Officer 5. Approved the appointment of the Internal Audit Officer 6. Approved the appointment of the 4th term remuneration committee members 7. Approved the relevant matters regarding the distribution of 2017 cash dividends and cash distribution from capital surplus to shareholders 8. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 2nd Meeting 9. Approved of the Company obtaining credit facilities from financial institutions 1. Approved the compensation of Directors’ Remuneration of 2017 79 Board of Directors Meeting (13th Term) 2018.8.9 3rd Meeting (13th Term) 2018.8.7 4th Meeting (13th Term) 2018.11.8 5th Meeting (13th Term) 2019.2.22 6th Meeting (13th Term) 2019.3.22 Major Resolutions 2. Approve the second mid-year employees’ bonus of 2018 3. Approved a loan to Henghao Technology Co., Ltd. 4. Approved a loan to Unicom Global, Inc. 5. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 6. Approved of the Company obtaining credit facilities from financial institutions 1. Approved Compal’s 100% owned subsidiary – Billion Sea Holdings – plans to dispose of the 49% owned JV – LC Future Center Limited 1. Approved the compensation of Employee bonuses in cash in 2017 2. Approved the proposal for 2018 year-end employee bonuses 3. Approved the annual audit plan for 2019 4. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiaries in obtaining credit facilities from financial institution(s) 5. Approved of the Company obtaining credit facilities from financial institutions 6. Approved senior level management change 1. Approved of the Company obtaining credit facilities from financial institutions 1. Approved the Internal Control System Statement for the year 2018 2. Approved the proposal of the distribution of compensation to employees and directors for 2018 3. Approved the 2018 audited Financial Statements and Consolidated Financial Statements 4. Approved the Business Report for 2018 5. Approved the Business Plan for 2019 6. Approved the proposal for Distribution of Earnings for 2018 7. Approved the proposal of cash distribution from Capital Surplus 8. Approved the CPAs’ independence and competence of performing the financial report audit. 9. Approved the convention of the 2019 Annual General Shareholders’ Meeting 10. Approved the targets and plans of the 2019 Corporate Social Responsibility 11. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiaries in obtaining credit facilities from financial institutions 12. Approved of the Company obtaining credit facilities from financial institutions 80 Board of Directors Meeting Major Resolutions 7th Meeting (13th Term) 2019.5.13 1. Approved the amendment to the “Articles of Incorporation” 2. Approved the amendment to the “Procedures for Acquisition or Disposal of Assets” 3. Approved the amendment to the “Procedures for Financial Derivatives Transactions” 4. Approved the amendment to the “Procedures for Endorsement and Guarantee” 5. Approved the amendment to the “Procedures for Lending Funds to Other Parties” 6. Approved the amendment to the “Corporate Governance Best-Practice Principles” 7. Approved the amendment to the “Rules and Procedures for Board of Directors Meetings” 8. Approved the release of non-competition restrictions for the managers 9. Approved the release of non-competition restrictions for Directors 10. Approved the establishment of Compal Electronics Kaohsiung Branch Office 11. Approved the appointment of the Corporate Governance Officer 12. Approved the first mid-year employees’ bonus of 2019 13. Approved employees’ salary adjustment of 2019 14. Approved the proposal for the appropriated percentage for the remuneration of employees and Directors of 2019 15. Approved the loan to the 100% owned subsidiary Compal (Vietnam) Co., Ltd. 16. Approved the loan to the 100% owned subsidiary Compalead Eletrônica do Brasil Indústria e Comércio Ltda. 17. Approved the issuance of the Letter of Support by the Company to facilitate its subsidiary in obtaining credit facilities from financial institutions 18. Approved of the Company obtaining credit facilities from financial institutions 3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None. 3.3.13 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit, and R&D: Name Date of appointment Date of dismissal Reasons for dismissal Title President Jui-Tsung Chen 1989.6.1 Accounting Officer Ching-Hsiung Lu 1989.10.1 2018.7.4 2018.7.4 Internal position adjustment Internal position adjustment 81 3.4 Information Regarding the Company’s Audit Fees and Independence 3.4.1 Audit Fees Accounting Firm Name of CPA Period Covered by CPA’s Audit Remarks KPMG Chien, Szu Chuan Au, Yiu Kwan 2018.01.01~2018.12.31 - Fee Range 1 2 3 4 5 6 Under NT$ 2,000,000 NT$2,000,000 ~ NT$4,000,000 NT$4,000,000 ~ NT$6,000,000 NT$6,000,000 ~ NT$8,000,000 NT$8,000,000 ~ NT$10,000,000 Over NT$100,000,000 Fee Items Audit Fee Non-audit Fee - - - - - 10,420 - 2,023 - - - - Unit: NT$ thousands Total - 2,023 - - - 10,420 (1) Non-audit fees paid to CPAs, accounting firms, and affiliated companies thereof that amount to more than 1/4 of the audit fees: Unit: NT$ thousands Firm Name of CPA Audit Fee Non-audit Fee System Design Company Registration Human Resource Others Subtotal Period Covered by CPA’s Audit Remarks KPMG Chien, Szu Chuan Au, Yiu-Kwan 10,420 - 107 - 1,916 2,023 2018.01.01~2018.12.31 - Note: Other non-audit fees: Transfer pricing report of $600,000, tax consultation of $1,086,000, and others of $230,000. (2) Changes in the accounting firm that result in lesser audit fees paid in comparison to the previous year: None (3) Reduction of audit fees by more than 15% compared to the previous year: None 82 3.5 Replacement of CPA (1) About the former CPA Date of replacement Reason and explanation for replacement State whether the commissioner or the CPA terminated the service or declined the commission Approved by the Board of Directors on May 9, 2018 Due to adjustments in work and duties at KPMG, the CPAs were changed from Kuo, Kuan-Ying and Au, Yiu-Kwan to Chien, Szu Chuan and Au, Yiu-Kwan starting from 1Q 2018. Party involved Situation Voluntarily terminated the commission Will no longer accept (continue) the commission CPA Commissioner Not applicable Not applicable Not applicable Not applicable Other audit report opinions and causes issued within the last two years other than unqualified opinions Did he/she have opinions that differed from that of the publisher? Yes N/A Description N/A Accounting principles or practices Disclosure of financial report Scope or step of auditing Other V N/A Other items of disclosure (Contents that should be disclosed as covered in Clauses 1.4~1.7, Section 6, Article 10 of this guideline) (2) About the succeeding CPA Name of accounting firm Name of CPA Date commissioned Items of consultation and results on the accounting methods for specific transactions, accounting principles and potential opinions for financial reports prior to commissioning Written opinion from succeeding CPA on items of disagreement with the former CPA KPMG Chien, Szu Chuan, Au, Yiu-Kwan Approved by the Board of Directors on May 9, 2018 N/A N/A (3) Response from the former CPA on Clauses 1 and Clause 2.3, Section 6, Article 10 of this guideline: None. 83 3.6 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year, the name, title, and the term of service with the accounting firm or the related party must be disclosed: None. 3.7 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders Title Name Chairman Sheng-Hsiung Hsu Vice Chairman And CSO Jui-Tsung Chen Anthony Peter Bonadero Director Director Binpal Investment Co., Ltd.. Representative: Wen-Being Hsu Kinpo Electronics, Inc. Representative: Shyh-Yong Shen Chang Chi Ko Sheng Chieh Hsu Yen-Chia Chou Sheng-Hua Peng Ming-Chih Chang Chiung-Chi Hsu Min-Chih Hsuan Chung-Pin Wong Director Director Director Director and President Director Director And EVP Director Director And EVP Independent Director Independent Director Independent Director Director Wen-Chung Shen Yung-Ching Chang Director Director And EVP Executive Vice President Senior Vice President Senior Vice President Senior Vice President Chao-Cheng Chen Kuo-Chuan Chen Chen Chang Hsu Pei-Yuan Chen Duh-Kung Tsai Chun-Te Shen Duei Tsai 2018 Up till April 23, 2019 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) Unit: shares 0 0 0 0 0 0 0 0 0 765,000 117,000 0 0 315,000 0 0 0 0 (270,000) 765,000 0 315,000 129,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,570,000 84 0 0 0 1,000,000 0 0 0 (225,000) 0 0 0 0 0 0 0 0 0 - - - 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - 0 0 0 0 Title Name 2018 Up till April 23, 2019 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) Chyou-Jui Wei Ying Chang Wen-Da Hsu Wei-Chang Chen Shi-Kuan Chen Chi-Wai Wan (80,000) 315,000 240,000 180,000 0 0 Min-Tung Weng 240,000 Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Lo-Chun Lee Vice President Chih-Chuan Cheng Vice President Ching-Hsiung Lu Vice President Po-Hsiung Chang Vice President Po-Tang Wang Vice President Tzong -Ming Wang Vice President Fu-Chuan Chang Vice President Yung-Nan Chang Vice President Sheng-Hung Li Vice President Yong-Ho Su Vice President Jyh-Shyan Liang Vice President Chiao-Lie Huang Vice President Chung-Hsing Tan Vice President Yi-Yun Chang Vice President Hsin-Kung Mao Vice President Hsin-Hsiung Huang Vice President Shih-Hong Huang Vice President Yi-Chiang Chiu Vice President Tsing-Fa Lee Vice President Bor-Heng Chen Vice President Jui-Chun Shyur Vice President Shyh-An Lee Vice President Ta-Chun Wang Vice President Fei-Long Chen Vice President Jen-Liang Lin General Counsel Peng-Hong Chan Vice President Wei-Chia Wang 180,000 180,000 (935,000) 0 180,000 75,000 (4,000) 54,000 180,000 180,000 120,000 10,000 70,000 180,000 180,000 120,000 120,000 120,000 (15,000) 120,000 0 0 0 0 0 0 0 Accounting & Corporate Governance Officer Cheng-Chiang Wang 0 85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (120,000) 0 0 0 0 0 0 0 0 0 0 0 (10,000) 30,000 (54,000) 0 0 0 0 (10,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - Title Name Vice President Cheng-Hui Su Tu-Chuan Tu Vice President Vice President Chang-Chieh Tien Internal Audit Officer Po-Wen Hsieh 2018 Up till April 23, 2019 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) 0 0 0 0 0 0 0 0 0 0 0 0 Vice President Ling-Sheng Wu Vice President Chi-Hsiang Ma Vice President Shih-Tung Wang Note: 1.Directors Wen-Chung Shen, Yung-Ching Chang and Chao-Cheng Chen left office on June 22, 2018. (5,000) 0 0 0 0 0 - - - 2. Vice Presidents Liang-Jen Lin, Peng-Hong Chan, Wei-Chia Wang, Cheng- Chiang Wang, Cheng-Hui Su, Tu-Chuan Tu, Chang-Chieh Tien were promoted and took office respectively in 2018, while Executive Vice President Chao-Cheng Chen, Vice Presidents Ling-Sheng Wu, Chi-Hsiang Ma and Shih-Tung Wang resigned in 2018. 3.7.1 Shares Trading with Related Parties: Reason Name for transfer Transaction date Counterparty Counterparty's relationship with the Company, Directors, Supervisors, and shareholders with more than 10% ownership interest Shares Transaction price Chiung-Chi Hsu Inherit 2018/10/17 Ching-Hua Hsu Hsu Mother and Son 42,000 18.45 Chiung-Chi Hsu Inherit 2018/10/23 Ching-Hua Hsu Hsu Mother and Son 75,000 18.45 Kuo-Chuan Chen Ching-Hsiung Lu Ching-Hsiung Lu Yung-Nan Chang Gift Gift Gift Gift 2018/5/31 Chao-Chuan Chen Father and Son 111,000 19.80 2018/3/30 Shao-Hsuan Lu Father and Daughter 115,000 19.95 2018/7/10 Chen-Huei Yen Husband and Wife 1,000,000 19.00 2018/10/19 Hao-Ching Chang Father and Daughter 126,000 17.40 3.7.2 Shares Pledged with Related Parties: None 86 Relationship among the Top Ten Shareholders 3.8 April 23, 2019 Unit: Shares Name Self Shares held Shareholdings of spouse and underage children Shares 195,311,000 Silchester International Investors International Value Equity Trust Kinpo Electronics Inc. 151,628,692 8,975,401 Representative: Sheng-Hsiung Hsu Shareholding Percentage 4.43% Shares Shareholding Percentage - - 3.44% 0.20% - 17,107,025 - 0.39% Silchester International Investors International Value Equity Group Trust Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds Silchester International Investors International Value Equity Taxable Trust JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds Fubon Life Insurance Co., Ltd Representative: Ming-Hsing Tsai Cathay Life Insurance Co., Ltd. Representative: Tiao-Kuei Huang Dimensional Emerging Markets Value Fund 101,499,000 2.30% 67,000,000 1.52% 66,273,410 1.50% 66,086,000 1.50% 65,563,212 1.49% 64,200,991 1.46% 0 0% 58,181,000 1.32% 0 0% 54,866,333 1.24% - - - - - - 0 - 0 - 87 Total shares held in the names of others Shares held Shares Shareholding Percentage Spouse, relative of second degree or closer, and relationships among top 10 shareholders Name Relationship 0 0 0 0 0 0 0% N/A N/A 0% N/A 0% N/A 0% N/A N/A 0% N/A N/A 0% N/A N/A - - - - 0 0% N/A N/A - 0 0% N/A N/A - 0% - 0% - 0 0 0 0 0 0% N/A N/A 0% 0% N/A N/A 0% 0% N/A N/A 3.9 Ownership of Shares in Affiliated Enterprises December 31, 2018 Unit: Shares; % Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Panpal Technology Corp. Gempal Technology Corp. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Zhaopal Investment Co., Ltd. Yongpal Investment Co., Ltd. Kaipal Investment Co., Ltd. Rayonnant Technology Co., Ltd. RiPAL Optotronics Co., Ltd. Unicom Global Inc. Palcom International Corporation Henghao Technology Co., Ltd. Compal Broadband Networks Inc., Crownpo Technology Co., Ltd. Kinpo Group Management Consultant Company Mactech Co., Ltd. General life Biotechnology Co., Ltd. Lead-honor Optoelectronic Co., Ltd. Infinno Technology Corporation Accesstek Inc. Allied Circuit Co., Ltd. Arcadyan Technology Corp., Maxima Ventures I, Inc. Avalue Technology Inc. Core Profit Holdings Ltd. Flight Global Holding Inc. Just International Ltd. High Shine Industrial Corp. Compal International Holding Co., Ltd. Big Chance International Co., Ltd. Compal Rayonnant Holdings Limited Auscom Engineering Inc. Shares 500,000,000 90,000,000 100,000,000 29,500,000 135,800,000 118,850,000 51,050,000 Shareholding percentage 100.00 100.00 100.00 100.00 100.00 100.00 100.00 29,500,000 100.00 6,000,000 10,000,000 100.00 100.00 10,000,000 100.00 63,815,952 100.00 - - - - - - - - - - - - - 500,000,000 - 90,000,000 - 100,000,000 - 29,500,000 - 135,800,000 - 118,850,000 51,050,000 - - - - - - 29,500,000 6,000,000 10,000,000 10,000,000 63,815,952 29,060,176 43.48 14,172,854 21.20 43,233,030 3,738,668 33.23 6,185,465 54.94 9,924,133 300,000 37.50 300,000 37.50 600,000 21,756,192 52.88 274,954 0.67 22,031,146 15,000,000 50.00 2,772,000 42.00 5,649,625 27.20 - - - 899,160 10,157,730 41,304,504 126,000 15,240,070 147,000,000 89,755,495 48,010,000 42,700,000 27.78 319,707 20.42 7,236,701 21.34 27,497,677 3,000 22.55 672,000 21.99 - 100.00 - 100.00 - 100.00 - 100.00 - 15,000,000 - 2,772,000 - 5,649,625 9.88 14.55 14.55 0.54 0.97 1,218,867 17,475,025 68,802,181 129,000 15,912,070 - 147,000,000 89,755,495 - 48,010,000 - 42,700,000 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 64.68 88.17 75.00 53.55 50.00 42.00 27.20 37.66 34.97 35.55 23.09 22.96 100.00 100.00 100.00 100.00 100.00 53,001,000 100.00 90,820,000 100.00 12,500,000 100.00 3,000,000 100.00 88 - - - - - - - - 53,001,000 90,820,000 100.00 12,500,000 3,000,000 100.00 100.00 Investees (Note) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage Compal Europe (Poland) Sp. z o.o. Bizcom Electronics, Inc. Compal Electronics (Holding) Ltd. 136,080 100.00 100,000 100.00 1,000 100.00 Compalead Electronics B.V. 6,426,516 100.00 - - - - - - - - 136,080 100,000 1,000 6,424,516 Etrade Management Co., Ltd. 46,900,000 65.23 25,000,000 34.77 71,900,000 Webtek Technology Co., Ltd. 100,000 100.00 Forever Young Technology Inc. 50,000 100.00 - - - - 100,000 50,000 Lipo Holding Co., Ltd. 98,000 49.00 102,000 51.00 200,000 Ascendant Private Equity Investment Ltd. 31,253,125 34.72 37,253,825 42.50 68,506,950 UniCore BioMedical Co., Ltd. 20,000,000 100.00 Shennona Corporation 2,500,000 100.00 Note: Investments made by the Company using the Equity Method. 20,000,000 2,500,000 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 77.22 100.00 100.00 89 IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital Authorized capital Paid-up capital Year Month Issuance Price Shares Amount (NTD) Shares Amount (NTD) Source of capital Remarks Paid in properties other than cash Others 2017 2 10 6,000,000,000 60,000,000,000 4,422,464,625 44,224,646,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on 2017 2017 5 8 10 6,000,000,000 60,000,000,000 4,422,152,625 44,221,526,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on $20,460,000 February 24, 2017 10 6,000,000,000 60,000,000,000 4,421,870,625 44,218,706,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on $3,120,000 June 3, 2017 2017 11 10 6,000,000,000 60,000,000,000 4,420,280,625 44,202,806,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on $2,820,000 August 29, 2017 May 13, 2019 2018 2018 3 5 Share Type Ordinary shares 10 6,000,000,000 60,000,000,000 4,419,191,625 44,191,916,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on $15,900,000 November 29, 2017 10 6,000,000,000 60,000,000,000 4,407,146,625 44,071,466,250 Cancellation of Restricted Employee Shares of N/A Change of capital approved by the Ministry of Economic Affairs on $10,890,000 March 21, 2018 $120,450,000 May 29, 2018 Outstanding shares (public listed) Unissued shares Total Authorized capital Remarks 4,407,146,625 1,592,853,375 6,000,000,000 Approved to include 100,000,000 shares of employees shares and corporate bonds with warrant in capital. ■ Shelf registration system information: None 90 4.1.2 Status of Shareholders Analysis Government Agencies Financial Institutions Other Institutions Foreign Institutions & Natural Persons Domestic Natural Persons Treasury stocks Total April 23, 2019 Number of Shareholders Shareholding (shares) Percentage 3 42 285 993 175,750 0 177,073 8 174,421,971 388,781,921 2,260,082,693 1,583,860,032 0 4,407,146,625 0.00% 3.96% 8.82% 51.28% 35.94% 0.00% 100.00% 4.1.3 Share Ownership Distribution Range of Shareholding (Unit: Shares) 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 1,000,001 and over Total Number of Shareholders Shareholding (Shares) Percentage April 23, 2019 45,590 86,852 21,532 7,683 4,354 3,817 1,755 1,174 2,131 1,019 466 178 91 44 387 177,073 8,863,196 198,236,742 160,694,287 93,997,886 79,298,458 95,240,018 62,122,883 54,349,232 152,573,319 141,994,391 132,628,990 87,514,821 61,993,916 39,045,147 3,038,593,339 4,407,146,625 0.20% 4.50% 3.65% 2.13% 1.80% 2.16% 1.41% 1.23% 3.46% 3.22% 3.01% 1.99% 1.41% 0.89% 68.94% 100.00% 4.1.4 List of Major Shareholders Shareholder’s name Shares Shares held Percentage (%) April 23, 2019 Silchester International Investors International Value Equity Trust 195,311,000 4.43% Kinpo Electronics Inc. 151,628,692 Silchester International Investors International Value Equity Group Trust 101,499,000 Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds 67,000,000 66,273,410 3.44% 2.30% 1.52% 1.50% Silchester International Investors International Value Equity Taxable Trust 66,086,000 1.50% JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds Fubon Life Insurance Co., Ltd. 65,563,212 1.49% 64,200,991 1.46% 91 Cathay Life Insurance Company, Ltd. Dimensional Emerging Markets Value Fund 58,181,000 54,866,333 1.32% 1.24% 4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Measurement Year Per-share market price Per-share net worth (Note) Earnings per share Per-share dividend High Low Average Before dividend After dividend Before adjustment After adjustment Weighted average outstanding shares Earnings per share Weighted average outstanding shares Earnings per share Cash dividends Stock dividends From earnings From capital reserves Cumulative unpaid dividends P/E ratio Price to dividends ratio Cash dividend yield Analysis of investment returns 2017 22.90 18.45 20.50 23.32 22.12 2018 22.15 16.65 19.16 24.26 23.05 Year-to-date March 31, 2019 19.15 17.05 18.30 24.75 - 4,344,645,129 4,356,447,549 4,357,129,194 1.32 2.05 0.31 4,344,645,129 4,356,447,549 1.32 1.20 - - - 15.53 17.08 5.85% 2.05 1.20 - - - 9.35 15.97 6.26% - - - - - - - - - Note: The 2018 distribution of earnings was resolved at the March 22, 2019 Board of Directors’ Meeting and will be submitted to the 2019 shareholders’ meeting for final approval. 4.1.6 Dividend Policy and Implementation Status (1) Dividend Policy When the Company makes a profit during the year, 10% of the annual net income after appropriating income tax expense, offsetting any prior deficit, is to be set aside as legal reserve and a special reserve is set aside or reserved in accordance with the pertinent laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the retained earnings from previous years. The earnings appropriation, distribution of dividends, and bonuses shall be proposed by the Board of Directors and approved at a Shareholder’s Meeting. The rest of the unappropriated earning shall be reserved. The Company is in a growth period of its life cycle. And as such, for the consideration of future capital needs and to meet cash flow needs of its shareholders, the Company’s distribution of cash dividends, after closing and distribution of earnings, shall be no less than 10% of the total cash and stock dividends. Although a dividend ratio has not been specified in the Company’s articles of incorporation, the Company shall not appropriate less than 30% of its income after tax for dividends, after taking into account factors such as the Company’s capital needs, the capital budget, long term financial plans, domestic and international competition, 92 and the interests of the shareholders. The board of directors shall propose the distribution of earnings and submit them to the shareholders’ meeting for approval. (2) Proposed Distribution of Dividends (cid:3) The proposed 2018 distribution of earnings of shareholders’ dividends in the amount of NTD 4,407,146,625 will be discussed at the 2019 shareholders’ meeting. The aforementioned amount is set to be distributed as an all cash dividend of NTD 1 per share and incurred capital surplus generated from the excess of the issuance price over the par value of the capital stock in the amount of NTD 881,429,325, or NTD 0.2 per share. The total cash distribution amounts to NTD 5,288,575,950. (cid:3) Should the Company decide to buy back/recover outstanding shares, transfer treasury stock to employees, reduce share capital or in any other way alter the number of outstanding shares sometime later, the Board of Directors shall be authorized to adjust the payment rate of cash dividends and cash capital surplus as deemed necessary at its discretion. (3) When there is a significant change in the expected dividend policy, it should be stated: None. 4.1.7 Impact to 2019 Business Performance and EPS resulting from Stock Dividend Distribution: Not Applicable (The Company did not disclose 2019 annual financial forecast) 4.1.8 Employees’ and Directors’ Compensation (1) Employees’ and directors’ compensation policies as stated in the Articles of Incorporation When the Company makes a profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to the deduction of compensation to employees and directors, shall be distributed to employees as compensation in the amount of no less than two percent (2%) thereof and to directors as compensation in an amount of no more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset the accumulated losses. The compensation to employees as mentioned above may be distributed in the form of stock or cash and employees entitled to receive said stock/cash may include the employees of the Company’s subordinate companies pursuant to the Company Act. (2) Basis for estimating employees ‘and directors’ compensation and stock dividends, and accounting treatments for any discrepancies between the amounts estimated and the amounts paid. (cid:3) Compensation to directors and employees, as denoted in the Articles of Incorporations, shall be estimated based on income before tax prior to the subtraction of directors and employees compensation during the current year and multiplied by the ratio as denoted in the Article of Incorporation (shall not be more than 2% or less than 2% of the remainder, respectively.) If the compensation approved for distribution to employees is to be in the form of common shares, the number of shares is determined by dividing the amount of the compensation by the closing price of the shares on the day preceding the Board of Directors’ meeting. If the actual amounts differ from the amounts estimated, the differences are recorded as gains/losses in (cid:3) (cid:3) the subsequent year as a change in accounting estimate. 93 (3) 2018 employees compensation proposal passed by the board of directors (cid:3) Accrued employees compensation is NTD $930,857,503 and directors compensation is NTD $49,222,782. (cid:3) If the estimated distribution amount differs from the amounts estimated in accrued expenses, the variance, reason, and resolution should be disclosed: No variance. (cid:3) The proposed distribution of employee stock compensation, and the size of such an amount as a percentage of the sum of the after-tax net income stated in the individual financial reports for the current period and total employee compensation: Not applicable (no employee stock compensation). (4) Actual distribution of 2017 employee and directors compensation: (cid:3) (cid:3) The employee compensation is NTD $624,296,016 and the directors compensation is NTD $33,012,128. The 2017 actual distribution of employee and directors compensation was approved at the 2017 shareholders’ meeting and remained as proposed by the board of directors. 4.1.9 Company Buyback of Own Shares: None 94 4.2 Bonds: None 4.3 Preferred shares: None. 4.4 Global Depository Receipts (1) Issuance Details Date of issue: November 9, 1999 May 21, 2001 Issuance and trading location Luxembourg Total sum issued Issuance price per unit USD 122,160,000 USD 15.27 Number of units issued 8,000,000 units Source of represented securities Participating shareholder(s): Kinpo Electronics, Inc. Luxembourg USD 174,816,000 USD 6.07 28,800,000 units 1. Participating shareholder(s): 44,000,000 shares contributed by (1) Kinpo Electronics, Inc. (2) Panpal Technology Corporation (3) Gempal Technology Corporation 2. New cash issue of Compal shares: 1,000,000,000 shares Quantity of represented securities 40,000,000 ordinary shares of Compal Electronics 144,000,000 ordinary shares of Compal Electronics GDR holders’ rights and obligations 1. Voting rights: According to the terms of the depository agreement and the laws of the Republic of China, the beneficiary certificate holder is entitled to the voting rights of shares represented under the beneficiary certificate. 2. Rights to dividend distribution, share subscription, and other rights: Unless otherwise specified in the agreement, the GDR carries identical rights as do ordinary shares Trustee Depository bank Custodian N/A N/A The Bank of New York Mega International Commercial Bank Mega International Commercial Bank The Bank of New York Unredeemed balance Allocation of expenses incurred at issuance and over the duration Key terms of the depository and custodian agreements Per Unit Market Price 2018 Year-to-date May 13, 2019 High Low Average High Low Average 106,272,719 units (May 13, 2019) Borne by participating shareholder(s) Allocated proportionally between the Company and participating shareholders See descriptions below USD $3.752 USD $2.7017 USD $3.18418 USD $3.2367 USD $2.7686 USD $3.0305802 95 (2) Key terms of the depository and custodian agreement 1. Key terms of the depository agreement ■ Depository receipts Each depository certificate represents 5 Compal ordinary shares. ■ Transfer/seZlement Ownership and transfer of depository receipts shall be certified through the book-entry settlement system of The Depositary Trust Company ("DTC"). Depository receipts shall be settled over DTC's book-entry system. Unless otherwise specified by law, ownership and transfer of depository receipts may only be completed over DTC's records. In Europe, depository receipts are still held under DTC, but transactions are settled through the book-entry system of Euroclear or Clearstream. ■ Deposit and redemp\on of Compal shares Three months after issuance of depository receipts, holders may request to redeem and receive shares represented by the depository receipt after paying the relevant charges according to the terms of the depository contract, or request the depository institution to sell shares represented by the depository receipt (provided that Compal has placed an adequate quantity of ordinary shares for sale with the depository institution). Once the shares represented by the depository receipt have been sold, the depository institution shall deduct the relevant charges, taxes, and government levies from the sales proceeds, and convert the remainder into USD before paying the depository receipt holder who has requested redemption. Subsequent issues of depository receipts are subject to the procedures outlined by the Securities and Futures Institute of the Republic of China, the terms of the depository contract, and the consent of both Compal and the depository institution. The depository receipts have been listed on the Luxembourg Stock Exchange and are traded through the PORTAL of National Association of Securities Dealers Inc. ■ Distribution of dividends, gains, and rights For cash dividends on Compal shares, the depository institution is required to convert the amount of cash received into USD according to the laws of the Republic of China, deduct taxes and relevant charges, and distribute the remainder to depository receipt holders based on the percentage of shares represented in each depository receipt. For stock dividends on Compal shares (including shares issued against capitalized earnings and reserves), the depository institution is required to adjust the number of shares represented in each depository receipt according to the laws of the Republic of China and terms of the depository contract. DTC will then produce additional depository receipts based on the size currently held and distribute them to the respective holders. Sale of stock dividends is subject to compliance with the terms of the depository contract and laws of the Republic of China. ■ Tax (1) Any dividends (cash or stock) paid to the depository institution are subject to withholding tax at the prevailing tax rate when payment is made. (2) Holders who request the redemption of depository receipts by having the depository institution sell the underlying shares through the Taiwan Stock Exchange Corporation (TWSE) will be charged securities transaction tax at the prevailing rate when the sale takes place. 96 (3) Capital gains tax on securities transactions is currently suspended according to the laws of the Republic of China. Practices may be adjusted to reflect changes in the laws of the Republic of China. 2. Key terms of the custodian agreement ■ Placing securi\es for the issuance of global depository receipts Compal is required to place securities with the custodian and hand over all documents mentioned in the custodian contract, which provide the basis for the issuance of global depository receipts. ■ No\fying the depository ins\tu\on for the issuance of depository receipts Once the custodian has received Compal's ordinary shares, the custodian shall immediately notify the depository institution for the issuance of global depository receipts. As soon as the depository institution receives the above notice, it shall produce and issue global depository receipts representing the number of entitled securities to the parties mentioned in the custodian's notice above. ■ Delivery of securi\es upon redemp\on of depository receipt If a holder requests the redemption of depository receipts, the depository institution shall immediately notify the custodian to transfer the number of securities represented to the party specified by the depository institution. The custodian may collect a sum sufficient to cover the taxes or expenses incurred from the party specified by the depository institution as a result. ■ Confirma\on of share quantity on baseline date The custodian is required to report to the depository institution the number of securities held in custody by the end of each baseline date. 4.5 Employee Warrants: None 4.6 Subscription of New Shares by Employees and Restricted Shares: None 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None 4.8 Financing Plans and Implementation: (1) Execution of the previous issue or private placement of securities that have not been completed: None (2) The latest three-year issuance or private placement of securities has been completed and the project benefits have not yet been revealed: none 97 V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope (1) Main areas of business operations The development, design, manufacture and sales of Notebook PCs, Ultrabook PCs, 2-in-1 PCs, AIO PCs, Tablet PCs, Servers, AE, the Smart Home, LCD TVs, LCD Monitors, Public Displays, Smart Phones and Modules and other Smart Accessory and Wearable Devices. The development and design of IoT Vertical Solutions, Electronic Medical Recording devices (EMR), and hospital management systems, Point of Care solutions, smart Sports, medical AI, and innovative medical devices。 (2) Revenue distribution Major Divisions 5C electronics Other products Total (3) New products development Unit: NTD thousands (%) of Total Sales in 2018 99.7% 0.3% 100.0% The development and design of IoT Vertical Solutions, Electronic Medical Recording Devices (EMR), hospital management systems, Point of Care solutions, and smart Sports. ■ Notebooks In 2018, Compal adopted the most efficient R&D methods for the launch of their latest notebook PC hardware. This includes products using Intel Core i3, i5 and i7 8th generation processors and AMD central processors. Graphics were incorporated in a single silicon chip in the development of the APU for the launch of these new laptops which are compatible with the Windows 10 operating system. Compal has special expertise in system integration, R&D and manufacturing to assist clients in the development and mass-production of new products with the latest specifications in a relatively short time. The Compal price-competitive, slim and stylish notebooks were launched at a time when the market favored more affordable and portable devices. They received most positive responses from consumers. The purchase signal in the high-end gaming laptop market has been relatively stable, making the gaming laptop market new ground for brand name companies to vie for growth. The injection of more money into this aspect of the notebook market has intensified competition in the global gaming notebook market. After years of operation as an ODM of gaming notebooks for our brand partners, Compal has accumulated profound experience in their design and development. In 2019, the Company will continue to keep up with the market trends by introducing high-end technical specifications, multi-dimensional graphics chips and Intel’s 8th generation high-end H series central processors to launch a new brand of gaming computer. Together with our clients, we shall secure our share in the gaming laptop market. Compal has also been improving its ability to design customized models for customers in different countries and markets. Significant resources have been devoted to the development of commercial notebooks, given how resilient the demand has been to economic downturn. Overall, Compal aims to attain industry-leading R&D capabilities in both the consumer and commercial markets. 98 ■ Ultrabooks Innovative technology and extensive R&D capabilities have allowed Compal to maintain a leading position in the industry. Compal produces an ultra-thin notebook, the Ultrabook, that uses the latest generation of the Intel industry-leading 15 Watt standard voltage processor. Not only is it slim and light but it has most excellent performance and allows users to really be productive. More Windows 10 Ultrabooks equipped with standard voltage processors are scheduled for launch in 2019. In addition to compatibility with the Intel design specifications for their latest generation products, we will also be introducing slimmer products at a lower price to meet market demand. They will feature the stylish and elegant body that is typical of Compal products, yet offer computing power that can rival a high-performance PC. Compal will also continue to develop newer and more competitive technologies that consumers around the world will get to enjoy, but will also give our clients faster access to these markets. ■ 2-in-1 Notebooks The 2-in-1 Notebook is a novel product that borrows the concept of “Transformers” – in addition to having a standard laptop keyboard for diverse functional operations, the product also features Tablet PC touch versatility. The touch-sensing display module coupled with the latest Microsoft Windows 10 OS attracts both the consumer base for standard laptops as well as that for tablet PCs. We have utilized our rich R&D experience to present a number of innovative concepts that incorporate exclusive technology as well as materials. The fan-less design of the in 2-in-1 Notebook with its different designs and form factors, has allowed the company to create new market demand and earn unanimous praise from clients and consumers alike. ■ All-in-one (AIO) The AIO has been on the market for years. It is an elegant deign combination of screen and computer with a thin, special shape. The product has replaced the desktop in many households and corporations. Compal has also enhanced the design to allow the AIO to lie flat while also being portable (Portable AIO). Because Compal has the fundamental technical capabilities required for notebook PCs as featured in the AIOs, it can also commence production in a very short time. Our AIO product lines have been very well received by clients. ■ Tablets Compal has long cultivated tablet PC technology for industrial, commercial and consumer use, as well as for eReader products. We will continue to develop a series of tablet PCs and LTE compatible products at affordable price points to satisfy the needs of our customers while also winning consumer recognition and respect. ■ Smart Wearable Devices Compal began shipping wearable devices in 2016. The development of these devices was greatly enhanced by our very capable design and development departments and efficient mass production. We have made significant progress in terms of the shipping quantities of Google Wear OS smart watches. In addition to the development of even more compact and energy efficient smart watches we intend to expand our production lines to include other wearable products in the near future. ■ Smartphones and Modules Compal continues to strengthen our R&D operational efficiency and communications core technologies as well as the development of innovative technologies to maintain an industry-leading position. In the near future, we will continue to develop mid- and high-end smart mobile devices with powerful multi-core chipsets, narrow borders, multi-camera imaging and special features cameras. We will also upgrade our TDD-LTE/ FDD-LTE carrier technology aggregation. In addition to continued strengthening of R&D competitiveness, we will also invest in the 5G communications technology and develop cost-effective, popular and stylish products to cope with the rapid growth of customer needs in the emerging markets. 99 ■ Smart Home Smart Home has been in development for many years, the rise of the Internet of Things (IoT) and AI technologies, has allowed the hub with smart voice assistant to become the focal point of competition in several relevant industries. We have already received client recognition for our development of the Smart Speaker and Smart Display using our own computing and mobile design and development capability. In the future, Compal will also use its core capabilities to gradually expand product coverage in many different applications and industries. ■ LCD TVs As consumers change their TV watching habits, the interaction experience between users of Smart TVs, or smart phones for that matter, has also become redefined by seamless extension of content on these devices. This includes an embedded voice assistant to help consumers find content more easily. Furthermore we have also enhanced high resolution TV and high dynamics technologies to improve both user convenience and viewing quality to meet growing user expectation from such smart devices. ■ LCD Monitors Develop an HDMI wireless casting dongle and integrate with a smart platform for 65-inch and above, as well as the development of interactive whiteboards for the B2B market. ■ AE Car PCs consist of an in-car communication system (Telematics) and an in-car AV entertainment system (in-Vehicle-Infotainment). As telematics systems are governed by special regulations on safety and communications control, we have long been working with car manufacturers to ensure the relevant processes were in sync. Due to the similarity in system framework between in-car AV entertainment and PCs, the field became a natural starting point for a Compal foray into the car PC market. After years of hard work in the field, Compal products have been adopted by several major car manufacturers around the world. ■ IoT Ver\cal Solu\ons Vertical solutions have been one of the key demands in the development of IoT with an extensive range of applications covering smart cities, Industry 4.0, smart buildings, smart retail and smart medical care. Such solutions feature integrated software and hardware and are designed specifically to accommodate client needs. Demands from B2B customers not only account for a higher portion of the existing IoT market but also bring Compal more immediate profit. As Artificial Intelligence (AI) applications have become more popular, Compal is now offering competitive products to address the primary needs of development in many different fields, not just as a hardware manufacturer, but also as a full Service Solution Provider. ■ Smart Medical and Healthcare The aging population, China’s new two-child policy, the flourishing health care industry, and the rise of sports fashion, especially the popular and convenient smart devices, have all contributed to smart healthcare becoming a focus of attention. It has also become a major matter of cross industry cooperation. Compal has responded to market demand and the rapid advent of the IoT era by active engagement in the healthcare market. The company has reached out to major hospitals and point of care (POC) centers such as those engaged in long term or post partum care, using our strengths in integration and extensive experience in product development. The designs, which include science, technology, and humanity, help caregivers to provide higher quality services and also give the hope of a better quality of life and personal dignity to those who need healthcare. ■ Servers The Cloud application market is growing and a significant portion of data storage and computing analytics 100 have shifted to cloud servers in the back-end. To meet the demand from both Enterprises and Data Centers, Compal has mastered the R&D of High-density computing power and precision performance management, and has the capacity to design and manufacture servers with high C/P value. 5.1.2 Industry Overview 1. Current and future industry prospects ■ Notebooks The growth of the notebook market over recent years has been driven by corporate equipment renewals and educational purchases. According to IDC, notebook shipments amounted to 164 million units worldwide in 2018, up 2% from 2017. Commercial replacement demand is expected to continue into 2019, and shipments should remain about the same as those in 2018. As the PC industry matures, brand manufacturers are shifting focus towards higher priced and more featured products, such as Ultrabooks, 2-in-1s and gaming notebooks, in search of more market opportunities, revenue and profit. This transformation requires more precise market segmentation, product positioning and innovative design. Compal, with its extensive industrial experience, fine craftsmanship and proprietary patents, is able to coordinate with suppliers and customers in creating market demand by developing innovative products that progress with time. ■ Ultrabooks Slimness and lightweight continue to be two dominant design trends in the PC market today. As solid-state drives (SSD) become popular, ultrabooks no longer present a luxury that only high-end consumers can afford, but are gradually becoming accessible to mainstream consumers as more affordable models become available. According to IDC, the shipment of ultrabooks (<21mm thick) in 2018 was close to 68 million units worldwide, representing an annual growth rate of 28%. Ultrabooks are expected to account for 52% of the total notebook shipment worldwide by 2020 and will officially become the mainstream variant. However, Compal will continue exploring new lightweight materials, power-saving solutions and cooling technologies to help our clients provide the most competitive products, and earn market recognition. ■ 2-in-1 Notebooks Owing to effort across the entire supply chain, the cost and selling price of 2-in-1s have dropped considerably, which has made them more available and acceptable by a wider group of consumers. There are two types of 2-in-1: flip-screen and detachable. Flip-screen notebooks can be physically converted for use under different scenarios, such as video sharing, multi-user sharing and tablet mode. In recent years, manufacturers have introduced notebooks with flip screens that are both lightweight and thin, making them even more appealing. Detachable notebooks are characterized by smaller screen size. This is a feature that appeals to both tablet and notebook users. The smaller form factor combined with detachable keyboard can better satisfy users who have higher need for portability. According to IDC, the shipment of 2-in-1devices totaled about 34.5 million units worldwide in 2018, and manufacturers are expected to introduce more diverse products in 2019. This has the potential to increase shipment by nearly 11% to more than 38 million units. These 2-in-1 Notebooks will inject new vitality into the notebook PC market. ■ All-in-one (AIO) The AIO market is currently dominated by Lenovo, Apple, HP and DELL. Those top brands account for more than 80% of market share today. The AIO market is currently divided between two extremes. One end of the spectrum is characterized by the use of entry-level CPUs such as Intel Celeron and Pentium. Their main purpose being to replace desktop PCs as learning machines for children. On the other end of the spectrum 101 there lies the mid-range and high-priced products. Their main advertised features include multimedia playback, a high-end desktop or notebook CPU, an advanced video processor, and a large touchscreen panel. These high-end specifications combined with aesthetic design have revolutionized the PC market and these products are starting to replace desktops. According to IDC, the 3-year decline of AIOs has ended and shipments should remain stable with 12.36 million units in 2019. In terms of design trend, the market should expect touch-based applications, graphical user interfaces or e-sport grade AIOs in the future. The potential for AIOs to replace desktop PCs in broader scenarios should further stimulate product growth. ■ Tablets The continuous growth of smartphones with large displays has weakened the demand for tablets and the size of the tablet market fell by about 11.7% in 2018. Performance-to-price ratio and functionality remains the main consumer concern. Demand for tablets with voice has been relatively stable. Compal has been adjusting its tablet product line to quickly respond to the changing market, and continues to provide consumers with a competitive and diverse range of products. ■ Smart Wearable Devices According to IDC, sales volume grew more than 3 fold in 2018. This dynamic growth is being led by strong sales of the Apple watch. In addition to light weight, slimness and energy efficiency, the critical factor that persuades a consumer to purchase a wearable device is the perceived value of the device. To satisfy consumer perceived value, Compal not only consults their upstream partners about customer needs, but also provides diverse designs and solutions based on the needs of the ultimate consumer. ■ Smartphones and Modules According to IDC, smartphone shipments totaled 1.4 billion units worldwide in 2018, this represented a 4.1% annual decline. Restricted by a saturated market and few new innovative device features, the smartphone market has continued to decline in 2019. Compal will aggressively invest in communications modules in 5G development, and will offer solutions with embedded AI, smart assistant, and a more intuitive user interface. We will concentrate on enhanced AI development for smartphone applications to provide better and more attractive user experience. ■ Smart Home Mobile devices have become an inseparable part of daily life. As wireless technology matures, an “Always Connected” environment is starting to take shape to cater for our work, living and leisure needs. Smart home applications have become a main stream development item for technology giants such as Amazon and Google. Smart voice assistance has been a breakthrough for progress in smart home applications. More and more players are joining this market. In the future, there will be more applications based on voice interaction, image recognition and interaction, as well as security. The implementation of AI technology will provide users with more convenient and intuitive experience. ■ Displays According to a report by IHS, shipment of LCD TVs totaled 221 million units in 2018, representing a YoY growth of around 3%. Faced with this market reality we continue to strengthen our relationships with strategic partners and integrate products across different categories to expand industry exposure. By such means Compal has managed to maintain the strength and flexibility needed to respond to market changes. ■ Auto electronics (AE) According to statistics published in the foreign media, sales in the Global light vehicle market totaled 95.6 million units in 2018. Most of this was contributed by the Asian markets. The Chinese market alone accounted for more than 25% of units sold, making it the largest in the world. This was followed by the USA 102 and Europe. The tighter emission and safety standards around the world has resulted in progress being made towards the development of electric vehicles and advanced driver-assistance systems (ADAS). To satisfy the tightened safety requirements and prepare for ADAS, Compal has obtained certification for ISO 26262 - Road Vehicles - Functional Safety in 2017. This makes us the first ISO 26262-certified AE integrated system provider in Taiwan. This certification will provide Compal with the foundation needed to improve functional safety and provide auto electronics that will satisfy all the international automobile makers. ■ IoT Ver\cal Solu\ons Industrial computers are playing a vital role in the development of IoT. In addition, Edge Computing demand is on the rise to satisfy the needs of AI applications. According to an IHS institute forecast the global demand for industrial computers will grow 4.9% and reach close to US$4 billion (excluding services) in 2019. There are many types of industrial computer, including boards, sub-systems and integrated solutions. These are commonly used in industrial, commercial and medical applications. Box PCs and Rugged Tablets are the most popular for IoT applications and have exhibited consistent growth. Many industries have expressed high interest in IoT, and Compal is currently working with other industry leaders in the development of AGV (Automated Guided Vehicle), which can help manufacturers improve production efficiency. Compal has also developed a smart AI camera aimed at retailers and home security. This presents Compal with a favorable entry into the IoT industry. ■ Smart Medical and Healthcare Increasing shortages of medical staff over recent years has imposed a heavy burden on medical personnel. The result is that medical institutions are desperately searching for more efficient ways to manage personnel and resources. In the United States, hospitals have responded to this crisis with the full implementation of digital charts and modern hospital management systems. Compal is actively introducing promising solutions from abroad to help Taiwanese medical institutions provide better service for patients. Furthermore, the aging population and shifting focus of medical technology towards convenience have resulted in a change in healthcare practice from always being hospital-based to some home-based and personalized solutions. In light of this, Compal has invested significant resources in the development of integrated products that make it possible for many healthcare services to be carried out at home or at other fixed locations. Compal also develops smart sports solutions and smart assistive tools, and is collaborating with professional athlete training centers, both local and abroad, in the development of exclusive high-end products for professional athletes. ■ Servers Server shipments have grown progressively at about 2.6% per year mainly due to increased demand for cloud services. According to IDC, shipment of x86 servers totaled 12 million units in 2018. This is expected to rise to nearly 12.3 million units in 2019. x86 servers accounted for 99% of total server shipments. Rack mounted servers represent a higher market share because they are both energy efficient and expandable. 2. Association between upstream, midstream, and downstream industry participants ■ Notebooks The notebook industry is now mature and Taiwanese manufacturers have developed comprehensive partnerships with upstream, mid-stream and downstream suppliers. This fully-fledged supply system gives manufacturers the advantage of being able to quickly and flexibly adjust to market changes. It also enables Compal to keep up to date with the latest technology and pricing of key components such as CPUs, chipsets, LCD panels, hard disk drives (HDD), and solid-state drives (SSD). Compal and other Taiwanese ODMs/OEMs 103 possess distinctive know-how on system integration, from design to manufacture, as well as operational management. Taiwan now accounts for more than 80% of the world's notebook ODM/OEM production. The downstream customers including brand manufacturers such as Dell, Lenovo, HP, Acer, Asus and Apple all have strong marketing strategies and comprehensive sales support systems to ensure success. ■ Ultrabooks As an ultrabook supplier, access to metal for casings and lightweight carbon fiber materials is especially important. Compal has already developed a robust upstream, mid-stream and downstream supply system, and acquired the equipment and technology to produce the needed metal products to customer satisfaction. Compal will now shift focus gradually towards products in the mainstream price range, such as ultrabooks made with plastic materials. This will ensure quick launch of new customer products and growth in this particular market. ■ 2-in-1 Notebooks The supply chain and manufacturers of 2-in-1s are generally identical to those of convention notebooks, with the addition of some tablet parts suppliers and manufacturers. Support of the existing supply system and its advantage of integration across suppliers, allows Compal to maintain full control of the development of key components. This speeds up research and innovation of new features because brand manufacturers and users of 2-in-1s continue to add new requirements. Despite the increasing complexity and challenges ahead, Compal remains confident and continues to make improvements as well as bringing new products and concepts to the market. ■ All-in-one (AIO) The supply chain and manufacturers of AIOs are generally identical to those of conventional notebooks. The upstream supply structure is similar to that for general PCs, with the addition of suppliers of large touchscreen panels. The downstream is comprised entirely of brand manufacturers, with Lenovo, Apple, DELL and HP being the dominant players. DELL focuses mainly on commercial users while HP targets home multimedia, Lenovo places more emphasis on mid and low-end products. ■ Tablets In addition to relying on the existing supplier chain and industry advantages, Compal also actively explores competitive suppliers to ensure that the price and quality of its products conform to both customer and market expectations. ■ Smart Wearable Devices Compal works closely with suppliers of chips, sensors, wearable displays and touchscreen modules to secure parts for wearable devices. In addition to coordinating with upstream suppliers and developing new technologies for new customers, Compal also reaches out to suppliers that have new technologies to offer. This frequent exchange of information allows the Company to quickly adjust its supply chain and product development strategies to suit the prevailing market. ■ Smartphones and Modules Compal actively explores competitive suppliers to ensure the quality of sourced material meets both customer and market needs. Furthermore, Compal is building up a 5G related component supplier chain, as well as new technology, to assist customers to remain competitive. ■ Smart Home Compal provides diversified terminal devices such as smart speakers and smart displays for this application segment. Compal also coordinates across upstream, mid-stream and downstream partners, to provide all 104 kinds of customized hardware devices, software support, and platform solutions on demand. This allows different system integration providers and our many industrial customers, to fulfill all kinds of smart home application. ■ Displays Compal engages in a sustained and integrated strategic alliance with upstream, mid-stream and downstream partners that reduces overall material cost. The Company frequently adjusts overseas production sites to support localized customer sales with local production. This allows us to retain control over operating costs and shipment flexibility to accommodate changes in market demand. ■ Auto electronics (AE) The mid-stream players in the supply of auto electronics are represented by tier 1 AE integrated system providers. This integrated system handles in-car information, communications and entertainment, and is also linked to other auto parts. These products are sold to downstream automobile makers, which places the Company between the mid-stream and upstream of the AE supply chain. ■ IoT Vertical Solutions Taiwan already has a complete supply chain for Box PCs from a hardware perspective, including Rugged Tablets and Edge Computing. However, what makes these two products different from conventional PCs is that they are designed with particular specifications to operate under harsh environments. For this reason, product positioning and requirements differ depending on the location, country, customer or application involved. Compal has also begun development of integrated system services such as computer vision and AI applications that aim to satisfy both customer and market demand. ■ Smart Medical and Healthcare (1) Management system: • Digital charts and smart ward solutions Compal has been introducing digital charts through an alliance with some foreign partners. Unlike the conventional management system adopted by existing medical institutions, this product offers the potential to provide both diagnostic aid to physicians and also to reduce the workload on nurses. It can also be integrated with many different data management systems currently used in hospitals. Digital transformation is already happening within the healthcare system. Compal is currently working with several hospitals to develop digital charts and smart ward solutions. Medical institutions will no longer have to operate in isolation, but will be able to coordinate their activities with each other towards the establishment of a uniform standard to reduce the wastage of medical resources. • Point of care solutions Compal aims to address the recent increase in demand, as well as the shortage of manpower, at nursing and postpartum centers. This is being done by the introduction of human-operated healthcare solutions, such as proprietary bedside systems that are compatible with the instruments and specifications of other manufacturers. However, flexibility and the ability to customize products to customer needs will still be maintained. The most important feature of this product is that it works with different types of Smart Home devices and medical instruments, and also supports multiple services. It is intended to provide home comfort at nursing and postpartum centers, while also allowing professional care facilities to be set up at home. (2) Instruments, equipment and accessories: • Smart sports Compal has invested substantial resources into the development and integration of smart sports vital sign 105 monitors. These can gather measurable data and are also useful for professional course design. Compal solutions can be further combined with the services of professional fitness training centers to provide users and trainers with physiological information in real-time. This information can be exchanged over the cloud to facilitate remote training and communication between athletes and trainers. This helps athletes undertake the most effective physical and technical training methods and also helps to avoid sports injuries. • Smart assistance devices and healthcare-related products Compal is actively investing in the digital transformation of medical equipment. By the incorporation of Internet connectivity, data from medical equipment can be exchanged and calculations can be made in real-time over the cloud. This can make various user services available, including such as auto record-keeping, reminders, behavior prediction and so on. These devices can even be connected to advanced and back-end medical service providers for professional medical consultation, to accomplish the Compal vision of a mobile and real-time medical service. • Compal has been working with partners in both industry and the medical segment for several years and has invested in the development of some rather innovative medical devices. These include: CGM (Continuous Glucose Monitoring), 24 hour BPM (24 hour blood pressure monitoring), handheld smart ultrasound, i-AED and others. We expect to provide users and physicians with many more options to help develop a smart medical industry and improve the quality of healthcare. Innovative medical devices (3) Medical AI • Cardiovascular disease prediction In an effort to reduce the problem of a lack of medical manpower, Compal has been working with the Chi-Mei Hospital and medical center on the development of AI in medicine. Using the existing abundant medical resources of the hospital, Comal is helping to build up a Cardiovascular disease prediction AI system which can be used in hospitals and medical centers. The product will include long term tracking and users may be able to predict the timing and probability of cardiovascular complication. This will allow preventative action to be taken and reduce the risk of such events as stroke, Myocardial infarction, etc. Compal also expects to help with the medical technology upgrade after the integration of the product in the professional medical establishments in Taiwan. ■ Servers Server technology is a highly mature industry and one in which Taiwanese manufacturers have developed a comprehensive supply system of upstream, mid-stream and downstream partners. Main parts such as CPUs, memory and storage drives are easy to secure and downstream customers such as HPE, DELL and Lenovo all have long-term notebook manufacturing relationships with Compal. Compal has now developed extensive experience and a reputation in the design and manufacture of server products. 3. Product trends and competition ■ Notebooks • The Notebook has matured to a point where brand manufacturers are shifting focus towards higher priced and more fully featured products, such as ultrabooks, 2-in-1s and gaming notebooks in a search for greater market opportunities, revenue and profit. • The Intel 8th generation CPUs, the Core i3, i5 and i7, were the mainstream processors used in 2018. The new 9th generation Intel 10nm CPUs will become available on the market in 2H-2019 and will provide additional performance enhancements. • The increasing popularity of mobile devices and online applications have called for more robust and diverse security functions, from fingerprint, to facial, to voice recognition. All of which are intended to 106 enhance information flow and convenience without compromising security. ■ Ultrabooks • Light weight, slimness, and high-quality design will become the main decision factors for consumers. • The use of standard performance CPUs will provide consumers with adequate power for multi-tasking and the handling of day-to-day computing tasks. • Long-lasting batteries will free users from the need for frequent recharging when traveling. • Metallic casing material allows thinner, lighter and higher value products. ■ 2-in-1 Notebooks • Consumers nowadays expect more from 2-in-1s than light weight and portability. Multi-tasking processors, long-lasting batteries and the capacitive stylus have become the new mainstream features. ■ All-in-one (AIO) • High-end home entertainment AIOs and new flat, portable AIOs present new opportunities. • There is room for improvement in touch-based applications and graphical user interfaces. • The product exterior can be designed to match interior decoration and furniture. • Portable products can be designed with screens that can move in several directions. The AIO target market is no longer confined to first-time PC users, or as replacement for conventional office desktops. More advanced components are becoming available and these devices will benefit from broadened applications to achieve higher market acceptance. ■ Tablets • Extend R&D technology to 4G data communications. • Focus on higher cost/performance ratio and better quality design. • Explore collaborative opportunities with content providers or telecommunications service providers. • Explore opportunities in education, for kids, industrial, and medical applications. • Develop tablets for the Smart Home and IoT and use them as control centers or as multi-functional platforms. The Tablet is a mature product, what manufacturers should focus on for the next step is the exploration of new use cases and more convenient user operation and support for more diversified applications. Education, kids, e-commerce, smart home hub and IoT applications are all possibilities that Compal is actively exploring. ■ Smart Wearable Devices • More and more smart, fashionable and compact watches for sports and health are following Apple to the market. • Customers who use smart wearable devices for sports also want high accuracy GPS, steps counts, heart rate and various other measurements. However, power efficiency remains a key requirement common to all users. • Customers who use smart wearable devices for health reasons need accurate algorithms and convenient user operation. This remains a mainstream market. To satisfy customer need, Compal not only continues to make more power-efficient and compact designs, but is also enhancing the flexibility of its production processes. ■ Smartphones and Modules 4G is an established and popular subscriber service today, and carrier aggregation (CA), based on 4G technology to provide wide bandwidth and high transmission speed, has been developed to satisfy the increasing consumer demand for audio, video and application services. 107 • Develop multi-core infrastructure and new-generation LTE CA products to satisfy both the work and entertainment needs of the consumer. Implement more sensors and advanced camera technology to provide more convenient use. • Develop large screens, high resolution and borderless smartphones. • • Explore high 5G transmission speed and support new AI applications to drive video streaming services. The differences between smartphone brands, in terms of hardware structure, have become negligible. This is why Compal has moved focus towards the design of new imaging technologies and software services to create better differential value. At the same time Compal is exploring new opportunities for communications products in industrial and IoT applications. ■ The Smart Home • The voice input and interaction provided by the smart speaker and smart display is a trend of the future and will connect the more intuitive and convenient smart home products. • Software services working on cloud computing, data analysis and user behavior learning will define the key competitiveness of smart home products. ■ Displays The emergence of Chinese brands and OEMs presents intense competition. In response, the Company is working with its US and Japanese partners to develop mid-range and high-end models and introduce new applications such as AI and voice assistance. Compal sparks creativity through constant accumulation of the latest technologies and experience. This enables us to integrate R&D resources across different fields such as smartphones, wearable devices, the Smart Home and IoT to bring new prospects to the industry. We constantly improve user experience, secure long-term competitiveness and maintain a technological advantage over our peers. ■ Auto electronics (AE) Telematics and in-vehicle-infotainment. ■ IoT ver\cal solu\ons • Driven by a rapid increase in the demand for the smart city, application of the Box PCs has expanded to cover infrastructure, Industry 4.0 and smart architecture, while flexible designs and customization have enabled many possibilities for integrated systems. • Rugged tablets will be more widely used in industry, logistics and medical applications. • The growing popularity of online shopping will make it necessary for physical merchants to explore new solutions to connect with consumers. Smart retail presents such a solution, as it aims to learn consumer behavior to determine the optimal sales strategy to be offered. • Home security is becoming a very important part of daily life. Unlike ordinary IP cameras, with computer visual AI, smart cameras can provide better security in a home application than conventional cameras. • AGV has been part of automated industry for decades. Compal has added many cutting edge technologies to AGV, such as LiDAR (Light Detection and Ranging), as well as precise computer vision analysis to help manufacturers enhance the flexibility of production. • ■ Smart Medical and Healthcare (1) Management system: • Digital charts and smart ward solutions The United States currently has the most popular (Level 7) digital chart and hospital management system, and other countries around the world are following closely behind. The purpose of this product is to deliver functions that will be of assistance to physicians and nurses while still being easy 108 to operate. Alliances with world industry leaders has made it possible for Compal to introduce the solution to medicine in Taiwan, where its success will be replicated in our medical systems and it will also be moved to other countries in Asia. • Point of care solutions An aging society, combined with a need for differentiated medical services, make nursing centers and postpartum care centers especially popular in Taiwan. This management system provides them with a comprehensive solution, and makes it possible for communications to be established between several different medical devices while patient privacy remains protected. Compal has invested in the development of related hardware and software, and is working with existing medical instrument suppliers on the growth of this market. (2) Instruments, equipment and accessories: • Smart sports There is already a strong and growing demand from professional athletes for assistive technologies and devices. Compal has invested significant R&D effort in collaboration with top world sports experts for the development of products that are more suitable for professional athletes. Compal is also working with fitness centers on the creation of customized, exclusive packages that deliver the most effective sports solutions and communications to users and businesses. • Medical equipment and healthcare-related products Medical equipment with Internet connectivity is a trend of the future. Devices that have functionality that allows access to information from a health management platform will be easier to operate and also more competitive in the market. Compal will continue investing in the development of medical instruments and equipment with such connectivity and will bring better quality services to customers with the help of a management platform and cloud service. • As the new biosensors and related hardware such as MCU/firmware/bio materials and software have matured over recent years, development of the innovative medical devices industry has also moved to another stage. Continuous investment and development by Compal has led to more and more customers gaining trust in our design and development capacity, and the market trend is now moving towards alternative device generation. Innovative medical devices (3) Medical AI: • Cardiovascular disease prediction Medical AI has become one of hot topics in medical technology development. Many heavy players like IBM, Apple, GOOGLE and Amazon have become aggressively involved in this segment. Compal has also been investing in some major medical topics and is working in cooperation with several national and overseas medical centers on medical AI research and development. ■ Servers The rack-mounted server is still the mainstream product today because it can be easily maintained and also expanded as business grows. Tower servers are still favored among SMEs for their low cost, but the market share has been steadily declining. Blade servers are relatively expensive to set up, and may gradually be replaced by more simplified High Density servers. • The number of servers required for Data Centers has increased continuously year after year. Although the demand for conventional enterprise-grade servers has gone down a little, demand for both types of server will ultimately reach equilibrium. In addition to cost-performance, design flexibility and quick response to customer need are the two most decisive factors for product success. • 109 5.1.3 Research and Development 1. Research and Development Expenses over the past year: Year R&D expenses Operating revenue Unit: NTD thousands; % R&D expenses as a percentage of operating revenue 2018 2019 first quarter 12,780,935 3,241,734 967,706,411 210,600,553 1.4 1.5 2. New products developed ■ Notebooks • High-end products: These are high-performance models combined with an ultra-high definition display and a powerful GPU that target users who seek ultimate multimedia and gaming experience. • Mainstream products: 15.6-inch and 14-inch products with slim bezel design that are powered by Intel 8th generation Core i3, i5 or i7, or AMD CPUs, are distinguished by integrated or discrete GPU models. • Business products: Business notebooks designed specifically for corporate users. These products feature enhanced structural design and security, and are offered to large corporations, SME, and the education sector. Security mechanisms such as fingerprint, facial or voice recognition are incorporated to satisfy user need for security and data confidentiality. • Special products: Compal has directed resources into developing notebooks of extreme slimness, and will lead the industry in technological innovation in this area. ■ Ultrabooks • Compal has successfully mass-produced and launched many ultrabooks, and its designs have been recognized by several international awards. • New ultrabooks will feature thin-frame displays for a more fashionable and cleaner appearance; the display quality will also be improved. ■ 2-in-1 Notebooks • Compal has successfully designed, mass-produced devices and launched a new 2-in-1. • An innovative hinge design is being developed to provide a more secure and precise connection while allowing easier detachment, this allows better user convenience when 2-in-1s are used in different scenarios. ■ All-in-one (AIO) • Compal has successfully designed, mass-produced and launched AIOs for mainstream users. • Compal has successfully designed, mass-produced and launched a new flat-type of AIO. • Compal has developed, mass-produced and launched AIOs that are targeted at e-sports. • Compal plans to acquire touch control technologies with pen support and introduce AIOs in sizes ranging from 19" to 27". • Compal has successfully designed AIOs with a wireless charging dock. ■ Tablets • Compal has successfully developed and mass-produced WiFi tablets of high performance-to-cost ratio for video streaming and entertainment. • Compal has successfully developed and mass-produced a new-generation of e-book. ■ Smart Wearable Devices • More than 20 smart watches were launched in 2018. • A new generation of lighter, smaller, more power efficient, multi-purpose smart watches with diverse designs will be introduced in the future. • Other wearable devices have also been scheduled for mass production. ■ Smartphones and Modules • Compal has successfully developed and mass-produced smartphones with 3CA (carrier aggregation) technology that work on 4G LTE (TDD-LTE/FDD-LTE). • Compal has successfully developed smartphones that feature dual main cameras and a dual selfie camera. • Compal has successfully developed a smartphone that features a thermal imaging camera, a high-resolution screen with enhanced sunlight readable mode, laser distance detection, air quality detection, and is water resistant to 5 meters. 110 • Compal has successfully developed the smallest LTE smartphone (credit card size) in the world that features an e-ink display and a power-saving 5-days standby. ■ The Smart Home • Compal has successfully launched a smart display that has received consumer recognition in the North American market. • Compal has successfully developed several smart speakers that will be launched in the near future. ■ LCD TVs • Compal has successfully developed mainstream UHD Dolby Vision HDR smart TVs with AI Voice Assistant in sizes of 43-inch and above for North America. ■ LCD TV BM • Compal has successfully developed a 96 zone local backlight dimming module, this will enhance the perceived quality and profit margin of products on the market. ■ Auto Electronics (AE) • Compal has mass-produced various systems and modularized several products that it has designed and developed. ■ The IoT Vertical Solution • Compal has successfully developed and mass-produced Box PCs, and is shipping them to local telecom carriers and industrial control solution providers. • Compal has successfully developed and mass-produced Rugged Tablets, and plans to ship products to System Integrators in 2019. • Compal has completed the development of voice and vision AI products, and has started shipping them to customers. • Compal has completed the development of AGVs, both lifting and towing types, and is using them in the Compal factory. Compal has also started promoting them to System Integrators of automated industries worldwide. ■ Smart Medical and Healthcare • Digital charts and a smart ward solution Compal is promoting business opportunities in this respect. Several hospitals have begun adopting and exploring our smart ward solution this year. • Point of care solutions More than 10 point-of-care centers in Taiwan have begun trials and official use of this solution. In addition to this, several prominent nursing centers in China have also shown interest and commenced collaborating in the use of this solution. • Smart sports • Smart sports solutions have been introduced at several places in Taiwan and promotion in the Taiwan and China market is ongoing. A case has also been built up in Kaohsiung. Innovative medical devices Many innovative medical device cases have been executed, and plans for the achievement of FDA/ NMPA/CE certification have been established. Launch is expected by the end of 2019 and 2020. • Cardiovascular disease prediction This AI project will be introduced at the Chi-Mei medical center by mid 2019, and will also be introduced at other medical centers and clinics after this. ■ Servers • General Purpose Rack-mounted Servers The launch of 1U and 2U general purpose rack-mounted servers is undemanding and the factory can quickly fulfill customer requirements by a simple BOM Option change. • Edge Computing Servers The system has been designed for 5G telecommunication facilities in collaboration with China telecom service providers,. This system provides tremendous and responsive acceleration for all aspects of edge computing. • High Capacity Storage Servers The 4U server includes 36 3.5inch hard drives and dual Intel Xeon processors, to provide cloud service providers with massive computing performance and huge capacity to fulfill any user scenario. 5.1.4 Long-term and Short-term Development 111 (1) Short-term Development • We will adapt to market changes, follow current trends, strengthen new design concepts, maintain the focus on product difference, and launch ahead of our competitors. • We will enhance operation efficiency, to further increase our product competitiveness and push the sales growth rate higher than the market average. • We will improve logistics management and flexibility to shorten delivery time. • We will elaborate different market strategies for different product markets. Main stream products will be bundled with new technology and modular features to boost the added value and diversity of products. For featured products, we will adopt a prospective standpoint in our design concept for new products to become the focal point of the product market. User functionality should be taken into consideration as well as competitive pricing for lower priced products. • Production bases will be diversified to spread the risk of single production, reduce the cost of manufacturing and improve product competitiveness. • We will pay closer attention to market trends and evolution in smart devices and develop product concepts suitable for OEM customers and the market. We will help customers create differentiated products of feasible design. • Product development times will be further shortened to optimize supply chain management, maintain persistent high quality, and provide customers with more competitive products. • More effort will be made to maintain existing customer relations. Apart from maintaining a high degree of customer satisfaction, we will work towards increasing the volume of product cooperation. We will also seek other opportunities for cooperation with new customers to achieve a growth rate that is better than the market average for smart device products. • We will improve product profitability to achieve the maximum utilization of capacity and enhance overall operational efficiency and profitability. • We will tap our accumulated communications industry R&D energy resources to quickly and efficiently cut into the high-growth networking market. • A number of different industry alliance strategies will be used for the rapid development of a diversified product line that will strengthen customer relationships in the shortest possible time. (2) Long-term Development • A spirit of innovation will strengthen value-added Company products and improve long-term core competitiveness. • Cooperation with our customers will be improved to allow better product planning, development and manufacture as well as comprehensive after-sales service. • Horizontal and vertical integration of all parts and products of the Group’s affiliates will be strengthened strategically and aligned with customer need, to give them more convenient and complete services. • Optimization of the quality of sophisticated products will be enhanced by new development and cost structures and strategic alliances with main parts providers to give customers better and more competitive products and services. • Closer horizontal and vertical integration will be made with affiliates in the Group to create and improve the loyalty of long-term customers. • Our ability to innovate will be further cultivated, aimed at more accurate prediction of market trends, before the clients do, and provide them with products and services and high value-added solutions to improve long-term core competitiveness. • The Company has established a service-oriented business model and new revenue sources through careful long-term upstream and downstream integration and cooperation. • We are strengthening the breadth of learning of our team in preparation for future new business and product development through cross-industry alliances. • We are cultivating the ability to control key technology, strategize high-end product lines, and gain • cooperation opportunities with big manufacturers around the world. In addition, we will continue to strengthen our core R&D capability and capacity for technical services for smart devices 112 5.2 Market and Sales Overview 5.2.1 Market Analysis 1. 2018 Sales (Service) by Regions Area Americas Europe Asia (Including Taiwan) Other Area Total Percentage 42.2% 30.1% 24.8% 2.9% 100.0% 2. Market Share ■ Notebook According to IDC statistics, the total number of notebook PCs sold around the world in 2018 came to approximately 160 million units. In terms of total shipping quantity, Compal’s notebook PCs have approximately 25% of the global market share and the Company remains a World leading manufacturer of this product. As the market for notebook PCs is entering the era of vertical integration, Compal will continue to improve upon its technological capabilities, broaden the scope of its influence, and expand the market scale while challenging the limits and striving for continual improvement to maintain our lead over the competition. ■ Smart Wearable Devices Compal is the biggest ODM supplier of the more than 40 models of the Google Wear OS Smartwatch. We expect the smart watch market to maintain its high growth for the next three years. Compal will continue to fight for more world class brand orders. We will study market demand and adjust the direction of product development to satisfy the latest market dynamics. ■ Smartphones & Modules The Smartphone market has become quite saturated. However, Compal will continue promotion to international customers and regional carriers, to provide diversified and customized product as well as ODM/EMS services. We understand the market and continue to explore many different innovative applications to satisfy dynamic market demand. ■ Displays According to IHS, the prospects for shipments of LCD TVs in 2018 will be flat. The development of new LCD TV products will shift towards high end specifications such as ultra-high-resolution, local dimming, a built-in voice assistant and so on, with dimensions reaching 65” and more. These features, coupled with high dynamic contrast and a wide color gamut, will enable the next generation of TV products to render even more realistic images and deliver superior audio-visual enjoyment for consumers. 3. Future Supply and Demand Situation and Growth of the Market ■ Notebooks According to IDC statistics, the global shipping quantity for notebook PCs in 2018 grew by 2%. Looking towards 2019, and the demand for replacement in the Windows 10 market, we expect the global shipping quantity for notebook PCs in 2019 to be the same as that in 2018. ■ Ultrabooks The ultrabook PC has been well-received and is not limited to the high-end market. More and more mid-line models have also shifted towards more compact design. IDC statistics show the global shipping quantity for 113 ultrabook PCs (no thicker than 21mm) in 2018 was approximately 68 million units. An annual growth rate of 12% is expected for 2019 with a total shipping quantity exceeding 76 million units. ■ 2-in-1 Notebooks Much effort and hard work from the industrial chain, has resulted in the costs and prices for 2-in-1 Notebooks to become substantially lower as consumers have gradually become more receptive and familiar with the product. IDC statistics show the global shipping quantity for 2-in-1 Notebooks in 2018 was approximately 34.5 million units. It is expected by that 2019, different manufacturers will offer more diversified products to contribute to an annual growth rate of close to 11%, with a global shipping quantity exceeding 38 million units. 2-in-1 Notebooks will inject new vitality into the notebook PC market. ■ All-in-one (AIO) IDC statistics show the global shipping quantity for AIO PCs in 2018 was 12.38 million units and the number is expected to remain about the same at 12.36 million units in 2019. Compal will continue to cultivate the market. ■ Tablets Forecasts predict a continued decline in terms of shipping quantity for tablets in 2019. However, Compal still anticipates some gradual growth in demand. This will be the result of increased network coverage and telecommunication facilities, as well as active promotion of 4G connectivity by the service providers in emerging regions. Compal will direct its experience in smartphone design towards the development of tablets with carrier access and also design entry-level tablets, also with carrier access, to accommodate the growing demand. ■ Smart Wearable Devices Estimates from IDC predict that the total shipping quantity for smart watches will continue high growth until 2022. CAGR is expected to reach 23% with a total shipping volume at 115 million units. In view of the substantial growth in the use of smart wearable devices, Compal will develop more suitable sensor chipsets to satisfy user needs and also incorporate 4G LTE and other telecommunication technologies for more diverse application. Voice control and the integration of AI will also be investigated and serve as a potential source of momentum that could keep the market growing. Compal will continue to accumulate the relevant technologies to extend its reach into more diversified wearable device product lines. ■ Smartphones and Modules According to IDC, the smartphone market is expected to decline 0.8% in 2018. The global shipping quantity for the year will continue to benefit from high growth in emerging markets. Compal will continue to focus on communication products with high cost-performance ratio and models with special features while seeking collaboration with new customers to ensure steady momentum in terms of sales. ■ Smart Home According to a forecast by Strategy Analytics, Smart Home sales will continue to grow and will reach 1.6 billion units shipped in 2023. Compal will inject the necessary resources and actively establish its presence in the market. ■ LCD TVs According to an IHS forecast, the shipment of LCD TVs will remain flat in 2019. The development of new LCD TV products will shift towards high end specifications such as ultra high-resolution in 8K, local dimming, a built-in voice assistant and so on, with dimensions reaching 65” and above. These features, coupled with high dynamic contrast and a wide color gamut, will enable the next generation of TV products to render even more realistic images and deliver superior audio-visual enjoyment to the consumer. ■ LCD Monitors LCD monitors have become a mature product and the Company will focus on professional graphic design, commercial, educational and special applications for product development. ■ AE According to statistical data from Focus2move (an internationally renowned survey organization) sales in the global light vehicles market in 2018 were 95.6 million units. The two big markets being China (28.08 114 million cars at 30%) and America (17.20 million cars at 19%). It is estimated that the 2019 market will be similar to that of 2018. The rapid growth in electric vehicles, ADAS and the autonomous driving market, has already drawn many high tech industries into the automobile industry. ■ IoT Ver\cal Solu\ons A Gartner prediction, shows that the IoT Vertical Industry market has grown close to USD 82.7 billion in value. Government, manufacturing, transportation and logistics, and retail account for approximately 40% of the Smart Applications market. Compal will inject resources into the development of smart application products for specific domains. ■ Smart Medical and Healthcare (1) Management Systems: Electronic Medical Records (EMR) and Smart Ward Solutions: According to estimates by FMI, the global market for Electronic Medical Records (EMR) and management systems is expected to grow from USD 11.4 billion in 2015 to USD19.7 billion by 2025, with an annual growth rate of 5.6%. Point of Care Solutions: A report published by Markets and Markets, shows that factors such as the aging populations and digital medical services, will cause the global market for patient and point of care solution related management systems to reach USD 16 billion by 2020 with an annual growth rate of 19.7%. (2) Instruments, Equipment and Accessories: Smart Sports: According to a forecast in Market Reports Hub, the market for smart sports related products is poised to reach USD 15 billion in 2021, with professional athletes/professional teams/ amateurs and enthusiasts with high commitment being the main consumer demographic. (3) Medical Equipment and Healthcare Related Products: According to an estimate by Research and Markets, the global market for medical devices was worth approximately USD 370 billion in 2018 and the figure is expected to exceed USD 400 billion in 2019 at an annual growth rate of 4.5%. (4) Innovative Medical Devices: Innovative medical devices such as CGMs achieved USD 1.8 billion and USD 2.5 Billion is predicted for 2026, with a CAGR of 33%. (5) Cardiovascular Disease Prediction AI: As forecast by Global Markets Insights, the Global medical AI market will reach USD 13 Billion, with a CAGR of 40%. ■ Servers According to IDC statistics, the demand for x86 servers reached 12 million units in 2018 and will approach 12.3 million units in 2019. The market for servers is expected to grow in the next few years, with the main driving force coming from a demand for cloud applications. The bulk of servers shipped were x86 units, which account for approximately 99% of all servers shipped. Rack servers have the greatest market share and Compal will seize the opportunity to move more firmly into the server market. 4. Competitive advantage: Compal is a long-time player in the IT industry and has committed to its role as an ODM. The following is a description of our competitive advantages in terms of R&D and mass production capacity: ■ Notebooks The Company has been manufacturing notebooks since 1989 and is one of the most experienced notebook manufacturers in Taiwan. Products designed by the Company have won many Editor's Choice awards from renowned magazines worldwide as well as awards from the Taiwan External Trade Development Council. Furthermore, our design team has great sensitivity and responds to market changes with new commercialized products. To enhance product competitiveness, Compal has assembled an R&D team that specializes in the research of new materials and technologies as well as to adding more value to products. The Company also has an intellectual property rights system in place to protect new technologies developed by the R&D team. 115 The demand for notebooks by general consumers has dwindled consistently due to the rise of handheld devices. This has forced manufacturers to switch competitive strategy towards faster response and more ergonomic design. The Company has always been sensitive to changes in the market and product trends. The next generation of products is planned well in advance to capture market opportunities and generate revenue. ■ Ultrabooks Compal continues to stay ahead of its competitors in terms of technology advancement and R&D, and strives to bring innovation to its designs. The Company expects to maintain this advantage in 2019 and will actively assist customers in the development of more competitive ultrabooks. ■ 2-in-1 Notebooks Compal has extensive experience in the development and manufacture of both notebooks and tablets. By adding a bit of innovation, Compal is confident of their ability to create new demand for this product. ■ All-in-one (AIO) Compal possesses the advantage and ability to commercialize products quickly in this respect. To further emphasize product differentiation, a dedicated software development team has been assembled to carry out software development and man-machine interface integration, to make the products more suitable for consumer need. ■ Tablets Compal remains somewhat optimistic about the future of the tablet market. We will continue to introduce differentiated and competitively priced products to consumers. The Company will also explore the possibility of introducing products that support 4G/LTE CA, using the experience and knowledge accumulated in smartphone manufacture, to meet rising demand.. ■ Smart Wearable Devices The Company has developed many different types of wearable device ahead of international peers, and engages companies such as Google and Qualcomm in strategic long-term partnerships for development of innovative technology. Compal currently offers an extensive range of products, and leads the industry in many advanced technologies that include video, audio, wireless and wearable materials. ■ Smartphones and Modules Compal has accumulated many years of experience in smartphones. The ability to develop proprietary software and hardware and incorporate research outcome and technologies into products has earned us the recognition of customers all over the world. Furthermore, the advantage of producing at scaled economy provides exceptional bargaining power with respect to the pricing and timing of material supply. This allows much more flexibility and control over raw material purchases. • Development of 5G communication technology and keeping pace with emerging technologies. • The introduction of AI, the virtual personal assistant and a more intuitive user interface. • The enhanced application of biometric technologies. • The acquisition of know-how on LTE and CA and the use an adjustable, coupled-fed antenna to minimize phone size. ■ The Smart Home Compal will leverage its existing R&D and firmware design abilities in PCs and communications for the development of a cloud computing software/platform. This will complement the hardware to bring customers more complete solutions and customizable applications, as well as fine tuned products that meet market expectation. ■ Displays Compal will continue strengthening its strategic partnership with customers and suppliers to develop applications such as AI and the voice assistant. By integrating resources across different fields of expertise, Compal aims to expand its influence on participants from other industries and engage them in mutually beneficial business arrangements in ways that improve competitiveness and increase market share. ■ Auto electronics (AE) 116 Based on observations of the available technologies and design trends, the latest innovations in auto electronics have been focused toward in-car video entertainment and communication. The helps to establish a closer connection between the consumers living and working activities and their vehicles. Compal has the advantage of being able to integrate key IT industry technologies and know-how to provide solutions for in-car entertainment and communication, as well as the ability to work alongside customers to realize business opportunities. ■ IoT Ver\cal Solu\on Compal aims to expand its notebook design capabilities to that of industrial computers with different capability and specifications to provide customers with the most comprehensive solutions. Furthermore, Compal will be re-designing its factory production lines to conform with special specifications and test requirements for new product applications for medial and vertical industries. AI will be incorporated in vertical solutions as needed to complement the overall service package and to ensure greater reliability of the products offered. ■ Smart medical and healthcare Compal will leverage its existing ITC capabilities and cloud platform to explore cross-industry alliances and opportunities to satisfy customer need with diverse products and services. ■ Servers Compal has many years of experience in the design and manufacture of computers, this had helped with our entry into the server industry. Compal's existing business relationships with world leading server manufacturers also works in our favor. 5. Future opportunities, threats, and responsive strategies ■ Opportuni\es • New product concepts such as the 2-in-1, ultrabook and e-sports will continue stimulating market demand. • Renewal demands for corporate notebooks remain consistent following new products introduced by • Intel and Microsoft. Innovation from world leading brands puts the Company in a position to dictate new products and markets. • Expansion of software development, aesthetic design and man-machine interface talent has greatly improved the ergonomics of products manufactured by Compal, which adds both value and appeal to customers. • Compal's strong R&D, manufacturing and operational management experience has earned the trust of world-renowned brands. • Compal has rigorous processes in place to monitor cost from initial R&D to manufacture, and is therefore able to maintain a product competitive edge. • A rational pricing strategy supported by an alliance with parts suppliers helps secure market growth. • Connectivity not only brings convenience, but also adds value and competitiveness to the products offered. • Compal actively forms alliances with participants in different industries. This helps the Company to increase product and customer diversity. • Compal remains active in developing innovative technologies and exploring new product concepts. The Company works alongside customers in developing new product lines, and in so doing secures access to new products and technologies. • The growing scale of 4G LTE infrastructures in emerging markets provides users with the incentive to renew mobile devices, and supports the growth of smartphone demand. • Demand for entry-level tablets and tablets with voice features continue to rise. The Company offers some of the most competitive products in the industry to meet this demand. • Compal has the technical capabilities to make smartphones and tablets in ways that support new IoT 117 applications such as smart speakers, smart voice assistance etc… as well as the ability to explore new opportunities across the industries. • Driven by growing demand for wearable devices, Compal continues to mass-produce products and develop new proposals and innovations with major customers, continuing to maintain the Company’s position as the leading producer of wearable devices. • Compal is aggressively investing in 5G development and puts much innovative energy into 5G and product development to provide the 5G applications requested by their customers. ■ Threats • CPU shortage and weak consumer demand continued to affect the shipment of notebooks in the first half of 2019. • New Chinese manufacturers have joined the race with competitively priced mid-range and high-end notebooks. This has intensified price competition in this product category. • The industry now competes in terms of vertical integration as opposed to specialization, which involves more costly investment, higher market complexity and more challenging business management. Faced with the rise of the Chinese supply chain, Taiwanese notebook manufacturers need to coordinate operations to be able to match the integrated design, development and assembly capacity from China. • The Notebook is a highly matured product and requires more diverse, value-adding and innovative features for differentiation from other market participants. • Products with Internet connectivity tend to involve many different communication protocols at the same time, this poses a challenge in product development and can make products unacceptable to some consumers. • Too many competitors in the IoT market can give rise to inconsistent quality, and make competition in the industry more difficult. • Ongoing price competition among smartphones has significant impact on large-brand customers. • Overall demand for tablets has declined, which adds to the competitive pressure. • Wearable devices are still in the early stages of development, and require sustained periods of expansion to reach an economy of scale. • Big carriers are still hesitating to invest in 5G infrastructure. This may have an impact on the 5G market take-off schedule. ■ Strategies • The Company will adopt strategies that focus primarily on innovation, product added value and service. • Quality and production efficiency will be improved to reduce manufacturing costs. • The use of land and human resources in emerging countries throughout the world will be optimized to reduce the cost of production and basic R&D. • We will enhance product design review and develop a comprehensive database of documents to improve design efficiency and quality while reducing costs. • New customers and new product lines will be explored in emerging markets. • The change of the Microsoft operating system will prompt corporate users to renew existing equipment. Compal and its customers will address this by introducing lightweight notebooks with balanced performance and portability. Entry-level products can also be introduced to emerging markets and the education sector that are more price-sensitive. • The gaming market has grown in diversity with new technologies constantly being introduced to entice consumers into replacing old products. Compal is in the position to offer gaming notebooks at various price levels to meet consumer demand. • Offer complete solutions and form alliances across industries to quickly tap into market demand while retaining the flexibility to satisfy customer needs. • Progressively nurture innovative talent within the organization, enhance the development capacity for high-end medical equipment and engage world-renowned medical equipment suppliers in strategic, long-term and mutually beneficial cooperation. 118 • Continue to strengthen working relationships with platform operators by providing hardware and software solutions. • Continue strengthen innovative development and enhance the collaboration with carrier partners. Build up the threshold on 5G technology and provide the most advanced total solution. 5.2.2 Major Products and Their Main Uses 1. Main product applications ■ Notebooks An analog-digital application hardware platform combined with dedicated software to enable a variety of applications such as data editing/processing, word processing, layout, graphics applications, web browsing, communications, digital multimedia entertainment, gaming and others. ■ Ultrabooks A laptop that emphasizes thinness and light-weight and takes into account computing as well as battery performance to meet the consumer need for both portability and productivity. ■ 2-in-1 Notebooks These devices use the Windows 10 operating system, have an optional stylus, and satisfy the growing consumer demand for mobile computing. In addition to multiple operating modes, the device has a touch screen that enables it to be used as a tablet. ■ All-in-one (AIO) Beautiful aesthetics suited for home, commercial, and design use, with emphasis on a touch screen input interface, a range of software applications and high computing power. ■ Smart Home Smart appliances, controls and sensors that provide users with diversified services for a smart lifestyle. ■ Servers Designed for high power computing, capable of storing massive amounts of data and compatible with different processing programs for data analysis. Built to accommodate different applications required by enterprises, data centers and cloud platforms. ■ Tablets Portable touch screen multimedia, mobile viewing and online information applications. ■ Displays Graphics displays with audio output. ■ Smartphones and Modules Personal communication and internet access. ■ AE • Touch screen Car multimedia players • Vehicle communication (3G/4G) system. • Voice controlled natural sound navigation. • Android Auto/Carplay connection. Smartphone Connection. • Accident alarm. • Integrated peripheral safety warning systems such as wireless tire pressure and collision avoidance radar. ■ IoT Ver\cal Solu\ons Flexible hardware designs allow a range of customized software applications along with the cloud and big data analysis for horizontal alliance. We offer clients complete solutions and services by the creation of novel applications. Unlikely conventional IT products, such as AGV and AI products, most of them need customization for various needs, but they elicit greater brand loyalty. ■ Smart Medicine and Healthcare Penetration into households and point-of-care areas using technology, including that of the IoT, and gradual integration with our own peripheral software products allows the provision of comprehensive solutions. 119 These can give convenient and instant smart health care that will enhance dependence on the products as well as engender user brand loyalty. ■ Servers These are designed for high computing power, capable of storing massive amounts of data and compatible with different processing programs for data analysis. They are built to accommodate the many different applications required by enterprises, data centers and cloud platforms. 120 2. Production processes of main products ■ Notebook PCs Casing of logic board Preparation of LCD display Assembly Preparation of main board Preparation of keyboard Fasten LED board Fasten power switch board Produce LED frame Inspect LCD panel Fasten interface board to lower casing Fix LCD panel to lower casing Apply hook to casing Combine upper & lower casing Assemble LCD casing & logic board upper casing (cid:2) Production process inspection (cid:2) Input inspection (cid:2) Input inspection Fasten motherboard to frame Parts processing SMT (surface mount Prepare battery spring Prepare battery wire Prepare disk drives (cid:2) Visual inspection technology) Insert add-ons Fasten disk drives+motherboard to bottom casing Fasten power board to motherboard Soldering furnace Remove board (cid:2) Production process Trip conductor inspection (cid:2) Prepare plunger + frame Install frame onto metal board Apply double-sided tape Insert keys Press keys and check Install PCB to lower casing Install wires to lower casing & fasten Fasten LCD casing & bottom casing Battery assembly Apply heat sink Machine wash Assemble upper casing Prepare name plate Process quality inspection Keyboard installation Secondary soldering (cid:2) (cid:2) Function test (cid:2) Accelerated aging test (cid:2) Function test Prepare name plate & paste onto unit Brush clean (cid:2) Visual observation Repair (cid:2) Process quality inspection Wipe down unit (cid:2) Automated machine (cid:2) Exterior inspection (cid:2) Accelerated aging testing Unit packaging (cid:2) Automated machine test testing (cid:2) QA testing Shipping of finished goods 121 Prepare parts Functional test Fasten metal parts Structural inspection Install connecting wires Assembly of LCD TV & monitor ↓ ↓ Assemble LCD panel ↓ ↓ Assemble display panel ↓ Assemble power panel ↓ ↓ Assemble back casing ↓ (cid:2) ↓ (cid:2) ↓ (cid:2) Accelerated aging test ↓ ↓ (cid:2) ↓ (cid:2) ↓ Wipe down exterior ↓ (cid:2) ↓ Paste front and back name ↓ plates (cid:2) QA testing ↓ ↓ Box and package ↓ (cid:2) Final product inspection Exterior inspection Screen adjustment Electrical test Pressure test Packaging ■ LCD TV & monitor Display panel Power panel SMT Parts processing Visual inspection SMT visual inspection ↓ ↓ ↓ ↓ Manually insert add-ons ↓ (cid:2) ↓ ↓ Manual soldering ↓ ↓ ↓ (cid:2) ↓ (cid:2) QA random inspection Apply heat sink Auto soldering Substrate test Apply glue SMT Parts processing ↓ ↓ ↓ SMT visual ↓ inspection Manually insert ↓ add-ons (cid:2) Visual inspection ↓ Auto soldering ↓ Manual soldering ↓ Apply glue 122 IMEI OK Packaging OK Shipment ■ Smartphones and tablet PCs Design/analyze OK Input material OK SQE test OK Install PCB SMD OK Welding of parts OK Base band TEST OK Assembly OK Vibration & appearance OK Function test OK FINAL TEST OK CALL TEST OK Current IDEL OK Exterior NO NO NO NO NO NO NO NO Repair OK Repair OK Repair Repair Repair Repair OK OK OK OK Repair OK Repair OK 123 5.2.3 Supply Status of Main Materials ■ CPU/Chipset (cid:3) Notebook The Intel 10nm process production yield was lower than expected in 2018, this delayed the mass production schedule of Ice Lake until the third quarter of 2019. Transferred 14nm production capacity and server demand growth was higher than the estimate and this resulted in a 25% shortage gap in CPU availability in the third quarter of 2018. This was more serious in the lower-end CPU Gemini Lake. To solve the shortage problem Intel put 1 billion US dollars into the 14nm production bases in Oregon, Arizona, Ireland and Israel to increase production. Mass production will begin in the third quarter of 2019, which will increase capacity by 25%. The shortage of Intel CPUs caused HP, Lenovo and Dell to increase AMD shipments and they started using AMD Stony Ridge CPU in the Chromebook. It is expected that AMD penetration will increase to 18%. Intel estimates that the CPU shortage will ease in Q3 2019. The Intel new product roadmap shows a high-end level launch of the first 8 core 14nm Coffee Lake-Refresh in Q2 2019. It has a performance 10% higher than the previous generation of Coffee Lake. The mid-level product, Comet Lake, will launch in Q3 2019 to replace the 14nm Whiskey Lake, with a 10% improvement in performance. The 10nm Ice Lake-U is expected to be launched in Q3 2019. The next generation of 10nm Tiger Lake will be launched in Q2 2020. It will still be dominated by Gemini Lake for low-end products in power-saving Chromebooks and small notebooks. The Gemini Lake Refresh, which is expected to be revised in the first quarter of 2020, will remain at 14nm. Overall, Intel shipping strategy will remain focused on 14nm from 2019 to 2020. (cid:3) Smartphones and Modules The growth of the smart phone chip market is gradually slowing down, the performance and user experience claimed for 5G has resulted in a postponement. The process of conversion is obvious, 28nm is still the mainstream, but the proportion will be significantly revised downwards in 2019. There is some chance for improvement in the cost structure for entry-level products and expanded shipments in emerging markets. The AP would be moving to higher-end processors and the key factor will be the 7nm and 12nm production capacity which will affect the shipment of medium and high-end models. In the first half of 2018, 5G solutions are still in the form of AP and 5G Modem chips. Many AP companies have announced the launch of stand-alone 5G data chips. The SOC solution will ship in early 2020. ■ HDD The popularity of the cloud and the efficiency of SSD storage technology has resulted in the traditional hard drive no longer being an essential PC device. HDD shipments in 2019 are expected to have negative growth of 15%. In terms of capacity, 500 GB, 1 TB, 2 TB, and 1 TB (SMR) hard drives are mainstream products. It is anticipated that much high capacity storage will go to the cloud and the tendency to increase storage beyond 2 TB is less urgent. In terms of rotation speed, 5400rpm is still the mainstream. Although access speed is faster at 7200rpm, consumers are not particularly impressed by the difference. In terms of thickness, 7mm remains the 124 mainstream, and no reductions are expected, the development of higher capacity will be the main target. The estimate for HDD shipments in 2019 shows a decline However, some manufacturers will make use of HAMR and MAMR technology to increase the storage capacity of HDDs and 3.5 inch hard drives used in data centers may have a capacity of 16 TB by 2020. The 3D NAND Flash yield rate has improved and SSD prices have gone down regularly in 2019. The HDD share in NB will be lower than 40%, and it is expected that the unit cost per GB will continue to go down in 2019 and HDD market share will be lower than 30% in NB. ■ Memory (cid:3) DRAM The main use of DRAM is in Mobiles (41%), Servers (26%), Consumers (15%), PCs (14%), and Graphics (5%). From an economic perspective, the US-China trade war and continuous threat of more tariffs has caused import and export trade uncertainty. There has been no significant increase or decrease in shipments in the 2019 due to the lack of breakthroughs in 3C products, and the slowdown in market demand for Smartphones, Servers and PCs continues. However, the increase in average carrying capacity is still driving demand growth. Shipments of Servers have been growing by 3% annually, and the size of GB/sys has increased from 268GB to 322GB and above. Shipment of Smartphones has been declining at 1% annually, with the size of GB/sys increased from 3.3GB to 3.8GB. Shipments for PC have also been declining at 1.7% annually, but the size of GB/sys has increased from 6.7GB to 7.1GB. In terms of DRAM supply, the DRAM market has finished capacity expansion and Samsung, SK Hynix and Micron started mass production in the second half of 2018. These companies had all fully embraced 1xnm by 2019, and Samsung has already started with the higher level 1ynm generation. The market tensions caused by the shortage of DRAM products are over and there might even be an oversupply. The result is no new development in technology, or new platform such as DDR5, is being developed by the manufacturers. In 2018, the Bitcoin mining demand collapse caused by the banning of Bitcoin trading in China, has left a large stock of GDDR5 to be digested in the market. The existing e-sports demand cannot cope with these mountainous stocks, the result has been a continuous decline in VRAM price. However, this VRAM inventory may be consumed in the second and third quarters of 2019, because Nvidia is to launch the new Turing-based GTX series and will be using GDDR5 again. There is a chance for the VRAM price to recover in the third quarter of 2019. The lowest point reached during the two periods of price decline in PC DRAM over the past 10 years was in 2012. There will probably be another low point at the end of 2019. The DRAM market is affected by the global economy, the decline in smartphone sales volume, as well as the unsteadiness of American and Chinese trade. The demand has been weak, transactions have remained slack and there has been no upturn. The main demand for DRAM is from mobiles, especially those with multiple cameras and lens systems and the new 5G models. The amount of DRAM used increases with each new model. The half year decline might not restrain demand and the stock could be consumed by the end of Q2. The supply during the first half of the year has been in excess, above that predicted. However, there may be convergence in Q3 ~ Q4. 125 (cid:3) NAND flash The overall demand for NAND Flash fell by nearly 20% in the Q1 2019. This was caused by the traditional off-season, coupled with weak server demand, the extended replacement cycle of mobile phones, and unexpected sales of the Apple iPhone. The NAND Flash capacity of mainstream mobile models has been expanded from 128GB to 256GB and high-end models even had 1TB in 2018. Furthermore, the size of the SSDs installed in NBs has also doubled to 512GB and more than 60% of them are expected to be equipped with SSD. This means the growth momentum will come from the raised average capacity and SSD carrying rate in a situation where server and mobile demand is weak. Although the price of NAND Flash has fallen by more than 50% in 2019 compared with the same period last year, manufacturers continue to put improved production and process technology into operation. The mainstream SSD will be 64-layer 3D TLC in the first half of this year. However, Samsung, Toshiba and Micron will be launching 96-layer 3D TLC, and Hynix will offer 72-layer 3D TLC in the second half of the year. In addition, the QLC SSD is being supplied by the manufacturers, which will increase the overall supply. There is still room for price reduction in the medium and high-capacity SSD segment. What will be of concern is the prospect of other manufacturers following up with QLC SSD in the second half of the year. According to current preliminary plans, the overall NAND Flash capacity of the manufacturers in the fourth quarter of 2019 will be more than that of last year. Mass production of 3D NAND has been the main operation and the Samsung production capacity is about 85%, Toshiba and WD about 75%, Micron about 90%, and SK Hynix about 60%. It is estimated that the portion of 3D NAND capacity in the fourth quarter of 2019 will increase by 20% over that of the same period in 2018 and the NAND Flash technology process has been upgraded. Even if the manufacturers slow down production of 96-layer Flash, as well as the expansion of capacity, supply and demand will remain the determining factor in the second half of 2019. ■ ODD Although NBs have become commonplace, we do not anticipate the inclusion of CD drives in models shipped in 2020. There were ODD devices in 29% of NBs shipped in 2018 and we expect this to go down to 23% by the end of 2019. The main specification was a DVD-RW (super-multi) with a tray height of 9.0mm. CD drives will not have new specifications in the future. The main ODD main suppliers are HLDS and PLDS. The number of NBs with ODD has fallen and these two suppliers have already start developing other applications. These include disks that are less easily damaged. The use of these disks will be mainly for archiving and data storage and this will result in a lower overall utilization rate. ■ BaZeries The rapid development of dedicated electrical vehicles by automobile manufacturers and the continued growth of this market, has increased the demand for cylindrical automotive batteries (EV, E-Bike). This has strengthened and is expected to be grow fast in 2019 and in the future. The saturated NB market has caused many battery manufacturers to transferred cylindrical productivity to automobile batteries. They are gradually withdrawing from the NB market, this is especially so for the Japanese manufacturer (Panasonic). The Korean manufacturers (LGC, SDI) have chosen to keep capacity open and accept orders selectively. However, they are also expected to follow the Japanese 126 manufacturers and withdraw from the NB market in the future. The supply of Polymer will become very important. It is light, thin, and has large capacity. Polymers can be customized to meet the requirements of Industrial design (ID). Chinese manufacturers such as Coslight, ATL, and BYD are now taking over the NB battery market share and have a significant price advantage. The market has become much more aware of battery safety in recent years. In the future, manufacturers will switch their targets from developing high ED (Energy Density) to achieving safer design not only because of obstacles in ED development related to cost and application range, but specifically with respect to safe design. Moreover, the application range of ceramic lithium batteries is increasing as a result of the rapid development, high energy density and the excellent safety of a solid electrolyte. As the raw material prices of batteries (lithium, cobalt, and nickel) continue to fluctuate, it is unlikely that the price of batteries will go down significantly in the short term. ■ LCD panels In 2018 TV panels benefitted from an upgrade when production of 10.5 and 8.6 generation panels started in the China factory. Special offers were made and monitor panel shipments increased under the influence of the full display productivity upgrade and demand from the gaming sector. However, a shortage of driver ICs and other components for NBs meant that supplies needed to be accumulated in advance. Demand for all applications grew, except that for PAD panels, which underwent a market recession. The shipments of both full display and narrow bezel NBs were outstanding in 2018. The penetration rate of the full display panel exceeded 30% for the first time, to reach 31%. The panel factory has continued to increase production capacity and the continuous promotion of full display products means that penetration is expected to reach rate of 45% in 2019. In the face of new productivity by panel makers in China, the Taiwan/Korea panel factory market strategy has become the development of high-technology panels to increase product value. Panel makers in Taiwan were the first to develop the Mini LED and look forward to the high-end market for high-definition panels. The Korean OLED panel technology is leading the world and the factory has stopped 8.5-generation LCD production, has switched to OLED, and is promoting this and other related products. Major production of non OLED devices in the future could well be Mini LED panels. The Mini LED has high brightness, high contrast and gives excellent quality that actually competes with that of OLED displays. Current development has reached a stage that includes movie theaters and home cinema, where high quality visual effects as needed. There are now also more opportunities for breaking into the consumer display market. New applications will cover mobile phones, pads, desktop displays, car displays and TV backlights and the Mini LED will enter the development stage between 2019 and 2020. The OLED camp is becoming mature with respect to POLED (flexible plastic panel) technology. It is expected that after 2019, some brands will launch products that feature folding screens. However, the yield rate and durability of the product will be the main obstacle to subsequent market development of these products. 127 ■ Touch control modules In 2018, overall consideration of cost and application in the NB main touch solution was based on one glass (OGS). However, the demand for touch control in NBs has not improved very much, and the direction of product design is still towards the integration of panel and touch technology. At present, the design of touch control in the NB entails only about 5% of the production effort. After touch technology was combined with the panel for mobile phones it became a mainstream interface. Smart phones account for 82% of the proportion of touch panel shipments. At present, the market tends to be mature and saturated, which also leads to some stagnation in the touch market. The demand for NBs with stylus pens was about 18% in 2018. The major applications were in 2 in 1 production. In addition to Microsoft, Google has also become active in the promotion of the Chrome Book 2 in 1 application. Google hopes that collocation of the stylus with the NB will allow students to have a smooth transition from writing with a pen to the use of a stylus. At present, there are several different protocols for stylus use: USI – Universal Stylus Initiative used by Dell, Lenovo, HP, Intel and Google; MPP – Microsoft Pen Protocol used by Microsoft; and AES – Active static electricity led by Wacom. It is clearly necessary to devise a means to make communications for touch products that use a stylus compatible across different devices. The first means for this was proposed by the USI camp, where two-way communications is established between the stylus and the device. The device is controlled by the stylus, and this is expected to become the mainstream design of the future. 128 5.2.4 Major Suppliers and Clients (1) Major Suppliers in the Last Two Calendar Years 2017 2018 Party Name Amount As a percentage to 2017 net purchases (%) Relationship with the issuer Name Amount As a percentage to 2018 net purchases (%) Relationship with the issuer Name 1 2 Company E Company B Others Net Purchase 278,237,309 107,522,344 439,304,387 825,064,040 33.72 13.03 53.25 100.00 N/A N/A Company E Company B Others Net Purchase 328,103,409 113,241,981 475,877,885 917,223,275 35.77 12.35 51.88 100.00 N/A N/A Company E Company B Others Net Purchase Unit: NTD thousand Amount 2019 first quarter As a percentage to 2019 first quarter net purchases (%) 36.03 10.05 53.92 100.00 75,418,270 21,037,016 112,891,744 209,347,030 Relationship with the issuer N/A N/A (2) Major Clients in the Last Two Calendar Years 2017 2018 2019 first quarter Unit: NTD thousand Party Name Amount As a percentage to 2017 net sales (%) Relationship with the issuer Name Amount As a percentage to 2018 net sales (%) Relationship with the issuer Name Amount As a percentage to 2019 first quarter net sales (%) Relationship with the issuer 1 Company a 2 Company d 3 Company e 4 Company f Others Net sales 126,400,242 353,750,583 97,284,723 154,122,521 156,098,890 887,656,959 N/A N/A N/A N/A 14.24 39.85 10.96 17.36 17.59 100.00 Company a Company d Company e Company f Others Net sales 128,790,649 414,474,616 66,783,151 187,925,666 169,732,329 967,706,411 N/A N/A N/A N/A 13.31 42.83 6.90 19.42 17.54 100.00 Company a Company d Company e Company f Others Net sales 23,024,220 95,899,762 18,785,644 32,167,065 40,723,862 210,600,553 N/A N/A N/A N/A 10.93 45.54 8.92 15.27 19.34 100.00 129 5.2.5 Production in the Last Two Years Year Production volume/ value Main products 2017 Unit: thousand devices; NTD thousands 2018 Production capacity Production volume Production value Production capacity Production volume Production value 5C electronics 118,701 99,257 881,078,686 122,631 106,027 934,122,749 5.2.6 Shipments and Sales in the Last Two Years 2017 Unit: devices; NTD thousands 2018 Domestic sales Volume 450 Value 2,211,434 Export sales Domestic sales Export sales Volume 97,512 Value Volume Value 885,445,525 398 1,818,019 Volume 102,797 Value 965,888,392 Year Sales volume Main products 5C electronics 5.3 Human Resources Year December 31, 2017 December 31, 2018 March 31, 2019 Number of employees Average age Average years of service Doctoral Degree Master Degree Academic qualifications University High school / Below/ others 75,392 27.53 1.97 0.06% 3.78% 18.83% 77.33% 82,374 27.69 2.06 0.05% 3,64% 18.83% 77.48% 130 81,339 28.51 1.95 0.05% 3.67% 18.45% 77.83% 5.4 (1) Environmental Protection Expenditure Compal is an assembler of electronic products and produces no significant pollution: To protect the environment and fulfill our social responsibility as well as reduce carbon emission and the impact on global warming, the Taiwan and Mainland China plants together incurred expenses of NT$10,731 thousand (excluding regular maintenance and green R&D) in 2018. We are keeping the promises we made as an earth citizen and hope to make substantial contribution to the protection of the global environment. We will continue our commitment to efforts in this respect. Compliance with EU RoHS directives: (2) All Compal products are 100% compliant with EU RoHS Directives. There have been no cases of returns for non-compliance. Compal requires suppliers to adjust the revised exclusion clause, and the relevant specifications for the use of plasticizers DEHP, BBP, DBP and DIBP, which came into effect in 2019, and have been effective since 2018/07/02. To manufacture environmentally friendly green products and meet the requirements of both international environmental laws and client demand, the Company has implemented “Management Standards for the Control of Environment-Related Substances in Parts and Materials” that covers all hazardous substances currently prohibited by law and banned by customers. We have implemented efficient and effective methods of inspection for hazardous substances using recognized component classification and risk control to establish a plant monitoring mechanism for oversight and verification. All the products manufactured by Compal comply with the validation IECQ QC 080000 Electrical and requirements of the Electronic Components and Products Hazardous Substance Process Management System. Responsive strategies and possible expenses: In the future, the Company will continue to implement its environmental responsibilities including the boosting of staff knowledge of environmental matters, the advocation of updated green living knowledge, Company response to government policy with respect to green consumption, and the regular priority assessment of green product content in procurement as well as continuous improvement in the energy efficiency of our plants. This includes scrutiny for all kinds of possible violations of environmental regulations in the operations management system, and the mandate to make timely response to all environmental laws. (3) 5.5 Labor Relations (1) ■ Availability and execution of employee welfare, education, training and retirement policies. Elaboration of the agreements between employers and employees, and protection of employee rights. Employee welfare: In addition to all their statutory labor rights and to help employees find a balance between work and personal life, both physical and mental, and to improve their vitality in the workplace, the Company has established an Employee Benefits Committee, a Life Committee, and other groups responsible for promoting worker welfare. The employee health benefits and activities include a fitness center, a medical facility, periodic health checks, recreational team competitions, family activities, travel, the arts, and leisure and all kinds. Group Life Insurance is covered by the Company that includes accident, medical, and cancer. Employee dependants may also join the scheme at a discounted rate, but at their own expense. We also have benefits such as scholarships for employees and their children. The Company actively supports the government in resolving the low birth rate crisis and childcare 131 ■ ■ ■ (2) policy in Taiwan. Since 2011, we have provided generous maternity grants for employees and their spouses and children. By the end of 2018, the Company had provided NT$150.67 million in maternity allowances and bonuses. There were 28 counts of employees who took parenting leave, with the right to return, in 2018. Education and training: The Company set training credits and outlined the credit system according to the needs of each level. The Company also integrates all training records in an online learning platform to further assist the competent staff in keeping abreast of learning progress. In 2018, a total of 2,640 training sessions (both internal and external) were organized; these courses delivered 127,126.77 hours of training and 38,718 persons enrolled. The total training expenses were NT$16,329 thousand. The training courses included: Orientation: New hire seminars and corporate culture experience camps were organized to help new hires better understand Company culture, the current status of the industry, and Company strategy and vision. Language training: Basic to advanced English and Japanese courses that train employees to respond to customers and gives them a global vision through workspace situational training. Managerial skills Training: To establish a comprehensive blueprint of development level, strengthen core competency at all levels in such aspects as teamwork, problem analysis, innovative thinking... and soon, to conduct planning for Company talent training at various stages. Professional training: Categorized new professional knowledge lectures, courses, and experience heritage job training to enhance employee expertise and technology and also to enhance Company core competitiveness through systematic management. E-learning: Offers related courses in new hire requisites, IT, 6 sigma, language, management, CSR and occupational safety. The Company uses Internet learning and resource sharing to offer real-time learning, the effect is maximized with a complete learning and training mechanism that utilizes a comprehensive knowledge management system. Retirement system The Company has developed its retirement system in accordance with the Labor Standards and the Labor Pension Acts. For employees who are transferred to affiliated companies, benefits are paid from the pension fund account according to the years of service by the employee in the respective departments, in proportion to the amount each department had contributed over the course of their service. Employer-employee communications and the enforcement of worker rights. The Company has always valued employer-employee relations, and has communication channels available to facilitate two-way communication that allows the Company to respond to the thoughts and opinions of employees in a prompt manner. The Company not only has policies in place to protect employee rights, but also makes decisions in the best interests of its employees. Personnel management The Company has clear policies in place to manage human resources and to guide employee behavior. There are specific levels of approval authority and detailed rules to guide decisions concerning employee recruitment, promotion, appraisal, assignment, leave of absence, resignation, confidentiality agreements, reward and discipline. These policies and rules exist to eliminate subjective judgment and to create a fair, open, and systematic corporate culture. (3) Work environment • Buildings are subjected to annual fire safety inspections and reports. • Buildings, plants and equipment are inspected daily and maintained on a regular basis. 132 (4) (5) • The Company hires regular cleaning services to ensure the cleanliness of its work environment. Employee safety • Personnel entry and exit is controlled by a security system. • Security personnel are stationed 24 hours a day to patrol plant premises and monitor the surveillance system. • Lectures and rehearsals are organized annually to demonstrate proper responses to cases of emergency. Actual or estimated losses arising as a result of employment disputes in the recent year up to the publication date of this annual report, and any responsive measures taken: • The Company did not suffer any losses due to employment dispute in the recent year, nor does it expect any occurrence in the coming year. • Responsive strategies and possible expenses: none. 5.6 Important Contracts Agreement Counterparty Period From Patent licensing Phoenix Technologies 2010.1.1 agreement Co Auto-renewed upon expiry 1. Tool Licenses 2. Source Code licenses 3. Maintenance Major Contents Restrictions Trading and manufacturing Dell Products L.P. agreement Under this agreement, the buyer will From procure computer products developed and 1997.06.26 manufactured by the seller, while the seller Auto-renewed will grant the buyer proper licenses to use upon expiry the products and provide after-sales technical services. Trading and manufacturing Acer Inc. agreement From 2001.10.01 Yearly Auto-renewed upon expiry Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with N/A after-sales technical services provided by the seller. 133 N/A N/A VI. Financial Information 6.1 Five-Year Financial Summary 1. Condensed Balance Sheet and Statement of Comprehensive Income ▓▓▓▓ Consolidated Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2019 Analysis 2014 2015 2016 2017 2018 Current assets 324,845,249 277,783,476 300,469,007 321,782,654 362,745,250 350,597,181 Property, plant, and 24,472,732 24,308,631 20,952,677 18,179,367 20,418,228 equipment 20,405,435 Intangible assets 1,035,162 1,194,193 1,291,281 1,284,660 1,516,253 1,695,903 Other assets Total assets Prior to Current distribution liabilities After distribution 28,397,575 24,639,275 24,303,146 22,109,740 15,115,092 17,571,259 378,750,718 327,925,575 347,016,111 363,356,421 399,794,823 390,269,778 250,264,267 202,757,075 209,232,199 231,955,732 274,207,898 259,764,905 256,832,412 208,009,032 214,478,756 237,184,287 (Note 2) - Non-current assets 22,266,514 15,570,384 25,500,097 22,752,717 12,425,077 14,911,307 Total liabilities Prior to distribution After distribution Equity attributable to parent company shareholders Ordinary shares Capital reserves Prior to Retained distribution earnings After distribution 272,530,781 218,327,459 234,732,296 254,708,449 286,632,975 274,676,212 279,098,926 223,579,416 239,978,853 259,937,004 (Note 2) - 101,386,923 103,775,795 105,804,389 101,895,584 105,723,646 107,819,999 44,232,366 44,711,266 44,241,606 44,191,916 44,071,466 44,071,466 14,296,445 12,838,638 11,779,274 10,938,773 9,932,434 9,933,014 47,721,872 51,877,511 55,289,409 56,557,146 60,060,381 61,396,881 43,293,091 47,450,840 50,867,256 52,149,999 (Note 2) - Other equity interests (3,139,021) (3,926,881) (4,624,653) (8,911,004) (7,459,388) (6,700,115) Treasury stock (1,724,739) (1,724,739) (881,247) Non-controlling interests 4,833,014 5,822,321 6,479,426 (881,247) 6,752,388 (881,247) 7,438,202 (881,247) 7,773,567 Total equity Prior to distribution After distribution 106,219,937 109,598,116 112,283,815 108,647,972 113,161,848 115,593,566 99,651,792 104,346,159 107,037,258 103,419,417 (Note 2) - Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2019, has not yet been audited by the CPA. 2. The 2018 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 3. The Company has retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 134 ▓▓▓▓ Parent-Company-Only Condensed Balance Sheet – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2019 Analysis 2014 2015 2016 2017 2018 Current assets 255,609,554 207,496,808 237,412,415 240,677,588 265,372,906 Property, plant, and equipment 2,230,023 2,181,737 2,132,114 2,092,272 2,128,181 Intangible assets 412,185 378,454 268,316 146,813 378,745 Other assets Total assets Prior to Current distribution liabilities After distribution 85,179,353 86,182,040 88,808,075 85,179,393 87,932,981 343,431,115 296,239,039 328,620,920 328,096,066 355,812,813 220,791,532 177,664,877 197,566,162 203,492,102 237,882,742 227,434,703 182,976,882 202,872,746 208,780,678 (Note 2) Non-current assets 21,252,660 14,798,367 25,250,369 22,708,380 12,206,425 Prior to Total distribution liabilities After distribution Equity attributable to parent company shareholders Ordinary shares 242,044,192 192,463,244 222,816,531 226,200,482 250,089,167 248,687,363 197,775,249 228,123,115 231,489,058 (Note 2) - - - - - N/A 44,232,366 44,711,266 44,241,606 44,191,916 44,071,466 Capital reserves 14,296,445 12,838,638 11,779,274 10,938,773 9,932,434 Prior to Retained distribution earnings After distribution 47,721,872 51,877,511 55,289,409 56,557,146 60,060,381 43,293,091 47,450,840 50,867,256 52,149,999 (Note 2) Other equity interests (3,139,021) (3,926,881) (4,624,653) (8,911,004) (7,459,388) Treasury stock (1,724,739) (1,724,739) (881,247) (881,247) (881,247) Non-controlling interests - - - - - Total equity Prior to distribution After distribution 101,386,923 103,775,795 105,804,389 101,895,584 105,723,646 94,818,778 98,523,838 100,557,832 96,667,029 (Note 2) Note: 1.The financial information is audited and reviewed by the CPA every year. 2. The 2018 annual financial statements have not been approved at a shareholders’ meeting. Therefore, the amount after allocation is not listed. 3. The Company retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 135 ▓▓▓▓ Consolidated Condensed Statement of Comprehensive Income – Based on IFRS Year Analysis Net sales revenue Gross profit Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2019 2014 2015 2016 2017 2018 845,700,752 847,305,698 766,810,035 887,656,959 967,706,411 210,600,553 32,364,662 33,378,357 32,836,970 31,964,569 30,567,091 7,662,179 Net operating income 11,664,922 11,312,452 11,063,645 9,208,429 9,261,746 2,421,498 Non-operating income and expense (1,937,570) 479,641 749,700 (1,094,152) 2,527,839 (311,698) Net income before tax 9,727,352 11,792,093 11,813,345 8,114,277 11,789,585 2,109,800 Net income from continuing operations Net loss from discounting operations 7,545,381 9,007,147 8,968,006 6,158,037 9,589,301 1,659,701 - - - - - - Net income (loss) 7,545,381 9,007,147 8,968,006 6,158,037 9,589,301 1,659,701 Income (Loss) from Other comprehensive income (loss) 4,555,499 (101,970) (1,265,546) (4,604,412) 387,887 746,547 (net after tax) Comprehensive income 12,100,880 8,905,177 7,702,460 1,553,625 9,977,188 2,406,248 Net income attributes to shareholders of the Parent Net income attributes to non-controlling interests Comprehensive income attributed to owners of parent Comprehensive income 7,024,461 8,684,610 8,130,890 5,749,525 8,913,365 1,350,258 520,920 322,537 837,116 408,512 675,936 309,443 11,548,480 8,552,926 6,916,562 1,189,818 9,278,187 2,095,773 attributed to non-controlling 552,400 352,251 785,898 363,807 699,001 310,475 interests Earnings per share (unit: dollar) 1.63 2.01 1.88 1.32 2.05 0.31 Note: 1. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2019 has not yet been audited by the CPA. 2. The 2018 annual financial statement for the current year has not yet been approved at a shareholders’ meeting. 3. The Company has retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 136 ▓▓▓▓ Parent-Company-Only Condensed Statement of Comprehensive Income – Based on IFRS Year Financial Summary for The Last Five Years (Note 1) Unit: NT$ thousands As of March 31, 2019 2014 2015 2016 2017 2018 803,504,061 802,994,930 725,653,095 841,309,602 911,050,122 21,288,913 22,737,590 21,281,171 21,544,440 21,880,841 Analysis Net sales revenue Gross profit Net operating income 7,291,756 7,305,278 5,972,854 5,170,549 6,936,706 Non-operating income and expense 286,853 2,857,612 3,398,892 1,508,171 3,021,610 Net income before tax 7,578,609 10,162,890 9,371,746 6,678,720 9,958,316 Net income from continuing operations Net loss from discounting operations 7,024,461 8,684,610 8,130,890 5,749,525 8,913,365 - - - - - Net income (loss) 7,024,461 8,684,610 8,130,890 5,749,525 8,913,365 Income (loss) from other comprehensive income (net 4,524,019 (131,684) (1,214,328) (4,559,707) 364,822 N/A after tax) Comprehensive income 11,548,480 8,552,926 6,916,562 1,189,818 9,278,187 Net income attributes to shareholders of the Parent Net income attributes to non-controlling interests Comprehensive income attributed to owners of parent Comprehensive income attributed to non-controlling interests - - - - - - - - - - - - - - - - - - - - Earnings per share(unit: dollar) 1.63 2.01 1.88 1.32 2.05 Note: 1.The financial information is audited and reviewed by the CPA every year. 2. The 2018 financial statement has not yet approved by the shareholders’ meeting. 3. The Company retroactively adjusted previous amounts in the financial statements effective January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 2. Auditors’ Opinions Year 2014 2015 2016 2017 2018 Accounting Firm KPMG KPMG KPMG KPMG KPMG CPA Audit Opinion Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Lo, Jui Lan Kuo, Kuan Ying; Au, Yiu Kwan Kuo, Kuan Ying; Au, Yiu Kwan Chien, Szu Chuan; Au, Yiu Kwan Modified unqualified opinion (Note 1) Modified unqualified opinion (Note 2) Unqualified opinion Unqualified opinion Unqualified opinion Note: 1. Brief disclosures of Company disposal of the equity investment of VIBO Telecom Inc and a record of the impairment of equity investment in Chunghwa Picture Tubes, Ltd. 2. Impact of retroactive adjustments to the 2014 financial statement due to adoption of the 2013 version of the International Financial Reporting Standards (IFRS) endorsed by the Financial Supervisory Commission (FSC) of the ROC. 137 6.2 Five-Year Financial Analysis ▓▓▓▓ Consolidated Financial Analysis – Based on IFRS Analysis Year Financial Analysis for the Last Five Years As of March 31, 2019 Debt ratio 71.96 66.58 67.64 70.09 71.70 70.38 2014 2015 2016 2017 2018 Capital Structure (%) Long term fund to property, plants, and equipment ratio Current ratio (%) Liquidity analysis Quick ratio (%) Operating Performance Analysis Interest coverage Accounts receivable turnover (times) Average collection turnover Inventory turnover (times) Accounts payable turnover (times) Average inventory turnover days Property, plant and equipment turnover (times) Total assets turnover(times) Return on total assets (%) Return on equity (%) 525.02 514.91 657.59 722.80 615.07 639.55 129.80 102.70 10.54 4.66 78.25 13.73 5.13 26.59 137.00 143.60 113.71 120.22 14.11 13.47 4.93 74.03 14.31 5.42 4.50 81.11 15.51 5.68 25.50 23.53 138.72 108.19 132.29 134.96 103.06 99.13 7.25 5.03 72.56 14.55 6.30 25.08 5.47 5.08 3.85 4.35 71.85 83.90 12.61 6.33 9.48 5.27 28.95 38.50 37.03 34.74 33.88 45.36 50.14 41.27 2.37 2.33 7.31 2.40 2.74 8.35 2.27 2.87 8.08 2.49 2.01 5.57 2.54 3.08 8.65 Profitability Analysis Operating income to paid-in capital ratio (%) 21.99 26.37 26.70 18.36 26.75 Net margin (%) Earnings per share (dollar) Cash flow ratio (%) Cash flow Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1. The ratio is negative. 0.89 1.63 13.51 (Note2) 19.59 1.57 1.10 1.06 2.01 4.70 1.16 1.88 0.61 0.69 1.32 0.99 2.05 (Note1) (Note1) (Note2) 1.95 42.42 (Note1) 1.58 1.09 1.57 1.09 48.05 (Note1) 1.63 1.16 44.84 (Not1) 1.60 1.40 2.13 0.56 1.45 4.78 0.78 0.31 - - - - - 2. Not applicable as financial information, for more than five years, in accordance with IFSR has not yet been disclosed. 3. The financial ratio has changed by up to 20% in the past two years: ‧Interest coverage: Mainly due to the increase in interest expenses compared to the earlier period. ‧Return on total assets: Mainly due to the increase in profit compared to the earlier period. ‧Return on equity: Mainly due to the increase in profit compared to the earlier period. ‧Operating income to paid-in capital ratio: Mainly due to the increase in profit before tax compared to the earlier period. ‧Net margin: Mainly due to the increase in profit compared to the earlier period. ‧Earnings per share: Mainly due to the increase in profit compared to the earlier period. ‧Cash flow ratio: Mainly due to net cash outflow in operating activities. ‧Cash reinvestment ratio: Mainly due to net cash outflow in operating activities. ‧Financial leverage: Mainly due to the increase in interest expenses compared to the earlier period. 4. The financial information is audited and certified by the CPA every year. The financial information as of March 31, 2019, has not yet audited by the CPA. 5. The Company made retroactive adjustment to previous amounts in the financial statements effective 138 January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 6. The 2018 financial statement has not yet been approved at a shareholders’ meeting ▓▓▓▓ Formula Financial Structure 1. (1) Debt Ratio = Total liabilities/Total assets (2) Ratio of long-term capital to property, plants, and equipment = (Net shareholders’ equity + Long-term liability)/Net property, plants, and equipment Solvency 2. (1) Current ratio = Current Assets/Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses)/Current liability (3) Interest coverage ratio = Net income before income tax and interest expense/Interest expense 3. Operating Efficiency (1) Accounts receivable (including accounts receivable and notes receivable from business activities) turnover = Net sales/Average accounts receivable balance (including accounts receivable and notes receivable from business activities) Inventory turnover = Cost of Goods Sold/Average inventory balance (2) A/R turnover days = 365/accounts receivable turnover (3) (4) Accounts payable (including accounts payable and notes payable from business activities) turnover = Cost of goods sold/Average accounts payable balance (including accounts payable and notes payable from business activities) Inventory turnover days = 365/Inventory turnover (5) (6) Property, plants, and equipment turnover = Net sales/Average Net Property, plants, and equipment (7) Total assets turnover = Net sales/Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)]/average asset balance (2) Return on equity = PAT/average net equity (3) Pre-tax income to paid-in capital = Net income before tax/Issued capital stock (4) Net profit ratio = PAT/Net sates (5) EPS = (PAT - preferred stock dividends)/weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities/Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities/Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend)/(Gross fixed assets + long-term investment + other assets + working capital) Leverage 6. (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense)/operating income (2) Financial leverage = Operating income/(Operating income - interest expenses) 139 ▓▓▓▓ Parent-Company-Only Financial Analysis – Based on IFRS Analysis Year Financial Analysis for the Last Five Years Debt ratio 70.48 64.97 67.80 68.94 70.29 2013 2014 2015 2016 2017 As of March 31, 2018 Capital Structure (%) Long term fund to property, plants, and equipment ratio Current ratio (%) Liquidity analysis Quick ratio (%) Operating Performance Analysis Interest coverage Accounts receivable turnover (times) Average collection turnover Inventory turnover (times) Accounts payable turnover (times) Average inventory turnover days property, plants, and equipment turnover (times) Total assets turnover(times) Return on total assets (%) Return on equity (%) 5,499.48 5,434.85 6,146.71 5,955.44 5,541.36 115.77 116.79 120.17 118.27 111.56 96.83 15.70 4.72 77.25 23.04 4.88 15.84 102.28 105.89 96.92 89.79 17.81 14.03 5.03 72.57 23.34 5.16 4.61 79.14 26.42 5.16 15.64 13.81 7.85 5.06 72.13 23.11 5.65 15.79 6.14 5.08 71.80 18.82 5.95 19.39 361.26 364.02 336.43 398.31 431.73 N/A 2.51 2.33 7.15 2.51 2.87 8.47 2.32 2.79 7.76 2.56 2.00 5.54 2.66 3.06 8.59 Profitability Analysis Operating income to paid-in capital ratio (%) 17.13 22.73 21.18 15.11 22.60 Net margin (%) Earnings per share (dollar) Cash flow ratio (%) 0.87 1.63 1.08 2.01 15.13 (Note1) 1.12 1.88 3.15 0.68 1.32 0.98 2.05 (Note1) (Note1) Cash flow Cash flow adequacy ratio (%) (Note2) (Note2) 38.20 11.48 5.45 Cash reinvestment ratio (%) Leverage Operating leverage Financial leverage Note: 1.The ratio is negative. 23.48 (Note1) 2.42 1.08 2.41 1.09 0.68 2.74 1.14 (Note1) (Note1) 2.86 1.23 2.59 1.39 2. Not applicable as the financial information, for more than five years, in accordance with IFRS has not yet been disclosed. 3. The financial ratio has changed by up to 20% in the past two years: ‧Interest Coverage: Mainly due to the increase in interest expenses compared to the earlier period. ‧Average Inventory Turnover Days: Mainly due to the decrease in Inventory Turnover (times) compared to the earlier period. ‧Return on Total Assets: Mainly due to the increase in net income compared to the earlier period. ‧Return on Equity: Mainly due to the increase in net income compared to the earlier period. ‧Operating Income to Paid-in Capital Ratio: Mainly due to the increase in income before tax compared to the earlier period. ‧Net Margin: Mainly due to the increase in net income compared to the earlier period. ‧Earnings Per Share: Mainly due to the increase in net income compared to the earlier period. ‧Cash flow ratio: Mainly due to net cash outflow in operating activities. ‧Cash Flow Adequacy Ratio: Mainly due to Most recent 5-year cash inflow from operating activities being lower than the earlier period. ‧Cash reinvestment ratio: Mainly due to net cash outflow in operating activities. 4. The financial information is audited and certified by the CPA every year. 5. The Company made retroactive adjustment to previous amounts in the financial statements effective 140 January 1, 2015, due to the adoption of the 2013 International Accounting Standards endorsed by the Financial Supervisory Commission of the ROC as of January 1, 2014. 6. The 2018 financial statement has not yet been approved at a shareholders’ meeting. ▓▓▓▓ Formula Financial Structure 1. (1) Debt Ratio = Total liabilities/Total assets (2) Ratio of long-term capital to property, plants, and equipment = (Net shareholders’ equity + Long-term liability)/Net property, plants, and equipment Solvency 2. (1) Current ratio = Current Assets/Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses)/Current liability (3) Interest coverage ratio = Net income before income tax and interest expense/Interest expense 3. Operating Efficiency (1) Accounts receivable (including accounts receivable and notes receivable from business activities) turnover = Net sales/Average accounts receivable balance (including accounts receivable and notes receivable from business activities) Inventory turnover = Cost of Goods Sold/Average inventory balance (2) A/R turnover days = 365/accounts receivable turnover (3) (4) Accounts payable (including accounts payable and notes payable from business activities) turnover = Cost of goods sold/Average accounts payable balance (including accounts payable and notes payable from business activities) Inventory turnover days = 365/Inventory turnover (5) (6) Property, plants, and equipment turnover = Net sales/Average Net Property, plants, and equipment (7) Total assets turnover = Net sales/Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)]/average asset balance (2) Return on equity = PAT/average net equity (3) Pre-tax income to paid-in capital = Net income before tax/Issued capital stock (4) Net profit ratio = PAT/Net sates (5) EPS = (PAT - preferred stock dividends)/weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities/Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities/Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend)/(Gross fixed assets + long-term investment + other assets + working capital) Leverage 6. (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense)/operating income (2) Financial leverage = Operating income/(Operating income - interest expenses) 141 6.3 Audit Committee’s Report for the Most Recent Year Audit Committee’s Review Report The Company’s 2018 financial statements have been approved by the Audit Committee and by the Board of Directors. Szu-Chuan Chien and Yiu-Kwan Au, certified public accountants of KPMG, have completed the audit of the financial statements and issued an audit report relating thereto. In addition, the Board of Directors has prepared and submitted to us the Company’s 2018 business report and proposal for distribution of earnings. We, the Audit Committee members, have duly examined and determined such business report and proposal for distribution of earnings to be in line with the requirements under the Company Law and relevant laws and regulations. According to Article 14-4 of the Securities and Exchange Act and Article 219 of Company Law, we hereby submit this report. Compal Electronics, Inc. Chairman of the Audit Committee: March 22, 2019 142 6.4 Consolidated Financial Statements and Independent Auditors’ Report Please refer to Attachment I. 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report Please refer to Attachment II. Status of Financial Difficulties for the Company and its Subsidiaries 6.6 Incidence of financial difficulties for the Company and its subsidiaries between the period of 2018 to the publication date of this annual report: None. 143 VII. Review of Financial Conditions, Financial Performance, and Risk Management 7.1 Analysis of Financial Status Analysis Year 2018 2017 Unit: NT$ thousands Difference Amount % 362,745,250 321,782,654 40,962,596 7,364,485 11,807,622 (4,443,137) 12.73 -37.63 accounted Current Assets Investments using equity method Property, plant and equipment Other Assets for Total Assets Current Liabilities Other Liabilities Total Liabilities Ordinary Share Capital surplus Retained Earnings Other Equity Interests Treasury stock Non-controlling Equity 20,418,228 9,266,860 399,794,823 274,207,898 12,425,077 286,632,975 44,071,466 9,932,434 60,060,381 (7,459,388) (881,247) 7,438,202 113,161,848 18,179,367 11,586,778 363,356,421 231,955,732 22,752,717 254,708,449 44,191,916 10,938,773 56,557,146 (8,911,004) (881,247) 6,752,388 108,647,972 2,238,861 (2,319,918) 36,438,402 42,252,166 (10,327,640) 31,924,526 (120,450) (1,006,339) 3,503,235 1,451,616 - 685,814 4,513,876 12.32 -20.02 10.03 18.22 -45.39 12.53 -0.27 -9.20 6.19 -16.29 - 10.16 4.15 Total Equity Note: Analysis of variations exceeding 20% and amounting to more than NTD10 million: (cid:3) Decrease in investments accounted for using equity method: Mainly due to the disposal of equity investment – Shares of LC Future Center Limited (cid:3) Decrease in Other Assets: Mainly due to the disposal of non-current financial assets at fair value through other comprehensive income (& non-current available-for-sale financial assets) (cid:3) Decrease in other liabilities: Mainly due to the decrease in long-term borrowings (cid:3) Effect of changes on the company’s financial position: Judging from the aforementioned causes, the effect from changes on the Company’s financial position in the last two years are normal outcomes from standard operating activities. (cid:3) Future response actions: Not applicable 144 7.2 Analysis of Financial Performance Analysis Year 2018 2017 Unit: NT$ thousands Difference Amount % Net Sales Cost of Sales Gross Profit Operating Expenses Operating Income Non-operating Income and Expenses Profit Before Tax Less: Income Tax Expense Net Profit (loss) Other Comprehensive Income (after tax) 967,706,411 937,139,320 30,567,091 21,305,345 9,261,746 2,527,839 11,789,585 2,200,284 9,589,301 887,656,959 80,049,452 855,692,390 81,446,930 31,964,569 (1,397,478) 22,756,140 (1,450,795) 9,208,429 53,317 9.02 9.52 -4.37 -6.38 0.58 (1,094,152) 3,621,991 -331.03 8,114,277 1,956,240 6,158,037 3,675,308 244,044 3,431,264 45.29 12.48 55.72 387,887 (4,604,412) 4,992,299 -108.42 Total Comprehensive Income 9,977,188 1,553,625 8,423,563 542.19 Note: Analysis of variations exceeding 20%: (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) Increase in Non-operating income and expenses: Mainly due to the increase in gains on disposal of investments, increase in gains on financial assets and liabilities at fair value through profit or loss, decrease in foreign currency exchange losses, increase in dividend revenue and increase in finance costs. Increase in profit before Tax: Mainly due to the increase of gains on non-operating income and expenses items. Increase in net Profit: Mainly due to the increase in profit before tax. Increase in other comprehensive income (after tax): Mainly due to the increase of gains of exchange differences on translation of foreign financial statements and increase in unrealized losses from investments in equity instruments measured at fair value through other comprehensive income. Increase in total comprehensive Income: Mainly due to the increase in net profit and other comprehensive income (after tax). ■ Forecast for sales for next year and basis for the forecast. Potential impact on the Company’s finances and sales in the future and response plan: (cid:3) Forecast for sales for next year and basis for the forecast According to the estimates from market intelligence service provider IDC, with regards to PC related products, the global NB PC market, desktop PC market and server market will grow/decline by +0%, -5%, and +2% respectively in 2019 compared to the previous year. As for smart wearable products, the global smart phone market, tablet PC market and smart wearable device market will grow/decline by -1%, -6%, and +27% in 2019 compared to the previous year. Looking forward to 2019, although the macro environment is still full of challenges, we still expect Compal 5C electronics shipments to grow year-over-year from last year’s 83 million units, after taking into account the market condition and Compal's business plans for 2019, and exhibit another year of growth. In addition, we also anticipate the revenue contribution of non-PC segment to grow toward 40% in the mid-to-long run. The related market analysis please refer to page 101～103 for “Industry Overview – current and future industry prospects”. (cid:3) Potential impact on the Company’s finances and sales in the future and response plan: In light of the growth in operation and future investments, the Company has established relevant financial strategies. For Compal’s funding needs for the year, please refer to the section on cash flow analysis for 2019. 145 7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year Unit: NT$ thousands Cash and Cash Equivalents, Beginning of Year (1) 70,062,713 Net Cash Flow from Operating Activities (2) (15,262,849) Cash Inflow (Outflow) (3) Cash Surplus (Deficit) (1)+(2)+(3) 15,496,681 70,296,545 Financing of Cash Deficit Investment Plans - Financing Plans - Note: 1. Cash Inflow (Outflow) includes the cashflow in investing activities, financing activities, and foreign exchange impacts. 2. Analysis of the change of 2018 cash flow changes: • • Net cash outflow in operating activities of $15,262,849 thousand: mainly due to reduce of net changes of assets and liabilities from operating activities. Net cash inflow in investing activities of $2,438,759 thousand: mainly due to the purchase of real-estate property, plants, and equipment, and the disposal of equity investments and available-for-sale financial assets. Net inflow of financing activities of $11,632,654 thousand: mainly due to the increase in loan and distribution of cash dividend. 3. Financing of cash deficits: not applicable. 4. Liquidity analysis: current asset to current liability ratio is 132.3%, representing the healthy liquidity status. • 7.3.2 Cash Flow Analysis for the Coming Year Unit: NT$ thousands Estimated Cash and Cash Equivalents, Beginning of Year (1) Estimated Net Cash Flow from Operating Activities (2) Estimated Cash Inflow (Outflow) (3) Cash Surplus (Deficit) (1)+(2)+(3) 70,296,545 16,343,100 (21,026,790) 65,612,854 Financing of Cash Surplus (Deficit) Investment Plans - Financing Plans - Note: 1. Estimated Cash Inflow (Outflow) includes the cashflow in investing activities, financing activities, and foreign exchange impacts. 2. Analysis of the 2019 cash flow changes: • Net cash inflow in operating activities of $16,343 thousand: expect sales growth and profits from the operation. Net cash outflow in investing activities of $6,021,927 thousand: expect to increase investment expenditures. Net cash outflow in financing activities of $15,068,097 thousand: expect to distribute cash dividend and increase/decrease in long-term and short-term debt. • • 3. Financing of cash deficits: not applicable. 4. Liquidity analysis: The Company should be able to mainly sound liquidity, as cash balance in the beginning of year plus net cash inflows from operating activities are adequate in meeting the Company's investing and financing needs. 146 7.4 Major Capital Expenditures 7.4.1 Major Capital Expenditures and Sources of Capital Project Actual or Planned Actual or Planned Source of Capital Date of Completion Total Capital Unit: NT$ thousands Actual or Expected Capital Expenditure 2018 Smart health and cloud-based integrated medical examination system 7.4.2 Expected Benefits Private Capital 2018 102,877 102,877 In light of the opportunities brought by IoT, Compal is in a good position to leverage its hardware manufacturing advantages with its ICT supply chain to develop application service systems with integrated software/hardware and cloud computing to target the domestic market in Taiwan. By creating a classic paradigm from which we optimize relevant software, hardware and service processes, we will be able to build a suite of comprehensive IoT application services. On the other hand, the medical/healthcare industry is still one of the key domains of applications that Compal has been aggressively cultivating. With the experience and capabilities that Compal has accumulated in the domain of ICT in the past, coupled with the investments made in the cultivation of medical and biotechnological talents, the Company has not only established relevant R&D teams specialized in the development of smart medicine/fitness equipment/mobile devices and service platforms, but also acquired exclusive agency rights to a structured Electronic Medical Record (EMR) system solution in Taiwan (and Southeast Asia) in December 2015. Through the solution, we will be able to acquire relevant big data and apply AI analytics to help doctors make faster and more accurate clinical diagnoses and provide more efficient patient ward services. This will in turn lighten the work load for medical staff, and improve the efficiency and quality of medical care to achieve the vision of digital medical service. As telecommunication technologies become more mature in the foreseeable future, through the application of mobile care, remote consultation and mobile ward rounds combined with wearable devices for biomedical signal monitoring and personal health management, we will be able to build a complete platform for smart medical care. Ultimately, this will help to further the optimization of medical resource allocation and facilitate the integration of medical resources and the realization of precision medical care. 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year (1) Investment policy 1. Competition in the industry has accelerated and Compal is in full thrust integration mode. “Enlightened Living and Computing with a Green Connection” is the Compal vision. Our long-term investment strategies are to focus on products that relate to our core business, to provide the best quality in computing, communications, consumer, cloud and connection, to provide full solutions in cost and technology, and to put emphasis on our partner’s compliance with labor regulations, and the avoidance of human trafficking and slavery. We also want to strengthen the core resources, through vertical integration, diversification, and strategic investments or acquisitions as well as integration and horizontal competition. 2. Improve post investment performance, strengthen the integration of Group resources and strategic partnerships with investment businesses, facilitate the cooperation between the Company and invested business, and require their full compliance with labor regulations and those against human trafficking and slavery. Connect related customers to an information network, and form strategic alliances with other industries. Sustain the performance of operating output in social, economic, and environmental 147 aspects using a high standard of specification. This includes increasing the efficiency and productivity, improving the rights of the workers, proper economic development, and environmentally friendly production in a clean operating base. The Company fully supports investment companies with good performance to plan for IPO to accelerate the realization of good returns on investments. (2) Main causes of profits or losses incurred on investments, and any corrective actions planned The 2017 consolidated profits from investment using the equity method came to approximately NTD 797 million, coming mainly from the performance of Compal Precision Module Co., Ltd., and Lipo Holding Co., Ltd. (3) 2019 investment plans The long-term investment plan next year will be based on the Company’s operating policy to position ourselves as the pioneer provider of mobile device solutions and provide products, through the integration of R&D resources and clients, of an all-in-one computer, TV, AE and enterprise servers. The Company follows the principle of steady operation and always focuses on our core businesses. We will expand on the foundation of our existing businesses, make some vertical integration where appropriate, and expand horizontally into related activities, while continuing to grow our core business. In the vertical integration of upstream and downstream businesses that are not involved in hardware production, we also will expand the size of our developers and the proportion of software and firmware, to increase the value of their tangible assets and bring in value from additional sales. We expect horizontal mergers and expansions to provide full IoT solutions for our clients which include applications in cross-industry automation, industrial computers, security control, the healthcare industry, cars, smart cities, smart buildings, restaurants and retail outlets, with the primary aim of providing new investment opportunities and challenges. In practice, apart from achieving internal growth under the existing business framework, we also accept the possibility of mergers, acquisitions, joint ventures, technical calibrations, and investment activities through bilateral or multi-lateral collaboration between business entities. The Company and its affiliates will proceed with the aforementioned expansion based on the consideration of whether the expansion can strengthen the Group’s advantage and assessment of reasonable risks. In terms of reinvestments, we follow the above mentioned principles and set basic principles in the following three directions: 1. The vertical integration of upstream and downstream businesses to increase the proportion of self-made parts and improve overall competitiveness. 2. Horizontal mergers and expansion of related products and services, as well as other industries that provide prominent synergy or growth. 3. Develop technology which is beneficial to the Company or its affiliates, or invest in assets that provide synergy or growth. 148 7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates, and Inflation on Corporate Finance, and Future Response Measures Net interest revenue and expense Items Net gain on exchange (including valuation of financial instruments) Net revenues Pre-tax income (Note) Net interest revenue/expense to net revenues Net interest revenue/expense to pre-tax income Net exchange gains to net revenues Net exchange gains to pre-tax income 1. Interest rate changes: Unit: NTD thousand; % 2018 (1,172,785) (430,612) 967,706,411 11,789,585 (0.121%) (9.948%) (0.045%) (3.652%) According to the most recent U.S. Fed meeting statement, FOMC decided to maintain the target range for the federal funds rate at 2.25% to 2.5%. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to rates might be appropriate. In addition, the market is expecting the Fed will not raise the rate any more in 2019. With regards to the interest rate for NTD, in light of the persistent uncertainties over the international economic, trade, and financial prospects and subdued inflationary pressures, the Board of the Central Bank of Taiwan has resolved that the bank will maintain the current rate at 1.375%. As of the end of 2018, the Company’s cash balance came to approximately NTD 70.297 billion. The long and short-term bank loans came to about NTD 100.884 billion, with net interest expenses for the year at NTD 1,172,785 thousand. The amount accounted for 0.121% and 9.948% of the Company’s net sales and income before tax respectively. As of December 31, 2018, should all other factors remain unchanged, the increase of 0.25% in interest will cause a decrease in income before tax of NTD 10,551 thousand. The Company will continue to monitor the change of interest rate closely and respond in a timely manner. 2. Exchange rate changes: The Company is export-oriented. And as such, the change and movement of exchange rate have a considerable impact on annual profit and loss. To minimize the impact on the Company’s operating profit/loss, the Company mainly utilizes hedging such as forward foreign exchange contracts and swaps to minimize the risks of exchange rate movements. The full year net exchange gains and losses, including the valuation of financial assets, came to $(430,612) thousand, accounting for (0.045%) and (3.652%) of net revenue and net profit before tax respectively. As of December 31, 2018, with all other factors remaining unchanged, a 5% appreciation of USD/TWD will increase income before tax by $67,828 thousand. We will take all necessary actions based on the fluctuation of the exchange rate in the future. 3. Inflation: According to relevant data published by the Central Bank, imported inflationary pressure would be held down 149 by lower international oil prices projected for this year. The CPI for the year was expected to grow by 0.97% and while CPI outlook should remain stable, we will continue to watch for potential impact on prices. 7.6.2 Policies, Main Causes of Gain or Loss, and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions 1. The Company does not make high-risk, high-leveraged investments. 2. The Company only offers financing to its related parties, mainly providing short-term financing for their operating needs. 3. The Company is engaged in endorsement and guarantee activities which are only negotiated between subsidiaries and the parent company. The arrangements are covered by proper Endorsement and Guarantee Procedures. 4. The Company uses a hedging strategy for assets and liabilities valued in foreign currencies. Such hedging, done through forward foreign exchange contracts and swap trading, covers the amount of net assets and liabilities to achieve the objective of risk aversion. At the end of 2018, the Company’s position in open forward foreign exchange contracts amounted to USD$ 136,900 thousand, EUR 52,200 thousand, and swap contracts of USD$ 27,300 thousand. The Company will continue to pay close attention to changes in exchange rates and execute timely hedging in the future. 5. In addition to prudent evaluation and control of the execution of related policies, the Company also relies on regulations such as “Guidelines for Handling Acquisition and Disposal of Assets”, “Endorsement and Guarantee Procedures”, “Third Party Lending Procedures”, and “Procedures for the Handling of Derivatives Trading”. 7.6.3 Future Research & Development Projects and Corresponding Budget Other than the Company’s efforts in innovation and improvement of computers, TVs, and other peripheral products, the Company also deems innovative research and development works as a niche for the Company’s sustainable growth. Various R&D programs are developed and proposed by R&D team based on their forecast of new technologies, understand of market trends, and integration of add-on function. They also team with clients to meet their market planning and detail product developments. In general, the Company usually has less than a one year product development cycle and aims to shorten the R&D cycle year after year. The IT industry is highly competitive, and the timing of product development is of vital importance. The rapid growth of sales has made the quality, experience, and capacity of R&D a decisive factor that will become the key as to whether the Company can achieve its business target and whether the existing customers continue their cooperation with the Company. The 2019 R&D expenses are expected to be NT$ 12.8 billion. 7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales The Company’s management team is paying close attention to any policies or regulations that may impact the Company’s operation. In 2018, the Company made all the necessary responses to significant changes in international and domestic policies and regulations, without a significant impact on Company operation. 150 7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales The constant arrival of new technology products to replace dated ones has changed the habits of users. This has consequently led to the emergence of different demands, and the development of ARM and Android has also impacted Wintel, which used to monopolize the market. Not only that, the emergence of cloud applications has also resulted in significant changes in the traditional PC market. The rising technology trend of IOT, Artificial Intelligence (AI), and 5G communication will also bring significant developments of industry as well as market opportunities. To cope with these changes, the Company has expanded new businesses to its existing product lines to embrace the latest industrial trends. As such, the Company has established its Innovation Center that is responsible for following and studying the latest developments in market trends. Not only that, the Innovation Center is also involved in the development of innovative products, technologies, and designs to strengthen the Company’s research on consumer behavior and thereby provide more accurate market segregation and product positioning to satisfy user needs. At the same time, we will also focus on boosting our innovative technology capabilities and plans for future product and market opportunities. 7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures Compal has concentrated on the IT and Communications industry for many years and has firmly adhered to our business philosophy of transcendence, sincerity, and harmony in a culture of ethics and honesty. We aim to be the best in world-class professional design, manufacturing, and services. As we pursue business growth, we always remember our obligations as a corporate citizen. We have strengthened corporate governance, fulfilled corporate social responsibility, and have established a good corporate image. In recent years, the Company business has expanded, the number of employees has increased, and our global production branches have increased in number. We have become acutely aware of the need for periodic checks of the external environment, a self-management system, and operational strategies for the early detection of potential corporate crises and the need for concrete and positive response plans and corrective measures. For many years, Compal has placed amongst the Top 500, Top 2000 businesses, and Top 2000 manufacturers in Taiwan by Fortune, Forbes Magazine, and CommonWealth Magazine respectively. In 2018, the Company placed within the top 6%-20% in the TWSE-listed Companies in the 4th round of “Corporate Governance Evaluation” and the distinction of the Award in the “Taiwan Corporate Sustainability Award” organized by the Taiwan Institute of Sustainable Energy. These prestigious awards once again reaffirmed the Company’s corporate image. There was no company crisis in 2018 nor was there any significant event that affected the company image in any way. 7.6.7 Expected Benefits from, Risks Relating to, and Response to Merger and Acquisition Plans In addition to continued cultivation of the existing information and communication technology (ICT) operations and enhancement of the core profit base, we are actively seeking out upcoming industries for merger, acquisition, joint venture, technical collaboration and other patterns, with the aim being to move into industrial computing, medical networking, IoT networking, vehicle networking and the medical equipment market. We will maintain stable development of existing businesses and also move ahead of the curve in other areas which have high growth momentum. The Company will integrate resources to increase R&D capacity, improve operational efficiency, and increase 151 competitiveness. We expect to benefit from synergy, have a positive impact on future shareholder equity, and maintain adequate control of organizational integration matters and financial risks. 7.6.8 Expected Benefits from, Risks Relating to, and Response to Factory Expansion Plans: None 7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration: None 7.6.10 Effects of, Risks Relating to, and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%: None 7.6.11 Effects of, Risks Relating to, and Response to the Changes in Management: None 7.6.12 Litigation or Non-litigation Matters Qualcomm Inc., filed litigation against the Company and its subsidiaries regarding a dispute over payment of royalties for a patent licensed on May 17, 2017. In response, the Company and its subsidiaries filed a counter suit against Qualcomm Inc., in the United States on July 19, 2017 for violation of the antitrust law. The above case was settled on April 16, 2019, and the two parties agreed to revoke the lawsuit filed against the other party. 7.6.13 Other Major Risks Information Security In order to maintain the competitive advantage and precious intellectual property of the company, the business division of Compal Electronics, Inc. followed the “Compal Information Security Management System” to establish information management processes and protection specifications in accordance with the government information security related laws and regulations to ensure the interests of the company, customers and employees, and maintain the competitiveness of the company. With the implementation of the Plan-Do-Check-Act (PDCA) management cycle, we continued to improve our information security system and comply with customer contracts properly to ensure the information security of the customers. Compal Electronics, Inc. had no proven complaints regarding intrusions to customer privacy or the loss of customer data in 2018. In response to external changes and the evolving of attack techniques, we continuously focus and invest in new information security knowledge and technologies for the effective advanced protection and detection of new information security threats to reduce operational risks. Compal Electronics, Inc. passed the ISO 27001:2005 information security certification in 2005, received the “Information Security Management System ISO 27001:2005” certification issued by the certification agency British Standards Institution (BSI) and gradually expanded the certification range while conducting regular tracking twice a year as well as reviewing audits every three years. In 2015 and 2017, we also passed the ISO 27001:2013 certification and received the “Information Security Management System ISO 27001:2013” certification, meeting the requirements of the new specifications. The scope of certification includes the information headquarters, research and development for portable computer products, research and development for all-in-one computer products, research and development for 152 vehicle electronics, and research and development for server products. In April and September of 2018, we also passed external audit reviews and obtained certifications as valid proof based on the review results, ensuring the effective operations of the information security management systems. After the integration of the smart device business group information security system, the control of existing VPN and personal network hotspots were strengthened, and the scope of regular vulnerability scans was expanded. In order to achieve the promise of “ensuring sustainable operations and increasing customer satisfaction” comprehensively, the “Information Security Committee” was established as the highest commanding unit for information security. Management review meetings were held during the first and second halves of the year to coordinate and discuss the information security plans, policies, goals, resource scheduling, etc., implementing the company’s information security governance policies, clearly declaring and implementing the maintenance of information security, and requiring the participation of all employees. (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) In order to increase the employee’s awareness on information security, all colleagues of Compal Electronics, Inc. has received social engineering exercises, propaganda on information security as well as educational training. The six major information security goals are measured monthly to monitor the control measures of information security management. BCP recovery exercises are executed regularly to ensure the validity of the BCP plan and that it meets the system recovery goals. Internal and external audits are executed regularly every six months to ensure that the management system is followed and improved continuously. Risk assessment is executed regularly every six months. Risk evaluation is performed through asset values and business processes, and risk processing measures are performed for the high-level risks evaluated. Due to the information security event of the industry in 2018, comprehensive reviews of the risk and protection measures for ransomware were also immediately conducted. Others International conglomerates face many risks such as regulatory compliance, business competition, localization, and globalization. It is the responsibility of each Company employee to turn such challenges into future opportunity. Ex ante risk identification, weekly risk assessment and prevention, and post-crisis management, have all been added to the Company target management cycle (PDCA), key performance indicators (KPI), and control system for internal use. Such processes allow the dedicated units responsible for these specific risks to establish rigorous and rapid means for response and a problem-solving culture. By working through regular and intermittent reviews and combining education, training and a performance risk appraisal system, they can cope with significantly different kinds of risk management based on local conditions. The company did not face any significant risk in 2018. 7.7 Other material issues: None. 153 VIII. Special Disclosure 8.1 Summary of Affiliated Companies (As of Dec 31, 2018) 8.1.1 Affiliated enterprises report 1. chart 154 155 2. Backgrounds of affiliated enterprises (December 31, 2018) Company name Compal Electronics, Inc. Date of establishment 1984.06.01 Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Compal Information Technology (Kunshan) Co., Ltd. Compal Information Research & Development (Nanjing) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. 2000.01.12 2008.08.11 2000.05.19 2003.01.07 2003.06.20 2007.11.28 2010.03.05 Kunshan Botai Electronics Co., Ltd. 2001.08.20 Compower Global Service Co., Ltd. 2012.04.23 Prospect Fortune Group Ltd. 2000.01.18 Jenpal International Ltd. 2010.12.27 Fortune Way Technology Corp. 2015.12.18 Just International Ltd. 1992.08.25 Compal Display Holding (HK) Limited Compal Electronics (China) Co., Ltd. 2008.08.11 1995.12.25 Address Paid-up capital Main business activities or products Unit: thousand dollars NT$44,071.466 Manufacturing, processing and trading of notebooks, computer monitors, LCD TVs, cellphones, and electronic parts General investment, and production and sale of notebooks US$53,001 US$74,803 General investments US$12,000 Production of notebooks, cellphones and electronics US$12,000 Production of notebooks, tablets and electronics US$24,000 Production of notebooks and electronics US$2,000 Hardware/software development and production of computers, cellphones and electronic components, and sale of self-produced products US$20,000 Production and sale of notebooks, cellphones and digital products US$1,000 Production and after-sale service of notebooks and cellphones RMB $ 2,000 Maintenance and after-sale service of notebooks and cellphones US$1 Trading of notebooks and related parts US$7,350 General investments US$14,900 General investments US$48,010 US$62,298 General investment, and production, sale and maintenance of computer monitors and LCD TVs General investments US$37,000 Manufacturing and sale of displays No. 581 and 581-1, Ruiguang Road, Neihu District, Taipei City Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands Room 511, 5F, Silvercord Tower 1, No. 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong No. 25, Third Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 15, Third Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 58, First Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China 8F, Changjiang Science Park, No. 40 Nanchang Road, Gulou District, Nanjing, Jiangsu, China No. 9, Second Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China No. 1881, Liji Road, Shipai, Bacheng Town, Kunshan City, Jiangsu, China No. 58, First Avenue, A Zone, Kunshan Comprehensive Free Trade Zone, Kunshan, Jiangsu, China Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Room 511, 5F, Silvercord Tower 1, No. 30 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong No. 988 Tongfengdong Road, Kunshan City Development Area, Jiangsu, China 156 Date of establishment 2018.04.13 Company name Compal Smart Device (Chongqing) Co.,LTD. Compal Optoelectronics (Kunshan) Co., Ltd. Compal System Trading (Kunshan) Co., Ltd. Compal Investment (Jiangsu) Co., Ltd. 2003.02.28 2007.10.24 2011.02.17 Compal Display Electronics (Kunshan) Co., Ltd. Compal International Ltd. 2011.03.30 1997.04.15 Compal Electronics International Ltd. 1997.04.22 Smart International Trading Ltd. 1998.09.03 Amexcom Electronics, Inc. Mexcom Technologies, LLC Mexcom Electronics, LLC CENA Electromex, S.A. de C.V. 2011.07.22 2011.07.22 2011.07.22 1986.11.26 Big Chance International Co., Ltd. Center Mind International Co., Ltd. Compal Investment (Sichuan) Co., Ltd. Compal Electronics (Chengdu) Co., Ltd. 2011.04.01 2011.04.01 2011.04.01 2011.04.02 Compal Management (Chengdu) Co., Ltd. 2011.05.25 Address Paid-up capital Main business activities or products NO.18-5,BAOHONG AVENUE,LIANGJIANG NEW DISTRICT,CHONGQING,CHINA(N O.D05,ZONE D,AIR PORT SECTION OF LIANGLU CUNTAN FREE TRADE PORT No. 988 Tongfengdong Road, Kunshan City Development Area, Jiangsu, China No. 435 Weiye Road, Kunshan City Development Area, Jiangsu, China China Business Section, Kunshan Economic & Technological Development Zone, Jiangsu, China (south of Zhonghuayuan Road and west of Renmin South Road) No. 1881, Liji Road, Shipai, Bacheng Town, Kunshan City, Jiangsu, China Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands 318 N. Carson Street, #208, Carson City, NV 89701 318 N. Carson Street, #208, Carson City, NV 89701 318 N. Carson Street, #208, Carson City, NV 89701 Ave Rio Bravo 1230 Parque Industrial Rio Bravo, Ciudad Juarez, Chihuahua, Mexico 32557 Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands No. 6, Shenglong Street, Wuhou District, Chengdu, Sichuan No. 88, Sec.1, ZongBao Avenue Chengdu Hi-tech Comprehensive Bonded Zone,Shuangliu County, Chengdu, Sichuan, China No. 6, Shenglong Street, Wuhou District, Chengdu, Sichuan 157 RMB$60,000 Development, production and sale of communication equipment, cellphones, computers and smart watches, and provision of relevant technical services US$12,100 Production and sale of LCD TVs US$1,400 International trade and distribution of computers and electronic components US$15,600 General investments US$15,000 Production and sale of LCD TVs US$500 Sale of monitors, LCD TVs and related parts US$9,245 General investments US$1 Trading of electronic products and related parts US$1,000 Sale and maintenance of LCD TVs US$1 General investments US$8,234 General investments US$8,050 Production, sale and maintenance of LCD TVs US$90,820 General investments US$80,820 General investments US$80,820 US$80,000 US$800 External investment and consultation service Development and production of notebooks, tablets, digital products, network switches, wireless APs, and auto electronics Management consultation, training, business information, tax advisory, investment consultation, and investment management Date of establishment 2011.06.02 2011.06.02 Company name Prisco International Co., Ltd. Compal Electronics (Chongqing) Co., Ltd. Core Profit Holdings Ltd. 2012.04.02 Billion Sea Holdings Ltd. 2012.04.02 High Shine Industrial Corp. 2007.07.04 Intelligent Universal Enterprise Ltd. Compal (Vietnam) Co., Ltd. 2007.08.02 2007.10.04 Goal Reach Enterprises Ltd. 2007.07.03 2007.07.03 Compal Development & Management (Vietnam) Co., Ltd. Panpal Technology, Inc. Gempal Technology, Inc. Hong Ji Capital, Inc. 2004.06.28 1997.10.29 1997.08.20 2008.07.15 2004.07.02 Hong Jin Investment, Inc. Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Compal Electronics India Private Limited Accesstek Inc., Inc. 2000.08.18 1996.05.21 Arcadyan Technology Corporation Arcadyan Technology N.A. Corp. Arcadyan Germany Technology GmbH 2003.05.09 2003.07.30 2007.04.11 Address Paid-up capital Main business activities or products Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands No.10-3,BaoHong Avenue, YuBei District, ChongQing, China (NO.A03,ZoneA,AirPort Section of LiangLu CunTan Free Trade Port Area) Vistra Corporate Services, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands Vistra Corporate Services, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands P. O. Box 3321,Drake Chambers, Road Town, Tortola, British Virgin Islands Ba Thien Industrial Zone, Binh Xuyen County, Vinh Phuc Province, Vietnam Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands Ba Thien Industrial Zone, Binh Xuyen County, Vinh Phuc Province, Vietnam No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City Rua Kanebo 175, Galpões C1 a C6, e C12 Distrito Industrial, Jundiaí, São Paulo, CEP:13213-090, Brazil B-4, Ecotech 1 Ext., Surajpur Kasna Rd., Greater Noida-201308, UP, India 5F-1, No. 65, Lane 525, Section 1, Guangfu Road, Hsinchu City 8F, No. 8, Section 2, Guangfu Road, East District, Hsinchu City US$10,000 General investments US$10,000 Development, production and sale of notebooks and related components, and provision of maintenance and after-sale services US$147,000 General investments US$147,000 General investments US$42,700 General investments US$30,000 General investments VND543,243,500 Production, development, sale and repair of notebooks, computer monitors, LCD TVs and electronic components General investments US$12,700 VND216,428,500 Construction and investment of infrastructures at Ba-Thien Industrial Zone, Vietnam NT$5,000,000 General investments NT$900,000 General investments NT$1,000,000 General investments NT$295,000 General investments BRL20,109 Production and after-sale service of notebooks, cellphones and electronics INR386,000 Production and after-sale service of cellphones NT$32,369 NT$1,936,190 Design, manufacturing and trading of optical disc writers and kits Research, development, production and sale of WLAN, integrated digital home and mobile office products Sale of wireless network products Sale and technical support of wireless networking products 5450 Thornwood Dr, Unit J Floor 2 San Jose CA 95123-1222, USA Koelner Strasse 10b D-65760 Eschborn, Germany US$669 EUR25 158 Company name Arcadyan Technology Corporation Korea Arcadyan do Brasil Ltda. Date of establishment 2014.10.16 2015.04.24 Arcadyan Technology Limited Arcadyan Technology Australia Pty Ltd Arcadyan Holding (BVI) Corp. 2016.08.16 2018.03.28 2007.03.07 Sinoprime Global Inc. 2004.12.29 Arcadyan Technology (Shanghai) Corp. Arch Holding (BVI) Corp. Compal Information Technology (Kunshan) Co., Ltd. Zhi-pal Technology Inc Tatung Technology Inc. 2002.04.17 2007.05.24 2006.06.26 2009.08.10 2008.01.21 2018.11.22 2012.12.11 Tatung Technology of Japan Co., Ltd. Quest International Group Co., Ltd. Exquisite Electronic Co., Ltd. Tatung Home Appliances (Wu Jiang) Co., Ltd. Acbel Telecom Inc. 2004.11.29 2001.02.13 2012.02.03 Leading Images Limited 2008.01.02 Great Arch Group Ltd.(Note) 2008.10.02 Astoria Networks GmbH Compal Broadband Networks Inc. 2008.09.22 2009.08.19 Speedlink Tradings Limited 2011.12.30 Address Paid-up capital Main business activities or products Rm.#1109, 166, Gunpo-si, Gyeonggi-do, Korea Avenida Dr. Delfim Moreira, 356-SL 202, Centro, Minas Gerais, Santa Rita, Brazil, CEP 37540-000 183 Fraser Road, Sheffield, S80JP, United Kingdom Suite 476 Level 4, 311-315 Castlereagh Street, Sydney NSW 2000 Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands 4F, Block 2, No. 80 Huashen Road, Free Economic Pilot Zone, Shanghai, China Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands No. 520 Nanbang Road, Economic & Technological Development Zone, Kunshan, Jiangsu, China, China 5F, No. 58, Lane 188, Ruiguang Road, Neihu District, Taipei City 10F, No. 288, Section 6, Civic Boulevard, Xinyi District, Taipei City 1 Chome-2-18, Mita, Minato-ku, Tokyo-to, Japan Level 2, Lotemau Centre, Vaea Street, Apia, Samoa. Level 2, Lotemau Centre, Vaea Street, Apia, Samoa. No. 508 Youming Road, Songling Town, Wujiang District, Suzhou, Jiangsu, China 5F, No. 58, Lane 188, Ruiguang Road, Neihu District, Taipei City Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands Koelner Strasse 10b D-65760 Eschborn, Germany 13F-1, No. 1, Taiyuan 1st Street, Zhubei City, Hsinchu County KRW100,000 Sale of wireless networking products BRL9,682 Sale of wireless network products GBP50 AUD 50 Technical support for wireless networking products Sale of wireless networking products US$32,780 General investments US$9,050 General investments US$13,100 Development and sale of WLAN products US$10,550 General investments US$12,450 Production and sale of WLAN products NT$349,800 General investments NT$410,000 Development and sale of digital home electronics JPY 5,000 Sale of digital home electronics US$1,200 General investments US$1,170 General investments US$3,350 Production and sale of digital home electronics NT$85,720 General investments US$50 General investments US$50 Sale of wireless networking products EUR25 Sale of wireless networking products NT$668,184 Development and sale of cable modems, set-top boxes and communication products Import and export trading Palm Grove House, P.O. Box438, Road Town,Tortola, British Virgin Islands US$50 159 Date of establishment 2018.01.01 Company name Compal Broadband Networks Belgium BVBA Zhaopal Investment 2009.10.15 Yongpal Investment 2009.10.15 Kaipal Investment 2009.10.15 Henghao Technology Co., Ltd. 2010.12.10 HengHao Holdings A Co., Ltd. 2010.12.10 HengHao Holdings B Co., Ltd. 2010.12.14 HengHao Optoelectronics Technology (Kunshan) Co., Ltd. HengHao Trading Co., Ltd. 2010.05.07 2010.12.15 Lucom Display Technology (Kunshan) Ltd. Mactech Inc. 2010.11.01 2000.05.23 Ripal Optotronics Co, Ltd. 2013.8.26 Rayonnant Technology Co., Ltd Compal Rayonnant Holdings Ltd. 2010.03.23 2011.12.02 Allied Power Holding Corp. 2005.04.07 Primetek Enterprises Ltd. 2005.01.28 2010.03.31 2010.06.04 Rayonnant Technology Holdings (HK) Co., Ltd. Rayonnant Precision Technology (Taicang) Co., Ltd. Bizcom Electronics, Inc. Address Paid-up capital Main business activities or products Bekersveld 19, 2630 Aartselaar, BELGIUM EUR$200 No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 581, Ruiguang Road, Neihu District, Taipei City No. 2-1, Wenhua Rd., Hsin-chu Industrial Park, Hukou Shiang, Hsin-chu County 30352, Taiwan R.O.C. Palm Grove House , P.O. Box 438, Road Town Tortola, British Virgin Islands Palm Grove House , P.O. Box 438, Road Town Tortola, British Virgin Islands NO.520, Nanbang Rd., Kunshan City, Jiangsu Province, China Palm Grove House , P.O. Box 438, Road Town Tortola, British Virgin Islands NO.520, Nanbang Rd., Kunshan City, Jiangsu Province, China No. 89, Land 36, Section 2, Tanxing Road, Tanyang Village, Tanzi District, Taichung City 2F, No. 256, Section 3, Zhongzheng Road, Rende District, Tainan City No. 581, Ruiguang Road, Neihu District, Taipei City Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands P.O. Box 3321, Sealight House, Road Town, Tortola, British Virgin Islands Palm Grove House, P.O. Box 438, Road Town, Tortola, British Virgin Islands. Room 1904, 19 F, phuket commercial centre, 5 Hanoi road, Tsim Sha Tsui, Kowloon, Hong Kong No.9 Tainan Road,Industry Park, Taicang, Jiangsu, China Import and export of broadband network products and related components, and provision of technical support and consultation services General investments NT$1,358,000 NT$1,188,500 General investments NT$510,500 General investments NT$638,150 Manufacturing of electronic components, computers and peripherals US$46,882 General investments US$46,882 General investments US$40,000 Production touch panels and related components US$10 Trading US$15,000 Production touch panels and LCD displays NT$411,458 NT$60,000 Manufacturing of machinery and lighting equipment, retail sale of machinery, and international trade Manufacturing of home appliances and audiovisual electronics NT$295,000 US$12,500 Manufacturing and sale of computers and peripherals General investments US$21,151 General investments US$3,151 General investments US$18,000 General investments US$18,000 Development and production of aluminum and magnesium alloy-based products 1992.04.13 1171 Montague Express Way, Milpitas, CA 95035, USA US$100 Marketing and after-sale of computer monitors and notebooks 160 Address Paid-up capital Main business activities or products Date of establishment 2008.03.05 2008.10.27 2007.08.09 2014.02.19 1999.01.16 2011.09.29 2000.07.05 2003.09.23 2004.03.26 Company name Compal Europe (Poland) Sp. z o.o. Auscom Engineering Inc. Flight Global Holding Inc. Compalead Electronics B.V. General Life Biotechnology Co., Ltd. Rapha Bio Ltd. Etrade Management Co., Ltd. Compal Communications (Nanjing) Co., Ltd. Compal Digital Communications (Nanjing) Co., Ltd. Compal Wireless Communications (Nanjing) Co., Ltd. Webtek Technology Co., Ltd. 2006.02.13 2000.07.07 Forever Young Technology Inc. 2004.11.25 Giant Rank Trading Limited 2004.11.25 HANHELT Communications (Nanjing) Co., Ltd. 2009.03.11 Unicom Global. Inc 2006.03.21 Palcom International Corporation Compal Electronics (Holding) Ltd. 2006.03.22 1997.04.22 UniCore Biomedical Co., Ltd. 2018.01.25 Techniczna 792-518 Lodz, Poland One Dell Way, MSC PS2-88, Round Rock, Texas 78682, USA P. O. Box 3321, Drake Chambers, Road Town, Tortola, British Virgin Islands Prins Bernhardplein 200, 1097 JB Amsterdam, the Netherlands No.581-1, Ruiguang Rd., Neihu Dist., Taipei City 5F, No.240, Shinshu Rd., Shin Juang Dist., New Taipei City Palm Grove House, P.O. Box 438,Road Town, Tortola, British Virgin Islands No.68-2, Suyuan Road, Export Processing Zone (South Area). Jiangning Nanjing China No.77 Gaohu Street, Jiangning Economic & Technological Development Zone, Nanjing, China No.68-2, Suyuan Road, Export Processing Zone (South Area). Jiangning Nanjing China Palm Grove House, P.O. Box 438,Road Town, Tortola, British Virgin Islands P.O. Box 3321, (Sealight House), Road Town, Tortola, British Virgin Islands Palm Grove House P.O. Box 438 Road Town, Tortola, British Virgin Islands Room 301 3rd floor 43#, Headquarters Park,N0.70# Phoenix Road Jiangning District, Nanjing, China No. 581, Ruiguang Road, Neihu District, Taipei City 8F, No. 385, Yangguang St., Neihu District, Taipei City Tropic Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin Islands 1F, No. 50, Section 1, Jiuzong Road, Neihu District, Taipei city 2017.10.18 Raycore Biotech Co., Ltd. Shennona Corporation Note: The liquidation procedure was completed in April 2018. No. 581, Ruiguang Road, Neihu District, Taipei City 1171 Montague Express Way, Milpitas, CA 95035, USA 2018.01.10 161 PLN6,804 US$3,000 US$89,755 Maintenance and after-sale service of notebooks and cellphones Development of notebooks and related components, hardware and software General investments US$6,427 General investments NT$300,000 Production and wholesaling of medical equipment NT$12,750 In vitro test supplies and equipment US$71,900 General investments US$22,000 Production of cellphones and tablets US$5,800 Production of cellphones and tablets US$39,000 Production of cellphones and tablets US$100 Sale of cellphones US$50 Sale of cellphones US$ - Sale of cellphones US$2,000 Development of electronic communication equipment NT$100,000 NT$100,000 Manufacturing and retail of computers and electronic components Sale of cellphones US$1 General investments NT$200,000 NT$25,000 US$1,000 Management consultation, leasing, and wholesale/retail of medical equipment Wholesaling and retailing of veterinary drugs Medical care IOT business 3. Business activities and relationships of affiliated enterprises (December 31, 2018) Industry category Investment holding company Name of affiliated enterprise Business relationship with other affiliated enterprises Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Jenpal International Ltd. Fortune Way Technology Corp. Just International Ltd. Compal Display Holding (HK) Limited Compal Investment (Jiangsu) Co., Ltd. Compal Electronics International Ltd. Mexcom Technologies, LLC Mexcom Electronics, LLC Big Chance International Co., Ltd. Center Mind International Co., Ltd. Compal Investment (Sichuan) Co., Ltd. Prisco International Co., Ltd. Core Profit Holdings Ltd. Billion Sea Holdings Ltd. High Shine Industrial Corp. Intelligent Universal Enterprise Ltd. Goal Reach Enterprises Ltd. Panpal Technology Corporation Gempal Technology Co., Ltd. Hong Ji Investment Co., Ltd. Hong Jin Investment Co., Ltd. Zhaopal Investment Co., Ltd. YongPal Investment Co., Ltd. KaiPal Investment Co., Ltd. Compal Rayonnant Holdings Ltd. Allied Power Holding Corp. Flight Global Holding Inc. Compalead Electronics B.V. Etrade Management Co., Ltd. Compal Electronics (Holding) Ltd. Arcadyan Holding (BVI) Corp. Arch Holding (BVI) Corp. Holds investment interest in Compal International Holding (HK) Limited, Prospect Fortune Group Ltd., Jenpal International Ltd., and Fortune Way Technology Corp. Holds investment interest in Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Kunshan Botai Electronics Co., Ltd., and Compal Investment (Jiangsu, China) Co., Ltd. General investments General investments Holds investment interest in Compal Display Holding (HK) Limited, Compal International Ltd., and Compal Electronics International Ltd. Holds investment interest in Compal Electronics (China) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal System Trading (Kunshan) Co., Ltd., and Compal Investment (Jiangsu, China) Co., Ltd. Holds investment interest in Compal Display Electronics (Kunshan) Co., Ltd. Holds investment interest in Smart International Trading Ltd., Amexcom Electronics, Inc., Mexcom Technologies, LLC, and Mexcom Electronics, LLC Holds investment interest in CENA Electromex, S.A. de C.V. Holds investment interest in CENA Electromex, S.A. de C.V. Holds investment interest in Center Mind International Co., Ltd. and Prisco International Co., Ltd. Holds investment interest in Compal Investment (Sichuan) Co., Ltd. Holds investment interest in Compal Electronics (Chengdu) Co., Ltd. and Compal Management (Chengdu) Co., Ltd. Holds investment interest in Compal Electronics (Chongqing) Co., Ltd. Holds investment interest in Billion Sea Holdings Ltd. General investments Holds investment interest in Intelligent Universal Enterprise Ltd. and Goal Reach Enterprises Ltd. Holds investment interest in Compal (Vietnam) Co., Ltd. Holds investment interest in Compal Development & Management (Vietnam) Co., Ltd. General investments General investments General investments General investments General investments General investments General investments General investments General investments General investments General investments General investments General investments Holds investment interest in Sinoprime Global Inc., Arch Holding (BVI) Corp., and Shanghai Guangzhi Technology Development Co., Ltd. Holds investment interest in Compal Information Technology (Kunshan) Co., Ltd. 162 Industry category Name of affiliated enterprise Business relationship with other affiliated enterprises Electronic products wholesaling Electronic products manufacturing Zhi-pal Technology Inc Quest International Group Co., Ltd. Exquisite Electronic Co., Ltd. Acbel Telecom Inc. Holds investment interest in Compal Broadband Networks Inc. and Arcadyan do Brasil Ltda. Holds investment interest in Exquisite Electronic Co., Ltd. Holds investment interest in Tatung Home Appliances (Wu Jiang) Co., Ltd. Holds investment interest in Leading Images Limited and Great Arch Group Ltd. Holds investment interest in Astoria Networks GmbH General investments General investments Leading Images Limited Sinoprime Global Inc. Rayonnant Technology Holdings (HK) Co., Ltd. General investments HengHao Holdings A Co., Ltd. General investments HengHao Holdings B Co., Ltd. General investments Primetek Enterprises Ltd. Trading of notebooks and related parts Prospect Fortune Group Ltd. International trade and distribution of computers and electronic Compal System Trading (Kunshan) Co., components Ltd. Sale of monitors, LCD TVs and related parts Compal International Ltd. Trading of electronic products and related parts Smart International Trading Ltd. Sale of cellphones Webtek Technology Co., Ltd. Sale of cellphones Forever Young Technology Inc. Sale of cellphones Giant Rank Trading Limited Sale of cellphones Palcom International Corporation Arcadyan Technology N.A. Corp. Sale of wireless networking products Arcadyan Technology Corporation Korea Sale of wireless networking products Sale of wireless networking products Arcadyan do Brasil Ltda. Sale of wireless networking products Arcadyan Technology Australia Pty Ltd. Development and sale of digital home electronics Tatung Technology Inc. Sale of digital home electronics Tatung Technology of Japan Co., Ltd. Sale of wireless networking products Great Arch Group Ltd. Sale of wireless networking products Astoria Networks GmbH Sale and technical support of wireless networking products Arcadyan Germany Technology GmbH Trading HengHao Trading Co., Ltd. Import and export trading Speedlink Tradings Limited Import and export of broadband network products and related Compal Broadband Networks Belgium components, and provision of technical support and consultation BVBA services Manufacturing, processing and trading of notebooks, computer monitors, LCD TVs, cellphones, and electronic parts Production of notebooks, cellphones and electronics Compal Electronics Inc. Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Production of notebooks, tablets and electronics Compal Information Technology (Kunshan) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. Kunshan Botai Electronics Co., Ltd. Compal Electronics (China) Co., Ltd. Compal Smart Device (Chongqing) Co., Ltd. Production of notebooks and electronics Production and after-sale service of notebooks and cellphones Manufacturing and sale of displays Development, production and sale of communication equipment, cellphones, computers and smart watches, and provision of relevant technical services Production and sale of LCD TVs Production and sale of notebooks, cellphones and digital products Compal Optoelectronics (Kunshan) Co., Ltd. Compal Display Electronics (Kunshan) Co., Ltd. Amexcom Electronics, Inc. CENA Electromex, S.A. de C.V. Production and sale of LCD TVs Sale and maintenance of LCD TVs Production, sale and maintenance of LCD TVs 163 Industry category Name of affiliated enterprise Business relationship with other affiliated enterprises Compal Electronics (Chengdu) Co., Ltd. Development and production of notebooks, tablets, digital products, network switches, wireless APs, and auto electronics Compal Electronics (Chongqing) Co., Ltd. Development, production and sale of notebooks and related Compal (Vietnam) Co., Ltd. Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Unicom Global. Inc Accesstek Inc. Arcadyan Technology Corp. Compal Broadband Networks Inc. Henghao Technology Co., Ltd. Mactech Co., Ltd. components, and provision of maintenance and after-sale services Production, development, sale and repair of notebooks, computer monitors, LCD TVs and electronic components Production and after-sale service of notebooks, cellphones and electronics Manufacturing and retail of computers and electronic components Design, manufacturing and trading of optical disc writers and kits Research, development, production and sale of WLAN, integrated digital home and mobile office products Development and sale of cable modems, set-top boxes and communication products Manufacturing of electronic components, computers and peripherals Manufacturing of machinery and lighting equipment, retail sale of machinery, and international trade Manufacturing and sale of computers and peripherals Production of cellphones and tablets Manufacturing of home appliances and audiovisual electronics Production of cellphones and tablets Production of cellphones and tablets Rayonnant Technology Co., Ltd. Compal Communications (Nanjing) Co., Ltd. Compal Digital Communications (Nanjing) Co., Ltd. Compal Wireless Communications (Nanjing) Co., Ltd. RiPAL Optotronics Co., Ltd. Compal Electronics India Private Limited Production and after-sale service of cellphones Compal Information Technology (Kunshan) Co., Ltd. Tatung Home Appliances (Wu Jiang) Co., Ltd. HengHao Optoelectronics Technology (Kunshan) CO., LTD Rayonnant Precision Technology (Taicang) Co., Ltd. Lucom Display Technology (Kunshan) Ltd. Production touch panels and LCD displays Compal Information Research & Development (Nanjing) Co., Ltd. Compower Global Service Co., Ltd. Production and sale of digital home electronics Production and sale of WLAN products Production touch panels and related components Development and production of aluminum and magnesium alloy-based products Hardware/software development for computers, cellphones and electronic components Maintenance and after-sale service of notebooks and cellphones Compal Management (Chengdu) Co., Ltd. Management consultation, training, business information, tax HANHELT Communications (Nanjing) Co., Ltd. Bizcom Electronics, Inc. Compal Europe (Poland) Sp. z o.o. Auscom Engineering Inc. Arcadyan Technology (Shanghai) Corp. Arcadyan Technology Limited Compal Development & Management (Vietnam) Co., Ltd. advisory, investment consultation, and investment management Development of electronic communication equipment Marketing and after-sale of computer monitors and notebooks Maintenance and after-sale service of notebooks and cellphones Development of notebooks and related components, hardware and software Development and sale of WLAN products Technical support for wireless networking products Construction and investment of infrastructures at Ba-Thien Industrial Zone, Vietnam UniCore Biomedical Co., Ltd. Management consultation, leasing, and wholesale/retail of medical equipment Raycore Biotech Co., Ltd. Wholesaling and retailing of veterinary drugs 164 Technology service Construction and development Leading and management consulting Wholesale and retail of Industry category veterinary drugs Manufacturing and sale of medical equipment Medical care Name of affiliated enterprise Business relationship with other affiliated enterprises General Life Biotechnology Co., Ltd. Rapha Bio Ltd. Manufacturing and sale of medical equipment Sale of test instruments and supplies Shennona Corporation Medical care IOT business 165 4. Directors, supervisors, and President of affiliated enterprises December 31, 2018 Unit: NTD thousands; shares; % Company name Title Name or name of representative Compal Electronics Inc. Chairman Vice Chairman Director Director Sheng-Hsiung Hsu Jui-Tsung Chen Binpal Investment Co., Ltd. (Representative: Wen-Being Hsu ) Kinpo Electronics, Inc. (Representative: Shyh-Yong Shen) Chang Chi Ko Sheng Chieh Hsu Yung-Chia Chou Chung-Pin Wong Director Director Director Director and President Chiung-Chi Hsu Director Ming-Chih Chang Director Anthony Peter Bonadero Director Director Sheng-Hua Peng Independent Director Min-Chih Hsuan Independent Director Duei Tsai Independent Director Duh Kung Tsai Representative Representative Director Compal International Holding Co., Ltd. Compal International Holding (HK) Limited Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Compal Information Technology (Kunshan) Co., Ltd. Director Director Director Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor Wen-Being Hsu Shyh-Yong Shen Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited 166 Shares held Shares (Note) 8,975,401 35,352,587 5,000,000 151,628,692 7,896,867 9,119,297 8,022,874 6.618,618 2,117,731 1,919,489 0 835,000 0 0 0 4,000,000 0 Shareholding percentage 0.20% 0.80% 0.11% 3.43% 0.18% 0.21% 0.18% 0.15% 0.05% 0.04% 0% 0.02% 0.00% 0.00% 0.00% 0.09% 0.00% 53,001,000 100.00% 53,001,000 100.00% 74,802,500 100.00% 74,802,500 100.00% NT$368,580 100.00% NT$368,580 100.00% NT$368,580 100.00% NT$368,580 100.00% 0 0.00% NT$368,580 100.00% NT$368,580 100.00% NT$368,580 100.00% NT$368,580 100.00% 0 0.00% NT$737,160 100.00% NT$737,160 100.00% NT$737,160 NT$737,160 100.00% 100.00% Company name Title Name or name of representative Compal Information Research & Development (Nanjing) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. Kunshan Botai Electronics Co., Ltd. President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor Compower Global Service Co., Ltd. President Managing Director Supervisor Director Jenpal International Ltd. Director Fortune Way Technology Corp. Just International Ltd. Compal Display Holding (HK) Limited Director Director Director Director Director Director Director Compal Electronics (China) Co., Ltd. Chairman (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chun-Te Shen) Compal International Holding (HK) Limited (Representative: Cheng-Chiang Wang) Chun-Te Shen Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Chung-Pin Wong) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal International Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited (Representative: Ming-Chih Chang) Compal International Holding (HK) Limited (Representative: Ching-Hsiung Lu) Ming-Chih Chang Kunshan Botai Electronics Co., Ltd. (Representative: Chung-Pin Wong) Kunshan Botai Electronics Co., Ltd. (Representative: Cheng-Chiang Wang) Ming-Chih Chang Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal International Holding Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal International Holding Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) 167 Prospect Fortune Group Ltd. President Director Shares held Shares (Note) Shareholding percentage 0 NT$61,430 0.00% 100.00% NT$61,430 100.00% NT$61,430 100.00% NT$61,430 0 100.00% 0.00% NT$61.4300 100.00% NT$61.4300 100.00% NT$61.4300 100.00% NT$61.4300 100.00% 0 NT$30,715 0.00% 100.00% NT$30,715 100.00% NT$30,715 100.00% NT$30,715 0 NT$8,945 NT$8,945 0 1,000 1,000 100.00% 0.00% 100.00% 100.00% 0.00% 100.00% 100.00% 7,350,000 100.00% 7,350,000 100.00% 14,900,000 100.00% 14,900,000 100.00% 48,010,000 100.00% 48,010,000 100.00% 62,297,500 100.00% 62,297,500 100.00% NT$1,136,455 100.00% Company name Title Name or name of representative Compal Smart Device (ChongQing) Co., Ltd. Compal Optoelectronics (Kunshan) Co., Ltd. Compal System Trading (Kunshan) Co., Ltd. Compal Investment (Jiangsu) Co., Ltd. Compal Display Electronics (Kunshan) Co., Ltd. Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hua Peng) Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Fu-Chuan Chang Compal Electronics (China) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Electronics (China) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics (China) Co., Ltd. (Representative: Sheng-Hua Peng) Compal Electronics (China) Co., Ltd. (Representative: Cheng-Chiang Wang) Sheng-Hua Peng Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hua Peng) Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Fu-Chuan Chang Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal Display Holding (HK) Limited (Representative: Chung-Pin Wong) Compal Display Holding (HK) Limited (Representative: Cheng-Chiang Wang) Ming-Chih Chang Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Sheng-Hsiung Hsu ) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Jui-Tsung Chen ) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Sheng-Hua Peng) Compal International Holding (HK) Limited & Compal Display Holding (HK) Limited (Representative: Ching-Hsiung Lu) Sheng-Hua Peng Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Jiangsu, China) Co., Ltd. (Representative: Sheng-Hua Peng) Compal Investment (Jiangsu, China) Co., 168 Shares held Shares (Note) Shareholding percentage NT$1,136,455 100.00% NT$1,136,455 100.00% NT$1,136,455 100.00% 0 0.00% NT$268,362 100.00% NT$268,362 100.00% NT$268,362 100.00% NT$268,362 100.00% 0 0.00% NT$371,652 100.00% NT$371,652 100.00% NT$371,652 100.00% NT$371,652 100.00% 0 NT$43,001 0.00% 100.00% NT$43,001 100.00% NT$43,001 100.00% NT$43,001 0 100.00% 0.00% NT$479,154 100.00% NT$479,154 100.00% NT$479,1546 NT$479,154 0 100.00% 100.00% 0.00% NT$460,725 100.00% NT$460,725 100.00% NT$460,725 100.00% NT$460,725 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Compal International Ltd. Compal Electronics International Ltd. President Director Director Director Director Smart International Trading Ltd. Director Amexcom Electronics, Inc. Mexcom Technologies, LLC Mexcom Electronics, LLC CENA Electromex S.A. de C.V. Big Chance International Co., Ltd. Director Director Director Director President Director Director Director Director Director President Director Director Center Mind International Co., Ltd. Director Director Compal Investment (Sichuan) Co., Ltd. Chairman Director Director Supervisor President Chairman Director Director Compal Electronics (Chengdu) Co., Ltd. Ltd. (Representative: Ching-Hsiung Lu) Sheng-Hua Peng Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Just International Ltd. (Representative: Sheng-Hsiung Hsu ) Just International Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics International Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Electronics International Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics International Ltd. (Representative: Sheng-Hua Peng) Compal Electronics International Ltd. (Representative: Hsin-Kung Mao) Compal Electronics International Ltd. (Representative: Chung-Pin Wong) Hsin-Kung Mao Compal Electronics International Ltd. (Representative: Hsin-Kung Mao ) Compal Electronics International Ltd. (Representative: Hsin-Kung Mao ) Mexcom Electronics, LLC (Representative: Sheng-Hua Peng) Mexcom Electronics, LLC (Representative: Yuan-Fu Chou) Mexcom Electronics, LLC (Representative: Hsin-Kung Mao) Pedro Chacon Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Big chance International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Big chance International Co., Ltd. (Representative: Jui-Tsung Chen ) Center Mind International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Center Mind International Co., Ltd. (Representative: Jui-Tsung Chen ) Center Mind International Co., Ltd. (Representative: Chung-Pin Wong) Center Mind International Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Investment (Sichuan) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Sichuan) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Sichuan) Co., Ltd. 169 0 500,000 0.00% 100.00% 500,000 100.00% 9,245,000 100.00% 9,245,000 100.00% 1,000 1,000 100.00% 100.00% 1,000,000 100.00% 1,000,000 100.00% 1,000,000 0 NT$31 100.00% 0.00% 100.00% NT$252,907 100.00% 32,903,054 100.00% 32,903,054 100.00% 32,903,054 100.00% 0 0.00% 90,820,000 100.00% 90,820,000 100.00% 80,820,000 100.00% 80,820,000 100.00% NT$2,482,387 100.00% NT$2,482,387 100.00% NT$2,482,387 100.00% NT$2,482,387 100.00% 0 0.00% NT$2,457,200 100.00% NT$2,457,200 NT$2,457,200 100.00% 100.00% Company name Title Name or name of representative Compal Management (Chengdu) Co., Ltd. Prisco International Co., Ltd. Compal Electronics (Chongqing) Co., Ltd. Core Profit Holdings Ltd. Supervisor President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Director Director Billion Sea Holdings Ltd. Director High Shine Industrial Corp. Director Director Director Intelligent Universal Enterprise Ltd. Director Compal (Vietnam) Co., Ltd. Goal Reach Enterprises Ltd. Director Director Director Director Director Compal Development & Management (Vietnam) Co., Ltd. Panpal Technology Chairman Director and President (Representative: Chung-Pin Wong) Compal Investment (Sichuan) Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Investment (Sichuan) Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Compal Investment (Sichuan) Co., Ltd. (Representative: Jui-Tsung Chen ) Compal Investment (Sichuan) Co., Ltd. (Representative: Chung-Pin Wong) Compal Investment (Sichuan) Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Big chance International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Big chance International Co., Ltd. (Representative: Jui-Tsung Chen ) Prisco International Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Prisco International Co., Ltd. (Representative: Jui-Tsung Chen ) Prisco International Co., Ltd. (Representative: Chung-Pin Wong) Prisco International Co., Ltd. (Representative: Ching-Hsiung Lu) Ming-Chih Chang Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Core Profit Holdings Ltd. (Representative: Sheng-Hsiung Hsu ) Core Profit Holdings Ltd. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) High Shine Industrial Corp. (Representative: Sheng-Hsiung Hsu ) High Shine Industrial Corp. (Representative: Jui-Tsung Chen ) Intelligent Universal Enterprise Ltd. (Representative: Jui-Tsung Chen ) High Shine Industrial Corp. (Representative: Sheng-Hsiung Hsu ) High Shine Industrial Corp. (Representative: Jui-Tsung Chen ) Goal Reach Enterprises Ltd. (Representative: Jui-Tsung Chen ) Shares held Shares (Note) Shareholding percentage NT$2,457,200 100.00% 0 0.00% NT$24,572 100.00% NT$24,572 100.00% NT$24,572 100.00% NT$24,572 100.00% 0 0.00% 10,000,000 100.00% 10,000,000 100.00% NT$307,150 100.00% NT$307,150 100.00% NT$307,150 100.00% NT$307,150 100.00% 0 0.00% 147,000,000 100.00% 147,000,000 100.00% 147,000,000 100.00% 147,000,000 100.00% 42,700,000 100.00% 42,700,000 100.00% 30,000,000 100.00% 30,000,000 100.00% NT$921,450 100.00% 12,700,000 100.00% 12,700,000 100.00% NT$390,081 100.00% Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) 500,000,000 100.00% 500,000,000 100.00% 170 Company name Title Name or name of representative Director Supervisor Gempal Technology Co., Ltd. Chairman Director and President Director Supervisor Hong Ji Investment Co., Ltd. Chairman Director and President Director Supervisor Hong Jin Investment Co., Ltd. Chairman Director and President Director Supervisor President Supervisor Supervisor Chairman Director Director Compalead Eletrônica do Brasil Indústria e Comércio Ltda. Compal Electronics India Private Limited Accesstek Inc. Arcadyan Technology Corp. Arcadyan Technology N.A. Corp. Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Sheng Chieh Hsu) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Sheng Chieh Hsu) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Sheng Chieh Hsu) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Sheng Chieh Hsu) Hsiao-Li Chao President Guo-Dung Yu Panpal Technology Corporation (Representative: Ching-Hsiung Lu) Maywufa Co., Ltd. (Representative: Cheng-Chia Li) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Chung-Pin Wong) Che-He Wei Compal Electronics Inc. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Jui-Tsung Chen ) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Chao-Peng Tseng 171 Director Director and President Independent Director Ying-Jen Li Independent Director Ching-Jang Wen Independent Director Wen-An Yang Director Director President Shares held Shares (Note) Shareholding percentage 500,000,000 100.00% 500,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 90,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 100,000,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 0 0 159,742 32,019 0.00% 0.00% 4.94% 0.99% 41,304,504 21.34% 41,304,504 21.34% 41,304,504 0 41,304,504 0 0 0 1,000 1,000 0 21.34% 0.00% 21.34% 0.00% 0.00% 0.00% 100.00% 100.00% 0.00% Company name Title Name or name of representative Arcadyan Germany Technology GmbH Arcadyan Technology Corporation Korea Arcadyan do Brasil Ltda. Arcadyan Technology Limited Arcadyan Technology Australia Pty Ltd. Arcadyan Holding (BVI) Corp. Sinoprime Global Inc. Arch Holding (BVI) Corp. Arcadyan Technology (Shanghai) Corp. Compal Information Technology (Kunshan) Co., Ltd. Zhi-pal Technology Inc Managers Director Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Managers Nien-Che, Hsiung Director Director Director Director Director Chairman Director Chairman Director Chairman Director Chairman Director Director Director Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Keng-Tien Lin) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Linda, Chu ) Arcadyan Technology Corp. (Representative: Jui-Tsung Chen ) Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arcadyan Holding (BVI) Corp. (Representative: Ching-Hsiung Lu) Arcadyan Holding (BVI) Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Holding (BVI) Corp. (Representative: Chung-Pao, Liu) Arcadyan Holding (BVI) Corp. (Representative: Chien-Lin Chen ) Arcadyan Holding (BVI) Corp. (Representative: Shih-Wei Huang) Chung-Pao, Liu Arch Holding (BVI) Corp. (Representative: Fong-Yu, Lu) ) Arch Holding (BVI) Corp. (Representative: Jui-Tsung Chen ) Arch Holding (BVI) Corp. (Representative: Chao-Peng Tseng) Arch Holding (BVI) Corp. (Representative: Ching-Hsiung Lu) Chung-Pao, Liu Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Sheng-Hua Peng) Arcadyan Technology Corp. 172 Shares held Shares (Note) Shareholding percentage 500 100.00% 20,000 100.00% 0 50,000 50,000 50,000 50,000 50,000 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 32,780,148 100.00% 32,780,148 100.00% 9,050,000 100.00% 9,050,000 100.00% 34,900 34,900 100.00% 100.00% NT$389,856 100.00% NT$389,856 100.00% NT$389,856 100.00% NT$389,856 100.00% NT$389,856 100.00% NT$389,856 100.00% 0 0.00% NT$370,512 100.00% NT$370,512 100.00% NT$370,512 100.00% NT$370,512 100.00% 0 0.00% 34,980,000 100.00% 34,980,000 34,980,000 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Director Supervisor President Chairman Director Director Director Director Director Director Supervisor Supervisor Supervisor President Director Director Tatung Technology Inc. Tatung Technology of Japan Co., Ltd. Quest International Group Co., Ltd. Director Director Exquisite Electronic Co., Ltd. Director Tatung Home Appliances (Wu Jiang) Co., Ltd. Director Chairman Director Director Supervisor President Acbel Telecom Inc. Chairman Director Director Supervisor President Director Leading Images Limited (Representative: Ching-Hsiung Lu) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Shih-Wei Huang) Chao-Peng Tseng Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) Arcadyan Technology Corp. (Representative: Chien-Lin Chen) Arcadyan Technology Corp. (Representative: Nien-Che, Hsiung) Arcadyan Technology Corp. (Representative: Li-Wei Dang) Shang Chi Investment Co., Ltd. (Representative: Chia-Tien Lin ) Chunghwa Investment Holding Company (Representative: Tian-Tsair Su ) Shih-Wei Huang Chi Sheng Investment Co., Ltd. (Representative: Chang-Chuan Lin) Shih-Wei Huang Li-Wei Dang Tatung Technology Inc. (Representative: Li-Wei Dang) Tatung Technology Inc. (Representative: Chao-Peng Tseng) Tatung Technology Inc. (Representative: Chao-Peng Tseng) Tatung Technology Inc. (Representative: Li-Wei Dang) Quest International Group Co., Ltd. (Representative: Chao-Peng Tseng) Quest International Group Co., Ltd. (Representative: Li-Wei Dang) Exquisite Electronic Co., Ltd. (Representative: Fong-Yu, Lu) ) Exquisite Electronic Co., Ltd. (Representative: Chao-Peng Tseng) Exquisite Electronic Co., Ltd. (Representative: Li-Wei Dang) Exquisite Electronic Co., Ltd. (Representative: Shih-Wei Huang) Li-Wei Dang Arcadyan Technology Corp. (Representative: Chao-Peng Tseng) Arcadyan Technology Corp. (Representative: Fong-Yu, Lu) ) AcBel Polytech Inc. (Representative: Ching-Shang Kao) Shih-Wei Huang Fong-Yu, Lu Acbel Telecom Inc. (Representative: Chao-Peng Tseng) 173 34,980,000 100.00% 34,980,000 100.00% 0 25,027,910 0.00% 60.86% 25,027,910 60.86% 25,027,910 60.86% 25,027,910 60.86% 25,027,910 60.86% 1,027,056 2.51% 4,570,830 11.15% 0 2,727,272 0 1,062,935 0 0 0.00% 6.65% 0.00% 2.59% 100.00% 100.00% 1,200,000 100.00% 1,200,000 100.00% 1,170,000 100.00% 1,170,000 100.00% NT$99,696 100.00% NT$99,696 100.00% NT$99,696 100.00% NT$99,696 100.00% 0 4,494,111 0.00% 51.08% 4,494,111 51.08% 4,292,216 0 0 48.78% 0.00% 0.00% 50,000 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Director Director Director Director Director Managers Managers Great Arch Group Ltd. Astoria Networks GmbH Compal Broadband Networks Inc. Chairman Director Director Director Acbel Telecom Inc. (Representative: Ching-Hsiung Lu) Acbel Telecom Inc. (Representative: Chung-Pao, Liu) Acbel Telecom Inc. (Representative: Chao-Peng Tseng) Acbel Telecom Inc. (Representative: Ching-Hsiung Lu) Acbel Telecom Inc. (Representative: Chung-Pao, Liu) Leading Images Limited (Representative: Tsai-Yen Chuang) Leading Images Limited (Representative: Yu-Yu Wang) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Realsun Investment Co., Ltd (Representative: Tsai , Jon-Jinn ) Compal Electronics Inc. (Representative: Yu- Ho Wang) Independent Director Wong, Jen-Zen Independent Director Mao, Yin-Wen Independent Director Chen, Miao- Ling President Director Speedlink Tradings Limited Compal Broadband Networks Belgium BVBA Zhaopal Investment Co., Ltd. YongPal Investment Co., Ltd. KaiPal Investment Co., Ltd. Henghao Technology Co.,Ltd.. HengHao Holdings A Co., Ltd. HengHao Holdings B Co., Ltd. Director Director Supervisor Supervisor Supervisor Chairman Vice Chairman and President Director Director Supervisor Director Director Director Director Yu- Ho Wang Compal Broadband Networks Inc. (Representative: Chung-Pin Wong ) Compal Broadband Networks Inc. (Representative: Yu- Ho Wang) Compal Broadband Networks Inc. (Representative: Yu- Ho Wang) Compal Electronics Inc. (Representative: Chang Chi Ko) Compal Electronics Inc. (Representative: Chang Chi Ko) Compal Electronics Inc. (Representative: Chang Chi Ko) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Chen-Chang Hsu) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Chyou-Jui Wei Henghao Technology Co., Ltd. (Representative: Sheng-Hsiung Hsu ) Henghao Technology Co., Ltd. (Representative: Chung-Pin Wong) HengHao Holdings A Co., Ltd. (Representative: Sheng-Hsiung Hsu ) HengHao Holdings A Co., Ltd. (Representative: Chung-Pin Wong) 174 50,000 50,000 50,000 50,000 50,000 25,000 25,000 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 29,060,176 43.48% 29,060,176 43.48% 3,575,000 5.35% 29,060,176 43.48% 0 0 0 1,086,810 50,000 50,000 0.00% 0.00% 0.00% 0.02% 100.00% 100.00% 20,300 100.00% 135,800,000 100.00% 118,850,000 100.00% 51,050,000 100.00% 63,814,952 100.00% 63,814,952 100.00% 63,814,952 100.00% 63,814,952 0 46,882,022 46,882,022 46,882,022 46,882,022 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% Company name Title Name or name of representative HengHao Optoelectronics Technology (Kunshan) CO., LTD HengHao Trading Co., Ltd. Lucom Display Technology (Kunshan) Ltd. Mactech Inc. Rayonnant Technology Co., Ltd. Compal Rayonnant Holdings Ltd. Allied Power Holding Corp. Primetek Enterprises Ltd. Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor President Chairman Director Director Director Director Director Director Supervisor Chairman Director and President Director Supervisor Director Director Director Director Director Director Rayonnant Director HengHao Holdings B Co., Ltd. (Representative: Chen-Chang Hsu) HengHao Holdings B Co., Ltd. (Representative: Chia-Tien Liu HengHao Holdings B Co., Ltd. (Representative: Jui-Hsiang Yang ) HengHao Holdings B Co., Ltd. (Representative: Cheng-Chiang Wang) Chen-Chang Hsu HengHao Holdings B Co., Ltd. (Representative: Sheng-Hsiung Hsu ) HengHao Holdings B Co., Ltd. (Representative: Chung-Pin Wong) HengHao Holdings B Co., Ltd. (Representative: Chen-Chang Hsu) HengHao Holdings B Co., Ltd. (Representative: Chia-Tien Liu ) HengHao Holdings B Co., Ltd. (Representative: Jui-Hsiang Yang ) HengHao Holdings B Co., Ltd. (Representative: Hsiu-Chuan Hsu ) Chen-Chang Hsu Compal Electronics Inc. (Representative: Yung-Ching Chang) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Chen-Chang Hsu) Compal Electronics Inc. (Representative: Ming-Chih Chang) Wen-Pin Kuo Chuan-Kuei Lin Chyou-Jui Wei Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Pao-Jui Cheng) Compal Electronics Inc. (Representative: Hsi-Kuan Chen) Compal Electronics Inc. (Representative: Chyou-Jui Wei) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Rayonnant Holdings Ltd. (Representative: Chung-Pin Wong) Rayonnant Technology Co., Ltd. (Representative: Pao-Jui Cheng) Allied Power Holding Corp. (Representative: Chung-Pin Wong) Allied Power Holding Corp. (Representative: Pao-Jui Cheng) Allied Power Holding Corp. 175 Shares held Shares (Note) Shareholding percentage NT$1,228,600 100.00% NT$1,228,600 100.00% NT$1,228,600 NT$1,228,600 0 10,000 10,000 NT$460,725 NT$460,725 NT$460,725 NT$460,725 0 21,756,192 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 52.88% 21,756,192 52.88% 21,756,192 52.88% 21,756,192 52.88% 21,756,192 52.88% 1,301,505 1,609,172 0 3.16% 3.91% 0.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 29,500,000 100.00% 12,500,000 100.00% 12,500,000 100.00% 12,500,000 59.10% 8,651,000 40.90% 3,151,000 100.00% 3,151,000 18,000,000 100.00% 100.00% Company name Title Name or name of representative Shares held Shares (Note) Shareholding percentage Technology Holdings (HK) Co., Ltd. Rayonnant Precision Technology (Taicang) Co., Ltd. Bizcom Electronics, Inc. Compal Europe (Poland) Sp. z o.o. Director Chairman Director Director Supervisor President Director Director Director Director Director Director Auscom Engineering Inc. Chairman Director and President Director Director Director Flight Global Holding Inc. RiPAL Optotronics Co., Ltd. Chairman Director Director Supervisor Director Director Director Chairman Director Compal Electronics (Holding) Ltd. Etrade Management Co., Ltd. Compal Communications (Nanjing) Co., Ltd. (Representative: Chyou-Jui Wei) Allied Power Holding Corp. (Representative: Pao-Jui Cheng) Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Pao-Jui Cheng) Rayonnant Technology Holdings (HK) Co., Ltd (Representative: Shyh-An Lee). Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Hsi-Kuan Chen) Rayonnant Technology Holdings (HK) Co., Ltd. (Representative: Chyou-Jui Wei) Pao-Jui Cheng Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Duan Wang) Compal Electronics Inc. (Representative: Duan Wang) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Min-Tung Wong) Compal Electronics Inc. (Representative: Chun-Te Shen) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Chyou-Jui Wei) Compal Electronics Inc. (Representative: Sheng-Hsiung Hsu ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) 176 18,000,000 100.00% NT$552,870 100.00% NT$552,870 100.00% NT$552,870 100.00% NT$552,870 100.00% 0 100,000 0.00% 100.00% 100,000 100.00% 100,000 100.00% 100,000 100.00% 136,080 100.00% 136,080 100.00% 3,000,000 100.00% 3,000,000 100.00% 3,000,000 100.00% 89,755,495 100.00% 89,755,495 100.00% 6,000,000 100.00% 6,000,000 100.00% 6,000,000 100.00% 6,000,000 100.00% 1,000 1,000 100.00% 100.00% 46,900,000 65.23% NT$675,730 100.00% NT$675,730 100.00% Company name Title Name or name of representative Compal Digital Communications (Nanjing) Co., Ltd. Compal Wireless Communications (Nanjing) Co., Ltd. Webtek Technology Co., Ltd Forever Young Technology Inc. HANHELT Communications (Nanjing) Co., Ltd. Director Supervisor President Chairman Director Director Supervisor President Chairman Director Director Supervisor President Director Director Chairman Director Director Supervisor Unicom Global. Inc. Chairman Director Director Supervisor Chairman Director Director Supervisor Director Director Palcom International Corporation Compalead Electronics B.V. General Life Chairman Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Etrade Management Co., Ltd. (Representative: Sheng-Hua Peng) Etrade Management Co., Ltd. (Representative: Ching-Hsiung Lu) Etrade Management Co., Ltd. (Representative: Hsin-Hsiung Huang) Etrade Management Co., Ltd. (Representative: Guo-Dung Yu) Sheng-Hua Peng Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative:Jui-Tsung Chen ) Forever Young Technology Inc. (Representative: Sheng-Hua Peng) Forever Young Technology Inc. (Representative: Chung-Shing Tan) Forever Young Technology Inc. (Representative: Wen-Ta Hsu) Forever Young Technology Inc. (Representative: Chiao-Lie Huang) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Po-Hsiung Chang) Compal Electronics Inc. (Representative: Chyou-Jui Wei) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Cheng-Chiang Wang) Compal Electronics Inc. (Representative: Guo-Dung Yu) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Hsin-Kung Mao) Compal Electronics Inc. 177 Shares held Shares (Note) Shareholding percentage NT$675,730 100.00% NT$675,730 100.00% 0 0.00% NT$178,147 100.00% NT$178,147 100.00% NT$178,147 100.00% NT$178,147 100.00% 0 0.00% NT$1,505,035 100.00% NT$1,505,035 100.00% NT$1,505,035 100.00% NT$1,505,035 100.00% 0 100,000 0.00% 100.00% 50,000 100.00% NT$61,430 100.00% NT$61,430 100.00% NT$61,430 100.00% NT$61,430 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 10,000,000 100.00% 6,426,516 100.00% 6,426,516 15,000,000 100.00% 50.00% Company name Title Name or name of representative Biotechnology Co., Ltd. Rapha Bio Ltd. Director Director Director Director Supervisor Supervisor Chairman Director Director Supervisor Giant Rank Trading Limited UniCore Biomedical Co., Ltd. Director Chairman Director Director Director Director Supervisor Chairman Director Director Supervisor Director Director Director Raycore Biotech Co., Ltd. Shennona Corporation (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Alltek Technology Corp. (Representative: Yu-Wen Wu) WK Technology Fund IV China Development Industrial Bank Chyou-Jui Wei General Life Biotechnology Co., Ltd. (Representative: Chyou-Jui Wei) General Life Biotechnology Co., Ltd. (Representative: Cheng-Ta Chen) General Life Biotechnology Co., Ltd. (Representative: Tung-Pang Lin) General Life Biotechnology Co., Ltd. (Representative: Kuo-Hsiung Chung) Forever Young Technology Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Jui-Tsung Chen ) Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Sheng-Hua Peng) Compal Electronics Inc. (Representative: Tzu-Chen Yen) Compal Electronics Inc. (Representative: Chyou-Jui Wei) Compal Electronics Inc. (Representative: Shu-Fen Ning) UniCore Biomedical Co., Ltd. (Representative:Jui-Tsung Chen ) Raypal Biomedical Co., Ltd. (Representative: Yen-Liang Lin) UniCore Biomedical Co., Ltd. (Representative: Chyou-Jui Wei) Shu-Fen Ning Compal Electronics Inc. (Representative: Chung-Pin Wong) Compal Electronics Inc. (Representative: Wei Chang Chen ) Compal Electronics Inc. . (Representative: Duan Wang ) Shares held Shares (Note) Shareholding percentage 15,000,000 50.00% 15,000,000 50.00% 6,922,940 604,800 2,520,000 0 1,275,000 1,275,000 1,275,000 1,275,000 - 23.08% 2.02% 8.40% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 20,000,000 100.00% 1,275,000 51.00% 1,225,000 49.00% 1,275,000 0 51.00% 0.00% 2,500,000 100.00% 2,500,000 100.00% 2,500,000 100.00% Note: Limited liability companies are shown in terms of amount and percentage of capital contribution. (Exchange rates for amount of capital contribution: USD 1:TWD 30.7150, CNY 1:TWD 4.4727, and VND 1:TWD 0.001327.) 178 1. Overview of Operating Status for Affiliated Companies in 2018 Company Name Capital Net asset value Total liabilities Net worth Operating Operating Net loss/profit for the EPS (in NTD) revenue income period (after tax) (After tax) Unit: NTD thousand Compal Electronics, Inc. 44,071,466 355,812,813 250,089,167 105,723,646 911,050,122 6,936,706 8,913,365 Compal International Holding Co., Ltd. and its subsidiaries Just International Ltd. and its subsidiaries Big Chance International Co., Ltd. and its subsidiaries 1,787,680 71,918,065 36,991,088 34,926,977 66,670,945 1,290,185 1,081,596 1,480,509 45,636,624 37,654,484 7,982,140 101,961,957 (130,716) 85,523 2,636,051 26,694,558 20,656,573 6,037,985 32,200,292 282,088 261,806 Core Profit Holdings Ltd. 4,318,860 7,655,360 29,953 7,625,407 1,346,815 1,333,821 571,587 762,234 - - - 2,604,284 (54,394) (35,898) High Shine Industrial Corp. and its subsidiaries Panpal Technology Corporation and its subsidiaries Gempal Technology Co., Ltd. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Accesstek Inc. and its subsidiaries UniCore Biomedical Co., Ltd. Shennona Corporation Arcadyan Technology Corp. and its subsidiaries Compal Broadband Networks Inc. and its subsidiaries Zhaopal Investment Co., Ltd. Yongpal Investment Co., Ltd. Kaipal Investment Co., Ltd. 5,000,000 10,325,638 4,882,374 5,443,264 11,161,150 400,323 900,000 1,000,000 295,000 1,901,645 1,068,129 328,921 32,369 38,204 200,000 29,558 193,550 5,484 140 306 69 870 7,470 47 1,901,505 1,067,823 328,852 37,334 186,080 5,437 - - - - (268) (207) (196) (90) 8,157 - (25,019) (24,825) 48,531 88,488 46,621 20,358 141 (21,757) (24,820) 1936,190 21,253,482 11,779,684 9,473,798 26,621,262 971,443 871,519 668,184 3,149,993 1,335,321 1,814,672 5,316,086 205,010 184,370 1,358,000 1,188,500 510,500 6,226 5,543 3,271 35 35 161 6,191 5,508 3,110 179 - - - (186) (186) (186) (182) (184) (185) 2.05 20.41 1.78 2.88 17.72 (0.84) 0.10 0.98 0.47 0.69 0.04 1.09 (9.93) 4.56 3.02 - - - Company Name Capital Net asset value Total liabilities Net worth Operating Operating Net loss/profit for the EPS (in NTD) revenue income period (after tax) (After tax) 638,150 5,415,869 5,534,350 (118,481) 6,304,664 (630,251) (737,747) (11.56) Henghao Technology Co., Ltd. and its subsidiaries Mactech Co., Ltd. Ripal Optotronics CO, LTD. Co., Ltd. Rayonnant Technology Holdings Ltd., Compal Rayonnant Holdings Ltd. and its subsidiaries Bizcom Electronics, Inc. Compal Europe (Poland) Sp.z o.o. Auscom Engineering Inc. General life Biotechnology Co., Ltd. 300,000 416,793 115,703 301,090 463,560 39,719 411,458 688,857 156,470 532,387 457,680 35,199 60,000 63,954 12,157 51,797 53,910 20,653 76,500 20,946 46,429 295,000 80,342 38,569 41,773 - (26,579) (51,684) 377,328 1,135,412 1,028,111 107,301 1,186,367 (185,700) (72,346) Flight Global Holding Inc. 2,754,741 4,628,097 Compalead Electronics B.V. 197,463 830,400 3,031 90,156 101,747 588,323 174,642 181,573 147,571 159,054 55,662 82,743 3,073 440,752 15,588 125,911 4,545,354 827,327 347,493 516,817 154,091 - - 9,031 (10,067) 10,080 (119) (1,036) 8,082 (16,749) 4,757 275,557 284,489 2,295,154 7,958,432 8,308,861 (350,429) 40,051,475 (112,211) (432,820) 4,333,892 3,518,267 815,625 107,753,114 (16,083) 21,331,927 19,873,863 1,458,063 77,563,590 (5,905) (0) 31 Etrade Management Co., Ltd and its subsidiaries Webtek Technology Co., Ltd Forever Young Technology Inc. and its subsidiaries Unicom Global Inc., Palcom International Corporation 3,340 1,575 100,000 100,000 499,761 166,977 876,024 50,498 Compal Electronics (Holding) Ltd. 34 3,617,816 - 2. Common shareholders in controlling and controlled companies: None (376,263) 116,479 3,617,816 547,767 192,369 - (138,004) (139,243) 9,981 - 9,242 - 180 1.86 3.5 1.55 (1.75) (1.92) 80.82 (-123.08) 1.56 3.07 14.41 (3.96) - 0.62 (13.92) 0.92 - 8.1.2 Consolidated financial statements of affiliated enterprises Representation Letter The entities that are required to be included in the combined financial statements of COMPAL ELECTRONICS, INC. as of and for the year ended December 31, 2018 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated and Separate Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, COMPAL ELECTRONICS, INC. and its subsidiaries do not prepare a separate set of combined financial statements. Company name: COMPAL ELECTRONICS, INC. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Date: March 22, 2019 8.1.3 Affiliation reports: None 181 8.2 Private Placement of Securities in the Most Recent Year: None 8.3 Company Shares Held or Disposed by Subsidiaries in the Most Recent Year: Unit: NT$ thousands; Shares; % Name of Share Capital Funding of Shares Subsidiary Acquired Source Held by the Percentage Company Date of Shares and Shares and Acquisition or Amount Amount Disposition Acquired Disposed Investment Gain (Loss) Shareholdings and Amount as of March Collateralized 31, 2019 Amount of Amount Endorsements Loaned to Made for the the Subsidiary Subsidiary Panpal Technology NTD 5,000,000,000 Corporation Gempal Technology NTD 900,000,000 Co., Ltd. Proprietary capital 100% Proprietary capital 100% - - - - - - - - 31,648,082 shares NTD 559,812,000 N/A 18,369,349 shares NTD 321,435,000 N/A - - - - Note: Impacts on the Company’s financial performance and position: none of the subsidiaries had acquired or disposed the Company’s shares in the current year up till the publication date of this annual report, hence there were no impacts. 8.4 Other supplementary notes, where applicable: None 8.5 Any Events in 2018 and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Interests or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None 182 Compal Electronics, Inc. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Chief Executive Officer (CEO): Chung-Pin Wong (Martin Wong) Attachment I Stock Code:2324 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Financial Statements With Independent Auditors’’’’ Report For the Years Ended December 31, 2018 and 2017 Address: Telephone: (02)8797-8588 No.581 & 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan Table of contents Contents 1. Cover Page 2. Table of Contents 3. Representation Letter 4. Independent Auditors’ Report 5. Consolidated Balance Sheets 6. Consolidated Statements of Comprehensive Income 7. Consolidated Statements of Changes in Equity 8. Consolidated Statements of Cash Flows 9. Notes to the Consolidated Financial Statements (1) Company history (2) Approval date and procedures of the consolidated financial statements (3) New standards, amendments and interpretations adopted (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses due to major disasters (11) Subsequent events (12) Other (13) Other disclosures (a) Information on significant transactions (b) Information on investees (c) Information on investment in Mainland China (14) Segment information 2 Page 1 2 3 4 5 6 7 8 9 9 9～19 19～50 50～51 51～104 105～107 107 108 108 108 108 109～121 121～125 126～129 129～131 3 Representation Letter The entities that are required to be included in the combined financial statements of COMPAL ELECTRONICS, INC. as of and for the year ended December 31, 2018 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 endorsed by the Financial Supervisory Commission, "Consolidated and Separate Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, COMPAL ELECTRONICS, INC. and subsidiaries do not prepare a separate set of combined financial statements. Company name: COMPAL ELECTRONICS, INC. Chairman: Sheng-Hsiung Hsu (Rock Hsu) Date: March 22, 2019 4 Independent Auditors’’’’ Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the consolidated financial statements of COMPAL ELECTRONICS, INC. and its subsidiaries (the “Group”), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statement of comprehensive income, changes in equity and cash flows for the years ended December 31, 2018 and 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended December 31, 2018 and 2017, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), Accounting Standards ( “ IASs ” ), Interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”) or the former Standing Interpretations Committee (“SIC”) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of 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 of the current period. 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. 1. Account receivable valuation Please refer to Note (4)(g) for the accounting policy of accounts receivable. Information of account receivable valuation are shown in Note (6)(i) of the consolidated financial statements. 4-1 Description of key audit matters: The Group devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leading enterprises. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in respect of the above area included the following: In order to evaluate the reasonableness of the Group's estimations for bad debts, our key audit procedures included reviewing if the measurement of impairment loss of accounts receivable is accordance with accounting policy, examining the historical recovery records, analyzing the aging of accounts receivable, and the current credit status of customers, as well as inspecting the amount collected in the subsequent period. 2. Inventory valuation Please refer to Note (4)(h) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainty of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are disclosed in Note (6)(j) of the consolidated financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers ’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in respect of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Group, our key audit procedures included reviewing the consistency of prior year and accounting policy, inspecting the Group's inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. Other Matter Compal Electronics Inc. has prepared its parent-company-only financial statements as of and for the years ended December 31, 2018 and 2017, on which we have issued an unqualified opinion. 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 with the IFRSs, IASs, IFRC, SIC, endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance (including the Audit Committee) are responsible for overseeing the Group’s financial reporting process. 4-2 Auditor’’’’s 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 auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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 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 auditor’s 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 auditor’s 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 appropriate audit evidence regarding the financial information of the 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 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. 4-3 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 of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Szu-Chuan Chien and Yiu-Kwan Au. KPMG Taipei, Taiwan (Republic of China) March 22, 2019 The accompanying consolidated financial statements are intended only to present the consolidated statements of financial position, financial performance and its cash flows in accordance with the 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 accepted and applied in the Republic of China. Notes to Readers COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Assets Current assets: Cash and cash equivalents (note (6)(a)) Current financial assets at fair value through profit or loss (note (6)(b)) Current available-for-sale financial assets (note (6)(e)) Current financial assets at amortized cost (note (6)(g)) Current bond investments without active market (note (6)(h)) Notes and accounts receivable, net (note (6)(i)) Notes and accounts receivable due from related parties, net (notes (6)(i) and 7) Other receivables, net (notes (6)(i) and 7) Inventories (note (6)(j)) Other current assets (note 8) Non-current assets: Investments accounted for using equity method (note (6)(k)) Non-current financial assets at fair value through profit or loss (note (6)(b)) Non-current financial assets at fair value through other comprehensive income (note (6)(c)) Non-current available-for-sale financial assets (note (6)(e)) Non-current financial assets at cost (note (6)(f)) Non-current bond investments without active market (note (6)(h)) Property, plant and equipment (notes (6)(n) and 8) Intangible assets Deferred tax assets (note (6)(u)) Long-term prepaid rents (note (6)(s)) Other non-current assets (note 8) 1100 1110 1125 1136 1147 1170 1180 1200 1310 1470 1550 1510 1517 1523 1543 1546 1600 1780 1840 1985 1990 December 31, 2018 December 31, 2017 Amount % Amount % $ 70,296,545 17.6 70,062,713 19.3 - - 4,611,134 1.1 - 350,000 0.1 - 40,706 46,479 - - - - 350,000 0.1 203,715,965 51.0 177,272,731 48.8 58,106 - 113,994 - 1,665,249 0.4 988,008 0.3 79,148,922 19.8 69,512,712 19.1 2,899,329 0.7 3,395,311 0.9 362,745,250 90.7 321,782,654 88.5 7,364,485 1.9 11,807,622 3.2 69,390 - 5,172,295 1.3 - - - - - - - 20,418,228 1,516,253 1,023,948 891,147 593,827 37,049,573 - - - 5.1 0.4 0.3 0.2 0.1 9.3 7,646,667 2.1 53,982 - 350,000 18,179,367 1,284,660 1,351,371 571,133 328,965 0.1 5.0 0.4 0.4 0.2 0.1 41,573,767 11.5 Liabilities and Equity Current liabilities: Short-term borrowings (note (6)(o)) Current financial liabilities at fair value through profit or loss (note (6)(b)) Current contract liabilities (note (6)(y)) Notes and accounts payable Notes and accounts payable to related parties (note 7) Other payables (note 7) Current tax liabilities Current provisions (note (6)(q)) Other current liabilities Unearned revenue Current refund liabilities (note (6)(r)) Long-term borrowings, current portion (note (6)(p)) Non-Current liabilities: Long-term borrowings (note (6)(p)) Deferred tax liabilities (note (6)(u)) Non-current net defined benefit liability (note (6)(t)) Non-current liabilities, others Total liabilities Equity: Equity attributable to owners of parent: Ordinary share (note (6)(v)) Capital surplus (note (6)(v)) Retained earnings (note (6)(v)) Other equity interest (note (6)(v)) Treasury shares (note (6)(v)) 2100 2120 2130 2170 2180 2200 2230 2250 2300 2313 2365 2322 2540 2570 2640 2670 3110 3200 3300 3400 3500 36XX Non-controlling interests Total equity 5 December 31, 2018 December 31, 2017 Amount % Amount % $ 72,350,197 18.1 56,515,525 15.6 26,913 - 24,463 1,476,304 0.4 - - - 152,300,093 38.1 140,381,168 38.6 1,976,620 19,558,007 3,722,191 426,981 3,255,135 - 1,579,832 17,535,625 0.5 4.9 0.9 0.1 0.8 - 0.4 4.4 1,636,656 16,318,597 4,362,395 1,827,439 3,071,238 1,617,626 - 0.5 4.5 1.2 0.5 0.8 0.4 - 6,200,625 1.7 274,207,898 68.6 231,955,732 63.8 10,998,438 478,169 710,146 238,324 12,425,077 2.7 0.1 0.2 0.1 3.1 21,252,263 614,437 705,810 5.8 0.2 0.2 180,207 - 22,752,717 6.2 286,632,975 71.7 254,708,449 70.0 44,071,466 11.0 44,191,916 12.2 9,932,434 2.5 10,938,773 3.0 60,060,381 15.0 56,557,146 15.6 (7,459,388) (1.8) (8,911,004) (2.5) (881,247) (0.2) (881,247) (0.2) 105,723,646 26.5 101,895,584 28.1 7,438,202 1.8 6,752,388 1.9 113,161,848 28.3 108,647,972 30.0 Total assets $ 399,794,823 100.0 363,356,421 100.0 Total liabilities and equity $ 399,794,823 100.0 363,356,421 100.0 See accompanying notes to consolidated financial statements. COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share) 6 Net sales revenue (notes (6)(y), (6)(z) and 7) Cost of sales (notes (6)(t), 7 and 12) Gross profit Operating expenses: (notes (6)(s), (6)(t) and 12) Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses, net (notes (6)(d), (6)(k) and (6)(ab)) Finance costs Other income (notes (6)(s) and (6)(ab)) Miscellaneous disbursements Impairment loss (note (6)(f)) Share of profit of associates and joint ventures accounted for using equity method (note (6)(k)) Total non-operating income and expenses Profit before tax Less: Tax expense (note (6)(u)) Profit Other comprehensive income: Items that will not be reclassified subsequently to profit or loss % 2017 2018 Amount $ 967,706,411 100.0 887,656,959 100.0 937,139,320 96.8 855,692,390 96.4 3.6 Amount % 31,964,569 30,567,091 3.2 4,319,991 4,204,419 12,780,935 21,305,345 9,261,746 0.4 0.4 1.4 2.2 1.0 7,167,461 4,050,028 11,538,651 22,756,140 9,208,429 2,256,958 (2,636,443) 2,132,864 (22,908) - 797,368 2,527,839 11,789,585 2,200,284 9,589,301 0.2 (0.3) 0.2 - - 0.1 0.2 1.2 0.2 1.0 (1,897,072) (1,297,965) 1,566,475 (52,752) (19,405) 606,567 (1,094,152) 8,114,277 1,956,240 6,158,037 0.8 0.5 1.3 2.6 1.0 (0.2) (0.1) 0.2 - - - (0.1) 0.9 0.2 0.7 - - - - - Other comprehensive income, before tax, remeasurement of defined benefit obligation Other comprehensive income, before tax, equity instruments at fair value through other comprehensive income Share of other comprehensive income (loss) of associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss Income tax related to components of other comprehensive income that will not be reclassified to profit or loss (note (6)(u)) Components of other comprehensive income that will not be reclassified to profit or loss (16,260) - (1,188,635) (0.1) (84,394) - (124,949) 75,832 (1,254,012) (0.1) - - (561) 14,348 (70,607) Items that will be reclassified subsequently to profit or loss Other comprehensive income, before tax, exchange differences on translation of foreign financial statement Other comprehensive income, before tax, available-for-sale financial assets Gains (losses) on effective portion of cash flow hedges Gains (losses) on hedging instrument Share of other comprehensive income (loss) of associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss Income tax relating to components of other comprehensive income that will be reclassified to profit or loss (note (6)(u)) Components of other comprehensive income (loss) that will be reclassified to profit or loss Other comprehensive income (loss), net Total comprehensive income Profit, attributable to: Profit, attributable to owners of parent Profit, attributable to non-controlling interests Comprehensive income attributable to: Comprehensive income (loss), attributable to owners of parent Comprehensive income (loss), attributable to non-controlling interests Earnings per share (note 6(x)) Basic earnings per share Diluted earnings per share 1,807,381 - - - (162,189) (3,293) 1,641,899 387,887 9,977,188 8,913,365 675,936 9,589,301 9,278,187 699,001 9,977,188 0.1 - - - - - 0.1 - 1.0 0.9 0.1 1.0 1.0 0.1 1.1 2.05 2.02 (4,808,866) (0.5) 326,490 - - (30,076) (21,353) - - - - - (4,533,805) (0.5) (4,604,412) (0.5) 0.2 1,553,625 5,749,525 408,512 6,158,037 1,189,818 363,807 1,553,625 0.7 - 0.7 0.1 - 0.1 1.32 1.31 $ $ $ $ $ 4000 5000 6100 6200 6300 7020 7050 7190 7590 7670 7770 7900 7950 8300 8310 8311 8316 8320 8349 8360 8361 8362 8363 8368 8370 8399 8300 8500 8610 8620 8710 8720 9750 9850 See accompanying notes to consolidated financial statements. COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Equity attributable to owners of parent Retained earnings Total other equity interest Capital surplus 11,779,274 Legal reserve 17,439,772 Special reserve Unappropriated retained earnings Unrealized gains (losses) on financial assets measured at fair value through other comprehensiv e income - - - - Exchange differences on translation of foreign financial statements 1,324,282 - (4,801,658) (4,801,658) Total retained earnings 55,289,409 5,749,525 (68,107) 5,681,418 Unrealized gains (losses) on available-for- sale financial assets (5,663,830) - 310,058 310,058 Unearned employee benefit and others Total other equity interest Treasury shares Total equity attributable to owners of parent (285,105) - - - (4,624,653) - (4,491,600) (4,491,600) (881,247) 105,804,389 5,749,525 (4,559,707) 1,189,818 - - - 7 Non-control ling interests Total equity 6,479,426 112,283,815 6,158,037 (4,604,412) 1,553,625 408,512 (44,705) 363,807 Balance at January 1, 2017 Profit for the year ended December 31, 2017 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Difference between consideration and carrying amount arising from acquisition or disposal subsidiaries Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by subsidiaries Changes in non-controlling interests Balance at December 31, 2017 Effects of retrospective application Adjusted balance at January 1, 2018 Profit for the year ended December 31, 2018 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by subsidiaries Disposal of investments in equity instruments Ordinary shares $ 44,241,606 - - - - - - - - - - - - - - - (884,431) 33,016 142 - (49,690) 14,217 (63,472) - - 60,027 - - - - - - - - - - (120,450) - - - - - - (881,429) (32,706) (459) (151,766) - 60,021 measured at fair value through other comprehensive income Changes in non-controlling interests Balance at December 31, 2018 - - $ 44,071,466 - - See accompanying notes to consolidated financial statements. - - - 813,089 - - - - - - - - - 3,199,674 - - - - 1,139,875 - - - - - - - - - - - 574,953 - - - - - - - - - - - - - 4,491,599 - - - - - - - - 34,649,963 5,749,525 (68,107) 5,681,418 (813,089) (1,139,875) (4,422,153) - - - (2,179) (424) (194) 11,269 33,964,736 494,051 34,458,787 8,913,365 14,094 8,927,459 (574,953) (4,491,599) (4,407,147) - (521,643) - - (4,422,153) - (2,179) (424) (194) 11,269 - - 56,557,146 494,051 57,051,197 8,913,365 14,094 8,927,459 - - (4,407,147) - (521,643) (1,156) 36,141 (1,156) 36,141 - - (1,024,470) (1,024,470) - - 44,191,916 10,938,773 18,252,861 4,339,549 - - - - 44,191,916 10,938,773 18,252,861 4,339,549 - - - - - - - - - - (3,477,376) - (3,477,376) - 1,624,424 1,624,424 - - - - - - - - - - - - - - - - - - - - - (5,847,823) (5,847,823) - (1,273,696) (1,273,696) - - - - 489,483 1,130 - - 1,024,470 - - - - - - - - - - - (5,353,772) 5,353,772 - - - - - - - - - - - - - - - - - - - - - - 205,249 - - (79,856) - (79,856) - - - - - - - - - - - - - 79,856 - - - - - - - 205,249 - - (8,911,004) (494,051) (9,405,055) - 350,728 350,728 - - - - 489,483 1,130 79,856 - 1,024,470 - - - - - - - - - - - - - (4,422,153) (884,431) - - - - - - (4,422,153) (884,431) 30,837 (282) 357,314 - - - 14,023 103,356 60,027 - 388,151 (282) 14,023 103,356 - 60,027 (448,159) (448,159) 6,752,388 108,647,972 (881,247) 101,895,584 - - - - (881,247) 101,895,584 8,913,365 364,822 9,278,187 - - - 6,752,388 108,647,972 9,589,301 387,887 9,977,188 675,936 23,065 699,001 - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - (13,187) - (13,187) 7,438,202 113,161,848 9,932,434 18,827,814 8,831,148 32,401,419 60,060,381 (1,852,952) (5,606,436) (7,459,388) (881,247) 105,723,646 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation and amortization Increase (decrease) in expected credit loss /allowance for uncollectible accounts Net loss (gain) on financial assets or liabilities at fair value through profit or loss Finance cost Interest income Dividend income Compensation cost of share-based payments Share of profit of associates and joint ventures accounted for using equity method Loss (gain) on disposal of property, plant and equipment Loss (gain) on disposal of investments Impairment loss on financial assets Long-term prepaid rents Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in financial assets at fair value through profit or loss Decrease (increase) in financial assets mandatorily measured at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets Decrease (increase) in other non-current assets Total changes in operating assets Changes in operating liabilities: Increase (decrease) in financial liabilities designated as at fair value through profit or loss Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in refund liabilities Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in contract liabilities Increase (decrease) in other current liabilities Others Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Redemption from financial assets at amortized cost Acquisition of investments accounted for using equity method and financial assets at fair value through other comprehensive income Proceeds from disposal of investments accounted for using equity method and financial assets at fair value through other comprehensive income Acquisition of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Net cash flow from disposal of subsidiaries Proceeds from capital reduction of investments Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in long-term prepaid rents Others Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Cash dividends paid Acquisition of non-controlling interests Disposal of ownership interests in subsidiaries Change in non-controlling interests Others Net cash flows from (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period See accompanying notes to consolidated financial statements. 8 2018 2017 $ 11,789,585 8,114,277 4,940,672 (17,449) (117,677) 2,636,443 (1,463,658) (279,044) (121,765) (797,368) 23,228 (2,513,207) - 13,302 2,303,477 - (3,936,569) (26,227,099) (680,718) (9,691,835) 551,607 (101,686) (40,086,300) 2,450 12,258,889 1,434,494 60,526 39,834 - (189,017) 231,592 50,649 13,889,417 (26,196,883) (23,893,406) (12,103,821) 1,403,559 414,120 (2,399,912) (2,576,795) (15,262,849) 350,000 (107,877) 7,814,859 (47,937) 574,528 - 15,082 (5,154,447) 48,354 (575,232) (315,395) (163,176) 2,438,759 15,834,672 34,267,200 (33,186,025) (5,228,555) (1,801) - (110,954) 58,117 11,632,654 1,425,268 233,832 70,062,713 70,296,545 5,184,672 3,007,185 - 1,297,965 (877,370) (169,839) 110,855 (606,567) (110,846) 4,252 19,405 13,135 7,872,847 45,734 - (4,986,899) (59,604) (21,407,587) (974,717) (90,471) (27,473,544) (113,026) 12,535,881 (1,776,989) - (14,655) (156,532) - 171,564 109,229 10,755,472 (16,718,072) (8,845,225) (730,948) 884,079 313,738 (1,242,536) (1,405,335) (2,181,002) 350,000 (97,009) 2,265,745 - - 129,000 28,615 (3,378,053) 183,253 (386,935) - 30,451 (874,933) 13,034,748 12,664,420 (17,133,095) (5,246,557) (35,699) 413,257 (447,794) 13,581 3,262,861 (3,094,809) (2,887,883) 72,950,596 70,062,713 $ COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 9 (1) Company history Compal Electronics, Inc. (the "Company") was incorporated in June 1984 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The address of the Company's registered office is No.581 and No.581-1 Ruiguang Rd., Neihu Dist., Taipei City, Taiwan. In accordance with Article 19 of the Business Mergers and Acquisitions Act, the Company merged its subsidiary, Compal Communications, Inc. ("CCI") (the "Merger"), pursuant to the resolutions of the Board of Directors in November, 2013. The Company was the surviving company and CCI was the dissolved company. The effective date of the Merger was February 27, 2014. The Company and its subsidiaries (together referred to as the "Group" and individually as the "Group entities") primarily are involved in the manufacture and sale of notebook personal computers ("notebook PCs"), monitors, LCD TVs, mobile phones and various components and peripherals. (2) Approval date and procedures of the consolidated financial statements: These consolidated financial statements were authorized for issuance by the Board of Directors and issued on March 22, 2019. (3) New standards, amendments and interpretations adopted: (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018. New, Revised or Amended Standards and Interpretations Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” IFRS 15 “Revenue from Contracts with Customers” Amendment to IAS 7 “Statement of Cash Flows–Disclosure Initiative” Amendment to IAS 12 “Income Taxes–Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” Effective date per IASB January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 10 New, Revised or Amended Standards and Interpretations Annual Improvements to IFRS Standards 2014-2016 Cycle: Amendments to IFRS 12 Amendments to IFRS 1 and Amendments to IAS 28 IFRIC 22 “Foreign Currency Transactions and Advance Consideration” Effective date per IASB January 1, 2017 January 1, 2018 January 1, 2018 Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of significant changes are as follows: (i) IFRS 15 “Revenue from Contracts with Customers” IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, using a five-step model framework to determine the method, timing and amount of revenue recognized. This standard replaces existing revenue recognition guidance, including IAS 18, Revenue, IAS 11, Construction Contracts, and the related interpretations. The Group applies this standard retrospectively with the cumulative effects, it needs not restate those contracts, but instead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparative reporting period. Upon the initial application of this standard, there was no cumulative effect and no adjustment was made to retained earnings on January 1, 2018. The following are the nature and impacts on changing of accounting policies: 1) Sales of goods For the sale of the Group's products, revenue was used to be recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer, the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. The Group believes that the point at which the related risks and rewards of ownership transfer to the customers is similar to the point of control transfer. Therefore, the changes in accounting policy of the above-mentioned sales of goods do not result in a material adjustment of the financial statements. 2) Impacts on financial statements The following tables summarize the impacts of adopting IFRS 15 on the Group’s consolidated financial statements for the year ended December 31, 2018: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 11 December 31, 2018 January 1, 2018 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 Impacted line items on the consolidated balance sheets Notes and accounts receivable, net (notes 1 and 2) $ 203,623,702 92,263 203,715,965 177,272,731 79,014 177,351,745 Inventories (note 1) Other current assets (note 1) Impact on assets Current contract liabilities 79,191,636 (42,714) 79,148,922 69,512,712 (55,625) 69,457,087 2,856,615 $ 42,714 92,263 2,899,329 3,395,311 55,625 79,014 3,450,936 (note 3) $ - 1,476,304 1,476,304 - 1,665,321 1,665,321 Current provisions (note 2) Other current liabilities (note 3) Unearned revenue (note 3) Current refund liabilities (notes 1 and 2) Impact on liabilities 1,914,550 (1,487,569) 426,981 1,827,439 (1,440,292) 387,147 3,325,306 (70,171) 3,255,135 3,071,238 (47,695) 3,023,543 1,406,133 (1,406,133) - 1,617,626 (1,617,626) - - 1,579,832 1,579,832 - 1,519,306 1,519,306 $ 92,263 79,014 Impacted line items on the consolidated statement of cash flows Cash flows from (used in) operating activities: Adjustments: Decrease (increase) in notes and accounts receivable Increase in inventories For the year ended December 31, 2018 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 $ (26,213,850) (13,249) (26,227,099) (9,678,924) (12,911) (9,691,835) Decrease (increase) in other current assets 538,696 12,911 551,607 Increase (decrease) in contract liabilities - (189,017) (189,017) Increase (decrease) in provisions Increase (decrease) in other current liabilities Increase (decrease) in unearned revenue 87,111 254,068 (211,493) Increase (decrease) in refund liabilities - (47,277) (22,476) 211,493 60,526 39,834 231,592 - 60,526 Cash inflow (outflow) generated from operations $ - Note 1: For the sale with a right of return, the Group adjusted expected return, as well as recognized the refund liability and the right to recover products(accounted for as other current assets) when recognized revenue. Under IFRS 15, the above-mentioned assets and liabilities were reclassified according to the regulations. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 12 Note 2: Prior to the adoption of IFRS 15, the sales returns and discounts were recognized as sales returns and allowances provisions or a deduction of notes and accounts receivable. Under IFRS 15, it was recognized as refund liabilities. Note 3: Prior to the adoption of IFRS 15, unearned revenue were recognized as other current liabilities or expressed it alone. Under IFRS 15, it was recognized as contract liabilities. (ii) IFRS 9 “Financial Instruments” IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting. As a result of the adoption of IFRS 9, the Group adopted the consequential amendments to IAS 1 “Presentation of Financial Statements” which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Group’ s approach was to include the impairment of trade receivables in selling expenses. Additionally, the Group adopted the consequential amendments to IFRS 7 “ Financial Instruments: Disclosures” that are applied to disclosures about 2018 but generally have not been applied to comparative information. The detail of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below: 1) Classification of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note (4)(g). The adoption of IFRS 9 did not have any significant impact on its accounting policies on financial liabilities. 2) Impairment of financial assets IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with the ‘expected credit loss’ (“ECL”) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than those under IAS 39. Please see note (4)(g). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 13 3) Hedge accounting The Group has elected to adopt the new general hedge accounting model in IFRS 9, which requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy, and apply a more qualitative and forward-looking approach to assessing hedge effectiveness. The Group uses forward foreign exchange contracts to hedge the variability in its cash flows arising from the changes in foreign exchange rates relating to foreign currency borrowings, receivables, sales and inventory purchases. The Group designates only the change in fair value of the spot element of the forward exchange contract as the hedging instrument in cash flow hedging relationships. The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity. Under IAS 39, the change in fair value of the forward element of the forward exchange contracts (“forward points”) was recognized immediately in profit or loss. However, under IFRS 9, the forward points are separately accounted for as a cost of hedging; they are recognized in OCI and accumulated in a cost of hedging reserve as a separate component within equity. Under IAS 39, for all cash flow hedges, the amounts accumulated in the cash flow hedge reserve were reclassified to profit or loss as reclassification adjustment in the same period as the hedged expected cash flows affected the profit or loss. However, under IFRS 9, for cash flow hedges of foreign currency risk associated with forecast inventory purchases, the amounts accumulated in the cash flow hedge reserve are instead included directly in the initial cost of the inventory item when it is recognized. The same approaches also apply under IFRS 9 to the amounts accumulated in the costs of hedging reserve. For an explanation of how the Group applies hedge accounting under IFRS 9, please see note (4)(g). 4) Transition The adoption of IFRS 9 have been applied retrospectively, except as described below, Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9. ‧The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. －The determination of the business model within which a financial asset is held. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 14 －The designation of certain investments in equity instruments not held for trading as at FVOCI. ‧If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group assumed that the credit risk on its asset will not increase significantly since its initial recognition. ‧All hedging relationships designated under IAS 39 on December 31 2017 met the criteria for hedge accounting under IFRS 9 on January 1, 2018, and are therefore, regarded as continuing hedging relationships. 5) Classification of financial assets on the date of initial application of IFRS 9 The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018. (no change in measurement categories and carrying amounts for financial liabilities.) IAS 39 IFRS 9 Measurement categories Carrying Amount Measurement categories Carrying Amount Financial Assets Cash and cash equivalents Loans and receivables (note 3) $ 70,062,713 Amortized cost Debt securities Loans and receivables (Bond 700,000 Amortized cost investment without active market-current and non-current) (note 1) Derivative instruments Designated as at FVTPL 40,706 Mandatorily at FVTPL Investment in equity At cost (note 2) 48,709 FVTPL instruments At cost (note 2) 5,273 FVOCI Available for sale – current and 1,059,926 FVTPL non-current (note 2) Available for sale – current and 6,633,220 FVOCI non-current (note 2) 70,062,713 700,000 40,706 48,709 5,273 1,059,926 6,633,220 Notes and accounts Loans and receivables (note 3) 137,202,382 Amortized cost 137,202,382 receivable, net (including related parties) Notes and accounts Loans and receivables (note 4) 40,184,343 FVOCI 40,184,343 receivable, net (including related parties) Other receivables and Loans and receivables (note 3) 1,222,501 Amortized cost 1,222,501 guarantee deposits (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 15 Note1: The corporate debt securities that were previously classified as bond investment without an active market are now classified at amortized cost. The Group intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. Note2: These equity securities (including financial assets measured at cost) represent investments that the Group intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Group has designated these investments at the date of initial application as measured at FVOCI and FVTPL. Accordingly, a decrease of $494,051 thousands in the reserves, as well as the increase of $494,051 thousands in retained earnings were recognized on January 1, 2018. Note3: Cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and guarantee deposits that were classified as loans and receivables under IAS 39 are now classified at amortized cost. Note4: Accounts receivable are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling accounts receivables that were classified as loans and receivables under IAS 39 are now classified at FVOCI, and recorded as accounts receivable. The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on January 1, 2018. 2017.12.31 IAS 39 Carrying Amount Reclassifications Remeasurements Fair value through profit or loss Beginning balance of FVTPL (IAS 39) $ 40,706 - Additions – equity instruments: From financial assets measured at cost From available for sale Total Fair value through other comprehensive income Beginning balance of available for sale (including measured at cost) (IAS 39) Addition – debt instruments: From loans and receivables Subtractions – equity instruments: From financial assets measured at cost From available for sale Total Amortized cost - - 40,706 48,709 1,059,926 1,108,635 7,747,128 - $ $ - - - $ 7,747,128 40,184,343 (48,709) (1,059,926) 39,075,708 Beginning balance of cash and cash equivalents, $ 249,371,939 - bond investment without an active market, trade and other receivables, and other financial assets Subtractions – debt instrument: To FVOCI Total - $ 249,371,939 (40,184,343) (40,184,343) - - - - - - - - - - - - 2018.1.1 IFRS 9 Carrying Amount 2018.1.1 Adjustments to retained earnings 2018.1.1 Adjustments to other equity - - - - 1,149,341 174,679 174,679 (174,679) (174,679) 319,372 (319,372) - - - - - - 46,822,836 319,372 (319,372) - - - - - - 209,187,596 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 16 (iii) Amendments to IAS 7 “Disclosure Initiative” The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. To satisfy the new disclosure requirements, the Group presents a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities as note 6(ag). (iv) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Loss” The amendments clarify the accounting for deferred tax assets for unrealized losses on debt instruments measured at fair value. The Group believes that the above changes in accounting policies would not have any material impact on its consolidated financial statements. (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018: New, Revised or Amended Standards and Interpretations IFRS 16 “Leases” IFRIC 23 “Uncertainty over Income Tax Treatments” Amendments to IFRS 9 “Prepayment features with negative compensation” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 January 1, 2019 January 1, 2019 Effective date per IASB January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019 Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows: (i) IFRS 16 “Leases” IFRS 16 replaces the existing leases guidance, including IAS 17 “ Leases ” , IFRIC 4 “Determining whether an Arrangement contains a Lease”, SIC-15 “Operating Leases – Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 17 IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The accounting for lessors remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases. 1) Determining whether an arrangement contains a lease On transition to IFRS 16, the Group can choose to apply either of the following: ‧ the definition of a lease in IFRS 16 to all its contracts; or ‧ a practical expedient that does not require any reassessment whether a contract is, or contains, a lease. The Group plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. 2) Transition As a lessee, the Group can apply the standard using either of the following: ‧ retrospective approach; or ‧ modified retrospective approach with optional practical expedients. The lessee applies the election consistently to all of its leases. On January 1, 2019, the Group plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 18 When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group is assessing the potential impact of using these practical expedients: ‧ apply a single discount rate to a portfolio of leases with similar characteristics. ‧ apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application. ‧ exclude the initial direct costs from measuring the right-of-use assets at the date of initial application. ‧ use hindsight when determining the lease term if the contract contains options to extend or terminate the lease. 3) So far, the most significant impact identified is that the Group will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Group estimated that the right-of-use assets and the lease liabilities to increase by $2,973,419 and $2,082,272, respectively, as well as the long-term prepaid rents to decrease by $891,147 on January 1, 2019. No significant impact is expected for the Group’s finance leases. (ii) IFRIC 23 “Uncertainty over Income Tax Treatments” In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entity shall assume that a taxation authority will examine the amounts it has the right to examine and have a full knowledge on all related information when making those examinations. If an entity concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates consistently with the tax treatment used or planned to be used in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. So far, the Group believes that above change in accounting policies would not have any material impact on its financial statements. The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 19 (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (“IASB”), but have yet to be endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Material” Those which may be relevant to the Group are set out below: Effective date per IASB January 1, 2020 Effective date to be determined by IASB January 1, 2021 January 1, 2020 Issuance / Release Dates October 31, 2018 Standards or Interpretations Amendments to IAS 1 and IAS 8 “Definition of Material” Content of amendment The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until IFRS featured elsewhere now has in Standards. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that the definition of material is consistent across all IFRS Standards. The Group is evaluating the impact on its consolidated financial position and consolidated financial performance upon the initial adoption of the above-mentioned standards or interpretations. The results thereof will be disclosed when the Group completes its evaluation. (4) Summary of significant accounting policies: The significant accounting policies presented in the consolidated financial statements are summarized as follows. The following accounting policies were applied consistently throughout the periods presented in the financial statements. (a) Statement of compliance These consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to as the Regulations), the International Financial Reporting Standards, the International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed and issued into effect by the FSC (hereinafter referred to as the IFRS endorsed by the FSC). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 20 (b) Basis of preparation (i) Basis of measurement Except for the following significant accounts in the statement of financial position, the consolidated financial statements have been prepared on the historical cost basis: 1) 2) Financial instruments (including derivative financial instruments) measured at fair value through profit or loss are measured at fair value; Financial instruments measured at fair value through other comprehensive income (Available-for-sale) are measured at fair value; 3) Hedging financial instruments are measured at fair value; 4) The defined benefit liability (or asset) is recognized as plan assets less the present value of the defined benefit obligation and the effect of the asset ceiling mentioned in note (4)(r). (ii) Functional and presentation currency The functional currency of each Group entities is determined based on the primary economic environment in which the entities operates. The consolidated financial statements are presented in New Taiwan Dollar, which is the Company's functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (c) Basis of consolidation (i) Principles of preparation of the consolidated financial statements The consolidated financial statements comprise the Company and its subsidiaries. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group. Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any differences between the Group’s share of net assets before and after the change, and any considerations received or paid, are adjusted to or against the Group reserves. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 21 (ii) List of subsidiaries in the consolidated financial statements Investor Name of Subsidiary The Company Panpal Technology Corp. (“Panpal”) Nature of Operation Investment Percentage of ownership December 31, 2018 December 31, 2017 100% 100% Description Panpal held 31,648 thousand shares of the Company as of December 31, 2018, which represented 0.7% of the Company’s outstanding shares. Gempal held 18,369 thousand shares of the Company as of December 31, 2018, which represented 0.4% of the Company’s outstanding shares. Zhaopal was dissolved on November 30, 2017 Yongpal was dissolved on November 30, 2017 Kaipal was dissolved on November 30, 2017 The Group had the ability to control ATK. ATK was dissolved on June 30, 2009. The Group had the ability to control Arcadyan. Accesstek, Inc. (“ATK”) Design, manufacturing and sales of optical disk drives and components 〃 〃 〃 〃 〃 〃 R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products Manufacturing and sales of PCs, computer periphery devices, and electronic components 〃 Manufacturing of electric appliance and audiovisual electric products Manufacturing of equipment and lighting, retailing of equipment and international trading Manufacturing and sales of medical equipment 〞 〃 〃 〃 〃 〃 The Company, Panpal, et al. Gempal Technology Corp. (“Gempal”) Hong Ji Capital Co., Ltd. (“Hong Ji”) Hong Jin Investment Co., Ltd. (“Hong Jin”) Zhaopal Investment Co., Ltd. (“Zhaopal”) Yongpal Investment Co., Ltd. (“Yongpal”) Kaipal Investment Co., Ltd. (“Kaipal”) 〃 Arcadyan Technology Corp. (“Arcadyan”) The Company Rayonnant Technology Co., Ltd. (“Rayonnant Technology”) HengHao Technology Co., Ltd. (“HengHao”) Ripal Optoelectronics Co., Ltd. (“Ripal”) Mactech Co., Ltd (“Mactech”) General Life Biotechnology Co., Ltd. (“GLB”) 〃 〃 〃 〃 〃 〃 Unicore BioMedical Co., Ltd. (“Unicore”) Shennona Corporation (“Shennona”) Management consulting services, rental and leasing business, wholesale and retail sale of medical equipments. Medical care IOT business 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 38% 38% 35% 36% 100% 100% 100% 100% 100% 100% 53% 53% 50% 50% 100% 100% 100% - Shennona was established in January 2018. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 22 Investor Name of Subsidiary Nature of Operation Percentage of ownership December 31, 2018 December 31, 2017 Description The Company Auscom Engineering Inc. (“Auscom”) 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Panpal and Gempal 〃 Just International Ltd. (“Just”) Compal International Holding Co., Ltd. (“CIH”) Compal Electronics (Holding) Ltd. (“CEH”) Bizcom Electronics, Inc. (“Bizcom”) Flight Global Holding Inc. (“FGH”) High Shine Industrial Corp. (“HSI”) Compal Europe (Poland) Sp. z o.o. (“CEP”) Big Chance International Co., Ltd. (“BCI”) Compal Rayonnant Holdings Limited (“CRH”) Core Profit Holdings Limited (“CORE”) Compalead Electronics B.V. (“CPE”) Compalead Eletronica do Brasil Industria e Comercio Ltda. (“CEB”) Compal Electronics India Private Limited (“CEIN”) Just Compal Display Holding 〃 〃 (HK) Limited (“CDH (HK)”) Compal Electronics International Ltd. (“CII”) Compal International Ltd. (“CPI”) CDH (HK) Compal Electronics (China) Co., Ltd. (“CPC”) 〃 〃 Compal Optoelectronics (Kunshan) Co., Ltd. (“CPO”) Compal System Trading (Kunshan) Co., Ltd. (“CST”) R&D of notebook PC related products and components Manufacturing, sales and maintenance of monitors and LCD TVs, and investment Sales and manufacturing of notebook PCs and investments Investment 100% 100% 100% 100% 100% 100% 100% 100% Warranty services and marketing of monitors and notebook PCs Investment 100% 100% 100% 100% 〃 100% 100% Maintenance and warranty services of notebook PCs Investment 〃 〃 〃 Manufacturing of notebook PCs Manufacturing and warranty service of mobile phones Investment 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 〃 100% 100% Sales of monitors, LCD TVs and related components Manufacturing and sales of monitors Manufacturing and sales of LCD TVs International trade and distribution of computers and electronic components 100% 100% 100% 100% 100% 100% 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 23 Investor Name of Subsidiary Nature of Operation Percentage of ownership December 31, 2018 December 31, 2017 Description CPC Compal Smart Device (Chongqing) Co., Ltd. (“CSD”) CII 〃 〃 〃 Smart International Trading Ltd. (“Smart”) Amexcom Electronics Inc. (“AEI”) Mexcom Electronics, LLC (“MEL”) Mexcom Technologies, LLC (“MTL”) Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technical service. Sales of electronic products and related components Sales and maintenance of LCD TVs Investment 100% 100% 100% 100% 100% 100% 100% 100% 〃 100% 100% MEL and MTL CENA Electromex S.A. de C.V. (“CMX”) CIH Compal International Manufacturing, sales, and maintenance of LCD TVs Investment 100% 100% 100% 100% 〃 〃 〃 Holding (HK) Limited (“CIH (HK)”) Jenpal International Ltd. (“Jenpal”) Prospect Fortune Group Ltd. (“PFG”) Fortune Way Technology Corp. (“FWT”) CIH (HK) Compal Electronics 〃 〃 〃 〃 〃 Technology (Kunshan) Co., Ltd. (“CET”) Compal Information (Kunshan) Co., Ltd. (“CIC”) Compal Information Technology (Kunshan) Co., Ltd. (“CIT”) Kunshan Botai Electronics Co., Ltd. (“BT”) Compal Information Research and Development (Nanjing) Co., Ltd. (“CIN”) Compal Digital Technology (Kunshan) Co., Ltd. (“CDT”) BT Compower Global Service Co., Ltd. (“CGS”) CDH (HK) and CIH (HK) CIJ The Company and Webtek Compal Investment (Jiansu) Co., Ltd. (“CIJ”) Compal Display Electronics (Kunshan) Co., Ltd. (“CDE”) Etrade Management Co., Ltd. (“Etrade”) 〃 100% 100% Sales of notebook PCs and related components Investment Manufacturing of notebook PCs 〃 〃 〃 Software and hardware R&D of computers, mobile phones and electronic components Manufacturing and sales of notebook PCs, mobile phones, and digital products Maintenance and warranty service of notebook PCs Investment 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Manufacturing and sales of LCD TVs 100% 100% Investment 100% 100% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 24 Investor Name of Subsidiary Nature of Operation Percentage of ownership December 31, 2018 December 31, 2017 Description The Company Webtek Technology Co., Sales of mobile phones 100% 100% 〃 100% 100% Manufacturing and sales of computers and electronic components Sales of mobile phones Manufacturing and processing of mobile phones and tablet PCs 〃 〃 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% R&D and manufacturing of electronic communication equipment Sales of mobile phones Sales of optical disc drives Investment 100% 100% 100% 100% 100% 100% 100% 100% 〃 100% 100% Sales of wireless network products Technical support of wireless network products Sales of wireless network products 100% 100% 100% 100% 100% 100% 〃 〃 〃 Etrade 〃 〃 Forever 〃 ATK 〃 〃 〃 〃 〃 〃 〃 Arcadyan and Zhi-pal Arcadyan 〃 〃 Ltd. (“Webtek”) Forever Young Technology Inc. (“Forever”) UniCom Global, Inc. (“UCGI”) Palcom International Corporation (“Palcom”) Compal Communication (Nanjing) Co., Ltd. (“CCI Nanjing”) Compal Digital Communication (Nanjing) Co., Ltd. (“CDCN”) Compal Wireless Communication (Nanjing) Co., Ltd. (“CWCN”) Hanhelt Communication (Nanjing) Co., Ltd. (“Hanhelt”) Giant Rank Trading Ltd. (“GIA”) OptoRite Inc. MSI-ATK Otpics Holding Corporation (“MSI-ATK”) Maitek (BVI) Corporation (“Maitek”) Corp. (“Arcadyan USA”) Arcadyan Germany Technology GmbH (“Arcadyan Germany”) Arcadyan Technology Corporation Korea (“Arcadyan Korea”) Arcadyan Holding (BVI) Corp. (“Arcadyan Holding”) Arcadyan Technology Limited (“Arcadyan UK”) Arcadyan Technology Australia Pty Ltd. ("Arcadyan AU") Arcadyan do Brasil Ltda. (“Arcadyan Brasil”) Zhi-pal Technology Inc. (“Zhi-pal”) Tatung Technology Inc. (“TTI”) AcBel Telecom Inc. (“AcBel Telecom”) Arcadyan Arcadyan Technology N.A. Investment 100% 100% Technical support of wireless network products Sales of wireless network products Sales of wireless network products Investment R&D and sales of household digital electronic products Investment 100% 100% 100% 100% 100% 100% 100% 100% 61% 61% 51% 51% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 25 Investor Name of Subsidiary Nature of Operation Percentage of ownership December 31, 2018 December 31, 2017 Description The Company, Arcadyan, and its subsidiaries Compal Broadband Network Inc. (“CBN”) CBN 〃 Speedlink Tradings Limited (“Speedlink”) Compal Broadband Networks Belgium BVBA ("CBNB") Arcadyan Holding 〃 〃 Sinoprime Global Inc. (“Sinoprime”) Arcadyan Technology (Shanghai) Corp. (“SVA Arcadyan”) Arch Holding (BVI) Corp. (“Arch Holding”) Arch Holding Compal Networking (Kunshan) Co., Ltd. (“CNC”) AcBel Telecom Leading Images Ltd. (“Leading Images”) R&D and sales of cable modem, digital set-up box, and other communication products Import and export business Import and export business, technical support and consulting service of broadband networks Sales of wireless network products R&D and sales of wireless network products Investment Manufacturing of wireless network products Investment Great Arch Group Ltd. (“Great Arch”) Sales of wireless network products 64% 72% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 〃 〃 Quest Exquisite HSI 〃 IUE Goal Rayonnant Technology and CRH Leading Images Astoria Networks GmbH (“Astoria GmbH”) Quest International Group Co., Ltd. (“Quest”) TTI 〃 100% 100% Investment 100% 100% Sales of household digital electronic products Investment Manufacturing of household digital electronic products Investment 100% 100% 100% 100% 100% 100% 100% 100% 〃 100% 100% R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam Investment 100% 100% 100% 100% 100% 100% Tatung Technology of Japan Co., Ltd. (“TTJC”) Exquisite Electronic Co., Ltd. (“Exquisite”) Tatung Home Appliances (Wujiang) Co., Ltd. (“THAC”) Intelligent Universal Enterprise Ltd. (“IUE”) Goal Reach Enterprises Ltd. (“Goal”) Compal (Vietnam) Co., Ltd. (“CVC”) Compal Development & Management (“Vietnam”) Co., Ltd. (“CDM”) Allied Power Holding Corp. (“APH”) The liquidation procedure has been completed on April 23, 2018. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 26 Investor Name of Subsidiary Nature of Operation Percentage of ownership December 31, 2018 December 31, 2017 Description APH 〃 Rayonnant Technology (HK) Primetek Enterprises Limited (“PEL”) Rayonnant Technology (HK) Co., Ltd. (“Rayonnant Technology (HK)”) Rayonnant Technology (Taicang) Co., Ltd. (“Rayonnant Technology (Taicang)”) HengHao HengHao Holdings A Co., HHA Ltd. (“HHA”) HengHao Holdings B Co., Ltd. (“HHB”) Investment 100% 100% 〃 100% 100% Manufacturing and sales of aluminum alloy and magnesium alloy products 100% 100% Investment 100% 100% 〃 100% 100% HHB HengHao Trading Co., Ltd. Marketing and 100% 100% 〃 〃 BCI 〃 CMI PRI CIS HengHao Optoelectronics Technology (Kunshan) Co., Ltd. (“HengHao Kunshan”) Lucom Display Technology (Kunshan) Limited (“Lucom”) Center Mind International Co., Ltd. (“CMI”) Prisco International Co., Ltd. (“PRI”) Compal Investment (Sichuan) Co., Ltd. (“CIS”) Compal Electronics (Chongqing) Co., Ltd. (“CEQ”) Compal Electronics (Chengdu) Co., Ltd. (“CEC”) 〃 Compal Management (Chengdu) Co., Ltd. (“CMC”) international trade Production of touch panels and related components 100% 100% Manufacturing of touch panels and LCD TVs 100% 100% Investment 100% 100% 〃 100% 100% Outward investment and consulting services 100% 100% R&D, manufacturing and sales of notebook PCs, related components, related maintenance and warranty services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, training and education, business information consulting, financial and tax consulting, investment consulting, and investment management services Investment 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 51% (Continued) CORE GLB Unicore Billion Sea Holdings Limited (“BSH”) Rapha Bio Ltd. (“RBL”) Detector and feature Raycore Biotech Co., Ltd. Animal medication retail and wholesale (“Raycore”) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 27 (d) Foreign currency (i) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following differences which are recognized in other comprehensive income arising on the retranslation: 1) 2) fair value through other comprehensive income (available-for-sale) financial assets; a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or 3) qualifying cash flow hedges to the extent the hedge is effective (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Group entities' functional currency at exchange rates of the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Group entities' functional currency at average rate. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation differences in equity. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 28 When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (e) Classification of current and non-current assets and liabilities An entity shall classify an asset as current when: (i) It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; (ii) It holds the asset primarily for the purpose of trading; (iii) It expects to realize the asset within twelve months after the reporting period; or (iv) The asset is cash and cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other assets as non-current. An entity shall classify a liability as current when: (i) It expects to settle the liability in its normal operating cycle; (ii) It holds the liability primarily for the purpose of trading; (iii) The liability is due to be settled within twelve months after the reporting period; or (iv) It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not impact its classification. An entity shall classify all other liabilities as non-current. (f) Cash and cash equivalents Cash comprise cash on hand and demand deposits. Cash equivalents are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. The time deposits which meet the above definition and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes are reclassified as cash equivalents. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 29 (g) Financial instruments (i) Financial assets (policy applicable from January 1, 2018) Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The Group shall reclassify all affected financial assets only when it changes its business model for managing its financial assets. 1) Financial assets measured at amortized cost A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: ‧it is held within a business model whose objective is to hold assets to collect contractual cash flows; and ‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 2) Fair value through other comprehensive income (“FVOCI”) A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: ‧it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and ‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Some accounts receivables are held within a business model whose objective is achieved by both collecting contractual cash flows and selling by the Group, therefore, those receivables are measured at FVOCI and presented as accounts receivable. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 30 A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally on the date the shareholders' meeting approved the earning distribation. 3) Fair value through profit or loss (“FVTPL”) All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 4) Impairment of financial assets The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, financial assets measured at amortized costs, notes and accounts receivable, other receivable, guarantee deposit and other financial assets), debt investments measured at FVOCI, and accounts receivable measured at FVOCI. The Group measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL: ‧debt securities that are determined to have low credit risk at the reporting date; and ‧other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 31 Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’ s historical experience and informed credit assessment as well as forward-looking information. The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘ investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’ s or twA or higher per Taiwan Ratings’. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Group in full. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. An evidence that a financial asset is credit-impaired includes the following observable data: ‧significant financial difficulty of the borrower or issuer; ‧a breach of contract such as a default or being more than 90 days past due; (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 32 ‧the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider; ‧it is probable that the borrower will enter bankruptcy or other financial reorganization; or ‧the disappearance of an active market for a security because of financial difficulties. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. 5) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a debt instrument in its entirety, the Group recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income ” , in profit or loss, and presented it in the line item of non-operating income. On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 33 (ii) Financial assets (policy applicable before January 1, 2018) Financial assets are classified into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables. 1) Financial assets at fair value through profit or loss A financial asset is classified in this category if it is classified as held-for-trading or is designated as such on initial recognition. Financial assets are classified as held-for-trading if they are acquired principally for the purpose of selling in the short term. The Group designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: a) Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; b) Performance of the financial asset is evaluated on a fair value basis c) A hybrid instrument contains one or more embedded derivatives. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which take into account any dividend and interest income, are recognized in profit or loss, and are included in non-operating income and expenses. Under a regular way, purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. 2) Available-for sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value, and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, and is included in non-operating income and expenses. A regular way purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at cost less impairment losses, and are included in financial assets measured at cost. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 34 Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally on the date the shareholders’ meeting approved the earning distribution. Such dividend income is included in non-operating income and expenses. 3) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables, other receivables, and investment in debt security with no active market. Such assets are recognized initially at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less, any impairment losses other than insignificant interest on short-term receivables. Under a regular way, purchase or sale of financial assets shall be recognized and derecognized as applicable using trade-date accounting. Interest income is recognized in profit or loss, and it is included in non-operating income and expenses. 4) Impairment of financial assets A financial asset is impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be estimated reliably. The objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment. All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries, and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than those suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 35 An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversible in subsequent periods. An impairment loss in respect of a financial asset is deducted from the carrying amount, except for trade receivables, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance account are recognized in profit or loss. Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. If, in a subsequent period, the amount of the impairment loss of a financial asset measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date. Impairment losses recognized on an available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income and accumulated in other equity. Impairment losses and recoveries are recognized in profit or loss. Recovery and loss on doubtful debts of account receivables is included in operating expense, others are included in non-operating income and expense. 5) Derecognition of financial assets The Group derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity – unrealized gains or losses from available-for-sale financial assets is recognized in profit or loss, and included in non-operating income or expenses. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 36 The Group separates the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income shall be recognized in profit or loss, and is included in non-operating income or expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts. (iii) Financial liabilities and equity instruments 1) Classification of debt or equity Debt or equity instruments issued by the Group are classified as financial liabilities or equity in accordance with the substance of the contractual agreement. Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized as the amount of consideration received, less, the direct cost of issuing. Interest and loss or gain related to financial liabilities are recognized as profit or loss and are reported under non-operating income and expenses. Financial liabilities are reclassified as equity when converted, and conversions do not generate profit or loss. 2) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. This type of financial liability is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, and are included in non-operating income or expenses. 3) Other financial liabilities Financial liabilities not classified as held-for-trading or designated as at fair value through profit or loss, which comprise loans and borrowings, and trade and other payable, are measured at fair value, plus, any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method other than significant interest on short-term loans and payables. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in non-operating income or expenses. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 37 4) Derecognition of financial liabilities The Group derecognizes a financial liability when its contractual obligation has been discharged, cancelled or expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in non-operating income or expenses. 5) Offsetting of financial assets and liabilities The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. (iv) Derivative financial instruments and hedge accounting (policy applicable from January 1, 2018) The Group holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are initially measured at fair value. Any attributable transaction costs thereof are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and are included in the line item of non-operating income. When a derivative is designated as, and effective for, a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, whereas when the fair value is negative, it is classified as a financial liability. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the non-financial asset’s host contract are not closely related to the embedded derivatives and the host contract is not measured at FVTPL. The Group designates its hedging instruments, including derivatives, embedded derivatives, and non-derivative instruments for a hedge of a foreign currency risk, as a fair value hedge, cash flow hedge, or hedge of a net investment in a foreign operation. Foreign exchange risks of firm commitments are treated as fair value hedges. At initial designated hedging relationships, the Group documents the risk management objectives and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged items and hedging instrument are expected to offset each other. The Group shall discontinue hedge accounting prospectively only when the hedging relationship (or a part of a hedging relationship) ceases to meet the qualifying criteria (after taking into account any rebalancing of the hedging relationship, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 38 Cash flow hedges When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in “other equity－gains (losses) on hedging instruments”. The effective portion of changes in the fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss, and is presented in the line item of non-operating income and expenses in the statement of comprehensive income. The Group designates only the change in fair value of the spot element of the forward exchange contract as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of the forward exchange contracts is separately accounted for as a cost of hedging and accumulated in a separate component within equity. When the hedged item is recognized in profit or loss, the amount accumulated in equity and retained in other comprehensive income is reclassified to profit or loss in the same period or in the periods during which the hedged item affects the profit or loss, and is presented in the same accounting item with the hedged item recognized in the consolidated statement of comprehensive income. However, for a cash flow hedge of a forecast transaction recognized as a nonfinancial asset or liability, the amount accumulated in “other equity－gains (losses) on hedging instruments in cash flow hedging securities” and retained in other comprehensive income is reclassified as the initial cost of the nonfinancial asset or liability. In addition, if that amount is a loss and the Group expects that all or a portion of that loss will not be recovered in future periods, it shall immediately reclassify the amount in profit or loss. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the cash flow hedge reserve (and costs of hedging) remains in equity until the hedged future cash flows are no longer expected to occur. Otherwise, that amount would be adjusted within the carrying amount of the non-financial item. For other cash flow hedges, the amount is reclassified to profit or loss in the same period or in the periods as the hedged expected future cash flows affect the profit or loss. However, if the hedged future cash flows are no longer expected to occur, the amount shall immediately be reclassified from cash flow reserve (and the cost of hedging reserve) to profit or loss. (v) Derivative financial instruments, including hedge accounting (policy applicable before January 1, 2018) Except for the following items, the Group applies the same accounting policies as applicable from January 2018. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 39 For derivatives that are linked to investments in equity instruments that do not have a quoted market price in an active market and must be settled by delivery of such unquoted equity instruments, such derivatives that are classified as financial assets are measured at amortized cost, and are included in financial assets measured at cost; and such derivatives that are classified as financial liabilities are measured at cost, and are included in financial liabilities measured at cost. Embedded derivatives are separated from the host contract and accounted for separately when the economic characteristics and risk of the host contract and the embedded derivatives are not closely related. For all cash flow hedges, including hedges of transactions resulting in the recognition of non-financial items, the amounts accumulated in the cash flow hedge reserve were reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affected profit or loss. Furthermore, for cash flow hedges that were terminated before January 1, 2018, forward points were recognized immediately in profit or loss. (h) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average-cost principle and includes expenditure incurred in acquiring the inventories, production or transition costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less, the estimated costs of completion and selling expenses. (i) Investment in associates Associates are those entities in which the Group has significant influence, but not control or join control, over the financial and operating policies. Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition, less, any accumulated impairment losses. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity-accounted investees after adjustments to align the accounting policies with those of the Group from the date that significant influence commences until the date that significant influence ceases. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Group’s ownership percentage of the associate, the Group recognizes the changes in ownership interests of its associate in capital surplus in proportion to its ownership. Unrealized profits resulting from the transactions between the Group and an associate are eliminated to the extent of the Group’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 40 When the Group’s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. The Group shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture. The Group shall measure the retained interest at fair value. The difference between the fair value of retained interest and proceeds from disposal, and the carrying amount of the investment at the date the equity method was discontinued is recognized in profit or loss. The Group shall account for all the amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would have been required if the associates had directly disposed of the related assets or liabilities. If a gain or loss previously recognized in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity shall reclassify the gain or loss from equity to profit or loss when the equity method is discontinued. If an entity’s ownership interest in an associate or a joint venture is reduced while the entity continues to apply the equity method, the entity shall reclassify the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest to profit or loss. 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 shall continue to apply the equity method without remeasuring the retained interest. When the Group subscribes to additional shares in 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 net assets of the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus, however, when the balance of the capital surplus arising from the investment was insufficient, the difference charged or credited to retained earnings. If the Group’s ownership interest is reduced due to the additional subscription to the shares of associate by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. (j) Joint venture A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint ventures) have rights to the net assets of the arrangement. A joint venture shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 “Investments in Associates and Joint Ventures”, unless, the entity is exempted from applying the equity method as specified in that Standard. When assessing the classification of a joint arrangement, the Group shall consider the structure and legal form of the arrangement, the terms in the contractual arrangement and other facts and circumstances. The Group had previously reviewed the contractual structure of the joint arrangement, and has now decided to reclassify the investments in “Jointly Controlled Entities” to “Joint Ventures”. Although the investments have been reclassified, they are still recorded under the equity method. Thus, there is no effect in the recognized assets, liabilities and other comprehensive income. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 41 (k) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses. (ii) Subsequent cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred. (iii) Depreciation The depreciable amount of an asset is determined after deducting its residual amount, and it shall be allocated on a systematic basis over its useful life. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period shall be recognized in profit or loss. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life. Land has an unlimited useful life and therefore is not depreciated. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 42 The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 1) Buildings: 9~50 years 2) Building improvement: 0.5~20 years 3) Machinery and equipment: 1~10 years 4) Research equipment: 1~10 years 5) Modeling equipment: 0.5~5 years 6) Other equipment: 1~15 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change is accounted for as a change in an accounting estimate. (l) Leases (i) The Group as lessor Lease income from operating lease is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly. (ii) The Group as lessee Operating leases are not recognized in the Group’s balance sheets. Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. (m) Intangible assets (i) Goodwill 1) Initial recognition Goodwill arising from acquisition of subsidiaries is included in intangible assets. The measurement of initial recognition of goodwill, please refer to note (4)(u). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 43 2) Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Goodwill related to an investment accounted for using equity method is included in the carrying amount of the investment, and not allocated to any asset, including goodwill, forms part of the carrying amount of the investment accounted for using the equity method. (ii) Research & Development During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred. Expenditures arising from the development phase shall be recognized as an intangible asset if all the conditions described below can be demonstrated; otherwise, they will be recognized in profit or loss as incurred. 1) 2) 3) The technical feasibility of completing the intangible asset so that it will be available for use or sale. Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset. 4) How the intangible asset will generate probable future economic benefits. 5) 6) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. Its ability to measure reliably the expenditure attributable to the intangible asset during its development. Capitalized expenditure arising from the development phase is measured at cost less accumulated amortization and accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Group are measured at cost, less accumulated amortization and any accumulated impairment losses. (iv) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 44 (v) Amortization The amortizable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and intangible assets with all indefinite useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: 1) Patents: the shorter of contract period and estimated useful lives 2) Royalty: amortized by contract period 3) Computer software: 1~10 years 4) Copyright: 10 years The residual value, the amortization period, and the amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as changes in accounting estimates. (n) Impairment of non-derivative financial assets Non-derivative financial assets except for inventories, deferred tax assets, assets arising from employee benefits and non-current assets classified as held for sale are assessed at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Group shall estimate the recoverable amount of the asset. If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Group will have to determine the recoverable amount for the asset's cash-generating unit. The Group assesses goodwill and intangible assets, which have indefinite useful lives and are not available for use, on an annual basis and recognizes an impairment loss on excess of carrying value over the recoverable amount. The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value, less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units. If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss and the impairment loss shall be allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 45 The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss. (o) Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (p) Treasury stock Repurchased shares are recognized under treasury shares (a contra-equity account) based on its repurchase price (including all directly accountable costs), and net of tax. Gains on disposal of treasury shares should be recognized under Capital Reserve – Treasury Shares Transactions; losses on disposal of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. The carrying amount of treasury shares should be calculated using the weighted average different types of repurchase. During the cancellation of treasury shares, Capital Reserve – Share Premiums and Share Capital should be debited proportionately. Gains on cancellation of treasury shares should be recognized under existing capital reserves arising from similar types of treasury shares; losses on cancellation of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. (q) Recognition of Revenue (i) Revenue from contracts with customers (policy applicable from January 1, 2018) Revenue is measured based on the consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer. The Group recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Group’s main types of revenue are explained below. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 46 1) Sale of goods The Group manufactures and sells electronic products to electronic products brand vendor. The Group recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied. The Group assesses sales discounts based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. A refund liability is recognized for expected discounts payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales of electronic products are made with a credit term which is consistent with the market practice. A receivable is recognized when the goods are delivered as this is the point in time that the Group has a right to an amount of consideration that is unconditional. 2) Financing components The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. (ii) Revenue (policy applicable before January 1, 2018) Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized. The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 47 (r) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Group, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realizable during the life of the plan, or on settlement of the plan liabilities. If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss. Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re-measurement of the defined benefit plan is charged to retained earnings. The Group recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation. (iii) Short term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 48 A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (s) Share-based payment The grant-date fair value of share-based payment awards granted to employee is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of award that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes. (t) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the following exceptions: (i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) during the transaction. (ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse. (iii) Initial recognition of goodwill. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 49 Deferred tax assets and liabilities may be offset against each other if the following criteria are met: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios: 1) 2) levied by the same taxing authority; or levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and they shall be adjusted based on the probability that future taxable profit that will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. The surtax on unappropriated earnings is recoded as current tax expense in the following year after the resolution to appropriate retained earnings is approved in a stockholders’ meeting. (u) Business combination Goodwill is measured as an aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and as an amount of any non-controlling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value). If the residual balance is negative, the Group shall re-assess whether it has correctly identified all of the assets acquired and liabilities assumed, and recognize a gain on the bargain purchase thereafter. All the transaction costs incurred for the business combination are recognized immediately as the Group’s expenses when incurred, except for the issuance of debt or equity instruments. If the business combination is achieved in stages, the Group shall measure any non-controlling equity interest in the acquire, either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Other non-controlling interest is measured (1) at fair value at the acquisition date or (2) by using other valuation techniques acceptable under the IFRS as endorsed by the FSC. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 50 In a business combination achieved in stages, the Group shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the Group had disposed directly of the previously held equity interest. If the disposal of the equity interest required a reclassification to profit or loss, such an amount shall be reclassified to profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Group shall retrospectively adjust the provisional amounts recognized at the acquisition date, or recognize additional assets or liabilities to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date. (v) Earnings per share The Group discloses the basic and diluted earnings per share attributable to ordinary equity holders of the Group. The calculation of basic earnings per share is based on the profit attributable to the ordinary shareholder of the Group divided by weighted average number of ordinary shares outstanding. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders of the Group divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise restricted employee stock and employee compensation not yet approved by the Board of Directors. (w) Operating segments An operating segment is a component of the Group that engages in business activities from which it may incur revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Group). Operating results of the operating segment are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Each operating segment consists of standalone financial information. (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty: The preparation of the consolidated financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates. The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 51 There are no critical judgments in applying the accounting policies that have significant effect on the amounts recognized in the consolidated financial statements. In addition, information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is as follows: (a) Recognition and measurement of refund liabilities (provisions) Because of the sales returns and allowances, the Group records refund liabilities (sales returns and allowance provisions) for estimated returns and other allowances in the same period the related revenue is recorded. The estimate is made based on historical experience, market and economic conditions, and any other known factors using the expected value or the most likely amount, and it could be different from actual sales returns and allowances, therefore, the management periodically reviews the adequacy of the estimation used. Refer to note (6)(p) and (6)(r) for further description of the recognition of provisions and refund liabilities. (b) Valuation of inventories As inventories are stated at the lower of cost or net realizable value, the net realizable value of the inventory is mainly determined based on assumptions as to future demand within a specific time horizon. Due to the rapid industrial changes, there may be significant differences in the net realizable value of inventories. Refer to note (6)(j) for further description of the valuation of inventories. (6) Explanation of significant accounts: (a) Cash and cash equivalents Cash on hand Checking accounts and demand deposits Time deposits Bonds purchased under resale agreements December 31, 2018 December 31, 2017 $ 10,834 12,144 12,389,146 6,155,475 57,033,555 63,752,594 863,010 142,500 $ 70,296,545 70,062,713 Please refer to note (6)(ad) for the disclosure of the exchange rate risk, the interest rate risk and the fair value sensitivity analysis of the financial assets and liabilities of the Group. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 52 (b) Financial assets and liabilities at fair value through profit or loss Mandatorily measured at fair value through profit or loss: Non-derivative financial assets Structured deposits Stock listed in domestic markets Unlisted fund in domestic or foreign markets Derivative instruments not used for hedging Foreign exchange contracts Swap contracts Financial assets held-for-trading: Derivative instruments not used for hedging Foreign exchange contracts Total Current Non-current Financial liabilities held-for-trading: Derivative instruments not used for hedging Foreign exchange contracts Swap contracts Total December 31, 2018 December 31, 2017 $ 3,965,062 633,859 69,390 10,168 2,045 - - - - - - $ $ 4,680,524 4,611,134 40,706 40,706 40,706 69,390 - $ 4,680,524 40,706 December 31, 2018 December 31, 2017 $ $ 26,913 - 26,913 21,841 2,622 24,463 The Group uses derivative instruments to hedge foreign currency risk the Group is exposed to arising from its operating activities. The following derivative instruments not applied hedge accounting were classified as mandatorily measured at fair value through profit or loss on December 31, 2018 and held-for-trading financial instruments on December 31, 2017 (foreign currencies were expressed in thousands): (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 53 December 31, 2018 Contract amount (in thousands) Currency Maturity date EUR30,200 EUR to USD January 14~March 28, 2019 USD27,300 USD to TWD February 14, 2019 EUR16,000 USD5,000 EUR1,000 USD136,900 EUR to USD February 26~March 28, 2019 EUR to USD January 10~February 11, 2019 EUR to TWD March 25, 2019 USD to BRL January 3~April 16, 2019 December 31, 2017 Contract amount (in thousands) Currency Maturity date Derivative financial assets: Foreign exchange contracts: Forward exchange sold Swap contracts: Currency Swap Derivative financial liabilities: Foreign exchange contracts: Forward exchange sold Forward exchange sold Forward exchange sold Forward exchange purchased Derivative financial assets: Foreign exchange contracts: Forward exchange purchased USD2,000 USD to MXN January 30, 2018 Forward exchange purchased USD66,500 USD to BRL January 9~February 23, 2018 Forward exchange sold EUR2,000 EUR to USD January 10, 2018 Derivative financial liabilities: Foreign exchange contracts: Forward exchange sold Swap contracts: Currency swap EUR44,000 EUR to USD January 12~April 13, 2018 USD29,600 USD to TWD January 25~April 25, 2018 The aforementioned stocks listed in domestic markets were recorded under available-for-sale financial assets as of December 31, 2017. Please refer to note (6)(e). The market risk related to the financial instruments please refer to note (6)(ae). As of December 31, 2018 and 2017, the Group did not provide any aforementioned financial assets as collaterals for its loans. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (c) Financial assets at fair value through other comprehensive income Equity investments at fair value through other comprehensive income: Stock listed in domestic markets Stock listed in foreign markets Stock unlisted in domestic markets Stock unlisted in foreign markets Total 54 December 31, 2018 $ 2,730,648 400,184 1,990,100 51,363 $ 5,172,295 The purpose that the Group invests in the above-mentioned equity securities is for long-term strategies, but rather for trading purpose. Therefore, these equity securities are designated as at FVOCI, whereas, were presented under financial assets carried at cost and available-for-sale financial assets as of December 31, 2017. Please refer to notes (6)(e) and (6)(f). In 2018, the Group has sold parts of its shares held in Innolux Corporation and Parawin Venture Capital Corp., which were measured at fair value through other comprehensive income. The fair value of the shares was $428,635 when disposed and the cumulative losses amounted to $1,513,953, which has been transferred to retained earnings from other comprehensive income. If there is an increase (decrease) in the market price by 5% on the reporting date of the equity securities hold by the Group, the increase (decrease) in other comprehensive income (pre-tax) for the year ended December 31, 2018, will be $258,615. These analyses are performed on the same basis for the period and assume that all other variables remain the same. The Group’s information of market risk please refer to note (6)(ad). As of December 31, 2018, the Group did not provide any financial assets at fair value through other comprehensive income as collaterals for its loans. (d) Financial instruments used for hedging (i) Cash flow hedge The Group’s strategy is to use forward exchange contracts to hedge its foreign currency exposure in respect of forecasted future sales. As of December 31, 2018 and 2017, the Group did not enter into any hedge contract. (ii) For the years ended December 31, 2018 and 2017, the profits (losses) of changes in fair value of derivative financial instruments used for hedging reclassified from other equity to profit or loss is recognized as revenue in the statement of comprehensive income. Please refer to note (6)(ac). (iii) For the years ended December 31, 2018 and 2017, the ineffective portion of cash flow hedge recognized in loss amounted to $559 and $53,182, recorded as "other gains and losses, net". (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (e) Available-for-sale financial assets Stocks listed in domestic markets Stocks listed in foreign markets Stocks unlisted in domestic markets Stocks unlisted in foreign markets Total Current Non-current 55 December 31, 2017 $ 4,617,045 654,192 2,295,576 126,333 7,693,146 46,479 7,646,667 $ $ $ 7,693,146 (i) The Group purchased newly issued shares of Chunghwa Picture Tubes, Ltd. (“CPT”) via private placement in 2009. The cost was 2.5 New Taiwan dollars per share, totally amounting to $7,000,000. The Group signed an agreement with Tatung Company (“Tatung”, the parent company of CPT) on such matter. In accordance with the agreement, the Group has the right to request Tatung to purchase all the CPT shares obtained via the private placement within certain agreed periods, at the price the Group originally paid for the CPT shares plus interest. Accordingly, since the fair value of CPT shares obtained via the private placement were below the original costs, the Group measured the book value of the shares at its original cost. The Group filed an arbitration based on the agreement on March 29, 2013, requesting Tatung to perform its obligations. The Group received the verdict on May 12, 2014. According to the verdict, Tatung should pay $2,118,607 to the Group for purchasing all the CPT shares held by the Group. Additionally, Tatung should pay the interest which is calculated by the annual rate of 5% in the period from April 3, 2013 to the actual payment date. Therefore, the Group recognized an impairment loss of $4,730,000 in the first quarter of 2014 accordingly. On June 13, 2014, the Group filed a civil complaint with the Taiwan Taipei District Court to revoke the arbitration award. At the end, the Taiwan Supreme Court dismissed the appeal on January 11, 2017. The Group has sold total shares of CPT to Tatung on February 9, 2017 in accordance with the arbitration. The selling prices of the Group was totaling $2,272,104 (including the interest), and the total loss of sale was $4,252. The price has been fully recovered. (ii) The Company is optimistic about the future growth of IoT, Smart Cloud and the smart products market, and to deepen customer relationship, the Board of Directors of CIT, a 100% subsidiary of the Company, decided to purchase the newly issued shares of Leshi Zhixin Electronic Technology (Tianjin) Limited of March 28, 2017. The total amount of the investment is CNY 700,000 thousands, and the expected ownership interest will be 2.1507%. Since the financial status and business of the Leshi Group has changed significantly, CIT has determined to terminate this investment. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 56 (iii) If there is an increase in the market price of the equity securities by 5% on the reporting date, the increase in other comprehensive income (pre-tax) for the years ended December 31, 2017, will be $384,657. These analyses are performed on the same basis and assume that all other variables remain the same. (iv) As of December 31, 2017, the Group did not provide any available-for-sale financial assets as collaterals for its loans. (v) As of December 31, 2018, the aforementioned investments were classified as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. Please refer to notes (6)(b) and (6)(c). (f) Financial assets at cost Unlisted common stock in domestic markets Unlisted fund in domestic markets December 31, 2017 $ $ 5,273 48,709 53,982 (i) The aforementioned unlisted stock and fund in domestic or foreign markets held by the Group are measured at cost, less accumulated impairment losses on the reporting date. The fair values of these investments cannot be measured reliably because the range of reasonable fair value estimates is large and the probabilities for each estimate cannot be reasonably determined. (ii) The value of the financial assets at cost held by the Group has declined materially and permanently; therefore, the Group recognized the impairment losses of $17,838 for the year ended December 31, 2017. (iii) As of December 31, 2017, the Group did not provide any financial assets at cost as collaterals for its loans. (iv) As of December 31, 2018, the assets are presented as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. Please refer to notes (6)(b) and (6)(c). (g) Current financial assets measured at amortized costs Common bonds – Taiwan Star Telecom Corporation Limited (“Taiwan Star”) $ December 31, 2018 350,000 The Group has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on the principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost on January 1, 2018. As of December 31, 2017, the aforementioned financial assets measured at amortized costs of the Group were classified as bond investment without active market. Please refer to note (6)(h). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 57 As of December 31, 2018, the Group did not provide the aforementioned financial assets as collaterals for its loans. (h) Bond investment without active market Common bonds – Taiwan Star Telecom Corporation Limited (Taiwan Star ) Current Non-current December 31, 2017 $ $ $ 700,000 350,000 350,000 700,000 The Group subscribed the five-year common bonds issued by Taiwan Star via private placement for $1,750,000 in June 2014 with an interest rate of 2%. Taiwan Star will repay the amount of $350,000 per annum from the date of issuance till the maturity of the bond in June 2019. The aforementioned bond investments were classified as financial assets measured at amortized cost on December 31, 2018. Please refer to note (6)(g). As of December 31, 2017, the Group did not provide the aforementioned financial assets as collaterals for its loans. (i) Notes and accounts receivable Notes receivable from operating activities December 31, 2018 December 31, 2017 $ 102,775 158,436 Accounts receivable – measured at amortized cost 184,671,402 181,283,397 Accounts receivable – fair value through other comprehensive income Less: allowance for uncollectible accounts allowance for sales returns and discounts Notes and accounts receivable 23,020,497 - 207,794,674 181,441,833 (4,020,603) (4,021,894) - (33,214) $ 203,774,071 177,386,725 $ 203,715,965 177,272,731 Notes and accounts receivable – related parties $ 58,106 113,994 The Group has assessed a portion of its trade receivables that was held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; therefore, such trade receivables were measured at fair value through other comprehensive income on January 1, 2018. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 58 The Group applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables on December 31, 2018. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information. (i) The loss allowance provision of IT product segment of the Group as of December 31, 2018 was determined as follows: Credit rating Level A Level B Level C Carrying amount of accounts receivable $ 186,203,302 Weighted- ave rage ECL rate 0% 11,907,279 1.208% 3,830,424 100% $ 201,941,005 Lifetime ECLs - Credit-impai red No 143,862 3,830,424 3,974,286 No Yes (ii) The loss allowance provision of strategically integrated product segment of the Group as of December 31, 2018 was determined as follows: Carrying amount of accounts receivable Weighted- aver age ECL rate Lifetime ECLs $ Credit rating Level A Level B Level C Level D~E Level F 1,550,848 3,024,709 1,247,546 - 0.01% 0.11% 1.00% - 30,566 100% $ 5,853,669 Credit-impai red No No No - Yes 82 3,194 12,475 30,566 46,317 - As of December 31, 2018 the aging analysis of accounts receivable, which were past due but not impaired, was as follows: Overdue 1 to 180 days Overdue 181 to 365 days Overdue 365 days and over December 31, 2018 $ 2,919,586 15,809 25,555 $ 2,960,950 As of December 31, 2017, the Group applies the incurred loss model to consider the loss allowance provision of notes and accounts receivable, and the aging analysis of notes and accounts receivable, which were past due but not impaired, was as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Overdue 1 to 180 days Overdue 181 to 365 days Overdue 365 days and over 59 December 31, 2017 $ 1,293,581 15,611 457 $ 1,309,649 For the years ended December 31, 2018 and 2017, the movement in the allowance for notes and accounts receivable were as follow: Balance at beginning of the period $ 4,021,894 173,623 858,812 2017 Individually assessed impairment Collectively assessed impairment 2018 (IAS 39) Adjustment on initial application of IFRS 9 - Balance at beginning of the period (IFRS 9) 4,021,894 Assessment category reclassified Impairment losses recognized Effect of changes in exchange rates Balance at the end of the period $ - (1,085) (206) 4,020,603 695,014 2,991,636 - 3,860,273 (695,014) (2,945) 768 161,621 Allowance for uncollectible accounts is the balance of accounts receivable which are uncollectable. Except for evaluating the situation of the customers’ payment records and widely analyzing the credit rating of customers, the Group also takes all the necessary procedures for collection. The Group believes that there is no doubt for the recovery of the due but unimpaired accounts receivable, therefore, no allowance recognized. The Group had recognized full loss for the uncollectible accounts receivables of Leshi, however, the Group will make the utmost effort to recover the accounts receivable, including taking proper legal actions. The Group entered into accounts receivable factoring agreements with banks. As of December 31, 2018 and 2017, except for the amount used under the actual sales amount in accordance with certain agreements, the factoring amount granted by the banks was USD 950,000 thousands and EUR 20,000 thousands, USD 985,000 thousands and EUR 32,000 thousands, respectively. Based on the agreements, the Group is not responsible for guaranteeing the ability of the accounts receivable obligor to make payment when it is affected by credit risk. Thus, this is a non-recourse accounts receivable factoring. After the transfer of the accounts receivable, the Group can request partial advanced amount, while the interest calculated at an agreed rate is paid to the bank in the period during the time of receiving advance and the accounts receivable is collected. The remaining amounts with no advance are received when the accounts receivable are settled by the customers. As of December 31, 2018 and 2017, the factored accounts receivable with no advance amounting to $0 and $61,888, respectively, are accounted for as other receivables. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 60 The Company, customers, and banks signed the three-party contracts in which the banks purchase accounts receivable from the Company. The total amount of the accounts receivable should not exceed the facility limit provided by the banks to the Company’s customers. Based on the contracts, the banks have no right to request the Company to repurchase the accounts receivable. Thus, this is a non-recourse accounts receivable transfer. As of December 31, 2018 and 2017, account receivable factored were recovered and derecognized since the conditions of derecognition were met. As of December 31, 2018 and 2017, the details of the factored accounts receivable were as follows: December 31, 2018 Accounts receivable factored (gross) $ 32,098,074 Accounts receivable factored (gross) $ 35,475,337 Purchaser Financial Institution Purchaser Financial Institution Advanced amount 32,098,074 Collateral - Amount derecognized 32,098,074 Interest rate 3.02%~3.52% December 31, 2017 Advanced amount 35,413,449 Collateral - Amount derecognized 35,475,337 Interest rate 0.85%~2.56% As of December 31, 2018 and 2017, the Group did not provide any aforementioned notes and accounts receivable as collaterals. (j) Inventories Finished goods Work in progress Raw materials Raw materials in transit December 31, 2018 33,463,627 $ December 31, 2017 22,403,402 6,830,625 7,710,311 38,526,674 38,453,542 327,996 945,457 $ 79,148,922 69,512,712 (i) During the years ended December 31, 2018 and 2017, inventory cost recognized as cost of sales amounted to $937,139,320 and $855,692,390, respectively. (ii) The write-down of inventories to net realizable value amounted to $263,774 in the year ended December 31, 2018. The Group reversed its allowance for inventory valuation loss amounting to $1,447,842 due to the sale and disposal of its obsolete inventories in the year ended December 31, 2017. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 61 (iii) As of December 31, 2018 and 2017, the Group did not provide any inventories as collaterals for its loans. (k) Investments accounted for using equity method A summary of the Group’s financial information for equity-accounted investees at the reporting date is as follows: Associates Joint venture Less: unrealized profits or losses (i) Associates December 31, 2018 $ 7,469,153 December 31, 2017 11,894,859 16,180 29,963 7,485,333 11,924,822 (120,848) (117,200) $ 7,364,485 11,807,622 1) The fair value of the shares of listed company based on the closing price was as follow: Allied Circuit Co., Ltd. (“Allied Circuit”) Avalue Technology Inc. (“Avalue”) December 31, 2018 December 31, 2017 $ 1,061,543 1,370,293 586,743 696,471 $ 1,648,286 2,066,764 2) The Group’s share of the net gain (loss) of associates was as follows: The Group’s share of the gain of associates 2018 2017 $ 813,796 620,837 3) The Group’s financial information for investments accounted for using the equity method that are individually immaterial was as follows: Carrying amount of individually immaterial associates $ 7,469,153 December 31, 2018 December 31, 2017 11,894,859 The Group’s share of the net income (loss) of associates: Profit from continuing operations Other comprehensive income (loss) Total comprehensive income 2018 2017 $ $ 813,796 620,837 (287,138) (30,637) 526,658 590,200 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 62 4) In August 2018, the Group has sold all of its shares held in LC Future Center Limited Ltd. (LCFC), with consideration (net of costs of disposal) amounting to USD 246,792 thousands. The transaction has been completed and the price has been fully recovered. The Group recognized a gain of $2,511,085 (USD 83,925 thousands), which was accounted for as other gain and loss. (ii) Joint venture In April 2010, the Group and another company established a jointly controlled entity, Compal Connector Manufacture Ltd. ("CCM"), and obtained an ownership interest of 51%. CCM’s actual paid-in capital amounted to USD10,000 thousands. Moreover, in May 2014, the Group and another company established a jointly controlled entity, Zheng Ying Electronics (Chongqing) Co., Ltd., ("Zheng Ying"), and obtained an ownership interest of 51%. Zheng Ying’s actual paid-in capital amounted to USD2,500 thousands. The Group’s financial information for investment accounted for using the equity method that are individually insignificant was as follows: December 31, 2018 December 31, 2017 The carrying amount of the Group’s interests in all individually insignificant joint ventures $ 16,180 29,963 The Group’s share of the net income (loss) of joint ventures: 2018 2017 Losses from continuing operations (also the total comprehensive losses) $ (16,428) (14,270) (iii) As of December 31, 2018 and 2017, the Group did not provide any investments accounted for using equity method as collaterals for its loans. (l) Changes in subsidiaries’ equity (i) Changes in ownership interests while retaining control (increase in ownership interest) The Group purchased 3% ownership of HengHao from non-controlling interest with an amount of $25,203 in 2017; therefore, the Group acquired 100% ownership of HengHao. The Group purchased shares of TTI from non-controlling interest amounting to $634 and $10,496, respectively, in 2018 and 2017. The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of the subsidiaries: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 63 Acquisition of non-controlling interest (carrying amount) Consideration paid for the non-controlling interest Difference 2018 2017 631 30,117 (634) (35,699) (3) (5,582) $ $ Capital surplus – difference between consideration and carrying amount of subsidiaries acquired or disposed $ Capital surplus – changes in ownership interests in subsidiaries Retained earnings $ - - (3) (3) (3,492) 89 (2,179) (5,582) (ii) Disposal of part of equity ownership of subsidiaries’ interest without losing control The Group disposed 23% of CBN’s interest in 2017, and the total consideration was $413,257. The capital surplus – difference between consideration and carrying amount of subsidiaries acquired or disposal related to above transaction amounted to $36,508. (iii) Changes in subsidiaries’ equity did not result in the Company’s loss of control 1) Subsidiaries’ employee stock options exercised CBN issued 351 thousand and 1,612 thousand new shares because of its employees' exercised stock options in 2018 and 2017, respectively, which resulted in reducing the Group’s ownership of CBN by 0.41% and 2.80%, respectively. 2) Issuance of new shares for cash of subsidiaries The Group did not purchase newly issued shares of CBN in the fourth quarter of 2018, which resulted in reducing the Group's ownership of CBN by 7.27%. 3) Issuance of subsidiaries’ restricted shares Arcadyan issued 4,500 thousand restricted new shares in the year ended December 31, 2018, which resulted in reducing 0.84% interest of the Group’s ownership of Arcadyan. 4) The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of subsidiaries: Capital surplus – changes in ownership interest in subsidiaries Retained earnings 2018 2017 $ $ (32,703) (32,160) (64,863) 53 (424) (371) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 64 (m) Material non-controlling interests of subsidiaries The material non-controlling interests of subsidiaries were as follows: Subsidiaries Arcadyan Technology Corporation Main operation place Taiwan Percentage of non-controlling interests December 31, 2018 December 31, 2017 65% 64% The following information of the aforementioned subsidiaries has been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Included in these information are the fair value adjustment made during the acquisition and relevant difference in accounting principles between the Group as at the acquisition date. Intra-group transactions were not eliminated in this information. Arcadyan’s collective financial information Current assets Non-current assets Current liabilities Non-current liabilities Net assets Non-controlling interests Sales revenue Net income Other comprehensive income Comprehensive income Profit, attributable to non-controlling interests Comprehensive income, attributable to non-controlling interests Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities December 31, 2018 18,638,678 $ December 31, 2017 13,121,132 2,614,802 2,460,716 (11,620,412) (6,495,495) $ $ $ $ $ $ $ $ (159,270) (161,946) 9,473,798 8,924,407 6,330,768 5,896,398 2018 26,621,262 2017 20,110,209 880,183 650,310 31,652 (67,902) 911,835 582,408 567,101 431,444 587,791 387,988 1,815,108 1,075,838 (369,128) 304,029 702,117 (49,580) Effect of exchange rate changes on cash and cash equivalents 16,667 (49,844) Net increase (decrease) in cash and cash equivalents $ 2,164,764 1,280,443 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 65 (n) Property, plant and equipment The cost, depreciation, and impairment of the property, plant and equipment of the Group for the years ended December 31, 2018 and 2017, were as follows: Buildings and building improvement Machinery Other equipment Land Under construction and prepayment for purchase of equipment Total Cost or deemed cost: Balance on January 1, 2018 $ 1,769,326 15,100,906 23,268,462 9,759,017 1,136,868 51,034,579 Additions Disposals and derecognitions Reclassifications - - - 1,787,027 3,354,838 1,467,955 83,609 6,693,429 (55,743) (109,254) (423,779) - (588,776) 5,030 104,891 104,690 (214,611) - Effect of movements in exchange rates 2,888 183,050 (417,340) (264,979) (2,376) (498,757) Balance on December 31, 2018 Balance on January 1, 2017 $ $ 1,772,214 17,020,270 26,201,597 10,642,904 1,003,490 56,640,475 1,776,857 15,616,310 24,000,626 10,457,550 1,059,323 52,910,666 Additions Disposals and derecognitions Reclassifications - - - 68,284 1,613,726 1,454,959 427,977 3,564,946 (63,174) (214,256) (1,975,885) - (2,253,315) 21,634 179,435 73,036 (274,105) - Effect of movements in exchange rates (7,531) (542,148) (2,311,069) (250,643) (76,327) (3,187,718) Balance on December 31, 2017 $ 1,769,326 15,100,906 23,268,462 9,759,017 1,136,868 51,034,579 Depreciation and impairments loss: Balance on January 1, 2018 Depreciation for the period Disposals and derecognitions Effect of movements in exchange rates Balance on December 31, 2018 Balance on January 1, 2017 Depreciation for the period Disposals and derecognitions Effect of movements in exchange rates Balance on December 31, 2017 Carrying amounts: Balance on December 31, 2018 Balance on January 1, 2017 Balance on December 31, 2017 $ $ $ $ $ $ $ - - - - - - - - - - 9,239,452 17,548,800 6,066,960 738,622 2,309,302 1,547,601 (22,941) (95,177) (399,077) 150,520 (1,321,222) 459,407 10,105,653 18,441,703 7,674,891 9,116,263 15,782,175 7,059,551 718,593 2,321,546 1,761,108 (55,122) (157,629) (1,968,157) (540,282) (397,292) (785,542) 9,239,452 17,548,800 6,066,960 - - - - - - - - - - 32,855,212 4,595,525 (517,195) (711,295) 36,222,247 31,957,989 4,801,247 (2,180,908) (1,723,116) 32,855,212 1,772,214 6,914,617 7,759,894 2,968,013 1,003,490 20,418,228 1,776,857 6,500,047 8,218,451 3,397,999 1,059,323 20,952,677 1,769,326 5,861,454 5,719,662 3,692,057 1,136,868 18,179,367 As of December 31, 2018 and 2017, part of the Group’s property, plant and equipment were provided as collateral for long-term borrowings. Please refer to note (8). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 66 (o) Short-term borrowings The details of short-term borrowings were as following: Unsecured bank loans Unused credit line for short-term borrowings Range of interest rates December 31, 2018 December 31, 2017 72,350,197 56,515,525 83,720,000 83,710,000 $ $ 0.45%~5.87% 0.60%~4.30% For information on the Group’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ad). (p) Long-term borrowings The details of long-term borrowings were as follows: Unsecured bank loans December 31, 2018 Annual range of interest rate 0.79%~1.22% Currency TWD Maturity year 2019~2021 $ Amount 28,396,250 Secured bank loans TWD 1.67% 2022 Less: current portion Total Unused credit lines for long-term borrowings Unsecured bank loans Unsecured bank loans Secured bank loans Less: current portion Total Unused credit lines for long-term borrowings 137,813 (17,535,625) $ 10,998,438 $ 5,443,000 Currency TWD USD TWD December 31, 2017 Annual range of interest rate 0.78%~1.22% Maturity year 2018~2020 $ Amount 25,050,000 1.95%~1.96% 2018 1.67%~1.92% 2018~2022 2,083,200 319,688 (6,200,625) $ 21,252,263 $ 4,377,000 For information on the Group’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ad). The Group pledged property, plant and equipment as collateral for its partial long-term borrowings. Please refer to note (8). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 67 (q) Provisions Warranties Sales returns and allowances Total Balance on January 1, 2018 $ 387,147 1,440,292 1,827,439 Adjustment on initial application of IFRS 15 - (1,440,292) (1,440,292) Balance on January 1, 2018 per IFRS 15 Provisions made during the period Provisions used during the period Provisions reversed during the period Balance on December 31, 2018 Balance on January 1, 2017 387,147 398,735 (313,832) (45,069) 426,981 - - - - - 387,147 398,735 (313,832) (45,069) 426,981 309,844 1,532,250 1,842,094 $ $ Provisions made during the period 410,214 1,078,600 1,488,814 Provisions used during the period (245,130) (219,727) (464,857) Provisions reversed during the period (87,781) (950,831) (1,038,612) Balance on December 31, 2017 $ 387,147 1,440,292 1,827,439 Provisions relate to sales of products are assessed based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. Due to the application of IFRS 15 on January 1, 2018, the sales returns and allowances provisions were reclassified to refund liabilities. (r) Refund liabilities Refund liabilities December 31, 2018 $ 1,579,832 Due to the application of IFRS 15 from January 1, 2018, the provision of sale return and allowance were reclassified from provision to refund liabilities. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 68 (s) Operating lease (i) The Group as lessee 1) The rental payables of the non-cancellable operating lease are as follows: Less than one year Between one and five years More than five years December 31, 2018 December 31, 2017 $ 569,275 598,996 116,349 565,999 859,489 130,664 $ 1,284,620 1,556,152 The Group leased several office areas under operating leases with the leasing terms from 1 to 19 years and had an option to renew the leases when the leases expired. For the years ended December 31, 2018 and 2017, expenses recognized in profit or loss under operating leases amounted to $612,239 and $565,190, respectively. The lease contract includes those of the land and building, with their residual values being assumed by the landlord. The rental is regularly adjusted based on the current market price. Based on the risks and rewards of leased assets not transferred to the Group, the Group recognized the lease as operating lease. 2) Long-term prepaid rent – land leasehold rights The Group acquired land leasehold rights under operating lease and was expensed equally over 50 years. As of December 31, 2018 and 2017, land leasehold rights accounted as long-term prepaid rents amounted to $891,147 and $571,133, respectively. For the years ended December 31, 2018 and 2017, expenses recognized in profit or loss under operating lease amounted to $13,302 and $13,135, respectively. (ii) The Group as lessor The Group leased out a few offices buildings, plants and equipment to third parties under operating lease with lease terms of 1 to 7 years. For the years ended December 31, 2018 and 2017, rentals recognized in profit or loss amounted to $5,504 and $8,630, respectively. The future minimum lease receivables under non-cancellable leases are as follows: Less than one year Between one and five years More than five years December 31, 2018 December 31, 2017 $ $ 1,222 2,951 352 4,525 2,426 2,455 880 5,761 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 69 (t) Employee benefits (i) Defined benefit plans Reconciliation of defined benefit obligations at present value and plan assets at fair value were as follows: Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities December 31, 2018 (1,447,375) $ December 31, 2017 (1,418,645) 737,229 712,835 $ (710,146) (705,810) The Group makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average salary for the six months prior to retirement. 1) Composition of plan assets The Group allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labor Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks. The balance of the Group’s labor pension reserve account in the Bank of Taiwan amounted to $735,206 (excluding the ending balance of interest receivable) as of December 31, 2018. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor. 2) Movements in the present value of the defined benefit obligations The movements in the present value of defined benefit obligations for the Group were as follows: Defined benefit obligations on January 1 $ (1,418,645) 2018 Benefit paid by the plan Current service costs and interest Remeasurements of net benefit liabilities 33,560 (26,745) (35,545) 2017 (1,362,362) 53,622 (29,493) (80,412) Defined benefit obligations on December 31 $ (1,447,375) (1,418,645) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 70 3) Movements of the fair value of defined benefit plan assets The movements in the fair value of the defined benefit plan assets for the Group were as follows: 2018 2017 Fair value of plan assets on January 1 $ 712,835 Expected return on plan assets Remeasurements of net benefit plan assets Contributions paid by the employer Benefits paid by the plan Fair value of plan assets on December 31 $ 9,841 19,280 28,833 (33,560) 737,229 734,412 11,107 (3,982) 24,920 (53,622) 712,835 4) Expenses recognized in profit or loss The expenses recognized in profit or loss for the years ended December 31, 2018 and 2017, were as follows: 2018 2017 Current service cost Net interest on the net defined benefit liability (asset) Cost of sales Selling expenses Administrative expenses Research and development expenses $ $ $ $ 7,023 9,881 16,904 817 986 3,880 11,221 16,904 8,712 10,255 18,967 1,338 1,200 4,736 11,693 18,967 5) Remeasurement of the net defined benefit liability (asset) recognized in other comprehensive income The Group’s remeasurements of the net defined benefit liability (assets) recognized in other comprehensive income were as follows: Cumulative amount on January 1 Recognized during the period Cumulative amount on December 31 $ $ 487,327 16,265 503,592 402,933 84,394 487,327 2018 2017 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 71 6) Actuarial assumptions The following were the Group’s principal actuarial assumptions at the reporting date: Discount rate December 31, 2018 1.30%~1.375% December 31, 2017 1.40%~1.63% Future salary increasing rate 3.00% 3.00% The expected allocation payment made by the Group to the defined benefit plans for the one year period after the reporting date is $29,033. The weighted-average lifetime of the defined benefit plan is 10.3~15.58 years. 7) Sensitivity analysis If the main actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows: December 31, 2018 Discount rate Future salary increasing rate December 31, 2017 Discount rate Future salary increasing rate Effects to the defined benefit obligation Increased 0.25% Decreased 0.25% (37,146) 37,746 (37,392) 37,985 38,572 (36,552) 38,773 (36,738) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation on the net defined benefit liabilities in the balance sheets. The method and assumption used in the sensitivity analysis is consistent with prior period. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 72 (ii) Defined contribution plans The Group allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of the Labor Insurance in accordance with the provisions of the Labor Pension Act. Under these defined contribution plans, the Group allocates the labor pension at a specific percentage to the Bureau of the Labor Insurance without additional legal or constructive obligations. The Company and all subsidiaries in domestic recognized the pension costs under the defined contribution method amounting to $381,455 and $358,153 for the years ended December 31, 2018 and 2017, respectively. Payment was made to the Bureau of Labor Insurance. Other subsidiaries recognized the pension expenses, basic endowment insurance expenses, and social welfare expenses amounting to $1,319,260 and $1,175,565 for the years ended December 31, 2018 and 2017, respectively. (u) Income taxes According to the amendments to the "Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the corporate income tax return effective from 2018. (i) Income tax expenses 1) The amount of income tax for the years ended December 31, 2018 and 2017, was as follows: 2018 2017 Current tax expense Recognized during the period $ 2,092,686 10% surtax on unappropriated earnings Tax credit of investment Deferred tax expense Recognition and reversal of temporary differences Adjustment in tax rate 27,288 (183,384) 1,936,590 393,967 (130,273) 263,694 Income tax expense $ 2,200,284 2,304,142 217,616 (337,603) 2,184,155 - (227,915) (227,915) 1,956,240 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 73 2) The amount of income tax recognized in other comprehensive income for the years ended December 31, 2018 and 2017, was as follows: 2018 2017 Items that will not be reclassified subsequently to profit or loss: Remeasurement of the defined benefit obligation Unrealized gains (losses) on equity comprehensive income Items that will be reclassified subsequently to profit or loss: Foreign currency translation differences of foreign operations Unrealized gain (loss) of available-for-sale financial assets $ $ $ $ (33,202) (14,348) (42,630) (75,832) - (14,348) 3,293 (12,305) - 3,293 33,658 21,353 3) The income tax expense that was reconciled between the actual income tax expense and profit before tax for the years ended December 31, 2018 and 2017, was as follows: Profit before tax Income tax calculated based on tax rate Adjustment in tax rate $ $ 2018 11,789,585 3,454,689 (130,273) 2017 8,114,277 2,329,155 - Estimated tax effect of tax exemption on investment income, net Realized investment loss Investment tax credit Changes in temporary differences Adjustment of estimated difference and other 10% surtax on unappropriated earnings (984,537) (133,869) (183,384) (11,635) 162,005 27,288 (71,001) (142,901) (337,603) (317,852) 278,826 217,616 $ 2,200,284 1,956,240 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 74 (ii) Deferred tax assets and liabilities Changes in the amount of deferred tax assets and liabilities for 2018 and 2017 were as follows: Refund liabilities (Provision-sal es return and allowance) Contract liabilities (Unearned revenue) Unrealized exchange losses, net Others Total Deferred tax assets: Balance on January 1, 2018 $ Recognized in profit or loss Recognized in other 259,546 (81,521) 176,283 411,518 504,024 1,351,371 (11,328) (248,253) (16,683) (357,785) comprehensive income - - - 30,362 30,362 Balance on December 31, 2018 $ Balance on January 1, 2017 $ Recognized in profit or loss Recognized in other 178,025 296,061 (36,515) 164,955 214,787 (38,504) 163,265 277,308 134,210 517,703 1,023,948 474,830 1,262,986 2,517 61,708 comprehensive income - - - 26,677 26,677 Balance on December 31, 2017 $ 259,546 176,283 411,518 504,024 1,351,371 Deferred tax liabilities: Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018 Balance on January 1, 2017 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2017 (iii) Unrecognized deferred tax assets Unrealized exchange gains, net $ $ $ (171,868) 171,868 - - (340,343) 168,475 - (171,868) Others Total (442,569) (77,777) 42,177 (478,169) (406,619) (2,268) (33,682) (442,569) (614,437) 94,091 42,177 (478,169) (746,962) 166,207 (33,682) (614,437) Deferred tax assets have not been recognized in respect of the following items: Tax effect of deductible temporary differences Tax effect of loss carryforward December 31, 2018 December 31, 2017 $ $ 716,848 1,249,171 660,167 993,562 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 75 The Group assesses and considers that some of the income tax reduction items may be unrealized, hence they are not recognized as deferred tax assets. In addition, according to Income Tax Act, the loss carryforward are the losses incurred in past 10 years assessed by ROC tax authorities which can be deducted from the net profit of current year before levied. The items are not recognized as deferred income tax assets due to the fact that the Group may not have sufficient taxable income in the future for the losses. As of December 31, 2018, the tax effects on loss carryforward that have not been recognized as deferred tax assets were as follows: Year of loss 2009 (Assessed) 2010 (Assessed) 2011 (Assessed) 2012 (Assessed) 2013 (Assessed) 2014 (Assessed) 2015 (Assessed) 2016 (Assessed) 2017 (Assessed/Filed) 2018 (Estimated) Expiry year 2019 Deductible amount $ 846,347 2020 2021 2022 2023 2024 2025 2026 2027 2028 14,492 399,926 689,013 234,445 41,534 645,620 1,495,220 950,585 928,674 $ 6,245,856 (iv) Unrecognized deferred tax assets and liabilities related to investments in subsidiaries The temporary differences associated with investment in subsidiaries were not recognized as deferred income tax assets and liabilities as the Company has the ability to control the reversal of these temporary differences which are not expected to reverse in the foreseeable future. As of December 31, 2018 and 2017, the aggregate deductible temporary differences relating to investments in subsidiaries not recognized as deferred tax assets amounted to $2,162,721 and $3,205,580, respectively. As of December 31, 2018 and 2017, the aggregate taxable temporary differences relating to investments in subsidiaries not recognized as deferred tax liabilities amounted to $54,732,941 and $47,799,571, respectively. (v) Examination and approval The Company’s tax returns for the year through 2016 were assessed by the Taipei National Tax Administration. The Company disagreed with the assessment and filed formal tax appeals for 2012. In accordance with the conservatism, the total amounts of the assessed additional income tax were recognized in the statements of income. Any differences will be reflected as an adjustment after the tax is resolved. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 76 The ROC tax authorities have assessed the income tax returns of Zhaopal, Yongpal, Palcom, Kaipal, Acbel Telecom, Zhipal, Rayonnant Technology and Ripal through 2017, of UCGI, TTI, CBN, Panpal, Gempal, Hong Ji, Hong Jin, GLB, RBL, HengHao and Mactech Through 2016, of Arcadyan through 2015, of ATK through June 2009. (v) Capital and other equities As of December 31, 2018 and 2017, the Company’s authorized common stock consisting of 6,000,000 thousand shares with a par value of 10 New Taiwan Dollars per shares, amounted to $60,000,000 of which 4,407,147 thousand shares and 4,419,192 thousand shares, respectively, were issued. All issued shares were paid up upon issuance. (i) Ordinary shares In 2015, the Company issued its employee restricted shares amounting to $493,600, wherein the amount of $120,450 and $49,690 had been cancelled due to failure in meeting the vested requirements in the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, the registration procedure had been completed. (ii) Capital surplus The balances of capital surplus were as follows: Additional paid-in capital Treasury share transactions December 31, 2018 December 31, 2017 $ 7,183,919 7,898,905 2,421,864 2,361,843 Difference between consideration and carrying amount arising from acquisition or disposal of subsidiaries Recognition of changes in ownership interests in subsidiaries Employee restricted shares Changes in equity of associates and joint ventures accounted 36,766 15,642 - 36,766 48,348 318,209 for using equity method 274,243 274,702 $ 9,932,434 10,938,773 In accordance with the ROC Company Act, realized capital reserves can only be used to increase the common stock or distributed as cash dividends after offsetting losses. The aforementioned capital reserves include share premiums and donation gains. In accordance with the Securities Offering and Issuance Guidelines, the amount of capital reserves to be reclassified under share capital shall not exceed 10% of the actual share capital amount. The Company’s shareholders’ meeting held on June 22, 2018 and 2017, approved to distribute the cash dividend of $881,429 and $884,431, respectively, representing 0.2 New Taiwan Dollars per share by using the additional paid-in capital. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 77 (iii) Retained earnings Based on the Company’s articles of incorporation, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The earnings appropriation proposal to distribute dividend and bonus shall be proposed by the Board of Directors and approved by the General Shareholders Meeting. The rest of the unappropriated retained earnings shall be reserved. The lifecycle of the industry of the Company is in the growing stage. To meet the need of the Company for the future capital and the need of shareholders for cash flow, if there is any profit after close of books, the cash dividend allocated by the Company each year shall not be lower than ten percent of the total dividend (including cash and share dividend) for such year. According to the law, when there is a deduction from stockholders' equity (excluding treasury stock and unearned employee benefit) during the year, an amount equal to the deduction item is set aside as a special reserve before the earnings are appropriated. A special reserve is made available for earning distribution only after the deduction of the related shareholders’ equity has been reversed. 1) Legal reverse In accordance with the Company Act, 10% of net income should be set aside as legal reserve until it is equal to the paid-in capital. When a company incurs no loss, it may, in pursuant to a resolution to be adopted by the shareholders’ meeting as required, distribute its legal reserve by issuing new shares and distributing stock dividends or distributing cash to shareholders. Only the portion of the legal reserve which exceeds 25% of the paid-in capital may be distributed. 2) Special reverse In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion of current earnings and previous unappropriated earnings shall be set aside as a special reserve during earnings distribution. The amount to be set aside should equal the total amount of contra accounts that are accounted for as deductions to other equity interests. A portion of previous unappropriated earnings shall be set aside as a special reserve, which should not be distributed, to account for cumulative changes to other equity interests pertaining to prior periods. The special reserve shall be made available for appropriation when the net deductions of other equity interests are reversed in the subsequent periods. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 78 3) Earnings distribution Earnings distribution for 2017 and 2016 was approved by the shareholders during their annual meeting held on June 22, 2018 and 2017, respectively. The relevant information was as follows: 2017 2016 Amount per share Total amount Amount per share Total amount Cash dividends distributed to common shareholders $ 1.0 4,407,147 1.0 4,422,153 Earnings distribution for 2018 was approved by the Board of Directors on March 22, 2019. The relevant information was as follows: 2018 Amount per share Total amount Cash dividends distributed to common shareholders from the unappropriated earnings $ 1.0 4,407,147 Cash dividends distributed to common shareholders from the capital surplus 0.2 881,429 $ 5,288,576 The earnings distribution for the year ended December 31, 2018 is still subject to be approved by the shareholders during their annual meeting. The related information can be accessed through the Market Observation Post System website after the shareholders’ meeting. (iv) Treasury stock The subsidiaries of the Company did not sell the ordinary shares of the Company in the years ended December 31, 2018 and 2017. As of December 31, 2018, Panpal and Gempal, subsidiaries of the Company, held 50,017 thousand shares of ordinary shares of the Company, recorded as the Company’s treasury stock, with a book value of 17.6 New Taiwan dollars per share. The total cost was $881,247. The fair value of the ordinary shares of the Company was 17.45 and 21.30 New Taiwan dollars per share as of December 31, 2018 and 2017, respectively. Pursuant to the Securities and Exchange Act, the number of treasury shares purchased cannot exceed 10% of the number of shares issued. The total purchase cost cannot exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital surplus. The shares purchased for the purpose of transferring to employees shall be transferred within three years from the date of share repurchase. Those not transferred within the said limit shall be deemed as not issued by the Company and it should be cancelled. Furthermore, treasury stock cannot be pledged for debts, and treasury stock does not carry any shareholder rights until it is transferred. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 79 (v) Other equity interests (net-of-taxes) Exchange differences on transaction of foreign operation financial statements Unrealized gain (loss) from financial assets at fair value through other comprehensive income Unrealized gain (loss) on available-for-sale financial assets Unearned compensation for restricted employee shares and others Total Balance on January 1, 2018 $ (3,477,376) - (5,353,772) (79,856) (8,911,004) (5,847,823) 5,353,772 (494,051) Effect of retrospective application Adjusted balance on January 1, 2018 The Company Subsidiaries Associates (3,477,376) 1,853,763 (5,847,823) (34,596) (67,150) 401,300 (162,189) (125,317) Balance on December 31, 2018 $ (1,852,952) (5,606,436) Balance on January 1, 2017 $ 1,324,282 The Company Subsidiaries Associates (4,606,117) (148,238) (47,303) Balance on December 31, 2017 $ (3,477,376) - - - - - (w) Share-based payment (i) The Company – employee restricted shares - - - - (79,856) 79,856 (9,405,055) 1,899,023 - - 334,150 (287,506) (7,459,388) (5,663,830) (285,105) (4,624,653) 135,628 157,203 17,227 - - 205,249 (4,265,240) 8,965 (30,076) (5,353,772) (79,856) (8,911,004) At the meeting held on June 20, 2014, the Company’s Shareholders’ Meeting adopted a resolution to issue 100,000 thousand new shares of employee restricted shares with no consideration to those full time employees who meet certain requirements. The first issuance of 50,000 thousand shares had been approved by the FSC on October 30, 2014. Moreover, the Company’s Board of Directors resolved to issue 49,980 thousand shares on January 22, 2015, and 49,360 thousand shares had actually been issued, in which the effective date of the share issuance was on February 25, 2015. 40%, 30% and 30% of the aforementioned restricted shares are vested, respectively, when the employees continue to provide service for at least 2 year, 3 years and 4 years from the registration and effective date and in the mean-time, meet the performance requirement. After the issuance, the restricted shares are kept by a trust, which is appointed by the Company, before they are vested. These restricted shares shall not be sold, pledged, transferred, gifted or by any other means of disposal to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian shall act based on law and regulations. If the shares remain unvested after the vesting period, the Company will purchase all the unvested shares without consideration and cancel the shares thereafter. Restricted shares could receive cash and stock dividends. The aforementioned new shares are not considered as restricted shares. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 80 The information of the Company’s restricted shares (in thousands) is as follows: Outstanding shares on January 1 Vested during the period Canceled during the period Outstanding shares on December 31 - 23,571 (11,526) (12,045) 44,740 (16,200) (4,969) 23,571 2018 2017 The fair value of the restricted employee shares are evaluated by using the market price of $23.50 on the grant date. As of December 31, 2018 and 2017, the unearned employee benefits were $0 and $79,856, respectively. For the years ended December 31, 2018, due to the failure in meeting the vested requirements of the employee restricted shares, the Group reversed compensation cost amounted to $156,219 and capital surplus－ employee restricted shares amounted to $318,209. Besides, due to meet the vested requirements of the employee restricted shares, the Group recognized capital surplus–additional paid-in capital amounted to $155,601. The compensation cost related to the employee restricted shares amounted to $103,356 for the years ended December 31, 2017. (ii) Arcadyan – employee restricted shares At the meeting held on June 21, 2018, Arcadyan’s shareholders adopted a resolution to issue 4,500 thousand new shares of employee restricted shares to those Arcadyan’s full-time employees who meet certain requirements. The issuance of restricted shares had been approved by the FSC. The Board of Directors resolved to issue all the restricted shares on November 6, 2018, which is also the effective date of the share issuance. 3,500 thousand shares of the aforementioned restricted shares are issued without consideration. 30%, 30% and 40% of the aforementioned restricted shares will be vested, respectively, when the employees continue to provide service for at least 2 year, 3 years and 4 years from the registration and the effective date, and at the same time, meet the performance requirement. In addition, when earnings per share in two continuous and complete fiscal years from the registration and effective date are no less than 4 New Taiwan Dollars and at the same time, the employees with the restricted shares meet the performance requirement, the other 1,000 thousand shares of the restricted shares are vested 100% at the date the shareholders approved the financial statements for the second fiscal year. If the earnings per share in continuous and complete fiscal years from the registration and effective date are between 3 to 4 New Taiwan dollars and at the same time, the employees with the restricted shares meet the performance requirement, the restricted shares are vested 75%. If the earnings per share in two continuous and complete fiscal years from the registration and effective date are less than 3 New Taiwan dollars, the employees with the restricted shares whether or not meet the performance requirement, the restricted shares are vested 0%. The earnings per share mentioned above is calculated based on the profit approved by the shareholders, and the weighted average number of ordinary shares outstanding at the date of the restricted shares being approved by the authority. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 81 After the issuance, the restricted shares are kept by trustee, which is designated by Arcadyan, before they are vested. These restricted shares shall not be sold, pledged, transferred, gifted or created other rights or encumbrances, or otherwise disposed in any other means during the custody period. Before the vesting conditions are fully satisfied, the shareholder rights of these shares are executed by the custodian, and the custodian shall act based on law and regulations. If the shares remain unvested after the vesting period, Arcadyan will redeem the shares without consideration and cancel the shares thereafter. Restricted shares could participate in cash and stock dividends, and could join cash injection. The aforementioned new shares arising from dividends are not considered as restricted shares. The information of Arcadyan’s restricted shares (in thousands) is as follows: Outstanding shares on January 1 Granted during the period Outstanding shares on December 31 2018 - 4,500 4,500 The fair value of the restricted employee shares are evaluated by using the market price of $57.4 on the grant date, and Arcadyan recognized capital surplus-employ restricted shares amounted to $252,856. As of December 31, 2018, the unearned employee benefit was $219,616. The compensation cost related to the restricted shares amounted to $33,240 for the year ended December 31, 2018. (iii) TTI – employee stock options The information about share-based payment of TTI in 2018 and 2017 was as follows: Grant date Granted shares (in thousand) Contract period Recipients Employee stock options 2015.10.29 7 years Employees of TTI 1,000 Vested condition Please refer to the issuance terms of the stock options as follows The issuance terms of the stock options are as follows: 1) 2) Exercise price: NT$13.5 per share. Exercisable duration: The employees who received stock options that exceed two years and meet the performance requirements can exercise a specific percentage in each period as below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 82 Exercisable 40 ％ 30 ％ 30 ％ Period and performance requirements to exercise options The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 2 years after the issuance of the right. (2) Upon vesting, the average earnings per share of TTI for the past 2 years must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to 3 years; under this extension, the average of the earnings per share of any 2 years within the 3 year period must exceed NT$3. The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 3 years after the issuance of the right. (2) Upon vesting, the performance requirements need to be met, otherwise, the earnings per share of TTI for the following year must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to another 1 year; the earnings per share must exceed NT$3 during the extension period. The share purchase right is effectively vested after the satisfaction of 2 conditions: (1) Years of service must exceed 4 years after the issuance of the right. (2) Upon vesting, the performance requirements need to be met, otherwise, the earnings per share of TTI for the following year must exceed NT$3. If the criteria for the said earnings per share are not fulfilled, then the measurement period will be extended to another 1 year; the earnings per share must exceed NT$3 during the extension period. The total measurement periods mentioned above may not exceed 6 years. The earnings per share mentioned above are based on the financial statements that had been audited and certified by a certified public accountant. 3) 4) Exercise method: TTI would issue new shares as the options are exercised. Exercise procedure: In accordance with TTI’s issuance and exercise rules. After receiving the payment for share options, the entitlement certification of share options exercised is registered as ordinary shares. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 83 The information on total options issued was as follows: 2018 2017 Weighted-ave rage exercise price (NT dollars) Weighted-ave rage exercise price (NT dollars) Shares (in thousands) Shares (in thousands) 1,000 $ (400) 600 13.5 13.5 13.5 - - 1,000 $ 13.5 - - 1,000 - - 13.5 Outstanding shares on January 1 Canceled during the period Outstanding shares on December 31 Exercisable shares on December 31 The exercise price range of TTI ’ s outstanding employee stock options and weighted-average remaining contractual life of the outstanding options are as follows: Exercise price range Weighted average remaining contract period December 31, 2018 December 31, 2017 13.5 3.83 13.5 4.83 The expenses (reverse) related to the share-based payment amounted to $(496) and $1,289 for the years ended December 31, 2018 and 2017, respectively. (iv) CBN－employee stock options At the meeting held on May 30, 2012, May 26, 2014 and May 17, 2016, CBN’s Board of Directors resolved to issue 1,000,000, 800,000 and 1,500,000 units of employee stock options, respectively, with an exercisable right of one share of CBN’s ordinary shares per unit. The information on total options issued was as follows: 1) The first employee stock option plan Outstanding shares on January 1 Exercised during the period Outstanding shares on December 31 Exercisable shares on December 31 2017 Weighted-ave rage exercise price (NT dollars) Shares 101,800 $ (101,800) 10 10 - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 84 The employee stock options above have been fully exercised in 2017. 2) The second employee stock option plan 2018 2017 Weighted-ave rage exercise price (NT dollars) Shares Weighted-ave rage exercise price (NT dollars) Shares Outstanding shares on January 1 283,767 $ 10 376,812 $ Aborted during the period Expired during the period Exercised during the period Outstanding shares on December 31 Exercisable shares on December 31 - - (2,565) (272,292) 8,910 8,910 (16,500) (22,905) (53,640) 283,767 131,967 10 10 10 10 10 10 10 10 10 10 As of December 31, 2018 and 2017, the weighted-average remaining contractual life of the outstanding options was 2.67 and 3.67 years, respectively. 3) The third employee stock option plan 2018 2017 Outstanding shares on January 1 234,000 $ 10 1,490,000 $ Weighted-ave rage exercise price (NT dollars) Shares Shares Weighted-ave rage exercise price (NT dollars) 10 Aborted during the period Expired during the period Exercised during the period Outstanding shares on December 31 Exercisable shares on December 31 - - (80,400) 153,600 153,600 - - (15,000) (30,000) (1,211,000) 234,000 234,000 10 10 10 10 10 10 10 10 As of December 31, 2018 and 2017, the weighted-average remaining contractual life of the outstanding options was 2.67 and 3.67 years, respectively. The issuance terms of the share options are as follows: 1) Exercise price: NT$10 per share. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 85 2) Exercisable duration: a) The first employee stock options plan: The employees who received share options being granted over two years can exercise a specific percentage in each period as below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not be re-issued anymore. Period to exercise options Exercisable percentage (cumulative) 2 years after options received 3 years after options received 4 years after options received b) The second employee stock option plan: 40 ％ 70 ％ 100 ％ The employees who received share options being granted over two years and are still employed by CBN and meet requirements can exercise a specific percentage in each period as stated below. The exercisable duration of the options is seven years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not re-issued anymore. Period to exercise options Exercisable percentage (cumulative) 2 years after options received 3 years after options received 4 years after options received c) The third employee stock option plan: 40 ％ 70 ％ 100 ％ The employees who received share options being granted over five months and are still employed by CBN and meet requirements can exercise a specific percentage in each period as stated below. The exercisable duration of the options is five years. No transfer is allowed except for inheritance. After the expiration of the exercisable duration, the unexercised options will be canceled by CBN and not re-issued anymore. Period to exercise options Exercisable percentage (cumulative) 5 months after options received 100 ％ Exercise method: CBN would issue new shares as the options are exercised. Exercise procedure: In accordance with CBN’s issuance and exercise rules, after receiving the consideration of share options, the entitlement certification of share options exercised is registered as ordinary shares once a quarter. d) e) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 86 The compensation cost for the years ended December 31, 2018 and 2017 were $657 and $6,210, respectively. CBN adopted the Black-Scholes model to estimate the fair value on the grant date, and the assumptions are summarized as follows: A. The first employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option 10 25 0％ 38.25~38.64％ 0.91~1.02％ 4.5~5.5 years Weighted average fair value (NT dollars per share) 16.10~16.49 B. The second employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option Weighted average fair value (NT dollars per share) C. The third employee stock option plan: Original exercise price (NT dollars) Current price (NT dollars) Expected dividend yield rate Expected volatility Risk-free interest rate Expected life of the option Weighted average fair value (NT dollars per share) 10 37.02 0% 31.07~32.77％ 1.17~1.33％ 4.5~5.5 years 27.62~27.92 10 24.62 0% 35.87％ 0.56％ 2.55 years 14.96 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 87 (v) CBN－Cash injection reserved for employees CBN's Board of Directors resolved to implement cash injection on June 27, 2018, of which 917 thousand shares were reserved for employees. As of December 31, 2018, the relevant information was as follows: Grant date Number of shares granted (in thousands) Recipients Vested condition 2018.11.14 917 (Note 1) Vest immediately (Note 1) Those CBN’ s full-time employees who meet certain requirements. The compensation cost recorded as operating expense related to the cash injection reserved for employees amounted to $1,053 in 2018. (x) Earnings per share The Group’s basic and diluted earnings per share are calculated as follows: Basic earnings per share: Profit attributable to ordinary shareholders of the Company $ 8,913,365 5,749,525 2018 2017 Weighted-average number of outstanding ordinary shares (in thousands) Diluted earnings per share: 4,356,448 4,344,646 Profit attributable to ordinary shareholders of the Company (after adjustment of potential diluted ordinary shares) $ 8,913,365 5,749,525 Weighted-average number of outstanding ordinary shares of potential diluted ordinary shares Weighted-average number of outstanding ordinary shares (in thousands) Effect of potential diluted common stock Employee compensation (in thousands) Employee restricted shares (in thousands) Weighted-average number of ordinary shares (after adjustment of potential diluted ordinary shares) (in thousands) 4,356,448 4,344,646 59,637 682 39,737 20,670 4,416,767 4,405,053 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 88 (y) Revenue from contracts with customers (vi) Disaggregation of revenue 2018 Strategically Integrated Product Segment IT Product Segment Total Primary geographical markets: United states China Netherlands $ 362,250,918 1,701,587 363,952,505 120,591,947 437,494 121,029,441 109,628,794 1,242,067 110,870,861 United Kingdom 43,595,382 2,181,037 45,776,419 Germany Japan Others 30,999,459 7,269,974 38,269,433 29,805,482 1,703,425 31,508,907 244,234,624 12,064,221 256,298,845 $ 941,106,606 26,599,805 967,706,411 2018 Strategically Integrated Product Segment IT Product Segment Total Major products: 5C related electronic products $ 939,105,238 26,112,499 965,217,737 Others 2,001,368 487,306 2,488,674 $ 941,106,606 26,599,805 967,706,411 For details on revenue for the year ended December 31, 2017, please refer to note (6)(z). (vii) Contract balances Notes and accounts receivable (including related parties) Less: allowance for impairment Total Contract liabilities December 31, 2018 $ 207,794,674 January 1, 2018 181,487,633 (4,020,603) (4,021,894) $ 203,774,071 177,465,739 $ 1,476,304 1,665,321 For the details on accounts receivable and allowance for impairment, please refer to note (6)(i). (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 89 The amount of revenue recognized for the year ended December 31, 2018 that was included in the contract liability balance at the beginning of the period was $1,633,141. The major change in the balance of contract assets and contract liabilities is the difference between the time frame in the performance obligation to be satisfied and the payment to be received. (z) Revenue The revenue of the Group were as follows: Sale of goods Rendering of services and other 2017 $ 886,180,529 1,476,430 $ 887,656,959 For the details on revenue for the year ended December 31, 2018, please refer to note (6)(y). (aa) Employees’ and directors’ compensations Based on the Company’s articles of incorporation, if there is any profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to deduction of compensations to employees and directors, shall be distributed to employees as compensations in an amount of not less than two percent (2%) thereof and to directors as compensations in an amount of not more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset accumulated losses. The compensations to employees as mentioned above may be distributed in the form of stock or cash. Employees entitled to receive the said stock or cash may include the employees of the Company’s subordinate companies pursuant to the Company Act. The Company accrued and recognized its employee compensation of $930,857 and $624,296, and directors’ compensation of $49,223 and $33,012 for the years ended December 31, 2018 and 2017, respectively. The estimated amounts mentioned above are based on the net profit before tax without the compensations to employees and directors of each respective ending period, multiplied by the percentage of the compensation to employees and directors, which was approved by the management. The estimations are recorded under operating expenses and cost. The differences between the amounts estimated and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the distribution year. If the Board of Directors approves to distribute employee compensation in the form of stock, the number of the shares of the employee compensation is based on the closing price of the day before the meeting of the Board of Directors', the related information can be accessed through the Market Observation Post System website. There is no difference between the amount approved in the Board of Directors' meeting and those recognized in the financial statements in 2018 and 2017. There is no difference between the amount estimated and recognized in the financial statements in 2017. The related information can be accessed through the Market observation Post System website. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 90 (ab) Non-operating income and expenses (i) Other income The other income for the years ended December 31, 2018 and 2017, were as follows: Interest income Financial assets at amortized cost Bank deposits Others Dividend revenue Overdue payable reversed as other income Other revenue 2018 2017 $ 9,992 1,444,952 8,714 279,044 41,116 349,046 15,803 845,293 16,274 169,839 251,838 267,428 $ 2,132,864 1,566,475 (ii) Other gains and losses The other gains and losses for the years ended December 31, 2018 and 2017, were as follows: Gains (losses) on disposal of investments Gains (losses) on financial assets and liabilities at fair value through profit or loss, net Foreign currency exchange gains (losses), net Gains (losses) on disposal of property, plant, and equipment 2018 2,513,207 $ 2017 (4,252) 640,835 (421,148) (873,855) (1,582,518) (23,229) 110,846 $ 2,256,958 (1,897,072) (ac) Reclassification of the components of other comprehensive income The details of reclassification of the components of other comprehensive income for the years ended December 31, 2018 and 2017, were as follows: Cash flow hedge: Profit (loss) recognized Less: reclassified to profit or loss Profit (loss) recognized in other comprehensive income Available-for-sale financial assets: Net change in fair value (net of tax) Net change in fair value reclassified to profit or loss (net of tax) Net change in fair value recognized in other comprehensive income 2018 2017 $ $ $ 3,655 3,655 - - - (141,364) (141,364) - 292,381 - (net of tax) $ - 292,381 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 91 (ad) Financial instruments (i) Credit risk 1) The carrying amount of financial assets represents the maximum amount exposed to credit risk. The Group’s customers are mainly from the high-tech industry. The Group does not concentrate on a specific customer and the sales regions are widely spread, thus there should be no concern on the significant concentrations of accounts receivable credit risk. And in order to mitigate accounts receivable credit risk, the Group constantly assesses the financial status of the customers. 2) Receivables and debt securities Information of exposure to credit risk of notes and accounts receivable, please refer to note (6)(i). Other financial assets at amortized cost include other receivables, investments in corporate bonds and time deposits (previously classified as bond investment without an active market on December 31, 2017). These financial assets are considered to have low risk, and thus, the impairment provision recognized during the period was limited to 12 months expected losses (Regarding how the financial instruments are considered to have low credit risk, please refer to note (4)(g)). Due to the counter parties and the performing parties of the Group’s time deposits are financial institutions with investment grade and above, these time deposits are considered to have low credit risk. The movement in the allowance for the years ended December 31, 2018 was as follows: Balance on January 1, 2018 per IAS 39 Adjustment on initial application of IFRS 9 Balance on January 1, 2018 per IFRS 9 Impairment losses reversed The write-off of the amount which was not be recovered in the period Effect of changes in exchange rates Balance on December 31, 2018 Other receivables 82,014 $ - 82,014 (16,364) (62,071) (2) 3,577 $ (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 92 (ii) Liquidity risk The following are the contractual maturities of financial liabilities, excluding estimated interest payments. Carrying Amount Contractual cash flows Within 1 year 1 ~ 2 years Over 2 years December 31, 2018 Non-derivative financial liabilities Secured borrowings Unsecured borrowings Notes and accounts payable Other payables Derivative financial liabilities 137,813 $ (137,813) 100,746,447 (100,746,447) 154,276,713 (154,276,713) (14,790,757) 14,790,757 (39,375) (89,846,447) (154,276,713) (14,790,757) Forward exchange contracts: 26,913 Outflow Inflow (5,016,249) 4,978,708 $ 269,978,643 (269,989,271) (5,016,249) 4,978,708 (258,990,833) December 31, 2017 Non-derivative financial liabilities (39,375) (8,600,000) (59,063) (2,300,000) - - - - - - - - (8,639,375) (2,359,063) $ 319,688 83,648,725 (319,688) (83,648,725) 142,017,824 (142,017,824) (12,023,718) 12,023,718 (142,017,824) (12,023,718) (181,875) (39,375) (62,534,275) (13,514,450) (98,438) (7,600,000) Secured borrowings Unsecured borrowings Notes and accounts payable Other payables Derivative financial liabilities Forward exchange contracts: Outflow Inflow Currency swap contracts: Outflow Inflow 21,841 2,622 (1,565,077) 1,549,062 (1,565,077) 1,549,062 (882,086) 880,896 $ 238,034,418 (238,027,160) (882,086) 880,896 - - - - - - - - - - - - (216,774,897) (13,553,825) (7,698,438) The Group is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 93 (iii) Currency risk 1) Exposure to foreign currency risk The Group’s significant exposure to foreign currency risk was as follows: December 31, 2018 Exchange rate Foreign currency TWD December 31, 2017 Exchange rate Foreign currency TWD Financial assets Monetary items USD to TWD USD to CNY EUR to TWD CNY to USD Non-monetary items THB to TWD Financial liabilities Monetary items USD to TWD USD to CNY USD to BRL EUR to TWD CNY to USD 2) Sensitivity analysis $ 7,189,719 30.715 220,832,219 6,843,437 29.76 203,660,685 3,986 6.8672 122,430 7,035 6.5128 209,157 95,397 35.2 3,357,974 78,869 35.57 2,805,370 1,726,768 0.1456 7,722,286 1,909,447 0.1535 8,722,659 423,027 0.946 400,184 712,938 0.9176 654,192 7,145,553 30.715 219,475,660 6,369,012 29.76 189,541,797 5,451 6.8672 167,427 9,803 6.5128 291,452 140,772 3.872 4,323,812 114,225 3.308 3,399,336 31,186 35.2 1,097,747 19,335 35.57 687,746 2,778,232 0.1456 12,424,542 2,033,177 0.1535 9,287,878 The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans and borrowings, accounts payable, and other payables that are denominated in foreign currency. Assuming all other variable factors remain constant, a strengthening (weakening) 5% of appreciation (depreciation) of the each major foreign currency against Group entities’ functional currency as of December 31, 2018 and 2017, would have increased (decreased) the net profit before tax as follows. The analysis is performed on the same basis for both periods. USD (against the TWD) Strengthening 5% Weakening 5% USD (against the CNY) Strengthening 5% Weakening 5% USD (against the BRL) Strengthening 5% Weakening 5% December 31, 2018 December 31, 2017 $ 67,828 (67,828) (2,250) 2,250 705,944 (705,944) (4,115) 4,115 (216,191) 216,191 (169,967) 169,967 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 94 EUR (against the TWD) Strengthening 5% Weakening 5% CNY (against the USD) Strengthening 5% Weakening 5% December 31, 2018 December 31, 2017 113,011 105,882 (113,011) (105,882) (235,113) 235,113 (28,261) 28,261 3) Exchange gains and losses of monetary items As the Group deals with diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2018 and 2017, the foreign exchange losses, including both realized and unrealized, amounted to $873,855 and $1,582,518, respectively. (iv) Interest rate analysis The interest risk exposure from financial assets and liabilities has been disclosed in the note of liquidity risk management. The following sensitivity analysis is based on the risk exposure to interest rate on the derivative and non-derivative financial instruments on the reporting date. Regarding the assets and liabilities with variable interest rates, the analysis is on the basis of the assumption that the amount of assets and liabilities outstanding at the reporting date were outstanding throughout the year. The rate of change is expressed as the interest rate increase or decrease by 0.25%, when reporting to management internally, which also represents the assessment of the Group’ s management for the reasonably possible interval of interest rate change. Assuming all other variable factors remaining constant, if the interest rate had increased or decreased by 0.25%, the impact to the net profit before tax would be as follows for the years ended December 31, 2018 and 2017, which would be mainly resulted from the bank savings and borrowings with variable interest rates. Interest increased by 0.25% Interest decreased by 0.25% 2018 2017 $ (10,551) 10,551 (36,326) 36,326 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 95 (v) Fair value information 1) The categories and fair value of financial instruments The Group’s financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income (available- for-sale financial assets) were measured at fair value on a recurring basis. The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It shall not include fair value information of the financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value and investments in equity instruments which do not have any quoted price in an active market in which the fair value cannot be reasonably measured. December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss–current and non-current Derivative financial assets for non-hedging $ 12,213 - 12,213 - 12,213 Non-derivative financial assets mandatorily measured at fair value through profit or loss 4,668,311 633,859 3,965,062 69,390 4,668,311 Subtotal 4,680,524 Financial assets at fair value through other comprehensive income Stocks listed on domestic markets $ 2,730,648 2,730,648 Stocks listed on foreign markets 400,184 400,184 Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal Financial assets measured at amortized cost Cash and cash equivalents Corporate bonds－current 1,990,100 51,363 23,020,497 28,192,792 70,296,545 350,000 Notes and accounts receivable, net 180,695,468 Notes and accounts receivable due from related parties, net Other receivables Guarantee deposits Subtotal Total 58,106 1,665,249 401,753 253,467,121 $ 286,340,437 - - - - - - - - - - - - - - - 2,730,648 400,184 1,990,100 1,990,100 51,363 51,363 23,020,497 - 23,020,497 - - - - - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 96 December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total Financial liabilities at fair value through profit or loss Derivative financial liabilities for non-hedging Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Subtotal Total $ 26,913 72,350,197 152,300,093 1,976,620 14,790,757 17,535,625 10,998,438 269,951,730 $ 269,978,643 - - - - - - - 26,913 - - - - - - - - - - - - - 26,913 - - - - - - December 31, 2017 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss Derivative financial assets for non-hedging $ 40,706 - 40,706 Available-for-sale financial assets Stocks listed on domestic markets Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Subtotal Financial assets at cost (non-current) Loans and receivables Cash and cash equivalents Bond investment without active market-including current and non-current Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Guarantee deposits Subtotal Total 4,617,045 654,192 2,295,576 126,333 7,693,146 53,982 70,062,713 700,000 177,272,731 113,994 988,008 234,493 249,371,939 $ 257,159,773 4,617,045 654,192 - - - - - - - - - - - - - - - - - - - - - - - 2,295,576 126,333 40,706 4,617,045 654,192 2,295,576 126,333 - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 97 December 31, 2017 Fair Value Book value Level 1 Level 2 Level 3 Total Financial liabilities at fair value through profit or loss Derivative financial liabilities for non-hedging Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Subtotal Total $ 24,463 56,515,525 140,381,168 1,636,656 12,023,718 6,200,625 21,252,263 238,009,955 $ 238,034,418 - - - - - - - 24,463 - - - - - - - - - - - - - 24,463 - - - - - - 2) Fair value valuation technique of financial instruments not measured at fair value The Group estimates financial instruments that not measured at fair value by methods and assumption as follows: a) Bond investment without active market and financial liabilities at amortized cost If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values. 3) Fair value valuation technique of financial instruments measured at fair value a) Non-derivative financial instruments Financial instruments trade in active markets is based on quoted market prices. The quoted price of a financial instrument obtained from main exchanges and on-the-run bonds from Taipei Exchange can be used as a base to determine the fair value of the listed companies’ equity instrument and debt instrument of the quoted price in an active market. If a quoted price of a financial instrument can be obtained in time and often from exchanges, brokers, underwriters, industrial union, pricing institute, or authorities and such price can reflect those actual trading and frequently happen in the market, then the financial instrument is considered to have a quoted price in an active market. If a financial instrument is not in accord with the definition mentioned above, then it is considered to be without a quoted price in an active market. In general, market with low trading volume or high bid-ask spreads is an indication of a non-active market. The fair value of the listed company is determined by reference to the market quotation. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 98 The measurements on fair value of the financial instruments without an active market are determined using the valuation technique or the quoted market price of its competitors. Fair value measured using the valuation technique can be extrapolated from similar financial instruments, discounted cash flow method, or other valuation techniques which include the model used in calculating the observable market data at the consolidated balance sheet date. The measurement of fair value of a non-active market financial instruments held by the Group which do not have quoted market prices are based on the comparable market approach, with the use of key assumptions of price-book ratio multiple or earnings multiple of comparable listed companies as its basic measurement. These assumptions have been adjusted for the effect of discount without the marketability of the equity securities. b) Derivative financial instruments Measurement of the fair value of derivative instruments is based on the valuation techniques that are generally accepted by the market participants. For instance, discount method or option pricing models. Fair value of forward currency exchange is usually determined by using the forward currency rate. 4) Transfer from one level to another There was no transfer from one level to another in 2018 and 2017. 5) Changes in level 3 The change in level 3 at fair value in the years ended December 31, 2018 and 2017, were as follow: Financial assets at fair value through profit or loss - $ 48,709 48,709 Financial assets at fair value through other comprehensive income (available-for-sale financial assets) 2,421,909 5,273 2,427,182 (475,442) 107,877 (15,082) (3,072) 2,041,463 (3,064) - 23,745 - - - Balance on January 1, 2018 Effects of retrospective application Adjusted balance on January 1, 2018 Total gains and losses recognized: In profit or loss In other comprehensive income Purchased Proceeds of capital reduction of investment Disposal Balance on December 31, 2018 $ 69,390 Total 2,421,909 53,982 2,475,891 (3,064) (475,442) 131,622 (15,082) (3,072) 2,110,853 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 99 Financial assets at fair value through profit or loss - $ Balance on January 1, 2017 Total gains and losses recognized: In other comprehensive income Purchased Proceeds of capital reduction of investment Disposal Balance on December 31, 2017 $ - - - - - Financial assets at fair value through other comprehensive income (available-for-sale financial assets) Total 4,511,044 4,511,044 149,300 60,180 (28,615) (2,270,000) 2,421,909 149,300 60,180 (28,615) (2,270,000) 2,421,909 For the years ended December 31, 2018 and 2017, total gains and losses that were included in “other gains and losses, net”, “other comprehensive income, before tax, available-for-sale financial assets” and “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income” were as follows: Total gains and losses recognized: In profit or loss before tax (as “other gains and losses, net”) In other comprehensive income (as “other comprehensive income, before tax, available-for-sale financial assets”) In other comprehensive income (as “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income”) 2018 2017 (3,064) - - 149,300 $ $ $ (475,442) - 6) The quantified information for significant unobservable inputs (level 3) used in fair value measurement The Group’s financial instruments that use level 3 input to measure fair values include financial assets at fair value through other comprehensive income－equity instruments, financial assets at fair value through profit or loss－equity securities investment and available-for-sale financial assets－equity investment. Most of fair value measurements of the Group which are categorized as equity investment into level 3 have several significant unobservable inputs. Significant unobservable inputs of equity investments without quoted price are independent of each other. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 100 The quantified information for significant unobservable inputs was as follows: Valuation technique Comparable market approach (Price-Book ratio method and Earnings multiplier method) Item Financial assets at fair value through other comprehensive income (available-for-sale financial assets)－ equity investment without an active market Significant unobservable inputs Price-Book ratio multiples (1.33~5.86 and 1.7671~2.63, respectively, on December 31, 2018 and 2017) Multiples of earnings (2.32~14.97 and 15, respectively, on December 31 2018 and 2017) Lack-of-Marketability discount rate (40%~82% and 20%~65%, respectively, on December 31, 2018 and 2017) Net asset value Inter-relationships between significant unobservable inputs and fair value The higher the multiple is, the higher the fair value will be. The higher the multiple is, the higher the fair value will be. The higher the Lack-of-Marketabilit y discount rate is, the lower the fair value will be. Inapplicable Net asset value method Financial assets at fair value through other comprehensive income (available-for-sale financial assets) Financial assets at fair value through profit or loss – investment in private placement and private equity fund Net asset value method Net asset value Inapplicable 7) Sensitivity analysis for fair value of financial instruments using level 3 inputs The Group’s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, if the valuation parameters changed, the impact on other comprehensive income or loss are as follows: (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 101 Other comprehensive income Input Move up or down Favorable change Unfavorable change December 31, 2018 Financial assets at fair value through other comprehensive income December 31, 2017 Available-for-sale financial assets Price-Book ratio multiples Multiples of earnings Lack-of-Marketability discount rate Price-Book ratio multiples Multiples of earnings Lack-of-Marketability discount rate 5% $ 28,137 28,119 5% 5% 5% 5% 5% $ $ $ $ $ 28,210 2,093 27,202 2,053 2,656 5,112 5,944 2,774 5,097 6,047 The favorable and unfavorable changes reflect the movement of the fair value, in which the fair value is calculated by using the different unobservable inputs in the valuation technique. The table above shows the effects of one unobservable input, without considering the inter-relationships with another unobservable input for financial instrument, if there are one or more unobservable inputs. 8) Offsetting financial assets and financial liabilities The Group has financial instruments transactions applicable to the International Financial Reporting Standards No. 32 Sections 42 endorsed by the FSC which required for offsetting. Financial assets and liabilities relating to those transactions are recognized in the net amount of the balance sheets. The following tables present the aforesaid offsetting financial assets and financial liabilities. Unit: thousands of New Taiwan Dollars / thousands of US Dollars December 31, 2018 Financial assets that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of financial liabilities offset in the balance Gross amounts of recognized financial assets (a) Net amount of financial assets presented in Amounts not offset in the balance sheet (d) the balance sheet Financial instrumen Cash collateral Net amount (e)=(c)-(d) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 101 sheet (b) (c)=(a)-(b) Other current assets $ 306,259 306,259 - (USD 9,971 ) (USD 9,971 ) ts - received - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 102 December 31, 2018 Financial liabilities that are offset which have an exercisable master netting arrangement or similar agreement Gross amounts of financial assets offset in the balance sheet (b) Gross amounts of recognized financial liabilities (a) Net amount of financial liabilities presented in Amounts not offset in the balance sheet (d) the balance sheet (c)=(a)-(b) Financial instrumen ts Cash collateral received Net amount (e)=(c)-(d) Short-term borrowings $ 306,259 306,259 - - - - (USD 9,971 ) (USD 9,971 ) (ae) Financial risk management (i) Overview The Group is exposed to the following risks arising from financial instruments: 1) Credit risk 2) Liquidity risk 3) Market risk In this note expressed the information on risk exposure and objectives, policies and procedures of risk measurement and management of the Group. For detailed information, please refer to the related notes of each risk. (ii) Structure of risk management The Group’s finance management department provides business services for the overall internal department. It sets the objectives, policies and processes for managing the risk and the methods used to measure the risk arising from both the domestic and international financial market operations. The Group minimizes the risk exposure through derivative financial instruments. The Board of Directors regulated the use of derivative financial instruments in accordance with the Group’ s policy about risks arising from financial instruments such as currency risk, interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investments of excess liquidity. The internal auditors of the Group continue with the review of the amount of the risk exposure in accordance with the Group’s policies and the risk management policies and procedures. The Group has no transactions in financial instruments (including derivative financial instruments) for the purpose of speculation. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 102 (iii) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 103 1) Accounts receivable and other receivables The Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, and these limits are reviewed periodically. 2) Investments The credit risks exposure in the bank deposits, investments with fixed income and other financial instruments are measured and monitored by the Group’s finance department. Since the Group ’ s transaction counterparties and the contractually obligated counterparties are banks, financial institutes and corporate organizations with good credits, there are no compliance issues, and therefore, no significant credit risk. 3) Guarantees Pursuant to the Group’s policies, it is only permissible to provide financial guarantees to subsidiaries and companies that the Group has business with. As of December 31, 2018 and 2017, the Group did not provide any guarantees to other companies besides its subsidiaries. (iv) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities which be settled by delivering cash or another financial asset. The Group manages and maintains sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Group’s management supervises the banking facilities and ensures in compliance with the terms of the loan agreements. Please refer to notes (6)(o) and (6)(p) for unused credit lines of short-term and long-term borrowings as of December 31, 2018 and 2017. (v) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. 1) Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of the Group. The currencies used in these transactions are primarily denominated in TWD, USD, EUR and CNY. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 104 As for other monetary assets and liabilities denominated in other foreign currencies, when short-term imbalance takes place, the Group buys or sells foreign currencies at spot rate to ensure that the net exposure is kept on an acceptable level. 2) Interest rate risk The Group borrows funds on fixed and variable interest rates, which has a risk exposure to changes in fair value and cash flow. Therefore, the Group manages the interest rates risk by maintaining an adequate combination of fixed and variable interest rates. 3) Other price risk The Group is exposed to equity price risk arising from investments in listed equity securities. (af) Capital management The policy of capital management made by the Board of Directors is to maintain a strong capital base so as to stabilize the confidence of the investors, creditors and the public market and to sustain future development of the business. Capital consists of ordinary shares, capital surplus, retained earnings and non-controlling interests. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Group monitors the capital structure by way of periodical review the debt ratio. As of December 31, 2018 and 2017, the debt ratio was as follows: Total liabilities Total assets Debt ratio December 31, 2018 $ 286,632,975 December 31, 2017 254,708,449 $ 399,794,823 363,356,421 72 % 70 % The Group could purchase its own shares in the public market in accordance with the corresponding rules and regulations. The timing of the purchases depends on market prices. As of December 31, 2018, there were no changes in the Group’s approach of capital management. (ag) Investing and financing activities not affecting current cash flow There are no investing and financing activities which did not affect the current cash flow in the year ended December 31, 2018. Reconciliations of liabilities arising from financing activities were as follows: Long-term borrowings Short-term borrowings Total liabilities from financing activities January 1, 2018 27,452,888 56,515,525 83,968,413 $ $ Cash flow 1,081,175 15,834,672 16,915,847 December 31, 2018 28,534,063 72,350,197 100,884,260 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 105 (7) Related-party transactions: (a) Name and relationship with related parties The followings are the entities that have had transactions with related party during the periods covered in the financial statement. Name of related party Relationship with the Group Compal Precision Module (Jiangsu) Co., Ltd. Changbao Electronic Technology (Chongqing) Co., An associate An associate Ltd. An associate LCFC (Note 1) An associate Avalue Technology Inc. (“Avalue”) Crownpo Technology Inc. (“Crownpo”) An associate Allied Circuit Co., Ltd. (“Allied Circuit”) An associate An associate Kinpo Group Management Consultant Company (“Kinpo Group Management”) Compal Connector Manufacture Ltd. (“CCM”) A joint venture company AcBel Polytech Inc. (“AcBel”) and its The same chairman of the board with the Company subsidiaries Note 1: In August 2018, the Group had sold all its shares of LCFC and no longer had significant influence over it. Therefore LCFC is not a related party of the Group since September 2018. (b) Transactions with key management personnel Key management personnel remunerations comprised: Short-term employee benefits Post-employment benefits Share-based payments 2018 2017 $ 660,609 508,624 7,984 (78,216) 8,319 71,545 $ 590,377 588,488 There are no termination benefits and other long-term benefits. Please refer to note (6)(w) for explanations related to share-based payments. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 106 (c) Significant related-party transactions (i) Sale of goods to related parties The amounts of significant sales transactions between the Group and related parties were as follows: Associates Other related parties 2018 2017 $ $ 323,587 529,006 4,455 2,020 328,042 531,026 Sales prices for related parties were similar to those of the third-party customers. The collection period was 60~120 days for related parties. (ii) Purchase of goods from related parties The amounts of significant purchase transactions between the Group and related parties were as follows: Associates Other related parties Joint venture 2018 2017 $ 4,010,999 4,446,200 1,365,892 95,900 610,635 77,638 $ 5,472,791 5,134,473 Purchase prices and payment period from related parties were similar to those from third-party suppliers. The payment period was 60~165 days for related parties. (iii) Receivables due from relate parties The receivables arising from the transactions mentioned above and others on behalf of related parties were as follows: Account Related-party categories Notes and accounts Associates receivable Notes and accounts Other related parties receivable Other receivables Joint venture December 31, 2018 December 31, 2017 $ 56,701 113,988 1,405 120 6 179 $ 58,226 114,173 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 107 (iv) Payables to related parties The payables arising from the transactions mentioned above and rendering of services from other related parties were as follows: Account Notes and accounts payable Related-party categories Associates December 31, 2018 December 31, 2017 $ 1,245,574 1,351,036 Notes and accounts Other related parties 705,761 245,253 payable Notes and accounts Joint venture payable Other payables Associates 25,285 40,367 1,019 154 $ 1,977,639 1,636,810 (8) Pledged assets: The carrying values of pledged assets were as follows: Pledged Assets Other current assets Subject December 31, 2018 December 31, 2017 Bail for court mandatory execution $ 41,090 26,510 Property, plant and Long-term borrowings (including current portion) equipment (note) 715,913 1,151,730 Other non-current assets Guarantee of post-release duty payment to the customs and guarantee of the customs 500 14,241 $ 757,503 1,192,481 Note: Part of long-term borrowings had been settled in 2018, but the assets of property－land still were pledged as collaterals. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 108 (9) Commitments and contingencies: The details of commitments and contingencies were as follows: (a) On May 17, 2017, Qualcomm Inc. filed a lawsuit to the Southern District Court of California, USA against the Group for not paying the royalties of the patent license agreement. The Group has filed counterclaims against Qualcomm Inc. based on the antitrust law in the same court on July 19, 2017. The Group has engaged counsels to defend the lawsuits. The final result of this case is subject to future litigation procedures; therefore, there is no significant impact on the Group's business and financial performance in the current year. (b) The Group entered into various patent license agreements with third parties, and was required to make royalty payments of a predetermined amount periodically. (c) As of December 31, 2018 and 2017, the Group's signed commitments to purchase property, plant and equipment amounted to $187,872 and $395,217, respectively. (d) Please refer to note (6)(s) for the rental payables in the future years, which are calculated based on the agreements signed by the Group for the office areas and plants under operating leases. (10) Losses due to major disasters: None (11) Subsequent events: None (12) Other: (e) The employee benefits, depreciation and amortization expenses by categorized function are summarized as follows: By function 2018 By item Employee benefits Operating costs Operating expenses Total Operating costs 2017 Operating expenses Total Salary 17,181,336 11,515,507 28,696,843 14,724,727 10,308,761 25,033,488 Labor and health insurance 826,628 744,593 1,571,221 770,050 723,811 1,493,861 Pension Others Depreciation Amortization 1,242,331 475,288 1,717,619 1,101,172 451,513 1,552,685 2,641,948 578,881 3,220,829 2,598,425 558,734 3,157,159 4,100,520 495,005 4,595,525 4,331,671 469,576 4,801,247 55,897 289,250 345,147 16,274 367,151 383,425 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 109 (13) Other disclosures: (a) Information on significant transactions: The following were the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group for the year ended December 31, 2018: (i) Loans to other parties: Name of lender Name of borrower Account name The UCGI Company The HengHao Other receivables 〃 Y Related party Y No 0 0 Highest balance of financing to other parties during the period Ending balance 500,000 250,000 402,354 199,618 Actual usage amount during the period 220,000 Range of interest rates during the period 1.2% Purposes of fund financing for the borrower Short-term financing 199,618 1.8%~2.82% 〃 Company 1 CIH 2 CPI 2 CPI 3 CET 4 CPC 5 CIT 5 CIT 6 PFG CEP CEB CVC CDE CDE 〃 Y 108,343 107,503 44,537 3.50% 〃 〃 Y 437,925 - - 2.50% 〃 〃 Y 307,150 307,150 127,467 3.2% 〃 〃 Y 1,405,800 - - 4.35% 〃 〃 Y 1,377,900 1,341,600 1,341,600 2.20% 〃 CCI Nanjing 〃 Y 4,316,900 2,150,050 2,150,050 2.50%~2.76% 〃 Rayonnant 〃 Y 67,080 67,080 - 4.35% 〃 (Taicang) CEB 〃 Y 309,550 307,150 307,150 2.50% 〃 Transaction amount for business between two parties - - - - - - - - - - Reasons for short-term financing Operating demand 〃 〃 〃 〃 〃 〃 〃 〃 〃 7 Arcadyan Arcadyan 〃 Y 122,860 122,860 - 1.00% AU 7 Arcadyan Arcadyan 〃 Y 245,720 245,720 33,787 1.00% Arcadyan Brasil CNC 8 Holding 〃 Y 522,155 522,155 - 1.00% Transaction for business between two parties 〃 1,535,750 307,150 - - Short-term financing - Operating financing (In Thousands of New Taiwan Dollars) Collateral Allowance for bad debt Item Value Individual funding loan limits Maximum limit of fund financing - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 900,177 900,177 4,824,445 21,144,729 42,289,458 (Note 1) 21,144,729 42,289,458 (Note 1) 34,926,977 34,926,977 (Note 2) 900,177 (Note 3) 900,177 (Note 3) 4,824,445 (Note 4) 2,040,377 (Note 5) 20,445,466 20,445,466 (Note 6) 20,445,466 20,445,466 (Note 6) 421,799 (Note 7) 3,626,457 (Note 8) 2,040,377 1,228,600 421,799 245,720 970,670 3,626,457 (Note 8) 970,670 (Note 9) Note 1: According to the Company’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of the Company. When a short-term financing facility with the Company is necessary, the total amount for lending to any company shall not exceed 80% of the borrower’s net worth, nor shall it be more than 50% of the Company’s lendable amount limit, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company is unrestricted by the aforesaid restriction of 80%, but the maximum amount shall not exceed 50% of the Company’s lendable limit, and shall be combined with the company’s amount of loans to others when calculating. Note 2. According to CIH’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CIH. When a short-term financing facility with CIH is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIH’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIH, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 3. According to CPI’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CPI. When a short-term financing facility with CPI is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPI’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPI, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 4. According to CET’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CET. When a short-term financing facility with CET is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CET’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CET, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 5. According to CPC’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPC. When a short-term financing facility with CPC is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPC’s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPC, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 110 Note 6. According to CIT’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CIT. When a short-term financing facility with CIT is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIT’s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIT, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 7. According to PFG’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of PFG. When a short-term financing facility with PFG is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of PFG’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of PFG, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 8. According to Arcadyan’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Arcadyan. To borrowers having business relationship with Arcadyan, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Arcadyan. Also, the amount shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. When a short-term financing facility is necessary, the borrower should be Arcadyan’s investee. The total amount for lending the borrower shall not exceed 80% of the net worth of the borrower, nor shall it exceed 20% of the net worth of Arcadyan, and shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. Note 9. According to Arcadyan Holding’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed the net worth of Arcadyan Holding. When a short-term financing facility is necessary, the borrower should be Arcadyan Holding’s investee. The total amount for lending the borrower shall not exceed the net worth of Arcadyan Holding, and shall be combined with the Arcadyan Holding’s endorsements/ guarantees for the borrower when calculating. Note 10. The transactions had been eliminated in the consolidated financial statements. (ii) Guarantees and endorsements for other parties: Name of guarantor Name The CEB No. 0 Company 0 〃 CEP 1 Arcadyan Arcadya n Brasil Counter-party of guarantee and endorsement Relationship with the Company (Note 3) Balance of guarantees Limitation on amount of guarantees and endorsements for a specific enterprise Highest balance for guarantees and endorsements during the period 26,430,911 61,910 and endorsements as of reporting date 61,430 Actual usage amount during the period 61,430 Property pledged for guarantees and endorsements (Amount) - Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements Maximum amount for guarantees and endorsements 0.06% 52,861,823 (Note 1) (In Thousands of New Taiwan Dollars) Parent company endorsements/ Subsidiary endorsements/ guarantees to third parties on behalf of subsidiary Y guarantees to third parties on behalf of parent company - Endorsements/ guarantees to third parties on behalf of companies in Mainland China - (Note 2) 26,430,911 315,364 263,749 263,749 (Note 5) 1,208,819 245,720 245,720 - - - 0.25% 52,861,823 (Note 1) 2.71% 3,626,457 (Note 4) Y Y - - - - Note 1: According to the Company’s Procedures for Endorsement and Guarantee, the total amount of endorsements/ guarantees the Company or the Group is permitted to make shall not exceed 50% of the Company’s net worth. Endorsements/ guarantees the Company and the Group are permitted to make for a single company shall not exceed 25% of the Company’s net worth. For entities having business relationship with the Company, the amount of endorsements/ guarantees for a single company shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount of the current year, and shall be combined with the amount lend to others when calculating. The amount of endorsements/ guarantees permitted to make between subsidiaries whose over 90% of its voting shares are owned, directly or indirectly, by the Company shall be no more than 10% of the net worth of the Company. The amount of endorsements/ guarantees permitted to make between directly or indirectly wholly owned subsidiaries is not limited by the aforementioned restriction, only the maximum amount shall be no more than 25% of the net worth of the Company. Note 2: Subsidiary whose over 50% common stock is directly owned. Note 3: Subsidiary whose over 50% common stock is indirectly owned. Note 4: According to Arcadyan's Procedures for Endorsement and Guarantee, the total amount shall not exceed 40% of the net worth for latest financial statements audited or reviewed by Certified Public Accountants, and the amount for a single company shall not exceed 1/3 of the total amount. Note 5: Subsidiary whose 100% common stock is directly owned by Arcadyan. (iii) Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates and joint ventures): Name of holder The Company Category and name of security Common bond－Taiwan Star Relationship with security issuer - Taiwan Star - Account name Financial assets at amortized cost-current Financial assets at fair value through other comprehensive income-non-current Ending balance Shares/Unit s (thousands) - Carrying value Holding percentage (%) Fair value 350,000 - - (In Thousands of shares/ units) The highest holding in the period Shares/ Units (thousands) - Holding percentage (%) - Note 98,046 734,368 3% 734,368 98,046 3% Kinpo Electronics, Inc. ("Kinpo") The same Cal-Comp Electronics ("Thailand") Public Co., Ltd. Innolux Corporation (“Innolux”) chairman of the Company 〃 - 〃 〃 〃 124,044 1,252,842 9% 1,252,842 124,044 9% 239,631 400,184 5% 400,184 239,631 5% 109,227 1,061,690 1% 1,061,690 134,877 1% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 111 Name of holder Category and name of security Chipbond Technology Corp. (“Chipbond”) Relationship with security issuer - HWA VI Venture Capital Corp. HWA Chi Venture Capital Corp. mProbe Ltd. Global BioPharma, Inc. Chen Feng Optoelectronics PrimeSensor Technology Inc. Macroblock, Inc. Others - - - - - - - Total Panpal Compal Electronics, Inc. Kinpo CDIB Partners Investment Holding Corp. AcBel Chipbond Taiwan Biotech Co., Ltd. The parent company The same chairman of the Company - The same chairman of the Company - - Ending balance Account name Shares/Unit s (thousands) Carrying value Holding percentage (%) Fair value The highest holding in the period Shares/ Units (thousands) Holding percentage (%) Note Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non-current 〃 〃 〃 〃 〃 〃 Financial assets at fair value through profit or loss and other comprehensive income Financial assets at fair value through other comprehensive income-non-current 〃 〃 〃 Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non-current 〃 4,593 284,768 1% 284,768 13,542 2% 290 20,551 10% 20,551 290 10% 1,053 4,000 2,000 5,829 22,926 11% 22,926 1,053 11% 50,040 3% 40,740 3% 50,040 4,000 3% 40,740 2,000 3% 22,909 13% 22,909 5,829 13% 1,357 14,542 3% 14,542 2,009 4% 749 67,903 2% 67,903 749 2% 66,968 66,968 4,040,431 31,648 552,259 1% 552,259 31,648 1% (Note 2) 23,172 234,042 2% 234,042 23,172 2% 54,000 817,020 5% 817,020 54,000 5% 5,677 107,289 1% 107,289 5,677 1% 5,251 325,560 1% 325,560 5,251 1% 4,897 119,589 3% 119,589 4,897 3% 76,178 2,231,937 76,178 18,369 320,545 - 320,545 18,369 - (Note 2) Others Total Gempal Compal Electronics, Inc. Lian Hong Art. Co., Ltd. Global BioPharma, Inc. Others Total Hong Ji SUYIN Optronics Co., Ltd. (“SUYIN Optronics”) Hong Jin SUYIN Optronics Arcadyan GeoThings Inc. AirHop Communication Inc. Adant Technologies Inc. IOT EYE, Inc. TIEF Fund, L.P The parent company Financial assets at fair value through other comprehensive income-non-current - - - - - - - - - 〃 〃 〃 2,140 2,000 34,921 8% 40,740 3% 2,277 398,483 34,921 2,140 8% 40,740 2,000 3% 2,277 Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current 〃 〃 〃 〃 380 182 1% 182 380 1% 332 160 1% 160 332 1% 200 1,152 349 60 - - - - 9% 7% 6% 6% - - - - 200 9% (Note 1) 1,152 7% 349 6% 60 6% 〃 〃 〃 - 45,645 7% 45,645 - 7% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 112 Name of holder Category and name of security Hitron Technologies Inc. Relationship with security issuer - RichWare Technology Corp. Wistron NeWeb Corp. Total Mactech Taichung International Golf Country Club HHB CPO CET CIC CEC CPC HWALLAR OPTRONICS (Fuzhou) CO., LTD. Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit Total Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit Structured deposits–Agricultural Bank of China "HuiLiFeng" customization RMB Structured Deposit Structured deposits–The RMB "Open On Schedule "Financial Product Total Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit Structured deposits–The RMB "Open On Schedule "Financial Product Structured deposits–SPD Bank Yield Plus Structured Deposit Total CEQ Structured deposits–Industrial Bank Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Total - - - - - - - - - - - - - - Ending balance Account name Shares/Unit s (thousands) Carrying value Holding percentage (%) Fair value The highest holding in the period Shares/ Units (thousands) Holding percentage (%) Note Financial assets at fair value through profit or loss-current 〃 〃 Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current Financial assets at fair value through profit or loss-current 〃 Financial assets at fair value through profit or loss-current 〃 〃 Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current 〃 Financial assets at fair value through profit or loss-current 〃 - - - - - - - - - - - - 543 10,426 - 10,426 543 - 110 100 5,115 - 7,990 - 69,176 7,980 - 5,115 7,990 110 - 100 - 7,980 - - (Note 1) - 19% - 480,285 - 480,285 448,948 - 448,948 929,233 225,651 - 225,651 676,881 - 676,881 451,154 - 451,154 1,353,686 179,699 179,699 576,466 - 576,466 - - 226,281 179,963 406,244 259,705 226,281 179,963 259,705 260,029 260,029 519,734 - - - - - - - - - - - - - - - - 19% 〃 - - - - - - - - - - - - - - - Note 1: The carrying value is the remaining amount after deducting accumulated impairment. Note 2: The transaction had been eliminated in the consolidated financial statements. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 113 (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: Beginning Balance Purchases Sales Others Ending Balance (In Thousands of New Taiwan Dollars/CNY) Name of company The Category and name of security Chipbond Relationship with the company - Shares/ Units (thousands) Amount 13,542 763,771 Shares/ Units (thousands) - Amount - Shares/ Units (thousands) 8,949 Price 574,528 Cost 574,528 Gain (loss) on disposal - Shares/ Units (thousands) Amount Shares/ Units (thousands) Amount - 95,525 (Note 1) 4,593 284,768 LC Future Center (Hong Kong) Ltd. - 147,000 4,742,832 - - 147,000 7,384,102 (Note 3) 4,873,017 2,511,085 - 130,185 (Note 2) Company BSH CPC CPC CEC CEC CEQ CPO CPO Account name Financial assets at fair value through profit or loss-curre nt Investmen ts accounted for using equity method Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Structured deposits–The RMB "Open On Schedule "Financial Product Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits– Win-win Interest Rate Structure RMB Structural Deposits Structured deposits-Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits-Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– Agricultural Bank of China "Golden Key. Ben Li Feng" RMB finance products Structured deposits–SPD Bank Yield Plus Structured Deposit Name of counter-party - Hefei Zhi Ju Sheng Bao Equity Investment Co., Ltd. Bank of China Shanghai Pudong Development - Bank China CITTIC - Bank Bank of Communications Bank of Communications Agricultural Bank of China - Shanghai Pudong Development Bank - - - - - - - - - - - - - - - - - - - - - 543,072 (RMB$ 119,000) - 325,989 (RMB$ 69,448) 318,780 (RMB$ 69,000) 7,209 (RMB$448) (Note 2) - 508,363 (RMB$ 110,000) 328,275 (RMB$ 70,264) 328,930 (RMB$ 70,000) (655) (RMB264) (Note 2) 699,581 (RMB$ 153,000) - 715,328 (RMB$ 154,881) 706,643 (RMB$ 153,000) 8,686 (RMB$1,881) (Note 2) 838,610 (RMB$ 188,000) - 276,248 (RMB$ 60,595) 273,535 (RMB$ 60,000) 2,713 (RMB$595) (Note 2) 702,920 (RMB$ 158,000) - 462,760 (RMB$ 101,111) 443,503 (RMB$ 100,000) 19,256 (RMB$1,111) (Note 2) 523,488 (RMB$ 112,000) - 528,448 (RMB$ 113,061) 523,488 (RMB$ 112,000) 4,960 (RMB$1,061) (Note 2) 953,248 (RMB$ 214,000) - 492,965 (RMB$ 108,132) 474,652 (RMB$ 107,000) 18,314 (RMB$ 1,132) - - - - - - - 1,989 (RMB$444) (Note 1) 530 (RMB$118) (Note 1) - 3,958 (RMB$885) (Note 1) 610 (RMB$137) (Note 1) - 1,689 (RMB$378) (Note 1) - - - - - - - - - 226,281 (RMB$ 50,444) 179,963 (RMB$ 40,118) - 576,466 (RMB$ 128,885) 260,029 (RMB$ 58,137) - 480,285 (RMB$ 107,378) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 114 Beginning Balance Purchases Sales Others Ending Balance Name of counter-party Bank of Communications Relationship with the company Shares/ Units (thousands) - Amount - Shares/ Units (thousands) - Shares/ Units (thousands) - Amount 890,886 (RMB$ 200,000) Price 460,437 (RMB$ 100,997) Cost 443,600 (RMB$ 100,000) 16,838 (RMB$ 997) Gain (loss) on disposal Shares/ Units (thousands) Amount - - - - - - - - - - - - - - - - - - - - 578,442 (RMB$ 130,000) 310,456 (RMB$ 70,000) 670,906 (RMB$ 150,000) 669,025 (RMB$ 150,000) 357,794 (RMB$ 80,000) 367,162 (RMB$ 80,537) 354,807 (RMB$ 80,000) 16,308 (RMB$ 537) 323,446 (RMB$ 70,948) 310,456 (RMB$ 70,000) 16,573 (RMB$ 948) - - - 231,780 (RMB$ 50,841) 221,754 (RMB$ 50,000) 12,199 (RMB$ 841) 184,258 (RMB$ 40,417) 178,897 (RMB$ 40,000) 5,361 (RMB$ 417) Shares/ Units (thousands) - Amount 448,948 (RMB$ 100,371) - - - - - 225,651 (RMB$ 50,460) - 676,881 (RMB$ 151,365) 451,154 (RMB$ 10,888) 179,699 (RMB$ 40,184) - - - - - - 1,662 (RMB$371) (Note 1) 2,016 (RMB$460) (Note 1) - 5,975 (RMB$| 1,365) (Note 1) 3,883 (RMB$| 888) (Note 1) 802 (RMB$| 184) (Note 1) Name of company CPO CET CET CET CET CIC Category and name of security Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Structured deposits–SPD Bank Yield Plus Structured Deposit Account name Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Bank of Communications Shanghai Pudong Development - Bank Agricultural Bank of China Structured deposits-Agricult ural Bank of China "HuiLiFeng" customization RMB structured Financial assets at fair value through profit or loss-curre nt deposit Bank of China Structured deposits-The RMB "Open on schedule" Financial Product Structured deposits-SPD Bank YieldPlus Structured Deposit Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Shanghai Pudong Development Bank Note 1: Others were valuation gains and losses and foreign exchange gains and losses. Note 2: These were gains and losses on disposal and foreign exchange gains and losses. Note 3: The related transactions costs were deducted from the selling price. (v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 115 (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) (In Thousands of New Taiwan Dollars) Company Name Counter party The Company CBN Nature of relationship The Company's subsidiaries Purchase/ (Sale) Sale Percentage of total purchases/(s ales) (0.2) % Amount (2,138,005) Payment terms 90 days CIH and its subsidiaries Subsidiaries wholly owned by the Company Purchase 111,112,129 12.4 % 120 days Sale (238,388) Purchase 132,833 - - Purchase 770,924 0.1 % 〃 〃 〃 UCGI Just and its subsidiaries BCI and its subsidiaries Bizcom Palcom Webtek 〃 〃 〃 〃 〃 Sale Sale (121,850) (114,565) - - 45~180 days Net 60 days from delivery Similar to non-related parties 〃 There is no significant difference 〃 Subsidiaries wholly owned by the Company Purchase 108,584,993 Forever 〃 Purchase 66,812,621 12.1 % Net 60 days from purchase Markup based on Webtek's cost Markup based on Forever's cost 7.5 % 〃 There is no significant difference Sale (68,265,549) (63.3) % Net 60 days from delivery According to Just and its subsidiaries Webtek With the same ultimate parent company Forever CIH and its subsidiaries 〃 〃 Sale (30,470,633) (28.3) % 〃 Purchase 387,992 4.0 % Net 60 days from purchase The Company Parent Company Sale (132,833) (0.1) % 120 days CIH and its subsidiaries The Company Parent Company Sale (113,457,780) (77.1) % 〃 〃 Unit price Payment Terms Ending Balance Percentage of total notes/ accounts receivable (payable) Note Similar to non-related parties Similar to non-related parties Similar to non-related parties Similar to non-related parties 〃 There is no significant difference There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference There is no significant difference, and adjustments will be made based on demand for funding if necessary 〃 739,065 0.4 % (Note 2) (49,114,165) (31.6) % 〃 89,586 0.1 % 〃 (504,568) (0.3) % 〃 (758,108) (0.5) % 〃 99,370 0.1 % 〃 23,209 - % 〃 (7,073,274) (4.6) % 〃 markup pricing Similar to non-related parties Similar to non-related parties Similar to non-related parties 〃 (20,843,862) (13.4) % 〃 Adjustments will be made based on demand for funding 〃 20,177,943 74.6 % 〃 6,472,633 23.9 % 〃 〃 (308,041) (6.9) % 〃 There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding 〃 504,568 1.5 % 〃 49,114,165 45.4 % 〃 8,931,246 8.3 % 〃 308,041 0.3 % 〃 Forever Just and its subsidiaries BCI and its subsidiaries CEB With the same ultimate parent company 〃 〃 〃 Sale Sale (29,538,636) (20.1) % Net 60 days from delivery According to markup pricing (387,992) (0.3) % 〃 〃 Purchase 30,045,061 27.3 % 120 days Purchase (145,211) (0.1) % 〃 Similar to non-related parties 〃 (9,852,148) (24.1) % 〃 Similar to non-related parties There is no significant difference 45,759 - 〃 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 116 Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) Counter party Nature of relationship The Company Parent Company Purchase/ (Sale) Purchase Percentage of total purchases/(s ales) Amount Payment terms 2,126,356 57.0 % Net 90 days from delivery The Company 〃 Sale (783,081) (2.3) % 120 days Company Name CBN BCI and its subsidiaries CIH and its subsidiaries With the same ultimate parent company Sale (30,045,061) (89.3) % CEB 〃 Sale (1,892,352) (5.6) % 〃 〃 Webtek The Company Parent Company Sale (108,584,993) (100.0) % Net 60 days from delivery CEB Etrade and its subsidiaries Forever UCGI Palcom Bizcom THAC TTI THAC CNC Arcadyan With the same ultimate parent company 〃 With the same ultimate parent company Purchase 40,334,951 37.1 % Net 60 days from purchase Purchase 68,265,549 62.9 % 〃 Purchase 1,903,878 17.3 % 120 days 〃 Purchase 148,236 1.4 % 120 days Similar to non-related parties 〃 There is no significant difference 〃 Etrade and its subsidiaries Just and its subsidiaries BCI and its subsidiaries CIH and its subsidiaries Webtek With the same ultimate parent company Sale (40,334,951) (100.0) % Net 60 days from delivery According to markup pricing The Company Parent Company Sale (66,812,621) (85.6) % 〃 〃 CIH and its subsidiaries Just and its subsidiaries With the same ultimate parent company 〃 Purchase 29,538,636 38.0 % Net 60 days from purchase Similar to Purchase 30,470,633 39.0 % 〃 The Company Parent company Purchase 241,529 72.8 % 120 days The Company Parent company Purchase 114,565 100.0 % Net 120 days from delivery The Company Parent company Purchase 121,850 (78.8) % 45~180 days TTI THAC CNC THAC With the same ultimate parent company With the same ultimate parent company 〃 〃 Arcadyan Germany Arcadyan USA Arcadyan's subsidiaries 〃 Sale Sale Sale Sale Sale Sale (383,948) (100.0) % Net 60 days from the end of the moth of delivery According to markup pricing Purchase 393,948 4.0 % 〃 Purchase 164,591 3.0 % Net 90 days from the ended of (164,591) (1.0) % the month of delivery 〃 (2,457,020) (11.0) % Net 120 days from delivery (496,199) (2.0) % Net 60 days from the end of the month of delivery (1,329,743) (6.0) % Net 45 days from the end of the month of delivery 〃 Arcadyan AU 〃 CNC 〃 Arcadyan Germany Arcadyan USA Arcadyan AU Arcadyan Arcadyan AcBel Polytech Arcadyan Arcadyan Arcadyan CNC The Company's subsidiaries Same Director of Board as ultimate parent company The Company's subsidiaries The Company's subsidiaries 〃 Arcadyan's subsidiaries (11,249,751) (100.0) % Net 45ays from the end of the month of delivery According to markup pricing Purchase 108,030 1.0 % Net 120 days from the end of the month of delivery Purchase 2,457,020 100.0 % Net 120 days from delivery Purchase 496,199 100.0 % Net 60 days from the end of the month of delivery Purchase 1,329,743 100.0 % Net 45 days from the end of the month of delivery Purchase 11,249,751 35.0 % Net 45ays from the end of the month of delivery - - - - According to markup pricing Note 1: The remaining balance is the net value of commissioned processing and sales of raw material. Percentage of total notes/ accounts receivable (payable) Note Ending Balance (739,183) (87.0) % (Note 2) 758,108 6.3 % 〃 9,852,148 81.5 % 〃 562,737 4.7 % 〃 7,073,274 100.0 % 〃 (4,489,304) (18.2) % 〃 Payment Terms There is no significant difference Adjustments will be made based on demand for funding if necessary 〃 There is no significant difference Adjustments will be made based on demand for funding 〃 〃 (20,177,943) (81.8) % 〃 Unit price - According to markup pricing 〃 〃 〃 〃 〃 non-related parties 〃 〃 〃 〃 - - - - - Adjustments will be made based on demand for funding 〃 〃 〃 There is no significant difference 〃 〃 - - - - - - - - - - - - - (558,273) (38.2) % 〃 (45,479) (3.1) % 〃 4,489,304 100.0 % 〃 20,843,862 91.0 % 〃 (8,931,246) (34.0) % 〃 (6,472,633) (25.0) % 〃 (89,586) (84.5) % 〃 (23,209) (100.0) % 〃 (99,370) (85.2) % 〃 351,268 100.0 % (Note 1) (351,268) (28.0) % 〃 (64,808) (59.0) % 〃 64,808 2.0 % 〃 805,017 14.0 % (Note 2) 104,031 2.0 % 〃 727,600 13.0 % 〃 3,404,030 98.0 % (Notes 1 and 2) (79,455) (2.0) % 〃 (805,017) (100.0) % (Note 2) (104,031) (100.0) % 〃 (727,600) (100.0) % 〃 (3,404,030) (40.0) % (Notes 1 and 2) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 116 Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) Company Name Counter party Nature of relationship Purchase/ (Sale) Amount Percentage of total purchases/(s ales) Payment terms Unit price Payment Terms Note 2: The transactions had been eliminated in the consolidated financial statements. Percentage of total notes/ accounts receivable (payable) Note Ending Balance (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 117 (viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (In Thousands of New Taiwan Dollars) Name of Nature of Ending Turnover Overdue company Counter-party relationship balance rate Amounts received in Allowance subsequent period for bad debts - Note The Company CBN Just and its subsidiaries Forever 〃 Webtek The Company's subsidiary With the same ultimate parent company With the same ultimate parent company Parent company 739,065 1.98 6,472,633 6.32 20,177,943 6.18 504,568 0.27 Parent company 49,111,165 2.25 With the same ultimate parent With the same ultimate parent Parent company With the same ultimate parent company With the same ultimate parent company Parent company 8,931,246 4.05 308,041 1.24 758,108 1.65 9,852,148 2.91 562,737 3.31 20,843,862 4.09 Parent company 7,073,274 15.01 Compal Electronic, Inc. Compal Electronic, Inc. Forever Just and its subsidiaries Compal Electronic, Inc. CIH and its subsidiaries CEB Compal Electronic, Inc. Compal Electronic, Inc. Webtek With the same ultimate parent company TTI TTI Arcadyan AU Arcadyan USA Arcadyan Germany Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary The Company's subsidiary With the same ultimate parent company With the same ultimate parent company Just and its subsidiaries Speedlink Arcadyan THAC 4,489,304 7.71 805,017 3.08 104,031 4.32 727,600 3.54 172,161 (Note 5) 351,268 (Note 4) 207,119 (Note 5) 3,404,030 (Note 4) 242,069 (Note 4) 242,069 (Note 4) 0.11 10.14 12.43 2.46 - - Amount - Action taken - - - - - - - - - - - - - - - - - - - - 22,528 - - - - - - - - - - - - - - - - - - - - 22,528 Enhanced the collection 434,844 (Note 1) 6,277,163 (Note 1) 20,177,943 (Note 1) - (Note 1) 30,770,107 (Note 1) 8,050,832 (Note 1) - (Note 1) 70,422 (Note 1) 6,788,977 (Note 1) 316,880 (Note 1) 14,413,628 (Note 1) 7,073,274 (Note 1) 4,489,304 (Note 1) 581,083 (Note 2) 11,688 (Note 2) 521,951 (Note 2) 169,496 (Note 2) 351,268 (Note 2) 207,119 (Note 2) 2,311,269 (Note 2) 174,680 (Note 3) 174,680 (Note 3) CIH and its subsidiaries 〃 BCI and its subsidiaries 〃 〃 Forever Webtek Etrade and its subsidiaries Arcadyan 〃 〃 THAC TTI CNC CBN Speedlink Note 1: Balance as of March 15, 2019. Note 2: Balance as of February 27, 2019. Note 3: Balance as of March 8, 2019. Note 4: Other receivables due to processing and sales of raw material. Note 5: Other receivables due to purchasing on behalf of THAC. - - - - - - - - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 118 (ix) Trading in derivative instruments: Please refer to notes (6)(b) and (6)(d) (x) Business relationships and significant intercompany transactions: No. (Note 1) 0 Company name Counter party The Company Bizcom Relationship (Note 2) 1 Accounts name Sales Revenue Amount Terms 121,850 There is no significant Percentage of the consolidated net revenue or total assets - Intercompany transactions (In Thousands of New Taiwan Dollars) 0 The Company CEP 0 The Company Auscom 0 The Company CBN 0 The Company UCGI 1 1 1 1 1 CIH and its The Company 2 subsidiaries Accounts Receivable Product warranty service expenses Technical service expense Accrued expenses payable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue 1 CIH and its subsidiaries Just and its subsidiaries Accounts Receivable Sales Revenue 3 difference of price to non-related parties. The credit period is net 45~180 days. 〃 99,370 230,911 There is no significant difference of price to non-related parties. The credit period is net 120 days. 154,412 The price is based on the operating cost of Auscom. The credit period is net 120 days. 〃 167,329 2,138,005 There is no significant difference of price to non-related parties. The credit period is net 90 days. 739,065 〃 238,388 There is no significant difference of price to non-related parties. The credit period is net 120 days. 〃 89,586 - - - - - - 0.2% 0.2% 113,457,780 There is no significant 11.7% difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 49,114,165 387,992 There is no significant - difference of price to non-related parties. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 12.3% 0.1% (Continued) Accounts Receivable 308,041 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 119 No. (Note 1) 1 CIH and its subsidiaries Company name Counter party Forever Relationship (Note 2) 3 Accounts name Sales Revenue Amount 29,538,636 The price is based on Terms Percentage of the consolidated net revenue or total assets 3.1% Intercompany transactions 2 Just and its subsidiaries Webtek 3 2 Just and its subsidiaries Forever 3 2 Just and its subsidiaries The Company 2 3 BCI and its The Company 2 subsidiaries 3 BCI and its subsidiaries CIH and its subsidiaries 3 BCI and its CEB subsidiaries 3 3 the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 8,931,246 68,265,549 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 20,177,943 30,470,633 There is no significant difference of price to non-related parties. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 6,472,633 132,833 There is no significant - difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 504,568 783,081 There is no significant difference of price to non-related parties. The credit period is net 120 day, and will be adjusted if necessary. 〃 758,108 30,045,061 There is no significant difference of price to non-related parties. The credit period is net 120 days, and will be adjusted if necessary. 〃 9,852,148 1,892,352 There is no significant Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue difference of price to non-related parties. The credit period is net 120 days. 〃 Accounts Receivable 562,737 2.2% 7.1% 5.0% 3.1% 1.6% 0.1% 0.1% 0.2% 3.1% 2.5% 0.2% 0.1% (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 120 No. (Note 1) 4 Webtek Company name Counter party The Company Relationship (Note 2) 2 Accounts name Sales Revenue Amount 108,584,993 The price is based on Terms Percentage of the consolidated net revenue or total assets 11.2% Intercompany transactions 5 Forever The Company 2 6 Etrade and its subsidiaries Webtek 7 Arcadyan Arcadyan Germany 7 Arcadyan TTI 3 3 3 Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Sales Revenue Accounts Receivable Other Receivable the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 7,073,274 66,812,621 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 20,843,862 40,334,951 The price is based on the operating cost. The credit period is net 60 days from delivery, and will be adjusted if necessary. 〃 4,489,304 2,457,020 There is no significant difference of price to non-related parties. The credit period is net 120 days from delivery. 〃 805,017 172,161 The price is based on - the operating cost. The credit period is net 90 days from the end of month of delivery. 1.8% 6.9% 5.2% 4.2% 1.1% 0.3% 0.2% 7 Arcadyan Arcadyan USA 3 Sales Revenue 496,199 There is no significant 0.1% 7 Arcadyan Arcadyan AU 3 8 CNC Arcadyan 3 Accounts Receivable Sales Revenue Accounts Receivable Processing Revenue difference of price to non-related parties. The credit period is net 60 days from the end of the month of delivery. 〃 104,031 - 1,329,743 There is no significant 0.1% difference of price to non-related parties. The credit period is net 45 days from delivery. 〃 727,600 11,249,751 The price is based on the operating cost. The credit period is net 45 days from the end of the month of delivery and depended on funding demand. 〃 0.2% 1.2% 0.9% (Continued) Accounts Receivable 3,404,030 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 121 No. (Note 1) 8 CNC Company name Counter party THAC Relationship (Note 2) 3 9 TTI THAC 10 THAC TTI 11 CBN Speedlink 12 CBN CBNB 3 3 3 3 Accounts name Processing Revenue Accounts Receivable Other Receivable Processing Revenue Accounts Receivable Other Receivable Sales Revenue Intercompany transactions Amount Terms 164,591 The price is based on the operating cost. The credit period is net 90 days from the end of the month of delivery. 〃 64,808 Percentage of the consolidated net revenue or total assets - - 207,119 There is no significant 0.1% difference of price between non-related parties. The credit period is net 90 days from delivery and depended on funding demand. 383,948 The price is based on - the operating cost. The credit period is net 60 days from invoice date. 〃 351,268 242,069 The credit period is net 60 days from the end of the month. 3,274 There is no significant difference of price to non-related parties. The credit period is net 60 days from the end of the month, and will be adjusted if necessary. 0.1% 0.1% - Note 1: The numbers filled in as follows: 1.0 represents the Company. 2. Subsidiaries are sorted in a numerical order starting from 1. Note 2: Transactions labeled as follows: 1. represents transactions between the parent company and its subsidiaries. 2. represents transactions between the subsidiaries and the parent company. 3. represents transactions between subsidiaries. (b) Information on investees: The following is the information on investees for the year ended December 31, 2018 (excluding information on investees in Mainland China): Investor Investee Company Company The Company Bizcom Location Milpitas, USA Just CIH Panpal Gempal British Virgin Islands British Virgin Islands Taipei City Main Original Investment Amount Businesses and Products December 31, 2018 December 31, 2017 Ending Balance Percentage of Ownership Carrying Value Shares (thousands) (In Thousands of New Taiwan Dollars/ USD/ shares) The highest holdings in the period Shares/ Units (thousands) Holding percentage (%) Net income Share of (losses) of investee profits/losses of investee Note Warranty services and marketing of LCD TV s and notebook PCs Manufacturing, sales and maintenance of monitors and LCD TVs, and investment Sales and manufacturing of notebook PCs and investments Investment 36,369 36,369 100 100% 440,755 100 100% 8,082 8,082 (Note 2) 1,480,509 1,480,509 48,010 100% 7,982,139 48,010 100% 85,523 85,523 〃 1,787,680 1,787,680 53,001 100% 34,939,825 53,001 100% 1,081,596 1,081,596 〃 5,171,837 5,171,837 500,000 100% 4,890,099 500,000 100% 135,442 97,464 〃 (Note 1) Taipei City Investment 900,036 900,036 90,000 100% 1,580,854 90,000 100% 88,488 66,445 〃 (Note 1) (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 122 Investor Investee Company Company Location Kinpo Group Taipei City management consultant company (“Kinpo Group management”) Ripal Tainan City Main Original Investment Amount Businesses and Products December 31, 2018 December 31, 2017 Ending Balance Percentage of Ownership Carrying Value Shares (thousands) The highest holdings in the period Shares/ Units (thousands) Holding percentage (%) Net income Share of (losses) of investee profits/losses of investee Note Consultation, training services, etc. Manufacturing of electric appliance and audiovisual electric products 3,000 3,000 300 38% 4,538 300 38% 371 139 60,000 60,000 6,000 100% 51,798 6,000 100% 20,946 20,942 (Note 2) Avalue Technology, New Taipei City Manufacturing, 559,189 559,189 15,240 22% 595,790 15,240 22% 244,100 53,166 processing, and import and export business of industrial motherboards Animal medication retail and wholesale Investment Production and sales of PCB boards Investment 200,000 200,000 20,000 100% 164,648 20,000 100% (21,756) (20,162) (Note 2) 34 34 1 100% 3,619,817 1 100% - - 〃 395,388 395,388 10,158 20% 331,092 10,158 20% 366,180 74,756 1,260 1,260 126 23% 3,174 126 23% (203) (9,552) Cayman Islands Investment 489,450 489,450 98 49% 652,532 98 49% 617,951 302,796 Netherlands Investment 197,463 197,463 6,427 100% Hsinchu City 202,908 202,908 899 28% 827,329 10,371 6,427 100% 899 28% 284,489 141 130,819 (Note 2) 39 〃 Inc. Unicore Taipei City British Virgin Islands Taoyuan City Taipei City CEH Allied Circuit Maxima Ventures I, Inc. (“Maxima”) Lipo Holding Co., Ltd. (“Lipo”) CPE ATK Crownpo Technology Inc. (“Crownpo”) Taipei City 149,547 149,547 3,739 33% 75,267 3,739 33% 71,765 23,849 Design, research & development, and selling of DVD, Combo, CD-RW Drives Manufacturing, processing, and selling resistor chips, networking chips, diodes, multilayer ceramic capacitors, semiconductor devices, and selling electronic products Investment Arcadyan Hsinchu City Hong Ji Hong Jin Auscom FGH HSI CEP Zhaopal Yongpal Kaipal Taipei City 1,000,000 1,000,000 100,000 100% 1,067,825 100,000 100% Taipei City Investment 295,000 295,000 29,500 100% Austin, TX USA R&D of notebook PC 101,747 101,747 3,000 100% 328,852 125,912 29,500 100% 3,000 100% 46,621 20,358 4,757 45,946 (Note 2) 20,358 〃 4,757 〃 related products and components R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products Investment 1,325,132 1,325,132 41,305 21% 2,055,316 41,305 21% 871,519 189,715 〃 2,754,741 2,754,741 89,755 100% 4,545,364 89,755 100% 275,557 275,557 〃 Investment 1,346,814 1,346,814 42,700 100% 734,227 42,700 100% (35,898) (35,898) 〃 90,156 90,156 136 100% 15,589 136 100% (16,749) (21,694) 〃 British Virgin Islands British Virgin Islands Poland Taipei City Maintenance and warranty services of notebook PCs Investment Taipei City Investment 1,188,500 1,188,500 118,850 100% Taipei City Investment 510,500 510,500 51,050 100% 1,358,000 1,358,000 135,800 100% 6,190 5,509 3,110 135,800 100% 118,850 100% 51,050 100% (183) (184) (185) (183) 〃 (184) 〃 (185) 〃 Manufacturing of electric appliance and audiovisual electric products 42,000 42,000 2,772 42% - 2,772 42% - - Hsinchu County Manufacturing of 109,837 109,837 5,650 27% 21,553 42 27% 12 3 Lead-Honor Taoyuan City Optronics. Co., Ltd. (“Lead-Honor”) Infinno Technology Corporation (“Infinno”) HengHao Taipei City Mactech Taichung City BCI CBN British Virgin Islands Hsinchu County Rayonnant Taipei City CRH British Virgin Islands electronic components, wholesale and retail sale of precision instruments and electronic materials Manufacturing of PCs, computer periphery devices, and electronic components Manufacturing of equipment and lighting, retailing of equipment and international trading Investment R&D and sales of cable modem, digital set-up box, and other communication products Manufacturing and sales of PCs, computer periphery devices, and electronic components Investment 5,329,757 5,329,757 63,815 100% (118,482) 131,498 100% (737,747) (736,708) (Note 2) 219,601 219,601 21,756 53% 246,787 21,756 53% 76,500 39,053 〃 2,636,051 2,636,051 90,820 100% 6,037,985 90,820 100% 261,806 261,806 〃 284,827 284,827 29,060 43% 782,491 29,060 43% 184,370 87,802 〃 295,000 295,000 29,500 100% 41,138 29,500 100% (51,684) (48,528) 〃 377,328 377,328 12,500 100% 107,301 12,500 100% (72,347) (72,347) 〃 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Investor Investee Company Company Ascendant Private Equity Investment Ltd. (“APE”) Location British Virgin Islands Main Original Investment Amount Businesses and Products December 31, 2018 December 31, 2017 Ending Balance Percentage of Ownership Carrying Value Shares (thousands) The highest holdings in the period Shares/ Units (thousands) Holding percentage (%) Investment 943,922 943,922 31,253 35% 935,555 31,253 35% 123 Net income Share of (losses) of investee profits/losses of investee 111,326 38,655 Note Investment 4,318,860 4,318,860 147,000 100% 7,625,407 147,000 100% 2,604,284 2,604,284 (Note 2) Investment 1,532,029 1,532,029 46,900 65% (298,023) 46,900 65% Selling of mobile phones 3,340 3,340 100 100% 583,463 100 100% Selling of mobile phones 1,575 1,575 50 100% 1,488,011 50 100% (225,609) (124,210) 〃 (101,398) (101,398) 〃 33 33 〃 100,000 100,000 10,000 100% (376,263) 10,000 100% (139,243) (144,069) 〃 New Taipei City Manufacturing and 246,860 246,860 15,000 50% 100,000 100,000 10,000 100% 109,663 260,934 10,000 100% 15,000 50% 1,465 46,429 1,465 〃 23,218 〃 14,598 - 2,500 100% 5,438 2,500 100% (24,820) (24,820) 〃 82,070,125 4,198,330 763,125 457,875 (US$15,000) (US$25,000) 25,000 35% (165,051) 25,000 35% (225,609) (US$(5,374)) (US$(7,482)) Selling of mobile phones - - - 100% - - -% - Investment gain(losses) recognized by Webtek Investment gain(losses) recognized by Forever (Note 2) 〃 〃 180,968 180,968 6,827 4% 387,911 6,827 4% 871,519 Investment gain(losses) recognized by Panpal 148,263 148,263 2,927 6% 95,407 2,927 6% 366,180 〃 203,500 203,500 7,846 4% 588,641 469,719 7,846 4% 871,519 Investment gain(losses) recognized by Gempal (Note 2) 53,645 53,645 3,220 6% 104,948 3,220 6% 366,180 〃 Just CDH (HK) Hong Kong Investment 1,913,468 1,913,468 (US$62,298) (US$62,298) 62,298 100% 3,604 5,615,616 (US$182,830) 62,298 100% Investment 283,960 283,960 9,245 100% 220,282 9,245 100% (22,263) (US$9,245) (US$9,245) 15,358 15,358 500 100% (US$500) (US$500) (US$7,172) 897,261 (US$29,212) (US$(738)) 500 100% - 〃 (US$-) 75,505 (US$2,504) Investment gain(losses) recognized by Just 〃 30,715 30,715 1,000 100% 49,452 1,000 100% (US$1,000) (US$1,000) 252,907 252,907 (US$8,234) (US$8,234) 31 (US$1) (US$1) 31 (US$1) (US$1) 31 31 - - 100% 100% 1 100% (US$1,610) 258,826 (US$8,427) 31 400 (US$1) (US$13) - - 100% 100% 1 100% 247,256 247,256 32,903 100% 258,826 32,903 100% Investment gain(losses) recognized by CII 〃 (577) (US$(19)) (16,489) (US$(547)) - 〃 (US$-) (US$-) (11) 〃 (16,489) (US$8,050) (US$8,050) (US$8,427) (US$(547)) CIH CIH (HK) Hong Kong Investment 2,297,559 (US$74,803) 2,297,559 (US$74,803) 74,803 100% Jenpal CCM PFG FWT British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Investment 225,755 225,755 7,350 100% (US$7,350) (US$7,350) Investment 156,647 156,647 5,100 51% (US$5,100) (US$5,100) 31 31 1 100% (US$1) (US$1) Sales of notebook PCs and related components Investment 457,654 457,654 (US$14,900) (US$14,900) 14,900 100% 457,964 14,900 100% (US$14,910) 1 100% - 〃 74,803 100% 7,350 100% 5,100 51% 32,986,019 (US$1,073,93 8) 105,048 (US$3,420) 56,804 (US$1,849) 421,800 (US$13,733) Investment gain(losses) recognized by MEL and MTL Investment gain(losses) recognized by CIH 〃 1,062,037 (US$35,223) 2,521 (US$84) (2,521) 〃 (US$(84)) (US$-) (US$3) 79 〃 (Note 2) 〃 〃 〃 〃 〃 〃 〃 〃 〃 (Note 2) 〃 CORE Etrade Webtek Forever UCGI Palcom GLB British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Taipei City Taipei City Manufacturing and retail sale of computers and electronic components Selling of mobile phones Shennona Delaware. USA wholesale of medical equipment Medical care IOT business Webtek Etrade British Virgin Islands Investment Forever GIA British Virgin Islands Panpal Arcadyan Hsinchu City Allied Circuit Taoyuan City Others Gempal Arcadyan Hsinchu City Allied Circuit Taoyuan City Others CII CPI CII AEI MEL MTL Smart CMX MEL and MTL British Virgin Islands British Virgin Islands U.S.A U.S.A U.S.A British Virgin Islands Mexico Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards Sales of monitors, LCD TVs and related components. Sales and maintenance of LCD TVs Investment Investment Sales of electronic products and related components Manufacturing, sales and maintenance of LCD TVs (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Main Original Investment Amount Businesses and Products December 31, 2018 December 31, 2017 Ending Balance Percentage of Ownership Carrying Value Shares (thousands) The highest holdings in the period Shares/ Units (thousands) Holding percentage (%) 203,500 203,500 7,846 4% 469,713 7,846 4% 124 Net income Share of (losses) of investee profits/losses of investee 871,519 Investment gain(losses) recognized by Hong Ji Note (Note 2) Investor Investee Company Company Hong Ji Arcadyan Location Hsinchu City Allied Circuit Taoyuan City Hong Jin Arcadyan Hsinchu City Arcadyan Arcadyan Holding British Virgin Islands Arcadyan USA U.S.A Arcadyan Germany Germany Arcadyan Korea Korea Zhi-Pal TTI Taipei City Taipei City AcBel Telecom Taipei City Arcadyan UK UK Arcadyan AU Australia CBN Hsinchu County Golden Smart Home Technology Corp. Taipei City Arcadyan Brasil Brazil Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Investment Sales of wireless network products Technology support and sales of wireless network products Sales of wireless network products Investment R&D and sales of household digital products Investment Technical support of wireless network products Sales of wireless network products Sales of communication and electronic components Selling of hardware and software integration of high-tech systems Sales of wireless network products 12,274 12,274 1,041 2% 27,977 1,041 2% 366,180 〃 112,569 112,569 4,340 2% 239,239 4,340 2% 871,519 Investment gain(losses) recognized by Hong Jin (Note 2) 1,240,526 962,291 32,780 100% 1,221,252 32,780 100% 23,055 23,055 1 100% 51,226 1 100% 1,125 1,125 0.5 100% 64,388 0.5 100% 2,879 2,879 20 100% 7,789 20 100% 48,000 48,000 34,980 100% 308,726 306,925 25,028 61% 450,366 583,890 34,980 100% 25,028 61% 23,000 23,000 4,494 51% 1,988 1,988 50 100% 33,952 2,683 4,494 51% 50 100% 1,161 1,161 50 100% 6,200 50 100% 11,925 11,925 533 1% 14,460 533 1% 15,692 15,692 1,229 16% - 1,229 16% 81,593 81,593 968 100% 14,381 968 100% 59,092 Investment gain(losses) recognized by Arcadyan 4,547 〃 11,439 〃 3,116 〃 40,042 〃 45,883 〃 (18,989) 〃 317 〃 5,296 〃 184,370 〃 (30,339) 〃 (25,526) 〃 Arcadyan and Zhi-pal Arcadyan Holding Sinoprime British Virgin Islands Investment 277,971 1,536 9,050 100% 278,800 9,050 100% (US$50) (US$50) (US$9,077) (US$29) 874 Arch Holding British Virgin Islands Investment 338,203 338,203 (US$11,011) (US$11,011) 35 100% 834,649 (US$27,174) 35 100% TTI Quest Samoa Investment 36,858 36,858 1,200 100% 65,774 1,200 100% (US$1,200) (US$1,200) TTJC Japan Sales of household digital electronic products 1,341 1,341 - 100% 765 - 100% Quest Exquisite Samoa Investment 35,937 35,937 1,170 100% 72,272 1,170 100% (US$1,170) (US$1,170) (US$2,353) (US$861) Investment gain(losses) recognized by Arcadyan Holding 〃 52,580 (US$1,744) 25,977 Investment gain(losses) recognized by TTI (610) 〃 25,958 Investment gain(losses) recognized by Quest AcBel Telecom Leading Images British Virgin Islands Investment 1,536 1,536 50 100% 9,931 50 100% (US$50) (US$50) Great Arch British Virgin Islands Sales of wireless network products - 1,536 - - - 50 100% (US$-) (US$50) (18,420) Investment gain(losses) recognized by AcBel Telecom 〃 (6) Leading Images Astoria GmbH Germany Sales of wireless network products 880 880 25 100% 9,522 25 100% (EUR25) (EUR25) (US$310) (US$(2)) (60) Investment gain(losses) recognized by Leading Images Zhi-pal CBN Hsinchu county Produces and sales of communication and electronic components 36,272 38,032 13,140 20% 356,317 13,640 23% 184,370 Investment gain(losses) recognized by Zhi-pal 〃 〃 〃 〃 〃 〃 〃 (Note 2) 〃 〃 〃 〃 〃 (Note 2) 〃 〃 〃 Note 2 (Note 2) 〃 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 125 Investor Investee Company Company HSI IUE Goal CVC IUE Location British Virgin Islands British Virgin Islands Vietnam Goal CDM Vietnam Rayonnant APH British Virgin Islands Forming Co., Ltd. Taoyuan City CRH APH HHT HHA British Virgin Islands British Virgin Islands Investment Investment R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam Investment R&D and manufacturing of electronic materials Investment Main Original Investment Amount Businesses and Products December 31, 2018 December 31, 2017 Ending Balance Percentage of Ownership Carrying Value Shares (thousands) The highest holdings in the period Shares/ Units (thousands) Holding percentage (%) Net income Share of (losses) of investee profits/losses of investee 30,000 100% 455,400 30,000 100% (38,498) (US$14,827) (US$(1,277)) 921,450 921,450 (US$30,000) (US$30,000) 390,081 (US$12,700) 921,450 (US$30,000) 390,081 (US$12,700) 921,450 (US$30,000) 12,700 100% 306,789 12,700 100% (US$9,988) (US$86) 2,600 30,000 100% 480,087 30,000 100% (38,498) (US$15,630) (US$(1,277)) Investment gain(losses) recognized by H SI 〃 Investment gain(losses) recognized by IUE 390,081 390,081 (US$12,700) (US$12,700) 12,700 100% 365,367 12,700 100% (US$11,895) 257,454 257,454 8,651 41% 68,240 8,651 41% 27,300 27,300 1,820 21% - 1,820 21% (US$86) 2,600 Investment gain(losses) recognized by Goal (132,974) Investment gain(losses) recognized by Rayonnant 〃 - 383,938 383,938 (US$12,500) (US$12,500) 12,500 59% 107,300 12,500 59% (132,974) (US$3,493) (US$(4,410)) Investment gain(losses) recognized by CRH Investment 1,429,235 1,429,235 46,882 100% 251,850 46,882 100% (229,806) Investment gain(losses) recognized by HHT HHA HHB British Virgin Islands Investment 1,439,982 (US$46,882) 1,439,982 (US$46,882) 46,882 100% 269,419 46,882 100% (229,820) (US$8,772) (US$(7,622)) Investment gain(losses) recognized by HHA HHB HengHao Trading Co., Ltd. British Virgin Islands Marketing and international trade 307 307 10 100% 401 10 100% (US$10) (US$10) (US$13) (US$2) CBN Speedlink British Virgin Islands Import and export business 1,514 1,514 50 100% 2,015 50 100% CBNB Belgium FGH Wah Yuen Technology Holding Ltd. and its subsidiaries Mauritius The import and export business of broad band network products and related components, as well as technical support and advisory services Investment CORE BSH British Virgin Islands Investment 6,842 6,842 20 100% 6,919 20 100% 2,756,840 (US$89,755) 2,756,840 (US$89,755) 4,515,105 (US$147,000) 4,515,105 (US$147,000 ) 95,862 37% 4,615,937 (US$150,283) 95,862 37% 147,000 100% 7,625,407 (US$248,263) 147,000 100% BSH LCFC (HK) Hong Kong Investment and trading - 4,515,105 (US$147,000 ) - - - - -% APH PEL British Virgin Islands Investment 96,783 96,783 3,151 100% 53,590 3,151 100% (11,161) (US$3,151) (US$3,151) (US$1,745) (US$(370)) Rayonnant (HK) Hong Kong Investment BCI CMI British Virgin Islands Investment PRI GLB Rapha British Virgin Islands New Taipei City Investment Detectors and test strip 552,870 (US$18,000) 2,482,386 (US$80,820) 552,870 (US$18,000) 2,482,386 (US$80,820) 307,150 (US$10,000) 307,150 (US$10,000) 6,500 6,500 18,000 100% 113,797 18,000 100% 80,820 100% (US$3,705) 3,787,256 (US$123,303) 80,820 100% 10,000 100% 2,250,729 (US$73,278) 10,000 100% 1,275 100% 460 1,275 100% Unicore Raycore Taipei Animal medication retail and wholesale 25,500 25,500 1,275 51% 22,307 1,275 51% Note 1: The carrying value had been deducted $559, 812 and $321, 435 of the Company’s stock held by Panpal and Gempal, respectively. Note 2: The transactions had been eliminated in the consolidated financial statements. Note 3: It was liquidated in April 2018. 49 Investment gain(losses) recognized by HHB 267 Investment gain(losses) recognized by CBN (95) 〃 275,379 (US$9,133) 2,604,284 (US$86,372) 201,793 (US$6,693) (121,813) (US$(4,040)) 112,153 (US3,720) Investment gain(losses) recognized by FGH Investment gain(losses) recognized by CORE Investment gain(losses) recognized by BSH Investment gain(losses) recognized by APH 〃 Investment gain(losses) recognized by BCI 〃 149,653 (US$4,963) (98) Investment gain(losses) recognized by GLB (6,024) Investment gain(losses) recognized by Unicore. Note (Note 2) 〃 〃 〃 〃 (Note 2) 〃 〃 〃 〃 〃 (Note 2) (Note 2) 〃 〃 〃 〃 〃 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 126 (c) Information on investment in Mainland China: (i) The names of investees in Mainland China, the main businesses and products, and other information: Name of investee Main businesses and products Total amount of paid-in capital Method of investment Accumulated outflow of investment from Taiwan as of January 1, 2018 Investment flows Outflow Inflow Accumulated outflow of investment from Taiwan as of December 31, 2018 Net income The highest holding in the period (losses) of the investee Percentage of ownership Shares/ Units (thousands) Holding percentage (%) Investment income (losses) Book value Accumu- lated remittance of earnings in current period (Unit: Thousands of CNY/thousands of US Dollars) 1,136,455 (US$37,000) 614,300 (US$20,000) (Note 1) (Note 2) 1,136,455 (US$37,000) 614,300 (US$20,000) 368,580 (US$12,000) 268,363 (RMB$60,000) 30,715 (US$1,000) 8,945 (RMB2,000) (Note 2) (Note 2) (Note 2) 368,580 (US$12,000) (Note 3) 30,715 (US$1,000) (Note 2) (Note 3) - - - - - - - - - - - - 1,136,455 (US$37,000) 614,300 (US$20,000) (272,595) (US$(9,041)) (69,038) (US$(2,290)) 368,580 (US$12,000) - 30,715 (US$1,000) 116,086 (US$3,850) (201,551) (RMB(44,210)) (105,760) (US$(3,508)) - (14,673) (RMB(3,218)) 100 % 100 % 100 % 100 % 100 % 100 % - - - - - - 100 % 100 % (272,595) (US$(9,041)) (69,038) (US$(2,290)) 2,048,874 (US$66,706) 196,193 (US$6,388) 100 % 100 % 100 % 116,086 (US$3,850) (201,551) (RMB(44,210)) (105,760) (US$(3,508)) 4,832,564 (US$157,336) (252,598) (RMB(56,475) (192,357) (US$(6,263)) 100 % (14,673) (RMB(3,218)) (37,432) (RMB(8,369)) 982,880 (US$32,000) (Note 1) 409,431 (US$13,330) - - 409,431 (US$13,330) 667,227 (US$22,129) 43 % - 43 % 288,109 (US$9,555) 597,867 (US$19,465) 614,300 (US$20,000) (Note 1) 45,151 (US$1,470) - - 45,151 (US$1,470) 225,064 (US$7,464) 48 % - 48 % 107,243 (US$3,557) 441,006 (US14,358) 70,562 (RMB15,776) (Note 2) (Note 3) - - - (27,269) (RMB(5,982)) 51 % - 51 % (13,907) (RMB(3,051)) (73,016) (RMB(16,325)) 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 8,139,475 (US$265,000) (Note 2) (Note 1) (Note 2) (Note 1) 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 3,988,343 (US$129,850) - - - - - - - - 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 3,988,343 (US$129,850) 268,390 (US$8,901) 94,641 (US$3,139) 769,672 (US$25,527) 201,793 (US$6,693) 100 % 100 % 100 % - - - - - 100 % 100 % 100 % 268,390 (US$8,901) 94,641 (US$3,139) 769,672 (US$25,527) 49 % - 7,471,213 (US$243,243) 2,796,954 (US$91,061) 20,445,466 (US$665,651) - - - - - - - - - - - - - - CPC CDT CET CSD BT CGS LIZ Electronics (Kunshan) Co., Ltd. LIZ Electronics (Nantong) Co., Ltd. Zheng Ying Electronics (Chongqing) Co., Ltd. CIC CPO CIT LCFC (Hefei) Electronics Technology Co., Ltd. Manufacturing and sales of monitors Manufacturing and sales of notebook PCs, mobile phones, and Digital products Manufacturing of notebook PCs Manufacturing of notebook PCs Maintenance and warranty service of notebook PCs Production and processing chip-resistors, ceramic capacitors, diodes, and other latest electronic components and related precision electronic equipment; selling self-produced products Research & development, and manufacturing chip components( chip resistors, ceramic chip diode； selling self-produced products and providing after-sales service. Performing wholesale and trading business of electronic components, semiconductors, special materials for electronic components, and spare parts Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technology service Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self -produced products Manufacturing of notebook PCs Manufacturing and sales of LCD TVs Manufacturing of notebook PCs Manufacturing and selling of personal computers and related components, and providing related maintenance and after-sales service (Continued) 127 Accumu- lated remittance of earnings in current period - Book value 49,419 (US$1,609) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Accumulated outflow of investment from Taiwan as of January 1, 2018 43,001 (US$1,400) Method of investment (Note 2) Investment flows Outflow - Inflow - Accumulated outflow of investment from Taiwan as of December 31, 2018 43,001 (US$1,400) Net income The highest holding in the period (losses) of the investee (3,174) (US$(105)) Percentage of ownership 100 % Shares/ Units (thousands) - Holding percentage (%) 100 % Investment income (losses) (3,174) (US$(105)) Total amount of paid-in capital 43,001 (US$1,400) 61,430 (US$2,000) (Note 2) 61,430 (US$2,000) 307,150 (US$10,000) (Note 2) 156,647 (US$5,100) 479,154 (US$15,600) 460,725 (US$15,000) 2,482,386 (US$80,820) 2,457,200 (US$80,000) (Note 2) (Note 2) (Note 1) 479,154 (US$15,600) (Note 3) 2,482,386 (US$80,820) (Note 2) (Note 3) - - - - - - - - - - - - 24,572 (US$800) (Note 2) (Note 3) - - 61,430 (US$2,000) (29) (US$(1)) 100 % - 100 % (29) (US$(1)) 755 (US$25) 156,647 (US$5,100) 1,440 (US$48) 51 % - 51 % 734 (US$24) 59,231 (US$1,928) 479,154 (US$15,600) - 2,482,386 (US$80,820) - - 339,351 (US$11,255) 335,680 (US$11,133) 112,153 (US$3,720) 112,135 (US$3,719) 100 % 100 % 100 % 100 % - - - - 100 % 100 % 100 % 339,351 (US$11,255) 335,680 (US$11,133) 112,153 (US$3,720) 952,554 (US$31,013) 923,056 (US$30,052) 3,787,256 (US$123,303) 100 % 112,135 (US$3,719) 3,756,356 (US$122,297) 99 (US$3) 100 % - 100 % 99 (US$3) 24,398 (US$794) 307,150 (US$10,000) (Note 1) 307,150 (US$10,000) - - 307,150 (US$10,000) 149,653 (US$4,963) 100 % - 100 % 149,653 (US$4,963) 2,250,729 (US$73,278) 12,593,150 (US$410,000) (Note 2) 2,537,888 (US$82,627) 1,842,900 (US$60,000) (Note 2) 351,871 (US$11,456) 552,870 (US$18,000) (Note 2) 383,938 (US$12,500) CCI Nanjing Manufacturing and CDCN CWCN Hanhelt processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs R&D and manufacturing of electronic communication equipment 675,730 (US$22,000) (Note 1) 675,730 (US$22,000) 178,147 (US$5,800) (Note 1) 178,147 (US$5,800) 1,197,885 (US$39,000) (Note 1) 583,585 (US$19,000) 61,430 (US$2,000) (Note 1) 61,430 (US$2,000) - - - - - - - - - - - - - - 2,537,888 (US$82,627) 791,080 (US$26,237) 37 % - 37 % 289,693 (US$9,608) 5,684,301 (US$185,066) 351,871 (US$11,456) 110,851 (US$3,676) 37 % - 37 % 40,594 (US$1,346) 1,019,634 (US$33,197) 383,938 (US$12,500) (121,811) (US$(4,040)) 100 % - 100 % (121,811) (US$(4,040)) 114,396 (US3,724) 675,730 (US$22,000) (102,215) (US$(3,390)) 100 % 178,147 (US$5,800) 754 (US$25) 100 % 583,585 (US$19,000) (210,490) (US$(6,981)) 100 % 61,430 (US$2,000) 30 (US$1) 100 % - - - - 100 % (102,215) (US$(3,390)) (1,026,526) (US$(33,421)) 100 % 754 (US$25) 85,388 (US$2,780) 100 % (210,490) (US$(6,981)) 434,617 (US$14,150) 100 % 30 (US$1) 3,133 (US$102) Name of investee CST CIN Sheng Bao Precision Electronics (Taicang) Co., Ltd. CIJ CDE CIS CEC CMC CEQ Compal Precision Module (Jiangsu) Co., Ltd. Changbao Electronic Technology (Chongqing) Co., Ltd. Rayonnant (Taicang) Main businesses and products International trade and distribution of computers and electronic components Software and hardware R&D of computers, mobile phones and electronic components Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self-produced products" Investment and consulting services Manufacturing and sales of LCD TVs Outward investment and consulting services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, financial and tax consulting, investment consulting, and investment management consulting services R&D, manufacturing and sales of notebook PCs and related components. Also provides related maintenance and warranty services Manufacturing and selling of magnesium alloy injection molding Production and marketing of magnesium alloy molding Manufacturing and sales of aluminum alloy and magnesium alloy products - - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 128 Main businesses and products Total amount of paid-in capital Method of investment Name of investee Arcadyan Accumulated outflow of investment from Taiwan as of January 1, 2018 Investment flows Outflow Inflow Accumulated outflow of investment from Taiwan as of December 31, 2018 Net income The highest holding in the period (losses) of the investee Percentage of ownership Shares/ Units (thousands) Holding percentage (%) Investment income (losses) Book value Accumu- lated remittance of earnings in current period CNC SVA Arcadyan R&D and sales of wireless network products Manufacturing and wireless network products Manufacturing of household electronics products THAC 402,367 (US$13,100) 382,402 (US$12,450) 102,895 (US$3,350) (Note 1) (Note 1) 565,770 (US$18,420) (Note 7) 338,203 (US$11,011) (Note 8) (Notes 1、10) 35,322 (US$1,150) Production of touch panels and related components 1,228,600 (US$40,000) (Note 1) 1,222,549 (US$39,803) - - - - Manufacturing of notebook PCs and related modules 460,725 (US$15,000) (Note 2) 199,617 - (US$6,499) (Note 12) HengHao HengHao Optoelectronic Technology (Kunshan) Co., Ltd. (“Heng Hao Kunshan”) Lucom Display Technology (Kunshan) Limited (“Lucom”) - - - - - 565,770 (US$18,420) 7,175 (US$238) 338,203 (US$11,011) 52,580 (US$1,744) 35,322 (US$1,150) 25,958 (US$861) 100 % 100 % 100 % - - - 100 % 7,175 (US$238) 126,607 (US$4,122) 100 % 52,580 (US$1,744) 834,649 (US$27,174) 100 % 23,958 (US$861) 71,750 (US$2,336) 1,222,549 (US$39,803) (230,717) (US$(7,652)) 100 % - 100 % (230,717) (US$(7,652)) 116,874 (US$3,805) 199,617 (US$6,499) 849 (US$28) 100 % - 100 % 849 (US$28) 134,882 (US$4,391) - - - - - (ii) Limitation on investment in Mainland China: Accumulated Investment in Mainland China as of December 31, 2018 16,725,454 (USD544,537) (Note 5) Investment Amounts Authorized by Investment Commission of Ministry of Economic Affairs 23,069,606 (USD 751,086) Limitation on investment in Mainland China by Investment Commission of Ministry of Economic Affairs (Note 6) 939,303 (USD 30,581) 939,303 (USD 30,581) 1,439,674 (USD 46,872) 1,439,674 (USD 46,872) 5,439,686 365,077 Names of Company The Company Arcadyan HengHao Note 1: Indirectly investment in Mainland China through companies registered in the third region. Note 2: Indirectly investment in Mainland China through an existing company registered in the third region. Note 3: Investees held by Kunshan Botai Electronics Co., Ltd. (“BT”), Compal Investment (Jiansu) Co., Ltd. (“CIJ”), Compal Electronic (Sichuan) Co., Ltd. (“CIS”), and Compal Electronics (China) Co., Ltd. (“CPC”) through their own funds. Note 4: The investment income (loss) was determined based on the financial report audited by CPA. Note 5: Including the investment amount of sold or dissolved companies, including Beijing Compower Xuntong Electronic Technology Co., Ltd, VAP Optoelectronics (NanJing) Corp., Flextronics Technology (Shanghai) Ltd. Lucom and the increased investment amount form merging with Compal Communication Co., Ltd. Note 6: As the Company has obtained the certificate of being qualified for operating headquarters, issued by Industrial Development Bureau, MOEA, the upper limit on investment in mainland China is not applicable. Note 7: Arcadyan paid US$18,420 thousands and acquired 100% shares of SVA Arcadyan from Accton Asia through Arcadyan Holding in 2010. Note 8: Arcadyan paid US$8,561 thousands and acquired 100% shares of CNC from Just through Arcadyan Holding in 2007. Note 9: SVA Arcadyan decreased its capital amounting to US$15,000 thousands to offset accumulated losses in March 2009. Note 10: Arcadyan’s subsidiary, TTI, obtained the control over THAC with US$1,150 thousands on February 28, 2013 (the date of stock transferring). Note 11: The amounts in New Taiwan Dollars were translated at the exchange rates at the balance sheet date or the average exchange rate. Note 12: The Company had an accumulated investment amounting to US$7,350 thousands in the previous years. In the first half of 2014, HengHao paid the Company and LG US$3,184 thousands and US$3,315 thousands, respectively, for organization restructure, to obtain 100% ownership of Lucom. (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 129 (iii) Significant transactions: For the years ended December 31, 2018, the significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions”. (14) Segment information: (a) General information The Group’s information technology product segment is primarily engaged in the development, manufacture and sale of information technology products and mobile communication products. The strategy integrate product segment is primarily engaged in the research, development, manufacture and sale of networking products. (b) Reportable segments and operating segment information Accounting policies for the operating segments correspond to those stated in note 4. The profit and loss of the operating segment of the Group is measured by earnings before taxes and as the basis for performance measurement. The amount of the Group's reportable segments is consistent with the report that the operating decision maker would use, and the Group does not allocate assets and liabilities to the reportable segments for the purpose of operating decisions to measure assets and liabilities of segments. The operating segment information was as follows: For the year ended December 31, 2018 Information technology product segment Strategy integrated product segment Adjustment and elimination Total $ 941,106,606 26,599,805 - 967,706,411 Revenue Revenue from external customers Interest revenue Total revenue Interest expense $ $ Depreciation and amortization Investment gain (loss) Other significant non-cash items: 1,420,529 43,129 942,527,135 26,642,934 2,599,996 4,692,636 797,368 36,447 248,036 - - Impairment of assets - Reportable segment profit $ 10,714,350 1,075,235 Reportable segment assets Reportable segment liabilities - - - - - - - 1,463,658 969,170,069 2,636,443 4,940,672 797,368 - 11,789,585 $ 399,794,823 $ 286,632,975 (Continued) COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 130 For the year ended December 31, 2017 Information technology product segment Strategy integrated product segment Adjustment and elimination Total Revenue Revenue from external $ 867,546,750 20,110,209 customers Interest revenue Total revenue Interest expense Depreciation and amortization Investment gain (loss) Other significant non-cash $ $ 857,450 19,920 868,404,200 1,284,833 4,932,969 610,738 20,130,129 13,132 251,703 (4,171) items: Impairment of assets Reportable segment profit Reportable segment assets Reportable segment liabilities (c) Products information - 7,496,635 $ (19,405) 617,642 - - - - - - - - 887,656,959 877,370 888,534,329 1,297,965 5,184,672 606,567 (19,405) 8,114,277 363,356,421 254,708,449 $ $ The information of revenue from external customers: Products and services 5C related electronic products Others 2018 965,217,737 2017 885,276,070 2,488,674 2,380,889 967,706,411 887,656,959 $ $ (Continued) (d) Geographic information Stated below are the geographic information on the Group’s sales presented by destination of sales and non-current assets presented by location. (i) Revenue from external customers: Country United States China Netherlands United Kingdom Germany Japan Others (ii) Non-current assets: Country China Taiwan Others 2018 363,952,505 $ 2017 334,716,487 121,029,441 112,830,897 110,870,861 100,397,742 45,776,419 39,644,227 38,269,433 37,059,476 31,508,907 30,217,778 256,298,845 263,008,130 $ 967,706,411 887,656,959 2018 15,023,523 $ 7,345,390 1,050,542 2017 11,621,004 7,603,298 1,139,823 $ 23,419,455 20,364,125 Non-current assets include plant, property, and equipment, intangible assets, and other assets, excluding deferred tax assets. (e) The details of sales revenue from external customers more than 10% of the amount in the consolidated statements of comprehensive income are as follows: D Company F Company A Company E Company 2018 414,474,616 $ 2017 353,750,583 187,925,666 154,122,521 128,790,649 126,400,242 66,783,151 97,284,723 $ 797,974,082 731,558,069 Attachment II Stock Code:2324 COMPAL ELECTRONICS, INC. Parent Company Only Financial Statements With Independent Auditors’’’’ Report For the Years Ended December 31, 2018 and 2017 Address: Telephone: (02)8797-8588 No.581 & 581-1, Ruiguang Rd., Neihu District, Taipei, Taiwan Table of contents Contents 1. Cover Page 2. Table of Contents 3. Independent Auditors’ Report 4. Balance Sheets 5. Statements of Comprehensive Income 6. Statements of Changes in Equity 7. Statements of Cash Flows 8. Notes to the Parent Company Only-Financial Statements (1) Company history (2) Approval date and procedures of the financial statements (3) New standards, amendments and interpretations adopted (4) Summary of significant accounting policies (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty (6) Explanation of significant accounts (7) Related-party transactions (8) Pledged assets (9) Commitments and contingencies (10) Losses due to major disasters (11) Subsequent events (12) Other (13) Other disclosures (a) Information on significant transactions (b) Information on investees (c) Information on investment in Mainland China (14) Segment information 9. List of major accounting items 2 Page 1 2 3 4 5 6 7 8 8 8～17 17～39 39～40 40～79 79～85 85 86 86 86 86 87～96 96～99 100～102 102 103～112 3 Independent Auditor’’’’s Report To COMPAL ELECTRONICS, INC.: Opinion We have audited the financial statements of COMPAL ELECTRONICS, INC. (the “Company”), which comprise the balance sheets as of December 31, 2018 and 2017, the statement of comprehensive income, changes in equity and cash flows for the years ended December 31, 2018 and 2017, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended December 31, 2018 and 2017, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Basis for Opinion We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 1. Account receivable valuation Please refer to Note (4)(f) for the accounting policy of accounts receivable. Information of account receivable valuation are shown in Note (6)(h) of the financial statements. 3-1 Description of key audit matters: The Company devotes to develop new product lines and customers in emerging countries, and the credit risks of these customers are higher than other world leading enterprises. Therefore, valuation of accounts receivable has been identified as a key audit matter. Our key audit procedures performed in respect of the above area included the following: In order to evaluate the reasonableness of the Company's estimations for bad debts, our key audit procedures included reviewing if the measurement of impairment loss of accounts receivable is accordance with accounting policy, examining the historical recovery records, analyzing the aging of accounts receivable, and the current credit status of customers, as well as inspecting the amount collected in the subsequent period. 2. Inventory valuation Please refer to Note (4)(g) and Note (5) for the accounting policy of inventory valuation, as well as the estimation and assumption uncertainty of the valuation of inventory, respectively. Information of estimation of the valuation of inventory are disclosed in Note (6)(j) of the financial statements. Description of key audit matters: The inventory is measured at the lower of cost or net realizable value. The short life cycle of electronic products may cause significant changes in customers ’ demand and sales of related products. Consequently, the book value of inventory may be lower than the net realizable value of inventory. Therefore, the valuation of inventory is one of the key audit matters. Our key audit procedures performed in respect of the above area included the following: In order to verify the rationality of assessment of inventory valuation estimated by the Company, our key audit procedures included reviewing the consistency of prior year and accounting policy, inspecting the Company's inventory aging reports, analyzing the change of inventory aging, as well as verifying the inventory aging reports and the calculation of lower of cost or net realizable value. 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 members of the Audit Committee) are responsible for overseeing the Company’s financial reporting process. 3-2 Auditor’’’’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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. As part of an audit in accordance with 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 auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the investment in other entities accounted for using the equity method 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. 3-3 From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Szu-Chuan Chien and Yiu-Kwan Au. KPMG Taipei, Taiwan (Republic of China) March 22, 2019 The accompanying parent company only financial statements are intended only to present the parent company only financial statements of financial position, financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such parent company only financial statements are those generally accepted and applied in the Republic of China. Notes to Readers COMPAL ELECTRONICS, INC. Balance Sheets December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Assets Current assets: Cash and cash equivalents (note (6)(a)) Current financial assets at fair value through profit or loss (note (6)(b)) Current available-for-sale financial assets (note (6)(d)) Current financial assets at amortized cost (note (6)(f)) Current bond investments without active market (note (6)(g)) Notes and accounts receivable, net (note (6)(h)) Notes and accounts receivable due from related parties, net (notes (6)(h) and 7) Other receivables, net (notes (6)(h), (6)(i) and 7) Inventories (note (6)(j)) Other current assets Non-current assets: Investments accounted for using equity method (note (6)(k)) Non-current financial assets at fair value through profit or loss (note (6)(b)) Non-current financial assets at fair value through other comprehensive income (note (6)(c)) Non-current available-for-sale financial assets (note (6)(d)) Non-current financial assets at cost (note (6)(e)) Non-current bond investments without active market (note (6)(g)) Property, plant and equipment (note (6)(m)) Intangible assets Deferred tax assets (note 6(t)) Other non-current assets 1100 1110 1125 1136 1147 1170 1180 1200 1310 1470 1550 1510 1517 1523 1543 1546 1600 1780 1840 1990 December 31, 2018 December 31, 2017 Amount % Amount % $ 20,446,378 284,768 5.7 0.1 - 350,000 0.1 - - 28,343,534 8.6 - - 46,479 - - - - 350,000 0.1 189,496,594 53.3 165,540,785 50.5 1,318,230 1,418,750 0.4 0.4 2,095,570 711,293 0.7 0.2 51,517,159 14.5 42,985,363 13.1 541,027 0.1 604,564 0.2 265,372,906 74.6 240,677,588 73.4 83,299,238 23.5 77,919,870 23.7 23,745 - 3,731,918 1.0 - - - - - - - - - - 2,128,181 378,745 760,580 0.6 0.1 0.2 5,735,334 1.8 2,333 - 350,000 2,092,272 0.1 0.7 146,813 - 1,065,112 0.3 117,500 - 106,744 - 90,439,907 25.4 87,418,478 26.6 2100 2130 2170 2180 2200 2230 2250 2300 2313 2365 2322 2540 2570 2640 2670 3110 3200 3300 3400 3500 Liabilities and Equity Current liabilities: Short-term borrowings (note (6)(n)) Current contract liabilities (note (6)(x)) Notes and accounts payable Notes and accounts payable to related parties (note 7) Other payables (note 7) Current tax liabilities Current provisions (note (6)(p)) Other current liabilities Unearned revenue Current refund liabilities (note (6)(q)) Long-term borrowings, current portion (note (6)(o)) Non-Current liabilities: Long-term borrowings (note (6)(o)) Deferred tax liabilities (note (6)(t)) Non-current net defined benefit liability (note (6)(s)) Non-current liabilities, others (note (6)(k)) Total liabilities Equity: Ordinary share (note (6)(u)) Capital surplus (note (6)(u)) Retained earnings (note (6)(u)) Other equity interest (notes (6)(u) and (6)(v)) Treasury shares (note (6)(u)) Total equity 4 December 31, 2018 December 31, 2017 Amount % Amount % $ 51,305,682 14.4 41,386,000 12.6 1,405,452 0.4 - - 77,050,816 21.7 72,212,035 22.0 78,376,843 22.0 71,456,277 21.9 8,392,511 1,787,434 - - 1,480,446 17,496,250 2.4 0.5 - - 0.4 4.9 587,308 0.2 7,052,029 1,644,175 1,440,292 664,918 1,617,626 - 2.1 0.5 0.5 0.2 0.5 - 6,018,750 1.8 237,882,742 66.9 203,492,102 62.1 10,900,000 386,555 621,581 298,289 12,206,425 3.0 0.1 0.2 0.1 3.4 21,114,450 543,621 612,131 438,178 22,708,380 6.4 0.2 0.2 0.1 6.9 250,089,167 70.3 226,200,482 69.0 44,071,466 12.4 44,191,916 13.5 9,932,434 2.8 10,938,773 3.3 60,060,381 16.9 56,557,146 17.2 (7,459,388) (2.1) (8,911,004) (2.7) (881,247) (0.3) (881,247) (0.3) 105,723,646 29.7 101,895,584 31.0 Total assets $ 355,812,813 100.0 328,096,066 100.0 Total liabilities and equity $ 355,812,813 100.0 328,096,066 100.0 See accompanying notes to financial statements. COMPAL ELECTRONICS, INC. Statements of Comprehensive Income For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars , Except for Earnings Per Share) 5 % 2017 Amount % 2018 Amount $ 911,050,122 100.0 841,309,602 100.0 889,171,625 97.6 819,765,642 97.4 2.6 - 2.6 21,543,960 (480) 21,544,440 21,878,497 (2,344) 21,880,841 2.4 - 2.4 3,157,897 2,389,356 9,396,882 14,944,135 6,936,706 0.3 0.3 1.0 1.6 0.8 5,979,101 2,100,602 8,294,188 16,373,891 5,170,549 0.7 0.2 1.0 1.9 0.7 (126,030) (1,938,044) 887,354 4,198,330 3,021,610 9,958,316 1,044,951 8,913,365 - (0.2) 0.1 0.4 0.3 1.1 0.1 1.0 (1,615,111) (975,175) 937,671 3,160,786 1,508,171 6,678,720 929,195 5,749,525 (0.1) (0.1) 0.1 0.4 0.3 1.0 0.1 0.9 Net sales revenue (notes (6)(x), (6)(y) and 7) Cost of sales (notes (6)(j), (6)(s), 7 and 12) Gross profit Less: Unrealized profit (loss) from sales Gross profit Operating expenses: (notes (6)(r), (6)(s) and 12) Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: 4000 5000 5910 6100 6200 6300 7020 7050 7190 7370 7900 7950 8300 8310 8311 8316 Other gains and losses, net (notes (6)(d), (6)(k) and (6)(aa)) Finance costs Other income (notes (6)(r) and (6)(aa)) Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Total non-operating income and expenses Profit before tax Less: Tax expense (note (6)(t)) Profit Other comprehensive income: Items that will not be reclassified subsequently to profit or loss: Other comprehensive income, before tax, remeasurement of defined benefit obligation Other comprehensive income, before tax, equity instruments at fair value through other comprehensive income (20,189) - (79,683) (1,096,846) (0.1) - 8330 Share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss (212,493) - (1,970) 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8360 8361 8362 8380 Components of other comprehensive income that will not be reclassified to profit or loss Items that will be reclassified subsequently to profit or loss Other comprehensive income, before tax, exchange differences on translation of foreign financial statement Other comprehensive income, before tax, available-for-sale financial assets Share of other comprehensive income (loss) of subsidiaries, associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss 8399 Income tax relating to components of other comprehensive income that will be reclassified to 69,926 (1,259,602) (0.1) - 13,546 (68,107) 1,853,763 - 0.1 - (4,606,117) (0.5) 147,849 - (229,339) - (21,111) - - - - - - - profit or loss Components of other comprehensive income (loss) that will be reclassified to profit or loss 8300 8500 9750 9850 Other comprehensive income (loss), net Total comprehensive income Earnings per share (note 6(w)) Basic earnings per share Diluted earnings per share - 1,624,424 364,822 9,278,187 - 0.1 - 1.0 2.05 2.02 $ $ $ See accompanying notes to financial statements. (12,221) (4,491,600) (0.5) (4,559,707) (0.5) 0.4 1,189,818 1.32 1.31 COMPAL ELECTRONICS, INC. Statements of Changes in Equity For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Retained earnings Total other equity interest 6 Capital surplus 11,779,274 Legal reserve 17,439,772 Special reserve Unappropriated retained earnings Ordinary shares $ 44,241,606 - - - Balance at January 1, 2017 Profit for the year ended December 31, 2017 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Difference between consideration and carrying amount arising from acquisition or disposal subsidiaries Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by subsidiaries Balance at December 31, 2017 Effects of retrospective application Adjusted balance at January 1, 2018 Profit for the year ended December 31, 2018 Other comprehensive income Total comprehensive income Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Cash dividends from capital surplus Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method - - - - - - - - - - - - - - - - (49,690) 14,217 (63,472) - 44,191,916 60,027 10,938,773 - - - - 44,191,916 10,938,773 18,252,861 4,339,549 18,252,861 4,339,549 - - - - - - (884,431) 33,016 142 - - - - - - (881,429) (32,706) (459) (151,766) - - - 813,089 - - - - - - - - 3,199,674 - - - - 1,139,875 - - - - - - - - - - 574,953 - - - - - - - - - - - - 4,491,599 - - - - - - - - 9,932,434 18,827,814 8,831,148 Share-based payments transaction Adjustments of capital surplus for company's cash dividends received by (120,450) subsidiaries - 60,021 Disposal of investments in equity instruments measured at fair value through other comprehensive income Balance at December 31, 2018 - $ 44,071,466 See accompanying notes to financial statements. Unrealized gains (losses) on financial assets measured at fair value through other comprehensiv e income - - - - Exchange differences on translation of foreign financial statements 1,324,282 - (4,801,658) (4,801,658) Unrealized gains (losses) on available-for- sale financial assets (5,663,830) - 310,058 310,058 Unearned employee benefit and others Total other equity interest (285,105) - - - (4,624,653) - (4,491,600) (4,491,600) Treasury shares Total equity (881,247) 105,804,389 5,749,525 (4,559,707) 1,189,818 - - - - - - - - - - - - (3,477,376) - (3,477,376) - 1,624,424 1,624,424 - - - - - - - - - (1,852,952) - - - - - - - - - - (5,847,823) (5,847,823) - (1,273,696) (1,273,696) - - - - 489,483 1,130 - - 1,024,470 (5,606,436) - - - - - - - - - (5,353,772) 5,353,772 - - - - - - - - - - - - - - - - - - - - - 205,249 - (79,856) - (79,856) - - - - - - - - - - - - 79,856 - - - - - - - 205,249 - (8,911,004) (494,051) (9,405,055) - 350,728 350,728 - - - - 489,483 1,130 79,856 - 1,024,470 (7,459,388) - - - - - - - - - - (4,422,153) (884,431) 30,837 (282) 14,023 103,356 - 60,027 (881,247) 101,895,584 - - (881,247) 101,895,584 8,913,365 364,822 9,278,187 - - - - - - - - - - - - - - (4,407,147) (881,429) (64,866) (485) (156,219) 60,021 - (881,247) 105,723,646 Total retained earnings 55,289,409 5,749,525 (68,107) 5,681,418 - - (4,422,153) - 34,649,963 5,749,525 (68,107) 5,681,418 (813,089) (1,139,875) (4,422,153) - - (2,179) (424) (194) 11,269 (2,179) (424) (194) 11,269 33,964,736 494,051 34,458,787 8,913,365 14,094 8,927,459 (574,953) (4,491,599) (4,407,147) - (521,643) - 56,557,146 494,051 57,051,197 8,913,365 14,094 8,927,459 - - (4,407,147) - (521,643) (1,156) 36,141 (1,156) 36,141 - - (1,024,470) 32,401,419 (1,024,470) 60,060,381 COMPAL ELECTRONICS, INC. Statements of Cash Flows For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Adjustments to reconcile profit (loss): Depreciation and amortization Increase in expected credit loss /allowance for uncollectible accounts Net gain on financial assets or liabilities at fair value through profit or loss Finance cost Interest income Dividend income Compensation cost of share-based payments Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Loss on disposal of investments Total adjustments to reconcile profit (loss) Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets Total changes in operating assets Changes in operating liabilities: Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in refund liabilities Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in contract liabilities Increase (decrease) in other current liabilities Others Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash inflow (outflow) generated from operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Redemption from financial assets at amortized cost Acquisition of investments accounted for using equity method and financial assets at fair value through other comprehensive income Proceeds from disposal of investments accounted for using equity method and financial assets at fair value through other comprehensive income Acquisition of financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through profit or loss Proceeds from capital reduction of investments Acquisition of property, plant and equipment Increase in other receivables due from related parties Acquisition of intangible assets Others Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Cash dividends paid Others Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period See accompanying notes to financial statements. 7 2018 2017 $ 9,958,316 6,678,720 456,117 1,065 (95,526) 1,938,044 (332,905) (212,129) (156,219) (4,198,330) - (2,599,883) (23,179,534) (629,912) (8,531,796) 63,537 (32,277,705) 11,759,347 1,172,349 40,154 - - (212,174) (77,610) (12,315) 12,669,751 (19,607,954) (22,207,837) (12,249,521) 314,650 592,252 (1,769,911) (684,300) (13,796,830) 350,000 (137,435) 291,435 (23,745) 574,529 8,054 (203,186) (321,840) (521,722) (10,572) 5,518 9,919,682 34,258,000 (32,994,950) (5,288,576) - 5,894,156 (7,897,156) 28,343,534 20,446,378 480,523 2,928,547 - 975,175 (239,394) (117,742) 103,356 (3,160,786) 1,804 971,483 (5,685,417) (223,698) (15,016,352) (145,850) (21,071,317) (2,770,322) (686,997) - (91,958) (156,532) - (261,816) (9,639) (3,977,264) (25,048,581) (24,077,098) (17,398,378) 221,027 660,913 (962,095) (517,161) (17,995,694) 350,000 (503,112) 809,196 - - 1,459,043 (126,108) (293,029) (193,154) 10,495 1,513,331 10,942,250 12,691,630 (16,893,430) (5,306,584) (104) 1,433,762 (15,048,601) 43,392,135 28,343,534 $ COMPAL ELECTRONICS, INC. Notes to the Parent Company Only-Financial Statements For the years ended December 31, 2018 and 2017 (Expressed in Thousands of New Taiwan Dollars, Unless Otherwise Specified) 8 (1) Company history Compal Electronics, Inc. (the "Company") was incorporated in June 1984 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The address of the Company's registered office is No.581 and No.581-1 Ruiguang Rd., Neihu Dist., Taipei City, Taiwan. In accordance with Article 19 of the Business Mergers and Acquisitions Act, the Company merged its subsidiary, Compal Communications, Inc. ("CCI") (the "Merger"), pursuant to the resolutions of the Board of Directors in November, 2013. The Company was the surviving company and CCI was the dissolved company. The effective date of the Merger was February 27, 2014. The Company is primarily involved in the manufacture and sale of notebook personal computers ("notebook PCs"), monitors, LCD TVs, mobile phones and various components and peripherals. (2) Approval date and procedures of the financial statements: The accompanying parent-company-only financial statements were authorized for issuance by the Board of Directors and issued on March 22, 2019. (3) New standards, amendments and interpretations adopted: (a) The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by the Financial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018. New, Revised or Amended Standards and Interpretations Amendment to IFRS 2 “Classification and Measurement of Share-based Payment Transactions” Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” IFRS 9 “Financial Instruments” IFRS 15 “Revenue from Contracts with Customers” Amendment to IAS 7 “Statement of Cash Flows–Disclosure Initiative” Amendment to IAS 12 “Income Taxes–Recognition of Deferred Tax Assets for Unrealized Losses” Amendments to IAS 40 “Transfers of Investment Property” Effective date per IASB January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2017 January 1, 2017 January 1, 2018 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 9 New, Revised or Amended Standards and Interpretations Annual Improvements to IFRS Standards 2014–2016 Cycle: Amendments to IFRS 12 Amendments to IFRS 1 and Amendments to IAS 28 IFRIC 22 “Foreign Currency Transactions and Advance Consideration” Effective date per IASB January 1, 2017 January 1, 2018 January 1, 2018 Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of significant changes are as follows: (i) IFRS 15 “Revenue from Contracts with Customers” IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, using a five-step model framework to determine the method, timing and amount of revenue recognized. This standard replaces existing revenue recognition guidance, including IAS 18, Revenue, IAS 11, Construction Contracts, and the related interpretations. The Company applies this standard retrospectively with the cumulative effect, it needs not restate those contracts, but instead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparative reporting period. Upon the initial application of this standard, there was no cumulative effect and no adjustment was made to retained earnings on January 1, 2018. The following are the nature and impacts on changing of accounting policies: 1) Sales of goods For the sale of the Company's products, revenue was used to be recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer, the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. The Company believes that the point at which the related risks and rewards of ownership transfer to the customers is similar to the point of control transfer. Therefore, the changes in accounting policy of the above-mentioned sales of goods do not result in a material adjustment of the financial statements. 2) Impacts on financial statements The following tables summarize the impacts of adopting IFRS 15 on the Company’s financial statements for the year ended December 31, 2018: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 10 December 31, 2018 January 1, 2018 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 Impacted line items on the balance sheet Current contract liabilities (note 2) $ Current provisions (note 1) - 1,480,446 1,405,452 (1,480,446) Unearned revenue (note 2) 1,405,452 (1,405,452) 1,405,452 - - - 1,440,292 1,617,626 (1,440,292) 1,617,626 (1,617,626) 1,617,626 - - Current refund liabilities (note 1) Impact on liabilities - 1,480,446 1,480,446 - 1,440,292 1,440,292 $ - - For the year ended December 31, 2018 Carrying amount under IAS 18 and related standards and interpretations Adjustments from changes in accounting policies Carrying amount under IFRS 15 Impacted line items on the statement of cash flows Cash flows from (used in) operating activities: Adjustments: Increase (decrease) in contract liabilities $ - (212,174) (212,174) Increase (decrease) in provisions 40,154 (40,154) Increase (decrease) in unearned revenue (212,174) 212,174 - - Increase (decrease) in refund liabilities - 40,154 40,154 Cash inflow (outflow) generated from $ - operations Note 1: Prior to the adoption of IFRS 15, the sales returns and discounts were recognized as sales returns and allowances provisions. Under IFRS 15, it was recognized as refund liabilities. Note 2: Prior to the adoption of IFRS 15, unearned revenue were recognized as other current liabilities or expressed it alone. Under IFRS 15, it was recognized as contract liabilities. (ii) IFRS 9 “Financial Instruments” IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” which contains classification and measurement of financial instruments, impairment and hedge accounting. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 11 As a result of the adoption of IFRS 9, the Company adopted the consequential amendments to IAS 1 “Presentation of Financial Statements” which requires impairment of financial assets to be presented in a separate line item in the statement of profit or loss and OCI. Previously, the Company’s approach was to include the impairment of trade receivables in selling expenses. Additionally, the Company adopted the consequential amendments to IFRS 7 “Financial Instruments: Disclosures” that are applied to disclosures about 2018 but generally have not been applied to comparative information. The detail of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below: 1) Classification of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Company classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note (4)(f). The adoption of IFRS 9 did not have any significant impact on its accounting policies on financial liabilities. 2) Impairment of financial assets IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with the ‘expected credit loss’ (“ECL”) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than those under IAS 39. Please see note (4)(f). 3) Transition The adoption of IFRS 9 have been applied retrospectively, except as described below, ‧Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 12 ‧The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. －The determination of the business model within which a financial asset is held. －The designation of certain investments in equity instruments not held for trading as at FVOCI. ‧If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Company assumed that the credit risk on its asset will not increase significantly since its initial recognition. 4) Classification of financial assets on the date of initial application of IFRS 9 The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets as of January 1, 2018 (no change in measurement categories and carrying amounts for financial liabilities). IAS 39 IFRS 9 Measurement categories Carrying Amount Measurement categories Carrying Amount Financial Assets Cash and cash equivalents Loans and receivables (note 3) $ 28,343,534 Amortized cost Debt securities Loans and receivables (Bond 700,000 Amortized cost investment without active market-current and non-current) (note 1) Investment in equity At cost (note 2) 2,333 FVOCI instruments Available for sale–current and 763,771 FVTPL non-current (note 2) Available for sale–current and 5,018,042 FVOCI non-current (note 2) 28,343,534 700,000 2,333 763,771 5,018,042 Notes and accounts Loans and receivables (note 3) 128,447,972 Amortized cost 128,447,972 receivable net (including related parties) Notes and accounts Loans and receivables (note 4) 39,188,383 FVOCI 39,188,383 receivable, net (including related parties) Other receivables and Loans and receivables (note 3) 818,037 Amortized cost 818,037 guarantee deposits (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 13 Note1: The corporate debt securities that were previously classified as bond investment without an active market are now classified at amortized cost. The Company intends to hold the assets to maturity to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding. Note2: These equity securities (including financial assets measured at cost) represent investments that the Company intends to hold for the long term for strategic purposes. As permitted by IFRS 9, the Company has designated these investments at the date of initial application as measured at FVOCI and FVTPL. Accordingly, a decrease of $377,309 thousands in the reserves, as well as the increase of $377,309 thousands in retained earnings were recognized on January 1, 2018. Besides, on the date of initial application, a decrease of $ 116,742 thousands in the reserve, as well as the increase of $116,742 thousands in retained earnings were recognizes due to the adjustment resulted from investments accounted for using equity method. Note3: Cash and cash equivalents, notes and accounts receivable (including related parties), other receivables and guarantee deposits that were classified as loans and receivables under IAS 39 are now classified at amortized cost. Note4: Accounts receivable are held within a business model whose objective is achieved by both collecting the contractual cash flows and by selling accounts receivables that were classified as loans and receivables under IAS 39 are now classified at FVOCI, and recorded as accounts receivable. The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on January 1, 2018. Reclassifications Remeasurements Fair value through profit or loss Beginning balance of FVTPL (IAS 39) Additions – equity instruments: From available for sale Total Fair value through other comprehensive income Beginning balance of available for sale (including measured at cost) (IAS 39) Addition – debt instruments: From loans and receivables Subtractions – debt instruments: From available for sale Total Amortized cost 2017.12.31 IAS 39 Carrying Amount $ $ $ - - - 5,784,146 - - $ 5,784,146 - - 763,771 763,771 39,188,383 (763,771) 38,424,612 Beginning balance of cash and cash equivalents, $ 197,391,197 - bond investment without an active market, trade and other receivables, and other financial assets Subtractions – debt instrument: To FVOCI Total - $ 197,391,197 (39,188,383) (39,188,383) - - - - - - - - - - 2018.1.1 IFRS 9 Carrying Amount 2018.1.1 Adjustments to retained earnings 2018.1.1 Adjustments to other equity - - 763,771 125,134 125,134 (125,134) (125,134) 252,175 (252,175) - - - - 44,208,758 252,175 (252,175) - - - - - - 158,202,814 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 14 (iii) Amendments to IAS 7 “Disclosure Initiative” The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. To satisfy the new disclosure requirements, the Company presents a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities as note 6(af). (iv) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Loss” The amendments clarify the accounting for deferred tax assets for unrealized losses on debt instruments measured at fair value. The Company believes that the above changes in accounting policies would not have any material impact on its parent-company-only financial statements. (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018: New, Revised or Amended Standards and Interpretations IFRS 16 “Leases” IFRIC 23 “Uncertainty over Income Tax Treatments” Amendments to IFRS 9 “Prepayment features with negative compensation” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint ventures” January 1, 2019 January 1, 2019 January 1, 2019 Effective date per IASB January 1, 2019 Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019 Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of signification changes are as follows: (i) IFRS 16“Leases” IFRS 16 replaces the existing leases guidance, including IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, SIC-15 “Operating Leases – Incentives” and SIC-27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 15 IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. In addition, the nature of expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interest expense on lease liabilities. There are recognition exemptions for short-term leases and leases of low-value items. The lessor accounting remains similar to the current standard – i.e. the lessors will continue to classify leases as finance or operating leases. 1) Determining whether an arrangement contains a lease On transition to IFRS 16, the Company can choose to apply either of the following: ‧ IFRS 16 definition of a lease to all its contracts; or ‧ a practical expedient that does not need any reassessment whether a contract is, or contains, a lease. The Company plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4. 2) Transition As a lessee, the Company can apply the standard using either of the following: ‧ retrospective approach; or ‧ modified retrospective approach with optional practical expedients. The lessee applies the election consistently to all of its leases. On January 1, 2019, the Company plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information. When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Company chooses to elect the following practical expedients: – apply a single discount rate to a portfolio of leases with similar characteristics. – apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application. – exclude the initial direct costs from measuring the right-of-use assets at the date of initial application. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 16 – use hindsight when determining the lease term if the contract contains options to extend or terminate the lease. 3) So far, the most significant impact identified is that the Company will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Company estimated that the right-of-use assets and the lease liabilities to increase by $823,996 thousands and $823,996 thousands respectively, on January 1, 2019. (ii) IFRIC 23 Uncertainty over Income Tax Treatments In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates, an entity shall assume that a taxation authority will examine the amounts it has the right to examine and have a full knowledge on all related information when making those examinations. If an entity concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, as well as tax rates consistently with the tax treatment used or planned to be used in its income tax filings. Otherwise, an entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. So far, the company believes that above changes in accounting policies would not have any material impact on its financial statements. The actual impacts of adopting the standards may change depending on the economic conditions and events which may occur in the future. (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date, the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but have yet to be endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 3 “Definition of a Business” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” Amendments to IAS 1 and IAS 8 “Definition of Material” Effective date per IASB January 1, 2020 Effective date to be determined by IASB January 1, 2021 January 1, 2020 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 17 Those which may be relevant to the Company are set out below: Issuance / Release Dates October 31, 2018 Standards or Interpretations Amendments to IAS 1 and IAS 8 “Definition of Material” Content of amendment The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until IFRS in featured elsewhere now has Standards. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that the definition of material is consistent across all IFRS Standards. The Company is evaluating the impact on its financial position and financial performance upon the initial adoption of the above-mentioned standards or interpretations. The results thereof will be disclosed when the Company completes its evaluation. (4) Summary of significant accounting policies: The significant accounting policies presented in the parent-company-only financial statements are summarized as follows. The following accounting policies were applied consistently throughout the periods presented in the financial statements. (a) Statement of compliance These parent-company-only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. (b) Basis of preparation (i) Basis of measurement Except for the following significant accounts in the statement of financial position, the parent-company-only financial statements have been prepared on the historical cost basis: 1) 2) 3) Financial instruments measured at fair value through profit or loss are measured at fair value; Financial instruments measured at fair value through other comprehensive income (Available-for-sale) are measured at fair value; The defined benefit liability (or asset) is recognized as plan assets less the present value of the defined benefit obligation and the effect of the asset ceiling mentioned in note (4)(q). (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 18 (ii) Functional and presentation currency The functional currency of the Company is determined based on the primary economic environment in which the Company operates. The parent-company-only financial statements are presented in New Taiwan Dollar, which is the Company's functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. (c) Foreign currency (i) Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortized cost in the functional currency at the beginning of the year adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for the following differences which are recognized in other comprehensive income arising on the retranslation: 1) 2) fair value through other comprehensive income (available-for-sale) financial assets financial assets; a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or 3) qualifying cash flow hedges to the extent the hedge is effective (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the Company’s functional currency at exchange rates of the reporting date. The income and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to the Company’s functional currency at average rate. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation differences in equity. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 19 When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Company disposes of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Company disposes of only part of investment in an associate of joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (d) Classification of current and non-current assets and liabilities An entity shall classify an asset as current when: (i) It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; (ii) It holds the asset primarily for the purpose of trading; (iii) It expects to realize the asset within twelve months after the reporting period; or (iv) The asset is cash and cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other assets as non-current. An entity shall classify a liability as current when: (i) It expects to settle the liability in its normal operating cycle; (ii) It holds the liability primarily for the purpose of trading; (iii) The liability is due to be settled within twelve months after the reporting period; or (iv) It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not impact its classification. An entity shall classify all other liabilities as non-current. (e) Cash and cash equivalents Cash comprise cash on hand and demand deposits. Cash equivalents are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 20 The time deposits which meet the above definition and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes are reclassified as cash equivalents. (f) Financial instruments (i) Financial assets (policy applicable from January 1, 2018) Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The Company shall reclassify all affected financial assets only when it changes its business model for managing its financial assets. 1) Financial assets measured at amortized cost A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: ‧it is held within a business model whose objective is to hold assets to collect contractual cash flows; and ‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 2) Fair value through other comprehensive income (FVOCI ) A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: ‧it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and ‧its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Some accounts receivables are held within a business model whose objective is achieved by both collecting contractual cash flows and selling by the Company, therefore, those receivables are measured at FVOCI and presented as accounts receivable. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 21 On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis. A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Dividend income derived from equity investments is recognized on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. 3) Fair value through profit or loss (FVTPL) All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. 4) Impairment of financial assets The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, financial assets measured at amortized costs, notes and accounts receivable, other receivable, guarantee deposit and other financial assets), debt investments measured at FVOCI, and accounts receivable measured at FVOCI. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 22 The Company measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL: ‧debt securities that are determined to have low credit risk at the reporting date; and ‧other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Company ’ s historical experience and informed credit assessment as well as forward-looking information. The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’ s or twA or higher per Taiwan Ratings’. The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Company in full. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 23 At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. An evidence that a financial asset is credit-impaired includes the following observable data: ‧significant financial difficulty of the borrower or issuer; ‧a breach of contract such as a default or being more than 90 days past due; ‧the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider; ‧it is probable that the borrower will enter bankruptcy or other financial reorganization; or ‧the disappearance of an active market for a security because of financial difficulties. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Company recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due. 5) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a debt instrument in its entirety, the Company recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 24 On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. (ii) Financial assets (policy applicable before January 1, 2018) Financial assets are classified into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables. 1) Financial assets at fair value through profit or loss A financial asset is classified in this category if it is classified as held-for-trading or is designated as such on Financial assets are classified as held-for-trading if they are acquired principally for the purpose of selling in the short term. The Company designates financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: initial recognition. a) Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; b) Performance of the financial asset is evaluated on a fair value basis c) A hybrid instrument contains one or more embedded derivatives. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein, which take into account any dividend and interest income, are recognized in profit or loss, and are included in non-operating income and expenses. Under a regular way, purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. 2) Available-for sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value, and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on available-for-sale debt instruments, are recognized in other comprehensive income and (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 25 presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, and is included in non-operating income and expenses. A regular way purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at cost less impairment losses, and are included in financial assets measured at cost. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally on the date the shareholders’ meeting approved the earning distribution. Such dividend income is included in non-operating income and expenses. 3) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables, other receivables, and investment in debt security with no active market. Such assets are recognized initially at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less, any impairment losses other than insignificant interest on short-term receivables. Under a regular way, purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. Interest income is recognized in profit or loss, and it is included in non-operating income and expenses. 4) Impairment of financial assets A financial asset is impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be estimated reliably. The objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 26 All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Company uses historical trends of the probability of default, the timing of recoveries, and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than those suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversible in subsequent periods. An impairment loss in respect of a financial asset is deducted from the carrying amount, except for trade receivables, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance account are recognized in profit or loss. Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. If, in a subsequent period, the amount of the impairment loss of a financial asset measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date. Impairment losses recognized on an available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income and accumulated in other equity. Impairment losses and recoveries are recognized in profit or loss. Recovery and loss on doubtful debts of account receivables is included in operating expense, others are included in non-operating income and expense. 5) Derecognition of financial assets The Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 27 On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity – unrealized gains or losses from available-for-sale financial assets is recognized in profit or loss, and included in non-operating income or expenses. The Company separates the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income shall be recognized in profit or loss, and is included in non-operating income or expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is derecognized based on the relative fair values of those parts. (iii) Financial liabilities and equity instruments 1) Classification of debt or equity Debt or equity instruments issued by the Company are classified as financial liabilities or equity in accordance with the substance of the contractual agreement. Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized as the amount of consideration received, less, the direct cost of issuing. Interest and loss or gain related to financial liabilities are recognized as profit or loss and are reported under non-operating income and expenses. Financial liabilities are reclassified as equity when converted, and conversions do not generate profit or loss. 2) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if acquired principally for the purpose of selling in the short term. This type of financial liability is measured at fair value at the time of initial recognition, and attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, and are included in non-operating income or expenses. 3) Other financial liabilities Financial liabilities not classified as held-for-trading or designated as at fair value through profit or loss, which comprise loans and borrowings, and trade and other payable, are measured at fair value, plus, any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method other than significant interest on short-term loans and payables. Interest expense not capitalized as capital cost is recognized in profit or loss, and is included in non-operating income or expenses. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 28 4) Derecognition of financial liabilities The Company derecognizes a financial liability when its contractual obligation has been discharged, cancelled or expired. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and is included in non-operating income or expenses. 5) Offsetting of financial assets and liabilities The Company presents financial assets and liabilities on a net basis when the Company has the legally enforceable right to offset and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. (iv) Derivative financial instruments (policy applicable from January 1, 2018) The Company holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are initially measured at fair value. Any attributable transaction costs thereof are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and are included in the line item of non-operating income. When a derivative is designated as, and effective for, a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, whereas when the fair value is negative, it is classified as a financial liability. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the non-financial asset’s host contract are not closely related to the embedded derivatives and the host contract is not measured at FVTPL. (v) Derivative financial instruments (policy applicable before January 1, 2018) Except for the following items, the Company applies the same accounting policies as applicable from January 1, 2018. For derivatives that are linked to investments in equity instruments that do not have a quoted market price in an active market and must be settled by delivery of such unquoted equity instruments, such derivatives that are classified as financial assets are measured at amortized cost, and are included in financial assets measured at cost; and such derivatives that are classified as financial liabilities are measured at cost, and are included in financial liabilities measured at cost. Embedded derivatives are separated from the host contract and accounted for separately when the economic characteristics and risk of the host contract and the embedded derivatives are not closely related, and the host contract is measured as at fair value through profit or loss. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 29 (g) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average-cost principle and includes expenditure incurred in acquiring the inventories, production or transition costs, and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less, the estimated costs of completion and selling expenses. (h) Investment in associates Associates are those entities in which the Company has significant influence, but not control or join control, over their financial and operating policies. Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill arising from the acquisition, less, any accumulated impairment losses. The parent-company-only financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees after adjustments to align the accounting policies with those of the Company from the date that significant influence commences until the date that significant influence ceases. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Company’s ownership percentage of the associate, the Company recognizes the changes in ownership interests of its associate in capital surplus in proportion to its ownership. Unrealized profits resulting from the transactions between the Company and an associate are eliminated to the extent of the Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired. When the Company’s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. The Company shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture. The Company shall measure the retained interest at fair value. The difference between the fair value of retained interest and proceeds from disposal, and the carrying amount of the investment at the date the equity method was discontinued is recognized in profit or loss. The Company shall account for all the amounts previously recognized in other comprehensive income in relation to that investment on the same basis as would have been required if the associates had directly disposed of the related assets or liabilities. If a gain or loss previously recognized in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. If an entity’s ownership interest in an associate or a joint venture is reduced while the entity continues to apply the equity (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 30 method, the entity shall reclassify the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest to profit or loss. 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 shall continue to apply the equity method without remeasuring the retained interest. When the Company subscribes to additional shares in 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 net assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus, however, when the balance of the capital surplus arising from the investment was insufficient, the difference charged or credited to retained earnings. If the Company’ s ownership interest is reduced due to the additional subscription to the shares of associate by other investors, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate shall be reclassified to profit or loss on the same basis as would be required if the associate had directly disposed of the related assets or liabilities. (i) Investment in subsidiaries When preparing the parent-company-only financial statements, investment in subsidiaries which are controlled by the Company is accounted for using the equity method. Under the equity method, the amounts of net income, other comprehensive income and equity attributable to shareholders of the Company in the parent-company-only financial statement are equal to those in the consolidated financial statements. Changes in the Company’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (j) Property, plant and equipment (i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately, unless the useful life and the depreciation method of a significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item, and it shall be recognized as other gains and losses. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 31 (ii) Subsequent cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance are expensed as incurred. (iii) Depreciation The depreciable amount of an asset is determined after deducting its residual amount, and it shall be allocated on a systematic basis over its useful life. Items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period shall be recognized in profit or loss. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life. Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: 1) Buildings: 35~50 years 2) Building improvement: 8~15 years 3) Research equipment: 3 years 4) Other equipment: 0.5~5 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change is accounted for as a change in an accounting estimate. (k) Leases (i) The Company as lessor Lease income from operating lease is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. Incentives granted to the lessee to enter into the operating lease are spread over the lease term on a straight-line basis so that the lease income received is reduced accordingly. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 32 (ii) The Company as lessee Operating leases are not recognized in the Company’s balance sheets. Payments made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. (l) Intangible assets (i) Goodwill 1) Initial recognition Goodwill arising from acquisition of subsidiaries is included in intangible assets. The measurement of initial recognition of goodwill, please refer to note (4)(t). 2) Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Goodwill related to an investment accounted for using equity method is included in the carrying amount of the investment, and not allocated to any asset, including goodwill, forms part of the carrying amount of the investment accounted for using the equity method. (ii) Research & Development During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred. Expenditures arising from the development phase shall be recognized as an intangible asset if all the conditions described below can be demonstrated; otherwise, they will be recognized in profit or loss as incurred. 1) 2) 3) The technical feasibility of completing the intangible asset so that it will be available for use or sale. Its intention to complete the intangible asset and use or sell it. Its ability to use or sell the intangible asset. 4) How the intangible asset will generate probable future economic benefits. 5) 6) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. Its ability to measure reliably the expenditure attributable to the intangible asset during its development. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 33 Capitalized expenditure arising from the development phase is measured at cost less accumulated amortization and accumulated impairment losses. (iii) Other intangible assets Other intangible assets that are acquired by the Company are measured at cost, less accumulated amortization and any accumulated impairment losses. (iv) Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred. (v) Amortization The amortizable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and intangible assets with all indefinite useful life, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows: 1) Patents: the shorter of contract period and estimated useful lives 2) Computer software: 1~3 years The residual value, the amortization period, and the amortization method for an intangible asset with a finite useful life shall be reviewed at least annually at each fiscal year-end. Any change shall be accounted for as changes in accounting estimates. (m) Impairment of non-derivative financial assets Non-derivative financial assets except for inventories, deferred tax assets, and assets arising from employee benefits are assessed at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Company shall estimate the recoverable amount of the asset. If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Company will have to determine the recoverable amount for the asset's cash-generating unit. The Company assesses goodwill and intangible assets, which have indefinite useful lives and are not available for use, on an annual basis and recognizes an impairment loss on excess of carrying value over the recoverable amount. The recoverable amount for an individual asset or a cash-generating unit is the higher of its fair value, less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss shall be recognized immediately in profit or loss. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 34 For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units. If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss and the impairment loss shall be allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited. The Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss. (n) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. (o) Treasury stock Repurchased shares are recognized under treasury shares (a contra-equity account) based on its repurchase price (including all directly accountable costs), and net of tax. Gains on disposal of treasury shares should be recognized under Capital Reserve – Treasury Shares Transactions; losses on disposal of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. The carrying amount of treasury shares should be calculated using the weighted average different types of repurchase. During the cancellation of treasury shares, Capital Reserve – Share Premiums and Share Capital should be debited proportionately. Gains on cancellation of treasury shares should be recognized under existing capital reserves arising from similar types of treasury shares; losses on cancellation of treasury shares should be offset against existing capital reserves arising from similar types of treasury shares. If there are insufficient capital reserves to be offset against, then such losses should be accounted for under retained earnings. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 35 (p) Recognition of revenue (i) Revenue from contracts with customers (policy applicable from January 1, 2018) Revenue is measured based on the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a good or a service to a customer. The accounting policies for the Company’s main types of revenue are explained below. 1) Sale of goods The Company manufactures and sells electronic products to electronic products brand vendor. The Company recognizes revenue when control of the products has transferred, being when the products are delivered to the customer, the customer has full discretion over the channel and price to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the products have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Company has objective evidence that all criteria for acceptance have been satisfied. The Company assesses sales discounts based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. A refund liability is recognized for expected discounts payable to customers in relation to sales made until the end of the reporting period. No element of financing is deemed present as the sales of electronic products are made with a credit term which is consistent with the market practice. A receivable is recognized when the goods are delivered as this is the point in time that the Company has a right to an amount of consideration that is unconditional. 2) Financing components The Company does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the time value of money. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 36 (ii) Revenue (policy applicable before January 1, 2018) Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized. The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. (q) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. (ii) Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation of defined benefit obligation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. If the benefits of a plan are improved, the pension cost incurred from the portion of the increased benefit relating to past service by employees, is recognized immediately in profit or loss. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 37 Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re-measurement of the defined benefit plan is charged to retained earnings. The Company recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets and change in the present value of defined benefit obligation. (iii) Short term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. (r) Share-based payment The grant-date fair value of share-based payment awards granted to employee is recognized as employee expenses, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of award that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions, and there is no true-up for differences between expected and actual outcomes. (s) Income taxes Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations or recognized directly in equity or other comprehensive income, all current and deferred taxes shall be recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date or the actual legislative tax rate, as well as tax adjustments related to prior years. Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes shall not be recognized for the following exceptions: (i) Assets and liabilities that are initially recognized but are not related to the business combination and have no effect on net income or taxable gains (losses) during the transaction. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 38 (ii) Temporary differences arising from equity investments in subsidiaries or joint ventures where there is a high probability that such temporary differences will not reverse. (iii) Initial recognition of goodwill. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities may be offset against each other if the following criteria are met: (i) The entity has the legal right to settle tax assets and liabilities on a net basis; and (ii) the taxing of deferred tax assets and liabilities fulfill one of the below scenarios: 1) 2) levied by the same taxing authority; or levied by different taxing authorities, but where each such authority intends to settle tax assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation, or where the timing of asset realization and debt liquidation is matched. A deferred tax asset should be recognized for the carry-forward of unused tax losses, unused tax credits, and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits, and deductible temporary differences shall also be re-evaluated every year on the financial reporting date, and they shall be adjusted based on the probability that future taxable profit that will be available against which the unused tax losses, unused tax credits, and deductible temporary differences can be utilized. The surtax on unappropriated earnings is recoded as current tax expense in the following year after the resolution to appropriate retained earnings is approved in a stockholders’ meeting. (t) Business combination Goodwill is measured as an aggregation of the consideration transferred (which generally is measured at fair value at the acquisition date) and as an amount of any non-controlling interest in the acquiree, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed (generally at fair value). If the residual balance is negative, the Company shall re-assess whether it has correctly identified all of the assets acquired and liabilities assumed, and recognize a gain on the bargain purchase thereafter. All the transaction costs incurred for the business combination are recognized immediately as the Company’s expenses when incurred, except for the issuance of debt or equity instruments. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 39 If the business combination is achieved in stages, the Company shall measure any non-controlling equity interest in the acquire, either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Other non-controlling interest is measured (1) at fair value at the acquisition date or (2) by using other valuation techniques acceptable under the IFRS as endorsed by the FSC. In a business combination achieved in stages, the Company shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. In prior reporting periods, the Company may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the Company had disposed directly of the previously held equity interest. If the disposal of the equity interest required a reclassification to profit or loss, such an amount shall be reclassified to profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the Company shall retrospectively adjust the provisional amounts recognized at the acquisition date, or recognize additional assets or liabilities to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date. (u) Earnings per share The Company discloses the basic and diluted earnings per share attributable to ordinary equity holders of the Company. The calculation of basic earnings per share is based on the profit attributable to the ordinary shareholder of the Company divided by weighted average number of ordinary shares outstanding. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders of the Company divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise restricted employee stock and employee compensation not yet approved by the Board of Directors. (v) Operating segments The operating segment information is disclosed within the consolidated financial statements but not disclosed in the parent-company-only financial statement. (5) Significant accounting assumptions and judgments, and major sources of estimation uncertainty: The preparation of the financial statements in conformity with the IFRSs endorsed by the FSC requires management to make judgments, estimates, and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income, and expenses. Actual results may differ from these estimates. The management continues to monitor the accounting estimates and assumptions. The management recognizes any changes in accounting estimates during the period and the impact of those changes in accounting estimates in the next period. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 40 There are no critical judgments in applying the accounting policies that have significant effect on the amounts recognized in the financial statements. In addition, information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year is as follows: (a) Recognition and measurement of refund liabilities (provisions) Because of the sales returns and allowances, the Company records refund liabilities (sales returns and allowances provisions) for estimated returns and other allowances in the same period the related revenue is recorded. The estimate is made based on historical experience, market and economic conditions, and any other known factors using the expected value or the most likely amount, and it could be different from actual sales returns and allowances, therefore, the management periodically reviews the adequacy of the estimation used. Refer to notes 6(p) and 6(q) for further description of the recognition of provisions and refund liabilities. (b) Valuation of inventories As inventories are stated at the lower of cost or net realizable value, the net realizable value of the inventory is mainly determined based on assumptions as to future demand within a specific time horizon. Due to the rapid industrial changes, there may be significant differences in the net realizable value of inventories. Refer to note (6)(j) for further description of the valuation of inventories. (6) Explanation of significant accounts: (a) Cash and cash equivalents Cash on hand Checking accounts and demand deposits Time deposits Bonds purchased under resale agreements December 31, 2018 December 31, 2017 $ 1,596 1,358 3,972,558 812,541 15,609,214 27,387,135 863,010 142,500 $ 20,446,378 28,343,534 Please refer to note (6)(ac) for the disclosure of the exchange rate risk, the interest rate risk and the fair value sensitivity analysis of the financial assets and liabilities of the Company. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 41 (b) Financial assets and liabilities at fair value through profit or loss Mandatorily measured at fair value through profit or loss: Non-derivative financial assets Stock listed in domestic markets Unlisted fund in foreign markets Total Current Non-current December 31, 2018 $ $ $ $ 284,768 23,745 308,513 284,768 23,745 308,513 The aforementioned stock listed in domestic markets were recorded under available-for-sale financial assets as of December 31, 2017. Please refer to note (6)(d). The market risk related to the financial instruments please refer to note (6)(ad). As of December 31, 2018, the Company did not provide any aforementioned financial assets as collaterals for its loans. (c) Financial assets at fair value through other comprehensive income Equity investments at fair value through other comprehensive income: Stock listed in domestic markets Stock listed in foreign markets Stock unlisted in domestic markets Stock unlisted in foreign markets Total December 31, 2018 $ 2,383,976 400,184 896,395 51,363 $ 3,731,918 The purpose that the Company invests in the abovementioned equity securities is for long-term strategies, but rather for trading purpose. Therefore, these equity securities are designated as at FVOCI, whereas, were presented under financial assets carried at cost and available-for-sale financial assets as of December 31, 2017. Please refer to note (6)(d) and (6)(e). In 2018, the Company has sold parts of its shares held in Innolux Corporation measured at fair value through other comprehensive income. The fair value of the shares was $291,435 when dispose, and the cumulative losses amounted to $1,024,470, which has been transferred to retained earnings from other comprehensive income. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 42 If there is an increase (decrease) in the market price by 5% on the reporting date of the equity securities hold by the Company, the increase (decrease) in other comprehensive income (pre-tax) for the year ended December 31, 2018, will be $186,596. These analyses are performed on the same basis for the period and assume that all other variables remain the same. The Company’s information of market risk please refer to note (6)(ad). As of December 31, 2018, the Company did not provide any financial assets at fair value through other comprehensive income as collaterals for its loans. (d) Available-for-sale financial assets Stocks listed in domestic markets Stocks listed in foreign markets Stocks unlisted in domestic markets Stocks unlisted in foreign markets Total Current Non-current December 31, 2017 $ 3,794,069 654,192 1,207,219 126,333 5,781,813 46,479 5,735,334 $ $ $ 5,781,813 (i) The Company and its subsidiaries, Zhaopal Investment Co., Ltd. (“Zhaopal”), Yongpal Investment Co., Ltd. (“Yongpal”) and Kaipal Investment Co., Ltd. (“Kaipal”) (“the Company and its subsidiaries”), purchased newly issued shares of Chunghwa Picture Tubes, Ltd. (“CPT”) via private placement in 2009. The cost was 2.5 New Taiwan dollars per share, totally amounting to $7,000,000. The Company signed an agreement with Tatung Company (“Tatung”, the parent company of CPT) on such matter. In accordance with the agreement, the Company and its subsidiaries have the right to request Tatung to purchase all the CPT shares obtained via the private placement within certain agreed periods, at the price the Company and its subsidiaries originally paid for the CPT shares plus interest. Accordingly, since the fair value of CPT shares obtained via the private placement were below the original costs, the Company measured the book value of the shares at its original cost. The Company filed an arbitration based on the agreement on March 29, 2013, requesting Tatung to perform its obligations. The Company received the verdict on May 12, 2014. According to the verdict, Tatung should pay $2,118,607 to the Company and its subsidiaries for purchasing all the CPT shares held by the Company and its subsidiaries. Additionally, Tatung should pay the interest which is calculated by the annual rate of 5% in the period from April 3, 2013 to the actual payment date. Therefore, the Company recognized both the impairment loss of $1,689,000 and the related share of loss of associates and joint ventures accounted for using equity method of $3,041,000 in the first quarter of 2014 accordingly. On June 13, 2014, the Company filed a civil complaint with the Taiwan Taipei District Court to revoke the arbitration award. At the end, the Taiwan Supreme Court dismissed the appeal on January 11, 2017. The Company and its subsidiaries sold all shares of CPT to Tatung on (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 43 February 9, 2017 in accordance with the arbitration. The selling prices of the Company and its subsidiaries amounted to $811,466 (including the interest) and $1,460,638 (including the interest), respectively, totaling $2,272,104 (including the interest). The loss of sale was $1,804 and $2,448, respectively, and the total loss was $4,252. The total price has been fully recovered. (ii) If there is an increase (decrease) in the market price of the equity securities by 5% on the reporting date, the increase (decrease) in other comprehensive income (pre-tax) for the year ended December 31, 2017, will be $289,091. These analyses is performed on the same basis and assume that all other variables remain the same. (iii) As of December 31, 2017, the Company did not provide any available-for-sale financial assets as collaterals for its loans. (iv) As of December 31, 2018, the aforementioned investments were classified as financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income. Please refer to note (6)(b) and (6)(c). (e) Financial assets at cost Unlisted common stock in domestic markets December 31, 2017 $ 2,333 (i) The aforementioned unlisted common stock in domestic markets held by the Company were measured at cost, less accumulated impairment losses on the reporting date. The fair values of these investments cannot be measured reliably because the range of reasonable fair value estimates is large and the probabilities for each estimate cannot be reasonably determined. (ii) As of December 31, 2017, the Company did not provide any financial assets at cost as collaterals for its loans. (iii) The aforementioned investments were classified as financial assets at fair value through other comprehensive income on December 31, 2018. Please refer to note (6)(c). (f) Current financial assets measured at amortized costs Common bonds – Taiwan Star Telecom Corporation Limited (Taiwan Star ) December 31, 2018 $ 350,000 The Company has assessed that these financial assets are held to maturity to collect contractual cash flows, which consist solely of payments of principal and interest on the principal amount outstanding. Therefore, these investments were classified as financial assets measured at amortized cost on January 1, 2018. As of December 31, 2017, the aforementioned financial assets measured at amortized costs of the Company were classified as bond investment without as active market. Please refer to note (6)(g). (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 44 As of December 31, 2018, the Company did not provide the aforementioned financial assets as collaterals for its loans. (g) Bond investment without active market Common bonds – Taiwan Star Telecom Corporation Limited (Taiwan Star ) Current Non-current December 31, 2017 $ $ $ 700,000 350,000 350,000 700,000 The Company subscribed the five-year common bonds issued by Taiwan Star via private placement for $1,750,000 in June 2014 with an interest rate of 2%. Taiwan Star will repay the amount of $350,000 per annum from the date of issuance till the maturity of the bond in June 2019. The aforementioned bond investments was classified as financial assets measured at amortized cost on December 31, 2018. Please refer to note (6)(f). As of December 31, 2017, the Company did not provide the aforementioned financial assets as collaterals for its loans. (h) Notes and accounts receivable Notes receivable from operating activities December 31, 2018 December 31, 2017 $ 1,218 605 Accounts receivable – measured as amortized cost 171,635,955 171,353,245 Accounts receivable – fair value through other comprehensive income Less: allowance for uncollectible accounts Notes and accounts receivable 22,896,211 - 194,533,384 171,353,850 (3,718,560) (3,717,495) $ 190,814,824 167,636,355 $ 189,496,594 165,540,785 Notes and accounts receivable – related parties $ 1,318,230 2,095,570 The Company has assessed a portion of its trade receivables that was held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; therefore, such trade receivables were measured at fair value through other comprehensive income on January 1, 2018. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 45 The Company applies the simplified approach to provide for its expected credit losses, i.e. the use of lifetime expected loss provision for all receivables on December 31, 2018. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due, as well as incorporated forward looking information. The loss allowance provision of the Company as of December 31, 2018 was determined as follows: Credit rating Level A Level B Level C Carrying amount of accounts receivable $ 187,485,567 Weighted- ave rage ECL rate 0% 3,424,080 2.769% 3,623,737 100% $ 194,533,384 Lifetime ECLs - Credit-impai red No 94,823 3,623,737 3,718,560 No Yes As of December 31, 2018 the aging analysis of accounts receivable, which were past due but not impaired, was as follows: Overdue 1 to 180 days December 31, 2018 $ 1,770,814 As of December 31, 2017, the Company applies the incurred loss model to consider the loss allowance provision of notes and accounts receivable, and the aging analysis of notes and accounts receivable, which were past due but not impaired, was as follows: Overdue 1 to 180 days December 31, 2017 $ 344,920 For the years ended December 31, 2018 and 2017, the movement in the allowance for notes and accounts receivable were as follow: Balance at beginning of the period (IAS 39) $ 3,717,495 Adjustment on initial application of IFRS 9 - Balance at beginning of the period (IFRS 9) 3,717,495 2018 2017 Individually assessed impairment - Collectively assessed impairment 788,948 Assessment category reclassified - 689,097 (689,097) Impairment losses recognized 1,065 Balance at the end of the period $ 3,718,560 2,929,599 3,618,696 (1,052) 98,799 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 46 Allowance for uncollectible account is the balance of accounts receivables which are uncollectable. Except for evaluating the situation of the customers’ payment records and widely analyzing the credit rating of customers, the Company also takes all the necessary procedures for collection. The Company believes that there is no doubt for the recovery of the due but unimpaired account receivable, therefore, no allowance recognized. The Company had recognized full loss for the uncollectible accounts receivables of Leshi, however, the Company will make the utmost effort to recover the accounts receivable, including taking proper legal actions. The Company entered into accounts receivable factoring agreements with banks. As of December 31, 2018 and 2017, except for the amount used under the actual sales amount in thousand accordance with certain agreements, the factoring amount granted by the banks was USD 950,000 thousands and USD 985,000 thousands, respectively. Based on the agreements, the Company is not responsible for guaranteeing the ability of the accounts receivable obligor to make payment when it is affected by credit risk. Thus, this is a non-recourse accounts receivable factoring. After the transfer of the accounts receivable, the Company can request partial advanced amount, while the interest calculated at an agreed rate is paid to the bank in the period during the time of receiving advance and the accounts receivable is collected. The remaining amounts with no advance are received when the accounts receivable are settled by the customers. As of December 31, 2018 and 2017, the factored accounts receivable with no advance amounting to $0 and $44,641, respectively, are accounted for as other receivables. The Company, customers, and banks signed the three-party contracts in which the banks purchase accounts receivable from the Company. The total amount of the accounts receivable should not exceed the facility limit provided by the banks to the Company’s customers. Based on the contracts, the banks have no right to request the Company to repurchase the accounts receivable. Thus, this is a non-recourse accounts receivable transfer. As of December 31, 2018 and 2017, accounts receivable factored were recovered and derecognized since the conditions of derecognition were met. As of December 31, 2018 and 2017, the details of the factored accounts receivable were as follows: December 31, 2018 Accounts receivable factored (gross) $ 32,098,074 Accounts receivable factored (gross) $ 35,315,810 Purchaser Financial Institution Purchaser Financial Institution Advanced amount 32,098,074 Collateral - Amount derecognized 32,098,074 Interest rate 3.02%~3.52% December 31, 2017 Advanced amount 35,271,169 Collateral - Amount derecognized 35,315,810 Interest rate 1.79%~2.56% (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 47 As of December 31, 2018 and 2017, the Company did not provide any aforementioned notes and accounts receivable as collaterals. (i) Other receivables Other accounts receivable - loans to subsidiaries Other accounts receivable - related parties Others December 31, 2018 December 31, 2017 $ 301,137 360,473 144,455 25,829 973,158 324,991 $ 1,418,750 711,293 As of December 31, 2018 and 2017, none of other receivables were past due. (j) Inventories Finished goods Work in progress Raw materials Raw materials in transit December 31, 2018 18,779,873 $ December 31, 2017 11,546,680 44,008 45,980 32,693,278 30,826,430 - 566,273 $ 51,517,159 42,985,363 (i) During the years ended December 31, 2018 and 2017, inventory cost recognized as cost of sales amounted to $889,171,625 and $819,765,642, respectively. (ii) The write-down of inventories to net realizable value amounted to $171,790, in the year ended December 31, 2018. The Company reversed its allowance for inventory valuation loss amounting to $494,472 due to the sale and disposal of its obsolete inventories in the year ended December 31, 2017. (iii) As of December 31, 2018 and 2017, the Company did not provide any inventories as collaterals for its loans. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 48 (k) Investments accounted for using equity method A summary of the Company’s financial information for equity-accounted investees at the reporting date is as follows: Subsidiaries Associates Plus: Other receivables–related parties Credit balance of investment in equity method (other non-current liability) Less: unrealized profits or losses December 31, 2018 79,891,379 $ December 31, 2017 74,925,869 2,619,501 2,330,648 82,510,880 77,256,517 494,744 232,194 298,023 (4,409) 437,912 (6,753) $ 83,299,238 77,919,870 (i) Subsidiaries Please refer to the consolidated financial statement for the year ended December 31, 2018. (ii) Associates 1) The fair value of the shares of listed company based on the closing price was as follow: Allied Circuit Co., Ltd. ("Allied Circuit") $ Avalue Technology Inc. ("Avalue") December 31, 2018 December 31, 2017 621,653 586,743 802,461 696,471 $ 1,208,396 1,498,932 2) The Company’s share of the net gain (loss) of associates was as follows: The Company’s share of the gain of associates $ 483,812 138,286 2018 2017 3) The Company’s financial information for investments accounted for using the equity method that are individually immaterial was as follows: Carrying amount of individually immaterial associates December 31, 2018 December 31, 2017 $ 2,619,501 2,330,648 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 49 The Company’s share of the net income (loss) of associates: Profit from continuing operations Other comprehensive income (loss) Total comprehensive income 2018 2017 $ $ 483,812 (97,800) 386,012 138,286 (89,325) 48,961 (iii) As of December 31, 2018 and 2017, the Company did not provide any investments accounted for using equity method as collaterals for its loans. (l) Changes in subsidiaries’ equity (i) Changes in ownership interests while retaining control (increase in ownership interest) The Company purchased 3% ownership of HengHao Technology Co., Ltd. ("HengHao") from non-controlling interest with an amount of $25,203 in 2017; therefore, the Company has acquired 100% ownership of HengHao. The Company's subsidiary, Arcadyan Technology Corp. ("Arcadyan"), purchased shares of other subsidiaries from non-controlling interest amounting to $634 and $10,496, respectively, in 2018 and 2017. The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of the subsidiaries: Acquisition of non-controlling interest (carrying amount) Consideration paid for the non-controlling interest Difference $ $ Capital surplus – difference between consideration and carrying $ amount of subsidiaries acquired or disposed Capital surplus – changes in ownership interests in subsidiaries Retained earnings $ 2018 2017 631 30,117 (634) (35,699) - - (3) (3) (3) (5,582) (3,492) 89 (2,179) (5,582) (ii) Disposal of part of equity ownership of subsidiaries interest without losing control The Company's subsidiaries disposed 23% interest of Compal Broadband Network Inc. ("CBN") in 2017, and the total consideration was $413,257. The capital surplus－difference between consideration and carrying amount of subsidiaries acquired or disposal related to above transaction amounted to $36,508. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 50 (iii) Changes in subsidiaries’ equity did not result in the Company’s loss of control 1) Subsidiaries’ employee stock options exercised CBN issued 351 thousand and 1,612 thousand new shares because of its employees’ exercised stock options in 2018 and 2017, respectively, which resulted in reducing the Company and its subsidiaries' ownership of CBN by 0.41% and 2.80%, respectively. 2) Issuance of new shares for cash of subsidiaries The Company and its subsidiaries did not purchase newly issued shares of CBN in the fourth quarter of 2018, which resulted in reducing the Company and its subsidiaries' ownership of CBN by 7.27%. 3) Issuance of subsidiaries’ restricted shares Arcadyan issued 4,500 thousand restricted new shares in the year ended Decebmer 31, 2018, which resulted in reducing 0.84% interest of the Company and its subsidiaries' ownership of Arcadyan. 4) The following summarizes the effect of changes in equity of the parent due to changes in the ownership interest of subsidiaries: Capital surplus – changes in ownership interest in subsidiaries Retained earnings 2018 2017 $ $ (32,703) (32,160) (64,863) 53 (424) (371) (m) Property, plant and equipment The cost, depreciation, and impairment of the property, plant and equipment of the Company for the years ended December 31, 2018 and 2017, were as follows: Buildings and building improvement Other equipment Land Under construction and prepayment for purchase of equipment Total Cost or deemed cost: Balance on January 1, 2018 $ 1,047,797 2,173,951 2,002,114 27,007 5,250,869 Additions Disposals and derecognitions Reclassifications - - - 18,716 124,095 60,375 203,186 (476) (62,516) - (62,992) 2,570 48,325 (50,895) - Balance on December 31, 2018 $ 1,047,797 2,194,761 2,112,018 36,487 5,391,063 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 51 Buildings and building improvement Other equipment Land Under construction and prepayment for purchase of equipment Total Balance on January 1, 2017 $ 1,047,797 2,135,715 2,042,004 2,478 5,227,994 Additions Disposals and derecognitions Reclassifications - - - 28,876 57,171 40,061 126,108 (395) (102,838) - (103,233) 9,755 5,777 (15,532) - Balance on December 31, 2017 $ 1,047,797 2,173,951 2,002,114 27,007 5,250,869 Depreciation and impairments loss: Balance on January 1, 2018 Depreciation for the period Disposals and derecognitions Balance on December 31, 2018 Balance on January 1, 2017 Depreciation for the period Disposals and derecognitions Balance on December 31, 2017 Carrying amounts: Balance on December 31, 2018 Balance on January 1, 2017 Balance on December 31, 2017 $ $ $ $ $ $ $ - - - - - - - - 1,312,069 1,846,528 57,362 108,965 (476) (61,566) 1,368,955 1,893,927 1,261,391 1,834,489 51,073 114,792 (395) (102,753) 1,312,069 1,846,528 - - - - - - - - 3,158,597 166,327 (62,042) 3,262,882 3,095,880 165,865 (103,148) 3,158,597 1,047,797 825,806 218,091 36,487 2,128,181 1,047,797 874,324 207,515 2,478 2,132,114 1,047,797 861,882 155,586 27,007 2,092,272 As of December 31, 2018 and 2017, the Company did not provide property, plant and equipment as collateral for its borrowing. (n) Short-term borrowings The details of short-term borrowings were as following: Unsecured bank loans Unused credit line for short-term borrowings Range of interest rates December 31, 2018 December 31, 2017 51,305,682 41,386,000 40,694,000 35,919,000 $ $ 0.72%~3.56% 0.60%~2.54% For information on the Company’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ac). (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 52 (o) Long-term borrowings The details of long-term borrowings were as follows: Unsecured bank loans Less: current portion Total Unused credit line for long-term borrowings December 31, 2018 Annual range of interest rates 0.79%~1.22% Currency TWD Maturity year 2019~2021 Amount $ 28,396,250 (17,496,250) 10,900,000 5,414,750 $ $ Unsecured bank loans December 31, 2017 Annual range of interest rates 0.78%~1.22% Currency TWD Maturity year 2018~2020 Amount $ 25,050,000 Unsecured bank loans USD 1.95%~1.96% 2018 Less: current portion Total Unused credit line for long-term borrowings 2,083,200 (6,018,750) 21,114,450 4,377,000 $ $ For information on the Company’s interest risk, foreign currency risk and liquidity risk, please refer to note (6)(ac). (p) Provisions Balance on January 1, 2017 Provisions made during the period Provisions used during the period Provisions reversed during the period Balance on December 31, 2017 Sales returns and allowances $ 1,532,250 1,078,600 (219,727) (950,831) $ 1,440,292 Provisions related to sales of products are assessed based on historical experience, management's judgment and other known reasons. Such allowances are recognized as a deduction of sales revenue in the same period in which sales are made. The aforementioned provisions are expected to settle over the next year. Due to the application of IFRS 15 on January 1, 2018, the sales returns and allowances provisions were reclassified as refund liabilities. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 53 (q) Refund liabilities Refund liabilities December 31, 2018 $ 1,480,446 Due to the application of IFRS 15 from January 1, 2018, the provision of sale return and allowance were reclassified from provision to refund liabilities. (r) Operating lease (i) The Company as lessee 1) The rental payables of the non-cancellable operating lease are as follows: Less than one year Between one and five years December 31, 2018 December 31, 2017 $ $ 264,145 257,020 521,165 300,385 387,446 687,831 The Company leased several office areas under operating leases with the leasing terms from 1 to 5 years and had an option to renew the leases when the leases expired. For the years ended December 31, 2018 and 2017, expenses recognized in profit or loss under operating leases amounted to $297,582 and $273,839, respectively. The lease contract includes those of the land and building, with their residual values being assumed by the landlord. The rental is regularly adjusted based on the current market price. Based on the risks and rewards of leased assets not transferred to the Company, the Company recognized the lease as operating lease. (ii) The Company as lessor The Company leased out a few offices buildings, plants and equipments to third parties under operating lease with lease terms of 1 to 7 years. For the years ended December 31, 2018 and 2017, rentals recognized in profit or loss amounted to $5,533 and $8,630, respectively. The future minimum lease receivables under non-cancellable leases are as follows: Less than one year Between one and five years More than five years December 31, 2018 December 31, 2017 $ $ 1,222 2,951 352 4,525 2,426 2,455 880 5,761 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 54 (s) Employee benefits (i) Defined benefit plans Reconciliation of defined benefit obligations at present value and plan assets at fair value were as follows: Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities December 31, 2018 (1,246,221) December 31, 2017 (1,220,613) $ 624,640 608,482 $ (621,581) (612,131) The Company makes defined benefit plan contributions to the pension fund account with Bank of Taiwan that provides pensions for employees upon retirement. The plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average salary for the six months prior to retirement. 1) Composition of plan assets The Company allocates pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund, and such funds are managed by the Labor Pension Fund Supervisory Committee. With regard to the utilization of the funds, minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with interest rates offered by local banks. The balance of the Company’s labor pension reserve account in the Bank of Taiwan amounted to $618,575 (excluding the ending balance of interest receivable) as of December 31, 2018. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Bureau of Labor Funds, Ministry of Labor. 2) Movements in the present value of the defined benefit obligations The movements in the present value of defined benefit obligations for the Company were as follows: Defined benefit obligations on January 1 $ (1,220,613) 2018 Current service costs and interest Remeasurements of net benefit liabilities Benefit paid by the plan Balance on December 31 2017 (1,172,961) (25,168) (76,106) 53,622 (22,168) (37,000) 33,560 $ (1,246,221) (1,220,613) (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 55 3) Movements of the fair value of defined benefit plan assets The movements in the fair value of the defined benefit plan assets for the Company were as follows: 2018 2017 Fair value of plan assets on January 1 $ 608,482 Expected return on plan assets Remeasurements of net benefit plan assets Contributions paid by the employer Benefits paid by the plan Fair value of plan assets on December 31 $ 8,141 16,811 24,766 (33,560) 624,640 631,268 9,724 (3,577) 24,689 (53,622) 608,482 4) Expenses recognized in profit or loss The expenses recognized in profit or loss for the Company were as follows: Current service cost Net interest on the net defined benefit liability (asset) Cost of sales Selling expenses Administrative expenses Research and development expenses 2018 2017 5,635 6,981 8,392 14,027 436 745 3,395 9,451 14,027 8,463 15,444 423 825 4,301 9,895 15,444 $ $ $ $ 5) Remeasurement of the net defined benefit liability (asset) recognized in other comprehensive income The Company’s remeasurements of the net defined benefit liability (assets) recognized in other comprehensive income were as follows: Cumulative amount on January 1 Recognized during the period Cumulative amount on December 31 $ $ 406,910 20,189 427,099 327,227 79,683 406,910 2018 2017 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 56 6) Actuarial assumptions The following were the Company’s principal actuarial assumptions at the reporting date: Discount rate December 31, 2018 1.30% December 31, 2017 1.40% Future salary increase rate 3.00% 3.00% The expected allocation payment made by the Company to the defined benefit plans for the one year period after the reporting date is $24,967. The weighted-average lifetime of the defined benefit plan is 10.3 years. 7) Sensitivity analysis If the main actuarial assumptions had changed, the impact on the present value of the defined benefit obligation shall be as follows: December 31, 2018 Discount rate Future salary increasing rate December 31, 2017 Discount rate Future salary increasing rate Effects to the defined benefit obligation Increased 0.25% Decreased 0.25% (31,218) 31,779 (31,448) 32,086 32,390 (30,797) 32,670 (31,054) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown above. The method used in the sensitivity analysis is consistent with the calculation on the net defined benefit liabilities in the balance sheets. The method and assumption used in the sensitivity analysis is consistent with prior period. (ii) Defined contribution plans The Company allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under these defined contribution plans, the Company allocates the labor pension at a specific percentage to the Bureau of the Labor Insurance without additional legal or constructive obligations. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 57 The Company recognized the pension costs under the defined contribution method amounting to $306,912 and $286,820 for the years ended December 31, 2018 and 2017, respectively. Payment was made to the Bureau of Labor Insurance. (t) Income taxes According to the amendments to the "Income Tax Act” enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate income tax rate from 17% to 20% is applicable upon filing the corporate income tax return effective from 2018. (i) Income tax expenses 1) The amount of income tax for the years ended December 31, 2018 and 2017, was as follows: Current tax expense Recognized during the period $ 1,010,943 1,290,833 2018 2017 10% surtax on unappropriated earnings Tax credit of investment Deferred tax expense - 168,132 (183,384) (322,319) 827,559 1,136,646 Recognition and reversal of temporary differences 292,600 (207,451) Adjustment in tax rate Income tax expense (75,208) - 217,392 (207,451) $ 1,044,951 929,195 2) The amount of income tax recognized in other comprehensive income for the years ended December 31, 2018 and 2017, was as follows: 2018 2017 Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation $ (32,146) (13,546) Unrealized gains (losses) on equity instruments at fair value through other comprehensive income (37,780) - $ (69,926) (13,546) Items that will be reclassified subsequently to profit or loss: Unrealized gain (loss) of available-for-sale financial assets $ - 12,221 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 58 3) The income tax expense that was reconciled between the actual income tax expense and profit before tax for the years ended December 31, 2018 and 2017, was as follows: Profit before tax Income tax calculated based on tax rate Adjustment in tax rate Estimated tax effect of tax exemption on investment income, net Realized investment loss Investment tax credit Changes in temporary differences Adjustment of estimated difference and other 10% surtax on unappropriated earnings 2018 9,958,316 2017 6,678,720 1,991,663 1,135,382 $ $ (75,208) - (877,600) 49,686 (133,869) (142,901) (183,384) (322,319) (56,660) (342,691) 380,009 - $ 1,044,951 383,906 168,132 929,195 (ii) Deferred tax assets and liabilities Changes in the amount of deferred tax assets and liabilities for 2018 and 2017 were as follows: Refund liabilities (Provision-sal es return and allowance) Contract liabilities (Unearned revenue) Exchange differences on translation Unrealized exchange losses, net Others Total Deferred tax assets: Balance on January 1, 2018 $ 9,823 Recognized in profit or loss - 259,546 (81,521) 176,283 365,646 253,814 1,065,112 (11,328) (259,120) 15,291 (336,678) Recognized in other comprehensive income - - - - 32,146 32,146 Balance on December 31, 2018 $ Balance on January 1, 2017 $ 9,823 9,823 Recognized in profit or loss - 178,025 295,900 (36,354) 164,955 202,893 (26,610) 106,526 246,246 119,400 301,251 760,580 257,728 1,012,590 (17,460) 38,976 Recognized in other comprehensive income - - - - 13,546 13,546 Balance on December 31, 2017 $ 9,823 259,546 176,283 365,646 253,814 1,065,112 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 59 Deferred tax liabilities: Balance on January 1, 2018 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2018 Balance on January 1, 2017 Recognized in profit or loss Recognized in other comprehensive income Balance on December 31, 2017 (iii) Unrecognized deferred tax assets Unrealized exchange gains, net $ $ $ $ (171,868) 171,868 - - (340,343) 168,475 - (171,868) Others Total (371,753) (52,582) 37,780 (386,555) (359,532) - (12,221) (371,753) (543,621) 119,286 37,780 (386,555) (699,875) 168,475 (12,221) (543,621) Deferred tax assets have not been recognized in respect of the following items: Tax effect of deductible temporary differences December 31, 2018 December 31, 2017 $ 362,131 325,419 The Company assesses and considers that some of the income tax reduction items may be unrealized, hence they are not recognized as deferred tax assets. (iv) Unrecognized deferred tax assets and liabilities related to investments in subsidiaries The temporary differences associated with investment in subsidiaries were not recognized as deferred income tax assets and liabilities as the Company has the ability to control the reversal of these temporary differences which are not expected to reverse in the foreseeable future. As of December 31, 2018 and 2017, the aggregate deductible temporary differences relating to investments in subsidiaries not recognized as deferred tax assets amounted to $2,162,721 and $3,205,580, respectively. As of December 31, 2018 and 2017, the aggregate taxable temporary differences relating to investments in subsidiaries not recognized as deferred tax liabilities amounted to $54,430,545 and $47,433,268, respectively. (i) Examination and approval The Company’s tax returns for the year through 2016 were assessed by the Taipei National Tax Administration. The Company disagreed with the assessment and filed formal tax appeals for 2012. In accordance with the conservatism, the total amounts of the assessed additional income tax were recognized in the statements of income. Any differences will be reflected as an adjustment after the tax is resolved. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 60 (u) Capital and other equities As of December 31, 2018 and 2017, the Company’s authorized common stock consisting of 6,000,000 thousand shares with a par value of 10 New Taiwan dollar per share amounted to $60,000,000 of which 4,407,147 thousand shares and 4,419,192 thousand shares, respectively, were issued. All issued shares were paid up upon issuance. (i) Ordinary shares In 2015, the Company issued its employee restricted shares amounting to $493,600, wherein the amount of $120,450 and $49,690 had been cancelled due to failure in meeting the vested requirements in the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, the registration procedure had been completed. (ii) Capital surplus The balances of capital surplus were as follows: Additional paid-in capital Treasury share transactions December 31, 2018 December 31, 2017 $ 7,183,919 7,898,905 2,421,864 2,361,843 Difference between consideration and carrying amount arising from acquisition or disposal of subsidiaries Recognition of changes in ownership interests in subsidiaries Employee restricted shares Changes in equity of associates and joint ventures accounted 36,766 15,642 - 36,766 48,348 318,209 for using equity method 274,243 274,702 $ 9,932,434 10,938,773 In accordance with the ROC Company Act, realized capital reserves can only be used to increase the common stock or distributed as cash dividends after offsetting losses. The aforementioned capital reserves include share premiums and donation gains. In accordance with the Securities Offering and Issuance Guidelines, the amount of capital reserves to be reclassified under share capital shall not exceed 10% of the actual share capital amount. The Company’s shareholders’ meeting held on June 22, 2018 and 2017, approved to distribute the cash dividend of $881,429 and $884,431, respectively, representing 0.2 New Taiwan dollars per share by using the additional paid-in capital. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 61 (iii) Retained earnings Based on the Company’s articles of incorporation, if there is any profit after closing of books in a given year, the Company shall first defray tax due, cover accumulated losses and set aside ten percent of it as legal reserve and then set aside or reverse a special reserve in accordance with laws and regulations. The balance of earnings available for distribution is composed of the remainder of the said profit and the unappropriated retained earnings of previous years. The earnings appropriation proposal to distribute dividend and bonus shall be proposed by the Board of Directors and approved by the General Shareholders Meeting. The rest of the unappropriated retained earnings shall be reserved. The lifecycle of the industry of the Company is in the growing stage. To meet the need of the Company for the future capital and the need of shareholders for cash flow, if there is any profit after close of books, the cash dividend allocated by the Company each year shall not be lower than ten percent of the total dividend (including cash and share dividend) for such year. According to the law, when there is a deduction from stockholders' equity (excluding treasury stock and unearned employee benefit) during the year, an amount equal to the deduction item is set aside as a special reserve before the earnings are appropriated. A special reserve is made available for earning distribution only after the deduction of the related shareholders’ equity has been reversed. 1) Legal reverse In accordance with the Company Act, 10% of net income should be set aside as legal reserve until it is equal to the paid-in capital. When a company incurs no loss, it may, in pursuant to a resolution to be adopted by the shareholders’ meeting as required, distribute its legal reserve by issuing new shares and distributing stock dividends or distributing cash to shareholders. Only the portion of the legal reserve which exceeds 25% of the paid-in capital may be distributed. 2) Special reverse In accordance with Ruling No. 1010012865 issued by the FSC on April 6, 2012, a portion of current earnings and previous unappropriated earnings shall be set aside as a special reserve during earnings distribution. The amount to be set aside should equal the total amount of contra accounts that are accounted for as deductions to other equity interests. A portion of previous unappropriated earnings shall be set aside as a special reserve, which should not be distributed, to account for cumulative changes to other equity interests pertaining to prior periods. The special reserve shall be made available for appropriation when the net deductions of other equity interests are reversed in the subsequent periods. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 62 3) Earnings distribution Earnings distribution for 2017 and 2016 was approved by the shareholders during their annual meeting held on June 22, 2018 and 2017, respectively. The relevant information was as follows: 2017 2016 Amount per share Total amount Amount per share Total amount Cash dividends distributed to common shareholders $ 1.0 4,407,147 1.0 4,422,153 Earnings distribution for 2018 was approved by the Board of Directors on March 22, 2019. The relevant information was as follows: 2018 Amount per share Total amount Cash dividends distributed to common shareholders from the unappropriated earnings $ 1.0 4,407,147 Cash dividends distributed to common shareholders from the capital surplus 0.2 881,429 $ 5,288,576 The earnings distribution for the year ended December 31, 2018 is still subject to be approved by the shareholders during their annual meeting. The related information can be accessed through the Market Observation Post System website after the shareholders’ meeting. (iv) Treasury stock The subsidiaries of the Company did not sell the ordinary shares of the Company in the years ended December 31, 2018 and 2017. As of December 31, 2018, Panpal and Gempal, subsidiaries of the Company, held 50,017 thousand shares of ordinary shares of the Company, recorded as the Company’s treasury stock, with a book value of 17.6 New Taiwan dollars per share. The total cost was $881,247. The fair value of the ordinary shares of the Company was 17.45 and 21.30 New Taiwan dollars per share as of December 31, 2018 and 2017, respectively. Pursuant to the Securities and Exchange Act, the number of treasury shares purchased cannot exceed 10% of the number of shares issued. The total purchase cost cannot exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital surplus. The shares purchased for the purpose of transferring to employees shall be transferred within three years from the date of share repurchase. Those not transferred within the said limit shall be deemed as not issued by the Company and it should be cancelled. Furthermore, treasury stock cannot be pledged for debts, and treasury stock does not carry any shareholder rights until it is transferred. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 63 (v) Other equity interests (net-of-taxes) Exchange differences on transaction of foreign operation financial statements Unrealized gain (loss) from financial assets at fair value through other comprehensive income Unrealized gain (loss) on available-for-sale financial assets Unearned compensation for restricted employee shares and others Total Balance on January 1, 2018 $ (3,477,376) - (5,353,772) (79,856) (8,911,004) Effect of retrospective application Adjusted balance on January 1, 2018 The Company Subsidiaries Associates - (5,847,823) 5,353,772 (3,477,376) (5,847,823) 1,853,763 (34,596) (67,150) 401,300 (162,189) (125,317) - - - - - - - - - (494,051) (79,856) 79,856 (9,405,055) 1,899,023 334,150 (287,506) (7,459,388) Balance on December 31, 2018 $ (1,852,952) (5,606,436) Balance on January 1, 2017 $ 1,324,282 The Company Subsidiaries Associates (4,606,117) (148,238) (47,303) Balance on December 31, 2017 $ (3,477,376) - - - - - (5,663,830) (285,105) (4,624,653) 135,628 205,249 (4,265,240) 157,203 17,227 - - 8,965 (30,076) (5,353,772) (79,856) (8,911,004) (v) Share-based payment At the meeting held on June 20, 2014, the Company’s Shareholders’ Meeting adopted a resolution to issue 100,000 thousand new shares of employee restricted stock with no consideration to those full time employees who meet certain requirements. The first issuance of 50,000 thousand shares had been approved by the FSC on October 30, 2014. Moreover, the Company’s Board of Directors resolved to issue 49,980 thousand shares on January 22, 2015, and 49,360 thousand shares had actually been issued, in which the effective date of the share issuance was on February 25, 2015. 40%, 30% and 30% of the aforementioned restricted shares are vested, respectively, when the employees continue to provide service for at least 2 years, 3 years and 4 years from the registration and effective date and in the meantime, meet the performance requirement. After the issuance, the restricted shares are kept by a trust, which is appointed by the Company, before they are vested. These restricted shares shall not be sold, pledged, transferred, gifted or by any other means of disposal to third parties during the custody period. The voting rights of these shares are executed by the custodian, and the custodian shall act based on law and regulations. If the shares remain unvested after the vesting period, the Company will purchase all the unvested shares without consideration and cancel the shares thereafter. Restricted shares could receive cash and stock dividends. The aforementioned new shares are not considered as restricted shares. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 64 The information of the Company’s restricted shares (in thousands) is as follows: Outstanding shares on January 1 Vested during the period Canceled during the period Outstanding shares on December 31 2018 2017 23,571 44,740 (11,526) (16,200) (12,045) - (4,969) 23,571 The fair value of the restricted employee shares are evaluated by using the market price of $23.50 on the grant date. As of December 31, 2018 and 2017, the unearned employee benefits were $0 and $79,856, respectively. For the year ended December 31, 2018, due to the failure in meeting the vested requirements of the employee restricted shares, the Company reversed compensation cost amounted to $156,219 and capital surplus－employee restricted shares amounted to $318,209. Besides, due to meet the vested requirements of the employee restricted shares, the Company recognized capital surplus–additional paid-in capital amounted to $155,601. The compensation cost related to the employee restricted shares amounted to $103,356 for the year ended December 31, 2017. (w) Earnings per share The Company’s basic and diluted earnings per share are calculated as follows: 2018 2017 Basic earnings per share: Profit attributable to ordinary shareholders of the Company $ 8,913,365 5,749,525 Weighted-average number of outstanding ordinary shares (in thousands) Diluted earnings per share: 4,356,448 4,344,646 Profit attributable to ordinary shareholders of the Company (after adjustment of potential diluted ordinary shares) $ 8,913,365 5,749,525 Weighted-average number of outstanding ordinary shares of potential diluted ordinary shares Weighted-average number of outstanding ordinary shares (in thousands) Effect of potential diluted common stock Employee compensation (in thousands) Employee restricted shares (in thousands) Weighted-average number of ordinary shares (after adjustment of 4,356,448 4,344,646 59,637 682 39,737 20,670 potential diluted ordinary shares) (in thousands) 4,416,767 4,405,053 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 65 (x) Revenue from contracts with customers (i) Disaggregation of revenue Primary geographical markets: United states China Netherlands United Kingdom Others Major products： 5C electronics Others 2018 IT Product Segment $ 361,991,920 110,187,798 109,185,154 43,573,507 286,111,743 $ 911,050,122 $ 910,647,211 402,911 $ 911,050,122 For details on revenue for the year ended December 31, 2017, please refer to note (6)(y). (ii) Contract balance Notes and accounts receivable (including related parties) Less: allowance for impairment Total Contract liabilities December 31, 2018 $ 194,533,384 (3,718,560) January 1, 2018 171,353,850 (3,717,495) $ 190,814,824 1,405,452 $ 167,636,355 1,617,626 For the details on accounts receivable and allowance for impairment, please refer to note (6)(h). The amount of revenue recognized for the year ended December 31, 2018 that was included in the contract liability balance at the beginning of the period was $1,585,446. The major change in the balance of contract assets and contract liabilities is the difference between the time frame in the performance obligation to be satisfied and the payment to be received. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 66 (y) Revenue The detail of revenue for the year ended December 31, 2017 of the Company was as follows: Sale of goods Rendering of services and other 2017 $ 840,684,789 624,813 $ 841,309,602 For the details on revenue for the year ended December 31, 2018, please refer to note (6)(x). (z) Employees’ and directors’ compensations Based on the Company’s articles of incorporation, if there is any profit in a fiscal year, the Company’s pre-tax profits in such fiscal year, prior to deduction of compensations to employees and directors, shall be distributed to employees as compensations in an amount of not less than two percent (2%) thereof and to directors as compensations in an amount of not more than two percent (2%) of such profits. In the event that the Company has accumulated losses, the Company shall reserve an amount to offset accumulated losses. The compensations to employees as mentioned above may be distributed in the form of stock or cash. Employees entitled to receive the said stock or cash may include the employees of the Company’s subordinate companies pursuant to the Company Act. The Company accrued and recognized its employee compensation of $930,857 and $624,296, respectively, and directors’ compensation of $49,223 and $33,012 for the years ended December 31, 2018 and 2017, respectively. The estimated amounts mentioned above are based on the net profit before tax without the compensations to employees and directors of each respective ending period, multiplied by the percentage of the compensation to employees and directors, which was approved by the management. The estimations are recorded under operating expenses and cost. The differences between the amounts estimated and recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the distribution year. If the Board of Directors approve to distribute employee compensation in the form of stock, the number of the shares of the employee compensation is based on the closing price of the day before the Board of Directors’ meeting, the related information can be accessed through the Market Observation Post System website. There is no differences between the amount approved in the Board of Directors’ meeting and those recognized in the financial statements in 2018 and 2017. There is no differences between the amount estimated and recognized in the financial statements in 2017. The related information can be accessed through the Market observation Post System website. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 67 (aa) Non-operating income and expenses (i) Other income The other income for the years ended December 31, 2018 and 2017, were as follows: Interest income Financial assets at amortized cost Bank deposits Others Dividend revenue Overdue payable reversed as other income Sale of expensed assets Other revenue 2018 2017 $ $ 9,992 313,098 9,815 212,129 37,657 162,265 142,398 887,354 15,803 206,990 16,601 117,742 210,862 180,230 189,443 937,671 (ii) Other gains and losses The other gains and losses for the years ended December 31, 2018 and 2017, were as follows: Losses on disposal of investments Gains (losses) on financial assets and liabilities at fair value through profit or loss, net Foreign currency exchange gains (losses), net Others 2018 - $ 2017 (1,804) 97,682 - (221,786) (1,613,222) (1,926) (85) $ (126,030) (1,615,111) (ab) Reclassification of the components of other comprehensive income The details of reclassification of the components of other comprehensive income for the years ended December 31, 2018 and 2017, were as follows: 2018 2017 Available-for-sale financial assets: Net change in fair value (net of tax) $ Net change in fair value reclassified to profit or loss (net of tax) - - 135,628 - Net change in fair value recognized in other comprehensive income (net of tax) $ - 135,628 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 68 (ac) Financial instruments (i) Credit risk 1) The carrying amount of financial assets represents the maximum amount exposed to credit risk. The Company’s customers are mainly from the high-tech industry. The Company does not concentrate on a specific customer and the sales regions are widely spread, thus there should be no concern on the significant concentrations of accounts receivable credit risk. And in order to mitigate accounts receivable credit risk, the Company constantly assesses the financial status of the customers. 2) Receivables and debt securities Information of exposure to credit risk of notes and accounts receivable, please refer to note (6)(h). Other financial assets at amortized cost includes other receivables, investments in corporate bonds and time deposits (previously classified as bond investment without an active market on December 31, 2017). These financial assets are considered to have low risk, and thus, the impairment provision recognized during the period was limited to 12 months expected losses (Regarding how the financial instruments are considered to have low credit risk, please refer to note (4)(f).). Due to the counter parties and the performing parties of the Company’s time deposits are financial institutions with investment grade and above, these time deposits are considered to have low credit risk. (ii) Liquidity risk The following are the contractual maturities of financial liabilities, excluding estimated interest payments. Carrying Amount Contractual cash flows Within 1 year 1 ~ 2 years Over 2 years December 31, 2018 Non-derivative financial liabilities Unsecured borrowings Notes and accounts payable Other payables $ 79,701,932 (68,801,932) (79,701,932) 155,427,659 (155,427,659) (155,427,659) (5,044,541) (5,044,541) $ 240,174,132 (240,174,132) (229,274,132) 5,044,541 December 31, 2017 Non-derivative financial liabilities Unsecured borrowings Notes and accounts payable Other payables $ 68,519,200 (47,404,750) (68,519,200) 143,668,312 (143,668,312) (143,668,312) (4,346,361) (4,346,361) $ 216,533,873 (216,533,873) (195,419,423) 4,346,361 (8,600,000) (2,300,000) - - - - (8,600,000) (2,300,000) (13,514,450) - - (13,514,450) (7,600,000) - - (7,600,000) (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 69 The Company is not expecting that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts. (iii) Currency risk 1) Exposure to foreign currency risk The Company’s significant exposure to foreign currency risk was as follows: December 31, 2018 Exchange rate Foreign currency TWD December 31, 2017 Exchange rate Foreign currency TWD Financial assets Monetary items USD to TWD Non-monetary items THB to TWD Financial liabilities Monetary items USD to TWD 2) Sensitivity analysis $ 6,889,285 30.715 211,604,389 6,517,889 29.76 193,972,377 423,027 0.946 400,184 712,938 0.9176 654,192 6,819,596 30.715 209,463,891 6,125,248 29.76 182,287,380 The Company’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents, accounts receivable, other receivables, loans and borrowings, accounts payable, and other payables that are denominated in foreign currency. Assuming all other variable factors remain constant, a strengthening (weakening) 5% of appreciation (depreciation) of the each major foreign currency against the Company’s functional currency as of December 31, 2018 and 2017, would have increased (decreased) the net profit before tax as follows. The analysis is performed on the same basis for both periods. USD (against the TWD) Strengthening 5% Weakening 5% 3) Exchange gains and losses of monetary items December 31, 2018 December 31, 2017 $ 107,025 584,250 (107,025) (584,250) As the Company deals with diverse foreign currencies, gains or losses on foreign exchange were summarized as a single amount. For the years ended December 31, 2018 and 2017, the foreign exchange losses, including both realized and unrealized, amounted to $221,786 and $1,613,222, respectively. (iv) Interest rate analysis The interest risk exposure from financial assets and liabilities has been disclosed in the note of liquidity risk management. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 70 The following sensitivity analysis is based on the risk exposure to interest rate on the derivative and non-derivative financial instruments on the reporting date. Regarding the assets and liabilities with variable interest rates, the analysis is on the basis of the assumption that the amount of assets and liabilities outstanding at the reporting date were outstanding throughout the year. The rate of change is expressed as the interest rate increase or decrease by 0.25%, when reporting to management internally, which also represents the assessment of the Company’s management for the reasonably possible interval of interest rate change. Assuming all other variable factors remaining constant, if the interest rate had increased or decreased by 0.25%, the impact to the net profit before tax would be as follows for the years ended December 31, 2018 and 2017, which would be mainly resulted from the bank savings and borrowings with variable interest rates. Interest increased by 0.25% Interest decreased by 0.25% (v) Fair value information 2018 2017 $ (30,511) (47,830) 30,511 47,830 1) The categories and fair value of financial instruments The Company’s financial assets at fair value through profit or loss and financial assets at fair value through other comprehensive income (available- for-sale financial assets) were measured at fair value on a recurring basis. The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It shall not include fair value information of the financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value and investments in equity instruments which do not have any quoted price in an active market in which the fair value cannot be reasonably measured. Financial assets at fair value through profit December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total or loss–current and non-current Non-derivative financial assets Mandatorily measured at fair value through profit or loss Financial assets at fair value through other comprehensive income Stocks listed on domestic markets Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Accounts receivable Subtotal $ 308,513 284,768 2,383,976 2,383,976 400,184 896,395 51,363 22,896,211 26,628,129 400,184 - - - - - - - - 23,745 308,513 - - 896,395 51,363 2,383,976 400,184 896,395 51,363 22,896,211 - 22,896,211 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 71 December 31, 2018 Fair Value Book value Level 1 Level 2 Level 3 Total Financial assets measured at amortized cost Cash and cash equivalents Corporate bonds－current 20,446,378 350,000 Notes and accounts receivable, net 166,600,383 Notes and accounts receivable due from related parties, net Other receivables Guarantee deposits Subtotal Total Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Total 1,318,230 1,418,750 117,500 190,251,241 $ 217,187,883 $ 51,305,682 77,050,816 78,376,843 5,044,541 17,496,250 10,900,000 $ 240,174,132 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - December 31, 2017 Fair Value Book value Level 1 Level 2 Level 3 Total Available-for-sale financial assets Stocks listed on domestic markets Stocks listed on foreign markets Stocks unlisted on domestic markets Stocks unlisted on foreign markets Subtotal Financial assets at cost (non-current) Loans and receivables Cash and cash equivalents Bond investment without active market-including current and non-current Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Guarantee deposits Subtotal Total $ 3,794,069 3,794,069 654,192 654,192 1,207,219 126,333 5,781,813 2,333 28,343,534 700,000 165,540,785 2,095,570 711,293 106,744 197,497,926 $ 203,282,072 - - - - - - - - - - - - - - - - - - - - - - 3,794,069 654,192 1,207,219 1,207,219 126,333 126,333 - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 72 December 31, 2017 Fair Value Book value Level 1 Level 2 Level 3 Total Financial liabilities measured at amortized cost Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Long-term borrowings current portion Long-term borrowings Total $ 41,386,000 72,212,035 71,456,277 4,346,361 6,018,750 21,114,450 $ 216,533,873 - - - - - - - - - - - - - - - - - - - - - - - - 2) Fair value valuation technique of financial instruments not measured at fair value The Company estimates financial instruments that not measured at fair value by methods and assumption as follows: a) Financial assets measured at amortized cost (bond investment without active market) and financial liabilities measured at amortized cost If there is quoted price generated by transactions, the recent transaction price and quoted price data is used as the basis for fair value measurement. However, if no quoted prices are available, the discounted cash flows are used to estimate fair values. 3) Fair value valuation technique of financial instruments measured at fair value a) Non-derivative financial instruments Financial instruments trade in active markets is based on quoted market prices. The quoted price of a financial instrument obtained from main exchanges and on-the-run bonds from Taipei Exchange can be used as a base to determine the fair value of the listed companies’ equity instrument and debt instrument of the quoted price in an active market. If a quoted price of a financial instrument can be obtained in time and often from exchanges, brokers, underwriters, industrial union, pricing institute, or authorities and such price can reflect those actual trading and frequently happen in the market, then the financial instrument is considered to have a quoted price in an active market. If a financial instrument is not in accord with the definition mentioned above, then it is considered to be without a quoted price in an active market. In general, market with low trading volume or high bid-ask spreads is an indication of a non-active market. The fair value of the listed company is determined by reference to the market quotation. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 73 The measurements on fair value of the financial instruments without an active market are determined using the valuation technique or the quoted market price of its competitors. Fair value measured using the valuation technique can be extrapolated from similar financial instruments, discounted cash flow method, or other valuation techniques which include the model used in calculating the observable market data at the balance sheet date. The measurement of fair value of a non-active market financial instruments held by the Company which do not have quoted market prices are based on the comparable market approach, with the use of key assumptions of price-book ratio multiple or earnings multiple of comparable listed companies as its basic measurement. These assumptions have been adjusted for the effect of discount without the marketability of the equity securities. b) Derivative financial instruments Measurement of the fair value of derivative instruments is based on the valuation techniques that are generally accepted by the market participants. For instance, discount method or option pricing models. Fair value of forward currency exchange is usually determined by using the forward currency rate. 4) Transfer from one level to another There was no transfer from one level to another in 2018 and 2017. 5) Changes in level 3 The change in level 3 at fair value in the years ended December 31, 2018 and 2017, were as follow: Balance on January 1, 2018 Effects of retrospective application Adjusted balance on January 1, 2018 Total gains and losses recognized: In other comprehensive income Purchased Proceeds of capital reduction of investment Financial assets at fair value through profit or loss - $ - - - - 23,745 Balance on December 31, 2018 $ 23,745 Financial assets at fair value through other comprehensive income (available-for-sale financial assets) 1,333,552 2,333 1,335,885 (487,950) 107,877 (8,054) 947,758 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 74 Financial assets at fair value through other comprehensive income (available-for-sale financial assets) 2,101,861 (4,440) 60,180 (13,049) (811,000) 1,333,552 Financial assets at fair value through profit or loss - $ - - - - - Balance on January 1, 2017 Total gains and losses recognized: In other comprehensive income Purchased Proceeds of capital reduction of investment Disposal Balance on December 31, 2017 $ For the years ended December 31, 2018 and 2017, total gains and losses that were included in “other comprehensive income, before tax, available-for-sale financial assets” and “other comprehensive income, before tax, equity instruments at fair value through other comprehensive income” were as follows: Total gains and losses recognized: In other comprehensive income (as “other comprehensive income, before tax, available-for-sale financial assets”) In other comprehensive income (as “other 2018 2017 $ - (4,440) comprehensive income, before tax, equity instruments at fair value through other comprehensive income”) $ (487,950) - 6) The quantified information for significant unobservable inputs (level 3) used in fair value measurement The Company’s financial instruments that use level 3 input to measure fair values include financial assets at fair value through other comprehensive income –equity instruments, financial assets at fair value through profit or loss –equity securities investment and available-for-sale financial assets – equity investment. Most of fair value measurements of the Company which are categorized as equity investment into level 3 have several significant unobservable inputs. Significant unobservable inputs of equity investments without quoted price are independent of each other. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 75 The quantified information for significant unobservable inputs was as follows: Significant unobservable inputs Price-Book ratio multiples (1.33~5.86, 1.7671~2.63, respectively, on December 31, 2018 and 2017) Multiples of earnings (2.32~2.95 on December 31, 2018) Lack-of-Marketability discount rate (40%~82%, and 45%~65%, respectively, on December 31, 2018 and 2017) Net asset value Inter-relationships between significant unobservable inputs and fair value The higher the multiple is, the higher the fair value will be. The higher the multiple is, the higher the fair value will be. The higher the Lack-of-Marketabilit y discount rate is, the lower the fair value will be. Inapplicable Valuation technique Comparable market approach Item Financial assets at fair value through other comprehensive income (available-for-sale financial assets)－ equity investment without an active market Net asset value method Financial assets at fair value through other comprehensive income (available-for-sale financial assets)- investment in private placement 7) Sensitivity analysis for fair value of financial instruments using level 3 inputs The Company ’ s fair value measurement on financial instruments is reasonable. However, the measurement would be different if different valuation models or valuation parameters are used. For financial instruments using level 3 inputs, if the valuation parameters changed, the impact on other comprehensive income or loss are as follows: (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 76 Other comprehensive income Input Move up or down Favorable change Unfavorable change December 31, 2018 Financial assets at fair value through other comprehensive income December 31, 2017 Available-for-sale financial assets Price-Book ratio multiples Multiples of earnings Lack-of-Marketability discount rate Price-Book ratio multiples Lack-of-Marketability discount rate 5% $ 24,924 24,935 5% 5% 5% 5% $ $ $ $ 18,629 4,913 17,648 4,925 2,531 4,633 2,602 4,562 The favorable and unfavorable changes reflect the movement of the fair value, in which the fair value is calculated by using the different unobservable inputs in the valuation technique. The table above shows the effects of one unobservable input, without considering the inter-relationships with another unobservable input for financial instrument, if there are one or more unobservable inputs. (ad) Financial risk management (i) Overview The Company is exposed to the following risks arising from financial instruments: 1) Credit risk 2) Liquidity risk 3) Market risk In this note expressed the information on risk exposure and objectives, policies and procedures of risk measurement and management of the Company. For detailed information, please refer to the related notes of each risk. (ii) Structure of risk management The Company’s finance management department provides business services for the overall internal department. It sets the objectives, policies and processes for managing the risk and the methods used to measure the risk arising from both the domestic and international financial market operations. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 77 The Company minimizes the risk exposure through derivative financial instruments. The Board of Directors regulated the use of derivative financial instruments in accordance with the Company’s policy about risks arising from financial instruments such as currency risk, interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investments of excess liquidity. The internal auditors of the Company continue with the review of the amount of the risk exposure in accordance with the Company’s policies and the risk management policies and procedures. The Company has no transactions in financial instruments (including derivative financial instruments) for the purpose of speculation. (iii) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. 1) Accounts receivable and other receivables The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, and these limits are reviewed periodically. 2) Investments The credit risks exposure in the bank deposits, investments with fixed income and other financial instruments are measured and monitored by the Company ’ s finance department. Since the Company’s transaction counterparties and the contractually obligated counterparties are banks, financial institutes and corporate organizations with good credits, there are no compliance issues, and therefore, no significant credit risk. 3) Guarantees Pursuant to the Company’ s policies, it is only permissible to provide financial guarantees to subsidiaries and companies that the Company has business with. As of December 31, 2018 and 2017, The guarantees provide to the subsidiaries amounted to $325,179 and $372,963, respectively. (iv) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities which be settled by delivering cash or another financial asset. The Company manages and maintains sufficient cash and cash equivalents so as to cope with its operations and mitigate the effects of fluctuations in cash flows. The Company’s management supervises the banking facilities and ensures in compliance with the terms of the loan agreements. Please refer to notes (6)(n) and (6)(o) for unused credit lines of short-term and long-term borrowings as of December 31, 2018 and 2017. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 78 (v) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. 1) Currency risk The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currencies of the Company, primarily USD. As for other monetary assets and liabilities denominated in other foreign currencies, when short-term imbalance takes place, the Company buys or sells foreign currencies at spot rate to ensure that the net exposure is kept on an acceptable level. 2) Interest rate risk The Company borrows funds on fixed and variable interest rates, which has a risk exposure to changes in fair value and cash flow. Therefore, the Company manages the interest rates risk by maintaining an adequate combination of fixed and variable interest rates. 3) Other price risk The Company is exposed to equity price risk arising from investments in listed equity securities. (ae) Capital management The policy of capital management made by the Board of Directors is to maintain a strong capital base so as to stabilize the confidence of the investors, creditors and the public market and to sustain future development of the business. Capital consists of ordinary shares, capital surplus and retained earnings. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. The Company monitors the capital structure by way of periodical review the debt ratio. As of December 31, 2018 and 2017, the debt ratio was as follows: Total liabilities Total assets Debt ratio December 31, 2018 $ 250,089,167 December 31, 2017 226,200,482 $ 355,812,813 328,096,066 70 % 69 % The Company could purchase its own shares in the public market in accordance with the corresponding rules and regulations. The timing of the purchases depends on market prices. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 79 As of December 31, 2018, there were no changes in the Company’s approach of capital management. (af) Investing and financing activities not affecting current cash flow There is no investing and financing activities which did not affect the current cash flow in the year ended December 31, 2018. Reconciliation of liabilities arising from financial activities were as follows: Long-term borrowings Short-term borrowings January 1, 2018 27,133,200 $ Cash flow 1,263,050 December 31, 2018 28,396,250 41,386,000 9,919,682 51,305,682 Total liabilities from financing activities $ 68,519,200 11,182,732 79,701,932 (7) Related-party transactions: (a) Name and relationship with related parties The following are the subsidiaries and entities that have transactions with related party during the periods covered in the financial statements. Name of related party Panpal Technology Corp. (“Panpal”) Gempal Technology Corp. (“Gempal”) Hong Ji Capital Co., Ltd. (“Hong Ji”) Hong Jin Investment Co., Ltd. (“Hong Jin”) Zhaopal Yongpal Kaipal Accesstek, Inc. (“ATK”) Arcadyan Rayonnant Technology Co., Ltd. (“Rayonnant Technology”) HengHao Ripal Optortronics Co., Ltd. (“Ripal”) Auscom Engineering Inc. (“Auscom”) Just International Ltd. (“Just”) Compal International Holding Co., Ltd. (“CIH”) Compal Electronics (Holding) Ltd. (“CEH”) Bizcom Electronics, Inc. (“Bizcom”) Country of incorporation The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 80 Name of related party Flight Global Holding Inc. (“FGH”) High Shine Industrial Corp. (“HSI”) Compal Europe (Poland) Sp. z o.o. (“CEP”) Big Chance International Co., Ltd. (“BCI”) Compal Rayonnant Holdings Limited (“CRH”) Core Profit Holdings Limited (“CORE”) Compalead Electronics B.V. (“CPE”) Country of incorporation The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary Compalead Eletronica do Brasil Industria e Comercio Ltda. (“CEB”) The Company's subsidiary Compal Display Holding (HK) Limited (“CDH (HK)”) Compal Electronics International Ltd. (“CII”) Compal International Ltd. (“CPI”) Compal Electronics (China) Co., Ltd. (“CPC”) Compal Optoelectronics (Kunshan) Co., Ltd. (“CPO”) Compal System Trading (Kunshan) Co., Ltd. (“CST”) Smart International Trading Ltd. (“Smart”) Amexcom Electronics Inc. (“AEI”) Mexcom Electronics, LLC (“MEL”) Mexcom Technologies, LLC (“MTL”) CENA Electromex, S.A. de C.V. (“CMX”) Compal International Holding (HK) Limited (“CIH (HK)”) Jenpal International Ltd. (“Jenpal”) Prospect Fortune Group Ltd. (“PFG”) Compal Electronics Technology (Kunshan) Co., Ltd. (“CET”) Compal Information (Kunshan) Co., Ltd. (“CIC”) Compal Information Technology (Kunshan) Co., Ltd. (“CIT”) Kunshan Botai Electronics Co., Ltd. (“BT”) The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary Compal Information Research and Development (Nanjing) Co., Ltd. (“CIN”) The Company's subsidiary Compal Digital Technology (Kunshan) Co., Ltd. (“CDT”) Compower Global Service Co., Ltd. (“CGS”) Compal Investment (Jiansu) Co., Ltd. (“CIJ”) Compal Display Electronics (Kunshan) Co., ltd. (“CDE”) Etrade Management Co., Ltd. (“Etrade”) The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 81 Name of related party Webtek Technology Co., Ltd. (“Webtek”) Forever Young Technology Inc. (“Forever”) Unicom Global, Inc. (“UCGI”) Palcom International Corporation (“Palcom”) Compal Communication (Nanjing) Co., ltd. (“CCI Nanjing”) Compal Digital Communication (Nanjing) Co., Ltd. (“CDCN”) Country of incorporation The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary Compal Wireless Communication (Nanjing) Co., Ltd. (“CWCN”) The Company's subsidiary Hanhelt Communication (Nanjing) Co., Ltd. (“Hanhelt”) Giant Rank Trading Ltd. (“GIA”) OptoRite Inc. MSI-ATK Otpics Holding Corporation (“MSI-ATK”) Maitek (BVI) Corporation (“Maitek”) Arcadyan Technology N.A. Corp. (“Arcadyan USA”) Arcadyan Germany Technology GmbH (“Arcadyan Germany”) Arcadyan Technology Corporation Korea (“Arcadyan Korea”) Arcadyan Holding (BVI) Corp. (“Arcadyan Holding”) Arcadyan do Brasil Ltda. (“Arcadyan Brasil”) Arcadyan Technology Limited (“Arcadyan UK”) Arcadyan Technology Australia Pty Ltd. (“Arcadyan AU”) Zhi-pal Technology Inc. (“Zhi-pal”) Tatung Technology Inc. (“TTI”) AcBel Telecom Inc. (“AcBel Telecom”) CBN Speedlink Tradings Limited (“Speedlink”) Compal Broadband Networks Belgium BVBA ("CBNB”) Sinoprime Global Inc. (“Sinoprime”) Arcadyan Technology (Shanghai) corp. (“SVA Arcadyan”) Arch Holding (BVI) Corp. (“Arch Holding”) Compal Networking (Kunshan) Co., Ltd. (“CNC”) Leading Images Ltd. (“Leading Images”) Great Arch Group Ltd. (“Great Arch”) Astoria Networks GmbH (“Astoria GmbH”) The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 82 Name of related party Quest International Group Co., Ltd. (“Quest”) Exquisite Electronic Co., Ltd. (“Exquisite”) Tatung Home Appliances (Wujiang) Co., Ltd. (“THAC”) Tatung Technology of Japan Co., Ltd. Intelligent Universal Enterprise Ltd. (“IUE”) Goal Reach Enterprises Ltd. (“Goal”) Compal (Vietnam) Co., Ltd. (“CVC”) Country of incorporation The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary Compal Development &Management (Vietnam) Co., Ltd. (“CDM”) The Company's subsidiary Allied Power Holding Corp. (“APH”) Primetek Enterprises Limited (“PEL”) The Company's subsidiary The Company's subsidiary Rayonnant Technology (HK) Co., Ltd. (“Rayonnant Technology (HK)”) The Company's subsidiary Royonnant Technology (Taicang) Co., Ltd. (“Rayonnant Technology The Company's subsidiary (Taicang)”) HengHao Holdings A Co., Ltd. (“HHA”) HengHao Holdings B Co., Ltd. (“HHB”) HengHao Trading Co., Ltd. HengHao Optoelectronics Technology (Kunshan) Co., Ltd. LUCOM Display Technology (Kunshan) Limited (“Lucom”) Center Mind International Co., Ltd. (“CMI”) Prisco International Co., Ltd. (“PRI”) Compal Electronic (Sichuan) Co., Ltd. (“CIS”) Compal Electronic (Chongqing) Co., Ltd. (“CEQ”) Compal Electronic (Chengdu) Co., Ltd. (“CEC”) Compal Management (Chengdu) Co., Ltd. (“CMC”) Compal Smart Device (Chongqing) Co., Ltd. (“CSD”) Billion Sea Holdings Limited (“BSH”) Fortune Way Technology Corp. (“FWT”) General Life Biotechnology Co., Ltd. (“GLB”) Mactech Co., Ltd. (“Mactech”) Rapha Bio Ltd. (“Rapha”) Compal Electronics India Private Limited (“CEIN”) Shennona Corporation (“Shennona”) Unicore BioMedical Co., Ltd. (“Unicore”) The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary The Company's subsidiary (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 83 Raycore Biotech Co., Ltd. (“Raycore”) Name of related party AcBel Polytech Inc. (AcBel) and its subsidiaries (“AcBel”) Avalue Technology Inc (“Avaulue”) Crownpo Technology Inc (“Crownpo”) Kinpo Group Management Consultant Company (“Kinpo Group Management”) Allied Circuit Co., Ltd. (“Allied Circuit”) Compal Connector Manufacture Ltd. (“CCM”) (b) Transactions with key management personnel Key management personnel remunerations comprised: Short-term employee benefits Post-employment benefits Share-based payments Country of incorporation The Company's subsidiary The same chairman of the board with the Company An associate An associate An associate An associate A joint venture company 2018 2017 $ 487,007 385,294 5,913 (91,809) 6,226 68,529 $ 401,111 460,049 There are no termination benefits and other long-term benefits. Please refer to note (6)(v) for explanations related to share-based payments. (c) Significant related-party transactions (i) Sale of goods to related parties The amounts of significant sales transactions between the Company and related parties were as follows: Subsidiaries Associates Other related parties 2018 2017 $ 2,649,187 3,767,204 246 - 216 1,630 $ 2,649,433 3,769,050 Sales prices for related parties were similar to those of the third-party customers. The collection period was 45~180 days for related parties. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 84 (ii) Purchase of goods from related parties The amounts of significant purchase transactions between the Company and related parties were as follows: Subsidiaries Associates Joint venture 2018 2017 $ $ 287,509,094 9,234 370 287,518,698 223,224,665 915 122 223,225,702 Purchase prices and payment period from related parties were similar to those from third-party suppliers. The payment period was 60~120 days for related parties. (iii) Product warranty service expenses The product warranty service expenses paid to subsidiaries for the years ended December 31, 2018 and 2017, amounted to $278,993 and $331,126, respectively. As of December 31, 2018 and 2017, the unpaid warranty service expenses were record as other payables. (iv) Technical service expense The Company engaged its subsidiaries to research and develop of notebooks, and the related technical service expenses for the years ended December 31, 2018 and 2017, amounted to $154,412 and $155,085, respectively. As of December 31, 2018 and 2017, the unpaid technical service expenses were recorded as other payables. (v) Receivable due from relate parties The receivables arising from the transactions mentioned above, the sale of machinery and equipment to related parties, and the purchasing of machinery, equipment and others on behalf of the related parties as of December 31, 2018 and 2017, were as follows: Account Related party categories December 31, 2018 December 31, 2017 Notes and accounts receivable Subsidiaries $ 1,318,230 2,095,564 Notes and accounts receivable Other receivables Other receivables Other receivables Other related parties Subsidiaries Joint venture Other related parties - 520,598 120 6 204,779 179 - 127 1,838,948 2,300,655 Less: Credit balance of investments accounted for using equity method (376,263) $ 1,462,685 (179,256) 2,121,399 (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 85 As of December 31, 2018 and 2017, the Company’s investment accounted for using the equity method in subsidiaries was a credit balance, recorded as a deduction from other receivable (other receivables) – related party. Please refer to note (6)(k). (vi) Payable to related parties The payables to related parties as of December 31, 2018 and 2017, were as follows: Account Related party categories Notes and accounts payable Subsidiaries Notes and accounts payable Associates Notes and accounts payable Joint venture Other payable Other payable Subsidiaries Associates December 31, 2018 78,367,526 $ December 31, 2017 71,455,385 9,157 160 782 110 199,328 159,814 1,019 - $ 78,577,190 71,616,091 (vii) Loan to related parties The interest rate of unsecured loans to subsidiaries was 1.20%~2.82%, and the Company had assessed that no bad debt expenses should be recognized. As of December 31, 2018 and 2017, the loans due to related parties were recorded as other receivables. Account Related party categories December 31, 2018 December 31, 2017 Other receivable Subsidiaries Less: Credit balance of investments accounted for using the equity method $ $ 419,618 413,411 (118,481) 301,137 (52,938) 360,473 As of December 31, 2018 and 2017, the Company’s investment accounted for using the equity method in some subsidiaries was a credit balance, recorded as a deduction from other receivable (other receivables) – related parties. Please refer to note (6)(k). (viii) Guarantees As of December 31, 2018 and 2017, the guarantees provided to subsidiaries were $325,179 and $372,963, respectively. (8) Pledged assets: None. (Continued) COMPAL ELECTRONICS, INC. Notes to Parent-Company-Only Financial Statements 86 (9) Commitments and contingencies: The details of commitments and contingencies were as follows: (a) On May 17, 2017, Qualcomm Inc. filed a lawsuit to the Southern District Court of California, USA against the Company for not paying the royalties of the patent license agreement. The Company has filed counterclaims against Qualcomm Inc. based on the antitrust law in the same court on July 19, 2017. The Company has engaged counsels to defend the lawsuits. The final result of this case is subject to future litigation procedures; therefore, there is no significant impact on the Company’s business and financial performance in the current year. (b) The Company entered into various patent license agreements with third parties, and was required to make royalty payments of a predetermined amount periodically. (10) Losses due to major disasters: None (11) Subsequent events: None (12) Other: (c) The employee benefits, depreciation and amortization expenses by categorized function are summarized as follows: By function 2018 Operating costs Operating expenses Total Operating costs 2017 Operating expenses Total By item Employee benefits Salary 322,825 8,227,841 8,550,666 293,925 7,023,336 7,317,261 Labor and health insurance Pension 27,602 12,469 517,757 545,359 308,470 320,939 24,351 11,124 Remuneration of directors - 59,182 59,182 - Others Depreciation Amortization 48,089 15,342 40,050 385,959 434,048 150,985 166,327 249,740 289,790 45,473 17,912 7,271 496,735 291,140 41,531 374,941 147,953 307,387 521,086 302,264 41,531 420,414 165,865 314,658 The Company had 7,405 and 6,590 employees as of December 31, 2018 and 2017, of which 11 and 11, directors were not in concurrent employment, respectively. (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 87 (13) Other disclosures: (a) Information on significant transactions: The following were the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Company for the year ended December 31, 2018: (i) Loans to other parties: Name of lender Name of borrower Account name Related party Y Other No 0 0 The UCGI Company The HengHao receivables 〃 〃 〃 〃 〃 〃 CEP CEB CVC CDE CDE Company 1 CIH 2 CPI 2 CPI 3 CET 4 CPC 5 CIT 5 CIT 6 PFG CCI Nanjing 〃 Rayonnant Technology 〃 (Taicang) CEB 〃 7 Arcadyan Arcadyan 〃 AU 7 Arcadyan Arcadyan 〃 Arcadyan Brasil CNC 8 Holding 〃 Y Y Y Y Y Y Y Y Y Y Y Y Highest balance of financing to other parties during the period Ending balance 500,000 250,000 402,354 199,618 Actual usage amount during the period 220,000 Range of interest rates during the period 1.2% 199,618 1.8%~2.82% Purposes of fund financing for the borrower Short-term financing 〃 108,343 107,503 44,537 3.50% 437,925 - - 2.50% 307,150 307,150 127,467 3.2% 1,405,800 - - 4.35% 1,377,900 1,341,600 1,341,600 2.20% 4,316,900 2,150,050 2,150,050 2.50%~2.76 67,080 67,080 - % 4.35% 309,550 307,150 307,150 2.50% 〃 〃 〃 〃 〃 〃 〃 〃 Transaction amount for business between two parties - - - - - - - - - - Reasons for short-term financing Operating demand 〃 〃 〃 〃 〃 〃 〃 〃 〃 122,860 122,860 - 245,720 245,720 33,787 1.00% Transaction for business between two parties 〃 1.00% 1,535,750 307,150 - - 522,155 522,155 - 1.00% Short-term financing - Operating financing (In Thousands of New Taiwan Dollars) Collateral Allowance for bad debt Item Value Individual funding loan limits Maximum limit of fund financing - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 900,177 900,177 21,144,729 42,289,458 (Note 1) 21,144,729 42,289,458 (Note 1) 34,926,977 34,926,977 (Note 2) 900,177 (Note 3) 900,177 (Note 3) 4,824,445 (Note 4) 2,040,377 (Note 5) 20,445,466 20,445,466 (Note 6) 20,445,466 20,445,466 (Note 6) 4,824,445 2,040,377 421,799 1,228,600 245,720 970,670 421,799 (Note 7) 3,626,457 (Note 8) 3,626,457 (Note 8) 970,670 (Note 9) Note 1: According to the Company’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of the Company. When a short-term financing facility with the Company is necessary, the total amount for lending to any company shall not exceed 80% of the borrower’s net worth, nor shall it be more than 50% of the Company’s lendable amount limit, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, the total amount lendable to 100% directly or indirectly owned subsidiaries by the Company is unrestricted by the aforesaid restriction of 80%, but the maximum amount shall not exceed 50% of the Company’s lendable limit, and shall be combined with the company’s amount of loans to others when calculating. Note 2. According to CIH’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CIH. When a short-term financing facility with CIH is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIH’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIH, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 3. According to CPI’s Procedures for Lending Funds to Other Parties, the total amount of loans to others shall not exceed 40% of the net worth of CPI. When a short-term financing facility with CPI is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPI’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPI, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 4. According to CET’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CET. When a short-term financing facility with CET is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CET’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CET, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 5. According to CPC’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CPC. When a short-term financing facility with CPC is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CPC’s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CPC, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 88 Note 6. According to CIT’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of CIT. When a short-term financing facility with CIT is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of CIT’s total amount of capital lent, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of CIT, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 7. According to PFG’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of PFG. When a short-term financing facility with PFG is necessary, the total amount for lending the borrower shall not exceed 80% of the borrower’s net worth, nor shall it exceed 50% of PFG’s total amount of lendable capital, and shall be combined with the company’s endorsements/guarantees for calculation. In addition, when lending to the ultimate parent company’s 100% directly or indirectly owned overseas subsidiaries, the total amount of loans is not limited by the two aforesaid restrictions, but the maximum amount shall not exceed the net worth of PFG, and shall be combined with the company’s endorsements/guarantees for the borrower when calculating. Note 8. According to Arcadyan’s Procedures for Lending Funds to Other parties, the total amount of loans to others shall not exceed 40% of the net worth of Arcadyan. To borrowers having business relationship with Arcadyan, the total amount for lending the borrower shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount for the current year, nor shall it exceed 20% of the net worth of Arcadyan. Also, the amount shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. When a short-term financing facility is necessary, the borrower should be Arcadyan’s investee. The total amount for lending the borrower shall not exceed 80% of the net worth of the borrower, nor shall it exceed 20% of the net worth of Arcadyan, and shall be combined with the Arcadyan’s endorsements/guarantees for the borrower when calculating. Note 9. According to Arcadyan Holding’s Procedures of Lending Funds to Other Parties, the total amount of loans to others shall not exceed the net worth of Arcadyan Holding. When a short-term financing facility is necessary, the borrower should be Arcadyan Holding’s investee. The total amount for lending the borrower shall not exceed the net worth of Arcadyan Holding, and shall be combined with the Arcadyan Holding’s endorsements/ guarantees for the borrower when calculating. (ii) Guarantees and endorsements for other parties: Name of guarantor Name The CEB No. 0 Company 0 〃 CEP 1 Arcadyan Arcadya n Brasil Counter-party of guarantee and endorsement Relationship with the Company (Note 3) Balance of guarantees Limitation on amount of guarantees and endorsements for a specific enterprise Highest balance for guarantees and endorsements during the period 26,430,911 61,910 and endorsements as of reporting date 61,430 Actual usage amount during the period 61,430 Property pledged for guarantees and endorsements (Amount) - Ratio of accumulated amounts of guarantees and endorsements to net worth of the latest financial statements Maximum amount for guarantees and endorsements 0.06% 52,861,823 (Note 1) (In Thousands of New Taiwan Dollars) Parent company endorsements/ Subsidiary endorsements/ guarantees to third parties on behalf of subsidiary Y guarantees to third parties on behalf of parent company - Endorsements/ guarantees to third parties on behalf of companies in Mainland China - (Note 2) 26,430,911 315,364 263,749 263,749 (Note 5) 1,208,819 245,720 245,720 - - - 0.25% 52,861,823 (Note 1) 2.71% 3,626,457 (Note 4) Y Y - - - - Note 1: According to the Company’s Procedures for Endorsement and Guarantee, the total amount of endorsements/ guarantees the Company or the Group is permitted to make shall not exceed 50% of the Company’s net worth. Endorsements/ guarantees the Company and the Group are permitted to make for a single company shall not exceed 25% of the Company’s net worth. For entities having business relationship with the Company, the amount of endorsements/ guarantees for a single company shall not exceed 80% of the transaction amount in the last fiscal year or the expecting amount of the current year, and shall be combined with the amount lend to others when calculating. The amount of endorsements/ guarantees permitted to make between subsidiaries whose over 90% of its voting shares are owned, directly or indirectly, by the Company shall be no more than 10% of the net worth of the Company. The amount of endorsements/ guarantees permitted to make between directly or indirectly wholly owned subsidiaries is not limited by the aforementioned restriction, only the maximum amount shall be no more than 25% of the net worth of the Company. Note 2: Subsidiary whose over 50% common stock is directly owned. Note 3: Subsidiary whose over 50% common stock is indirectly owned. Note 4: According to Arcadyan's Procedures for Endorsement and Guarantee, the total amount shall not exceed 40% of the net worth for latest financial statements audited or reviewed by Certified Public Accountants, and the amount for a single company shall not exceed 1/3 of the total amount. Note 5: Subsidiary whose 100% common stock is directly owned by Arcadyan. (iii) Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates and joint ventures): Name of holder The Company Category and name of security Common bond－Taiwan Star Relationship with security issuer - Taiwan Star - Kinpo Electronics, Inc. (“Kinpo”) Cal-Comp Electronics (“Thailand”) Public Co., Ltd. Innolux Corporation (“Innolux”) Chipbond Technology Corp. (“Chipbond”) The same chairman of the Company 〃 - - (In Thousands of Shares / Units) Shares/Unit s (thousands) - Ending balance Carrying value Holding percentage (%) Fair value Note 350,000 - - 98,046 734,368 3% 734,368 124,044 1,252,842 9% 1,252,842 239,631 400,184 5% 400,184 109,227 1,061,690 1% 1,061,690 4,593 284,768 1% 284,768 Account name Financial assets at amortized cost-current Financial assets at fair value through other comprehensive income-non-current 〃 〃 〃 Financial assets at fair value through profit or loss-current (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 89 Name of holder The Company Category and name of security HWA VI Venture Capital Corp. Relationship with security issuer - Account name Ending balance Shares/Unit s (thousands) Carrying value Holding percentage (%) Fair value Note Financial assets at fair value through other comprehensive income-non-current 290 20,551 10% 20,551 〃 〃 〃 〃 〃 〃 1,053 4,000 2,000 5,829 1,357 749 22,926 11% 50,040 3% 40,740 3% 22,909 13% 14,542 3% 67,903 2% 22,926 50,040 40,740 22,909 14,542 67,903 66,968 HWA Chi Venture Capital Corp. mProbe Ltd. Global BioPharma, Inc. Chen Feng Optoelectronics PrimeSensor Technology Inc. Macroblock, Inc. Others - - - - - - Total Panpal Compal Electronics, Inc. Kinpo CDIB Partners Investment Holding Corp. AcBel Chipbond The parent company The same chairman of the Company - The same chairman of the Company - Taiwan Biotech Co., Ltd. - Financial assets at fair value through profit or loss and other comprehensive income Financial assets at fair value through other comprehensive income-non-current 〃 〃 〃 Financial assets at fair value through profit or loss-current Financial assets at fair value through other comprehensive income-non-current 〃 Others Total Gempal Compal Electronics, Inc. Lian Hong Art. Co., Ltd. Global BioPharma, Inc. Others Total Hong Ji SUYIN Optronics Co., Ltd. (“SUYIN Optronics”) Hong Jin SUYIN Optronics Arcadyan GeoThings Inc. AirHop Communication Inc. Adant Technologies Inc. IOT EYE, Inc. TIEF Fund, L.P Hitron Technologies Inc. RichWare Technology Corp. Wistron NeWeb Corp. Total The parent company Financial assets at fair value through other comprehensive income-non-current - - - - - - - - - - - - 〃 〃 〃 Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current 〃 〃 〃 〃 Financial assets at fair value through profit or loss-current 〃 〃 66,968 4,040,431 31,648 552,259 1% 552,259 23,172 234,042 2% 234,042 54,000 817,020 5% 817,020 5,677 107,289 1% 107,289 5,251 325,560 1% 325,560 4,897 119,589 3% 119,589 76,178 2,231,937 76,178 18,369 320,545 - 320,545 2,140 2,000 34,921 8% 40,740 3% 2,277 398,483 34,921 40,740 2,277 380 182 1% 182 332 160 1% 160 200 1,152 349 60 - - - - 9% 7% 6% 6% - 45,645 7% 543 10,426 - 110 100 5,115 - 7,990 - 69,176 - - - - (Note 1) 〃 〃 〃 45,645 10,426 5,115 7,990 (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 90 Name of holder Mactech Category and name of security Taichung International Golf Country Club Relationship with security issuer - HHB CPO CET CIC CEC CPC CEQ HWALLAR OPTRONICS (Fuzhou) CO., LTD. Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Total Structured deposits–Bank of Communications Yun Tong Cai Fu, Structured Deposit. Structured deposits–Agricultural Bank of China "HuiLiFeng" customization RMB Structured Deposit Structured deposits–The RMB "Open On Schedule "Financial Product Total Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Structured deposits–The RMB "Open On Schedule "Financial Product Structured deposits–SPD Bank Yield Plus Structured Deposit Total Structured deposits–Industrial Bank Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Total - - - - - - - - - - - - Account name Financial assets at fair value through other comprehensive income-non-current Financial assets at fair value through profit or loss-non current Financial assets at fair value through profit or loss-current 〃 Financial assets at fair value through profit or loss-current 〃 〃 Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current Financial assets at fair value through profit or loss-current 〃 Financial assets at fair value through profit or loss-current 〃 Shares/Unit s (thousands) - Ending balance Carrying value Holding percentage (%) Fair value Note 7,980 - 7,980 (Note 1) - - - - - - - - - - - - - 19% - 〃 480,285 - 480,285 448,948 - 448,948 929,233 225,651 - 225,651 676,881 - 676,881 451,154 - 451,154 1,353,686 179,699 179,699 576,466 - 576,466 226,281 - 226,281 179,963 - 179,963 406,244 259,705 259,705 260,029 260,029 519,734 Note 1: The carrying value is the remaining amount after deducting accumulated impairment. (iv) Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$300 million or 20% of the capital stock: Beginning Balance Purchases Sales Others Ending Balance (In Thousands of New Taiwan Dollars/CNY) Name of company The Company BSH Category and name of security Chipbond LC Future Center (Hong Kong) Ltd. Name of counter-party - Hefei Zhi Ju Sheng Bao Equity Investment Co., Ltd. Account name Financial assets at fair value through profit or loss-curre nt Investmen ts accounted for using equity method Relationship with the company - Shares/ Units (thousands) Amount 13,542 763,771 Shares/ Units (thousands) - Amount - Shares/ Units (thousands) 8,949 Price 574,528 Cost 574,528 Gain (loss) on disposal - Shares/ Units (thousands) Amount Shares/ Units (thousands) Amount - 95,525 (Note 1) 4,593 284,768 - 147,000 4,742,832 - - 147,000 7,384,102 (Note 3) 4,873,017 2,511,085 - 130,185 (Note 2) - - (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 91 Beginning Balance Purchases Sales Others Ending Balance Name of counter-party Bank of China Relationship with the company Shares/ Units (thousands) - Amount - Shares/ Units (thousands) - Shares/ Units (thousands) - Amount 543,072 (RMB$ 119,000) Price 325,989 (RMB$ 69,448) Cost 318,780 (RMB$ 69,000) 7,209 (RMB$448) (Note 2) Gain (loss) on disposal Shares/ Units (thousands) Amount - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 508,363 (RMB$ 110,000) 699,581 (RMB$ 153,000) 838,610 (RMB$ 188,000) 702,920 (RMB$ 158,000) 523,488 (RMB$ 112,000) 953,248 (RMB$ 214,000) 890,886 (RMB$ 200,000) 578,442 (RMB$ 130,000) 328,275 (RMB$ 70,264) 328,930 (RMB$ 70,000) (655) (RMB264) (Note 2) 715,328 (RMB$ 154,881) 706,643 (RMB$ 153,000) 8,686 (RMB$1,881) (Note 2) 276,248 (RMB$ 60,595) 273,535 (RMB$ 60,000) 2,713 (RMB$595) (Note 2) 462,760 (RMB$ 101,111) 443,503 (RMB$ 100,000) 19,256 (RMB$1,111) (Note 2) 528,448 (RMB$ 113,061) 523,488 (RMB$ 112,000) 4,960 (RMB$1,061) (Note 2) 492,965 (RMB$ 108,132) 474,652 (RMB$ 107,000) 18,314 (RMB$ 1,132) 460,437 (RMB$ 100,997) 443,600 (RMB$ 100,000) 16,838 (RMB$ 997) 367,162 (RMB$ 80,537) 354,807 (RMB$ 80,000) 16,308 (RMB$ 537) - - - - - - - - - 1,989 (RMB$444) (Note 1) 530 (RMB$118) (Note 1) - 3,958 (RMB$885) (Note 1) 610 (RMB$137) (Note 1) - 1,689 (RMB$378) (Note 1) 1,662 (RMB$371) (Note 1) 2,016 (RMB$460) (Note 1) Shares/ Units (thousands) - Amount 226,281 (RMB$ 50,444) - - - - - - - - 179,963 (RMB$ 40,118) - 576,466 (RMB$ 128,885) 260,029 (RMB$ 58,137) - 480,285 (RMB$ 107,378) 448,948 (RMB$ 100,371) 225,651 (RMB$ 50,460) Name of company CPC CPC CEC CEC CEQ CPO CPO CPO CET Category and name of security Structured deposits–The RMB "Open On Schedule "Financial Product Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits– Win-win Interest Rate Structure RMB Structural Deposits. Structured deposits-Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits-Bank of Communications Yun Tong Cai Fu. Structured Deposit Structured deposits– Agricultural Bank of China "Golden Key. Ben Li Feng" RMB finance products Structured deposits–SPD Bank Yield Plus Structured Deposit Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Structured deposits–Bank of Communications Yun Tong Cai Fu. Structured Deposit. Account name Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Shanghai Pudong Development - Bank China CITTIC - Bank Bank of Communications Bank of Communications Agricultural Bank of China - Shanghai Pudong Development Bank Bank of Communications Bank of Communications (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 92 Beginning Balance Purchases Sales Others Ending Balance Name of company CET CET CET CIC Name of counter-party Shanghai Pudong Development Relationship with the company - Shares/ Units (thousands) - Category and name of security Structured deposits–SPD Bank Yield Plus Structured Deposit Account name Financial assets at fair value through profit or loss-curre nt Bank Amount - Shares/ Units (thousands) - Shares/ Units (thousands) - Amount 310,456 (RMB$ 70,000) Price 323,446 (RMB$ 70,948) Cost 310,456 (RMB$ 70,000) Agricultural Bank of China Structured deposits-Agricult ural Bank of China "HuiLiFeng" customization RMB structured Financial assets at fair value through profit or loss-curre nt deposit Bank of China Structured deposits-The RMB "Open on schedule" Financial Product Structured deposits-SPD Bank Yield Plus Structured Deposit Financial assets at fair value through profit or loss-curre nt Financial assets at fair value through profit or loss-curre nt Shanghai Pudong Development Bank - - - - - - - - - - - - 670,906 (RMB$ 150,000) 669,025 (RMB$ 150,000) 357,794 (RMB$ 80,000) - - - 231,780 (RMB$ 50,841) 221,754 (RMB$ 50,000) 12,199 (RMB$ 841) 184,258 (RMB$ 40,417) 178,897 (RMB$ 40,000) 5,361 (RMB$ 417) Gain (loss) on disposal Shares/ Units (thousands) Amount 16,573 (RMB$ 948) Shares/ Units (thousands) - Amount - - - - 676,881 (RMB$ 151,365) 451,154 (RMB$ 10,888) 179,699 (RMB$ 40,184) - - - - - 5,975 (RMB$| 1,365) (Note 1) 3,883 (RMB$| 888) (Note 1) 802 (RMB$| 184) (Note 1) Note 1: Others were valuation gains and losses and foreign exchange gains and losses. Note 2: These were gains and losses on disposal and foreign exchange gains and losses. Note 3: The related transactions costs were deducted from the selling price. (v) Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vi) Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None (vii) Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100 million or 20% of the capital stock: Transaction details (In Thousands of New Taiwan Dollars) Transactions with terms different from others Notes/Accounts receivable (payable) Company Name Counter party Nature of relationship Purchase/ (Sale) The Company CBN The Company's subsidiaries Sale Percentag e of total purchases/ (sales) (0.2) % Amount (2,138,005) Payment terms 90 days CIH and its subsidiaries Subsidiaries wholly owned by the Company Purchase 111,112,129 12.4 % 120 days UCGI 〃 Sale (238,388) - 〃 Unit price Payment Terms Similar to non-related parties There is no significant difference Similar to non-related parties There is no significant difference, and adjustments will be made based on demand for funding if necessary Similar to non-related parties There is no significant difference Percentage of total notes/ accounts receivable (payable) Note 0.4 % Ending Balance 739,065 (49,114,165) (31.6) % 89,586 0.1 % (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 93 Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) Percentage of total notes/ accounts receivable (payable) Note (0.3) % Ending Balance (504,568) (758,108) (0.5) % 99,370 0.1 % Payment Terms There is no significant difference, and adjustments will be made based on demand for funding if necessary 〃 Company Name The Company Counter party Just and its subsidiaries Nature of relationship Subsidiaries wholly owned by the Company Purchase/ (Sale) Purchase Percentag e of total purchases/ (sales) Amount 132,833 - Payment terms 120 days Unit price Similar to non-related parties 〃 〃 〃 Sale Sale BCI and its subsidiaries Bizcom Palcom Webtek Purchase 770,924 0.1 % 〃 〃 (121,850) - 45~180 days Similar to non-related parties There is no significant difference (114,565) - Net 60 days from delivery 〃 〃 23,209 - % Subsidiaries wholly owned by the Company Purchase 108,584,993 12.1 % Net 60 days from purchase Markup based on Webtek's cost There is no significant difference (7,073,274) (4.6) % Forever 〃 Purchase 66,812,621 7.5 % 〃 Markup based on Forever's cost 〃 (20,843,862) (13.4) % Sale (68,265,549) (63.3) % Net 60 days from delivery According to Just and its subsidiaries Webtek With the same ultimate parent company Forever CIH and its subsidiaries 〃 〃 Sale (30,470,633) (28.3) % 〃 Purchase 387,992 4.0 % Net 60 days from purchase The Company Parent Company Sale (132,833) (0.1) % 120 days CIH and its subsidiaries The Company Parent Company Sale (113,457,780) (77.1) % 〃 〃 Forever With the same ultimate parent company Just and its subsidiaries BCI and its subsidiaries CEB 〃 〃 〃 Sale (29,538,636) (20.1) % Net 60 days from delivery According to markup pricing Sale (387,992) (0.3) % 〃 〃 Purchase 30,045,061 27.3 % 120 days Purchase (145,211) (0.1) % 〃 Similar to non-related parties 〃 (9,852,148) (24.1) % Similar to non-related parties There is no significant difference CBN BCI and its subsidiaries The Company Parent Company Purchase 2,126,356 57.0 % Net 90 days from delivery - The Company 〃 Sale (783,081) (2.3) % 120 days According to markup pricing CIH and its subsidiaries With the same ultimate parent company Sale (30,045,061) (89.3) % CEB 〃 Sale (1,892,352) (5.6) % 〃 〃 〃 〃 There is no significant difference Adjustments will be made based on demand for funding if necessary 〃 There is no significant difference markup pricing Similar to non-related parties Similar to non-related parties Similar to non-related parties Adjustments will be made based on demand for funding 〃 20,177,943 74.6 % 6,472,633 23.9 % 〃 (308,041) (6.9) % There is no significant difference, and adjustments will be made based on demand for funding if necessary There is no significant difference, and adjustments will be made based on demand for funding if necessary Adjustments will be made based on demand for funding 〃 504,568 1.5 % 49,114,165 45.4 % 8,931,246 8.3 % 308,041 0.3 % 45,759 - (739,183) (87.0) % 758,108 6.3 % 9,852,148 81.5 % 562,737 4.7 % (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 94 Transaction details Transactions with terms different from others Notes/Accounts receivable (payable) Company Name Webtek Counter party Nature of relationship The Company Parent Company Purchase/ (Sale) Sale Percentag e of total purchases/ (sales) (100.0) % Net 60 days from delivery Payment terms Amount (108,584,993) Etrade and its subsidiaries With the same ultimate parent company Purchase 40,334,951 37.1 % Net 60 days from purchase 〃 Purchase 68,265,549 62.9 % 〃 Percentage of total notes/ accounts receivable (payable) Note 100.0 % Ending Balance 7,073,274 (4,489,304) (18.2) % Payment Terms Adjustments will be made based on demand for funding 〃 〃 (20,177,943) (81.8) % Unit price 〃 〃 〃 CEB Just and its subsidiaries BCI and its subsidiaries CIH and its subsidiaries Etrade and its subsidiaries Webtek With the same ultimate parent company 〃 With the same ultimate parent company Purchase 1,903,878 17.3 % 120 days Purchase 148,236 1.4 % 120 days Similar to non-related parties There is no significant difference 〃 〃 Sale (40,334,951) (100.0) % Net 60 days from delivery According to markup pricing Adjustments will be made based on demand for funding Forever The Company Parent Company Sale (66,812,621) (85.6) % 〃 〃 CIH and its subsidiaries With the same ultimate parent company Purchase 29,538,636 38.0 % Net 60 days from purchase Similar to 〃 Just and its subsidiaries The Company Parent company Purchase Purchase 30,470,633 39.0 % 〃 241,529 72.8 % 120 days The Company Parent company Purchase 114,565 100.0 % Net 120 days from delivery The Company Parent company Purchase 121,850 (78.8) % 45~180 days UCGI Palcom Bizcom non-related parties 〃 〃 〃 〃 THAC TTI TTI THAC CNC THAC CNC THAC With the same ultimate parent company With the same ultimate parent company 〃 〃 Arcadyan Arcadyan Germany Arcadyan's subsidiaries Arcadyan USA Arcadyan AU Arcadyan 〃 CNC 〃 AcBel Polytech Arcadyan Germany Arcadyan USA Arcadyan AU Arcadyan Arcadyan Arcadyan Arcadyan CNC 〃 〃 The Company's subsidiaries Same Director of Board as ultimate parent company The Company's subsidiaries 〃 〃 Arcadyan's subsidiaries Sale Sale Sale Sale Sale Sale (383,948) (100.0) % Net 60 days from the end of the moth of delivery According to markup pricing Purchase 383,948 4.0 % 〃 Purchase 164,591 3.0 % Net 90 days from the ended of the month of delivery (164,591) (1.0) % 〃 (2,457,020) (11.0) % Net 120 days from delivery (496,199) (2.0) % Net 60 days from the end of the month of delivery (1,329,743) (6.0) % Net 45 days from the end of the month of delivery - - - - - (11,249,751) (100.0) % Net 45ays from the end of the month of delivery According to markup pricing Purchase 108,030 1.0 % Net 120 days from the end of the month of delivery Purchase 2,457,020 100.0 % Net 120 days from delivery Purchase 496,199 100.0 % Net 60 days from the end of the month of delivery Purchase 1,329,743 100.0 % Net 45 days from the end of the month of delivery - - - - Purchase 11,249,751 35.0 % Net 45ays from the end of the month of delivery According to markup pricing 〃 〃 〃 There is no significant difference 〃 〃 - - - - - - - - - - - - - Note 1: The remaining balance is the net value of commissioned processing and sales of raw material. (558,273) (38.2) % (45,479) (3.1) % 4,489,304 100.0 % 20,843,862 91.0 % (8,931,246) (34.0) % (6,472,633) (25.0) % (89,586) (84.5) % (23,209) (100.0) % (99,370) (85.2) % 351,268 100.0 % (Note 1) (351,268) (28.0) % 〃 (64,808) (59.0) % 〃 64,808 2.0 % 〃 805,017 14.0 % 104,031 2.0 % 727,600 13.0 % 3,404,030 98.0 % (Note 1) (79,455) (2.0) % (Note 1) (805,017) (100.0) % (104,031) (100.0) % (727,600) (100.0) % (3,404,030) (40.0) % (Note 1) (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 95 (viii) Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of the capital stock: (In Thousands of New Taiwan Dollars) Name of Nature of Ending Turnover Overdue company Counter-party relationship balance rate Amounts received in Allowance subsequent period for bad debts - Note The Company CBN Just and its subsidiaries Forever 〃 Webtek The Company's subsidiary With the same ultimate parent company With the same ultimate parent company Parent company 739,065 1.98 6,472,633 6.32 20,177,943 6.18 504,568 0.27 Parent company 49,111,165 2.25 With the same ultimate parent With the same ultimate parent Parent company With the same ultimate parent company With the same ultimate parent company Parent company 8,931,246 4.05 308,041 1.24 758,108 1.65 9,852,148 2.91 562,737 3.31 20,843,862 4.09 Parent company 7,073,274 15.01 Compal Electronic, Inc. Compal Electronic, Inc. Forever Just and its subsidiaries Compal Electronic, Inc. CIH and its subsidiaries CEB Compal Electronic, Inc. Compal Electronic, Inc. Webtek With the same ultimate parent company TTI TTI Arcadyan AU Arcadyan USA Arcadyan Germany Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary Arcadyan's subsidiary The Company's subsidiary With the same ultimate parent company With the same ultimate parent company Just and its subsidiaries Speedlink Arcadyan THAC 4,489,304 7.71 805,017 3.08 104,031 4.32 727,600 3.54 172,161 (Note 5) 351,268 (Note 4) 207,119 (Note 5) 3,404,030 (Note 4) 242,069 (Note 4) 242,069 (Note 4) 0.11 10.14 12.43 2.46 - - Amount - Action taken - - - - - - - - - - - - - - - - - - - - 22,528 - - - - - - - - - - - - - - - - - - - - 22,528 Enhanced the collection 434,844 (Note 1) 6,277,163 (Note 1) 20,177,943 (Note 1) - (Note 1) 30,770,107 (Note 1) 8,050,832 (Note 1) - (Note 1) 70,422 (Note 1) 6,788,977 (Note 1) 316,880 (Note 1) 14,413,628 (Note 1) 7,073,274 (Note 1) 4,489,304 (Note 1) 581,083 (Note 2) 11,688 (Note 2) 521,951 (Note 2) 169,496 (Note 2) 351,268 (Note 2) 207,119 (Note 2) 2,311,269 (Note 2) 174,680 (Note 3) 174,680 (Note 3) CIH and its subsidiaries 〃 BCI and its subsidiaries 〃 〃 Forever Webtek Etrade and its subsidiaries Arcadyan 〃 〃 〃 THAC TTI CNC CBN Speedlink Note 1: Balance as of March 15, 2019. Note 2: Balance as of February 27, 2019. Note 3: Balance as of March 8, 2019. Note 4: Other receivables due to processing and sales of raw material. Note 5: Other receivables due to purchasing on behalf of TTI. - - - - - - - - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 96 (ix) Trading in derivative instruments: Please refer to notes (6)(b) and (6)(d) (b) Information on investees: The following is the information on investees for the years ended December 31, 2018 (excluding information on investees in Mainland China): (In Thousands of New Taiwan Dollars / USD/Shares) Investor Company Investee Company Main Original Investment Amount Location Businesses and Products December 31, 2018 December 31, 2017 Shares (thousands) Ending Balance Percentage of Ownership Carrying Value Net income (losses) of investee Share of profits/losses of investee Note The Company Bizcom Milpitas, USA Just CIH Panpal Gempal Hong Ji Hong Jin Auscom FGH HSI CEP Zhaopal Yongpal Kaipal British Virgin Islands British Virgin Islands Taipei City Warranty services and marketing of LCD TV s and notebook PCs Manufacturing, sales and maintenance of monitors and LCD TVs, and investment Sales and manufacturing of notebook PCs and investments Investment 36,369 36,369 100 100% 440,755 8,082 1,480,509 1,480,509 48,010 100% 7,982,139 85,523 1,787,680 1,787,680 53,001 100% 34,939,825 1,081,596 5,171,837 5,171,837 500,000 100% 4,890,099 135,442 (Note 1) Taipei City Investment 900,036 900,036 90,000 100% 1,580,854 88,488 Kinpo Group Taipei City management consultant company (“Kinpo Group management”) Ripal Tainan City Consultation, training services, etc. Manufacturing of electric appliance and audiovisual electric products 3,000 3,000 300 38% 4,538 371 (Note 1) 60,000 60,000 6,000 100% 51,798 20,946 Avalue Technology, Inc. New Taipei City Manufacturing, processing, 559,189 559,189 15,240 22% 595,790 244,100 and import and export business of industrial motherboards Animal medication retail and wholesale Investment Production and sales of PCB boards Investment Taipei City British Virgin Islands Taoyuan City Taipei City 200,000 200,000 20,000 100% 164,648 (21,756) 34 34 1 100% 3,619,817 - - 395,388 395,388 10,158 20% 331,092 366,180 1,260 1,260 126 23% 3,174 (203) Cayman Islands Investment 489,450 489,450 98 49% 652,532 617,951 Netherlands Investment 197,463 197,463 6,427 100% 827,329 284,489 202,908 202,908 899 28% 10,371 141 149,547 149,547 3,739 33% 75,267 71,765 Unicore CEH Allied Circuit Maxima Ventures I, Inc. (“Maxima”) Lipo Holding Co., Ltd. (“Lipo”) CPE ATK Hsinchu City Crownpo Technology Inc. (“Crownpo”) Taipei City Design, research & development, and selling of DVD, Combo, CD-RW Drives Manufacturing, processing, and selling resistor chips, networking chips, diodes, multilayer ceramic capacitors, semiconductor devices, and selling electronic products Investment Arcadyan Hsinchu City Taipei City 1,000,000 1,000,000 100,000 100% 1,067,825 Taipei City Investment 295,000 295,000 29,500 100% Austin, TX USA R&D of notebook PC 101,747 101,747 3,000 100% 328,852 125,912 46,621 20,358 4,757 related products and components R&D, manufacturing and sales of wireless network, integrated household electronics, and mobile office products Investment 1,325,132 1,325,132 41,305 21% 2,055,316 871,519 2,754,741 2,754,741 89,755 100% 4,545,364 275,557 Investment 1,346,814 1,346,814 42,700 100% 734,227 (35,898) 90,156 90,156 136 100% 15,589 (16,749) British Virgin Islands British Virgin Islands Poland Taipei City Maintenance and warranty services of notebook PCs Investment Taipei City Investment 1,188,500 1,188,500 118,850 100% Taipei City Investment 510,500 510,500 51,050 100% 1,358,000 1,358,000 135,800 100% 6,190 5,509 3,110 (183) (184) (185) Lead-Honor Taoyuan City Optronics. Co., Ltd. (“Lead-Honor”) Infinno Technology Corporation (“Infinno”) Manufacturing of electric appliance and audiovisual electric products 42,000 42,000 2,772 42% - - - Hsinchu County Manufacturing of electronic components, wholesale and retail sale of precision instruments and electronic materials 109,837 109,837 5,650 27% 21,553 12 8,082 85,523 1,081,596 97,464 66,445 139 20,942 53,166 (20,162) 74,756 (9,552) 302,796 130,819 39 23,849 45,946 20,358 4,757 189,715 275,557 (35,898) (21,694) (183) (184) (185) 3 (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements Investor Company Investee Company Main Original Investment Amount Location Businesses and Products December 31, 2018 December 31, 2017 Shares (thousands) Ending Balance Percentage of Ownership Carrying Value 97 Net income (losses) of investee Share of profits/losses of investee Note HengHao Taipei City Mactech Taichung City BCI CBN British Virgin Islands Hsinchu County Rayonnant Taipei City CRH Ascendant Private Equity Investment Ltd. (“APE”) CORE Etrade Webtek Forever UCGI Palcom GLB British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Taipei City Taipei City Manufacturing of PCs, computer periphery devices, and electronic components Manufacturing of equipment and lighting, retailing of equipment and international trading Investment R&D and sales of cable modem, digital set-up box, and other communication products Manufacturing and sales of PCs, computer periphery devices, and electronic components Investment 5,329,757 5,329,757 63,815 100% (118,482) (737,747) 219,601 219,601 21,756 53% 246,787 76,500 2,636,051 2,636,051 90,820 100% 6,037,985 261,806 284,827 284,827 29,060 43% 782,491 184,370 295,000 295,000 29,500 100% 41,138 (51,684) 377,328 377,328 12,500 100% 107,301 (72,347) Investment 943,922 943,922 31,253 35% 935,555 111,326 Investment Investment 4,318,860 4,318,860 147,000 100% 7,625,407 2,604,284 1,532,029 1,532,029 46,900 65% (298,023) (225,609) Selling of mobile phones 3,340 3,340 100 100% 583,463 (101,398) Selling of mobile phones 1,575 1,575 50 100% 1,488,011 33 Manufacturing and retail sale of computers and electronic components Selling of mobile phones 100,000 100,000 10,000 100% (376,263) (139,243) 100,000 100,000 10,000 100% 109,663 1,465 Shennona Delaware. USA of medical equipment Medical care IOT business 14,598 - 2,500 100% 5,438 (24,820) New Taipei City Manufacturing and wholesale 246,860 246,860 15,000 50% 260,934 46,429 (736,708) 39,053 261,806 87,802 (48,528) (72,347) 38,655 2,604,284 (124,210) (101,398) 33 (144,069) 1,465 23,218 (24,820) 4,198,330 Webtek Etrade Forever GIA British Virgin Islands British Virgin Islands Panpal Arcadyan Hsinchu City Allied Circuit Taoyuan City Others Gempal Arcadyan Hsinchu City Allied Circuit Taoyuan City Others Investment 763,125 457,875 25,000 35% 82,510,880 (165,051) (225,609) (US$25,000) (US$15,000) (US$(5,374)) (US$(7,482)) Selling of mobile phones - - - 100% - - Investment gain(losses) recognized by Webtek Investment gain(losses) recognized by Forever Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards 180,968 180,968 6,827 4% 387,911 871,519 Investment gain(losses) recognized by Panpal 148,263 148,263 2,927 6% 95,407 366,180 〃 203,500 203,500 7,846 4% 588,641 469,719 871,519 Investment gain(losses) recognized by Gempal 53,645 53,645 3,220 6% 104,948 366,180 〃 3,604 Just CDH (HK) Hong Kong Investment 1,913,468 1,913,468 62,298 100% 5,615,616 75,505 (US$62,298) (US$62,298) (US$182,830) (US$2,504) Investment 283,960 283,960 9,245 100% 220,282 (22,263) (US$9,245) (US$9,245) 15,358 15,358 500 100% (US$500) (US$500) (US$7,172) (US$(738)) 897,261 - 〃 (US$29,212) (US$-) 30,715 30,715 1,000 100% 49,452 (577) (US$1,610) (US$(19)) CII CII CPI AEI MEL MTL Smart British Virgin Islands British Virgin Islands U.S.A U.S.A U.S.A Sales of monitors, LCD TVs and related components. Sales and maintenance of LCD TVs Investment Investment British Virgin Islands Sales of electronic products and related components (US$1,000) (US$1,000) 252,907 252,907 (US$8,234) (US$8,234) 31 (US$1) (US$1) 31 (US$1) (US$1) 31 31 - - 100% 100% 1 100% Investment gain(losses) recognized by Just 〃 Investment gain(losses) recognized by CII 〃 258,826 (16,489) (US$8,427) (US$(547)) (US$1) 31 - (US$-) 〃 400 (11) 〃 (US$13) (US$-) (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 98 Investor Company Investee Company Main Original Investment Amount Location Businesses and Products December 31, 2018 December 31, 2017 Shares (thousands) Ending Balance Percentage of Ownership Carrying Value Net income (losses) of investee Share of profits/losses of investee Note ME Land MTL CMX Mexico Manufacturing, sales and maintenance of LCD TVs 247,256 247,256 32,903 100% 258,826 (16,489) (US$8,050) (US$8,050) (US$8,427) (US$(547)) CIH CIH (HK) Hong Kong Investment 2,297,559 2,297,559 74,803 100% 32,986,019 1,062,037 (US$74,803) (US$74,803) (US$1,073,938) (US$35,223) Investment gain(losses) recognized by MEL and MTL Investment gain(losses) recognized by CIH 〃 Jenpal CCM PFG FWT Hong Ji Arcadyan British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands Hsinchu City Allied Circuit Taoyuan City Hong Jin Arcadyan Hsinchu City Arcadyan Arcadyan Holding British Virgin Islands Arcadyan USA U.S.A Arcadyan Germany Germany Arcadyan Korea Korea Arcadyan do Brasil Ltda Brazil Zhi-Pal TTI Taipei City Taipei City AcBel Telecom Taipei City Arcadyan UK UK Arcadyan AU Australia CBN Hsinchu County Golden Smart Home Technology Corp. Taipei City Arcadyan Brasil Brazil Investment Investment Sales of notebook PCs and related components Investment Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Production and selling of PCB boards Telecommunication equipment and apparatus manufacturing, electronic parts and components manufacturing, restrained telecom radio frequency equipments and materials import and manufacturing Investment Sales of wireless network products Technology support and sales of wireless network products Sales of wireless network products Sales of wireless network products Investment R&D and sales of household digital products Investment Technical support of wireless network products Sales of wireless network products Sales of communication and electronic components Selling of hardware and software integration of high-tech systems Sales of wireless network products 225,755 225,755 7,350 100% 105,048 2,521 (US$7,350) (US$7,350) 156,647 156,647 5,100 51% (US$5,100) (US$5,100) 31 31 1 100% (US$1) (US$1) (US$3,420) (US$84) 56,804 (2,521) 〃 (US$1,849) (US$(84)) 421,800 - 〃 (US$13,733) (US$-) 457,654 457,654 14,900 100% 457,964 (US$14,900) (US$14,900) (US$14,910) (US$3) 79 〃 203,500 203,500 7,846 4% 469,713 871,519 Investment gain(losses) recognized by Hong Ji 12,274 12,274 1,041 2% 27,977 366,180 〃 112,569 112,569 4,340 2% 239,239 1,240,526 962,291 32,780 100% 1,221,252 871,519 Investment gain(losses) recognized by Hong Jin 59,092 Investment gain(losses) recognized by Arcadyan 23,055 23,055 1 100% 51,226 4,547 〃 1,125 1,125 0.5 100% 64,388 11,439 〃 2,879 2,879 20 100% 7,789 3,116 〃 - - - -% - 48,000 48,000 34,980 100% 308,726 306,925 25,028 61% 450,366 583,890 - 〃 40,042 〃 45,883 〃 23,000 23,000 4,494 51% 1,988 1,988 50 100% 33,952 2,683 (18,989) 〃 317 〃 1,161 1,161 50 100% 6,200 5,296 〃 11,925 11,925 533 1% 14,460 184,370 〃 15,692 15,692 1,229 16% - (30,339) 〃 81,593 81,593 968 100% 14,381 (25,526) 〃 Arcadyan and Zhi-pal Arcadyan Holding Sinoprime British Virgin Islands Investment 277,971 1,536 9,050 100% 278,800 (US$50) (US$50) (US$9,077) (US$29) 874 Arch Holding British Virgin Islands Investment 338,203 338,203 (US$11,011) (US$11,011) 35 100% 834,649 52,580 (US$27,174) (US$1,744) TTI Quest Samoa Investment 36,858 36,858 1,200 100% 65,774 (US$1,200) (US$1,200) TTJC Japan Sales of household digital electronic products 1,341 1,341 - 100% 765 Quest Exquisite Samoa Investment 35,937 35,937 1,170 100% 72,272 (US$1,170) (US$1,170) (US$2,353) (US$861) Investment gain(losses) recognized by Arcadyan Holding 〃 25,977 Investment gain(losses) recognized by TTI (610) 〃 25,958 Investment gain(losses) recognized by Quest AcBel Telecom Leading Images British Virgin Islands Investment 1,536 1,536 50 100% 9,931 (US$50) (US$50) Great Arch British Virgin Islands Sales of wireless network products - 1,536 - - - (US$-) (US$50) (18,420) Investment gain(losses) recognized by AcBel Telecom 〃 (6) Note 2 (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 99 Investor Company Investee Company Main Original Investment Amount Location Businesses and Products December 31, 2018 December 31, 2017 Shares (thousands) Ending Balance Percentage of Ownership Carrying Value Net income (losses) of investee Share of profits/losses of investee Note Leading Images Astoria GmbH Germany Sales of wireless network products 880 880 25 100% 9,522 (EUR25) (EUR25) (US$310) (US$(2)) (60) Investment gain(losses) recognized by Leading Images Zhi-pal CBN Hsinchu county Produces and sales of communication and electronic components 36,272 38,032 13,140 20% 356,317 184,370 Investment gain(losses) recognized by Zhi-pal Investment 921,450 921,450 30,000 100% 455,400 (38,498) (US$30,000) (US$30,000) (US$14,827) (US$(1,277)) Investment gain(losses) recognized by H SI 〃 (132,974) Investment gain(losses) recognized by Rayonnant 〃 - (132,974) Investment gain(losses) recognized by CRH HSI IUE Goal CVC IUE British Virgin Islands British Virgin Islands Vietnam Goal CDM Vietnam Investment 390,081 390,081 12,700 100% 306,789 (US$12,700) (US$12,700) (US$9,988) (US$86) 2,600 R&D, manufacturing, sales, and maintenance of notebook PCs, computer monitors, LCD TVs and electronic components Construction of and investment in infrastructure in Ba-Thien industrial district of Vietnam 921,450 921,450 30,000 100% 480,087 (38,498) (US$30,000) (US$30,000) (US$15,630) (US$(1,277)) Investment gain(losses) recognized by IUE 390,081 390,081 12,700 100% 365,367 (US$12,700) (US$12,700) (US$11,895) (US$86) 2,600 Investment gain(losses) recognized by Goal Rayonnant APH British Virgin Islands Investment 257,454 257,454 8,651 41% 68,240 Forming Co., Ltd. Taoyuan City CRH APH HHT HHA HHA HHB British Virgin Islands British Virgin Islands British Virgin Islands R&D and manufacturing of electronic materials Investment 27,300 27,300 1,820 21% - 383,938 383,938 12,500 59% 107,300 (US$12,500) (US$12,500) (US$3,493) (US$(4,410)) Investment 1,429,235 1,429,235 46,882 100% 251,850 (229,806) Investment gain(losses) recognized by HHT Investment 1,439,982 1,439,982 46,882 100% 269,419 (229,820) (US$46,882) (US$46,882) (US$8,772) (US$(7,622)) Investment gain(losses) recognized by HHA HHB HengHao Trading Co., Ltd. British Virgin Islands Marketing and international trade 307 307 10 100% 401 (US$10) (US$10) (US$13) (US$2) CBN Speedlink British Virgin Islands Import and export business 1,514 1,514 50 100% 2,015 49 Investment gain(losses) recognized by HHB 267 Investment gain(losses) recognized by CBN 6,842 6,842 20 100% 6,919 (95) 〃 CBNB Belgium FGH Wah Yuen Technology Holding Ltd. and its subsidiaries Mauritius The import and export business of broad band network products and related components, as well as technical support and advisory services Investment CORE BSH British Virgin Islands Investment 2,756,840 2,756,840 95,862 37% 4,615,937 275,379 (US$89,755) (US$89,755) (US$150,283) (US$9,133) 4,515,105 (US$147,000) 4,515,105 (US$147,000) 147,000 100% 7,625,407 2,604,284 (US$248,263) (US$86,372) BSH LCFC (HK) Hong Kong Investment and trading - 4,515,105 (US$147,000) - - - 201,793 (US$6,693) APH PEL British Virgin Islands Investment 96,783 96,783 3,151 100% 53,590 (11,161) (US$3,151) (US$3,151) (US$1,745) (US$(370)) Rayonnant (HK) Hong Kong Investment 552,870 552,870 18,000 100% 113,797 (121,813) Investment 2,482,386 2,482,386 80,820 100% 3,787,256 112,153 (US$80,820) (US$80,820) (US$123,303) (US3,720) (US$18,000) (US$18,000) (US$3,705) (US$(4,040)) BCI CMI PRI GLB Rapha British Virgin Islands British Virgin Islands New Taipei City Investment 307,150 307,150 10,000 100% 2,250,729 149,653 (US$10,000) (US$10,000) (US$73,278) (US$4,963) Detectors and test strip 6,500 6,500 1,275 100% 460 Unicore Raycore Taipei Animal medication retail and wholesale 25,500 25,500 1,275 51% 22,307 Note 1: The carrying value had been deducted $559, 812 and $321, 435 of the Company’s stock held by Panpal and Gempal, respectively. Note 2: It was liquidated in April, 2018. Investment gain(losses) recognized by FGH Investment gain(losses) recognized by CORE Investment gain(losses) recognized by BSH Investment gain(losses) recognized by APH 〃 Investment gain(losses) recognized by BCI 〃 (98) Investment gain(losses) recognized by GLB (6,024) Investment gain(losses) recognized by Unicore. (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements 100 (c) Information on investment in Mainland China: (i) The names of investees in Mainland China, the main businesses and products, and other information: (In Thousands of New Taiwan Dollars / CNY/USD) Name of investee Main businesses and products Total amount of paid-in capital Method of investment January 1, 2017 Outflow Inflow investment from Taiwan as of December 31, 2018 (losses) of the investee Percentage of ownership Investment income (losses) Book value Investment flows Accumulated outflow of Net income Accumulated outflow of investment from Taiwan as of CPC CDT CET CSD BT CGS LIZ Electronics (Kunshan) Co., Ltd. LIZ Electronics (Nantong) Co., Ltd. Zheng Ying Electronics (Chongqing) Co., Ltd. CIC CPO CIT LCFC (Hefei) Electronics Technology Co., Ltd. CST CIN Manufacturing and sales of monitors Manufacturing and sales of notebook PCs, mobile phones, and Digital products Manufacturing of notebook PCs Manufacturing of notebook PCs Maintenance and warranty service of notebook PCs Production and processing chip-resistors, ceramic capacitors, diodes, and other latest electronic components and related precision electronic equipment; selling self-produced products Research & development, and manufacturing chip components (chip resistors, ceramic chip diode； selling self-produced products and providing after-sales service. Performing wholesale and trading business of electronic components, semiconductors, special materials for electronic components, and spare parts Research, manufacture and sales of communication devices, mobile phones, electronic computer, smart watch, and provide related technology service Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self- produced products Manufacturing of notebook PCs Manufacturing and sales of LCD TVs Manufacturing of notebook PCs Manufacturing and selling of personal computers and related components, and providing related maintenance and after-sales service International trade and distribution of computers and electronic components Software and hardware R&D of computers, mobile phones and electronic components 1,136,455 (US$37,000) 614,300 (US$20,000) (Note 1) (Note 2) 1,136,455 (US$37,000) 614,300 (US$20,000) 368,580 (US$12,000) 268,363 (RMB$60,000) 30,715 (US$1,000) 8,945 (RMB2,000) (Note 2) 368,580 (US$12,000) (Note 2) (Note 3) (Note 2) 30,715 (US$1,000) (Note 2) (Note 3) - - - - - - - - - - - - 1,136,455 (US$37,000) 614,300 (US$20,000) (272,595) (US$(9,041)) (69,038) (US$(2,290)) 368,580 (US$12,000) - 30,715 (US$1,000) 116,086 (US$3,850) (201,551) (RMB(44,210)) (105,760) (US$(3,508)) - (14,673) (RMB(3,218)) 100 % 100 % 100 % 100 % 100 % 100 % (272,595) (US$(9,041)) (69,038) (US$(2,290)) 2,048,874 (US$66,706) 196,193 (US$6,388) 116,086 (US$3,850) (201,551) (RMB(44,210)) (105,760) (US$(3,508)) 4,832,564 (US$157,336) (252,598) (RMB(56,475) (192,357) (US$(6,263)) (14,673) (RMB(3,218)) (37,432) (RMB(8,369)) 982,880 (US$32,000) (Note 1) 409,431 (US$13,330) - - 409,431 (US$13,330) 667,227 (US$22,129) 43 % 288,109 (US$9,555) 597,867 (US$19,465) 614,300 (US$20,000) (Note 1) 45,151 (US$1,470) - - 45,151 (US$1,470) 225,064 (US$7,464) 48 % 107,243 (US$3,557) 441,006 (US14,358) 70,562 (RMB15,776) (Note 2) (Note 3) - - - (27,269) (RMB(5,982)) 51 % (13,907) (RMB(3,051)) (73,016) (RMB(16,325)) 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 8,139,475 (US$265,000) (Note 2) (Note 1) (Note 2) (Note 1) 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 3,988,343 (US$129,850) 43,001 (US$1,400) (Note 2) 43,001 (US$1,400) 61,430 (US$2,000) (Note 2) 61,430 (US$2,000) - - - - - - - - - - - - 368,580 (US$12,000) 371,652 (US$12,100) 737,160 (US$24,000) 3,988,343 (US$129,850) 268,390 (US$8,901) 94,641 (US$3,139) 769,672 (US$25,527) 201,793 (US$6,693) 100 % 100 % 100 % 268,390 (US$8,901) 94,641 (US$3,139) 769,672 (US$25,527) 7,471,213 (US$243,243) 2,796,954 (US$91,061) 20,445,466 (US$665,651) - - - 43,001 (US$1,400) (3,174) (US$(105)) 100 % (3,174) (US$(105)) 49,419 (US$1,609) 61,430 (US$2,000) (29) (US$(1)) 100 % (29) (US$(1)) 755 (US$25) Accumu- lated remittance of earnings in current period - - - - - - - - - - - - - - - (Continued) COMPAL ELECTRONICS, INC. Notes to Consolidated Financial Statements Investment flows Accumulated outflow of Net income Accumulated outflow of investment from Taiwan as of Total amount of paid-in capital 307,150 (US$10,000) Method of investment (Note 2) January 1, 2017 Outflow 156,647 (US$5,100) - Inflow - investment from Taiwan as of December 31, 2018 156,647 (US$5,100) (losses) of the investee 1,440 (US$48) Percentage of ownership 51 % Investment income (losses) 734 (US$24) Book value 59,231 (US$1,928) 101 Accumu- lated remittance of earnings in current period - Main businesses and products Research & development, and manufacturing latest electronic components, precision cavity mold, design and manufacturing for standard parts for molds, and selling self-produced products" Investment and consulting services Manufacturing and sales of LCD TVs Outward investment and consulting services R&D and manufacturing of notebook PCs, tablet PCs, digital products, network switches, wireless AP, and automobile electronic products Corporate management consulting, financial and tax consulting, investment consulting, and investment management consulting services R&D, manufacturing and sales of notebook PCs and related components. Also provides related maintenance and warranty services Manufacturing and selling of magnesium alloy injection molding Name of investee Sheng Bao Precision Electronics (Taicang) Co., Ltd. CIJ CDE CIS CEC CMC CEQ Compal Precision Module (Jiangsu) Co., Ltd. Changbao Electronic Technology (Chongqing) Co., Ltd. Rayonnant (Taicang) 479,154 (US$15,600) 460,725 (US$15,000) 2,482,386 (US$80,820) 2,457,200 (US$80,000) (Note 2) (Note 2) (Note 1) (Note 2) 479,154 (US$15,600) (Note 3) 2,482,386 (US$80,820) (Note 3) - - - - 24,572 (US$800) (Note 2) (Note 3) - 307,150 (US$10,000) (Note 1) 307,150 (US$10,000) 12,593,150 (US$410,000) (Note 2) 2,537,888 (US$82,627) Production and marketing of magnesium alloy molding Manufacturing and sales of aluminum alloy and magnesium alloy products 1,842,900 (US$60,000) (Note 2) 351,871 (US$11,456) 552,870 (US$18,000) (Note 2) 383,938 (US$12,500) CCI Nanjing Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs Manufacturing and processing of mobile phones and tablet PCs R&D and manufacturing of electronic communication equipment CDCN CWCN Hanhelt Arcadyan 675,730 (US$22,000) (Note 1) 675,730 (US$22,000) 178,147 (US$5,800) (Note 1) 1,197,885 (Note 1) (US$39,000) 61,430 (Note 1) (US$2,000) 178,147 (US$5,800) 583,585 (US$19,000) 61,430 (US$2,000) CNC SVA Arcadyan R&D and sales of wireless network products Manufacturing and wireless network products Manufacturing of household electronics products THAC HengHao Production of touch panels and related components HengHao Optoelectronic Technology (Kunshan) Co., Ltd. (“Heng Hao Kunshan”) Lucom Display Technology (Kunshan) Limited (“Lucom”) Manufacturing of notebook PCs and related modules 402,367 (US$13,100) (Note 1) 382,402 (US$12,450) (Note 1) 102,895 (US$3,350) (Notes 1、10) 565,770 (US$18,420) (Note 7) 338,203 (US$11,011) (Note 8) 35,322 (US$1,150) 1,228,600 (US$40,000) (Note 1) 1,222,549 (US$39,803) 460,725 (US$15,000) (Note 2) 199,617 (US$6,499) (Note 12) - - - - - - - - - - - - - - - - - - 479,154 (US$15,600) - 2,482,386 (US$80,820) - - 339,351 (US$11,255) 335,680 (US$11,133) 112,153 (US$3,720) 112,135 (US$3,719) 100 % 100 % 100 % 100 % 339,351 (US$11,255) 335,680 (US$11,133) 112,153 (US$3,720) 112,135 (US$3,719) 952,554 (US$31,013) 923,056 (US$30,052) 3,787,256 (US$123,303) 3,756,356 (US$122,297) 99 (US$3) 100 % 99 (US$3) 24,398 (US$794) 307,150 (US$10,000) 149,653 (US$4,963) 100 % 149,653 (US$4,963) 2,250,729 (US$73,278) 2,537,888 (US$82,627) 791,080 (US$26,237) 37 % 289,693 (US$9,608) 5,684,301 (US$185,066) 351,871 (US$11,456) 110,851 (US$3,676) 37 % 40,594 (US$1,346) 1,019,634 (US$33,197) 383,938 (US$12,500) (121,811) (US$(4,040)) 100 % (121,811) (US$(4,040)) 114,396 (US3,724) 675,730 (US$22,000) (102,215) (US$(3,390)) 178,147 (US$5,800) 754 (US$25) 583,585 (US$19,000) (210,490) (US$(6,981)) 61,430 (US$2,000) 30 (US$1) 565,770 (US$18,420) 7,175 (US$238) 338,203 (US$11,011) 52,580 (US$1,744) 35,322 (US$1,150) 25,958 (US$861) 100 % 100 % 100 % 100 % 100 % 100 % 100 % (102,215) (US$(3,390)) (1,026,526) (US$(33,421)) 754 (US$25) 85,388 (US$2,780) (210,490) (US$(6,981)) 434,617 (US$14,150) 30 (US$1) 3,133 (US$102) 7,175 (US$238) 126,607 (US$4,122) 52,580 (US$1,744) 834,649 (US$27,174) 25,958 (US$861) 71,750 (US$2,336) 1,222,549 (US$39,803) (230,717) (US$(7,652)) 100 % (230,717) (US$(7,652)) 116,874 (US$3,805) 199,617 (US$6,499) 849 (US$28) 100 % 849 (US$28) 134,882 (US$4,391) - - - - - - - - - - - - - - - - - - (Continued) - - - - - - - - - - - - - (ii) Limitation on investment in Mainland China: Accumulated Investment in Mainland China as of December 31, 2018 16,725,454 (USD 544,537) (Note 5) Investment Amounts Authorized by Investment Commission of Ministry of Economic Affairs 23,069,606 (USD 751,086) Limitation on investment in Mainland China by Investment Commission of Ministry of Economic Affairs (Note 6) 939,303 (USD 30,581) 939,303 (USD 30,581) 1,439,674 (USD 46,872) 1,439,674 (USD 46,872) 5,439,686 365,077 Names of Company The Company Arcadyan HengHao Note 1: Indirectly investment in Mainland China through companies registered in the third region. Note 2: Indirectly investment in Mainland China through an existing company registered in the third region. Note 3: Investees held by Kunshan Botai Electronics Co., Ltd. (“BT”), Compal Investment (Jiansu) Co., Ltd. (“CIJ”), Compal Electronic (Sichuan) Co., Ltd. (“CIS”), and Compal Electronics (China) Co., Ltd. (“CPC”) through their own funds. Note 4: The investment income (loss) was determined based on the financial report audited by CPA. Note 5: Including the investment amount of sold or dissolved companies, including Beijing Compower Xuntong Electronic Technology Co., Ltd, VAP Optoelectronics (NanJing) Corp., Flextronics Technology (Shanghai) Ltd., Lucom and the increased investment amount form merging with Compal Communication Co., Ltd. Note 6: As the Company has obtained the certificate of being qualified for operating headquarters, issued by Industrial Development Bureau, MOEA, the upper limit on investment in mainland China is not applicable. Note 7: Arcadyan paid US$18,420 thousands and acquired 100% shares of SVA Arcadyan from Accton Asia through Arcadyan Holding in 2010. Note 8: Arcadyan paid US$8,561 thousands and acquired 100% shares of CNC from Just through Arcadyan Holding in 2007. Note 9: SVA Arcadyan decreased its capital amounting to US$15,000 thousands to offset accumulated losses in March 2009. Note 10: Arcadyan’s subsidiary, TTI, obtained the control over THAC with US$1,150 thousands on February 28, 2013 (the date of stock transferring). Note 11: The amounts in New Taiwan Dollars were translated at the exchange rates at the balance sheet date or the average exchange rate. Note 12: The Company had an accumulated investment amounting to US$7,350 thousands in the previous years. In the first half of 2014, HengHao paid the Company and LG US$3,184 thousands and US$3,315 thousands, respectively, for organization restructure, to obtain 100% ownership of Lucom. (iii) Significant transactions: For the year ended December 31, 2018, the significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions”. (14) Segment information: Please refer to the consolidated financial report of 2018. 103 COMPAL ELECTRONICS, INC. STATEMENT OF CASH AND CASH EQUIVALENTS December 31, 2018 (Expressed in thousands of New Taiwan Dollars; in dollars of Foreign Currency) Item Cash on hand Checking account and demand deposits TWD Description Foreign currency (US$126,497,482 and others) Time deposits TWD(Maturity date: 2019.1.24~2019.2.1) Foreign currency (US$458,000,000, Maturity date: 2019.1.2~ 2019.2.11) (CNY$27,000,000, Maturity date: 2019.1.7~ 2019.5.28) Cash equivalents: Bonds purchased under resale agreements Total TWD(Maturity date: 2019.1.2~2019.1.11) $ Amount 1,596 77,468 3,895,090 3,972,558 1,421,000 14,067,470 120,744 15,609,214 863,010 $ 20,446,378 Note: The exchange rate is 30.715 New Taiwan dollars for 1 US dollar; ; 4.472 New Taiwan dollars for 1 CNY dollar. 104 COMPAL ELECTRONICS, INC. STAEMENTS OF NOTES AND ACCOUNTS RECEIVABLE December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Item Description Sales of non-related-parties Amount 113,012,264 $ D Company A Company E Company G Company Others (Note) 〃 〃 〃 〃 20,037,143 19,237,162 13,033,195 27,895,390 193,215,154 (3,718,560) $ 189,496,594 Less: allowance for uncollectible accounts Notes and accounts receivable, net Note: The amount of individual client included in others does not exceed 5% of the account balance. STATEMENTS OF INVENTORIES Item Finished goods Work in progress Raw materials Total Cost 18,779,873 $ Net Realizable Value 18,792,754 44,008 44,008 32,693,278 32,722,458 $ 51,517,159 51,559,220 COMPAL ELECTRONICS, INC. STATEMENT OF INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars; thousands of shares) Beginning Balance Increase (Note 1) Decrease (Note 2) Ending Balance (including impairment loss) 105 Share of profit recognized Number of shares Amount (not including exchange differences on transaction of foreign financial statements Exchange differences on transaction of foreign financial statements Ending Balance (including exchange differences on transaction of foreign statements Investee Company Number of shares Amount (not including exchange differences on transaction of foreign financial statements Auscom Panpal Just CIH CEH Gempal Hong Ji Hong Jin Maxima Ventures l, Inc. ATK Allied Circuit Bizcom LIPO Crownpo Arcadyan FGH HSI Zhaopal Yongpal Kaipal Lead-Honor Optronics Co., Ltd CBN Kinpo Rayonnant Technology CRH HengHao Infinno Technology Corp. CEP BCI APE CORE Unicore Ripal CPE Avalue Etrade Webtek Forever UCGI Palcom Mactech GLB Shennona Corp. 3,000 $ 500,000 48,010 53,001 1 90,000 100,000 29,500 126 899 10,158 100 98 3,739 41,305 89,755 42,700 135,800 118,850 51,050 2,772 29,060 300 29,500 12,500 131,499 5,650 136 90,820 31,253 147,000 20,000 6,000 6,427 15,240 46,900 100 50 10,000 10,000 21,756 15,000 - Exchange differences on transaction of foreign financial statements Less: Treasury shares held by subsidiaries Unrealized profits or losses Plus: Deduction of other receivable－related parties Plus: Credit balance of investment in equity method Total $ 130,833 5,922,985 8,166,943 34,397,748 3,906,656 1,902,233 1,060,974 325,587 14,513 10,335 312,315 446,597 374,707 53,146 2,001,001 4,651,687 773,126 6,373 5,693 3,295 (3) 738,962 4,399 92,292 177,226 636,151 21,550 41,669 5,595,205 1,013,881 4,790,820 184,810 30,856 708,937 586,333 (292,106) 1,033,727 1,567,212 (232,194) 116,479 226,825 237,716 81,747,494 (3,609,730) (881,247) (6,753) 77,249,764 232,194 437,912 77,919,870 - Number of shares - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,500 Amount - 436,242 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 22,779 201 113 36 1,072 103 7,821 308 247,239 2,665 29,558 748,137 Number of shares - - - - - - - - - - - - - - - - - - - - - - - - - 67,684 - - - - - - - - - - - - - - - - - Amount - 514,720 - - - - - - - - - - - - - - - - - - - - - - - - - - - 71,193 36,368 15,589 55,893 24 126,655 52,189 126,447 40,173 247,240 8,281 21,756 - - 1,316,528 4,757 97,464 85,523 1,081,596 - 66,445 45,946 20,358 (9,552) 39 74,756 8,082 302,796 23,849 189,715 275,557 (35,898) (183) (184) (185) - 87,802 139 (48,528) (72,347) (736,708) 3 (21,694) 261,806 38,655 2,604,284 (20,162) 20,942 130,819 53,166 (124,210) (101,398) 33 (144,069) 1,465 39,053 23,218 (24,820) 4,198,330 1,624,424 - 2,344 2,374,905 - - - 1,316,528 - - - 4,198,330 3,000 500,000 48,010 53,001 1 90,000 100,000 29,500 126 899 10,158 100 98 3,739 41,305 89,755 42,700 135,800 118,850 51,050 2,772 29,060 300 29,500 12,500 63,815 5,650 136 90,820 31,253 147,000 20,000 6,000 6,427 15,240 46,900 100 50 10,000 10,000 21,756 15,000 2,500 135,590 5,941,971 8,252,466 35,479,344 3,906,656 1,920,264 1,070,753 330,469 4,961 10,374 331,178 454,679 677,539 76,971 2,065,133 4,927,347 737,228 6,190 5,509 3,110 (3) 782,396 4,538 43,764 104,879 (100,557) 21,553 19,975 5,857,011 926,089 7,395,104 164,648 51,798 839,756 599,634 (169,077) 685,089 1,567,245 (376,263) 109,663 246,787 260,934 4,738 85,377,433 (1,985,306) (881,247) (4,409) 82,506,471 (9,678) (492,060) (270,327) (539,519) (286,839) (17,975) (2,928) (1,617) (1,787) (3) (86) (13,924) (25,007) (1,704) (9,817) (381,983) (3,001) 3 95 (2,626) 2,422 (17,925) (4,386) 180,974 9,466 230,303 (12,427) (3,844) (128,946) (101,626) (79,234) 700 (1,985,306) - - - - - - - - - - - 125,912 5,449,911 7,982,139 34,939,825 3,619,817 1,902,289 1,067,825 328,852 3,174 10,371 331,092 440,755 652,532 75,267 2,055,316 4,545,364 734,227 6,190 5,509 3,110 782,491 4,538 41,138 107,301 (118,482) 21,553 15,589 6,037,985 935,555 7,625,407 164,648 51,798 827,329 595,790 (298,023) 583,463 1,488,011 (376,263) 109,663 246,787 260,934 5,438 83,392,127 (881,247) (4,409) 82,506,471 494,744 298,023 83,299,238 - - Market Price / Net Value 125,912 5,443,264 7,982,139 34,926,976 3,617,817 1,901,506 1,067,825 328,852 3,174 10,371 - 621,653 (Note 4) 440,755 653,180 75,267 3,089,577 (Note 3) 4,545,364 762,189 6,190 5,509 3,110 1,333,862 (Note 3) 5,696 41,138 107,301 (118,482) 21,553 15,589 6,037,985 935,605 7,625,407 164,648 51,798 827,329 586,743 (Note 4) (309,643) 583,463 1,488,011 (376,263) 109,663 281,505 150,545 5,438 Note 1：Increase in current period included purchasing long-term investments, adjusting by using equity method of capital surplus, unrealized gains from financial assets measured at fair value through other comprehensive income, remeasurement of defined benefit plans, and subsidiaries received cash dividends from the parent company. Note 2：Decrease in current period included cash dividends distributed from long-term investments for using equity method, adjustment by equity method of capital surplus and retained earnings, remeasurement of defined benefit plans, and unrealized loss from financial assets measured at fair value through other comprehensive income. Note 3：The unit price is calculated by the closing price of the Taiwan Stock Exchange as of December 28, 2018. Note 4：The unit price is calculated by the closing price of Gre Tai Securities Market as of December 28, 2018. COMPAL ELECTRONICS, INC. STATEMENT OF CHANGES IN FINANCIAL ASSETS MEASURED AT FAI For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars) 106 Investee Company Kinpo Cal-Comp Electronics (Thailand) Public Co., Ltd. Innolux Taiwan Star Others Total Beginning Balance Adjusted Balance Increase (Note 1) Decrease (Note 2) Ending Balance Number of Shares - Amount - $ Number of Shares 124,044 Amount 1,308,662 Number of Shares - Amount - Number of Shares - Amount Number of Shares Amount 55,820 124,044 1,252,842 Collaterals or Pledged Assets None - - - - - - - - - $ 239,631 654,192 134,877 1,672,479 98,046 980,465 - 404,577 5,020,375 - - - - - - - 153,343 153,343 - 254,008 239,631 400,184 None 25,650 610,789 109,227 1,061,690 None - - 246,097 98,046 734,368 None 275,086 - 282,834 None 1,441,800 3,731,918 Note1: Increase included purchasing financial assets at fair value through other comprehensive income and unrealized gains on financial instruments at fair value through other comprehensive income Note 2: Decrease included sale of financial assets at fair value through other comprehensive income, unrealized loss on financial instruments at fair value through other comprehensive income, deferred tax for unrealized loss and proceeds of capital reduction of investments. 107 COMPAL ELECTRONICS, INC. STATEMENT OF PROPERTY, PLANT AND EQUIPMENT For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Please refer to Note (6)(i). STATEMENT OF SHORT-TERM BORROWINGS December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Creditor Sumitomo Mitsui Banking Corporation The Shanghai Commercial & Savings Bank Land Bank of Taiwan CTBC Bank Co., Ltd. Bank SinoPac Mega International Commercial Bank Co., Ltd. Credit Agricole Corporate & Investment Bank Citibank Taiwan, Ltd. DBS Bank Limited Cathay United Bank KGI Bank Hua Nan Commercial Bank HSBC Bank (Taiwan) Limited Agricultural Bank of Taiwan Bank of China Limited The Bank of Tokyo-Mitsubishi UFJ Description Credit Loans Contract Period 2018.12~2019.01 Interest Rate Note Loan Commitments $ 7,525,175 Collaterals or Pledged Assets None Ending balance 2,272,910 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 2018.12~2019.02 2018.12~2019.01 2018.12~2019.01 2018.12~2019.01 2018.12~2019.02 2018.12~2019.01 2018.12~2019.03 2018.12~2019.01 2018.12~2019.02 2018.12~2019.01 2018.12~2019.01 2018.12~2019.01 2017.12~2018.01 2018.12~2019.01 2018.12~2019.02 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 2,150,050 None 1,658,610 4,500,000 2,500,000 700,000 1,000,000 None None None None 4,300,100 2,457,200 645,015 921,450 7,678,750 None 7,678,750 9,060,925 2,150,050 4,607,250 2,800,000 4,000,000 None None None None None 7,371,600 2,150,050 4,545,820 1,228,600 3,808,660 6,143,000 None 4,300,100 1,400,000 None 1,366,817 6,143,000 4,607,250 None None 2,450,000 4,150,000 $ 66,965,450 51,305,682 Note: The range of interest rates of aforementioned loans were 0.72%~3.56%. COMPAL ELECTRONICS, INC. STATEMENT OF NOTES AND ACCOUNTS PAYABLE December 31, 2018 (Expressed in thousands of New Taiwan Dollars) 108 Amount $ 27,527,918 11,336,333 7,701,129 7,594,339 7,572,981 7,495,748 7,822,368 $ 77,050,816 Suppliers E Company J Company B Company A Company H Company I Company Others (Note) Total Note: The amount of individual vendor included in others does not exceed 5% of the account balance. 109 COMPAL ELECTRONICS, INC. STATEMENT OF LONG-TERM BORROWINGS December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Amount Loan Commitments $ 5,068,000 Loan within 1 year 4,700,000 Loan more than 1 year - Contract Period 2117.05~2019.05 Interest Rate Note Amount 4,700,000 Collaterals or Pledged Assets None Creditor Bank of America O-Bank (Originally named Industrial Bank of Taiwan) 1,000,000 250,000 - 2018.07~2021.07 CTBC Bank Co., Ltd. 2,000,000 - 2,000,000 2018.09~2021.09 Taipei Fubon Commercial 2,000,000 1,800,000 - - 2016.09~2019.07 2016.08~2019.08 2,500,000 1,871,250 3,300,000 2,425,000 875,000 2016.03~2020.03 Bank Co., Ltd. E. Sun Bank Bank SinoPac The Shanghai Commercial & 2,300,000 - 2,300,000 2016.06~2020.06 Savings Bank Bank of Taiwan 3,000,000 1,100,000 825,000 2016.09~2020.09 Mega International Commercial Bank 1,000,000 Far Eastern International 300,000 Bank Standard Chartered Bank 1,200,000 - - - 600,000 2016.11~2020.11 300,000 2018.09~2021.06 1,000,000 2018.05~2020.05 Mizuho Bank, Ltd. 6,143,000 5,350,000 - 2018.05~2020.05 Chang Hwa Bank 3,000,000 - 3,000,000 2016.12~2020.12 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 250,000 None 2,000,000 None 1,800,000 None 1,871,250 None 3,300,000 None 2,300,000 None 1,925,000 None 600,000 None 300,000 None 1,000,000 None 5,350,000 None 3,000,000 None $ 32,811,000 17,496,250 10,900,000 28,396,250 Note: The range of interest rates of aforementioned loans were 0.79%~1.22%. 110 COMPAL ELECTRONICS, INC. STATEMENT OF OTHER PAYABLES December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Item Payroll payables and year-end bonuses payable Technical service fee payables Others (Note) Total Description Payroll for December 2018, estimated year-end bonuses for 2018, and employees and directors' compensations Amount $ 3,347,970 Export expense payables and others 628,443 4,416,098 $ 8,392,511 Note: The amount of each item in others does not exceed 5% of the account balance. STATEMENT OF NET SALES REVENUE For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Quantity Note Item Sales revenue: 5C electronic products Others Less: Sales return Sales allowance Net sales Other operating revenue: Service and processing revenue Net sales revenue Note: Due to multi-categories, it’s hard to be classified in categories. Amount $ 912,010,341 445,649 (964,375) (844,404) 910,647,211 402,911 $ 911,050,122 COMPAL ELECTRONICS, INC. STATEMENT OF COSTS OF SALES For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Item Raw materials Raw materials, beginning of the year Plus: Purchases Less: Raw materials, end of the year Transferred to operating expense Cost of material sold Scraps Raw materials used Direct labor Manufacturing expenses Total Manufacturing costs Plus: Work-in-process, beginning of the year Less: Work-in-process, end of the year Scraps Cost of finished goods Plus: Finished goods, beginning of the year Purchases Others Less: Finished goods, end of the year Transferred to operating expense Costs of sales of finished goods and processing costs Maintenance costs Cost of material sold Allowance for obsolescence loss and inventory valuation Scrap loss of raw materials and finished goods Cost of sales 111 Amount 32,475,740 631,780,550 (33,941,015) (11,672) (6,686,188) (355,714) 623,261,701 180,145 480,549 623,922,395 45,980 (44,008) (1,221) 623,923,146 11,576,936 262,790,021 198,982 (18,817,650) (860,330) 878,811,105 3,145,607 6,686,188 171,790 356,935 889,171,625 $ $ 111 COMPAL ELECTRONICS, INC. STATEMENT OF OPERATING EXPENSES For the year ended December 31, 2018 (Expressed in thousands of New Taiwan Dollars) Research and Selling Administrative development expenses expenses expenses 1,491,605 6,456,407 $ 329,052 180,338 260,045 - 2,063,750 322,996 1,716 - - - 3,449 425 893,877 - - 833,518 1,221 749 2,104,987 9,396,882 Item Payroll expenses Export expenses Royalty expenses Research expenses Shipping expenses Sample expenses Others (Note) Total Note: The amount of each item in others does not exceed 5% of the account balance. $ 3,157,897 2,389,356
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