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Inside Cover: Spokesman Acting Spokesperson D. L. Tseng K. S. Chiang Vice President, Finance Director, Finance Division Tel: 886-3-5770355 Tel: 886-3-5770355 E-mail: [email protected] E-mail: [email protected] Vanguard International Semiconductor Corporation 123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Website: http: //www.vis.com.tw Tel: 886-3-5770355 Fax: 886-3-5788572 Fab1 123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Tel: 886-3-5770355 Fab2 9, Li-Shin Rd., Science-Based Industrial Park, Hsin-Chu 300, Taiwan R.O.C. Tel: 886-3-5632111 Fab3 168, Chang-Rong RD.,14 Neighborhood, ChangXing Vil., Luzhu Dist.,Taoyuan City, Taiwan ,R.O.C.. Tel: 886-3-3116111 Common Stock Transfer Agent China Trust Commercial Bank Transfer Agency Department Address: 5F, 83, Sec. 1, Chung-Ching S. Rd. Taipei, Taiwan 100, R.O.C. Website: http://www.ctbcbank.com Tel: 886-2-6636-5566 Auditors Yu-Feng Huang / Cheng-Chih Lin Deloitte & Touche 12th Floor, 156 Min Sheng E. Road, Sec. 3, Taipei 105, Taiwan R.O.C. Website: http: //www.deloitte.com.tw Tel: 886-2-2545-9988 Name of any exchanges where the company's securities are traded offshore, and method by which to access information on said offshore securities: Not applicable Contents I. A Letter to Shareholders.............................................................................. 1 II. A Brief Introduction of VIS......................................................................... 5 Company Profi le......................................................................................................................................... 5 III. Corporate Governance Report..................................................................... 7 A. Company Organization....................................................................................................................... 7 B. Information on the company’s directors, supervisors, general manager, assistant general managers, deputy assistant general managers, and the chiefs of all the company’s divisions and branches................................................................................................................................................ 9 C. Remuneration to Directors, Supervisors & Managers...................................................................... 15 D. Implementation of Corporate Governance........................................................................................ 19 E. Information Regarding VIS’s Independent Auditors....................................................................... 47 F. Information on Replacement of Certifi ed Public Accountant......................................................... 47 G. Company Chairman, President, Financial or Accounting Head has Worked for Certifying Accounting Firm or Its Affi liate Business in the Past Year......................................................... 47 H. Information on Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management and Shareholders of 10% Shareholdings or More............................. 47 I. Top 10 shareholders relation.............................................................................................................. 48 J. VIS Long-Term Investment Ownership............................................................................................ 49 IV. Information On Implementation Of The Company Funds Utilization Plans.............................................................................................................. 50 A. Capital and shares................................................................................................................................ 54 B. Issuance of Corporate Bond .............................................................................................................. 54 C. Issuance of Preferred Stock Issuance................................................................................................. 54 D. Issuance of Depositary Shares Issuance............................................................................................. 54 E. Status of Mergers and Acquisitions.................................................................................................... 54 F. Fund Plan Implementation.................................................................................................................. 54 V. Operational Highlights................................................................................. 55 A. A description of the business............................................................................................................... 55 B. Industry survey and market analysis................................................................................................. 68 C. Personnel Structure.............................................................................................................................. 73 D. Environmental Protection Measures.................................................................................................. 73 E. Employee / employer relations.............................................................................................................. 76 F. Major Contracts................................................................................................................................... 84 VI. Financial Statements.................................................................................... 85 A. Brief Balance Sheets and Brief Statements of Income..................................................................... 85 B. Financial Analysis................................................................................................................................. 87 C. Audit Committee’s Review Report..................................................................................................... 90 D. Financial Statements and Independent Auditors’ Report................................................................ 91 E. Consolidated Financial Statements and Independent Auditors’ Report......................................... 91 F. The fi nancial impact to the Company due to company or affi liate companies fi nancial diffi culties.............................................................................................................................................. 91 VII. Financial Position, Operating Results And Risk Management.................. 92 A. Analysis of Consolidated Financial Position..................................................................................... 92 B. Analysis of Consolidated Financial Performance............................................................................. 92 C. Analysis of Consolidated Cash Flow................................................................................................... 93 D. Major Capital Expenditure................................................................................................................. 93 E. Long Term Investment......................................................................................................................... 94 F. Risk Management................................................................................................................................ 94 G. Other important matters..................................................................................................................... 99 VIII. Special Notes.................................................................................................. 100 A. Affi liated Information.......................................................................................................................... 100 B. Private placements Securities.............................................................................................................. 102 C. VIS Common Shares acquired, disposed of and held by subsidiaries............................................ 102 D. Other Necessary Supplement.............................................................................................................. 102 E. Any Events in Y2016 that had Signifi cant Impacts on Shareholders’ Right or Security Prices as started in Item 3 paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan................................................................................................................................................... 102 IX. Financial Statements, Consolidated Financial Statements and Independent Auditors’ Report ................................................................... 103 Financial Statements and Independent Auditors' Report......................................................................... 103 Consolidated Financial Statements and Independent Auditors' Report................................................. 170 Vanguard International Semiconductor Corporation I. A Letter to Shareholders Dear Shareholders, Buoyed by relatively stable economic conditions in the global economy, the semiconductor industry posted modest growth in 2016. In particular, the output value of the foundry industry grew by 9%, and the 8-inch wafer fabrication market, which comprises an important sector for VIS, also recorded slight growth of approximately 1%. In terms of the Company's overall operating performance in 2016, owing to the continued support of our longstanding customers and persistent efforts of our dedicated team of employees,