Security Code：3474 Inotera 2014 Annual Report th Website Inquiry：http://www.inotera.com / http://mops.twse.com.tw Printed on March 20 , 2015 WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 I. Name, title, contact number and e-mail address of the Company’s Spokesperson and deputy spokesperson: Spokesperson Deputy Spokesperson Name Charles Kau Peter Shen Title Chairman Chief Financial Officer Contact number (03) 327-2988 (03) 327-2988 E-mail address [email protected] [email protected] II. Address and telephone of the headquarters, branches, and factory Company: 667, Fuhsing 3rd Rd., Hwa-Ya Technology Park, Guishan Dist., Taoyuan City 333, Taiwan(R.O.C.) Tel.: (03) 327-2988 Factory: 667, Fuhsing 3rd Rd., Hwa-Ya Technology Park, Guishan Dist., Taoyuan City 333, Taiwan(R.O.C.) Tel.: (03) 327-2988 III. The name, address, website, and telephone number of the agency handling shares transfer: Name: Stock Affairs Dept., Inotera Memories, Inc. Address: 1F, 201, Tunhwa North Road, Taipei Website: N/A Tel: (02)2718-9898 IV. Name of the certified public accountant (“CPA”) who duly audited the annual financial report for the most recent fiscal year, and the name, address and telephone number of said person's accounting firm: Name of accounting firm: KPMG Certified Public Accountants Name of CPAs: Eric Wu and Winston Yu Address: 68F, Taipei 101 Tower, No. 7, Section 5, Xinyi Road, Taipei, 11049, Taiwan Website: http://www.kpmg.com.tw Tel: (02)8101-6666 V. Name of any exchanges where the company's securities are traded offshore, and the method by which to access information on said offshore securities: Name of offshore securities: Global Depositary Shares Trading market: Luxembourg Stock Exchange Inquiry web-site: http://ir.inotera.com ; http://www.bourse.lu VI. Company website: http://www.inotera.com WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 Inotera Memories, Inc. (The following is an English translation of Y2014 Annual Report. Inotera Memories, Inc. provides this translation. In the case of any discrepancy between the translation and the Chinese original, the Chinese shall prevail.) Table of Contents Page PART I. Business Report of Inotera…………………………………………… 1 PART II. Company Profile………………………………………………………… 4 1. Date of Incorporation…………………………………………………… 4 2. Philosophy……………………………………………………………… 4 3. Milestones……………………………………………………………… 4 PART III. Corporate Governance……………………………………………… 7 1. Organization……………………………………………………………… 7 2. Directors and Management Team …………………………………… 9 3. Implementation of Corporate Governance …………………………… 19 4. Information Regarding Inotera’s Audit Fees ………………………… 46 5. Replacement of Independent Auditors in the Last Two Years and Thereafter ……………………………………………………………… 47 6. The Company’s Chairman, President or managers in charge of finance or accounting has been under current audit firm or its affiliates’ employment in 2014……………………………………… 47 7. Changes in Shareholding …………………………………………… 48 8. Top 10 Shareholders Who are Related Parties to Each Other …………………………………………………………………… 49 9. The total number of shares and total equity stake held in any single enterprise by the Company, the Company’s directors and supervisors, managers, and any companies controlled either directly or indirectly by the Company……………………………………………………… 49 PART IV. Capital and Shares ……………………………………………… 50 1. Capitalization ………………………………………………………… 50 2. Composition of Shareholders ……………………………………… 51 3. Distribution of Shareholding………………………………………… 52 4. Major Shareholders…………………………………………………… 52 5. Market Price, Net Worth, Earnings, and Dividends per Common Share…………………………………………………………………… 53 6. Dividend Policy and Implementation Status……………………… 53 WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 7. Impact to Inotera’s Business Performance and EPS Resulting from the Proposed Stock Dividends Distribution ………………………… 54 8. Employee Profit Sharing and Remuneration to Directors and Supervisors …………………………………………………………… 54 9. Repurchase of Common Stock……………………………………… 54 10. Satus of Corporate Bonds…………………………………………… 54 11. Satus of Preffered Stock……………………………………………… 54 12. Issuance of Global Depositary Receipts…………………………… 55 13. Satus of Employee Stock Options Plan…………………………… 56 14. Status of New Restricted Employee Shares……………………… 59 15. Status of New Share Issuance in Connection with Mergers and Acquisitions…………………………………………………………… 59 16. Financing Plans and Implementation……………………………… 59 PART V. Operational Highlights……………………………………………… 61 1. Business Activities……………………………………………………… 61 2. Market Status …………………………………………………………… 64 3. Employees……………………………………………………………… 66 4. Information on Environmental Protection Costs…………………… 67 5. Labor Relations ………………………………………………………… 67 6. Material Contracts ……………………………………………………… 70 PART VI. Financial Information ……………………………………………… 71 1. Five-Year Financial Summary ………………………………………… 71 2. Five-Year Financial Analysis ………………………………………… 78 3. Audit Committee’s Review Report of Financial Report for 2014… 83 4. Consolidated Financial Statements Report…………………………… 83 5. Stand-alone Financial Statements Report ………………………………… 83 6. The financial impact to the Company if the Company and its affiliated companies have incurred any financial or cash flow difficulties…… 83 PART VII. Financial Status, Operating Results and Risk Management… 85 1. Financial Status………………………………………………………… 85 2. Operating Results ……………………………………………………… 87 3. Cash Flow……………………………………………………………… 89 4. Major Capital Expenditures…………………………………………… 90 5. Reinvestment Policy, Cause of Gain or Loss, Corrective Action, and Future Investment Plan ……………………………………………… 90 6. Risk Management ……………………………………………………… 91 7. Other Important Matters ……………………………………………… 98 WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 PART VIII. Other Special Notes……………………………………………… 99 1. Summary of Inotera’s Subsidiary …………………………………… 99 2. Private Placement Securities………………………………………… 100 3. Inotera’s Shares Acquired, Disposed of, and Held by its Subsidiary 100 4. Other Necessary Supplement………………………………………… 100 5. Any Events that Had Significant Impacts on Shareholders’ Right or Share Prices as Stated in Item 3 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan …………………………… 100 WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 I. Business Report of Inotera 1. Business Report for 2014 First of all, we would like to express our appreciation to all of our shareholders for your continuous support. With balanced demand-supply in the DRAM market over the past year, Inotera focused on enhancing manufacturing efficiency. Through structural shift of memory industry, the company achieved a record year in both revenue and net income in 2014. Gross profit and operating income grew more than double compared to the previous year, delivering strong financial and operational performances. Inotera reported sales revenues of NTD 82,571 million in 2014, representing a 40% sequential increase compared to year 2013. The net income of NTD 52,913 million recorded for the year is equal to earnings per share of NTD 8.32, including foreign exchange gains of NTD 3,304 million and a tax benefit of NTD 6,228 million. Gross margin for year 2014 was 54%, operating margin was 53%, and net margin was 64%. In addition to the historical high financial results, the company has made considerable progress in manufacturing with the following achievements: First, total bit shipments in 2014 increased by 24% on an annual sequential basis while fully-loaded cost per bit decreased by 19% year-on-year. Second, the output of our premium DRAM products for server, networking and mobile applications reached up to 60% of total wafer output in the end of 2014. Third, the company has launched pilot runs of 20nm technology in June, 2014 and prepared for the adoption of next-generation technology. Fourth, the company has jointly developed with Advanced Semiconductor Engineering (ASE) the System-in-Package capabilities, and will provide ASE manufacturing services WorldReginfo - 5b37939a-67cc-4caf-bf75-923618b04226 1 for silicon interposer. Additionally, we published the first “Inotera Corporate Social Responsibility Report” to disclose our strategies and related activities in terms of economic, governance, environmental and social aspects. With that, we strengthened the communication with our employees, shareholders and all stakeholders, as well as showed our efforts for sustainable development. 2. Year 2015 Business Outlook The focus areas of operation for 2015 are to migrate to advanced technology and provide products for broad applications in accordance with customer’s and market demands. Inotera is working closely with our customer for the improvement in 20nm yield and qualification of new products. The company has commenced 20nm ramp as planned in the second quarter and anticipates converting about 80% of its total wafer-start capacity to 20nm technology by the end of this year. With the introduction of 20nm, the company expects continuous product diversification that enables innovative applications across enterprise, mobile, graphics and networking based on customer’s product portfolio to assure future growth. Further, high-performance and low-power consumption DDR4 memory is expected to become mainstream in place of DDR3. The company sees a continuously increasing portion of DDR4 DRAM output for the growing demand of DDR4 and low-power DDR4 from our customer. Inotera is striving to optimize its operating performance and manufacturing capability, enhance the 20nm investment efficiency and maintain the company’s financial