TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 31 MARCH 2018 AND 2017 WITH

Transcription

1 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 31 MARCH 2018 AND 2017 WITH REVIEW REPORT OF INDEPENDENT AUDITORS The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail. 1

2 Review Report of Independent Auditors English Translation of a Report Originally Issued in Chinese The Board of Directors and Shareholders of TONG YANG INDUSTRY CO., LTD. Introduction We have reviewed the accompanying consolidated balance sheets of TONG YANG INDUSTRY CO., LTD. (the Company ) and its subsidiaries as of 31 March 2018 and 2017, the related consolidated statements of comprehensive income, changes in equity and cash flows for the three-month periods ended 31 March 2018 and 2017, and notes to the consolidated financial statements, including the summary of significant accounting policies (together the consolidated financial statements ). Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34, Interim Financial Reporting as endorsed and became effective by Financial Supervisory Commission of the Republic of China. Our responsibility is to express a conclusion on these consolidated financial statements based on our reviews. Scope of Review Except as explained in the following paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 65, Review of Financial Information Performed by the Independent Auditor of the Entity of the Republic of China. A review of consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Basis for Qualified Conclusion As explained in Note IV.3, the financial statements of certain insignificant subsidiaries were not reviewed by independent accountants. Those statements reflect total assets of NT$8,107,518 thousand and NT$7,205,134 thousand, constituting 21.14% and 20.23% of the consolidated total assets, and total liabilities of NT$3,700,637 thousand and NT$3,085,755 thousand, constituting 22.63% and 20.05% of the consolidated total liabilities as of 31 March 2018 and 2017, respectively; and total comprehensive income of NT$44,992 thousand and NT$(207,666) thousand, constituting 6.80% and (187.43)% of the consolidated total comprehensive income for the three-month periods 2

3 ended 31 March 2018 and 2017, respectively. As explained in Note VI.10, the financial statements of certain associates and joint ventures accounted for under the equity method were not reviewed by independent accountants. Those associates and joint ventures under equity method amounted to NT$1,966,873 thousand and NT$1,700,524 thousand as of 31 March 2018 and 2017, respectively. The related shares of profits from the associates and joint ventures under the equity method amounted to NT$106,499 thousand and NT$88,780 thousand, and the related shares of other comprehensive income from the associates and joint ventures under the equity method amounted to NT$11,252 thousand and NT$(96,965) thousand for the three-month periods ended 31 March 2018 and 2017, respectively. The information related to above subsidiaries, and associates and joint ventures accounted for under the equity method disclosed in Note 13 was also not reviewed by independent accountants. Qualified Conclusion Based on our reviews, except for the effect of such adjustments, if any, as might have been determined to be necessary had the financial statements of certain insignificant subsidiaries, associates and joint ventures accounted for using equity method been reviewed by independent accountants described in the preceding paragraph, nothing has come to our attention that causes us to believe that the accompanying consolidated financial statements do not present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as at 31 March 2018 and 2017, and their consolidated financial performance and cash flows for the three-month periods ended 31 March 2018 and 2017, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34, Interim Financial Reporting as endorsed and became effective by Financial Supervisory Commission of the Republic of China. Huang, Shih-Chieh Hu, Tzu-Ren Ernst & Young, Taiwan 8 May 2018 Notice to Readers The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China on Taiwan and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China on Taiwan. 3

4 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 31 March 2018, 31 December 2017 and 31 March 2017 (31 March 2018 and 2017 are unaudited) (Expressed in Thousands of New Taiwan Dollars) ASSETS Notes 31 Mar Dec Mar Current assets Cash and cash equivalents Ⅳ/Ⅵ.1 $990,307 $1,236,257 $1,420,310 Financial assets at amortized cost-current Ⅳ/Ⅵ.4 25, Bond investments for which no active market exists-current Ⅳ/Ⅵ.6-81,008 73,307 Notes receivable-net Ⅳ/Ⅵ.7 338, , ,549 Accounts receivable-net Ⅳ/Ⅵ.8 4,480,640 4,480,787 3,873,197 Accounts receivable-related parties-net Ⅳ/Ⅵ.8/Ⅶ 160, , ,824 Other receivables Ⅳ 528, , ,763 Inventories-net Ⅳ/Ⅵ.9 3,006,463 2,953,030 2,813,568 Other current assets Ⅳ 614, , ,662 Total current assets 10,145,284 9,864,022 9,555,180 Non-current assets Financial assets at fair value through other comprehensive income-noncurrent Ⅳ/Ⅵ.2 410, Available-for-sale financial assets-noncurrent Ⅳ/Ⅵ.3-324, ,311 Financial assets at amortized cost-noncurrent Ⅳ/Ⅵ.4 18, Financial assets measured at cost-noncurrent Ⅳ/Ⅵ ,236 Bond investments for which no active market exists-noncurrent Ⅳ/Ⅵ.6-19,274 19,274 Investments accounted for under the equity method Ⅳ/Ⅵ.10 3,578,347 3,768,241 3,253,643 Property, plant and equipment Ⅳ/Ⅵ.11 20,041,230 19,758,993 18,844,360 Intangible assets Ⅳ/Ⅵ ,243,459 1,113,235 1,042,099 Deferred tax assets Ⅳ/Ⅵ , , ,818 Prepayment for equipments 2,165,139 2,108,032 2,049,038 Long-term prepaid rents 288, , ,689 Other assets-others 217, , ,047 Total non-current assets 28,211,055 27,809,866 26,068,515 Total assets $38,356,339 $37,673,888 $35,623,695 (The accompanying notes are an integral part of the consolidated financial statements.) 4

5 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS 31 March 2018, 31 December 2017 and 31 March 2017 (31 March 2018 and 2017 are unaudited) (Expressed in Thousands of New Taiwan Dollars) LIABILITIES AND SHAREHOLDERS' EQUITY Notes 31 Mar Dec Mar Current liabilities Short-term loans Ⅳ/Ⅵ.14 $1,913,036 $2,015,689 $1,797,075 Short-term notes and bills payable-net Ⅳ/Ⅵ ,920 Notes payable ,007 Accounts payable 3,188,219 3,249,451 2,787,303 Accounts payable-related parties Ⅶ 165, , ,051 Other payables 1,069,462 1,270, ,250 Balance payable-machinery and equipment 475, , ,499 Dividends payable ,005 Current tax liabilities Ⅳ/Ⅵ , , ,304 Reserves-current Ⅳ/Ⅵ.19 39,697 45,246 42,643 Current portion of bond payable Ⅳ/Ⅵ , Current portion of long-term liabilities Ⅳ/Ⅵ , , ,398 Other current liabilities 279, , ,772 Total current liabilities 8,631,272 8,238,435 8,232,227 Non-current liabilities Bonds payable Ⅳ/Ⅵ ,000 1,200,000 1,200,000 Long-term loans Ⅳ/Ⅵ.17 5,952,893 5,718,964 4,827,057 Deferred tax liabilities Ⅳ/Ⅵ , , ,013 Accrued pension liabilities Ⅳ/Ⅵ , , ,546 Other liabilities-others 22,732 22,353 20,911 Total non-current liabilities 7,724,119 8,099,485 7,155,527 Total liabilities 16,355,391 16,337,920 15,387,754 Equity attributable to the parent company Capital Ⅳ/Ⅵ.20 Common stock 5,914,771 5,914,771 5,914,771 Capital surplus Ⅳ/Ⅵ.20 4,149,368 4,149,257 4,149,257 Retained earnings Ⅳ/Ⅵ.20 Legal reserve 1,871,315 1,871,315 1,629,768 Special reserve 135, ,542 - Unappropriated earnings 8,874,187 8,367,931 8,155,190 Subtotal 10,881,044 10,374,788 9,784,958 Other equity Ⅳ/Ⅵ.20 88,509 (57,722) (510,496) Non-controlling interests Ⅳ/Ⅵ , , ,451 Total equity 22,000,948 21,335,968 20,235,941 Total liabilities and equity $38,356,339 $37,673,888 $35,623,695 (The accompanying notes are an integral part of the consolidated financial statements.) 5

6 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three-month ended 31 March 2018 and 2017 (Reviewed, Not Audited) (Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share) ITEMS NOTE ~ ~ Sales revenues Ⅳ/Ⅵ.21/Ⅶ $6,245,138 $5,998,647 Cost of goods sold Ⅳ/Ⅵ.23/Ⅶ (4,781,822) (4,457,833) Gross profit 1,463,316 1,540,814 Realized sales profit - 11 Gross profit-net 1,463,316 1,540,825 Operating expenses Ⅳ/Ⅵ Sales and marketing expenses (423,194) (433,172) General and administrative expenses (294,692) (254,936) Research and development expenses (153,001) (142,169) Subtotal (870,887) (830,277) Operating income 592, ,548 Non-operating income and expenses Other revenue Ⅳ/Ⅵ.24 34,398 38,830 Other gain and loss Ⅳ/Ⅵ.24 (45,804) (228,175) Financial costs Ⅳ/Ⅵ.24 (39,665) (28,831) Share of profit or loss of associates and joint ventures 154, ,810 Subtotal 103,656 (63,366) Income from continuing operations before income tax 696, ,182 Income tax expense Ⅳ/Ⅵ.26 (193,020) (120,066) Net income $503,065 $527,116 Other comprehensive income Items that may not be reclassified subsequently to profit or loss Unrealized loss on investments in equity instruments at fair value through other comprehensive income Ⅳ/Ⅵ.25 85,889 - Income tax related to items that may not be reclassified subsequently 4,135 - To be reclassified to profit or loss in subsequent periods Exchange differences resulting from translating the financial statements of a foreign operations 40,140 (229,513) Share of other comprehensive income of associates accounted for using the equity method 31,604 (186,808) Income tax relating to those items to be reclassified to profit or loss (2,744) - Total other comprehensive income, net of tax 159,024 (416,321) Total comprehensive income $662,089 $110,795 Net income attributable to: Stockholders of the parent $499,341 $509,856 Non-controlling interests $3,724 $17,260 Comprehensive income attributable to: Stockholder of the parent $649,707 $134,902 Non-controlling interests $12,382 $(24,107) Earnings per share (NTD) Earnings per share-basic Ⅳ/Ⅵ.27 $0.84 $0.86 Earnings per share-diluted Ⅳ/Ⅵ.27 $0.84 $0.86 (The accompanying notes are an integral part of the consolidated financial statements.) 6

7 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the three-month ended 31 March 2018 and 2017 (Reviewed, Not Audited) (Expressed in Thousands of New Taiwan Dollars) Balance as of 1 January 2017 ITEMS Common Stock Capital Surplus Legal Reserve Retained Earnings Special reserve Equity attributable to the parent company Unappropriated Earnings Exchange differences resulting from translating the financial statements of a foreign operations Other equitity Unrealized gain(loss) on financial assets at fair value through other comprehensive income Unrealized Gain or Loss on Available-for- Sale Financial Assets $5,914,771 $4,149,257 $1,629,768 $- $7,645,334 $(210,470) $- $74,928 $19,203,588 $948,563 $20,152,151 Total Non-controlling interests Total Equity Net income in the first quarter of , ,856 17, ,116 Other comprehensive income, net of tax in the first quarter of (374,954) - - (374,954) (41,367) (416,321) Total comprehensive income ,856 (374,954) ,902 (24,107) 110,795 Decrease in non-controlling interests (27,005) (27,005) Balance as of 31 March 2017 $5,914,771 $4,149,257 $1,629,768 $- $8,155,190 $(585,424) $- $74,928 $19,338,490 $897,451 $20,235,941 Balance as of 1 January 2018 $5,914,771 $4,149,257 $1,871,315 $135,542 $8,367,931 $(305,788) $- $248,066 $20,381,094 $954,874 $21,335,968 Impact of retroactive applications , ,066 (248,066) 2,780-2,780 Adjusted balance as of 1 January ,914,771 4,149,257 1,871, ,542 8,370,711 (305,788) 248,066-20,383, ,874 21,338,748 Other changes in additional paid-in capital Net income in the first quarter of , ,341 3, ,065 Other comprehensive income, net of tax in the first quarter of ,135 60,342 85, ,366 8, ,024 Total comprehensive income ,476 60,342 85, ,707 12, ,089 Balance as of 31 March 2018 $5,914,771 $4,149,368 $1,871,315 $135,542 $8,874,187 $(245,446) $333,955 $- $21,033,692 $967,256 $22,000,948 (The accompanying notes are an integral part of the consolidated financial statements.) 7

8 Cash flows from operating activities: ITEMS Cash flows from investing activities: Net income before tax $696,085 $647,182 Proceeds from financial assets at amortized cost 56,337 - Adjustments for: Acquistion of bond investments for which no active market - (1,176) Income and expense adjustments: Disposal of bond investments with no active market - 16,645 Depreciation 713, ,370 Proceeds from capital reduction of equity investments under equity method - 9,657 Amortization 66,815 68,915 Acquisition of property, plant and equipment (956,321) (1,159,659) Interest expense 39,665 28,831 Proceeds from disposal of property, plant and equipment 25,207 18,342 Interest revenue (2,630) (1,073) Acquistion of intangible assets (188,971) (127,397) Share of profit of associates for using the equity method (154,727) (154,810) (Increase) in prepayment for equipments (56) - (Gain) loss on disposal of property, plant and equipment (9,517) 1,382 Decrease in prepayment for equipments - 241,606 Realized Sales profit - (11) Net cash used in investing activities (1,063,804) (1,001,982) Changes in operating assets and liabilities: ~ Notes receivable-net (98,969) 34,443 Cash flows from financing activities: Accounts receivable-net ,583 (Decrease) in short-term borrowings (102,653) (13,637) Accounts receivable-related parties-net 28,684 (67,259) (Decrease) in short-term notes and bills payable - (39,930) Other receivable (43,166) 31,532 Reimburse corporate bond - (500,000) Inventories (53,433) (105,079) Borrow in long-term borrowings 582, ,809 Other current assets (47,206) 6,523 Reimburse long-term borrowings (383,336) (740,264) Long-term prepaid rents 858 9,914 Interest paid (46,728) (52,485) Other non-current assets (7,199) 19,327 Net cash used in financing activities 50,245 (524,507) Notes payable (358) 2,319 Accounts payable (61,232) (161,860) Effect of exchange rate changes on cash and cash equivalents (28,611) (18,030) Accounts payable-related parties 3,263 (51,646) Net increase in cash and cash equivalents (245,950) (84,356) Other payables (194,144) (202,296) Cash and cash equivalents at beginning of period 1,236,257 1,504,666 Reserves-current (5,549) (2,713) Cash and cash equivalents at end of period $990,307 $1,420,310 Other current liabilities 4,482 38,554 Accrued pension liabilities (90,992) (83,571) Other non-current liabilities 229 8,788 Cash generated from operations 784,594 1,426,345 Interest received 2,630 1,073 Dividend received 10,440 44,665 Income tax paid (1,444) (11,920) Net cash provided by operating activities 796,220 1,460,163 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the three-month ended 31 March 2018 and 2017 (Reviewed, Not Audited) (Expressed in Thousands of New Taiwan Dollars) ~ ITEMS ~ ~ (The accompanying notes are an integral part of the consolidated financial statements.) 8

9 TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31 March 2018 and 2017 (Reviewed, Not Audited) (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated) I. HISTORY AND ORGANIZATION 1. TONG YANG INDUSTRY CO., LTD. (the Company ) was incorporated under the laws of the Republic of China (the ROC ) on 30 October The Company s principal activities consist of the manufacture and sale of parts, components and models for automobile and motorcycle. The Company became a listed company on Taiwan Stock Exchange on 12 December The Company merged with TAIWAN KAI YIH INDUSTRIAL CO., LTD. (TKY) on 1 September 2010 and was the surviving company. The Company merged with KAI MING INDUSTRIAL CO., LTD. (KM) on 1 October 2011 and was the surviving company. II. DATE AND PROCEDURES OF AUTHORIZATION OF FINANCIAL STATEMENTS FOR ISSUE The consolidated financial statements of the Company and subsidiaries (hereinafter referred to as the Company ) for the three months ended 31 March 2018 and 2017 were authorized for issue in accordance with a resolution of the Board of directors on 8 May III. NEWLY ISSUED OR REVISED STANDARDS AND INTERPRETATIONS 1. Changes in accounting policies resulting from applying for the first time certain standards and amendments The Group applied for the first time International Financial Reporting Standards, International Accounting Standards, and Interpretations issued, revised or amended which are recognized by Financial Supervisory Commission ( FSC ) and become effective for annual periods beginning on or after 1 January The nature and the impact of each new standard and amendment that has a material effect on the Group is described below : (1) IFRS 15 Revenue from Contracts with Customers (including Amendments to IFRS 15 Clarifications to IFRS 15 Revenue from Contracts with Customers ) IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations. In accordance with the transition provision in IFRS 15, the Company elected to recognize the cumulative effect of initially applying IFRS 15 at the date of initial application (1 January 2018). The Company also elected to apply this standard retrospectively only to contracts that are not completed contracts at the date of initial application. 9

10 The Company s principal activities consist of the sale of goods. The impacts arising from the adoption of IFRS 15 on the Company are summarized as follows: A. Please refer to Note 4 for the accounting policies before or after 1 January B. Before 1 January 2018, revenue from sale of goods was recognized when goods have been delivered to the buyer. Starting from 1 January 2018, in accordance with IFRS 15, the Group recognized revenue when (or as) the Group satisfies a performance obligation by transferring a promised good to a customer. IFRS 15 has no impact on the Group s revenue recognition from sale of goods. However, for some contracts, if the Group has the right to transfer the goods to customers but does not has a right to an amount of consideration that is unconditional, these contracts should be presented as contract assets, which is different from the accounting treatment of recognizing trade receivables before the date of initial application. In addition, loss allowance for contract assets was assessed in accordance with IFRS 9. However, forsome contracts, part of the consideration was received fro, customers when assigning the contracts, then the Company has the obligation to transfer the goods subsequently. The amount recognized as other current liabilities of the Company as at the date of initial application. Starting from 1 January 2018, in accordance with IFRS 15, It should be recognized as contract liabilities. C. Please refer to Note 4, Note 5, and Note 6 for additional disclosure required by IFRS 15. (2) IFRS 9 Financial Instruments IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. In accordance with the transition provision in IFRS 9, the Group elected not to restate prior periods at the date of initial application (1 January 2018). The adoption of IFRS 9 has the following impacts on the Group: A. The Group adopted IFRS 9 since 1 January 2018 and it adopted IAS 39 before 1 January Please refer to Note 4 for more details on accounting policies. 10

11 B. In accordance with the transition provision in IFRS 9, the assessment of the business model and classification of financial assets into the appropriate categories are based on the facts and circumstances that existed as at 1 January The classifications and carrying amounts of those financial assets as at 1 January 2018 are as follows: IAS 39 IFRS 9 Measurement categories Carrying amounts Measurement categories Carrying amounts Fair value through other comprehensive Fair value through other $324,450 income comprehensive income Available-for-sale financial assets $324,450 At amortized cost At amortized cost (including cash and Loans and receivables (including cash cash and 6,359,653 Equivalents (exclude cash on hand), 6,359,653 cash equivalents (exclude cash on hand), notes receivables, accounts receivables, debt instrument investments for which no active market exists and other receivables) notes receivables, accounts receivables, financial assets measured at amortized cost and other receivables) Total $6,684,103 Total $6,684,103 C. Further information of the classifications of financial assets and financial liabilities for the transition from IAS 39 to IFRS 9 as at 1 January 2018 are as follows: IAS 39 IFRS 9 Measurement categories Carrying amounts Measurement categories Carrying amounts Difference Available-for-sale financial assets $324,450 Measured at fair value through $324,450 - (NOTE 1) other comprehensive income (equity instruments) Loans and receivables (NOTE 2) Cash and cash equivalents 1,232,446 Cash and cash equivalents 1,232,446 - (exclude cash on hand) (exclude cash on hand) Debt instrument investments 100,282 Financial assets measured at 100,282 - for which no active market exists amortized costs Notes receivables 239,689 Notes receivables 239,689 - Accounts receivables 4,480,787 Accounts receivables 4,480,787 - Accounts receivables-related 189,110 Accounts receivables-related 189,110 - parties parties Other receivables 117,339 Other receivables 117,339 - Subtotal 6,359,653 Total $6,684,103 Total $6,684,103-11

12 NOTE: 1. In accordance with of IAS 39, available-for-sale financial assets are mainly stocks of unlisted companies. Details are described as follow: The assessment is based on the facts and circumstances that existed as at 1 January 2018, as these equity investments are not held-for-trading, the Group elected to designate them as financial assets measured at fair value through other comprehensive income. As at 1 January 2018, the Group reclassified available-for-sale financial assets (including measured at cost) to financial assets measured at fair value through other comprehensive income of NT$324,450 thousand, In addition to reclassification to finacial assets measured at fair value through other comprehensive income. 2. In accordance with IAS 39, the cash flow characteristics for loans and receivables are solely payments of principal and interest on the principal amount outstanding. The assessment of the business model is based on the facts and circumstances that exited as at 1 January These financial assets were measured at amortized cost as they were held within a business model whose objective was to hold financial assets in order to collect contractual cash flows. Besides, in accordance with IFRS 9, there was no adjustment arisen from the assessment of impairment losses for the aforementioned assets as at 1 January Therefore, there is no impact on the carrying amount as at 1 January As at 1 January 2018, debt instrument investments for which no active market exists of NT$100,282 thousand were reclassified to financial assets measured at amortized cost. D. Other impact The Group adopted the requirements of IFRS 9 since 1 January The adjustments for investment using equity method and other equity were NT$2,780 thousand. E. Please refer to Note 4, Note 5, Note 6 and Note 12 for the related disclosures required by IFRS 7 and IFRS Standards or interpretations issued, revised or amended, which are recognized by FSC, but not yet adopted by the Group as at the end of the reporting period: None 12

13 3. Standards or interpretations issued, revised or amended, by IASB but not yet recognized by FSC at the date of issuance of the Company s financial statements are listed below: Effective Date New/Revised or Amended Standards and Interpretations Issued by IASB 1 IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Uncertain Joint Ventures 2 IFRS 16 Leases 1 January IFRIC 23 Uncertainty Over Income Tax Treatments 1 January IFRS 17 Insurance Contracts 1 January Amendment to IAS 28 Investments in Associates and Joint Ventures 1 January Amendment to IFRS 9 Negative Compensation Prepayment Features 1 January Improvements to International Financial Reporting Standards ( cycle) 1 January Amendment to IAS 19 Plan Amendment, Curtailment or Settlement 1 January 2019 (1) IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures (Amendment) The amendments address the inconsistency between the requirements in IFRS 10 Consolidated Financial Statements (IFRS 10) and IAS 28 Investments in Associates and Joint Ventures (IAS 28), in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. IAS 28 restricts gains and losses arising from contributions of non-monetary assets to an associate or a joint venture to the extent of the interest attributable to the other equity holders in the associate or joint venture. IFRS 10 requires full profit or loss recognition on the loss of control of a subsidiary. IAS 28 was amended so that the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 Business Combinations (IFRS 3) between an investor and its associate or joint venture is recognized in full. IFRS 10 was also amended so that the gain or loss resulting from the sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized only to the extent of the unrelated investors interests in the associate or joint venture. 13

14 (2) IFRS 16 Leases The new standard requires lessees to account for all leases under a single on-balance sheet model (subject to certain exemptions). Lessor accounting still uses the dual classification approach: operating lease and finance lease. (3) IFRS 23 Uncertainty Over Income Tax Treatments The Interpretation clarifies application of recognition and measurement requirements in IAS 12 Income Taxes when there is uncertainty over income tax treatments. (4) IFRS 17 Insurance Contracts IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects (including recognition, measurement, presentation and disclosure requirements). The core of IFRS 17 is the General (building block) Model. Under this model, on initial recognition, an entity shall measure a group of insurance contracts at the total of the fulfilment cash flows and the contractual service margin. The fulfilment cash flows comprise of the following: (1) estimates of future cash flows (2) Discount rate: an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows (3) a risk adjustment for non-financial risk The carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of the liability for remaining coverage and the liability for incurred claims. Other than the General Model, the standard also provides a specific adaptation for contracts with direct participation features (the Variable Fee Approach) and a simplified approach (Premium Allocation Approach) mainly for short-duration contracts. (5) IAS 28 Investment in Associates and Joint Ventures Amendments to IAS 28 The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture before it applies IAS 28, and in applying IFRS 9, does not take account of any adjustments that arise from applying IAS

15 (6) Prepayment Features with Negative Compensation (Amendments to IFRS 9) The amendment allows financial assets with prepayment features that permit or require a party to a contract either to pay or receive reasonable compensation for the early termination of the contract, to be measured at amortized cost or at fair value through other comprehensive income. (7) Improvements to International Financial Reporting Standards ( cycle): IFRS 3 Business Combinations The amendments clarify that an entity that has joint control of a joint operation shall remeasure its previously held interest in a joint operation when it obtains control of the business. IFRS 11 Joint Arrangements The amendments clarify that an entity that participates in, but does not have joint control of, a joint operation does not remeasure its previously held interest in a joint operation when it obtains joint control of the business. IAS 12 Income Taxes The amendments clarify that an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. IAS 23 Borrowing Costs The amendments clarify that an entity should treats as part of general borrowings any borrowing made specifically to obtain an asset when the asset is ready for its intended use or sale. (8) Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) The amendments clarify that when a change in a defined benefit plan is made (such as amendment, curtailment or settlement, etc.), the entity should use the updated assumptions to remeasure its net defined benefit liability or asset. The abovementioned standards and interpretations issued by IASB have not yet endorsed by FSC at the date when the Group s financial statements were authorized for issue, the local effective dates are to be determined by FSC. As the Group is currently determining the potential impact of the standards and interpretations listed under (2) (3) (5) and (7), it is not practicable to estimate their impact on the Group at this point in time. All other standards and interpretations have no material impact on the Group. 15

16 IV. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Statement of Compliance The consolidated financial statements of the Group for the three months ended 31 March 2018 and 2017 have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers ( the Regulations ) and IAS 34 Interim Financial Reporting as recognized by the FSC. 2. Basis of preparation The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value. The consolidated financial statements are expressed in thousands of New Taiwan Dollars ( NT$ ) unless otherwise stated. 3. Basis of consolidation Preparation principle of consolidated financial statement Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has: a. power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); b. exposure, or rights, to variable returns from its involvement with the investee; and c. the ability to use its power over the investee to affect its returns. When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: a. the contractual arrangement with the other vote holders of the investee; b. rights arising from other contractual arrangement; c. the Company s voting rights and potential voting rights. The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the acquisition date, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using uniform accounting policies. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full. 16

17 A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Total comprehensive income of the subsidiaries is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. If loses control of a subsidiary, it: a. derecognizes the assets (including goodwill) and liabilities of the subsidiary; b. derecognizes the carrying amount of any non-controlling interest; c. recognizes the fair value of the consideration received; d. recognizes the fair value of any investment retained; e. recognizes any surplus or deficit in profit or loss; and f. reclassifies the parent s share of components previously recognized in other comprehensive income to profit or loss. The consolidated entities are as follows: Percentage of Ownership (%) Invest Company Investee Company Major business 31 Mar Dec Mar The Company RU YANG INDUSTRIAL Manufacture and sale 58.95% 58.95% 58.95% CO., LTD. (RU YANG) of automobile parts The Company TONG YANG HOLDING Investment holding % % % CORPORATION (TONG YANG HOLDING) The Company HOW BOND INVESTMENT Investment holding % % % CO., LTD. (HOW BOND) The Company TYG EUROPE S.P.A. Manufacture and sale % % % (TYG EUROPE) of automobile parts The Company DING CHUNG INDUSTRY CO., LTD. (DING CHUNG) Sale of automobile parts and tooling mold % % % TONG YANG CHONGQING DAJING HOLDING YUCHYANG PLASTICS CO., LTD. (DAJING YUCHYANG) TONG YANG FUZHOU TONG YANG HOLDING PLASTICS CO., LTD. TONG YANG CHONGQING DAJING HOLDING TONG YANG PLASTICS CO., LTD. TONG YANG GUANGZHOU TONG YANG HOLDING TATEMATSU MOLD MANUFACTURING CO., LTD. Manufacture and sale of automobile parts 55.00% 55.00% 55.00% Manufacture and sale % % % of automobile parts Manufacture and sale of automobile parts 25.00% (NOTE1) 25.00% (NOTE1) 25.00% (NOTE1) Design, manufacture 90.00% 90.00% 90.00% and sale of tooling mold 17

18 Percentage of Ownership (%) Invest Company Investee Company Major business TONG YANG XIANGYANG TONG YANG Manufacture and sale 31 Mar. 31 Dec. 31 Mar % % % HOLDING AUTOMOBILE of automobile parts COMPONENT CO., LTD. TONG YANG FUSHUN TONG YANG Manufacture and sale % % % HOLDING AUTOMOBILE of automobile parts COMPONENT CO., LTD. (FUSHUN TONG YANG) TONG YANG TONG YANG Product Design, R&D, % (NOTE2) (NOTE2) HOLDING (GUANGZHOU) Testing and Service TECHNOLOGY R&D SERVICE CO., LTD. DAJING CHONGQING DAJING Manufacture and sale 54.55% 54.55% 54.55% YUCHYANG TONG YANG PLASTICS of automobile parts CO., LTD. HOW BOND TYG HOLDING (U.S.A.), Investment holding % % % INC. (TYG HOLDING) HOW BOND NANJING TONG YANG Manufacture and sale % % % TYG AUTO PARTS CO., LTD. of automobile parts TYG MANAGEMENT, INC. Management consult % % % HOLDING TYG TYG LEASING, L.P. Leasing 99.00% 99.00% 99.00% HOLDING TYG TYG PRODUCTS, L.P. Manufacture and sale 99.00% 99.00% 99.00% HOLDING of automobile parts Note: (1) The Company and subsidiaries directly or indirectly hold more than 50% of shares. (2) TONG YANG (GUANGZHOU) TECHNOLOGY R&D SERVICE CO., LTD was established in January Expect for TONG YANG HOLDING CORPORATION and FUZHOU TONG YANG PLASTICS CO., LTD., the other consolidated subsidiaries financial reports were unreviewed and whose total assets amounted to NT$8,107,518 thousand and NT$7,205,134 thousand; total liabilities amounted to NT$3,700,637 thousand and NT$3,085,755 thousand as of 31 March 2018 and 2017; their total comprehensive income amounted to NT$44,992 thousand and NT$(207,666) thousand for the three-month periods ended 31 March 2018 and

19 4. Foreign currency transactions The Group s consolidated financial statements are presented in NT$, which is also the Company s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange ruling at the reporting Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. All exchange differences arising on the settlement of monetary items or on translating monetary items are taken to profit or loss in the period in which they arise except for the following: (a) Exchange differences arising from foreign currency borrowings for an acquisition of a qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization. (b) Foreign currency items within the scope of IAS 39 Financial Instruments: Recognition and Measurement are accounted for based on the accounting policy for financial instruments. (c) Exchange differences arising on a monetary item that forms part of a reporting entity s net investment in a foreign operation is recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss. 5. Translation of financial statements in foreign currency The assets and liabilities of foreign operations are translated into NT$ at the closing rate of exchange prevailing at the reporting date and their income and expenses are translated at an average rate for the period. The exchange differences arising on the translation are recognized in other comprehensive income. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss when the gain or loss on disposal is recognized. The following partial disposals are accounted for as disposals: 19

20 (a) when the partial disposal involves the loss of control of a subsidiary that includes a foreign operation; and (b) when the retained interest after the partial disposal of an interest in a joint arrangement or partial disposal of an interest in an associate that includes a foreign operation is financial asset that includes a foreign operation. On the partial disposal of a subsidiary that includes a foreign operation that does not result in a loss of control, the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is re-attributed to the non-controlling interests in that foreign operation. In partial disposal of an associate or joint arrangement that includes a foreign operation that does not result in a loss of significant influence or joint control, only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is reclassified to profit or loss. Any goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and expressed in its functional currency. 6. Current and non-current distinction An asset is classified as current when: (a) The Group expects to realize the asset, or intends to sell or consume it, in its normal operating cycle (b) The Group holds the asset primarily for the purpose of trading (c) The Group expects to realize the asset within twelve months after the reporting period (d) The asset is cash or 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. All other assets are classified as non-current. A liability is classified as current when: (a) The Group expects to settle the liability in its normal operating cycle (b) The Group holds the liability primarily for the purpose of trading (c) The liability is due to be settled within twelve months after the reporting period (d) The Group 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 affect its classification. All other liabilities are classified as non-current. 20

21 7. Cash and cash equivalents Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly liquid time deposits (including ones that have maturity within 3 months) or investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 8. Financial instruments Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities within the scope of IFRS 9 Financial Instruments (before 1 January 2018: IAS 39 Financial Instruments: Recognition and Measurement) are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. (1) Financial instruments: Recognition and Measurement The accounting policy from 1 January 2018 is as follows: The Group accounts for regular way purchase or sales of financial assets on the trade The Group classified financial assets as subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both: A. the Group s business model for managing the financial assets and B. the contractual cash flow characteristics of the financial asset. Financial assets measured at amortized cost A financial asset is measured at amortized cost if both of the following conditions are met and presented as note receivables, trade receivables financial assets measured at amortized cost and other receivables etc., on balance sheet as at the reporting date: A. the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and B. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 21

22 Such financial assets are subsequently measured at amortized cost (the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount and the maturity amount and adjusted for any loss allowance) and is not part of a hedging relationship. A gain or loss is recognized in profit or loss when the financial asset is derecognized, through the amortization process or in order to recognize the impairment gains or losses. Interest revenue is calculated by using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for: A. purchased or originated credit-impaired financial assets. For those financial assets, the Group applies the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. B. financial assets that are not purchased or originated credit-impaired financial assets but subsequently have become credit-impaired financial assets. For those financial assets, the Group applies the effective interest rate to the amortized cost of the financial asset in subsequent reporting periods. Financial asset measured at fair value through other comprehensive income A financial asset is measured at fair value through other comprehensive income if both of the following conditions are met: A. the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and B. the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Recognition of gain or loss on a financial asset measured at fair value through other comprehensive income are described as below: A. A gain or loss on a financial asset measured at fair value through other comprehensive income recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses, until the financial asset is derecognized or reclassified. B. When the financial asset is derecognized the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. C. Interest revenue is calculated by using the effective interest method. This is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for: 22

23 (a) Purchased or originated credit-impaired financial assets. For those financial assets, the Group applies the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. (b) Financial assets that are not purchased or originated credit-impaired financial assets but subsequently have become credit-impaired financial assets. For those financial assets, the Group applies the effective interest rate to the amortized cost of the financial asset in subsequent reporting periods. In addition, for certain equity investments within the scope of IFRS 9 that is neither held for trading nor contingent consideration recognized by an acquirer in a business combination to which IFRS 3 applies, the Group made an irrevocable election to present the changes of the fair value in other comprehensive income at initial recognition. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss (when disposal of such equity instrument, its cumulated amount included in other components of equity is transferred directly to the retained earnings) and these investments should be presented as financial assets measured at fair value through other comprehensive income on the balance sheet. Dividends on such investment are recognized in profit or loss unless the dividends clearly represents a recovery of part of the cost of investment. Financial asset measured at fair value through profit or loss Financial assets were classified as measured at amortized cost or measured at fair value through other comprehensive income based on aforementioned criteria. All other financial assets were measured at fair value through profit or loss and presented on the balance sheet as financial assets measured at fair value through profit or loss. Such financial assets are measured at fair value, the gains or losses resulting from remeasurement is recognized in profit or loss which includes any dividend or interest received on such financial assets. The accounting policy before 1 January 2018 is as follows: The Group accounts for regular way purchase or sales of financial assets on the trade Financial assets of the Group are classified as financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The Group determines the classification of its financial assets at initial recognition. 23