DELTA ELECTRONICS, INC. AND SUBSIDIARIES

Transcription

1 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS SEPTEMBER 30, 2017 AND For the convenience of readers and for information purpose only, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail.

2 REVIEW REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE To Delta Electronics, Inc. We have reviewed the accompanying consolidated balance sheets of Delta Electronics, Inc. and subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of comprehensive income for the three-month and the nine-month periods then ended, of changes in equity and of cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express a conclusion on these financial statements based on our reviews. We did not review the financial statements of certain consolidated subsidiaries and certain investments accounted for under the equity method. These consolidated subsidiaries reflect total assets amounting to $5,468,028 thousand, constituting 2.36% of the consolidated total assets as of September 30, 2016, and total revenues amounting to $375,238 thousand and $375,238 thousand, constituting 0.66% and 0.24% of the total revenues for the three-month and nine-month periods ended September 30, 2016, respectively. The investments accounted for under the equity method amounted to $7,180,140 thousand and $6,822,873 thousand, constituting 2.78% and 2.94% of the consolidated total assets as of September 30, 2017 and 2016, respectively, and the share of profit and other comprehensive income of associates and joint ventures accounted for under equity method was $376,123 thousand and $210,716 thousand, constituting 6.16% and 9.24% of the consolidated total comprehensive income for the three-month periods ended September 30, 2017 and 2016, respectively, and $699,555 thousand and $633,495 thousand, constituting 7.28% and 9.20% of the consolidated total comprehensive income for the nine-month periods ended September 30, 2017 and 2016, respectively. Those financial statements were reviewed by other independent accountants whose reports thereon have been furnished to us, and our conclusion expressed herein, is based solely on the review reports of the other independent accountants. Except as explained in the following paragraph, our reviews were made in accordance with the Generally Accepted Auditing Standards No. 36, Review of Financial Statements in the Republic of China. A ~1~

3 review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As explained in Notes 4(3)2 and 6(9), we did not review the financial statements of certain insignificant consolidated subsidiaries and investments accounted for under equity method, which statements reflect total assets (including investments accounted for under equity method) of $22,777,757 thousand and $20,868,689 thousand, constituting 8.82% and 9.00% of the consolidated total assets, and total liabilities of $8,327,477 thousand and $5,189,412 thousand, constituting 6.30% and 4.80% of the consolidated total liabilities as of September 30, 2017 and 2016, respectively, and total comprehensive income (including share of profit and other comprehensive income of associates and joint ventures accounted for under equity method) of $430,978 thousand and $125,895 thousand, constituting 7.06% and 5.52% of the consolidated total comprehensive income for the three-month periods ended September 30, 2017 and 2016, respectively, and $418,490 thousand and $579,758 thousand, constituting 4.36% and 8.42% of the consolidated total comprehensive income for the nine-month periods ended September 30, 2017 and 2016, respectively. These amounts and the information disclosed in Note 13 were based solely on the unreviewed financial statements of these companies as of September 30, 2017 and Based on our reviews and the review reports of other independent accountants, except for the effect of such adjustments, if any, as might have been determined to be necessary had the financial statements of certain consolidated subsidiaries, investments accounted for under equity method and the information disclosed in Note 13 been reviewed by independent accountants, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the Rules Governing the Preparation of Financial Statements by Securities Issuers and IAS 34, Interim Financial Reporting as endorsed by the Financial Supervisory Commission (FSC). The consolidated financial statements of Delta Electronics, Inc. and subsidiaries as of and for the period ~2~

4 ended September 30, 2017 expressed in US dollars are presented solely for the convenience of the reader and were translated from the financial statements expressed in New Taiwan dollars using the exchange rate of $ to US$1.00 at September 30, This basis of translation is not in accordance with International Financial Reporting Standards, International Accounting Standards, and relevant interpretations and interpretative bulletins that are ratified by the FSC. Lin, Yu-Kuan Chou, Chien-Hung for and on behalf of PricewaterhouseCoopers, Taiwan October 30, The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the review of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and review report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation. ~3~

5 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2017, DECEMBER 31, 2016, AND SEPTEMBER 30, 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (THE SEPTEMBER 30, 2017 AND 2016 AMOUNTS ARE UNAUDITED) US Dollars New Taiwan Dollars Assets Notes September 30, 2017 September 30, 2017 December 31, 2016 September 30, 2016 Current assets Cash and cash equivalents 6(1) $ 2,278,026 $ 69,058,351 $ 55,572,744 $ 54,511,453 Financial assets at fair value through profit or loss - current 6(2) 2,583 78,316 56,252 69,280 Available-for-sale financial assets - current 6(3) 48,188 1,460, , ,719 Derivative financial assets for hedging - current 6(5) 167 5,076 7,708 - Notes receivable, net 113,961 3,454,714 3,553,181 2,763,282 Accounts receivable, net 6(6) 1,599,567 48,490,883 46,756,514 48,244,495 Accounts receivable - related parties 7 40,084 1,215,142 1,431,921 1,273,546 Other receivables 18, , , ,181 Other receivables - related parties 7 2,306 69, , ,505 Current income tax assets 16, , , ,669 Inventories 6(8) 960,405 29,114,684 25,953,182 24,379,323 Prepayments 73,988 2,242,947 2,779,206 2,599,388 Non-current assets held for sale, net 6(13) ,647 - Other current assets 8 25, , , ,963 Total current assets $ 5,179,025 $ 157,002,139 $ 138,401,698 $ 136,488,804 Non-current assets Available-for-sale financial assets - non-current 6(3) 158,569 4,807,009 5,926,691 5,341,889 Financial assets carried at cost - non-current 6(4) 35,723 1,082,945 1,113,279 1,102,988 Investments accounted for under equity method 6(9) 272,475 8,260,087 8,319,562 8,243,642 Property, plant and equipment 6(10) 1,417,585 42,974,097 40,558,137 40,581,762 Investment property, net 6(11) 59,825 1,813,596 1,924,097 1,961,430 Intangible assets 6(12) 952,507 28,875,254 30,918,856 30,748,833 Deferred income tax assets 202,369 6,134,803 5,334,038 5,140,785 Other non-current assets 6(14) and 8 241,246 7,313,376 2,618,312 2,236,566 Total non-current assets 3,340, ,261,167 96,712,972 95,357,895 Total assets $ 8,519,324 $ 258,263,306 $ 235,114,670 $ 231,846,699 (Continued) ~4~

6 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) SEPTEMBER 30, 2017, DECEMBER 31, 2016, AND SEPTEMBER 30, 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (THE SEPTEMBER 30, 2017 AND 2016 AMOUNTS ARE UNAUDITED) US Dollars New Taiwan Dollars Liabilities and Equity Notes September 30, 2017 September 30, 2017 December 31, 2016 September 30, 2016 Current liabilities Short-term borrowings 6(15) $ 688,054 $ 20,858,370 $ 12,539,294 $ 10,647,626 Financial liabilities at fair value through profit or loss - current 6(16) 1,726 52, ,490 8,003 Notes payable 207 6, Accounts payable 1,208,113 36,623,955 37,045,171 36,586,784 Accounts payable - related parties 7 32, , , ,540 Other payables 745,405 22,596,958 23,275,430 20,093,858 Current income tax liabilities 6(30) 64,524 1,956,047 1,572,229 1,503,148 Other current liabilities 6(17) 214,808 6,511,889 6,143,043 5,487,703 Total current liabilities 2,955,201 89,586,913 81,263,637 74,792,662 Non-current liabilities Long-term borrowings 6(17) 854,899 25,916,268 8,513,958 17,952,038 Deferred income tax liabilities 416,475 12,625,438 12,386,659 11,283,830 Other non-current liabilities 6(18) 136,180 4,128,300 3,941,550 4,001,174 Total non-current liabilities 1,407,554 42,670,006 24,842,167 33,237,042 Total liabilities 4,362, ,256, ,105, ,029,704 Equity Share capital Share capital - common stock 6(19) 856,851 25,975,433 25,975,433 25,975,433 Capital surplus Capital surplus 6(20) 1,598,117 48,446,902 48,442,451 48,331,890 Retained earnings 6(21) Legal reserve 705,043 21,373,388 19,493,608 19,493,608 Special reserve 91,300 2,767, , ,556 Unappropriated retained earnings 939,012 28,466,134 31,915,572 26,951,924 Other equity interest Other equity interest ( 199,629 ) ( 6,051,713 ) ( 2,240,194 ) ( 3,123,318 ) Equity attributable to owners of the parent 3,990, ,977, ,114, ,157,093 Non-controlling interest 6(22) 165,875 5,028,494 4,894,440 5,659,902 Total equity 4,156, ,006, ,008, ,816,995 Significant contingent liabilities and unrecorded contract 9 commitments Significant subsequent events 11 Total liabilities and equity $ 8,519,324 $ 258,263,306 $ 235,114,670 $ 231,846,699 The accompanying notes are an integral part of these consolidated financial statements. ~5~

7 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) US Dollars New Taiwan Dollars For the nine-month For the three-month periods ended For the nine-month periods ended period ended September 30, September 30, Items Notes September 30, Sales revenue 6(23) and 7 $ 5,351,162 $ 59,822,476 $ 57,068,020 $ 162,220,465 $ 157,341,283 Operating costs 6(7)(24)(28)(29) and 7 ( 3,893,247 ) ( 43,624,138 ) ( 40,715,675) ( 118,023,786) ( 113,389,017) Gross profit 1,457,915 16,198,338 16,352,345 44,196,679 43,952,266 Operating expenses 6(28)(29) Selling expenses ( 363,775 ) ( 3,845,556 ) ( 3,548,947) ( 11,027,841) ( 10,368,950) General and administrative expenses ( 228,557 ) ( 2,382,524 ) ( 2,609,160) ( 6,928,709) ( 6,925,338) Research and development expenses ( 404,220 ) ( 4,511,735 ) ( 3,815,773) ( 12,253,924) ( 11,207,025) Total operating expenses ( 996,552 ) ( 10,739,815 ) ( 9,973,880) ( 30,210,474) ( 28,501,313) Operating profit 461,363 5,458,523 6,378,465 13,986,205 15,450,953 Non-operating income and expenses Other income 6(25) 82, , ,458 2,494,507 2,844,106 Other gains and losses 6(26) 21, ,408 ( 331,414 ) 653,149 ( 457,735 ) Finance costs 6(27) ( 7,992 ) ( 52,584 ) ( 104,768 ) ( 242,266 ) ( 275,494 ) Share of profit of associates and joint ventures accounted for under equity method 6(9) (Continued) ~6~ 15, , , , ,236 Total non-operating income and expenses 111,665 1,505, ,869 3,385,134 2,780,113 Profit before income tax 573,028 6,963,622 7,154,334 17,371,339 18,231,066 Income tax expense 6(30) ( 116,114 ) ( 1,388,814 ) ( 1,376,973 ) ( 3,519,995 ) ( 4,041,008 ) Profit for the period $ 456,914 $ 5,574,808 $ 5,777,361 $ 13,851,344 $ 14,190,058

8 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) US Dollars New Taiwan Dollars For the nine-month period ended For the three-month periods ended September 30, For the nine-month periods ended September 30, Items Notes September 30, Other comprehensive loss Components of other comprehensive income (loss) that will not be reclassified to profit or loss Income (loss) on remeasurements of defined benefit plans $ 1,337 $ 4,132 ($ 138) $ 40,520 ($ 16,434 ) Components of other comprehensive income (loss) that will not be reclassified to profit or loss 1,337 4,132 ( 138) 40,520 ( 16,434 ) Components of other comprehensive (loss) income that will be reclassified to profit or loss Financial statements translation differences of foreign operations ( 149,725 ) 606,160 ( 3,518,915) ( 4,538,919) ( 6,366,600 ) Unrealized loss on valuation of available-for-sale financial assets ( 11,086 ) ( 128,275) ( 343,082) ( 336,060) ( 1,572,733 ) Hedging instrument loss on effective hedge of cash flow hedges 6(5) 2,801 64,481-84,920 - Share of other comprehensive income (loss) of associates and joint ventures accounted for under equity method 4, ,526 ( 46,630) 130,954 ( 113,831 ) Income tax relating to the components of other comprehensive income 6(30) 12,300 ( 136,883) 410, , ,648 Components of other comprehensive (loss) income that will be reclassified to profit or loss (( 141,390 ) 527,009 ( 3,497,894) ( 4,286,216) ( 7,287,516 ) Other comprehensive (loss) income for the period ($ 140,053 ) 531,141 ( 3,498,032 ) ($ 4,245,696 ) ( 7,303,950 ) Total comprehensive income for the period $ 316,861 6,105,949 2,279,329 $ 9,605,648 6,886,108 Profit attributable to: Owners of the parent $ 449,208 $ 5,466,101 $ 5,666,218 $ 13,617,732 $ 13,846,153 Non-controlling interest $ 7,706 $ 108,707 $ 111,143 $ 233,612 $ 343,905 (Continued) ~7~

9 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) Comprehensive income attributable to: US Dollars New Taiwan Dollars For the nine-month period ended For the three-month periods ended September 30, For the nine-month periods ended September 30, Items Notes September 30, Owners of the parent $ 324,814 $ 6,085,988 $ 2,290,964 $ 9,846,733 $ 6,786,894 Non-controlling interest ($ 7,953 ) $ 19,961 ($ 11,635) ($ 241,085) $ 99,214 Earnings per share (in dollars) 6(31) Basic earnings per share $ $ 2.10 $ 2.18 $ 5.24 $ 5.33 Diluted earnings per share $ $ 2.09 $ 2.17 $ 5.21 $ 5.29 The accompanying notes are an integral part of these consolidated financial statements. ~8~

10 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) Notes Share capital - common stock Capital surplus Legal reserve Equity attributable to owners of the parent Retained earnings Special reserve Unappropriated retained earnings Financial statements translation differences of foreign operations Other equity interest Unrealized gain or loss on available-forsale financial assets Hedging instrument gain (loss) on effective hedge of cash flow hedges Total Non-controlling interest Total equity 2016 New Taiwan Dollars Balance at January 1, 2016 Distribution of 2015 earnings 6(21) $ 25,975,433 $ 48,344,161 $ 17,622,146 $ - $ 28,508,940 $ 3,708,438 $ 204,881 $ 6,188 $ 124,370,187 $ 5,182,622 $ 129,552,809 Legal reserve Special reserve Cash dividends - - 1,871,462 - ( 1,871,462 ) ,556 ( 527,556 ) ( 12,987,717 ) ( 12,987,717 ) - ( 12,987,717 ) Change in equity of associates and joint ventures accounted for under equity method - ( 12,271 ) ( 12,271 ) - ( 12,271 ) Changes in non-controlling interests 6(22) Other comprehensive loss for the period Profit for the period , , ( 16,434 ) ( 5,470,092 ) ( 1,572,733 ) - ( 7,059,259 ) ( 244,691 ) ( 7,303,950 ) ,846, ,846, ,905 14,190,058 Balance at September 30, 2016 $ 25,975,433 $ 48,331,890 $ 19,493,608 $ 527,556 $ 26,951,924 ( $ 1,761,654 ) ( $ 1,367,852 ) $ 6,188 $ 118,157,093 $ 5,659,902 $ 123,816, New Taiwan Dollars Balance at January 1, 2017 $ 25,975,433 $ 48,442,451 $ 19,493,608 $ 527,556 $ 31,915,572 ( $ 1,016,396 ) ( $ 1,287,293 ) $ 63,495 $ 124,114,426 $ 4,894,440 $ 129,008,866 Distribution of 2016 earnings 6(21) Legal reserve Special reserve Cash dividends - - 1,879,780 - ( 1,879,780 ) ,240,193 ( 2,240,193 ) ( 12,987,717 ) ( 12,987,717 ) - ( 12,987,717 ) Change in equity of associates and joint ventures accounted for under equity method - 4, ,451-4,451 Changes in non-controlling interests 6(22) , ,139 Other comprehensive income (loss) for the period ,520 ( 3,545,943 ) ( 326,318 ) 60,742 ( 3,770,999 ) ( 474,697 ) ( 4,245,696 ) Profit for the period ,617, ,617, ,612 13,851,344 Balance at September 30, 2017 $ 25,975,433 $ 48,446,902 $ 21,373,388 $ 2,767,749 $ 28,466,134 ( $ 4,562,339 ) ( $1,613,611 ) $ 124,237 $ 120,977,893 $ 5,028,494 $ 126,006,387 (Continued) ~9~

11 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) Notes Share capital - common stock Capital surplus Legal reserve Equity attributable to owners of the parent Retained earnings Special reserve Unappropriated retained earnings Financial statements translation differences of foreign operations Other equity interest Unrealized gain or loss on available-forsale financial assets Hedging instrument gain (loss) on effective hedge of cash flow hedges Total Non-controlling interest Total equity 2017 US Dollars Balance at January 1, 2017 $ 856,851 $ 1,597,970 $ 643,035 $ 17,403 $ 1,052,797 ($ 33,528 ) ($ 42,464) $ 2,094 $ 4,094,158 $ 161,453 $ 4,255,611 Distribution of 2016 earnings 6(21) Legal reserve ,008 - ( 62,008 ) Special reserve ,897 ( 73,897 ) Cash dividends ( 428,425 ) ( 428,425 ) - ( 428,425 ) Change in equity of associates and joint ventures accounted for under equity method Changes in non-controlling interests 6(22) ,375 12,375 Other comprehensive income (loss) for the period ,337 ( 116,970 ) ( 10,764 ) 2,003 ( 124,394 ) ( 15,659 ) ( 140,053 ) Profit for the period , ,208 7, ,914 Balance at September 30, 2017 $ 856,851 $ 1,598,117 $ 705,043 $ 91,300 $ 939,012 ($ 150,498 ) ($ 53,228 ) $ 4,097 $ 3,990,694 $ 165,875 $ 4,156,569 The accompanying notes are an integral part of these consolidated financial statements. ~10~

12 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) US Dollars New Taiwan Dollars Notes CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit before tax for the period $ 573,028 $ 17,371,339 $ 18,231,066 Adjustments to reconcile net income to net cash generated from operating activities Income and expenses having no effect on cash flows Depreciation 6(10)(11) 199,086 6,035,297 5,438,843 Amortization 6(12) 45,439 1,377,497 1,344,485 Provision for bad debts 6(6) 7, , ,530 Net income on financial assets or liabilities at fair 6(26) value through profit or loss ( 5,325 ) ( 161,415 ) ( 30,042 ) Interest expense 6(27) 7, , ,494 Interest income 6(25) ( 14,286 ) ( 433,068 ) ( 446,071 ) Dividend income 6(25) ( 4,682 ) ( 141,938 ) ( 132,165 ) Share-based payment 6(34) 51 1,540 - Share of profit of associates accounted for under 6(9) the equity method ( 15,825 ) ( 479,744 ) ( 669,236 ) Gain on disposal of property, plant and 6(26) ( 3,308 ) ( 100,289 ) ( 150,214 ) equipment Gain on disposal of non-current assets held for 6(26) ( 12,309 ) ( 373,138 ) - sale Gain on disposal of investments 6(26) ( 8,026 ) ( 243,303 ) ( 175,010 ) Impairment loss on financial assets 6(3)(26) , ,236 Reversal of impairment (gain) loss on nonfinancial assets - ( 13 ) 9,973 Changes in assets/liabilities relating to operating activities Net changes in assets relating to operating activities Financial assets held for trading ( 2,636 ) ( 79,908 ) ( 3,563 ) Notes receivable 3,248 98, ,514 Accounts receivable ( 26,196 ) ( 794,130 ) ( 2,764,063 ) Accounts receivable - related parties 7, , ,995 Other receivables 5, ,186 ( 72,486 ) Other receivables - related parties 1,144 34,685 24,103 Inventories ( 99,585 ) ( 3,018,919 ) ( 65,232 ) Prepayments 14, ,607 1,397,762 Other current assets ( 6,609 ) ( 200,338 ) 5,239 Other non-current assets 3, , ,297 Net changes in liabilities relating to operating activities Notes payable 207 6,261 - Accounts payable ( 16,915 ) ( 512,791 ) 1,038,524 Accounts payable - related parties ( 3,808 ) ( 115,436 ) 6,831 Other payables ( 23,730 ) ( 719,364 ) ( 2,374,568 ) Other current liabilities 24, , ,391 Other non-current liabilities ( 1,852 ) ( 56,143 ) ( 692,590 ) Cash generated from operations 650,197 19,710,707 21,919,043 Interest received 11, , ,709 Dividends received 27, ,529 1,004,453 Interest paid ( 7,482 ) ( 226,822 ) ( 271,940 ) Income taxes paid ( 107,927 ) ( 3,271,782 ) ( 2,805,956 ) Net cash provided by operating activities 574,002 17,400,864 20,287,309 (Continued) ~11~

13 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) US Dollars New Taiwan Dollars Notes CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of financial assets at fair value through profit or loss $ 1,824 $ 55,290 $ 108,289 Acquisition of available-for-sale financial assets ( 13,847 ) ( 419,778 ) ( 342,382 ) Proceeds from disposal of available-for-sale financial assets 14, , ,985 Proceeds from capital reduction of available-for-sale financial assets 3,158 95,733 34,679 Acquisition of financial assets carried at cost - - ( 478,285 ) Proceeds from disposal of financial assets at cost - - 2,528 Proceeds from capital reduction of financial assets carried at cost Net cash flow from acquisition of subsidiaries (net of 6(32) cash acquired) ( 3,395 ) ( 102,907 ) ( 7,777,705 ) Proceeds from disposal of subsidiaries (net of cash 6(33) disposed) 20, ,010 - Increase in prepayment of long-term investment 6(14) ( 133,088 ) ( 4,034,577 ) ( 125,176 ) Acquisition of property, plant and equipment 6(10) ( 318,215 ) ( 9,646,687 ) ( 5,673,706 ) Proceeds from disposal of property, plant and equipment 8, , ,613 Acquisition of intangible assets 6(12) ( 5,267 ) ( 159,683 ) ( 172,132 ) Decrease in other financial assets 1,310 39,703 69,883 (Increase) decrease in other non-current assets ( 22,067 ) ( 668,940 ) 139,480 Net cash used in investing activities ( 445,629 ) ( 13,509,258 ) ( 13,616,897 ) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term borrowings 262,063 7,944,446 ( 461,947 ) Proceeds from long-term debt 577,019 17,492,342 13,944,634 Repayment of long-term debt ( 2,726 ) ( 82,638 ) ( 44,206 ) Cash dividends ( 428,425 ) ( 12,987,717 ) ( 12,987,717 ) Cash dividends paid to minority share interests 6(22) ( 685 ) ( 20,782 ) ( 218,881 ) Net cash provided by financing activities 407,246 12,345, ,883 Effects due to changes in exchange rate ( 90,770 ) ( 2,751,650 ) ( 3,643,295 ) Increase in cash and cash equivalents 444,849 13,485,607 3,259,000 Cash and cash equivalents at beginning of period 1,833,177 55,572,744 51,252,453 Cash and cash equivalents at end of period $ 2,278,026 $ 69,058,351 $ 54,511,453 The accompanying notes are an integral part of these consolidated financial statements. ~12~

14 DELTA ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED) 1. HISTORY AND ORGANIZATION Delta Electronics, Inc. (the Company) was incorporated as a company limited by shares under the provisions of the Company Law of the Republic of China (R.O.C.). The Company and its subsidiaries (collectively referred herein as the Group) are global leaders in power and thermal management solutions and are primarily engaged in the research and development, design, manufacturing and sale of electronic control systems, DC brushless fans, thermal system, and miniaturization key component, industrial automation products, digital display products, communication products, consumer electronics products, energy-saving lighting application, renewable energy applications, EV charging, energy technology services and consulting services of building management and control solutions, etc. The Group s mission statement, to provide innovative, clean and energy-efficient solutions for a better tomorrow, focuses on the role in addressing key environmental issues such as global climate change. With the concern for the environment, the Group continues to develop innovative energy-efficient products and solutions. In recent years, the Group has transformed from a product provider towards a solution provider and the Group s business is segregated into power electronics business, automation business, and infrastructure business. 2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION These consolidated financial statements were reported to the Board of Directors on October 30, APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards ( IFRS ) as endorsed by the Financial Supervisory Commission ( FSC ) New standards, interpretations and amendments as endorsed by FSC effective from 2017 are as follows: New Standards, Interpretations and Amendments Investment entities: applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for acquisition of interests in joint operations (amendments to IFRS 11) Effective date by International Accounting Standards Board January 1, 2016 January 1,

15 New Standards, Interpretations and Amendments Except for the following, the above standards and interpretations have no significant impact to the Group s financial condition and financial performance based on the Group s assessment. A. Amendments to IAS 19, Defined benefit plans: Employee contributions The amendment allows contributions that are linked to service, and do not vary with the length of employee or third party service, to be deducted from the cost of benefits earned in the period that the service is provided. Contributions that are linked to service, and vary according to the length of employee or third party service, must be spread over the service period using the same attribution method that is applied to the benefits. B. Annual improvements to IFRSs cycle (a) IFRS 2, Share-based payment The amendment clarifies that the definition of a vesting condition includes only service condition and performance condition. The amendment revises the definition of service condition, performance condition and market condition. (b) IFRS 3, Business combinations Except for the contingent consideration classified as equity, all non-equity contingent consideration is measured at fair value with changes in fair value recognized in profit and loss. (c) IFRS 13, Fair value measurement Effective date by International Accounting Standards Board IFRS 14, Regulatory deferral accounts January 1, 2016 Disclosure initiative (amendments to IAS 1) January 1, 2016 Clarification of acceptable methods of depreciation and amortisation January 1, 2016 (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016 Defined benefit plans: employee contributions (amendments to IAS July 1, R) Equity method in separate financial statements (amendments to IAS 27) January 1, 2016 Recoverable amount disclosures for non-financial assets (amendments January 1, 2014 to IAS 36) Novation of derivatives and continuation of hedge accounting January 1, 2014 (amendments to IAS 39) IFRIC 21, Levies January 1, 2014 Improvements to IFRSs July 1, 2014 Improvements to IFRSs July 1, 2014 Improvements to IFRSs January 1, 2016 When issuing IFRS 13, Fair value measurement, the IASB removed the guidance that an entity could measure short-term receivables and payables with no stated interest rate at invoice amounts without discounting, when the effect of not discounting is immaterial. The 14

16 amendment clarifies the deletion was made by IASB noting that paragraph 8 of IAS 8 already permits entities not to apply accounting policies set out in accordance with IFRSs when the effect of applying them is immaterial. The IASB did not intend to change the aforementioned measurement requirements, thus, entities can still apply above standard. C. Annual improvements to IFRSs cycle (a) IFRS 3, Business combinations The standard is amended to clarify that IFRS 3 does not apply to the accounting for the formation of any joint arrangement. (b) IFRS 13, Fair value measurement The amendment clarifies that the exception of measuring the fair value of a group of financial assets and financial liabilities (portfolio exception) applies to all financial assets, financial liabilities and other contracts within the scope of IFRS 9 or IAS 39. (c) IAS 40, Investment property This amendment clarifies that preparers should refer to the guidance in IFRS 3 to determine whether the acquisition of a property is an asset acquisition or a business combination, and refer to the guidance in IAS 40 to distinguish between owner-occupied property and investment property. D. Annual improvements to IFRSs cycle (a) IFRS 7, Financial instruments: Disclosures The amendment provides additional guidance to determine whether the terms of a service arrangement to a financial asset which has been transferred constitute continuing involvement and thus the disclosure requirement of transferred financial assets applies. This amendment also clarifies that disclosure of offsetting is not required for all interim periods. (b) IAS 19, Employee benefits The amendment clarifies that, when determining the discount rate for post-employment benefit obligations, it is the currency that the liabilities are denominated in that is important, and not the country where they arise. The assessment of whether there is a deep market in high-quality corporate bonds or not is based on corporate bonds in that currency, and not corporate bonds in a particular country. Similarly, where there is no deep market in high-quality corporate bonds in that currency, government bonds in the relevant currency should be used. (c) IAS 34, Interim financial reporting The amendment clarifies what is meant by the reference in the standard to information disclosed elsewhere in the interim financial report. The amendment further amends IAS 34 to require a cross-reference from the interim financial statements to the location of that information. 15

17 (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group New standards, interpretations and amendments as endorsed by the FSC effective from 2018 are as follows: Effective date by International Accounting New Standards, Interpretations and Amendments Standards Board Classification and measurement of share-based payment transactions January 1, 2018 (amendments to IFRS 2) Applying IFRS 9, 'Financial instruments' with IFRS 4, 'Insurance contracts' January 1, 2018 (amendments to IFRS 4) IFRS 9, 'Financial instruments' January 1, 2018 IFRS 15, 'Revenue from contracts with customers' January 1, 2018 Clarifications to IFRS 15, 'Revenue from contracts with customers' January 1, 2018 (amendments to IFRS 15) Disclosure initiative (amendments to IAS 7) January 1, 2017 Recognition of deferred tax assets for unrealised losses January 1, 2017 (amendments to IAS 12) Transfers of investment property (amendments to IAS 40) January 1, 2018 IFRIC 22, 'Foreign currency transactions and advance consideration' January 1, 2018 Annual improvements to IFRSs cycle - Amendments January 1, 2018 to IFRS 1, 'First-time adoption of International Financial Reporting Standards' Annual improvements to IFRSs cycle - Amendments January 1, 2017 to IFRS 12, 'Disclosure of interests in other entities' Annual improvements to IFRSs cycle - Amendments January 1, 2018 to IAS 28, 'Investments in associates and joint ventures' Except for the following, the above standards and interpretations have no significant impact to the Group s financial condition and financial performance based on the Group s assessment. The quantitative impact will be disclosed when the assessment is complete. A. IFRS 9, Financial instruments Classification of debt instruments is driven by the entity s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading. B. Amendments to IAS 40, Transfers of investment property The amendment clarifies that to transfer to, or from, investment properties, there must be a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of 16

18 investment property and there is evidence of the change in use. A change in management s intentions, in isolation, does not provide evidence of the change in use. In addition, the amendments added examples for the evidence of a change in use. The examples include assets under construction or development (not completed properties) transfer from investment property to owner-occupied property at commencement of development with a view to owner-occupation and transfer from inventories to investment property at inception of an operating lease to another party. (3) Effect of IFRSs issued by IASB but not yet endorsed by the FSC New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows: Except for the following, the above standards and interpretations have no significant impact to the Group s financial condition and financial performance based on the Group s assessment. The quantitative impact will be disclosed when the assessment is complete. IFRS 16, Leases IFRS 16, Leases, replaces IAS 17, Leases and related interpretations and SICs. The standard requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Except for the compliance statement, basis of preparation, basis of consolidation and increased sections as below, the significant accounting policies are identical to those disclosed in the consolidated financial statements for the year ended December 31, These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement New Standards, Interpretations and Amendments Effective Date by International Accounting Standards Board Prepayment features with negative compensation (amendments to IFRS 9) January 1, 2019 Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28) To be determined by International Accounting Standards IFRS 16, Leases January 1, 2019 IFRS 17, Insurance contracts January 1, 2021 Long-term interests in associates and joint ventures January 1, 2019 (amendments to IAS 28) IFRIC 23, Uncertainty over income tax treatments January 1, 2019 A. The consolidated financial statements of the Group have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 17

19 International Accounting Standard 34, Interim financial reporting as endorsed by the FSC. B. These consolidated financial statements should be read along with the consolidated financial statements for the year ended December 31, (2) Basis of preparation A. Except for the following items, the consolidated financial statements have been prepared under the historical cost convention: (a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. (b) Available-for-sale financial assets measured at fair value. (c) Liabilities on cash-settled share-based payment arrangements measured at fair value. (d) Defined benefit liabilities recognised based on the net amount of pension fund assets less present value of defined benefit obligation. B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the IFRSs ) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5. (3) Basis of consolidation A. Basis for preparation of consolidated financial statements: (a) All subsidiaries are included in the Group s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries. (b) Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group. (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance. (d) Changes in a parent s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity. 18

20 (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognised in profit or loss. All amounts previously recognised in other comprehensive income in relation to the subsidiary are reclassified to profit or loss, on the same basis as if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognised in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of. B. Subsidiaries included in the consolidated financial statements: Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 1 Delta International Holding Limited (DIH) Equity investments Delta Electronics, Inc Delta Networks Holding Limited (DNH) Note 15 3 Delta Electronics (Netherlands) B.V. (DEN) Trading of equipment, components and materials of telecom and computer systems Delta Electronics, Inc. and DIH PreOptix (Hong Kong) Co., Ltd. (PHK) Equity investments Note 3 5 NeoEnergy Microlelectronics, Inc. (NEM) Designing and experimenting on integrated circuit and information software services Delta Electronics, Inc Note 3 Note 21 19

21 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 6 Cyntec Co., Ltd. (Cyntec) 7 DelBio Inc. (DelBio) Research, development, manufacturing and sales of film optic-electronics devices Manufacturing, wholesale and retail of medical equipment Delta Electronics, Inc Note 3 8 Delta Electronics Capital Company (Delta Capital) Equity investments Delta Electronics Int'l (Singapore) Pte. Ltd. (DEIL-SG) Sales of electronic products Allied Material Technology Corp. (AMT) Lease services, etc Delta Green Life Co., Ltd. (DGL) Providing installation and construction of lighting equipment Note 3 12 Delta America Ltd. (DAL) Equity investments Delta Electronics, Inc., DEN, Castle Horizon Limited, Energy Dragon Global Limited Note Delta Electronics (H.K.) Ltd. (DHK) 14 Delta Electronics International Limited (DEIL-Labuan) Equity investments, operations management and engineering services Sales of electronic products DIH

22 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 15 Delta Power Sharp Limited (DPS) Operations and engineering services DIH Note DEI Logistics (USA) Corp. (ALI) Warehousing and logistics services Delta Electronics (Japan), Inc. (DEJ) 18 DAC Holding (Cayman) Limited (DAC) Sales of power products, display solution products, electronic components, industrial automation products and their materials Equity investments Note Note 3 19 Ace Pillar Holding Co., Ltd. (Ace) 20 Drake Investment (HK) Limited (Drake-HK) Delta Greentech (China) Co., Ltd. (DGC) Manufacturing and sales of uninterruptible power systems DIH, Ace, Drake-HK, DGSG and Boom Vivitek Corporation (Vivitek) 23 Delta Greentech SGP Pte. Ltd. (DGSG) Sales of projector products and their materials Equity investments DIH Note Delta Electronics Europe Ltd. (DEU) Repair centre and providing support services Note 3 21

23 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 25 Boom Treasure Limited (Boom) Equity investments DIH Apex Investment (HK) Limited (Apex-HK) Galaxy Star Investment (HK) Limited (Galaxy Star-HK) 28 Jade Investment (HK) Limited (Jade-HK) Delta Electronics (Dongguan) Co., Ltd. (DDG) 30 Delta Electronics Power (Dongguan) Co., Ltd. (DEP) 31 Delta Electronics (Shanghai) Co., Ltd. (DPEC) Manufacturing and sales of DC fans and others Manufacturing and sales of transformer and power supplies Product design, management consulting service and distribution of electronic products DHK Delta Electronics (Jiangsu) Ltd. (DWJ) Manufacturing and sales of power supplies and transformers DHK, Apex- HK, Galaxy Star-HK and Jade-HK Delta Electronics Components (Wujiang) Ltd. (DWC) Manufacturing and sales of new-type electronic components, variablefrequency drive and others

24 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 34 Delta Video Display System (Wujiang) Ltd. (DWV) Manufacturing and sales of various projectors DHK, Apex- HK, Galaxy Star-HK and Jade-HK Delta Electronics (Wuhu) Co., Ltd. (DWH) Manufacturing and sales of LED light source, power supplies and others DHK Delta Electronics (Chenzhou) Co., Ltd. (DCZ) 37 Delta Electronics International Mexico S.A. DE C.V. (DEIL-MX) 38 Delta Electronics (Wujiang) Trading Co., Ltd. (DWT) Manufacturing and sales of transformers Sales of power management of industrial automation product and telecommunications equipment Installation, consulting and trading of electronic products Note Note 3 39 Delta Green (Tianjin) Industries Co., Ltd. (DGT) 40 Delta Electronics (Pingtan) Co., Ltd. (Delta Pingtan) Manufacturing and sales of transformers Wholesale and retail of electronic products and energy-saving equipment Note Note 3 41 PreOptix (Jiang Su) Co., Ltd. (PJS) Manufacturing and sales of lenses and optical engines for projectors PHK Note 3 23

25 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 42 Addtron Technology (Japan), Inc. (AT Japan) Trading of networking system and peripherals DEJ Note 3 43 Delta Electronics (Korea), Inc. (Delta Korea) 44 Delta Electronics Mexico S.A. DE C.V. (DEM) 45 Delta Video Technology Limited (DVT) 46 Wuhu Delta Technology Co., Ltd. (WDT) Sales of power products, display solution products electronic components, industrial automation products and their materials Manufacturing and sales of electronic products Sales of electronic products Manufacturing and sales of transformers Note 3 DAC Note Note 3 DWH Delta Energy Technology (Wuhu) Co., Ltd. (DET-WH) 48 Chenzhou Delta Technology Co., Ltd. (CDT) Research and development of energy-saving technology, energy-saving equipment, energy management system and technology consulting service, etc. Manufacturing and sales of transformers DWH and DPEC Note 3 Note 12 DCZ

26 Ownership (%) Name of Main Business Name of September December 31, September No. Subsidiary Activities Investor 30, , 2016 Description 49 Delta Energy Technology (Chenzhou) Co., Ltd. (DET-CZ) Research and development of energy-saving technology, energysaving equipment, energy management system and technology consulting service, etc. DCZ and DPEC Note Delta Energy Technology (Dongguan) Co., Ltd. (DET-DG) DDG and DPEC Note 3 51 Delta Energy Technology (Wujiang) Co., Ltd. (DET-WJ) DWC and DPEC Note Delta Energy Technology (Shanghai) Co., Ltd. (DET-SH) DPEC and DGC Note 3 53 Delta Networks, Inc. (DNI Cayman) Equity investments DNH Delta Networks, Inc. (Taiwan) (DNIT) Manufacturing and sales of networking system and peripherals Delta Electronics, Inc. DNH Note DNI Logistics (USA) Co. (ALN) Trading of networking system and peripherals DNI Cayman Note 3 25