DELTA ELECTRONICS, INC. AND SUBSIDIARIES

Transcription

1 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS March 31, 2018 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 REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION To the Board of Directors and Shareholders of Delta Electronics, Inc. Introduction We have reviewed the accompanying consolidated balance sheets of Delta Electronics, Inc. and its subsidiaries (the Group ) as of March 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the three-month periods then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standards (IAS) No. 34 Interim Financial Reporting as endorsed by the Financial Supervisory Commission (FSC). Our responsibility is to express a conclusion on these interim financial statements based on our reviews and the review reports of other independent accountants. Scope of Review Except as explained in the Basis for Qualified Conclusion, we conducted our reviews in accordance with the Generally Accepted Auditing Standards (GAAS) No. 65, Review of Financial Statements. A review of interim financial information 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 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 Notes 4(3)B and 6(8), 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 $22,876,356 thousand and $20,569,873 thousand, constituting 9.46% and 9.20% of the consolidated total assets, and ~1~

3 total liabilities of $6,676,905 thousand and $6,099,096 thousand, constituting 6.31% and 6.34% of the consolidated total liabilities as of March 31, 2018 and 2017, respectively, and total comprehensive income of $324,512 thousand and $199,454 thousand, constituting 13.63% and (13.54%) of the consolidated total comprehensive income for the three-month periods then ended, respectively. Qualified Conclusion Based on our reviews and the review reports of other independent accountants, except for the possible effects of the matter described in the Basis for Qualified Conclusion section of our report, nothing has come to our attention that causes us to believe that the accompanying interim financial statements does not present fairly, in all material respects, the financial position of the Group as at March 31, 2018 and 2017, and of its financial performance and its cash flows for the three-month periods then ended in accordance with the Rules Governing the Preparation of Financial Reports by Securities Issuers and IAS No. 34 Interim Financial Reporting as endorsed by the FSC. Other Matter Review Reports By Other Independent Accountants We did not review the financial statements of certain consolidated subsidiaries and investments accounted for under the equity method. These consolidated subsidiaries reflect total assets amounting to $4,171,091 thousand, constituting 1.72% of the consolidated total assets as of March 31, 2018, and total revenues amounting to $1,103,610 thousand, constituting 2.17% of the total revenues for the threemonth period then ended, The investments accounted for under the equity method amounted to $7,777,409 thousand and $6,682,947 thousand, constituting 3.21% and 2.99% of the consolidated total assets as of March 31, 2018 and 2017, respectively, and the comprehensive income under equity method was ($242,865) thousand and $230,530 thousand, constituting (10.20%) and (15.65%) of the consolidated total comprehensive income for the three-month periods then ended, 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. The consolidated financial statements of Delta Electronics, Inc. and subsidiaries as of and for the three-month period ended March 31, 2018 expressed in US dollars are presented solely for the ~2~

4 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 March 31, 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 April 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 MARCH 31, 2018, DECEMBER 31, 2017, AND MARCH 31, 2017 (EXPRESSED IN THOUSANDS OF DOLLARS) (THE MARCH 31, 2018 AND 2017 AMOUNTS ARE UNAUDITED) US Dollars New Taiwan Dollars Assets Notes March 31, 2018 March 31, 2018 December 31, 2017 March 31, 2017 Current assets Cash and cash equivalents 6(1) $ 1,927,177 $ 56,090,473 $ 57,366,617 $ 54,036,446 Financial assets at fair value through profit or loss - current 2(4) and 12(4) 34, , ,748 79,066 Financial assets at fair value through other comprehensive 6(3) 7, , income - current Available-for-sale financial assets - current 12(4) - - 1,141,700 1,067,172 Derivative financial assets for hedging - current 6(4) and 12(4) - - 7,061 - Contract assets - current 68,630 1,997, Notes receivable, net 6(5) 121,406 3,533,524 4,010,445 3,187,689 Accounts receivable, net 6(5) 1,426,627 41,521,973 49,383,213 40,424,026 Accounts receivable - related parties 7 43,062 1,253,312 1,319,469 1,352,297 Other receivables 25, , , ,161 Other receivables - related parties 7 3,377 98,281 70, ,532 Current income tax assets 10, , , ,248 Inventories 6(7) 1,043,740 30,378,066 30,825,402 24,523,872 Prepayments 56,290 1,638,312 1,731,406 2,913,408 Non-current assets held for sale, net 6(12) ,213,882 Other current assets 8 13, , , ,005 Total current assets 4,781, ,163, ,703, ,985,804 Non-current assets Financial assets at fair value through profit or loss noncurrent 6(2) $ 95,008 $ 2,765,215 $ - $ - Financial assets at fair value through other comprehensive 6(3) 102,559 2,984, income non-current Available-for-sale financial assets - non-current 12(4) - - 4,720,058 5,437,671 Contract assets-non-current 16, , Financial assets carried at cost - non-current 12(4) - - 1,147,672 1,082,169 Investments accounted for under equity method 6(8) 307,860 8,960,263 8,434,519 7,821,330 Property, plant and equipment 6(9) 1,506,737 43,853,572 44,338,628 39,446,485 Investment property, net 6(10) 59,789 1,740,164 1,776,411 1,887,644 Intangible assets 6(11) 1,129,185 32,864,929 33,833,648 29,236,554 Deferred income tax assets 208,115 6,057,199 5,836,595 5,056,277 Other non-current assets 6(13) and 8 105,408 3,067,904 2,747,150 2,592,193 Total non-current assets 3,530, ,762, ,834,681 92,560,323 Total assets $ 8,312,186 $ 241,926,186 $ 250,538,559 $ 223,546,127 (Continued) ~4~

6 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) MARCH 31, 2018, DECEMBER 31, 2017, AND MARCH 31, 2017 (EXPRESSED IN THOUSANDS OF DOLLARS) (THE MARCH 31, 2018 AND 2017 AMOUNTS ARE UNAUDITED) US Dollars New Taiwan Dollars Liabilities and Equity Notes March 31, 2018 March 31, 2018 December 31, 2017 March 31, 2017 Current liabilities Short-term borrowings 6(14) $ 526,941 $ 15,336,623 $ 17,463,509 $ 8,275,834 Financial liabilities at fair value through profit or loss - current 6(15) ,341 9,746 24,170 Derivative financial liabilities for hedging - current 6(4) ,774 Contract liabilities-current 130,365 3,794, Notes payable 236 6,877 9, Accounts payable 1,087,287 31,645,489 36,708,824 30,886,769 Accounts payable - related parties 7 42,464 1,235,912 1,206, ,458 Other payables 757,249 22,039,719 25,209,483 22,172,560 Current income tax liabilities 72,190 2,101,082 2,206,019 1,711,707 Liabilities related to non-current assets classified as held for sale 6(12) ,718 Other current liabilities 6(12)(16) 123,616 3,597,834 6,407,577 6,364,953 Total current liabilities 2,740,772 79,770,161 89,221,147 70,440,565 Non-current liabilities Long-term borrowings 6(16) 348,943 10,156,002 11,218,936 10,670,711 Deferred income tax liabilities 409,912 11,930,483 12,103,399 11,260,870 Other non-current liabilities 137,034 3,988,382 4,221,603 3,792,071 Total non-current liabilities 895,889 26,074,867 27,543,938 25,723,652 Total liabilities 3,636, ,845, ,765,085 96,164,217 Equity Share capital Share capital - common stock 6(18) 892,473 25,975,433 25,975,433 25,975,433 Capital surplus 6(19) Capital surplus 1,662,338 48,382,345 48,446,318 48,447,179 Retained earnings 6(20) Legal reserve 734,355 21,373,388 21,373,388 19,493,608 Special reserve 95,095 2,767,749 2,767, ,556 Unappropriated retained earnings 1,271,132 36,996,314 33,082,224 35,837,022 Other equity interest Other equity interest ( 311,921) ( 9,078,460) ( 7,088,143) ( 7,487,414) Equity attributable to owners of the parent 4,343, ,416, ,556, ,793,384 Non-controlling interest 4(3) 332,053 9,664,389 9,216,505 4,588,526 Total equity 4,675, ,081, ,773, ,381,910 Significant contingent liabilities and unrecorded contract commitments 9 Significant subsequent events 11 Total liabilities and equity $ 8,312,186 $ 241,926,186 $ 250,538,559 $ 223,546,127 The accompanying notes are an integral part of these consolidated financial statements. ~5~

7 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) US Dollars New Taiwan Dollars Items Notes Sales revenue 6(21) and 7 $ 1,747,810 $ 50,870,024 $ 48,924,659 Operating costs 6(7)(25)(26) and 7 ( 1,300,677) ( 37,856,207) ( 35,615,905) Gross profit 447,133 13,013,817 13,308,754 Operating expenses 6(25)(26) Selling expenses ( 131,726) ( 3,833,875) ( 3,399,680) General and administrative expenses ( 75,436) ( 2,195,573) ( 2,207,852) Research and development expenses ( 145,183) ( 4,225,543) ( 3,733,910) Expected credit impairment gain 12(2) ,845 - Total operating expenses ( 351,938) ( 10,243,146) ( 9,341,442) Operating profit 95,195 2,770,671 3,967,312 Non-operating income and expenses Other income 6(22) 31, , ,552 Other gains and losses 6(23) 61 1, ,152 Finance costs 6(24) ( 3,938) ( 114,630) ( 92,824) Share of profit of associates and joint ventures accounted for under equity method 6(8) 6, , ,535 Total non-operating income and expenses 33, , ,415 Profit before income tax 128,553 3,741,568 4,966,727 Income tax expenses 6(27) ( 29,632) ( 862,446) ( 993,041) Profit for the period $ 98,921 $ 2,879,122 $ 3,973,686 (Continued) ~6~

8 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) US Dollars New Taiwan Dollars Items Notes Other comprehensive income (loss) Components of other comprehensive income (loss) that will not be reclassified to profit or loss Gain on remeasurements of defined benefit plans $ 335 $ 9,746 $ 472 Unrealized loss on valuation of equity investment at fair value through other comprehensive income ( 6,477) ( 188,510) - Share of other comprehensive income of associates and joint ventures accounted for under equity method that will not be reclassified to profit or loss ,872 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 6(27) 150 4,362, -,,, Components of other comprehensive income (loss) that will not be reclassified to profit or loss ( 5,984) ( 174,156) 2,344 Components of other comprehensive (loss) income that will be reclassified to profit or loss Financial statements translation differences of foreign operations ( 13,735) ( 399,761) ( 6,132,417) Unrealized gain on valuation of availablefor-sale financial assets ,530 Hedging instrument loss on effective hedge 6(4) of cash flow hedges - - ( 8,835) Gain on hedging instruments 1,989 57,878 -, Share of other comprehensive loss of associates and joint ventures accounted for under equity method that will be reclassified to profit or loss ( 14,914) ( 434,066) ( 5,960) Income tax relating to the components of 6(27) other comprehensive income that will be reclassified to profit or loss 15, , ,583 Components of other comprehensive loss that will be reclassified to profit or loss ( 11,107) ( 323,279) ( 5,449,099) Other comprehensive loss for the period ($ 17,091) ($ 497,435) ($ 5,446,755) Total comprehensive income for the period $ 81,830 $ 2,381,687 ($ 1,473,069) Profit attributable to: Owners of the parent $ 95,553 $ 2,781,058 $ 3,919,106 Non-controlling interest $ 3,368 $ 98,064, $ 54,580, Comprehensive income attributable to: Owners of the parent $ 66,106 $ 1,924,012 ($ 1,325,770) Non-controlling interest $ 15,724 $ 457,675, ($ 147,299,) Earnings per share (in dollars) 6(28) Basic earnings per share $ 0.04 $ 1.07, $ 1.51 Diluted earnings per share $ 0.04 $ 1.06, $ 1.48 The accompanying notes are an integral part of these consolidated financial statements. ~7~

9 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) Retained earnings Equity attributable to owners of the parent Other equity interest Notes Share capital - common stock Capital surplus Legal reserve Special reserve Unappropriated retained earnings Financial statements translation differences of foreign operations Unrealized loss on financial assets at fair value through other comprehensive income Unrealized gain (loss) on availablefor-sale financial assets Hedging instrument gain (loss) on effective hedge of cash flow hedges Gain on hedging instruments Total Noncontrolling interest Total equity 2017 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) $ - ( $ 1,277,551 ) $ 53,753 $ - $124,114,426 $ 4,894,440 $129,008,866 Change in equity of associates and joint ventures accounted for under equity method - 4, ,728-4,728 Changes in non-controlling interests ( 158,615 ) ( 158,615) Other comprehensive (loss) income for the period ,344 ( 5,263,416) - 15, ( 5,244,876 ) ( 201,879 ) ( 5,446,755) Profit for the period ,919, ,919,106 54,580 3,973,686 Balance at March 31, 2017 $ 25,975,433 $ 48,447,179 $ 19,493,608 $ 527,556 $ 35,837,022 ( $ 6,279,812) $ - ( $ 1,262,262 ) $ 54,660 $ - $122,793,384 $ 4,588,526 $127,381, New Taiwan Dollars Balance at January 1, 2018 $ 25,975,433 $ 48,446,318 $ 21,373,388 $ 2,767,749 $ 33,082,224 ( $ 5,911,839 ) $ - ( $ 1,256,841 ) $ 80,537 $ - $124,556,969 $ 9,216,505 $133,773,474 Effects of retrospective application and retrospective restatement 3(1) ,118,916 - ( 2,375,757 ) 1,256,841 ( 80,537 ) 80, From share of changes in equity of subsidiaries - ( 63,973 ) ( 63,973 ) - ( 63,973 ) Changes in non-controlling interests ( 9,791 ) ( 9,791 ) Disposal of equity investment valued at fair value through other comprehensive income 6(3) ( 239 ) ( 239 ) - ( 239 ) Profit for the period ,781, ,781,058 98,064 2,879,122 Other comprehensive income (loss) for the ( 497,435 ) period ,355 ( 726,572 ) ( 185,697 ) ,868 ( 857,046 ) 359,611 Balance at March 31, 2018 $ 25,975,433 $ 48,382,345 $ 21,373,388 $ 2,767,749 $ ( $ 6,638,411 ) ( $ 2,561,454 ) $ - $ - $ 121,405 $126,416,769 $ 9,664,389 $136,081,158 (Continued) ~8~

10 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) Retained earnings Equity attributable to owners of the parent Other equity interest Notes Share capital - common stock Capital surplus Legal reserve Special reserve Unappropriated retained earnings Financial statements translation differences of foreign operations Unrealized loss on financial assets at fair value through other comprehensive income Unrealized gain (loss) on availablefor-sale financial assets Hedging instrument gain (loss) on effective hedge of cash flow hedges Gain on hedging instruments Total Noncontrolling interest Total equity 2018 US Dollars Balance at January 1, 2018 $ 892,473 $ 1,664,536 $ 734,355 $ 95,095 $ 1,136,650 ( $ 203,121) $ - ( $ 43,183 ) $ 2,767 $ - $ 4,279,572 $ 316,664 $ 4,596,236 Effects of retrospective application and retrospective restatement 3(1) ,444 - ( 81,627) 43,183 ( 2,767 ) 2, From share of changes in equity of subsidiaries - ( 2,198) ( 2,198 ) - ( 2,198) Changes in non-controlling interests ( 335 ) ( 335) Disposal of equity investment valued at fair value through other comprehensive income 6(3) ( 8) ( 8 ) - ( 8) Profit for the period , ,553 3,368 98,921 Other comprehensive income (loss) for the ( 17,091 ) period ( 24,964 ) ( 6,380 ) - - 1,404 ( 29,447 ) 12,356 Balance at March 31, 2018 $ 892,473 $ 1,662,338 $ 734,355 $ 95,095 $ 1,271,132 ( $ 228,085 ) ( $ 88,007 ) $ - $ - $ 4,171 $ 4,343,472 $ 332,053 $ 4,675,525 The accompanying notes are an integral part of these consolidated financial statements. ~9~

11 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (EXPRESSED IN THOUSANDS OF DOLLARS) (UNAUDITED) US Dollars New Taiwan Dollars Notes CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit before tax for the year $ 128,553 $ 3,741,568 $ 4,966,727 Adjustments to reconcile net income to net cash generated from operating activities Income and expenses having no effect on cash flows Depreciation 6(9)(10) 76,252 2,219,310 1,789,207 Amortisation 6(11) 18, , ,247 Expected credit impairment (gain) loss 12(2) ( 407 ) ( 11,845 ) 75,777 Net (gain) loss on financial assets or liabilities at fair value through profit or loss 6(23) 1,189 34,618 ( 206,826 ) Interest expense 6(24) 3, ,035 92,824 Interest income 6(22) ( 5,679 ) ( 165,292 ) ( 128,877 ) Dividend income 6(22) ( 132 ) ( 3,840 ) ( 14,635 ) Share-based payment 6(30) 237 6, Share of profit of associates accounted for under the equity method 6(8) ( 6,005 ) ( 174,807 ) ( 206,535 ) Gain on disposal of property, plant and equipment 6(23) ( 8,446 ) ( 245,818 ) ( 1,936 ) Loss (gain) on disposal of investments 6(23) ( 82,622 ) Impairment loss on financial assets 6(23) and 12(4) ,000 Changes in assets/liabilities relating to operating activities Net changes in assets relating to operating activities Financial assets held for trading - - ( 29,745 ) Financial assets mandatorily measured at fair value through profit or loss ( 12,693 ) ( 369,427 ) -,Contract assets ( 27,341 ) ( 795,757 ) - Notes receivable 16, , ,765 Accounts receivable 232,682 6,772,213 6,349,618 Accounts receivable - related parties 2,273 66,157 79,624 Other receivables 1,055 30, ,688 Other receivables - related parties ( 965 ) ( 28,100 ) ( 502,952 ) Inventories 15, ,336 1,262,357 Prepayments 3,199 93,094 ( 128,439 ) Other current assets 8, ,650 ( 78,969 ) Other non-current assets ( 16,731 ) ( 486,942 ) 119,089 Net changes in liabilities relating to operating activities,contract liabilities 48,118 1,400,479 - Notes payable ( 100 ) ( 2,915 ) 622 Accounts payable ( 173,968 ) ( 5,063,335 ) ( 6,018,371 ) Accounts payable - related parties 1,021 29,715 ( 42,523 ) Other payables ( 108,789 ) ( 3,166,305 ) ( 886,481 ) Other current liabilities ( 38,390 ) ( 1,117,353 ) 228,256 Other non-current liabilities ( 8,013 ) ( 233,221 ) ( 172,339 ) Cash generated from operations 150,325 4,375,181 8,035,761 Interest received 5, ,349 57,720 Dividends received 132 3,840 14,635 Interest paid ( 4,003 ) ( 116,494 ) ( 90,752 ) Income taxes paid ( 27,945 ) ( 813,344 ) ( 876,086 ) Net cash provided by operating activities 123,812 3,603,532 7,141,278 (Continued) ~10~

12 DELTA ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (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, designated upon initial recognition $ - $ - $ 19,472 Acquisition of financial assets at fair value through other comprehensive income ( 1,000 ) ( 29,113 ) - Disposal of financial assets at fair value through other comprehensive income Acquisition of available-for-sale financial assets - - ( 30,969 ) Proceeds from disposal of available-for-sale financial assets ,415 Proceeds from disposal of financial assets at cost - - 2,514 Acquisition of investments accounted for under equity method ( 7,049 ) ( 205,160 ) - Net cash flow from acquisition of subsidiaries (net of cash acquired) - - ( 262,597 ) Acquisition of property, plant and equipment 6(9) ( 56,879 ) ( 1,655,459 ) ( 2,583,501 ) Proceeds from disposal of property, plant and equipment 16, ,786 18,622 Acquisition of intangible assets 6(11) ( 6,873 ) ( 200,035 ) ( 28,474 ) Decrease in other financial assets 1,560 45,413 16,019 Increase in other non-current assets ( 5,709 ) ( 166,168 ) ( 118,565 ) Net cash used in investing activities ( 59,497 ) ( 1,731,646 ) ( 2,767,064 ) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of short-term borrowings 6(31) ( 73,076 ) ( 2,126,886 ) ( 4,455,460 ) Proceeds from long-term debt - - 2,174,781 Repayment of long-term debt 6(31) ( 36,473 ) ( 1,061,551 ) ( 13,455 ) Net cash used in financing activities ( 109,549 ) ( 3,188,437 ) ( 2,294,134 ) Effects due to changes in exchange rate 1,388 40,407 ( 3,616,378 ) Decrease in cash and cash equivalents ( 43,846 ) ( 1,276,144 ) ( 1,536,298 ) Cash and cash equivalents at beginning of period 1,971,023 57,366,617 55,572,744 Cash and cash equivalents at end of period $ 1,927,177 $ 56,090,473 $ 54,036,446 The accompanying notes are an integral part of these consolidated financial statements. ~11~

13 DELTA ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (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 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 April 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 endorsed by FSC effective from 2018 are as follows: Effective date by International Accounting New Standards, Interpretations and Amendments Standards Board Amendments to IFRS 2, Classification and measurement of sharebased payment transactions January 1, 2018 Amendments to IFRS 4, Applying IFRS 9, Financial instruments with January 1, 2018 IFRS 4, Insurance contracts IFRS 9, Financial instruments January 1, 2018 IFRS 15, Revenue from contracts with customers January 1, 2018 Amendments to IFRS 15, Clarifications to IFRS 15, Revenue from January 1, 2018 contracts with customers ~12~

14 Effective date by International Accounting New Standards, Interpretations and Amendments Standards Board Amendments to IAS 7, Disclosure initiative January 1, 2017 Amendments to IAS 12, Recognition of deferred tax assets for January 1, 2017 Amendments to IAS 40, Transfers of investment property January 1, 2018 I. IFRIC 22, Foreign currency transactions and advance consideration January 1, 2018 Annual improvements to IFRSs cycle - Amendments to IFRS 1, First-time adoption of International Financial Reporting Standards Annual improvements to IFRSs cycle - Amendments to IFRS 12, Disclosure of interests in other entities Annual improvements to IFRSs cycle - Amendments to IAS 28, Investments in associates and joint ventures January 1, 2018 January 1, 2017 January 1, 2018 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. 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. IFRS 15, Revenue from contracts with customers IFRS 15, Revenue from contracts with customers replaces IAS 11, Construction contracts, IAS 18, Revenue and relevant interpretations. According to IFRS 15, revenue is recognised when a customer obtains control of promised goods or services. A customer obtains control of goods or services when a customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Step 1: Identify contracts with customer Step 2: Identify separate performance obligations in the contract(s) Step 3: Determine the transaction price. ~13~

15 Step 4: Allocate the transaction price. Step 5: Recognise revenue when the performance obligation is satisfied. Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. C. Amendments to IFRS 15, Clarifications to IFRS 15, Revenue from contracts with customers The amendments clarify how to identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract; determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided); and determine whether the revenue from granting a licence should be recognised at a point in time or over time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard. D. In adopting the new standards endorsed by the FSC effective from 2018, the Group applied the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. Further, the Group has elected to adopt IFRS 15 using the modified retrospective approach. The significant effects of applying the new standards as of January 1, 2018 are summarized below: (a) In adopting the new standards endorsed by the FSC effective from 2018, the Group applied the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients permitted under the statement. The significant effects of applying the standard as of January 1, 2018 are reclassifying financial assets at cost of $1,147,672, current available-for-sale financial assets of $1,141,700 and non-current available-for-sale financial assets of $4,720,058 to financial assets at fair value through profit or loss of $3,632,504, and financial assets at fair value through other comprehensive income of $3,376,926, and increasing retained earnings by $492,181 and decreasing other equity by $492,181. (b) In line with the regulations under IFRS 9 on provision for impairment, on January 1, 2018, other equity interest was decreased by $626,735 and retained earnings increased by $626,735. (c) Please refer to Note 12(4) for disclosure in relation to the first application of IFRS 9. (d) Presentation of contract assets and contract liabilities In line with IFRS 15 requirements, the Group changed the presentation of certain accounts in the balance sheet as follows: i. Under IFRS 15, customer contracts whereby services have been rendered but not yet billed are recognised as contract assets, but were previously presented as part of accounts receivable in the balance sheet. As of January 1, 2018, the balance amounted to $1,670,189. ii. Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are recognised as contract liabilities, but were previously presented as accounts ~14~

16 receivable - allowance for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance amounted to $700,032. iii. Under IFRS 15, liabilities in relation to customer contracts are recognised as contract liabilities, but were previously presented as advance sales receipts in the balance sheet. As of January 1, 2018, the balance amounted to $1,693,773. (e) Please refer to Note 12(5) for other disclosures in relation to the first application of IFRS 15. (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group None. (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: New Standards, Interpretations and Amendments Amendments to IFRS 9, Prepayment features with negative compensation Amendments to IFRS 10 and IAS 28, Sale or contribution of assets between an investor and its associate or joint venture IFRS 16, Leases IFRS 17, Insurance contracts Amendments to IAS 19, Plan amendment, curtantment or settlement Amendments to IAS 28, Long-term interests in associates and joint ventures IFRIC 23, Uncertainty over income tax treatments Annual improvements to IFRSs cycle 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 ~15~

17 statements for the year ended December 31, These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement 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 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) Financial assets/liabilities at fair value through other comprehensive income. (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. C. In adopting IFRS 9 and IFRS 15 effective January 1, 2018, the Group has elected to apply modified retrospective approach whereby the cumulative impact of the adoption was recognised as retained earnings or other equity as of January 1, 2018 and the financial statements for the year ended December 31, 2017 and ended March 31, 2017 were not restated. The financial statements for the year ended December 31, 2017 and ended March 31, 2017 were prepared in compliance with International Accounting Standard 39 ( IAS 39 ), International Accounting Standard 11 ( IAS 11 ), International Accounting Standard 18 ( IAS 18 ) and related financial reporting interpretations. Please refer to Notes 12(4) and (5) for details of significant accounting policies. (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 ~16~

18 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 are consistent 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. (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: Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 1 Delta International Holding Limited (DIH) 2 Delta Networks Holding Limited (DNH) Equity investments Delta Electronics, Inc. Ownership (%) Delta Electronics (Netherlands) B.V. (DEN) Trading of equipment, components and materials of telecom and computer systems Delta Electronics, Inc. and DIH ~17~

19 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 4 PreOptix (Hong Kong) Co., Ltd. (PHK) 5 NeoEnergy Microelectronics, Inc. (NEM) Equity investments Delta Electronics, Inc. and DIH Designing and experimenting on integrated circuit and information software services Delta Electronics, Inc. Ownership (%) Note Note 1 Note 3 6 Cyntec Co., Ltd. (Cyntec) Research, development, manufacturing and sales of film opticelectronics devices DelBio Inc. (DelBio) Manufacturing, wholesale and retail of medical equipment 8 Delta Electronics Capital Company (Delta Capital) Note 1 Equity investments Delta Electronics Int'l (Singapore) Pte. Ltd. (DEIL-SG) Sales of electronic products Allied Material Technology Corp. (AMT) 11 Delta Green Life Co., Ltd. (DGL) 12 Delta America Ltd. (DAL) Lease services, etc Providing installation and construction of lighting equipment Equity investments Delta Electronics, Inc., DEN, Castle Horizon Limited and 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 Note 6 ~18~

20 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 15 Delta Power Sharp Limited (DPS) Operations and engineering services Ownership (%) DIH Note 4 16 DEI Logistics (USA) Corp. (ALI) 17 Delta Electronics (Japan), Inc. (DEJ) Warehousing and logistics services Sales of power products, display solution products, electronic components, industrial automation products and their materials DAC Holding (Cayman) Limited (DAC) 19 Ace Pillar Holding Co., Ltd. (Ace) 20 Drake Investment (HK) Limited (Drake-HK) Equity investments Note Delta Greentech (China) Co., Ltd. (DGC) Manufacturing and sales of uninterruptible power systems DIH, Ace, Drake- HK, DGSG and Boom Vivitek Corporation (Vivitek) Sales of projector products and their materials DIH Note 1 23 Delta Greentech SGP Pte. Ltd. (DGSG) Equity investments Delta Electronics Europe Ltd. (DEU) 25 Boom Treasure Limited (Boom) 26 Apex Investment (HK) Limited (Apex- HK) 27 Galaxy Star Investment (HK) Limited (Galaxy Star-HK) 28 Jade Investment (HK) Limited (Jade-HK) Repair centre and providing support services Note 1 Equity investments ~19~

21 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 29 Delta Electronics (Dongguan) Co., Ltd. (DDG) Manufacturing and sales of transformer and thermal products Ownership (%) DHK Delta Electronics Power (Dongguan) Co., Ltd. (DEP) Manufacturing and sales of transformer and power supplies Delta Electronics (Shanghai) Co., Ltd. (DPEC) Product design, management consulting service and distribution of electronic products Delta Electronics (Jiangsu) Ltd. (DWJ) 33 Delta Electronics Components (Wujiang) Ltd. (DWC) Manufacturing and sales of power supplies and transformers Manufacturing and sales of new-type electronic components, variable-frequency drive and others DHK, Apex-HK, Galaxy Star-HK and Jade-HK Delta Video Display System (Wujiang) Ltd. (DWV) 35 Delta Electronics (Wuhu) Co., Ltd. (DWH) Manufacturing and sales of various projectors 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) Manufacturing and sales of transformers Sales of power management of industrial automation product and telecommunications equipment Note 1 38 Delta Electronics (Wujiang) Trading Co., Ltd. (DWT) Installation, consulting and trading of electronic products Note 1 39 Delta Green (Tianjin) Industries Co., Ltd. (DGT) Manufacturing and sales of transformers Note 1 ~20~

22 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 40 Delta Electronics (Pingtan) Co., Ltd. (Delta Pingtan) 41 PreOptix (Jiang Su) Co., Ltd. (PJS) 42 Addtron Technology (Japan), Inc. (AT Japan) 43 Delta Electronics (Korea), Inc. (Delta Korea) Wholesale and retail of electronic products and energy-saving equipment Manufacturing and sales of lenses and optical engines for projectors Trading of networking system and peripherals Sales of power products, display solution products electronic components, industrial automation products and their materials Ownership (%) DHK Note 1 PHK Note 1 DEJ Delta Electronics Mexico S.A. DE C.V. (DEM) 45 Delta Video Technology Limited (DVT) 46 Wuhu Delta Technology Co., Ltd. (WDT) 47 Delta Energy Technology (Wuhu) Co., Ltd. (DET-WH) Manufacturing and sales of electronic products Sales of electronic products Manufacturing and sales of transformers Research and development of energy-saving technology, energysaving equipment, energy management system and technology consulting service, etc. DAC Note Note 1 DWH DWH and DPEC Note 5 48 Chenzhou Delta Technology Co., Ltd. (CDT) Manufacturing and sales of transformers DCZ ~21~

23 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 49 Delta Energy Technology (Dongguan) Co., Ltd. (DET-DG) 50 Delta Energy Technology (Shanghai) Co., Ltd. (DET-SH) 51 Delta Networks, Inc. (DNI Cayman) Research and development of energy-saving technology, energysaving equipment, energy management system and technology consulting service, etc. Ownership (%) DDG and DPEC Note 1 DPEC and DGC Note 1 Equity investments DNH Delta Networks, Inc. (Taiwan) (DNIT) Manufacturing and Delta Electronics, sales of networking Inc. system and peripherals DNI Logistics (USA) Co. (ALN) Trading of networking system and peripherals DNI Cayman Note 1 54 Delta Networks International Limited (DNIL- Labuan) 55 Delta Networks (H.K.) Limited (DNHK) 56 Delta Networks (Dongguan) Ltd. (DII) 57 Delta Networks (Shanghai) Ltd. (DNS) 58 Fairview Assets Ltd. (Fairview) 59 Grandview Holding Ltd. (Grandview) 60 Cyntec Holding (H.K.) Ltd. (CHK) Note 6 Equity investments Manufacturing and sales of other radio-broadcast receivers and the equipment in relation to broadband access networking system Design of computer software DNHK Note 1 Equity investments Cyntec Fairview Grandview ~22~

24 Name of Main Business Name of March 31, December 31, March 31, No. Subsidiary Activities Investor Description 61 Cyntec International Ltd. (CIL-Labuan) Ownership (%) Trading Grandview Cyntec Electronics (Suzhou) Co., Ltd. (CES) 63 DelBio (Wujiang) Co., Ltd. Research, development, manufacturing and sales of new-type electronic components (chip components, sensing elements, hybrid integrated circuits) and wholesale of similar products Manufacturing, wholesale and retail of medical equipment CHK DelBio Note 1 64 ELTEK AS Research and sales of power supplies and others DEN Castle Horizon Limited 66 Energy Dragon Global Limited 67 Delta Controls Inc. (DCI) Equity investments DELTA ELECTRONICS HOLDING (USA) INC. DEN and ELTEK AS Note 1 Note 7 69 ELTEK PAKISTAN (PRIVATE) LIMITED 70 Eltek Deutschland GmbH Sales of power supplies and others Sales of power supplies and others and system installation ELTEK AS Note Note 1 71 ELTEK AUSTRALIA PTY LIMITED 72 Eltek Egypt for Power Supply S.A.E Note 1 Sales of power supplies and others Note 1 73 Eltek SGS Pvt Ltd. Sales of power supplies and others and system installation Note 1 ~23~