(English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) QUANTA COMPUTER INC. AND ITS SUBSIDIARIES

Transcription

1 Stock Code:2382 (English Translation of Consolidated Financial Statements and Report Originally Issued in Chinese) QUANTA COMPUTER INC. AND ITS SUBSIDIARIES CONSOLIDATED INTERIM FINANCIAL STATEMENTS (With Independent Auditors Review Report Thereon) Address: No. 188 Wen Hwa 2nd Rd., Kuei Shan District, Tao Yuan City, Taiwan Telephone: (03) The auditors report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language auditors report and consolidated financial statements, the Chinese version shall prevail. 1

2 Table of Contents Contents 1. Cover Page 1 2. Table of Contents 2 3. Independent Auditors Review Report 3 4. Consolidated Statements of Financial Position 4 5. Consolidated Statements of Comprehensive Income 5 6. Consolidated Statements of Changes in Equity 6 7. Consolidated Statements of Cash Flows 7 8. Notes to the Interim Consolidated Financial Statements (1)Overview 8 (2)Financial Statements Authorization Date and Authorization Process 8 (3)New Standards and Interpretations Adopted (4)Significant Accounting Policies (5)Major Sources of Accounting Assumptions, Judgments and Estimation Uncertainty (6)Explanation to Significant Accounts (7)Related Party Transactions Page 8~12 12~ ~49 50~52 (8)Pledged Assets 52 (9)Significant Commitments and Contingencies 52~53 (10)Losses Due to Major Disasters 54 (11)Subsequent Events 54 (12)Others 54 (13)Other disclosures (a) Information on significant transactions (b)information on investees (c) Information on investment in mainland China 54~69 69~71 71~73 (14)Segment Information 74 2

3 Independent Auditors Review Report To the Board of Directors of Quanta Computer Inc.: We have reviewed the consolidated financial statements of Quanta Computer Inc. and its subsidiaries which comprise the consolidated statement of financial position as of June 30, 2017 and 2016, and the consolidated statement of comprehensive income, changes in equity and cash flows for the three months ended June 30, 2017 and 2016 and for the six months ended June 30, 2017 and The Company s management is responsible for the preparation and presentation of the consolidated financial statements. Our responsibility is to issue a report on these consolidated financial statements based on our reviews. Except as described in the third and fourth paragraphs, we reviewed these consolidated financial statements in accordance with Statement of Auditing Standard No.36 Engagements to Review Financial Statements. A review is limited primarily to inquiries of company personnel and applying analytical procedures to financial data and thus provides less assurance than an audit. We have not performed an audit, and accordingly, we do not express an audit opinion. Also included in the accompanying consolidated financial statements are the financial statements of certain consolidated subsidiaries, which were not reviewed by independent accountants. These consolidated subsidiaries had total assets of NT$154,416,938 thousand and NT$155,376,222 thousand, constituting 24.11% and 28.03%, respectively, of the total consolidated assets as of June 30, 2017 and The total liabilities of these subsidiaries as of June 30, 2017 and 2016 amounted to NT$105,588,906 thousand and NT$94,771,536 thousand, constituting 20.78% and 22.42%, respectively, of total consolidated liabilities. The comprehensive income of these subsidiaries for the three months ended June 30, 2017 and 2016 and for the six months ended June 30, 2017 and 2016 amounted to profit of NT$625,809 thousand, profit of NT$280,933 thousand, profit of NT$545,945 thousand, and profit of NT$553,918 thousand, constituting 12.07%, 7.18%, 8.71% and 8.18%, respectively, of consolidated comprehensive income. To the consolidated financial statements, the investments accounted for using the equity method of Quanta Computer Inc. and its subsidiaries which stated at NT$404,218 thousand and NT$270,570 thousand as of June 30, 2017 and 2016, respectively, and the share of profit (loss) of associates and joint ventures accounted for the using equity method thereof amounted to loss of NT$13,762 thousand, loss of NT$3,620 thousand, loss of NT$44,875 thousand and loss of NT$9,679 thousand for the three months ended June 30, 2017 and 2016 and for the six months ended June 30, 2017 and 2016, respectively, were recognized based upon the financial statements prepared by investee companies not reviewed by the independent accountants in compliance with the review procedures described in the preceding paragraph. 3

4 Based on our reviews, except for the effects of the adjustments, if any, that might have emerged had the financial statements of the said consolidated subsidiaries and the long-term equity investees been reviewed by independent accountants, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements described in the first paragraph for them to be in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the guidelines of IFRS 34 Interim Financial Reporting which is approved by the FSC. KPMG Taipei, Taiwan (Republic of China) August 10, 2017 Notes to Readers The accompanying consolidated financial statements are intended only to present the consolidated statement of financial position, financial performance and its cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally accepted and applied in the Republic of China. The auditor s report and the accompanying consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of the English and Chinese language auditor s report and consolidated financial statements, the Chinese version shall prevail. 3-1

5 (ENGLISH TRANSLATION OF CONSOLIDATED FINANCIAL STATEMENTS AND REPORT ORIGINALLY ISSUDED IN CHINESE) AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION JUNE 30, 2017, DECEMBER 31, 2016, AND JUNE 30, 2016 ( AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) ASSETS Amount % Amount % Amount % Current assets: 1100 Cash and cash equivalents (Note (6)(a)) $ 254,998, ,911, ,041, Current financial assets at fair value through profit or loss (Note (6)(b)) 1126 Current available-for-sale financial assets (Note (6)(b)) 1,113,923-2,029,865-1,740,808-23,183, ,518, ,274, Accounts receivable, net (Note (6)(c) and (7)) 140,874, ,439, ,229, Other receivables, net (Note (6)(c) and (7)) 3,326, ,250,197-2,907, Inventories (Note (6)(d)) 147,297, ,185, ,494, Other current financial assets (Note (8)) 14,936, ,682, ,084, Other current assets, others 3,116,687-3,407, ,810,302 1 Non-current assets: 1523 Non-current available-for-sale financial assets (Note (6)(b)) 1550 Investments accounted for using equity method (Note (6)(e)) 588,848, ,426, ,583, ,142,124-1,135, , , , , Property, plant and equipment (Note (6)(g)) 42,247, ,463, ,845, Investment property, net (Note (6)(h)) 70,625-70,948-71, Intangible assets (Note (6)(i)) 800, , , Deferred tax assets 5,004, ,124, ,383, Other non-current financial assets (Note (8)) 281, , , Other non-current assets, others 1,585,224-1,849,752-2,094,618-51,536, ,003, ,773, TOTAL ASSETS $ 640,384, ,430, ,357, LIABILITIES AND EQUITY Amount % Amount % Amount % Current liabilities: 2100 Short-term borrowings (Note (6)(j)) $ 242,120, ,886, ,294, Current financial liabilities at fair value through profit or loss (Note (6)(b)) 3, , Accounts payable 169,698, ,581, ,173, Other payables (Note (7)) 38,333, ,657, ,226, Current tax liabilities 5,453, ,045, ,585, Other current financial liabilities 6,818, ,305, ,013, Long-term liabilities, current portion (Note (6)(k)) 7,293, , Other current liabilities, others (Note (7)) 26,297, ,657, ,509,227 5 Non-Current liabilities: 496,018, ,133, ,426, Long-term borrowings (Note (6)(k)) 10,970, ,361, ,940, Deferred tax liabilities 365, , , Net defined benefit liability (Note (6)(m)) 751, , , Other non-current liabilities, others 105,724-97, ,492-12,193, ,579, ,268,647 1 Total liabilities 508,212, ,713, ,695, Equity attributable to owners of parent: (Note (6)(o)) 3100 Share capital 38,626, ,626, ,626, Capital surplus 14,068, ,053, ,053, Retained earnings 78,509, ,257, ,192, Other equity interest (5,098,679) (1) (4,750,829) (1) (4,738,348) (1) 3500 Treasury shares (333,094) - (333,094) - (333,094) - Total equity attributable to owners of parent 125,772, ,853, ,801, XX Non-controlling interests 6,400, ,863, ,860,801 1 Total equity 132,172, ,716, ,662, TOTAL LIABILITIES AND EQUITY $ 640,384, ,430, ,357,

6 REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED (AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) For the Three Months Ended June 30, For the Six Months Ended June 30, Amount % Amount % Amount % Amount % 4000 Operating revenue (Note (6)(q) and (7)) $ 235,365, ,674, ,280, ,037, Operating costs (Note (6)(d) and (7)) 224,694, ,787, ,825, ,319, Gross profit from operations 10,670, ,887, ,455, ,718, Less: Unrealized profit from sales 1,388-1,801-1,388-1, Add: Realized profit on from sales 1,342-1,671-2,220-2,793 - Operating expenses: 10,670, ,887, ,456, ,719, Selling expenses 1,724, ,933, ,177, ,520, Administrative expenses 1,959, ,057, ,979, ,166, Research and development expenses 3,003, ,736, ,640, ,359, ,687, ,728, ,797, ,046,439 3 Net operating income 3,982, ,159, ,658, ,673,034 2 Non-operating income and expenses: 7010 Other income (Note (6)(s) and (7)) 1,540, ,142, ,696, ,043, Interest expenses (Note (6)(s)) (874,460) - (516,785) - (1,715,291) (1) (1,025,914) Other gains and losses, net (Note (6)(s)) 949, ,186 - (68,890) - 690, Share of loss of associates and joint ventures accounted for using equity method (Note (6)(e)) (13,762) - (3,620) - (44,875) - (9,679) - 1,600, , ,200-1,698, Profit before tax 5,583, ,038, ,525, ,371, Less: Tax expenses (Note (6)(n)) 1,549, ,463, ,655, ,151,171 - Profit 4,033, ,574, ,869, ,220, Other comprehensive income: 8360 Components of other comprehensive income that will be reclassified to profit or loss 8361 Exchange differences on translation 246,918 - (244,985) - (1,464,027) - (923,643) Unrealized gains (losses) on valuation of available-for-sale financial assets 897, , , , Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss 5,891-4,277-17,022-7, Other components of other comprehensive income that will be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 1,150, ,180 - (602,240) - (444,520) Other comprehensive income, net 1,150, ,180 - (602,240) - (444,520) Total comprehensive income for the year $ 5,183, ,912, ,267, ,775,613 2 Profit attributable to: 8610 Profit, attributable to owners of parent $ 3,977, ,500, ,771, ,117, Profit, attributable to non-controlling interests 55,577-74,912-98, ,932 - Comprehensive income attributable to: $ 4,033, ,574, ,869, ,220, Comprehensive income, attributable to owners of parent $ 5,039, ,904, ,423, ,802, Comprehensive income, attributable to non-controlling interests 143,845-7,380 - (155,714) - (27,035) - Earnings per share attributable to parent company (Note (6)(p)) $ 5,183, ,912, ,267, ,775, Basic earnings per share (NT dollars) $ Diluted earnings per share (NT dollars) $

7 REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED (AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Share Capital Owners' Equity Attributable to Equity Holders of the Parent Company Other Equity Interest Exchange Retained Earnings Differences on Unrealized Translation of Gains (Losses) Foreign on Availablefor- Financial Sale Total Equity Attributable to Owners of Ordinary Share Capital Surplus Legal Reserve Special Reserve Unappropriated Retained Earnings Statements Financial Assets Treasury Shares Parent Non- Controlling Interests Total Equity Balance as of January 1, 2016 $ 38,626,274 14,042,566 26,966,046 2,941,161 54,923,151 6,210,532 (10,634,327) (333,094) 132,742,309 7,343, ,085,684 Profit for the period ,117, ,117, ,932 7,220,133 Other comprehensive income for the period (797,510) 482,957 - (314,553) (129,967) (444,520) Total comprehensive income ,117,201 (797,510) 482,957-6,802,648 (27,035) 6,775,613 Appropriation and distribution of retained earnings: Legal reserve appropriated - - 1,782,713 - (1,782,713) Special reserve appropriated ,482,634 (1,482,634) Cash dividends of ordinary share (14,677,984) (14,677,984) - (14,677,984) Adjustments of capital surplus for company's cash dividends received by subsidiaries - 11, ,327-11,327 Changes of ownership in subsidiaries (76,901) (76,901) 76,901 - Changes in non-controlling interests (532,440) (532,440) Balance as of June 30, 2016 $ 38,626,274 14,053,893 28,748,759 4,423,795 44,020,120 5,413,022 (10,151,370) (333,094) 124,801,399 6,860, ,662,200 Balance as of January 1, 2017 $ 38,626,274 14,053,893 28,748,759 4,423,795 52,084,636 5,109,127 (9,859,956) (333,094) 132,853,434 6,863, ,716,786 Profit for the period ,771, ,771,025 98,676 6,869,701 Other comprehensive income for the period (1,202,793) 854,943 - (347,850) (254,390) (602,240) Total comprehensive income ,771,025 (1,202,793) 854,943-6,423,175 (155,714) 6,267,461 Appropriation and distribution of retained earnings: Legal reserve appropriated - - 1,513,816 - (1,513,816) Special reserve appropriated ,034 (327,034) Cash dividends of ordinary share (13,519,196) (13,519,196) - (13,519,196) Other changes in capital surplus: Changes in equity of associates and joint ventures accounted for using equity method Adjustments of capital surplus for company's cash dividends received by subsidiaries - 4, ,272-4,272-10, ,433-10,433 Changes of ownership in subsidiaries - (3) (3) 3 - Changes in non-controlling interests (307,195) (307,195) Balance as of June 30, 2017 $ 38,626,274 14,068,595 30,262,575 4,750,829 43,495,615 3,906,334 (9,005,013) (333,094) 125,772,115 6,400, ,172,561 6

8 REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS QUANTA COMPUTER INC.AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED (AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) For the Six Months Ended June 30, Cash flows from operating activities: Profit before tax $ 9,525,557 9,371,304 Adjustments: Adjustments to reconcile profit (loss): Depreciation expense 2,917,120 3,232,756 Amortization expense 511, ,518 (Reversal) provision for bad debt expense (221,773) 105,217 Net (gain) loss on financial assets or liabilities at fair value through profit or loss (2,147) 6,547 Interest expense 1,715,291 1,025,914 Interest income (2,429,783) (1,853,483) Dividend income (266,473) (189,520) Share of losses of associates and joint ventures accounted for using equity method 44,875 9,679 Loss on disposal of property, plant and equipment 198,131 99,833 Property, plant and equipment transferred to expenses - 17,251 Gain on disposal of intangible assets (11) - Gain on disposal of investments (52,232) (79,468) Loss (gain) on disposal of subsidiaries 367 (83,776) Loss on disposal of investments accounted for using equity method Reversal of impairment gain on financial assets - (17,996) Impairment loss on non-financial assets 934 2,995 Unrealized foreign exchange gain (613,200) (762,600) Total adjustments to reconcile profit 1,803,241 2,038,867 Changes in operating assets and liabilities: Changes in operating assets: Financial assets held for trading 264,636 7,703 Accounts receivable 18,619,242 52,836,607 Other receivables 49,819 39,254 Inventories (30,473,018) 2,242,585 Other financial assets 310,469 58,532 Other current assets 130,590 (407,102) Total changes in operating assets (11,098,262) 54,777,579 Changes in operating liabilities: Accounts payable 10,155,764 (10,500,876) Other payables (1,487,791) (2,188,251) Other financial liabilities (438,406) (716,631) Other current liabilities (294,554) 582,617 Net defined benefit liabilities (1,525) (1,631) Other liabilities (831) (992) Total changes in operating liabilities 7,932,657 (12,825,764) Total changes in operating assets and liabilities (3,165,605) 41,951,815 Total adjustments (1,362,364) 43,990,682 Cash generated from operations 8,163,193 53,361,986 Interest received 1,670,151 2,034,909 Dividends received 15,457 25,460 Interest paid (1,163,839) (959,548) Income taxes paid (3,121,368) (5,656,513) Net cash provided by operating activities 5,563,594 48,806,294 7

9 REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS QUANTA COMPUTER INC.AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED (AMOUNTS EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) For the Six Months Ended June 30, Cash flows from investing activities: Acquisition from disposal of financial assets at fair value through profit or loss, designated as upon initial (2,232,078) (2,923,007) recognition Proceeds from disposal of financial assets at fair value through profit or loss, designated as upon initial 1,607,096 3,589,571 recognition Acquisition of available-for-sale financial assets (52,266,363) (47,422,727) Proceeds from disposal of available-for-sale financial assets 54,483,951 62,028,223 Proceeds from capital reduction of available-for-sale financial assets 4,476 76,347 Acquisition of investments accounted for using equity method (55,658) - Proceeds from disposal of investments accounted for using equity method - 47,812 Net cash flow from disposal of subsidiaries (2,618) (50,360) Proceeds from capital reduction of investments accounted for using equity method 4,061 - Acquisition of property, plant and equipment (2,326,529) (2,545,658) Proceeds from disposal of property, plant and equipment 162, ,278 (Increase) decrease in other receivables (2,958) 264,914 Acquisition of intangible assets (267,830) (129,673) Proceeds from disposal of intangible assets 11 - Increase in other financial assets (8,863,111) (914,194) Decrease in other financial assets 22, ,716 Increase in other non-current assets (246,883) (353,705) Decrease in other non-current assets 7,908 11,807 Net cash (used in) provided by investing activities (9,971,279) 12,392,344 Cash flows from financing activities: Increase in short-term loans 69,619,289 64,285,900 Decrease in short-term loans (5,073,920) (3,052,022) Proceeds from long-term debt - 20,532,053 Repayments of long-term debt - (41,164,175) Increase in other financial liabilities 13,264 5,942 Decrease in other financial liabilities (577) (4,309) Decrease in other non-current liabilities - (310,803) Change in non-controlling interests - 251,419 Net cash provided by financing activities 64,558,056 40,544,005 Effect of exchange rate changes on cash and cash equivalents (8,062,883) (3,439,760) Net increase in cash and cash equivalents 52,087,488 98,302,883 Cash and cash equivalents at beginning of year 202,911, ,738,687 Cash and cash equivalents at end of period $ 254,998, ,041,

10 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS (1) Overview Quanta Computer Inc. (the Company) was incorporated on May 9, 1988 as a company limited by shares and registered under the Ministry of Economic Affairs, R.O.C. The address of the Company's registered office is No. 188 Wen Hwa 2nd Rd., Kuei Shan District, Tao Yuan City, Taiwan, R.O.C. The Company and its subsidiaries (the Group) engage primarily in the manufacturing, processing, and sales of laptop computers and telecommunication products. (2) Financial Statements Authorization Date and Authorization Process The consolidated financial statements were authorized for issuance by the Board of Directors on August 10, (3) New Standards and Interpretations Adopted (a) The impact of the International Financial Reporting Standards ( IFRSs ) endorsed by the Financial Supervisory Commission, R.O.C. ( FSC ) which have already been adopted. The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2017: Effective date New, Revised or Amended Standards and Interpretations per IASB Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying January 1, 2016 the Consolidation Exception Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint January 1, 2016 Operations IFRS 14 Regulatory Deferral Accounts January 1, 2016 Amendment to IAS 1 Presentation of Financial Statements-Disclosure January 1, 2016 Initiative Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of January 1, 2016 Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants January 1, 2016 Amendments to IAS 19 Defined Benefit Plans: Employee Contributions July 1, 2014 Amendment to IAS 27 Equity Method in Separate Financial Statements January 1, 2016 Amendments to IAS 36 Impairment of Non-Financial assets- Recoverable January 1, 2014 Amount Disclosures for Non-Financial Assets Amendments to IAS 39 Financial Instruments-Novation of Derivatives and January 1, 2014 Continuation of Hedge Accounting Annual Improvements to IFRSs Cycle and Cycle July 1, 2014 Annual Improvements to IFRSs Cycle January 1, 2016 IFRIC 21 Levies January 1, 2014 The Group assessed that the initial application of the above IFRSs would not have any material impact on the consolidated financial statements. 8

11 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS (b) The impact of IFRS endorsed by FSC but not yet effective The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018 in accordance with Ruling No issued by the FSC on July 14, 2017: New, Revised or Amended Standards and Interpretations Amendment to IFRS 2 Classification and Measurement of Share based Payment Transactions Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Effective date per IASB January 1, 2018 January 1, 2018 IFRS 9 Financial Instruments January 1, 2018 IFRS 15 Revenue from Contracts with Customers January 1, 2018 Amendment to IAS 7 Statement of Cash Flows -Disclosure Initiative January 1, 2017 Amendment to IAS 12 Income Taxes- Recognition of Deferred Tax Assets for Unrealized Losses January 1, 2017 Amendments to IAS 40 Transfers of Investment Property January 1, 2018 Annual Improvements to IFRS Standards Cycle: Amendments to IFRS 12 January 1, 2017 Amendments to IFRS 1 and Amendments to IAS 28 January 1, 2018 IFRIC 22 Foreign Currency Transactions and Advance Consideration January 1, 2018 Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its financial position and financial performance, and will disclose the relevant impact when the assessment is completed: 1. IFRS 9 Financial Instruments 1) Classification- Financial assets IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow classified. IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. 9

12 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS In addition, IAS 39 has an exception to the measurement requirements for investments in unquoted equity instruments that do not have a quoted market price in an active market and for which the fair value cannot be measured reliably. Such financial instruments are measured at cost. IFRS 9 removes this exception, requiring all equity investments to be measured at fair value. 2) Impairment-Financial assets and contact assets IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking expected credit loss (ECL) model. This will require considerable judgment as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since its initial recognition; otherwise, the 12- month ECL measurement shall be applied. 3) Transition Financial instruments that have been derecognized prior to the effective date of IFRS 9 cannot be reversed if IFRS 9 becomes effective and is adopted. Under IFRS 9, the requirements for classification, measurement and impairment of financial assets are applied retrospectively with the difference between the previous carrying amount and the carrying amount at the date of initial application recognized in retained earnings and reserves as at January 1, 2018, and no restatement of prior periods is not required. 2. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including IAS 18 Revenue and IAS 11 Construction Contracts. Under IFRS 15, the Group recognizes revenue by strictly complying with the following steps: 1) Identify the contracts with the customer; 2) Identify the performance obligations in the contracts; 3) Determine the transaction price; 4) Allocate the transaction price on the performance obligations in the contracts; and 5) The Group satisfies a performance obligation. When IFRS 15 becomes effective, the Group may elect to apply this standard either retrospectively to each period presented or to recognize the accumulated adjustment at the date of initial application. 10

13 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS 3. Amendment to IAS 7 Statement of Cash Flows-Disclosure Initiative The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. To satisfy the new disclosure requirements, the Group intends to present a reconciliation between the opening and closing balances for liabilities with changes arising from financing activities. (c) The impact of IFRS issued by IASB but not yet endorsed by the FSC As of the date the following IFRSs that have been issued by the IASB, but not yet endorsed by the FSC: New, Revised or Amended Standards and Interpretations Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture Effective date per IASB Effective date to be determined by IASB IFRS 16 Leases January 1, 2019 IFRS 17 Insurance Contracts January 1, 2021 IFRIC 23 Uncertainty over Income Tax Treatments January 1, 2019 Those which may be relevant to the Group are set out below: Issuance / Release Dates Standards or Interpretations Content of amendment January 13, 2016 IFRS 16 Leases The new standard of accounting for lease is amended as follows: For a contract that is, or contains, a lease, the lessee shall recognize a right of use asset and a lease liability in the balance sheet. In the statement of profit or loss and other comprehensive income, a lessee shall present interest expense on the lease liability separately from the depreciation charge for the right of-use asset during the lease term. A lessor classifies a lease as either a finance lease or an operating lease, and therefore, the accounting remains similar to IAS

14 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS The Group is evaluating the impact on its consolidated financial position and consolidated financial performance upon the initial adoption of the abovementioned standards or interpretations. The results thereof will be disclosed when the Group completes its evaluation. (4) Significant Accounting Policies Except as described in the following paragraph, the significant accounting policies adopted in the preparation of the interim consolidated financial statements are applied consistently with those of the consolidated financial statements for the year ended December 31, Please refer to Note (4) of the consolidated financial statements for the year ended December 31, 2016, for related information. (a) Statement of compliance The accompanying consolidated interim financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Report by Securities Issuers (hereinafter referred to as the Regulations) and the preparation and guidelines of IAS 34 Interim Financial Reporting which are endorsed by the FSC. These consolidated interim financial statements do not include all of the information required by the International Financial Reporting standards, the International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to as the IFRS endorsed by the FSC) for annual financial statements. (b) Basis of consolidation The principles of preparation have been applied consistently with those described in the consolidated financial statements for the year ended December 31, For detailed information, please refer to Note (4)(c) of the consolidated financial statements for the year ended December 31, List of subsidiaries in the consolidated financial statements: Name of Name of Principal Shareholding Investor Subsidiary Activity Note The Company Quanta International Limited (QIL) Holding company QCJ Corp. Manufacture, after-sale service and sale of computers and telecommunication products Quanta Computer Technology Investment Corp. (QCTI) Quanta Venture Capital Co., Ltd. (QVC) Quanta Cloud Technology Inc. (QCTTW) Investment company Venture capital Wholesale of computers and accessories % % %

15 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note The Company The Company and QCTI QIL QCE FaceVsion Technology Inc. (FVT) CloudCast Technology Inc. Quanta Storage Inc. (QSI) RoyalTek Company Ltd. (RTK) Quanta Microsystem Inc. (QMIT) QCE Computer B.V. (QCE) Access International Company (AIC) Quanta ASIA LTD. (QAL) Quanta Capital Management Ltd. (QCML) Quanta Research International Inc. (QRII) QCT LLC (QCT- USA) QCT Cayman Inc. (QCTC) ThinkTech Industria E Comercio DE Informatica SA (ThinkTech) Wholesale of electric components, equipment and retail of other telecommunication products Service, wholesale and retail of information software, service of data processing - % % % The liquidation procedure was completed in February Optical industry % % % Note 1 Design, manufacture, processing, distribute, and sale of satellite guided navigation systems and peripherals, navigated map, and digital map % % % Note 1 Electronic company Sale and after-sale services of computer peripherals Holding company for investment in America Investment company and after-sale services Investment company Investment company - % - % % The dissolution procedure was completed in Sale of computer peripherals Investment company Manufacture and sale of computers and peripherals 13

16 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note AIC Quanta Manufacturing Assembly and processing Incorporation (QMI) of laptop computers and peripherals QMI QSI-USA QCA QCH QAL QRII QCTC QIT QDL QDLHK Quanta Service Incorporation (QSI- USA) Quanta Computer USA, Inc. (QCA) QCH, INC., a Nevada corporation (QCH) Quanta Manufacturing Nashville LLC (QMN) Quanta Service Nashville LLC (QSN) After-sale service of computers and peripherals After-sale service of laptop computers and peripherals Sale of laptop computers and peripherals Assembly and processing of laptop computers and peripherals After-sale service of computers and peripherals Quanta Computer After-sale service of Nashville LLC (QCN) laptop computers and peripherals QCH Nashville LLC (QCHN) Quanta Development LTD. (QDL) Quanta International Technology LTD. (QIT) Q_Bus International Limited (Q_Bus) Quanta Research Cambridge Inc. (QRC) QCT Korea Inc.(QCTK) QCG Computer GMBH Quanta Development (HONG KONG) Limited (QDLHK) Tech-Front (Shanghai) Computer Co., Ltd. (TFC) Sale of laptop computers Holding company Sale of computers and peripherals, and investment company Holding company Research and development of computers and peripherals Sale of computers and peripherals Assembly and processing of computers and peripherals Sale of computers and peripherals, and investment company Manufacture and sale of computers and peripherals - % - % % The dissolution procedure was completed in

17 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note QDLHK Tech-Com (Shanghai) Computer Co., Ltd. (TCC) Manufacture and sale of computers and peripherals Tech-Com (Chongqing) Computer Co., Ltd. (TCQ) Tech-Trend (Shanghai) Computer Co., Ltd. (TTC) Tech-Lead (Shanghai) Computer Co., Ltd. (TLC) Tech-Giant (Shanghai) Computer Co., Ltd. (TGC) Tech-Wave (Shanghai) Logistics Co., Ltd. (TWW) Tech-Full Computer (Changshu) Co., Ltd. (TNC) Tech-Front (Chongqing) Computer Co., Ltd. (TFQ) Manufacture and sale of computers and peripherals Sale and after-sale service of computers and peripherals After-sale service of laptop computers Manufacture and sale of computers, peripherals, and cellphones % - % - % TCQ was established in May Storage service Manufacture, sale, and after-sale service of smart wearable electronic devices, digital acoustics devices and their accessories Processing, manufacture and sale of computers Tech-Wave Storage service (Chongqing) Logistics Co., Ltd. (TWQ) Kenseisha Shanghai P.M.P. Co., Ltd. (KSH) CloudTech (Beijing) Technology Co., Ltd. (YUNDA) CloudTech (Chongqing) Technology Co., Ltd. (YDCQ) Manufacture and sale of precise machinery, peripherals and metallic molds Sale of servers and switches Sale of servers and switches 15

18 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note QDLHK Fly Dragon International Ltd. (FDDT) Investment company and trading company Q_Bus EXM EXMHK TCL TCLHK Dragon Grand Group Ltd. (DGDT) Exmore Services Holding Limited (EXM) Tech Chain Ltd. (TCL) Exmore Services Holding (HONG KONG) Limited (EXMHK) Gem-Tech (Shanghai) Precision Mold Co., Ltd. Tech Chain (HONG KONG) Limited (TCLHK) Zhan Yun (Shanghai) Electronics Co., Ltd. (ZYES) Changshu Zhan Yun Electronics Co., Ltd. (ZYEC) Zhan Yun (Chongqing) Electronics Co., Ltd. (ZYEQ) Q_Bus and TCLHK QSI Standard (Shanghai) Energy Co., Ltd. Quanta Storage International Ltd. (QSI (CAYMAN)) Quanta Storage Investment Inc. Technam Electronics (Thailand) Co., Ltd. (TMT) Investment company and trading company Holding company % % % Holding company Investment company Manufacture and sale of non-metallic product molds Investment company Manufacture and sale of computers and peripherals Manufacture and sale of computers and peripherals Manufacture and sale of computers and peripherals Assembly and sale of battery % % % Investment company Investment company Manufacture and sale of computer storage devices and peripherals % - % - % TMT was established on June 2,

19 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note QSI Quanta Storage (BVI) Investment company (CAYMAN) Ltd. (QSL (BVI)) Quanta Storage Holding Ltd. (QSH) E-Forward Technology Ltd. (SAMOA) (E-Forward (SAMOA)) QSL(BVI) QHH TECHHK Quanta Storage Holding (HONG KONG) Ltd. (QHH) TECHMAN Electronics (Hong Kong) Ltd. (TECHHK) Techman Asia Ltd. (TMA) E-Forward (SAMOA) Quanta Storage Investment Inc. FDDT DGDT Quanta Storage (Shanghai), Ltd. (QSS) Techman Electronics (Changshu) Ltd. (Techman) Investment company - % - % % The liquidation procedure was completed on December 19, Manufacture and sale of computer storage devices and peripherals Investment company Investment company Sale and after-sale service of computer storage device peripherals Manufacture and sale of computer storage device peripherals Manufacture and sale of computer storage device peripherals Quanta Storage Asia Sale and after-sale Ltd. (SAMOA) (QSA) service of computer storage device peripherals Techman Robot Inc. (TRI) Kenseisha Changshu P.M.P Co., Ltd. (KCC) Dragontech Metallic Industry Co., Ltd. (SJDT) Manufacture and sale of industrial collaborative robots Manufacture and sale of machine cases, molds and tools Manufacture and sale of computers and peripherals 17

20 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Name of Name of Principal Shareholding Investor Subsidiary Activity Note FVT FaceVsion Retail of Technology USA LLC telecommunication (FVTUS) products and wholesale of electronic equipment and components FVTHK RTK RTKI QMIT QCTTW FaceVsion Technology Hong Kong Ltd. (FVTHK) FaceVsion (Changshu) Trading Co., Ltd. Royaltek International Enterprises Ltd. (RTKI) Royaltek Trading (Changshu) Co., Ltd. Investment company - % % % FVTHK was sold in June Trading company - % % % The liquidation procedure was completed in June Investment company Import and export business and wholesale of electronic products Quanta Cloud Import and export Technology Japan Inc. business and wholesale (QCTJ) of electronic products Quanta Cloud Technology Germany GmbH (QCTG) Sale of computer peripherals % % - % The Company was established in July Note 1: Although the Company holds less than half of these companies voting right, the Company has actual effect to lead these companies activities, considering the fact that these companies other equity shares are highly separated and considering the participation of other stockholders from previous stockholders meetings. In addition, no other sign suggests that any collectively decision-making agreement between other stockholders exist. Therefore, the Company considers these companies as subsidiaries. 2.Subsidiaries excluded from the interim consolidated financial statements: None. ( c ) Income taxes Tax expense in the interim financial statements is measured and disclosed according to paragraph B12 of IAS 34 "Interim Financial Reporting". Income tax expense for the period is best estimated by multiplying pretax income for the interim reporting period by the effective annual tax rate as forecasted by the management. This should be recognized fully as tax expense for the current period. 18

21 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases are measured based on the tax rates that have been enacted or substantively enacted at the time of the asset or liability is recovered or settled and recognized directly in equity or other comprehensive income as tax expense. ( d ) Employee benefits Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant oneoff events. (5) Major Sources of Accounting Assumptions, Judgments and Estimation Uncertainty The preparation of the consolidated quarterly financial statements in conformity with IFRSs (in accordance with IAS 34 Interim Financial Reporting and approved by the FSC) requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. In the preparation of the consolidated quarterly financial statements, the major sources of significant accounting judgments and estimation uncertainty are consistent with Note (5) of the consolidated financial statements for the year ended December 31, (6) Explanation to Significant Accounts Except as described in the following paragraphs, there were no significant differences with those disclosed in the annual consolidated financial statements for the year ended December 31, Please refer to the Note (6) of the consolidated financial statements for the year ended December 31, 2016 for other related information. (a) Cash and cash equivalents Cash on hand, current deposits and checking accounts $ 37,915,610 19,511,579 77,517,663 Time deposits 202,102, ,061, ,709,453 Short-term notes and bills 14,980,073 6,337,536 3,814,454 Cash and cash equivalents in consolidated statement of cash flows $ 254,998, ,911, ,041,570 The group's interest risk and sensibility analysis of financial assets and liabilities was disclosed in Note (6)(u). 19

22 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS (b) Financial assets and liabilities 1.Details of financial assets and liabilities are as follows: 1) Current financial assets at fair value through profit or loss Designated as at fair value through profit or loss $ 1,103, ,400 1,529,354 Held-for-trading financial assets Beneficiary certificates-open-end mutual funds 10, , ,454 Foreign exchange contracts-(regular way purchase or sale) - 1,268,174 - Forward foreign exchange contracts - 21,355 - Total $ 1,113,923 2,029,865 1,740,808 2) Available-for-sale financial assets Public quoted companies $ 6,463,150 5,398,821 5,105,066 Private equity 954, , ,461 Debt investments 67,288 69,645 73,017 Beneficiary certificates-open-end mutual funds 16,841,473 19,186,828 18,197,298 Total $ 24,325,978 25,653,990 24,136,842 Current $ 23,183,854 24,518,661 23,274,340 Non-current 1,142,124 1,135, ,502 Total $ 24,325,978 25,653,990 24,136,842 3) Current financial liabilities at fair value through profit or loss Designated as at fair value through profit or loss Forward foreign exchange contracts $ 3,347-10,581 4) The Group's credit, currency and interest risks were disclosed in Note (6)(u). 5) As of June 30, 2017, December 31, 2016, and June 30, 2016, the aforesaid financial assets were not pledged as collateral. 20

23 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS 2.Sensitivity analysis-equity price risk: If the equity price changes, and if it is based on the same basis for both years and assumes that all other variables remain the same, the impact to other comprehensive income will be as follows: After-tax other comprehensive income For the Six Months Ended June 30, After-tax other comprehensive income Equity price at reporting After-tax day profit (loss) Stock-Increase 7% $ 519, ,657 - After-tax profit (loss) Stock-Decrease 7% $ (519,205) - (410,657) - Beneficiary certificates -Increase 1% $ 168, ,973 2,115 Beneficiary certificates -Decrease 1% $ (168,415) (100) (181,973) (2,115) 3.Foreign equity investments 1) Financial assets Foreign currency (in thousands) Exchange rate TWD USD $ 26,873 USD/TWD= , Foreign currency (in thousands) Exchange rate TWD USD $ 27,364 USD/TWD= , Foreign currency (in thousands) Exchange rate TWD USD $ 19,581 USD/TWD= ,079 21

24 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS 4.Derivative financial instrument Derivative financial instruments are used to manage certain interest risk, arising from the Group s operating, financing and investing activities. As of June 30, 2017, December 31, 2016, and June 30, 2016, derivative financial instruments accounted for as held-for-trading financial assets were as follows: Forward foreign exchange contracts Amount (in thousands) Currency Maturity period US dollars sold USD 52,000 USD against TWD ~ US dollars purchased USD 4,000 TWD against USD Forward foreign exchange contracts Amount (in thousands) Currency Maturity period US dollars sold USD 82,000 USD against TWD ~ US dollars purchased USD 70,000 TWD against USD ~ Forward foreign exchange contracts Amount (in thousands) Currency Maturity period US dollars sold USD 50,000 USD against TWD ~ US dollars sold USD 27,979 USD against CNY US dollars purchased USD 90,000 TWD against USD ~

25 AS OF REVIEWED ONLY, NOT AUDITED IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS 5.Non-derivative financial instrument-foreign exchange contracts As of December 31, 2016, the Group had foreign exchange contracts which meets the criteria of regular way purchase or sale. The related information was as follows: Foreign exchange contracts- (regular way purchase or sale) Amount (in thousands) Currency Maturity period US dollars purchased USD 30,000 TWD against USD US dollars purchased YEN 1,090,000 YEN against USD (c) Accounts receivable and other receivables, net Accounts receivable $ 143,693, ,487, ,644,916 Other receivables 3,327,202 2,261,561 2,934,325 Less: Allowance for uncollectible accounts (1,578,977) (2,015,662) (1,708,394) Allowance for sales returns and discounts (1,239,659) (1,043,443) (733,141) Net $ 144,201, ,690, ,137,706 The aging of overdue receivables was as follows: Overdue 60 days and less $ 5,215,473 5,999,058 3,142,673 Overdue 61~120 days 648, , ,572 Overdue 121 days and more 1,457,147 2,462,264 2,970,043 Total $ 7,320,806 9,117,098 6,890,288 The movements in allowance for uncollectible accounts for the six months ended June 30, 2017 and 2016 were as follows: Individuallyassesseassessed Collectively- Total Balance as of January 1, 2017 $ 443,453 1,572,209 2,015,662 Impairment loss (reversed) recognized (252,616) 30,843 (221,773) Amounts written off (165,166) (11,880) (177,046) Effect of movements in exchange rate (25,671) (12,195) (37,866) Balance as of June 30,2017 $ - 1,578,977 1,578,977 23