lite-on technology corporation and subsidiaries...interest income 398,592 1 330,991 1 781,780 1...

Lite-On Technology Corporation and Subsidiaries Consolidated Financial Statements for the Six Months Ended June 30, 2018 and 2017 and Independent Auditors’ Review Report

- 3 -

LITE-ON TECHNOLOGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of New Taiwan Dollars)

June 30, 2018

(Reviewed)

December 31, 2017

(Audited)

June 30, 2017

(Reviewed)

ASSETS Amount % Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Note 6) $ 57,602,879 28 $ 57,783,860 30 $ 62,834,478 31 Financial assets at fair value through profit or loss (''FVTPL'') (Note 7) 293,815 - 101,677 - 156,973 -

Financial assets at amortized cost (Note 9) 1,049,182 1 - - - - Debt instruments with no active market (Note 12) - - 911,783 1 880,140 -

Notes receivable, net (Note 13) 429,579 - 282,316 - 263,464 -

Trade receivables, net (Note 13) 58,955,272 29 52,037,732 27 52,577,111 26 Trade receivables from related parties (Note 33) 95,377 - 79,288 - 89,363 -

Other receivables 10,275,413 5 1,364,028 1 1,058,038 1

Other receivables from related parties (Note 33) 110,915 - 2,806 - 106,243 - Inventories, net (Note 14) 29,620,409 15 28,312,572 15 27,352,400 14

Non-current assets held for sale (Note 15) 823,706 - 815,143 - - -

Other current assets (Note 21) 3,402,252 2 3,372,102 2 2,996,335 2

Total current assets 162,658,799 80 145,063,307 76 148,314,545 74

NON-CURRENT ASSETS

Financial assets at fair value through profit or loss ("FVTPL") (Note 7) 104,242 - - - - -

Financial assets at fair value through other comprehensive income (“FVTOCI”) (Note 8) 522,884 - - - - - Available-for-sale financial assets (Note 11) - - 513,129 - 723,000 -

Financial assets at amortized cost (Note 9) 391,310 - - - - -

Debt instruments with no active market (Note 12) - - 573,085 - 565,612 - Investments accounted for using the equity method (Note 17) 4,935,402 3 3,681,951 2 3,677,585 2

Property, plant and equipment, net (Note 18) 20,515,904 10 22,490,411 12 26,448,489 13

Investment properties, net (Note 19) 1,423,100 1 1,426,134 1 399,581 - Intangible assets, net (Note 20) 5,916,384 3 9,828,658 5 15,088,168 8

Deferred tax assets 4,679,458 2 3,614,920 2 3,018,587 2

Refundable deposits 680,852 - 641,387 - 571,492 - Prepaid investments - - 1,354,950 1 2,143 -

Other non-current assets (Note 21) 886,201 1 807,825 1 821,853 1

Total non-current assets 40,055,737 20 44,932,450 24 51,316,510 26

TOTAL $ 202,714,536 100 $ 189,995,757 100 $ 199,631,055 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Note 22) $ 30,608,588 15 $ 30,155,790 16 $ 19,712,537 10 Financial liabilities at FVTPL (Note 7) 226,864 - 147,052 - 238,163 -

Notes payable 22,734 - 38,797 - 35,563 -

Trade payables 60,143,162 30 56,152,649 30 55,536,068 28 Trade payables to related parties (Note 33) 797,756 - 803,894 - 898,492 1

Other payables 31,082,258 15 21,123,576 11 27,940,061 14

Other payables to related parties (Note 33) 11,595 - 19,927 - 14,444 -

Current tax liabilities 4,572,846 2 3,221,310 2 2,809,078 1

Provisions (Note 24) 932,085 1 866,119 - 919,650 1

Advance receipts 2,349,814 1 2,049,789 1 2,399,160 1 Current portion of long-term borrowings (Note 22) 4,824 - 16,204 - 4,823,116 2

Finance lease payables (Note 23) 1,601 - 1,600 - 1,581 -

Total current liabilities 130,754,127 64 114,596,707 60 115,327,913 58

NON-CURRENT LIABILITIES

Long-term borrowings, net of current portion (Note 22) - - 178 - 7,203,934 4

Deferred tax liabilities 1,447,555 1 1,324,792 1 2,685,536 1 Finance lease payables, net of current portion (Note23) 1,032 - 1,764 - 2,648 -

Net defined benefit liabilities 256,198 - 224,025 - 238,860 -

Guarantee deposits 82,456 - 80,862 - 89,186 -

Total non-current liabilities 1,787,241 1 1,631,621 1 10,220,164 5

Total liabilities 132,541,368 65 116,228,328 61 125,548,077 63

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY Share capital

Ordinary shares 23,508,670 12 23,508,670 12 23,508,670 12

Capital surplus Additional paid-in capital from share issuance in excess of par value 3,471,812 2 9,372,488 5 9,372,488 5

Bond conversions 7,462,138 4 7,462,138 4 7,462,138 4

Treasury share transactions 477,697 - 400,329 - 400,329 -

Recognized changes in percentage of ownership interest in subsidiaries 42,193 - 49,019 - 48,634 -

Changes in capital surplus from investments in associates accounted for using the equity method 288,370 - 276,782 - 279,980 -

Mergers 10,015,194 5 10,015,194 6 10,015,194 5 Total capital surplus 21,757,404 11 27,575,950 15 27,578,763 14

Retained earnings

Legal reserve 12,049,900 6 11,786,967 6 11,786,967 6 Special reserve 2,705,954 1 1,338,878 1 1,338,878 1

Unappropriated earnings 10,580,095 5 10,093,753 5 11,255,361 5

Total retained earnings 25,335,949 12 23,219,598 12 24,381,206 12 Other equity

Exchange differences on translating foreign operations (2,046,202 ) (1 ) (2,528,893 ) (1 ) (3,319,804 ) (2 )

Unrealized loss of financial assets at FVTOCI (375,622 ) - - - - - Unrealized loss on available-for-sale financial assets - - (18,497 ) - (37,590 ) -

Gain on effective portion of cash flow hedges 3,991 - 3,372 - 2,561 -

Total other equity (2,417,833 ) (1 ) (2,544,018 ) (1 ) (3,354,833 ) (2 ) Treasury shares (1,248,722 ) (1 ) (1,248,722 ) (1 ) (1,248,722 ) (1 )

Total equity attributable to owners of the Parent Company 66,935,468 33 70,511,478 37 70,865,084 35

NON-CONTROLLING INTERESTS 3,237,700 2 3,255,951 2 3,217,894 2

Total equity 70,173,168 35 73,767,429 39 74,082,978 37

TOTAL $ 202,714,536 100 $ 189,995,757 100 $ 199,631,055 100

The accompanying notes are an integral part of the consolidated financial statements.

(With Deloitte & Touche review report dated August 13, 2018)

- 4 -


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

(Reviewed, Not Audited)

For the Three Months Ended June 30 For the Six Months Ended June 30

2018 2017 2018 2017

Amount % Amount % Amount % Amount %

OPERATING REVENUE Sales (Notes 27 and 33) $ 55,816,318 102 $ 54,439,842 103 $ 105,512,348 102 $ 107,326,363 103

Less: Sales allowance 851,976 2 1,066,274 2 1,787,679 2 2,373,060 2

Sales returns 255,322 - 312,670 1 481,997 - 540,705 1

Total operating

revenue 54,709,020 100 53,060,898 100 103,242,672 100 104,412,598 100

COST OF GOODS SOLD

(Notes 14, 30 and 33) 48,195,749 88 46,099,357 87 91,327,490 89 90,758,725 87

GROSS PROFIT 6,513,271 12 6,961,541 13 11,915,182 11 13,653,873 13

OPERATING EXPENSES

(Notes 30 and 33)

Selling and marketing expenses 1,789,981 3 1,680,079 3 3,460,756 3 3,321,199 3

General and administrative

expenses 1,503,331 3 1,515,337 3 2,857,632 3 2,990,052 3 Research and development

expenses 1,695,140 3 1,545,932 3 3,271,064 3 3,069,262 3

Expected credit loss (Note 13) 14,521 - - - 28,959 - - -

Total operating expenses 5,002,973 9 4,741,348 9 9,618,411 9 9,380,513 9

OPERATING INCOME 1,510,298 3 2,220,193 4 2,296,771 2 4,273,360 4

NON-OPERATING INCOME AND EXPENSES

Share of profit of associates 54,688 - 63,371 - 46,773 - 69,962 -

Interest income 398,592 1 330,991 1 781,780 1 648,150 1 Dividend income 13,045 - 15,933 - 13,045 - 15,933 -

Other income (Notes 33

and 36) 3,843,309 7 223,380 - 4,117,434 4 629,113 1 Net gain on disposal of

investments (Note 17) - - - - 93,075 - - -

Net gain (loss) on foreign currency exchange (675,422 ) (1 ) 44,779 - (426,464 ) (1 ) 314,762 -

Net gain (loss) on financial

assets at FVTPL 864,540 1 82,159 - 857,231 1 (52,268 ) - Finance costs (202,452 ) (1 ) (131,551 ) - (392,452 ) - (297,531 ) -

Other expenses (52,393 ) - (288,804 ) - (181,705 ) - (560,241 ) (1 )

Net loss on disposal of property, plant and

equipment (9,927 ) - (15,330 ) - (14,505 ) - (21,411 ) -

Net loss on disposal of

intangible assets - - - - (6 ) - - -

Impairment loss (Notes 11,

18, 20 and 36) (3,385,389 ) (6 ) (17,478 ) - (3,394,353 ) (3 ) (19,438 ) -

Total non-operating

income and expenses 848,591 1 307,450 1 1,499,853 2 727,031 1

PROFIT BEFORE INCOME TAX 2,358,889 4 2,527,643 5 3,796,624 4 5,000,391 5

INCOME TAX EXPENSE (Note 28) (637,022 ) (1 ) (639,211 ) (1 ) (1,029,089 ) (1 ) (1,264,400 ) (1 )

NET PROFIT FOR THE PERIOD 1,721,867 3 1,888,432 4 2,767,535 3 3,735,991 4

(Continued)

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2018 2017 2018 2017


OTHER COMPREHENSIVE INCOME (LOSS)

(Notes 26 and 28)

Items not reclassified subsequently to profit or

loss:

Unrealized loss on investments in equity

instruments designated

as at fair value through other comprehensive

income $ (36,973 ) - $ - - $ (74,126 ) - $ - -

Share of profit associates accounted for using the

equity method 91 - - - 91 - - -

Income tax benefit relating to items not

reclassified

subsequently to profit or loss - - - - 817 - - -

(36,882 ) - - - (73,218 ) - - -

Items that may be reclassified subsequently

to profit or loss:

Exchange differences on translating foreign

operations (251,225 ) - 1,198,324 2 484,095 - (2,510,617 ) (2 ) Unrealized gain (loss) on

available-for-sale

financial assets - - (11,357 ) - - - 81,321 - Share of the other

comprehensive gain

(loss) of associates accounted for using the

equity method (15,733 ) - 36,055 - 46,458 - (115,641 ) -

Income tax relating to items that may be

reclassified

subsequently to profit or loss 45,650 - (165,980 ) - (5,749 ) - 424,986 -

(221,308 ) - 1,057,042 2 524,804 - (2,119,951 ) (2 )

Other comprehensive

income (loss) for the

period, net of income tax (258,190 ) - 1,057,042 2 451,586 - (2,119,951 ) (2 )

TOTAL COMPREHENSIVE

INCOME FOR THE

PERIOD $ 1,463,677 3 $ 2,945,474 6 $ 3,219,121 3 $ 1,616,040 2

NET PROFIT (LOSS)

ATTRIBUTABLE TO:

Owners of the Parent Company $ 1,755,462 3 $ 1,767,245 4 $ 2,796,695 3 $ 3,749,598 4

Non-controlling interests (33,595 ) - 121,187 - (29,160 ) - (13,607 ) -

$ 1,721,867 3 $ 1,888,432 4 $ 2,767,535 3 $ 3,735,991 4

(Continued)

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2018 2017 2018 2017


TOTAL COMPREHENSIVE INCOME (LOSS)

ATTRIBUTABLE TO:

Owners of the Parent Company $ 1,489,046 3 $ 2,754,075 5 $ 3,206,391 3 $ 1,717,037 2

Non-controlling interests (25,369 ) - 191,399 1 12,730 - (100,997 ) -

$ 1,463,677 3 $ 2,945,474 6 $ 3,219,121 3 $ 1,616,040 2

EARNINGS PER SHARE (NEW TAIWAN

DOLLARS; Note 29)

Basic $ 0.76 $ 0.76 $ 1.20 $ 1.61 Diluted $ 0.75 $ 0.76 $ 1.20 $ 1.61


(With Deloitte & Touche review report dated August 13, 2018) (Concluded)

- 7 -


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



Equity Attributable to Owners of the Parent Company

Capital Surplus (Note 26)

Additional Recognized

Change in

Capital Surplus

from Other Equity (Notes 26 and 28)

Paid-in Capital Changes in Investments in Exchange Unrealized Gain from Share Percentage of Associates Differences on Unrealized Loss (Loss) on Gain on Non-controlling Issue of Share Capital (Note 26) Issuance in Ownership Accounted for Retained Earnings (Note 26) Translating on Financial Available-for- Effective Portion Interests

Shares (In Excess of Par Bond Treasury Share Interest in Using The Unappropriated Foreign Assets at sale Financial Of Cash Flow (Notes 26 Thousands) Amount Value Conversions Transactions Subsidiaries Equity Method Mergers Total Legal Reserve Special Reserve Earnings Total Operations FVTOCI Assets Hedges Total Treasury Shares and 28) Total Equity BALANCE AT JANUARY 1, 2017 2,350,867 $ 23,508,670 $ 9,372,488 $ 7,462,138 $ 328,800 $ 45,612 $ 273,487 $ 10,015,194 $ 27,497,719 $ 10,845,332 $ 398,602 $ 16,252,206 $ 27,496,140 $ (1,195,684 ) $ - $ (126,588 ) $ - $ (1,322,272 ) $ (1,248,722 ) $ 3,348,901 $ 79,280,436

Appropriation of 2016 earnings:

Legal reserve - - - - - - - - - 941,635 - (941,635 ) - - - - - - - - -

Special reserve - - - - - - - - - - 940,276 (940,276 ) - - - - - - - - -

Cash dividends - 29.2% - - - - - - - - - - - - - - - - - - - - -

Changes in non-controlling interests - - - - - - - - - - - - - - - - - - - (30,010 ) (30,010 )

Other changes in capital surplus

Changes in percentage of ownership interest in subsidiaries - - - - - 3,022 - - 3,022 - - - - - - - - - - - 3,022 Changes in capital surplus from investments in associates

accounted for by using the equity method - - - - - - 6,493 - 6,493 - - - - - - - - - - - 6,493

Changes in capital surplus from cash dividends of the Parent

Company paid to subsidiaries - - - - 71,529 - - - 71,529 - - - - - - - - - - - 71,529

Net profit (loss) for the six months ended June 30, 2017 - - - - - - - - - - - 3,749,598 3,749,598 - - - - - - (13,607 ) 3,735,991

Other comprehensive income (loss) for the six months ended

June 30, 2017, net of income tax - - - - - - - - - - - - - (2,124,120 ) - 88,998 2,561 (2,032,561 ) - (87,390 ) (2,119,951 )

Total comprehensive income (loss) for the six months ended June 30, 2017 - - - - - - - - - - - 3,749,598 3,749,598 (2,124,120 ) - 88,998 2,561 (2,032,561 ) - (100,997 ) 1,616,040

BALANCE AT JUNE 30, 2017 2,350,867 $ 23,508,670 $ 9,372,488 $ 7,462,138 $ 400,329 $ 48,634 $ 279,980 $ 10,015,194 $ 27,578,763 $ 11,786,967 $ 1,338,878 $ 18,119,893 $ 31,245,738 $ (3,319,804 ) $ - $ (37,590 ) $ 2,561 $ (3,354,833 ) $ (1,248,722 ) $ 3,217,894 $ 80,947,510

BALANCE AT JANUARY 1, 2018 2,350,867 $ 23,508,670 $ 9,372,488 $ 7,462,138 $ 400,329 $ 49,019 $ 276,782 $ 10,015,194 $ 27,575,950 $ 11,786,967 $ 1,338,878 $ 10,093,753 $ 23,219,598 $ (2,528,893 ) $ - $ (18,497 ) $ 3,372 $ (2,544,018 ) $ (1,248,722 ) $ 3,255,951 $ 73,767,429

Effect of retrospective application (Note 3) - - - - - - - - - - - 279,769 279,769 - (298,266 ) 18,497 - (279,769 ) - - -

BALANCE AT JANUARY 1, 2018 AS RESTATED 2,350,867 23,508,670 9,372,488 7,462,138 400,329 49,019 276,782 10,015,194 27,575,950 11,786,967 1,338,878 10,373,522 23,499,367 (2,528,893 ) (298,266 ) - 3,372 (2,823,787 ) (1,248,722 ) 3,255,951 73,767,429

Appropriation of 2017 earnings:

Legal reserve - - - - - - - - - 262,933 - (262,933 ) - - - - - - - - - Special reserve - - - - - - - - - - 1,367,076 (1,367,076 ) - - - - - - - - -

Cash dividends - 4.1% - - - - - - - - - - - (963,855 ) (963,855 ) - - - - - - - (963,855 )

Distribution of cash dividends from capital surplus - - (5,900,676 ) - - - - - (5,900,676 ) - - - - - - - - - - - (5,900,676 )

Changes in non-controlling interests - - - - - - - - - - - - - - - - - - - (30,981 ) (30,981 )

Other changes in capital surplus

Changes in percentage of ownership interests in subsidiaries - - - - - (6,826 ) - - (6,826 ) - - - - - - - - - - - (6,826 )

Changes in capital surplus from investments in associates

accounted for by using the equity method - - - - - - 11,588 - 11,588 - - - - - - - - - - - 11,588

Changes in capital surplus from cash dividends of the Parent Company paid to subsidiaries - - - - 77,368 - - - 77,368 - - - - - - - - - - - 77,368

Net profit (loss) for the six months ended June 30, 2018 - - - - - - - - - - - 2,796,695 2,796,695 - - - - - - (29,160 ) 2,767,535

Other comprehensive income (loss) for the six months ended

June 30, 2018, net of income tax - - - - - - - - - - - 282 282 482,691 (73,896 ) - 619 409,414 - 41,890 451,586

Total comprehensive income (loss) for the six months ended

June 30, 2018 - - - - - - - - - - - 2,796,977 2,796,977 482,691 (73,896 ) - 619 409,414 - 12,730 3,219,121

Disposals of investments in equity instruments designated as at

FVTOCI - - - - - - - - - - - 3,460 3,460 - (3,460 ) - - (3,460 ) - - -

BALANCE AT JUNE 30, 2018 2,350,867 $ 23,508,670 $ 3,471,812 $ 7,462,138 $ 477,697 $ 42,193 $ 288,370 $ 10,015,194 $ 21,757,404 $ 12,049,900 $ 2,705,954 $ 10,580,095 $ 25,335,949 $ (2,046,202 ) $ (375,622 ) $ - $ 3,991 $ (2,417,833 ) $ (1,248,722 ) $ 3,237,700 $ 70,173,168


(With Deloitte & Touche review report dated August 13, 2018)

- 8 -


CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Six Months Ended

June 30

2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 3,796,624 $ 5,000,391

Adjustments for:

Depreciation expenses 2,667,566 2,883,392

Amortization expenses 213,688 206,908

Expected credit loss recognized on trade receivables 28,959 -

Impairment loss recognized on trade receivables - 19,196

Net loss (gain) on fair value change of financial assets as at FVTPL (857,231) 52,268

Finance costs 392,452 297,531

Interest income (781,780) (648,150)

Dividend income (13,045) (15,933)

Share of profit of associates (46,773) (69,962)

Net loss on disposal of property, plant and equipment 14,505 21,411

Net loss on disposal of intangible assets 6 -

Impairment loss recognized on financial assets - 10,000

Impairment loss recognized on non-financial assets 3,514,590 38,151

Net gain on disposal of investments (93,075) -

Unrealized net loss (gain) on foreign currency exchange 620,252 (197,435)

Recognition of provisions 212,638 107,444

Changes in operating assets and liabilities

Financial instruments held for trading 758,329 69,687

Notes receivable (147,334) 99,979

Trade receivables (6,664,989) 7,046,937

Trade receivables from related parties (16,089) (29,185)

Other receivables (8,946,104) 35,649

Other receivables from related parties (108,109) 2,858

Inventories (1,190,902) (1,462,437)

Other current assets 27,698 (590,998)

Notes payable (16,069) 17,179

Trade payables 3,131,437 (6,009,761)

Trade payables to related parties (6,138) (105,587)

Other payable 3,038,014 (1,026,671)

Other payable to related parties (8,332) 5,016

Provisions (148,181) (215,393)

Advance receipts 288,070 535,543

Net defined benefit liabilities 32,457 48,813

Cash generated from (used in) operations (306,866) 6,126,841

Interest received 759,690 634,699

Dividends received 5,037 8,161

Interest paid (378,826) (324,755)

Income tax paid (642,390) (1,613,210)

Net cash generated from (used in) operating activities (563,355) 4,831,736

(Continued)

- 9 -


CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Six Months Ended

June 30

2018 2017

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of financial assets at FVTOCI $ (76,514) $ -

Proceeds from financial assets at FVTOCI 75,827 -

Purchases of financial assets at amortized cost 44,320 -

Disposal of investments accounted for using the equity method 2,849 -

Proceeds from sale of debt investments with no active market - 47,692

Payments for property, plant and equipment (3,155,436) (2,095,056)

Proceeds from disposal of property, plant and equipment 2,621,336 26,941

Increase in refundable deposits (34,659) (68,526)

Payments for intangible assets (67,454) (94,178)

Proceeds from disposal of intangible assets 386,745 1,066

Increase in other non-current assets (71,589) (91,870)

Net cash used in investing activities (274,575) (2,273,931)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term borrowings 116,707 5,470,354

Repayments of long-term borrowings (12,017) (7,518,310)

Proceeds from guarantee deposits received 989 2,880

Decrease in finance lease payables (783) (783)

Changes on non-controlling interests (30,536) (32,239)

Net cash generated from (used in) financing activities 74,360 (2,078,098)

EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE

OF CASH HELD IN FOREIGN CURRENCIES 582,589 (2,853,720)

NET DECREASE IN CASH AND CASH EQUIVALENTS (180,981) (2,374,013)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE

PERIOD 57,783,860 65,208,491

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 57,602,879 $ 62,834,478


(With Deloitte & Touche review report dated August 13, 2018) (Concluded)

- 10 -


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)


1. GENERAL INFORMATION

Lite-On Technology Corporation (the “Parent Company”) was established in March 1989. The Parent

Company’s shares are listed on the Taiwan Stock Exchange. The Parent Company manufactures and

markets (1) computer software, hardware, peripherals and components; (2) monitors, multifunction and

all-in-one printers, cameras and Internet systems and image-processing equipment; (3) information storage

and processing equipment, electronic components and office equipment; (4) electronic coils, transformers,

power suppliers and electronic hardware parts; (5) light-emitting diode (LED) products; (6) electronic car

products; and (7) optical lens modules and optoelectronic components.

The Parent Company merged with Lite-On Electronics, Inc., Silitek Corp. and GVC Corp., with the Parent

Company as the surviving entity. The merger took effect on November 4, 2002, and the Parent Company

thus assumed all rights and obligations of the three merged companies on that date.

The Parent Company merged with its subsidiary, Lite-On Enclosure Inc., with the Parent Company as the

surviving entity. The merger took effect on April 1, 2004, and the Parent Company thus assumed all

rights and obligations of its former subsidiary on that date.

The Parent Company separately merged with Li Shin International Enterprise Corp., Lite-On Clean Energy

Technology Corp., Lite-On Automotive Corp., Leotek Electronics Corp., Lite-On IT Corporation and

LarView Technologies Corp., with the Parent Company as the surviving entity. The mergers separately

and respectively took effect on March 22, 2014, April 15, 2014, June 1, 2014, June 29, 2014, June 30, 2014

and September 1, 2014, with the Parent Company as the surviving entity of all the mergers, and the Parent

Company thus assumed all rights and obligations of the six merged companies on those respective dates.

The consolidated financial statements of the Parent Company and its subsidiaries, hereto forth collectively

referred to as the Group, are presented in the Parent Company’s functional currency, the New Taiwan

dollar.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were reported to the Parent Company’s board of directors and issued

on August 13, 2018.

- 11 -

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports

by Securities Issuers and the International Financial Reporting Standards (IFRS), International

Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)

(collectively, the “IFRSs”) endorsed and issued into effect by the FSC

Except for the following, whenever applied, the initial application of the amendments to the

Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs

endorsed and issued into effect by the FSC would not have any material impact on the Group’s

accounting policies:

1) IFRS 9 “Financial Instruments” and related amendments

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with

consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards.

IFRS 9 sets out the requirements for classification, measurement, and impairment of financial assets

and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

The requirements for classification, measurement, and impairment of financial assets have been

applied retrospectively from January 1, 2018. IFRS 9 is not applicable to items that have already

been derecognized on December 31, 2017.

Classification, measurement, and impairment of financial assets

On the basis of the facts and circumstances that exist as at January 1, 2017, the Group has

performed an assessment of the classification of recognized financial assets and has elected not to

restate prior reporting periods.

The following table shows the original measurement categories and carrying amount under IAS 39

and the new measurement categories and carrying amount under IFRS 9 for each class of the

Group’s financial assets and financial liabilities as at January 1, 2017.

Measurement Category Carrying Amount

Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Note

Cash and cash equivalents Loans and receivables Amortized cost $ 57,783,860 $ 57,783,860 a) Derivative instruments Held-for-trading Mandatorily at fair value

through profit or loss

(FVTPL)

101,677 101,677 -

Equity securities Available-for‑sale Mandatorily at FVTPL 20,271 20,271 b)

Available-for‑sale Fair value through other comprehensive income (FVTOCI) - equity

instruments

424,389 424,389 b)

Mutual funds Available-for‑sale Mandatorily at FVTPL 68,469 68,469 c) Debt instruments Loans and receivables Amortized cost 1,484,868 1,484,868 d)

Notes receivable, trade

receivables, trade receivables from

related parties, other

receivables and other receivables from

related parties

Loans and receivables Amortized cost 53,766,170 53,766,170 a)

- 12 -

Financial Assets

IAS 39 Carrying

Amount as of

January 1, 2018 Reclassifications

IFRS 9 Carrying

Amount as of

January 1, 2018

Retained

Earnings Effect

on January 1,

2018

Other Equity

Effect on

January 1, 2018 Note

FVTPL $ 101,677 $ - $ 101,677 $ - $ -

Add: Reclassification from

available-for-sale (IAS 39)

-

88,740

88,740

(25 )

25

b) and c)

101,677 88,740 190,417 (25 ) 25

FVTOCI

Add: Reclassification from

available-for-sale (IAS 39)

-

424,389

424,389

279,794

(279,794 )

b)

Amortized cost

Add: Reclassification rom

loans and receivables (IAS 39)

-

113,034,898

113,034,898

-

-

a) and d)

$ 101,677 $ 113,548,027 $ 113,649,704 $ 279,769 $ (279,769 )

Carrying Amount

as of January 1,

2018 (IAS 39)

Adjustments

Arising from

Initial

Application

Carrying Amount

as of January 1,

2018 (IFRS 9)

Retained

Earnings Effect

on January 1,

2018

Other Equity

Effect on

January 1, 2018 Note

Investments accounted for using

the equity method

$ 3,681,951 $ - $ 3,681,951 $ 74,380 $ (74,380 ) e)

a) Cash and cash equivalents, notes receivable, trade receivables, trade receivables from related

parties, other receivables and other receivables from related parties that were previously

classified as loans and receivables under IAS 39 were classified as measured at amortized cost

with an assessment of expected credit losses under IFRS 9.

b) The Group elected to classify all of its investments in equity securities previously classified as

available-for-sale under IAS 39 as at FVTPL or FVTOCI under IFRS 9. As a result, the

related other equity - unrealized loss on available-for-sale financial assets was reclassified to

retained earnings in the amount of $25 thousand and to other equity - unrealized gain (loss) on

financial assets at FVTOCI in the amount of $79,882 thousand. Also, there was an adjustment

to increase other equity - unrealized gain available-for-sale financial assets in the amount of

$79,907 thousand.

The Group recognized under IAS 39 impairment loss on certain investments in equity securities

previously classified as available-for-sale, and the loss was accumulated in retained earnings.

Since those investments were designated as at FVTOCI under IFRS 9 and no impairment

assessment is required, an adjustment was made that resulted in a decrease of $205,414

thousand in other equity - unrealized gain/loss on financial assets at FVTOCI and an increase of

$205,414 thousand in retained earnings on January 1, 2018.

c) Mutual funds previously classified as available-for-sale under IAS 39 were classified

mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not solely

payments of principal and interest on the principal outstanding and they are not equity

instruments.

d) Debt investments previously classified as debt instruments with no active market and measured

at amortized cost under IAS 39 were classified as measured at amortized cost with an

assessment of expected credit losses under IFRS 9, because on January 1, 2018, the contractual

cash flows were solely payments of principal and interest on the principal outstanding and these

investments were held within a business model whose objective is to collect contractual cash

flows.

- 13 -

e) With the retrospective adoption of IFRS 9 by associates accounted for using the equity method,

such associates chose not to restate comparative periods. On January 1, 2018, the Group will

reduce its other equity according to its shareholding ratio which was originally recognized as

available-for-sale under IAS 39. This resulted in a decrease in other equity - unrealized other

comprehensive profit or loss on financial assets of $12,970 thousand. The related associates

will account for previously recognized equity securities under IAS 39 as available-for-sale

financial assets upon its adoption of IFRS 9. The corresponding adjustments to at FVTPL

according to the Group’s shareholding ratio will result in a reduction in other equity - unrealized

gain on available-for-sale financial assets of $61,410 thousand and an increase in retained

earnings of $74,380 thousand.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers,

and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of

revenue-related interpretations. Refer to Note 4 for related accounting policies.

3) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the

functional currency by applying to the foreign currency amount the spot exchange rate between the

functional currency and the foreign currency at the date of the transaction. IFRIC 22 further

explains that the date of the transaction is the date on which an entity recognizes a non-monetary

asset or non-monetary liability from payment or receipt of advance consideration. If there are

multiple payments or receipts in advance, the entity shall determine the date of the transaction for

each payment or receipt of advance consideration.

The Group will apply IFRIC 22 prospectively on and after January 1, 2018.

b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

and the International Financial Reporting Standards (IFRS), endorsed by the FSC for application

starting from 2019

New IFRSs

Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019

Amendments to IFRS 9 “Prepayment Features with Negative

Compensation”

January 1, 2019 (Note 2)

IFRS 16 “Leases” January 1, 2019

Amendments to IAS 19 “Plan amendments, Curtailments, and

Settlements”

January 1, 2019 (Note 3)

Amendments to IAS 28 “Long-term Interests in Associates and Joint

Ventures” January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates.

Note 2: The FSC permits the election for early adoption of the amendments starting from January 1,

2018.

Note 3: The Group shall apply these amendments to plan amendments, curtailments or settlements

occurring on or after January 1, 2019.

- 14 -

1) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of

related interpretations.

Upon initial application of IFRS 16, the Group will elect to apply IFRS 16 only to contracts entered

into (or changed) on or after January 1, 2019 in order to determine whether those contracts are, or

contain, a lease. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be

reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

Upon initial application of IFRS 16, the Group will recognize right-of-use assets, or investment

properties if the right-of-use assets meet the definition of investment properties, and lease liabilities

for all leases on the consolidated balance sheets except for those whose payments under low-value

and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated

statements of comprehensive income, the Group will present the depreciation expense charged on

right-of-use assets separately from the interest expense accrued on lease liabilities; interest is

computed using the effective interest method. On the consolidated statements of cash flows, cash

payments for the principal portion of lease liabilities will be classified within financing activities;

cash payments for the interest portion will be classified within operating activities. Currently,

payments under operating lease contracts, including property interest qualified as investment

properties, are recognized as expenses on a straight-line basis. Prepaid lease payments for land use

rights of land located in China and Vietnam are recognized as prepayments for leases. Cash flows

for operating leases are classified within operating activities on the consolidated statements of cash

flows. Leased assets and finance lease payables are recognized for contracts classified as finance

leases.

The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial

application of this standard recognized on January 1, 2019. Comparative information will not be

restated.

Except for the leases of investment properties mentioned below, lease liabilities will be recognized

on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17.

Lease liabilities will be measured at the present value of the remaining lease payments, discounted

using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be

measured at their carrying amount as if IFRS 16 had been applied since the commencement date,

but discounted using the aforementioned incremental borrowing rate. Except for the following

practical expedients which are to be applied, the Group will apply IAS 36 to all right-of-use assets.

The Group expects to apply the following practical expedients:

a) The Group will apply a single discount rate to a portfolio of leases with reasonably similar

characteristics to measure lease liabilities.

b) The Group will account for those leases for which the lease term ends on or before December

31, 2019 as short-term leases.

For leases currently classified as finance leases under IAS 17, the carrying amount of right-of-use

assets and lease liabilities on January 1, 2019 will be determined as the carrying amount of the

leased assets and finance lease payables as of December 31, 2018.

The Group as lessor

Except for sublease transactions, the Group will not make any adjustments for leases in which it is a

lessor and will account for those leases with the application of IFRS 16 starting from January 1,

2019.

- 15 -

IFRS 16 is the standard for accounting for leases, which will supersede IAS 17 “Leases” and its

interpretation.

When the Group applies IFRS 16 to leases in which it acts as a lessor, apart from low-value lease

assets and short-term leases, for which the Group may choose to adopt operating lease processes

similar to those of IAS 17, all other leases are recognized as right-of-use assets and lease liabilities

on the consolidated balance sheets. The deprecation expense of right-of-use assets and the interest

expense of lease liabilities shall be presented using the effective interest method in the consolidated

statements of comprehensive income. In the consolidated statements of cash flows, the principal

amount of lease payments is expressed as a financing activity, and the interest payments are listed

as operating activities.

There will be no significant impact on the accounting treatment where the Group acts as a lessor.

When IFRS 16 becomes effective, the Group may choose to retroactively apply the standard to the

comparative period or list the cumulative effects of the first-time application on the initial date.

2) Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”

The amendments stipulate that, if a plan amendment, curtailment or settlement occurs, the current

service cost and the net interest for the remainder of the annual reporting period are determined

using the actuarial assumptions used for the remeasurement of the net defined benefit liabilities

(assets). In addition, the amendments clarify the effect of a plan amendment, curtailment or

settlement on the requirements regarding the asset ceiling. The amendment shall be applied

prospectively.

Except for the above impact, as of the date the consolidated financial statements were authorized for

issue, the Group is continuously assessing the possible impact that the application of other standards

and interpretations will have on the Group’s financial position and financial performance and will

disclose the relevant impact when the assessment is completed.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs

Effective Date

Announced by IASB (Note)

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets

between An Investor and Its Associate or Joint Venture”

To be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or

after their respective effective dates.

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture”

The amendments stipulate that, when the Group sells or contributes assets that constitute a business

(as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction

is recognized in full. Also, when the Group loses control of a subsidiary that contains a business

but retains significant influence or joint control, the gain or loss resulting from the transaction is

recognized in full.

Conversely, when the Group sells or contributes assets that do not constitute a business to an

associate or joint venture, the gain or loss resulting from the transaction is recognized only to the

extent of the Group’s interest as an unrelated investor in the associate or joint venture, i.e. the

- 16 -

Group’s share of the gain or loss is eliminated. Also, when the Group loses control of a subsidiary

that does not contain a business but retains significant influence or joint control over an associate or

a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the

Group’s interest as an unrelated investor in the associate or joint venture, i.e. the Group’s share of

the gain or loss is eliminated.

Except for the above impact, as of the date the consolidated financial statements were authorized for

issue, the Group is continuously assessing the possible impact that the application of other standards

and interpretations will have on the Group’s financial position and financial performance and will

disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

These interim consolidated financial statements have been prepared in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers and IAS 34 “Interim Financial

Reporting” as endorsed and issued into effect by the FSC. Disclosure information included in these

interim consolidated financial statements is less than the disclosure information required in a complete

set of annual financial statements.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for

financial instruments which are measured at fair value.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the

fair value measurement inputs are observable and based on the significance of the inputs to the fair

value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

c. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Parent Company and

the entities controlled by the Parent Company. Income and expenses of subsidiaries acquired or

disposed of during the period are included in the consolidated statements of profit or loss and other

comprehensive income from the effective dates of acquisitions up to the effective dates of disposals, as

appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring

their accounting policies into line with those used by the Parent Company. All intra-group

transactions, balances, income and expenses are eliminated in full upon consolidation. Total

comprehensive income of subsidiaries is attributed to the owners of the Parent Company and to the

non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control

over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s

interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in

the subsidiaries. Any difference between the amount by which the non-controlling interests are

adjusted and the fair value of the consideration paid or received is recognized directly in equity and

attributed to the owners of the Parent Company.

- 17 -

See Note 16 and Table 7 for detailed information on subsidiaries (including the percentages of

ownership and main businesses).

d. Other significant accounting policies

Except for the following, for the summary of other significant accounting policies, refer to the

consolidated financial statements for the year ended December 31, 2017.

1) Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the

contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that

are directly attributable to an acquisition or issuance of financial assets and financial liabilities

(other than financial assets and financial liabilities at fair value through profit or loss) are added to

or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on

initial recognition. Transaction costs directly attributable to the acquisition of financial assets or

financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

a) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a

trade date basis.

i. Measurement category

2018

Financial assets and financial liabilities are recognized when a group entity becomes a party

to the contractual provisions of the instruments.

i) Financial assets at FVTPL

A financial asset is classified as at FVTPL when the financial asset is mandatorily

classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include

investments in equity instruments which are not designated as at FVTOCI and debt

instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or

losses arising on re-measurement recognized in profit or loss. Fair value is determined

in the manner described in Note 32.

ii) Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at

amortized cost:

The financial asset is held within a business model whose objective is to hold

financial assets in order to collect contractual cash flows; and

The contractual terms of the financial asset give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal amount

outstanding.

- 18 -

Subsequent to initial recognition, financial assets at amortized cost, including cash and

cash equivalents, notes receivable, trade receivables, trade receivables from related

parties, other receivables, other receivables from related parties at amortized cost, are

measured at amortized cost, which equals the gross carrying amount determined by the

effective interest method less any impairment loss. Exchange differences are

recognized in profit or loss.

Cash equivalents include time deposits and investments that meet short-term cash

commitments, which are highly liquid, readily convertible to a known amount of cash

and are subject to an insignificant risk of changes in value.

iii) Investments in equity instruments at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate

investments in equity instruments as at FVTOCI. Designation at FVTOCI is not

permitted if the equity investment is held for trading or if it is contingent consideration

recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value

with gains and losses arising from changes in fair value recognized in other

comprehensive income and accumulated in other equity. The cumulative gain or loss

will not be reclassified to profit or loss on disposal of the equity investments, instead,

they will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss

when the Group’s right to receive the dividends is established, unless the dividends

clearly represent a recovery of part of the cost of the investment.

2017

Financial assets are classified into the following categories: Financial assets at fair value

through profit or loss, available-for-sale financial assets and loans and receivables.

i) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when such an

financial asset does not meet the criteria of hedge accounting.

Financial assets at fair value through profit or loss are stated at fair value, with any gains

or losses arising on re-measurement recognized in profit or loss. See Note 32 on

financial instruments for re-measurement of fair value.

ii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as

available-for-sale or are not classified as loans and receivables, held-to-maturity

investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are measured at fair value. Changes in the carrying

amount of available-for-sale monetary financial assets relating to changes in foreign

currency exchange rates, interest income calculated using the effective interest method

and dividends on available-for-sale equity investments are recognized in profit or loss.

Other changes in the carrying amount of available-for-sale financial assets are

recognized in other comprehensive income and will be reclassified to profit or loss when

the investment is disposed of or is determined to be impaired.

- 19 -

Dividends on available-for-sale equity instruments are recognized in profit or loss when

the Group’s right to receive the dividends is established.

iii) Loans and receivables

Loans and receivables, including cash and cash equivalents, notes receivable, debt

investments with no active market, trade receivables, and other receivables, are

measured using the effective interest method at amortized cost less any impairment,

except for short-term receivables when the effect of discounting is immaterial.

Cash equivalents include time deposits and investments that meet short-term cash

commitments, which are highly liquid, readily convertible to a known amount of cash

and are subject to an insignificant risk of changes in value.

ii. Impairment of financial assets

2018

The Group recognizes a loss allowance for expected credit losses on financial assets at

amortized cost, including cash and cash equivalents, notes receivable, trade receivables,

trade receivables from related parties, other receivables, other receivables from related

parties at amortized cost, investments in debt instruments that are measured at FVTOCI.

The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade

receivables. For all other financial instruments, the Group recognizes lifetime ECLs when

there has been a significant increase in credit risk since initial recognition. If, on the other

hand, the credit risk on a financial instrument has not increased significantly since initial

recognition, the Group measures the loss allowance for that financial instrument at an

amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks

of a default occurring reflected in the weights. Lifetime ECLs represents the expected

credit losses that will result from all possible default events over the expected life of a

financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs

that is expected to result from default events on a financial instrument that are possible

within 12 months after the reporting date.

The Group recognizes an impairment gain or loss in profit or loss for all financial

instruments with a corresponding adjustment to their carrying amount through a loss

allowance account.

2017

Financial assets, other than those at fair value through profit or loss, are assessed for

indicators of impairment at the end of each reporting period. Financial assets are

considered to be impaired when there is objective evidence that, as a result of one or more

events that occurred after the initial recognition of the financial asset, the estimated future

cash flows of the investment have been affected.

For financial assets at amortized cost, such as trade receivables, assets that are assessed not

to be impaired individually are, in addition, assessed for impairment on a collective basis.

The Group assesses the collectability of receivables by performing an account aging

analysis and examining current trends in the credit quality of its customers.

- 20 -

For financial assets at amortized cost, the amount of the impairment loss recognized is the

difference between such an asset’s carrying amount and the present value of its estimated

future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets at amortized cost, if, in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event occurring

after the impairment was recognized, the previously recognized impairment loss is reversed

through profit or loss to the extent that the carrying amount of the investment (at the date the

impairment is reversed) does not exceed what the amortized cost would have been had the

impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value

of the security below its cost is considered to be objective evidence of impairment.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or

losses previously recognized in other comprehensive income are reclassified to profit or loss

in the period. In respect of available-for-sale equity securities, impairment loss previously

recognized in profit or loss are not reversed through profit or loss. Any increase in fair

value subsequent to an impairment loss is recognized in other comprehensive income.

The carrying amount of a financial asset is reduced by the impairment loss directly for all

financial assets with the exception of trade receivables where the carrying amount is

reduced through the use of an allowance account. When a trade receivable is considered

uncollectible, it is written off against the allowance account. Subsequent recoveries of

amounts previously written off are credited against the allowance account. Changes in the

carrying amount of the allowance account are recognized in profit or loss except for

uncollectible trade receivables that are written off against the allowance account.

iii. Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows

from the asset expire or when it transfers the financial asset and substantially all the risks

and rewards of ownership of the asset to another party.

On derecognition of a financial asset in its entirety, the difference between the asset’s

carrying amount and the sum of the consideration received and receivable and the

cumulative gain or loss that had been recognized in other comprehensive income is

recognized in profit or loss.

b) Financial liabilities and equity instruments

Debt and equity instruments issued by the Group are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangements and the definitions of a

financial liability and an equity instrument.

Equity instruments issued by the Group are recognized at the proceeds received, net of direct

issue costs.

Repurchase of the Parent Company’s own equity instruments is recognized in and deducted

directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue

or cancellation of the Parent Company’s own equity instruments.

Except the financial liabilities at FVTPL, all financial liabilities are measured at amortized cost

using the effective interest method. Financial liabilities held for trading are stated at fair value,

with any gain or loss arising on re-measurement recognized in profit or loss.

- 21 -

c) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to

foreign exchange rate risks, including forward exchange contracts and cross-currency swap

contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered

into and are subsequently re-measured to their fair value at the end of each reporting period.

The resulting gain or loss is recognized in profit or loss immediately unless the derivative is

designated and effective as a hedging instrument, in which event, the timing of the recognition

in profit or loss depends on the nature of the hedge relationship. When the fair value of

derivative financial instruments is positive, the derivative is recognized as a financial asset;

when the fair value of derivative financial instruments is negative, the derivative is recognized

as a financial liability.

2) Revenue recognition

2018

The Group identifies contracts with the customers, allocates the transaction price to the performance

obligations, and recognizes revenue when performance obligations are satisfied.

a) Revenue from sale of goods

Revenue from the sale of goods comes from sales of leisure goods and electronic equipment.

Sales of goods are recognized as revenue when the goods are delivered to the customer’s

specific location because it is the time when the customer has full discretion over the manner of

distribution and price to sell the goods, has the primary responsibility for sales to future

customers, and bears the risks of obsolescence. Trade receivable is recognized concurrently.

The Group does not recognize revenue on materials delivered to subcontractors because this

delivery does not involve a transfer of control.

b) Rental revenue

The operation of a leasing business was in accordance with IAS 17 “Leases”, that is, the

possible situations related to leasing (ex. the condition of leasing and the burden of future costs)

are treated as operating leases.

c) Electricity generation revenue

Revenue is recognized when power is transmitted to the substation of a power company.

Electricity generation revenue is based on the fair value of the respective subsidiary’s settled

value with the power company. However, when receivables are expected to be realized within

one year, when the difference between fair value and maturity value of receivables is

insignificant and when the trading of power is very frequent, the fair value of the settled value

will not have to be discounted to the present value.

d) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive

payment has been established provided that it is probable that the economic benefits will flow to

the Group and the amount of income can be measured reliably.

- 22 -

Interest income from a financial asset is recognized when it is probable that the economic

benefits will flow to the Group and the amount of income can be measured reliably. Interest

income is accrued on a time basis, by reference to the principal outstanding and at the effective

interest rate applicable.

3) Retirement 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 plan amendments, settlements, or other significant

one-off events.

4) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. Interim

period income taxes are assessed on an annual basis and calculated by applying to an interim

period’s pre-tax income the tax rate that would be applicable to expected total annual earnings.

The effect of a change in tax rate resulting from a change in tax law is recognized consistent with

the accounting for the transaction itself which gives rise to the tax consequence, and is recognized

in profit or loss, other comprehensive income in full in the period in which the change in tax rate

occurs.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

Except for the following, for the critical accounting judgments and key sources of estimation uncertainty,

refer to the consolidated financial statements for the year ended December 31, 2017.

a. Business model assessment for financial assets - 2018

The Group determines the business model at a level that reflects how groups of financial assets are

managed together to achieve a particular business objective. This assessment includes judgment about

all relevant evidence including how the performance of the assets is evaluated, the risks that affect the

performance of the assets and how these are managed and how the managers of the assets are

compensated. The Group monitors financial assets at amortized cost or fair value through other

comprehensive income, and when assets are derecognized prior to their maturity, the Group understands

the reason for their disposal and whether the reasons are consistent with the objective of the business for

which the assets were held. Monitoring is part of the Group’s continuous assessment of whether the

business model for which the remaining financial assets are held continues to be appropriate and, if it is

not appropriate, whether there has been a change in the business model, and so a prospective change to

the classification of those assets would be proper.

b. Estimated impairment of financial assets - 2018

The provision for impairment of trade receivables and investments in debt instruments is based on

assumptions about the risk of default and expected loss rates. The Group uses judgment in making

these assumptions and in selecting the inputs for the impairment calculation, based on the Group’s past

history, existing market conditions as well as forward looking estimates at the end of each reporting

period. For details of the key assumptions and inputs used, see Note 13. Where the actual future

cash inflows are less than expected, a material impairment loss may arise.

- 23 -

c. Estimated impairment of trade receivables - 2017

When there is objective evidence of impairment loss, the Group takes into consideration the estimation

of future cash flows. The amount of impairment loss is measured as the difference between an asset’s

carrying amount and the present value of its estimated future cash flows (excluding future credit losses

that have not been incurred) discounted at the financial asset’s original effective interest rate. Where

the actual future cash flows are less than expected, a material impairment loss may arise.

6. CASH AND CASH EQUIVALENTS

June 30, 2018

December 31,

2017 June 30, 2017

Cash on hand $ 3,857 $ 4,001 $ 5,307

Checking accounts 944,615 1,215,740 1,320,259

Demand deposits 35,374,293 35,683,512 36,116,894

Time deposits 21,280,114 20,880,607 25,392,018

$ 57,602,879 $ 57,783,860 $ 62,834,478

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

June 30, 2018

December 31,

2017 June 30, 2017

Financial assets at FVTPL - current

Financial assets held for trading

Derivative financial assets (not under hedge

accounting)

Forward exchange contracts $ - $ 101,677 $ 149,909

Currency swap contracts - - 7,064

- 101,677 156,973

Financial assets mandatorily classified as at

FVTPL


accounting)

Forward exchange contracts 182,277 - -

Currency swap contracts 111,538 - -

293,815 - -

$ 293,815 $ 101,677 $ 156,973

Financial assets at FVTPL - non-current

Financial assets mandatorily classified as at

FVTPL

Non-derivative financial assets

Mutual funds $ 87,114 $ - $ -

Domestic quoted shares 17,128 - -

$ 104,242 $ - $ -

(Continued)

- 24 -

June 30, 2018

December 31,

2017 June 30, 2017

Financial liabilities at FVTPL - current

Financial assets held for trading


accounting)

Forward exchange contracts $ 226,864 $ 96,393 $ 73,116

Currency swap contracts - 50,659 165,047

$ 226,864 $ 147,052 $ 238,163

(Concluded)

At the end of the reporting period, outstanding forward exchange contracts and cross-currency swap

contracts not under hedge accounting were as follows:

Currency Maturity Date

Notional Amount

(In Thousands)

June 30, 2018

The Parent Company

Currency swap contracts USD/NTD 2018.08.27-

2018.11.06

USD230,000/NTD6,855,775

LITE-ON SINGAPORE PTE. LTD.

Forward exchange contracts CNY/USD 2018.07.11-

2018.07.31

CNY483,611/USD76,500

Forward exchange contracts USD/EUR 2018.07.05 USD16,442/EUR14,000

Forward exchange contracts USD/CNY 2018.07.24 USD4,000/CNY25,997

Forward exchange contracts USD/JPY 2018.07.05 USD1,376/JPY150,000

Forward exchange contracts USD/CAD 2018.07.05 USD1,546/CAD2,000

Forward exchange contracts USD/NTD 2018.09.06-

2018.09.28

USD323,000/NTD9,603,118

Forward exchange contracts USD/BRL 2018.07.25 USD2,000/BRL7,600

Lite-On Electronics (Thailand) Co., Ltd.

Forward exchange contracts THB/USD 2018.07.17-

2018.08.15

THB230,550/USD7,100

Philip & Lite-On Digital Solutions Corp.


Currency swap contracts USD/NTD 2018.07.13 USD27,000/NTD802,980

Lite-On Overseas Trading Co., Ltd.


2018.07.31

CNY152,419/USD24,000

LITE-ON MOBILE PTE. LTD.

Forward exchange contracts CNY/USD 2018.07.31 CNY379,680/USD60,000

Silitech Technology Corporation

Forward exchange contracts USD/MYR 2018.07.06-

2018.09.07

USD2,200/MYR8,727

Forward exchange contracts EUR/MYR 2018.07.25-

2018.09.26

EUR150/MYR714

(Continued)

- 25 -


Notional Amount

(In Thousands)

December 31, 2017

The Parent Company


2018.11.06

USD130,000/NTD3,856,015

Lite-On Overseas Trading Co., Ltd.


2018.01.31

CNY575,824/USD87,000





2018.04.03

USD445,000/NTD13,233,313



2018.01.29

CNY480,017/USD72,500


Forward exchange contracts USD/JPY 2018.01.04 USD889/JPY100,000



2018.02.15

THB91,160/USD2,800

Philip & Lite-On Digital Solutions

Corporation







2018.03.08

USD1,050/MYR4,379


2018.03.26

EUR150/MYR735

June 30, 2017

The Parent Company


2017.12.08

USD170,000/NTD5,304,775


Forward exchange contracts NTD/USD 2017.07.10-

2017.07.24

NTD2,302,007/USD76,000


2017.08.23

CNY479,528/USD70,000


Forward exchange contracts USD/CNY 2017.07.17 USD7,000/CNY47,685



2017.08.24

USD379,000/NTD11,498,040


(Continued)

- 26 -


Notional Amount

(In Thousands)



2017.08.16

THB245,096/USD7,200

Philip & Lite-On Digital Solutions Corp.







2017.09.18

USD1,300/MYR5,580


2017.09.27

EUR480/MYR2,311

(Concluded)

The Group entered into derivative contracts during the six months ended June 30, 2018 and 2017 to manage

exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the

Group did not meet the criteria for hedge accounting. Thus, the derivative contracts are classified as

financial assets or financial liabilities at fair value through profit or loss. The financial risk management

objectives of the Group were to minimize risks due to changes in fair value or cash flows.

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

Investments in Equity Instruments at FVTOCI

June 30, 2018

Non-current

Domestic investments

Listed shares $ 272,323

Emerging market shares 96,270

Unlisted shares 44,855

413,448

Foreign investments

Unlisted shares 104,482

Listed shares 4,954

109,436

$ 522,884

These investments in equity instruments are not held for trading. Instead, they are held for medium to

long-term strategic purposes. Accordingly, the management elected to designate these investments in

equity instruments as at FVTOCI as it believes that recognizing short-term fluctuations in these

investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these

investments for long-term purposes. These investments in equity instruments were classified as

available-for-sale under IAS 39. Refer to Notes 3 and 11 for information related to their reclassification

and comparative information for 2017.

- 27 -

9. FINANCIAL ASSETS AT AMORTIZED COSTS

June 30, 2018

Financial products $ 775,593

Pledged deposits and restricted bank deposits 664,899

$ 1,440,492

Current $ 1,049,182

Non-current 391,310

$ 1,440,492

a. Financial product mainly refers to subsidiaries’ guarantee, income-bearing, bank deposit products,

which are measured at amortized cost; the products shall not be paid or redeemed within the contract

period.

b. Financial products, pledge deposits and restricted bank deposits are classified to debt investments with

no active market under IAS39. Refer to Notes 3 and 12 for information related to their reclassification

and information of 2017.

c. Refer to Note 10 for information related to credit risk management and impairment.

d. Refer to Note 34 for information related to investments in financial assets at amortized cost pledged as

security.

10. CREDIT RISK MANAGEMENT FOR INVESTMENTS IN DEBT INSTRUMENTS

Investments in debt instruments were classified as at amortized cost.

June 30, 2018

June 30, 2018

At amortized cost

Gross carrying amount $ 1,440,492

Less: Allowance for impairment loss -

Amortization costs $ 1,440,492

In order to minimize credit risk, the Group has tasked its credit management committee with the

development and maintenance of a credit risk grading framework for categorizing exposures according to

the degree of the risk of default. The credit rating information may be obtained from independent rating

agencies, where available, and if not available, the credit management committee uses other publicly

available financial information to rate the debtors.

- 28 -

11. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31,

2017

June 30,

2017

Non-current

Domestic investments

Listed shares $ 243,321 $ 394,554

Emerging market shares 107,399 178,716

Unlisted shares 15,785 15,785

366,505 589,055

Foreign investments

Unlisted shares 72,575 75,463

Mutual funds 68,469 54,510

Listed shares 5,580 3,972

146,624 133,945

$ 513,129 $ 723,000

Refer to Note 32 for information relating to the fair values determined for available-for-sale financial

assets.

For the fair value of available-for-sale financial assets, refer to Note 32.

Because the above investments experienced a significant or permanent decline in fair value, the Group

recognized an impairment loss of $10,000 thousand for the three-month period and six-month period ended

June 30, 2017 in the consolidated statement of comprehensive income.

12. DEBT INVESTMENTS WITH NO ACTIVE MARKET

December 31,

2017 June 30, 2017

Financial products $ 766,844 $ 745,225

Pledged time deposits and restricted bank deposits 718,024 700,527

$ 1,484,868 $ 1,445,752

Current $ 911,783 $ 880,140

Non-current 573,085 565,612

$ 1,484,868 $ 1,445,752

Financial products mainly refer to the subsidiary’s guarantee income-bearing, bank deposit products, which

are measured at amortized cost; the products shall not be paid or redeemed within the contract period.

Refer to Note 34 for information on assets pledged as collateral or for security.

- 29 -

13. NOTES AND TRADE RECEIVABLES, NET

June 30, 2018

December 31,

2017 June 30, 2017

Notes receivables

Notes receivable - operating $ 429,579 $ 282,316 $ 263,464

Trade receivables

At amortized cost

Gross carrying amount $ 59,628,014 $ 52,561,262 $ 52,867,033

Allowance for impairment loss (214,821) (199,568) (232,525)

Unrealized interest revenue (457,921) (323,962) (57,397)

$ 58,955,272 $ 52,037,732 $ 52,577,111

a. Notes receivables

The aging of notes receivables were as follows:

June 30, 2018

December 31,

2017 June 30, 2017

lite-on technology corporation and subsidiaries...interest income 398,592 1 330,991 1 781,780 1...

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