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LU HAI Annual Report 2018

May 31, 2019

51977_rns_2019-05-31_882ee0b3-104c-4876-b8a5-27ade0ef551c.pdf

Annual Report

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Stock Code : 2115

==> picture [90 x 95] intentionally omitted <==

LU HAI HOLDING CORP.

2018 Annual Report

Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw Company website: http://www.luhai.com.tw

Printed on May 13, 2019

I. Spokesman: Deputy Spokesman: Name: CHANG, CHI-CHI Name: WU, KO-LI Title: Manager, GM Room Title: Manager, Sales Dept. Tel: (04) 874-8122 Tel: (04) 874-8122 E-mail: [email protected] E-mail: [email protected]

  • II. Address and telephone number of all operation locations:
Head office:
Add:
Tel:		 LU HAI HOLDING CORP.
The Grand Pavilion Commercial Centre, Oleander Way, 802 West Bay
Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands,
British West Indies
(04)874-8122
Taiwan Branch :
Add:
Tel:		 British Cayman Islands Merchant LU HAI HOLDING CORP.(Branch
in Taiwan)
No.64,
Shing-kong
5th
Rd,
Tien-Chung
Industrial
District,
Tien-chung,Chang-hua Taiwan.
(04)874-8122
Subsidiary:
Add:
Tel:		 LU HAI INDUSTRIAL CORP.
No.64,
Shing-kong
5th
Rd,
Tien-Chung
Industrial
District,
Tien-chung,Chang-hua Taiwan.
(04)874-8122
Subsidiary:
Add:
Tel:		 Xiamen Xiahui Rubber Metal Ind. Co., Ltd.
No.41, Xinyuan Rd, Xing Lin District, Xiamen China.
0592-6210902-4
Subsidiary:
Add:
Tel:		 LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.
No.1069 HuaAn Road, HuaQiao Town, Kunshan City, Jiangsu
Province, P.R.China.
0512-57601216
Subsidiary:
Add:
Tel:		 PT. LUHAI INDUSTRIAL
d\a. Jl. Raya Cikande Rangkasbitung Km. 4.5. Desa Junti. Jawilan.
Serang, Indonesia
62-254-8488333
Subsidiary:
Add:
Tel:		 MEGA POWER CO., LTD.
#35 Barrack Road, 3rd Floor Belize City, Belize C.A.
(04)874-8122
Subsidiary:
Add:
Tel:		 ALLPRO INTERNATIONAL CORP.
Corner Hutson & Eyre Street, Blake Building, Suite 302, Belize City,
Belize.
(04)874-8122
Subsidiary:
Add:
Tel:		 LU HAI (BVI) INDUSTRIAL CORP.
P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola,
British Virgin Islands.
(04)874-8122
Subsidiary:
Add:
Tel:		 YUANHUI INTERNATIONAL CO., LTD.
Level 3, Alexander House, 35 Cybercity, Ebene Mauritius.
(04)874-8122

III. Stock Transfer Agent ：

Name: Stock Agent Department, Sinopac Securities Address: 3F., No.17, Bo-Ai Road, Zhongzheng Dist, Taipei City Website: http://www. sinotrade.com.tw Tel: (02) 2381-6288

  • IV. Contact information of the Certified Public Accountants for the Latest Financial Report: Auditors: LIN, MING-SHOU; HUANG, SU-CHUAN

CPA Firm: Crowe (TW) CPAs

Address: 15F., No.285, Sec.2, Taiwan Boulevard, West Dist., Taichung City Website: https://www.crowehorwath.tw Tel: (04) 3600-5588

  • V. Overseas Trade Places for Listed Negotiable Securities: None.

  • VI. Company Website: http://www.luhai.com.tw

  • VII. Litigation representative in R.O.C.

Name: HSU, LIEN-KAI E-mail: [email protected]

Title: Chairman Tel: (04) 874-8122

VIII. Board members:

Title Name Nationality Major education background & experience
Chairman HSU,
LIEN-KAI		 R.O.C. General Manager of LU HAI HOLDING CORP.
Department of Law, NationalChengchiUniversity
Director WU,
CHIN-LU		 R.O.C. General Manager of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Chairman of LU HAI INDUSTRIAL CORP.
Graduated from Dah-Chin Commercial & Industrial
Vocation HighSchool
Director WU,
CHING-SHU		 R.O.C. Director of LU HAI INDUSTRIAL CORP.
Supervisor of LU HAI INDUSTRIAL CORP.
Director of LU HAI HOLDING CORP.
National United University
Director HSU,
YA-TING		 R.O.C. Section Manager of YOKE Industrial Corp.
Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Department
of
Finance,
National
Taichung
University of Science and Technology
Director HSU,
HUAI-YUN		 R.O.C. General Manager of Yun-Yi International Ltd.
Director of LU HAI INDUSTRIAL CORP.
Information Management, Tamkang University
Director HSU,
HAN-YUAN		 R.O.C. Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Business Manager of Yuan-Hong Metal Co., Ltd.
Civil Engineering Department, Taoyuan Innovation
Institute of Technology
Independent
Director		 YEN,
MEI-YING		 R.O.C. Assistant VP of PONY Leather Corporation
Master degree of Accounting, National Taiwan
University
Independent
Director		 CHANG,
HORNG-YAN		 R.O.C. Full-time Adjunctive Professor of Department of
Communications Management and Department of
Business Administration, Shih Hsin University
Part-time Professor of Department of Business
Administration, Soochow University
Enterprise Research Institute and Accounting
Institute ofSt. John’sUniversity, NewYork, US
Independent
Director		 HU,
TA-HSIANG		 R.O.C. Associate Professor of Department of Electrical
Engineering, Da-Yeh University
Doctor of Electrical Engineering, University of
Hawaii, US

Table of Contents

Table of Contents
I. Letter to Shareholders................................................................................................................................1
II. Company Profile.........................................................................................................................................5
2.1 Company and Group Introduction ........................................................................................................ 5
2.2 Company history ................................................................................................................................... 5
2.3 Risk Management ................................................................................................................................. 7
III. Corporate Governance Report..................................................................................................................8
3.1 Organization system .............................................................................................................................. 8
3.2 Information of directors, supervisors, General Manager, Vice President, Assistant Vice President,
and head of each department and branch ............................................................................................ 10
3.3 Remuneration of Directors, Supervisors, General Manager and Vice Presidents in the Last Year .... 14
3.4 Corporate governance operation situation .......................................................................................... 19
3.5 Accountant’s fees information ............................................................................................................ 52
3.6 Information on change of CPA ........................................................................................................... 53
3.7 Whether the Chairman, General Manager, and managerial officers responsible for financial or
accounting affairs of the Company once worked in the affiliated firm or enterprise of the CPA in
the last year ......................................................................................................................................... 53
3.8 In the last year and as at the publication date of annual report, stock right transfer and changes in
pledge of stock right in the directors, supervisors, managerial officers and shareholders with
shareholding ratio over 10% ............................................................................................................... 53
3.9 Information that the top ten shareholders in shareholding are mutually related parties as
prescribed in the No. 6 related parties in Statements of Accounting Standards, spouse or relatives
within second degree relationship ....................................................................................................... 54
3.10 Number of shareholding of the Company, the directors, supervisors, managerial officers of the
Company, and the enterprise under direct or indirect control of the Company in the same
reinvestment enterprise, and the consolidated comprehensive shareholding ratio ............................. 57
**IV. ** Fundraising Situation...............................................................................................................................58
4.1 Capital and stock ................................................................................................................................. 58
4.2 Status of Corporate bonds. .................................................................................................................. 63
4.3 Status of Preferred Shares ................................................................................................................... 63
4.4 Issuance of Global Depositary Receipts ............................................................................................. 63
4.5 Status of Employee Stock Options Plan.............................................................................................. 63
4.6 Status of New Restricted Employee Shares ........................................................................................ 63
4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions ................................... 63
4.8 Financing Plans and Implementation .................................................................................................. 63
V. Operational Highlights.............................................................................................................................64
5.1 Business content .................................................................................................................................. 64
5.2 Market, production and marketing overview ...................................................................................... 75
5.3 Information of service employees in the last 2 year and as at the publication date of annual report .. 84
5.4 Environmental protection expenditure information ............................................................................ 84
5.5 Labor relations .................................................................................................................................... 86
5.6 Important contracts ............................................................................................................................. 88
VI. Financial Overview...................................................................................................................................90
6.1 Concise financial information in the last five years ............................................................................ 90
6.2 Financial analysis in the last five years ............................................................................................... 93
6.3 Audit Committee’s Examination Report of the financial report in the last year ................................. 95
6.4 Financial statements in the last year.................................................................................................... 96
6.5 Company’s individual financial statements audited and certified by the accountant in the last year. 96
6.6 In the last year and as at the publication date of annual report, if the company and its affiliated
enterprise have difficulty in financial turnover, its impact on the financial situation of the
Company shall be listed ...................................................................................................................... 96

VII. Review of Financial Conditions, Operating Results, and Risk Management ...................................176 7.1 Financial situation ............................................................................................................................. 176 7.2 Financial performance ....................................................................................................................... 177 7.3 Cash flow .......................................................................................................................................... 178 7.4 The impact of significant capital expenditure on financial affairs in the last year ........................... 179 7.5 Reinvestment policy in the last year, the main reason for its profit or loss, improvement plan and investment plan in the coming year .................................................................................................. 179 7.6 Risk Management ............................................................................................................................. 180 7.7 Other important matters .................................................................................................................... 183 VIII. Special Recorded Matters ....................................................................................................................184 8.1 Relevant information of affiliated enterprise .................................................................................... 184 8.2 In the last year and as at the publication date of annual report, execution situation of private placement of negotiable securities .................................................................................................... 187 8.3 In the last year and as at the publication date of annual report, subsidiaries’ holding or disposal of shares of the Company ...................................................................................................................... 187 8.4 Other necessary supplementary explanations ................................................................................... 187 8.5 In the last year and as at the publication date of annual report, in case of matters having significant impact on the shareholders’ equity or security price as prescribed in Subparagraph 2, Paragraph 3, Article 36 of Securities and Exchange Act, it shall also be specified one by one ....... 187 8.6 Description on significant difference from the shareholders’ equity protection regulations of our country .............................................................................................................................................. 187

Notes: This Annual Report in English is translation from Chinese version, and it is only for reference by investors. In case of any difference between the Chinese and English version, the Chinese version shall prevail.

I. Letter to Shareholders

In 2018, the supply of tires exceeded the demand, affected by bicycle sharing, the demand in bicycle industry shrank, the Company’s shipment volume of valves for bicycles reduced; with gradual increasing awareness of environmental protection, energy saving and carbon reduction, as well as continuous growth of demand in electric vehicle in Europe, the Company’s shipment volume of valves for electric vehicles increased; various countries successively legislated to promote the Tire Pressure Monitoring System (TPMS) to become standard configuration for automobiles and the Company had been actively developing customers for TPMS valve, the customer order increased, the shipment volume of TPMS valves grew stably; the overall sales volume of valves of the Company in 2018 was reduced by 7.04% year-on-year, and the operating revenue slightly reduced by 0.69% from NTD2.647 billion to NTD2.629 billion. In 2018, the Company continued to improve process efficiency, and input automation equipment to satisfy customer order and reduce the impact of rising wages in Mainland, under the impact of rising material procurement cost and exchange rate fluctuation etc., the gross profit rate declined from 25.73% to 21.34%. Due to sound management strategy and effective cost control, the operating expenses didn’t increase dramatically, and the operating profit rate declined from 14.93% to 10.25%. Due to the depreciation of RMB and EUR in 2018, the profit on exchange increased, the non-operating revenue increased in 2018, causing narrowing reduction of profit before income tax. To sum up, the profit ratio declined from 10.36% to 7.93%, and the earnings per share reduced from NTD3.35 to NTD2.54.

The Company will continue to develop new customers and match up with the growth of market demand, improve the market share target and profit making, and continue to input automation equipment and steady financial management for operation, and stick to the operation philosophy of “Quality Oriented, Integrity, Customer First, Continuous Improvement” to face the challenges in the future.

Financial performance

Implementation achievement in the last two years:

Financial performance
Implementation achievement in the last two years:		 Financial performance
Implementation achievement in the last two years:		 Financial performance
Implementation achievement in the last two years:		 Financial performance
Implementation achievement in the last two years:		 Financial performance
Implementation achievement in the last two years:
Unit: NTD thousand
Year
Item
2018		 2017 Percent Change
Operatingrevenue 2,628,778
2,647,010
(18,232)		 -0.69%
Grossprofit 561,055
681,005
(119,950)		 -17.61%
Operating profit 269,342
395,201
(125,859)		 -31.85%
Profit before income tax 297,169
395,530
(98,361)		 -24.87%
Profit for the Period 208,463
274,152
(65,689)		 -23.96%

Budget implementation

The Company has not disclosed financial forecasting to the public in 2018, hence it is not applicable.

1

Financial revenue and expenditure and profitability analysis

Financial revenue and expenditure and profitability analysis
Item Year
2018		 2017
Financial
structure (%)		 Debt to asset ratio 34.17
33.05
Long-term fund to property, plant and
equipment		 389.66
373.34
Liquidity (%) Current ratio 423.90
268.74
Quick ratio 316.68
196.85
Times interest earned(times) 25.77
34.92
Profitability (%) Return on assets 6.51
8.94
Return on equity 9.42
12.93
Pre-tax income topaid-in capital 36.26
48.26
Netprofit margin 7.93
10.36
Earningsper share(NTD) 2.54
3.35

Notes: The financial structures of the Company in these two periods are equivalent.

The Company repaid the due convertible corporate bonds in April 2018, causing the rise of current ratio and quick ratio.

The times interest earned (times) and profitability declined due to the profits shrinking of the Company (see the explanation in Paragraph 1 of Business Report).

Research and development situation

All key projects of research and development in 2018 made progress as scheduled. Mainly focused on the development and input of automation equipment, efficiency improvement, quality improvement and labor saving. Major achievements include: the input of CR202\DB05C\TR1\VFR series full automatic interrupting nailing machine, the input of PVR70 series full automatic valve core assembly machine, TR4 full automatic grinding machine, CR202 automatic sand blasting discharging machine, rotating disc type full automatic bending machine, and the development, input and use of new German machines, among them, including EP2 valve core processor, PD set plastic pipe, C4E body processor, TR13 body processor and AR/L body processor, improving product quality as well as production efficiency.

The key research and development of the Company in 2019 is to promote automation project and reduce waste cost of raw materials, and take quality improvement as the target. Launch of the second production department’s TR4 series valve full automatic vulcanization production line project, upgrading the vulcanizing mold design to reduce waste rubber, and simultaneous introduction of turning and milling composite all-in-one machine to upgrade die precision, development of oily fume free technique for hot forging equipment, development of VFR assembled riveting airtight all-in-one machine, high speed burner detection and assembled airtight all-in-one machine, development of automatic marking machine for green products, and upgrading the bottom forming machine of program control into numerical control processing.

2

Business plan in 2019

Several important industry information occurred in valve industry last year (2018): China announced for full implementation of mandatory standard configuration of tire pressure monitoring system in 2020; Sensata Technologies announced to sell the valve production bases in US and France to Pacific Industrial Co., Ltd., but still reserved tire pressure monitoring system business; and Baolong Automotive Corporation expected to establish China-Germany joint venture with Huf Group. According to the above industry information, we should forecast greater changes in China’s tire pressure monitoring system market in 2019, the Company has been engaged in this TPMS project for a long time and has been fully prepared, we will not compete with the customers but cooperate with customers to become the partner in joint development, hoping that we can share the achievements in the market with our customers.

The subsidiaries XIAMEN XIAHUI has acquired the new land (at the southeast of the intersection of Guankou South Road and Nantang Road, Machinery Industry Concentration Area Phase Two, Jimei District, Xiamen City) in 2018 and has contracted it for construction, it is expected to be completed at the end of 2019 and put into production in the second quarter of 2020, this land will focus on developing into the important manufacturing base for valve body and precision machining products in the Group, then the production capacity of TPMS will achieve multiple growth.

For major management policy of the Company in 2019, apart from maintaining the niche products in 2018, optimal production and marketing, and continuous input of automation equipment, the Company will also focus on the amplification of specifications in recycling copper materials for reuse, improvement of management performance and the expansion of new key customers.

  • i) Strengthening of niche The traditional valve items take products of higher gross profit as products: marketing focus; and non-traditional valve items take TPMS valve as developing focus.

  • ii) Optimal production and China and Indonesia are the two biggest sales territories of the marketing: Company, the Company has set production base both in China and Indonesia, apart from close to local market and serving customers nearby, the operational risks of the Group’s production base may also be diversified.

  • iii) Expansion of key Continuously increase capital expenditure according to the demand customers: of China’s auto market in TPMS growth.

  • iv) Continuous input of Continue to purchase new machines to improve the quality and automation equipment: quantity of output, and simultaneously replace old machines to save labor and production cost, so as to reduce the impact of rising labor cost in Mainland.

  • v) Recycle copper Continue to expand recycling copper materials for reuse, so as to materials for reuse: reduce the impact of copper price fluctuation.

The price of copper materials recorded sharp fluctuation since the fourth quarter of 2016, and kept rising in 2017, the market supply and demand of global copper materials in 2018 might expect

3

to appear slight excess demand, and it might maintain the rising trend as in 2017, moreover, under the circumstances of uncertain Sino-US trade war and economic climate in various countries, the atmosphere of market demand turned into conservative, the copper price declined instead of rose in the second half of the year, and since the beginning of 2019, it appears the sign of rising price again. We have no idea when the copper price will return to be stable, and we reasonably reflect the cost as appropriate and expand our own production capacity in recycling copper materials, expanding to over 400 tons per month from the original plan of 300 tons per month, so as to reduce the impact of copper price fluctuation. The production capacity of finished products of traditional valve maintains at 66 million sets per month, it is planned to take Xiamen Plant as the key base for manufacturing metal body in the Group, and import special German equipment to replace the original disc equipment to improve the quality of metal body, and automatic production line will be input for truck valve, so as to save production space and eliminate unnecessary revolving waste, and increase the gross profit and competitiveness of truck valve.

Future development strategy of the Company

The industrial order of traditional valve has turned into that winners always win, and the market of TPMS valves maintains a growth momentum. Our objective will focus on the improvement of management performance, and introduction of automation not only guarantees stable quality, but also reduces the impact of labor cost, hoping that the management indexes such as gross profit rate and net profit ratio will maintain rising. According to the aforementioned important messages of valve industry in the last year, the Company always adopts the business model of cooperating with customers to move forward, and we should be able to obtain more favorable opportunities in current market situation.

Facing the challenges of rapid change in the future, the Company will continue to invest in research and development improvement, improve product quality, expand new customers and develop high gross profit products, so as to increase the profits of the Company, and strengthen the rubber material formula and research and development of copper scrap regeneration technology to maximize the benefits of shareholders. Finally, the Company will take the fulfillment of corporate social responsibility as the ultimate goal, apart from making LU HAI as the leading brand in valve industry, but also becoming the extremely valuable enterprise brand.

Chairman & General Manager HSU, LIEN-KAI

4

II. Company Profile

2.1 Company and Group Introduction

2.1.1 Date of incorporation and Group profile:

The Company is originated from the LU HAI INDUSTRIAL CORP. in Chang-hua Taiwan, established in May 1983, the Company has been devoting to the manufacturing, processing and sales of various tire rubber valves and metal bodies of tire valves, with gradual expansion of operation scale, the Company has set manufacturing bases and important operating offices in Xiamen, Kunshan and Indonesia successively, and all reinvestment businesses are engaged in the businesses related to the manufacturing and sales of valves. On October 19, 2009, LU HAI HOLDING CORP. was established in Cayman Islands as the holding parent company of the Group and the application entity to apply for a listing in Taiwan, the Company sticks to the operation philosophy of “Quality Oriented, Integrity, Customer First, Continuous Improvement”, and takes becoming the “Most competitive valve manufacturer of the world” as the target, as the pioneer in global valve industry, the Group has been diligently engaged in valve industry for over 30 years and deeply recognized by customers in terms of product quality, customers are mostly globally well-known tire manufacturers, such as: Bridgestone, Michelin, Goodyear, Cheng Shin Group, Kenda Group, Giti Group etc.

2.1.2 Group structure

2.2 Company history:

Year Important events
1980 LIUHO VALVE INDUSTRIAL CO., LTD. was established in Chang-hua Taiwan
1983 LU HAI INDUSTRIAL CORP. was established in Taiwan
1990 XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. was established.
1995 XIAMEN XIAHUI hadpassed the ISO9002:1994 certification
1997 LU HAI INDUSTRIAL CORP. had passed the ISO9002:1994 quality management
system certification byBureau of Standards,Metrologyand Inspection

5

Year Important events
Approved to establish LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO.,
LTD
2000 Approved to establish XIAMEN LU HAI METAL CO., LTD
2001 KUNSHAN LUHAI had passed the ISO9001: 2000 system certification, and won the
“Certificate of Quality Control System Certification ” issued by China Quality
Certification Center
The certificate of quality system certification of XIAMEN XIAHUI was changed into
ISO9001:2000 version
2002 LU HAI INDUSTRIAL CORP. had passed the ISO9001:2000 quality management
system certification byBureau of Standards,Metrologyand Inspection
KUNSHAN LUHAI had won the only qualified supplier certified by Michelin Tire in
China
KUNSHAN LUHAI had passed the safety certification of valve products by China
Tire Products Certification Committee, and won the “Certificate of Product Quality
Certification”.
2003 XIAMEN XIAHUI hadpassed the CQCproduct safety3C certification
XIAMEN XIAHUI was the member of National Valve Standardization Sub-Technical
Committee
2005 XIAMEN XIAHUI had passed the ISO/TS16949:2002 Quality Control System
certification
2006 KUNSHAN LUHAI had won the “Certificate of Confirmation for Foreign Invested
Advanced TechnologyEnterprise” issued byJiangsu Province
XIAMEN XIAHUI had won the “AAA Credit Rating” enterprise awarded by the
finance consulting& credit ratinginstitution
2007 KUNSHAN LUHAI has been awarded the certificate of “Top 100 Rubber Parts
Manufacturers in China” and “Famous Brand for Rubber Parts Manufacturing in
China” issued byChina Market MonitoringCenter and China Market Research Center
XIAMEN XIAHUI had won the title of “Fujian Famous Brand Product”
2009 LU HAI HOLDING CORP. was established in Cayman Islands, the establishment
capital was NTD1,200,000 Thousand, and the paid-up capital was NTD420,000
Thousand
LU HAI HOLDING CORP. carried out cash capital increase of NTD120,000
Thousand,and thepaid-upcapital was NTD540,000 Thousand after capital increase
2010 LU HAI HOLDING CORP. carried out cash capital increase of NTD61,000 Thousand,
and thepaid-upcapital was NTD601,000 Thousand after capital increase
KUNSHAN LUHAI had passed the ISO/TS16949:2009 system certification, and won
the “Certificate of Automotive Industry Quality System Certification” issued by China
QualityCertification Center
2011 KUNSHAN LUHAI had won the good qualified supplier designated by Japan
Bridgestone
KUNSHAN LUHAI had passed the ISO14001:2004 system certification, and won the
“Certificate of Environmental Management System Certification”
PT. LUHAI INDUSTRIAL was established
XIAMEN XIAHUI and XIAMEN LU HAI METAL CO.,LTD. were merged.
2012 The hexagonal logo of the Companyhad won the “China Well-known Trademark”

6

Year Important events
2013 XIAHUI had won the first section of Top10 HappyEnterprises.
Officiallylisted in the Taiwan Stock Exchange on December 25,2013
2014 LU HAI HOLDING had won the second section of OutstandingTaiwan Businessmen
2015 Carried out cash capital increase of 3,500 thousand shares and the first unsecured
convertible corporate bonds (the total issuing denomination was NTD400 Million
Only)in the territoryof Republic of China
2016 XIAMEN XIAHUI had won the certificate of “Xiamen Famous Trademark: Tire
Valve”
XIAMEN XIAHUI had won the certificate of “Xiamen Famous Trademark: Metal
Nut”
XIAMEN XIAHUI had won the “Quality Management Award” issued by China Valve
Core Industry
2017 LU HAI HOLDING had won the Outstanding Contribution Award issued by China
Valve Core Industry
KUNSHAN LUHAI had passed the ISO14001:2015 environmental management
system certification,and won the Certificate of Management System Certification.
KUNSHAN LUHAI had won the “TopTen Eco-FriendlyEnterprises”
2018 KUNSHAN LUHAI had passed the IATF16949:2016 system certification, and won
the certificate of “Automotive Industry Quality Management System” issued by China
QualityCertification Center

2.3 Risk Management : Please refer to Page 180 to 183, Seven. Review of Financial Conditions, Operating Results, and Risk Management

7

III. Corporate Governance Report

3.1 Organization system

3.1.1 Organization chart

==> picture [400 x 371] intentionally omitted <==

3.1.2 Operating business of major departments

Department Management affairs
Board of
Directors		 Make policy directive and formulate objective and guideline
accordingto the business operation of the Group
General
Manager		 Group strategic planning, execute the resolution of Board of
Directors,and lead the team of the Companyto achieve the target
Executive VP Draw up operational objectives, and supervise and manage
operatingactivities
GM Room 1. Annually plan the medium and long term business plan of the
Group
2. Manage, control and supervise the work of each subsidiaries
of the Group
3. Organization of Board of Directors Meeting and Shareholders’
Meeting,and stock affairs related matters
Audit Room 1. Responsible for governing each company of the Group,
formulating internal control system, reviewing and approving
management regulations and executing internal audit, and
proposingimprovementproposal

8

Department Management affairs
2. Promote policies and order of each company of the Group and
execute each regulations
Finance
Department		 1. Manage fund procurement among each company of the Group
and contacts with financial institutions
2. Manage accounting transaction and cost analysis of each
company of the Group
3. Promote the strategy, integration and budget systems related to
financial aspects of the Group
Administration
Department
1. In charge of the management of general administrative affairs,
as well as patent and certification related matters of the
company
2. Human resources management and organization development
matters in the Group
3. Application, report and approval of foreign investment
Sales
Department		 1. Responsible for product marketing, market development and
sales business of the company
2. Manage and integrate business promotion of each company of
the Group
3. Draw up business policy and set target for the Group
IT Department 1. Planning, establishment, implementation and management of
Group computerization
2. Safety control of computer software and hardware, and
planning and execution of information security policy
3. Design, maintenance, control, correction and management etc.
of each operating management system
4. Planning and assessment etc. on the specifications of
industrial 4.0 equipment automation system of the Group

9

3.2 Information of directors, supervisors, General Manager, Vice President, Assistant Vice President, and head of each department and branch: 3.2.1 Directors and supervisors’ information

3.2.1.1 Directors and supervisor’s information:

April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;%
Title Nationality or place
of registration		 Name Gender Date
Elected		 Term
(Years)		 Date first
Elected		 Shareholding when
Elected		 Current shareholding Spouse & Minor
children Shareholding		 Shareholding in the
name of other person		 Major experience (education background) Concurrent title in the Company or
other companies currently		 Other managers, directors or
supervisors of relationship of spouse
or within second-degree relatives
Shares % Shares % Shares % Shares % Title Name Relation
Chairman R.O.C. HSU,
LIEN-KAI		 Male 2018.6.25 3 2018.6.25 2,307,387 2.82% 2,551,387 3.11%
29,016		 0.04%
-		 - General Manager of LU HAI HOLDING CORP.
Department
of
Law,
National
Chengchi
University
Director of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Chairmanof LUHAI INDUSTRIAL		 - - -
Director R.O.C. WU,
CHIN-LU		 Male 2018.6.25 3 2012.7.6 675,300 0.82% 346,300 0.42%
221,000		 0.27% 2,663,651
3.25%
Chairman of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Chairman of LU HAI INDUSTRIAL CORP.
Dah-Chin Commercial & Industrial Vocation
HighSchool
Director of GET JOINT BUSINESS
CORP.
Director of DAY LIGHT BUSINESS
CO., LTD.		 Director
Sales
Manager		 WU,
CHING-SHU
WU, KO-LI		 Brother
Parent-
child
Director R.O.C. WU,
CHING-SHU		 Male 2018.6.25 3 2012.7.6 469,798 0.57% 575,798 0.70% 100,616 0.12% 3,239,542 3.95% Director of LU HAI INDUSTRIAL CORP.
Supervisor of LU HAI INDUSTRIAL CORP.
Director of LU HAI HOLDING CORP.
National United University		 Supervisor of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Supervisor of LU HAI INDUSTRIAL
Director of GET JOINT BUSINESS
CORP.
Director of DAY LIGHT BUSINESS
CO.,LTD.		 Director WU,
CHIN-LU		 Brother
Director R.O.C. HSU,
YA-TING		 Female 2018.6.25 3 2018.6.25 565,812 0.69% 565,812 0.69% - - 468,762 0.57% Section Manager of YOKE Industrial Corp.
Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Department of Finance, National Taichung
University ofScience andTechnology
Director of XIAMEN XIAHUI
VP of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Directorof LUHAI INDUSTRIAL		 - - -
Director R.O.C. HSU,
HUAI-YUN		 Female 2018.6.25 3 2018.6.25 - - - - - - - - General Manager of Yun-Yi International Ltd.
Director of LU HAI INDUSTRIAL CORP.
Information Management, Tamkang University		 Director of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Directorof LUHAI INDUSTRIAL		 Executive
VP		 HSU,
HSIU-HUA		 Sister
Director R.O.C. HSU,
HAN-YUAN		 Male 2018.6.25 3 2018.6.25 1,906,533 2.33% 1,906,533 2.33% 945,488 1.15% - - Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Business Manager of Yuan-Hong Metal Co., Ltd.
Civil
Engineering
Department,
Taoyuan
Innovation Institute of Technology
Director of XIAMEN XIAHUI
General
Manager
of
XIAMEN
XIAHUI
Supervisor of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Directorof LUHAI INDUSTRIAL
-		 - -
Independent
Director		 R.O.C. YEN,
MEI-YING		 Female 2018.6.25 3 2012.1.13 - - - - - - - - Assistant VP of PONY Leather Corporation
Master degree of Accounting, National Taiwan
University
Director of PONY Leather Corporation
Assistant VP of GM Room and Head
of Administration Department, PONY
Leather Corporation

-		 - -
Independent
Director		 R.O.C. CHANG,
HORNG-YAN		 Male 2018.6.25 3 2018.6.25 - - - - - - - - Full-time Adjunctive Professor of Department of
Communications Management and Department of
Business Administration, Shih Hsin University
Part-time Professor of Department of Business
Administration, Soochow University
Enterprise Research Institute and Accounting
Institute of St. John’s University, New York, US



Independent Director of TPK Holding
Co., Ltd.
Supervisor of Soft-World
International Corporation
Professor of Department of
Communications Management, Shih
Hsin University
Professor of Department of Business
Administration, Soochow University		 - - -
Independent
Director		 R.O.C. HU,
TA-HSIANG		 Male 2018.6.25 3 2018.6.25 - - - - - - - - Associate Professor of Department of Electrical
Engineering, Da-Yeh University
Doctor of Electrical Engineering, University of
Hawaii,US

Associate Professor of Department of
Electrical Engineering, Da-Yeh
University		 - - -

10

  • 3.2.1.2 Major shareholders of the institutional shareholders: Not applicable.

  • 3.2.1.3 Major shareholders of the company’s major institutional shareholders: Not applicable

  • 3.2.1.4 Professional knowledge possessed by directors or supervisors and their independence

April 30, 2019

Criteria
Name		 Meet the Following Professional Qualification
Requirements,
TogetherwithatLeastFiveYears Work Experience		 Meet the Following Professional Qualification
Requirements,
TogetherwithatLeastFiveYears Work Experience		 Meet the Following Professional Qualification
Requirements,
TogetherwithatLeastFiveYears Work Experience		 Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Independence Criteria (Notes 1) Number of
other public
companies in
which
concurrently
act as
independent
director
An Instructor or Higher
Position in a
Department of
Commerce, Law,
Finance, Accounting,
or Other Academic
Department Related to
the Business Needs of
the Company in a
Public or Private Junior
College, College or
University

A Judge, Public
Prosecutor, Attorney,
CPA, or Other
Professional or
Technical Specialist
Who has Passed a
National Examination
and been Awarded a
Certificate in a
Profession Necessary
for the Business of the
Company		 Have Work
Experience in
the Areas of
Commerce,
Law, Finance,
or Accounting,
or Otherwise
Necessary for
the Business of
the Company		 1 2 3 4 5 6 7 8 9 10
HSU, LIEN-KAI -
WU, CHIN-LU -
WU, CHING-SHU -
HSU, YA-TING -
HSU, HUAI-YUN -
HSU, HAN-YUAN -
YEN, MEI-YING -
CHANG,
HORNG-YAN		 1
HU, TA-HSIANG -

  • Notes 1: If each director or supervisor is conforming to the following conditions two years before appointment and during the term of office, please tick “  ” in the blank below the code of each condition.

  • (1) Not an employee of the company or any of its affiliates.

  • (2) Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary, as appointed in accordance with the laws of Taiwan or with the laws of the country of the parent company or subsidiary.

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

  • (4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs.

  • (5) Not a director, supervisor or employee of a corporate/institutional shareholder that directly holds 5% or more of the total number of issued shares of the company or ranks as of its top five shareholders;

  • (6) Not a director, supervisor, officer or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the company.

  • (7) Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial or accounting etc. services or consultation to the company or to any affiliate of the company, or a spouse thereof.

  • (8) Not having a marital relationship, or a relative within the second degree of kinship to any other director of the company.

  • (9) Not been a person of any conditions defined in Article 30 of the Company Act.

  • (10) Not a governmental, juridical person or its representative as defined in Article 27 of Company Act.

11

3.2.2 Management Team Information

April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;% April 30,2019 Unit: share;%
Title Nationality Name Gender Inauguration
date		 Shareholding Spo us e & M ino r
chi ldr en
Sha reh ol din g		 Shareholding in the
name of other person		 Major experience (education background) Concurrent title in other companies
currently		 Managers who are spo
second-degree of		 use or within
kinship
Shares % Shares % Shares % Title Name Relation
General Manager R.O.C. HSU, LIEN-KAI Male 2018.05.09 2,551,387 3.11%
29,016		 0.04%
-		 - General Manager of LU HAI HOLDING CORP.
Bachelor degree in Law, National Chengchi
University		 Director of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Chairman of LU HAI
INDUSTRIAL CORP.		 None None None
Executive VP R.O.C. HSU,
HSIU-HUA		 Female 2010.01.01 354,048 0.43%
-		 - - - Salesman of E.C.I. Elastic Co., Ltd.
Sales Director of LU HAI INDUSTRIAL CORP.
General Manager of LU HAI HOLDING CORP.
Department of Computer Science & Information
Management, Junior College Division, Hung Kuang
Institute of Technology		 Director of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Chairman of PT. LUHAI
General Manager of KUNSHAN
LUHAI
General Manager of PT. LUHAI		 None None None
General Manager of
XIAMEN XIAHUI		 R.O.C. HSU,
HAN-YUAN		 Male 2014.06.01 1,906,533 2.33%
945,488		 1.15%
-		 - Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Business Manager of Yuan-Hong Metal Co., Ltd.
Civil Engineering Department, Taoyuan Innovation
Institute of Technology		 Director of XIAMEN XIAHUI
General Manager of XIAMEN
XIAHUI
Supervisor of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Director of LU HAI INDUSTRIAL
CORP.		 None None None
VP of XIAMEN
XIAHUI		 R.O.C. HSU, YA-TING Female 2012.07.01 565,812 0.69%
-		 - 468,762 0.57% Section Manager of YOKE Industrial Corp.
Assistant VP of LU HAI HOLDING CORP.
Director of LU HAI INDUSTRIAL CORP.
Department of Finance, National Taichung
University of Science and Technology		 Director of XIAMEN XIAHUI
VP of XIAMEN XIAHUI
Director of KUNSHAN LUHAI
Supervisor of PT. LUHAI
Director of LU HAI INDUSTRIAL
CORP.		 None None None
VP of KUNSHAN
LUHAI		 P.R.C. HSU,
KUANG-WU		 Male 2018.03.14 - - - - - - Manager of Manufacturing Department, XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL CO.,
LTD.
Manager of Manufacturing Department, LUHAI
RUBBER METAL INDUSTRIAL (KUNSHAN)
CO., LTD.
General Manager of Ningbo Powermetal Industrial
Co., Ltd.
Plant
Manager
of
Manufacturing
Department,
LUHAI
RUBBER
METAL
INDUSTRIAL
(KUNSHAN) CO., LTD.
EMBA,Shanghai Jiao TongUniversity






None		 None None None

12

Title Nationality Name Gender Inauguration
date		 Shareholding Shareholding Spo us e & M ino r
chi ldr en
Sha reh ol din g		 Spo us e & M ino r
chi ldr en
Sha reh ol din g		 Shareholding in the
name of other person		 Shareholding in the
name of other person		 Major experience (education background) Concurrent title in other companies
currently		 Managers who are spouse or within
second-degree of kinship		 Managers who are spouse or within
second-degree of kinship		 Managers who are spouse or within
second-degree of kinship
Shares % Shares % Shares % Title Name Relation
VP of PT. LUHAI R.O.C. QIU
ZHONG-LIE		 Male 2015.08.01 7,902 0.01%
-		 - - - Assistant VP of LU HAI HOLDING CORP.
Senior Engineer of LU HAI HOLDING CORP.
Yuanlin Senior High School		 General Manager of PT.DENIKIN
INDUSTRI NUSANTARA		 None None None
C.F.O. R.O.C. CHANG,
SHENG-HUNG		 Male 2012.04.01 8,919
0.01%
-		 - - - Finance Supervisor and Director of Audit Room,
CUB ELECPARTS INC.
Manager
of
Finance
Department,
LU
HAI
INDUSTRIAL CORP.
Bachelor degree in Accounting, Chung Yuan
Christian University


None		 None None None
Audit Supervisor R.O.C. CHEN,
YING-HUEI		 Female 2010.05.01 31,899
0.04%
-		 - - - Finance Specialist of YEU TYAN MACHINERY
MFG. CO., LTD.
Finance Manager of TUNG LIH PAPER CO., LTD.
Director of Audit Room, LU HAI INDUSTRIAL
CORP.
Department of Business, National Open University		 None None None None
Manager of
Administration
Department		 R.O.C. CAI XIN-XING Male 2012.01.01 - - - - - - Manager of Administration Department, LU HAI
INDUSTRIAL CORP.
National Chung Hsing University		 None None None None
Manager of General
Manager Room		 R.O.C. CHANG,
CHI-CHI		 Female 2012.07.16 60,119
0.07%
-		 - - - Manager of Capital Market Div., Taishin Securities
Co., Ltd.
Master degree in Finance, National Chung Cheng
University		 None None None None
Manager of Sales
Department		 R.O.C. WU, KO-LI Male 2015.04.01 1,719,219
2.10%
-		 - - - ARM of Institutional Banking, CTBC Bank Co., Ltd.
Bachelor degree in Statistical Science, University
College London		 None None None None

13

3.3 Remuneration of Directors, Supervisors, General Manager and Vice Presidents in the Last Year

3.3.1 Remuneration paid to the Director in 2018

Unit: NTD thousand

Title Name Director remuneration Director remuneration Director remuneration Director remuneration Director remuneration Director remuneration Director remuneration Director remuneration Proportion of
total amount of
A, B, C and D in
net profit after
tax		 Proportion of
total amount of
A, B, C and D in
net profit after
tax		 Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Relevant remuneration received by part-time employee Proportion of
total amount of
A, B, C, D, E, F
and G in net
profit after tax		 Proportion of
total amount of
A, B, C, D, E, F
and G in net
profit after tax		 Whether or
not received
remuneration
from
reinvestment
enterprise
other than the
subsidiaries
Remuneration
(A)		 Retirement
pension (B)		 Directors
compensation
(C)		 Business
execution
expenses (D)		 Salary, bonus
and special
disbursement
etc.(E)		 Retirement
pension (F)		 Employee’s compensation (G)
The Company All companies in
financial report		 The Company All companies in
financial report		 The Company All companies in
financial report		 The Company All companies in
financial report		 The Company All companies in
financial report		 The Company All companies in
financial report		 The Company All companies in
financial report		 The
Company		 All companies
in financial
report		 The Company All companies in
financial report
Cash amount Stock amount Cash amount Stock amount
Chairman HSU,LIEN-KAI 0
0
0		 0 3,224 3,224 730 730 1.90% 1.90% 3,825 6,736
9
9
519
0		 519
0		 3.98% 5.38%
None
Director WU,CHIN-LU
Director WU,CHING-SHU
Director HSU,YA-TING
Director HSU,HUAI-YUN
Director HSU,HAN-YUAN
Independent
Director		 YEN, MEI-YING
Independent
Director		 CHANG, HORNG-YAN
Independent
Director		 HU, TA-HSIANG
Director GET JOINT BUSINESS
CORPORATION
(Representative: HSU, HO)
(Notes)

14

Director GET JOINT BUSINESS
CORPORATION
(Representative: HSU,
SHIH) (Notes)
Director GET JOINT BUSINESS
CORPORATION
(Representative: HSU,
CHIN) (Notes)
Director DAY LIGHT BUSINESS
CO., LTD. (Representative:
HSU,SHOU) (Notes)
Chairman DAY LIGHT BUSINESS
CO., LTD. (Representative:
WU,CHIN-LU) (Notes)
Director DAY LIGHT BUSINESS
CO., LTD. (Representative:
WU,CHING-SHU) (Notes)
Director CHANG, KUO-TAI
(Notes)
Director YU,YAO-FU(Notes)
Director HSU,TA-YOU(Notes)
Director WU,CHIEN-SZU(Notes)
Independent
Director		 LU, CHIH-CHIEN
(Notes)
Independent
Director		 HO, SHIO-SHEN (Notes)
Apart from those disclosed in the above table, the remuneration received by company directors for providing service to all companies in financial report in the last year (such as taking a post
as an adviser other than an employee etc.): None.

Notes: On June, 25, 2018, overall reelection was conducted in General Meeting: GET JOINT BUSINESS CORPORATION (Representatives: HSU, HO; HSU, SHIH; HSU, CHIN); DAY LIGHT BUSINESS CO., LTD. (Representatives: HSU, SHOU; WU, CHIN-LU; WU, CHING-SHU); terms of office of CHANG, KUO-TAI; YU, YAO-FU; HSU, TA-YOU; WU, CHIEN-SZU; LU, CHIH-CHIEN and HO, SHIO-SHEN expired; and HSU, LIEN-KAI; WU, CHIN-LU; WU, CHING-SHU; HSU, YA-TING; HSU, HUAI-YUN; HSU, HAN-YUAN; CHANG, HORNG-YAN and HU, TA-HSIANG were newly elected.

15

Range of Remuneration

Range of remuneration paid to
directors
Name of directors
Name of directors
Name of directors
Name of directors

Total of Remuneration (A+B+C+D)		 Total of Remuneration (A+B+C+D+E+F+G)
The Company All companies in
financial report (H)		 The Company All companies in
financial report (I)
Below NTD2,000,000 HSU, LIEN-KAI; WU,
CHIN-LU; WU,
CHING-SHU; HSU,
YA-TING; HSU,
HUAI-YUN; HSU,
HAN-YUAN; YEN,
MEI-YING; CHANG,
HORNG-YAN; HU,
TA-HSIANG; DAY
LIGHT BUSINESS
CO., LTD.; GET JOINT
BUSINESS
CORPORATION;
CHANG, KUO-TAI;
YU, YAO-FU; HSU,
TA-YOU; WU,
CHIEN-SZU; LU,
CHIH-CHIEN; HO,
SHIO-SHEN		 HSU, LIEN-KAI; WU,
CHIN-LU; WU,
CHING-SHU; HSU,
YA-TING; HSU,
HUAI-YUN; HSU,
HAN-YUAN; YEN,
MEI-YING; CHANG,
HORNG-YAN; HU,
TA-HSIANG; DAY
LIGHT BUSINESS
CO., LTD.; GET JOINT
BUSINESS
CORPORATION;
CHANG, KUO-TAI;
YU, YAO-FU; HSU,
TA-YOU; WU,
CHIEN-SZU; LU,
CHIH-CHIEN; HO,
SHIO-SHEN
HSU, LIEN-KAI; WU,
CHIN-LU; WU,
CHING-SHU; HSU,
YA-TING; HSU,
HUAI-YUN; HSU,
HAN-YUAN; YEN,
MEI-YING; CHANG,
HORNG-YAN; HU,
TA-HSIANG; DAY
LIGHT BUSINESS
CO., LTD.; GET JOINT
BUSINESS
CORPORATION;
CHANG, KUO-TAI;
YU, YAO-FU; HSU,
TA-YOU; WU,
CHIEN-SZU; LU,
CHIH-CHIEN; HO,
SHIO-SHEN		 HSU, LIEN-KAI; WU,
CHIN-LU; WU,
CHING-SHU; HSU,
YA-TING; HSU,
HUAI-YUN; HSU,
HAN-YUAN; YEN,
MEI-YING; CHANG,
HORNG-YAN; HU,
TA-HSIANG; DAY
LIGHT BUSINESS
CO., LTD.; GET JOINT
BUSINESS
CORPORATION;
CHANG, KUO-TAI;
YU, YAO-FU; HSU,
TA-YOU; WU,
CHIEN-SZU; LU,
CHIH-CHIEN; HO,
SHIO-SHEN
NTD2,000,000 (inclusive) ~
NTD5,000,000		 - - - -
NTD5,000,000 (inclusive) ~
NTD10,000,000		 - - - -
NTD10,000,000 (inclusive) ~
NTD15,000,000		 - - - -
NTD15,000,000 (inclusive) ~
NTD30,000,000		 - - - -
NTD30,000,000 (inclusive) ~
NTD50,000,000		 - - - -
NTD50,000,000 (inclusive) ~
NTD100,000,000		 - - - -
Over NTD100,000,000 - - - -
Total 17 17 17 17

  • The contents of remuneration disclosed in this table is different from the concept of income stipulated in Income Tax Ac, hence the purpose of this table is for information disclosure and not for taxation.

  • Notes 1. All contents of director’s remuneration disclosed are the director’s compensation in 2018 passed by resolution of the Board of Directors on March 13, 2019, and they had not been actually distributed yet.

  • Notes 2. On June, 25, 2018, overall reelection was conducted in General Meeting: GET JOINT BUSINESS CORPORATION (Representatives: HSU, HO; HSU, SHIH; HSU, CHIN); DAY LIGHT BUSINESS CO., LTD. (Representatives: HSU, SHOU; WU, CHIN-LU; WU, CHING-SHU); terms of office of CHANG, KUO-TAI; YU, YAO-FU; HSU, TA-YOU; WU, CHIEN-SZU; LU, CHIH-CHIEN and HO, SHIO-SHEN expired; and HSU, LIEN-KAI; WU, CHIN-LU; WU, CHING-SHU; HSU, YA-TING; HSU, HUAI-YUN; HSU, HAN-YUAN; CHANG, HORNG-YAN and HU, TA-HSIANG were newly elected.

3.3.2 Remuneration paid to the Supervisors in 2018: The Company sets Audit Committee, hence it is not applicable.

3.3.3 Remuneration paid to General Manager and Vice President in 2018:

Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand
Title Name Salary (A) Retirement pension
(B)		 Bonuses and
Allowances (C)		 Employees’
compensation (D)
(Notes)		 Proportion of total
amount of A, B, C
and D in net profit
after tax		 Whether or
not received
remuneration
from
reinvestment
enterprise
other than
the
subsidiaries
The
Company
All
companies
in
financial
report		 The
Company
All
companies
in
financial
report		 The
Company
All
companies
in
financial
report		 The
Company
All
companies
in financial
report
The
Company
All
companies
in
financial
report
Cash Stock Cash Stock
General
Manager		 HSU,
LIEN-KAI
(Notes)		 2,308
 2,308 132 132 484 484 368 0 368 0 1.58% 1.58% None
Executive
VP
HSU,
HSIU-HUA
(Notes)

Notes: HSU, LIEN-KAI assumed the post of CEO on May 9. 2018 and elected as the General Manager on June 25, 2018; and the post of HSU, HSIU-HUA was adjusted to Executive VP on June 25, 2018.

16

Range of Remuneration


Numerical range of remuneration paid to each General
Manager and Vice President of the Company
Name of General Manager and Vice President
Name of General Manager and Vice President
The Company All companies in financial
report (E)
Below NTD2,000,000 HSU, LIEN-KAI
HSU, LIEN-KAI
NTD2,000,000 (inclusive) ~ NTD5,000,000 HSU, HSIU-HUA HSU, HSIU-HUA
NTD5,000,000 (inclusive) ~ NTD10,000,000 - -
NTD10,000,000 (inclusive) ~ NTD15,000,000 - -
NTD15,000,000 (inclusive) ~ NTD30,000,000 - -
NTD30,000,000 (inclusive) ~ NTD50,000,000 - -
NTD50,000,000 (inclusive) ~ NTD100,000,000 - -
Over NTD100,000,000 - -
Total 2 2

  • The contents of remuneration disclosed in this table is different from the concept of income stipulated in Income Tax Ac, hence the purpose of this table is for information disclosure and not for taxation.

  • Notes 1. All contents disclosed are the employee’s compensation in 2018 passed by resolution of the Board of Directors on March 13, 2019, and they had not been actually distributed yet.

  • 3.3.4 Name of managerial officer distributed with employee’s compensation and distribution circumstance:

Unit: NTD thousand
Title Name Stock
amount		 Cash
amount		 Total Proportion of total amount
in net profit after tax (%)
Managerial officer General Manager HSU, LIEN-KAI (Notes) 0 1,359 1,359 0.65%
Executive VP HSU, HSIU-HUA (Notes)
General Manager of
XIAMEN XIAHUI		 HSU, HAN-YUAN
VP of XIAMEN
XIAHUI		 HSU, YA-TING
VP of PT. LUHAI QIU, ZHONG-LIE
VP of KUNSHAN
LUHAI		 HSU, KUANG-WU
CFO of Finance
Department		 CHANG, SHENG-HUNG
Director of Audit Room CHEN, YING-HUEI

  • Notes: HSU, LIEN-KAI was elected as the General Manager on June 25, 2018; and the post of HSU, HSIU-HUA was adjusted to Executive VP on June 25, 2018.

  • 3.3.5 Make respective and comparative description and analysis on the proportion of total remuneration paid to the directors, supervisors, and General Managers of the Company in the last two years by the Company and all companies in financial reports in the net profit after tax, and describe the policy, standard and combination of compensation payment, procedures of determining remuneration and relevance between operation performance and future risk

  • 3.3.5.1 Proportion of total remuneration of Directors, Supervisors, General Manager and Vice Presidents in the last two years in the net profit after tax:

NTD: thousand

NTD: thousand NTD: thousand NTD: thousand NTD: thousand
Item 2017 2018
Total remuneration Proportion in the net
profit after tax (%)		 Total remuneration Proportion in the net
profit after tax (%)
The
Company		 All
companies in
financial
report		 The
Company		 All
companies in
financial
report		 The
Company		 All
companies in
financial
report		 The
Company		 All
companies in
financial
report
Directors 8,859 8,859 3.23% 3.23% 8,307 11,218 3.98% 5.38%
General
Manager
and VP		 3,240 3,240 1.18% 1.18% 3,292 3,292 1.58% 1.58%

17

  • 3.3.5.2 Policy, standard and combination of remuneration payment; remuneration determination procedure; and relevance between operation performance and future risk are described as follows:

  • Directors, Supervisors

The Company has set the Remuneration Committee, in which all independent directors act as committee members; the Remuneration Committee is responsible for formulating and regularly reviewing the policies, systems, standards and structures of the performance assessment and remuneration of directors and managerial officers, meanwhile, regularly assessing and referring to the payment standards of counterparts before determining the remuneration of directors and managerial officers.

  • General Manager and Vice Presidents

The remuneration of General Manager and Vice Presidents include salary, bonus and employee’s compensation; it is determined according to the undertaking responsibilities and contributions to the Company as well as by referring to the standards of counterparts.

18

3.4 Corporate governance operation situation:

3.4.1 Information of Board of Directors’ operation situation

The Company has convened 9 (A) Board of Directors Meetings from 2018 till the date of annual report publication, attending situations of directors are as follows:

Title Name Attendance
in Person(B)		 By Proxy Attendance
rate(%) [B/A]		 Notes
Director DAY LIGHT BUSINESS
CO., LTD.
Representative: WU,
CHIN-LU		 3 - 100.00% Expiry of the
term of office
Director GET JOINT BUSINESS
CORPORATION
Representative: HSU,HO		 3 - 100.00% Expiry of the
term of office
Director GET JOINT BUSINESS
CORPORATION
Representative: HSU,
SHIH		 3 - 100.00% Expiry of the
term of office
Director GET JOINT BUSINESS
CORPORATION
Representative: HSU,
CHIN		 3 - 100.00% Expiry of the
term of office
Director DAY LIGHT BUSINESS
CO., LTD.
Representative: HSU,
SHOU		 3 - 100.00% Expiry of the
term of office
Director DAY LIGHT BUSINESS
CO., LTD.
Representative: WU,
CHING-SHU		 3 - 100.00% Expiry of the
term of office
Director HSU, TA-YOU 3 - 100.00% Expiry of the
term of office
Director YU, YAO-FU 3 - 100.00% Expiry of the
term of office
Director CHANG, KUO-TAI 1 2 33.33% Expiry of the
term of office
Director WU, CHIEN-SZU 3 - 100.00% Expiry of the
term of office
Independent
Director		 LU, CHIH-CHIEN 3 - 100.00% Expiry of the
term of office
Independent
Director		 HO, SHIO-SHEN 1 2 33.33% Expiry of the
term of office
Chairman HSU, LIEN-KAI 6 - 100.00% Newly elected
on June 25,
2018
Director WU, CHIN-LU 5 - 83.33% Newly elected
naturalperson
Director WU, CHING-SHU 5 1 83.33% Newly elected
naturalperson

19

Director HSU, YA-TING 6 - 100.00% Newly elected
on June 25,
2018
Director HSU, HUAI-YUN 6 - 100.00% Newly elected
on June 25,
2018
Director HSU, HAN-YUAN 6 - 100.00% Newly elected
on June 25,
2018
Independent
Director		 YEN, MEI-YING 9 - 100.00% Re-elected
Independent
Director		 CHANG,
HORNG-YAN		 6 - 100.00% Newly elected
on June 25,
2018
Independent
Director		 HU, TA-HSIANG 6 - 100.00% Newly elected
on June 25,
2018
Other matters should be recorded:
1. If the operation of Board of Directors Meeting has any one of the following circumstances, the
date of Board of Directors Meeting, session, proposal content, opinions of all independent
directors, and the Company’s handling of independent directors’ opinions shall be specified:
(1) Matters listed in Article 14-3 of Securities and Exchange Act: The Company has set the
Audit Committee, please refer to the operation situation of Audit Committee in the next page
for details, no such circumstances are available.
(2) Apart from the matters mentioned above, other board resolution matters on which
independent director has objections or modified opinions and with record or written
statements: No such circumstances are available.
2. For the directors’ avoidance of proposal with conflict of interest, the name of directors, proposal
contents, reasons for conflict of interest and participation in voting shall be specified:
(1) The Fourth Session of the 16th Board of Directors Meeting, May 9, 2018
Proposal content and execution situation:
Discuss the remuneration of the appointed director WU, CHING-SHU for handling
KUNSHAN LUHAI project, director WU, CHING-SHU didn’t participate in voting due to
the principle of conflict of interests, this case had been passed by the rest attending directors
unanimously and as proposed.
(2) The Fifth Session of the 2nd Board of Directors Meeting, August 8, 2018
Proposal content and execution situation:
Discuss the salary adjustment of managerial officers of the Company (subsequent
recognition), Chairman HSU, LIEN-KAI didn’t participate in voting due to the principle of
conflict of interests, this case had been passed by the rest attending directors unanimously
and as proposed.
(3) The Fifth Session of the 4th Board of Directors Meeting, January 18, 2019
Discuss the distribution of year-end bonus in 2018 to managerial officers of the Company,
Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t participate in
voting due to the principle of conflict of interests, this case had been passed by the rest
attending directors unanimously and as proposed.
Discuss the distribution of annual performance bonus in 2018 to managerial officers of the
Company, Director HSU, LIEN-KAI, HSU, HAN-YUAN and HSU, YA-TING didn’t
participate in votingdue to theprinciple of conflict of interests,this case had beenpassed by

20

the rest attending directors unanimously and as proposed.

  1. The objective of strengthening the functions of Board of Directors (such as setting Audit Committee, improving information transparency etc.) in the current and last year and assessment on execution situation: The Company had elected three independent directors and formed the Audit Committee, and convene the meeting at least once a quarter; besides, Remuneration Committee was established on January 21, 2013 in accordance with the regulations, and meetings were convened at least twice a year. The Company has formulated the “Regulations Governing Procedure for Board of Directors Meetings”, “Audit Committee Charter” and “Remuneration Committee Charter” to comply with, and input the attendance situations of Board of Directors Meeting and each committee meeting in company website and MOPS, and disclosed relevant information according to the requirement of laws and decrees to improve information transparency.

3.4.2 Operation situation of Audit Committee or supervisor’s participation in Board of Directors

Audit Committee of the Company comprises of all independent directors, responsible for reviewing fair presentation of company financial statement, appointment and independence and performance (dismissal) of certified public accountant, effective implementation of company internal control, company’s compliance with relevant laws and decrees and rules, and control of existing or potential risks of the company etc., its major powers and authorities are as follows:

  • (1) Adoption or amendment of an internal control system pursuant to Article 14-1 of Securities and Exchange Act.

  • (2) Assessment of the effectiveness of the internal control system.

  • (3) Adoption or amendment, pursuant to Article 36-1 of Securities and Exchange Act, of handling procedures for financial or operational actions of material significance, such as acquisition or disposal of assets, derivatives trading, extension of monetary loans to others, or endorsements or guarantees for others.

  • (4) A matters bearing on the personal interest of the director.

  • (5) A material assets or derivatives transaction.

  • (6) A material monetary loan, endorsement or provision of guarantee.

  • (7) The offering, issuance, or private placement of any equity-type securities.

  • (8) The hiring or dismissal of an attesting CPA, or the compensation given thereto.

  • (9) The appointment or discharge of a financial, accounting, or internal auditing officer.

  • (10) Annual financial report and financial report of the first, second and third quarter.

  • (11) Any other material matters so required by the company or competent authority.

  • Audit Committee has convened 8 (A) meetings from 2018 till the date of annual report

  • publication, attending situations of independent directors are as follows:

Title Name Attendance in
Person(B)		 By Proxy Attendance rate
(%) [B/A]		 Notes
Convenor YEN,MEI-YING 8 - 100.00% Re-elected
Independent
Director		 LU, CHIH-CHIEN 3 - 100.00% Expiry of the
term of office
Independent
Director		 HO, SHIO-SHEN 1 2 33.33% Expiry of the
term of office
Independent
Director		 CHANG,
HORNG-YAN		 5 - 100.00% Newly elected
on June 25,
2018
Independent
Director		 HU, TA-HSIANG 5 - 100.00% Newly elected
on June 25,
2018

21

Board of
Directors
Meeting		 Proposal contents and subsequent handling Matters
stipulated
in Article
14-5 of
Securities
and
Exchange
Act		 Resolution
item not
passed by
Audit
Committee but
agreed by
more than two
third (2/3) of
all directors.
The Fourth
Session of
the 14th
meeting
2018.1.31		 1. Construction of new plant of the sub-subsidiaries
XIAMEN
XIAHUI
RUBBER
METAL
INDUSTRIAL CO., LTD. (hereinafter referred to
as XIAMEN XIAHUI)		 -
2. Application for purchasing new equipment by
the
sub-subsidiaries
XIAMEN
XIAHUI
RUBBER METAL INDUSTRIAL CO., LTD.
(plant GUANKOU)		 -
3. Renovation plan of sub-subsidiaries LUHAI
RUBBER METAL INDUSTRIAL (KUNSHAN)
CO., LTD. (hereinafter referred to as KUNSHAN
LUHAI)		 -
4. Subsidiaries PT. LUHAI plans to build out a
standardplant		 -
Resolution of Audit Committee: it is agreed and passed by all attending
members.
Resolution of Board of Directors: it is agreed and passed by all attending
directors.
The Fourth
Session of
the 15th
meeting
2018.3.14		 1. 2017 business report and financial statements
of the Company		 -
2. Appointment of certified public accountants
of the Company in 2018, review of 2018
financial statements, and examination of
certified remuneration		 -
Resolution of Audit Committee: it is agreed and passed by all attending
members.
Resolution of Board of Directors: it is agreed and passed by all attending
directors.
The Fourth
Session of
the 16th
meeting
2018.5.9		 1. Amendments to the regulations governing the
acquisition
and
disposal
of
negotiable
securities investment by the sub-subsidiaries
LUHAI RUBBER METAL INDUSTRIAL
(KUNSHAN) CO., LTD. (hereinafter referred
to as KUNSHAN LUHAI)of the Company		 -
Resolution of Audit Committee: it is agreed and passed by all attending
members.

22

Resolution of Board of Directors: it is agreed
directors.		 and passed by all attending and passed by all attending
The Fifth
Session of
the 2nd
meeting
2018.8.8		 1. Consolidated financial statements for the
second quarter of 2018 of LU HAI HOLDING
CORP. (hereinafter referred to
as the
Company)		 -
2. Endorsement and guarantee of LU HAI
HOLDING CORP. (hereinafter referred to as
the Company)		 -
3. Amendments to the “Regulations Governing
the Acquisition and Disposal of Assets”		 -
4. Purchase of new equipment in the third
quarter of the sub-subsidiaries XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL
CO.,LTD.(plant GUANKOU)		 -
Resolution of Audit Committee: it is agreed
members.
Resolution of Board of Directors: it is agreed
directors.		 and passed by all attending
and passed by all attending
The Fifth
Session of
the 3rd
meeting
2018.11.7		 1. Cash capital increase and construction of new
plant
of
the
sub-subsidiaries
XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL
CO.,LTD		 -
2. Money lending by LU HAI HOLDING
CORP. (hereinafter referred to
as the
Company)
to
subsidiaries
PT.
LUHAI
INDUSTRIAL (hereinafter referred to as PT.
LUHAI), sub-subsidiaries XIAMEN XIAHUI
RUBBER METAL INDUSTRIAL CO., LTD
(hereinafter referred to as XIAMEN XIAHUI)
and
LUHAI
RUBBER
METAL
INDUSTRIAL (KUNSHAN) CO., LTD.
(hereinafter
referred
to
as
KUNSHAN
LUHAI)		 -
Resolution of Audit Committee: it is agreed
members.
Resolution of Board of Directors: it is agreed and
directors.		 and passed by all attending
passed by all attending
The Fifth
Session of
the 4th
meeting
2019.1.18		 1. Expansion
of
new
production
line
of
sub-subsidiaries LUHAI RUBBER METAL
INDUSTRIAL(KUNSHAN)CO.,LTD		 -
2. Bladder investment by subsidiaries PT.
LUHAI		 -
3. Endorsement and guarantee of LU HAI
HOLDING CORP. (hereinafter referred to as
the Company)		 -
4. Amendments to the “Regulations Governing
the Acquisition and Disposal of Assets”		 -
5. The Company’s acquisition of right-of-use -

23

assets
Resolution of Audit Committee: discussion on the second motion was
postponed, and the remaining motions were agreed and passed by all attending
members.
Resolution of Board of Directors: same as the resolution of Audit committee;
discussion on the second motion was postponed, and the remaining motions
were agreed andpassed byall attendingdirectors.
The Fifth
Session of
the 5th
meeting
2019.3.13		 1. 2018 business report and financial statements
of the Company		 -
2. The Company’s planning to transfer surplus to
capital increase byissuingnew shares		 -
3. Appointment of certified public accountants
of the Company in 2019, review of 2019
financial statements, and examination of
certified remuneration		 -
Resolution of Audit Committee: it is agreed
members.
Resolution of Board of Directors: it is agreed
directors.		 and passed by all attending
and passed by all attending
The Fifth
Session of
the 6th
meeting
2019.5.8		 1. Equipment update of new production lines for
production expansion in sub-subsidiaries
LUHAI RUBBER METAL INDUSTRIAL
(KUNSHAN) CO., LTD. (hereinafter referred
to as KUNSHAN LUHAI)		 -
2. New addition of equipment for truck valve
production line in sub-subsidiaries XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL
CO., LTD. (hereinafter referred to as
XIAMEN XIAHUI)		 -
3. Planning and assessment on the site of truck valve
production line of sub-subsidiaries XIAMEN
XIAHUI RUBBER METAL INDUSTRIAL CO.,
LTD. (hereinafter referred to as XIAMEN
XIAHUI)		 -
4. Amendments
to
the
“Internal
Control
Systems” of the Company		 -
5. Amendments
to
the
“Internal
Audit
Procedures” of the Company		 -
6. Amendments
to
the
“Measures
for
Self-Assessment
on
Internal
Control
Systems” of the Company		 -
7. Amendments to the “Regulations Governing
Making of Endorsements/Guarantees” of the
Company		 -
8. Amendments to the “Regulations Governing
Loaningof Funds” of the Company		 -
9. The Company’s acquisition of right-of-use
assets		 -
10. Sub-subsidiaries XIAMEN XIAHUI plans -

24

  • to purchase 2 multiple processing machines made in Germany( for TR4 )

  • Resolution of Audit Committee: the third lease/construction motion was submitted to Board of Directors for discussion, and the remaining motions were agreed and passed by all attending members. Resolution of Board of Directors: the third motion failed to reach majority consensus, and the remaining motions were agreed and passed by all attending directors.

  • (2) Apart from the matters mentioned above, other resolution matters not passed by Audit Committee but agreed by more than two third of all directors: No such circumstances are available.

  • For the independent directors’ avoidance of proposal with conflict of interest, the name of independent directors, proposal contents, reasons for conflict of interest and participation in voting shall be specified: None.

  • Communication circumstances (shall include the major matters, method and result etc. of communication regarding financial and business situations of the company) between and among independent directors and internal audit supervisors and accountants.

  • (1) The audit unit of the Company would regularly provide internal examination audit report to independent directors, and attend the Board of Directors Meeting to report the latest audit situation.

  • (2) Independent directors may review the financial and business conditions of the Company at any time, in case of any doubt or suggestion on relevant operating contents of the Company, the independent director may immediately communicate with the head of relevant unit for review and improvement.

  • (3) Independent directors and accountants shall convene a regular meeting quarterly, in which the accountants shall report the financial conditions, overall operation and examination situation of the Company to independent directors; apart from regular review of financial statements, independent directors may convene a meeting to communicate with the accountants at any time when necessary.

25

3.4.3 Corporate governance implementation status and its difference from the Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies and reasons

Implementation Status Implementation Status Implementation Status Difference from
No Corporate

Governance Best
Assessment item Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies

and reasons
1. Whether the Company has
formulated and disclosed the
Corporate Governance Best
Practice Principles according
to the “Corporate Governance
Best Practice Principles for
TWSE/TPEx
Listed
Companies”?






The Company has formulated “Corporate
Governance
Best
Practice
Principles”
pursuant to “Corporate Governance Best
Practice Principles for TWSE/TPEx Listed
Companies” to comply with, and it was
disclosed at company’s website and MOPS.




None
2. Shareholding structure and
shareholders’ rights
(1) Whether the Company has
formulated internal operation
procedures
to
handle
shareholders’
suggestions,
doubts, disputes and litigation
matters,
and
implement
it
according to such procedures?
(2) Whether the Company has
mastered
the
major
shareholders
actually
controlling the company and
the ultimate controller list of
major shareholders?
(3) Whether the Company has
established and executed the
risk control and firewall
mechanism with affiliated
enterprises?

















(1) The Company has appointed dedicated
stock affairs agency to handle stock
affairs, and set spokesman and deputy
spokesman to handle suggestions from
shareholders.
(2) The Company has set the stock affairs unit
and mastered the major shareholders actually
controlling the company and the ultimate
controller list of major shareholders, and has
regularly tracked and understood the changes
in shareholding and disclose them on
monthly basis pursuant to law.
(3) The assets and financial rights and
responsibilities between and among each
affiliated enterprise are independent
respectively, and they are handled
according to the internal control system
of the Company.
(4) The Company has formulated the
“Administrative Measures for Insider
Trading Prevention”, strictly prohibiting
insiders
from
trading
negotiable
securities
by
utilizing
undisclosed
information.



















None
(4) Whether the Company has
formulated internal regulation
to prohibit insider of the
Company
from
utilizing
undisclosed information for the
securities transaction?




26

Implementation Status Implementation Status Implementation Status Difference from
No Corporate

Governance Best
Assessment item Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies

and reasons
3. Board of Directors’ composition
and responsibility
(1) Whether the Board of Directors
has
formulated
diversified
policy
for
the
member
composition and implemented
it?
(2) Apart
from
setting
Remuneration Committee and
Audit Committee pursuant to
law, whether the Company is
willing to set other functional
committees?
(3) Whether the Company has
formulated the procedures of
Board of Directors
Performance Assessment
and its assessment method,
and regularly carried out
annually?
(4) Whether the Company has
regularly evaluate the
independence of CPA?












(1) The Company has explicitly stipulated
in Article 20 of “Corporate Governance
Best
Practice
Principles”
that
the
composition of director members shall
be diversified, and implemented it
accordingly. Board of Directors of the
Company comprises of 9 directors
(including 3 independent directors),
among them, 3 directors are female, and
members are the professional talents
from different professional backgrounds
or fields. Relevant information of
members of Board of Directors and the
diversification
policy
have
been
disclosed on company website.
(2) The Company has set the Remuneration
Committee
pursuant
to
law,
and
voluntarily set the Audit Committee, in
the future, the Company will set other
functional committees according to
business demand.
(3) The Company will draw up the
Procedures of Board of Directors
Performance Assessment and will carry
out internal performance assessment
annually according to the assessment
procedures stipulated in such Procedures
since 2020.


















None
None






None
(4) On March 13, 2019, Board of Directors
of the Company has
passed the
assessment on the independence and
competency of the appointed certified
public
accountant.
Certified
public
accountants and their group have not
been appointed by the Company or the
affiliated enterprise, nor have close
commercial
relationship
with
the
Company or directors and managerial
officers of the Company, nor have any
financial interests with the Company or
the affiliated enterprise, nor have
accepted any gift of great value or
improper entertainment or received any
payment other than the audit work;
besides, certified public accountants and
their group have not engaged in the
trading ofstocks ofthe Company, and


















None

27

Implementation Status Difference from
No Corporate

Governance Best
Assessment item Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies

and reasons
maintain the accountant’s independence,
and their job rotations are following
relevantregulations.
4. Whether or not the listed
company
sets
corporate
governance
dedicated
(part-time) unit or personnel
to
be
responsible
for
corporate governance related
affairs (including but not
limited to provide directors
and supervisors necessary
materials
for
business
execution, handle matters
related to Board of Directors
Meeting and Shareholders’
Meeting pursuant to law,
handle company registration
and amendment registration,
and prepare minutes for
Board of Directors Meeting
and Shareholders’ Meeting
etc.)?


















The Company’s Finance Department, Audit
Room and affiliated departments of each
relevant case provide necessary materials
for business execution by director/audit
members, the General Manager Room is
responsible for relevant deliberation of
Board
of
Directors
Meeting
and
Shareholders’ Meeting, and Administration
Department handles the operations related to
the company amendment registration.
The management team communicates with
the accountants and Audit Committee
regularly.










None
5. Whether the Company has
established communication
channels with Stakeholders
(including but not limited to
shareholders,
employees,
customers
and
suppliers
etc.),
and
set
up
a
Stakeholders’ section on the
company
website,
and
appropriately respond to the
important corporate social
responsibilities concerned by
Stakeholders?











The website of the Company has set the
Stakeholders’ section to provide investors
service,
customers
and
suppliers
and
employees sections respectively, and has left
contact information at MOPS and company
website, and the Company can respond to
the
important
issues
concerned
by
Stakeholders by the dedicated person, fax
and email etc.







None
6. Whether the Company has
appointed
a
professional
stock
affairs
agency
to
handle
the
affairs
of
Shareholders’ Meeting?



The Company has appointed a professional
stock affairs agency, the “Stock Agent
Department, Sinopac Securities” to handle
matters related to stock affairs in Taiwan,
and
has
formulated
the
“Regulations
Governing
the
Administration
of
Shareholder Services” to regulate relevant
affairs.






None

28

Implementation Status Implementation Status Implementation Status Difference from
No Corporate

Governance Best
Assessment item Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies

and reasons
7. Information disclosure
(1) Whether the Company has set
website to disclose financial
business
and
corporate
governance information?
(2) Whether the Company has
adopted other information
disclosure methods (such as
setting
English
website,
designating dedicated person
to be responsible for the
collection and disclosure of
company
information,
implementing
spokesman
system,
and
webcasting
investors conference etc.)?












(1) The Company has set the website:
http://www.luhai.com.tw/, and disclose
information related to financial business
and
corporate
governance
of
the
Company
at
MOPS
regularly
or
irregularly as required.
(2) The Company has set the English
website,
spokesman
or
deputy
spokesman makes a statement on the
issues related to the Company, and each
relevant
business
department
is
responsible for the collection and
disclosure of company information.
Besides, relevant information on the
investor conference presentation already
convened or being invited to attend over
the years have been disclosed at
company website and MOPS.














None
8. Whether the Company has other important information contributing to the understanding of operation
situation of corporate governance (including but not limited to rights and interests of employee, employee
caring, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training
records, execution situation of risk management policy and risk measurement standards, execution
situation of customer policy, the situation in which the Company buys liability insurance for the directors
and supervisors etc.)?
(1) Rights and interests of employee: The Company and each local subsidiary have formulated the
system related to employee welfare, according to the laws and decrees of various countries to
safeguard the rights and interests of employee.
(2) Employee caring: The Company and its reinvested subsidiaries have set the Employees Union as the
communication channel between employees and management of the company, consensus is reached
between the Employees Union and employees for all important matters involving in employees to
condense centripetal force; besides, internal periodical of the Group “LUHAI’s Windows” has been
set to encourage employees to contribute to share their spirits and actively give feedbacks.
(3) Investor relations: the website of the Company sets the investor relations section to irregularly update
relevant information to provide to the investor for reference.
(4) Stakeholder: The Company has set the Stakeholder section on the company website to maintain a
smooth communication channel of stakeholders (shareholders, investors, corresponding banks,
suppliers, customers, medias and employees etc.), and respect and safeguard their due legal rights
and interests.
(5) Directors’ training records in 2018: please refer to “Directors’ training records in 2018” (Page 31) in
this annual report for details.
(6) The Company has formulated the “Administrative Measures for Insider Trading Prevention” and
“Administrative Measures for Material Information Announcement” as the basis for handling major
information and disclosure mechanism, and irregularly reviews those Measures to conform to current
laws and decrees and meet the requirement of practical management, upon amendment, the Company
will inform employees by E-mail internally and put the latest measures at internal website of the
Company for reference by managerial officers and employees at any time.
(7) Circumstance of buying liability insurance for directors: The Company will start to buy directors’
liability insurance for the directors before the end of June 2019.

  1. Whether the Company has other important information contributing to the understanding of operation situation of corporate governance (including but not limited to rights and interests of employee, employee caring, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, execution situation of risk management policy and risk measurement standards, execution situation of customer policy, the situation in which the Company buys liability insurance for the directors and supervisors etc.)?

  2. (1) Rights and interests of employee: The Company and each local subsidiary have formulated the system related to employee welfare, according to the laws and decrees of various countries to safeguard the rights and interests of employee.

  3. (2) Employee caring: The Company and its reinvested subsidiaries have set the Employees Union as the communication channel between employees and management of the company, consensus is reached between the Employees Union and employees for all important matters involving in employees to condense centripetal force; besides, internal periodical of the Group “LUHAI’s Windows” has been set to encourage employees to contribute to share their spirits and actively give feedbacks.

  4. (3) Investor relations: the website of the Company sets the investor relations section to irregularly update relevant information to provide to the investor for reference.

  5. (4) Stakeholder: The Company has set the Stakeholder section on the company website to maintain a smooth communication channel of stakeholders (shareholders, investors, corresponding banks, suppliers, customers, medias and employees etc.), and respect and safeguard their due legal rights and interests.

  6. (5) Directors’ training records in 2018: please refer to “Directors’ training records in 2018” (Page 31) in this annual report for details.

  7. (6) The Company has formulated the “Administrative Measures for Insider Trading Prevention” and “Administrative Measures for Material Information Announcement” as the basis for handling major information and disclosure mechanism, and irregularly reviews those Measures to conform to current laws and decrees and meet the requirement of practical management, upon amendment, the Company will inform employees by E-mail internally and put the latest measures at internal website of the Company for reference by managerial officers and employees at any time.

  8. (7) Circumstance of buying liability insurance for directors: The Company will start to buy directors’ liability insurance for the directors before the end of June 2019.

29

Implementation Status Implementation Status Implementation Status Implementation Status Difference from
No Corporate

Governance Best
Assessment item Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies

and reasons
9.

Please describe the improvement of corporate governance evaluation result released by corporate
governance center of Taiwan Stock Exchange Corporation in the last year, and propose the prioritized
strengthening matters and measures for the unimproved matters.
Items already improved by the Company in corporate governance in 2018 are as follows:
Evaluation indicators
Improved circumstances
Whether there are less than two directors of
the Company having spouse relationship or
relatives relationship within second degree?
The Company has re-elected directors in 2018
General Shareholders Meeting, between and
among newly elected directors, there are less
than two directors having spouse relationship
or relatives relationshipwithin second degree.
In the year of evaluation, whether the
Company had at least convened six Board of
Directors Meetings?
Totally six Board of Directors Meetings had
been convened in 2018.
Whether the Company has been punished by
the competent authority due to labor dispute,
environmental pollution, product safety or
other major violations of corporate social
responsibility?
The Company has no such circumstances in
2018.
Unimproved matters to be prior strengthened are as follows:
Evaluation indicators
Improvement circumstances
Whether the Company has been invited to
(voluntarily) convene at least two investor
conference presentations, and the interval
between
the
first
and
last
investor
conference presentations is over three
months in the year of evaluation?
The Company is expected to convene at least
two investor conference presentations in 2019.
Whether the Company will convene a
General Shareholders’ Meeting before the
end of May?
The Company will convene the 2019 General
Shareholders’ Meeting before the end of May.
Whether the Company will upload the English
meeting handbook and supplementary meeting
materials 21 days before convening the General
Meeting?
The Company will upload the English meeting
handbook and supplementary meeting materials in
2019.
Whether the Company will upload the
English annual report 7 days before
convening the General Meeting?
The Company will upload the English annual
report in 2019.
Whether the Company will buy director and
supervisor’s liability insurances for all its
directors and supervisors, and report to the
Board of Directors?
The Company will buy directors’ liability
insurances pursuant to law before the end of
June 2019.
Whether the Company will disclose the
annual financial report (including financial
statements and notes) in English at company
website or MOPS?
The Company will disclose English annual
financial report this year.
Evaluation indicators Improvement circumstances
Whether the Company has been invited to
(voluntarily) convene at least two investor
conference presentations, and the interval
between
the
first
and
last
investor
conference presentations is over three
months in the year of evaluation?		 The Company is expected to convene at least
two investor conference presentations in 2019.
Whether the Company will convene a
General Shareholders’ Meeting before the
end of May?		 The Company will convene the 2019 General
Shareholders’ Meeting before the end of May.
Whether the Company will upload the English
meeting handbook and supplementary meeting
materials 21 days before convening the General
Meeting?		 The Company will upload the English meeting
handbook and supplementary meeting materials in
2019.
Whether the Company will upload the
English annual report 7 days before
convening the General Meeting?		 The Company will upload the English annual
report in 2019.
Whether the Company will buy director and
supervisor’s liability insurances for all its
directors and supervisors, and report to the
Board of Directors?		 The Company will buy directors’ liability
insurances pursuant to law before the end of
June 2019.
Whether the Company will disclose the
annual financial report (including financial
statements and notes) in English at company
website or MOPS?		 The Company will disclose English annual
financial report this year.

30

Directors’ training records in 2018

Title Name Date Host unit Course name Hours
Chairman HSU,
LIEN-KAI		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3
Director WU,
CHIN-LU		 7/24/2018 Council for Industrial and
Commercial Development
R.O.C.		 Corporate
governance
and
management lecture		 3
10/5/2018 Taiwan Academy of
Banking and Finance		 Corporate
governance
and
enterprise
business
continuity
seminar		 3
Director WU,
CHING-SHU		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/30/2018 Taiwan Corporate
Governance Association		 Disclosure of material information
of company and responsibilities of
director and supervisor

3
Director HSU,
YA-TING		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3
Director HSU,
HUAI-YUN		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3
Director HSU,
HAN-YUAN		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3
Independent
Director		 YEN,
MEI-YING		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3
Independent
Director		 CHANG,
HORNG-YAN
8/8/2018		 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
8/13/2018 Securities and Futures
Institute		 Study on the latest trend of
corporate governance and impact
on responsibilities of director and
supervisor from the perspective of
the latest amendment trend of
CompanyAct




3
Independent
Director		 HU,
TA-HSIANG		 8/8/2018 Taiwan Corporate
Governance Association		 Board of Directors’ function and
efficiencyassessment
3
11/7/2018 Taiwan Corporate
Governance Association		 Obligations and responsibilities of
companies,
directors
and
supervisors under Securities and
Exchange Act


3

31

3.4.4. Composition, responsibility and operation situation of the Remuneration Committee

3.4.4.1 Composition of Remuneration Committee

The Company has set the Remuneration Committee by resolution on January 21,

2013, and all independent directors are members of Remuneration Committee.

Title
(Notes 1)		 Criteria
Name		 Whether or not with over five years of work
experience and the following professional
qualifications		 Whether or not with over five years of work
experience and the following professional
qualifications		 Whether or not with over five years of work
experience and the following professional
qualifications		 Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Independence Criteria (notes 2) Number of
other public
companies in
which
concurrently
act as
Remuneratio
n Committee
member
Notes
(Notes 3)
An Instructor or
Higher Position
in a Department
of Commerce,
Law, Finance,
Accounting, or
Other Academic
Department
Related to the
Business Needs
of the Company
in a Public or
Private Junior
College, College
orUniversity		 A Judge, Public
Prosecutor,
Attorney, CPA, or
Other Professional
or Technical
Specialist Who
has Passed a
National
Examination and
been Awarded a
Certificate in a
Profession
Necessary for the
Business of the
Company
Have Work
Experience
in the Areas
of
Commerce,
Law,
Finance, or
Accounting,
or Otherwise
Necessary
for the
Business of
the
Company
1		 2 3 4 5 6 7 8
Convenor CHANG,
HORNG-YAN		 0 Yes
Independent
Director		 YEN,
MEI-YING		 0 Yes
Independent
Director		 HU,
TA-HSIANG		 0 Yes

Notes 1. Please fill in director, independent director or other in the column of identity type.

Notes 2. If each member is conforming to the following conditions two years before appointment and during the term of office, please tick "  " in the blank below the code of each condition.

  • (1) Not an employee of the company or any of its affiliates.

  • (2) Not a director or supervisor of the company or any of its affiliates Except for the independent director set by the company, its parent company or any subsidiary pursuant to this Act or with the laws of the country of the parent or subsidiary.

  • (3) Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

  • (4) Not a spouse, relatives within the second degree kinship, or lineal relatives within the third degree of kinship, of any of the person in the preceding three subparagraphs.

  • (5) Not a director, supervisor or employee of a corporate/institutional shareholder that directly holds 5% or more of the total number of issued shares of the company or ranks as of its top five shareholders;

  • (6) Not a director, supervisor, managerial officer or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the company.

  • (7) Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial or accounting etc. services or consultation to the company or to any affiliate of the company, or a spouse thereof.

  • (8) Not been a person of any conditions defined in Article 30 of the Company Act.

  • Notes 3. If the identity type of the member is director, please describe whether it is conforming to the provisions of Paragraph 5, Article 6 of “Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter”

32

3.4.4.2 Responsibilities of Remuneration Committee

Remuneration Committee shall faithfully perform the following powers and authorities with the attention as a bona fide manager, and submit the recommendations to the Board of Directors for discussion:

  • (1) Prescribe and periodically review the performance review and remuneration policy, system, standards and structure of directors and managerial officers.

  • (2) Make sure that the company’s remuneration arrangement is conforming to relevant laws and decrees and sufficient to attract outstanding talents.

  • (3) With respect to the performance assessment and remuneration of directors, members of Audit Committee and managerial officers of the company, it shall refer to the typical pay levels adopted by peer companies, and take into consideration the reasonableness of the correlation between remuneration and individual performance, the company’s business performance, and future risk exposure.

  • (4) It shall not produce an incentive for the directors or managerial officers to engage in activity to pursue remuneration exceeding the risk that the company may tolerate.

  • (5) Periodically evaluate and prescribe the remuneration of directors and managerial officers. The Remuneration Committee Meeting shall be convened by the convener at least twice a year, and meeting may be convened at any time as necessary.

  • 3.4.4.3 Operation situation of Remuneration Committee

  • (1) There are 3 members in the Remuneration Committee of the Company.

  • (2) Term of office of members in this session: from June 25, 2018 to June 24, 2021, as at the publication date of 2018 annual report, Remuneration Committee has convened 7(A) meetings, and members’ qualification and attending situation are as follows:

Title Name Attendance in
Person(B)		 By Proxy Attendance rate
(%) (B/A)		 Notes
Convenor LU, CHIH-CHIEN 3 - 100.00% Expiry of the
term of
office
Committee
member		 YEN, MEI-YING 7 - 100.00% Re-elected
Committee
member		 HO, SHIO-SHEN 1 2 33.33% Expiry of the
term of
office
Convenor CHANG,
HORNG-YAN		 4 - 100.00% Newly elected
on June 25,
2018
Committee
member		 HU, TA-HSIANG 4 - 100.00% Newly elected
on June 25,
2018

33

Remuneration
Committee		 Proposal contents and subsequent handling
The Second
Session of the
9th meeting
2018.1.31		 1. The Company’s distribution of year-end bonus to managerial officers
in 2017
2. The Company’s distribution of annual performance bonus to
managerial officers in 2017
3. The Company’s salary adjustment subsequent recognition for
managerial officers
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Second
Session of the
10th meeting
2018.3.14		 1. The Company’s distribution of director and employee’s remuneration
in 2017
2. Amendments to the “Measures for Remuneration Payment to
Director and Functional Committee” of the Company
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Second
Session of the
11th meeting
2018.5.9		 1. The Company’s appointment of Chief Executive Officer and
remuneration discussion
2. Remuneration for the appointment of Director WU, CHING-SHU to
handle KUNSHAN LUHAI project
3. The Company’s salaryadjustment for managerial officers
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Third
Session of the
1st meeting
2018.8.8		 1. The Company’s distribution of director’s individual remuneration in
2017
2. The Company’s distribution of managerial officer’s remuneration in
2017
3. The Company’s salary adjustment (subsequent recognition) for
managerial officers
4. The Company’s salaryadjustment for managerial officers
Resolution result of Remuneration Committee: it is agreed and passed

34

by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Third
Session of the
2nd meeting
2018.11.7		 1. Amendments to the “Salary Management Measures” of the Company
2. Amendments to the “Measures for Employee’s Performance Bonus
Assessment and Remuneration Distribution” of the Company
3. Amendments to the “Dispatched Personnel Management Measures”
of the Company
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Third
Session of the
3rd meeting
2019.1.18		 1. The Company’s distribution of year-end bonus to managerial officers
in 2018
2. The Company’s distribution of annual performance bonus to
managerial officers in 2018
3. Amendments to the Company’s allocation proportion of performance
bonus
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.
The Third
Session of the
4th meeting
2019.3.13		 (1)
The Company’s distribution of director and employee’s
remuneration in 2018
Resolution result of Remuneration Committee: it is agreed and passed
by all attending members.
Resolution of Board of Directors: it is agreed and passed by all
attendingdirectors.

35

3.4.5 Performance of corporate social responsibility

Implementation Status Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
1. Implement corporate
governance
(1) Whether the Company has
formulated corporate social
responsibility
policy
or
system, and has reviewed
the implementation effect?
(2) Whether the Company has
held social responsibility
educational training
regularly?




(1)
a.
(2)		 The Company has formulated the
“Corporate Social Responsibility
Best Practice Principles” and has it
passed by Board of Directors, and
reviews
the
situation
of
implementation irregularly.
Implementation effect:
In the aspect of environmental






































None.

protection:the Company has
been devoting to utilize all
kinds
of
resources
and
implement
the classification
and reduction of rejectable
waste and garbage, and hand
over them to the recycling
manufacturer for disposal, so as
to
reduce
the
impact
on
environmental
protection;
besides,
the
Company
has
formulated relevant operation
procedures pursuant to law for
handling air pollution, waste
water and waste; and the
Company
has
been
implementing the policy of
energy
saving
and
carbon
reduction to reduce the waste of
energy.
Community participation, social

contribution, social service, and

social
benefit:
regularly
or
irregularly
participate
in
and
sponsor all kinds of public benefit
activities of the community groups
near the company, and make
charity donation to give play to the
enterprise spirit of loving others as
ourselves.
The Company always promptly
informs the directors, supervisors,
insiders and employees of relevant
management units’ relevant course
information on corporate social
responsibilityfor them to carryout

36

Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
(3) Whether the Company has
set dedicated (part-time)
unit to promote corporate
social responsibility, and
whether the Board of
Directors has authorized
senior management to
handle and report the
handling situation to Board
of Directors?
(4) Whether the Company has
formulated
reasonable
remuneration policy, has
combined the employee
performance
appraisal
system
with
corporate
social responsibility policy,
and has established explicit
and effective rewards and
punishment system?









educational training.
(3) The Company is willing to actively
participate in community services
and public benefit activities, the
Administration
Department
is
responsible for looking for and
screening appropriate projects and
report for approval before input, so
as to fulfill the corporate social
responsibility.
(4) The Company has established
the Remuneration Committee
and formulated the measures
for
remuneration,
employee
performance bonus assessment
and bonus distribution, and
irregularly
reviews
the
rationality of remuneration and
performance
assessment
system.















2. Sustainable environment
development
(1) Whether the Company has
been devoting to improve
the utilization efficiency of
all kinds of resources, and
use renewable materials
having lower impact on
environmental?
(2) Whether the Company has
established
appropriate
environmental
management
system
according
to
its
industrial characteristics?









(1) The
Company
has
been
continuously
improving
the
utilization efficiency of all
kinds
of
resources
and
recycling
and
reusing
raw
materials. For example, the
Company actively uses the
reusable pallets formed by the
recycled packaging materials
(such as pallet, clapboard etc.)
and repair wooden pallets to
mitigate
the
environmental
load.
The
Company
and
subsidiaries will set dedicated
unit
or
personnel
for
environmental management as
the case may be.
(2) The
Company
has
passed
various ISO certifications, and
has complete regulation on
quality
management,
safety,
health
and
environmental
protection etc.



















None

37

Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
(3) Whether the Company is
aware of the impact of climate
change on operation activity,
and executes greenhouse gas
inventory,
and
formulates
company strategy for energy
saving and carbon reduction
and greenhouse gas reduction?







(3) The Company pays attention to
energy
saving
and
carbon
reduction at ordinary times, so
as
to
save
the
power
consumption in offices and
production units. For example,
subsidiaries have changed the
original heating by the steam
generated
from
heavy
oil
burning boiler into the current
heating by gas and electric
energy etc., so as to gradually
implement energy saving and
carbon reduction and reduction
of greenhouse gas.












3. Maintain social welfare
(1) Whether the Company has
formulated
relevant
management policies and
procedures according to
relevant
laws
and
regulations
and
International Covenants on
Human Rights?
(2) Whether the Company has
established
employee
complaint mechanism and
channel, and has handled
them properly?
(3) Whether the Company has
provided employees a safe
and healthy working
environment, and has
implemented safety and
health education to the
employees regularly?













(1) The Company has formulated
personnel management regulations
according to Labor Act and
relevant personnel laws and the
spirit of International Covenants on
Human Rights, so as to safeguard
legal
rights
and
interests
of
employees.
(2) Overseas production bases of the
Company
adopt
employees’
mailbox for local responsible
person to handle all kinds of
complaints
of
employees
uniformly;
and
employee
complaint channel is established at
company website for dedicated
personnel to be responsible for
managing
employee
complaint
mechanism.
(3) The Company has provided
employees a safe and healthy
working
environment
according to relevant laws and
regulations,
and
regularly
provides health examination
and
irregularly
carries
out
educational
training,
and
provides
appropriate
and
sufficient protective devices for
work. Production bases of the
Company carry out safety and
health education to employees
regularly and irregularly. For
example, reduce noise, high
temperature and pollution etc.
in
production
workshop
environment
to
provide
employees a safer and healthier






None

38

Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
(4) Whether the Company has
established
employee
regular
communication
mechanism, and informs
the
employee
in
a
reasonable manner that the
operation change might
cause significant impact?
(5) Whether the Company has
set effective occupational
ability
development
training
plan
for
the
employees?
(6) Whether the Company has
formulated relevant policies
protecting consumers’ rights
and interests and complaint
procedures for the research and
development,
procurement,
production,
operation
and
service processes etc.?
(7) For
the
marketing
and
marking
of
product
and
service, whether the Company
has complied with relevant
regulations and international
standards?
(8) Before
the
intercourse
between the Company and
suppliers,
whether
the
Company
has
assessed
whether the suppliers have
any record impacting the
environment and society in
the past?		 working
environment,
and
regularly carry out propaganda
and educational training on
occupational injury prevention,
fire safety practical drilling,
and
regularly
provide
employees
the
physical
examination.







































None






























(4) The
Company
attaches
importance
to
employee
communication channel and
sets internal publication of the
Group,
namely
“LUHAI’s
Windows”, and publishes it
periodically to employees to
express their moods, in case of
policy or event with significant
impact, the Company will hold
labor-management meeting to
inform employees.
(5) Apart from sparing no efforts to
train employees all kinds of
professional skills at operating
post, the Company has not yet
established
development
training plan for employees’
career competence.
(6) Currently,
products
of
the
Company have not faced the
end consumers directly, the
Sales
Department
is
responsible
for
handling
customer complaints from sales
customers.
(7) The Company takes responsibility
for the produced products, and in
principle, relevant marking and
marketing method of its products
will
not
violate
laws
and
regulations
and
international
norms.
(8) The
Company
conducts
sampling
to
ask
suppliers
whether their products cause
significant pollution to the
environment, in the future, it
will carry out in writing as the
case may be, and take it as the
key consideration in whether or
not listing as the qualified
supplier.

39

Implementation Status Implementation Status Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
(9) Whether contracts between
the Company and major
suppliers
contain
the
clause that, if the supplier
involves in violating its
corporate
social
responsibility policy and
has significant impact on
the
environment
and
society, the Company may
terminate or cancel the
contract at any time?










(9) When appropriate in the future,
the Company will include the
clause that “if the supplier
involves
in
violating
its
corporate social responsibility
policy
and
has
significant
impact on the environment and
society, the Company may
terminate or cancel the contract
at any time” into the contract.







4.
(1)		 Enhanced information
disclosure
Whether the Company has
disclosed relevant corporate
social
responsibility
information of relevance and
reliability at its website and
MOPS?




The Company has set exclusive
website
with
the
address
as
www.luhai.com.tw,
apart
from
product introduction, it is also one
of the communication channels
between and among the Company
and shareholders, customers and
suppliers; besides, investors section
is set to disclose financial business
information of the company to
make the company information
transparent, so that shareholders are
able to learn about the company
news.












None
5. If the Company has formulated its own Corporate Social Responsibility Best Practice Principles
according to the “Corporate Social Responsibility Best Practice Principles for TWSE/TPEx
Listed Companies”, please describe its operation and the difference circumstances therebetween:
The Company has formulated the “Corporate Social Responsibility Best Practice Principles”
according to the “Corporate Social Responsibility Best Practice Principles for TWSE/ TPEx
Listed Companies”, and there is no significant difference.
6. Other important information good for understanding the operation situation of corporate social
responsibility:
Environmental aspect:
(1) All important operating offices are complying with relevant local environmental protection
laws and regulations and have acquired the Pollutant Discharge Permit and paid the
pollutant discharge fee; besides, they have also acquired the ISO14001 certification.
(2) The Company has been continuously improving the utilization efficiency of all kinds of
resources and recycling reusing raw materials; carrying out energy saving and carbon
reduction campaign to save the power consumption in offices and production units.
(3) Sub-subsidiaries of the Company actively invest funds to introduce air pollution control
equipment to improve the fume emission in the plant to meet standards.
(4) Sub-subsidiaries of the Company actively invest funds to introduce water pollution control
equipment to improve the discharge quality of electroplating water to meet standards.
(5) Sub-subsidiaries of the Company actively invest funds to rectify and improve oil-burning
equipment, and change the original heavy oil burning into gas and electric heat energy to
improve the issues of safety and air pollution, so as to meet standards.
Social aspect:
(1) Subsidiaries of the Company has sponsored NTD110 thousand to the “Tianzhong
Marathon”activity, about one hundred colleagues including their spouses enthusiastically

  1. If the Company has formulated its own Corporate Social Responsibility Best Practice Principles according to the “Corporate Social Responsibility Best Practice Principles for TWSE/TPEx Listed Companies”, please describe its operation and the difference circumstances therebetween: The Company has formulated the “Corporate Social Responsibility Best Practice Principles” according to the “Corporate Social Responsibility Best Practice Principles for TWSE/ TPEx Listed Companies”, and there is no significant difference.

  2. Other important information good for understanding the operation situation of corporate social responsibility:

40

Implementation Status Implementation Status Implementation Status Discrepancy with the
No
“Corporate Social

Responsibility Best
Assessment item
Practice Principles
Yes Description abstract

for TWSE/TPEx
Listed Companies”

and the reasons
participated and assisted in the proceeding of the entire activity; besides, regular donation
to Changhua Spinal Cord Injury Reconstruction Association and irregular donation of
second-hand computers and clothing and other articles of daily use etc. to the preschool,
enthusiastic participation in public benefit activities, and serving fellow villagers or
townsmen are the consistency principles of the Company in giving back to the society.
Employee aspect:
(1) The Company provides a channel for employee’s opinion reflection, and sets internal
publication of the Group, namely “LUHAI’s Windows”, and refers to the spirit of
International Covenants on Human Rights to amend relevant measures of the Company,
and irregularly convene meetings to keep a smooth communication channel.
7. If the corporate social responsibility report of the Company has passed the verification standards
of relevant certification authority, it shall be described: None.

41

3.4.6 Situation of performing ethical corporate management and measures adopted

Implementation Status Implementation Status Implementation Status Difference from
No Ethical Corporate

Management Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies

and the reasons
1. Formulate ethical
corporate management
policy and scheme
(1) Whether
the
Company
has
explicitly formulated the policy
and practice of ethical corporate
management in the regulations
and external documents, and the
commitment
of
Board
of
Directors
and
management
echelon to actively implement the
operation policy?
(2) Whether the Company has
formulated the schemes to
prevent dishonest behaviors,
and
explicitly
stipulated
operation procedure, behavioral
guideline, violation punishment
and complaints system and
implemented them in each
scheme?
(3) Whether the Company has taken
preventive measures for
the
operating activities prescribed in
each subparagraph of Paragraph
2, Article 7 of “Ethical Corporate
Management
Best
Practice
Principles for TWSE/TPEx Listed
Companies” or other operating
activities of higher risks of
dishonest behavior within the
business scope?



























(1) The Company has formulated the
“Codes of Ethical Conduct” and
“Ethical Corporate Management Best
Practice Principles”, and the corporate
culture of the Company also attaches
importance to integrity and code of
ethics.
(2) The Company has formulated the
“Procedures for Ethical Management
and Guidelines for Conduct” to
comply
with
and
implement
it
accordingly.
(3) The Company has also set internal
control and internal audit systems to
be executed by the audit unit,
important business activities are the
key points in auditing, if fraudulent
practices or inappropriate behaviors
are found, it will be handled according
to relevant regulations immediately.
















None
2. Implementation of ethical
corporate management
(1) Whether the Company has
assessed the ethical records
of contacting objects, and
explicitly stipulated ethical
clauses in the contract
signed by and between the
Company
and
trading
objects?
(2) Whether the Company has
set dedicated (part-time)
unit subordinated to Board
of Directors to promote
ethical corporate
management, and regularly
reports to Board of








(1) Before
trading
with
important
customers, the Company will conduct
credit investigation to avoid trading
with customers with the record of
dishonest behaviors.
(2) The Company designates Administration
Department as the dedicated unit for this
business matter, contents of such business
are subordinated to Board of Directors, and
the Administration Department regularly
reports the execution situation to Board of
Directors.









None

42

Implementation Status Implementation Status Implementation Status Difference from
No Ethical Corporate

Management Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies

and the reasons
Directors on the execution
situation thereof?
(3) Whether the Company has
formulated policy to prevent
conflict
of
interest
and
provided
proper
statement
channel,
and
implements
them?
(4) Whether the Company has
established
effective
accounting system, internal
control
system
for
implementing
ethical
corporate
management,
and assigns internal audit
unit to conduct auditing
regularly
or
appoints
accountants to execute the
auditing?
(5) Whether the Company holds
internal
and
external
educational training on ethical
corporate
management
regularly?




















(3) The “Procedures for Ethical Management
and Guidelines for Conduct” formulated
by the Company is available for providing
complete good-practice guidelines to
employees.
(4) The Company has set accounting
system for accounting personnel to
comply with upon operation, and
internal audit personnel will also carry
out all kinds of audit operations
regularly and irregularly, and report
the results to the Board of Directors.
(5) The Company irregularly propagandizes
relevant stipulations of Ethical Corporate
Management Best Practice Principles to
directors, managerial officers, employees
and appointees etc. In the future, the
Company will regularly convene internal
or external educational training after the
date of Board of Directors Meeting as the
case may be.

















None
3. Operation situation of
company reporting system
(1) Whether
the
Company
has
formulated specific reporting and
rewarding system and established
convenient reporting channel, and
assigned appropriate dedicated
handling personnel for the object
being reported?
(2) Whether
the
Company
has
formulated standard investigation
operation procedures and relevant
confidentiality mechanism for
accepting reporting matters?
(3) Whether the Company has taken
measures to protect whistleblower
from improper treatment due to
the reporting?









(1) Reporting system of the Company includes
employee
complaints,
customer
and
supplier exposure, the reporting method is
disclosed at the stakeholder section of
company website, and dedicated personnel
is assigned to be responsible for handling.
(2) The Company has stipulated proper
reporting and rewarding systems in the
“Procedures for Ethical Management and
Guidelines for Conduct”. Meanwhile, the
Company will establish relevant operation
procedures and confidentiality mechanism
to ensure proper protection and guarantee
of whistleblower.










None.


(3) In the future, the Company will
establish relevant operation procedures
and confidentiality mechanism to
ensure proper protection and guarantee
of whistleblower. In 2018, colleagues
of the Company and subsidiaries have
not been reported due to the violation
of enterprise integrity management.




43

Implementation Status Implementation Status Implementation Status Difference from
No Ethical Corporate

Management Best
Assessment item
Practice Principles
Yes
Description abstract

for TWSE/TPEx
Listed Companies

and the reasons
4. Enhanced information
disclosure
(1) Whether
the
Company
has
disclosed the contents of Ethical
Corporate
Management
Best
Practice Principles formulated
and the promotion effect thereof
at the company website and
MOPS?





(1) The Company has established the
website, in the future, the Company
will gradually establish and disclose
relevant
information
on
ethical
corporate management as necessary.
(2) The Company has assigned dedicated
personnel to be responsible for information
collection,
and
information
will
be
disclosed at MOPS in the future, striving to
disclose complete and instant information
to the public.








None
5. If the Company has formulated its own Ethical Corporate Management Best Practice Principles
according to the “Ethical Corporate Management Best Practice Principles for TWSE/TPEx Listed
Companies”, please describe its operation and the difference circumstance therebetween: None.
6. Other important information good for understanding the operation situation of ethical corporate
management of the Company (such as the Company reviews and amends the Ethical Corporate
Management Best Practice Principles formulated etc.):
Upon contacting with manufacturers, the Company always adheres to the principle of ethical and
propagandizes the ethical operation philosophy of the Company to contacting manufacturers, and
also strengthens education to employees.

  • 3.4.7 If the company has formulated the Corporate Governance Best Practice Principles and relevant regulations, the inquiry method thereof shall be disclosed: The Company has formulated the Corporate Governance Best Practice Principles and disclosed it at the website of the Company in the Corporate Governance under Investors Section http://www.luhai.com.tw.

  • 3.4.8 Other important information sufficient enough to enhance the operation situation of corporate governance shall be disclosed all together: None.

44

3.4.9 Execution situation of internal control system:

3.4.9.1 Internal Control Statement:

LU HAI HOLDING CORP.

Internal Control System Statement

Date: March 13, 2019

For the internal control system of the Company in 2018, based on the result of self-assessment, it is hereby made the statement as follows:

  • I. The Company and subsidiaries acknowledge that the establishment, implementation and maintenance of internal control system are the responsibilities of Board of Directors and managerial officers of the Company and subsidiaries, and the Company and subsidiaries have established such system. Its purpose aims at providing a reasonable guarantee for achieving the objectives such as operation effectiveness and efficiency (including profitability, performance and safeguarding of assets etc.), report reliability, timeliness, transparency and the compliance of relevant regulations and relevant laws and decrees etc.

  • II. The internal control system has its own inherent limitation, no matter how perfect its design is, an effective internal control system can only provide reasonable guarantee for achieving three objectives mentioned above. Moreover, the change of environment and circumstance, the effectiveness of internal control system might be changed accordingly. Nevertheless, the internal control systems of the Company and subsidiaries have set self-monitoring mechanism, once the deficiency has been identified and confirmed, the Company and subsidiaries will take correction action immediately.

  • III. The Company and subsidiaries stipulate the determination items of internal control system effectiveness according to the “Regulations Governing Establishment of Internal Control Systems by Public Companies” (hereinafter referred to as “Regulations”), so as to determine whether the design and execution of internal control system are effective. The determination items of internal control system adopted in such “Regulations” are the processes of management control, dividing internal control system into five elements: 1. Control environment; 2. Risk assessment; 3. Control activities; 4. Information and communication, and 5. Monitoring activities. Each element further includes several items. Please refer to the provisions of “Regulations” for the preceding items.

  • IV. The Company and subsidiaries have adopted the determination items of internal control system mentioned above to assess the effectiveness of the design and execution of internal control system.

  • V. Based on the assessment result in preceding paragraph, the Company and subsidiaries believe that the internal control system of the Company and subsidiaries on December 31, 2018 (including supervision and management of subsidiaries), including that the design and execution of internal control system related to understanding the operation effect and achievement degree of efficiency objective; reliable, timeliness and transparent report; and compliance of relevant regulations and relevant laws and decrees etc. are effective, and it can reasonably guarantee the achievement of above objectives.

  • VI. This Statement will become major contents of the annual report and public prospectus of the Company, and will be disclosed externally. If the preceding disclosed contents have any false, concealing or illegal circumstance, it will involve in the legal responsibilities as prescribed in Article 20, Article 32, Article 171 and Article 174 etc. of Securities and Exchange Act.

  • VII. This Statement has been passed by Board of Directors of the Company on March 13, 2019, among 9 attending directors, no one holds opposing opinion and all agree upon the contents of this Statement, it is hereby declared as well.

LU HAI HOLDING CORP.

Chairman/General Manager: HSU, LIEN-KAI

45

  • 3.4.9.2 If the accountant is appointed to specifically examine the internal control system, the accountant’s examination report shall be disclosed: None.

  • 3.4.10 In the last year and as at the publication date of annual report, whether the company and its internal personnel is punished according to law, whether the company has punished its internal personnel violating the provisions of internal control system, major deficiencies and improvement situation: None.

  • 3.4.11 In the last year and as at the publication date of annual report, important resolutions of General Shareholders’ Meeting and Board of Directors Meeting

  • 3.4.11.1 Important resolutions of 2018 General Shareholders’ Meeting:

Date Resolution matters Resolution result and execution situation
2018.06.25 1. Ratification of the 2017 business
report and financial statements		 1. The weight of approval is accounting
for 87.28% of the voting weight of
attending shareholders, this case is
approved by votingasproposed.
2. Ratification
of 2017
earnings
distribution		 1. The weight of approval is accounting
for 87.17% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. NTD1.5 cash dividend is alloted per
share to shareholders. The ex-dividend
record date is July 16, 2018, and cash
dividend has been issued on August 3,
2018.
3. Passed the amendments to the
“Regulations Governing Loaning
of Funds” of the Company

1. The weight of approval is accounting
for 87.26% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Handle according to the amended
regulations.
4. Passed the amendments to the
“Regulations Governing Making
of Endorsements/Guarantees” of
the Company		 1. The weight of approval is accounting
for 87.26% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Handle according to the amended
regulations.
5. Passed the amendments to the
“Regulations
Governing
the
Acquisition and Disposal of Assets”
of the Company		 1. The weight of approval is accounting
for 87.26% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Handle according to the amended
regulations.
6. Passed the amendments to the
“Procedures
for
Election
of
Directors” of the Company		 1. The weight of approval is accounting
for 87.30% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Handle according to the amended
regulations.

46

Date Resolution matters Resolution result and execution situation
7. Passed the amendments to the
“Articles of Incorporation” of the
Company		 1. The weight of approval is accounting
for 87.30% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Operate according to the amended
Articles of Incorporation.
8. Election of the fifth session of the
Board of Directs		 1. List of the elected directors of the fifth
session of the Company is as follows:
(1) HSU, LIEN-KAI
(2) WU, CHIN-LU
(3) WU, CHING-SHU
(4) HSU, HAO-YUN
(5) HSU, YA-TING
(6) HSU, HUAI-YUN
(7) HSU, HAN-YUAN
(8) YU, YAO-FU
(9) CHANG, HORNG-YAN
(Independent Director)
(10) YEN, MEI-YING (Independent
Director)
(11) HU, TA-HSIANG (Independent
Director)
9. Passed the release the restrictions
on competitive activities of the
Company’s 5thterm of the Board
of Directs		 1. The weight of approval is accounting
for 86.11% of the voting weight of
attending shareholders, this case is
approved by voting as proposed.
2. Release the restrictions on competitive
activities of Director YEN, MEI-YING
has been handled as required.

3.4.11.2 Important resolutions of Board of Directors Meeting in 2018:

Date Important resolution matters
2018.01.31 1. Business plan and budget of the Company in 2018
2. Construction of new plant of the sub-subsidiaries XIAMEN XIAHUI
RUBBER METAL INDUSTRIAL CO., LTD. (hereinafter referred to as
XIAMEN XIAHUI)
3. Application for purchasing new equipment by the sub-subsidiaries
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD. (plant
GUANKOU)
4. Renovation
plan
of
sub-subsidiaries
LUHAI
RUBBER
METAL
INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as
KUNSHAN LUHAI)
5. Subsidiaries PT. LUHAI plans to build out a standard plant
6. Bank (Mega International Commercial Bank) financing limit
7. Bank (Taichung Commercial Bank) financing limit
8. The Company’s distribution of year-end bonus to managerial officers in
2017
9. The Company’s distribution of annual performance bonus to managerial
officers in 2017

47

Date Important resolution matters
10. The Company’s salary adjustment subsequent recognition for managerial
officers
2018.03.14 1. The Company’s Internal Control System Statement in 2017
2. The Company’s distribution of director and employee’s compensation in
2017
3. The Company’s regular assessment on the independence and competency
of the appointed certified public accountant
4. 2017 business report and financial statements of the Company
5. 2017 earnings distribution of the Company
6. Appointment of certified public accountants of the Company in 2018,
review of 2018 financial statements, and examination of certified
remuneration
7. Amendments to the “Administrative Measures for Duty Authorization and
Agents” of the Company
8. Amendments to the “Measures for Remuneration Payment to Director and
Functional Committee” of the Company
9. Election and appointment of the fifth session directors of the Company
10. Determination of acceptance period and location for the nomination of
independent directors
11. Release the restrictions on competitive activities of the newly elected
directors
12. Relevant matters of convening 2018 General Shareholders’ Meeting of the
Company
2018.05.09 1. The Company’s appointment of Chief Executive Officer and remuneration
discussion
2. Consolidated financial statements of the first quarter of 2018 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
3. Amendments to the regulations governing the acquisition and disposal of
negotiable securities investment by the sub-subsidiaries LUHAI RUBBER
METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as
KUNSHAN LUHAI) of the Company
4. Bank (Agricultural Bank) financing limit of sub-subsidiaries XIAMEN
XIAHUI
5. Bank (Industrial Bank) financing limit of sub-subsidiaries XIAMEN
XIAHUI
6. Amendments to the seats of the fifth session directors of the Company
7. The Company’s 2018 General Shareholders’ Meeting’s acceptance of the
shareholder holding over 1% of total outstanding shares to be nominated in
the List of Independent Director Candidates
8. Amendments to the “Articles of Incorporation” of the Company
9. The Company’s convening 2018 General Shareholders’ Meeting
(supplementary proposal)
10. Change of spokesman and deputy spokesman of the Company
11. Amendments to the “Measures for Delegation of Authority” of the
Company
12. Remuneration for the appointment of Director WU, CHING-SHU to handle
KUNSHAN LUHAI project
13. The Company’s salary adjustment for managerial officers
2018.06.25 1. Election and appointment of the Chairman of LU HAI HOLDING CORP
2. Appointment of the third session Remuneration Committee members
3. General Manager personnel of LU HAI HOLDING
4. Change of litigation and appointment of non-agent ad litem
5. Assignment of director, supervisor and General Manager of subsidiaries
6. Appointment of consultant for rubber material

48

Date Important resolution matters
2018.08.08 1. Consolidated financial statements for the second quarter of 2018 of LU
HAI HOLDING CORP. (hereinafter referred to as the Company)
2. The budget in 2018 is not planned to be amended
3. Amendments to “Measures for Delegation of Authority” of the Company
4. Amendments to the “Administrative Measures for Business Transaction
with Stakeholder’s Group Enterprise” of the Company
5. Authorization of newly appointed representatives of LU HAI HOLDING
CORP. (hereinafter referred to as the Company) and subsidiaries LU
HAI(BVI) INDUSTRIAL CORP. (hereinafter referred to as LU HAI BVI),
ALLPRO INTERNATIONAL CORP. (hereinafter referred to as ALLPRO),
YUANHUI INTERNATIONAL CO., LTD. (hereinafter referred to as
YUANHUI), MEGA POWER CO., LTD. (hereinafter referred to as MEGA
POWER) and LU HAI INDUSTRIAL CORP. (hereinafter referred to as LU
HAI INDUSTRIAL) to sign all kinds of contracts and correspondence with
the banks, and the change of bank seal of the aforesaid companies
6. Endorsement and guarantee of LU HAI HOLDING CORP. (hereinafter
referred to as the Company)
7. Change of the joint guarantor of XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) for
the financing limit in Mega International Commercial Bank
8. Change of bank (Agricultural Bank, Industrial Bank) financing limit and joint
guarantor of sub-subsidiaries XIAMEN XIAHUI
9. Amendments to the “Regulations Governing the Acquisition and Disposal of
Assets”
10. The Company’s distribution of director’s individual remuneration in 2017
11. The Company’s distribution of managerial officer’s remuneration in 2017
12. The Company’s salary adjustment (subsequent recognition) for managerial
officers
13. The Company’s salary adjustment for managerial officers
14. Bank (TaiShin International Bank) financing limit
15. Bank (Cathay United Bank) financing limit
16. Bank (Hua Nan Bank) financing limit
17. Bank (CTBC Bank) financing limit
18. Bank (Citibank) financing limit
19. Purchase of new equipment in the third quarter of the sub-subsidiaries
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD.(plant
GUANKOU)
2018.11.07 1. Consolidated financial statements for the third quarter of 2018 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
2. Business plan and budget of the Company in 2019
3. Cash capital increase and construction of new plant of the sub-subsidiaries
XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO., LTD
4. Foreign currency (USD and EUR) risk aversion limit of sub-subsidiaries
XIAMEN
XIAHUI
RUBBER
METAL
INDUSTRIAL
CO.,
LTD
(hereinafter referred to as XIAMEN XIAHUI) and LUHAI RUBBER
METAL INDUSTRIAL (KUNSHAN) CO., LTD. (hereinafter referred to as
KUNSHAN LUHAI) and subsidiaries PT. LUHAI INDUSTRIAL
(hereinafter referred to as PT. LUHAI)
5. Money lending by LU HAI HOLDING CORP. (hereinafter referred to as the
Company) to subsidiaries PT. LUHAI INDUSTRIAL (hereinafter referred to
as PT. LUHAI), sub-subsidiaries XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD (hereinafter referred to as XIAMEN XIAHUI) and
LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN) CO., LTD.
(hereinafter referred to as KUNSHAN LUHAI)

49

Date Important resolution matters
6. Appointment for the preparation of 2018 IFRSs English consolidated
financial report of the Company and remuneration thereof
7. Audit plan of the Company in 2019
8. Amendments to the “Salary Management Measures” of the Company
9. Amendments to the “Measures for Employee’s Performance Bonus
Assessment and Remuneration Distribution” of the Company
10. Amendments to the “Dispatched Personnel Management Measures” of the
Company
11. Amendments to the “Assets Management Measures” of the Company
12. Amendments to the“Seal Management Measures”of the Company
2019.01.18 1. Expansion of new production line of sub-subsidiaries LUHAI RUBBER
METAL INDUSTRIAL (KUNSHAN) CO., LTD
2. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to
apply for the change of joint guarantor for the financing limit in CTBC Bank
3. The plan of sub-subsidiaries XIAMEN XIAHUI RUBBER METAL
INDUSTRIAL CO., LTD. (hereinafter referred to as XIAMEN XIAHUI) to
apply for canceling the financing limit in Taipei Fubon Commercial Bank
4. Endorsement and guarantee of LU HAI HOLDING CORP. (hereinafter
referred to as the Company)
5. Bank (Bank SinoPac) financing limit
6. Bank (CTBC Bank) financing limit
7. Bank (Mega Bank) financing limit
8. Amendments to the “Regulations Governing the Acquisition and Disposal
of Assets”
9. Amendments to the “Accounting System” of the Company
10. The Company’s distribution of year-end bonus to managerial officers in
2018
11. The Company’s distribution of annual performance bonus to managerial
officers in 2018
12. Amendments to the Company’s allocation proportion of performance bonus
13. The Company’s acquisition of right-of-use assets
14. The Company’s plan to establish a branch company in Taiwan
2019.03.13 1. The Company’s Internal Control System Statement in 2018
2. The Company’s distribution of director and employee’s remuneration in
2018
3. The Company’s regular assessment on the independence and competency
of the appointed certified public accountant
4. 2018 business report and financial statements of the Company
5. 2018 earnings distribution of the Company
6. The Company’s planning to transfer surplus to capital increase by issuing
new shares
7. Appointment of certified public accountants of the Company in 2019,
review of 2019 financial statements, and examination of certified
remuneration
8. The Company’s opening of special account for foreign capital custody
9. Amendments to the “Articles of Incorporation” of the Company
10. Amendments to the “Rules of Procedure for Shareholders’ Meetings” of the
Company
11. Amendments to the “Corporate Governance Best Practice Principles” of the
Company
12. Amendments to the “Regulations Governing Procedures for Board of
Directors Meetings” of the Company
13. Formulation of the“Standard Operation Procedures for Handling Director’s

50

Date Important resolution matters
Requirement” of the Company
14. Bank (CTBC Bank) financing limit
15. Bank (Citibank) financing limit
16. Relevant matters of convening 2019 General Shareholders’ Meeting of the
Company
17. Transfer of Managerial Officer of the Company from Taiwan Office to
Taiwan Branch and settlement of retirement pension in the old system
2019.05.08 1. Consolidated financial statements for the first quarter of 2019 of LU HAI
HOLDING CORP. (hereinafter referred to as the Company)
2. Equipment update of new production lines for production expansion in
sub-subsidiaries LUHAI RUBBER METAL INDUSTRIAL (KUNSHAN)
CO., LTD. (hereinafter referred to as KUNSHAN LUHAI)
3. New addition of equipment for truck valve production line in
sub-subsidiaries XIAMEN XIAHUI RUBBER METAL INDUSTRIAL CO.,
LTD. (hereinafter referred to as XIAMEN XIAHUI)
4. Amendments to the “Internal Control Systems” of the Company
5. Amendments to the “Internal Audit Procedures” of the Company
6. Amendments to the “Measures for Self-Assessment on Internal Control
System” of the Company
7. Amendments to the “Audit plan in 2019.” of the Company
8.
Amendments to the “Regulations Governing Making of Endorsements/Guarantees” of
the Company
9. Amendments to the “Regulations Governing Loaning of Funds” of the
Company
10. Bank (EnTie Bank) financing limit
11. Bank (Agricultural Bank) financing limit
12. Bank (Industrial Bank) financing limit
13. Amendments to the “Administrative Measures for negotiable instruments” of
the Company
14. The Company’s acquisition of right-of-use assets
15. Amendments to the “Assets Management Measures” of the Company
16. Amendments to the “Measures for Monitoring and Management of
Subsidiaries” of the Company
17. Amendments to the “Measures for Budget Preparation and Management” of
the Company
18. Amendments to the “Administrative Measures for Business Transaction with
Stakeholder’s Group Enterprise” of the Company
19. Sub-subsidiaries XIAMEN XIAHUI plans to purchase 2 multiple processing
machines made in Germany (for TR4)
(1) Resolution result: all above proposals were agreed and passed by all attending
directors unanimously.

(2) Execution situation: execution according to resolution result.

51

  • 3.4.12 In the last year and as at the publication date of annual report, if a director or supervisor has different opinion on the important resolution passed in the Board of Directors Meeting and with record and written statement, major contents thereof: None.

  • 3.4.13 In the last year and as at the publication date of annual report, the resignation or dismissal of Chairman, General Manager, Accounting Director, Financial Director, Internal Audit Director and R&D Director etc. of the Company:

Title Name Date of
appointment		 Date of
dismissal		 Reason for
resignation or
dismissal
Chairman DAY LIGHT
BUSINESS CO., LTD.
(Representative: WU,
CHIN-LU)		 2015/06/26 2018/06/25 Expiry of the term
of office
General
Manager		 HSU, HSIU-HUA 2017/11/09 2018/06/25 Job adjustment
Transferred to the
Executive VP

3.5 Accountant’s fees information

3.5.1 Class interval of accountant’s fees information

Name of accounting firm Name of accounting firm Name of accountant Name of accountant Examination
period		 Examination
period		 Notes
Crowe (TW) CPAs LIN,
MING-SHOU		 HUANG,
SU-CHUAN		 2018
Range of amount Fees item Audit fees Non-audit
fees		 Total
1 Below NTD2,000 thousand
2 NTD2,000 thousand (inclusive) ~
NTD4,000 thousand
3 NTD4,000 thousand (inclusive) ~
NTD6,000 thousand
4 NTD6,000 thousand (inclusive) ~
NTD8,000 thousand
5 NTD8,000 thousand (inclusive) ~
NTD10,000 thousand
6 Over NTD10,000 thousand(inclusive)
  • 3.5.2 If the non-audit fees paid to the certified public accountant and affiliated firm and enterprise of certified public account are more than one fourth of the audit fees, the amounts of audit and non-audit fees and the non-audit service contents shall be disclosed.

Unit: NTD thousand

Name of
accounting
firm		 Non-audit fees Non-audit fees Examination
Name of
accountant		 Audit
fees		 System
design		 Business Human Other period of
 Notes
registration
Resources		 (Notes) Total accountant
Crowe
(TW)
CPAs		 LIN,
MING-SHOU
HUANG,
SU-CHUAN
2,552
-		 71 - 268 339
2018		 Other fees
include NTD266
thousand protocol
fees and NTD2
thousand fees for
IFRS assessment
opinion.

Notes: please list the non-audit fees according to service items, if the “Other” non-audit fees reach to 25% of the total non-audit fees, the service contents thereof shall be listed in notes column.

52

  • 3.5.3 In case of change of accounting firm and the audit fees paid in the year of change is reduced comparing with that in the year before change, amounts of audit fees before and after change and reasons shall be disclosed: None.

  • 3.5.4 If the audit fees are reduced by more than 15% comparing with that in the last year, the reduced amount of audit fees, proportion and reason shall be disclosed: None.

  • 3.6 Information on change of CPA: None.

  • 3.7 Whether the Chairman, General Manager, and managerial officers responsible for financial or accounting affairs of the Company once worked in the affiliated firm or enterprise of the CPA in the last year: None .

  • 3.8 In the last year and as at the publication date of annual report, stock right transfer and changes in pledge of stock right in the directors, supervisors, managerial officers and shareholders with shareholding ratio over 10%:

  • 3.8.1 Changes in stock right in the directors, supervisors, managerial officers and major shareholders:

Unit: share

As at April 30, 2019 in the As at April 30, 2019 in the
2018

current year
Increased Increased Increased Increased
Title Name
(decreased) (decreased) (decreased) (decreased)
number of number of number of number of
shareholding pledged shares shareholding pledged shares
Director(Notes1) DAY LIGHT BUSINESS CO., LTD. - - - -
Chairman(Notes2) DAY LIGHT BUSINESS CO., LTD.
(Representative: WU,CHIN-LU)		 (337,000) - - -
Director(Notes1) DAY LIGHT BUSINESS CO., LTD.
(Representative: HSU,SHOU)		 - - - -
Director(Notes1) DAY LIGHT BUSINESS CO., LTD.
(Representative: WU,CHING-SHU)		 - - - -
Director(Notes1) GET JOINT BUSINESS CORPORATION - - - -
Director(Notes1) GET JOINT BUSINESS CORPORATION
(Representative: HSU,HO)		 - - - -
Director(Notes1) GET JOINT BUSINESS CORPORATION
(Representative: HSU,SHIH)		 - - - -
Director(Notes1) GET JOINT BUSINESS CORPORATION
(Representative: HSU,CHIN)		 - - - -
Director(Notes1) HSU, TA-YOU - - - -
Director(Notes1) YU, YAO-FU - - - -
Director(Notes1) CHANG, KUO-TAI - - - -
Director(Notes1) WU, CHIEN-SZU - - - -
Independent
Director(Notes1)		 LU, CHIH-CHIEN - - - -
Independent
Director(Notes1)		 HO, SHIO-SHEN - - - -
Independent
Director		 YEN, MEI-YING - - - -
Independent
Director		 CHANG, HORNG-YAN - - - -
Independent
Director		 HU, TA-HSIANG - - - -
Director(Notes2) WU, CHIN-LU 8,000 - - -
Director(Notes1) WU, CHIEN-SZU - - 117,000 -

53

Director HSU, HUAI-YUN - - - -
Chairman &
General Manager		 HSU, LIEN-KAI 179,000 800,000 63,000 (800,000)
Director &
XIAMEN XIAHUI
General Manager
HSU, HAN-YUAN		 - - - -
Director &
XIAMEN XIAHUI
VP		 HSU, YA-TING - - - -
KUNSHAN
LUHAI VP		 HSU, KUANG-WU - - - -
Executive VP HSU, HSIU-HUA 23,000 - - -
PT. LUHAI VP QIU ZHONG-LIE - - - -
CFO of Finance
Department		 CHANG, SHENG-HUNG - - - -
Audit Supervisor CHEN, YING-HUEI - - - -
Major shareholder GET JOINT BUSINESS CORPORATION - - - -
Major shareholder DAY LIGHT BUSINESS CO., LTD. - - - -

Notes1: Directors of last session were relieved upon the expiry of term of office on June 25, 2018.

Notes2: WU, CHIN-LU was a representative of corporate director from January 1, 2018 to June 25, 2018, and reduced shareholding of 337,000 shares; from June 25, 2018 to December 31, 2018, he was the natural person director and increased shareholding of 8,000 shares, with total reduction of shareholding of 329,000 shares in 2018.

3.8.2 Shares Trading with Related Parties

Name Reason
for
Transfer		 Date of
Transaction		 Transferee Relationship between
Transferee and Directors,
Supervisors, Managers and
Major Shareholders
Shares		 Transaction
Price
(NTD)
WU,
CHIN-LU		 Gift 06/29/2018 CHEN,
MEI-LING		 Spouse 280,000 38.00

3.8.3 Stock Pledge with Related Parties: None.

3.9 Information that the top ten shareholders in shareholding are mutually related parties as prescribed in the No. 6 related parties in Statements of Accounting Standards, spouse or relatives within second degree relationship:

March 31, 2019; Unit: share; %

Name Individual
shareholding		 Individual
shareholding		 Spouse & Minor children
Shareholding		 Spouse & Minor children
Shareholding		 Total
shareholding in
the name of
other person		 Total
shareholding in
the name of
other person		 Name and relationship between
Company’s top ten shareholders,
spouse or relatives within second
degree.		 Name and relationship between
Company’s top ten shareholders,
spouse or relatives within second
degree.		 Notes
shares % shares % shares % Name Relation
GET JOINT BUSINESS
CORPORATION		 8,803,920 10.74 - - - - - -

54

(Representative:
HSU, CHIN)		 921,179 1.12 377,676 0.46 - - DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
DAY LIGHT
BUSINESS CO.,LTD.		 8,803,920 10.74 - - - - - -
(Representative:
WU, CHIN-LU)		 346,300 0.42 221,000 0.27 2,663,651 3.25 GET JOINT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Taiwan Life
Insurance Co., Ltd.		 3,559,313 4.34 - - - - - -
(Representative:
HUANG,SI-GUO)		 - - - - - - - -
NEWS UP
ENTERPRISE
LIMITED		 3,292,023 4.02 - - - - - -
(Representative:
HSU, SHOU)		 427,856 0.52 - - 3,292,023 4.02 GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
LARGE RISE
HOLDING LIMITED		 3,239,542 3.95 - - - - - -

55

(Representative:
HSU, HO)		 506,801 0.62 - - 3,239,542 3.95 GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
PATTERN FINANCIAL
MANAGEMENT S.A.		 3,239,542 3.95 - - - - - -
(Representative:
WU, CHING-SHU)		 516,798 0.63 100,616 0.12 3,239,542 3.95 GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
KEEP GRACE
TECHNOLOGY
LIMITED		 2,663,651 3.25 - - - - - -
(Representative:
WU, CHIN-LU)		 346,300 0.42 221,000 0.27 2,663,651 3.25 GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
HOLD INVESTMENT
GROUP LTD.		 2,624,139 3.20 - - - - - -

56

(Representative:
HSU, CHIN)		 921,179 1.12 377,676 0.46 - - GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
PATTERN
FINANCIAL
GET TOGETHER		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
HSU, LIEN-KAI 2,549,387 3.11 27,016 0.03 - - HSU, HO First degree relative
GET TOGETHER
DEVELOPMENT
GROUP S.A.		 2,524,426 3.08 - - - - - -
(Representative:
HSU, HO)		 506,801 0.62 - - 3,239,542 3.95 GET JOINT
BUSINESS
DAY LIGHT
BUSINESS
LARGE RISE
HOLDING
HIGHMOOR
LIMITED
HOLD INVESTMENT
GROUP
NEWS UP
ENTERPRISE
KEEP GRACE
TECHNOLOGY
PATTERN
FINANCIAL
HSU,LIEN-KAI		 Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
Representative is the relative
within second degree
First degree relative

3.10Number of shareholding of the Company, the directors, supervisors, managerial officers of the Company, and the enterprise under direct or indirect control of the Company in the same reinvestment enterprise, and the consolidated comprehensive shareholding ratio

April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100		 April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100		 April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100		 April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100		 April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100		 April 30,2019 Unit: Thousand shares;%
Investment of the
Company
Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control
Comprehensive
investment
shares
%
shares
%
shares
%
6,000
100
-
-
6,000
100
4,500
100
-
-
4,500
100
50
100
-
-
50
100
6,500
100
-
-
6,500
100
9,845
100
-
-
9,845
100
8,000
100
-
-
8,000
100
-
100
-
-
-
100
-
100
-
-
-
100
Reinvestment enterprise Investment of the
Company		 Investment of director,
supervisor, managerial officer
and enterprise under direct or
indirect control		 Comprehensive
investment
shares % shares % shares %
Lu Hai (BVI) Industrial Corp. 6,000 100 - - 6,000 100
Allpro International Corp. 4,500 100 - - 4,500 100
Mega Power Co., Ltd. 50 100 - - 50 100
Yuanhui International Co, Ltd. 6,500 100 - - 6,500 100
Lu Hai Industrial CORP. 9,845 100 - - 9,845 100
PT. Luhai Industrial 8,000 100 - - 8,000 100
Xiamen Xiahui Rubber Metal
Industrial CO.,LTD.		 - 100 - - - 100
Luhai Rubber Metal Industrial
(KUNSHAN)CO.,LTD.		 - 100 - - - 100

57

IV. Fundraising Situation

4.1 Capital and stock

4.1.1 Sources of share capital

4.1.1.1 Stock formation process:

March 31, 2019; Unit: thousand shares; NTD thousand

Month
& Year		 Issue
price
(NTD)		 Authorized capital Authorized capital Paid-in capital Paid-in capital Notes Notes
shares Amount shares Amount Sources of
share capital		 Compensation of
shares payment
with property
other than cash
Other
2009/10 10 120,000 1,200,000 42,000 420,000 Share swap None -
2009/10 14.8 120,000 1,200,000 54,000 540,000 Cash capital
increase		 None -
2010/11 18 120,000 1,200,000 60,100 601,000 Cash capital
increase		 None -
2013/12 23.8 120,000 1,200,000 67,614 676,140 Cash capital
increase		 None November 13, 2013
Jin-Guan-Zheng-Fa-
Zi No. 1020045461
2014/09 10 120,000 1,200,000 70,995 709,947 Transfer
surplus to
capital increase		 None September 19, 2014,
Document No.:
Tai-Zheng-Shang-Er
-Zi No.
10300194131
2015/04 50 120,000 1,200,000 74,495 744,947 Cash capital
increase		 None April 7, 2015,
Document No.:
Tai-Zheng-Shang-
Er-Zi No.
10400057261
2017/06 57.7 120,000 1,200,000 74,515 745,155 Convertible
bonds and
conversion of
new shares		 None -
2017/09 10 120,000 1,200,000 81,965 819,650 Transfer
surplus to
capital increase		 None -

4.1.1.2 Capital and shares:

March 31, 2019; Unit: share

Type of shares
Authorized capital
Authorized capital
Authorized capital		 Notes

Issued shares (Listed Stock)		 Unissued shares Total
Registered
ordinaryshares
81,964,967		 38,035,033 120,000,000

4.1.1.3 Summary of relevant information on reporting system: Not applicable.

4.1.2 Shareholder structure

March 31, 2019

Shareholder
structure
Quantity

Government
Agencies		 Financial
Institutions		 Other
Juridical
Persons		 Domestic Natural
Persons		 Foreign
Institutions and
Natural Persons		 Total
Number of
Shareholders		 0 5 16 2,921 28 2,970
Number of
shareholding		 0 5,771,761 588,056 37,737,711 37,867,439 81,964,967
Shareholding (%) 0.00% 7.04% 0.72% 46.04% 46.20% 100.00%

58

4.1.3 Dispersion of shares

4.1.3.1 Common shares

March 31, 2019; par value per share: NTD10

Classification of shareholding Number of
shareholders		 Number of
shareholding		 Shareholding (%)
1~ 999 824 126,314 0.15%
1,000 ~ 5,000 1,524 2,991,307 3.65%
5,001 ~ 10,000 247 1,834,803 2.24%
10,001 ~ 15,000 135 1,661,248 2.03%
15,001 ~ 20,000 66 1,187,576 1.45%
20,001 ~ 30,000 56 1,341,358 1.64%
30,001 ~ 50,000 40 1,501,792 1.83%
50,001 ~ 100,000 23 1,576,654 1.92%
100,001 ~ 200,000 10 1,350,040 1.65%
200,001 ~ 400,000 13 4,008,237 4.89%
400,001 ~ 600,000 7 3,423,447 4.18%
600,001 ~ 800,000 2 1,404,457 1.71%
800,001 ~ 1,000,000 3 2,766,932 3.38%
Over 1,000,001 20 56,790,802 69.29%
Total 2,970 81,964,967 100.00%

4.1.3.2 Preferred share: Unissued.

4.1.4 List of major shareholders

Name, shareholding amount and proportion of the shareholders with over five percent share proportion or the top ten shareholders in equity proportion:

ist of major shareholders
ame, shareholding amount and proportion of the shareholders with over five percent share
roportion or the top ten shareholders in equity proportion:		 ist of major shareholders
ame, shareholding amount and proportion of the shareholders with over five percent share
roportion or the top ten shareholders in equity proportion:		 ist of major shareholders
ame, shareholding amount and proportion of the shareholders with over five percent share
roportion or the top ten shareholders in equity proportion:
March31,2019; Unit:share
Share
Name of major shareholders
Number of
shareholding		 Shareholding (%)
GET JOINT BUSINESS CORPORATION 8,803,920 10.74%
DAY LIGHT BUSINESS CO., LTD. 8,803,920 10.74%
Taiwan Life Insurance Co. Ltd. 3,559,313 4.34%
NEWS UP ENTERPRISE LIMITED 3,292,023 4.02%
LARGE RISE HOLDING LIMITED 3,239,542 3.95%
PATTERN FINANCIAL MANAGEMENT S.A. 3,239,542 3.95%
KEEP GRACE TECHNOLOGY LIMITED 2,663,651 3.25%
HOLD INVESTMENT GROUP LTD. 2,624,139 3.20%
HSU, LIEN-KAI 2,547,387 3.11%
GET TOGETHER DEVELOPMENT GROUP S.A. 2,524,426 3.08%

59

4.1.5 Market price, net value, earnings, dividend per share and relevant materials in the last two years

Unit: NTD/ thousand shares

Unit: NTD/ thousand shares
Item Year
2017		 2018 As at March 31, 2019 in the
currentyear(notes 1)
Market
price per
share		 Highest market price 66.30 48.65 38.00
Lowest market price 43.50 27.50 32.80
Average market price 54.98 35.74 35.76
Net value
per share		 Before distribution 26.81 27.18 28.63
After distribution 25.31 25.42 (Notes 2) -
Earnings
per share		 Weighted-average shares
(thousand shares)		 81,954 81,965 81,965
Earnings per share (after tax) 3.35 2.54 0.67
Dividend
per share		 Cash dividend (Notes 3) 1.50 1.00 -
Stock
Dividends		 Stock dividends
from retained
earnings (Notes 3)		 - 0.30 -
Stock dividends
from capital surplus
-		 - -
Accumulated unappropriated
dividends		 - - -
Analysis of
return on
investment		 Price/Earnings ratio (Notes 4) 16.41 14.07 14.61

Price/Dividend ratio (Notes 5)		 36.65 35.74 -

Cash dividend yield (Notes 6)		 2.73 2.80 -

Notes 1. The Company’s financial report of the first quarter of 2019 reviewed by the accountant. Notes 2. This earnings distribution has not been passed by the General Shareholders’ Meeting. Notes 3. The year in which the dividend is distributed by resolution is the year of disclosure. Notes 4. Price/Earnings ratio = average market price / earnings per share. Notes 5. Price/Dividend ratio = average market price / cash dividend per share. Notes 6. Cash dividend yield = cash dividend per share / average market price.

4.1.6 Dividend policy and execution status

4.1.6.1 Dividend policy stipulated in Articles of Incorporation:

Article 115(a) If the Company has pre-tax profits in the current year, the Company shall set aside not less than1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. When the employees’ compensation is distributed by cash or by issuing new shares, the employees entitled to such compensation may include employees of the Subsidiaries satisfying certain criteria as promulgated and amended by the Board of Directors from time to time. A resolution for employees’ compensation or Directors’ remuneration proposed to the Board of Directors of the Company shall be adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors and reported to the general meeting. However, before setting aside the profits as employees’ compensation and Directors’ remuneration in accordance with the ratio set forth in this paragraph, the Company’s accumulated losses shall have been covered. A Director who also serves as an executive officer of the Company may receive a bonus in his capacity as a Director and a bonus in

60

his capacity as an employee.

Article 115(b) The Company may distribute profits in accordance with a proposal for distribution of profits prepared by the Directors and approved by the Members by Ordinary Resolution. The Directors shall prepare such proposal as follows: the proposal shall begin with the Company’s Annual Net Income and offset its losses in previous years that have not been previously offset; then set aside a Legal Capital Reserve at 10% of the profits left over, until the accumulated Legal Capital Reserve has equaled the total paid-up capital of the Company; then set aside a Special Capital Reserve if one is required in accordance with the Applicable Public Company Rules or as requested by the authorities in charge. If there is net remainder, the Directors may prepare the proposal for distribution of Dividends, bonus or other benefits accounted together with undistributed profits accrued in previous years and submit to the general meeting for review and approval by a resolution.

Article 115(c) The Company is currently positioned in a growth and development phase. Due to the need for capital expenditure, operation expansion and an integrated financial planned in order to maintain sustainable growth, any balance left over under Article 115(a) and/or (b) may be distributed as Dividends (including cash dividends or stock dividends) or bonuses in accordance with the Statute and the Applicable Public Company Rules, among which the Dividends to be distributed shall not be lower than 10% of the balance left over and the cash Dividends shall not be lower than 10% of the total amount of Dividends distributed to the Members.

4.1.6.2 Situation of dividend distribution planned to be discussed in this year:

The 2018 earnings distribution of the Company has been passed by the resolution of the Board of Directors on March 13, 2019, it is planned to distribute stock dividend to shareholders at NTD0.49999996 per share (namely free allotment of 49.99999573 shares per thousand shares), and cash dividend at NTD1.00000004 per share, this part is still pending for the resolution of General Meeting, relevant earnings distribution statement is as follows:

Unit: NTD

as follows: Unit: NTD Unit: NTD
Item Amount
Net profit after tax in 2018 208,463,060
Minus:
Allocation of statutory surplus reserve 20,846,306
Allocation of other equities minus special
surplus reserve (Notes 1)		 54,097,425
Earnings available for distribution in 2018 133,519,329
Plus:
Beginning undistributed earnings 671,359,233
Minus:
Other comprehensive income –
Remeasurement ofdefined benefit obligation		 1,207,771
Accumulated earnings available for distribution as
at the end of 2018		 803,670,791
Distribution item:
Shareholder Dividend－share(Notes 2) 40,982,480
Shareholder Dividend－cash(Notes 2) 81,964,970
Ending undistributed earnings 680,723,341

61

  • Notes 1. The Company has allocated the balance of NTD54,097,425 between the NTD228,579,045 of special surplus reserve and NTD282,676,470 of recorded other equities minus net amount, hence other equities minus special surplus reserve is allocated.

  • Notes 2. It is planned to distribute stock dividend to shareholders at NTD0.49999996 per share (namely free allotment of 49.99999573 shares per thousand shares) and cash dividend at NTD1.00000004 per share this time, the total distribution of dividend to shareholders is NTD1.50 per share, and total distribution of dividends to shareholders is NTD122,947,450.

  • 4.1.7 The impact of stock Dividends proposed by General Meeting this time on company’s business performance and earnings per share:

No stock bonus is allotted to employees this time, free allotment of 49.99999573 shares per thousand shares is planned, the dilution of earnings per share is about 4.76%, and it has little impact on the company’s business performance and earnings per share.

  • 4.1.8 Compensation of Employees, directors and supervisors:

  • 4.1.8.1 Percentage or scope of compensation of employees, directors and supervisors stated in Articles of Incorporation:

Article 115(a) of Articles of Incorporation of the Company has stipulated that, if the Company has pre-tax profits in the current year, the Company shall set aside not less than 1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. When the employees’ compensation is distributed by cash or by issuing new shares, the employees entitled to such compensation may include employees of the Subsidiaries satisfying certain criteria as promulgated and amended by the Board of Directors from time to time. A resolution for employees’ compensation or Directors’ remuneration proposed to the Board of Directors of the Company shall be adopted by a majority vote at a meeting of the Board of Directors attended by two-thirds of the total number of directors and reported to the general meeting. However, before setting aside the profits as employees’ compensation and Directors’ remuneration in accordance with the ratio set forth in this paragraph, the Company’s accumulated losses shall have been covered. A Director who also serves as an executive officer of the Company may receive a bonus in his capacity as a Director and a bonus in his capacity as an employee.

  • 4.1.8.2 Estimation base of employee, director and supervisor compensation in this estimation, the shares calculation base for employee’s compensation in stock distribution, and accounting treatment when the actual distribution amount is different from and estimated figure:

  • (1) Estimation base of employee and director’s compensation in this estimation: the 2018 employee and director’s compensation of the Company is subject to the profitability in such year, and it is estimated according to 1.5% of the profitability.

  • (2) Calculation base for stock bonus distribution: No stock bonus is distributed.

  • (3) In case of difference with the actual distribution amount according to the resolution of General Meeting and the recorded amount, it will be deemed as the change in accounting estimate, and the difference will be adjusted as the profit and loss of the actual distribution year.

  • 4.1.8.3 Situation of compensation distribution passed by Board of Directors:

  • (1) Date of board resolution: March 13, 2019

  • (2) The amount of employee, director and supervisor’s compensation in cash or stock distribution. In case of difference with the annual estimated amount of recognized expenses, the difference, reason and handling situation shall be disclosed:

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  - A. Proposed employee’s compensation: NTD3,223,656.

  - B. Proposed director’s compensation: NTD3,223,656.

  - The employees’ compensation and directors’ compensation proposed to be distributed by the Company in 2018 have no difference with the estimated amount.

  • (3) The amount of employee’s compensation in stock distribution, and the proportion in the net profit after tax in individual financial report of this period and in the total amount of employee’s compensation:

    • The 2018 earnings distribution of the Company does not plan to distribute stock bonus to employees, hence it is not applicable.

  • 4.1.8.4 Actual distribution of employees, directors and supervisors’ compensation in the last year:

  • (1) Employees’ compensation: NTD4,372,143, it has no difference with the actual distribution.

  • (2) Directors’ compensation: NTD4,372,143, it has no difference with the actual distribution.

  • 4.1.9 Buyback of Common Stock: None.

  • 4.2 Status of Corporate bonds: There is no outstanding and in process corporate bonds.

4.3 Status of Preferred Shares: None.

4.4 Issuance of Global Depositary Receipts: None.

4.5 Status of Employee Stock Options Plan: None.

4.6 Status of New Restricted Employee Shares: None.

  • 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None.

  • 4.8 Financing Plans and Implementation : As at the previous quarter of publication date of annual report, the Company has unfinished negotiable securities neither in previous issues or private placements, nor finished negotiable securities in previous issues or private placements within the last three years and the planned benefits have not been achieved.

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V. Operational Highlights

5.1 Business content

5.1.1 Business scope

5.1.1.1 Major contents of operating business

LU HAI Group is the manufacturer specialized in producing all kinds of valves, it has complete product lines and its product quality is deeply trusted by customers. Currently, the valves produced by the Group can be roughly divided into the following four categories according to application use: ① Bicycle class; ② Motorcycle and electric motorcycle class; ③Passenger car, truck and off-the-road vehicles class; ④Accessories and other.

5.1.1.2 Proportion of business

Unit: NTD thousand; %

Year
Major products		 2017 2017 2018 2018
Sales
amount		 % Sales
amount		 %
Bicycle class 562,158 21.24 522,225 19.87
Motorcycle and electric
motorcycle class		 929,986 35.13 926,797 35.26
Passenger car, truck and
off-the-road vehicles class		 698,571 26.39 718,012 27.31
Accessories and other 456,295 17.24 461,744 17.56
Total 2,647,010 100.00 2,628,778 100.00

5.1.1.3 Current commodity (service) items of the company

All kinds of valves produced by the Group are a kind of independent valve body device, the air can enter into tubeless tire or tube space when opening it, then it will be closed and sealed automatically to preserve the air to generate air pressure, so as to prevent the air from flowing out from tire or tube. Apart from solid, all other inflatable tires or tubes need to use such device for inflation.

5.1.1.4 New products and services planned to be developed

Apart from development of new products according to customer’s tire design concept and functional requirements, R&D Team of the Group also continues to invest in projects such as equipment automation, system deployment and research and development of mold and jig etc., so as to improve the Group’s competitiveness in valve industry.

5.1.2 Industry overview

5.1.2.1 Current situation and development of industry:

All kinds of valves produced by the Group can be roughly divided into the following four categories according to application use: ① Bicycle class; ② Motorcycle and electric motorcycle class; ③Passenger car, truck and off-the-road vehicles class; ④Accessories and other; hence the proportion of revenue and future development of company are of high relevance to bicycle industry, motorcycle and electric motorcycle industry, automobile industry and TPMS industry, it is hereby explained the current situation and development of the Group’s industry according to the development of the aforesaid four industries.

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A. Bicycle industry

Bicycle is the industry of ten thousand years, with the development of social economy and improvement of living standards, bicycle also marches towards diversified use along with era development; markets in developing countries will take bicycle as the major riding products instead of walk for transport, and markets in developed countries mainly take bicycle as recreational sport products and complementarily as riding products instead of walk. With rising environmental awareness and under the trend of energy saving and carbon reduction, bicyclists have higher and higher requirements in system and configuration, the atmosphere of riding bicycle has been obviously evolved into an expression of life attitude from the merely commuting or sports mode in the past.

Major bicycle consumption markets worldwide include USA, Europe, China and Japan, the year-round sales volume of bicycle worldwide is approximately 120~130 million bicycles, among them, approximately 17 million bicycles in USA, 20~21 million bicycles in Europe, and 25 million bicycles in China, markets in Europe and USA have been mature and stable, and average annual growth rate is not high. In recent years, impacted by the rising bicycle sharing in China, China’s domestic demand market continues to be sluggish, however, as the heat of bicycle sharing fading away and driven by upgrading bicycle demand, we can obviously feel that the China’s domestic demand market has been recovered.

According to the data of Taiwan Bicycle Association, in 2018, Taiwan bicycle industry emerged declining quantity and rising price, the export volume of finished products was approximately 2.21 million bicycles, declined by 6.72% year-on-year, but the average export unit price grew by nearly 20% year-on-year, and the data from Department of Statistics, Ministry of Economic Affairs are likewise. Mainly due to the continuous rising sales volume of electric bicycle in EU countries, the overall sales volume of ordinary bicycle declined. According to the statistics of Persistence, a market research company, from 2017 to 2025, the compound annual growth rate of global electric bicycle market will reach 6.3% to USD8.5 billion, and the export volume of Taiwan electric bicycle will also rise year by year, in 2018, the overall export volume will reach 283.1 thousand bicycles, it is expected to make up the recession of ordinary bicycle.

Export Volume of Taiwan Electric Bicycle

==> picture [284 x 142] intentionally omitted <==

Data source: Taiwan Bicycle Association; summarized by LU HAI (2019/2)

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Trend of Production Value and Average Unit Price of Taiwan Bicycle in the Last Ten Years

Unit: NTD

Production quantity Production value Average unit price
Year
(ten thousand) (one hundred million) (NTD/bicycle)
2009 476.5 432.1 9,069
2010 511.2 475.6 9,304
2011 452.3 505.2 11,170
2012 450.5 540.4 11,995
2013 397.9 510.7 12,834
2014 375.8 502.3 13,365
2015 383.8 565.3 14,728
2016 269.8 474.1 17,574
2017 199.4 378.4 18,972
2018 189.4 402.1 21,231

Data source: Department of Statistics, Ministry of Economic Affairs

B. Motorcycle and electric motorcycle industry

Motorcycle is not only one of the important means of transportation in emerging developing countries, but also one of the components in the compound and modern means of transportation in metropolis of developed countries, and its demand will also continue to increase in the future. In recent years, the government has been actively promoting new southbound policy, taking ASEAN, South Asia, New Zealand and Australia etc. as the key area for economic and trade development of our country, among them, India has become the emerging market of worldwide concern due to rapid rising of economic globalization, and it is expected that the sales volume of motorcycle in Indian market will rapidly increase to 34 million motorcycles in 2020.

Asia is an important production base for global motorcycle, apart from that India, China and Indonesia are the top 3 in global sales respectively, together with those in Vietnam, Thailand, Pakistan, Malaysia, Philippine and Taiwan etc., the sales volume is accounting for over 90% worldwide, with economic growth in Southeast Asia, it is expected that those markets will continue to grow. However, driven by growing income in life, the motorcycle purchasing population will switch to purchase automobile products, making the global motorcycle market will start to decline, it is forecasted that the global motorcycle market scale in 2019 will be 55.196 million motorcycles.

Global Motorcycle Market Scale Forecast

==> picture [269 x 138] intentionally omitted <==

Data source: Navigant Research (2016); various associations (2017); IEK, industrial Technology Research Institute (2017/05)

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With national governments also have been actively promoting relevant motorcycle electrification policies, the cost of electric motorcycle reduces and the price of gasoline-fueled motorcycle rises due to more rigorous emission standards, according to the report of IEK Consulting, Industrial Technology Research Institute, in 2018, the global sales volume of electric motorcycle has reached 998 thousand motorcycles, and the market share in Asian regions is the highest, recording 80.2%, followed by European regions, recording 16.4%, and 3.1% in American regions, and the rest is accounting for 0.3%, it is estimated that the compound annual growth rate from 2018 to 2020 will be 12.1%, the total sales volume of electric motorcycle worldwide (excluding low speed electric motorcycle and bicycle) will reach to 1.355 million motorcycles, and the production value will break through USD3.3 billion.

Global Electric Motorcycle Sales Volume Forecast

==> picture [274 x 140] intentionally omitted <==

Data source: IEK Consulting, Industrial Technology Research Institute (2018/11)

C. Automobile industry

Among the sales volume of new automobile worldwide, the sales volume in China is approximately accounting for thirty percent, and twenty percent in US, China and US are accounting for approximately half of the automobile market. Due to simultaneous decline in China and US automobile market and lack of market support of equivalent scale, the sales volume of global automobile market in 2018 recorded negative growth for the first time in recent years, declined by 0.5% year-on-year, recording 94.79 million automobiles. According to the forecast of China Association of Automobile Manufactures, the year-round sales volume of automobile in China Mainland will be 28 million automobiles in 2019, nearly the same as 2018.

Overview of Sales Volume in Global Automobile Market in Recent Years

==> picture [405 x 166] intentionally omitted <==

Data source: LMC Automotive; summarized by LU HAI (2019/02)

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Overview of Automobile Production and Sales in China Mainland in Recent Years

==> picture [448 x 195] intentionally omitted <==

Data source: China Association of Automobile Manufactures; summarized by LU HAI (2019/02)

In recent years, due to the rising of car sharing service, according to the survey data of IHS Market, from 2018 to 2022, the annual average growth rate in new car market will be 2%, almost declined by a half comparing with 3.7% from 2011 to 2017. It is estimated that the automobile markets in Japan, US and Europe will turn into negative growth, and the increasing speed in China will slow down sharply. Despite shrinking global market scale, the automobile industry still has bright prospects, including ever-growing electric vehicle and development of automatic driving technology. It is estimated that the scale of electric vehicle in 2018 is 3.73 million vehicles, accounting for 4% of global automobile market, with annual growth rate of 18%. In 2019, with continuous decline of battery price and promoted by the policies of national governments and strategies of car factories, it is expected that the pace of growth will speed up to 33%, and the global sales proportion will reach 5.2%.

Global Automobile Market Annual Growth Rate Forecast

Annual growth rate 2011~2017 2018~2022
Global 3.7% 2.1%
China 8.0% 3.4%
North America 5.3% ▲0.8%
Europe 2.0% ▲0.3%
India and Pakistan 3.6% 8.2%
Japan 3.7% ▲2.4%

Data source: IHS Market survey

Global Finished Automobile Industry

==> picture [259 x 134] intentionally omitted <==

Data source: IEK, Industrial Technology Research Institute (2017/04)

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Global Automobile Components Market Forecast

==> picture [289 x 156] intentionally omitted <==

Data source: IEK, Industrial Technology Research Institute (2017/04)

D. TPMS Industry

According to market analysis on Tire Pressure Monitoring System (TPMS for short), major function of TPMS is active safety of automobile, apart from avoiding the traffic accident caused by tire burst, it can also improve tire life and reduce oil consumption, and emission of carbon dioxide and exhaust gas, therefore, national governments have been promoting TPMS legislation successively in recent years. US is the country listing TPMS as the standard configuration by legislation at the earliest worldwide, legislation was passed in 2005, and 100% standard configuration was listed in 2007, it is estimated that there are approximately 280 million tire pressure monitoring systems are under operation currently. Apart from US, EU also started to promote TPMS by legislation in November 2012, and officially stipulated to list tire pressure monitoring system as standard configuration in November 2014. In Asian regions, the timing of TPMS legislation has been mature, currently Korea has followed up the legislation in 2013, and new automobiles delivered in July 2016 in Taiwan also listed TPMS as standard configuration, and starting from 2019, China Mainland, the biggest automobile market worldwide, requires that all newly certified passenger vehicles must install TPMS; and mandatory installation requirement will be implemented for all passenger vehicles under production as of 2020. Other regions including Japan and India etc. are also going through relevant legislative programs. Besides, according to the research report of Frost & Sullivan, the battery life of TPMS is approximately 5 to 10 years, since the formulation of regulations is earlier in US, hence the replacement was boomed in 2012; and the legislation in EU is later, hence another wave of replacement will be boomed in 2019.

According to the research report of China Industrial Development Institute, the global TPMS market scale reached to nearly USD7.6 billion at the end of 2016, and it is estimated that it will grow at the speed of 6.7% compound annual growth rate till 2024. Among them, the CAGR of TPMS market in Asian-Pacific regions is 16%, obviously higher than global CAGR, indicating that China government’s implementation of mandatory installation of TPMS system for all new vehicles as of 2020 can drive rapid increase of market demand on TPMS system in China Mainland. Such Institute also estimates that the TPMS demand in automobile market of China Mainland will reach to 137 million items till 2021, and China is expected to become the market with rapidest growth of TPMS worldwide, or become the third biggest TPMS

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consumption market worldwide after Europe and America.

On one hand, the major growth momentum of TPMS comes from the demand on original (OE) components of TPMS driven by the increase of finished automobile production, the sales volume of new automobiles has been growing at a stable growth rate, hence the promoting effect on market growth of TPMS is limited; on the other hand, for countries (such as US and EU) have passed legislation for mandatory installation of TPMS, the accumulation of automobile holdings will bring strong momentum to the growth of demand on TPMS after market (AM) parts.

a. TPMS - OE market

According to the time of regulations formulation, currently the demand of OEM market mainly focuses on US and EU, and major growth point will be in China market in the future. The global TPMS OEM market is mainly dominated by Schrader, Continental, Pacific, ZF TRW and HUF currently, and the competition among these top five manufacturers are quite fierce, with their technological superiority, their market share worldwide is nearly 90%, and due to earlier entry into the market and having close relations with international car factories, the opportunity of new TPMS manufacturers to enter into the existing supply chain is quite low.

According to the estimate of CSM, a research institution, the sales volume of global OE market in 2013 was approximately 80 million items, among them, approximately 60 million items in US and 10 million items in Europe. Due to the reason that various countries worldwide are starting to require mandatory installation by legislation, it is estimated that the demand of OE market will jump to over one times to 170 million items till 2018.

Quantity of TPMS Sold by Global OE Manufacturers

==> picture [290 x 158] intentionally omitted <==

Data source: CSM Strategy Analytics, internal knowledge

b. TPMS - After Market (AM)

The life of TPMS battery is approximately 5~10 years, the TPMS mandatorily installed by legislation of US and EU in 2007 and 2014 respectively will enter into the period of battery replacement in 2012 and 2019 successively, and the demand on AM market emerges and becomes bigger and bigger, according to the estimation of Frost & Sullivan, the shipment volume of (AM) market in Europe and America will reach to 116 million items until 2020.

Besides, according to the statistics of research data of MarkLines, in 2015, the sales volume of automobile in Europe was 18.9 million automobiles, if 4 tire pressure monitoring systems are configured in each automobile, it is estimated that the market demand on TPMS original OE items in Europe is

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approximately 75.6 million items in one year, the wave of replacement of battery of 7 years of service life will emerge as of 2021. In Northern Europe and German, there is special winter snow tire market due to decree and insurance factors, the public in such regions will extra purchase a set of winter snow tire when buying automobiles, the snow tire market is the market available for occupation currently, after the wave of replacement emerges in 2021, the demand in AM market will be more obvious.

Estimate of Shipment Volume of TPMS-AM Market in Europe and America Unit: Million

==> picture [373 x 127] intentionally omitted <==

Data source: Frost & Sullivan

5.1.2.2 Relevance of upstream, midstream and downstream of industry

Upstream Midstream Downstream

Upstream Midstream Downstream
Rubber material Valve industry Tire industry:
Copper material
Valve core		 LU HAI GROUP
PACIFIC INDUSTRIAL CO., LTD.		 Bridgestone, Michelin
Goodyear, Cheng Shin, Kenda
etc.
Packaging
material		 Schrader International, Inc.
Wonder S. p. a.
SHANGHAI BAOLONG		 Automobile and motorcycle
manufacturing industry:
FORD, HONDA, YAMAHA
Other AUTOMOTIVE CORP. etc.
Wheel manufacturing
industry:
YUAN HENG, ALCOA etc.

5.1.2.3 Various development trends of product:

The Group focuses on research and development of the sealing gas of valves and the process technology of jointing rubber materials to metal body and tube. The developed equipment and process technologies are applied to the production of all kinds of valves, product lines are complete, applying to the tires in industries of bicycle, motorcycle and electric motorcycle, automobile, truck and Off-the-road vehicle etc. The valve industry can be of hundred years, apart from solid tire, all other inflatable tires or tubes need to use such device for inflation. Since the performance of solid tire has great limitations, inflatable tires almost have achieved complete success, valves are almost the indispensable components in tire commodities.

TPMS and valves are relevant to tires, and the sales channels of these two products are almost the same. Currently in international market, major TPMS suppliers include Schrader International, Inc. (hereinafter referred to as Schrader) and Pacific Industrial Co., Ltd. (hereinafter referred to as Pacific), and they are also

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the valve suppliers at the same time. The Group is one of the biggest valve suppliers worldwide, possessing thorough sales channels and customer resources, in the future, in response to the trend of legislation and safety awareness, the growth of TPMS is promising.

R&D team of the Group comprises of multiple senior experts engaging in rubber material, metal processing, machine design, and automation control industries etc., they have been dedicated to respective fields of professional skills for more than ten year, under the coordination with the development trend of tires in bicycle, motorcycle and electric motorcycle, and automobile industries etc., the Group matches up with customer development and performance improvement, and improve the degree of process production automation, so as to reduce costs and enhance product competitiveness.

5.1.2.4 Competition situation:

In recent years, under the pressure of unable to reduce production cost effectively, the world’s leading manufacturers, namely Schrader from US and Pacific from Japan, who have made their fortune in valve industry, withdraw from the traditional valve market gradually, and focus on developing other products of the Group instead. Under the background of global sourcing and industrial transfer, as the leading enterprise in the industry, the Group has obvious advantages in terms of market channels and customer resources in the course of undertaking industrial transfer, and the market share of products will have the chance to further improve.

For the Group’s major competitors in valve products currently, among domestic listed manufacturers and unlisted practitioners, there are no relevant manufacturers. The Group’s professional manufacturing capabilities of valve products have been deeply recognized by customers in the market, in the future, the Group will attach more attention to the investment in automation equipment and differentiated customer service, so as to get rid of the low price competition with valve manufacturers from mainland.

5.1.3 Technology and research and development overview:

  • 5.1.3.1 Research and development costs input in the last year and as at the publication date of annual report

Unit: NTD thousand

f annual report f annual report Unit: NTD thousand
Year
Item		 2018 As at March 31, 2019 in
current year
Research and development
costs
25,589		 6,985
Net revenue 2,628,778 673,385
Proportion of research and
development costs%
0.97		 1.04
echnologies or products successfully developed
Year Product
2008 Part composite valve, light tire valve, improved structure of tire valve,
multi-station metalworking combined machine tool, automatic feeder,
automatic bendingmachine
2009 Process technique improvement, change manual tapping into
automatic threading, truck valve anti-bending testing machine,
one-time bending jig,and special valve

5.1.3.2 Technologies or products successfully developed

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Year Product
2010 Vacuum vulcanizing technique, improvement of green copper
process, truck valve with deep end hole, O type assembly machine,
assemblymachine with rubber mat,valve with rubber mat
2011 Automatic pin removal machine, patent for new valve, patent for
improved structure of valve, full-automatic valve marking equipment,
two-end type truck valve,extension tube,TPMS airtight machine
2012 Air pressure cover technique development, valve core body
development, TPMS rubber base valve development, air-conditioning
valve, multi-functional airtight machine, stainless steel sand blasting
technique
2013 Development of various rubber bases and aluminum valves for
TPMS, multi-axis base cutting equipment, hot forging production
technique
2014 Coil material technique development, visual inspection tester,
vulcanizing mold cover improvement, hot hammer automation
development, automatic tapping machine development, aluminum
alloyvalve bodydevelopment
2015 Automatic chamfering machine, communal automatic bending
machine, communal visual inspection airtight machine, valve
automatic sorting machine, hot forging rotary table and change it to
one-shot, change manual feeding into automatic feeding by
mechanical arm in hot forging, vulcanizing mold improvement,
development of TPMS high speed valve, development of green
passivation technique, development of vacuum automatic feeding,
development of cost reduction in PVR70 series, green copper
technique improvement, development of green copper hollow
technique,development of low cost in 87 series
2016 JS2 automatic technique development, development of cut resistance
H-SR rubber material, development of tube valve of balance car,
development of free cutting copper AR technique, renovation for
energy saving in electrothermal vulcanizing machine, change steam
vulcanizing machine into electrothermal type, development of various
tungsten steel cutting tools in the plant, optimization of aluminum
alloy jointingtechnique
2017 Renovation of visual inspection automatic sorting machine,
realization of automatic upending and marking process after grinding,
development and production of cutting tools for five-axis CNC
sharpening equipment, development of PVR series automatic bottom
forming machine, VFR riveting machine development, VFR airtight
machine development, ITV punching machine development, valve
core airtight machine development, development of copper coil
winding machine and pay-off machine, development of automatic
stock cutter, development of automatic upender, MH series airtight
machine development, development of various German tungsten steel
cuttingtools

73

Year Product
2018 Development of TR4 series full-automatic plugging machine and
grinding machine, development of CR202 sand blasting automatic
discharging machine, development of PVR70 visual airtight machine
and automatic bending machine, development of full-automatic
copper powder dumping machine, development of VFR visual image
airtight testing machine, dual copper rod synchronous automatic stock
cutter, four stations all-in-one machine, two-sided processing
machine, green automatic sand blasting machine, research and
development on the issue of new anti-rust liquid for truck valve,
research and development of the new mold of rubber for wastage
reduction in high speed valve.

  • 5.1.4 Long-term and short-term business development plan

  • 5.1.4.1 Short-term development plan

  • ① In the aspect of marketing strategy

    • A. Provide stable quality and quantity, strengthen after-sales service and establish a perfect system, dedicated to serve existing customers.

    • B. Develop potential customers in OE automobile market.

    • C. Construct complete production process for subsidiaries in Indonesia, actively develop domestic market of Indonesia.

    • D. Continuously develop products of high gross profit to ensure competitive advantage of the company.

  • ② In the aspect of production strategy

    • A. Improve procurement efficiency, master the dynamic condition of raw materials, and reduce inventory.

    • B. Strengthen cooperation relationship with suppliers to reduce procurement cost.

    • C. Strengthen production management to reduce production cost and improve product competitiveness.

  • ③ In the aspect of R&D strategy

    • A. Enhance process improvement, and further conduct lean management on production process to reduce wastage and stabilize quality.

    • B. Continue to invest in the update of automation equipment and develop technologies actively, and expand the market of high gross profit products.

  • ④ In the aspect of operation management

    • A. Construct Enterprise Resource Planning (ERP) system to simplify work process and improve management efficiency.

    • B. Regularly hold educational training inside and outside the plant to improve the quality of manpower in terms of technology research and development, business and operation management.

  • ⑤ In the aspect of financial management

    • A. Establish close relationship with contacting financial institution to master financial market fluctuation and improve the performance of financial use.

    • B. According to the plan on medium and long term fund demand, carry out short term financial planning under safe and steady principles.

  • 5.1.4.2 Long-term development plan

  • ① In the aspect of marketing strategy

    • A. Actively develop the market for niche products to acquire higher profits.

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  • B. Seek for possible strategic partner to give play to the operating efficiency of one plus one is greater than two.

  • C. Participate in overseas exhibitions, actively establish cooperation relationship with OE car factories.

  • ② In the aspect of production strategy

  • A. Integrate procurement power of the Group to acquire reasonable price to reduce production cost, and maintain a long-term, good and stable cooperation relationship with suppliers.

  • B. Keep close to major customers and markets, and carry out nearby production to shorten delivery time.

  • C. Vertical integration, develop copper smelting and rubber refining businesses, and expand the self-production rate of large valve core.

  • ③ In the aspect of R&D strategy

  • A. Establish system integration capability to provide consulting and technical services to subsidiaries of the Group and customers.

  • B. Jointly improve products with customers, and improve added value and gross profit of products.

  • ④ In the aspect of operation management

  • A. Establish the flat organization, thorough objective management system and reasonable employee’s performance appraisal system.

  • B. Regularly hold educational training for employees of the company, so as to enrich professional technical competence and improve work efficiency.

  • C. Construct enterprise electronization, information security system and thorough knowledge management system.

  • D. Initiate global competition and employee’s concept of lifelong learner, and take marching towards an international enterprise as the striving objective.

  • E. Establish high quality, integrity and innovative corporate culture, so as to condense the centripetal force of the management team and employees of the company.

  • ⑤ In the aspect of financial management

  • A. Regarding working capitals, apart from supplemented by net profit after tax, collocate with loans and cash capital increase from financial institutions to inject funds necessary for future development.

  • B. Properly arrange financial planning of the company to reduce operating risks.

5.2 Market, production and marketing overview:

  • 5.2.1 Market analysis

  • 5.2.1.1 Sales (supply) regions of main commodities (services):

Unit: NTD thousand; %

Year
Salesregion		 2017 2017 2018 2018
Amount % Amount %
China 1,126,912 42.57 1,158,441 44.07
Indonesia 686,978 25.95 712,812 27.11
Other 833,120 31.48 757,525 28.82
Total 2,647,010 100.00 2,628,778 100.00

5.2.1.2 Market share:

The Group is a professional valve manufacturer, currently, there is no professional research institute on making research on global valve industry. According to the “Report on 2012-2016 Valve Market In-depth Research and

75

Future Development Trend Forecast” published by Beijing Junyi Huasheng Technology Co., Ltd., the production capacity of valve industry in China is approximately 3.4~4 billion items, and monthly production capacity of the Group is approximately 66 million items, namely with annual production capacity of at least 700 million items, it is estimated that the Group’s production capacity is approximately accounting for at least 1/10 of the production capacity of global valve market, it can be called as the professional valve supplier with maximum production capacity worldwide.

Professional valve core committee of China Chemical Industrial Equipment Association shows that, the valve manufacturing in China is accounting for eighty percent worldwide, and the output of valve industry in China is approximately 3~4 billion items, the output of the Group in 2018 is approximately 600 million items, it is estimated that the Group’s output is accounting for at least 1/10 of the output of global valve market, it can be called as the professional valve supplier with maximum output worldwide.

The news of China valve core website in May 2014 indicated that, the valve industry had entered into the era of micro growth, according to the estimate based on the annual sales volume of 5 billion items worldwide, by conservative estimate, the sales volume of the Company in 2018 is accounting for 10% of market share.

  • 5.2.1.3 Future market supply and demand condition and growth:

  • ① Supply and demand aspect

The demand of valve market is mainly divided into OE market and AM market, valve is an important safety item in wheel module, since it is exposed outside for a long time and needs to bear all kinds of severe environments and changes in temperature difference, and it needs to bear strong centrifugal force upon running at high speed, the valve can be easily worn down, upon annual vehicle inspection or tire replacement, generally the valve will be replaced for the sake of “driving safety”, hence the demand on valve in AM market is far higher than that in OE market.

Rubber and Plastics News, a US weekly publication, announced the latest global ranking in tire industry in August 2018, in 2017, the sales amount in world’s tire industry was approximately USD170 billion (some enterprises had not provided information), increased by 12.5% approximately, that was the first positive increase in world’s tire industry after 5 consecutive years of decline in sales amount. In 2017, there were several big merger and acquisition and restructuring in tire industry, it had little impact on the top 75 ranking in tire industry in 2018, but it will have greater impact on the ranking next year. According to the tire performance in the first half of 2018 successively published by the world’s tire giants, most of them achieved increase in sales amount, and the tire price rose generally, it’s estimated that the global tire sales amount will be better in 2018.

The top ten ranking in 2018 is roughly the same as that in 2017, Bridgestone has been ranking No. 1 in the ranking of global tire industry for ten years consecutively, followed by Michelin, and Goodyear ranked No. 3, Sumitomo Rubber Industries from Japan originally ranked No. 6 outranked Pirelli from Italy to rank No. 5 worldwide with the revenue of USD6.755 billion. And Cheng Shin Group from Taiwan maintains ranking No. 9 from 2012 to 2018.

76

Global TopTen Rankingin Tire Industry Global TopTen Rankingin Tire Industry Global TopTen Rankingin Tire Industry
Ranking in
2018		 Company/country Sales volume of
tire in 2017
(USD 100
million)		 Sales volume of
tire in 2016
(USD 100
million)
1 Bridgestone/Japan 243.5 221.21
2 Michelin/France 235.6 211.29
3 Goodyear/USA 143 136.45
4 Continental/German 113.25 107.85
5 Sumitomo Rubber
Industries/Japan		 67.55 60.29
6 Pirelli/Italy 60.34 63.80
7 Hankook Tire/Korea 55.35 50.08
8 Yokohama
Rubber/Japan		 48.62 42.08
9 Cheng Shin
Rubber/Taiwan		 39.55 38.87
10 ZC Rubber/China 36.21 32.29

Data source: Rubber and Plastics News, a US weekly publication

② Future market growth

The proportion of global tire production is roughly as follows: Asia (59.8%), Europe (15.5%), North American (11.7%), South America (5.8%) and other (7.2%); and the proportion of consumption in global tire market is roughly as follows: Asia (37.1%), Europe (21.8%), North American (23.6%), South America (7.6%) and other (9.9%); among them, the tire demand in China Mainland is obviously greater than global level, generally speaking, replacement of tire is needed about every 2~3 years, hence it is expected that the AM market in China will grow stably, and the demand on tire replacement will increase gradually, and the global top tire manufacturers happened to make external announcement on plant expansion plan successively in 2014, it is estimated that the demand on valve will also grow steadily and synchronously.

5.2.1.4 Competition niche:

  • ① Technology aspect

  • A. With key capability in process and mold

  • B. Capability of providing output promptly

  • C. Degree of automation equipment is ahead of the general industry level

In order to ensure to provide customers stable quality and rapid service, the Group continuously increases automation equipment investment and the research and development of process improvement, in recent years, the research and development costs have been rising along with the increase in revenue, the achievements in these process improvement and automation equipment investment will continue to produce benefits in the future, the error generated from manual operation and the impact on the rising wage costs can be reduced substantially.

  • ② Product aspect

  • A. Rapid delivery

  • B. The product quality is recognized by major international manufacturers

  • C. With advantage in scale production

77

The Group has acquired certification from world’s top three tire manufacturers, namely Bridgestone, Michelin and Goodyear, and the top ten tire manufacturers including Cheng Shin and Kenda are also the customers of the Group, indicating that the product quality of the Group is deeply recognized by major international manufacturers; besides, currently the Group takes a leading position worldwide in terms of overall yield and quality of valves, with advantage in scale production, the Group is able to deploy production line according to the delivery time of customers to achieve rapid delivery and stable quality.

  • ③ Management aspect

  • A. Degree of mastering cost and inventory

  • B. The management team has rich experience and have been engaged in valve industry for over thirty years.

Directors and managerial officers of the Company are the professionals engaging in valve industry for many years, they are highly sensitive to industry changes, and are able to promptly adjust raw materials and cost inventory for strict cost control in response to the changes in the upstream, midstream and downstream of the industry.

  • ④ Customer aspect

  • A. Satisfy special specification requirement of the customer

  • B. Complete product lines, convenient to provide one-stop service to customers

The Group has complete product lines, and products have extensive scope of application to bicycle class, motorcycle and electric motorcycle class, automobile and truck and off-the-road vehicle class, satisfying application requirements of different customers and products have various specifications, which is convenient to provide one-stop service to customers, saving procurement management costs of customers.

  • 5.2.1.5 Favorable and unfavorable factors in development prospect and solutions: ① Favorable factors

  • A. Legislation trend

With various countries are attaching importance to the issues of environment friendly and energy saving and driving safety, advanced countries have legislated and implemented regulations on mandatory installation of Tire Pressure Monitoring System (TPMS) successively. For example, US had passed the legislation in 2005 and listed TPMS as standard configuration in 2007, after 2015, over 90% of old automobiles in US were installed with TPMS; EU and Korea also gradually implemented mandatory installation in new automobiles in November 2012 and January 2013 respectively; Taiwan planned to release standard configuration for new automobiles in July 2016; starting from 2019, TPMS must be installed in all newly certified passenger vehicles in China Mainland; and as of 2020, mandatory installation requirement will be implemented for all passenger vehicles under production. And Japan and India have also gone through similar legislative procedures. Due to such international trend, the valves produced by the Group can be combined with electronic sensor of various electronics developers to TPMS, taking advantages in AM market and future OE regulatory requirements.

78

  • B. Restructuring of industrial order is favorable to us

Under the pressure of unable to reduce production cost effectively, the world’s leading manufacturers, namely Schrader from US and Pacific Industrial Co., Ltd. from Japan, who have made their fortune in valve industry, withdraw from the valve market gradually, and focus on developing other products of the Group instead. Under the background of global sourcing and industrial transfer, with existing advantages in customer resources and market popularity, in the course of undertaking industrial transfer, the Group has the chance to improve the market share of products.

  • C. Full and complete product lines

The Group possesses full and complete product lines respectively applied to bicycle industry, motorcycle and electric motorcycle industry, automobile industry and tire pressure monitoring system, therefore, the Group has not focused on application to a single industry, and industrial risks are relatively dispersed.

  • D. Degree of automation is superior to general industry level

The Group’s degree of investment in automation equipment is higher than the general industry level, under the trend of rising wages in Mainland, due to higher investment in automation equipment, the Group’s management efficiency will continue to emerge in the future and widen the gap between the competitors.

  • ② Unfavorable factors

  • A. Declining product gross profit rate

China Mainland increases the basic salary year by year and implements social insurance system and housing fund, making the costs of human resources in business management increasing continuously, along with the price competition pressure from competitors, it will affect the performance of product gross profit rate of the company.

Solutions

  • a. The rising wages in mainland dilutes the gross profit, the Group will strengthen automation equipment and make the best of labors in Indonesia plant, so as to shorten manufacturing and production process, reduce defect rate and cost, and provide products of more price competitiveness to customers.

  • b. Continue technology development and launch niche products, conduct market segmentation to maintain higher gross profit rate.

  • B. Price competition among competitors

In recent years, the China’s automobile market is booming, driving rapid growth of relevant industry and supply and demand of components, causing gradual increase of investment competitors, and the price competition among competitors will cause impact on profitability.

Solutions

In respond to industrial demand, the Group will focus on the differentiation in product and operation model, actively improve the existing products, and continue to develop niche products to make the differentiation advantage of the company prominent and make market segmentation, so as to improve overall competitiveness of the company.

  • C. Fluctuations in prices of raw materials

Major procurement raw materials of the Group are copper material and

79

rubber, the rising prices of raw materials will increase the procurement costs and dilute gross profit from sales; and the declining prices of raw materials will make the downstream customers postpone ordering due to expecting price reduction, hence the fluctuations in prices of raw materials will have considerable impact on the profitability of the Group. Solutions

In the past ten years, copper has attracted the most attention among all metals, at early stage, the speed of miners in production capacity improvement cannot keep up with the enormous demand brought by economic take-off in China, but in previous years, the new mineral resources and production capacity are increasing in Chile, Peru, Indonesia, African continent and Canada, during that period, the supply exceeded demand in copper market. However, due to the demand in electric power industry, rising output of electric automobile, and China’s prohibition of importing certain scrap metal, the global copper consumption will grow steadily in the coming years, and it is estimated that the average copper price will rise.

Rubber tree is a kind of plant in fond of high temperature and humidity, it has obvious regionalism, due to climatic suitability, Southeast Asia is the most important natural rubber production region worldwide, over 90% natural rubbers are produced from Southeast Asia ever year, among them, Thailand and Indonesia are the major producing regions. Generally, in the first half year, the market mainly focuses on the government’s policy on price maintenance and increase, in the second half year, the market mainly focuses on whether extreme weather will take place during the period of rubber tapping, which will have impact on the progress of rubber tapping. In view of global natural rubber market, the price of natural rubber declined from a high level in 2017, and in 2018, the output of global natural rubber declined and the demand was weak, after the holiday of Spring Festival, enterprises went into operation successively, and the consumption of inventory before the festival, they increased procurement gradually, and the price of rubber material would be stable, and it is expected that the price of natural rubber in 2019 should be stable, but the price of butyl rubber will fluctuate along with the oil price.

The Group masters market information all the time, reduces the pressure from rising price of raw materials with a stable procurement quantity, prepares reasonable and safe inventory for raw materials, and appropriately reflects the sales price of downstream customers upon price fluctuation, so as to reduce the impact on operation performance.

5.2.2 Important use and production process of major products

5.2.2.1 Important use of major products:

The Group is a professional manufacturer producing all kinds of valves, the valve is a kind of independent valve body device, its main function is to let air enter into tubeless tire or tube space when opening it, then it will be closed and sealed automatically to preserve the air to generate air pressure, so as to prevent the air from flowing out from tire or tube.

5.2.2.2 Production process

The production technique is divided into two parts of process: namely the part for metal piece and the part for rubber piece.

80

Metal piece production process: after forging raw copper materials into a certain length, it will enter into automatic thread rolling machine for thread rolling, after cutting by multiple processing machining, one-off degreasing will be conducted, then conduct machining such as head refining (deburring), reaming etc. in head refining machine, after further cleaning (removing greasy dirt on the surface) of the processed metal piece, it will enter into plating line for nickel plating, after treatment of the electroplated piece by bottom forming machine (the purpose is to remove cladding material, and make copper material able to set off vulcanization reaction with rubber), it will be taken as the semi-finished product of metal piece and stored for further use.

Rubber piece production process: place rubber material into rubber refining machine for mixing processing to make the mixing thickness of rubber meet the requirements of the next working procedure; after forming into piece in mixing machine, apply a layer of powder onto the rubber piece after a while, after cut into certain size by stock cutter, place the cut rubber piece into vulcanizing machine together with metal piece, then go through high-temperature steam by mold, rubber mat will be vulcanized and machine shaping into all kinds of rubber mat valve products, finally, conduct roughening and grinding, after passing manual quality inspection, the product will be packed and stored.

==> picture [418 x 171] intentionally omitted <==

5.2.3 Main raw materials’ supply condition

Main raw materials Main supplier (domestic) Supply condition
Copper material DAECHANG, Ningbo Jintian, Ningbo Boway Good
Rubber material Exxon Mobil, Sinopec Good

81

5.2.4 List of main trade creditors and debtors

  • 5.2.4.1 Name of the suppliers once accounting for over 10% of total purchase in any year of the last two years and its purchase amount and proportion, and describe the reason for increase or decrease change:

Unit: NTD thousand

Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand Unit: NTD thousand
2017 2018 As at the first quarter of 2019
Item Name Amount Proportion of net
purchase in the
whole year (%)		 Relation with the
company		 Name Amount Proportion of net
purchase in the
whole year (%)		 Relation with the
company		 Name Amount Proportion of net
purchase in the
whole year (%)		 Relation with the
company
1 Ningbo Jintian 344,180
22.20		 None Ningbo Jintian
390,274
27.35		 None Ningbo Jintian 119,978
31.99		 None
2 DAECHANG 288,953
18.64		 None DAECHANG 215,094
15.07		 None DAECHANG 34,000
9.07		 None
Other 917,231
59.16
-		 Other 821,636
57.58
-		 Other 221,048
58.94
-
Net purchase 1,550,364
100.00		 Net purchase 1,427,004
100.00		 Net purchase 375,026 100.00
2017 2018 As at the first quarter of 2019
Item Name Amount Proportion
net sales in
the whole
year (%)		 Relation
with the
company
Name		 Amount Proportion
net sales in
the whole
year (%)		 Relation
with the
company		 Name Amount
Proportion
net sales in
the whole
year (%)		 Relation
with the
company
1 Cheng
Shin
Group		 401,819
15.18
None		 Cheng
Shin
Group
346,067		 13.16
None		 Cheng
Shin
Group
91,412
13.57		 None
Other 2,245,191
84.82
-		 Other 2,282,711 86.84
-		 Other 581,973
86.43		 -
Net
sales		 2,647,010
100.00		 Net
sales		 2,628,778
100.00		 Net
sales		 673,385
100.00

Reason for increase or decrease change: major sales objects of the Group are stable, there is no significant change, and there is no risk of centralized sales.

82

5.2.5 Table of production quantity and value in the last two years

Unit: 10 thousand pcs; NTD thousand

Year
Major commodity
Production
quantity and value		 2017 2017 2017 2018 2018 2018
Production
capacity		 Production
quantity
(Notes 1)		 Production
value		 Production
capacity		 Production
quantity
(Notes 1)		 Production
value
Bicycle class(Notes 1) 30,150 24,807 468,756 30,150 20,856 446,067
Motorcycle
and
electric
motorcycle class
36,800		 31,438 762,319 36,800 29,975 808,489
Passenger
car,
truck
and
off-the-road
vehicles
class
(Notes 2)

16,587		 10,751 641,844 16,587 9,463 677,873
Total 83,537 66,996 1,872,919 83,537 60,294 1,932,429

Notes 1. The production quantity of valves includes the quantity in outsourcing (quantity of passivation etc.)

  • Notes 2. Production quantity of valves for passenger car, truck and off-the-road vehicles class includes the values of other classes and quantity of assembly.

  • Reason for increase or decrease change: for production capacity of major commodities, the Group can adjust the vulcanization process at later stage of production line to produce products of different specifications according to customer order; in 2018, the supply of tires exceeded the demand, affected by bicycle sharing, the demand in bicycle industry shrank, the Company’s production quantity and shipment volume of valves for bicycles reduced; with gradual increasing awareness of environmental protection, energy saving and carbon reduction, as well as continuous growth of demand in electric vehicle in Europe, the Company’s production quantity and shipment volume of valves for electric vehicles increased; various countries successively legislated to promote the Tire Pressure Monitoring System (TPMS) to become standard configuration for automobiles and the Company had been actively developing customers for TPMS valves, and the production quantity and customer order increased.

5.2.6 Table of sales quantity and value in the last two years

Unit: 10 thousand pcs; NTD thousand

Year 2017 2017 2017 2017 2018 2018 2018 2018
Sales quantity and
value
Major commodity
Domestic sales		 Export sales Domestic sales Export sales
Sales
quantity
Sales
value		 Sales
quantity		 Sales
value		 Sales
quantity
Sales
value		 Sales
quantity		 Sales
value
Bicycle class - - 20,830 562,158 - - 18,254 522,225
Motorcycle and
electric motorcycle
class		 - - 27,876 929,986 - - 27,041 926,797
Passenger car, truck
and off-the-road
vehicles class		 - - 7,239 698,571 - - 6,712 718,012
Accessories and other - - - 456,295 - - - 461,744
Total - - 55,945 2,647,010 - - 52,007 2,628,778

Notes: For accessories and other items of the Group, due to various product categories and specifications, hence only sales value is included in statistics.

83

Reason for increase or decrease change: please refer to Item (V), the description on the reason for increase or decrease change stated in the table of production quantity and value in the last two years.

5.3 Information of service employees in the last 2 years and as at the publication date of annual report

annual report

Item		 Year 2017 2018 As at the end of April 2019
Number of employees Indirect labor 423 375 372
Direct labor 840 814 822
R&D labor 67 57 62
Sales and
Management labor		 117 106 109
Total 1,447 1,352 1,365
Average age 34 37 37
Average length of service 5 7 7
Degree distribution
ratio		 Doctor degree - - -
Master degree 0.14% 0.30% 0.37%
College degree 12.92% 13.61% 13.19%
Senior high school
degree		 37.53% 36.76% 35.90%
Below senior high
school degree		 49.41% 49.33% 50.54%

5.4 Environmental protection expenditure information

  • 5.4.1 In the last year and as at the publication date of annual report, the losses (including compensation) and total penalty amount suffered due to polluting the environment, and describe the future solutions (including improvement measure) and possible expenditure:

In the last year and as at the publication date of annual report, the Group is free of any dispute regarding environmental pollution, hence there is no major punishment and loss due to polluting the environment.

  • 5.4.2 Pursuant to laws and decrees, if pollution facility setting license or pollutant discharge permit shall be applied for, or pollution prevention and control costs shall be paid, or environmental protection dedicated unit and personnel shall be set, description on the application, payment or setting circumstances thereof:
Pollution prevention
Region License Validity date

and control costs
XIAMEN
XIAHUI		 Pollutant discharge
permit		 8/28/2018-2/2/2021 Subject to local
regulations, RMB1.2
per ton of water
KUNSHAN
LUHAI		 Pollutant discharge
permit		 The old permit has expired
and the new permit has not
been replaced, because the
competent
unit
for
environmental
protection
replied that examination
was completely stopped







RMB100 thousand per
year

84

currently,
waiting
for
further notice.
PT. LUHAI Waste disposal permit 07/23/2018-07/23/2020 None
PT. LUHAI Waste temporary
disposal permit		 11/13/2017-11/13/2022 None
PT. LUHAI
Environmental
treatment permit		 Permanent validity None
  • 5.4.3 Investment in major pollution prevention and control equipment, and their use and benefits might be generated:
March 31,2019 March 31,2019

Date of		 Investment Undepreciated
Use and expected
Equipment name Quantity

acquisition		 cost balance possible benefits
Sewage treatment
equipment (industrial
and domestic)		 1 11/12/2001 RMB
225.5
thousand


RMB
50.5 thousand

1. Use: treatment of sewage
from the blank grinding
area of Manufacturing
Section 1 and 3; body
cleaning sewage from
Manufacturing Section 2;
treatment of sewage from
the dining hall and rest
rooms of the plant.
2. Benefits:
ensure
the
discharged water quality
meet
the
emission
standard; reduce pollutant
discharge.
Sewage treatment
system		 1 12/30/2010 RMB
836 thousand

RMB
284 thousand

Supporting
measures
for
environmental
protection,
reducepollutant discharge.
Sewage treatment
system		 1 8/31/2012 IDR
218.27
million


IDR
74.5765
million


Sewage treatment, reduce
pollutant discharge.
Nickel sulfate sewage
treatment equipment		 1 8/31/2014 RMB
201 thousand

RMB
145 thousand

Treatment of
nickel-containing
wastewater generating
from electroplating
Oily fume treatment
system		 1 12/25/2014 RMB
232.5
thousand


RMB
155 thousand

Collect
oily
fume
generated
from
hot
working
process,
purification treatment to
meet emission standard.
Dust remover (filter
cartridge included)		 1 2/4/2015 RMB
163.8
thousand


RMB
112 thousand

1. Collect fume and dust
generated from copper
melting and casting,
and conduct
purification treatment
to meet emission
standard.
2. Benefits: recycle the
zinc oxide from exhaust
gas,fume and dust.

85

Vulcanized exhaust
gas purification
equipment
1		 12/7/2015 RMB
837 thousand

RMB
642 thousand

Collect exhaust gas
generated from
vulcanization, and
conduct purification
treatment to meet
emission standard.
Oily fume treatment
system (electrostatic
dust collector)

1		 1/6/2016 RMB
51.2
thousand


RMB
18.8 thousand

Collect oily fume
generated from hot
working process,
purification treatment to
meet emission standard.
Oily fume treatment
system (electrostatic
dust collector)

4		 3/14/2016 RMB
204.8
thousand


RMB
81.9 thousand

Collect oily fume
generated from hot
working process,
purification treatment to
meet emission standard.
Environmental
protection cleaning
wastewater
treatment system
1		 9/25/2017 RMB
312 thousand

RMB
294 thousand

Use for treatment of
wastewater from
environmental protection
cleaning
Hot forging acid fog
tower
1		 6/7/2018 RMB
90 thousand

RMB
85.5 thousand

1. Use: treatment of acid
fog generating from
pickling in hot
forging;
Environmental
emergency pool		 1 12/30/2018 RMB
250 thousand

RMB
249.1 thousand

1. Use: treatment of
pollutant effluents
generated from abrupt
environmental
accidents;

5.5 Labor relations

  • 5.5.1 Employee welfare measures, further education, training and retirement system of the company and the implementation circumstances thereof, agreement between labor and employer, and management measures for all kinds of employees’ rights and interests

  • 5.5.1.1 Employee welfare measures

  • The Company and its affiliated reinvested subsidiaries have formulated management measures and regulations regarding employees, such as remuneration, promotion, award and punishment, leave and social insurance etc., which are complying with relevant local laws and decrees.

  • The Company and its affiliated reinvested subsidiaries provide clean and sanitary foods to employees, and reinvested companies provide dormitory to employees and implement level-to-level management.

  • Cash gift for important festivals, birthday cash gift, education sponsorship for children of employees and subsidies for weddings and funerals etc., and irregularly hold staff traveling to enhance affective interaction among employees.

  • Provide employees health examination every year, taking care of employees’ physical and psychological health by active action.

86

5.5.1.2 Further education and training circumstance

The Company and affiliated reinvested subsidiaries attach importance to employees’ educational training, including orientation training before entry into the plant, in-service training and external professional training, so as to assist employees to improve professional working knowledge and skills.

5.5.1.3 Retirement system

The Company and affiliated reinvested subsidiaries are the companies within the territory of the Republic of China, and adopt defined contribution system pursuant to “Labor Pension Act”, for the payment of pension contribution, the Company and its subsidiaries contribute six percent of monthly salary as the pension on a monthly basis, and deposit it in the special pension account of labors. For affiliated investment companies outside the Republic of China, the pension is contributed according to local laws and decrees of the investment country, and the rates are as follows:

Xiamen City Xiamen City Nonnative of
Xiamen City		 Nonnative of
Xiamen City		 Kunshan City and
nonnative		 Kunshan City and
nonnative		 Indonesia Indonesia
Contribution
byenterprise		 Personal
contribution		 Contribution
byenterprise		 Personal
contribution		 Contribution
byenterprise		 Personal
contribution		 Contribution
byenterprise		 Personal
contribution
XIAMEN
XIAHUI		 12% 8% 12% 8%
KUNSHAN
LUHAI		 19% 8%
PT. LUHAI 5.7% 3%

  • 5.5.1.4 Agreement between labor and capital and management measures for all kinds of employees' rights and interests

  • The Company and its reinvested subsidiaries have set the Employees Union as the communication channel between employees and management of the company, consensus is reached between the Employees Union and employees for all important matters involving in employees to condense centripetal force; besides, internal periodical of the Group “LUHAI’s Window” has been set to encourage employees to contribute to share their spirits and actively give feedbacks.

  • The Group has formulated internal control system and various administrative measures, whose contents explicitly stipulate employees’ rights and obligations and welfare items, and welfare contents are reviewed regularly to safeguard employees’ rights and interests.

  • 5.5.2 In the last two years and as at the publication date of annual report, the loss suffered due to labor dispute, and disclosure of estimated amount occurred currently and likely to occur in the future and the solutions, if it cannot be reasonably estimated, the facts of unable to estimate reasonably shall be described: None.

87

5.6 Important contracts

Contract
Contracting Parties Term Major contents Restrictions
nature
Credit
granting		 Mega International Commercial
Bank - LU HAI HOLDING		 2017/04~2020/04 Medium
and
long-term
borrowing, financing limit of
USD4.5 million, revolving use.

-
Credit
granting		 KGI Bank - LU HAI HOLDING 2017/07~2020/10 Medium
and
long-term
borrowing, financing limit of
USD3.5 million, revolving use.
18
months
after
the
first
appropriation, the limit of the
first phase will be reduced,
thereafter, every three months
will be deemed as one phase,
and the limit will be equally
reduced by seven phases (the
limit reduced in every three
months is USD500 thousand).










-
Credit
granting		 Far Eastern International Bank -
LU HAI HOLDING		 2017/11~2019/11 Medium
and
long-term
borrowing, financing limit of
USD5 million,revolvinguse.

-
Financial
transaction		 Far Eastern International Bank -
LU HAI HOLDING		 2017/11~2019/11 Financial
transaction
limit
(USD600 thousand for forward
exchange, FX swap and foreign
exchange option respectively,
provided the total shall not
exceed USD600 thousand).




-
Credit
granting		 CTBC Bank - LU HAI
HOLDING		 2017/12~2020/12 Medium and long-term project
borrowing, financing limit of
USD4 million, non-revolving
use. (Amortization period till
April 2021)



-
Credit
granting		 Mega International Commercial
Bank - LU HAI HOLDING		 2018/02~2023/02 Medium and long-term project
borrowing, financing limit of
USD10 million, non-revolving
use. (Amortization period till
April 2023)



-
Credit
granting		 Taichung Commercial Bank -
LU HAI HOLDING		 2018/02~2020/02 Medium
and
long-term
borrowing, financing limit of
USD3 million, revolvinguse.

-
Credit
granting		 Cathay United Bank - LU HAI
HOLDING		 2018/08~2020/05 Medium
and
long-term
borrowing, financing limit of
USD6 million, revolving use.

-
Credit
granting		 TaiShin International Bank - LU
HAI HOLDING		 2018/08~2021/05 Medium
and
long-term
borrowing, financing limit of
USD3 million, revolving use,
appropriation period till the end
of February 2019. (Repayment
date till February2022)




-
Credit
granting		 CTBC Bank - LU HAI
HOLDING		 2019/01~2020/12 Medium
and
long-term
borrowing, financing limit of
USD2 million, revolving use,
appropriation period till the end
of December 2019.



-
Credit
granting		 Bank Sinopac - LU HAI
HOLDING		 2019/01~2020/12 Medium
and
long-term
borrowing, financing limit of
USD2 million, revolvinguse.

-

88

Contract
Contracting Parties Term Major contents Restrictions
nature
Credit
granting		 Mega International Commercial
Bank - XIAMEN XIAHUI		 2016/11~2021/11 Medium
and
long-term
borrowing, financing limit of
USD15 million. (Appropriation
within two years as of the date
of approval (before November
2018), it may be appropriated by
installment, non-revolving use)
(amortization period till May
2022)







-
Credit
granting		 CTBC Bank - XIAMEN
XIAHUI		 2017/12~2022/12 Medium
and
long-term
borrowing, financing limit of
USD5 million. (Non-revolving
use, can be appropriated by
installment, appropriation period
is 2 years (before February
2020)) (Amortization period till
February2023)






-
Credit
granting		 Industrial Bank Co., Ltd. -
XIAMEN XIAHUI		 2018/08~2019/04 Short-term borrowing, financing
limit of RMB45 million.
Financial
transaction		 Industrial Bank Co., Ltd. -
XIAMEN XIAHUI		 2018/08~2019/04 Financial transaction limit of
RMB5 million.
Credit
granting		 Hua Nan Commercial Bank -
XIAMEN XIAHUI		 2018/09~2019/07 Short-term borrowing, financing
limit of USD2 million.		 -
Non-financi
ng guarantee
Agricultural Bank of China Co.,
Ltd. - XIAMEN XIAHUI		 2018/11~2019/11 Domestic
non-financing
guarantee of RMB3 million.
Credit
granting		 Mega International Commercial
Bank - XIAMEN XIAHUI		 2019/01~2019/11 Short-term borrowing, financing
limit of USD3 million.
-
Credit
granting		 CTBC Bank - XIAMEN
XIAHUI		 2019/01~2019/12 Short-term borrowing, financing
limit of USD3 million.
-
Credit
granting		 CTBC Bank - KUNSHAN
LUHAI		 2019/01~2019/12 Short-term borrowing, financing
limit of USD2 million.
-
Credit
granting		 Mega International Commercial
Bank - PT. LUHAI		 2018/02~2021/01 Medium
and
long-term
borrowing, financing limit of
USD3 million, revolving use.

-

89

VI. Financial Overview

6.1 Concise financial information in the last five years

6.1.1 Condensed balance sheet and consolidated profit and loss statement

6.1.1.1 Condensed balance sheet - International Financial Reporting Standards:

Unit: NTD thousand

Year
Item		 Year
Item
Financial information in the last fiveyears
Financial information in the last fiveyears
Financial information in the last fiveyears
Financial information in the last fiveyears
Financial information in the last fiveyears		 Financial
information
in current
year as at
March 31,
2019
(Notes 1)
2014
(Notes 1)		 2015
(Notes 1)		 2016
(Notes 1)		 2017
(Notes 1)		 2018
(Notes 1)
Current assets 2,111,454 2,158,021 2,262,483 2,458,745 2,397,353 2,389,809
Financial assets at fair
value through profit or
loss - noncurrent
(Notes 3)
-		 - - - 930 1,129
Financial assets carried
at cost - noncurrent
(Notes 3)

1,020		 1,011 928 914 - -
Property, plant and
equipment		 556,092 612,512 621,704 634,053 723,273 775,205
Right-of-use assets
(Notes 4)		 - - - - - 216,069
Intangible assets 5,851 7,941 8,912 8,307 7,449 8,015
Other assets 133,659 150,090 134,474 180,078 254,858 51,661
Total assets 2,808,076 2,929,575 3,028,501 3,282,097 3,383,863 3,441,888
Current
liabilities		 Before
distribution		 756,429 445,140 553,529 914,919 565,542 497,985
After
distribution		 912,617 609,028 628,023 1,037,866 (Notes 2) -
Non-current
liabilities		 258,717 424,165 430,941 169,785 590,717 596,871
Total
liabilities		 Before
distribution		 1,015,146 869,305 984,470 1,084,704 1,156,259 1,094,856
After
distribution		 1,171,334 1,033,193 1,058,964 1,207,651 (Notes 2) -
Capital stocks 709,947 744,947 744,947 819,650 819,650 819,650
Capital surplus 299,262 442,724 442,724 443,701 443,701 443,701
Retained
earnings		 Before
distribution		 769,075 880,898 1,034,601 1,162,621 1,246,929 1,301,623
After
distribution		 612,887 717,010 960,107 1,039,674 (Notes 2) -
Other equity 14,646 (8,299) (178,241) (228,579) (282,676) (217,942)
Treasury shares - - - - - -
Non-controlling
interests		 - - - - - -
Total
equity		 Before
distribution		 1,792,930 2,060,270 2,044,031 2,197,393 2,227,604 2,347,032
After
distribution		 1,636,742 1,896,382 1,969,537 2,074,446 (Notes 2) -

90

  • Notes 1: Financial information from 2014 to 2018 have been audited and certified by the accountant, the financial report of the first quarter of 2019 has been reviewed by the accountant.

  • Notes 2: The 2018 earnings distribution has not been passed by General Shareholders’ Meeting.

  • Notes 3: According to the provisions in the bulletin of IFRS 9 “Financial Instruments”, as of 2018, the title of account “Financial assets carried at cost - non-current” will be adjusted into “Financial assets at fair value through profit or loss - non-current”.

  • Notes 4: According to the provisions in the bulletin of IFRS 16 “Lease”, as of 2018, newly added the title of “Right-of-use assets”.

  • 6.1.1.2 Condensed consolidated statement of comprehensive income - International Financial Reporting Standards:

Unit: NTD thousand

Year
Item
Financial information in the last five years
Financial information in the last five years
Financial information in the last five years
Financial information in the last five years
Financial information in the last five years		 Financial
information in
current year
as at March
31, 2019
(Notes 1)
2014
(Notes 1)		 2015
(Notes 1)		 2016
(Notes 1)		 2017
(Notes 1)		 2018
(Notes 1)
Net revenue 2,633,761 2,474,627 2,606,582 2,647,010 2,628,778 673,385
Gross Profit 553,696 545,640 682,178 681,005 561,055 144,351
Operatingincome(loss) 292,294 282,299 406,043 395,201 269,342 75,673
Non-operating income
and expenses		 5,415 35,568 28,870 329 27,827 (128)
Income (loss) before tax
from continuing operations		 297,709 317,867 434,913 395,530 297,169 75,545
Net income (loss) from
continuing operations		 230,569 246,505 318,406 274,152 208,463 54,694
Loss from discontinued
operations		 - - - - - -
Net income(loss) 230,569 246,505 318,406 274,152 208,463 54,694
Other comprehensive
income (loss) for the
year, net of income tax		 57,475 (23,517) (170,757) (47,481) (55,552) 64,734
Total comprehensive
income (loss) for the year		 288,044 222,988 147,649 226,671 152,911 119,428
Net income (loss)
attributable to:
Shareholders of the parent		 230,569 246,505 318,406 274,152 208,463 54,694
Net income attributable to
non-controlling interests		 - - - - - -
Total comprehensive
income (loss) attributable
to: shareholders of the
parent		 288,044 222,988 147,649 226,671 152,911 119,428
Comprehensive income
attributable to
non-controlling interests		 - - - - - -
Earningsper share 3.25 3.35 4.27 3.35 2.54 0.67

Notes 1: Financial information from 2014 to 2018 have been audited and certified by the accountant, the financial report of the first quarter of 2019 has been reviewed by the accountant.

91

6.1.2 Name and audit opinion of certified public accountants in the last five years

Year Accounting firm Name of CPA Audit opinion
2014 DINKUM & CO., CPAS LIN, MING-SHOU
SHAO,CHAO-BIN		 Unqualified Opinion
2015 Crowe (TW) CPAs SHAO, CHAO-BIN
HUANG,SU-CHUAN		 Unqualified Opinion
2016 Crowe (TW) CPAs SHAO, CHAO-BIN
HUANG,SU-CHUAN		 Unmodified Opinion
2017 Crowe (TW) CPAs LIN, MING-SHOU
HUANG,SU-CHUAN		 Unmodified Opinion
2018 Crowe (TW) CPAs LIN, MING-SHOU
HUANG,SU-CHUAN		 Unmodified Opinion

92

6.2 Financial analysis in the last five years

6.2.1 Financial analysis - International Financial Reporting Standards

Year
Analysisitem		 Year
Analysisitem		 Financial analysis in the last five years Financial analysis in the last five years Financial analysis in the last five years Financial analysis in the last five years Financial analysis in the last five years As at March
31 in 2019
(Notes 1)

2014
(Notes1)		 2015
(Notes1)		 2016
(Notes1)		 2017
(Notes1)		 2018
(Notes1)
Financial
structure		 Debt to assets ratio (%) 36.15 29.67 32.51 33.05 34.17 31.81
Long-term funds to property,
plant and equipment(%)
368.94		 405.61 398.09 373.34 389.66 379.76
Liquidity Current ratio (%) 279.13 484.80 408.74 268.74 423.90 479.90
Quick ratio (%) 202.86 381.06 324.89 196.85 316.68 356.55
Times interest earned (times) 33.84 32.57 44.57 34.92 25.77 24.67
Operating
Performance		 Accounts receivables turnover
(times)
3.92		 3.67 3.84 3.89 3.97 4.06
Average collection days 93 99 95 94 92 90
Average
inventory
turnover
(times)
4.06		 3.75 4.24 3.57 3.35 3.59

Accounts
payable
turnover
(times)
8.41		 9.23 9.09 7.88 7.63 7.72
Average
inventory
turnover
period
90		 97 86 102 109 102
Property, plant and equipment
turnover(times)
5.21		 4.24 4.22 4.22 3.87 3.60
Total assets turnover (times) 1.03 0.86 0.87 0.84 0.79 0.79
Profitability Return on assets (%) 9.25 8.86 10.93 8.94 6.51 6.68
Return on equity (%) 13.84 12.79 15.52 12.93 9.42 9.56
Pre-tax income to paid-in capital (%) 41.93 42.67 58.38 48.26 36.26 36.87
Net profit margin (%) 8.75 9.96 12.22 10.36 7.93 8.12
Earnings per share (NTD) 3.25 3.35 4.27 3.35 2.54 0.67
Cash flow Cash flow ratio(%) 17.55 98.06 69.28 26.70 57.10 11.76
Cash flow adequacyratio(%) 53.60 90.79 91.19 85.38 84.26 92.00
Cash reinvestment ratio (%) 3.60 8.74 6.91 5.44 5.53 1.55
Leverage Operatingleverage 2.73 2.91 2.41 2.39 3.24 2.94
Financial leverage 1.03 1.04 1.03 1.03 1.05 1.04
If the increase or decrease change in various financial ratios reaches to 20% in the last two years, descriptions
are as follows:
1.
The increase of current ratio (%) andquickratio (%) is mainly due to the repayment of due convertible
bonds, which causes the decrease of current liabilities.
2.
The decrease of times interest earned (times) is mainly due to the rising production cost and declining gross
profit rate, which causes decrease of profits.
3.
The decrease of return on assets (%), Return on equity (%), Pre-tax income to paid-in capital (%), net profit
margin (%) and earnings per share (NTD) is mainly due to the decrease of profits.
4.
The increase of cash flow ratio (%) is mainly owing to performance growth of PT. LUHAI and BRICS
National Summit is convened in Xiamen, the stock up increases, adjustment of inventory is conducted in
2018 to reduce stock up, the cash flow generating from operating activities increases, and the payment of
due convertible bonds, causing the increase of current liabilities.
5.
The increase of operating leverage is mainly due to the rising production cost and declining gross profit and
operating profit.

Notes 1. Financial information from 2014 to 2018 have been audited and certified by the accountant, the financial report of the first quarter of 2019 has been reviewed by the accountant.

93

Calculation formulas of financial analysis are listed as follows:

  1. Financial structure

  2. (1) Debt to assets ratio = total liabilities / total assets

  3. (2) Long-term funds to property, plant and equipment = (total equity + long-term liabilities (non-current liabilities)) / net property, plant and equipment

  4. Liquidity

  5. (1) Current ratio = current assets / current liabilities

  6. (2) Quick ratio = (current assets-inventory-prepaid expenses) / current liabilities

  7. (3) Times interest earned = income tax and net profit before interest expense/ interest expenses

  8. Operating Performance

  9. (1) Accounts receivables (including accounts receivable and notes receivable arising from business) turnover = net sales/ average account receivable (including accounts receivable and notes receivable arising from business) balance

  10. (2) Average collection days=365/ accounts receivables turnover

  11. (3) Average inventory turnover = cost of goods sold /average inventory

  12. (4) Accounts payables (including accounts payable and notes payable arising from business) turnover = cost of goods sold / average account payable (including accounts payable and notes payable arising from business) balance

  13. (5) Average inventory turnover period =365/inventory turnover

  14. (6) Property, plant and equipment turnover = net sales / average net property, plant and equipment

  15. (7) Total assets turnover = net sales/average total assets

  16. Profitability

  17. (1) Return on assets =[post-tax profit or loss + interest expense  (1-tax rate)]/average total assets

  18. (2) Return on equity= post-tax profit or loss / average net (total) equity

  19. (3) Net profit margin = post-tax profit or loss/net sales

  20. (4) Earnings per share = (net profit attributable to owners of parent company - preferred share dividend) / weighted average number of outstanding shares

  21. Cash flow

  22. (1) Cash flow ratio = net cash flow in operating activities/current liabilities

  23. (2) Cash flow adequacy ratio = net cash flow in operating activities in the last 5 years/ (capital expenditure + inventory increment + cash dividend) in the last five years

  24. (3) Cash reinvestment ratio= (net cash flow in operating activity-cash dividend) / (gross amount of property, plant and equipment + long-term investment + other non-current assets + working capital)

  25. Leverage

  26. (1) Operating leverage = (net revenue - changes in operating costs and expenses)/operating income

  27. (2) Financial leverage = operating income / (operating income - interest expense)

94

6.3 Audit Committee’s Examination Report of the financial report in the last year

LU HAI HOLDING CORP.

Audit Committee’s Review Report

The Board of Directors has prepared 2018 business report, financial statements and earning distribution proposal etc. of the Company; among them, the financial statements have been audited by accountants LIN, MING-SHOU and HUANG, SU-CHUAN from Crowe (TW) CPAs, and the audit report of unmodified opinion has been issued. The above business report, financial statements and earnings distribution proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of the Company, we hereby submit this report.

To the 2018 General Shareholders’ Meeting

Audit Committee：

YEN, MEI-YING CHANG, HORNG-YAN HU, TA-HSIANG

March 13, 2019

95

  • 6.4 Financial statements in the last year: Please refer to page 97 to 175 for details.

  • 6.5 Company’s individual financial statements audited and certified by the accountant in the last year: Not applicable.

  • 6.6 In the last year and as at the publication date of annual report, if the company and its affiliated enterprise have difficulty in financial turnover, its impact on the financial situation of the Company shall be listed: None.

96

97

98

99

100

101

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash and cash equivalents
Financial assets at fair value through profit or
loss - current
Financial assets at amortized cost
Notes receivable, net
Accounts receivable, net
Other receivables
Current income tax assets
Inventories, net
Prepaid expenses
Other financial assets - current
Other current assets
Total current assets
NONCURRENT ASSETS
Financial assets at fair value through profit or
loss - current
Financial assets carried at cost - noncurrent
Property, plant and equipment
Intangible assets
Deferred income tax assets
Long-term prepaid rent
Other non-current assets
Total noncurrent assets
TOTAL ASSETS
LIABILITIES AND EQUITIES
CURRENT LIABILITIES
Short-term loans
Contract liabilities - current
Accounts payable
Other payables
Current income tax liabilities
Advance payments
Long-term loan due within a year
Other current liabilities
Total current liabilities
NON-CURRENT LIABILITIES
Long-term loans
Deferred income tax liabilities
Net defined benefit liability - noncurrent
Total noncurrent liabilities
Total liabilities
Equity attributable to owners of parent
Capital stocks
Capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated retained earnings
Other equities
Equity attributable to owners of parent
Total equity
TOTAL LIABILITIES AND EQUITIES		 NOTES December 31,2018 December 31,2017
%
$ 824,221
24
44,905
1
214,581
6
68,713
2
597,346
19
9,719
-
3,839
-
565,263
17
41,148
1
-
-
27,618
1
2,397,353
71
930
-
-
-
723,273
21
7,449
-
24,715
1
193,407
6
36,736
1
986,510
29
$ 3,383,863
100
$ 30,715
1
3,651
-
293,973
9
150,982
4
24,326
1
-
-
61,314
2
581
-
565,542
17
574,292
17
11,291
-
5,134
-
590,717
17
1,156,259
34
819,650
24
443,701
13
139,736
4
228,579
7
878,614
26
(282,676)
(8)
2,227,604
66
2,227,604
66
$ 3,383,863
100
Amount		 %
$ 927,331
28
-
-
-
-
43,277
1
584,456
19
8,198
-
-
-
627,128
19
30,561
1
237,586
7
208
-
2,458,745
75
-
-
914
-
634,053
19
8,307
-
23,917
1
59,463
2
96,698
3
823,352
25
$ 3,282,097
100
$ 59,520
2
-
-
248,213
8
166,894
5
26,816
1
1,134
-
411,891
12
451
-
914,919
28
148,800
4
16,997
1
3,988
-
169,785
5
1,084,704
33
819,650
25
443,701
14
112,321
3
223,028
7
827,272
25
(228,579)
(7)
2,197,393
67
2,197,393
67
$ 3,282,097
100
Amount
5,6(1)
5,6(2)
5,6(3)
5,6(4)
5,6(5)
5,6(6)
6(7)
6(8)
6(9)
6(10)
5,6(11)
5,6(12)
5,6(29)
6(13)
6(14)
6(15)
6(24)
6(16)
6(17,18)
6(18)
6(29)
5,6(19)
6(20)
6(21)
6(22)
6(23)

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

(Concluded)

102

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

NOTES
NET REVENUE
5,6(24)
COST OF REVENUE
6(6,25)
GROSS PROFIT
OPERATING EXPENSES
6(25),7
Marketing expenses
General and administrative expenses
Research and development expenses
Expected credit loss
Total operating expenses
OPERATING INCOME(LOSS)
NONOPERATING INCOME AND EXPENSES
Other income
6(26)
Other gains and losses
6(27)
Financial costs
6(28)
Total nonoperating income and expenses
INCOME (LOSS) BEFORE TAX FROM
CONTINUING OPERATIONS
INCOME TAX BENEFIT (EXPENSE)
6(29)
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS)
6(30)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit obligation
6(19)
Unrealized profit (loss) from equity instrument
at fair value through other comprehensive
income
Income tax benefit (expense) related to items that
will not be reclassified subsequently
6(29)
Items that may be classified subsequently to profit
or loss:
Exchange differences arising on translation of
foreign operations
Income tax benefit (expense) related to items that
may be reclassified subsequently
Other comprehensive income (loss) for the
year, net of income tax
TOTAL COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR
NET INCOME (LOSS) ATTRIBUTTABLE TO:
Shareholders of the parnet
TOTAL COMPREHENSIVE INCOME (LOSS)
ATTIRBUTABLE TO:
Shareholders of the parnet
EARNINGS PER SHARE:
6(31)
Basic earnings per share
Diluted earnings per share		 NOTES 2018 2017
Amount % Amount %
$ 2,628,778
(2,067,723)		 100
(79)		 $ 2,647,010
(1,966,005)		 100
(74)
561,055 21 681,005 26
(97,372)
(163,734)
(25,589)
(5,018)		 (4)
(6)
(1)
-		 (98,331)
(160,952)
(26,521)
-		 (4)
(6)
(1)
-
(291,713) (11) (285,804) (11)
269,342 10 395,201 15
37,469
2,357
(11,999)		 1
-
-		 36,158
(24,167)
(11,662)		 1
(1)
-
27,827 1 329 -
297,169
(88,706)		 11
(3)		 395,530
(121,378)		 15
(5)
208,463 8 274,152 10
(1,184)
(209)
(24)
(54,135)
-		 -
-
-
(2)
-		 3,154
-
(297)
(50,338)
-		 -
-
-
(1)
-
(55,552) (2) (47,481) (1)
$ 152,911 6 $ 226,671 9
$ 208,463 8 $ 274,152 10
$ 152,911 6 $ 226,671 9
$ 2.54 $ 3.35
$ 2.50 $ 3.13

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

(Concluded)

103

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR YEARS ENDED DECEMBER 31, 2018 AND 2017

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

BALANCE, JANUARY 1, 2017
Appropriations of prior year’s earnings
Legal reserve
Stock dividends to shareholders - NT$1.00 per share
Cash dividends to shareholders - NT$1.00 per share
Conversion of bonds payable to common stocks
Net income in 2017
Other comprehensive income in 2017, net of tax
BALANCE, DECEMBER 31, 2017
Effect of retrospective application
ADJUSTED BALANCE, JANUARY 1, 2018
Appropriations of prior year’s earnings
Legal reserve
Special reserve
Cash dividends to shareholders - NT$1.50 per share
Net income in 2018
Other comprehensive income in 2018, net of tax
BALANCE, DECEMBER 31, 2018		 EquityAttributable to Shareholders EquityAttributable to Shareholders of the Parent $ (178,241)
$ -
-
-
-
-
-
-
-
-
-
-
(50,338)
-
$ (228,579)
$ -
-
247
(228,579)
247
-
-
-
-
-
-
-
-
(54,135)
(209)
$ (282,714)
$ 38
Other Equities
Unrealized Gain
(Loss) on Financial
Assets at Fair Value
Through Other
Comprehensive
Income
Exchange
Differences on
Translating Foreign
Operations		 Total
$ 744,947
-
74,495
-
208
-
-
$ 819,650
-
819,650
-
-
-
-
-
$ 819,650
Capital Stocks		 $ 442,724
-
-
-
977
-
-
$ 443,701
-
443,701
-
-
-
-
-
$ 443,701
Capital Surplus		 Retained Earnings $ 731,093
(31,841)
(74,495)
(74,494)
-
274,152
2,857
$ 827,272
-
827,272
(27,415)
(5,551)
(122,947)
208,463
(1,208)
$ 878,614
Unappropriated
Earnings
$ 80,480
31,841
-
-
-
-
-
$ 112,321
-
112,321
27,415
-
-
-
-
$ 139,736
Legal Reserve		 $ 223,028
-
-
-
-
-
-
$ 223,028
-
223,028
-
5,551
-
-
-
$ 228,579
Special Reserve		 $ (178,241)
-
-
-
-
-
(50,338)
$ (228,579)
-
(228,579)
-
-
-
-
(54,135)
$ (282,714)
Exchange
Differences on
Translating Foreign
Operations
$ 2,044,031
-
-
(74,494)
1,185
274,152
(47,481)
$ 2,197,393
247
2,197,640
-
-
(122,947)
208,463
(55,552)
$ 2,227,604

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

104

LUHAI HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) before tax
Adjustments for:
Adjustments to reconcile profit (loss)
Depreciation
Amortization
Expected credit loss
(Reversal) provision for bad debt expense
Gain (loss) on financial assets at fair
value through profit or loss
Interest expense
Interest income
Dividend income
Loss on disposal of property, plant
and equipment
Net changes in operating assets and liabilities
Notes receivable
Accounts receivable
Other receivables
Inventories
Prepaid expenses
Other current assets
Conrtract liabilities
Accounts payable
Other payables
Advanced payments
Other current liabilities
Net defined benefit liability
Cash provided from operations
Interest received
Dividend received
Interest paid
Income taxes paid
Net cash provided (used) in operating
activities		 $ 297,169
$ 395,530
96,239
85,669
5,767
2,849
5,018
-
-
5,705
(1,154)
80
11,999
11,662
(16,729)
(17,033)
(123)
(88)
(717)
26
(26,780)
42,259
(28,215)
11,211
(3,663)
7,685
46,437
(208,216)
(11,486)
1,994
(323)
433
2,523

-
51,875
1,094
(12,021)
6,648
-
643
141
69
(38)
70
415,919
348,290
18,671
13,866
123
88
(9,890)
(4,933)
(101,910)
(113,029)
322,913
244,282
(Continued)
2017
2018

105

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at fair value through
profit or loss
$ (109,073)
Proceeds from disposal of financial assets at fair
value through profit or loss
82,754
Acquisition of financial assets at amortized cost
(509,005)
Proceeds from disposal of financial assets at
amortized cost
509,005
Other financial assets
-
Acquisition of property, plant and equipment
(155,621)
Proceeds from disposal of Property, plant and
equipment
7,376
Acquisition of intangible assets
(916)
Increase in land use right
(114,295)
Increase in prepaid equipment
(22,787)
Refundable deposits refunded
(28,123)
Other noncurrent assets
530
Net cash used in investing activities
(340,155)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
(27,979)
Proceeds from long-term debt
656,470
Repayment of long-term debt
(181,227)
Repayment of bonds payable
(398,800)
Cash dividends paid
(122,947)
Net cash used in financing activities
(74,483)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
(11,385)
NET INCREASE IN CASH AND CASH EQUIVALENTS
(103,110)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
927,331
CASH AND CASH EQUIVALENTS, END OF YEAR
$ 824,221
2018		 2017
$ -
-
-
-
(42,701)
(55,591)
1,044
(1,079)
-
(87,744)
(28,971)
495
(214,547)
(34,399)
162,232
(30,474)
-
(74,494)
22,865
(6,207)
46,393
880,938
$ 927,331

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

(Concluded)

106

LUHAI HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2018 AND 2017 (Expressed in Thousands of New Taiwan Dollars, Except Stated Otherwise)

1. GENERAL INFORMATION

Luhai Holding Corp. (the “Company”) was incorporated in the Cayman Islands in October 19, 2009. The main purpose of establishment, which resulted from organizational restructuring, was to apply for emerging stock registration on the Taipei Exchange in the Public of China. The Company and its mainly engage in the production and sale of tire valves and accessories. The Company’s shares have been listed on the Taiwan Stock Exchange (“TWSE”) since December 25, 2013. The principal operating activities of the Company and its subsidiaries (collectively referred herein as the “Group”) are described aforementioned and in Note 4(3) B.

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors on March 13, 2019.

3. APPLICATION OF NEW, AMENDED STANDARDS AND INTERPRETATIONS

  • (1) Effect of the adoption 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 Financial Supervisory Commission (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:

  • A. IFRS 9 “Financial Instruments” and related amendment

    • IFRS 9 ”Financial Instruments” 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. Please refer to Note 4 for information relating to the relevant accounting policies.

    • The Group elects not to restate prior reporting period when applying the requirements for the classification, measurement and impairment of financial assets under IFRS 9. The impact on measurement categories, carrying amount and related reconciliation for each class of the Group’s financial assets is detailed below:

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Measurement Category Measurement Category Measurement Category Measurement Category CarryingAmount CarryingAmount CarryingAmount CarryingAmount
Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Note
Cash and cash Loans and receivables Amortized cost
equivalents $ 927,331 $ 927,331 （a）
Debt securities Loans and receivables Amortized cost 219,310 219,310 （c）
Debt securities Loans and receivables Mandatorily at fair
value through
profit or loss 18,276 18,276 （d）
Notes
and
accounts
Loans and		 receivables Amortized cost
receivable and other
receivables 635,931 635,931 （a）
Equity securities Financial assets Equity instruments
carried at cost at
fair		 value
through other
comprehensive
income 914 1,161 （b）
Refundable deposits Loans and receivables Amortized cost 29,558 29,558 （a）
Retained Other
Carrying Carrying Earnings Equity
Amount as Amount as Effect on Effect on
of January 1, Reclassifi- Remeasure- of January 1,
January 1,		 January 1,
Item 2018(IAS 39) cations ments 2018(IFRS 9) 2018 2018 Note
Financial assets at fair
value through profit
or loss
Add: From other
financial assets
(IAS 39) $ - $ 18,276 $ - $ 18,276 $ - $ - （d）
Financial assets at fair
value through other
comprehensive in-
come - noncurrent
Add: From financial
assets carried
at cost (IAS 39) - 914
247		 1,161 - 247
（b）
Total $ - $ 19,190 $ 247 $
19,437		 $ - $ 247

  • (a) Loans and receivables under IAS 39 are now classified at amortized cost with assessment of expected credit loss under IFRS 9.

  • (b) Investments in unlisted shares previously measured at cost under IAS 39 have been designated as at fair value through other comprehensive income under IFRS 9 and were remeasured at fair value. Consequently, an increase of $247 thousand was recognized in both unrealized gain (loss) of financial assets at fair value through other comprehensive income and other equity on January 1, 2018.

  • (c) Financial instruments with guaranteed principle and defined yield previously classified as loans and receivable under IAS 39 were classified as 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.

  • (d) Financial instruments with guaranteed principle and floating yield previously classified as loans and receivable under IAS 39 were classified as at amortized cost under IFRS 9, because the initial application of contractual cash flows were not solely

108

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.

  • B. IFRS 15 ”Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and a number of revenue-related interpretations. Please refer to Note 4 for information relating to the relevant accounting policies.

Before application of IFRS 15, the Group recognized revenue when products were delivered to customers. After application of IFRS 15, revenue is recognized when customers obtain control of the products. The application of IFRS 15 does not impact the recognition of revenue on sales of products. As for a part of the contracts, customers pay in advanced an agreed amount of consideration whereas the Group assumes the obligation to provide services or products. The consideration received in advance were previously recognized in advanced payment. After initial application of IFRS 15, liabilities are recognized as contract liabilities.

The impact on assets, liabilities and equity when retrospectively applying IFRS 15 on January 1, 2018 is detailed as follows:

Item
Advanced payments
Contract liabilities - current
Total effect on liabilities		 Carrying
Amount as of
January1,2018
$ 1,134
-
$ 1,134		 Adjustments
Arising from
Initial
Application
$ (1,134)
1,134
$ -		 Restated Carrying
Amount as of
January1,2018
$ -
1,134
$ 1,134

The items of consolidated comprehensive income and cash flows were not affected.

(2) Effect of the new issuances of or amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs as endorsed by the FSC but not yet adopted by the Group:

New standards, interpretations and amendments as endorsed by the FSC effective from 2019 are as follows:

are as follows:
New Standards, Interpretations and Amendments
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
IFRS 16 “Leases”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and
Joint Ventures”
IFRIC 23 “Uncertainty over Income Tax Treatments”
Annual Improvements to IFRSs 2015-2017 Cycle		 Effective Date Issued by
IASB(Note 1)
January 1, 2019
January 1, 2019
January 1, 2019 (Note 2)
January 1, 2019
January 1, 2019
January 1, 2019

109

Note 1: Unless stated otherwise, the above new, amended and revised standards and interpretations are effective for annual periods beginning on or after the respective effective dates. Note 2: The Group shall apply these amendments to plan amendments, curtailments or settlements occurring on or after January 1, 2019.

Except for the following items, the Group believes that the adoption of aforementioned standards or interpretations will not have a significant effect on the Group’s accounting policies.

A. IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, 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 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 and interest portion of the lease liability are classified within financing activities and operating activities respectively. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Prepaid lease payments for land use rights of land located in China are recognized as prepayments for leases. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows.

The Group applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. 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 shall be measured at the amount of initial measurement of lease liabilities and adjusted by any lease payments made at or before the commencement date. 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.

110

  • (b)The Group will exclude initial direct costs from the measurement of right-of-use assets on January 1, 2019.

  • (c)The Group will use hindsight, such as in determining lease terms, to measure lease liabilities.

Anticipated impact on assets, liabilities and equity

Item
Prepaid expenses
Long-term prepaid rent
Right-of-use assets
Total effect on assets
Lease liabilities - current
Lease liabilities –
non -current
Total effect on liabilities		 Carrying
Amount as of
December 31,
2018
$ 41,148
193,407
-
$ 234,555
$ -
-
$ -		 Adjustments
Arising from
Initial
Application
$ (1,139)
(193,407)
212,739
$ 18,193
$ 4,454
13,739
$ 18,193		 Adjusted Carrying
Amount as of
January1,2019
$ 40,009
-
212,739
$ 252,748
$ 4,454
13,739
$ 18,193

  • B. IFRIC 23 ”Uncertainty Over Income Tax Treatments”

    • IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Group concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Group should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Group has to reassess its judgments and estimates if facts and circumstances change.

    • Upon initial application of IFRIC 23, the impact on consolidated balance sheets and consolidated comprehensive income statements will not be material.

    • Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group have completed the assessment of the application of other standards and interpretations and there are anticipated immaterial impact on the Group’s financial position and financial performance.

  • (3) The IFRSs issued by IASB but not yet endorsed and issued into effect by the FSC:

financial position and financial performance.
The IFRSs issued by IASB but not yet endorsed and issued into		 effect by the FSC:
New Standards, Interpretations and Amendments
Amendments to IFRS 10 and IAS 28 “Sales or Contribution of Assets
between an Investor and its Associate or Joint Venture”
IFRS 17 “Insurance Contracts”
Amendments to IFRS 3 “Definition of a Business”		 Effective Date Issued by
IASB(Note 1)
To be determined by IASB
January 1, 2021
January 1, 2020 (Note 2)

111

Effective Date Issued by IASB (Note 1) January 1, 2020 (Note 3)

New Standards, Interpretations and Amendments Amendments to IAS 1 and IAS 8 “Definition of Material”

  • Note 1: Unless stated otherwise, the above new, amended and revised standards and interpretations are effective for annual periods beginning on or after the respective effective dates.

  • Note 2: The Group shall apply these amendments to business combinations and assets acquisition that occur on or after January 1, 2020.

  • Note 3: The Group shall apply these amendments prospectively for annual reporting periods beginning on or after January 1, 2020

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of above 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

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Statement of Compliance

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs as endorsed by the FSC.

(2) Basis of Preparation

  • A. The consolidated financial statements have been prepared under the historical cost convention except for financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

  • B. The preparation of consolidated financial statements in compliance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

(3) Basis of consolidation

  • A. Basis for preparation of consolidated financial statements:

  • (a) All subsidiaries are included in the Group's consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.

112

  • (b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.

  • (c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

  • (d) Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are accounted for as equity transactions. 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.

  • (e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss or transferred directly to retained earnings as appropriate, on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of.

  • B. Subsidiaries included in the consolidated financial statements:

Name of
investor
The Company
The Company
The Company
The Company
The Company
The Company
YUANHUI		 Name of subsidiary
LU HAI（BVI）
INDUSTRIAL CORP.
（LU HAI BVI）
YUANHUI
INTERNATIONAL
CO., LTD.
（YUANHUI）
ALLPRO
INTERNATIONAL
CORP.
（ALLPRO）
LU HAI INDUSTRIAL
CORP.
（LU HAI IND.）
MEGA POWER CO., LTD.
（MEGA）
PT.LUHAI INDUSTRIAL
（PT.LUHAI）
LUHAI RUBBER
METAL INDUSTRIAL
（KUNSHAN）CO.,		 Main business activities
Investing activities
Investing activities
Investing activities
Selling various kinds of
valves and accessories
Selling activities
Manufacturing
and
selling various kinds of
valves
and accessories
Manufacturing
and
selling various kinds of
valves		 Percentage of ownership Percentage of ownership
December 31,
2018
100.00%
100.00%
100.00%
100.00%
100.00%
85.00%
100.00%		 December 31,
2017
100.00%
100.00%
100.00%
100.00%
100.00%
85.00%
100.00%

113

Name of
investor
LU HAI BVI
ALLPRO
LU HAI IND.		 Name of subsidiary
LTD.
（LUHAI KUNSHAN）
XIAMEN XIAHUI RUBBER
METAL IND. CO., LTD.
（XIAHUI）
XIAHUI
PT.LUHAI		 Main business activities
and accessories
Manufacturing
and
selling various kinds of
valves
and accessories
Manufacturing
and
selling various kinds of
valves
and accessories
Manufacturing
and
selling various kinds of
valves
and accessories		 Percentage of ownership Percentage of ownership
December 31,
2018
57.14%
42.86%
15.00%		 December 31,
2017
57.14%
42.86%
15.00%

The financial statements of the subsidiaries included in the consolidated financial statements for the years ended December 31, 2018 and 2017 are audited by certificate public accountants.

  • C. The subsidiaries that were not included in the consolidated financial statements: None.

(4) Foreign Currencies

  • A. Items included in the financial statements of each of the Group’s entities are measured using the functional currency of each entity. The consolidated financial statements are presented in New Taiwan Dollars, which is the Group's functional currency.

  • B. In preparing the financial statements of each individual consolidated entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences are recognized in profit or loss for the period. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss as part of the fair value gain or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income is re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, nonmonetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

  • C. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into NTD using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

  • (5) Classification of Current and Noncurrent Items

114

  • A. Assets that meet one of the following criteria are classified as current assets:

  • (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

  • (b) Assets held mainly for trading purposes;

  • (c) Assets that are expected to be realized within twelve months from the end of reporting period.

  • (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the end of reporting period.

The Group classifies all assets that do not meet the above criteria as non-current.

  • B. Liabilities that meet one of the following criteria are classified as current liabilities:

  • (a) Liabilities that are expected to be paid off within the normal operating cycle;

  • (b) Liabilities arising mainly from trading activities;

  • (c) Liabilities that are to be paid off within twelve months from the end of reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue.

  • (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the end of reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

The Group classifies all liabilities that do not meet the above conditions as non-current.

  • (6) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

  • (7) Financial instruments

Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. 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

A regular way purchase or sale of financial assets shall be recognized and derecognized using trade date accounting.

  • (a) Measurement category

2018

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

115

value through profit or loss, financial assets at amortized cost and equity instruments at fair value through other comprehensive income.

  • i. Financial assets at fair value through profit or loss

  • Financial assets at FVTPL includes financial assets mandatorily classified as at FVTPL and financial assets designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments that are not designated as at fair value through other comprehensive income (FVOCI) and debt instruments that do not meet the amortized cost criteria or the FVOCI criteria.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. Fair value is determined in the manner described in Note 12.

  • ii. Financial assets at amortized cost

Financial assets that meet the following 2 conditions are subsequently measured at amortized cost:

  • (i.) The financial asset is held within a business model whose objective is collecting contractual cash flows; and

  • (ii.) 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.

    • Subsequent to initial recognition, financial assets at amortized cost are measured at amortized cost which equals gross carrying amount determined by the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

  • iii. Investments in equity instruments at fair value through other comprehensive income

On initial recognition, the Group may make an irrevocable election to designate investments in equity instruments, which are not held for trading or not contingent consideration recognized by an acquirer in a business combination, as at FVTOCI.

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

116

Financial assets that the Group held were classified into the following categories: Financial assets at fair value through profit or loss and loans and receivables.

  • i. Financial assets at fair value through profit or loss

  • (i.) Financial assets at fair value through profit or loss are financial assets held for trading or financial assets designated as at fair value through profit or loss on initial recognition. Financial assets held for trading are those acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges.

  • (ii.) On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.

  • (iii.) Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in ‘financial assets measured at cost’.

  • ii. Loans and receivables

  • (i.) Accounts receivable

  • Accounts receivables are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently remeasured at amortized cost using the effective interest method, less provision for impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

  • (ii.) Bond investments without active market (recognized in other financial assets) Bond investments without active market are bond investments with fixed or definite receipt, which meet the following criteria:

  • Not classified as at fair value through profit or loss

  • Not designated as available-for-sale

  • No other factors except for credit worsening that causes the holders may not recover most of the original investments.

  • On a regular way purchase or sale basis, bond investments without active market are recognized and derecognized using trade date accounting. Bond investments without active market are initially recognized at fair value plus related transaction cost, and subsequently remeasured at amortized cost using the effective interest method less impairment. The amortization at the effective interest rate is recognized in profit or loss.

117

  • (b) Impairment of financial assets

2018

At the end of each reporting period, an impairment of expected credit loss is recognized for financial assets at amortized cost (including accounts receivable), investment of debt instruments at fair value through other comprehensive income, lease receivable and contract assets.

The Group always recognizes lifetime expected credit loss for trade receivables, contract liabilities and lease receivables. For all other financial instruments, the Group recognizes lifetime expected credit loss when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk of the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12month expected credit loss.

Expected credit losses reflect the weighted average credit losses with the respective risks of a default occurring as the weights. Lifetime expected credit loss 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 expected credit loss represents the portion of lifetime expected credit loss 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, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such financial asset.

2017

The Group assesses at the end of reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

i. Loans and receivables

For some financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence that receivables are impaired includes historical trends of collection and increasing level of overdue receivables which are collected beyond

118

the credit term, including taking national or regional observing economical trend into account.

For the financial assets measured at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. 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 loss recognized, the previously recognized impairment loss is reversed through profit or loss. The reversal shall not result in carrying amount of the financial asset that exceed what the amortized cost would have been at the date the impairment is reserved.

  • ii. Financial assets measured at cost

The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial assets, and is recognized in profit or loss. Impairment loss recognized for this category shall not be reversed subsequently.

  • iii. The carrying amount of the 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 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 amount of the allowance accounts are recognized in profit or loss.

  • (c) Derecognition of financial assets

  • The Group derecognizes a financial asset when one of the following conditions is met: i. The contractual rights to receive cash flows from the financial asset expire.

  • ii. The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.

  • iii. The Group neither retains nor transfers substantially all risks and rewards of ownership of the financial asset.

    • On derecognition of the entire financial asset, the difference between the financial 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 and accumulated in equity is recognized in profit or loss. However, on derecognition of an investment in equity instrument at fair value through other comprehensive income, the cumulative gain or loss that had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

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  • B. Financial liabilities and equity instruments

  • (a) Classification of 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.

  • (b) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.

  • (c) Financial liabilities

Except for the following circumstances, all financial liabilities are measure at amortized cost under effective interest method:

  • i. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or designated as financial liabilities at fair value through profit or loss on initial recognition. Financial liabilities are classified as held for trading if the principal purpose of acquisition is repurchasing in the short term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges.

  • ii. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

  • (d) Derecognition of financial liabilities

  • The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or expired.

  • On derecognition of financial liabilities, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

  • (e) Bonds payable

  • Convertible corporate bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group’s common shares by exchanging a fixed amount of cash for a fixed number of common shares) and call options. The Group initially classifies the bonds payable in accordance with derivative features embedded in convertible corporate bonds on initial recognition as a financial asset, a financial liability or an equity instrument. Convertible corporate bonds are accounted for as follows:

  • i. Call options embedded in convertible corporate bonds issued by the Group are initially recognized at net fair value in financial assets at fair value through profit or loss and subsequently remeasured and stated at fair value on each balance sheet date.

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The gain or loss is recognized in gain or loss from financial assets (liabilities) at fair value through profit or loss.

  • ii. Bonds payable of convertible corporate bond is initially recognized at fair value. The difference between the proceeds and the redemption value is presented as an addition to or deduction from bonds payable, which is amortized in profit or loss as an adjustment to financial costs over the period of bond circulation using the effective interest method.

  • iii. Conversion options embedded in convertible corporate bonds issued by the Group, which meet the definition of an equity instrument, are initially recognized in capital surplus – share options at the residual amount of total issue price less amounts of financial assets at fair value through profit or loss and bonds payable. Conversion options are not remeasured subsequently. If the conversion options of convertible corporate bonds have not been exercised as of expiration dates, the amount recognized in equity will be transferred to capital surplus - other.

  • iv. Any transaction costs directly attributable to the issuance of convertible bonds are allocated to the liability and equity components in proportion to the allocation of proceeds.

  • v. When bondholders exercise conversion options, the liability component of the bonds (including bonds payable and financial assets at fair value through profit or loss) shall be remeasured on the conversion date. The book value of common shares issued due to the conversion shall be based on the adjusted book value of the abovementioned liability component plus the book value of capital surplus – share options.

(8) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(9) Property, plant and equipment

  • A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

  • B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

  • C. Land is not depreciated. Other property, plant and equipment apply cost model and are

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depreciated using the straight-line method to allocate their cost over their estimated useful lives. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each end of reporting year. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change.

The estimated useful lives of property, plant and equipment are as follows:

Buildings 5~35years
Machinery 3~20years
Other equipment 2~15years
  • D. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

(10) Leases

  • A. Leases are classified as finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.

  • B. Operating leases are lease other than finance lease. Lease payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

(11) Intangible Assets

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis over the following estimated lives: 3 to 10 years for computer software; trademarks and patents based on the economic benefit or contract period. The estimated useful life and amortization method are reviewed at each end of reporting year, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

An item of intangible assets is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss arising on the disposal or retirement of an item of intangible assets is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

(12) Impairment of non-financial assets

The Group assesses at the end of reporting period the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The

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recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cashgenerating unit in prior years.

(13) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the end of reporting period. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

Moreover, levies imposed by governments are recognized as provisions on the occurrence of the transactions or activities. Payment obligations occurred over time are recognized as provisions over time and payment obligations occurred over certain thresholds are recognized once the thresholds are reached.

(14) Employee benefits

  • A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.

  • B. Pensions

  • (a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

  • (b) Defined benefit plans

  • i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior period. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms

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to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.

  • ii. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as retained earnings.

iii. Past service costs are recognized immediately in profit or loss.

  • C. Employees’ compensation and directors’ and supervisors’ remuneration Employees’ compensation and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’ compensation and directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by board of directors meeting subsequently, the differences should be recognized based on the accounting for changes in estimates.

  • D. Termination benefits

Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognizes expense when it can no longer withdraw an offer of termination benefits or it recognizes related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after balance sheet date shall be discounted to their present value.

(15) Capital stock

Capital stock is classified as equity. Incremental costs directly attributable to the issuance of stock or options are deducted from the capital issued.

  • (16) Income tax

  • A. The tax expense for the year comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.

  • B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the financial reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional tax is levied on the unappropriated retained earnings and is recorded as income tax expense when the actual appropriation of earnings is resolved by the shareholders meeting held

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in the next year.

  • C. Deferred income tax is recognized, using the balance sheet method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

  • D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences, deductible loss, and unused tax credit can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.

  • E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

(17) Revenue recognition

2018

When applying IFRS 15, the Group shall recognize revenue by applying the following steps

  • A. Identify the contract with the customer;

  • B. Identify the performance obligations in the contract;

  • C. Determine the transaction price;

  • D. Allocate the transaction price to the performance obligations in the contract; and

  • E. Recognize revenue when the entity satisfies a performance obligation.

  • F. For contracts where the period between the date the Group transfers a promised good or service to a customer and the date on which the customer pays for that good or service is within one year, the Group does not adjust the consideration for the effects of a significant financing component.

  • (a) Sale of goods

The Group sells various valve and accessory products. Sales are recognized when control of the products has been transferred to the customers since the customers

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obtain the rights to list price, use the products and assure the obligation to resale them as well as to bear the risk of obsolescence. The Group recognizes revenue and accounts receivable on transferring the control of the products. Revenue is presented net of sales return, quantity discounts and sales allowance.

The Group does not recognize sales revenue on materials delivered to subcontractors

because this delivery does not involve a transfer of control of materials.

  • (b) Service income

Service income is recognized when services are provided.

2017

  • A. Sale of goods

  • (a) Revenue of the Group is measured at the fair value of the consideration received or receivable taking into account returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

    • i. The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

    • ii. The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

    • iii. The amount of revenue can be measured reliably;

    • iv. It is probable that the economic benefits associated with the transaction will flow to the Group; and

    • v. The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

  • B. Service, dividend and interest income

  • (a) Service income is recognized when services are provided. Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract. However, when a specific significant portion of service existed within rendering the services, the service income should be recognized until the specific significant service provided.

  • (b) 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.

  • (c) Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

(18) Government grants

Government grants are recognized at fair value when the Group will comply with the

126

conditions attached to them and will receive the grants. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate.

(19) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

The preparation of the Group's consolidated financial statements is adopting accounting policies based on the following significant judgements, significant accounting estimates and assumptions:

  • (1) Key judgments for accounting policy application

  • 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, and how the managers are compensated. The Group continuously assesses whether the business model for the remaining financial assets held continues to be appropriate and monitors financial assets at amortized cost or at fair value through other comprehensive income. When assets are derecognized prior to their maturity, the Group analyzes the reasons for their disposal and assesses whether the reasons are consistent with the objective of the business model. If there has been a change in the business model, the Group adjusts the classifications of financial assets obtained afterwards.

  • (2) Key accounting estimates and assumptions

  • A. Estimated impairment of financial assets

    • 2018

The provision for impairment of trade receivables and investments in debt instruments is based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs to the impairment assessment based on the Group’s historical experience, existing market conditions as well as forward looking estimates as of the end of each reporting period. Where the actual future cash flows are less than expected, a material impairment loss may arise.

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2017

When there is objective evidence of impairment loss of receivables, the Group takes into consideration the historical default risk of the customer and analyzes the financial performance of the customer. The amount of impairment loss is measured as the difference between such an asset’s carrying amount and the estimated future cash flows 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.

  • B. Impairment of Tangible and Intangible Assets

  • In the process of evaluating the potential impairment of tangible and intangible assets, the Group is required to make subjective judgments in determining the independent cash flows, useful lives, expected future revenue and expenses related to the specific asset groups with the consideration of the way assets are used and nature of the industry. Any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment charges in future years.

  • C. Realization of Deferred Income Tax Assets

  • Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires the Group’s subjective judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized and feasible tax planning strategies. Any changes in the global economic environment, the industry trends and relevant laws and regulations could result in significant adjustments to the deferred tax assets.

  • D. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Group must determine the net realizable value of inventories on balance sheet date based on judgments and estimates. The Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. The net realizable value of inventory is mainly determined based on assumptions of future demand within a specific period, the assumptions might change in the future and may result in significant differences in its realizable value.

  • E. Calculation of net defined pension obligations

When calculating the present value of defined pension obligations, the Group must apply judgements and estimates to determine the actuarial assumptions on balance sheet date, including discount rates and future rate of salary growth. Any changes of these assumptions could significantly impact the carrying amount of defined pension obligation.

6. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

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December 31

Item
Cash on hand
Checking accounts and demand deposits
Time deposits
Total		 2018
$ 464
352,852
470,905
$ 824,221		 2017
$ 546
332,479
594,306
$ 927,331

  • A. The Group has no cash and cash equivalents pledged to others.

  • B. Please refer to Note 12 for relating credit risk management and assessment.

(2) Financial assets at fair value through profit or loss - current

Item
Mandatorily measured at FVTPL
Derivative financial assets
Conversion options
Nonderivative financial assets
Financial instruments with guaranteed
principle and floating yield
Total		 December 31 December 31
2018
$ -
44,905
$ 44,905		 2017
$ -
-
$ -

  • A. Please refer to Note 6(17) for the information on conversion options.

  • B. Financial instruments with guaranteed principle and floating yield were previously classified as other financial assets – current under IAS 39. Please refer to Note 3 and 6(7) 。

  • for the reclassification and relating information for year 2017

  • C. The group has no financial assets at fair value through profit or loss pledged to others.

(3) Financial assets at amortized cost - current - 2018

Item
Financial instruments with guaranteed principle and defined
yield		 December 31,2018
$ 214,581

  • A. Financial instruments with guaranteed principle and defined yield were previously classified as other financial assets – current under IAS 39. Please refer to Note 3 and 6(7) for the reclassification and relating information for year 2017.

  • B. The Group has no financial assets at amortized cost pledged to others.

  • C. Please refer to Note 12 for relating credit risk management and assessment.

(4) Notes receivable, net

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Item
Notes receivable
Less: Loss allowance for doubtful
receivables
Notes receivable, net		 December 31 December 31
2018
$ 68,713
-
$ 68,713		 2017
$ 43,277
-
$ 43,277

  • A. The Group has no notes receivable pledged to others.

  • B. As of December 31, 2018 and 2017, notes receivable being accepted by banks were $54,994 thousand and $42,304 thousand, respectively.

  • C. Please refer to Note 6(5) for the information on loss allowance for notes receivable.

(5) Accounts receivable, net

counts receivable, net
Item
Accounts receivable
Less: Loss allowance for doubtful
receivables
Accounts receivable, net		 December 31
2018
$ 615,693
(18,347)
$ 597,346		 2017
$ 598,158
(13,702)
$ 584,456

  • A. The accounts receivable that were neither past due nor impaired was following the Group’s credit policy determined by reference to financial position and historical payment record of counterparties. The average credit term is 14 to 90 days after invoice date.

  • B. The Group has no accounts receivable pledged to others. 2018

  • (a)The Group applies the simplified approach to providing expected credit losses prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of economic conditions at the reporting date. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further distinguished according to the Group’s different customer base.

    • The Group takes into account the future prospect of market and assess the loss allowance for notes and accounts receivable using loss ratio established based on historical and timely information plus forwarding-looking adjustments.

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  • (b)The loss allowance for the Group’s notes and accounts receivables based on the provision matrix is as follows:

December 31, 2018

Rate of
expected
credit loss		 Gross carrying
amount		 Loss allowance
(lifetime
expected credit
loss)		 Amortized cost
0.18%
3.38%
6.21%
11.03%
24.07%
100%
100%		 $ 599,405
24,315
16,478
12,618
23,031
150
8,409		 $ (1,007)
(822)
(1,023)
(1,392)
(5,544)
(150)
(8,409)		 $ 598,398
23,493
15,455
11,226
17,487
-
-
$ 684,406 $ (18,347) $ 666,059

The Group has not held any collateral or other credit enhancement for these notes and accounts receivable.

(c)Movements of loss allowance for notes and accounts receivable are as follows:

Item
Balance, January 1, 2018 (IAS 39)
Effect arising from initial application of IFRS 9
Balance, January 1, 2018 (IFRS 9)
Provision for impairment
Reversal of impairment
Effect of exchange rate changes
Balance, December 31, 2018		 Year ended
December 31,2018
$ 13,702
-
13,702
6,685
(1,667)
(373)
$ 18,347

(d)Please refer to Note 12 for relating credit risk management and assessment. 2017

(a)Aging analysis of notes and accounts receivable based on the past due date ：

Aginginterval
Neither past due nor impaired
Past due but not impaired
Past due within 30 days
Past due 31-60 days
Past due 61-90 days
Past due 91-180 days
Past due 181-270 days		 December 31,2017
$ 573,961
33,657
13,091
6,809
5,708
5,338

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Aginginterval
Past due over 271 days
Total		 December 31,2017
$ 1,846
$ 640,410

The Group’s management considered the accounts receivables still recoverable since there has not been a significant change in the credit quality of its customer. The Group has recognized an appropriate amount of allowance for doubtful receivables complying with the Group’s policies as of December 31, 2017.

(b)Movements of the allowance for doubtful receivables:

Item
Balance, January 1, 2017
Provision for impairment
Reversal of impairment
Write-offs
Effect of exchange rate changes
Balance, December 31, 2017		 Year Ended December 31,2017 Year Ended December 31,2017 Year Ended December 31,2017
Individually
assessed for
impairment
$ 7,356
-
-
(6,120)
(211)
$ 1,025
Collectively
assessed for
impairment		 Total
$ 7,081
6,258
(553)
-
(109)		 $ 14,437
6,258
(553)
(6,120)
(320)
$ 12,677 $ 13,702

The Group determined that the accounts receivable that are impaired amounted to 1,025 thousand as of December 31, 2017. The impairment loss recognized is the difference between the carrying amount of accounts receivable and the present value of the expected recoverable amount.

Aging analysis of accounts receivable that is individually determined as impaired:

Aging interval December 31, 2017 Past due Past due over 271 days $ 1,025

(6) Inventories and cost of goods sold

nventories and cost of goods sold
Item
Merchandise
Finished goods
Work in process
Raw materials
Supplies
Inventory in transit
Total		 December 31
2018
$ 62,079
89,925
165,227
140,581
32,145
75,306
$ 565,263		 2017
$ 64,650
109,993
196,250
143,396
39,866
72,973
$ 627,128
  • A. The cost of inventories recognized as expense for the period:

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Years Ended December 31

Item
Loss on decline (gain on reversal) in
market value of inventories
Unallocated overhead
Loss (gain) on inventory taking
Loss on inventory disposed
Total		 2018
$ 1,122
11,270
(754)
352
$ 11,990		 2017
$ (1,441)
6,583
315
255
$ 5,712

The reversal in market value of the Group’s inventories as for 2017 is mainly due to decline in the amount of slow-moving inventory and increase in the copper price.

  • B. The Group has no inventory pledged to others.

(7) Other financial assets – current - 2017

her financial assets – current - 2017
Item
Structured financial instruments		 December 31,2017
$ 237,586

  • A. Structured financial instruments are financial instruments with guaranteed principle and defined yield and guaranteed principle with floating yield raised by banks.

  • B. The Group has no other financial assets – current pledged to others.

(8) Other current assets

Item
Temporary payments

Refundable deposits
Total		 December 31 December 31
2018
$ 527
27,091
$ 27,618		 2017
$ 208
-
$ 208

Please refer to Note 6(13) for the deposits paid for purchasing a land use right in Jimei District, Xiamen City.

(9) Financial assets at fair value through other comprehensive income – noncurrent - 2018

Item
Equity instruments
Unlisted stocks		 December 31,2018
$ 930
  • A. These investments in equity instruments are held for medium- to long-term strategic purposes and were thus classified as financial assets at fair value through other comprehensive income. Under IAS 39, these investments were originally classified as financial assets carried at cost – noncurrent. Please refer to Notes 3 and 6(10) for

133

information relating to reclassification and comparative information for 2017.

  • B. The Group has no financial assets at fair value through other comprehensive income pledged to others.

(10) Financial assets carried at cost

Item December 31, 2017 Foreign unlisted stocks $ 914

  • A. Management believes that the fair value of the unlisted equity investments held by the Group mentioned above cannot be reliably measured because the range of reasonable fair value estimates was significant and it is unable to reasonably evaluate the chances of each estimation; therefore, they were measured at cost less impairment at the end of balance sheet date.

  • B. The Group has no financial assets carried at cost pledged to others.

(11) Property, plant and equipment

Item
Land
Buildings
Machinery
Other equipment
Equipment to be inspected and construction
in progress
Total cost
Less: Accumulated depreciation and impairment
Property, plant and equipment, net		 December 31 December 31
2018
$ 7,567
323,247
978,565
125,773
85,538
1,520,690
(797,417)
$ 723,273		 2017
$ 7,567
313,431
921,220
117,436
30,524
1,390,178
(756,125)
$ 634,053
Cost Land
$ 7,567
-
-
-
-
$ 7,567
$ -
-
-		 Buildings
$ 313,431
2,284
(77)
14,349
(6,740)
$ 323,247
$ (156,186)
(15,524)
13		 Machinery
$ 921,220
40,797
(41,245)
79,492
(21,699)
$ 978,565
$ (518,940)
(68,170)
35,091		 Other
equipment
$ 117,436
6,913
(3,545)
7,582
(2,613)
$ 125,773
$ (80,999)
(12,545)
3,104		 Equipment to be
inspected and
construction in
progress
$ 30,524
104,234
-
(47,418)
(1,802)
$ 85,538
$ -
-
-		 Total
$ 1,390,178
154,228
(44,867)
54,005
(32,854)
Balance, January 1, 2018
Additions
Disposals
Reclassification
Effect of exchange rate
difference
Balance, December 31, 2018
Accumulated depreciation
and impairment
$ 1,520,690
$ (756,125)
(96,239)
38,208
Balance, January 1, 2018
Depreciation expense
Disposal

134

Effect of exchange rate
difference
Balance, December 31, 2018
Cost		 Land
$ -
$ -
$ 7,567
-
-
-
-
$ 7,567
$ -
-
-
-
$ -		 Buildings
$ 3,158
$ (168,539)
$ 311,000
1,964
-
9,030
(8,563)
$ 313,431
$ (143,533)
(15,075)
-
2,422
$ (156,186)		 Machinery
$ 11,721
$ (540,298)
$ 867,471
27,118
(18,334)
61,901
(16,936)
$ 921,220
$ (487,952)
(56,202)
17,457
7,757
$ (518,940)		 Other
equipment
$ 1,860
$ (88,580)
$ 114,846
4,235
(3,570)
4,465
(2,540)
$ 117,436
$ (71,416)
(14,392)
3,377
1,432
$ (80,999)		 Equipment to be
inspected and
construction in
progress
$ -
$ -
$ 23,721
19,995
-
(12,355)
(837)
$ 30,524
$ -
-
-
-
$ -		 Total
$ 16,739
$ (797,417)
$ 1,324,605
53,312
(21,904)
63,041
(28,876)
Balance, January 1, 2017
Additions
Disposals
Reclassification
Effect of exchange rate
difference
Balance, December 31, 2017
Accumulated depreciation
and impairment
$ 1,390,178
$ (702,901)
(85,669)
20,834
11,611
Balance, January 1, 2017
Depreciation expense
Disposals
Effect of exchange rate
difference
Balance, December 31, 2017
$ (756,125)

  • A. The Group has no property, plant and equipment pledged to others.

  • B. Please refer to Note 6(28) for the information on interest capitalization.

(12) Intangible assets

Item Item December 31 December 31 December 31
2018
$ 16,315
424
181
16,920
(9,471)
$ 7,449
Year Ended December 2018		 2017
Software
Trademark
Patent
Total cost
Less: Accumulated amortization
Intangible assets, net
Software
Cost
Balance, January 1, 2018
$ 16,488
Additions
916
Disposals
(833)
Effect of exchange rate
difference
(256)
Balance, December 31, 2018
$ 16,315
Accumulated amortization
Balance, January 1, 2018
$ (8,396)		 $ 16,488
433
185
17,106
(8,799)
$ 8,307
Software
$ 16,488
916
(833)
(256)
$ 16,315
$ (8,396)		 Trademark
$ 433
-
-
(9)
$ 424
$ (277)		 Patent 185
-
-
(4)
181
(126)		 Total
$ $ 17,106
916
(833)
(269)
Balance, January 1, 2018
Additions
Disposals
Effect of exchange rate
difference
Balance, December 31, 2018
Accumulated amortization
$ $ 16,920
$ $ (8,799)
Balance, January 1, 2018

135

Amortization expense
Disposals
Effect of exchange rate
difference
Balance, December 31, 2018
Cost
Balance, January 1, 2017
Additions
Disposals
Balance, December 31, 2017
Accumulated amortization
Balance, January 1, 2017
Amortization expense
Disposals
Balance, December 31, 2017		 Year Ended December 2018 Year Ended December 2018
Software
$ (1,562)
833
108
$ (9,017)		 Trademark
Patent
$ (43)
$ (18)
-
-
7
3
$ (313)
$ (141)
Year Ended December 2017		 Total
$ (1,623)
833
118
$ (9,471)
Software
$ 15,554
1,079
(145)
$ 16,488
$ (6,923)
(1,494)
21
$ (8,396)		 Trademark
$ 439
-
(6)
$ 433
$ (237)
(43)
3
$ (277)		 Patent
$ 188
-
(3)
$ 185
$ (109)
(18)
1
$ (126)		 Total
$ 16,181
1,079
(154)
$ 17,106
$ (7,269)
(1,555)
25
$ (8,799)

The Group has no intangible assets pledged to others.

(13) Long-term prepaid rents

ong-term prepaid rents
Item
Land use right		 December 31
2018
$ 193,407		 2017
$ 59,463

The tender of XIAHUI for land use right in Jeimei District, Xiamen City had been approved by the BOD’s meeting held on November 8, 2017, and the deposit for tender amounted to RMB 6,060 thousand was paid in December, 2017 and was recognized in refundable deposits. In January, 2018, XIAHUI won the bid for RMB 30,300 thousand and the proceed of the land use right less the amount of refundable deposits was paid. In addition, according to the contract, the construction of land should be done before October, 2021 and the Group also paid for construction deposits amounted to RMB 6,060 thousand which is recognized in refundable deposits. The Group received notification from local authorities that the policy for deposits on constructions is cancelled and the Group is entitled to file for a refund. Therefore, the refundable deposit is reclassified to other current assets.

LUHAI KUNSHAN and XIAHUI signed the land use right contract with Jiangsu government and Xiamen government. The terms for the land use right are 40 to 50 years.

136

During the terms of the land use right, the Group has the right to use, to receive the benefit from, to transfer the ownership and to lease the land use right, and should pay the taxes for using the land. The land use right is used to build factories, office buildings and employees’ dormitories.

PT.LUHAI obtained the land use right of Serang, Indonesia. The land is used to build factories, office buildings and employees’ dormitories.

The group has no long-term prepaid rents pledged to others.

(14) Other noncurrent assets

Item
Prepaid of equipment
Refundable deposits
Other noncurrent assets
Total		 December 31 December 31
2018
$ 29,804
2,405
4,527
$ 36,736		 2017
$ 61,989
29,558
5,151
$ 96,698

Please refer to Note 6(13) for the information on the deposits paid for tendering the land use right of Jimei District, Xiamen City.

(15) Short-term loans

hort-term loans
The nature of borrowings
Unsecured borrowings
Interest rates		 December 31
2018
$ 30,715
3.90%		 2017
$ 59,520
2.76%

The Group does not provide any asset as a collateral for short-term borrowings.

(16) Other payables

Item
Salaries and bonus payable
Consumption expense payable
Construction and equipment payable
Insurance payable
Sales tax payable
Outsourced expense payable
Compensation payable of employees, directors
and supervisors
Other
Total		 December 31 December 31
2018 2017
$ 62,221
23,799
4,397
14,303
4,611
11,111
6,688
23,852
$ 150,982		 $ 69,398
23,004
5,790
14,712
8,927
11,818
9,112
24,133
$ 166,894

137

(17) Bonds payable

Item
The first domestic unsecured convertible
bonds payable
Less: Discount on bonds payable
Subtotal
Less: Bonds payable, current portion
Total		 December 31 December 31
2018
$ -
-
-
-
$ -		 2017
$ 398,800
(1,789)
397,011
(397,011)
$ -

On April 8, 2015, the regulatory authority authorized the Company to issue the first domestic unsecured convertible bonds of $400,000 thousand with coupon rate fixed at 0% on April 8 from 2015 to 2018. The convertible bonds were issued at 100.5% premium of the par value. The transactions of the aforementioned corporate bonds over-the-counter had been terminated on April 9, 2018, and the corporate bonds were redeemed in April, 2018 by the Company.

(18) Long-term loans and long-term loans due within a year

The nature of borrowings
Secured borrowings
Less: Current portion
Total
Interest rates
Maturity date		 December 31 December 31
2018
$ 635,606
(61,314)
$ 574,292
0.9%-4.01%
2019 to 2023		 2017
$ 163,680
(14,880)
$ 148,800
2.53%-3.30%
2018 to 2022

  • A. The Group does not provide any asset as a collateral for long-term borrowings.

  • B. According to loan agreements with banks, the Company and Xiahui should maintain certain agreed financial ratios. The Company and XIAHUI have not breached the agreements as of December 31, 2018 and 2017.

(19) Retirement benefit plans

  • A. Defined contribution plans

  • (a)The Company and LU HAI IND. adopted a pension plan under the Labor Pension Act, which is a state-managed defined contribution plan. The Group make monthly contributions to employees' individual pension accounts at 6% of monthly salaries and wages.

  • (b)The foreign subsidiaries also make contribution in accordance with the rate specified in the plans in the local regulations, which is a defined contribution plan.

138

  • (c)A total expense of $19,887 thousand and $19,916 thousand were recognized in accordance with rate specified in defined contribution plans in consolidated comprehensive income as of December 31, 2018 and 2017.

  • B. Defined benefit plans

    • (a)The Company and LU HAI IND. adopted the pension plan under the Labor Standards Law, which is a government managed defined benefit plan, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company and LU HAI IND. make contributions, equal to 2% of total monthly salaries, to a pension fund which are administered by Labor Pension Fund Supervisory Committee (the Committee) and deposited in the name of the Company’s and LU HAI IND.’s Committee in the Bank of Taiwan. Before the end of each year, the Company and LU HAI IND. assess the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who qualified to retirement requirements in the next year, the Company and LU HAI IND. are required to fund the difference in one deposit by the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company and LU HAI IND. have no right to influence the investment policy and strategy

    • (b)Amounts recognized in the consolidated balance sheets in respect of these defined benefit plans were as follows:

nefit plans were as follows:
Item
Present value of defined benefit obligation
Fair value of plan assets
Net defined benefit liability		 December 31
2018
$ 9,298
(4,164)
$ 5,134		 2017
$ 7,820
(3,832)
$ 3,988
  • (c)Movement in the net defined benefit liability were as follows:
Item
Balance, January 1, 2018
Service cost
Current service cost
Interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets
(excluding amounts
included in net interest		 Year ended December 31,2018 Year ended December 31,2018 Year ended December 31,2018
Present value
of defined
benefit
obligation		 Fair value of
plan assets		 Net defined
benefit
liability
$ 7,820
91
102
193
-		 $ (3,832)
-
(51)
(51)
(101)		 $ 3,988
91
51
142
(101)

139

Item
expense)
Actuarial (gain) loss arising
from changes in financial
assumptions
Actuarial (gain) loss arising
from experience
adjustments
Recognized in other
comprehensive income
Contributions from employer
Benefits paid
Balance, December 31, 2018
Item
Balance, January 1, 2017
Service cost
Current service cost
Interest expense (income)
Recognized in profit or loss
Remeasurement
Return on plan assets
(excluding amounts
included in net interest
expense)
Actuarial (gain) loss arising
from changes in financial
assumptions
Actuarial (gain) loss arising
from experience
adjustments
Recognized in other
comprehensive income
Contributions from employer
Benefits paid
Balance, December 31, 2017		 Year ended December 31,2018 Year ended December 31,2018 Year ended December 31,2018
Present value
of defined
benefit
obligation		 Fair value of
plan assets		 Net defined
benefit
liability
$ 551 $ -
$ 551
734
-
734
1,285
(101)
1,184
-
(180)
(180)
-
-
-
$ 9,298$ (4,164)
$ 5,134
Year ended December 31,2017		 $ 551
734
1,184
(180)
-
$ 5,134
Present value
of defined
benefit
obligation
$ 10,679
152
164
316
-
229
(3,404)
(3,175)
-
-
$ 7,820		 Fair value of
plan assets
$ (3,607)
-
(57)
(57)
21
-
-
21
(189)
-
$ (3,832)		 Net defined
benefit
liability
$ 7,072
152
107
259
21
229
(3,404)
(3,154)
(189)
-
$ 3,988

The pension costs of the defined benefit plans were recognized in profit or loss by the following items:

140

Years ended December 31

Item
Marketing expenses
General and administrative
expenses
Total		 2018
$ 21
121
$ 142		 2017
$ 72
187
$ 259
  • (d)Fair value of the plan assets was as follows:
Item
Cash and cash equivalents		 December 31 December 31
2018
$ 4,164		 2017
$ 3,832

  • (e)Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

  • i. Investment risk

The plan assets are invested in domestic and foreign equity securities, debt securities, and bank deposits, etc. The investment is conducted at the discretion of the Bureau of Labor Funds, Ministry of Labor or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

  • ii. Interest risk:

A decrease in the government bond and corporation bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments. iii. Salary risk

The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

(f)The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Measurement date

Measurement date Measurement date
Item
Discount rate
Future salary increase rate		 December 31
2018
1.05%
2.75%		 2017
1.30%
2.50%

141

If possible change in the significant actuarial assumptions will occur and other a ssumptions remain constant, the present value of the defined benefit obligation would (increase) decrease as follows:

Item
Discount rate
0.25% increase
0.25% decrease
Future salary increase rate
1% increase
1% decrease		 December 31 December 31
2018
$ (283)
298
$ 1,044
(1,253)		 2017
$ (242)
253
$ 1,061
(902)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

(g)The Group expects to make contributions of NT$176 thousand to the defined benefit plans in the next year starting from December 31, 2018. The weighted average duration of the defined benefit obligation is 12-14 years.

(20) Capital stocks

A. The Group’s movement of outstanding shares and capital were as follows:

Item
Balance at January 1
Conversion of bonds
payable to common
stocks
Capitalization of
retained earnings
Balance at December 31		 Years ended December 31 Years ended December 31 Years ended December 31
2018
Shares
(in thousands)
Amount
81,965 $ 819,650
-
-
-
-
81,965$ 819,650		 2017
Shares
(in thousands)
81,965
-
-
81,965		 Shares
(in thousands)
74,495
21
7,449
81,965		 Amount
$ 744,947
208
74,495
$ 819,650

The par value of capital stock is $10 per share; every share has one voting right and the right to receive dividends.

Pursuant to a shareholders’ resolution on May 31, 2017, the Company increase its common capital with stock dividends by 74,495 thousand shares, at a par value of $10, the total paid-in capital was $819,650 thousand after capital increment. The capital increment by stock dividends had obtained approval in the BOD’s meeting and the effective date of the capital increment was September 10, 2017.

142

  • B. The Company’s authorized capital was $1,200,000 thousand, consisting of 120,000 thousand shares as of December 31, 2018.

(21) Capital surplus

Capital surplus
Item
From merger
Additional paid-in capital
From convertible bonds
From difference between acquisition of
interests in subsidiaries and its
carrying value of equity
Share-based payments
Stock options
Other
Total		 December 31
2018
$ 44,012
349,674
1,033
28,451
2,028
-
18,503
$ 443,701		 2017
$ 44,012
349,674
1,033
28,451
2,028
18,503
-
$ 443,701

Under the Company Act, the capital surplus generated from the excess of the issuance price over the par value of capital stock （ including mergers, convertible bonds and difference between acquisition of interests in subsidiaries and its carrying value of equity ） and from donations can be used to offset deficit or may be distributed as stock dividends or cash dividends. Under the regulations of the Security Exchange Law, the maximum amount transferred from the foregoing capital surplus to the Company's capital per year shall not be over 10% of the Company's capital surplus. Capital surplus can't be used to offset deficit unless legal reserve is insufficient. The capital surplus from long-term investments may not be used for any purpose.

The bonds payable of the Company was expired on April 8, 2018. The conversion options that were not exercised as of the expiration date, and therefore they were recognized in capital surplus – others.

(22) Retained earnings and earnings appropriation

  • A. The Company may distribute profits in accordance with a proposal for distribution of profits prepared by the Board of Directors and approved by shareholders in ordinary resolution. The Directors shall prepare such proposal as follow: the current year’s net income, if any, shall first be used to offset prior years’ deficits, and then 10% of the remaining amount shall be set aside as legal reserve, until that such legal reserve amounts to the total paid-in capital. Subsequently, the Company shall set aside or reverse a special reserve in accordance with the applicable laws and regulations. And then any remaining profit together with any undistributed retained earnings shall be used by the Corporation’s board of directors as the basis for proposing a distribution

143

plan, which should be resolved in the shareholders’ meeting for distribution of dividends and bonus to shareholders.

The Company is currently positioned in a growth and development phase. Due to the need for capital expenditure, operation expansion and an integrated financial planned in order to maintain sustainable growth, any balance left over under the proposal mentioned above may be distributed as Dividends (including cash dividends or stock dividends) or bonuses, among which the Dividends to be distributed shall not be less than 10% of the total amount of Dividends distributed to the shareholders.

  • B. Legal reserve may be used to offset a deficit or to distribute as dividend in cash or in stock for the portion in excess of 25% of the Company's paid-in capital.

  • C. Special reserve

cial reserve
Item
Special reserve		 December 31
2018
$ 228,579		 2017
$ 223,028

  • (a)In accordance with the regulation, the Company shall set aside special reserve from the debit balance on other equity item at the end of the year before distributing earnings. When debit balance on other equity is reversed subsequently, the reversed amount could be included in the distributable earnings.

  • (b)The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with rule NO.1010012865 issued by the FSC, dated April 6, 2012, shall be reversed proportionately to retained earnings when the relevant assets are used, disposed of or reclassified subsequently.

  • D. The appropriations of 2017 and 2016 earnings have been approved by shareholders’ meetings held on June 25, 2018 and May 31, 2017, respectively. The appropriations and dividends per share were as follows:

Item

Legal reserve
Special reserve
Stock dividends
Cash dividends
Total		 Appropriation of Earnings
Foryear 2017 For Year 2016
$ 27,415 $ 31,841
5,551
-
-
74,495
122,947
74,494
$ 155,913$ 180,830		 Dividends Per Share(NT$) Dividends Per Share(NT$)
Foryear 2017 Foryear 2017
$ -
-
-
1.50		 For Year 2016
$ 27,415
5,551
-
122,947		 $ -
-
1.00
1.00
$ 155,913
  • E. The Company’s appropriations of earnings for 2018 had been approved in the meeting of the Board of Directors held on March 13, 2019. The appropriations and dividends per share were as follows:
are were as follows:
Item
Legal reserve		 Appropriation of
Earnings
$ 20,846		 Dividends Per Share
(NT$)
$ -

144

Item
Special reserve
Stock dividends
Cash dividends
Total		 Appropriation of
Earnings
$ 54,098
40,982
81,965
$ 197,891		 Dividends Per Share
(NT$)
$ -
0.50
1.00

The appropriations of earnings for 2018 are to be presented for approval in the Company's annual shareholders' meeting to be held on May 29, 2019.

F. Information on proposal and resolution regarding earnings appropriation of the Board of Directors' and shareholders' meetings is available from the "Market Observation Post System" on the website of the TSE.

(23) Other equity items

Item
Balance, January 1, 2018
Effect of retrospective application
of IFRS 9
Balance, January 1, 2018 (adjusted)
Exchange differences on translation
of foreign financial statements
Valuation adjustments on financial
assets at fair value through other
comprehensive income
Balance, December 31, 2018
Balance, January 1, 2017
Exchange differences on translation
of foreign financial statements
Balance, December 31, 2017		 Exchange differences
on translation of
foreign financial
statements
$ (228,579)
-
(228,579)
(54,135)
-
$ (282,714)
$ (178,241)
(50,338)
$ (228,579)		 Gain (loss) on financial
assets at fair value
through other
comprehensive income
$ -
247
247
-
(209)
$ 38
$ -
-
$ -		 Total
$ (228,579)
247
(228,332)
(54,135)
(209)
$ (282,676)
$ (178,241)
(50,338)
$ (228,579)

(24) Net revenue

Item
Revenue from contract with customers
Revenue from sale of goods
Service revenue
Total		 Years ended December 31 Years ended December 31
2018
$ 2,627,341
1,437
$ 2,628,778		 2017
$ 2,641,861
5,149
$ 2,647,010

A. Description of contract with customers

145

Revenue from contract with customers mainly derives from sales of valves and accessories and processing fees income from customers. The consideration, fixed and agreed on the contracts, is classified as short-term receivables, and is therefore measured at invoice price.

B. Disaggregation of revenue from contracts with customers

The Group classifies revenue from the following categories of main products:

Year ended December 31, 2018

Item
Main products
Bicycle valves
Motorcycle and electric bike valves
Passenger car, truck and other
valves
Accessories and others
Total
Timing of revenue recognition
Performance obligation satisfied at
a point in time
Performance obligation satisfied
over time
Total		 XIAHUI
$ 335,768
413,528
241,281
183,261
$1,173,838
$ 1,173,699
139
$1,173,838		 LUHAI
KUNSHAN		 PT.LUHAI
$ 59,053
344,286
35,353
147,472
$ 586,164
$ 584,866
1,298
$ 586,164		 Others Adjust-
ments and
eliminations
Total
$ 89,100
56,648
324,280
77,580		 $ 38,304
112,335
117,098
71,620		 $ -
-
-
(18,189)		 $ 522,225
926,797
718,012
461,744
$ 547,608 $ 339,357 $ (18,189) $ 2,628,778
$ 547,608
-		 $ 339,357
-		 $ (18,189)
-		 $ 2,627,341
1,437
$ 547,608 $ 339,357 $ (18,189) $ 2,628,778

C. Contract balances

The Group has recognized the following revenue-related contract liabilities:

Item
Contract liabilities - current		 December 31,2018
$ 3,651

(25) Employee benefits, depreciation and amortization expense

Bynature
Employee benefits
Salary
Remuneration
to directors
Insurance
Pension
Other labor cost
Depreciation
Amortization
Total		 Years ended December 31 Years ended December 31 Years ended December 31
2018 2017
Operating
costs
$ 314,712
-
10,329
15,085
22,901
88,783
-
$ 451,810		 Operating
expenses
$ 114,460
3,954
5,129
4,944
14,147
7,456
5,767
$155,857		 Total Operating
costs
$ 340,380
-
10,383
15,467
23,252
78,425
-
$ 467,907		 Operating
expenses
$ 113,514
5,132
4,986
4,708
12,860
7,244
2,849
$ 151,293		 Total
$ 429,172
3,954
15,458
20,029
37,048
96,239
5,767		 $ 453,894
5,132
15,369
20,175
36,112
85,669
2,849
$ 607,667 $619,200

A. According to the Company’s Article of Incorporation, if the Company has pre-tax profits

146

in the current year, the Company shall aside not less than 1.5% of the profits as employees’ compensation and not more than 3% of the profits as Directors’ remuneration. If there is a change in amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate.

  • B. The appropriations of employees’ compensation and remuneration of directors of 2018 and 2017 have been approved by directors’ meeting held on March 13, 2019 and March 14, 2018, respectively. The amounts approved and recognized in financial statements are shown as follows:
Amount resolved to be
distributed
Amount recognized in
financial statements
Difference		 Years ended December 31 December 31
2018
Employees’
compensation
Remuneration
to directors
$ 3,224 $ 3,224
3,224
3,224
$ -$ -		 2017
Employees’
compensation
$ 3,224
3,224
$ -		 Employees’
compensation
$ 4,372
4,372
$ -
Remuneration
to directors
$ 4,372
4,372
$ -

  • C. Information on employees' compensation and remuneration to directors of the Company as resolved by the meeting of Board of Directors is available from the "Market Observation Post System" at the website of the Taiwan Stock Exchange.

  • D. For the years ended December 31, 2018 and 2017, the numbers of employees of the Group were 1,358 and 1,459, respectively. Among them, the numbers of Directors who were not employees were 6 and 12, respectively.

(26) Other income

Item
Interest income
Bank deposit
Financial assets at amortized cost
Subtotal
Subsidies
Others
Total		 Years ended December 31 Years ended December 31
2018
$ 10,322
6,407
16,729
17,188
3,552
$ 37,469		 2017
$ 17,033
-
17,033
15,622
3,503
$ 36,158

(27) Other gains and losses

ther gains and losses
Item
Net currency exchange gains (losses)		 Years ended December 31
2018
$ 4,907		 2017
$ (17,681)

147

Years ended December 31

Item
Net gains (losses) on financial assets
at FVTPL
Gains (losses) on disposal of property,
Plant and equipment
Other losses
Total		 2018
$ 1,154
717
(4,421)
$ 2,357		 2017
$ (80)
(26)
(6,380)
$ (24,167)

(28) Financial costs

inancial costs
Item
Interest expense
Bank borrowings
Convertible bonds
Less: capitalized amount for
qualified assets
Financial cost
Interest capitalization rates		 Years ended December 31
2018
$ 12,703
1,789
(2,493)
$ 11,999
1.15%-4.10%		 2017
$ 5,085
6,577
-
$ 11,662
-

(29) Income tax

  • A. Income tax expense recognized in profit or loss

Components of income tax expense:

Item
Current income tax expense
Current tax expense recognized in
the current year
Income tax adjustments on prior years
Additional income tax on
unappropriated earnings
Current income tax expense
Deferred income tax expense
Deferred income tax expense (benefit)
related to temporary differences
Effect of tax rate changes
Deferred income tax expense (benefit)
Income tax expense		 Years ended December 31 Years ended December 31
2018
$ 94,544
(296)
1,953
96,201
(7,433)
(62)
(7,495)
$ 88,706		 2017
$ 100,447
(524)
1,364
101,287
20,091
-
20,091
$ 121,378
  • B. Income tax expense recognized in other comprehensive income

148

Years ended December 31

Item
Remeasurement of defined benefit
obligations
Exchange differences on translation of
foreign operations		 2018
$ 24
$ -		 2017
$ 297
$ -

C. Reconciliation between income tax expense and accounting profit:

Reconciliation between income tax expense and accounting profit: Reconciliation between income tax expense and accounting profit: Reconciliation between income tax expense and accounting profit: Reconciliation between income tax expense and accounting profit: Reconciliation between income tax expense and accounting profit: Reconciliation between income tax expense and accounting profit:
Years ended December 31
Item
2018
2017
Income before tax
$ 297,169
$ 395,530
Income tax expense at the statutory
rate
$ 93,607
$ 103,197
Tax effect of adjusting items:
Deductible items in determining
taxable income
937
(2,750)
Additional tax on unappropriated
earnings
1,953
1,364
Income tax adjustments on prior years
(296)
(524)
Net changes on deferred income tax
Temporary differences
(7,495)
20,091
Income tax expense recognized in
profit or loss
$ 88,706
$ 121,378
Starting from January 1, 2018, the corporate income tax that LU HAI IND. applies will
be adjusted from 17% to 20%. In addition, the tax rate applicable to unappropriated
earnings will be reduced from 10% to 5%.
Deferred tax assets or liabilities resulting from temporary differences:
Year ended December 31,2018
Item
Beginning
balance
Recognized in
(losses) gains
Recognized
in other
comprehensive
income
Effect of
exchange rate
changes
Ending
Balance
Deferred tax assets
(liabilities)
Temporary differences
Timing of revenue
recognition
$ 2,220 $ (236) $ -
$ (49) $ 1,935
Loss allowance
3,209
1,442
-
(95)
4,556
Loss on decline (gain on
reversal) in market
value of inventory
4,974
352
-
(116)
5,210
Gain (loss) on foreign
Investments accounted
For using equity
method
(16,813)
6,515
-
(417)
(10,715)
Deferred depreciation
expense
6,596
(547)
-
(134)
5,915
Impairment loss
4,091
(52)
-
(88)
3,951
Beginning
balance
$ 2,220
3,209
4,974
(16,813)
6,596
4,091		 Recognized in
(losses) gains
$ (236)
1,442
352
6,515
(547)
(52)		 Recognized
in other
comprehensive
income
$ -

-
-
-
-
-		 Effect of
exchange rate
changes
$ (49)
(95)
(116)
(417)
(134)
(88)		 Ending
Balance
$ 1,935
4,556
5,210
(10,715)
5,915
3,951

D. Deferred tax assets or liabilities resulting from temporary differences:

149

Item
Deferred insurance
expense and housing
provident fund
Remeasurement of defined
benefit obligation
Other
Total		 Year ended December 31, Year ended December 31, 2018
Beginning
balance
$ 2,833
(534)
344
$ 6,920		 Recognized in
(losses) gains
$ -
-
21
$ 7,495		 Recognized
in other
comprehensive
income
$ -
(24)
-
$ (24)		 Effect of
exchange rate
changes
$ (61)
-
(7)
$ (967)		 Ending
Balance
$ 2,772
(558)
358
$ 13,424
Item
Deferred tax assets
(liabilities)
Temporary differences
Timing of revenue
recognition
Allowance for doubtful
debts
Loss on decline (gain on
reversal) in market
value of inventory
Gain (loss) on foreign
Investments accounted
For using equity
method
Deferred depreciation
expense
Impairment loss
Deferred insurance
expense and housing
provident fund
Remeasurement of defined
benefit obligation
Other
Total		 Year ended December 31, Year ended December 31, 2017
Beginning
balance
$ 3,574
3,410
5,458
-
6,776
4,433
2,876
(237)
1,284
$ 27,574		 Recognized in
(losses) gains
$ (1,259)
(132)
(336)
(17,118)
(71)
(271)
-
-
(904)
$ (20,091)		 Recognized
in other
comprehensive
income
$ -
-
-
-
-
-
-
(297)
-
$ (297)		 Effect of
exchange rate
changes
$ (95)
(69)
(148)
305
(109)
(71)
(43)
-
(36)
$ (266)		 Ending
Balance
$ 2,220
3,209
4,974
(16,813)
6,596
4,091
2,833
(534)
344
$ 6,920
  • E. As of December 31, 2018, the tax authorities have examined LU HAI IND.’s income tax returns through 2016.

(30) Other comprehensive income

ther comprehensive income
Item
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined benefit
obligation
Unrealized gain (losses) on valuation of
financial assets at fair value through
other comprehensive income
Subtotal
Items that may be reclassified
subsequently to profit or loss:		 Year ended December 31,2018
Before tax
$ (1,184)
(209)
(1,393)		 Income tax (expense)
benefit		 After tax
$ (24)
-		 $ (1,208)
(209)
(24) (1,417)

150

Item
Exchange differences arising on translation
of foreign operations
Subtotal
Total
Item
Items that will not be reclassified
subsequently to profit or loss:
Remeasurement of defined benefit
obligation
Unrealized gain (losses) on valuation of
financial assets at fair value through
other comprehensive income
Subtotal
Items that may be reclassified
subsequently to profit or loss:
Exchange differences arising on translation
of foreign operations
Subtotal
Total		 Year ended December 31,2018 Year ended December 31,2018 Year ended December 31,2018
Before tax
Income tax (expense)
benefit
After tax
$ (54,135) $ -$ (54,135)
(54,135)
-
(54,135)
$ (55,528)$ (24)$ (55,552)
Year ended December 31,2017		 Income tax (expense)
benefit		 After tax
$ - $ (54,135)
- (54,135)
$ (24) $ (55,552)
Before tax
$ 3,154
-
3,154
(50,338)
(50,338)
$ (47,184)		 Income tax (expense)
benefit		 After tax
$ (297)
-		 $ 2,857
-
(297) 2,857
- (50,338)
- (50,338)
$ (297) $ (47,481)

(31) Earnings per share

arnings per share
Item
Basic earnings per share
Net income attributable to shareholders
of the parent
Net income for calculating basic earnings
per share
Weighted average number of shares
outstanding for the period (in thousands)
Basic earnings per share, after tax(in dollar)
Diluted earnings per share
Net income attributable to shareholders
of the parent
Effect of dilutive potential common shares
Convertible bonds
Net income for calculating diluted earnings
per share
Weighted average number of shares
outstanding for the period (in thousands)
Effect of dilutive potential common shares
Employees’ compensation
Convertible corporate bonds
(in thousand shares)
Weighted average shares outstanding for
dilutive earnings per share
Diluted earnings per share, after tax(in dollar)		 Years ended December 31
2018
$ 208,463
$ 208,463
81,965
$ 2.54
$ 208,463
1,789
$ 210,252
81,965
115
2,079
84,159
$ 2.50		 2017
$ 274,152
$ 274,152
81,954
$ 3.35
$ 274,152
6,577
$ 280,729
81,954
115
7,754
89,823
$ 3.13

151

If the Company is able to settle the employee compensation by cash or stocks, the employee compensation should be assumed to be settled in stocks and the resulting potential shares increased should be included in the weighted average shares outstanding in calculation of diluted earnings per share, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the employee compensation by the fair value of the stocks at the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted earnings per share until employee compensation are approved in the following year.

In calculating diluted earnings per share, the number of dilutive potential common shares is calculated based on the fair value at the end of reporting period after adjusting the effect of stock and cash dividend. Diluted earnings per share calculation assume the share that have diluted effect would be outstanding of the period, the net income and outstanding shares of the period for calculating diluted earnings per share should be taken into account of the effect of the shares have diluted effect.

7. RELATED PARTY TRANSACTIONS

Intercompany balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated upon consolidation; therefore, those items are not disclosed in this note. The following is a summary of transactions between the Company and other related parties.

  • (1) Compensation of key management personnel
Item
Salary and short-term employee benefits
Post- employment benefits
Total		 Years ended December 31
2018
$ 14,369
141
$ 14,510		 2017
$ 11,983
116
$ 12,099

8. PLEDGED ASSETS: NONE

9. SIGNIFICANT CONTINGENCIES LIABILITIES AND UNRECOGNIZED COMMITMENTS

  • (1) Capital expenditures contracted but not yet incurred are as follows ：
Item
Property, plant and equipment		 December 31 December 31
2018
$ 713,762		 2017
$ 42,611

(2) Operating lease agreements

152

The Group leases land use rights under non-cancellable operating lease agreements. The future aggregate minimum lease payments payable under non-cancellable operating leases are as follows:

e as follows:
Item
Within 1 year
1-5 years
Total		 December 31
2018
$ 4,864
17,418
$ 22,282		 2017
$ 1,690
-
$ 1,690

(3) Product liability insurance

The Group has entered into a product liability insurance for the product of tubeless valves manufactured by the Group and sold globally. The period of insurance agreement is from March 15, 2018 to March 15, 2019. The insurance policy covers from March 15, 2007 to March 15, 2019. The maximum indemnification amount during the policy covering period is USD $1,000 thousand.

10. SIGNIFICANT DISASTERS: NONE

11. SIGNIFICANT SUBSEQUENT EVENTS: NONE

12. OTHERS

(1) Capital risk management

The Group requires an adequate capital structure to enable the expansion and enhancement of equipment. The Group manages its capital in a manner to ensure that it has sufficient and necessary financial resources and operating plan to fund its working capital needs, capital asset purchases, operation expenses, development expenditure and debt payment requirements associated with its existing operations over the next 12 months.

(2) Financial instruments

  • A. Financial risks on financial instruments

Financial risk management policies

The Group's daily operation activities are exposed to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. For reducing the financial risk, the Group focus on identifying, assessing, and avoiding the unpredictability of market with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by the Board of Directors in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, the Group’s Treasury function must comply with certain treasury procedures that provide guiding principles for overall financial risk management and segregation of duties.

153

Significant financial risks and degrees of financial risks

(a) Market risk

  • i. Foreign exchange risk

The Group’s sales, purchase and borrowing activities denominated in foreign currencies are exposed to foreign currency risk. The Group’s mainly functional currency are New Taiwan dollars, RMB and IDR. The foreign currency of those transactions are US dollars, RMB, Euro and so on. To prevent the reduction in value and the volatility of future cash flows caused by changes in foreign exchange rates, the Group uses foreign currency loans and derivative financial instruments (include forward exchange agreement) to avoid foreign exchange risks. The usage of derivative financial instruments can assist the Group to reduce but not completely eliminate the influence of changes in foreign exchange rates.

Foreign currency risk and sensitivity analysis

Foreign currency risk and sensitivity analysis risk and sensitivity analysis
Financial assets December 31,2018
Foreign
currency
Exchange
rate
New
Taiwan
Dollars
$ 18,213
30.72
$ 559,408
2,121
4.47
9,482
1,251
35.20
44,035
$ 17,891
30.72
$ 549,524
9,377
35.20
330,078		 December 31,2017
Foreign
currency
$ 18,213
2,121
1,251
$ 17,891
9,377		 Exchange
rate
30.72
4.47
35.20
30.72
35.20		 Foreign
currency
$ 19,098
2,061
434
$ 15,749
10		 Exchange
rate
29.76
4.57
35.57
29.76
35.57		 New
Taiwan
Dollars
$ 568,359
9,415
15,428
$ 468,705
360
Monetary items
USD
RMB
EUR
Financial liabilities
Monetary items
USD
EUR

The Group is mainly exposed to US dollars, RMB and Euro. The sensitivity analysis rate for the Group is 1% increase and decrease in NTD against the relevant foreign currencies, and the 1% is used when reporting foreign currenct risk internally to key management personnel. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 1% change in foreign currency rates. An increase/decrease in profit before tax would be resulted where the NTD strengthens/weakens 1% against the relevant currencies with all other variables held constant in the amount of ($2,667) and $1,241 for the years ended December 31, 2018 and 2017, respectively.

The Group’s foreign exchange gains and losses, including realized and unrealized, for the years ended December 31, 2018 and 2017 were net exchange gain of $4,907 thousand and net exchange loss of $17,681 thousand, respectively. Due to the variety of functional currencies, the Group did not disclose the foreign exchange gains (losses) for each foreign currency with significant influence.

ii. Price risk

2018

154

The Group is exposed to equity securities price risk because investments held by the Group are classified as financial assets at fair value through other comprehensive income.

The Group mainly invests in equity instrument of foreign unlisted stocks. The prices of equity securities would change due to the uncertainty of the future value of investee companies.

If the prices of equity securities had increased/decreased by 1% with all other variables held constant, other comprehensive income would have increased/decreased by $9 thousand since the fair value of financial assets at fair value through other comprehensive income increased/decreased for the year ended December 31, 2018.

2017

The Group has not held any equity securities that are classified as financial assets at fair value through profit or loss, and therefore there is no price risk.

iii. Interest rate risk

The interest rate risk of financial instruments as of reporting date was as follow:

Item
Fair value interest rate risk
Financial assets
Financial liabilities
Net value
Cash flow interest rate risk
Financial assets
Financial liabilities
Net value		 December 31 December 31
2018
$ 400,703
-
$ 400,703
$ 637,515
(666,321)
$ (28,806)		 2017
$ 429,791
(397,011)
$ 32,780
$ 734,580
(223,200)
$ 511,380

Sensitivity analysis for instruments with fair value interest rate risk

The Group does not classify any fixed-rate instruments as financial instruments at fair value through profit and loss and financial assets at fair value through other comprehensive income. In addition, the Group does not designate derivatives (interest rate swap) as hedge instruments under hedge accounting. Therefore, the change of interest rate at reporting date does not have influence on profit or loss and other comprehensive income.

Sensitivity analysis for instruments with cash flow interest rate risk

The Group’s financial instruments with variable interest rate are those with floatingrate. If interest rate increases (decreases) 1%, the profit before tax will increase (decrease) $288 thousand and $5,114 thousand for the years ended December 31, 。 2018 and 2017, respectively

155

The Group does not utilize derivative financial instruments of interest rate risk as of December 31, 2018.

  • (b) Credit risk

Credit risk is the risk that counterparty will default on its contractual obligations under a contract leading to a financial loss to the Group. The Group is exposed to credit risk from operation activities, primarily trade receivable, and from investing activities, primarily deposit and other financial instruments with bank. Credit risk is managed separately for business related and financial related exposures. Business related credit risk

In order to maintain the quality of the trade receivables, the Group established credit risk management procedures related to operations and continues to evaluate. The risk evaluation of individual customers takes into consideration the customers’ financial position, internal and external credit ratings and historical transaction records and current economic situation and other factors that may affect the customers’ payment ability.

In order to minimize credit risk, the management of the Group has delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowance is made for possible irrecoverable amounts. In this regard, the management believes the Group’s credit risk was significantly reduced. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables due. Where recoveries are made, these are recognized in profit or loss.

Financial credit risk

The Group's exposure to financial credit risk which pertained to bank deposits and other financial instruments was evaluated and monitored by Group Treasury function. The Group only deals with creditworthy counterparties and banks, so that no significant financial credit risk was identified.

  • i. Concentration of credit risk

The Group’s concentration of credit risk was related to the customers whose balances of accounts receivable are top 4 of the Group, which accounted for 41% and 45% of the total accounts receivable as of December 31, 2018 and 2017.

  • ii. Evaluation of expected credit loss - 2018

  • (i.) Accounts receivable: The simplified approach is applied. Please refer to Note 6(5) for relating details.

  • (ii.) Judgment on whether the credit risk has increased significantly: The Group

156

takes into account the credit rating information provided by external rating agencies and examines the material information of debtors in order to evaluate whether the credit risk of debt instruments has increased significantly.

iii. Holding collaterals and other credit enhancements to hedge the credit risk of its financial assets: None.

iv. Credit risk of financial assets at amortized cost

Please refer to Note 6(5) for information on credit risk exposure of notes and accounts receivable. Other financial assets at amortized cost, including cash and cash equivalents, other receivables, financial instruments with guaranteed principal and defined yield and refundable deposits, are low in credit risk. The loss allowance is assessed based on the 12-month expected credit loss. The Group believes that there is no impairment to financial assets at amortized cost.

(c) Liquidity risk

  • i. Liquidity risk management

The objective of liquidity risk management is to ensure the Group has sufficient liquidity to fund its business requirements of cash and cash equivalents and the unused of financing facilities associated with existing operations

ii. Maturity profile of financial liabilities

Non-derivative
financial liabilities
Short-term loans
Accounts payable
Other payables
Long-term loans (including
long-term loans due
within a year)
Total
Non-derivative
financial liabilities
Short-term loans
Accounts payable
Other payables
Long-term loans (including
long-term loans due
within a year)
Bonds payable
Total		 December 31,2018 December 31,2018 December 31,2018
Within
1year
$ 31,135
293,973
132,068
75,149
$ 532,325		 1-5years
Over
5years
Contract
cash flows
$ - $ - $ 31,135
-
-
293,973
-
-
132,068
590,944
-
666,093
$ 590,944$ -$ 1,123,269
December 31,2017		 Carrying
value
$ 30,715
293,973
132,068
635,606
$1,092,362
Within
1year
$ 60,362
248,213
143,255
19,212
398,800
$ 869,842		 1-5years
$ -
-
-
159,171
-
$ 159,171		 Over
5years
$ -
-
-
-
-
$ -		 Contract
cash flows
$ 60,362
248,213
143,255
178,383
398,800
$1,029,013		 Carrying
value
$ 59,520
248,213
143,255
163,680
397,011
$1,011,679

The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

157

(3) Categories of financial instruments

The carrying amount of each financial asset and financial liability of the Group as of December 31, 2018 and 2017 were as follows:

Financial assets
Financial assets at fair value through
profit or loss
Financial assets at amortized cost
(Note 1)
Loans and receivables (Note 2)
Financial assets at fair value through
other comprehensive income
Financial assets measured at cost
Financial liabilities
Financial liabilities at amortized cost
(Note 3)		 December 31 December 31
2018
$ 44,905
1,738,473
-
930
-
$ 1,092,362		 2017
$ -
-
1,829,286
-
914
$ 1,011,679

  • Note 1: The balances include financial assets such as cash and cash equivalents, notes receivable, accounts receivable, other receivables, financial assets at amortized cost and refundable deposits.

  • Note 2: The balances include loans and receivables such as cash and cash equivalents, notes receivable, accounts receivable, other receivables, other financial assets and refundable deposits.

  • Note 3: The balances include accounts payable, other payables, bonds payable, short-term borrowings and long-term borrowings (including long-term borrowings due within 1 year).

(4) Fair value information

  • A. Fair value measurements are grouped into Levels 1 to 3 as follows:

  • Level 1: Relevant inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

  • Level 2: Inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly.

  • Level 3: Inputs are unobservable inputs that used to measure fair value to the extent 。

  • when relevant observable inputs are not available

  • B. Fair values of financial instruments that are not measured at fair value:

  • The fair value of the Group’s financial instruments not measured at fair value, except for those listed below, includes cash and cash equivalents, accounts receivable, other financial assets, refundable deposits, short-term loans, payables, long-term loans (including long-

158

term loans due within one year) and guarantee deposits received whose carrying amount is approximately their fair value.

December 31, 2018: None

December 31,2017 December 31,2017
Carrying
amount		 Level 1 Level 2 Level 3
$ 397,011 $ - $ 397,843 $ -
  • C. Fair value of financial instruments that are measured at fair value:

The financial instruments are measured at fair value on a recurring basis. The information of fair value is listed as follows:

Item December 31,2018 December 31,2018
Level 1 Level 2 Level 3 Total
Assets:
Recurring fair value
measurement
Financial assets at fair
value through profit
or loss
Financial instruments
with guaranteed
capital and floating
yield
Financial assets at fair
value through other
comprehensive income
Equity instruments
Foreign unlisted stocks
Item		 $ -
-		 $ 44,905
-		 $ -
930		 $ 44,905
930
$ - $ 44,905 $ 930 $ 45,835
December 31, 2017
Level 1 Level 2 Level 3 Total
Assets:
Recurring fair value
measurement
Financial assets at fair
value through profit
or loss
Conversion options		 $ - $ - $ - $ -

  • D. The methods and assumptions the Group used to measure fair value are as follows:

  • (a) The fair value of financial assets and liabilities traded in an active market is based on the quoted market prices.

159

  • (b) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Conversion options are valued using binominal convertible bond pricing model.

  • (c) Fair value of equity investment on unlisted stocks without active market was estimated through the market approach that is mainly referenced to the same type of companies’ valuation, net assets and state of operation. The significant and unobservable input parameter for assessing the unlisted stocks mainly relates to valuation multiple and liquidity discount rate. Since the possible changes of valuation multiple and liquidity discount rate may not cause significant influence on financial standing, the quantitative information will not be disclosed.

  • (d) Fair value of other financial assets and financial liabilities (except for the aforementioned) are determined in accordance with generally accepted pricing model based on the discounted cash flow analysis.

  • E. Transfer between Level 1 and Level 2 of the fair value hierarchy: None

  • F. Changes in level 3 instruments are as follows:

nges in level 3 instruments are as follows:
Item
Financial assets at fair value
through profit or loss
Balance at January 1
Recognized in profit or loss
Balance at December 31
Financial assets at fair value through
other comprehensive income
Balance at January 1
Effect of initial application
Recognized in other
comprehensive income
Effect of exchange rate
difference
Balance at December 31		 Years ended December 31
2018 2017
$ -
-
$ -
$ -
1,161
(209)
(22)
$ 930		 $ 80
(80)
$ -
$ -
-
-
-
$ -
  • G. Sensitivity analysis of Level 3 fair value measurement and assumption of fair value reasonably being substituted: December 31, 2018 and 2017: None.

13. SUPPLEMENTARY DISCLOSURES

(1) Disclosure of significant transactions information (before inter-company eliminations) ：

  • A. Financings provided: Please see Table 1 attached;

  • B. Endorsement/guarantee provided: Please see Table 2 attached;

160

  • C. Marketable securities held (excluding investments in subsidiaries, associates and joint ventures): Please see Table 3 attached;

  • D. Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital: Please see Table 4 attached;

  • E. Acquisition of individual real estate properties at costs of at least NT$300 million or 20% of the paid-in capital: Please see Table 5 attached;

  • F. Disposal of individual real estate properties at prices of at least NT$300 million or 20% of the paid-in capital: None;

  • G. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Please see Table 6 attached;

  • H. Receivables from related parties amounting to at least NT$100 million or 20% of the paidin capital: Please see Table 7 attached;

  • I. Information on the derivative instrument transactions: Please refer to Note 6(2) for relating details;

  • J. Intercompany relationships and significant intercompany transactions: Please see Table 8 attached;

(2) Information on investees (before inter-company eliminations): Please see Table 9 attached;

(3) Information on investment in Mainland China

  • A. The name of the investee in Mainland China, the main businesses and products, its issued capital, method of investment, information on inflow or outflow of capital, percentage of ownership, income (losses) of the investee, share of profits/losses of investee, ending balance, amount received as dividends from the investee, and the limitation on investee: Please see Table 10 attached;

  • B. Significant direct or indirect transactions with the investee, its prices and terms of payment, unrealized gain or loss, and other related information which is helpful to understand the impact of investment in Mainland China on financial statements: Please see Table 8 attached.

14. SEGMENT INFORMATION

(1) General information

For the purpose of group management, the Group has provided to the chief operating decision maker the information on resource allocation and assessment of segment performance focuses on the financial information by geographic plants.

(2) Measurement basis

Management monitors the operation results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss before tax and is measured consistently with profit or loss before tax in the consolidated financial statements. Furthermore, because the information of assets and liabilities is not reported to the chief operating decision maker for operation decision making, segment assets and liabilities are not disclosed. The accounting

161

policies for reportable segments are the same as Group’s accounting policies described in Note 4.

  • (3) Segment information: Please see Table 11 attached;

(4) Reconciliation for segment income (loss)

The segment revenue and segment income (loss) reported to the chief operating decision maker is measured in a manner consistent with that in the consolidated statements of comprehensive income.

(5) Information on product and service

Details of sales from external customers are as follows:

Item Years ended December 31 Years ended December 31
2018
$ 522,225
926,797
718,012
461,744
$ 2,628,778		 2017
Bicycle valves
Motorcycle and electric bike valves
Passenger car, truck and other valves
Accessories and others
Total		 $ 562,158
929,986
698,571
456,295
$ 2,647,010

(6) Geographic information

  • A. Sales from external customers
raphic information
les from external customers
Areas Years ended December 31
2018
$ 1,158,441
712,812
757,525
$ 2,628,778		 2017
China
Indonesia
Others
Total		 $ 1,126,912
686,978
833,120
$ 2,647,010

B. Noncurrent assets

Areas
China
Indonesia
Others
Total		 December 31 December 31
2018
$ 791,489
150,846
16,125
$ 958,460		 2017
$ 599,566
151,400
17,997
$ 768,963

(7) Major customer information

Years ended December 31

Customer A 2018
Amount
%
$ 346,067
13.16%		 2017 2017
Amount
$ 346,067		 Amount
$ 401,819		 %
15.18%

162

LUHAI HOLDING CORP. AND SUBSIDIARIES

FINANCING PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS AND FOREIGN CURRENCIES)

Table 1

Table 1
No.
(Note
1)		 Financing
Company		 Counter-party Financial
Statement
Item		 Related
Party		 Maximum
Balance for
the Period		 Ending
Balance		 Amount
Actually
Drawn
(Note 6)		 Interest Rate Nature
for
Financing
(Note 2)
Transaction
Amounts
Reason for
Financing
Allowance
for Bad
Debt		 Collateral Limit on
Financing
Provided to
Each
Company
(Note 3)		 Financing
Company’s
Total
Financing
Limit (Note 4)
Item Value
0 The Company PT.LUHAI Other
receivables-
related
parties		 Yes 61,430
61,430
－		 3.45% 2 － Operating
capital		 － － － 891,041
891,041
USD 2,000
USD 2,000
－
0 The Company LUHAI KUNSHAN Other
receivables-
related
parties		 Yes 92,145
92,145
－		 3.45% 2 － Operating
capital		 － － － 891,041
891,041
USD 3,000
USD 3,000
－
0 The Company XIAHUI Other
receivables-
related
parties		 Yes 153,575
153,575
－		 3.45% 2 － Operating
capital		 － － － 891,041
891,041
USD 5,000
USD 5,000
－

Note 1: The numbers filled in for the financing company represent the following:

  1. The Company is ‘0’

  2. The subsidiaries are numbered in order starting from ‘1’

Note 2: Nature of loans:

  1. Business transaction

2. Short-term financing

Note 3: Limit on loans granted by financing company is 40% of the financing company’s net assets.

Note 4: Limit on total loans granted by financing company is 40% of the financing company’s net assets.

Note 5: Foreign currencies aforementioned were translated into NTD using the exchange rate as of December 31, 2018 or average exchange rate for the year ended. Note 6: Amount actually drawn have been eliminated upon consolidation.

163

LUHAI HOLDING CORP. AND SUBSIDIARIES

ENDORSEMENT/GUARANTEE PROVIDED

FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS AND FOREIGN CURRENCIES)

Table 2

Table 2
No.
(Notes
1)		 Endorsement/
Guarantee
Provider		 Guaranteed Party Limits on
Endorsement/
Guarantee
Amount Provided
to Each
Guaranteed Party
（Note 3）
Maximum
Balance for
the Period		 Ending
Balance		 Amount
Actually
Drawn		 Amount of
Endorsement/
Guarantee
Collateralized
by Properties		 Ratio of
Accumulated
Endorsement/
Guarantee to
Net Equity per
Latest Financial
Statements
Maximum
Endorsement/
Guarantee
Amount
Allowable
(Note 4)		 Guarantee
Provided by
Parent
company		 Guarantee
Provided by
Subsidiary to
Parent
Company		 Guarantee
Provided to
Subsidiaries
in Mainland
China
Name Nature of
Relationship
(Note 2)
0 The Company PT.LUHAI 2 891,041 168,933
168,933
－		 － 7.58%
1,113,802
Y		 N N
USD 5,500
USD 5,500
－
0 The Company LUHAI
KUNSHAN		 2 891,041 61,430
61,430
61,430
－
 2.76%
1,113,802
Y		 N Y
USD 2,000
USD 2,000
USD 2,000
0 The Company XIAHUI 2 891,041 645,015
460,725
460,725
－
 20.68%
1,113,802
Y		 N Y
USD 21,000
USD 15,000
USD 15,000

Note 1 ： The Company is ‘0’.

Note 2 ： Entities having business transactions with is ‘1’.

Subsidiaries owned directly or indirectly over 50% is ’2’ .

Note 3 ： Limit on endorsements to a single company is 40% of the company’s net assets.

Note 4 ： Limit on total endorsements is 50% of the company’s net assets.

164

LUHAI HOLDING CORP. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD

DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF FOREIGN CURRENCIES)

Table 3

Table 3
Held Company
Name		 Marketable Securities Type and
Name		 Relationship with
the Company		 Financial Statement Item December 31, 2018 Note
Shares/Units Carrying Value Percentage of
Ownership (%)		 Fair Value (Note 1)
XIAHUI
XIAHUI
XIAHUI
XIAHUI
XIAHUI
XIAHUI
XIAHUI
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN		 Financial products of Agricultural
bank of China
Financial products of Agricultural
bank of China
Financial products of Agricultural
bank of China
Financial products of Agricultural
bank of China
Financial products of Agricultural
bank of China
Financial products of Agricultural
bank of China
Xiamen Taiwan Merchants
Association Management Co.,
LTD
Financial products of Fubon Bank
(China) Co., Ltd
Financial products of Fubon Bank
(China) Co., Ltd
Financial products of Fubon Bank
(China) Co., Ltd
Financial products of Fubon Bank
(China) Co., Ltd
Financial products of Fubon Bank
(China) Co., Ltd
None

None

None

None

None

None
None
None
None
None
None
None		 Financial assets at amortized
cost-current
Financial assets at amortized
cost-current
Financial assets at amortized
cost-current
Financial assets at amortized
cost-current
Financial assets at amortized
cost-current
Financial assets at amortized
cost-current
Financial assets at fair value
through other comprehensive
income-noncurrent
Finanvial assets at fair value
through profit or loss-current
Finanvial assets at fair value
through profit or loss-current
Finanvial assets at fair value
through profit or loss-current
Finanvial assets at fair value
through profit or loss-current
Finanvial assets at fair value
through profit or loss-current
－

－

－

－

－

－


－

－

－

－

－

－		 RMB 5,000
RMB 10,000
RMB 7,000
RMB 6,000
RMB 10,000
RMB 10,000
RMB 208
RMB 2,003
RMB 2,004
RMB 2,032
RMB 2,002
RMB 2,004
－

－

－

－

－

－

0.53%

－

－

－

－

－		 RMB 5,000
RMB 10,000
RMB 7,000
RMB 6,000
RMB 10,000
RMB 10,000

RMB 208
RMB 2,003
RMB 2,004
RMB 2,032
RMB 2,002
RMB 2,004
－

－

－

－

－

－
－

－

－

－

－

－

165

LUHAI HOLDING CORP. AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF FOREIGN CURRENCIES)

Table 4

Table 4
Company Name Marketable Securities Type
and Name		 Financial Statement
Item		 Counterparty
Nature of
Relationship		 Beginning Balance Acquisition Disposal Ending Balance Note
Shares
Amount		 Shares
Amount		 Shares Amount
Carrying
Value		 Gain/Loss
on
Disposal
Shares
Amount
XIAHUI Financial products of
Agricultural bank of China		 Financial assets at
amortized cost-
current		 － None － RMB 48,000 － RMB 112,000 － － RMB 112,000 － － RMB 48,000 －

166

LUHAI HOLDING CORP. AND SUBSIDIARIES

ACQUISITION OF INDIVIDUAL REAL ESTATE PROPERTIES AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF FOREIGN CURRENCIES)

Table 5

Table 5
Company
Name		 Types of Proerty Transaction Date Transaction
Amount		 Payment Term Counterparty Nature of
Relation-
ships		 Prior Transaction of Related Counterparty Price Reference Purpose of
Acquisition		 Other Terms
Owner
Relationship		 Transfer
Date		 Amount
XIAHUI Building November 12,
2018		 RMB 151,880 Monthly settlement
by agreed schedule		 The 8th.
Engineering
Bureau of CCIN
Co. LTD		 － N/A N/A N/A N/A Tender, parity and
negotiation
Manufacturing
and
administrative
center

None

167

LUHAI HOLDING CORP. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF FOREIGN CURRENCIES)

Table 6

Table 6
Purchaser/Seller Counterparty Nature of Relationships Transaction Details Difference in
transaction term to
third party transaction		 Notes/Accounts Payable or
Receivable		 Note
Purchases/
Sales		 Amount % to Total Payment Terms Unit Price Payment
Terms		 Ending Balance % to Total
XIAHUI
XIAHUI		 PT.LUHAI
MEGA		 Subsidiary of ultimate parent company
Subsidiary of ultimate parent company		 Sales
Sales		 USD 11,926
USD 4,524
20.05%
7.54%		 According to conditions
agreed upon the parties
According to conditions
agreed upon the parties		 －
－		 －
－		 Accounts receivable
USD 3,956
Accounts receivable
USD 1,085		 24.97%
6.85%
Note 1

Note 1

Note 1: All the transactions had been eliminated when preparing consolidated financial statements.

168

LUHAI HOLDING CORP. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS FOREIGN CURRENCIES)

Table 7

Table 7
Company Name Counterparty Nature of Relationships Ending Balance of Receivable-Related
Party		 Turnover
Rate		 Overdue Amounts Received in
Subsequent Period
Loss allowance for
expected credit loss
Item Ending Balance
(Note 1)		 Amount Action Taken
XIAHUI PT.LUHAI Subsidiary of ultimate parent
company		 Accounts receivable USD 3,956 － － － USD 2,892 －

Note l：All the transactions had been eliminated when preparing consolidated financial statements.

169

Table 8

LUHAI HOLDING CORP. AND SUBSIDIARIES INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTION FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLORS)

No.
(Note 1)		 Company Name Counter Party Nature of
Relationship
(Note 2)		 Intercompany Transactions Intercompany Transactions Intercompany Transactions
Financial Statement
Item		 Amount Terms Percentage of Net
Consolidated
Revenue
0
0
0
0
1
1
1
1
1
2
3
3
3
4
4
4
4
4
4
4
4
5
5
5
5
5		 The Company
The Company
The Company
The Company
LU HAI IND.
LU HAI IND.
LU HAI IND.
LU HAI IND.
LU HAI IND.
PT.LUHAI
MEGA
MEGA
MEGA
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
XIAHUI
XIAHUI
XIAHUI
XIAHUI
XIAHUI		 PT.LUHAI
PT.LUHAI
LUHAI KUNSHAN
XIAHUI
The Company
The Company
PT.LUHAI
LUHAI KUNSHAN
XIAHUI
XIAHUI
PT.LUHAI
LUHAI KUNSHAN
XIAHUI
PT.LUHAI
PT.LUHAI
PT.LUHAI
XIAHUI
XIAHUI
XIAHUI
MEGA
LU HAI IND.
PT.LUHAI
MEGA
LU HAI IND.
LUHAI KUNSHAN
LUHAI KUNSHAN		 1
1
1
1
2
2
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3		 Interest income
Other revenue
Other revenue
Other revenue
Rental income
Service revenue
Sales revenue
Sales revenue
Sales revenue
Sales revenue
Other revenue
Other revenue
Other revenue
Other revenue
Sales revenue
Processing revenue
Other revenue
Sales revenue
Processing revenue
Sales revenue
Sales revenue
Sales revenue
Sales revenue
Sales revenue
Sales revenue
Processing revenue		 697
5,429
5,120
9,201
571
992
1,635
4,407
8,766
2,724
610
1,140
1,809
35
13,445
904
12
40,693
11,687
62,640
17,513
359,559
136,398
66,952
59,889
5,687
Note 3

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃		 0.03%
0.21%
0.19%
0.35%
0.02%
0.04%
0.06%
0.17%
0.33%
0.10%
0.02%
0.04%
0.07%
-
0.51%
0.03%
-
1.55%
0.44%
2.38%
0.67%
13.68%
5.19%
2.55%
2.28%
0.22%

(Continued)

170

Table 8

LUHAI HOLDING CORP. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTION

FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLORS)

No.
(Note 1)		 Company Name Counter Party Nature of
Relationship
(Note 2)		 Intercompany Transactions Intercompany Transactions Intercompany Transactions

Financial Statement
Item		 Amount Terms Percentage of Total
Consolidated Assets
1
1
1
1
2
3
3
4
4
4
4
5
5
5
5		 LU HAI IND.
LU HAI IND.
LU HAI IND.
LU HAI IND.
PT.LUHAI
MEGA
MEGA
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
LUHAI KUNSHAN
XIAHUI
XIAHUI
XIAHUI
XIAHUI		 The Company
MEGA
LUHAI KUNSHAN
XIAHUI
XIAHUI
LUHAI KUNSHAN
XIAHUI
PT.LUHAI
MEGA
LU HAI IND.
XIAHUI
PT.LUHAI
MEGA
LU HAI IND.
LUHAI KUNSHAN		 2
3
3
3
3
3
3
3
3
3
3
3
3
3
3		 Other receivables
Other receivables
Account receivables
Account receivables
Account receivables
Other receivables
Other receivables
Account receivables
Account receivables
Account receivables
Account receivables
Account receivables
Account receivables
Account receivables
Account receivables		 221
8
1,219
2,189
258
149
470
5,243
15,240
4,166
19,901
121,513
33,327
16,560
24,854
Note 3

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃

〃		 0.01%
-
0.04%
0.06%
0.01%
-
0.01%
0.15%
0.45%
0.12%
0.59%
3.59%
0.98%
0.49%
0.73%

Note 1: The numbers filled in for the transaction company represent the follows:

  1. Parent company is ‘0’.

  2. The subsidiaries are numbered in order starting from ‘1’.

  3. Note2: Relationships between transaction companies and counterparties are classified into the following three categories as listed below:

  4. ‘1’ represents parent company to subsidiary.

  5. ‘2’ represents subsidiary to parent company.

  6. ‘3’ represents subsidiary to subsidiary.

  7. Note 3: Sale price with related parties were determined and negotiated referring to related market price. Payment terms were T/T 90 days.

Note 4: All the transactions had been eliminated when preparing consolidated financial report.

(Concluded)

171

LUHAI HOLDING CORP. AND SUBSIDIARIES

INFORMATION ON INVESTEES

FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS AND FOREIGN CURRENCIES)

Table 9

Table 9
Investor Investee Location Main Businesses activities Original Investment
Amount		 Balance as of December 31, 2018 Net Income
(Losses) of the
Investee		 Share of
Profits/Losses
of Investee		 Note
December 31,
2018
December 31,
2017		 Shares
(In Thousands)		 Percentage of
Ownership		 Carrying
Value
The Company
LU HAI IND.		 LU HAI BVI
ALLPRO
YUANHUI
LU HAI IND.
MEGA
PT.LUHAI
PT.LUHAI		 Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 6		 Investing activities
Investing activities
Investing activities
Selling various kinds of valves and accessories
Selling activities
Manufucturing and selling various kinds of
valves and accessories
Manufucturing and selling various kinds of
valves and accessories		 184,290
(USD 6,000)
138,218
(USD 4,500)
199,648
(USD 6,500)

98,450
－
208,862
(USD 6,800)
36,858
(USD 1,200)		 184,290

(USD 6,000)
138,218

(USD 4,500)
199,648

(USD 6,500)
98,450
－
208,862

(USD 6,800)
36,858

(USD 1,200)		 6,000

4,500

6,500

9,845
50
6,800

1,200
 100%
100%
100%
100%
100%
85%
15%		 951,708
714,973
514,986
170,094
37,805
258,176
45,560		 88,065
66,095
12,439
11,996
30,556
38,885
38,885		 88,065
66,095
12,439
12,511
30,556
33,222
Note 9		 Note 7
Note 7
Note 7
Note 7、8
Note 7
Note 7、8
Note 7、8

Note 1 ： P.O. BOX 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

Note 2 ： Corner Hutson & Eyre Street, Blake Building, Suite 302Belize City, Belize.

Note 3 ： Level 3, Alexander House, 35 Cybercity, Ebene Mauritius.

Note 4 ： No.64, Xingong 5th Rd., Tianzhong Township, Changhua County 52046, Taiwan (R.O.C.)

Note 5 ： #35 Barrack Road, 3rd Floor Belize City, Belize C.A.

Note 6 ： d\a. JI. Raya Cikande Rangkasbitung Km.4.5. Desa Junti, Jawilan, Serang, Indonesia.

Note 7 ： The transactions had been eliminated when preparing the consolidated financial statements.

Note 8 ： The differences between net income and share of profits/losses are due from unrealized sales (losses) gains.

Note 9 ： The share of profits/losses of the investee company is not reflected herein as such amount is already included in the share of profits/losses of the investor company.

172

LUHAI HOLDING CORP. AND SUBSIDIARIES

INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2018

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS AND FOREIGN CURRENCIES)

Table 10

Table 10
Investee Company Main Businesses and activities Total
Amount of
Paid-in
Capital		 Investment
Method
Accumulated
amount of
remittance
from Taiwan
to Mainland
China as of
January 1,
2018		 Amount remitted from
Taiwan for the year ended
December 31,2018
Accumulated
amount of
remittance
from Taiwan
to Mainland
China as of
December 31,
2018		 Net Income
(Losses) of
the Investee
Company
(Note 5)		 Percentage
of
Ownership

Share of
Profits/Losses
(Note 2)		 Carrying
Amount as
of
December
31, 2018		 Accumulated
Inward
Remittance of
Earnings as of
December 31,
2018
Remittance
to		 Remittance
back
XIAHUI Manufucturing and selling various
kinds of valves and accessories
322,508		 Note 1 Not applicable － － Not applicable 166,573 100% 164,644 1,666,412 Not applicable
USD 10,500
USD 5,525		 USD 5,461 USD 54,254
LUHAI KUNSHAN Manufucturing and selling various
kinds of valves and accessories
253,214		 Note 1 Not applicable － － Not applicable 12,090 100% 12,512 514,876 Not applicable
USD 8,244
(Note 4)
USD 401		 USD 415 USD 16,763
Accumulated Investment in Mainland China as of
December 31,2018		 Investment Amounts Authorized by Investment
Commission,MOEA		 Upper Limit o n Investment
Not applicable Not applicable Not applicable

Note 1 ： Through investing in an existing company in the third area, which then investing in the investee in Mainland China.

Note 2 ： Profit or loss recognized were based on the financial statements audited by the auditor of parent company.

Note 3 ： Foreign currencies aforementioned were translated into NTD using the exchange rate as of December 31, 2018 or average exchange rate for the year ended. Note 4 ： The Company had capitalization of retained earnings amounted to USD 1,744 thousand in 2007.

Note 5 ： The differences between net income and share of profits/losses are due from unrealized sales (losses) gains.

173

Table 11

LUHAI HOLDING CORP. AND SUBSIDIARIES

SEGMENT INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS)

Year ended December 31, 2018

LUHAI

LUHAI
Revenue
Net revenue from external customers
Inter-segment revenue
Total
Interest income
Interest expenses
Depreciation and amortization
Impairment of property, plant and equipment
Segment benefit (loss)
Income (loss) before tax
Total assets		 The Company
$ -
-
$ -
$ 809
$ 7,175
$ -
$ -
$ (34,425)		 XIAHUI
$ 1,173,838
628,485
$ 1,802,323
$ 12,836
$ 4,091
$ 62,939
$ -
$ 221,388		 KUNSHAN
$ 547,608
146,882
$ 694,490
$ 1,320
$ 733
$ 22,337
$ -
$ 16,204		 PT.LUHAI
$ 586,164
2,724
$ 588,888
$ 485
$ 697
$ 14,783
$ -
$ 52,453		 Others
$ 339,357
15,800
$ 355,157
$ 1,976
$ -
$ 1,947
$ -
$ 41,549		 $ (18,189)
(793,891)
$ (812,080)
$ (697)
$ (697)
$ -
$ -
$ -
Elimination		 Total
$ 2,628,778
-
$ 2,628,778
$ 16,729
$ 11,999
$ 102,006
$ -
$ 297,169
$ 297,169
$ 3,383,863
(Continued)

174

Table 11

LUHAI HOLDING CORP. AND SUBSIDIARIES

SEGMENT INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2017

(AMOUNTS IN THOUSANDS OF NEW TAIWAN DOLLARS)

Year ended December 31, 2017 Year ended December 31, 2017
Revenue
Net revenue from external customers
Inter-segment revenue
Total
Interest income
Interest expenses
Depreciation and amortization
Impairment of property, plant and equipment
Segment benefit (loss)
Income (loss) before tax
Total assets		 The Company
$ -
-
$ -
$ 138
$ 6,947
$ -
$ -
$ (48,846)		 XIAHUI
$ 1,269,806
653,134
$ 1,922,940
$ 13,652
$ 3,780
$ 51,921
$ -
$ 287,275		 LUHAI
KUNSHAN
$ 561,338
162,802
$ 724,140
$ 1,393
$ -
$ 21,121
$ -
$ 29,508		 PT.LUHAI
$ 499,158
6,704
$ 505,862
$ 904
$ 949
$ 13,684
$ -
$ 74,910		 Others
$ 340,827
35,757
$ 376,584
$ 960
$ -
$ 1,792
$ -
$ 52,683		 $ (24,119)
(858,397)
$ (882,516)
$ (14)
$ (14)
$ -
$ -
$ -
Elimination		 Total
$ 2,647,010
-
$ 2,647,010
$ 17,033
$ 11,662
$ 88,518
$ -
$ 395,530
$ 395,530
$ 3,282,097
(Concluded)

175

VII. Review of Financial Conditions, Operating Results, and Risk Management

7.1 Financial situation

Unit: NTD thousand

nancial situation Unit: NTD thousand Unit: NTD thousand
Year
Item		 2017 2018 Difference
Amount %
Current assets 2,458,745 2,397,353 (61,392) (2.50%)
Financial assets at fair
value through profit or
loss– noncurrent		 - 930 930 -
Financial assets carried at
cost-noncurrent		 914 - (914) (100.00%)
Property,
plant
and
equipment		 634,053 723,273 89,220 14.07%
Intangible assets 8,307 7,449 (858) (10.33%)
Other assets 180,078 254,858 74,780 41.53%
Total assets 3,282,097 3,383,863 101,766 3.10%
Current liabilities 914,919 565,542 (349,377) (38.19%)
Non-current liabilities 169,785 590,717 420,932 247.92%
Total liabilities 1,084,704 1,156,259 71,555 6.60%
Equity
attributable
to
owners of parent company		 2,197,393 2,227,604 30,211 1.37%
Capital stocks 819,650 819,650 - 0.00%
Capital surplus 443,701 443,701 - 0.00%
Retained earnings 1,162,621 1,246,929 84,308 7.25%
Other equity (228,579) (282,676) (54,097) 23.67%
Treasury shares - - - -
Non-controlling interests - - - -
Total equity 2,197,393 2,227,604 30,211 1.37%
Description on major change items: (if the proportion of increase or decrease change exceeds
20%, and the change amount thereof reaches to NTD10 million)
1. The increase of other assets is mainly due to the acquisition of use right of the land in
Phase Two of Machinery Industrial Park in Jimei District, Xiamen City because of plant
expansion.
2. The decrease of current liabilities and increase of non-current liabilities are mainly due
to the borrowing of medium and long term borrowing to repay the due convertible
bonds, which causes the decrease of current liabilities and increase of non-current
liabilities.
3. The decrease of other equity is mainly due to RMB depreciated against USD in 2018,
causing the decrease of exchange difference in translation of the financial statements of
foreign operatinginstitutions.

176

7.2 Financial performance

  • 7.2.1 Main reasons for major changes in operating income, operating net profit and net profit before tax in the last two years

Unit: NTD thousand

Year
Item
2017		 2018 Amount of
increase
(decrease)		 Change
proportion（%）
Net revenue 2,647,010
2,628,778
(18,232)
(0.69%)
Gross Profit 681,005
561,055
(119,950)
(17.61%)
Operating income (loss) 395,201
269,342
(125,859)
(31.85%)
Non-operating income and
expenses		 329
27,827
27,498
8,358.05%
Income (loss) before tax
from continuingoperations		 395,530
297,169
(98,361)
(24.87%)
Net income (loss) from
continuing operations		 274,152
208,463
(65,689)
(23.96%)
Loss from discontinued
operations		 - - - -
Net profit 274,152
208,463
(65,689)
(23.96%)
Other comprehensive
income (loss) for the year,
net of income tax		 (47,481)
(55,552)
(8,071)
17.00%
Total comprehensive
income (loss) for the year		 226,671
152,911
(73,760)
(32.54%)
Net income (loss)
attributable to: Shareholders
ofthe parent		 274,152
208,463
(65,689)
(23.96%)
Net income attributable to
non-controlling interests		 - - - -
Total comprehensive
income (loss) attributable to:
shareholders ofthe parent		 226,671
152,911
(73,760)
(32.54%)
Comprehensive income
attributable to
non-controllinginterests		 - - - -
Description on major change items: (if the proportion of increase or decrease change exceeds 20%,
and the change amount thereof reaches to NTD10 million)
1.
The decrease of operating income and loss is mainly due to the rising procurement cost of
materials (mainly copper materials) and the impact of exchange rate fluctuation in 2018, the
production cost rises and the gross profit decreases, causing decrease of operating income and
loss.
2.
The increase of non-operating income and expenses is mainly due to exchange rate fluctuation
(RMB depreciates against USD and NTD appreciates against EUR) in 2018, the foreign
exchange gain arises, causing net increase of income in non-operating income and expenses.
3.
The decrease of income (loss) before tax from continuing operations, net income (loss) from
continuing operations, net profit, total comprehensive income (loss) for the year, net income
(loss) attributable to shareholders of the parent and total comprehensive income (loss)
attributable to: shareholders of the parent is mainly due to the rising production cost and
decrease of gross profit, and the decrease of income (loss) before tax from continuing operations
shrinks due to the increase ofprofit on exchange.

7.2.2 Expected sales quantity and its basis

The reinvestment company of the Company has worked out reasonable and achievable sales quantity according to market demand, sales in customer end and supply assessment. For

177

relevant market research analysis and current condition and development of industry, please refer to the descriptions in Operational Highlights.

7.2.3 Possible impact on the company’s future financial affairs and response plan

The market demand of the Group’s product application end is still growing, reinvestment company of the Company will always pay attention to the changes of market demand to improve company performance, and the Company will continue to strengthen the operation and cost control of each subsidiaries to improve profitability of the Group.

7.3 Cash flow

7.3.1 Analysis of cash flow changes in the last year

Unit: %

Unit: %
Item 2018 2017 Amount of
increase or
decrease		 Proportion of
increase or
decrease
Net cash provided (used) in
operating activities
322,913		 244,282 78,631 32.19%
Net cash used in investing
activities
(340,155)		 (214,547) (125,608) 58.55%
Net cash used in financing
activities
(74,483)		 22,865 (97,348) (425.75%)
Data source: the financial statement audited and certified by the accountant.
Analysis of cash flow changes in this year:
1. The decrease of net cash provided (used) in operating activities is mainly owing to
performance growth of PT. LUHAI and BRICS National Summit is convened in
Xiamen, the stock up increases, adjustment of inventory is conducted in 2018 to reduce
stock up, causing increase of cash inflow generated from operating activities.
2. The decrease of net cash used in investing activities is mainly due to the acquisition of
use right of the land in Phase Two of Machinery Industrial Park in Jimei District,
Xiamen City because of plant expansion, causing the increase of cash outflow in
investment activities.
3. The increase of net cash used in financing activities is mainly due to the debt reduction
and increase of cash dividend distribution in 2018, causing cash outflow generated
from fundraisingactivities.

  1. The decrease of net cash provided (used) in operating activities is mainly owing to performance growth of PT. LUHAI and BRICS National Summit is convened in Xiamen, the stock up increases, adjustment of inventory is conducted in 2018 to reduce stock up, causing increase of cash inflow generated from operating activities.

  2. The decrease of net cash used in investing activities is mainly due to the acquisition of use right of the land in Phase Two of Machinery Industrial Park in Jimei District, Xiamen City because of plant expansion, causing the increase of cash outflow in investment activities.

  3. The increase of net cash used in financing activities is mainly due to the debt reduction and increase of cash dividend distribution in 2018, causing cash outflow generated from fundraising activities.

7.3.2 Improvement plan for liquidity shortage

The business of the Group is at the stage of profit growth, and the Group appropriates bank loan in due time, and there is no liquidity shortage currently.

  • 7.3.3 Cash liquidity analysis in the coming year

Unit: NTD thousand

Unit: NTD thousand Unit: NTD thousand
Cash and cash
equivalents,
beginning of
year (1)
Estimated net
cash flow from
operating
activities (2)		 Estimated
cash outflow
(inflow) (3)		 Cash Surplus
(Deficit)
(1)+(2)-(3)		 Remedial measures for
estimated cash surplus
(Deficit)
Investment
plan		 Financial
plan
824,221 332,085 (400,878) 755,428 - -
Analysis on cash flow changes in the coming Year:
1.
Operating activity: the expected cash inflow to be generate in 2019 is mainly due to the net profit
generated after tax.
2. Estimated cash outflow (investment and fundraising activities): the cash outflow expected to be
generated from the investment activity of the Company in 2019 is mainly due to the capital
expenditure for new plant in Xiamen and the investment in financial products become due; the
cash inflow expected to be generated from the fundraising activity of the Company in 2019 is
mainly due to the increase of financing and distribution of cash dividend, it is expected that the
investment and fundraisingactivities willgenerate cash outflow.

178

7.4 The impact of significant capital expenditure on financial affairs in the last year

Items of significant capital expenditure of the Group mainly include the expenditure in acquisition of plant, production equipment and detection equipment, mainly because of aiming at increase the investment in automation and continuous purchase of mechanical equipment in respond to market strategy planning, in 2018, the capital expenditure invested was approximately NTD292,703 thousand, accounting for 11.13% of net revenue, and it had no adverse impact on financial affairs of the company yet.

7.5 Reinvestment policy in the last year, the main reason for its profit or loss, improvement plan and investment plan in the coming year

7.5.1 Reinvestment policy of the Company

Reinvestment policy of the Company is to take main business into core consideration, and take the strengthening of vertical integration of upstream and downstream as the development direction. Relevant investment plans have been analyzed and measured in every aspect, they can bring benefits to the Group and comply with the “Investment cycle” in internal control system passed by the resolution of Board of Directors Meeting or General Meeting and the “Regulations Governing the Acquisition and Disposal of Assets” of the Company.

  • 7.5.2 Main reason for profit or loss from reinvestment in the last year, improvement plan and future investment plan

Unit: NTD thousand

Invested company Direct Investment Improvement
plan		 Investment
plan in the
coming year
(indirect) profit and loss Reason for
shareholding recognized in profit or loss
ratio the last year
LU HAI (BVI)
INDUSTRIAL CORP.		 100% 88,065 Mainly due to
the recognition
of profits from
XIAMEN
XIAHUI		 None None
ALLPRO
INTERNATIONAL
CORP.		 100% 66,095 None None
YUANHUI
INTERNATIONAL
CO., LTD.		 100% 12,439 Mainly due to
the recognition
of profits from
KUNSHAN
LUHAI		 None None
LU HAI
INDUSTRIAL CORP.		 100% 12,511 Under good
operating
conditions		 None None
MEGA POWER 100% 30,556 Under good
operating
conditions		 None None
PT. LUHAI
INDUSTRIAL		 100% 39,085 Under good
operating
conditions		 None None
XIAMEN XIAHUI
RUBBER METAL
INDUSTRIAL CO.,
LTD.		 100% 164,644 Under good
operating
conditions		 None Expansion of
new plant
LUHAI RUBBER
METAL
INDUSTRIAL
(KUNSHAN) CO.,
LTD.		 100% 12,512 Under
good
operating
conditions		 None None

179

7.6 Risk Management

  • 7.6.1 The impact of interest rate, fluctuation in exchange rate, and inflation on company’s profit and loss and future solutions

  • 7.6.1.1 Interest rate change

Unit: NTDthousand Unit: NTDthousand Unit: NTDthousand Unit: NTDthousand
2017 2018
Amount Proportion in net sales Amount Proportion in net sales
Interest income 17,033 0.64% 16,729 0.64%
Interest expense 11,662 0.44% 11,999 0.46%

The interest income and interest expense of the Group in the last two years are accounting for a low proportion in net sales of the year, recorded at 0.64% and 0.64%, and 0.46% and 0.44% respectively, and the impact on profit and loss is still manageable. Specific solutions of the company in respond to interest rate change:

In principle, the capital planning of the Group is conservative and steady, in the aspect of capital allocation, the Group gives priority to safety management, and the capital investment is mainly short-term deposit, and the proportion of interest income is low. The financial structure of the Group is sound, borrowings are made in respond to the working capital necessary for the expansion of business scale, and the proportion of interest expense is also low. The Company and each subsidiary will give comprehensive consideration to the limit and cost of all kinds of capital sources to raise the needed capital, in the future, we will still pay close attention to the development trend of global economy, and adopt hedging instruments in due to avoid the risk of rising interest rate.

  • 7.6.1.2 Impact of fluctuation in exchange rate
mpact of fluctuation in exchange rate mpact of fluctuation in exchange rate mpact of fluctuation in exchange rate
Unit: NTD thousand
Year
Item		 2017 2018
Foreign exchange gain (loss) (17,681) 4,907
Proportion in operating revenue (%) (0.67%) 0.19%

Foreign exchange gain (loss) of the Group in the last two years are NTD4,907 thousand and NTD (17,681) thousand respectively, only accounting for 0.19% and (0.67%) of the net operating income, and it is not significant. Collection currency of the Group are mainly USD and RMB, and the payment for material procurement is also mainly made by USD and RMB, the mutual offset between them will generate the effect of natural hedge to reduce the exchange demand, and it should be able to minimize the impact of exchange rate fluctuation.

Specific solutions of the company in respond to fluctuation in exchange rate:

  • Financial personnel will collect real-time exchange rate market information at any time, and maintain appropriate net foreign exchange position according to the judgment on the trend of future exchange rate and provide it to business personnel for reference when making an offer.

  • Adjust the foreign currency deposit position according to the fluctuation in exchange rate, when necessary, pre-order or presell forward exchange contract for hedging purpose or borrow money to reduce the risk of exchange rate.

180

  • Adopt foreign exchange income and expenditure for automatic hedging, use the offset in the foreign currency receipts and payments generated from export sales and external procurement to reduce the position of net assets in foreign currency.

  • Formulate the “Regulations Governing the Acquisition and Disposal of Assets” pursuant to “Regulations Governing the Acquisition and Disposal of Assets by Public Company”, and take it as the basis for engaging in derivative transactions, making the exchange loss in daily operation within a manageable scope.

  • 7.6.1.3 Impact of inflation

Upon planning annual business plan, the Group has considered the risk of inflation, the profit and loss of the Group has not been significantly impacted by inflation in the past, in case of rising purchasing cost due to inflation, the Group will also always master the price changes in upstream commodities, and reflect it in the cost and offer, so as to reduce the impact on the profit and loss of the company caused by cost fluctuation.

  • 7.6.2 Policy on engaging in high risk and highly leveraged investment, granting of loans, endorsement and derivative securities transaction, main reason for profit or loss, and future solutions

  • 7.6.2.1 Based on the steady principle and practical operation philosophy, apart from focusing on the business fields of the Group, the Group has not engaged in high risk and highly leveraged investment.

  • 7.6.2.2 In the last two years and as at the publication date of annual report, apart from granting of loans to and endorsement and guarantee for the subsidiaries in which the Group with direct and indirect shareholding of one hundred percent, the Group has not made granting of loans to and endorsement and guarantee for others. Besides, the Group has formulated the “Regulations Governing Loaning of Funds” and “Regulations Governing Making of Endorsements/Guarantees”, relevant operations are executed prudently after giving consideration to risk conditions and relevant regulations.

  • 7.6.2.3 The financial derivatives held by important subsidiaries of the Company are used for avoiding the exchange rate risks imposed in operation, financial and investment activities, however, since they are not conforming to the element of hedge accounting, hence they are recognized as the financial assets and liabilities listed in profit and loss according to the change in fair value.

  • 7.6.3 Research and development Plan and expected invested research and development costs

  • 7.6.3.1 Future research and development plan

  • Process improvement: improve the automation degree and reduce production cost.

  • New technology development: continue to focus on the research and development of professional fields of valves, and obtain patent right of utility models.

  • The key points in current research and development of the Group is to continuously

  • develop dedicated automation equipment, improve equipment production efficiency and product quality, accelerate the introduction and conduct mass production for the completed research and development achievements, complete the transformation of production technique, and expand the overall benefits.

  • 7.6.3.2 Expected invested research and development costs

For the investment in research and development costs, the Group has complied gradually according to the progress of new products and process development, in 2017 and 2018, the research and development costs was NTD26,521 thousand and NTD25,589

181

thousand respectively, the company has maintained stable expenditure in research and development costs, so as to support the future research and development plan and increase the market competitiveness of the Group. The research and development costs compiled by the Group in 2019 is NTD25,400 thousand.

  • 7.6.4 The impact of changes in domestic and overseas important policies and laws on financial affairs of the company and solutions

The Company is registered in Cayman Islands and has no substantial economic activities there, and the main places of business include China Mainland, Indonesia, and Taiwan, the Company and subsidiaries always pay attention to the information of changes in important policies and laws in the locating countries and regions, and make preventive preparation through all kinds of channels in advance, hence the changes in important policies and laws both at home and abroad have not caused significant impact on the financial affairs of the Company.

  • 7.6.5 The impact of changes in technology and industry on financial affairs of the company and solutions

The valve industry engaged in by the Company and subsidiaries is the industry of hundred years, it is the essential industry in industrial and commercial society, the Group will always pay attention to the changes in relevant technologies of the industry and changes in prices of rubber material and copper material market and master the market trend, currently, there is no change in technology and industry that might cause significant impact on financial affairs of the company.

Solutions:

  1. Understand industry trend, continue to invest in research and development and apply for patents, and improve automation degree.

  2. Understand customer requirements, provide complete product lines, provide one-stop service, and increase added value.

  3. 7.6.6 The impact of change in corporate image on corporate crisis management and solutions:

Ever since the establishment, the Company has a good corporate image and comply with relevant laws and decrees, actively promotes various quality certifications, and maintain a harmonious labor-capital relationship and local relationship at the same time, so as to continuously maintain a good corporate image, and in recent years, there is no any circumstance affecting the corporate image.

  • 7.6.7 Expected benefit and possible risk of merger and acquisition and solutions

As at the publication date of annual report, the Company does not have any plan of merger and acquisition of other companies, in case of any merger and acquisition plan in the future, the Company will conduct assessment prudently and give consideration to the merger synergy, so as to ensure the rights and interests of shareholders.

  • 7.6.8 Expected benefit and possible risk of plant expansion and solutions

In order to satisfy the future market and Group’s strategic planning, the Company ordered subsidiaries XIAMEN XIAHUI to acquire a new land in 2018, currently the plant is under construction, it is planned to expand production capacity in metal processing, so as to win market opportunity and achieve the synergy in the Group’s resources allocation. The funds in plant expansion is supported by own funds, hence the risk might be caused is limited.

  • 7.6.9 Risk encountered in centralized purchasing or sales and solutions

  • Risk encountered in centralized purchasing and solutions

182

The purchasing objects of the Group are dispersing, suppliers are from both at home and abroad, in the last three years, the purchasing amount from the biggest supplier is less than 30% of the total purchasing amount, there is no single supplier in overall purchasing, hence there is no issue of centralized purchasing.

  1. Risk encountered in centralized sales and solutions

Regions of customers in sales of the Group include Europe, Africa, America and Asia etc., in the last three years, the total sales volume of top ten customers in sales was accounting for 60.46%, 59.35% and 55.97% of the annual net revenue respectively, and the total sales volume of the biggest customer in sales was accounting for 16.50%, 15.18% and 13.16% of the annual net revenue respectively, there is no single customer with sales proportion over 30%, all customers have been doing business of the Group for years, and product quality has been deeply recognized and trusted by customers, both parties are maintaining a long-term and stable sales relationship, hence there is no risk of centralized sales.

  • 7.6.10 The impact and risk of massive transfer or change of the stock rights of directors, supervisors or shareholders with shareholding over ten percent and solutions

As at the publication date of annual report, there is no massive transfer of stock rights in the directors and substantial shareholders with shareholding over ten percent of the Company; the Company carried out comprehensive re-election of directors and supervisors in General Meeting on June 25, 2018, the original 13 seats of directors were changed into 11 seats of directors, and 2 of them refused to take office, so there are 9 seats of directors currently. However, the shareholdings of substantial shareholders are stable, there is no significant change of important managerial officers, and management is stable.

  • 7.6.11 The impact and risk of change in management right and solutions

As at the publication date of annual report, the Company has no circumstance of change in management right.

7.6.12 Litigation or non-litigation case

The sentenced or pending significant litigation, non-litigation or administrative litigation involving in the company or the directors, supervisors, General Manager, actual head and substantial shareholders with shareholding ratio over ten percent of the company shall be listed, and if the results thereof have significant impact on shareholders’ equity or securities price, the facts in dispute, amount of object, commencement date of litigation, major parties involved in litigation, and handling circumstance as at the publication date of annual report shall be disclosed: None.

7.6.13 Other important risks and solutions:

Major computer room of information system of the Group locates in Changhua, the operating host adopts IBM System X3650, and the backup host adopts Synology RS810+, and drilling of backup restoration is conducted every year. For the part of network security, the Group has established firewall internally, and the Group adopts ESET NOD32 antivirus software internally and mandatorily update virus code every day; and for all kinds of information risks, such as device management, hardware protection, Internet and mobile security etc., administrative measures have been planned to improve the safety protection capacity of network and information system as well as the level of information governance, hence the risk of information security of the Company is still under control appropriately.

7.7 Other important matters: None.

183

VIII. Special Recorded Matters

8.1 Relevant information of affiliated enterprise

  • 8.1.1 Consolidated business report of affiliated enterprise

  • 8.1.1.1 Organization chart of affiliated enterprise:

==> picture [457 x 251] intentionally omitted <==

Notes: Subsidiaries PT. LUHAI carried out cash capital increase of USD2,000 thousand in 2015, all of them were directly invested by the Company, hence the Company’s proportion of direct investment in it rose from 80% to 85% since April 1, 2015.

8.1.1.2 Basic information of affiliated enterprises:

Unit: NTD thousand and December 31, 2018 foreign currency in thousand

Name of enterprise Establish
ment date		 Address Paid-in
capital		 Main
business or
production
item
LU HAI (BVI)
INDUSTRIAL
CORP.		 11/5/1996 P.O. Box 957, Offshore
Incorporations Centre, Road
Town, Tortola, British
Virgin Islands.		 184,290
(USD6,000)		 Investment
holding
ALLPRO
INTERNATIONAL
CORP.		 7/10/2000 Corner Hutson & Eyre
Street, Blake Building, Suite
302 Belize City, Belize.		 138,218
(USD4,500)		 Investment
holding
MEGA POWER
CO., LTD.		 9/3/2008 #35 Barrack Road, 3rdFloor
Belize City, Belize C.A.		 1,536
(USD50)		 Buying and
selling
business
YUANHUI
INTERNATIONAL
CO., LTD.		 1/31/2003 Level 3, Alexander House,
35 Cybercity, Ebene
Mauritius.		 199,648
(USD6,500)		 Investment
holding
XIAMEN XIAHUI
RUBBER METAL
INDUSTRIAL
CO.,LTD		 5/9/1990 No.41, Xinyuan Rd, Xing
Lin District, Xiamen China.		 322,508
(USD10,500)
Production,
manufacturi
ng and sales
of valve

184

LUHAI RUBBER
METAL
INDUSTRIAL
(KUNSHAN) CO.,
LTD.		 5/23/1997 No.1069 HuaAn Road,
HuaQiao Town, Kunshan
City, Jiangsu Province,
P.R.China.		 253,214
(USD8,244)		 Production,
manufacturi
ng and sales
of valve
LU HAI
INDUSTRIAL
CORP.		 5/13/1983 No.64, Shing-kong 5th Rd,
Tien-Chung Industrial
District,
Tien-chung,Chang-hua
Taiwan.		 98,450 Buying and
selling
business
PT. LUHAI
INDUSTRIAL		 11/8/2011 d\a. Jl. Raya Cikande
Rangkasbitung Km. 4.5.
Desa Junti. Jawilan. Serang,
Indonesia		 245,720
(USD8,000)		 Production,
manufacturi
ng and sales
ofvalve

Notes: Converted at the exchange rate of USD1=NTD30.715 on the closing day of financial report.

  • 8.1.1.3 Same shareholder information of those presumed with control and subordinate relationship: None.

  • 8.1.1.4 Information of directors, supervisors and General Manager of each affiliated enterprise:

Name of enterprise Title Name or representative Shareholding Shareholding
Number
of
shares		 Shareholding
ratio %
LU HAI (BVI)
INDUSTRIAL CORP.		 Director WU, CHING-SHU - -
ALLPRO
INTERNATIONAL CORP.		 Director WU, CHING-SHU - -
MEGA POWER CO., LTD. Director WU, CHING-SHU - -
YUANHUI
INTERNATIONAL CO.,
LTD.		 Director WU, CHING-SHU - -
XIAMEN XIAHUI
RUBBER METAL
INDUSTRIAL CO., LTD.		 Chairman HSU, LIEN-KAI - -
Director HSU, HSIU-HUA
Director HSU, YA-TING
Director HSU, HUAI-YUN
Director HSU, HAN-YUAN
Supervisor WU, CHING-SHU
LUHAI RUBBER METAL
INDUSTRIAL (KUNSHAN)
CO., LTD.		 Chairman HSU, LIEN-KAI - -
Director WU, CHING-SHU
Director HSU, HSIU-HUA
Director HSU, YA-TING
Director HSU, HUAI-YUN
Supervisor HSU, HAN-YUAN

185

LU HAI INDUSTRIAL
CORP.		 Chairman British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: HSU,
LIEN-KAI		 - -
Director British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: HSU,
HSIU-HUA
Director British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: HSU,
YA-TING
Director British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: HSU,
HUAI-YUN
Director British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: HSU,
HAN-YUAN
Supervisor British Cayman Islands
Merchant LU HAI
HOLDING CORP.
Representative: WU,
CHING-SHU
PT. LUHAI INDUSTRIAL Chairman HSU,HSIU-HUA - -
Director QIUZHONG-LIE
Director QIU JING-HUI
Supervisor HSU,LIEN-KAI
Supervisor WU, CHING-SHU
Supervisor HSU,YA-TING
Supervisor HSU,HUAI-YUN
Supervisor HSU,HAN-YUAN

8.1.1.5 Operation profile of each affiliated enterprise

December 31, 2018 Unit: NTD thousand

Name of
enterprise		 Capital
amount		 Total
assets		 Total
liabilities		 Net value Net
revenue		 Operating
income		 Net
income(loss)
(after tax)		 Earnings
per share
(NTD)
(after
tax)
LU HAI (BVI)
INDUSTRIAL
CORP.		 184,290 957,831 6,123 951,708 - (104) 88,065 14.68
ALLPRO
INTERNATIONAL
CORP.		 138,218 719,565 4,592 714,973 - (60) 66,095 14.69
MEGA POWER
CO., LTD.		 1,536 91,268 53,464 37,804 234,166 26,778 30,556 611.12
YUANHUI
INTERNATIONAL
CO., LTD.		 199,648 514,986 - 514,986 - (60) 12,439 1.91

186

XIAMEN XIAHUI
RUBBER METAL
INDUSTRIAL CO.,
LTD.		 322,508 2,204,098 522,854 1,681,244 1,802,323 203,420 166,573 -
LUHAI RUBBER
METAL
INDUSTRIAL
(KUNSHAN) CO.,
LTD.		 253,214 672,924 155,283 517,641 694,490 1,394 12,090 -
LU HAI
INDUSTRIAL
CORP.		 98,450 203,188 32,663 170,525 120,991 8,479 11,996 1.22
PT. LUHAI
INDUSTRIAL		 245,720 449,624 145,785 303,839 588,888 56,687 38,885 4.86

Notes, converted according to the exchange rate (USD1=NTD30.715, USD1=RMB6.8707,

USD1=IDR14,413) on the closing day of financial report or current average exchange rate

(USD1=NTD30.149, USD1=RMB6.6339, USD1=IDR14,227).

  • 8.1.2 Consolidated financial statements of affiliated enterprise: foreign companies may be exempted from preparing consolidated financial statement of affiliated enterprise according to the rules of Chapter 5 of preparation guidelines, please refer to page 97 to 175 for consolidated financial statements of the Company.

  • 8.1.3 Declaration of consolidated statement of affiliated enterprise: foreign companies may be exempted from preparation.

  • 8.1.4 Relationship report: Not applicable.

  • 8.2 In the last year and as at the publication date of annual report, execution situation of private placement of negotiable securities: None.

  • 8.3 In the last year and as at the publication date of annual report, subsidiaries’ holding or disposal of shares of the Company: None.

  • 8.4 Other necessary supplementary explanations: None.

  • 8.5 In the last year and as at the publication date of annual report, in case of matters having significant impact on the shareholders’ equity or security price as prescribed in Subparagraph 2, Paragraph 3, Article 36 of Securities and Exchange Act, it shall also be specified one by one: None.

8.6 Description on significant difference from the shareholders’ equity protection regulations of our country:

The Company has amended Articles of Incorporation according to the important matters of protecting shareholders’ equity listed in the “Checklist for Matters of Protecting Shareholders’ Equity of Foreign issuers in the Country of Registration” published by Stock Exchange, but since some of important matters of protecting shareholders’ equity are not applicable under the laws of Cayman, hence they are not stipulated in Articles of Incorporation, it is hereby explained the difference as follows (Articles of Incorporation is subject to the English version, and the following Chinese contents are for reference only):

187

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
Formation and change of companycapital
1. After buying back its own shares, if the
company transfer them to employees at the price
of lower than average price in actual shares
buyback, it shall be agreed by more than two
third of attending shareholders with voting rights
in the last General Meeting attended by
shareholders holding the majority of total
outstanding shares, and the following matters
shall be listed and explained in the subject of
convocation of such General Meeting, and it
shall not be proposed as an Extempore Motion:
(1) The transfer price fixed, discount rate,
calculation basis and rationality.
(2) Number of shares transferred, purpose and
rationality.
(3) Subscribing employee’s qualification and
number of shares may be subscribed.
(4) Matters affecting shareholders’ equity:
(a) Possible expensing amount and the
dilution of earnings per share of the
company.
(b) Explain the financial burden caused to
the company due to transferring shares
to employees at the price lower than
average price in actual shares buyback.
2. The accumulated number of shares passed by
previous General Meetings and transferred to
employees shall not exceed five percent of the
total outstanding shares of the company, and the
accumulated number of shares subscribed by
one subscribing employee shall not exceed 0.5%
of the total outstanding shares of the company.		 Article 14 of “Measures Foreign
Issuers’
Buyback
of
Listed
Negotiable Securities” promulgated
by Taiwan Stock Exchange.		 1. Companies in Cayman
may redeem or buy back
shares as treasury shares
when
conforming
to
certain conditions (Article
37, Article 37A).
2. Companies redeeming
or buying back treasury
shares according to the
provisions of Article
37A may transfer them
to anyone at any time.		 1. The Company has listed relevant
provisions in Article 20 of Articles
of Incorporation.

188

“Company Act” or “Securities Explanation on companies Shareholders’ equity protection matters and Exchange Act” related laws laws and decrees of and decrees Cayman Islands

Provisions of Articles of Incorporation and explanation

General Meeting’s convening procedure and resolution method

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
General Meeting’s convening procedure and resolution method
1. The General Meeting shall be convened at least once
a year and convened within six months after the end
of every accounting year. The General Meeting is
convened by Board of Directors.
2. The General Meeting shall be convened in the
territory of the Republic of China. If the General
Meeting is convened outside the territory of the
Republic of China, it shall be resolved by Board of
Directors or reported to Stock Exchange for consent
after shareholders have obtained convening license
from the competent authority.
3. The shareholder holding more than one percent of
the total outstanding shares may propose a motion of
General Meeting to the Company in writing or
electronically. Apart from that the motion is not
resolved
in
Shareholder’s
Meeting,
or
the
shareholding of the shareholder proposing a motion
is less than one percent, or the motion is not
proposed during the acceptance period, or the words
of a motion exceed 300 words or there is more than
one motion, it will not be listed in the motion. Board
of Directors shall list it as a motion. If a
shareholder’s proposal is urging the company to
promote public interests or fulfill its social
responsibilities, Board of directors may still list it as
a motion.
4. The shareholder who holds over three percent of
outstanding shares for over one year consecutively
may note the proposed matters and reason in writing,
and ask Board of Directors to convene an
extraordinary general meeting. Within fifteen days
after proposing the request, when the Board of
Directors fails to issue a convening notice, such
shareholder may voluntarily convene the meeting
with the permission of competent authority.
5. Shareholders continuously holding 50% or more of		 1. Article 170 of Company Act
2. Article 172-1 of Company Act
3. Paragraph 1 and Paragraph 2,
Article 173, Article 173-1 of
Company Act
4. Article 172 of Company Act,
Article 26-1 and Article 43-6 of
Securities and Exchange Act		 1. Pursuant to Companies Law
of
Cayman,
a
General
Meeting of every company,
other than an exempted
company, shall be held at
least once in every year.
(Article 58).
2. Unless otherwise stipulated
in Articles of Incorporation,
the convening notice of
General Meeting shall be
served to each shareholder 5
days
in
advance;
3
shareholders
shall
be
competent to convene a
General Meeting; it shall be
competent for any person
elected by the shareholders
present
to
preside
the
General Meeting (Article
61).
3. Unless otherwise stipulated
in Articles of Association,
one
shareholder
being
present
in
person
may
convene a General Meeting
(Article 57).
4. Regarding the proposal of
minority
shareholders,
there
is
no
similar
provisions in Companies
Law of Cayman.
5. Regarding the request of
minority shareholders to
Board of Directors to
convene an extraordinary		 1. Regarding the request of minority
shareholders to Board of Directors to
convene an extraordinary general
meeting, since there is no similar
provisions in Companies Law of
Cayman and there is no local
corresponding competent authority
in
Cayman
Islands;
besides,
according to the explanation in Item
3, No. 36 of “Q & A for Listing in
Taiwan by Foreign Issuers” (the
version on January 23, 2013)
promulgated by TWSE, “Under the
premises of not contravening the
laws and decrees of registration
place, a foreign enterprise shall
stipulate the rights of minority
shareholders
to
request
for
convening an extraordinary general
meeting in Articles of Incorporation,
for the part of convening a meeting
with the permission of competent
authority, it may be deleted.”, Hence
Article
42
of
Articles
of
Incorporation
of
the
Company
stipulates that shareholders may
voluntarily convene an extraordinary
general
meeting
pursuant
to
Applicable Public Company Rules.
2. The Company has included relevant
provisions in Article 39 to Article
43, Article 47, and Article 49 of
Articles of Incorporation.
3. The Stock Exchange amended the
checklist for shareholder’s equity
on November 30, 2018 to add that

189

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
the total number of outstanding shares of a company
for a period of three months or a longer time may
voluntarily convene a special shareholders’ meeting.
The calculation of above said holding period and
number of shareholding in the preceding sentence
shall be based on the Register of Members as of the
first date of the book closed period.
6. The following matters shall be stated in the notice of
general meetings, with a summary of the material
content to be discussed, and shall not be brought up
as an Extempore Motion, and the summary of above
said matters may be put on the website(s) designated
by the competent authorities or the Company, and
address of such website(s) shall be indicated clearly
in the notice:
(1) Election or dismissal of directors or supervisors;
(2) Alteration to Articles ofIncorporation;
(3) Capital reduction; and
(4) Application for the approval of ceasing its status as
a public company; and
(5) Dissolution, merger, shares swap or spun-off of the
company;
(6) Entry into, amendment to, or termination of any
contract for lease of its business in whole, or the
delegation of management, or regular joint
operation with others;
(7) The transfer of the whole or any material part of its
business or assets;
(8) Taking over another’s whole business or assets,
which will have a material effect on the business
operation of the company;
(9) Issuing equity-type securities by private placement.
(10) Ratification of director’s engagement in
non-competition action;
(11) Distribution of the whole or part of the dividends or
bonus in the form of new shares;
(12) Distribution of statutory surplus reserve or the		 general meeting, there is
no similar provisions in
Companies
Law
of
Cayman.
6. Regarding
the
matters
shall be listed in the
subject of convocation of
a General Meeting, there
is no similar provisions in
Companies
Law
of
Cayman.		 shareholders
may
propose
a
motion
electronically,
and
a
shareholder may propose to urge
the company to promote public
interests or fulfill its social
responsibilities,
shareholders
continuously holding 50% or
more of the total number of
outstanding shares of a company
for a period of three months or a
longer
time
may
voluntarily
convene a shareholders’ meeting,
and specific motion shall be put
on the website(s) designated by
competent
authorities,
and
address of such website(s) shall
be indicated clearly in the notice
etc., Article 42 and 47 are
amended
accordingly,
Article
42-1 is added, and application for
termination of public offering is
added as the matter for important
resolution in Paragraph (i) of
Article 65.

190

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
capital reserve obtained from share premium or
receiving bestowal in the form of new shares or
cash to existing shareholders.
1. When convening a General Meeting, the
company may exercise its voting right in writing
or electronically; but if the company is within
the “Application Scope of Mandatory Electronic
Voting” promulgated by competent authority in
charge of securities in the Republic of China,
and it is the first listed company in new stock
listing, the company shall list the electronic
voting as one of the channels for exercising
voting right.
2. If the company convenes the General Meeting
outside the territory of the Republic of China,
shareholders in such meeting may exercise the
voting right in writing or electronically.
3. When the company exercises the voting right in
writing or electronically; the exercising method
thereof shall be specified in the convening notice
of General Meeting. Shareholders exercising
voting right in writing or electronically shall be
deemed as attending General Meeting in person.
But it shall be deemed as waiver regarding the
amendment to Extempore Motions and original
proposals of such General Meeting.
4. If a shareholder exercises the voting right in
writing or electronically, the declaration of
intention thereof shall be served to the company
two days before convening General Meeting, in
case of repeated declarations of intention, the one
served first shall prevail. Except for announcing
the cancellation of previous declaration of
intention.
5. After a shareholder has exercised voting right in
writing or electronically, if intends to attend the
General Meeting in person, two days before		 1. Article 177-1 of Company Act
2. Article 177-2 of Company Act		 Regarding the adoption of
voting
in
writing
or
electronically in General
Meeting, there is no similar
provisions in Companies
Law of Cayman.		 The
Company
has
included
relevant provisions in Article 62,
Article 63, and Article 69 of
Articles of Incorporation.

191

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
convening General Meeting, such shareholder shall
cancel the preceding declaration of intention on
exercising voting right in the same way as
exercising voting right, otherwise the voting right
exercised in writing or electronically shall prevail.
6. If a shareholder exercises voting right in writing
or electronically and entrusts a proxy through a
proxy statement to attend the General Meeting,
the voting right exercised by the entrusted
attending proxy shall prevail.
1. Upon every General Meeting, a shareholder may
issue the proxy statement printed by the
company to specify the scope of authorization,
so as to entrust the proxy to attend the General
Meeting.
2. Except for the trust enterprise of the Republic of
China or the stock affairs agency approved by
competent authority in charge of securities of the
Republic of China, when one person is entrusted
by more than two shareholders, the proxy vote
thereof shall not exceed three percent of the
voting rights of total outstanding shares, and the
exceeding voting rights will not be calculated.
3. A shareholder is limited to issue one proxy
statement to entrust one agent, and the proxy
statement shall be served to the company five
days before convening General Meeting, in case
of repeated proxy statement, the one served first
shall prevail. Except for announcing the
cancellation of previous appointment.
4. After the proxy statement has been served to the
company, if a shareholder intends to attend the
General Meeting in person or exercise its voting
right
in
writing
or
electronically,
such
shareholder shall serve written notice on
canceling the proxy statement to the company
two days before convening the General Meeting;		 1. Article 177 of Company Act
2. Article 177-2 of Company
Act		 1. Pursuant to Subparagraph
a, Paragraph 1, Article 60
of Companies Law of
Cayman, the calculation
of resolution threshold of
General Meeting, if the
company allows the proxy
entrusted by a shareholder
to attend the General
Meeting, the entrusted
attendance
shall
be
calculated into the number
of voting rights.
2. There are no specific
provisions on the use of
proxy
statement
in
Companies
Law
of
Cayman. The company
may adopt the provisions
in Attached Table A, and
explicitly
stipulates
relevant regulations on
use of proxy statement in
General Meeting in the
Articles of Incorporation
(Article 22; Article 59 and
Article 60 of Attached		 The Company has included relevant
provisions in Article 43, Article 67(b),
Article 68, Article 70 and Article 71
of Articles of Incorporation.

192

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
otherwise the voting right exercised by the
entrusted attending proxy shall prevail.
5. When convening a General Meeting outside the
territory of the Republic of China, the company
shall entrust professional stock affairs agency in
the territory of the Republic of China to handle
the shareholders’ voting affairs.		 Table A).
3. Regarding the restriction on
proxy vote, there is no similar
provisions in Companies Law
of Cayman.
4. Regarding the entrustment
of stock affairs agency to
handle overseas voting
affairs, there is no similar
provisions in Companies
Law of Cayman.
The following proposals involving in major
shareholders’ equity shall be agreed by the majority
of attending shareholders with voting right in a
General Meeting attended by shareholders
representing more than two thirds of the total
outstanding shares. If the total shares of attending
shareholders do not meet the quota as prescribed in
preceding paragraph, it shall be agreed by more
than two thirds of attending shareholders with
voting rights in a General Meeting attended by
shareholders representing the majority of total
outstanding shares:
1. The company enters into, changes, or terminates
any contract for lease of business in whole, or
the delegation of management or the regular
joint operation with others; transfers the whole
or major part of business or property, or is
transferred of the whole business or property
from other person, and thereby causes
significant impact on business operation.
2. Amendment to Articles of Incorporation.
3. If the amendment to Articles of Incorporation
damages the rights of special shareholders, it
shall be otherwise resolved by Special General
Meeting.
4. Distribution of the whole or part of the dividend		 1. Article 185 of Company Act
2. Article 209 of Company Act
3. Article 227 of Company Act
4. Article 277 of Company Act
5. Paragraph 1, Article 240 of
Company Act
6. Article 316 of Company Act
7. Article 43-6 of Securities and
Exchange Act		 1. The Special Resolution
explicitly
stipulated
in
Article 60 of Companies
Law of Cayman means (1)
the resolution has been
passed by a majority of at
least
two
thirds
of
attending shareholders as,
being entitled to do so,
vote in person or, where
proxies are allowed, by
proxy at a general meeting
of which notice specifying
the intention to propose
the resolution as a special
resolution has been duly
given. Higher percentage
of
voting
in
special
resolution than that in
Companies
Law
of
Cayman
may
be
voluntarily stipulated in
Articles of Incorporation
according
to
the
importance of matters; or
(2) if it is explicitly		 1. The Company has included
relevant provisions in Article
34, Article 64, Article 65,
Article 65-1, Article 66 and
Article 123 of Articles of
Incorporation.
2. Explanation on the stipulation
of
voting
percentage
for
relevant proposals in a General
Meeting: except for subject to
the ordinary resolution and
supermajority
resolution
stipulated in Company Act of
the Republic of China, if
special resolution is required
pursuant to the Companies
Law of Cayman, Articles of
Incorporation of the Company
is also subject to the special
resolution defined in Article 60
of Companies Law of Cayman.
This is different from the
matters shall be handled by a
supermajority
resolution

193

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
or bonus in the form of new shares.
5. Resolution on dissolution, merger or spun-off.		 stipulated in Articles of
Incorporation
that
a
special resolution may be
made with the consent of
all
shareholders
with
voting right by written
signature.
2. According
to
the
provisions of Companies
Law of Cayman, the
following matters shall be
handled by a special
resolution: (1) Change of
company name (Article
31); (2) Alteration of
Memorandum
of
Incorporation (Article 10);
(3) Alteration of Articles
of Incorporation (Article
24); (4) Reduction of
share capital (Article 14);
(5)Voluntarily dissolution
by a special resolution not
due to the company’s
incapable
of
repaying
mature
debts
(Article
116(c)); (6) Merger and
acquisition according to
the
provisions
of
Companies
Law
of
Cayman (Article 233).		 (including alteration of articles,
dissolution,
merger
and
acquisition etc.) as listed in the
“Checklist
for
Matters
of
Protecting
Shareholders’
Equity of Foreign issuers in the
Country
of
Registration”
promulgated by TWSE. Since
such difference is due to the
provisions of Companies Law
of
Cayman,
Articles
of
Incorporation of the Company
has explicitly stipulated the
matters shall be handled by a
Supermajority Resolution as
listed in the aforesaid checklist
for
matters
of
protecting
shareholders’ equity and the
statutory
matters
shall
be
handle by a special resolution
as stipulated in Companies
Law of Cayman respectively,
and
it
has
not
caused
significant
impact
on
the
shareholders’ equity in our
country.
3. The amendment to Subparagraph
b, Paragraph 1, Article 64 of
Articles
of
Incorporation
explicitly stipulates that if the
change is damaging the rights of
shareholders of special shares, it
shall be resolved in the Special
Shareholder’s Meeting.

194

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
If the first listed company become delisting due to
ceasing to exist after merger, broadly transfer,
conversion of stock or spun-off, and the continuous
existing, transferred, existing or newly incorporated
company is not a listed (OTC) company, it shall be
handled with the consent of shareholders holding
more than two thirds of the total outstanding shares
of the first listed company.		 Article 18, Article 27, Article
28, Article 29 and Article 35 of
Enterprises
Mergers
and
Acquisitions Act.		 There is no similar provisions in
Companies Law of Cayman.		 The Company has listed relevant
provisions in Article 65-1 of
Articles of Incorporation.
Authorityand responsibilityof the director
1. Where all directors of a company are re-elected prior
to the expiration of the term of office of existing
directors, and in the absence of a resolution that
existing directors will not be discharged until the
expiry of their present term of office, all existing
directors shall be deemed discharged in advance.
2. The aforesaid re-election shall be attended by
shareholders who represent more than one-half of the
total number of issued and outstanding shares.		 Article 199-1 of Company Act. Companies Law of Cayman
does
not
implement
the
supervisor system, and there
are no similar provisions.		 Paragraph b, Article 89 of Articles
of Incorporation has it included
previously, due to the Stock
Exchange amended the checklist
for shareholder’s equity protection
matters
to
delete
superfluous
words, and the texts of Articles of
Incorporation
are
adjusted
accordingly.
1. If supervisors are set by the company, they shall
be elected in a General Meeting, and at least one
of them shall reside in the country.
2. Term of office of a supervisor shall not exceed
three years. But he/she may be eligible for
re-election.
3. When all supervisors are dismissed, Board of
Directors shall convene an extraordinary general
meeting for election within sixty days.
4. Supervisors shall supervise the execution of
company
business,
and
may
investigate
company business and financial conditions, and
examine books for taking notes or keeping
accounts and documents at any time, and may
ask Board of Directors or managerial officers to
propose a report.
5. Supervisors shall examine various books of
forms prepared by Board of Directors and
proposed to the General Meeting, and report		 Article 216 to Article 222 of
Company Act.		 Companies Law of Cayman
does
not
implement
the
supervisor system, and there
is no similar provisions.		 In matters of protecting shareholders'
equity, it is stipulated that the issuing
company shall either set the Audit
Committee
or
supervisor.
The
Company adopts the Audit Committee
system, it is stipulated in Article 125
of Articles of Incorporation that the
Audit Committee comprises of all of
the
independent
directors,
its
authorities
and
functions
are
equivalent to the supervisor, and it has
limited impact on the shareholders’
equity.

195

Shareholders’ equity protection matters “Company Act” or “Securities
and Exchange Act” related laws
and decrees		 Explanation on companies
laws and decrees of
Cayman Islands		 Provisions of Articles of
Incorporation and explanation
their opinions in the General Meeting.
6. For affairs examination, supervisors may entrust
the accountant or lawyer on behalf of the
company for examination.
7. Supervisors may attend the Board of Directors
Meeting to express their opinions. In case of
violation of laws and decrees, Articles of
Incorporation or resolution of General Meeting
by the Board of Directors or a director,
supervisors shall promptly inform the Board of
Directors or such director to cease action.
8. Supervisors
may
exercise
the
right
of
supervision respectively and independently.
9. Supervisors shall not concurrently hold the post
of director, managerial officer or other employee
of the company.

196

LU HAI HOLDING CORP.

Chairman HSU, LIEN-KAI

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