TECO - AGM Information 2019 | FinancialReports.eu

TECO Electric & Machinery Co., Ltd. Minutes of the 2019 Annual General Shareholders’ Meeting (Summary Translation)

Time: 09:00am, June 14, 2019 (Friday)

Place: 3F., Building A, No. 166, Jingmao 2[nd] Rd., Nangang District, Taipei City, Taiwan (Grande Luxe Banquet)

Shares represented at the meeting:

The total issued shares of the Company is 2,002,692,886, net of shares without voting rights 57,365,800, the total number of valid issued shares of the Company is 1,945,327,086. A total of 1,316,909,831 valid issued shares of the Company were presented at the above meeting (including a total of 1,033,876,223 shares were presented by electronic voting), representing 67.69% of the above total valid issued shares of the Company.

Chairman: Chwen-Jy Chiu (Chairman)

Attendance: Chao-Kai Liu (Managing Director), Yu-Ren Huang (Managing Director), Cheng-Tsung Huang (Managing Director), Mao-Hsiung Huang (Director), Po-Chih Huang (Director), Tung-Hai Kao (Director), Tzu-Yi Kuo (Director), Yung-Hsiang Chang (Director), Hong-Hsiang Lin (Director), Shang-Wei Kao (Director), Wei-Chi Liu (Managing & Independent Director, member of Audit Committee), Ting-Wong Cheng (Independent Director, member of Audit Committee), Jin-Fu Chang (Independent Director, member of Audit Committee)

Professional Consultant: Attorney: Lynn Lin & Steven S. K Chen

Certificated Public Accountant: Yu-Lung Wu & Ping-Chiun Chih

Recorder: Doreen Lin

1. Meeting called to order

As the share of shareholders and representatives exceeded quorum, chairman called the meeting to order.

2. Address by the Chairman

3. Reports:

3.1 Business report for 2018 (please see Appendix 1)
3.2 Inspection Report of Audit Committee for 2018 (please see Appendix 2)
3.3 Remuneration distribution to employees and directors for 2018 Explanatory note:

In 2018, income before tax is NT$ 3,294,809 thousands, and remuneration to employees is proposed to be NT$ 255,103 thousands, whilst remuneration to directors is proposed to be NT$ 113,379 thousands. The remuneration would be distributed in cash.

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3.4 Report on the purchase of treasury stock

Terms of repurchase	16th
Purpose of share repurchase	To sustain the company’s credit and shareholders’ interests
Originally determined number of shares to berepurchased	Common share 35,000,000 shares
Period for the repurchase	2019/1/2~2019/2/22
Originally determined repurchase pricerange	NT$12.15~NT$26.70
Number of shares repurchased	Common share 35,000,000 shares
Ratio to total shares issued	1.75%
Total monetary amount of shares repurchased	NT$675,839,547
Any other matters that need to be specified	Shall file for change of share register within 6 months staring from the date starting to repurchase(ended by2019/7/1)

4. Ratification:

Proposal 1:

Business Report and Financial Statements for 2018 (Proposed by the Board of Directors)

Explanatory note:

The Board of Directors entrusted certified public accountants Yu-Lung Wu and Chien-Hung Chou with Pricewaterhouse Coopers to audit and certify the Business Report and Financial Statements (includes Consolidated Financial Statements) for 2018, both of which were subsequently inspected by Audit Committee and are hereby submitted for ratification.
Please see Appendix 1 for “Business Report” and Appendix 3 for Auditors’ Report and Financial Statements of Year 2018.

Resolution:

After being voted by a total of 1,309,237,340 shares presented (net of shares without voting rights 7,639,075), a total of 1,184,219,993 shares voted “for” (including a total of 909,402,964 shares were presented by electronic voting), a total of 319,322 shares voted “against” (including a total of 319,322 shares were presented by electronic voting) and a total of 124,698,025 shares voted “abstain” (including a total of 124,153,937 shares were presented by electronic voting). The percentage of approval represented

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90.45% of the total voting rights of shareholders in attendance.

The proposal was approved as proposed.

Proposal 2:

Distribution of 2018 profits (Proposed by the Board of Directors)

Explanatory note:

The board of directors plans to appropriate NT$1,770,923,597 from allocable earnings in 2018 for dividend payout, capable of paying NT$0.9 of cash dividend per share, which, though, will be rounded off, leaving out decimal fraction.
Subject to the approval by the General Shareholders Meeting, it is proposed that the ex-dividend date and the distribution date shall be determined by the Board of Directors authorized to do so.
Please see Appendix 4 for the detailed profit distribution plan.

Resolution:

After being voted by a total of 1,309,237,340 shares presented (net of shares without voting rights 7,639,075), a total of 1,188,375,505 shares voted “for” (including a total of 913,558,476 shares were presented by electronic voting), a total of 372,810 shares voted “against” (including a total of 372,810 shares were presented by electronic voting) and a total of 120,489,025 shares voted “abstain” (including a total of 119,944,937 shares were presented by electronic voting). The percentage of approval represented 90.76% of the total voting rights of shareholders in attendance.

The proposal was approved as proposed.

5. Discussion:

Proposal 1:

Amendment to Articles of Incorporation (proposed by the board of directors)

Explanatory note:

In accordance with the Company Act revised on August 1[st] , 2018, the company proposes to revise the related measures of Articles of Incorporation.
Please see Appendix 5 for the comparison between the revision and the original.

Resolution:

After being voted by a total of 1,309,237,340 shares presented (net of shares without voting rights 7,639,075), a total of 1,172,530,500 shares voted “for” (including a total of 897,713,471 shares were presented by electronic voting), a total of 381,195 shares voted “against” (including a total of 381,195 shares were presented by electronic voting)

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and a total of 136,325,645 shares voted “abstain” (including a total of 135,781,557 shares were presented by electronic voting). The percentage of approval represented 89.55% of the total voting rights of shareholders in attendance.

The proposal was approved as proposed.

Proposal 2:

Amendment to Procedure for Acquisition or Disposal of Assets (proposed by the board of directors)

Explanatory note:

In accordance with Financial Supervisory Commission’s revision on “Regulations Governing the Acquisition and Disposal of Assets by Public Companies”, the company proposes to revise the partial measures of Procedure for Acquisition or Disposal of Assets.
Please see Appendix 6 for the comparison between the revision and the original.

Resolution:

After being voted by a total of 1,309,237,340 shares presented (net of shares without voting rights 7,639,075), a total of 1,172,526,296 shares voted “for” (including a total of 897,709,267 shares were presented by electronic voting), a total of 385,399 shares voted “against” (including a total of 385,399 shares were presented by electronic voting) and a total of 136,325,645 shares voted “abstain” (including a total of 135,781,557 shares were presented by electronic voting). The percentage of approval represented 89.55% of the total voting rights of shareholders in attendance.

The proposal was approved as proposed.

6. Extempore Motions:

None

7. Meeting Adjourned: 09:30 AM

Chairman: Chwen-Jy Chiu Recorder: Doreen Lin

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Appendix 1: Business Report for 2018

Appendix 2: Inspection Report of Audit Committee for 2018
Appendix 3: Financial Statements and Auditors’ Report for 2018
Appendix 4: Distribution of 2018 Profits
Appendix 5: The comparison between the revision and the original of “Articles of Incorporation”
Appendix 6: The comparison between the revision and the original of “Procedure for Acquisition or Disposal of Assets”

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Appendix 1

Business Report

Dear Shareholders,

External environment fluctuated in 2018, posing multiple challenges for enterprise. Volatile factors include prolonging China-U.S. trade friction, stagnant Brexit, attempt by North Korea to return to the international arena, and slackened market of crude oil and raw materials. However, continuing expansion of the electric-car market has triggered demands for auto motors, and the automation and AI current has fostered huge business potential. In the quest for sustainable development, the company has adhered to the vision of "energy conservation, emission reduction, intelligence, and automation," pushing the automation, smart production, and consistency of the company's production bases worldwide and rolling out innovative high-performance and smart products, in order to uphold strong growth momentum, minimize the effect of external changes, and retain steady profits.

A. Review of Business Performance in 2018

Analysis of the company’s business performance in 2018 follows: a. Parent Company

Unit: NT$ thousand

	2018	2017	Change
Sales revenue	20,879,719	21,301,208	-1.98%
Operating profit	1,410,943	1,507,068	-6.38%
Profit for theyear	3,150,089	3,092,358	1.87%

Motor’s order intake and sales picked up significantly, thanks to increased share on domestic and Australian markets, plus robust demands from power generation and oil & gas industries in North America. Affected by sluggish realty market and private consumption, sales of home appliances and power devices dropped. In general, the company's 2018 revenue scored slight decline of 1.98%.

In response to China-U.S. trade war, some orders for the U.S. were shifted to Taiwan for production, dampening gross margin. Consequently, the company has endeavored to cut material and other costs, reduce product weight and size, to boost competitiveness. Still, affected mainly by profit margin drop of air conditioning products, overall gross margin decreased by 0.9%. The company, though, managed to decrease operating expense by near NT$70 million, via working-flow improvement and outlay rationalization, as a result of which operating profit only declined by NT$96 million.

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Continuing sales and profit growth of affiliates in China, North America, and Australia led to increase of NT$330 million in investment income under equity method in 2018. In 2018, the company's net profit increased by 1.87%.

In 2018, the company had a remarkable performance in R&D, launching high-power smart motor, permanent-magnet motor for electric car, smart air quality and airconditioning energy management system for hospitals, and service-oriented robot, which won the company 15 awards of Taiwan Excellent Award, the highest among electromechanical manufacturers.

b. Consolidated Financial Statements

b. Consolidated Financial Statements	b. Consolidated Financial Statements	b. Consolidated Financial Statements	b. Consolidated Financial Statements
Unit: NT$thousand
	2018	2017	Change
Sales revenue	50,104,927	50,942,521	-1.64%
Operating profit	3,520,486	3,496,200	0.69%
Profit for theyear	3,475,969	3,544,248	-1.93%
Total comprehensive income	3,908,980	4,326,037	-9.64%

Sales in China grew, thanks to the policy separating production and sales, increased market share of large-sized motor and air-separation equipment, grasp of the business opportunities related to "Road and Belt" program, and focus on gear reducer and explosion-proof electric machinery. Sales in North America and Europe both scored double-digit growth, thanks to brisk demands for large-sized motors and gear reducers, respectively, while sales growth in Australia exceeds 5% and domestic sales also grew, despite exclusion of the revenue of Kuenling Air. After excluding the contribution of Kuenling Air, operating income still grew slightly by NT$60 million, due to merger of regional organizations and further rationalization of expenses. Affected by loss in the valuation of financial assets and reduced investment income, current net profit dropped by 1.93%, while total comprehensive income also tumbled by 9.64%, due to decline in unrealized valuation income from equity investment instruments.

B. Outline of 2019 Business Plan

The global economy is expected to remain sluggish in 2019, according to the prediction of major forecast bodies. The Cabinet-level Directorate General of Budget, Accounting, and Statistics forecasts that Taiwan's economy will score 2.27% growth in 2019, compared with the forecasts of other bodies ranging 2.18-2.45%. Faced with even steeper challenges, the company will continue embracing the vision of "energy

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conservation, emission reduction, intelligence, and automation," focusing on IoTenabled motor digital service, double growth for inverters, electromechanical equipment sales program, overseas electromechanical engineering, and smart communities, so as to sustain sales growth.

To achieve intelligence and automation, the company will establish industry IoT at all of its factories, on the basis of MES (manufacturing execution system), which will be coupled with big-data analysis in forging smart electromechanical factory solutions. Automated guided vehicles and service-oriented robots will also be applied, to further boost the operating efficiency of factories.

For energy conservation and emission reduction, the company has engaged in the RD& on high-efficiency low-energy consumption permanent-magnet motor for use as motive force, and the development, via utilization of "synchronous reluctance assisted permanent magnet technology," of traction power modules, for deployment in the markets of electric cars and electric vessels. The company is also actively foraying into the supply chain for offshore wind-power turbines, plans to engage in the gridconnection power control panel and assembly of wind turbine, using Taiwan as a springboard for inroads into the markets of Japan, South Korea, and Southeast Asia.

The company has been granted golden award of Taiwan Top 50 Corporate Sustainability Report Award for five years in row and Corporate Citizen Award by Commonwealth magazine for seven consecutive years. As a vanguard of Taiwan's electromechanical industry, the company will continue adhering to the concept of sustainable development and, in response to the need for innovative technology and the current of Industry 4.0, will dedicate to the development of IoT and smart environment-friendly products, in the hope of turning in a good performance amid stern international environment and creating optimal benefits for shareholders and investing public, in return for their longstanding support and patronage.

TECO Electric & Machinery Co., Ltd

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Appendix 2

Inspection Report of Audit Committee

(This English version is only a translation of the Chinese version.)

The Audit Committee has duly inspected and approved the financial statements for 2018 (including consolidated financial statements), the business report and proposed profit distribution plan prepared and proposed by the Board of Directors, with the financial statements having been audited and certified by Pricewaterhouse Coopers, hereby submit this report pursuant to Article 14 of Securities and Exchange Act and Article 219 of the Company Act.

General Shareholders Meeting 2019

TECO Electric & Machinery Co., Ltd

Audit Committee Convener ： Ting-Wong, Cheng

Date: March 26, 2019

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Appendix 3

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To TECO Electric & Machinery Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of TECO Electric & Machinery Co., Ltd. as at December 31, 2018 and 2017, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the audit reports of other independent accountants, as described in the other matter section of our report, the parent company only financial statements present fairly, in all material respects, the financial position of TECO Electric & Machinery Co., Ltd. as of December 31, 2018 and 2017, and its financial performance and cash flows for the years then ended, in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and audit reports of other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most

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significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Company’s financial statements of the current period are stated as follows:

Revenue recognition of export sales of heavy industrial products group

Description

Refer to Note 4(31) of the parent company only financial statements for the accounting policies on revenue recognition. Heavy industrial products group handles the manufacturing and sales of various machinery, equipment and motors. Aside from domestic sales in Taiwan, the customers of heavy industrial products group are from China, America, Southeast Asia and Europe and the sales terms vary for different customers. Thus, we consider the revenue recognition of export sales of heavy industrial products group as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:
Obtained an understanding of and validated the internal controls over revenue recognition of export sales of heavy industrial products group to assess the effectiveness of the internal control process.
Validated selected samples of export sales revenue transactions of heavy industrial products group to confirm the existence of export sales revenue transactions.

Investment accounted for under equity method – impairment assessment of premium generated from the acquisition of subsidiaries

Description

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only financial statement for the accounting policies on the impairment of non-financial assets and Note 5(2) for the uncertainty of the accounting estimate regarding impairment of investment in premium. TECO Electric & Machinery Co., Ltd. assesses the impairment of investment in premium using the recoverable amount generated from the cash flow forecast discounted using a reasonable discount rate.

The aforesaid recoverable amount includes several assumptions such as the discount rate used and the preparation of financial projections to estimate the cash flows for the next three years. The discount rate and financial projections relating to the future operations of Motovario S.p.A. are subject to management judgement which have a significant impact on the measurement of the recoverable amount, thus affecting the results of the impairment assessment. Accordingly, we consider management’s impairment assessment of investments accounted for under equity method as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

Obtained an understanding and assessed the Company’s policies and procedures in relating to the goodwill impairment assessment.
Assessed whether the future cash flows adopted in the valuation model was in accordance with Motovario S.p.A’s operation plan, and reviewed the results of the previous operating plans prepared by management.
Evaluated the reasonableness of major assumptions (including the expected growth rate and discount rate) used in the model.
Reviewed the sensitivity analysis for the above significant assumptions and parameters prepared by management and confirmed whether management has adequately addressed the possible impact of the estimation uncertainty on the impairment assessment.

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

Refer to Note 4(13) for accounting policies adopted when losing control over subsidiaries accounted for under equity method. As mentioned in Note 6(7) of the parent company only financial statements, Kuen Ling Machinery Refrigerating Co., Ltd. (“Kuen Ling”) was a subsidiary accounted for under equity method and included in the parent company only

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financial statements given a control over the Kuen Ling’s Board of Directors through 19.98% of equity previously held by TECO Electric & Machinery Co., Ltd.. However, based on the management’s assessment, TECO Electric & Machinery Co., Ltd. has lost control and yet still retained significant influence over the Board of Directors of Kuen Ling following the reelection of directors by shareholders held on May 23, 2018. On the same date, the investments in Kuen Ling were remeasured at fair value. Kuen Ling was then accounted for under equity method but no longer a consolidated entity thereafter. In addition, Kuen Ling does not meet the criteria of Level 1 fair value because of its small stock trading amounts although it is an OTC company based on the management’s assessment. Per management’s request, external experts valued its fair value to be Level 3. Given that significant judgements exercised by both the management and valuers’ pertaining to the valuation techniques and parameters in Level 3 significantly affect accounting treatment for losing control, we consider it as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

Assessed the management’s judgements regarding the loss of control and yet still retaining significant

influence over the Board of Directors of Kuen Ling.

Confirmed that the valuation models, assumptions and parameters used by external experts are justified.
Assessed the relevance between the investments and the comparable companies used in the valuation report in terms of their business traits and financial information; reviewed referenced information and supporting documentation of the comparable companies.
Verified that the amount of gain on remeasurement recognised by the management is accurate.

Other matter – Reports of other independent accountants

As described in Notes 6(6) of the parent company only financial statements, we did not audit the financial statements of certain investee accounted for under the equity method. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the financial statements and the information on the investee disclosed in Note 13 was based solely on the reports of other independent accountants. The investments accounted for under the equity method amounted to NT$4,076,536 thousand and NT$4,043,134 thousand,

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both constituting 6% of the related total assets as of December 31, 2018 and 2017, respectively, and the comprehensive income amounting to NT$176,754 thousand and NT$89,767 thousand, constituting 5% and 2% of the total comprehensive income for the years then ended, respectively.

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the Audit Committee, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the parent company only financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

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Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

2.

3.

4.

5.

6.

Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause TECO Electric & Machinery Co., Ltd. to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within TECO Electric & Machinery Co., Ltd. to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial

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statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Wu, Yu-Lung Chou, Chien-Hung

For and on behalf of PricewaterhouseCoopers, Taiwan March 28, 2019

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying parent company only financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying parent company only financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	December31,2018 AMOUNT % $ 1,232,796 2 1,074,420 1 405,734 1 326,842 - 1,528,892 2 1,284,953 2 - - 62,938 - 1,293,359 2 2,758,641 4 168,385 - 206,812 - 10,343,772 14 1,835,790 3 5,983,461 8 - - 47,877,378 66 3,739,530 5 2,060,182 3 803,739 1 151,848 - 62,451,928 86 $ 72,795,700 100	December31,2017	December31,2017
	AMOUNT $ 1,232,796 1,074,420 405,734 326,842 1,528,892 1,284,953 - 62,938 1,293,359 2,758,641 168,385 206,812 10,343,772 1,835,790 5,983,461 - 47,877,378 3,739,530 2,060,182 803,739 151,848 62,451,928 $ 72,795,700	AMOUNT $ 887,185 - 289,239 316,590 1,567,629 1,641,299 836,338 143,086 1,257,512 2,612,493 53,287 176,650 9,781,308 - - 6,609,115 47,511,672 3,761,489 2,167,540 794,842 148,967 60,993,625 $ 70,774,933	%
Current assets 1100 Cash and cash equivalents 1140 Current contract assets 1150 Notes receivable, net 1160 Notes receivable - related parties 1170 Accounts receivable, net 1180 Accounts receivable - related parties 1190 Receivables from customers on construction contracts 1200 Other receivables 1210 Other receivables - related parties 130X Inventory 1410 Prepayments 1470 Other current assets 11XX Total current assets Non-current assets 1510 Non-current financial assets at fair value through profit or loss 1517 Non-current financial assets at fair value through other comprehensive income 1523 Available-for-sale financial assets - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1760 Investment property - net 1840 Deferred income tax assets 1900 Other non-current assets 15XX Total non-current assets 1XXX Total assets			1 - 1 1 2 2 1 - 2 4 - -
			14
			- - 10 67 5 3 1 -
			86
			100

(Continued)

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TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2018 December31,2017 Notes AMOUNT % AMOUNT % 6(10) $ 49,110 - $ 275,784 - 6(11)(21) - - 2,529 - 6(19) 356,457 - - - 6,861 - 19,630 - 7 162,340 - 169,104 - 3,371,424 5 3,321,297 5 7 876,705 1 1,275,730 2 12(4) - - 164,333 - 2,590,466 4 2,554,240 4 7 635,479 1 711,805 1 6(24) 269,312 - 548,103 1 91,679 - 83,418 - 58,851 - 224,744 - 8,468,684 11 9,350,717 13 6(12) 4,000,000 6 4,000,000 6 6(13) 4,249,725 6 3,090,794 5 6(24) 814,098 1 893,369 1 6(14) 1,584,533 2 1,610,288 2 10,648,356 15 9,594,451 14 19,117,040 26 18,945,168 27 6(15) 20,026,929 28 20,026,929 28 6(16) 7,647,215 10 7,628,542 10 6(17) 6,387,454 9 6,078,219 9 3,640,779 5 3,640,779 5 15,192,788 21 12,750,338 18 6(18) 1,105,058 1 2,026,521 3 6(6)(15) ( 321,563) - ( 321,563) - 53,678,660 74 51,829,765 73 9 10 11 $ 72,795,700 100 $ 70,774,933 100	December31,2017	December31,2017
			%
Current liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2130 Current contract liabilities 2150 Notes payable 2160 Notes payable - related parties 2170 Accounts payable 2180 Accounts payable - related parties 2190 Payables to customers on construction contracts 2200 Other payables 2220 Other payables - related parties 2230 Current income tax liabilities 2250 Provisions for liabilities - current 2300 Other current liabilities 21XX Total current liabilities Non-current liabilities 2530 Corporate bonds payable 2540 Long-term borrowings 2570 Deferred income tax liabilities 2600 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity Share capital 3110 Common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 3500 Treasury stocks 3XXX Total equity Commitments and Contingent Liabilities Extraordinary Items Subsequent Events 3X2X Total liabilities and equity			- - - - - 5 2 - 4 1 1 - -
			13
			6 5 1 2
			14
			27
			28 10 9 5 18 3 -
			73
			100

The accompanying notes are an integral part of these parent company only financial statements.

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TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items	YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(19) and 7 $ 20,879,719 100 $ 21,301,208 100 6(5)(14)(23) and 7 ( 16,506,775) ( 79) ( 16,655,569) ( 78) 4,372,944 21 4,645,639 22 7 ( 614,532) ( 3) ( 653,779) ( 3) 653,779 3 584,325 2 4,412,191 21 4,576,185 21 6(14)(23) and 7 ( 1,879,790) ( 9) ( 1,898,343) ( 9) ( 552,893) ( 2) ( 536,338) ( 2) ( 568,565) ( 3) ( 634,436) ( 3) ( 3,001,248) ( 14) ( 3,069,117) ( 14) 1,410,943 7 1,507,068 7 6(2)(8)(20) and 7 548,375 3 602,694 3 6(2)(3)(6)(11)(21) and 7 ( 548,547) ( 3) ( 344,071) ( 2) 6(22) and 7 ( 99,181) - ( 109,565) ( 1) 6(6) 1,983,219 9 1,648,342 8 1,883,866 9 1,797,400 8 3,294,809 16 3,304,468 15 6(24) ( 144,720) ( 1) ( 212,110) ( 1) $ 3,150,089 15 $ 3,092,358 14
4000 Sales revenue 5000 Operating costs 5900 Net operating margin 5910 Unrealized profit from sales 5920 Realized profit from sales 5950 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7070 Share of profit of subsidiary, associates and joint ventures accounted for under equity method 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year

Items

YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(19) and 7
$ 20,879,719
100
$ 21,301,208
100
6(5)(14)(23) and 7
(
16,506,775) (
79) (
16,655,569) (
78)
4,372,944
21
4,645,639
22
7
(
614,532) (
3) (
653,779) (
3)
653,779
3
584,325
2
4,412,191
21
4,576,185
21
6(14)(23) and 7
(
1,879,790) (
9) (
1,898,343) (
9)

(
552,893) (
2) (
536,338) (
2)
(
568,565) (
3) (
634,436) (
3)
(
3,001,248) (
14) (
3,069,117) (
14)
1,410,943
7
1,507,068
7
6(2)(8)(20) and 7
548,375
3
602,694
3
6(2)(3)(6)(11)(21)
and 7
(
548,547) (
3) (
344,071) (
2)
6(22) and 7
(
99,181)
-
(
109,565) (
1)
6(6)
1,983,219
9
1,648,342
8
1,883,866
9
1,797,400
8
3,294,809
16
3,304,468
15
6(24)
(
144,720) (
1) (
212,110) (
1)
$ 3,150,089
15
$ 3,092,358
14

4000
Sales revenue
5000
Operating costs
5900
Net operating margin
5910
Unrealized profit from sales
5920
Realized profit from sales
5950
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6000
Total operating expenses
6900
Operating profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7070
Share of profit of subsidiary,
associates and joint ventures
accounted for under equity method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year

(Continued)

~19~

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items	YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(14) ($ 34,335) - ($ 34,361) - 6(18) 1,251,661 6 - - ( 692,289) ( 3) ( 13,830) - 6(24) 19,779 - - - 544,816 3 ( 48,191) - 6(18) ( 185,820) ( 1) ( 775,713) ( 3) 6(18) and 12(4) - - 1,133,547 5 - - 433,805 2 6(18)(24) 43,453 - 68,109 - ( 142,367) ( 1) 859,748 4 $ 402,449 2 $ 811,557 4 $ 3,552,538 17 $ 3,903,915 18 6(25) $ 1.59 $ 1.56 $ 1.59 $ 1.56
Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial losses on defined benefit plans 8316 Unrealised gains (losses) from investments in equity instruments measured at fair value through other comprehensive income 8330 Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive loss that will not be reclassified to profit or loss Components of other comprehensive loss that will be reclassified to profit or loss 8361 Other comprehensive income, before tax, exchange differences on translation 8362 Other comprehensive income, before tax, available-for-sale financial assets 8380 Share of other comprehensive income of subsidiary, associates and joint ventures accounted for using equity method, components of other comprehensive income that will be reclassified to profit or loss 8399 Income tax relating to the components of other comprehensive income 8360 Components of other comprehensive (loss) income that will be reclassified to profit or loss 8300 Other comprehensive (loss) income for the year 8500 Total comprehensive income for the year Earnings per share (in dollars) 9750 Basic earnings per share 9850 Diluted earnings per share

Items

YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(14)
($ 34,335)
-
($ 34,361)
-
6(18)
1,251,661
6
-
-
(
692,289) (
3) (
13,830)
-
6(24)
19,779
-
-
-
544,816
3
(
48,191)
-
6(18)
(
185,820) (
1) (
775,713) (
3)
6(18) and 12(4)
-
-
1,133,547
5
-
-
433,805
2
6(18)(24)
43,453
-
68,109
-
(
142,367) (
1)
859,748
4
$ 402,449
2
$ 811,557
4
$ 3,552,538
17
$ 3,903,915
18
6(25)
$ 1.59
$ 1.56
$ 1.59
$ 1.56

Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Other comprehensive income, before
tax, actuarial losses on defined
benefit plans
8316
Unrealised gains (losses) from
investments in equity instruments
measured at fair value through other
comprehensive income
8330
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will not
be reclassified to profit or loss
8349
Income tax related to components of
other comprehensive income that
will not be reclassified to profit or
loss
8310
Components of other
comprehensive loss that will not
be reclassified to profit or loss
Components of other comprehensive
loss that will be reclassified to profit
or loss
8361
Other comprehensive income, before
tax, exchange differences on
translation
8362
Other comprehensive income, before
tax, available-for-sale financial
assets
8380
Share of other comprehensive
income of subsidiary, associates and
joint ventures accounted for using
equity method, components of other
comprehensive income that will be
reclassified to profit or loss
8399
Income tax relating to the
components of other comprehensive
income
8360
Components of other
comprehensive (loss) income
that will be reclassified to profit
or loss
8300
Other comprehensive (loss) income
for the year
8500
Total comprehensive income for the
year
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

The accompanying notes are an integral part of these parent company only financial statements.

~20~

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

2017 Balance at January 1, 2017 Profit for the year Other comprehensive income (loss) for the year Total comprehensive income Appropriations of 2016 earnings Legal reserve Cash dividends Effect of changes in net equity of associates and joint ventures amount for under the equity method Balance at December 31, 2017 2018 Balance at January 1, 2018 Effect of retrospective application Balance at 1 January after adjustments Profit (loss) Other comprehensive income Total comprehensive income Appropriations of 2017 earnings Legal reserve Cash dividents Effect of changes in net equity of associates and joint ventures accounted for under the equity method Disposal of investment in equity instrument at fair value through other comprehensive income Balance at December 31, 2018	Notes		Share capital - common stock		Total capital surplus				RetainedEarnings				O	therequityinterest			Treasurystocks		Total equity
							Legal reserve		Special reserve		Unappropriated retained earnings	Financial statements translation differences of foreign operations		Unrealised gains (losses) from financial assets measured at fair value through other comprehensive income		Unrealized gain or loss on available-for-sale financial assets
	6(18) 6(17) 12(4) 6(18) 6(17) 6(3)(6)		$20,026,929 - - - - - - $20,026,929 $ 20,026,929 - 20,026,929 - - - - - - - $20,026,929	$7,671,889 - - - - - ( 43,347 ) $7,628,542 $ 7,628,542 - 7,628,542 - - - - - 18,673 - $7,647,215			$5,730,071 - - - 348,148 - - $6,078,219 $ 6,078,219 - 6,078,219 - - - 309,235 - - - $6,387,454		$3,640,779 - - - - - - $3,640,779 $ 3,640,779 - 3,640,779 - - - - - - - $3,640,779	$11,816,689 3,092,358 ( 48,191 ) 3,044,167 ( 348,148 ) ( 1,762,370 ) - $12,750,338 $ 12,750,338 1,937,121 14,687,459 3,150,089 ( 40,562 ) 3,109,527 ( 309,235 ) ( 1,722,316 ) - ( 572,647 ) $15,192,788		($ 1,051,753 ) - ( 707,604 ) ( 707,604 ) - - - ($ 1,759,357 ) ($ 1,759,357 ) - ( 1,759,357 ) - ( 142,367 ) ( 142,367 ) - - - - ($ 1,901,724 )		$ - - - - - - - $ - $ - 1,848,757 1,848,757 - 585,378 585,378 - - - 572,647 $3,006,782	$ 2,218,526 - 1,567,352 1,567,352 - - - $ 3,785,878 $ 3,785,878 ( 3,785,878 ) - - - - - - - - $ -		($ 321,563 ) - - - - - - ($ 321,563 ) ($ 321,563 ) - ( 321,563 ) - - - - - - - ($ 321,563 )	$49,731,567 3,092,358 811,557 3,903,915 - ( 1,762,370 ) ( 43,347 ) $51,829,765 $ 51,829,765 - 51,829,765 3,150,089 402,449 3,552,538 - ( 1,722,316 ) 18,673 - $53,678,660

The accompanying notes are an integral part of these parent company only financial statements.

~21~

TECO ELECTRIC & MACHINERY CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Net loss on financial assets at fair value through profit or loss
Net (gain) loss on financial liabilities at fair value through
profit or loss
Impairment loss determined in accordance with IFRS 9
Gain on reversal of bad debts
Interest income
Interest expense
Dividend income
Loss on disposal of investments
Gain on remeasurement
Changes in unrealized (gain) loss from downstream sales
Share of profit of associates and joint ventures accounted for
under the equity method
Depreciation, amortization and net gain or loss on disposal of
property, plant and equipment, net
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss - current
Current contract assets
Notes receivable
Notes receivable - related parties
Accounts receivable
Accounts receivable - related parties
Receivables from customers on construction contract
Other receivables
Other receivables - related parties
Inventories
Prepayments
Other current asset
Financial assets at fair value through profit or loss - non-
current
Changes in operating liabilities
Contract liabilities - current
Notes payable
Notes payable - related parties
Accounts payable
Accounts payable - related parties
Payables to customers on construction contract
Other payables
Other payables - related parties
Provisions for liabilities
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Interest received
Dividends received
Payment of interest
Payment of income tax
Net cash flows from operating activities

Notes
2018
2017
$ 3,294,809
$ 3,304,468
6(2)(21)
103,280
19,806
6(11)(21)
(
2,529 )
2,529
12(2)
513
-
12(4)
-
(
3,738 )
6(20)
(
8,879 )
(
13,550 )
6(22)
94,730
94,354
6(20)
(
223,794 )
(
187,217 )
6(21)
(
1,385 )
(
25,874 )
6(21)
(
46,515 )
-
(
39,247 )
69,454
6(6)
(
1,983,219 )
(
1,648,342 )
6(7)(8)(21)(23)
436,151
412,618
-
11,026
(
238,082 )
-
(
116,473 )
65,852
(
10,252 )
21,892
38,202
377,433
321,893
(
159,426 )
-
275,897
80,148
(
85,009 )
(
97,285 )
(
27,098 )
(
146,148 )
381,189
(
115,098 )
(
29,293 )
(
22,011 )
85,850
(
39,765 )
-
84,127
-
(
12,769 )
10,489
(
6,764 )
(
618 )
50,127
(
84,995 )
(
399,025 )
17,258
-
(
18,265 )
55,208
(
59,991 )
(
5,876 )
37,489
8,261
11,640
(
57,896 )
40,609
(
21,613 )
(
187,248 )
972,824
2,709,189
6(20)
8,879
13,550
752,339
277,809
(
94,730 )
(
94,354 )
(
448,447 )
(
72,890 )
1,190,865
2,833,304

(Continued)

~22~

TECO ELECTRIC & MACHINERY CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in other receivables - related parties
Increase in pledged fixed deposit
Increase in financial assets at fair value through other
comprehensive income - non-current
Proceeds from disposal of available-for-sale financial assets -
non-current
Increase in investments accounted for under equity method
Proceeds from disposal of property, plant and equipment
Acquisition of property, plant and equipment
Increase in deferred expenses
(Increase) decrease in refundable deposits
Dividends received
Proceeds from disposal of investments accounted for under equity
method
Decrease in other non-current assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
(Decrease) increase in other payables - related parties financing
Proceeds from issuance of bonds payable
Increase (decrease) in long-term loans
Cash dividends paid
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Notes
2018
2017
7
$ 61,438
$ 21,023
8
(
8,151 )
(
3,338 )
(
21,990 )
-
-
240,756
(
208,226 )
(
35,848 )
46,307
892
6(7)(26)
(
352,913 )
(
451,717 )
(
19,691 )
(
15,061 )
(
9,331 )
822
223,794
635,789
297,087
8,889
6,931
157,552
15,255
559,759
(
226,674 )
(
201,886 )
7
(
70,450 )
297,600
-
1,000,000
1,158,931
(
2,599,804 )
6(17)
(
1,722,316 )
(
1,762,370 )
(
860,509 )
(
3,266,460 )
345,611
126,603
887,185
760,582
$ 1,232,796
$ 887,185

The accompanying notes are an integral part of these parent company only financial statements.

~23~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To TECO Electric & Machinery Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of TECO Electric & Machinery Co., Ltd. and its subsidiaries (the “Group”) as at December 31, 2018 and 2017, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the audit reports of other independent accountants, as described in the Other matter section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended, in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and audit reports of other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

~24~

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Revenue recognition of export sales of heavy industrial products group

Description

Refer to Note 4(34) of the consolidated financial statements for the accounting policies on revenue recognition and Note 14 for the segment financial information. The Group disclosed the financial information of heavy industrial products group and home electric appliance division in the segment financial information. Heavy industrial products group handles the manufacturing and sales of various machinery, equipment and motors. The sales revenue of the heavy industrial products group amounted to NT$33,448,989 thousand, representing 66.76% of the consolidated total sales revenue for the year ended December 31, 2018. Aside from domestic sales in Taiwan, the customers of heavy industrial products group are from China, America, Southeast Asia and Europe and the sales terms vary for different customers. Thus, we consider the revenue recognition of export sales of heavy industrial products group as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:
Obtained an understanding of and validated the internal controls over revenue recognition of export sales of heavy industrial products group to assess the effectiveness of the internal control process.
Validated selected samples of export sales revenue transactions of heavy industrial products group to confirm the existence of export sales revenue transactions.

Impairment assessment of goodwill from the acquisition of Motovario S.p.A.

Description

Motovario S.p.A. is headquartered in Italy, and is engaged in the manufacturing and sales of gear reducers and other power transmission equipment. Motovario S.p.A. is considered a minor cash-generating unit of the Group. As of December 31, 2018, the balance of goodwill was NT$5,207,755 thousand. Refer to Note 6(10) of the consolidated financial statements for information of goodwill, Note 4(21) for the accounting policies on the impairment of non-financial assets and Note 5(2) for the uncertainty of the accounting estimate regarding impairment of goodwill. The Group assesses the impairment of goodwill using the recoverable amount generated from the cash flow forecast discounted using a reasonable discount rate.

~25~

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:
Obtained an understanding and assessed the Group’s policies and procedures in relating to the goodwill impairment assessment.
Assessed whether the future cash flows adopted in the valuation model was in accordance with Motovario S.p.A’s operation plan, and reviewed the results of the previous operating plans prepared by management.
Evaluated the reasonableness of major assumptions (including the expected growth rate and discount rate) used in the model.
Reviewed the sensitivity analysis for the above significant assumptions and parameters prepared by management and confirmed whether management has adequately addressed the possible impact of the estimation uncertainty on the impairment assessment.

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

Refer to Note 4(3) for accounting policies adopted when losing control over subsidiaries accounted for under equity method. As mentioned in Note 6(7) of the consolidated financial statements, Kuen Ling Machinery Refrigerating Co., Ltd. (“Kuen Ling”) was a subsidiary accounted for under equity method and included in the consolidated financial statements given a control over the Kuen Ling’s Board of Directors through 19.98% of equity previously held by the Group. However, based on the management’s assessment, the Group has lost control and yet still retained significant influence over the Board of Directors of Kuen Ling following the re-election of directors by shareholders held on May 23, 2018. On the same date, the investments in Kuen Ling were remeasured at fair value. Kuen Ling was then accounted for under equity method but no longer a consolidated entity thereafter. In addition, Kuen Ling does not meet the criteria of Level 1 fair value because of its small stock trading amounts although it is an OTC company based on the

~26~

management’s assessment. Per management’s request, external experts valued its fair value to be Level 3. Given that significant judgements exercised by both the management and valuers’ pertaining to the valuation techniques and parameters in Level 3 significantly affect accounting treatment for losing control, we consider it as a key audit matter.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

Assessed the management’s judgements regarding the loss of control and yet still retaining significant influence over the Board of Directors of Kuen Ling.
Confirmed that the valuation models, assumptions and parameters used by external experts are justified.
Assessed the relevance between the investments and the comparable companies used in the valuation report in terms of their business traits and financial information; reviewed referenced information and supporting documentation of the comparable companies.
Verified that the amount of gain on remeasurement recognised by the management is accurate.

Other matter – Reports of other independent accountants

As described in Notes 4(3) and 6(7) of the consolidated financial statements, we did not audit the financial statements of certain subsidiaries and investments accounted for under the equity method. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the financial statements and the information on the investee disclosed in Note 13 was based solely on the reports of other independent accountants. Total assets amounted to NT$2,630,617 thousand and NT$2,363,784 thousand, both constituting 3% of the consolidated total assets as of December 31, 2018 and 2017, respectively, and total operating revenues amounted to NT$2,475,154 thousand and NT$2,156,230 thousand, constituting 5% and 4% of consolidated total operating revenues for the years then ended, respectively. The investments accounted for under the equity method amounted to NT$2,630,962 thousand and NT$2,490,857 thousand, both constituting 3% of consolidated total assets as of December 31, 2018 and 2017, respectively, the credit balance of investments accounted for under the equity method amounted to NT$83,459 thousand and NT$66,393 thousand, both constituting 0% of consolidated total assets as of December 31, 2018 and 2017, respectively, and the share of profit of associates and joint ventures accounted for under the equity method amounted to NT$143,935 thousand and NT$187,682 thousand, both constituting 4% of the consolidated total comprehensive income for the years then ended, respectively.

~27~

Other matter –Parent company only financial reports

We have audited and expressed an unqualified opinion with other matter section on the parent company only financial statements of TECO Electric & Machinery Co., Ltd. as of and for the years ended December 31, 2018 and 2017.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the Audit Committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

~28~

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal controls.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably

~29~

be expected to outweigh the public interest benefits of such communication.

Wu, Yu-Lung

Chou, Chien-Hung

For and on behalf of PricewaterhouseCoopers, Taiwan March 28, 2019

The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

~30~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Assets	December 31, 2018 AMOUNT % $ 17,535,566 19 193,955 - 995,951 1 - - 1,350,238 2 - - 1,063,991 1 2,641 - 9,102,428 10 241,272 - - - 360,606 - 70,979 - 11,429,685 13 432,419 1 980,640 1 43,760,371 48 2,140,203 2 11,354,525 12 - - 182,725 - 4,207,360 5 17,363,543 19 2,783,774 3 5,557,343 6 1,250,743 1 3,380,699 4 48,220,915 52 $ 91,981,286 100	December 31, 2017	December 31, 2017
	AMOUNT $ 17,535,566 193,955 995,951 - 1,350,238 - 1,063,991 2,641 9,102,428 241,272 - 360,606 70,979 11,429,685 432,419 980,640 43,760,371 2,140,203 11,354,525 - 182,725 4,207,360 17,363,543 2,783,774 5,557,343 1,250,743 3,380,699 48,220,915 $ 91,981,286	AMOUNT $ 14,129,330 254,003 - 871,041 - 3,794,570 1,188,761 931 9,439,077 183,701 1,030,504 601,279 34,844 11,336,492 422,892 975,343 44,262,768 - - 12,925,119 - 4,022,455 17,922,299 2,883,477 5,612,315 1,382,884 3,005,640 47,754,189 $ 92,016,957	%
Current assets 1100 Cash and cash equivalents 1110 Financial assets at fair value through profit or loss - current 1120 Current financial assets at fair value through other comprehensive income 1125 Available-for-sale financial assets - current 1140 Current contract assets 1147 Bond investments without active markets - current 1150 Notes receivable, net 1160 Notes receivable - related parties 1170 Accounts receivable, net 1180 Accounts receivable - related parties 1190 Receivables from customers on construction contracts 1200 Other receivables 1210 Other receivables - related parties 130X Inventories, net 1410 Prepayments 1470 Other current assets 11XX Total current assets Total Non-current assets 1510 Financial assets at fair value through profit or loss - noncurrent 1517 Non-current financial assets at fair value through other comprehensive income 1523 Available-for-sale financial assets - non-current 1535 Non-current financial assets at amortised cost, net 1550 Investments accounted for under the equity method 1600 Property, plant and equipment, net 1760 Investment property, net 1780 Intangible assets 1840 Deferred income tax assets 1900 Other non-current assets 15XX Non-current assets 1XXX Total assets			16 - - 1 - 4 1 - 10 - 1 1 - 12 1 1
			48
			- - 14 - 4 20 3 6 2 3
			52
			100

(Continued)

~31~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December 31, 2018 December 31, 2017 Notes AMOUNT % AMOUNT % 6(12) and 8 $ 1,994,360 2 $ 2,187,621 3 6(13) - - 2,528 - 6(22) 899,728 1 - - 73,105 - 195,407 - 7 136,874 - 1,368 - 7,517,824 8 7,589,788 8 7 90,047 - 123,271 - 12(5) - - 178,165 - 6(14) 4,720,360 5 4,839,917 5 6(28) 690,853 1 917,494 1 269,254 1 308,744 - 6(16) and 8 1,748,975 2 2,398,053 3 18,141,380 20 18,742,356 20 6(15) 4,000,000 4 4,000,000 4 6(16) and 8 6,746,354 7 6,466,239 7 113,947 - 179,189 - 6(27) 2,254,076 3 2,423,023 3 6(7)(17) 2,234,614 2 2,332,013 3 15,348,991 16 15,400,464 17 33,490,371 36 34,142,820 37 6(18) 20,026,929 22 20,026,929 22 6(19) 7,647,215 8 7,628,542 8 6(20) 6,387,454 7 6,078,219 6 3,640,779 4 3,640,779 4 15,192,788 17 12,750,338 14 6(21) 1,105,058 1 2,026,521 2 6(18) and 8 ( 321,563) - ( 321,563) - 53,678,660 59 51,829,765 56 6(31) 4,812,255 5 6,044,372 7 58,490,915 64 57,874,137 63 9 11 $ 91,981,286 100 $ 92,016,957 100	December 31, 2017	December 31, 2017
			%
Current liabilities 2100 Short-term borrowings 2120 Financial liabilities at fair value through profit or loss - current 2130 Current contract liabilities 2150 Notes payable 2160 Notes payable - related parties 2170 Accounts payable 2180 Accounts payable - related parties 2190 Payables to customers on construction contracts 2200 Other payables 2230 Current income tax liabilities 2250 Provisions for liabilities - current 2300 Other current liabilities 21XX Total current liabilities Non-current liabilities 2530 Corporate bonds payable 2540 Long-term borrowings 2550 Provisions for liabilities - non- current 2570 Deferred income tax liabilities 2600 Other non-current liabilities 25XX Total non-current liabilities 2XXX Total liabilities Equity attributable to owners of parent Share capital 3110 Common stock Capital surplus 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated retained earnings Other equity interest 3400 Other equity interest 3500 Treasury stocks 31XX Equity attributable to owners of the parent 36XX Non-controlling interest 3XXX Total equity Commitments and contingent liabilities Significant events after the balance sheet date 3X2X Total liabilities and equity			3 - - - - 8 - - 5 1 - 3
			20
			4 7 - 3 3
			17
			37
			22 8 6 4 14 2 -
			56 7
			63
			100

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

~32~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items	YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(8)(9)(22), 7 and 12(5) $ 50,104,927 100 $ 50,942,521 100 6(6)(17)(26) and 7 ( 38,052,253) ( 76) ( 38,743,733) ( 76) 12,052,674 24 12,198,788 24 ( 9,160) - ( 9,145) - 9,145 - 6,625 - 12,052,659 24 12,196,268 24 6(17)(26) ( 4,636,195) ( 9) ( 4,702,844) ( 9) ( 2,735,191) ( 6) ( 2,716,018) ( 5) ( 1,120,748) ( 2) ( 1,281,206) ( 3) 12(2) ( 40,039) - - - ( 8,532,173) ( 17) ( 8,700,068) ( 17) 3,520,486 7 3,496,200 7 6(4)(9)(23) and 7 1,264,083 3 1,506,936 3 6(2)(7)(13)(24)(26) ( 389,884) ( 1) ( 628,521) ( 1) 6(25) ( 222,540) - ( 254,638) - 6(7) 114,143 - 233,927 - 765,802 2 857,704 2 4,286,288 9 4,353,904 9 6(27) ( 810,319) ( 2) ( 809,656) ( 2) $ 3,475,969 7 $ 3,544,248 7
4000 Sales revenue 5000 Operating costs 5900 Net operating margin 5910 Unrealized loss from sales 5920 Realized profit from sales 5950 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6450 Impairment loss (impairment gain and reversal of impairment loss) determined in accordance with IFRS 9 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7060 Share of profit of associates and joint ventures accounted for under the equity method 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the period

Items

YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(8)(9)(22), 7 and
12(5)
$ 50,104,927
100
$ 50,942,521
100
6(6)(17)(26) and 7
(
38,052,253) (
76) (
38,743,733) (
76)
12,052,674
24
12,198,788
24
(
9,160)
-
(
9,145)
-
9,145
-
6,625
-
12,052,659
24
12,196,268
24
6(17)(26)
(
4,636,195) (
9) (
4,702,844) (
9)

(
2,735,191) (
6) (
2,716,018) (
5)
(
1,120,748) (
2) (
1,281,206) (
3)
12(2)
(
40,039)
-
-
-
(
8,532,173) (
17) (
8,700,068) (
17)
3,520,486
7
3,496,200
7
6(4)(9)(23) and 7
1,264,083
3
1,506,936
3
6(2)(7)(13)(24)(26)
(
389,884) (
1) (
628,521) (
1)
6(25)
(
222,540)
-
(
254,638)
-
6(7)
114,143
-
233,927
-
765,802
2
857,704
2
4,286,288
9
4,353,904
9
6(27)
(
810,319) (
2) (
809,656) (
2)
$ 3,475,969
7
$ 3,544,248
7

4000
Sales revenue
5000
Operating costs
5900
Net operating margin
5910
Unrealized loss from sales
5920
Realized profit from sales
5950
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Impairment loss (impairment gain
and reversal of impairment loss)
determined in accordance with IFRS
9
6000
Total operating expenses
6900
Operating profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of profit of associates and joint
ventures accounted for under the
equity method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the period

(Continued)

~33~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Items	YearendedDecember31 2018 2017 Notes AMOUNT % AMOUNT % 6(17) ($ 39,123) - ($ 58,868) - 6(3) and 12(4) 615,645 1 - - ( 24,384) - ( 2,751) - 6(27) 21,442 - 3,037 - 573,580 1 ( 58,582) - 6(21) ( 185,642) - ( 803,071) ( 2) 12(4) - - 1,570,454 3 6(21) - - 4,019 - 6(27) 45,073 - 68,969 - ( 140,569) - 840,371 1 $ 433,011 1 $ 781,789 1 $ 3,908,980 8 $ 4,326,037 8 $ 3,150,089 6 $ 3,092,358 6 325,880 1 451,890 1 $ 3,475,969 7 $ 3,544,248 7 $ 3,552,538 7 $ 3,903,915 7 356,442 1 422,122 1 $ 3,908,980 8 $ 4,326,037 8 6(29) $ 1.59 $ 1.56 $ 1.58 $ 1.55
Other comprehensive income Other comprehensive income that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial losses on defined benefit plans 8316 Unrealized gain on investments in equity instruments at fair value through other comprehensive income 8320 Share of other comprehensive income of associates and joint ventures accounted for using equity method, components of other comprehensive income that will not be reclassified to profit or loss 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss 8310 Components of other comprehensive income that will not be reclassified to profit or loss Other comprehensive income that will be reclassified to profit or loss 8361 Currency translation differences of foreign operations 8362 Unrealized gain on valuation of available-for-sale financial assets 8370 Share of other comprehensive income of associates and joint ventures accounted for under the equity method - other comprehensive income that will be reclassified to profit or loss 8399 Income tax relating to the components of other comprehensive income that will be reclassified to profit or loss 8360 Components of other comprehensive income that will be reclassified to profit or loss 8300 Other comprehensive income for the period 8500 Total comprehensive income for the period Profit attributable to: 8610 Owners of the parent 8620 Non-controlling interest Comprehensive income attributable to: 8710 Owners of the parent 8720 Non-controlling interest Earnings per share (in dollars) 9750 Basic earnings per share 9850 Diluted earnings per share

Items

YearendedDecember31
2018
2017
Notes
AMOUNT
%
AMOUNT
%
6(17)
($ 39,123)
-
($ 58,868)
-
6(3) and 12(4)
615,645
1
-
-
(
24,384)
-
(
2,751)
-
6(27)
21,442
-
3,037
-
573,580
1
(
58,582)
-
6(21)
(
185,642)
-
(
803,071) (
2)
12(4)
-
-
1,570,454
3
6(21)
-
-
4,019
-
6(27)
45,073
-
68,969
-
(
140,569)
-
840,371
1
$ 433,011
1
$ 781,789
1
$ 3,908,980
8
$ 4,326,037
8
$ 3,150,089
6
$ 3,092,358
6
325,880
1
451,890
1
$ 3,475,969
7
$ 3,544,248
7
$ 3,552,538
7
$ 3,903,915
7
356,442
1
422,122
1
$ 3,908,980
8
$ 4,326,037
8
6(29)
$ 1.59
$ 1.56
$ 1.58
$ 1.55

Other comprehensive income
Other comprehensive income that
will not be reclassified to profit or
loss
8311
Other comprehensive income, before
tax, actuarial losses on defined
benefit plans
8316
Unrealized gain on investments in
equity instruments at fair value
through other comprehensive income
8320
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will not
be reclassified to profit or loss
8349
Income tax related to components of
other comprehensive income that
will not be reclassified to profit or
loss
8310
Components of other
comprehensive income that will
not be reclassified to profit or
loss
Other comprehensive income that
will be reclassified to profit or loss
8361
Currency translation differences of
foreign operations
8362
Unrealized gain on valuation of
available-for-sale financial assets
8370
Share of other comprehensive
income of associates and joint
ventures accounted for under the
equity method - other comprehensive
income that will be reclassified to
profit or loss
8399
Income tax relating to the
components of other comprehensive
income that will be reclassified to
profit or loss
8360
Components of other
comprehensive income that will
be reclassified to profit or loss
8300
Other comprehensive income for the
period
8500
Total comprehensive income for the
period
Profit attributable to:
8610
Owners of the parent
8620
Non-controlling interest
Comprehensive income attributable
to:
8710
Owners of the parent
8720
Non-controlling interest
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

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

~34~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (Expressed in thousands of New Taiwan dollars)

Notes					Equity attributable to	owners ofthe parent						Non-controlling interest	Total equity
	Share capital - common stock	Capital surplus		RetainedEarnings			Otherequityinterest			Treasurystocks	Total
			Legal reserve	Special reserve	Unappropriated retained earnings	Financial statements translation differences of foreign operations	Unrealised gains (losses) from financial assets measured at fair value through other comprehensive income	l	Unrealized gain or oss on available-for- sale financial assets
6(21) 6(20) 12(4) 6(21) 6(20) 6(21)	$ 20,026,929 - - - - - - - $ 20,026,929 $ 20,026,929 - 20,026,929 - - - - - - - - $ 20,026,929	$ 7,671,889 - - - - - ( 43,347 ) - $7,628,542 $ 7,628,542 - 7,628,542 - - - - - 18,673 - - $ 7,647,215	$ 5,730,071 - - - 348,148 - - - $6,078,219 $ 6,078,219 - 6,078,219 - - - 309,235 - - - - $ 6,387,454	$ 3,640,779 - - - - - - - $3,640,779 $ 3,640,779 - 3,640,779 - - - - - - - - $ 3,640,779	$ 11,816,689 3,092,358 ( 48,191 ) 3,044,167 ( 348,148 ) ( 1,762,370 ) - - $ 12,750,338 $ 12,750,338 1,937,121 14,687,459 3,150,089 ( 40,562 ) 3,109,527 ( 309,235 ) ( 1,722,316 ) - - ( 572,647 ) $ 15,192,788	($ 1,051,753 ) - ( 707,604 ) ( 707,604 ) - - - - ($1,759,357 ) ($ 1,759,357 ) - ( 1,759,357 ) - ( 142,367 ) ( 142,367 ) - - - - - ($ 1,901,724 )	$ - - - - - - - - $ - $ - 1,848,757 1,848,757 - 585,378 585,378 - - - - 572,647 $ 3,006,782		$ 2,218,526 - 1,567,352 1,567,352 - - - - $ 3,785,878 $ 3,785,878 ( 3,785,878 ) - - - - - - - - - $ -	($ 321,563 ) - - - - - - - ($321,563 ) ($ 321,563 ) - ( 321,563 ) - - - - - - - - ($ 321,563 )	$ 49,731,567 3,092,358 811,557 3,903,915 - ( 1,762,370 ) ( 43,347 ) - $ 51,829,765 $ 51,829,765 - 51,829,765 3,150,089 402,449 3,552,538 - ( 1,722,316 ) 18,673 - - $ 53,678,660	$ 5,992,976 451,890 ( 29,768 ) 422,122 - - - ( 370,726 ) $ 6,044,372 $ 6,044,372 - 6,044,372 325,880 30,562 356,442 - - - ( 1,588,559 ) - $ 4,812,255	$ 55,724,543 3,544,248 781,789 4,326,037 - ( 1,762,370 ) ( 43,347 ) ( 370,726 ) $ 57,874,137 $ 57,874,137 - 57,874,137 3,475,969 433,011 3,908,980 - ( 1,722,316 ) 18,673 ( 1,588,559 ) - $ 58,490,915

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

~35~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Net loss on financial assets at fair value through profit or loss
Net (gain) loss on financial liabilities at fair value through
profit or loss
Provision for allowance for doubtful accounts
Impairment loss determined in accordance with IFRS 9
Provision for decline in value of inventories
Interest income
Dividend income
Interest expense
Depreciation and amortization
Gain on disposal of investments
Gain on remeasurement
Loss on disposal of property, plant and equipment
(Reversal of) provison for impairment loss
Share of profit of associates and joint ventures accounted for
under the equity method
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or loss - current
Current contract assets
Notes receivable
Notes receivable - related parties
Accounts receivable
Accounts receivable - related parties
Receivables from customers on construction contracts
Other receivables
Other receivables - related parties
Inventories
Prepayments
Other current assets
Changes in operating liabilities
Current contract liabilities
Notes payable
Notes paypale - related parties
Accounts payable
Accounts payable - related parties
Payables to customers on construction contracts
Other payables
Provisions for liabilities
Other current liabilities
Other non-current liabilities
Cash inflow generated from operations
Interest received
Dividend received
Interest paid
Income tax paid
Net cash flows from operating activities

Notes
2018
2017
$ 4,286,288
$ 4,353,904
6(2)(22)(24)
160,975
4,573
6(13)(24)
(
2,528 )
2,528
12(4)
-
39,339
12(2)
40,039
-
6(6)
88,300
114,196
6(23)
(
219,986 )
(
150,197 )
6(23)
(
553,818 )
(
508,613 )
6(25)
222,540
254,638
6(8)(9)(26)
1,528,540
1,483,888
6(22)(24)
(
631 )
(
239,595 )
6(7)(24)
(
46,515 )
-
6(24)
29,086
(
150,541 )
6(8)(24)
(
32,335 )
889
6(7)
(
114,143 )
(
233,927 )
106,333
(
25,068 )
(
363,976 )
-
(
40,235 )
29,665
(
88,707 )
4,468
(
211,181 )
945,770
(
82,463 )
51,054
-
205,452
233,001
(
358,975 )
(
36,135 )
407,881
(
729,564 )
(
273,647 )
(
94,809 )
48,308
196,526
366,416
170,447
-
(
54,021 )
32,246
136,981
(
6,243 )
266,296
78,435
(
33,031 )
24,154
-
(
23,856 )
155,244
(
143,811 )
(
34,934 )
(
34,618 )
31,178
287,157
(
50,020 )
(
257,468 )
4,862,742
6,328,402
219,986
150,197
443,772
289,350
6(25)
(
222,540 )
(
254,638 )
6(27)
(
975,268 )
(
621,659 )
4,328,692
5,891,652

(Continued)

按一下這裡以輸入文字。 ~36~

TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Increase in financial assets at fair value through other
comprehensive income - current
Decrease in available-for-sale financial assets - current
Decrease in other receivables-related parties
Decrease (incerease) decrease in bond investments without active
market
(Increase) decrease in pledged demand and fixed deposits
Increase in financial assets at fair value through other
comprehensive income - non-current
Decrease in financial assets at fair value through other
comprehensive income - non-current
Proceeds from disposal of available-for-sale financial assets -
non-current
Acquisition of available-for-sale financial assets - non-current
Increase in financial assets at amortised cost - non-current
Increase in investments accounted for under the equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Increase in restricted assets
(Increase) decrease in other non-current assets
Net cash outflow on acquisitions of subsidiaries
Cash dividents received
Net cash flows from (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
Increase (decrease) in long-term loans
Proceeds from issuance of bonds payable
Cash dividends paid to non-controlling interest
Cash dividends paid
Net cash flows used in financing activities
Exchange rate effect
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Notes
2018
2017
( $ 424,082 )
$ -
-
552,833
7
-
55,071
3,794,570
(
963,998 )
6(1) and 8
(
201,823 )
8,847
(
76,384 )
-
184,067
-
-
549,407
-
(
128,435 )
6(4)
(
182,725 )
-
(
149,083 )
(
38,001 )
6(8)(29)
(
1,190,647 )
(
1,021,817 )
90,173
619,976
(
242,354 )
(
103,174 )
-
(
425 )
(
450,185 )
102,313
6(29)
(
434,442 )
-
287,870
351,648
1,004,955
(
15,755 )
(
121,466 )
(
890,740 )
311,897
(
2,927,291 )
-
1,000,000
(
156,477 )
(
265,099 )
6(20)
(
1,722,316 )
(
1,762,370 )
(
1,688,362 )
(
4,845,500 )
(
239,049 )
(
890,893 )
3,406,236
139,504
14,129,330
13,989,826
$ 17,535,566
$ 14,129,330

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

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Appendix 4

TECO Electric & Machinery Co., Ltd.

Distribution of 2018 Profits

	(In NT$)
	Item	Amount
	Accumulated undistributed profit as of the beginning of the period Add: Impact of retrospective application of IFRS9 Accumulated undistributed earnings after adjustment Less: Retained earnings after adjustment in 2018 (Note 1) Add: Net Profit after tax in 2018 Less: Legal Reserve	10,718,786,062 1,937,121,448
		12,655,907,510 (613,208,392) 3,150,088,912 (315,008,891)
	Total distributable earnings	14,877,779,139
	Profit available for distribution for the period: Profit-sharing to shareholders (Dividendper share)	1,770,923,597 0.90
	Undistributedprofit as of the end of 2018	13,106,855,542
	Note： 1. Including a. Remeasurement of actuarial gains and losses of defined benefit plan, (NT$40,561,743) b. Disposal of financial assets at fair value through other comprehensive income NT$86,645,851 c. Derecognition of financial assets at fair value through other comprehensive income (NT$659,292,500)

Notes:

Dividend per share in 2018 is NT$0.90 and all dividends distributed this year shall be cash dividend.
The profit distributed this period will be distributed from the distributable earnings received in 2017 and from the accumulated undistributed profits from previous years where there is a shortfall.
In the event of any change to the total number of outstanding shares as a result of transfer, conversion or deregistration of treasury shares, exercise of employees’ stock option and other factors, it is proposed that the Shareholders’ Meeting grants the Chairman full authority to handle all relevant matters subject to the fixed payout rate mentioned above.

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Appendix 5 TECO Electric & Machinery Co., Ltd.

Comparison between the Revision and the Original of

“Articles of Incorporation”

Proposed Revision	Current Clauses	Note
Article 1 The Company is incorporated in accordance with the Company Act and is named TECO Electric & Machinery Co., Ltd.The company is named as TECO Electric and Machinery Co., Ltd. in English.	Article 1 The Company is incorporated in accordance with the Company Act and is named TECO Electric & Machinery Co., Ltd.	Addition of the company's English name, in line with article 392-1 of the Company Act and the trend of internationalizati on.
Article 2 The scope of business of this Company is as follows: 1.~60. (omitted) 61.E606010 Testing and inspection of electrical equipment services; 62.~63.(omitted)	Article 2 The scope of business of this Company is as follows: 1.~60. (omitted) 61. IF02010 Testing and inspection of electrical equipment services; 62.~63.(omitted)	Code number 61. IF02010 for the company's Testing and inspection of electrical equipment services is no longer in use and has been changed to E606010, for which the revision is made accordingly.
Article 6 (Item1~item3 omitted) The company's share- subscription warrants for employees can also be issued to employees of subordinate companies meeting a certain conditions.	Article 6 (Item1~item3 omitted) (New addition)	According to item 3 of article 167-2 of the revised Company Act stipulating that "the charter can specify the targets for the issuance of share- subscription warrants for employees can be employees of controlling or subordinate company meeting a certain conditions,"add

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				item 4 to the article, giving the company flexibility in execution and assuring its legal compliance.
	Article 7 (omitted) Targets for transfer of shares purchased by the company legally can include employees of the company meeting a certain conditions.		Article 7 (omitted) (New addition)	According to item 4 of article 167-1 of the revised Company Act stipulating that "the charter can specify the targets for the transfer specified in item 2 can be employees of controlling or subordinate company meeting a certain conditions," add item 2 to the article, giving the company flexibility in execution and assuring its legal compliance.
	Article 25 The Board of Directors shall after the end of each fiscal year produce the following reports and statements and submit the same to the Shareholders Meetingfor ratification: 1. Business report. 2. Financial statement. 3. Proposedstock dividend of profit distribution or loss make-up plan.		Article 25 The Board of Directors shall after the end of each fiscal year produce the following reports and statements and submit the same tothe Audit Committee for inspection and, thereafter,the Shareholders Meeting: 1. Business report. 2. Financial statement. 3. Proposed profit distribution or loss make-up plan.	1. As actual flow of item 1 should be audit committee, the board of directors, and shareholders' meeting, the item only refers to "board of directors, shareholders' meeting," in conformance to the actual situation. 2. As article 27 of the charter authorizes the board of directors to make resolution on cash-dividend

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			payout, add the statement to item 1-3 that only stock-dividend payout needs the approval of the shareholders' meeting.
	Article 27 Profit, should it appear in final account, should be used, in descending order, in paying tax, making up for accumulated loss, and then appropriating 10% of the remainder for legal reserve, on top of appropriation or reversal of special reserve, according to the regulation of regulator. The balance, should it exist, should be combined with retained earnings of previous year for the board of directions to formulate proposal of profit distribution. Proposal for stock-dividend payout should be submitted to shareholders' meeting for approval, while the board of directors is authorized to determine the proposal for cash- dividend payment with a resolution which needs the support of over half of the directors present at a meeting attended by over two thirds of all the directors before reporting the resolution to the shareholders' meeting. (omitted)	Article 27 Profit, should it appear in final account, should be used, in descending order, in paying tax, making up for accumulated loss, and then appropriating 10% of the remainder for legal reserve, on top of appropriation or reversal of special reserve, according to the regulation of regulator. The balance, should it exist, should be combined with retained earnings of previous year for the board of directions to formulate proposal of profit distribution for approval by the shareholders' meeting. (omitted)	According to item 5 of article 240 of the revised Company Act, the charter can specify authorization for the board of directors to determine cash- dividend payout via special resolution before reporting the resolution to shareholders' meeting (without needing its approval). Accordingly, item 1 contains description of the flow for the payout of cash and stock dividends.
	Article 30 (Omitted) The fifty-seventh amendment was on June 14, 2019 It took effect after the approval of shareholders’ meeting.	Article 30 (Omitted) The fifty-sixth amendment was on June 16, 2016 It took effect after the approval of shareholders’ meeting.	Addition of the date and number of the revision

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Appendix 6

TECO Electric & Machinery Co., Ltd.

Comparison between the Revision and the Original of “Procedure for Acquisition or Disposal of Assets”

Proposed Revision	Current Clauses	Note
Article 3 1. The term_marketable securities_ include investments in stocks, government bond, corporate bond, financial debenture, mutual fund securities, depository receipts, share warrant certificates, beneficiary securities, asset- back securities and so on. 2. Real property (including land, house & construction, investment real assets and inventory of construction business) and equipment. 3. Membership. 4. Intangible assets, including, patent, copyright, trademark, franchise and so on. 5. Right-of-use asset 6. Credit claims in financial institutions (including accounts receivable, foreign exchange discount, lending, overdue receivables). 7. Derivatives. 8. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares. 9. Other important assets.	Article 3 1. The term_marketable securities_ include investments in stocks, government bond, corporate bond, financial debenture, mutual fund securities, depository receipts, share warrant certificates, beneficiary securities, asset-back securities and so on. 2. Real property (including land, house & construction, investment real assets,land utilization rightand inventory of construction business) and equipment. 3. Membership. 4. Intangible assets, including, patent, copyright, trademark, franchise and so on. 5. Credit claims in financial institutions (including accounts receivable, foreign exchange discount, lending, overdue receivables). 6. Derivatives. 7. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares. 8. Other important assets.	1. In line with change of acquisition and disposal rules by Taiwan Stock Exchange, add Right-of- use asset, expand the scope of the Right-of-use asset, and move land usage right, now under section 2, to section 5. 2. In line with addition of Right-of-use asset as section 5 in the rules of Taiwan Stock Exchange, change section 5 to section 6.
Article 4 1. Derivatives means the forward contracts, options contracts, futures contracts, hedge margin contracts, swaps contracts, and combination of aforementioned contracts or derivatives-based combination contracts, or structured productsthe value of which is derived from	Article 4 1. Derivatives means the forward contracts, options contracts, futures contracts, hedge margin contracts, swaps contracts,and compound contracts of the combination of the abovethe value of which is derived from assets, interest rates, exchange rate, indices or other interests.Forward	1. In line with the change of acquisition and disposal rules by Taiwan Stock Change, revise the scope of derivatives. 2. In line with revision of the Company Act,

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specific interest rates, prices of financial instruments, commodity price, exchange rate, indices of price or rate, credit rating or credit standing indices, or other variables. Forward contracts do not include insurance contracts, performance guaranty contracts, after-sale service contracts, long-term leases and long-term purchase (sale) contracts. 2. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares means the assets acquired from or disposed of as a result of a merger, spin-off or acquisition conducted in accordance with the Business Merger and Acquisition Act, Financial Holding Company Act, Financial Institutions Merger Act or other laws, or the stocks of another company acquired by issuing new shares pursuant to thethird paragraph of Article 156 of the Company Act. (Omitted)		contracts do not include insurance contracts, performance guaranty contracts, after-sale service contracts, long-term leases and long-term purchase (sale) contracts. 2. Assets acquired or disposed of as a result of legal merger, spin-off, acquisition or assignment of shares means the assets acquired from or disposed of as a result of a merger, spin-off or acquisition conducted in accordance with the Business Merger and Acquisition Act, Financial Holding Company Act, Financial Institutions Merger Act or other laws, or the stocks of another company acquired by issuing new shares pursuant to theeighth paragraph of Article 156 of the Company Act. (Omitted)	change the reference of "item 8 of article 156" in section 2 to "article 156- 3."
Article 6 The company's appraisal report or certified public account, attorney at law, or securities underwriter should meet the following conditions: 1. without subjection to verdict of over one year of imprisonment for violation of the law, the Company Act, the Banking Act, the Insurance Act, the Financial Holding Company Act, or the Business Entity Accounting Act, or commitment of fraud, breach of trust, conversion, forgery, or business-related crimes, except those who have served the imprisonment or those with completion of		Article 6 Noappraiser, certified public account, legal counsel or securities underwriterwho has provided the Company with the appraisal report or opinion may involve in the transaction in issue as a related party. Nor shall the transaction counterpart be a related party in the transaction.	1. In line with the change of acquisition and disposal rules by Taiwan Stock Exchange, include in the guidelines notices for the company in the employment of appraiser, certified public account, attorney at law, or security

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probation or reception of pardon for three years or more. 2. Trading partners should not be stakeholders or those with substantive relationship. 3. Should it need to obtain appraisal reports from two or more appraisers, those appraisers should not have the relationship of stakeholders or other substantive relationship. The aforementioned appraisers should abide by the following regulations when producing appraisal report or opinions: 1. Cautiously evaluation their own expertise, experience, and independence before undertaking the cases; 2. when inspecting cases, properly plan and execute operating flow for formation of conclusions, as basis for producing report or opinions and register in detail execution procedure, data collection, and conclusions in working paper; 3. evaluate one by one the completeness, accuracy, and reasonableness of data sources, parameters, and information, as the basis for production of appraisal report or opinions; 4. declaration should include expertise and independence of related persons, evaluation of the reasonableness of information in use, and legal compliance.		underwriter and add sections 1-3 of item 1 specifying ineligible conditions for related experts and revocation of previous stipulation, in reference to ineligible conditions for directors, supervisors, and managerial staffers in section 4 of article 53 of the Securities and Exchange Act, as well as principle of integrity for issuer and person in charge in section 15, item 1 of article 8 of the Regulations Governing the Offering and Issuance of Securities by Securities Issuers. 2. Specify the responsibilitie s of outside experts and add item 2 to the guideline specifying the evaluation, auditing, and declaration of appraisal report or opinions

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		produced by related experts, in reference to article 9 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers pertaining to the evaluation, auditing, and declaration of certified public accountant on appraisal report and reasonable opinions about realty investment.
Article 7 1. Evaluation and procedure of operation Acquisition or disposal of real property, andequipment and its right-of-use assetby the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets. 2. Procedure for determining the terms of transaction and approval of transaction 2.1 The terms and transaction price of the acquisition or disposal of real property and its right-of-use asset shall be determined by reference to, among others, the posted current value, appraised value, and the actual transaction price of other real property located nearby.	Article 7 1. Evaluation and procedure of operation Acquisition or disposal of real property andequipmentby the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets. 2. Procedure for determining the terms of transaction and approval of transaction 2.1 The terms and transaction price of the acquisition or disposal of real property shall be determined by reference to, among others, the posted current value, appraised value, and the actual transaction price of other real property located nearby. Transactions with a value ofless thanTWD50	1. In line with change of acquisition and disposal rule by Taiwan Stock Exchange, add Right-of- use asset and expand the scope of Right-of-use asset, as well as addition of the regulations on Right-of- use asset to acquisition and disposal procedure stipulated in article 7 accordingly. 2. Make proper revision of the textsfrom

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2.2 2.3	Transactions with a value ofless thanTWD50 million may precede with the approval of the President. Transactions with a value of between TWD50 million and TWD100 million each may proceed with the approval of the Chairman of the Board of Directors and shall be reported to the immediately subsequent meeting of the Board of Directors. Transactions with a value of over TWD100 million must be approved by the Board of Directors in advance. Acquisition or disposal of equipmentits right-of-use assetshall be conducted by way of issuing request for proposal, price competition under restricted tendering, and price negotiation under single tendering or bidding. The approval thereof shall be in accordance with the Schedule of Functions and Authority compiled pursuant to the relevant bylaws of the Company. Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed bythe	million may precede with the approval of the President. Transactions with a value of between TWD50 million and TWD100 million each may proceed with the approval of the Chairman of the Board of Directors and shall be reported to the immediately subsequent meeting of the Board of Directors. Transactions with a value of over TWD100 million must be approved by the Board of Directors in advance. 2.2 Acquisition or disposal of equipment shall be conducted by way of issuing request for proposal, price competition under restricted tendering, and price negotiation under single tendering or bidding. The approval thereof shall be in accordance with the Schedule of Functions and Authority compiled pursuant to the relevant bylaws of the Company. 2.3 Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director shall be sufficientlyconsidered	section 2 to section 3, for the sake of legal compliance. 3. In line with change of acquisition and disposal rule by Taiwan Stock Exchange, revise section 4 with confinement of domestic government agencies, plus proper modification of text, for the sake of legal compliance. 4. Proper revision of the text of section 4-1, for the sake of legal compliance.

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Independent Director shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes.

Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of real property, equipment or its right-of-use asset pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof.
Appraisal report on real property or equipment Where the transaction value of the acquisition or disposal of real property, equipment or its right-of-use asset amounts to 20% or more of the paid-in capital of the Company or TWD300 million or more, an appraisal report produced by a professional appraiser must be obtained before the date the fact happens in accordance with the following, except in cases where the transaction counterpart is a domestic government agencies, or the transaction is an entrusted construction project on a selfowned land or a leased land, or the objects to be acquired or disposed of equipment or its right-of-use asset for business purpose.

4.1 Where the transaction price shall be determined by reference to any restricted, designated price or special price for whatever special reason, the transaction and all subsequent changes to

with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes.
Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of real property or equipment pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof
Appraisal report on real property or equipment Where the transaction value of the acquisition or disposal of real property or equipment amounts to 20% or more of the paid-in capital of the Company or TWD300 million or more, an appraisal report produced by a professional appraiser must be obtained before the date the fact happens in accordance with the following, except in cases where the transaction counterpart is a government agencies, or the transaction is an entrusted construction project on a self-owned land or a leased land, or the objects to be acquired or disposed of is equipment for business purpose.

4.1 Where the transaction price shall be determined by reference to any restricted, designated price or special price for whatever special reason, the transaction and all subsequent changes to the terms thereof (if any) must be submitted to the Board of Directors for approval in advance.

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the terms thereof (if any) must be submitted to the Board of Directors for approval in advance. (Omitted)	(Omitted)
Article 8 Procedure for acquisition or disposal of marketable securities 1. Evaluation and procedure of operation Trading of long- or short-term securities by the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of investments. Acquisition or disposal of long- term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment. Acquisition or disposal of long- term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment in a company. 2. Procedure for determining the terms of transaction and approval of transaction 2.1 For acquisition and disposal of long-term securities, the execution unit should evaluate transaction conditions and authorized quota, under the principle of legal compliance, for the sake of timing and company interests, investments less than NT$300 million in value can be approved by the board of standing directors during the recess of the board of directors before being reported to the latter at its next meeting. Cases with value exceeding NT$300 million still need the	Article 8 Procedure for acquisition or disposal of marketable securities 1. Evaluation and procedure of operation Trading of long- or short-term securities by the Company shall be in accordance with the Company’s internal control policy pertaining to the revolving of investments. Acquisition or disposal of long- term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment. Acquisition or disposal of long- term securities mentioned in the procedure refers to the holding of over 20% stake or long-term equity investment in a company. 2. Procedure for determining the terms of transaction and approval of transaction 2.1 For acquisition and disposal of long-term securities, the execution unit should evaluate transaction conditions and authorized quota before submitting its proposal to the board of directors for approval. (Omitted)	Taking into account that purchase of the shares of joint ventures (subsidiaries) in the past, any value of cases need of the approval by the board of directors affects the timing, price, and efficiency of transactions, such as investment in the joint venture of Mitsui and TEMICO (NT$80,000) in April and transaction for the shares of Roteco of the Philippines (over 6 million pesos) in August. For the sake of timing and company interests, it is suggested to authorize, in a legal manner, the board of standing directors to determine the long-term acquisition of disposal of securities with value less than NT$300 million, in exercise the power of the board of directors during the latter's recess period. Such cases,

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approval of the board of directors, though.

(Omitted)

however, have to be reported to the board of directors at its next meeting.

approval of the board of directors, though. (Omitted)		however, have to be reported to the board of directors at its next meeting.
Article 9 1. In addition to the procedure for acquisition or disposal of assetsor its right-of-use asset from a related party provided in Article 7-11, requirements with respect to the procedure of approval and evaluation of the acceptability of the terms of transaction. According the stipulations of article 7-11 of the handling procedure, when the trading value exceeds 10% of the company’s total assets, the appraisal report of professional appraisers or the opinions of CPA should be obtained. The substance of the relationship other than the formation as a legal matter must be considered when determining whether the transaction counterpart is a related party 2. Evaluation and procedure of operation Acquisition or disposal of real property or its right-of-use assetfrom a related party, or acquires r disposes non- property assetsor its right-of- use assetwith related parties and the trading value exceeds 20% of the company’s paid-in capital, 10% of total assets, or NT$300 million, must be approved by the Board of Directors based on the materials on the following matters and ratified by the Audit Committee in advance to sign the transaction contract and make payment: 2.1 The purpose, necessity and anticipated efficacy of the proposed acquisition or disposal of assets.	Article 9 1. In addition to the procedure for acquisition or disposal of assets from a related party provided in Article 7-11, requirements with respect to the procedure of approval and evaluation of the acceptability of the terms of transaction. According the stipulations of article 7-11 of the handling procedure, when the trading value exceeds 10% of the company’s total assets, the appraisal report of professional appraisers or the opinions of CPA should be obtained. The substance of the relationship other than the formation as a legal matter must be considered when determining whether the transaction counterpart is a related party 2. Evaluation and procedure of operation Acquisition or disposal of real property from a related party, or acquires r disposes non- property assets with related parties and the trading value exceeds 20% of the company’s paid-in capital, 10% of total assets, or NT$300 million, must be approved by the Board of Directors based on the materials on the following matters and ratified by the Audit Committee in advance to sign the transaction contract and make payment: 2.1 The purpose, necessity and anticipated efficacy of the proposed acquisition or disposal of assets. 2.2 The reason for selecting the related party in issue	1. In line with the change of acquisition and disposal rule by Taiwan Stock Exchange, add right-of - use assets and expand the scope of the usage right for assets; add regulations on right-of - use asset and lease to the acquisition and disposal procedure stipulated in article 9, according to the rule of Taiwan Stock Exchange. 2. Make proper revision of the text, in line with relaxation by Taiwan Stock Exchange of the regulation authorizing chairman to determine transactions between public companies and their parent firms or subsidiaries, or between directly or indirectly 100%-owned

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2.2 The reason for selecting the related party in issue as the transaction counterpart. 2.3 Acquiring real propertyor its right-of-use assetfrom related parties, the evaluation materials regarding the acceptability of the proposed terms of transaction produced pursuant to paragraphs .1 and 3.4 of this Article. (omitted) Transaction between the company and subsidiaries or between directly or indirectly 100%-owned subsidiaries, in terms of issued shares or paid-in capital, board of directors could authorize the chairperson to make decision with the value falls within NT300 million: a.for the acquisition or disposal of the equipment or its right-of- use asset for business use b.for the acquisition or disposal of right-of-use asset of real property for business use 3. Evaluation of acceptability of the transaction cost 3.1 The acceptability of transaction cost of the proposed acquisition of real propertyor its right-of- use asset by the Company from a related party shall be evaluated in accordance with the following: (omitted) 3.2 Where the subject real property boughtor leased jointly comprises the land and the building thereon, the transaction cost of the land and the buildingmay		as the transaction counterpart. 2.3 Acquiring real property from related parties, the evaluation materials regarding the acceptability of the proposed terms of transaction produced pursuant to paragraph 3 of this Article. (omitted) The board of directors could authorize the chairperson to make decision for acquiring from, or disposing with, related parties equipment whose value falls within a certain scope. 3. Evaluation of acceptability of the transaction cost 3.1 The acceptability of transaction cost of the proposed acquisition of real property by the Company from a related party shall be evaluated in accordance with the following: (omitted) 3.2 Where the subject real property bought jointly comprises the land and the building thereon, the transaction cost of the land and the building may be evaluated separately according to any of the methods provided in the preceding paragraph 3.3 The cost of the real property to be acquired by the Company from a related party shall be evaluated in accordance with paragraph 3.1 and 3.2 of this Article and review and workable opinion by a certified public accountant on such evaluation should be sought for.	subsidiaries, due to the need of collective purchase or transfer of leased business equipment (via transaction or release) and lease of part of leased real estate, plus lower risk involved. 3. In line with change of acquisition and disposal rule by Taiwan Stock Exchange, relax regulation governing acquisition of usage right for the realties by stakeholders, with reference to lease transactions between non- stakeholders in neighboring area as basis in the calculation of transaction prices, plus incorporation of existing 4- 1.3 of item 3 into 4-1.2 and addition of lease cases as transaction cases.

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be evaluated separately 3.4 Where the values of the according to any of the real property to be methods provided in the acquired by the Company preceding paragraph from a related party in 3.3 The cost of the real conclusion of the property or its right-of-use evaluation pursuant to asset to be acquired by the paragraphs 3.1 and 3.2 of Company from a related this Article respectively party shall be evaluated in both are lower than the accordance with paragraph proposed transaction 3.1 and 3.2 of this Article price, paragraph 3.5 of and review and workable this Article shall apply opinion by a certified public except in the following accountant on such cases where objective evaluation should be evidence has been sought for. 3.4 Where the values of the produced and workable opinion has been sought real property to be for from the professional acquired by the Company appraiser and a certified from a related party in conclusion of the public on the acceptability of the transaction price: evaluation pursuant to 3.4.1 The related party paragraphs 3.1 and 3.2 of has acquired or this Article respectively leased a vacant both are lower than the land to build the proposed transaction price, building and paragraph 3.5 of this Article evidence has been shall apply except in the produced to prove following cases where fulfillment of any of objective evidence has the following: been produced and (omitted) workable opinion has been 3.4.1(2) The terms sought for from the of the professional appraiser and proposed a certified public on the transaction acceptability of the are transaction price: considered 3.4.1 The related party has acceptable acquired or leased a by vacant land to build reference the building and to the evidence has been successful produced to prove transaction fulfillment of any of s of the other floors the following: of the same (omitted) building or 3.4.1(2) The terms nearby of the buildings proposed concluded transaction by nonare related considered

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	acceptable by reference to the transaction sof the other floors of the same building or nearby buildings concluded by non- related parties, each of which is of similar square measure to that of the subject real property, and the term of such successful transaction s are considered comparable to the relevant terms of the proposed transaction according to the common practice of real property transaction or leasing applicable to the area. 3.4.2 The Company has produced evidence to prove the terms of the proposed purchase of real propertyor its right-		3.4.1(3)	parties, each of which is of similar square measure to that of the subject real property, and the term of such successful transaction sare considered comparable to the relevant terms of the proposed transaction according to the common practice of real property transaction applicable to the area. The terms of the proposed transaction are considered acceptable by reference to the successful leases of the other floors of the same building or nearby buildings concluded by non- related parties within one

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3.5	of-use asset thorough leasing from a related party are comparable to the terms of transactionsof nearby real property of similar square measure which were concluded by non- related parties within one year.Transaction of nearby real property means the transactionof a real property which is located in the same block as the subject real property and within a radius of 500 meters from the subject real property or the posted present value of which is similar to that of the subject real property. Of similar square measure means, basically, the square measure of the real propertyor its right– of-use assetin the transaction concluded by a non- related party being referred to is no less than 50% of the square measure of the subject real property. Within one year means within the year immediately preceding the date of occurrence of the proposed transaction. Where the values of the real propertyor its right– of-use assetto be acquired by the Company from a related party appraised in conclusion of the evaluationpursuant to	3.4.2	year and the terms of such successful leases are considered comparable to the relevant terms of the proposed transaction according to the common practice of real property leases applicable to the area. The Company has produced evidence to prove the terms of the proposed purchase of real property from a related party are comparable to the terms ofsuccessful transactions of nearby real property of similar square measure which were concluded by non-related parties within one year. Successful transaction of nearby real property means the successful transaction of a real property which is located in the same block as the subject real property and within a radius of 500 meters from the subject real property or the posted

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paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, the Company shall act in accordance with the following: 3.5.1 The Company shall appropriate an amount equal to the difference between the transaction price and the appraised cost of the real property for special earnings reserve pursuant to the first paragraph of Article 41 of the Securities and Exchange Act, which shall be set aside from distribution or new issues of shares for capital increase. Investors who recognize their investment in the Company on equity method and who are public listed companies shall also appropriate an amount equal to the recognized value according to the shareholding percentage for special earnings reserve pursuant to the first paragraph of Article 41 of the Securities and Exchange Act. 3.5.2 Audit Committee shall act in accordance Article 218 of the Company Act. 3.5.3 The result of handling pursuant to aforementioned two	present value of which is similar to that of the subject real property. Of similar square measure means, basically, the square measure of the real property in the successful transaction concluded by a non- related party being referred to is no less than 50% of the square measure of the subject real property. Within one year means within the year immediately preceding the date of occurrence of the proposed transaction. 3.5 Where the values of the real property to be acquired by the Company from a related party appraised in conclusion of the evaluation pursuant to paragraphs 3.1 and 3.2 of this Article respectively both are lower than the proposed transaction price, the Company shall act in accordance with the following: 3.5.1 The Company shall appropriate an amount equal to the difference between the transaction price and the appraised cost of the real property for special earnings reserve pursuant to the first paragraph of Article 41 of the Securities and Exchange Act,

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points shall be which shall be set reported to the aside from Shareholders distribution or new Meeting and the issues of shares for particulars of the capital increase. transaction shall be Investors who disclosed in the recognize their relevant annual investment in the report and the Company on equity prospectus. method and who are public listed The special earnings reserve set companies shall aside pursuant to the above shall also appropriate an not be applied for use without the amount equal to the prior approval by the Financial recognized value Supervisory Commission until the according to the loss from depreciation arising shareholding from the purchase or lease of the percentage for asset by paying a high premium special earnings price is duly recognized, reserve pursuant to disposed of, end of leasing the first paragraph appropriately made up, restored of Article 41 of the or there being no other evidence Securities and challenging the acceptability Exchange Act. issue. 3.5.2 Audit Committee shall act in 3.6 Acquisition of real accordance Article property or its right –of218 of the Company use asset by the Act. Company from a related 3.5.3 The result of party will be forthwith handling pursuant to handled in accordance paragraphs 3.5.1 with paragraphs 1 and 2 and 3.5.2 of this of this Article in any of the Article shall be following cases, in which reported to the case paragraphs 3.1, 3.2 Shareholders and 3.3 of this Article Meeting and the regarding evaluation of particulars of the acceptability of the transaction shall be transaction cost shall not disclosed in the operate: relevant annual report and the 3.6.1 The related party prospectus. has acquired the subject real property or its right –of-use The special earnings reserve set aside pursuant to the above shall asset by inheritance not be applied for use without the or as a gift. prior approval by the Financial 3.6.2 Over five years has Supervisory Commission until the lapsed since the loss from depreciation arising related party signed from the purchase of the asset by the contract on paying a high premium price is acquisition of the duly recognized, disposed of,

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subject real property appropriately made up, restored or its right –of-use or there being no other evidence asset. challenging the acceptability 3.6.3 The related party issue. acquired the subject real property under 3.6 Acquisition of real a signed joint property by the Company construction from a related party will contract with its be forthwith handled in related party or accordance with entrustment of paragraphs 1 and 2 of this related parties for Article in any of the realty constructions, following cases, in which either on own land case paragraphs 3.1, 3.2 or leased land. and 3.3 of this Article 3.6.4 Transaction regarding evaluation of between the acceptability of the company and transaction cost shall not subsidiaries or operate: between directly or - indirectly 100% 3.6.1 The related party owned subsidiaries, has acquired the in terms of issued subject real property shares or paid-in by inheritance or as capital, for the a gift. - acquisition of right 3.6.2 Over five years has of- use asset for lapsed since the realty assets for related party signed business use. the contract on acquisition of the 3.7 In case there is any subject real evidence proving any property. irregularity of the 3.6.3 The related party proposed transaction for acquired the subject the Company to acquire real property under the subject real property a signed joint from a related party, the construction Company shall still act in contract with its accordance with related party or paragraph 3.5 of this entrustment of Article. related parties for realty constructions, either on own land or leased land. 3.7 In case there is any evidence proving any irregularity of the proposed transaction for the Company to acquire the subject real property from a related party, the

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	Company shall still act in accordance with paragraph 3.5 of this Article.
Article 11 1. Evaluation and procedure for operation The acquisition or disposal of intangible assetsor its right– of-use assetby the Company shall be conducted in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets. 2. Terms of transaction and procedure for approval of transaction 2.1 The terms and transaction price of the proposed acquisition or disposal of intangible assetsor its right–of-use assetshall be determined by reference to the evaluation report produced by an expert or the fair market value. Transactions with a transaction value of less than TWD30 million each may proceed with the approval of the President. Transactions with a value of between TWD30 million and TWD60 million may proceed with the approval of the Chairman and shall be reported to the immediate subsequent meeting of the Board of Directors. Transactions with a value of over TWD60 million each must be approved by the Board of Directors in advance. 2.2 Where the acquisition or disposal of assetsor its right–of-use assetby the Companyin accordance	Article 11 1. Evaluation and procedure for operation The acquisition or disposal of intangible assets by the Company shall be conducted in accordance with the Company’s internal control policy pertaining to the revolving of fixed assets. 2. Terms of transaction and procedure for approval of transaction 2.1 The terms and transaction price of the proposed acquisition or disposal of intangible assets shall be determined by reference to the evaluation report produced by an expert or the fair market value. Transactions with a transaction value of less than TWD30 million each may proceed with the approval of the President. Transactions with a value of between TWD30 million and TWD60 million may proceed with the approval of the Chairman and shall be reported to the immediate subsequent meeting of the Board of Directors. Transactions with a value of over TWD60 million each must be approved by the Board of Directors in advance. 2.2 Where the acquisition or disposal of assets by the Company in accordance with the relevant procedure or other laws must be approved by the Board of Directors in	In line with change of acquisition and disposal rule by Taiwan Stock Exchange, add usage right for assets and expand the scope of the right-of-use assets.

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with the relevant procedure or other laws must be approved by the Board of Directors in advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes. 3. Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of membership or intangible assetsor its right–of-use assetpursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof. (omitted)	advance, the opposition expressed by the Director with written record thereof taken or in writing shall be submitted to Audit Committee. On the acquisition or disposal of assets duly proposed to the Board of Directors for approval, opinion expressed by the Independent Director shall be sufficiently considered with their concurrence or dissent expressed and the reason therefore duly recorded in the meeting minutes. 3. Unit in charge of execution of transaction Upon approval of the proposed acquisition or disposal of membership or intangible assets pursuant to the preceding paragraph, the responsible department and the Corporate Finance & Management Division shall take charge of the execution thereof. (omitted)
Article 13 1. Principle and policy of transaction (omitted) 1.4 Key points of performance evaluation: 1.4.1Non-hedging part shall be evaluated according to the accumulated realized amount of net foreign exchange gain (loss) of the year. 1.4.2Hedging partshall be evaluated	Article 13 1. Principle and policy of transaction (omitted) 1.4 Key points of performance evaluation: 1.4.1Transaction part shall be evaluated according to the accumulated realized amount of net foreign exchange gain (loss) of the year. 1.4.2Non-transaction partshall be	1. In line with article 18 of the "Regulations Governing the Acquisition and Disposal of Assets by Public Companies" and the suggestion of securities regulator, set loss ceiling for a single

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according to their compliance with the relevant policy and rules for operation of forward foreign exchange of the Company. 1.5 Total contractual transaction amount (omitted) 1.6Ceiling of loss value 1.6.1Loss ceiling for open-interest position of the current quarter for an individual contract on risk- hedging merchandise transaction is set at NT$5 million, with ceiling for all the contracts set at NT$50 million. Cases with loss surpassing the aforementioned ceiling should be reported to chairman, who is authorized to adopt proper countermeasures according to current operating need and expected situation of the financial market, so as to reduce the losses of individual or total open-interest positions under the ceilings. 1.6.2The value of open- interest positions for non-risk hedging merchandise transactions is calculated according to the closing price of New	evaluated according to their compliance with the relevant policy and rules for operation of forward foreign exchange of the Company. 1.5 Total contractual transaction amount (omitted) 1.6Limits on total loss from all transaction contracts and the loss from each individual transaction contract The uncovered position of derivative transactions by the Company as a whole shall be calculated according to the closing price of TWD at the current day on and that of the New York foreign exchange market of the previous day. When the loss incurred amounts to TWD2.5 million, 25% thereof shall be covered and the trader shall be instructed to suspend all transactions. When the loss incurred amounts to TWD5 million, 50% of the uncovered position must be covered with a relevant report submitted to the President. If the loss incurred amounts to TWD10 million, all positions shall be closed with a relevant report submitted to the President and the Chairman. (omitted) 2. Risk management 2.5 Operational risk management The transactions shall be conducted within the	contract on the operation of non- transaction derivatives , authorized quota for traders, and stop-loss quota, stipulated in section 1. 2. Proper change of the text of section 2-5.

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York on the previous day and that of NT dollar on the day. Should the loss already exceed NT$2.5 million, offset 25% of the open-interest position and stop all trading carried out by traders; should the loss surpass NT$5 million, offset 50% of open- interest position and report the case to chairman; should the loss top NT$10 million, close all positions and report the case to the board of directors. 2. Risk management 2.5 Operational risk management The transactions shall be conducted within the relevant authorized amount in full compliance with the procedure for operation and put under internal control to prevent operational risks. The personnel conducting derivatives must not act concurrently as the personnel responsible for making the relevant verification and delivery and vice versa. The personnel responsible for weighing, monitoring and controlling the risks and the personnel provided in the preceding subparagraph must be serving in different departments of the Company and they must report to the Board of Directors or a high-	relevant authorized amount in full compliance with the procedure for operation and put under internal control to prevent operational risks. The personnel conducting derivatives must not act concurrently as the personnel responsible for making the relevant verification and delivery and vice versa. The personnel responsible for weighing, monitoring and controlling the risks and the personnel provided in the preceding subparagraph must be serving in different departments of the Company and they must report to the Board of Directors or a high- ranking managerial officer who is not in charge of the transaction or decision- making on the positions to be taken. The positions taken by derivatives transaction shall be evaluated at least once a week except hedging transactions which have been conducted to meet business needs and which shall be evaluated twice a month. The evaluation report shall be submitted to the relevant high-ranking managerial officer authorized to do so by the Board of Directors. (omitted)

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ranking managerial officer who is not in charge of the transaction or decision- making on the positions to be taken. The positions taken by derivatives transaction shall be evaluated at least once a week except hedging transactions which have been conducted to meet business needs and which shall be evaluated twice a month. The evaluation report shall be submitted to the relevant high-ranking managerial officer authorized to do so by the Board of Directors. (omitted)
Article 15 1. Matters which should be reported for public disclosure and the relevant standards 1.1 Acquisition of real propertyor its right-of-use assets,or disposal of propertiesor its right-of- use assetswith, related parties, or acquisition of non-property assetsor its right-of-use assetsfrom, or disposal of non- property assetsor its right-of-use assetswith, related parties with the trading value exceeding 20% of the company’s paid-in capital or 10% of total assets, or NT$300 million. However, trading in government bonds or bonds with repurchase and resale agreements, or subscription or repurchase of money market funds by domestic securities investment trust enterprises and subscription or redemption of domestic	Article 15 1. Matters which should be reported for public disclosure and the relevant standards 1.1 Acquisition of real property, or disposal of properties with, related parties, or acquisition of non-property assets from, or disposal of non- property assets with, related parties with the trading value exceeding 20% of the company’s paid-in capital or 10% of total assets, or NT$300 million. However, trading in government bonds or bonds with repurchase and resale agreements, or subscription or repurchase of money market funds by domestic securities investment trust enterprises and subscription or redemption of domestic money-market funds issued by Securities Investment Trust	1. In line with change of acquisition and disposal rule by Taiwan Stock Exchange, add usage right for assets and expand the scope of right-of-use assets; add regulation on right-of-use assets to the acquisition and disposal procedure stipulated in article 15, according to the rule of Taiwan Stock Exchange. 2. Add restriction on trading partners for the acquisition of realties via

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money-market funds Enterprises are not commissione issued by Securities included. d construction Investment Trust 1.2 Merger, spin-off, on own land, Enterprises are not acquisition or assignment commissione included. of shares. d construction 1.2 Merger, spin-off, 1.3 The amount of loss on leased acquisition or assignment incurred from the land, joint construction of shares. derivatives transaction with 1.3 The amount of loss exceeds the limit on loss allocation of incurred from the from all contracts or the derivatives transaction relevant individual completed exceeds the limit on loss contract provided in the houses, joint construction from all contracts or the relevant handling with relevant individual procedure. allocation of a contract provided in the 1.4 The subject asset to be share of relevant handling acquired or disposed of is completed procedure. equipment for business houses, and 1.4 The subject asset or its use and the transaction joint right-of-use assets to be counterpart is a nonconstruction acquired or disposed of is related party and the with separate equipment for business transaction value is above sales of use and the transaction TWD 1 billion. completed counterpart is a non1.5 The subject real property houses. related party and the is to be acquired or transaction value is above disposed of by the TWD 1 billion. construction business 1.5 The subject real property division of the Company or its right-of-use assets is for construction use and to be acquired or the transaction disposed of by the counterpart is a nonconstruction business related party and the division of the Company transaction value is above for construction use and TWD500 million. the transaction 1.6 The subject real property counterpart is a nonto be acquired is a related party and the building is to be transaction value is above constructed on a selfTWD500 million. owned land, leased land, 1.6 The subject real property jointly constructed and to be acquired is a shared by units, jointly building is to be constructed and shared constructed on a selfby percentage, jointly owned land, leased land, constructed and sold by jointly constructed and units and the anticipated shared by units, jointly transaction value is above constructed and shared TWD500 million. by percentage, jointly 1.7 Assets transactions or constructed and sold by disposals of credit claims units and the anticipated in financial institutions or transaction value is above investment in PRC other TWD500 million and than those provided in the counterparties of preceding six subparagraphs, the

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1.7	transaction are not related parties. Assets transactions or disposals of credit claims in financial institutions or investment in PRC other than those provided in the preceding six subparagraphs, the transaction value of which amounts to 20% of the paid-in capital of the Company or TWD300 million each, except for these transactions: 1.7.1 The transaction is the purchase or sale ofdomestic government bonds. 1.7.2 Professional investors, who trade in securities at stock exchanges or business outlets of securities firms, or subscribe to common corporate bonds and common financial bonds without stock right (excluding subordinated bonds), or subscription to of redemption of securities investment trust funds or futures trust fundson the domestic primary market , security brokers who subscribe to securities out of the need for underwriting business or in the capacity as a assisting or recommending security firm for share listing on the EmergingStock	transaction value of which amounts to 20% of the paid-in capital of the Company or TWD300 million each, except for these transactions: 1.7.1 The transaction is the purchase or sale of government bonds. 1.7.2 Professional investors, who trade in securities at domestic or overseasstock exchanges or business outlets of securities firms, or subscribe to common corporate bonds and common financial bonds without stock right on the domestic primary market, security brokers who subscribe to securities out of the need for underwriting business or in the capacity as a assisting or recommending security firm for share listing on the Emerging Stock Market, according to the regulations of the ROC Gretai Market (over-the- counter market) 1.7.3 The subject asset to be acquired or disposed of is bond with re-purchase, re-sale agreements. Subscription to and redemption of domestic money- market funds issued by Securities

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Market, according to Investment Trust the regulations of Enterprises. the ROC Gretai 1.8 The transaction value Market (over-theprovided in previous counter market) paragraph 1.8 above shall 1.7.3 The subject asset to be calculated as follows, be acquired or where within one year disposed of is bond means within the year with re-purchase, immediately preceding the re-sale agreements. date of occurrence of the Subscription to and proposed transaction, redemption of excluding the items which domestic moneyhave been publicly market funds issued disclosed. by Securities 1.8.1 The value of each Investment Trust transaction. Enterprises. 1.8 The transaction value 1.8.2 The total value of provided in previous the property of the paragraph 1.8 above shall same nature be calculated as follows, acquired from or where within one year transferred to the means within the year same transaction immediately preceding the counterpart within date of occurrence of the one year. proposed transaction, 1.8.3 The total value of excluding the items which the real property have been publicly under the same disclosed. development project 1.8.1 The value of each acquired or transaction. disposed of within one year (the sum 1.8.2 The total value of acquired and the the property of the sum disposed of same nature shall be calculated acquired from or separately). transferred to the (omitted) same transaction counterpart within one year. 1.8.3 The total value of the real property or its right-of-use assets under the same development project acquired or disposed of within one year (the sum acquired and the sum disposed of shall be calculated separately).

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(omitted) Article 19 Article 19 Addition of the This Procedure (omitted) This Procedure (omitted) date for the current revision and the tenth amendment on 16 and the tenth amendment on 16 June 2017. June 2017. and the eleventh amendment on 14 June 2019.

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AI assistant

TECO — AGM Information 2019

51836_rns_2019-06-26_da896d84-fb71-4033-bc1f-3bdfacd4f46c.pdf

TECO Electric & Machinery Co., Ltd. Minutes of the 2019 Annual General Shareholders’ Meeting (Summary Translation)

Time: 09:00am, June 14, 2019 (Friday)

Shares represented at the meeting:

Chairman: Chwen-Jy Chiu (Chairman)

Certificated Public Accountant: Yu-Lung Wu & Ping-Chiun Chih

Recorder: Doreen Lin

1. Meeting called to order

3.4 Report on the purchase of treasury stock

4. Ratification:

Proposal 1:

Explanatory note:

Resolution:

Proposal 2:

Explanatory note:

Resolution:

5. Discussion:

Proposal 1:

Explanatory note:

Resolution:

Proposal 2:

Explanatory note:

Resolution:

6. Extempore Motions:

7. Meeting Adjourned: 09:30 AM

Business Report

Dear Shareholders,

A. Review of Business Performance in 2018

b. Consolidated Financial Statements

B. Outline of 2019 Business Plan

Inspection Report of Audit Committee

Appendix 3

Opinion

Basis for opinion

Key audit matters

Revenue recognition of export sales of heavy industrial products group

Description

How our audit addressed the matter

Investment accounted for under equity method – impairment assessment of premium generated from the acquisition of subsidiaries

Description

How our audit addressed the matter

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

How our audit addressed the matter

Other matter – Reports of other independent accountants

Responsibilities of management and those charged with governance for the parent company only financial statements

Auditor’s responsibilities for the audit of the parent company only financial statements

2.

3.

4.

5.

6.

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

TECO ELECTRIC & MACHINERY CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

Opinion

Basis for opinion

Key audit matters

Revenue recognition of export sales of heavy industrial products group

Description

How our audit addressed the matter

Impairment assessment of goodwill from the acquisition of Motovario S.p.A.

Description

How our audit addressed the matter

Reclassification from investments accounted for under equity method - subsidiaries into associates due to loss of control

Description

How our audit addressed the matter

Other matter – Reports of other independent accountants

Other matter –Parent company only financial reports

TECO AGM Information 2019