TNC — Annual Report 2018

Nov 14, 2018

Taiwan Navigation Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The companies required to be included in the consolidated financial statements of affiliates in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2018 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard 10 “Consolidated Financial Statements”. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we did not prepare a separate set of consolidated financial statements of affiliates.

Very truly yours, TAIWAN NAVIGATION CO., LTD.

By:

LIU, WEN-QING Chairman

March 26, 2019

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Taiwan Navigation Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Taiwan Navigation Co., Ltd. and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”).

In our opinion, 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 International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. 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 for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matters for the consolidated financial statements of the Group for the year ended December 31, 2018 are stated as follows:

Recognition of Subsidiary’s Gain on Disposal of Bulk Carriers

The Group’s subsidiary Tai Shing, which primarily engages in bulk carriers transportation service, has disposed some of its aging bulk carriers in 2018 in order to replace them with new bulk carriers. Given that the transaction is material to the financial statements, we considered gain on disposal of bulk carriers recognized in investments accounted for using the equity method a key audit matter.

Our main audit procedures performed in respect of the gain on disposal of bulk carriers were as follows:

1. We understood management’s evaluation processes of disposal of the bulk carriers and verified the implementation of related controls through appropriate approvals.

2. We tested the transaction contract and the record of remittances to verify the accuracy of the amount received.

3. We reperformed the calculation of gain on disposal of bulk carriers and verified the accuracy of timing of recognition.

Other Matter

We have also audited the parent company only financial statements of Taiwan Navigation Co., Ltd. as of and for the years ended December 31, 2018 and 2017 on which we have issued an unmodified opinion.

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 International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, 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.

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Auditors’ 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 an auditors’ 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 the auditing standards generally accepted in the Republic of China 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 the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. 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 control.

2. Obtain an understanding of internal control 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 control.

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

4. 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 auditors’ 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 auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. 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.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of 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.

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 control 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.

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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 for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ 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.

The engagement partners on the audit resulting in this independent auditors’ report are Ya-Ling Wong and Chih-Ming Shao.

Deloitte & Touche Taipei, Taiwan Republic of China

March 26, 2019

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

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

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss (Notes 4, 7 and 24) Financial assets at fair value through other comprehensive income (Notes 4, 8 and 24) Available-for-sale financial assets (Notes 4, 9 and 24) Accounts receivable, net (Notes 4 and 10) Trade receivables from related parties (Notes 4 and 24) Prepayments (Note 24) Other financial assets (Notes 4 and 11) Other current assets (Notes 4 and 19) Total current assets NON-CURRENT ASSETS Financial assets at fair value through profit or loss (Notes 4, 7 and 24) Financial assets at fair value through other comprehensive income (Notes 4, 8 and 24) Available-for-sale financial assets (Notes 4, 9 and 24) Financial assets measured at cost (Note 4) Investments accounted for using the equity method (Notes 4 and 12) Property, plant and equipment (Notes 4, 13 and 25) Investment properties (Notes 4 and 14) Prepayments for equipment (Note 26) Other non-current assets (Notes 4, 19 and 25) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 15) Contract liabilities (Note 18) Notes and accounts payable Trade payables to related parties (Note 24) Other payables Current tax liabilities (Notes 4 and 19) Advance receipts (Note 18) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Notes 15 and 25) Deferred tax liabilities (Notes 4 and 19) Net defined benefit liabilities (Notes 4 and 16) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION (Note 17) Ordinary shares Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Total equity attributable to owners of the Corporation Total equity TOTAL		2018 Amount % $ 478,550 3 76,777 1 116,247 1 - - 69,249 - 59,043 - 117,382 1 319,880 2 18,611 - 1,255,739 8 - - 241,601 2 - - - - 115,001 1 11,863,484 78 1,097,370 7 306,899 2 255,807 2 13,880,162 92 $ 15,135,901 100 $ 557,322 4 45,905 - 137,399 1 26,430 - 144,933 1 4,011 - - - 23,806 - 939,806 6 3,388,005 22 303,556 2 68,813 1 15,729 - 3,776,103 25 4,715,909 31 4,172,945 28 334,382 2 1,664,599 11 242,486 1 4,040,448 27 5,947,533 39 (34,868) - 10,419,992 69 10,419,992 69 $ 15,135,901 100		2017
				Amount % $ 382,811 3 32,007 - - - 151,914 1 67,529 - 36,465 - 125,932 1 176,512 1 14,587 - 987,757 6 97,827 1 - - 176,327 1 45,900 - 102,431 1 12,519,739 81 1,098,722 7 143,957 1 245,056 2 14,429,959 94 $ 15,417,716 100 $ 372,754 3 - - 132,795 1 34,326 - 115,001 1 9,313 - 50,833 - 14,644 - 729,666 5 4,748,871 31 288,020 2 78,011 - 16,161 - 5,131,063 33 5,860,729 38 4,172,945 27 334,382 2 1,617,952 10 - - 3,674,194 24 5,292,146 34 (242,486) (1) 9,556,987 62 9,556,987 62 $ 15,417,716 100

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

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

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

OPERATING REVENUE (Notes 4, 14, 18 and 24) OPERATING COSTS (Notes 13, 14, 16 and 24) GROSS PROFIT OPERATING EXPENSES (Notes 13 and 16) PROFIT FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Interest income (Note 4) Dividend income (Note 4) Other income (Note 24) Gain on disposal of property, plant and equipment Net gain (loss) on foreign currency exchange (Note 27) Share of profit (loss) of associates accounted for using the equity method (Notes 4 and 12) Interest expense (Notes 4 and 13) Other expenses Net gain (loss) on financial assets at fair value through profit or loss (Note 4) Total non-operating income and expenses INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Notes 4 and 19) NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME (LOSS) (Note 4) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Note 16) Unrealized loss on investments in equity instruments designated as at fair value through other comprehensive income Share of other comprehensive income of associates accounted for using the equity method (Note 12)		2018 Amount % $ 3,367,236 100 2,505,063 74 862,173 26 146,765 4 715,408 22 15,450 - 6,885 - 26,450 1 347,950 10 6,685 - 3,663 - (114,496) (3) (4,322) - (15,038) - 273,227 8 988,635 30 31,000 1 957,635 29 (10,142) - (121,969) (4) 12,034 - (120,077) (4)		2017
				Amount % $ 2,817,921 100 2,360,856 84 457,065 16 114,760 4 342,305 12 11,083 - 5,967 - 12,412 - 174,895 6 (14,263) - (137) - (66,534) (2) (3,741) - 25,084 1 144,766 5 487,071 17 20,600 1 466,471 16 115 - - - - - 115 - (Continued)

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

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

Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations Unrealized loss on available-for-sale financial assets Share of other comprehensive income of associates accounted for using the equity method (Note 12) Other comprehensive income (loss) for the year, net of income tax TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR NET PROFIT ATTRIBUTABLE TO: Owners of the Corporation Non-controlling interests TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Corporation Non-controlling interests EARNINGS PER SHARE (Note 20) Basic Diluted		2018 Amount % $ 257,627 8 - - - - 257,627 8 137,550 4 $ 1,095,185 33 $ 957,635 28 - - $ 957,635 28 $ 1,095,185 33 - - $ 1,095,185 33 $ 2.29 $ 2.29		2017
				Amount % $ (614,331) (22) (30,268) (1) 21,562 1 (623,037) (22) (622,922) (22) $ (156,451) (6) $ 466,471 17 - - $ 466,471 17 $ (156,451) (6) - - $ (156,451) (6) $ 1.12 $ 1.12
				$
				$
				$
				$
				$

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

(Concluded)

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2017 Net profit for the year ended December 31, 2017 Other comprehensive income (loss) for the year ended December 31, 2017, net of income tax Total comprehensive income (loss) for the year ended December 31, 2017 BALANCE AT DECEMBER 31, 2017 Effect of retrospective application BALANCE AT JANUARY 1, 2018 AS ADJUSTED Appropriation of 2017 earnings Legal reserve Special reserve Cash dividends Net profit for the year ended December 31, 2018 Other comprehensive income (loss) for the year ended December 31, 2018, net of income tax Total comprehensive income (loss) for the year ended December 31, 2018 BALANCE AT DECEMBER 31, 2018	Ordinary Shares Shares (In Thousands) Amount Capital Surplus 417,294 $ 4,172,945 $ 334,382 - - - - - - - - - 417,294 4,172,945 334,382 - - - 417,294 4,172,945 334,382 - - - - - - - - - - - - - - - - - - 417,294 $ 4,172,945 $ 334,382		Retained Earnings Unappropriated Legal Reserve Special Reserve Earnings $ 1,617,952 $ - $ 3,207,608 - - 466,471 - - 115 - - 466,586 1,617,952 - 3,674,194 - - - 1,617,952 - 3,674,194 46,647 - (46,647) - 242,486 (242,486) - - (292,106) - - 957,635 - - (10,142) - - 947,493 $ 1,664,599 $ 242,486 $ 4,040,448	Other Equity Exchange Differences on Unrealized Loss on Investments in Financial Assets at Fair Value Through Unrealized Gain (Loss) on Translating Other Available-for- Foreign Comprehensive sale Financial Operations Income Assets $ 483,294 $ - $ (102,743) - - - (614,331) - (8,706) (614,331) - (8,706) (131,037) - (111,449) - (51,523) 111,449 (131,037) (51,523) - - - - - - - - - - - - - 257,627 (109,935) - 257,627 (109,935) - $ 126,590 $ (161,458) $ -	Total Equity $ 9,713,438 466,471 (622,922) (156,451) 9,556,987 59,926 9,616,913 - - (292,106) 957,635 137,550 1,095,185 $ 10,419,992
	Shares (In Thousands) 417,294 - - - 417,294 - 417,294 - - - - - - 417,294

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

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization expenses Net loss (gain) on fair value change of financial assets at fair value through profit or loss Interest expense Interest income Dividend income Share of (profit) loss of associates accounted for using the equity method Gain on disposal of property, plant and equipment Unrealized loss on foreign currency exchange Changes in operating assets and liabilities Financial assets held for trading Financial assets mandatorily classified as at fair value through profit or loss Accounts receivable Trade receivables from related parties Prepayments Other current assets Other financial assets Contract liabilities Notes and accounts payable Trade payables to related parties Other payables Advance receipts Other current liabilities Net defined benefit liabilities Cash generated from operations Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of available-for-sale financial assets Purchase of financial assets at fair value through other comprehensive income Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Decrease (increase) in other financial assets Decrease (increase) in other non-current assets Increase in prepayments of equipment	2018 $ 988,635 762,789 15,038 114,496 (15,450) (6,885) (3,663) (347,950) 44 - 32,019 (1,267) (22,222) 11,389 (415) (12,399) (5,693) 1,395 (8,274) 28,394 - 9,016 (19,386) 1,519,611 (17,387) 1,502,224 - (45,750) (65,288) 671,749 (127,450) (3,611) (155,875)	2017 $ 487,071 755,939 (25,084) 66,534 (11,083) (5,967) 137 (174,895) 508 10,129 - 29,233 23,980 (9,541) 20 (15,959) - (15,146) 12,192 30,172 14,511 4,498 (5,656) 1,171,593 (11,773) 1,159,820 (358,509) - (3,184,866) 458,371 349,237 6,143 (147,478) (Continued)

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TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars)

Interest received Dividends received Net cash generated from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Increase (decrease) in other non-current liabilities Cash dividends paid Interest paid Net cash generated from (used in) financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2018 $ 14,637 10,012 298,424 181,050 181,441 (1,671,307) (432) (292,106) (114,317) (1,715,671) 10,762 95,739 382,811 $ 478,550	2017 $ 14,360 6,228 (2,856,514) 340,927 2,707,310 (1,122,794) 1,534 - (64,022) 1,862,955 (16,919) 149,342 233,469 $ 382,811

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

(Concluded)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

1. GENERAL INFORMATION

Taiwan Navigation Co., Ltd. (the “Corporation”), whose shares are listed on the Taiwan Stock Exchange, was originally majority-owned by the Taiwan Provincial Government but was privatized on June 20, 1998. The Corporation mainly engages in passenger and freight transport via water, port warehousing, aquatic sand mining, and navigation channel dredging and also acts as a shipping agency, provides tugboats, and acts as a land owner in agreements with construction companies for the use of its land for the construction of residential and commercial buildings for sale and rental.

Tai Shing Maritime Co., S.A. (Tai Shing) was established in the Republic of Panama, and Shin Wang Maritime Inc. (Shin Wang) was established in Liberia. The Corporation holds a respective 100% interest in Tai Shing and Shin Wang. Tai Shing and Shin Wang mainly engage in the general management, purchasing, sale, charter, and operation of sea navigation routes and in other maritime operations of ships.

The consolidated financial statements of the Corporation and its subsidiaries, collectively referred to as the “Group”, are presented in New Taiwan dollars, the functional currency of the Corporation.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Corporation’s board of directors on March 26, 2019.

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

• a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission (FSC)

Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies:

1) IFRS 9 “Financial Instruments” and related amendments

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards. IFRS 9 sets out the requirements for the classification, measurement, and impairment of financial assets and hedge accounting. Refer to Note 4 for information relating to the relevant accounting policies.

The requirements for the classification, measurement, and impairment of financial assets have been applied retrospectively starting from January 1, 2018, and the requirements for hedge accounting have been applied prospectively. IFRS 9 is not applicable to items that have already been derecognized as of December 31, 2017.

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Classification, measurement, and impairment of financial assets

On the basis of the facts and circumstances that existed as of January 1, 2018, the Group has performed an assessment of the classification of recognized financial assets and has elected not to restate prior reporting periods.

The following table shows the original measurement categories and carrying amounts under IAS 39 and the new measurement categories and carrying amounts under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018.

Financial Asset Cash and cash equivalents Derivatives Equity securities Mutual funds Time deposits with original maturities of more than 3 months Accounts receivable (including related parties) Others financial assets Financial Asset FVTOCI Equity instruments Add: Reclassification from av (IAS 39) Amortized cost Add: Reclassification from loan receivables (IAS 39)	Measureme	nt Category	Carrying Amount IAS 39 IFRS 9 Remark $ 382,811 $ 382,811 a) 97,827 97,827 d) 374,141 434,067 b) 32,007 32,007 c) 146,122 146,122 a) 103,994 103,994 a) 30,390 30,390 a) IFRS 9 Carrying Amount as of January 1, 2018 Other Equity Effect on January 1, 2018 Remark $ 434,067 $ 59,926 b) 663,317 - a) $ 1,097,384 $ 59,926
	IAS 39 Loans and receivables At fair value through profit or loss (FVTPL) Available‑for‑sale Held‑for‑trading Loans and receivables Loans and receivables Loans and receivables IAS 39 Carrying Amount as of January 1, 2018 ailable-for-sale $ - - s and - $ -	IFRS 9 At amortized cost Mandatorily at FVTPL At fair value through other comprehensive income (FVTOCI) - equity instruments Mandatorily at FVTPL At amortized cost At amortized cost At amortized cost Reclassifi- cation Remea- surement $ 374,141 $ 59,926 663,317 - $ 1,037,458 $ 59,926

• a) Cash and cash equivalents, accounts receivable (including related parties), time deposits with original maturities of more than 3 months and other financial assets that were previously classified as loans and receivables under IAS 39 are classified as at amortized cost with an assessment of expected credit losses under IFRS 9, because the contractual cash flows were solely payments of principal and interest on the principal outstanding and these investments were held within a business model whose objective is to collect contractual cash flows.

• b) The Group elected to designate all its investments in equity securities previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are not held for trading. As a result, the related other equity - unrealized loss on available-for-sale financial assets of $(111,449) thousand was reclassified to other equity - unrealized loss on financial assets at FVTOCI.

Investments in unlisted shares previously measured at cost under IAS 39 have been designated as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an increase of $59,926 thousand was recognized in both financial assets at FVTOCI and other equity - unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018.

• c) Mutual funds previously classified as held for trading under IAS 39 were classified mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not solely payments of principal and interest on the principal outstanding and they are not equity instruments.

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• d) Mandatory convertible bond investments were designated as at FVTPL under IAS 39 because they were hybrid instruments. They have been classified as mandatorily measured at FVTPL in their entirety under IFRS 9 since they contain host contracts that are assets within the scope of IFRS 9.

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

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers and supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and a number of revenue-related interpretations. Refer to Note 4 for related accounting policies.

The Group evaluated the retrospective application of IFRS 15 on assets, liabilities, and equity as of January 1, 2018 and the comprehensive income and cash flows for the year ended December 31, 2018. The application of IFRS 15 has no material impact on the Group. The following table shows the impact on the classification of assets and liabilities.

The impact on assets, liabilities and equity as of January 1, 2018 from the initial application of IFRS 15 is set out below:

As Originally Stated Adjustments Arising from Initial Application Current liabilities Contract liabilities $ - $ 50,833 Advance receipts 50,833 (50,833) Total effect on liabilities $ 50,833 $ -	Restated $ 50,833 - $ 50,833

Impact on assets, liabilities and equity for current year

	December 31,	December 31,
		2018
Increase in contract liabilities - current	$	45,905
Decrease in advance receipts		(45,905)
Total effect on liabilities	$	-

• b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations (the “New IFRSs”) Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 16 “Leases” Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” IFRIC 23 “Uncertainty over Income Tax Treatments”	Effective Date Announced by IASB (Note 1)
	January 1, 2019 January 1, 2019 (Note 2) January 1, 2019 January 1, 2019 (Note 3) January 1, 2019 January 1, 2019

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• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The FSC permits the election for early adoption of the amendments starting from January 1, 2018.

• Note 3: The Group shall apply these amendments to plan amendments, curtailments, or settlements occurring on or after January 1, 2019.

IFRS 16 “Leases”

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

Definition of a lease

Upon initial application of IFRS 16, the Group will elect to apply the guidance of IFRS 16, in determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

Upon initial application of IFRS 16, the Group will recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for those whose payments under low-value and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated statements of comprehensive income, the Group will present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities will be classified within financing activities; cash payments for the interest portion will be classified within financing activities. Currently, payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are classified within operating activities on the consolidated statements of cash flows. Leased assets and finance lease payables are recognized for contracts classified as finance leases.

The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial application of this standard recognized on January 1, 2019. Comparative information will not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-of-use assets will be measured at an amount equal to the lease liabilities. The Group will apply IAS 36 to all right-of-use assets.

The Group expects to apply the following practical expedients:

• 1) The Group will apply a single discount rate to a portfolio of leases with reasonably similar characteristics to measure lease liabilities.

• 2) The Group will account for those leases for which the lease term ends on or before December 31, 2019 as short-term leases.

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

• 15 -

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

The Group as lessor

The Group will not make any adjustments for leases in which it is a lessor and will account for those leases with the application of IFRS 16 starting from January 1, 2019.

The initial application of IFRS 16 is not expected to have a material impact on the Group’s assets, liabilities and equity as of January 1, 2019.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group assesses that the application of other standards and interpretations will have no material impact on the Group’s financial position and financial performance.

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

Effective Date New IFRSs Announced by IASB (Note 1)

Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between An Investor and Its Associate or Joint Venture” IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)

January 1, 2020 (Note 2) To be determined by IASB

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The Group shall apply these amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period.

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

As of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued into effect by the FSC.

• b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value and net defined benefit liabilities which are measured at the present value of the defined benefit obligation less the fair value of plan assets.

• 16 -

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and based on the significance of the inputs to the fair value measurement in its entirety, are described as follows:

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

• 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• 3) Level 3 inputs are unobservable inputs on an asset or liability.

• c. Classification of current and non-current assets and liabilities

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within 12 months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within 12 months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and

• 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

• d. Basis of consolidation

• 1) Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Corporation and the entities controlled by the Corporation (i.e. its subsidiaries).

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Corporation.

All intra-group transactions, balances, income, and expenses are eliminated in full upon consolidation.

• 2) Subsidiaries included in the consolidated financial statements

The Group holds 100% of the interest of the subsidiaries which are included in the consolidated financial statements. The subsidiaries are Tai Shing and Shin Wang, which are mainly engaged in marine freight transportation services.

• 17 -

e. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising from the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which cases, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of transaction.

For the purposes of presenting consolidated financial statements, the functional currencies of the Group’s foreign operations are translated into the presentation currency, the New Taiwan dollars, as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting year, and income and expense items are translated at the average exchange rates for the year. The resulting currency translation differences are recognized in other comprehensive income.

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of joint control over a subsidiary that includes a foreign operation, or a partial disposal of a foreign operation of which the retained interest becomes a financial asset), all of the exchange differences accumulated in equity in respect of that operation are reclassified to profit or loss.

In relation to a partial disposal of a subsidiary that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences recognized in other comprehensive income is re-attributed to non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss.

• f. Investments in associates

An associate is an entity over which the Group has significant influence and which is neither a subsidiary nor an interest in a joint venture.

The Group uses the equity method to account for its investments in associates. Under the equity method, investments in an associate is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group’s share of the equity of associates attributable to the Group.

When the Group subscribes for additional new shares of an associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in capital surplus from investments in associates accounted for using the equity method. If the Group’s ownership interest is reduced due to its additional subscription of the new shares of the associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be

• 18 -

required had the investee directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for using the equity method is insufficient, the shortage is debited to retained earnings.

When the Group’s share of losses of an associate equals or exceeds its interest in that associate, the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate.

The entire carrying amount of the investment is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date, and the fair value is regarded as the investment’s fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required had that associate directly disposed of the related assets or liabilities.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent that interests in the associate are not related to the Group.

• g. Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such assets are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.

Freehold land is not depreciated.

Depreciation of property, plant and equipment is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effects of any changes in the estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

• h. Investment properties

Investment properties are properties held to earn rentals or for capital appreciation. Investment properties also included land held for a currently undetermined future use.

Investment properties are initially measured at cost. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

• 19 -

On derecognition of an investment property, the difference between the net disposal proceeds and the carrying amount of the asset is included in profit or loss.

• i. Impairment of tangible assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered any impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

• j. Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issuance of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

a) Measurement categories

2018

Financial assets are classified into the following categories: financial assets at FVTPL, financial assets at amortized cost, and investments in equity instruments at FVTOCI.

• i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily classified or designated as at FVTPL. Financial assets mandatorily classified as at FVTPL include investments in equity instruments which are not designated as at FVTOCI and debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria.

• 20 -

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on such a financial asset. Fair value is determined in the manner described in Note 23.

• ii. Financial assets at amortized cost

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

• i) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

• ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and cash equivalents, accounts receivable at amortized cost and other financial assets, are measured at amortized cost, which equals the gross carrying amount determined using the effective interest method less any impairment loss. Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying amount of such a financial asset, except for:

• i) Purchased or originated credit impaired financial assets, for which interest income is calculated by applying the credit adjusted effective interest rate to the amortized cost of such financial assets; and

• ii) Financial assets that are not credit impaired on purchase or origination but have subsequently become credit impaired, for which interest income is calculated by applying the effective interest rate to the amortized cost of such financial assets in subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• iii. Investments in equity instruments at FVTOCI

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

Investments in equity instruments at FVTOCI are subsequently measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in other equity. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments; instead, it will be transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established, unless the dividends clearly represent a recovery of part of the cost of the investment.

• 21 -

2017

Financial assets are classified into the following categories: financial assets at FVTPL, available-for-sale financial assets, and loans and receivables.

• i. Financial assets at FVTPL

Financial assets are classified as at FVTPL when such financial assets are either held for trading or designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on their remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividends or interest earned on such a financial assets. Fair value is determined in the manner described in Note 23.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL.

Available-for-sale financial assets are measured at fair value. Changes in the carrying amounts of available-for-sale monetary financial assets (relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments) are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when such investments are disposed of or are determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established.

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and presented as a separate line item as financial assets measured at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and fair value of such financial assets is recognized in other comprehensive income. Any impairment losses are recognized in profit and loss.

iii. Loans and receivables

Loans and receivables are measured at amortized cost using the effective interest method less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalents include time deposits with original maturities within 3 months from the date of acquisition, which are highly liquid, readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• 22 -

b) Impairment of financial assets

2018

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

The Group always recognizes lifetime expected credit losses (ECLs) for accounts receivable. For all other financial instruments, the Group recognizes lifetime ECLs when there has been a significant increase in credit risk since initial recognition. If, on the other hand, the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of default occurring as the weights. Lifetime ECLs represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVTOCI, for which the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of such a financial asset.

2017

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence, as a result of one or more events that occurred after the initial recognition of such financial assets, that the estimated future cash flows of the investment have been affected.

Financial assets at amortized cost, such as accounts receivable, are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience with collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in economic conditions that correlate with defaults on receivables.

For a financial asset at amortized cost, the amount of the impairment loss recognized is the difference between such an asset’s carrying amount and the present value of its estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For a financial asset at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment (at the date on which the impairment is reversed) does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

• 23 -

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for those financial assets because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss is not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment loss is subsequently reversed through profit or loss if an increase in the fair value of such an investment can be objectively related to an event occurring after the recognition of the impairment loss.

For a financial asset measured at cost, the amount of the impairment loss is measured as the difference between such an asset’s carrying amount and the present value of its estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets, with the exception of accounts receivable, where the carrying amount is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible accounts receivable that are written off against the allowance account.

c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

Before 2018, on derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss which had been recognized in other comprehensive income is recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at amortized cost in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. However, on derecognition of an investment in an equity instrument at FVTOCI, the cumulative gain or loss which had been recognized in other comprehensive income is transferred directly to retained earnings, without recycling through profit or loss.

2) Financial liabilities

Financial liabilities are measured at amortized cost using the effective interest method. The difference between the carrying amount of a financial liability derecognized and the consideration paid is recognized in profit or loss.

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• k. Revenue recognition

2018

The Group identifies contracts with customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligations are satisfied.

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

Services for ship management, ship chartering and freight transport

As the Group provides services for ship management, ship chartering and freight transport, customers simultaneously obtain and consume the benefit provided by the Group’s performance, and the relevant revenue is recognized when the services are provided. The revenue from ship management and ship chattering services are recognized with reference to the number of days incurred, and the revenue from freight transport services is recognized with reference to the stage of completion of the services provided.

2017

The Group identifies contracts with the customers, allocates the transaction price to the performance obligations and recognizes revenue when performance obligation are satisfied.

1) Service income

Service income is recognized when services are provided.

The revenue from ship management and ship chattering services is recognized with reference to the stage of completion of the relevant contract.

• 2) Dividend and interest income

Dividend income from investments is recognized when a shareholder’s right to receive payment has been established and provided that it is probable that the economic benefits will flow to the Group and that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis with reference to the principal outstanding and at the applicable effective interest rate.

l. Leasing

Leases are classified as finance leases whenever the terms of a lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

• 1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease.

• 25 -

2) The Group as lessee

Operating lease payments are recognized as expenses on a straight-line basis over the lease term.

m. Borrowing costs

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

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

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

• n. Employee benefits

• 1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

• 2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when employees have rendered services entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost, as well as gains and losses on settlements) and net interest on the net defined benefit liabilities (assets) are recognized as employee benefits expense in the period in which they occur or when the plan amendment or curtailment occurs/or when the settlement occurs. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which it occurs. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss.

Net defined benefit liabilities represent the actual deficit in the Group’s defined benefit plans.

• o. Taxation

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

1) Current tax

According to the Income Tax Law, an additional tax of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• 26 -

• 2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liabilities are settled or the assets are realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

• 3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred taxes are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimations, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if the revisions affect both current and future periods.

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6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalents Time deposits with original maturities of less than 3 months		December 31	December 31
		2018 $ 262 37,128 441,160 $ 478,550	2017 $ 262 32,631 349,918 $ 382,811

The market rate intervals of cash in banks and cash equivalents at the end of the reporting period were as follows:

7. 8.	December 31 2018 2017 Bank balance and cash equivalents 0.01%-3.30% 0.01%-2.50% FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31 2018 2017 Financial assets at FVTPL-current Derivative financial assets Mandatory convertible bonds $ 76,777 $ - Mutual funds - 32,007 $ 76,777 $ 32,007 Financial assets at FVTPL-non-current Derivative financial assets Mandatory convertible bonds $ - $ 97,827 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME - 2018 December 31, 2018 Current Domestic investments Listed shares Yang Ming Marine Transport Corporation $ 116,247 (Continued)	**December 31 **

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	December 31,
	2018
Non-current
Domestic investments
Private placement listed shares
Yang Ming Marine Transport Corporation	$ 145,794
Unlisted shares
Chunghwa Investment Co., Ltd.	49,943
	195,737
Foreign investments
Unlisted shares
Taiwan Foundation International Pte. Ltd.	45,864
	$ 241,601
	(Concluded)

The Group’s investments in the ordinary shares mentioned above are expected to earn profit through dividend income. Accordingly, the management elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long-term purposes. These investments in equity instruments were classified as available-for-sale under IAS 39. Refer to Notes 3 and 9 for information relating to their reclassification and comparative information for 2017.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

	December 31,
	2017
Current
Domestic investments
Listed shares	$ 151,914
Non-current
Domestic investments
Private placement listed shares	$ 176,327

The Group invested in restricted private shares of domestic listed companies. Because the impact of share restrictions is reliably measured and the results are comparable to those of the average market participant, the aforementioned equity investments were classified as available-for-sale financial assets - non-current.

• 29 -

10. ACCOUNTS RECEIVABLE, NET

At amortized cost Gross carrying amount Less: Allowance for impairment loss		December	31
		2018 $ 71,849 2,600 $ 69,249	2017 $ 70,129 2,600 $ 67,529

In 2018

The Group applies the simplified approach to allowing for expected credit losses prescribed by IFRS 9, which permits the use of a lifetime expected credit losses allowance for all accounts receivable. The expected credit losses on accounts receivables are estimated by reference to past default experience with the respective debtors and an analysis of the debtors’ current financial positions. As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer segments, the loss allowance, which is based on the past due status of receivables, is not further distinguished according to the different segments of the Group’s customer base.

The Group writes off an account receivable when there is information indicating that the debtor is experiencing severe financial difficulty and there is no realistic prospect of recovery of the receivable. For accounts receivables that have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivables which are due. Where recoveries are made, these are recognized in profit or loss.

The aging of receivables is as follows:

	December 31,	December 31,
		2018
Up to 60 days	$	64,546
61-90 days		4,015
More than 90 days		3,288
Gross carrying amount		71,849
Loss allowance (lifetime ECLs)		(2,600)
Amortized cost	$	69,249
The movements of the loss allowance for accounts receivable were as follows:
		2018
Balance at January 1, 2018 per IAS 39	$	2,600
Adjustment on initial application of IFRS 9		-
Balance at January 1, 2018 and December 31, 2018 per IFRS 9	$	2,600

• 30 -

In 2017

The Group applied the same credit policy in 2018 and 2017. Due to insignificant risks on the recoverability of the Group’s notes receivable and accounts receivable historically, an allowance for impairment loss was recognized based on the estimated irrecoverable amounts determined by reference to the Group’s past default experience with the respective counterparties and an analysis of their current financial positions.

For the balances of some notes and accounts receivable that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss because there was no significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements for these balances.

The aging of receivables was as follows:

	December 31,
	2017
Up to 60 days	$ 54,078
61-90 days	13,161
More than 90 days	2,890
	$ 70,129

The above aging schedule was based on the number of days past due days from the invoice date.

The aging of receivables that were past due but not impaired was as follows:

	December 31,
	2017
Up to 30 days	$ 13,161
31-60 days	883
More than 60 days	2,007
	$ 16,051

The above aging schedule was based on the number of past due days from the end of the credit term.

As of December 31, 2017, the amounts of the allowances for impairment loss individually and collectively assessed for were $2,600 thousand.

The Group did not hold any collateral over these balances.

11. OTHER FINANCIAL ASSETS

Time deposits with original maturities of more than 3 months Others		December 31	December 31
		2018 $ 276,589 43,291 $ 319,880	2017 $ 146,122 30,390 $ 176,512

• 31 -

The market rate intervals of time deposits with original maturities of more than 3 months at the end of the reporting period were as follows:

December 31	December 31
2018	2017
2.56%-3.15%	1.55%-2.02%

12. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates Associates that are not individually material Yunn Wang Investment Co., Ltd.		**December 31 **	**December 31 **
		2018 $ 115,001	2017 $ 102,431

At the end of the reporting period, the Group holds 49.75% interest in Yunn Wang Investment Co., Ltd. (Yunn Wang).

Refer to Table 5 “Information on Investees” (following these Notes to Consolidated Financial Statements) for the nature of activities, principal place of business and country of incorporation of Yunn Wang.

The share of profit or loss and other comprehensive income of Yunn Wang were calculated based on the financial statements that have been audited.

The aggregate information of associates is as follows:

The Group’s share of: Net profit (loss) for the year Other comprehensive income Total comprehensive income for the year	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 3,663 12,034 $ 15,697	2017 $ (137) 21,562 $ 21,425

13. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2017 Additions Disposals Reclassification Effects of foreign currency exchange differences Balance at December 31, 2017	Land $ 191,103 - - - - $ 191,103	Buildings Transportation Equipment $ 82,555 $ 16,983,179 - 3,178,982 - (1,225,235 ) - 957,274 - (1,311,992) $ 82,555 $ 18,582,208	Other Equipment $ 7,617 5,884 (610 ) - (510) $ 12,381	Total $ 17,264,454 3,184,866 (1,225,845 ) 957,274 (1,312,502) $ 18,868,247 (Continued)

• 32 -

Accumulated depreciation Balance at January 1, 2017 Disposals Depreciation expenses Effects of foreign currency exchange differences Balance at December 31, 2017 Carrying amounts at December 31, 2017 Cost Balance at January 1, 2018 Additions Disposals Effects of foreign currency exchange differences Balance at December 31, 2018 Accumulated depreciation Balance at January 1, 2018 Disposals Depreciation expenses Effects of foreign currency exchange differences Balance at December 31, 2018 Carrying amounts at December 31, 2018	Land $ 191,103 $ 191,103 - - - $ 191,103 $ 191,103	Buildings Transportation Equipment $ 32,927 $ 6,948,614 - (941,909 ) 1,711 751,813 - (450,386) $ 34,638 $ 6,308,132 $ 47,917 $ 12,274,076 $ 82,555 $ 18,582,208 - 48,100 - (1,869,703 ) - 517,848 $ 82,555 $ 17,278,453 $ 34,638 $ 6,308,132 - (1,546,630 ) 1,712 756,164 - 155,088 $ 36,350 $ 5,672,754 $ 46,205 $ 11,605,699	Other Equipment Total $ 6,104 $ 6,987,645 (460 ) (942,369 ) 368 753,892 (274) (450,660) $ 5,738 $ 6,348,508 $ 6,643 $ 12,519,739 $ 12,381 $ 18,868,247 17,188 65,288 (3,483 ) (1,873,186 ) 510 518,358 $ 26,596 $ 17,578,707 $ 5,738 $ 6,348,508 (2,757 ) (1,549,387 ) 3,036 760,912 102 155,190 $ 6,119 $ 5,715,223 $ 20,477 $ 11,863,484 (Concluded)

The above items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives as follows:

Buildings Main buildings 48-60 years Renovation work 8 years Transportation equipment Vessels 20-25 years Drydock 2-2.5 years Vehicles and motorcycles 3-8 years Other equipment 3-20 years

Property, plant and equipment pledged as collateral for bank borrowings are set out in Note 25.

Information about capitalized interest is as follows:

Capitalized interest Range of capitalization rate	**For the Year Ended December 31 **
	2018 2017 $ 5,675 $ 13,957 2.10%-3.57% 1.62%-2.46%

• 33 -

Depreciation expenses related to property, plant and equipment and investment properties are as follows:

Operating costs Operating expenses	For the Year Ended	For the Year Ended	December 31
		2018 $ 760,335 1,929 $ 762,264	2017 $ 753,268 1,976 $ 755,244

Amortization expenses related to other non-current assets are as follows:

Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 525	2017 $ 695

14. INVESTMENT PROPERTIES

Cost Land Buildings Less: Accumulated depreciation - buildings		December 31	December 31
		2018 $ 1,055,678 120,895 1,176,573 79,203 $ 1,097,370	2017 $ 1,055,678 121,072 1,176,750 78,028 $ 1,098,722

Investment properties are depreciated using the straight-line method over their estimated useful lives of 60 years.

The fair value of investment properties were not appraised by independent valuers. The management of the Corporation used the valuation model that market participants use in determining the fair value. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.

December 31 2018 2017 Fair value $ 3,555,321 $ 3,505,306 Rental income and operating expenses directly related to investment properties are as follows:		December 31

Rental income related to investment properties Operating expenses directly related to investment properties Direct operating expenses from investment properties generating rental income Direct operating expenses from investment properties not generating rental income	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 52,658 $ 15,904 398 $ 16,302	2017 $ 48,360 $ 16,821 438 $ 17,259

• 34 -

15. BORROWINGS

• a. Short-term borrowings

b.	Unsecured borrowings Line of credit borrowings Interest rate range Long-term borrowings Secured borrowings (1) Line of credit borrowings (2) Interest rate range			**December 31 **	**December 31 **
			2018 2017 $ 557,322 $ 372,754 0.95%-3.25% 0.95%-2.17% **December 31 **
			2018 $ 3,203,715 184,290 $ 3,388,005 3.16%-3.57%		2017 $ 4,748,871 - $ 4,748,871 2.10%-2.46%

• 1) Secured borrowings include bank loans of the Corporation and project loans for the construction of ships of Tai Shing, whose freehold ships are provided as collateral (refer to Note 25), which have principal and interest amortized on a monthly, quarterly and semi-annual basis and which are expected to be paid off in October 2027. Tai Shing paid off a portion of the principal due in July 2022 as of December 31, 2018.

• 2) Interest on line of credit borrowings is paid on a monthly basis. The principal will be repaid on a quarterly basis from September 2020 and expected to be paid off in September 2023.

16. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (LPA), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 7% of monthly salaries and wages.

b. Defined benefit plans

The defined benefit plan adopted by the Corporation and Tai Shing in accordance with the Labor Standards Law is operated by the government of the ROC. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the 6 months before retirement. The Corporation contribute amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (the “Bureau”); the Group has no right to influence the investment policy and strategy.

• 35 -

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liabilities Movements in net defined benefit liabilities were as follows:		**December 31 **	**December 31 **
		2018 $ 106,805 (37,992) $ 68,813	2017 $ 104,501 (26,490) $ 78,011

	Present Value
	of the Defined			Net Defined
	Benefit	Fair Value of			Benefit
	Obligation	the Plan Assets		Liabilities
Balance at January 1, 2017	$ 113,173	$ (29,241)		$	83,932
Service cost
Current service cost	3,355		-		3,355
Interest expense (income)	1,257		(332)		925
Recognized in profit or loss	4,612		(332)		4,280
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-		40		40
Actuarial loss - changes in demographic
assumptions	4,411		-		4,411
Actuarial loss - experience adjustments	(4,566)		-		(4,566)
Recognized in other comprehensive income	(155)		40		(115)
Contributions from the employer	-		(6,121)		(6,121)
Benefits paid	(13,129)		9,164		(3,965)
Balance at December 31, 2017	104,501		(26,490)		78,011
Service cost
Current service cost	1,959		-		1,959
Interest expense (income)	1,143		(365)		778
Recognized in profit or loss	3,102		(365)		2,737
Remeasurement
Return on plan assets (excluding amounts
included in net interest)	-		(851)		(851)
Actuarial loss - changes in demographic
assumptions	3,431		-		3,431
Actuarial loss - changes in financial
assumptions	1,256		-		1,256
Actuarial loss - experience adjustments	6,306		-		6,306
Recognized in other comprehensive income	10,993		(851)		10,142
Contributions from the employer	-		(12,059)		(12,059)
Benefits paid	(11,836)		1,773		(10,063)
Exchange differences on foreign plans	45		-		45
Balance at December 31, 2018	$ 106,805	$ (37,992)		$	68,813

• 36 -

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

• 2) Interest risk: A decrease in the corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate Expected rate of salary increase	December 31
	2018 2017 1% 1.125% 3% 3%

If possible reasonable changes in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

Discount rate 0.25% increase 0.25% decrease Expected rate of salary increase 0.25% increase 0.25% decrease		**December **	**31 **
		2018 $ (2,600) $ 2,713 $ 2,619 $ (2,524)	2017 $ (2,364) $ 2,464 $ 2,381 $ (2,297)

The sensitivity analysis presented above may not be representative of the actual changes in the present value of the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Expected contributions to the plans for the next year Average duration of the defined benefit obligation		**December **	**31 **
		2018 $ 948 10.5 years	2017 $ 12,041 10.2 years

• 37 -

The details of employee benefits expense were as follow:

Post-employment benefits Defined contribution plans Defined benefit plans Other employee benefits An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended	For the Year Ended	December 31
		2018 $ 10,182 2,737 12,919 750,709 $ 763,628 $ 654,761 108,867 $ 763,628	2017 $ 9,430 4,280 13,710 721,865 $ 735,575 $ 655,285 80,290 $ 735,575

Employee’s compensation and remuneration of directors and supervisors

According to the Articles of Incorporation of the Corporation, the Corporation accrued employees’ compensation at the rates of no less than 0.5% and remuneration of directors and supervisors at rates of no higher than 1.5%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors and supervisors.

The employee’s compensation accrued at the rate of 1% were $10,088 thousand and $4,975 thousand for the years ended December 31, 2018 and 2017, respectively; and the remuneration of directors and supervisors accrued at the rate of 1% were $10,088 thousand and $4,974 thousand, respectively.

If there is a change in the amounts after the annual consolidated financial statements are authorized for issue, the differences are recorded as a change in the accounting estimate.

The employees’ compensation and remuneration of directors and supervisors for the year ended December 31, 2017, which were approved by the Corporation’s board of directors in March 2018, was as follows:

Amount

Employees’ compensation Remuneration of directors and supervisors	For the Year Ended December 31, 2017
	Cash $ 4,970 4,970

The employees’ compensation and the remuneration of directors and supervisors were not estimated for 2016 because of the Corporation’s loss for the year ended December 31, 2016.

• 38 -

The actual amounts of the employees’ compensation and remuneration of directors and supervisors paid for 2017 differed from the amounts recognized in the consolidated financial statements for the year ended December 31, 2017. The differences were adjusted to profit and loss for the year ended December 31, 2018.

Amounts approved in the board of directors’ meeting Amounts recognized in the annual consolidated financial statements	For the Year Ended December 31, 2017
	Employees’ Compensation Remuneration of Directors and Supervisors $ 4,970 $ 4,970 $ 4,975 $ 4,974

Information on the employees’ compensation and remuneration of directors and supervisors resolved by the Corporation’s board of directors in 2018 and 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

17. EQUITY

a. Ordinary shares

Numbers of shares authorized (in thousands) Value of shares authorized Number of shares issued and fully paid (in thousands) Value of shares issued		December 31	December 31
		2018 480,000 $ 4,800,000 417,294 $ 4,172,945	2017 480,000 $ 4,800,000 417,294 $ 4,172,945

• b. Capital surplus

Treasury share transactions Donations		December 31	December 31
		2018 $ 334,352 30 $ 334,382	2017 $ 334,352 30 $ 334,382

Such capital surplus may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Corporation’s capital surplus and to once a year).

c. Retained earnings and dividends policy

Under the dividends policy as set out in the Corporation’s Articles of Incorporation, where the Corporation made a profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside as a legal reserve of 10% of the remaining profit or until the legal reserve equals the Corporation’s paid-in capital, and setting aside or reversing a special reserve in accordance with the laws and regulations. Then, any remaining profit together with any undistributed retained earnings shall be used by the Corporation’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation

• 39 -

and remuneration of directors and supervisors after the amendment, refer to Note 16. The Articles of Incorporation also stipulate a dividends policy whereby the payment of cash dividends takes precedence over the issuance of share dividends. In principle, cash dividends shall not be less than 50% of the total dividends distributed.

An appropriation of earnings to a legal reserve shall be made until the legal reserve equals the Corporation’s paid-in capital. The legal reserve may be used to offset deficits. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 issued by the FSC should be appropriated to a special reserve by the Corporation.

The appropriation of earnings for 2017, which was approved in shareholders’ meetings in June 2018, was as follows:

Legal reserve Special reserve Cash dividends	For the Year Ended December 31, 2017
	Appropriation of Earnings Dividends Per Share (NT$) $ 46,647 242,486 292,106 $0.7

Information on deficit compensation for 2016 approved in the shareholders’ meetings is available on the Market Observation Post System website of the Taiwan Stock Exchange.

The appropriation of earnings for 2018 are subject to the resolution in the shareholders’ meeting to be held in June 2019.

18. REVENUE

Revenue from contracts with customers Revenue from transportation Rental income Rental income from investment properties (Note 14) Other operating revenue Other revenue Contract balances Contract liabilities	For the Year Ended December 31	For the Year Ended December 31
	2018 $ 3,303,719 52,658 10,859 $ 3,367,236 December 31, 2018 $ 45,905	2017 $ 2,764,986 48,360 4,575 $ 2,817,921 January 1, 2018 $ 50,833

The change in the balance of contract liabilities primarily result from the timing difference between the Group’s performance and the respective customer’s payment.

• 40 -

For the year ended December 31, 2018, the Group recognized $30,750 thousand as revenue from the beginning balance of contract liability.

19. INCOME TAXES

• a. Income tax recognized in profit or loss

Major components of tax expense were as follows:

Current tax In respect of the current year Adjustments for prior years Deferred tax In respect of the current year Effect of tax rate changes Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 15,499 122 15,621 14,479 900 15,379 $ 31,000	2017 $ 21,086 39 21,125 (525) - (525) $ 20,600

A reconciliation of accounting profit and income tax expense is as follows:

Profit before tax Income tax expense calculated at the statutory rate Tax effect of adjusting items: Tax-exempt income Unrecognized deductible temporary differences Effect of tax rate changes Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended	For the Year Ended	December 31
		2018 $ 988,635 $ 197,727 1,952 (169,701) 900 122 $ 31,000	2017 $ 487,071 $ 82,802 (4,357) (57,884) - 39 $ 20,600

In 2017, the applicable corporate income tax rate used by the group entities in the ROC is 17%. However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

As the status of the 2019 appropriation of earnings is uncertain, the potential income tax consequences of the 2018 unappropriated earnings are not reliably determinable.

• 41 -

b. Current tax assets and liabilities

Current tax assets Tax refund receivable (included in other current assets) Current tax liabilities Income tax payable		December	31
		2018 $ - $ 4,011	2017 $ 3,536 $ 9,313

Current income tax payable is the net amount of December 31, 2018 and 2017, deducted by $11,488 thousand and $11,773 thousand of prepaid income tax, respectively.

c. Deferred tax assets and liabilities

The movements of deferred tax assets (included in other current assets) and deferred tax liabilities were as follows:

For the year ended December 31, 2018

Deferred tax assets Temporary differences Unrealized exchange gains and losses Others Deferred tax liabilities Temporary differences Reserve for land value increment tax Share of profit of subsidiaries and associates accounted for using the equity method	Opening Balance Effect of Tax Rate Changes Recognized in Profit or Loss $ 185 $ 32 $ 98 491 87 (60) $ 676 $ 119 $ 38 $ 282,241 $ - $ - 5,779 1,019 14,517 $ 288,020 $ 1,019 $ 14,517	Closing Balance $ 315 518 $ 833 $ 282,241 21,315 $ 303,556

• 42 -

For the year ended December 31, 2017

Deferred tax assets Temporary differences Unrealized exchange gains and losses Others Deferred tax liabilities Temporary differences Reserve for land value increment tax Share of profit of subsidiaries and associates accounted for using the equity method Unrealized exchange gains and losses	Opening Balance Recognized in Profit or Loss $ - $ 185 414 77 $ 414 $ 262 $ 282,241 $ - 5,777 2 265 (265) $ 288,283 $ (263)	Closing Balance $ 185 491 $ 676 $ 282,241 5,779 - $ 288,020

• d. The aggregate amount of temporary difference associated with investments for which deferred tax liabilities have not been recognized

As of December 31, 2018 and 2017, the taxable temporary differences associated with investment in subsidiaries for which no deferred tax liabilities have been recognized were $5,148,718 thousand and $4,300,213 thousand, respectively.

e. Income tax return assessments

The income tax returns of the Corporation and Tai Shing through 2016 have been assessed by the tax authorities.

20. EARNINGS PER SHARE

Basic earnings per share Diluted earnings per share	Unit: NT$ Per Share **For the Year Ended December 31 **	Unit: NT$ Per Share **For the Year Ended December 31 **	Unit: NT$ Per Share **For the Year Ended December 31 **
		2018 $ 2.29 $ 2.29	2017 $ 1.12 $ 1.12

The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share were as follows:

Net Profit for the Period

Earnings used in the computation of basic earnings per share	For the Year Ended	For the Year Ended	December 31
		2018 $ 957,635	2017 $ 466,471

• 43 -

Weighted Average Number of Ordinary Shares Outstanding (In Thousand Shares)

Weighted average number of ordinary shares used in the computation of basic earnings per share Effect of potentially dilutive ordinary shares: Employees’ compensation Weighted average number of ordinary shares used in the computation of diluted earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 417,294 604 417,898	2017 417,294 300 417,594

If the Corporation offered to settle compensation paid to employees in cash or shares, the Corporation assumed the entire amount of the compensation will be settled in shares, and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

21. CASH FLOWS INFORMATION FROM FINANCING ACTIVITIES

For the year ended December 31, 2018

Short-term borrowings Long-term borrowings	Opening Balance $ 372,754 4,748,871 $ 5,121,625	Cash Flows $ 181,050 (1,489,866) $ (1,308,816)		Non-cash Changes Foreign Exchange Movement $ 3,518 129,000 $ 132,518	Closing Balance $ 557,322 3,388,005 $ 3,945,327

For the year ended December 31, 2017

Short-term borrowings Current portion of long-term borrowings Long-term borrowings Other non-current liabilities	Opening Balance $ 35,000 117,219 3,352,881 14,658 $ 3,519,758	Cash Flows $ 340,927 (110,814) 1,695,330 1,534 $ 1,926,977		Non-cash Changes Foreign Exchange Movement $ (3,173) (6,405) (299,340) (31) $ (308,949)	Closing Balance $ 372,754 - 4,748,871 16,161 $ 5,137,786

• 44 -

22. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group’s overall strategy remains unchanged in the future.

Key management personnel of the Group review the capital structure on an annual basis. As part of this review, the key management personnel consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may adjust the amount of dividends paid to shareholders, the number of new shares issued, or the existing debt redeemed.

23. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments not measured at fair value

The Group’s management believes that the carrying amount of financial assets and liabilities recognized in the consolidated financial statements approximate their fair values or their fair values cannot be reliably measured.

• b. Fair value of financial instruments measured at fair value on a recurring basis

• 1) Fair value hierarchy

December 31, 2018 Financial assets at FVTPL Derivative financial assets Financial assets at FVTOCI Investments in equity instruments Listed shares - ROC Unlisted shares - ROC Unlisted shares - foreign December 31, 2017 Financial assets at FVTPL Derivative financial assets Non-derivative financial assets held for trading Available-for-sale financial assets Investments in equity instruments Listed shares - ROC	Level 1 $ - $ 116,247 - - $ 116,247 Level 1 $ - 32,007 $ 32,007 $ 151,914	Level 2 $ 76,777 $ 145,794 - - $ 145,794 Level 2 $ 97,827 - $ 97,827 $ 176,327	Level 3 $ - $ - 49,943 45,864 $ 95,807 Level 3 $ - - $ - $ -	Total $ 76,777
				$ 262,041 49,943 45,864
				$ 357,848
				Total $ 97,827 32,007
				$ 129,834
				$ 328,241

• 45 -

There were no transfers between Levels 1 and 2 in the current and prior periods.

• 2) Valuation techniques and inputs applied for Level 2 fair value measurement

• a) Derivative financial assets with no market price available for reference of their fair values have their fair values estimated using the respective mandatory convertible bonds’ evaluation model. The estimations and assumptions used by the Group for the evaluation method are consistent with those used by market participants in the pricing of financial instruments.

• b) Domestic listed private shares with no market price available for reference of their fair values have their fair values estimated using the evaluation method. The estimations and assumptions used by the Group for the evaluation method are consistent with those used by market participants in the pricing of financial instruments. The relevant information used in the evaluation was obtainable by the Corporation.

The evaluation method used by the Group for estimating fair value is the Black-Scholes model.

• 3) Valuation techniques and inputs applied for Level 3 fair value measurement

Unlisted equity securities - ROC held by the Corporation are mainly investment in domestic listed shares. Besides, the asset of unlisted shares - foreign held by the Corporation were mainly bank deposits as of December 31, 2018. Thus, the aforementioned unlisted equity securities were evaluated using the asset-based approach. Separate assets and liabilities of the underlying investments were respectively regarded as individual evaluation targets and were evaluated according to their nature to reflect their overall fair value. Unobservable inputs used by the Corporation were an 89.75% discount rate for lack of marketability as of December 31, 2018. If the discount rate for lack of marketability were to increase/decrease by 1% and all other variables were held constant, the fair value would decrease/increase by $4,875 thousand.

• c. Categories of financial instruments

Financial assets Financial assets at FVTPL Held for trading Designated as at FVTPL Mandatorily at FVTPL Available-for-sale financial assets (Note 1) Loans and receivables (Note 2) Financial assets at amortized cost (Note 3) Financial assets at FVTOCI Equity instruments Financial liabilities Financial liabilities at amortized cost (Note 4)	**December 31 **
	2018 2017 $ - $ 32,007 - 97,827 76,777 - - 374,141 - 663,317 926,722 - 357,848 - 4,254,089 5,403,747

• Note 1: The balances include the carrying amount of available-for-sale financial assets measured at cost.

• Note 2: The balances include loans and receivables measured at amortized cost, which comprise cash and cash equivalents, accounts receivable, trade receivables from related parties, and other financial assets.

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• Note 3: The balances include financial assets measured at amortized cost, which comprise cash and cash equivalents, accounts receivable, trade receivables from related parties, and other financial assets.

• Note 4: The balances include financial liabilities measured at amortized cost, which comprise short-term borrowings, notes and accounts payable, trade payables to related parties, other payables, and long-term borrowings.

• d. Financial risk management objectives and policies

The Group’s major financial instruments include equity and debt investments, accounts receivable, accounts payables, and borrowings. The Group’s corporate treasury function is responsible for monitoring and managing the financial risks related to the operations of the Group. These risks include market risk, credit risk, and liquidity risk.

1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency risk, interest rate risk and other price risk.

• a) Foreign currency risk

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) are set out in Note 27.

Sensitivity analysis

The Group was mainly exposed to the U.S. dollar (USD).

The following table details the Group’s sensitivity to a 2% increase and decrease in New Taiwan dollars against the relevant foreign currencies. The sensitivity rate used when reporting foreign currency risk internally to key management personnel and representing management’s assessment of the reasonably possible change in foreign exchange rates is 2%. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 2% change in foreign currency rates. The table below indicates an increase (a decrease) in pre-tax profit associated with the New Taiwan dollar strengthening 2% against the U.S. dollar.

Loss	USD Impact on NTD	USD Impact on NTD	USD Impact on NTD
	**For the Year Ended December 31 **
		2018 $ (4,282)	2017 $ (3,969)

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b) Interest rate risk

The carrying amounts of the Group’s financial assets and financial liabilities with exposure to interest rate risk at the end of the reporting period are as follows:

Fair value interest rate risk Financial assets Cash flow interest rate risk Financial assets Financial liabilities	December 31
	2018 2017 $ 794,526 $ 593,867 26,135 21,960 3,945,327 5,121,625

Sensitivity analysis

The sensitivity analysis below was determined based on the Group’s exposure to interest rates for non-derivative instruments at the end of the reporting period. For variable interest rate liabilities, the analysis was prepared assuming the amount of each liability outstanding at the end of the reporting period was outstanding for the whole year. The sensitivity rate of 1% is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The financial assets and liabilities held by the Group with variable interest rates will change according to the effective interest rates, which vary with market interest rates, and will result in fluctuations of the future cash flows.

For the financial assets held by the Group with variable interest rates on December 31, 2018 and 2017, if the market interest rates had been 1% higher, the cash inflow from variable interest rate financial assets would have been $261 thousand and $220 thousand, respectively. If the market interest rates had been 1% lower, there would be an equal and opposite impact on variable interest rate financial assets, and the amount would be negative.

For the financial liabilities held by the Group with variable interest rates on December 31, 2018 and 2017, if the market interest rates had been 1% higher, the cash outflow from variable interest rate financial liabilities would have been $39,453 thousand and $51,216 thousand, respectively. If the market interest rates had been 1% lower, there would be an equal and opposite impact on variable interest rate financial liabilities, and the amount would be negative.

c) Other price risk

The Group was exposed to equity price risk through its investments in mutual funds and marketable securities.

Sensitivity analysis

The Group assessed the risk of the financial assets with variances in equity prices. Sensitivity analyses were used for evaluating the exposure to equity price risks.

If equity prices had been 5% higher/lower, the pre-tax profit for the year ended December 31, 2018 would have increased/decreased by $3,839 thousand, as a result of the changes in fair value of financial assets at FVTPL, and the pre-tax other comprehensive income for the year ended December 31, 2018 would have increased/decreased by $17,892 thousand, as a result of the changes in fair value of financial assets at FVTOCI.

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If equity prices had been 5% higher/lower, pre-tax profit for the year ended December 31, 2017 would have increased/decreased by $6,492 thousand, as a result of the changes in fair value of held-for-trading investments, and the pre-tax other comprehensive income for the year ended December 31, 2017 would have increased/decreased by $16,412 thousand, as a result of the changes in fair value of available-for-sale shares.

2) Credit risk

There is no significant concentration of credit risk for the Group. Credit risk is from cash and cash equivalent deposits in banks and accounts receivable from customers.

The Group adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient letters of bank guarantees and security deposits, where appropriate, as a means of mitigating the risk of financial loss from defaults. To reduce credit risk, the Group has established internal monitoring procedures to monitor credit risk exposure and the credit condition of counterparties.

The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks and financial institutions with high credit-ratings assigned by international credit-rating agencies.

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liquidity. As of December 31, 2018 and 2017, the Group had available unutilized short-term bank loan facilities of $222,545 thousand and $549,485 thousand, respectively.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with variable interest rates and agreed repayment periods. The table was drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

December 31, 2018

On Demand or Less than 1 Year Non-derivative financial liabilities Variable interest rate liabilities $ 564,653	1-3 Years $ 302,747	3-5 Years $ 1,348,301	5+ Years $ 1,847,284

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December 31, 2017

On Demand or Less than 1 Year Non-derivative financial liabilities Variable interest rate liabilities $ 377,862	1-3 Years $ 962,313	3-5 Years $ 1,509,766	5+ Years $ 2,380,795

24. TRANSACTIONS WITH RELATED PARTIES

Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below:

• a. Names and categories of the related parties

Related Party Name Related Party Category Yang Ming Marine Transport Corporation (Yang Ming) Government - related parties Hong Ming Terminal & Stevedoring Corp. Subsidiary of government - related parties Yunn Wang Investment Co., Ltd. Associates

• b. Operating transactions

Operating revenue Government - related parties Yang Ming Associates Others Operating costs Government and its subsidiaries - related parties Yang Ming Others	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2018 $ 319,015 84 $ 319,099 $ 297,151 1,906 $ 299,057	2017 $ 189,930 114 $ 190,044 $ 196,604 1,707 $ 198,311

Transactions with related parties were based on agreements. Lease contracts with associates were based on market conditions.

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At the end of reporting period, trade receivables from related parties were as follows:

Government - related parties Yang Ming		December 31	December 31
		2018 $ 59,043	2017 $ 36,465

At the end of reporting period, prepayments from related parties (included in prepayments) were as follows:

Government - related parties Others		**December 31 **	**December 31 **
		2018 $ 6,479	2017 $ 666

At the end of reporting period, trade payables to related parties were as follows:

Government - related parties Yang Ming Others		December 31	December 31
		2018 $ 26,092 338 $ 26,430	2017 $ 34,123 203 $ 34,326

The Group did not recognize allowance for doubtful accounts and did not receive guarantees during the years ended December 31, 2018 and 2017. In addition, the outstanding payables to related parties had no guarantees.

c. Other transactions with government - related parties

The Ministry of Transportation and Communication of the Executive Yuan of the ROC holds a 26.46% interest in the Corporation. In June 2012, the Corporation purchased seven-year, privately placed, secured mandatory convertible bonds (classified as at FVTPL) issued by Yang Ming (of which the Ministry of Transportation and Communication of the Executive Yuan of the ROC holds a 35.51% interest) for $200,000 thousand. The bonds, with a coupon rate of 3% per annum, are due in June 2019 and were transferrable starting from three months after issuance. The bonds shall only be converted into Yang Ming’s ordinary shares at the prevailing conversion price on the last day of the seven-year maturity.

In February 2017, the Corporation purchased 19,083 thousand shares of privately placed ordinary shares issued by Yang Ming for $199,990 thousand (classified as at FVTOCI - non-current and as available-for-sale financial assets - non-current as of December 31, 2018 and 2017, respectively), and the rights and obligations of the privately placed ordinary shares are the same as those of the ordinary shares issued by Yang Ming. However, the private shares are subject to the restrictions on transfer by the Securities Exchange Act., which say that private shares may not be transferred within 3 years of the delivery date. After 3 full years have elapsed since the delivery date of the privately placed ordinary shares, Yang Ming may apply for registration of the retroactive handling of public issuance and listing with the FSC, if Yang Ming complies with the relevant laws and regulations.

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In November 2017, the Corporation paid $158,519 thousand in cash to acquire an additional 13,210 thousand shares issued by Yang Ming. However, the Group’s investment in Yang Ming was still classified as at FVTOCI - current and as available-for-sale financial assets - current as of December 31, 2018 and 2017, respectively, as the Group did not have any significant influence over Yang Ming.

• d. Other transactions with related parties (included in non-operating income - other income)

Associates (management service revenue)	For the Year Ended	For the Year Ended	December 31
		2018 $ 114	2017 $ 114

• e. Compensation of key management personnel

The compensation of directors, supervisors and other key management personnel were as follows:

Short-term employee benefits Post-employment benefits	For the Year Ended	For the Year Ended	December 31
		2018 $ 31,652 1,055 $ 32,707	2017 $ 22,045 1,355 $ 23,400

25. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were pledged or mortgaged as collateral for long-term borrowings and transactions:

Property, plant and equipment Pledged deposits (included in other non-current assets)		December 31	December 31
		2018 $ 8,138,906 250,878 $ 8,389,784	2017 $ 9,543,458 240,281 $ 9,783,739

26. SIGNIFICANT UNRECOGNIZED COMMITMENTS AND CONTINGENCIES

• a. Significant unrecognized commitments and contingencies of the Group as of December 31, 2018 were as follows:

• 1) Aggregate information of the Group entering into ship management agreements with other entities is stated below:

Ship Date of Agreement Calculation and Fee Collection Method CPC Corporation, Taiwan YUN AN I. II. III. V. 2015.05.16-2020.05.15 Basic fees of ship management were $1,400 VI. thousand per month with additional bonuses and with collection on a monthly basis.

(Continued)

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Ship Date of Agreement Calculation and Fee Collection Method TAI CHIN 201, 202, 2007.02.10-2032.12.31 The fee was $350 thousand per day 203 and 205 calculated by day, with collection on a monthly basis. HONG YUN and 2017.01.05-2023.01.24 Basic fees of ship management were $112 SHENH YUN thousand for each ship per day, calculated by day, with collection on a monthly basis. HUA YUN, TONG 2017.04.07-2022.10.29 Basic fees of ship management were YUN and DER YUN $96-$104 thousand for each ship per day, calculated by day, with collection on a monthly basis. (Concluded)

• 2) In May 2017, the board of directors of the subsidiary Tai Shing resolved to build two 62,000-ton bulk carriers with Oshima Shipbuilding Co., Ltd.; each bulk carrier’s cost was US$25,500 thousand. In addition, in December 2018, the board of directors resolved to upgrade two 62,000-ton bulk carriers to two 64,000-ton bulk carriers with the installation of SOx scrubber. As a result, each bulk carrier’s cost was US$26,390 thousand and the total cost of the upgrade was US$890 thousand. As of the date of the independent auditors’ report to the consolidated financial statements for the year ended December 31, 2017, the unpaid amount was US$41,996 thousand. The parent company is Tai Shing’s guarantor.

• 3) In December 2018, the board of directors of the subsidiary Tai Shing resolved to build 80,000-ton bulk carriers with Namura Shipbuilding Co., Ltd. and Oshima Shipbuilding Co., Ltd., and the total number of bulk carriers shall be not more than four bulk carriers with a total cost of less than US$136,000 thousand. In March 2018, Tai Shing has entered into a contract with Namura Shipbuilding Co., Ltd. to build two bulk carriers; each bulk carrier’s cost was US$33,980 thousand, with a total amount of US$67,960 thousand.

• b. Significant unrecognized commitments of the Group as of December 31, 2017 were as follows:

• 1) Aggregate information of the Group entering into ship management agreements with other entities is stated below:

Ship CPC Corporation, Taiwan YUN AN I. II. III. V. VI. TAI CHIN 201, 202, 203 and 205 HONG YUN and SHENH YUN HUA YUN, TONG YUN and DER YUN	Date of Agreement 2015.05.16-2020.05.15 2007.02.10-2032.12.31 2017.01.05-2023.01.24 2017.04.07-2022.10.29	Calculation and Fee Collection Method
		Basic fees of ship management were $1,400 thousand per month with additional bonuses and with collection on a monthly basis. The fee was $349 thousand per day, calculated by day, with collection on a monthly basis. Basic fees of ship management were $112 thousand for each ship per day, calculated by day, with collection on a monthly basis. Basic fees of ship management were $96-104 thousand for each ship per day, calculated by day, with collection on a monthly basis.

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• 2) In May 2017, the board of directors of the subsidiary Tai Shing resolved to build two 62,000-ton bulk carriers with Oshima Shipbuilding Co., Ltd., each bulk carrier’s cost was US$25,500 thousand. As of the date of the independent auditors’ report to the consolidated financial statements for the year ended December 31, 2017, the unpaid amount was US$43,290 thousand. The parent company is Tai Shing’s guarantor.

27. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The following information was aggregated by foreign currencies other than functional currencies of the group entities, and the exchange rates between foreign currencies and the respective functional currencies are disclosed. The significant assets and liabilities denominated in foreign currencies were as follows:

December 31, 2018

Foreign Currencies (In Thousands) Exchange Rate Financial assets Monetary items USD $ 8,413 30.715 (USD:NTD) Financial liabilities Monetary items USD $ 1,444 30.715 (USD:NTD) December 31, 2017 Foreign Currencies (In Thousands) Exchange Rate Financial assets Monetary items USD $ 9,002 29.76 (USD:NTD) Financial liabilities Monetary items USD $ 2,334 29.76 (USD:NTD)	Carrying Amount $ 258,418 $ 44,341 Carrying Amount $ 267,889 $ 69,456

For the years ended December 31, 2018 and 2017, net foreign exchange gain (losses) were $6,685 thousand and $(14,263) thousand, respectively, resulting from the fluctuation of the USD.

28. SEPARATELY DISCLOSED ITEMS

• a. Information about significant transactions and investees:

• 1) Financing provided to others (None)

• 2) Endorsements/guarantees provided (Table 1)

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• 3) Marketable securities held (Table 2)

• 4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20% of the paid-in capital (None)

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital (None)

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital (None)

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 3)

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital (Table 4)

• 9) Trading in derivative instruments (Note 7)

• 10) Intercompany relationships and significant intercompany transactions (Table 5)

• 11) Information on investees (Table 6)

• b. Information on investments in mainland China (None)

29. SEGMENT INFORMATION

• a. Operating segments information

The Group managed its organization and allocated resources by reference to a single operating segment, and its operating activities are related to the business of passenger and freight transportation and acting as a shipping agency.

• b. Details of major operating revenue are as follows:

Ocean-going shipping line revenue Ship management service revenue Port service revenue Coastal shipping line revenue Others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2018 $ 2,869,499 203,315 127,504 103,401 63,517 $ 3,367,236	2017 $ 2,265,531 259,647 127,793 112,015 52,935 $ 2,817,921

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c. Geographical information

The Group’s revenue from external customers by location of operations are detailed below.

Asia Europe Others	**For the Year Ended December 31 **	**For the Year Ended December 31 **	**For the Year Ended December 31 **
		2018 $ 2,050,767 1,263,812 3,314,579 52,657 $ 3,367,236	2017 $ 1,583,704 1,185,857 2,769,561 48,360 $ 2,817,921

The Group’s non-current assets by location of operations are detailed below:

Taiwan Panama		December 31	December 31
		2018 $ 1,792,223 11,731,337 $ 13,523,560	2017 $ 1,835,960 12,171,514 $ 14,007,474

Non-current assets exclude financial instruments.

• d. Information about major customers

A B

For the Year Ended December 31	For the Year Ended December 31
2018 Amount % $ 563,561 17 332,990 10	2017
	Amount % $ 495,314 18 285,468 10

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TABLE 1

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

ENDORSEMENTS/GUARANTEES PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2018 (New Taiwan Dollars/US Dollars in Thousands)

No.	Endorser/Guarantor	Endorsee/Guarantee	Endorsee/Guarantee	Limit on Endorsement/ Guarantee Given on Behalf of Each Party (Notes 1 and 2)	Maximum Amount Endorsed/ Guaranteed During the Year (Note 2)	Outstanding Endorsement/ Guarantee at the End of the Year (Note 2)	Actual Borrowing Amount (Note 2)	Amount Endorsed/ Guaranteed by Collaterals (Note 2)	Ratio of Accumulated Endorsement/ Guarantee to Net Equity in Latest Financial Statements (%)	Aggregate Endorsement/ Guarantee Limit (Notes 1 and 2)	Endorsement/ Guarantee Given by Parent on Behalf of Subsidiary	Endorsement/ Guarantee Given by Subsidiary on Behalf of Parent	Endorsement/ Guarantee Given on Behalf of Company in Mainland China	Note
		Name	Relationship
0	Taiwan Navigation Co., Ltd.	Tai Shing	Subsidiary	$ 8,345,890	$ 6,744,470 (US$ 219,582)	$ 4,830,995 (US$ 157,285)	$ 4,662,063 (US$ 151,785)	$ -	46.0	$ 8,345,890	Yes	-	-	-
1	Tai Shing	Taiwan Navigation Co., Ltd.	Parent	7,211,022 (US$ 234,772)	337,159 (US$ 10,977)	248,638 (US$ 8,095)	245,413 (US$ 7,990)	245,413 (US$ 7,990)	2.9	7,211,022 (US$ 234,772)	-	Yes	-	-

Note 1: Not more than twice the endorser’s/guarantor’s paid-in capital.

Note 2: Translated at the exchange rate on December 31, 2018, US$1=NT$30.715.

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TABLE 2

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Holding Company Name	Type and Name/Issuer of Marketable Security	Relationship with the Holding Company	Financial Statement Account		December 31, 2018	December 31, 2018		Note
				Number of Shares (In Thousands)	Carrying Amount	Percentage of Ownership (%)	Fair Value
Taiwan Navigation Co., Ltd.	Mandatorily convertible bonds Yang Ming Shares Chunghwa Investment Co., Ltd. Taiwan Foundation International Pte. Ltd. Private placement listed shares Yang Ming Listed shares Yang Ming	More than half of directors assigned by the Ministry of Transportation and Communications - Corporate director More than half of directors assigned by the Ministry of Transportation and Communications More than half of directors assigned by the Ministry of Transportation and Communications	Financial assets at FVTPL - current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - non-current Financial assets at FVTOCI - current	- 4,590 1,500 19,083 13,210	$ 76,777 49,943 45,864 145,794 116,247	- 6.00 15.00 0.82 0.57	$ 76,777 49,943 45,864 145,794 116,247

Note: See Table 5 for the information on investments in subsidiaries and associates.

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TABLE 3

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Seller/Buyer	Related Party	Relationship		Transaction Details	Transaction Details		Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/Sale	Amount	% of Total	Payment Terms	Unit Price	Payment Terms	Ending Balance	% of Total (Note 2)
Taiwan Navigation Co., Ltd. Tai Shing Shin Wang	Yang Ming Tai Shing Taiwan Navigation Co., Ltd. Shin Wang Tai Shing	(Note 1) Subsidiary Parent company The same parent company The same parent company	Freight transportation revenue Rental expense and stevedoring expense Rental expense Rental revenue Rental revenue Rental expense	$ (319,015) 297,151 156,810 (156,810) (689,426) 689,426	(25) 27 14 (7) (32) 95	By negotiations By negotiations By negotiations By negotiations By negotiations By negotiations	$ - - - - - -	- - - - - -	$ 59,043 (26,092) (10,823) 10,823 103,267 (103,267)	98 (70) (29) 9 91 (99)	(Note 3) (Note 3) (Note 3) (Note 3)

Note 1: More than half of directors assigned by the Ministry of Transportation and Communications.

Note 2: The proportion of total receivables (payables).

Note 3: Eliminated upon consolidation.

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TABLE 4

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2018

(In Thousands of New Taiwan Dollars)

Company Name	Related Party	Relationship	Ending Balance	Turnover Rate		Overdue	Amount Received in Subsequent Period	Allowance for Impairment Loss
					Amount	Actions Taken
Tai Shing	Shin Wang	The same parent company	$ 103,267	9.7	$ -	-	$ 103,267	$ -

Note: Eliminated upon consolidation.

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TABLE 5

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

No.	Company Name	Related Party	Relationship			Transaction Details
				Financial Statement Account	Amount	Payment Terms	% of Total Sales or Assets
1	Tai Shing	Taiwan Navigation Co., Ltd. Shin Wang	Parent The same parent company	Operating revenue - rental Trade receivables from related parties Operating revenue - rental Trade receivables from related parties	$ 156,810 10,823 689,426 103,267	The rental of 2 ships in total was calculated for each ship at $2-14 thousand per day and was collected on a monthly basis. Collected based on agreements The rental of 10 ships in total was calculated for each ship at $2-15 thousand per day and was collected on a monthly basis. Collected based on agreements	5 - 20 1

Note: Eliminated upon consolidation.

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TABLE 6

TAIWAN NAVIGATION CO., LTD. AND SUBSIDIARIES

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2018 (In Thousands of New Taiwan Dollars)

Investor Company	Investee Company	Location	Main Business and Products	Investment Amount	Investment Amount	As of December 31, 2018	As of December 31, 2018	As of December 31, 2018	Net Income (Loss) of the Investee	Share of Profit (Loss)	Note
				December 31, 2018	December 31, 2017	Number of Shares (In Thousands)	%	Carrying Amount
Taiwan Navigation Co., Ltd.	Tai Shing Shin Wang Yunn Wang	Panama City, Panama Monrovia City, Liberia Taipei	Rental and sale of ships Rental and sale of ships Investment	$ 3,921,447 32,500 41,861	$ 3,921,447 32,500 41,861	- - 5,211	100.00 100.00 49.75	$ 8,651,166 105,158 115,001	$ 848,505 72,584 7,364	$ 848,505 72,584 3,663	Note Note

Note: Eliminated upon consolidation.

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