SKS and its subsidiaries Notes to Consolidated Financial ... · - 1 - SKS and its subsidiaries...

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SKS and its subsidiaries Notes to Consolidated Financial Statement

Consolidated Financial Statement and Auditors’ Report

2013 and 2012

Address: No.128, Xing’ai Rd., Neihu Dist., Taipei City

Tel: (02) 27968888

Stock No: 9925

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§ CONTENTS §

ITEM

NO. OF NOTES TO FINANCIAL

STATEMENT PAGE NO.

I. Cover page NOTES NO.

1 - II. Contents 2 - III. Declaration for Consolidated Financial

Statements of Affiliated Companies 3 -

IV. Auditors’ report 4 - V. Consolidated Balance Sheet 5 - VI. Consolidated statement of income 6 - VII. Consolidated Statements of Changes in

Shareholders’ Equity 7 -

VIII. Consolidated statement of cash flow 8～10 - IX. Notes to consolidated financial statement

(I) History 11 I (II) Dates and procedures where the

financial reports were resolved 11 II

(III) Applicability of newly promulgated and amended standard rules and interpretations

11～17 III

(IV) Summary of significant accounting policies

17～32 IV

(V) Major sources of major accounting judgments, estimate and hypotheses

32～33 V

(VI) Explanation of important accounting titles

33～63 VI~XXXI

(VII) Transactions-related party 63～65 XXXII (VIII) Pledged assets 66 XXXIII (IX) Major contingent liabilities and

commitments made under unrecognized contracts

66～67 XXXIV

(X) Others 70～71 XXXVII (XI) Noted disclosures

1. Information related to material transactions

67～68， 81～91， 93～113

XXXV

2. Information related to reinvested enterprises

67～68， 81～91， 93～113

XXXV

3. Information about investment in mainland china

68，92 XXXV

(XII) Segment information 69～70 XXXVI (XIII) The initial adoption of

International Financial Reporting Standards ( IFRS)

71～80 XXXVIII

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Declaration for Consolidated Financial Statements of Affiliated Companies

The companies to be included by the Company in the consolidated financial statement of

affiliated enterprises in 2013 (Jan. 1, 2013 - Dec. 31, 2013) pursuant to the Criteria Governing

Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial

Statements of Affiliated Enterprises are the same as those to be included into the consolidated

financial statement of the parent company and subsidiaries pursuant to the Statements of

Financial Accounting Standards No. 27. Further, the related information to be disclosed in the

consolidated financial statement of affiliated enterprises has been disclosed in the said

consolidated financial statement of parent company and subsidiaries. Accordingly, it is not

necessary for the Company to prepare the consolidated financial statement of affiliated

enterprises separately.

Declared by:

Taiwan Shin Kong Security Co., Ltd. and Subsidiaries

Responsible person: Lee Feng-Yau

March 27, 2014

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Auditors’ report To: Taiwan Shin Kong Security Co., Ltd.

The Consolidated Balance Sheets as of December 31, 2013, December 31 and January 1, 2012 and the Consolidated Statement of Comprehensive Income, Consolidated Changes in Equity and Consolidated Cash Flow Statements as of January 1~December 31, 2013 and 2012 of Taiwan Shin Kong Security Co., Ltd. and subsidiaries thereof have been duly audited by the Undersigned Certified Public Accountant. These consolidated financial statements are the responsibility of the management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We have conducted our audit in accordance with the “Guidelines Governing the Audit of Financial Statements by CPA” and generally accepted auditing principles. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the major issues of the financial statements mentioned in Paragraph I prove to have been duly worked out in accordance with and Guidelines Governing the Preparation of Financial Reports by Securities Issuers, International Financial Reporting Standards (IFRS), Regulations and IAS, Interpretations and Interpretation Gazettes recognized by the Financial Supervisory Commission, Executive Yuan, presenting fairly the consolidated financial position of Taiwan Shin Kong Security Co., Ltd. and the subsidiaries thereof as of December 31, 2013; December 31 and January 1, 2012 and the consolidated results of financial performance and consolidated cash flow for the periods starting from January 1 till December 31, 2013 and 2012.

Taiwan Shin Kong Security Co., Ltd.” had duly worked out the 2013 and 2012 individual financial reports for which we, the Undersigned Certified Public Accountant, have duly worked out standard type, Audit Report with unqualified (unreserved) opinion for reference. Deloitte & Touche

CPA Yu Su-Huan

CPA: Y.H. Lin SFC’s written approval No:

Tai-tsai-cheng-(6) No. 0920123784 Financial Supervisory Commission, Executive

Yuan’s written approval No.: Jin-kwong-cheng-(6) No.: 0940161384

March 27, 2014

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Consolidated Balance Sheet

December 31, 2013 and December 31 2012 and January 1, 2012

Unit: NTD1,000

December 31, 2013 December 31, 2012 January 1, 2012 Code Assets Amount ％ Amount ％ Amount ％

Current assets 1100 Cash and cash equivalents (Note 6) $ 4,387,609 29 $ 4,043,092 30 $ 4,056,532 31 1110 Financial assets through profit and/or loss with measuring for the

faire values--current (Cf. Note Nos. 4 & 7) 107,984 1 213,771 2 141,801 1 1125 Available-for-sale financial assets - current (Notes 4 and 8) 3,158,758 21 1,754,972 13 1,519,888 12 1147 Bond investments for which no active market exists. (Cf. Note

Nos. 4 & 10) 27,732 - 29,111 - 124,564 1 1150 Notes receivable (Notes 4 and 11) 172,949 1 152,176 1 157,918 1 1172 Accounts receivable (Notes 4, 11 and 32) 435,975 3 408,666 3 394,160 3 1200 Other accounts receivable 42,800 - 37,262 - 46,931 - 130X Inventories (Notes 4 and 12) 204,085 2 158,030 1 186,002 1 1470 Other current assets (Note 17) 82,743 1 88,019 1 82,696 11XX

1 Total current assets 8,620,635 58 6,885,099 51 6,710,492

51

Noncurrent assets 1523 Available-for-sale financial assets - noncurrent (Notes 4 and 8) 1,988,764 13 2,283,371 17 2,230,772 17 1543 Financial assets carried at cost - noncurrent (Notes 4 and 9) 277,772 2 354,585 3 370,853 3 1550 Investment under Equity method (Notes 4 and 13) 22,421 - 16,319 - 17,343 - 1600 Real estates, plant and equipment (Notes 4, 14 and 33) 3,270,205 22 3,157,312 24 3,024,151 23 1760 Real estate investments - net (Notes 4, 15 and 33) 453,941 3 459,985 3 466,029 4 1780 Other intangible assets (Notes 4 and 16) 16,046 - 22,736 - 28,499 - 1840 Deferred income tax assets (Notes 4 and 27) 153,248 1 153,010 1 131,561 1 1990 Other noncurrent assets - others (Notes 17 and 33) 176,892 1 139,797 1 131,861 15XX

1 Total noncurrent assets 6,359,289 42 6,587,115 49 6,401,069

49

1XXX Total assets $ 14,979,924 100 $ 13,472,214 100 $ 13,111,561 100 Code Liabilities and shareholders’ equity

Current liabilities 2100 Short-term loan (Note 18) $ 1,449,000 10 $ 1,650,000 12 $ 1,930,000 15 2110 Short-term notes and bills payable (Note 18) 1,298,791 9 609,656 4 449,693 3 2150 Notes payable (Notes 19 and 32) 96,225 1 81,477 1 97,345 1 2170 Accounts payable (Notes 19 and 32) 179,516 1 205,122 1 217,628 2 2219 Other accounts payable (Note 20) 995,864 7 901,787 7 790,538 6 2230 Income tax liability for the year 125,902 1 119,388 1 147,548 1 2310 Receipt in advance 844,791 5 777,873 6 803,470 6 2322 Long-term borrowings - current portion (Note 18) 1,322 - 1,340 - 1,932 - 2399 Other current liabilities - others (Note 20) 47,984 - 50,202 - 45,283 21XX

- Total current liabilities 5,039,395 34 4,396,845 32 4,483,437

34

Noncurrent liabilities 2540 Long-term loan (Note 18) 9,255 - 10,412 - 19,319 - 2551 Provisions for employee benefits－Non-current (Note 21) 26,218 - 11,560 - - - 2645 Guarantee deposits received (Note 23) 272,575 2 277,106 2 300,088 3 2640 Accrued pension liability (Notes 4 & 22) 477,309 3 460,657 4 407,708 3 2670 Other current liabilities (Note 20) - - - - 783 25XX

- Total noncurrent liabilities 785,357 5 759,735 6 727,898

6

2XXX Total liabilities 5,824,752 39 5,156,580 38 5,211,335

40

Interest attributable to owners belonging to the Company (Note 24) Capital stock 3110 Common shares 3,798,545 25 3,798,545 28 3,798,545 3200

29 Additional paid-in capital 146,302 1 146,302 1 146,302

1

Retained earnings 3310 Legal reserve 1,219,715 8 1,122,895 8 1,033,297 8 3320 Special reserve 912,639 6 951,278 7 354,446 3 3350 Unappropriated earnings 1,471,341 10 1,198,827 9 1,621,944 3300

12 Total retained earnings 3,603,695 24 3,273,000 24 3,009,687

t3400 23

Other equity 1,001,510 7 596,243 5 473,489 3500

3 Treasury stocks ( 39,521 ) - ( 39,521 ) - ( 39,521 )

31XX -

Total of the Company’s equity attributable to owners 8,510,531 57 7,774,569 58 7,388,502 56 33XX Non-controlling interest (Note 24) 644,641 4 541,065 4 511,724

4

3XXX Total shareholders’ equity 9,155,172 61 8,315,634 62 7,900,226

60

Total liabilities and shareholders’ equity $ 14,979,924 100 $ 13,472,214 100 $ 13,111,561 100

Notes to the consolidated financial statements constitute a part of these financial statements.

Chairman: Lee Feng-Yau Manager: Lin Po-Fong Executive Accountant: Weng Tsung-Hsien

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Consolidated statement of income

Years ended December 31, 2013 and 2012

Unit: NTD1,000, except for EPS (NT$)

2013 2012

Code Amount ％ Amount ％ 4000 Net revenues (Notes 4, 25 and

32) $ 7,516,434 100 $ 6,850,812 100 5000 Operating expenses (Notes 26

and 32) ( 4,927,006 ) ( 66 ) ( 4,364,619 ) ( 64

)

5900 Gross income from operations 2,589,428 34 2,486,193

36

Operating expenses (Notes 26 and 32)E

6100 Sales promotion expenses ( 192,656 ) ( 3 ) ( 182,433 ) ( 3 )

6200 Operating expenses ( 1,318,791 ) ( 17 ) ( 1,308,663 ) ( 196000

) Total operating

expenses ( 1,511,447 ) ( 20 ) ( 1,491,096 ) ( 22

)

6900 Net operating profit 1,077,981 14 995,097

14

Non-operating income and expense (Note 26 and 32)

7190 Other revenue 259,556 3 251,732 4 7070 Amounts of profit and/or

loss of subsidiaries recognized in equity method, associates and the share of the profit or loss of joint ventures. 11,030 - 2,619 -

7590 Other gain or loss 21,155 - 10,828 - 7670 Impairment loss ( 30,786 ) - ( 36,475 ) ( 1 ) 7050 Financial cost ( 33,369 ) - ( 31,380 ) 7000

- Total non-operating

income and expense 227,586 3 197,324

3

7900 Income before tax 1,305,567 17 1,192,421 17 7950 Income tax expense (Note 27) ( 227,399 ) ( 3 ) ( 197,282 ) ( 3

)

8200 Net income 1,078,168 14 995,139

14

(To be continued)

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(Continued)

2013 2012 Code Amount ％ Amount ％

Other comprehensive income 8310 The difference in foreign

exchange converted with the financial reports of overseas operating institutions $ 1,141 - ( $ 6,270 ) -

8370 The share of other comprehensive income of associates and joint ventures recognized in equity method ( 3,618 ) - ( 4,935 ) -

8325 Unrealized benefit in evaluation of available-for-sale financial assets 430,420 6 106,193 2

8360 The actuarial profit and/or loss of ascertained welfare plans (loss) ( 12,347 ) - ( 36,826 ) ( 1 )

8399 Income tax linked up with composition of other comprehensive income 1,263 - 7,860

8300 -

Total of other comprehensive income (net amount after tax) this term 416,859 6 66,022

1

8500 Total comprehensive income

this term $ 1,495,027 20 $ 1,061,161 15 The net earnings belong to 8610 The owner of the

Company $ 1,023,175 13 $ 938,019 14 8620 Non-controlling interest 54,993 1 57,120 8600

1 $ 1,078,168 14 $ 995,139 15

The total comprehensive

income belongs to 8710 The owner of the

Company $ 1,419,700 19 $ 1,031,820 15 8720 Non-controlling interest 75,327 1 29,341 8700

- $ 1,495,027 20 $ 1,061,161 15

Earnings per share (Note 28) 9710 Basic $ 2.71 $ 2.48 9810 Diluted $ 2.71 $ 2.48



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Consolidated Statements of Changes in Shareholders’ Equity


Unit: NTD1,000

The owners’ interest belongs to the Company Other items of interest The difference

in foreign exchange

converted with the financial

reports of overseas operating

institutions

Unrealized profit (loss) of Available-for- sale financial

assets

Capital stock Retained earnings

Code Shares

(thousand) Amount Additional

paid-in capital Legal reserve Special reserve Unappropriated

earnings Treasury

stocks Total

Non-controlling interest

(Note 24)

Total shareholders’

equity A1 Balance at December 31, 2012 379,855 $ 3,798,545 $ 146,302 $ 1,033,297 $ 354,446 $ 1,621,944 $ - $ 473,489 ( $ 39,521 ) $ 7,388,502 $ 511,724 $ 7,900,226 Appropriation and allocation of

earnings in 2011 B1 Legal reserve - - - 89,598 - ( 89,598 ) - - - - - - B3 Special reserve - - - - 596,832 ( 596,832 ) - - - - - - B5 Cash dividend to the

Company’s shareholders - - - - - ( 645,753 ) - - - ( 645,753 ) - ( 645,753 ) D1 2012 net profit - - - - - 938,019 - - - 938,019 57,120 995,139 D3 Other comprehensive income

after-tax, 2012 - - - - - ( 28,953 ) ( 7,526 ) 130,280 - 93,801 ( 27,779 )

66,022

D5 Total comprehensive income of 2012 - - - - - 909,066 ( 7,526 ) 130,280 - 1,031,820 29,341

1,061,161

Z1 Balance at December 31, 2012 379,855 3,798,545 146,302 1,122,895 951,278 1,198,827 ( 7,526 ) 603,769 ( 39,521 ) 7,774,569 541,065 8,315,634 Appropriation and allocation of

earnings in 2012 B1 Legal reserve - - - 96,820 - ( 96,820 ) - - - - - - B3 Special reserve - - - - ( 38,639 ) 38,639 - - - - - - B5 Cash dividend to the

Company’s shareholders - - - - - ( 683,738 ) - - - ( 683,738 ) - ( 683,738 ) D1 2013 net profit - - - - - 1,023,175 - - - 1,023,175 54,993 1,078,168 D3 Other comprehensive income after

tax, 2013 - - - - - ( 8,742 ) ( 215 ) 405,482 - 396,525 20,334

416,859

D5 Total comprehensive income, 2013 - - - - - 1,014,433 ( 215 ) 405,482 - 1,419,700 75,327

1,495,027

O1 Increase in non-controlling

interest - - - - - - - - - - 28,249

28,249

Z1 Balance at December 31, 2013 379,855 $ 3,798,545 $ 146,302 $ 1,219,715 $ 912,639 $ 1,471,341 ( $ 7,741 ) $ 1,009,251 ( $ 39,521 ) $ 8,510,531 $ 644,641 $ 9,155,172



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Consolidated statement of cash flow


Unit: NTD1,000

Code 2013 2012

Cash flow from operating activities A00010 Continuing operation pre-tax net profit $ 1,305,567 $ 1,192,421 A20010 The loss items of the gains that do not

affect cash flow A20300 Bad debt expense 4,814 6,533 A20100 Depreciation 364,245 321,923 A29900 Depreciation on real estate

investments (presented as a deduction to rental income) 6,044 6,044

A20200 Amortization 10,717 7,554 A29900 Provision for liabilities 14,658 11,560 A22300 The share of the profit or loss of

associates, joint ventures that adopt equity method ( 11,030 ) ( 2,619 )

A20900 Financial cost 33,369 31,380 A21200 Interest revenue ( 5,845 ) ( 4,932 ) A23700 Gain from re-bouncing inventory ( 1,535 ) - A22500 Loss in disposal of real estate, plant

buildings, equipment & facilities 276 4,647 A20400 The loss (profit) in financial assets

measured in fair values through profit and/or loss method 2,120 ( 21,050 )

A23500 Loss in impairment in financial assets 30,786 36,475

A23100 Net gain from disposal of available-for-sale financial assets ( 39,459 ) ( 15,425 )

A29900 Fixed assets converted into consumable costs 24,666 21,923

A30000 Net change in operating assets and liabilities

A31110 Decrease (increase) in financial assets held for transaction purposes 103,667 ( 50,920 )

A31130 Decrease (increase) in notes receivable ( 20,662 ) 5,655

A31150 Increase in notes receivable ( 28,817 ) ( 31,558 ) A31180 Increase (decrease) in other

accounts receivable ( 5,538 ) 9,669 A31200 Decrease (Increase) in inventories ( 44,520 ) 27,972 A31240 Increase (decrease) in other current

assets 5,276 ( 5,323 ) A32130 Increase (decrease) in notes payable 14,748 ( 15,868 ) A32150 Decrease in accounts payable ( 25,606 ) ( 12,506 ) A32180 Increase in other payables 91,461 137,173 A32200 Increase (Decrease) in advance

receipts 66,918 ( 25,597 ) A32230 Increase (decrease) in other current

liabilities ( 2,218 ) 4,136 A32230 Increase in accrued pension

liabilities 4,305

16,123

(To be continued)

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(Continued)

Code 2013 2012 A33000 Cash yielded in business operation $ 1,898,407 $ 1,655,390 A33300 Interest paid ( 33,369 ) ( 31,775 ) A33500 Income tax paid ( 219,860 ) ( 276,632AAAA

) Net cash inflow from operating

activities 1,645,178

1,346,983

Cash flow from investing activities B00300 Acquisition of available-for-sale financial

assets ( 1,382,653 ) ( 627,982 ) B01200 Financial assets carried at cost - ( 15,000 ) B01400 Return of capital from capital reduction

of financial assets carried at cost 48,290 12,214 B01800 Proceeds for acquisition of long-term

investments under equity method - ( 1,140 ) B00400 Proceeds from the disposal of

available-for-sale financial assets 736,330 481,466 B00700 Proceeds from disposal of bond

investments for which no active market exists 1,379 95,453

B02700 Procurement of Real estates, plant and equipment ( 468,998 ) ( 523,251 )

B04500 Procurement of intangible assets ( 4,027 ) ( 1,791 ) B02800 Proceeds from sales of real estate, plant

buildings, equipment & facilities 1,731 3,654 B07500 Interest collected 5,845 4,932 B06700 Increase in other assets ( 47,723 ) ( 2,150BBBB

) Net cash outflow from investing

activities ( 1,109,826 ) ( 573,595

)

Cash flow from financing activities C00500 Increase in short-term notes payable 689,135 159,963 C00200 Short-term loan increase (decrease) ( 201,000 ) ( 280,000 ) C01700 Long-term loan paid ( 1,175 ) ( 9,499 ) C03100 Return of guarantee deposits received ( 4,531 ) ( 22,982 ) C04500 Cash dividend paid ( 683,738 ) ( 645,753 ) C05800 Change in non-controlling interest 28,249 CCCC

- Net cash outflow from financing

activities ( 173,060 ) ( 798,271

)

DDDD Impact of change in exchange rate upon cash & cash equivalents ( 17,775 )

11,443

EEEE Increase (decrease) in cash and cash

equivalents 344,517 ( 13,440 ) E00100 Balance of cash and cash

equivalents-beginning 4,043,092

4,056,532

E00200 Balance of cash and cash equivalents-end $ 4,387,609 $ 4,043,092



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Notes to consolidated financial statement


(Expressed in Thousand New Taiwan Dollars unless specified otherwise)

I.

Taiwan Shin Kong Security Co., Ltd. (referred to as “SKS” hereinafter) was

incorporated in January 1980 in Taipei City and with 21 branches and 73 offices

setup throughout the years. The Company is primarily engaged in the design, sale,

lease, installation, maintenance, repairing and inspection of natural calamity, theft

and fire resistant facilities, and the import/export related to the said products, as

well as operation and investment of the relevant business.

History and general information of the Company

SKS’s stocks have been traded on TSE since December 1995.

As officially resolved in the board of directors meeting of Taiwan Shin Kong

Security Co., Ltd. convened on August 28, 2012, Taiwan Shin Kong Security Co.,

Ltd. merged Shin Kong Aerotech International Co., Ltd. After the merger, Taiwan

Shin Kong Security Co., Ltd. was the surviving company. All rights & obligations

of Shin Kong Aerotech International Co., Ltd. were taken over en bloc by Taiwan

Shin Kong Security Co., Ltd. The merger program was officially approved by the

competent authority and was completed in registry in October 2012.

The present Consolidated Financial Report is expressed in New Taiwan

Dollars, the functional currency adopted by Taiwan Shin Kong Security Co., Ltd.

II.

The present Consolidated Financial Report was duly promulgated after being

officially resolved in the board of directors meeting convened on March 27, 2014.

Dates and procedures where the financial reports were resolved

III.

(I) The new promulgation/amendment/newly amended rules and

interpretations, which have been promulgated, but have not come into

effect.

Applicability of newly promulgated and amended standard rules and interpretations

To the Company and the entities controlled by the Company

(hereinafter collectively referred to as “Merging Company”), the

International Financial Reporting Standards (IFRS), Regulations and

International Accounting Standards (IAS), the Interpretation (IFRIC) and

(SIC) are not applicable. In accordance with the “Implementation

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Framework of Adoption of the Advanced Version of the International

Financial Reporting Standards (IFRS) in the Republic of China”

promulgated by the Financial Supervisory Commission, Executive Yuan

(hereinafter referred to as Financial Supervisory Commission) on January

28, 2014, the firms listed on the Taiwan Stock Exchange,

Over-the-Counter Securities Exchange and Emerging Stock Firms shall

upgrade 2010 Version IFRS, IAS, IFRIC & SIC (hereinafter referred to as

“IFRSs”) into 2013 Version IFRSs (excluding IFRS 9 “Financial Tools”

start from 2015. As of the date while the present Consolidated Financial

Report was resolved and promulgated, the Financial Supervisory

Commission had not recognized the new/Amendment/Amended Rules and

Interpretation of 2013 Version IFRSs and had not yet promulgated the

effective date of the new/Amendment/Amended Rules and Interpretation

of 2013 Version IFRSs.

The effective date promulgated by IASB

(Note 1) The new/Amended Rules and Interpretation

of 2013 Version IFRSs

The amendment of “IFRSs Improment－Amendment to IAS 39 (2009) ” by IFRSs.

January 1, 2009 or January 1, 2010

The “embedded derivatives” amendment by IAS 39.

It came into effect in the fiscal year after the end of June 30, 2009.

“IFRSs Improvement (2010) ” July 1, 2010 or January 1, 2011

“Annual IFRSs Improvement of 2009~2011 Period”

January 1, 2013

The IFRS 1 Amendment: “Restricted Waiver to the Initial Users of IFRS 7”.

July 1,2010

The IFRS 1 Amendment: “Removal of fixed date(s) in case of serious and high level inflation and initial users”

July 1, 2011

The IFRS 1 Amendment: “Government loans”

January 1, 2013

The IFRS 7 Amendment: “Disclosure-Inter-offset by and between financial assets and financial liabilities”

January 1, 2013

The IFRS 7 Amendment: “Disclosure-Transfer of financial assets”

July 1, 2011

IFRS 10 “Consolidated Financial Reports” January 1, 2013 IFRS 11 “Concerted Agreement” January 1, 2013 IFRS 12 “Disclosure of other individual January 1, 2013

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(Note 1) entities”

IFRS 10, IFRS 11 and IFRS 12 Amendments: “Guidelines of transitional regulations of Consolidated Financial Reports, Concerted Agreement and Disclosure of Other Individual Entities:”

January 1, 2013

IFRS 10, IFRS 12 and IAS 27 Amendment “Investment entities”

January 1, 2014

IFRS 13 “Measuring of fair values” January 1, 2013 IAS 1 Amendment: “Expression of other comprehensive income items”

July 1, 2012

IAS 12 Amendment: “Deferred income tax: Retrieval of target assets”

January 1, 2012

IAS 19 Amendment: “Employee fringe benefits ”

January 1, 2013

IAS 27 Amendment: “Individual Financial Statements”

January 1, 2013

IAS 28 Amendment: “Investment in associates and joint ventures”

January 1, 2013

IAS 32 Amendment: “Offset between financial assets and financial liabilities”

January 1, 2014

IFRIC 20 “Rule-out of costs of the outdoor quarries during the production phase”

January 1, 2013

The new/Amended Rules and Interpretation

not covered within 2013 Version IFRSs

The annual IFRSs Improvement during 2010~2012 period

July 1, 2014 (Note 2)

The annual IFRSs Improvement during 2011~2013 period

July 1, 2014

IFRS 9 “financial instruments” Note 3 IFRS 9 and The IFRS 7 Amendment: “Mandatory effective date and excessive disclosure”

Note 3

(To be continued)

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(Continued)


(*1) IFRS14 “Deferred accounts under control” January 1, 2016 IAS 19 Amendment: “Ascertained fringe benefit plans: Appropriation to employees”

July 1, 2014

IAS 36 Amendment: “Disclosure of the recoverable amounts in non-financial assets”

January 1, 2014

IAS 39 Amendment: “Continuity of contract replacement for derivative financial instruments and hedging accounting”

January 1, 2014

IFRIC 21 “Amount of expropriation” January 1, 2014

Note 1: Unless otherwise expressly remarked, the aforementioned

new/Amendment/Amended Rules or Interpretation come into

effect in the fiscal year starting from the respective specified

effective dates.

Note 2: The IFRS 2 amendment is applicable to the transactions on the

grounds of shares on and after July 1, 2014 in case of the date of

presentation. The IFRS 3 amendment is applicable to the

enterprise merger cases on and after July 1, 2014 in case of date

of acquisition. IFRS 13 comes into effect simultaneously at the

time of amendment. Other amendments are applicable to the

fiscal years after July 1, 2014.

Note 3: IASB provisionally fixed the fiscal year after January 1, 2018 as

the effective date for implementation of IFRS 9.

(II) Explanation of major changes in the accounting policies incurred by the

new promulgation/Amendment/Amended Rules and Interpretation, which

have been promulgated but have not come into effect.

Except the cases explained below, application of the new

promulgation/Amendment/Amended Rules or Interpretation would not

lead to a significant change in the accounting policies of the merging

company.

1. IFRS 9 “financial instruments”

Recognition and measuring of the financial assets

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In the aspect of the financial assets, all those, which previously

belonged to IAS 39 recognition and measuring scope of the

“financial instruments and the subsequent measuring of the financial

assets”, were measured with the post-amortization cost or with the

measuring of fair values. In the event that the Merging Company

operates business in a mode to collect cash flow under the contract

by means of holding the said financial assets and the cash flow under

the contract is totally intended to pay off the principal and interest of

the outstanding principal, such financial assets shall be measured

with the post-amortization principal. Other financial assets not

consistent with the aforementioned conditions shall be measured for

fair values. Where the Merging Company may choose the initial

recognition, nevertheless, the equity investment not to be held for the

interests in the transaction is designated to be measured through the

fair value of other comprehensive profit and/or loss. Except the gain

in dividend, which is recognized in the category of profit and/or loss,

other relevant interests and losses are recognized in other

comprehensive profit and/or loss.

In terms of the financial liabilities, the major changes in the

classification and measuring are to conduct subsequent measuring

through the profit and/or loss based on the measuring of fair values

of the financial liabilities. Among the changes in the amounts of the

fair values of the financial liabilities, the changes in the credit risks

are recognized into other comprehensive profit and/or loss and are

subsequently not reclassified to profit and/or loss of comprehensive

income. The amounts of the changes in the remaining fair values are

recognized into profit and/or loss. In the event that the

aforementioned account management for measuring of fair values

financial liabilities through profit and/or loss would incur or

aggravate inappropriate accounting allocation ratios, all profit and/or

loss of such liabilities shall be entered into profit and/or loss in full.

The recognition and measuring of the financial liabilities

2. The newly enacted/amended regulations regarding merger, concerted

agreement, associates and relevant disclosures.

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(1) IFRS 10 “Consolidated Financial Reports”

The Regulations will supersede IAS 27 “Consolidated

and Individual Financial Statements” and, meanwhile,

supersede SIC 12 “Merger, Special Purpose Entities”. The

Merging Company takes into account whether other entities

had been in controlling power to resolve whether they should

be covered into the entities of merger. Where the Merging

Company (i) holds powers over an investee, (ii) yields

exposure to risk or rights in the change in remuneration due to

its participation in an investee, and (iii) uses its powers over

that investee in an attempt to affect the capability of the

amount of remuneration, that Merging Company is interpreted

to have controlling power over that investee. Additionally, in a

relatively more complicated situation, whether the investor

possesses the controlling power. The new regulations provide

more practical guidelines.

(2) IFRS 12 “Disclosure of the interests of other entities”

The new Regulations provide more extensive

disclosures of the contents about the subsidiaries, concerted

agreements, associates and the interests of the entities that are

not covered into the consolidated financial statements.

(3) IAS 28: Amendment of “Investment in associates and joint

ventures”

In accordance with the newly amended Regulations,

the Merging Company only transferred the investment in

associates in the conditions held for sale as investment held for

sale and continually adopted the equity method for any equity

not classified into “being held for sale”. Before the said

amendment became applicable, when the investment in

associates were consistent with the conditions of being held for

sale, the Merging Company transferred the entire investment in

the associates into the category of being held for sale and

discontinued the use of equity method for all cases.

3. IFRS 13 “Measuring of fair values”

- 17 -

IFRS 13: “Measuring of fair values” provides guidelines to

measure the fair values. The Regulations define the fair value, set up

the framework to measure the fair values and require disclosure of

measuring of the fair values. Besides, the Regulations call for more

extensive disclosures of the contents than the contents required under

the currently prevalent Regulations. For instance, the existent

Regulations only require that the financial instruments measured in

fair values should be disclosed in Degree 3. Under IFRS 13

“Measuring of fair values”, all assets and liabilities subject to the

Regulations shall be disclosed in the aforementioned manner in full.

4. IAS 1: Amendment of “Expression of other comprehensive income

items”.

In accordance with the amended Regulations, other

comprehensive income items should be duly classified by attributes,

into the groups of (1) Those which would not be reclassified to profit

and/or loss subsequently and (2) Those which would not be

reclassified to profit and/or loss subsequently (when consistent with

the conditions). The relevant income tax should be classified on the

same grounds. Before the amended Regulations became applicable,

there had not been mandatory requirements in classification as

mentioned above.

5. IAS 36: Amendment of the “disclosure of the amount of the

recoverable non-financial assets”.

Upon promulgation of IFRS 13 “Measuring of fair values”,

IASB simultaneously amended the requirements of disclosure of

“IAS 36 impairment of assets”. As a result, the Merging Company

should additionally disclose the assets and amounts recoverable to

the units that yielded cash. The present IAS 36 amendment was

intended to clarify that the Merging Company is only required to

recognize or restore the amount recoverable in the term while the

impairment occurred. Besides, if the recoverable amount was

measured in fair value calculated at the current value deducted with

the costs of disposal, the Merging Company should additionally

disclose the discounting percentage adopted for the disclosure.

- 18 -

6. The annual IFRSs improvement during the 2010-2012 period.

The annual IFRSs improvement during 2010-2012 period

amended a number of regulations, including IFRS 2 “Share-Based

Payment”, “IFRS 3 Enterprise Merger” and IFRS 8 “Operating

Departments”

The IFRS 2 amendment changed the definitions of vested

conditions and market price conditions and additionally provided the

definitions of the conditions of performances and services. Under the

said amendment, the targets of performances fixed for the conditions

of performances may be set pursuant to the market values (market

value conditions) of business operation of another entity of the same

group or the equity tools. The setting of the said target performance

was relevant to the overall or partial (e.g., a certain department) of

the merging company. The duration to accomplish the performance

should not be longer than the duration of services. Besides, the said

amendment also clarified the target of stock price index. Where it

simultaneously reflects the performances of other enterprises beyond

the Merging Company and the group, it is not classified as the

performance based conditions.

The IFRS 3 amendment was intended to clarify the contingent

consideration of the enterprise merger. It should be measured for the

fair values disregarding whether it falls within the applicability of

IAS 39 or IFRS 9. The change in the fair value was recognized into

the profit and/or loss.

The IFRS 8 amendment was intended to clarify that if the

Merging Company makes an overall disclosure of the operating

department of similar economic characteristics, it should disclose

through consolidated financial reports to the management to be used

for judgment in utilizing the assembling base. Besides, the

amendment also clarified the Merging Company should disclose the

total assets of the departments which should be reported into the

adjustment information of the total amounts of that department only

in the event when the assets of the department should be provided to

the major policymakers.

- 19 -

IFRS 13 was amended to clarify that after IFRS 13 became

applicable, the short-term receivables and payables without fixed

interest rates should still be measured based in the amounts of the

initial invoices if the discount would not yield a significant impact.

IAS 24 “Disclosure of concerned parties” was amended to

clarify that in the event that the managerial entity that provides

services to the key management of the Merging Company is a

concerned party of that merging company, it should disclose the

amounts having been paid or payable to the managerial entity that

provided services to the management. The Merging Company was,

nevertheless, not required to disclose the categories in the

compositions of the salary remuneration.

7. The annual IFRSs improvement during the 2011-2013 period.

The annual IFRSs improvements during the 2011-2013 period

amended certain regulations, notably IFRS 3, IFRS 13 and IAS 40

“investment-oriented real estate”.

The IFRS 3 amendment was intended to clarify the accounting

manager that is not applicable to the financial reports of the

concerted agreement regarding incorporation.

The IFRS 13 amendment aimed at the amendment upon

exception of the fair values in the financial assets and financial

liabilities, which were measured on the grounds of net amount (i.e.,

the “composed exception”). The amendment was intended to clarify

exceptions in such scope including the scope of applicability of IAS

39 or IFRS 9, all contracts managed in accordance with such

requirements, even if such contracts are not consistent with IAS 32

“financial instruments: Expression” over the definitions of the

financial assets or financial liabilities.

The IAS 40 amendment was intended to clarify that the

Merging Company should simultaneously, on the grounds of IAS 40

and IFRS 3 judgments, ascertain that the acquired

investment-oriented real estate was in the attributes of acquired

assets or entrepreneurial merger.

- 20 -

(III) Explanations about the potential impact of the newly

promulgated/amended/regulations amendment, which have been

promulgated, but not yet come into effect upon the financial reports of the

Company.

As of the date while the consolidated financial report was resolved

and promulgated, the Merging Company had continually assessed the

potential impact of the aforementioned Regulations and explanations upon

the financial standing and results of business operation. The relevant

impacts would be disclosed when the assessment is completed.

IV.

In accordance with the “Implementation Framework of Adoption of the

International Accounting Standards (IAS) by the Enterprises in the Republic of

China” promulgated by the Financial Supervisory Commission on May 14, 2009,

the firms listed on the Taiwan Stock Exchange, Over-the-Counter Securities

Exchange and Emerging Stock Firms shall work out the financial reports in the

Guidelines Governing the Preparation of Financial Reports by Securities Issuers

and IFRS, IAS, IFRIC & SIC (hereinafter referred to as “IFRSs”) starting from

2013.

Summary of significant accounting policies

The 2013 Consolidated Financial Report of the Merging Company was the

first Consolidated Financial Report of IFRSs. The Merging Company converted to

IFRSs on January 1, 2012. Please refer to Note 38 about the potential impact of

conversion into IFRSs upon the Merging Company.

(I) Declaration in compliance

The present Consolidated Financial Report has been duly worked

out in accordance with the Guidelines Governing the Preparation of

Financial Reports by Securities Issuers and Financial Supervisory

Commission approved IFRSs.

(II) Grounds for preparation

Except the financial instruments measured in fair values, the

Consolidated Financial Report has been duly prepared on the grounds of

historical costs. The term “historical cost” as set forth herein is normally

determined based on the fair values paid for the assets so acquired.

The initial Balance Sheet of the Merging Company when converted

to IFRSs was measured on the grounds of IFRS 1, the requirements of the

- 21 -

initial adoption of “International Financial Reporting Standards ( IFRS)”.

Except the events banned by the IFRS from retrospective application and

the waiver granted by IFRSs (Cf. Note 38 for the option of waiver by the

Merging Company) , the IFRSs requirements applied to the Merging

Company retrospectively.

(III) Standards in differentiating current and non-current assets and liabilities

Current assets include:

1. Assets held primarily for the purposes of transactions

2. Assets anticipated to be realized within twelve (12) months after the

balance sheet date and

3. Cash & cash equivalents (but excluding those to be exchanged or

subject to restriction due to liquidation of liabilities more than twelve

(12) months after the balance sheet date).

Noncurrent assets include:

1. Liabilities held primarily for the purposes of transactions

2. Liabilities anticipated to be paid off within twelve (12) months after

the balance sheet date (Even those liabilities resolved after the

balance sheet date, with agreement reached for re-financing or

rearranged payment before the financial report, they should still be

classified as current liabilities) and

3. the liabilities the deadline of pay-off of which could not be

unconditionally postponed till at least twelve (12) months after the

balance sheet date. Where the liabilities might be paid off at the

discretion of the other party through the tools of the issuance equity,

the classification would remain unaffected.

Those not as aforementioned current assets or current liabilities are

classified into noncurrent assets or non-current liabilities.

(IV) Grounds of merger

1. The principles to prepare the Consolidated Financial Report

The present Consolidated Financial Report is the financial

reports containing the Company, the entities under the control by the

Company (subsidiaries, including entities of specific objectives).

The Consolidated Statement Of Comprehensive Income

already covered the operating profit and/or loss of the subsidiaries,

- 22 -

which have been acquired or disposed of the current term, from the

date of acquisition until the date of disposal.

The financial reports of the subsidiaries have been duly

adjusted so that their accounting policies would be consistent with

the accounting policies of the Merging Company.

Upon preparation of the Consolidated Financial Report, the

transactions among entities, balances, gains, expenses and losses on

account have been written out in full.

The total comprehensive incomes of the subsidiaries were

non-controlling interest attributed to the Company’s owners and the

non-controlling interest, to become the balance of loss even as the

non-controlling interest.

The comprehensive income was proportioned to the

non-controlling interest.

- 23 -

2. The subsidiaries covered within the Consolidated Financial Report

The present Consolidated Financial Report was prepared with

the key entities below:

Percentages of the equity held

Investor

Name of subsidiary

December 31, 2013

December 31, 2012

January 1, 2012

SKS YKS 69.00 69.00 69.00 Taiwan Security 99.58 99.58 99.58 Shin-Po

Investment 79.87 76.38 76.38

Yi Kong Building Management

80.00 80.00 70.00

eTech 49.00 49.00 49.00 Shin Kong

Aerotech - - 97.07

Shinsoft Co., Ltd

57.43 57.43 57.43 Shincluster

Electronics 19.00 19.00 19.00

New Light International

19.00 19.00 19.00 Shin-Po

International 100.00 100.00 100.00

Thai-SK Security International Co., Ltd.

52.06 52.06 52.06

Shin Kong (Thai) Security International Co., Ltd.

40.00 40.00 40.00

Taiwan Artificial Intelligent Robots Co., Ltd.

100.00 100.00 100.00

Lien-An Service Co., Ltd.

19.00 19.00 19.00 Hsin Hsin

Investment Co., Ltd.

100.00 - -

Shin-Po Investment

Shinkong Optical

99.63 99.63 99.63 Shinsoft Co.,

Ltd 36.33 36.33 36.33

Shin-Tow Overseas

100.00 100.00 100.00 Shinkong

Technology Co., Ltd.

100.00 100.00 100.00


15.00 15.00 15.00 Yi Kong House

Keeping Service Co., Ltd

30.00 30.00 30.00

Taiwan Security 0.21 0.21 0.21 eTech 1.93 1.93 1.93 Shincluster

Electronics 2.00 2.00 2.00

Shin Kong - - 0.20

- 24 -

Aerotech YKS Shin-Po

Investment 20.13 23.61 23.61


3.90 3.90 3.90


4.59 4.59 4.59

Shin Kong Aerotech

- - 1.33 Taiwan Security 0.19 0.19 0.19 Lien-An Service

Co., Ltd. 0.20 0.20 0.20


eTech 49.00 49.00 49.00


15.00 15.00 15.00 Yi Kong House

Keeping Service Co., Ltd

70.00 70.00 70.00

(To be continued)

- 25 -

(Continued)

Percentages of the equity held

Investor

Name of subsidiary

December 31, 2013

December 31, 2012

January 1, 2012

eTech Shincluster Electronics

19.00 19.00 19.00 Shinsoft Co.,

Ltd 6.05 6.05 6.05

Shin Kong Aerotech

- - 1.33 Yi Kong

Building Management

8.00 8.00 8.00

Shin Kong Aerotech


- - 10.00

Shinkong Optical


8.00 8.00 8.00

Shin-Po International

Shin Kong Overseas Enterprise

100.00 100.00 100.00

Shincluster Electronics

Shincluster International

100.00 100.00 100.00 Thai-SK

Security International Co., Ltd.

4.59 4.59 4.59

Shinsoft Co., Ltd

0.14 0.14 0.14 Shincluster International

Shanghai Shin Kong Security

5.25 5.25 5.25 Thai-SK Security International Co., Ltd.


9.00 9.00 9.00

Shin-Tow Overseas

Shin-Tow Investment Overseas

100.00 100.00 100.00

Shin-Tow Investment Overseas

Shanghai Shin Kong Security

87.75 87.75 87.75

Shanghai Shin Kong Property Management

86.57 86.57 86.57

Beijing Yi Kong Property Management Ltd.

70.00 70.00 70.00

Chengdu Yi Kong Property Management Ltd.

70.00 70.00 -

Xiamen Shin-Po Property Service Co., Ltd.

100.00 100.00 100.00

Xiamen Shin-Po Property Service Co.,

Xiamen Shin-Po Security Equipment Ltd.

100.00 100.00 100.00

- 26 -

Ltd. Hsin Hsin Investment Co., Ltd.

Shin Pao Life Concern Co., Ltd.

100.00 - -

With the exception of Shin-Po International, Thai-SK Security

International Co., Ltd, Shin Kong (Thai) Security. International Co.,

Ltd, SKOE, Shin-Tow, Shin-Po Investment Overseas, Shincluster

International, Shanghai Shin Kong, ShanGhai SK Property, Beijing

Yi Kong, Xiamen Property, Xiamen Security, Taiwan Robots, and

Yi-Kong Housekeeping, which were reported based on unaudited

figures, all other subsidiaries under the consolidated entity were

reported based on audited financial statements for the corresponding

period. As at 31 December, 2013 and 2012, the abovementioned

subsidiaries represented assets totaling $258.595 million (or 1.73%)

and $231.738 million (or 1.72%), and liabilities totaling $41.236

million (or 0.71%) and $36.968 million (or 0.72%), respectively. For

the years 2013 and 2012, they generated $262.905 million (3.50%)

and $259.880 million (3.79%) in net revenues, and produced a

after-tax net profit of $36.299 million (2.43%) and a net loss of

$11.074 million (1.04%), respectively. However, the management

believed that the aforementioned financial statements not audited by

CPAs would not cause significant effects.(V) Foreign currency

When the respective entities prepared for the financial reports, the

transactions conducted in currencies other than the entities’ functional

currencies (foreign currencies) were converted into the records of

functional currencies based on the exchange rates quoted on the date of

transactions.

The items in foreign currencies were converted at the exchange

rates closed on each and every balance sheet date. The difference in

foreign exchanges incurred by the items of settlement currency items or

conversion currency items was recognized as the profit and/or loss for the

term of occurrence.

The foreign currencies, non-current items measured at fair values

were converted at the exchange rates quoted on the date on which the fair

values were determined. The difference in foreign exchange so incurred

- 27 -

was entered as the profit and/or loss of the current term. In the event where

the change in the fair value was recognized into other comprehensive

profit and/or loss, the difference of the foreign exchange so incurred was

entered as other comprehensive profit and/or loss.

The non-current items measured at historical costs were converted

based on the exchange rate quoted on the date of transaction and were not

converted anew.

Upon preparation of the Consolidated Financial Report, the assets

and liabilities of the Merging Company’s overseas operating institutions

(including the subsidiaries, associates, joint ventures or branches in the

countries of business operation or those using currencies different from the

Company’s) were converted to New Taiwan Dollars based on the

exchange rate quoted on every balance sheet date. The gain, fee and loss

items were converted based on the exchange rates averaged in the current

term. The difference of conversion so incurred was entered as other

comprehensive income.

Upon disposal of the overseas operating institutions, which forfeits

the Merging Company’s control over such overseas operating institutions,

or leads to concerted control or significant impact, all interests linked up

with such overseas operating institutions shall be reclassified into profit

and/or loss.

Upon partial disposal of an overseas operating institution, a

subsidiary that does not lead to forfeiture of the control over that

subsidiary, it was recognized pro rata into the difference in foreign

exchange of other comprehensive profit and/or loss, reclassified into

non-controlling interest of that subsidiary, and it was not recognized as

profit and/or loss. In any other event of partial disposal of an overseas

operating institution, the accumulated difference in foreign exchange

recognized as other comprehensive income was classified to profit and/or

loss pro rata to the percentage of disposal.

(VI) Inventories

The inventory includes standby preservation equipment & facilities

and commodity inventory.

- 28 -

Backup security equipments refer to the work-in-progress amount

invested in materials and construction of the project for installation of the

security systems for customers, which is stated based on the actual

investment cost.

The commodity inventory was measured at the lower of cost and net

realizable value. In comparison between the cost and realizable value, the

individual items shall be taken as the grounds except inventory of the same

categories. The term “net realizable value” as set forth herein denotes the

balance of the selling price estimated under normal conditions deducted

with the cost which is estimated to be invested till completion of

manufacture and completion of sales. The cost of inventory was calculated

in weighted average method.

(VII) Investment in associates

The term “associate” as set forth herein denotes an enterprise, which

has significant effect upon the Merging Company, but is not a subsidiary

or a joint venture.

The Merging Company adopts equity method for investment in

associates. Under the equity method, investment in associates was

recognized at the initial costs, which would be duly increased or decreased

along with the profit and/or loss of the associates, and other shares of

comprehensive income of the Merging Company after the amounts on

books were obtained later on. Additionally, the change in the interests the

Merging Company holds in the associates was recognized pro rata to the

shareholding percentages.

Where an associate issues new shares, if the Merging Company did

not subscribe to the new shares pro rata to the shareholding percentages

and, as a result, the shareholding percentages changed and led to

increase/decrease in the net worth of the equity in the investment, the

increase/decrease was taken to adjust the capital reserve and investment

accounted in equity method. If the Merging Company did not subscribe to

the new shares pro rata to the shareholding percentages and led to a

decrease of the shareholding percentages subscribed to or obtained from

the associate, nevertheless, the amount of other comprehensive income so

recognized was reclassified pro rata to the decrease ratio in the associate.

- 29 -

The accounting management was on the grounds same as the grounds the

associate must comply with if it directly disposed assets or liabilities. If the

aforementioned adjustment must be debited into capital reserve, where the

balance of capital reserve yielded by the investment in equity method, the

difference was debited as retained earnings.

In the event that the Merging Company’s shares of loss in the

associates equal to or exceed its equity in the associates (including the

book amount of investment in the associates in equity method and other

long-term interest of the Merging Company in the investment composition

of the associates), the Merging Company discontinued recognition of the

further losses. The Merging Company recognized extra losses and

liabilities only in the event of occurrence of legal obligations, presumed

obligations or within the scope that the Merging Company had made

payment on behalf of the associate.

The part of the acquiring cost in excess of the amounts of the shares

of the recognizable assets and liabilities in fair value that the Merging

Company could enjoy on the day of acquisition was recognized as

goodwill. Such goodwill was contained in the book amount of the

investment and could not be amortized. The Merging Company entered the

part of the acquiring cost in excess of the amounts of the shares of the

recognizable assets and liabilities in fair value as the gain of the current

term.

Upon evaluation of impairment, Merging Company deemed the

overall book amounts (including goodwill) of the investment as single

assets to compare with the recoverable amounts and book amounts to

conduct tests over the impairment. The loss in the impairment so

recognized was part of the book amount of the investment. Any restoration

of the loss in impairment was recognized within the scope of subsequent

increase of the recoverable amount.

The Merging Company, on the date on which it forfeited the major

effect, measured at fair values the remaining investment in the associates.

It entered the difference between the fair values of the remaining

investment and the book amount of the investment on the date on which it

forfeited the major effect as the profit and/or loss of the current term.

- 30 -

Besides, all relevant amounts relevant to the associates recognized in other

comprehensive income were managed on the accounting grounds same as

the grounds which it should comply with if the associates directly disposed

the relevant assets or liabilities.

For the profit and/or loss incurred by the Merging Company with

the associates in upstream, downstream and side-stream, the Merging

Company only recognized those within the scope irrelevant to the

associates into the consolidated financial reports.

(VIII) Real estates, plant and equipment

The real estate, plant buildings, equipment & facilities were

recognized at costs. Subsequently thereafter, it measured at the amount of

the costs deducted with depreciation and the loss in the accumulated

impairment.

Those real estate, plant buildings, equipment & facilities under

construction were recognized at the amount of the costs after deducting the

loss in the accumulated impairment. The costs included fees incurred for

professional services and costs of loans, which were consistent with the

conditions of capitalization. For those assets, depreciation started being

amortized when those assets were completed to the extent of being ready

for use and duly classified into the appropriate categories of real estate,

plant buildings, equipment & facilities.

No depreciation was amortized for own land.

Besides, the Company amortized depreciation for the real estate,

plant buildings, equipment & facilities in the following manner:

1. Spare security material: Spare security materials are those not yet

installed; therefore, it is stated at acquisition cost based on the

weighted average method. Upon installation and transfer to security

equipment, the depreciation of such materials shall be commenced.

2. Security equipment: Security equipment means the machinery

installed for the security system users and is booked under the

“Machinery equipment” account and is depreciated based on the

average method over the estimated useful lives.

3. Telecommunication equipment: It means the independent phone line

rental that is to be amortized in five years in average.

- 31 -

In terms of amortization of depreciation, other than the

aforementioned items, all other cases were depreciated on the

straight-line grounds. For each and every major part, depreciation

was individually amortized. The Merging Company reviewed the

estimated useful life, residual values and methods of depreciation at

least on the ending day of every fiscal year. The effect on the change

in the accounting estimate was conducted in postponement method.

The amount of the interest or loss incurred by the real estate,

plant buildings, equipment & facilities was the difference between

the net proceeds obtained from the disposal and the book amount of

the assets and it was recognized as the profit and/or loss of the

current term.

(IX) Investment in real estate

The term “investment-oriented real estate” as set forth herein

denotes such real estate held in an attempt to earn rental or capital

increment or for the both purposes. The investment-oriented real estate

also includes the land held for which the future purpose of use has not

been resolved.

The investment-oriented real estate was measured at the initial costs

(including transaction costs). Subsequently thereafter, it will be measured

at the amount of the costs deducted with the accumulated depreciation and

the loss of the accumulated impairment. The Company amortized

depreciation on the straight-line basis.

The amount of the interest or loss incurred by the real estate, plant

buildings, equipment & facilities was the difference between the net

proceeds obtained from the disposal and the book amount of the assets and

it was recognized as the profit and/or loss of the current term.

(X) Intangible assts

1. Individually acquired

The intangible assets with limited useful life individually

acquired were measured at costs. Subsequently, they were measured

at cost deducted with the amount of accumulated amortization and

the loss of the accumulated impairment. The Merging Company

amortized on the straight-line basis. Namely, it, within the

- 32 -

anticipated useful life, amortized the costs of assets on average,

deducted the balance of the residual value. It further reviewed the

anticipated useful life, residual value and method of depreciation at

least on the ending date of every fiscal year. Except an event where

the Company anticipated to dispose such assets before the

anticipated useful life of intangible assets expired, the residual value

of the useful life of the intangible assets was estimated at zero. The

effect on the change in the accounting estimate was conducted in

postponement method.

2. Exclusion

The exclusion of the amount of the interests or loss of the

intangible assets refers to the difference between the net proceeds

obtained from disposal and the book amount of such assets. It was

recognized as the profit and/or loss of the current term.

(XI) Impairment of tangible and intangible assets (excluding goodwill).

The Merging Company assessed on each and every balance sheet

date whether or not there had been any signs indicating potential

impairment of tangible and intangible assets (excluding goodwill). Where

any sign of impairment was found existent, the Merging Company

estimated the recoverable amount of such assets. In the event that the

recoverable amount of individual assets could not be estimated, the

Merging Company estimated the recoverable amount of the units that

yielded cash. In the event that the assets under common use could be

amortized to the units that yielded cash on a reasonable and consistent

ground, the Merging Company amortized to individual units that yielded

cash. On the other hand, it would amortize it to the smallest unit group that

yielded cash instead on a reasonable and consistent ground.

On intangible assets without definite useful life and having not been

used, the Merging Company conducted an impairment test at least on an

annual basis, or conducted an impairment test whenever there was a sign

of impairment.

The term “recoverable amount” as set forth herein denotes fair value

deducted with the selling costs and the useful value, whichever is the

higher. Upon evaluation of the useful life, in the event that the individual

- 33 -

asset or the recoverable amount of the units that yielded cash was found

below the book amount, such asset or the book amount of the units that

yielded cash was adjusted downward to the recoverable amount.

Where the loss of impairment was recovered afterward, the book

amount of the units that yielded cash was adjusted upward to the

post-amendment recoverable amount. The book amount after increase,

nevertheless, should not exceed such assets or the book amount resolved

by the units that yielded cash had it not recognized the loss of impairment

in the preceding fiscal year (deducting the amortization or depreciation)/

the recovery of the loss in impairment was recognized in profit and/or loss.

(XII) Financial instruments

The financial assets and financial liabilities were recognized onto

the Consolidated Balance Sheet when the Merging Company became a

party of the contract of the financial instruments.

Upon initial recognition of financial assets and financial liabilities,

if the financial assets or financial liabilities were measured for fair values

not through profit and/or loss, the Merging Company measured based on

the fair value added with the transaction costs, which could be directly

attributed to the acquisition or issuance of the financial assets or financial

liabilities. The transaction costs which could be directly attributed to the

acquisition or issuance of the financial assets or financial liabilities, which

were measured at the fair value, were imaginably recognized as the profit

and/or loss.

The transaction customs of the financial assets were recognized or

excluded on the transaction day accounting basis.

Financial assets

1. Categories of measuring

The financial assets held by the Merging Company were

financial assets measured at the fair values, available-for-sale

financial assets, loans and receivables.

(1) The financial assets measured at fair values through profit

and/or loss.

- 34 -

The financial assets measured at the fair values through

profit and/or loss included the financial assets and financial

assets measured at the fair values through profit and/or loss.

The Merging Company, under situations enumerated

below designated them as financial assets measured at the fair

values through profit and/or loss upon the initial recognition:

A. Where the said designation could rule out or significantly

reduce the inconsistency in measuring or recognition; or

B. One set of financial assets , financial liabilities, or both,

managed on the grounds of fair values to assess the

performance, and the information for the investment

portfolio provided by the internal unit of the Merging

Company to the management was also on the grounds of

fair values; or

C. Where such would include one or multiple imbedded

derivative financial instruments in combination

(association) contract for integral designation.

The financial assets measured at the fair values through

profit and/or loss were measured at the fair values before they

were measured the interests or loss so incurred which would be

recognized in the profit and/or loss.

In the event that the financial assets measured at the fair

values through profit and/or loss with no active market existent

and the investment in the instrument where their fair value

could not possibly be measured in a trustworthy manner, and

such instruments without quotation interest should be handed

over as the derivative financial instruments for settlement, they

should be subsequently measured at the amount after deducting

the loss in impairment and should be individually classified as

“financial assets measured at costs”. When such financial

assets could be measured for the trustworthy fair value

subsequently later on, the difference between the book amount

and fair value was to be recognized in profit and/or loss.

(2) Available-for-sale financial assets

- 35 -

The term “available-for-sale financial assets” as set forth

herein denotes the financial assets defined as available-for-sale,

or having not been classified as loans and receivables, as

financial assets as investment to be held till maturity or

financial assets measured at the fair values through profit

and/or loss.

Available-for-sale financial assets were measured at fair

values. In terms of currency oriented financial assets, the

change in the book amount as profit and/or loss in conversion

in foreign currencies were calculated for the interest revenue at

effective interest. The dividend of equity investment

available-for-sale was recognized in the profit and/or loss. The

change in the book amount of other available-for-sale financial

assets was recognized as other comprehensive income and was

reclassified into profit and/or loss upon disposal of the

investment or upon ascertainment of the impairment.

Equity investment available-for-sale was recognized

when the Merging Company’s interest to collect the payment

was ascertained.

In case of available-for-sale financial assets were

attributed as with no active market existent, and such equity

without quotation link call for hand-over of such instruments

as the derivative tools of such equity, such financial assets

were measured at cost deducted with the amount of the loss in

impairment and were individually classified as “financial

assets measured at costs”. When such financial assets could be

measured at trustworthy fair values, they were measured anew

at the fair values. The difference between the book amount and

fair value was recognized as other comprehensive income. In

case of impairment, they were recognized as profit and/or loss.

(3) Loans and receivables

Loans and receivables (including accounts receivable,

cash & cash equivalents, bond investments for which no active

market exists) were measured at the amount of effective

- 36 -

interest method to amortize the costs after deducting the loss of

impairment except the recognition of interest of short-term

accounts receivable without significant attributes.

Cash equivalents include time deposits in high liquidity,

which could be converted into cash of the specified amounts at

any time within three (3) months from acquisition, with little

risk in the change in values, intended to be used to satisfy the

commitment in the short-term cash.

2. Impairment of financial assets

Other financial assets measured at the fair values through

profit and/or loss, the Merging Company, on each and every balance

sheet date, evaluated to notice any objective evidence (exhibits)

indicating impairment of the financial assets. In the event that an

objective evidence (exhibits) indicates that after initial recognition of

the financial assets, there had been one or more event(s) occurring,

leading to the loss of estimated future cash flow in the financial

assets, such financial assets were defined having developed

impairment.

Where the financial assets recognized at the post-amortization

cost, i.e., accounts receivable, proved to have not developed

impairment through individual assessment, the impairment would be

further evaluated en masse. The evidence (exhibits) indicate

existence en masse might include the experiences accumulated by

the Company in previous collection, facts in increase in the overdue

payments in excess of the averaged loan duration en masse and

change in observable the nationwide and regional economic

situations linked up with the overdue payment.

The amount of the loss in impairment of the financial assets

recognized at the post-amortization cost was the difference between

the book amount of the assets and the current value of the said

financial assets discounted with the initial effective interest rate of

estimated future cash flow.

Where the loss in impairment of the financial assets

recognized at post-amortization cost decreased in the subsequent

- 37 -

period and objective judgment indicated that the decrease resulted

from a matter that took place after recognition of the impairment, the

loss in impairment previously recognized was recovered to profit

and/or loss either directly or through adjustment of the contra

account. Such recovery, nevertheless, should not cause the book

amount of the financial assets to exceed the post-amortization cost

on the date of recovery had not impairment not been recognized.

Where the fair value of the equity investment

available-for-sale was below the cost and developed significant and

permanent decline that should be deemed as an objective evidence

(exhibit) of impairment.

The evidence (exhibits) proving objective impairment of other

financial assets might include the hard-up financial standing, default

by the issuers or debtors (e.g., delay or failure in payment of interest

or principal), an event where a debtor was about to run into

bankruptcy, or significant rise of the possibility of financial

reorganization, or the hard-up financial standing that might lead to

loss of active market.

Where available-for-sale financial assets developed

impairment, the amount of the accumulated loss previously

recognized in other comprehensive income should be reclassified

into profit and/or loss.

The loss of impairment, which had been recognized for the

available-for-sale investment in equity instruments, should no longer

be recovered through profit and/or loss. The amount recovered for

the fair value after the loss in impairment had been recognized was

recognized in other comprehensive income. In the event that the fair

value of the available-for-sale liability instruments increased in a

subsequent period, where such increase could objectively be linked

up with the events that took place after the loss in impairment was

recognized in profit and/or loss, such loss in impairment would be

recovered and recognized in profit and/or loss.

The loss in impairment of financial assets measured at cost

represents the difference between the book amount of such assets

- 38 -

and the current value of the current market return rate of future cash

flow discounted at the current market return rate of the similar

financial assets. Such loss in impairment should not be recovered in

the subsequent period.

All loss in impairment of financial assets was directly

deducted from the book amount of the financial assets. The accounts

receivable should, nevertheless, be lowered from the contra account.

Where accounts receivable were judged as non-recoverable, the

contra account should be written off. The amounts collected

subsequently after write-off of the account were credited into the

contra account. Unless the accounts receivable proved unrecoverable

and the contra account was, as a result, written off, the change in the

contra account was recognized in profit and/or loss.

3. Exclusion of the financial assets

The Merging Company would exclude financial assets only in

the event where the interests on a contract for financial assets based

cash flow ceased to be effective or where it had transferred financial

assets and almost all risks and returns of all ownership over the

financial assets had been transferred to another enterprise.

Where a financial asset was excluded en masse, the difference

between the book amount and the total of any interest or loss

accumulated, which had been recognized into other comprehensive

income, was recognized into profit and/or loss.

1. Subsequent measuring

Financial liabilities

All financial liabilities were measured in the effective interest

method based on the post-amortization cost or measures at fair value

through profit and/or loss.

2. Exclusion of the financial liabilities

The Merging Company excluded financial liabilities only in

the event where the obligations were released, cancelled or expired.

When financial liabilities were excluded, the difference between the

book amount and the paid consideration was recognized as profit

and/or loss.

- 39 -

(XIII) Income recognition

The revenue was recognized based on the consideration receivable

or having been received, measured at fair values, deducted with estimated

refunds, discounts claimed by customers or other similar allowances. Sales

return was amortized based on previous experiences and other relevant

factors through reasonable estimate, the amount of refunds to be claimed

in the future.

1. Sales of commodities

Commodities sold were not recognized as revenues until the

following conditions proved to have been satisfied in full:

(1) Where the Merging Company had transferred the significant

risks and remuneration of commodities to buyers;

(2) Where over the commodities having been sold, the Merging

Company no longer participated in the management, nor did it

maintain effective control;

(3) Where the amounts of revenues could be measured in a reliable

way;

(4) Where the economic benefits linked up with the transactions

were very likely to be flown to the Company; and

(5) Where the costs linked up with the transactions, which have

occurred or will occur, could be measured in a reliable way.

Concretely speaking, revenues of commodity sales were

recognized when the commodities had been delivered with the legal

ownership duly transferred.

2. Provision of labor services

Revenues of labor services were recognized at the moment

when the labor services were rendered.

Revenues yielded by the labor services rendered in accordance

with the contract were recognized based on the progress degrees set

forth under the contract. The progress degrees set forth under the

contract were determined in the following manners:

(1) Installation fees were recognized based on the extent of

completion in installation, pro rata to the number of installation

- 40 -

hours having been spent to the total installation hours

anticipated under the contract as of the balance sheet date;

(2) The service fees contained in the selling prices of the

commodities sold were recognized pro rata the costs of

services provided under the commodities sold to the total costs,

and

(3) The revenues of a contract for both materials and labor were

recognized for the number of working hours plus direct

material expenses, based on the rates set forth under the

contract.

3. Dividend revenues and interest revenues

The dividend revenue yielded in investment was recognized at

the moment where the rights for shareholders to receive the

dividends, but in the very premise that the transaction related

economic gains would be very likely to be flown into the Merging

Company and the amount of revenues could be measured in a

trustworthy manner.

The interest revenue of financial assets was recognized at the

moment while the economic gains would be very likely to be flown

into the Merging Company and the amount of revenues could be

measured in a trustworthy manner. The interest revenue would be

recognized on the accountable basis based on elapse of time, the

outstanding principal and the applicable effective interest rates.

(XIV) Rent

In an event all risks and remuneration of the ownership of the assets

based on the leasehold terms and conditions were transferred to the lessees

in full, such assets were classified as financing leasehold. All other

categories of leasehold were classified as operational leasehold.

1. The Merging Company was the Lessor

Under financing leasehold, the amounts receivable from the

lessees were recognized as rental receivable at the net leasehold

investment by the Merging Company. The term “financing gain” as

set forth herein denotes the fixed return rates obtainable to the

- 41 -

Merging Company, in all undue durations for the net amount of

leasehold investment.

The rental interest in the operational leasehold was recognized

as profit within the duration of the relevant leasehold on the

straight-line basis. Under the operational leasehold, contingent

rentals were recognized as profits at the term of occurrence.

2. The Merging Company was the Lessee

The financing leasehold was entered into account at the total

amount of the current values of the lowest rental payments of various

leasehold terms or fair value of the leasehold assets upon the starting

date of leasehold, whichever is the lower. The rental liabilities

payable were recognized simultaneously.

The lowest rental payment was allocated to the financial

expenses to lower the leasehold liabilities so that the interest rates

during the duration for calculation of the balance of liabilities would

be fixed. The interest hidden in the rental in each payment term was

recognized as the financial expense of the current term. The financial

expense was capitalized if it could be directly attributed to being

consistent with the prerequisites. The contingent rentals were

recognized as expenses in the term of occurrence.

The payment of operational leasehold was recognized as

expense during the duration of leasehold on the straight-line basis.

Under the operational leasehold, contingent rentals were recognized

as expenses in the term of occurrence.

(XV) Fringe benefits after severance/retirement

For pension under ascertained appropriation programs, the amounts

of pension to be appropriated during the period where employees provided

services were recognized as expenses of the current term.

For pension under ascertained appropriation programs, the costs

required to provide fringe benefits were evaluated actuarially, using

anticipated unit fringe benefit method. All actuarial profit and/or loss

incurred under ascertained fringe benefit obligations was/were recognized

as other comprehensive income during the period where the profit and/or

loss occurred. The costs of services rendered in the preceding term were

- 42 -

recognized within the scope of vested fringe benefits immediately. The

fringe benefits not attributed as vested ones were amortized in the

straight-line method during the period averaged before becoming vested

fringe benefits.

The term “accrued pension liabilities” as set forth herein denotes the

amount of the current values of the ascertained fringe benefit obligations

to adjust the costs of service rendered in the preceding term which had not

been recognized, deducted with the fair value of the assets under the

programs. The assets yielded through calculation in such a manner shall in

no case exceed the costs of service rendered in the preceding term, which

had not been recognized, plus the refundable funds under the programs and

amount to be appropriated in the future, which could be reduced.

Where an ascertained fringe benefit retirement program developed

reimbursement or reduction, the profit and/or loss of the reduction or

reimbursement would be recognized.

(XVI) Other long-term employee fringe benefits

Other long-term employee fringe benefits were managed in the

accounting method same as that for post-retirement/severance fringe

benefits. The relevant actuarial profit and/or loss and all costs for services

rendered in the preceding terms were immediately recognized in profit

and/or loss.

(XVII) Income tax

The term “income tax expenses” as set forth herein denotes total of

the income tax payable in the current term and the deferred income tax.

1. Income tax for the year

The levy of 10% surtax on unappropriated retained earnings is

recognized as income tax expenses in the year when the shareholders

resolve to retain the earnings.

Adjustment of the prior years’ income tax is added to current

income tax expense in the year the adjustment is made.

2. Deferred income tax

The deferred income tax was recognized based on the

provisional difference between the book amounts of assets and

liabilities of the individual financial reports and the taxation ground

- 43 -

to calculate the taxable income. The deferred income tax liabilities

would be generally recognized for all taxable provisional difference.

The deferred income tax assets were recognized at the moment upon

occurrence of income tax credit of the potential taxable income

deducted with provisional difference or credit for loss.

All taxable provisional differences relevant to the investment

in subsidiaries and associates were recognized as deferred income

tax liabilities, except an event while the Merging Company could

control the time point of recovery of the control over the provisional

difference or while the said provisional difference would be very

likely not recoverable in the foreseeable future. The deferred income

tax yielded by the deductible provisional difference relevant to

investment and interests of such categories was recognized only in

the event that there is adequate taxable income to realize the interest

in the provisional difference and within the scope of recovery in the

foreseeable future.

The book amount of the deferred income tax assets was

reviewed anew on each and every balance sheet date. Aiming at such

event where there would be very likely not adequate taxable income

to recover the assets either in whole or in part, the Merging

Company adjusted downward the book amount. Where those were

not initially recognized as deferred income tax assets, the Merging

Company, as well, reviewed anew on each and every balance sheet

date. It, in turn, would adjust upward the book amount in the future

while there would be likely to yield taxable income to recover assets

either in whole or in part.

The deferred income tax assets and liabilities were measured

at the tax rates of that term. The said tax rate would be on the

grounds of the tax rates and taxation laws, which had been enacted

or had been substantially enacted as of the balance sheet date. The

deferred income tax liabilities and assets were measured to reflect

the enterprise for the taxation consequences of taxation for the book

amounts of the assets and liabilities anticipated to be recovered or

reimbursed as of the balance sheet date.

- 44 -

3. Current and deferred income tax of the current term

The current and deferred income tax was recognized in the

profit and/or loss. The current and deferred income tax relevant to

the items, which were recognized in other comprehensive income or

directly counted into the items of equity, was recognition into other

comprehensive income or directly counted into equity respectively.

V.

Where the Merging Company adopted accounting policies, where the

relevant information was found hardly available from other sources, the

management must come to relevant judgments, estimates and hypotheses based on

historical experiences and other relevant factors. The actual consequences might

differ from the estimates.

Major sources leading to major accounting judgments and uncertainties in estimate

The management would continually review the estimates and fundamental

hypotheses. In the event that the estimated amendment would only affect the

current term, it would be recognized in the term of amendment. In the event that the

amendment of the accounting estimates would simultaneously affect both the

current and future terms, it would be recognized in the term of the amendment and

the future term.

(I) Estimating impairments on accounts receivable

Where objective evidence (exhibits) indicates a sign of impairment,

the Merging Company would take into account the estimate based on

future cash flow. The amount of loss in impairment was evaluated based

on the book amount of such assets and the anticipated future cash flow. In

the event that the actual cash flow is below the anticipated amount, it

might increase recognition of the loss in impairment.

(II) Recognition of ascertained fringe benefit plans

In case of ascertained fringe benefit pension plans, the pension

expenses and accrued pension liabilities, which should be recognized,

were evaluated actuarially in the Fringe Benefit Method of the anticipated

unit. The actuarial hypothesis so adopted included estimation of

discounting rates, employee resignation rates and long-term average raise

rate. In the event that such estimation changes due to a change in market

and economic status, it might significantly affect the amounts of expenses

and liabilities, which should be recognized.

- 45 -

VI.

Cash and cash equivalents

December 31,

2013 December 31, 2012 January 1, 2012

Cash on hand and working capital $2,935,312 $2,878,806 $2,892,305 Bank’s notes and current deposit 1,436,958 1,117,982 1,135,819 Cash equivalents

Time deposits in banks due within three (3) months in the date of initial maturity. 15,339 46,304

28,408

$4,387,609 $4,043,092 $4,056,532

The deposits in banks showed the following interest rate ranges as of the

balance sheet date:

December 31,


Bank deposit 0.05%-0.35% 0.05%-0.35% 0.12%-0.5% Time deposit 0.505%-3.05% 0.505%-3.320% 0.505%-3.320%

VII. Financial instruments measured at fair values through profit and/or los

s

December 31,


Financial assets held to provide transactions Non-derivative financial assets

- TSEC/GTSM listed shares $ 107,984 $ 213,771 $ 141,801

VIII.

Available-for-sale financial assets

December 31,


Current Domestic investment

TSEC/GTSM listed shares $3,138,320 $1,599,736 $1,269,664 Beneficiary certificates of fund 20,438 155,236

250,224

$3,158,758 $1,754,972 $1,519,888 Noncurrent

Domestic investment Non-OTC/unlisted

stock $1,988,764 $2,283,371 $2,230,772

- 46 -

IX.

Financial assets carried at cost

December 31,


Noncurrent Domestic unlisted shares $ 268,850 $ 330,364 $ 346,632 Foreign unlisted shares 8,922 24,221

24,221 $ 277,772 $ 354,585 $ 370,853

The investment held by the Merging Company as stocks of listed on the

Taiwan Stock Exchange or Over-the-Counter Securities Exchange was measured at

the costs less the loss in impairment as of the balance sheet date. Where the

reasonable estimate of the fair value covered a wide range and lacked chances in

rational estimates, the management of the Merging Company considered that the

fair value could not be measured at a trustworthy manner.

X.

Bond investments for which no active market exists

December 31,


Current Time deposit with initial maturity date more than three months away $ 27,732 $ 29,111 $ 124,564

As of December 31, 2013 and December 31 and January 1, 2012, the interest

rates of time deposit with initial maturity date more than three months away were

0.51%-2.68%, 0.56%-2.68% and 0.56%-2.68% per annum respectively.

XI.

Notes receivable, accounts receivable and Collections demand

December 31,


Notes receivable Notes receivable $ 173,190 $ 152,528 $ 158,183 Less: Allowance for bad debt

( 241 ) ( 352 ) ( 265

)

$ 172,949 $ 152,176 $ 157,918 Accounts receivable

Accounts receivable $ 392,632 $ 338,376 $ 322,837 Accounts receivable-related parties

52,112 75,359 75,522

Less: Allowance for bad debt

( 8,769 ) ( 5,069 ) ( 4,199

)

$ 435,975 $ 408,666 $ 394,160

- 47 -

The Merging Company collected payments based on the terms of collection

upon completion of services rendered. Upon determination of the recoverability of

accounts receivable, the Merging Company took into account and all changes in the

quality of credit of the accounts receivable during the period starting from the

initial granting of the loan until the balance sheet date. Where the historical

experiences indicate that accounts receivable more than one year overdue were

virtually non-receivable, the Merging Company recognized 100% allowance for

bad debt for accounts receivable more than one year overdue. For accounts

receivable to be mature within one year from completion of services rendered, the

Merging Company anticipated the allowance for bad debt with reference to the

previous overdue payment records of the transaction counterparts and analyzed

their current financial standing to estimate the non-receivable amounts.

The Merging Company proved to have no overdue accounts receivable for

which the Merging Company had not recognized allowance for bad debt.

The accounts receivable showed the following age record analyses as of the

balance sheet date: On accounts receivable to mature within 60 days~1 year ahead,

the management of the Merging Company determined through assessment that

there had not been objective evidence (exhibits) indicating impairment and that the

credit quality had not developed a significant change. Such amounts could still be

receivable in the future. However, the Merging Company still amortized allowance

for bad debt based on the receivable ages, taking into account the general loan risks.

The accounts receivable aging is analyzed below (on the grounds of dates of

accounts establishment):

December 31,


Not overdue, without impairment

$ 348,047 $ 287,913

$ 289,826

The accounts receivable with impairment duly amortized

In account ages from 60 days to 1 year

44,585

50,463

33,011 $ 392,632 $ 338,376 $ 322,837

- 48 -

The allowance for bad debt showed the following information in changes: 2013 2012 Notes

receivable Accounts receivable

Collections demand

Notes receivable

Accounts receivable

Collections demand

Balance - beginning of year $ 352 $ 5,069 $ 15,223 $ 265 $ 4,199 $ 11,379 Plus: Appropriated bad debt expense of the year - 4,814 - 13 6,520 - Less: Expenses to restore bad debt this term - ( 2,109 ) - - ( 1,732 ) - Reclassification of the year ( 111 ) 995 ( 884 ) 74 ( 3,918 ) Balance - end of year

3,844

$ 241 $ 8,769 $ 14,339 $ 352 $ 5,069 $ 15,223

Collections are booked in “Other noncurrent assets” account.

XII.

Inventories

December 31,


Products $ 100,368 $ 77,654 $ 111,200 Backup security materials 103,717 80,376

74,802 $ 204,085 $ 158,030 $ 186,002

In 2013, the sales costs include the interest of upturn in the net inventory

realization NT$1,535,000. The upturn in the net inventory realization primarily

resulted from disposal of inventory.

XIII. Investment at equity method

Investment in associates

December 31,


Non-public/non-OTC companies

Taiwan Ritan Co., Ltd. $ - $ 392 $ 1,056

Shenzhen Shen Po Public Security Network Ltd. 22,421 15,927

16,287

$ 22,421 $ 16,319 $ 17,343

- 49 -

As of the balance sheet date, the Merging Company showed the following

ownership interests and voting powers in associates:

Name December 31,


Taiwan Ritan Co., Ltd. 30% 30% 30% Shenzhen Shen Po Public Security Network Ltd. 36% 36% 36%

The Merging Company was in the following assembled financial information

over associates:

December 31,


Total assets $ 99,236 $ 86,769 $ 74,480 Total liabilities $ 37,929 $ 41,220 $ 25,717

2013

2012

Operating revenue in the current period

$ 63,196

$ 70,864

Net income

$ 20,901

$ 6,295 Other comprehensive income this term $ - $ - The shares of profit and/or loss at equity method over the associates $ 11,030 $ 2,619

XIV.

Real estates, plant and equipment

Own land

Buildings

Machinery & equipment

Transportation equipment

Office equipment

Leasehold improvements

Other equipment Total

Cost

Balance at January 1, 2012

$ 1,255,396

$ 1,036,593

$ 2,873,818

$ 367,661

$ 320,078

$ 168,005 $ 67,160 $ 6,088,711

Addition

64,176

24,578

353,172

41,449

14,393

43,635 53,583 594,986 Disposal

-

-

( 16,758 )

( 49,321 )

( 151,537 )

( 12,771 ) ( 81,400 ) ( 311,787 )

Net difference in foreign exchange - - 82,293 12,331 39,991 ( 29,902 ) ( 35,661 ) 69,052 Reclassification

-

- ( 174,262

)

-

- - 63,925 ( 110,337

Balance at December 31, 2012

)

$ 1,319,572

$ 1,061,171

$ 3,118,263

$ 372,120

$ 222,925

$ 168,967 $ 67,607 $ 6,330,625

Cumulative depreciation and impairment


$ -

$ 307,351

$ 2,072,061

$ 254,890

$ 232,507

$ 147,987 $ 49,764 $ 3,064,560

Disposal

-

-

( 16,758 )

( 49,321 )

( 151,537 )

( 12,771 ) ( 73,099 ) ( 303,486 ) Depreciation

-

16,925

142,887

65,834

36,205

27,191 32,881 321,923

Net difference in foreign exchange

-

-

158,102

( 46,790 )

15,630

( 12,371 ) ( 24,255 ) 90,316

Reclassification

-

- ( 58,166

)

-

- - 58,166 Balance at December 31, 2012

-

$ -

$ 324,276

$ 2,298,126

$ 224,613

$ 132,805

$ 150,036 $ 43,457 $ 3,173,313

Net at January 1, 2012

$ 1,255,396

$ 729,242

$ 801,757

$ 112,771

$ 87,571

$ 20,018 $ 17,396 $ 3,024,151

Net at December 31, 2012

$ 1,319,572

$ 736,895

$ 820,137

$ 147,507

$ 90,120

$ 18,931 $ 24,150 $ 3,157,312

(To be continued)

- 50 -

(Continued)

Own land

Buildings

Machinery & equipment

Transportation equipment

Office equipment

Leasehold improvements

Other equipment Total

Cost


$ 1,319,572

$ 1,061,171

$ 3,118,263

$ 372,120

$ 222,925

$ 168,967 $ 67,607 $ 6,330,625

Addition

-

15,367

406,088

65,741

39,097

21,778 30,242 578,313 Disposal

-

-

( 41,221 )

( 81,326 )

( 40,732 )

( 30,453 ) ( 19,669 ) ( 213,401 )

Net difference in foreign exchange - - 37,501 ( 75,032 ) 5,224 ( 3,343 ) 25,256 ( 10,394 ) Reclassification

-

- ( 124,139

)

- ( 27

) - 7,211 ( 116,955

Balance at December 31, 2013

)

$ 1,319,572

$ 1,076,538

$ 3,396,492

$ 281,503

$ 226,487

$ 156,949 $ 110,647 $ 6,568,188

Cumulative depreciation and impairment


$ -

$ 324,276

$ 2,298,126

$ 224,613

$ 132,805

$ 150,036 $ 43,457 $ 3,173,313

Disposal

-

-

( 41,221 )

( 81,326 )

( 40,732 )

( 30,453 ) ( 17,662 ) ( 211,394 ) Depreciation

-

22,742

240,264

33,312

29,358

27,384 11,185 364,245

Net difference in foreign exchange

-

-

24,886

( 74,222 )

582

( 3,056 ) 23,641 ( 28,169 )

Reclassification

-

-

-

- ( 12

) - - ( 12Balance at December 31, 2013

)

$ -

$ 347,018

$ 2,522,055

$ 102,377

$ 122,001

$ 143,911 $ 60,621 $ 3,297,983

Net at December 31, 2013

$ 1,319,572

$ 729,520

$ 874,437

$ 179,126

$ 104,486

$ 13,038 $ 50,026 $ 3,270,205

The Merging Company had amortized depreciation on the straight-line basis

for its real estate, plant buildings, equipment & facilities in the following useful

life: Buildings 40 to 50 years Machinery & equipment 3 to 5 years Transportation equipment 3 to 5 years Office equipment 3 to 5 years Leasehold improvements 3 to 5 years Other equipment 3 to 5 years

For the amounts had mortgaged and pledged by the Merging Company over

its real estate, plant buildings, equipment & facilities to collateralize loans, please

see Note 33.

XV. Investment in real estate

Land Buildings Total Cost

Balance at January 1, 2012 $ 225,033 $ 329,223 $ 554,256 Acquisition - - - Disposal - - Balance at December 31, 2012

-

$ 225,033 $ 329,223 $ 554,256

Cumulative depreciation and impairment Balance at January 1, 2012 $ - ( $ 88,227 ) ( $ 88,227 ) Depreciation - ( 6,044 ) ( 6,044Balance at December 31, 2012

)

$ - ( $ 94,271 ) ( $ 94,271 )

- 51 -

Land Buildings Total Net at January 1, 2012 $ 225,033 $ 240,996 $ 466,029 Net at December 31, 2012 $ 225,033 $ 234,952 $ 459,985

Land Buildings Total

Cost Balance at January 1, 2013 $ 225,033 $ 329,223 $ 554,256 Acquisition - - - Disposal - - Balance at December 31, 2013

-

$ 225,033 $ 329,223 $ 554,256

Cumulative depreciation and impairment Balance at January 1, 2013 $ - ( $ 94,271 ) ( $ 94,271 ) Depreciation - ( 6,044 ) ( 6,044Balance at December 31, 2013

)

$ - ( $ 100,315 ) ( $ 100,315 ) Net at December 31, 2013 $ 225,033 $ 228,908 $ 453,941

Merging Company had amortized depreciation in on the straight-line basis

for its investment-oriented real estate at 50-year useful life.

The aforementioned depreciation for the investment-oriented real estate was

entered as decrease of rental revenue.

The fair values of the Merging Company’s investment-oriented real estate as

of December 31, 2013 and December 31 and January 1, 2012 came to NT$775.310

million, NT$527.195 million and NT$533.787 million.

As of December 31, 2013, the independent real estate appraiser appraised the

fair values of the investment-oriented real estate on balance sheet date. The

appraisal was conducted in the cash flow method, with discounting rate of 4.32%.

As of December 31 and January 1, 2012, the investment-oriented real estate

was not appraised by an independent real estate appraiser but was, instead,

appraised by the Merging Company’s management with reference to the market

evidence (exhibits) regarding transactions of similar real estate in the neighboring

regions.

All investment-oriented real estate owned by the Merging Company was in

its own interests. For the amounts of the Merging Company’s investment-oriented

- 52 -

real estate, which had been pledged by the Merging Company to collateralize loans,

please refer to Note 33.

XVI.

Other intangible assts

Costs of computer

software Cost

Balance at January 1, 2012 $ 59,873 Individually acquired 1,791 Disposal ( 6,645Balance at December 31, 2012

)

$ 55,019

Cumulative amortization and impairment Balance at January 1, 2012 ( $ 31,374 ) Amortization ( 7,554 ) Disposal Balance at December 31, 2012

6,645

( $ 32,283 ) Net at January 1, 2012 $ 28,499 Net at December 31, 2012 $ 22,736

Cost Balance at January 1, 2013 $ 55,019 Individually acquired 4,027 Disposal ( 21,867Balance at December 31, 2013

)

$ 37,179

Cumulative amortization and impairment Balance at January 1, 2013 ( $ 32,283 ) Amortization ( 10,717 ) Disposal Balance at December 31, 2013

21,867

( $ 21,133 ) Net at December 31, 2013 $ 16,046

For the aforementioned intangible assets with limited useful life, the Merging

Company amortized expenses based on the number of years of the useful life

enumerated below on the straight-line basis:

Costs of computer software 3 to 5 years

- 53 -

XVII.

Other assets

December 31,


Current Temporary payments $ 7,228 $ 8,000 $ 8,007 Payments for others 5,149 7,194 7,100 Prepayments 62,031 65,229 61,436 Other current assets - current

8,335

7,596

6,153

$ 82,743 $ 88,019 $ 82,696

Noncurrent Rental receivable $ 7,189 $ 10,606 $ - Prepaid equipment amount

3,179 10,390

15,210

Refundable deposit 100,356 58,216 60,217 Other financial assets 58,530 52,538 49,563 Collections demand 14,339 15,223 11,379 Less: Allowance for bad debt

( 14,339 ) ( 15,223 )

( 11,379 )

Other assets 7,638 8,047

6,871 $ 176,892 $ 139,797 $ 131,861

On other financial assets - non-current, which had been pledged for mortgage

by the Merging Company, please refer to Note 33.

XVIII.

(I) Short-term loan

Loans

December 31,


Loans with collateral

- Bank loans $1,449,000 $1,650,000 $1,930,000

1. As of December 31, 2013 and December 31 and January 1, 2012, the

interest rates for working capitals borrowed from banks were

0.98%-2.00%, 1.37%-1.72% and 1.30%-1.68% respectively.

2. As of December 31, 2013 and December 31 and January 1, 2012, the

Merging Company issued guarantee instruments amounting to

NT$1,540 million, NT$2,000 million and NT$2,000 million

respectively.

- 54 -

(II) Short-term notes payable

December 31, 2013 December 31,

2012 January 1, 2012 Promissory notes payable

$1,300,000 $ 610,000 $ 450,000

Less: Discount of short-term notes and bills payable

( 1,209 ) ( 344 ) ( 307

) $1,298,791 $ 609,656 $ 449,693

The short-term bills payable but not yet due were enumerated

below:

Guarantee／underwriting institutions

December 31, 2013

Face amount

Discounted amount

Book value

Interest rate

interval

Collateral Title

Collateral Book amount

Promissory notes payable

International Bills Finance Corporation

$ 200,000

$ 196

$ 199,804

1.138%-1.388%

Commercial promissory

notes

$ 200,000 China Bills Finance Corporation 200,000 213 199,787 1.388%


notes 200,000 Dah Chung Bills Finance Corporation 100,000 88 99,912 1.400%


notes 100,000 Grand Bills Finance Corporation 150,000 156 149,844 1.328%


notes 150,000 Union Bills Finance Corporation

100,000

108

99,892

1.410%


notes

100,000 E-Sun Bills Finance Corporation

100,000

86

99,914

1.360%


notes

100,000

Mega Bills Corporation

100,000

13

99,987

1.208%


notes

100,000 Taiwan Finance Corporation

50,000

15

49,985

1.188%


notes

50,000 Taishin Bills Finance Corporation

300,000

334

299,666 1.450%


notes

300,000

$ 1,300,000

$ 1,209

$ 1,298,791

$ 1,300,000


December 31, 2012

Face amount

Discounted amount

Book value

Interest rate

interval

Collateral Title



International Bills Finance Corporation $ 100,000 $ 70 $ 99,930 1.428%


notes $ 100,000 Mega Bills Corporation

60,000 28 59,972 1.588%


notes 60,000 China Bills Finance Corporation 200,000 71 199,929 1.438%


notes 200,000 Dah Chung 50,000 35 49,965 1.408% Commercial 50,000

- 55 -

Bills Finance Corporation

promissory notes

Grand Bills Finance Corporation 100,000 69 99,931 1.400%


notes 100,000 Union Bills Finance Corporation 100,000 71 99,929 1.440%


notes

100,000 $ 610,000 $ 344 $ 609,656 $ 610,000


January 1, 2012

Face amount

Discounted amount

Book value

Interest rate

interval

Collateral Title



International Bills Finance Corporation $ 100,000 $ 70 $ 99,930 1.408%


notes $ 100,000 Mega Bills Corporation

150,000 110 149,890 1.488%


notes 150,000 China Bills Finance Corporation 150,000 104 149,896 1.408%


notes 150,000 Dah Chung Bills Finance Corporation 50,000 23 49,977 1.408%


notes

50,000 $ 450,000 $ 307 $ 449,693 $ 450,000

(III) Long-term loan

December 31, 2013 December 31,

2012 January 1, 2012 Loans with

collateral Bank loans $ 10,577 $ 11,752 $ 21,251 Less: The part entered as due within one year

( 1,322 ) ( 1,340 ) ( 1,932Long-term loan

) $ 9,255 $ 10,412 $ 19,319

For the loan borrowed from Hua Nan Commercial Bank, the

Merging Company provided its own land and buildings as the collateral

(Cf. Note 33). The loan matures on December 19, 2022. As of December

31, 2013 and December 31 and January 1, 2012, the effective annual

interest rates were 2.05%, 2.05% and 1.46%-1.81% respectively.

XIX.

Notes payable and accounts payable

December 31,


Notes payable Notes payable - non-related party

$ 94,171 $ 58,736 $ 67,063

Notes payable - related party

2,054 22,741 30,282

- 56 -

$ 96,225 $ 81,477 $ 97,345 Accounts payable

Accounts payable - non-related parties

$ 159,314 $ 195,617 $ 199,267

Accounts payable - related parties

20,202 9,505

18,361

$ 179,516 $ 205,122 $ 217,628

The accounts payable were paid immediately when the suppliers billed for

payment in accordance with the terms and conditions set forth under the contracts

or upon completion of final acceptance test procedure. The Merging Company had

enacted financial risk management policies to assure that all payables would be

reimbursed within the specified credit periods.

XX.

Other liabilities

December 31,


Current Other payables

Salary and bonus payable

$ 561,777 $ 494,865 $ 469,243

Employee bonus payable

12,546 14,524 3,759

Remuneration due to directors and supervisors payable

38,595 45,502 10,535 Insurance payable 55,631 53,097 40,991 Indemnity claims payable

48,009 33,284 23,393

Payables for granted leaves.

117,638 100,233 58,702

Equipment accounts payable

29,954 27,338 53,657

Rental payable 4,940 - 4,144 Others 126,774 132,944

126,114

$ 995,864 $ 901,787 $ 790,538 Other liabilities

Temporary credits $ 7,505 $ 4,887 $ 6,540 Payment collected on behalf

35,822 26,238 23,469

Others 4,657 19,077

15,274 $ 47,984 $ 50,202 $ 45,283 Noncurrent

Other liabilities $ - $ - $ 783

- 57 -

XXI.

Provision for liabilities

December 31,

2013 December 31,

2012 January 1, 2012 Noncurrent

Provision for employee fringe benefit liabilities $ 26,218 $ 11,560 $ -

Provision for employee fringe benefit liabilities was amortized ready for

payment of pension/compensation to employees. The payment plan of

pension/compensation to employees adopted by the Merging Company was

ascertained long-term fringe benefit plan. The death compensation was to be

calculated based on the fixed regular salary received by that employee upon death.

XXII.

(I) Ascertained appropriation plans

Post-severance fringe benefit plans

The Merging Company’s Taiwan Shin Kong Security Co., Ltd. and

Yi Kuang Security Co., Ltd. , Taiwan Security Co., Ltd., Shin Yi

Integration Co., Ltd., Shin Chun Electronic Co., Ltd., Shin Hsin

International Co., Ltd., Shin Kung Optical Co., Ltd., Shin Pao Technology

Co., Ltd., Yi Kuang Home Services Co., Ltd. and Shin-Kong

Communication Co., Ltd. were subject to the retirement system under the

“Labor Pension Act”, as the ascertained appropriation pension programs

under the government management. Those firms appropriated 6% of the

monthly salaries of employees into the specially designated personal

accounts in the Bureau of Labor Insurance.

(II) Ascertained fringe benefit plans

Of the Merging Company’s, Taiwan Shin Kong Security Co., Ltd.

and Yi Kuang Security Co., Ltd., Taiwan Security Co., Ltd.,, Shin Chun

Electronic Co., Ltd. were subject to the pension system under the “Labor

Standards Law” of the Republic of China, as ascertained pension programs.

The pension benefits a participant receives are determined based on an

employee’s number of years of service and average compensation for the

six-month period prior to retirement. Of the Merging Company’s, Taiwan

Shin Kong Security Co., Ltd., Yi Kuang Security Co., Ltd., Taiwan

Security Co., Ltd., and Shin Chun Co., Ltd., appropriated 2% of the total

monthly salaries of employees to the Supervisory Committee of Business

- 58 -

Entities’ Labor Retirement Reserve to be deposited in the specially

designated (earmarked) account in Bank of Taiwan in the name of that

Committee. Bureau of Labor Funds, Ministry of Labor, by means of

utilization by its own and through outsourced management, invested the

assets under the programs into equity securities and bond securities,

deposits in banks in at home (and abroad). As required under the

Enforcement Rules of Labor Pension Act, nevertheless, the gains yielded

by utilization of labor pension funds shall not be lower than 2-year time

deposit interest rate of the local banks.

Qualified actuary (ies) duly calculated the current value of the

Merging Company’s planned assets and ascertained fringe benefit

obligations. The major hypotheses in the actuarial evaluation are

enumerated below as of the date of measuring: December 31,

2013 December 31,

2012

January 1, 2012 Discount rate 1.625%～1.750% 1.625%～1.750% 1.250%～1.625% The return ratio anticipated in the planned assets

2.000% 2.000% 1.875% Anticipated raise ratio of salaries

2.000% 2.000% 2.000%

The anticipated return ratio of the overall assets among the planned

assets was anticipated based on the historical trends, the forecast

conducted by the actuary (ies) about the markets where the assets were in,

during the duration of the relevant obligations, with consideration on the

effect upon the utilization of the aforementioned planned assets and the

minimum gains.

The amounts of profit (loss) recognized under the ascertained fringe

benefit plans are enumerated below:

2013 2012 Service cost in current period

$ 16,167 $ 26,615

Interest cost 10,504 11,088 Return anticipated from the planned assets

( 6,003 ) ( 6,627

) $ 20,668 $ 31,076

Operating expenses $ 20,668 $ 31,076

- 59 -

In Years 2013 and 2012, the Merging Company recognized

respectively actuarial losses amounting to NT$10.248 million and

NT$30.566 million into other comprehensive income. As of December 31,

2013 and 2012, the accumulated amounts of the actuarial profit (loss)

recognized under other comprehensive income amounted to NT$40.814

million and NT$30.566 million respectively.

In the Merging Company, the obligations incurred by the

ascertained fringe benefit plans recognized into the individual balance

sheets were enumerated below:

December 31,

2013 December 31,

2012 January 1, 2012 The current value of the appropriated and ascertained fringe benefit obligations $ 772,362 $ 773,397 $ 731,441 The fair values of planned assets ( 295,053 ) ( 312,740 ) ( 323,733Shortfall in appropriation

)

477,309 460,657 Accrued pension liabilities

407,708

$ 477,309 $ 460,657 $ 407,708

The changes in the current values of the ascertained fringe benefit

obligations:

2013 2012 The fringe benefit obligations ascertained at beginning of the year

$ 773,397 $ 731,441 Service cost in current period

16,167 26,615

Interest cost 10,504 11,088 Actuarial losses (gains) 10,254 33,281 Amount of fringe benefits paid

( 37,960 ) ( 29,028

The fringe benefit obligations ascertained at end of the year

)

$ 772,362 $ 773,397

- 60 -

The changes in the current values of the planned assets:

2013 2012 The fair values of the planned assets at beginning of the year

$ 312,740 $ 323,733 Return anticipated from the planned assets

6,003 6,627 Actuarial gains (losses)

( 2,093 ) ( 3,545 )

Amounts appropriated by employer

14,566 14,953 Amount of fringe benefits paid

( 36,163 ) ( 29,028

The fair values of the planned assets at end of the year

)

$ 295,053 $ 312,740

The percentages of the planned assets primarily classified for the

fair values as of balance sheet date were based on the information of the

fund asset layouts promulgated through the Labor Pension Fund

Supervisory Board website:

December 31, 2013

December 31, 2012

January 1, 2012

Cash 22.86 24.51 22.76 Equity instruments

44.77 37.43

41.26

Liability instruments

9.37 10.45

11.49

Others 23.00 27.61

24.49 100.00 100.00 100.00

The historical information of the experience of disclosure for the

amounts determined and deferred by the Merging Company in the

respective accounting periods starting from the dates of conversion of the

individual financial reports: (Cf. Note 38):

December 31, 2013

December 31, 2012 January 1, 2012

Current values of the ascertained fringe benefit obligations

( $ 772,362 ) ( $ 773,397 )

( $ 731,441 ) Fair values of $ 295,053 $ 312,740 $ 323,733

- 61 -

December 31, 2013


the planned assets Shortfall in appropriation

$ 477,309 ( $ 460,657 )

( $ 407,708 )

Adjustment of the experiences in the planned liabilities

( $ 10,254 ) ( $ 33,281 )

$ - Adjustment of the experiences in the planned assets

( $ 2,093 ) ( $ 3,545 )

$ -

The Merging Company was anticipated to appropriate ascertained

fringe benefit plans amounting to NT$20.851 million and NT$20.668

million respectively within one year period after Years 2013 and 2012.

XXIII.

Deposit received

December 31,

2013 December 31,

2012 January 1, 2012 Deposit of security subscribers

$ 133,456 $ 134,460

$ 142,909

Deposit of exclusive line subscribers

134,246 140,305

154,194

Others 4,873 2,341

2,985 $ 272,575 $ 277,106 $ 300,088

The security deposit of subscribers is the bond paid for the security

agreement and on-site service agreement signed by SKS and security subscribers.

Deposit of exclusive line is collected from line subscribers for the bond paid to the

telecom company.

XXIV.

(I) Capital stock

Shareholders’ equity

Common shares

December 31,

2013 December 31,

2012 January 1, 2012 Authorized shares (thousand)

450,000 450,000

450,000 Authorized capital

$4,500,000 $4,500,000

$4,500,000

The number of issued and

379,855 379,855

379,855

- 62 -

December 31,

2013 December 31,

2012 January 1, 2012 outstanding shares with paid-in capital (thousand shares) Issued and

outstanding share capital

$3,798,545 $3,798,545

$3,798,545 Issuance

premium

146,302

146,302

146,302 $3,944,847 $3,944,847 $3,944,847

The issued and outstanding common shares were NT$10 par value.

Each and every share is entitled to voting power and acceptance of

dividend.

(II) Additional paid-in capital

December 31, 2013


Premium in stock issuance

$ 146,032 $ 146,302

$ 146,302

Of the capital reserve, the part in excess of premium of the face

amount in issuance (including common shares issued in excess of face

amount, premium of corporate bond conversion and transaction in treasury

stocks) and the part received as gift could be used to make good previous

loss and, when the Company does not operate at a loss, may be used to

allocate cash dividend or appropriate for share capital. When such part is

appropriated for share capital, the total should not exceed certain

percentage of the paid-in capital in every year.

The investment at equity method, employee stock option certificates

and the capital reserve yielded by share subscription rights should not be

used for any purposes.

(III) Retained earnings and dividend policy

In Taiwan Shin Kong Security Co., Ltd. among the Merging

Company, in accordance with its Articles of Incorporation, from the profit

earned by the company as shown through the annual account closing, the

sum to pay all taxes and make good previous loss, if any, shall be first

- 63 -

withheld, then 10% for legal reserve and then the sum to amortize and

recover special reserve. The final surplus, if any, to be added with the

non-appropriated retained earnings, shall be duly allocated in the manner

as proposed by the board of directors and resolved in the shareholders’

meeting. In the allocation, the remuneration to directors and supervisors

shall be 5% and the bonus to employees shall not be below the minimum

of 1%. The legal reserve mentioned in the preceding paragraph may no

longer be amortized when it is up to the paid-in capital.

SKS is engaged in security technology and in the growth phase. In

the future, the Company will continue to upgrade the security-related

technology and develop towards the high-tech area. In consideration of

sustainable operation and stable expansion of capital and also the rate of

return on shareholders’ investment, the distribution of dividend is

proposed by the Board of Directors based on a minimum cash dividend

percentage of 15% and submitted to the general shareholders’ meeting for

resolution.

For the years ended 2013 and 2012, estimated amounts of employee

bonus payable amounted to $11,578 thousand and $13,651 thousand

respectively; and estimated amounts of remuneration due to directors and

supervisors amounted to $38,595 thousand and $45,502 thousand

respectively. The aforementioned bonus to employees and remuneration to

directors and supervisors shall be calculated at 1.5% and 5% of the total

amount proposed for allocation by the board of directors. In case of a

significant change in the amount to be allocated as resolved by the board

of directors took place after closing of a fiscal year till the date when the

consolidated financial reports were resolved, the annual expenses shall be

adjusted along with the said change. In case of still a change after the

consolidated financial reports were resolved and promulgated, it shall be

managed in accordance with the change in the accounting estimate, to be

adjusted and entered into account in the ensuing fiscal year. In the event

that the shareholders’ meeting resolved that the bonus to employees would

be allocated in stocks, the number of stock bonus shall be determined with

the amount resolved for allocation to be divided by the fair values of

stocks. In the calculation of the number of bonus stocks, the term “the fair

- 64 -

values of stocks” should refer to the stock price closed on the day

preceding the date when the decision was resolved in the shareholders’

meeting (After consideration the ex-right and ex-dividend effect).

Upon allocation of the earnings in the period before 2012, Taiwan

Shin Kong Security Co., Ltd. should comply with the requirements of

Letter (Year 2000)-Tai-Tsai-Cheng-(I)-Tze 100116 and Letter Order

Chin-Kuan-Cheng-I-Tze 0950000507 by appropriating special reserve

with the deduction of other shareholders’ equity (e.g., the difference of

conversion in the financial reports of overseas operating institutions and

the unrealized profit (loss) of available-for-sale financial assets and such

accumulated balance). A decrease in deduction of shareholders’ equity

thereafter, if any, can be revered from special reserve to unappropriated

earnings.

Starting from 2013, in accordance with the requirements of Letter

Order Chin-Kuan-Cheng-Fa-Tze 1010012865 of the Financial Supervisory

Commission, Executive Yuan dated April 6, 2012 and “Q&A of the

Ambiguity in the Application pf Appropriation of Special Reserve after

Adoption of International Financial Reporting Standards ( IFRSs)”, upon

initial adoption of the IFRSs, Taiwan Shin Kong Security Co., Ltd.

respectively appropriated special reserve of the equivalent amounts for the

unrealized revaluation gains and cumulative translation adjustment

(interest) for the part converted into retained earnings due to adoption of

the waiver items of International Financial Reporting Standards ( IFRS)

No. 1. In the event that the increase in the retained earnings on the date of

conversion was inadequate for appropriation due to the initial adoption of

IFRSs, Taiwan Shin Kong Security Co., Ltd. could only appropriate for

the increase of the retained earning yielded by IFRSs. In the event of use,

disposal or reclassification of the relevant assets, Taiwan Shin Kong

Security Co., Ltd. could recover the special reserve having been amortized

for allocation of earnings. The special reserve, which should be

appropriated after the initial adoption of IFRSs, may be used in the

subsequent year(s) to make good loss. In the event that in a subsequent

year with earnings, until the cause leading to appropriation of the special

reserve ceases to exist, the special reserve should be appropriated for the

- 65 -

shortfall before allocation of the earnings. (Cf. (IV) Explanation on the

special reserve which should be appropriated in the initial adoption of

IFRSs).

The legal reserve should be contributed until its balance reaches the

company’s total paid-in capital stock. Legal earnings reserve can be

appropriated to cover previous losses. Where the Company did not operate

at a loss, the part of the legal reserve in excess of 25% of the paid-in

capital could be taken as capital and may be allocated in cash as well.

Other than the shareholders who do not reside in the territory of the

R.O.C., any shareholders may be granted the shareholders’ deductible tax

calculated at the tax deduction rate prevailing on the date of dividend

distribution.

Taiwan Shin Kong Security Co., Ltd. resolved in the regular

shareholders meetings convened on June 20, 2013 and June 22, 2012 about

allocation of earnings of 2012 and 2011 enumerated below: Earnings distribution EPS (NTD) 2012 2011 2012 2011

Legal reserve

$ 96,820

$ 89,598

$ - $ -

Special reserve

( 38,639 ) 596,832 - -

Cash dividend

683,738 645,753 1.8

1.7

$ 741,919 $ 1,332,183 $ 1.8 $ 1.7

The Company resolved in the regular shareholders meetings

convened on June 20, 2013 and June 22, 2012 about allocation of bonus to

employees and remuneration to directors and supervisors of Years 2012

and 2011 enumerated below: 2012 2011

Cash bonus Stock bonus Cash bonus Stock bonus Bonus to employees

$ 13,651 $ - $ 3,145 $ -

Remuneration to directors/ supervisors

45,502 - 10,485 -

In the allocation of earnings in 2012, the bonus to employees and

remuneration to directors and supervisors were to be allocated in

accordance with the Financial Report of 2012 duly prepared in accordance

- 66 -

with the Guidelines Governing the Preparation of Financial Reports by

Securities Issuers and Generally Accepted Accounting Principles of the

Republic of China with reference to the balance sheet dated December 31,

2012 prepared under the financial reports prepared by the respective

entities as the grounds.

There is no difference between the distribution amounts and

amounts recognized on financial statements for year 2013 and 2012 in

respects of bonus to employees and remuneration for year 2013 and 2012

to directors and supervisors for the same years.

As proposed by the board of directors of Taiwan Shin Kong

Security Co., Ltd. on March 27, 2014, the allocation and earnings per

share (EPS) of 2013 were enumerated below:

Earnings distribution

EPS (NTD)

Legal reserve $ 102,317 $ - Special reserve ( 912,639 ) - Cash dividend 683,738 1.80 Stock dividend 37,985 0.10

The appropriation of 2013 earnings, employees' bonuses, and

directors'/supervisors' remuneration are subject to approval during the

annual general meeting scheduled to be held on 26 June 2014.

For more information of the decisions regarding bonus to employees

and remuneration to directors and supervisors proposed by the board of

directors and resolved by the shareholders’ meeting of Taiwan Shin Kong

Security Co., Ltd., please surf “Market Observation Post System (MOPS)”

of Taiwan Stock Exchange Corporation (TSEC).

(IV) Special reserve appropriated on the date of conversion

The special reserve that Taiwan Shin Kong Security Co., Ltd.

should appropriate as required under Order Chin-Kuan-Fa-Tze

1010012865 of Financial Supervisory Commission is enumerated below:

December 31,

2013 December 31,

2012 January 1, 2012 Special reserve $ - $ - $ -

- 67 -

Where the initial adoption of IFRSs led to decrease of the retained

earnings of Taiwan Shin Kong Security Co., Ltd., the special reserve was

not appropriated.

(V) Other items of interest

1. The difference in foreign exchange converted with the financial

reports of overseas operating institutions

2013 2012 Balance - beginning of year ( $ 7,526 ) $ - The exchange differences yielded by net assets of overseas operating institutions

2,830 ( 3,464 ) The relevant income tax of the interests yielded for net assets of overseas operating institutions in the conversion process. 573 873 Conversion differences of associates at equity method ( 3,618 ) ( 4,935Balance - end of year

)

( $ 7,741 ) ( $ 7,526 )

2. Unrealized profit (loss) of Available-for-sale financial assets

2013 2012 Balance - beginning of year $ 603,769 $ 473,489 Unrealized profit (loss) of Available-for- sale financial assets 444,941 145,705 The accumulated profit and/or loss of the available-for- sale financial assets reclassified to profit and/or loss ( 39,459 ) ( 15,425Balance - end of year

)

$ 1,009,251 $ 603,769

- 68 -

(VI) Non-controlling interest

2013 2012 Balance - beginning of year $ 541,065 $ 511,724 The number of shares attributed to non-controlling interests

Net income 54,993 57,120 The difference in foreign exchange converted with the financial reports of overseas operating institutions

( 1,689 ) ( 2,806 ) Income tax relevant to the exchange differences in conversion of the financial reports of overseas operating institutions

( 1,409 ) 727 Loss in actuarial calculation of ascertained fringe benefits

( 1,814 ) ( 1,943 ) Income tax relevant to the loss in actuarial calculation

308 330 Unrealized profit (loss) of Available-for- sale financial assets

24,938 ( 24,087 ) Increase in minority interest

28,249

Balance - end of year -

$ 644,641 $ 541,065

(VII) Treasury stocks

Cause

The stocks of parent company

held by the subsidiaries before law

amendment in 2001 (thousand

shares) Number of shares as of January 1, 2012 3,219 Increase in the year -

- 69 -

Decrease Number of shares as of December 31, 2012

-

3,219 Number of shares as of January 1, 2013 3,219 Increase in the year - Decrease Number of shares as of December 31, 2013

-

3,219

Information of the stocks of the Company held by the subsidiaries

as of the balance sheet date is enumerated below:

Name of subsidiary

Shares (Thousand

shares) Book value Market price December 31,

2013

YKS 3,219 $ 122,970 $ 122,970

December 31, 2012

YKS 3,219 $ 112,669 $ 112,669

January 1, 2012 YKS 3,219 $ 86,916 $ 86,916

1. 3,219 thousand shares of the Company held by Yi Kong Security

Company Limited for an amount of $122,970 thousand as of

December 31, 2013 that were with a book value of $65,693 thousand

and with an adjustment in valuation of $57,277 thousand in

December 31, 2013 are recognized as Treasury Stock for an amount

of $39,521 thousand proportionally to the 69% shareholding.


Company Limited for an amount of $112,669 thousand as of

December 31, 2012 that were with a book value of $55,392 thousand

and with an adjustment in valuation of $57,277 thousand in

December 31, 2012 are recognized as Treasury Stock for an amount

of $39,521 thousand proportionally to the 69% shareholding.


Company Limited for an amount of $86,916 thousand as of January

- 70 -

1, 2012 that were with a book value of $29,639 thousand and with an

adjustment in valuation of $57,277 thousand in January 1, 2012 are

recognized as Treasury Stock for an amount of $39,521 thousand

proportionally to the 69% shareholding.

4. The company’s Treasury stock may not be pledged in accordance

with the Security and Exchange Law; moreover, it is without the

privilege of dividend and voting right. The stock shares of the

Company held by the subsidiaries are processed as Treasury Stock

and entitled to the rights vested in shareholders except for the

privilege of cash capitalization and voting right.

XXV.

Revenue

2013 2012 Electronic service revenue $ 2,975,610 $ 2,959,068 On-site service revenue 1,108,707 1,284,544 Permanent security revenue 1,709,230 1,742,231 Others 1,780,760

879,090 7,574,307 6,864,933

Sales allowance and return ( 57,873 ) ( 14,121Operating revenue-net

) $ 7,516,434 $ 6,850,812

XXVI.

The net profits of the units in continued business operation were attributed to:

Total net profit from continuing operations

2013 2012 The owner of the Company $ 1,023,175 $ 938,019 Non-controlling interest 54,993

57,120 $ 1,078,168 $ 995,139

The net profits of the units in continued business operation include the

following items:

(I) Other revenue

2013 2012 Rental revenue

Operational leasehold rental revenues

Investment in real estate $ 21,795 $ 22,619

Interest revenue Bank deposit 5,845 4,932

Dividend income 180,633 143,476 Others 51,283 80,705

- 71 -

$ 259,556 $ 251,732

(II) Other gain or loss

2013 2012 Loss in disposal of real estate, plant buildings, equipment & facilities ( $ 276 ) ( $ 4,647 ) Gain from disposal of the available-for-sale financial assets 39,459 15,425 Net profit (loss) of exchange in foreign currencies 5,957 ( 39 ) (Loss) profit of the financial assets held for transaction ( 2,120 ) 21,050 Others ( 21,865 ) ( 20,961

) $ 21,155 $ 10,828

(III) Financial cost

2013 2012 Bank loan interest $ 33,369 $ 31,380

(IV) Loss in impairment in financial assets

2013 2012 Financial assets

carried at cost - noncurrent $ 23,773 $ 36,475

Available-for-sale financial assets - noncurrent 7,013

-

$ 30,786 $ 36,475

(V) Depreciation and amortization

2013 2012 Real estates, plant and equipment $ 364,245 $ 321,923 Intangible assts 10,717

Total 7,554

$ 374,962 $ 335,521 Consolidation of the depreciation expenses by functions

- 72 -

Operating cost $ 275,530 $ 248,033 Operating expenses 88,715

73,890

$ 364,245 $ 321,923 Consolidation of the amortization expenses by functions

Operating expenses $ 10,717 $ 7,554

(VI) Employee fringe benefit expenses

2013 2012 Short-term, employee fringe benefits $ 3,494,551 $ 3,515,962 Post-severance fringe benefits (Cf. Note Nos. 22)

Ascertained appropriation plans 135,292 133,030 Ascertained fringe benefit plans 20,668

31,076

155,960

164,106 $ 3,650,511 $ 3,680,068

Consolidation by functions

Operating cost $ 2,720,745 $ 2,742,127 Operating expenses 929,766

937,941

$ 3,650,511 $ 3,680,068

(VII) Loss in impairment of non-financial assets

2013 2012 Inventory (included in the operating costs) ( $ 1,535 ) $ -

XXVII.

(I) Income tax recognized in profit and/or loss

Income tax of the units in continued business operation

The income tax expenses are primarily composed of the following

items:

- 73 -

2013 2012 Income tax for the year

Those yielded in the current term

$191,020 $195,206 Additional business profit tax levied on unappropriated retained earnings

32,474 17,037 Adjustment of previous year(s)

2,880 ( 1,372

) 226,374 210,871

Deferred income tax Those yielded in the current term

1,025 ( 13,589The income tax

expenses recognized in profit and/or loss

)

$ 227,399 $ 197,282

The accounting income and income tax expenses of the current

terms are adjusted below:

2013 2012 Continuing operation pre-tax net profit $ 1,305,567 $ 1,192,421 Income tax payable calculated based on net profit before income tax rate at the statutory tax rate $ 235,597 $ 205,042 Loss in expense which could not be reduced from tax ( 6,884 ) 898 The effect of earnings of the subsidiaries upon deferred income tax ( 6,844 ) ( 1,414 ) Exempted from income tax ( 30,708 ) ( 24,391 ) Additional business profit tax levied on unappropriated retained earnings 32,474 17,037 The provisional 884 1,482

- 74 -

2013 2012 differences and deductible not recognized The current term income tax expenses of previous year(s) adjusted in the present term 2,880 ( 1,372The income tax expenses recognized in profit and/or loss

)

$ 227,399 $ 197,282

The Merging Company calculated income tax at 17% as per entities

subject to the Income Tax Act of the Republic of China, at 25% for the

subsidiaries in China and at the respective tax rates as applicable in the

relevant regions for income tax incurred in other territories.

In the shareholders’ meeting convened in 2014, while the allocation

of the earnings for allocation was not yet ascertained, the consequence of

the potential income tax for non-appropriated retained earnings of 2013

levied with 10% extra still lacked trustworthy decision.

(II) Income tax recognized under other comprehensive income

2013 2012 Deferred income tax

Recognized under other comprehensive income

Conversion of overseas operating institutions ( $ 836 ) $ 1,600 Loss in actuarial calculation of ascertained fringe benefits 2,099

Income tax recognized under other comprehensive income

6,260

$ 1,263 $ 7,860

- 75 -

(III) Deferred income tax assets and liabilities

In the Merging Company, certain deferred income tax assets and

liabilities consistent with the conditions for inter-offset were inter-offset.

The deferred income tax assets and liabilities show the following

changes:

2013

Balance - beginning of

year

Recognized into profit and/or

loss

Recognized under other

comprehensive income

Balance - end of year

Deferred income tax assets

Temporary difference

Allowance for bad debt in excess

$ 2,482 $ 190 $ - $ 2,672 Loss on inventory devaluation and obsolescence

2,244 ( 267 ) - 1,977 Off-balance sheet installation cost deferral

20,312 ( 1,807 ) - 18,505 Investment loss evaluated based on equity method

19,817 ( 6,844 ) - 12,973 Loss of liquidation of reinvestment

2,816 - - 2,816 Pension fund in excess

65,493 1,827 - 67,320

Payables for non-use of leave

17,040 2,228 - 19,268 Loss in unrealized conversion

10 54 - 64 Disbursement of unrealized claims

3,715 1,732 - 5,447 Offset of loss 8,784 ( 512 ) - 8,272 Deferred amortization of Welfare Committee (Fringe Benefit Committee)

472 ( 118 ) - 354 Long-term employee fringe benefit

1,965 2,492 - 4,457

- 76 -


year


loss




liabilities Actuarial calculation loss in ascertained fringe benefit plans 6,260 - 2,099 8,359 Exchange differences in conversion of the financial reports of overseas operating institutions

1,600 - ( 836 )

764 $ 153,010 ( $ 1,025 ) $ 1,263 $ 153,248

2012


year


loss




Deferred income tax assets

Temporary difference

Allowance for bad debt in excess

$ 1,989 $ 493

$ - $ 2,482 Loss on inventory devaluation and obsolescence

963 1,281 - 2,244 Off-balance sheet installation cost deferral

19,448 864

- 20,312 Investment loss evaluated based on equity method

21,230 ( 1,413 )

- 19,817 Loss of liquidation of reinvestment

2,816 -

- 2,816 Pension fund in excess

62,816 2,677

- 65,493

Payables for non-use of leave

9,979 7,061

- 17,040 Loss in unrealized conversion

( 12 ) 22 - 10 Disbursement of unrealized claims

1,994 1,721 - 3,715 Offset of loss 10,338 ( 1,554 ) - 8,784

- 77 -


year


loss




Deferred amortization of Welfare Committee (Fringe Benefit Committee)

- 472 - 472 Long-term employee fringe benefit liabilities

- 1,965

- 1,965 Actuarial calculation loss in ascertained fringe benefit plans - -

6,260 6,260 Exchange differences in conversion of the financial reports of overseas operating institutions

-

- 1,600

1,600 $ 131,561 $ 13,589 $ 7,860 $ 153,010

(IV) Income tax assets and liabilities for the year

December 31, 2013


Income tax liability for the year

Income tax payable

$ 125,902

$ 119,388

$ 147,548

(V) Amount of unused allowance for loss

December 31, 2013


Offset of loss Due in 2015 $ 11,594 $ 14,505 $ 23,747 Due in 2018 8,024 8,024 8,024 Due in 2020 29,041 29,041

29,041

$ 48,659 $ 51,570 $ 60,812

- 78 -

(VI) Imputation tax system and related information

December 31,

2013 December 31,

2012 January 1, 2012 Unappropriated earnings

Unappropriated retained earnings - before 1997 $ 64,817 $ 64,817 $ 64,817 Unappropriated retained earnings - after 1998 1,406,524 1,134,010

1,557,127

$ 1,471,341 $ 1,198,827 $ 1,621,944 Balances of shareholder deductible tax account $ 262,461 $ 207,197 $ 345,960

In 2013 and 2012, the tax offset percentages of the earning

allocation were 25.55% (anticipated) and 29.47% respectively.

According to the Income Tax Law, for the distribution of retained

earnings in 1998 and thereafter, shareholder tax-deductible amount to be

distributed to the domestic shareholders of the Company is based on the

imputation credit ratio on the dividend distribution date. Due to the fact

that the amount of deductible credits is allocated to shareholders based on

the balances of their deductible credit accounts on the date the dividend is

distributed, the company is required to estimate the percentage of tax

deduction in its 2013 earnings appropriation, which may differ from the

percentage applicable at the time the dividend is distributed

As required under Tai-Tsai-Shui-Tze 10204562810, upon the initial

adoption of IFRSs to calculate the offset percentage of the tax of the

current year, the accumulated non-appropriated retained earnings on book

should include the net increase or net decrease of the retained earnings of

the Financial Report Oriented Accounting Principles of the respective

entities.

(VII) Verification of income tax

Of the Merging Company, the profit-seeking enterprise income tax

declarations submitted by Taiwan Shin Kong Security Co., Ltd. in

- 79 -

previous years had been verified by the taxation authority for the years

before 2011.

XXVIII.

Unit: NTD per share

Earnings Per Share

2013 2012 Basic EPS $ 2.71 $ 2.48 Diluted earnings per share $ 2.71 $ 2.48

The weighted average number of common shares used to calculate the

earnings in the earnings per share (EPS) are enumerated below:

Net income

2013 2012 The net profit of owner attributed to the Company $ 1,023,175 $ 938,019 Potential impact of common stock with dilution:

Bonus to employees - The earnings used to calculate diluted earnings per share (EPS)

-

$ 1,023,175 $ 938,019

Share(s

) Unit: 1,000 shares

2013 2012 The weighted average number of common shares to be used to calculate basic earnings per share (EPS) 377,633 377,633 Potential impact of common stock with dilution:

Bonus to employees 477 The weighted average number of common shares to be used to calculate diluted earnings per share (EPS)

617

378,110 378,250

In the event that the Merging Company was entitled to choose either stocks

or cash to allocate bonus to employees, upon calculation of the diluted earnings per

share (EPS), assuming that the bonus to employees would be allocated in stocks,

the potential common shares would be counted into the outstanding number of

shares in weighted average calculation when the common shares possessed the

function of dilution so as to calculate the diluted earnings per share (EPS). The

impact of common stock with dilution is considered while computing the diluted

- 80 -

EPS prior to the distribution of bonus to employees that will be resolved in the

shareholder’s meeting in next year.

XXIX. Agreement on operational leasehold

The operational leasehold indicates that the Merging Company

investment-oriented real estate owned by the Merging Company was leased out for

the duration of 5~10 years. All operational leasehold agreements include the terms

that when the lessee exercises the leasehold powers, the terms for rental should be

adjusted based on the rates prevalent in markets. Upon closure of the leasehold

duration, the lessee was not entitled to preferential leasehold power over the real

estate.

The Merging Company was the Lessor

The total amounts of rentals receivable from the operational leasehold in the

future are enumerated below:

December 31,

2013 December 31,

2012 January 1, 2012 Less than 1 year $ 28,449 $ 26,537 $ 28,104 1 year to 5 years 70,707 76,285 85,495 More than 5 years 500 48,055

60,069 $ 99,656 $ 150,877 $ 173,668

XXX.

The Merging Company at the moment operates the business stably. Its target

in risk management is to assure the very premise of continued business operation

and growth to maximize the return to shareholders through optimal balances in

liabilities and equity.

Management over capital risks

The Merging Company adopted prudential strategies in risk management and

conducted review on a regular basis. Based on the strategies of business

development and business needs, it conducted overall planning to resolve the

optimal capital structure for the Company.

XXXI.

(I) Information on fair value

Financial instruments

1. The financial instruments not measured at fair values

Except those enumerated below, the management of the

Merging Company believes that the financial assets and financial

liabilities not measured at fair values are close to the fair values:

- 81 -

December 31, 2013 December 31, 2012 January 1, 2012 Book value Fair value Book value Fair value Book value Fair value

Financial assets

Financial assets carried at cost $ 277,772 $ - $ 354,585 $ - $ 370,853 $ -

2. Measuring of fair values recognized in the consolidated balance

sheet

On the financial assets and financial liabilities, which the

Merging Company measured at fair values, the methods of

measuring are classified into one to three degrees based on the extent

of observation of the fair values.

(1) Degree I measuring at fair values refers to open quotations for

the same assets or liabilities in the active markets (without

being adjusted)

(2) Degree II measuring at fair values refers to that other than

open quotation under Degree I, the input values of the said

assets or liabilities observable either directly (i.e., prices) or

indirectly (those to be obtained through presumption of prices)

would be deemed as the fair values.

(3) Degree III measuring at fair values refers to the evaluation

expertise not in the observable market information as the

grounds for the input values of the assets or liabilities

observable as the grounds in the market (the non-observable

input values) to presume the fair values.

- 82 -

December 31, 2013 Level 1 Level 2 Level 3 Total

The financial assets measured at fair values through profit and/or loss.

Non-derivative financial assets held for the purposes of transaction $ 107,984 $ - $ - $ 107,984


Negotiable securities listed domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange -Equity investment $ 3,138,320 $ - $ - $ 3,138,320

Negotiable securities not listed domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange -Equity investment - 1,988,764 - 1,988,764

Beneficiary certificates of fund 20,438 - -

Total 20,438

$ 3,158,758 $ 1,988,764 $ - $ 5,147,522

December 31, 2012 Level 1 Level 2 Level 3 Total




Negotiable securities listed domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange

-Equity investment $ 1,599,736 $ - $ - $ 1,599,736

Negotiable securities not listed

- 83 -

domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange

-Equity investment - 2,283,371 - 2,283,371


Total 155,236

$ 1,754,972 $ 2,283,371 $ - $ 4,038,343

January 1, 2012 Level 1 Level 2 Level 3 Total




Negotiable securities listed domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange

-Equity investment $ 1,269,664 $ - $ - $ 1,269,664

Negotiable securities not listed domestically through the Taiwan Stock Exchange or Over-the- Counter Securities Exchange

-Equity investment - 2,230,772 - 2,230,772


Total 250,224

$ 1,519,888 $ 2,230,772 $ - $ 3,750,660

In 2013 and 2012, there was no transfer of fair values

measures in Degree I and Degree II.

- 84 -

3. The know-how and hypotheses adopted to measure the fair values

The fair values of financial assets and financial liabilities were

determined in the following manners:

(1) In case of financial assets and financial liabilities in standard

terms and conditions in transaction in active market, the fair

values were determined with reference to prices quoted in the

markets.

(2) The fair values of financial instruments other than those

mentioned above were determined based on the discounting

analyses of the cash flow and generally accepted price modes.

(II) Categories of financial instruments

December 31,

2013 December 31,

2012 January 1, 2012 Financial assets

Measured at fair values through profit and/or loss Held for transaction purposes $ 107,984 $ 213,771 $ 141,801 Loans and receivables (Note 1) 5,074,254 4,680,913 4,780,105 Available-for- sale financial assets (Note 2) 5,147,522 4,038,343 3,750,660 Financial assets carried at cost 277,772 354,585 370,853 Other financial assets - noncurrent 58,530 52,538 49,563

Financial liabilities The financial liabilities measured at post- amortization costs (Note 3) 4,029,937 3,459,794 3,506,455

Note 1: The balances included cash & cash equivalents, bond investments

for which no active market exists, notes receivable, accounts

- 85 -

receivable, other receivables, rental receivable and such loans and

receivables, which were measured at post-amortization costs.

Note 2: The balances included such balances classified as

available-for-sale financial assets measured at costs.

Note 3: The balances included short-term loans, short-term bills payable,

notes payable, accounts payable, other payables, long-term loans

and such financial liabilities measured at post-amortization costs.

(III) The objectives and policies of financial risk management

The Merging Company’s major financial instruments included

equity investment, accounts receivable, accounts payable and loans. The

Merging Company puts forth maximum possible efforts to assure that it

would possess adequate operating capital with cost effect whenever

necessary. The Merging Company prudentially managed operating

activities related exchange rate risks, interest rate risks, equity instrument

price risks, credit risks and liquidity risks, etc. to minimize the adverse

impact likely to be incurred by uncertainty in the market upon the

Company’s financial standing.

The board of directors in accordance with the relevant norms and

internal control system had duly rechecked the Merging Company’s major

financial planning. Upon implementation of financial planning, the

Merging Company’s financial department faithfully complied with the

relevant financial operation procedures regarding financial risk

management and division of mandate and responsibilities.

1. Market risks

The Merging Company primarily engages in electronic

security guarding services within the territories of Taiwan, held only

an insignificant amount of foreign currencies and it did not engage in

operating activities of a variety of derivative financial instruments. It

was, therefore, not subject to significant risks in the changes in

exchange rates. The major financial risks incurred by operating

activities upon the Merging Company were risks in change in

interest rates and risks in changes in prices.

- 86 -

(1) Interest rate risks

The term “interest rate risks” refers to such risks with a

change in the interest rates in the market that would lead to a

change in the fair values of the financial instruments. In the

Merging Company, deposits in banks and loans were subject to

the major interest rate risks.

The sensitivity analyses below were conducted on the

grounds of interest rate exposure amounts of non-derivative

financial instruments as of the ending date of the financial

reports.

The Merging Company took 1% increase or decrease to

report to the management for reasonable risk assessment in the

change in interest rates. In the event that other conditions

remain unchanged, without considering the factors of change

in interest, when the interest rate turns upward by 1%, the net

profits of the Merging Company would increase by NT$17,155

thousand and NT$18,533 thousand respectively in 2013 and

2012.

(2) Other price oriented risks

The Merging Company incurred risk exposure on equity

due to its investment in the listed equity securities and

over-the-counter equity securities In the financial assets

measured at fair values, the Merging Company adopted a

conservative policy and set appropriate stop-loss mechanism.

In the aspect of investment in available-for-sale financial assets,

such investment was held not for the purpose of transaction but

only to make revenue in dividend. On the potential risk, the

Merging Company might run due to investment in equity

instruments, the financial department conducted assessment on

the extent of risk in the prices in the market on a regular basis

and offered reference in policymaking process to minimize

potential risks.

Assuming that on the closing date of the period covered

in the Financial Report, the prices of the equity instruments

- 87 -

dropped by 5%, the price risks of the financial assets measured

at fair values would lead to NT$5,400 thousand and

NT$10,689 thousand decreases in the net profit before tax in

Years 2013 and 2012 respectively; The price risks of

available-for-sale financial assets would cause NT$257,376

thousand and NT$201,917 thousand decrease in

comprehensive income in 2013 and 2012 respectively.

2. Management over credit risks

The term “credit risks” as set forth herein denotes the risk that

the group might incur a loss when the counterparts default the

obligations under the contracts. As of the balance sheet date, the top

credit risk the Merging Company might incur in financial losses due

to failure by the counterparts in failure in performance of the

obligations primarily come from the book amount of financial assets

recognized in the consolidated balance sheet.

The Merging Company adopted a policy of engaging in

transactions only with well reputable counterparts. Where necessary,

it would acquire adequate collateral to minimize potential risk in

financial losses, which might be incurred by a default. To minimize

potential credit risk, the Merging Company’s management has set up

managerial control procedures over determination of the credit lines

to assure collection of overdue receivables. Besides, on the balance

sheet date, the Merging Company would recheck on a case-by-case

basis the amounts or the receivable accounts to assure that for the

non-receivable accounts, appropriate loss in impairment has been

duly amortized. Accordingly, the Company’s management held that

the Merging Company’s credit risks had been significantly reduced.

Besides, the counterparts of current fund transactions have been

those financial institutions and corporations which would show little

credit risks. Therefore, no significant credit risks would be predicted.

3. Liquidity risks

The Merging Company, through management, maintained

adequate positions of cash & cash equivalents to pay off operating

need and to ease up the impact of the fluctuation of cash flow. The

- 88 -

Merging Company’s management closely watches the usage of the

financing credit lines in banks and assures faithful compliance of the

terms and conditions set forth under the loan contracts.

To the Merging Company, bank loans function as a key source

of liquidity. As of December 31, 2013 and December 31 and January

1, 2012, the unused short-term bank financing credit lines of the

Merging Company came to NT$3.381 billion; NT$3.93 billion and

NT$2.82 billion respectively.

XXXII.

Upon the moment of merger, the transactions, balances in accounts, gains,

expenses and losses existent by and between Taiwan Shin Kong Security Co., Ltd.

and its subsidiaries (as the concerned parties of Taiwan Shin Kong Security Co.,

Ltd.) were written out in full and were thus now disclosed through the notes. The

transactions between the Merging Company and other concerned parties are

enumerated below:

Transactions-related party

- 89 -

(I) Operating revenue

Type of related party 2013 2012 Substantial related party $ 741,428 $ 810,476

The said transaction terms and conditions are not materially

different from the general customers’ transaction terms and conditions.

(II) Operating cost

Type of related party 2013 2012 Substantial related party $ 147,407

$ 202,856

The aforementioned conditions of transactions show no significant

differences from the conditions with other firms.

(III) Receivables from concerned parties (excluding loans borrowed from

concerned parties)

Type of related party

December 31, 2013


Substantial related party

$ 52,112 $ 75,359 $ 75,522

The aforementioned conditions of collections from concerned

parties show no significant differences from the conditions with general

customers.

For receivables from concerned parties outstanding, the Merging

Company has not collected guarantee. For receivables from concerned

parties in 2013 and 2012, the Merging Company had not amortized bad

debt expenses.

(IV) Payables to concerned parties (excluding loans borrowed from concerned

parties)


December 31, 2013

December 31, 2012

January 1, 2012


$ 22,256 $ 32,246 $ 48,643

The aforementioned payables to concerned parties show no

significant differences from the conditions payable to general suppliers.

- 90 -

For balance of payables to concerned parties outstanding, no

guarantee has been provided.

(V) Prepayments


December 31, 2013

December 31, 2012

January 1, 2012


$ 3,758 $ 9,909 $ 11,353

(VI) Acquisition of Real estates, plant and equipment

Prices of acquirements Type of related party 2013 2012 Substantial related party

$ 4,742 $ 15,299

The transactions of properties with concerned parties were primarily

payments for standby security guarding materials purchased. The

conditions of transactions show no significant differences from the

conditions with general suppliers.

(VII) Others

1. Rental revenue

Type of related party 2013

2012


$ 512 $ 491

Rental revenue

Period Targets of leasehold Object Lease term

Rent calculation

and collection Amount 2013 Substantial

related party Chien Pei

Building and Yu Shih Linghang, etc.

2013.01.01-2013.12.31 Payable on a monthly basis in accordance with the Lease

Agreement

$ 512

2012 Substantial related party

Chien Pei Building and Yu Shih Linghang, etc.

2012.01.01-2012.12.31 Payable on a monthly basis in accordance with the Lease

Agreement

491

2. Rental expenses

Type of related party 2013

2012


$ 15,384 $ 15,484

- 91 -

Rental expenses

Period Targets of leasehold Object Lease term

Rent calculation

and collection Amount


Jhong Shan Road, Banciao City, etc. 2013.01.01-2013.12.31

Payable on a monthly basis in accordance with the Lease

Agreement $ 15,384


Jhong Shan Road, Banciao City, etc. 2012.01.01-2012.12.31

Payable on a monthly basis in accordance with the Lease

Agreement 15,484

3. Other receivables from concerned parties (excluding loans lent to

concerned parties) Type of related party

December 31,

2013 December 31,

2012

January 1, 2012 Substantial related party

$ - $ 87 $ 84

4. Other payables to concerned parties (excluding loans borrowed from

concerned parties) Type of related party

December 31,

2013 December 31,

2012

January 1, 2012 Substantial related party

$ - $ 261 $ 951

(VIII) Incentive remuneration to key management level

The total salaries and remunerations to directors and other key

management in 2013 and 2012 are enumerated below:

2013 2012 Short-term, employee fringe benefits $ 38,720 $ 35,983 Fringe benefits after severance/ retirement. 259 260 Other long-term employee fringe benefits 21

- $ 39,000 $ 36,243

- 92 -

The salaries and remunerations to directors and other key

management were determined by the Salary Committee in accordance with

the personal performances and trends in the markets:

XXXIII.

The following assets had been provided as collateral for financing loans:

Pledged assets

December 31,

2013 December 31,

2012 January 1, 2012 Fixed assets - Land $ 63,572 $ 63,572 $ 63,572

- Building 25,569 31,574 32,815 Investment in real estate - Land

195,030 195,030 195,030

- Building 104,853 107,469 110,085 Other financial assets - others

58,530 52,538

49,563

$ 447,554 $ 450,183 $ 451,065

XXXIV.

As of December 31, 2013, the Merging Company still had major

commitments and contingencies below:

Major contingent liabilities and commitments made under unrecognized contracts

(I) SKS:

1. Guaranteed notes paid: Guaranteed notes issued for undertaking

engineering for an amount of NT$26,511 thousand.

2. Guaranteed notes received: Guaranteed notes received for

guaranteeing engineering for an amount of NT$18,515 thousand.

3. SKS’ on-site service business is for the delivery and safety of cash

and valuables in accordance with the security agreement and on-site

service agreement signed by SKS and security subscribers. SKS is

fully responsible for the on-site service loss resulted from the fraud,

conspiracy, negligence, and dishonest or delivers. Further, SKS shall

also be liable for the damages caused due to the following

circumstances pursuant to the Civil Code:

(1) The loss and damage of the delivery object, or delay in

delivery (Civil Law No. 634 first paragraph), (2) The loss and

damage of the delivery object with visible flaw that is rejected by the

shipper (Civil Law No. 635), (3) The loss and damage of the

delivery object, or delay in delivery at the fault of the shipper’s

- 93 -

employees or contractors (Civil Law No. 636), (4) The loss and

damage of the cash, marketable security, jewelry, and valuables that

are with the nature and value of the delivery object declared by

consigner at the time of consignment (Civil Law No. 639.1), and (5)

Shipper has committed any of the acts stated in Civil Law No. 633,

650, and 651, or, other acts that are detrimental to the prompt

delivery or the safety of the delivery object, or, has failed to exercise

proper care and action protecting the interest of the consigner (Civil

Law 641).

As of December 31, 2013, consigned on-site service for an

amount of $7,050,346 thousand and one bag of convertible deposits

in transit were not listed in the balance sheets of SKS.

The insurance, of which SKS and Taiwan Security are the

co-insured, for the on-site service (including transportation and

replacement of cash in ATM) on December 31, 2013 is specified as

follows:

Type Contents Insurance Amount 1. Cash-transit Route:

Taiwan Province, Kaohsiung City, Taipei City

Insurance amount per accident: 100,000 thousand NTD Insurance amount in the duration of insurance: $300,000 thousand

2. Cash on hand

Nine treasuries in Hsinchu City and Taichung City

1,888,000 thousand NTD(insurance amount accruing progressively per day in the case of holidays)

3. Cash on hand

Treasury in Taipei City

1,281,000 thousand NTD(insurance amount accruing progressively per day in the case of holidays)

4. Fidelity insurance

On-duty escorts and drivers of cash transportation vehicles

Insurance amount per employee: 10,000 thousand NTD Insurance amount per accident: 10,000 thousand NTD Cumulative maximum indemnity in the duration of insurance: 100,000 thousand NTD(Deductible per accident: 10,000 thousand NTD)

- 94 -

(II) For YKS:

The guarantee notes issued by YKS on December 31, 2013 for the

lease of parking lot of Chi Mei Medical Center total 3,080 thousand NTD.

(III) For Yi Kong Building Management:

Yi Kong Building Management had guaranteed notes issued for an

amount of NT$5,983 thousand for undertaking the cleaning business on

December 31, 2013.

(IV) For Shinkong Optical:

Shinkong Optical had guaranteed notes issued for an amount of

NT$399 thousand for undertaking the engineering on December 31, 2013.

XXXV.

(I) Information relevant to major transactions and (II) investment to other

enterprises:

Noted disclosures

1. Fund lent to others. (None)

2. Endorsement and guarantee made for others. (Table 1)

3. Marketable securities-end. (Table 2)

4. Cumulative amount of the same marketable security purchased or

sold reaching $300 million or more than 20% of the paid-in capital.

(None)

5. Acquisition amount of real estate reaching $300 million or more

than 20% of the paid-in capital. (None)

6. Amount on disposal of real estate reaching $300 million or more


7. Accounts receivable-related party reaching $100 million or more

than 20% of the paid-in capital. (Table 3)

8. Accounts receivable-related party reaching $100 million or more


9. Transactions in engaging in derivative financial instruments.(None)

10. Other information: Amount of the business relationship and major

transactions between parent company and subsidiaries and among

subsidiaries. (Table 6)

11. Investee information. (Table 4)

(III) Information on the investment in Mainland China:

- 95 -

1. Names of investees in China, major business lines, paid-in capitals,

method of investment, facts of outward and inward remittances,

profit and/or loss in investments, shareholding percentages, book

amounts of investment at end of the term, investment profit and/or

loss having been remitted back, limits of investment in China(Table

5)

2. Major transactions with investees in China either directly or

indirectly with occurrence through third territories, and the prices,

terms of payment, unrealized profit and/or loss (Nil)

(1) Input amounts, percentages, balance, & percentages of relevant

payable at end of the term.

(2) Sales amounts, percentages, balance, & percentages of relevant

receivables at end of the term.

(3) Amount of property transaction and amount of the profit

and/or loss so incurred.

(4) Balance and purposes of endorsements/guarantees or collateral

provided at end of the term.

(5) The highest balance of fund financing balance at end of the

term, range of interest rates and total amount of interest in the

current term.

(6) Other transactions having significant effect upon profit and/or

loss or financial standing of the current term, e.g., provision or

acceptance of services.

XXXVI.

Information that is provided to the decision maker for resource allocation and

performance evaluation purposes, with emphasis on the types of products or

services delivered. The departments of the Merging Company which should be

reported are enumerated below:

Segment information

Electronic services - offering electronic security

Cash delivery services - offering cash escorts

Stationed services - offering stationed security guards

Others - others

- 96 -

(I) Segment income and performance

The consolidated company’s income and business performance from

continuing operations, reported by segments, are as follows: Segment income Segment profit/loss 2013 2012 2013 2012

Electronic services $ 2,959,574 $ 2,946,612 $ 600,178 $ 589,270 Cash delivery services

1,108,707 1,019,411 151,784 156,074

Stationed services 1,709,230 1,742,231 85,411 54,307 Others 1,738,923 1,142,558 279,203 Total from continuing operations

240,948

$ 7,516,434 $ 6,850,812 1,116,576 Investment gains recognized using the equity method

1,040,599

11,030 2,619 Dividend income 180,633 143,476 Loss in impairment in financial assets

( 30,786 ) ( 36,475 )

Rental revenue 21,795 22,619 Interest revenue 5,845 4,932 Loss (net amount) of disposal of real estate, plant buildings, equipment & facilities

( 276 ) ( 4,647 ) Gain from disposal of the available-for- sale financial assets

39,459 15,425 Loss (net amount) of net gains in conversion of foreign currencies

5,957 ( 39 ) Loss (net amount) of financial assets held for transaction

( 2,120 ) 21,050 Headquarter’s administration costs & directors’ remuneration

( 38,595 ) ( 45,502 ) Interest expenses ( 33,369 ) ( 31,380 ) Sundry income 29,418 Pre-tax net profit (continuing operations)

59,744

$ 1,305,567 $ 1,192,421

All reported segment income above arose due to transactions with

external customers. All inter-department sales in 2013 and 2012 have been

written off in full.

Segment gain refer to the profits made by each segments. It does not

include allocations of headquarter's administration costs or directors'

remuneration, investment gains/losses recognized using the equity method,

gains/losses on disposal of long-term equity investments, rental income,

interest income, gains/losses on fixed asset disposal, gains/losses on

- 97 -

investment disposal, gains/losses on exchange, gains/losses on valuation of

financial instruments, interest expenses, and income tax expenses. These

amounts are reported to the decision maker for allocating segment

resources and evaluating segment performance.

(II) Segment assets

December 31, 2013 December 31, 2012 Segment assets

Electronic services $ 3,126,519 $ 3,047,851 Cash delivery services

3,346,765 3,227,813

Stationed services 571,073 572,937 Others 1,898,195

Total segment assets

1,511,499

8,942,552 Financial assets with changes in fair value recognized as income and expense - current

8,360,100

107,984 213,771 Available-for-sale financial assets - current

3,158,758 1,754,972 Bond investments for which no active market exists

27,732 29,111 Available-for-sale financial assets - noncurrent

1,988,764 2,283,371 Financial assets carried at cost - noncurrent

277,772 354,585 Long-term investment under Equity method

22,421 16,319 Real estate investment (net)

453,941

Total other assets

459,985

6,037,372 Total assets

5,112,114 $ 14,979,924 $ 13,472,214

XXXVII. Others

(I) Of the Merging Company, Taiwan Shin Kong Security Co., Ltd. resolved

in the board of directors meeting convened on August 28, 2012 for merger

Consolidation

- 98 -

with Shinkong Aerospace Co., Ltd. The Company holds 100% equity of

Shinkong Aerospace Co., Ltd. 100% and launched summary

merger/consolidation as resolved in the board of directors.

(II) Shinkong Aerospace Co., Ltd., which was merged in the present summary

merger, was incorporated in July 2000, primarily engaging in

telecommunications engineering, installation of computer equipment,

manufacture of aircraft and the parts & components thereof.

(III) The acquisition contract in the present merger case is free of such

decisions in contingent prices, share subscription right, commitment and

disposal of major assets due to acquisition.

(IV) In the present merger, the merger record (base) date was September 30,

2012. The accounting was handled in accordance with Gazette of Financial

Accounting Standards (SFAS) No. 25 “Enterprise Merger-Accounting

Management of Procurement”.

(V) Pro forma supplementary information about the merger duration and

results of business operation

Starting from September 30, 2012, Shinkong Aerospace Co., Ltd.,

the business operation results would be consolidated into the income

statement of Taiwan Shin Kong Security Co., Ltd. The pro forma income

statement 2012 presumed the business operation results that Taiwan Shin

Kong Security Co., Ltd. already merged Shinkong Aerospace Co., Ltd. on

January 1, 2012. The pro forma consolidated income statement is

enumerated below:

2012 Amount ％

Operating revenue

$ 3,899,147 100 Operating cost ( 2,007,096 ) ( 51Gross income from operations

) 1,892,051 49

Operating expenses

( 1,238,937 ) ( 32Net operating loss

) 653,114 17

Non-operating gain and loss in expenses

413,750 Income before tax

11 1,066,864 28

Income tax expense

( 128,660 ) ( 3 )

- 99 -

Net income 938,204 25 Other


The difference in foreign exchange converted with the financial reports of overseas operating institutions

( 200 ) Loss in actuarial calculation in ascertained fringe benefit plans

( 26,566 ) Unrealized profit of Available-for- sale financial assets

86,727 Other comprehensive income of associates and joint ventures recognized in equity method

28,451 Income tax linked up with composition of other comprehensive income

5,389 Total comprehensive income of the current term

$ 1,032,005

Before tax After tax Pro forma earnings per share (EPS)

Basic EPS $ 2.83 $ 2.49 Diluted earnings per share

$ 2.82 $ 2.48

- 100 -

XXXVIII.

(I) Grounds to prepare for IFRSs information

The initial adoption of International Financial Reporting Standards ( IFRS)

The Merging Company’s 2013 Consolidated Financial Report was

the first IFRSs Annual Consolidated Financial Report, which was prepared

on the grounds of the major accounting policies mentioned in Note 4.

Besides, the Merging Company also complied with the requirements when

an issuer first adopts International Financial Reporting Standards (IFRS).

(II) Effect of conversion onto IFRSs

After conversion onto IFRSs, the effects upon the Merging

Company’s consolidated balance sheet and consolidated statement of

comprehensive income are enumerated below:

1. Adjustment of the items of consolidated balance sheet as of January

1, 2012 Generally accepted accounting

principle Effects of conversion Accounting principles of individual

financial reports

Item Amount Differences in

expression

Differences in recognition and

measuring Amount Item Remarks Cash and cash equivalents

$ 4,181,096 ( $ 124,564 ) $ - $ 4,056,532 Cash and cash equivalents

Note XXXVIII (IV). 1

－ - 124,564 - 124,564 Bond investments for which no active market exists-current


Deferred income tax assets - current

38,221 ( 38,221 ) - - － Note XXXVIII (IV). 2

Net fixed assets 2,292,586 731,565 3,024,151 Net fixed assets Note XXXVIII (IV). 3 Note XXXVIII (IV). 4


Prepaid equipment amount

15,210 ( 15,210 ) - - － Note XXXVIII (IV). 6

Financial assets carried at cost - noncurrent

1,189,577 ( 818,724 ) - 370,853 Financial assets carried at cost - noncurrent


Investment in real estate

1,169,578 ( 703,549 ) - 466,029 Investment in real estate


Intangible assts - 28,499 - 28,499 Intangible assts Note XXXVIII (IV). 5

－ - 818,724 1,412,048 2,230,772 Available-for-sale financial assets - noncurrent


Assets leased to others

949 ( 949 ) - - － Note XXXVIII (IV). 4

Deferred expenses

56,480 ( 56,480 ) - - － Note XXXVIII (IV). 5

Deferred income tax assets-noncurrent

64,338 38,221 29,002 131,561 Deferred income tax assets-noncurrent

Note XXXVIII (IV). 2 Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 13

Other assets-others

123,043 16,124 ( 7,306 ) 131,861 Other assets-others Note XXXVIII (IV). 5 Note XXXVIII (IV). 6 Note XXXVIII (IV). 11

Liabilities

Income tax payable

147,548 ( 147,548 ) - - － Note XXXVIII (IV). 8

－ - 147,548 - 147,548 Income tax liability for the year


Expenses payable

606,591 ( 606,591 ) - - － Note XXXVIII (IV). 9

Other payables 125,245 606,591 58,702 790,538 Other payables Note XXXVIII (IV). 9

- 101 -

Generally accepted accounting principle Effects of conversion

Accounting principles of individual financial reports


Accrued pension liabilities

397,060 - 10,648 407,708 Accrued pension liabilities


Shareholders’

equity

Cumulative translation adjustment

( 7,939 ) - 7,939 - Cumulative translation adjustment


Net loss not recognized as pension cost

( 101,096 ) - 101,096 - Net loss not recognized as pension cost


Unrealized profit and/or loss of financial assets/ Unrealized profit and/or loss of available-for-sale financial assets

( 842,243 ) - 1,315,732 473,489 Unrealized profit and/or loss of financial assets/ Unrealized profit and/or loss of available-for- sale financial assets


Treasury stocks ( 34,070 ) - ( 5,451 ) ( 39,521 ) Treasury stocks Note XXXVIII (IV). 14

Retained earnings

1,787,415 - ( 165,471 ) 1,621,944 Retained earnings Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 13

Minority interest

401,175 110,549 511,724 Minority interest Note XXXVIII (IV). 7 Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 13

2. Adjustment of the items of individual balance sheet as of December

31, 2012 Generally accepted accounting


financial reports


expression


measuring Amount Item Remarks Cash and cash equivalents

$ 4,072,203 ( $ 29,111 ) $ - $ 4,043,092 Cash and cash equivalents


－ - 29,111 - 29,111 Bond investments for which no active market exists-current


Deferred income tax assets - current

42,884 ( 42,884 ) - - － Note XXXVIII (IV). 2

Net fixed assets 2,428,447 728,865 - 3,157,312 Net fixed assets Note XXXVIII (IV). 3 Note XXXVIII (IV). 4


Prepaid equipment amount

10,390 ( 10,390 ) - - － Note XXXVIII (IV). 6

Financial assets carried at cost - noncurrent

1,155,888 ( 801,303 ) - 354,585 Financial assets carried at cost - noncurrent


Investment in real estate

1,158,093 ( 698,108 ) - 459,985 Investment in real estate


Intangible assts - 22,736 - 22,736 Intangible assts Note XXXVIII (IV). 5

(To be continued)

- 102 -

(Continued)

Generally accepted accounting


financial reports


expression


measuring Amount Item Remarks － $ - $ 801,303 $ 1,482,068 $ 2,283,371 Available-for-sale

financial assets - noncurrent


Assets leased to others

1,816 ( 1,816) - - － Note XXXVIII (IV). 4

Deferred expenses

53,736 ( 53,736 ) - - － Note XXXVIII (IV). 5

Deferred income tax assets-noncurrent

67,015 42,884 43,111 153,010 Deferred income tax assets-noncurrent

Note XXXVIII (IV). 2 Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 12 Note XXXVIII (IV). 13

Other assets-others

133,989 12,449 ( 6,641 ) 139,797 Other assets - others

Note XXXVIII (IV). 5 Note XXXVIII (IV). 6 Note XXXVIII (IV). 11

Liabilities

Income tax payable

119,388 ( 119,388 ) - - － Note XXXVIII (IV). 8

－ - 119,388 - 119,388 Income tax liability for the year


Expenses payable

697,873 ( 697,873 ) - - － Note XXXVIII (IV). 9

Other payables 103,681 697,873 100,233 901,787 Other payables Note XXXVIII (IV). 9 Note XXXVIII (IV). 10

Accrued pension liabilities

433,541 - 27,116 460,657 Accrued pension liabilities


- - 11,560 11,560 Other long-term employee fringe benefit liabilities


Shareholders’

equity

Cumulative translation adjustment

( 15,465 ) - 7,939 ( 7,526 ) Cumulative translation adjustment


Net loss not recognized as pension cost

( 115,191 ) - 115,191 - Net loss not recognized as pension cost


Unrealized profit and/or loss of financial assets/ Unrealized profit and/or loss of available-for-sale financial assets

( 781,983 ) - 1,385,752 603,769 Unrealized profit and/or loss of financial assets/ Unrealized profit and/or loss of available-for- sale financial assets


Treasury stocks ( 34,070 ) - ( 5,451 ) ( 39,521 ) Treasury stocks Note XXXVIII (IV). 14

Retained earnings

1,423,428 - ( 224,601 ) 1,198,827 Retained earnings Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 12 Note XXXVIII (IV). 13

Minority interest

440,266 - 100,799 541,065 Minority interest Note XXXVIII (IV). 7 Note XXXVIII (IV). 10 Note XXXVIII (IV). 11 Note XXXVIII (IV). 13

- 103 -

3. Adjustment of the items of individual comprehensive income

statement 2012 Generally accepted accounting


financial reports


expression


measuring Amount Item Remarks Operating revenue-net

$ 6,850,812 $ - $ - $ 6,850,812 Operating revenue-net

Operating cost ( 4,364,619 ) - - ( 4,364,619 ) Operating cost Gross income from operations

2,486,193 - - 2,486,193 Gross income from operations

Operating expenses

( 1,439,492 ) ( 5,441 ) ( 46,163 ) ( 1,491,096 ) Operating expenses





Operating income

1,046,701 - - 995,097 Operating income

Non-operating gain and loss in expenses

191,883 5,441 - 197,324 Non-operating revenue and expense


Income before tax

1,238,584 - - 1,192,421 Income before tax

Income tax expense

( 205,131 ) - 7,849 ( 197,282 ) Income tax expense




Net profit of the year

$ 1,033,453 995,139 Net profit of the year

( 6,270 ) The difference in foreign exchange converted with the financial reports of overseas operating institutions

( 36,826 ) Loss of ascertained fringe benefits in actuarial calculation

( 4,935 ) Number of shares of other comprehensive income in subsidiaries, associates in equity method

106,193 Unrealized profit (loss) of Available-for- sale financial assets

7,860 Income tax linked up with composition of other comprehensive income

66,022 Other comprehensive income (net amount after tax) of the year

$ 1,061,161 Total comprehensive income of the year

- 104 -

(III) Options of waiver in IFRS 1

IFRS 1 “Initial Adoption of International Financial Reporting

Standards (IFRS)” provides guidelines of the procedures in preparing for

consolidated financial reports in the first time adoption of IFRSs.

According to IFRSs, the Merging Company should set up accounting

policies under IFRSs which should apply retrospectively so as to

determine the initial consolidated balance sheet from conversion till IFRSs

day (January 1, 2012). The IFRSs provides certain options of waivers of

the retrospective application principles. The major waiver options adopted

by the Merging Company are enumerated below:

The Merging Company chose to convert all actuarial calculation

profit and/or loss relevant to the employee fringe benefit program to be

recognized as retained earnings as of IFRSs date. Besides, the Merging

Company chose to disclose the historical information of experiences based

adjustment for all amounts determined in respective accounting periods

starting from IFRSs date.

Employee fringe benefits

On the date of conversion to IFRSs, the Merging Company chose to

recognize the exchange differences of overseas operating institutions at

zero and recognized on that day the retained earnings. In any subsequent

disposal of the profit and/or loss of overseas operating institutions, all

conversion differences incurred before conversion to IFRSs would be

ruled out, but it would include the conversion differences incurred after

that date.

Cumulative translation differences

The effect of the aforementioned options of waiver has been

consolidated in the descriptions of “(IV) Descriptions of Major

Adjustment” below.

(IV) Descriptions of major adjustment of conversion to IFRSs.

When the Merging Company propagated the Consolidated Financial

Report, in accordance with the accounting policies adopted under the

Generally Accepted Accounting Principles of the Republic of China and in

accordance with IFRSs, the major differences are enumerated below:

1. Time deposits in duration over three months

- 105 -

Under the Generally Accepted Accounting Principles of the

Republic of China, the time deposits which could be terminated at

any time without an impairment to the principal were recognized in

the item of cash.

After conversion to IFRSs, the time deposits in duration

beyond three (3) months would normally not be recognized as cash

& cash equivalents. Where deposits lack open quotation the active

markets and possess fixed or resolvable amounts to be retrieved,

deposits more than three (3) months were, therefore, classified as

bond investments for which no active market exists-current.

As of December 31, 2012 and January 1, 2012, the Merging

Company’s time deposits reclassified to other financial assets were

in amounts of NT$29,111 thousand and NT$124,564 thousand

respectively.

2. Deferred income tax assets

According to GAAP of Taiwan, valuation allowances are

provided on deferred income tax assets after assessing their

reversibility. After adopting IFRSs, only income tax benefits that are

"highly likely" realized can be recognized as deferred income tax

assets; the valuation allowance will no longer be used.

According to GAAP of Taiwan, deferred income tax assets or

liabilities are allocated into current and non-current portions that

correspond with the source assets and liabilities from which they

arise. Deferred taxes that do not relate to any particular assets or

liabilities are allocated into current and non-current portions based

on their expected time to reversal. After adopting IFRSs, all deferred

income tax assets and liabilities are classified as non-current items.


Company’s deferred income tax assets-current classified to

non-current assets were in amounts of NT$42,884 thousand and

NT$38,221 thousand respectively.

- 106 -

3. Investment in real estate


Republic of China, the real estate leased in business operation was

recognized as fixed assets/Other assets on book.

After conversion to IFRSs, the real estate held by the owners

for the purposes of making rental revenues or for asset increment or

both should be recognized as investment-oriented real estate. As of

December 31, 2012 and January 1, 2012, the Merging Company’s

investment-oriented real estate reclassified to fixed assets were in

amounts of NT$698,108 thousand and NT$ 703,549 thousand

respectively. Besides, the depreciation expenses of the

investment-oriented real estate were recognized as deduction of

rental revenue. In accordance with the aforementioned

reclassification, in 2012, the depreciation expense and rental

revenues both increased by NT$5,441 thousand.

4. Reclassification of assets leased outward


Republic of China, assets leased out were recognized under the item

of other assets. After conversion to IFRSs, assets leased out were

recognized as fixed assets at the attributes.

As of December 31, 2012 and January 1, 2012, assets leased

out and reclassified to fixed assets were in amount of NT$1,816

thousand and NT$949 thousand respectively.

5. Deferred expenses


Republic of China, deferred expenses were recognized under the

item of other assets.

After conversion to IFRSs, deferred expenses should be, by

attributes, reclassified to real estate, plant buildings, equipment &

facilities, intangible assets, expenses paid in advance and long-term

expenses paid in advance.


Company’s deferred expenses reclassified to fixed assets were in

- 107 -

amounts of NT$28,941 thousand and NT$27,067 thousand

respectively.


Company’s deferred expenses reclassified to intangible assets were

in amounts of NT$22,736 thousand and NT$28,499 thousand

respectively.


Company’s deferred expenses reclassified to expenses paid in

advance were in amounts of NT$2,059 thousand and NT$914

thousand respectively.

6. Prepaid equipment amount


Republic of China, sums paid in advance for procurement of

equipment & facilities were normally recognized as payment for

equipment & facilities paid in advance under fixed assets.

After conversion to IFRSs, sums paid in advance for

procurement of equipment & facilities were normally recognized as

payment in advance and were normally recognized as non-current

assets.


Company’s advance payments for equipment & facilities reclassified

to items of non-current fund amounts of NT$10,390 thousand and

NT$15,210 thousand respectively.

7. Financial assets carried at cost

In accordance with the Guidelines Governing the Preparation

of Financial Reports by Securities Issuers, the stocks not listed in the

stock exchange or stocks not transacted in over-the-counter without

significant effect should be recognized as financial assets measured

at costs. After conversion to IFRSs, investment in equity instruments

partially designated as available-for-sale financial assets or

investment in equity instruments not designated to be measured at

fair values should be classified as available-for-sale financial assets

and should be measured at fair values. As of December 31, 2012 and

January 1, 2012, the Merging Company’s financial assets measured

- 108 -

at costs reclassified to available-for-sale financial assets-non-current

were in amounts of NT$801,303 thousand and NT$818,724

thousand. Available-for-sale financial assets－non-current increased

in adjustment by NT$1,482,068 thousand and NT$1,412,048

thousand. The unrealized profit and/or loss of available-for-sale

financial assets increased by NT$1,385,752 thousand and

NT$1,315,732 thousand in the adjustment The minority stock rights

increased by NT$96,316 thousand in all cases.

8. Expression of income tax payable

Under Generally Accepted Accounting Principles of the

Republic of China, the income tax payable was recognized under the

item of current liabilities. After conversion to IFRSs, the income tax

payable should be reclassified by attributes to the income tax

liabilities of the current term.


Company’s income tax payable reclassified by attributes to income

tax liabilities of the current term were in amounts of NT$119,388

thousand and NT$147,548 thousand.

9. Expression of accrued expenses payable


Republic of China, accrued expenses payable should be recognized

under the item of current liabilities. After conversion to IFRSs,

accrued expenses payable should be, by attributes, reclassified to

other payables.


Company’s accrued expenses payable reclassified by attributes to

other payables were in amounts of NT$697,873 thousand and

606,591 thousand.

10. Employee fringe benefits-short-term accumulable paid leave

The accounting treatment for short-term paid leaves was not

explicitly mandated in GAAP of Taiwan, and the common practice

was to record an accounting entry at the time the leave entitlement is

granted.

- 109 -

After adopting IFRSs, paid leaves need to be recognized as

expenses whenever employees offer their services that will earn

them the entitlement to take leaves in the future.

As of December 31, 2012 and January 1, 2012, due to

accounting process for short-term accumulable paid leave, the

Merging Company increased in the adjustment other payables

amounting to NT$100,233 thousand and NT$58,702 thousand

respectively; and the assets of the deferred income tax increased in

the adjustment NT$17,040 thousand and NT$9,979 thousand

respectively. The minority stock rights decreased by NT$15,386

thousand and NT$8,843 thousand respectively. Besides in

adjustment in 2012, salary expenses increased by NT$41,531

thousand and income tax expense decreased by NT$NT$7,061

thousand.

11. Employee fringe benefits--The actuarial calculation profit and/or loss

in ascertained pension plans


Republic of China, the unrecognized transitional payment

obligations yielded under “Pension Accounting Principles” of The

Statement Financial Accounting Standards No. 18 should be

amortized in on the straight-line basis based on the average

remaining employment periods of the current employees and be

recognized into net pension costs. After conversion to IFRSs, as the

transitional requirements of Regulations and IAS No. 19 “Employee

fringe benefits” were not yet applicable, the relevant effect of the net

unrecognized transitional payment obligations should be recognized

in one package with adjustment of retained earnings.


Republic of China, the actuarial calculation profit and/or loss should

be amortized and recognized under the item of profit and/or loss

based on the average remaining employment periods of the current

employees in the corridor approach. After conversion to IFRSs, the

actuarial calculation profit and/or loss of ascertained fringe benefit

plans yielded through actuarial calculation under Regulations and

- 110 -

IAS No. 19 “Employee fringe benefits” could be under the option of

being recognized immediately under the item of other

comprehensive income and entered as retained earnings in the List of

Change in Equity and would not be reclassified to profit and/or loss

in the subsequent period.


Company, in accordance with the requirements of “Employee fringe

benefits” under Regulations and IAS No. 19, conducted actuarial

calculation of the ascertained fringe benefit plans anew. Further in

accordance with the requirements set forth under Initial Adoption of

International Financial Reporting Standards ( IFRS) No. 1, it

increased through adjustment accrued pension liabilities NT$27,116

thousand and NT$10,648 thousand. The pension expenses paid in

advance decreased through the adjustment NT$6,641 thousand and

NT$7,306 thousand. The unrecognized net loss of the pension costs

decreased through the adjustment NT$115,191 thousand and

NT$101,096 thousand; the deferred income tax assets increased

through the adjustment NT$25,321 thousand and NT$20,238

thousand; and the minority stock rights increased by NT$19,764

thousand and NT$22,971 thousand respectively. Besides, in 2012,

the pension costs decreased through the adjustment NT$6,928

thousand and the income tax expense increased through the

adjustment NT$1,177 thousand. In the adjustment, the loss in the

actuarial calculation in the ascertained fringe benefit plan increased

by NT$36,826 thousand and the income tax interest of other

comprehensive income increased by NT$6,260 thousand.

12. Employee fringe benefits -Other long-term employee fringe benefits


Republic of China, there has no requirements expressly provided for

the employee fringe benefits which would be normally entered into

account at the moment of actual payment.

After conversion to IFRSs, as the transitional requirements of

Regulations and IAS No. 19 “Employee fringe benefits”, actuarial

calculation should be conducted for the service costs and actuarial

- 111 -

calculation profit and/or loss for the preceding term and should be

recognized forthwith, to which the corridor approach is not

applicable.

As of December 31, 2012, as a result of adjustment of

accounting management, the Merging Company increased other

long-term employee fringe benefit liabilities NT$11,560 thousand

due to adjustment of accounting management of other long-term

employee fringe benefits; and decreased deferred income tax

NT$1,965 thousand in the adjustment. Besides, in 2012, the costs of

employee fringe benefits increased through adjustment NT$11,560

thousand and decreased income tax expenses through the adjustment

NT$1,965 thousand.

13. Cumulative translation adjustment/functional currency of overseas

operating institutions


Republic of China, the indices of all varieties of functional

currencies were judged on a consolidated basis.

After conversion to IFRSs, Regulations and IAS No. 21

“Effect on the Change in Exchange Rates”, the major indices should

be taken into preferentially taken into account before the secondary

indices would be taken to back up the judgment in the functional

currencies.

As of December 31, 2012 and January 1, 2012, as a result of

the change in the functional currencies, the Merging Company

decreased through adjustment deferred income tax

assets-non-current NT$1,215 thousand on both dates, and increased

through adjustment the cumulative translation adjustment NT$7,939

thousand on both dates. The minority stock rights increased by

NT$105 thousand respectively.

14. Transaction of treasury stocks


Republic of China, in the part of the parent company’s stocks held

by the subsidiaries deemed to be managed as treasury stocks, in the

initial adoption of International Financial Reporting Standards (IFRS)

- 112 -

No. 30 “Accounting Principles for Management of Treasury Stocks”,

the part was entered on the grounds of the book values of the parent

company’s stocks held by the subsidiary at the beginning of 2002.

This amount might not necessarily equivalent to the costs of initial

investment.

After conversion to IFRSs, treasury stocks should be deducted

from the equity as the acquiring costs. The aforementioned

transitional provision was not existent. Accordingly, retrospective

adjustment should be conducted in the list of change in equity for the

balance of treasury stocks related account.


Company’s treasury stocks decreased by NT$5,451 thousand on both

dates as a result of the adjustment.

15. Descriptions of adjustment of the consolidated statement of


After conversion to IFRSs, the Merging Company adjusted

and increased salary expenses under operating expenses by attributes

of business transactions NT$41,531 thousand; decreased pension

cost through the ja4 NT$6,928 thousand; increased in the costs of

adjustment fringe benefits for employees and increased in the

adjustment NT$11,560 thousand and income tax expense through the

adjustment NT$7,849 thousand.

(V) Descriptions of the major adjustment in Cash Flow Statements

Under the requirement of the Generally Accepted Accounting

Principles of the Republic of China, the time deposits, which could be

terminated from contracts without impairment to the principal, and the

assignable time deposit certificates, which could be sold without

impairment to the principal, would be consistent with the definition of cash.

Pursuant to Regulations and IAS No. 7 “Cash Flow Statements”: the cash

equivalents would be held for the purposes of satisfying commitment of

short-term cash, not for investment or other purposes. The Regulations

also required that the investment to be due within a short period of time

(e.g., within three (3) months from acquirement) could be deemed as cash

Time deposit

- 113 -

equivalent Accordingly, the Merging Company’s time deposits as of

December 31 and January 1, 2012 in amounts of NT$29,111 thousand and

NT$124,564 thousand were oriented for investment purposes. According

to IFRSs, the time deposits could not be classified as cash & cash

equivalents.

Under the requirement of the Generally Accepted Accounting

Principles of the Republic of China, collection and payment in interest and

collection of dividend would be normally classified as operating activities.

Payment of dividend would be classified as financing activities. The

Generally Accepted Accounting Principles of the Republic of China also

require that in Cash Flow Statements prepared in indirect manner should

bear supplementary disclosure the amount of interest expenses paid in cash.

Pursuant to Regulations and IAS No. 7, “Cash Flow Statements”, the cash

flow in revenues and payment of interest and dividend should be disclosed

individually and should be classified into business operation, investment or

capital-raise activities in a manner consistent in all the terms. Accordingly,

pursuant to the requirements of IFRSs, the interest received in cash

NT$4,932 thousand held by the Merging Company and the interest paid

NT$31,775 thousand in 2012 should be disclosed individually.

Interest and dividend

Except there, the Consolidated Cash Flow Statements prepared

under the International Financial Reporting Standards (IFRS) and the

Consolidated Cash Flow Statements prepared under the Generally

Accepted Accounting Principles of the Republic of China would show no

any other significant differences.

- 114 -


Endorsement and guarantee made for others

January 1, 2013 to December 31, 2013

Table 1 Unit: NTD1,000 unless specified otherwise

No. Endorsed/guaranteed by

Counterpart

Limit of endorsement/ guarantee on

particular enterprise

Maximum balance of

endorsement / guarantee

made during the current

period

Balance of endorsement / guarantee at end of the

period

Amount actually

disbursed

Endorsement/ guarantee secured by company

assets

Proportion of total

endorsement/ guarantee to the net worth

as stated in the most recent

financial statement (%)

Maximum limit of

endorsement/ guarantee

As the parent company’s

endorsements/guarantees

toward subsidiary

(ies)

As a subsidiary’s

endorsements/guarantees toward its

parent company

As the endorsements/guarantees toward the mainland

China area.

Remarks Name Affiliation

0 Taiwan Shin Kong Security Co., Ltd.

Taiwan Security Co., Ltd.

Investee evaluated based on equity method

$ 759,709 $ 600,000 $ 600,000 $ 600,000 $ - 7.05 $ 1,899,273 Y N N Note 2

Yi Kong Building Management Service Co., Ltd


Investees where the parent company and subsidiaries hold common shares beyond 50%

30,000 30,000 420 420 - 0.22 48,000 N N N Note 3

Note 1: Limits to endorsement and guarantee are conducted by subsidiaries in accordance with Articles 36 and 38 of Securities Transaction Law, regulations of (86) Tai-Tsai-Cheng (VI) No. 00669 dated February 12, 1997 of Securities and

Futures Commission, Ministry of Finance and operation procedures for endorsement and guarantee approved by the general shareholders’ meeting: The total amount of endorsement and guarantee provided by the Company for outside

parties and the limit to endorsement and guarantee provided for a single entity are 50% and 20% of the paid-in capital, respectively.

Note 2: In accordance with above-mentioned regulations, the upper limit to endorsement and guarantee provided by the Company for outside parties for 2013 was paid-in capital 3,798,545×50%＝1,899,273, and the limit to endorsement and

guarantee provided for a single entity was paid-in capital 3,798,545×20%=759,709. Note 3: According to the said regulations, the maximum limit of endorsement/guarantee to be made by Yi Kong Building Management Service Co., Ltd externally is $48,000 thousand = paid-in capital $60,000 thousand × 80%, and the Limit of

endorsement/guarantee on particular enterprise is $30,000 thousand = paid-in capital $60,000 thousand × 50%.

- 115 -


Marketable securities held

December 31, 2013

Table 2 Unit: NTD1,000

Holder Type and name Affiliation to the issuer Account title End of year

Remarks Share(s) Book value Equity (%) Market price / net worth

TSEC/GTSM listed shares Shin-Po Investment

Co., Ltd. Taiwan Secom Co., Ltd. N/A The financial assets

measured for the fair values through profit and/or loss--current 638 $ 48 - $ 48

Shin Hai Gas Corporation N/A 〃 818,618 32,663 0.51 32,663 Great Taipei Gas

Corporation The Company is its corporate director.

〃 1,322,726 29,761 0.26 29,761

Shinkong Synthetic Fibers Corporation

N/A 〃 395,375 4,132 0.02 4,132

Ambassador Hotel Co., Ltd. N/A 〃 500,000 14,875 0.19 14,875 Taishin Financial Holding

Co., Ltd. N/A 〃

518,039 7,589 0.01 7,589

First Financial Holding Co., Ltd.

N/A 〃 532,594 9,879 0.01 9,879

Shihlin Electric Co., Ltd. The Company is its corporate director.

〃 131,000 4,978 0.03 4,978

HTC Corporation N/A 〃 28,787 - 4,059 4,059 $ 107,984 $ 107,984 TSEC/GTSM listed shares Taiwan Shin Kong

Security Co., Ltd. Great Taipei Gas Corporation

The same group member Available-for-sale financial assets - current 5,112,000 $ 115,020 0.99 $ 115,020

Taishin Financial Holding Co., Ltd.

Its Chairman is the representative of the Company’s corporate director.

〃

175 3 - 3

Shin Kong Financial Holding Co., Ltd.

Its supervisor is the Company’s Chairman.

〃 85,695,090 882,659 0.92 882,659

Shin Hai Gas Corporation The same group member 〃 211,596 8,443 0.13 8,443 Shinkong Synthetic Fibers

Corporation The same group member 〃

9,426,931 98,511 0.54 98,511

(To be continued)

- 116 -

(Continued)



Shinkong Spinning Co., Ltd. The same group member Available-for-sale financial assets - current 6,344,000 $ 253,760 2.11 $ 253,760

SinoPac Holding Co., Ltd. N/A 〃 257,859 3,829 - 3,829 Creative Sensor Inc. N/A 〃 322,461 6,933 0.25 6,933 Huanan Financial Holding

Co., Ltd. N/A 〃

129,530 2,254 - 2,254

Shihlin Electric Co., Ltd. N/A 〃 500,000 19,000 0.10 19,000 Taiwan Shin Kong Security Co., Ltd.

MasterLink Securities Corporation

N/A 〃 6,172,000 63,880 0.40 63,880

Asia Pacific Telecom Group The Company is its corporate director.

〃 23,645,000 365,315 0.72 365,315

Taiwan Pelican Express Co., LTD.

The Company is its corporate director.

〃 963,000 65,003 1.01

65,003

Shin-Po Investment Co., Ltd.


N/A 〃 15,076,756 155,291 0.16 155,291

HIWIN TECHNOLOGIES CORP

N/A 〃 43,908 11,043 0.02 11,043

Yulon Motors Co., Ltd. N/A 〃 80,000 4,320 0.01 4,320 HON HAI PRECISION

IND.CO.,LTD. , N/A 〃

11,000 881 - 881

Shinkong Spinning Co., Ltd. N/A 〃 3,227,000 129,080 1.08 129,080 Yi Kong Security Company Limited

United Micro Electronics N/A 〃 230,693 2,849 - 2,849

Cybertan Technology Inc. N/A 〃 32,552 1,076 0.01 1,076 SinoPac Holding Co., Ltd. N/A 〃 332,888 4,943 - 4,943 Shin Kong Financial

Holding Co., Ltd. Its supervisor is the Company’s Chairman

〃 46,654,886 480,545 0.55 480,545

Jih Sun Financial Holding Co., Ltd.

N/A 〃 418,621 3,621 0.02 3,621

Shinkong Synthetic Fibers Corporation

N/A 〃 2,623,365 27,414 0.14 27,414

Great Taipei Gas Corporation

N/A 〃 5,984,000 134,640 1.16 134,640

Shinkong Spinning Co., Ltd. N/A 〃 2,133,000 85,320 0.71 85,320

(To be continued)

- 117 -

(Continued)



MasterLink Securities Corporation

N/A Available-for-sale financial assets - current 6,319,000 $ 65,402 0.41 $ 65,402

HTC Corporation N/A 〃 8,000 1,128 - 1,128 Ambassador Hotel Co., Ltd. N/A 〃 100,000 - 2,975 2,975 Taiwan Security Co., Ltd.


Its supervisor is the Company’s Chairman

〃 276,907 2,852 - 2,852

Shin Hai Gas Corporation N/A 〃 39,746 1,586 0.01 1,586 Great Taipei Gas

Corporation N/A 〃

28,068 632 0.03

632 eTech Pro Co., Ltd. Taiwan Secom Co., Ltd. N/A 〃 304,000 - 22,739 22,739 Great Taipei Gas

Corporation N/A 〃

957,000 - 21,533

21,533 Shinsoft Co., Ltd. Shinkong Insurance Co.,

Ltd. N/A 〃

70,000 - 1,683

1,683 Taishin Financial Holding

Co., Ltd. N/A 〃

211,401 - 3,097

3,097 Taiwan Secom Co., Ltd. N/A 〃 60,000 - 4,488 4,488 Shin Hai Gas Corporation N/A 〃 12,503 - 499 499 New Light International Co., Ltd.


Its supervisor is the Company’s Chairman.

〃

8,162,407 84,073 0.09

84,073 3,138,320 3,138,320 Beneficiary certificates of fund eTech Pro Co., Ltd. Shinkong Chi-Shin Fund N/A 〃 815,785.67 12,360 - 12,360 Shinkong Optical Networking Co., Ltd.

Taishin 1699 Bond Fund N/A 〃

611,407.95 - 8,078

8,078 20,438 20,438 $ 3,158,758 $ 3,158,758

(To be continued)

- 118 -

(Continued)



Domestic non-TSEC/non-GTSM listed shares

Taiwan Shin Kong Security Co., Ltd.

First International Telecom Corp.


Financial assets carried at cost - noncurrent 18,792,268 $ - 4.18 $ -

Jhong Jing Technology Co., Ltd.

N/A 〃 216,189 2,162 0.36 2,133

WK Technology Fund V Limited

N/A 〃 2,000,000 13,980 1.11 13,980

Li Yu Venture Capital Co., Ltd.

N/A 〃 213,724 1,774 1.19 1,468

WK Technology Fund VII Limited

N/A 〃 5,000,000 34,650 2.66 34,650

FuYu Venture Capital Fund Co., Ltd.


〃 555,555 5,556 1.85 6,211

Citron Network Inc. N/A 〃 564,706 - 4.71 - Cyun He Venture Capital

Co., Ltd. N/A 〃

1,102,500 7,577 1.75 9,834

Kun Ji Venture Capital Co., Ltd.

N/A 〃 1,400,000 4,000 2.00 12,306

IBT Venture Co., Ltd. The Company is its corporate director.

〃 257,970 2,580 1.23 4,798

Geniron.com Inc. The Company is its corporate director.

〃 1,219,999 6,100 5.30 6,917

Kaohsiung Rapid Transit Corporation

N/A 〃 643,031 8,128 0.23 8,128

Loyo Travel Co., Ltd. N/A 〃 25,000 250 1.39 345 Gyu-Kaku Co., Ltd. N/A 〃 300,000 3,000 5.00 2,703 Pac-Link Bioventures

Capital Investment Corp. N/A 〃

2,490,000 16,950 2.49 17,729

Shin-Shen-Er Venture Capital

N/A 〃 4,750,000 47,500 3.23 42,893

Yen-Din Venture Capital N/A 〃 5,000,000 50,000 2.08 50,300

(To be continued)

- 119 -

(Continued)




Chien Hsiang Security Service Co., Ltd.

N/A Financial assets carried at cost - noncurrent 2,743,648 $ 30,000 8.85 $ 30,000

Geniron.com Inc. N/A 〃 570,000 3,135 2.48 3,132 Triple Domain Vision Co.,

Ltd. N/A 〃

437,000 3,242 5.94

3,242 Cloud Lifeplus Co., Ltd. N/A 〃 1,500,000 15,000 12.66 15,000 Yi Kong Security Company Limited

Shin Shou Building Management Service Co., Ltd.

N/A 〃

430,000 4,140 1.00

4,140 First International Telecom

Corp. N/A 〃

5,555,000 - 1.39

- Shinsoft Co., Ltd. First International Telecom

Corp. N/A 〃

1,111,000 - 0.25

- Geniron.com Inc. N/A 〃 950,000 4,937 4.13 4,937 Triple Domain Vision Co.,

Ltd. N/A 〃

875,000 11.90 4,189

4,189 268,850 279,035 Foreign non-public/non-OTC listed

shares


Budworth Investments Limited

N/A 〃 775,000 5,179 5.00 15,895

COM2B., CO. N/A 〃 1,250,000 2.78 3,743 3,743 8,922 19,638 $ 277,772 $ 298,673 Domestic non-TSEC/non-GTSM

listed shares


Shin Kong Mitsukoshi Department Store Co., Ltd.

N/A Available-for-sale financial assets - noncurrent 48,655,539 $ 1,308,539 3.91 $ 1,308,347

Taishin Securities Investment Trust Co., Ltd.

N/A 〃 2,398,987 28,788 8.00 28,140

Great Taipei Broadband Co., Ltd.


〃 14,500,000 55,390 9.67 53,360

(To be continued)

- 120 -

(Continued)



Taiwan Fuhbic Corporation N/A Available-for-sale financial assets - noncurrent 559,119 $ 5,591 4.30 $ 6,916

Shin Kong Chao Feng Co., Ltd.

N/A 〃 180,000 7,987 2.00 7,987

Industrial Bank of Taiwan N/A 〃 15,577,154 110,597 0.65 110,597 VIBO Telecom Inc. N/A 〃 72,349 724 0.01 203 Hundure Technology Co.,

Ltd. The Company is its corporate director.

〃 670,000 10,720 9.73 12,609


Hundure Technology Co., Ltd.


〃 620,000 9,300 9.00 9,300

Yi Kong Security Company Limited

Shin Kong Mitsukoshi Department Store Co., Ltd.

N/A 〃 14,783,195 397,578 1.20 397,520

Great Taipei Broadband Co., Ltd.

N/A 〃 9,000,000 6.00 53,550

33,120

$ 1,988,764 $ 1,968,099

- 121 -


With input, output amounts with concerned parties up to NT$100 million or beyond 20% of the paid-in capital.



Purchase (sale) Counterpart Affiliation

Status Distinctive terms and

conditions of trade and the reasons

Notes/accounts receivable (payable)

Remarks Purchase

(sale) Amount Percentage in total purchase (sale) amount

% Duration Unit price Duration Balance

Percentage in total

accounts/notes receivable

(payable) % Taiwan Shin Kong Security Co., Ltd.


Invested company valued with Equity method

Fees for on-site service

$ 378,167 19

Same as those with general suppliers

Subject to the contract

Same as those with general suppliers ( $ 46,537 ) ( 27 )

Shinsoft Co., Ltd. 〃 Security materials 180,609 9

〃〃〃 ( 14,845 ) ( 8 )

Shinkong Optical Networking Co., Ltd.

〃 Fees for installation

195,285 10

〃〃〃

( 25,644 ) ( 15 )

Shin Kong Commercial Bank Co., Ltd.

The same group member

Revenues from electronic services and spot deliveries, etc. 132,340 ( 3 )

〃〃〃

3,062 2



Invested company valued with Equity method

On-site service revenue 378,167 ( 35 )

〃〃〃

46,537 35



〃 On-site service revenue 274,198 ( 26 )

〃〃〃

47,202 35

Shinsoft Co., Ltd. Taiwan Shin Kong Security Co., Ltd.

〃 Sales revenue

180,609 ( 17 )

〃〃〃

14,845 21



〃 Installation revenue

195,285 ( 86 )

〃〃〃

25,644 82



〃 Labor service cost 274,198 100

〃〃〃 ( 47,202 ) ( 100 )



〃 Permanent security revenue 158,345 ( 10 )

〃〃〃

- -

- 122 -


Information related to the investees, such as names and locations, etc.


Table 4 Unit: USD/RMB/THB/NT$ Thousand

Investor Investee Address Principal business Original investment cost Holdings at end of year

Net income of investee Recognized investment Income Remarks End of the current

period End of the previous

period Share(s) Percentage (%) Book value


Shin-Po Investment Co., Ltd. 5F, No. 128, Xing Ai Rd., Taipei City

General investment business

$ 441,476 $ 441,476 58,750,199 79.87 $ 768,101 $ 87,048 $ 69,758 Note 1


1F, No. 19-6, San Chung Rd., Taipei City

Design, installation and maintenance of disaster, theft and fire-resistant devices, and the business related to security defense such as theft, fire and disaster prevention in offices, business places, factories and warehouses.

27,600 27,600 24,960,474 69.00 1,134,683 137,964 95,195 〃

Taiwan Security Co., Ltd. B1, No. 126, Section 1, Chien Kuo North Road, Taipei City

Transportation and security maintenance of cash or other precious articles

237,010 237,010 35,850,255 99.58 810,927 94,770 94,453 〃



Managerial maintenance & repair services for high-rise buildings, cleansing services for residences and buildings

35,000 35,000 4,800,000 80.00 159,241 20,660 16,242 〃

eTech Pro Co., Ltd. 1F, No. 128, Xing Ai Rd., Taipei City

Installation and transaction of computer equipment and electronic information software

34,300 34,300 3,430,000 49.00 69,153 11,489 5,814 〃

Shinsoft Co., Ltd. 3F., No.128, Xinhu 2nd Rd., Taipei City

Information software service

32,500 32,500 5,168,362 57.43 144,132 57,303 33,267 〃

Shincluster Electronics Co., Ltd.

14F, No. 951, Chung Cheng Rd., Chung Ho Dist, New Taipei City

Manufacture and transaction of security facilities

5,700 5,700 848,160 19.00 11,283 6,220 1,400 〃

Taiwan Artificial Intelligent Robots Co., Ltd.

5F, No. 128, Xing Ai Rd., Taipei City

Machinery equipment production

1,000 1,000 100,000 100.00 866 ( 36 ) ( 36 ) Note 2

New Light International Co., Ltd.

14F., No.123, Sec. 2, Nanjing E. Rd., Taipei City

Consultant of lease and management of real estates

9,500 9,500 950,000 19.00 13,497 16,153 3,112 Note 1


5F, No. 126, Section 1, Chien Kuo North Road, Taipei City


100,000 - 18,000,000 100.00 186,132 1,347 1,347 〃

Lien-An Service Co., Ltd. 5F, No. 128, Xing Ai Rd., Taipei City

Information processing services

4,750 4,750 475,000 19.00 4,871 3,138 596 〃

Shin-Po International Limited

Samoa Offshore holding company

16,742 16,742 480,000 100.00 38,471 22,319 22,319 Note 2


Thailand Security business 56,471 56,471 1,135 52.06 10,367 ( 2,986 ) ( 1,555 ) 〃


Thailand Security business 1,598 1,598 16,000 40.00 1,369 ( 2,002 ) ( 801 ) 〃

Shin-Po Investment Co., Ltd. Shinkong Optical Networking Co., Ltd.

4F., No.69, Ln. 77, Xing’ai Rd., Taipei City

Performance of security machine project

15,940 15,940 1,594,000 99.63 26,471 4,102 4,086 Note 1



29,620 29,620 3,269,944 36.33 91,177 57,303 20,818 〃

SHIN-TOW OVERSEAS HOLDING CO., LTD.


101,742 ( USD 3,503,500 )

101,742 ( USD 3,503,500 )

3,503,500 100.00 135,322 20,434 20,434 Note 2



Consultant of lease and management of real estates

15,075 15,075 750,000 15.00 17,837 16,153 2,423 Note 1

Shin Kong Telecommunications Co., Ltd.

5F, No. 128, Xing Ai Rd., Taipei City

Internet communication service

29,000 10,000 8,000,000 100.00 96,060 11,180 11,180 〃

(To be continued)

- 123 -

(Continued)

Investor Investee Address Principal business Original investment cost Holdings at end of year

Net income of investee Recognized investment Income Remarks End of the current



Yi Kong House Keeping Service Co., Ltd


Building sanitation service

$ 3,000 $ 3,000 300,000 30.00 $ 2,087 ( $ 1,625 ) ( $ 488 ) Note 2

Taiwan Ritan Co., Ltd. 5F, No. 126, Section 1, Chien Kuo North Road, Taipei City

Fire safety equipment inspection service

2,280 2,280 228,000 30.00 - ( 3,214 ) ( 393 ) Note 2




Cleaning of residences and buildings

4,640 4,640 480,000 8.00 15,924 20,660 1,653 Note 1

SHIN-TOW OVERSEAS HOLDING CO., LTD.

SHIN-PO INVESTMENT OVERSEAS ENTERPRISE CO., LTD.


USD 3,493,500 ( NTD 101,451 )

USD 3,493,500 ( NTD 101,451 )

3,493,500 100.00 NTD 134,944 NTD 20,514 NTD 20,514 Note 2

SHIN-PO INVESTMENT Shanghai Shin Kong Security Prevention Technology Co., Ltd.

Room 717, 7F, No. 11, Alley 4666, Gonghe New Road, Minbei District, Shanghai City

Design and construction of public security prevention technology project

USD 351,000 ( NTD 11,210 )

USD 351,000 ( NTD 11,210 )

351,000 87.75 NTD 5,745 ( NTD 465 ) ( NTD 408 ) 〃

OVERSEAS ENTERPRISE

Shanghai Shin Kong Property Management Ltd.

Room 208, 2F, No. 600 Pingshun Road, Minbei District, Shanghai City

Property management USD 580,000 ( NTD 18,803 )

USD 580,000 ( NTD 18,803 )

580,000 86.57 NTD 39,688 NTD 5,569 NTD 4,821 〃

CO., LTD. Beijing Yi Kong Property Management Ltd.

Rm. 209, 1F, No. 18, Bai-Tzi-Wong Road, Chaio-Yung District, Beijing City


USD 420,000 ( NTD 13,600 )

420,000 70.00 NTD 7,268 ( NTD 623 ) ( NTD 436 ) 〃


Unit 16, 7F, Jimei Institute Soho, Jimei District, Xiamen City


USD 300,000 ( NTD 9,146 )

300,000 100.00 NTD 14,774 NTD 2,838 NTD 2,838 〃

Chengdu Yi Kong Property Management Ltd.

No. 28, 20F, Soul International Building, No. 130 Huanluxi, Sec. 1, Wuhou District, Chengdu City


- -

210,000 70.00 NTD 5,649 ( NTD 1,161 )

( NTD 813 ) 〃


Xiamen Shin-Po Security Equipment Ltd.

Room 305, No. 152-1, Tsendong Rd., Jimei District, Xiamen City

Sale of security equipment and material, and personal self-defense equipment

RMB 100,000 ( NTD 467 )

RMB 100,000 ( NTD 467 )

100,000 100 RMB 89,922 ( NTD 442 )

( RMB 2,483 ) ( NTD 15 )

( RMB 2,483 ) ( NTD 15 )

〃





1,950 1,950 234,000 3.90 7,764 20,660 805 Note 1

Shin-Po Investment Co., Ltd. 5F, No. 128, Xing Ai Rd., Taipei City


112,843 112,843 14,804,121 20.13 201,317 87,047 17,522 〃

Thai-SK Security International Co. Ltd.

Thailand Security business 4,910 ( THB 5,000,000 )

4,910 ( THB 5,000,000 )

100 4.59 913 ( 2,986 ) ( 43 ) Note 2


eTech Pro Co., Ltd. 1F, No. 128, Xing Ai Rd., Taipei City

Installation and transaction of computer equipment and electronic information software

34,300 34,300 3,430,000 49.00 68,925 11,489 5,630 Note 1



Consultant of lease and management of real estate

15,075 15,075 750,000 15.00 17,837 16,153 2,423 〃



Building sanitation service

7,000 7,000 700,000 70.00 4,871 ( 1,625 ) ( 1,138 ) Note 2

eTech Pro Co., Ltd. Shincluster Electronics Co., Ltd.

14F, No. 951, Chung Cheng Rd., Chung Ho Dist, New Taipei City

Manufacture and transaction of security machines

5,700 5,700 848,160 19.00 11,283 6,220 1,188 Note 1



3,500 3,500 420,000 6.05 15,184 57,303 3,467 〃




4,640 4,640 480,000 8.00 15,732 20,660 1,653 〃


Shincluster International Limited


11,442 ( USD 331,000 )

11,442 ( USD 331,000 )

331,000 100.00 564 ( 54 )

( 54 ) Note 2


Thailand Security business 4,995 ( THB 5,000,000 )

4,995 ( THB 5,000,000 )

100 4.59 913 ( 2,986 ) ( 43 ) 〃

(To be continued)

- 124 -

(Continued)

Investor Investee Address Principal business Original investment cost Holdings at end of year Net income of

investee Recognized investment Income Remarks End of the current



Shincluster International Limited

Shanghai Shin Kong Security Prevention Technology Co., Ltd.

Room 717, 7F, No. 11, Alley 4666, Gonghe New Road, Minbei District, Shanghai City

Design and performance of public security prevention technology project

USD 21,000 ( NTD 675 )

USD 21,000 ( NTD 675 )

21,000 5.25 $ 344 ( $ 465 ) ( $ 24 ) Note 2



Thailand Security THB 360,000 ( NTD 351 )

THB 360,000 ( NTD 351 )

36,000 9.00 THB 337,115 ( NTD 308 )

( THB 254,275 ) ( NTD (2,002) )

( THB 22,885 ) ( NTD (180) )

〃

New Light International Co., Ltd. Shin Pao Life Concern

Co., Ltd. 1F, No. 126, Section 1, Chien Kuo North Road, Taipei City

Retail of medical treatment service appliances

30,000 - 3,000,000 100.00 29,902 ( 98 ) ( 98 ) Note 1

Shin-Po International Limited

Shin Kong Overseas Enterprise Co., Ltd.


USD 465,000 ( NTD 15,057 )

USD 465,000 ( NTD 15,057 )

465,000 100.00 NTD 38,184 NTD 22,403 NTD 22,403 Note 2

Shin Kong Overseas Enterprise Co., Ltd.

Shenzhen Shen Po Public Security Network Ltd.

5-7F, Kangfa Building, Si Siang Avenue, Baoan District, Shenzhen

Machinery security service and transaction of security facilities

USD 449,034 ( NTD 15,523 )

USD 449,034 ( NTD 15,523 )

- 36.00 NTD 22,421 NTD 31,731 NTD 11,423 〃


Shenzhen Shen Po Property Management Co., Ltd.

5-7F, Kangfa Building, Si Siang Avenue, Baoan District, Shenzhen

Property management 2,700,000 ( NTD 11,418 )

2,700,000 ( NTD 11,418 )

- 90.00 RMB 4,634,254 ( NTD 22,796 )

RMB 849,428 ( NTD 4,125 )

RMB 764,485 ( NTD 3,712 )

〃

Note 1: The said investees recognize their investment income according to the financial statements audited by CPA.

Note 2: The said investees recognize their investment income according to the financial statements not audited by CPA.

- 125 -


Information about investment in mainland china


Table 5

1. Name of invested company in China, principal business, paid-in capital, mode of investment, outward/inward remittance of fund, shareholding percentage, investment income, book value of investment and investment

income repatriated to Taiwan:

Unit: NTD1,000/ USD

Name of invested company in China

Principal business Paid-in capital Mode of

investment

Cumulative investment

amount outward remitted from

Taiwan - beginning of the

period

Proportion of direct or indirect holdings Cumulative

investment amount outward

remitted from Taiwan - end of

the period

Net income of investee

Shareholdings of the

Company’s direct or indirect

investment (%)

Recognized investment

Income Book value of investment at

ending

Investment income

repatriated to Taiwan as of the

end of the period

Outward remitted Repatriated


Machinery security service and transaction of security facilities

( RMB 5,000,000 )

Investigate in China via a company in Samoa

NTD 15,523 ( USD 449,034 )

$ - $ - NTD 15,523 (USD 449,034)

NTD 31,731 36.00 NTD 11,423 (II)

NTD 22,421 $ -

2. Limit of investment in Mainland China:

Unit: NTD1,000/ USD

Accumulated investments outward remitted from Taiwan at Ending Investment amount approved by Investment Commission, MOEA Limit of investment amount required by Investment Commission, MOEA

NTD$15,523 thousand ( USD 449,034 )

NTD$15,523 thousand ( USD 449,034 )

NTD5,106,319 thousand ( USD 171,295,508 )

(exchange rate 1: 29.81)

Note: According to the “Criteria Governing Examination of Investment or Technology Cooperation in the territory of Mainland China” required by the official letter under Chin-Tou-Sheng Tze No. 09004624840 dated

November 20, 2001, the accumulated investments in Mainland China or limited investment amount shall be the higher of 60% of the net worth or NTD80,000 thousand.

3. Major transactions between the investees in the Mainland China and the Company occurring directly or indirectly via an enterprise in 3rd area: None

- 126 -


The business relationship and significant transactions between the parent company and subsidiaries



No. (Note 1) Name of trader Trading counterpart

Affiliation to trader

(Note 2)

Transaction

Title Amount Trading conditions

Percentage in consolidated total revenue or total assets

(Note 3) 2013



1 Accounts receivable $ 6 not materially different from the general customers’

-

Accounts payable 2,460 〃 - Operating revenue 5,594 subject to the price

agreed by both parties -

Operating cost 23,980 〃 - Operating expenses 43 〃 - Rental revenue 4,375 〃 - Other revenue 12 〃 - Interest expense 10 〃 - Deposit received 764 without interest - Taiwan Security Co., Ltd. 1 Other accounts

receivable 2,920 not materially different

from the general customers’

-

Prepayments 493 〃 - Accounts payable 46,533 〃 - Other payables 134 〃 - Receipt in advance 358 〃 - Operating revenue 3,327 subject to the price


Operating cost 378,136 〃 5 (To be continued)

- 127 -

(Continued)



(Note 2)

Transaction



(Note 3) 0 Taiwan Shin Kong Security

Co., Ltd. Taiwan Security Co., Ltd. 1 Operating expenses $ 2,847 subject to the price


Rental revenue 20,213 〃 - Sundry income 8,625 〃 - Deposit received 3 without interest - Yi Kong House Keeping

Service Co., Ltd 1 Rental revenue 45 subject to the price


Deposit received 14 without interest - Yi Kong Building

Management Service Co., Ltd 1 Accounts payable 950 not materially different


-

Operating revenue 105 subject to the price agreed by both parties

-

Operating expenses 10,863 〃 - Shincluster Electronics Co.,

Ltd. 1 Accounts payable 14,774 not materially different


-

Other payables 10,038 〃 - Operating revenue 19 subject to the price


Operating cost 131,880 〃 2 Operating expenses 388 〃 - Deposit received 12 without interest - Shinkong Optical Networking

Co., Ltd. 1 Accounts payable 25,644 not materially different


-

Receipt in advance 7 〃 - Operating revenue 28 〃 - Operating cost 195,267 subject to the price

agreed by both parties 3

Operating expenses 117 〃 - Rental revenue 226 〃 -

(To be continued)

- 128 -

(Continued)

No. (Note 1)

Name of trader Trading counterpart


(Note 2)

Transaction




Co., Ltd. Shinkong Optical Networking Co., Ltd.

1 Interests in sales of assets

$ 15 subject to the price agreed by both parties

-

Sundry income 15 〃 - Interest expense 1 〃 - Deposit received 22 without interest - eTech Pro Co., Ltd. 1 Accounts receivable 1 〃 - Other payables 8,061 not materially different


-

Operating expenses 31,572 subject to the price agreed by both parties

-

Rental revenue 2,677 〃 - Interest expense 7 〃 - Other revenue 12 〃 - Deposit received 9 without interest - Lien-An Service Co., Ltd. 1 Other accounts

receivable 61 〃 -

Accounts payable 6,808 not materially different from the general customers’

-

Operating cost 34,971 subject to the price agreed by both parties

-

Rental revenue 36 〃 - Sundry income 29 〃 - Deposit received 9 without interest - Shinsoft Co., Ltd. 1 Accounts receivable 13 not materially different


-

Prepayments 400 〃 - Accounts payable 11,407 〃 - Other payables 17,215 〃 -

(To be continued)

- 129 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Shinsoft Co., Ltd. 1 Operating revenue $ 999 subject to the price


Operating cost 271,820 〃 4 Operating expenses 5,208 〃 - Rental revenue 3,558 〃 - Other revenue 188 〃 - Interest expense 13 〃 - Deposit received 931 without interest - Shin Kong

Telecommunications Co., Ltd.

1 Accounts payable 2,171 not materially different from the general customers’

-

Other payables 103 〃 - Operating revenue 260 subject to the price


Operating cost 22,368 〃 - Operating expenses 478 〃 - Rental revenue 260 〃 - Sundry income 515 〃 - Interest expense 1 〃 - Deposit received 9 without interest - Taiwan Artificial Intelligent

Robots Co., Ltd. 1 Rental revenue 36 subject to the price


Deposit received 9 without interest - Shin-Po Investment Co., Ltd. 1 Rental revenue 36 subject to the price


Deposit received 9 without interest - New Light International Co.,

Ltd. 1 Rental revenue 30 subject to the price


Deposit received 10 without interest - (To be continued)

- 130 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Shin Pao Life Concern Co., Ltd.

1 Rental revenue $ 22 subject to the price agreed by both parties

-

Deposit received 9 without interest - 1 Yi Kong Security Company

Limited Taiwan Shin Kong Security Co., Ltd.

1 Accounts receivable 2,460 not materially different from the general customers’

-

Operating revenue 24,023 subject to the price agreed by both parties

-

Operating cost 2,328 〃 - Operating expenses 7,652 〃 - Interest revenue 10 〃 - Refundable deposit 764 without interest - Yi Kong Building Management

Service Co., Ltd 3 Operating revenue 158,345 subject to the price



3 Other revenue 120 〃 -

Taiwan Security Co., Ltd. 3 Accounts receivable 197 not materially different from the general customers’

-

Operating revenue 2,256 〃 - Operating expenses 438 subject to the price


Refundable deposit 11 without interest - Shinsoft Co., Ltd. 3 Operating expenses 374 subject to the price



3 Operating cost 1,039 〃 -

Operating expenses 53 〃 - Refundable deposit 60 without interest -

2 Taiwan Security Co., Ltd. Taiwan Shin Kong Security Co., Ltd.


-

Prepayments 358 〃 - Receipt in advance 493 〃 -

(To be continued)

- 131 -

(Continued)



(Note 2)

Transaction



(Note 3) 2 Taiwan Security Co., Ltd. Taiwan Shin Kong Security

Co., Ltd. 2 Operating revenue $ 380,008 subject to the price


Operating cost 7,271 〃 - Operating expenses 23,983 〃 - Rental revenue 975 〃 - Other expenses 911 〃 - Refundable deposit 3 without interest - Yi Kong Security Company

Limited 3 Other accounts

receivable 12 not materially different


-

Receipt in advance 28 〃 - Operating expenses 2,254 subject to the price


Rental revenue 353 〃 - Other revenue 58 〃 - Deposit received 11 without interest - Lien-An Service Co., Ltd. 3 Accounts receivable 47,202 subject to the price


Operating revenue 274,198 not materially different from the general customers’

4

eTech Pro Co., Ltd. 3 Operating cost 239 subject to the price agreed by both parties

-


21 not materially different from the general customers’

-

Prepayments 166 〃 - Operating expenses 208 〃 - Shinsoft Co., Ltd. 3 Operating expenses 1,497 〃 - Shin Kong


3 Operating expenses 10 〃 -

(To be continued)

- 132 -

(Continued)



(Note 2)

Transaction



(Note 3) 3 Yi Kong Building Management

Service Co., Ltd Taiwan Shin Kong Security Co., Ltd.

2 Accounts receivable $ 950 not materially different from the general customers’

-

Operating revenue 10,860 〃 - Operating cost 5 〃 - Operating expenses 100 subject to the price agreed

by both parties -


3 Operating cost 158,345 〃 2


3 Operating cost 137 〃 -

Refundable deposit 10 without interest - 4 eTech Pro Co., Ltd. Taiwan Shin Kong Security Co.,

Ltd. 2 Accounts receivable 8,058 not materially different


-

Other accounts receivable

3 〃 -

Other payables 1 〃 - Expenses payable 41 〃 - Operating revenue 31,572 subject to the price agreed

by both parties -

4 eTech Pro Co., Ltd. Taiwan Shin Kong Security Co., Ltd.

2 Receipt in advance 4,037 not materially different from the general customers’

-


-

Rental revenue 6,000 〃 - Interest revenue 7 〃 - Refundable deposit 9 without interest - Taiwan Security Co., Ltd. 3 Operating revenue 896 subject to the price agreed

by both parties -

Shinsoft Co., Ltd. 3 Accounts receivable 29 not materially different from the general customers’

-


-

Operating expenses 156 〃 - (To be continued)

- 133 -

(Continued)



(Note 2)

Transaction



(Note 3) 4 eTech Pro Co., Ltd. Yi Kong Security Company

Limited 3 Operating revenue $ 1,151 subject to the price



3 Operating revenue 24 〃 -

5 Lien-An Service Co., Ltd. Taiwan Shin Kong Security Co., Ltd.


-

Other payables 61 〃 - Operating revenue 34,971 〃 - Operating expenses 36 subject to the price


Other expenses 29 〃 - Refundable deposit 9 without interest - Taiwan Security Co., Ltd. 3 Accounts payable 47,202 not materially different


-

Operating cost 275,161 subject to the price agreed by both parties

4

6 Shinsoft Co., Ltd. Taiwan Shin Kong Security Co., Ltd.


-

Accounts payable 13 〃 - Receipt in advance 1,315 〃 - Operating revenue 276,113 subject to the price


Operating cost 1,119 〃 - Operating expenses 3,625 〃 - Interest revenue 13 〃 - Refundable deposit 931 without interest - Yi Kong Security Company

Limited 3 Operating revenue 358 subject to the price


(To be continued)

- 134 -

(Continued)



(Note 2)

Transaction



(Note 3) 6 Shinsoft Co., Ltd. Shinkong Optical Networking

Co., Ltd. 3 Operating revenue $ 123 not materially different


-

Operating cost 16 〃 - Operating expenses 65 〃 - Taiwan Security Co., Ltd. 3 Operating revenue 1,426 subject to the price


eTech Pro Co., Ltd. 3 Receipt in advance 19 〃 - Operating revenue 130 〃 - Operating cost 300 〃 - Operating expenses 168 〃 - Shin Kong





Operating cost 24 〃 - Thai-SK Security Internation

Co., Ltd. 3 Operating revenue 543 subject to the price


7 Shincluster Electronics Co., Ltd.



-


2

Operating expenses 19 〃 - Refundable deposit 12 without interest - Shinsoft Co., Ltd. 3 Operating revenue 24 subject to the price


Operating expenses 8 〃 - Shinsoft Co., Ltd. 3 Operating revenue 24 〃 - Operating expenses 8 〃 - Shin Kong



(To be continued)

- 135 -

(Continued)



(Note 2)

Transaction



(Note 3) 8 Shinkong Optical Networking

Co., Ltd. Taiwan Shin Kong Security Co., Ltd.

2 Accounts receivable $ 25,644 not materially different from the general customers’

-


3

Operating expenses 284 〃 - Interest revenue 1 〃 - Refundable deposit 22 without interest - Shinsoft Co., Ltd. 3 Operating revenue 81 subject to the price


Operating expenses 129 〃 - eTech Pro Co., Ltd. 3 Operating expenses 24 〃 -

9 Shin Kong Telecommunications Co., Ltd.


2 Accounts receivable 300 not materially different from the general customers’

-

Other accounts receivale

1,974 〃 -


-

Operating cost 757 〃 - Operating expenses 54 〃 - Interest revenue 1 〃 - Other expenses 224 〃 - Refundable deposit 9 without interest - Yi Kong Security Company

Limited 3 Receivable 133 not materially different


-

Receipt in advance 970 subject to the price agreed by both parties

-

Operating revenue 35 〃 - Interest revenue 1 〃 -

(To be continued)

- 136 -

(Continued)



(Note 2)

Transaction



(Note 3) 9 Shin Kong



3 Interest expense $ 1 subject to the price agreed by both parties

-

Deposit received 60 without interest - Yi Kuang International Co.,

Ltd. 3 Receipt in advance 137 not materially different


-

Deposit received 10 without interest - Shincluster Electronics Co.,

Ltd. 3 Operating cost 6 not materially different


-

Taiwan Security Co., Ltd. 3 Receipt in advance 10 〃 - Shinsoft Co., Ltd. 3 Operating expenses 9 〃 -

10 Yi Kong House Keeping Service Co., Ltd


2 Operating expenses 45 subject to the price agreed by both parties

-

Refundable deposit 14 without interest - Yi Kong Security Company

Limited 3 Prepayments 120 not materially different


-

11 Taiwan Artificial Intelligent Robots Co., Ltd.



-

Refundable deposit 9 without interest - 12 Shin-Po Investment Co., Ltd. Taiwan Shin Kong Security

Co., Ltd. 2 Operating expenses 36 subject to the price


Refundable deposit 9 without interest - 13 New Light International Co.,

Ltd. Taiwan Shin Kong Security Co., Ltd.


-

Refundable deposit 10 without interest - 14 Shin Pao Life Concern Co.,



-

Refundable deposit 9 without interest -

(To be continued)

- 137 -

(Continued)



(Note 2)

Transaction



(Note 3) 2012



1 Operating revenue $ 3,981 subject to the price agreed by both parties

-

Operating cost 24,549 〃 - Accounts payable 2,203 not materially different


-

Receipt in advance 10 - Rental revenue 3,389 subject to the price


Interest expense 8 〃 Yi Kong Security Company

Limited 1 Miscellaneous

expenses 47 subject to the price

agreed by both parties

Deposit received 767 without interest - Taiwan Security Co., Ltd. 1 Rental revenue 15,351 subject to the price


Operating cost 256,273 〃 4 Deposit received 3 without interest - Operating expenses 2,376 subject to the price


Operating revenue 5,266 〃 - Receipt in advance 2,843 not materially different


-

Advance charge 569 〃 - Sundry income 5,005 subject to the price


Accounts payable 46,950 not materially different from the general customers’

-

(To be continued)

- 138 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Taiwan Security Co., Ltd. 1 Other accounts

receivable $ 2,735 not materially different


-

Accounts receivable 5,172 〃 - Yi Kong Building

Management Service Co., Ltd 1 Operating expenses 8,147 subject to the price


Operating revenue 105 〃 - Expenses payable 952 not materially different


-

Receipt in advance 23 〃 - Shincluster Electronics Co.,

Ltd. 1 Operating cost 33,816 subject to the price


Operating revenue 188 〃 - Accounts payable 19,522 not materially different


-


7,065 〃 -

Operating expenses 126 subject to the price agreed by both parties

-

Deposit received 12 without interest - Shinkong Optical Networking

Co., Ltd. 1 Operating cost 160,029 subject to the price


Rental revenue 498 〃 - Accounts payable 19,872 not materially different


-

Deposit received 130 without interest - Receipt in advance 7 not materially different


-

(To be continued)

- 139 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Shinkong Optical Networking Co., Ltd.

1 Operating expenses $ 47 subject to the price agreed by both parties

-

Sundry income 3 〃 - Operating revenue 3 〃 - Interest expense 1 〃 - Miscellaneous

expenses 686 〃 -

eTech Pro Co., Ltd. 1 Equipment accounts payable

213 not materially different from the general customers’

-

Deposit received 9 without interest - Operating expenses 21,204 subject to the price


Interest expense 5 〃 Rental revenue 2,008 〃 - Expenses payable 5,096 not materially different


-

Accounts payable 143 〃 - Shin Kong Aerotech

International Co., Ltd. 1 Operating expenses 168 subject to the price


Rental revenue 91 〃 - Receipt in advance 8 not materially different


Accounts receivable 591 〃 Accounts payable 1,451 〃 - Expenses payable 12 〃 Operating cost 6,117 subject to the price


(To be continued)

- 140 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Shin Kong Aerotech International Co., Ltd.

1 Prepayments $ 1,996 not materially different from the general customers’

-

Sundry income 7,351 subject to the price agreed by both parties

-

Deposit received 9 without interest - Shinsoft Co., Ltd. 1 Sundry income 3 subject to the price


Rental revenue 958 〃 - Operating expenses 4,270 〃 - Operating revenue 1,213 〃 - Interest expense 2 〃 - Accounts payable 12,483 not materially different


-

Expenses payable 1,327 〃 - Receipt in advance 26 〃 - Prepayments 161 〃 - Receipt in advance 26 〃 - Equipment accounts

payable 13,044 〃 -

Accounts receivable 1,054 〃 - Deposit received 1,070 without interest - Operating cost 71,487 subject to the price



1 Operating cost 16,390 〃 -

Operating revenue 27 〃 - Sundry income 159 〃 - Interest expense 1 〃 - Operating expenses 12 〃 -

(To be continued)

- 141 -

(Continued)



(Note 2)

Transaction




Co., Ltd. Shin Kong Telecommunications Co., Ltd.

1 Rental revenue $ 181 subject to the price agreed by both parties

-

Accounts payable 881 not materially different from the general customers’

-

Deposit received 9 without interest - Taiwan Artificial Intelligent

Robots Co., Ltd. Rental revenue 27 subject to the price

agreed by both parties

Deposit received 9 without interest 1 Yi Kong Security Company

Limited Taiwan Shin Kong Security Co., Ltd.

2 Operating revenue 24,549 subject to the price agreed by both parties

1

Operating cost 3,981 〃 - Accounts receivable 2,203 not materially different


-


-

Refundable deposit 767 without interest - Rental expenses 3,389 subject to the price



3 Operating revenue 115,003 〃 2

Taiwan Security Co., Ltd. 3 Operating revenue 1,707 〃 - Taiwan Security Co., Ltd. 3 Accounts receivable 395 not materially different


-

Shinsoft Co., Ltd. 3 Operating expenses 259 subject to the price agreed by both parties

-

Shin Kong Aerotech International Co., Ltd.

3 Operating expenses 6 〃 -

eTech Pro Co., Ltd. 3 Operating expenses 2 〃 - (To be continued)

- 142 -

(Continued)



(Note 2)

Transaction



(Note 3) 2 Taiwan Security Co., Ltd. Taiwan Shin Kong Security



Rental revenue 95 〃 - Prepayments 2,843 not materially different


-

Receipt in advance 569 〃 - Expenses payable 2,735 〃 - Operating cost 5,266 subject to the price


Operating expenses 〃 - Accounts receivable 46,950 not materially different


-

Refundable deposit 3 without interest - Yi Kong Security Company

Limited 3 Operating expenses 1,707 subject to the price


Notes payable 197 not materially different from the general customers’

-

eTech Pro Co., Ltd. 3 Operating expenses 1,028 subject to the price agreed by both parties

-

Prepayments 9 not materially different from the general customers’

-

Shin Kong Aerotech International Co., Ltd.


-


-

Accounts payable 55 〃 - Operating cost 396 〃 -

(To be continued)

- 143 -

(Continued)



(Note 2)

Transaction



(Note 3) 2 Taiwan Security Co., Ltd. Shinsoft Co., Ltd. 3 Operating expenses $ 106 subject to the price



-

3 Yi Kong Building Management Service Co., Ltd



-

Accounts receivable 952 not materially different from the general customers’

-


3 Operating cost 115,595 〃 2

4 eTech Pro Co., Ltd. Taiwan Shin Kong Security Co., Ltd.


-

Operating expenses 〃 - Accounts receivable 143 not materially different


-

Rental revenue subject to the price agreed by both parties

-

Other accounts receivable

5,096 not materially different from the general customers’

-


3 Operating revenue 2 subject to the price agreed by both parties

-

Taiwan Security Co., Ltd. 3 Operating revenue 2,173 〃 - Shinsoft Co., Ltd. 3 Operating revenue 67 〃 - Operating expenses 140 〃 - Expenses payable 55 not materially different


(To be continued)

- 144 -

(Continued)



(Note 2)

Transaction



(Note 3) 4 eTech Pro Co., Ltd. Shin Kong Aerotech

International Co., Ltd. 3 Operating revenue $ 2,970 subject to the price


Receipt in advance 48 not materially different from the general customers’

-

5 Shin Kong Aerotech International Co., Ltd.



-

Accounts receivable 1,451 not materially different from the general customers’

-


2 Expenses payable 591 〃 -

Receipt in advance 1,996 〃 - Refundable deposit 9 without interest - Taiwan Security Co., Ltd. 3 Operating revenue 396 subject to the price



-

Shinsoft Co., Ltd. 3 Temporary credits 28 〃 - eTech Pro Co., Ltd. 3 Operating expenses 790 subject to the price



-


3 Operating revenue 4 subject to the price agreed by both parties

-


-

(To be continued)

- 145 -

(Continued)



(Note 2)

Transaction



(Note 3) 6 Shinsoft Co., Ltd. Taiwan Shin Kong Security



Operating expenses 〃 - Accounts payable 1,054 not materially different


-

Accounts receivable 12,483 〃 - Operating cost 1,213 〃 - Expenses payable 262 〃 - Receipt in advance 161 〃 - Refundable deposit 1,070 without interest - Rental expenses 958 subject to the price




eTech Pro Co., Ltd. 3 Operating revenue 140 〃 - Operating expenses 67 〃 - Shin Kong Aerotech

International Co., Ltd. 3 Accounts receivable 55 not materially different


-

Receipt in advance 28 〃 - Shinkong Optical Networking

Co., Ltd. 3 Accounts receivable 26 〃 -


-

7 Shincluster Electronics Co., Ltd.



Operating expenses 〃 - 2 Accounts receivable 19,522 not materially different


-

Refundable deposit 12 without interest - (To be continued)

- 146 -

(Continued)



(Note 2)

Transaction



(Note 3) 7 Shincluster Electronics Co.,


2 Payments for others $ not materially different from the general customers’

-


-

8 Shinkong Optical Networking Co., Ltd.



Operating cost 3 〃 - Operating expenses 〃 - Accounts receivable 19,872 not materially different


-

Rental expenses subject to the price agreed by both parties

-

Shinsoft Co., Ltd. 3 Operating cost 54 〃 - Operating expenses 56 〃 - Accounts payable 26 not materially different


-


3 Operating cost 39 subject to the price agreed by both parties

-

Note 1: The information about transactions between parent company and subsidiaries shall be numbered and noted in the following manner in the box of numbers:

1. 0 is for the Parent Company. 2. Subsidiaries are numbered from number 1.

Note 2: The relationship with the trade party is classified into three categories as follows: 1. Parent Company to subsidiaries. 2. Subsidiaries to Parent Company. 3. Subsidiaries to subsidiaries.

- 147 -

Note 3: For computing the ratio of trade amount to total sales revenue or total assets, if it is for asset and liability account, the computation is based on the ratio of ending balance to total consolidated assets; however, if it is for income and expense account, the computation is based on the ratio of interim cumulative amount to total consolidated revenue.

SKS and its subsidiaries Notes to Consolidated Financial ... · - 1 - SKS and its subsidiaries...

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