Chung Hsin Electric & Machinery Mfg. Corp. Ltd.

Transcription

1 Chung Hsin Electric & Machinery Mfg. Corp. Ltd ANNUAL SHAREHOLDERS MEETING MEETING HANDBOOK (SUMMARY) (This English translation is prepared in accordance with the Chinese version and is for reference purposes only. If any inconsistency appears between the Chinese original and the English version, the Chinese version shall prevail.) 29 JUNE, 2018

2 INDEX INDEX MEETING PROCEDURES & AGENDA MANAGEMENT PRESENTATIONS (REPORTS ON COMPANY AFFAIRS) PROPOSALS DISCUSSION QUESTIONS AND MOTIONS ATTACHMENT...11 I Business Report II. Audit Committee s Review Report III. Financial Statements IV. Revision by Comparison for the Procedure for Meetings of Board of Directors APPENDICES...32 I. Corporate Charter II. Shareholders Meeting Rules III. Current Shareholdings of Directors...47

3 1.Meeting Procedures & Agenda Chung Hsin Electric & Machinery Mfg. Corp. Ltd.(CHEM) Meeting Agenda & Procedures for the 2018 Annual Meeting of Shareholders Time: 9:00 a.m., Tuesday, June 29, 2018 Location: CHEM s Headquarters at Linkou, Auditorium Address: No.25, Wende Rd., Guishan Dist., Taoyuan City 333, Taiwan Meeting Procedures: 1.Call the Meeting to Order 2.Chairperson to Take Seats 3.Chairperson Remarks 4.Management Presentation (Company Reports) (1) To report the business review of 2017 (2) To report the Audit Committee s review report of 2017 (3) To report The Status of Endorsement and Guarantee of 2017 (4) To report the Implementation of Investments in the PRC. (5) To report 2017 employees profit sharing bonus and directors compensation. (6) To report the Revision of " Rules of Procedure for Board of directors meetings 5.Proposals (1) Adoption of the 2017 Company s business report and financial statements (2) Adoption of the proposal for distribution of 2017 profits 6.Discussions (1) Amendment to the Company's Corporate Charter (2) Amendment to the Rules of Shareholder s Meeting 7.Questions and Motions 8.Adjournment 3

4 2. Management Presentations (Reports on Company Affairs) Report No.1: 2017 Business Reports (Submitted by the Board of Directors) Explanation: The 2017 Business report is attached as Attachment 1. Report No.2: The Audit Committee s Review Report on Financial Statements of 2017 (Submitted by the Board of Directors) Explanation: The Company s 2017 financial statements has been duly audited and certified by Chuan-Zhi Lin and Meng-Da Wu of Crowe Horwath (TW) CPAs and also further audited by Audit Committee,. The CPA and Audit Committee also presented the report by CPA and by the Audit Committee respectively, the abovementioned is attached as the attachment 2. Report No. 3: The Status of Endorsement and Guarantee of (Submitted by the Board of Directors) Explanation: (1) The procedures are practiced with Operational Procedures for Endorsements/Guarantees of the Company. (2) Total endorsements and guarantees by the Company to the investees pursuant to the Company s Operational Procedures for Endorsements and Guarantees have totaled US$6,000,000 / NT$811,352,000 at the end of December The endorsements and guarantees are for project performance guarantee and bank financing. Details are as follows. 4

5 Chung Hsin Electric & Machinery Mfg. Corp. Ltd. List of Endorsees/Guarantees December 2017 Name of Endorsees/Guarantee Balance USD CHUNG-HSIN ELECTRIC & 1,000,000 MACHINERY(U.S.A.)MFG.,CORP. Chung-Hsin Power Systems (Shenyang) Inc. 5,000,000 TWD Cheng-Hsin Engineering & Services Co.,Ltd 280,000,000 Global-Entech Co.,Ltd 25,000,000 San Feng Construction Co.,Ltd 360,000,000 Accumis System Technologies Inc. 5,000,000 Li-Rue Chen and Fu-Shiang Sung 141,352,000 Total Balance 6000, ,352,000 Report No.4: Report of the Company s indirect investments in Mainland China (the PRC) (Submitted by the Board of Directors) Explanation: The new investments approved by Investment Commission, Ministry of Economic Affairs in Mainland China made via overseas subsidiaries have totaled USD 105,798, Accumulated investment from Taiwan to Mainland China has totaled USD 98,910, Report No.5: Reports on Employee Bonus Sharing and Compensation of Directors and Supervisors (Submitted by the Board of Directors) Explanation: (1)Based on the Corporate Charter, Article 33, the employee bonus sharing and the compensation for board of directors and supervisors in 2017 shall be as follows, according to the decisions on distribution by Remuneration Committee. - Employee Bonus in Cash (1%): NT$ 5,561,180 - Compensation of Directors and Supervisors (2%): NT$11,122,360 5

6 Report No.6: To report the Revision of " Rules of Procedure for Board of directors meetings (Submitted by the Board of Directors) Explanation: (1) The amendment is in accordance with the certificate number , issued by Financial Supervisory Commission on July 28 th, (2) For revision by comparions, please refere to the attachment 4. 6

7 3. Proposals Motion 1: Adoption of the 2017 Company s business report and financial statements (Submitted by the Board of Directors) Explanation: Adoption of the 2017 Company s business report and financial statements, which have been approved by resolution of board of directors and examined by Audit Committee. Please refer to Attachment 1 of the Meeting Handbook for the 2017 business report. Resolution: Motion 2: Adoption of the proposal for distribution of 2017 profits (Submitted by the Board of Directors) Explanation: 1. The company s 2017 unallocated retained earnings started from NT$362,421,311. (1) After deducting the retained earning (- the defined benefit plan actuarial loss of 2017,NT$ 62,859,000), the undistributed earning after adjustment is NT$299,562,311, (2) and the adjusted retained earnings of 2017 is $488,165,246 (which has not been recognized by shareholding ratio) (3) The 2017 retained earnings after tax of NT 488,165,246 is then added. (4) After deducting the appropriate legal reserve of NT$48,816,525, it is with a net amount as retained earning of NT$738,911,032 available for distribution. The amount of NT$420,000,000 out of the 2017 earnings is appropriated for distribution as shareholder s dividend (cash dividend), is also entitled to the distribution of shareholder s at NT$1 per share. Unallocated retained earnings of the end is NT$318,911, The distribution of cash dividend is calculated to the dollar (round up to the dollar). The total amount of the odd shares with a distribution of less than NT$1 will be booked as unappropriated retained earnings and will be distributed by the authorized Board of Directors on a designated date. 3.As the final resolution on distribution of retained earning confirmed and declared by the board of Directors, for those whose shares have changed due to the repurchasing of shares by the Company, or the transfer of treasury shares to employees, or the conversion of shares from domestic convertible bonds, etc., such that the ratios of the stock dividends and cash dividends are affected and must be adjusted, the Board is authorized to make such adjustments in accordance to the actual outstanding shares on the date of distribution on bonus. 7

8 4.The details of distribution of the retained earnings are as follows: Chung Hsin Electric & Machinery Mfg. Corp. Ltd. Table of Profit Distribution 2017 Expressed in New Taiwanese Dollar Items Amount Unappropriated retained earnings beginning 362,421,311 deduct: the defined benefit plan actuarial loss of 2017 (62,859,000) Available for Unappropriated Retained Earnings 299,562,311 Add: Net Income of ,165,264 deduct: 10% legal reserve appropriated (48,816,525) Current earnings available for distribution 738,911,032 Distributions: Common Stock Cash Dividend (EPS $1) (420,000,000) Unappropriated retained earnings ending 318,911,032 Chairman: Chiang, Yi-Fu President: Kuo, Hui-Chuan Director of Accounting: Wu, Shu-Chen Resolution: 8

9 4. Discussion Discussion No.1: Amendment to the Company's Corporate Charter Submitted by: Board of Directors Explanation: The amendment of the Corporate Charter has been made in accordance with needs for business. Please refer to the following for revision by comparision. Articles Before Amendment After Amendment Remark Articles The company shall take additional article 27-2 out liability insurance for the directors with respect to liabilities resulting from the performance of duties during their terms of office. Resolution: Discussion No. 2: Amendment to the Rules of Shareholder s Meeting Submitted by: Board of Directors Explanation: The amendment of the Rules of Shareholder s Meeting has been made in accordance with regulation. Please refer to the following for revision by comparision Articles Before Amendment After Amendment Remark Articles 2 This Corporation shall prepare This Corporation shall prepare electronic versions of the shareholders electronic versions of the meeting notice and proxy forms, and shareholders meeting notice and the origins of explanatory materials proxy forms, and the origins of relating to all proposals, including explanatory materials relating to all proposals for ratification, matters for proposals, including proposals for deliberation, or the election or ratification, matters for deliberation, dismissal of directors or supervisors, or the election or dismissal of 9 The Audit Committee has been settled to replace "the supervisors"

10 and upload them to the Market directors, and upload them to the Observation Post System (MOPS) Market Observation Post System before 30 days before the date of a (MOPS) before 30 days before the regular shareholders meeting or before date of a regular shareholders 15 days before the date of a special meeting or before 15 days before shareholders meeting. the date of a special shareholders meeting. Election of directors or supervisors, amendments to the articles of incorporation, the dissolution, merger, or demerger of the corporation, or any matter under Article 185, None of the above matters may be raised by an extraordinary motion. Election or dismissal of directors, amendments to the articles of incorporation, the dissolution, merger, or demerger of the corporation, or any matter under Article 185, None of the above matters may be raised by an extraordinary motion. Articles 5 This Corporation shall furnish attending shareholders with the This Corporation shall furnish attending shareholders with the The Audit Committee meeting agenda book, annual report, meeting agenda book, annual has been attendance card, speaker's slips, voting report, attendance card, speaker's settled to slips, and other meeting materials. slips, voting slips, and other meeting replace "the Where there is an election of directors materials. Where there is an election supervisors" or supervisors, pre-printed ballots shall of directors, pre-printed ballots shall Articles 16 also be furnished. The election of directors or supervisors at a shareholders meeting shall be held also be furnished. The election of directors at a shareholders meeting shall be held The Audit Committee in accordance with the applicable in accordance with the applicable has been election and appointment rules election and appointment rules settled to adopted by this Corporation, and the adopted by this Corporation, and the replace "the voting results shall be announced voting results shall be announced supervisors" on-site immediately on-site immediately Resolution: 5.Questions and Motions 10

11 6. Attachment I Business Report 1. Overview of Business Performance 1.1 Total consolidated revenue of 2017 was (hereinafter the same) NT$11, million, decreased for NT$ million, a decrease of 10.37% compared with NT$12, million in The parent company revenue of 2016 was NT$92,256.7 million, compared with NT$10,819.6 million in 2016, a decrease of NT$1, million, a 14.59% year-over-year decrease. 1.2 Profit for the period from continuing operations of 2017 was NT$ million, increased for NT$12.25 million, an increase of 2.44% compared with NT$ million in Income attributable to owners of parent was NT$ million, compared with NT$ million in 2016, a decrease of NT$14.90 million, a 2.96% year-over-year decline. Basic earnings per share of 2017 were NT$ Budget Implementation: Total consolidated revenue for 2017 totaled to NT$11, million, giving a budget achievement ratio of % of NT$ 10, million. 3. Financial Overview: 3.1 As of the end of 2017, total consolidated asset was NT$ 16, million, and total liability was NT$ 8, million (includes NT$1, million as long-term liability and NT$2,715 million as short-term liability and total liability was $3, million) Total equity was 7, million, and book value per share was NT$17.31 after adjusting for minority interests of NT$ million. 3.2 Business performance consolidated analysis over the last two years Items Analyzed Debt to Total Asset Ratio (%) 54.30% 49.77% Current Ratio (%) % % Gross Profit Margin (%) 16.01% 14.76% Pretax Profit Margin (%) 5.14% 4.57% Return on equity (%) 6.81% 6.61% Net Profit Margin (%) 4.51% 3.95% Chairman: Yi-Fu Chiang President: Hui-Chuan Kuo Director of Accounting: Shu-Chen Wu 11

12 Chung Hsin Electric & Machinery Mfg. Corp. Ltd. II. Audit Committee s Review Report The Board reports the financial statement, business report, and earnings distribution proposal of 2017, and financial statement have been audited by Crowe Horwath CPAs TAIWAN. The financial statements, business report and earnings distribution proposal have been audited by us as Audit Committee of the Company. We deem no inappropriateness on these documents. Pursuant to Article 219 of the Company Act, we hereby present the audited report. Please review. Chung Hsin Electric & Machinery Mfg. Corp Chairperson of the Audit Committee: Gene-Tzn Chen On the Date of March 30,

13 INDEPENDENT AUDITORS REPORT To The Board of Directors and the Stockholders Chung-Hsin Electric and Machinery Manufacturing Corp. Opinion We have audited the parent company only financial statements of Chung-Hsin Electric and Machinery Manufacturing Corp. (the Corporation), which comprise the parent company only balance sheets as of December 31, 2017 and 2016, and the parent company only statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the parent company only financial statements, including a summary of significant accounting policies. In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers. Basis for Opinion We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Corporation in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements for the year ended December 31, These matters were addressed in the context of our audit of the parent company only financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The description of the key audit matters of the parent company only financial statements for the year ended December 31, 2017 are as follows: Engineering Revenue Recognition Key Audit Matters statements The Corporation business included electric power engineering construction and design, which is follow IAS 11. Construction profits or losses are recorded based on Percentage of Completion Method. 13

14 Construction revenue amount was $3,172,203 thousand, please refer to Note 5 and 6(23). The Construction Percentage of Completion relies on estimations which have significant influence on parent company only financial statements. Therefore, the recognition of construction revenues is considered as a key audit matter by decision of CPA. Key Audit procedures By conducting the tests of controls, we obtained an understanding of the Corporation s recognition of construction revenues and of the design and implementation of related controls. We also perform corresponding audit procedures as follows: 1. Review the amount and estimate cost of matter contracts to confirm the accuracy of the information in the profit or loss on construction. 2. Test the accuracy of the construction listing on percentage of completion calculation and confirm the accuracy of the information in the accounting system. 3. Aquire the statements about the matter changing of construction, which is assessed by the corporation. Other Matter Certain investments which were accounted for under the equity method based on the financial statements of the investees were audited by other independent accountants. Our audit, insofar as it related to the investments accounted for under the equity method balance of NT 1,312,231 thousands and NT 1,124,819 thousands, which represented 8.44% and 8.00% of the total assets as of December 31, 2017 and 2016, the related shares of profit of associates and joint ventures accounted for using equity method in the amount of NT 120,388 thousands and NT18,513 thousands, which represented 22.32% and 3.22% of the income from continuing operations before income tax for the years ended December 31, 2017 and 2016, are based solely on the reports of other independent accountants. Responsibilities of Management and Those Charged with Governance for the Parent Company Only Financial Statements Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company only financial statements, management is responsible for assessing the Corporation s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the Audit Committee, are responsible for overseeing the Corporation s financial reporting process. Auditors Responsibilities for the Audit of the Parent Company Only Financial Statements Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a 14

15 high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Corporation to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with statements that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a 15

16 matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. March 30, 2018 Notice to Reader The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail. 16

17 III. Financial Statements CHUNG-HSIN ELECTRIC AND MACHINERY MANUFACTURING CORPS. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS' EQUITY Amount % Amount % CURRENT ASSETS: CURRENT LIABILITIES: Cash and cash equivalents (Notes 4 and 6) $ 605,930 4 $ 583,680 4 Short-term debts (Note 6) $ 1,962, $ 2,023, Financial assets at fair value through profit and loss 8,241-56,787 - Short-term bonds payable (Note 6) 1,348, ,958 3 current (Notes 4 and 6) Accounts payable 942, ,095 6 Available for sale financial assets current (Notes 4 and 6) ,212 1 Accounts payable - related parties (Note 7) 92, ,310 1 Notes receivable, net (Notes 4 and 6) 53,302-53,816 - Construction contracts payables(notes 4 and 6) 1,651, ,514, Notes receivable- related parties (Notes 4 and 7) 977-2,123 - Other payables (Note 6) 377, ,298 3 Accounts receivable, net(notes 4 and 6) 1,287, ,506, Other payables-related parties (Note 7) 8,634-5,484 - Accounts receivables-related parties (Notes 4 and 7) 26,975-12,399 - Current tax liabilities (Note 4) 49, Construction contracts receivables(notes 4, 6 and 7) 782, ,375 6 Receipts in advance (Note 7) 119, ,548 1 Other accounts receivables, net (Note 4) Current portion of long-term liabilities (Note 6) 68, Other accounts receivables-related parties (Notes 4 and 7) 4, ,141 1 Other current liabilities 19,123-14,447 - Current tax assets 52,944-42,827 - Total current liabilities 6,639, ,475, Inventory - manufactory(notes 4 and 6) 2,362, ,114, NONCURRENT LIABILITIES: Inventory - Construction(Notes 4, 6 and 8) 1,100, ,758 5 Long-term debts (Note 6) 1,128, ,238 5 Prepayments (Notes 6 and 7) 935, ,007 5 Deferred income tax liabilities (Notes 4 and 6) 332, ,904 2 Non-current assets as held for sale (Note 4) 62, Other noncurrent liabilities (Notes 4, 6 and 7) 170, ,899 2 Other current assets (Notes 6 and 8) 278, ,547 2 Total noncurrent liabilities 1,631, ,273,041 9 Total current assets 7,562, ,992, Total liabilities 8,270, ,748, NONCURRENT ASSETS: Equity attributable to owners of parent Financial assets carried at cost - noncurrent (Notes 4 and 6) 120, ,301 1 Common stock (Note 6) 4,200, ,200, Investments under equity method (Notes 4 and 6) 3,964, ,912, Capital surplus (Note 6) 409, ,397 3 Property, plant and equipment(notes 4, 6, 7 and 8) 2,551, ,085, RETAINED EARNINGS (Note 6) Investment property, net(notes 4, 6 and 8) 546, ,394 4 Legal reserve 1,039, ,536 7 Deferred income tax assets (Notes 4 and 6) 65, ,745 - Special reserve 858, ,678 6 Deposit out (Note 8) 141, ,963 1 Unappropriated earnings 787, ,729 6 Long-term notes, accounts and overdue receivables (Notes 4 and 6) 27, Total retained earnings 2,686, ,680, Other noncurrent assets (Notes 6 and 8) 560, ,007 1 Other equity(notes 4 and 6) 90, ,641 1 Total noncurrent assets 7,977, ,070, Treasury stock (Notes 4 and 6) ( 116,880 ) ( 1 ) ( 116,880 ) ( 1 ) TOTAL ASSETS Total Equity 7,269, ,315, Other noncurrent assets (Notes 6 and 8) $ 15,540, $ 14,063, TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,540, $ 14,063, ( Th e acc ompan ying not es a r e an integra l part of paren t company on ly financial statem ents.) 16

18 CHUNG-HSIN ELECTRIC AND MACHINERY MANUFACTURING CORPS. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % OPERATING REVENUE (Notes 4, 6 and 7) $ 9,225, $ 10,801, OPERATING COST (Notes 4, 6 and 7) ( 7,664,258 ) ( 83 ) ( 8,991,435 ) ( 83 ) GROSS PROFIT 1,561, ,810, UNREALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES ( 302 ) - ( 991 ) - REALIZED GROSS PROFIT ON SALES TO SUBSIDIARIES AND ASSOCIATES 2,807-2,376 - NET GROSS PROFIT 1,563, ,811, OPERATING EXPENSES (Notes 6 and 7) Marketing expenses ( 356,076 ) ( 4 ) ( 347,706 ) ( 3 ) General and administrative expenses ( 381,004 ) ( 4 ) ( 392,720 ) ( 4 ) Research and development expenses ( 356,915 ) ( 4 ) ( 412,073 ) ( 4 ) Total operating expenses ( 1,093,995 ) ( 12 ) ( 1,152,499 ) ( 11 ) OPERATING INCOME 469, ,406 6 NON-OPERATING INCOME AND EXPENSES Other revenues (Notes 6 and 7) 54,324-86,994 1 Other incomes and losses(note 6) ( 46,031 ) - ( 62,507 ) ( 1 ) Financial cost (Notes 6 and 7) ( 29,801 ) - ( 23,975 ) - Share of profit (loss) of associates and joint ventures 91,018 1 ( 85,676 ) ( 1 ) for using equity method (Notes 4 and 6) Total non-operating income and expenses 69,510 1 ( 85,164 ) ( 1 ) PROFIT BEFORE INCOME TAX 539, ,242 5 INCOME TAX (Notes 4 and 6) ( 51,269 ) - ( 71,175 ) ( 1 ) PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS 488, ,067 4 OTHER COMPREHENSIVE INCOME (Note 6) ITEMS THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS Remeasurements of defined benefit pension plans ( 62,859 ) ( 1 ) ( 2,029 ) - ITEMS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS Unrealized gains (losses) on Available for sale ( 78,674 ) ( 1 ) 8,020 - financial assets Cash flow hedge - - ( 5,394 ) - Share of other comprehensive gains (losses) of subsidiaries, 16,350 - ( 144,836 ) ( 1 ) associates and joint accounted for using equity method TOTAL OTHER COMPREHENSIVE LOSS, NET OF INCOME TAX ( 125,183 ) ( 2 ) ( 144,239 ) ( 1 ) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 362,982 4 $ 358,828 3 BASIC EARNINGS PER SHARE (Note 6) $ 1.19 $ 1.22 (The accompanying notes are an integral part of p aren t compan y on l y financial statements.) 17

19 CHUNG-HSIN ELECTRIC AND MACHINERY MANUFACTURING CORPS. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) RETAINED EARNINGS OTHER EQUITY Common Stock Capital surplus Legal reserve Special reserve Unappropriated earnings Total Retained earnings Exchange differences on translating foreign operations Unrealized gain (loss) on Available for sale financial assets Cash flow hedge Total Other equity Treasury stock Total Equity BALANCE, JANUARY 1, 2016 $ 4,200,000 $ 390,643 $ 934,417 $ 858,678 $ 805,525 $ 2,598,620 $ 133,779 $ 155,678 $ 5,394 $ 294,851 $ ( 116,880 ) $ 7,367,234 APPROPRITATION AND DISTRIBUTION OF RETAINED EARNIGS Legal reserve ,119 - ( 55,119 ) Common stock cash dividends ( 420,000 ) ( 420,000 ) ( 420,000 ) Adjustments to share of changes in equities of associates - ( 1,285 ) - - 1,285 1, and joint venture PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS , , ,067 OTHER COMPREHENSIVE INCOME ( 2,029 ) ( 2,029 ) ( 189,558 ) 52,742 ( 5,394 ) ( 142,210 ) - ( 144,239 ) TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD Adjustments of capital surplus for company's dividends received by subsidiaries , ,038 ( 189,558 ) 52,742 ( 5,394 ) ( 142,210 ) - 358,828-9, ,039 BALANCE, DECEMBER 31, ,200, , , , ,729 2,680,943 ( 55,779 ) 208, ,641 ( 116,880 ) 7,315,101 APPROPRITATION AND DISTRIBUTION OF RETAINED EARNIGS Legal reserve ,307 - ( 50,307 ) Common stock cash dividends ( 420,000 ) ( 420,000 ) ( 420,000 ) PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS , , ,165 OTHER COMPREHENSIVE INCOME ( 62,859 ) ( 62,859 ) ( 36,587 ) ( 25,737 ) - ( 62,324 ) - ( 125,183 ) TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD Adjustments of capital surplus for company's dividends received by subsidiaries , ,306 ( 36,587 ) ( 25,737 ) - ( 62,324 ) - 362,982-9, ,039 Other - 2, ,441 BALANCE, DECEMBER 31, 2017 $ 4,200,000 $ 409,877 $ 1,039,843 $ 858,678 $ 787,728 $ 2,686,249 $ ( 92,366 ) $ 182,683 $ - $ 90,317 $ ( 116,880 ) $ 7,269,563 (The accompanying notes are an integral part of p aren t compan y on ly financial statements.) 18

20 CHUNG-HSIN ELECTRIC AND MACHINERY MANUFACTURING CORPS. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Profit Before Income Tax $ 539,434 $ 574,242 Adjustments to reconcile profit to net cash provided by (used in) operating activities Depreciation 225, ,833 Amortization 65,595 46,055 Allowance (recovery income) for doubtful account 3,688 ( 19,983 ) Net (Gain) Loss on financial assets or financial ( 2,289 ) 2,836 liabilities at fair value through profit or loss Interest expenses 29,801 23,975 Interest income ( 14,037 ) ( 7,440 ) Divends revenue ( 5,710 ) ( 5,027 ) Share of loss (profit) of associates and joint ( 91,018 ) 85,676 ventures accounted for using equity method Loss (Gain) on disposal of property, plant and equipment 79,752 ( 590 ) Loss (Gain) on disposal of investment ( 106,953 ) 399 Impairment loss on financial assets 4,177 1,772 Other ( 29 ) ( 5 ) Net changes in operating incomes and losses which do not affect cash flows 188, ,501 Net changes in operating assets and liabilities (Increase) Decrease in financial assets - trading 50,670 ( 39,257 ) (Increase) Decrease in notes receivable 514 ( 14,993 ) (Increase) Decrease in notes receivable - related parties 1,146 ( 2,060 ) (Increase) Decrease in accounts receivables 215,478 ( 216,792 ) (Increase) Decrease in accounts receivable - related parties ( 14,576 ) ( 179 ) (Increase) Decrease in construction contracts receivables 10,372 ( 188,607 ) (Increase) Decrease in other accounts receivables ( 325 ) 403 (Increase) Decrease in other accounts receivable - related parties 194,720 ( 158,173 ) (Increase) Decrease in inventory ( 726,459 ) 232,216 (Increase) Decrease in prepayments ( 311,617 ) 269,895 (Increase) Decrease in other current assets 15,996 63,838 Net cash provide by (used in) operating asstes ( 564,081 ) ( 53,709 ) (Decrease) Increase in notes payable - related parties - ( 4,837 ) (Decrease) Increase in accounts payable 122, ,150 (Decrease) Increase in accounts payable - related parties ( 135 ) ( 61,784 ) (Decrease) Increase in construction contracts payables 137,195 ( 325,710 ) (Decrease) Increase in other payables ( 1,712 ) ( 75,736 ) (Decrease) Increase in other payables - related parties 3,150 ( 1,368 ) (Decrease) Increase in receipts in advance ( 7,731 ) 1,969 (Decrease) Increase in other current liabilities 4,676 1,014 (Decrease)Increase net defined benefit liability ( 101,946 ) ( 417,146 ) Net cash provide by (used in) operating liabilities 156,024 ( 698,448 ) Net changes provide by (used in) operating assets and liabilities ( 408,057 ) ( 752,157 ) Total Adjustments ( 220,047 ) ( 414,656 ) Cash provided by (used in) operating activities 319, ,586 Cash received for interest 14,819 6,745 Cash received for dividend 41,288 53,859 Cash paid for interest ( 30,541 ) ( 23,879 ) 19

21 Cash received (paid) for Income tax ( 28,984 ) ( 145,507 ) Net cash provide by (used in) operating activities 315,969 50,804 (Continued) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of Available for sale financial assets 114,217 - Proceeds from disposal of financial assets carried at cost 32,259 - Acquisition of investments at equity ( 93,000 ) ( 15,033 ) Proceeds from disposal of investments at equity 1 11,946 Refund from capital reduction of investments at equity 60, ,091 Proceeds from non-current assets as held for sale Acquisition of property, plant and equipment ( 921,805 ) ( 143,075 ) Proceeds from disposal of property, plant and equipment 11,008 1,179 Increase in deposit out - ( 26,124 ) Decrease in deposit out 12,312 - Increase in long-term lease receivables ( 27,287 ) - Increase in other noncurrent assets ( 322,451 ) ( 88,278 ) Other investment activities ( 1,207 ) ( 1,385 ) Net cash provide by (used in) investing activities ( 1,135,162 ) 40,321 CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term debts - 421,627 Decrease in short-term debts ( 61,006 ) - Increase in short-term bonds payable 850, ,821 Increase in long-term debts 481,837 - Decrease in long-term debts - ( 62,821 ) Increase in guarantee deposit received - 1,329 Decrease in guarantee deposit received ( 878 ) - Increase in other noncurrent liabilities - 3,946 Decrease in other noncurrent liabilities ( 11,114 ) - Cash Dividends Paid ( 420,000 ) ( 420,000 ) Other financing activities 2,441 - Net cash provided by (used in) financing activities 841, ,902 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 22, ,027 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 583, ,653 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 605,930 $ 583,680 (Concluded) (The accompanying notes are an integral part of the paren t compan y on l y financial statements.) 20

22 INDEPENDENT AUDITORS REPORT To The Board of Directors and the Stockholders Chung-Hsin Electric and Machinery Manufacturing Corp. Opinion We have audited the consolidated financial statements of Chung-Hsin Electric and Machinery Manufacturing Corp. and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The description of the key audit matters of the consolidated financial statements for the year ended December 31, 2017 are as follows: Revenue Recognition Key Audit Matters statements The Group business included electric power engineering construction and design, which is 21

23 follow IAS 11. Construction profits or losses are recorded based on Percentage of Completion Method. Construction revenue amount was $3,739,578 thousand, please refer to Note 5 and 6(24). The Construction Percentage of Completion relies on estimations which have significant influence on consolidated financial statements. Therefore, the recognition of construction revenues is considered as a key audit matter by decision of CPA. Key Audit procedures By conducting the tests of controls, we obtained an understanding of the Group s recognition of construction revenues and of the design and implementation of related controls. We also perform corresponding audit procedures as follows: 1. Review the amount and estimate cost of matter contracts to confirm the accuracy of the information in the profit or loss on construction. 2. Test the accuracy of the construction listing on percentage of completion calculation and confirm the accuracy of the information in the accounting system. 3. Aquire the statements about the matter changing of construction, which is assessed by the group. Other Matter Certain investments which were accounted for under the equity method based on the financial statements of the investees were audited by other independent accountants. Our audit, insofar as it related to these companies total assets were NT 1,698,687 thousands and NT 1,591,621 thousands, which represented 10.30% and 10.58% of the total consolidated assets as of December 31, 2017 and 2016, the related shares of net operating revenue from the associates in the amount of NT 889,727 thousands and NT 918,425 thousands, which represented 7.81% and 7.22% of the total consolidated net operating revenue for the years ended December 31, 2017 and 2016, the investments accounted for under the equity method balance of NT 647,660 thousands and NT 553,574 thousands, which represented 3.93% and 3.68% of the total consolidated assets as of December 31, 2017 and 2016, the related shares of profit of associates and joint ventures accounted for using equity method in the amount of NT 55,195 thousands and NT 20,684 thousands, which represented 9.43% and 3.56% of the consolidated income from continuing operations before income tax for the years ended December 31, 2017 and 2016, are based solely on the reports of other independent accountants. We have audited and expressed a unqualified opinion on the parent company only financial statements of Chung-Hsin Electric and Machinery Manufacturing Corp. for the years ended December 31, 2017 and 2016, repectively. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the 22

24 Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the Audit Committee, are responsible for overseeing the Group s financial reporting process. Auditors Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 4. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group to cease to continue as a going concern. 5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant 23

25 deficiencies in internal control that we identify during our audit. We also provide those charged with governance with statements that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. March 30, 2018 Notice to Reader The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and consolidated financial statements shall prevail 24