Stock No: 9925 Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Consolidated Financial Statement and Auditors Report 2017 and 2016 Address: No.128, Xing ai Rd., Neihu Dist., Taipei City Tel: (02) 7719-9888 - 1 -
CONTENTS Item Page no. No. of notes to financial statement I. Cover page 1 - II. Contents 2 - III. Declaration for Consolidated Financial 3 - Statements of Affiliated Companies IV. Auditors report 4~8 - V. Consolidated Balance Sheet 9 - VI. Consolidated statement of income 10~11 - VII. Consolidated Statements of Changes in 12 - Shareholders Equity VIII. Consolidated statement of cash flow 13~14 - IX. Notes to consolidated financial statement (I) History 15 I (II) Dates and procedures where the 15 II financial reports were resolved (III) Applicability of newly promulgated 15~24 III and amended standard rules and interpretations (IV) Summary of significant accounting 24~38 IV policies (V) Major sources of major accounting 38~39 V judgments, estimate and hypotheses (VI) Explanation of important accounting 39~76 VI~XXXIV titles (VII) Transactions-related party 76~80 XXXV (VIII) Pledged assets 80~81 XXXVI (IX) Major contingent liabilities and 81~82 XXXVII commitments made under unrecognized contracts (X) Others - - (XI) Noted disclosures 1. Information related to material 82, 86~97 XXXVIII transactions 2. Information related to reinvested 82, 86~97, XXXVIII enterprises 99 3. Information about investment in 82~83, 98 XXXVIII mainland china (XII) Segment information 83~85 XXXIX - 2 -
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 2017 (January 1 to December 31, 2017) 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 International Financial Reporting Standards (IFRS) No. 10. 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: Company name: Taiwan Shin Kong Security Co., Ltd. and Subsidiaries Responsible person: Lin Po-Fong March 22, 2018-3 -
Auditors report To: Taiwan Shin Kong Security Co., Ltd. Audit opinions The Consolidated Balance Sheets as of December 31, 2017 and 2016 and the Consolidated Statement of Comprehensive Income, Consolidated Changes in Equity, Consolidated Cash Flow Statements and notes to the consolidated financial statements (including the material accounting policies summary) as of January 1 to December 31, 2017 and 2016 of Taiwan Shin Kong Security Co., Ltd. and subsidiaries thereof have been duly audited by the Undersigned Certified Public Accountant. In our opinion, the major issues of the financial statements referred to above present fairly, prove to have been duly worked out in accordance with Regulations Governing the Preparation of Financial Reports by Securities Issuers and 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, 2017 and 2016 and the consolidated results of financial performance and consolidated cash flow for the periods starting from January 1 to December 31, 2017 and 2016. The basis for opinions We conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial statements by Certified Public Accountants and generally accepted auditing standards. Our responsibilities under those standards are further described in the responsibilities of auditors for the audit of the consolidated financial statements. The personnel of the CPA Firm subject to the independence requirement have acted independently from the business operations of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries in accordance with the Code of Ethics and with other responsibilities of the Code of Ethics performed. We believed that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. - 4 -
Key audit matter The key audit matters means that the independent auditor has used their professional judgment as the basis to audit the most important matters on the 2017 consolidated financial statements of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries. These matters were addressed in the content 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 those matters. The key audit matters of the 2017 consolidated financial statements of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries are described as follows: Key audit matter 1: Income recognition The net operating income of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries amounted to NT$7,101,507 thousand in 2017, including NT$2,918,413 thousand for electronic security services, accounting for 41% of the total income that is considered significant. Please refer to Note 4 (14) and Note 39 of the consolidated financial statements regarding the income recognition accounting policies and the departmental income information disclosure. For the electronic security services income recognition of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries, the process involves the correctness of the amount recognized and the timing of income transfer. Since the electronic security services income is significant to the overall financial statements, it is classified as a key audit matter related to the consolidated financial statements of the current year. For the important matters in the preceding paragraph, the principal audit procedure adopted by the independent auditor to assess whether the recognition of the electronic security service income is reasonable or not is as follows: 1. Understand the management s recognition of the electronic security service income operating process and test whether its control operations are effective or not. 2. Sampling check on whether the system information and contract information are identical. 3. Obtain and check the electronic security services income related evidence; verify the amount of income recognized and the timing of entry. 4. Analyze the changes in gross profit and price spread of the electronic service income; also, verify its rationality. Key audit matter 2: Financial assets valuation The available-for-sale financial assets noncurrent of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries amounted to NT$2,616,792 thousand on December 31, 2017, accounting for 17% of the total assets that are substantial to Taiwan Shin Kong Security Co., Ltd. and its subsidiaries. Please refer to Note 4 (12), Note 5, and Note 8 of the consolidated financial statements for the financial assets accounting policies and the relevant information disclosure. - 5 -
The financial assets evaluation process of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries involves significant judgment, including the evaluation model which recognizes the fair value. Therefore, the independent auditor has the financial assets valuation classified as a key audit matter of the consolidated financial statements for the current year. For the important matters in the preceding paragraph, the principal audit procedure adopted by the independent auditor to assess whether the fair value of financial assets is reasonable or not is as follows: 1. Understand the management s initiating of the financial assets assessment process and test whether its control operations are effective or not. 2. Perform a letter confirmation or an inventory count on the investment portfolio to confirm the existence of the subject matter and the actual number of shares held. 3. Obtain the financial assets appraisal report or the document for assessing the fair value of financial assets from the management. Invite the financial advisory experts of the Firm to help assess the appraisal report or review the appropriateness of the parameters used in the documents in order to conclude whether the calculations and conclusions are reasonable or not. 4. Evaluate the competency, professional competence, and independence of the independent appraisers used by the management; also, verify the qualifications of the appraisers. Other information Taiwan Shin Kong Security Co., Ltd. had duly worked out the 2017 and 2016 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. Responsibilities of Management and Those in Charge with Governance of the Consolidated Financial Statements The responsibility of the management is to have the consolidated financial statements presented fairly, in all material respects, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Firms, International Financial Reporting Standards (IFRS) that was recognized by the Financial Supervisory Commission, International Accounting Standards, Interpretations, and Notices (IFRS), International Accounting Standards (IAS), Interpretation (IFRIC) and Interpretative Announcement (SIC). Also, maintain the necessary internal controls related to the consolidated financial statements to ensure that the consolidated financial statements are free of any material misstatement arising from fraud or errors. In the preparation of the consolidated financial statements, the management s responsibility also includes assessing the continuing operation of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries, the disclosure of the relevant matters, and the adoption of the continuing operation accounting base, unless the management intends to liquidate Taiwan Shin Kong Security Co., Ltd. and its subsidiaries or cease business operation, or there is a lack of any option except for liquidation or suspension. The governance units (including the supervisor) of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries are responsible for supervising the financial reporting process. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to - 6 -
issue and auditor s report. Reasonable assurance is a high level of assurance, but is not a guarantee that and audit conducted in accordance with the accounting principles generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. If fraud or errors are considered materials, 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 accounting principles generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also perform the following works: 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 risks, and obtain evidence that is sufficient and appropriate to provide a basis of 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 the necessary understanding on the internal control related to the audit in order to design appropriate audit procedures under the circumstances, but the purpose is not to express an opinion on the effectiveness of the internal control of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries. 3. Evaluate the appropriateness of accounting policies used and the reasonability of accounting estimates and related disclosures made by the management. 4. Use the audit evidence obtained as the basis to draw conclusions on the suitability of the continuing operation accounting base adopted by the management and whether or not there are events or circumstances causing significant doubts regarding the continuing operation ability of Taiwan Shin Kong Security Co., Ltd. and whether its subsidiaries have significant uncertainties. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosure are inappropriate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor s report. However, future events or circumstances may result in the inability of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries to continue operating. 5. Evaluate the overall presentation, structure, and content of the consolidated statements, including the disclosures, whether the consolidated statements represent the underlying transactions and events in a matter that achieves fair presentation. 6. Obtain sufficient and appropriate audit evidence on the financial information of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries in order to express an opinion on the consolidated financial statements. The independent auditor is responsible for guiding, supervising, and implementing the audit of the Group; also, is responsible for forming an opinion on the audit of the Group. - 7 -
We communicate with those in charge of 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 in charge of governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, (related safeguards). The independent auditor has used the communications with the governing unit as the basis to determine the key audit matters to be performed on the 2017 consolidated financial statements of Taiwan Shin Kong Security Co., Ltd. and its subsidiaries. We describe these matters in our auditor s 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 communications. Deloitte & Touche CPA: Weng Po-Jen CPA: Chen Hui-Min Financial Supervisory Commission, Executive Yuan s written approval No.: Jin-Guan-Cheng-Shen-Zi No.: 1010028123 SFC s written approval No: Tai-tsai-cheng-(6)-Zi No. 0920123784 March 22, 2018-8 -
Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Consolidated Balance Sheet December 31, 2017 and 2016 Unit: NTD1,000 December 31, 2017 December 31, 2016 Code Assets Amount % Amount % Current assets 1100 Cash and cash equivalents (Note VI) $ 3,021,031 19 $ 3,268,107 22 1110 Financial assets through profit and/or loss with measuring for the faire values-current (Note IV and VII) 153,626 1 144,793 1 1125 Available-for-sale financial assets - current (Notes IV and VIII) 3,058,480 20 2,864,021 19 1147 Liability instrument investments for which no active market exists. (Notes IV and X) 11,738-33,715-1150 Notes receivable (Notes IV and XI) 107,144 1 143,390 1 1172 Accounts receivable (Notes IV, XI and XXXV) 448,229 3 459,505 3 1200 Other accounts receivable (Note XVIII) 163,088 1 82,825 1 1220 Income tax assets for the year 1,653-2,660-130X Inventories (Notes IV and XII) 315,836 2 318,472 2 1470 Other current assets (Note XVIII and XXXV) 149,059 1 166,227 1 11XX Total current assets 7,429,884 48 7,483,715 50 Noncurrent assets 1523 Available-for-sale financial assets - noncurrent (Notes IV and VIII) 2,616,792 17 2,743,273 19 1543 Financial assets carried at cost - noncurrent (Notes IV and IX) 465,835 3 169,129 1 1550 Investment under Equity method (Notes IV and XIV) 30,309-30,603-1600 Real estates, plant and equipment (Notes IV, XV, XXXV and XXXVI) 4,146,934 27 3,632,833 24 1760 Real estate investments - net (Notes IV, XVI and XXXVI) 257,866 2 399,714 3 1780 Other intangible assets (Notes IV and XVII) 44,229 1 30,579-1840 Deferred income tax assets (Notes IV and XXVIII) 178,830 1 170,837 1 1990 Other noncurrent assets - others (Notes XVIII and XXXVI) 186,677 1 214,939 2 15XX Total noncurrent assets 7,927,472 52 7,391,907 50 1XXX Total assets $ 15,357,356 100 $ 14,875,622 100 Code Liabilities and shareholders equity Current liabilities 2100 Short-term loan (Note XIX) $ 730,000 5 $ 896,000 6 2110 Short-term notes and bills payable (Note XIX) 289,789 2 439,677 3 2150 Notes payable (Notes XX and XXXV) 47,643-29,910-2170 Accounts payable (Notes XX and XXXV) 240,882 2 311,606 2 2219 Other accounts payable (Notes XXI and XXXV) 1,109,252 7 1,046,168 7 2230 Income tax liability for the year (Note XXVIII) 47,007-83,536 1 2250 Provision for liabilities-current (Notes IV, and XXII) 4,447-1,215-2310 Advance receipts (Note XXI and XXXIV) 891,258 6 853,221 6 2399 Other current liabilities - others (Note XXI) 68,399-65,559-21XX Total current liabilities 3,428,677 22 3,726,892 25 Noncurrent liabilities 2550 Provision for liabilities-noncurrent (Notes IV, and XXII) 59,069-54,010-2640 Defined benefit liabilities (Notes IV, and XXIII) 403,881 3 462,435 3 2645 Guarantee deposits received (Note XXIV) 413,721 3 353,213 3 25XX Total noncurrent liabilities 876,671 6 869,658 6 2XXX Total liabilities 4,305,348 28 4,596,550 31 Interest attributable to owners belonging to the Company (Note XXV) Capital stock 3110 Common shares 3,836,531 25 3,836,531 26 3200 Additional paid-in capital 146,302 1 150,683 1 Retained earnings 3310 Legal reserve 1,629,965 11 1,532,615 10 3350 Unappropriated earnings 2,798,819 18 2,737,834 18 3300 Total retained earnings 4,428,784 29 4,270,449 28 3400 Other equity 1,623,825 10 1,181,417 8 3500 Treasury stocks ( 39,521 ) - ( 39,521 ) - 31XX Total of the Company s equity attributable to owners 9,995,921 65 9,399,559 63 36XX Non-controlling interest (Note XXV) 1,056,087 7 879,513 6 3XXX Total shareholders equity 11,052,008 72 10,279,072 69 Total liabilities and shareholders equity $ 15,357,356 100 $ 14,875,622 100 Notes to the consolidated financial statements constitute a part of these financial statements. Chairman: Lin Po-Fong Manager: Hung Kuo-Chao Executive Accountant: Weng Tsung-Hsien - 9 -
Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Consolidated statement of income January 1 to December 31, 2017 and 2016 Unit: NTD1,000, except for EPS (NT$) 2017 2016 Code Amount % Amount % 4000 Net revenues (Notes IV, XXVI and XXXV) $ 7,101,507 100 $ 7,215,598 100 5000 Operating expenses (Notes XXVII and XXXV) ( 4,700,232 ) ( 66 ) ( 4,680,740 ) ( 65 ) 5900 Gross income from operations 2,401,275 34 2,534,858 35 Operating expenses (Notes XXVII and XXXV) 6100 Sales promotion expenses ( 206,465 ) ( 3 ) ( 216,030 ) ( 3 ) 6200 Operating expenses ( 1,335,618 ) ( 19 ) ( 1,360,119 ) ( 19 ) 6300 R&D expense ( 42,388 ) - ( 24,392 ) - 6000 Total operating expenses ( 1,584,471 ) ( 22 ) ( 1,600,541 ) ( 22 ) 6900 Net operating profit 816,804 12 934,317 13 Non-operating income and expense (Note XXVII and XXXV) 7010 Other revenue 296,188 4 275,466 4 7020 Other gain or loss 32,120-48,170 1 7050 Financial cost ( 17,526 ) - ( 21,255 ) - 7060 Amounts of profit and/or loss of subsidiaries recognized in equity method, associates and the share of the profit or loss of joint ventures (Note XIV). 802-2,514-7670 Impairment loss ( 2,701 ) - ( 26,069 ) ( 1 ) 7000 Total non-operating income and expense 308,883 4 278,826 4 7900 Income before tax 1,125,687 16 1,213,143 17 7950 Income tax expense (Note XXVIII) ( 115,562 ) ( 2 ) ( 199,427 ) ( 3 ) 8200 Net income 1,010,125 14 1,013,716 14 (To be continued) - 10 -
(Continued) 2017 2016 Code Amount % Amount % Other comprehensive income Not reclassified to profit and loss: 8311 Defined benefit plan re-measurement amount ( $ 10,343 ) - ( $ 59,671 ) - 8349 Incomes tax related to titles not subject to reclassification 1,236-10,144-8310 ( 9,107 ) - ( 49,527 ) - May be reclassified to profit and loss subsequently: 8361 The difference in foreign exchange converted with the financial reports of overseas operating institutions ( 2,264 ) - ( 11,873 ) - 8362 Unrealized benefit in evaluation of available-for-sale financial assets 488,433 7 530,598 7 8370 The share of other comprehensive income of associates and joint ventures recognized in equity method ( 308 ) - ( 2,123 ) - 8399 The income tax associated with the items may be reclassified to profit and loss. 802-2,244-8360 486,663 7 518,846 7 8300 Other comprehensive income (net amount after tax) of the current period 477,556 7 469,319 7 8500 Total comprehensive income this term $ 1,487,681 21 $ 1,483,035 21 The net earnings belong to 8610 The owner of the Company $ 939,848 13 $ 973,500 13 8620 Non-controlling interest 70,277 1 40,216 1 8600 $ 1,010,125 14 $ 1,013,716 14 The total comprehensive income belongs to 8710 The owner of the Company $ 1,368,165 19 $ 1,404,266 20 8720 Non-controlling interest 119,516 2 78,769 1 8700 $ 1,487,681 21 $ 1,483,035 21 Earnings per share (Note XXIX) 9710 Basic $ 2.46 $ 2.55 9810 Diluted $ 2.46 $ 2.55 Notes to the consolidated financial statements constitute a part of these financial statements. Chairman: Lin Po-Fong Manager: Hung Kuo-Chao Executive Accountant: Weng Tsung-Hsien - 11 -
Capital stock Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Consolidated Statements of Changes in Shareholders Equity January 1 to December 31, 2017 and 2016 The owners interest belongs to the Company Other items of interest The difference in Retained earnings foreign exchange converted with the financial reports of overseas operating Unrealized gain or loss on available-for-sale Unit: NTD1,000 Code Shares (thousand) Amount Additional paid-in capital Legal reserve Unappropriated earnings institutions financial assets Treasury stocks Total Non-controlling interest (Note 25) Total shareholders equity A1 Balance at January 1, 2016 383,653 $ 3,836,531 $ 146,302 $ 1,425,411 $ 2,690,884 ( $ 8,322 ) $ 712,621 ( $ 39,521 ) $ 8,763,906 $ 785,430 $ 9,549,336 Appropriation and allocation of earnings in 2015 B1 Legal reserve - - - 107,204 ( 107,204 ) - - - - - - B5 Cash dividend to the Company s shareholders - - - - ( 767,306 ) - - - ( 767,306 ) - ( 767,306 ) M7 C7 Change in other additional paid-in capital: Changes in the ownership equity on a subsidiary - - 4,381 - ( 5,456 ) - - - ( 1,075 ) 1,075 - Changes of the associates and joint ventures recognized under the Equity Method - - - - ( 232 ) - - - ( 232 ) - ( 232 ) D1 2016 net profit - - - - 973,500 - - - 973,500 40,216 1,013,716 D3 Other comprehensive income after tax, 2016 - - - - ( 46,352 ) ( 10,615 ) 487,733-430,766 38,553 469,319 D5 Total comprehensive income, 2016 - - - - 927,148 ( 10,615 ) 487,733-1,404,266 78,769 1,483,035 O1 Increase in non-controlling interest - - - - - - - - - 14,239 14,239 Z1 Balance at December 31, 2016 383,653 3,836,531 150,683 1,532,615 2,737,834 ( 18,937 ) 1,200,354 ( 39,521 ) 9,399,559 879,513 10,279,072 Appropriation and allocation of earnings in 2016 B1 Legal reserve - - - 97,350 ( 97,350 ) - - - - - - B5 Cash dividend to the Company s shareholders - - - - ( 767,306 ) - - - ( 767,306 ) - ( 767,306 ) M7 Change in other additional paid-in capital Changes in the ownership equity of a subsidiary (Note XXX) - - ( 4,381 ) - ( 116 ) - - - ( 4,497 ) 4,497 - D1 2017 net profit - - - - 939,848 - - - 939,848 70,277 1,010,125 D3 Other comprehensive income after tax, 2017 - - - - ( 14,091 ) ( 2,137 ) 444,545-428,317 49,239 477,556 D5 Total comprehensive income, 2017 - - - - 925,757 ( 2,137 ) 444,545-1,368,165 119,516 1,487,681 O1 Increase in non-controlling interest - - - - - - - - - 52,561 52,561 Z1 Balance at December 31, 2017 383,653 $ 3,836,531 $ 146,302 $ 1,629,965 $ 2,798,819 ( $ 21,074 ) $ 1,644,899 ( $ 39,521 ) $ 9,995,921 $ 1,056,087 $ 11,052,008 Notes to the consolidated financial statements constitute a part of these financial statements. Chairman: Lin Po-Fong Manager: Hung Kuo-Chao Executive Accountant: Weng Tsung-Hsien - 12 -
Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Consolidated statement of cash flow January 1 to December 31, 2017 and 2016 Unit: NTD1,000 Code 2017 2016 Cash flow from operating activities A00010 Continuing operation pre-tax net profit $ 1,125,687 $ 1,213,143 A20010 The loss items of the gains that do not affect cash flow A20300 Bad debt (reversal gain) expense ( 1,662 ) 406 A20100 Depreciation 527,154 441,977 A29900 Depreciation on real estate investments (presented as a deduction to rental income) 4,973 5,500 A20200 Amortization 13,468 8,972 A29900 Provision for liabilities 8,291 7,748 A22300 The share of the profit or loss of associates, joint ventures that adopt equity method ( 802 ) ( 2,514 ) A20900 Financial cost 17,526 21,255 A21200 Interest revenue ( 5,123 ) ( 5,919 ) A21300 Dividend income ( 216,088 ) ( 204,546 ) A23700 Inventory devaluation and obsolescence (Gain on price recovery) loss ( 4,672 ) 2,021 A22500 Loss (gain) in disposal of real estate, plant buildings, equipment & facilities ( 197 ) 1,059 A20400 The profit in financial assets measured in fair values through profit and/or loss method ( 8,833 ) ( 2,076 ) A23500 Loss in impairment in financial assets 2,701 26,069 A21000 Gain from disposal of financial assets carried at cost ( 5,973 ) ( 29 ) A23100 Net gain from disposal of available-for-sale financial assets ( 57,948 ) ( 79,550 ) A29900 Property, plant and equipment were presented as consumed cost 28,957 28,976 A30000 Net change in operating assets and liabilities A31130 Decrease in notes receivable 36,249 2,105 A31150 Decrease (increase) in accounts receivable 12,935 ( 60,527 ) A31180 Increase (decrease) in other accounts receivable ( 79,817 ) 36,506 A31200 Decrease (Increase) in inventories 7,308 ( 67,963 ) A31240 Increase (decrease) in other current assets 17,168 ( 12,210 ) A32130 Increase (decrease) in notes payable 17,733 ( 24,988 ) A32150 Increase (decrease) in accounts payable ( 70,724 ) 88,088 A32180 Increase (decrease) in other accounts payable 42,006 ( 4,658 ) A32200 Increase in advance receipts 38,037 14,095 A32230 Increase in other current liabilities 2,840 9,091 A32230 Decrease in accrued pension liabilities ( 68,897 ) ( 234,176 ) A33000 Cash yielded in business operation 1,382,297 1,207,855 A33300 Interest paid ( 17,414 ) ( 21,255 ) A33500 Income tax paid ( 157,267 ) ( 213,080 ) AAAA Net cash inflow from operating activities 1,207,616 973,520 (To be continued) - 13 -
(Continued) Code 2017 2016 Cash flow from investing activities B00300 Acquisition of available-for-sale financial assets ( $ 132,826 ) ( $ 27,197 ) B01200 Financial assets carried at cost ( 325,922 ) ( 32,300 ) B01300 Proceeds from disposal of financial assets carried at cost 8,973 - B01400 Return of capital from capital reduction of financial assets carried at cost 23,515 26,787 B00400 Proceeds from the disposal of available-for-sale financial assets 612,263 288,790 B00700 Proceeds from disposal of bond investments for which no active market exists. 21,977 ( 5,028 ) B02700 Procurement of Real estates, plant and equipment ( 916,987 ) ( 616,165 ) B04500 Procurement of intangible assets ( 27,118 ) ( 16,647 ) B02800 Proceeds from sales of real estate, plant buildings, equipment & facilities 4,925 5,725 B07500 Interest collected 5,123 5,919 B07600 Dividends received from the affiliated company - 1,659 B07600 Dividends received 215,642 204,546 B01800 Proceeds for acquisition of long-term investments under equity method - ( 3,347 ) B07100 Prepaid equipment amount 21,680 ( 4,831 ) B06700 Decrease in other assets 6,582 9,597 BBBB Net cash outflow from investing activities ( 482,173 ) ( 162,492 ) Cash flow from financing activities C00500 Decrease in short-term notes payable ( 150,000 ) ( 269,660 ) C00200 Decrease in short-term loan ( 166,000 ) ( 455,500 ) C03100 Increase in deposit received 60,508 65,796 C04500 Cash dividend paid ( 767,306 ) ( 767,306 ) C05800 Change in non-controlling interest 52,561 14,239 CCCC Net cash outflow from financing activities ( 970,237 ) ( 1,412,431 ) DDDD Impact of change in exchange rate upon cash & cash equivalents ( 2,282 ) ( 6,906 ) EEEE Decrease in cash and cash equivalents ( 247,076 ) ( 608,309 ) E00100 Balance of cash and cash equivalents-beginning 3,268,107 3,876,416 E00200 Balance of cash and cash equivalents-end $ 3,021,031 $ 3,268,107 Notes to the consolidated financial statements constitute a part of these financial statements. Chairman: Lin Po-Fong Manager: Hung Kuo-Chao Executive Accountant: Weng Tsung-Hsien - 14 -
I. History II. III. Taiwan Shing Kong Security Co., Ltd. and Subsidiaries Notes to consolidated financial statement January 1 to December 31, 2017 and 2016 (Expressed in Thousand New Taiwan Dollars unless specified otherwise) Taiwan Shin Kong Security Co., Ltd. and the entities controlled by the Company (hereinafter collectively referred to as Consolidated Company ) were incorporated in January 1980 in Taipei City and with 22 branches and 69 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. The Consolidated Company s stocks have been traded on TSE since December 1995. The present Consolidated Financial Report is expressed in New Taiwan Dollars, the functional currency adopted by Taiwan Shin Kong Security Co., Ltd. Dates and procedures where the financial reports were resolved The present Consolidated Financial Report was duly promulgated after being officially resolved in the board of directors meeting convened on March 22, 2018. Applicability of newly promulgated and amended standard rules and interpretations (I) (To be continued) The Regulations Governing the Preparation of Financial Reports by Securities Firms that is not yet effective and the IFRS, IAS, IFRIC, and SIC 2017 version approved by the Financial Supervisory Commission According to the FSC.Audit.Tzi. No. 1050050021 Letter and FSC.Audit.Tzi No. 1050026834 Letter issued by the Financial Supervisory Commission (referred to as the FSC hereinafter), the Consolidated Company should start from the year of 2017106 to adopt the IFRS, IAS, IFRIC, and SIC 2017 version (referred to as the IFRSs hereinafter) that was published by the International Accounting Standards Board (IASB) and approved by the Financial Supervisory Commission; also, the Regulations Governing the Preparation of Financial Reports by Securities Firms amendments. New promulgation/amendment/amended Rules and Interpretation The annual improvement during the 2010-2012 period. The annual improvement during the 2011-2013 period. The annual improvement during the 2012-2014 period. IFRS 10, IFRS 12, and IAS 28 amendments Investment entity: Application of the exceptions to the consolidated financial statements. The effective date promulgated by IASB (Note 1) July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 3) January 1, 2016-15 -
(Continued) The effective date New promulgation/amendment/amended Rules and promulgated by IASB Interpretation (Note 1) IFRS 11 amendment Acquisition of joint operation January 1, 2016 equity. IFRS14 Deferred accounts under control January 1, 2016 IAS 1 amendment Disclosure Initiative January 1, 2016 IAS 16 and IAS 38 amendments An acceptable January 1, 2016 explanation of the depreciation and amortization method. IAS 16 and IAS 41 amendment Agriculture: January 1, 2016 Production Plant IAS 19 Amendment: Ascertained fringe benefit July 1, 2014 plans: Appropriation to employees IAS 27 amendment Equity method in the individual January 1, 2016 financial statements IAS 36 Amendment: Disclosure of the recoverable January 1, 2014 amounts in non-financial assets IAS 39 Amendment: Continuity of contract January 1, 2014 replacement for derivative financial instruments and hedging accounting IFRIC 21 Taxation 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: In addition to the adoption of IFRS 5 amendment after January 1, 2016, the adoption of the remaining amendments can be applied retroactively after January 1, 2016. Except for the instructions below, the application of the IFRSs Version 2017 would not cause significant changes to the accounting policies of the consolidated company: 1. IFRS 11 Concerted Agreement amendment IFRS 11 amendment Acquisition of joint operation equity, such amendment provides that when the combined company (joint operator) obtains a joint operating interest in accordance with the business definition, the identifiable assets and liabilities are measured at fair value in accordance with IFRS 3 and other standards and principles, and the acquisition costs are recognized as expenses (except for the bonds or equity securities issuance cost), - 16 -
goodwill and the deferred income tax relating to the original recognition of assets and liabilities is recognized, and goodwill impairment is assessed at least annually. In addition, disclose the information on business combination. If the combined company is going to set up joint operations with the existing priced and invested business operation, it should also be dealt with according to the aforesaid provisions. If the entity in the joint operation is a jointly controlled entity before and after obtaining the joint operation equity, such acquisition is not subject to the aforementioned provisions. The aforementioned amendment is applicable to the joint operation equity obtained after 2017. The amount of the joint operation equity obtained in the prior periods will not be adjusted. 2. IFRS 12 Disclosure of the interests of other entities amendment Amendment to IFRS 12, Investment entity: Application of the exceptions to the consolidated financial statements whereby the consolidated company adopted the amendment of IFRS 12 in 2017 in retrospect shall also disclose the subsidiaries measured at fair value. 3. IFRS 13 Measuring of fair values amendment The improvement in 2010-2012 amendment to IFRS 13 led to the conclusion on the basis that in the amendment of the application of this standard in retrospect to 2017, the short-term receivables and payables with no defined interest rate without significant influence from discount shall be measured on the basis of the original invoice amount. 2011-2013 annual improvement amends IFRS 13 is to clarify that when the contracts are included and processed in accordance with IAS 39 or IFRS 9, even if the contracts do not comply with the definition of financial assets or financial liabilities in IAS 32 Financial Instruments: Presentation, the exceptional requirements on the fair value of financial assets and financial liabilities measured according to the net amount basis (i.e. combination exception ) are applicable. 4. IAS 16 and IAS 38 amendments An acceptable explanation of the depreciation and amortization method. Enterprises should adopt appropriate methods of depreciation and amortization to reflect the expected patterns of future economic benefits from the consumption of the property, plant, and equipment and intangible assets. According to IAS 16 Property, plant, and equipment amendment, income is not an appropriate basis to measure the depreciation expense of property, plant, and equipment, and the amendment does not allow an exception to have depreciation expense appropriated based on the income. According to IAS 38 Intangible Assets amendment, except in the following specific circumstances, income is not an appropriate basis to measure the amortization expense of intangible assets: (1) Intangible assets is expressed in accordance with the income measurement (for example, it is preconditioned in the contract that income reached a certain threshold is no longer entitled to use the intangible assets), or - 17 -
(II) (2) The correlation between income and economic benefit consumption of intangible assets can be evidenced. 5. IAS 19 Employee Benefits amendment 2011-2014 annual improvement amends IFRS 19 clarifies that when determining whether the high-quality corporate bond that is used to estimate the retirement benefits discount rate is with a market in-depth or not, it should be assessed in accordance with the corporate bond market that is valued by the Consolidated Company with the same currency of the benefits paid. In other words, it should be assessed in accordance with the currency levels (rather than national or regional level). 6. IFRS 10, IFRS 12, and IAS 28 amendments Investment entity: Application of the exceptions to the consolidated financial statements. The amendment helped to clarify that if the associates or joint ventures held by the consolidated company (not an investment entity) are an investment entity, the equity method could be adopted for the measurement of fair value of these associates or joint ventures as with the subsidiaries. Before the amendment, the Company measured the aforementioned affiliates or joint ventures at fair value as the subsidiaries and included the result after adjustment and recognized on the basis of the equity method. Before the adoption of the aforementioned amendment in 2017, the Company measured the subsidiaries as with the affiliates or joint ventures. 7. IFRIC 21 Taxation IFRIC 21 provides guidelines for recognizing various types of funds (known as taxation ) imposed by the government as liabilities, including the known timing of collection and amount, and the liability reserve without the known timing of collection and amount. The Consolidated Company should have the related liabilities assessed when the taxable transactions or activities occurred. Therefore, if the payment obligation has occurred over the lapse of time (for example, along with the income generated by the enterprise), the related liabilities should be recognized periodically; if the payment obligation has occurred when reaching a certain threshold (for example, revenue reached a specific amount), the related liabilities should be recognized when the threshold is reached. In addition to the aforementioned effects, as of the publication date of the individual financial statements, the company continued to assess the impact of the amended Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs applicable in 2017 on the financial status and financial performance in various periods; also, the relevant impacts will be disclosed upon the completion of the assessment. FRSs announced by IASB pending on the recognition of FSC The Consolidated Company has not adopted the following IFRSs published by the IASB but not yet recognized by the FSC. FSC did not announce the effective date of any other standards beyond IFRS 9 and IFRS 15, which will be applicable in 2018, as of the date this individual financial statement was released. - 18 -
The effective date New promulgation/amendment/amended Rules and promulgated by IASB Interpretation (Note 1) The annual improvement during the 2014-2016 Note 2 period. The amendment to IFRS 2 on share-based payment- January 1, 2018 classification and measurement. IFRS 9 financial instruments January 1, 2018 IFRS 9 and The IFRS 7 Amendment: Mandatory January 1, 2018 effective date and excessive disclosure IFRS 10 and IAS 28 amendment Assets sales or Uncertain contribution between the investor and the affiliated company or joint venture. IFRS 15 Income from customer contracts January 1, 2018 Amendment to IFRS 15, The interpretation of IFRS January 1, 2018 15. IFRS 16 leases January 1, 2019 IAS 7 amendment Disclosure Initiative January 1, 2017 IAS 12 amendment Recognition of unrealized loss January 1, 2017 as deferred income tax assets Amendments to the IAS 40 Investment Property January 1, 2018 IFRIC 22 Foreign Currency Transactions and January 1, 2018 Advance 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 amendments to IFRS 12 are applicable retroactively in the years after January 1, 2017. The amendments to IAS 28 are applicable retroactively in the years after January 1, 2018. 1. IFRS 9 financial instruments Classification, measurement, and impairment of financial assets 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. IFRS 9 has financial assets classified as follows: For the debt instruments invested by the Consolidated Company, if the contractual cash flow is exclusive for the payment of principal and the interest on the outstanding principal amount, the classification and measurement are as follows: (1) For the financial assets held for the purpose of charging contractual cash flows, the financial assets should be measured at the amortized cost. The financial assets are subsequently with interest income recognized in profit and loss in accordance with the effective interest rate and the impairment will be assessed continuously with the impairment profit and loss recognized in profit and loss. - 19 -
(2) For the financial assets held for the purpose of charging contractual cash flows and selling financial assets, the financial assets are measured at fair value through other comprehensive profit and loss. The financial assets are subsequently with interest income recognized in profit and loss in accordance with the effective interest rate and the impairment will be assessed continuously with the impairment profit and loss and exchange profit and loss recognized in profit and loss; also other changes in fair value are recognized in other comprehensive profit and loss. When the financial assets are offset or reclassified, the change in fair value accumulated in other comprehensive profit and loss shall be reclassified to profit and loss. The financial assets not in compliance with the conditions referred to above that are invested by the Consolidated Company are measured at fair value and with the change in fair value recognized in profit and loss. However, the Company may choose at the time of original recognition to have the not-held-for-trade equity investment measured at the fair value through other comprehensive profit and loss. For this type of financial assets, dividend income is recognized in profit and loss; also, other related profit and loss is recognized in other comprehensive profit and loss without assessing impairments subsequently. The change in fair value accumulated in other comprehensive profit and loss will not be reclassified to profit and loss. Impairment of financial assets IFRS 9 adopts Expected credit loss model to recognize impairments of financial assets. The financial assets measured at the amortized cost, the financial assets measured at the fair value through other comprehensive profit and loss mandatorily, rent receivables, contractual assets or loan commitments and financial guarantee contracts derived from IFRS 15 Income from customer contracts are all with allowance for credit losses recognized. If the credit risk of the financial assets referred to above has not been significantly increased since the original recognition, the allowance for credit losses is measured in accordance with the expected credit losses within the next 12 months. If the credit risk of the financial assets referred to above has been significantly increased since the original recognition and the credit risk is significant, the allowance for credit losses is measured in accordance with the expected credit losses in the remaining duration period. For the accounts receivable, that do not include significant financial composition, the allowance for credit loss must be measured in accordance with the expected credit loss in the duration period. In addition, for the financial assets with credit impairment incurred at the original recognition, the Consolidated Company should have calculated the effective interest rate after the credit adjustment with the expected credit losses incurred at the original recognition included for consideration. In addition, the subsequent allowance for credit losses is measured in accordance with the subsequently accumulated changes in expected credit loss. The Consolidated Company measured the provision for loss on the basis of the credit loss in the duration to maturity at assessment under the simplified method on account receivables, contract assets, and receivable rents. In assessment for the significant increase of credit risk inherent to the investment - 20 -
in debt instruments and guarantee contracts since initial recognition, the Consolidated Company determined to measure the provision for loss in 12 months ahead or within the perpetuity of the instruments to maturity. The Consolidated Company anticipated that the model of expected credit loss under the IFRS9 will cause an early recognition of credit loss from financial assets. The consolidated company did not recompile the statement in 2017 for comparison after the adoption of IFRS 9 in the classification of financial assets, measurement and recognition for impairment. The accumulated effect of the first-time adoption was recognized on the day of first adoption with disclosure of the changes in the classification under IFRS 9 and on the reconciliation. The adoption of IFRS 9 in the classification, measurement, and recognition of impairment of financial assets in retrospect to the assets on January 1, 2018 are expected to yield the following effects: Book value as of December 31, 2017 Adjustment of the first-time adoption Adjustment of book value as of January 1, 2018 The effect of assets, liabilities and equity The financial assets measured for the fair values through profit and/or loss--current $ 153,626 $ 70,665 $ 224,291 The financial assets measured for the fair values through other comprehensive income- current - 2,987,815 2,987,815 The financial assets measured for the fair values through other comprehensive income- noncurrent - 3,137,778 3,137,778 Available-for-sale financial assets - current 3,058,480 ( 3,058,480 ) - Available-for-sale financial assets - noncurrent 2,616,792 ( 2,616,792 ) - Financial assets carried at cost - current 465,835 ( 465,835 ) - Effect of assets $ 6,294,733 $ 55,151 $ 6,349,884 Deferred tax liabilities $ - $ 9,376 $ 9,376 Effect of liabilities $ - $ 9,376 $ 9,376 Retained earnings $ 4,428,784 $ 329,649 $ 4,758,433 Other equity 1,623,825 ( 283,874 ) 1,339,951 Effect of equity $ 6,052,609 $ 45,775 $ 6,098,384-21 -
2. IFRS 10 and IAS 28 amendment Assets sales or contribution between the investor and the affiliated company or joint venture. The amendment provides that if the Company sells or contributes assets to affiliated companies, or the Company losses the control over a subsidiary but retains significant influence on the subsidiaries, and if the aforementioned assets or subsidiary in compliance with the definition of IFRS 3 Business, the Consolidated Company is to recognize the profit and loss of the transactions fully. In addition, if the Consolidated Company sells or contributes assets to affiliated companies, or the Company losses the control over a subsidiary but retains significant influence on the subsidiaries, and if the aforementioned assets or subsidiary not in compliance with the definition of IFRS 3 Business, the Company is to recognize the profit and loss of the transactions only within the equity scope of the affiliated companies irrelevant to the investors, in other words, the profit and loss attributable to the Company should be offset. 3. IFRS 15 Revenue from Contracts with Customers and the related amendments IFRS 15 specifies the recognition principle of income generated from the customer contracts; also, the guidelines will replace IAS 18 Income, IAS 11 Construction Contracts, and related interpretations. The Company after adopting IFRS 15 has income recognized according to the following steps: (1) Identify customer contracts: (2) Identify performance obligations in the contract; (3) Determine the transaction price; (4) Amortize transaction price to the performance obligations in the contract and (5) Recognize income upon fulfilling performance obligation of the contract. When IFRS 15 and the related amendments are in force, the combined company may choose to have it applied retroactively to the comparison period or have the cumulative effect of the first-time application recognized in the first-time application date. In identifying obligations in contractual performance, IFRS 15 and related amendments required that if products or services could be differentiated (e.g., regular sale of particular products or services separately), and the commitment of the transfer of products or services under contracts could be identifiable by nature (i.e., the commitment of contracts is the transfer of a particular product or service, not the transfer of an aggregate), the product or service shall be identifiable and differentiated. The preliminary assessment of the adoption of IFRS 15 in the recognition of revenues from contracts of customers by the consolidated company indicated no significant difference and influence. Yet, the influence of this - 22 -