Lungyen Life Service Corp.

Stock code: 5530

Lungyen Life Service Corp. (Formerly Known as Dahan Development Corp.)

Annual Report 2012

Date of publication: May 15, 2013

Accessible on the M.O.P.S. website: http://newmops.tse.com.tw

Lungyen Life Service Corp. website: http://www.lungyengroup.com.tw

I. Company spokesman and acting spokesman

Spokesman

Name: Chan Shu-Chuan

Job title: CFO, and VP of Finance Division

Tel. No.: (02)2712-1628

Email box: [email protected]

Acting spokesman

Name: Peng Chi-Ming

Job title: Manager of Investor Relations and Treasury Dept.

Tel. No.: (02)2712-1628

Email box: [email protected]

II. Company address and Tel. No. Address: 7F, No. 150, Dunhua N. Road, Songshan District, Taipei City

Tel. No.: (02)2712-1628

Fax: (02)2712-1629

III. Shares Registrar: Name: Jih Sun Securities Co., Ltd., Share Registration Department

Address: 11F, No. 10, Section 1, Chongqing South Road, Taipei City

Website: www.jihsun.com.tw

Tel. No.: (02)2382-6789

IV. Certified CPA Name: Lai Li-Cheng, CPA & Chen Chia-Hsiun, CPA

Office: KPMG

Address: 68F, No. 7, Hsinyi Road, Sec. 5, Taipei City

Website: www.kpmg.com.tw

Tel. No.: (02)8101-6666

V. Name of any exchanges where the Company's securities are traded offshore, and the

method by which to access information on said offshore securities: None

VI. the Company’s website: http://www.lungyengroup.com.tw

Table of Contents

1. Business Report....................................................................................................................................- 1 -

1.1 2012 Operating results:................................................................................................................ - 1 -

1.1.1 Operating results of the business plan: ...........................................................................- 1 - 1.1.2 Financial income and expenses ......................................................................................- 1 - 1.1.3 Profitability analysis: ......................................................................................................- 1 -

1.2 Summary of the 2013 business plan ............................................................................................ - 2 -

1.2.1 Operating principle .........................................................................................................- 2 - 1.2.2 Summary of execution....................................................................................................- 2 - 1.2.3 Estimated production and sales in 2013 .........................................................................- 2 -

1.3 The Company’s development strategy......................................................................................... - 3 -

1.4 Impact of external competitive environment, regulatory environment and the macro

business environment .................................................................................................................. - 4 -

2. Profile of the Company........................................................................................................................- 5 -

2.1 Date of incorporation: March 27, 1987 ....................................................................................... - 5 -

2.2 Organization and operations: ....................................................................................................... - 5 -

3. Corporate Governance Report ...........................................................................................................- 8 -

3.1 Organization ................................................................................................................................ - 8 -

3.1.1 Organizational chart........................................................................................................- 8 - 3.1.2 The various departments are engaged in the following main business lines: .................- 9 -

3.2 Profiles of Directors, Supervisors, the President, Vice Presidents, Asst. VPs, and heads of

the various departments and branches ....................................................................................... - 10 -

3.2.1 Profiles of President, Vice Presidents, Asst. VPs, and heads of the various departments and branches.............................................................................................- 17 -

3.2.2 Remuneration paid during the most recent year to directors, supervisors, president, and vice presidents........................................................................................................- 19 -

3.2.3 Analysis of the total remuneration, as a percentage of net income after tax, as paid by the Company and by each other company included in the consolidated financial statements during the most recent 2 years to directors, supervisors, president, and vice presidents, and the Company’s remuneration policies, standards and packages, and procedures for determining remuneration and its connection with job performance. .................................................................................................................- 27 -

3.3 Status of Corporate Governance.....................................................................................................29

3.3.1 Operations of the Board of Directors................................................................................ 29

3.3.2 Operations of the Audit Committee:................................................................................. 30

3.3.3 The status of the Company's implementation of corporate governance, any deviation from such implementation of the Corporate Governance Best Practice Principles for TSEC/GTSM Listed Companies, and the reason for any such deviation ........................................................................................................................... 31

3.3.4 If the Company has a compensation committee in place, the composition, duties, and operations of the compensation committee shall be disclosed: ................................. 33

3.3.5 Execution of corporate social responsibility (such as the system and measures as well as implementation progress the company has made on environmental, community involvement, social contributions, social services, social welfare, consumer rights and interests, human rights, health and safety and other social responsibility issues) - the execution of corporate social responsibility is described below: ............................................................................................................................... 35

3.3.6 The company’s fulfilling integrity management with the measures taken ....................... 38

3.3.7 Corporate Governance Code and related regulations query: The Company at present has not yet had the corporate governance code defined in accordance with the “Corporate Governance Best-Practice Principles for Listed/OTC Companies;”

however, has set the relevant procedures and corporate governance rules. In addition to the shareholders’ meeting, the Conduct of the Board of Directors, the Rules Governing the Election of Directors, and the material resolutions, the Internal Material Information Handling Procedures, the Guidelines for Handling Acquisition and Disposal of Assets, the Guidelines for the Loan of Funds, and the Guidelines for Endorsements and Guarantees” are disclosed in the MOPS in details........................................................................................................................................... 40

3.3.8 Important information that helps understand the company’s corporate governance practice.............................................................................................................................. 41

3.3.9 Implementation of internal control system ....................................................................... 42

3.3.10 The company and its internal staff being punished according to law, the internal staff in violation of internal control system being punished by the company, major nonconformities, and corrective actions in the most recent year and up to the publication date of the annual report: None...................................................................... 43

3.3.11 Important resolutions reached in the shareholders’ meeting and board meeting in the most recent year and up to the publication date of the annual report: ........................ 43

3.3.12 Directors or supervisors who have their oppositions to the resolutions reached in the board meeting documented in the most recent years and up to the publication date of the annual report: None ........................................................................................ 46

3.3.13 Summary of the resignations and dismissal of the personnel related to the financial report (including the chairman, president, accounting manager, finance director, chief internal auditor, R&D manager, etc.) in the most recent years and up to the publication date of the annual report: None...................................................................... 46

3.3.14 The relevant licenses and certificates that are designated by the competent authority acquired by the Company’s personnel who are related to the transparency of financial information: ................................................................................................... 46

3.4 CPA fees: ........................................................................................................................................47

3.4.1 Information of Fees........................................................................................................... 47

3.5 CPA replacement: None..................................................................................................................47

3.6 The company’s chairman, president, and finance or accounting manager has worked in the

CPA Firm contracted for auditing service or its affiliated companies within the year: None. .......47

3.7 Changes in equity transfer and equity pledged of the directors, supervisors, managers, and

shareholders with more than 10% shareholdings in the most recent years and up to the

publication date of the annual report: .............................................................................................48

3.8 Information on the mutual relationship of the top-ten shareholders...............................................50

3.9 The shares of the same transfer investment business held by the company’s directors,

supervisors, managers, and the enterprise directly or indirectly controlled by the company;

also, the general shareholding ratio is calculated in consolidation:................................................51

3.10 Material Information Handling Procedures: ...................................................................................51

4. Fund-Raising.......................................................................................................................................... 52

4.1 Source of capital: ............................................................................................................................52

4.2 Shareholder Structure .....................................................................................................................53

4.3 Common stock shares distributed...................................................................................................54

4.3.1 Distribution of common stock shares ............................................................................... 54

4.3.2 Preferred stock shares distributed: None .......................................................................... 54

4.4 List of major shareholders: .............................................................................................................54

4.5 Market price, net worth, earnings, dividends of per share, and related information in the last

two years.........................................................................................................................................55

4.6 Company’s dividend policy and implementation ...........................................................................56

4.6.1 Dividend policy set in the company’s Articles of Incorporation: ..................................... 56

4.6.2 The dividend distribution is presented and discussed in the shareholder’s meeting:

The Company’s 2012 earnings distribution was resolved by the board of directors on March 14, 2013 intending to appropriate NT$1,316,977,856 from the distributable surplus as cash dividend (NT$3.3 per share). The Board of Directors is to schedule the ex-dividend date for cash dividend after it is resolved in the shareholders’ meeting. ...................................................................................................... 56

4.6.3 Expected material changes in dividend policy: None....................................................... 56

4.7 The impact of the stock dividends proposed in the shareholders’ meeting on the company’s

operating performance and earnings per share: Not applicable......................................................56

4.8 Bonus to employees and remuneration to directors and supervisors..............................................56

4.8.1 The percentage or scope of bonus to employees and remuneration to directors and supervisors documented in the company’s Articles of Incorporation:.............................. 56

4.8.2 The accounting treatment for the estimated bonus to employees and remuneration to directors and supervisors and the estimated stock dividend different from the actually distributed amount: None.................................................................................... 56

4.8.3 The bonus to employee and remuneration to directors and supervisors resolved by the board of directors and the imputation of earnings per share is as follows:................. 56

4.8.4 The actual distribution of bonus to employee and remuneration to directors and supervisors in previous year: ............................................................................................ 57

4.9 Company’s repurchasing stock shares: None .................................................................................57

4.10 Corporate bonds: None...................................................................................................................57

4.11 Preferred stock: None .....................................................................................................................57

4.12 Overseas depository receipts: None ...............................................................................................57

4.13 Employee stock options: None .......................................................................................................57

4.14 Shares issuance for merging or acquiring the equity of other companies: None............................57

4.15 Funds plans and implementation ....................................................................................................58

4.15.1 Funds plans: ...................................................................................................................... 58

4.15.2 Funds plans and implementation: Not applicable............................................................. 58

5. Operational Highlights.......................................................................................................................... 59

5.1 Business operation..........................................................................................................................59

5.1.1 Scope of business.............................................................................................................. 59

5.1.2 Industry highlights:........................................................................................................... 60

5.1.3 Technology and R&D: ...................................................................................................... 62

5.1.4 Long-term and short-term business development plan:.................................................... 63

5.2 Market and production and sales: ...................................................................................................64

5.2.1 Market analysis................................................................................................................. 64

5.2.2 Usage of major products and manufacturing processes.................................................... 66

5.2.3 The supply of main raw material: ..................................................................................... 67

5.2.4 Primary customer sales list ............................................................................................... 68

5.2.5 Production capacity value for the most recent two years ................................................. 69

5.2.6 Sales value table for the most recent two years ................................................................ 69

5.3 Employee information ....................................................................................................................70

5.3.1 Human Resource structure................................................................................................ 70

5.3.2 Employee development .................................................................................................... 70

5.3.3 Code of Ethics, Working Behavior and Regulatory Compliance ..................................... 72

5.4 Environment protection expenditure information ..........................................................................72

5.4.1 According to regulations, if the Company should apply for a permit for pollution facility installment, a permit for pollution emission, payment of a pollution protection fee or setting up of responsible personnel for environmental protection, the situation of application, contribution and setup should be explained: Not applicable.......................................................................................................................... 72

5.4.2 Investment in facilities for environmental protection, use and potential benefit: Not

applicable.......................................................................................................................... 72

5.4.3 In the most recent two years and up until the publication of the annual report, in the process of environmental pollution improvements, any disputes arising and an explanation of the handling procedure adopted: Not applicable. ..................................... 72

5.4.4 In the current year up until publication of the annual report has the Company suffered losses due to environmental pollution: None...................................................... 72

5.4.5 Current pollution situation and the effect of improvements on the Company’s earnings, competitive status, impact on capital expenditure and the estimated material capital expenditure for environmental protection: None. ................................... 72

5.4.6 Related information on ROSH EU restrictions: ............................................................... 72

5.5 Employer/employee relationship....................................................................................................74

5.5.1 Employee welfare measures including advanced study, training and pension plan, actual status of agreements between employer and employees and safeguarding of employee rights and interests are as below:...................................................................... 74

5.5.2 In the most recent two years and up until publication of the Annual Report has the Company suffered any losses due to labor disputes? Please disclose the possible amount of losses currently and in the future and related measures: ................................. 74

5.5.3 Disclose work environment and employee safety protection measures: .......................... 75

5.6 Important Contracts ........................................................................................................................76

6. Financial profile ..................................................................................................................................... 77

6.1 Condensed balance sheet and income statement of the latest five years ........................................77

6.2 Financial analysis of the latest five years .......................................................................................80

6.2.1 Financial analysis.............................................................................................................. 80

6.2.2 Financial analysis – R.O.C. Financial Accounting Standards .......................................... 83

6.3 The CPA’s name and the opinion of last five years: .......................................................................85

6.4 Audit report of audit committee for the latest year financial statements........................................86

6.5 Financial report of the latest year ...................................................................................................87

6.6 In the last year and up until the publication date, any financial difficulties met by the

Company and its affiliates: None. ................................................................................................198

7. A review and analysis of the Company's financial condition and operating results and a listing of

risks ....................................................................................................................................................... 199

7.1 Financial condition .......................................................................................................................199

7.2 Operating results...........................................................................................................................200

7.3 Cash flow......................................................................................................................................201

7.3.1 Liquidity analysis for the most recent two years ............................................................ 201

7.3.2 Cash liquidity analysis for the coming year.................................................................... 201

7.4 Effect upon financial operations of any major capital expenditures during the most recent

fiscal year: None...........................................................................................................................201

7.5 Reinvestment policy for the most recent fiscal year, main reasons for the profits/losses

generated thereby, plan for improving re-investment profitability, and investment plans for

the coming year: ...........................................................................................................................201

7.5.1 The Company's current reinvestment policies are stated as following:.......................... 201

7.5.2 Investments planned for the coming year: None. ........................................................... 202

7.6 Risk management & evaluation:...................................................................................................202

7.6.1 Risk management organization and operations: ............................................................. 202

7.6.2 Risk management organizational chart........................................................................... 203

7.6.3 Effect upon the Company's profit (loss) of changes of interest rates, exchange rate fluctuations and inflation in the last year, and response measures to be taken in the future:.............................................................................................................................. 203

7.6.4 The Company's policy regarding high-risk investments, highly leveraged

investments, loans to other parties, endorsements, guarantees, and derivatives transactions, the main reasons for the profits/losses generated thereby, and response measures to be taken in the future: ................................................................................. 204

7.6.5 Research and development work to be carried out in the future, and further expenditures expected for research and development work: .......................................... 204

7.6.6 Effect on the Company's financial operations of important policies adopted and changes in the legal environment at home and abroad, and measures to be taken in response: ......................................................................................................................... 204

7.6.7 Effect on the Company's financial operations of developments in science and technology as well as industry changes, and measures to be taken in response: ............ 204

7.6.8 Impact on the Company's crisis management of changes in the Company's corporate identity, and measures to be taken in response: .............................................. 204

7.6.9 Expected benefits and possible risks associated with any merger and acquisitions: N/A ................................................................................................................................. 204

7.6.10 Expected benefits and possible risks associated with any plant expansion: None ......... 204

7.6.11 Risks associated with any consolidation of sales or purchasing operations: .................. 204

7.6.12 Effect upon and risk to the Company in the event a major quantity of shares belonging to a director, supervisor, or shareholder holding greater than a 10 percent stake in the Company has been transferred or has otherwise changed hands: None ...... 205

7.6.13 Effect upon and risk to the Company associated with any change in governance personnel or top management, and mitigation measures being or to be taken: None..... 205

7.6.14 Litigious and non-litigious matters. List major litigious, non-litigious or administrative disputes that: (1) involve the Company and/or any director and supervisor, the general manager, responsible person in fact, any major shareholder holding a stake of greater than 10 percent of the Company, and/or any company or companies controlled by the Company; and (2) have been concluded by means of a final and unappealable judgment, or are still under litigation. Where such a dispute could materially affect shareholders' equity or the prices of the Company's securities, the annual report shall disclose the facts of the dispute, amount of money at stake in the dispute, the date of litigation commencement, the main parties to the dispute, and the status of the dispute as of the date of printing of the annual report: .................................................................................................................. 205

7.6.15 Other important risks, and mitigation measures being or to be taken: None.................. 205

7.7 Key Performance Indicator (KPI).................................................................................................206

7.8 Other important matters: None. ....................................................................................................206

8. Special notes ......................................................................................................................................... 207

8.1 Information on affiliates ...............................................................................................................207

8.1.1 Consolidated business report of affiliates:...................................................................... 207

8.1.2 Consolidated financial statement of affiliates:.................................................................211

8.1.3 Affiliation report: N/A.....................................................................................................211

8.2 Private placement of securities during the most recent year or during the current year up to

the date of printing of the annual report: None.............................................................................212

8.3 Holding or disposal of shares in the Company by the company's subsidiaries during the

most recent year or during the current year up to the date of printing of the annual report:

None .............................................................................................................................................212

8.4 Other necessary supplementary notes: None................................................................................212

9. Any of the situations listed in Article 36, paragraph 2, subparagraph 2 of the Securities and

Exchange Act, which might materially affect shareholders' equity or the price of the Company's

securities, occurring during the most recent year or during the current year up to the date of

printing of the annual report: N/A..................................................................................................... 212

- 1 -

1. Business Report

The world was still engulfed in the uncertainties of the European debt crisis in 2012, resulting in a historic

low growth rate for the domestic economy. The poor economic situation and conflict over the capital gains

tax also resulted in volatility of the stock market. Notwithstanding, through the efforts of the Company’s

management team and employees, the Company’s operations still saw stable growth.

In terms of operating performance in 2012, the Company’s consolidated turnover amounted to NT$4.837

billion, an increase of 8.58% from the previous year, and net income after tax amounted to NT$2.047 billion,

an increase of 9.99% from the previous year. Consolidated total assets amounted to NT$38.8 billion at the

end of 2012, and the total market value amounted to NT$37.3 billion. Because the management team’s

performance was well recognized by the public, the Company’s stock price remained stable and, therefore,

the Company fulfilled its undertaking to society and also its corporate social responsibilities by creating

maximum shareholder equity.

Business performance for the year 2012 and the business plan for 2013 is hereby presented to the Company’s

shareholders as follows:

1.1 2012 Operating results:

1.1.1 Operating results of the business plan:

Unit: NT Thousand EPS in NT/%

Item 2012 2011 Increase (decrease)

Amount

Increase

(decrease) %

Net operating income 4,374,260 4,171,898 202,362 4.85%

Operating costs 1,218,764 1,239,538 (20,774) (1.68%)

Gross profits 3,155,496 2,932,360 223,136 7.61%

Operating expenses 1,199,575 1,172,341 27,234 2.32%

Net operating profits 1,955,921 1,760,019 195,902 11.13%

Net non-operating income

and expenses

329,521 240,320 89,201 37.12%

Income tax expenses 238,273 139,062 99,211 71.34%

Net income 2,047,169 1,861,277 185,892 9.99%

1.1.2 Financial income and expenses

As of December 31, 2012, total assets amounted to NT$37,606,381 thousand; total liabilities amounted to

NT$29,299,578 thousand; the debt ratio was 77%; liability net of debt collections amounted to

NT$2,833,244 thousand; and debt ratio net of debt collections was 7.53 %.

1.1.3 Profitability analysis:

Item 2012 2011

Return on assets (%) 5.48 8.8

Return on equity (%) 25.96 30.94

Profit ratio (%) 46.80 44.61

Earnings per share (NT) 5.13 4.68

- 2 -

1.2 Summary of the 2013 business plan

1.2.1 Operating principle

1. Substantiate business plans and achieve business goals

2. Properly allocate capital and improve financial performance

3. Strengthen risk management and enhance operating foundation

4. Upgrade business management and exercise enterprise value

5. Fulfill corporate social responsibility and optimize corporate image

1.2.2 Summary of execution

1. Realize the business plan and achieve business goals by executing the merger of northern,

central and southern cemeteries; also, cross-integration of customers, channels, and

commodities with unified ritual services provided to effectively increase product penetration

rate, to fulfill the primary goal of increasing market share, and to actively explore the China

market.

2. Allocate capital adequately, upgrade financial performance, grasp capital market opportunities,

plan optimal capital to improve financial performance, provide comprehensive operational

management procedures in accordance with updated regulations and enhance operating

effectiveness.

3. Strengthen the functions of internal audit and internal controls, realize corporate governance,

review and modify risk management regulations and update internal control operating

procedures in a timely manner in order to enhance risk management capability.

4. Upgrade operational management, display corporate value, promote human resources exchanges

and talent incubation plans within the Group to develop the cross-industry management talent

needed, enhance human resources capital, and strengthen competitiveness. Utilize information

technology to integrate workflow and service innovation to ensure competitive advantage.

Exercise bargaining power in procurement, effectively reduce operating costs and maintain the

Group’s long-term stability of profit growth.

5. Fulfill corporate social responsibility and optimize corporate image

Work with the Government to execute the policies, to convey business philosophy by combining

it with public service, to exercise the synergy of business operations, to continuously feedback

to the society, to serve the citizens, and to fulfill the satisfaction of customers, employees, and

shareholders.

1.2.3 Estimated production and sales in 2013

Unit: SET

Product / Name Estimated production and sales

Columbarium 6,406

Cemetery 177

Preneed Contract 13,493

Total 20,076

- 3 -

1.3 The Company’s development strategy

The Company’s development strategy in 2013 is to continue to focus on expanding its funeral business

market share in Taiwan. Impacted by funeral management policy and market competition, product

development of the entire funeral service industry is expected to undergo change with the following trends

emerging:

1. Rising green environmental protection awareness: The elderly population ratio has increased

drastically recently, and existing cemetery land will be used up soon. In order to avoid the

embarrassing situation of the living fighting the dead for land, the Ministry of the Interior has

called on the public to adopt environmentally-friendly burial methods such as tree burial, or

burial by ash scattering over the land or sea. For the time being, there are a total of 13 locations

available for tree burial and ash scattering in cemeteries locally, and a total of 4,000 civilians

have utilized these services. Burial at sea has been utilized by a total of 6,000 civilians. Though

it takes time to promote and encourage new ways of thinking, Lungyen should plan response

measures as early as possible, to create a win-win-win situation for customers, the government

and Lungyen.

2. Transformation of funeral services: To deal with the issues found in funeral service areas and

serious traffic jams around crematoriums, the Civil Affairs Department of the New Taipei City

Government plans to adopt Japan’s “extended burials” and encourage family members to

cremate body remains and hold funerals at a later date. By so doing, hygiene issues arising from

decay of remains prior to burial may be resolved and pressure placed on mortuary service

offices from family members’ for scheduling appointment of specific dates for cremation may

also be alleviated. To begin with the government will only encourage adoption of this method.

Notwithstanding, it is an inevitable trend that funeral service providers in Taiwan will move

towards more environmental and cost effective methods. As a leader in the industry, Lungyen

also encourages its customers to cremate remains first, and also takes the initiative to build

ceremonial halls throughout Taiwan for its customers to hold funerals in after the remains are

cremated.

3. Globalization and specialization: The booming development of the Internet has resulted in more

frequent information exchange. In tandem with this the concept of a global village has come

about accordingly. How to satisfy the needs of customers from different ethnic groups and

religions in order to upgrade the Company’s corporate image is a priority. Therefore, the

Company needs to strengthen its observations of, and exchanges with, different countries, to

provide a diversity of funeral choices for consumers from different cultures and religions. Also,

with promotion by the government, academia and large-scale funeral service providers, funeral

workers will move toward the goal of providing services based on professional training and

professional licenses, instead of past services primarily provided based on skills passed on from

previous generations.

4. Transparency and openness:

Consumer-oriented marketing concepts have already reached maturity in various domestic

markets so naturally the funeral industry cannot escape this trend. Regardless of ritual procedure,

service contents, supply quality, in-store displays or even product price lists, the funeral industry

will need to them adopt transparency and openness step by step, to meet strong customer needs.

With the emerging issues of an aging population and low birth rate, the Company is seizing the business

opportunities presented in funeral services to secure a leading position in the preneed contract, funeral

services and columbarium/cemetery sales market; and also to enter the China market.

- 4 -

1.4 Impact of external competitive environment, regulatory environment and the macro

business environment

The national competent authority has gradually established comprehensive management of funeral services

and published funeral-related laws and regulations for the protection of consumers. The action may have had

the funeral industry subject to more strict regulations; however, it will help establish a higher operating

threshold that will keep the inferior operators away. Under these circumstances, the long-lasting legitimate

business operations of Lungyen will be well protected.

The funeral business is for daily necessities; therefore, the sales are not subject to the influence of the

economy. In perspective, we will continue to uphold the business philosophy of professionalism, integrity

and compassion to strengthen operating performance, solid operating foundation, generate outstanding

business performance, create greater shareholders’ equity, contribute to the prosperity of society and set the

record again for national economic development.

Thanks to our shareholders for their support over the years and we look forward to your continuing guidance

and encouragement in the future. Thank you!

Chairman: Li Shih Tsung President: Liu Wei Lung Chief Accountant: Chan Shu Chuan

- 5 -

2. Profile of the Company

2.1 Date of incorporation: March 27, 1987

2.2 Organization and operations:

1987: The Company was incorporated on March 27, 1987, headquartered in Xinzhuang City,

Taipei County, with paid-in capital of NT$20,000,000.

1989: The Company launched the villa community residential area project, Dahan O-Hsiang, in

Linkou, Taipei County. Thanks to diligent planning and attention to quality, the Company

was honored with the “Best Construction Quality Community – Beautiful House Award” and

a “Chinese Architectural Inscribed Stone Award”. The sales rate was 100%.

1992: In order to co-ordinate the Company’s business scale expansion and establish a sound

financial structure, the Company arranged a capital increase of NT$120,000,000 in October.

Total paid-in capital thus increased to NT$140,000,000.

1994: In order to co-ordinate business expansion, the Company arranged a capital increase of

NT$59,503,000 in January. Total paid-in capital increased to NT$199,503,000.

1995: In order to co-ordinate the Company's future development and improve its financial structure,

the shareholders’ meeting resolved to increase capital by NT$300,994,000. Total paid-in

capital increased to NT$500,497,000.Meanwhile, the Company was honored with a “Good

Service Award - Construction Company Category” due to the upgrade of its service quality.

1996: The Company launched the projects, “Dahan Ai Jia”, “Dahan Ai Hsiang” and “Dahan Shen

Jia”, in Taoyuan. The sales performance was also remarkable. Meanwhile, it started to

introduce ISO9002 certification activities as of July to upgrade the quality levels of the

various services provided by the Company.

1997: In order co-ordinate the Company’s future development and improve its financial structure,

the Company was approved to carry out an issuance of public stock on June 5 and also a

capital increase totaling NT$300,994,000 to translate the capital collected from advance

stock sales into paid-in capital, totaling NT$500,497,000. Also, in December, the Company

arranged a capital increase totaling NT$49,503,000. Total paid-in capital increased to

NT$550,000,000. The Company launched the project, “Dahan Technology Headquarters –

2nd Phase”, in Neihu District. Meanwhile, the Company was granted an “Architecture

Investment Business Identity Logo” by the Ministry of Interior and honored with an “R.O.C.

Golden Customer Satisfaction Award”.

1998: The Company arranged a capital increase and recapitalization, totaling NT$157,990,000, in

September. Total paid-in capital increased to NT$707,990,000.

The Company launched the top quality living space residential building project, “Dahan Summer

Palace”, in Taoyuan, and was also nominated as one of the candidates for an “R.O.C. Gold

Architecture Award – Planning & Design”.

1999: The Company carried out recapitalization from retained earnings and employee bonus,

totaling NT$110,810,000. Total paid-in capital increased to NT$818,800,000. The project

“Dahan Summer Palace” was also honored with a “Chinese Architectural Inscribed Stone

Award - Planning & Design”.

2000: “Dahan Summer Palace” was honored with a “Chinese Architectural Inscribed Stone Award”

for its excellent management and maintenance, and an “R.O.C. Gold Architecture Award –

Construction Quality”. “Dahan Dazi w.w.w.” was also honored with a “Chinese Architectural

Inscribed Stone Award - Planning & Design”. The Company carried out recapitalization from

- 6 -

retained earnings and capital surplus, totaling NT$66,803,000, on September 8. Total paid-in

capital increased to NT$885,603,000. The Company was listed on the GreTai Securities

Market as of October 4.

2001: The Company introduced a learning organization project and carried out a cultural & HR

diagnostic project.

2002: Supervisor, Mr. Chen Wei-Kuo, called the first shareholders' meeting of 2002 to discharge

and reelect directors/supervisors on April 12, 2002. As a result, Mr. Chen Chi-Sheng was

reelected Company chairman.

2003: The Company promoted a “Production Marketing Integration System” to integrate

“architectural planning”, “construction management’ and “product marketing”.

The Company launched the projects “Twin 4M5” on Nongan Street, “Dahan Tunchun” in

Daan District, Taipei City, and “Dahan Fong Chiang Ge” in Taishan Hsiang, Taipei County.

The projects “Dahan Tunchun” and “Dahan Fong Chiang Ge” were completed and delivered.

2004: The Company launched the project “Dahan MVP” in Neihu District, Taipei City in February.

In December, the Company launched the project "Beitou Dahan”, and the project “Twin

4M5” was completed.

2005: The Company launched the project “Dahan Chunchi” in Shihlin District, Taipei City in

October.

The project “Dahan MVP” was completed in November.

The Board of Directors reelected Mr. Lai Ming-Huang as the Company’s chairman in

November.

2006: The Company called the first special shareholders’ meeting of 2006 on February 8, 2006 as

required which resolved to reelect directors and supervisors. Mr. Lai Ming-Huang was

reelected Company chairman.

In February, in order to expand the business, the Company was relocated to Taipei City to

provide customers with more complete and timely services.

2007: The Company launched the project “Collections” in Muzha, Wenshan District in April.

The project “Beitou Dahan” was completed in April.

The Company carried out recapitalization from retained earnings, totaling NT$32,920,000,

in September. Total paid-in capital increased to NT$1,072,350,000.

2008: The special shareholders’ meeting ratified a cash capital increase in the form of private

placement in August.

In September, the Company relocated from No. 1, 15F, 368, Fuxing N. Road, Taipei City to

7F, No. 150, Dunhua N. Road, Taipei City, and received approval for registration of the

relocation on September 9.

2009: The Company increased cash capital in the form of private placement on February 26. The

registration for change was approved by the Ministry of Economic Affairs on March 13.

Total paid-in capital increased to NT$1,372,350,000.

The directors/supervisors were reelected on June 12.

Independent directors were elected on October 29. The Audit Committee was established.

On November 6 the Board of Directors resolved to increase its stake in Lungyen Funeral

Service Co., Ltd. by capital increase from issuance of new shares.

The project “Collections” in Muzha was completed in December.

2010: On February 5, as the record date, the Company increased its stake to 75% of the shares of

Lungyen Funeral Service Co., Ltd., and issued a total of 74,924,315 shares to increase the

capital. The registration for change was approved by the Ministry of Economic Affairs on

February 26. Total paid-in capital increased to NT$1,821,593,150 cumulatively.

- 7 -

On October 12, in order to upgrade the effectiveness of future resources integration and

active strategic business development, a motion for merger of the Company and Lungyen

Funeral Service Co., Ltd. was ratified at the shareholders’ meeting of both parties. Upon the

merger, new shares totaling 16,924,884 were issued to increase capital.

2011: The motion for merger of the Company and Lungyen Funeral Service Co., Ltd. was effective

upon the approval letter given by Securities and Futures Bureau, Financial Supervisory

Commission, Executive Yuan under Ching-Kuan-Cheng-Fa-Tze No. 1000001274 on January

26. The Board of Directors set February 1 as the record date of merger, and the Company

was renamed “Lungyen Life Service Corp.”, and issued new shares to increase capital and

was listed on the stock market on April 8. The new shares issued after the Company was

renamed began trading on the stock market on May 9.

2011: The Company acquired complete ownership of and legal rights to operate the La Vita

Cemetery in Wanli District New Taipei City and Chiayun Jentao Pagoda in Chiayi by

increasing capital investment in the subsidiary in November, and also acquired part of the

land ownership and priority rights for integration of the Baosun Memorial Cemetery in

Taichung, Fugang Private Fortune Hill Cemetery in Yangmei, and Chingtien Cemetery in

Hsintien.

2012: The Company issued its corporate social responsibility report in April.

2012: The Company applied to the GreTai Stock Market to change its stock type from

“construction materials and construction” to “others”.

2012: The Company began trading as common stock the 200,000,000 shares from private

placement in 2009, on the GreTai Stock Market, upon approval of the Market in June.

2013: The Company issued its corporate social responsibility report in April.

- 8 -

3. Corporate Governance Report

3.1 Organization

3.1.1 Organizational chart

102.04.30

Shareholders’ meeting

Board of Directors

Chairman

President

Audit Committee

Audit Office

President’s Office

Business Division Funeral Services Division Procurement

Division

Finance Division Administration

Division

Cer

emon

ial

Hal

l

Dep

t.

Fu

ner

al S

ervic

e

Man

agem

ent

Dep

t.

Fu

ner

al S

ervic

es,

1st

No

rth

Dis

tric

t

Fu

ner

al S

ervic

es,

2nd

No

rth

Dis

tric

t

Div

ersi

fied

Mar

ket

ing D

ept.

Tra

inin

g D

ept.

Gen

eral

Aff

airs

Dep

t.

Pu

bli

city

Dep

t.

Pro

cure

men

t D

ept.

Const

ruct

ion

Pro

cure

men

t D

ept.

Fu

ner

al S

ervic

es,

So

uth

Dis

tric

t

Mar

ket

ing &

Pla

nnin

g D

ept.

Public Affairs

Division

PR

Dep

t.

Leg

al D

ept.

H.R

. D

ept.

IT D

ept.

Tre

asu

ry D

ept.

Acc

oun

ting

Dep

t.

Sec

uri

ties

Inves

tmen

t D

ept.

Pro

per

ty I

nv

estm

ent

Dep

t.

Div

ersi

fied

Mar

ket

ing D

ept.

Div

ersi

fied

Mar

ket

ing D

ept.

Cemetery Management

Division

Cem

eter

y

Man

agem

ent

Dep

t.

San

zhi

Cem

eter

y

Dep

t.

Chia

yun

Cem

eter

y

Dep

t.

Bao

sun

Cem

eter

y

Dep

t.

Fu

tien

Cem

eter

y

Dep

t.

- 9 -

3.1.2 The various departments are engaged in the following main business lines:

(1) Audit Office Responsible for drafting and promoting the annual audit plan, and drafting and researching implementation plans for individual audited

cases. Risk management and improvement and follow-up of irregularities

(2) Business Division Responsible for product planning, business planning, business management, educational training, business activities, art design and

telephone marketing.

(3) Funeral Services

Division Responsible for funeral planning, funeral management, funeral service, remain management, ceremonial hall services and management.

(4) Cemetery Management

Division Responsible for columbarium services and cemetery management

(5) Procurement Division Responsible for the Company’s engineering procurement, funeral procurement and general affairs procurement.

(6) Finance Division Responsible for accounts collection and payment, funding allocation, operating revenue accounting, funeral accounting, common

accounting stock affairs operations, short-term investment, reinvestment management, and investor relations.

(7) Public Affairs Division Handle government and local PR affairs, and PR handling for crisis incidents, advertising and promotions.

(8) Administration

Division

Responsible for HR recruitment, salary, training, business performance, workers’ welfare, and HR development; development,

maintenance and management of IT systems; handling of various legal affairs and disputes, achieving the Company’s overall goals.

- 10 -

3.2 Profiles of Directors, Supervisors, the President, Vice Presidents, Asst. VPs, and heads of the various departments and branches

1. Information about directors and supervisors

April 6, 2013

Shares held when

elected Current shares held

Current shares held

by spouse and

underage children

Shares held

under another

person’s name

Managers, directors or

supervisors who are spouses or

relatives within the second degree

of kinship Job title Name

Date of

(appointment)

election

Term of

Office

Date of

first

election Quantity of

shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity

of shares

Shareh

olding

Education and work experience Other concurrent positions in the

company or in other companies

Job title Name Relationship

Cheng Chang

Investment Co.,

Ltd.

101.06.06 3 years

104.06.05 94.12.01 15,977,267 5.20% 25,304,482 6.34% 0 0% 0 0 None None None None None

Chairman

Representatives:

Lee Shih-Tsung 101.06.06

3 years

104.06.05 98.02.26 0 0 155,192,000

38.89

% 0 0 0 0

University/college

President, Rifu Electronic Co., Ltd.

Chairman, Cheng Chang Investment

Co., Ltd.

Director, PK Venture Capital Corp.

(Representative of Lungyen Life

Service Corp.)

Director, Ching Huang Construction

Co., Ltd.


Service Corp.)

Chairman, Dahan Property

Management Co., Ltd.(Representative

of Lungyen Life Service Corp.)

Chairman, Lungding Life Science Co.,

Ltd.(Representative of Lungyen Life

Service Corp.）

Chairman, You Kan En Inc.


Service Corp.)

None None None

Bai Ruei

Investment Co.,

Ltd.

101.06.06 3 years


Director

Representatives:

Liu Wei-Lung 101.06.06

3 years

104.06.05 98.06.10 0 0 103,000 0.02% 0 0 0 0

Law Department, National Taiwan

University (NTU)

Vice General Manager of Kuan

Yuan Media

VP, Marketing Division of

Lungyen Funeral Service Co., Ltd.

Director, Ching Huang Construction

Co., Ltd.


Service Corp.)

Chairman, Yuji Development Corp.


Service Corp.)

Director, Asia Best Healthcare Co.,

Ltd. Director (Representative of

Lungyen Life Service Corp.)

Director, Dahan Property Management

Co., Ltd.(Representative of Lungyen

Life Service Corp.)

None None None

- 11 -

Shares held when


Current shares held

by spouse and

underage children

Shares held

under another

person’s name





Date of

(appointment)

election

Term of

Office

Date of

first


shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity

of shares

Shareh

olding




Bai Ruei

Investment Co.,

Ltd.

101.06.06 3 years


Director

Representatives:

Ro Fujibayashi 101.06.06

3 years

104.06.0 98.06.10 0 0 0 0 0 0 0 0

Meisei University

Director, Lungyen Life Service Corp.

Director, Yuji Development Corp.


Service Corp.)

Director, Beauty Kadan Co., Ltd.


Service Corp.)

Director, You Kan En Inc.


Service Corp.)

Director, Dahan Property Management

Co., Ltd.(Representative of Lungyen

Life Service Corp.)

Bai Ruei

Investment Co.,

Ltd.

101.06.06 3 years


Director

Representatives:

Kuo Ya-Tao 101.06.06

3 years

104.06.05

100.02.1

0 0 0 0 0 0 0 0 0

Department of International

Business, Hsing Wu College

Executive Member of All China

Federation of Industry and

Commerce of 8th and 9th terms

Chairman & CEO, Chung Mu

Holding Co., Ltd.

Chief Advisor, AEGON

Chief Advisor, Chinatrust

Financial Holding Co., Ltd.

Chief Advisor, Financial One

Corp.

Chief Advisor, GRACE THW

Group

Director, AEGON-CNOOC Life

Insurance Co., Ltd.

Chairman, Tianjin Da Yuan Wan Food

Co., Ltd.

Chairman, Kingswan Country Club

Chairman, Chung Mu Rueifu Group

Bai Ruei

Investment Co.,

Ltd.

101.06.06 3 years

104.06.05 95.02.08 6,171,649 2.01% 15,635,590 3.92% 10 0 0 0 None None None None None

Director

Representatives:

Chan Pai-Liang 101.06.06

3 years

104.06.05

101.06.0

6 0 0 90,855 0.02% 14,653 0% 0 0

None

Director Cheng Chang

Investment Co.,

Ltd.

101.06.06 3 years

104.06.05 94.12.01 15,977,267 5.20% 25,304,482 6.34% 0 0% 0 0

None None None

- 12 -

Shares held when


Current shares held

by spouse and

underage children

Shares held

under another

person’s name





Date of

(appointment)

election

Term of

Office

Date of

first


shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity

of shares

Shareh

olding




Representatives:

Ren Li-Chung 101.06.06

3 years

104.06.05

100.08.0

1 0 0 0 0 0 0 0 0

Doctor, Marketing Dept., College

of Business of the Ohio State

University

Professor, NTU, College of

Management

President, Chinese Culture University,

College of Business Administration

Professor, NTU, College of

Management

Director, NTU College of

Management, Global Branding and

Marketing Research Center

Secretariat, Taiwan Institute of

Marketing Science (TIMS)

Managing Director, Chinese Applied

Statistics Association

Managing Supervisor, Association of

International Business Studies, R.O.C.

Independent

Director Chi Husan Liu 101.06.06

3 years

104.06.05 98.10.29 0 0% 0 0% 0 0% 0 0

Master of Law, University of

Chicago

Master of Law, University of

Pennsylvania

Master of Law, National Taiwan

University (NTU)

Senior Advisor, Morgan Stanley

Realty

President, J P Morgan Asset

Management

President, Sin Sheng Asset

Management

Chairman, Shi Da Technology Co.,

Ltd.

Global Gateway LP, Hong

Kong/LA

Co-founder and Asian President

Chairman, East West Bank (China)

Supervisor, Taiwan Tobacco and

Liquor Corporation

Director, East West Bank

Senior Attorney-at-Law, Alliance

International Law Offices

Director, Baochuan Asset Management

Consultation Co., Ltd.

Independent Director, Usun

Technology Co., Ltd.

Director, TransGlobe Life Insurance

Inc.

None None None

Independent

Director You Bin Huang 101.06.06

3 years

104.06.05 98.10.29 0 0% 0 0% 0 0% 0 0

Department of Law, Fu Jen

Catholic University

National Chengchi University,

EMBA

Nan Shan Life Insurance Co., Ltd.-

Manager, Administrative Dept. of

Head Office

VP, Taichung Branch

VP, Taipei District

VP, Central Taiwan Region

Executive VP and CEO

Advisor, Nan Shan Life Insurance Co.,

Ltd.-

None None None

- 13 -

Shares held when


Current shares held

by spouse and

underage children

Shares held

under another

person’s name





Date of

(appointment)

election

Term of

Office

Date of

first


shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity of

shares

Shareh

olding

Quantity

of shares

Shareh

olding




Independent

Director Yeh Shu 101.06.06

3 years

104.06.05

101.06.0

6 0 0% 0 0% 0 0% 0 0

Doctor of Accounting, University

of California, LA

Master of Accounting, University

of Texas at Austin

Bachelor, Department of

Economics, NTU

Independent Director, CHT

Supervisor, Taiwan Cogeneration

Corporation

Professor, Department of Accounting

NTU

VP & CFO, CHT

Independent Supervisor, Elite

Advanced Laser Corporation

Supervisor, HannStar Display

Corporation

None None None

Note: This information is based on positions held at the time the annual report was printed.

- 14 -

Major shareholders of institutional shareholders

April 6, 2013

Name of Institutional Shareholder Major shareholders of institutional shareholders

1. Bai Ruei Investment Co., Ltd. (1) Lee Chun-Yi 41.17%

(2) Lee Shih-Tsung 33.16%

(3) Lee Chia-Cheng 20.00%

(4) Lee Meng-Che 5.67%

2. Cheng Chang Investment Co., Ltd. (1) Fu Ho Investment Co., Ltd. 94.65%

(2) Lee Shih-Tsung 2.85%

(3) Chen Yun-Ting 2.50%

Key shareholders of major institutional shareholders

April 6, 2013


1. Fu Ho Investment Co., Ltd. (1) Lungwei International Co., Ltd. 79.31%

(2) Chen Yun-Ting 10.34%

(3) Liu Ping 5.17%

(4) Lee Shu-Rong 1.73%

(5) Lee Bang-Er 1.73%

(6) Song Mei-Hua 1.72%

Key shareholders of major institutional shareholders

April 6, 2013


1. Lungwei International Co., Ltd. (1) Lee Shih-Tsung 99.95%

(2) Sun Jen-Huei 0.04%

(3) Lee Chia-Cheng 0.01%

- 15 -

2. Information about directors and supervisors

April 6, 2013

Has at least five years of relevant working experience

and the following professional qualifications

Complies with independent status

(Note) Qualifications

Name

Lecturer (or

above) of

commerce, law,

finance,

accounting, or

any subjects

relevant to the

company’s

operations in a

public or private

tertiary institution

Certified judge,

attorney, lawyer,

accountant, or

holder of

professional

qualifications after

passing national

examinations

relevant to the

company’s

operations

Commercial,

legal,

financial,

accounting or

other work

experience

required to

perform the

assigned duties

1 2 3 4 5 6 7 8 9 10

Number of

positions as

an

Independent

Director in

other

publically

listed

companies

Lee

Shih-Tsung � � � � 0

Liu Wei-Lung � � � � � � � 0

Ro

Fujibayashi � � � � � � 0

Kuo Ya-Tao � � � � � � � � � � 0

Chen

Chun-Kuei (Note 11)

� � � � � � � � � � 0

Ren

Li-Chung � � � � � � � � � � � 0

Chan

Pai-Liang (Note 12)

� � � � � � � � � 0

Chi Husan

Liu � � � � � � � � � � � � 1

Zi Bao Yang (Note 13)

� � � � � � � � � � � � 0

You Bin

Huang � � � � � � � � � � � 0

Yeh Shu (Note 14)

� � � � � � � � � � � � 0

Note: A “�” is marked in the space beneath a condition number when a director or supervisor has met that condition

during the two years prior to election and during his or her period of service; the conditions are as follows:

(1) Not an employee of the company or an affiliate.

(2) Not a director or a supervisor of the company or an affiliate (this restriction does not apply, however, when

the person is an independent director of the company, its parent company, or a subsidiary in which the

company directly and indirectly holds more than 50% of voting shares).

(3) The director, or his or her spouse or minor child, does not hold, in his or her own name or in another name,

more than 1% of the company's total outstanding shares, nor is he/she one of the company's ten largest

natural-person shareholders.

(4) Not a spouse, relative within the second degree of kinship, or direct blood relative within the fifth degree of

kinship of a person listed in the three foregoing paragraphs.

(5) Is not a director, supervisor, or employee of an institutional shareholder directly holding more than 5% of

the company's total outstanding shares, nor is a director, supervisor, or employee of one of the five largest

institutional shareholders in terms of shareholdings.

(6) Is neither a director, supervisor, manager, nor a shareholder holding more than 5% of the outstanding shares

of any company or organization that has a financial or business relationship with the company.

- 16 -

(7) Is not a professional providing business, legal, financial, accounting, or consulting services to the company

or an affiliate, nor is an owner, partner, director, supervisor, or manager, or the spouse of any of the

foregoing, of a sole proprietorship, partnership, company, or organization providing such services to the

company or an affiliate.

(8) Is not the spouse or relative within the second degree of kinship of another director.

(9) Is not a person who meets the conditions specified in any of the subparagraphs of Article 30 of the

Company Act.

(10) Has not been elected as a representative of a government unit, institution, or other body as prescribed in

Article 27 of the Company Act.

(11) The institutional director’s representative, Chen Chun-Kuei, was discharged on June 6, 2012.

(12) The institutional director’s representative, Chan Pai-Liang, was elected on June 6, 2012.

(13) Independent director, Yang Tze-Bao, was discharged on June 6, 2012.

(14) Independent director, Yeh Shu, was elected on June 6, 2012.

- 17 -

3.2.1 Profiles of President, Vice Presidents, Asst. VPs, and heads of the various departments and branches

April 30, 2013

Shares held Shares held by spouse

and underage children

Shares held under

another person’s name

Managers who are spouses or relatives

within the second degree of kinship Job title Name

Date of

(appointment)

election Quantity

of shares Shareholding

Quantity


Quantity


Education and work experience Concurrent positions at other companies


President Liu

Wei-Lung 98.09.14 103,000 0.03% 0 0% 0 0%

Law Department, National Taiwan University

(NTU)

Vice General Manager of Kuan Yuan Media

VP, Marketing Division of Lungyen Funeral

Service Co., Ltd.

Director, Ching Huang Construction Co., Ltd.

(Representative of Lungyen Life Service Corp.)

Chairman, Yuji Development Corp.


Director, Asia Best Healthcare Co., Ltd.


Director, Dahan Property Management Co., Ltd.


None None None

Finance

Division

VP

Chan

Shu-Chuan 99.03.01 0 0% 0 0% 0 0%

Master of Accounting, Soochow University

CPA, Deloitte & Touche

Supervisor, Ching Huang Construction Co., Ltd.


Supervisor, Yuji Development Corp.

(Representative of Cheng Chang Investment Co.,

Ltd.)

Supervisor, Dahan Property Management Co., Ltd.


Supervisor, You Kan En Inc.

None None None

Administration

Division

VP

Huang

Chia-Tsi 101.05.15 0 0% 0 0% 0 0%

Master of Commerce, Department of Finance

National Sun Yat-Sen University

Vice General Manager, Fu Industrial Co., Ltd.

Assistant VP, Administration, China Electric

MFG. Corporation

None None None None

Construction

and Planning

Division

VP

Fan

Kuo-Chang (Note 1)

100.02.09 0 0% 0 0% 0 0%

Master of Engineering, Asian Institute of

Technology Geotechnical Engineering and

Transportation Institute

Vice General Manager, Evergreen

Construction Corporation

Vice General Manager, Nanzhuang

Construction Corporation

Vice Director-General and Deputy

Director-General of Department of

Construction Management, Public

Construction Commission, Executive Yuan

Chairman & President, Ching Huang Construction

Co., Ltd.


None None None

Cemetery

Management

Division

VP

Wu

Hong-An (Note 2)

101.03.01 0 0% 0 0% 0 0%

Department of Accounting, National

Chengchi University

KPMG Taiwan


(Representative of Lungyen Life Service Corp.) None None None

Cemetery

Management

Division

VP

Niu An-Tzu 102.04.25 0 0% 0 0% 0 0%

Bachelor of Arts, Soochow University

Department of Chinese

Advertising Manager, Shiseido None None None None

- 18 -

Shares held Shares held by spouse

and underage children

Shares held under

another person’s name

Managers who are spouses or relatives

within the second degree of kinship Job title Name

Date of

(appointment)

election Quantity


Quantity


Quantity


Education and work experience Concurrent positions at other companies


Funeral

Services

Division

VP

Kuo

Hsueh-Chun (Note 3)

100.08.15 0 0% 0 0% 0 0%

Division of Banking of Department of

Business, NTU

Manager, Finance Dept. of Cosmos Bank

Manager, Bills & Bonds Dept. of Cosmos

Bank



None None None

Funeral

Services

Division

VP

Cheng

Yi-Fang 101.11.08 0 0% 0 0% 0 0%

Bachelor of Engineering, China Institute of

Technology, Department of Civil Engineering

Technician, 10th River Management Office,

WRA

None None None None

Business

Division

VP

Lin

Shu-Ling 101.11.08 0 0% 0 0% 0 0%

Takming University of Science and

Technology, Department of International

Business



President, Yuji Development Corp.

Chairman, Lung Fu Enterprise Co., Ltd.

(Representative of Yuji Development Corp.)

None None None

Department of

Procurement

VP

Chien

Huei-Chuan 102.02.25 0 0% 0 0% 0 0%

Bachelor of Arts, Department of Journalism

Chinese Culture University

Director, You Kan En Inc.

(Representative of Lungyen Life Service Corp.) None None None

PR Division

VP

Ho

Chi-Sheng 102.04.30 0 0% 0 0% 0 0%

Master of Arts, Department of Political

Science, NTU

PR Director, 1111 Job Bank

Assistant Manager, TVBS News Center, and

Director of TVBS Political News Center

None None None None

Audit Office

Assistant VP

Liang

Chien-Yun 99.03.18 4,000 0% 0 0% 0 0%

Department of Economics, NCHU

Accountant and auditor of Lungyen

Construction Co., Ltd.

Chief auditor and Customer Service Division

Assistant VP of Lungyen Funeral Service Co.,

Ltd.

None None None None

Note 1: Resigned on June 27, 2012

Note 2: Resigned on February 25, 2013

Note 3: Resigned on October 31, 2012

- 19 -

3.2.2 Remuneration paid during the most recent year to directors, supervisors, president, and vice presidents

1. Remuneration to directors

December 31, 2012 Unit: NT$ thousand

Remuneration to directors Remuneration to part-time employees

Remuneration (A) (Note 5)

Retirement pension (B)

Allocated from

distribution of

earnings(C) (Note6) –

Proposed distributed

amount

Professional fees(D) (Note7)

Sum of A, B, C and D

as percentage of net

income after tax

Wages, bonuses, and

special allowances,

etc. (E)

Retirement pension

(B)

Allocated from employee

bonus (G) (Note8) – Proposed

distributed amount

Number of exercisable

employee stock

options (H)

Sum of A, B, C, D, E,

F and G as percentage

of net income after tax

The

Company

Companies

included into

the financial

statement

Job title Name

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement Cash

bonus

Stock

bonus

Cash

bonus

Stock

bonus

The

Company

Companies

included

into the

financial

statement

The

Company

Companies

included

into the

financial

statement

Remuneration

from invested

non-subsidiary

enterprise(s)

Chairman

Institutional

representative of

Cheng Chang

Investment Co.,

Ltd.: Lee

Shih-Tsung

Director

Institutional

representative of

Bai Ruei

Investment Co.,

Ltd.: Liu

Wei-Long

Director

Institutional

representative of

Bai Ruei

Investment Co.,

Ltd.: Teng

Lin-Lang

Director

Institutional

representative of

Bai Ruei

Investment Co.,

Ltd.: Kuo

Ya-Tao

Director

Institutional

representative of

Bai Ruei

Investment Co.,

Ltd.: Chen

Chun-Kuei (Note 1)

8,906 8,906 0 0 27,154 27,154 0 0 1.76% 1.76% 20,095 20,095 108 108 815 815 0 0 0 0 2.79% 2.79% None

- 20 -

Director

Institutional

representative of

Bai Ruei

Investment Co.,

Ltd.: Chan

Pai-Liang (Note 2)

Director

Institutional

representative of

Cheng Chang

Investment Co.,

Ltd.: Ren

Li-Chung

Independent

Director Chi Husan Liu

Independent

Director

Yang Tze-Bao (Note 3)

Independent

Director Yeh Shu (Note 4)

Independent

Director You Bin Huang

Note 1: Discharged on June 6, 2012.

Note 2: Elected on June 6, 2012.

Note 3: Discharged on June 6, 2012.

Note 4: Elected on June 6, 2012.

Note 5: The Company’s remuneration policies and procedures for determining remuneration and its connection with job performance are implemented in accordance with the

Articles of Incorporation and resolution made by the Board of Directors.

Note 6: The remuneration to directors distributed from earnings was only a proposed amount, which shall be resolved at the 2013 general shareholders’ meeting.

Note 7: The professional fees refer to those for business and legal services.

Note 8: The employee bonuses from distribution of earnings to part-time employees was only a proposed amount, which shall be resolved at the 2013 general shareholders’ meeting.

- 21 -

Range of remuneration

Director’s name

Sum of A, B, C and D (A+B+C+D) Sum of A, B, C, D, E, F and G (A+B+C+D+E+F+G) Breakdown of remuneration to directors of

the Company The Company

Companies included into the

consolidated financial statementI The Company


consolidated financial statementI

Below NT$2,000,000

NT$50,000,000 (inclusive of 2,000,000)

~NT$100,000,000 (exclusive of 5,000,000)

NT$50,000,000 (inclusive of 5,000,000)~

NT$100,000,000 (exclusive of 10,000,000)

Institutional representative of

Bai Ruei Investment Co., Ltd.:

Liu Wei-Long



Liu Wei-Long

NT$50,000,000 (inclusive of 10,000,000)~

NT$100,000,000 (exclusive of 15,000,000)


Cheng Chang Investment Co.,

Ltd.: Lee Shih-Tsung




NT$50,000,000 (inclusive of 15,000,000)~

NT$100,000,000 (exclusive of 30,000,000)

NT$30,000,000 (inclusive of 30,000,000)~

NT$50,000,000 (exclusive of 50,000,000)






Liu Wei-Long



Teng Lin-Lang



Kuo Ya-Tao



Chen Chun-Kuei



Chan Pai-Liang






Liu Wei-Long



Teng Lin-Lang



Kuo Ya-Tao



Chen Chun-Kuei



Chan Pai-Liang



Teng Lin-Lang



Kuo Ya-Tao



Chen Chun-Kuei



Chan Pai-Liang



Ltd.: Ren Li-Chung

Chi Husan Liu

Zi Bao Yang

Yeh Shu



Teng Lin-Lang



Kuo Ya-Tao



Chen Chun-Kuei (Note 1)



Chan Pai-Liang (Note 2)



Ltd.: Ren Li-Chung

Chi Husan Liu

Yang Tze-Bao (Note 3)

Yeh Shu (Note 4)

- 22 -

Director’s name

Sum of A, B, C and D (A+B+C+D) Sum of A, B, C, D, E, F and G (A+B+C+D+E+F+G) Breakdown of remuneration to directors of

the Company The Company


consolidated financial statementI The Company


consolidated financial statementI



Ltd.: Ren Li-Chung

Chi Husan Liu

Zi Bao Yang

Yeh Shu

You Bin Huang



Ltd.: Ren Li-Chung

Chi Husan Liu

Zi Bao Yang

Yeh Shu

You Bin Huang

You Bin Huang You Bin Huang

NT$50,000,000 (inclusive of 50,000,000)~

NT$100,000,000 (exclusive of 100,000,000)

NT$100,000,000 and above

Total 11 11 11 11

Total remuneration to directors, as a percentage of net income after tax, during the most recent two years

The Company Companies included into the consolidated financial statement

2011 1.60% 1.60%

2012 2.78% 2.78%

- 23 -

2. Remuneration to supervisors


Remuneration to supervisors

Remuneration (A) Allocated from distribution of

earnings (B) Professional fees (C)

cSum of A, B and C as percentage of

net income after tax

Job title Name

The

Company

Companies included into

the financial statement

The

Company



The

Company



The

Company



Remuneration

from invested

non-subsidiary

enterprise(s)

(N/A)


Supervisor’s name

Sum of A, B and C (A+B+C+) Breakdown of remuneration to supervisors of the Company

The Company Companies included into the consolidated financial statementI

Below NT$2,000,000

NT$50,000,000 (inclusive of 2,000,000) ~ NT$100,000,000 (exclusive of 5,000,000)


NT$50,000,000 (inclusive of 10,000,000) ~ NT$100,000,000 (exclusive of 15,000,000) (N/A)





Total

Note: Not applicable, as the Company adopted an Audit Committee in lieu of supervisors.

- 24 -

3. Remuneration to president and vice presidents


Salary(A) (Note 3)

Retirement pension (B) Bonuses and special

allowances, etc. (C) (Note 4)

Allocated from employee bonus (D)

(note 5)-Proposed distributed amount

Sum of A, B, C andD as

percentage of net income

after tax

Number of employee

stock options obtained

Remuneration

from invested

non-subsidiary

enterprise(s)

The Company

Companies

included into the

financial

statement

The

Company

Companies

included into

the financial

statement

The

Company

Companies

included into

the financial

statement

Job title Name

The

Company

Companies

included into

the financial

statement

The

Company

Companies

included into

the financial

statement

The

Company

Companies

included into

the financial

statement Cash

bonus

Stock

bonus

Cash

bonus

Stock

bonus

President Liu Wei-Lung 1,493 0 1,493 0 1.44% 1.44% 0 0 None

VP Chan Shu-Chuan

VP Fan Kuo-Chang (Note 1)

VP Kuo Hsueh-Chun (Note 2)

VP Wu Hong-An

VP Lin Shu-Ling

VP Huang Chia-Tsi

VP Cheng Yi-Fang

17,790 17,790 873 873 9,364 9,364

Note 1: Resigned on August 31, 2012


Note 3: The Company’s remuneration policies and procedures for determining remuneration and its connection with job performance are implemented in accordance with the

resolution made by the Compensation Committee.

Note 4: Bonus and special allowances, et al. for expenditure in year-end and performance bonuses.

Note 5: The employee bonus from distribution of earnings to managers was only a proposed amount, which shall be resolved at the 2013 general shareholders’ meeting.

- 25 -


Names of president and VPs

Breakdown of remuneration to president and vice presidents of the Company The Company

Companies included into the financial

statement E

Below NT$2,000,000

NT$50,000,000 (inclusive of 2,000,000)~NT$100,000,000 (exclusive of 5,000,000)

Liu Wei-Long, Chan Shu-Chuan, Wu

Hong-An, Kuo Hsueh-Chun, Fan

Kuo-Chang, Huang Chia-Tsi and Chen

Yi-Fan

Liu Wei-Long, Chan Shu-Chuan, Wu

Hong-An, Kuo Hsueh-Chun, Fan

Kuo-Chang, Huang Chia-Tsi and Chen

Yi-Fan







Total � �

Total remuneration to president and VPs, as a percentage of net income after tax, during the most recent two years

The Company Companies included into the consolidated financial statement

2011 0.84% 0.84%

2012 1.44% 1.44%

- 26 -

4. Managers receiving employee bonus and status of distribution


Job title Name Stock bonus Cash bonus Amount (Note 4)

- Proposed distributed amount Total Total sum as a percentage of net income (%)

President Liu Wei-Lung

VP Chan Shu-Chuan

VP Huang Chia-Tsi

VP Lin Shu-Ling

VP Cheng Yi-Fang

VP Fan Kuo-Chang (Note 1)

VP Kuo Hsueh-Chun (Note 2)

VP Wu Hong-An (Note 3)

VP Chien Huei-Chuan

VP Niu An-Tzu

Manager

VP Ho Chi-Sheng

0 0 0 0

Note 1: Resigned on August 31, 2012


Note 1: Resigned on March 1, 2013

Note 2: The employee bonus from distribution of earnings to managers was only a proposed amount, which shall be resolved at the 2013 general shareholders’ meeting.

- 27 -

3.2.3 Analysis of the total remuneration, as a percentage of net income after tax, as paid by the Company and by each other company included in the

consolidated financial statements during the most recent 2 years to directors, supervisors, president, and vice presidents, and the Company’s

remuneration policies, standards and packages, and procedures for determining remuneration and its connection with job performance.

1. Analysis of the total remuneration, as a percentage of net income after tax, as paid by the Company and by each other company included in the

consolidated financial statements during the most recent 2 years to directors, supervisors, president, and vice presidents

2011 2012

Job title

The Company Companies included into the financial statement The Company Companies included into the financial statement

Director

Presidents and VPs

2.44% 2.44% 4.22% 4.22%

2. Remuneration policies, standards and packages, and procedures for determining remuneration and its connection with job performance:

Remuneration to directors: The remuneration to directors paid by the Company is categorized into compensation, remuneration distributed from

earnings and professional fees:

The compensation shall be paid upon resolution made by the Company’s Compensation Committee.

The remuneration distributed from earnings shall be paid in the manner as provided in Article 28 of the Company’s Articles

of Incorporation, which states that “if there are earnings at the end of the fiscal year, after taxes are paid in line with the law

and appropriations made for losses, and after 10% of the balance thereof is provided as the statutory reserve, and a special

reserve is provided if necessary; the remainder, if any, may be provided as retained earnings and also allocated as

remuneration in the following manner: no more than 2% as remuneration to directors, and no less than 1% as employee

bonus. The determination of remuneration is based on the fixed percentage of the current earnings and, therefore, is closely

related to the Company’s business performance. The professional fees primarily consist of a transportation allowance, and

are paid in accordance with the standards applied by the other well-known industries. The remuneration to directors paid

by the Company takes the Company’s past business performance into consideration. Meanwhile, the standards, structure

and system thereof will also be adjusted according to potential risk factors. Remuneration to directors will also be reduced

when the economic situation declines or the Company’s operational risk increases. Remuneration to directors shall be

distributed in the manner as provided in the Company’s Articles of Incorporation and after taking into consideration the

degree of the directors’ participation in the Company’s business. Further, the Company’s Compensation Committee will

evaluate remuneration to directors periodically, and submit a motion to the Board of Directors for discussion, in order to

achieve a balanced pursuit of the Company’s sustainable operations and risk control.

- 28 -

Remuneration to president and VPs: The remuneration to the president and VPs paid by the Company is categorized into wages, bonuses and special

allowances, and employee bonus distributed from earnings:

Wages refers to the compensation referred to in the Company Act, which is determined in accordance with the

functions, entire environment and market level, in order to reflect work performance. The bonus and special

allowance consist of transportation allowance primarily. The transportation allowance will be subject to the

specific allowance applicable to leased vehicles or claims based on the actual mileage. The remuneration

distributed from surplus earnings shall be paid in the manner as provided in Article 28 of the Company’s Articles

of Incorporation, which states that “if there are earnings at the end of the fiscal year, after taxes are paid in line

with the law and appropriations made for losses, and 10% of the balance thereof is provided as the statutory

reserve, and special reserve is provided if necessary; the remainder, if any, may be provided as retained earnings

and also allocated as remuneration in the following manner: no more than 2% as remuneration to directors, and

no less than 1% as employee bonus. The determination of remuneration is based on the fixed percentage of the

current earnings and, therefore, is closely related to the Company’s business performance. The remuneration to

the president and VPs paid by the Company takes industry standards and the Company’s past business

performance into consideration. Meanwhile, the standards, structure and system thereof will also be adjusted and

reviewed subject to the actual operational situation and changes in the relevant laws and regulations, but shall not

induce managers to engage in activities involving risk beyond the tolerance limits of the Company in order to

pursue monetary reward. The Company’s Compensation Committee will evaluate the remuneration of the

president and VPs periodically, and submit a motion to the Board of Directors for discussion, in order to maintain

a balance in the pursuit of the Company’s sustainable operations and risk control.

- 29 -

3.3 Status of Corporate Governance

3.3.1 Operations of the Board of Directors

The Board held 12 meetings during the most recent year (January 1, 2012 ~ April 30, 2013) (A); the

attendance of directors is summarized as follows:

Job title Name

(Note 1)

Actual

attendance (B)

Attendance

by proxy

Actual attendance rate [B/A] (Note 2)

Remarks:

Chairman

Cheng Chang Investment Co., Ltd.

Institutional representative:

Lee Shih-Tsung

8 3 66.67%

Director

Bai Ruei Investment Co., Ltd.


Liu Wei-Long

11 1 91.67%

Director



Teng Lin-Lang

9 0 75.00%

Director



Kuo Ya-Tao

8 4 66.67%

Director



Chen Chun-Kuei

3 0 25.00%

Discharged on June 6, 2012.

(Attended in person 3 times,

i.e. 25.00% of 12 times)

Director



Ren Li-Chung

10 1 88.33%

Director



Chan Pai-Liang

8 1 66.67%

Elected on June 6, 2012.

(Actual attendance 8 times is

accounted for 66.67% of the

12 meetings in total)

Independent

Director Chi Husan Liu 11 1 91.67%

Independent

Director Zi Bao Yang 2 1 16.67%





Independent

Director You Bin Huang 12 0 100.00%

Independent

Director Yeh Shu 7 1 58.33%





Other noticeable particulars:

I. For resolution(s) passed pursuant to Article 14-3 of the Securities and Exchange Act or any other resolution(s) passed but with independent

directors voicing opposing or qualified opinions on the record or in writing, the minutes concerned shall clearly state the meeting date, term,

contents of proposal and resolution thereof, opinions of all independent directors and the company's handling of the said opinions:

II. In instances where a director recused himself/herself due to a conflict of interest, the minutes shall clearly state the director's name, contents of

the proposal and resolution thereof, reason for not voting and actual voting counts:

Measures undertaken during the current year and past year in order to strengthen the functions of the Board of Directors (such as the establishment

of an audit committee and improvement of information transparency, etc.) and assessment of their implementation.

Note 1: If the director or supervisor is an institution, please disclose the institutional shareholder's name and its representative’s name.

Note 2: (1) If any director/supervisor resigns prior to the end of the year, please specify the date of resignation in the Remarks section. Actual

attendance rate was calculated on the basis of the number of board meetings held during each director's/supervisor’s term and the

number of meetings actually attended by that director/supervisor.

(2) If any directors/supervisors are reelected prior to the end of the year, please specify the old/new directors/supervisors, as well as the

dates of renewal and reelection, in the Remarks section. Actual attendance rate (%) was calculated on the basis of the number of board

meetings held during each director's/supervisor’s term and the number of meetings actually attended by that director/supervisor.

- 30 -

3.3.2 Operations of the Audit Committee:

The Committee held 8 meetings during the most recent year (January 1, 2012~April 30, 2013) (A); the

attendance of committee members is summarized as follows:

Job title Name Actual attendance

(B)

Attendance by

proxy

Actual attendance rate (%)

[B/A] (Note) Remarks:

Audit Committee

members Chi Husan Liu 8 0 100.00%

Audit Committee

members Zi Bao Yang 1 1 12.50%



i.e. 12.50% of 8 times)

Audit Committee

members You Bin Huang 8 0 100.00%

Audit Committee

members Yeh Shu 5 1 62.50%



i.e. 62.50% of 8 times)


1. Resolution(s) passed pursuant to Article 14-5 of the Securities and Exchange Act and resolution(s) not passed by the audit committee but

receiving the consent of two-thirds of the Board of Directors shall clearly state the meeting date, term, contents of proposal and resolution

thereof, opinions of all audit committee members and the Company's handling of the said opinions:

2. In instances where an independent director recused himself/herself due to a conflict of interest, the minutes shall clearly state the independent

director's name, contents of the proposal and resolution thereof, reason for not voting and actual voting counts.

3. Communication between independent director and internal auditing officers as well as CPAs on company finances and business situation (such

as items discussed, means of communication and results, etc.)

Note: * If any independent director resigns prior to the end of the year, please specify the date of resignation in the Remarks section. Actual

attendance rate (%) was calculated on the basis of the number of the committee meetings held during each independent director’s term

and the number of meetings actually attended by that independent director.

* If any independent director is reelected prior to the end of the year, please specify the old/new director/supervisor, as well as the dates of

renewal and reelection, in the Remarks section. Actual attendance rate (%) was calculated on the basis of the number of committee

meetings held during each independent director’s term and the number of meetings actually attended by that independent director.

- 31 -

3.3.3 The status of the Company's implementation of corporate governance, any deviation from such

implementation of the Corporate Governance Best Practice Principles for TSEC/GTSM Listed

Companies, and the reason for any such deviation

Item Status of implementation

Deviation from such implementation

of the Corporate Governance

Best-Practice Principles for

TSEC/GTSM Listed Companies, and

the reason for any such deviation

1. Equity structure and shareholders' equity

(1) Methods used by the Company to handle

shareholder suggestions or complaints

(1) The Company has delegated the spokesman, deputy

spokesman and stock affairs personnel to deal with

said problems.

(2) Updates on the Company’s major

shareholders and their ultimate owners

(2) The Company’s stock affairs unit was responsible for

controlling the relevant information, and keeping in

touch with the major shareholders.

(3) Methods of establishing risk control

mechanisms and firewalls between the

Company and its affiliates

(3) The Company has established the relevant mechanism

in the internal control system pursuant to laws.

Compliance with the Corporate

Governance Best-Practice Principles

for TSEC/GTSM Listed Companies

2. Composition and responsibilities of Board

of Directors

(1) The appointment of Independent

Directors by the Company

(2) Regular assessments on the

independence of the certified public

accountant(s)

(1) The Company has elected three independent directors

at the general shareholders’ meeting on June 6, 2012.

(2) The Company’s appointment of certified public

accountant(s) has been discussed and ratified by the

Board of Directors. The CPA Office was not a related

party of the Company and its directors. Therefore, the

independence of the Office was secured.




3. Communication with stakeholders 1. The Company has established a spokesman system as

required and assigned a competent unit to deal with the

relevant matters.

2. There were uninterrupted communication channels

between the Company and financial institutions,

shareholders and employees. Meanwhile, the Company

disclosed important messages and financial information

on the M.O.P.S. periodically according to the relevant

requirements about disclosure of information, in order

to enable stakeholders to make decisions based on

sufficient information and maintain their personal

interests and rights.




4. Disclosure of information

(1) Establishment of a corporate website to

disclose information concerning

financial affairs and corporate

governance

(2) Other information disclosure channels

(e.g. English website, assignment of

specific personnel to collect and disclose

corporate information, implementation

of a spokesman system, and

broadcasting of investor conferences via

the company website)

(1) The Company has set up Chinese and English

investor relations web pages, and disclosed the

Company’s financial information and important

messages via the M.O.P.S. periodically.

(2) The Company’s spokesman system is well-founded,

and the Company has assigned specific persons to

collect and disclose important information and also

set up Chinese and English investor relations web

pages. Meanwhile, the Company also calls periodic

investor conferences, and the process thereof is posted

on the Company’s website and disclosed on the

M.O.P.S. for access by investors.




5. Establishment of functional committees

covering issues including nomination and

remuneration, etc.

The Company has established an Audit Committee and a

Compensation Committee. For the status of operations of

the Audit Committee and Compensation Committee, please

see Page No. 21 & 24 of the annual report.




6. If the Company has established corporate governance practices based on “Corporate Governance Best Practice Principles for TSEC/GTSM

Listed Companies", please describe any deviation of such practices from the Principles, and their implementation:

So far, the Company has established independent directors, an Audit Committee and a Compensation Committee, and has also defined the

procedural rules for shareholders’ meetings, procedural rules for directors’ meetings, rules for election of directors and rules for job functions of

independent directors. The Company also has ensured the entire internal audit/control system is in line with the Company’s corporate

governance spirit.

- 32 -


Deviation from such implementation

of the Corporate Governance

Best-Practice Principles for

TSEC/GTSM Listed Companies, and

the reason for any such deviation

7. Other important information enabling better understanding of the Company's corporate governance (such as employee rights and interests,

employee care, investor relations, supplier relations, stakeholders' rights and interests, continuing education of directors and supervisors,

implementation of risk management policies and risk measurement criteria, implementation of customer policy, and purchase of liability

insurance by the Company for directors and supervisors)

(1) Employee rights: The Company treats employees as the Company’s largest assets, and protects employees’ legal interests and rights pursuant

to the Labor Standards Law.

(2) Employee care: The Company enrol employees in the labor/health insurance program as required and has also established a workers’ welfare

committee to organize company outings, and organizes employee health examinations periodically. The Company also provides employees

with skills training programs to develop human resources.

(3) Investor relations: The Company has established a spokesman system and Investor Relations Dept. to deal with relevant issues carefully.

(4)Supplier relations: The Company maintains good mutual relations with suppliers, customers and financial institutions.

(5) Stakeholders’ rights and interests: The stakeholders may communicate with and provide suggestions to the Company, in order to maintain their

interests and rights.

(6) Continuing education of directors and supervisors: The Company’s directors attend continuing education programs organized by relevant

bodies from time to time, in compliance with the “Directions for the Implementation of Continuing Education for Directors and Supervisors of

TWSE Listed and GTSM Listed Companies” promulgated by TWSE. The continuing education of the Company’s directors is disclosed in

Paragraph (8) on Page No. 25 ~ 26 of the annual report for other important information enabling better understanding of the Company's

corporate governance is

(7) Implementation of risk management policies and risk measurement criteria: To conduct various risk management and evaluations in

accordance with various internal regulations defined pursuant to laws.

(8) Implementation of customer policy: The Company has customer service personnel dedicated to dealing with customer complaints.

(9) Purchase of liability insurance by the Company for directors and supervisors: The Company has purchased liability insurance of

US$10,000,000 for all directors. For the relevant insurance information, please refer to the M.O.P.S.

8. If the Company has conducted a corporate governance self-assessment report or has commissioned a professional organization to compile a

corporate governance assessment report, the results of self-assessment (or commissioned assessment), major deficiencies (or suggestions), and

improvements should be stated: N/A

Note 1: For the continuing education of the Company’s directors and supervisors, please refer to the “Directions for the Implementation of

Continuing Education for Directors and Supervisors of TWSE Listed and GTSM Listed Companies” promulgated by TWSE.

Note 2: In the case of securities firms, securities investment trust business, securities investment consulting business and futures firms, please

specify the risk management policy, standards for risk assessment and implementation of consumer protection or customer policies.

Note 3: The self-audit report on corporate governance referred to herein means the report on the Company’s operations and status self-assessed and

explained by the Company against the items of the Company’s self-assessment on corporate governance.

- 33 -

3.3.4 If the Company has a compensation committee in place, the composition, duties, and

operations of the compensation committee shall be disclosed:

5. Information about Compensation Committee members

Has at least five years of relevant working experience and

the following professional qualifications

Complies with

independence requirements (Note 2)

Identity

(Note 1)

Qualifications

Name

Lecturer (or above)

of commerce, law,

finance,

accounting, or any

subjects relevant to

the company’s

operations in a

public or private

tertiary institution

Certified judge,

attorney, lawyer,

accountant, or holder

of professional

qualifications after

passing national

examinations relevant

to the company’s

operations

Commercial,

legal, financial,

accounting or

other work

experience

required to

perform the

assigned duties

1 2 3 4 5 6 7 8

Number of

positions as a

compensation

committee

member in

other public

listed

companies

Remarks: (Note 3)

End

Independent

Director Chi Husan Liu � � � � � � � � � � 0 Compliance

Independent

Director Yang Tze-Bao

(Note 4) � � � � � � � � � � 0 Compliance

Independent

Director You Bin Huang � � � � � � � � � 0 Compliance

Independent

Director Yeh Shu � � � � � � � � � � 0 Compliance

Note 1: Please specify director, independent director or other.

Note 2: A “�” is marked in the space beneath a condition number when a member has met that condition during the

two years prior to election and during his or her period of service; the conditions are as follows:

(1) Not an employee of the company or an affiliate.

(2) Not a director or a supervisor of the company or an affiliate, Provided that this restriction does not apply,

however, when the person is an independent director of the company, its parent company, or a subsidiary

in which the company directly and indirectly holds more than 50% of voting shares.

(3) The director, or his or her spouse or minor child, does not hold, in his or her own name or in another

name, more than 1% of the company's total outstanding shares, nor is one of the company's ten largest

natural-person shareholders.

(4) Not a spouse, relative within the second degree of kinship, or direct blood relative within the third degree

of kinship of a person listed in the three foregoing paragraphs.

(5) Is not the director, supervisor, or employee of an institutional shareholder directly holding more than 5%

of the company's total outstanding shares, nor is the director, supervisor, or employee of one of the five

largest institutional shareholders in terms of shareholdings.

(6) Is neither a director, supervisor, manager, nor a shareholder holding more than 5% of the outstanding

shares of a certain company or organization that has a financial or business relationship with the

company.

(7) Is not a professional providing business, legal, financial, accounting, or consulting services to the

company or an affiliate, nor is an owner, partner, director, supervisor, or manager, or the spouse of any of

the foregoing, of a sole proprietorship, partnership, company, or organization providing such services to

the company or an affiliate.

(8) Is not a person who meets the conditions specified in any of the subparagraphs of Article 30 of the

Company Act.

Note 3: If the member is a director, please specify whether he complies with the conditions provided in Paragraph 5,

Article 6 of the Regulations on the Establishment of Remuneration Committees by TWSE/GTSM Listed

Companies and their Exercise of Powers.

Note 4: Independent director, Yang Tze-Bao, was discharged on June 6, 2012.

- 34 -

6. Information about status of operations of the Compensation Committee

I. The Company’s Remuneration Committee is with 3 members.

II. Current tenure of committee members: June 06, 2012 to June 05, 2015. Six meetings were held by the

Remuneration Committee (A) in the most recent year (January 01, 2012 to April 30, 2013). Member

eligibility and attendances are described below:

Job title Name Actual

attendance (B)

Attendance

by proxy

Actual attendance rate (%)

[B/A] (Note 1) Remarks:

Convener Chi Husan Liu 5 0 83.33%

Committee members Zi Bao Yang 1 1 16.67%


(Actual attendance 1 times is accounted

for 16.67% of the 6 meetings in total)

Committee members You Bin Huang 6 0 100.00%

Committee members Yeh Shu 3 1 50.00%


(Actual attendance 3 times is accounted

for 50.00% of the 6 meetings in total)


1. If the Board of Directors does not accept or amend the suggestions proposed by the Remuneration Committee, the meeting date, term, agenda,

resolutions reached by the board, and the process of the opinions proposed by the company’s Remuneration Committee should be clearly

stated (for example, if the remuneration resolved by the board of directors is superior to the salary suggested by the Remuneration Committee,

the differences and the root cause of the differences shall be explained).

If the objections or reservations of the members to the resolutions reached by the Remuneration Committee are documented or written, shall state

the Remuneration Committee meeting date, term, agenda, and all members’ opinions, and the process of the opinions proposed by the company’s

Remuneration Committee.

Note 1: (1) If there is any Remuneration Committee member left the employment before the end of the fiscal year,

the date of resignation shall be indicated in the remarks column; also, the actual attendance rate (%) is

calculated in accordance with the frequency of Remuneration Committee meetings held and the actual

attendance during employment.

(2) Before the year-end date, if there are new Remuneration Committee members elected, new and previous

Remuneration Committee members shall be recorded, and it shall be indicated whether the member is

newly, previously or re-elected as well as the new election date. The actual attendance rate (%) is

calculated using number of Remuneration Committee meetings held and the actual number of attendances

at such meetings.

Note 2: The independent director Yang Zi Bao was discharged on June 6, 2012.

- 35 -

3.3.5 Execution of corporate social responsibility (such as the system and measures as well as

implementation progress the company has made on environmental, community involvement,

social contributions, social services, social welfare, consumer rights and interests, human rights,

health and safety and other social responsibility issues) - the execution of corporate social

responsibility is described below:


The variation from the “Corporate

Social Responsibility Best-Practice

Principles for Listed/OTC

Companies” and the root cause

1. Implement and promotion of corporate

governance

(1) The company’s defining corporate social

responsibility policy or system and

reviewing its implementation;

(1) The Company has the Corporate Social Responsibility

Report prepared and uploaded to the MOPS.

(2) The company’s setting up corporate

social responsibility fill-time (part-time)

units for operations;

(2) Currently, the company has a corporate social

responsibility department under the jurisdiction of the

chairman’s office. A specialized (concurrent) unit will

be established in the future depending on practical

needs to actively promote the operations of corporate

social responsibility.

(3) The company’s regularly arranging

corporate ethics education and training

and propaganda for directors,

supervisors, and employees; also, having

it integrated with the employee

performance evaluation system and

establishing a clear and effective reward

and punishment system;

(3) The company has established Human Resources

regulations that clearly stipulate a reward and

disciplinary system, while regularly organizing

training on business ethics and promotion of matters

prescribed in the preceding Article for directors,

supervisors and employees, and incorporates the

foregoing into its employee performance appraisal

system to establish a clear and effective reward and

discipline system.

The Company will actively plan the

promotion of corporate social

responsibility. If there is any decree

or practical consideration necessary,

it will be processed in accordance

with the “Corporate Social

Responsibility Best-Practice


Companies” and the relevant

legislations.

2. Development of a sustainable environment

(1) The company is committed to enhance

the utilization efficiency of resources

and the use of environmentally low

impact renewable materials.

(2) The company is to construct an

appropriate environmental management

system in accordance with the industrial

characteristics.

(3) Appoint the department or personnel

responsible for environmental

management to safeguard the

environment.

(4) The company is aware of the impact of

climate change on its operations and has

regulated the company’s reducing

carbon emissions and greenhouse gas

reduction strategies.

In response to the government’s environmental policies and

the upgrade of the environment quality, the Company

promotes waste recycling, garbage sorting, reusing paper,

No Smoking, turning off lights, installing water-saving

devices, using environment friendly silverware, telephone

conservation norms, etc.; the related specifications have

been implemented and regularly checked.

1. Committed to the promotion of environmental goods

and strictly select the incense products that are

manufactured with natural herbal for the good of the

customers and the highest quality products that allow

customers to use the best and most healthy incense in

paying respect to the deities and the dead.

2. To avoid the sewage generated from the body

purification ritual service performed by the undertaker

causing undue influence on the environment, the

Company has invested heavily to install wastewater

treatment equipment and has qualified the water sample

testing in order to safeguard the earth’s resources

forcefully.

3. The Company has realized the possible impact of

business operation on the environment; therefore, the

intention is to have environment-friendly products and

services provided with advanced technology and

innovative practices in order to maintain the sustainable

development of environment for the next generation by

inviting the world-class architect Mr. Tadao Ando to

design ecology cemetery with the theme of cherry

blossoms, butterflies, and waterfalls that is the spindle

ecological masterpiece; also, it will become the

world-class cultural and leisure attraction.

No significant nonconformity

- 36 -


The variation from the “Corporate

Social Responsibility Best-Practice


Companies” and the root cause

3. Maintenance of social welfare

(1) The company’s compliance with the

relevant labor laws and regulations and

respect for internationally recognized

fundamental labor rights, protection of

the legitimate interests of employees and

equal employment right policies, and

establishment of appropriate

management methods, procedures, and

implementation.

(1) The company stipulates legal rights and interests of

employees in accordance with labor regulations and

makes pension provisions. An Employee Welfare

Committee has been established to conduct various

welfare events through its operations. The Welfare

Committee is elected by employees.

(2) The company provides safe and healthy

work environment to employees; also,

provides employees on a regular basis

with the safety and health education.

(2) The Company shall provide a clean environment for

employees and safety equipment to ensure employee

safety and health. Supervisors and industrial safety

units will regularly inspect the work environment.

Regularly conducts employee health exams.

(3) The company establishes a mechanism

for regular communication to the

employees and has the employees

notified in a reasonable manner the

possible significant impact on them due

to the changes in operations.

(3) The company emphasizes peaceful labor relations,

open communication and establishment of

comprehensive communication channels. Regularly

holds labor meetings and employee welfare

committee meetings, then conducts face to face

two-way communication with employer

representatives (formed by senior management) and

labor representatives (elected by grassroots

colleagues); also, has established an employee

communication mailbox to resolve employee issues

effectively in a timely manner.

(4) The company develops and makes

public its consumer interests policy, as

well as a transparent and effective

consumer grievance procedures for the

products and services provided.

(4) The Company values product quality and actively

deal with customer service issues in order to provide

comprehensive after-sales services.

(5) The company works with suppliers

jointly to promote corporate social

responsibility.

(5) For the Company’s subcontracted projects, the

environmental pollution prevention measures and site

cleanness maintenance are strictly required

throughout the construction. In terms of life service

business, the Supplier Convention is held quarterly

with the company’s relevant policies advocated at the

meeting for the support of the suppliers.

(6) The company participates in community

development and charitable

organizations related activities through

commercial activities, substances

donations, industry volunteer services,

and/or other free professional services.

(6) The Company is involved in the following social

welfare activities:


4. Enhancing information disclosure

(1) The company’s way of disclosing the

relevant and reliable information on

corporate social responsibility;

(1) The Company has disclosed the fulfillment of social

responsibilities on the website, annual reports, and the

prospectus.

(2) The company compiles corporate social

responsibility report and discloses the

promotion of corporate social

responsibility.

(2) Corporate Social Responsibility Report is published

on the MOPS.


5. If the company has the corporate social responsibility code defined in accordance with the “Corporate Social Responsibility Best-Practice

Principles for Listed/OTC Companies,” please describe the operational differences from the Code: Not applicable

6. Other critical information that helps to understand the operations of corporate social responsibility (such as the system and measures as well as

implementation progress of the Company in environmental issues, community involvement, social contributions, social services, social welfare,

consumer rights and interests, human rights, safety and health and other social responsibility events): Participation of the Company in social

welfare events is described below.

7. The company’s products or corporate social responsibility reports that have qualified the verification standard of the relevant certification bodies

should be detailed: Not applicable

- 37 -

The Company’s participation in social welfare activities:

The Company’s participation in social welfare activities in 2012:

Name Activities

1. Medical professionals research fund sponsorship

The sponsorship is targeting at the research projects proposed by the doctoral students of the

College of Medicine of National Taiwan University. A total sponsorship of NT$5.2 million was

granted in 2012 to the research proposals selected with the help of the College of Medicine, NTU.

2. Worked with the “New Life Social Welfare Development Association” to provide the

disadvantaged groups with the job opportunity of lotus origami.

3. Employing those with disabilities

Average 4.5 individuals with disabilities were employed in 2012.

4. Local feedback

(1) Provide job opportunities: Lungyen has been deemed as a member of Sanzhi since the

establishment of Baishawan Cemetery in Sanzhi. The residents of Sanzhi are with the top

priority for the recruitments to work in Baishawan Cemetery. Most of the personnel who work

in the Cemetery are local residents. Many jobs are provided locally.

(2) Job opportunities for the disadvantaged: Worked with the “New Life Social Welfare

Development Association” to provide disadvantaged groups with the job opportunity of lotus

origami.

(3) Community donations: to repay local residents for their friendliness and support, we annually

help with social assistance fundraising and supplies to assist low income families in the Sanzhi

community; we have also sponsored various events organized by local educational units and

villages. Donations are made to the Social Service Department of Sanzhi District Office and the

New Life Social Welfare Development Association, R.O.C. for the redistribution of the funds to

the low-income families and disadvantaged families in Sanzhi District and Shimen District.

Lungyen has never taken a back seat in making donations for other local activities, including the

elderly activity funds, Taipei Artist Foundation, Sanzhi Elementary School activity funds,

Ankang Community Double Ninth Festival for the elderly, Yuanshan, Fude, and Barshen Li

activities, Taiwan folk seminars, Pagoda Association research projects funds, Fucheng

Community Development Association, Fu Hui Temple activity funds, Sanzhi Charity

Association, etc. Total donations in 2012 came to NTD$5.8 million.

Lungyen Life

Service Corp.

5. Carbon reduction actions:

(1) Promotion of environmentally-friendly concepts: Asked employees to not use disposable

tableware, and to use recycled paper. Encourage employees to make more use of escape ladders

up and down the stairs and to reduce the use of elevators. These specific actions and

requirements are with the intention to help employees develop good environmental protection

practice. This activity passed the On-site Business Carbon Reduction and Energy Conservation

Inspection conducted by the Department of Economic Development, Taipei City Government on

2012.8.18.

(2) Soil and water conservation: To ensure the water quality of the True Dragon Tower, a water

quality inspection is regularly conducted. In order to ensure the safety of the garden and

construction, we also set up in the garden the group pipes auto monitoring instrument (including

pluviometers, observation well, and inclinometers) to monitor soil and water conservation

constantly. Continuing greening: besides the ecology of the Century Cemetery, the greening of

current cemeteries will be continued. In 2011, 29 Taiwan Cherry trees and Yoshino Cherry trees

were planted.

(3) Electricity-saving: True Dragon Tower is with a large area; therefore, we have set the power

monitoring system for power consumption. We have achieved the optimum use of electricity by

reducing the use of the electricity consumption capacity agreed upon with the power company

and coordinating the power consumption peak and valley according to the number of visitors.

(4) Energy-saving air-conditioning system: Maintain the indoor temperature within the standard

range with temperature monitoring to reduce the excessive waste of air conditioning.

- 38 -

Name Activities

(5) Energy-saving lighting systems: Use high efficiency lighting with automatic switch.

(6) Promoting electronic billing and on-line invoices: It has been planned since 2011 and the

electronic billing has been used since September 2012 with the monthly average invoice

issuance reduced from 25,271 invoices to 1,871 invoices; also, the amount from NT$285,883 to

NT$23,978; moreover, the paper use is saved from 114,494 sheets to 8,441 sheets. The

estimated paper saved annually is 1,272,636 sheets for an amount of NT$3,142,860.

1. Free burial service for the poor

36 free burial services provided in 2012 with 34 burial services completed.

2. Lungyen Charitable Foundation is rated A class in the annual evaluation of the Ministry of

Interior.

Lungyen Foundation 3. “Fuzenyuan Health Bus - Taipei City Haoran Senior Citizens Home Happily Moving

Forward” car donation event

The Company and Fuzenyuan Funeral Enterprise have meals delivered to the elderly, have served

the elderly, have improved the care for the elderly, and have the “Fuzenyuan Health Bus - Taipei

City Haoran Senior Citizens Home Happily Moving Forward” car donation event arranged in the

New Year of 2012 by sharing the resources with Fuzenyuan Foundation to serve the elderly of

Taipei City Haoran Senior Citizens Home.

3.3.6 The company’s fulfilling integrity management with the measures taken

1. The Company has implemented integrity management in accordance the Company Law, the

Securities and Exchange Law, Business Accounting Law, Listed/OTC related regulations, or

other commercial activities related regulations.

2. The director conflict of interest system is defined in the Company’s “Rules of Procedure for

Board of Directors Meetings.” The board directors may not participate in the discussion and

balloting of the underlying matters in the board meeting and cannot act for other directors to

exercise their voting right if their conflict of interest is detrimental to the Company’s interests.

3. The Company’s internal control system - Public information reporting, no information can be

disclosed before the announcement of material information to ensure the accuracy and

availability of information. The published material information shall detail the facts, root cause,

the impact on the company’s financial business, the estimated amount, and the responsive

measures.

4. The Company has effective accounting system and internal control system established to ensure

the implementation of integrity management. Internal auditors regularly check the compliance

of the said two systems and report to the Board of Directors regularly; also, follow-up on the

corrective actions performed by each department.

- 39 -

Implementation of integrity management


The variation from the “Integrity

Management Principles for

Listed/OTC Companies” and the root

cause

1. Defining integrity management policies

and programs

(1) The company has the integrity

management policy expressly stated in

the Article of Incorporation and external

documents; also, the Board of Directors

and the management commit to actively

implement integrity management.

(1) This company will establish a code of conduct for its

directors in order to comply with regulations; its

stipulations will include prohibition on conflicts of

interest and anti-bribery regulations. The “Employee

Code of Conduct” (including managers) is defined to

regulate employee’s behaviors, including the

prohibition of conflicts of interest, bribery and gift,

and hospitality for business. In addition, suppliers are

being requested to sign an “Honesty Contract” to

maintain the interests and rights of both parties and to

comply with the honesty policy of the Company.

While the code of conduct for

directors is not yet established,

managers are under the stipulation of

Human Resources regulations.

Employee Code of Conduct

(including managers)

(2) The company has an unethical act

prevention program defined, including

the operating procedures, behavioral

guidelines, and education and training.

(2) The Company temporarily does not have the

“Director Code of Conduct” defined; however, does

have the specifications referred to above advocated

and the related education and training conducted to

enhance law-abiding awareness and work ethics of

the employees taking as a whole.

The “Director Code of Conduct” is

not defined temporarily; however, the

“Employee Code of Conduct”

(including managers) is regulated in

the “Guidelines Governing Personnel

Management.”

(3) When the company has an unethical act

prevention programs defined, adopt

proper measures to prevent bribing and

taking bribes and offering illegal

campaign contributions for the operating

activities with high risk of unethical act

within the scope of business operation.

(3) If any directors, managers or employees engage in

unethical behavior, they will be penalized according

to Company regulations; if they engage in serious

offences such as malpractice, acceptance of bribery or

commissions, stealing, misappropriation or

embezzlement of public deposits or property which

causes financial loss or reputational loss for the

Company, they will be dismissed. If any supplier

violates their Honesty Contract, the Company will

cancel its eligibility as a supplier as well as any

outstanding orders.

The “Director Code of Conduct” is

not defined temporarily; however, the

“Employee Code of Conduct”

(including managers) is regulated in

the “Guidelines Governing Personnel

Management.”

2. Implementation of integrity management

(1) The company shall avoid conducting any

business activities with anyone that has a

record of unethical conduct and shall

have the integrity clauses stated in the

commercial contracts.

(1) Suppliers are being requested to enter into an

“Honesty Contract” to maintain the interests and

rights of both parties; they shall not bribe political

parties or candidates; if there are any such incidents,

suppliers shall report such incidents to the Company

immediately.


(2) The operation of the full-time (part-time)

department setup by the company to

promote corporate integrity

management; also, the supervision of the

Board of Directors.

(2) The Company’s Audit Office is under the supervision

of the Board of Directors and it is to report the audit

performed to the Board of Directors on a quarterly

basis.


(3) The company has the conflicts of

interest prevention policy defined and

the appropriate reporting channel

established.

(3) The company provides multiple reporting channels,

including suppliers ethical grievance hotline;

employee grievance reporting channel, employee

consultation mailbox, etc., for reporting any breach of

business ethics committed by the employees.


(4) The company has the effective

accounting system and internal control

system established to implement the

integrity management; also, the internal

auditors have performed audits.

(4) The Company’s Audit Office has conducted onsite

audit or book review with the consideration of risk

factor in accordance with the Company’s annual audit

plan approved by the Board of Directors in order to

help the Board of Directors and the management

reasonably ensure the continuing effective

implementation of the internal control system,

including the achievement in the company’s

operational effectiveness and efficiency, reliability of

financial reports, and the compliance of law and

regulations.


- 40 -

3. The operation of the reporting channel, the

disciplinary action for the breach of

integrity management, and the grievance

system established by the company

The company has established a complaints mailbox to

encourage employees, customers or suppliers to report

unethical conduct and to protect the reporter. If there is any

violation of the code of conduct, the Company will enforce

the disciplinary measures established by relevant

regulations and work rules, while an appeal system will be

established to provide violators with relief methods.


4. Enhancing information disclosure

(1) The company has corporate website

setup to disclose the information of

integrity management.

(2) The company’s other information

disclosures (e.g., setup English website,

designated individual responsible for the

company’s information collection and

information disclosure on the company’s

website, etc.);

This company has set up an English website for investors,

http://investor.lungyengroup.com.tw/# and designated

specialist personnel to collect and disclose company

information. It has also implemented a spokesperson

system.


5. If the company has the integrity management code defined in accordance with the “Integrity Management Principles for Listed/OTC

Companies,” please describe the operational differences from the Code: The Company temporarily does not have the “Integrity Management

Principles for Listed/OTC Companies” defined. However, the company will base on the spirit of the “Integrity Management Principles for

Listed/OTC Companies” to define the “Director Code of Conduct” in the future and will exercise the spirit of integrity management in business

operation.

6. Other information that helps understand the practice of integrity management (such as, advocate the company’s determination and policies for

integrity management to the business associates; also, invite them to participate in the education and training and to review and revise the

company’s integrity management code):

An honest service attitude is the most important management style of this company, helping strengthen the leading role of this company in the

funeral industry, and receiving the respect and trust of families, shareholders, employees and society. The Company respects and maintains

democracy and the rule of law, complies with standards mutually agreed by law and industry, while seeking a high standard of operations.

The Company has established an Employee Code of Conduct (including managers). In addition to establishing a code of conduct for directors,

codes of conduct will be introduced to new hire training in 2013, with new hires required to undergo tests on them; new hires will be required to

become familiar with the stipulations of the Employee Code of Conduct.

3.3.7 Corporate Governance Code and related regulations query: The Company at present has not

yet had the corporate governance code defined in accordance with the “Corporate Governance

Best-Practice Principles for Listed/OTC Companies;” however, has set the relevant procedures

and corporate governance rules. In addition to the shareholders’ meeting, the Conduct of the

Board of Directors, the Rules Governing the Election of Directors, and the material resolutions,

the Internal Material Information Handling Procedures, the Guidelines for Handling

Acquisition and Disposal of Assets, the Guidelines for the Loan of Funds, and the Guidelines

for Endorsements and Guarantees” are disclosed in the MOPS in details.

http://newmops.twse.com.tw

- 41 -

3.3.8 Important information that helps understand the company’s corporate governance practice

7. Director’s advanced education

Advanced education date Job title Name

Beginning Ending Organizers Course titles

Advanced

education hours

Chairman Lee Shih-Tsung 101/12/10 101/12/10 ROC Securities and Futures

Institute

Directors, supervisors, and major

shareholders’ equity and tax

planning and best-practice

research and analysis

3.0

Director Liu Wei-Lung 101/12/07 100/12/07 ROC Securities and Futures

Institute

Directors and supervisors’

criminal and legal risk and

responsive measures – material

corporate scandals

3.0

Director Ro Fujibayashi 101/12/06 101/12/06 ROC Securities and Futures

Institute

Financial information and

operating decisions 3.0

Director Guo Ya-Tao 101/12/03 101/12/03 ROC Securities and Futures

Institute

Influence and impact of the

updated Privacy Law on the

enterprises

3.0

Director Ren Li-Chung 101/12/06 101/12/06 ROC Securities and Futures

Institute



Director Chan Pai-Liang 101/12/17 101/12/18 ROC Securities and Futures

Institute

Directors and supervisors

(including independent directors

and supervisors) Best-Practice

Workshops _ Taipei

12.0

101/11/29 101/11/29 ROC Securities and Futures

Institute

Latest Company Law and

Corporate Governance 3.0

Independent

Director Chi Husan Liu

101/12/10 101/12/10 ROC Securities and Futures

Institute

Directors, supervisors, and major

shareholders’ equity and tax

planning and best-practice

research and analysis

3.0

Independent

Director You Bin Huang 101/12/06 101/12/06

ROC Securities and Futures

Institute



Independent

Director Yeh Shu 101/11/23 101/11/23

ROC Securities and Futures

Institute

The impact of the latest

Company Law and the Securities

and Exchange Act and the

responsive measures

3.0

8. Manager’s advanced education

Advanced education date Job title Name

Beginning Ending Organizers Course titles

Advanced

education hours

Chief

Financial

Officer

Chan Shu-Chuan 101/12/10 101/12/11

ROC Accounting Research

and Development

Foundation

Advanced education classes for

the accounting officers of

securities issuers, securities

firms, and stock exchange

corporation

12.0

101/11/06 101/11/06 Internal Audit Association Subsidiary’s auditing

best-practice 6.0

Chief

Auditor Liang Chien-Yun

101/12/25 101/12/25 Internal Audit Association Skills needed for strategic

auditing 6.0

- 42 -

3.3.9 Implementation of internal control system

9. Declaration of Internal Control System

E18-1304-0404

Table 4: (One of the formats regulated in Article 24 of the Guidelines for Establishment of Internal Control System in

Public Companies)

After qualifying for the Public Company Annual Internal Control System Self-inspection, declare effective

internal control system design and implementation – adopting overall compliance declaration

Public Company Internal Control System Declaration

Indicating effective design and implementation

(This declaration is applicable for over compliance declaration)

Lungyen Life Service Corp.

Internal Control System Declaration

Date: April 30, 2013

The Company hereby declares that the 2012 internal control system is based on self-examination:

1. We acknowledge that the establishment, implementation, and maintenance of internal control system are the responsibility of

the board of directors and the management. We have our internal control system established for the purpose of providing a

reasonable assurance on the operating effect and efficiency (including profitability, performance, and assets security), the

reliability of financial reports, and the compliance of the governing law and regulations.

2. Internal control system comes with inherent limitations no matter how perfect it is design. An effective internal control system

can only offer a reasonable assurance on the realization of the three objectives referred to above. Moreover, the effectiveness

of the internal control system could be affected by the change of environment and situation. The Company’s internal control

system is designed with a self-monitoring mechanism; therefore, the Company is able to perform corrective action upon

identifying the nonconformity.

3. The Company has based on the internal control system effectiveness criteria defined in the “Guidelines for Establishment of

Internal Control System in Public Companies” (referred to as “the Guidelines” hereinafter) to determine whether the internal

control system design and implementation is effective. The internal control system criteria defined in the “Guidelines” are

classified into five elements in accordance with the management control process: (1) A controlled environment, (2) Risk

assessment, (3) Control process, (4) Information and communication, (5) Supervision. Each element contains several items.

Please refer to “the Guidelines” for the items referred to above.

4. The Company has adopted the internal control items referred to above to examine the effectiveness of the internal control

system design and implementation.

5. Based on the result of the examination referred to above, the Company believes that the internal control system design and

implementation dated December 31, 2012 (Note 2) (including the supervision and management over the subsidiary), including

the fulfillment of operating effect and efficiency objective, the reliability of financial report, and the compliance or governing

law and regulations is effective and it can reasonably assure the achievement of the objectives referred to above.

6. The Declaration is the main content of the Company’s annual report and the prospectus and it will be made known to the

public. The content published found with false and concealment will be held liable for the breach of Article 20, Article 32,

Article 171 and Article 174 of the Securities and Exchange Act.

7. The Declaration was resolved by the board of directors on April 30, 2013. The content of the Declaration is with the consent of

the board directors and agreed by a total of 8 directors attending the Meeting unanimously.


Chairman: (Signature)

President: (Signature)

Note 1: If the internal control system design and implementation by public companies is found with major

nonconformities during the year, it should be detailed in Article 4 above with the self-identified

nonconformities and the corrective action taken before the balance sheet date and the correction effect

illustrated.

Note 2: The declaration date is on the “end of the fiscal year.”

- 43 -

10. If the CPA is commissioned specially to review the internal control system, the CPA’s audit report

shall be disclosed: None

3.3.10 The company and its internal staff being punished according to law, the internal staff in

violation of internal control system being punished by the company, major nonconformities,

and corrective actions in the most recent year and up to the publication date of the annual

report: None

3.3.11 Important resolutions reached in the shareholders’ meeting and board meeting in the most

recent year and up to the publication date of the annual report:

Important motion in Shareholders’ meeting and its implementation:

Meeting date Meeting name Motions resolved and the implementation

June 6, 2012 2012 General

Shareholders’ Meeting

1. Acknowledged the 2011 Business Report and Financial Statement

Implementation progress: Passed the resolution

2. Acceptance of the 2011 earnings distribution

Implementation progress: Passed the resolution

3. Partial amendment to the Articles of Incorporation

Implementation: Resolved to pass and it is implemented in accordance

with the resolutions reached in the shareholders’ meeting.

4. Amendments to the “Guidelines for Handling Acquisition and Disposal

of Assets”



5. Amendments to the “Guidelines for Endorsements and Guarantees”



6. Amendments to the “Guidelines for the Loan of Funds”



7. Election of nine directors of the Company’s 11th Board of Directors

(including three independent directors)

Implementation progress: The election progress is explained below:

Institutional director - Chang Cheng Investment Co., Ltd.

Representative: Mr. Lee Shih-Tsung (Chairman)

Representative: Mr. Ren Li-Zhong

Institutional director - Bai Ruei Investment Co., Ltd.

Representative: Mr. Liu Wei-Long

Representative: Mr. Guo Ya-Tao

Representative: Mr. Tin Lin-Lang

Representative: Ms. Zhan Bai-Lian

Independent director - Mr. Liu Ji-Xuan

Independent director - Mr. Huang Yo-Bin

Independent director - Mr. Yeh Shu

9. Proposed agreement to lift competition restrictions on the Company’s

newly elected directors and the legal representative



- 44 -

Board of Directors

January 9, 2012 The 10th Board of Directors

The 37th Board meeting

The 2011 total performance bonuses of the Company and its

subsidiaries

2011 Financial Statements and Consolidated Financial Statements

2011 Distribution of Earnings

Amendments to the Company’s other internal control and internal

audit implementation details

Amendment to the Company’s 2012 Audit Plan

Amendment to the Company’s “Rules of Procedure for Board of

Directors Meetings”

Amendment to the Company’s “Articles of Incorporation”

Amendments to the Company’s “Guidelines for Handling

Acquisition and Disposal of Assets”

Amendments to the Company’s “Guidelines for Endorsements and

Guarantees”

Amendments to the Company’s “Guidelines for the Loan of

Funds”

Amendments to the Company’s “Guidelines Governing Financial

Statements Preparation Procedures”

Regulate the Company’s “Guidelines Governing the IFRS

Implementation”

Election of the Company’s 11th Board of Directors (including

independent directors)

Proposed agreement to lift competition restrictions on the

Company’s newly elected directors

Schedule the Company’s 2012 General Shareholders’ Meeting

time, place, and motions

Rearrange public offering and listing application for stock private

placement

The Company’s changes in organizational structure

March 19, 2012 The 10th Board of Directors


Designation of directors for the reinvestment in Excellence Garden

Corporation

2012Q1 Financial Statements

Presentation of Internal Control Declaration

The endorsement and guarantee amount made by the Company for

the subsidiary, Yuji Development Corp.,

Address change of Hsinchu Branch

April 26, 2012 The 10th Board of Directors


Independent director nomination and review

Nomination of the 11th chairman June 6, 2012

The 11th Board of Directors

The 1st Board meeting Commissioning members of the 2nd Remuneration Committee

Schedule the base date for the distribution of 2011 cash dividend

Changes in organizational structure

The remuneration of the Company’s directors June 27, 2012


The 2nd Board meeting

The remuneration of the Company’s directors

2012 Interim Financial Statements

Income-based real estate sales (Subject: Tamsui Hi City and Pacific

Commercial Building)

August 23, 2012 The 11th Board of Directors

The 3rd Board meeting

The membership list of the 2nd Investment Commission

- 45 -

Set “Internal Material Information Handling Procedures”

October 2, 2012 The 11th Board of Directors


Intended to invest and setup the subsidiary, SINGAPORE

LUNGYEN LIFE SERVICES PTE. LTD (referred to as

“Singapore Lungyen”), in Singapore.

2012Q1~Q3 Financial Statements

The commission and remuneration of the CPAs of the Company

and subsidiaries in 2012 October 30, 2012




Presented the Company’s “2013 Group Operations Plan”

Presented the Company’s “2013 Auditing Plan”

Intends to change the trust bank for the pre-need contract fees

collection

Recognizing the sale of Cathay Reits to the subsidiary, Jin Huang

Construction

December 24, 2012 The 11th Board of Directors


Longding Life Sciences Inc., the Company’s subsidiary, (referred

to as “Longding” hereinafter) intends to arrange cash

capitalization.

The 2012 total performance bonuses for the Company’s auditors

January 9, 2013 The 11th Board of Directors

The 7th Board meeting Presented the distribution rule and distribution result of the 2012

performance bonuses of the Company and its subsidiaries

2012 Financial Statements and Consolidated Financial Statements

2012 Distribution of Earnings

Amendment to the Company’s “Rules of Procedure for Board of

Directors Meetings”

Amendments to the Company’s “Guidelines for Handling

Acquisition and Disposal of Assets”

Amendments to the Company’s “Guidelines for Endorsements and

Guarantees”

Amendments to the Company’s “Guidelines for the Loan of

Funds”

The Company intends to apply for switching from stock OTC to

stock listing

By-election of the Company’s 11th Board of Directors

Remove the prohibition on new directors from participating in

business of competitors

Schedule the Company’s 2013 General Shareholders’ Meeting

time, place, and motions


Amendments to the 2012 performance bonuses

Salary adjustment of auditors

March 19, 2013 The 11th Board of Directors


Relocation of the Company’s Hsinchu Office

Presentation of Internal Control Declaration

Sale of ABH (Asia Best Healthcare Co., Ltd) shares April 30, 2013


The 9th Board meeting The Company intends to participate in the cash capitalization of

Excellence Garden Corporation.

- 46 -

3.3.12 Directors or supervisors who have their oppositions to the resolutions reached in the board

meeting documented in the most recent years and up to the publication date of the annual

report: None

3.3.13 Summary of the resignations and dismissal of the personnel related to the financial report

(including the chairman, president, accounting manager, finance director, chief internal auditor,

R&D manager, etc.) in the most recent years and up to the publication date of the annual

report: None

3.3.14 The relevant licenses and certificates that are designated by the competent authority acquired

by the Company’s personnel who are related to the transparency of financial information:

R.O.C. CPA: 1 person in Finance Office

Internal auditor: 1 person in Auditing Office

ISO9000 Auditor: 1 person in total in the Audit Department.

- 47 -

3.4 CPA fees:

3.4.1 Information of Fees

11. Information and classification of CPA fees

CPA Firm CPA’s name Audit period Remarks:

KPMG Taiwan Lai Li-Jen Chen Jia-Show 2012

Unit: NT$ Thousand

Fee category

Amount bracket Audit fees Non-audit fees Total

1 Less than $ 2,000 thousand 841 841

2 $2,000 thousand (inclusive)~$4,000 thousand 2,550 2,550

3 $4,000 thousand (inclusive)~$6,000 thousand



6 Over $10,000 thousand (inclusive)

12. Non-audit fees exceeding one fourth (1/4) of audit fees: None

13. Commissioning another CPA and the audit fees paid in the changing year is less than the audit fee

paid in the prior year: None

14. Audit fees is reduced by more than 15% from the previous year: None

Information of CPA fees

Unit: NT$ Thousand

Non-audit fees

CPA

Firm

CPA’s

name

Audit

fees System

design

Industrial and

commercial

registration

Human

resources

Others

(Note) Subtotal

Auditin

g period Remarks:

Lai

Li-Jen 2012

KPMG

Taiwan Chen

Jia-Show

2,550 841 841

2012

IFRS

training/

consulting

fees, etc.

3.5 CPA replacement: None

3.6 The company’s chairman, president, and finance or accounting manager has worked in

the CPA Firm contracted for auditing service or its affiliated companies within the year:

None.

- 48 -

3.7 Changes in equity transfer and equity pledged of the directors, supervisors, managers,

and shareholders with more than 10% shareholdings in the most recent years and up

to the publication date of the annual report:

Unit: Shares

2012 Up to year 2013

30 April

Job title Name Shareholding

increase

(decrease)

Mortgaged

shares increase

(decrease)

Shareholding

increase

(decrease)

Mortgaged

shares increase

(decrease)

Chairman Institutional representative of Cheng Chang

Investment Co., Ltd.: Lee Shih-Tsung

- - - -

Director Institutional representative of Bai Ruei

Investment Co., Ltd.: Liu Wei-Long

- - - -


Investment Co., Ltd.: Teng Lin-Lang

- - - -


Investment Co., Ltd.: Kuo Ya-Tao

- - - -


Investment Co., Ltd.: Chen Chun-Kuei (Note 1)

- - - -


Investment Co., Ltd.: Chan Pai-Liang (Note 2)

- - - -

Director Institutional representative of Cheng Chang

Investment Co., Ltd.: Ren Li-Chung

- - - -

Independent Director Chi Husan Liu - - - -

Independent Director Yang Tze-Bao (Note 3) - - - -

Independent Director Yeh Shu (Note 4) - - - -

Independent Director You Bin Huang - - - -

Shareholders with more than

10% shareholdings

Lee Shih-Tsung 134,000 - (14,000,000) -

President Liu Wei-Lung - - - -

Vice President of Finance Office Chan Shu-Chuan - - - -

Vice President of Construction

Department

Fan Kuo-Chang (Note 5) - - - -

Vice President of Administration

Office

Huang Jia-Chi (Note 6) - - - -

Vice President of Cemetery

Management Department

Wu Hong-An (Note 7) - - - -

Vice President of Cemetery

Management Department

Niu An-Ze (Note 8) - - - -

Vice President of Funeral service

Department

Kuo Hsueh-Chun (Note 9) - - - -

Vice President of Funeral service

Department

Chen I-Fong (Note 10) - - - -

Vice President of Sales

Department

Lin Su-Ling (Note 11) - - - -

Vice President of Purchasing

Department

Chieng Hui-Juan (Note 12) - - - -

Vice President of Public Relation

Department

Ho Chi-Shen (Note 13) - - - -

Junior Vice President of Auditing

Office

Liang Chien-Yun 4,000 - - -

Note 1: Discharged on June 6, 2012





Note 6: Discharged on May 15, 2012

Note 7: Discharged on March1, 2012

- 49 -

Note 8: Discharged on April 25, 2013

Note 9: Discharged on October 31, 2012

Note 10: Discharged on November 8, 2012

Note 11: Discharged on November 8, 2012

Note 12: Discharged on February 25, 2013

Note 13: Discharged on May 2, 2013

Information on the related party that is the counterparty of the share transfer: None

Information on the related party that is the counterparty of equity pledge: None

- 50 -

3.8 Information on the mutual relationship of the top-ten shareholders April 6, 2013

Shareholder’s shareholding Shares held by spouse and

underage children Shares held by nominee

If the top-ten shareholders are related parties or are a spouse or second cousin to

each other, please state the title, name, and relationship. (Note 3) Remarks:

Name (Note 1) Quantity of

shares Shareholding

Quantity of

shares Shareholding

Quantity of

shares Shareholding

Name

(or Name) Relationship

Cheng Chang Investment

Co., Ltd.

The chairman of the company illustrated in the left

column.

Barry Investment Co., Ltd. The major shareholder of the company illustrated in

the left column. Lee Shih-Tsung 155,192,000 38.89% 0% 0 0%

Lee Investment Co., Ltd. The major shareholder of the company illustrated in

the left column.

Huang Yi-Feng 26,008,703 6.52% 0 0% 0 0% None

The company illustrated in the left column is the

invested company valued with the equity method of

Chang Cheng Investment Co., Ltd.

Lee Investment Co., Ltd. The chairman of the company illustrated in the left

column.

Lee Shih-Tsung Chairman of the company

Representative of Chang Cheng

Investment Co., Ltd.: Lee

Shih-Tsung

25,304,482 6.34% 0 0% 0 0%

Chen Yong-Ting Director of the company


Co., Ltd. Director of the company illustrated in the left column

Chen Yong-Ting 18,216,275 4.56% 0 0% 0 0%

Lee Investment Co., Ltd. The chairman of the company illustrated in the left

column.

Fuji Industry Co., Ltd. 16,304,543 4.09% 0 0% 0 0% None None

Representative of Bai Ruei

Investment Co., Ltd.: Li Jia-Cheng 15,635,590 3.92% 0 0% 0 0% Lee Shih-Tsung Major shareholder of the company

Fubon Life Insurance Co. Ltd.

Representative: Zheng Ben-Yuan 14,300,000 3.58% 0 0% 0 0% None None

Representative of Lee Investment

Co., Ltd.: Zheng Chi 12,414,152 3.11% 0 0% 0 0%


Co., Ltd.

An investment company that has the company

assessed in accordance with the equity method

Chase Bank the appointed

custodian for Saudi-Arabia

Nomura Asset Management

8,882,000 2.23% 0 0% 0 0% None None

Lee Shih-Tsung Major shareholder of the company Representative of Lee Investment

Co., Ltd.: Cheng Yuan-Tin 6,243,463 1.56% 0 0% 0 0%

Chen Yong-Ting Chairman of the company

Note 1: Illustrate the top-ten shareholders. For the institutional shareholders, the name the institutional shareholders and the representative shall be illustrated. Note 2: The shareholding ratio is calculated, respectively, in the name of the shareholders, the shareholder’s spouse and minor children, or shareholding of nominees. Note 3: The relationship of the shareholders referred to above, including institutional and leagal persons, will be disclosed in accordance with the Regulations Governing the Preparation of Financial

Reports by Issuers. The shareholding referred to above is based on the shares registered on April 6, 2013, the cut-off date.

- 51 -

3.9 The shares of the same transfer investment business held by the company’s directors, supervisors, managers, and the enterprise

directly or indirectly controlled by the company; also, the general shareholding ratio is calculated in consolidation:

April 30, 2013; Unit: Shares/%

The Company’s investment The investment of the directors, supervisors, managers, and the

enterprise directly or indirectly controlled by the company Consolidated investment

Reinvestment

Quantity of shares Shareholding Quantity of shares Shareholding Quantity of shares Shareholding

Jin Huang Construction Co., Ltd. 19,639,368 98.20% 0 0% 19,639,368 98.20%

Yuji Development Corp. 90,000,000 56.25% 0 0% 90,000,000 56.25%

Dahan Property Management Co.,

Ltd. (Note) 400,000 80.00% 0 0% 400,000 80.00%

Sea Dragon Traders Ltd. (BVI) 1 100.00% 0 0% 1, 100.00%

Longding Life Sciences Inc., 4,000,000 100.00% 0 0% 4,000,000 100.00%

Beauty Kadan Co., Ltd. 1,425,000 50.00% 0 0% 1,425,000 50.00%

Excellence Garden Co., Ltd. 1,260,000 42.00% 0 0% 1,260,000 42.00%

3.10 Material Information Handling Procedures:

The Company has defined the maintenance of data integrity and accuracy, the protection of intellectual property right, and the implementation of private information

in the “Code of Conduct.” The responsible departments and staff that handle data and data disclosure must comply with the relevant procedures and laws and

regulations. The Company had the “Material Information Handling Procedures” defined in 2012.

- 52 -

4. Fund-Raising

4.1 Source of capital:

April 6, 2013

Authorized capital Paid-in capital Remarks: Year

Month

Issuing

price Quantity of

shares Amount

Quantity of

shares Amount Source of capital

Property other than cash were paid

for the securities purchased Others

95/8 10 200,000,000 2,000,000,000 103,943,000 1,039,430,000 Capitalization of retained earnings for

NT$153,827 thousand 0 Note 1

96/10 10 200,000,000 2,000,000,000 107,235,000 1,072,350,000 Capitalization of retained earnings for

NT$32,920 thousand 0 Note 2

98/02 4 600,000,000 6,000,000,000 307,235,000 3,072,350,000 Cash capitalization (private placement)

200,000 thousand shares 0 Note 3

99/02 21.03 600,000,000 6,000,000,000 382,159,315 3,821,593,150 Exchange of shares for capitalization

Issued 74,924,315 shares in

exchange for 75% shareholding of

Lungyen

Note 4

100/01 44.20 600,000,000 6,000,000,000 399,084,199 3,990,841,990 Consolidated capitalization

Issued 16,924,884 shares in

exchange for 25% shareholding of

Lungyen

Note 5

101/06 - 600,000,000 6,000,000,000 399,084,199 3,990,841,990

Private placement of 200,000 thousand

shares in 2009

Arrange public offering at the end of the

third year

0 Note 6

Note: 1. Approval date and Doc. No.: August 4, 2006; FSC(I).tzi No. 0950134497

2. Approval date and Doc. No.: August 7, 2007; FSC(I).tzi No. 0960041875

3. Approval date and Doc. No.: March 13, 2009, MOEA.so.sun.tzi No. 09801047000

4. Approval date and Doc. No.: January 19, 2010, FSC.far.tzi No. 0980071154

5. Approval date and Doc. No.: January 26, 2011; FSC(I).tzi No. 1000001274

6. Approval date and Doc. No.: June 11, 2012; SEC/GreTai.Jen.tzi No. 10100135951

- 53 -

April 6, 2013

Authorized capital Type of stock shares

Outstanding shares (Note) Unissued shares Total Remarks:

Common stocks 399,084,199 200,915,801 600,000,000 OTC stocks

General registration information: None

4.2 Shareholder Structure

April 6, 2013

Shareholder structure Domestic natural

person

Domestic legal

person

Domestic Securities

Investment Trust

Overseas

natural persons

Overseas legal

persons

Overseas Securities

Investment Trust

Trust property

accounts Total

Number of shareholders 8,632 65 5 2 85 40 4 8,833

Shareholding 245,075,972 82,829,563 596,000 1,739 55,029,154 11,375,821 4,175,950 399,084,199

Shareholding 61.41% 20.75% 0.15% 0% 13.79% 2.85% 1.05% 100.00%

The shareholding referred to above is based on the shares registered on April 6, 2013, the cut-off date.

- 54 -

4.3 Common stock shares distributed

4.3.1 Distribution of common stock shares

Common stock

NT$10 Par, April 6, 2013

Shareholding classification Number of shareholders Shareholding Shareholding%

1~999

1,000~5,000

5,001~10,000

10,001~15,000

15,001~20,000

20,001~30,000

30,001~50,000

50,001~100,000

100,001~200,000

200,001~400,000

400,001~600,000

600,001~800 ,000

800,001~1,000,000

1,000,001 ~ 999,999,999

2,681

4,728

619

212

109

127

106

88

58

47

20

10

4

24

9,865,286

9,349,020

4,905,341

2,781,560

2,021,321

3,296,906

4,223,095

6,502,159

8,011,586

12,994,138

9,928,915

6,588,750

3,637,000

323,858,122

0.26

2.32

1.23

0.70

0.51

0.83

1.06

1.63

2.01

3.26

2.49

1.65

0.91

81.15

Total 8,833 399,084,199 100.00


4.3.2 Preferred stock shares distributed: None

4.4 List of major shareholders:

(Illustrated only the name, shareholding, and shareholding ratio of the top-ten shareholders)

Shares

Major shareholders Shareholding Shareholding

Lee Shih-Tsung

Huang Yi-Feng

Cheng Chang Investment Co., Ltd.

Chen Yong-Ting

Fuji Industry Co., Ltd.

Barry Investment Co., Ltd.

Fubon Life Insurance Co. Ltd.

Lee Investment Co., Ltd.

Chase Bank the appointed custodian for Saudi-Arabia Nomura Asset Management

Lee Investment Co., Ltd.

155,190,000

26,008,703

25,304,482

18,216,275

16,304,543

15,635,590

14,300,000

12,414,152

8,882,000

6,243,463

38.89%

6.52%

6.34%

4.56%

4.09%

3.92%

3.58%

3.11%

2.23%

1.56%


- 55 -

4.5 Market price, net worth, earnings, dividends of per share, and related information in

the last two years

Year

Item 100 years 101 years

Up to March 31, 2013

(Note 9)

Highest 140.5 107.5 104.5

Lowest 65.1 78.6 87.7 Market price per share

(Note 1) Average 101.3 95.36 92.80

Pre-distribution 18.69 20.81 20.24 Net worth per share (Note 2) Post-distribution Not applicable (Note 5) Not applicable

Weighted average shares 397,673,792 399,084,199 399,084,199 EPS

EPS 4.68 5.13 1.01

Cash dividend 3 3.3 Not applicable

Dividends from retained

earnings 0 0 Not applicable

Stock

dividend Dividends from

additional paid-in capital 0 0 Not applicable

Dividend per share

Accumulated unpaid dividends (Note 4)

0 0 Not applicable

PE ratio (Note 6) 21.65 18.59 91.88

PD ratio (Note 7) 33.77 28.90 Not applicable Return on Investment

analysis Cash dividend yield ratio (%) (Note 8)

2.96 3.46 Not applicable

Note 1: List the highest and lowest market price of common stock in each year and calculate the annual average market

price in accordance with the annual trading value and volume.

Note 2: Fill out the information in accordance with the number of outstanding shares at the yearend and the distribution

of dividends resolved in the annual shareholders’ meeting in the following fiscal year.

Note 3: If retrospective adjustment is needed due to the distribution of stock dividends, the earnings per share before

and after the adjustment should be stated.

Note 4: If the equity securities issuance is subject to the preconditions of having the dividend not yet paid for the year

accumulated to a profitable year, the cumulative unpaid dividends up to the year is to be disclosed separately.

Note 5: For the Company’s 2012 earnings, it was resolved in the board meeting on March 14, 2013 to distribute cash

dividends of NT$3.3 per share to shareholders and it is subject to the resolutions to be reached in the

shareholders’ meeting.

Note 6: PE ratio = Current average closing price per share / Earnings per share

Note 7: PD ratio = Current average closing price per share / Cash dividend

Note 8: Cash dividend yield ratio = Cash dividend per share / Current average closing price per share

Note 9: The 2013Q1 financial data audited by the CPA.

- 56 -

4.6 Company’s dividend policy and implementation

4.6.1 Dividend policy set in the company’s Articles of Incorporation:

The Company’s annual earnings, if any, should be applied to pay tax and make up for previous years’

losses, then appropriated 10% legal reserve, and special reserve, if necessary. If there is any surplus

thereafter, part of it is appropriated as retained earnings and the remaining balance is allocated as

follows:

1. Common stock dividend and bonus may not be less than 97%

2. Remuneration to directors and supervisors may not be more than 2%

3. Bonus to employees may not be less than 1%

4.6.2 The dividend distribution is presented and discussed in the shareholder’s meeting: The

Company’s 2012 earnings distribution was resolved by the board of directors on March 14,

2013 intending to appropriate NT$1,316,977,856 from the distributable surplus as cash

dividend (NT$3.3 per share). The Board of Directors is to schedule the ex-dividend date for

cash dividend after it is resolved in the shareholders’ meeting.

4.6.3 Expected material changes in dividend policy: None

4.7 The impact of the stock dividends proposed in the shareholders’ meeting on the

company’s operating performance and earnings per share: Not applicable

4.8 Bonus to employees and remuneration to directors and supervisors

4.8.1 The percentage or scope of bonus to employees and remuneration to directors and

supervisors documented in the company’s Articles of Incorporation:

The Company’s annual earnings, if any, should be applied to pay tax and make up for previous years’

losses, then appropriated 10% legal reserve, and special reserve, if necessary. If there is any surplus

thereafter, part of it is appropriated as retained earnings and the remaining balance is for the

distribution of less than 2% as remuneration to directors and supervisors and not less than 1% as

bonus to employees.

4.8.2 The accounting treatment for the estimated bonus to employees and remuneration to

directors and supervisors and the estimated stock dividend different from the actually

distributed amount: None

4.8.3 The bonus to employee and remuneration to directors and supervisors resolved by the board

of directors and the imputation of earnings per share is as follows:

1. Distribution of cash dividends and stock dividends to employees and remuneration to directors

and supervisors;

The Company’s Board of Directors resolved on March 14, 2013 to distribute cash dividend to

employees for NT$13,577,091 and remuneration to directors for NT$27,154,183. The bonus to

employees and remuneration to directors and supervisors proposed by the board of directors is

consistent with the actual amount recognized in the 2012 annual financial statements. However,

- 57 -

if the actual distribution amount of the bonus to employees and remuneration to directors and

supervisors resolved in the shareholders’ meeting is different from the booked amount, it is

deemed as accounting change in estimate and will be recognized as the profit or loss in the year

of distribution.

2. The proposed amount of stock dividend to employees and the ratio of it to the total amount of

the net income and total bonus to employees:

The Company has no stock dividend distributed to employees; therefore, it is not applicable.

3. The imputed earnings per share after considering the proposed distribution of bonus to

employee remuneration to directors and supervisors:

The proposed distribution of bonus to employee remuneration to directors and supervisors

referred to above is booked as expense; therefore, it is not applicable.

4.8.4 The actual distribution of bonus to employee and remuneration to directors and supervisors

in previous year:

The distribution of 2011 earnings was resolved in the general shareholders’ meeting on June 6, 2012

shareholders’ meeting. The distribution of dividends per share, bonus to employees, and

remuneration to directors and supervisors is as follows:

2011 year

Earnings per common stock share (NT$)

Cash $ 3

Bonus to employees – cash (NT$ Thousand) $ 12,342

Remuneration to directors and supervisors (NT$ Thousand) 24,686

Total $ 37,028

The actual distribution of the 2011 earnings is consistent with the amount recognized in the

Company’s financial statements.

4.9 Company’s repurchasing stock shares: None

4.10 Corporate bonds: None

4.11 Preferred stock: None

4.12 Overseas depository receipts: None

4.13 Employee stock options: None

4.14 Shares issuance for merging or acquiring the equity of other companies: None

- 58 -

4.15 Funds plans and implementation

4.15.1 Funds plans:

The prior public offering or private placement of marketable securities has not been completed or has

been completed in past 3 years but the project benefits is not yet emerged up to the prior quarter of

the annual report printed: None

4.15.2 Funds plans and implementation: Not applicable

- 59 -

5. Operational Highlights

5.1 Business operation

5.1.1 Scope of business

1. Main content

(1) Residents and buildings development and rental business;

(2) Specific area development business;

(3) New towns and new community development business;

(4) Construction materials whole sales business;

(5) Furniture, bedding, kitchen utensils, and fixtures retail business;

(6) Construction materials retail business;

(7) Landscape and interior design business;

(8) Public construction investment business;

(9) Funeral spaces rental business;

(10) Real estate trading business;

(11) Real estate rental business;

(12) Elderly housing business;

(13) Urban renewal business;

(14) Funeral facilities management business;

(15) Funeral liturgy services business;

(16) Industry incubation business;

(17) General hotel business;

(18) Leisure venues business;

(19) Information and leisure business;

(20) Athletic and recreational sports stadiums business;

(21) Amusement park business;

(22) Brokerage services business;

(23) General festival services;

(24) International trading business;

(25) Magazines (periodicals) publishing business;

(26) Ritual supplies retail business;

(27) Food sundries and beverages retail business;

(28) Flower retail business;

(29) Produces retail business;

(30) Non-store retail business;

(31) Waste collection business;

- 60 -

(32) Waste disposal business;

(33) Other services;

(34) In addition to chartered business, the business that is not prohibited or restricted by law;

2. Business operation ratios:

Merchants (services) categories Business operation ratios

Funeral service 93%

Construction income 0%

Rental income 5%

Others 2%

5.1.2 Industry highlights:

1. Industry status and development:

Life service business is the main business and it is detailed as follows:

(1) Funeral funeral service is one of the four rituals (Bar Mitzvah, weddings, funerals, and

worshipping) crucial in Chinese culture and it is important at all times to every Chinese ethnic.

The general principle for funeral preparation: “Treat the dead as the live; Treat the ceased as the

survived.” Basic traits of Ancient Chinese funeral are therefore generated, that are, “filial piety,

patriarchal, social class, and grand funeral burial.” Taoism and Buddhism have also affected

traditional Chinese funeral service.

Funeral is a social activity involving the interest of the nation, society, and individuals. The

government is aware that funeral reform can wait no longer from the Funeral Ordinance

introduction and implementation to the promotion of cremation (30% cremation in 1971, 74%

cremation in 2002, and 90% cremation in 2009). For metropolitan area, such as, Taipei City and

Hsinchu City, cremation rate is over 98%. Apparently, cremation and columbarium has become

the mainstream.

(2) According to the statistics of the Ministry of Interior, Taiwan’s aging population index (the ratio

of the senior citizens over 65 years old to the junior citizens under 15 years old) has exceeded

70%, ranked in the second place in Asia. The population in Taiwan will cross over the stage of

zero growth in 2025 and enter the stage of “Mortality rate exceeding birth rate. ”The mortality

rate in 2050 will be about three times of the year of 2000. In the next 50 years, due to the

increase of elderly population, the number of deaths will increase to 341,000 persons, which is

more than double of the current record. By referring to the statistics of 2012, the percentage of

elderly people over 65 years old continues to rise. It reached 11.15% by the end of 2012.

Therefore, the number of deaths will continue to grow. Under the circumstance, funeral industry

has gradually been taken seriously. Funeral industry shall be regarded as an emerging traditional

industry.

2. The association of up-stream, middle-stream, and down-stream industry

Funeral industry can be divided into two business scopes, cemetery and columbarium and funeral

services. For the supply of cemetery and columbarium, the construction contractor is the up-stream.

For the supply of funeral services, the suppliers for all the relevant materials are the up-stream. From

the perspective of industry suppliers, there are several enterprises in service cooperating with

suppliers regularly and permanently; however, there is no monopoly or oligopoly in practice

affecting the operation of the funeral industry.

- 61 -

The customers who need cemetery and columbarium and funeral services are the down-stream of the

funeral industry. According to the analysis on the customers for cemetery and columbarium, in

addition to the source of deaths each year, there is also the demand for exhumation and relocation of

burial spot due to the high funeral cost and increasing cremation demand. To meet this need,

Lungyen regularly plans and installs cemetery and columbarium products. A certain number of the

products are provided annually in accordance with the schedule planning. According to the analysis

on the customers for funeral service, along with the gradual increase of the aging population, the

future demand for funeral service personnel will rise, so Lungyen regularly recruit professional

liturgy personnel; also, office staff and liturgy personnel are recruited expansively in accordance with

the increase of caseload. In addition, materials needed for in funeral services are developed and

renewed periodically not only to meet the needs of our customers but also to introduce materials

beyond market expectation for leading the industry to grow.

3. Product development trends

Due to the influence of funeral management policies and market competition, the product

development of the overall funeral service industry in the future will face the following changes:

(1) Rising green environmental protection awareness: The elderly population ratio has increased

drastically recently, and existing cemetery land will be used up soon. In order to avoid the

embarrassing situation of the living fighting the dead for land, the Ministry of the Interior has

called on the public to adopt environmentally-friendly burial methods such as tree burial, or

burial by ash scattering over the land or sea. For the time being, there are a total of 13 locations

available for tree burial and ash scattering in cemeteries locally, and a total of 4,000 civilians

have utilized these services. Burial at sea has been utilized by a total of 6,000 civilians. Though

it takes time to promote and encourage new ways of thinking, Lungyen should plan response

measures as early as possible, to create a win-win-win situation for customers, the government

and Lungyen.

(2) Transformation of funeral services: To deal with the issues found in funeral service areas and

serious traffic jams around crematoriums, the Civil Affairs Department of the New Taipei City

Government plans to adopt Japan’s “extended burials” and encourage family members to

cremate body remains and hold funerals at a later date. By so doing, hygiene issues arising from

decay of remains prior to burial may be resolved and pressure placed on mortuary service

offices from family members’ for scheduling appointment of specific dates for cremation may

also be alleviated. To begin with the government will only encourage adoption of this method.

Notwithstanding, it is an inevitable trend that funeral service providers in Taiwan will move

towards more environmental and cost effective methods. As a leader in the industry, Lungyen

also encourages its customers to cremate remains first, and also takes the initiative to build

ceremonial halls throughout Taiwan for its customers to hold funerals in after the remains are

cremated.

(3) Globalization and specialization: The booming development of the Internet has resulted in more

frequent information exchange. In tandem with this the concept of a global village has come

about accordingly. How to satisfy the needs of customers from different ethnic groups and

religions in order to upgrade the Company’s corporate image is a priority. Therefore, the

Company needs to strengthen its observations of, and exchanges with, different countries, to

provide a diversity of funeral choices for consumers from different cultures and religions. Also,

with promotion by the government, academia and large-scale funeral service providers, funeral

workers will move toward the goal of providing services based on professional training and

professional licenses, instead of past services primarily provided based on skills passed on from

previous generations.

- 62 -

(4) Transparency and openness:

Consumer-oriented marketing concepts have already reached maturity in various domestic

markets so naturally the funeral industry cannot escape this trend. Regardless of ritual procedure,

service contents, supply quality, in-store displays or even product price lists, the funeral industry

will need to them adopt transparency and openness step by step, to meet strong customer needs.

4. Product competition

By the classification of business development models, large funeral homes and funeral service

groups (the Company’s main competitors currently) in Taiwan since 2001 to present utilizing modern

management to execute funeral services are summarized as follows:

Company

name

Original business

operation

Current business

operation

Funeral service

area Funeral service mode

Gobo

Services

Group

Construction

industry

Cemetery, columbarium,

funeral services, pre-need

contract sales, construction,

life insurance, cultural and

publishing, and recreational

healthcare business

Cities and counties

other than

Hua-lien County

and Taitung

County in Taiwan

Direct-sale chain stores

in metropolitan areas,

outsourcing mode

non-metropolitan area

Lifepark Textile industry


funeral services, and

pre-need contract sales

Cities and counties

in Taiwan

Outsourcing business

(contracted with

small-scale funeral

services)

Chanyun Construction

industry


funeral services, and

pre-need contract sales

Cities and counties

other than

Hua-lien County

and Taitung

County in Taiwan

Outsourcing business

(contracted with

small-scale funeral

services)

Kee Tai

Building and

Construction

Industry

Cemetery and columbarium None None

Goldentown Construction

industry


funeral services, cultural

tourism, pre-need contract

sales, and construction

Limited to Taipei

City and Keelung

City

Regional direct-sale

chain stores

Baushan

Funeral

services

Cemetery

operation

Cemetery, funeral services,

and biochemical technology

investment

Cities and counties

other than

Hua-lien County

and Taitung

County in Taiwan

Regional direct-sale

mode (not chain stores)

in metropolitan,

outsourcing mode or

franchise in

non-metropolitan area

5.1.3 Technology and R&D:

To meet customer demand, Lungyen not only works with the up-stream suppliers to develop

specialized materials but also cooperates with Tadao Ando, Heinrich Wang, and the Okura Art China

designers in Japan who work for Japan Royal brand to develop Century Cemetery, flawless panels,

and colorful columbarium in order to provide consumers with personalized, refined, and diversified

services, thereby activate the overall quality of funeral services and create customer value and

loyalty to Lungyen.

- 63 -

5.1.4 Long-term and short-term business development plan:

1. Short-term business development plan

(1) Marketing strategy

A. Provide customers with good quality products and actively develop market and enhance

sales.

B. Combine up-stream and down-stream industries to enhance the reservation market share

and provide customers with better service and generate maximum profits.

(2) Product development direction

A. Integrate the operation of Futan, Taichung Baushan, and Yunlin and Jia-Yuen Pagoda

through Yuji Development Corp., the affiliate, and inject the operating advantage of

Lungyen to provide customers in central and southern Taiwan with diversified selection of

columbarium and cemetery; also, to enhance the satisfaction of customers in central and

southern Taiwan.

B. Coordinate with the company’s development and enhance the company’s image; actively

strengthen management and improve corporate performance.

2. Long-term business development plan

(1) Marketing strategy

A. The best marketing technique is to enhance the quality of funeral services and to build up

loyalty to Lungyen brand. The considerate professional service provided by the undertaker

helps win customer’s recognition.

B. Response to the growing needs of a significant diversified market, emphasizing small-scale

service with diversity, innovative service, and fashionable features.

C. Gradually expand the horizons of funeral services to make it more vivid so that consumers

can get rid of the strain of the final consumption; also, extend the service portfolio for the

needs in different spatial.

(2) Product development direction

A. In addition to focusing on the columbarium, cemetery, and funeral services, the plan is to

combine nursing home, medical services, and insurance channels to expand market share

and increase customer recognition.

B. To demonstrate differentiation in a competitive market, the plan is to continue developing

diversified products to meet market demand.

C. Coordinate with the established policy of the government and the company to complete the

work in each stage.

- 64 -

5.2 Market and production and sales:

5.2.1 Market analysis

1. Main products:

(1) Cemetery, columbarium, funeral services, and pre-need contract sales

(2) Building: Residential, office, store, and parking spaces

(3) Offices, factories, and residential rental

(4) Others

2. Market and production and sales:

The sale is targeting on domestic general customers mainly in the age group of 50-70 years old.

3. Market share

Pursuant to the Trust Fund data, the pre-need contract was amounted to NT$7.041 billion by the end

of 2012 in Taiwan. Lungyen’s total trust amount was NT$4.797 billion, so Lungyen has taken up

68% of the pre-need contract market. In addition, in terms of columbarium market share, the

columbarium sold but not yet used in Lungyen’s True Dragon Tower is accounted for 3.1% of the 6.5

million populations in Taipei Metropolitan.

4. Future market supply and demand and growth

(1) Supply:

According to the 2011 funeral facilities published by the Ministry of Interior in 2012, there were

3,164 “public cemetery” designed by the end of 2011 for an area of about 9,600 hectares. There

were 11,000 coffins buried in the public cemetery in 2011, accounting for 7.6% of the mortality

rate nationwide. The burial (cemetery) rate is decreasing year by year. There were 458 “ashes

(skeletal) storage facilities” (columbarium) in 2011 for the accommodation of 8.01 million urns.

There were 180,000 columbariums setup in 2011 for a cumulative capacity utilization rate of

31.5%. There were 34 crematorium facilities (the place for cremating body or skeleton) in 2011,

representing an increase of 3 facilities from the year of 2001; there were 190 cremators,

representing an increase of 46 facilities from the year of 2001. A total of 139,125 bodies were

cremated in 2011, accounting for 89.77% of total deaths, representing 19.96% growth from the

year of 2001.

(2) Demand:

According to the data of the Ministry of Interior, the household registration population was

23.22 million in 2012. The mortality rate of residents in Taiwan was increased from 140,000

persons in 2007 to 150,000 persons in 2012. Taiwan has officially become an aging society

since 1993 and the percentage of senior citizen over 65 years old is increasing to 11.15% by the

end of 2012. The mortality rate is expected to reach 170,000 persons in the next decade.

Apparently, funeral industry has a good opportunity to grow in the future to come.

(3) Growth:

According to Taiwan pre-need contract trust fund statistics, Taiwan’s trust fund amounted to

NT$7.041 billion by the end of 2012. Assuming pre-need contract is sold for an average price of

NT$200,000, the necessary trust amount is NT$150,000 (75%); therefore, Taiwan’s pre-need

contract is sold for less than 50,000 contracts, accounting for only 1.8% of the senior citizens

over 65 years old. Thus, the market is with great potential to grow.

- 65 -

(4) Competition advantage:

A. For most consumers, buying columbarium or pre-need contract is a planned consumption,

so it is important to choose a company with long-term and stable operation. Lungyen is the

first listed/OTC funeral business and was rated the top-21 most profitable organization

(profitability is on the top-fifty) in service industry on the Top-1000 enterprises

investigated by Common Wealth Magazine in Vol. 471 of 2011; the top-3 of the fifty

fastest-growing service companies; the top-321 of the 500 largest service organizations,

open and transparent financial status, coupled with the protection of laws and government

agencies; therefore, our customers are well protected.

B. Lungyen, in order to feedback customers, has invested in constructing six-star centers

nationwide that are available to customers for their comfortable stay during the funeral

service. The heavy investment for feedback to customers has not only surprised the

industry but also kept the regional funeral businesses in distance.

C. Government authorities are planning for undertaker certification system; however,

Lungyen has been concentrating on enhancing personnel quality for years by sending

personnel to observe and learn in Japan with a set of pre-need contract developed for

domestic use and with funeral service technology exchange and cooperation signed with

SUN LIFE in Japan to learn about Japanese’s “people-oriented” funeral service” concept

and practice. Lungyen is the first funeral service business received ISO 9001 certification

in Asia and becomes a major subject of media coverage that helps secure the service

quality benchmark position.

(5) Favorable and unfavorable factors for development and countermeasures

A. The Company is committed to the development and sale of funeral hardware; also, is

dedicated to on-going concern with a department setup specially for funeral service,

promotes “pre-need contract” that has been offered in the USA and Japan for years,

implements the “one-stop-funeral” policy, improves service quality and range of services,

and expands the business scope to enter the funeral service field.

B. The Company is dedicated to help enhance personnel quality. Lungyen is the first funeral

service business received ISO 9001 certification in Asia and is assessed by the government

as “excellence in business” and becomes a major subject of media coverage that evidences

its service quality benchmark position.

C. The Company has always insisted on financial transparency practice for protecting the

interests of customers and the security of business operation. Clearly publish the

company’s revenue distribution status and flow by public offering, public financial

statements, and operation overview; also, becomes the first listed/OTC funeral service

business in Taiwan.

Unfavorable factors:

A. At the early stage of market development in Taiwan, under the traditional view of local

residents, the society sees funeral business differently; therefore, the sales organization and

system cannot be effectively expanded and it is difficult to access to the market and convey

the concept fully, coupled with the appearance of many illegal speculators, people have

doubt in the trade of columbarium and pre-need contract and they become conservative in

consumption and the market order is thereby undermined.

B. Funeral industry in general is with low social prestige. Compared to other industries,

funeral industry is less appealing than other industry and resulting in the industry isolation

and lack of talent.

- 66 -

C. Many unauthorized private practices operate illegally, fails to have invoices issued and tax

paid; also, pre-need contract sale is not deposited in trust that causes unfair competition.

Countermeasures:

A. Enhance undertaker’s professional attitude and service quality to differentiate from the

traditional funeral industry. Establish a new image and service quality standard for the

industry. Create different styles of funeral service to prevent the competitors from imitating

our operation. The acceptance of consumers for columbarium and pre-need contract is

growing that is evidenced by the sales growth; apparently, it is a successful marketing

strategy.

B. Initiate propaganda by media to educate the public; commission the relevant colleges and

institutions to conduct training, performance evaluation, and promotion, and recruit talents

through group operations with sufficient education and training provided.

C. Advertise government norms on the trust of pre-need contract through advertising and DM

propaganda. When all customers have this knowledge, the sale of pre-need contract by

illegal operators can be stopped. Furthermore, ask the government to set up inspection

teams to fine the illegal operators and to protect consumer’s interests, and to enhance the

overall image of the funeral industry and a healthy competition.

5.2.2 Usage of major products and manufacturing processes

1. Usage of major products:

The Company’s main products are divided into two groups, columbarium of columbarium and

funeral services. The intended use of columbarium is to provide the deceased with a comfortable

accommodation and make is easy for the visit of the descendants. The intended use of funeral

services is to provide a set of ceremonial funeral services in conformity with liturgy and enable

customers to plan for their funeral service in advance not only to relieve the descendants from the

dilemma of being not familiar with funeral rituals and procedures but also through the advance

payment to fight the worsening inflation.

2. Manufacturing processes of major products

Lungyen had True Dragon Tower constructed in the last decade with 380,000 columbariums

provided. The customer-oriented container frame and fitting is currently designed in response to

customer’s demand for columbarium. In addition, Lungyen, Tadao Ando, an international architect,

and Shanghai Yuan-Lin work together to develop Century Cemetery in order to provide customers

with the highest quality products.

The principal production processes of funeral services is when customers ask for performance the

Company will base on the contract signed to provide the most professional services. For the

non-contractual services requested by customers, the Company will do its best to provide the best

support and the customer satisfaction surveys will be performed at the end of the service provided

for reference in improvement and for even better fulfillment of customers’ needs.

- 67 -

5.2.3 The supply of main raw material:

Name of the main raw

material Vendor Name Classification Sources Supply

Funeral supplies A Bereavement layout Taiwan Excellence

Funeral supplies B Coffin Taiwan Excellence

Funeral supplies C Ceremonies Taiwan Excellence

Funeral supplies D Miscellaneous liturgy Taiwan Excellence

Funeral supplies E Ceremonies Taiwan Excellence

- 68 -

5.2.4 Primary customer sales list

1. Names of customers whose sales exceeded 10% of the Company’s total sales in any one of the last two years:

The Company is primarily engaged in sales of cremated remains storage facilities, funeral services, lease and sales of residential areas and buildings. Currently, products are presold to unspecified individuals and enterprises through consignment companies or the Company’s own channel. For the last two years, no sales to a specific customer have been greater than 10% of total annual sales. Therefore, the Company has no customers who accounted for more than 10% of total sales in the last two years.

2. Names of suppliers whose purchases exceeded 10% of total Company purchases in any one of the last two years

Primary suppliers

Unit: NTD thousand

100 years 101 years 1Q13

Item Name Amount

Proportion of the whole

year purchasing

(%)

Relationship with the publisher

Name Amount

Proportion of the whole

year purchasing

(%)


Name Amount

Net purchasing proportion up to the previous

quarter (%)


1 Ching Huang Construction Co., Ltd.

189,634 22.96 Subsidiary of the Company

Ching Huang Construction Co., Ltd.


Ching Huang Construction Co., Ltd.


2 You Ka En Inc. 25,540 13.01 Investee of the Company

Others 636,130 77.04 None Others 703,225 87.24 Others 131,921 67.21

Net purchase 825,764 100 Net purchase 806,067 100 Net purchase 196,285 100

Reasons for change Primary purchasing of the Company before Febuary 1, 2011 was contract construction projects and obtaining land for commercial construction. Contracted projects are handled by the subsidiary, Ching Huang Construction Co., Ltd. to control construction quality and work progress. After consolidation with Lung-Yen Life Service Corp. on Febuary 1, 2011, the primary purchasing became for cremated remains storage facility construction and funeral services. Because of location restrictions and the size and complexity of purchased items there is no specific supplier accounting for more than 10% of total purchasing.

Note: the annual purchase amount includes, construction in progress - increase in construction costs, increase in capitalized interest, cost for land transfers and the

purchasing of funeral service items.

- 69 -

5.2.5 Production capacity value for the most recent two years

Unit: NTD thousand

2011year 2012

Year

Production capacity

value

Primary goods

(or by department)

Capacity Production

quantity

Production

value Capacity

Production

quantity

Production

value

Products of True Dragon Tower 7,830 175,911 9,477 183,856

Products of Xiashan Yazhi －－ 375 106,906

Products of Beauty World 818 212,315 －－

Others 437,538 515,305

Total 825,764 806,067

Note: the Company does not manufacture its own products but relies on outsourced production. Therefore,

there is no production capacity.

In 2011 the company was mainly engaged in development of facilities for storage of cremated remains

and funeral services.

5.2.6 Sales value table for the most recent two years

Unit: NTD thousand

2011 2012

Domestic sales Export sales Domestic sales Export sales

Year

Sales volume

Primary products

(or by department)

Volume Value Volume Value Volume Value Volume Value

Columbarium products 7,171 places 2,198,259 10,480

places 2,346,935

Funeral services 4,536 cases 1,050,752 4,562 cases 1,215,347

Cemetery products 184 places 259,316 192 places 512,073

Summer Palace 1 place 400,000 －－

Others 263,571 299,905

Total 4,171,898 4,374,260

Note: The sales value is the recognized sales amount. The collection is recognized by the percentage

completion method. True Dragon Tower and cemetery products are recognized when the construction is

complete and fully paid up.

Cemetery sales were NTD2.458 billion in 2011 and accounted for 58.91% of annual revenue. The

funeral service revenue was NTD1.051 billion and accounted for 25.19% of annual revenue. Sales of

columbarium products were NTD2.859 billion and accounted for 65.36% of annual revenue. Funeral

service revenue was NTD1.215 billion and accounted for 27.78% of annual revenue.

- 70 -

5.3 Employee information

5.3.1 Human Resource structure

Year 2011 2012 Up to April 30, 2013 of the current year

Number of employees 534 508 481

Average age 34.74 36.14 35.03

Average years of service 3.13 3.36 3.21

Doctorate 0% 0% 0%

Masters 8.11% 16.39% 16.69%

University/college 75.68% 62.3% 70.24%

High School 16.19% 21.31% 13.07%

Dis

trib

uti

on o

f

educa

tion

Below High School 0% 0% 0%

Note 1: Distribution of education and service year is based on year-end data

2. Service years refer to years working in the Company

5.3.2 Employee development

Lungyen is committed to creating a continuing and diversified learning environment. With the idea

of enriching employees’ knowledge and skills, improving work efficiency, and enhancing

professionalism, Lungyen has established Education and Training Guidelines. It contains pre-job

training, intensive training, professional external training, and on-job training. There were 29

persons/times of Lungyen trained in 2012 for a total of 344.5 hours at an expense of

NT$145,955.Employee training and licenses obtained in 2012

Application unit Applicant Name of training course Hours Fee Was a license

obtained

Duration of

the training

Department of

Construction Rui-Chi, Chang AUTO CAD2012 Basic 12 6000

101.02.01

|

101.02.08

Department of

Construction Hui-Chan, Dai

Mix percentage of

auto-filling concrete and

production construction

8 6000

101.03.01

|

101.03.02

Department of

Construction Wen-Hsia, Tsai

Mix percentage of

auto-filling concrete and

production construction

8 6000

101.03.01

|

101.03.02

Department of

Procurement Ya-Chuan, Kao

Classic introduction of the

FIDIC Red Book 6.5 3000 101.03.13

Department of

Engineering

Procurement and

Development

Ban-Yao, Chang Classic introduction of the

FIDIC Red Book 6.5 3000 101.03.13

Department of

Engineering

Procurement and

Development

Rui-Chun, Liu Classic introduction of the

FIDIC Red Book 6.5 3000 101.03.13

Department of

Construction Kuo-Chang, Fan

Classic introduction of the

FIDIC Red Book 6.5 3000 101.03.13

Department of Human

Resources Chi-Ling, Liang

Planning and Establishment

of Labor Contracts with Case

Studies

6 4000 101.02.12

- 71 -

Application unit Applicant Name of training course Hours Fee Was a license

obtained

Duration of

the training

Department of

Construction Hsiu-Liang, Yeh

Quality Management

Practices in Steel Structure

Building Engineering

6.5 3000 101.03.23

Department of Training Shen-Jie, Wu Complete Application of

iTunes+ipad 4 600 101.03.26

Department of Training Kai-Ling, Wu Complete Application of

iTunes+ipad 4 600 101.03.26

Department of Training Cheng-Feng, Wang Complete Application of

iTunes+ipad 4 600 101.03.26

Department of Training Pei-Chuan, Liao Complete Application of

iTunes+ipad 4 600 101.03.26

Department of

Construction Rui-Chi, Chang

Lighting and Lighting Design

Professionals Training Class 45 11475

101.05.18

|

101.07.06

Department of

Planning and Design Mei-Hui, Cheng

Lighting and Lighting Design

Professionals Training Class 45 11475

101.05.18

|

101.07.06

Department of

Cemetery Management Shun-Chin, Chiang

Fire Prevention Management

Refresher Training 8 2000 Yes 101.04.16

Department of

Customer Satisfaction Yen-Yi, Su

Enterprise Internal

Information Protection 6 5100 101.04.19

Cemetery Management

Department – First

Division, Futian

Wei-Li, Chung Fire Prevention Management


Cemetery Management

Department – First

Division, Futian

Tsung-Che, Wu Fire Prevention Management


Department of Human

Resources Chi-Ling, Liang

Practical Resolution of

Second Generation National

Health Insurance

6 3300 101.02.12

Department of Human

Resources Chien-Hui, Yang

Practical Operations for

Labor and Health Insurance

Enrolment

6 3300 101.02.12

Department of

Construction Rui-Chi, Chang

Employee Welfare

Regulations Seminar for

2012

6 0 101.05.18

Board of Directors Ro Fujibayashi Chinese Course 50 25500

101.05.01

|

102.04.30

Security Room Hai-Hsiung, Wong Vehicle Safety (re-training) 8 2888 101.08.22

Security Room Tsou-Lian, Wei Vehicle Safety (re-training) 8 2888 101.08.22

Security Room Chih-Chiang, Hsiao Vehicle Safety (re-training) 8 2888 101.08.22

Security Room Chin-Hwa, Ding Vehicle Safety (re-training) 8 2888 101.08.22

Security Room Ming-Jay, Lin Automotive Safety +

Defensive Driving Classes 40 16853

101.08.10

|

101.08.16

Department of

Cemetery Management

- Sanzhi

All team members

of Sanzhi Reception Etiquette Course 2 12000 101.12.28

- 72 -

5.3.3 Code of Ethics, Working Behavior and Regulatory Compliance

Longyen, since its establishment has upheld “people oriented” and “professional, honest, and

compassionate” as our business philosophy and core values. We provide our customers with

considerate services and good quality goods, enhance industry upgrade and promote “justice,

fairness and openness”. The only publically listed life services company

In this kind of environment, honesty and integrity are the key when Longyen is selecting talent. We

also set up “Employee Conduct Regulations” to stipulate general standards and give employees a

base criteria for behavior. This is a mutual commitment of the entire company. Below is the SOP of

the Employee Conduct Regulations:

1. General regulations

2. Employee Relationship Maintenance

3. Prohibition on holding more than one job concurrently and avoidance of conflicts of interest

4. Rules on gifting and entertainment

5. Confidentiality Regulations

6. Maintenance of information completeness and accuracy

7. Maintenance of intellectual property

8. Non-public information use regulations

9. Prohibition on bribes: It is forbidden to approach officials with the intent of offering bribes or

gifts (including gifts or equivalent voucher, coupons or stock) in exchange for convenience of

business control.

10. Responsibility and obligation to report

5.4 Environment protection expenditure information

5.4.1 According to regulations, if the Company should apply for a permit for pollution facility

installment, a permit for pollution emission, payment of a pollution protection fee or setting

up of responsible personnel for environmental protection, the situation of application,

contribution and setup should be explained: Not applicable.

5.4.2 Investment in facilities for environmental protection, use and potential benefit: Not

applicable

5.4.3 In the most recent two years and up until the publication of the annual report, in the process

of environmental pollution improvements, any disputes arising and an explanation of the

handling procedure adopted: Not applicable.

5.4.4 In the current year up until publication of the annual report has the Company suffered losses

due to environmental pollution: None.

5.4.5 Current pollution situation and the effect of improvements on the Company’s earnings,

competitive status, impact on capital expenditure and the estimated material capital

expenditure for environmental protection: None.

5.4.6 Related information on ROSH EU restrictions:

The Company’s products are not exported directly or indirectly to Europe and are not impacted by

- 73 -

ROSH.

- 74 -

5.5 Employer/employee relationship

5.5.1 Employee welfare measures including advanced study, training and pension plan, actual

status of agreements between employer and employees and safeguarding of employee rights

and interests are as below:

1. Employee welfare, advanced study and training measures:

(1) National health insurance and labor insurance are provided in accordance with regulations

(2) Training courses are provided to improve the professionalism of employees

(3) Annual bonus

(4) Employee Welfare Committee established to handle various welfare activities

A. Organize group activities, birthday gifts, Labor Day gift vouchers, wedding/funeral gifts,

injury and sickness consolation, maternity benefits, Dragon Boat Festival/Moon Festival

gift vouchers, employee travel subsidies.

B. Department group meals, birthday celebrations, Family Day and year-end party

(5) Clubs: basketball and badminton

2. Pension plan:

The Company applies the defined contribution pension plan. The pension is funded by the Company

based on no lower than 6% of monthly salary and deposited in employees’ designated pension

accounts.

3. Status of employer/employee agreements:

Relationships with employees are always harmonious and there are no labor disputes. Thus there are

no agreements in place.

4. Measures for the maintenance of employee rights and interests

The Company has Human Resources guidelines and regulations in place. Employee rights and

obligations are stated in detail and the Company spares no efforts to protect employee rights.

5.5.2 In the most recent two years and up until publication of the Annual Report has the Company

suffered any losses due to labor disputes? Please disclose the possible amount of losses

currently and in the future and related measures:

1. In the most recent two years and up until publication of the Annual Report has the Company

suffered losses due to labor disputes: None.

2. Possible amount of losses due to labor disputes currently and in the future and related measures:

Relationships with employees are always harmonious and so far there have been no labor disputes.

The Company calls labor meetings irregularly to improve labor relationships. Employee briefings,

monthly meetings and department meetings are irregularly held and a hotline has been set up to deal

with issues of colleagues.

- 75 -

5.5.3 Disclose work environment and employee safety protection measures:

The Company is part of the service industry so employees aren’t exposed to the same risks as in the

manufacturing industry. The Company has work environment and employee safety protection

measures in place. In addition the company has a commitment to a safe and comfortable working

environment, protection from occupational disease and hazards, maintenance of health of employees,

increasing awareness of environmental health and safety, exercise of responsibilities and shaping of

the corporate culture.

Employee personal safety and work environment implementation in 2012 is as below:

1. Regular medical checkups

2. Regular drinking water checkup

3. Regular environment cleaning and sterilization

4. Smoking prohibition within buildings

5. Regular examination for elevator operation

6. Prohibition on dumping of goods in emergency staircases

7. Group insurance consulting time every Friday by Farglory Life insurance company.

8. Employee fire safety training seminar

9. Access card security management notice and advocacy

10. Clear marking of hazardous materials and substances and waste classification in the work

environment

11. Employee emergency escape route planning and advocacy

12. Set up of an emergency response team and immediate notification of employees during

typhoons and earthquakes

- 76 -

5.6 Important Contracts

As of publication of the Annual Report, valid and continuing supply contracts that will expire within one

year, technical cooperation contracts, construction contracts and other important contracts that could impact

investor rights:

Nature of the

contract Project type Party

Contract start and

end dates Primary content

Restrictive

articles

Hengzhou S. Road Bai-zhou, Lin Transfer date -

February 22, 2005

Jing Hua Section, Daan

District, Taipei City －

Li Ho Section,

Hsinyi District

He- Sung,

Chengetc

Transfer date -

February 8, 2007

Li Ho Section, Hsinyi


Yen Chi renewal

projects

Yi-Xian, Yeh,

etc

Transfer date -

December 21, 2007

Ren Ai Section, Daan


Land contract

Chung Fu Section,

Chung Li

Zhu-Zhong,

Zhan

Transfer date - May

5, 2011

Chung Fu Section,

Chung Li －

Tung Shi, Hsichih

Ching Huang

Construction

Co., Ltd.

November 26, 2007,

up until the expiry of

the warranty period

New construction

project

Warranty for

two years

Min Shan, Nei-Hu

Ching Huang

Construction

Co., Ltd.

September 20, 2010,


the warranty period

New construction

project

Warranty for

one year

Tainan Convention

Center

Da-Sheng

Construction

Corp.

September 15, 2010,


the warranty period

New construction

project

Warranty for

one year

Construction

contract

26 hectare project

Ching Huang

Construction

Co., Ltd.

January 18, 2010, up

until the expiry of

the warranty period

Water conservation

plans and miscellaneous

works

Warranty for

one year

Nangang District

Zhongnan Section China Trust 100/12/2~103/12/2

Medium-term secured

loans －

Tung Shi, Hsichih China Trust 100/12/2~102/12/2 Medium-term secured

loans －

Li Ho Section,

Hsinyi District

Taipei Fubon

Bank 100/9/16~103/9/16

Land for construction -

Li Ho Section, Hsinyi

District

－

Financial Center Chang Hwa

Bank 100/7/22~102/7/31

Short-term secured loans

Secured by real estate

Da-Ya Department

Store

Chang Hwa

Bank 100/8/18~102/7/31

Medium-term secured

loans

Secured by real estate

－

Loan contract

Loan from

Industrial Bank of

Taiwan

Industrial Bank

of Taiwan 100/3/1~105/2/29

Medium-term secured

loans －

Trust contract Preneed contract

Escrow trust

Chang Hwa

Bank 101/12/28~111/12/27

Preneed contract

Escrow trust －

- 77 -

6. Financial profile

6.1 Condensed balance sheet and income statement of the latest five years

1. Condensed balance sheet and comprehensive income statement

Condensed balance sheet

Unit: NT Thousands

Financial data of the latest five years (Note1) Year

Item 97 years 98 years 99 years 100 years 101 years

Up to current year

March 31, 2013

Financial information (Note 2)

Current assets －－－－－ 23,887,003

Realty, factory buildings and

equipment (Note2) －－－－－ 4,763,954

Intangible assets －－－－－ 777,160

Other assets (Note 2) －－－－－ 430,587

Total assets －－－－－ 38,689,324

Pre-distribution －－－－－ 29,710,537 Current

liabilities Post-distribution －－－－－ Not applicable

Non-current liabilities －－－－－ 95,355

Pre-distribution －－－－－ 29,805,892 Total

liabilities Post-distribution －－－－－ Not applicable

Attributable to owners of the

parent company －－－－－ 8,077,772

Common stock －－－－－ 3,990,842

Additional paid-in capital －－－－－ 1,392,072

Pre-distribution －－－－－ 2,709,197 Retained

earnings Post-distribution －－－－－ Not applicable

Other equity －－－－－ (14,339)

Treasury stock －－－－－－

Non-controlling interest －－－－－ 805,660

Pre-distribution －－－－－ 38,689,324 Equity

Total Post-distribution －－－－－ Not applicable

* If the Company has compiled unconsolidated financial statements, the condensed balance sheet and comprehensive

income statements of the last five years should be compiled also.

* If the company adopted IFRS for less than five years, the following statements should be compiled as well (2)

financial information prepared in accordance with Generally Accepted Accounting Principles of the Republic of

China.

Note 1: IFRS was not adopted for 2008-2012 so there is financial information related to it.

Note 2: Financial information up to March 31, 2013 has been reviewed by CPA

- 78 -

Condensed comprehensive income statement

Unit: NT Thousands



Up to current year

March 31, 2013

Financial information (Note 2)

Operating income －－－－－ 990,545

Gross profits －－－－－ 720,500

Operating profit －－－－－ 382,276

Non-operating income and

expenses －－－－－ 77,082

Net income before tax －－－－－ 459,358

Continuing operating unit

net income －－－－－ 424,088

Discontinued unit loss －－－－－－

Net income (loss) －－－－－ 424,088

Other comprehensive income

(net of tax) －－－－－ 5,496

Other total comprehensive

income －－－－－ 429,584

Profit attributable to owners

of the parent company －－－－－ 402,551

Profit attributable to owners

of non-controlling interests －－－－－ 21,537

Comprehensive income

attributable to owners of the

parent company

－－－－－ 408,047

Comprehensive income

attributable to owners of

non-controlling interests

－－－－－ 21,537

EPS －－－－－ 1.01

* If the Company has compiled unconsolidated financial statements, the condensed balance sheet and comprehensive

income statements of the last five years should be compiled also.



China.



- 79 -

2. Condensed Balance Sheet and Income Statement – R.O.C. Financial Accounting Standards

Condensed Balance Sheet – R.O.C. Financial Accounting Standards

Unit: NTD thousand



Current assets 2,171,550 2,574,927 2,210,086 21,850,232 21,144,886

Fund and investment 31,379 70,468 2,495,247 1,829,479 2,163,638

Fixed assets (Note 2) 2,950 1,003 648 12,067,889 12,212,037

Intangible assets 0 0 0 735,178 735,178

Other assets 8,810 9,206 8,402 1,388,082 1,350,642

Total assets 2,214,689 2,655,604 4,714,383 37,870,860 37,606,381

Pre-distribution 991,717 512,884 146,989 30,342,756 29,236,269 Current liabilities

Post-distribution 991,717 512,884 745,615 31,540,009 Note 2

Long-term liabilities 0 0 0 0 0

Other liabilities 58 0 0 65,534 63,309

Pre-distribution 991,775 512,884 146,989 30,408,290 29,299,578 Total liabilities

Post-distribution 991,775 512,884 745,615 31,605,543 Note 2

Common stock 1,072,350 3,072,350 3,821,593 3,990,842 3,990,842

Additional paid-in capital 0 0 389 1,451,808 1,451,808

Pre-distribution 150,564 (929,630) 771,421 2,034,072 2,883,988 Retained earnings

Post-distribution 150,564 (929,630) 172,795 836,820 Note 2

Unrealized gains and losses of financial instruments

0 0 0 (301) 369

Accumulated translation adjustment 0 0 (26,009) (13,851) (20,204)

Pre-distribution 1,222,914 2,142,720 4,567,394 7,462,570 8,306,803 Total shareholders’ equity Post-distribution 1,222,914 2,142,720 3,968,768 6,265,317 Note 2

Note 1: Audited 2008-2012 annual financial information

Note 2: 2012 earnings distribution is yet to be resolved in the shareholders’ meeting

Condensed Income Statement – R.O.C. Financial Accounting Standards

Unit: NTD thousand



Operating income 28,664 614,415 292,664 4,171,898 4,374,260

Gross profits 4,144 171,069 44,389 2,932,360 3,155,496

Operating profit (32,892) 94,687 (17,030) 1,760,019 1,955,921

Non-operating revenue and gains 3,254 20,224 892,444 316,656 357,322

Non-operating expenses and losses 16,104 487 780 76,336 27,801

Net Income before Tax of the continuing department

(45,742) 114,424 874,634 2,000,339 2,285,442

Net Income of the continuing department

(51,222) 119,806 874,634 1,861,277 2,047,169

Net Income (51,222) 119,806 874,634 1,861,277 2,047,169

EPS (0.48) 0.44 0.73 4.68 5.13


- 80 -

6.2 Financial analysis of the latest five years

6.2.1 Financial analysis

Latest five years financial analysis Year (Note 1)

Analysis items (Note 3) 97 years 98 years 99 years 100 years 101 years

Up to current year

March 31, 2013

(Note 2)

Liabilities/Assets ratio －－－－－ 77.04

Fin

anci

al

stru

cture（

%）

Long-term cash realty, factory

buildings and equipment ratio －－－－－ 188.47

Current ratio －－－－－ 80.40

Quick ratio －－－－－ 11.17

Solv

ency

abil

ity r

atio

Times Interest Earned Ratio －－－－－ 10822.64

Average collection turnover

(times) －－－－－ 1666.41

Average collection days －－－－－ 21.90

Average inventory turnover

(times) －－－－－ 8.94

Average payable turnover

(times) －－－－－ 199.84

Days sales outstanding －－－－－ 4082.77

Realty, factory buildings and

equipment turnover rate (times) －－－－－ 87.22 O

per

atio

nal

per

form

ance

Total assets turnover (times) －－－－－ 10.68

Return on total assets (%) －－－－－ 4.45

Equity return ratio (%) －－－－－ 19.57

Operating

income －－－－－ 41.89

Paid-in Capital

Ratio (%) Income before

tax －－－－－ 46.04

Net profit margin (%) －－－－－ 41.33

Pro

fita

bil

ity

EPS (NTD) －－－－－ 1.01

Cash flow ratio (%) －－－－－ 11.14

Cash flow adequacy ratio (%) －－－－－－

Cas

h f

low

Cash flow reinvestment ratio

(%) －－－－－ 825.81

Operating leverage －－－－－ 127.78

Lev

erag

e

Financial leverage －－－－－ 101.04

Please explain the reason for any financial ratio change in the most recent two years (if the increase/decrease change

rate is below 20%, no analysis required): The financial data with the implementation of IFRS in 2008-2012 are not

available for comparison; therefore, the analysis of change cannot be performed.

* If unconsolidated financial statements are compiled by the Company, the unconsolidated financial analysis should

be presented separately.



China.

- 81 -



Note 3: the calculation formula below should be presented at the end of the annual financial report

1. Financial structure (%)

(1) Debt ratio

(2) Long-term funds to fixed assets ratio Realty, factory buildings and equipment ratio = (Equity total

amount + non-current liabilities) / Realty, factory buildings net

2. Liquidity Analysis

(1) Current ratio = Current asset/ current liability

(2) Quick ratio = (Current-inventory-prepaid expense) / Current liabilities

(3) Times Interest Earned = Net income before income tax and interest expense / Interest expense

3. Operating performance

(1) Accounts receivable (including accounts receivable and notes receivable from operations) turnover

= Net sales / Average account receivable balance (including accounts receivable and notes receivable

from operations)

(2) Average collection days = 365 / Average collection turnover

(3) Average inventory turnover = Cost of goods sold / Average inventory

(4) Average payable turnover (including accounts payable and notes payable from operation) = Cost of

goods sold/ average payables balance (including accounts payable and notes payable from

operations)

(5) Average sales days = 365/ Inventory turnover

(6) Realty, factory buildings and equipment Turn over = Net sales / Average realty, factory buildings

and equipment net.

(7) Total assets turnover = Net sales / Average total assets

4. Profitability

(1) Assets/remuneration ratio (%) = (Income after tax + Interest expense (1-tax rate) / Average asset

(2) Return on equity (%) ＝ Income after tax / Average equity total amount

(3) Net margin

(4) EPS = (The profit or loss attributable to the parent company’s shareholders’ equity - Preferred stock

/ Weighted average stock issued. (Note 4)

5. Cash flow

(1) Cash flow ratio = Cash flow from operation activities / Current liabilities

(2) Net cash flow adequacy flow ratio = Cash flow from operational activities of latest five years /

(Capital expenditure + Inventory incremental + Cash dividend) of latest five years

(3) Cash reinvestment ratio = (Cash flow from operational activities - Cash dividend) / (Realty, factory

buildings and equipment Gross amount + Long-term investment + Others Non-current fixed assets +

Operation capital) (Note 5)

6. Leverage ratio

(1) Operational leverage ratio = (Net operation revenue-variable operation cost and expense) /

Operation income (Note 6)

(2) Financial leverage ratio = Operation income / (Operation income - Interest expense)

Note 4: Pay attention to the below items while evaluating the above EPS calculation formula:

1. Common stocks are based on weighted-average stocks, not on the year-end issuance

2. If there is a cash capital increase or treasury transaction, the outstanding period should be considered for

weighted-average stock calculation.

3. If there is a capitalization of earnings or capitalization of the additional paid-in capital, the adjustment

should be done retroactively by capitalization percentage. No consideration for the issued period of the

replenishment.

- 82 -

4. If the preferred stock is unconvertible cumulative preferred stock, the dividend for the year (whether the

dividend is paid or not) should be deducted from the net income or added to the net loss .If the preferred

stock is non-cumulative and there is a net income, the preferred stock dividend should be deducted from

the net income. If there is a loss, then, no adjustment is required.

Note 5: For cash-flow analysis note the following items when balancing:

1. Cash flow from operating activities means the net cash-in-flow from operating activities in cash flow

statement.

2. Capital expenditure is the cash–out–flow for capital investment annually.

3. The inventory increase is only accounted when the ending balance is greater than the beginning balance.

If the year-end inventory decreases, then, count as zero.

4. Cash dividend includes cash dividend for common stock and preferred stock

5. Realty, factory buildings and equipment The gross amount is the amount before the depreciation of Realty,

factory buildings, equipment Total amount

Note 6: The issuer should distinguish each operational cost and operational expense as fixed and variable costs by

nature. If it refers to estimation or subjective judgment, the consistency and reasonableness should be noted.

Note 7: the proportion of foreign companies to received capital is change to net value ratio.

- 83 -

6.2.2 Financial analysis – R.O.C. Financial Accounting Standards

The most recent five-year financial analysis Year (Note 1) Analysis items (Note 2) 97 years 98 years 99 years 100 years 101 years

Liabilities/Assets ratio 44.78 19.31 3.12 80.29 77.91

Fin

anci

al

stru

cture

(%

)

Ratio of Long-term capital to fixed assets

41454.71 213631.11 704844.75 62.38 68.54

Current ratio 218.97 502.05 1503.57 71.95 72.32

Quick ratio 9.65 51.12 352.14 31.90 33.72

Solv

ency

abil

ity r

atio

Times Interest Earned Ratio Note 3 Note 3 Note 3 113.64 86.55

Average collection turnover (times) 139.82 27.31 12.69 76.54 26.51

Average collection days 2.61 13.37 28.76 4.77 13.77

Average inventory turnover (times) 0.02 0.22 0.13 0.21 0.12

Average payable turnover (times) 0.24 3.05 1.81 5.89 3.92

Days sales outstanding 18250 1659 2807.69 1756.93 3041.67

Fixed assets turnover (times) 8.5 612.58 451.64 0.34 0.36

Oper

atio

nal

per

form

ance

Total assets turnover (times) 0.01 0.23 0.06 0.12 0.12

Return on total assets (%) -2.52 4.92 23.74 8.80 5.48

Return on shareholder’s equity (%) -4.10 7.12 26.07 30.94 25.96

Operating income -3.67 3.08 -0.45 44.10 49.01 To Paid-in Capital ratio (%) Income before tax -4.27 3.72 22.89 50.12 57.27

Net profit margin (%) -178.70 19.50 298.85 39.45 46.80 Pro

fita

bil

ity

EPS (NTD) -0.48 0.44 2.33 4.68 5.13

Cash flow ratio (%) Note 2 Note 2 161.72 4.39 8.67

Cash flow adequacy ratio (%) 6.43 Note 2 Note 2 31.61 62.15

Cas

h f

low

Cash flow reinvestment ratio (%) Note 2 Note 2 5.22 17.69 16.03

Operating leverage 0.07 1.42 -2.48 1.50 1.15

Lev

erag

e

Financial leverage 1.00 1.00 1.00 1.01 1.01

Please indicate the root cause of changes in financial ratios in the last two years.(Changes for less than 20% are exempt from analysis)

1. Times interest earned ratio decreased by 24%: It is mainly due to the increase of interest expense paid for bank loan from the year before.

2. Accounts receivable turnover rate decreased by 65% and average days in collection increased by 189%: It is mainly due to the increase of sales revenue with installment payment from the year before, resulting in increase in accounts receivable. Therefore, accounts receivable turnover rate is lower than the previous period and average days in collection is increased.

3. Inventory turnover rate decreased by 43%, average days in sales increased by 73%: It is mainly to the decrease of investment in construction from the year before, resulting in inventory decrease in inventory; therefore, turnover rate is lower than the year before and average days in sales is increased from the previous period.

4. Accounts payable turnover rate decreased by 33%: It is mainly due to the decrease of investment in construction from the year before; therefore, average accounts payable at yearend is higher than the year before and accounts payable turnover rate is decreased.

5. Return on assets decreased by 38%: It is mainly due to merging the subsidiary on February 1, 2011, resulting in the total assets in 2011 increased significantly; therefore, the current return on assets is decreased.

6. Cash flow adequacy ratio increased by 97%: It is mainly due to the increase of net income and the decrease of investment in construction, resulting in increase in cash flow from operating activities; therefore, cash flow adequacy ratio is increased.

- 84 -


Note 2: It is not applicable in the case of a negative value.

Note 3: The 2008 and 2007 interest expenditures were capitalized; therefore, the related interest rate has been

disregarded.

The capitalized interest is excluded from the imputation of Time Interest Earned Ratio.

Note 4: the calculation formula below should be presented at the end of the annual financial report

1. Financial structure (%)

(1) Debt ratio

(2) Ratio of Long-term capital to fixed assets = (Net shareholders’ equity + Long-term liabilities) / Net

fixed assets

2. Liquidity Analysis

(1) Current ratio = Current asset / Current liability

(2) Quick ratio = (Current-inventory-prepaid expense) / Current liabilities

(3) Times Interest Earned = Net income before income tax and interest expense / Interest expense

3. Operating performance

(1) Accounts receivable (including accounts receivable and notes receivable from operations) turnover

= Net sales / Average account receivable balance (including accounts receivable and notes receivable

from operations)

(2) Average collection days = 365 / Average collection turnover

(3) Average inventory turnover = Cost of goods sold / Average inventory

(4) Average payable turnover (including accounts payable and notes payable from operation) = Cost of

goods sold / Average payables balance (including accounts payable and notes payable from

operations)

(5) Average sales days = 365/ Inventory turnover

(6) Fixed Assets Turnover = Net Sales / Average Net Fixed Assets

(7) Total assets turnover = Net sales / Average total assets

4. Profitability

(1) Assets/remuneration ratio (%) = (Income after tax + Interest expense (1-tax rate) / Average asset

(2) Return on shareholder’s equity = Net income / Average shareholders’ equity

(3) Net margin

(4) Earnings per share = (Net Income - Preferred stock dividends) / Weighted average shares issued

(Note 4)

5. Cash flow

(1) Cash flow ratio = Cash flow from operation activities / Current liabilities

(2) Net cash flow adequacy flow ratio = Cash flow from operational activities of latest five years /

(Capital expenditure + Inventory incremental + Cash dividend) of latest five years

(3) Cash reinvestment ratio = (Net cash flow from operating activities - Cash dividend) / (Gross fixed

assets + Long-term investment + Other assets + Working capital) (Note 5)

6. Leverage ratio

(1) Operational leverage ratio = (Net operation revenue-variable operation cost and expense) /

Operation income

(2) Financial leverage ratio = Operation income / (Operation income-interest expense)

Note 3: Pay attention to the below items while evaluating the above EPS calculation formula:

1. Common stocks are based on weighted-average stocks, not on the year-end issuance

2. If there is a cash capital increase or treasury transaction, the outstanding period should be considered for

weighted-average stock calculation.

- 85 -

3. If there is a capitalization of earnings or capitalization of the additional paid-in capital, the adjustment

should be done retroactively by capitalization percentage. No consideration for the issued period of the

replenishment.

4. If the preferred stock is unconvertible cumulative preferred stock, the dividend for the year (whether the

dividend is paid or not) should be deducted from the net income or added to the net loss .If the preferred

stock is non-cumulative and there is a net income, the preferred stock dividend should be deducted from

the net income. If there is a loss, then, no adjustment is required.

Note 4: For cash-flow analysis note the following items when balancing:

1. Cash flow from operating activities means the net cash-in-flow from operating activities in cash flow

statement.

2. Capital expenditure is the cash–out–flow for capital investment annually.

3. The inventory increase is only accounted when the ending balance is greater than the beginning balance.

If the year-end inventory decreases, then, count as zero.

4. Cash dividend includes cash dividend for common stock and preferred stock

5. Gross fixed assets meant for the total fixed assets before deducting the accumulated depreciation

Note 5: The issuer should distinguish each operational cost and operational expense as fixed and variable costs by

nature. If it refers to estimation or subjective judgment, the consistency and reasonableness should be noted.

6.3 The CPA’s name and the opinion of last five years:

Year Name of CPA firm Name CPA Audit disclosure

97 KPMG Li-Zhen, Lai; Chia- Xiu, Chen Unqualified opinion

98 KPMG Li-Zhen, Lai; Chia- Xiu, Chen Unqualified opinion

99 KPMG Taiwan Chia-Xiu, Chen; Shu-Ying, Chang Unqualified opinion

100 KPMG Taiwan Li-Zhen, Lai; Chia- Xiu, Chen Modified unqualified opinion

101 KPMG Taiwan Li-Zhen, Lai; Chia- Xiu, Chen Modified unqualified opinion

- 86 -

6.4 Audit report of audit committee for the latest year financial statements

Lungyen Life Service Corp. (The former Da-Han Construction Co., Ltd.)

Audit Committee’s Report

Authorized

The Board of Directors of the Company have prepared the Annual Business Report for 2013, Financial

Statements and earnings distribution cases, etc., of which the financial statements have been audited by

Li-Zhen, Lai and Chia- Xiu, who are both CPAs of KPMG, and the audit report is issued.

The Business Report, financial statements, and earnings distribution report referred to above are audited and

concluded by the Audit Committee members in compliance with Article 14.4 of the Securities and Exchange

Act and Article 219 of the Company Law.

To

Lungyen Life Service Corp. (formerly Da-Han Construction Co., Ltd.) 2013 General Shareholders’ Meeting

Independent Director: Chi Husan Liu

Independent director: Shu Yeh

Independent Director: You Bin Huang

March 21, 2013

- 87 -

6.5 Financial report of the latest year

Cover Page

(English Translation of Financial Report Originally Issued in Chinese)

Lungyen Life Service Corp. and Subsidiaries

(Formerly Known as Dahan Development Corp.)

Financial Statements

For The Years Ended December 31, 2012 and 2011

Address: 1F., No. 166, Sec. 2, Minquan E. Rd., Taipei City

Tel. No.: (02)2712-1628


- 88 -

Table of Contents

Item Page No.

I. Cover Page.....................................................................................................................................87

II. Table of Contents...........................................................................................................................88

III. Independent Auditor’s Audit Report..............................................................................................89

IV. Balance Sheet ................................................................................................................................90

V. Income Statement ..........................................................................................................................91

VI. Statement of Changes in Shareholders’ Equity..............................................................................92

VII. Statement of Cash Flow.................................................................................................................93

VIII. Notes to Financial Statements

(I) Company profile ............................................................................................... 95

(II) Summary of important accounting policies.................................................... 95~103

(III) Effects of changes in accounting policies.......................................................... 103

(IV) Significant account disclosures......................................................................103~120

(V) Transactions with related parties....................................................................120~125

(VI) Pledged assets .................................................................................................. 125

(VII) Significant undertakings or contingencies......................................................125~128

(VIII) Significant disaster loss: None.......................................................................... 128

(IX) Significant subsequent events: None..............................................................128~129

(X) Others ...........................................................................................................129~131

(XI) Disclosures....................................................................................................131~136

(XII) Financial information by department ................................................................ 136


- 89 -

Independent Auditor’s Audit Report

To Board of Directors of Lungyen Life Service Corp. (Formerly Known as Dahan Development Corp.):

We have audited the balance sheets of Lungyen Life Service Corp. (formerly known as Dahan Development

Corp.) as of December 31, 2012 and 2011, and the related statements of income, statement of changes in

shareholders’ equity and statement of cash flows for the period then ended. These financial statements are the

responsibility of the Company’s management. Our responsibility is to express an opinion on these financial

statements based on our audits. The financial statements of some investees of Lungyen Life Service Corp.

(formerly known as Dahan Development Corp.) and its subsidiaries evaluated under equity method were

audited by other auditors. All amounts related to investment income and the information about the investees

presented in the foregoing financial statements were accounted for on the basis of the investee’s financial

statement audited by other auditors. The long-term equity investment under equity method of said investees

were NT$30,024 thousand and NT$29,305 thousand as of December 31, 2012 and 2011, accounting for

0.08% and 0.08% of the total assets, respectively,. The investment loss, net recognized in 2012 and 2011,

were NT$49 thousand and NT$394 thousand, accounting for 0.002% and 0.020%of the net income before

income tax, respectively,.

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial

Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of

China. Those standards require that we plan and perform the audits to obtain reasonable assurance about

whether the financial statements are free of material misstatement. An audit includes examining, on a test

basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by management, as well as

evaluating the overall financial statement presentation. We believe that our audits and the other auditors’

report provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the financial statements referred to in

the first paragraph present fairly, in all material respects, the financial position of Lungyen Life Service Corp.

(formerly known as Dahan Development Corp.) and its subsidiaries of December 31, 2012 and 2011, and the

results of their operations and their cash flows for the years then ended in conformity with the Guidelines

Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally

accepted in the Republic of China.

As stated in Note 1 of Financial Statements, Lungyen Life Service Corp. (formerly known as Dahan

Development Corp.) has been consolidated with Lungyen Life Service Co., Ltd. upon resolution made by the

temporary shareholders’ meeting on October 12, 2010. The consolidation was completed on February 1,

2011. The surviving company upon consolidation was Lungyen Life Service Corp. (formerly known as

Dahan Development Corp.), and the company was renamed Lungyen Life Service Corp.

Lungyen Life Service Corp. (formerly known as Dahan Development Corp.) has prepared its consolidated

financial statements for 2012 and 2011, and we also expressed revised unqualified opinions and unqualified

opinions in our auditor’s reports for reference.

KPMG

CPA:

Approval Document issued by the

competent securities authority:

(2000) Tai-Tsai-Chen (6) No. 62474

(1999) Tai-Tsai-Chen (6) No. 18311

March, 2012




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Balance Sheet


(All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)

12.31.2012 12.31.2011

Assets Amount % Amount %

Cuurent assets:

1100 Cash and cash equivalents (Note 4(1)) $ 191,984 1 413,762 1

1120 Receivable notes and accounts, net (Note 7(7)) 208,217 1 121,851 -

1310 Financial assets at fair value through profit or loss – current (Notes 4(2) and (6))

310,292 1 623,890 2

1190 Other financial assets – current (Note 5 and 7) 1,520,155 4 1,194,025 3

1221 Building and land held for sale (Note 4(3)) 5,957 - 8,810 -

1222 Columbarium and Cemetery for sale (Note 4(3)) 1,441,333 4 1,804,939 5

1223 Construction land (Notes 4(4) and 6) 1,094,244 3 1,094,244 3

1224 Construction in process (Notes 4(5), 5, 6 and 7) 6,721,921 18 6,871,121 18

1225 Land prepayment (Notes 4(6) and 7) 486,565 1 484,013 1

1285 Deferred marketing expenses (Note 4(7)) 8,746,108 23 8,878,656 23

1291 Restricted (Note 6) 194,476 1 195,922 1

1298 Other current assets (Note 4(16)) 223,634 1 158,999 1

21,144,886 58 21,850,232 58

Fund and long-term investment:

1421 Long-term equity investment under the equity method (Note 4(8)) 1,615,864 4 1,722,407 5

1480 Financial assets carried at cost – non-current (Note 4(2)) 521,819 1 65,471 -

1440 Other financial assets – non-current (Note 5) 25,955 - 41,601 -

2,163,638 5 1,829,479 5

Property, plant and equipment (Notes 4(5), (9), 5, 6 and 7):

1501 Land 1,974,767 5 2,671,636 7

1521 House and building 639,816 2 714,976 2

1531 Office equipments 91,210 - 90,428 -

1551 Transportation equipment 86,756 - 45,750 -

1552 Other equipments 38,612 - 33,710 -

1553 Assets rented to others 7,853,680 21 8,001,689 21

1621 Leased assets 30,035 - 30,035 -

1631 Leasehold improvement 821 - 821 -

1671 Unfinished construction 2,166,028 6 1,076,935 3

1672 Advance receipts for real estate and equipment 42,619 - 36,534 -

12,924,344 34 12,702,514 33

15X9 Less: accumulated depreciation (712,307) (2) (634,625) (2)

12,212,037 32 12,067,889 31

Intangible assets (Note 4(10)):

1710 Trademark right 192,750 1 192,750 1

1760 Goodwill 542,428 1 542,428 1

735,178 2 735,178 2

Other assets:

1860 Deferred income tax assets – non-current (Note 4(16)) 478,396 1 561,915 2

1880 Other deferred expenses 42,498 - 46,475 -

1888 Other assets – others (Notes 4(11) and 6) 829,748 2 779,692 2

1,350,642 3 1,388,082 4

Total assets $ 37,606,381 100 37,870,860 100

12.31.2012 12.31.2011

Liabilities and shareholders’ equity Amount % Amount %

Current liabilities:

2100 Short-term loan (Note 4(12)) $ 1,940,000 5 3,040,000 8

2120 Payable notes and accounts, net 322,149 1 252,425 1

2130 Payable accounts – related parties (Note 5) 28,436 - 47,864 -

2160 Payable income tax (Note 4(16)) 84,189 - 311,958 1

2170 Payable expenses (Note 4(19)) 205,573 1 180,306 -

2210 Other payables (Note 5) 150,312 - 132,971 -

2262 Advance receipts for real estate (Note 4(13) and 7) 144 - 1,010 -

2263 Advance receipts (Notes 4(14), 5 and 7) 26,466,334 70 26,353,108 70

2280 Other current liabilities 39,132 - 23,114 -

29,236,269 77 30,342,756 80

Other liabilities:

2810 Accrued pension liabilities (Note 4(15)) 20,314 - 19,459 -

2820 Deposit received 42,995 - 46,075 -

63,309 - 65,534 -

Total liabilities 29,299,578 77 30,408,290 80

Shareholders’ equity (Notes 4(8), 4(16), 4(17), 4(18) and 4(19)):

3110 Capital stock: 3,990,842 11 3,990,842 11

Common stock

3211 Capital surplus: 1,392,072 4 1,392,072 4

3260 Common stock premium 59,736 - 59,736 -

Long-term investment 1,451,808 4 1,451,808 4

3310 Retained earnings: 263,270 1 77,142 -

3320 Legal reserve 14,153 - 26,009 -

3351 Special reserve 2,606,565 7 1,930,921 5

Unappropriated earnings 2,883,988 8 2,034,072 5

3420 Other shareholders’ equity: (20,204) - (13,851) -

3451 Accumulated translation adjustment 369 - (301) -

Unrealized loss from financial assets (19,835) - (14,152) -

Total shareholders’ equity 8,306,803 23 7,462,570 20

Significant undertakings or contingencies (Note 7)

Total liabilities and shareholders’ equity $ 37,606,381 100 37,870,860 100




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Income Statement


(All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Earnings per Share)

2012 2011

Amount % Amount %

4000 Operating revenue (Note 5):

4511 Construction revenue $ 4,839 - 431,682 11

4310 Leasehold revenue 221,338 5 169,570 4

4700 Columbarium and Cemetery revenue 2,859,008 65 2,457,575 59

4710 Funeral service revenue 1,215,347 28 1,050,752 25

4881 Other operating revenue 73,728 2 62,319 1

4,374,260 100 4,171,898 100

5000 Operating cost (Note 5):

5510 Construction cost 3,141 - 170,354 4

5310 Leasehold cost 132,526 3 109,538 3

5690 Columbarium and Cemetery cost 328,170 8 258,698 6

5691 Funeral service cost 726,203 17 677,996 16

5800 Other operating costs 28,724 1 22,952 1

1,218,764 29 1,239,538 30

5910 Gross profit 3,155,496 71 2,932,360 70

6000 Operating expenses:

6100 Selling expenses 900,069 21 838,553 20

6200 General and administrative expenses (Note 5) 299,506 7 333,788 8

1,199,575 28 1,172,341 28

6900 Operating profit (loss) 1,955,921 43 1,760,019 42

7100 Non-operating revenue and gain:

7110 Interest revenue (Note 5) 11,784 - 2,612 -

7121 Income from investment under the equity method (Note

4(8) and 5)

84,388 2 49,929 1

7122 Stock dividend revenue 21,574 - 29,728 1

7130 Gain from disposal of Property, plant and equipment 2,415 - - -

7170 Revenue from counter-party default 167,243 4 215,789 5

7310 Gain on valuation of financial assets (Note 4(2)) 32,218 1 - -

7480 Miscellaneous revenues (Note 5) 37,700 1 18,598 -

357,322 8 316,656 7

7500 Non-operating expenses and losses:

7510 Interest expenses (Note 4(5)) 26,715 1 17,758 -

7530 Loss from disposal of Property, plant and equipment - - 30,029 1

7640 Loss on valuation of financial assets (Note 4(2)) - - 10,691 -

7560 Exchange loss 408 - 1,290 -

7880 Miscellaneous expenses 678 - 16,568 -

27,801 1 76,336 1

7900 Continuing operating income before tax 2,285,442 50 2,000,339 48

8110 Income tax expense (Note 4(16)) 238,273 5 139,062 3

9600 Net income $ 2,047,169 45 1,861,277 45

Before Tax After Tax Before Tax After Tax

9750 Basic earnings per share (NTD) (Note 4(20)) $ 5.73 5.13 5.03 4.68

9850 Diluted earnings per share (NTD) (Note 4(20)) $ 5.72 5.13 5.03 4.68




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Statement of Changes in Shareholders’ Equity



Other shareholders’ equity adjustment:

Retained earnings

Common stock

Capital surplus

Legal reserve

Special reserve

Unappropriated earnings

Accumulated translation adjustment

Unrealized loss from financial

assets Total

Balance – January 1, 2011 $ 3,821,593 389 - - 771,421 (26,009) - 4,567,394

Long-term investment acquired by issuance of new shares 169,249 1,392,072 - - - - - 1,561,321

Allocation of earnings in 2010 (note 1):

Legal reserve - - 77,142 - (77,142) - - -

Special reserve - - - 26,009 (26,009) - - -

hareholders’ bonus – cash, NT$1.5 per share - - - - (598,626) - - (598,626)

Net profit in 2011 - - - - 1,861,277 - - 1,861,277

Change in net value of investee’s equity under equity method - 59,347 - - - 12,158 (301) 71,204

Balance – December 31, 2011 3,990,842 1,451,808 77,142 26,009 1,930,921 (13,851) (301) 7,462,570

Allocation of earnings in 2011 (note 2):

Legal reserve - - 186,128 - (186,128) - - -

Special reserve - - - (11,856) 11,856 - - -

hareholders’ bonus – cash, NT$3.0 per share - - - - (1,197,253) - - (1,197,253)

Net profit in 2012 - - - - 2,047,169 - - 2,047,169

Change in net value of investee’s equity under equity method - - - - - (6,353) 670 (5,683)

Balance – December 31, 2012 $ 3,990,842 1,451,808 263,270 14,153 2,606,565 (20,204) 369 8,306,803

Note 1: The remuneration to directors/supervisors, NT$12,343 thousand, and bonus to employees, NT$6,171 thousand, have been eliminated from the income statement.





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Statement of Cash Flow



2012 2011

Cash flows from operating activities:

Net income before income tax $ 2,047,169 1,861,277

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization expenses 107,033 114,054

Allowance for doubtful accounts 17,089 16,816

Gain from price recovery of inventory (1,800) (21,100)

Gain from investment under equity method (84,388) (49,929)

Loss (gain) from disposal and scrapping of Property, plant and equipment (2,415) 30,029

Loss (gain) on valuation of financial assets (32,218) 10,691

Acquisition of cash dividends of investees under equity method - 2,372

Net changes in operating assets and liabilities:

Net changes in operating assets:

Decrease (increase) in financial assets held for trading 345,816 304,511

Decrease (increase) in receivable notes and accounts (103,455) (101,655)

Decrease (increase) in inventory 455,435 (19,108)

Decrease in deferred marketing expenses 132,548 144,523

Decrease (increase) in other current assets (61,576) (824)

Increase in other financial assets (343,800) (1,146,908)

Increase in deferred income tax assets 53,529 (59,557)

Net changes in operating liabilities:

Increase (decrease) in payable notes and accounts 50,296 30,002

Decrease in payable income tax (199,538) (155,473)

Increase in payable expenses 25,267 96,221

Increase (decrease) in advance receipts for real estate 112,360 234,491

Increase (decrease) in other current liabilities 16,697 41,005

Increase in accrued pension liabilities 855 632

Net cash provided by operating activities 2,534,904 1,332,070

Cash flows from investing activities:

Long-term equity investment under equity method (272,400) (1,094,748)

Purchase of property, plant and equipment (260,401) (3,922,281)

Proceeds from disposal of property, plant and equipment 95,575 67,934

Increase in deferred expenses (3,829) (4,570)

Increase in restricted assets 1,446 (10,946)

Cash inflows generated from consolidation - 1,715,996

Decrease in other financial assets 33,316 11,392

Increase in other assets (50,056) (147,479)

Net cash used by investing activities: (456,349) (3,384,702)




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Statement of Cash Flow (Cont’d)



2012 2011

Cash flows from financing activities:

Increase (decrease) in short-term loan (1,100,000) 3,040,000

Increase in deposit received (3,080) 14,601

Allocation of cash dividend (1,197,253) (598,626)

Net cash inflow (outflow)) from financing activities (2,300,333) 2,455,975

Net increase (decrease) in cash and cash equivalents this period (221,778) 403,343

Cash and cash equivalents, beginning of the period 413,762 10,419

Cash and cash equivalents, ending of the period $ 191,984 413,762

Supplemental disclosures of cash flow information:

Interest paid this period $ 26,715 17,758

Less: Capitalized interest - -

Excluding the interest paid this period for capitalized interest $ 26,715 17,758

Income tax paid $ 391,072 353,740

Investing and financing activities not affecting cash flows:

Property, plant and equipment translated into inventory $ - 423,092

Inventory translated into property, plant and equipment $ 59,472 848,789

Long-term equity investment acquired by issuance of new shares $ - 1,561,321

Disclosure of information about subsidiaries:

The Company acquired 25% of the equity of Lungyen Life Service Co., Ltd. on February 1, 2011, and held the shares

of Lungyen Life Service Corp. wholly accumulatedly. On the same day, the Company was consolidated with Lungyen

Life Service Corp. The fair values of its assets/liabilities are stated as follows:

Cash and cash equivalents $ 1,715,996

Other current assets 18,820,426

Financial assets carried at cost – non-current 65,471

Long-term equity investment under the equity method 512,627

Other financial assets – non-current 55,037

Property, plant and equipment 8,402,172

Other assets 1,161,989

30,733,718

Current liabilities 26,909,185

Long-term liabilities with interest: 800

Other liabilities 50,301

26,960,286

Net 3,773,432

% of equity 25%

Net value of equity 943,358

Add: Goodwill 425,213

Trademark right 192,750

The market value for the shares issued upon acquisition of 25% of shares of

Lungyen Life Service Co., Ltd. $ 1,561,321


Notes to Financial Statements of Lungyen Life Service Corp.

(Formerly Known as Dahan Development Corp.) (Cont’d)

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Notes to Financial Statements



(I) Company profile

Lungyen Life Service Corp. (formerly known as Dahan Development Corp.) (hereinafter referred to

as the “Company”) was incorporated in March 1987. The Company is primarily engaged in funeral

service, development and lease of interment premises, and development and lease of residential areas

and buildings.

In order to respond to the merger and acquisition policy encouraged by the Government, and to

enhance the effect of future resources integration and utilization, and development of strategic

businesses, the Company was consolidated with Lungyen Life Service Co., Ltd. pursuant to the

Merger and Acquisition Act and other related laws, upon the resolution made at the temporary

shareholders’ meeting held on October 12, 2010. The consolidation was approved by the Financial

Supervisory Commission of Executive Yuan via its approval letter under Ching-Kuan-Chen-Fa-Tze

No. 1000001274 dated January 26, 2011. On the same day, the Board of Directors of the Company

also approved that the base date of consolidation should be February 1, 2011. The Company was

held the surviving company upon the consolidation and renamed Lungyen Life Service Corp. The

registration of relevant changes was also completed on March 18, 2011.

The Company has hired 415 employees and 461 employees respectively as of December 31, 2012

and 2011.

(II) Summary of important accounting policies

The Company’s financial statements were prepared in accordance with the Guidelines Governing the

Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted

in the R.O.C. The important accounting policies and estimation basis are summarized as follows:

(1) Accounting estimates

The Company has made necessary estimations, assessments and disclosures on the assets, liabilities,

income, loss and profit or contingencies based on necessary assumptions and estimations when

preparing the financial statements. However, the actual results may vary from the assumptions and

estimations.

(2) Translation of foreign currency exchanges and foreign currency financial statements

The Company’s accounts are expressed in NTD in bookkeeping. The foreign currency exchange for

non-derivative instruments shall be expressed at the spot exchange rate on the date of exchange. The

exchange for monetary assets or liabilities expressed in foreign currencies on the balance sheet date

shall be converted at the spot exchange rate on the same day. Differences resulting from the

exchange are recognized as current gains or losses. The exchange for non-monetary assets or

liabilities expressed in foreign currencies shall be estimated at the historical exchange rate on the




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date of exchange, provided that the exchange for non-monetary assets or liabilities at fair value

expressed in foreign currencies shall be converted at the spot exchange rate on the balance sheet date.

In the case of the assets or liabilities at fair value through profit or loss, the differences resulting from

such exchange are recognized as current gains or losses. In the case of the assets or liabilities at fair

value through the statement of changes in shareholders’ equity, the differences resulting from such

exchange are recognized as the adjustment of changes in shareholders’ equity.

The Company’s overseas long-term equity investments under equity method are all expressed in

functional currencies in bookkeeping. The differences resulting from translation of the foreign

currency financial statements into the local currency financial statements are stated into the

accumulated translation adjustment under shareholders’ equity as net of tax.

(3) Current and non-current assets and liabilities

Current assets include cash or cash equivalents for which the purposes are not restricted, and assets

held for the purpose of transaction or for a short-term, and estimated to be realized within a business

cycle (generally one year for construction business). Any assets other than current assets are included

in non-current items.

Current liabilities are debts to be paid off within a business cycle. Any liabilities other than current

liabilities are classified as non-current items.

(4) Asset impairment

The Company estimates the collectible amount of the assets likely to be impaired on the balance

sheet date (individual assets other than good will or cash generation unit), and recognizes the assets

with collectible amount less than the book value as impairment loss. Where the cumulative

impairment loss of the assets other than goodwill recognized in previous years does not exist or

decreases, they shall be reversed to increase the book value to the collectible amount, provided that it

shall not exceed the amount less depreciation or amortization under the circumstance that the

impairment loss of the assets is not recognized.

It is necessary to conduct the impairment test on goodwill, indefinite-life intangible assets and

intangibles not available-for-use, and recognize the assets with collectible amount less than the book

value as impairment loss.

(5) Cash equivalents

The cash equivalents referred to herein means the short-term and high-liquidity investments that may

be converted to specific cash and will mature soon, seldom affected by the fluctuation in the interest

rate thereof, including treasury bills, commercial papers, and bank acceptances which will mature or

be prepaid within three months from the date of investment.

(6) Financial assets

1. Financial assets at fair value through profit or loss

Such assets include the financial instruments acquired or generated primarily for the purpose of sale

within a short term or repurchased for trading, and the financial derivatives as held. Except the

financial instruments designated and being effective hedging means, the other assets shall be




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classified as financial assets at fair value through profit or loss. These financial assets are initially

recognized at fair value with transaction costs that are directly attributable to the acquisition. When

subsequently measured at fair value, the changes in fair value are recognized in current income. A

regular way purchase or sale of financial assets is accounted for using settlement date accounting.

2. Acquisition of financial assets carried at cost

Such assets include the investments in equity instruments with no significant influence and with fair

value that cannot be reliably measured, which shall be measured at their original cost. An impairment

loss is recognized when there is objective evidence that the assets are impaired. A reversal of this

impairment loss is not allowed.

3. Receivable notes and accounts, other receivables

The receivable notes and accounts refer to the creditor’s right generated from sale of instruments or

labor services. The other receivables refer to the other receivables and notes generated from any

causes other than operation.

With respect to financial assets, the Company first evaluates the financial assets carried at cost less

amortization to determine whether there is any objective evidence showing impairment on

significant individual financial assets and on non-significant individual financial assets, alone or

jointly. It is not necessary to conduct consolidated impairment evaluation on the financial assets, the

impairment on which has already been assessed individually and was recognized, or recognized

continuously.

The impairment value is the difference in the book value of financial assets and the value after the

projected cash flow is discounted at initial interest rate. The book value of financial assets is adjusted

through allowance account. The impairment value shall be stated as current income. When

determining the impairment value, the estimation for projected cash flows includes the collectible

value of collateral and related insurance.

Should there be a decrease in the amount of subsequent impairment, and it is obviously related to

events that occurred after recognition of impairment loss, such reversal shall not cause the book

value to exceed the cost after amortization under unrecognition of impairment loss. The reversal

shall be recognized as current income.

(7) Construction accounting and revenue recognition

The Company calculates the cost of investment in construction of buildings subject to various

projects. Where any of the following conditions is met, the gain from sale of real estate may be

recognized based on the percentage of completion method, and the others shall be settled as income

upon residence delivery after completion of the project:

1. The construction progress exceeds the preparation and planning stage; in other words, the

construction design, planning, contract and soil preparation are completed and the construction

may be performed at any time.

2. The aggregate of pre-sale contracts amounts to the estimated total construction cost.

3. The aggregate of pre-sale contracts amounts to 15% of the total contract amount.

4. The collectability of receivable contract amount may be estimated reasonably.




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5. The total construction cost to be invested to perform the contract and percentage of completion

at the end of the period may be estimated reasonably.

6. The cost attributed to the sale contract is identifiable reasonably.

If the percentage of completion method is applied, the percentage of completion shall be measured

based on the actual construction progress.

The land purchased or acquired shall be stated as “construction land” after title registration. The

payment made for purchase of the land prior to registration of the title shall be stated as “land

prepayment”. The cost of construction land and construction invested in the various projects shall be

stated as “construction in process”, and then re-stated into “real estate held for sale” upon completion

of the project. The payment received for pre-sale real estate shall be stated as “advance receipts for

real estate”. The selling expenses incurred by the pre-sale shall be stated as “deferred selling

expenses”. If residence delivery after completion of construction is applied, “real estate held for

sale”, “advance receipts for real estate” and “deferred selling expenses” shall be re-stated to current

income subject to the part sold. If the completed contract method is applied, the gain on the sale shall

be calculated accumulatively based on the percentages of completion and sale at the end of the

period, and recognized as current gain on the sale less the accumulated gains recognized in the

previous period.

The year for attribution of income from completion and residence delivery shall be identified as of

the date when the construction is completed and the residence may be delivered and also is delivered

physically. If only the title is registered (or only the premises is delivered) prior to the balance sheet

date, but the premises is delivered physically (or the title is registered) in the subsequent period, the

income shall be deemed realized already.

The interest expenses incurred before the work in process (including land and construction cost)

becomes available or completed shall be capitalized.

The sold and unsold construction costs may be amortized based on the percentage of selling price or

floor area, provided that no alteration is permitted in the previous and following years of the same

project once the percentage is selected.

The construction land, construction in process and real estate held for sale shall be stated at cost.

Then, they should be measured at the lower of the cost and net realized value. The net realized value

shall be based on the selling price estimated under normal operation on the balance sheet date less

the cost and selling expenses to be invested until completion of the construction.

According to the interpretation letter under (97) Kee-Mi-Tze No. 191 dated June 13, 2008, the

revenue from disposal of undeveloped land shall be stated as operating revenue.

(8) Accounting principles for investment in construction of columbarium and cemetery or sale:

In the case of building on own land, the income thereof shall be recognized based on the complete

contract method.

The work in process includes the construction land and construction costs. Upon completion of the

project, the part of permanent license already transferred to customers based on the percentage of the

selling price of columbarium and cemetery shall be re-stated into current operating costs, while the

other parts are re-stated into the columbarium and cemetery for sale. The payment received from

pre-sale of columbarium and cemetery shall be stated as advance receipt at first. Upon completion of

the project, the part of permanent license already transferred to customers shall be re-stated into the

operating revenue. The deferred marketing expenses mean the direct marketing expenses incurred by

the pre-sale of columbarium and cemetery during the construction period. Upon completion of the




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project, such expenses shall be recognized as current expenses based on the revenue.

The interest expenses incurred before the work in process (including land and work under

construction) becomes available or completed shall be capitalized.

The columbarium and cemetery for sale shall be valued at the lower of cost and net realized value.

(9) Accounting principles for funeral services

The income from supply of funeral and interment services shall be recognized based on the

completed performance method.

The payment received from reserved labor service contracts shall be stated as advance receipts at

first. Upon completion of the labor services, the receipt from labor services already supplied shall be

re-stated into operating revenue. The direct marketing expenses incurred by the pre-sale service

contracts shall be stated as deferred marketing expenses, and then re-stated into current expenses

upon completion of the service.

(10) Long-term investment under equity method

Investments in corporations in which the Company’s ownership interest is 20% or more or over

which the Company can exercise a significant influence are accounted under the equity method. The

difference between the investment cost and the net value of the investee’s equity at the time of the

Company's investment is processed in accordance with the amended “Statement of Financial

Accounting Standards for Long-Term Equity Investment Under Equity Method”. In the case of

depreciable, depletable or amortizable assets, the difference shall be amortized according to the

estimated residual economic years. If the difference arises because the book value of assets is higher

or lower than the fair value, the unamortized difference shall be written off in full when the

overestimation or underestimation extinguishes. The excess of the investment cost over the fair value

of the identifiable net assets acquired, if any, is recognized as goodwill. The excess of the fair value

of the net identifiable assets acquired over the investment cost, if any, is reduced in proportion to the

respective fair values of the non-current assets, and the remaining excess, if any, shall be recognized

as an extraordinary gain. In the case of sale, the difference between the selling price and the book

value of such investment on the date of disposition is recognized as the income from disposal of

long-term equity investment. The balance of capital surplus generated from the long-term equity

investment, if any, shall be stated as current income based on the percentage of sale.

In the case of swap of another company’s equity by issuance of new shares, the investment shall be

stated at the fair value of the new shares as delivered or fair value of the swapped equity. The

difference between the cost and issuing price of new shares shall be credited as capital surplus;

otherwise, it shall be stated as retained earnings. If any public quotation for equity securities issued

or swapped is available, the fair value thereof shall be based on that prevailing within a reasonable

time limit before and after the date of publication of the share swap contract.

It is necessary to conduct the test on impairment per year. If there is any specific circumstance or

change showing that the goodwill has been impaired, it is necessary to conduct the test on

impairment immediately and recognize the part with collectible amount less than book value as

impairment loss.

The Company evaluates the investees with controlling power under the equity method and prepares

the consolidated financial statements on a quarterly basis.




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Gains or losses on transactions between the Company and its equity-method investees and

subsidiaries are deferred until such gains or losses are realized. Gains or losses arising from

depreciable or amortizable assets are recognized over the economic lives. Where the transactions are

generated by other assets, the gains or losses thereon shall be recognized in the year of realization.

(11) Property, plant & equipment, assets rented to others, depreciation, and gain or loss from

disposal of property, plant & equipment

Property, plant & equipment and assets rented to others are stated at the acquisition cost, and valued

based on the cost less accumulated depreciation. The interest expenses borne by the payment made

for the assets purchased or constructed before the assets become available shall be capitalized and

stated as the asset cost. Significant improvements, additions and renewals are treated as capital

expenditure, while maintenance and repairs are charged to expense as incurred. The gain or loss from

disposal of property, plant & equipment is stated as current non-operating revenue or expenditure.

The leased assets shall be stated at the lower of the fair value and the present value of the whole

payable rent (less the performance cost to be borne by the lessor) and preferential purchasing price or

guaranteed residual value at the time of lease. The leased subject matter which may be acquired

without consideration or subject to preemptive right upon expiration of the lease shall be depreciated

based on the estimated useful years under the average method, while that not subject to preemptive

right shall be depreciated based on the term of lease under average method. When the estimated

economic years expire, the depreciable assets, which are still in use, are depreciated over the newly

estimated remaining useful years.

Depreciation is calculated based on the cost by the straight-line method over useful years. The

leasehold improvement is amortized by the average method over the shorter of the lease years or

estimated useful years.

As of November 20, 2008, the Company stated the obligations to remove or recover estimated during

the period other than that during which the property, plant & equipment were used in production of

inventories as property, plant & equipment cost in accordance with the Interpretation under

Kee-Mi-Tze No. 340 dated November 20, 2008 from the Accounting Research and Development

Foundation (ARDF). Any part of property, plant & equipment which is held important to the total

cost shall be depreciated individually. The Company evaluates the residual useful years, depreciation

and residual value of property, plant & equipment at the end of FY each year. The changes in

residual useful years, depreciation and residual value shall be recognized as the changes in

accounting principles.

The useful years of substantial property, plant & equipment are specified as follows:

House and building 3~55 years

Office equipments 3~5 years

Transportation equipment 5 years

Other equipments 2~10 years

Assets rented to others 3~55 years

Leased assets 3 years

Leasehold improvement 2 years




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(12) Consolidated goodwill

Goodwill means the excess of acquisition cost in the recognizable fair value of assets, which shall be

measured based on the cost recognized initially less accumulated impairment.

(13) Idle assets

The land and building which are usable but not used for business shall be stated as idle assets and

re-stated into other assets, valued at the lower of the net realizable value or book value. According to

the amended Statement of Financial Accounting Standards No. 1, the Company re-stated, amortized

and depreciated the idle assets which were not required to be re-stated at the lower of the net

realizable value or book value based on the cost, accumulated depreciation and accumulated

impairment for the original titles.

(14) Revenue recognition

The revenue shall be recognized upon transfer of the title in goods and significant risk or completion

of labor services, when evidence of the revenue generation process is complete and the revenue is

realized or the collectability is reasonably assured.

If any contract was breached and no installment account receivable has been made for more than two

years in the case of columbarium and cemetery contracts, or no installment account receivable for

more than nine years in the case of pre-need contracts, the advance receipts for such contracts shall

be stated as revenue from counter-party default less refundable amount and necessary expenditure.

Installment sales are based on the sale method. The current income thereof shall be based on cash

sale price and cost. Meanwhile, the excess of the installment sale price in the cash sale price shall be

stated as unrealized interest revenue, and realized interest revenue shall be recognized based on the

interest method. Unrealized interest revenue shall be stated as less items under receivable notes and

accounts.

(15) Employees’ pension plan

The Company has put in place a pension plan covering all formal employees. According to the plan,

each employee who meets the retirement conditions may earn two base units for each year of his/her

service seniority. Each employee will earn two base units for the first 15 years of service seniority,

provided that the employee shall earn no more than 45 base units ultimately. The residual seniority

more than a half year shall be counted as one year, while the residual seniority less than a half year

shall be counted as a half year. The criteria on base units for pension shall be based on the average

salary of the last one month prior to approval of the retirement. Further, where the employee is

incapacitated due to mental defect or physical handicap when performing his/her duty and is retired

compulsorily, the Company shall pay said pension plus 20%. Under the plan, the pension shall be

borne by the Company in whole. The “Labor Pension Act” (hereinafter referred to as the “new

system”) was enforced as of July 1, 2005. If the employee who applied for the plan initially selects to

apply for the service seniority under the new system, the defined contribution plan shall apply.

Meanwhile, the defined contribution plan shall also apply to the service seniority of employees who

are hired upon enforcement of the new system. The contribution rate of pension fund allocated by the

Company must not be less than 6% of employees’ monthly salaries, and the fund shall be saved in

the labor pension fund account. Notwithstanding, the Company’s pension plan has not yet been

amended to deal with the enforcement of the new system. Therefore, any matters not provided in the

pension plan shall be handled in accordance with the Labor Pension Act.




- 102 -

The Company applies SFAS No. 18 “Accounting for Pension Plans” and completes the actuarial

calculation under the defined benefit plan on the date of final accounting in each FY. The excess of

accumulated benefit obligation in the fair value of pension fund assets shall be recognized as the

minimum pension liabilities on the balance sheet. Meanwhile, according to the competent securities

authority’s requirement, the Company recognizes the net pension cost pursuant to the standards,

including the current service cost and transitional net assets, previous service cost and pension

income amortized by the straight line method over the employee’s residual service seniority of 15

years. According to the Labor Standard Law, the Company contributes the pension reserve

equivalent to 2% of the total monthly salary to the exclusive account at Bank of Taiwan.

Under the defined contribution plan, the Company contributes 6% of the monthly salary to the

Bureau of Labor Insurance pursuant to the Labor Pension Act. The contributions are stated as current

expenses.

(16) Bonus to Employees and Remuneration to Directors and Supervisors

As of January 1, 2008 (incl.), the Company adopted Interpretation under (96) Kee-Mi-Tze No. 052,

“Accounting for Bonuses to Employees, Directors and Supervisors” issued by the ARDF and makes

an accrual for the amount of directors’ and supervisors’ remuneration for inclusion in the accounts as

either “operating cost” or “operating expenses” according to the nature of the remuneration. Any

differences between the amounts resolved in subsequent shareholders' meetings and the amounts

estimated in the financial statements are treated as changes in accounting principles, and recognized

as current income.

(17) Income tax

The income tax is estimated in accordance with the Income Tax Act and related laws. Excesses and

shortages of income tax paid in previous years are presented as adjustments to income tax expenses

for the current year. If the difference between the accounting income and taxable income is of the

nature of time, the Company applies intra-period and inter-period allocations for its income tax.

Whereby tax effects of taxable temporary differences are recognized as deferred tax liabilities and

tax effects of deductible temporary differences, carry-forward loss and income tax deductions are

recognized as deferred income tax assets. Valuation allowances are provided to the extent, if any, that

it is more likely than not that deferred income tax assets will not be realized.

The Company’s distributable unappropriated earnings treated under the Business Accounting Act less

the adjustment required by tax laws may be reserved at the discretion of the annual shareholders’

meeting in the next year’s meeting. The unappropriated earnings may be subject to a one-time

additional 10% corporation income tax and stated as income tax expenses in the year of the

resolution made by the shareholders’ meeting.

(18) Earnings per Share

Earnings per share is computed based on the net income in the current period dividing by the

weighted average shares of outstanding common stock. The bonus to employees which has not yet

been resolved by the shareholders' meeting but may be allocated in the form of stock is referred to as

potential common stock. If the common stock has the function of dilution, only the basic earnings

per share should be disclosed; otherwise, diluted earnings per share should be disclosed too.

Earnings per share is diluted under the hypothesis that all potential common stocks with the function

of dilution are outstanding in the current period. Therefore, the income in the current period and




- 103 -

outstanding common stocks are adjusted due to the effect of potential common stock with the

function of dilution. The new shares increased due to earnings and capital surplus increase shall be

computed based on retroactive adjustment.

(19) Disclosure of information by operation department

The Company has disclosed the information by operation department in the consolidated financial

statement. Therefore, no information by operation department was disclosed in the individual

financial statement.

(III) Effects of changes in accounting policies

As of January 1, 2011, the Company has adopted the Statement of Financial Accounting Standards

No. 41 “Disclosure of Information by Operation Department”. According to the Statement, the

enterprise shall disclose information helpful for users of the financial statement to evaluate the

business activities conducted by the enterprise and the nature of economic environment under which

the enterprise operates and financial effect thereof. The Company decides and expresses the

operation department based on the information provided to the decision policy maker internally.

Meanwhile, according to the Statement, the Company has disclosed the information by department in

the consolidated financial statement. Therefore, no information by department was disclosed in the

individual financial statement. The Statement also replaces the Statement of Financial Accounting

Standards No. 20 "Disclosure of financial information by department”. Notwithstanding, said

changes in the accounting principles would not produce any effect on the income in the financial

statements of the Company in 2011.

As of January 1, 2011, the Company has also adopted 3rd amendments to the Statement of Financial

Accounting Standards No. 34 “Accounting Principles for Financial Instruments”. According to the

Statement, the loan stated initially and receivable accounts shall apply the recognition, subsequent

evaluation and impairment with respect to the loans and receivable accounts under the Statements.

Notwithstanding, said changes in the accounting principles would not produce any effect on the

income in the financial statements of the Company in 2011.

(IV) Significant account disclosures

(1) Cash and cash equivalents

12.31.2012 12.31.2011

Cash on hand and petty cash $ 3,680 2,006

Bank deposit

Checking deposit 7 60

Demand deposit 188,297 411,696

Subtotal 188,304 411,756

Total $ 191,984 413,762




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(2) Financial instruments

The financial assets held by the Company on December 31, 2012 and 2011 are specified as follows:

12.31.2012 12.31.2011

Financial assets at fair value through profit or loss - current

Financial assets held for trading:

Listed (OTC) stock $ 255,060 452,934

Beneficiary certificate 55,232 170,956

Total $ 310,292 623,890

Financial assets carried at cost – non-current

Investment in stock—PK Venture Capital Corp. $ 54,255 54,255

Investment in stock –FORTUNE IC FUND I 11,216 11,216

Investment in stock－Asia Best Healthcare Co., Ltd 456,348 -

Total $ 521,819 65,471

1. The Company valuated said financial assets in accordance with the Statement of Financial

Accounting Standards No. 34 in 2012 and 2011, and recognized the gains(losses) on valuation,

$32m218 thousand and ($10,691) thousand, respectively.

2. The financial assets carried at cost – non-current were stated at cost, as there was no quoted

price in active market and with fair value available.

3. Regarding to the Company’s equity of Asia Best Healthcare, please refer to Note 4(8) for the

details about circumstances transferred by long-term equity investment under equity method on

December 31, 2012 and 2011.

4. Please refer to Note 6 for the details about circumstances secured by said financial assets on

December 31, 2011.

(3) Building and land held for sale, and columbarium and cemetery

1. Building and land held for sale

12.31.2012 12.31.2011

Project

Land held for

sale

Building held for

sale Realized

gain Total

Land held for

sale

Building held for

sale Realized

gain Total

Summer Palace $ 308 574 - 882 1,231 2,297 - 3,528

Green Castle Dazhi 4,482 3,180 - 7,662 4,482 3,181 - 7,663

Beitou Dahan 1,956 2,057 - 4,013 2,934 3,085 - 6,019

Muzha Museum Collection $ 6,746 5,811 - 12,557 8,647 8,563 - 17,210

Subtotal (6,600) (8,400)

Less: Allowance for loss on

price decline

$ 5,957

8,810




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2. Columbarium and cemetery for sale

Project 12.31.2012 12.31.2011

True Dragon Tower $ 644,187 1,131,885

Lung Tai Ling 245,719 245,719

Cemetery Area 149,604 203,013

Bamboo Abode 33,136 40,909

Beauty World 162,339 183,413

XiaShan YaJhr 203,271 -

Others 3,077 -

Total $ 1,441,333 1,804,939

3. The allowance for loss on price decline of inventory is the total of the allowance for loss on

price decline of inventory for construction land and building and land held for sale upon

valuation adjustment at the end of the period. As a result of the sale of the building and land

held for sale for which the allowance for loss on price decline of inventory has already been

provided in 2011, the net realized value increased and decrease in operating cost, $21,100

thousand, was recognized.

(4) Construction land

Project 12.31.2011 12.31.2010

2nd Subsection, Li Ho Section, Hsinyi District $ 569,314 569,314

2nd Subsection, Xi Hu Section, Neihu District 38,748 38,748

4th Subsection, Jing Hua Section, Daan District 8,989 8,989

Land No. 730, 1st Subsection, Jen Ai 240,060 240,060

Land No. 211, 2nd Subsection, Yu Cheng Section, Nangang

District

172,459 172,459

3rd Subsection, Daan Section, Daan District 71,374 71,374

Min Chi Section, Sanchung 1,100,944 1,100,944

Subtotal (6,700) (6,700)

Less: Allowance for loss on price decline $ 1,094,244 1,094,244

On December 31, 2010 and 2011, the Company furnished said construction land, in part, to secure

the bank loan. For details, please refer to Note 6.




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(5) Construction in process

1. Real estate in process

Land Cost Project Cost Total

Mode of Investment

Projected Year of Completion

12.31.2012

Heng Chou S. Road $ 40,873 640 41,513 Self-building

on self land

TBD

Chung Nan Section,

Nangang

2,160,863 48,656 2,209,519 Self-building

on self land

2015

Total $ 2,201,736 49,296 2,251,032

12.31.2011


on self land

TBD

Chung Nan Section,

Nangang

2,160,863 29,984 2,190,847 Self-building

on self land

2015

Total $ 2,201,736 30,544 2,232,280

1) In 2012 and 2011, the total interest expenditures of the Company were $26,715thousand and

$17,758 thousand. The capitalized interests on construction in process were both $0.

2) On December 31, 2012 and 2011, all of said projects failed to meet the conditions applicable

under the percentage of completion method.

3) On December 31, 2012 and 2011, the Company furnished said construction in process, in part,

to secure the bank loan. For details, please refer to Note 6.

4) On December 31 2011, the Company planned to arrange the construction in process, Tung Shih,

Hsichih, as the Group’s operation office premises in the future in order to upgrade the utilization

of asset. Therefore, the relevant book value, $840,491 thousand, was re-stated into the property,

plant & equipment-unfinished construction in whole subject to the nature of future occupation.

2. Columbarium and cemetery in process

12.31.2012

Project Land Cost Project Land Cost

True Dragon Tower $ 196,688 1,791,784 1,988,472

Sanzhi Area 97,997 550,435 648,432

Cemetery Area 1,301,905 11,921 1,313,826

Hua-lien Tower 97,956 422,203 520,159

Total $ 1,694,546 2,776,343 4,470,889




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12.31.2011



Sanzhi Area 97,997 471,680 569,677

Cemetery Area 1,386,837 11,921 1,398,758

Hua-lien Tower 97,956 422,203 520,159

Others - 23,771 23,771

Total $ 1,785,450 2,853,391 4,638,841

1) In 2012 and 2011, the capitalized interests on columbarium and cemetery in process were both

$0.

2) Please refer to Note 6 for the details about the bank loan secured by said construction in process

on December 31, 2012 and 2011.

(6) Land prepayment

Item 12.31.2012 12.31.2011


3rd Subsection, Hua Kung Section, Shihlin District 252,510 252,510


District

100,169 98,217

Others - 1,400

Total $ 486,565 484,013

(7) Deferred marketing expenses

Item 12.31.2012 12.31.2011

Cemetery $ 5,268,226 5,668,983

Pre-need contract 3,434,428 3,184,895

Warrant 43,454 24,778

Total $ 8,746,108 8,878,656




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(8) Long-term equity investment under the equity method

The Company's long-term equity investment under the equity method on December 31, 2012 and

2011 is stated as follows:

12.31.2012 12.31..2011

% of Ownership

Book Value

% of Ownership

Book Value

Long-term equity investment under the equity method:

Ching Huang Construction Co., Ltd. $ 177,602 98.20% 174,793 98.20%

Yuji Development Corp. 1,002,360 56.25% 910,154 56.25%

Dahan Property Management Co., Ltd. 3,604 80.00% 3,605 80.00%

Lungding Life Science Co., Ltd. 25,871 100.00% 18,512 100.00%

Sea Dragon Traders Ltd. (BVI) 108,212 100.00% 107,311 100.00%

Beauty Kadan Co., Ltd. 23,104 50.00% 21,780 50.00%

Asia Best Healthcare Co., Ltd. - -% 456,947 16.35%

Ruei Da Venture Capital Co., Ltd 30,024 47.62% 29,305 47.62%

You Ka En Inc. 11,774 42.00% - -%

Singapore Lungyen Life Services Pte., Ltd. 233,313 100.00% - -%

Total $ 1,615,864 1,722,407

1. In 2012 and 2011, except Beauty Kadan Co., Ltd., the Company recognized the investment

income on the investees valuated under the equity method based on the financial statements

audited by an independent auditor, the investment income on which was recognized based on

the financial statements for the same period ended settled by it independently. The investment

gain (loss), capital surplus and accumulated translation adjustment recognized in 2012 and 2011

are stated as follows:

2012 2011

Translation Adjustment

Investment Income

Financial Assets

Unrealized Income

Investment Income

Capital Surplus


Investment Income

Ching Huang Construction

Co., Ltd.

$ 2,809 - - (9,373) 38 - -

Yuji Development Corp. 92,206 - - 9,990 (132) - -

Dahan Property

Management Co., Ltd.

(1) - - (135) - - -

Lung Yen Life Service Co.,

Ltd.

- - - 50,136 - - -

Lungding Life Science

Co., Ltd.

(12,641) - - (1,488) - - -

Sea Dragon Traders Ltd.

(BVI)

5,375 (4,474) - (11,377) - 4,159 -

Beauty Kadan Co., Ltd. 1,324 - - 1,246 - - -

Asia Best Healthcare Co.,

Ltd.

390 (989) - 11,324 59,441 10,488 -

Ruei Da Venture Capital

Co., Ltd.

49 - 670 (394) - - (301)

You Ka En Inc. (826) - - - - - -

Singapore Lungyen Life

Services Pte., Ltd.

(4,297) (2,190) - - - - -

Total $ 84,388 (7,653) 670 49,929 59,347 14,647 (301)




- 109 -

2. Upon resolution of the temporary shareholders’ meeting on October 12, 2010, Lungyen Life

Service Corp. should be consolidated with the Company. In order to deal with the consolidation,

the Company increased the capital by issuing new shares totaling 16,925 thousand shares to

swap 22,899 thousand shares from Lungyen Life Service Corp. Please refer to Note 4(17).

3. Asia Best Healthcare Co., Ltd. valuated by the Company under the equity method increased

capital in cash by issuing new shares in 2011. Since the Company subscribed for the new shares

based on the percentage other than the original ownership percentage, the net value of the equity

initially held by the Company increased and the capital surplus was adjusted as $59,441

thousand. The Company’s ownership percentage increased from 34% to 16.35%. In July 2012,

since the reelection of board of directors, the Company evaluated that it is no significant

influence, the entire book value transferred to financial assets carried at cost – non-current,

please refer the Note 4(2).

4. In 2011, the Company increased the investment in Ruei Da Venture Capital Co., Ltd. by

$30,000 thousand, and held 47.62% ownership. Because of the Company’s significant influence

over Ruei Da, it was valuated under the equity method.

5. In 2011, the Company’s subsidiary, Chin Huang Construction Co., Ltd., increased capital in

cash by $155,000 thousand and issued new shares at par value. Since the Company subscribed

for the new shares at the price of $154,748 thousand based on the percentage other than the

original ownership percentage, the Company’s ownership percentage increased from 92.55% to

98.20%. Since the Company subscribed for the new shares based on the percentage other than

the original ownership percentage, the net value of the equity initially held by the Company

increased and the capital surplus was adjusted as $38 thousand.

6. In 2011, the Company’s subsidiary, Yuji Development Corp., increased capital in cash by

$1,590,000 thousand and issued new shares at par value, in order to launch into the funeral

service and increase channels throughout the nation. Since the Company subscribed for the new

shares at the price of $890,000 thousand based on the percentage other than the original

ownership percentage, the Company’s ownership percentage increased from 100% to 56.25%.

Further, since the Company subscribed for the new shares based on the percentage other than

the original ownership percentage, the net value of the equity initially held by the Company

decreased and the capital surplus was adjusted as $132 thousand.

7. In 2011, the Company invested $20,000 thousand in order to incorporate Lungding Life Science

Co., Ltd. in order to launch into the business of flowers and plants cultivation. The Company’s

ownership percentage was 100%. In December 2012, the Company’s subsidiary, Lungding Life

Science Co., Ltd., increased capital in cash by $20,000 thousand and issued new shares at par

value. Since the Company subscribed for the new shares at the price of $20,000 thousand based

on the original ownership percentage at 100%, the Company’s ownership percentage is

unchanged.

8. In April 2012, the company expanded business to flower design of funeral service and invested

$12,600 to establish You Ka En Inc. and held 42% ownership. Because of the Company’s

significant influence over You Ka En Inc., it was valuated under the equity method.

9. On October 2nd, 2012, the Company invests SG$29,100 thousand to establish SINGAPORE

LUNGYEN LIFE SERVICES PTE., LTD for expansion of the scale of operation and funeral

services to overseas markets in order to create higher return of investment and shareholders’

equity. On November 2nd, 2012, the Company invests SG$10,000 thousand (NT$239,800) to

establish SINGAPORE LUNGYEN LIFE SERVICES PTE., LTD. The Company’s ownership

percentage was 100%.




- 110 -

10. On December 31, 2012 and 2011, the Company has included the investees over which it had

control into the consolidated financial statements for 2012 and 2011 in accordance with

Statement of Financial Accounting Standards No. 7.

(9) Property, plant and equipment

Item Cost Accumulated Depreciation

Accumulated Impairment

Net Book Value

12.31.2012

Land $ 1,974,767 - - 1,974,767

House and building 639,816 250,700 - 389,116

Office equipment 91,210 87,341 - 3,869

Transportation equipment 86,756 30,354 - 56,402

Other equipment 38,612 24,718 - 13,894

Assets rented to others 7,853,680 288,815 - 7,564,865

Leased assets 30,035 29,726 - 309

Leasehold improvement 821 653 - 168

Unfinished construction 2,166,028 - - 2,166,028

Advance receipts for real estate and

equipment

42,619 - - 42,619

Total $ 12,924,344 712,307 - 12,212,037

12.31.2011

Land $ 2,671,636 - - 2,671,636




Other equipment 33,710 19,571 - 14,139


Leased assets 30,035 29,726 - 309




equipment

36,534 - - 36,534

Total $ 12,702,514 634,625 - 12,067,889

1. Please refer to Note 6 for the details about circumstances secured by said property, plant and

equipment on December 31, 2012 and 2011.

2. The Company has entered into a contract with a third party to entrust the third party to process

and consolidate the purchase of land reserved for office buildings and the land was registered in

the third party’s name, in part. Upon consolidation of the land, the title of the land would be

transferred to the Company unconditionally. The Company took the precautionary action to

have the documents required by registration of transfer of the land ownership kept in the

custody of the attorney-at-law appointed by the Company. Meanwhile, the third party also

issued a promissory note bearing the same value to the Company.

3. On December 31, 2012 and 2012, the assets rented to others are stated as follows:




- 111 -



Net Book Value

12.31.2012

Land $ 5,107,061 - - 5,107,061

House and building 2,746,619 288,815 - 2,457,804

Total $ 7,853,680 288,815 - 7,564,865

12.31.2011

Land $ 5,251,898 - - 5,251,898


Total $ 8,001,689 222,086 - 7,779,603

(10) Intangible assets:

12.31.2012 12.31.2011

Trademark right $ 192,750 192,750

Goodwill 542,428 542,428

Total $ 735,178 735,178

The Company acquired the trademark right due to the merger in 2011. An application for an

extension of the valid trademark term may be made at low cost. The Company expects to continue

applying for extending its valid term and also anticipates that the trademark right will continue

generating net cash inflow. According to Statement of Financial Accounting Standards No. 37

“Accounting Principles for Intangible Assets”, the trademark right is stated as an indefinite-life

intangible asset.

On February 5, 2010, the Company increased capital by $749,243 thousand by issuing new shares to

swap the common stock totaling 68,698 thousand shares from Lungyen Life Service Corp. The

percentage of ownership became 75%. Meanwhile, according to the acquisition price amortization

report, the Company divided the excess of the acquisition cost over the fair value of the identifiable

net assets acquired, $456,757 thousand, into the property, plant and equipment at fair value in excess

of book value, $322,360 thousand, and goodwill, $134,397 thousand. On February 1, 2011, the

Company increased capital by $169,249 thousand by issuing new shares to swap the common stock

totaling 22,899 thousand shares from Lungyen Life Service Corp. The percentage of ownership

became 25%. The shares of Lungyen Life Service Corp. initially held by the Company extinguished

at the same time of consolidation. According to the acquisition price amortization report, the

Company categorized the excess of the acquisition cost over the fair value of the identifiable net

assets acquired, $884,569 thousand, into the property, plant and equipment at fair value in excess of

book value, $266,606 thousand, goodwill, $425,213 thousand, and trademark right, $192,750

thousand. Further, upon evaluation on the consolidation of deferred income tax liabilities on

December 31, 2011, no income tax effects would be produced and, therefore, the goodwill was

reduced by $17,182 thousand.




- 112 -

(11) Other assets - others

12.31.2011 12.31.2010

Cost of agricultural land held for transfer registration $ 391,608 391,608

Fine art 430,587 380,531

Others 7,553 7,553

Total $ 829,748 779,692

1. The Company purchased 49 parcels of agricultural land including Land No. 248, Pu Tou Ken

Subsection, New Hsiao Keelung Section, Sanchi Hsiang, Taipei County, etc., occupying an area

of 247,871 square meters, at the price of $450,000 thousand, in 2004, and also purchased 6

parcels of agricultural land including Land No. 159, Pai Lien Xi Tou Subsection, Gung Pu

Section, San Chi Hsiang, etc., occupying an area of 61,866 square meters, at the price of

$1,300,000 thousand, for development of cemeteries, in October 2008. Given that laws prohibit

any private corporation from acquiring agricultural land, the Company (hereinafter referred to

as “Party A”) entered into a power of attorney with the individual who was a natural person

(hereinafter referred to as “Party B”) then agreed that Party B should affix the seal/signature

into the relevant documents required by the land title transfer registration and then deliver the

same to Party A for record. Party A may proceed with the transfer registration unconditionally

automatically after the land is developed and the land administration authority completes the

change in category of the land, and Party B will raise no objection. Further, on September 30,

2012 and 2011, the premises occupying areas of 208,523 square meters and 504 square meters

at Pu Tou Ken Subsection, New Hsiao Keelung Section and Pa Lien Xi Tou Subsection, Gung

Pu Section, respectively, have not yet been transferred officially.



(12) Short-term loan

Nature Maturity Interest Rate Range Amount

12.31.2012

Secured loan 01.15.2013~01.30.2013 0.62%~2.1% $ 1,940,000

12.31.2011

Secured loan 01.18.2012~03.30.2012 0.62%~2.03% $ 3,040,000

Said secured loan was secured by the construction land, construction in progress (residential area and

building), and property, plant & equipment as collateral. Please refer to Note 6.

(13) Advance receipts for real estate

12.31.2012 12.31.2011

Project

Advance receipts for

land


building Total


land


building Total

Summer Palace $ 30 114 144 210 800 1,010




- 113 -

(14) Advance receipts

Item 12.31.2012 12.31.2011

Columbarium and cemetery $ 14,857,548 15,857,111


Warrant 245,395 160,120

Permanent Management Fee 900,778 831,733

Others 45,771 40,337

Total $ 26,466,334 26,353,108

(15) Pension reserve

The Company and its subsidiaries completed the actuarial of employee pension on December 31,

2012 and 2011. The information about contribution of pension fund and accrued pension liabilities in

2012 and 2011 is adjusted as follows:

12.31.2012 12.31.2011

Benefit obligation:

Vested benefit obligation $ (1,451) -

Non-vested benefit obligation (17,961) (17,443)

Accumulated benefit obligation (19,412) (17,443)

Projected effects of increase in salary (7,742) (7,234)

Projected benefit obligation (27,154) (24,677)

Fair value of pension fund assets 6,877 6,754

Contribution (20,277) (17,923)

Unrecognized transitional benefit obligation 1,393 1,856

Unrecognized pension loss (gain) (1,430) (3,392)

Accrued pension liabilities $ (20,314) (19,459)

As of December 31, 2012 and 2011 the employee vested benefits under the Company’s Employees’

Pension Plan were $1,663 thousand and $0.

The subsidiaries’ net pension costs consist of the following:

2012 2011

Service cost $ 142 175

Interest cost 493 469

Expected rate of return (144) (157)

Amortization 464 464

Amortization of pension loss (gain) (42) (253)

Net pension cost $ 913 698

The actuarial is based on the following hypotheses:

2012 2011

Discount rate 1.75% 2.00%

Salary adjustment rate 2.00% 2.00%

Expected rate of return for pension assets 1.75% 2.00%




- 114 -

The Company's and its subsidiaries’ pension expenses under the defined contribution plan in 2012

and 2011 were $10,939 thousand and $13,816 thousand, and $9,904 thousand and $6,587 thousand

therefrom were contributed to the Bureau of Labor Insurance.

(16) Income tax

1. The Company has adopted the statutory corporation income tax rate, 17%, as of 2012and 2011,

and computed the basic tax in accordance with the “Income Basic Tax Regulations”.

2. The Company’s and its subsidiaries’ income tax expenses in 2012 and 2011 are stated as

follows:

2012 2011

Current income tax expense $ 205,984 161,762

Deferred income tax (gain) expenses (16,686) (29,664)

Unappropriated earnings plus 10% income tax expenses 48,975 6,964

Income tax expenses of continuing operations $ 238,273 139,062

Said deferred income tax (gain) expenses are stated as follows:

2012 2011

Unrealized foreign exchange gain $ (154) 887

Loss on allowance for bad debt for receivable accounts (2,905) -

Gain from foreign investment under equity method 1,992 -

Contract revenue book-tax difference (28,100) (3,088)

Consolidated goodwill amortization book-tax difference 12,481 5,635

Carry-forward loss - (32,563)

Deferred income tax valuation allowances - (535)

Deferred income tax (gain) expenses $ (16,686) (29,664)

3. In 2012 and 2011, the difference between the income tax and income tax expenses based on the

income before tax referred to in the Company’s and its subsidiaries’ income statements as

computed at the statutory rate is stated as follows:

2012 2011

Income tax computed based on income before tax $ 388,525 340,058


Income from tax-free land transactions (168,508) (161,323)

Loss (gain) on valuation of financial assets (5,477) 491

Stock dividend revenue (3,534) (4,506)

Permanent management fee book-tax difference 15,006 12,370

Write-off and recovery of advance receipts for temporary

shelter management fee

(18,354) (15,112)



Others (4,014) 1,171





- 115 -

4. On December 31, 2012 and 2011, the temporary difference, carry-forward loss and individual

income tax effect of the Company’s and its subsidiaries’ deferred income tax assets (liabilities)


12.31.2012 12.31.2011

Amount Income Tax

Effect Amount Income Tax

Effect

Deferred income tax assets – current:

Unrealized loss on bad debt for

receivable accounts

$ 3,147 535 3,147 535

Unrealized loss on price decline of

inventory

382 65 - -

Unrealized foreign exchange loss 17,089 2,905 - -

Subtotal 3,505 535

Less: Valuation allowances - -

Deferred income tax assets – current, net 3,505 535

Deferred income tax liabilities – current:

Unrealized foreign exchange gain - - (521) (89)

Deferred deferred income tax assets

(liabilities) – current, net $ 3,505 446

Deferred income tax assets –

non-current:

Pension expense $ 10,445 1,776 10,445 1,776

Contract revenue book-tax difference 221,718 37,692 56,423 9,592

Cemetery revenue book-tax difference 2,707,202 460,226 3,286,311 558,672


non-current, net

499,694 570,040

Deferred income tax liabilities –

non-current:

Consolidated goodwill amortization

book-tax difference

(106,564) (18,116) (33,148) (5,635)

Gain from investment under equity

method

(11,715) (1,992) - -

Accumulated translation adjustment (6,993) (1,190) (14,647) (2,490)

Subtotal (21,298) (8,125)


non-current, net $ 478,396 561,915

5. The Company’s and its subsidiaries’ income tax retcolumbarium through to 2010 have been

authorized by the Tax Authority. The income tax retcolumbarium of the company extinguished

upon consolidation, Lungyen Life Service Corp., through to 2007 have also been authorized by

the Tax Authority.

6. The information about the Company’s unappropriated earnings on December 31, 2012 and 2011

is stated as follows:




- 116 -

12.31.2012 12.31.2011

Unappropriated earnings generated after 1998 $ 2,606,565 1,930,921

Imputation credit account (ICA) $ 621,837 514,858

2012 (Projected) 2011 (Projected)

Creditable ratio for appropriation of earnings applicable to

residents in the R.O.C. 23.35% 20.96%

(17) Capital stock

Until September 30, 2012 and 2011, the Company’s authorized capital stocks both totaled

$6,000,000 thousand, at the par value of $10 per share, divided into 600,000 thousand shares, and

399,084 thousand shares were issued respectively.



businesses, the Company was consolidated with Lung Yen Life Service Co., Ltd. upon the resolution

made at the temporary shareholders’ meeting held on October 12, 2010. In order to deal with the

consolidation, the Company increased the capital by issuing new shares totaling 16,925 thousand

shares to swap 22,899 thousand shares from Lung Yen Life Service Co., Ltd. (according to the swap

ratio, the new shares issued by the Company may swap the outstanding shares of Lung Yen Life

Service Co., Ltd. at 1:1.353). The capital increase upon issuance of new shares and consolidation

were reported and effective as of January 26, 2011 and the relevant base date was set as February 1,

2011. Owing to the capital increase and consolidation, the Company’s paid-in capital and capital

surplus became $169,249 thousand and $1,392,072 thousand.

(18) Capital surplus

1. The Company’s capital surplus on December 31, 2012 and 2011 is stated as follows:

12.31.2012 12.31.2011

Capital surplus – common stock premium $ 1,392,072 1,392,072

Capital surplus – long-term investment 59,736 59,736

$ 1,451,808 1,451,808

2. Pursuant to the R.O.C. Company Act amended in January 2012, capital surplus shall be first

used to offset a deficit and then the realized capital surplus may be capitalized. Realized capital

surplus referred to in the preceding paragraph included the surplus generated from donations

and the excess of the issuance price over the par value of capital stock. According to

Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the capital

surplus may be transferred to common stock up to an annual limit of 10% of the paid-in capital.

(19) Appropriation of earnings

1. According to the Company’s articles of incorporation, of the annual net income, less taxes and

duties, and any deficit for the previous years, if any, 10% should be appropriated as legal

reserve, and a certain amount set aside or reserved as special reserve according to actual

circumstances, and the balance of earnings, if any, should be reserved as retained earnings, in

part, and the remainder, if any, should be allocated in the following manners: (1) no less than

97% as the common stock dividend and bonus; (2) no more than 2% as the remuneration to




- 117 -

directors; (3) no less than 1% as the bonus to employees. In the event that the bonus to

employees referred to in the preceding paragraph is allocated in the form of stock dividend, the

counterparts whom the stock dividend may be allocated to shall include the employees of

affiliated companies that comply with specific requirements. In order to protect shareholders'

equity, and according to the funding need for the following years measured based on the

Company’s future budget planning, the retained earnings may be allocated in the form of stock

dividend, and the allocated cash dividend shall be no less than 10% of the stock dividend

allocated to shareholders.

2. The accounting estimates for payable bonus to employees and remuneration to

directors/supervisors in 2012 and 2011 were determined based on past experience. The bonuses

to employees and remunerations to directors/supervisors stated based on the annual net income,

if any, less the legal (special) reserves and earnings reserved as retained earnings and

multiplying 1% and 2% respectively, were $13,557 thousand and $12,343 thousand, and

$27,154 thousand and $24,686 thousand, respectively. Notwithstanding, the difference in the

amount allocated upon resolution of the shareholders’ meeting and in the estimates, if any, will

be stated as the changes in accounting estimates and as the income for the year of allocation.

3. The information about stock dividend per share, bonus to employees, and remuneration to

directors/supervisors allocated according to the proposal for allocation of earnings 2011 and

2010 resolved by the Company's general shareholders' meeting held on June 6, 2012 and June

28, 2011 are stated as follows:

2012 2011

Common stock dividend per share (NT$)

Cash $ 3.0 1.5

Bonus to employees - cash $ 12,343 6,171

Remuneration to directors/supervisors 24,686 12,343

Total $ 37,029 18,514

Said appropriations of retained earnings are consistent with that recognized in the Company’s

financial statement 2011 and 2010.

4. Please visit the M.O.P.S. after the relevant meeting for the proposal for allocation of earnings,

bonus to employees and remuneration to directors/supervisors approved by the Company’s

Board of Directors and resolved by the shareholders’ meeting.




- 118 -


In 2012 and 2011, the Company’s Basic earnings per share and Diluted earnings per share were

computed as follows:

Unit: Thousand NTD/for Earnings per share, NTD per share

2012 2011


Net income before income tax $ 2,285,442 2,047,169 2,000,339 1,861,277

Weighted average number of outstanding shares 399,084 399,084 397,674 397,674

Bonus to employees not yet resolved by a

shareholders’ meeting but allocable in the form of

stock dividend 211 211 166 166

Number of dilutable shares 399,295 399,295 397,840 397,840

Basic earnings per share $ 5.73 5.13 5.03 4.68

Diluted earnings per share $ 5.72 5.13 5.03 4.68

(21) Information about financial instruments

1. Information about fair value:

The non-derivative short-term financial assets and liabilities of the Company and subsidiaries

including cash and cash equivalents, receivable/payable notes and accounts,

receivables/payables-stakeholders, other financial assets-current, restricted assets, short-term loan,

payable expenses and other current liabilities. The fair values thereof were determined based on their

book values on the balance sheet date. The book value should be the reasonable basis for evaluation

of the fair value because of the short maturities of such instruments.

In addition to said financial assets and liabilities, the information about the fair values of the other

financial assets and liabilities determined and valuated based on their market values on December 31,

2012 and 2011 is stated as follows:

12.31.2012 12.31.2011

Fair Value Fair Value

Derivaties Book Value

Determined based on

market price

Estimated under

evaluation method

Book Value

Determined based on

market price

Determined based on market price

Financial assets:

Financial assets at fair

value through profit or

loss - current

$ 310,292 310,292 - 623,89

0

623,890 -

Financial assets carried

at cost – non-current

521,819 - See

Paragraph (2)

68,471 - See

Paragraph (2)




- 119 -

2. The methods and assumptions used by the Company and subsidiaries to estimate the fair

values of the above financial instruments are summarized as follows:

1) Financial assets at fair value through profit or loss - The fair values of financial instruments at

fair value through profit of loss are determined at their market value, if any. If there is no market

value available for reference, the fair values are determined by using the valuation technique.

The information used as the basis for determining the Company’s assumptions in applying

valuation technique is consistent with that used by market participants in determining the prices

of the financial instruments.

2) Financial assets carried at cost – non-current: The equity instrument investment which cannot be

measured at fair value should be stated at the cost initially recognized. An impairment loss is

recognized when there is objective evidence of impairment. A reversal of this impairment loss is

not allowed.

3) The current incomes recognized based on the changes in fair values estimated based on the

market price in 2012 and 2011 were $32,218 thousand for gain and $10,691 thousand for loss,

respecitvely.

3. Information about financial risk

1) Market risk:

The Company’s investment in listed (OTC) stock and beneficiary certificates was classified as

“financial assets at fair value through profit or loss”. These assets were measured at their fair

values, which will be influenced by the fluctuation in market value.

2) Credit risk

The Company and its subsidiaries were used to subscribe for beneficiary securities from

financial organizations with a fair credit rating. The Company and its subsidiaries controlled the

credit risk exposure to each financial organization and considered that there should be no

likelihood of important credit risk concentration.

The Company and its subsidiaries have a vast clientele. Meanwhile, the Company and its

subsidiaries did not concentrate any transactions on one single customer, and the regions of

distribution were dispersed. Therefore, there should be no likelihood of concentrated credit risk

on receivable accounts. In order to reduce the credit risk, the Company would evaluate

customers’ financial status periodically, provided that generally it would not ask the customers

to furnish collateral.

3) Liquidity risk

The Company maintained sufficient capital and working funds to deal with all contractual

obligations to be performed by the Company. The Company does not anticipate any liquidity

risks associated with failure to source required funding to perform contractual obligations.

4) Cash flow risk due to changes in interest rate

The Company’s short-term loans in 2012 and 2011 referred to the debt instruments at floating

interest rate. Accordingly, the yield rate of these debt instruments will fluctuate with changes in

such floating interest rate and thereby result in fluctuation in future cash flows.




- 120 -

(V) Transactions with related parties

(1) Name and relationship of related parties

Name Relationship with the Company

Ching Huang Construction Co., Ltd. (Ching

Huang Construction)

The Company’s subsidiary

Dahan Property Management Co., Ltd. (Dahan

Property Management)

The Company’s subsidiary

Yuji Development Corp. (Yuji Development) The Company’s subsidiary

Sea Dragon Traders Ltd. (BVI) The Company’s subsidiary

Lungding Life Science Co., Ltd. The Company’s subsidiary

Singapore Lungyen Life Services Pte., Ltd. The Company’s subsidiary

Beauty Kadan Co., Ltd. (Beauty Kadan) The Company’s investee under equity method

You Ka En Inc. The Company’s investee under equity method

Ruei Da Venture Capital Co., Ltd. The Company’s investee under equity method

Asia Best Healthcare Co., Ltd.(ABH) The Company’s investee under equity method

(being non-related parites since July 2012)

Hsin Wei International Lease Co., Ltd. (Hsin Wei

International)

Related party

Fu Yuan International Development Co., Ltd. (Fu

Yuan International)

Its chairman of board is a second degree relative of the

Company’s Chairman.

Lee Investment Co., Ltd. (Lee Investment) Its chairman of board is a second degree relative of the


Lee Shih-Tsung The Company’s Chairman

Lee Chia-Cheng (formerly known as Lee

Yi-Lun)

A second degree relative of the Company’s Chairman

Lee Shu-Rong A second degree relative of the Company’s Chairman

Liu Ping A second degree relative of the Company’s Chairman

All directors and supervisors, and presidents and

vice presidents

Main management of the Company and its subsidiaries

(2) Significant transactions with related parties are stated as follows:

1. Sales

The sales from related parties in 2012 and 2011 are stated as follow:

2012 2011

Name Amount % Amount %

Columbarium and cemetery revenue

Hsin Wei International $ 47,914 1 118,080 3

Said sales were at the price agreed by both parties. The payment should be collected pursuant to the

agreement, which was identical with those for arm’s length transactions.




- 121 -

2. Purchases

The purchases from related parties in 2012 and 2011 are stated as follows:

2012 2011


Yuji Development Corp. $ 20,843 2 - -

You Ka En Inc. 33,951 3 - -

Beauty Kadan 12,616 1 19,060 2

$ 67,410 6 19,060 2

Said purchases were at the price agreed by both parties. The payment term thereof was 30 days upon

inspection and acceptance, which was identical with that applicable to the general customers.

3. Contract awarding

In 2012 and 2011, the related parties who awarded contracts to subsidiaries are stated as follows:

Name Project Title Total Contract

Amount Pricing Accumulated

Pricing

2012

Ching Huang Construction Tung Shi, Hsichih $ 240,467 16,662 240,467

Ching Huang Construction New Hsiao Keelung Section,

Sanchi Hsiang

459,184 48,737 394,931

Ching Huang Construction Neihui Logistic Center 131,388 71,950 124,718

$ 831,039 137,349 760,116

2011

Ching Huang Construction Tung Shi, Hsichih $ 719,311 - 223,805

Ching Huang Construction New Hsiao Keelung Section,

Sanchi Hsiang

412,000 189,634 346,194

Ching Huang Construction Neihui Logistic Center 124,718 43,002 52,768

$ 1,256,029 232,636 622,767

1) The amount of any contracts awarded by the Company to a related party was based on the

project budget plus reasonable overhead and profit approved upon delegation of authorization.

The unrealized gains from upstream transaction with Ching Huang Construction were

$11,351thousand and $9,510 thousand as a result of contracts awarded to Ching Huang

Construction in 2012 and 2011, which has been stated as the investment income adjustment.

2) On December 31, 2010 and 2011, the related parties’ secured notes collected by the Company

due to said contracts were both $216,711 thousand.

3) In October 2012, the Company terminated the contract with Ching Huang Construction and

signed a contract with other construction company for Tung Shi, Hsichih Project.

4. Credit and debt

The credit and debt between the Company and related parties on December 31, 2012 and 2011 are

stated as follows:




- 122 -

12.31.2012 12.31.2011


Other recievable accounts (stated as other financial asssets – current)

Beauty Kadan (Note) $ 2,468 - 503 -

Yuji Development Corp. 2,806 - 6,323 1

Singapore Lungyen Life Services Pte., Ltd. 363 - - -

$ 5,637 - 6,826 1

Note: Out-of-pocket expenses for operating expenses, payment of goods, etc.

Payable accounts-related parties

Ching Huang Construction $ 13,255 4 47,864 16

Yuji Development Corp. 2,781 1 - -

You Ka En Inc. 12,400 3 - -

$ 28,436 8 47,864 16

Other payable accounts – related parties (stated as other payable accounts)

Ching Huang Construction $ 34,585 23 2,770 2

Hsin Wei International 2,454 2 2,508 2

$ 37,039 25 5,278 4

5. Financing Provided

The subsidiary financed to the related parties in 2012 as follows:

2012

Other receivables-related parties

Name

Actual Disbursement

Balance-ending (Note 1)

Maximum Balance

(Notes 1 and 2)

Interest Rate

Range (%) Interest revenue

Yuji Development $ - 500,000 500,000 6 -

2011

Other receivables-related parties

Name

Actual Disbursement

Balance-ending (Note 1)

Maximum Balance

(Notes 1 and 2)

Interest Rate

Range (%) Interest revenue

Yuji Development $ - 500,000 500,000 6 -

Note 1: The amount limit is based on maximum balance and ending balance.

Note 2: Maximum balance: accumulated up to the maximum balance in the current year.

Note 3: Upon the board resolution on April 26th, 2012, the total amount for guarantees and endorsements and

lending to other parties shall not exceed $500,000 thousand.




- 123 -

6. Endorsement/guarantee

The Company provide the guarantees and endorsements which required from bank financing to Yuji

Development Corp. The amount limit shall not exceed $500,000 thousand and was resolved by the

board of directors’ meeting the on April 26, 2012. Total amount for guarantees and endorsements and

lending to other parties shall not exceed $500,000 thousand. The Company’s balance of guarantees

and endorsements is $200,000 thousand for actually drawn.

7. Lease contract

The lease between the Company and related parties in 2012 and 2011 are stated as follows:

Lessee Object/Premises Duration

Monthly rent

(before tax) Rent

revenue

2012

Ching Huang

Construction

7F, No. 150, Tunhua N. Road,

Taipei City

2012.11~2013.10 $ 38 459

Yuji Development Corp. 11F, No. 150, Tunhua N.

Road, Taipei City

2011.12~2012.11 281 3,086

Yuji Development Corp. 1F., No.255, Xueshi Rd.,

North Dist., Taichung City

2012.06~2013.05 3 20

Hsin Wei International 7F, No. 150, Tunhua N. Road,

Taipei City

2011.05~2012.12 3 34

ABH 3F~7F., No.180, Minquan

2nd Rd., , Kaohsiung City

2011.06~2026.12 501~547 3,003

$ 6,602

2011

Ching Huang

Construction


Taipei City

2009.09~2011.10 $ 162 1,620

2011.11~2012.10 38 76

Dahan Property

Management


Taipei City

2008.09~2011.10 1 14

Yuji Development Corp. 7F, No. 150, Tunhua N. Road,

Taipei City

2011.05~2012.12 3 20

Yuji Development Corp. 11F, No. 150, Tunhua N.

Road, Taipei City

2011.12~2016.08 281~309 281

Hsin Wei International 7F, No. 150, Tunhua N. Road,

Taipei City

2011.05~2012.12 3 23



2011.06~2026.12 501~547

(Note)

-

$ 2,034

Note: Rent free periods 2011.06~2011.12.




- 124 -

Lessor Object/Premises Duration Monthly rent (before tax)

Rent expenditure

Deposit (Stated as other financial

assets-non-current)

2012

Hsin Wei

International

29 vehicles including

limousines, official

business cars, executive

cars and VIP cars

2008.12.10~

2014.06.30

$ 12~116

4,745 -

2011

Hsin Wei

International




cars and VIP cars

2007.09.01~

2015.06.30

$ 12~762

22,638 16,000

8. Asset transactions

Until December 31, 2012, the Company has purchased the transportation equipment from Hsin Wei

International Lease Co., Ltd. and Lee Investment at the prices of $2,000 thousand (after tax) and

$1,880 thousand (after tax) respectively.

9. Trust contract

The Company has entered into the land trust contracts with Lee Shih-Tsung, Lee Chia-Chen, Lee

Shu-Rong and Liu Ping. Please refer to Note 7(6).

10. Others

1) On December 31, 2011, as Lee Investment entrusted the Company to provide the relevant

advice and management service with respect to its real estate development project in Daan

Section, Daan District, Taipei City from January 1, 2010 until October 31, 2011, recognized the

consultation service fees $1,905 thousand (stated as miscellaneous revenue). The revenue from

property management services provided by the Company was recognized as $594 thousand

(stated as operating revenue) in 2012.

2) In 2012 and 2011, the Company recognized the revenue from the assistance and advice on

management and operation provided by the Company to Yuji Development Corp. as $24,000

thousand and $6,000 thousand (stated as miscellaneous revenue).

3) In 2012, the Company recognized the revenue from service charge of guarantees and

endorsements by the Company to Yuji Development Corp. as $672 thousand (stated as

miscellaneous revenue).

4) On December 31, 2012 and 2011, the cost spent by the Company in entrusting Mr. Lee

Shih-Tsung to purchase the construction land and individual projects both have been no more

than $668,016 thousand. Mr. Lee was entrusted to process and integrate the matters related to

the land reserved for construction projects.

5) In 2012 and 2011, the recognized revenue from exchange columbarium units between the

Company and Hsin Wei International was $2,325 thousand and $118,080 thousand, respectvely.

For details, please refer to Note 5(2).1.




- 125 -

6) Please refer to Note 7(5) for the details about the agreement concluded by the Company and Fu

Yuan International for termination of the joint venture building contract on December 31, 2011.

7) In 2012, the Company disposed the financial assets at fair value through profit or loss to Ching

Huang Construction as $147,837 thousand.

(3) Total remuneration to main management

The information about the total remuneration to the main management of the Company and its

subsidiaries, including directors, supervisors, presidents and vice presidents, in 2012 and 2011 is

stated as follows:

2012 2011

Salary $ 21,939 35,700

Bonus and special allowances 7,324 6,374

Professional practice 54 1,643

Bonus to employees 664 1,002

$ 29,981 44,719

(VI) Pledged assets

The Company has provided the following assets as collateral on December 31, 2012 and 2011:

Item 12.31.2012 12.31.2011 Purpose

Restricted assets $ 194,476 195,922 To secure the acquiring service for

credit account transactions

Financial assets at fair value

through profit or loss - current

- 287,438 To secure the acquiring service for


Construction land 569,314 569,314 To secure the loan and also the

acquiring service for credit account

transactions

Real estate in process

(residential area and buildings)

2,160,863 2,160,863 To secure the loan and also the


transactions

Real estate in process (bone ash

towers and burial areas)

1,289,409 1,289,409 To secure the acquiring service for


Deductible balance for

property, plant and equipment



transactions

Other assets-others 10,591 10,591 To secure the acquiring service for


Total $ 9,150,337 9,481,988

(VII) Significant undertakings or contingencies

(1) On December 31, 2012 and 2011, the total amounts of contracts concluded by the Company for

construction in process (before tax) were $1,256,029 thousand and $719,3111 thousand, and

already valued as $622,767 thousand and $223,805 thousand respectively. For details, please

refer to Note 5(2).




- 126 -

(2) On December 31, 2011, the Company has concluded the real estate contracts with customers,

totaling $94,411 thousand (before tax) in order to sell the residual houses and assets rented to

others. Meanwhile, $1,010 thousand has been collected per the contracts.

(3) The Company purchased the land at Li Ho Section, Hsin Yi District in February 2007.

Notwithstanding, in March 2007, the joint owners of said land initiated the proceeding for

“Declaration of non-existence of land transaction” with the court and, therefore, the registration

of land transfer was hindered. Later, Taipei District Court rendered a judgment in favor of the

Company. The adverse parties, in disagreement with the judgment, filed an appeal. However,

the adverse parties withdrew the appeal in June 2009. Therefore, the judgment in favor of the

Company became final and irrevocable. Notwithstanding, the action was withdrawn in March

2010. The Company filed an action with the court in April 2009, claiming registration of title

transfer. However, the joint owners of said land also filed an action in June 2009 claiming that

the registration should be prohibited. According to the Company’s attorney-at-Law, it is very

likely that the Company may win the suit.

(4) The information about the trust registration of construction in process made by the Company to

secure successful performance and delivery of any construction project and work on December

31, 2010 and 2011 is stated as follows:

Work in process Object Trustee Duration

Tung Shi, Hsichih Land Chinatrust From date of contract until date of

completion of the object under trust

" Building Chao-Fu Real Estate

Management Corporation

"

Said trust projects were contracted by the Company to the trustees for the purpose of

management and operation of the projects, and for real estate management and transfer.

Meanwhile, the land trust transfer of the projects was registered to the trustees, and the

proprietor in the construction license was changed into the trustee to secure financing to the

Company by the lending organizations of said projects.

On December 31, 2011, said construction in process was scheduled to serve as the Group’s

operation office premises and, therefore, was re-stated into the fixed assets, while said trust

registration remained unchanged.

(5) The joint venture building contracts and urban renewal projects concluded by the Company on

December 31, 2012 and 2011 are stated as follows:

Joint Venture Deposit

Project Title Land Owner or

Co-Investors Location Nature 12.31.2012

12.31.2011

Projected Year of

Completion

Yen Chi Urban

Renewal Project

(Note 1)

36 persons

including Chen

Hsu Ching-Yun,

etc.

Land at 1st Subsection,

Jen Ai Section, Daan

District, Taipei City

Urban

renewal

$ - - -

Shou Cheng

Urban Renewal

Project (Note 2)

2 persons

including Hsu

Chun-Huei, etc.


Chung Shan Section,

Chung Shan District

" - 8,400 -

National Palace

Museum Project

(Note 3)

Fu Yuan

International

Land at 6th Subsection,

Chi Shan Road, Shihlin


Joint

construction

and separate

sale

- - -




- 127 -

Note 1: The Company has entered into an agreement for termination of the joint venture building

contract with the owners on September 30, 2011, and the relevant deposits were recalled

successively.

Note 2: The Company has entered into an agreement for termination of the joint venture development

contract on Febuary 14, 2012, and the relevant deposits were recalled successively.


contract with Fu Yuan International on March 4, 2011, and the relevant deposits were recalled

successively.

(6) The trust by the Company for purchase of land on December 31, 2010 and 2011 is stated as

follows:

Trust Object Trustee Remark

Ching Hua Section, Daan


Liu Ping The contract amount was $460,370 thousand. Meanwhile,

the Company has paid $68,531 thousand pursuant to the

contract, and the parties to the contract delivered the

promissory note bearing $50,000 thousand and the check

bearing $15,000 thousand, respectively, to the witness

attorney-at-law as the performance bond.

Part of land at Hsihchi

District, New Taipei City

Lee Chia-Chen The relevant documents required by said land ownership

transfer registration were delivered to the attorney-at-law

appointed by the Company, and the trustee issued the

promissory note bearing the equivalent amount to the

Company.

New Hsiao Keelung

Section, Sanchi Hsiang

Song Mei-Hua " (Note)

Gung Pu Section, Sanchi

Hsiang

Lee Shih-Tsung " (Note)

1st Subsection, Jen Ai,

Taipei City

Lee Shih-Tsung " (Note)

Yu Cheng Section,

Nangang District

Lee Shu-Rong " (Note)

(7) On December 31, 2012 and 2011, the Installment Account Receivables from the contracts for

advance booking of the columbarium of True Dragon Tower and of the pre-need funeral service

entered into between the Company and its subsidiaries and customers were $8,173,134 thousand

and $9,350,196 thousand. The price was fixed, while the commodity or labor service has not yet

been provided. In order to reflect the economic substance of the transactions, the Company

wrote off the Installment Account Receivable against Advance receipts and stated it at net cost

when preparing the financial statements.

(8) On December 31, 2012 and 2011 the total amounts of contracts for purchase of construction

land or lease of land for property concluded by the Company were $918,484 thousand and

$981,918 thousand respectively. The payments made for integration of the land were $625,891

thousand and $664,241 thousand (stated as land prepayment and property, plant and equipment),

and the refundable deposits thereof were both $93,354 thousand.

(9) In order to upgrade the quality of funeral service and ensure the ability of performance, the

Company (hereinafter referred to the “Client”) entered into the trust contract with Union Bank

of Taiwan (hereinafter referred to as the “Trustee”) in April 2004, agreeing that as of the date

when the contract was signed, 75% of the proceeds (after tax) from each pre-need contract sold

by the Company should be transferred to the Trustee under trust, and real estate should be

delivered and transferred to the Trustee. Notwithstanding, on April 1, 2010, the Company’s




- 128 -

Trustee was changed into Industrial Bank of Taiwan. Further, until December 31, 2012 and 2011,

a total of NT$4,796,838 thousand and NT$4,739,923 (including demand deposit $316,059

thousand and time deposit $240,000 thousand, stated as other financial assets – current) have

been used to purchase financial instruments, and the real estate was delivered and transferred to

the Trustee, to have the Trustee manage and dispose of the trust property for the intended

purposes per the Client’s instruction.

(10) In order to maintain the safety and cleanliness of the funeral facilities and to organize sacrifice

ceremonies and to meet the need for internal administrative management, the Company and its

subsidiaries opened an exclusive account for management fees collected from consumers in a

lump sum or periodically. On December 31 2012 and 2011, the balances of the exclusive

account were $977,374 thousand and $915,113 thousand, respectively, stated as other financial

assets – current.

(11) The Company acquired the land and building at Dui Tzu Section, Tamsui Township, Taipei

County. Notwithstanding, the contractor, Chao Yang Construction Co., Ltd., claimed damages,

$215,256 thousand plus the interest accruing at the statutory interest rate from September 20,

1996 until the date of payment, against the original owner and subcontractor, and also included

the Company into its claim as an additional defendant in 2008. The claim was revoked upon the

judgment rendered by Shihlin District Court on October 23, 2009. Disagreeing with the

judgment, Chao Yang filed an appeal and claimed damages in the amount of $80,000 thousand.

Currently, the appeal is pending examination before the Taiwan High Court. According to the

attorney-at-law, because it is impossible for Chao Yang to prove the requirements constituting

the statutory mortgage as mentioned before, Chao Yang is unlikely to receive a ruling in its

favor.

(VIII) Significant disaster loss: None

(IX) Significant subsequent events: None




- 129 -

(X) Others

(1) Assets/liabilities liquidity analysis

On December 31, 2012 and 2011, the liquidity analysis about the assets/liabilities of the Company

and its subsidiaries related to the business activities conducted by them is stated as follows:

12.31.2012

Anticipated to Collect or Repay Within 12

Months

Anticipated to Collect or Repay

Beyond 12 Months Total

Assets

Receivable notes and accounts $ 208,217 - 208,217

Other financial assets-current 1,520,155 - 1,520,155

Building and land held for sale 5,957 - 5,957

Columbarium and Cemetery for sale 221,904 1,219,429 1,441,333

Construction land - 1,094,244 1,094,244

Construction in process 83,755 6,638,166 6,721,921

Land prepayment - 486,565 486,565

Deferred marketing expenses 1,061,202 7,684,906 8,746,108

Restricted assets 194,476 - 194,476

Other current assets 223,634 - 223,634

Total $ 3,519,300 17,123,310 20,642,610

Liabilities

Short-term loan $ 1,940,000 - 1,940,000

Payable notes and accounts 322,149 - 322,149

Payable accounts-related parties 28,436 - 28,436

Payable income tax 84,189 - 84,189

Payable expenses 205,573 - 205,573

Other payables 150,312 - 150,312

Advance receipts for real estate 144 - 144

Advance receipts 4,165,772 22,300,562 26,466,334

Other current liabilities 39,132 - 39,132

Total $ 6,935,707 22,300,562 29,236,269

Asset

Account notes and accounts $121,851 - 121,851

Other financial assets – current 1,176,355 - 1,176,355

Inventory 645,194 9,617,933 10,263,127

Deferred marketing expenses 687,078 8,191,578 8,878,656

Restricted assets - 195,922 195,922


Total $ 2,789,477 18,005,433 20,794,910

Liabilities

Short-term loan $ 3,040,000 - 3,040,000

Payable notes and accounts

(including related parties)

252,425 - 252,425





- 130 -

12.31.2012


Months




Other payable accounts 180,306 - 180,306

Advance receipts for real estate 132,971 - 132,971

Advance receipts 1,010 - 1,010

Balance after unearned receipts for

construction less construction in

process

2,528,171 23,824,937 26,353,108


Total $ 6,517,819 23,824,937 30,342,756

(2) Human resources spending, depreciation, depletion and amortization expenses are summarized

by function as follows:

2012 2011

By function

By nature

Operating

Cost

Operating

Expense

Otehrs

(Note 2)

Total Operating

Cost

Operating

Expense

Otehrs

(Note 2)

Total

Human resources

expenses

Salary (Note 1) $ 180,847 164,388 39,379 384,614 165,748 162,596 23,584 351,928

Labor and health

insurance

12,353 (539) 3,098 14,912 9,203 17,746 1,806 28,755

Pension expense 7,520 2,508 1,824 11,852 5,019 8,434 1,061 14,514

Other human

resources expenses

4,455 9,812 2,533 16,800 4,008 11,754 2,413 18,175

Depreciation expenses 86,810 8,943 3,474 99,227 85,168 7,914 13,136 106,218

Amortization expenses - 7,097 709 7,806 - 6,411 1,425 7,836

Note 1: In 2012 and 2011, the bonus to employees and remuneration to directors/supervisors stated by the

Company were $13,577 thousand and $12,343 thousand, and $27,154 thousand and $24,686

respectively.

Note 2: They mean the cemetery management center-related expenses (stated as less item-advance receipts for

management fees) and deferred marketing expenses generated from the sale of contracts.

(3) The information about foreign currency financial assets and liabilities rendering material

effect on the Company and its subsidiaries:

Currency Unit: Thousand of NTD

12.31.2012 12.31.2011

Foreign Currency

Foreign Exchange

Rate NTD Foreign

Currency

Foreign Exchange

Rate NTD

Financial assets

Monetary items

RMB $ 18 4.660 84 5 4.807 23

JPY 5,794 0.3364 1,949 26 0.391 10

THB 85 0.954 81 85 0.965 85

USD 1,866 29.040 54,179 331 30.275 10,076




- 131 -

12.31.2012 12.31.2011

Foreign

Currency

Foreign Exchange

Rate NTD Foreign

Currency

Foreign Exchange

Rate NTD

Non-monetary items

USD - - - 2,409 30.275 72,970

JPY 125,600 0.3364 42,001 - - -

Long-term equity investment

under the equity method (Note)

USD 3,726 29.04 108,212 18,638 30.275 564,258

SGD 9,820 23.76 233,313 - - -

Note: The amount equivalent to the investee’s net value multiplying by % of ownership at the end of the

period.

(4) Reclassification:

Some figures in the consolidated financial statements for 2011of the Company and its subsidiaries

have been reclassified to cope with the expression made in the consolidated financial statements for

2012. The reclassification would not produce material effects to the consolidated financial

statements.

(XI) Disclosures

(1) Information about significant transactions:

1. Loans to third parties:

Unit: Thousand NTD

Collateral NO. Lender Borrower Account

Title

Maximum

Balance

Balance-en

ding

Balance of

Actual

Disbursement

Interest

Rate

Range

Nature Amount Reason

for

short-term

financing

Allowance

for bad

debt Name Value

Limit on

loans

granted to

single

party

Ceiling on

total loans

granted

0 Lungyen

Life

Service

Corp.

Yuji

Development

Corp.

Other

receivables

-related

parties

500,000 500,000 - 6.00% 2 20,843 Working

fund

- - - 1,661,361 3,322,721

Note 1: The maximum amount of total loans to others shall not exceed 40% of the Company’s net assets. The total

amount of loans granted to a single business partner of the Company shall be limited to the total amount of

business transactions between the Company and the business partner and shall be no more than 20% of the

Company’s latest net value. The short-term financing shall be no more than the working fund as needed or

70% of the amount of the land, buildings or operating equipments purchased and no more than 20% of the

Company’s latest net value.

Note 2: Nature of financing:

(1) For transactions.

(2) For short-term financing.

Note 3: Upon the board resolution on April 26th, 2012, the total amount for guarantees and endorsement and





- 132 -

2. Endorsement/guarantee in favor of third parties:

Unit: Thousand NTD

Endorsement/

Guarantee

Endorsement/guarantee receiver

No.

Company

Name

Company Name

Relationship

Limit of

guarantee/endorseme

nt amount for

individual party

Maximum

balance for the

period

Ending

balance

Amount of

collateral

guarantee/

endorsement

Percentage of accumulated

guarantee amount to net

assets value from the lastest

financial statement

Limit of total

guarantee/

endorsement

amount

0 Lungyen Life

Service Corp.

Yuji Development

Corp.

2 $ 1,661,361 500,000 500,000 - 6.02% 4,153,402

Note 1: The total amount of guarantees and endorsements shall not exceed 50% of the net worth in the current

period.

The total amount of guarantees and endorsements for individual party shall not exceed 20% of the net

worth in the current period.

Note 2: There are six kind of conditions in which the Company may have guarantees or endorsements for the

receiving parties.

(1) The Company has business with the receiving parties.

(2) The Company holds directly more than 50% of the common stock of the subsidiaries.

(3) In aggregate, the Company and its subsidiaries hold more than 50% of the investee.

(4) In aggregate, the Company holds directly or its subsidiaries hold indirectly more than 50% of the

investee.

(5) The Company is required to make guarantees or endorsements for the construction project based

on the construction contract.

(6) The stockholders of the Company make guarantees or endorsements for the investee in proportion

to their stockholding percentage.



Note 4: The actual disbursement was $200,000 thousand on December 31, 2012.

3. Marketable securities held at ending:

Ending

Holder of

Securities

Type and Name of

Securities

Relationship

with Securities

Issuer

Account Title Quantity of

shares (thousand

shares)/ unit

Book

Value

% of

Ownership

Market

Value (NTD)

per Unit

Remark

The

Company

Stock of Ching Huang


The Company’s

subsidiary

Long-term equity

investment under

the equity method

19,639 $ 177,602 98.20% 10.76

" Stock of Yuji Development

Corp.

“ “ 90,000 1,002,360 56.25% 11.14

“ Stock of Dahan Property


“ “ 400 3,604 80.00% 9.01

“ Stock of Sea Dragon

Traders Ltd. (BVI)

“ “ 1 108,212 100.00% 108,212

“ Stock of Lungding Life

Science Co., Ltd.

“ “ 4,000 25,871 100.00% 6.47

“ Stock of Singapore

Lungyen Life Services Pte.,

Ltd.

“ “ 10,000 233,313 100.00% 23.33

“ Stock of Beauty Kadan Co.,

Ltd.

The investee

under equity

method

“ 1,425 23,104 50.00% 16.21

“ Stock of Ruei Da Venture

Capital Co., Ltd.

“ “ 3,000 30,024 47.62% 10.01

“ Stock of You Ka En Inc. “ “ 1,260 11,774 42.00% 9.34

“ CHT securities - Financial assets at

fair value through

profit or loss -

current

823 77,798 - 94.50

“ Hsin Yi securities - “ 459 19,507 - 42.50




- 133 -

Ending

Holder of

Securities

Type and Name of

Securities

Relationship

with Securities

Issuer


shares (thousand

shares)/ unit

Book

Value

% of

Ownership

Market

Value (NTD)

per Unit

Remark

“ LUMAX securities - “ 242 14,859 - 61.40

“ eMemory Technology

securities

- “ 619 39,430 - 63.70

“ Chenbro securities - “ 1,173 40,464 - 34.50

“ PChome securities - “ 82 8,200 - 100.00

“ Cathay R1 Fund - “ 3,200 55,232 - 17.26

“ Stark Technology securities - “ 503 12,801 - 25.45

“ Stock of Sun Life

Corporation

- “ 160 42,001 - % JPY 785

“ FORTUNE IC FUND I - Financial assets

carried at cost –

non-current

600 11,216 4.86% 17.02

“ Stock of Kun Kee Erh

Investment Co., Ltd.

securities

- “ 6,000 54,255 8.57% 8.63

“ Kuo Hua Life securities - “ 44 - 0.01% -

“ Stock of Asia Best

Healthcare Co., Ltd

- “ 112 456,348 16.35% 3,923.80

Note: The equities in said subsidiaries held by the Company were written off when the Company prepared the

consolidated financial statements.

4. The amount of the same securities cumulatively bought or sold that exceeds NT$100 million

or 20% of the paid-in capital:

Unit: Thousand shares; Thousand of NTD

Beginning Buy Sell Ending

Buyer/

Seller

Type and Name

of Securities

Account

Title

Trading

Counter

part

Relation

ship Unit Amount

No. of

Unit Amount

No. of

Unit

Selling

Price

Book

Value

Gain or

Loss from

Disposition

No. of

Unit Amount

The

Company

Cathay R2 Fund Financial

assets at fair

value through

profit or loss

- - 10,0000 125,9000 - - 10,000 147,837 125,900 21,937 - -

“ CHT securities “ - - 2,662 266,226 - - 1,839 172,534 183,900 (11,366) 823 77,798

“ Allianz Global

Investors All

Seasons Return

Fund of Bond

Funds

“ - - - - 13,710 186,931 13,710 189,224 186,931 2,293 - -

“ Singapore

Lungyen Life

Services Pte., Ltd.

The investee

under equity

method

- - - - 10,000 239,800 - - - - 10,000 233,313



5. The acquisition of real property exceeding NT$100 million or 20% of the paid-in capital:

None.

6. The disposition of real property exceeding NT$100 million or 20% of the paid-in capital:

None.

7. Purchase and sales with related parties exceeding NT$100 million or 20% of the paid-in

capital: None.




- 134 -

8. Receivables from related parties exceeding NT$100 million or 20% of the paid-in capital:

None.

9. Trades for derivatives: None.

(2) Information about reinvestees

1. Information about investees, such as name and location, etc.:


Initial Amount of

Investment Held at ending

Current

gain (loss)

of investee

Investment gain

(loss) recognized in

the current period

Remark

Investor Investee Location

Major

business

activities Initial

Amount of

Investment

Held at

ending

Current

gain (loss)

of investee

Investment

gain (loss)

recognized in

the current

period

Remark Investor Investee Location

The

Company

Ching Huang

Construction

Co., Ltd.

Taiwan Civil

engineering

204,332 204,332 19,639 98.20% 177,602 14,419 2,809 Subsidiaries

“ Yuji

Development

Corp.

Taiwan Funeral

service

900,000 900,000 90,000 56.25% 1,002,360 163,921 92,206 Subsidiaries

“ Dahan

Property

Management

Co., Ltd.

Taiwan Development,

lease and sale

of residential

areas and

building

3,870 3,870 400 80.00% 3,604 (2) (1) Subsidiaries

“ Sea Dragon

Traders Ltd.

(BVI)

British

Virgin

Islands.

Investment 114,529 114,529 1 100.00% 108,212 5,376 5,376 Subsidiaries

“ Lungding

Life Science

Co., Ltd.

Taiwan Flower and

plant

cultivation

40,000 20,000 4,000 100.00% 25,871 (12,641) (12,641) Subsidiaries

“ Singapore

Lungyen Life

Services Pte.,

Ltd.

Singapore Funeral

service

239,800 - 10,000 100.00% 233,313 (4,297) (4,297) Subsidiaries

“ Beauty

Kadan Co.,

Ltd.

Taiwan Wholesale of

flowers and

plants

20,534 20,534 1,425 50.00% 23,104 2,648 1,324

“ Ruei Da

Venture

Capital Co.,

Ltd.

Taiwan Investment 30,000 30,000 3,000 47.62% 30,024 103 49

“ You Ka En

Inc.

Taiwan Flower and

plant

cultivation

12,600 - 1,260 42.00% 11,774 (1,967) (826)

Note: The equities in said subsidiaries held by the Company were written off when the Company prepared

the consolidated financial statements

2. Loans to third parties: None.

3. Endorsement/guarantee in favor of third parties: None.




- 135 -


Unit: Thousand shares

Ending

Holder of Securities Type and Name of

Securities

Relationship

with Securities

Issuer

Account Title

Unit Book Value % of

Ownership

Market Value

(NTD) per share

Remark

Ching Huang Construction Co.,

Ltd.

Cathay Taiwan Money

Market Fund

－ Financial assets at fair value

through profit or loss

1,345 $ 16,308 - 12.13

“ Cathay R2 Fund － “ 10,000 156,900 - 15.69

“ J-Garden Corp. － Financial assets carried at

cost – non-current

- 3,000 5.00 107,987

Dahan Property Management

Co., Ltd.

Allianz Global

Investors Taiwan

Money Market Fund



170 2,061 - 12.16


Services Pte., Ltd.

PIMCO Diversified

Income Fund

－ “ 182 SGD 2,934 - SGD 16.16

“ PIMCO Total Return

Bond Fund

－ “ 281 SGD 4,401 - SGD 15.68

Sea Dragon Traders Ltd. (BVI) Becton Dickinson － “ 15 USD 1,160 - USD 77.34





Buyer/ Seller

Type and

Name of

Securities

Account

Title

Trading

Counterpart Relationship

No. of

Unit Amount

No. of

Unit Amount

No. of

Unit

(thousand)

Selling

Price

Book

Value

Gain or

Loss from

Disposition

No. of

Unit

(thousand)

Amount

Ching Huang

Construction Co.,

Ltd.

Cathay R2

Fund

Financial assets at

fair value through

profit or loss

－－ - - 10,000 147,963 - - - - 10,000 156,900

“ Cathay Taiwan

Money Market

Fund

“ －－ 14,845 178,908 7,371 89,000 20,871 252,045 251,548 497 1,345 16,308

Singapore

Lungyen Life

Services Pte., Ltd.

PIMCO Total

Return Bond

Fund

“ －－ - - 281 SGD 4,401 - - - - 281 SGD 4,401



Information about previous transfer, if

the trading counterpart is a related party

Acquired by Name of Property

Date of

Trading or

Fact

Trading

Value Payment

Trading


Owner

Relationship

with the

issuer

Date of

Transfer Amount

Pricing

Reference

Purpose of

Acquisition

and Use

Others

Yuji

Development

Corp.

Land and building

including Taichung

Pao-Shan

Memorial Park

12.30.2011 180,538 Complete

payment, as

of December

31, 2012

Hong

Hsin-Tai, et al.

Non-related

party

- - - - Price

negotiation

Working

fund

Repay overdue

tax on behalf of

the original land

owner, no more

than $20,000

“ Land and building

including

Wanshoushan

Tomb

11.02.2011 1,513,310 $51,440

outstanding

before

December 31,

2012

Hong

Hsin-Tai, et al.

“ - - - - $1,664,584,

see Hungtu

appraisal

report;

$1,663,202,

see Hungtai

appraisal

report

“ Miscellaneous

rights remain

uncancelled and

untransfered, and

retained payment

outstanding


including

columbarium and

cemetery in Chia

Yu Tower

09.30.2011 129,130 Complete

payment, as

of December

31, 2012

Chia Yu

Development

Co., Ltd.

“ - - - - $130,212,

see Hungtu

appraisal

report

“ Miscellaneous

rights remain

uncancelled, and

retained payment

outstanding


None.




- 136 -


capital: None.


None.

10. Trades for derivatives:


Company Derivatives National

Principal Maturity

Fair market

value


Services Pte., Ltd.

Forward

exchange

Sell USD USD 6,000 2012/12/27~2013/03/27 (92)

(SGD (4))

(3) Information about investment in Mainland China

The Directors’ Meeting resolved on March 31, 2011 that the Company may invest no more than

US$40,000 thousand in establishing Lungyen (China) Life Service Corp., and the investment was

also ratified by the Investment Commission of MOEA on July 1, 2011. The Company intends to

invest in funeral business in China through Sea Dragon Traders Ltd. (BVI) reinvestment Lung Yen

(Cayman) Co. Ltd. and Lung Yen (Hong Kong) Co. Limited Notwithstanding, the Company has not

yet made the investment so far.

(XII) Financial information by department

The Company has disclosed the segment information in the consolidated financial statements in

accordance with Paragraph 5 of Statement of Financial Accounting Standards No. 41 and, therefore,

omitted the same in the individual financial statements.




- 137 -

Cover Page




Consolidated Financial Statements


(Including an Independent Auditor’s Audit Report)

Address: 1F., No. 166, Sec. 2, Minquan E. Rd., Taipei City

Tel. No.: (02)2712-1628

- 138 -

Table of Contents

Item Page No.

I. Cover Page....................................................................................................................................137

II. Table of Contents.......................................................................................................................... 138

III. Statement of Declaration .............................................................................................................. 139

IV. Consolidated Balance Sheets ........................................................................................................ 141

V. Consolidated Income Statements.................................................................................................. 142

VI. Consolidated Statements of Changes in Shareholders’ Equity ..................................................... 143

VII. Consolidated Statements of Cash Flows....................................................................................... 144

VIII. Consolidated Statements of Cash Flows (Cont’d)

(I) Company profile .............................................................................................. 146

(II) Summary of important accounting policies....................................................146~155

(III) Reasons and effect of changes in accounting policies ....................................... 156

(IV) Significant account disclosures......................................................................157~172

(V) Transactions with related parties....................................................................173~177

(VI) Pledged assets .................................................................................................. 178

(VII) Significant undertakings or contingencies......................................................178~180

(VIII) Significant disaster loss: None.......................................................................... 181

(IX) Significant subsequent events: None..............................................................181~181

(X) Others ...........................................................................................................182~189

(XI) Disclosures....................................................................................................190~196

(XII) Financial information by department .............................................................197~198


- 139 -

Statement of Declaration

The Company is required to prepare consolidated financial statements 2012 (for the years ended December

31, 2012) with its subsidiaries under the “Criteria Governing Preparation of Affiliation Reports, Consolidated

Business Reports and Consolidated Financial Statements of Affiliated Enterprises”. Subsidiaries of the

Company under the aforementioned legal rule are identical with the subsidiaries defined under Financial

Accounting Standard No. 7 on “Consolidated Financial Statements”. Information on Financial Status and

operation performance of such subsidiaries has been included in the disclosure of the aforementioned

consolidated financial statement between parent and subsidiaries and therefore will not be prepared

separately.

We hereby make said statement accordingly.

Company name: Lungyen Life Service Corp.

Chairman: Lee Shih-Tsung

Date: March 14, 2013


- 140 -

Independent Auditor’s Audit Report

To Board of Directors of Lungyen Life Service Corp. (Formerly Known as Dahan Development Corp.):

We have audited the consolidated balance sheets of Lungyen Life Service Corp. (formerly known as Dahan

Development Corp.) as of December 31, 2012 and 2011, and the related consolidated statements of income,

consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the

period then ended. These financial statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on these consolidated financial statements based on our audits. The

financial statements of some investees of Lungyen Life Service Corp. (formerly known as Dahan

Development Corp.) and its subsidiaries evaluated under equity method were audited by other auditors. All

amounts related to investment income and the information about the investees presented in the foregoing

financial statements were accounted for on the basis of the investee’s financial statement audited by other

auditors. The long-term equity investment under equity method of said investees were NT$30,024 thousand

and NT$29,305 thousand as of December 31, 2012 and 2011, accounting for 0.08% and 0.08% of the

consolidated total assets, respectively,. The investment loss, net recognized in 2012 and 2011, were NT$49

thousand and NT$394 thousand, accounting for 0.002% and 0.020%of the consolidated net income before

income tax, respectively,.

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial

Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of

China. Those standards require that we plan and perform the audits to obtain reasonable assurance about

whether the financial statements are free of material misstatement.An audit includes examining, on a test

basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit

also includes assessing the accounting principles used and significant estimates made by management, as

well as evaluating the overall consolidated financial statement presentation.We believe that our audits and

the other auditors’ report provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements

referred to in the first paragraph present fairly, in all material respects, the financial position of Lungyen Life

Service Corp. (formerly known as Dahan Development Corp.) and its subsidiaries of December 31, 2012 and

2011, and the results of their consolidated operations and their consolidated cash flows for the years then

ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities

Issuers and accounting principles generally accepted in the Republic of China.

KPMG

CPA:

Approval Document issued by the

competent securities authority:

(2000) Tai-Tsai-Chen (6) No. 62474

(1999) Tai-Tsai-Chen (6) No. 18311

March 14, 2013




- 141 -

Consolidated Balance Sheets



12.31.2012 12.31.2011

Assets Amount % Amount

Current assets:

1100 Cash and cash equivalents (Note 4(1)) $ 372,427 1 1,565,112 4

1120 Receivable notes and accounts, net (Note 5 & 7) 227,936 1 203,360 1

1310 Financial assets at fair value through profit or loss – current (Note

4(2) and 6)

693,530 2 916,903 2

1190 Other financial assets – current (Note 5 & 7) 1,523,042 4 1,181,541 3

1221 Building and land held for sale (Note 4(3)) 5,837 - 8,648 -

1222 Columbarium and cemetery for sale (Note 4(3)) 1,656,832 4 2,041,738 5

1223 Construction land (Note 4(4) and 6) 1,094,244 3 1,094,244 3

1224 Construction in process (Note 4(5), 5, 6 and 7) 8,398,279 22 8,153,381 20

1225 Land prepayment (Note 4(6) and 7) 486,565 1 484,013 1

1240 Balance after construction in process less unearned receipts for

construction

632 - - -

1285 Deferred marketing expenses (Note 4(7)) 8,746,108 22 8,878,656 22

1291 Restricted assets (Note 6) 215,482 1 195,922 1

1298 Other current assets (Note 4(15) 374,038 1 288,003 1

23,794,952 62 25,011,521 63

Fund and long-term investment:

1421 Long-term equity investment under equity method (Note 4(8)) 64,902 - 508,032 1

1480 Financial assets carried at cost – non-current (Note 4(2)) 524,819 2 68,471 -

1440 Other financial assets – non-current (Note 5) 27,032 - 61,092 -

616,753 2 637,595 1

Property, plant and equipment (Note 4(5), 4(9), 5, 6 and 7) :

1501 Land 1,974,767 5 2,671,636 7

1521 House and building 639,816 2 714,976 2

1531 Office equipment 94,870 - 92,954 -

1551 Transportation equipment 87,764 - 45,750 -

1552 Other equipment 43,491 - 35,669 -

1553 Assets rented to others 7,853,550 20 8,001,554 20

1621 Leased assets 30,035 - 30,035 -

1631 Leasehold improvement 2,661 - 821 -

1671 Unfinished controction 2,200,487 6 1,083,496 3

1672 Prepayment for equipment 42,619 - 36,534 -

12,970,060 33 12,713,425 32

15X9 Less: accumulated depreciation (715,747) (1) (636,620) (2)

12,254,313 32 12,076,805 30

Intangible assets (Note 4(10)):

1710 Trademark right 192,750 - 192,750 1

1760 Goodwill 542,428 1 542,428 1

735,178 1 735,178 2

Other assets:

1860 Deferred income tax assets – non-current (Note 4(15)) 478,396 1 561,915 2

1880 Other deferred expenses 42,498 - 46,475 -

1888 Other assets – others (Note 4(11) & 6) 836,673 2 786,649 2

1,357,567 3 1,395,039 4

Total assets $ 38,758,763 100 39,856,138 100

12.31.2012 12.31.2011

Liabilities and shareholders’ equity Amount % Amount %

Current liabilities:

2100 Short-term loan (Note 4(12)) $ 2,140,000 6 3,040,000 8

2120 Payable notes and accounts 461,012 1 1,521,114 4

2130 Payable accounts – related parties (Note 5) 12,400 - - -

2160 Payable income tax 99,539 - 314,561 1

2170 Payable expense 218,406 1 186,555 -

2210 Other payable accounts (Note 4(18) & 5) 113,248 - 130,201 -

2262 Advance receipts for real estate (Note 7) 144 - 1,010 -

2263 Advance receipts (Note 4(13), 5 and 7) 26,466,334 68 26,375,513 66

2268 Balance after unearned receipts for construction less construction in

process

48,814 - 18,402 -

2280 Other current liabilities (Note 4(2)) 41,950 - 25,639 -

29,601,847 76 31,612,995 79

Other liabilities:

2810 Accrued pension liabilities (Note 4(14)) 20,314 - 19,459 -

2820 Deposit received 42,995 - 46,075 -

2881 Consolidated credit 2,981 - 2,981 -

66,290 - 68,515 -

Total liabilities 29,668,137 76 31,681,510 79

Shareholders’ equity (Notes 4(8), (15), (16), (17) and (18)):

3110 Capital stock – common stock 3,990,842 10 3,990,842 10

Capital surplus:

3211 Common stock premium 1,392,072 4 1,392,072 4

3260 Long-term investment 59,736 - 59,736 -

1,451,808 4 1,451,808 4

Retained earnings:

3310 Legal reserve 263,270 1 77,142 -

3320 Special reserve 14,153 - 26,009 -

3351 Inappropriate earnings 2,606,565 7 1,930,921 5

2,883,988 8 2,034,072 5

Other shareholders’ equity:

3420 Accumulated translation adjustment (20,204) - (13,851) -

3451 Unrealized loss from financial assets 369 - (301) -

(19,835) - (14,152) -

Parent company’s shareholders’ equity – subtotal 8,306,803 22 7,462,570 19

3610 Minority interest 783,823 2 712,058 2

Total shareholders’’ equity 9,090,626 24 8,174,628 21

Significant undertakings or contingencies (Note 7)

Total liabilities and shareholders’ equity $ 38,758,763 100 39,856,138 100




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Consolidated Income Statements



2012 2011

Amount % Amount %

4000 Operating revenue (Note 5):

4511 Construction revenue $ 89,644 2 475,025 11

4310 Leasehold revenue 217,773 5 176,116 4

4700 Columbarium and cemetery revenue 3,203,301 66 2,589,539 58

4710 Funeral service revenue 1,215,347 25 1,146,153 26

4881 Other operating revenue 111,141 2 68,009 1

4,837,206 100 4,454,842 100

5000 Operating cost (Note 5)

5510 Construction cost 83,886 2 211,324 5

5310 Leasehold cost 132,526 3 113,022 3

5690 Columbarium and cemetery cost 332,387 7 276,594 6

5691 Funeral service cost 726,203 15 737,073 17

5800 Other operating cost 44,379 1 26,004 1

1,319,381 28 1,364,017 32

5910 Operating gross profit (loss) 3,517,825 72 3,090,825 68

6000 Operating expenses:

6100 Selling expenses 1,057,045 22 877,996 20

6200 General and administrative expenses (Note 5) 323,863 7 388,358 9

1,380,908 29 1,266,354 29

6900 Operating profit 2,136,917 43 1,824,471 39

7100 Non-operating revenue and gain:

7110 Interest revenue (Note 5) 15,329 - 2,731 -

7121 Income from investment under the equity method

(Note 4(8) and 5)

937 - 12,176 -

7122 Dividend revenue 23,176 - 31,179 1

7130 Gain from disposal of property, plant and equipment 2,415 - - -

7170 Revenue from counter-party default 167,243 3 222,231 5

7310 Gain from valuation of financial assets (Note4(2)) 46,027 1 - -

7480 Miscellaneous revenues (Note 5) 13,684 - 13,812 -

268,811 4 282,129 6

7500 Non-operating expenses and losses:

7510 Interrest expenses (Note 4(5)) 29,483 1 17,769 -

7530 Loss from disposal of property, plant and equipment - - 30,029 1

7640 Loss from valuation of financial assets (Note4(2)) - - 410 -

7560 Exchange loss 408 - 1,292 -

7880 Miscellaneous loss 782 - 23,465 1

30,673 1 72,965 2

7900 Non-operating expenses and losses: 2,375,055 46 2,033,635 43

8110 Income tax expense (Note 4(15)) 256,121 5 148,086 3

Consolidated total income $ 2,118,934 41 1,885,549 40

Attributed to:

Consolidated net income $ 2,047,169 40 1,861,277 39

9602 Net income on minority interest 71,765 1 24,272 1

$ 2,118,934 41 1,885,549 40


9750 Basic earnings per share (NTD) (Note 4(19)) $ 5.73 5.13 5.03 4.68

9850 Diluted earnings per share (NTD) (Note 4(19)) $ 5.72 5.13 5.03 4.68



(Formerly Known as Dahan Development Corp. and Subsidiaries)

- 143 -

Consolidated Statements of Changes in Shareholders’ Equity



Other shareholders’ equity adjustment:

Retained earnings

Common

stock Capital surplus

Legal reserve

Special reserve

Unappropriated earnings

Accumulated translation adjustment

Unrealized loss from financial

assets Minority interest Total

Balance – January 1, 2011 $ 3,821,593 389 - - 771,421 (26,009) - 663,287 5,230,681

Long-term investment acquired by issuance of new

shares

169,249 1,392,072 - - - - - (676,459) 884,862

Allocation of earnings in 2010(note 1):

Legal reserve - - 77,142 - (77,142) - - - -

Special reserve - - - 26,009 (26,009) - - - -

Shareholders’ bonus – cash, NT$1.5 per share - - - - (598,626) - - - (598,626)

Net profit for the year ended 2011 - - - - 1,861,277 - - 24,272 1,885,549

Change in net value of investee’s equity under

equity method

- 59,347 - - - 12,158 (301) - 71,204

Change in minority interest - - - - - - - 700,958 700,958

Balance – December 31, 2011 3,990,842 1,451,808 77,142 26,009 1,930,921 (13,851) (301) 712,058 8,174,628

Allocation of earnings in 2011(note 2):

Legal reserve - - 186,128 - (186,128) - - - -

Special reserve - - - (11,856) 11,856 - - - -

Shareholders’ bonus – cash, NT$3.0 per share - - - - (1,197,253) - - - (1,197,253)

Net profit for the year ended 2012 - - - - 2,047,169 - - 71,765 2,118,934

Change in net value of investee’s equity under

equity method

- - - - - (6,353) 670 - (5,683)

Balance – December 31, 2012 $ 3,990,842 1,451,808 263,270 14,153 2,606,565 (20,204) 369 783,823 9,090,626






- 144 -

Consolidated Statements of Cash Flows



2012 2011

Cash flows from operating activities:

Consolidated total income $ 2,118,934 1,885,549

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization expenses 108,510 122,769

Allowance for doubtful accounts 17,089 16,895

Gain from price recovery of inventory (600) (21,100)

Gain from investment under equity method (937) (12,176)

Loss (gain) from disposal of property, plant and equipment (2,415) 30,029

Gain on valuation of financial assets (46,027) 410

Net changes in operating assets and liabilities:

Net changes in operating assets:

Decrease in financial assets held for trading 265,454 435,156

Decrease (increase) in receivable notes and accounts (41,665) (127,274)

Decrease (increase) in receivable accounts (incl. related parities) - (22,747)

Decrease (increase) in inventory 82,595 (547,831)

Decrease in construction in progress less unearned receipts for

construction

(632) 40,379

Decrease (increase) in deferred marketing expenses 132,548 101,630

Decrease (increase) in other current assets (88,849) (9,927)

Decrease (increase) in other financial assets (341,501) (928,808)

Decrease (increase) in deferred income tax assets 58,202 (59,556)

Net changes in operating liabilities:

Increase (decrease) in payable notes and accounts (1,047,702) 82,112

Increase (decrease) in payable income tax (186,791) (146,866)

Increase (decrease) in payable expenses 31,851 30,665

Increase in advance receipts 89,955 444,738

Increase (decrease) in unearned receipts for construction less construction

in progress

30,412 18,402

Increase (decrease) in other current liabilities (3,360) 9,395

Increase in accrued pension liabilities 855 632

Net cash flow (outflow) from operating activities 1,175,926 1,342,476

Cash flows from investing activities:

Acquisition of financial assets carried at cost - 3,000

Long-term equity investment under equity method (12,600) (30,000)

Payment for acquisition of subsidiaries from moniority interest - 700,958

Purchase of property, plant and equipment (311,868) (3,941,476)

Proceeds from disposal of Property, plant and equipment 95,575 67,934

Increase in deferred expenses (3,829) (4,214)

Increase in restricted assets (19,560) (10,946)

Decrease in other financial assets 34,060 (6,055)

Increase in other assets (50,056) (148,473)

Net cash outflow flow from investing activities: (268,278) (3,369,272)




- 145 -

Consolidated Statements of Cash Flows (Cont’d)


2012 2011

Cash flows from financing activities:

Increase (decrease) in short-term loan (900,000) 3,040,000

Increase (decrease) in deposit received (3,080) 14,775

Decrease in payable lease - (800)

Allocation of cash dividend (1,197,253) (598,626)

Net cash outflow flow from financing activities (2,100,333) 2,455,349

Net increase in cash and cash equivalents (1,192,685) 428,553

Cash and cash equivalents, beginning of the period 1,565,112 1,136,559

Cash and cash equivalents, ending of the period $ 372,427 1,565,112

Supplemental disclosures of cash flow information:

Interest paid this period $ 29,483 17,769

Less: Capitalized interes - -

Excluding the interest paid this period for capitalized interest $ 29,483 17,769

Income tax paid $ 395,424 354,016

Investing and financing activities not affecting cash flows:

Property, plant and equipment translated into inventory $ - 423,092

Inventory translated into Property, plant and equipment $ 59,472 848,789

Issuance of new shares upon consolidation $ - 1,561,321

Disclosure of information about subsidiaries:

The Company acquired 25% of the equity of Lungyen Life Service Co., Ltd. on February 1, 2011, and held the shares

of Lungyen Life Service Corp. wholly accumulated. On the same day, the Company was consolidated with Lungyen

Life Service Corp. The fair values of its assets/liabilities are stated as follows:

Cash and cash equivalents $ 1,715,996

Other current assets 18,820,426

Financial assets carried at cost – non-current 65,471

Long-term equity investment under the equity method 512,627

Other financial assets – non-current 55,037

Property, plant and equipment 8,402,172

Other assets 1,161,989

30,733,718

Current liabilities 26,909,185

Long-term liabilities with interest 800

Other liabilities 50,301

26,960,286

Net 3,773,432

% of equity 25%

Net value of equity 943,358

Add: Goodwill 425,213

Trademark right 192,750

The market value for the shares issued upon acquisition of 25% of shares of

Lungyen Life Service Co., Ltd. $ 1,561,321




- 146 -



Notes to Consolidated Financial Statements



(I) Company profile

Lungyen Life Service Corp. (formerly known as Dahan Development Corp.) (hereinafter referred to

as the “Company”) was incorporated in March 1987. The Company is primarily engaged in funeral

service, development and lease of interment premises, and development and lease of residential areas

and buildings.



businesses, upon resolution of the temporary shareholders’ meeting on October 12, 2010, Lungyen

Life Service Co., Ltd. should be consolidated with the Company pursuant to Merger and Acquisition

Act and other related laws. The consolidation was approved by the Financial Supervisory

Commission of Executive Yuan via its approval letter under Ching-Kuan-Chen-Fa-Tze No.

1000001274 dated January 26, 2011. On the same day, the Board of Directors of the Company also

approved that the base date of consolidation should be February 1, 2011. The Company was held the

surviving company upon the consolidation and renamed Lungyen Life Service Corp. The alteration

registration was completed on March 18, 2011.

The Company and its subsidiaries have hired 490 employees and 545 employees respectively as of


(II) Summary of important accounting policies

The Company’s consolidated financial statements were prepared in accordance with the Guidelines

Governing the Preparation of Financial Reports by Securities Issuers and accounting principles

generally accepted in the R.O.C. The important accounting policies and estimation basis are

summarized as follows:

(1) Basis for preparation of consolidated financial statements

1. Subjects included in the consolidated financial statements:

The subjects include the Company, and the subsidiaries controlled by the Company. The investees’

income and gain or loss were included into the consolidated financial statements as of the dates when

the investees were controlled by the Company in the same year.




- 147 -

2. The subsidiaries included into the consolidated financial statements on December 31, 2012

and 2011 are stated as follows:

% of Ownership by the Company Directly or

Indirectly

Investor Subsidiary Type of Business 12.31.2012 12.31.2011 Remark

The Company Ching Huang


Construction and civil

engineering

98.20% 98.20% A subsidiary in which the Company

holds more than 50% of the issued

shares with voting right directly

The Company Yuji Development Corp. Development and lease

of residential areas and

buildings, etc.




The Company Lungding Life Science

Co. Ltd.

Cultivation, wholesale

and retail of flowers and

plants, etc.




The Company Dahan Property


Development and lease

of residential areas and

buildings, etc.




The Company Sea Dragon Traders Ltd.

(BVI)

Investment 100.00% 100.00% A subsidiary in which the Company



The Company Singapore Lungyen Life

Services Pte., Ltd.

Funeral service 100.00% -% A subsidiary in which the Company



When preparing the consolidated financial statements, the Company has written off the investment in

subsidiaries and shareholders’ equity of subsidiaries, and the credit and debit as well (e.g.

construction in process and unearned receipts for construction, and receivable accounts and payable

accounts). Meanwhile, the unrealized internal incomes from the projects contracted by any

subsidiary from the Company or the other subsidiaries were written off under the method adopted by

the Company to recognize income.

3. Increase/decrease in shares of subsidiaries this period:

In 2011, the Company’s subsidiary, Chin Huang Construction Co., Ltd., increased capital in cash by

$155,000 thousand and issued new shares at par value. Since the Company subscribed for the new

shares at the price of $154,748 thousand based on the percentage other than the original ownership

percentage, the Company’s ownership percentage increased from 92.55% to 98.20%.

In 2011, the Company’s subsidiary, Yuji Development Corp., increased capital in cash by $1,590,000

thousand and issued new shares at par value, in order to launch into the funeral service and increase

channels throughout the nation. Since the Company subscribed for the new shares at the price of

$890,000 thousand based on the percentage other than the original ownership percentage, the

Company’s ownership percentage increased from 100% to 56.25%.

In 2011, the Company invested $20,000 thousand in order to incorporate Lungding Life Science Co.,

Ltd. in order to launch into the business of flowers and plants cultivation. The Company’s ownership

percentage was 100%.

In October, 2012, the Company invests SG$10,000 thousand (NT$239,800) to establish

SINGAPORE LUNGYEN LIFE SERVICES PTE., LTD for expansion of the scale of operation and

funeral services to overseas markets in order to create higher return of investment and shareholders’

equity. The Company’s ownership percentage was 100%.




- 148 -

4. The information about subsidiaries excluded from the consolidated financial statements for

this period:

% of Ownership by the Company Directly or

Indirectly

Investor Subsidiary Type of Business 12.31.2012 12.31.2011 Remark

The Company Beauty Kadan Co., Ltd. Cultivation, wholesale

and retail of flowers and

plants, and landscaping,

et. al.

50.00% 50.00% The Company accounted for less than

a majority of the voting rights vested

in that company’s board of directors.

That company’s ultimate parent

company is Japan-based Beauty

Kadan Co., Ltd.

5. Difference in FY of subsidiaries and holding company: None

6. Difference in accounting policies of subsidiaries and holding company: None

7. Special risk in operation of overseas subsidiaries: None

8. Allocation of earnings of various companies restricted under laws or contract: None

9. Contents of securities issued by parent company as held by subsidiaries: None

10. Information about convertible corporate bond and new shares issued by subsidiaries: None

(2) Accounting estimates

The Company has made necessary estimations, assessments and disclosures on the assets, liabilities,

income, loss and profit or contingencies based on necessary assumptions and estimations when

preparing the financial statements. However, the actual results may vary from the assumptions and

estimations.

(3) Translation of foreign currency exchanges and foreign currency financial statements

The Company’s accounts are expressed in NTD in bookkeeping. The foreign currency exchange for

non-derivative instruments shall be expressed at the spot exchange rate on the date of exchange. The

exchange for monetary assets or liabilities expressed in foreign currencies on the balance sheet date

shall be converted at the spot exchange rate on the same day. Differences resulting from the

exchange are recognized as current gains or losses. The exchange for non-monetary assets or

liabilities expressed in foreign currencies shall be estimated at the historical exchange rate on the

date of exchange, provided that the exchange for non-monetary assets or liabilities at fair value

expressed in foreign currencies shall be converted at the spot exchange rate on the balance sheet date.

In the case of the assets or liabilities at fair value through profit or loss, the differences resulting from

such exchange are recognized as current gains or losses. In the case of the assets or liabilities at fair

value through the statement of changes in shareholders’ equity, the differences resulting from such

exchange are recognized as the adjustment of changes in shareholders’ equity.

The Company’s overseas long-term equity investments under equity method are all expressed in

functional currencies in bookkeeping. The differences resulting from translation of the foreign




- 149 -

currency financial statements into the local currency financial statements are stated into the

accumulated translation adjustment under shareholders’ equity as net of tax.

(4) Current and non-current assets and liabilities

Current assets include cash or cash equivalents for which the purposes are not restricted, and assets

held for the purpose of transaction or for a short-term, and estimated to be realized within a business

cycle (generally one year for construction business). Any assets other than current assets are included

in non-current items.

Current liabilities are debts to be paid off within a business cycle. Any liabilities other than current

liabilities are classified as non-current items.

(5) Asset impairment

The Company estimates the collectible amount of the assets likely to be impaired on the balance

sheet date (individual assets other than good will or cash generation unit), and recognizes the assets

with collectible amount less than the book value as impairment loss. Where the cumulative

impairment loss of the assets other than goodwill recognized in previous years does not exist or

decreases, they shall be reversed to increase the book value to the collectible amount, provided that it

shall not exceed the amount less depreciation or amortization under the circumstance that the

impairment loss of the assets is not recognized.

It is necessary to conduct the impairment test on goodwill, indefinite-life intangible assets and

intangibles not available-for-use, and recognize the assets with collectible amount less than the book

value as impairment loss.

(6) Cash equivalents

The cash equivalents referred to herein means the short-term and high-liquidity investments that may

be converted to specific cash and will mature soon, seldom affected by the fluctuation in the interest

rate thereof, including treasury bills, commercial papers, and bank acceptances which will mature or

be prepaid within three months from the date of investment.

(7) Financial assets

1. Financial assets at fair value through profit or loss

Such assets include the financial instruments acquired or generated primarily for the purpose of sale

within a short term or repurchased for trading, and the financial derivatives as held. Except the

financial instruments designated and being effective hedging means, the other assets shall be

classified as financial assets at fair value through profit or loss. These financial assets are initially

recognized at fair value with transaction costs that are directly attributable to the acquisition. When

subsequently measured at fair value, the changes in fair value are recognized in current income. A

regular way purchase or sale of financial assets is accounted for using settlement date accounting.

2. Acquisition of financial assets carried at cost

Such assets include the investments in equity instruments with no significant influence and with fair

value that cannot be reliably measured, which shall be measured at their original cost. An impairment




- 150 -

loss is recognized when there is objective evidence that the assets are impaired. A reversal of this

impairment loss is not allowed.

3. Receivable notes and accounts, other receivables

The receivable notes and accounts refer to the creditor’s right generated from sale of instruments or

labor services. The other receivables refer to the other receivables and notes generated from any

causes other than operation.

With respect to financial assets, the Company first evaluates the financial assets carried at cost less

amortization to determine whether there is any objective evidence showing impairment on

significant individual financial assets and on non-significant individual financial assets, alone or

jointly. It is not necessary to conduct consolidated impairment evaluation on the financial assets, the

impairment on which has already been assessed individually and was recognized, or recognized

continuously.

The impairment value is the difference in the book value of financial assets and the value after the

projected cash flow is discounted at initial interest rate. The book value of financial assets is adjusted

through allowance account. The impairment value shall be stated as current income. When

determining the impairment value, the estimation for projected cash flows includes the collectible

value of collateral and related insurance.

Should there be a decrease in the amount of subsequent impairment, and it is obviously related to

events that occurred after recognition of impairment loss, such reversal shall not cause the book

value to exceed the cost after amortization under unrecognition of impairment loss. The reversal

shall be recognized as current income.

(8) Construction accounting and revenue recognition

Accounting principles for construction and sale of houses

The Company calculates the cost of investment in construction of buildings subject to various

projects. Where any of the following conditions is met, the gain from sale of real estate may be

recognized based on the percentage of completion method and the others shall be settled as income

upon residence delivery after completion of the project:

1. The construction progress exceeds the preparation and planning stage; in other words, the

construction design, planning, contract and soil preparation are completed and the construction

may be performed at any time.

2. The aggregate of pre-sale contracts amounts to the estimated total construction cost.

3. The aggregate of pre-sale contracts amounts to 15% of the total contract amount.

4. The collectability of receivable contract amount may be estimated reasonably.

5. The total construction cost to be invested to perform the contract and percentage of completion

at the end of the period may be estimated reasonably.

6. The cost attributed to the sale contract is identifiable reasonably.

If the percentage of completion method is applied, the percentage of completion shall be measured

based on the actual construction progress.

The land purchased or acquired shall be stated as “construction land” after title registration. The

payment made for purchase of the land prior to registration of the title shall be stated as “land




- 151 -

prepayment”. The cost of construction land and construction invested in the various projects shall be

stated as “construction in process”, and then re-stated into “real estate held for sale” upon completion

of the project. The payment received for pre-sale real estate shall be stated as “advance receipts for

real estate”. The selling expenses incurred by the pre-sale shall be stated as “deferred selling

expenses”. If residence delivery after completion of construction is applied, “real estate held for

sale”, “advance receipts for real estate” and “deferred selling expenses” shall be re-stated to current

income subject to the part sold. If the completed contract method is applied, the gain on the sale shall

be calculated accumulatively based on the percentages of completion and sale at the end of the

period, and recognized as current gain on the sale less the accumulated gains recognized in the

previous period.

The year for attribution of income from completion and residence delivery shall be identified as of

the date when the construction is completed and the residence may be delivered and also is delivered

physically. If only the title is registered (or only the premises is delivered) prior to the balance sheet

date, but the premises is delivered physically (or the title is registered) in the subsequent period, the

income shall be deemed realized already.

The interest expenses incurred before the construction in process (including land and construction

cost) becomes available or completed shall be capitalized.

The sold and unsold construction costs may be amortized based on the percentage of selling price or

floor area, provided that no alteration is permitted in the previous and following years of the same

project once the percentage is selected.

The construction land, construction in process and real estate held for sale shall be stated at cost.

Then, they should be measured at the lower of the cost and net realized value. The net realized value

shall be based on the selling price estimated under normal operation on the balance sheet date less

the cost and selling expenses to be invested until completion of the construction.

According to the interpretation letter under (97) Kee-Mi-Tze No. 191 dated June 13, 2008, the

revenue from disposal of undeveloped land shall be stated as operating revenue.

Accounting principles for long-term construction projects

The cost of construction projects contracted by subsidiaries is stated subject to various projects.

According to the Statement of Financial Accounting Standards No. 11, the income of the

construction projects as contracted for which the completion period exceeds one year and the project

amount, project cost and progress may be estimated reasonably shall be calculated based on the

percentage of completion method, while the income of those for which the completion period is less

than one year or for which the project income may not be estimated reasonably shall be calculated

based on the complete contract method. The construction cost is stated as “construction in process”

when the cost is invested. The construction progress payment is stated as “advance receipts for

construction” when it is received in advance. The gain on construction shall be calculated

accumulatively based on the percentages of completion at the end of the period, and recognized as

current income on the construction less the accumulated gains recognized in the previous period.

If the accumulated gains recognized in the previous period exceed the gains calculated

accumulatively based on the percentage of completion at the end of the period, the excess is stated as

current loss on construction. If the construction project is estimated to suffer loss, it is necessary to

recognize the loss in whole. If the loss is estimated to decrease in subsequent years, the decrease

shall be written off and recognized as current income.

Subsidiaries evaluate the percentage of completion based on the percentage of invested cost in the

total estimated total cost.




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If the balance of construction in process exceeds the advance receipts for construction, the advance

receipts for construction shall be stated as “less” item under construction in process and also stated

under current assets. If the balance of advance receipts for construction exceeds the balance of

construction in process, the construction in process shall be stated as “less” item under advance

receipts for construction and also stated under current liabilities.

(9) Accounting principles for investment in construction of columbarium and cemetery or sale:

In the case of building on own land, the income thereof shall be recognized based on the complete

contract method.

The construction in process includes the construction land and construction costs. Upon completion

of the project, the part of permanent license already transferred to customers based on the percentage

of the selling price of columbarium and cemetery shall be re-stated into current operating costs,

while the other parts are re-stated into the columbarium and cemetery for sale. The payment received

from pre-sale of columbarium and cemetery shall be stated as advance receipt at first. Upon

completion of the project, the part of permanent license already transferred to customers shall be

re-stated into the operating revenue. The deferred marketing expenses mean the direct marketing

expenses incurred by the pre-sale of columbarium and cemetery during the construction period.

Upon completion of the project, such expenses shall be recognized as current expenses based on the

revenue.

The interest expenses incurred before the construction in process (including land and work under

construction) becomes available or completed shall be capitalized.

The columbarium and cemetery for sale shall be valued at the lower of cost and net realized value.

(10) Accounting principles for funeral services

The income from supply of funeral and interment services shall be recognized based on the

completed performance method.

The payment received from reserved labor service contracts shall be stated as advance receipts at

first. Upon completion of the labor services, the receipts from labor services already supplied shall

be re-stated into operating revenue. The direct marketing expenses incurred by the pre-sale service

contracts shall be stated as deferred marketing expenses, and then re-stated into current expenses

upon completion of the service.

(11) Long-term investment under equity method

Investments in corporations in which the Company’s ownership interest is 20% or more or over

which the Company can exercise a significant influence are accounted under the equity method. The

difference between the investment cost and the net value of the investee’s equity at the time of the

Company's investment is processed in accordance with the amended “Statement of Financial

Accounting Standards for Long-Term Equity Investment under Equity Method”. In the case of

depreciable, depletable or amortizable assets, the difference shall be amortized according to the

estimated residual economic years. If the difference arises because the book value of assets is higher

or lower than the fair value, the unamortized difference shall be written off in full when the

overestimation or underestimation extinguishes. The excess of the investment cost over the fair value

of the identifiable net assets acquired, if any, is recognized as goodwill. The excess of the fair value

of the net identifiable assets acquired over the investment cost, if any, is reduced in proportion to the




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respective fair values of the non-current assets, and the remaining excess, if any, shall be recognized

as an extraordinary gain. In the case of sale, the difference between the selling price and the book

value of such investment on the date of disposition is recognized as the income from disposal of

long-term equity investment. The balance of capital surplus generated from the long-term equity

investment, if any, shall be stated as current income based on the percentage of sale.

In the case of swap of another company’s equity by issuance of new shares, the investment shall be

stated at the fair value of the new shares as delivered or fair value of the swapped equity. The

difference between the cost and issuing price of new shares shall be credited as capital surplus;

otherwise, it shall be stated as retained earnings. If any public quotation for equity securities issued

or swapped is available, the fair value thereof shall be based on that prevailing within a reasonable

time limit before and after the date of publication of the share swap contract.

It is necessary to conduct the test on impairment per year. If there is any specific circumstance or

change showing that the goodwill has been impaired, it is necessary to conduct the test on

impairment immediately and recognize the part with collectible amount less than book value as

impairment loss.

The Company evaluates the investees with controlling power under the equity method and prepares

the consolidated financial statements on a quarterly basis.

Gains or losses on transactions between the Company and its equity-method investees and

subsidiaries are deferred until such gains or losses are realized. Gains or losses arising from

depreciable or amortizable assets are recognized over their economic lives. Where the transactions

are generated by other assets, the gains or losses thereon shall be recognized in the year of

realization.

(12) Property, plant & equipment, assets rented to others, depreciation, and gain or loss from

disposal of property, plant & equipment

Property, plant & equipment and assets rented to others are stated at the acquisition cost, and valued

based on the cost less accumulated depreciation. The interest expenses borne by the payment made

for the assets purchased or constructed before the assets become available shall be capitalized and

stated as the asset cost. Significant improvements, additions and renewals are treated as capital

expenditure, while maintenance and repairs are charged to expense as incurred. The gain or loss from

disposal of property, plant & equipment is stated as current non-operating revenue or expenditure.

The leased assets shall be stated at the lower of the fair value and the present value of the whole

payable rent (less the performance cost to be borne by the lessor) and preferential purchasing price or

guaranteed residual value at the time of lease. The leased subject matter which may be acquired

without consideration or subject to preemptive right upon expiration of the lease shall be depreciated

based on the estimated useful years under the average method, while that not subject to preemptive

right shall be depreciated based on the term of lease under average method. When the estimated

economic years expire, the depreciable assets, which are still in use, are depreciated over the newly

estimated remaining useful years.

Depreciation is calculated based on the cost by the straight-line method over useful years. The

leasehold improvement is amortized by the average method over the shorter of the lease years or

estimated useful years.

As of November 20, 2008, the Company and its subsidiaries stated the obligations to remove or

recover estimated during the period other than that during which the property, plant & equipment

were used in production of inventories as property, plant & equipment cost in accordance with the




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Interpretation under Kee-Mi-Tze No. 340 dated November 20, 2008 from the Accounting Research

and Development Foundation (ARDF). Any part of property, plant & equipment which is held

important to the total cost shall be depreciated individually. The Company evaluates the residual

useful years, depreciation and residual value of property, plant & equipment at the end of FY each

year. The changes in residual useful years, depreciation and residual value shall be recognized as the

changes in accounting principles.

The useful years of substantial property, plant & equipment are specified as follows:

House and building 3~55 years

Office equipments 3~5 years

Transportation equipment 5 years

Other equipments 2~10 years

Assets rented to others 3~55 years

Leased assets 3 years

Leasehold improvement 2 years

(13) Consolidated goodwill

Goodwill means the excess of acquisition cost in the recognizable fair value of assets, which shall be

measured based on the cost recognized initially less accumulated impairment.

(14) Idle assets

The land and building which are usable but not used for business shall be stated as idle assets and

re-stated into other assets, valued at the lower of the net realizable value or book value. According to

the amended Statement of Financial Accounting Standards No. 1, the Company re-stated, amortized

and depreciated the idle assets which were not required to be re-stated at the lower of the net

realizable value or book value based on the cost, accumulated depreciation and accumulated

impairment for the original titles.

(15) Revenue recognition

The revenue shall be recognized upon transfer of the title in goods and significant risk or completion

of labor services, when evidence of the revenue generation process is complete and the revenue is

realized or the collectability is reasonably assured.

If any contract was breached and no installment account receivable has been made for more than two

years in the case of columbarium and cemetery contracts, or no installment account receivable for

more than nine years in the case of pre-need contracts, the advance receipts for such contracts shall

be stated as revenue from counter-party default less refundable amount and necessary expenditure.

Installment sales are based on the sale method. The current income thereof shall be based on cash

sale price and cost. Meanwhile, the excess of the installment sale price in the cash sale price shall be

stated as unrealized interest revenue, and realized interest revenue shall be recognized based on the

interest method. Unrealized interest revenue shall be stated as less items under receivable notes and

accounts.




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(16) Employees’ pension plan

The Company has put in place a pension plan covering all formal employees. According to the plan,

each employee who meets the retirement conditions may earn two base units for each year of his/her

service seniority. Each employee will earn two base units for the first 15 years of service seniority,

provided that the employee shall earn no more than 45 base units ultimately. The residual seniority

more than a half year shall be counted as one year, while the residual seniority less than a half year

shall be counted as a half year. The criteria on base units for pension shall be based on the average

salary of the last one month prior to approval of the retirement. Further, where the employee is

incapacitated due to mental defect or physical handicap when performing his/her duty and is retired

compulsorily, the Company shall pay said pension plus 20%. Under the plan, the pension shall be

borne by the Company in whole. The “Labor Pension Act” (hereinafter referred to as the “new

system”) was enforced as of July 1, 2005. If the employee who applied for the plan initially selects to

apply for the service seniority under the new system, the defined contribution plan shall apply.

Meanwhile, the defined contribution plan shall also apply to the service seniority of employees who

are hired upon enforcement of the new system. The contribution rate of pension fund allocated by the

Company must not be less than 6% of employees’ monthly salaries, and the fund shall be saved in

the labor pension fund account.

The Company applies SFAS No. 18 “Accounting for Pension Plans” and completes the actuarial

calculation under the defined benefit plan on the date of final accounting in each FY. The excess of

accumulated benefit obligation in the fair value of pension fund assets shall be recognized as the

minimum pension liabilities on the balance sheet. Meanwhile, according to the competent securities

authority’s requirement, the Company recognizes the net pension cost pursuant to the standards,

including the current service cost and transitional net assets, previous service cost and pension

income amortized by the straight line method over the employee’s residual service seniority of 15

years. According to the Labor Standard Law, the Company contributes the pension reserve

equivalent to 2% of the total monthly salary to the exclusive account at Bank of Taiwan.

Under the defined contribution plan, the Company and its subsidiaries contribute 6% of the monthly

salary to the Bureau of Labor Insurance pursuant to the Labor Pension Act. The contributions are

stated as current expenses.

(17) Bonus to Employees and Remuneration to Directors and Supervisors

As of January 1, 2008 (incl.), the Company adopted Interpretation under (96) Kee-Mi-Tze No. 052,

“Accounting for Bonuses to Employees, Directors and Supervisors” issued by the ARDF and makes

an accrual for the amount of directors’ and supervisors’ remuneration for inclusion in the accounts as

either “operating cost” or “operating expenses” according to the nature of the remuneration. Any

differences between the amounts resolved in subsequent shareholders' meetings and the amounts

estimated in the financial statements are treated as changes in accounting principles, and recognized

as current income.

(18) Income tax

The income tax is estimated in accordance with the Income Tax Act and related laws. Excesses and

shortages of income tax paid in previous years are presented as adjustments to income tax expenses

for the current year. If the difference between the accounting income and taxable income is of the

nature of time, the Company applies intra-period and inter-period allocations for its income tax.

Whereby tax effects of taxable temporary differences are recognized as deferred tax liabilities and

tax effects of deductible temporary differences, carry-forward loss and income tax deductions are




- 156 -

recognized as deferred income tax assets. Valuation allowances are provided to the extent, if any, that

it is more likely than not that deferred income tax assets will not be realized.

The Company’s and its domestic subsidiaries’ distributable unappropriated earnings treated under the

Business Accounting Act less the adjustment required by tax laws may be reserved at the discretion

of the annual shareholders’ meeting in the next year’s meeting. The unappropriated earnings may be

subject to a one-time additional 10% corporation income tax and stated as income tax expenses in

the year of the resolution made by the shareholders’ meeting.


Earnings per share is computed based on the net income in the current period dividing by the

weighted average shares of outstanding common stock. The bonus to employees which has not yet

been resolved by the shareholders' meeting but may be allocated in the form of stock is referred to as

potential common stock. If the common stock has the function of dilution, only the basic earnings

per share should be disclosed; otherwise, diluted earnings per share should be disclosed too.

Earnings per share is diluted under the hypothesis that all potential common stocks with the function

of dilution are outstanding in the current period. Therefore, the income in the current period and

outstanding common stocks are adjusted due to the effect of potential common stock with the

function of dilution. The new shares increased due to earnings and capital surplus increase shall be

computed based on retroactive adjustment.

(20) Disclosure of information by operation department

The operation department is a unit formed by the Company and its subsidiaries, engaged in any

operating activities potentially generating revenue and incurring expense (including the revenue and

expense generated and incurred in the transactions with the other units in the Company and its

subsidiaries). The operating department’s operating result will be rechecked by the operating policy

makers of the Company and its subsidiaries, in order for the Company and its subsidiaries to define

the policy for allocation of the department's resources and to assess the department’s performance.

The department’s financial information will also be prepared separately.

(III) Reasons and effect of changes in accounting policies

As of January 1, 2011, the Company and its subsidiaries have adopted the Statement of Financial

Accounting Standards No. 41 “Disclosure of Information by Operation Department”. According to

the Statement, the enterprise shall disclose information helpful for users of the financial statement to

evaluate the business activities conducted by the enterprise and the nature of economic environment

under which the enterprise operates and financial effect thereof. The Company and its subsidiaries

decide and express the operation department based on the information provided to the decision

policy maker internally. Meanwhile, according to the Statement, the Company has disclosed the

information by department in the consolidated financial statement. Therefore, no information by

department was disclosed in the individual financial statement. The Statement also replaces the

Statement of Financial Accounting Standards No. 20 "Disclosure of financial information by

department”. Notwithstanding, said changes in the accounting principles would not produce any

effect on the income in the financial statements of the Company and its subsidiaries in 2011.

As of January 1, 2011, the Company and its subsidiaries have also adopted 3rd amendments to the

Statement of Financial Accounting Standards No. 34 “Accounting Principles for Financial

Instruments”. According to the Statement, the loan stated initially and receivable accounts shall




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apply the recognition, subsequent evaluation and impairment with respect to the loans and receivable

accounts under the Statements. Notwithstanding, said changes in the accounting principles would not

produce any effect on the income in the financial statements of the Company and its subsidiaries in

2011.

(IV) Significant account disclosures

(1) Cash and cash equivalents

12.31.2012 12.31.2011

Cash on hand and petty cash $ 5,506 2,285

Bank deposit

Checking deposit 17 61,063

Demand deposit 268,887 1,490,379

Time deposit 98,017 11,385

Subtotal 366,921 1,562,827

Total $ 372,427 1,565,112

(2) Financial instruments

The financial assets held by the Company and subsidiaries on December 31, 2012 and 2011 are

specified as follows:

12.31.2012 12.31.2011


Financial assets held for trading:

Listed (OTC) stock $ 288,749 549,985

Beneficiary certificate 404,781 366,918

Total $ 693,530 916,903

Financial liabilities held for trading (stated as other current

liabilities):

Forward exchange contracts $ 92 -


Investment in stock—PK Venture Capital Corp. $ 54,255 54,255

Investment in stock –FORTUNE IC FUND I 11,216 11,216

Investment in stock – Asia Best Healthcare Co., Ltd. 456,348 -

Investment in stock – J-Garden Corp. 3,000 3,000

Total $ 524,819 68,471

The Company’s strategy for forward exchange contracts is to hedge its exposures to fluctuations of

foreign exchange rate. Derivatives that are not subject to measurement under hedge accounting are

classified as financial assets or financial liabilities at fair value through profit or loss and outstanding

forward exchange contracts on December 31, 2012, was stated as follows:




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Forward exchange contracts:

12.31.2012

National Principal (In Thousands) Currency Maturity DAte

Sell USD 6 ,000 USD/SGD 03.27.2013

1. The Company and subsidiaries valuated said financial assets in accordance with the Statement

of Financial Accounting Standards No. 34 in 2012 and 2011, and recognized the gains(loss) on

valuation, $46,027thousand and ($410) thousand, respectively.

2. The financial assets carried at cost – non-current were stated at cost, as there was no quoted

price in active market and with fair value available.

3. Regarding to the Company’s equity of Asia Best Healthcare, please refer to Note 4(8) for the

details about circumstances transferred by long-term equity investment under equity method on


4. Please refer to Note 6 for the details about circumstances secured by said financial assets on

December 31, 2012.

(3) Building and land held for sale, and columbarium and cemetery

1. Building and land held for sale

12.31.2012 12.31.2011

Project

Land held for

sale

Building held for

sale Realized

gain Total

Land held for

sale

Building held for

sale Realized

gain Total

Summer Palace $ 308 561 - 869 1,231 2,244 - 3,475

Green Castle Dazhi

4,482 3,078 - 7,560 4,482 3,079 - 7,561

Beitou Dahan 1,956 2,052 - 4,008 2,934 3,078 - 6,012

Subtotal $ 6,746 5,691 - 12,437 8,647 8,401 - 17,048

Less: Allowance for loss on price decline

(6,600)

(8,400)

Net $5,837 8,648

2. Columbarium and cemetery for sale

Project 12.31.2012 12.31.2011

True Dragon Tower $ 644,187 1,131,885

Lung Tai Ling 245,719 245,719

Cemetery Area 149,604 386,426

Bamboo Abode 33,136 40,909

Beauty World 162,339 -

XiaShan YaJhr 203,271 -

Chia Yun Tower 101,166 102,824

Fu Tien Tower 117,410 133,975

Total $ 1,656,832 2,041,738




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3. The allowance for loss on price decline of inventory is the total of the allowance for loss on

price decline of inventory for construction land and building and land held for sale upon

valuation adjustment at the end of the period. As a result of the sale of the building and land

held for sale for which the allowance for loss on price decline of inventory has already been

provided in 2012 and 2011, the net realized values increased and decrease in operating cost,

$1,800 thousand and $21,100 thousand, respectively, was recognized.

4. On December 31, 2012 and 2011, the subsidiaries acquired Chia Yun Tower and Fu Tien

Tower, and had their land ownership registered under another person’s name. Please refer to

Note 4(5).

(4) Construction land

Project 12.31.2012 12.31.2011

Land No. 737 and 738, 1st Subsection, Chungnan $ 569,314 $ 569,314

2nd Subsection, Li Ho Section, Hsinyi District 38,748 38,748

2nd Subsection, Xi Hu Section, Neihu District 8,989 8,989

4th Subsection, Jing Hua Section, Daan District 240,060 240,060

Land No. 730, 1st Subsection, Jen Ai 172,459 172,459


District

71,374 71,374

Subtotal 1,100,944 1,100,944

Less: Allowance for loss on price decline (6,700) (6,700)

Net $ 1,094,244 $ 1,094,244

On December 31, 2012 and 2011, the Company furnished said construction land, in part, to secure

the bank loan. For details, please refer to Note 6.

(5) Construction in process

1. Real estate in process

Land Cost Project

Cost Total Mode of

Investment Projected Year of Completion

12.31.2012


on self land

TBD

Chung Nan Section, Nangang 2,160,863 45,989 2,209,519 “ 2015

Total $ 2,201,736 46,629 2,251,032

12.31.2011


on self land

TBD

Chung Nan Section, Nangang 2,160,863 29,984 2,190,847 “ 2015

Total $ 2,201,736 30,544 2,232,280




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1) In 2012 and 2011, the total interest expenditures of the Company were $29,483 thousand and

$17,769 thousand. The capitalized interests on construction in process were both $0.

2) On December 31, 2012 and 2011, all of said projects failed to meet the conditions applicable

under the percentage of completion method.

3) On December 31, 2012 and 2011, the Company furnished said construction in process, in part,

to secure the bank loan. For details, please refer to Note 6.

4) On December 31 2011, the Company planned to arrange the construction in process, Tung Shih,

Hsichih, as the Group’s operation office premises in the future in order to upgrade the utilization

of asset. Therefore, the relevant book value, $840,491 thousand, was re-stated into the property,

plant & equipment-unfinished construction in whole subject to the nature of future occupation.

2. Columbarium and cemetery in process

12.31.2012



Sanzhi Area 97,997 446,197 544,194

Cemetery Area 1,301,905 11,921 1,313,826

Hua-lien Tower 97,956 422,203 520,159

Chia Yun Tower 34,486 7,217 41,703

Fu Tien Tower 282,158 67,553 349,711

Taichung Bousan Tower 59,100 114,262 173,362

Wanshoushan Cemetery 1,040,820 - 1,040,820

Hsintien Ching-Tang Cemetery 45,403 - 45,403

Jinshan 2,350 31 2,381

Yangmei Land 127,216 - 127,216

Total $ 3,286,079 2,861,168 6,147,247

12.31.2011



Sanzhi Area 97,997 342,386 440,383

Cemetery Area 1,386,837 11,921 1,398,758

Hua-lien Tower 97,956 422,203 520,159

Chia Yun Tower 17,353 7,698 25,051

Fu Tien Tower 189,438 77,625 267,063

Wanshoushan Cemetery 1,041,677 - 1,041,677

Other 67,874 33,660 101,534

Total $ 3,101,792 2,819,309 5,921,101

1) In 2012 and 2011, the capitalized interests on columbarium and cemetery in process were both

$0.

2) Please refer to Note 6 for the details about the bank loan secured by said construction in process

on December 31, 2012 and 2011.




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3) In order to launch into the funeral service and increase channels throughout the nation, the

subsidiaries acquired the whole ownership and title to operate Chia Yun Tower, Wanshoushan

Tomb in Wanli District, New Taipei City (including ancillary Funtan Life Memorial Museum

and Diamond Sutra Tower), and the partial land ownership of Taichung Pao-Shan Cemetery,

Taoyuan Fu-Geng Cemetery and Hsintien Ching-Tang Cemetery, respectively in September,

November, and December 2011. The total payment was $1,823,360 thousand (after tax). As of

December 31, 2012 and 2011, payments in the amounts of $1,771,920 thousand and $462,668

thousand have been made, and the remaining payments, $51,440 thousand and $1,179,772

thousand, respectively, were stated as payable accounts.

4) Given laws prohibit any private corporation from acquiring agricultural land, the subsidiaries

(hereinafter referred to as the “appointer”) and Mr. Lee Shih-Tsung (hereinafter referred to as

the “appointee”) entered into a mandate contract in order to have the land ownership of Chia

Yun Tower and Futan Tower registered under the name of the appointee, requiring the appointee

to affix his seal to the documents required for registration of the land ownership and then submit

the same to the appointer after acquiring the ownership right. Meanwhile, the appointee has

issued a promissory note bearing the amount equivalent to the amount of the land registered

under his name and submitted the promissory to the appointer.

(6) Land prepayment

Item 12.31.2012 12.31.2011


3rd Subsection, Hua Kung Section, Shihlin District 252,510 252,510


District

100,169 98,217

Others - 1,400

Total $ 486,565 484,013

(7) Deferred marketing expenses

Item 12.31.2012 12.31.2011

Cemetery $ 5,268,226 5,668,983


Warrant 43,454 24,778

Total $ 8,746,108 8,878,656




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(8) Long-term equity investment under the equity method

The Company's long-term equity investment under the equity method on December 31, 2012 and

2011 is stated as follows:

12.31.2012 12.31..2011

Book Value % of

Ownership Book Value % of

Ownership

Long-term equity investment under

the equity method:

Beauty Kadan Co., Ltd. $ 23,104 50.00% 21,780 50.00%

Ruei Da Venture Capital Co., Ltd. - -% 456,947 16.35%

Asia Best Healthcare Co., Ltd. 30,024 47.62% 29,305 47.62%

You Ka En Inc. 11,774 42.00% - -%

Total $ 64,902 508,032

1. In 2012 and 2011, except Beauty Kadan Co., Ltd., the Company recognized the investment

income on the investees valuated under the equity method based on the financial statements

audited by an independent auditor, the investment income on which was recognized based on

the financial statements for the same period ended settled by it independently. The investment

gain (loss), capital surplus and accumulated translation adjustment recognized in 2012 and 2011


2012 2011

Investment Income


Investment Income

Financial Assets

Unrealized Income

Investment Income

Capital Surplus


Investment Income

Beauty Kadan Co.,

Ltd.

$ 1,324 - - 1,246 - - -

Asia Best

Healthcare Co., Ltd.

390 (989) - 11,324 59,441 10,488 -

Ruei Da Venture

Capital Co., Ltd.

49 - 670 (394) - - (301)

You Ka En Inc. (826) - - - - - -

Total $ 937 (989) 670 12,176 59,441 10,488 (301)

2. Asia Best Healthcare Co., Ltd. valuated by the Company under the equity method increased

capital in cash by issuing new shares in 2011. Since the Company subscribed for the new shares

based on the percentage other than the original ownership percentage, the net value of the equity

initially held by the Company increased and the capital surplus was adjusted as $59,441

thousand. The Company’s ownership percentage increased from 34% to 16.35%. In July 2012,

since the reelection of board of directors, the Company evaluated that it is no significant

influence, the entire book value transferred to financial assets carried at cost – non-current,

please refer the Note 4(2).

3. In 2011, the Company increased the investment in Ruei Da Venture Capital Co., Ltd. by

$30,000 thousand, and held 47.62% ownership. Because of the Company’s significant influence

over Ruei Da, it was valuated under the equity method.




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4. In April 2012, the company expanded business to flower design of funeral service and invested

$12,600 to establish You Ka En Inc. and held 42% ownership. Because of the Company’s

significant influence over You Ka En Inc., it was valuated under the equity method.

(9) Property, plant and equipment



Net Book Value

12.31.2012

Land $ 1,974,767 - - 1,974,767




Other equipment 43,491 25,961 - 17,530


Leased assets 30,035 29,726 - 309

Leasehold improvement 2,661 995 - 1,666



equipment

42,619 - - 42,619

Total $ 12,970,060 715,747 - 12,254,313

12.31.2011

Land $ 2,671,636 - - 2,671,636




Other equipment 35,669 19,980 - 15,689


Leased assets 30,035 29,726 - 309




equipment

36,534 - - 36,534

Total $ 12,713,425 636,620 - 12,076,805



2. The Company has entered into a contract with a third party to entrust the third party to process

and consolidate the purchase of land reserved for office buildings and the land was registered in

the third party’s name, in part. Upon consolidation of the land, the title of the land would be

transferred to the Company unconditionally. The Company took the precautionary action to

have the documents required by registration of transfer of the land ownership kept in the

custody of the attorney-at-law appointed by the Company. Meanwhile, the third party also

issued a promissory note bearing the same value to the Company.




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3. On December 31, 2012 and 2011, the assets rented to others are stated as follows:


Net Book Value Item

12.31.2012

Land $ 5,107,061 - - 5,107,061


Total $ 7,853,550 288,815 - 7,564,735

12.31.2011

Land $ 5,251,898 - - 5,251,898


Total $ 8,001,554 222,086 - 7,779,468

(10) Intangible assets:

12.31.2012 12.31.2011

Trademark right $ 192,750 192,750

Goodwill 542,428 542,428

Total $ 735,178 735,178

The Company acquired the trademark right due to the merger in 2011. An application for an

extension of the valid trademark term may be made at low cost. The Company expects to continue

applying for extending its valid term and also anticipates that the trademark right will continue

generating net cash inflow. According to Statement of Financial Accounting Standards No. 37

“Accounting Principles for Intangible Assets”, the trademark right is stated as an indefinite-life

intangible asset.

On February 5, 2010, the Company increased capital by $749,243 thousand by issuing new shares to

swap the common stock totaling 68,698 thousand shares from Lungyen Life Service Corp. The

percentage of ownership became 75%. Meanwhile, according to the acquisition price amortization

report, the Company divided the excess of the acquisition cost over the fair value of the identifiable

net assets acquired, $456,757 thousand, into the property, plant and equipment at fair value in excess

of book value, $322,360 thousand, and goodwill, $134,397 thousand. On February 1, 2011, the

Company increased capital by $169,249 thousand by issuing new shares to swap the common stock

totaling 22,899 thousand shares from Lungyen Life Service Corp. The percentage of ownership

became 25%. The shares of Lungyen Life Service Corp. initially held by the Company extinguished

at the same time of consolidation. According to the acquisition price amortization report, the

Company categorized the excess of the acquisition cost over the fair value of the identifiable net

assets acquired, $884,569 thousand, into the property, plant and equipment at fair value in excess of

book value, $266,606 thousand, goodwill, $425,213 thousand, and trademark right, $192,750

thousand. Further, upon evaluation on the consolidation of deferred income tax liabilities on

December 31, 2011, no income tax effects would be produced and, therefore, the goodwill was

reduced by $17,182 thousand.




- 165 -

(11) Other assets - others

12.31.2012 12.31.2011

Cost of agricultural land held for transfer registration $ 391,608 391,608

Fine art 430,587 380,531

Idle land 6,926 6,926

Others 7,552 7,584

Total $ 836,673 786,649

1. The Company purchased 49 parcels of agricultural land including Land No. 248, Pu Tou Ken

Subsection, New Hsiao Keelung Section, Sanchi Hsiang, Taipei County, etc., occupying an area

of 247,871 square meters, at the price of $450,000 thousand, in 2004, and also purchased 6

parcels of agricultural land including Land No. 159, Pai Lien Xi Tou Subsection, Gung Pu

Section, San Chi Hsiang, etc., occupying an area of 61,866 square meters, at the price of

$1,300,000 thousand, for development of cemeteries, in October 2008. Given that laws prohibit

any private corporation from acquiring agricultural land, the Company (hereinafter referred to

as “Party A”) entered into a power of attorney with the individual who was a natural person

(hereinafter referred to as “Party B”) then agreed that Party B should affix the seal/signature

into the relevant documents required by the land title transfer registration and then deliver the

same to Party A for record. Party A may proceed with the transfer registration unconditionally

automatically after the land is developed and the land administration authority completes the

change in category of the land, and Party B will raise no objection. Further, on September 30,

2012 and 2011, the premises occupying areas of 208,523 square meters and 504 square meters

at Pu Tou Ken Subsection, New Hsiao Keelung Section and Pa Lien Xi Tou Subsection, Gung

Pu Section, respectively, have not yet been transferred officially.



(12) Short-term loan

Nature Maturity Interest Rate Range Amount

12.31.2012

Credit loan 01.25.2013 1.85% $ 200,000

Secured loan 01.15.2013~01.30.2013 0.62%~2.1% 1,940,000

$ 2,140,000

12.31.2011

Secured loan 01.18.2012~03.30.2012 0.62%~2.03% $ 3,040,000

Said secured loan was secured by the construction land, construction in progress (residential area and

building), and property, plant & equipment as collateral. Please refer to Note 6.




- 166 -

(13) Advance receipts for real estate

Item 12.31.2012 12.31.2011

Columbarium and cemetery $ 14,857,548 15,857,111


Warrant 245,395 160,120

Management Fee 900,778 854,138

Others 45,771 40,337

Total $ 26,466,334 26,375,513

(14) Pension reserve

The Company and its subsidiaries completed the actuarial of employee pension on December 31,

2012 and 2011. The information about contribution of pension fund and accrued pension liabilities in

2012 and 2011 is adjusted as follows:

12.31.2012 12.31.2011

Benefit obligation:

Vested benefit obligation $ (1,451) -

Non-vested benefit obligation (17,961) (17,443)

Accumulated benefit obligation (19,412) (17,443)

Projected effects of increase in salary (7,742) (7,234)

Projected benefit obligation (27,154) (24,677)

Fair value of pension fund assets 6,877 6,754

Contribution (20,277) (17,923)

Unrecognized transitional benefit obligation 1,393 1,856

Unrecognized pension loss (gain) (1,430) (3,392)

Accrued pension liabilities $ (20,314) (19,459)

As of December 31, 2012 and 2011 the employee vested benefits under the Company’s Employees’

Pension Plan were $1,663 thousand and $0.

The subsidiaries’ net pension costs consist of the following:

2012 2011

Service cost $ 142 175

Interest cost 493 469

Expected rate of return (144) (157)

Amortization 464 464

Amortization of pension loss (gain) (42) (253)

Net pension cost $ 913 698

The actuarial is based on the following hypotheses:

2012 2011

Discount rate 1.75% 2.00%

Salary adjustment rate 2.00% 2.00%

Expected rate of return for pension assets 1.75% 2.00%




- 167 -

The Company's and its subsidiaries’ pension expenses under the defined contribution plan in 2012

and 2011 were $13,067 thousand and $14,498 thousand, and $9,904 thousand and $6,815 thousand

therefrom were contributed to the Bureau of Labor Insurance.

(15) Income tax

1. The Company has adopted the statutory corporation income tax rate, 17%, as of 2012and 2011,

and computed the basic tax in accordance with the “Income Basic Tax Regulations”.

2. The Company’s and its subsidiaries’ income tax expenses in 2012 and 2011 are stated as

follows:

2012 2011

Current income tax expense $ 221,070 170,677

Deferred income tax (gain) expenses (15,534) (29,555)



Said deferred income tax (gain) expenses are stated as follows:

2012 2011

Excess allowance for bad debt $ (2,905) 5,528

Unrealized foreign exchange gain (154) 887

Contract revenue book-tax difference (28,100) (3,088)

Carry-forward loss (798) (32,145)

Deferred income tax valuation allowances 1,950 (738)

Consolidated goodwill amortization book-tax difference

12,481 -

Gain from foreign investment under equity method 1,992 -

Others - 1

Deferred income tax (gain) expenses $ (15,534) (29,555)

3. In 2012 and 2011, the difference between the income tax and income tax expenses based on the

income before tax referred to in the Company’s and its subsidiaries’ income statements as

computed at the statutory rate is stated as follows:

2012 2011

Income tax computed based on income before tax $ 419,428 343,279


Income from tax-free land transactions (177,013) (161,323)

Loss (gain) on valuation of financial assets (9,339) 202

Stock dividend revenue (3,534) (4,506)

Permanent management fee book-tax difference 7,881 11,816

Write-off and recovery of advance receipts for temporary shelter management fee

(18,354) (15,112)



Deferred income tax assets valuation allowances 4,557 392

Others (3,744) 7,495





- 168 -

4. On December 31, 2012 and 2011, the temporary difference, carry-forward loss and individual

income tax effect of the Company’s and its subsidiaries’ deferred income tax assets (liabilities)


12.31.2012 12.31.2011

Amount Income Tax Effect

Amount Income Tax Effect

Deferred income tax assets – current:

Excess of bad debt $ 4,443 755 4,443 755

Unrealized loss on bad debt for

receivable accounts

17,089 2,905 - -

Unrealized loss on price decline of

inventory

3,147 535 3,147 535

Unrealized foreign exchange loss 382 65 - -

Carry-forward loss 38,413 6,530 33,814 5,732

Subtotal 10,790 7,022

Less: Valuation allowances (2,976) (1,026)

Deferred income tax assets – current,

net

7,814 5,996


current:

Unrealized foreign exchange gain - - (521) (89)

Deferred deferred income tax assets

(liabilities) – current, net $ 7,814 5,907


non-current:

Pension expense $ 10,445 1,776 10,445 1,776

Contract revenue book-tax difference 221,718 37,692 56,423 9,592

Cemetery revenue book-tax difference 2,707,202 460,226 3,286,311 558,672


non-current, net

499,694 570,040


non-current:

Consolidated goodwill amortization

book-tax difference

(106,564) (18,116) (33,148) (5,635)

Gain from investment under equity

method

(11,715) (1,992) - -

Accumulated translation adjustment (6,993) (1,190) (14,647) (2,490)

Subtotal (21,298) (8,125)


non-current, net $ 478,396 561,915




- 169 -

5. As of December 31, 2012, the loss that has not yet carried forward by the subsidiaries and the

last deductible year thereof are stated as follows:

Deductible Year Last Deductible Year Subsidiaries

Authorized loss in 2006 2016 $ 9,723

Authorized loss in 2007 2017 8,649

Authorized loss in 2008 2018 4,376

Loss returned in 2010 2020 2,601

Loss returned in 2011 2021 1,568

Loss estimated in 2012 2022 11,496

Total $ 38,413

6. The Company’s and its subsidiaries’ income tax retcolumbarium through to 2010 have been

authorized by the Tax Authority. The income tax retcolumbarium of the company extinguished

upon consolidation, Lungyen Life Service Corp., through to 2007 have also been authorized by

the Tax Authority.

7. The information about the Company’s unappropriated earnings on December 31, 2012 and 2011

is stated as follows:

12.31.2012 12.31.2011

Unappropriated earnings generated after 1998 $ 2,606,565 1,930,921

Imputation credit account (ICA) $ 621,837 514,858

2012 (Projected) 2011 (Projected)

Creditable ratio for appropriation of earnings applicable

to residents in the R.O.C. 23.35% 20.96%

(16) Capital stock

Until September 30, 2012 and 2011, the Company’s authorized capital stocks both totaled

$6,000,000 thousand, at the par value of $10 per share, divided into 600,000 thousand shares, and

399,084 thousand shares were issued respectively.



businesses, the Company was consolidated with Lung Yen Life Service Co., Ltd. upon the resolution

made at the temporary shareholders’ meeting held on October 12, 2010. In order to deal with the

consolidation, the Company increased the capital by issuing new shares totaling 16,925 thousand

shares to swap 22,899 thousand shares from Lung Yen Life Service Co., Ltd. (according to the swap

ratio, the new shares issued by the Company may swap the outstanding shares of Lung Yen Life

Service Co., Ltd. at 1:1.353). The capital increase upon issuance of new shares and consolidation

were reported and effective as of January 26, 2011 and the relevant base date was set as February 1,

2011. Owing to the capital increase and consolidation, the Company’s paid-in capital and capital

surplus became $169,249 thousand and $1,392,072 thousand.




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(17) Capital surplus

1. The Company’s capital surplus on December 31, 2012 and 2011 is stated as follows:

12.31.2012 12.31.2011

Capital surplus – common stock premium $ 1,392,072 1,392,072

Capital surplus – long-term investment 59,736 59,736

$ 1,451,808 1,451,808

2. Pursuant to the R.O.C. Company Act amended in January 2012, capital surplus shall be first

used to offset a deficit and then the realized capital surplus may be capitalized. Realized capital

surplus referred to in the preceding paragraph included the surplus generated from donations

and the excess of the issuance price over the par value of capital stock. According to

Regulations Governing the Offering and Issuance of Securities by Securities Issuers, the capital

surplus may be transferred to common stock up to an annual limit of 10% of the paid-in capital.

(18) Appropriation of earnings

1. According to the Company’s articles of incorporation, of the annual net income, less taxes and

duties, and any deficit for the previous years, if any, 10% should be appropriated as legal

reserve, and a certain amount set aside or reserved as special reserve according to actual

circumstances, and the balance of earnings, if any, should be reserved as retained earnings, in

part, and the remainder, if any, should be allocated in the following manners: (1) no less than

97% as the common stock dividend and bonus; (2) no more than 2% as the remuneration to

directors; (3) no less than 1% as the bonus to employees. In the event that the bonus to

employees referred to in the preceding paragraph is allocated in the form of stock dividend, the

counterparts whom the stock dividend may be allocated to shall include the employees of

affiliated companies that comply with specific requirements. In order to protect shareholders'

equity, and according to the funding need for the following years measured based on the

Company's future budget planning, the retained earnings may be allocated in the form of stock

dividend, and the allocated cash dividend shall be no less than 10% of the stock dividend

allocated to shareholders.

2. The accounting estimates for payable bonus to employees and remuneration to

directors/supervisors in 2012 and 2011 were determined based on past experience. The bonuses

to employees and remunerations to directors/supervisors stated based on the annual net income,

if any, less the legal (special) reserves and earnings reserved as retained earnings and

multiplying 1% and 2% respectively, were $13,557 thousand and $12,343 thousand, and

$27,154 thousand and $24,686 thousand, respectively. Notwithstanding, the difference in the

amount allocated upon resolution of the shareholders’ meeting and in the estimates, if any, will

be stated as the changes in accounting estimates and as the income for the year of allocation.

3. The information about stock dividend per share, bonus to employees, and remuneration to

directors/supervisors allocated according to the proposal for allocation of earnings 2011 and

2010 resolved by the Company's general shareholders' meeting held on June 6, 2012 and June

28, 2011 are stated as follows:




- 171 -

2011 2010

Common stock dividend per share (NT$)

Cash $ 3.0 1.5

Bonus to employees - cash $ 12,343 6,171

Remuneration to directors/supervisors 24,686 12,343

Total $ 37,029 18,514

Said appropriations of retained earnings are consistent with that recognized in the Company’s

financial statement 2011 and 2010.

4. Please visit the M.O.P.S. after the relevant meeting for the proposal for allocation of earnings,

bonus to employees and remuneration to directors/supervisors approved by the Company’s

Board of Directors and resolved by the shareholders’ meeting.


In 2012 and 2011, the Company’s Basic earnings per share and Diluted earnings per share were

computed as follows:

Unit: Thousand NTD/for Earnings per share, NTD per share

2012 2011


Net income before income tax $ 2,285,442 2,047,169 2,000,339 1,861,277

Weighted average number of outstanding

shares

399,084 399,084 397,674 397,674

Bonus to employees not yet resolved by a

shareholders’ meeting but allocable in the

form of stock dividend 211 211 166 166

Number of dilutable shares 399,295 399,295 397,840 397,840

Basic earnings per share $ 5.73 5.13 5.03 4.68

Diluted earnings per share $ 5.72 5.13 5.03 4.68

(20) Information about financial instruments

1. Information about fair value:

The non-derivative short-term financial assets and liabilities of the Company and subsidiaries

including cash and cash equivalents, receivable/payable notes and accounts,

receivables/payables-stakeholders, other financial assets-current, restricted assets, short-term loan,

payable expenses and other current liabilities. The fair values thereof were determined based on their

book values on the balance sheet date. The book value should be the reasonable basis for evaluation

of the fair value because of the short maturities of such instruments.

In addition to said financial assets and liabilities, the information about the fair values of the other

financial assets and liabilities determined and valuated based on their market values on December 31,

2012 and 2011 is stated as follows:




- 172 -

12.31.2012 12.31.2011

Fair Value Fair Value

Derivaties Book Value

Determined based on

market price

Estimated under

evaluation method

Book Value

Determined based on

market price

Determined based on market price

Financial assets:


$ 693,530 693,530 - 916,903

916,903 -


524,819 - See Paragraph (2)

68,471 - See Paragraph (2)

Derivaties

Financial liabilities

Financial liabilities at fair value through profit or loss – current (forward exchange – stated as other current liabilities)

92 (SGD 4)

92 (SGD 4)

- - - -

2. The methods and assumptions used by the Company and subsidiaries to estimate the fair

values of the above financial instruments are summarized as follows:

1) Financial assets at fair value through profit or loss - The fair values of financial instruments at

fair value through profit of loss are determined at their market value, if any. If there is no market

value available for reference, the fair values are determined by using the valuation technique.

The information used as the basis for determining the Company’s assumptions in applying

valuation technique is consistent with that used by market participants in determining the prices

of the financial instruments.

2) Financial assets carried at cost – non-current: The equity instrument investment which cannot be

measured at fair value should be stated at the cost initially recognized. An impairment loss is

recognized when there is objective evidence of impairment. A reversal of this impairment loss is

not allowed.

3) The current incomes recognized based on the changes in fair values estimated based on the

market price in 2012 and 2011 were $46,027 thousand for gain and $410 thousand for loss,

respecitvely.

3. Information about financial risk

1) Market risk:

The Company’s investment in listed (OTC) stock and beneficiary certificates was classified as

“financial assets at fair value through profit or loss”. These assets were measured at their fair

values, which will be influenced by the fluctuation in market value.

2) Credit risk

The Company and its subsidiaries were used to subscribe for beneficiary securities from

financial organizations with a fair credit rating. The Company and its subsidiaries controlled the

credit risk exposure to each financial organization and considered that there should be no

likelihood of important credit risk concentration.




- 173 -

The Company and its subsidiaries have a vast clientele. Meanwhile, the Company and its

subsidiaries did not concentrate any transactions on one single customer, and the regions of

distribution were dispersed. Therefore, there should be no likelihood of concentrated credit risk

on receivable accounts. In order to reduce the credit risk, the Company would evaluate

customers’ financial status periodically, provided that generally it would not ask the customers

to furnish collateral.

3) Liquidity risk

The Company maintained sufficient capital and working funds to deal with all contractual

obligations to be performed by the Company. The Company does not anticipate any liquidity

risks associated with failure to source required funding to perform contractual obligations.

4) Cash flow risk due to changes in interest rate

The Company’s short-term loans in 2012 and 2011 referred to the debt instruments at floating

interest rate. Accordingly, the yield rate of these debt instruments will fluctuate with changes in

such floating interest rate and thereby result in fluctuation in future cash flows.

(V) Transactions with related parties

(1) Name and relationship of related parties

Name Relationship with the Company

Beauty Kadan Co., Ltd. (Beauty Kadan) The Company’s investee under equity method

You Ka En Inc. The Company’s investee under equity method

Asia Best Healthcare Co.,LTD.(ABH) The Company’s investee under equity method

(being non-related parites since July 2012)

Hsin Wei International Lease Co., Ltd. (Hsin Wei

International)

Related party

Cheng Chang Investment Co., Ltd. (Cheng Chang

Investment)

Its chairman is as same as those of the Company.

Fu Yuan International Development Co., Ltd. (Fu

Yuan International)

Its chairman of board is a second degree relative of the


Lee Investment Co., Ltd. (Lee Investment) Its chairman of board is a second degree relative of the


Lee Shih-Tsung The Company’s Chairman

Lee Chia-Cheng (formerly known as Lee Yi-Lun) A second degree relative of the Company’s Chairman

Lee Shu-Rong A second degree relative of the Company’s Chairman

Liu Ping A second degree relative of the Company’s Chairman

All directors and supervisors, and presidents and

vice presidents

Main management of the Company and its subsidiaries




- 174 -

(2) Significant transactions with related parties are stated as follows:

1. Sales

The sales from related parties in 2012 and 2011 are stated as follow:

2012 2011


Columbarium and cemetery revenue

Hsin Wei International $ 47,914 1 118,080 3

Said sales were at the price agreed by both parties. The payment should be collected pursuant to the

agreement, which was identical with those for arm’s length transactions.

2. Purchases

The purchases from related parties in 2012 and 2011 are stated as follows:

2012 2011


You Ka En Inc. $ 33,951 3 - -

Beauty Kadan 12,616 1 19,060 1

$ 46,567 4 19,060 1

Said purchases were at the price agreed by both parties. The payment term thereof was 30 days upon

inspection and acceptance, which was identical with that applicable to the general customers.

3. Contract awarding

In 2012 and 2011, the related parties who awarded contracts to subsidiaries are stated as follows:

Name Project Title Total Contract

Amount Pricing Accumulated

Pricing

2012

You Ka En Inc. You KA End Hsinchu Project $ 657 - -

You Ka En Inc. You KA End

Neihu Project

699 - -

Fu Yuan International National Palace Museum 347,249 114,586 216,709

$ 348,605 114,586 216,709

2011

Fu Yuan International National Palace Museum $ 347,249 102,123 102,123

The contract amount for the projects contracted by related parties to subsidiaries was calculated

based on the project budget plus reasonable overhead and profit, and approved upon delegation of

authorization.




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4. Credit and debt

The credit and debt between the Company and related parties on December 31, 2012 and 2011 are

stated as follows:

12.31.2012 12.31.2011


Recievable accounts

Fu Yuan International $ 17,854 8 22,747 11

Other receivable accounts -related parties

(Stated as other financial assets - current)

Beauty Kadan (Note) $ - - 503 -

Note: Out-of-pocket expenses for operating expenses, payment of goods, etc.

Payable accounts-related parties

You Ka En Inc. $ 12,400 3 - -

Other payable acocunts-related parties

(Stated as other payable accounts)

Hsin Wei International $ 65 - 2,508 2

5. Financing Provided

The subsidiary financed to the related parties in 2012 as follows:

2012

Other payables – related parties

Amount Actually Drawn

Ending balance (Note 1)

Maximum balance

(Note 1 and 2) Interest rate Interval (%)

Interest expenditure

Name of related Parties


Co., Ltd. $ - - 300,000 6 2,449

Note 1: The amount limit is based on maximum balance and ending balance.

Note 2: Maximum balance: accumulated up to the maximum balance in the current year.




- 176 -

6. Lease contract

The lease between the Company and related parties in 2012 and 2011 are stated as follows:

Lessee Object/Premises Duration Monthly rent (before tax)

Rent revenue

2012



2011.06~2026.12 $ 501~547 3,003

2011

Hsin Wei International 7F, No. 150, Tunhua N.

Road, Taipei City

2011.05~2012.12 $ 3 23



2011.06~2026.12 501 ~ 547

(Note)

-

$ 23

Note: Rent free periods 2011.06~2011.12.

Lessor Object/Premises Duration Monthly rent (before tax)

Rent expenditure

Deposit (Stated as other financial

assets-non-current)

2012

Hsin Wei

International




cars and VIP cars

2008.12.10~

2014.06.30

$ 12~249 8,222 -

2011

Hsin Wei

International




cars and VIP cars

2007.09.01~

2015.06.30

$ 12~762 24,762 16,000

7. Transaction of property

The Company purchased the transportation equipments $2,000 thousand and $1,880 thousand

(including tax) from Hsin Wei International and Lee Investment, respectively, as of December 31,

2011.

8. Trust contract

The Company has entered into the land trust contracts with Lee Shih-Tsung, Lee Chia-Chen, Lee

Shu-Rong and Liu Ping. For details, please refer to Note 7(6). On December 31, 2012, the

subsidiaries and Mr. Lee Shih-Tsung entered into a mandate contract in order to have the land

ownership. For details, please refer to Note 4(5).




- 177 -

9. Others

1) On December 31, 2011, as Lee Investment entrusted the Company to provide the relevant

advice and management service with respect to its real estate development project in Daan

Section, Daan District, Taipei City from January 1, 2010 until October 31, 2011, recognized the

consultation service fees $1,905 thousand (stated as miscellaneous revenue). The revenue from

property management services provided by the Company was recognized as $594 thousand

(stated as operating revenue) in 2012.

2) On December 31, 2012 and 2011, the cost spent by the Company in entrusting Mr. Lee

Shih-Tsung to purchase the construction land and individual projects both have been no more

than $668,016 thousand. Mr. Lee was entrusted to process and integrate the matters related to

the land reserved for construction projects.

3) In 2012 and 2011, the recognized revenue from exchange columbarium units between the

Company and Hsin Wei International was $2,325 thousand and $118,080 thousand, respectvely.

For details, please refer to Note 5(2).1.

4) Please refer to Note 7(7) for the details about the agreement concluded by the Company and Fu

Yuan International for termination of the joint venture building contract on December 31, 2011.

(3) Total remuneration to main management

The information about the total remuneration to the main management of the Company and its

subsidiaries, including directors, supervisors, presidents and vice presidents, in 2012 and 2011 is

stated as follows:

2012 2011

Salary $ 23,666 36,864

Bonus and special allowances 7,324 6,793

Professional practice 54 1,643

Bonus to employees 664 1,157

$ 31,708 46,457




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(VI) Pledged assets

The Company has provided the following assets as collateral on December 31, 2012 and 2011:

Item 12.31.2012 12.31.2011 Purpose

Restricted assets $ 215,482 195,922 To secure the acquiring service for

credit account transactions and

forward exchange

Financial assets at fair value

through profit or loss - current

- 287,438 To secure the acquiring service for


Construction land 569,314 569,314 To secure the loan and also the


transactions

Real estate in process

(residential area and buildings)



transactions

Real estate in process (bone ash

towers and burial areas)

1,289,409 1,289,409 To secure the acquiring service for


Deductible balance for

property, plant and equipment



transactions

Other assets-others 10,591 10,591 To secure the acquiring service for


Total $ 9,171,343 9,481,988

(VII) Significant undertakings or contingencies

(1) On December 31, 2012, the total amount of contracts concluded by the subsidiaries for

construction in process (before tax) was $1,201,886 thousand, and already valued as $4,613

thousand.

(2) On December 31, 2012 and 2011, the Company has concluded the real estate contracts with

customers, totaling $289 thousand and $94,411 thousand (before tax), in order to sell the

residual houses and assets rented to others. Meanwhile, $144 thousand and $1,010 thousand

have been collected per the contracts.

(3) On December 31, 2012 and 2011, the total amounts of contracts concluded by the subsidiaries

for construction in process (before tax) were $348,605 thousand and $347,249 thousand, and

already valued as $216,709 and $102,123 thousand respectively. For details, please refer to Note

5(2).

(4) On December 31, 2012 and 2011, please refer to Note 4(5) for the subsidiaries purchased

cemetery (land) and the total payment.

(5) The Company purchased the land at Li Ho Section, Hsin Yi District in February 2007.

Notwithstanding, in March 2007, the joint owners of said land initiated the proceeding for

“Declaration of non-existence of land transaction” with the court and, therefore, the registration

of land transfer was hindered. Later, Taipei District Court rendered a judgment in favor of the

Company. The adverse parties, in disagreement with the judgment, filed an appeal. However,

the adverse parties withdrew the appeal in June 2009. Therefore, the judgment in favor of the

Company became final and irrevocable. Notwithstanding, the action was withdrawn in March

2010. The Company filed an action with the court in April 2009, claiming registration of title




- 179 -

transfer. However, the joint owners of said land also filed an action in June 2009 claiming that

the registration should be prohibited. According to the Company’s attorney-at-Law, it is very

likely that the Company may win the suit.

(6) The information about the trust registration of real estate in process made by the Company to

secure successful performance and delivery of any construction project and work on December

31, 2011 is stated as follows:

Construction in process Object Trustee Duration

Tung Shi, Hsichih Land Chinatrust From date of contract until date of

completion of the object under trust

“ Building Chao-Fu Real Estate

Management Corporation

“

Said trust projects were contracted by the Company to the trustees for the purpose of

management and operation of the projects, and for real estate management and transfer.

Meanwhile, the land trust transfer of the projects was registered to the trustees, and the

proprietor in the construction license was changed into the trustee to secure financing to the

Company by the lending organizations of said projects.

On December 31, 2011, said construction in process was scheduled to serve as the Group’s

operation office premises and, therefore, was re-stated into the property, plant and equipment,

while said trust registration has been write-off in February, 2012.

(7) The joint venture building contracts and urban renewal projects concluded by the Company on

December 31, 2012 and 2011 are stated as follows:

Joint Venture Deposit

Project Title Land Owner or

Co-Investors Location Nature 12.31.2012

12.31.2011

Projected Year of

Completion

Yen Chi Urban

Renewal Project

(Note 1)

36 persons

including Chen

Hsu Ching-Yun,

etc.


Jen Ai Section, Daan


Urban

renewal

$ - - -

Shou Cheng

Urban Renewal

Project (Note 2)

2 persons

including Hsu

Chun-Huei, etc.


Chung Shan Section,

Chung Shan District

“ -- 8,400 -

National Palace

Museum Project

(Note 3)

Fu Yuan

International

Land at 6th Subsection,

Chi Shan Road, Shihlin


Joint

construction

and separate

sale

- - -


contract with the owners on September 30, 2011, and the relevant deposits were recalled

successively.

Note 2: The Company has entered into an agreement for termination of the joint venture development

contract on Febuary 14, 2012, and the relevant deposits were recalled successively.


contract with Fu Yuan International on March 4, 2011, and the relevant deposits were recalled

successively.




- 180 -

(8) The trust by the Company for purchase of land on December 31, 2012 and 2011 is stated as

follows:

Trust Object Trustee Remark

Ching Hua Section, Daan


Liu Ping The contract amount was $460,370 thousand. Meanwhile,

the Company has paid $68,531 thousand pursuant to the

contract, and the parties to the contract delivered the

promissory note bearing $50,000 thousand and the check

bearing $15,000 thousand, respectively, to the witness

attorney-at-law as the performance bond.

Part of land at Hsihchi

District, New Taipei City

Lee Chia-Chen The relevant documents required by said land ownership

transfer registration were delivered to the attorney-at-law

appointed by the Company, and the trustee issued the

promissory note bearing the equivalent amount to the

Company.

New Hsiao Keelung

Section, Sanchi Hsiang

Song Mei-Hua “

Gung Pu Section, Sanchi

Hsiang

Lee Shih-Tsung “

1st Subsection, Jen Ai,

Taipei City

Lee Shih-Tsung “

Yu Cheng Section,

Nangang District

Lee Shu-Rong “

(9) On December 31, 2012 and 2011, the Installment Account Receivables from the contracts for

advance booking of the columbarium of True Dragon Tower and of the pre-need funeral service

entered into between the Company and its subsidiaries and customers were $8,173,134 thousand

and $9,350,196 thousand. The price was fixed, while the commodity or labor service has not yet

been provided. In order to reflect the economic substance of the transactions, the Company

wrote off the Installment Account Receivable against Advance receipts and stated it at net cost

when preparing the financial statements.

(10) On December 31, 2012 and 2011 the total amounts of contracts for purchase of construction

land or lease of land for property concluded by the Company were $918,484 thousand and

$981,918 thousand respectively. The payments made for integration of the land were $625,891

thousand and $664,241 thousand (stated as land prepayment and property, plant and equipment),

and the refundable deposits thereof were both $93,354 thousand.

(11) In order to upgrade the quality of funeral service and ensure the ability of performance, the

Company (hereinafter referred to the “Client”) entered into the trust contract with Union Bank

of Taiwan (hereinafter referred to as the “Trustee”) in April 2004, agreeing that as of the date

when the contract was signed, 75% of the proceeds (after tax) from each pre-need contract sold

by the Company should be transferred to the Trustee under trust, and real estate should be

delivered and transferred to the Trustee. Notwithstanding, on April 1, 2010, the Company’s

Trustee was changed into Industrial Bank of Taiwan. Further, until December 31, 2012 and 2011,

a total of NT$4,796,838 thousand and NT$4,739,923 (including demand deposit $316,059

thousand and time deposit $240,000 thousand, stated as other financial assets – current) have

been used to purchase financial instruments, and the real estate was delivered and transferred to

the Trustee, to have the Trustee manage and dispose of the trust property for the intended

purposes per the Client’s instruction.




- 181 -

(12) In order to maintain the safety and cleanliness of the funeral facilities and to organize sacrifice

ceremonies and to meet the need for internal administrative management, the Company and its

subsidiaries opened an exclusive account for management fees collected from consumers in a

lump sum or periodically. On December 31 2012 and 2011, the balances of the exclusive

account were $982,380 thousand and $915,113 thousand, respectively, stated as other financial

assets – current.

(13) The Company acquired the land and building at Dui Tzu Section, Tamsui Township, Taipei

County. Notwithstanding, the contractor, Chao Yang Construction Co., Ltd., claimed damages,

$215,256 thousand plus the interest accruing at the statutory interest rate from September 20,

1996 until the date of payment, against the original owner and subcontractor, and also included

the Company into its claim as an additional defendant in 2008. The claim was revoked upon the

judgment rendered by Shihlin District Court on October 23, 2009. Disagreeing with the

judgment, Chao Yang filed an appeal and claimed damages in the amount of $80,000 thousand.

Currently, the appeal is pending examination before the Taiwan High Court. According to the

attorney-at-law, because it is impossible for Chao Yang to prove the requirements constituting

the statutory mortgage as mentioned before, Chao Yang is unlikely to receive a ruling in its

favor.

(14) On December 31, 2012 and 2011, the subsidiaries and National Chiayi University entered into a

non-exclusive license agreement with respect to plant/strain selection of relevant phalaenopsis

specimens, requiring that the subsidiaries should pay the royalty to National Chiayi University

on a pro rata basis from the revenue of products generated from the selected plant/strain on a

yearly basis for the duration of the agreement (five years as of the effective date of the

agreement).

(VIII) Significant disaster loss: None

(IX) Significant subsequent events: None




- 182 -

(X) Others

(1) Assets/liabilities liquidity analysis

On December 31, 2012 and 2011, the liquidity analysis about the assets/liabilities of the Company

and its subsidiaries related to the business activities conducted by them is stated as follows:

12.31.2012


Months



Asset

Account notes and accounts $ 227,936 - 227,936


Inventory 1,023,389 10,619,000 11,642,389

Deferred marketing expenses 1,061,202 7,684,906 8,746,108

Restricted assets 215,482 - 215,482


Total $ 4,425,089 18,303,906 22,728,995

Liabilities

Short-term loan $ 2,140,000 - 2,140,000

Payable notes and accounts

(including related parties)

473,412 - 473,412



Other payable accounts 113,248 - 113,248

Advance receipts for real estate 144 - 144




process

48,814 - 48,814


Total $ 7,301,285 22,300,562 29,601,847

Asset

Account notes and accounts $ 203,360 - 203,360


Inventory 2,053,994 9,728,030 11,782,024

Deferred marketing expenses 687,078 8,191,578 8,878,656

Restricted assets - 195,922 195,922


Total $ 4,413,976 18,115,530 22,529,506

Liabilities

Short-term loan $ 3,040,000 - 3,040,000

Payable notes and accounts 1,521,114 - 1,521,114



Advance receipts for real estate 1,010 - 1,010




- 183 -

12.31.2012


Months






process

18,402 - 18,402


Total $ 7,778,058 23,834,937 31,612,995

(2) Human resources spending, depreciation, depletion and amortization expenses are

summarizedby function as follows:

2012 2011

By function

By nature

Operating

Cost

Operating

Expense

Otehrs

(Note 2)

Total Operating

Cost

Operating

Expense

Otehrs

(Note 2)

Total

Human resources

expenses

Salary (Note 1) $ 186,084 188,414 48,481 422,979 170,368 171,779 26,290 368,437

Labor and health

insurance

12,516 2,359 4,098 18,973 9,557 18,502 1,908 29,967

Pension expense 7,634 4,006 2,340 13,980 5,243 8,892 1,061 15,196

Other human

resources expenses

4,544 10,748 4,331 19,623 4,115 12,035 2,487 18,637

Depreciation expenses 86,834 10,359 3,479 100,672 85,168 15,732 13,136 114,036

Amortization expenses - 7,129 709 7,838 88 7,220 1,425 8,733

Note 1: In 2012 and 2011, the bonus to employees and remuneration to directors/supervisors stated by the

Company were $13,577 thousand and $12,343 thousand, and $27,154 thousand and $24,686

respectively.

Note 2: They mean the cemetery management center-related expenses (stated as less item-advance receipts for

management fees) and deferred marketing expenses generated from the sale of contracts.




- 184 -

3. The information about foreign currency financial assets and liabilities rendering material

effect on the Company and its subsidiaries:

Currency Unit: Thousand of NTD

12.31.2012 12.31.2011

Foreign Currency

Foreign Exchange

Rate NTD Foreign

Currency

Foreign Exchange

Rate NTD

Financial assets

Monetary items

RMB $ 18 4.660 84 5 4.807 23

THB 85 0.954 81 85 0.965 85

SGD 2,479 23.76 58,891 - - -

USD 4,432 29.04 128,709 670 30.275 20,336

JPY 5,794 0.3364 1,949 1,365 0.391 528

Non-monetary items

USD 1,160 29.04 33,689 5,615 30.275 170,021

SGD 7,335 23.76 174,280 - - -

JPY 125,600 0.3364 42,001 - - -

Long-term equity investment

under the equity method (Note)

USD - - - 15,093 30.275 456,947

Note: The amount equivalent to the investee’s net value multiplying by % of ownership at the end of the

period.





statements.

(5) According to the FSC official letter under Ching-Kuan-Cheng-Shen-Tze No. 0990004943 dated

February 2, 2010, as of 2013, listed companies, OTC companies and public companies should

prepare their financial statements in accordance with international financial reporting

standards, international accounting standards, and interpretation and relevant guidelines for

the preparation of financial statements recognized by FSC (hereinafter referred to as “IFRSs”).

To deal with said amendments, the Company has established a dedicated taskforce and defined

the plans adopting IFRSs. The plans were handled by the president, Wei-Long Liu. The

important contents, schedule of completion and status of the plans are stated as follows:

Contents Execution Unit (or

Responsible Personnel) Status

1. Evaluation stage (from January 1, 2010 until December 31,

2011):

◎ Define the plans adopting IFRSs and establish the

dedicated taskforce

Accounting Dept. Completed




- 185 -

Contents Execution Unit (or

Responsible Personnel) Status

◎ Initiation of 1st stage employees’ internal training HR Dept. Completed

◎ Comparison and analysis of the difference in the existing

accounting policies and IFRSs


◎ Evaluate the adjustment to be made on the existing

accounting policies


◎ Evaluate the applicability of the Statement “Initial

Adoption of IFRS”


◎ Evaluate the adjustment to be made on the related

information systems and internal controls

IT Dept. Completed

2. Preparation stage (from January 1, 2011 until December 31,

2012):

◎ Decide how to adjustment the existing accounting policies

according to IFRSs


◎ Decide how to apply the Statement “Initial Adoption of

IFRS”


◎ Adjust the related information system and internal control IT Dept. Completed

◎ Initiation of 2nd stage employees’ internal training HR Dept. Pending

3. Implementation stage (from January 1, 2012 until December

31, 2013):

◎ Testing of the operation of related information systems IT Dept. Completed

◎ Collection of data for preparation of balance sheet and

comparative financial statements according to IFRSs


◎ Prepare financial statements according to IFRSs Accounting Dept. Pending




- 186 -

(6) The potential important difference in the current accounting policies and those adopted in the

preparation of consolidated financial statements according to IFRSs as evaluated by the

consolidated companies is stated as follows:

1. Reconciliation of balance sheet on January 1, 2012

Unit: Thousand NTD

GAAP Affected Amount IFRSs

Current assets(1), (3) and (8) $ 25,011,521 (746,447) 24,265,074

Fund and long-term investment 637,595 - 637,595

Property, plant and equipment (2) and (7) 12,076,805 (7,816,002) 4,260,803

Investment-oriented real estate (2) - 7,779,468 7,779,468

Intangible assets 735,178 - 735,178

Other assets (7) and (8) 1,395,039 125,169 1,520,208

Total assets $ 39,856,138 (657,812) 39,198,326

Current liabilities (5) $ 31,612,995 5,689 31,618,684

Other liabilities (4) and (8) 68,515 9,490 78,005

Total liabilities 31,681,510 15,179 31,696,689

Capital stock 3,990,842 - 3,990,842

Capital surplus (6) 1,451,808 (59,736) 1,392,072

Retained earnings (1) and (3)~(6) 2,034,072 (613,255) 1,420,817

Other shareholders’ equity 697,906 - 697,906

Shareholders’ equity 8,174,628 (672,991) 7,501,637

Total liabilities and shareholders’ equity $ 39,856,138 (657,812) 39,198,326

2. Reconciliation of balance sheet on December 31, 2012

Unit: Thousand NTD


Current assets (1), (3) and (8) $ 23,794,952 (711,102) 23,083,850

Fund and long-term investment 616,753 - 616,753

Property, plant and equipment (2) and (7) 12,254,313 (7,607,354) 4,646,959

Investment-oriented real estate (2) - 7,564,735 7,564,735

Intangible assets 735,178 - 735,178

Other assets (7) and (8) 1,357,567 146,108 1,503,675

Total assets $ 38,758,763 (607,613) 38,151,150

Current liabilities(5) $ 29,601,847 5,386 29,607,233

Other liabilities (4) and (8) 66,290 25,321 91,611

Total liabilities 29,668,137 30,707 29,698,844

Common stock 3,990,842 - 3,990,842

Capital surplus (6) 1,451,808 (59,736) 1,392,072

Retained earnings ((1) and (3)~(6) 2,883,988 (578,575) 2,305,413

Non-controlling equity 783,823 - 783,823

Other shareholders’ equity (19,835) - (19,835)

Shareholders’ equity 9,090,626 (638,311) 8,452,315

Total liabilities and shareholders’ equity $ 38,758,763 (607,604) 38,151,159




- 187 -

3. Reconciliation of income statement in 2012

Unit: Thousand NTD


Operating revenue (3) $ 4,837,206 6,905 4,844,111

Operating cost 1,319,381 - 1,319,381

Gross profit 3,517,825 6,905 3,524,730

Operating expenses (1), (4) and (5) 1,380,908 (31,119) 1,349,789

Net profit 2,136,917 38,024 2,174,941

Non-operating revenue and gain 268,811 - 268,811

Non-operating expenditure and expense 30,673 - 30,673

Income before tax 2,375,055 38,024 2,413,079

Income tax expense (1) and (3)~(5) 256,121 1,311 257,432

Income after tax 2,118,934 36,713 2,155,647

Other comprehensive income:

Acturial benefits-defined loss (4) (2,033)

Other comprehensive loss in current period (2,033)

Total comprehensive gain or loss in current

period

$ 2,153,614

Attributed to:

- Parent company 2,047,169 34,680 2,081,849

- Non-controlling equity 71,765 - 71,765

Total $ 2,118,934 34,680 2,153,614

4. Statement of various reconciliations

1) Deferred marketing expenses

All of the selling expenses incurred by consolidated companies from presale, including

advertisement fees, commission expenses and personnel salary, shall be deferred according to

this country’s accounting standards. Notwithstanding, IFRSs provide that only the commission

expenses paid for sale of real estate may be deferred, and if it may be attributed to some contract

and the projected economic effects will be flowed into consolidated companies, such expenses

shall be stated as intangible assets and deferred accordingly.

The decrease in deferred marking expenses adjusted by consolidated companies on January 1,

2012 and December 31, 2012 was $750,493 thousand $720,137 thousand, and the selling

expenses was adjusted decreased by $30,356 thousand.

2) Investment-oriented real estate

No relevant requirements are provided in this country’s financial standards. When the Company

initially adopted IFRSs, in order to earn rents and/or revalue capital, if there is sufficient

evidence showing that investment-oriented real estate is rented continuously and may generate

stable mid-term or long-term cash flow, the fair value thereof shall be stated as the cost thereof,

and then they should be measured at cost.

Accordingly, consolidated companies reclassified the costs of assets rented to others originally

classified under the property, plant and equipment according to the GAAP in the R.O.C. into the

investment-oriented real estate as $7,779,468 thousand and NT$7,564,735 thousand

respectively on January 1, 2012 and December 31, 2012.




- 188 -

3) Lease accounting

Because the lease of the Company’s existing equipment complies with the requirements about

capital lease provided in this country’s accounting standards, such lease is stated as operating

lease. Notwithstanding, according to IFRSs, the Company shall determine per the contract

whether to assume the risk and return in leased assets to decide whether it shall be stated as

capital lease.

The lease payment under operating lease shall be stated under straight line method in the

duration of lease, unless there is another system able to reflect the time of users’ benefits more.

The increase in rents receivable adjusted by consolidated companies on January 1, 2012 and

December 31, 2012 was $9,953 thousand and $16,858 thousand, and the leasehold revenue was

increased by $6,905 in 2012.

4) Employees’ benefits-defined pension plan

The minimum pension liabilities shall be stated according to this country's accounting standards.

IFRSs do not provide it and, therefore, after adoption of the IFRSs, the minimum pension

liabilities shall be reversed.

According to this country’s existing accounting standards, the discount rate shall be based on

the imputed interest rate for the long-term averaged rate of return for pension fund or insurance

company’s pension contracts. After adoption of the IFRSs, said discount rate shall be based on

the market yield rate of the high-quality corporate bond or government bond yield rate.

The actuarial of income is amortized under straight line method according to corridor method

and stated as net pension cost, or stated as net pension cost without amortization. After adoption

of IFRSs, the Company’s current actuarial income shall be stated as other consolidated incomes

in whole.

The accrued pension liability adjusted by consolidated companies decrased $460 thousand on

January 1, 2012 and increased $2,033 thousand on December 31, 2012. In 2012, the pension

expenditure and acturial benefits-defined loss increased (decreased) ($460) thousand and $2,033

thousand, respectively.

5) Employees’ benefit-leave pay

No relevant requirements about cumulative leave with pay are provided in this country’s

accounting standards currently. After adoption of IFRSs, in the case of cumulative leave with

pay, it shall be stated when the employee provides service and thereby increase the future leave

with pay.

The increase in salary and wages payable adjusted by consolidated companies on January 1,

2012 and December 31, 2012 was $5,689 thousand and $5,386 thousand, and the salary and

wage expense was decreased by $303 in 2012.

6) Affiliates

According to the GAAP in the R.O.C., the realizable net value difference shall be calculated

with respect to the changes in shareholders’ equity arising from participation in capital increase

in affiliates not based on the shareholding percentage, and capital surplus or retained earnings

shall be adjusted accordingly. Upon adoption of IFRSs, the difference in net fair value and

investment cost of the realizable affiliates’ identifiable assets and liabilities as a result of said

changes shall be stated as the income.

Accordingly, the adjustment in retained earnings made by consolidated companies on January 1,

2012 and December 31, 2012 was NT$59,736 thousand.




- 189 -

7) Prepayments for property, plant and equipment and computer software cost

According to the GAAP in the R.O.C., the prepayment for property, plant and equipment and

computer software cost shall be stated as property, plant and equipment and computer software

cost. Upon adoption of IFRSs, it shall be reclassified into the prepayment for other assets

subject to its nature.

Accordingly, consolidated companies reclassified the prepayment for real estate and equipment

originally classified under the property, plant and equipment according to the GAAP in the

R.O.C. into the prepayment for equipment under other assets as $36,534 thousand and

NT$42,619 thousand respectively on January 1, 2012 and December 31, 2012.

8) When the consolidated company estimates the income tax, it should consider the factors of

deductable investment and temporary differences from deferred income tax asset and liability

which are reclassified as non-current asset and non-current liability under IFRSs. The Company

has only legally executive right to offset between current income tax asset and current income

tax liability. Hereunder, under the related considerations, it should offset between the deferred

income tax asset and deferred income tax liability. As a result, under R.O.C. GAAP, as of

January 1 and December 31, 2012, the net after offsetting, the deferred income tax asset –

current was reclassified as non-current amounts, $5,907 thousand and $7,814 thousand,

respectively; the deferred income tax liability – non-current was reclassified as non-current

amounts, $8,214 thousand and $21,298 thousand, respectively.

(7) According to IFRSs, except subject to optional exemption and compulsory exception clauses, in

principle, it is necessary to prepare financial statements according to the accounting principles

already prevailing at the time when the IFRSs are adopted initially, and adjust the same

retroactively. The optional exemption clauses applicable to consolidated companies are

summarized as follows:

1. Property, plant and equipment/investment-oriented real estate do not apply cost exemption,

and shall be stated at the book cost prevailing on the cutover date.

2. The enterprise merge, and acquisition of subsidiaries and affiliates, occurring before December

31, 2011 will not be included retroactively.

(8) The consolidated companies made said evaluation based on the IFRSs recognized by FSC

currently. Notwithstanding, the potential important difference in the current accounting

policies and those adopted in the preparation of financial statements according to IFRSs and

potentially affected amounts, and the accounting policies selected by IFRS No. 1 “First

Adoption of IFRSs”, are explained based on the preliminary decision made subject to the

current environments and conditions, which might vary due to changes in environments or

conditions.





statements.




- 190 -

(XI) Disclosures

(1) Information about significant transactions:

1. Loans to third parties:

Unit: Thousand NTD

Collateral NO. Lender Borrower Account

Title

Maximum

Balance

Balance-en

ding

Balance of

Actual

Disbursement

Interest

Rate

Range

Nature Amount Reason

for

short-term

financing

Allowance

for bad

debt Name Value

Limit on

loans

granted to

single

party

Ceiling on

total loans

granted

0 Lungyen

Life

Service

Corp.

Yuji

Development

Corp.

Other

receivables

-related

parties

500,000 500,000 - 6.00% 2 20,843 Working

fund

- - - 1,661,361 3,322,721

Note 1: The maximum amount of total loans to others shall not exceed 40% of the Company’s net assets. The total

amount of loans granted to a single business partner of the Company shall be limited to the total amount of

business transactions between the Company and the business partner and shall be no more than 20% of the

Company’s latest net value. The short-term financing shall be no more than the working fund as needed or

70% of the amount of the land, buildings or operating equipments purchased and no more than 20% of the

Company’s latest net value.

Note 2: Nature of financing:

(1) For transactions.

(2) For short-term financing.

Note 3: Upon the board resolution on April 26th, 2012, the total amount for guarantees and endorsement and


Note 4: The transaction had been written-off when the Company made the consolidated financial statements.

2. Endorsement/guarantee in favor of third parties:

Unit: Thousand NTD

Endorsement/

Guarantee

Endorsement/guarantee receiver

No.

Company

Name

Company Name

Relationship

Limit of

guarantee/endorseme

nt amount for

individual party

Maximum

balance for the

period

Ending

balance

Amount of

collateral

guarantee/

endorsement

Percentage of accumulated

guarantee amount to net

assets value from the lastest

financial statement

Limit of total

guarantee/

endorsement

amount

0 Lungyen Life

Service Corp.

Yuji Development

Corp.

2 $ 1,661,361 500,000 500,000 - 6.02% 4,153,402

Note 1: The total amount of guarantees and endorsements shall not exceed 50% of the net worth in the current

period.

The total amount of guarantees and endorsements for individual party shall not exceed 20% of the net

worth in the current period.

Note 2: There are six kind of conditions in which the Company may have guarantees or endorsements for the

receiving parties.

(1) The Company has business with the receiving parties.

(2) The Company holds directly more than 50% of the common stock of the subsidiaries.

(3) In aggregate, the Company and its subsidiaries hold more than 50% of the investee.

(4) In aggregate, the Company holds directly or its subsidiaries hold indirectly more than 50% of the

investee.

(5) The Company is required to make guarantees or endorsements for the construction project based

on the construction contract.

(6) The stockholders of the Company make guarantees or endorsements for the investee in proportion

to their stockholding percentage.






- 191 -

Note 4: The actual disbursement was $200,000 thousnad on December 31, 2012.

Note 5: The transaction had been written-off when the Company made the consolidated financial statements.


Ending

Holder of

Securities

Type and Name of

Securities

Relationship

with Securities

Issuer


shares (thousand

shares)/ unit

Book

Value

% of

Ownership

Market

Value (NTD)

per Unit

Remark

The

Company

Stock of Ching Huang


The Company’s

subsidiary

Long-term equity

investment under

the equity method

19,639 $ 177,602 98.20% 10.76

“ Stock of Yuji Development

Corp.

“ “ 90,000 1,002,360 56.25% 11.14

“ Stock of Dahan Property


“ “ 400 3,604 80.00% 9.01

“ Stock of Sea Dragon

Traders Ltd. (BVI)

“ “ 1 108,212 100.00% 108,212

“ Stock of Lungding Life

Science Co., Ltd.

“ “ 4,000 25,871 100.00% 6.47

“ Stock of Singapore

Lungyen Life Services Pte.,

Ltd.

“ “ 10,000 233,313 100.00% 23.33

“ Stock of Beauty Kadan Co.,

Ltd.

The investee

under equity

method

“ 1,425 23,104 50.00% 16.21

“ Stock of Ruei Da Venture

Capital Co., Ltd.

“ “ 3,000 30,024 47.62% 10.01

“ Stock of You Ka En Inc. “ “ 1,260 11,774 42.00% 9.34

“ CHT securities - Financial assets at

fair value through

profit or loss -

current

823 77,798 - 94.50

“ Hsin Yi securities - “ 459 19,507 - 42.50

“ LUMAX securities - “ 242 14,859 - 61.40

“ eMemory Technology

securities

- “ 619 39,430 - 63.70

“ Chenbro securities - “ 1,173 40,464 - 34.50

“ PChome securities - “ 82 8,200 - 100.00

“ Cathay R1 Fund - “ 3,200 55,232 - 17.26

“ Stark Technology securities - “ 503 12,801 - 25.45

“ Stock of Sun Life

Corporation

- “ 160 42,001 -% JPY 785

“ FORTUNE IC FUND I - Financial assets

carried at cost –

non-current

600 11,216 4.86% 17.02

“ Stock of Kun Kee Erh

Investment Co., Ltd.

securities

- “ 6,000 54,255 8.57% 8.63

“ Kuo Hua Life securities - “ 44 - 0.01% -

“ Stock of Asia Best

Healthcare Co., Ltd

- “ 112 456,348 16.35% 3,923.80






- 192 -





Buyer/

Seller

Type and Name

of Securities

Account

Title

Trading

Counter

part

Relation

ship Unit Amount

No. of

Unit Amount

No. of

Unit

Selling

Price

Book

Value

Gain or

Loss from

Disposition

No. of

Unit Amount

The

Company

Cathay R2 Fund Financial

assets at fair

value through

profit or loss

- - 10,0000 125,9000 - - 10,000 147,837 125,900 21,937 - -

“ CHT securities “ - - 2,662 266,226 - - 1,839 172,534 183,900 (11,366) 823 77,798

“ Allianz Global

Investors All

Seasons Return

Fund of Bond

Funds

“ - - - - 13,710 186,931 13,710 189,224 186,931 2,293 - -

“ Singapore

Lungyen Life

Services Pte., Ltd.

The investee

under equity

method

- - - - 10,000 239,800 - - - - 10,000 233,313




None.


None.


capital: None.


None.

9. Trades for derivatives: None.




- 193 -

(2) Information about reinvestees

1. Information about investees, such as name and location, etc.:


Initial Amount of

Investment Held at ending

Current

gain (loss)

of investee

Investment gain

(loss) recognized in

the current period

Remark

Investor Investee Location

Major

business

activities Initial

Amount of

Investment

Held at

ending

Current

gain (loss)

of investee

Investment

gain (loss)

recognized in

the current

period

Remark Investor Investee Location

The

Company

Ching Huang

Construction

Co., Ltd.

Taiwan Civil

engineering

204,332 204,332 19,639 98.20% 177,602 14,419 2,809 Subsidiaries

“ Yuji

Development

Corp.

Taiwan Funeral

service

900,000 900,000 90,000 56.25% 1,002,360 163,921 92,206 Subsidiaries

“ Dahan

Property

Management

Co., Ltd.

Taiwan Development,

lease and sale

of residential

areas and

building

3,870 3,870 400 80.00% 3,604 (2) (1) Subsidiaries

“ Sea Dragon

Traders Ltd.

(BVI)

British

Virgin

Islands.

Investment 114,529 114,529 1 100.00% 108,212 5,376 5,376 Subsidiaries

“ Lungding

Life Science

Co., Ltd.

Taiwan Flower and

plant

cultivation

40,000 20,000 4,000 100.00% 25,871 (12,641) (12,641) Subsidiaries

“ Singapore

Lungyen Life

Services Pte.,

Ltd.

Singapore Funeral

service

239,800 - 10,000 100.00% 233,313 (4,297) (4,297) Subsidiaries

“ Beauty

Kadan Co.,

Ltd.

Taiwan Wholesale of

flowers and

plants

20,534 20,534 1,425 50.00% 23,104 2,648 1,324

“ Ruei Da

Venture

Capital Co.,

Ltd.

Taiwan Investment 30,000 30,000 3,000 47.62% 30,024 103 49

“ You Ka En

Inc.

Taiwan Flower and

plant

cultivation

12,600 - 1,260 42.00% 11,774 (1,967) (826)

Note: The equities in said subsidiaries held by the Company were written off when the Company prepared

the consolidated financial statements

2. Loans to third parties: None.

3. Endorsement/guarantee in favor of third parties: None.




- 194 -


Unit: Thousand shares

Ending

Holder of Securities Type and Name of

Securities

Relationship

with Securities

Issuer

Account Title

Unit Book Value % of

Ownership

Market Value

(NTD) per share

Remark

Ching Huang Construction Co.,

Ltd.

Cathay Taiwan Money

Market Fund



1,345 $ 16,308 - 12.13

“ Cathay R2 Fund － “ 10,000 156,900 - 15.69

“ J-Garden Corp. － Financial assets carried at

cost – non-current

- 3,000 5.00 107,987

Dahan Property Management

Co., Ltd.

Allianz Global

Investors Taiwan

Money Market Fund



170 2,061 - 12.16


Services Pte., Ltd.

PIMCO Diversified

Income Fund

－ “ 182 SGD 2,934 - SGD 16.16

“ PIMCO Total Return

Bond Fund

－ “ 281 SGD 4,401 - SGD 15.68

Sea Dragon Traders Ltd. (BVI) Becton Dickinson － “ 15 USD 1,160 - USD 77.34


consolidated financial statements





Buyer/ Seller

Type and

Name of

Securities

Account

Title

Trading


No. of

Unit Amount

No. of

Unit Amount

No. of

Unit

(thousand)

Selling

Price

Book

Value

Gain or

Loss from

Disposition

No. of

Unit

(thousand)

Amount

Ching Huang

Construction Co.,

Ltd.

Cathay R2

Fund

Financial assets at

fair value through

profit or loss

－－ - - 10,000 147,963 - - - - 10,000 156,900

“ Cathay Taiwan

Money Market

Fund

“ －－ 14,845 178,908 7,371 89,000 20,871 252,045 251,548 497 1,345 16,308

Singapore

Lungyen Life

Services Pte., Ltd.

PIMCO Total

Return Bond

Fund

“ －－ - - 281 SGD 4,401 - - - - 281 SGD 4,401



Information about previous transfer, if

the trading counterpart is a related party

Acquired by Name of Property

Date of

Trading or

Fact

Trading

Value Payment

Trading


Owner

Relationship

with the

issuer

Date of

Transfer Amount

Pricing

Reference

Purpose of

Acquisition

and Use

Others

Yuji

Development

Corp.

Land and building

including Taichung

Pao-Shan

Memorial Park

12.30.2011 180,538 Complete

payment, as

of December

31, 2012

Hong

Hsin-Tai, et al.

Non-related

party

- - - - Price

negotiation

Working

fund

Repay overdue

tax on behalf of

the original land

owner, no more

than $20,000


including

Wanshoushan

Tomb

11.02.2011 1,513,310 $51,440

outstanding

before

December 31,

2012

Hong

Hsin-Tai, et al.

“ - - - - $1,664,584,

see Hungtu

appraisal

report;

$1,663,202,

see Hungtai

appraisal

report

“ Miscellaneous

rights remain

uncancelled and

untransfered, and

retained payment

outstanding


including

columbarium and

cemetery in Chia

Yu Tower

09.30.2011 129,130 Complete

payment, as

of December

31, 2012

Chia Yu

Development

Co., Ltd.

“ - - - - $130,212,

see Hungtu

appraisal

report

“ Miscellaneous

rights remain

uncancelled, and

retained payment

outstanding




- 195 -


None.


capital: None.


None.

10. Trades for derivatives:


Company Derivatives National

Principal Maturity

Fair market

value


Services Pte., Ltd.

Forward

exchange

Sell USD USD 6,000 2012/12/27~2013/03/27 (92)

(SGD (4))

(3) Information about investment in Mainland China

The Directors’ Meeting resolved on March 31, 2011 that the Company may invest no more than

US$40,000 thousand in establishing Lungyen (China) Life Service Corp., and the investment was

also ratified by the Investment Commission of MOEA on July 1, 2011. The Company intends to

invest in funeral business in China through Sea Dragon Traders Ltd. (BVI) reinvestment Lung Yen

(Cayman) Co. Ltd. and Lung Yen (Hong Kong) Co. Limited Notwithstanding, the Company has not

yet made the investment so far.

(4) Business affiliation and important transactions between subsidiaries and parent company:

In 2012

Status

No. (Note 1)

Trader Trading Counterpart Relationship

with trader (Note 2)

Title Amount Trading Terms Proportion to

consolidated total

revenue or total assets

0 Lungyen Life

Service Corp.

Ching Huang


1 Real estate in process $ 394931 - 1 %

0 “ “ 1 Unfinished

construction

124,718 - - %

0 “ “ 1 Payable accounts 13,255 100% 30-day

postdated check

- %

0 “ “ 1 Other payables 34,585 - - %

0 “ “ 1 Rent revenue 459 - - %

0 “ Yuji Development Corp. 1 Other financial asset 2,806 - - %


postdated check

- %

0 “ “ 1 Other current

liabilities

318 - - %

0 “ “ 1 Columbarium and

cemetery cost

20,843 - - %

0 “ “ 1 Rent revenue 3,106 - - %

0 “ “ 1 Interest revenue 931 - - %

0 “ “ 1 Miscellaneous

revenue

24,672 - - %




- 196 -

Status

No. (Note 1)




consolidated total


0 “ Singapore Lungyen Life

Services Pte., Ltd.

1 Other financial assets 363 - - %

1 Ching Huang

Construction Co.,

Ltd.

Lungyen Life Service

Corp.

2 Advance receipts for

construction

519,649 - 1 %

1 “ “ 2 Receivable account 47,808 100% 30-day

postdated check

- %

1 “ “ 2 Other currnet asset 32 - - %

1 “ “ 2 Construction renenue 154,793 - 3 %

1 “ “ 2 Construction cost 143,187 - 3 %

1 “ “ 2 Rent expenditure 459 - - %

2 Yuji Development

Corp.


Corp.

2 Receivable account 2,772 - - %

2 “ “ 2 Other current

liabilities

2,479 - - %

2 “ “ 2 Columbarium and

cemetery revenue

20,843 - - %

2 “ “ 2 Labor expense 24,000 - %

2 “ “ 2 Bank service charge 672 - - %

2 “ “ 2 Rent expenditure 3,106 - - %

2 “ “ 2 Interest expenditure 931 - - %

3 Singapore Lungyen

Life Services Pte.,

Ltd.


Corp.

2 Other current

liabilities

363 - - %

In 2011

Status

No. (Note 1)




consolidated total


0 Lungyen Life

Service Corp.

Ching Huang


1 Real estate in process $ 52,768 - - %

0 “ “ 1 Unfinished

construction

569,999 - 1 %


postdated check

- %

0 “ “ 1 Other Payable

accounts

2,770 “ - %

0 “ “ 1 Rent revenue 1,696 - - %

0 “ Dahan Property


1 Rent revenue 14 - - %

0 “ Yuji Development Corp. 1 Rent revenue 301 - - %

0 “ “ 1 Rent receivable 323 - - %

0 “ “ 1 Other receivable

accounts

6,000 - - %

0 “ “ 1 Miscellaneous

revenue

6,000 - - %

1 Ching Huang

Construction Co.,

Ltd.


Corp.

2 Advance receipts for

construction

622,767 - 1 %

1 “ “ 2 Receivable account 50,634 100% 30-day

postdated check

- %

1 “ “ 2 Construction revenue 296,940 - - %

1 “ “ 2 Construction cost 296,940 - - %

1 “ “ 2 Rent expenditure 1,696 - - %

2 Dahan Property

Management Co.,

Ltd.


Corp.

2 Rent expenditure 14 - - %

3 Yuji Development

Corp.


Corp.

2 Rent expenditure 301 - - %




- 197 -

Status

No. (Note 1)




consolidated total


3 “ “ 2 Other payable

accounts

6,323 - - %

3 “ “ 2 Management

Expenditure

6,000 - - %

Note 1: Said transactions shall be numbered as follows:

1. “0” for parent company

2. Subsidiaries are numbered from “1”

Note 2: Transactions with stakeholders are divided into three categories as follows:

1. Parent company to subsidiaries;

2. Subsidiaries to parent company;

3. Subsidiaries to subsidiaries.

(XII) Financial information by department

(1) General information

The consolidated companies consist of five departments, namely Columbarium Sales Dept., Funeral

Service Dept., Property Lease Dept., Cemetery Operation Dept., and other departments and

construction sales department. Columbarium Sales Dept. is primarily engaged in

columbarium-related business. Funeral Service Dept. is engaged in funeral service business. Property

Lease Dept. is engaged in lease of real property. Cemetery Operation Dept. and other departments

are engaged in management and operation of cemeteries. Construction Sales Dept. is engaged in

building construction business.

The consolidated companies’ departments shall be the units dedicated to strategic business to provide

different products and services. Given that the technique and marketing strategies as needed vary

according to each strategic business unit, it is necessary to manage the units separately. Most of the

business units are acquired separately, and the competent management teams are retained.

(2) Information by operation departments of consolidated companies, and adjustment thereof:

Sales for Columbarium and Cemetery

Life Service

Real Property Lease

Operation of Cemeteries and

Others Sales for

Construction Adjustment

and Write-off Total

2012

Revenue

Revenue from external

customers

$ 3,203,301 1,215,347 217,773 111,141 89,644 - 4,837,206

Inter-departmental revenue 20,843 - 3,565 - 154,793 (179,201) -

Interest revenue - - - 15,329 - - 15,329

Total revenues $ 3,224,144 1,215,347 221,338 126,470 244,437 (179,201) 4,852,535

Interest expenditure $ - - - 29,483 - - 29,483

Depreciation and

amortization

- - - - - 108,510 108,510

Investment Income - - - 937 - - 937

Other important non-cash

items:

Impairment loss - - - - - - -

Departmental income $ 1,472,930 345,133 85,247 296,215 14,419 (95,010) 2,118,934

Departmental assets $ 7,804,079 170,027 7,779,468 - 3,351,113 19,654,076 38,758,763




- 198 -

2011

Revenue

Revenue from external

customers

$ 2,589,539 1,146,153 176,116 68,009 475,025 - 4,454,842

Inter-departmental revenue - - 2,011 - 296,940 (298,951) -

Interest revenue - - - 2,731 - - 2,731

Total revenues $ 2,589,539 1,146,153 178,127 70,740 771,965 (298,951) 4,457,573

Interest expenditure $ - - 204 17,565 - - 17,769

Depreciation and

amortization

- - - - - 122,769 122,769

Investment Income - - - 12,176 - - 12,176

Other important non-cash

items:

Impairment loss - - - - - - -

Departmental income $ 1,195,357 214,342 32,962 242,414 210,458 (9,984) 1,885,549

Departmental assets $ 7,962,839 103,786 7,779,468 - 3,335,172 20,674,873 39,856,138

(3) Overview of business

1. Information by territory

The information about consolidated companies by territory is stated as follows. Revenue is classified

based on the geographical location where the customer is situated, while non-current assets are

classified based on the geographical locations of the assets.

Revenue from external customers:

Territory 2012 2011

Taiwan $ 4,837,069 4,454,324

Japan 137 518

Total $ 4,837,206 4,454,842

Non-current assets:

Territory 2012 2011

Taiwan $ 13,868,662 13,645,107

2. Information about important customers

Consolidated companies had no customers from whom the revenues accounted for more than 10% of

the revenues in the income statement in 2012 and 2011.

6.6 In the last year and up until the publication date, any financial difficulties met by the

Company and its affiliates: None.

- 199 -

7. A review and analysis of the Company's financial condition and operating

results and a listing of risks

7.1 Financial condition

Unit: NTD thousand

Nonconformities Year

Item 2012 2011

Amount %

Current assets 21,144,886 21,850,232 (705,346) (3.23)

Fund and long-term

investments

2,163,638 1,829,479 334,159 18.27

Fixed assets 12,212,037 12,067,889 144,148 1.19

Intangible assets 735,178 735,178 - -

Other assets 1,350,642 1,388,082 (37,440) (2.70)

Total assets 37,606,381 37,870,860 (264,479) (0.70)

Current liabilities 29,236,269 30,342,756 (1,106,487) (3.65)

Long-term liabilities - - - -

Other liabilities 63,309 65,534 (2,225) (3.40)

Total liabilities 29,299,578 30,408,290 (1,108,712) (3.65)

Common stock 3,990,842 3,990,842 - -

Additional paid-in capital 1,451,808 1,451,808 - -

Retained earnings 2,883,988 2,034,072 849,916 41.78

Total shareholders’ equity 8,306,803 7,462,570 844,233 11.31

Description of major variations of accounting items:

1. Fund and long-term investments: The increase in the fund and long-term investments in the current period

is a result of the investment in Singapore Lungyen.

2. Current liabilities and total liabilities: The decrease in the current liabilities and total liabilities is a result of

the repayment of bank loans from working capital.

3. Retained earnings: The increase in the retained earnings in the current period is a result of an increase in

net income this year.

- 200 -

7.2 Operating results

Unit: NTD thousand

Item 2012 2011 Increase (decrease)

amount %

Gross operating income 4,374,260 4,171,898 202,362 4.85

Less: Sales return and discount - - - -

Net operating income 4,374,260 4,171,898 202,362 4.85

Operating costs 1,218,764 1,239,538 (20,774) (1.68)

Gross profits 3,155,496 2,932,360 223,136 7.61

Operating expenses 1,199,575 1,172,341 27,234 2.32

Net operating profits 1,955,921 1,760,019 195,902 11.13

Non-operating revenue and

gains

357,322 316,656 40,666 12.84

Non-operating expenses and

losses

27,801 76,336 (48,535) (63.58)

Net income before taxes of the

continuing department

2,285,442 2,000,339 285,103 14.25

Less: Income tax expenses 238,273 139,062 99,211 71.34

Continuing operating income

after tax

2,047,169 1,861,277 185,892 9.99

Net income 2,047,169 1,861,277 185,892 9.99

The variation ratio (%) is analyzed as following:

1 Operating revenue: The increase in operating revenue this year is a result of the increase in columbarium

and cemetery revenues and funeral services revenue.

2. Income tax expenses: The increase in net income this year has resulted in an increase in income tax

expenses.

- 201 -

7.3 Cash flow

7.3.1 Liquidity analysis for the most recent two years

Year

Item 2012 2011

Increase (decrease)

%

Cash flow ratio 8.67 4.39 97.49

Cash flow adequacy ratio 62.15 31.59 96.74

Cash reinvestment ratio 16.03 9.87 62.41

Cash flow ratio: The decrease in construction in progress and inventory this year resulted in an increase in net

cash flow from operating activities, while the repayment of some bank loans from working capital this year

resulted in a decrease in cash flow ratio.

Cash flow adequacy ratio: The increase in cash flow adequacy ratio in the current period is a result of the

increase in cash flow from operating activities.

Cash reinvestment ratio: The increase in cash reinvestment ratio in the current period is a result of the

increase in cash flow from operating activities.

7.3.2 Cash liquidity analysis for the coming year

Unit: NTD thousand

Balance of cash -

beginning

Annual net cash flow from

operating activities Annual

Cash surplus

(deficit)

Corrective actions against

cash deficit

(1) Net cash flow (2) Cash outflow

(3)

Amount(1)+(2)-

(3)=(4) Investment

plan

Wealth

management

plan

0 0

1. Cash flow analysis for this year:

(1) Operating activities: Cash flow from funeral services and real estate rental businesses

(2) Investing activities: Scheduled to purchase real estate to build ceremonial halls for the main

business line

(3) Financing activities: Scheduled to allocate a cash dividend and repay bank loans

2. Corrective measures in response to insufficient liquidity: N/A

7.4 Effect upon financial operations of any major capital expenditures during the most

recent fiscal year: None.

7.5 Reinvestment policy for the most recent fiscal year, main reasons for the profits/losses

generated thereby, plan for improving re-investment profitability, and investment

plans for the coming year:

7.5.1 The Company's current reinvestment policies are stated as following:

1. Yuji Development Corp.: Expand sales channels and service bases of the main business line,

funeral services, via the co-branded columbarium and cemetery held and marketed by Yuji

Development Corp.

2. Ching Huang Construction Co., Ltd.: Co-ordinate business needs, enhance QC and control

construction progress

- 202 -

3. Lungding Life Science Co., Ltd.: Acquire flowers and plants required for the funeral services

provided by the Company, and enter the organic plants market as required for the healthy foods

business of Lungding.

4. Sea Dragon Traders Ltd. (BVI): A holding company to engage in overseas investment.

5. You Ka En Inc.: Joint venture with the top Japanese brand You Ka En Co., Ltd. Japan to

establish You Kan En Inc. specializing in funeral services huashan design, and acquire flowers

and plants via Lungding Life Science Co., Ltd., in order to orient the Lungyen brand towards

one-stop services.

6. Singapore Lungyen Life Services Pte., Ltd.: Expand the business scale and extend funeral

services to Overseas Chinese territories to increase sales channels and service bases.

7. Dahan Property Management Co., Ltd.: Co-ordinate business needs, develop leased real estate

and provide management consultation services.

8. Beauty Kadan Co., Ltd.: Joint venture with a Japanese brand to establish Beauty Kadan Co., Ltd.

specializing in funeral services huashan design.

9. Ruei Da Venture Capital Co., Ltd.: To proceed with domestic/overseas investments.

10. Asia Best Healthcare Co., Ltd.: Joint venture with Excelsior Medical Co., Ltd. to establish an

institution engaged in long-term care.

7.5.2 Investments planned for the coming year: None.

7.6 Risk management & evaluation:

7.6.1 Risk management organization and operations:

1. The Company executes enterprise risk management carefully and strictly (including risk

detection, evaluation, reporting and management), and controls risk in accordance with the

latest internal audit developments, and guidelines and laws.

2. The Company’s risk is controlled under a three-level control mechanism: The first level control

mechanism is the organizer, which shall be responsible for considering and preventing risk by

perceiving, evaluating and controlling risk at the initial stage. The second level control

mechanism is the various executive board meetings chaired by the executive officers (division

heads) and presidents of the various organizations, which shall be responsible for evaluating the

likelihood of various kinds of risk. The final level control mechanism refers to the Audit Office,

directors’ meeting and various committees (e.g. Audit Committee). Risk management is ensured

ultimately through review, supervision and follow-up by the Audit Office and review by the

directors’ meetings.

3. The various levels of control mechanism shall report the immediate risk, if any, to their

superiors routinely to stop and prevent risk. So far, no risks have arisen because the Company

has executed the control mechanisms well.

- 203 -

7.6.2 Risk management organizational chart

Risk

management Risk evaluation

Direct risk control

(First level control

mechanism)

Risk review and

control

(Second level control

mechanism)

Decision making and

follow-up

(Third level control

mechanism)

Financial,

accounting

and liquidity

risk

1. Interest rate, exchange rate and

financial risks

2. Loaning of funds and

endorsement/guarantee making

risk

3. Financial derivatives and other

monetary investment and wealth

management risk

4. Taxation, cost and related

accounts risk

Treasury Dept.

Treasury Dept.

Treasury Dept.

Accounting Dept.

Finance Division and

Economic Committee

Market and

credit risk

1. Collection and service quality risk

2. Market survey and evaluation risk

3. Marketing and after-sales service

risk

Customer Management

Dept.

Service Division

Marketing & Planning Dept.

Business Division,

Funeral Service

Division and

Economic Committee

Strategy and

operational

risk

1. Corporate business strategy risk

2. Procurement and quality risk

3. Corporate identity and HR risk

4. Product improvement and R&D

risk

5. Political, policy and legal risk

6. Long-term risk and affiliate

company risk

7. Equity and management team risk

8. Other risks


Procurement Dept.

Department of Human

Resources

Marketing & Planning Dept.

Funeral Service

Management Dept.



Administration Division


Administration Division

Procurement

Division,

Administration

Division and

Economic Committee

Directors’ meeting, Audit

Committee (decision

making and final control

for risk evaluation and

control), Audit Office (risk

assessment, evaluation,

supervision, improvement

& follow-up, and

reporting, et al.)

7.6.3 Effect upon the Company's profit (loss) of changes of interest rates, exchange rate

fluctuations and inflation in the last year, and response measures to be taken in the future:

1. Changes in interest rates: The Company’s financial structure is stable and interacts with its

correspondent banks well, so that the Company can be granted

reasonable and preferential interest rates for its funding plans. In the

future, the Company will still plan its cash flow and continue to strive

for preferential interest rates to mitigate risk related to changes in

interest rates.

2. Exchange rate fluctuations: The Company is engaged in a domestic demand-oriented industry,

whose customers and upstream suppliers/downstream dealers are all

located locally, and trading in NTD. Therefore, the Company will

receive no material impact from exchange rate fluctuations.

3. Inflation: The Company is primarily engaged in funeral services, and the percentage of raw

materials & supplies required by the Company as a ratio of overall costs is low. The

recent drastic raise in utilities fees resulted in an increase in prices of raw materials &

supplies, but did not have any material effect on the Company’s main business line,

funeral services.

- 204 -

7.6.4 The Company's policy regarding high-risk investments, highly leveraged investments, loans

to other parties, endorsements, guarantees, and derivatives transactions, the main reasons for

the profits/losses generated thereby, and response measures to be taken in the future:

The Company does not engage in any high-risk and highly leveraged investments or derivatives

transactions, and also has an SOP for loaning of funds to others and regulations governing

endorsement/guarantee making.

7.6.5 Research and development work to be carried out in the future, and further expenditures

expected for research and development work:

The Company primarily engages in funeral services and emphasizes upgrade of customer

satisfaction with its funeral services. The Company proposes the upgrading of raw materials &

supplies required by the funeral services or columbarium layout design, and then contracts with the

relevant supplier to produce samples. Therefore, there is no related R&D expenditure, and only

some sample acquisition fees as stated.

7.6.6 Effect on the Company's financial operations of important policies adopted and changes in

the legal environment at home and abroad, and measures to be taken in response:

The Company monitors important policies adopted and changes in the legal environment at home

and abroad from time to time, and defines measures to be taken in response thereto to meet

business needs. So far, no impact has been caused to the Company’s financial operations because of

adopted policies or changes in the legal environment.

7.6.7 Effect on the Company's financial operations of developments in science and technology as

well as industry changes, and measures to be taken in response:

As far as funeral services are concerned, no material impact would be caused to the Company’s

financial operations by developments in science and technology or industry changes.

7.6.8 Impact on the Company's crisis management of changes in the Company's corporate identity,

and measures to be taken in response:

The Company adheres to a management philosophy of sustainable operations and also values

corporate identity and risk management. For the most recent year and up until annual report

publication, no impact on the Company’s crisis management from changes in the Company’s

corporate identity has occurred.

7.6.9 Expected benefits and possible risks associated with any merger and acquisitions: N/A

7.6.10 Expected benefits and possible risks associated with any plant expansion: None

7.6.11 Risks associated with any consolidation of sales or purchasing operations:

The Company’s sales target is the general public and, therefore, there is no consolidation of sales

operations. For purchasing operations, the Company purchases goods from different suppliers and

so far there has been no consolidation of purchasing operations.

- 205 -

7.6.12 Effect upon and risk to the Company in the event a major quantity of shares belonging to a

director, supervisor, or shareholder holding greater than a 10 percent stake in the Company

has been transferred or has otherwise changed hands: None

7.6.13 Effect upon and risk to the Company associated with any change in governance personnel or

top management, and mitigation measures being or to be taken: None

7.6.14 Litigious and non-litigious matters. List major litigious, non-litigious or administrative

disputes that: (1) involve the Company and/or any director and supervisor, the general

manager, responsible person in fact, any major shareholder holding a stake of greater than 10

percent of the Company, and/or any company or companies controlled by the Company; and

(2) have been concluded by means of a final and unappealable judgment, or are still under

litigation. Where such a dispute could materially affect shareholders' equity or the prices of

the Company's securities, the annual report shall disclose the facts of the dispute, amount of

money at stake in the dispute, the date of litigation commencement, the main parties to the

dispute, and the status of the dispute as of the date of printing of the annual report:

(1) The Company purchased land at Li Ho Section, Hsin Yi District in February 2007.

Notwithstanding, in March 2007, the joint owners of said land initiated a proceeding for

“Declaration of non-existence of land transaction” with the courts and, therefore, the

registration of land transfer was hindered. Later, Taipei District Court rendered a judgment in

favor of the Company. The opposing parties, in disagreement with the judgment, filed an

appeal. However, the opposing parties withdrew the appeal in June 2009. Therefore, the

judgment in favor of the Company became final and irrevocable.In view of the fact that the

action was withdrawn in March 2010 the Company filed an action with the court in April 2009,

claiming registration of title transfer. However, the joint owners of said land also filed an

action in June 2009 claiming that the registration should be prohibited. According to the

Company’s attorney-at-law, it is very likely that the Company will win the suit.

(2) The Company acquired the land and building at Du Tzu Section, Tamsui Township, Taipei

County. Notwithstanding, the contractor, Chao Yang Construction Co., Ltd., claimed damages

of NT$215,256,000 plus interest accruing at the statutory interest rate from September 20,

1996, until the date of payment, against the original owner and subcontractor, and also

included the Company into its claim as an additional defendant in 2008. The claim was

revoked upon the judgment rendered by Shihlin District Court on October 23, 2009.

Disagreeing with the judgment, Chao Yang filed an appeal and claimed damages in the amount

of NT$80,000,000. Currently, the appeal is pending examination before the Taiwan High

Court. According to the attorney-at-law, because it is impossible for Chao Yang to prove the

requirements constituting the statutory mortgage as mentioned before, Chao Yang is unlikely

to receive a ruling in its favor.

The Company’s litigation and administrative disputes pending during the most recent two years do

not result in any material effect upon the shareholders’ equity or prices for the Company’s

securities.

7.6.15 Other important risks, and mitigation measures being or to be taken: None

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7.7 Key Performance Indicator (KPI)

KPI Definitions Projected target 2012 Actual achievement

2012

KPI achievement

rate

Sales Annual operating revenue NT$4.2 billion NT$4.374 billion 4.14%

EPS EPS NT$5 NT$5.13 2.6%

Notes on achievement of KPI: The projected target was achieved as a result of the growth in sales of

columbarium and cemetery units resulting in net income growth after tax in

2012.

7.8 Other important matters: None.

- 207 -

8. Special notes

8.1 Information on affiliates

8.1.1 Consolidated business report of affiliates:

1. Organizational chart of affiliates:

December 31, 2012

Holding companies and subsidiaries:


(Formerly Da-Han Construction Co., Ltd.)

Total shares: 399,084,199

Capital: $3,990,841,990

Ching Huang Construction Co., Ltd. Limited company by

shares Total shares: 20,000,000 Capital: $200,000,000

Quantity of shares held: 19,639,417

Shareholding: 98.2%

Yuji Development Corp.

Limited company by shares

Total shares: 160,000,000 Capital: $1,600,000,000 Quantity of shares held:

90,000,000

Shareholding: 56.25%

Dahan Property Management Co.,

Ltd. Total shares: 500,000 Capital: $5,000,000

Quantity of shares held: 400,000

Shareholding: 80%

Sea Dragon Traders Ltd. (BVI)

Total shares: 10,000

Capital: USD$10,000 Quantity of shares

held: 10,000 Shareholding: 100%

Lungding Life Science Co., Ltd.

Total shares: 4,000,000 Capital: NT$40,000,000 Quantity of shares held:

4,000,000 Shareholding: 100%

98.2% 56.25% 80% 100%

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2. Profiles of affiliates

Unit: NTD and foreign currency thousand

101.12.31

Name of enterprise Date of

incorporation Address

Paid-in

capital Main business line

Ching Huang

Construction Co., Ltd. 70.09.17

7F, No. 150, Tunhua N.

Road, Taipei City 200,000

Construction and civil

engineering

Yuji Development Corp. 95.04.07

No. 22-4, Yuantan,

Neighborhood 2, Huang

Tan Community, Wanli

District, New Taipei

City

1,600,000

Funeral facilities and

development, lease

and sale of residential

areas and buildings

Dahan Property

Management Co., Ltd. 96.07.17

7F, No. 150, Tunhua N.

Road, Taipei City 5,000

Development, lease

and sale of residential

areas and buildings


(BVI) 81.05.26 - USD10 Securities investment


Co., Ltd. 100.10.12

Suite B28, No. 325, Wu

Shu Lin, Hou Bi

District, Tainan City

40,000

Cultivation, wholesale

and retail of flowers

and seeds

3. Units presumed in parent-subsidiary relationship and information on identical shareholders:

None

Shares held

Subsidiaries Cause of

presumption

Name or

title Quantity of

shares Shareholding

Date of

incorporation Address Paid-in capital

Main business

line

NNNooottt aaapppppplll iiicccaaabbbllleee

4. The industries covered by the businesses operated by the affiliates overall and the mutual dealings

and division of work among such affiliates:

(1) Funeral facilities and funeral services

(2) Construction

(3) The Company contracted projects to Ching Huang Construction Co., Ltd., and then leased or

sold funeral facilities or real estate built by Ching Huang Construction Co., Ltd..

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5. Profiles of directors, supervisors and presidents of affiliates

101.12.31

Shares held

Name of enterprise Job title Name or representative Quantity of shares

(1,000 shares) Shareholding (%)

Chairman Lungyen Life Service Corp. (formerly

known as Dahan Development Corp.)

19,639 98.20

Institutional shareholder Lee Shu-Rong

Director Lungyen Life Service Corp. (formerly


19,639 98.20

Institutional shareholder Lee Shih-Tsung



19,639 98.20

Institutional shareholder Liu Wei-Lung

Supervisor Lungyen Life Service Corp. (formerly


19,639 98.20

Ching Huang


Institutional shareholder Chan Shu-Chuan



900,000 56.25




900,000 56.25

Institutional shareholder Kuo Hsueh-Chun



900,000 56.25

Institutional shareholder Lin Shu-Ling



900,000 56.25

Institutional shareholder Lin Chien-Ru



900,000 56.25

Institutional shareholder Chen Tzu-Chang



900,000 56.25

Institutional shareholder Chiu Yu-Chuan



900,000 56.25

Institutional shareholder Shih Chi-Peng

Supervisor Cheng Chang Investment Co., Ltd. 10 0.00625


Supervisor Cheng Chang Investment Co., Ltd. 10 0.00625

Yuji Development

Corp.

Institutional shareholder You Pi-Chun



400 80




400 80




400 80

Dahan Property


Institutional shareholder Ro Fujibayashi



400 80 Dahan Property





2,000 100 Lungding Life Science

Co., Ltd.


- 210 -

Shares held

Name of enterprise Job title Name or representative Quantity of shares

(1,000 shares) Shareholding (%)



2,000 100

Institutional shareholder Lee Yi-Dao



2,000 100

Institutional shareholder Yu Lang



2,000 100

Institutional shareholder Peng Chi-Ming

6. Overview of operations of affiliates

Unit: NTD thousand

101.12.31

Name of enterprise Capital Total assets Total

liabilities Net worth

Operating

income

Operating

profit

Current

gains

(losses)

(after tax)

Earnings

per share

(NT$)

(after tax)

Ching Huang

Construction Co., Ltd. 200,000 416,048 200,902 215,146 239,598 1,862 14,418 0.72

Yuji Development Corp. 1,600,000 2,086,017 304,044 1,781,973 399,314 183,615 163,921 1.02

Dahan Property

Management Co., Ltd. 5,000 4,549 45 4,549 0 (40) (2) 0


(BVI) USD10 USD3,727 USD1 USD3,726 USD205 USD182 USD182 -


Co., Ltd. 40,000 29,839 3,968 25,871 3,234 (12,651) (12,601) (3.16)

- 211 -

8.1.2 Consolidated financial statement of affiliates:

Statement of Declaration

The companies to be included by the Company into the consolidated financial statements of affiliates in

accordance with the “Criteria Governing Preparation of Report on Affiliates, Consolidated Business Reports

and Consolidated Financial Statements of Affiliated Enterprises” in 2009 (from Jan. 1 to Dec. 31, 2012) are

identical to those to be included in the consolidated financial statements of the Parent Company and

subsidiaries prepared under the Statement of Financial Accounting Standards No. 7 in “Consolidated

Financial Statements”. Besides, the information to be disclosed in the consolidated financial statements of

affiliated enterprises has been disclosed in said consolidated financial statements of Parent Company and

subsidiaries. Therefore, the Company does not prepare the consolidated financial statements of affiliated

enterprises separately.

In witness thereof, the Declaration is hereby presented.

Company name: Lungyen Life Service Corp.

Chairman: Shi Chong Lee

Date: March 14, 2013

8.1.3 Affiliation report: N/A

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8.2 Private placement of securities during the most recent year or during the current year

up to the date of printing of the annual report: None

8.3 Holding or disposal of shares in the Company by the company's subsidiaries during the

most recent year or during the current year up to the date of printing of the annual

report: None

8.4 Other necessary supplementary notes: None

9. Any of the situations listed in Article 36, paragraph 2, subparagraph 2 of

the Securities and Exchange Act, which might materially affect

shareholders' equity or the price of the Company's securities, occurring

during the most recent year or during the current year up to the date of

printing of the annual report: N/A

Lungyen Life Service Corp.

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