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CST Annual Report 2020

Jun 17, 2020

51971_rns_2020-06-17_8aaeb90e-0d1f-4e66-80e0-2cfbbdf12ffd.pdf

Annual Report

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Table of Contents

I. Meeting Procedures
II. Meeting Agenda
i. Reports.................................................................................................... 2
ii. Ratifications ......................................................................................... 13
iii. Discussions ........................................................................................... 43
iv. Election Matters ................................................................................... 48
v. Other Matters ........................................................................................ 50
vi. Motions ................................................................................................. 52
III. Annexes
Annex I.
Articles of Incorporation (Before Amendments) .… . ……...53
Annex II. Rules and Procedures of the Shareholders’ Meeting ............ 62
Annex III. Rules for Election of Directors ……………… ........ ………67
Annex IV. Other Explanatory Matters & Share Ownership of
Directors…….… ............................................................... …70

CHENG SHIN RUBBER IND. CO., LTD. Agenda of the 2019 Annual General Meeting

  • Ⅰ . Call the Meeting to Order Ⅱ . Chairperson’s Remarks Ⅲ . Reports Ⅳ . Ratifications Ⅴ . Discussions Ⅵ . Election Matters Ⅶ . Other Matters Ⅷ . Motions Ⅸ . Adjournment

CHENG SHIN RUBBER IND. CO., LTD.

Agenda of the 2020Annual General Meeting

Time and Date: 9:30 a.m., Tuesday, June 16, 2020

Place: Conference room of the new office building of Cheng Shin Rubber Ind. Co., LTD. (the “Company”) located at B2, No. 215, Meigang Rd., Huangcuo Village, Dacun Township, Changhua County

  • I. Call the Meeting to Order

  • II. Chairperson’s Remarks

  • III. Reports

  • i. 2019 Business Report

  • ii. Audit Committee’s report on the review of the 2019 Financial Statements

  • iii. Report of the Company’s distribution of compensation to its directors and employees in 2019

  • iv. Report of endorsements and guarantees of obligations provided to third parties by the Company

  • IV. Ratifications

  • i. Ratification of the Company’s 2019 Business Report and Financial Statements

  • ii. Ratification of the Company’s 2019 profit distribution

  • V. Discussions

  • i. Discussion of the proposed amendments to the Company’s “Articles of Incorporation”

  • VI. Election Matters

  • i. Election of directors (the independent directors included)

  • VII. Other Matters

  • i. Proposal to release the newly elected directors from non-competition restrictions

  • VIII.Motions

  • IX. Adjournment

1

Reports

2

Reports

Item No. 1 — 2019 Business Report

Explanation:

The 2019 Business Report of the Company can be found on pages 4-6 of this Handbook.

3

CHENG SHIN RUBBER IND. CO., LTD.

2019 Business Report

In retrospect, the continuation of trade conflicts between China and the US adversely impacted the global economy in 2019. In the beginning of 2020, the two countries have finally reached a consensus on the trade matters and signed the Phase 1 deal of the trade agreement. However, the impact of such agreement to the world remains unknown. For Cheng Shin Rubber Ind. Co., Ltd. (“CST” or “the Group”), the negative growth of the mobile market in China for the past two consecutive years, the over-supplied situation in the tire industry and the rapid growth and expansion of competitors in recent years have bogged CST down to a price war of all product series. These external environmental factors were the challenges we struggled with. As a result, our consolidated operating revenue in 2019 in the amount of NT$109.5 billion remained at the same level as it was in the previous year.

However, there is an opportunity in every crisis, and it is imperative for us to continue to adapt to the external environments in order to thrive in this recession time. Our technologies are well-received within the industry and we have earned customer trust by demonstrating our product quality, evidenced by the recognition and awards received from numerous tire magazines and test reviews at home and abroad. The MAXXIS proving ground in Kunshan, China is a world-leading facility where various testing of tire performance, durability, noise, and safety are conducted. Many automakers use our facility for the R&D and testing of new vehicles, which provides us opportunities to pitch for new orders. Within the Group, upholding the spirit of “specializing in what we do while preparing for changes, execution always comes first”, we adopt delicacy manufacture management to enhance our product quality and the utilization rate, thereby lower the operational cost. We have also continued to enhance our organizational and management capabilities, strengthen talent development, and cultivate our corporate culture— leading the way to transforming adversity into advantage and to breaking the market limitation with powerful execution.

We have firmly believed in our strategies that “driving the tire repair market (RE) with the vehicles assembly factories (OE),” and “boosting the collaboration between vehicles assembly factories (OE) with the tire repair market (RE).” Our market strategy further incorporates the concept of driving sales with increased numbers of client visits and reinforce the existing client base and enhancing marketing by researches and discovering new markets. Only by understanding the needs of customers and the market trends can the Group overcome the external challenges, transform adversity into advantage, and forge a brand-new future.

4

Results of Operations in 2019

(IFRS Consolidated and Individual)

(1) Results of operations based on our business plan for 2019

  • 1.Sales and Production Unit: pcs. in thousands; %
Year
Core
Products		 Produced in
2019		 Sold in
2019		 Sold in
2018		 Percentage of
increase/decrease
PCR 38,045 39,151 42,511 -7.9%
TBR 4,839 4,793 4,665 2.74%
MC 37,898 37,823 35,491 6.57%
BC 81,693 80,048 71,994 11.19%
TUBE 121,371 120,625 118,032 2.20%
OTHER TIRES 20,182 20,562 20,684 -0.59%

2.Operation Summary

Unit: in NT$ thousands; %

Consolidated

Year
Item		 2019 2018 Percentage of
increase(decrease)
NetSales 109,507,773 109,221,209 0.26%
CostofGoods Sold 85,548,240 84,898,267 0.77%
OperatingExpenses 16,956,401 16,907,753 0.29%
OperatingProfit 7,003,132 7,415,189 -5.56%
Net Profit 3,515,697 3,574,638 -1.65%
Individual
Unit: in NT$ thousands; %
Year
Item		 2019 2018 Percentage of
increase(decrease)
NetSales 19,497,888 19,374,623 0.64%
CostofGoods Sold 15,805,867 14,887,361 6.17%
OperatingExpenses 3,789,106 3,777,633 0.30%
OperatingProfit -56,880 648,205 -108.78%
Net Profit 3,466,827 3,520,320 -1.52%

Individual

(2) Revenue Forecast and Realization

The sales revenue in 2019 totaled NT$109.5 billion, a realization of 91.87% of the sales forecast, which was NT$119.2 billion.

5

(3) Financial Position and Profitability Analysis

Consolidated Unit: in NT$ thousands; %

Item Year Year 2019 2018 %
Change
Income
Statement		 SalesRevenue 109,507,773 109,221,209 0.26%
Gross Profit 23,959,533 24,322,942 -1.49%
Net Profit 3,515,697 3,574,638 -1.65%
Profitability Return on Assets(ROA) (%) 2.89 2.83 2.12%
Returnon Equity (ROE) (%) 4.46 4.39 1.59%
As a % of Paid-
in Capital		 Operating
Profit		 21.61 22.88 -5.55%
Pre-tax Profit 17.98 18.23 -1.37%
Net Profit Margin(%) 3.21 3.27 -1.83%
Earnings Per Share(NT$) 1.07 1.09 -1.83%

Individual Unit: in NT$ thousands; %

Item Year Year 2019 2018 %
Change
Income
Statement		 SalesRevenue 19,497,888 19,374,623 0.64%
GrossProfit 3,692,021 4,487,262 -17.72%
Net Profit 3,466,827 3,520,320 -1.52%
Profitability Returnon Assets (ROA) (%) 3.20 3.18 0.63%
Returnon Equity (ROE) (%) 4.43 4.36 1.61%
As a % of Paid-
in Capital		 Operating
Profit		 -0.18 2.00 -109%
Pre-tax Profit 13.88 15.08 -7.96%
Net Profit Margin(%) 17.78 18.17 -2.15%
Earnings Per Share(NT$) 1.07 1.09 -1.83%

  • (4) Research and Development

  • �Development of new MAXXIS PCR/LTR tires

  • �Research project on the technology for various energy-saving tires

  • �Development of new spare tire products

  • �Motorcycle tires — development of high performance series

  • �Development of new motorcycle radial tire products

  • �Bicycle tires — development of high performance series

  • �Development of new ATV tires

  • �Development of new TBR tires

  • �Development ofnew truck drive shaft product

Lou, Tsau-Jen Lou, Tsau-Jen Chang, Ya-Ching Chairman General Manager Controller

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6

Reports

Item No. 2 – Audit Committee’s report on the review of the 2019 Financial Statements

Explanation:

The 2019 Financial Statements of the Company have been adopted by the resolution of the Board of Directors and audited and certified by independent auditors, Grace Hung and Joseph Chou, of PricewaterhouseCoopers Taiwan. The Financial Statements, along with the Business Report and the proposed profit distribution, have been reviewed by the Audit Committee of the Company. The Audit Committee’s Report can be found on page 8 of the Handbook.

7

Audit Committee’s Report

To the 2020 Annual General Meeting of Cheng Shin Rubber Ind. Co., LTD.:

The Board of Directors has prepared and submitted the Company’s 2019 Business Report, Financial Statements (including individual and consolidated financial statements) and the proposed profit distribution, of which the Financial Statements have been audited and certified by the independent auditors, Grace Hung and Joseph Chou, of PricewaterhouseCoopers Taiwan, and an audit report has been issued. The Business Report, Financial Statements and the proposed profit distribution have been reviewed by us, the Audit Committee of the Company. We have not found any inconsistencies with applicable laws in our review of the aforementioned documents. Therefore, we, the Audit Committee, hereby issue this report in compliance with Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Act.

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Hsu, En-De Chairman of the Audit Committee

Dated: March 24, 2020

8

Reports

Item No. 3 - Report of the Company’s distribution of compensation to its directors and employees in 2019.

Explanation:

  1. The director and employee compensation in 2019 are distributed in accordance with Article 34-1 of the Company’s Articles of Incorporation, taking into consideration the 2019 sales revenue and net profit in comparison with those in 2018, and the average distribution amount in 2018.

  2. Our profit in 2019 is NT$4,652,631,518, 1.313% of which has been set aside as director’scompensation, totaling NT$61,089,052 (excluding independent director’scompensation); 2% of which has been set aside as employee’scompensation, totaling NT$93,052,630. The aforementioned compensationare distributed in cash.

  3. In 2019, the amount of director’s compensation and employee’s compensation recognized as expenses is consistent with the amount distributed to directors and employees.

9

Reports

Item No. 4 – Report of endorsement and guarantee of obligations provided to third parties by the Company

Explanation:

As of December 31, 2019, the total amount under the endorsement and guarantee of obligations provided to third parties by the Company is US$726,577,000, or approximately NT$21,782,789,000; the details of which can be found on pages 11-12 of the Handbook. It is hereby reported to the annual general meeting pursuant to the Company’s Rules Governing Endorsement and Guarantee.

10

CHENG SHIN RUBBER IND. CO., LTD.

Endorsement and Guarantee of Obligations to Third Parties

As of December 31, 2019

Obligor Guaranteed
Obligation		 Type of
Guarantee		 Balance on Guarantee
Bank Name		 Start Date Due Date Note
Maxxis International(Thailand)Co., Ltd Loan Guarantee Long-term THB1,000,000,000 MIZUHO Bank 2016.02.12 2021.02.18
Maxxis International (Thailand) Co., Ltd Loan Guarantee Long-term THB1,000,000,000 Sumitomo Mitsui Banking
Corporation		 2016.12.13 2022.03.17
Maxxis International(Thailand) Co.,Ltd LoanGuarantee Long-term USD 20,000,000 StandardChartered Bank 2017.08.23 2020.09.21
Maxxis International(Thailand)Co.,Ltd Loan Guarantee Long-term USD 25,000,000 Bangkok Bank 2018.10.15 2020.10.15
PT. Maxxis International Indonesia LoanGuarantee Long-term USD 16,000,000 CTBCBank 2016.01.25 2021.05.03
PT. Maxxis International Indonesia Loan Guarantee Long-term USD 100,000,000 First Commercial Bank 2016.07.26 2023.08.01
PT. Maxxis International Indonesia Loan Guarantee Long-term USD 30,000,000 Chang Hwa
CommercialBank		 2017.01.05 2024.01.18
PT. Maxxis International Indonesia Loan Guarantee Long-term USD 20,000,000 The Export-Import Bank of
ROC		 2017.07.10 2022.09.06
PT. Maxxis International Indonesia LoanGuarantee Long-term USD 40,000,000 Mega Bank 2018.01.03 2025.01.23
PT. Maxxis International Indonesia LoanGuarantee Long-term USD 30,000,000 FirstCommercial Bank 2018.01.23 2025.02.27
PT. Maxxis International Indonesia LoanGuarantee Long-term USD 20,000,000 Cooperative Bank 2018.07.10 2025.11.28
PT. Maxxis International Indonesia Loan Guarantee Long-term USD 29,000,000 Chang Hwa
CommercialBank		 2018.07.10 2025.12.27
PT. Maxxis International Indonesia Loan Guarantee Short-term USD 21,000,000 CTBC Bank 2019.12.31 2020.12.31
PT. Maxxis International Indonesia LoanGuarantee Short-term USD 18,000,000 StandardChartered Bank 2019.10.31 2020.10.31

11

CHENG SHIN RUBBER IND. CO., LTD.

Endorsement and Guarantee to Third Parties

As of December 31, 2019

Obligor Guaranteed
Obligation		 Type of
Guarantee		 Balance on
Guarantee		 Bank Name Start Date Due Date Note
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 50,000,000 Mega Bank 2016.01.15 2023.02.24
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 40,000,000 Cooperative Bank 2016.11.14 2023.11.29
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 40,000,000 HSBC Bank 2017.05.03 2022.05.24
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 9,800,000 Hua Nan Bank 2017.06.30 2022.07.27
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 20,000,000 Mega Bank 2019.07.29 2024.08.16
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 20,000,000 Yuanta Bank 2019.10.04 2024.10.28
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 20,000,000 TaichungCommercial Bank 2019.10.25 2024.11.18
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Long-term USD 30,000,000 The Export-Import Bank of ROC 2019.11.20 2024.12.16
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Short-term USD 10,000,000 HSBC Bank 2019.05.01 2020.04.30
Maxxis Rubber India Pvt. Ltd. LoanGuarantee Short-term INR1,050,000,000 StandardChartered Bank 2019.05.01 2020.04.30
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Short-term INR 400,000,000 CTBC Bank 2019.05.31 2020.05.31
Maxxis Rubber India Pvt. Ltd. LoanGuarantee Short-term USD 10,000,000 CTBCBank 2019.05.31 2020.05.31
Maxxis Rubber India Pvt. Ltd. Loan Guarantee Short-term USD 20,000,000 Bank of America 2019.11.15 2020.11.14

12

Ratifications

13

Ratifications

Item No. 1 – Ratification of the 2019 Business Report and Financial Statements (submitted by the Board of Directors)

Explanation:

  1. The 2019 Business Report and Financial Statements have been prepared by the Board of Directors and the Financial Statements have been audited and certified by independent auditors, Grace Hung and Joseph Chou, of PricewaterhouseCoopers Taiwan. The Business Report and the Financial Statements have been adopted by resolution of the Board of Directors and reviewed by the Audit Committee of the Company. The Audit Committee has not found any inaccuracies in their review of these documents and issued a report accordingly. The Business Report, Audit Committee’s Report, and Financial Statements can be found on pages 4-6, 8, and 15-40 of this Handbook.

  2. The proposal is hereby submitted to the shareholders meeting for ratification.

Resolution:

14

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR19004620

To the Board of Directors and Shareholders of Cheng Shin Rubber Ind. Co., Ltd. and subsidiaries

Opinion

We have audited the accompanying consolidated balance sheets of Cheng Shin Rubber Ind. Co., Ltd. and subsidiaries (the “Group”) as at December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to the “other matter” section of our report), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the“Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained and the report of other auditorsare sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period.

15

These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s financial statements of the current period are stated as follows:

Appropriateness of cut-off on sales revenue

Description

For the accounting policy of revenue recognition, please refer to Note 4(32). For the year ended December 31, 2019, the sales revenue amounted to NT$109,507,773 thousand.

The Group’s main business is the manufacturing and sales of various tires and rubber products. The main sources of sales revenue are from the assembly plants and dealers. In accordance with the contract terms with some assembly plants, as inspections are completed in the assembly plants, the transfer of control to the merchandise is completed and sales revenue is recognized. The sales revenue recognition process involves many manual controls and adjustments are likely to occur. As a result, the timing of sales revenue recognition could be inappropriate. Therefore, we included the appropriateness of cut-off on sales revenue as one of the key areas of focus for this year.

How our audit addressed the matter

The procedures that we have conducted in response to the above key audit matter are summarized as follows:

  1. We obtained an understanding of the Group’s sales revenue cycle, reviewed internal control process and contracts of assembly plant sales in order to assess the effectiveness of managements’ control of revenue recognition on assembly plant sales.

  2. We tested the Group’s sales transactions around the year-end date to check whether assembly plant sales are recorded in the proper period. We also tested whether changes in inventory and cost of goods sold were carried over and recorded in the proper period in order to assess the appropriateness of cut-off on sales revenue.

  3. We tailored our audit over sales cut-off through accounts receivable testing based on the confirmation procedures in order to check whether sales revenue and accounts receivable are recorded in the proper period.

16

Timing of reclassification of unfinished construction and uninspected equipment to property, plant and equipment.

Description

For the accounting policy on property, plant and equipment, please refer to Note 4(15). For the details of property, plant and equipment, please refer to Note 6(7). As at December 31, 2019, the unfinished construction and equipment under acceptance amounted to NT$5,563,842 thousand.

To maintain market competitiveness, the Group continuously replaces old production lines with new ones and incurs significant amounts of capital expenditures every year. The unfinished construction and uninspected equipment are measured at cost. When the finished construction’s inspection report is issued and the uninspected equipment is ready for use, they are reclassified to property, plant and equipment and starts accrual of depreciation expense. The inspection process involves human judgement, thus, the timing of reclassification and accrual of depreciation expense could be inappropriate. Therefore, we indicated that the audit of timing of depreciation recognition after reclassification of unfinished construction and uninspected equipment to property, plant and equipment as one of the key areas of focus for this year.

How our audit addressed the matter

The procedures that we have conducted in response to the above key audit matter are summarized as follows:

  1. We obtained an understanding of the Group’s property, plant and equipment process cycle, reviewed the internal control process and purchase contracts of property, plant and equipment in order to assess the effectiveness of managements’ control of timing of reclassification of unfinished construction and uninspected equipment to property, plant and equipment.

  2. We tailored our audit over fixed asset classification to check whether reclassification of assets are accurate and recorded in the proper period.

  3. We verified the status of unfinished construction and uninspected equipment and assessed the reasonableness of the recognition of unfinished construction and uninspected equipment.

Other matter – Scope of the audit

We did not audit the financial statements of certain consolidated subsidiaries, which statements reflect total assets of NT$5,017,732 thousand and NT$4,628,825 thousand, both representing 3% of the consolidated total assets as of December 31, 2019 and 2018, respectively, and the total liabilities of NT$1,767,827 thousand and

17

NT$1,799,837 thousand, both representing 2% of the consolidated total liabilities as of December 31, 2019 and 2018, respectively, and total operating revenues of NT$5,585,826 thousand and NT$5,257,000 thousand, both representing 5% of consolidated total net operating revenue for the years then ended, respectively. Those financial statements and the information disclosed in Note 13 were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other auditors.

Other matter – Parent company only financial statements

We have audited and expressed an unqualified opinion with other matter paragraph on the parent company only financial statements of the Group as at and for the years ended December 31, 2019 and 2018.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable

18

assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

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

  4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

  5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

19

  1. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Hung, Shu-Hua Zhou, Jian Hong

For and on behalf of PricewaterhouseCoopers, Taiwan March 24, 2020

------------------------------------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practicesin the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China.Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

20

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets Notes December31,2019
AMOUNT
%
$ 25,501,222
16
-
-
25,935
-
3,761,453
2
8,938,927
5
54,053
-
17,949,870
11
1,214,726
1
1,483,789
1
58,929,975
36
58,187
-
157,489
-
95,889,585
59
5,518,534
3
550,156
-
1,986,139
1
950,164
1
105,110,254
64
$ 164,040,229
100		 December31,2018 December31,2018
AMOUNT
$ 25,501,222
-
25,935
3,761,453
8,938,927
54,053
17,949,870
1,214,726
1,483,789
58,929,975
58,187
157,489
95,889,585
5,518,534
550,156
1,986,139
950,164
105,110,254
$ 164,040,229		 AMOUNT
$ 27,809,496
3,243
22,885
2,673,543
9,861,931
47,976
19,362,229
1,474,843
1,767,304
63,023,450
58,187
152,614
103,254,578
-
584,244
1,526,629
6,163,066
111,739,318
$ 174,762,768		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value through
profit or loss - current
1120
Financial assets at fair value through
other comprehensive income - current
1150
Notes receivable, net
1170
Accounts receivable, net
1180
Accounts receivable - related parties
130X
Inventories
1410
Prepayments
1470
Other current assets
11XX
Current Assets
Non-current assets
1517
Financial assets at fair value through
other comprehensive income -
non-current
1550
Investments accounted for under
equity method
1600
Property, plant and equipment, net
1755
Right-of-use assets
1760
Investment property, net
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Non-current assets
1XXX
Total assets		 16
-
-
1
6
-
11
1
1
36
-
-
59
-
-
1
4
64
100

(Continued)

21~9~

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity December31,2019
December31,2018
Notes
AMOUNT
%
AMOUNT
%
$ 16,843,366
10
$ 15,569,136
9
935,619
1
747,071
-
1,122,276
1
623,415
-
7,793,330
5
8,953,202
5
5,587,574
3
6,200,869
4
755,825
-
775,306
-
139,374
-
-
-
10,226,810
6
11,618,185
7
43,404,174
26
44,487,184
25
14,500,000
9
17,000,000
10
23,302,050
14
28,965,884
16

141,841
-
134,287
-
1,313,834
1
1,341,768
1
569,553
-
-
-
2,838,090
2
3,015,639
2
42,665,368
26
50,457,578
29
86,069,542
52
94,944,762
54
32,414,155
20
32,414,155
19
52,576
-
52,576
-
15,186,978
9
14,834,946
8
5,200,298
3
4,430,061
2
31,445,921
19
32,662,342
19
(
6,904,245)(
4)(
5,200,298)(
3)
77,395,683
47
79,193,782
45
575,004
1
624,224
1
77,970,687
48
79,818,006
46
$ 164,040,229
100
$ 174,762,768
100
Current liabilities
2100
Short-term borrowings
2130
Current contract liabilities
2150
Notes payable
2170
Accounts payable
2200
Other payables
2230
Current income tax liabilities
2280
Current lease liabilities
2300
Other current liabilities
21XX
Current Liabilities
Non-current liabilities
2530
Corporate bonds payable
2540
Long-term borrowings
2550
Provisions for liabilities - non-current
2570
Deferred income tax liabilities
2580
Non-current lease liabilities
2600
Other non-current liabilities
25XX
Non-current liabilities
2XXX
Total Liabilities
Equity
Equity attributable to owners of
parent
Share capital
3110
Share capital - common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Unappropriated retained earnings
Other equity interest
3400
Other equity interest
31XX
Equity attributable to owners of
the parent
36XX
Non-controlling interest
3XXX
Total equity
Significant contingent liabilities and
unrecognised contract commitments
Significant events after the balance
sheet date
3X2X
Total liabilities and equity

22~10~

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share)

Items Year ended December 31
2019
2018
Notes
AMOUNT
%
AMOUNT
%
$ 109,507,773
100
$ 109,221,209
100
(
85,548,240 ) (
78) (
84,898,267) (
78)

23,959,533
22

24,322,942
22






(
8,170,109 ) (
8) (
8,007,567) (
7)

(
3,638,136 ) (
3) (
3,570,909) (
3)

(
5,148,156 ) (
5) (
5,329,277) (
5)
(
16,956,401 ) (
16) (
16,907,753) (
15)

7,003,132
6

7,415,189
7







894,228
1

1,109,954
1
(
356,865 )
- (
829,831) (
1)
(
1,719,849 ) (
2) (
1,792,314) (
1)

6,653
-

6,643
-
(
1,175,833 ) (
1) (
1,505,548) (
1)

5,827,299
5

5,909,641
6
(
2,311,602 ) (
2) (
2,335,003) (
2)
$ 3,515,697
3
$ 3,574,638
4
4000
Sales revenue
5000
Operating costs
5900
Net operating margin
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6000
Total operating expenses
6900
Operating profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of profit of associates and joint
ventures accounted for under equity
method
7000
Total non-operating revenue and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year

(Continued)

23~11~

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share)

Items YearendedDecember31
2019
2018
Notes
AMOUNT
%
AMOUNT
%












$ 4,820
-
$ 29,288
-

3,050
- (
4,633)
-

722
-

891
-
(
964 )
-

20,036
-

7,628
-

45,582
-






(
2,190,282 ) (
2) (
1,246,718) (
1)

426,749
1

387,749
-
(
1,763,533 )(
1)(
858,969)(
1)
($ 1,755,905 )(
1)($ 813,387)(
1)
$ 1,759,792
2
$ 2,761,251
3






$ 3,466,827
3
$ 3,520,320
4

48,870
-

54,318
-
$ 3,515,697
3
$ 3,574,638
4






$ 1,767,458
2
$ 2,823,038
3
(
7,666 )
- (
61,787)
-
$ 1,759,792
2
$ 2,761,251
3








$ 1.07
$ 1.09




$ 1.07
$ 1.08
Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Other comprehensive income, before
tax, actuarial gains on defined benefit
plans
8316
Unrealized gain (loss) on valuation
of equity instruments at fair value
through profit or loss
8320
Share of other comprehensive
income of associates and joint
ventures accounted for using equity
method, components of other
comprehensive income that will not
be reclassified to profit or loss
8349
Income tax related to components of
other comprehensive income that
will not be reclassified to profit or
loss
8310
Components of other
comprehensive income that will
not be reclassified to profit or
loss
Components of other comprehensive
income that will be reclassified to
profit or loss
8361
Financial statements translation
differences of foreign operations
8399
Income tax relating to the
components of other comprehensive
income that will be reclassfied to
profit or loss
8360
Components of other
comprehensive income that will
be reclassified to profit or loss
8300
Other comprehensive loss for the
year
8500
Total comprehensive income for the
year
Profit attributable to:
8610
Owners of the parent
8620
Non-controlling interest
Comprehensive income attributable
to:
8710
Owners of the parent
8720
Non-controlling interest
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

24~12~

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Year ended December 31, 2018
Balance at January 1, 2018
Effect of retrospective application and retrospective restatement
Balance after restatement on January 1, 2018
Profit for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Appropriation and distribution of 2017 earnings:
Legal reserve
Special reserve
Cash dividends
Balance at December 31, 2018
Year ended December 31, 2019
Balance at January 1, 2019
Profit for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Appropration and distribution of 2018 earnings:
Legal reserve
Special reserve
Cash dividends
Cash dividends paid to non-controlling interest
Balance at December 31, 2019
21		 Notes Equityattributab leto owners of the p arent Total Non-controlling
interest		 Total equity
Share capital -
common stock		 Capitalsurplus
Treasury
stock
transactions
Gain on sale of
assets		 Retained earnings Unappropriated
retained earnings		 O therequityinterest
Unrealized gain or
loss on
available-for-sale
financial assets
Treasury
stock
transactions		 Legal reserve Special reserve Financial
statements
translation
differences of
foreign operations
 Unrealised gains
(losses) from
financial assets
measured at fair
value through
other
comprehensive
income
$ 32,414,155
-
32,414,155
-
-
-
-
-
-
$ 32,414,155
$ 32,414,155
-
-
-
-
-
-
-
$ 32,414,155		 $ 9,772
-
9,772
-
-
-
-
-
-
$ 9,772
$ 9,772
-
-
-
-
-
-
-
$ 9,772		 $ 42,804
-
42,804
-
-
-
-
-
-
$ 42,804
$ 42,804
-
-
-
-
-
-
-
$ 42,804		 $ 14,280,767
-
14,280,767
-
-
-
554,179
-
-
$ 14,834,946
$ 14,834,946
-
-
-
352,032
-
-
-
$ 15,186,978		 $ 3,307,822
-
3,307,822
-
-
-
-
1,122,239
-
$ 4,430,061
$ 4,430,061
-
-
-
-
770,237
-
-
$ 5,200,298		 $ 36,580,033

22,740
36,602,773

3,520,320
50,215

3,570,535

(
554,179)
(
1,122,239)
(
5,834,548)
$ 32,662,342

$ 32,662,342

3,466,827
4,578

3,471,405

(
352,032)
(
770,237)
(
3,565,557)
-
$ 31,445,921
 ($ 4,471,654)
-
(
4,471,654)
-
(
742,864)
(
742,864)
-
-
-
($ 5,214,518)
($ 5,214,518)
-
(
1,706,997)
(
1,706,997)
-
-
-
-
($ 6,921,515)		 $ -
18,853
18,853
-
(
4,633 )
(
4,633 )
-
-
-
$ 14,220
$ 14,220
-
3,050
3,050
-
-
-
-
$ 17,270		 $ 41,593
(
41,593)
-
-
-

-
-
-
-

$ -
$ -
-
-

-
-
-
-

-
$ -		 $ 82,205,292
-
82,205,292
3,520,320
(
697,282)
2,823,038

-
-
(
5,834,548)
$ 79,193,782
$ 79,193,782
3,466,827
(
1,699,369)
1,767,458

-
-
(
3,565,557)
-

$ 77,395,683		 $ 686,011
-
686,011
54,318
(
116,105)
(
61,787)
-
-
-
$ 624,224
$ 624,224
48,870
(
56,536)
(
7,666)
-
-
-
(
41,554)
$ 575,004		 $ 82,891,303
-
82,891,303
3,574,638
(
813,387 )
2,761,251
-
-
(
5,834,548 )
$ 79,818,006
$ 79,818,006
3,515,697
(
1,755,905 )
1,759,792
-
-
(
3,565,557 )
(
41,554 )
$ 77,970,687

~13~

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation
Depreciation expense on right-of-use assets
Depreciation on investment property
Amortization expense
Rental expenses for land use right
Expected credit loss
Share of profit of associates and joint ventures
accounted for using equity method
Net loss (gain) on financial assets or liabilities at fair
value through profit or loss
Loss on disposal of property, plant and equipment
Impairment loss on non-financal assets
Interest expense
Interest income
Loss on disposal of investments accounted for using
equity method
Deferred govermment grants revenue
Changes in operating assets and liabilities
Changes in operating assets
Financial assets mandatorily measured at fair value
through profit or loss
Notes receivable, net
Accounts receivable
Accounts receivable - related parties
Inventories
Prepayments
Other current assets
Other non-current assets
Changes in operating liabilities
Contract liabilities - current
Notes payable
Accounts payable
Other payables
Other current liabilities
Accrued pension liabilities
Other non-current liabilities
Cash inflow generated from operations
Interest received
Dividends received
Interest paid
Income tax paid
Income tax refund received
Net cash flows from operating activities		 Years ended December 31
Notes
2019
2018
$ 5,827,299
$ 5,909,641
12,682,025
12,107,067
246,190
-
23,995
24,395
102,729
68,823
-
85,596
29,461
3,337
(
6,653 ) (
6,643 )
2,383
(
4,703 )
66,705
55,917
278,592
-
1,719,849
1,792,314
(
295,566 ) (
319,105 )
-
2,654
(
117,831 ) (
124,878 )
-
41,698
(
1,087,910 ) (
375,058 )
894,661
(
12,827 )
(
6,077 )
71,312
1,412,359
(
177,889 )
239,607
222,772
127,023
(
52,809 )
161,965
(
107,282 )
188,548
(
115,875 )
498,861
(
198,745 )
(
1,159,872 )
442,172
31,528
(
375,935 )
67,971
86,673
2,203
(
17,589 )
54,420
39,018
21,984,465
19,064,051
292,320
327,488
2,500
9,841
(
1,758,533 ) (
1,738,341 )
(
2,440,090 ) (
2,836,232 )
204,699
27,754
18,285,361
14,854,561

(Continued)

25~14~

26

CHENG SHIN RUBBER IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Net changes in financial assets and liabilities at fair value
through profit or loss
Proceeds from disposal of investments accounted for using
equity method
Acquisition of property, plant and equipment
Payment for capitalized interests
Proceeds from disposal of property, plant and equipment
Acquisition of investment properties
Acquisition of intangible assets
Decrease in refundable deposits
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Proceeds from issuing bonds
Repayments of bonds
Proceeds from long-term loans
Repayments of long-term loans
(Decrease) increase in guarantee deposits received
Increase in other payables to related parties
Repayments of principal portion of lease liabilities
Decrease in other non-current liabilities
Cash dividends paid
Cash dividends paid to non-controlling interest
Net cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Years ended December 31
Notes
2019
2018
$ 860
$ 1,025
-
20,582
(
8,587,584 ) (
12,492,803 )
(
20,319 ) (
118,717 )
167,489
305,011
-
(
1,216 )
(
68,548 ) (
180,871 )
33,102
89,820
(
8,475,000 ) (
12,377,169 )
21,205,751
25,820,195
(
19,745,431 ) (
28,940,895 )
-
5,000,000
(
4,800,000 ) (
1,900,000 )
13,030,724
5,321,446
(
17,357,382 ) (
5,803,107 )
(
6,828 )
3,598
-
2,280
(
113,705 )
-
-
(
2,083 )
(
3,565,557 ) (
5,834,548 )
(
41,554 )
-
(
11,393,982 ) (
6,333,114 )

(
724,653 )
746,755
(
2,308,274 ) (
3,108,967 )
27,809,496
30,918,463
$ 25,501,222
$ 27,809,496

==> picture [213 x 46] intentionally omitted <==

27

~15~

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

PWCR 19003197 To the Board of Directors and Shareholders of Cheng Shin Rubber Ind. Co., Ltd.

Opinion

We have audited the accompanying balance sheets of Cheng Shin Rubber Ind. Co., Ltd. (the “Company”) as at December 31, 2019 and 2018, and the related statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the report of other auditors (please refer to the “other matter” section of our report), the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained and the report of other auditors are sufficient and appropriate to provide a basis for our opinion.

28

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Company’s financial statements of the current period are stated as follows:

Appropriateness of cut-off on sales revenue

Description

For the accounting policy of revenue recognition, please refer to Note 4(31). For the year ended December 31, 2019, the sales revenue amounted to NT$19,497,888 thousand.

The Company’s main business is the manufacturing and sales of various tires and rubber products. The main sources of sales revenue are from the assembly plants and dealers. In accordance with the contract terms with some assembly plants, as inspections are completed in the assembly plants, the transfer of control to the merchandise is completed and sales revenue is recognised. The sales revenue recognition process involves many manual controls and adjustments are likely to occur. As a result, the timing of sales revenue recognition could be inappropriate. The aforementioned issue arises from the Company’s subsidiaries, recognised under investments accounted for using equity method. Therefore, we included the appropriateness of cut-off on sales revenue as one of the key areas of focus for this year.

How our audit addressed the matter

The procedures that we have conducted in response to the above key audit matter are summarized as follows:

  1. We obtained an understanding of the Company’s sales revenue cycle, reviewed internal control process and contracts of assembly plant sales in order to assess the effectiveness of managements’ control of revenue recognition on assembly plant

29

sales.

  1. We tested the Company’s sales transactions around the year-end date to check whether assembly plant sales are recorded in the proper period. We also tested whether changes in inventory and cost of goods sold were carried over and recorded in the proper period in order to assess the appropriateness of cut-off on sales revenue.

  2. We tailored our audit over sales cut-off through accounts receivable testing based on the confirmation procedures in order to check whether sales revenue and accounts receivable are recorded in the proper period.

Timing of reclassification of unfinished construction and uninspected equipment to property, plant and equipment.

Description

For the accounting policy of property, plant and equipment, please refer to Note 4(14). For the details of property, plant and equipment, please refer to Note 6(7). As at December 31, 2019, the unfinished construction and equipment under acceptance amounted to NT$1,673,323 thousand.

To maintain market competitiveness, the Company replaces old production lines with new ones and incurs significant amounts of capital expenditures every year. The unfinished construction and uninspected equipment are measured at cost. When the finished construction’s inspection report is issued and the uninspected equipment is ready for use, they are reclassified to property, plant and equipment and starts accrual of depreciation expense. The inspection process involves human judgement, thus, the timing of reclassification and accrual of depreciation expense could be inappropriate. Therefore, we indicated that the audit of timing of depreciation recognition after reclassification of unfinished construction and uninspected equipment to property, plant and equipment as one of the key areas of focus for this year.

How our audit addressed the matter

The procedures that we have conducted in response to the above key audit matter are summarized as follows:

30

  1. We obtained an understanding of the Company’s property, plant and equipment process cycle, reviewed internal control process and purchase contracts of property, plant and equipment in order to assess the effectiveness of managements’ control of timing of reclassification of unfinished construction and uninspected equipment to property, plant and equipment.

  2. We tailored our audit over fixed asset classification to check whether reclassification of assets are correct and recorded in the proper period.

  3. We verified the status of unfinished construction and uninspected equipment and assessed the reasonableness of the recognition of unfinished construction and uninspected equipment.

Other matter – Scope of the audit

We did not audit the financial statements of certain investments recognised under the equity method that are included in the financial statements. The balances of investments accounted for under equity method were NT$3,249,905 thousand and NT$2,828,988 thousand, representing 3% and 2% of total assets as at December 31, 2019 and 2018, respectively; and the share of profit of subsidiaries, associates and joint ventures accounted for using equity method were NT$723,598 thousand and NT$690,601 thousand, representing 41% and 24% of the total comprehensive income for the years then ended, respectively. Those financial statements were audited by other auditors whose report thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other auditors.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

31

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

32

control.

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

  2. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

  3. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

  4. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

33

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Hung, Shu-Hua Wu, Der Feng

For and on behalf of PricewaterhouseCoopers, Taiwan March 24, 2020

The accompanying parent company onlyfinancial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practicesin the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China.Accordingly, the accompanying parent company onlyfinancial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

34

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets Notes December31,2019
AMOUNT
%
$ 8,525,572
8
-
-
25,935
-
22,919
-
1,161,388
1
1,379,208
1
2,564,562
2
128,780
-
555,502
1
14,363,866
13
58,187
-
79,687,896
71
16,688,254
15
107,294
-
289,951
-
40,633
-
1,618,542
1
1,335
-
98,492,092
87
$ 112,855,958
100		 December31,2018 December31,2018
AMOUNT
$ 8,525,572
-
25,935
22,919
1,161,388
1,379,208
2,564,562
128,780
555,502
14,363,866
58,187
79,687,896
16,688,254
107,294
289,951
40,633
1,618,542
1,335
98,492,092
$ 112,855,958		 AMOUNT
$ 12,820,135
3,243
22,885
28,017
1,251,493
1,611,889
3,358,079
263,624
533,142
19,892,507
58,187
81,045,015
16,326,183
-
290,562
70,740
1,153,491
1,024
98,945,202
$ 118,837,709		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value through
profit or loss - current
1120
Financial assets at fair value through
other comprehensive income - current
1150
Notes receivable, net
1170
Accounts receivable, net
1180
Accounts receivable - related parties
130X
Inventories
1410
Prepayments
1470
Other current assets
11XX
Current Assets
Non-current assets
1517
Financial assets at fair value through
other comprehensive income -
non-current
1550
Investments accounted for using
equity method
1600
Property, plant and equipment,net
1755
Right-of-use assets
1760
Investment property, net
1780
Intangible assets,net
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Non-current assets
1XXX
Total assets		 11
-
-
-
1
1
3
-
1
17
-
68
14
-
-
-
1
-
83
100

(Continued)

35 ~1~

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity December31,2019
December31,2018
Notes
AMOUNT
%
AMOUNT
%
$ 2,450,000
2
$ 500,000
-
99,878
-
127,663
-
1,047,861
1
1,313,078
1
45,165
-
31,509
-
1,750,638
2
1,825,048
2
404,309
-
571,305
1
34,501
-
-
-
5,335,864
5
8,675,481
7
11,168,216
10
13,044,084
11
14,500,000
13
17,000,000
14
7,130,000
6
7,500,000
6
1,293,851
1
1,341,768
1
69,640
-
-
-
1,298,568
1
758,075
1
24,292,059
21
26,599,843
22
35,460,275
31
39,643,927
33
32,414,155
29
32,414,155
27
52,576
-
52,576
-
15,186,978
13
14,834,946
13
5,200,298
5
4,430,061
4
31,445,921
28
32,662,342
27
(
6,904,245)(
6)(
5,200,298)(
4)
77,395,683
69
79,193,782
67
$ 112,855,958
100
$ 118,837,709
100
Current liabilities
2100
Short-term borrowings
2130
Contract liabilities - current
2170
Accounts payable
2180
Accounts payable - related parties
2200
Other payables
2230
Current income tax liabilities
2280
Lease liabilities - current
2300
Other current liabilities
21XX
Current Liabilities
Non-current liabilities
2530
Corporate bonds payable
2540
Long-term borrowings
2570
Deferred income tax liabilities
2580
Lease liabilities - non-current
2600
Other non-current liabilities
25XX
Non-current liabilities
2XXX
Total liabilities
Equity
Share capital
3110
Shares capital - common stock
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Unappropriated retained earnings
Other equity interest
3400
Other equity interest
3XXX
Total equity
Significant contingent liabilities and
unrecognised contract commitments
Significant events after the balance
sheet date
3X2X
Total liabilities and equity

36 ~2~

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share)

Items Years endedDecember31
2019
2018
Notes
AMOUNT
%
AMOUNT
%
$ 19,497,888
100
$ 19,374,623
100
(
15,805,867 ) (
81) (
14,887,361) (
77)

3,692,021
19

4,487,262
23

40,205
-(
61,424)
-

3,732,226
19

4,425,838
23






(
1,882,641 ) (
10) (
1,811,255) (
10)
(
659,712 ) (
3) (
627,510) (
3)
(
1,246,753 ) (
6) (
1,338,868) (
7)
(
3,789,106 ) (
19) (
3,777,633) (
20)
(
56,880 )
-

648,205
3







1,482,241
8

1,526,407
8
(
18,771 )
-

361,293
2
(
306,641 ) (
2) (
357,835) (
2)

3,398,541
17

2,708,390
14

4,555,370
23

4,238,255
22

4,498,490
23

4,886,460
25
(
1,031,663 ) (
5) (
1,366,140) (
7)
$ 3,466,827
18
$ 3,520,320
18












$ 4,820
-
$ 29,288
1

3,050
- (
4,633)
-

722
-

891
-
(
964 )
-

20,036
-

7,628
-

45,582
1






(
2,133,746 ) (
11) (
1,130,613) (
6)

-
-

-
-

426,749
2

387,749
2
(
1,706,997 ) (
9) (
742,864) (
4)
( $ 1,699,369 ) (
9) ($ 697,282) (
3)
$ 1,767,458
9
$ 2,823,038
15








$ 1.07
$ 1.09




$ 1.07
$
1.08
4000
Sales revenue
5000
Operating costs
5900
Net operating margin
5910
Unrealized loss (profit) from sales
5950
Gross profit from operation
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6000
Total operating expenses
6900
Operating (loss) profit
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7070
Share of profit of associates and joint
ventures accounted for using equity
method
7000
Total non-operating income and
expenses
7900
Profit before income tax
7950
Income tax expense
8200
Profit for the year
Other comprehensive income
Components of other comprehensive
income that will not be reclassified to
profit or loss
8311
Other comprehensive income, before tax,
actuarial gains on defined benefit plans
8316
Unrealized gain(loss) on valuation of
equity instruments at fair value through
profit or loss
8330
Share of other comprehensive income of
associates and joint ventures accounted
for using equity method, components of
other comprehensive income that will not
be reclassified to profit or loss
8349
Income tax related to components of other
comprehensive income that will not be
reclassified to profit or loss
8310
Components of other comprehensive
income that will not be reclassified to
profit or loss
Components of other comprehensive
income that will be reclassified to profit or
loss
8361
Financial statements translation
differences of foreign operations
8380
Share of other comprehensive income of
associates and joint ventures accounted
for using equity method, components of
other comprehensive income that will be
reclassified to profit or loss
8399
Income tax relating to the components of
other comprehensive income that will be
reclassified to profit or loss
8360
Components of other comprehensive
loss that will be reclassified to profit
or loss
8300
Other comprehensive loss for the year
8500
Total comprehensive income for the year
9750
Basic earnings per share
9850
Diluted earnings per share

37 ~3~

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Year ended December 31, 2018
Balance at January 1, 2018
Effect of retrospective application and retrospective
restatement
Balance after restatement on January 1
Profit for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Appropriation and distribution of 2017 earnings:
Legal reserve
Special reserve
Cash dividends
Balance at December 31, 2018
Year ended December 31, 2019
Balance at January 1, 2019
Profit for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Appropriation and distribution of 2018 earnings:
Legal reserve
Special reserve
Cash dividends
Balance at December 31, 2019
28		 Notes Share capital - common
stock		 Capitalsurplus Capitalsurplus Capitalsurplus Retained earnings Otherequityinterest Totalequity
Treasury stock
transactions		 Gainonsale of assets Legal reserve Special reserve Unappropriated
retained earnings		 Financial
statements
translation
differences of
foreignoperations		 Unrealised gains
(losses) from
financial assets
measured at fair
value through other
comprehensive
income		 Unrealized gain or
loss on
available-for-sale
financial assets
$ 32,414,155
-
32,414,155
-
-
-
-
-
-
$ 32,414,155
$
32,414,155
-
-
-
-
-
-
$ 32,414,155		 $ 9,772
-
9,772
-
-
-
-
-
-
$ 9,772
$
9,772
-
-
-
-
-
-
$ 9,772		 $ 42,804
-
42,804
-
-
-
-
-
-
$ 42,804
$
42,804
-
-
-
-
-
-
$ 42,804		 $ 14,280,767
-
14,280,767
-
-
-
554,179
-
-
$ 14,834,946
$14,834,946
-
-
-
352,032
-
-
$ 15,186,978		 $ 3,307,822
-
3,307,822
-
-
-
-
1,122,239
-
$ 4,430,061
$
4,430,061
-
-
-
-
770,237
-
$ 5,200,298		 $ 36,580,033
22,740
36,602,773
3,520,320
50,215
3,570,535
(
554,179 )
(
1,122,239 )
(
5,834,548 )
$ 32,662,342
$
32,662,342
3,466,827
4,578
3,471,405
(
352,032 )
(
770,237 )
(
3,565,557 )
$ 31,445,921		 ($ 4,471,654 )
-
(
4,471,654 )
-
(
742,864 )
(
742,864 )
-
-
-
($ 5,214,518 )
($5,214,518 )
-
(
1,706,997 )
(
1,706,997 )
-
-
-
($ 6,921,515 )		 $ -
18,853
18,853
-
(
4,633 )
(
4,633 )
-
-
-
$ 14,220
$
14,220
-
3,050
3,050
-
-
-
$ 17,270		 $ 41,593
(
41,593 )
-
-
-
-
-
-
-
$ -
$
-
-
-
-
-
-
-
$ -		 $ 82,205,292
-
82,205,292
3,520,320
(
697,282 )
2,823,038
-
-
(
5,834,548 )
$ 79,193,782
$79,193,782
3,466,827
(
1,699,369 )
1,767,458
-
-
(
3,565,557 )
$ 77,395,683

~4~

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Unrealised (loss) gain on inter-company transaction
Depreciation
Depreciation expense on right-of-use assets
Depreciation on investment property
Amortization expense
Net gain on financial assets or liabilities at fair value
through profit or loss
Loss on disposal of investments accounted for using
equity method
Gain on disposal of property, plant and equipment
Share of profit of subsidiaries, associates and joint
ventures accounted for using equity method
Interest income
Interest expense
Effect of exchange rate changes on cash and cash
equivalents
Changes in operating assets and liabilities
Changes in operating assets
Financial assets mandatorily measured at fair value
through profit or loss
Notes receivable
Accounts receivable
Accounts receivable - related parties
Inventories
Other current assets
Changes in operating liabilities
Contract liabilities - current
Accounts payable
Accounts payable - related parties
Other payables
Accrued pension liabilities
Other current liabilities
Cash inflow generated from operations
Interest received
Dividends received
Interest paid
Income tax paid
Income tax refund received
Net cash flows from operating activities		 Years ended December 31
Notes
2019
2018
$ 4,498,490
$ 4,886,460
(
66,038 )
20,551
1,517,236
1,483,656
49,790
-
611
611
45,506
35,551
2,383
(
4,703 )
-
2,654
(
150,244 ) (
160,336 )
(
3,398,541 ) (
2,708,390 )
(
134,367 ) (
177,277 )
306,641
357,835
(
221,900 )
68,959
-
41,698
5,098
(
4,514 )
90,105
(
70,365 )
232,681
36,327
790,750
74,978
111,236
221,275
(
27,785 )
42,432
(
265,217 ) (
93 )
13,656
(
3,410 )
37,530
(
88,268 )
(
8,461 ) (
18,171 )
383
(
17,524 )
3,429,543
4,019,936
114,370
139,757
3,290,468
5,118,286
(
337,126 ) (
349,183 )
(
1,285,843 ) (
1,722,502 )
-
27,754
5,211,412
7,234,048

(Continued)

39

~5~

CHENG SHIN RUBBER IND. CO., LTD. PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Net changes on financial assets or liabilities at fair value
through profit or loss
Acquisition of investments accounted for using equity
method
Proceeds from disposal of investments accounted for using
equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
(Increase) decrease in refundable deposits
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans
Decrease in short-term loans
Proceeds from issuing bonds
Repayments of bonds
Proceeds from long-term loans
Repayments of long-term loans
Decrease in guarantee deposits received
Repayments of principal portion of lease liabilities
Cash dividends paid
Net cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Years ended December 31
Notes
2019
2018
$ 860
$ 1,025
-
(
468,390 )
-
20,582
(
1,996,606 ) (
2,397,391 )
138,313
132,906
(
15,399 ) (
11,401 )
(
311 )
491
(
1,873,143 ) (
2,722,178 )
3,950,000
1,000,000
(
2,000,000 ) (
500,000 )
-
5,000,000
(
4,800,000 ) (
1,900,000 )
6,050,000
300,000
(
7,460,000 ) (
1,690,667 )
(
80 ) (
234 )
(
29,095 )
-
(
3,565,557 ) (
5,834,548 )
(
7,854,732 ) (
3,625,449 )

221,900
(
68,959 )
(
4,294,563 )
817,462
12,820,135
12,002,673
$ 8,525,572
$ 12,820,135

40 ~6~

Ratifications

Item No. 2 – Ratification of the Company’s 2019 profit distribution (submitted by the Board of Directors)

Explanation:

  1. The Board has adopted a proposal for the distribution of the Company’s 2019 profits, which has been reviewed and reported by the Audit Committee and hereby submitted to the meeting of the shareholders for ratification.

  2. After setting aside the legal reserve, the 2019 after-tax earnings together with the undistributed earnings from the previous year shall amount to a total distributable earnings of NT$29,395,291,786. In accordance with the Articles of Incorporation of the Company, the Board of Directors proposes to distribute cash dividends in the amount of NT$3,241,415,536to the shareholders at NT$1 per share. The profit distribution shall be allocated out of the 2019 earnings. If the 2019 earnings are insufficient for the current profit distribution, then the distribution shall be allocated out of the 2018 undistributed earnings. The cumulative undistributed earnings after distribution will be NT$26,153,876,250. (See“Profit Distribution”on page 41 of this Handbook.)

  3. It is proposed that after the profit distribution has been approved at the shareholders meeting, the Board of Directors will be authorized to set the ex-dividend date. Dividends will be distributed pro rata according to the shareholder register as of the record date and rounded down to the nearest dollar after discount any cents. The remaining amount shall be treated as “other income” of the Company.

  4. The proposal is hereby submitted to the shareholders meeting for ratification.

Resolution:

41

CHENG SHIN RUBBER IND. CO., LTD. Profit Distribution Year Ended December 31, 2019

CHENG SHIN RUBBER IND. CO.,
Profit Distribution
Year Ended December 31, 2019		 LTD.
Beginning balance of retained earnings
Less adjustment of 2019 retained earnings
Adjusted beginning balance of retained earnings
Net Income after tax of 2019
Less 10% legal reserve appropriated
Less 10% special reserve appropriated
Earnings available for distribution
Distribution items
:
Cash dividends (at NT$1. per share)
Balance of 2019 retained earnings
Lou, Tsau-Jen
Lou, Tsau-Jen
Chairman
General Manager		 (NT$)
$ 27,974,517,818
4,577,304
27,979,095,122
3,466,826,566
(346,682,657)
(1,703,947,245)
29,395,291,786
(3,241,415,536)
$26,153,876,250
Chang, Ya-Ching
Controller

42

Discussions

43

Discussions

Item No. 1 – Amendments to the Company’s “Articles of Incorporation” (proposed by the Board of Directors)

Explanation:

  1. The Board has proposed to amend relevant provisions under the Company’s “Articles of Incorporation” pursuant to the notice issued by the Financial Supervisory Commission dated April 25, 2019 (Jin-Guan-Zheng-Jiao-Zi No. 1080311451). In accordance with the notice above, a listed company shall adopt a candidates nomination system for election of the directors and such adoption shall be expressly stipulated in the Company’s “Articles of Incorporation”; and the shareholders shall elect the directors from among the nominees listed in the roster of director candidates. A table of comparison of the current and amended provisions can be found on pages 45-47 of this Handbook.

  2. The “Articles of Incorporation” shall be effective upon the approval by the Audit Committee and resolutions adopted at the Board of Directors’ meeting and the shareholders meeting. The proposal is hereby submitted to the shareholders meeting for approval.

Resolution:

44

Cheng Shin Rubber Ind. Co., LTD.

Comparison of Current and Amended Provisions of the Company’s Articles of Incorporation

No. Amended Provisions Amended Provisions Current Provisions Commentary
Article 7 The Company’s shares may be
exempted from printing any share
certificate for the shares issued,
andshall register the issued shares
with
a
centralized
securities
depositary enterprise and follow
the regulations of that enterprise.		 I.
II.		 The Company’s shares shall be
registered and numbered, and
shall bear the signatures or
personal seals of at least three
directors, and be issued upon
certification in accordance with
the law.
The Company may issue shares
without certificates, and such
shares shall be registered with a
central securities depository.		 Amended to
reflect
regulatory
changes to
Article 162-2
of the
Company
Act.
Article
17		 I.
II.		 Subject to Article 26-3 of the
Securities and Exchange Act, the
Company shall have nine to
eleven directors,with adoption
of a candidates nomination
system, the directors
shall be
elected fromthe nominees listed
in
the
roster
of
director
candidates
at the shareholders’
meeting and hold office for three
years; re-elected directors may
serve consecutive terms.
There shall be at least three
independent directors among the
number of directors to be elected
referred to in the preceding
paragraph, and the independent
directors shall represent at least
one-fifth of the Board. The
restrictions
on
professional
qualifications, share ownership,		 I.
II.		 Subject to Article 26-3 of the
Securities and Exchange Act,
the Company shall have nine to
eleven directors, who shall be
elected fromlegally competent
persons
at the shareholders’
meeting and hold office for
three years; re-elected directors
may serve consecutive terms.
There shall be at least three
independent directors among
the number of directors to be
elected referred to in the
preceding paragraph, and the
independent
directors
shall
represent at least one-fifth of
the Board. The independent
directors shall be elected at the
shareholders’ meetingusing the
candidate nomination system
and from among a list of		 Amended to
reflect
regulatory
changes to
Paragraph 1
to Article
192-1 of the
Company
Act and
Article 216-1
of the
Company
Act.

45

No. Amended Provisions Current Provisions Commentary
concurrent positions held, the
manner
of
nomination,
the
election
of
the
independent
directors,
and
other
related
matters
shall
comply
with
applicable laws and regulations
prescribed by the competent
authority.
III. The
election
of
independent
directors and non-independent
directors
shall
be
held
concurrently, provided that the
number of independent directors
and non-independent directors
elected are calculated separately.
The directors shall comply with
the
rules
of
the
securities
regulatory authorities concerning
minimum share ownership.		 III. candidates.
The restrictions on
professional
qualifications,
share ownership, concurrent
positions held, the manner of
nomination, the election of the
independent
directors,
and
other
related
matters
shall
comply with applicable laws
and regulations prescribed by
the competent authority.
The election of independent
directors and non-independent
directors
shall
be
held
concurrently, provided that the
number
of
independent
directors and non-independent
directors elected are calculated
separately. The directors shall
comply with the rules of the
securities regulatory authorities
concerning
minimum
share
ownership.
Article
20		 In case that the vacancies in the
office of directors reach one-third of
the Boardor if all independent
director have been dismissed
,the
Board of Directors shall convene a
special meeting of the shareholders
within sixty (60) days to elect new
directors to fill the vacancies. A
director elected to fill such vacancy
shall hold office for the unexpired
term of the director whose office was
vacant.		 In case that the vacancies in the
office of directors reach one-third
of the Board, the Board of
Directors shall convene a special
meeting of the shareholders within
sixty (60) days to elect new
directors to fill the vacancies. A
director elected to fill such vacancy
shall hold office for the unexpired
term of the director whose office
was vacant.		 Amended to
reflect
regulatory
changes to
Article 14-2
of the
Securities
and
Exchange
Act.

46

No. Amended Provisions Current Provisions Commentary
Article
27		 The
original
Articles
of
Incorporation
were
adopted
on
December
15,
1969.
Amended
thereafter on June 25, 1971; April
25, 1972; …June 15, 2016; June 15,
2017; June 16, 2020.		 The
original
Articles
of
Incorporation were adopted on
December 15, 1969. Amended
thereafter on June 25, 1971; April
25, 1972; …June 15, 2016; June
15, 2017.		 Amended to
include the
last
amendment
date of the
Articles of
Incorporation

47

Election Matters

48

Election Matters

Item No. 1 –Election of directors (independent directors included) (Proposed by board of directors)

Explanation:

  1. The tenure of the Company’s current directorsbegan on June 15, 2017 and expires on June 14, 2020. The election of new directors is proposed to be held in the 2020 annual general meeting.

  2. Pursuant to the Articles of Incorporation, eleven directors, including three independent directors, will be elected in the proposed election. The newly elected directors will have a tenure of three years beginning on June 16, 2020 and expiring on June 15, 2023 and the directors are eligible for re-election.

  3. The election of independent directors adopts the nomination system. The shareholders shall elect the independent directors from among the independent director nominees listed in the roster of independent director candidates. Please find the roster of independent director candidates approved by the broad of the directors as follows:

Serial
Number		 Name Education Experience Holding
Shares
1 Hsu,
En-De		 Program on Case Method
and Participant-Centered
Learning,
Business
School,
Harvard
University,
USA;
Ph.D.,Accounting,
National
Taiwan
University		 Professor in Department of
Accounting and Dean of
Center for International
Internship Development,
Tunghai University;
Deanof Center for the
Research of Accounting and
Industry,Tunghai University		 0
2 Chen,Shuei-
Jin		 Master’s
Degree,
Department of Business
Administration,,National
Chung Cheng University		 Certified Public Accountant
and Managing Partner, Yuan
ShengCertified Public
Accountants; Partner,
Deloitte		 0
3 Chen,
Tzu-Chen		 Master of law, National
Taiwan Ocean University		 Judge, Taipei District Court;
Judge, Taiwan High Court;
Judge, Taipei High
Administrative Court		 2,155

4. The proposal is hereby submitted to the shareholders meeting for resolution.

Election results:

49

Other Matters

50

Other Matters

Item No. 1 – Releasing the Newly Elected Directors from the Non-Competition Restrictions (Proposed by board of directors)

Explanation:

  1. Pursuant to Article 209 Paragraph 1 of Company Act in Taiwan, a director who does anything for himself or on behalf of another person that is within the scope of the company's business, shall explain to the meeting of shareholders the essential contents of such an act and secure its approval. In accordance to the law mentioned above, it is proposed to release the newly elected independent directors, directors and their representatives from the non-competition restrictions, while the complementary explanation regarding the releasing scope and detail information will be provided at the scene before the shareholders meeting begin to discuss the proposal.

2. The proposal is hereby submitted to the shareholders meeting forresolution.

Resolution:

51

Motions

Adjournment

52

Annex Ⅰ

Cheng Shin Rubber Ind. Co., LTD.

Articles of Incorporation

(Before Amendments)

Section I General Provisions

Article 1

The name of the company is CHENG SHIN RUBBER IND. CO., LTD. ( 正正正正正正正正正正正正 ) (the “Company”), which is duly organized as a company limited by shares under the Company Act of Taiwan.

Article 2

The business to be operated by the Company is as follows:

  1. C801990 Manufacturing of other chemical materials

  2. C802160 Manufacturing of sticky tapes

  3. C804010 Manufacturing of tires

  4. C804020 Manufacturing of industrial rubber products

  5. C804990 Manufacturing of other rubber products

  6. CB01010 Manufacturing of machinery and equipment

  7. F112040 Wholesale of Petrochemical Fuel Products

  8. F212050 Retail of petroleum products

  9. F401010 International trade

  10. ZZ99999 All business not prohibited or restricted by law, except for those subject to special approval

Article 3

The total amount of investments by the Company may exceed forty percent of the paid-in capital of the Company.

Article 4

The headquarters of the Company is located in Changhua County, Taiwan. The Company may establish branches or subsidiaries in Taiwan or overseas as the Company may require upon resolution by the board of directors of the Company (“Board or “Board of Directors”).

53

Article 5

The Company may act as a guarantor for companies in the same industry.

Section II Shares

Article 6

The registered capital of the Company shall be thirty two billion four hundred fourteen million one hundred fifty five thousand three hundred sixty New Taiwan Dollars (NT$32,414,155,360), divided into three billion two hundred forty one million four hundred fifteen thousand five hundred thirty six (3,241,415,536) shares, with a par value of ten New Taiwan Dollars (NT$10) per share, which are fully issued.

Article 7

The Company’s shares shall be registered and numbered, and shall bear the signatures or personal seals of at least three directors, and be issued upon certification in accordance with the law.

The Company may issue shares without certificates, and such shares shall be registered with a central securities depository.

Article 8

The Company’s shares shall be handled according to the “Regulations Governing the Administration of Shareholder Service of Public Companies” prescribed by the competent authority.

Article 9

Registration for the transfer of shares shall be completed sixty (60) days before the date of each annual meeting, thirty (30) days before the date of each special meeting, or five (5) days before the date on which dividends, bonus, or any other distributions will be paid or made by the Company.

Section III Shareholders’ Meeting

Article 10

There are two types of shareholders’ meeting of the Company, the annual meeting and special meeting.

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Annual meetings shall be convened by the Board of Directors annually within six (6) months after the end of each fiscal year.

Special meetings shall be convened as required in accordance with applicable laws and regulations.

Article 11

Notice shall be given to the shareholders by mail or electronic transmission at least thirty (30) days prior to an annual meeting, and at least fifteen (15) days prior to a special meeting, stating the date, place, and purpose of the meeting. Notice to shareholders holding less than a thousand (1,000) shares may be given by public announcement.

Article 11-1

A shareholder holding one percent or more of the total issued and outstanding shares may submit a proposal in writing to be discussed at the annual meeting, provided that only one matter may be included in such proposal. Any proposal that includes more than one matter shall be disregarded and excluded from the meeting agenda. The relevant process shall comply with the Company Act and all applicable laws and regulations.

Article 12

A shareholder who is unable to attend the shareholders’ meeting may authorize another person to attend as proxy using the form provided by the Company affixed with the seal that such shareholder left in the Company’s safekeeping, which sets forth the scope of the authorization. The proxy process is governed by Article 177 of the Company Act and the “Regulations Governing the Use of Proxies for Attendance at Shareholder Meetings of Public Companies” prescribed by the competent authority.

Article 13

The shareholders’ meetings shall be presided by the Chairman of the Board. If the Chairman of the Board is on leave or unable to exercise his powers and duties for any reason, the chairperson of the meetings shall be appointed pursuant to Article 208 of the Company Act. If the meeting is convened by a person with the authority to convene other than the Board of Directors, such person shall act as the chairperson at that meeting; if there are more than one person with the authority to convene, the chairperson for the meeting shall be appointed from among them.

55

Article 14

Except as otherwise provided by applicable law, the shareholders’ resolutions shall be adopted upon the approval of a majority of the voting shares present at the meeting, which is attended by holders of a majority of the total issued and outstanding shares of the Company.

The shareholders may exercise their voting rights by mail or electronic transmission in accordance with the applicable laws and regulations. The notice of the shareholders’ meeting shall specify the instructions for voting by mail or electronic transmission.

Article 15

Except for the shares with restricted voting right or without voting rights under the Company Act, each share of the Company is entitled to one vote.

A shareholder who exercises his voting rights by mail or electronic transmission will be deemed to have waived his rights to vote on any ad hoc motions and amendments to the original proposals at such meeting.

Article 16

The resolutions adopted at the shareholders’ meeting shall be made into minutes, which shall be signed by or affixed with seal of the chairperson of the meeting and distributed to all shareholders within 20 days after the meeting. The distribution of the meeting minutes shall comply with Article 183 of the Company Act.

Minutes of the meeting shall include the date and place of the meeting, the name of the chairperson at the meeting, the method for adopting the resolutions, and summary and results of the proceedings. Minutes of the meetings shall be kept for as long as the Company is in existence.

The attendance register and proxy forms shall be kept for at least one year; provided, however, records concerning an action initiated by a shareholder pursuant to Article 189 of the Company Act shall be kept until the conclusion of the lawsuit.

Section IV Board of Directors

Article 17

Subject to Article 26-3 of the Securities and Exchange Act, the Company shall have nine to eleven directors, who shall be elected from legally competent persons at the shareholders’ meeting and hold office for three years; re-elected directors may serve consecutive terms.

There shall be at least three independent directors among the number of directors to be elected referred to in the preceding paragraph, and the independent directors shall represent at least one-fifth of the Board. The independent directors shall be elected at the shareholders’

56

meeting using the candidate nomination system and from among a list of candidates. The restrictions on professional qualifications, share ownership, concurrent positions held, the manner of nomination, the election of the independent directors, and other related matters shall comply with applicable laws and regulations prescribed by the competent authority.

The election of independent directors and non-independent directors shall be held concurrently, provided that the number of independent directors and non-independent directors elected are calculated separately. The directors shall comply with the rules of the securities regulatory authorities concerning minimum share ownership.

Article 18

The Chairman of the Board shall be elected from among the directors, and the Vice Chairman may be elected in the same manner. The Chairman of the Board shall have the authority to represent the Company and preside at the shareholders’ meeting and Board meeting of the Company.

Article 19

The Board of Directors shall have the following powers and duties:

  1. Review and adopt material rules of the Company;

  2. Decide on the business directions of the Company;

  3. Approve budgets and financial statements;

  4. Submit proposals regarding distribution of profits;

  5. Submit proposals regarding capital increase or reduction;

  6. Sale and purchase and investment of real property;

  7. Appoint and remove key management of the Company;

  8. Guarantee for companies in the same industry;

  9. Decide on adjustment of the organizational structure and other important matters of the Company;

  10. Prepare and review annual and quarterly financial statements; and

  11. Other powers and duties conferred by the Company Act or by the shareholders at the shareholders’ meeting.

  12. According to the Company Act, actions taken under the aforementioned powers and duties of the Board shall be reported to or approved by the shareholders at shareholders’ meeting whenever necessary.

Article 20

In case that the vacancies in the office of directors reach one-third of the Board, the Board of Directors shall convene a special meeting of the shareholders within sixty (60) days to elect new directors to fill the vacancies. A director elected to fill such vacancy shall hold office for the unexpired term of the director whose office was vacant.

57

Article 21

The meeting of the Board of Directors shall be held at least once every quarter and may be called in case of emergency or upon the request of more than one-half of the directors. The meeting of the Board of Directors shall be convened by delivery a notice to each director via mail, email, or fax.

Article 22

The Chairman of the Board shall preside at all meetings of the Board of Directors. If the Chairman of the Board is on leave or cannot exercise his powers and duties for any reason, a chairperson shall be appointed pursuant to Article 208 of the Company Act.

Article 23

The directors shall attend all meetings of the Board of Directors in person. If a director is unable to attend the meeting due to special circumstances, such director may appoint another director as his proxy. If participation by means of video conferencing is made available at a meeting, directors who participate in the meeting by such means shall be deemed to have attended such meeting in person. A director who appoints another director as his proxy to attend the meeting shall fill out a proxy form setting forth the scope of authorization with respect to the matters to be discussed at such meeting. A director may only be appointed as a proxy by one other director. A director who resides overseas may, in writing, appoint a shareholder residing in Taiwan as his proxy to regularly attend the meetings of the Board of Directors.

Article 24

Except as otherwise provided by the Company Act, resolutions of the Board of Directors shall be adopted by at least a majority of the directors present at a meeting attended by at least a majority of the directors holding office.

Minutes of the Board meetings shall be signed by or affixed with seals of the chairperson and the secretary for the meeting. A copy of the minutes shall be distributed to each director within 20 days after the meeting and shall be classified as important company records and properly maintained for as long as the Company is in existence.

The preparation and distribution of the meeting minutes specified in paragraph 1 may be done through electronic means.

Article 24-1

The Board of Directors is authorized to determine the compensation of the directors by referencing the standards within the industry; provided, however, independentdirectors shall not participate in thedistribution ofearnings as set forth inArticle 34-1 herein.

58

Article 25

The Company may purchase liability insurance for the directors during their tenures, which shall cover the directors’ liabilities arising from the performance of their duties.

Section V Audit Committee

Article 26

The Company establishes the Audit Committee in accordance with relevant laws. The Audit Committee consists of all the Independent Directors, and the number of committee members shall be 3 persons or more. Among the committee members, one should be the convener, and there should be at least 1 person with accounting or financial expertise.

The number of Audit Committee members, their term, duties, meeting rules and the resources to be provided when exercising their duties shall be regulated by the organizational rules of the Audit Committee.

Article 27

The Company establishes the Audit Committee in accordance with Article 14-4 of the Securities and Exchange Act. The duties of the Supervisors provided under the Company Act, the Securities and Exchange Act and other relevant laws shall become duties of the Audit Committee.

Article 28

The Company’s Board of Directors may establish all types of functional committees. The functional committee of each type shall, in accordance with the regulations provided by the competent authority, enact the rules governing the exercise of its duties. These rules shall be effective upon the resolution adopted by the Board of Directors’ meeting.

Section VI

Managerial Personnel and Employees

Article 29

The Company may have one or more managers. The managers shall manage all the Company’s businesses in accordance with the decisions adopted by the Company’s Board of Directors’ meeting.

The engagement, discharge and remuneration of the managers shall be adopted by at least a majority of the Directors present at a meeting attended by at least a majority of the Directors holding office.

59

Article 30

The general manager shall have the power of general supervision on the business and operations of the Company, subject, however, to the directions of the Board of Directors. In the event that the general manager is unable to carry out his duties, the vice president(s) shall assume such duties of the general manager.

Article 31

The Company’s organizational structure, headcounts and employment of employees at all job levels shall be determined by the Board of Directors.

With the resolutions adopted by the Company’s Board of Directors’ meeting, the Company may engage one or more consultant.

Section VII Accounting

Article 32

The fiscal year of the Company shall begin on January 1 and end on December 31 of each year. At the end of the fiscal year, the accounts of the Company shall be closed.

Article 33

After the end of each fiscal year, the Board of Directors shall prepare the reports provided under Article 228 of the Company Actand submit such reports to the annual general meeting for ratification.

Article 34

If the Company has pre-tax earnings for the fiscal year after the accounts are closed, the Company shall first set aside an amount to pay any business income tax due, offset the losses of previous years, and set aside ten percent (10%) of the residual amount as the legal reserve, and shall, pursuant to applicable laws and regulations, set aside a portion of the after-tax earnings for its special reserve. To the extent that there is any balance of the Company’s after-tax earnings remaining, the total earnings available for distribution shall consist of the remainder of such balance and the retained earnings from the previous year. The Board of Directors may propose a profit distribution plan for approval at the shareholders’ meeting. The dividends to the shareholders under such plan shall be ten to eighty percent (10-80%) of the total distributable earnings, from which the cash dividends shall not be lower than ten percent (10%) of the total dividends declared.

60

Article 34-1

To the extent that the Company has profit in the year, the Company shall set aside at least 2% of such profit as employee compensationand no more than 3% of such profit as director compensation, provided that the Company shall first offset the cumulative losses, if any. Employee compensationshall be distributed in the form of shares or cash, and director compensationshall be distributed in the form of cash. The distribution of compensationshall be approved by more than one half of the Directors present at the Board of Directors’ meeting attended by at least two-thirds of all Directors, and shall be reported at the shareholders’ meeting.

The recipients of employee compensationin the form of shares or cash in accordance with the preceding subparagraph may include the employees of the Company’s subsidiaries who meet certain conditions; the terms of the distribution shall be decided by the Board of Directors.

Section VIII Miscellaneous

Article 35

The organizational charter and by-laws of the Company shall be separately adopted by the Board of Directors.

Article 36

Matters not specified in this Articles of Incorporation shall be governed by the Company Act.

Article 37

The original Articles of Incorporation were adopted on December 15, 1969. Amended thereafter on June 25, 1971; April 25, 1972; October 25, 1972; November 25, 1973; May 1, 1974; May 30, 1975; September 16, 1976; May 16, 1977; June 30, 1977; March 16, 1978; August 16, 1978; February 20, 1979; August 20, 1980; May 24, 1981; June 13, 1982; May 15, 1983; April 8, 1984; April 21, 1985; April 27, 1986; April 25, 1987; May 9, 1988; April 20, 1989; April 20, 1990; April 23, 1991; April 23, 1992; April 17, 1993; April 21, 1994; April 21, 1995; April 23, 1996; April 24, 1997; April 24, 1998; April 23, 1999; April 25, 2000; April 25, 2001; May 29, 2002; May 27, 2003; May 25, 2004; June 14, 2005; June 13, 2006; June 15, 2007; June 13, 2008; June 4, 2009; June 15, 2010; June 15, 2011; June 15, 2012; June 18, 2013; June 17, 2014. June 15, 2016; June 15, 2017.

Lo, Tsai-Jen

Chairman of the Board

CHENG SHIN RUBBER IND. CO., LTD

61

AnnexII

Cheng Shin Rubber Ind. Co., LTD.

Rules and Procedures of the Shareholders’ Meeting

Article 1

Unless otherwise required by the law, the shareholders’ meeting of Cheng Shin Rubber Ind. Co., LTD. (the “Company”) shall be conducted in accordance with the Rules and Procedures of the Shareholders’ Meeting (the “Rules”).

Article 2

The Company shall, in the notice of the shareholders’ meeting, specify the time and place for shareholder registration, and other important matters.

Registration for shareholders referred to in the preceding paragraph shall begin at least thirty minutes before the meeting. There shall be clear signs and sufficient and adequate staff at the registration desk.

The Company shall provide an attendance register for shareholders to sign in, or require the attending shareholders to submit their sign-in cards in lieu of signing the register.

The calculation of the number of shares present shall be based on the attendance register or sign-in cards submitted by the shareholders and those shares whose votes are exercised by mail or electronically via the internet.

Article 3

Each shareholder is entitled to one vote for every share held. Except for those shares without voting rights under Article 179 of the Company Act, the attendance and votes at a shareholders’ meeting shall be determined based on the number of shares present.

A shareholder may exercise his voting rights by mail or electronically via the internet on those matters presented at the shareholders’ meeting convened by the Company. Where the voting right may be exercised by mail or electronically via the internet, the Company shall set forth in the notice the instructions for voting by mail and electronically via the internet. A shareholder who exercises his voting rights by mail or electronically via the internet shall be deemed to have attended the shareholders’ meeting in person; provided, however, such shareholder shall be deemed to have waived his voting rights to vote on any ad hoc motions and amendments to the original proposals at the shareholders’ meeting.

62

Article 4

The shareholders’ meeting shall be held in the city or county where the Company is located or at any other place that is convenient for the shareholders to attend and appropriate to convene such meeting, and shall commence at a time no earlier than 9:00 a.m. and no later than 3:00 p.m.

Article 5

If a shareholders’ meeting is convened by the board of directors of the Company (the “Board” or “Board of Directors”), the Chairman of the Board shall preside at such meeting. If the Chairman of the Board is on leave or unable to exercise his powers and duties for any reason, the Vice Chairman of the Board shall preside at such meeting. The Chairman of the Board shall designate a managing director to preside as the chairman if a Vice Chairman is not appointed, or if the Vice Chairman of the Board is on leave or unable to exercise his powers and duties for any reason. If no managing director of the Company is appointed, the Chairman of the Board shall designate a director to preside as the chairperson. If the Chairman of the Board fails to designate a chairperson for the meeting, the managing director or the directors shall nominate one from among themselves to preside at the meeting.

The Vice Chairman of the Board, a managing director, or a director who is designated as the chairperson for the meeting pursuant to the preceding paragraph shall have held office for at least six months and be familiar with the financial and business condition of the Company. The same requirements shall apply if the chairperson for the meeting is a director representative of a juristic person.

If the shareholders’ meeting is convened by a person with the authority to convene other than the Board of Directors, such person shall act as the chairperson at that meeting.

Article 6

The Company may designate legal counsels, certified public accountants, and other relevant personnel to attend and observe the shareholders’ meeting.

Staff at the shareholders’ meetings shall wear ID badges or arm badges.

Article 7

The entire process of the shareholders’ meeting shall be tape-recorded or videotaped, which must be kept for at least one year; provided, however, records concerning an action initiated by a shareholder pursuant to Article 189 of the Company Act shall be kept until the conclusion of the lawsuit.

63

Article 8

Upon the scheduled meeting time, the chairperson shall call the meeting to order when the number of shares present constitutes more than one-half of the total issued and outstanding shares. If the number of shares present does not constitute the quorum under the law at the scheduled meeting time, the chairperson may postpone the meeting. A meeting may be postponed up to two times, with the total adjournment time not exceeding one hour. If, after two postponements, the number of shares present does not constitute more than one-third of the total issued and outstanding shares, the chairman shall declare the adjournment of such meeting due to lack of quorum. If, after two postponements, the number of shares present does not constitute more than one-half of the total issued and outstanding shares but represent more than one-third of the total issued and outstanding shares, tentative resolutions may be adopted in accordance with Paragraph 1, Article 175 of the Company Act.

If, after the tentative resolutions have been adopted, the number of shares represented by the shareholders present reaches more than one-half of the total issued and outstanding shares before the meeting is adjourned, the chairperson may re-submit the foregoing tentative resolutions for approval at the meeting in accordance with Article 174 of the Company Act.

Article 9

The agenda for the shareholders’ meeting shall be set by the Board of Directors if such meeting is convened by the Board of Directors. Unless otherwise resolved by resolution at the meeting, the meeting shall be carried out in accordance with the scheduled agenda.

The preceding paragraph shall apply mutatis mutandis to meetings convened by any person, other than the Board of Directors, with the authority to convene such meeting.

In respect of the scheduled agenda referred to in the preceding two paragraphs, the chairman may not, absent a resolution, unilaterally announce the adjournment of the meeting before all of the items on the scheduled agenda have been resolved (including ad hoc motions).

After the meeting is adjourned, the shareholders shall not elect another chairperson to resume such meeting at the same location or seek an alternative venue.

Article 10

Prior to speaking at the meeting, an attending shareholder shall submit a slip of paper summarizing his/her/its comments and/or questions and specifying his/her/its shareholder account number (or the attendance ID number) and the account name of the shareholder, in order for the chairman to determine the speaking order.

An attending shareholder who submits a slip of paper but does not speak at the meeting is deemed to have not spoken. In the event of any inconsistency between the contents of shareholder’s speech and those recorded on the slip, the contents of shareholder’s speech shall prevail.

64

When an attending shareholder is speaking at the meeting, no other shareholder shall interrupt the speaking shareholder unless otherwise permitted by the chairperson and such speaking shareholder; the chairperson shall stop any such violations.

Article 11

Unless otherwise permitted by the chairperson, a shareholder may only speak, up to two times, on a single proposal, each time no more than five minutes in length.

The chairman may stop the speech of any shareholder that is in violation of the preceding paragraph or exceeds the scope of the proposal.

Article 12

If a juristic person is entrusted to attend the shareholders’ meeting, such juristic person may only appoint one person to be its representative at the meeting.

If a shareholder who is a juristic person appoints two or more representatives to attend the meeting, only one representative may speak on any given proposal.

Article 13

After the speech is given by an attending shareholder, the chairman may personally respond or designate relevant personnel to respond.

Article 14

If the chairman believes that the discussion for a proposal has reached a level where a vote may be called, the chairman may make an announcement to end such discussion and call for a vote.

The counting of ballots shall be conducted in a public space at the meeting venue. Once all the ballots have been counted, the voting results, including the number of votes cast, shall be announced and recorded in writing.

Article 15

The person(s) supervising the casting of the ballots and the person(s) counting the ballots are designated by the chairperson, provided that the person(s) supervising the casting of the ballots shall be a shareholder. The voting results shall be announced at the meeting and recorded in writing.

The preparation and distribution of the minutes of the shareholders’ meeting may be done by way of entering the information into the Market Observation Post System and posting it as a public announcement.

65

Article 16

The chairman may, at his or her discretion, set time for recess during the meeting. If the meeting venue becomes unavailable before all of the items on the agenda have been resolved (including ad hoc motions), the shareholders may, by resolution, seek an alternative venue and resume the meeting.

Article 17

Except as otherwise provided under the Company Act and/or the Company’s Articles of Incorporation, a resolution shall be adopted with the approval of more than one-half of the votes of the shareholders present.

If, in the course of the vote, no objections are made by the shareholders present after inquiry by the chairperson and no electronic votes are cast against a proposal, such proposal is deemed to be adopted with the same effect as if it had been adopted through a voting process.

Shareholders who exercise their voting rights by mail or electronically via the internet shall comply with Article 177-2 of the Company Act.

Article 18

In the event that there is an amendment to or a replacement for the original proposal, the chairperson shall decide on the order in which such proposal will be voted along with the original proposal, provided that if one of such proposal has been approved, the other proposals will be deemed to be vetoed and no further action will be necessary.

Article 19

The chairman may direct patrol personnel (or security personnel) to assist in maintaining the order of the meeting. Such patrol personnel (or security personnel) shall wear arm badges marked “Patrol Personnel” while assisting in maintaining the order of the meeting.

Article 20

The Rules and any amendments thereafter shall become effective upon resolution at the shareholders’ meeting.

Article 21

The Rules became effective as of April 24, 1998 upon resolution at the shareholders’ meeting. The Rules have been amended by resolution at the shareholders’ meetings held on June 4, 2009, June 15, 2012, and June 18, 2013 respectively.

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AnnexIII

Cheng Shin Rubber Ind. Co., LTD. Rules for Election of Directors

Article 1

Except as otherwise provided by relevant laws or Cheng Shin Rubber Ind. Co., LTD.’s (the “Company”) Articles of Incorporation, the election of the directors of the Company shall comply with the Rules for Election of Directors (the “Rules”).

Article 2

For the election of directors of the Company, the number of votes exercisable in respect of each share shall be the same as the number of directors to be elected. The Board of Directors shall prepare the ballots in the number equal to the number of directors to be elected, with the number of voting rights being noted on the ballots, and distribute the ballots to the shareholders who are present at the shareholders’ meeting. The name of the voters may be represented by the attendance number printed on their ballots. For the aforementioned ballots, the total number of voting rights per share may be consolidated for the election of one candidate or may be split for the election of two or more candidates. If the votes are cast through electronic methods, the ballots will not be printed out.

The election of independent directors shall adopt the nomination system provided by Article 192-1 of the Company Act. The independent directors and non-independent directors shall be elected in the same election, and the number of independent/non-independent directors elected shall be calculated separately. The shareholders shall elect the independent directors from the nomination list.

Article 3

The Company’s directors shall be elected by shareholder’s meeting via persons with legal capacity. The number of directors of the Company to be elected shall be in accordance with the number specified in the Company’s Articles of Incorporation. The votes shall be cast and calculated through electronic methods. A candidate to whom the ballots cast representing the highest number of votes shall be deemed an elected director. If two or more candidates receive the same number of votes, which consequently exceeds the number of directors to be elected, such candidates shall draw lots to decide the winner. If such candidate(s) is(/are) not present, the chairman shall draw lots on behalf of the candidate(s).

If, in accordance with the preceding paragraph, in the event that it is confirmed that the elected director is inconsistent with his/her personal information, or does not meet the requirements provided by the relevant laws or regulations, the election of such director shall be void.

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Article 4

Before the beginning of the election, the chairman shall designate a number of shareholders to supervise the casting of the ballots and a number of persons to count the ballots, each of which shall then respectively perform their relevant functions accordingly.

Article 5

For the election of directors, the Board of Directors shall set up a ballot box, which shall be examined in public by the persons supervising the casting of ballots, before the ballots are cast.

Article 6

In the event that the candidate is a shareholder of the Company, the voters voting for such candidate shall fill in in the “candidate” column on the ballot such candidate’s account name and shareholder account number. In the event that the candidate is not a shareholder of the Company, the voters voting for such candidate shall fill in in the “candidate” column on the ballot such candidate’s name and ID number. In the event that the candidate is a government or a corporate shareholder, the voters voting for such candidate shall fill in the “candidate” column on the ballot with the name of such government or corporate shareholder, or the name of such government or corporate shareholder together with the name of such government's or corporate shareholder's representative; when there are multiple representatives, the names of all representatives shall be listed.

Article 7

A ballot is deemed void if any of the following circumstances occurs:

  1. Any ballot cast in violation of the Rules.

  2. Any blank ballot.

  3. Any ballot with illegible writing rendering it unrecognizable, or any ballot with corrections.

  4. Where the candidate voted for is a shareholder of the Company, such candidate’s account name and shareholder account number filled in in the ballot is inconsistent with that on the shareholder registry. Where the candidate voted for is not a shareholder of the Company, such candidate’s name or ID number is verified to be incorrect.

  5. Any ballot with characters other than the candidate’s account name (name) or shareholder account number (ID number) and the allocated number of voting rights.

  6. Any ballot without the candidate’s account name (name) or shareholder account number (ID number).

  7. Any ballot that is cast with the names of two or more candidates.

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Article 8

The counting of the ballots voting for the directors shall be conducted in public in the venue of the shareholders’ meeting. The ballots shall be counted during the shareholders’ meeting immediately after they are cast. The results, including the list of elected directors and the number of votes voting for such candidates, shall be announced by the chairman or other person designated by the chairman at such a shareholders’ meeting.

Article 9

The Board of Directors of the Company shall deliver a written notification to each of the elected directors.

Article 10

Matters not specified in the Rules shall be governed by the Company Act, the Company’s Articles of Incorporation and any other relevant laws and regulations.

Article 11

The Rules and any amendments thereafter shall become effective upon resolution at the shareholders’ meeting.

Article 12

The Rules became effective as of May 29, 2002 upon resolution at the shareholders’ meeting.

The Rules have been amended by resolution at the shareholders’ meetings held on June 13, 2008, June 4, 2009, June 18, 2013, and June 15, 2017 respectively.

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Annex IV

Other Explanatory Matters

Details of accepting shareholder proposals for the 2020 Annual General Meeting: Explanation:

  1. According to Article 172-1 of the Company Act, a shareholder who holds 1% or more of the total issued and outstanding shares may submit one proposal in writing to the Company to be discussed at the shareholders meeting; the proposal may only address one matter, and may not contain more than 300 Chinese characters.

  2. Shareholder proposals must be submitted during the period from April 5, 2020 to April 15, 2020. As required by law, the Company has published the information regarding shareholder proposals on the MOPS website.

  3. As of April 15, 2020, the Company has not received any written submission of shareholder proposals.

CHENG SHIN RUBBER IND. CO., LTD. Share Ownership of Directors

As of April 17, 2020

Position Name Number of Shares Ownership
Percentage (%)
Chairman Luo, Tsai-Jen 283,225,502 8.74%
Director Xie Shun Investment Co., Ltd.
(Representative Chen,Shiu-Hsiung)		 15,580,000 0.48%
Director Jiu Shun Investment Co., Ltd.
(Representative: Chen,Yun-Hwa)		 13,391,000 0.41%
Director Hong Jing Investment Co., Ltd.
(Representative: Chiu,Li-Ching)		 33,331,000 1.03%
Director Min Xin Investment Co., Ltd.
(Representative: Cheng,Han-Chi)		 6,425,000 0.20%
Director Tseng, Shung-Chu 22,488,580 0.69%
Director Horning Yih Investment Corporation
(Representative: Lee,Chin-Chang)		 11,131,695 0.34%
Director Horning Yih Investment Corporation
(Representative: Lin,Hung-Yu)
Independent
Director		 Hsu, En-Dz 0 0.00%
Independent
Director		 Too, Jui-Rze 0 0.00%
Independent
Director		 Chen, Shuei-Jin 0 0.00%
Share Ownership of All Directors 385,572,777 11.89%

*The Company has an Audit Committee established. Therefore, there are no supervisors.

Minimum share ownership by all directors of the Company: 77,793,972 shares

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