TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES … · 2015-10-13 · See accompanying notes to consolidated financial statements. TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES

TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

June 30, 2015 and 2014 (With Independent Auditors’ Report Thereon)

Independent Auditors’ Review Report

The Board of Directors TAIWAN SEMICONDUCTOR CO., LTD.: We have reviewed the accompanying consolidated balance sheets of TAIWAN SEMICONDUCTOR CO., LTD. and its subsidiaries as of June 30, 2015 and 2014 (restated), and the related consolidated statements of comprehensive income for the three months and the six months ended June 30, 2015 and 2014 (restated), and the related consolidated statements of changes in stockholders’ equity and cash flows for the six months ended June 30, 2015 and 2014 (restated). These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to issue an opinion on these consolidated financial statements based on our reviews. We did not review the financial statements of certain subsidiaries accounted in the consolidated financial statements, and our opinion on the amounts presented in the financial statements of certain subsidiaries is based on the reports of other Certified Public Accountants. The total assets of the subsidiaries recognized were $2,836,954 thousand, constituting 30.75% of the consolidated total assets as of June 30, 2015, and the net operating revenues of the subsidiaries recognized were $745,474 thousand and $1,315,791 thousand, constituting 38.49% and 35.28% of the consolidated net operating revenues for the three months and the six months ended June 30, 2015, respectively. Except as explained in the following paragraph, our reviews were made in accordance with Statement of Auditing Standards No. 36 – “Review of Financial Statements” in the Republic of China. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with the generally accepted auditing standards in the Republic of China, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. The accompanying consolidated financial statement included certain non-significant consolidated subsidiaries under equity method, whose statements reflect the total assets of $1,593,571 thousand and $1,581,254 thousand, constituting 17.27% and 17.32% of the consolidated assets, and the total liabilities of $86,737 thousand and $137,897 thousand, constituting 2.59% and 4.11% of the consolidated liabilities as of June 30, 2015 and 2014 (restated), respectively, and the total comprehensive income of $22,153 thousand, $20,547 thousand, $29,724 thousand, and $29,320 thousand, constituting 11.23%, 9.97%, 7.91%, and 6.77% of the consolidated comprehensive income for the three months and the six months ended June 30, 2015 and 2014 (restated), respectively. These amounts and the information were based solely on the unreviewed financial statements of these companies as of June 30, 2015 and 2014 (restated).

The accompanying financial statements are not intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such financial statements are those generally accepted and applied in the Republic of China. The auditors’ report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors’ report and financial statements, the Chinese version shall prevail.

Based on our and other CPA reviews, except for the effect of such adjustments, if any, as might have been determined to be necessary had the financial statements of the consolidated subsidiaries been reviewed by independent accountants, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the “Guidelines Governing the Preparation of Financial Reports” by Securities Issuers and the International Accounting Standards No. 34 “Interim Financial Reporting” endorsed by Financial Supervisory Commission, the Republic of China. KPMG CPA: Gau, Wey-Chuan

Chou, Pao-Lian Taipei, Taiwan, R.O.C August 11, 2015

See accompanying notes to consolidated financial statements.


Consolidated Balance Sheets

June 30, 2015, and December 31 and June 30, 2014 (expressed in thousands of New Taiwan dollars)

June 30, 2015 December 31, 2014 June 30, 2014

Assets Amount % Amount % Amount % (restatement) (restatement) Current assets: Cash and cash equivalents (note 6(a)) $ 2,549,827 28 2,554,950 29 2,599,473 28 Financial assets measured at fair value through profit or loss –

current (note 6(b)) 446,071 5 140,928 2 180,611 2 Notes receivable, net (note 6(c)) 24,347 - 20,418 - 22,100 - Accounts receivable, net (note 6(c)) 1,596,278 18 1,506,946 17 1,629,255 20 Other receivables 72,887 1 75,975 1 118,868 1 Current tax assets 5,656 - 5,510 - 4,596 - Inventories (note 6(d)) 1,146,777 12 1,107,596 12 1,206,482 13 Prepaid expenses 183,920 2 188,594 2 277,527 3 6,025,763 66 5,600,917 63 6,038,912 67Non-current assets: Property, plant and equipment (note 6(f)) 3,065,493 33 3,080,700 35 2,960,605 32 Intangible asset (note 6(g)) 17,862 - 19,695 - 17,225 - Deferred tax assets 39,626 - 36,826 - 40,005 - Other financial assets – non-current 18,170 - 17,433 - 20,398 - Other non-current assets 58,586 1 156,235 2 50,223 1 3,199,737 34 3,310,889 37 3,088,456 33 Total assets $ 9,225,500 100 8,911,806 100 9,127,368 100

June 30, 2015 December 31, 2014 June 30, 2014 Liabilities and Stockholders’ Equity Amount % Amount % Amount % (restatement) (restatement) Current liabilities: Short-term borrowings (note 6(h)) $ 327,740 4 284,850 4 357,588 4 Financial liabilities measured at fair value through profit or

loss – current (note 6(b)) 5,802 - 2,867 - 2,616 - Notes payable 10,643 - 8,419 - 7,477 - Accounts payable 1,087,493 12 945,388 12 1,244,554 15 Other payables 447,052 5 534,152 6 448,338 5 Dividends payable 658,942 7 - - 502,040 5 Current tax liabilities 167,329 2 132,777 1 151,139 2 Product warranty obligations 10,249 - 4,498 - 2,721 - Long-term borrowings due within one year (note 6(h)) - - 16,400 - 16,400 - Capital lease liabilities – current 18,610 - 18,226 - 17,963 - Other current liabilities 14,923 - 15,952 - 14,498 - 2,748,783 30 1,963,529 23 2,765,334 31Non-current liabilities: Long-term borrowings (note 6(h)) - - 77,900 1 86,100 1 Employee benefits (note 6(j)) 42,787 - 41,849 - 41,720 - Deferred tax liabilities 255,173 3 262,545 3 145,183 2 Capital lease liabilities – non-current 306,468 3 311,548 3 316,328 3 Guarantee deposits received 2,089 - - - - - 606,517 6 693,842 7 589,331 6 Total liabilities 3,355,300 36 2,657,371 30 3,354,665 37Stockholders’ equity attributable to parent (note 6(l)): Common stock 2,388,108 26 2,436,143 27 2,434,643 27 Capital surplus 880,263 10 962,403 11 952,352 10 Retained earnings: Legal reserve 456,213 5 396,505 4 396,505 4 Special reserve 302,150 3 302,150 3 302,150 3 Unappropriated earnings 1,028,234 11 1,292,929 15 1,036,853 11 1,786,597 19 1,991,584 22 1,735,508 18 Other stockholders’ equity 67,566 1 140,319 2 (6,419) - Treasury stock (194,289) (2) (247,383) (3) (127,755) (1) Total Stockholders’ equity attributable to parent 4,928,245 54 5,283,066 59 4,988,329 54 Non-controlling interests 941,955 10 971,369 11 784,374 9 Total stockholders’ equity 5,870,200 64 6,254,435 70 5,772,703 63 Total liabilities and stockholders’ equity $ 9,225,500 100 8,911,806 100 9,127,368 100



Consolidated Statements of Comprehensive Income

For the Three Months and the Six Months ended June 30, 2015 and 2014 (expressed in thousands of New Taiwan dollars, except for earnings per common share)

For the Three Months ended June 30 For the Six Months ended June 30 2015 2014 2015 2014 Amount % Amount % Amount % Amount % (restatement) (restatement) Sales revenue $ 1,950,360 101 2,054,203 101 3,755,135 101 3,868,560 101Less: Sales returns and allowances 13,529 1 18,449 1 25,107 1 32,895 1Net sales revenue 1,936,831 100 2,035,754 100 3,730,028 100 3,835,665 100Cost of goods sold (note 6(d)) 1,281,872 66 1,355,848 67 2,456,529 66 2,609,939 68Gross profit 654,959 34 679,906 33 1,273,499 34 1,225,726 32Operating expenses: Selling 166,269 9 169,486 8 327,721 9 321,615 8 Administrative 98,290 5 86,023 4 180,917 5 166,863 4 Research and development 51,629 3 35,944 2 90,203 2 68,568 2 316,188 17 291,453 14 598,841 16 557,046 14

Operating income 338,771 17 388,453 19 674,658 18 668,680 18Non-operating income and expenses: Finance expense (5,226) - (5,903) - (10,601) - (12,439) - Interest revenue 7,128 - 3,716 - 11,047 - 6,701 - Other income 4,923 - 3,891 - 10,426 - 12,494 - Gains on disposal of investments 106 - - - 503 - 439 - Foreign exchange gains (losses) 3,584 - (29,420) (1) (37,531) (1) 12,044 - Loss on disposal of property, plant, and equipment (646) - (1,771) - (12,396) - (2,504) - Gain (loss) on financial assets (liabilities) measured at fair value

through profit (loss) (3,050) - 9,076 - 2,448 - (2,515) - Reversal of impairment gain - - 26 - 377 - 1,374 - Miscellaneous disbursements (1,698) - (1,181) - (2,336) - (2,520) - 5,121 - (21,566) (1) (38,063) (1) 13,074 - Income before income tax 343,892 17 366,887 18 636,595 17 681,754 18Income tax expense (note 6(k)) 104,197 5 108,975 5 180,114 5 198,175 5

Consolidated net income 239,695 12 257,912 13 456,481 12 483,579 13Other comprehensive income:

Exchange differences on translation of foreign subsidiaries, before income tax (43,302) (2) (53,037) (3) (83,458) (2) (51,479) (1)

Less: Income tax relating to components of other comprehensive income 855 - 1,145 - 2,623 - 934 -

Other comprehensive income, net of tax (42,447) (2) (51,892) (3) (80,835) (2) (50,545) (1)Comprehensive income $ 197,248 10 206,020 10 375,646 10 433,034 12Net income attributable to: Owners of the parent $ 132,527 6 180,534 9 285,057 7 335,045 9 Non-controlling interests 107,168 6 77,378 4 171,424 5 148,534 4 $ 239,695 12 257,912 13 456,481 12 483,579 13Comprehensive income attributable to: Owners of the parent $ 92,716 5 132,160 6 212,304 6 287,370 8 Non-controlling interests 104,532 5 73,860 4 163,342 4 145,664 4 $ 197,248 10 206,020 10 375,646 10 433,034 12Basic earnings per common share (note 6(o)) $ 0.60 0.76 1.23 1.41 Diluted earnings per common share (note 6(o)) $ 0.56 0.75 1.21 1.39



Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months ended June 30, 2015 and 2014 (expressed in thousands of New Taiwan dollars)

Stockholders’ equity attributable to Owners of the parent Retained earnings Total equity

Common stock

Capital surplus

Legal reserve

Special reserve

Unappropriated earnings

Accumulated translationadjustment

Treasury stock

attributable to Owners of

the parent Non-controlling

interests

Total stockholders’

equity Balance as of January 1, 2014 $ 2,442,818 963,292 357,749 302,150 1,029,812 41,256 (151,065) 4,986,012 855,011 5,841,023 Retrospective application and retrospective restatement effects - - - - (4,098) - - (4,098) (1,791) (5,889)Balance after restatement 2,442,818 963,292 357,749 302,150 1,025,714 41,256 (151,065) 4,981,914 853,220 5,835,134 Retirement of treasury share (10,000) (13,310) - - - - 23,310 - - - Appropriation of earnings: Provision of legal reserve - - 38,756 - (38,756) - - - - - Cash dividends - - - - (285,150) - - (285,150) - (285,150) Net income - - - - 335,045 - - 335,045 148,534 483,579 Other comprehensive income - - - - - (47,675) - (47,675) (2,870) (50,545)Total comprehensive income - - - - 335,045 (47,675) - 287,370 145,664 433,034 Share-based payment – employee stock options - 1,514 - - - - - 1,514 - 1,514 Employee stock options exercised 1,825 613 - - - - - 2,438 - 2,438 Changes in the number of affiliates using equity method - 243 - - - - - 243 - 243 Changes in non-controlling interests - - - - - - - - (214,510) (214,510)Balance as of June 30, 2014 $ 2,434,643 952,352 396,505 302,150 1,036,853 (6,419) (127,755) 4,988,329 784,374 5,772,703 Balance as of January 1, 2015 $ 2,436,143 962,403 396,505 302,150 1,296,150 140,319 (247,383) 5,286,287 973,899 6,260,186 Retrospective application and retrospective restatement effects - - - - (3,221) - - (3,221) (2,530) (5,751)Balance after restatement $ 2,436,143 962,403 396,505 302,150 1,292,929 140,319 (247,383) 5,283,066 971,369 6,254,435 Purchase of treasury stock - - - - - - (42,009) (42,009) - (42,009)Retirement of treasury share (50,000) (99,215) - - (12,422) - 161,637 - - - Subsidiaries’ purchase of treasury stock - - - - - - (66,534) (66,534) - (66,534)Appropriation of earnings: Provision of legal reserve - - 59,708 - (59,708) - - - - - Cash dividends - - - - (477,622) - - (477,622) - (477,622)Dividends received by subsidiaries - 15,400 - - - - - 15,400 - 15,400 Net income - - - - 285,057 - - 285,057 171,424 456,481 Other comprehensive income - - - - - (72,753) - (72,753) (8,082) (80,835)Total comprehensive income - - - - 285,057 (72,753) - 212,304 163,342 375,646 Share-based payment – employee stock options - 654 - - - - - 654 - 654 Employee stock options exercised 1,965 524 - - - - - 2,489 - 2,489 Changes in the number of affiliates using equity method - 497 - - - - - 497 - 497 Changes in non-controlling interests - - - - - - - - (192,756) (192,756)Balance as of June 30, 2015 $ 2,388,108 880,263 456,213 302,150 1,028,234 67,566 (194,289) 4,928,245 941,955 5,870,200



Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2015 and 2014 (expressed in thousands of New Taiwan dollars)

For the Six Months ended June 30 2015 2014 Cash flows from operating activities: Income before income tax $ 636,595 681,754 Adjustments: Adjustments for the non-cash effects of items of incomes and expenses: Depreciation expense 152,918 162,360 Amortization expense 3,097 3,166 Bad debt expense 373 302 Net gain on financial assets or liabilities at fair value through loss (profit) (2,448) 2,515 Interest expense 9,699 11,467 Interest income (11,047) (6,701) Share-based payments 654 1,514 Loss on disposal of property, plant, and equipment 12,396 2,504 Disposal gain on investments (503) (439) Impairment loss on non-financial assets (reverse impairment gain) (377) (1,374) Others 497 243 Total adjustments for the non-cash effects of items of incomes and expenses 165,259 175,557 Net change in operating assets and liabilities: Net change in operating assets:

Increase in financial assets measured at fair value through profit or loss (299,257) (179,845) Increase in notes receivable (3,929) (4,424) Increase in accounts receivable (85,034) (134,612) Decrease in other receivable 3,100 7,127 Increase in inventories (39,181) (81,130) Decrease (increase) in prepayments 4,377 (86,085) Increase in other financial assets (737) (2,961) Total net change in operating assets (420,661) (481,930) Net change in operating liabilities: Increase (decrease) in notes payable 2,224 (4,871) Increase in accounts payable 142,105 288,994 Increase in other payable 109,652 231,841 Increase in product warranty obligations 1,080 11 Decrease in other current liabilities (1,029) (2,302) Increase in accrued pension liabilities 938 579 Total net change in operating liabilities 254,970 514,252 Total net change in operating assets and liabilities (165,691) 32,322 Total adjustments (432) 207,879 Cash inflows from operating activities 636,163 889,633 Interest received 11,035 6,661 Income taxes paid (155,880) (135,416) Net cash provided by operating activities 491,318 760,878 Cash flows from investing activities: Disposal of financial assets carried at cost - 435 Acquisition of property, plant, and equipment (66,103) (64,969)

Disposal of property, plant, and equipment 2,032 1,631 Acquisition of intangible assets (1,471) (4,384)

Increase in other non-current assets (2,939) (8,401) Increase in prepayment for equipment (10,710) - Net cash used in investing activities (79,191) (75,688) Cash flows from financing activities: Increase (Decrease) in short-term loans 42,890 (64,596) Repayments in long-term loans (94,300) (8,200) Increase in guarantee deposits received 2,089 - Decrease in capital lease liabilities (12,726) (11,456) Employee stock option exercised 2,489 2,438 Purchase of treasury stock (108,543) - Interest paid (1,701) (4,722) Change in non-controlling interests (192,756) (214,510) Net cash used in financing activities (362,558) (301,046) Effect of exchange rate changes (54,692) (34,116) Net increase (decrease) in cash and cash equivalents (5,123) 350,028 Cash and cash equivalents, beginning of period 2,554,950 2,249,445 Cash and cash equivalents, end of period $ 2,549,827 2,599,473

(Continued)

TAIWAN SEMICONDUCTOR CO., LTD.AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2015 and 2014 (amounts expressed in thousands of New Taiwan dollars, unless otherwise specified)

1. Organization and Principal Activities TAIWAN SEMICONDUCTOR CO., LTD. (the Company) was incorporated in January 1979 under the Company Act of the Republic of China. Its major business activities are the manufacture and sale of rectifiers and bar code printers. The Company’s common stock has been officially listed and traded on the GreTai Securities Market starting from February 2000. In order to improve operating efficiency and industry competitiveness from specialization, the Company restructured its business and organization. The Company separated its bar code printer business unit from itself and transferred it to establish TSC Auto ID Technology Co., Ltd. (TSC Auto ID). The board of directors’ meeting approved August 1, 2007, as the date of record of the split. The Company and its subsidiaries are referred to as the Group. The Group primarily is involved in the manufacture and sale of rectifier and bar code printers.

2. Approval date and procedures of the interim consolidated financial statements

These consolidated financial statements were authorized for issuance by the board of directors on August 11, 2015

3. New standards and interpretations adopted (a) International Financial Reporting Standards (“IFRSs”) 2013 endorsed by the Financial Supervisory

Commissions, R.O.C. (“FSC”). The Group adopted the IFRSs 2013 (excluding IFRS 9 Financial Instruments) endorsed by the FSC beginning in 2015. The new standards and amendments which were announced by the International Accounting Standard Board (“IASB”) are as follows:

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Notes to Financial Statements

(Continued)

New standards and amendments Effective date per IASB Limited exemption from comparative IFRS 7

disclosures for first-time adopters (amendment to IFRS 1) Severe hyperinflation and removal of fixed dates for

first-time adopters (amendment to IFRS 1) Government loans (amendment to IFRS 1) Disclosures – Transfer of financial assets

(amendment to IFRS 7) Disclosures – Offsetting financial assets and financial

liabilities (amendment to IFRS 7)

2010.7.1

2011.7.1

2013.1.1 2011.7.1

2013.1.1

IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement Presentation of items of other comprehensive income

(amendment to IAS 1) Deferred tax: recovery of underlying assets

(amendment to IAS 12) Amended IAS 19 Employee Benefits Amended IAS 27 Separate Financial Statements Amended IAS 32 Offsetting financial assets and

financial liabilities

2013.1.1(Investment entities: January 1, 2014)

2013.1.1 2013.1.1 2013.1.1 2012.7.1

2012.1.1

2013.1.1 2013.1.1 2014.1.1

IFRIC 20 Stripping costs in the production phase of a surface mine

2013.1.1

Based on the Company’s assessment, the adoption of IFRSs 2013 has no significant effect on the interim financial statement except for the following items: i) IFRS 12 Disclosure of Interests in Other Entities

The Group will additionally disclose the information on consolidated and non-consolidated entities. Please refer to note 6(e).

ii) IFRS 13 Fair Value Measurement

IFRS 13 defines the changing of fair value and sets the method of calculation and the presentation of measurement of fair value. The Group has additionally disclosed the information on fair value measurement based on the requirement of the new standard. Please refer to note 6(p).

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(Continued)

iii) IAS 1 Presentation of Financial Statements

The primary amendment of IAS 1 was requiring profit or loss and other comprehensive income to be presented together, requiring entities to group items presented in other comprehensive income based on whether they are potentially reclassifiable to profit or loss subsequently, and requiring tax associated with items presented before tax to be shown separately for each of the two groups of other comprehensive income items. The Group will follow the amendment of IAS 1 to present the comprehensive income statement.

iv) IAS 19 Employee Benefits

The amendments to IAS 19 require companies to calculate a “net interest” amount by applying the discount rate to the net defined benefit liability or asset to replace the interest cost and expected return on plan assets used in the previous IAS 19. In addition, the amendments eliminate the accounting treatment of either the corridor approach or the immediate recognition of actuarial gains and losses in profit or loss when they occur, and instead require companies to recognize all actuarial gains and losses immediately through other comprehensive income. The past service cost, on the other hand, will be expensed immediately when it is incurred and will no longer be amortized over the average period before meeting vesting conditions on a straight-line basis. In addition, an entity can no longer withdraw an offer of termination benefits or recognize the related restructuring costs of early termination as termination benefits. All termination benefits are recognized in liabilities and expenses. In addition, the amendments also require a broader disclosure of defined benefit plans. In compliance with the standard above, non-controlling interests decreased by $1,791, accrued pension liabilities increased by $5,889, and retained earnings decreased by $4,098 on January 1, 2014; non-controlling interests decreased by $765, accrued pension liabilities decreased by $138, and retained earnings increased by $842 on December 31, 2014; operating expenses decreased by $35 and non-controlling interests increased by $26 for the twelve months ended December 31, 2014.

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(Continued)

(b) Impact of IFRSs issued by the IASB but not yet endorsed by the FSC A summary of the new standards and amendments issued by the IASB but not yet endorsed by the FSC:

New standards and amendments Effective date per IASB IFRS 9 Financial Instruments 2018.1.1 Amendments to IFRS 10 and IAS 28 – Sales or

Contributions of Assets between an Investor and its Associate or Joint Venture

2016.1.1

Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception

2016.1.1

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

2016.1.1

IFRS 14 Regulatory Deferral Accounts 2016.1.1 IFRS 15 Revenue from Contracts with Customers 2017.1.1 Amendments to IFRS 1 – Disclosures for first-time adopters 2016.1.1 Amendments to IAS 16 and IAS 38 – Clarification of

Acceptable Methods of Depreciation and Amortization 2016.1.1

Amendments to IAS 16 and IAS 41 – Agriculture: Bearer Plants

2016.1.1

Amendments to IAS 19 – Employee contributions to defined benefit plans

2014.7.1

Amendments to IAS 27 – Equity Method in Separate Financial Statements

2016.1.1

Amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets

2014.1.1

Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting

2014.1.1

Annual improvements – 2010-2012 and 2011-2013 Cycles 2014.7.1 Annual Improvements to IFRS 2012-2014 Cycle 2016.1.1 IFRIC 21 Levies 2014.1.1 The Group is assessing the influence on financial condition and performance of the above standards and interpretations. The Group will disclose the related influence when the assessment is finished.

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(Continued)

4. Significant accounting policies (a) Statement of Compliance

These consolidated interim financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to the Regulations) and the guidelines of International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) which are endorsed by FSC. These interim financial statements do not include all of the information required by the Regulations and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by the FSC (hereinafter referred to the IFRSs endorsed by the FSC) for full annual financial statements. Except as described in the following paragraphs, the significant accounting policies in the preparation of the accompanying interim consolidated financial statements are applied consistently to the consolidated financial statement for the year ended December 31, 2014. For other related information, please refer to the consolidated financial statements for the year ended December 31, 2014. The Group adopted the IFRSs 2013 endorsed by the FSC beginning in 2015. For related information, please refer to note 3(a).

(b) Basis of Consolidation

i) List of subsidiaries in the consolidated financial statements

Shareholding

Name of investor Name of subsidiary Principal activityJune 30,

2015 December 31,

2014 June 30,

2014 The Company Ever Energetic Int'l Ltd.

(Ever Energetic) Holding company and general import and export business

100.00% 100.00% 100.00%

The Company Ever Winner Int'l Co., Ltd. (Ever Winner)

Holding company and general import and export business

100.00% 100.00% 100.00%

The Company Skyrise Int'l Ltd. (Skyrise) Holding company and general import and export business

100.00% 100.00% 100.00%

The Company Taiwan Semiconductor Europe GmbH (TSCE)

General import and export business 100.00% 100.00% 100.00%

The Company Taiwan Semiconductor Japan Ltd. (TSCJ)

Trading of rectifiers 100.00% 100.00% 100.00%

The Company Taiwan Semiconductor (H.K.) Co., Ltd. (TSCH)

Holding company and trading of rectifiers

25.22% 25.22% 25.22%

The Company TSC Auto ID Technology Co., Ltd. (TSC Auto ID)

Manufacture and sale of bar code printers

36.88% 36.94% 37.06%

Ever Energetic Taiwan Semiconductor (H.K.) Co., Ltd. (TSCH)

Holding company and trading of rectifiers

36.96% 36.96% 36.96%

Ever Energetic TSC America, Inc. (TSCA) Trading of rectifiers 75.00% 75.00% 75.00%Ever Winner Taiwan Semiconductor

(H.K.) Co., Ltd. (TSCH) Trading of rectifiers 37.82% 37.82% 37.82%

Ever Winner TSC America, Inc. (TSCA) Trading of rectifiers 25.00% 25.00% 25.00%Ever Winner Shanghai Great

Technology Trading Co., Ltd. (TSCC)

Trading of rectifiers 100.00% 100.00% 100.00%

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(Continued)

Shareholding

Name of investor Name of subsidiary Principal activityJune 30,

2015 December 31,

2014 June 30,

2014 TSCH Yangxin Everwell

Electronic Co., Ltd. (Yangxin Everwell)

Manufacture and sale of rectifiers

100.00% 100.00% 100.00%

TSCH Tianjin Everwell Technology Co., Ltd. (Tianjin Everwell)

Manufacture and sale of wafers

100.00% 100.00% 100.00%

TSC Auto ID TSC Auto ID Technology EMEA GmbH (TSCAE)

Trading of bar code printers and other parts

100.00% 100.00% 100.00%

TSC Auto ID TSC Auto ID (H.K.) Ltd. (TSC HK)

Holding company and general import and export business

100.00% 100.00% 100.00%

TSC Auto ID TSC Auto Technology America Inc. (TSCAA)


100.00% 100.00% 100.00%

TSCAE TSC Auto ID Technology ME, Ltd. FZE (TSCAD)


100.00% 100.00% 100.00%

TSCAE TSC Auto ID Technology Spain, S.L. (TSCAS)


100.00% 100.00% 100.00%

TSC HK Tianjin TSC Auto ID Technology Co., Ltd. (TTSC)

Manufacture and sale of bar code printers and other parts

100.00% 100.00% 100.00%

ii) Unlisted subsidiaries in the consolidated financial statements: None. iii) Subsidiaries impairment: None.

(c) Employee benefits

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events.

(d) Income Taxes

Tax expense in the interim financial statements is measured and disclosed according to paragraph B12 of IAS 34 “Interim financial reporting”. Income tax expense for the period is estimated by multiplying the pretax income for the interim reporting period using the effective annual tax rate as forecasted by the management. This is fully recognized as income tax expense for the current period.

Deferred income taxes are determined based on the differences between the financial statements and the tax basis of assets and liabilities using the enacted tax rates in effect during the years in which the differences are expected to reverse.

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(Continued)

5. Significant accounting assumptions and judgments, and major sources of estimation uncertainty

The preparation of the consolidated quarterly financial statements in conformity with IFRSs (in accordance with IAS 34 “Interim financial reporting” and approved by the FSC) requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. In the preparation of the consolidated quarterly financial statements, the major sources of accounting assumptions, judgments and estimation uncertainty are consistent with the 2014 annual financial statements prepared under IFRSs (approved by the FSC).

6. Significant Account Disclosures

Except as described in the following paragraphs, there were no significant changes with those disclosed in the 2014 annual consolidated financial statements. Pleases refer to the 2014 annual consolidated financial statements. (a) Cash and cash equivalents

June 30,

2015December 31,

2014 June 30,

2014 Cash on hand $ 676 583 650Checking and savings accounts 1,849,454 2,011,239 2,212,190Time deposits 479,697 303,128 256,633Guaranteed deposit with short-term rate 220,000 240,000 130,000 $ 2,549,827 2,554,950 2,599,473

(b) Financial instruments

i) The financial instruments held by the Company were as follows:

June 30, 2015

December 31, 2014

June 30, 2014

Current:

Financial assets at fair value through profit or loss

Open-end funds $ 440,257 140,321 180,155Forward exchange contracts 5,814 607 456

$ 446,071 140,928 180,611

8



(Continued)

June 30, 2015

December 31, 2014

June 30, 2014

Current:

Financial liabilities at fair value through profit or loss

Forward exchange contracts $ 5,802 2,867 2,616

As for June 30, 2015 and June 30 and December 31, 2014, there was no pledged financial asset.

ii) The Company uses derivative financial instruments to hedge certain foreign exchange exposures arising from its operating activities. The Company held the following derivative financial instruments presented as held-for-trading financial assets (liabilities):

June 30, 2015

Contract amount Currency Contract period

Selling/buying forward USD 14,000 /CNY 88,492 USD to CNY 2015.07~2015.12

Selling/buying forward EUR 2,350 /USD 2,580 EUR to USD 2015.07~2015.12

Selling/buying forward EUR 3,360 /USD 3,648 EUR to USD 2015.07~2015.11

Selling/buying forward USD 1,913 /TWD 59,332 USD to TWD 2015.07~2015.09

Selling/buying forward EUR 3,187 /TWD 110,471 EUR to TWD 2015.08~2015.10

December 31, 2014


Selling/buying forward USD 10,000 /CNY 61,897 USD to CNY 2015.01~2015.03

Selling/buying forward EUR 500 /USD 627 EUR to USD 2015.01

June 30, 2014


Selling/buying forward USD 8,000 /CNY 49,198 USD to CNY 2014.07

Selling/buying forward CNY 12,452 /USD 2,000 CNY to USD 2014.08

Selling/buying forward EUR 500 /TWD 20,876 EUR to TWD 2014.04~2014.07

iii) Financial assets carried at cost held by the Company are those that do not have a quoted

market price in an active market and whose fair value cannot be reliably measured and, as a result, are measured at cost.

9



(Continued)

(c) Notes and accounts receivable, net

June 30, 2015

December 31, 2014

June 30, 2014

Notes receivable $ 24,745 20,816 22,498 Accounts receivable 1,640,728 1,568,710 1,670,265 Less: allowance for doubtful accounts (23,099) (22,917) (20,307)

allowance for sales returns and discounts (21,749) (39,245) (21,101) $ 1,620,625 1,527,364 1,651,355 The Group’s overdue, but not yet impaired, note and account receivable aging analysis is as follows: June 30,

2015 December 31,

2014 June 30,

2014 1~3 months overdue $ 187,264 337,920 221,854 4~6 months overdue 3,044 27,283 5,175 7~9 months overdue 1,018 79 43 10~12 months overdue - 253 75 Over a year overdue 1,998 1,724 1,700 $ 193,324 367,259 228,847 The movement in the provision for impairment with respect to notes and accounts receivable of the group: Collectively

assessed impairment

As of January 1, 2015 $ 22,917 Impairment loss recognized 373 Effect of movement in exchange rates (191) As of June 30, 2015 $ 23,099

10



(Continued)

Collectively

assessed impairment

As of January 1, 2014 $ 20,102 Impairment loss recognized 302 Effect of movement in exchange rates (97) As of June 30, 2014 $ 20,307 The recognition of allowance for doubtful account is base on the current economic circumstances, customers’ historical payment behavior, and extensive analysis of the customers’ creditability.

(d) Inventories

June 30, 2015

December 31, 2014

June 30, 2014

Finished goods $ 636,993 609,131 631,348 Less: provision for obsolescence and

devaluation (45,199) (46,706) (81,114) 591,794 562,425 550,234 Work in process 247,692 176,445 225,032 Less: provision for obsolescence and

devaluation (20,875) (14,936) (28,099) 226,817 161,509 196,933 Raw material and supplies 283,887 279,844 279,898 Less: provision for obsolescence and

devaluation (13,069) (17,538) (14,432) 270,818 262,306 265,466 Inventories in transit 57,348 121,356 193,849 $ 1,146,777 1,107,596 1,206,482 Raw material, consumables and changes in finished goods, and work in progress recognized as cost of sales amounted to $1,286,406, $1,329,662, $2,454,908, and $2,568,134 from April 1 to June 30, 2015 and 2014, and from January 1 to June 30, 2015 and 2014, respectively. Write-down of inventories to net realizable value in the amount of $26,186, $1,621, and $41,805 were included in the cost of goods sold from April 1, 2014 to June 30, 2014, and for the six-month ended June 30, 2015 and 2014, respectively. The write off of valuation allowance due to obsolescence of inventories resulted in a reduction in the cost of goods sold amounting to $4,534 from April 1, 2015 to June 30, 2015.

As of June 30, 2015 and June 30 and December 31, 2014, none of the inventories of the Group were pledged as collateral.

11



(Continued)

(e) The significant non-controlling interests of subsidiaries The subsidiaries’ non-controlling interests that have significant effect on the Group were as follows: Percentage of non-controlling

interests on ownership interests and voting rights

Name of subsidiary Country

June 30, 2015

December 31, 2014

June 30, 2014

TSC Auto ID Technology Co., Ltd.

(TSC Auto ID) Taiwan 63.12% 63.06% 62.94% The financial statement of TSC Auto ID has been prepared in accordance with the IFRSs endorsed by the FSC. The summary of financial information for TSC Auto ID was as follows. This financial information is disclosed in the amounts before the elimination on transactions between the Group. The summary of financial information: June 30,

2015 December 31,

2014 June 30,

2014 Current assets $ 1,95,782 1,525,880 1,821,766 Non-current assets 911,172 853,246 776,696 Current liabilities (1,135,248) (549,472) (1,044,420)Non-current liabilities (181,469) (243,819) (233,446)Net assets $ 1,520,237 1,585,835 1,320,596 Non-controlling interests $ 941,955 971,369 784,374

For the Three Months Ended

June 30 For the Six Months Ended

June 30 2015 2014 2015 2014 Sales revenue $ 745,474 654,678 1,315,791 1,177,953Net income $ 169,780 122,940 271,585 236,065Other comprehensive income (33,046) (5,874) (29,983) 39,901Comprehensive income $ 136,734 117,066 241,602 275,966Net income attributable to non-

controlling interests $ 107,168 77,378 171,424 148,534Comprehensive income

attributable to non-controlling interests $ 104,532 73,860 163,342 145,664

12



(Continued)

For the Three Months Ended June 30

For the Six Months Ended June 30

2015 2014 2015 2014 Cash flows from operating

activities $ 328,188 221,809Cash flows from investing

activities (99,421) (10,500)Cash flows from financing

activities (42,344) (10,281)Effect of exchange rate changes (9,529) (8,731)Net increase in cash and cash

equivalents

$ 176,894 192,297

(f) Property, plant and equipment

Land Building and construction

Machinery and equipment

Other equipment

Lease property

Under construction Total

Carrying amount: Balance at January 1, 2015 $ 478,532 1,099,043 1,107,331 74,101 319,789 1,904 3,080,700 Balance at June 30, 2015 $ 478,532 1,194,447 1,005,898 66,827 319,789 - 3,065,493 Balance at January 1, 2014 $ 478,532 1,045,952 1,115,003 75,649 319,789 - 3,034,925 Balance at June 30, 2014 $ 478,532 1,022,657 1,071,043 68,584 319,789 - 2,960,605

i) For the six months ended June 30, 2015 and 2014, there were no significant additions,

disposal, impairment loss, or reversal gain on property, plant and equipment. Please refer to note 12 for the details of depreciation on property, plant and equipment, and to the consolidated financial statements for the year ended December 31, 2014 for other related information.

ii) Leased assets

The Group signed land lease agreements with the Ministry of Economic Affairs in Taiwan to lease land in the Letzer Industrial Park for the construction of plants. The leases are over a period of 20 years, and rent is paid every 3 months. Rent is calculated as the land’s assessed price multiplied by its annual rent rate. The assessed price is adjusted yearly according to the consumer price index, and the annual rental rate is based on the mid/long-term capital loan interest rate as prescribed by the Executive Yuan and recalculated every half-year. The lease deposit is equivalent to 3-6 times the monthly rent at the inception of the lease. At any time during the lease, the Group may purchase the leased land at the pre-determined price. The rent already paid during the lease may be used to offset the purchase price; therefore, the Group classifies the lease under capital lease.

13



(Continued)

The Group provided bank certificates of deposit and security deposits as lease guarantee. The land valuation and annual lease rate should be adjusted periodically. As of June 30, 2015 and 2014, the leasehold land cost was revised as $319,789.

iii) Pledged as collateral

Please refer to note 8 for disclosures on property, plant and equipment pledged as collateral.

iv) Interest capitalized

Interest capitalized for purchasing property, plant and equipment for the six months ended June 30, 2015 and 2014, amounted to $110 and $643, respectively. The interest capitalization rates were 3.00%.

(g) Intangible assets

Trademarks

right Software Total Carrying value: Balance at January 1, 2015 $ 64 19,631 19,695 Balance at June 30, 2015 $ 53 17,809 17,862 Balance at January 1, 2014 $ 86 15,938 16,024 Balance at June 30, 2014 $ 74 17,151 17,225 For the six months ended June 30, 2015 and 2014, there were no significant additions, disposal, impairment loss, or reversal gain on intangible assets. Please refer to note 12 for the details of amortization on intangible assets, and to the consolidated financial statements for the year ended December 31, 2014 for other related information.

(h) Long and short term borrowings

i) Short term borrowings:

June 30, 2015

December 31, 2014

June 30, 2014

Secured loans $ - - 88,803Credit loans 327,740 284,850 268,785 $ 327,740 284,850 357,588Interest rate range (%) 0.72%~1.50% 0.83%~0.93% 1.05%~1.85% Please refer to notes 8 and 9 for disclosures on mortgaged and pledged assets.

14



(Continued)

ii) Long term borrowings:

Creditor PurposeJune 30,

2015 December 31,

2014 June 30,

2014 KGI Bank Purchase of office $ - 94,300 102,500Less: Current portion of long-term borrowings - (16,400) (16,400)

$ - 77,900 86,100Interest rate range (%) -% 1.72% 1.72%

Please refer to note 8 for disclosures on mortgaged and pledged assets.

(i) Lease

For the six months ended June 30, 2015 and 2014, there were no significant additions in contract of operating and finance lease. Please refer to the consolidated financial statements for the year ended December 31, 2014 for other related information.

(j) Employee benefits

i) Defined benefit plans

Management believes that there were no material market volatility, no material reimbursement and settlement or other material one-time events. As a result, the pension cost in the accompanying interim consolidated financial statements was measured and disclosed according to the actuarial report as of December 31, 2014 and 2013. The Group’s pension expenses recognized in profit or loss for the three months and six months ended June 30, 2015 and 2014 were as follows: For the Three Months Ended


June 30 2015 2014 2015 2014 Cost of goods sold $ 260 282 525 484Selling expense 97 96 181 160Administrative expense 279 254 556 480Research and development

expense 62 61 128 111 $ 698 693 1,390 1,235

15



(Continued)

ii) Defined contribution plans The Group allocates 6% of each employee’s monthly wages to the labor pension personal account at the Bureau of Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Group contributes a fixed amount to the Bureau of Labor Insurance without additional legal or constructive obligations. For the three months and the six months ended June 30, 2015 and 2014, the Group’s pension costs under the defined contribution method were $6,130, $4,089, $12,048, and $8,090, respectively. Payment was made to the Bureau of Labor Insurance. The pension cost of foreign subsidiaries recognized in accordance with the local defined contribution method amounted to $12,398, $12,626, $25,365, and $25,887 for the three months and the six months ended June 30, 2015 and 2014, respectively.

(k) Income tax

i) The components of income tax expense for the three months and six months ended June 30, 2015 and 2014 was as follows:

For the Three Months Ended


June 30 2015 2014 2015 2014 Current tax expense: Current income tax $ 91,694 95,610 187,728 161,993Prior years income tax

adjustment - (860) - (52)Deferred income tax: Recognition and reversal

of temporary differences 12,503 14,225 (7,614) 36,234Total $ 104,197 108,975 180,114 198,175

ii) As of June 30, 2015, the income tax returns of the Company and TSC Auto ID through the

year 2012 have been examined by the National Tax Administration.

16



(Continued)

iii) Related information about the integrated income tax system is as follows:

June 30, 2015

December 31, 2014

June 30, 2014

Unappropriated earnings of 1997 and

before $ 150,283 150,283 150,283 Unappropriated earnings of 1998 and after 877,951 1,142,646 886,570 $ 1,028,234 1,292,929 1,036,853 Balance of deductible tax account $ 102,567 65,841 63,142

2014 (actual)

2013 (actual)

Creditable ratio for earnings distribution to ROC residents 10.69 % 10.81 % The above information on the integrated income tax system is in accordance with the provision of Tai-Tsai-Shui No. 10204562810 issued by the Ministry of Finance on October 17, 2013.

v) Since funds are needed for expanding the overseas operations, the earnings of the Company’s

overseas subsidiaries will not be transferred back in the short run. In accordance with paragraph A39 of IAS 12 “Income Taxes”, the earnings’ book-tax difference should be considered permanent.

(l) Stockholders’ equity

i) Common stocks

In March 2015 and January 2014, the Company retired treasury stocks, and $50,000 and $10,000 of common stock, $99,215 and $13,310 of capital surplus, and $12,422 and $0 unappropriated earnings were eliminated, respectively. The related registration processes were completed. The Company issued employee stock options. A total of 196.5 and 182.5 applications for stock options were submitted and a total of 196.5 thousand and 182.5 thousand ordinary shares were issued for the six months ended June 30, 2015 and 2014, respectively, with a face value of $10 (dollars) per share. This action resulted in a premium of $524 and $613 when the price exceeds the ordinary share price, and this premium should be recognized as employee stock option premium under retained earnings. The related registration processes were completed.

17



(Continued)

As of June 30, 2015, December 31, 2014, and June 30, 2014, the authorized capital amounted to $3,600,000 (including the amount of $100,000 authorized for the issuance of the employee stock options); the Company’s outstanding capital amounted to $2,388,108, $2,436,143, and $2,434,643, respectively, with a par value of $10 (dollars) per share.

ii) Capital surplus

June 30, 2015

December 31, 2014

June 30, 2014

Premium on shares issued above par value $ 407,293 415,828 415,829Conversion premium of convertible

corporate bonds 409,712 409,712 409,712Treasury stock transactions 15,400 90,680 83,844Employee stock options premium 12,657 11,541 10,479Interest compensation payable on

convertible corporate bonds 17,020 17,020 17,020Employee stock options 8,831 8,769 7,876Change in affiliates recognized under equity

method 9,350 8,853 7,592 $ 880,263 962,403 952,352 According to the ROC Company Act, the realized capital surplus may be used to offset a deficit or distributed as cash or stock by the original ownership percentage if there is no accumulated deficit. Capital surplus includes the income derived from the issuance of new shares at a premium and income from donations received by a company. According to the current Securities and Futures Bureau regulations, capitalization of capital surplus cannot exceed a rate of ten percent.

iii) Legal reserve According to the ROC Company Act, the Company must retain 10% of its annual income as a legal reserve until such retention equals the amount of authorized common stock. Legal reserve can only be used to offset an accumulated deficit. If there are earnings at year-end, where legal reserve is distributed by issuing new shares or by cash, only the portion of legal reserve which exceeds 25% of the paid-in capital may be distributed, subject to the approval of the Company’s stockholders.

iv) Special reserve According to ROC SFB regulations, an ROC publicly listed company should retain a special reserve equal to any deductions from stockholders’ equity before distribution of earnings. If the aforementioned deduction from stockholders’ equity is reversed, the same amount could be removed from special reserve and transferred to unappropriated earnings. The remaining earnings may be distributed as stockholders’ dividends.

18



(Continued)

The increase in retained earnings occurring before the adoption date due to the first-time adoption of IFRSs amounted to $302,150. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory Commission on April 6, 2012, an increase in retained earnings due to the first-time adoption of IFRSs shall be reclassified as a special earnings reserve during earnings distribution. When the relevant assets are used, disposed of, or reclassified, this special earnings reserve shall be reversed as distributable earnings proportionately. The carrying amount of special earnings reserve amounted to $302,150 on June 30, 2015 and 2014. In accordance with the guidelines of the above Ruling, a portion of current-period earnings and undistributed prior-period earnings shall be reclassified as a special earnings reserve during earnings distribution. The amount to be reclassified should be equal to the difference between the total net current-period reduction of special earnings reserve resulting from the first-time adoption of IFRSs and the carrying amount of other shareholders’ equity as stated above. Similarly, a portion of undistributed prior-period earnings shall be reclassified as a special earnings reserve (which does not qualify for earnings distribution) to account for cumulative changes to other shareholders’ equity pertaining to prior periods due to the first-time adoption of IFRSs. Amounts of subsequent reversals pertaining to the net reduction of other shareholders’ equity shall qualify for additional distributions.

v) Distribution of earnings and dividend policy In accordance with the Company’s articles of incorporation, if there are earnings at year-end, 10 percent should be set aside as legal reserve. In addition, a special earnings reserve should be set aside or reversed in accordance with SFB regulations after the payment of income tax and the offsetting of accumulated losses from prior years. If there is a balance remaining, 1 percent should be set aside for directors’ remuneration and 4 to 10 percent for employee bonuses. The remaining portion will be combined with earnings from prior years, and the board of directors shall make a distribution proposal to be approved by the shareholders’ meeting. However, certain earnings may be retained depending on business conditions. The Company is in the growth stage of the industry life cycle. In consideration of future capital needs and operational development, cash dividends cannot be lower than 10% of total stock dividends. However, stock dividends instead of cash dividends are distributed if the cash dividends per share are less than $0.2 (dollars). According to the ROC Company Act amended in May 2015, the year-end earnings should no longer to be distributed as employee bonuses and directors’ and supervisors’ remuneration. The Company will revise the Company’s articles of incorporation before the date specified by the ROC SFB regulations. The employee bonuses and directors’ remuneration were estimated as the net income (net of tax and 10% legal reserve) for the six months ended June 30, 2014, multiplied by the expected ratio by taking into consideration the Company’s experience in the past. The Company recognized the employee bonuses of $18,000 and directors’ remuneration of $3,000 for the six

19



(Continued)

months ended June 30, 2014. Differences between the amount approved in the stockholders’ meeting and that recognized in the financial statements, if any, will be accounted for as changes in accounting estimates and recognized as profit or loss in the year in which the shareholders’ meeting is held. The annual shareholders’ meeting on June 18, 2015 and 2014, resolved to distribute earnings as dividends and as employee bonuses and directors’ remuneration for 2014 and 2013 as follows: 2014 2013 Amount

per share Total

Amount Amount

per share Total

Amount (dollars) (dollars) Dividends distributed to common

shareholders: Cash $ 2.00 477,622 1.20 291,986

Employee bonuses – cash $ 42,990 20,929 Directors’ remuneration 5,374 3,488 Total $ 48,364 24,417 The above distributions were consistent with the Company’s financial reports. Related information is available on the Market Observation Post System website. Also, in the distribution of 2013 earnings, the dividends belonging to the subsidiary of the group, TSC Auto ID, amounting to $6,836 were not regarded as earnings distribution, and were already deducted from the statement of changes in stockholders’ equity.

vi) Treasury stocks

In the years 2010 and 2011, in accordance with Article 28-2 of the Securities and Exchange Act, the Company bought back 1,000 thousand common shares for transferring to its employees, and the cost amounted to $23,310. As of January 2014, the Company had cancelled this treasury stock, and the Company has registered the change with the relevant authorities. Please refer to the Common stocks description. During the months of December 2014 and January 2015, in accordance with Article 28-2 of the Securities and Exchange Act, the Company repurchased 5,000 thousand common shares of stock, with a total value of $161,637, in order to protect the Company’s integrity and shareholders’ equity. As of March 2015, the Company had cancelled this treasury stock, and the Company has registered the change with the relevant authorities. Please refer to the Common stocks description.

20



(Continued)

In accordance with the Securities and Exchange Act, the number of shares of treasury stock shall not exceed 10% of the total shares of common stock issued by the Company. The total carrying amount of treasury stock shall not exceed the total amount of retained earnings plus additional paid-in capital and realized capital surplus. Treasury stock bought back for transfer to employees shall be transferred within three years from the date of buyback. Treasury stock not transferred within the above time limit shall be cancelled and deemed as not issued by the Company. As of June 30, 2015, the Company could repurchase no more than 23,881 thousand shares, with a total value of no more than $2,346,529. In accordance with Securities and Exchange Act requirements, treasury shares held by the Company should not be pledged, and do not hold shareholder rights before their transfer. As of June 30, 2015, a subsidiary of the Company, TSC Auto ID, held 7,700 thousand shares of the Company with a total value of $194,289, recognized under treasury stock. As of year-end 2015, the Company had recognized dividend income received from its TSC Auto ID subsidiary in the amount of $15,400, and the total amount was transferred to capital surplus – treasury stock under the equity method.

vii) Other equity

Foreign exchange differences arising

from foreign operation Balance as of January 1, 2015 $ 140,319 Foreign exchange differences (72,753) Balance as of June 30, 2015 $ 67,566 Balance as of January 1, 2014 $ 41,256 Foreign exchange differences (47,675) Balance as of June 30, 2014 $ (6,419)

(m) The employee bonuses and directors’ remuneration

The employee bonuses and directors’ remuneration were estimated as the income before income tax for the three months and six months ended June 30, 2015, multiplied by the expected ratio stated in the Company’s articles of incorporation. The Company recognized the employee bonuses of $11,400 and $22,880, and the directors’ remuneration of $1,500 and $3,000 for the three months and six months ended June 30, 2015. The differences between the amounts approved in the stockholders’ meeting and those recognized in the financial statements, if any, will be accounted for as changes in accounting estimates and recognized as profit or loss in following year.

21



(Continued)

(n) Share-based payment

There were no significant changes with share-based payment for the six months ended June 30, 2015 and 2014. Pleases refer to the 2014 annual consolidated financial statements.

(o) Earnings per share

i) Basic earnings per share



2015 2014 2015 2014 Net income $ 132,527 180,534 285,057 335,045Weighted-average number of

outstanding shares (thousands) 231,111 237,764 231,129 237,681

Basic earnings per share $ 0.60 0.76 1.23 1.41 ii) Diluted earnings per share



2015 2014 2015 2014 Net income $ 132,527 180,534 285,057 335,045Weighted-average number of

outstanding shares (thousands) 231,111 237,264 231,129 237,681

Employee stock options 1,511 1,879 1,511 1,879 Employee bonuses 2,226 1,035 2,226 1,035Diluted weighted-average

number of common shares outstanding (thousands) 234,848 240,178 234,866 240,595

Diluted earnings per share $ 0.56 0.75 1.21 1.39 (p) Financial Instruments

For the six months ended June 30, 2015 and 2014, there were no significant changes in fair value of financial instrument and exposures to credit risk, liquidity risk and market risk, except for the following. Please refer to the consolidated financial statements for the year ended December 31, 2014 for other related information.

22



(Continued)

i) Market risk

1) Currency risk exposure The Group’s significant exposure to foreign currency risk was as follows:

June 30, 2015 December 31, 2014 June 30, 2014 Exchange

rate Amount (TWD)

Exchange rate

Amount (TWD)

Exchange rate

Amount (TWD)

Financial assets Monetary Items

USD $ 30.86 1,357,854 31.65 1,182,980 29.865 1,666,688EUR 34.46 203,119 38.47 377,021 40.78 422,452JPY 0.2524 119,409 0.2646 102,989 0.2946 96,777

HKD 3.980 427,678 4.080 477,591 3.853 425,051RMB 4.973 810,356 5.092 1,255,206 4.811 1,131,241KRW 0.0277 747 0.0291 2,500 0.0273 1,648

$ 2,919,163 3,398,287 3,743,857Derivative financial

instruments

USD $ 30.86 5,433 31.65 - - - EUR 34.46 381 38.47 607 40.78 456

$ 5,814 607 456 Financial liabilities

monetary items USD $ 30.86 447,983 31.65 493,108 29.865 514,652EUR 34.46 8,826 38.47 26,122 40.78 19,335JPY 0.2524 44,884 0.2646 23,005 0.2946 25,402

HKD 3.980 4,157 4.080 2,939 3.853 9,063RMB 4.973 380,800 5.092 548,803 4.811 772,095KRW 0.0277 1,351 0.0291 2,493 0.0273 1,294

$ 888,001 1,096,470 1,341,841Derivative financial

instruments

USD $ 30.86 111 31.65 2,867 29.865 2,616EUR 34.46 5,691 - - -

$ 5,802 2,867 2,616 The Group’s exposure to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on financial assets and financial liabilities that are denominated in foreign currency.

If other variables were held constant, a 3% of appreciation (depreciation) of the TWD against other currencies as of June 30, 2015 and 2014, would have increased or decreased the net profit after tax by $60,935 and $71,996, respectively.

23



(Continued)

As of the three months and six months ended 2015 and 2014, the foreign currency exchange gains (losses), including realized and unrealized, were $3,584, ($29,420), ($37,531), and $12,044, respectively.

ii) Fair value and carrying amount 1) Book value and fair value

The Group’s financial assets and liabilities measured at fair value were as follows:

June 30, 2015 December 31, 2014 June 30, 2014 Carrying

amount Fair value

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets:

Cash and cash equivalents $ 2,549,827 2,549,827 2,554,950 2,554,950 2,599,473 2,599,473Financial assets at fair value

through profit or loss 446,071 446,071 140,928 140,928 180,611 180,611Notes and accounts receivable –

net 1,620,625 1,620,625 1,527,364 1,527,364 1,651,355 1,651,355Other receivables 72,887 72,887 75,975 75,975 118,868 118,868Other non-current assets 18,170 18,170 17,433 17,433 20,398 20,398

Financial liabilities:

Short-term borrowings 327,740 327,740 284,850 284,850 357,588 357,588Financial liabilities at fair value

through profit or loss 5,802 5,802 2,867 2,867 2,616 2,616Notes and accounts payable 1,098,136 1,098,136 953,807 953,807 1,252,031 1,252,031Other payables 447,052 447,052 534,152 534,152 448,338 448,338Dividends payable 658,942 658,942 - - 502,040 502,040Capital lease liabilities (including

current and non-current) 325,078 325,078 329,774 329,774 334,291 334,291Guarantee deposits received 2,089 2,089 - - - - Long-term borrowings (including

due within one year) - - 94,300 94,300 102,500 102,500 2) Valuation techniques and assumptions used in fair value determination

The Group uses the following methods in determining the fair value of its financial assets and liabilities: A) The fair value of short-term financial instruments is determined using the carrying

amount on the balance sheet. The carrying amount is a reasonable approximation of fair value since these instruments will mature soon. This method shall apply to cash and cash equivalents, trade and other receivables/payables, current tax assets, and refundable deposits/deposit received.

24



(Continued)

B) The fair value of financial assets with standard terms and conditions and traded in active liquid markets is determined with reference to quoted market prices, if the market for a financial instrument is not active, the fair value of derivative financial instruments is determined using a valuation technique, with estimates and assumptions consistent with those used by market participants, which are readily available to the Group.

C) The fair value of financial assets at cost was investments in non-public stocks, which

cannot be reliably measured and whose fair value cannot be estimated as there is no quoted price in the market.

D) Long-term borrowings and capital lease liabilities were interest-bearing and carried

fixed or floating interest rates. Therefore, the borrowed amount was the fair value.

3) Fair value hierarchy

The Group is primarily using observable market inputs to measure its assets and liabilities. The table below analyzes the financial instruments carried at fair value by the levels in the fair value hierarchy. The different levels have been defined as follows: A) Level 1: quoted prices (unadjusted) in active markets for identified assets or liabilities. B) Level 2: inputs other than quoted prices included within Level 1 that are observable

for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

C) Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs). Level 1 Level 2 Level 3 Total Balance as of June 30, 2015 Financial assets measured at fair value

through profit or loss $ 440,257 5,814 - 446,071 Financial liabilities measured at fair value

through profit or loss $ - 5,802 - 5,802 Balance as of December 31, 2014 Financial assets measured at fair value

through profit or loss $ 140,321 607 - 140,928 Financial liabilities measured at fair value

through profit or loss $ - 2,867 - 2,867 Balance as of June 30, 2014 Financial assets measured at fair value

through profit or loss $ 180,155 456 - 180,611 Financial liabilities measured at fair value

through profit or loss $ - 2,616 - 2,616

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(Continued)

There were no transfers of financial instruments between any levels for the six months ended June 30, 2015 and 2014.

(q) Financial risk management

There were no significant changes with purpose and policy of financial risk management for the year ended December 31, 2014.

(r) Capital management

Management believes that there were no changes in the Group’s approach to the targets, policies and procedures in capital management as disclosed in the consolidated financial statements for the year ended December 31, 2014. Also, they believe that for the six months ended June 30, 2015, there were also no changes in the Group’s capital management information. Please refer to the consolidated financial statements for the year ended December 31, 2014 for other related information.

7. Related-party Transactions

(a) Parent company and the ultimate controlling company

The Company is the ultimate controlling party of the Consolidated Company.

(b) Remuneration of key management personnel

The remuneration paid to the key management personnel was as follows: For the Three Months Ended


June 30 2015 2014 2015 2014 Short-term employment benefits $ 21,993 22,232 45,035 41,760 Post-employment benefits 705 526 1,348 1,052 Share-based payments 126 181 252 362 $ 22,824 22,939 46,635 43,174 Please refer to note 6 (n) for explanation related to share-based payment.

26



(Continued)

8. Pledged Assets

The Group’s assets pledged as collateral are summarized as follows:

Pledged assets Pledged to secure June 30,

2015 December 31,

2014 June 30,

2014 Land Collateral for bank borrowings

and syndicated loan $ - 127,283 127,283

Buildings and improvements " - 68,882 69,605Time deposits (recorded in

refundable deposit) Collateral for rental land 11,680

11,680

12,108

$ 11,680 207,845 208,996

9. Significant contingent liabilities and unrecognized contractual commitments

(a) The guarantee notes provided by the Group to the banks were as follows:

June 30, 2015

December 31, 2014

June 30, 2014

TWD $ 520,000 880,000 950,000 USD 9,500 15,500 16,000

(b) As of June 30, 2015, the Company has unused letters of credit issued by the Group.

10. Major casualty losses: None. 11. Significant subsequent events: None. 12. Other information

(a) The information on employee benefits, depreciation, and amortization expenses, by function, is summarized as follows:

By function

By item

For the Three Months Ended June 30, 2015


Cost of goods sold

Operatingexpenses Total

Cost of goods sold

Operating expenses Total

Employee benefits Salary 108,537 143,097 251,634 129,748 128,853 258,601

Labor and health insurance 13,751 11,994 25,745 12,294 11,066 23,360

Pension 14,162 5,064 19,226 12,714 4,710 17,424 Others 14,522 3,193 17,715 15,174 3,802 18,976Depreciation 67,772 8,194 75,966 70,586 6,461 77,047Amortization 21 1,517 1,538 89 1,468 1,557

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(Continued)

By function

By item

For the Six Months Ended June 30, 2015


Cost of goods sold

Operatingexpenses Total

Cost of goods sold

Operating expenses Total

Employee benefits Salary 236,081 271,564 507,645 249,114 254,359 503,473

Labor and health insurance 28,718 23,936 52,654 24,725 22,743 47,468

Pension 28,605 10,198 38,803 25,573 9,639 35,212 Others 29,809 6,714 36,523 30,042 7,725 37,767Depreciation 137,056 15,862 152,918 149,545 12,815 162,360Amortization 42 3,055 3,097 207 2,959 3,166

(b) Operating season

The seasons and business cycles have no effect on the Group’s operating results.

13. Segment Financial Information The information on operating departments is as follows:


RectifiersBar Code Printers

Adjustments and

eliminations Total Area revenue:

Third-party customers $ 1,191,357 745,474 - 1,936,831Inter-company 1,242,085 - (1,242,085) -

Total revenue $ 2,433,442 745,474 (1,242,085) 1,936,831Reported segment profit and loss $ 381,752 236,501 (274,361) 343,892

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Adjustments and


Third-party customers $ 1,381,076 654,678 - 2,035,754Inter-company 1,493,959 - (1,493,959) -

Total revenue $ 2,875,035 654,678 (1,493,959) 2,035,754Reported segment profit and loss $ 475,169 165,192 (273,474) 366,887



Adjustments and


Third-party customers $ 2,414,237 1,315,791 - 3,730,028Inter-company 2,499,015 - (2,499,015) -

Total revenue $ 4,913,252 1,315,791 (2,499,015) 3,730,028Reported segment profit and loss $ 708,974 374,734 (447,113) 636,595 For the Six Months Ended June 30, 2014


Adjustments and


Third-party customers $ 2,657,712 1,177,953 - 3,835,665Inter-company 2,787,521 - (2,787,521) -

Total revenue $ 5,445,233 1,177,953 (2,787,521) 3,835,665Reported segment profit and loss $ 832,333 313,141 (463,720) 681,754


Adjustments and

eliminations Total Reported segment assets

June 30, 2015 $ 15,220,321 2,836,954 (8,831,775) 9,225,500December 31, 2014 $ 15,867,880 2,379,126 (9,335,200) 8,911,806June 30, 2014 $ 15,377,739 2,598,462 (8,848,833) 9,127,368

Documents

TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES … · 2015-10-13 · See accompanying notes to consolidated financial statements. TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES