TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements June ... · 2014-12-12 · See accompanying notes to consolidated financial statements. TAIWAN SEMICONDUCTOR

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TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

June 30, 2014 and 2013 (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 subsidiaries as of June 30, 2014 and 2013, and the related consolidated statements of income for the three months and the six months ended June 30, 2014 and 2013, and the related consolidated statements of changes in stockholders’ equity and cash flows for the six months ended June 30, 2014 and 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to issue an opinion on these interim consolidated financial statements based on our reviews. Except as explained in the following paragraph, our reviews were made in accordance with the 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 accompany consolidated financial statement included certain non-significant consolidated subsidiaries under equity method, whose statements reflect the total assets of $1,581,254 thousand and $1,195,622 thousand, constituting 17.32% and 13.38% of the consolidated assets, and the total liabilities of $137,897 thousand and $238,651 thousand, constituting 4.12% and 7.20% of the consolidated liabilities as of June 30, 2014 and 2013, and the total comprehensive (loss) income of $20,547 thousand, ($15,876) thousand, $29,320 thousand and ($39,346) thousand, constituting 9.97%, (6.53%), 6.77% and (8.07%) of the consolidated comprehensive income for the three months and the six months ended June 30, 2014 and 2013. These amounts and the information were based solely on the unreviewed financial statements of these companies as of June 30, 2014 and 2013.

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 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, 2014

See accompanying notes to consolidated financial statements.


Consolidated Balance Sheets

June 30, 2014, and December 31 and June 30, 2013 (Expressed in thousand of New Taiwan dollars)

June 30, 2014 December 31, 2013 June 30, 2013

Assets Amount % Amount % Amount % Current assets: Cash and cash equivalents (note 6(a)) $ 2,599,473 28 2,249,445 27 2,440,828 27 Financial assets measured at fair value through profit or loss –

current (note 6(b)) 180,611 2 661 - 48,992 1 Notes receivable, net (note 6(c)) 22,100 - 17,676 - 22,466 - Accounts receivable, net (note 6(c)) 1,629,255 20 1,483,067 19 1,428,597 16 Other receivables 118,868 1 124,107 1 79,748 1 Current tax assets 4,596 - 2,052 - 25,184 - Inventories (note 6(d)) 1,206,482 13 1,125,352 13 1,336,916 15 Prepaid expenses 277,527 3 239,977 3 278,819 3 6,038,912 67 5,242,337 63 5,661,550 63Non-current assets: Financial assets carried at cost – non-current (note 6(b)) - - - - 853 - Property, Plant and Equipment (note 6(e)) 2,960,605 32 3,034,925 37 3,158,416 37 Intangible asset (note 6(f)) 17,225 - 16,024 - 17,454 - Deferred tax assets 40,005 - 36,847 - 44,590 - Other financial assets-non current 20,398 - 17,437 - 17,093 - Other non-current assets 50,223 1 41,822 - 38,509 - 3,088,456 33 3,147,055 37 3,276,915 37 Total assets $ 9,127,368 100 8,389,392 100 8,938,465 100

June 30, 2014 December 31, 2013 June 30, 2013 Liabilities and Stockholders’ Equity Amount % Amount % Amount % Current liabilities: Short-term borrowings (note 6(g)) $ 357,588 4 418,198 6 408,194 5 Financial liabilities meaured at fair value through profit or loss –

current (note 6(b)) 2,616 - - - 262 - Notes payable 7,477 - 12,348 - 12,245 - Accounts payable 1,244,554 15 952,232 14 1,169,769 13 Other payables 950,378 10 433,622 5 673,794 8 Current tax liabilities 151,139 2 120,255 1 96,960 1 Product warranty obligations (note 6(i)) 2,721 - 2,710 - 2,668 - Long-term borrowings due within one year (note 6(h)) 16,400 - 16,400 - 151,785 2 Capital lease liabilities –current 17,963 - 17,513 - 17,019 - Other current liabilities 14,498 - 16,800 - 19,735 - 2,765,334 31 1,990,078 26 2,552,431 29Non-current liabilities: Long-term borrowings (note 6(h)) 86,100 1 94,300 1 305,577 3 Employee benefits (note 6(k)) 35,863 - 35,252 - 35,090 - Deferred tax liabilities 145,183 2 107,606 1 97,467 1 Capital lease liabilities – non-current 316,328 3 321,133 4 325,747 4 583,474 6 558,291 6 763,881 8 Total liabilities 3,348,808 37 2,548,369 32 3,316,312 37Stockholders’ equity attributable to parent (note 6(m)): Common stock 2,434,643 27 2,442,818 29 2,439,968 27 Capital surplus 952,352 10 963,292 11 952,803 11 Retained earnings: Legal reserve 396,505 4 357,749 4 357,749 4 Special reserve 302,150 3 302,150 4 302,150 3 Unappropriated earnings 1,040,933 11 1,029,812 12 871,477 10 1,739,588 18 1,689,711 20 1,531,376 17 Other stockholders’ equity (6,419) - 41,256 - 30,387 - Treasury stock (127,755) (1) (151,065) (2) (25,393) - Total Stockholders’ equity attributable to parent 4,992,409 54 4,986,012 58 4,929,141 55 Non-controlling interests 786.151 9 855,011 10 693,012 8 Total stockholders’ equity 5,778,560 63 5,841,023 68 5,622,153 63 Total liabilities and stockholders’ equity $ 9,127,368 100 8,389,392 100 8,938,465 100



Consolidated Statements of Comprehensive Income

For the Three Months and the Six Months ended June 30, 2014 and 2013 (Expressed in thousand of New Taiwan dollars, except for earnings per common share)

For the Three Months ended June 30 For the Six Months ended June 30 2014 2013 2014 2013 Amount % Amount % Amount % Amount % Sales revenue $ 2,054,203 101 1,816,666 101 3,868,560 101 3,357,141 101Less: Sales returns and allowances 18,449 1 19,729 1 32,895 1 41,025 1Net sales revenue (Note 6(d)) 2,035,754 100 1,796,937 100 3,835,665 100 3,316,116 100Cost of goods sold 1,355,848 67 1,265,351 70 2,609,939 68 2,343,150 71Gross profit 679,906 33 531,586 30 1,225,726 32 972,966 29Operating expenses: Selling 169,486 8 145,065 8 321,615 8 272,578 8 Administrative 86,039 4 78,802 4 166,895 4 154,699 5 Research and development 35,944 2 30,932 2 68,568 2 61,036 2 291,469 14 254,799 14 557,078 14 488,313 15

Operating income 388,437 19 276,787 16 668,648 18 484,653 14Non-operating income and expenses: Finance expense (5,903) - (9,301) (1) (12,439) - (18,125) (1) Interest revenue 3,716 - 4,978 - 6,701 - 6,139 - Other income 3,891 - 10,492 1 12,494 - 16,215 - Foreign exchange (Loss) gains (29,420) (1) 3,150 - 12,044 - 25,742 1 Gains on disposal of investments - - 739 - 439 - 739 - Reverse impairment gain 26 - - 1,374 - - - Loss on disposal of property, plant and equipment (1,771) - (12,908) (1) (2,504) - (12,917) - Gains on financial assets (liabilities) measured at fair value through

profit (loss) 9,076 - 413 - (2,515) - 357 - Impairment loss - - (368) - - - (798) - Miscellaneous disbursements (1,181) - (645) - (2,520) - (1,215) - (21,566) (1) (3,450) (1) 13,074 - 16,137 - Income before income tax 366,871 18 273,337 15 681,722 18 500,790 14Income tax expense (Note 6(l)) 108,975 5 71,290 4 198,175 5 126,434 4

Consolidated net income 257,896 13 202,047 11 483,547 13 374,356 10Other comprehensive income:

Exchange differences on translation of foreign subsidiaries, before income tax (53,037) (3) 42,457 2 (51,479) (1) 116,793 4

Less: Income tax relating to components of other comprehensive income (1,145) - 1,496 - (934) - 3,806 -

Other comprehensive income, net of tax (51,892) (3) 40,961 2 (50,545) (1) 112,987 4Comprehensive income $ 206,004 10 243,008 13 433,002 12 487,343 14Net income attributable to: Owners of the parent $ 180,525 9 128,587 7 335,027 9 229,138 6 Non-controlling interests 77,371 4 73,460 4 148,520 4 145,218 4 $ 257,896 13 202,047 11 483,547 13 374,356 10Comprehensive income attributable to: Owners of the parent $ 132,151 6 164,981 9 287,352 7 330,508 10 Non-controlling interests 73,853 4 78,027 4 145,650 5 156,835 4 $ 206,004 10 243,008 13 433,002 12 487,343 14Basic earnings per common share (Note 6(o)) $ 0.76 0.53 1.41 0.94 Diluted earnings per common share (Note 6(o)) $ 0.75 0.53 1.39 0.94



Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months ended June 30, 2014 and 2013 (Expressed in thousand of New Taiwan dollars)

Stockholders’ equity attributable to Owners of the parent

Retained earnings

Other stockholders’

equity

Common stock

Capital surplus

Legal reserve

Special reserve

Unappropriated earnings

Accumulated translationadjustment

Treasury stock

Total equity attributable to Owners of

the parent Non-controlling

interests

Total stockholders’

equity Balance as of January 1, 2013 $ 2,439,968 950,684 341,155 - 1,082,582 (70,983) (23,310) 4,720,096 693,410 5,413,506 First-time application of IFRs for provision of special reserve - - - 302,150 (302,150) - - - - - Appropriation of earnings: Provision of legal reserve - - 16,594 - (16,594) - - - - - Cash dividends - - - - (121,499) - - (121,499) - (121,499) Net income - - - - 229,138 - - 229,138 145,218 374,356 Other comprehensive income - - - - - 101,370 - 101,370 11,617 112,987 Total comprehensive income - - - - 229,138 101,370 - 330,508 156,835 487,343 Share-based payment-employee stock options - 2,119 - - - - - 2,119 - 2,119 Subsidiaries purchase treasury stock - - - - - - (2,083) (2,083) - (2,083) Changes in non-controlling interests - - - - - - - - (157,233) (157,233) Balance as of June 30, 2013 $ 2,439,968 952,803 357,749 302,150 871,477 30,387 (25,393) 4,929,141 693,012 5,622,153 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 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 - - - - 335,027 - - 335,027 148,520 483,547 Other comprehensive income - - - - - (47,675) - (47,675) (2,870) (50,545) Total comprehensive income - - - - 335,027 (47,675) - 287,352 145,650 433,002 Share-based payment-employee stock options - 1,514 - - - - - 1,514 - 1,514 Employee stock options-exercised 1,825 613 - - - - - 2,438 - 2,438 Changes 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 1,040,933 (6,419) (127,755) 4,992,409 786,151 5,778,560



Consolidated Statements of Cash Flows

For the Six Months ended June 30, 2014 and 2013 (Expressed in thousand of New Taiwan dollars)

For the Six Months ended June 30 2014 2013 Cash flows from operating activities: Income before income tax $ 681,722 500,790 Adjustments: Adjustments for the non-cash effects of items of incomes and expenses: Depreciation expense 162,360 190,056 Amortization expense 3,166 2,905 Bad debt expense 302 178 Net gain on financial assets or liabilities at fair value through loss (profit) 2,515 (357) Interest expense 11,467 16,563 Interest income (6,701) (6,139) Share-based payments 1,514 2,119 Loss on disposal of property, plant and equipment 2,504 12,917 Gains on disposal of investments (439) - Impairment loss (Reverse impairment gain) (1,374) 798 Total adjustments for the non-cash effects of items of incomes and expenses 175,314 219,040 Net change in operating assets and liabilities: Net change in operating assets:

Decrease (increase) in financial assets measured at fair value through profit or loss (179,845) - Decrease (increase) in notes receivable (4,424) 6,811 Increase in accounts receivable (134,612) (200,430) Decrease in other receivable 7,127 16,218 Increase in inventories (81,130) (146,271) Increase in prepayments (86,085) (41,179) Increase in other financial assets (2,961) (2,656) Total net change in operating assets (481,930) (367,507) Net change in operating liabilities: Decrease in notes payable (4,871) (9,820) Increase in accounts payable 288,994 307,459 Increase in other payable 516,991 306,652 Increase in product warranty obligations 11 - Decrease in other current liabilities (2,302) (177) Increase (decrease) in accrued pension liabilities 611 (11,287) Total net change in operating liabilities 799,434 592,827 Total net change in operating assets and liabilities 317,504 225,320 Total adjustments 492,818 444,360 Cash inflows from operating activities 1,174,540 945,150 Interest received 6,661 5,935 Income taxes paid (135,416) (115,052) Net cash provided by operating activities 1,045,785 836,033 Cash flows from investing activities: Disposal of financial assets carried at cost 435 - Acquisition of property, plant and equipment (64,969) (71,545)

Disposal of property, plant and equipment 1,631 - Acquisition of intangible assets (4,384) (4,484)

Increase in other non-current assets (8,401) (417) Net cash used in investing activities (75,688) (76,446) Cash flows from financing activities: Increase (Decrease) in short-term loans (64,596) 87,272 Repayments in long-term loans (8,200) (75,892) Decrease in capital lease liabilities (11,456) (10,082) Payments of Cash dividends (285,150) (121,499) Employee stock option-exercised 2,438 - Purchase of treasury stock - (2,083) Interest paid (4,722) (10,351) Change in non-controlling interests (214,510) (157,233) Net cash used in financing activities (586,196) (289,868) Effect of exchange rate changes (33,873) 43,045 Net increase in cash and cash equivalents 350,028 512,764 Cash and cash equivalents, beginning of period 2,249,445 1,928,064 Cash and cash equivalents, end of period $ 2,599,473 2,440,828

(Continued)

TAIWAN SEMICONDUCTOR CO., LTD.AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2014 and 2013 (Amounts expressed in thousand 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 spun-off bar code printer business unit’s business value was $150,000, comprising related assets amounting to $357,957 and liabilities amounting to $207,957. TSC Auto ID categorically assumed all assets and liabilities and related rights and obligations after the date of record of the split. TSC Auto ID issued common stock of $150,000, with par value of 10 NT dollars, to the Company as acquisition cost. The Company and the subsidiaries consolidated in the preparation of the interim consolidated financial statements are referred to as the Group. The Group primarily is involved in the manufacture and sale of Rectifier and Bar Code.

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, 2014

3. New standards and interpretations not yet adopted (a) International Financial Reporting Standards 2013 version endorsed by the Financial Supervisory

Commissions Republic of China, but not yet in effect. According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, ‘Financial instruments’) as endorsed by the FSC in preparing the consolidated financial statements. The related new standards, interpretations and amendment are listed below:

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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 Benefit 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 IFRS 2013 version has no significant effect on the interim financial statement except for the following items: i) IAS 19 Employee Benefits

In the amended IAS 19, the net interest is determined by multiplying the net defined benefit liability (asset) by the discount rate, which replaced the interest cost and the expected returns on plan assets prior to the amendments, and eliminated the corridor method and the option to recognise changes in the net defined benefit liability (asset) in profit or loss. This standard requires all actuarial gains and losses that are recognised in other comprehensive income and past service costs that are recognised in profit or loss as incurred (other than those recognised in expenses using the straight-line method over an average duration under vesting conditions). In addition, an entity can no longer withdraw an offer of termination benefits or recognise the related restructured costs of early terminator as termination benefits. All termination benefits are recognised in liabilities and expenses (other than the related terminations that are committed demonstrably). Also, this standard requires an increase in disclosures on defined benefit plans.

4



(Continued)

ii) IAS 1 Presentation of Financial Statements

The amendment requires entities to separate the items (presented in OCI classified by nature) into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions are met. If the items are presented before tax, then the tax related to each of the two groups of OCI items (those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly, the consolidated company will adjust its presentation of the statement of comprehensive income.

iii) IFRS 12 Disclosure of Interests in Other Entities

The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. Accordingly, the Group will disclose additional information about its interests in consolidated entities and unconsolidated entities.

iv) IFRS 13 Fair Value Measurement

This standard defines the fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. Based on the Company’s assessment, the adoption of the standard has no significant impact on the consolidated financial statements of the Company, and the Company will disclose additional information about the fair value measurement accordingly.

(b) International Financial Reporting Standards issued by the International Accounting Standards

Board but not yet endorsed by the FSC A summary of the new standards and amendments issued by the International Financial Reporting Standards (hereinafter referred to as IASB) but not yet included in the IFRS 2013 version endorsed by the FSC:

New standards and amendments

Effective date per IASB

IFRS 9 Financial Instruments 2018.1.1 IFRS 14 Regulatory Deferral Accounts 2016.1.1 IFRS 15 Revenue from Contracts with Customers 2017.1.1 Amendments to IFRS 11 Accounting for Acquisitions of

Interests in Joint Operations 2016.1.1

Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation

2016.1.1

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

2016.1.1

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

2014.1.1

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(Continued)

New standards and amendments

Effective date per IASB

Amendments to IAS 39 – Novation of Derivatives and

Continuation of Hedge Accounting 2014.1.1

IFRIC 21 Levies 2014.1.1 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, 2013. For other related information, please refer to the consolidated financial statements for the year ended December 31, 2013.

(b) Basis of Consolidation

The principles applied in the preparation of the interim consolidated financial statements are consistent with the consolidated financial statements for the year ended December 31, 2013. For information about the principles, please refer to the consolidated financial statements for the year ended December 31, 2013.

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(Continued)

i) List of subsidiaries in the consolidated financial statements

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

TSCZ close down its business during the year 2013 with the liquidation date set at July 17, 2013. The liquidation process has already been completed.

Shareholding

Name of Investor Name of subsidiary Principal activityJune 30,

2014 December 31,

2013 June 30,

2013 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 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

37.06% 37.10% 37.48%

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%

TSCH TAIWANSEMI (Shenzhen) Co., Ltd. (TSCZ)

Trading of rectifiers -% -% 100.00%

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 wafer

100.00% 100.00% 100.00%

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

Bar code printers and other parts trading

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%

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(Continued)

(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.

5. Major sources of accounting assumptions, judgments and 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 2013 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 2013 annual consolidated financial statements. Pleases refer to the 2013 annual consolidated financial statements.

8



(Continued)

(a) Cash and cash equivalents

June 30, 2014

December 31, 2013

June 30, 2013

Cash on hand $ 650 774 684 Checking and savings accounts 2,212,190 1,768,564 1,970,144 Time deposits 256,633 330,107 150,000 Guaranteed deposit with short rate 130,000 150,000 320,000 $ 2,599,473 2,249,445 2,440,828

(b) Financial instruments

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

June 30, 2014

December 31, 2013

June 30, 2013

Financial assets at fair value through

profit or loss – current:

beneficiary certificates $ 180,155 - 48,992 Forward exchange contracts 456 661 -

$ 180,611 661 48,992 Non-current:

Financial assets carried at cost $ - - 853Current:

Financial liabilities at fair value through profit or loss

Forward exchange contracts $ 2,616 - 262

As for June 30, 2014 and June 30 and December 31, 2013, there is 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) as follows:

June 30, 2014

December 31, 2013

June 30, 2013

Contract amount

Currency

Contract period

Contract amount

Currency

Contract period

Contract amount

Currency

Contract period

Selling forward 8,000 USD 2014.01~

2014.07600 EUR 2013.10~

2014.02 1,500 USD 2013.05~

2013.07Selling forward 500 EUR 2014.04~

2014.074,000 USD 2013.10~

2014.02 1,500 USD 2013.06~

2013.08Buying forward 2,000 USD 2014.03~

2014.08- - - - - -

9



(Continued)

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.

(c) Notes and accounts receivable, net

June 30, 2014

December 31, 2013

June 30, 2013

Notes receivable $ 22,498 18,074 22,864 Accounts receivable 1,670,265 1,531,903 1,470,531 Less: allowance for doubtful accounts (20,307) (20,102) (20,651)

allowance for sales returns and discounts (21,101) (29,132) (21,681) $ 1,651,355 1,500,743 1,451,063 The Group’s overdue, but not yet impaired, note and account receivable aging analysis are as follows: June 30,

2014 December 31,

2013 June 30,

2013 1~3 months overdue $ 221,854 224,225 172,662 4~6 months overdue 5,175 3,621 4,309 7~9 months overdue 43 1,706 307 10~12 months overdue 75 - 38 Over a year overdue 1,700 71 71 $ 228,847 228,993 177,387 The movement in the provision for impairment with respect to note and account receivables of the group: Collectively

assessed impairment

As of January 1, 2014 $ 20,102 Impairment loss recognized 227 Effect of movement in exchange rates (22) As of June 30, 2014 $ 20,307

10



(Continued)

Collectively

assessed impairment

As of January 1, 2013 $ 19,557 Impairment loss recognized 998 Effect of movement in exchange rates 96 As of June 30, 2013 $ 20,651 The recognition of allowance for doubtful accounts is base on the current economic, customers’ historical payment behavior and extensive analysis on the customers’ creditability. The allowance for doubtful accounts should be recognized under expense, unless, the Company believes that the doubtful account is uncollectable. Once the doubtful account is recognized as uncollectable, it should be written-off and reclassified under financial assets. As of June 30, 2014, none of the Group’s collectable receivables have any significant impairment.

(d) Inventories

June 30, 2014

December 31, 2013

June 30, 2013

Finished goods $ 631,348 696,676 771,978 Less: provision for obsolescence and

devaluation (81,114) (110,024) (115,369) 550,234 586,652 656,609 Work in process 225,032 192,292 214,539 Less: provision for obsolescence and

devaluation (28,099) (27,299) (29,144) 196,933 164,993 185,395 Raw material and supplies 279,898 245,369 361,911 Less: provision for obsolescence and

devaluation (14,432) (12,770) (20,677) 265,466 232,599 341,234 Inventories in transit 193,849 141,108 153,678 $ 1,206,482 1,125,352 1,336,916 Raw material, consumables and changes in finished goods, and work in progress recognized as cost of sales amounted to $1,419,191 thousand , $1,255,382 thousand, $2,657,663 thousand and $2,345,805 thousand from April 1 to June 30, 2014 and 2013, and from January 1 to June 30, 2014 and 2013, respectively.

11



(Continued)

Write-down of inventories to net realizable value in the amount of $9,969 was included in the cost of goods sold from April 1, 2013 to June 30, 2013. The write off of valuation allowance due to obsolescence of inventories resulted in a reduction in the cost of goods sold amounting to $63,343, $47,724 and $2,655 from April 1, 2013 to June 30, 2013, for the six-month periods then ended January 1, 2014 and 2013, respectively.

None of inventories of the group are pledged and collated.

(e) Property, plant and equipment

Land

Building and construction

Machinery and equipment

Other equipment

Lease property

Under construction Total

Carrying amount: Balance at 1 January 2014 $ 478,532 1,045,952 1,115,003 75,649 319,789 - 3,034,925 Balance at 30 June 2014 $ 478,532 1,022,657 1,071,043 68,584 319,789 - 2,960,605 Balance at 1 January 2013 $ 478,532 1,051,828 1,354,858 68,318 319,789 1,000 3,274,325 Balance at 30 June 2013 $ 478,532 1,046,135 1,251,055 62,905 319,789 - 3,158,416

i) For the six months ended June 30, 2014 and 2013, 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, 2013 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 wish to 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. 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, 2014 and 2013, the leasehold land cost was revised as $319,789.

12



(Continued)

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, 2014 and 2013, amounting to $643 thousand and $101 thousand, respectively. The interest capitalization rates were 3.00%.

(f) Intangible assets

Trademarks

right Software Total Carrying value: Balance at 1 January, 2014 $ 86 15,938 16,024 Balance at 30 June, 2014 $ 74 17,151 17,225 Balance at 1 January, 2013 $ 107 17,981 18,088 Balance at 30 June, 2013 $ 96 17,358 17,454 For the six months ended June 30, 2014 and 2013, 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, 2013 for other related information.

(g) Long and short term borrowings

i) Short term borrowings:

June 30, 2014

December 31, 2013

June 30, 2013

Secured loans $ 88,803 149,953 120,806 Credit loans 268,785 268,245 287,388 $ 357,588 418,198 408,194 Interest rate range (%) 1.05~1.85 0.87~2.04 0.85~2.00 Please refer to notes 8 and 9 for disclosures on mortgaged and pledged assets.

13



(Continued)

ii) Long term borrowings:

Creditor PurposeJune 30,

2014 December 31,

2013 June 30,

2013 Cosmos Bank Purchase of office $ 102,500 110,700 118,900Taiwan Cooperative

Bank Redemption of bonds and working capital for operations - - 338,462

Less: Current portion of long-term borrowings (16,400) (16,400) (151,785) $ 86,100 94,300 305,577Interest rate range (%) 1.72 1.72 1.72~2.40

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

(h) Product warranty obligations

June 30, 2014

December 31, 2013

June 30, 2013

Product warranty obligations $ 2,721 2,710 2,668 For the six months ended June 30, 2014 and 2013, there were no significant changes in product warranty obligations. Please refer to the consolidated financial statements for the year ended December 31, 2013 for other related information.

(i) Lease For the six months ended June 30, 2014 and 2013, 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, 2013 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, 2013 and 2012.

14



(Continued)

The Group’s pension expenses recognized in profit or loss for the three months and six months ended June 30, 2014 and 2013 were as follows: For the Three Months Ended

June 30 For the Six Months Ended

June 30 2014 2013 2014 2014 Cost of goods sold $ 282 198 484 387Sales expense 96 53 160 98Administration expense 270 171 512 338Research and development

expense 61 57 111 118Defined benefit obligation

on December 31 $ 709 479 1,267 941 ii) Defined contribution plans

The Company and TSC Auto ID allocate 6% of each employee’s monthly wages to the Labor pension personal account at the Bureau of the Labor Insurance in accordance with the provisions of the Labor Pension Act. Under this defined contribution plan, the Group allocates a fixed amount to the Bureau of the Labor Insurance without additional legal or constructive obligations. For the three months and the six months ended June 30, 2014 and 2013, the Group’s pension costs under the defined contribution method were $4,089 thousand, $3,925 thousand, $8,090 thousand and $8,094 thousand, respectively. Payment was made to the Bureau of Labor Insurance. The pension cost of foreign subsidiaries recognized in accordance under the local defined contribution method amounting to $12,626 thousand, $11,926 thousand, $25,887 thousand and $23,035 thousand, respectively for the three months and the six months ended June 30, 2014 and 2013.

15



(Continued)

(k) Income tax

i) The components of income tax expense for the three months and six months ended June 30, 2014 and 2013 was as follows:

For the Three Months Ended

June 30 For the Six Months Ended

June 30 2014 2013 2014 2014 Current income tax $ 95,610 71,193 161,993 119,589Prior years income tax adjustment (860) (3,063) (52) (3,063) $ 94,750 68,130 161,941 116,526 Deferred income tax 14,225 3,160 36,234 9,908Total $ 108,975 71,290 198,175 126,434

ii) As of June 30, 2014, the income tax returns of the Company and TSC Auto ID through the

year 2011 have been examined by the National Tax Administration.

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

June 30, 2014

December 31, 2013

June 30, 2013

Unappropriated earnings of 1997 and

before $ 150,283 150,283 150,283 Unappropriated earnings of 1998 and after 890,650 879,529 721,194 $ 1,040,933 1,029,812 871,477 Balance of deductible tax account $ 63,142 66,180 62,232

2013 (estimated)

2012 (actual)

Creditable ratio for earnings distribution to ROC residents 10.81% 6.43% 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.

16



(Continued)

v) Funds are needed for expanding the overseas’ operation, the earnings of the Company’s oversea subsidiaries will not be transferred back in the long run. In accordance to paragraph A39, IAS 12-“Income Taxes”, the earnings’ book-tax difference should be considered as permanent.

(l) Stockholders’ equity

i) Common stocks

In January 2014, the Company had retired treasury stocks, and the value of $10,000 thousand common stocks and $13,310 capital surplus were eliminated. The related registration processes were completed. The Company issued employee stock option. From January 1, 2014 to June 30, 2014, a total of 182.5 applications of stock option and a total of 182.5 ordinary shares are being issued; with a face value of $10 per share. This action will results to a premium of $613 thousand when the price exceed the ordinary share and this premium should be recognized as employee stock option premium under retained earnings. The Company has registered the change with the relevant authorities. As of June 30, 2014, and December 31, 2013 and June 30, 2013, 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 $2,434,643 thousand, $2,442,818 thousand and $2,439,968 thousand, respectively, with a par value of $10 per share.

ii) Capital surplus

June 30, 2014

December 31, 2013

June 30, 2013

Premium on shares issued above par value$ 415,829 417,545 417,545 Conversion premium from convertible

corporate bonds 409,712 409,712 409,712 Treasury stock transactions 83,844 95,438 95,438 Issued premium from employee stock

options 10,479 9,110 6,973 Interest compensation payable on

convertible corporate bonds 17,020 17,020 17,020 Employee stock options 7,876 7,118 6,115 Change in affiliates recognition under

equity method 7,592 7,349 - $ 952,352 963,292 952,803

17



(Continued)

According to the ROC Company Act amended in January 2012, the reserve may be used to offset a deficit, or to distribute as cash or stocks by the original ownership percentage if there is no accumulated deficit. Capital surplus included the income was derived from the issuance of new shares at a premium and income from the endowments received by the 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 is 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. In accordance with stipulation Jing-Guan-Zheng-Fa No. 1010012865 issued by the FSC, the Company applied the deemed-cost and CTDs exemption under IFRS 1 to increase its special reserves by $302,150 as increase on retained earnings, recognized as special earnings reserve under shareholders’ equity upon an entity’s first-time adoption for IFRSs. However, if the Company will use, dispose and reclassify relevant assets in the future, it will only increase a net amount (net of deducting reduction item) on retained earnings. The Company can reverse and allocate earnings proportionately by the amount increased special reserves upon an entity’s first-time adoption for IFRSs. As of June 30, 2014, the Company’s carrying amount of special reserve was $302,150 thousand. 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 be qualified for additional distributions.

18



(Continued)

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, 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’ and supervisors’ remuneration and 4 to 10 percent should be set aside 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, the 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). The employee bonuses and remuneration to directors and supervisors were estimated according to the net income (net of tax and 10% legal reserve) for the six months end June 30, 2014 and 2013, multiplied by the expected ratio by taking into consideration the Company’s experience in the past. The Company recognized the employee bonuses amounting to $18,000 thousand and $11,076 thousand, respectively, and the remuneration to directors and supervisors amounting to $3,000 thousand and $1,846 thousand, respectively. If the subsequent resolution by the shareholders’ meeting differs from the amount recognized in the financial statements, the difference is accounted for as a change in accounting estimates and recorded under current-period profit/loss. The annual shareholders’ meeting of the Company on June 18, 2014, and June 19, 2013, resolved to distribute earnings as employees’ bonuses and directors’ and supervisors’ remuneration for 2013 and 2012as follows: 2013 2012 Amount

per share Total

Amount Amount

per share Total

Amount Dividends distributed to common

shareholders: Cash $ 1.20 291,986 0.50 121,499

Employees’ bonuses – cash $ 20,929 8,913 Directors’ and supervisors’ remuneration 3,488 1,485 $ 24,417 10,398

19



(Continued)

The above distributions were consistent with the Company’s financial reports. Related information would be 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 thousand were not regarded as earnings distribution, and were already deducted from the statement of changes in stockholders’ equity.

vi) Treasury stocks

As of the year 2010 and 2011, in accordance with Article 28-2 of the Securities and Exchange Act, the Company started to buy back treasury stock for transferring stock to its employees and to maintain the credit of the Company and shareholders’ interests for the 1,000 thousand common share, of treasury stock bought back, and the cost amounted to $23,310 thousand. As of January 2013, the Company cancelled these treasury stocks and the Company has registered the change with the relevant authorities. Please refer to Common stocks description. 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 deemed as not issued by the Company and cancelled. Based on the financial statements on June 30, 2014, the maximum number of shares and the maximum amount the Company could buy back as of June 30, 2014, were 24,346 thousand shares and $2,374,322 thousand, respectively. In accordance with the provisions of the Securities and Exchange Act, the treasury stock held by the Company may not be pledged, and before it is transferred, it cannot exercise the rights of stockholders. As of June 30, 2014, the subsidiary of the Group, TSC Auto ID, held 5,700 thousand shares of the Company with cost $127,755 thousand and was recognized under treasury stock.

vii) Other equity

Foreign exchange differences arising

from foreign operationBalance as of January 1, 2014 $ 41,256 Foreign exchange differences (47,675) Balance as of June 30, 2014 $ (6,419) Balance as of January 1, 2013 $ (70,983) Foreign exchange differences The Group – the Company 101,370 Balance as of June 30, 2012 $ 30,387

20



(Continued)

(m) Share-based payment

There were no significant changes with share-based payment for the six months end June 30, 2014 and 2013. Pleases refer to the 2013 annual consolidated financial statements.

(n) Earnings per share

i) Basic earnings per share

From April to June From January to June 2014 2013 2014 2013 Net income $ 180,525 128,587 335,027 229,138Weighted average of

outstanding stocks (thousands) 237,764 242,994 237,681 242,994

Basic earnings per share ($) $ 0.76 0.53 1.41 0.94 ii) Diluted earnings per share

From April to June From January to June 2014 2013 2014 2013 Net income $ 180,525 128,587 335,027 229,138Weighted average of

outstanding stocks (thousands) 237,764 242,994 237,681 242,994

Employee stock options 1,879 179 1,879 179 Employees’ bonuses 1,035 600 1,035 600Diluted weighted-average

common stock outstanding (thousands) 240,678 243,773 240,595 243,779

Diluted earnings per share ($) $ 0.75 0.53 1.39 0.94 (o) Financial Instruments

For the six months ended June 30, 2014 and 2013, 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, 2013 for other related information.

21



(Continued)

i) Currency risk

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

June 30, 2014 December 31, 2013 June 30, 2013 Exchange

rate Amount (TWD)

Exchange rate

Amount (TWD)

Exchange rate

Amount (TWD)

Financial assets Monetary Items

USD $ 29.865 1,666,688 29.805 1,111,717 30.00 1,353,184EUR 40.78 422,452 41.09 267,178 39.15 301,737JPY 0.2946 96,777 0.2839 70,326 0.3036 100,634HKD 3.853 425,051 3.843 395,910 3.867 362,516RMB 4.811 1,131,241 4.919 1,329,558 4.888 1,037,900KRW 0.0273 1,648 0.0283 1,675 0.0265 4,199

$ 3,743,857 3,176,364 3,160,170derivative financial

instruments

USD $ - - 30.275 650 - - EUR 40.78 456 41.09 11 - -

$ 456 661 - Non-monetary items

USD $ - - - - 30.00 152Financial liabilities

Monetary items USD $ 29.865 514,652 29.805 487,111 30.00 619,529EUR 40.78 19,335 41.09 30,594 39.15 26,884JPY 0.2946 25,402 0.2839 11,168 0.3036 21,292HKD 3.853 9,063 3.843 4,775 3.867 16,004RMB 4.811 772,095 4.919 681,839 4.888 718,564KRW 0.0273 1,294 0.0283 1,656 0.0265 595

$ 1,341,841 1,217,143 1,402,868derivative financial

instruments

USD $ 29.865 2,616 - - 30.00 262

2) Sensitivity analysis The Group’s exposure to foreign currency risk arises from foreign currency denominated financial assets, financial liabilities, and translation of the foreign currency exchange gains and losses. With other factors remain unchanged and similar basis is adopted, as of June 30, 2014 and 2013, the Taiwan dollar depreciated or appreciated by 3% and the net income after tax increased or decreased by $59,756 thousand and $43,754 thousand, respectively.

22



(Continued)

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

The Group’s financial assets and liabilities measured at fair value are as follow:

June 30, 2014 December 31, 2013 June 30, 2013 Carrying

amountFair value

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets:

Cash and cash equivalents $ 2,599,473 2,599,473 2,249,445 2,249,445 2,440,828 2,440,828Financial assets at fair value

through profit or loss 180,611 180,611 661 661 48,992 48,992Notes and accounts receivable-net 1,651,355 1,651,355 1,500,743 1,500,743 1,451,063 1,451,063Other receivables 118,868 118,868 124,107 124,107 79,748 79,748Current tax assets 4,596 4,596 2,052 2,052 25,184 25,184Financial assets carried at cost - - - - 853 - Other non-current assets 20,398 20,398 17,437 17,437 17,093 17,093

Financial liabilities:

Short-term borrowings 357,588 357,588 418,198 418,198 408,194 408,194Financial liabilities at fair value

through profit or loss 2,616 2,616 - - 262 262Notes and accounts payable 1,252,031 1,252,031 964,580 964,580 1,182,014 1,182,014Other payables 950,378 950,378 433,622 433,622 673,794 673,794Current tax liabilities 151,139 151,139 120,255 120,255 96,960 96,960Capital lease liabilities (including

current and non-current) 334,291 334,291 338,646 338,646 342,766 342,766Long-term borrowings (including

due within one year) 102,500 102,500 110,700 110,700 457,362 457,362 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 certain instruments will be matured soon. This method shall apply to cash and cash equivalents, trade and other receivables/payables, current tax assets, refundable deposits/deposit received.

B) The Group measures the fair value of financial assets that are traded in active markets

by a quoted price. If the market for a financial instrument is not active, the Group establishes its fair value using a valuation technique. Assumptions of the valuation technique shall be the same as what the market participants would consider in setting a price.

23



(Continued)

C) Fair value of financial assets carried at cost were investments in non-public stocks, cannot be estimated because it does not have a quoted market price in an active market and its fair value cannot be measured reliably.

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 table below analyses 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: the quoted price for an identical financial instrument in an active market. B) Level 2: the observable price other than quoted price in an active market including an

observable input obtained in an active market, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

C) Level 3: not based on obtainable data from the market (An unobservable input). Level 1 Level 2 Level 3 Total 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 Balance as of December 31, 2013 Financial assets measured at fair value

through profit or loss $ - 661 - 661 Balance as of June 30, 2013 Financial assets measured at fair value

through profit or loss $ 48,992 - - 48,992 Financial liabilities measured at fair value

through profit or loss $ - 262 - 262

There have been no transfers from each level for the six months ended June 30, 2014 and 2013.

(p) Management of financial risk

There were no significant changes with purpose and policy of financial risk management for the year ended December 31, 2013.

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(Continued)

(q) 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, 2013. Also, they believe that for the six months ended June 30, 2014, 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, 2013 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 as follows: April to June, April to June, January to June, January to June, 2014 2013 2014 2013 Short-term employment benefits $ 22,232 22,057 41,760 40,709 Post-employment benefits 526 455 1,052 909 Share-based payments 181 299 362 636 $ 22,939 22,811 43,174 42,254 Please refer to note 6 (n) for explanation related to share-based payment.

8. Pledged Assets

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

Pledged assets Pledged to secure June 30,

2014 December 31,

2013 June 30,

2013 Land Collateral for bank borrowings

and syndicated loan credit $ 127,283 127,283 147,357

Buildings and improvements " 69,605 70,328 186,200Machinery and equipment " - - 48,384Time deposits (recorded in

refundable deposit) Collateral for rental land 12,108

11,656

11,633

$ 208,996 209,267 393,574

25



(Continued)

9. Significant contingent liabilities and unrecognized contractual commitments

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

June 30, 2014

December 31, 2013

June 30, 2013

TWD $ 950,000 900,000 930,000 USD 16,000 16,000 17,500

(b) As of June 30, 2014, the Company has unused letters of credit issued by the Consolidated

Company.

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

April to June, 2014 April to June, 2013

Cost of goods sold

OperatingExpenses Total

Cost of goods sold

Operating Expenses Total

Employee benefits Salary 129,748 128,853 258,601 122,600 112,213 234,813

Labor and health insurance 12,294 11,066 23,360 10,898 9,562 20,460

Pension 12,714 4,726 17,440 11,578 4,752 16,330 Others 15,174 3,802 18,976 13,600 3,310 16,910Depreciation 70,586 6,461 77,047 95,667 8,063 103,730Amortization 89 1,468 1,557 162 1,325 1,487

26



(Continued)

By function

By item

January to June, 2014 January to June, 2013

Cost of goods sold

OperatingExpenses Total

Cost of goods sold

Operating Expenses Total

Employee benefits Salary 249,114 254,359 503,473 225,034 215,468 440,502

Labor and health insurance 24,725 22,743 47,468 21,266 19,217 40,483

Pension 25,573 9,671 35,244 22,971 9,099 32,070 Others 30,042 7,725 37,767 25,613 6,684 32,297Depreciation 149,545 12,815 162,360 173,935 16,121 190,056Amortization 207 2,959 3,166 325 2,580 2,905

(b) Unrecorded adjusting entries

In accordance with the Statute for Upgrading Industries, the Company and subsidiaries recorded a provision for loss on foreign investment equal to 20% of the foreign investment made and recognized it as periodic expenses. According to the regulation, in the event the Company and subsidiaries incur no actual investment loss within five years of the appropriation, the unused reserve shall be taken as income in the fifth year. Such provision is not acceptable under generally accepted accounting principles in the ROC. The provision has been reversed when preparing the accompanying consolidated financial statements. As of June 30, 2014 and December 31 and June 30, 2013, the provision for loss on foreign investment amounted to $0 thousand, $0 thousand and $26,204 thousand, respectively.

13. Segment Financial Information

The information on operating departments is as follows:

April to June, 2014

Rectifier Bar Code

Adjustments and

eliminations Total Area revenue:

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 $ 475,164 165,181 (273,474) 366,871

27



April to June, 2013

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Adjustments and


Third-party customers $ 1,250,200 546,737 - 1,796,937Inter-company 1,367,245 - (1,367,245) -

Total revenue $ 2,617,445 546,737 (1,367,245) 1,796,937Reported segment Profit and loss $ 367,085 155,527 (249,275) 273,337

January to June, 2014

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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 $ 832,323 313,119 (463,720) 681,722 January to June, 2013

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Adjustments and


Third-party customers $ 2,267,533 1,048,583 - 3,316,116Inter-company 2,464,960 - (2,464,960) -

Total revenue $ 4,732,493 1,048,583 (2,464,960) 3,316,116Reported segment Profit and loss $ 592,478 306,012 (397,700) 500,790

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Adjustments and

eliminations Total Reported segment assets June 30, 2014 $ 15,377,739 2,598,462 (8,848,833) 9,127,368December 31, 2013 $ 14,676,858 2,122,400 (8,409,866) 8,389,392June 30, 2013 $ 14,929,977 2,275,563 (8,267,075) 8,938,465January 1, 2013 $ 13,551,932 1,837,506 (7,291,429) 8,098,009

Documents

TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements June ... · 2014-12-12 · See accompanying notes to consolidated financial statements. TAIWAN SEMICONDUCTOR