TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements June 30, 2015 and 2014 (With Independent Auditors Report Thereon)

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1 TAIWAN SEMICONDUCTOR CO., LTD. AND SUBSIDIARIES Consolidated Financial Statements 2015 and (With Independent Auditors Report Thereon)

2 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 2015 and (restated), and the related consolidated statements of comprehensive income for the three months and the six months ended 2015 and (restated), and the related consolidated statements of changes in stockholders equity and cash flows for the six months ended 2015 and (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 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 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 2015 and (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 2015 and (restated), respectively. These amounts and the information were based solely on the unreviewed financial statements of these companies as of 2015 and (restated).

3 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 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.

4 Consolidated Balance Sheets 2015, and December 31 and (expressed in thousands of New Taiwan dollars) 2015 December 31, Assets Amount % Amount % Amount % (restatement) (restatement) Current assets: Cash and cash equivalents (note 6(a)) $ 2,549, ,554, ,599, Financial assets measured at fair value through profit or loss current (note 6(b)) 446, , ,611 2 Notes receivable, net (note 6(c)) 24,347-20,418-22,100 - Accounts receivable, net (note 6(c)) 1,596, ,506, ,629, Other receivables 72, , ,868 1 Current tax assets 5,656-5,510-4,596 - Inventories (note 6(d)) 1,146, ,107, ,206, Prepaid expenses 183, , , ,025, ,600, ,038, Non-current assets: Property, plant and equipment (note 6(f)) 3,065, ,080, ,960, 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, , , ,199, ,310, ,088, Total assets $ 9,225, ,911, ,127, December 31, Liabilities and Stockholders Equity Amount % Amount % Amount % (restatement) (restatement) Current liabilities: Short-term borrowings (note 6(h)) $ 327, , ,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, , ,244, Other payables 447, , ,338 5 Dividends payable 658, ,040 5 Current tax liabilities 167, , ,139 2 Product warranty obligations 10,249-4,498-2,721 - Long-term borrowings due within one year (note 6(h)) ,400-16,400 - Capital lease liabilities current 18,610-18,226-17,963 - Other current liabilities 14,923-15,952-14,498-2,748, ,963, ,765, Non-current liabilities: Long-term borrowings (note 6(h)) , ,100 1 Employee benefits (note 6(j)) 42,787-41,849-41,720 - Deferred tax liabilities 255, , ,183 2 Capital lease liabilities non-current 306, , ,328 3 Guarantee deposits received 2, , , ,331 6 Total liabilities 3,355, ,657, ,354, Stockholders equity attributable to parent (note 6(l)): Common stock 2,388, ,436, ,434, Capital surplus 880, , , Retained earnings: Legal reserve 456, , ,505 4 Special reserve 302, , ,150 3 Unappropriated earnings 1,028, ,292, ,036, ,786, ,991, ,735, Other stockholders equity 67, ,319 2 (6,419) - Treasury stock (194,289) (2) (247,383) (3) (127,755) (1) Total Stockholders equity attributable to parent 4,928, ,283, ,988, Non-controlling interests 941, , ,374 9 Total stockholders equity 5,870, ,254, ,772, Total liabilities and stockholders equity $ 9,225, ,911, ,127, See accompanying notes to consolidated financial statements.

5 Consolidated Statements of Comprehensive Income For the Three Months and the Six Months ended 2015 and (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 Amount % Amount % Amount % Amount % (restatement) (restatement) Sales revenue $ 1,950, ,054, ,755, ,868, Less: Sales returns and allowances 13, , , ,895 1 Net sales revenue 1,936, ,035, ,730, ,835, Cost of goods sold (note 6(d)) 1,281, ,355, ,456, ,609, Gross profit 654, , ,273, ,225, Operating expenses: Selling 166, , , ,615 8 Administrative 98, , , ,863 4 Research and development 51, , , , , , , , Operating income 338, , , , Non-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 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 ,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, , , , Income tax expense (note 6(k)) 104, , , ,175 5 Consolidated net income 239, , , , Other 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, Other comprehensive income, net of tax (42,447) (2) (51,892) (3) (80,835) (2) (50,545) (1) Comprehensive income $ 197, , , , Net income attributable to: Owners of the parent $ 132, , , ,045 9 Non-controlling interests 107, , , ,534 4 $ 239, , , , Comprehensive income attributable to: Owners of the parent $ 92, , , ,370 8 Non-controlling interests 104, , , ,664 4 $ 197, , , , Basic earnings per common share (note 6(o)) $ Diluted earnings per common share (note 6(o)) $ See accompanying notes to consolidated financial statements.

6 Consolidated Statements of Changes in Stockholders Equity For the Six Months ended 2015 and (expressed in thousands of New Taiwan dollars) Stockholders equity attributable to Owners of the parent Common stock Capital surplus Legal reserve Retained earnings Total equity Accumulated attributable Special Unappropriated translation Treasury to Owners of reserve earnings adjustment stock the parent Non-controlling interests Total stockholders equity Balance as of January 1, $ 2,442, , , ,150 1,029,812 41,256 (151,065) 4,986, ,011 5,841,023 Retrospective application and retrospective restatement effects (4,098) - - (4,098) (1,791) (5,889) Balance after restatement 2,442, , , ,150 1,025,714 41,256 (151,065) 4,981, ,220 5,835,134 Retirement of treasury share (10,000) (13,310) , Appropriation of earnings: Provision of legal reserve ,756 - (38,756) Cash dividends (285,150) - - (285,150) - (285,150) Net income , , , ,579 Other comprehensive income (47,675) - (47,675) (2,870) (50,545) Total comprehensive income ,045 (47,675) - 287, , ,034 Share-based payment employee stock options - 1, ,514-1,514 Employee stock options exercised 1, ,438-2,438 Changes in the number of affiliates using equity method Changes in non-controlling interests (214,510) (214,510) Balance as of $ 2,434, , , ,150 1,036,853 (6,419) (127,755) 4,988, ,374 5,772,703 Balance as of January 1, 2015 $ 2,436, , , ,150 1,296, ,319 (247,383) 5,286, ,899 6,260,186 Retrospective application and retrospective restatement effects (3,221) - - (3,221) (2,530) (5,751) Balance after restatement $ 2,436, , , ,150 1,292, ,319 (247,383) 5,283, ,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, Subsidiaries purchase of treasury stock (66,534) (66,534) - (66,534) Appropriation of earnings: Provision of legal reserve ,708 - (59,708) Cash dividends (477,622) - - (477,622) - (477,622) Dividends received by subsidiaries - 15, ,400-15,400 Net income , , , ,481 Other comprehensive income (72,753) - (72,753) (8,082) (80,835) Total comprehensive income ,057 (72,753) - 212, , ,646 Share-based payment employee stock options Employee stock options exercised 1, ,489-2,489 Changes in the number of affiliates using equity method Changes in non-controlling interests (192,756) (192,756) Balance as of 2015 $ 2,388, , , ,150 1,028,234 67,566 (194,289) 4,928, ,955 5,870,200 See accompanying notes to consolidated financial statements.

7 Consolidated Statements of Cash Flows For the Six Months ended 2015 and (expressed in thousands of New Taiwan dollars) For the Six Months ended June Cash flows from operating activities: Income before income tax $ 636, ,754 Adjustments: Adjustments for the non-cash effects of items of incomes and expenses: Depreciation expense 152, ,360 Amortization expense 3,097 3,166 Bad debt expense 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 Total adjustments for the non-cash effects of items of incomes and expenses 165, ,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, ,994 Increase in other payable 109, ,841 Increase in product warranty obligations 1, Decrease in other current liabilities (1,029) (2,302) Increase in accrued pension liabilities Total net change in operating liabilities 254, ,252 Total net change in operating assets and liabilities (165,691) 32,322 Total adjustments (432) 207,879 Cash inflows from operating activities 636, ,633 Interest received 11,035 6,661 Income taxes paid (155,880) (135,416) Net cash provided by operating activities 491, ,878 Cash flows from investing activities: Disposal of financial assets carried at cost 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 See accompanying notes to consolidated financial statements.

8 TAIWAN SEMICONDUCTOR CO., LTD.AND SUBSIDIARIES Notes to Consolidated Financial Statements 2015 and (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 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, 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 The new standards and amendments which were announced by the International Accounting Standard Board ( IASB ) are as follows:

9 2 New standards and amendments 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) 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 IFRIC 20 Stripping costs in the production phase of a surface mine Effective date per IASB (Investment entities: January 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).

10 3 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, ; non-controlling interests decreased by $765, accrued pension liabilities decreased by $138, and retained earnings increased by $842 on December 31, ; operating expenses decreased by $35 and non-controlling interests increased by $26 for the twelve months ended December 31,.

11 4 (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 Amendments to IFRS 10 and IAS 28 Sales or Contributions of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10, IFRS 12 and IAS Investment Entities: Applying the Consolidation Exception Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations IFRS 14 Regulatory Deferral Accounts IFRS 15 Revenue from Contracts with Customers Amendments to IFRS 1 Disclosures for first-time adopters Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants Amendments to IAS 19 Employee contributions to.7.1 defined benefit plans Amendments to IAS 27 Equity Method in Separate Financial Statements Amendments to IAS 36 Recoverable Amount.1.1 Disclosures for Non-Financial Assets Amendments to IAS 39 Novation of Derivatives and.1.1 Continuation of Hedge Accounting Annual improvements and Cycles.7.1 Annual Improvements to IFRS Cycle IFRIC 21 Levies.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.

12 5 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,. For other related information, please refer to the consolidated financial statements for the year ended December 31,. The Group adopted the IFRSs 2013 endorsed by the FSC beginning in For related information, please refer to note 3(a). (b) Basis of Consolidation i) List of subsidiaries in the consolidated financial statements Name of investor Name of subsidiary Principal activity 2015 Shareholding December 31, The Company Ever Energetic Int'l Ltd. Holding company and general % % % (Ever Energetic) import and export business The Company Ever Winner Int'l Co., Ltd. Holding company and general % % % (Ever Winner) import and export business The Company Skyrise Int'l Ltd. (Skyrise) Holding company and general % % % import and export business The Company Taiwan Semiconductor General import and export business % % % Europe GmbH (TSCE) The Company Taiwan Semiconductor Trading of rectifiers % % % Japan Ltd. (TSCJ) The Company Taiwan Semiconductor Holding company and trading of 25.22% 25.22% 25.22% (H.K.) Co., Ltd. (TSCH) rectifiers The Company TSC Auto ID Technology Manufacture and sale of 36.88% 36.94% 37.06% Co., Ltd. (TSC Auto ID) bar code printers 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 % % %

13 6 Name of investor Name of subsidiary Principal activity 2015 Shareholding December 31, TSCH TSCH TSC Auto ID TSC Auto ID TSC Auto ID TSCAE TSCAE TSC HK Yangxin Everwell Electronic Co., Ltd. (Yangxin Everwell) Tianjin Everwell Technology Co., Ltd. (Tianjin Everwell) TSC Auto ID Technology EMEA GmbH (TSCAE) TSC Auto ID (H.K.) Ltd. (TSC HK) TSC Auto Technology America Inc. (TSCAA) TSC Auto ID Technology ME, Ltd. FZE (TSCAD) TSC Auto ID Technology Spain, S.L. (TSCAS) Tianjin TSC Auto ID Technology Co., Ltd. (TTSC) Manufacture and sale of rectifiers Manufacture and sale of wafers Trading of bar code printers and other parts Holding company and general import and export business Trading of bar code printers and other parts Trading of bar code printers and other parts Trading of bar code printers and other parts Manufacture and sale of bar code printers and other parts % % % % % % % % % % % % % % % % % % % % % % % % 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 oneoff 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.

14 7 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 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 annual consolidated financial statements. Pleases refer to the annual consolidated financial statements. (a) Cash and cash equivalents 2015 December 31, Cash on hand $ Checking and savings accounts 1,849,454 2,011,239 2,212,190 Time deposits 479, , ,633 Guaranteed deposit with short-term rate 220, , ,000 $ 2,549,827 2,554,950 2,599,473 (b) Financial instruments i) The financial instruments held by the Company were as follows: 2015 December 31, Current: Financial assets at fair value through profit or loss Open-end funds $ 440, , ,155 Forward exchange contracts 5, $ 446, , ,611

15 December 31, Current: Financial liabilities at fair value through profit or loss Forward exchange contracts $ 5,802 2,867 2,616 As for 2015 and June 30 and December 31,, 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): 2015 Contract amount Currency Contract period Selling/buying forward USD 14,000 /CNY 88,492 USD to CNY ~ Selling/buying forward EUR 2,350 /USD 2,580 EUR to USD ~ Selling/buying forward EUR 3,360 /USD 3,648 EUR to USD ~ Selling/buying forward USD 1,913 /TWD 59,332 USD to TWD ~ Selling/buying forward EUR 3,187 /TWD 110,471 EUR to TWD ~ December 31, Contract amount Currency Contract period Selling/buying forward USD 10,000 /CNY 61,897 USD to CNY ~ Selling/buying forward EUR 500 /USD 627 EUR to USD Contract amount Currency Contract period Selling/buying forward USD 8,000 /CNY 49,198 USD to CNY.07 Selling/buying forward CNY 12,452 /USD 2,000 CNY to USD.08 Selling/buying forward EUR 500 /TWD 20,876 EUR to TWD.04~.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.

16 9 (c) Notes and accounts receivable, net 2015 December 31, 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: 2015 December 31, 1~3 months overdue $ 187, , ,854 4~6 months overdue 3,044 27,283 5,175 7~9 months overdue 1, ~12 months overdue Over a year overdue 1,998 1,724 1,700 $ 193, , ,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 2015 $ 23,099

17 10 Collectively assessed impairment As of January 1, $ 20,102 Impairment loss recognized 302 Effect of movement in exchange rates (97) As of $ 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 2015 December 31, Finished goods $ 636, , ,348 Less: provision for obsolescence and devaluation (45,199) (46,706) (81,114) 591, , ,234 Work in process 247, , ,032 Less: provision for obsolescence and devaluation (20,875) (14,936) (28,099) 226, , ,933 Raw material and supplies 283, , ,898 Less: provision for obsolescence and devaluation (13,069) (17,538) (14,432) 270, , ,466 Inventories in transit 57, , ,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 2015 and, and from January 1 to 2015 and, 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, to, and for the six-month ended 2015 and, 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 As of 2015 and June 30 and December 31,, none of the inventories of the Group were pledged as collateral.

18 11 (e) The significant non-controlling interests of subsidiaries The subsidiaries non-controlling interests that have significant effect on the Group were as follows: Name of subsidiary Country Percentage of non-controlling interests on ownership interests and voting rights 2015 December 31, 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: 2015 December 31, Current assets $ 1,95,782 1,525,880 1,821,766 Non-current assets 911, , ,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, , ,374 For the Three Months Ended June 30 For the Six Months Ended June Sales revenue $ 745, ,678 1,315,791 1,177,953 Net income $ 169, , , ,065 Other comprehensive income (33,046) (5,874) (29,983) 39,901 Comprehensive income $ 136, , , ,966 Net income attributable to noncontrolling interests $ 107,168 77, , ,534 Comprehensive income attributable to non-controlling interests $ 104,532 73, , ,664

19 12 For the Three Months Ended June 30 For the Six Months Ended June Cash flows from operating activities $ 328, ,809 Cash 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, ,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, ,789 1,904 3,080,700 Balance at 2015 $ 478,532 1,194,447 1,005,898 66, ,789-3,065,493 Balance at January 1, $ 478,532 1,045,952 1,115,003 75, ,789-3,034,925 Balance at $ 478,532 1,022,657 1,071,043 68, ,789-2,960,605 i) For the six months ended 2015 and, 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, 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.

20 13 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 2015 and, 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, 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 2015 $ 53 17,809 17,862 Balance at January 1, $ 86 15,938 16,024 Balance at $ 74 17,151 17,225 For the six months ended 2015 and, 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, for other related information. (h) Long and short term borrowings i) Short term borrowings: 2015 December 31, Secured loans $ ,803 Credit loans 327, , ,785 $ 327, , ,588 Interest 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.

21 14 ii) Long term borrowings: Creditor Purpose 2015 December 31, (i) Lease KGI Bank Purchase of office $ - 94, ,500 Less: Current portion of long-term borrowings - (16,400) (16,400) $ - 77,900 86,100 Interest rate range (%) -% 1.72% 1.72% Please refer to note 8 for disclosures on mortgaged and pledged assets. For the six months ended 2015 and, 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, 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, and The Group s pension expenses recognized in profit or loss for the three months and six months ended 2015 and were as follows: For the Three Months Ended June 30 For the Six Months Ended June Cost of goods sold $ Selling expense Administrative expense Research and development expense $ ,390 1,235

22 15 ii) Defined contribution plans (k) Income tax 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 2015 and, 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 2015 and, respectively. i) The components of income tax expense for the three months and six months ended 2015 and was as follows: For the Three Months Ended June 30 For the Six Months Ended June Current tax expense: Current income tax $ 91,694 95, , ,993 Prior years income tax adjustment - (860) - (52) Deferred income tax: Recognition and reversal of temporary differences 12,503 14,225 (7,614) 36,234 Total $ 104, , , ,175 ii) As of 2015, the income tax returns of the Company and TSC Auto ID through the year 2012 have been examined by the National Tax Administration.

23 16 iii) Related information about the integrated income tax system is as follows: 2015 December 31, Unappropriated earnings of 1997 and before $ 150, , ,283 Unappropriated earnings of 1998 and after 877,951 1,142, ,570 $ 1,028,234 1,292,929 1,036,853 Balance of deductible tax account $ 102,567 65,841 63,142 (actual) 2013 (actual) Creditable ratio for earnings distribution to ROC residents % % The above information on the integrated income tax system is in accordance with the provision of Tai-Tsai-Shui No issued by the Ministry of Finance on October 17, 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, 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 and applications for stock options were submitted and a total of thousand and thousand ordinary shares were issued for the six months ended 2015 and, 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.

24 17 As of 2015, December 31,, and, 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 2015 December 31, Premium on shares issued above par value $ 407, , ,829 Conversion premium of convertible corporate bonds 409, , ,712 Treasury stock transactions 15,400 90,680 83,844 Employee stock options premium 12,657 11,541 10,479 Interest compensation payable on convertible corporate bonds 17,020 17,020 17,020 Employee stock options 8,831 8,769 7,876 Change in affiliates recognized under equity method 9,350 8,853 7,592 $ 880, , ,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.

25 18 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 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 2015 and. 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 firsttime 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, 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

26 19 months ended. 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, resolved to distribute earnings as dividends and as employee bonuses and directors remuneration for and 2013 as follows: 2013 Amount Total Amount per share Amount per share (dollars) (dollars) Total Amount Dividends distributed to common shareholders: Cash $ , ,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, 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 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.